G.R. Nos.

L-10837-38

May 30, 1958

ASSOCIATED INSURANCE and SURETY COMPANY, INC., plaintiff,

vs.
ISABEL IYA, ADRIANO VALINO and LUCIA VALINO, defendants.
ISABEL IYA, plaintiff,
vs.
ADRIANO VALINO, LUCIA VALINO and ASSOCIATED INSURANCE and SURETY COMPANY.
INC., defendants.
Jovita L. de Dios for defendant Isabel Iya.
M. Perez Cardenas and Apolonio Abola for defendant Associated Insurance and Surety Co.,
Inc.
FELIX, J.:
Adriano Valino and Lucia A. Valino, husband and wife, were the owners and possessors of a
house of strong materials constructed on Lot No. 3, Block No. 80 of the Grace Park
Subdivision in Caloocan, Rizal, which they purchased on installment basis from the
Philippine Realty Corporation. On November 6, 1951, to enable her to purchase on credit
rice from the NARIC, Lucia A. Valino filed a bond in the sum of P11,000.00 (AISCO Bond No.
G-971) subscribed by the Associated Insurance and Surety Co., Inc., and as counterguaranty therefor, the spouses Valino executed an alleged chattel mortgage on the
aforementioned house in favor of the surety company, which encumbrance was duly
registered with the Chattel Mortgage Register of Rizal on December 6, 1951. It is admitted
that at the time said undertaking took place, the parcel of land on which the house is
erected was still registered in the name of the Philippine Realty Corporation. Having
completed payment on the purchase price of the lot, the Valinos were able to

secure on October 18, 1958, a certificate of title in their name (T.C.T. No. 27884).
Subsequently, however, or on October 24, 1952, the Valinos, to secure payment of an
indebtedness in the amount of P12,000.00, executed a real estate mortgage over the lot
and the house in favor of Isabel Iya, which was duly registered and annotated at the back of
the certificate of title.
On the other hand, as Lucia A. Valino, failed to satisfy her obligation to the NARIC, the
surety company was compelled to pay the same pursuant to the undertaking of the bond.
In turn, the surety company demanded reimbursement from the spouses Valino, and as the
latter likewise failed to do so, the company foreclosed the chattel mortgage over the house.
As a result thereof, a public sale was conducted by the Provincial Sheriff of Rizal
on December 26, 1952, wherein the property was awarded to the surety company for
P8,000.00, the highest bid received therefor. The surety company then caused the said
house to be declared in its name for tax purposes (Tax Declaration No. 25128).
Sometime in July, 1953, the surety company learned of the existence of the real estate
mortgage over the lot covered by T.C.T. No. 26884 together with the improvements
thereon; thus, said surety company instituted Civil Case No. 2162 of the Court of First
Instance of Manila naming Adriano and Lucia Valino and Isabel Iya, the mortgagee, as
defendants. The complaint prayed for the exclusion of the residential house from the real
estate mortgage in favor of defendant Iya and the declaration and recognition of plaintiff's
right to ownership over the same in virtue of the award given by the Provincial Sheriff of
Rizal during the public auction held on December 26, 1952. Plaintiff likewise asked the
Court to sentence the spouses Valino to pay said surety moral and exemplary damages,
attorney's fees and costs. Defendant Isabel Iya filed her answer to the complaint alleging
among other things, that in virtue of the real estate mortgage executed by her codefendants, she acquired a real right over the lot and the house constructed thereon; that
the auction sale allegedly conducted by the Provincial Sheriff of Rizal as a result of the

foreclosure of the chattel mortgage on the house was null and void for non-compliance with
the form required by law. She, therefore, prayed for the dismissal of the complaint and
anullment of the sale made by the Provincial Sheriff. She also demanded the amount of
P5,000.00 from plaintiff as counterclaim, the sum of P5,000.00 from her co-defendants as
crossclaim, for attorney's fees and costs.
Defendants spouses in their answer admitted some of the averments of the complaint and
denied the others. They, however, prayed for the dismissal of the action for lack of cause of
action, it being alleged that plaintiff was already the owner of the house in question, and as
said defendants admitted this fact, the claim of the former was already satisfied.
On October 29, 1953, Isabel Iya filed another civil action against the Valinos and the surety
company (Civil Case No. 2504 of the Court of First Instance of Manila) stating that pursuant
to the contract of mortgage executed by the spouses Valino on October 24, 1952, the latter
undertook to pay a loan of P12,000.00 with interest at 12% per annum or P120.00 a month,
which indebtedness was payable in 4 years, extendible for only one year; that to secure
payment thereof, said defendants mortgaged the house and lot covered by T.C.T. No. 27884
located at No. 67 Baltazar St., Grace Park Subdivision, Caloocan, Rizal; that the Associated
Insurance and Surety Co., Inc., was included as a party defendant because it claimed to
have an interest on the residential house also covered by said mortgage; that it was
stipulated in the aforesaid real estate mortgage that default in the payment of the interest
agreed upon would entitle the mortgagee to foreclose the same even before the lapse of
the 4-year period; and as defendant spouses had allegedly failed to pay the interest for
more than 6 months, plaintiff prayed the Court to order said defendants to pay the sum of
P12,000.00 with interest thereon at 12% per annum from March 25, 1953, until fully paid;
for an additional sum equivalent to 20% of the total obligation as damages, and for costs.
As an alternative in case such demand may not be met and satisfied plaintiff prayed for a
decree of foreclosure of the land, building and other improvements thereon to be sold at

public auction and the proceeds thereof applied to satisfy the demands of plaintiff; that the
Valinos, the surety company and any other person claiming interest on the mortgaged
properties be barred and foreclosed of all rights, claims or equity of redemption in said
properties; and for deficiency judgment in case the proceeds of the sale of the mortgaged
property would be insufficient to satisfy the claim of plaintiff.
Defendant surety company, in answer to this complaint insisted on its right over the
building, arguing that as the lot on which the house was constructed did not belong to the
spouses at the time the chattel mortgage was executed, the house might be considered
only as a personal property and that the encumbrance thereof and the subsequent
foreclosure proceedings made pursuant to the provisions of the Chattel Mortgage Law were
proper and legal. Defendant therefore prayed that said building be excluded from the real
estate mortgage and its right over the same be declared superior to that of plaintiff, for
damages, attorney's fees and costs.
Taking side with the surety company, defendant spouses admitted the due execution of the
mortgage upon the land but assailed the allegation that the building was included thereon,
it being contended that it was already encumbered in favor of the surety company before
the real estate mortgage was executed, a fact made known to plaintiff during the
preparation of said contract and to which the latter offered no objection. As a special
defense, it was asserted that the action was premature because the contract was for a
period of 4 years, which had not yet elapsed.
The two cases were jointly heard upon agreement of the parties, who submitted the same
on a stipulation of facts, after which the Court rendered judgment dated March 8, 1956,
holding that the chattel mortgage in favor of the Associated Insurance and Surety Co., Inc.,
was preferred and superior over the real estate mortgage subsequently executed in favor
of Isabel Iya.

It was ruled that as the Valinos were not yet the registered owner of the land on which the
building in question was constructed at the time the first encumbrance was made, the
building then was still a personality and a chattel mortgage over the same was proper.
However, as the mortgagors were already the owner of the land at the time the contract
with Isabel Iya was entered into, the building was transformed into a real property and the
real estate mortgage created thereon was likewise adjudged as proper. It is to be noted in
this connection that there is no evidence on record to sustain the allegation of the spouses
Valino that at the time they mortgaged their house and lot to Isabel Iya, the latter was told
or knew that part of the mortgaged property, i.e., the house, had previously been
mortgaged to the surety company.
The residential building was, therefore, ordered excluded from the foreclosure prayed for by
Isabel Iya, although the latter could exercise the right of a junior encumbrance. So the
spouses Valino were ordered to pay the amount demanded by said mortgagee or in their
default to have the parcel of land subject of the mortgage sold at public auction for the
satisfaction of Iya's claim.
There is no question as to appellant's right over the land covered by the real estate
mortgage; however, as the building constructed thereon has been the subject of 2
mortgages;
controversy arise as to which of these encumbrances should receive preference over the
other. The decisive factor in resolving the issue presented by this appeal is the
determination of the nature of the structure litigated upon, for where it be considered a
personality, the foreclosure of the chattel mortgage and the subsequent sale thereof at
public auction, made in accordance with the Chattel Mortgage Law would be valid and the

right acquired by the surety company therefrom would certainly deserve prior recognition;
otherwise, appellant's claim for preference must be granted.
The lower Court, deciding in favor of the surety company, based its ruling on the premise
that as the mortgagors were not the owners of the land on which the building is erected at
the time the first encumbrance was made, said structure partook of the nature of a
personal property and could properly be the subject of a chattel mortgage. We find reason
to hold otherwise, for as this Court, defining the nature or character of a building, has said:
. . . while it is true that generally, real estate connotes the land and the building
constructed thereon, it is obvious that the inclusion of the building, separate and distinct
from the land, in the enumeration of what may constitute real properties (Art. 415, new
Civil Code) could only mean one thing that a building is byitself an immovable
property . . . Moreover, and in view of the absence of any specific provision to the
contrary, a building is an immovable property irrespective of whether or not said structure
and the land on which it is adhered to belong to the same owner. (Lopez vs. Orosa, G.R.
Nos. supra, p. 98).
A building certainly cannot be divested of its character of a realty by the fact that the land
on which it is constructed belongs to another. To hold it the other way, the possibility is not
remote that it would result in confusion, for to cloak the building with an uncertain status
made dependent on the ownership of the land, would create a situation where a permanent
fixture changes its nature or character as the ownership of the land changes hands. In the
case at bar, as personal properties could only be the subject of a chattel mortgage (Section
1, Act 3952) and as obviously the structure in question is not one, the execution of the
chattel mortgage covering said building is clearly invalid and a nullity. While it is true that
said document was correspondingly registered in the Chattel Mortgage Register of Rizal,
this act produced no effect whatsoever for where the interest conveyed is in the nature of a

real property, the registration of the document in the registry of chattels is merely a futile
act. Thus, the registration of the chattel mortgage of a building of strong materials produce
no effect as far as the building is concerned (Leung Yee vs. Strong Machinery Co., 37 Phil.,
644). Nor can we give any consideration to the contention of the surety that it has acquired
ownership over the property in question by reason of the sale conducted by the Provincial
Sheriff of Rizal, for as this Court has aptly pronounced:
A mortgage creditor who purchases real properties at an extrajudicial foreclosure sale
thereof by virtue of a chattel mortgage constituted in his favor, which mortgage has been
declared null and void with respect to said real properties, acquires no right thereto by
virtue of said sale (De la Riva vs. Ah Keo, 60 Phil., 899).
Wherefore the portion of the decision of the lower Court in these two cases appealed from
holding the rights of the surety company, over the building superior to that of Isabel Iya
and excluding the building from the foreclosure prayed for by the latter is reversed and
appellant Isabel Iya's right to foreclose not only the land but also the building
erected thereon is hereby recognized, and the proceeds of the sale thereof at
public auction (if the land has not yet been sold), shall be applied to the
unsatisfied judgment in favor of Isabel Iya. This decision however is without prejudice
to any right that the Associated Insurance and Surety Co., Inc., may have against the
spouses Adriano and Lucia Valino on account of the mortgage of said building they
executed in favor of said surety company. Without pronouncement as to costs. It is so
ordered.
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., and Endencia, JJ., concur.

2. G.R. No. L-11658

February 15, 1918

LEUNG YEE, plaintiff-appellant, vs. FRANK L. STRONG MACHINERY COMPANY and J. G.

WILLIAMSON, defendants-appellees.
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning machinery
company from the defendant machinery company, and executed a chattel mortgage
thereon to secure payment of the purchase price. It included in the mortgage deed the
building of strong materials in which the machinery was installed, without any reference to
the land on which it stood. The indebtedness secured by this instrument not having been
paid when it fell due, the mortgaged property was sold by the sheriff, in pursuance of the
terms of the mortgage instrument, and was bought in by the machinery company. The
mortgage was registered in the chattel mortgage registry, and the sale of the property to
the machinery company in satisfaction of the mortgage was annotated in the same registry
on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia Agricola
Filipina" executed a deed of sale of the land upon which the building stood to the
machinery company, but this deed of sale, although executed in a public document, was

not registered. This deed makes no reference to the building erected on the land and would
appear to have been executed for the purpose of curing any defects which might be found
to exist in the machinery company's title to the building under the sheriff's certificate of
sale. The machinery company went into possession of the building at or about the time
when this sale took place, that is to say, the month of December, 1913, and it has
continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery
company, the mortgagor, the "Compaia Agricola Filipina" executed another mortgage to
the plaintiff upon the building, separate and apart from the land on which it stood, to
secure payment of the balance of its indebtedness to the plaintiff under a contract for the
construction of the building. Upon the failure of the mortgagor to pay the amount of the
indebtedness secured by the mortgage, the plaintiff secured judgment for that amount,
levied execution upon the building, bought it in at the sheriff's sale on or about the 18th of
December, 1914, and had the sheriff's certificate of the sale duly registered in the land
registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery
company, which was in possession, filed with the sheriff a sworn statement setting up its
claim of title and demanding the release of the property from the levy. Thereafter, upon
demand of the sheriff, the plaintiff executed an indemnity bond in favor of the sheriff in the
sum of P12,000, in reliance upon which the sheriff sold the property at public auction to the
plaintiff, who was the highest bidder at the sheriff's sale.
This action was instituted by the plaintiff to recover possession of the building from the
machinery company.

