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G.R. No.

137705 August 22, 2000

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


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

DECISION

PANGANIBAN, J.:

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


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

The Case

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

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

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

The Facts

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

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

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

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

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

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

"In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as
defined in Article 415 of the Civil Code, the parties’ agreement to the contrary notwithstanding.
They argued that to give effect to the agreement would be prejudicial to innocent third parties.
They further stated that PCI Leasing [was] estopped from treating these machineries as
personal because the contracts in which the alleged agreement [were] embodied [were] totally
sham and farcical.

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"On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take possession of
the remaining properties. He was able to take two more, but was prevented by the workers from
taking the rest.

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

Ruling of the Court of Appeals

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

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

Hence, this Petition.11

The Issues

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

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

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

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

The Court’s Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

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

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

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

Main Issue: Nature of the Subject Machinery

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

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

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

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

"ART. 415. The following are immovable property:

xxx xxx xxx

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

xxx xxx x x x"

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

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

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

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

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

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

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

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because one who has so agreed is estopped from denying the existence of the chattel
mortgage."

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

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

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

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

Validity of the Lease Agreement

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

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

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

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

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

Reliance on the Lease Agreement

It should be pointed out that the Court in this case may rely on the Lease Agreement, for
nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it first
only in the RTC proceedings, which had ironically been instituted by respondent. Accordingly, it
must be presumed valid and binding as the law between the parties.

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Makati Leasing and Finance Corporation30 is also instructive on this point. In that case, the Deed
of Chattel Mortgage, which characterized the subject machinery as personal property, was also
assailed because respondent had allegedly been required "to sign a printed form of chattel
mortgage which was in a blank form at the time of signing." The Court rejected the argument
and relied on the Deed, ruling as follows:

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

Alleged Injustice Committed on the Part of Petitioners

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

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


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

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

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

SO ORDERED.

Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

G.R. No. L-18456 November 30, 1963

CONRADO P. NAVARRO, plaintiff-appellee,


vs.
RUFINO G. PINEDA, RAMONA REYES, ET AL., defendants-appellants.

Deogracias Tañedo, Jr. for plaintiff-appellee.


Renato A. Santos for defendants-appellants.

PAREDES, J.:

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

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instrument, which was registered in both the Office of the Register of Deeds and the Motor
Vehicles Office of Tarlac.

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

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

Defendants, answering the complaint, among others, stated —

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

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

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

On February 24, 1961, the lower court held —

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

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

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

(c) Ordering the defendants Rufino Pineda and Ramona Reyes, to deliver immediately to
the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A",

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immediately after the lapse of the ninety (90) days above-mentioned, in default of such
payment.

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

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

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

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

In the case at bar, the house in question was treated as personal or movable property, by the
parties to the contract themselves. In the deed of chattel mortgage, appellant Rufino G. Pineda

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conveyed by way of "Chattel Mortgage" "my personal properties", a residential house and a
truck. The mortgagor himself grouped the house with the truck, which is, inherently a movable
property. The house which was not even declared for taxation purposes was small and made of
light construction materials: G.I. sheets roofing, sawali and wooden walls and wooden posts;
built on land belonging to another.

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

CONFORMABLY WITH ALL THE FOREGOING, the decision appealed from, should be, as it is
hereby affirmed, with costs against appellants.

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

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


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

Castillo & Suck for plaintiffs-appellees.

Jose Q. Calingo for defendants-appellants.

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

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

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

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

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


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

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


Special Act No. 3135, and for this purpose, the Sheriff of the City of Manila or
any of his deputies is hereby empowered and authorized to sell all the

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Mortgagor's property after the necessary publication in order to settle the
financial debts of P4,800.00, plus 12% yearly interest, and attorney's fees... 2

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


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

... ordering the defendants to vacate the premises described in the complaint;
ordering further to pay monthly the amount of P200.00 from March 27, 1956, until
such (time that) the premises is (sic) completely vacated; plus attorney's fees of
P100.00 and the costs of the suit.5

Defendants-appellants, in their answers in both the municipal court and court a quo impugned
the legality of the chattel mortgage, claiming that they are still the owners of the house; but they
waived the right to introduce evidence, oral or documentary. Instead, they relied on their
memoranda in support of their motion to dismiss, predicated mainly on the grounds that: (a) the
municipal court did not have jurisdiction to try and decide the case because (1) the issue
involved, is ownership, and (2) there was no allegation of prior possession; and (b) failure to
prove prior demand pursuant to Section 2, Rule 72, of the Rules of Court.6

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

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

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

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


two questions, namely: .

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

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

We will consider these questions seriatim.

(a) Defendants-appellants mortgagors question the jurisdiction of the municipal court from which
the case originated, and consequently, the appellate jurisdiction of the Court of First Instance a
quo, on the theory that the chattel mortgage is void ab initio; whence it would follow that the
extrajudicial foreclosure, and necessarily the consequent auction sale, are also void. Thus, the
ownership of the house still remained with defendants-appellants who are entitled to possession

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and not plaintiffs-appellees. Therefore, it is argued by defendants-appellants, the issue of
ownership will have to be adjudicated first in order to determine possession. lt is contended
further that ownership being in issue, it is the Court of First Instance which has jurisdiction and
not the municipal court.

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

On the charge of fraud, deceit or trickery, the Court of First Instance found defendants-
appellants' contentions as not supported by evidence and accordingly dismissed the
charge,8 confirming the earlier finding of the municipal court that "the defense of ownership as
well as the allegations of fraud and deceit ... are mere allegations."9

It has been held in Supia and Batiaco vs. Quintero and Ayala10 that "the answer is a mere
statement of the facts which the party filing it expects to prove, but it is not evidence;11 and
further, that when the question to be determined is one of title, the Court is given the authority to
proceed with the hearing of the cause until this fact is clearly established. In the case of Sy vs.
Dalman,12 wherein the defendant was also a successful bidder in an auction sale, it was
likewise held by this Court that in detainer cases the aim of ownership "is a matter of defense
and raises an issue of fact which should be determined from the evidence at the trial." What
determines jurisdiction are the allegations or averments in the complaint and the relief asked
for. 13

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

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

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

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

The view that parties to a deed of chattel mortgage may agree to consider a
house as personal property for the purposes of said contract, "is good only
insofar as the contracting parties are concerned. It is based, partly, upon the
principle of estoppel" (Evangelista vs. Alto Surety, No. L-11139, 23 April 1958). In

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a case, a mortgaged house built on a rented land was held to be a personal
property, not only because the deed of mortgage considered it as such, but also
because it did not form part of the land (Evangelists vs. Abad, [CA]; 36 O.G.
2913), for it is now settled that an object placed on land by one who had only a
temporary right to the same, such as the lessee or usufructuary, does not
become immobilized by attachment (Valdez vs. Central Altagracia, 222 U.S. 58,
cited in Davao Sawmill Co., Inc. vs. Castillo, et al., 61 Phil. 709). Hence, if a
house belonging to a person stands on a rented land belonging to another
person, it may be mortgaged as a personal property as so stipulated in the
document of mortgage. (Evangelista vs. Abad, Supra.) It should be noted,
however that the principle is predicated on statements by the owner declaring his
house to be a chattel, a conduct that may conceivably estop him from
subsequently claiming otherwise. (Ladera vs. C.N. Hodges, [CA] 48 O.G.
5374): 22

In the contract now before Us, the house on rented land is not only expressly designated as
Chattel Mortgage; it specifically provides that "the mortgagor ... voluntarily CEDES, SELLS and
TRANSFERS by way of Chattel Mortgage23 the property together with its leasehold rights over
the lot on which it is constructed and participation ..." 24 Although there is no specific statement
referring to the subject house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could only have meant to convey the
house as chattel, or at least, intended to treat the same as such, so that they should not now be
allowed to make an inconsistent stand by claiming otherwise. Moreover, the subject house
stood on a rented lot to which defendats-appellants merely had a temporary right as lessee, and
although this can not in itself alone determine the status of the property, it does so when
combined with other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personalty. Finally unlike in the Iya cases, Lopez vs.
Orosa, Jr. and Plaza Theatre, Inc. 25 and Leung Yee vs. F. L. Strong Machinery and
Williamson, 26 wherein third persons assailed the validity of the chattel mortgage,27 it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity of the
chattel mortgage in this case. The doctrine of estoppel therefore applies to the herein
defendants-appellants, having treated the subject house as personalty.

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

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

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

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


herein) may, at any time within one year from and after the date of the auction sale, redeem the
property sold at the extra judicial foreclosure sale. Section 7 of the same Act 32 allows the
purchaser of the property to obtain from the court the possession during the period of
redemption: but the same provision expressly requires the filing of a petition with the proper
Court of First Instance and the furnishing of a bond. It is only upon filing of the proper motion
and the approval of the corresponding bond that the order for a writ of possession issues as a
matter of course. No discretion is left to the court. 33 In the absence of such a compliance, as in
the instant case, the purchaser can not claim possession during the period of redemption as a

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matter of right. In such a case, the governing provision is Section 34, Rule 39, of the Revised
Rules of Court 34 which also applies to properties purchased in extrajudicial foreclosure
proceedings.35 Construing the said section, this Court stated in the aforestated case of Reyes
vs. Hamada.

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

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

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

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

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

FOR THE FOREGOING REASONS, the decision appealed from is reversed and another one
entered, dismissing the complaint. With costs against plaintiffs-appellees.

G.R. No. L-50008 August 31, 1987

PRUDENTIAL BANK, petitioner,


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

PARAS, J.:

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

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

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


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

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


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

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


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

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


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

NORTH: By No. 6, Ardoin Street

SOUTH: By No. 2, Ardoin Street

EAST: By 37 Canda Street, and

WEST: By Ardoin Street.

All corners of the lot marked by conc. cylindrical


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

Apart from the stipulations in the printed portion of the aforestated


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

AND IT IS FURTHER AGREED that in the event


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

From the aforequoted stipulation, it is obvious that the mortgagee


(defendant Prudential Bank) was at the outset aware of the fact
that the mortgagors (plaintiffs) have already filed a Miscellaneous

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Sales Application over the lot, possessory rights over which, were
mortgaged to it.

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


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

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


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

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


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

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

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

On December 14, 1978, petitioner filed a Motion for Reconsideration (Ibid., pp. 41-53), opposed
by private respondents on January 5, 1979 (Ibid., pp. 54-62), and in an Order dated January 10,
1979 (Ibid., p. 63), the Motion for Reconsideration was denied for lack of merit. Hence, the
instant petition (Ibid., pp. 5-28).

The first Division of this Court, in a Resolution dated March 9, 1979, resolved to require the
respondents to comment (Ibid., p. 65), which order was complied with the Resolution dated May
18,1979, (Ibid., p. 100), petitioner filed its Reply on June 2,1979 (Ibid., pp. 101-112).

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

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

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

In its Memorandum, petitioner raised the following issues:

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

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


RESPONDENTS OF MISCELLANEOUS SALES PATENT NO. 4776 ON APRIL 24, 1972

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

This petition is impressed with merit.

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

The answer is in the affirmative.

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

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

Coming back to the case at bar, the records show, as aforestated that the original mortgage
deed on the 2-storey semi-concrete residential building with warehouse and on the right of
occupancy on the lot where the building was erected, was executed on November 19, 1971 and
registered under the provisions of Act 3344 with the Register of Deeds of Zambales on
November 23, 1971. Miscellaneous Sales Patent No. 4776 on the land was issued on April 24,
1972, on the basis of which OCT No. 2554 was issued in the name of private respondent
Fernando Magcale on May 15, 1972. It is therefore without question that the original mortgage
was executed before the issuance of the final patent and before the government was divested of
its title to the land, an event which takes effect only on the issuance of the sales patent and its
subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs. Meer, 96
Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs. Jurado, L-14702,
May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the foregoing considerations, it
is evident that the mortgage executed by private respondent on his own building which was
erected on the land belonging to the government is to all intents and purposes a valid mortgage.

As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it will be
noted that Sections 121, 122 and 124 of the Public Land Act, refer to land already acquired
under the Public Land Act, or any improvement thereon and therefore have no application to the
assailed mortgage in the case at bar which was executed before such eventuality. Likewise,
Section 2 of Republic Act No. 730, also a restriction appearing on the face of private
respondent's title has likewise no application in the instant case, despite its reference to
encumbrance or alienation before the patent is issued because it refers specifically to
encumbrance or alienation on the land itself and does not mention anything regarding the
improvements existing thereon.

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

Petitioner points out that private respondents, after physically possessing the title for five years,
voluntarily surrendered the same to the bank in 1977 in order that the mortgaged may be
annotated, without requiring the bank to get the prior approval of the Ministry of Natural

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Resources beforehand, thereby implicitly authorizing Prudential Bank to cause the annotation of
said mortgage on their title.

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

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

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

PREMISES CONSIDERED, the decision of the Court of First Instance of Zambales & Olongapo
City is hereby MODIFIED, declaring that the Deed of Real Estate Mortgage for P70,000.00 is
valid but ruling that the Deed of Real Estate Mortgage for an additional loan of P20,000.00 is
null and void, without prejudice to any appropriate action the Government may take against
private respondents.

SO ORDERED.

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

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


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

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

MALCOLM, J.:

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

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

That on the expiration of the period agreed upon, all the improvements and buildings
introduced and erected by the party of the second part shall pass to the exclusive
ownership of the party of the first part without any obligation on its part to pay any

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amount for said improvements and buildings; also, in the event the party of the second
part should leave or abandon the land leased before the time herein stipulated, the
improvements and buildings shall likewise pass to the ownership of the party of the first
part as though the time agreed upon had expired: Provided, however, That the
machineries and accessories are not included in the improvements which will pass to the
party of the first part on the expiration or abandonment of the land leased.

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

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

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

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

xxx xxx xxx

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


building or land for use in connection with any industry or trade being carried on therein
and which are expressly adapted to meet the requirements of such trade of industry.

Appellant emphasizes the first paragraph, and appellees the last mentioned paragraph. We
entertain no doubt that the trial judge and appellees are right in their appreciation of the legal
doctrines flowing from the facts.

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

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

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

To determine this question involves fixing the nature and character of the property from
the point of view of the rights of Valdes and its nature and character from the point of
view of Nevers & Callaghan as a judgment creditor of the Altagracia Company and the
rights derived by them from the execution levied on the machinery placed by the

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

xxx xxx xxx

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

Finding no reversible error in the record, the judgment appealed from will be affirmed, the costs
of this instance to be paid by the appellant.

G.R. No. L-41643 July 31, 1935

B.H. BERKENKOTTER, plaintiff-appellant,


vs.
CU UNJIENG E HIJOS, YEK TONG LIN FIRE AND MARINE INSURANCE COMPANY,
MABALACAT SUGAR COMPANY and THE PROVINCE SHERIFF OF
PAMPANGA, defendants-appellees.

Briones and Martinez for appellant.


Araneta, Zaragoza and Araneta for appellees Cu Unjieng e Hijos.
No appearance for the other appellees.

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VILLA-REAL, J.:

This is an appeal taken by the plaintiff, B.H. Berkenkotter, from the judgment of the Court of
First Instance of Manila, dismissing said plaintiff's complaint against Cu Unjiengs e Hijos et al.,
with costs.

In support of his appeal, the appellant assigns six alleged errors as committed by the trial court
in its decision in question which will be discussed in the course of this decision.

The first question to be decided in this appeal, which is raised in the first assignment of alleged
error, is whether or not the lower court erred in declaring that the additional machinery and
equipment, as improvement incorporated with the central are subject to the mortgage deed
executed in favor of the defendants Cu Unjieng e Hijos.

It is admitted by the parties that on April 26, 1926, the Mabalacat Sugar Co., Inc., owner of the
sugar central situated in Mabalacat, Pampanga, obtained from the defendants, Cu Unjieng e
Hijos, a loan secured by a first mortgage constituted on two parcels and land "with all its
buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and
whatever forms part or is necessary complement of said sugar-cane mill, steel railway,
telephone line, now existing or that may in the future exist is said lots."

On October 5, 1926, shortly after said mortgage had been constituted, the Mabalacat Sugar
Co., Inc., decided to increase the capacity of its sugar central by buying additional machinery
and equipment, so that instead of milling 150 tons daily, it could produce 250. The estimated
cost of said additional machinery and equipment was approximately P100,000. In order to carry
out this plan, B.A. Green, president of said corporation, proposed to the plaintiff, B.H.
Berkenkotter, to advance the necessary amount for the purchase of said machinery and
equipment, promising to reimburse him as soon as he could obtain an additional loan from the
mortgagees, the herein defendants Cu Unjieng e Hijos. Having agreed to said proposition made
in a letter dated October 5, 1926 (Exhibit E), B.H. Berkenkotter, on October 9th of the same
year, delivered the sum of P1,710 to B.A. Green, president of the Mabalacat Sugar Co., Inc., the
total amount supplied by him to said B.A. Green having been P25,750. Furthermore, B.H.
Berkenkotter had a credit of P22,000 against said corporation for unpaid salary. With the loan of
P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc., purchased the additional
machinery and equipment now in litigation.

On June 10, 1927, B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu
Unjieng e Hijos for an additional loan of P75,000 offering as security the additional machinery
and equipment acquired by said B.A. Green and installed in the sugar central after the
execution of the original mortgage deed, on April 27, 1927, together with whatever additional
equipment acquired with said loan. B.A. Green failed to obtain said loan.

Article 1877 of the Civil Code provides as follows.

ART. 1877. A mortgage includes all natural accessions, improvements, growing fruits,
and rents not collected when the obligation falls due, and the amount of any indemnities
paid or due the owner by the insurers of the mortgaged property or by virtue of the
exercise of the power of eminent domain, with the declarations, amplifications, and
limitations established by law, whether the estate continues in the possession of the
person who mortgaged it or whether it passes into the hands of a third person.

In the case of Bischoff vs. Pomar and Compañia General de Tabacos (12 Phil., 690), cited with
approval in the case of Cea vs. Villanueva (18 Phil., 538), this court laid shown the following
doctrine:

1. REALTY; MORTGAGE OF REAL ESTATE INCLUDES IMPROVEMENTS AND


FIXTURES. — It is a rule, established by the Civil Code and also by the Mortgage Law,
with which the decisions of the courts of the United States are in accord, that in a
mortgage of real estate, the improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or land, although they may have
been placed there after the mortgage was constituted, are also included. (Arts. 110 and

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111 of the Mortgage Law, and 1877 of the Civil Code; decision of U.S. Supreme Court in
the matter of Royal Insurance Co. vs. R. Miller, liquidator, and Amadeo [26 Sup. Ct.
Rep., 46; 199 U.S., 353].)

2. ID.; ID.; INCLUSION OR EXCLUSION OF MACHINERY, ETC. — In order that it may


be understood that the machinery and other objects placed upon and used in connection
with a mortgaged estate are excluded from the mortgage, when it was stated in the
mortgage that the improvements, buildings, and machinery that existed thereon were
also comprehended, it is indispensable that the exclusion thereof be stipulated between
the contracting parties.

The appellant contends that the installation of the machinery and equipment claimed by him in
the sugar central of the Mabalacat Sugar Company, Inc., was not permanent in character
inasmuch as B.A. Green, in proposing to him to advance the money for the purchase thereof,
made it appear in the letter, Exhibit E, that in case B.A. Green should fail to obtain an additional
loan from the defendants Cu Unjieng e Hijos, said machinery and equipment would become
security therefor, said B.A. Green binding himself not to mortgage nor encumber them to
anybody until said plaintiff be fully reimbursed for the corporation's indebtedness to him.

Upon acquiring the machinery and equipment in question with money obtained as loan from the
plaintiff-appellant by B.A. Green, as president of the Mabalacat Sugar Co., Inc., the latter
became owner of said machinery and equipment, otherwise B.A. Green, as such president,
could not have offered them to the plaintiff as security for the payment of his credit.

Article 334, paragraph 5, of the Civil Code gives the character of real property to "machinery,
liquid containers, instruments or implements intended by the owner of any building or land for
use in connection with any industry or trade being carried on therein and which are expressly
adapted to meet the requirements of such trade or industry.

If the installation of the machinery and equipment in question in the central of the Mabalacat
Sugar Co., Inc., in lieu of the other of less capacity existing therein, for its sugar industry,
converted them into real property by reason of their purpose, it cannot be said that their
incorporation therewith was not permanent in character because, as essential and principal
elements of a sugar central, without them the sugar central would be unable to function or carry
on the industrial purpose for which it was established. Inasmuch as the central is permanent in
character, the necessary machinery and equipment installed for carrying on the sugar industry
for which it has been established must necessarily be permanent.

Furthermore, the fact that B.A. Green bound himself to the plaintiff B.H. Berkenkotter to hold
said machinery and equipment as security for the payment of the latter's credit and to refrain
from mortgaging or otherwise encumbering them until Berkenkotter has been fully reimbursed
therefor, is not incompatible with the permanent character of the incorporation of said machinery
and equipment with the sugar central of the Mabalacat Sugar Co., Inc., as nothing could prevent
B.A. Green from giving them as security at least under a second mortgage.

As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they
had been permanently incorporated with sugar central of the Mabalacat Sugar Co., Inc., and
while the mortgage constituted on said sugar central to Cu Unjieng e Hijos remained in force,
only the right of redemption of the vendor Mabalacat Sugar Co., Inc., in the sugar central with
which said machinery and equipment had been incorporated, was transferred thereby, subject
to the right of the defendants Cu Unjieng e Hijos under the first mortgage.

For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a
machinery and equipment in a mortgaged sugar central, in lieu of another of less capacity, for
the purpose of carrying out the industrial functions of the latter and increasing production,
constitutes a permanent improvement on said sugar central and subjects said machinery and
equipment to the mortgage constituted thereon (article 1877, Civil Code); (2) that the fact that
the purchaser of the new machinery and equipment has bound himself to the person supplying
him the purchase money to hold them as security for the payment of the latter's credit, and to
refrain from mortgaging or otherwise encumbering them does not alter the permanent character
of the incorporation of said machinery and equipment with the central; and (3) that the sale of

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the machinery and equipment in question by the purchaser who was supplied the purchase
money, as a loan, to the person who supplied the money, after the incorporation thereof with the
mortgaged sugar central, does not vest the creditor with ownership of said machinery and
equipment but simply with the right of redemption.

Wherefore, finding no error in the appealed judgment, it is affirmed in all its parts, with costs to
the appellant. So ordered.

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

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"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.

Articles 334 and 335 of the Civil Code supply no absolute criterion for 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.

G.R. No. L-46245 May 31, 1982

MERALCO SECURITIES INDUSTRIAL CORPORATION, petitioner,


vs.

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CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT APPEALS OF
LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.

AQUINO, J.:

In this special civil action of certiorari, Meralco Securities Industrial Corporation assails the
decision of the Central Board of Assessment Appeals (composed of the Secretary of Finance as
chairman and the Secretaries of Justice and Local Government and Community Development
as members) dated May 6, 1976, holding that Meralco Securities' oil pipeline is subject to realty
tax.

The record reveals that pursuant to a pipeline concession issued under the Petroleum Act of
1949, Republic Act No. 387, Meralco Securities installed from Batangas to Manila a pipeline
system consisting of cylindrical steel pipes joined together and buried not less than one meter
below the surface along the shoulder of the public highway. The portion passing through
Laguna is about thirty kilometers long.

The pipes for white oil products measure fourteen inches in diameter by thirty-six feet with a
maximum capacity of 75,000 barrels daily. The pipes for fuel and black oil measure sixteen
inches by forty-eight feet with a maximum capacity of 100,000 barrels daily.

