Articles 334 and 335 of the Civil Code supply no absolute criterion for
G.R. No. L-20329 March 16, 1923
THE STANDARD OIL COMPANY OF NEW YORK, petitioner,
vs.
JOAQUIN JARAMILLO, as register of deeds of the City of Manila,
respondent.
Ross, Lawrence and Selph for petitioner.
City Fiscal Revilla and Assistant City Fiscal Rodas for respondent.
STREET, J.:
This cause is before us upon demurrer interposed by the respondent,
Joaquin Jaramillo, register of deeds of the City of Manila, to an original
petition of the Standard Oil Company of New York, seeking a
peremptory mandamus to compel the respondent to record in the
proper register a document purporting to be a chattel mortgage
executed in the City of Manila by Gervasia de la Rosa, Vda. de Vera, in
favor of the Standard Oil Company of New York.
It appears from the petition that on November 27, 1922, Gervasia de
la Rosa, Vda. de Vera, was the lessee of a parcel of land situated in the
City of Manila and owner of the house of strong materials built
thereon, upon which date she executed a document in the form of a
chattel mortgage, purporting to convey to the petitioner by way of
mortgage both the leasehold interest in said lot and the building
which stands thereon.
The clauses in said document describing the property intended to be
thus mortgage are expressed in the following words:
Now, therefore, the mortgagor hereby conveys and transfer to the
mortgage, by way of mortgage, the following described personal
property, situated in the City of Manila, and now in possession of the
mortgagor, to wit:
(1) All of the right, title, and interest of the mortgagor in and to the
contract of lease hereinabove referred to, and in and to the premises
the subject of the said lease;
(2) The building, property of the mortgagor, situated on the aforesaid
leased premises.
After said document had been duly acknowledge and delivered, the
petitioner caused the same to be presented to the respondent,
Joaquin Jaramillo, as register of deeds of the City of Manila, for the
purpose of having the same recorded in the book of record of chattel
mortgages. Upon examination of the instrument, the respondent was
of the opinion that it was not a chattel mortgage, for the reason that
the interest therein mortgaged did not appear to be personal
property, within the meaning of the Chattel Mortgage Law, and
registration was refused on this ground only.
We are of the opinion that the position taken by the respondent is
untenable; and it is his duty to accept the proper fee and place the
instrument on record. The duties of a register of deeds in respect to
the registration of chattel mortgage are of a purely ministerial
character; and no provision of law can be cited which confers upon
him any judicial or quasi-judicial power to determine the nature of any
document of which registration is sought as a chattel mortgage.
The original provisions touching this matter are contained in section
15 of the Chattel Mortgage Law (Act No. 1508), as amended by Act
No. 2496; but these have been transferred to section 198 of the
Administrative Code, where they are now found. There is nothing in
any of these provisions conferring upon the register of deeds any
authority whatever in respect to the "qualification," as the term is
used in Spanish law, of chattel mortgage. His duties in respect to such
instruments are ministerial only. The efficacy of the act of recording a
chattel mortgage consists in the fact that it operates as constructive
notice of the existence of the contract, and the legal effects of the
contract must be discovered in the instrument itself in relation with
the fact of notice. Registration adds nothing to the instrument,
considered as a source of title, and affects nobody's rights except as a
specifies of notice.
1
discriminating between real property and personal property for
purpose of the application of the Chattel Mortgage Law. Those articles
state rules which, considered as a general doctrine, are law in this
jurisdiction; but it must not be forgotten that under given conditions
property may have character different from that imputed to it in said
articles. It is undeniable that the parties to a contract may by
agreement treat as personal property that which by nature would be
real property; and 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. Other situations are
constantly arising, and from time to time are presented to this court,
in which the proper classification of one thing or another as real or
personal property may be said to be doubtful.
The point submitted to us in this case was determined on September
8, 1914, in an administrative ruling promulgated by the Honorable
James A. Ostrand, now a Justice of this Court, but acting at that time in
the capacity of Judge of the fourth branch of the Court of First
Instance of the Ninth Judicial District, in the City of Manila; and little of
value can be here added to the observations contained in said ruling.
We accordingly quote therefrom as follows:
It is unnecessary here to determine whether or not the property
described in the document in question is real or personal; the
discussion may be confined to the point as to whether a register of
deeds has authority to deny the registration of a document purporting
to be a chattel mortgage and executed in the manner and form
prescribed by the Chattel Mortgage Law.
Then, after quoting section 5 of the Chattel Mortgage Law (Act No.
1508), his Honor continued:
Based principally upon the provisions of section quoted the Attorney-
General of the Philippine Islands, in an opinion dated August 11, 1909,
held that a register of deeds has no authority to pass upon the
capacity of the parties to a chattel mortgage which is presented to him
for record. A fortiori a register of deeds can have no authority to pass
upon the character of the property sought to be encumbered by a
chattel mortgage. Of course, if the mortgaged property is real instead
of personal the chattel mortgage would no doubt be held ineffective
as against third parties, but this is a question to be determined by the
courts of justice and not by the register of deeds.
In Leung Yee vs. Frank L. Strong Machinery Co. and Williamson (37
Phil., 644), this court held that where the interest conveyed is of the
nature of real, property, the placing of the document on record in the
chattel mortgage register is a futile act; but that decision is not
decisive of the question now before us, which has reference to the
function of the register of deeds in placing the document on record.
In the light of what has been said it becomes unnecessary for us to
pass upon the point whether the interests conveyed in the instrument
now in question are real or personal; and we declare it to be the duty
of the register of deeds to accept the estimate placed upon the
document by the petitioner and to register it, upon payment of the
proper fee.
The demurrer is overruled; and unless within the period of five days
from the date of the notification hereof, the respondent shall
interpose a sufficient answer to the petition, the writ of mandamus
will be issued, as prayed, but without costs. So ordered.
R. No. 137705. August 22, 2000]
SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs.
PCI LEASING AND FINANCE, INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable
property be considered as personal or movable, a party is estopped
from subsequently claiming otherwise. Hence, such property is a
proper subject of a writ of replevin obtained by the other contracting
party.
The Case
Before us is a Petition for Review on Certiorari assailing the January 6,
1999 Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No.
47332 and its February 26, 1999 Resolution[3] denying
reconsideration. The decretal portion of the CA Decision reads as
follows:
WHEREFORE, premises considered, the assailed Order dated February
18, 1998 and Resolution dated March 31, 1998 in Civil Case No. Q-98-
33500 are hereby AFFIRMED. The writ of preliminary injunction issued
on June 15, 1998 is hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of
Quezon City (Branch 218)[6] issued a Writ of Seizure.[7] The March 18,
1998 Resolution[8] denied petitioners Motion for Special Protective
Order, praying that the deputy sheriff be enjoined from seizing
immobilized or other real properties in (petitioners) factory in Cainta,
Rizal and to return to their original place whatever immobilized
machineries or equipments he may have removed.[9]
The Facts
The undisputed facts are summarized by the Court of Appeals as
follows:[10]
On February 13, 1998, respondent PCI Leasing and Finance, Inc. (PCI
Leasing for short) filed with the RTC-QC a complaint for [a] sum of
money (Annex E), with an application for a writ of replevin docketed
as Civil Case No. Q-98-33500.
On March 6, 1998, upon an ex-parte application of PCI Leasing,
respondent judge issued a writ of replevin (Annex B) directing its
sheriff to seize and deliver the machineries and equipment to PCI
Leasing after 5 days and upon the payment of the necessary expenses.
On March 24, 1998, in implementation of said writ, the sheriff
proceeded to petitioners factory, seized one machinery with [the]
word that he [would] return for the other machineries.
On March 25, 1998, petitioners filed a motion for special protective
order (Annex C), invoking the power of the court to control the
conduct of its officers and amend and control its processes, praying
for a directive for the sheriff to defer enforcement of the writ of
replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that
the properties [were] still personal and therefore still subject to
seizure and a writ of replevin.
In their Reply, petitioners asserted that the properties sought to be
seized [were] immovable as defined in Article 415 of the Civil Code,
the parties agreement to the contrary notwithstanding. They argued
that to give effect to the agreement would be prejudicial to innocent
third parties. They further stated that PCI Leasing [was] estopped from
treating these machineries as personal because the contracts in which
the alleged agreement [were] embodied [were] totally sham and
farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure
and take possession of the remaining properties. He was able to take
two more, but was prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for
certiorari.
Ruling of the Court of Appeals
Citing the Agreement of the parties, the appellate court held that the
subject machines were personal property, and that they had only
been leased, not owned, by petitioners. It also ruled that the words of
the contract are clear and leave no doubt upon the true intention of
the contracting parties. Observing that Petitioner Goquiolay was an
2
experienced businessman who was not unfamiliar with the ways of
the trade, it ruled that he should have realized the import of the
document he signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the
trial court in ruling upon the case below, since the merits of the whole
matter are laid down before us via a petition whose sole purpose is to
inquire upon the existence of a grave abuse of discretion on the part
of the [RTC] in issuing the assailed Order and Resolution. The issues
raised herein are proper subjects of a full-blown trial, necessitating
presentation of evidence by both parties. The contract is being
enforced by one, and [its] validity is attacked by the other a matter x x
x which respondent court is in the best position to determine.
Hence, this Petition.[11]
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
A. Whether or not the machineries purchased and imported by SERGS
became real property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a
lease.[12]
In the main, the Court will resolve whether the said machines are
personal, not immovable, property which may be a proper subject of a
writ of replevin. As a preliminary matter, the Court will also address
briefly the procedural points raised by respondent.
The Courts Ruling
The Petition is not meritorious.
Preliminary Matter:Procedural Questions
Respondent contends that the Petition failed to indicate expressly
whether it was being filed under Rule 45 or Rule 65 of the Rules of
Court. It further alleges that the Petition erroneously impleaded Judge
Hilario Laqui as respondent.
There is no question that the present recourse is under Rule 45. This
conclusion finds support in the very title of the Petition, which is
Petition for Review on Certiorari.[13]
While Judge Laqui should not have been impleaded as a
respondent,[14] substantial justice requires that such lapse by itself
should not warrant the dismissal of the present Petition. In this light,
the Court deems it proper to remove, motu proprio, the name of
Judge Laqui from the caption of the present case.
Main Issue: Nature of the Subject Machinery
Petitioners contend that the subject machines used in their factory
were not proper subjects of the Writ issued by the RTC, because they
were in fact real property. Serious policy considerations, they argue,
militate against a contrary characterization.
Rule 60 of the Rules of Court provides that writs of replevin are issued
for the recovery of personal property only.[15] Section 3 thereof
reads:
SEC. 3. Order. -- Upon the filing of such affidavit and approval of the
bond, the court shall issue an order and the corresponding writ of
replevin describing the personal property alleged to be wrongfully
detained and requiring the sheriff forthwith to take such property into
his custody.
On the other hand, Article 415 of the Civil Code enumerates
immovable or real property as follows:
ART. 415. The following are immovable property:
x x x....................................x x x....................................x x x
(5) Machinery, receptacles, instruments or implements intended by
the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works;
x x x....................................x x x....................................x x x
In the present case, the machines that were the subjects of the Writ of
Seizure were placed by petitioners in the factory built on their own
land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was
movable or personal property on its own, all of them have become
immobilized by destination because they are essential and principal
elements in the industry.[16] In that sense, petitioners are correct in
arguing that the said machines are real, not personal, property
pursuant to Article 415 (5) of the Civil Code.[17]
Be that as it may, we disagree with the submission of the petitioners
that the said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that a
real property be considered as personal.[18] After agreeing to such
stipulation, they are consequently estopped from claiming otherwise.
Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of
the parties to treat a house as a personal property because it had
been made the subject of a chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only
have meant to convey the house as chattel, or at least, intended to
treat the same as such, so that they should not now be allowed to
make an inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills[20] also held that the machinery used in a
factory and essential to the industry, as in the present case, was a
proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are
reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the
above Tumalad case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery,
which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the
machines in question are to be considered as personal property.
Specifically, Section 12.1 of the Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal
property notwithstanding that the PROPERTY or any part thereof may
now be, or hereafter become, in any manner affixed or attached to or
embedded in, or permanently resting upon, real property or any
building thereon, or attached in any manner to what is permanent.
Clearly then, petitioners are estopped from denying the
characterization of the subject machines as personal property. Under
the circumstances, they are proper subjects of the Writ of Seizure.
It should be stressed, however, that our holding -- that the machines
should be deemed personal property pursuant to the Lease
Agreement is good only insofar as the contracting parties are
concerned.[22] Hence, while the parties are bound by the Agreement,
third persons acting in good faith are not affected by its stipulation
characterizing the subject machinery as personal.[23] In any event,
there is no showing that any specific third party would be adversely
affected.
3
Validity of the Lease Agreement
In their Memorandum, petitioners contend that the Agreement is a
loan and not a lease.[24] Submitting documents supposedly showing
that they own the subject machines, petitioners also argue in their
Petition that the Agreement suffers from intrinsic ambiguity which
places in serious doubt the intention of the parties and the validity of
the lease agreement itself.[25] In their Reply to respondents
Comment, they further allege that the Agreement is invalid.[26]
These arguments are unconvincing. The validity and the nature of the
contract are the lis mota of the civil action pending before the RTC. A
resolution of these questions, therefore, is effectively a resolution of
the merits of the case. Hence, they should be threshed out in the trial,
not in the proceedings involving the issuance of the Writ of Seizure.
Indeed, in La Tondea Distillers v. CA,[27] the Court explained that the
policy under Rule 60 was that questions involving title to the subject
property questions which petitioners are now raising -- should be
determined in the trial. In that case, the Court noted that the remedy
of defendants under Rule 60 was either to post a counter-bond or to
question the sufficiency of the plaintiffs bond. They were not allowed,
however, to invoke the title to the subject property. The Court ruled:
In other words, the law does not allow the defendant to file a motion
to dissolve or discharge the writ of seizure (or delivery) on ground of
insufficiency of the complaint or of the grounds relied upon therefor,
as in proceedings on preliminary attachment or injunction, and
thereby put at issue the matter of the title or right of possession over
the specific chattel being replevied, the policy apparently being that
said matter should be ventilated and determined only at the trial on
the merits.[28]
Besides, these questions require a determination of facts and a
presentation of evidence, both of which have no place in a petition for
certiorari in the CA under Rule 65 or in a petition for review in this
Court under Rule 45.[29]
Reliance on the Lease Agreement
It should be pointed out that the Court in this case may rely on the
Lease Agreement, for nothing on record shows that it has been
nullified or annulled. In fact, petitioners assailed it first only in the RTC
proceedings, which had ironically been instituted by respondent.
Accordingly, it must be presumed valid and binding as the law
between the parties.
Makati Leasing and Finance Corporation[30] is also instructive on this
point. In that case, the Deed of Chattel Mortgage, which characterized
the subject machinery as personal property, was also assailed because
respondent had allegedly been required to sign a printed form of
chattel mortgage which was in a blank form at the time of signing. The
Court rejected the argument and relied on the Deed, ruling as follows:
x x x. Moreover, even granting that the charge is true, such fact alone
does not render a contract void ab initio, but can only be a ground for
rendering said contract voidable, or annullable pursuant to Article
1390 of the new Civil Code, by a proper action in court. There is
nothing on record to show that the mortgage has been annulled.
Neither is it disclosed that steps were taken to nullify the same. x x x
Alleged Injustice Committed on the Part of Petitioners
Petitioners contend that if the Court allows these machineries to be
seized, then its workers would be out of work and thrown into the
streets.[31] They also allege that the seizure would nullify all efforts to
rehabilitate the corporation.
Petitioners arguments do not preclude the implementation of the
Writ. As earlier discussed, law and jurisprudence support its propriety.
Verily, the above-mentioned consequences, if they come true, should
not be blamed on this Court, but on the petitioners for failing to avail
themselves of the remedy under Section 5 of Rule 60, which allows
the filing of a counter-bond. The provision states:
SEC. 5. Return of property. -- If the adverse party objects to the
sufficiency of the applicants bond, or of the surety or sureties thereon,
he cannot immediately require the return of the property, but if he
does not so object, he may, at any time before the delivery of the
property to the applicant, require the return thereof, by filing with the
court where the action is pending a bond executed to the applicant, in
double the value of the property as stated in the applicants affidavit
for the delivery thereof to the applicant, if such delivery be adjudged,
and for the payment of such sum to him as may be recovered against
the adverse party, and by serving a copy bond on the applicant.
WHEREFORE, the Petition is DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. L-19468 October 30, 1964
SALVADOR PIANSAY and CLAUDIA V. VDA. DE UY KIM, plaintiffs-
appellants,
vs.
CONRADO S. DAVID and MARCOS MANGUBAT, defendants-appellees.
Santiago F. Alidio for plaintiffs-appellants.
Marcos Mangubat in his own behalf and for co-defendant-appellee
Conrado S. David.
CONCEPCION, J.:
This is an appeal from an order of the Court of First Instance of Manila
in Civil Case No. 47664 thereof. The pertinent facts are set forth in said
order from which we quote:
It appears from the complaint that on December 11, 1948, defendant
herein Conrado S. David received a loan of P3,000 with interest at 12%
per annum from Claudia B. Vda. de Uy Kim, one of the plaintiffs, and
to secure the payment of the same, Conrado S. David executed a
chattel mortgage on a house situated at 1259 Sande Street, Tondo,
Manila; that the chattel mortgage was registered with the Register of
Deeds of Manila on December 19, 1948; that on February 10, 1953,
the mortgaged house was sold at public auction to satisfy the
indebtedness to Claudia B. Vda. de Uy Kim, and the house was sold to
Claudia B. Vda. de Uy Kim in the said foreclosure proceedings; that on
March 22, 1954, Claudia B. Vda. de Uy Kim sold the said house to
Marcos Mangubat, and on March 1, 1956. Marcos Mangubat filed a
complaint against Conrado S. David, Civil Case No. 29078, in the Court
of First Instance of Manila, for the collection of the loan of P2,000;
that on March 24, 1956, the complaint was amended to include the
plaintiffs herein Salvador Piansay and Claudia B. Vda. de Uy Kim as
party defendants and praying that auction sale executed by the Sheriff
on February 10, 1953, and the deed of absolute sale executed by
Claudia B. Vda. de Uy Kim in favor of Salvador Piansay be annulled;
that decision was rendered in Civil Case No. 29078 ordering Conrado
S. David to pay the plaintiff the sum of P2,000, damages and
attorney's fees, and dismissing the complaint with respect to Claudia
B. Vda. de Uy Kim, Leonardo Uy Kim and Salvador Piansay; that upon
appeal, the Court of Appeals affirmed the decision but setting aside
the award of damages in favor of Claudia B. Vda. de Uy Kim; that in
the execution of Civil Case No. 29078, which was affirmed by the
Court of Appeals in CA-G.R. No. 21797-R, the house, which had been
bought by Uy Kim at the foreclosure proceedings and sold by her to
Salvador Piansay, was levied upon at the instance of the defendant
Marcos Mangubat; that to prevent the sale at public auction of the
house here in question, the plaintiffs herein filed a petition for
certiorari and mandamus with preliminary injunction in the Court of
Appeals, CA-G.R. No. 28974-R, entitled Claudia B. Vda. de Uy Kim and
Salvador Piansay versus Hon. Judge Jesus Y. Perez, et al.; that acting
upon the said petition, the Court of Appeals in its order of April 28,
1961, denied the petition to lift or discharge the writ of execution.
Thereupon, or on July 31, 1961, Piansay and Mrs. Uy Kim, hereinafter
referred to as the plaintiffs, instituted the present action which was
docketed as Civil Case No. 47664 of the Court of First Instance of
Manila, against David and Mangubat, hereinafter referred to as the
defendants. In their complaint, plaintiffs, after averring the foregoing
facts, allege that, in the proceedings for the execution of the decision
4
in Civil Case No. 29078. David demanded from Piansay the payment of
rentals for the use and occupation of the house aforementioned,
which, Piansay claims, is his property, and that the defendants are
threatening to cause said house to be levied upon and sold at public
auction in violation of the alleged rights of the plaintiffs. Accordingly
plaintiffs prayed that a writ of preliminary injunction to restrain said
levy and sale at public auction be issued and that, after appropriate
proceedings, judgment be rendered declaring that Piansay is the true
and lawful owner of said house sentencing the defendants to pay
damages and making the preliminary injunction permanent.
Mangubat moved to dismiss said complaint, upon the theory that the
same is barred by the principle of res adjudicata and that plaintiffs
have no personality to bring this action or to question the levy upon
the house in question, because they have no interest therein. After
due hearing the lower court issued the order appealed from, granting
said motion and dismissing the complaint, with costs against the
plaintiffs. A reconsideration of said order having been denied,
plaintiffs interposed the present appeal directly to this Court only
questions of law being raised in the appeal, namely: (1) applicability of
the principle of res adjudicata; and (2) validity of the chattel mortgage
constituted in favor of Mrs. Uy Kim.
With reference to the first question, it should be noted that in case
CA-G.R. No. 21797-R, the Court of Appeals affirmed the decision in
Case No. 29078 of the Court of First Instance of Manila stating:
In the case of Ladera, et al., vs. Hodges, et al. (CA-G.R. No. 8027-R,
promulgated Sept. 23, 1952) this Court, thru Justice J. B. L. Reyes, said,
among others:
Since it is a rule in our law that buildings and constructions are
regarded as mere accesories to the land (following the Roman maxim
omne quod solo inaedificatur solo credit) it is logical that said
accessories should partaked of the nature of the principal thing, which
is the land forming, as they do, but a single object (res) with it in
contemplation of law.
... 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 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 produced 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 that 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 extra-judicial
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 Kee, 60 Phil. 899).
Thus, Mrs. Uy Kim had no right to foreclose the alleged chattel
mortgage constituted in her favor, because it was in reality a mere
contract of an unsecured loan. It follows that the Sheriff was not
authorized to sell the house as a result of the foreclosure of such
chattel mortgage. And as Mrs. Uy Kim could not have acquired the
house when the Sheriff sold it at public auction, she could not, in the
same token, it validly to Salvador Piansay. Conceding that the contract
of sale between Mrs. Uy Kim and Salvador Piansay was of no effect,
we cannot nevertheless set it aside upon instance of Mangubat
because, as the court below opined, he is not a party thereto nor has
he any interest in the subject matter therein, as it was never sold or
mortgaged to him (Emphasis supplied);
that, thereafter, the records of the case were remanded to the Court
of First Instance of Manila, which caused the corresponding writ of
execution to be issued; that upon the request of Mangubat, the house
in question was levied upon; that Piansay filed with the trial court,
presided over by Hon. Jesus Y. Perez, Judge, a motion to set aside said
levy; that this motion was denied by said court, in an order dated
February 4, 1961, upon the following ground:
Considering that the decision rendered by the Court of Appeals in this
case when the same was elevated to said Court recognizes that
defendant Claudia B. de Uy Kim did not acquire the house of
defendant Conrado S. David and can therefore be executed by the
plaintiff to satisfy the judgment rendered against said defendant David
in favor of the plaintiff. The mere fact that the dispositive part of the
decision states that the complaint is dismissed with respect to
defendants Claudia B. de Uy Kim, Leonardo Uy Kim and Salvador
Piansay is of no moment because the chattel mortgage executed by
David in favor of Claudia B. de Uy Kim might not be annulled but it did
not transmit any right from defendant David to Claudia B. de Uy Kim.
The house in question can therefore be levied upon because it had
remained the property of defendant David (Emphasis supplied);
that a reconsideration of this order of February 4, 1961 having been
denied by Judge Perez, on February 25, 1961, plaintiffs instituted case
CA-G.R. No. 28974-R of the Court of Appeals, for a writ of certiorari
and mandamus to annul said orders of Judge Perez and to compel him
to release said house from the aforementioned levy; and that on
March 3, 1961, the Court of Appeals denied said petition for certiorari
and mandamus "insofar as it prays that the order of respondent Judge
denying the lifting and discharge of the writ of execution be set aside
and revoked."
In other words, in Civil Case No. 29078 of the Court of First Instance of
Manila, Piansay assailed the right of Mangubat to levy execution upon
the house in question alleging that the same belongs to him, he having
bought it from Mrs. Uy Kim, who had acquired it at the auction sale
held in connection with the extrajudicial foreclosure of the chattel
mortgage constituted in her favor by David. This pretense was,
however, overruled by Judge Perez, who presided at said court, in its
order of February 4, 1961, upon the theory that the chattel mortgage
and sale in favor of Mrs. Uy Kim had been annulled in the original
decision in said case, as affirmed by the Court of Appeals in CA-G.R.
No. 21797-R. Regardless of whether this theory is accurate or not, the
fact is that said order became final and executory upon the denial of
the petition for certiorari and mandamus, to annul the same in CA-
G.R. No. 28974-R of the Court of Appeals. Hence, plaintiffs are now
barred from asserting that the aforementioned chattel mortgage and
sale are valid.
At any rate, regardless of the validity of a contract constituting a
chattel mortgage on a house, as between the parties to said contract
(Standard Oil Co. of N. Y. vs. Jaramillo, 44 Phil. 632-633), the same
cannot and does not bind third persons, who are not parties to the
aforementioned contract or their privies (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644; Evangelista vs. Alto Surety, G.R. No. L-
11139, April 23, 1958; Navarro vs. Pineda, G.R. No. L-18456,
November 30, 1963). As a consequence, the sale of the house in
question in the proceedings for the extrajudicial foreclosure of said
chattel mortgage, is null and void insofar as defendant Mangubat is
concerned, and did not confer upon Mrs. Uy Kim, as buyer in said sale,
any dominical right in and to said house (De la Riva vs. Ah Yee, 60 Phil.
800), so that she could not have transmitted to her assignee, plaintiff
Piansay any such right as against defendant Mangubat. In short
plaintiffs have no cause of action against the defendants herein.
WHEREFORE, the others appealed from are hereby affirmed, with
costs against plaintiffs Salvador Piansay and Claudia B. Vda. de Uy Kim.
It is 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.:
5
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
service-station.
As to whether the subject properties are attached and affixed to the
tenement, it is clear they are, for the tenement we consider in this
particular case are (is) the pavement covering the entire lot which was
constructed by the owner of the gasoline station and the
improvement which holds all the properties under question, they are
attached and affixed to the pavement and to the improvement.
The pavement covering the entire lot of the gasoline service station,
as well as all the improvements, machines, equipments and apparatus
are allowed by Caltex (Philippines) Inc. ...
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
Roño, held in its decision of June 3, 1977 that the said machines and
equipment are real property within the meaning of sections 3(k) & (m)
and 38 of the Real Property Tax Code, Presidential Decree No. 464,
which took effect on June 1, 1974, and that the definitions of real
property and personal property in articles 415 and 416 of the Civil
Code are not applicable to this case.
The decision was reiterated by the Board (Minister Vicente Abad
Santos took Macaraig's place) in its resolution of January 12, 1978,
denying Caltex's motion for reconsideration, a copy of which was
received by its lawyer on April 2, 1979.
On May 2, 1979 Caltex filed this certiorari petition wherein it prayed
for the setting aside of the Board's decision and for a declaration that
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
6
machinery within the meaning of the Assessment Law and the Real
Property Tax Code.
Caltex invokes the rule that machinery which is movable in its nature
only becomes immobilized when placed in a plant by the owner of the
property or plant but not when so placed by a tenant, a usufructuary,
or any person having only a temporary right, unless such person acted
as the agent of the owner (Davao Saw Mill Co. vs. Castillo, 61 Phil
709).
That ruling is an interpretation of paragraph 5 of article 415 of the Civil
Code regarding machinery that becomes real property by destination.
In the Davao Saw Mills case the question was whether the machinery
mounted on foundations of cement and installed by the lessee on
leased land should be regarded as real property for purposes of
execution of a judgment against the lessee. The sheriff treated the
machinery as personal property. This Court sustained the 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.
SO ORDERED.
G.R. No. L-41506 March 25, 1935
PHILIPPINE REFINING CO., INC., plaintiff-appellant,
vs.
FRANCISCO JARQUE, JOSE COROMINAS, and ABOITIZ & CO.,
defendants.
JOSE COROMINAS, in his capacity as assignee of the estate of the
insolvent Francisco Jarque, appellee.
Thos. G. Ingalls, Vicente Pelaez and DeWitt, Perkins and Brady for
appellant.
D.G. McVean and Vicente L. Faelnar for appellee.
MALCOLM, J.:

First of all the reason why the case has been decided by the court in
banc needs explanation. A motion was presented by counsel for the
appellant in which it was asked that the case be heard and determined
by the court sitting in banc because the admiralty jurisdiction of the
court was involved, and this motion was granted in regular course. On
further investigation it appears that this was error. The mere
mortgage of a ship is a contract entered into by the parties to it
without reference to navigation or perils of the sea, and does not,
therefore, confer admiralty jurisdiction. (Bogart vs. Steamboat John
Jay [1854], 17 How., 399.)
Coming now to the merits, it appears that on varying dates the
Philippine Refining Co., Inc., and Francisco Jarque executed three
mortgages on the motor vessels Pandan and Zaragoza. These
documents were recorded in the record of transfers and
incumbrances of vessels for the port of Cebu and each was therein
denominated a "chattel mortgage". Neither of the first two mortgages
had appended an affidavit of good faith. The third mortgage contained
such an affidavit, but this mortgage was not registered in the customs
house until May 17, 1932, or within the period of thirty days prior to
the commencement of insolvency proceedings against Francisco
Jarque; also, while the last mentioned mortgage was subscribed by
Francisco Jarque and M. N. Brink, there was nothing to disclose in
what capacity the said M. N. Brink signed. A fourth mortgage was
executed by Francisco Jarque and Ramon Aboitiz on the motorship
Zaragoza and was entered in the chattel mortgage registry of the
register of deeds on May 12, 1932, or again within the thirty-day
period before the institution of insolvency proceedings. These
proceedings were begun on June 2, 1932, when a petition was filed
with the Court of First Instance of Cebu in which it was prayed that
Francisco Jarque be declared an insolvent debtor, which soon
thereafter was granted, with the result that an assignment of all the
properties of the insolvent was executed in favor of Jose Corominas.
On these facts, Judge Jose M. Hontiveros declined to order the
foreclosure of the mortgages, but on the contrary sustained the
special defenses of fatal defectiveness of the mortgages. In so doing
we believe that the trial judge acted advisedly.
Vessels are considered personal property under the civil law. (Code of
Commerce, article 585.) Similarly under the common law, vessels are
personal property although occasionally referred to as a peculiar kind
of personal property. (Reynolds vs. Nielson [1903], 96 Am. Rep., 1000;
Atlantic Maritime Co vs. City of Gloucester [1917], 117 N. E., 924.)
Since the term "personal property" includes vessels, they are subject
to mortgage agreeably to the provisions of the Chattel Mortgage Law.
(Act No. 1508, section 2.) Indeed, it has heretofore been accepted
without discussion that a mortgage on a vessel is in nature a chattel
mortgage. (McMicking vs. Banco Español-Filipino [1909], 13 Phil., 429;
Arroyo vs. Yu de Sane [1930], 54 Phil., 511.) The only difference
between a chattel mortgage of a vessel and a chattel mortgage of
other personalty is that it is not now necessary for a chattel mortgage
of a vessel to be noted n the registry of the register of deeds, but it is
essential that a record of documents affecting the title to a vessel be
entered in the record of the Collector of Customs at the port of entry.
(Rubiso and Gelito vs. Rivera [1917], 37 Phil., 72; Arroyo vs. Yu de
Sane, supra.) Otherwise a mortgage on a vessel is generally like other
chattel mortgages as to its requisites and validity. (58 C.J., 92.)
The Chattell Mortgage Law in its section 5, in describing what shall be
deemed sufficient to constitute a good chattel mortgage, includes the
requirement of an affidavit of good faith appended to the mortgage
and recorded therewith. The absence of the affidavit vitiates a
mortgage as against creditors and subsequent encumbrancers.
(Giberson vs. A. N. Jureidini Bros. [1922], 44 Phil., 216; Benedicto de
Tarrosa vs. F. M. Yap Tico & Co. and Provincial Sheriff of Occidental
Negros [1923], 46 Phil., 753.) As a consequence a chattel mortgage of
a vessel wherein the affidavit of good faith required by the Chattel
Mortgage Law is lacking, is unenforceable against third persons.
In effect appellant asks us to find that the documents appearing in the
record do not constitute chattel mortgages or at least to gloss over
the failure to include the affidavit of good faith made a requisite for a
good chattel mortgage by the Chattel Mortgage Law. Counsel would
further have us disregard article 585 of the Code of Commerce, but no
reason is shown for holding this article not in force. Counsel would
7
further have us revise doctrines heretofore announced in a series of
cases, which it is not desirable to do since those principles were
confirmed after due liberation and constitute a part of the commercial
law of the Philippines. And finally counsel would have us make rulings
on points entirely foreign to the issues of the case. As neither the facts
nor the law remains in doubt, the seven assigned errors will be
overruled.
Judgment affirmed, the costs of this instance to be paid by the
appellant.
G.R. No. L-26278 August 4, 1927
LEON SIBAL , plaintiff-appellant,
vs.
EMILIANO J. VALDEZ ET AL., defendants.
EMILIANO J. VALDEZ, appellee.
J. E. Blanco for appellant.
Felix B. Bautista and Santos and Benitez for appellee.
JOHNSON, J.:
The action was commenced in the Court of First Instance of the
Province of Tarlac on the 14th day of December 1924. The facts are
about as conflicting as it is possible for facts to be, in the trial causes.
As a first cause of action the plaintiff alleged that the defendant
Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue
of a writ of execution issued by the Court of First Instance of
Pampanga, attached and sold to the defendant Emiliano J. Valdez the
sugar cane planted by the plaintiff and his tenants on seven parcels of
land described in the complaint in the third paragraph of the first
cause of action; that within one year from the date of the attachment
and sale the plaintiff offered to redeem said sugar cane and tendered
to the defendant Valdez the amount sufficient to cover the price paid
by the latter, the interest thereon and any assessments or taxes which
he may have paid thereon after the purchase, and the interest
corresponding thereto and that Valdez refused to accept the money
and to return the sugar cane to the plaintiff.
As a second cause of action, the plaintiff alleged that the defendant
Emiliano J. Valdez was attempting to harvest the palay planted in four
of the seven parcels mentioned in the first cause of action; that he had
harvested and taken possession of the palay in one of said seven
parcels and in another parcel described in the second cause of action,
amounting to 300 cavans; and that all of said palay belonged to the
plaintiff.
Plaintiff prayed that a writ of preliminary injunction be issued against
the defendant Emiliano J. Valdez his attorneys and agents, restraining
them (1) from distributing him in the possession of the parcels of land
described in the complaint; (2) from taking possession of, or
harvesting the sugar cane in question; and (3) from taking possession,
or harvesting the palay in said parcels of land. Plaintiff also prayed
that a judgment be rendered in his favor and against the defendants
ordering them to consent to the redemption of the sugar cane in
question, and that the defendant Valdez be condemned to pay to the
plaintiff the sum of P1,056 the value of palay harvested by him in the
two parcels above-mentioned ,with interest and costs.
On December 27, 1924, the court, after hearing both parties and upon
approval of the bond for P6,000 filed by the plaintiff, issued the writ of
preliminary injunction prayed for in the complaint.
The defendant Emiliano J. Valdez, in his amended answer, denied
generally and specifically each and every allegation of the complaint
and step up the following defenses:
(a) That the sugar cane in question had the nature of personal
property and was not, therefore, subject to redemption;
(b) That he was the owner of parcels 1, 2 and 7 described in the first
cause of action of the complaint;
(c) That he was the owner of the palay in parcels 1, 2 and 7; and
(d) That he never attempted to harvest the palay in parcels 4 and 5.
The defendant Emiliano J. Valdez by way of counterclaim, alleged that
by reason of the preliminary injunction he was unable to gather the
sugar cane, sugar-cane shoots (puntas de cana dulce) palay in said
parcels of land, representing a loss to him of P8,375.20 and that, in
addition thereto, he suffered damages amounting to P3,458.56. He
prayed, for a judgment (1) absolving him from all liability under the
complaint; (2) declaring him to be the absolute owner of the sugar
cane in question and of the palay in parcels 1, 2 and 7; and (3)
ordering the plaintiff to pay to him the sum of P11,833.76,
representing the value of the sugar cane and palay in question,
including damages.
Upon the issues thus presented by the pleadings the cause was
brought on for trial. After hearing the evidence, and on April 28, 1926,
the Honorable Cayetano Lukban, judge, rendered a judgment against
the plaintiff and in favor of the defendants —
(1) Holding that the sugar cane in question was personal property and,
as such, was not subject to redemption;
(2) Absolving the defendants from all liability under the complaint;
and
(3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal to jointly and severally pay to the
defendant Emiliano J. Valdez the sum of P9,439.08 as follows:
(a) P6,757.40, the value of the sugar cane;
(b) 1,435.68, the value of the sugar-cane shoots;
(c) 646.00, the value of palay harvested by plaintiff;
(d) 600.00, the value of 150 cavans of palay which the defendant was
not able to raise by reason of the injunction, at P4 cavan. 9,439.08
From that judgment the plaintiff appealed and in his assignments of
error contends that the lower court erred: (1) In holding that the sugar
cane in question was personal property and, therefore, not subject to
redemption;
(2) In holding that parcels 1 and 2 of the complaint belonged to
Valdez, as well as parcels 7 and 8, and that the palay therein was
planted by Valdez;
(3) In holding that Valdez, by reason of the preliminary injunction
failed to realized P6,757.40 from the sugar cane and P1,435.68 from
sugar-cane shoots (puntas de cana dulce);
(4) In holding that, for failure of plaintiff to gather the sugar cane on
time, the defendant was unable to raise palay on the land, which
would have netted him the sum of P600; and.
(5) In condemning the plaintiff and his sureties to pay to the
defendant the sum of P9,439.08.
It appears from the record:
(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac,
by virtue of writ of execution in civil case No. 20203 of the Court of
First Instance of Manila (Macondray & Co., Inc. vs. Leon Sibal),levied
an attachment on eight parcels of land belonging to said Leon Sibal,
situated in the Province of Tarlac, designated in the second of
attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).
(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight
parcels of land, at the auction held by the sheriff of the Province of
Tarlac, for the sum to P4,273.93, having paid for the said parcels
separately as follows (Exhibit C, and 2-A):
Parcel
1 .....................................................................
2 .....................................................................
3 ..................................................................... 120.93
4 ..................................................................... 1,000.00
5 ..................................................................... 1.00
6 ..................................................................... 1.00
7 with the house thereon .......................... 150.00
8 .....................................................................
1,000.00
==========
4,273.93
(3) That within one year from the sale of said parcel of land, and on
the 24th day of September, 1923, the judgment debtor, Leon Sibal,
paid P2,000 to Macondray & Co., Inc., for the account of the
redemption price of said parcels of land, without specifying the
particular parcels to which said amount was to applied. The
redemption price said eight parcels was reduced, by virtue of said
transaction, to P2,579.97 including interest (Exhibit C and 2).
The record further shows:
(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy
sheriff of the Province of Tarlac, by virtue of a writ of execution in civil
case No. 1301 of the Province of Pampanga (Emiliano J. Valdez vs.
Leon Sibal 1.º — the same parties in the present case), attached the
personal property of said Leon Sibal located in Tarlac, among which
was included the sugar cane now in question in the seven parcels of
land described in the complaint (Exhibit A).
(2) That on May 9 and 10, 1924, said deputy sheriff sold at public
auction said personal properties of Leon Sibal, including the sugar
cane in question to Emilio J. Valdez, who paid therefor the sum of
P1,550, of which P600 was for the sugar cane (Exhibit A).
(3) That on April 29,1924, said deputy sheriff, by virtue of said writ of
execution, also attached the real property of said Leon Sibal in Tarlac,
including all of his rights, interest and participation therein, which real
property consisted of eleven parcels of land and a house and camarin
situated in one of said parcels (Exhibit A).
(4) That on June 25, 1924, eight of said eleven parcels, including the
house and the camarin, were bought by Emilio J. Valdez at the auction
held by the sheriff for the sum of P12,200. Said eight parcels were
designated in the certificate of sale as parcels 1, 3, 4, 5, 6, 7, 10 and
11. The house and camarin were situated on parcel 7 (Exhibit A).
(5) That the remaining three parcels, indicated in the certificate of the
sheriff as parcels 2, 12, and 13, were released from the attachment by
virtue of claims presented by Agustin Cuyugan and Domiciano Tizon
(Exhibit A).
(6) That on the same date, June 25, 1924, Macondray & Co. sold and
conveyed to Emilio J. Valdez for P2,579.97 all of its rights and interest
in the eight parcels of land acquired by it at public auction held by the
deputy sheriff of Tarlac in connection with civil case No. 20203 of the
Court of First Instance of Manila, as stated above. Said amount
represented the unpaid balance of the redemption price of said eight
parcels, after payment by Leon Sibal of P2,000 on September 24,
1923, fro the account of the redemption price, as stated above.
(Exhibit C and 2).
The foregoing statement of facts shows:
(1) The Emilio J. Valdez bought the sugar cane in question, located in
the seven parcels of land described in the first cause of action of the
complaint at public auction on May 9 and 10, 1924, for P600.
(2) That on July 30, 1923, Macondray & Co. became the owner of eight
parcels of land situated in the Province of Tarlac belonging to Leon
Sibal and that on September 24, 1923, Leon Sibal paid to Macondray &
Co. P2,000 for the account of the redemption price of said parcels.
(3) That on June 25, 1924, Emilio J. Valdez acquired from Macondray &
Co. all of its rights and interest in the said eight parcels of land.
(4) That on June 25, 1924, Emilio J. Valdez also acquired all of the
rights and interest which Leon Sibal had or might have had on said
P1.00 eight parcels by virtue of the P2,000 paid by the latter to Macondray.
2,000.00
8
(5) That Emilio J. Valdez became the absolute owner of said eight
parcels of land.
The first question raised by the appeal is, whether the sugar cane in
question is personal or real property. It is contended that sugar cane
comes under the classification of real property as "ungathered
products" in paragraph 2 of article 334 of the Civil Code. Said
paragraph 2 of article 334 enumerates as real property the following:
Trees, plants, and ungathered products, while they are annexed to the
land or form an integral part of any immovable property." That article,
however, has received in recent years an interpretation by the
Tribunal Supremo de España, which holds that, under certain
conditions, growing crops may be considered as personal property.
(Decision of March 18, 1904, vol. 97, Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in
discussing section 334 of the Civil Code, in view of the recent decisions
of the supreme Court of Spain, admits that growing crops are
sometimes considered and treated as personal property. He says:
No creemos, sin embargo, que esto excluya la excepcionque muchos
autores hacen tocante a la venta de toda cosecha o de parte de ella
cuando aun no esta cogida (cosa frecuente con la uvay y la naranja), y
a la de lenas, considerando ambas como muebles. El Tribunal
Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un
contrato de arrendamiento de un predio rustico, resuelve que su
terminacion por desahucio no extingue los derechos del arrendario,
para recolectar o percibir los frutos correspondientes al año agricola,
dentro del que nacieron aquellos derechos, cuando el arrendor ha
percibido a su vez el importe de la renta integra correspondiente, aun
cuando lo haya sido por precepto legal durante el curso del juicio,
fundandose para ello, no solo en que de otra suerte se daria al
desahucio un alcance que no tiene, sino en que, y esto es lo
interesante a nuestro proposito, la consideracion de inmuebles que el
articulo 334 del Codigo Civil atribuge a los frutos pendientes, no les
priva del caracter de productos pertenecientes, como tales, a quienes
a ellos tenga derecho, Ilegado el momento de su recoleccion.
xxx xxx xxx
Mas actualmente y por virtud de la nueva edicion de la Ley
Hipotecaria, publicada en 16 de diciembre de 1909, con las reformas
introducidas por la de 21 de abril anterior, la hipoteca, salvo pacto
expreso que disponga lo contrario, y cualquiera que sea la naturaleza
y forma de la obligacion que garantice, no comprende los frutos
cualquiera que sea la situacion en que se encuentre. (3 Manresa, 5.
edicion, pags. 22, 23.)
From the foregoing it appears (1) that, under Spanish authorities,
pending fruits and ungathered products may be sold and transferred
as personal property; (2) that the Supreme Court of Spain, in a case of
ejectment of a lessee of an agricultural land, held that the lessee was
entitled to gather the products corresponding to the agricultural year,
because said fruits did not go with the land but belonged separately to
the lessee; and (3) that under the Spanish Mortgage Law of 1909, as
amended, the mortgage of a piece of land does not include the fruits
and products existing thereon, unless the contract expressly provides
otherwise.
An examination of the decisions of the Supreme Court of Louisiana
may give us some light on the question which we are discussing.
Article 465 of the Civil Code of Louisiana, which corresponds to
paragraph 2 of article 334 of our Civil Code, provides: "Standing crops
and the fruits of trees not gathered, and trees before they are cut
down, are likewise immovable, and are considered as part of the land
to which they are attached."
The Supreme Court of Louisiana having occasion to interpret that
provision, held that in some cases "standing crops" may be considered
and dealt with as personal property. In the case of Lumber Co. vs.
Sheriff and Tax Collector (106 La., 418) the Supreme Court said: "True,
by article 465 of the Civil Code it is provided that 'standing crops and
the fruits of trees not gathered and trees before they are cut down . . .
are considered as part of the land to which they are attached, but the
immovability provided for is only one in abstracto and without
reference to rights on or to the crop acquired by others than the
owners of the property to which the crop is attached. . . . The
9
existence of a right on the growing crop is a mobilization by
anticipation, a gathering as it were in advance, rendering the crop
movable quoad the right acquired therein. Our jurisprudence
recognizes the possible mobilization of the growing crop." (Citizens'
Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La., Ann., 761;
Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)
"It is true," as the Supreme Court of Louisiana said in the case of
Porche vs. Bodin (28 La. An., 761) that "article 465 of the Revised Code
says that standing crops are considered as immovable and as part of
the land to which they are attached, and article 466 declares that the
fruits of an immovable gathered or produced while it is under seizure
are considered as making part thereof, and incurred to the benefit of
the person making the seizure. But the evident meaning of these
articles, is where the crops belong to the owner of the plantation they
form part of the immovable, and where it is seized, the fruits gathered
or produced inure to the benefit of the seizing creditor.
A crop raised on leased premises in no sense forms part of the
immovable. It belongs to the lessee, and may be sold by him, whether
it be gathered or not, and it may be sold by his judgment creditors. If it
necessarily forms part of the leased premises the result would be that
it could not be sold under execution separate and apart from the land.
If a lessee obtain supplies to make his crop, the factor's lien would not
attach to the crop as a separate thing belonging to his debtor, but the
land belonging to the lessor would be affected with the recorded
privilege. The law cannot be construed so as to result in such absurd
consequences.
In the case of Citizen's Bank vs. Wiltz (31 La. Ann., 244)the court said:
If the crop quoad the pledge thereof under the act of 1874 was an
immovable, it would be destructive of the very objects of the act, it
would render the pledge of the crop objects of the act, it would
render the pledge of the crop impossible, for if the crop was an
inseparable part of the realty possession of the latter would be
necessary to that of the former; but such is not the case. True, by
article 465 C. C. it is provided that "standing crops and the fruits of
trees not gathered and trees before they are cut down are likewise
immovable and are considered as part of the land to which they are
attached;" but the immovability provided for is only one in abstracto
and without reference to rights on or to the crop acquired by other
than the owners of the property to which the crop was attached. The
immovability of a growing crop is in the order of things temporary, for
the crop passes from the state of a growing to that of a gathered one,
from an immovable to a movable. The existence of a right on the
growing crop is a mobilization by anticipation, a gathering as it were in
advance, rendering the crop movable quoad the right acquired
thereon. The provision of our Code is identical with the Napoleon
Code 520, and we may therefore obtain light by an examination of the
jurisprudence of France.
The rule above announced, not only by the Tribunal Supremo de
España but by the Supreme Court of Louisiana, is followed in
practically every state of the Union.
From an examination of the reports and codes of the State of
California and other states we find that the settle doctrine followed in
said states in connection with the attachment of property and
execution of judgment is, that growing crops raised by yearly labor
and cultivation are considered personal property. (6 Corpuz Juris, p.
197; 17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329: Raventas vs.
Green, 57 Cal., 254; Norris vs. Watson, 55 Am. Dec., 161; Whipple vs.
Foot, 3 Am. Dec., 442; 1 Benjamin on Sales, sec. 126; McKenzie vs.
Lampley, 31 Ala., 526; Crine vs. Tifts and Co., 65 Ga., 644; Gillitt vs.
Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on
Execution, vol. 1, p. 438; Drake on Attachment, sec. 249; Mechem on
Sales, sec. 200 and 763.)
Mr. Mechem says that a valid sale may be made of a thing, which
though not yet actually in existence, is reasonably certain to come into
existence as the natural increment or usual incident of something
already in existence, and then belonging to the vendor, and then title
will vest in the buyer the moment the thing comes into existence.
(Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep., 63.) Things of this nature are said to have a
potential existence. A man may sell property of which he is potentially
and not actually possessed. He may make a valid sale of the wine that
a vineyard is expected to produce; or the gain a field may grow in a
given time; or the milk a cow may yield during the coming year; or the
wool that shall thereafter grow upon sheep; or what may be taken at
the next cast of a fisherman's net; or fruits to grow; or young animals
not yet in existence; or the good will of a trade and the like. The thing
sold, however, must be specific and identified. They must be also
owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am.
Rep., 165].)
It is contended on the part of the appellee that paragraph 2 of article
334 of the Civil Code has been modified by section 450 of the Code of
Civil Procedure as well as by Act No. 1508, the Chattel Mortgage Law.
Said section 450 enumerates the property of a judgment debtor which
may be subjected to execution. The pertinent portion of said section
reads as follows: "All goods, chattels, moneys, and other property,
both real and personal, * * * shall be liable to execution. Said section
450 and most of the other sections of the Code of Civil Procedure
relating to the execution of judgment were taken from the Code of
Civil Procedure of California. The Supreme Court of California, under
section 688 of the Code of Civil Procedure of that state (Pomeroy, p.
424) has held, without variation, that growing crops were personal
property and subject to execution.
Act No. 1508, the Chattel Mortgage Law, fully recognized that growing
crops are personal property. Section 2 of said Act provides: "All
personal property shall be subject to mortgage, agreeably to the
provisions of this Act, and a mortgage executed in pursuance thereof
shall be termed a chattel mortgage." Section 7 in part provides: "If
growing crops be mortgaged the mortgage may contain an agreement
stipulating that the mortgagor binds himself properly to tend, care for
and protect the crop while growing.
It is clear from the foregoing provisions that Act No. 1508 was enacted
on the assumption that "growing crops" are personal property. This
consideration tends to support the conclusion hereinbefore stated,
that paragraph 2 of article 334 of the Civil Code has been modified by
section 450 of Act No. 190 and by Act No. 1508 in the sense that
"ungathered products" as mentioned in said article of the Civil Code
have the nature of personal property. In other words, the phrase
"personal property" should be understood to include "ungathered
products."
At common law, and generally in the United States, all annual crops
which are raised by yearly manurance and labor, and essentially owe
their annual existence to cultivation by man, . may be levied on as
personal property." (23 C. J., p. 329.) On this question Freeman, in his
treatise on the Law of Executions, says: "Crops, whether growing or
standing in the field ready to be harvested, are, when produced by
annual cultivation, no part of the realty. They are, therefore, liable to
voluntary transfer as chattels. It is equally well settled that they may
be seized and sold under execution. (Freeman on Executions, vol. p.
438.)
We may, therefore, conclude that paragraph 2 of article 334 of the
Civil Code has been modified by section 450 of the Code of Civil
Procedure and by Act No. 1508, in the sense that, for the purpose of
attachment and execution, and for the purposes of the Chattel
Mortgage Law, "ungathered products" have the nature of personal
property. The lower court, therefore, committed no error in holding
that the sugar cane in question was personal property and, as such,
was not subject to redemption.
All the other assignments of error made by the appellant, as above
stated, relate to questions of fact only. Before entering upon a
discussion of said assignments of error, we deem it opportune to take
special notice of the failure of the plaintiff to appear at the trial during
the presentation of evidence by the defendant. His absence from the
trial and his failure to cross-examine the defendant have lent
considerable weight to the evidence then presented for the defense.
Coming not to the ownership of parcels 1 and 2 described in the first
cause of action of the complaint, the plaintiff made a futile attempt to
show that said two parcels belonged to Agustin Cuyugan and were the
identical parcel 2 which was excluded from the attachment and sale of
real property of Sibal to Valdez on June 25, 1924, as stated above. A
comparison of the description of parcel 2 in the certificate of sale by
10
the sheriff (Exhibit A) and the description of parcels 1 and 2 of the
complaint will readily show that they are not the same.
The description of the parcels in the complaint is as follows:
1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal
1.º en una parcela de terreno de la pertenencia del citado ejecutado,
situada en Libutad, Culubasa, Bamban, Tarlac, de unas dos hectareas
poco mas o menos de superficie.
2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal
1.º, Ilamado Alejandro Policarpio, en una parcela de terreno de la
pertenencia del ejecutado, situada en Dalayap, Culubasa, Bamban,
Tarlac de unas dos hectareas de superficie poco mas o menos." The
description of parcel 2 given in the certificate of sale (Exhibit A) is as
follows:
2a. Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090
metros cuadrados de superficie, linda al N. con Canuto Sibal, Esteban
Lazatin and Alejandro Dayrit; al E. con Francisco Dizon, Felipe Mañu
and others; al S. con Alejandro Dayrit, Isidro Santos and Melecio
Mañu; y al O. con Alejandro Dayrit and Paulino Vergara. Tax No. 2854,
vador amillarado P4,200 pesos.
On the other hand the evidence for the defendant purported to show
that parcels 1 and 2 of the complaint were included among the parcels
bought by Valdez from Macondray on June 25, 1924, and
corresponded to parcel 4 in the deed of sale (Exhibit B and 2), and
were also included among the parcels bought by Valdez at the auction
of the real property of Leon Sibal on June 25, 1924, and corresponded
to parcel 3 in the certificate of sale made by the sheriff (Exhibit A). The
description of parcel 4 (Exhibit 2) and parcel 3 (Exhibit A) is as follows:
Parcels No. 4. — Terreno palayero, ubicado en el barrio de
Culubasa,Bamban, Tarlac, I. F. de 145,000 metros cuadrados de
superficie, lindante al Norte con Road of the barrio of Culubasa that
goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y
Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado
asciende a la suma de P2,990. Tax No. 2856.
As will be noticed, there is hardly any relation between parcels 1 and 2
of the complaint and parcel 4 (Exhibit 2 and B) and parcel 3 (Exhibit A).
But, inasmuch as the plaintiff did not care to appear at the trial when
the defendant offered his evidence, we are inclined to give more
weight to the evidence adduced by him that to the evidence adduced
by the plaintiff, with respect to the ownership of parcels 1 and 2 of the
compliant. We, therefore, conclude that parcels 1 and 2 of the
complaint belong to the defendant, having acquired the same from
Macondray & Co. on June 25, 1924, and from the plaintiff Leon Sibal
on the same date.
It appears, however, that the plaintiff planted the palay in said parcels
and harvested therefrom 190 cavans. There being no evidence of bad
faith on his part, he is therefore entitled to one-half of the crop, or 95
cavans. He should therefore be condemned to pay to the defendant
for 95 cavans only, at P3.40 a cavan, or the sum of P323, and not for
the total of 190 cavans as held by the lower court.
As to the ownership of parcel 7 of the complaint, the evidence shows
that said parcel corresponds to parcel 1 of the deed of sale of
Macondray & Co, to Valdez (Exhibit B and 2), and to parcel 4 in the
certificate of sale to Valdez of real property belonging to Sibal,
executed by the sheriff as above stated (Exhibit A). Valdez is therefore
the absolute owner of said parcel, having acquired the interest of both
Macondray and Sibal in said parcel.
With reference to the parcel of land in Pacalcal, Tarlac, described in
paragraph 3 of the second cause of action, it appears from the
testimony of the plaintiff himself that said parcel corresponds to
parcel 8 of the deed of sale of Macondray to Valdez (Exhibit B and 2)
and to parcel 10 in the deed of sale executed by the sheriff in favor of
Valdez (Exhibit A). Valdez is therefore the absolute owner of said
parcel, having acquired the interest of both Macondray and Sibal
therein.
In this connection the following facts are worthy of mention:
Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of
land were attached under said execution. Said parcels of land were
sold to Macondray & Co. on the 30th day of July, 1923. Rice paid
P4,273.93. On September 24, 1923, Leon Sibal paid to Macondray &
Co. P2,000 on the redemption of said parcels of land. (See Exhibits B
and C ).
Attachment, April 29, 1924, in favor of Valdez. Personal property of
Sibal was attached, including the sugar cane in question. (Exhibit A)
The said personal property so attached, sold at public auction May 9
and 10, 1924. April 29, 1924, the real property was attached under the
execution in favor of Valdez (Exhibit A). June 25, 1924, said real
property was sold and purchased by Valdez (Exhibit A).
June 25, 1924, Macondray & Co. sold all of the land which they had
purchased at public auction on the 30th day of July, 1923, to Valdez.
As to the loss of the defendant in sugar cane by reason of the
injunction, the evidence shows that the sugar cane in question
covered an area of 22 hectares and 60 ares (Exhibits 8, 8-b and 8-c);
that said area would have yielded an average crop of 1039 picos and
60 cates; that one-half of the quantity, or 519 picos and 80 cates
would have corresponded to the defendant, as owner; that during the
season the sugar was selling at P13 a pico (Exhibit 5 and 5-A).
Therefore, the defendant, as owner, would have netted P 6,757.40
from the sugar cane in question. The evidence also shows that the
defendant could have taken from the sugar cane 1,017,000 sugar-cane
shoots (puntas de cana) and not 1,170,000 as computed by the lower
court. During the season the shoots were selling at P1.20 a thousand
(Exhibits 6 and 7). The defendant therefore would have netted
P1,220.40 from sugar-cane shoots and not P1,435.68 as allowed by
the lower court.
As to the palay harvested by the plaintiff in parcels 1 and 2 of the
complaint, amounting to 190 cavans, one-half of said quantity should
belong to the plaintiff, as stated above, and the other half to the
defendant. The court erred in awarding the whole crop to the
defendant. The plaintiff should therefore pay the defendant for 95
cavans only, at P3.40 a cavan, or P323 instead of P646 as allowed by
the lower court.
The evidence also shows that the defendant was prevented by the
acts of the plaintiff from cultivating about 10 hectares of the land
involved in the litigation. He expected to have raised about 600 cavans
of palay, 300 cavans of which would have corresponded to him as
owner. The lower court has wisely reduced his share to 150 cavans
only. At P4 a cavan, the palay would have netted him P600.
In view of the foregoing, the judgment appealed from is hereby
modified. The plaintiff and his sureties Cenon de la Cruz, Juan
Sangalang and Marcos Sibal are hereby ordered to pay to the
defendant jointly and severally the sum of P8,900.80, instead of
P9,439.08 allowed by the lower court, as follows:
P6,757.40 for the sugar cane;
1,220.40 for the sugar cane shoots;
323.00 for the palay harvested by plaintiff in parcels 1 and 2;
600.00 for the palay which defendant could have raised.
8,900.80
============
In all other respects, the judgment appealed from is hereby affirmed,
with costs. So ordered.
No. L-5013 March 11, 1909
JEREMIAH J. HARTY, Roman Catholic Archbishop of Manila, plaintiff-
appellee,
vs.
THE MUNICIPALITY OF VICTORIA, Province of Tarlac, defendant-
appellant.
F. Buencamino for appellant.
Hartigan and Rohde for appellee.
11
TORRES, J.:
On January 17, 1908, the representative of Mgr. Jeremiah J. Harty,
archbishop of the Roman Catholic Church, as the legal administrator
of all the properties and rights of the Catholic Church within the
archbishopric of Manila, filed a written complaint in the Court of First
Instance of Tarlac against the municipality of Victoria, alleging that the
parish of the said town had been and was then the owner of a parcel
of land within the said municipality, known as the plaza of the church
of Victoria; that it had acquired said parcel of land more than sixty
years previously, and had continued to possess the same ever since up
to 1901, in which year the defendant municipality unlawfully and
forcibly seized the said property, claiming to be entitled thereto and
retaining it to the present day. For the purposes of the complaint, a
description of the meters and bounds of the land in question was set
forth in the writing, and plaintiff prayed that, in view of what was
therein set forth, judgment be entered holding that the said land was
the property of the parish of Victoria, of the Roman Catholic Apostolic
Church, and that the defendant be ordered to vacate the same and to
pay the costs of the action.
The defendant municipality answered the complaint through its
attorney and offered a general denial of all the facts stated therein,
especially of those numbered 4, 5, 6, and 7; in special defense it
alleged that the plaza described in No. 4 of the complaint was founded
when the sitio denominated Canarum, a barrio of the town of Tarlac,
was converted into a civil town in 1855; that the parish of Tarlac was
established many years after the civil town, and that therefore, it
neither had then, nor has now any title to the plaza claimed, and that
the complaint injured the defendant, and for this reason it prayed that
judgment be entered absolving the defendant of the complaint with
costs and damages against the plaintiff.
Evidence was adduced by both parties, and the documents exhibited,
to one of which the plaintiff objected, were made of record; the trial
court rendered judgment on the 15th of June, 1908, holding that the
parish of Victoria of the Roman Catholic Apostolic Church, had a better
right to the possession of the land described in the complaint, and
sentenced the defendant to vacate the same and to pay the costs. To
said judgment the representative of the defendant excepted and
moved for a new trial on the ground that it was contrary to the weight
of the evidence, and he notified the court that, if his motion were
overruled, he would appeal to the Supreme Court. The motion for a
new trial was overruled; the defendant excepted, and presented the
corresponding bill of exceptions which, after receipt of a copy had
been acknowledged by the adverse party, was approved. On the 1st of
September last, the appellant was ordered to furnish bond in the sum
of P1,000 to insure the fulfillment of the judgment in the event that it
should be totally or partially affirmed. To said order the defendant
excepted, but furnished the bond as directed by the court.
In view of the nature of the action brought by the plaintiff against the
municipality of Victoria, Province of Tarlac, the question that has
arisen between the contending parties consists only in determining
who is the owner and proprietor of the parcel of land that surrounds
the parish church of the said town, and which is called the public plaza
of the same.
Article 339 of the Civil Code reads:
Property of public ownership is:
1. That destined to the public use, such as roads, canals, rivers,
torrents, ports, and bridges constructed by the State, and banks,
shores, roadsteads, and that of a similar character.
Article 344 of said code also reads:
Property for public use in provinces and in towns comprises the
provincial and town roads, the squares, streets, fountains, and public
waters, the promenades, and public works of general service
supported by the said towns or provinces.
From the evidence presented by both parties it appears that the town
of Victoria, which was formerly only a barrio of the town of Tarlac and
known as Canarum, was converted into a town in 1855, and named
Victoria; to this end they must have laid out the streets and the plaza
of the town, in the center of which were situated the church and
parish house from the commencement, and at the expiration of about
twelve years the parish of said town was constituted and the parish
who was to perform the office of curate was appointed; that from the
very beginning, the large tract of land that surrounds the church and
the parish house was known as a public plaza, destined to the use of
all the residents of the recently founded town; public performances
and religious processions were held thereon without hindrance either
on the part of the local authorities or of the curate of said town.
It must be assumed that the principal residents of the old barrio, being
interested in the conversion of the barrio into a civil town, arranged in
such a way that the barrio, as the center of the future town which was
subsequently called Victoria, should have streets and a public plaza
with its church and parish house, and also a tribunal or building
destined for the use of the municipality and the local official at that
time called the gobernadorcillo and later on capitán municipal, as has
occurred in the foundation of all the towns in these Islands, under the
old administrative laws.
It may be true that the father of the witness Casimiro Tañedo, who
owned the space of land where the church and parish house were
erected, had voluntarily donated it to the Catholic Church, the only
one known at the time, but proper proof is lacking that the donation
affirmed by the said Tañedo comprehended the whole of the large
tract which at the present time constitute the plaza of the town.
It was a custom observed by all the towns established administratively
in these Islands under the old Laws of the Indies, that on their
creation, a certain amount of land was always reserved for plazas,
commons, and special and communal property, and as it is
unquestionable that the said large space of land was left vacant in the
center of the town of Victoria when it was constituted as a civil town,
more than twelve years prior to the appointment of a permanent
curate therein, there are good grounds to suppose that the late
Vicente Tañedo donated the land now occupied by the church and the
parish house in said municipality for religious purposes, or to the
church, but not to the parish curate because at the time there was no
curate at the new town of Victoria.
Even though all the remaining space of land which now forms the
great plaza of the town of Victoria had been owned by the said
Tañedo, it must be presumed that he waived his right thereto for the
benefit of the townspeople, since from the creation or establishment
of the town, down to the present day, all the residents, including the
curate of said town, have enjoyed the free use of said plaza; it has not
been satisfactorily shown that the municipality or the principales of
the town of Victoria had donated the whole of said land to the curate
of Victoria or to the Catholic Church, as alleged, nor could it have been
so donated, it being a public plaza destined to public use and was not
of private ownership, or patrimony of the town of Victoria, or of the
Province of Tarlac.
It should be noted that, among other things, plazas destined to the
public use are not subject to prescription. (Art. 1936, Civil Code.)
That both the curates and the gobernadorcillos of the said town
procured fruit trees and plants to be set out in the plaza, does not
constitute an act of private ownership, but evidences the public use
thereof, or perhaps the intention to improve and embellish the said
plaza for the benefit of the townspeople.
Certain it is that the plaintiff has not proven that the Catholic Church
or the parish of Victoria was the owner or proprietor of the said
extensive piece of land which now forms the public plaza of said town,
nor that it was in possession thereof under the form and conditions
required by law, inasmuch as it has been fully proven that said plaza
has been used without let or hindrance by the public and the residents
of the town of Victoria ever since its creation. For the above reasons it
is our opinion that the judgment appealed from should be reversed,
and that it should be held, as we do hereby hold, that the whole of the
land not occupied by the church of the town of Victoria and its parish
house, is a public plaza of the said town, of public use, and that in
consequence thereof, the defendant is absolved of the complaint
without any special ruling as to the costs of both instances.
12
Arellano, C. J., Mapa, Johnson, Carson, and Willard, JJ., concur.
G.R. No. 155650 July 20, 2006
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY
ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE,
respondents.
DECISION
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the
Ninoy Aquino International Airport (NAIA) Complex in Parañaque City
under Executive Order No. 903, otherwise known as the Revised
Charter of the Manila International Airport Authority ("MIAA
Charter"). Executive Order No. 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Subsequently, Executive Order Nos.
9091 and 2982 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land,
improvements and equipment within the NAIA Complex. The MIAA
Charter transferred to MIAA approximately 600 hectares of land,3
including the runways and buildings ("Airport Lands and Buildings")
then under the Bureau of Air Transportation.4 The MIAA Charter
further provides that no portion of the land transferred to MIAA shall
be disposed of through sale or any other mode unless specifically
approved by the President of the Philippines.5
On 21 March 1997, the Office of the Government Corporate Counsel
(OGCC) issued Opinion No. 061. The OGCC opined that the Local
Government Code of 1991 withdrew the exemption from real estate
tax granted to MIAA under Section 21 of the MIAA Charter. Thus,
MIAA negotiated with respondent City of Parañaque to pay the real
estate tax imposed by the City. MIAA then paid some of the real
estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax
Delinquency from the City of Parañaque for the taxable years 1992 to
2001. MIAA's real estate tax delinquency is broken down as follows:
TAX DECLARATION
TAXABLE YEAR
TAX DUE
PENALTY
TOTAL
E-016-01370
1992-2001
19,558,160.00
11,201,083.20
30,789,243.20
E-016-01374
1992-2001
111,689,424.90
68,149,479.59
34,876,800.00
179,838,904.49
5,694,560.00
E-016-01375
50,571,360.00
1992-2001
*E-016-01396
20,276,058.00
1998-2001
12,371,832.00
75,240.00
32,647,890.00
33,858.00
E-016-01376
109,098.00
1992-2001
GRAND TOTAL
58,144,028.00
P392,435,861.95
35,477,712.00
P232,070,863.47
93,621,740.00
P 624,506,725.42
E-016-01377
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for
1992-2001 P4,207,028.75