The trial judge, relying upon the terms of article 1473 of the Civil Code, gave judgment in
favor of the machinery company, on the ground that the company had its title to the
building registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
If the same thing should have been sold to different vendees, the ownership shall be
transfer to the person who may have the first taken possession thereof in good faith, if it
should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in
the registry.
Should there be no entry, the property shall belong to the person who first took possession
of it in good faith, and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be
apparent that the annotation or inscription of a deed of sale of real property in a chattel
mortgage registry cannot be given the legal effect of an inscription in the registry of real
property. By its express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose and object of the
chattel mortgage registry is to provide for the registry of "Chattel mortgages," that is to
say, mortgages of personal property executed in the manner and form prescribed in the
statute. The building of strong materials in which the rice-cleaning machinery was installed
by the "Compaia Agricola Filipina" was real property, and the mere fact that the parties
seem to have dealt with it separate and apart from the land on which it stood in no wise
changed its character as real property. It follows that neither the original registry in the
chattel mortgage of the building and the machinery installed therein, not the annotation in

that registry of the sale of the mortgaged property, had any effect whatever so far as the
building was concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained on the
ground assigned by the trial judge. We are of opinion, however, that the judgment must be
sustained on the ground that the agreed statement of facts in the court below discloses
that neither the purchase of the building by the plaintiff nor his inscription of the sheriff's
certificate of sale in his favor was made in good faith, and that the machinery company
must be held to be the owner of the property under the third paragraph of the above cited
article of the code, it appearing that the company first took possession of the property; and
further, that the building and the land were sold to the machinery company long prior to
the date of the sheriff's sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require
"good faith," in express terms, in relation to "possession" and "title," but contain no express
requirement as to "good faith" in relation to the "inscription" of the property on the registry,
it must be presumed that good faith is not an essential requisite of registration in order that
it may have the effect contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the preferential right secured
under this article of the code upon an inscription of title in bad faith. Such an interpretation
placed upon the language of this section would open wide the door to fraud and collusion.
The public records cannot be converted into instruments of fraud and oppression by one
who secures an inscription therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of him who enters such inscription;
and rights created by statute, which are predicated upon an inscription in a public registry,
do not and cannot accrue under an inscription "in bad faith," to the benefit of the person
who thus makes the inscription.

Construing the second paragraph of this article of the code, the supreme court of Spain
held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith mentioned in the first
paragraph; therefore, it having been found that the second purchasers who record their
purchase had knowledge of the previous sale, the question is to be decided in accordance
with the following paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph, provides that the title of conveyance of
ownership of the real property that is first recorded in the registry shall have preference,
this provision must always be understood on the basis of the good faith mentioned in the
first paragraph; the legislator could not have wished to strike it out and to sanction bad
faith, just to comply with a mere formality which, in given cases, does not obtain even in
real disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the publishers
of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the
building at the sheriff's sale and inscribed his title in the land registry, was duly notified
that the machinery company had bought the building from plaintiff's judgment debtor; that
it had gone into possession long prior to the sheriff's sale; and that it was in possession at
the time when the sheriff executed his levy. The execution of an indemnity bond by the
plaintiff in favor of the sheriff, after the machinery company had filed its sworn claim of
ownership, leaves no room for doubt in this regard. Having bought in the building at the
sheriff's sale with full knowledge that at the time of the levy and sale the building had
already been sold to the machinery company by the judgment debtor, the plaintiff cannot
be said to have been a purchaser in good faith; and of course, the subsequent inscription of
the sheriff's certificate of title must be held to have been tainted with the same defect.

Perhaps we should make it clear that in holding that the inscription of the sheriff's
certificate of sale to the plaintiff was not made in good faith, we should not be understood
as questioning, in any way, the good faith and genuineness of the plaintiff's claim against
the "Compaia Agricola Filipina." The truth is that both the plaintiff and the defendant
company appear to have had just and righteous claims against their common debtor. No
criticism can properly be made of the exercise of the utmost diligence by the plaintiff in
asserting and exercising his right to recover the amount of his claim from the estate of the
common debtor. We are strongly inclined to believe that in procuring the levy of execution
upon the factory building and in buying it at the sheriff's sale, he considered that he was
doing no more than he had a right to do under all the circumstances, and it is highly
possible and even probable that he thought at that time that he would be able to maintain
his position in a contest with the machinery company. There was no collusion on his part
with the common debtor, and no thought of the perpetration of a fraud upon the rights of
another, in the ordinary sense of the word. He may have hoped, and doubtless he did hope,
that the title of the machinery company would not stand the test of an action in a court of
law; and if later developments had confirmed his unfounded hopes, no one could question
the legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of ownership
when he executed the indemnity bond and bought in the property at the sheriff's sale, and
it appearing further that the machinery company's claim of ownership was well founded, he
cannot be said to have been an innocent purchaser for value. He took the risk and must
stand by the consequences; and it is in this sense that we find that he was not a purchaser
in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his vendor
cannot claim that he has acquired title thereto in good faith as against the true owner of
the land or of an interest therein; and the same rule must be applied to one who has

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

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-50008 August 31, 1987
PRUDENTIAL BANK, petitioner,
vs.
HONORABLE DOMINGO D. PANIS, Presiding Judge of Branch III, Court of First Instance of
Zambales and Olongapo City; FERNANDO MAGCALE & TEODULA BALUYUTMAGCALE, respondents.

PARAS, J.:
This is a petition for review on certiorari of the November 13, 1978 Decision * of the then
Court of First Instance of Zambales and Olongapo City in Civil Case No. 2443-0 entitled
"Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y. Pardo and
Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent
spouses in favor of petitioner bank are null and void.
The undisputed facts of this case by stipulation of the parties are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale and Teodula Baluyut
Magcale secured a loan in the sum of P70,000.00 from the defendant Prudential Bank. To
secure payment of this loan, plaintiffs executed in favor of defendant on the aforesaid date
a deed of Real Estate Mortgage over the following described properties:

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

total floor area of 263 sq. meters, more or less, generally constructed of mixed hard wood
and concrete materials, under a roofing of cor. g. i. sheets; declared and assessed in the
name of FERNANDO MAGCALE under Tax Declaration No. 21109, issued by the Assessor of
Olongapo City with an assessed value of P35,290.00. This building is the only improvement
of the lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE includes the right of occupancy
on the lot where the above property is erected, and more particularly described and
bounded, as follows:
A first class residential land Identffied as Lot No. 720, (Ts-308, Olongapo Townsite
Subdivision) Ardoin Street, East Bajac-Bajac, Olongapo City, containing an area of 465 sq.
m. more or less, declared and assessed in the name of FERNANDO MAGCALE under Tax
Duration No. 19595 issued by the Assessor of Olongapo City with an assessed value of
P1,860.00; bounded on the
NORTH: By No. 6, Ardoin Street
SOUTH: By No. 2, Ardoin Street
EAST: By 37 Canda Street, and
WEST: By Ardoin Street.
All corners of the lot marked by conc. cylindrical monuments of the Bureau of Lands as
visible limits. ( Exhibit "A, " also Exhibit "1" for defendant).
Apart from the stipulations in the printed portion of the aforestated deed of mortgage,
there appears a rider typed at the bottom of the reverse side of the document under the
lists of the properties mortgaged which reads, as follows:

AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot applied for by the
Mortgagors as herein stated is released or issued by the Bureau of Lands, the Mortgagors
hereby authorize the Register of Deeds to hold the Registration of same until this Mortgage
is cancelled, or to annotate this encumbrance on the Title upon authority from the
Secretary of Agriculture and Natural Resources, which title with annotation, shall be
released in favor of the herein Mortgage.
From the aforequoted stipulation, it is obvious that the mortgagee (defendant Prudential
Bank) was at the outset aware of the fact that the mortgagors (plaintiffs) have already filed
a Miscellaneous Sales Application over the lot, possessory rights over which, were
mortgaged to it.
Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act 3344 with the
Registry of Deeds of Zambales on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from defendant Prudential Bank in the
sum of P20,000.00. To secure payment of this additional loan, plaintiffs executed in favor of
the said defendant another deed of Real Estate Mortgage over the same properties
previously mortgaged in Exhibit "A." (Exhibit "B;" also Exhibit "2" for defendant). This
second deed of Real Estate Mortgage was likewise registered with the Registry of Deeds,
this time in Olongapo City, on May 2,1973.
On April 24, 1973, the Secretary of Agriculture issued Miscellaneous Sales Patent No. 4776
over the parcel of land, possessory rights over which were mortgaged to defendant
Prudential Bank, in favor of plaintiffs. On the basis of the aforesaid Patent, and upon its
transcription in the Registration Book of the Province of Zambales, Original Certificate of
Title No. P-2554 was issued in the name of Plaintiff Fernando Magcale, by the Ex-Oficio
Register of Deeds of Zambales, on May 15, 1972.

For failure of plaintiffs to pay their obligation to defendant Bank after it became due, and
upon application of said defendant, the deeds of Real Estate Mortgage (Exhibits "A" and
"B") were extrajudicially foreclosed. Consequent to the foreclosure was the sale of the
properties therein mortgaged to defendant as the highest bidder in a public auction sale
conducted by the defendant City Sheriff on April 12, 1978 (Exhibit "E"). The auction sale
aforesaid was held despite written request from plaintiffs through counsel dated March 29,
1978, for the defendant City Sheriff to desist from going with the scheduled public auction
sale (Exhibit "D")." (Decision, Civil Case No. 2443-0, Rollo, pp. 29-31).
Respondent Court, in a Decision dated November 3, 1978 declared the deeds of Real Estate
Mortgage as null and void (Ibid., p. 35).
On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53),
opposed by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order
dated January 10, 1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of
merit. Hence, the instant petition (Ibid., pp. 5-28).
The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated
May 18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).
Thereafter, in the Resolution dated June 13, 1979, the petition was given due course and
the parties were required to submit simultaneously their respective memoranda. (Ibid., p.
114).
On July 18, 1979, petitioner filed its Memorandum (Ibid., pp. 116-144), while private
respondents filed their Memorandum on August 1, 1979 (Ibid., pp. 146-155).
In a Resolution dated August 10, 1979, this case was considered submitted for decision
(Ibid., P. 158).

In its Memorandum, petitioner raised the following issues:

1. WHETHER OR NOT THE DEEDS OF REAL ESTATE MORTGAGE ARE VALID; AND
2. WHETHER OR NOT THE SUPERVENING ISSUANCE IN FAVOR OF PRIVATE RESPONDENTS OF
MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972 UNDER ACT NO. 730 AND THE
COVERING ORIGINAL CERTIFICATE OF TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT
OF INVALIDATING THE DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner,
Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real estate mortgage can be
constituted on the building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the Philippines, this
Court ruled that, "it is obvious that the inclusion of "building" separate and distinct from the
land, in said provision of law can only mean that a building is by itself an immovable
property." (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958; Associated Inc. and Surety
Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would be still a
real estate mortgage for the building would still be considered immovable property even if
dealt with separately and apart from the land (Leung Yee vs. Strong Machinery Co., 37 Phil.
644). In the same manner, this Court has also established that possessory rights over said

properties before title is vested on the grantee, may be validly transferred or conveyed as
in a deed of mortgage (Vda. de Bautista vs. Marcos, 3 SCRA 438 [1961]).
Coming back to the case at bar, the records show, as aforestated that the original
mortgage deed on the 2-storey semi-concrete residential building with warehouse and on
the right of occupancy on the lot where the building was erected, was executed on
November 19, 1971 and registered under the provisions of Act 3344 with the Register of
Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776 on the
land was issued on April 24, 1972, on the basis of which OCT No. 2554 was issued in the
name of private respondent Fernando Magcale on May 15, 1972. It is therefore without
question that the original mortgage was executed before the issuance of the final patent
and before the government was divested of its title to the land, an event which takes effect
only on the issuance of the sales patent and its subsequent registration in the Office of the
Register of Deeds (Visayan Realty Inc. vs. Meer, 96 Phil. 515; Director of Lands vs. De Leon,
110 Phil. 28; Director of Lands vs. Jurado, L-14702, May 23, 1961; Pena "Law on Natural
Resources", p. 49). Under the foregoing considerations, it is evident that the mortgage
executed by private respondent on his own building which was erected on the land
belonging to the government is to all intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will
be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already
acquired under the Public Land Act, or any improvement thereon and therefore have no
application to the assailed mortgage in the case at bar which was executed before such
eventuality. Likewise, Section 2 of Republic Act No. 730, also a restriction appearing on the
face of private respondent's title has likewise no application in the instant case, despite its
reference to encumbrance or alienation before the patent is issued because it refers
specifically to encumbrance or alienation on the land itself and does not mention anything
regarding the improvements existing thereon.

But it is a different matter, as regards the second mortgage executed over the same
properties on May 2, 1973 for an additional loan of P20,000.00 which was registered with
the Registry of Deeds of Olongapo City on the same date. Relative thereto, it is evident that
such mortgage executed after the issuance of the sales patent and of the Original
Certificate of Title, falls squarely under the prohibitions stated in Sections 121, 122 and 124
of the Public Land Act and Section 2 of Republic Act 730, and is therefore null and void.
Petitioner points out that private respondents, after physically possessing the title for five
years, voluntarily surrendered the same to the bank in 1977 in order that the mortgaged
may be annotated, without requiring the bank to get the prior approval of the Ministry of
Natural Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the
annotation of said mortgage on their title.
However, the Court, in recently ruling on violations of Section 124 which refers to Sections
118, 120, 122 and 123 of Commonwealth Act 141, has held:
... Nonetheless, we apply our earlier rulings because we believe that as in pari delicto may
not be invoked to defeat the policy of the State neither may the doctrine of estoppel give a
validating effect to a void contract. Indeed, it is generally considered that as between
parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is
against public policy (19 Am. Jur. 802). It is not within the competence of any citizen to
barter away what public policy by law was to preserve (Gonzalo Puyat & Sons, Inc. vs. De
los Amas and Alino supra). ... (Arsenal vs. IAC, 143 SCRA 54 [1986]).
This pronouncement covers only the previous transaction already alluded to and does not
pass upon any new contract between the parties (Ibid), as in the case at bar. It should not
preclude new contracts that may be entered into between petitioner bank and private
respondents that are in accordance with the requirements of the law. After all, private
respondents themselves declare that they are not denying the legitimacy of their debts and

appear to be open to new negotiations under the law (Comment; Rollo, pp. 95-96). Any new
transaction, however, would be subject to whatever steps the Government may take for the
reversion of the land in its favor.
PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo
City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is
valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00
is null and void, without prejudice to any appropriate action the Government may take
against private respondents.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-40411

August 7, 1935

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

vs.
APRONIANO G. CASTILLO and DAVAO LIGHT & POWER CO., INC., defendants-appellees.
Arsenio Suazo and Jose L. Palma Gil and Pablo Lorenzo and Delfin Joven for appellant.
J.W. Ferrier for appellees.
MALCOLM, J.:

The issue in this case, as announced in the opening sentence of the decision in the trial
court and as set forth by counsel for the parties on appeal, involves the determination of
the nature of the properties described in the complaint. The trial judge found that those
properties were personal in nature, and as a consequence absolved the defendants from
the complaint, with costs against the plaintiff.
The Davao Saw Mill Co., Inc., is the holder of a lumber concession from the Government of
the Philippine Islands. It has operated a sawmill in the sitio of Maa, barrio of Tigatu,
municipality of Davao, Province of Davao. However, the land upon which the business was
conducted belonged to another person. On the land the sawmill company erected a
building which housed the machinery used by it. Some of the implements thus used were
clearly personal property, the conflict concerning machines which were placed and
mounted on foundations of cement. In the contract of lease between the sawmill company
and the owner of the land there appeared the following provision:
That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any amount
for said improvements and buildings; also, in the event the party of the second part should
leave or abandon the land leased before the time herein stipulated, the improvements and
buildings shall likewise pass to the ownership of the party of the first part as though the
time agreed upon had expired: Provided, however, That the machineries and accessories
are not included in the improvements which will pass to the party of the first part on the
expiration or abandonment of the land leased.
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the
Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of the
plaintiff in that action against the defendant in that action; a writ of execution issued

thereon, and the properties now in question were levied upon as personalty by the sheriff.
No third party claim was filed for such properties at the time of the sales thereof as is borne
out by the record made by the plaintiff herein. Indeed the bidder, which was the plaintiff in
that action, and the defendant herein having consummated the sale, proceeded to take
possession of the machinery and other properties described in the corresponding
certificates of sale executed in its favor by the sheriff of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co.,
Inc., has on a number of occasions treated the machinery as personal property by
executing chattel mortgages in favor of third persons. One of such persons is the appellee
by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code, real
property consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx

xxx

xxx

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

building or land for use in connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of such trade of industry.
Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the
legal doctrines flowing from the facts.
In the first place, it must again be pointed out that the appellant should have registered its
protest before or at the time of the sale of this property. It must further be pointed out that
while not conclusive, the characterization of the property as chattels by the appellant is

indicative of intention and impresses upon the property the character determined by the
parties. In this connection the decision of this court in the case of Standard Oil Co. of New
Yorkvs. Jaramillo ( [1923], 44 Phil., 630), whether obiter dicta or not, furnishes the key to
such a situation.
It is, however not necessary to spend overly must time in the resolution of this appeal on
side issues. It is machinery which is involved; moreover, machinery not intended by the
owner of any building or land for use in connection therewith, but intended by a lessee for
use in a building erected on the land by the latter to be returned to the lessee on the
expiration or abandonment of the lease.
A similar question arose in Puerto Rico, and on appeal being taken to the United States
Supreme Court, it was held that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant, but not when so
placed by a tenant, a usufructuary, or any person having only a temporary right, unless
such person acted as the agent of the owner. In the opinion written by Chief Justice White,
whose knowledge of the Civil Law is well known, it was in part said:
To determine this question involves fixing the nature and character of the property from the
point of view of the rights of Valdes and its nature and character from the point of view of
Nevers & Callaghan as a judgment creditor of the Altagracia Company and the rights
derived by them from the execution levied on the machinery placed by the corporation in
the plant. Following the Code Napoleon, the Porto Rican Code treats as immovable (real)
property, not only land and buildings, but also attributes immovability in some cases to
property of a movable nature, that is, personal property, because of the destination to
which it is applied. "Things," says section 334 of the Porto Rican Code, "may be immovable
either by their own nature or by their destination or the object to which they are
applicable." Numerous illustrations are given in the fifth subdivision of section 335, which is

as follows: "Machinery, vessels, instruments or implements intended by the owner of the

tenements for the industrial or works that they may carry on in any building or upon any
land and which tend directly to meet the needs of the said industry or works." (See
also Code Nap., articles 516, 518 et seq. to and inclusive of article 534, recapitulating the
things which, though in themselves movable, may be immobilized.) So far as the subjectmatter with which we are dealing machinery placed in the plant it is plain, both under
the provisions of the Porto Rican Law and of the Code Napoleon, that machinery which is
movable in its nature only becomes immobilized when placed in a plant by the owner of the
property or plant. Such result would not be accomplished, therefore, by the placing of
machinery in a plant by a tenant or a usufructuary or any person having only a temporary
right. (Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164; Laurent, Tit. 5,
No. 447; and decisions quoted in Fuzier-Herman ed. Code Napoleon under articles 522 et
seq.) The distinction rests, as pointed out by Demolombe, upon the fact that one only
having a temporary right to the possession or enjoyment of property is not presumed by
the law to have applied movable property belonging to him so as to deprive him of it by
causing it by an act of immobilization to become the property of another. It follows that
abstractly speaking the machinery put by the Altagracia Company in the plant belonging to
Sanchez did not lose its character of movable property and become immovable by
destination. But in the concrete immobilization took place because of the express
provisions of the lease under which the Altagracia held, since the lease in substance
required the putting in of improved machinery, deprived the tenant of any right to charge
against the lessor the cost such machinery, and it was expressly stipulated that the
machinery so put in should become a part of the plant belonging to the owner without
compensation to the lessee. Under such conditions the tenant in putting in the machinery
was acting but as the agent of the owner in compliance with the obligations resting upon
him, and the immobilization of the machinery which resulted arose in legal effect from the
act of the owner in giving by contract a permanent destination to the machinery.

xxx

xxx

xxx

The machinery levied upon by Nevers & Callaghan, that is, that which was placed in the
plant by the Altagracia Company, being, as regards Nevers & Callaghan, movable property,
it follows that they had the right to levy on it under the execution upon the judgment in
their favor, and the exercise of that right did not in a legal sense conflict with the claim of
Valdes, since as to him the property was a part of the realty which, as the result of his
obligations under the lease, he could not, for the purpose of collecting his debt, proceed
separately against. (Valdes vs. Central Altagracia [192], 225 U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed, the
costs of this instance to be paid by the appellant.

G.R. No. 120098

October 2, 2001

RUBY L. TSAI, petitioner,

vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R
VILLALUZ, respondents.
x---------------------------------------------------------x
[G.R. No. 120109. October 2, 2001.]
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.

QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No.
32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case
No. 89-48265. Also assailed is respondent court's resolution denying petitioners' motion for
reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three
million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications
(PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and
Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the
chattels located therein as enumerated in a schedule attached to the mortgage contract.
The pertinent portions of the Real and Chattel Mortgage are quoted below:
MORTGAGE
(REAL AND CHATTEL)
xxx

xxx

xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the
MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements
now existing or which may hereafter exist thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications
continued)
LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

Serial Numbers Size of Machines
xxx

xxx

xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx

xxx

xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx

xxx

xxx

D. Four (4) Winding Machines.

xxx

xxx

xxx

SCHEDULE "A"
I. TCT # 372097 - RIZAL
xxx

xxx

xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the abovementioned lot.
III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned
lot located at . . .
(a) Forty eight sets (48) Vayrow Knitting Machines . . .
(b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .
(e) Two (2) Winding Machines . . .
IV. Any and all replacements, substitutions, additions, increases and accretions to above
properties.
xxx

xxx

xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan
was secured by a Chattel Mortgage over personal properties enumerated in a list attached
thereto. These listed properties were similar to those listed in Annex A of the first mortgage
deed.
After April 23, 1979, the date of the execution of the second mortgage mentioned above,
EVERTEX purchased various machines and equipments.
On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings
docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City,
Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation
insolvent. All its assets were taken into the custody of the Insolvency Court, including the
collateral, real and personal, securing the two mortgages as abovementioned.
In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter
commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135,
otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted
in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A
Notice of Sheriff's Sale was issued on December 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBCom emerged
as the highest bidder and a Certificate of Sale was issued in its favor on the same date. On
December 23, 1982, another public auction was held and again, PBCom was the highest
bidder. The sheriff issued a Certificate of Sale on the same day.
On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in
it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for
P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai
for P9,000,000.00, including the contested machineries.
On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and
damages with the Regional Trial Court against PBCom, alleging inter alia that the
extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law.
EVERTEX claimed that no rights having been transmitted to PBCom over the assets of
insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and
should reconvey the assets.
Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the
contested properties, which were not included in the Real and Chattel Mortgage of
November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those
properties included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate
of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular
Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1
Heatset Equipment.
The RTC found that the lease and sale of said personal properties were irregular and illegal
because they were not duly foreclosed nor sold at the December 15, 1982 auction sale

since these were not included in the schedules attached to the mortgage contracts. The
trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the
defendants:
1. Ordering the annulment of the sale executed by defendant Philippine Bank of
Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the
personal properties listed in par. 9 of the complaint, and their return to the plaintiff
corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the
Insolvency Court, to be done within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P5,200,000.00 as compensation for the use and possession of the properties in question
from November 1986 to February 1991 and P100,000.00 every month thereafter, with
interest thereon at the legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P50,000.00 as and for attorney's fees and expenses of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of
P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its
decision dated August 31, 1994, the dispositive portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and
reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from
November 1986 until subject personal properties are restored to appellees, the judgment
appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the resolution of
April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A
CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS
CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND
CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE
DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE
MORTGAGE DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF
THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER
A PURCHASER IN BAD FAITH.
IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER

ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION FOR WANT OF
VALID FACTUAL AND LEGAL BASIS.
V
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST
PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6
In G.R. No. 120098, PBCom raised the following issues:
I.
DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER
PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975
DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY
EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED
THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL
FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE
BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER
TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?
II
CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH,
EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED
P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED
MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY
COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE

ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST

ENRICHMENT?7
The principal issue, in our view, is whether or not the inclusion of the questioned properties
in the foreclosed properties is proper. The secondary issue is whether or not the sale of
these properties to petitioner Ruby Tsai is valid.
For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties
by treating the 1981 acquired units of machinery as chattels instead of real properties
within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel
Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that the
disputed 1981 machineries are not real properties.9 Finally, she contends that the Court of
Appeals erred in holding against petitioner's arguments on prescription and laches10 and in
assessing petitioner actual damages, attorney's fees and expenses of litigation, for want of
valid factual and legal basis.11
Essentially, PBCom contends that respondent court erred in affirming the lower court's
judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and
could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals'
pronouncement that the pieces of machinery in question were personal properties have no
factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing
damages and attorney's fees against PBCom.
In opposition, private respondents argue that the controverted units of machinery are not
"real properties" but chattels, and, therefore, they were not part of the foreclosed real
properties, rendering the lease and the subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the petitions
devoid of merit and ought to be denied.

Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on
certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of
law, not of fact, unless the factual findings complained of are devoid of support by the
evidence on record or the assailed judgment is based on misapprehension of facts.13 This
rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court
of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of Appeals that
are decisive of the issues: (1) the "controverted machineries" are not covered by, or
included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the
pure Chattel Mortgage; (2) the said machineries were not included in the list of properties
appended to the Notice of Sale, and neither were they included in the Sheriff's Notice of
Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy,
bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso
facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion,
however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy.
We have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of the
contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary
indication. In the case at bar, both the trial and the appellate courts reached the same
finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and
equipment as chattels. The pertinent portion of respondent appellate court's ruling is
quoted below:
As stressed upon by appellees, appellant bank treated the machineries as chattels; never
as real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel

mortgage, militates against appellants' posture. It should be noted that the printed form
used by appellant bank was mainly for real estate mortgages. But reflective of the true
intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters,
immediately following the printed caption of mortgage, of the phrase "real and chattel." So
also, the "machineries and equipment" in the printed form of the bank had to be inserted in
the blank space of the printed contract and connected with the word "building" by
typewritten slash marks. Now, then, if the machineries in question were contemplated to be
included in the real estate mortgage, there would have been no necessity to ink a chattel
mortgage specifically mentioning as part III of Schedule A a listing of the machineries
covered thereby. It would have sufficed to list them as immovables in the Deed of Real
Estate Mortgage of the land and building involved.
As regards the 1979 contract, the intention of the parties is clear and beyond question. It
refers solely tochattels. The inventory list of the mortgaged properties is an itemization of
sixty-three (63) individually described machineries while the schedule listed only machines
and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16
In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated
by the evidence on record, we find no compelling reason to depart therefrom.
Too, assuming arguendo that the properties in question are immovable by nature, nothing
detracts the parties from treating it as chattels to secure an obligation under the principle
of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be
considered a personal property if there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is executed over it, as in the case at
bar.
In the instant case, the parties herein: (1) executed a contract styled as "Real Estate
Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their

intention is to treat all properties included therein as immovable, and (2) attached to the
said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken
together, evince the conclusion that the parties' intention is to treat these units of
machinery as chattels. A fortiori, the contested after-acquired properties, which are of the
same description as the units enumerated under the title "LIST OF MACHINERIES &
EQUIPMENT," must also be treated as chattels.
Accordingly, we find no reversible error in the respondent appellate court's ruling that
inasmuch as the subject mortgages were intended by the parties to involve chattels,
insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies,
which provides in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only
the property described therein and not like or substituted property thereafter acquired by
the mortgagor and placed in the same depository as the property originally mortgaged,
anything in the mortgage to the contrary notwithstanding."
And, since the disputed machineries were acquired in 1981 and could not have been
involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of
the Sheriff to include subject machineries with the properties enumerated in said chattel
mortgages.
As the auction sale of the subject properties to PBCom is void, no valid title passed in its
favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle
of nemo dat quod non habet, one cannot give what one does not have.17
Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is
a nullity, she is nevertheless a purchaser in good faith and for value who now has a better
right than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she
is not a purchaser in good faith. Well-settled is the rule that the person who asserts the
status of a purchaser in good faith and for value has the burden of proving such
assertion.18 Petitioner Tsai failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or before he
has notice of the claims or interest of some other person in the property.19 Records reveal,
however, that when Tsai purchased the controverted properties, she knew of respondent's
claim thereon. As borne out by the records, she received the letter of respondent's counsel,
apprising her of respondent's claim, dated February 27, 1987.20 She replied thereto on
March 9, 1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the
contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she
was not a purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers to sale of lands and not to
sale of properties situated therein. Likewise, the mere fact that the lot where the factory
and the disputed properties stand is in PBCom's name does not automatically make PBCom
the owner of everything found therein, especially in view of EVERTEX's letter to Tsai
enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We find no
cogent reason to disturb the consistent findings of both courts below that the case for the
reconveyance of the disputed properties was filed within the reglementary period. Here, in
our view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal
to heed EVERTEX's claim, respondent company immediately filed an action to recover

possession and ownership of the disputed properties. There is no evidence showing any
failure or neglect on its part, for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done earlier. The doctrine of
stale demands would apply only where by reason of the lapse of time, it would be
inequitable to allow a party to enforce his legal rights. Moreover, except for very strong
reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the
rights of an owner.22
As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary damages, and
attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the
unpaid rentals of the contested properties based on the testimony of John Chua, who
testified that the P100,000.00 was based on the accepted practice in banking and finance,
business and investments that the rental price must take into account the cost of money
used to buy them. The Court of Appeals did not give full credence to Chua's projection and
reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be
capable of proof but must actually be proven with reasonable degree of certainty, premised
upon competent proof or best evidence obtainable of the actual amount
thereof.23 However, the allegations of respondent company as to the amount of unrealized
rentals due them as actual damages remain mere assertions unsupported by documents
and other competent evidence. In determining actual damages, the court cannot rely on
mere assertions, speculations, conjectures or guesswork but must depend on competent
proof and on the best evidence obtainable regarding the actual amount of loss.24 However,