The pipes are embedded in the soil and are firmly and solidly welded together so as to preclude
breakage or damage thereto and prevent leakage or seepage of the oil. The valves are welded
to the pipes so as to make the pipeline system one single piece of property from end to end.

In order to repair, replace, remove or transfer segments of the pipeline, the pipes have to be
cold-cut by means of a rotary hard-metal pipe-cutter after digging or excavating them out of the
ground where they are buried. In points where the pipeline traversed rivers or creeks, the pipes
were laid beneath the bed thereof. Hence, the pipes are permanently attached to the land.

However, Meralco Securities notes that segments of the pipeline can be moved from one place
to another as shown in the permit issued by the Secretary of Public Works and Communications
which permit provides that the government reserves the right to require the removal or transfer
of the pipes by and at the concessionaire's expense should they be affected by any road repair
or improvement.

Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial assessor of
Laguna treated the pipeline as real property and issued Tax Declarations Nos. 6535-6537, San
Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 9882-9885, Biñan and 15806-15810,
Calamba, containing the assessed values of portions of the pipeline.

Meralco Securities appealed the assessments to the Board of Assessment Appeals of Laguna
composed of the register of deeds as chairman and the provincial auditor as member. That
board in its decision of June 18, 1975 upheld the assessments (pp. 47-49, Rollo).

Meralco Securities brought the case to the Central Board of Assessment Appeals. As already
stated, that Board, composed of Acting Secretary of Finance Pedro M. Almanzor as chairman
and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and
Community Development Jose Roño as members, ruled that the pipeline is subject to realty tax
(p. 40, Rollo).

A copy of that decision was served on Meralco Securities' counsel on August 27, 1976. Section
36 of the Real Property Tax Code, Presidential Decree No. 464, which took effect on June 1,
1974, provides that the Board's decision becomes final and executory after the lapse of fifteen
days from the date of receipt of a copy of the decision by the appellant.

Under Rule III of the amended rules of procedure of the Central Board of Assessment Appeals
(70 O.G. 10085), a party may ask for the reconsideration of the Board's decision within fifteen

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days after receipt. On September 7, 1976 (the eleventh day), Meralco Securities filed its motion
for reconsideration.

Secretary of Finance Cesar Virata and Secretary Roño (Secretary Abad Santos abstained)
denied the motion in a resolution dated December 2, 1976, a copy of which was received by
appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6, 1977, Meralco Securities filed the
instant petition for certiorari.

The Solicitor General contends that certiorari is not proper in this case because the Board acted
within its jurisdiction and did not gravely abuse its discretion and Meralco Securities was not
denied due process of law.

Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction to review
the decision of the Central Board of Assessment Appeals and because no judicial review of the
Board's decision is provided for in the Real Property Tax Code, Meralco Securities' recourse is
to file a petition for certiorari.

We hold that certiorari was properly availed of in this case. It is a writ issued by a superior court
to an inferior court, board or officer exercising judicial or quasi-judicial functions whereby the
record of a particular case is ordered to be elevated for review and correction in matters of law
(14 C.J.S. 121-122; 14 Am Jur. 2nd 777).

The rule is that as to administrative agencies exercising quasi-judicial power there is an


underlying power in the courts to scrutinize the acts of such agencies on questions of law and
jurisdiction even though no right of review is given by the statute (73 C.J.S. 506, note 56).

"The purpose of judicial review is to keep the administrative agency within its jurisdiction and
protect substantial rights of parties affected by its decisions" (73 C.J.S. 507, See. 165). The
review is a part of the system of checks and balances which is a limitation on the separation of
powers and which forestalls arbitrary and unjust adjudications.

Judicial review of the decision of an official or administrative agency exercising quasi-judicial


functions is proper in cases of lack of jurisdiction, error of law, grave abuse of discretion, fraud
or collusion or in case the administrative decision is corrupt, arbitrary or capricious (Mafinco
Trading Corporation vs. Ople, L-37790, March 25, 1976, 70 SCRA 139, 158; San Miguel
Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56, 60, Mun. Council of
Lemery vs. Prov. Board of Batangas, 56 Phil. 260, 268).

The Central Board of Assessment Appeals, in confirming the ruling of the provincial assessor
and the provincial board of assessment appeals that Meralco Securities' pipeline is subject to
realty tax, reasoned out that the pipes are machinery or improvements, as contemplated in the
Assessment Law and the Real Property Tax Code; that they do not fall within the category of
property exempt from realty tax under those laws; that articles 415 and 416 of the Civil Code,
defining real and personal property, have no application to this case; that even under article
415, the steel pipes can be regarded as realty because they are constructions adhered to the
soil and things attached to the land in a fixed manner and that Meralco Securities is not exempt
from realty tax under the Petroleum Law (pp. 36-40).

Meralco Securities insists that its pipeline is not subject to realty tax because it is not real
property within the meaning of article 415. This contention is not sustainable under the
provisions of the Assessment Law, the Real Property Tax Code and the Civil 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. *

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It is incontestable that the pipeline of Meralco Securities does not fall within any of the classes
of exempt real property enumerated in section 3 of the Assessment Law and section 40 of the
Real Property Tax Code.

Pipeline means a line of pipe connected to pumps, valves and control devices for conveying
liquids, gases or finely divided solids. It is a line of pipe running upon or in the earth, carrying
with it the right to the use of the soil in which it is placed (Note 21[10],54 C.J.S. 561).

Article 415[l] and [3] provides that real property may consist of constructions of all kinds adhered
to the soil and everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of the object.

The pipeline system in question is indubitably a construction adhering to the soil (Exh. B, p. 39,
Rollo). It is attached to the land in such a way that it cannot be separated therefrom without
dismantling the steel pipes which were welded to form the pipeline.

Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of oil, it is in
a sense machinery within the meaning of the Real Property Tax Code.

It should be borne in mind that what are being characterized as real property are not the steel
pipes but the pipeline system as a whole. Meralco Securities has apparently two pipeline
systems.

A pipeline for conveying petroleum has been regarded as real property for tax purposes (Miller
County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd 3; Board of Directors of
Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F. C., 170 Fed. 2nd 430; 50 C. J.
750, note 86).

The other contention of Meralco Securities is that the Petroleum Law exempts it from the
payment of realty taxes. The alleged exemption is predicated on the following provisions of that
law which exempt Meralco Securities from local taxes and make it liable for taxes of general
application:

ART. 102. Work obligations, taxes, royalties not to be changed.— Work


obligations, special taxes and royalties which are fixed by the provisions of this
Act or by the concession for any of the kinds of concessions to which this Act
relates, are considered as inherent on such concessions after they are granted,
and shall not be increased or decreased during the life of the concession to
which they apply; nor shall any other special taxes or levies be applied to such
concessions, nor shall 0concessionaires under this Act be subject to
any provincial, municipal or other local taxes or levies; nor shall any sales tax be
charged on any petroleum produced from the concession or portion thereof,
manufactured by the concessionaire and used in the working of his concession.
All such concessionaires, however, shall be subject to such taxes as are of
general application in addition to taxes and other levies specifically provided in
this Act.

Meralco Securities argues that the realty tax is a local tax or levy and not a tax of general
application. This argument is untenable because the realty tax has always been imposed by the
lawmaking body and later by the President of the Philippines in the exercise of his lawmaking
powers, as shown in section 342 et seq. of the Revised Administrative Code, Act No. 3995,
Commonwealth Act No. 470 and Presidential Decree No. 464.

The realty tax is enforced throughout the Philippines and not merely in a particular municipality
or city but the proceeds of the tax accrue to the province, city, municipality and barrio where the
realty taxed is situated (Sec. 86, P.D. No. 464). In contrast, a local tax is imposed by the
municipal or city council by virtue of the Local Tax Code, Presidential Decree No. 231, which
took effect on July 1, 1973 (69 O.G. 6197).

We hold that the Central Board of Assessment Appeals did not act with grave abuse of
discretion, did not commit any error of law and acted within its jurisdiction in sustaining the

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holding of the provincial assessor and the local board of assessment appeals that Meralco
Securities' pipeline system in Laguna is subject to realty tax.

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

SO ORDERED.

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

MANILA ELECTRIC COMPANY, petitioner,


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

AQUINO, J.:

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

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

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

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

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

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

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

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

On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's
decision and resolution. It contends that the Board acted without jurisdiction and committed a
grave error of law in holding that its storage tanks are taxable real property.

Meralco contends that the said oil storage tanks do not fall within any of the kinds of real
property enumerated in article 415 of the Civil Code and, therefore, they cannot be categorized
as realty by nature, by incorporation, by destination nor by analogy. Stress is laid on the fact
that the tanks are not attached to the land and that they were placed on leased land, not on the
land owned by Meralco.

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

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

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

The Code contains the following definition in its section 3:

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


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

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

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

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

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

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

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

SO ORDERED.

G.R. No. L-15334 January 31, 1964

BOARD OF ASSESSMENT APPEALS, CITY ASSESSOR and CITY TREASURER OF


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

Assistant City Attorney Jaime R. Agloro for petitioners.


Ross, Selph and Carrascoso for respondent.

PAREDES, J.:

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

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

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

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

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

The third tower examined is located along Kamias Road, Quezon City. As in the first two
towers given above, the ground around the two legs of the third tower was excavated to

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a depth about two or three inches beyond the outside level of the steel bar foundation. It
was found that there was no concrete foundation. Like the two previous ones, the bottom
arrangement of the legs thereof were found to be resting on soft adobe, which, probably
due to high humidity, looks like mud or clay. It was also found that the square metal
frame supporting the legs were not attached to any material or foundation.

On November 15, 1955, petitioner City Assessor of Quezon City declared the aforesaid steel
towers for real property tax under Tax declaration Nos. 31992 and 15549. After denying
respondent's petition to cancel these declarations, an appeal was taken by respondent to the
Board of Assessment Appeals of Quezon City, which required respondent to pay the amount of
P11,651.86 as real property tax on the said steel towers for the years 1952 to 1956.
Respondent paid the amount under protest, and filed a petition for review in the Court of Tax
Appeals (CTA for short) which rendered a decision on December 29, 1958, ordering the
cancellation of the said tax declarations and the petitioner City Treasurer of Quezon City to
refund to the respondent the sum of P11,651.86. The motion for reconsideration having been
denied, on April 22, 1959, the instant petition for review was filed.

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

The tax exemption privilege of the petitioner is quoted hereunder:

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

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

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

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In a proceeding to condemn land for the use of electric power wires, in which the law provided
that wires shall be constructed upon suitable poles, this term was construed to mean either
wood or metal poles and in view of the land being subject to overflow, and the necessary
carrying of numerous wires and the distance between poles, the statute was interpreted to
include towers or poles. (Stemmons and Dallas Light Co. (Tex) 212 S.W. 222, 224; 32-A Words
and Phrases, p. 365.)

The term "poles" was also used to denominate the steel supports or towers used by an
association used to convey its electric power furnished to subscribers and members,
constructed for the purpose of fastening high voltage and dangerous electric wires alongside
public highways. The steel supports or towers were made of iron or other metals consisting of
two pieces running from the ground up some thirty feet high, being wider at the bottom than at
the top, the said two metal pieces being connected with criss-cross iron running from the bottom
to the top, constructed like ladders and loaded with high voltage electricity. In form and
structure, they are like the steel towers in question. (Salt River Valley Users' Ass'n v. Compton,
8 P. 2nd, 249-250.)

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

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

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

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

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

xxx xxx xxx

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

xxx xxx xxx

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

xxx xxx xxx

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

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

IN VIEW HEREOF, the decision appealed from is hereby affirmed, with costs against the
petitioners.

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

CALTEX (PHILIPPINES) INC., petitioner,


vs.
CENTRAL BOARD OF ASSESSMENT APPEALS and CITY ASSESSOR OF
PASAY, respondents.

AQUINO, J.:

This case is about the realty tax on machinery and equipment installed by Caltex (Philippines)
Inc. in its gas stations located on leased land.

The machines and equipment consists of underground tanks, elevated tank, elevated water
tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists,
truck hoists, air compressors and tireflators. The city assessor described the said equipment
and machinery in this manner:

A gasoline service station is a piece of lot where a building or shed is erected, a


water tank if there is any is placed in one corner of the lot, car hoists are placed
in an adjacent shed, an air compressor is attached in the wall of the shed or at
the concrete wall fence.

The controversial underground tank, depository of gasoline or crude oil, is dug


deep about six feet more or less, a few meters away from the shed. This is done

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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.

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On May 2, 1979 Caltex filed this certiorari petition wherein it prayed for the setting aside of the
Board's decision and for a declaration that t he said machines and equipment are personal
property not subject to realty tax (p. 16, Rollo).

The Solicitor General's contention that the Court of Tax Appeals has exclusive appellate
jurisdiction over this case is not correct. When Republic act No. 1125 created the Tax Court in
1954, there was as yet no Central Board of Assessment Appeals. Section 7(3) of that law in
providing that the Tax Court had jurisdiction to review by appeal decisions of provincial or city
boards of assessment appeals had in mind the local boards of assessment appeals but not
the Central Board of Assessment Appeals which under the Real Property Tax Code has
appellate jurisdiction over decisions of the said local boards of assessment appeals and is,
therefore, in the same category as the Tax Court.

Section 36 of the Real Property Tax Code provides that the decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days from the
receipt of its decision by the appellant. Within that fifteen-day period, a petition for
reconsideration may be filed. The Code does not provide for the review of the Board's decision
by this Court.

Consequently, the only remedy available for seeking a review by this Court of the decision of
the Central Board of Assessment Appeals is the special civil action of certiorari, the recourse
resorted to herein by Caltex (Philippines), Inc.

The issue is whether the pieces of gas station equipment and machinery already enumerated
are subject to realty tax. This issue has to be resolved primarily under the provisions of the
Assessment Law and the Real Property Tax Code.

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

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

The Code contains the following definitions in its section 3:

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


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

m) Machinery — shall embrace machines, mechanical contrivances, instruments,


appliances and apparatus attached to the real estate. It includes the physical
facilities available for production, as well as the installations and appurtenant
service facilities, together with all other equipment designed for or essential to its
manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment
Law).

We hold that the said equipment and machinery, as appurtenances to the gas station building or
shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to
the operation of the gas station, for without them the gas station would be useless, and which
have been attached or affixed permanently to the gas station site or embedded therein, are
taxable improvements and machinery within the meaning of the Assessment Law and the Real
Property Tax Code.

Caltex invokes the rule that machinery which is movable in its nature only becomes immobilized
when placed in a plant by the owner of the property or plant but not when so placed by a tenant,

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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. 6295 September 1, 1911

THE UNITED STATES, plaintiff-appellee,


vs.
IGNACIO CARLOS, defendant-appellant.

A. D. Gibbs for appellant.


Acting Attorney-General Harvey for appellee.

PER CURIAM:

The information filed in this case is as follows:

The undersigned accuses Ignacio Carlos of the crime of theft, committed as follows:

That on, during, and between the 13th day of February, 1909, and the 3d day of March,
1910, in the city of Manila, Philippine Islands, the said Ignacio Carlos, with intent of gain
and without violence or intimidation against the person or force against the thing, did
then and there, willfully, unlawfully, and feloniously, take, steal , and carry away two
thousand two hundred and seventy-three (2,273) kilowatts of electric current, of the
value of nine hundred and nine (909) pesos and twenty (20) cents Philippine currency,
the property of the Manila Electric Railroad and Light Company, a corporation doing

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business in the Philippine Islands, without the consent of the owner thereof; to the
damage and prejudice of the said Manila Electric Railroad and Light Company in the
said sum of nine hundred and nine (909) pesos and twenty (20) cents Philippine
currency, equal to and equivalent of 4,546 pesetas Philippine currency. All contrary to
law.

(Sgd.) L. M. SOUTWORTH,
Prosecuting Attorney.

Subscribed and sworn to before me this 4th day of March, 1910, in the city of Manila,
Philippine Islands, by L. M. Southworth, prosecuting attorney for the city of Manila.

(Sgd.) CHARLES S. LOBINGIER,


Judge, First Instance.

A preliminary investigation has heretofore been conducted in this case, under my


direction, having examined the witness under oath, in accordance with the provisions of
section 39 of Act No. 183 of the Philippine Commission, as amended by section 2 of Act
No. 612 of the Philippine Commission.

(Sgd) L. M. SOUTHWORTH,
Prosecuting Attorney.

Subscribed and sworn to before me this 4th day of March, 1910, in the city of Manila,
Philippine Islands, by L. M. Southworth, prosecuting attorney for the city of Manila.

(Sgd.) CHARLES LOBINGIER,


Judge, First Instance.

A warrant for the arrest of the defendant was issued by the Honorable J. C. Jenkins on the 4th
of March and placed in the hands of the sheriff. The sheriff's return shows that the defendant
gave bond for his appearance. On the 14th of the same month counsel for the defendant
demurrer to the complaint on the following grounds:

1 That the court has no jurisdiction over the person of the accused nor of the offense
charged because the accused has not been accorded a preliminary investigation or
examination as required by law and no court, magistrate, or other competent authority
has determined from a sworn complaint or evidence adduced that there is probable
cause to believe that a crime has been committed, or that this defendant has committed
any crime.

2 That the facts charged do not constitute a public offense.

The demurrer was overruled on the same day and the defendant having refused to plead, a plea
of not guilty was entered by direction of the court for him and the trial proceeded.

After due consideration of all the proofs presented and the arguments of counsel the trial court
found the defendant guilty of the crime charged and sentenced him to one year eight months
and twenty-one days' presidio correccional, to indemnify the offended party, The Manila Electric
Railroad and Light Company, in the sum of P865.26, to the corresponding subsidiary
imprisonment in case of insolvency and to the payment of the costs. From this judgment the
defendant appealed and makes the following assignments of error:

I.

The court erred in overruling the objection of the accused to the jurisdiction of the court,
because he was not given a preliminary investigation as required by law, and in
overruling his demurrer for the same reason.

II.

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The court erred in declaring the accused to be guilty, in view of the evidence submitted.

III.

The court erred in declaring that electrical energy may be stolen.

IV.

The court erred in not declaring that the plaintiff consented to the taking of the current.

V.

The court erred in finding the accused guilty of more than one offense.

VI.

The court erred in condemning the accused to pay P865.26 to the electric company as
damages.

Exactly the same question as that raised in the first assignment of error, was after a through
examination and due consideration, decided adversely to appellant's contention in the case of
U. S. vs. Grant and Kennedy (18 Phil. Rep., 122). No sufficient reason is presented why we
should not follow the doctrine enunciated in that case.

The question raised in the second assignment of error is purely one fact. Upon this point the trial
court said:

For considerably more than a year previous to the filing of this complaint the accused
had been a consumer of electricity furnished by the Manila Electric Railroad and Light
Company for a building containing the residence of the accused and three other
residences, and which was equipped, according to the defendant's testimony, with thirty
electric lights. On March 15, 1909, the representatives of the company, believing that
more light was being used than their meter showed, installed an additional meter (Exhibit
A) on a pole outside of defendant's house, and both it and the meter (Exhibit B) which
had been previously installed in the house were read on said date. Exhibit A read 218
kilowatt hours; Exhibit B, 745 kilowatt hours. On March 3, 1910 each was read again,
Exhibit A showing 2,718 kilowatt hours and Exhibit B, 968. It is undisputed that the
current which supplied the house passed through both meters and the city electrician
testifies that each meter was tested on the date of the last reading and was "in good
condition." The result of this registration therefore is that while the outsider meter (Exhibit
A) showed a consumption in defendant's building of 2,500 kilowatt hours of electricity,
this inside meter (Exhibit B) showed but 223 kilowatt hours. In other words the actual
consumption, according to the outside meter, was more than ten times as great as that
registered by the one inside. Obviously this difference could not be due to normal
causes, for while the electrician called by the defense (Lanusa) testifies to the possibility
of a difference between two such meters, he places the extreme limit of such difference
between them 5 per cent. Here, as we have seen, the difference is more than 900 per
cent. Besides, according to the defendant's electrician, the outside meter should
normally run faster, while according to the test made in this case the inside meter
(Exhibit B) ran the faster. The city electrician also testifies that the electric current could
have been deflected from the inside meter by placing thereon a device known as a
"jumper" connecting the two outside wires, and there is other testimony that there were
marks on the insulation of the meter Exhibit B which showed the use of such a device.
There is a further evidence that the consumption of 223 kilowatt hours, registered by the
inside meter would not be a reasonable amount for the number of lights installed in
defendant's building during the period in question, and the accused fails to explain why
he should have had thirty lights installed if he needed but four or five.

On the strength of this showing a search warrant was issued for the examination of
defendant's premises and was duly served by a police officer (Hartpence). He was
accompanied at the time by three employees of the Manila Electric Railroad and Light

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Company, and he found there the accused, his wife and son, and perhaps one or two
others. There is a sharp conflict between the several spectators on some points but on
one there is no dispute. All agree that the "jumper" (Exhibit C) was found in a drawer of a
small cabinet in the room of defendant's house where the meter was installed and not
more than 20 feet therefrom. In the absence of a satisfactory explanation this constituted
possession on defendant's part, and such possession, under the Code of Civil
Procedure, section 334 (10), raises the presumption that the accused was the owner of
a device whose only use was to deflect the current from the meter.

Is there any other "satisfactory explanation" of the "jumper's" presence? The only one
sought to be offered is the statement by the son of the accused, a boy of twelve years,
that he saw the "jumper" placed there by the witness Porter, an employee of the Light
Company. The boy is the only witness who so testifies and Porter himself squarely
denies it. We can not agree with counsel for the defense that the boy's interest in the
outcome of this case is less than that of the witness for the prosecution. It seems to us
that his natural desire to shield his father would far outweight any interest such an
employee like Porter would have and which, at most, would be merely pecuniary.

There is, however, one witness whom so far as appears, has no interest in the matter
whatsoever. This is officer Hartpence, who executed the search warrant. He testifies that
after inspecting other articles and places in the building as he and the other spectators,
including the accused, approached the cabinet in which the "jumper" was found, the
officer's attention was called to the defendant's appearance and the former noticed that
the latter was becoming nervous. Where the only two witnesses who are supposed to
know anything of the matter thus contradict each other this item of testimony by the
officer is of more than ordinary significance; for if, as the accused claims, the "jumper"
was placed in the cabinet for the first time by Porter there would be no occasion for any
change of demeanor on the part of the accused. We do not think that the officer's
declination to wait until defendant should secure a notary public shows bias. The
presence of such an official was neither required nor authorized by law and the very
efficacy of a search depends upon its swiftness.

We must also agree with the prosecuting attorney that the attending circumstances do
not strengthen the story told by the boy; that the latter would have been likely to call out
at the time he saw the "jumper" being placed in the drawer, or at least directed his
father's attention to it immediately instead of waiting, as he says, until the latter was
called by the officer. Finally, to accept the boy's story we must believe that this company
or its representatives deliberately conspired not merely to lure the defendant into the
commission of a crime but to fasten upon him a crime which he did not commit and thus
convict an innocent man by perjured evidence. This is a much more serious charge than
that contained in the complaint and should be supported by very strong corroborating
circumstances which we do not find here. We are, accordingly, unable to consider as
satisfactory defendant's explanation of the "jumper's" presence.

The only alternative is the conclusion that the "jumper" was placed there by the accused
or by some one acting for him and that it was the instrument by which the current was
deflected from the matter Exhibit B and the Light Company deprived of its lawful
compensation.