18,134,614.65 #9476101 for P28,676,480.00

11,065,188.59 #9476103 for P49,115.006

29,199,803.24 On 17 July 2001, the City of Parañaque, through its City Treasurer,
issued notices of levy and warrants of levy on the Airport Lands and
E-016-01378 Buildings. The Mayor of the City of Parañaque threatened to sell at
public auction the Airport Lands and Buildings should MIAA fail to pay
1992-2001 the real estate tax delinquency. MIAA thus sought a clarification of
OGCC Opinion No. 061.
111,107,950.40
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC
67,794,681.59 Opinion No. 061. The OGCC pointed out that Section 206 of the Local
Government Code requires persons exempt from real estate tax to
178,902,631.99 show proof of exemption. The OGCC opined that Section 21 of the
MIAA Charter is the proof that MIAA is exempt from real estate tax.
E-016-01379
On 1 October 2001, MIAA filed with the Court of Appeals an original
1992-2001 petition for prohibition and injunction, with prayer for preliminary
injunction or temporary restraining order. The petition sought to
4,322,340.00 restrain the City of Parañaque from imposing real estate tax on,
levying against, and auctioning for public sale the Airport Lands and
2,637,360.00 Buildings. The petition was docketed as CA-G.R. SP No. 66878.

6,959,700.00 On 5 October 2001, the Court of Appeals dismissed the petition

because MIAA filed it beyond the 60-day reglementary period. The
E-016-01380 Court of Appeals also denied on 27 September 2002 MIAA's motion
for reconsideration and supplemental motion for reconsideration.
1992-2001 Hence, MIAA filed on 5 December 2002 the present petition for
review.7
7,776,436.00
Meanwhile, in January 2003, the City of Parañaque posted notices of
4,744,944.00 auction sale at the Barangay Halls of Barangays Vitalez, Sto. Niño, and
Tambo, Parañaque City; in the public market of Barangay La Huerta;
12,521,380.00 and in the main lobby of the Parañaque City Hall. The City of
Parañaque published the notices in the 3 and 10 January 2003 issues
*E-016-013-85 of the Philippine Daily Inquirer, a newspaper of general circulation in
the Philippines. The notices announced the public auction sale of the
1998-2001 Airport Lands and Buildings to the highest bidder on 7 February 2003,
10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
6,444,810.00
A day before the public auction, or on 6 February 2003, at 5:10 p.m.,
2,900,164.50 MIAA filed before this Court an Urgent Ex-Parte and Reiteratory
Motion for the Issuance of a Temporary Restraining Order. The motion
9,344,974.50 sought to restrain respondents — the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of
*E-016-01387 Parañaque, and the City Assessor of Parañaque ("respondents") —
from auctioning the Airport Lands and Buildings.
1998-2001
13
On 7 February 2003, this Court issued a temporary restraining order
(TRO) effective immediately. The Court ordered respondents to cease
and desist from selling at public auction the Airport Lands and
Buildings. Respondents received the TRO on the same day that the
Court issued it. However, respondents received the TRO only at 1:25
p.m. or three hours after the conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc
pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In
compliance with the directive issued during the hearing, MIAA,
respondent City of Parañaque, and the Solicitor General subsequently
submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport
Lands and Buildings in the name of MIAA. However, MIAA points out
that it cannot claim ownership over these properties since the real
owner of the Airport Lands and Buildings is the Republic of the
Philippines. The MIAA Charter mandates MIAA to devote the Airport
Lands and Buildings for the benefit of the general public. Since the
Airport Lands and Buildings are devoted to public use and public
service, the ownership of these properties remains with the State. The
Airport Lands and Buildings are thus inalienable and are not subject to
real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically
exempts MIAA from the payment of real estate tax. MIAA insists that
it is also exempt from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and Buildings are owned
by the Republic. To justify the exemption, MIAA invokes the principle
that the government cannot tax itself. MIAA points out that the
reason for tax exemption of public property is that its taxation would
not inure to any public advantage, since in such a case the tax debtor
is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which
expressly withdrew the tax exemption privileges of "government-
owned and-controlled corporations" upon the effectivity of the Local
Government Code. Respondents also argue that a basic rule of
statutory construction is that the express mention of one person,
thing, or act excludes all others. An international airport is not among
the exceptions mentioned in Section 193 of the Local Government
Code. Thus, respondents assert that MIAA cannot claim that the
Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International
Airport v. Marcos8 where we held that the Local Government Code
has withdrawn the exemption from real estate tax granted to
international airports. Respondents further argue that since MIAA has
already paid some of the real estate tax assessments, it is now
estopped from claiming that the Airport Lands and Buildings are
exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands
and Buildings of MIAA are exempt from real estate tax under existing
laws. If so exempt, then the real estate tax assessments issued by the
City of Parañaque, and all proceedings taken pursuant to such
assessments, are void. In such event, the other issues raised in this
petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real
estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but
an instrumentality of the National Government and thus exempt from
local taxation. Second, the real properties of MIAA are owned by the
Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or
controlled corporation, is not exempt from real estate tax.
14
Respondents claim that the deletion of the phrase "any government-
owned or controlled so exempt by its charter" in Section 234(e) of the
Local Government Code withdrew the real estate tax exemption of
government-owned or controlled corporations. The deleted phrase
appeared in Section 40(a) of the 1974 Real Property Tax Code
enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled
corporation is not exempt from real estate tax. However, MIAA is not
a government-owned or controlled corporation. Section 2(13) of the
Introductory Provisions of the Administrative Code of 1987 defines a
government-owned or controlled corporation as follows:
SEC. 2. General Terms Defined. – x x x x
(13) Government-owned or controlled corporation refers to any
agency organized as a stock or non-stock corporation, vested with
functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or
through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51)
percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be "organized as
a stock or non-stock corporation." MIAA is not organized as a stock or
non-stock corporation. MIAA is not a stock corporation because it has
no capital stock divided into shares. MIAA has no stockholders or
voting shares. Section 10 of the MIAA Charter9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed
by the National Government shall be increased from Two and One-half
Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00)
Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and
equipment and such other properties, movable and immovable[,]
which may be contributed by the National Government or transferred
by it from any of its agencies, the valuation of which shall be
determined jointly with the Department of Budget and Management
and the Commission on Audit on the date of such contribution or
transfer after making due allowances for depreciation and other
deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other
properties;
(b) That the amount of P605 million as of December 31, 1986
representing about seventy percentum (70%) of the unremitted share
of the National Government from 1983 to 1986 to be remitted to the
National Treasury as provided for in Section 11 of E. O. No. 903 as
amended, shall be converted into the equity of the National
Government in the Authority. Thereafter, the Government
contribution to the capital of the Authority shall be provided in the
General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is
divided into shares.
Section 3 of the Corporation Code10 defines a stock corporation as
one whose "capital stock is divided into shares and x x x authorized to
distribute to the holders of such shares dividends x x x." MIAA has
capital but it is not divided into shares of stock. MIAA has no
stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members.
Section 87 of the Corporation Code defines a non-stock corporation as
"one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have
members. Even if we assume that the Government is considered as
the sole member of MIAA, this will not make MIAA a non-stock
corporation. Non-stock corporations cannot distribute any part of
their income to their members. Section 11 of the MIAA Charter
mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury.11 This prevents MIAA from qualifying as a non-
stock corporation.
Section 88 of the Corporation Code provides that non-stock
corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social,
civil service, or similar purposes, like trade, industry, agriculture and
like chambers." MIAA is not organized for any of these purposes.
MIAA, a public utility, is organized to operate an international and
domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does
not qualify as a government-owned or controlled corporation. What
then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers
to perform efficiently its governmental functions. MIAA is like any
other government instrumentality, the only difference is that MIAA is
vested with corporate powers. Section 2(10) of the Introductory
Provisions of the Administrative Code defines a government
"instrumentality" as follows:
SEC. 2. General Terms Defined. –– x x x x
(10) Instrumentality refers to any agency of the National Government,
not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis
supplied)
When the law vests in a government instrumentality corporate
powers, the instrumentality does not become a corporation. Unless
the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not
only governmental but also corporate powers. Thus, MIAA exercises
the governmental powers of eminent domain,12 police authority13
and the levying of fees and charges.14 At the same time, MIAA
exercises "all the powers of a corporation under the Corporation Law,
insofar as these powers are not inconsistent with the provisions of this
Executive Order."15
Likewise, when the law makes a government instrumentality
operationally autonomous, the instrumentality remains part of the
National Government machinery although not integrated with the
department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body"16 will
make its operation more "financially viable."17
Many government instrumentalities are vested with corporate powers
but they do not become stock or non-stock corporations, which is a
necessary condition before an agency or instrumentality is deemed a
government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority,
the University of the Philippines and Bangko Sentral ng Pilipinas. All
these government instrumentalities exercise corporate powers but
they are not organized as stock or non-stock corporations as required
by Section 2(13) of the Introductory Provisions of the Administrative
Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not
government-owned or controlled corporations in the strict sense as
understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of
the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units.(Emphasis
and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments
cannot tax the national government, which historically merely
delegated to local governments the power to tax. While the 1987
Constitution now includes taxation as one of the powers of local
15
governments, local governments may only exercise such power
"subject to such guidelines and limitations as the Congress may
provide."18
When local governments invoke the power to tax on national
government instrumentalities, such power is construed strictly against
local governments. The rule is that a tax is never presumed and there
must be clear language in the law imposing the tax. Any doubt
whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments
seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the
taxpayer claiming the exemption. However, when Congress grants an
exemption to a national government instrumentality from local
taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v.
Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions
running to the benefit of the government itself or its agencies. In such
case the practical effect of an exemption is merely to reduce the
amount of money that has to be handled by government in the course
of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-
liability of such agencies.19
There is, moreover, no point in national and local governments taxing
each other, unless a sound and compelling policy requires such
transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national
government instrumentalities for rendering essential public services to
inhabitants of local governments. The only exception is when the
legislature clearly intended to tax government instrumentalities for
the delivery of essential public services for sound and compelling
policy considerations. There must be express language in the law
empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved
against local governments.
Thus, Section 133 of the Local Government Code states that "unless
otherwise provided" in the Code, local governments cannot tax
national government instrumentalities. As this Court held in Basco v.
Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede,
burden or in any manner control the operation of constitutional laws
enacted by Congress to carry into execution the powers vested in the
federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed.
579)
This doctrine emanates from the "supremacy" of the National
Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to
the entire absence of power on the part of the States to touch, in that
way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or
political subdivision can regulate a federal instrumentality in such a
way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them." (Antieau,
Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies
thru extermination of what local authorities may perceive to be
undesirable activities or enterprise using the power to tax as "a tool
for regulation" (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the "power
to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to
defeat an instrumentality or creation of the very entity which has the
inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public
dominion and therefore owned by the State or the Republic of the
Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private
ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended
for public use or for public service, shall form part of the patrimonial
property of the State.
No one can dispute that properties of public dominion mentioned in
Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports
and bridges constructed by the State," are owned by the State. The
term "ports" includes seaports and airports. The MIAA Airport Lands
and Buildings constitute a "port" constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are
properties of public dominion and thus owned by the State or the
Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because
they are used by the public for international and domestic travel and
transportation. The fact that the MIAA collects terminal fees and other
charges from the public does not remove the character of the Airport
Lands and Buildings as properties for public use. The operation by the
government of a tollway does not change the character of the road as
one for public use. Someone must pay for the maintenance of the
road, either the public indirectly through the taxes they pay the
government, or only those among the public who actually use the
road through the toll fees they pay upon using the road. The tollway
system is even a more efficient and equitable manner of taxing the
public for the maintenance of public roads.
The charging of fees to the public does not determine the character of
the property whether it is of public dominion or not. Article 420 of the
Civil Code defines property of public dominion as one "intended for
public use." Even if the government collects toll fees, the road is still
"intended for public use" if anyone can use the road under the same
terms and conditions as the rest of the public. The charging of fees,
the limitation on the kind of vehicles that can use the road, the speed
restrictions and other conditions for the use of the road do not affect
the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing
fees MIAA charges to airlines, constitute the bulk of the income that
maintains the operations of MIAA. The collection of such fees does not
change the character of MIAA as an airport for public use. Such fees
are often termed user's tax. This means taxing those among the public
who actually use a public facility instead of taxing all the public
including those who never use the particular public facility. A user's
tax is more equitable — a principle of taxation mandated in the 1987
Constitution.21
The Airport Lands and Buildings of MIAA, which its Charter calls the
"principal airport of the Philippines for both international and
domestic air traffic,"22 are properties of public dominion because
they are intended for public use. As properties of public dominion,
they indisputably belong to the State or the Republic of the
Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
16
The Airport Lands and Buildings of MIAA are devoted to public use and
thus are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are outside the commerce
of man. The Court has ruled repeatedly that properties of public
dominion are outside the commerce of man. As early as 1915, this
Court already ruled in Municipality of Cavite v. Rojas that properties
devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in
provinces and in towns comprises the provincial and town roads, the
squares, streets, fountains, and public waters, the promenades, and
public works of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the
municipal council of Cavite could not in 1907 withdraw or exclude
from public use a portion thereof in order to lease it for the sole
benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza
or public place to the defendant for private use the plaintiff
municipality exceeded its authority in the exercise of its powers by
executing a contract over a thing of which it could not dispose, nor is it
empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not
outside the commerce of man may be the object of a contract, and
plazas and streets are outside of this commerce, as was decided by
the supreme court of Spain in its decision of February 12, 1895, which
says: "Communal things that cannot be sold because they are by their
very nature outside of commerce are those for public use, such as the
plazas, streets, common lands, rivers, fountains, etc." (Emphasis
supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that
properties of public dominion are outside the commerce of man:
xxx Town plazas are properties of public dominion, to be devoted to
public use and to be made available to the public in general. They are
outside the commerce of man and cannot be disposed of or even
leased by the municipality to private parties. While in case of war or
during an emergency, town plazas may be occupied temporarily by
private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said
temporary occupation or use must also cease, and the town officials
should see to it that the town plazas should ever be kept open to the
public and free from encumbrances or illegal private constructions.24
(Emphasis supplied)
The Court has also ruled that property of public dominion, being
outside the commerce of man, cannot be the subject of an auction
sale.25
Properties of public dominion, being for public use, are not subject to
levy, encumbrance or disposition through public or private sale. Any
encumbrance, levy on execution or auction sale of any property of
public dominion is void for being contrary to public policy. Essential
public services will stop if properties of public dominion are subject to
encumbrances, foreclosures and auction sale. This will happen if the
City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber26 the Airport Lands and Buildings, the
President must first withdraw from public use the Airport Lands and
Buildings. Sections 83 and 88 of the Public Land Law or
Commonwealth Act No. 141, which "remains to this day the existing
general law governing the classification and disposition of lands of the
public domain other than timber and mineral lands,"27 provide:
SECTION 83. Upon the recommendation of the Secretary of
Agriculture and Natural Resources, the President may designate by
proclamation any tract or tracts of land of the public domain as
reservations for the use of the Republic of the Philippines or of any of
its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or
purposes when the public interest requires it, including reservations
for highways, rights of way for railroads, hydraulic power sites,
irrigation systems, communal pastures or lequas communales, public
parks, public quarries, public fishponds, working men's village and
other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions
of Section eighty-three shall be non-alienable and shall not be subject
to occupation, entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or by proclamation
of the President. (Emphasis and underscoring supplied)
Thus, unless the President issues a proclamation withdrawing the
Airport Lands and Buildings from public use, these properties remain
properties of public dominion and are inalienable. Since the Airport
Lands and Buildings are inalienable in their present status as
properties of public dominion, they are not subject to levy on
execution or foreclosure sale. As long as the Airport Lands and
Buildings are reserved for public use, their ownership remains with
the State or the Republic of the Philippines.
The authority of the President to reserve lands of the public domain
for public use, and to withdraw such public use, is reiterated in Section
14, Chapter 4, Title I, Book III of the Administrative Code of 1987,
which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of
the Government. — (1) The President shall have the power to reserve
for settlement or public use, and for specific public purposes, any of
the lands of the public domain, the use of which is not otherwise
directed by law. The reserved land shall thereafter remain subject to
the specific public purpose indicated until otherwise provided by law
or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and
Buildings are withdrawn by law or presidential proclamation from
public use, they are properties of public dominion, owned by the
Republic and outside the commerce of man.
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust
for the Republic. Section 48, Chapter 12, Book I of the Administrative
Code allows instrumentalities like MIAA to hold title to real properties
owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real
property of the Government is authorized by law to be conveyed, the
deed of conveyance shall be executed in behalf of the government by
the following:
(1) For property belonging to and titled in the name of the Republic of
the Philippines, by the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled
in the name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and
Buildings is clearer because even its executive head cannot sign the
deed of conveyance on behalf of the Republic. Only the President of
the Republic can sign such deed of conveyance.28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the
Airport Lands and Buildings from the Bureau of Air Transportation of
the Department of Transportation and Communications. The MIAA
Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — x
xxx
The land where the Airport is presently located as well as the
surrounding land area of approximately six hundred hectares, are
hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The
Bureau of Lands and other appropriate government agencies shall
17
undertake an actual survey of the area transferred within one year
from the promulgation of this Executive Order and the corresponding
title to be issued in the name of the Authority. Any portion thereof
shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines. (Emphasis
supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All
existing public airport facilities, runways, lands, buildings and other
property, movable or immovable, belonging to the Airport, and all
assets, powers, rights, interests and privileges belonging to the Bureau
of Air Transportation relating to airport works or air operations,
including all equipment which are necessary for the operation of crash
fire and rescue facilities, are hereby transferred to the Authority.
(Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division
in the Bureau of Air Transportation and Transitory Provisions. — The
Manila International Airport including the Manila Domestic Airport as
a division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA
without the Republic receiving cash, promissory notes or even stock
since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the
transfer of the Airport Lands and Buildings to MIAA, thus:
WHEREAS, the Manila International Airport as the principal airport of
the Philippines for both international and domestic air traffic, is
required to provide standards of airport accommodation and service
comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other
facilities, have to be upgraded to meet the current and future air
traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that
the objectives of providing high standards of accommodation and
service within the context of a financially viable operation, will best be
achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by
Presidential Decree No. 1772, the President of the Philippines is given
continuing authority to reorganize the National Government, which
authority includes the creation of new entities, agencies and
instrumentalities of the Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air
Transportation to MIAA was not meant to transfer beneficial
ownership of these assets from the Republic to MIAA. The purpose
was merely to reorganize a division in the Bureau of Air Transportation
into a separate and autonomous body. The Republic remains the
beneficial owner of the Airport Lands and Buildings. MIAA itself is
owned solely by the Republic. No party claims any ownership rights
over MIAA's assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and
Buildings "shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines."
This only means that the Republic retained the beneficial ownership of
the Airport Lands and Buildings because under Article 428 of the Civil
Code, only the "owner has the right to x x x dispose of a thing." Since
MIAA cannot dispose of the Airport Lands and Buildings, MIAA does
not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the
Airport Lands and Buildings without the Republic paying MIAA any
consideration. Under Section 3 of the MIAA Charter, the President is
the only one who can authorize the sale or disposition of the Airport
Lands and Buildings. This only confirms that the Airport Lands and
Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real
estate tax any "[r]eal property owned by the Republic of the
Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the
same Code, which prohibits local governments from imposing "[t]axes,
fees or charges of any kind on the National Government, its agencies
and instrumentalities x x x." The real properties owned by the
Republic are titled either in the name of the Republic itself or in the
name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic
to be titled in the name of agencies or instrumentalities of the
national government. Such real properties remain owned by the
Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an
agency or instrumentality of the national government. This happens
when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real
property. Such arrangement does not result in the loss of the tax
exemption. Section 234(a) of the Local Government Code states that
real property owned by the Republic loses its tax exemption only if the
"beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person." MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the
Local Government Code. Thus, even if we assume that the Republic
has granted to MIAA the beneficial use of the Airport Lands and
Buildings, such fact does not make these real properties subject to real
estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases
to private entities are not exempt from real estate tax. For example,
the land area occupied by hangars that MIAA leases to private
corporations is subject to real estate tax. In such a case, MIAA has
granted the beneficial use of such land area for a consideration to a
taxable person and therefore such land area is subject to real estate
tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private
entities as well as those parts of the hospital leased to private
individuals are not exempt from such taxes. On the other hand, the
portions of the land occupied by the hospital and portions of the
hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes.29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax
because Section 193 of the Local Government Code of 1991 withdrew
the tax exemption of "all persons, whether natural or juridical" upon
the effectivity of the Code. Section 193 provides:
SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise
provided in this Code, tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local
water districts, cooperatives duly registered under R.A. No. 6938, non-
stock and non-profit hospitals and educational institutions are hereby
withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The
minority argues that since the Local Government Code withdrew the
tax exemption of all juridical persons, then MIAA is not exempt from
real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code
that the withdrawn exemptions from realty tax cover not just GOCCs,
but all persons. To repeat, the provisions lay down the explicit
18
proposition that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is only
clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons
recognized under our laws, natural and juridical persons. Obviously,
MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all.
(Emphasis and underscoring in the original)
The minority posits that the "determinative test" whether MIAA is
exempt from local taxation is its status — whether MIAA is a juridical
person or not. The minority also insists that "Sections 193 and 234
may be examined in isolation from Section 133(o) to ascertain MIAA's
claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the
Local Government Code expressly withdrew the tax exemption of all
juridical persons "[u]nless otherwise provided in this Code." Now,
Section 133(o) of the Local Government Code expressly provides
otherwise, specifically prohibiting local governments from imposing
any kind of tax on national government instrumentalities. Section
133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the exercise
of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its
agencies and instrumentalities, and local government units. (Emphasis
and underscoring supplied)
By express mandate of the Local Government Code, local governments
cannot impose any kind of tax on national government
instrumentalities like the MIAA. Local governments are devoid of
power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not
extend to the national government, its agencies and instrumentalities,
"[u]nless otherwise provided in this Code" as stated in the saving
clause of Section 133. The saving clause refers to Section 234(a) on the
exception to the exemption from real estate tax of real property
owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193
itself, all juridical persons are subject to tax by local governments. The
minority insists that the juridical persons exempt from local taxation
are limited to the three classes of entities specifically enumerated as
exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water
districts; (b) cooperatives duly registered under Republic Act No. 6938;
and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does
not fall within any of the exempt entities under Section 193.
(Emphasis supplied)
The minority's theory directly contradicts and completely negates
Section 133(o) of the Local Government Code. This theory will result in
gross absurdities. It will make the national government, which itself is
a juridical person, subject to tax by local governments since the
national government is not included in the enumeration of exempt
entities in Section 193. Under this theory, local governments can
impose any kind of local tax, and not only real estate tax, on the
national government.
Under the minority's theory, many national government
instrumentalities with juridical personalities will also be subject to any
kind of local tax, and not only real estate tax. Some of the national
government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice
Research Institute,31 Laguna Lake
Development Authority,32 Fisheries Development Authority,33 Bases
Conversion Development Authority,34 Philippine Ports Authority,35
Cagayan de Oro Port Authority,36 San Fernando Port Authority,37
Cebu Port Authority,38 and Philippine National Railways.39
The minority's theory violates Section 133(o) of the Local Government
Code which expressly prohibits local governments from imposing any
kind of tax on national government instrumentalities. Section 133(o)
does not distinguish between national government instrumentalities
with or without juridical personalities. Where the law does not
distinguish, courts should not distinguish. Thus, Section 133(o) applies
to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from
local taxation is not whether MIAA is a juridical person, but whether it
is a national government instrumentality under Section 133(o) of the
Local Government Code. Section 133(o) is the specific provision of law
prohibiting local governments from imposing any kind of tax on the
national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving
clause "[u]nless otherwise provided in this Code." This means that
unless the Local Government Code grants an express authorization,
local governments have no power to tax the national government, its
agencies and instrumentalities. Clearly, the rule is local governments
have no power to tax the national government, its agencies and
instrumentalities. As an exception to this rule, local governments may
tax the national government, its agencies and instrumentalities only if
the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the
exemption in Section 234(a) of the Code, which makes the national
government subject to real estate tax when it gives the beneficial use
of its real properties to a taxable entity. Section 234(a) of the Local
Government Code provides:
SEC. 234. Exemptions from Real Property Tax – The following are
exempted from payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt
from real estate tax. The exception to this exemption is when the
government gives the beneficial use of the real property to a taxable
entity.
The exception to the exemption in Section 234(a) is the only instance
when the national government, its agencies and instrumentalities are
subject to any kind of tax by local governments. The exception to the
exemption applies only to real estate tax and not to any other tax. The
justification for the exception to the exemption is that the real
property, although owned by the Republic, is not devoted to public
use or public service but devoted to the private gain of a taxable
person.
The minority also argues that since Section 133 precedes Section 193
and 234 of the Local Government Code, the later provisions prevail
over Section 133. Thus, the minority asserts:
x x x Moreover, sequentially Section 133 antecedes Section 193 and
234. Following an accepted rule of construction, in case of conflict the
subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions
attaching to instrumentalities under Section 133(o) of the Local
Government Code being qualified by Sections 193 and 234 of the
same law. (Emphasis supplied)
The minority assumes that there is an irreconcilable conflict between
Section 133 on one hand, and Sections 193 and 234 on the other. No
one has urged that there is such a conflict, much less has any one
presenteda persuasive argument that there is such a conflict. The
minority's assumption of an irreconcilable conflict in the statutory
provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193
because Section 193 expressly admits its subordination to other
19
provisions of the Code when Section 193 states "[u]nless otherwise
provided in this Code." By its own words, Section 193 admits the
superiority of other provisions of the Local Government Code that
limit the exercise of the taxing power in Section 193. When a provision
of law grants a power but withholds such power on certain matters,
there is no conflict between the grant of power and the withholding of
power. The grantee of the power simply cannot exercise the power on
matters withheld from its power.
Second, Section 133 is entitled "Common Limitations on the Taxing
Powers of Local Government Units." Section 133 limits the grant to
local governments of the power to tax, and not merely the exercise of
a delegated power to tax. Section 133 states that the taxing powers of
local governments "shall not extend to the levy" of any kind of tax on
the national government, its agencies and instrumentalities. There is
no clearer limitation on the taxing power than this.
Since Section 133 prescribes the "common limitations" on the taxing
powers of local governments, Section 133 logically prevails over
Section 193 which grants local governments such taxing powers. By
their very meaning and purpose, the "common limitations" on the
taxing power prevail over the grant or exercise of the taxing power. If
the taxing power of local governments in Section 193 prevails over the
limitations on such taxing power in Section 133, then local
governments can impose any kind of tax on the national government,
its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its
agencies and instrumentalities, except as otherwise provided in the
Local Government Code pursuant to the saving clause in Section 133
stating "[u]nless otherwise provided in this Code." This exception —
which is an exception to the exemption of the Republic from real
estate tax imposed by local governments — refers to Section 234(a) of
the Code. The exception to the exemption in Section 234(a) subjects
real property owned by the Republic, whether titled in the name of
the national government, its agencies or instrumentalities, to real
estate tax if the beneficial use of such property is given to a taxable
entity.
The minority also claims that the definition in the Administrative Code
of the phrase "government-owned or controlled corporation" is not
controlling. The minority points out that Section 2 of the Introductory
Provisions of the Administrative Code admits that its definitions are
not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the
text, or the context as a whole, or a particular statute, shall require a
different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code
definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the
Administrative Code recognizes that a statute may require a different
meaning than that defined in the Administrative Code. However, this
does not automatically mean that the definition in the Administrative
Code does not apply to the Local Government Code. Section 2 of the
Administrative Code clearly states that "unless the specific words x x x
of a particular statute shall require a different meaning," the definition
in Section 2 of the Administrative Code shall apply. Thus, unless there
is specific language in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the
definition in the Administrative Code, the definition in the
Administrative Code prevails.
The minority does not point to any provision in the Local Government
Code defining the phrase "government-owned or controlled
corporation" differently from the definition in the Administrative
Code. Indeed, there is none. The Local Government Code is silent on
the definition of the phrase "government-owned or controlled
corporation." The Administrative Code, however, expressly defines the
phrase "government-owned or controlled corporation." The
inescapable conclusion is that the Administrative Code definition of
the phrase "government-owned or controlled corporation" applies to
the Local Government Code.