we are not prepared to disregard the following dispositions of the respondent appellate
court:
. . . In the award of actual damages under scrutiny, there is nothing on record warranting
the said award of P5,200,000.00, representing monthly rental income of P100,000.00 from
November 1986 to February 1991, and the additional award of P100,000.00 per month
thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh
(sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual
damages allegedly sustained by appellees, by way of unrealized rental income of subject
machineries and equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection based on what is
claimed to be a practice in business and industry. But such a testimony cannot serve as the
sole basis for assessing the actual damages complained of. What is more, there is no
showing that had appellant Tsai not taken possession of the machineries and equipments in
question, somebody was willing and ready to rent the same for P100,000.00 a month.
xxx

xxx

xxx

Then, too, even assuming arguendo that the said machineries and equipments could have
generated a rental income of P30,000.00 a month, as projected by witness Mamerto
Villaluz, the same would have been a gross income. Therefrom should be deducted or
removed, expenses for maintenance and repairs . . . Therefore, in the determination of the
actual damages or unrealized rental income sued upon, there is a good basis to calculate
that at least four months in a year, the machineries in dispute would have been idle due to
absence of a lessee or while being repaired. In the light of the foregoing rationalization and

computation, We believe that a net unrealized rental income of P20,000.00 a month, since
November 1986, is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of
Appeals deleted. But according to the CA, there was no clear showing that petitioners acted
malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a
requisite to award exemplary damages that the wrongful act must be accompanied by bad
faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent
manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted
properties despite her knowledge of EVERTEX's claim was oppressive and subjected the
already insolvent respondent to gross disadvantage. Petitioner PBCom also received the
same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act
of taking all the properties found in the factory of the financially handicapped respondent,
including those properties not covered by or included in the mortgages, is equally
oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an
award of exemplary damages is proper.
The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of
the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of
exemplary damages, their assessment being left to the discretion of the court in
accordance with the circumstances of each case.29 While the imposition of exemplary
damages is justified in this case, equity calls for its reduction. In Inhelder Corporation v.
Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we laid down the
rule that judicial discretion granted to the courts in the assessment of damages must
always be exercised with balanced restraint and measured objectivity. Thus, here the award
of exemplary damages by way of example for the public good should be reduced to
P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered when
exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's
fees and expenses of litigation is reasonable, given the circumstances in these cases.
WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of
Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine
Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally
Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the use
and possession of the properties in question from November 198631 until subject personal
properties are restored to respondent corporation; (2) P100,000.00 by way of exemplary
damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costs against
petitioners.
SO ORDERED.

10. Board of Assessment Appeals QC v MERALCO

Posted on June 22, 2013
Board of Assessment Appeals, Q.C. vs Meralco
10 SCRA 68
GR No. L-15334
January 31, 1964
FACTS
On November 15, 1955, the QC City Assessor declared the MERALCO's steel towers subject
to real property tax. After the denial of MERALCO's petition to cancel these declarations, an
appeal was taken to the QC Board of Assessment Appeals, which required respondent to

pay P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956.
MERALCO paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals (CTA) which rendered a decision ordering the cancellation of the said tax
declarations and the refunding to MERALCO by the QC City Treasurer of P11,651.86.
ISSUE
Are the steel towers or poles of the MERALCO considered real or personal properties?
HELD
Pole long, comparatively slender, usually cylindrical piece of wood, timber, object of metal
or the like; an upright standard to the top of which something is affixed or by which
something is supported.
MERALCO's steel supports consists of a framework of 4 steel bars/strips which are bound by
steel cross-arms atop of which are cross-arms supporting 5 high-voltage transmission wires,
and their sole function is to support/carry such wires. The exemption granted to poles as
quoted from Part II, Par.9 of respondent's franchise is determined by the use to which such
poles are dedicated.
It is evident that the word poles, as used in Act No. 484 and incorporated in the
petitioner's franchise, should not be given a restrictive and narrow interpretation, as to
defeat the very object for which the franchise was granted. The poles should be taken and
understood as part of MERALCO's electric power system for the conveyance of electric
current to its consumers.
Art. 415 of the NCC classifies the following as immovable property:
(1) Lands, buildings, roads and constructions of all kinds adhered to the soil;
xxx

(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;
xxx
(5) Machinery, receptacles, instruments or implements intended by the owner pf the
tenement for an industry ot 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;
Following these classifications, MERALCO's steel towers should be considered personal
property. It should be noted that the steel towers:
(a) are neither buildings or constructions adhered to the soil;
(b) are not attached to an immovable in a fixed manner they can be separated without
breaking the material or deterioration of the object;
are not machineries, receptacles or instruments, and even if they are, they are not
intended for an industry to be carried on in the premises.

11. G.R. No. L-47943 May 31, 1982

MANILA ELECTRIC COMPANY, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
BATANGAS and PROVINCIAL ASSESSOR OF BATANGAS, respondents.

AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks installed in 1969
by Manila Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from
Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound. They have a total
capacity of 566,000 barrels. They are used for storing fuel oil for Meralco's power plants.
According to Meralco, the storage tanks are made of steel plates welded and assembled on
the spot. Their bottoms rest on a foundation consisting of compacted earth as the
outermost layer, a sand pad as the intermediate layer and a two-inch thick bituminous
asphalt stratum as the top layer. The bottom of each tank is in contact with the asphalt
layer,
The steel sides of the tank are directly supported underneath by a circular wall made of
concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to
Meralco, the tank is not attached to its foundation. It is not anchored or welded to the
concrete circular wall. Its bottom plate is not attached to any part of the foundation by
bolts, screws or similar devices. The tank merely sits on its foundation. Each empty tank
can be floated by flooding its dike-inclosed location with water four feet deep. (pp. 29-30,
Rollo.)
On the other hand, according to the hearing commissioners of the Central Board of
Assessment Appeals, the area where the two tanks are located is enclosed with earthen
dikes with electric steel poles on top thereof and is divided into two parts as the site of
each tank. The foundation of the tanks is elevated from the remaining area. On both sides
of the earthen dikes are two separate concrete steps leading to the foundation of each
tank.

Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick.
Pipelines were installed on the sides of each tank and are connected to the pipelines of the
Manila Enterprises Industrial Corporation whose buildings and pumping station are near
Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the foundation
itself and the walls, dikes and steps, which are integral parts of the tanks, are affixed to the
land while the pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal
treasurer of Bauan, Batangas, on the basis of an assessment made by the provincial
assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period
from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The
Board required Meralco to pay the tax and penalties as a condition for entertaining its
appeal from the adverse decision of the Batangas board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro
M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of
Local Government and Community Development Jose Roo as members) in its decision
dated November 5, 1976 ruled that the tanks together with the foundation, walls, dikes,
steps, pipelines and other appurtenances constitute taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed
a motion for reconsideration which the Board denied in its resolution of November 25,
1977, a copy of which was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's
decision and resolution. It contends that the Board acted without jurisdiction and
committed a grave error of law in holding that its storage tanks are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds of real
property enumerated in article 415 of the Civil Code and, therefore, they cannot be
categorized as realty by nature, by incorporation, by destination nor by analogy. Stress is
laid on the fact that the tanks are not attached to the land and that they were placed on
leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on the classification
of property where strong divergent opinions are inevitable. The issue raised by Meralco has
to be resolved in the light of the provisions of the Assessment Law, Commonwealth Act No.
470, and the Real Property Tax Code, Presidential Decree No. 464 which took effect on June
1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically exempted in
section 3 thereof. This provision is reproduced with some modification in the Real Property
Tax Code which provides:
Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed and collected in
all provinces, cities and municipalities an annual ad valorem tax on real property, such as
land, buildings, machinery and other improvements affixed or attached to real property not
hereinafter specifically exempted.
The Code contains the following definition in its section 3:
k) Improvements is a valuable addition made to property or an amelioration in its
condition, amounting to more than mere repairs or replacement of waste, costing labor or
capital and intended to enhance its value, beauty or utility or to adapt it for new or further
purposes.

We hold that while the two storage tanks are not embedded in the land, they may,
nevertheless, be considered as improvements on the land, enhancing its utility and
rendering it useful to the oil industry. It is undeniable that the two tanks have been installed
with some degree of permanence as receptacles for the considerable quantities of oil
needed by Meralco for its operations.
Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs.
Atlantic City, 15 Atl. 2nd 271.
For purposes of taxation, the term "real property" may include things which should
generally be regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar
phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).
The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328,
wherein Meralco's steel towers were held not to be subject to realty tax, is not in point
because in that case the steel towers were regarded as poles and under its franchise
Meralco's poles are exempt from taxation. Moreover, the steel towers were not attached to
any land or building. They were removable from their metal frames.
Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116
Phil. 501, where the tools and equipment in the repair, carpentry and blacksmith shops of a
transportation company were held not subject to realty tax because they were personal
property.
WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are
affirmed. No costs.
SO ORDERED.

G.R. No. L-50466 May 31, 1982

CALTEX (PHILIPPINES) INC., petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF PASAY, respondents.

AQUINO, J.:
This case is about the realty tax on machinery and equipment installed by Caltex
(Philippines) Inc. in its gas stations located on leased land.
The machines and equipment consists of underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car
hoists, truck hoists, air compressors and tireflators. The city assessor described the said
equipment and machinery in this manner:
A gasoline service station is a piece of lot where a building or shed is erected, a water tank
if there is any is placed in one corner of the lot, car hoists are placed in an adjacent shed,
an air compressor is attached in the wall of the shed or at the concrete wall fence.
The controversial underground tank, depository of gasoline or crude oil, is dug deep about
six feet more or less, a few meters away from the shed. This is done to prevent
conflagration because gasoline and other combustible oil are very inflammable.
This underground tank is connected with a steel pipe to the gasoline pump and the gasoline
pump is commonly placed or constructed under the shed. The footing of the pump is a
cement pad and this cement pad is imbedded in the pavement under the shed, and
evidence that the gasoline underground tank is attached and connected to the shed or

building through the pipe to the pump and the pump is attached and affixed to the cement
pad and pavement covered by the roof of the building or shed.
The building or shed, the elevated water tank, the car hoist under a separate shed, the air
compressor, the underground gasoline tank, neon lights signboard, concrete fence and
pavement and the lot where they are all placed or erected, all of them used in the
pursuance of the gasoline service station business formed the entire gasoline servicestation.
As to whether the subject properties are attached and affixed to the tenement, it is clear
they are, for the tenement we consider in this particular case are (is) the pavement
covering the entire lot which was constructed by the owner of the gasoline station and the
improvement which holds all the properties under question, they are attached and affixed
to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station, as well as all the
improvements, machines, equipments and apparatus are allowed by Caltex (Philippines)
Inc. ...
The underground gasoline tank is attached to the shed by the steel pipe to the pump, so
with the water tank it is connected also by a steel pipe to the pavement, then to the
electric motor which electric motor is placed under the shed. So to say that the gasoline
pumps, water pumps and underground tanks are outside of the service station, and to
consider only the building as the service station is grossly erroneous. (pp. 58-60, Rollo).
The said machines and equipment are loaned by Caltex to gas station operators under an
appropriate lease agreement or receipt. It is stipulated in the lease contract that the
operators, upon demand, shall return to Caltex the machines and equipment in good
condition as when received, ordinary wear and tear excepted.

The lessor of the land, where the gas station is located, does not become the owner of the
machines and equipment installed therein. Caltex retains the ownership thereof during the
term of the lease.
The city assessor of Pasay City characterized the said items of gas station equipment and
machinery as taxable realty. The realty tax on said equipment amounts to P4,541.10
annually (p. 52, Rollo). The city board of tax appeals ruled that they are personalty. The
assessor appealed to the Central Board of Assessment Appeals.
The Board, which was composed of Secretary of Finance Cesar Virata as chairman, Acting
Secretary of Justice Catalino Macaraig, Jr. and Secretary of Local Government and
Community Development Jose Roo, held in its decision of June 3, 1977 that the said
machines and equipment are real property within the meaning of sections 3(k) & (m) and
38 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on June 1,
1974, and that the definitions of real property and personal property in articles 415 and
416 of the Civil Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad Santos took Macaraig's
place) in its resolution of January 12, 1978, denying Caltex's motion for reconsideration, a
copy of which was received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of
the Board's decision and for a declaration that t he said machines and equipment are
personal property not subject to realty tax (p. 16, Rollo).
The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate
jurisdiction over this case is not correct. When Republic act No. 1125 created the Tax Court
in 1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law
in providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or

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

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

condition, amounting to more than mere repairs or replacement of waste, costing labor or
capital and intended to enhance its value, beauty or utility or to adapt it for new or further
purposes.
m) Machinery shall embrace machines, mechanical contrivances, instruments,
appliances and apparatus attached to the real estate. It includes the physical facilities
available for production, as well as the installations and appurtenant service facilities,
together with all other equipment designed for or essential to its manufacturing, industrial
or agricultural purposes (See sec. 3[f], Assessment Law).
We hold that the said equipment and machinery, as appurtenances to the gas station
building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures
are necessary to the operation of the gas station, for without them the gas station would be
useless, and which have been attached or affixed permanently to the gas station site or
embedded therein, are taxable improvements and machinery within the meaning of the
Assessment Law and the Real Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature only becomes
immobilized when placed in a plant by the owner of the property or plant but not when so
placed by a tenant, a usufructuary, or any person having only a temporary right, unless
such person acted as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil 709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil Code regarding
machinery that becomes real property by destination. In the Davao Saw Mills case the
question was whether the machinery mounted on foundations of cement and installed by
the lessee on leased land should be regarded as real property forpurposes of execution of a
judgment against the lessee. The sheriff treated the machinery as personal property. This

Court sustained the sheriff's action. (Compare with Machinery & Engineering Supplies, Inc.
vs. Court of Appeals, 96 Phil. 70, where in a replevin case machinery was treated as realty).
Here, the question is whether the gas station equipment and machinery permanently
affixed by Caltex to its gas station and pavement (which are indubitably taxable realty)
should be subject to the realty tax. This question is different from the issue raised in
the Davao Saw Mill case.
Improvements on land are commonly taxed as realty even though for some purposes they
might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar
phenomenon to see things classed as real property for purposes of taxation which on
general principle might be considered personal property" (Standard Oil Co. of New York vs.
Jaramillo, 44 Phil. 630, 633).
This case is also easily distinguishable from Board of Assessment Appeals vs. Manila
Electric Co., 119 Phil. 328, where Meralco's steel towers were considered poles within the
meaning of paragraph 9 of its franchise which exempts its poles from taxation. The steel
towers were considered personalty because they were attached to square metal frames by
means of bolts and could be moved from place to place when unscrewed and dismantled.
Nor are Caltex's gas station equipment and machinery the same as tools and equipment in
the repair shop of a bus company which were held to be personal property not subject to
realty tax (Mindanao Bus Co. vs. City Assessor, 116 Phil. 501).
The Central Board of Assessment Appeals did not commit a grave abuse of discretion in
upholding the city assessor's is imposition of the realty tax on Caltex's gas station and
equipment.
WHEREFORE, the questioned decision and resolution of the Central Board of Assessment
Appeals are affirmed. The petition for certiorari is dismissed for lack of merit. No costs.