After a careful examination of the entire record we are satisfied beyond peradventure of a doubt
that the proofs presented fully support the facts as set forth in the foregoing finding.

Counsel for the appellant insists that the only corporeal property can be the subject of the crime
of larceny, and in the support of this proposition cites several authorities for the purpose of
showing that the only subjects of larceny are tangible, movable, chattels, something which could
be taken in possession and carried away, and which had some, although trifling, intrinsic value,
and also to show that electricity is an unknown force and can not be a subject of larceny.

In the U. S. vs. Genato (15 Phi. Rep., 170) the defendant, the owner of the store situated at No.
154 Escolta, Manila, was using a contrivance known as a "jumper" on the electric meter
installed by the Manila Electric Railroad and the Light Company. As a result of the use of this

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"jumper" the meter, instead of making one revolution in every four seconds, registered one in
seventy-seven seconds, thereby reducing the current approximately 95 per cent. Genato was
charged in the municipal court with a violation of a certain ordinance of the city of Manila, and
was sentenced to pay a fine of P200. He appealed to the Court of First Instance, was again tried
and sentenced to pay the same fine. An appeal was taken from the judgment of the Court of
First Instance to the Supreme Court on the ground that the ordinance in question was null and
void. It is true that the only question directly presented was of the validity of the city ordinance.
The court, after holding that said ordinance was valid, said:

Even without them (ordinances), the right of ownership of electric current is secured by
articles 517 and 518 of the Penal Code; the application of these articles in case of
subtraction of gas, a fluid used for lighting, and in some respects resembling electricity,
is confirmed by the rule laid down in the decisions of the supreme court of Spain January
20, 1887, and April 1, 1897, construing and enforcing the provisions of articles 530 and
531 of the penal code of that country, articles identical with articles 517 and 518 of the
code in force in these Islands.

Article 517 of the Penal Code above referred to reads as follows:

The following are guilty of larceny:

(1) Those who with intent of gain and without violence or intimidation against the person,
or force against things, shall take another's personal property without the owner's
consent.

And article 518 fixes the penalty for larceny in proportion to the value of the personal property
stolen.

It is true that electricity is no longer, as formerly, regarded by electricians as a fluid, but its
manifestation and effects, like those of gas, may be seen and felt. The true test of what is a
proper subject of larceny seems to be not whether the subject is corporeal, but whether it is
capable of appropriation by another than the owner.

It is well-settled that illuminating gas may be the subject of larceny, even in the absence of a
statute so providing. (Decisions of supreme court of Spain, January 20, 1887, and April 1,
1897, supra; also (England) Queen vs. Firth, L. R. 1 C. C., 172, 11 Cox C. C., 234;
Queen vs. White, 3 C. & K., 363, 6 Cox C. C., 213; Woods vs. People, 222 III., 293, 7 L. R. A.,
520; Commonwealth vs. Shaw, 4 Allen (Mass), 308; State vs. Wellman, 34 Minn., 221, N. W.
Rep., 385, and 25 Cyc., p. 12, note 10.)

In the case of Commonwealth vs. Shaw, supra, the court, speaking through Chief Justice
Bigelow, said:

There is nothing in the nature of gas used for illuminating purposes which renders it
incapable of being feloniously taken and carried away. It is a valuable article of
merchandise, bought and sold like other personal property, susceptible of being severed
from a mass or larger quantity, and of being transported from place to place. In the
present case it appears that it was the property of the Boston Gas Light Company; that it
was in their possession by being confined in conduits and tubes which belonged to
them, and that the defendant severed a portion of that which was in the pipes of the
company by taking it into her house and there consuming it. All this being proved to have
been done by her secretly and with intent to deprive the company of their property and to
appropriate it to her own use, clearly constitutes the crime of larceny.

Electricity, the same as gas, is a valuable article of merchandise, bought and sold like other
personal property and is capable of appropriation by another. So no error was committed by the
trial court in holding that electricity is a subject of larceny.

It is urged in support of the fourth assignment of error that if it be true that the appellant did
appropriate to his own use the electricity as charged he can not be held guilty of larceny for any
part of the electricity thus appropriated, after the first month, for the reason that the complaining

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party, the Manila Electric Road and Light Company, knew of this misappropriation and
consented thereto.

The outside meter was installed on March 15, 1909, and read 218 kilowatt hours. On the same
day the inside meter was read and showed 745 kilowatt hours. Both meters were again read on
March 3, 1910, and the outside one showed 2,718 kilowatt hours while the one on the inside
only showed 968, the difference in consumption during this time being 2,277 kilowatt hours. The
taking of this current continued over a period of one year, less twelve days. Assuming that the
company read both meters at the end of each month; that it knew the defendant was
misappropriating the current to that extent; and that t continued to furnish the current, thereby
giving the defendant an opportunity to continue the misppropriation, still, we think, that the
defendant is criminally responsible for the taking of the whole amount, 2,277 kilowatt hours. The
company had a contract with the defendant to furnish him with current for lighting purposes. It
could not stop the misappropriation without cutting off the current entirely. It could not reduce
the current so as to just furnish sufficient for the lighting of two, three, or five lights, as claimed
by the defendant that he used during the most of this time, but the current must always be
sufficiently strong to furnish current for the thirty lights, at any time the defendant desired to use
them.

There is no pretense that the accused was solicited by the company or any one else to commit
the acts charged. At most there was a mere passive submission on the part of the company that
the current should be taken and no indication that it wished it to be taken, and no knowledge by
the defendant that the company wished him to take the current, and no mutual understanding
between the company and the defendant, and no measures of inducement of any kind were
employed by the company for the purpose of leading the defendant into temptation, and no
preconcert whatever between him and company. The original design to misappropriate this
current was formed by the defendant absolutely independent of any acts on the part of the
company or its agents. It is true, no doubt, as a general proposition, that larceny is not
committed when the property is taken with the consent of its owner. It may be difficult in some
instances to determine whether certain acts constitute, in law, such "consent." But under the
facts in the case at bar it is not difficult to reach a conclusion that the acts performed by the
plaintiff company did not constitute a consent on its part the defendant take its property. We
have been unable to find a well considered case holding contrary opinion under similar facts,
but, there are numerous cases holding that such acts do not constitute such consent as would
relieve the taker of criminal responsibility. The fourth assignment of error is, therefore, not well
founded.

It is also contended that since the "jumper" was not used continuously, the defendant committed
not a single offense but a series of offenses. It is, no doubt, true that the defendant did not allow
the "jumper" to remain in place continuously for any number of days as the company inspected
monthly the inside meter. So the "jumper" was put on and taken off at least monthly, if not daily,
in order to avoid detection, and while the "jumper" was off the defendant was not
misappropriating the current. The complaint alleged that the defendant did on, during, and
between the 13th day of February, 1909, and the 3d of March, 1910. willfully, unlawfully, and
feloniously take, steal, and carry away 2,277 kilowatts of electric current of the value of P909.
No demurrer was presented against this complaint on the ground that more than one crime was
charged. The Government had no opportunity to amend or correct this error, if error at all. In the
case of U. S. vs. Macaspac (12 Phil. Rep., 26), the defendant received from one Joquina Punu
the sum of P31.50, with the request to deliver it to Marcelina Dy-Oco. The defendant called
upon Marcelina, but instead of delivering the said amount she asked Marcelina for P30 in the
name of Joaquina who had in no way authorized her to do so. Marcelina gave her P30,
believing that Joaquina had sent for it. Counsel for the defendant insisted that the complaint
charged his client with two different crimes of estafa in violation of section 11 of General Orders,
No. 58. In disposing of this question this court said:

The said defect constitutes one of the dilatory pleas indicated by section 21, and the
accused ought to have raised the point before the trial began. Had this been done, the
complaint might have been amended in time, because it is merely a defect of form easily
remedied. . . . Inasmuch as in the first instance the accused did not make the
corresponding dilatory plea to the irregularity of the complaint, it must be understood that
has waived such objection, and is not now entitled to raise for the first time any question
in reference thereto when submitting to this court her assignment of errors. Apart from

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the fact that the defense does not pretend that any of the essential rights of the accused
have been injured, the allegation of the defect above alluded to, which in any case would
only affect form of the complaint, can not justify a reversal of the judgment appealed
from, according to the provisions of section 10 of General Orders, No. 58.

In the case at bar it is not pointed out wherein any of the essential rights of the defendant have
been prejudiced by reason of the fact that the complaint covered the entire period. If twelve
distinct and separate complaints had been filed against the defendant, one for each month, the
sum total of the penalties imposed might have been very much greater than that imposed by the
court in this case. The covering of the entire period by one charge has been beneficial, if
anything, and not prejudicial to the rights of the defendant. The prosecuting attorney elected to
cover the entire period with one charge and the accused having been convicted for this offense,
he can not again be prosecuted for the stealing of the current at any time within that period.
Then, again, we are of the opinion that the charge was properly laid. The electricity was stolen
from the same person, in the same manner, and in the same place. It was substantially one
continuous act, although the "jumper" might have been removed and replaced daily or monthly.
The defendant was moved by one impulse to appropriate to his own use the current, and the
means adopted by him for the taking of the current were in the execution of a general fraudulent
plan.

A person stole gas for the use of a manufactory by means of pipe, which drew off the
gas from the main without allowing it to pass through the meter. The gas from this pipe
was burnt every day, and turned off at night. The pipe was never closed at this junction
with the main, and consequently always remained full of gas. It was held, that if the pipe
always remained full, there was, in fact, a continuous taking of the gas and not a series
of separate talkings. It was held also that even if the pipe had not been kept full, the
taking would have been continuous, as it was substantially all one transaction.
(Regina vs. Firth, L. R., 1 C. C., 172; 11 Cox C. C., 234. Cited on p. 758 of Wharton's
Criminal Law, vol. 1, 10th ed.)

The value of the electricity taken by the defendant was found by the trial court to be P865.26.
This finding is fully in accordance with the evidence presented. So no error was committed in
sentencing the defendant to indemnify the company in this amount, or to suffer the
corresponding subsidiary imprisonment in case of insolvency.

The judgment being strictly in accordance with the law and the merits of the case, same is
hereby affirmed, with costs against the appellant.

Arellano, C.J., Torres, Mapa and Carson, JJ.

G.R. No. L-24440 March 28, 1968

THE PROVINCE OF ZAMBOANGA DEL NORTE, plaintiff-appellee,


vs.
CITY OF ZAMBOANGA, SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL
REVENUE,defendants-appellants.

Fortugaleza, Lood, Sarmiento, M. T. Yap & Associates for plaintiff-appellee.


Office of the Solicitor General for defendants-appellants.

BENGZON, J.P., J.:

Prior to its incorporation as a chartered city, the Municipality of Zamboanga used to be


the provincial capital of the then Zamboanga Province. On October 12, 1936, Commonwealth
Act 39 was approved converting the Municipality of Zamboanga into Zamboanga City. Sec. 50
of the Act also provided that —

Buildings and properties which the province shall abandon upon the transfer of the
capital to another place will be acquired and paid for by the City of Zamboanga at a price
to be fixed by the Auditor General.

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The properties and buildings referred to consisted of 50 lots and some buildings
constructed thereon, located in the City of Zamboanga and covered individually by Torrens
certificates of title in the name of Zamboanga Province. As far as can be gleaned from the
records, 1 said properties were being utilized as follows —

No. of Lots Use


1 ................................................ Capitol Site
3 ................................................ School Site
3 ................................................ Hospital Site
3 ................................................ Leprosarium
1 ................................................ Curuan School
1 ................................................ Trade School
2 ................................................ Burleigh School
2 ................................................ High School Playground
9 ................................................ Burleighs
1 ................................................ Hydro-Electric Site (Magay)
1 ................................................ San Roque
23 ................................................ vacant

It appears that in 1945, the capital of Zamboanga Province was transferred to


Dipolog. 2 Subsequently, or on June 16, 1948, Republic Act 286 was approved creating the
municipality of Molave and making it the capital of Zamboanga Province.

On May 26, 1949, the Appraisal Committee formed by the Auditor General, pursuant to
Commonwealth Act 39, fixed the value of the properties and buildings in question left by
Zamboanga Province in Zamboanga City at P1,294,244.00. 3

On June 6, 1952, Republic Act 711 was approved dividing the province of Zamboanga
into two (2): Zamboanga del Norte and Zamboanga del Sur. As to how the assets and
obligations of the old province were to be divided between the two new ones, Sec. 6 of that law
provided:

Upon the approval of this Act, the funds, assets and other properties and the
obligations of the province of Zamboanga shall be divided equitably between the
Province of Zamboanga del Norte and the Province of Zamboanga del Sur by the
President of the Philippines, upon the recommendation of the Auditor General.

Pursuant thereto, the Auditor General, on January 11, 1955, apportioned the assets and
obligations of the defunct Province of Zamboanga as follows: 54.39% for Zamboanga del Norte
and 45.61% for Zamboanga del Sur. Zamboanga del Norte therefore became entitled to 54.39%
of P1,294,244.00, the total value of the lots and buildings in question, or P704,220.05 payable
by Zamboanga City.

On March 17, 1959, the Executive Secretary, by order of the President, issued a
ruling 4 holding that Zamboanga del Norte had a vested right as owner (should be co-owner pro-
indiviso) of the properties mentioned in Sec. 50 of Commonwealth Act 39, and is entitled to the
price thereof, payable by Zamboanga City. This ruling revoked the previous Cabinet Resolution
of July 13, 1951 conveying all the said 50 lots and buildings thereon to Zamboanga City for
P1.00, effective as of 1945, when the provincial capital of the then Zamboanga Province was
transferred to Dipolog.

The Secretary of Finance then authorized the Commissioner of Internal Revenue to


deduct an amount equal to 25% of the regular internal revenue allotment for the City of
Zamboanga for the quarter ending March 31, 1960, then for the quarter ending June 30, 1960,
and again for the first quarter of the fiscal year 1960-1961. The deductions, all aggregating
P57,373.46, was credited to the province of Zamboanga del Norte, in partial payment of the
P764,220.05 due it.

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However, on June 17, 1961, Republic Act 3039 was approved amending Sec. 50 of
Commonwealth Act 39 by providing that —

All buildings, properties and assets belonging to the former province of


Zamboanga and located within the City of Zamboanga are hereby transferred, free of
charge, in favor of the said City of Zamboanga. (Stressed for emphasis).

Consequently, the Secretary of Finance, on July 12, 1961, ordered the Commissioner of
Internal Revenue to stop from effecting further payments to Zamboanga del Norte and to return
to Zamboanga City the sum of P57,373.46 taken from it out of the internal revenue allotment of
Zamboanga del Norte. Zamboanga City admits that since the enactment of Republic Act 3039,
P43,030.11 of the P57,373.46 has already been returned to it.

This constrained plaintiff-appellee Zamboanga del Norte to file on March 5, 1962, a


complaint entitled "Declaratory Relief with Preliminary Mandatory Injunction" in the Court of First
Instance of Zamboanga del Norte against defendants-appellants Zamboanga City, the
Secretary of Finance and the Commissioner of Internal Revenue. It was prayed that: (a)
Republic Act 3039 be declared unconstitutional for depriving plaintiff province of property
without due process and just compensation; (b) Plaintiff's rights and obligations under said law
be declared; (c) The Secretary of Finance and the Internal Revenue Commissioner be enjoined
from reimbursing the sum of P57,373.46 to defendant City; and (d) The latter be ordered to
continue paying the balance of P704,220.05 in quarterly installments of 25% of its internal
revenue allotments.

On June 4, 1962, the lower court ordered the issuance of preliminary injunction as prayed
for. After defendants filed their respective answers, trial was held. On August 12, 1963,
judgment was rendered, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered declaring Republic Act No. 3039


unconstitutional insofar as it deprives plaintiff Zamboanga del Norte of its private
properties, consisting of 50 parcels of land and the improvements thereon under
certificates of title (Exhibits "A" to "A-49") in the name of the defunct province of
Zamboanga; ordering defendant City of Zamboanga to pay to the plaintiff the sum of
P704,220.05 payment thereof to be deducted from its regular quarterly internal revenue
allotment equivalent to 25% thereof every quarter until said amount shall have been fully
paid; ordering defendant Secretary of Finance to direct defendant Commissioner of
Internal Revenue to deduct 25% from the regular quarterly internal revenue allotment for
defendant City of Zamboanga and to remit the same to plaintiff Zamboanga del Norte
until said sum of P704,220.05 shall have been fully paid; ordering plaintiff Zamboanga
del Norte to execute through its proper officials the corresponding public instrument
deeding to defendant City of Zamboanga the 50 parcels of land and the improvements
thereon under the certificates of title (Exhibits "A" to "A-49") upon payment by the latter
of the aforesaid sum of P704,220.05 in full; dismissing the counterclaim of defendant
City of Zamboanga; and declaring permanent the preliminary mandatory injunction
issued on June 8, 1962, pursuant to the order of the Court dated June 4, 1962. No costs
are assessed against the defendants.

It is SO ORDERED.

Subsequently, but prior to the perfection of defendants' appeal, plaintiff province filed a
motion to reconsider praying that Zamboanga City be ordered instead to pay the P704,220.05 in
lump sum with 6% interest per annum. Over defendants' opposition, the lower court granted
plaintiff province's motion.

The defendants then brought the case before Us on appeal.

Brushing aside the procedural point concerning the property of declaratory relief filed in
the lower court on the assertion that the law had already been violated and that plaintiff sought
to give it coercive effect, since assuming the same to be true, the Rules anyway authorize the
conversion of the proceedings to an ordinary action, 5 We proceed to the more important and
principal question of the validity of Republic Act 3039.

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The validity of the law ultimately depends on the nature of the 50 lots and buildings
thereon in question. For, the matter involved here is the extent of legislative control over the
properties of a municipal corporation, of which a province is one. The principle itself is simple: If
the property is owned by the municipality (meaning municipal corporation) in its public and
governmental capacity, the property is public and Congress has absolute control over it. But if
the property is owned in its private or proprietary capacity, then it is patrimonial and Congress
has no absolute control. The municipality cannot be deprived of it without due process and
payment of just compensation. 6

The capacity in which the property is held is, however, dependent on the use to which it is
intended and devoted. Now, which of two norms, i.e., that of the Civil Code or that obtaining
under the law of Municipal Corporations, must be used in classifying the properties in question?

The Civil Code classification is embodied in its Arts. 423 and 424 which
provide:1äwphï1.ñët

ART. 423. The property of provinces, cities, and municipalities is divided into
property for public use and patrimonial property.

ART. 424. Property for public use, in the provinces, cities, and municipalities,
consists of the provincial roads, city streets, municipal streets, the squares, fountains,
public waters, promenades, and public works for public service paid for by said
provinces, cities, or municipalities.

All other property possessed by any of them is patrimonial and shall be governed by this
Code, without prejudice to the provisions of special laws. (Stressed for emphasis).

Applying the above cited norm, all the properties in question, except the two (2) lots used
as High School playgrounds, could be considered as patrimonial properties of the former
Zamboanga province. Even the capital site, the hospital and leprosarium sites, and the school
sites will be considered patrimonial for they are not for public use. They would fall under the
phrase "public works for public service" for it has been held that under the ejusdem generis rule,
such public works must be for free and indiscriminate use by anyone, just like the preceding
enumerated properties in the first paragraph of Art 424. 7 The playgrounds, however, would fit
into this category.

This was the norm applied by the lower court. And it cannot be said that its actuation was
without jurisprudential precedent for in Municipality of Catbalogan v. Director of Lands, 8 and
in Municipality of Tacloban v. Director of Lands, 9 it was held that the capitol site and the school
sites in municipalities constitute their patrimonial properties. This result is understandable
because, unlike in the classification regarding State properties, properties for public service in
the municipalities are not classified as public. Assuming then the Civil Code classification to be
the chosen norm, the lower court must be affirmed except with regard to the two (2) lots used as
playgrounds.

On the other hand, applying the norm obtaining under the principles constituting the law
of Municipal Corporations, all those of the 50 properties in question which are devoted to public
service are deemed public; the rest remain patrimonial. Under this norm, to be considered
public, it is enough that the property be held and, devoted for governmental purposes like local
administration, public education, public health, etc. 10

Supporting jurisprudence are found in the following cases: (1) HINUNANGAN V.


DIRECTOR OF LANDS, 11where it was stated that "... where the municipality has occupied
lands distinctly for public purposes, such as for the municipal court house, the public school, the
public market, or other necessary municipal building, we will, in the absence of proof to the
contrary, presume a grant from the States in favor of the municipality; but, as indicated by the
wording, that rule may be invoked only as to property which is used distinctly for public
purposes...." (2) VIUDA DE TANTOCO V. MUNICIPAL COUNCIL OF ILOILO 12 held that
municipal properties necessary for governmental purposes are public in nature. Thus, the auto
trucks used by the municipality for street sprinkling, the police patrol automobile, police stations
and concrete structures with the corresponding lots used as markets were declared exempt

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from execution and attachment since they were not patrimonial properties. (3) MUNICIPALITY
OF BATANGAS VS. CANTOS 13 held squarely that a municipal lot which had always been
devoted to school purposes is one dedicated to public use and is not patrimonial property of a
municipality.

Following this classification, Republic Act 3039 is valid insofar as it affects the lots used
as capitol site, school sites and its grounds, hospital and leprosarium sites and the high school
playground sites — a total of 24 lots — since these were held by the former Zamboanga
province in its governmental capacity and therefore are subject to the absolute control of
Congress. Said lots considered as public property are the following:

TCT
Lot Number Use
Number
2200 ...................................... 4-B ...................................... Capitol Site
2816 ...................................... 149 ...................................... School Site
3281 ...................................... 1224 ...................................... Hospital Site
3282 ...................................... 1226 ...................................... Hospital Site
3283 ...................................... 1225 ...................................... Hospital Site
3748 ...................................... 434-A-1 ...................................... School Site
5406 ...................................... 171 ...................................... School Site
High School Play-
5564 ...................................... 168 ......................................
ground
157 &
5567 ...................................... ...................................... Trade School
158
High School Play-
5583 ...................................... 167 ......................................
ground
6181 ...................................... (O.C.T.) ...................................... Curuan School
11942 ...................................... 926 ...................................... Leprosarium
11943 ...................................... 927 ...................................... Leprosarium
11944 ...................................... 925 ...................................... Leprosarium
5557 ...................................... 170 ...................................... Burleigh School
5562 ...................................... 180 ...................................... Burleigh School
5565 ...................................... 172-B ...................................... Burleigh
5570 ...................................... 171-A ...................................... Burleigh
5571 ...................................... 172-C ...................................... Burleigh
5572 ...................................... 174 ...................................... Burleigh
5573 ...................................... 178 ...................................... Burleigh
5585 ...................................... 171-B ...................................... Burleigh
5586 ...................................... 173 ...................................... Burleigh
5587 ...................................... 172-A ...................................... Burleigh

We noticed that the eight Burleigh lots above described are adjoining each other and in
turn are between the two lots wherein the Burleigh schools are built, as per records appearing
herein and in the Bureau of Lands. Hence, there is sufficient basis for holding that said eight lots
constitute the appurtenant grounds of the Burleigh schools, and partake of the nature of the
same.

Regarding the several buildings existing on the lots above-mentioned, the records do not
disclose whether they were constructed at the expense of the former Province of Zamboanga.
Considering however the fact that said buildings must have been erected even before 1936
when Commonwealth Act 39 was enacted and the further fact that provinces then had no power
to authorize construction of buildings such as those in the case at bar at their own expense, 14 it
can be assumed that said buildings were erected by the National Government, using national
funds. Hence, Congress could very well dispose of said buildings in the same manner that it did
with the lots in question.