The third whereas clause of the Administrative Code states that the
Code "incorporates in a unified document the major structural,
functional and procedural principles and rules of governance." Thus,
the Administrative Code is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies
and instrumentalities. Unless a statute expressly provides for a
different status and relationship for a specific government unit or
entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase "government-owned or
controlled corporation" should apply only to corporations organized
under the Corporation Code, the general incorporation law, and not to
corporations created by special charters. The minority sees no reason
why government corporations with special charters should have a
capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled
corporations" under the Administrative Code refer to those
corporations owned by the government or its instrumentalities which
are created not by legislative enactment, but formed and organized
under the Corporation Code through registration with the Securities
and Exchange Commission. In short, these are GOCCs without original
charters.
xxxx
It might as well be worth pointing out that there is no point in
requiring a capital structure for GOCCs whose full ownership is limited
by its charter to the State or Republic. Such GOCCs are not
empowered to declare dividends or alienate their capital shares.
The contention of the minority is seriously flawed. It is not in accord
with the Constitution and existing legislations. It will also result in
gross absurdities.
First, the Administrative Code definition of the phrase "government-
owned or controlled corporation" does not distinguish between one
incorporated under the Corporation Code or under a special charter.
Where the law does not distinguish, courts should not distinguish.
Second, Congress has created through special charters several
government-owned corporations organized as stock corporations.
Prime examples are the Land Bank of the Philippines and the
Development Bank of the Philippines. The special charter40 of the
Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall
be nine billion pesos, divided into seven hundred and eighty million
common shares with a par value of ten pesos each, which shall be fully
subscribed by the Government, and one hundred and twenty million
preferred shares with a par value of ten pesos each, which shall be
issued in accordance with the provisions of Sections seventy-seven
and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter41 of the Development Bank of the
Philippines provides:
SECTION 7. Authorized Capital Stock – Par value. — The capital stock
of the Bank shall be Five Billion Pesos to be divided into Fifty Million
common shares with par value of P100 per share. These shares are
available for subscription by the National Government. Upon the
effectivity of this Charter, the National Government shall subscribe to
Twenty-Five Million common shares of stock worth Two Billion Five
Hundred Million which shall be deemed paid for by the Government
with the net asset values of the Bank remaining after the transfer of
assets and liabilities as provided in Section 30 hereof. (Emphasis
supplied)
Other government-owned corporations organized as stock
corporations under their special charters are the Philippine Crop
Insurance Corporation,42 Philippine International Trading
Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All
these government-owned corporations organized under special
charters as stock corporations are subject to real estate tax on real
properties owned by them. To rule that they are not government-
20
owned or controlled corporations because they are not registered
with the Securities and Exchange Commission would remove them
from the reach of Section 234 of the Local Government Code, thus
exempting them from real estate tax.
Third, the government-owned or controlled corporations created
through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution. The first
condition is that the government-owned or controlled corporation
must be established for the common good. The second condition is
that the government-owned or controlled corporation must meet the
test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good
and subject to the test of economic viability. (Emphasis and
underscoring supplied)
The Constitution expressly authorizes the legislature to create
"government-owned or controlled corporations" through special
charters only if these entities are required to meet the twin conditions
of common good and economic viability. In other words, Congress has
no power to create government-owned or controlled corporations
with special charters unless they are made to comply with the two
conditions of common good and economic viability. The test of
economic viability applies only to government-owned or controlled
corporations that perform economic or commercial activities and
need to compete in the market place. Being essentially economic
vehicles of the State for the common good — meaning for economic
development purposes — these government-owned or controlled
corporations with special charters are usually organized as stock
corporations just like ordinary private corporations.
In contrast, government instrumentalities vested with corporate
powers and performing governmental or public functions need not
meet the test of economic viability. These instrumentalities perform
essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need
not be economically viable since the government may even subsidize
their entire operations. These instrumentalities are not the
"government-owned or controlled corporations" referred to in Section
16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature
creates government instrumentalities vested with corporate powers
but performing essential governmental or public functions. Congress
has plenary authority to create government instrumentalities vested
with corporate powers provided these instrumentalities perform
essential government functions or public services. However, when the
legislature creates through special charters corporations that perform
economic or commercial activities, such entities — known as
"government-owned or controlled corporations" — must meet the
test of economic viability because they compete in the market place.
This is the situation of the Land Bank of the Philippines and the
Development Bank of the Philippines and similar government-owned
or controlled corporations, which derive their income to meet
operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is
to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place and
thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic
viability, explained to the Constitutional Commission the purpose of
this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that
when the government creates a corporation, there is a sense in which
this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government
corporation loses, then it makes its claim upon the taxpayers' money
through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a
budget of P115 billion for the entire government, about P28 billion of
this will go into equity infusions to support a few government financial
institutions. And this is all taxpayers' money which could have been
relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY"
together with the "common good," this becomes a restraint on future
enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable.
And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of "ECONOMIC
VIABILITY OR THE ECONOMIC TEST," together with the common
good.45
Father Joaquin G. Bernas, a leading member of the Constitutional
Commission, explains in his textbook The 1987 Constitution of the
Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional
Commission. The significant addition, however, is the phrase "in the
interest of the common good and subject to the test of economic
viability." The addition includes the ideas that they must show
capacity to function efficiently in business and that they should not go
into activities which the private sector can do better. Moreover,
economic viability is more than financial viability but also includes
capability to make profit and generate benefits not quantifiable in
financial terms.46 (Emphasis supplied)
Clearly, the test of economic viability does not apply to government
entities vested with corporate powers and performing essential public
services. The State is obligated to render essential public services
regardless of the economic viability of providing such service. The
non-economic viability of rendering such essential public service does
not excuse the State from withholding such essential services from the
public.
However, government-owned or controlled corporations with special
charters, organized essentially for economic or commercial objectives,
must meet the test of economic viability. These are the government-
owned or controlled corporations that are usually organized under
their special charters as stock corporations, like the Land Bank of the
Philippines and the Development Bank of the Philippines. These are
the government-owned or controlled corporations, along with
government-owned or controlled corporations organized under the
Corporation Code, that fall under the definition of "government-
owned or controlled corporations" in Section 2(10) of the
Administrative Code.
The MIAA need not meet the test of economic viability because the
legislature did not create MIAA to compete in the market place. MIAA
does not compete in the market place because there is no competing
international airport operated by the private sector. MIAA performs
an essential public service as the primary domestic and international
airport of the Philippines. The operation of an international airport
requires the presence of personnel from the following government
agencies:
1. The Bureau of Immigration and Deportation, to document the
arrival and departure of passengers, screening out those without visas
or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban
on prohibited importations;
3. The quarantine office of the Department of Health, to enforce
health measures against the spread of infectious diseases into the
country;
4. The Department of Agriculture, to enforce measures against the
spread of plant and animal diseases into the country;
5. The Aviation Security Command of the Philippine National Police, to
prevent the entry of terrorists and the escape of criminals, as well as
to secure the airport premises from terrorist attack or seizure;
21
6. The Air Traffic Office of the Department of Transportation and
Communications, to authorize aircraft to enter or leave Philippine
airspace, as well as to land on, or take off from, the airport; and
7. The MIAA, to provide the proper premises — such as runway and
buildings — for the government personnel, passengers, and airlines,
and to manage the airport operations.
All these agencies of government perform government functions
essential to the operation of an international airport.
MIAA performs an essential public service that every modern State
must provide its citizens. MIAA derives its revenues principally from
the mandatory fees and charges MIAA imposes on passengers and
airlines. The terminal fees that MIAA charges every passenger are
regulatory or administrative fees47 and not income from commercial
transactions.
MIAA falls under the definition of a government instrumentality under
Section 2(10) of the Introductory Provisions of the Administrative
Code, which provides:
SEC. 2. General Terms Defined. – x x x x
(10) Instrumentality refers to any agency of the National Government,
not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter. x x x (Emphasis
supplied)
The fact alone that MIAA is endowed with corporate powers does not
make MIAA a government-owned or controlled corporation. Without
a change in its capital structure, MIAA remains a government
instrumentality under Section 2(10) of the Introductory Provisions of
the Administrative Code. More importantly, as long as MIAA renders
essential public services, it need not comply with the test of economic
viability. Thus, MIAA is outside the scope of the phrase "government-
owned or controlled corporations" under Section 16, Article XII of the
1987 Constitution.
The minority belittles the use in the Local Government Code of the
phrase "government-owned or controlled corporation" as merely
"clarificatory or illustrative." This is fatal. The 1987 Constitution
prescribes explicit conditions for the creation of "government-owned
or controlled corporations." The Administrative Code defines what
constitutes a "government-owned or controlled corporation." To
belittle this phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled
corporation under Section 2(13) of the Introductory Provisions of the
Administrative Code because it is not organized as a stock or non-
stock corporation. Neither is MIAA a government-owned or controlled
corporation under Section 16, Article XII of the 1987 Constitution
because MIAA is not required to meet the test of economic viability.
MIAA is a government instrumentality vested with corporate powers
and performing essential public services pursuant to Section 2(10) of
the Introductory Provisions of the Administrative Code. As a
government instrumentality, MIAA is not subject to any kind of tax by
local governments under Section 133(o) of the Local Government
Code. The exception to the exemption in Section 234(a) does not
apply to MIAA because MIAA is not a taxable entity under the Local
Government Code. Such exception applies only if the beneficial use of
real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties
devoted to public use and thus are properties of public dominion.
Properties of public dominion are owned by the State or the Republic.
Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers,
torrents, ports and bridges constructed by the State, banks, shores,
roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and
are intended for some public service or for the development of the
national wealth. (Emphasis supplied)
The term "ports x x x constructed by the State" includes airports and
seaports. The Airport Lands and Buildings of MIAA are intended for
public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public
dominion, the Airport Lands and Buildings are owned by the Republic
and thus exempt from real estate tax under Section 234(a) of the Local
Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the
Administrative Code, which governs the legal relation and status of
government units, agencies and offices within the entire government
machinery, MIAA is a government instrumentality and not a
government-owned or controlled corporation. Under Section 133(o)
of the Local Government Code, MIAA as a government instrumentality
is not a taxable person because it is not subject to "[t]axes, fees or
charges of any kind" by local governments. The only exception is when
MIAA leases its real property to a "taxable person" as provided in
Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus,
only portions of the Airport Lands and Buildings leased to taxable
persons like private parties are subject to real estate tax by the City of
Parañaque.
Under Article 420 of the Civil Code, the Airport Lands and Buildings of
MIAA, being devoted to public use, are properties of public dominion
and thus owned by the State or the Republic of the Philippines. Article
420 specifically mentions "ports x x x constructed by the State," which
includes public airports and seaports, as properties of public dominion
and owned by the Republic. As properties of public dominion owned
by the Republic, there is no doubt whatsoever that the Airport Lands
and Buildings are expressly exempt from real estate tax under Section
234(a) of the Local Government Code. This Court has also repeatedly
ruled that properties of public dominion are not subject to execution
or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed
Resolutions of the Court of Appeals of 5 October 2001 and 27
September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport
Lands and Buildings of the Manila International Airport Authority
EXEMPT from the real estate tax imposed by the City of Parañaque.
We declare VOID all the real estate tax assessments, including the final
notices of real estate tax delinquencies, issued by the City of
Parañaque on the Airport Lands and Buildings of the Manila
International Airport Authority, except for the portions that the
Manila International Airport Authority has leased to private parties.
We also declare VOID the assailed auction sale, and all its effects, of
the Airport Lands and Buildings of the Manila International Airport
Authority.
No costs.
SO ORDERED.
R. No. L-23481 June 29, 1972
BISHOP OF CALBAYOG, Mons. Miguel F. Acebedo, applicant-appellant,
vs.
THE DIRECTOR OF LANDS and THE MUNICIPALITY OF CATARMAN,
SAMAR, oppositors-appellees.
Padilla Law Office for applicant-appellant.
Provincial Fiscal Eliseo de Veyra and Assistant Provincial Fiscal
Espiridion R. Lim of Samar for oppositors-appellees.
22
MAKALINTAL, J.:p
This is an appeal from the decision of the Court of First Instance of
Samar in Land Registration Case No. 3448 involving three parcels of
land located in Catarman, Samar (denominated as Lots 1, 2 and 3),
titles to which were sought to be confirmed and registered in favor of
the Bishop of Calbayog. The lower court adjudicated Lot 2 in favor of
the Municipality of Catarman and declared the eastern portion of Lot
1, and the portions of Nalazon street and Anunciacion street
traversing said Lot 1 and Lot 2, as public plaza and public
thoroughfares, respectively, and hence not subject to registration.
The petition for registration was filed by the Bishop of Calbayog, as a
corporation sole, on March 27, 1953, alleging open, continuous,
exclusive and notorious possession, since the Spanish regime, of three
parcels of land known as Lot 1 and 2 in the survey plan Exhibit D,
dated September 14-15, 1951, and Lot 3 in the survey plan Exhibit E,
the first two lots situated in the poblacion of Catarman, Samar, and
the third in barrio Cawayan.
Opposition to the application was filed by the Director of Lands with
respect to the three lots on October 1, 1953, and by the Municipality
of Catarman with respect to Lot 2 during the survey thereof.
On October 15, 1955 the lower court issued an order of general
default except as against the aforementioned oppositors. In the same
order the Municipality of Catarman was given 5 days from notice
within which to submit in proper form its opposition with respect to
Lot 2. Copy of the order of general default was received by the
municipal secretary on October 18, 1955, and on October 21 the
Municipality of Catarman filed its formal opposition as ordered. On
November 28, 1956 it filed an amended opposition, including therein
the eastern portion of Lot 1 and portions of Nalazon street and
Anunciacion street traversing said Lot 1. A second amended
opposition was filed on June 15, 1957, particularly describing Lot 1 and
Lot 2 and alleging that the eastern portion of Lot 1, being a municipal
plaza, was registrable in favor of the municipality.
After initial hearing the lower court, in an order dated June 15, 1957,
denied the amendment on the ground that the proper procedure,
which was by means of petition for relief from the order of general
default, had not been resorted to.
After trial on the merits the lower court rendered its decision on April
18, 1964 (1) ordering the applicant to segregate from Lot I Nalazon
street and Anunciacion street as public thoroughfares and the eastern
portion of Lot 1, beginning from Nalazon street up to Mendiola street,
as public plaza of the Municipality of Catarman; (2) confirming the
imperfect title of the applicant over the remaining portion of Lot 1,
with all the improvements existing thereon, and ordering that the
same be registered in the name of the Bishop of Calbayog as a
corporation sole; (3) adjudicating Lot 2, together with all the
improvements existing thereon, except the portion of Nalazon street
along the eastern boundary of the lot, in favor of the Municipality of
Catarman; and (4) confirming the applicant's title over Lot 3 and
ordering that the same be registered in the name of the Bishop of
Calbayog.
The Bishop of Calbayog appealed.
The evidence discloses the following pertinent facts: The survey plan
presented by the applicant as Exhibit D, which was executed on
September 14-15, 1951, shows that the entire area of Lot 1 is 17,571
square meters, more o less. It is bounded on the north by a provincial
road (now Rizal St.), on the east by Mendiola St., on the south by
Bonifacio St., and on the west by a national road (Trece Martires del
1900 St.). Opposite Lot 1 to the northwest is Lot 2, which has an area
of approximately 4,707 square meters. It is bounded by the provincial
road (Rizal St.) on the south, on the west by the national road (Trece
Martires del 1900 St.), on the north by Blumentrit St. and on the east
by a municipal lot.
The survey plan does not contain any other information or markings.
But from the undisputed actual observation by the lower court as well
as from the description given by the witnesses for both parties,
Nalazon St., which traverses the entire length of the poblacion from
south to north, crosses Jacinto and Real streets and cuts across Lot 1
from Bonifacio St. to Rizal St., passing immediately in front of the
church and the convent. It extends across Lot 2 along its eastern
boundary from Rizal St. to Blumentrit St. Thus, from actual
observation Lot 2 appears bounded on the east by Nalazon St. and not
by the municipal lot as described in the survey plan. With respect to
Lot 1, Nalazon St. divides the lot into the western portion, which forms
about 2/3 of the entire area, and the eastern portion which comprises
the other 1/3. All the permanent improvements on Lot 1, which
include the Roman Catholic church, the belfry and convent, the St.
Michael Academy building and a nun's residence, are found on the
western portion. Lot 2 has no permanent improvements. The eastern
portion of Lot 1, the area in contention, is an empty space except for
concrete benches along the perimeter. A partly cemented path runs
across this lot from east to west leading up to the front or entrance of
the church and appears to be an extension of Anunciacion St., which
runs from the bank of the Catarman river up to Mendiola St. In the
middle of this path, half-way between Mendiola St. and the church, is
a statue of the Sacred Heart of Jesus.
The Roman Catholic Church relies on the testimony of its witnesses to
prove its ownership. Mariano Singzon, 59 years old and one-time
municipal councilor of Catarman and also counsel in this case for the
applicant, was the principal witness. The following is his testimony:
Prior to 1910 the portions of Nalazon and Anunciacion streets
traversing Lot 1 and Lot 2 were merely trails used by the parishioners
in going to and from the church. A retracing (Exhibit M) of a survey
plan of the poblacion of Catarman executed in 1909 shows that
Anunciacion St. stopped at Calle Garfil (now Mendiola St.) and that
there was no other street traversing Lot 1. According to Atty. Singzon,
Nalazon St. was opened and improved by the municipality sometime
in 1910 or 1911. Anunciacion St. was opened only about 2 years
before the trial of the case. In 1920, the municipality planted acacia
trees on both sides of Nalazon St. inside Lot 1 and along Mendiola St.
bordering Lot 1 but these trees were recently cut down upon order of
the priest, Fr. Ricalde, and all that remain are stumps. The statue of
the Sacred Heart found in the middle of Anunciacion St. was put up in
1927, but the base of the statue had been standing on that site even
before 1905. The Roman Catholic Church had made no improvements
on this eastern portion of Lot 1, which at present is being used as a
public playground, although a bandstand stood there for about three
years after it was constructed in 1926 by the members of an orchestra
which was organized by a Fr. Ranera and which used to give musical
performances on the bandstand. On the feast of Corpus Christi the
parishioners would construct an altar on this lot and hold the
procession there.
With respect to Lot 2, although the Church had made no
improvements thereon, around the turn of the century there were
camarins on this lot which were used as stables for the horses and
cows owned by a Fr. Troquillo. In 1933 the municipal council passed a
resolution (Exhibit G) asking the Bishop of Calbayog, then Mons.
Hacbang, to donate a small portion of this lot for the construction of a
monument in honor of the Trece Martires del 1900, but this request
was denied by the Bishop. Gonzalo Olmedo, the municipal secretary of
Catarman in 1933 whose signature appears on Exhibit G, testified as to
the authenticity of the resolution and even pointed to the western
portion of Lot 2 as the subject matter of the request. Mons. Desoloc,
who acted as private secretary to the Bishop at that time, testified
that the writing on the lower right hand corner of Exhibit G, which
reads "cont. negativ" is the handwriting of the Bishop and was meant
to impart an order that the request contained in the resolution be
denied. In 1949 Mayor Eusebio Moore of Catarman and Fr. Ortega
asked him, Atty. Singzon, to draft a contract of exchange between Lot
2 and a lot owned by the municipality, but the exchange did not
materialize because the lot intended to be bartered by the
municipality had no title, although he (the witness) found a copy of a
tax declaration (Exhibit F) for Lot 2 dated May 8, 1948 in the name of
the Roman Catholic Church. This tax declaration describes Lot 2 as
being bounded by Trece Martires del 1900 on the west, Nalazon St.
(instead of the municipal lot as described in Exhibit D) on the east,
Blumentrit St. on the north and Rizal St. on the south.
The testimony of Atty. Singzon was corroborated by Candido
Franzuela, a 63 year-old resident of Catarman and brother of Fr.
Franzuela of the same municipality as well as Salvadora Olmedo, an 82
year-old local resident, who died after giving her direct testimony.
23
Franzuela confirmed the existence on Lot 2 of camarins used as
stables for the cattle owned by the church. He remembered that
sometime in 1927 a group of Chinese asked permission from the
parish priest to use the lot as a football ground, which they did for 2