REPUBLIC OF THE PHILIPPINES,

G. R. No. 162322

Petitioner,
Present:

CARPIO, J., Chairperson,

- versus -

BRION,
PEREZ,
SERENO, and
REYES, JJ.

BANTIGUE POINT DEVELOPMENT

CORPORATION,

Promulgated:

Respondent.
March 14, 2012
x - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
SERENO, J.:

This Rule 45 Petition requires this Court to address the issue of the proper scope of the
delegated jurisdiction of municipal trial courts in land registration cases. Petitioner Republic
of the Philippines (Republic) assails the Decision of the Court of Appeals (CA)[1] in CA-G.R.
CV No. 70349, which affirmed the Decision of the Municipal Trial Court (MTC) of San Juan,
Batangas[2] in LRC Case No. N-98-20, LRA Record No. 68329, granting respondent Bantigue
Point Development Corporations (Corporation) application for original registration of a
parcel of land. Since only questions of law have been raised, petitioner need not have filed
a Motion for Reconsideration of the assailed CA Decision before filing this Petition for
Review.
The Facts
On 17 July 1997, respondent Bantigue Point Development Corporation filed with the
Regional Trial Court (RTC) of Rosario, Batangas an application for original registration of title
over a parcel of land with an assessed value of 4,330, 1,920 and 8,670, or a total
assessed value of 14,920 for the entire property, more particularly described as Lot 8060
of Cad 453-D, San Juan Cadastre, with an area of more or less 10,732 square meters,
located at Barangay Barualte, San Juan, Batangas. [3]
On 18 July 1997, the RTC issued an Order setting the case for initial hearing on 22 October
1997.[4] On 7 August 1997, it issued a second Order setting the initial hearing on 4
November 1997.[5]
Petitioner Republic filed its Opposition to the application for registration on 8 January 1998
while the records were still with the RTC.[6]

On 31 March 1998, the RTC Clerk of Court transmitted motu proprio the records of the case
to the MTC of San Juan, because the assessed value of the property was allegedly less
than 100,000.[7]
Thereafter, the MTC entered an Order of General Default[8] and commenced with the
reception of evidence.[9] Among the documents presented by respondent in support of its
application are Tax Declarations,[10] a Deed of Absolute Sale in its favor,[11] and a
Certification from the Department of Environment and Natural Resources (DENR)
Community Environment and Natural Resources Office (CENRO) of Batangas City that the
lot in question is within the alienable and disposable zone.[12] Thereafter, it awarded the
land to respondent Corporation.[13]
Acting on an appeal filed by the Republic,[14] the CA ruled that since the former had
actively participated in the proceedings before the lower court, but failed to raise the
jurisdictional challenge therein, petitioner is thereby estopped from questioning the
jurisdiction of the lower court on appeal.[15] The CA further found that respondent
Corporation had sufficiently established the latters registrable title over the subject
property after having proven open, continuous, exclusive and notorious possession and
occupation of the subject land by itself and its predecessors-in-interest even before the
outbreak of World War II.[16]
Dissatisfied with the CAs ruling, petitioner Republic filed this instant Rule 45 Petition and
raised the following arguments in support of its appeal:

I.

THE REPUBLIC CANNOT BE ESTOPPED FROM QUESTIONING THE JURISDICTION OF THE

MUNICIPAL TRIAL COURT OVER THE APPLICATION FOR ORIGINAL REGISTRATION OF LAND
TITLE EVEN FOR THE FIRST TIME ON APPEAL

II.

THE MUNICIPAL TRIAL COURT FAILED TO ACQUIRE JURISDICTION OVER THE APPLICATION
FOR ORIGINAL REGISTRATION OF LAND TITLE.[17]

The Courts Ruling

We uphold the jurisdiction of the MTC, but remand the case to the court a quo for further
proceedings in order to determine if the property in question forms part of the alienable
and disposable land of the public domain.
I
The Republic is not estopped from raising the issue of jurisdiction in this case.
At the outset, we rule that petitioner Republic is not estopped from questioning the
jurisdiction of the lower court, even if the former raised the jurisdictional question only on
appeal. The rule is settled that lack of jurisdiction over the subject matter may be raised at
any stage of the proceedings.[18] Jurisdiction over the subject matter is conferred only by
the Constitution or the law.[19] It cannot be acquired through a waiver or enlarged by the

omission of the parties or conferred by the acquiescence of the court.[20] Consequently,

questions of jurisdiction may be cognizable even if raised for the first time on appeal.[21]
The ruling of the Court of Appeals that a party may be estopped from raising such
[jurisdictional] question if he has actively taken part in the very proceeding which he
questions, belatedly objecting to the courts jurisdiction in the event that the judgment or
order subsequently rendered is adverse to him[22] is based on the doctrine of estoppel by
laches. We are aware of that doctrine first enunciated by this Court in Tijam v. Sibonghanoy.
[23] In Tijam, the party-litigant actively participated in the proceedings before the lower
court and filed pleadings therein. Only 15 years thereafter, and after receiving an adverse
Decision on the merits from the appellate court, did the party-litigant question the lower
courts jurisdiction. Considering the unique facts in that case, we held that estoppel by
laches had already precluded the party-litigant from raising the question of lack of
jurisdiction on appeal. In Figueroa v. People,[24] we cautioned that Tijam must be construed
as an exception to the general rule and applied only in the most exceptional cases whose
factual milieu is similar to that in the latter case.
The facts are starkly different in this case, making the exceptional rule
in Tijam inapplicable. Here, petitioner Republic filed its Opposition to the application for
registration when the records were still with the RTC.[25] At that point, petitioner could not
have questioned the delegated jurisdiction of the MTC, simply because the case was not yet
with that court. When the records were transferred to the MTC, petitioner neither filed
pleadings nor requested affirmative relief from that court. On appeal, petitioner
immediately raised the jurisdictional question in its Brief.[26] Clearly, the exceptional
doctrine of estoppel by laches is inapplicable to the instant appeal.
Laches has been defined as the failure or neglect, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have been

done earlier; it is negligence or omission to assert a right within a reasonable time,

warranting the presumption that the party entitled to assert it either has abandoned or
declined to assert it.[27] In this case, petitioner Republic has not displayed such
unreasonable failure or neglect that would lead us to conclude that it has abandoned or
declined to assert its right to question the lower court's jurisdiction.

II
The Municipal Trial Court properly acquired jurisdiction over the case.
In assailing the jurisdiction of the lower courts, petitioner Republic raised two points of
contention: (a) the period for setting the date and hour of the initial hearing; and (b) the
value of the land to be registered.

First, petitioner argued that the lower court failed to acquire jurisdiction over the
application, because the RTC set the date and hour of the initial hearing beyond the 90-day
period provided under the Property Registration Decree.[28]
We disagree.

The Property Registration Decree provides:

Sec. 23. Notice of initial hearing, publication, etc. - The court shall, within five days from
filing of the application, issue an order setting the date and hour of the initial hearing which

shall not be earlier than forty-five days nor later than ninety days from the date of the
order. x x x.

In this case, the application for original registration was filed on 17 July 1997.[29] On 18
July 1997, or a day after the filing of the application, the RTC immediately issued an Order
setting the case for initial hearing on 22 October 1997, which was 96 days from the Order.
[30] While the date set by the RTC was beyond the 90-day period provided for in
Section 23, this fact did not affect the jurisdiction of the trial court. In Republic v. Manna
Properties, Inc.,[31] petitioner Republic therein contended that there was failure to comply
with the jurisdictional requirements for original registration, because there were 125 days
between the Order setting the date of the initial hearing and the initial hearing itself. We
ruled that the lapse of time between the issuance of the Order setting the date of initial
hearing and the date of the initial hearing itself was not fatal to the application. Thus, we
held:
x x x [A] party to an action has no control over the Administrator or the Clerk of Court
acting as a land court; he has no right to meddle unduly with the business of such official in
the performance of his duties. A party cannot intervene in matters within the exclusive
power of the trial court. No fault is attributable to such party if the trial court errs on
matters within its sole power. It is unfair to punish an applicant for an act or omission over
which the applicant has neither responsibility nor control, especially if the applicant has
complied with all the requirements of the law.[32]

Indeed, it would be the height of injustice to penalize respondent Corporation by dismissing

its application for registration on account of events beyond its control.

Moreover, since the RTC issued a second Order on 7 August 1997 setting the initial hearing
on 4 November 1997,[33] within the 90-day period provided by law, petitioner Republic
argued that the jurisdictional defect was still not cured, as the second Order was issued
more than five days from the filing of the application, again contrary to the prescribed
period under the Property Registration Decree.[34]
Petitioner is incorrect.
The RTCs failure to issue the Order setting the date and hour of the initial hearing within
five days from the filing of the application for registration, as provided in the Property
Registration Decree, did not affect the courts its jurisdiction. Observance of the five-day
period was merely directory, and failure to issue the Order within that period did not
deprive the RTC of its jurisdiction over the case. To rule that compliance with the five-day
period is mandatory would make jurisdiction over the subject matter dependent upon the
trial court. Jurisdiction over the subject matter is conferred only by the Constitution or the
law.[35] It cannot be contingent upon the action or inaction of the court.
This does not mean that courts may disregard the statutory periods with impunity. We
cannot assume that the law deliberately meant the provision to become meaningless and
to be treated as a dead letter.[36] However, the records of this case do not show such
blatant disregard for the law. In fact, the RTC immediately set the case for initial hearing a
day after the filing of the application for registration,[37] except that it had to issue a
second Order because the initial hearing had been set beyond the 90-day period provided
by law.
Second, petitioner contended[38] that since the selling price of the property based on the
Deed of Sale annexed to respondents application for original registration was 160,000,
[39] the MTC did not have jurisdiction over the case. Under Section 34 of the Judiciary

Reorganization Act, as amended,[40] the MTCs delegated jurisdiction to try cadastral and
land registration cases is limited to lands, the value of which should not exceed 100,000.
We are not persuaded.
The delegated jurisdiction of the MTC over cadastral and land registration cases is indeed
set forth in the Judiciary Reorganization Act, which provides:
Sec. 34. Delegated Jurisdiction in Cadastral and Land Registration Cases. - Metropolitan Trial
Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts may be assigned by the
Supreme Court to hear and determine cadastral or land registration cases covering lots
where there is no controversy or opposition, or contested lots where the value of which
does not exceed One hundred thousand pesos (100,000.00), such value to be ascertained
by the affidavit of the claimant or by agreement of the respective claimants if there are
more than one, or from the corresponding tax declaration of the real property. Their
decision in these cases shall be appealable in the same manner as decisions of the
Regional Trial Courts. (As amended by R.A. No. 7691) (Emphasis supplied.)
Thus, the MTC has delegated jurisdiction in cadastral and land registration cases in two
instances: first, where there is no controversy or opposition; or, second, over contested
lots, the value of which does not exceed 100,000.

The case at bar does not fall under the first instance, because petitioner opposed
respondent Corporations application for registration on 8 January 1998.[41]
However, the MTC had jurisdiction under the second instance, because the value of the lot
in this case does not exceed 100,000.

Contrary to petitioners contention, the value of the land should not be determined with
reference to its selling price. Rather, Section 34 of the Judiciary Reorganization Act provides
that the value of the property sought to be registered may be ascertained in three
ways: first, by the affidavit of the claimant; second, by agreement of the respective
claimants, if there are more than one; or, third, from the corresponding tax declaration of
the real property.[42]
In this case, the value of the property cannot be determined using the first method,
because the records are bereft of any affidavit executed by respondent as to the value of
the property. Likewise, valuation cannot be done through the second method, because this
method finds application only where there are multiple claimants who agree on and make a
joint submission as to the value of the property. Here, only respondent Bantigue Point
Development Corporation claims the property.
The value of the property must therefore be ascertained with reference to the
corresponding Tax Declarations submitted by respondent Corporation together with its
application for registration. From the records, we find that the assessed value of the
property is 4,330, 1,920 and 8,670, or a total assessed value of 14,920 for the entire
property.[43] Based on these Tax Declarations, it is evident that the total value of the land
in question does not exceed 100,000. Clearly, the MTC may exercise its delegated
jurisdiction under the Judiciary Reorganization Act, as amended.
III
A certification from the CENRO is not sufficient proof that the property in question is
alienable and disposable land of the public domain.

Even as we affirm the propriety of the MTCs exercise of its delegated jurisdiction, we find
that the lower court erred in granting respondent Corporations application for original
registration in the absence of sufficient proof that the property in question was alienable
and disposable land of the public domain.
The Regalian doctrine dictates that all lands of the public domain belong to the State.
[44] The applicant for land registration has the burden of overcoming the presumption of
State ownership by establishing through incontrovertible evidence that the land sought to
be registered is alienable or disposable based on a positive act of the government.[45] We
held in Republic v. T.A.N. Properties, Inc. that a CENRO certification is insufficient to prove
the alienable and disposable character of the land sought to be registered.[46] The
applicant must also show sufficient proof that the DENR Secretary has approved the land
classification and released the land in question as alienable and disposable.[47]
Thus, the present rule is that an application for original registration must be accompanied
by (1) a CENRO or PENRO[48] Certification; and (2) 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.[49]

Here, respondent Corporation only presented a CENRO certification in support of its

application.[50] Clearly, this falls short of the requirements for original registration.
We therefore remand this case to the court a quo for reception of further evidence to prove
that the property in question forms part of the alienable and disposable land of the public
domain. If respondent Bantigue Point Development Corporation presents a certified true
copy of the original classification approved by the DENR Secretary, the application for
original registration should be granted. If it fails to present sufficient proof that the land in

question is alienable and disposable based on a positive act of the government, the
application should be denied.
WHEREFORE, premises considered, the instant Petition for Review is DENIED. Let this case
be REMANDED to the Municipal Trial Court of San Juan, Batangas, for reception of evidence
to prove that the property sought to be registered is alienable and disposable land of the
public domain.
SO ORDERED.
Republic of the Philippines
Supreme Court
Manila

DENR v YAP

AT stake in these consolidated cases is the right of the present occupants

of Boracay Island to secure titles over their occupied lands.