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But even assuming that provincial funds were used, still the buildings constitute mere
accessories to the lands, which are public in nature, and so, they follow the nature of said lands,
i.e., public. Moreover, said buildings, though located in the city, will not be for the exclusive use
and benefit of city residents for they could be availed of also by the provincial residents. The
province then — and its successors-in-interest — are not really deprived of the benefits thereof.

But Republic Act 3039 cannot be applied to deprive Zamboanga del Norte of its share in
the value of the rest of the 26 remaining lots which are patrimonial properties since they are not
being utilized for distinctly, governmental purposes. Said lots are:

TCT Number Lot Number Use


5577 ...................................... 177 ...................................... Mydro, Magay
13198 ...................................... 127-0 ...................................... San Roque
5569 ...................................... 169 ...................................... Burleigh 15
5558 ...................................... 175 ...................................... Vacant
5559 ...................................... 188 ...................................... "
5560 ...................................... 183 ...................................... "
5561 ...................................... 186 ...................................... "
5563 ...................................... 191 ...................................... "
5566 ...................................... 176 ...................................... "
5568 ...................................... 179 ...................................... "
5574 ...................................... 196 ...................................... "
5575 ...................................... 181-A ...................................... "
5576 ...................................... 181-B ...................................... "
5578 ...................................... 182 ...................................... "
5579 ...................................... 197 ...................................... "
5580 ...................................... 195 ...................................... "
5581 ...................................... 159-B ...................................... "
5582 ...................................... 194 ...................................... "
5584 ...................................... 190 ...................................... "
5588 ...................................... 184 ...................................... "
5589 ...................................... 187 ...................................... "
5590 ...................................... 189 ...................................... "
5591 ...................................... 192 ...................................... "
5592 ...................................... 193 ...................................... "
5593 ...................................... 185 ...................................... "
7379 ...................................... 4147 ...................................... "

Moreover, the fact that these 26 lots are registered strengthens the proposition that they
are truly private in nature. On the other hand, that the 24 lots used for governmental purposes
are also registered is of no significance since registration cannot convert public property to
private. 16

We are more inclined to uphold this latter view. The controversy here is more along the
domains of the Law of Municipal Corporations — State vs. Province — than along that of Civil
Law. Moreover, this Court is not inclined to hold that municipal property held and devoted to
public service is in the same category as ordinary private property. The consequences are dire.
As ordinary private properties, they can be levied upon and attached. They can even be
acquired thru adverse possession — all these to the detriment of the local community. Lastly,
the classification of properties other than those for public use in the municipalities as patrimonial
under Art. 424 of the Civil Code — is "... without prejudice to the provisions of special laws." For
purpose of this article, the principles, obtaining under the Law of Municipal Corporations can be
considered as "special laws". Hence, the classification of municipal property devoted for
distinctly governmental purposes as public should prevail over the Civil Code classification in
this particular case.

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Defendants' claim that plaintiff and its predecessor-in-interest are "guilty of laches is
without merit. Under Commonwealth Act 39, Sec. 50, the cause of action in favor of the defunct
Zamboanga Province arose only in 1949 after the Auditor General fixed the value of the
properties in question. While in 1951, the Cabinet resolved transfer said properties practically
for free to Zamboanga City, a reconsideration thereof was seasonably sought. In 1952, the old
province was dissolved. As successor-in-interest to more than half of the properties involved,
Zamboanga del Norte was able to get a reconsideration of the Cabinet Resolution in 1959. In
fact, partial payments were effected subsequently and it was only after the passage of Republic
Act 3039 in 1961 that the present controversy arose. Plaintiff brought suit in 1962. All the
foregoing, negative laches.

It results then that Zamboanga del Norte is still entitled to collect from the City of
Zamboanga the former's 54.39% share in the 26 properties which are patrimonial in nature, said
share to computed on the basis of the valuation of said 26 properties as contained in Resolution
No. 7, dated March 26, 1949, of the Appraisal Committee formed by the Auditor General.

Plaintiff's share, however, cannot be paid in lump sum, except as to the P43,030.11
already returned to defendant City. The return of said amount to defendant was without legal
basis. Republic Act 3039 took effect only on June 17, 1961 after a partial payment of
P57,373.46 had already been made. Since the law did not provide for retroactivity, it could not
have validly affected a completed act. Hence, the amount of P43,030.11 should be immediately
returned by defendant City to plaintiff province. The remaining balance, if any, in the amount of
plaintiff's 54.39% share in the 26 lots should then be paid by defendant City in the same manner
originally adopted by the Secretary of Finance and the Commissioner of Internal Revenue, and
not in lump sum. Plaintiff's prayer, particularly pars. 5 and 6, read together with pars. 10 and 11
of the first cause of action recited in the complaint 17clearly shows that the relief sought was
merely the continuance of the quarterly payments from the internal revenue allotments of
defendant City. Art. 1169 of the Civil Code on reciprocal obligations invoked by plaintiff to justify
lump sum payment is inapplicable since there has been so far in legal contemplation no
complete delivery of the lots in question. The titles to the registered lots are not yet in the name
of defendant Zamboanga City.

WHEREFORE, the decision appealed from is hereby set aside and another judgment is
hereby entered as follows:.

(1) Defendant Zamboanga City is hereby ordered to return to plaintiff Zamboanga del
Norte in lump sum the amount of P43,030.11 which the former took back from the latter out of
the sum of P57,373.46 previously paid to the latter; and

(2) Defendants are hereby ordered to effect payments in favor of plaintiff of whatever
balance remains of plaintiff's 54.39% share in the 26 patrimonial properties, after deducting
therefrom the sum of P57,373.46, on the basis of Resolution No. 7 dated March 26, 1949 of the
Appraisal Committee formed by the Auditor General, by way of quarterly payments from the
allotments of defendant City, in the manner originally adopted by the Secretary of Finance and
the Commissioner of Internal Revenue. No costs. So ordered.

G.R. No. L-11658 February 15, 1918

LEUNG YEE, plaintiff-appellant,


vs.
FRANK L. STRONG MACHINERY COMPANY and J. G. WILLIAMSON, defendants-
appellees.

Booram and Mahoney for appellant.


Williams, Ferrier and SyCip for appellees.

CARSON, J.:

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


company from the defendant machinery company, and executed a chattel mortgage thereon to
secure payment of the purchase price. It included in the mortgage deed the building of strong

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materials in which the machinery was installed, without any reference to the land on which it
stood. The indebtedness secured by this instrument not having been paid when it fell due, the
mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company. The mortgage was registered in the
chattel mortgage registry, and the sale of the property to the machinery company in satisfaction
of the mortgage was annotated in the same registry on December 29, 1913.

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

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

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

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

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

Article 1473 of the Civil Code is as follows:

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

Should it be real property, it shall belong to the person acquiring it who first recorded it in
the registry.

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

The registry her referred to is of course the registry of real property, and it must be apparent that
the annotation or inscription of a deed of sale of real property in a chattel mortgage registry
cannot be given the legal effect of an inscription in the registry of real property. By its express
terms, the Chattel Mortgage Law contemplates and makes provision for mortgages of personal
property; and the sole purpose and object of the chattel mortgage registry is to provide for the
registry of "Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which the rice-
cleaning machinery was installed by the "Compañia Agricola Filipina" was real property, and the
mere fact that the parties seem to have dealt with it separate and apart from the land on which it

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stood in no wise changed its character as real property. It follows that neither the original
registry in the chattel mortgage of the building and the machinery installed therein, not the
annotation in that registry of the sale of the mortgaged property, had any effect whatever so far
as the building was concerned.

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

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

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

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

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

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

Perhaps we should make it clear that in holding that the inscription of the sheriff's certificate of
sale to the plaintiff was not made in good faith, we should not be understood as questioning, in
any way, the good faith and genuineness of the plaintiff's claim against the "Compañia Agricola

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

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

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

We conclude that upon the grounds herein set forth the disposing part of the decision and
judgment entered in the court below should be affirmed with costs of this instance against the
appellant. So ordered.

G.R. No. L40474 August 29, 1975

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


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

Jose Antonio R Conde for petitioner.

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

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CONCEPCION, Jr., J.:

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. L-28379 March 27, 1929

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, applicant-appellant,


vs.
CONSORCIA CABANGIS, ET AL., claimants-appellees.

Attorney-General Jaranilla for appellant.


Abad Santos, Camus & Delgado for appellees.

VILLA-REAL, J.:

The Government of the Philippine Islands appeals to this court from the judgment of the Court of
First Instance of Manila in cadastral proceeding No. 373 of the Court of First Instance of Manila,
G. L. R. O. Cadastral Record No. 373, adjudicating the title and decreeing the registration of lots
Nos. 36, 39 and 40, block 3055 of the cadastral survey of the City of Manila in favor of
Consuelo, Consorcia, Elvira and Tomas, surnamed Cabangis, in equal parts, and dismissing the
claims presented by the Government of the Philippine Islands and the City of Manila.

In support of its appeal, the appellant assigns the following alleged errors as committed by the
trial court in its judgment, to wit:

1. The lower court erred in not holding that the lots in question are of the public domain,
the same having been gained from the sea (Manila Bay) by accession, by fillings made
by the Bureau of Public Works and by the construction of the break-water (built by the
Bureau of Navigation) near the mouth of Vitas Estero.

2. The lower court erred in holding that the lots in question formed part of the big parcel
of land belonging to the spouses Maximo Cabangis and Tita Andres, and in holding that
these spouses and their successors in interest have been in continuous, public, peaceful
and uninterrupted possession of said lots up to the time this case came up.

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3. The lower court erred in holding that said lots existed before, but that due to the
current of the Pasig River and to the action of the big waves in Manila Bay during the
south-west monsoons, the same disappeared.

4. The lower court erred in adjudicating the registration of the lands in question in the
name of the appellees, and in denying the appellant's motion for a new trial.

A preponderance of the evidence in the record which may properly be taken into consideration
in deciding the case, proves the following facts:

Lots 36, 39 and 40, block 3035 of cadastral proceeding No. 71 of the City of Manila, G. L. R. O.
Record No. 373, were formerly a part of a large parcel of land belonging to the predecessor of
the herein claimants and appellees. From the year 1896 said land began to wear away, due to
the action of the waves of Manila Bay, until the year 1901 when the said lots became completely
submerged in water in ordinary tides, and remained in such a state until 1912 when the
Government undertook the dredging of Vitas Estuary in order to facilitate navigation, depositing
all the sand and silt taken from the bed of the estuary on the low lands which were completely
covered with water, surrounding that belonging to the Philippine Manufacturing Company,
thereby slowly and gradually forming the lots, the subject matter of this proceeding.

Up to the month of February, 1927 nobody had declared lot 39 for the purposes of taxation, and
it was only in the year 1926 that Dr. Pedro Gil, in behalf of the claimants and appellees,
declared lot No. 40 for such purpose.

In view of the facts just stated, as proved by a preponderance of the evidence, the question
arises: Who owns lots 36, 39 and 40 in question?

The claimants-appellees contend that inasmuch as the said lots once formed a part of a large
parcel of land belonging to their predecessors, whom they succeeded, and their immediate
predecessor in interest, Tomas Cabangis, having taken possession thereof as soon as they
were reclaimed, giving his permission to some fishermen to dry their fishing nets and deposit
their bancas thereon, said lots belong to them.

Article 339, subsection 1, of the Civil Code, reads:

Article 339. Property of public ownership is —

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

xxx xxx xxx

Article 1, case 3, of the Law of Waters of August 3, 1866, provides as follows:

ARTICLE 1. The following are part of the national domain open to public use:

xxx xxx xxx

3. The Shores. By the shore is understood that space covered and uncovered by the
movement of the tide. Its interior or terrestrial limit is the line reached by the highest
equinoctial tides. Where the tides are not appreciable, the shore begins on the land side
at the line reached by the sea during ordinary storms or tempests.

In the case of Aragon vs. Insular Government (19 Phil., 223), with reference to article 339 of the
Civil Code just quoted, this court said:

We should not be understood, by this decision, to hold that in a case of gradual encroachment
or erosion by the ebb and flow of the tide, private property may not become 'property of public
ownership,' as defined in article 339 of the code, where it appears that the owner has to all

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intents and purposes abandoned it and permitted it to be totally destroyed, so as to become a
part of the 'playa' (shore of the seas), 'rada' (roadstead), or the like. . . .

In the Enciclopedia Juridica Espanola, volume XII, page 558, we read the following:

With relative frequency the opposite phenomenon occurs; that is, the sea advances and
private properties are permanently invaded by the waves, and in this case they become
part of the shore or beach. They then pass to the public domain, but the owner thus
dispossessed does not retain any right to the natural products resulting from their new
nature; it is a de facto case of eminent domain, and not subject to indemnity.

Now then , when said land was reclaimed, did the claimants-appellees or their predecessors
recover it as their original property?

As we have seen, the land belonging to the predecessors of the herein claimants-appellees
began to wear way in 1896, owing to the gradual erosion caused by the ebb and flow of the tide,
until the year 1901, when the waters of Manila Bay completely submerged a portion of it,
included within lots 36, 39 and 40 here in question, remaining thus under water until reclaimed
as a result of certain work done by the Government in 1912. According to the above-cited
authorities said portion of land, that is, lots 36, 39 and 40, which was private property, became a
part of the public domain. The predecessors of the herein claimants-appellees could have
protected their land by building a retaining wall, with the consent of competent authority, in 1896
when the waters of the sea began to wear it away, in accordance with the provisions of Article
29 of the aforecited Law of Waters of August 3, 1866, and their failure to do so until 1901, when
a portion of the same became completely covered by said waters, remaining thus submerged
until 1912, constitutes abandonment.

Now then: The lots under discussion having been reclaimed from the seas as a result of certain
work done by the Government, to whom do they belong?

The answer to this question is found in article 5 of the aforementioned Law of Waters, which is
as follows:

ART. 5. Lands reclaimed from the sea in consequence of works constructed by the
State, or by the provinces, pueblos or private persons, with proper permission, shall
become the property of the party constructing such works, unless otherwise provided by
the terms of the grant of authority.

The fact that from 1912 some fishermen had been drying their fishing nets and depositing
their bancas on lots 36, 39 and 40, by permission of Tomas Cabangis, does not confer on the
latter or his successors the ownership of said lots, because, as they were converted into public
land, no private person could acquire title thereto except in the form and manner established by
the law.

In the case of Buzon vs. Insular Government and City of Manila (13 Phil., 324), cited by the
claimants-appellees, this court, admitting the findings and holdings of the lower court, said the
following:

If we heed the parol evidence, we find that the seashore was formerly about one
hundred brazas distant from the land in question; that, in the course of time, and by the
removal of a considerable quantity of sand from the shore at the back of the land for the
use of the street car company in filling in Calle Cervantes, the sea water in ordinary tides
now covers part of the land described in the petition.

The fact that certain land, not the bed of a river or of the sea, is covered by sea water
during the period of ordinary high tide, is not a reason established by any law to cause
the loss thereof, especially when, as in the present case, it becomes covered by water
owing to circumstances entirely independent of the will of the owner.

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In the case of Director of Lands vs. Aguilar (G.R. No. 22034),1 also cited by the claimants-
appellees, wherein the Government adduced no evidence in support of its contention, the lower
court said in part:

The contention of the claimants Cabangis is to the effect that said lots are a part of the
adjoining land adjudicated to their deceased father, Don Tomas Cabangis, which, for
over fifty years had belonged to their deceased grandmother, Tita Andres, and that, due
to certain improvements made in Manila Bay, the waters of the sea covered a large part
of the lots herein claimed.

The Government of the Philippine Islands also claims the ownership of said lots,
because, at ordinary high tide, they are covered by the sea.

Upon petition of the parties, the lower court made an ocular inspection of said lots on
September 12, 1923, and on said inspection found some light material houses built
thereon, and that on that occasion the waters of the sea did not reach the aforesaid lots.

From the evidence adduced at the trial of this cause, it may be inferred that Tita Andres,
during her lifetime was the owner of a rather large parcel of land which was adjudicated
by a decree to her son Tomas Cabangis; the lots now in question are contiguous to that
land and are covered by the waters of the sea at extraordinary high tide; some 50 years
before the sea did not reach said strip of land, and on it were constructed, for the most
part, light material houses, occupied by the tenants of Tita Andres, to whom they paid
rent. Upon her death, her son Tomas Cabangis succeeded to the possession, and his
children succeeded him, they being the present claimants, Consuelo, Jesus, Tomas, and
Consorcia Cabangis.

The Government of the Philippine Islands did not adduce any evidence in support of its
contention, with the exception of registry record No. 8147, to show that the lots here in
question were not excluded from the application presented in said proceeding.

It will be seen that in the case of Buzon vs. Insular Government and City of Manila, cited above,
the rise of the waters of the sea that covered the lands there in dispute, was due not to the
action of the tide but to the fact that a large quantity of sand was taken from the sea at the side
of said land in order to fill in Cervantes Street, and this court properly held that because of this
act, entirely independent of the will of the owner of said land, the latter could not lose the
ownership thereof, and the mere fact that the waters of the sea covered it as a result of said act,
is not sufficient to convert it into public land, especially, as the land was high and appropriate for
building purposes.

In the case of the Director of Lands vs. Aguilar also cited by the claimants-appellees, the Insular
Government did not present any evidence in support of its contention, thus leaving
uncontradicted the evidence adduced by the claimants Aguilar et al., as to the ownership,
possession and occupation of said lots.

In the instant case the evidence shows that from 1896, the waves of Manila Bay had been
gradually and constantly washing away the sand that formed the lots here in question, until
1901, when the sea water completely covered them, and thus they remained until the year
1912. In the latter year they were reclaimed from the sea by filling in with sand and silt extracted
from the bed of Vitas Estuary when the Government dredged said estuary in order to facilitate
navigation. Neither the herein claimants-appellees nor their predecessors did anything to
prevent their destruction.

In conclusion, then, we hold that the lots in question having disappeared on account of the
gradual erosion due to the ebb and flow of the tide, and having remained in such a state until
they were reclaimed from the sea by the filling in done by the Government, they are public land.
(Aragon vs. Insular Government, 19 Phil., 223; Francisco vs. Government of the Philippine
Islands, 28 Phil., 505).

By virtue whereof, the judgment appealed from is reversed and lots Nos. 36, 39 and 40 of
cadastral proceeding No. 373 of the City of Manila are held to be public land belonging to the

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Government of the United States under the administration and control of the Government of the
Philippine Islands. So ordered.

G.R. No. L-24950 March 25, 1926

VIUDA DE TAN TOCO, plaintiff-appellant,


vs.
THE MUNICIPAL COUNCIL OF ILOILO, defendant-appellee.

Arroyo & Evangelista for appellant.


Provincial Fiscal Borromeo Veloso for appelle.

VILLAMOR, J.:

It appears from the record that the widow of Tan Toco had sued the municipal council of Iloilo
for the amount of P42,966.40, being the purchase price of two strips of land, one on Calle J. M.
Basa consisting of 592 square meters, and the other on Calle Aldiguer consisting of 59 square
meters, which the municipality of Iloilo had appropriated for widening said street. The Court of
First Instance of Iloilo sentenced the said municipality to pay the plaintiff the amount so claimed,
plus the interest, and the said judgment was on appeal affirmed by this court.1

On account of lack of funds the municipality of Iloilo was unable to pay the said judgment,
wherefore plaintiff had a writ of execution issue against the property of the said municipality, by
virtue of which the sheriff attached two auto trucks used for street sprinkling, one police patrol
automobile, the police stations on Mabini street, and in Molo and Mandurriao and the concrete
structures, with the corresponding lots, used as markets by Iloilo, Molo, and Mandurriao.

After notice of the sale of said property had been made, and a few days before the sale, the
provincial fiscal of Iloilo filed a motion which the Court of First Instance praying that the
attachment on the said property be dissolved, that the said attachment be declared null and void
as being illegal and violative of the rights of the defendant municipality.

Plaintiffs counsel objected o the fiscal's motion but the court, by order of August 12, 1925,
declared the attachment levied upon the aforementioned property of the defendant municipality
null and void, thereby dissolving the said attachment.

From this order the plaintiff has appealed by bill of exceptions. The fundamental question raised
by appellant in her four assignments of error is whether or not the property levied upon is
exempt from execution.

The municipal law, section 2165 of the Administrative Code, provides that:

Municipalities are political bodies corporate, and as such are endowed with the faculties
of municipal corporations, to be exercised by and through their respective municipal
government in conformity with law.

It shall be competent for them, in their proper corporate name, to sue and be sued, to
contract and be contracted with, to acquire and hold real and personal property for
municipal purposes, and generally to exercise the powers hereinafter specified or
otherwise conferred upon them by law.

For the purposes of the matter here in question, the Administrative Code does not specify the
kind of property that a municipality may acquire. However, article 343 of the Civil Code divides
the property of provinces and towns (municipalities) into property for public use and patrimonial
property. According to article 344 of the same Code, provincial roads and foot-path, squares,
streets, fountains and public waters, drives and public improvements of general benefit built at
the expense of the said towns or provinces, are property for public use.

All other property possessed by the said towns and provinces is patrimonial and shall be subject
to the provisions of the Civil Code except as provided by special laws.

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Commenting upon article 344, Mr. Manresa says that "In accordance with administrative
legislation" (Spanish) we must distinguish, as to the patrimonial property of the towns, "between
that a common benefit and that which is private property of the town. The first differs from
property for public use in that generally its enjoyment is less, as it is limited to neighbors or to a
group or class thereof; and, furthermore, such use, more or less general, is not intrinsic with this
kind of property, for by its very nature it may be enjoyed as though it were private property. The
third group, that is, private property, is used in the name of the town or province by the entities
representing it and, like and private property, giving a source of revenue."

Such distinction, however, is of little practical importance in this jurisdiction in view of the
different principles underlying the functions of a municipality under the American rule.
Notwithstanding this, we believe that the principle governing property of the public domain of the
State is applicable to property for public use of the municipalities as said municipal is similar in
character. The principle is that the property for public use of the State is not within the
commerce of man and, consequently, is inalienable and not subject to prescription. Likewise,
property for public of the municipality is not within the commerce of man so long as it is used by
the public and, consequently, said property is also inalienable.

The American Law is more explicit about this matter as expounded by Mcquilin in Municipal
Corporations, volume 3, paragraph 1160, where he says that:

States statutes often provide the court houses, jails and other buildings owned by
municipalities and the lots on which they stand shall be exempt from attachment and
execution. But independent of express statutory exemption, as a general proposition,
property, real and personal, held by municipal corporations, in trust for the benefit of
their inhabitants, and used for public purposes, is exempt.

For example, public buildings, school houses, streets, squares, parks, wharves, engines
and engine houses, and the like, are not subject to execution. So city waterworks, and a
stock of liquors carried in a town dispensary, are exempt. The reason for the exemption
is obvious. Municipal corporations are created for public purposes and for the good of
the citizens in their aggregate or public capacity. That they may properly discharge such
public functions corporate property and revenues are essential, and to deny them these
means the very purpose of their creation would be materially impeded, and in some
instances practically destroy it. Respecting this subject the Supreme Court of Louisiana
remarked: "On the first view of this question there is something very repugnant to the
moral sense in the idea that a municipal corporation should contract debts, and that,
having no resources but the taxes which are due to it, these should not be subjected by
legal process to the satisfaction of its creditors. This consideration, deduced from the
principles of moral equity has only given way to the more enlarged contemplation of the
great and paramount interests of public order and the principles of government."