years. On cross-examination he admitted that before Nalazon St. was
extended there was no visible boundary between Lot 2 claimed by the
Church and the municipal lot on which a public school building used to
stand. Salvadora Olmedo also testified that when she was yet
schooling a certain Fr. Troquillo had camarins on Lot 2 which he used
as stables for his cows and horses and that whenever she and her
classmates wanted to gather flowers on this lot they asked permission
from the priest.
The case for oppositors was presented by the following witnesses:
1. Martin Evangelista, 65 years old and former municipal
treasurer of Catarman, declared that as property custodian of the
municipality before his retirement, he knew that Lot 2 was owned by
the municipality. This lot was fenced by the municipality first with
bamboos and then with barbed wire because the municipal prisoners
were planting camotes on this lot. On February 21, 1952 Fr. Franquela
personally handed to him a letter (Exhibit 1) asking that he be allowed
to use a portion of Lot 2 as playground for the students of St. Michael
Academy. He endorsed the letter to the municipal council of
Catarman, which passed Resolution No. 19 (Exhibit 3), declaring Lot 2
as temporary public playground until such time that the municipality
was ready to construct a permanent improvement thereon.
2. Eusebio Moore, 54, mayor of Catarman since 1948, declared
that Lot 2 was owned by the municipality because when he was in the
elementary grades he attended classes in a public school building
located on the municipal lot next to Lot 2 and did school gardening on
Lot 2. When he was in Grade 6, as leader of the school football team
he invited the Chinese team to play and he was the one who asked
permission from the municipal president to use Lot 2 as their football
ground. When he assumed office in 1948 he had the lot fenced and
planted to fruit trees and during fiestas temporary sheds would be put
up for rent to itinerant merchants. It was Fr. Ortega who went to see
him in 1949 regarding the fencing of Lot 2 by the municipality and
together they discussed the matter with Atty. Singzon, the lawyer for
the Church, and the latter suggested to him that Lot 2 be exchanged
with another lot owned by the municipality and he replied that it was
up to the municipal council to decide. In 1950 he had the lot declared
for taxation purposes. The tax declaration (Exhibit 5) covers the entire
area of Lot 2 claimed by the applicant as well as the uncontested
municipal lot, from Trece Martires del 1900 on the west to Mendiola
St. on the east, Blumentrit St. on the north and Rizal St. on the south.
This tax declaration was marked on the reverse side as newly issued
because according to him the old tax declaration could not be located
as the public records had been destroyed during the war. Mayor
Moore denied the authenticity of Resolution No. 19 (Exh. G) sent by
the municipal council to the Bishop in 1933 on the ground that the
document is in Spanish, language not spoken either by the municipal
secretary who certified as to the correctness of the resolution or by
the municipal president, who supposedly dictated its text. The witness
produced the affidavits of Pelayo Saldo, municipal councilor in 1933
and one of those listed as present when the resolution was taken up,
to the effect that Lot 2 is owned by the municipality. He also produced
a similar affidavit executed by Antonio Oladive, a former municipal
president of Catarman. To further buttress the municipality's position
the mayor produced a letter dated February 29, 1952 by Matias
Rodriguez, representing the Northern Samar Academy, requesting
that Lot 2 be used as playground for the school. The mayor disclosed
that he, the mayor, had been president of the Northern Samar
Academy. Nalazon St. and Anunciacion St., according to Mayor Moore,
are cleaned and maintained by the municipality. With respect to the
eastern portion of Lot 1 the same had always been regarded as owned
by the municipality because the municipal building used to face this
lot, although when he assumed the office of Mayor he had the
backyard of the municipal building improved and the stairway
transferred there.
3. Gaudencio Camposano, a 75 year-old resident of Catarman,
testified that a bandstand was constructed on the eastern portion of
Lot 1 in 1905 and it was not only the orchestra organized by Fr. Ranera
that used to play there but also the municipal band. He also testified
that when he was attending school in 1905 the school garden was
located inside Lot 2, which he believed to be in the possession of the
municipality because nobody owned it and when he became acting
mayor he required the prisoners to clear Lot 2 and had it planted to
camotes and bananas.
The conclusion that may be drawn from the evidence on record is that
Lot 2, called the "town plaza" by oppositor, is a public plaza and that
Nalazon St., traversing Lot I and Lot 2, is a public thoroughfare and
should therefore be excluded from the application for registration
filed by the Church.
Admittedly Nalazon St. was originally merely a trail used by the
parishioners in going to and from the church. But since 1910, when it
was opened and improved as a public thoroughfare by the
municipality, it had been continuously used as such by the
townspeople of Catarman without objection from the Church
authorities. The acacia trees along both sides of the street were
planted by the municipality in 1920, although these trees were cut
down recently upon order of the priest. There is no proof that the
Church merely tolerated and limited the use of this street for the
benefit of its parishioners, considering that the street traverses the
entire length of the poblacion from south to north and that Lot 1, on
which the church stands, is located almost at the center of the
poblacion. The street does not stop on Lot I but extends north toward
the sea, passing along the lot occupied by the Central Elementary
School and the Northern Samar General Hospital. Thus it is clear that
Nalazon St. inside Lot 1 is used by the residents not only in going to
the church but to the public school and the general hospital north of
Lot 1.
With respect to Lot 2, there is no evidence that either the Church or
the municipality exercised clear acts of ownership or of exclusive
possession over this lot. It is true that there were witnesses who
testified that around the turn of the century there were camarins
inside this lot used as stables for the horses and cows owned by a Fr.
Troquillo. But these witnesses likewise testified that this lot had been
used also as a playground as well as a school garden by the students of
the public school located on the adjoining municipal lot. This lot still
serves as a public playground up to the present. The municipality also
makes use of this lot during town fiestas by constructing temporary
sheds which are rented to itinerant vendors. In 1949 the municipality
constructed a fence around this lot because the prisoners planted it to
camotes. The Church, however, objected to the putting up of the
fence.
All these facts only show that neither the Church nor the municipality
possessed Lot 2 exclusively. While it may be true that as late as 1933
the municipality acknowledged the ownership of the Church over Lot
2 and in 1949 the Church declared this lot for tax purposes, the
continuous use thereof enjoyed by the residents of Catarman is
admitted by all the witnesses. Thus, even the witness for the applicant
testified that the Church had made no improvements on Lot 2 and
that the same had been used primarily as playground for
schoolchildren. The municipality stands on the same footing as the
Church. The tax declaration in its name was issued only in 1950, when
the present dispute was already imminent. The letters of Fr. Franzuela
and Mr. Matias Rodriguez asking permission to use this lot as a
playground are not proof of municipal ownership, since after all the
municipal government may be considered the administrator of public
property, that is, property for public use.
In the case of Harty vs. Municipality of Victoria, 13 Phil. 152, involving
the question as to the ownership of a parcel of land which surrounded
the parish church of the town, this Court said:
Even though all the remaining space of land which now forms the
great plaza of the town of Victoria had been owned by the said
Tañedo, it must be presumed that he waived his right thereto for the
benefit of the townspeople, since from the creation or establishment
of the town, down to the present day, all the residents, including the
curate of said town, have enjoyed the free use of said plaza.
xxx xxx xxx
That both the curates and the gobernadorcillos of said town procured
fruit trees and plants to be set out in the plaza, does not constitute an
act of private ownership, but evidences the public use thereof, or
24
perhaps the intention to improve or embellish the said plaza for the
benefit of the townspeople.
xxx xxx xxx
Certain it is that the plaintiff has not proven that the Catholic Church
or the parish of Victoria was the owner or proprietor of the said
extensive piece of land which now forms the public plaza of said town,
nor that it was in possession thereof under the form and conditions
required by law, inasmuch as it has been fully proven that said plaza
has been used without let or hindrance by the public and the residents
of the town of Victoria ever since its creation.
Since neither the Church nor the municipality could present positive
proof of ownership or exclusive possession for an appreciable period
of time and the only indubitable fact is the free and continuous use of
Lot 2 by the residents of Catarman, coupled with the fact that the
town has no public plaza to speak of other than this disputed parcel of
land, there is a strong presumption that the same was segregated as a
public plaza upon the founding of the municipality of Catarman.
The municipality, as has been heretofore noted, was declared in
default with respect to Lot 1, and the default was never lifted. Indeed
the amended opposition of the municipality which purported to
include the eastern portion of said lot, was denied by the lower court.
In any event, the municipality failed to establish its allegation with
respect to the said portion of Lot 1 and to the portion of Anunciacion
St. within this lot. This portion is only a path which is cemented from
the corner of Mendiola St. to the monument of the Sacred Heart, and
asphalted from the monument to the front of the church. There is no
evidence that this path was planted to acacia trees, unlike Nalazo St.
and Mendiola St., where acacia stumps were observed by the lower
court. The explanation offered by Mayor Moore as to the presence of
this religious monument in the middle of a public thoroughfare — that
the residents of Catarman are religious — is not convincing. The statue
was enthroned only in 1927, when the separation of church and state
was already a confirmed legal principle. The statue was even recently
improved with the construction of a platform beneath it. Its location
shows that the path leading to it and to the front of the church is not
an extension of Anunciacion St. but was opened mainly for the benefit
of the parishioners. The eastern portion of Lot 1 itself is used for
religious functions, such as the feast of Corpus Christi and the
procession held on the occasion. It is admitted by the municipality
that the Church does not ask for a permit whenever it uses this lot for
such activities.
On the other hand, there is no evidence that the municipality uses this
lot for its official activities to support its claim that this lot is a
municipal plaza. The circumstance that the municipal band used to
perform weekly on the "kiosko" found on this lot sometime in 1927
does not constitute an act of exclusive possession which could be the
basis of a title. Moreover, the "kiosko" stood only for three years and
the municipality has not adduced any evidence that it continued to
use the lot after the "kiosko" was demolished.
For the foregoing reasons, the appealed decision is hereby modified in
the sense that Lot 2, being a public plaza, and Nalazon St., traversing
Lot 1 and Lot 2, being a public thoroughfare, are not subject to
registration; and that the title of the Bishop of Calbayog with respect
to the entire area of Lot 1, except the portion covered by Nalazon St.,
and to Lot 3, is confirmed and ordered registered in his name, as
corporation sole. In all other respects the decision appealed from is
affirmed. No pronouncement as to costs.
LAND BANK OF THE G.R. No. 150824
PHILIPPINES,
Petitioner, Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CORONA,*
NACHURA, and
REYES, JJ.
REPUBLIC OF THE
PHILIPPINES, represented Promulgated:
by the Director of Lands,
Respondent. February 4, 2008
x--------------------------------------------------x
DECISION
REYES, R.T., J.:
FOREST lands are outside the commerce of man and unsusceptible of
private appropriation in any form.[1]
It is well settled that a certificate of title is void when it covers
property of public domain classified as forest, timber or mineral lands.
Any title issued covering non-disposable lots even in the hands of an
alleged innocent purchaser for value shall be cancelled.[2] The rule
must stand no matter how harsh it may seem. Dura lex sed lex.[3] Ang
batas ay maaaring mahigpit subalit ito ang mananaig.
Before Us is a petition for review on certiorari under Rule 45 filed by
petitioner Land Bank of the Philippines (LBP) appealing the: (1)
Decision[4] of the Court of Appeals (CA), dated August 23, 2001, in CA-
G.R. CV No. 64121 entitled Republic of the Philippines, represented by
the Director of Lands v. Angelito Bugayong, et al.; and (2)
Resolution[5] of the same Court, dated November 12, 2001, denying
LBPs motion for reconsideration.
The CA affirmed the Decision[6] of the Regional Trial Court (RTC),
dated July 9, 1996, declaring null and void Original Certificate of Title
(OCT) No. P-2823, as well as other titles originating from it, on the
ground that at the time it was issued, the land covered was still within
the forest zone.[7]
The Facts
OCT No. P-2823 was issued on September 26, 1969 in favor of one
Angelito C. Bugayong. Said mother title emanated from Sales Patent
No. 4576 issued in Bugayongs name on September 22, 1969.[8] It
covered a parcel of land located in Bocana, Kabacan, Davao City, with
an area of 41,276 square meters. It was originally identified and
surveyed as Lot No. 4159 under Plan SI-(VIII-1), 328-D. Marshy and
under water during high tide, it used to be a portion of a dry river bed
near the mouth of Davao River.[9]
The land was initially subdivided into four lots, viz.: Lot Nos. 4159-A,
4159-B, 4159-C and 4159-D under Subdivision Plan (LRC) Psd-139511
approved by the Commissioner of Land Registration on April 23,
1971.[10] Consequently, OCT No. P-2823 was cancelled and new
Transfer Certificates of Title (TCTs) replaced it, all in the name of
Bugayong.
Bugayong sold all of the four lots to different persons. Lot No. 4159-A,
which was then under TCT No. T-32769, was sold to spouses Lourdes
and Candido Du. Accordingly, said TCT was cancelled and replaced by
TCT No. T-42166 in the name of spouses Du.[11]
Afterwards, the spouses Du further caused the subdivision of the land
covered by their TCT No. T-42166 into two (2) lots. They sold one of
said lots to spouses Felix and Guadalupe Dayola, who were issued TCT
No. T-45586. The other remaining lot, registered under TCT No. T-
45587, was retained by and registered in the names of spouses
Du.[12]
Subsequently, Du spouses TCT No. T-45587 was cancelled and was
replaced by TCT No. T-57348 registered in the name of Lourdes Farms,
Inc. subject of this case.[13] Lourdes Farms, Inc. mortgaged this
property to petitioner LBP on April 14, 1980.[14]
25
The validity of OCT No. P-2823, as well as its derivative TCTs, remained
undisturbed until some residents of the land it covered, particularly
those along Bolton Diversion Road, filed a formal petition before the
Bureau of Lands on July 15, 1981.[15]
Investigation and ocular inspection were conducted by the Bureau of
Lands to check the legitimacy of OCT No. P-2823. They found out that:
(1) at the time Sales Patent No. 4576 was issued to Bugayong, the land
it covered was still within the forest zone, classified under Project No.
1, LC-47 dated August 6, 1923; it was released as alienable and
disposable land only on March 25, 1981, pursuant to BFD
Administrative Order No. 4-1585 and to the provisions of Section 13,
Presidential Decree (P.D.) No. 705;[16] (2) the land was marshy and
covered by sea water during high tide; and (3) Bugayong was never in
actual possession of the land.[17]
In view of the foregoing findings, the Bureau of Lands resolved that
the sales patent in favor of Bugayong was improperly and illegally
issued and that the Director of Lands had no jurisdiction to dispose of
the subject land.[18]
Upon recommendation of the Bureau of Lands, the Republic of the
Philippines represented by the Director of Lands, through the Office of
the Solicitor General (OSG), instituted a complaint[19] before the RTC
in Davao, Branch 15, for the cancellation of title/patent and reversion
of the land covered by OCT No. P-2823 into the mass of public
domain. The complaint, as amended,[20] was filed against Bugayong
and other present owners and mortgagees of the land, such as
Lourdes Farms, Inc. and the latters mortgagee, petitioner LBP.
In its answer with cross-claim,[21] LBP claimed that it is a mortgagee
in good faith and for value. It prayed that should TCT No. T-57348 of
Lourdes Farms, Inc. be annulled by the court, Lourdes Farms, Inc.
should be ordered to pay its outstanding obligations to LBP or to
provide a new collateral security.[22]
RTC Judgment
Eventually, the RTC rendered its judgment[23] on July 9, 1996
determining that:
x x x The mistakes and the flaws in the granting of the title were made
by the Bureau of Lands personnel more particularly the Director of
Lands who is the Officer charged with the following the provisions of
the Public Land Law. x x x.
It is clear that the mother Title, OCTP-2823 in the name of defendant
Bugayong was issued at a time when the area was not yet released by
the Bureau of Forestry to the Bureau of Lands.
The area covered by OCT No. P. 2823 was not yet declared by the
Bureau of Lands alienable and disposable when the said OCT was
issued. The subdivision of the lot covered by OCT P-2823 into 4 lots
covered by TCT Nos. T-32768, 32769, 32756 and 32771 did not cure
the defect. x x x.[24]
The RTC explained that titles issued to private parties by the Bureau of
Lands are void ab initio if the land covered by it is a forest land.[25] It
went further by stating that if the mother title is void, all titles arising
from the mother title are also void.[26] It thus ruled in favor of the
Republic with a fallo reading:
IN VIEW WHEREOF, judgment is hereby rendered declaring Original
Certificate of Title No. P-2823 issued in the name of defendant
Angelito Bugayong null and void. The following Transfer Certificate of
Titles which were originally part of the lot covered by O.C.T. No. P-
2823 are likewise declared void:
1.A. TCT No. 57348 in the name of defendant Lourdes Farms
mortgaged to defendant Land Bank.
B. TCT No. 84749 in the name of defendants Johnny and Catherine Du
mortgaged to defendant Development Bank of the Philippines.
C. TCT No. 37386 in the name of defendants spouses Pahamotang
mortgaged to defendant Lourdes Du mortgaged with defendant Allied
Bank.
E. TCT Nos. 68154 and 32768 in the names of defendants/spouses
Maglana Santamaria.
2. All private defendants shall give to the Davao City Register of Deeds
their titles, who shall cancel the Transfer Certificate of Titles
mentioned in paragraph number one.
3. Lot No. 4159, Plan SI (VIII-1) 328-D covered by O.C.T. P-2823 is
hereby REVERTED to the mass of public domain.
SO ORDERED.[27] (Underscoring supplied)
Disagreeing with the RTC judgment, LBP appealed to the CA on
October 31, 1996. It asserted in its appellants brief[28] that it validly
acquired mortgage interest or lien over the subject property because
it was an innocent mortgagee for value and in good faith.[29] It also
emphasized that it is a government financial institution.
CA Disposition
In a Decision[30] dated August 23, 2001, the CA ruled against the
appellants,[31] disposing thus:
WHEREFORE, premises considered, the present appeals are hereby
DISMISSED and the Decision of the trial court in Civil Case No. 17516 is
hereby AFFIRMED.[32]
The CA confirmed that the evidence for the plaintiff clearly established
that the land covered by OCT No. P-2823 issued pursuant to a sales
patent granted to defendant Angelito C. Bugayong was still within the
forestal zone at the time of the grant of the said patent.[33] It
explained:
Forest lands or forest reserves, are incapable of private appropriation
and possession thereof, however long, cannot convert them into
private properties. This is premised on the Regalian Doctrine
enshrined not only in the 1935 and 1973 Constitutions but also in the
1987 Constitution. Our Supreme Court has upheld this rule
consistently even in earlier cases. It has also been held that whatever
possession of the land prior to the date of release of forested land as
alienable and disposable cannot be credited to the 30-year
requirement (now, since June 12, 1945) under Section 48(b) of the
Public Land Act. It is only from that date that the period of occupancy
for purposes of confirmation of imperfect or incomplete title may be
counted. Since the subject land was declared as alienable and
disposable only on March 25, 1981, appellants and their predecessors-
in-interest could not claim any vested right thereon prior to its release
from public forest zone.
The inclusion of forest land in a title, whether title be issued during
the Spanish regime or under the Torrens system, nullifies the title. It
is, of course, a well-recognized principle that the Director of Lands
(now Land Management Bureau) is bereft of any jurisdiction over
public forest or any lands not capable of registration. It is the Bureau
of Forestry that has jurisdiction and authority over the demarcation,
protection, management, reproduction, occupancy and use of all
public forests and forest reservations and over the granting of licenses
for the taking of products therefrom. And where the land applied for
is part of the public forest, the land registration court acquires no
jurisdiction over the land, which is not yet alienable and disposable.
Thus, notwithstanding the issuance of a sales patent over the subject
parcel of land, the State may still take action to have the same land
reverted to the mass of public domain and the certificate of title
covering said forest land declared null and void for having been
improperly and illegally issued. Titles issued over non-alienable public
lands have been held as void ab initio. The defense of indefeasibility of
title issued pursuant to such patent does not lie against the State.
Public land fraudulently included in patents or certificates of title may
be recovered or reverted to the State in accordance with Section 101
of the Public Land Act. In such cases, prescription does not lie against
the State. Likewise, the government is not estopped by such
fraudulent or wrongful issuance of a patent over public forest land
26
inasmuch as the principle of estoppel does not operate against the
Government for the acts of its agents. x x x.[34] (Citations omitted)
With respect to LBPs contention[35] that it was a mortgagee in good
faith and for value, the CA declared, citing Republic v. Reyes[36] that:
mortgagees of non-disposable lands where titles thereto were
erroneously
issued acquire no protection under the land registration law.
Appellants-mortgagees proper recourse therefore is to pursue their
claims against their respective mortgagors and debtors.[37]
When LBPs motion for reconsideration was denied, it resorted to the
petition at bar.
Issues
LBP seeks the reversal of the CA disposition on the following grounds
A.
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
PETITIONER LAND BANK OF THE PHILIPPINES MORTGAGE RIGHT AND
INTEREST AS AN INNOCENT PURCHASER (MORTGAGEE) FOR VALUE
AND IN GOOD FAITH OVER THE SUBJECT LAND COVERED BY TCT NO.
T-57348 IS VALID AND SUBSISTING IN ACCORDANCE WITH THE LAW
AND EXISTING JURISPRUDENCE IN OUR COUNTRY.
B.
THE COURT OF APPEALS ERRED IN NOT FINDING PETITIONER LAND
BANK OF THE PHILIPPINES MORTGAGE RIGHT AND INTEREST OVER
THE SUBJECT LAND AS VALID AND SUBSISTING UNDER THE
CONSTITUTIONAL GUARANTEE OF NON-IMPAIRMENT OF OBLIGATION
OF CONTRACTS.
C.
THE COURT OF APPEALS ERRED IN NOT AWARDING TO PETITIONER
LAND BANK OF THE PHILIPPINES THE RELIEF PRAYED FOR UNDER ITS
CROSS-CLAIM AGAINST CO-DEFENDANT LOURDES FARMS, INC., THAT
IS, ORDERING SAID CO-DEFENDANT LOURDES FARMS, INC. TO PAY ITS
OUTSTANDING OBLIGATION TO THE LAND BANK COVERED BY THE
SUPPOSED NULL AND VOID TCT NO. T-57348, OR TO PROVIDE A
SUBSTITUTE COLLATERAL IN LIEU OF SAID TCT NO. T-57348.[38]
(Underscoring supplied)
Our Ruling
LBP has no valid and subsisting mortgagees interest over the land
covered by TCT No. T-57348.
It has been established and admitted by LBP that: (1) the subject land
mortgaged to it by Lourdes Farms, Inc. is covered by TCT No. T-57348;
and (2) the said TCT is derived from OCT No. P-2823 issued to
Bugayong.[39]
It was further ascertained by the courts below that at the time OCT
No. P-2823 was issued to Bugayong on September 26, 1969, the land it
covered was still within the forest zone. It was declared as alienable
and disposable only on March 25, 1981.[40]
Despite these established facts, LBP argues that its alleged interest as
mortgagee of the subject land covered by TCT No. T-57348 must be
respected. It avers that TCT No. T-57348 is a Torrens title which has no
written indications of defect or vice affecting the ownership of
Lourdes Farms, Inc. Hence, it posits that it was not and could not have
been required to explore or go beyond what the title indicates or to
search for defects not indicated in it.
LBP cites cases where the Court ruled that a party is not required to
explore further than what the Torrens title upon its face indicates in
quest of any hidden defect of an inchoate right that may subsequently
defeat his right to it; and that a bank is not required before accepting
a mortgage to make an investigation of the title of the property being
given as security. LBP submits that its right as a mortgagee is binding
against the whole world and may not be disregarded. [41]