There are two consolidated petitions. The first is G.R. No. 167707, a petition for review
on certiorari of the Decision[1] of the Court of Appeals (CA) affirming that[2] of the Regional
Trial Court (RTC) in Kalibo, Aklan, which granted the petition for declaratory relief filed by
respondents-claimants Mayor Jose Yap, et al. and ordered the survey of Boracay for titling
purposes. The second is G.R. No. 173775, a petition for prohibition, mandamus, and

nullification of Proclamation No. 1064[3] issued by President Gloria Macapagal-Arroyo

classifying Boracay into reserved forest and agricultural land.

The Antecedents

G.R. No. 167707

Boracay Island in the Municipality of Malay, Aklan, with its powdery white sand beaches and
warm crystalline waters, is reputedly a premier Philippine tourist destination. The island is
also home to 12,003 inhabitants[4] who live in the bone-shaped islands three barangays.[5]

On April 14, 1976, the Department of Environment and Natural Resources (DENR)
approved the National Reservation Survey of Boracay
Island,[6] which identified several lots as being occupied or claimed by named persons.[7]

On November 10, 1978, then President Ferdinand Marcos issued Proclamation

No. 1801[8] declaring Boracay Island, among other islands, caves and peninsulas in
the Philippines, as tourist zones and marine reserves under the administration of the
Philippine Tourism Authority (PTA). President Marcos later approved the issuance
of PTA Circular 3-82[9] dated September 3, 1982, to implement Proclamation No. 1801.

Claiming that Proclamation No. 1801 and PTA Circular No 3-82 precluded them from filing
an application for judicial confirmation of imperfect title or survey of land for titling
purposes, respondents-claimants Mayor Jose S. Yap, Jr., Libertad Talapian, Mila Y. Sumndad,
and Aniceto Yap filed a petition for declaratory relief with the RTC in Kalibo, Aklan.

In their petition, respondents-claimants alleged that Proclamation No. 1801

and PTA Circular No. 3-82 raised doubts on their right to secure titles over their occupied
lands. They declared that they themselves, or through their predecessors-in-interest, had
been in open, continuous, exclusive, and notorious possession and occupation in Boracay
since June 12, 1945, or earlier since time immemorial. They declared their lands for tax
purposes and paid realty taxes on them.[10]

Respondents-claimants posited that Proclamation No. 1801 and its implementing Circular
did not place Boracay beyond the commerce of man. Since the Islandwas classified as a
tourist zone, it was susceptible of private ownership. Under Section 48(b) of Commonwealth
Act (CA) No. 141, otherwise known as the Public Land Act, they had the right to have the
lots registered in their names through judicial confirmation of imperfect titles.

The Republic, through the Office of the Solicitor General (OSG), opposed the petition for
declaratory relief. The OSG countered that Boracay Island was anunclassified land of the
public domain. It formed part of the mass of lands classified as public forest, which was not

available for disposition pursuant to Section 3(a) of Presidential Decree (PD) No. 705 or the
Revised Forestry Code,[11] as amended.

The OSG maintained that respondents-claimants reliance on PD No. 1801 and PTA Circular
No. 3-82 was misplaced. Their right to judicial confirmation of title was governed by CA No.
141 and PD No. 705. Since Boracay Island had not been classified as alienable and
disposable, whatever possession they had cannot ripen into ownership.

During pre-trial, respondents-claimants and the OSG stipulated on the following facts: (1)
respondents-claimants were presently in possession of parcels of land in Boracay Island; (2)
these parcels of land were planted with coconut trees and other natural growing trees; (3)
the coconut trees had heights of more or less twenty (20) meters and were planted more or
less fifty (50) years ago; and (4) respondents-claimants declared the land they were
occupying for tax purposes.[12]

The parties also agreed that the principal issue for resolution was purely legal: whether
Proclamation No. 1801 posed any legal hindrance or impediment to the titling of the lands
in Boracay. They decided to forego with the trial and to submit the case for resolution upon
submission of their respective memoranda.[13]

The RTC took judicial notice[14] that certain parcels of land in Boracay Island, more
particularly Lots 1 and 30, Plan PSU-5344, were covered by Original Certificate of Title No.
19502 (RO 2222) in the name of the Heirs of Ciriaco S. Tirol. These lots were involved in

Civil Case Nos. 5222 and 5262 filed before the RTCof Kalibo, Aklan.
[15] The titles were issued on
August 7, 1933.[16]

RTC and CA Dispositions

On July 14, 1999, the RTC rendered a decision in favor of respondents-claimants, with
a fallo reading:

WHEREFORE, in view of the foregoing, the Court declares that Proclamation No. 1801
and PTA Circular No. 3-82 pose no legal obstacle to the petitioners and those similarly
situated to acquire title to their lands in Boracay, in accordance with the applicable laws
and in the manner prescribed therein; and to have their lands surveyed and approved by
respondent Regional Technical Director of Lands as the approved survey does not in itself
constitute a title to the land.

SO ORDERED.[17]

The RTC upheld respondents-claimants right to have their occupied lands titled in their
name. It ruled that neither Proclamation No. 1801 nor PTA Circular No. 3-82 mentioned that
lands in Boracay were inalienable or could not be the subject of disposition.[18] The

Circular itself recognized private ownership of lands.[19] The trial court cited Sections
87[20] and 53[21] of the Public Land Act as basis for acknowledging private ownership of
lands in Boracay and that only those forested areas in public lands were declared as part of
the forest reserve.[22]

The OSG moved for reconsideration but its motion was denied.[23] The Republic then
appealed to the CA.

On December 9, 2004, the appellate court affirmed in toto the RTC decision, disposing as
follows:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us

DENYING the appeal filed in this case and AFFIRMING the decision of the lower court.[24]

The CA held that respondents-claimants could not be prejudiced by a declaration that the
lands they occupied since time immemorial were part of a forest reserve.

Again, the OSG sought reconsideration but it was similarly denied.[25] Hence, the present
petition under Rule 45.

G.R. No. 173775

On May 22, 2006, during the pendency of G.R. No. 167707, President Gloria MacapagalArroyo issued Proclamation No. 1064[26] classifying Boracay Island into four hundred (400)
hectares of reserved forest land (protection purposes) and six hundred twenty-eight and
96/100 (628.96) hectares of agricultural land (alienable and disposable). The Proclamation
likewise provided for a fifteen-meter buffer zone on each side of the centerline of roads and
trails, reserved for right-of-way and which shall form part of the area reserved for forest
land protection purposes.

On August 10, 2006, petitioners-claimants Dr. Orlando Sacay,[27] Wilfredo Gelito,[28] and
other landowners[29] in Boracay filed with this Court an original petition for prohibition,
mandamus, and nullification of Proclamation No. 1064.[30] They allege that the
Proclamation infringed on their prior vested rights over portions of Boracay. They have been
in continued possession of their respective lots in Boracay since time immemorial. They
have also invested billions of pesos in developing their lands and building internationally
renowned first class resorts on their lots.[31]

Petitioners-claimants contended that there is no need for a proclamation reclassifying

Boracay into agricultural land. Being classified as neither mineral nor timber land, the
island is deemed agricultural pursuant to the Philippine Bill of 1902 and Act No. 926, known

as the first Public Land Act.[32] Thus, their possession in the concept of owner for the
required period entitled them to judicial confirmation of imperfect title.

Opposing the petition, the OSG argued that petitioners-claimants do not have a vested
right over their occupied portions in the island. Boracay is an unclassified public forest land
pursuant to Section 3(a) of PD No. 705. Being public forest, the claimed portions of the
island are inalienable and cannot be the subject of judicial confirmation of imperfect title. It
is only the executive department, not the courts, which has authority to reclassify lands of
the public domain into alienable and disposable lands. There is a need for a positive
government act in order to release the lots for disposition.

On November 21, 2006, this Court ordered the consolidation of the two petitions as they
principally involve the same issues on the land classification of BoracayIsland.[33]

Issues
G.R. No. 167707
The OSG raises the lone issue of whether Proclamation No. 1801 and PTA Circular No. 3-82
pose any legal obstacle for respondents, and all those similarly situated, to acquire title to
their occupied lands in Boracay Island.[34]
G.R. No. 173775

Petitioners-claimants hoist five (5) issues, namely:

I.
AT THE TIME OF THE ESTABLISHED POSSESSION OF PETITIONERS IN CONCEPT OF OWNER
OVER THEIR RESPECTIVE AREAS IN BORACAY, SINCE TIME IMMEMORIAL OR AT THE LATEST
SINCE 30 YRS. PRIOR TO THE FILING OF THE PETITION FOR DECLARATORY RELIEF ON NOV.
19, 1997, WERE THE AREAS OCCUPIED BY THEM PUBLIC AGRICULTURAL LANDS AS DEFINED
BY LAWS THEN ON JUDICIAL CONFIRMATION OF IMPERFECT TITLES OR PUBLIC FOREST AS
DEFINED BY SEC. 3a, PD 705?

II.
HAVE PETITIONERS OCCUPANTS ACQUIRED PRIOR VESTED RIGHT OF PRIVATE
OWNERSHIP OVER THEIR OCCUPIED PORTIONS OF BORACAY LAND, DESPITE THE FACT THAT
THEY HAVE NOT APPLIED YET FOR JUDICIAL CONFIRMATION OF IMPERFECT TITLE?

III.
IS THE EXECUTIVE DECLARATION OF THEIR AREAS AS
ALIENABLE AND DISPOSABLE UNDER SEC 6, CA 141 [AN] INDISPENSABLE PRE-REQUISITE
FOR PETITIONERS TO OBTAIN TITLE UNDER THE TORRENS SYSTEM?

IV.

IS THE ISSUANCE OF PROCLAMATION 1064 ON MAY 22, 2006, VIOLATIVE OF THE PRIOR
VESTED RIGHTS TO PRIVATE OWNERSHIP OF PETITIONERS OVER THEIR LANDS IN BORACAY,
PROTECTED BY THE DUE PROCESS CLAUSE OF THE CONSTITUTION OR IS PROCLAMATION
1064 CONTRARY TO SEC. 8, CA 141, OR SEC. 4(a) OF RA 6657.

V.
CAN RESPONDENTS BE COMPELLED BY MANDAMUS TO ALLOW THE SURVEY AND TO
APPROVE THE SURVEY PLANS FOR PURPOSES OF THE APPLICATION FOR TITLING OF THE
LANDS OF PETITIONERS IN BORACAY?[35] (Underscoring supplied)

In capsule, the main issue is whether private claimants (respondents-claimants in G.R. No.
167707 and petitioners-claimants in G.R. No. 173775) have a right to secure titles over
their occupied portions in Boracay. The twin petitions pertain to their right, if any, to judicial
confirmation of imperfect title under CA No. 141, as amended. They do not involve their
right to secure title under other pertinent laws.

Our Ruling

Regalian Doctrine and power of the executive

to reclassify lands of the public domain

Private claimants rely on three (3) laws and executive acts in their bid for judicial
confirmation of imperfect title, namely: (a) Philippine Bill of 1902[36] in relation to Act No.
926, later amended and/or superseded by Act No. 2874 and CA No. 141;[37] (b)
Proclamation No. 1801[38] issued by then President Marcos; and (c) Proclamation No.
1064[39] issued by President Gloria Macapagal-Arroyo. We shall proceed to determine their
rights to apply for judicial confirmation of imperfect title under these laws and executive
acts.

But first, a peek at the Regalian principle and the power of the executive to reclassify lands
of the public domain.

The 1935 Constitution classified lands of the public domain into agricultural, forest or
timber.[40] Meanwhile, the 1973 Constitution provided the following divisions: agricultural,
industrial or commercial, residential, resettlement, mineral, timber or forest and grazing
lands, and such other classes as may be provided by law,[41] giving the government great
leeway for classification.[42] Then the 1987 Constitution reverted to the 1935 Constitution
classification with one addition: national parks.[43] Of these, only agricultural lands may be
alienated.[44] Prior to Proclamation No. 1064 of May 22,
2006, Boracay Island had never been expressly and administratively classified under any of
these grand divisions. Boracay was an unclassified land of the public domain.

The Regalian Doctrine dictates that all lands of the public domain belong to the State, that
the State is the source of any asserted right to ownership of land and charged with the

conservation of such patrimony.[45] The doctrine has been consistently adopted under the
1935, 1973, and 1987 Constitutions.[46]

All lands not otherwise appearing to be clearly within private ownership are presumed to
belong to the State.[47] Thus, all lands that have not been acquired from the government,
either by purchase or by grant, belong to the State as part of the inalienable public domain.
[48] Necessarily, it is up to the State to determine if lands of the public domain will be
disposed of for private ownership. The government, as the agent of the state, is possessed
of the plenary power as the persona in law to determine who shall be the favored recipients
of public lands, as well as under what terms they may be granted such privilege, not
excluding the placing of obstacles in the way of their exercise of what otherwise would be
ordinary acts of ownership.[49]

Our present land law traces its roots to the Regalian Doctrine. Upon the Spanish conquest
of the Philippines, ownership of all lands, territories and possessions in
the Philippines passed to the Spanish Crown.[50] The Regalian doctrine was first introduced
in the Philippines through the Laws of the Indies and the Royal Cedulas, which laid the
foundation that all lands that were not acquired from the Government, either by purchase
or by grant, belong to the public domain.[51]

The Laws of the Indies was followed by the Ley Hipotecaria or the Mortgage Law of
1893. The Spanish Mortgage Law provided for the systematic registration of titles and
deeds as well as possessory claims.[52]

The Royal Decree of 1894 or the Maura Law[53] partly amended the Spanish Mortgage Law
and the Laws of the Indies. It established possessory information as the method of
legalizing possession of vacant Crown land, under certain conditions which were set forth in
said decree.[54] Under Section 393 of the Maura Law, aninformacion posesoria or
possessory information title,[55] when duly inscribed in the Registry of Property, is
converted into a title of ownership only after the lapse of twenty (20) years of
uninterrupted possession which must be actual, public, and adverse,[56] from the date of
its inscription.[57] However, possessory information title had to be perfected one year after
the promulgation of the Maura Law, or until April 17, 1895. Otherwise, the lands would
revert to the State.[58]

In sum, private ownership of land under the Spanish regime could only be founded on royal
concessions which took various forms, namely: (1) titulo real or royal grant; (2) concesion
especial or special grant; (3) composicion con el estado or adjustment title; (4) titulo de
compra or title by purchase; and (5) informacion posesoria or possessory information title.
[59]

The first law governing the disposition of public lands in the Philippines under American rule
was embodied in the Philippine Bill of 1902.[60] By this law, lands of the public domain in
the Philippine Islands were classified into three (3) grand divisions, to wit: agricultural,
mineral, and timber or forest lands.[61] The act provided for, among others, the disposal of
mineral lands by means of absolute grant (freehold system) and by lease (leasehold
system).[62] It also provided the definition by exclusion of agricultural public lands.