It is generally held that property owned by a municipality, where not used for a public
purpose but for quasi private purposes, is subject to execution on a judgment against the
municipality, and may be sold. This rule applies to shares of stock owned by a municipal
corporation, and the like. But the mere fact that corporate property held for public uses is
being temporarily used for private purposes does not make it subject execution.

If municipal property exempt from execution is destroyed, the insurance money stands in
lieu thereof and is also exempt.

The members or inhabitants of a municipal corporation proper are not personally liable
for the debts of the municipality, except that in the New England States the individual
liability of the inhabitant is generally maintained.

In Corpus Juris, vol 23, page 355, the following is found:

Where property of a municipal or other public corporation is sough to be subjected to


execution to satisfy judgments recovered against such corporation, the question as to
whether such property is leviable or not is to be determined by the usage and purposes
for which it is held. The rule is that property held for public uses, such as public

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buildings, streets, squares parks, promenades, wharves, landing places fire engines,
hose and hose carriages, engine houses, public markets, hospitals, cemeteries, and
generally everything held for governmental purposes, is not subject to levy and sale
under execution against such corporation. The rule also applies to funds in the hands of
a public officer. Likewise it has been held that taxes due to a municipal corporation or
country cannot be seized under execution by a creditor of such corporation. But where a
municipal corporation or country owns in its proprietary, as distinguished from its public
or governmental capacity, property not useful or used for a public purpose but
for quasi private purposes, the general rule is that such property may be seized and sold
under execution against the corporation, precisely as similar property of individuals is
seized and sold. But property held for public purposes is not subject to execution merely
because it is temporarily used for private purposes, although if the public use is wholly
abandoned it becomes subject to execution. Whether or not property held as public
property is necessary for the public use is a political, rather than a judicial question.

In the case of City of New Orleans vs. Louisiana Construction Co., Ltd. (140 U. S., 654; 35 Law.
ed., 556), it was held that a wharf for unloading sugar and molasses, open to the public, was
property for the public use of the City of New Orleans and was not subject to attachment for the
payment of the debts of the said city.

In that case it was proven that the said wharf was a parcel of land adjacent to the Mississippi
River where all shipments of sugar and molasses taken to New Orleans were unloaded.

That city leased the said wharf to the Louisiana Construction Company, Ltd., in order that it
might erect warehouses so that the merchandise upon discharge might not be spoiled by the
elements. The said company was given the privilege of charging certain fees for storing
merchandise in the said warehouses and the public in general had the right to unload sugar and
molasses there by paying the required fees, 10 per cent of which was turned over to the city
treasury.

The United States Supreme Court on an appeal held that the wharf was public property, that it
never ceased to be such in order to become private property of the city; wherefore the company
could not levy execution upon the wharf in order to collect the amount of the judgment rendered
in favor thereof.

In the case of Klein vs. City of New Orleans (98 U. S., 149; 25 Law. ed., 430), the Supreme
Court of the United States that a public wharf on the banks of the Mississippi River was public
property and not subject to execution for the payment of a debt of the City of New Orleans
where said wharf was located.

In this case a parcel of land adjacent to the Mississippi River, which formerly was the shore of
the river and which later enlarged itself by accession, was converted into a wharf by the city for
public use, who charged a certain fee for its use.

It was held that the land was public property as necessary as a public street and was not
subject to execution on account of the debts of the city. It was further held that the fees
collected where also exempt from execution because they were a part of the income of the city.

In the case of Tufexis vs. Olaguera and Municipal Council of Guinobatan (32 Phil., 654), the
question raised was whether for the payment of a debt to a third person by the concessionaire
of a public market, the said public market could be attached and sold at public auction. The
Supreme Court held that:

Even though a creditor is unquestionably entitled to recover out of his debtor's property,
yet when among such property there is included the special right granted by the
Government of usufruct in a building intended for a public service, and when this
privilege is closely related to a service of a public character, such right of the creditor to
the collection of a debt owed him by the debtor who enjoys the said special privilege of
usufruct in a public market is not absolute and may be exercised only through the action
of court of justice with respect to the profits or revenue obtained under the special right
of usufruct enjoyed by debtor.

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The special concession of the right of usufruct in a public market cannot be attached like
any ordinary right, because that would be to permit a person who has contracted with
the state or with the administrative officials thereof to conduct and manage a service of a
public character, to be substituted, without the knowledge and consent of the
administrative authorities, by one who took no part in the contract, thus giving rise to the
possibility of the regular course of a public service being disturbed by the more or less
legal action of a grantee, to the prejudice of the state and the public interests.

The privilege or franchise granted to a private person to enjoy the usufruct of a public
market cannot lawfully be attached and sold, and a creditor of such person can recover
his debt only out of the income or revenue obtained by the debtor from the enjoyment or
usufruct of the said privilege, in the same manner that the rights of such creditors of a
railroad company can be exercised and their credit collected only out of the gross
receipts remaining after deduction has been made therefrom of the operating expenses
of the road. (Law of November 12, 1896, extended to the overseas provinces by the
royal order of August 3, 1886.)

For the reasons contained in the authorities above quoted we believe that this court would have
reached the same conclusion if the debtor had been municipality of Guinobatan and the public
market had been levied upon by virtue of the execution.

It is evident that the movable and immovable property of a municipality, necessary for
governmental purpose, may not be attached and sold for the payment of a judgment against the
municipality. The supreme reason for this rule is the character of the public use to which such
kind of property is devoted. The necessity for government service justifies that the property of
public of the municipality be exempt from execution just as it is necessary to exempt certain
property of private individuals in accordance with section 452 of the Code of Civil Procedure.

Even the municipal income, according to the above quoted authorities, is exempt from levy and
execution. In volume 1, page 467, Municipal Corporations by Dillon we find that:

Municipal corporations are instituted by the supreme authority of a state for the public
good. They exercise, by delegation from the legislature, a portion of the sovereign
power. The main object of their creation is to act as administrative agencies for the state,
and to provide for the police and local government of certain designated civil divisions of
its territory. To this end they are invested with certain governmental powers and charged
with civil, political, and municipal duties. To enable them beneficially to exercise these
powers and discharge these duties, they are clothed with the authority to raise revenues,
chiefly by taxation, and subordinately by other modes as by licenses, fines, and
penalties. The revenue of the public corporation is the essential means by which it is
enabled to perform its appointed work. Deprived of its regular and adequate supply of
revenue, such a corporation is practically destroyed and the ends of its erection
thwarted. Based upon considerations of this character, it is the settled doctrine of the law
that only the public property but also the taxes and public revenues of such corporations
cannot be seized under execution against them, either in the treasury or when in transit
to it. Judgments rendered for taxes, and the proceeds of such judgments in the hands of
officers of the law, are not subject to execution unless so declared by statute. The
doctrine of the inviolability of the public revenues by the creditor is maintained, although
the corporation is in debt, and has no means of payment but the taxes which it is
authorized to collect.

Another error assigned by counsel for appellant is the holding of the court a quo that the proper
remedy for collecting the judgment in favor of the plaintiff was by way or mandamus.

While this question is not necessarily included in the one which is the subject of this appeal, yet
we believe that the holding of the court, assigned as error by appellant's counsel, is true when,
after a judgment is rendered against a municipality, it has no property subject to execution. This
doctrine is maintained by Dillon (Municipal Corporations, vol. 4, par. 1507, 5th ed.) based upon
the decisions of several States of the Union upholding the same principle and which are cited on
page 2679 of the aforesaid work. In this sense this assignment of error, we believe, is
groundless.

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By virtue of all the foregoing, the judgment appealed from should be and is hereby affirmed with
costs against the appellant. So ordered.

Avanceña, C. J., Street, Malcolm, Ostrand, Johns, Romualdez and Villa-Real., JJ., concur.

GR No. L-46620 April 2, 1940

RAMON MENESES, recurrent,


vs.
THE COMMONWEALTH OF THE PHILIPPINES, recurrent.

The facts are reported in the decision of the court.


D. Vicente J. Francisco in representation of the appellant.
The Attorney General Mr. Ozaeta and the Assistant Prosecutor Mr. Zulueta in representation of
the respondent.

DIAZ, J .:

The plaintiff, Government of the Commontwealth of the Philippines, filed a suit against the
appellant, in the First Instance Court of Bulacan, civil case No. 5229, entitled "The
Commonwealth of the Philippines, plaintiff, vs. Ramon Meneses, defendant," to compel to said
defendant to remove from the river called Bambang of the municipality of Bulacan of the
province of said name, the fish nursery object of question is built, as it had always been, for
many years to that part, on a private property, and not anywhere in the Bambang River; and that
both properties are privately owned. In view of this result, the plaintiff appealed to the Court of
Appeal, winning the lawsuit there because said Court declared in turn that the said fish nursery
is built in a portion of the cause of the said river: that this is public domain, and as such is open
to navigation and other purposes for public use . Not being satisfied the defendant with the
decision that thus dictated the Court of Appeal, promoted the present process of certiorari to
leave it without effect, attributing to the Court the following errors:

I. That of having allowed to declare that the nursery of fish in question, is built on a land that had
been formed by the successive accumulation of trawls of the Bambang River; Y

II. That of having stopped declaring that the appellant is the owner of the land on which the
aforementioned fish farm is built.

The facts that the Court of Appeal declared proven and that should be considered true in this
instance, because in a process such as the present one, it is not up to us to examine the facts
to review them, it is that the reference fish nursery, from its most remote origin as simple
"Palubugin", place where everyone could fish freely, but in the case of cars was not so, because
it has been continuously and exclusively for many years in the hands of the complainants, is
built in a part of the Bambang river bed; that this river is navigable, being served by the public
as well as by river for its rafts of cane and its barquichuelos although with difficulty, in its part
included between its east bank and the disques of the same nursery side, growing and
decreasing in depth in said part, according to the ebbs and flows; and that the nursery has a
width of about fifty six meters in its middle part, covering almost four fifths of the original river
bed. Furthermore, the Court of Appeal declares that, at high tide, agricultural products, pieces of
wood, fishing apparatus or instruments can be transported along said stretch of the river, either
by boat or by raft; and that the depth of the same in its middle part, during the high tide, is one
meter, and during the low tide, it is fifty-six centimeters. pieces of wood, fishing apparatus or
instruments, either by boat or already by rafts; and that the depth of the same in its middle part,
during the high tide, is one meter, and during the low tide, it is fifty-six centimeters. pieces of
wood, fishing apparatus or instruments, either by boat or already by rafts; and that the depth of
the same in its middle part, during the high tide, is one meter, and during the low tide, it is fifty-
six centimeters.

Being goods of public domain the rivers, their natural causes and their waters, according to the
articles 399 and 407 of the Civil Code, and 33, 67 and 72 of the Lety of Waters, without that
they can be built in the same fishers or other artifacts of fishing or prey, without the permission
of the corresponding authority, according to articles 172 and 185 of the aforementioned law, it is

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clear that the bambang river and the part of it in which the fish tank of the recurrentye is
copnstyruido, lomismo that its waters, they are also public domain assets. As such, they are not
susceptible of purchase, acquisition, or appropriation for proper and exclusive purposes by any
particular, because, being of that character, they are outside the commerce of men. 1ªvvphï |
.ñêt

Although it is a fact that the trek has been occupying for a good number of years, in concept of
owner, he says part of the river bed, dedicating it to nursery of fish, it does not give him any
reason to own it, because the goods of public domain not only are not subject to appropriation
but also of prescription. Inutil e spor resultante claiming property rights over said appart of the
bambang river because, by its very nature of public domain property, is imprescriptible. (Article
1936 of the Civil Code, Widow of Tantoco against the Municipal Council of Iloilo, 49 Jur. Fil.,
58.)

For the reasons stated, we confirm the decision of the Court of Appeal, with the costs to the
appellant. This is how it is ordered.

G.R. No. L-12958 May 30, 1960

FAUSTINO IGNACIO, applicant-appellant,


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

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

MONTEMAYOR, J.:

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

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

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

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

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

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

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

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

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

Appellant contends that the parcel belongs to him by the law of accretion, having been formed
by gradual deposit by action of the Manila Bay, and he cites Article 457 of the New Civil Code
(Article 366, Old Civil Code), which provides that:

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

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

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

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

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

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

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

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

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

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has been made by said departments, the lot in question forms part of the public domain.
(Natividad vs. Director of Lands, supra.)

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

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

Consequently, until a formal declaration on the part of the Government, through the executive
department or the Legislature, to the effect that the land in question is no longer needed for
coast guard service, for public use or for special industries, they continue to be part of the public
domain, not available for private appropriation or ownership.

Appellant next contends that he had acquired the parcel in question through acquisitive
prescription, having possessed the same for over ten years. In answer, suffice it to say that land
of the public domain is not subject to ordinary prescription. In the case of Insular Government
vs. Aldecoa & Co., 19 Phil., 505 this Court said:

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

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

In view of the foregoing, the appealed decision is hereby affirmed, with costs.

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

RAMON LANZAR, petitioner


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

Ramon A. Gonzales for petitioner.

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

FERNANDEZ, J.:

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

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

In August 1961, the Director of Lands and the City of Iloilo filed an opposition to the application
on the ground that the land in question a foreshore land which forms part of the public domain
and is needed by the City of Iloilo as a road right of way of the Molo Arevalo Boulevard, and that

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the applicant had not possessed the property in such a manner as to warrant an implied grant
entitled him to confirmation of his title thereto.

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

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

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

THE COURT OF APPEALS ERRED IN HOLDING THAT LANDS FORMED BY


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

II

THE COURT OF APPEALS ERRED IN RELYING ON MONTEVERDE VS.


DIRECTOR OF LANDS, 93 PHIL. 134 HOLDING THAT ONLY THE EXECUTIVE
OR LEGISLATURE CAN DECLARE THE LAND AS NO LONGER INTENDED
FOR PUBLIC USE AND SO SHALL BELONG TO THE ADJACENT OWNER.

III

THE COURT OF APPEALS ERRED IN HOLDING THAT SINCE ART. 422 OF


THE NEW CIVIL CODE PROVIDES THAT PROPERTY OF PUBLIC DOMAIN
WHEN NO LONGER INTENDED FOR PUBLIC USE, SUCH INTENTION CAN
ONLY BE SPELLED OUT BY THE EXECUTIVE OR LEGISLATURE, NOT BY
THE COURTS.

IV

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER


HAS ACQUIRED THE PROPERTY THRU ACQUISITIVE PRESCRIPTION.

(Petitioner's Brief, pp. 1-2)

The pertinent facts are not disputed.

The petitioner has applied for the registration of his title to a parcel of land which is admittedly
an accretion of Lot No. 1899 of the Cadastral Survey of Iloilo, it having been formed by the
gradual action of the sea before 1,922. Ignacio Arroyo, the registered owner of Lot 1899, leased
in 19M the property to Maximo Tonogbanua who possessed the whole of Lot 1899 and its
accretion. In 1927, Ignacio Arroyo donated Lot 1899 of the Cadastral Survey of Iloilo, together
with its accretion, to Beaterio de Santissimo Rosario de Molo, which in turn the property to the
applicant, Ramon Lanzar. The lessee planted coconuts and bananas on the land and a portion
thereof was devoted to palay. A verification of Lot 1899 by the Bureau of Lands disclosed that
the portion of land applied for and described in the plan, Exhibit A, and in its technical
description, is outside of Lot 1899, the same being an accretion thereto formed by the action of
the sea. Beaterio de Santissimo Rosario de Molo and the applicant entered into an agreement,
Exhibit 1, on August 13,1959, under which Beaterio de Santissimo Rosario de Molo assigned all
its rights to the accretion, the title to which is sought to be registered by the applicant. Beaterio

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de Santissimo Rosario de Molo had possessed Lot 1899 and its accretion through its lessee,
openly, publicly, uninterruptedly and adversely to all claimants and under claim of ownership.
The Beaterio had declared Lot 1899 for taxation and when it assigned the rights to the
applicant, he caused the tax declaration to be transferred to his name in May 1960, Exhibit J.

During the Cadastral Survey of 1911-1912, the lot in question was non-existent (Exhibit 2,
Director of Lands). Hence, said land as an accretion to Lot 1899 must have gradually developed
from 1912 to 1922 and thereafter. It is now separated by the Arevalo-Molo Boulevard from the
sea.

The only issue to be resolved is whether or not the title to the land in question which was formed
by action of the sea as an accretion to Lot 1899 may be registered in the name of the applicant
on the basis of adverse possession for over 30 years.

Article 4 of the Law of Waters provides:

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

In Ker & Co. vs. Cauden, 6 Phil. 732, this Court said:

This case is directly covered by the first part of said article 4. There is therein an
express declaration that land formed in the way this land was formed is public
property. Nothing could be more explicit and the effect of this declaration is not in
any way limited by the subsequent provisions of the same article. The claim of
the appellants that these subsequent provisions indicate that the ownership of
such land is in the private persons who own the adjoining property, and that the
declaration which is spoken of is simply proof of that ownership, can not be
sustained. It is in direct conflict with the statement made in the first part of the
article. The true construction of the article is that when these lands which belong
to the State are not needed for the purposes mentioned therein, then the State
shall grant them to the adjoining owners. No attempt was made by the appellants
to prove any such grant or concession in this case and, in fact, it is apparent from
the evidence that the conditions upon which the adjoining owners would be
entitled to such a grant have never existed because for a long time the property
was by the Spanish navy and it is now occupied by the present government as a
naval station, and works costing more than $500,000, money of the United
States, have been erected thereon. (Idem. p. 736)

It is contended by the petitioner that:

As found by the Court of Appeals, the accretion began before 1922, but after
1912, as shown by the undisputed evidence, hence, during the regime of the
Spanish Civil Code, which became effective on December 8, 1889, and
consequently, its nature shall be determined by the said code. Now, the said
code provides:

ARTICLE 399. The following are property of public domain:

l. Those things intended for public use, as roads, canals, rivers,


torrents, ports and bridges constructed by the State, riverbanks,
shores, roadsteads and others of a like nature.

(Brief for Petitioner-Appellant, pp. 10-11)

However, in Insular Government vs. Aldecoa and Company, 19 Phil. 505, this Court held:

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The Civil Code, which went into effect in these Islands on December 7, 1889, the
twentieth day of its publication in the Gaceta de Manila of the 17th of November
of the same year, confirms the provisions of the said Law of Waters, since, in its
article 339, it prescribes that:

Property of public ownership is —

l. That destined to the public use, such as roads, canals, rivers, torrents, ports,
and bridges constructed by the State, and banks, shores, roadsteads, and that of
a similar character.

Article 341 of the same code provides:

Property of public ownership, when no longer devoted to general uses or to the


requirements of the defense of the territory, shall become a part of the State
property.

The shores and the lands reclaimed from the sea, while they continue to be
devoted to public uses and no grant whatever has been made of any portion of
them to private persons, remain a part of the public domain and are for public
uses, and, until they are converted into patrimonial property of the State, such
lands, thrown up by the action of the sea, and the shores adjacent thereto, are
not susceptible of prescription, inasmuch as, being dedicated to the public uses,
they are not subject of commerce among men, in accordance with the provision
of article 1936 of the Civil Code.

The occupation or material possession of any land formed upon the shore by
accretions and alluvium deposits occasioned by the sea, where the occupant or
possessor is a private person and holds without previous permission or
authorization from the Government, granted in due form, although he may have
had the intention to hold it for the purpose of making it his own, is illegal
possession on his part and amounts to nothing more than a mere detainer of the
land, which is out of the sphere of the commerce of men, as belonging to the
public domain and being alloted to public uses and for the use of all persons who
live at the place where it is situated. (Idem, pp. 514-515)

It is thus seen that the petitioner could not acquire the land in question by prescription.

The contention of the petitioner-appellant that by "thus expanding the meaning of shores to
include inland property formed by the action of the sea, Government vs. Aldecoa is guilty of
judicial legislation ..." (Brief of Petitioner-Appellant, p. 15) has no merit.

Articles 339 and 340 of the Spanish Civil Code are not repugnant to Article 4 of the Spanish
Law of Waters of 1866. The said provisions of the said Spanish Code did not provide that lands
added to the shores by action of the sea form part of the patrimonial property of the State.

As stated by this Court in Insular Government vs. Aldecoa, supra, p. 541, the Civil Code of
Spain confirms the provisions of Article 4 of the Law of Waters, citing Article 339 of said code.
This Court has been consistent in ruling that lands formed by the action of the sea belong to the
public domain. Thus in Monteverde vs. Director of Lands, 93 Phil. 134, it was held:

Lots Nos. 1 and 2 were admittedly formed and added to the shores by the
natural. action of the sea, and the petitioners herein have claimed title thereto as
accretion to their adjoining lots, in accordance with article 4 of the Law of Waters
of August 3, 1966, which provides as follows:

'Lands added to the shores by accretion and alluvial deposits


caused by action of the sea, form part of the public domain. When
they are no longer washed by the water of the sea and are not
necessary for purposes of public utility, or for the establishment of
special industries, or for coast-guard service, the Government

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shall declare them to be property of the owners of the estates
adjacent thereto and as increment thereof.'

(Idem. pp. 135-136)

In view of the foregoing, the Court of Appeals did not err in declaring the property sought to be
registered as part of the public domain devoted to public use not susceptible of private
appropriation. The land in question is needed by the City of Iloilo for the expansion of the
Arevalo-Molo Boulevard.

WHEREFORE, the petition for review is hereby dismissed and the decision of the Court of
Appeals sought to be reviewed is affirmed, without pronouncement as to costs.

SO ORDERED.

G.R. No. 92013 July 25, 1990

SALVADOR H. LAUREL, petitioner,


vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS, as
Secretary of Foreign Affairs, and CATALINO MACARAIG, as Executive
Secretary, respondents.

G.R. No. 92047 July 25, 1990

DIONISIO S. OJEDA, petitioner,


vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN
RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al., as members of the
PRINCIPAL AND BIDDING COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION
OF PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN, respondents.

Arturo M. Tolentino for petitioner in 92013.

GUTIERREZ, JR., J.:

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

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

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

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I

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

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

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

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

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

The Reparations Agreement provides that reparations valued at $550 million would be payable
in twenty (20) years in accordance with annual schedules of procurements to be fixed by the
Philippine and Japanese governments (Article 2, Reparations Agreement). Rep. Act No. 1789,
the Reparations Law, prescribes the national policy on procurement and utilization of
reparations and development loans. The procurements are divided into those for use by
the government sector and those for private parties in projects as the then National Economic
Council shall determine. Those intended for the private sector shall be made available by sale to
Filipino citizens or to one hundred (100%) percent Filipino-owned entities in national
development projects.

The Roppongi property was acquired from the Japanese government under the Second Year
Schedule and listed under the heading "Government Sector", through Reparations Contract No.
300 dated June 27, 1958. The Roppongi property consists of the land and building "for the
Chancery of the Philippine Embassy" (Annex M-D to Memorandum for Petitioner, p. 503). As
intended, it became the site of the Philippine Embassy until the latter was transferred to
Nampeidai on July 22, 1976 when the Roppongi building needed major repairs. Due to the
failure of our government to provide necessary funds, the Roppongi property has remained
undeveloped since that time.