It further argues that review or reopening of registration is proscribed,
as the title has become incontrovertible pursuant to Section 32 of P.D.
No. 1529; and that its mortgage rights and interest over the subject
land is protected by the constitutional guarantee of non-impairment
of contracts.[42]
The contention that LBP has an interest over the subject land as a
mortgagee has no merit. The mortgagor, Lourdes Farms, Inc. from
which LBP supposedly obtained its alleged interest has never been the
owner of the mortgaged land. Acquisition of the subject land by
Lourdes Farms, Inc. is legally impossible as the land was released as
alienable and disposable only on March 25, 1981. Even at present, no
one could have possessed the same under a claim of ownership for
the period of thirty (30) years required under Section 48(b) of
Commonwealth Act No. 141, as amended.[43] Hence, LBP acquired no
rights over the land.
Under Article 2085 of the Civil Code, it is essential that the mortgagor
be the absolute owner of the thing mortgaged, to wit:
ARTICLE 2085. The following requisites are essential to the contracts
of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose. (Emphasis ours)
Since Lourdes Farms, Inc. is not the owner of the land, it does not have
the capacity to mortgage it to LBP. In De la Cruz v. Court of
Appeals,[44] the Court declared:
While it is true that the mortgagees, having entered into a contract
with petitioner as mortgagor, are estopped from questioning the
latters ownership of the mortgaged property and his concomitant
capacity to alienate or encumber the same, it must be considered
that, in the first place, petitioner did not possess such capacity to
encumber the land at the time for the stark reason that it had been
classified as a forest land and remained a part of the patrimonial
property of the State. Assuming, without admitting, that the
mortgagees cannot subsequently question the fact of ownership of
petitioner after having dealt with him in that capacity, still, petitioner
was never vested with the proprietary power to encumber the
property. In fact, even if the mortgagees continued to acknowledge
petitioner as the owner of the disputed land, in the eyes of the law,
the latter can never be presumed to be owner.
As correctly pointed out by the OSG, mortgagees of non-disposable
lands, titles to which were erroneously issued, acquire no protection
under the Land Registration Law.[45]
Even assuming that LBP was able to obtain its own TCT over the
property by means of its mortgage contract with Lourdes Farms, Inc.,
the title must also be cancelled as it was derived from OCT No. P-2823
which was not validly issued to Bugayong. Forest lands cannot be
owned by private persons. It is not registerable whether the title is a
Spanish title or a Torrens title.[46] It is well settled that a certificate of
title is void when it covers property of public domain classified as
forest or timber or mineral land. Any title issued covering non-
disposable lots even in the hands of an alleged innocent purchaser for
value shall be cancelled.[47]
Moreover, the Court has already addressed the same issue in its
Resolution of November 14, 2001 on the petition filed by the
Philippine National Bank (PNB) in G. R. No. 149568 entitled Philippine
National Bank v. Republic of the Philippines represented by the
Director of Lands,
which also appealed the subject CA decision. PNB, like LBP, is also a
mortgagee of another derivative TCT of the same OCT No. 2823. Said
resolution reads:
27
On September 22, 1969, Angelito C. Bugayong was issued a sales
patent covering a 41,276 square meter parcel of land in Bocana, Barrio
Kabacan, Davao City by the Bureau of Lands. On the basis of the sales
patent, the Register of Deeds of Davao City issued OCT No. P-2823 to
Bugayong. Bugayong later subdivided the land into four lots, one of
which (Lot No. 4159-B covered by TCT No. T-32770) was sold by him to
the spouses Reynaldo Rogacion and Corazon Pahamotang. After
obtaining TCT No. T-37786 in their names, the spouses mortgaged the
lot to the Philippine National Bank (PNB). As they defaulted in the
payment of their loan, the PNB foreclosed the property and purchased
it at the foreclosure sale as the highest bidder. Eventually, the PNB
consolidated its title.
Sometime in 1981, upon the petition of the residents of the land, the
Bureau of Lands conducted an investigation into the sales patent
issued in favor of Angelito C. Bugayong and found the sales patent to
have been illegally issued because (1) the land was released as
alienable and disposable only on March 25, 1981; previous to that, the
land was within the forest zone; (2) the land is covered by sea water
during high tide; and (3) the patentee, Angelito C. Bugayong, had
never been in actual possession of the land.
Based on this investigation, the government instituted the present suit
in 1987 for cancellation of title/patent and reversion of the parcel of
land against Angelito C. Bugayong, the Rogacion spouses, and the
PNB, among others.
On July 6, 1996, the trial court rendered a decision declaring OCT No.
P-2823 and all titles derived therefrom null and void and ordering
reversion of the subject property to the mass of the public domain. On
appeal, the Court of Appeals affirmed the trial courts decision. Hence,
this petition.
First. Petitioner contends that it had a right to rely on TCT No. T-37786
showing the mortgagors Reynaldo Rogacion and Corazon
Pahamotangs ownership of the property.
The contention is without merit. It is well settled that a certificate of
title is void when it covers property of public domain classified as
forest or timber or mineral lands. Any title issued covering non-
disposable lots even in the hands of an alleged innocent purchaser for
value shall be cancelled (Republic v. Reyes, 155 SCRA 313 (1987)).
(Republic v. Court of Appeals, 148 SCRA 480 (1987)). In this case,
petitioner does not dispute that its predecessor-in-interest, Angelito
C. Bugayong, had the subject property registered in his name when it
was forest land. Indeed, even if the subject property had been
eventually segregated from the forest zone, neither petitioner nor its
predecessors-in-
interest could have possessed the same under claim of ownership for
the requisite period of thirty (30) years because it was released as
alienable and disposable only on March 25, 1981.
Second. Petitioners contention that respondents action for reversion
is barred by prescription for having been filed nearly two decades
after the issuance of Bugayongs sales patent is likewise without merit.
Prescription does not lie against the State for reversion of property
which is part of the public forest or of a forest reservation registered
in favor of any party. Public land registered under the Land
Registration Act may be recovered by the State at any time (Republic
v. Court of Appeals, 258 SCRA 223 (1996)).[48]
Contrary to the argument of LBP, since the title is void, it could not
have become incontrovertible. Even prescription may not be used as a
defense against the Republic. On this aspect, the Court in Reyes v.
Court of Appeals,[49] citing Republic v. Court of Appeals,[50] held:
Petitioners contention that the government is now estopped from
questioning the validity of OCT No. 727 issued to them, considering
that it took the government 45 years to assail the same, is erroneous.
We have ruled in a host of cases that prescription does not run against
the government. In point is the case of Republic v. Court of Appeals,
wherein we declared:
And in so far as the timeliness of the action of the Government is
concerned, it is basic that prescription does not run against the State x
x x. The case law has also been:

When the government is the real party in interest, and is proceeding
mainly to assert its own rights and recover its own property, there can
be no defense on the ground of laches or limitation x x x.
Public land fraudulently included in patents or certificates of title may
be recovered or reverted to the State in accordance with Section 101
of the Public Land Act. Prescription does not lie against the State in
such cases for the Statute of Limitations does not run against the
State. The right of reversion or reconveyance to the State is not barred
by prescription. (Emphasis ours)
There is no impairment of contract but a valid exercise of police power
of the State.
The constitutional guarantee of non-impairment of contracts may not
likewise be used by LBP to validate its interest over the land as
mortgagee. The States restraint upon the right to have an interest or
ownership over forest lands does not violate the constitutional
guarantee of non-impairment of contracts. Said restraint is a valid
exercise of the police power of the State. As explained by the Court in
Director of Forestry v. Muoz:[51]
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.
Because of the importance of forests to the nation, the States police
power has been wielded to regulate the use and occupancy of forest
and forest reserves.
To be sure, the validity of the exercise of police power in the name of
the general welfare cannot be seriously attacked. Our government
had definite instructions from the Constitutions preamble to promote
the general welfare. Jurisprudence has time and again upheld the
police power over individual rights, because of the general welfare.
Five decades ago, Mr. Justice Malcolm made it clear that the right of
the individual is necessarily subject to reasonable restraint by general
law for the common good and that the liberty of the citizen may be
restrained in the interest of public health, or of the public order and
safety, or otherwise within the proper scope of the police power. Mr.
Justice Laurel, about twenty years later, affirmed the precept when he
declared that the state in order to promote the general welfare may
interfere with personal liberty, with property, and with business and
occupations and that [p]ersons and property may be subjected to all
kinds of restraints and burdens, in order to secure the general
comfort, health, and prosperity of the state. Recently, we quoted from
leading American case, which pronounced that neither property rights
nor contract rights are absolute; for government cannot exist if the
citizen may at will use his property to the detriment of his fellows, or
exercise his freedom of contract to work them harm, and that,
therefore, [e]qually fundamental with the private right is that of the
public to regulate it in the common interest. (Emphasis ours and
citations omitted)
In Edu v. Ericta,[52] the Court defined police power as the authority of
the state to enact legislation that may interfere with personal liberty
or property in order to promote the general welfare. It is the power to
prescribe regulations to promote the health, morals, peace,
education, good order or safety, and general welfare of the people. It
is that inherent and plenary power of the State which enables it to
prohibit all things hurtful to the comfort, safety and welfare of
society.[53] It extends to all the great public needs and is described as
28
the most pervasive, the least limitable and the most demanding of the
three inherent powers of the State, far outpacing taxation and
eminent domain.[54] It is a ubiquitous and often unwelcome
intrusion. Even so, as long as the activity or the property has some
relevance to the public welfare, its regulation under the police power
is not only proper but necessary.[55]
Preservation of our forest lands could entail intrusion upon
contractual rights as in this case but it is justified by the Latin maxims
Salus populi est suprema lex and Sic utere tuo ut alienum non laedas,
which call for the subordination of individual interests to the benefit
of the greater number.[56]
While We sympathize with petitioner, We nonetheless cannot, in this
instance, yield to compassion and equity. The rule must stand no
matter how harsh it may seem.[57]
We cannot resolve the cross-claim for lack of factual basis. The cross-
claim must be remanded to the RTC for further proceedings.
LBP filed a cross-claim against Lourdes Farms, Inc. before the RTC.[58]
The cross-claim is for the payment of cross-defendant Lourdes Farms,
Inc.s alleged obligation to LBP or its submission of a substitute
collateral security in lieu of the property covered by TCT No. T-57348.
However, the records do not show that Lourdes Farms, Inc. was
required by the RTC to file an answer to the cross-claim. Likewise,
Lourdes Farms, Inc. was not notified of the proceedings before the CA.
It was not also made a party to this petition.
LPB now contends that the CA erred in not granting its cross-claim
against Lourdes Farms, Inc. We are thus confronted with the question:
Should We now order Lourdes Farms, Inc. to comply with the demand
of LBP?
We rule in the negative. It may be true that Lourdes Farms, Inc. still
has an obligation to LBP but We cannot make a ruling regarding the
same for lack of factual basis. There is no evidence-taking on the
cross-claim. No evidence was adduced before the RTC or the CA
regarding it. No factual finding or ruling was made by the RTC or the
CA about it.
It bears stressing that in a petition for review on certiorari, the scope
of this Court's judicial review of decisions of the CA is generally
confined only to errors of law. Questions of fact are not
entertained.[59]
Moreover, the failure to make a ruling on the cross-claim by the RTC
was not assigned as an error in LBPs appellants brief[60] before the
CA. Hence, the CA cannot be faulted for not making a ruling on it.
As held in De Liano v. Court of Appeals,[61] appellant has to specify in
what aspect of the law or the facts the trial court erred. The
conclusion, therefore, is that appellant must carefully formulate his
assignment of errors. Its importance cannot be underestimated, as
Section 8, Rule 51 of the Rules of Court will attest:
Questions that may be decided. No error which does not affect the
jurisdiction over the subject matter or the validity of the judgment
appealed from or the proceedings therein will be considered unless
stated in the assignment of errors, or closely related to or dependent
on an assigned error and properly argued in the brief, save as the
court may pass upon plain errors and clerical errors.
Apparently, the cross-claim was taken for granted not only by the RTC
but also by LBP. The cross-claim was not included as a subject or issue
in the pre-trial order and instead of asking that the same be heard,
LBP filed a motion[62] to submit the main case for resolution. The
main case was thus resolved by the RTC without touching on the
merits of the cross-claim.
On the other hand, while the CA did not make a categorical ruling on
LBPs cross-claim, it pointed out that: (1) as found by the RTC, there is a
mortgage contract between LBP and Lourdes Farms, Inc., with LBP as
mortgagee and Lourdes Farms, Inc. as mortgagor; and (2) LBPs proper
recourse is to pursue its claim against Lourdes Farms, Inc.[63]
The CA thus impliedly ruled that LBPs cross-claim should not be
included in this case. Instead of making a ruling on the same, it
recommended that LBP pursue its claim against Lourdes Farms, Inc.
All told, although the relationship between LBP and Lourdes Farms,
Inc. as mortgagee and mortgagor was established, the cross-claim of
LBP against Lourdes Farms, Inc. was left unresolved.
The Court is not in a position to resolve the cross-claim based on the
records. In order for the cross-claim to be equitably decided, the
Court, not being a trier of facts, is constrained to remand the case to
the RTC for further proceedings. Remand of the case for further
proceedings is proper due to absence of a definitive factual
determination regarding the cross-claim.[64]
WHEREFORE, the appealed Decision of the Court of Appeals is hereby
AFFIRMED with the MODIFICATION that the cross-claim of petitioner
Land Bank of the Philippines against Lourdes Farms, Inc. is REMANDED
to the Regional Trial Court, Branch 15, Davao City, for further
proceedings.
SO ORDERED.
R. No. 144057 January 17, 2005
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and CORAZON NAGUIT,
respondents.
DECISION
TINGA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997
Rules of Civil Procedure, seeking to review the Decision1 of the Sixth
Division of the Court of Appeals dated July 12, 2000 in CA-G.R. SP No.
51921. The appellate court affirmed the decisions of both the Regional
Trial Court (RTC),2 Branch 8, of Kalibo, Aklan dated February 26, 1999,
and the 7th Municipal Circuit Trial Court (MCTC)3 of Ibajay-Nabas,
Aklan dated February 18, 1998, which granted the application for
registration of a parcel of land of Corazon Naguit (Naguit), the
respondent herein.
The facts are as follows:
On January 5, 1993, Naguit, a Filipino citizen, of legal age and married
to Manolito S. Naguit, filed with the MCTC of Ibajay-Nabas, Aklan, a
petition for registration of title of a parcel of land situated in Brgy.
Union, Nabas, Aklan. The parcel of land is designated as Lot No.
10049, Cad. 758-D, Nabas Cadastre, AP – 060414-014779, and
contains an area of 31,374 square meters. The application seeks
judicial confirmation of respondent’s imperfect title over the aforesaid
land.
On February 20, 1995, the court held initial hearing on the application.
The public prosecutor, appearing for the government, and Jose
Angeles, representing the heirs of Rustico Angeles, opposed the
petition. On a later date, however, the heirs of Rustico Angeles filed a
formal opposition to the petition. Also on February 20, 1995, the court
issued an order of general default against the whole world except as
to the heirs of Rustico Angeles and the government.
The evidence on record reveals that the subject parcel of land was
originally declared for taxation purposes in the name of Ramon
Urbano (Urbano) in 1945 under Tax Declaration No. 3888 until 1991.4
On July 9, 1992, Urbano executed a Deed of Quitclaim in favor of the
heirs of Honorato Maming (Maming), wherein he renounced all his
rights to the subject property and confirmed the sale made by his
father to Maming sometime in 1955 or 1956.5 Subsequently, the heirs
of Maming executed a deed of absolute sale in favor of respondent
Naguit who thereupon started occupying the same. She constituted
29
Manuel Blanco, Jr. as her attorney-in-fact and administrator. The
administrator introduced improvements, planted trees, such as
mahogany, coconut and gemelina trees in addition to existing coconut
trees which were then 50 to 60 years old, and paid the corresponding
taxes due on the subject land. At present, there are parcels of land
surrounding the subject land which have been issued titles by virtue of
judicial decrees. Naguit and her predecessors-in-interest have
occupied the land openly and in the concept of owner without any
objection from any private person or even the government until she
filed her application for registration.
After the presentation of evidence for Naguit, the public prosecutor
manifested that the government did not intend to present any
evidence while oppositor Jose Angeles, as representative of the heirs
of Rustico Angeles, failed to appear during the trial despite notice. On
September 27, 1997, the MCTC rendered a decision ordering that the
subject parcel be brought under the operation of the Property
Registration Decree or Presidential Decree (P.D.) No. 1529 and that
the title thereto registered and confirmed in the name of Naguit.6
The Republic of the Philippines (Republic), thru the Office of the
Solicitor General (OSG), filed a motion for reconsideration. The OSG
stressed that the land applied for was declared alienable and
disposable only on October 15, 1980, per the certification from
Regional Executive Director Raoul T. Geollegue of the Department of
Environment and Natural Resources, Region VI.7 However, the court
denied the motion for reconsideration in an order dated February 18,
1998.81awphi1.nét
Thereafter, the Republic appealed the decision and the order of the
MCTC to the RTC, Kalibo, Aklan, Branch 8. On February 26, 1999, the
RTC rendered its decision, dismissing the appeal.9
Undaunted, the Republic elevated the case to the Court of Appeals via
Rule 42 of the 1997 Rules of Civil Procedure. On July 12, 2000, the
appellate court rendered a decision dismissing the petition filed by the
Republic and affirmed in toto the assailed decision of the RTC.
Hence, the present petition for review raising a pure question of law
was filed by the Republic on September 4, 2000.10
The OSG assails the decision of the Court of Appeals contending that
the appellate court gravely erred in holding that there is no need for
the government’s prior release of the subject lot from the public
domain before it can be considered alienable or disposable within the
meaning of P.D. No. 1529, and that Naguit had been in possession of
Lot No. 10049 in the concept of owner for the required period.11
Hence, the central question for resolution is whether is necessary
under Section 14(1) of the Property Registration Decree that the
subject land be first classified as alienable and disposable before the
applicant’s possession under a bona fide claim of ownership could
even start.
The OSG invokes our holding in Director of Lands v. Intermediate
Appellate Court12 in arguing that the property which is in open,
continuous and exclusive possession must first be alienable. Since the
subject land was declared alienable only on October 15, 1980, Naguit
could not have maintained a bona fide claim of ownership since June
12, 1945, as required by Section 14 of the Property Registration
Decree, since prior to 1980, the land was not alienable or disposable,
the OSG argues.
Section 14 of the Property Registration Decree, governing original
registration proceedings, bears close examination. It expressly
provides:
SECTION 14. Who may apply.— The following persons may file in the
proper Court of First Instance an application for registration of title to
land, whether personally or through their duly authorized
representatives:
(1) those who by themselves or through their predecessors-in-interest
have been in open, continuous, exclusive and notorious possession
and occupation of alienable and disposable lands of the public domain
under a bona fide claim of ownership since June 12, 1945, or earlier.
(2) Those who have acquired ownership over private lands by
prescription under the provisions of existing laws.
....
There are three obvious requisites for the filing of an application for
registration of title under Section 14(1) – that the property in question
is alienable and disposable land of the public domain; that the
applicants by themselves or through their predecessors-in-interest
have been in open, continuous, exclusive and notorious possession
and occupation, and; that such possession is under a bona fide claim
of ownership since June 12, 1945 or earlier.
Petitioner suggests an interpretation that the alienable and disposable
character of the land should have already been established since June
12, 1945 or earlier. This is not borne out by the plain meaning of
Section 14(1). "Since June 12, 1945," as used in the provision, qualifies
its antecedent phrase "under a bonafide claim of ownership."
Generally speaking, qualifying words restrict or modify only the words
or phrases to which they are immediately associated, and not those
distantly or remotely located.13 Ad proximum antecedents fiat
relation nisi impediatur sentencia.
Besides, we are mindful of the absurdity that would result if we adopt
petitioner’s position. Absent a legislative amendment, the rule would
be, adopting the OSG’s view, that all lands of the public domain which
were not declared alienable or disposable before June 12, 1945 would
not be susceptible to original registration, no matter the length of
unchallenged possession by the occupant. Such interpretation renders
paragraph (1) of Section 14 virtually inoperative and even precludes
the government from giving it effect even as it decides to reclassify
public agricultural lands as alienable and disposable. The
unreasonableness of the situation would even be aggravated
considering that before June 12, 1945, the Philippines was not yet
even considered an independent state.
Instead, the more reasonable interpretation of Section 14(1) is that it
merely requires the property sought to be registered as already
alienable and disposable at the time the application for registration of
title is filed. If the State, at the time the application is made, has not
yet deemed it proper to release the property for alienation or
disposition, the presumption is that the government is still reserving
the right to utilize the property; hence, the need to preserve its
ownership in the State irrespective of the length of adverse possession
even if in good faith. However, if the property has already been
classified as alienable and disposable, as it is in this case, then there is
already an intention on the part of the State to abdicate its exclusive
prerogative over the property.
This reading aligns conformably with our holding in Republic v. Court
of Appeals .14 Therein, the Court noted that "to prove that the land
subject of an application for registration is alienable, an applicant
must establish the existence of a positive act of the government such
as a presidential proclamation or an executive order; an
administrative action; investigation reports of Bureau of Lands
investigators; and a legislative act or a statute."15 In that case, the
subject land had been certified by the DENR as alienable and
disposable in 1980, thus the Court concluded that the alienable status
of the land, compounded by the established fact that therein
respondents had occupied the land even before 1927, sufficed to
allow the application for registration of the said property. In the case
at bar, even the petitioner admits that the subject property was
released and certified as within alienable and disposable zone in 1980
by the DENR.16
This case is distinguishable from Bracewell v. Court of Appeals,17
wherein the Court noted that while the claimant had been in
possession since 1908, it was only in 1972 that the lands in question
were classified as alienable and disposable. Thus, the bid at
registration therein did not succeed. In Bracewell, the claimant had
filed his application in 1963, or nine (9) years before the property was
declared alienable and disposable.1awphi1.nét Thus, in this case,
where the application was made years after the property had been
certified as alienable and disposable, the Bracewell ruling does not
apply.
30
A different rule obtains for forest lands,18 such as those which form
part of a reservation for provincial park purposes19 the possession of
which cannot ripen into ownership.20 It is elementary in the law
governing natural resources that forest land cannot be owned by
private persons. As held in Palomo v. Court of Appeals,21 forest land is
not registrable and possession thereof, no matter how lengthy, cannot
convert it into private property, unless such lands are reclassified and
considered disposable and alienable.22 In the case at bar, the
property in question was undisputedly classified as disposable and
alienable; hence, the ruling in Palomo is inapplicable, as correctly held
by the Court of Appeals.23
It must be noted that the present case was decided by the lower
courts on the basis of Section 14(1) of the Property Registration
Decree, which pertains to original registration through ordinary
registration proceedings. The right to file the application for
registration derives from a bona fide claim of ownership going back to
June 12, 1945 or earlier, by reason of the claimant’s open, continuous,
exclusive and notorious possession of alienable and disposable lands
of the public domain.
A similar right is given under Section 48(b) of the Public Land Act,
which reads:
Sec. 48. The following described citizens of the Philippines, occupying
lands of the public domain or claiming to own any such land or an
interest therein, but those titles have not been perfected or
completed, may apply to the Court of First Instance of the province
where the land is located for confirmation of their claims and the
issuance of a certificate of title therefor, under the Land Registration
Act, to wit:
xxx xxx xxx
(b) Those who by themselves or through their predecessors in interest
have been in open, continuous, exclusive, and notorious possession
and occupation of agricultural lands of the public domain, under a
bona fide claim of acquisition of ownership, for at least thirty years
immediately preceding the filing of the application for confirmation of
title except when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions essential
to a Government grant and shall be entitled to a certificate of title
under the provisions of this chapter.
When the Public Land Act was first promulgated in 1936, the period of
possession deemed necessary to vest the right to register their title to
agricultural lands of the public domain commenced from July 26,
1894. However, this period was amended by R.A. No. 1942, which
provided that the bona fide claim of ownership must have been for at
least thirty (30) years. Then in 1977, Section 48(b) of the Public Land
Act was again amended, this time by P.D. No. 1073, which pegged the
reckoning date at June 12, 1945. This new starting point is concordant
with Section 14(1) of the Property Registration Decree.
Indeed, there are no material differences between Section 14(1) of
the Property Registration Decree and Section 48(b) of the Public Land
Act, as amended. True, the Public Land Act does refer to "agricultural
lands of the public domain," while the Property Registration Decree
uses the term "alienable and disposable lands of the public domain." It
must be noted though that the Constitution declares that "alienable
lands of the public domain shall be limited to agricultural lands."24
Clearly, the subject lands under Section 48(b) of the Public Land Act
and Section 14(1) of the Property Registration Decree are of the same
type.
Did the enactment of the Property Registration Decree and the
amendatory P.D. No. 1073 preclude the application for registration of
alienable lands of the public domain, possession over which
commenced only after June 12, 1945? It did not, considering Section
14(2) of the Property Registration Decree, which governs and
authorizes the application of "those who have acquired ownership of
private lands by prescription under the provisions of existing laws."
Prescription is one of the modes of acquiring ownership under the
Civil Code.25 There is a consistent jurisprudential rule that properties
classified as alienable public land may be converted into private
property by reason of open, continuous and exclusive possession of at
least thirty (30) years.26 With such conversion, such property may
now fall within the contemplation of "private lands" under Section
14(2), and thus susceptible to registration by those who have acquired
ownership through prescription. Thus, even if possession of the
alienable public land commenced on a date later than June 12, 1945,
and such possession being been open, continuous and exclusive, then
the possessor may have the right to register the land by virtue of
Section 14(2) of the Property Registration Decree.