[63] Interpreting the meaning of agricultural lands under the Philippine Bill of 1902, the
Court declared in Mapa v. Insular Government:[64]

x x x In other words, that the phrase agricultural land as used in Act No. 926 means those
public lands acquired from Spain which are not timber or mineral lands. x x x[65](Emphasis
Ours)

On February 1, 1903, the Philippine Legislature passed Act No. 496, otherwise known as the
Land Registration Act. The act established a system of registration by which recorded title
becomes absolute, indefeasible, and imprescriptible. This is known as the Torrens system.
[66]

Concurrently, on October 7, 1903, the Philippine Commission passed Act No. 926, which
was the first Public Land Act. The Act introduced the homestead system and made
provisions for judicial and administrative confirmation of imperfect titles and for the sale or
lease of public lands. It permitted corporations regardless of the nationality of persons
owning the controlling stock to lease or purchase lands of the public domain.[67] Under the
Act, open, continuous, exclusive, and notorious possession and occupation of agricultural
lands for the next ten (10) years preceding July 26, 1904 was sufficient for judicial
confirmation of imperfect title.[68]

On November 29, 1919, Act No. 926 was superseded by Act No. 2874, otherwise known as
the second Public Land Act. This new, more comprehensive law limited the exploitation of
agricultural lands to Filipinos and Americans and citizens of other countries which gave
Filipinos the same privileges. For judicial confirmation of title, possession and occupation en
concepto dueo since time immemorial, or since July 26, 1894, was required.[69]

After the passage of the 1935 Constitution, CA No. 141 amended Act No. 2874
on December 1, 1936. To this day, CA No. 141, as amended, remains as the existing
general law governing the classification and disposition of lands of the public domain other
than timber and mineral lands,[70] and privately owned lands which reverted to the State.
[71]

Section 48(b) of CA No. 141 retained the requirement under Act No. 2874 of possession and
occupation of lands of the public domain since time immemorial or since July 26,
1894. However, this provision was superseded by Republic Act (RA) No. 1942,[72] which
provided for a simple thirty-year prescriptive period for judicial confirmation of imperfect
title. The provision was last amended by PD No. 1073,[73] which now provides for
possession and occupation of the land applied for since June 12, 1945, or earlier.[74]

The issuance of PD No. 892[75] on February 16, 1976 discontinued the use of Spanish titles
as evidence in land registration proceedings.[76] Under the decree, all holders of Spanish
titles or grants should apply for registration of their lands under Act No. 496 within six (6)
months from the effectivity of the decree on February 16, 1976. Thereafter, the recording of

all unregistered lands[77] shall be governed by Section 194 of the Revised Administrative
Code, as amended by Act No. 3344.

On June 11, 1978, Act No. 496 was amended and updated by PD No. 1529, known as the
Property Registration Decree. It was enacted to codify the various laws relative to
registration of property.[78] It governs registration of lands under the Torrens system as
well as unregistered lands, including chattel mortgages.[79]

A positive act declaring land as alienable and disposable is required. In keeping with the
presumption of State ownership, the Court has time and again emphasized that there must
be a positive act of the government, such as an official proclamation,[80] declassifying
inalienable public land into disposable land for agricultural or other purposes.[81] In fact,
Section 8 of CA No. 141 limits alienable or disposable lands only to those lands which have
been officially delimited and classified.[82]

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.[83] To overcome
this presumption, incontrovertible evidence must be established that the land subject of
the application (or claim) is alienable or disposable.[84] 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.[85] 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.[86]

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.[87]

Ankron and De Aldecoa did not make the whole of Boracay Island, or portions of it,
agricultural lands. Private claimants posit that Boracay was already an agricultural land
pursuant to the old cases Ankron v. Government of the Philippine Islands (1919)[88] and De
Aldecoa v. The Insular Government (1909).[89]These cases were decided under the
provisions of the Philippine Bill of 1902 and Act No. 926. There is a statement in these old
cases that in the absence of evidence to the contrary, that in each case the lands are
agricultural lands until the contrary is shown.[90]

Private claimants reliance on Ankron and De Aldecoa is misplaced. These cases did not
have the effect of converting the whole of Boracay Island or portions of it into agricultural
lands. It should be stressed that the Philippine Bill of 1902 and Act No. 926 merely provided
the manner through which land registration courts would classify lands of the public

domain. Whether the land would be classified as timber, mineral, or agricultural depended
on proof presented in each case.

Ankron and De Aldecoa were decided at a time when the President of the Philippines had no
power to classify lands of the public domain into mineral, timber, and agricultural. At that
time, the courts were free to make corresponding classifications in justiciable cases, or
were vested with implicit power to do so, depending upon the preponderance of the
evidence.[91] This was the Courts ruling in Heirs of the Late Spouses Pedro S. Palanca and
Soterranea Rafols Vda. De Palanca v. Republic,[92] in which it stated, through Justice Adolfo
Azcuna, viz.:

x x x Petitioners furthermore insist that a particular land need not be formally released by
an act of the Executive before it can be deemed open to private ownership, citing the cases
ofRamos v. Director of Lands and Ankron v. Government of the Philippine Islands.

xxxx

Petitioners reliance upon Ramos v. Director of Lands and Ankron v. Government is

misplaced. These cases were decided under the Philippine Bill of 1902 and the first Public
Land Act No. 926 enacted by the Philippine Commission on October 7, 1926, under which
there was no legal provision vesting in the Chief Executive or President of the Philippines
the power to classify lands of the public domain into mineral, timber and agricultural so
that the courts then were free to make corresponding classifications in justiciable cases, or

were vested with implicit power to do so, depending upon the preponderance of the
evidence.[93]

To aid the courts in resolving land registration cases under Act No. 926, it was then
necessary to devise a presumption on land classification. Thus evolved the dictum
in Ankron that the courts have a right to presume, in the absence of evidence to the
contrary, that in each case the lands are agricultural lands until the contrary is shown.[94]

But We cannot unduly expand the presumption in Ankron and De Aldecoa to an argument
that all lands of the public domain had been automatically reclassified as disposable and
alienable agricultural lands. By no stretch of imagination did the presumption convert all
lands of the public domain into agricultural lands.

If We accept the position of private claimants, the Philippine Bill of 1902 and Act No. 926
would have automatically made all lands in the Philippines, except those already classified
as timber or mineral land, alienable and disposable lands. That would take these lands out
of State ownership and worse, would be utterly inconsistent with and totally repugnant to
the long-entrenched Regalian doctrine.

The presumption in Ankron and De Aldecoa attaches only to land registration cases brought
under the provisions of Act No. 926, or more specifically those cases dealing with judicial
and administrative confirmation of imperfect titles. The presumption applies to an applicant
for judicial or administrative conformation of imperfect title under Act No. 926. It certainly
cannot apply to landowners, such as private claimants or their predecessors-in-interest,
who failed to avail themselves of the benefits of Act No. 926. As to them, their land
remained unclassified and, by virtue of the Regalian doctrine, continued to be owned by the
State.

In any case, the assumption in Ankron and De Aldecoa was not absolute. Land classification
was, in the end, dependent on proof. If there was proof that the land was better suited for
non-agricultural uses, the courts could adjudge it as a mineral or timber land despite the
presumption. In Ankron, this Court stated:

In the case of Jocson vs. Director of Forestry (supra), the Attorney-General admitted in
effect that whether the particular land in question belongs to one class or another is a
question of fact. The mere fact that a tract of land has trees upon it or has mineral within it
is not of itself sufficient to declare that one is forestry land and the other, mineral
land. There must be some proof of the extent and present or future value of the forestry
and of the minerals. While, as we have just said, many definitions have been given for
agriculture, forestry, and mineral lands, and that in each case it is a question of fact, we
think it is safe to say that in order to be forestry or mineral land the proof must show that it
is more valuable for the forestry or the mineral which it contains than it is for agricultural
purposes. (Sec. 7, Act No. 1148.) It is not sufficient to show that there exists some trees
upon the land or that it bears some mineral. Land may be classified as forestry or mineral

today, and, by reason of the exhaustion of the timber or mineral, be classified as

agricultural land tomorrow. And vice-versa, by reason of the rapid growth of timber or the
discovery of valuable minerals, lands classified as agricultural today may be differently
classified tomorrow. Each case must be decided upon the proof in that particular
case, having regard for its present or future value for one or the other purposes. We
believe, however, considering the fact that it is a matter of public knowledge that a
majority of the lands in the Philippine Islands are agricultural lands that the courts have a
right to presume, in the absence of evidence to the contrary, that in each case the lands
are agricultural lands until the contrary is shown. Whatever the land involved in a particular
land registration case is forestry or mineral land must, therefore, be a matter of proof. Its
superior value for one purpose or the other is a question of fact to be settled by the proof in
each particular case. The fact that the land is a manglar [mangrove swamp] is not sufficient
for the courts to decide whether it is agricultural, forestry, or mineral land. It may
perchance belong to one or the other of said classes of land. The Government, in the first
instance, under the provisions of Act No. 1148, may, by reservation, decide for itself what
portions of public land shall be considered forestry land, unless private interests have
intervened before such reservation is made. In the latter case, whether the land is
agricultural, forestry, or mineral, is a question of proof. Until private interests have
intervened, the Government, by virtue of the terms of said Act (No. 1148), may decide for
itself what portions of the public domain shall be set aside and reserved as forestry or
mineral land. (Ramos vs. Director of Lands, 39 Phil. 175; Jocson vs. Director of
Forestry, supra)[95](Emphasis ours)

Since 1919, courts were no longer free to determine the classification of lands from the
facts of each case, except those that have already became private lands.[96] Act No. 2874,
promulgated in 1919 and reproduced in Section 6 of CA No. 141, gave the Executive

Department, through the President, the exclusive prerogative to classify or reclassify public
lands into alienable or disposable, mineral or forest.96-a Since then, courts no longer had
the authority, whether express or implied, to determine the classification of lands of the
public domain.[97]

Here, private claimants, unlike the Heirs of Ciriaco Tirol who were issued their title in 1933,
[98] did not present a justiciable case for determination by the land registration court of the
propertys land classification. Simply put, there was no opportunity for the courts then to
resolve if the land the Boracay occupants are now claiming were agricultural lands. When
Act No. 926 was supplanted by Act No. 2874 in 1919, without an application for judicial
confirmation having been filed by private claimants or their predecessors-in-interest, the
courts were no longer authorized to determine the propertys land classification. Hence,
private claimants cannot bank on Act No. 926.

We note that the RTC decision[99] in G.R. No. 167707 mentioned Krivenko v. Register of
Deeds of Manila,[100] which was decided in 1947 when CA No. 141, vesting the Executive
with the sole power to classify lands of the public domain was already in
effect. Krivenko cited the old cases Mapa v. Insular Government,[101] De Aldecoa v. The
Insular Government,[102] and Ankron v. Government of the Philippine Islands.[103]

Krivenko, however, is not controlling here because it involved a totally different issue. The
pertinent issue in Krivenko was whether residential lots were included in the general
classification of agricultural lands; and if so, whether an alien could acquire a residential
lot. This Court ruled that as an alien, Krivenko was prohibited by the 1935

Constitution[104] from acquiring agricultural land, which included residential lots. Here, the
issue is whether unclassified lands of the public domain are automatically deemed
agricultural.

Notably, the definition of agricultural public lands mentioned in Krivenko relied on the old
cases decided prior to the enactment of Act No. 2874, includingAnkron and De Aldecoa.
[105] As We have already stated, those cases cannot apply here, since they were decided
when the Executive did not have the authority to classify lands as agricultural, timber, or
mineral.

Private claimants continued possession under Act No. 926 does not create a presumption
that the land is alienable. Private claimants also contend that their continued possession of
portions of Boracay Island for the requisite period of ten (10) years under Act No.
926[106] ipso facto converted the island into private ownership. Hence, they may apply for
a title in their name.

A similar argument was squarely rejected by the Court in Collado v. Court of Appeals.
[107] Collado, citing the separate opinion of now Chief Justice Reynato S. Puno in Cruz v.
Secretary of Environment and Natural Resources,107-a ruled:

Act No. 926, the first Public Land Act, was passed in pursuance of the provisions of the
Philippine Bill of 1902. The law governed the disposition of lands of the public domain. It
prescribed rules and regulations for the homesteading, selling and leasing of portions of the
public domain of the Philippine Islands, and prescribed the terms and conditions to enable
persons to perfect their titles to public lands in the Islands. It also provided for the issuance
of patents to certain native settlers upon public lands, for the establishment of town sites
and sale of lots therein, for the completion of imperfect titles, and for the cancellation or
confirmation of Spanish concessions and grants in theIslands. In short, the Public Land Act
operated on the assumption that title to public lands in the Philippine Islands remained in
the government; and that the governments title to public land sprung from the Treaty of
Paris and other subsequent treaties between Spain and the United States. The term public
land referred to all lands of the public domain whose title still remained in the government
and are thrown open to private appropriation and settlement, and excluded the patrimonial
property of the government and the friar lands.

Thus, it is plain error for petitioners to argue that under the Philippine Bill of 1902
and Public Land Act No. 926, mere possession by private individuals of lands creates the
legal presumption that the lands are alienable and disposable.[108] (Emphasis Ours)

Except for lands already covered by existing titles, Boracay was an unclassified land of the
public domain prior to Proclamation No. 1064. Such unclassified lands are considered public
forest under PD No. 705. The DENR[109] and the National Mapping and Resource
Information Authority[110] certify thatBoracay Island is an unclassified land of the public
domain.