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


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

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

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

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

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

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

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

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

II

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

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

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

The respondents add that even assuming for the sake of argument that the Civil Code is
applicable, the Roppongi property has ceased to become property of public dominion. It has

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

III

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

(1) The reservation of the ownership and acquisition of alienable lands of the public domain to
Filipino citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and 23 of
Commonwealth Act 141).i•t•c-aüsl

(2) The preference for Filipino citizens in the grant of rights, privileges and concessions covering
the national economy and patrimony (Section 10, Article VI, Constitution);

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

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

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

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

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

IV

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

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

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

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

The applicable provisions of the Civil Code are:

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

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

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, banks shores roadsteads, and others of
similar character;

(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.

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

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

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

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

The respondents enumerate various pronouncements by concerned public officials insinuating a


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

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the
Roppongi property's original purpose. Even the failure by the government to repair the building
in Roppongi is not abandonment since as earlier stated, there simply was a shortage of
government funds. The recent Administrative Orders authorizing a study of the status and
conditions of government properties in Japan were merely directives for investigation but did not
in any way signify a clear intention to dispose of the properties.

Executive Order No. 296, though its title declares an "authority to sell", does not have a
provision in its text expressly authorizing the sale of the four properties procured from Japan for

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the government sector. The executive order does not declare that the properties lost their public
character. It merely intends to make the properties available to foreigners and not to Filipinos
alone in case of a sale, lease or other disposition. It merely eliminates the restriction under Rep.
Act No. 1789 that reparations goods may be sold only to Filipino citizens and one hundred
(100%) percent Filipino-owned entities. The text of Executive Order No. 296 provides:

Section 1. The provisions of Republic Act No. 1789, as amended, and of other
laws to the contrary notwithstanding, the above-mentioned properties can be
made available for sale, lease or any other manner of disposition to non-Filipino
citizens or to entities owned by non-Filipino citizens.

Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi and
the three other properties were earlier converted into alienable real properties. As earlier stated,
Rep. Act No. 1789 differentiates the procurements for the government sector and the private
sector (Sections 2 and 12, Rep. Act No. 1789). Only the private sector properties can be sold to
end-users who must be Filipinos or entities owned by Filipinos. It is this nationality provision
which was amended by Executive Order No. 296.

Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources of
funds for its implementation, the proceeds of the disposition of the properties of the Government
in foreign countries, did not withdraw the Roppongi property from being classified as one of
public dominion when it mentions Philippine properties abroad. Section 63 (c) refers to
properties which are alienable and not to those reserved for public use or service. Rep Act No.
6657, therefore, does not authorize the Executive Department to sell the Roppongi property. It
merely enumerates possible sources of future funding to augment (as and when needed) the
Agrarian Reform Fund created under Executive Order No. 299. Obviously any property outside
of the commerce of man cannot be tapped as a source of funds.

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

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

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

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

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

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

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correct. Why should we discuss who can acquire the Roppongi lot when there is no showing
that it can be sold?

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


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

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

There is no law authorizing its conveyance.

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

Section 79 (f ) Conveyances and contracts to which the Government is a party.


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

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

SEC. 48. Official Authorized to Convey Real Property. — Whenever real property
of the Government is authorized by law to be conveyed, the deed of conveyance
shall be executed in behalf of the government by the following:

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

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

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

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

The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon the
constitutionality of Executive Order No. 296. Contrary to respondents' assertion, we did not
uphold the authority of the President to sell the Roppongi property. The Court stated that the
constitutionality of the executive order was not the real issue and that resolving the
constitutional question was "neither necessary nor finally determinative of the case." The Court
noted that "[W]hat petitioner ultimately questions is the use of the proceeds of the disposition of

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the Roppongi property." In emphasizing that "the decision of the Executive to dispose of the
Roppongi property to finance the CARP ... cannot be questioned" in view of Section 63 (c) of
Rep. Act No. 6657, the Court did not acknowledge the fact that the property became alienable
nor did it indicate that the President was authorized to dispose of the Roppongi property. The
resolution should be read to mean that in case the Roppongi property is re-classified to be
patrimonial and alienable by authority of law, the proceeds of a sale may be used for national
economic development projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us question the proposed
1990 sale of the Roppongi property. We are resolving the issues raised in these petitions, not
the issues raised in 1989.

Having declared a need for a law or formal declaration to withdraw the Roppongi property from
public domain to make it alienable and a need for legislative authority to allow the sale of the
property, we see no compelling reason to tackle the constitutional issues raised by petitioner
Ojeda.

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

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

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

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

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


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

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

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


92047, p. 9)

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

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WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of
prohibition is issued enjoining the respondents from proceeding with the sale of the Roppongi
property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order is made
PERMANENT.

SO ORDERED.

G.R. No. 82220 July 14, 1995

PABLITO MENESES and LORENZO MENESES, petitioners,


vs.
THE HONORABLE COURT OF APPEALS, EDUARDO QUISUMBING, NORBERTO
QUISUMBING, HEIRS OF EMILIO QUISUMBING (Carlos, Manuel and Paz, all surnamed
Quisumbing), HEIRS OF FERNANDO QUISUMBING (Perla, Josefina, Napoleon, Honorato,
Remedios and Alfonso, all surnamed Quisumbing), HEIRS OF MANUEL QUISUMBING,
SR. (Petrona, Natividad, Manuel, Jr., Dolores and Lilia, all surnamed Quisumbing) and
HEIRS OF FRANCISCO QUISUMBING (Fe, Johnny, Ma. Luisa, Norberto, Jimmy, Ma.
Victoria, Elsa and Oscar, all surnamed Quisumbing), all represented by Atty. Galileo
Brion, respondents.

G.R. No. 82251 July 14, 1995

CESAR ALMENDRAL, petitioner,


vs.
EDUARDO QUISUMBING, respondent.

G.R. No. 83059 July 14, 1995

EDUARDO QUISUMBING, NORBERTO QUISUMBING, HEIRS OF EMILIO QUISUMBING


(Carlos, Manuel and Paz, all surnamed Quisumbing), HEIRS OF FERNANDO
QUISUMBING, (Perla, Josefina, Napoleon, Honorato, Remedios and Alfonso, all
surnamed Quisumbing), HEIRS OF MANUEL QUISUMBING, SR. (Petrona, Natividad,
Manuel, Jr., Dolores and Lilia, all surnamed Quisumbing) and HEIRS OF FRANCISCO
QUISUMBING (Fe, Johnny, Ma. Victoria, Elsa and Oscar, all surnamed
Quisumbing), petitioners,
vs.
HON. COURT OF APPEALS, PABLITO MENESES, LORENZO MENESES and BRAULIO C.
DARUM, respondents.

QUIASON, J.:

For review in these consolidated petitions is the Decision dated August 31, 1987 of the Court of
Appeals in CA-G.R. CV No. 07049 affirming the Decision dated March 26, 1984 of the Regional
Trial Court, Branch 37, Calamba, Laguna, in Civil Case No. 474-83-C which declared as null
and void the original certificates of title and free patents issued to Pablito Meneses over lots
found by the court to be accretion lands forming parts of the bigger accretion land owned by
Ciriaca Arguelles Vda. de Quisumbing.

On March 1, 1977, Braulio C. Darum, then the District Land Officer of Los Baños, Laguna,
issued to Pablito Meneses Free Patent No. (IV-5) P-12807 and Original Certificate of Title No.
P-1268 covering Lot 1585 with an area of 417 square meters, and Free Patent No (IV-5) 12808
and Original Certificate of Title No P-1269 for Lot 190 with an area of 515 square meters. Both
lots are located in Los Baños, Laguna.

Pablito Meneses acquired said property from Silverio Bautista through a Deed of Waiver and
Transfer of Rights executed on May 5, 1975 in consideration of Bautista's "love and affection"
for and "some monetary obligations" in favor of Pablito Meneses (Rollo, p. 45). After the

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execution of said document, Pablito Meneses took possession of the land, introduced
improvements thereon, declared the land as his own for tax purposes and paid the
corresponding realty taxes. In turn, Bautista acquired the 900-square-meter land from his aunt,
Sergia (Gliceria) M. Almeda. He had been occupying the land since 1956.

On the other hand, the Quisumbing family traces ownership of the land as far back as
September 6, 1919 when their matriarch, Ciriaca Arguelles Vda. de Quisumbing was issued
Original Certificate of Title No. 989 covering a lot with an area of 859 square meters located in
Los Baños, Laguna with the Laguna de Bay as its northwestern boundary. The same parcel of
land was registered on August 14, 1973 under Transfer Certificate of Title No. T-33393 in the
names of Ciriaca's heirs: Emilio, Manuel, Eduardo, Norberto, Perla, Josefina, Napoleon,
Honorato, Remedios and Alfonso, all surnamed Quisumbing.

In 1962, the Quisumbing instituted and accion publiciana in the then Court of First Instance of
Biñan, Laguna to recover possession over a portion of the property from Dominga Villamor and
Lorenzo Lanuzo docketed as Civil Case No. B-350. On January 3, 1966, the case was decided
in favor of the Quisumbings. On appeal, the Court of Appeals sustained the Quisumbings' right
over the property.

In LRC Case No. B-327, the Quisumbings applied for registration and confirmation of title over
an additional area of 2,387 square meters which had gradually accrued to their property by the
natural action of the waters of Laguna de Bay. In its Decision of September 28, 1978, the Court
of First Instance of Biñan confirmed the Quisumbings' title thereto which, after it was duly
surveyed, was identified as Psu-208327. The additional area was divided into two lots in the
survey plan approved by the Director of Lands on November 16, 1964. In ordering the
confirmation and registration of title on favor of the Quisumbings, the land registration court
said:

. . . There is no doubt that the applicants' right to the property was bolstered by
the unappealed decision of the Court of Appeals in Civil Case No. B-350 of this
Court when the properties applied for were classified as accretions made by the
waters of the Laguna Lake. . . . (G.R. No. 82229, Rollo, p. 20).

On April 17, 1979, the Quisumbings filed Civil Case No. 07049 before the Court of First Instance
of Laguna, Branch VI, Calamba against Lorenzo and Pablito Meneses, Braulio C. Darum and
Cesar B. Almendral for nullification of the free patents and titles issued to Pablito Meneses.
They alleged that Lorenzo Menesis, then the Mayor of Los Baños, using his brother Pablito as a
"tool and dummy," illegally occupied their "private accretion land" an August 6, 1976, and,
confederating with District Land Officer Darum and Land Inspector Cesar Almendral, obtained
free patents and original certificates of title to the land.

On March 26, 1984, the trial court rendered the decision finding that the lands registered by the
Meneses brothers are accretion lands to which the Quisumbings have a valid right as owners of
the riparian land to which nature had gradually deposited the disputed lots. In so holding, the
trial court relied heavily on the decision of the Court of Appeals in Civil Case No. B-350, and
quoted the following portions of the appellate court's decision:

Plaintiffs-appellees are titled owners of a (sic) 859 square meters of land under
TCT No. 25978 of the Laguna Land Registry, the northwest boundary of which is
the Laguna de Bay.

It is ascertained that the northwest portion of Quisumbing's lot is bounded by the


Laguna de Bay. The nature of the Laguna de Bay has long been settled in the
case of Government of the Philippines v. Colegio de San Jose (55 Phil. 423)
when it held that:

Laguna de Bay is a body of water formed in depression of the


earth; it contains fresh water coming from rivers and brooks and
springs, and is connected with Manila Bay by the Pasig River.
According to the definition first quoted, Laguna de Bay is a lake.

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Consequently, since Laguna de Bay is a lake, the authorities cited by the
appellants referring to seashore would not apply. The provision of the law on
waters will govern in determining the natural bed or basin of the lake. And
accordingly, to Art. 84 of the Law of Waters of August 3, 1866:

Accretions deposited gradually upon land contiguous to creeks,


streams, rivers and lakesby accessions or sediments from the
waters thereof, belong to the owners of such lands.

Since the title indicate(s) that the northwest portion of the property is bounded by
Laguna de Bay, which is a lake, even if the area where Lanuza's house and
Villamor's house for that matter is located is not included within the title, it must
necessarily be an accretion upon appellees' land by accessions or sediments
from the waters thereof which should belong to the owner of the adjacent land.
The authorities cited by the appellants treat of the ownership of accretions by
water of the sea under Title I. Lakewaters being terrestrial waters, their
ownership is governed by Title II of the Law of Waters. As held in the Colegio de
San Jose case, the provisions of the Law of Waters regulating the ownership and
use of sea water are not applicable to the ownership and use of lakes which are
governed by different provisions. As pointed out by the lower court, no act of
appropriation is necessary in order to acquire ownership of the alluvial formation
as the law does not require the same (Ignacio Grande, et al. vs. Hon. Court of
Appeals, et al., G.R. No. L-17652, June 30, 1962 citing Roxas vs. Tuazon, 9 Phil.
408; Cortez vs. City of Manila, 10 Phil. 567 and 3 Manresa, C.C. pp. 321-326, pp.
4-5) (Records, pp. 80-84).

The trial court also found that the free patents issued to Pablito Meneses had been procured
through fraud, deceit and bad faith, citing the following facts as bases for its conclusion: (1) The
Deed of Waiver and Transfer of Rights allegedly executed by Silverio Bautista in favor of Pablito
Meneses was a simulated contract for lack of consideration; (2) The said instrument was sworn
to before Mayor Lorenzo Meneses who had no authority to notarize deeds of conveyances; (3)
Although the lots subject of the deed of conveyance were placed in his brother's name, Mayor
Meneses actually exercised rights of ownership thereto; (4) Land Inspector Cesar Almendral
admitted having anomalously prepared the documents to support the free patent applications of
Pablito Meneses and, having personally filled up the blank forms, signed them in the absence of
the persons concerned; (5) Almendral kept the documents in his possession from 1979 to 1980
despite orders from the Director of Lands to produce and surrender the same; (6) District Land
Officer Braulio Darum approved the free patent applications and issued the questioned titles
without the required cadastral survey duly approved by the Director of Lands and despite the
pendency of LRC Case No. B-327 involving the contested lots; (7) Darum represented the
Bureau of Lands in LRC Case No. B-327 without authority from the Director of Lands and after
he had withdrawn his appearance in said case, persisted in filing a motion to set aside the order
for the issuance of a decree in favor of the Quisumbings; (8) Darum and Almendral in bad faith,
refused to produce the missing original records of the free patent applications and their
supporting documents; and (9) When Darum was not yet an oppositor in LRC Case No. B-327,
he admitted in his letter to the Land Registration Commission that the contested lots are
portions of the land being claimed by the Quisumbings contrary to his later representation in the
joint answer to the petition that the subject lots are not portions of Lots 1 and 2, Psu-208327
owned by the Quisumbings. Accordingly, the trial court disposed of the case as follows:

WHEREFORE, judgment is hereby rendered:

1. Declaring that the lands covered by Pablito Meneses' Original Certificate of


Title No. P-1268/Free Patent No. 12807 (Exh. "J"), covering Lot No. 1585,
consisting of 417 square meters and Original Certificate of Title No. P-1269/Free
Patent No. 12808 (Exh. "H"), covering Lot No. 190, consisting of 515 square
meters, both located at Los Baños, Laguna, as accretion lands forming parts of a
bigger accretion land owned by plaintiffs as declared in a final judgment (Exh.
"A"), rendered by the Court of First Instance of Biñan, Laguna, in LRC Case No.
B-327, which bigger accretion land is directly adjacent to or at the back of
plaintiffs' riparian land, and consequently, declaring as null and void and

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cancelled Original Certificate of Title No. P-1268/Free Patent No. 12807 and
Original Certificate of Title No. P-1269/Free Patent No. 12808;

2. Directing that the Register of Deeds of Laguna or his Deputy at Calamba,


Laguna, to make the corresponding entries of cancellation in his Registry of the
above mentioned Original Certificate of Titles/Free Patents;

3. Directing defendants Lorenzo Meneses and Pablito Meneses and all persons
acting in their behalves to vacate the subject lands and surrender the possession
thereof to the plaintiffs immediately; and

4. Directing the defendants to pay jointly and severally, the plaintiffs the sums of:

a) P20,000.00, plus P500.00 per month from January, 1977, until


the subject property is completely vacated, as actual and
compensatory damages;

b) P350,000.00, as moral damages;

c) P70,000.00 as exemplary damages;

d) P40,000.00, as attorney's fees; and

e) the costs (Rollo, pp. 41-42).

Thereafter, the Quisumbings filed a motion for execution pending appeal which the trial court
granted in its Order of September 7, 1984 subject to the posting by the Quisumbings of a bond
in the amount of P500,000.00. The defendants unsuccessfully moved for the reconsideration of
said order.

The Quisumbings also filed before the Sandiganbayan a complaint against Pablito Meneses,
Silverio Bautista, Pablo Silva, Virgilio Cruz and Cesar Almendral for violation of paragraphs (e)
and (j), Section 3 of Republic Act No. 3019, for conspiring in the approval and grant of the free
patents over portions of Lots 1 & 2 of Psu-208327 owned by the heirs of Ciriaca Arguelles Vda.
de Quisumbing. In due course, the Sandiganbayan rendered a decision finding the defendants
guilty as charged. The case was elevated to this Court but on August 27, 1987, the judgment of
conviction was affirmed (Meneses v. People, 153 SCRA 303 [1987]).

Meanwhile, the Meneses brothers and Darum appealed the decision in Civil Case No. 07049 to
the Court of Appeals. On August 31, 1987, the Court of Appeals found the appeal to be without
merit and affirmed in toto the lower court's decision.

The defendants-appellants filed two motions for the reconsideration of the appellate court's
decision but it was denied in the Resolution of February 23, 1988 which in pertinent part stated:

However, for humanitarian considerations, and considering the appeal of the


defendants-appellants for a reduction of the moral and exemplary damages, We
favor the reduction of the moral damages from P350,000.00 to P50,000.00 and
the exemplary damages from P70,000.00 to P5,000.00. In all other respects, We
find no justification for modifying the dispositive portion of the decision of the
lower court (G.R. No. 82220, Rollo, p. 67).

Pablito and Lorenzo Meneses filed the instant petition for review on certiorari, which was
docketed as G.R. No. 82220. Cesar Almendral filed a motion in G.R. No. 82251 for a 45-day
extension within which to file a petition for review on certiorari. After this Court had granted them
a 30-day extension, Almendral still failed to file any petition. The Quisumbings also filed a
petition for review on certiorari, docketed as G.R. No. 83059, solely on the issue of the propriety
of the reduction of the amount of damages in the Court of Appeals' Resolution of February 23,
1988. Upon motion of petitioners in G.R. No. 83059, the three petitions were consolidated in the
Resolution of August 1, 1988.

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Petitioners in G.R. No. 82220 retell the same errors they had raised before the Court of
Appeals, contending in the main: (1) that the lands in question were not accretion lands but
lands of the public domain; (2) that no conspiracy to commit fraud, deceit and bad faith attended
the issuance of the free patent and titles to Pablito Meneses; and (3) that the Deed of Waiver
and Transfer of Rights was founded on a valid consideration.

As regards the issue of whether the lands in question are accretion lands, petitioners relied on
the Decision of the Court of Appeals in Republic of the Philippines v. Braga, CA-G.R. No.
55390-R, October 23, 1980, holding that the property involved therein was part of the natural
bed of the Laguna de Bay and therefore what had to be determined was whether said property
was covered by water when the lake was at its highest depth.

Petitioners' assigned errors in G.R. No. 82220 are evidently factual issues which have been
thoroughly passed upon and settled both by the trial court and the appellate court. Factual
findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court
(Coca-Cola Bottlers Philippines, Inc. v. Court of Appeals, 229 SCRA 533 [1994]) and they carry
even more weight when the Court of Appeals affirms the factual findings of the trial court
(Binalay v. Manalo, 195 SCRA 374 [1991]). The jurisdiction of this Court is thus limited to
reviewing errors of law unless there is a showing that the findings complained of are totally
devoid of support in the record or that they are so glaringly erroneous as to constitute serious
abuse of discretion (BA Finance Corporation v. Court of Appeals, 229 SCRA 566 [1941]). We
find no such showing in this case.

Petitioners' protestations notwithstanding the final decision of the Court of Appeals in Civil Case
No. B-350 has a bearing in the resolution of this case for while the lots occupied by Villamor and
Lanuzo may not be the very same lots petitioners are claiming here, the two cases refer to the
same accretion lands northwest of the original land owned by the Quisumbings.

In the same vein, the decision of the land registration court in LRC Case No. B-327 ordering the
confirmation and registration of title in favor of the Quisumbings over 2,387 square meters of
accretion land is binding on petitioners in G.R. No. 82220. As correctly pointed out by the Court
of Appeals, said decision, being the result of a proceeding in rem, binds the whole world, more
so because it became final and executory upon the Bureau of Lands' failure to interpose an
appeal.

Since petitioners in G.R. No. 82220 claim that "the foreshore land known as Lots 190 and 1585
are part of Laguna de Bay" and therefore the Quisumbings "have no legal right to claim the
same as accretion land," we quote the following pertinent portions of the decision in Republic v.
Court of Appeals, 131 SCRA 532 (1984) which, although the case deals with the registration of
a reclaimed land along the Laguna de Bay, is nonetheless enlightening:

Laguna de Bay is a lake. While the waters of a lake are also subject to the same
gravitational forces that cause the formation of tides in seas and oceans, this
phenomenon is not a regular daily occurrence in the case of lakes. Thus, the
alternation of high tides and low tides, which is an ordinary occurrence, could
hardly account for the rise in the water level of the Laguna de Bay as observed
four to five months a year during the rainy season. Rather, it is the rains which
bring about the inundation of a portion of the land in question. Since the rise in
the water level which causes the submersion of the land occurs during a shorter
period (four to five months a year) than the level of the water at which the land is
completely dry, the latter should be considered as the "highest ordinary depth" of
Laguna de Bay. Therefore, the land sought to be registered is not part of the bed
or basin of Laguna de Bay. Neither can it be considered as foreshore land. The
Brief for the Petitioner Director of Lands cites an accurate definition of a
foreshore land, to wit:

. . . . that part of (the land) which is between high and low water
and left dry by the flux and reflux of the tides.

The strip of land that lies between the high and low water marks
and that is alternately wet and dry according to the flow of the tide.

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As aptly found by the Court a quo, the submersion in water of a portion of the
land in question is due to the rains "falling directly on or flowing into Laguna de
Bay from different sources." Since the inundation of a portion of the land is not
due to "flux and reflux of tides" it cannot be considered a foreshore land within
the meaning of the authorities cited by petitioner Director of Lands. The land
sought to be registered not being part of the bed or basin of Laguna de Bay, nor
a foreshore land as claimed by the Director of Lands, it is not a public land and
therefore capable of registration as private property provided that the applicant
proves that he has a registerable title (at pp. 538-539).

Accretion as a mode of acquiring property under Article 457 of the Civil Code requires the
concurrence of these requisites: (1) that the deposition of soil or sediment be gradual and
imperceptible; (2) that it be the result of the action of the waters of the river (or sea); and (3) that
the land where accretion takes place is adjacent to the banks of rivers (or the sea coast). While
the trial court mainly relied on the findings in Civil Case No. B-350 that the lands in controversy
are accretion lands and it has not determined on its own the presence of said requisites, it is too
late now for petitioners in G.R. No. 82220 to claim otherwise. Consequently, the lands held to
be accretion lands could only benefit the Quisumbings, who own the property adjacent to the
lands in controversy (Cruz v. Court of Appeals, 216 SCRA 350 [1992]).