The land in question was found to be cocal in nature, it having been

planted with coconut trees now over fifty years old.27 The inherent
nature of the land but confirms its certification in 1980 as alienable,
hence agricultural. There is no impediment to the application of
Section 14(1) of the Property Registration Decree, as correctly
accomplished by the lower courts.l^vvphi1.net

The OSG posits that the Court of Appeals erred in holding that Naguit
had been in possession in the concept of owner for the required
period. The argument begs the question. It is again hinged on the
assertion—shown earlier to be unfounded—that there could have
been no bona fide claim of ownership prior to 1980, when the subject
land was declared alienable or disposable.

We find no reason to disturb the conclusion of both the RTC and the
Court of Appeals that Naguit had the right to apply for registration
owing to the continuous possession by her and her predecessors-in-
interest of the land since 1945. The basis of such conclusion is
primarily factual, and the Court generally respects the factual findings
made by lower courts. Notably, possession since 1945 was established
through proof of the existence of 50 to 60-year old trees at the time
Naguit purchased the property as well as tax declarations executed by
Urbano in 1945. Although tax declarations and realty tax payment of
property are not conclusive evidence of ownership, nevertheless, they
are good indicia of the possession in the concept of owner for no one
in his right mind would be paying taxes for a property that is not in his
actual or at least constructive possession. They constitute at least
proof that the holder has a claim of title over the property. The
voluntary declaration of a piece of property for taxation purposes
manifests not only one’s sincere and honest desire to obtain title to
the property and announces his adverse claim against the State and all
other interested parties, but also the intention to contribute needed
revenues to the Government. Such an act strengthens one’s bona fide
claim of acquisition of ownership.28

Considering that the possession of the subject parcel of land by the

respondent can be traced back to that of her predecessors-in-interest
which commenced since 1945 or for almost fifty (50) years, it is indeed
beyond any cloud of doubt that she has acquired title thereto which
may be properly brought under the operation of the Torrens system.
That she has been in possession of the land in the concept of an
owner, open, continuous, peaceful and without any opposition from
any private person and the government itself makes her right thereto
undoubtedly settled and deserving of protection under the law.

WHEREFORE, foregoing premises considered, the assailed Decision of

the Court of Appeals dated July 12, 2000 is hereby AFFIRMED. No
costs.

SO ORDERED.

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