PD No. 705 issued by President Marcos categorized all unclassified lands of the public
domain as public forest. Section 3(a) of PD No. 705 defines a public forest as a mass of
lands of the public domain which has not been the subject of the present system of
classification for the determination of which lands are needed for forest purpose and which
are not. Applying PD No. 705, all unclassified lands, including those in Boracay Island,
are ipso facto considered public forests. PD No. 705, however, respects titles already
existing prior to its effectivity.

The Court notes that the classification of Boracay as a forest land under PD No. 705 may
seem to be out of touch with the present realities in the island.Boracay, no doubt, has been
partly stripped of its forest cover to pave the way for commercial developments. As a
premier tourist destination for local and foreign tourists, Boracay appears more of a
commercial island resort, rather than a forest land.

Nevertheless, that the occupants of Boracay have built multi-million peso beach resorts on
the island;[111] that the island has already been stripped of its forest cover; or that the
implementation of Proclamation No. 1064 will destroy the islands tourism industry,
do not negate its character as public forest.

Forests, in the context of both the Public Land Act and the Constitution[112] classifying
lands of the public domain into agricultural, forest or timber, mineral lands, and national
parks, do not necessarily refer to large tracts of wooded land or expanses covered by dense

growths of trees and underbrushes.[113] The discussion in Heirs of Amunategui v. Director

of Forestry[114] is particularly instructive:

A forested area classified as forest land of the public domain does not lose such
classification simply because loggers or settlers may have stripped it of its forest
cover. Parcels of land classified as forest land may actually be covered with grass or planted
to crops by kaingin cultivators or other farmers. Forest lands do not have to be on
mountains or in out of the way places.Swampy areas covered by mangrove trees, nipa
palms, and other trees growing in brackish or sea water may also be classified as forest
land. The classification is descriptive of its legal nature or status and does not have to be
descriptive of what the land actually looks like. Unless and until the land classified as forest
is released in an official proclamation to that effect so that it may form part of the
disposable agricultural lands of the public domain, the rules on confirmation of imperfect
title do not apply.[115] (Emphasis supplied)

There is a big difference between forest as defined in a dictionary and forest or timber land
as a classification of lands of the public domain as appearing in our statutes.One is
descriptive of what appears on the land while the other is a legal status, a classification for
legal purposes.[116] At any rate, the Court is tasked to determine thelegal status
of Boracay Island, and not look into its physical layout. Hence, even if its forest cover has
been replaced by beach resorts, restaurants and other commercial establishments, it has
not been automatically converted from public forest to alienable agricultural land.
Private claimants cannot rely on Proclamation No. 1801 as basis for judicial confirmation of
imperfect title. The proclamation did not convert Boracay into an agricultural

land. However, private claimants argue that Proclamation No. 1801 issued by then
President Marcos in 1978 entitles them to judicial confirmation of imperfect title. The
Proclamation classified Boracay, among other islands, as a tourist zone. Private claimants
assert that, as a tourist spot, the island is susceptible of private ownership
Proclamation No. 1801 or PTA Circular No. 3-82 did not convert the whole of Boracay into an
agricultural land. There is nothing in the law or the Circular which made Boracay Island an
agricultural land. The reference in Circular No. 3-82 to private lands[117] and areas
declared as alienable and disposable[118] does not by itself classify the entire island as
agricultural. Notably, Circular No. 3-82 makes reference not only to private lands and areas
but also to public forested lands. Rule VIII, Section 3 provides:
No trees in forested private lands may be cut without prior authority from the PTA. All
forested areas in public lands are declared forest reserves. (Emphasis supplied)
Clearly, the reference in the Circular to both private and public lands merely recognizes
that the island can be classified by the Executive department pursuant to its powers under
CA No. 141. In fact, Section 5 of the Circular recognizes the then Bureau of Forest
Developments authority to declare areas in the island as alienable and disposable when it
provides
Subsistence farming, in areas declared as alienable and disposable by the Bureau of Forest
Development.
Therefore, Proclamation No. 1801 cannot be deemed the positive act needed to
classify Boracay Island as alienable and disposable land. If President Marcos intended to
classify the island as alienable and disposable or forest, or both, he would have identified
the specific limits of each, as President Arroyo did in Proclamation No. 1064. This was not
done in Proclamation No. 1801.

The Whereas clauses of Proclamation No. 1801 also explain the rationale behind the
declaration of Boracay Island, together with other islands, caves and peninsulas in the
Philippines, as a tourist zone and marine reserve to be administered by the PTA to ensure
the concentrated efforts of the public and private sectors in the development of the areas
tourism potential with due regard for ecological balance in the marine environment. Simply
put, the proclamation is aimed at administering the islands for tourism and ecological
purposes. It does not address the areas alienability.[119]
More importantly, Proclamation No. 1801 covers not only Boracay Island, but sixty-four (64)
other islands, coves, and peninsulas in the Philippines, such as Fortune and Verde Islands in
Batangas, Port Galera in Oriental Mindoro, Panglao and Balicasag Islands in Bohol, Coron
Island, Puerto Princesa and surrounding areas in Palawan, Camiguin Island in Cagayan de
Oro, and Misamis Oriental, to name a few. If the designation of Boracay Island as tourist
zone makes it alienable and disposable by virtue of Proclamation No. 1801, all the other
areas mentioned would likewise be declared wide open for private disposition. That could
not have been, and is clearly beyond, the intent of the proclamation.

It was Proclamation No. 1064 of 2006 which positively declared part of Boracay as alienable
and opened the same to private ownership. Sections 6 and 7 of CA No. 141[120] provide
that it is only the President, upon the recommendation of the proper department head, who
has the authority to classify the lands of the public domain into alienable or disposable,
timber and mineral lands.[121]
In issuing Proclamation No. 1064, President Gloria Macapagal-Arroyo merely exercised the
authority granted to her to classify lands of the public domain, presumably subject to
existing vested rights. Classification of public lands is the exclusive prerogative of the
Executive Department, through the Office of the President.Courts have no authority to do

so.[122] Absent such classification, the land remains unclassified until released and
rendered open to disposition.[123]
Proclamation No. 1064 classifies Boracay into 400 hectares of reserved forest land and
628.96 hectares of agricultural land. The Proclamation likewise provides for a 15-meter
buffer zone on each side of the center line of roads and trails, which are reserved for right
of way and which shall form part of the area reserved for forest land protection purposes.
Contrary to private claimants argument, there was nothing invalid or irregular, much less
unconstitutional, about the classification of Boracay Island made by the President through
Proclamation No. 1064. It was within her authority to make such classification, subject to
existing vested rights.
Proclamation No. 1064 does not violate the Comprehensive Agrarian Reform Law. Private
claimants further assert that Proclamation No. 1064 violates the provision of the
Comprehensive Agrarian Reform Law (CARL) or RA No. 6657 barring conversion of public
forests into agricultural lands. They claim that since Boracay is a public forest under PD No.
705, President Arroyo can no longer convert it into an agricultural land without running
afoul of Section 4(a) of RA No. 6657, thus:
SEC. 4. Scope. The Comprehensive Agrarian Reform Law of 1988 shall cover, regardless of
tenurial arrangement and commodity produced, all public and private agricultural lands as
provided in Proclamation No. 131 and Executive Order No. 229, including other lands of the
public domain suitable for agriculture.

More specifically, the following lands are covered by the Comprehensive Agrarian Reform
Program:

(a) All alienable and disposable lands of the public domain devoted to or suitable for
agriculture. No reclassification of forest or mineral lands to agricultural lands shall be
undertaken after the approval of this Act until Congress, taking into account ecological,
developmental and equity considerations, shall have determined by law, the specific limits
of the public domain.
That Boracay Island was classified as a public forest under PD No. 705 did not bar the
Executive from later converting it into agricultural land. Boracay Islandstill remained an
unclassified land of the public domain despite PD No. 705.
In Heirs of the Late Spouses Pedro S. Palanca and Soterranea Rafols v. Republic,[124] the
Court stated that unclassified lands are public forests.
While it is true that the land classification map does not categorically state that the islands
are public forests, the fact that they were unclassified lands leads to the same result. In the
absence of the classification as mineral or timber land, the land remains unclassified land
until released and rendered open to disposition.[125] (Emphasis supplied)
Moreover, the prohibition under the CARL applies only to a reclassification of land. If the
land had never been previously classified, as in the case of Boracay, there can be no
prohibited reclassification under the agrarian law. We agree with the opinion of the
Department of Justice[126] on this point:
Indeed, the key word to the correct application of the prohibition in Section 4(a) is the word
reclassification. Where there has been no previous classification of public forest [referring,
we repeat, to the mass of the public domain which has not been the subject of the present
system of classification for purposes of determining which are needed for forest purposes
and which are not] into permanent forest or forest reserves or some other forest uses under

the Revised Forestry Code, there can be no reclassification of forest lands to speak of within
the meaning of Section 4(a).

Thus, obviously, the prohibition in Section 4(a) of the CARL against the reclassification of
forest lands to agricultural lands without a prior law delimiting the limits of the public
domain, does not, and cannot, apply to those lands of the public domain, denominated as
public forest under the Revised Forestry Code, which have not been previously determined,
or classified, as needed for forest purposes in accordance with the provisions of the Revised
Forestry Code.[127]
Private claimants are not entitled to apply for judicial confirmation of imperfect title under
CA No. 141. Neither do they have vested rights over the occupied lands under the said
law. There are two requisites for judicial confirmation of imperfect or incomplete title under
CA No. 141, namely: (1) open, continuous, exclusive, and notorious possession and
occupation of the subject land by himself or through his predecessors-in-interest under
a bona fide claim of ownership since time immemorial or from June 12, 1945; and (2) the
classification of the land as alienable and disposable land of the public domain.[128]
As discussed, the Philippine Bill of 1902, Act No. 926, and Proclamation No. 1801 did not
convert portions of Boracay Island into an agricultural land. The island remained an
unclassified land of the public domain and, applying the Regalian doctrine, is considered
State property.
Private claimants bid for judicial confirmation of imperfect title, relying on the Philippine Bill
of 1902, Act No. 926, and Proclamation No. 1801, must fail because of the absence of the
second element of alienable and disposable land. Their entitlement to a government grant
under our present Public Land Act presupposes that the land possessed and applied for is

already alienable and disposable. This is clear from the wording of the law itself.
[129] Where the land is not alienable and disposable, possession of the land, no matter
how long, cannot confer ownership or possessory rights.[130]
Neither may private claimants apply for judicial confirmation of imperfect title under
Proclamation No. 1064, with respect to those lands which were classified as agricultural
lands. Private claimants failed to prove the first element of open, continuous, exclusive, and
notorious possession of their lands in Boracay since June 12, 1945.
We cannot sustain the CA and RTC conclusion in the petition for declaratory relief that
private claimants complied with the requisite period of possession.
The tax declarations in the name of private claimants are insufficient to prove the first
element of possession. We note that the earliest of the tax declarations in the name of
private claimants were issued in 1993. Being of recent dates, the tax declarations are not
sufficient to convince this Court that the period of possession and occupation commenced
on June 12, 1945.
Private claimants insist that they have a vested right in Boracay, having been in possession
of the island for a long time. They have invested millions of pesos in developing the island
into a tourist spot. They say their continued possession and investments give them a
vested right which cannot be unilaterally rescinded by Proclamation No. 1064.
The continued possession and considerable investment of private claimants do not
automatically give them a vested right in Boracay. Nor do these give them a right to apply
for a title to the land they are presently occupying. This Court is constitutionally bound to
decide cases based on the evidence presented and the laws applicable. As the law and
jurisprudence stand, private claimants are ineligible to apply for a judicial confirmation of

title over their occupied portions in Boracay even with their continued possession and
considerable investment in the island.

One Last Note

The Court is aware that millions of pesos have been invested for the development
of Boracay Island, making it a by-word in the local and international tourism industry. The
Court also notes that for a number of years, thousands of people have called the island
their home. While the Court commiserates with private claimants plight, We are bound to
apply the law strictly and judiciously. This is the law and it should prevail. Ito ang batas at
ito ang dapat umiral.
All is not lost, however, for private claimants. While they may not be eligible to apply for
judicial confirmation of imperfect title under Section 48(b) of CA No. 141, as amended, this
does not denote their automatic ouster from the residential, commercial, and other areas
they possess now classified as agricultural. Neither will this mean the loss of their
substantial investments on their occupied alienable lands. Lack of title does not necessarily
mean lack of right to possess.
For one thing, those with lawful possession may claim good faith as builders of
improvements. They can take steps to preserve or protect their possession. For another,
they may look into other modes of applying for original registration of title, such as by
homestead[131] or sales patent,[132] subject to the conditions imposed by law.
More realistically, Congress may enact a law to entitle private claimants to acquire title to
their occupied lots or to exempt them from certain requirements under the present land
laws. There is one such bill[133] now pending in the House of Representatives. Whether
that bill or a similar bill will become a law is for Congress to decide.

In issuing Proclamation No. 1064, the government has taken the step necessary to open up
the island to private ownership. This gesture may not be sufficient to appease some sectors
which view the classification of the island partially into a forest reserve as absurd. That the
island is no longer overrun by trees, however, does not becloud the vision to protect its
remaining forest cover and to strike a healthy balance between progress and
ecology. Ecological conservation is as important as economic progress.
To be sure, forest lands are fundamental to our nations survival. Their promotion and
protection are not just fancy rhetoric for politicians and activists. These are needs that
become more urgent as destruction of our environment gets prevalent and difficult to
control. As aptly observed by Justice Conrado Sanchez in 1968 inDirector of Forestry v.
Munoz:[134]
The view this Court takes of the cases at bar is but in adherence to public policy that should
be followed with respect to forest lands. Many have written much, and many more have
spoken, and quite often, about the pressing need for forest preservation, conservation,
protection, development and reforestation. Not without justification. For, forests constitute
a vital segment of any country's natural resources. It is of common knowledge by now that
absence of the necessary green cover on our lands produces a number of adverse or ill
effects of serious proportions. Without the trees, watersheds dry up; rivers and lakes which
they supply are emptied of their contents. The fish disappear. Denuded areas become dust
bowls. As waterfalls cease to function, so will hydroelectric plants. With the rains, the fertile
topsoil is washed away; geological erosion results. With erosion come the dreaded floods
that wreak havoc and destruction to property crops, livestock, houses, and highways not to
mention precious human lives. Indeed, the foregoing observations should be written down
in a lumbermans decalogue.[135]
WHEREFORE, judgment is rendered as follows:

1. The petition for certiorari in G.R. No. 167707 is GRANTED and the Court of Appeals
Decision in CA-G.R. CV No. 71118 REVERSED AND SET ASIDE.
2. The petition for certiorari in G.R. No. 173775 is DISMISSED for lack of merit.

SO ORDERED.