Petitioners in G.R. No. 82220 also assert that the principle of indefeasibility of title should favor
them as the one-year period provided for by law to impugn their title had elapsed. They also
urged that, having been granted by the state, their title is superior to that of the Quisumbings.
We hold, however, that in the light of the fraud attending the issuance of the free patents and
titles of Pablito Meneses, said assertions crumble. Such fraud was confirmed by this Court
in Meneses v. People, 153 SCRA 303 (1987) which held the petitioners therein liable for
violation of the Anti-Graft and Corrupt Practices Act in the issuance of the same free patents
and titles.

Unlike the petition in G.R. No. 82220, the petition in G.R. No. 83059 (questioning the reduction
of the damages awarded to the Quisumbings by the Court of Appeals in the Resolution of
February 23, 1988) is meritorious. The task of fixing the amount of damages is primarily with the
trial court (Air France v. Carrascoso, 18 SCRA 155 [1966]). While it is the appellate court's duty
to review the same, a reduction of the award of damages must pass the test of reasonableness.
The Court of Appeals can only modify or change the amount awarded as damages when they
are palpably or scandalously and reasonably excessive (Philippine Airlines, Inc. v. Court of
Appeals, 226 SCRA 423 [1993]; Prudenciano v. Alliance Transport System, Inc., 148 SCRA 440
[1987]).

There is no justification for the radical reduction by the Court of Appeals of the damages
awarded by the trial court. Its action was premise merely on "humanitarian considerations" and
the plea of the defendants-appellants. We may agree with the Court of Appeals in reducing the
award after scrutinizing its factual findings only if such findings are diametrically opposed to that
of the trial court (Prudenciado v. Alliance Transport System, Inc., supra). But as it is, the Court
of Appeals affirmed point by point the factual findings if the lower court upon which the award of
damages had been based.

We, therefore, see no reason to modify the award of damages made by the trial court.
Respondent Braulio C. Darum in G.R. No. 83059 must also be solidarily liable for said damages
in his capacity as a public officer. A public official is by law not immune from damages in his
personal capacity for acts done in bad faith which, being outside the scope of his authority, are
no longer protected by the mantle of immunity for official actions (Vidad v. RTC of Negros, Br.
42, 227 SCRA 271 [1993]).

WHEREFORE, the petition in G.R. No. 82220 is DENIED while the petition in G.R. No. 83059 is
GRANTED. The Decision dated August 31, 1987 of the Court of Appeals is AFFIRMED while its
Resolution of February 23, 1988 insofar as it reduces the amount of damages awarded to the
Quisumbing family is SET ASIDE. Costs against petitioners in G.R. No. 82220 and respondent
Braulio Darum in G.R. No. 83059.

SO ORDERED.

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G.R. No. L-19570 April 27, 1967

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


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

Maximo Calalang for plaintiff and appellant.


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

BENGZON, J.P., J.:

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

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

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

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

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

On March 14, 1954, defendants filed a petition for injunction against plaintiff and intervenor
Calalang in the same case, alleging that the latter have fenced off the disputed area in
contravention of an agreement8 had between the latter and the Director of Public Works wherein
he defendants were allowed to continue their operations but subject to the final outcome of the

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pending suit. It was prayed that plaintiff and intervenor Calalang be ordered to remove the fence
and allow defendants' men to continue their operations unhampered. Opposition to this petition
was filed by the other side, with a prayer for counter injunction. On March 23, 1954, the lower
court issued an order maintaining the status quo and allowing the defendants to continue their
extractions from the disputed area provided a receipt9 in plaintiff's favor be issued for all the
materials taken.

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

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

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

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

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

It is so ordered.

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

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

It is so ordered.

Still unsatisfied, plaintiff and intervenor Calalang filed a second motion for reconsideration. The
lower court stood firm on its ruling of August 30, 1957.16

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Hence, this appeal.17 The defendants Director of Public Works, City Engineer of Manila, and
Engrs. Busuego and Sese have also appealed from the declaration made by the lower court
that the northern two-fifths of the disputed area belongs to plaintiff Hilario.

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

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

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

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

Property of public ownership is —

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

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

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

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

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

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

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

Whenever a navigable or floatable river changes its course from natural causes and
opens a new bed through a private estate, the new bed shall be of public ownership, but
the owner of the estate shall recover it in the event that the waters leave it dry again

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either naturally or as the result of any work legally authorized for this purpose.
(Emphasis supplied)

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

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

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

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

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

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

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

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


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

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

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

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

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

A study of the history of Art. 553 will however reveal that it was never intended to authorize the
private acquisition of riverbanks. That could not have been legally possible in view of the

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legislative policy clearly enunciated in Art. 339 of the Code that all riverbanks were of public
ownership. The article merely recognized and preserved the vested rights of riparian owners
who, because of prior law or custom, were able to acquire ownership over the banks. This was
possible under the Siete Partidas which was promulgated in 1834 yet.29 Under Law 6, Title 28,
Partidas 3, the banks of rivers belonged to the riparian owners, following the Roman Law
rule.30 In other words, they were privately owned then. But subsequent legislation radically
changed this rule. By the Law of Waters of August 3, 1866, riverbanks became of public
ownership, albeit impliedly only because considered part of the bed — which was public — by
statutory definition.31 But this law, while expressly repealing all prior inconsistent laws, left
undisturbed all vested rights then existing.32 So privately owned banks then continued to be so
under the new law, but they were subjected by the latter to an easement for public use. As Art.
73 provides:

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

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

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

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

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

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

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

Coming to the factual issues: both parties assail the conclusion made by the lower court that
only the northern two-fifths of the disputed area remained as plaintiff's private property. This
conclusion was apparently based on the findings that the portion where rice and corn were
found38 in the ocular inspection of June 15, 1951, was on the northern two-fifths of the disputed
area; that this cannot be a part of the bed because of the existence of vegetation which could

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not have grown underwater, and that this portion is man-made. However, there is no evidentiary
basis for these findings. The area indicated by Nos. 1 and 2 in Exh. D-1 where no excavations
had been made, appears to be more on the south-western one-fourth of the disputed area. The
American cases39 cited by the lower court cannot apply here. Our Law of Waters, in defining
"beds" and considers the latter is part of the former. Those cited cases did not involve a similar
statutory provision. That plants can and do grow on the banks which otherwise could not have
grown in the bed which is constantly subjected to the flow of the waters proves the distinction
between "beds" and "banks" in the physical order. However, We are dealing with the legal order
where legal definitions prevail. And apart from these considerations, We also note the
considerable difficulty which would attend the execution of the ruling of the lower court. The
latter failed to indicate fixed markers from which an exact delimitation of the boundaries of the
portion could be made. This flaw is conducive to future litigations.

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

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

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

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

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

Anent the first question, the key is supplied by Art. 73 of the Law of Waters which defines the
limits of banks of rivers —

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

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

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

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

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

Defendants have presented several witnesses who testified on the extent reached by the
ordinary flood waters. David Ross, a bulldozer operator at the plant since 1945, testified60 that
from 1945 to 1949, when the River was still passing along the site where the camachile tree is
located, the annual flood waters reached up to the "secondary bank" line. These floods usually
took from 3 to 5 days to recede, during which time their work was suspended. Corroboration is
supplied by Macario Suiza, a crane operator in the plant since 1945, and by Fidel Villafuerte, a
plant employee since 1946. Suiza stated61 that from 1947 to 1949, the area enclosed within the
blue lines and marked as Exh. 54-B — which includes the New Accretion Area was always
covered by water when it rained hard and they had to stop work temporarily. The western
extremity of this area reaches up to the "secondary bank" line. Villafuerte stated62 that in the
ordinary floods when the water was just 50 cm. below the top of the "primary bank", the waters
would go beyond the camachile tree by as much as 100 meters westward and just about reach
the "secondary bank" line. Further corroboration is supplied by plaintiff's own evidence. Exh. 1-
Calalang states that from 1947 to 1949, based on the casual observations made by geologist
David Cruz, the area between the "primary" and "secondary" banks were always covered by the
non-inundating ordinary floods.

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From 1950 to 1952, We have the testimony of Ross who stated63 that there were still floods but
they were not as big anymore, except one flood in 1952, since the River had already moved to
the east. Engr. Ricardo Pacheco, who made a survey of the disputed area in November 1952,
and who conducted actual observations of the extent of the water reach when the river was
swollen, testified64 that the non-inundating flood regularly reached up to the blue zigzag line
along the disputed area, as shown in Exh. I-City Engineer Manila. This blue line, at the point
where it intersects line BB,65 is about 140 meters west of the waterline and about 20 meters
west of the camachile tree. His testimony was based on three floods66 which he and his men
actually recorded. Corroboration is again supplied by Exh. 1-Calalang. According to Cruz'
report, the floods in 1950 and 1951 barely covered the disputed area. During the normal days of
the rainy season, the waters of the swollen river did not reach the higher portions of the gravel
pit which used to be submerged. One cause for this was the lesser amount of rainfall from 1949
to 1951. But two floods occurred from October 16 to 28, 1952, which overflowed the whole area
and inundated the banks. From 1953 to 1955, when the River was farther away to the east, the
flood waters still covered the west side.67 Testifying on the extent reached by the water during
the rainy season in 1954, Ross stated68 that it reached up to the camachile tree only. The last
and latest data comes from Engr. Magbayani Leaño, the Engineer-in-charge of the plant from
August 1954. He testified69 that as of December 1955, when the disputed area was underwater,
the water reach was about 20 meters or less to the east from the camachile tree.

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

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

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

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

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

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distance in Exh. D was at the widest part up north whereas down south, near the mouth of the
Bulobok River, it was only 70 meters wide. Lastly, the scale in Exh. 3-Calalang will show that in
January 1953, the River, near the same point also, was less than 50 meters wide.

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

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

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

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

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

As a parting argument, plaintiff contends that to declare the entire disputed area as part of the
riverbanks would be tantamount to converting about half of his estate to public ownership
without just compensation. He even adds that defendants have already exhausted the supply in
that area and have unjustly profited at his expense. These arguments, however, do not detract
from the above conclusions.

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First of all, We are not declaring that the entire channel, i.e., all that space between the
"secondary bank" line and the "primary bank" line, has permanently become part of the
riverbed. What We are only holding is that at the time the defendants made their extractions, the
excavations were within the confines of the riverbanks then. The "secondary bank" line was the
western limit of the west bank around 1945 to 1949 only. By 1955, this had greatly receded to
the line just 20 meters east of the camachile tree in the New Accretion Area. All that space to
the west of said receding line90 would still be part of plaintiff's property — and also whatever
portion adjoining the river is, at present, no longer reached by the non-inundating ordinary
floods.

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

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

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

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

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

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

G.R. No. 98045 June 26, 1996

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


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

ROMERO, J.:p

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

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

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

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

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

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

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

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

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

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

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

Furthermore, the appellate court contended that the motion for reconsideration filed by Antonio
Nazareno cannot be considered as an appeal to the Office of the Secretary of Agriculture and
Natural Resources, as mandated by C.A. No. 141 inasmuch as the same had been acted upon

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by respondent Undersecretary Ignacio in his capacity as Officer-in-charge of the Bureau of
Lands and not as Undersecretary acting for the Secretary of Agriculture and Natural Resources.
For the failure of Antonio Nazareno to appeal to the Secretary of Agriculture and Natural
Resources, the present case does not fall within the exception to the doctrine of exhaustion of
administrative remedies. It also held that there was no showing of oppressiveness in the
manner in which the orders were issued and executed..

Hence, this petition.

Petitioners assign the following errors:

I. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL,


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

II. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL,


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

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

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

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

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

In any case, this court agrees with private respondents that petitioners are estopped from
denying the public character of the subject land, as well as the jurisdiction of the Bureau of
Lands when the late Antonio Nazareno filed his Miscellaneous Sales Application MSA (G-6)
571. 5 The mere filing of said Application constituted an admission that the land being applied
for was public land, having been the subject of Survey Plan No. MSi-10-06-000571-D
(Equivalent to Lot No. 36302, Cad-237) which was conducted as a consequence of Antonio
Nazareno's Miscellaneous Sales Application wherein said land was described as an orchard.
Said description by Antonio Nazareno was, however, controverted by respondent Labis in his
investigation report to respondent Hilario based on the findings of his ocular inspection that said

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land actually covers a dry portion of Balacanas Creek and a swampy portion of Cagayan River.
The investigation report also states that, except for the swampy portion which is fully planted to
nipa palms, the whole area is fully occupied by a part of a big concrete bodega of petitioners
and several residential houses made of light materials, including those of private respondents
which were erected by themselves sometime in the early part of 1978. 6

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

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

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

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

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

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

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

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Sec. 3. The Secretary of Agriculture and Natural Resources shall be the
exclusive officer charged with carrying out the provisions of this Act through the
Director of Lands who shall act under his immediate control.

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

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

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

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

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

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

WHEREFORE, the petition is DISMISSED for lack of merit.

G.R. No. L-9596 February 11, 1916

MARCOS MENDOZA, plaintiff-appellee,


vs.
FRANCISCO DE LEON, ET AL., defendants-appellants.

Luis Morales for appellant.


Hugo Sansano for appellee.

TRENT, J.:

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This is an action for damages against the individual members of the municipal council of the
municipality of Villasis, Pangasinan, for the revocation of the lease of an exclusive ferry privilege
duly awarded to the plaintiff under the provisions of Act No. 1643 of the Philippine Commission.
After use of a little more than one year, the plaintiff was forcibly ejected under and pursuance of
a resolution adopted by the herein defendants, awarding a franchise for the same ferry to
another person.

Municipalities of the Philippine Islands organized under the Municipal Code have both
governmental and corporate or business functions. Of the first class are the adoption of
regulation against fire and disease, preservation of the public peace, maintenance of municipal
prisons, establishment of primary schools and post-offices, etc. Of the latter class are the
establishment of municipal waterworks for the use of the inhabitants, the construction and
maintenance of municipal slaughterhouses, markets, stables, bathing establishments, wharves,
ferries, and fisheries. Act No. 1643 provides that the use of each fishery, fish-breeding ground,
ferry, stable, market, and slaughterhouse belonging to any municipality or township shall be let
to the highest bidder annually or for such longer period not exceeding five years as may have
been previously approved by the provincial board of the province in which the municipality or
township is located.

The two fold character of the powers of a municipality under our Municipal Code (Act No. 82) is
so apparent and its private or corporate powers so numerous and important that we find no
difficulty in reaching the conclusion that the general principles governing the liability of such
entities to applicable to it. The distinction between governmental powers on the one hand, and
corporate or proprietary or business powers on the other, as the latter class is variously
described in the reported cases, has been long recognized in the United States and there is no
dissent from the doctrine.

In Wilcox vs. City of Rochester (190 N. Y., 137), it was said:

The broad general doctrine of the Maxmilian case (Maxmilian vs. Mayor, etc., New York,
62 N. Y. 160), which is certainly not now open to question in the courts of this State, is
that "two kinds of duties are imposed on municipal corporations, the one governmental
and a branch of the general administration of the state, the other quasi private or
corporate;" and "that in the exercise of the latter duties the municipality is liable for the
acts of its officers and agents, while in the former it is not." (Cullen, J., in Lefrois vs. Co.
of Monroe, 162 N. Y., 563, 567.)

The Maxmilian case is quoted with approval in Bond vs. Royston (130 Ga., 646).

In Co. Comm's of Anne Arundel Co. vs. Duckett (20 Md., 468, 476; 83 Am. Dec., 557), it was
said:

With regard to the liability of a public municipal corporation for the acts of its officers, the
distinction is between an exercise of those legislative powers which it holds for public
purposes, and as part of the government of the country, and those private franchise
which belong to it, as a creation of the law; within the sphere of the former, it enjoys, the
exemption of the government, from responsibility for its own acts, and for the acts of
those who are independent corporate officers, deriving their rights and duties from the
sovereign power. But in regard to the latter, it is responsible for the acts of those who are
in law its agents, though they may not be appointed by itself.

This case was quoted with approval in Trammell vs. Russellville (34 Ark., 105; 36 Am. Rep., 1);
and in McIlhenney vs. Wilmington (127 N. C., 146; 50 L. R. A. 470).

In Cummings vs. Lobsitz (42 Okla., 704; L. R. A., N. S., 1915 B, p. 415), it was said:

A distinction is made between the liability of a municipal corporation for the acts of its
officers in the exercise of powers which it possesses for public purpose and which it
holds as agent of the state, and those powers which embrace private or corporate duties
and are exercised for the advantage of the municipality and its inhabitants. When the
acts of its officers come within the powers which it has as agent of the state, it is exempt

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from liability for its own acts and the acts of its officers; if the acts of the officer or agent
of the city are for the special benefits of the corporation in its private or corporate
interest, such officer is deemed the agent or servant of the city, but where the act is not
in relation to a private or corporate interest of the municipality, but for the benefit of the
public at large, such acts by the agents and servants are deemed to be acts by public or
state officers, and for the public benefit.

The distinction is also recognized by Dillon in his work on Municipal Corporations (5th ed.)
section 38 and 39.

As is indicated in some of the above quoted cases, the municipality is not liable for the acts of
its officers or agents in the performance of its governmental functions. Governmental affairs do
not lose their governmental character by being delegated to the municipal governments. Nor of
the municipality which, for convenience the state allows the municipality to select, change their
character. To preserve the peace, protect the morals and health of the community and so on to
administer government, whether it be done by the central government itself or is shifted to a
local organization. And the state being immune for injuries suffered by private individuals in the
administration of strictly governmental functions, like immunity is enjoyed by the municipality in
the performance of the same duties, unless it is expressly made liable by statute.

The state cannot, without its consent expressed through legislation, be sued for injuries
resulting from an act done in the exercise of its lawful governmental powers and
pertaining to the administration of government. ... Municipal corporations are agents of
the state in the exercise of certain governmental powers. The preservation of the health
and peace of its inhabitants and fire protection afforded the property owner, are
governmental functions. (Burke vs. City of South Omaha, 79 Neb., 793.)

In Nicholson vs. Detroit (129 Mich., 246; 56 L. R. A., 601), it was said:

It is the well-settled rule that the state is not liable to private persons who suffer injuries
through the negligence of its officers — and the rule extends to township and cities —
while in the performance of state functions, imposed upon them by law. This subject is
fully discussed in Detroit vs. Blackeby (21 Mich., 84; 4 Am. Rep., 450). It was there held
that cities are governmental agencies, and that their "officers are in no such sense
municipal agents; that their negligence is the neglect of the municipality; nor will their
misconduct be chargeable against them, unless act complained of the either authorized
or ratified." And in a large number of cases it has been held that there is no such liability
on the part of such governmental agency unless it has been imposed by statute, and in
such case it is necessarily limited by the statute.

In Claussen vs. City of Luverne (103 Minn., 491; 15 L. R. A., N. S., 698), it was said:

It is elementary that neither the state nor any of the subdivisions, like a municipality,
through which it operates, is liable for torts committed by public officers, save in
definitely excepted classes of cases. The exemption is based upon the sovereign
character of the state and its agencies, and upon the absence of obligation, and not on
the ground that no means for remedy have been provided. "The government," said Mr.
Justice Story, "does not undertake to guarantee to any person the fidelity of the officers
or agents whom it employs, since that would involve in all its operations in endless
embarrassments, difficulties and losses, which would be subversive of the public
interest." (U.S. vs. Kirkpatrick, 9 Wheat., 720; 6 L. ed., 199; Beers vs. Arkansas, 20
How., 527; 15 L. ed., 991.) This general exemption has been applied to municipal
corporations in so far as the acts complained of were, in the language of the
memorandum of the trial court, "done in exercising powers for the public at large as a
governing agency." While so acting, the city cannot be held liable for misfeasance; and
... the rule of respondeat superior has no application.

Nor are officers or agents of the Government charged with the performance of governmental
duties which are in their nature legislative, or quasi judicial, liable for the consequences of their
official acts, unless it be shown that they act willfully and maliciously, and with the express
purpose of inflicting injury upon the plaintiff. If they exercise their honest judgment in the

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performance of their duties, their errors cannot be charged against them. (People vs. May, 251
Ill., 54; Salt Lake County vs. Clinton [Utah, 1911], 117 Pac., 1075; Comanche County vs. Burks
(Tex. Civ. App., 1914), 166 S. W., 470; Monnier vs. Godbold, 116 La., 165; 5 L. R. A., N. S.,
463; Ray vs. Dodd, 132 Mo. App., 444; Johnson vs. Marsh, 82 N. J. L.M, 4; Gregory vs. Brooks,
37 Conn., 3645; Lecourt vs. Gaster, 50 La. Ann., 521.) So it may be said that in so far as its
governmental functions are concerned, a municipality is not liable at all, unless expressly made
so by statute; nor are its officers, so long as they perform their duties honestly and in good faith.
The most common illustration of both phrases of this rule is the action for false imprisonment so
often brought either against a municipality or a municipal police officer. (Bartlett vs. City of
Columbus, 101 Ga., 300; 44 L. R. A., 795; Peter vs. City of Lindborg, 40 Kan., 654.) So, in
Field vs. City of Des Moines (39 Iowa, 575), it was held that a municipality, acting under
authority given it by the central government to destroy houses in the path of a conflagration, was
not liable in damages in the absence of a statute expressly making it so.

From what has already been said, it should be clear that a municipality is not exempt from
liability for the negligent performance of its corporate or proprietary or business functions. In the
administration of its patrimonial property, it is to be regarded as a private corporation or
individual so far as its liability to third persons on contract or in tort is concerned. Its contracts,
validly entered into, may be enforced and damages may be collected from it for the torts of its
officers or agents within the scope of their employment in precisely the same manner and to the
same extent as those of private corporations or individuals. As to such matters the principles
of respondeat superior applies. It is for these purposes that the municipality is made liable to
suits in the courts.

Municipal corporations are subject to be sued upon contracts and in tort. In a previous
chapter we have considered at length the authority of such corporations to make
contracts, the mode of exercising, and the effect of transcending the power. This leaves
but little to add in this place respecting their liability in actions ex contractu. Upon an
authorized contract — that is, upon a contract within the scope of the charter or
legislative powers of the corporation and duly made by the proper officers or agents —
they are liable in the same manner and to the same extent as private corporations or
natural persons. (Dillon on Municipal Corporations, 5th ed., sec. 1610.)

The same author says in section 1647:

The rule of law is a general one, that the superior or employer must answer civilly of the
negligence or want of skill of his agent or servant in the course or line of his
employment, by which another, who is free from contributory fault, is injured. Municipal
corporations, under the conditions herein stated, fall within the operation of this rule of
law, and are liable, accordingly, to civil actions for damages when the requisite elements
of liability coexist. To create such liability, it is fundamentally necessary that the act done
which is injurious to others must be within the scope of the corporate powers as
prescribed by charter or positive enactment (the extent of which powers all persons are
bound, at their peril, know); in other words, it must not be ultra vires in the sense that it is
not within the power or authority of the corporation to act in reference to it under any
circumstances. If the act complained of necessarily lies wholly outside of the general or
special powers of the corporation as conferred in its charter or by statute, the corporation
can in no event be liable to an action for damages, whether it directly commanded the
performance of the act whether it be done by its officers without its express command;
for a corporation cannot of course be impliedly liable to a greater extent than it could
make itself by express corporate vote or action.

It often happens that the same agent or agency has both a governmental and a corporate
character. Such, for instance, are a municipal water system designed both for protection against
fire (a governmental function) and to supply water to the inhabitants for profit (a corporate
function) (Omaha Water Co. vs. Omaha, 12 L.R.A., N. S., 736l 77 C.C.A., 267; 147 Fed., 1;
Judson vs. Borough of Winsted, 80 Conn., 3841 15 L. R. A., N. S., 91); a municipal light plant
both for lighting the streets (a governmental function) and for furnishing light to the inhabitants at
a profit (a corporate function) (Fisher vs. NewBern, 140 N. C., 506; 111 Am. St. Rep., 857); an
agent who is at the same time a police officer and a caretaker of a municipal toll bridge
(Woodhull vs. Mayor, etc., of New York, 150 N. Y., 450). It is, also, sometimes the case that

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considerable difficulty is experienced in determining whether a particular municipal duty is
governmental or corporate.

But questions such as these do not arise in the case at bar. Here is it clear that the leasing of a
municipal ferry to the highest bidder for a specified period of time is not a governmental but a
corporate function. Such a lease, when validly entered into, constitutes a contract with the
lessee which the municipality is bound to respect. The matter is thus summed up by Dillon on
Municipal Corporations (5th ed., sec. 1306):

Ordinances made by municipalities under charter or legislative authority, containing


grants to water and light companies and other public service corporations of the right to
use the streets for pipes, mains, etc., upon the condition of the performance of service
by the grantee, are, after acceptance and performance by the grantee, contracts
protected by the prohibition of the Federal Constitution against the enactment of any
State law impairing the obligation of contracts.

Again, this author, adopting the language of the court in In re Fay (15 Pick. [Mass.], 243), says,
in section 277:

If a municipal corporation, seized of a ferry, lease the same, through the agency of the
mayor and aldermen, with a covenant of quiet enjoyment, this covenant will not restrain
in them by statute, to license another ferry over the same waters, if in their judgment
(which cannot be reviewed by the courts) the public necessity and convenience require
it. On such a covenant the city may be liable to the covenantees; but the powers vested
in the city officers as trustees for the public cannot be thus abrogated. If, however, city in
its corporate capacity is the legal owner of an exclusive franchise, its grantees or
lessees would hold it, notwithstanding any license to others, whether granted by the
mayor and aldermen or any other tribunal.

It seems clear, therefore, that under the provisions of Municipal Code and Act No. 1634, above
referred to, the plaintiff had a vested right to the exclusive operation of the ferry in question for
the period of his lease. Were the municipality a party to this action, it would be patent that a
judgment for damages against it for the rescission of the contract would be proper. This, be it
said, is the usual method of exacting damages, either ex contractu or ex delictoarising from the
exercise of corporate powers of municipalities. But the present action is against the members of
the municipal council personally, and the question arises: Are they liable? In administering the
patrimonial property of municipalities, the municipal council occupies, for most purposes, the
position of a board of directors of a private corporation. In disposing of the local public utilities, if
the term may be used, such as the fishing and ferry rights, etc., they must exercise considerable
judgment. It required some considerable amount of business acumen to compel performance on
the part of lessees of these privileges in accordance with the terms of their leases and in a
manner which will not cause the property to deteriorate. Questions must continually arise which
are not expressly provided for in contracts and which must be settled, if possible, in a manner
that will preserve the just claims of the municipality. Indeed, it is not at all improbable that on
occasion the councilors may have reason to believe that a particular contract has been
rescinded by the other party or has never been legally entered into, in both of which cases,
decisive steps must be taken to safeguard the interest of the municipality. Thus, in Municipality
of Moncada vs. Cajuigan (21 Phil. Rep., 184), the lessee of a municipal fishery was evicted for
failing to pay his quarterly rents. The municipal authorities rightly held that the contract was
rescinded but forcibly evicted the lessee instead of resorting to the courts. Hence, in an action
by the municipality against the lessee and his bondsmen to recover rent arrears, damages were
allowed the lessee on his counterclaim for the loss caused by the forcible eviction.
Nevertheless, we do not think the councilors could have been held personally liable for their
error in resorting to forcible eviction of the lessee. Theirs was an error of judgment, and honest
mistake on their part as to the rights of the municipality in the premises. We think the rule of
personal liability should be with municipal councilors in such matters as it is with the directors or
managers of an ordinary private corporation.

Under the rule that directors are not liable for mistakes of judgment, it follows naturally
that they are not liable for the mismanagement of the corporate affairs where such
mismanagement is a mistake of judgment. The wisdom of this rule is not only approved

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by common experience but by law writers and all courts. A rule so rigid as to hold
directors personally liable for honest mistakes in corporate management would deter all
prudent business men from accepting such positions. The remedy of stockholders in all
such cases is by a change in the directory. ... The rule is that courts will not interfere
even in the doubtful cases. But directors and managing officers may be liable for
mismanagement to warrant the interposition of a court either as against the
contemplated action of the directors, or a majority of the stockholders, or to give relief by
way of damages after the action as been taken; a case must be made out which plainly
shows that such action is so far opposed to the true interests of the corporation itself as
to lead to clear inference that no one thus acting could have been influenced by any
honest desire to secure such interests, but that he must have acted with an intent to
subserve some outside purpose, regardless of the consequences to the corporation, and
in a manner inconsistent with its interests. (Thompson on Corporations, sec. 1298.)

In the case at bar, there is not a scintilla of evidence that there was any justifiable reason for
forcibly evicting the plaintiff from the ferry which he had leased. On the contrary, the defendant
councilors attempted to justify their action on the ground that the ferry which he was operating
was not the one leased to him; this, in spite of the fact that the vice-president had personally
placed him in possession of it more than a year before, and the fact that he had operated this
ferry for over year, evidently with the knowledge of the defendants. The evidence is so clear that
the ferry of which the plaintiff was dispossessed was the one which he leased that no
reasonable man would entertain any doubt whatever upon the question. Hence, we cannot say
that in rescinding the contract with the plaintiff, thereby making the municipality liable to an
action for damages for no valid reason at all, the defendant councilors were honestly acting for
the interests of the municipality. We are, therefore, of the opinion that the defendants are liable
jointly and severally for the damages sustained by the plaintiff from the rescission of his contract
of lease of the ferry privilege in question. In reaching this conclusion, we have not failed to take
into consideration the rule enunciated in Dennison vs. The Moro Province (R.G. No. 8173,
March 28, 1914; not reported), nor the distinction made by the courts in the United States
between the liability of a municipal corporation, made such acceptance of a village or city
charter, and the involuntary quasi corporations known as counties, towns, school districts, and
especially the townships of New England. Upon the question of the amount of damages
sustained, we accept the findings of the lower court.

For the foregoing reasons, the judgment appealed from is affirmed, with cost. So ordered.

G.R. No. 139868 June 8, 2006

ALONZO Q. ANCHETA, Petitioner,


vs.
CANDELARIA GUERSEY-DALAYGON, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Spouses Audrey O’Neill (Audrey) and W. Richard Guersey (Richard) were American citizens
who have resided in the Philippines for 30 years. They have an adopted daughter, Kyle Guersey
Hill (Kyle). On July 29, 1979, Audrey died, leaving a will. In it, she bequeathed her entire estate
to Richard, who was also designated as executor.1 The will was admitted to probate before the
Orphan’s Court of Baltimore, Maryland, U.S.A, which named James N. Phillips as executor due
to Richard’s renunciation of his appointment.2 The court also named Atty. Alonzo Q. Ancheta
(petitioner) of the Quasha Asperilla Ancheta Pena & Nolasco Law Offices as ancillary
administrator.3

In 1981, Richard married Candelaria Guersey-Dalaygon (respondent) with whom he has two
children, namely, Kimberly and Kevin.

On October 12, 1982, Audrey’s will was also admitted to probate by the then Court of First
Instance of Rizal, Branch 25, Seventh Judicial District, Pasig, in Special Proceeding No.
9625.4 As administrator of Audrey’s estate in the Philippines, petitioner filed an inventory and

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appraisal of the following properties: (1) Audrey’s conjugal share in real estate with
improvements located at 28 Pili Avenue, Forbes Park, Makati, Metro Manila, valued
at P764,865.00 (Makati property); (2) a current account in Audrey’s name with a cash balance
of P12,417.97; and (3) 64,444 shares of stock in A/G Interiors, Inc. worth P64,444.00.5

On July 20, 1984, Richard died, leaving a will, wherein he bequeathed his entire estate to
respondent, save for his rights and interests over the A/G Interiors, Inc. shares, which he left to
Kyle.6 The will was also admitted to probate by the Orphan’s Court of Ann Arundel, Maryland,
U.S.A, and James N. Phillips was likewise appointed as executor, who in turn, designated Atty.
William Quasha or any member of the Quasha Asperilla Ancheta Pena & Nolasco Law Offices,
as ancillary administrator.

Richard’s will was then submitted for probate before the Regional Trial Court of Makati, Branch
138, docketed as Special Proceeding No. M-888.7 Atty. Quasha was appointed as ancillary
administrator on July 24, 1986.8

On October 19, 1987, petitioner filed in Special Proceeding No. 9625, a motion to declare
Richard and Kyle as heirs of Audrey.9 Petitioner also filed on October 23, 1987, a project of
partition of Audrey’s estate, with Richard being apportioned the ¾ undivided interest in the
Makati property, 48.333 shares in A/G Interiors, Inc., and P9,313.48 from the Citibank current
account; and Kyle, the ¼ undivided interest in the Makati property, 16,111 shares in A/G
Interiors, Inc., and P3,104.49 in cash.10

The motion and project of partition was granted and approved by the trial court in its Order
dated February 12, 1988.11 The trial court also issued an Order on April 7, 1988, directing the
Register of Deeds of Makati to cancel TCT No. 69792 in the name of Richard and to issue a
new title in the joint names of the Estate of W. Richard Guersey (¾ undivided interest) and Kyle
(¼ undivided interest); directing the Secretary of A/G Interiors, Inc. to transfer 48.333 shares to
the Estate of W. Richard Guersey and 16.111 shares to Kyle; and directing the Citibank to
release the amount of P12,417.97 to the ancillary administrator for distribution to the heirs.12

Consequently, the Register of Deeds of Makati issued on June 23, 1988, TCT No. 155823 in the
names of the Estate of W. Richard Guersey and Kyle.13

Meanwhile, the ancillary administrator in Special Proceeding No. M-888 also filed a project of
partition wherein 2/5 of Richard’s ¾ undivided interest in the Makati property was allocated to
respondent, while 3/5 thereof were allocated to Richard’s three children. This was opposed by
respondent on the ground that under the law of the State of Maryland, "a legacy passes to the
legatee the entire interest of the testator in the property subject of the legacy."14 Since
Richard left his entire estate to respondent, except for his rights and interests over the A/G
Interiors, Inc, shares, then his entire ¾ undivided interest in the Makati property should be given
to respondent.

The trial court found merit in respondent’s opposition, and in its Order dated December 6, 1991,
disapproved the project of partition insofar as it affects the Makati property. The trial court also
adjudicated Richard’s entire ¾ undivided interest in the Makati property to respondent.15

On October 20, 1993, respondent filed with the Court of Appeals (CA) an amended complaint
for the annulment of the trial court’s Orders dated February 12, 1988 and April 7, 1988, issued
in Special Proceeding No. 9625.16Respondent contended that petitioner willfully breached his
fiduciary duty when he disregarded the laws of the State of Maryland on the distribution of
Audrey’s estate in accordance with her will. Respondent argued that since Audrey devised her
entire estate to Richard, then the Makati property should be wholly adjudicated to him, and not
merely ¾ thereof, and since Richard left his entire estate, except for his rights and interests over
the A/G Interiors, Inc., to respondent, then the entire Makati property should now pertain to
respondent.

Petitioner filed his Answer denying respondent’s allegations. Petitioner contended that he acted
in good faith in submitting the project of partition before the trial court in Special Proceeding No.
9625, as he had no knowledge of the State of Maryland’s laws on testate and intestate
succession. Petitioner alleged that he believed that it is to the "best interests of the surviving

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children that Philippine law be applied as they would receive their just shares." Petitioner also
alleged that the orders sought to be annulled are already final and executory, and cannot be set
aside.

On March 18, 1999, the CA rendered the assailed Decision annulling the trial court’s Orders
dated February 12, 1988 and April 7, 1988, in Special Proceeding No. 9625.17 The dispositive
portion of the assailed Decision provides:

WHEREFORE, the assailed Orders of February 12, 1998 and April 7, 1988 are hereby
ANNULLED and, in lieu thereof, a new one is entered ordering:

(a) The adjudication of the entire estate of Audrey O’Neill Guersey in favor of the estate
of W. Richard Guersey; and

(b) The cancellation of Transfer Certificate of Title No. 15583 of the Makati City Registry
and the issuance of a new title in the name of the estate of W. Richard Guersey.

SO ORDERED.18

Petitioner filed a motion for reconsideration, but this was denied by the CA per Resolution dated
August 27, 1999.19

Hence, the herein petition for review on certiorari under Rule 45 of the Rules of Court alleging
that the CA gravely erred in not holding that:

A) THE ORDERS OF 12 FEBRUARY 1988 AND 07 APRIL 1988 IN SPECIAL


PROCEEDINGS NO. 9625 "IN THE MATTER OF THE PETITION FOR PROBATE OF
THE WILL OF THE DECEASED AUDREY GUERSEY, ALONZO Q. ANCHETA,
ANCILLARY ADMINISTRATOR", ARE VALID AND BINDING AND HAVE LONG
BECOME FINAL AND HAVE BEEN FULLY IMPLEMENTED AND EXECUTED AND
CAN NO LONGER BE ANNULLED.

B) THE ANCILLARY ADMINISTRATOR HAVING ACTED IN GOOD FAITH, DID NOT


COMMIT FRAUD, EITHER EXTRINSIC OR INTRINSIC, IN THE PERFORMANCE OF
HIS DUTIES AS ANCILLARY ADMINISTRATOR OF AUDREY O’NEIL GUERSEY’S
ESTATE IN THE PHILIPPINES, AND THAT NO FRAUD, EITHER EXTRINSIC OR
INTRINSIC, WAS EMPLOYED BY [HIM] IN PROCURING SAID ORDERS.20

Petitioner reiterates his arguments before the CA that the Orders dated February 12, 1988 and
April 7, 1988 can no longer be annulled because it is a final judgment, which is "conclusive upon
the administration as to all matters involved in such judgment or order, and will determine for all
time and in all courts, as far as the parties to the proceedings are concerned, all matters therein
determined," and the same has already been executed.21

Petitioner also contends that that he acted in good faith in performing his duties as an ancillary
administrator. He maintains that at the time of the filing of the project of partition, he was not
aware of the relevant laws of the State of Maryland, such that the partition was made in
accordance with Philippine laws. Petitioner also imputes knowledge on the part of respondent
with regard to the terms of Aubrey’s will, stating that as early as 1984, he already apprised
respondent of the contents of the will and how the estate will be divided.22

Respondent argues that petitioner’s breach of his fiduciary duty as ancillary administrator of
Aubrey’s estate amounted to extrinsic fraud. According to respondent, petitioner was duty-
bound to follow the express terms of Aubrey’s will, and his denial of knowledge of the laws of
Maryland cannot stand because petitioner is a senior partner in a prestigious law firm and it was
his duty to know the relevant laws.

Respondent also states that she was not able to file any opposition to the project of partition
because she was not a party thereto and she learned of the provision of Aubrey’s will
bequeathing entirely her estate to Richard only after Atty. Ancheta filed a project of partition in
Special Proceeding No. M-888 for the settlement of Richard’s estate.

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A decree of distribution of the estate of a deceased person vests the title to the land of the
estate in the distributees, which, if erroneous may be corrected by a timely appeal. Once it
becomes final, its binding effect is like any other judgment in rem.23 However, in exceptional
cases, a final decree of distribution of the estate may be set aside for lack of jurisdiction or
fraud.24 Further, in Ramon v. Ortuzar,25 the Court ruled that a party interested in a probate
proceeding may have a final liquidation set aside when he is left out by reason of circumstances
beyond his control or through mistake or inadvertence not imputable to negligence.26

The petition for annulment was filed before the CA on October 20, 1993, before the issuance of
the 1997 Rules of Civil Procedure; hence, the applicable law is Batas Pambansa Blg. 129 (B.P.
129) or the Judiciary Reorganization Act of 1980. An annulment of judgment filed under B.P.
129 may be based on the ground that a judgment is void for want of jurisdiction or that the
judgment was obtained by extrinsic fraud.27 For fraud to become a basis for annulment of
judgment, it has to be extrinsic or actual,28 and must be brought within four years from the
discovery of the fraud.29

In the present case, respondent alleged extrinsic fraud as basis for the annulment of the RTC
Orders dated February 12, 1988 and April 7, 1988. The CA found merit in respondent’s cause
and found that petitioner’s failure to follow the terms of Audrey’s will, despite the latter’s
declaration of good faith, amounted to extrinsic fraud. The CA ruled that under Article 16 of the
Civil Code, it is the national law of the decedent that is applicable, hence, petitioner should have
distributed Aubrey’s estate in accordance with the terms of her will. The CA also found that
petitioner was prompted to distribute Audrey’s estate in accordance with Philippine laws in order
to equally benefit Audrey and Richard Guersey’s adopted daughter, Kyle Guersey Hill.

Petitioner contends that respondent’s cause of action had already prescribed because as early
as 1984, respondent was already well aware of the terms of Audrey’s will,30 and the complaint
was filed only in 1993. Respondent, on the other hand, justified her lack of immediate action by
saying that she had no opportunity to question petitioner’s acts since she was not a party to
Special Proceeding No. 9625, and it was only after Atty. Ancheta filed the project of partition in
Special Proceeding No. M-888, reducing her inheritance in the estate of Richard that she was
prompted to seek another counsel to protect her interest.31

It should be pointed out that the prescriptive period for annulment of judgment based on
extrinsic fraud commences to run from the discovery of the fraud or fraudulent act/s.
Respondent’s knowledge of the terms of Audrey’s will is immaterial in this case since it is not
the fraud complained of. Rather, it is petitioner’s failure to introduce in evidence the pertinent
law of the State of Maryland that is the fraudulent act, or in this case, omission, alleged to have
been committed against respondent, and therefore, the four-year period should be counted from
the time of respondent’s discovery thereof.

Records bear the fact that the filing of the project of partition of Richard’s estate, the opposition
thereto, and the order of the trial court disallowing the project of partition in Special Proceeding
No. M-888 were all done in 1991.32Respondent cannot be faulted for letting the assailed orders
to lapse into finality since it was only through Special Proceeding No. M-888 that she came to
comprehend the ramifications of petitioner’s acts. Obviously, respondent had no other recourse
under the circumstances but to file the annulment case. Since the action for annulment was filed
in 1993, clearly, the same has not yet prescribed.

Fraud takes on different shapes and faces. In Cosmic Lumber Corporation v. Court of
Appeals,33 the Court stated that "man in his ingenuity and fertile imagination will always contrive
new schemes to fool the unwary."

There is extrinsic fraud within the meaning of Sec. 9 par. (2), of B.P. Blg. 129, where it is one
the effect of which prevents a party from hearing a trial, or real contest, or from presenting all of
his case to the court, or where it operates upon matters, not pertaining to the judgment itself, but
to the manner in which it was procured so that there is not a fair submission of the controversy.
In other words, extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation
which is committed outside of the trial of the case, whereby the defeated party has been
prevented from exhibiting fully his side of the case by fraud or deception practiced on him by his
opponent. Fraud is extrinsic where the unsuccessful party has been prevented from exhibiting

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fully his case, by fraud or deception practiced on him by his opponent, as by keeping him away
from court, a false promise of a compromise; or where the defendant never had any knowledge
of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently
or without authority connives at his defeat; these and similar cases which show that there has
never been a real contest in the trial or hearing of the case are reasons for which a new suit
may be sustained to set aside and annul the former judgment and open the case for a new and
fair hearing.34

The overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme of the
prevailing litigant prevented a party from having his day in court.35

Petitioner is the ancillary administrator of Audrey’s estate. As such, he occupies a position of the
highest trust and confidence, and he is required to exercise reasonable diligence and act in
entire good faith in the performance of that trust. Although he is not a guarantor or insurer of the
safety of the estate nor is he expected to be infallible, yet the same degree of prudence, care
and judgment which a person of a fair average capacity and ability exercises in similar
transactions of his own, serves as the standard by which his conduct is to be judged.36

Petitioner’s failure to proficiently manage the distribution of Audrey’s estate according to the
terms of her will and as dictated by the applicable law amounted to extrinsic fraud. Hence the
CA Decision annulling the RTC Orders dated February 12, 1988 and April 7, 1988, must be
upheld.

It is undisputed that Audrey Guersey was an American citizen domiciled in Maryland, U.S.A.
During the reprobate of her will in Special Proceeding No. 9625, it was shown, among others,
that at the time of Audrey’s death, she was residing in the Philippines but is domiciled in
Maryland, U.S.A.; her Last Will and Testament dated August 18, 1972 was executed and
probated before the Orphan’s Court in Baltimore, Maryland, U.S.A., which was duly
authenticated and certified by the Register of Wills of Baltimore City and attested by the Chief
Judge of said court; the will was admitted by the Orphan’s Court of Baltimore City on September
7, 1979; and the will was authenticated by the Secretary of State of Maryland and the Vice
Consul of the Philippine Embassy.

Being a foreign national, the intrinsic validity of Audrey’s will, especially with regard as to who
are her heirs, is governed by her national law, i.e., the law of the State of Maryland, as provided
in Article 16 of the Civil Code, to wit:

Art. 16. Real property as well as personal property is subject to the law of the country where it is
situated.

However, intestate and testamentary succession, both with respect to the order of succession
and to the amount of successional rights and to the intrinsic validity of testamentary
provisions, shall be regulated by the national law of the person whose succession is
under consideration, whatever may be the nature of the property and regardless of the
country wherein said property may be found. (Emphasis supplied)

Article 1039 of the Civil Code further provides that "capacity to succeed is governed by the law
of the nation of the decedent."

As a corollary rule, Section 4, Rule 77 of the Rules of Court on Allowance of Will Proved
Outside the Philippines and Administration of Estate Thereunder, states:

SEC. 4. Estate, how administered.—When a will is thus allowed, the court shall grant letters
testamentary, or letters of administration with the will annexed, and such letters testamentary or
of administration, shall extend to all the estate of the testator in the Philippines. Such estate,
after the payment of just debts and expenses of administration, shall be disposed of
according to such will, so far as such will may operate upon it; and the residue, if any, shall
be disposed of as is provided by law in cases of estates in the Philippines belonging to persons
who are inhabitants of another state or country. (Emphasis supplied)

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While foreign laws do not prove themselves in our jurisdiction and our courts are not authorized
to take judicial notice of them;37 however, petitioner, as ancillary administrator of Audrey’s
estate, was duty-bound to introduce in evidence the pertinent law of the State of Maryland.38

Petitioner admitted that he failed to introduce in evidence the law of the State of Maryland on
Estates and Trusts, and merely relied on the presumption that such law is the same as the
Philippine law on wills and succession. Thus, the trial court peremptorily applied Philippine laws
and totally disregarded the terms of Audrey’s will. The obvious result was that there was no fair
submission of the case before the trial court or a judicious appreciation of the evidence
presented.

Petitioner insists that his application of Philippine laws was made in good faith. The Court
cannot accept petitioner’s protestation. How can petitioner honestly presume that Philippine
laws apply when as early as the reprobate of Audrey’s will before the trial court in 1982, it was
already brought to fore that Audrey was a U.S. citizen, domiciled in the State of Maryland. As
asserted by respondent, petitioner is a senior partner in a prestigious law firm, with a "big legal
staff and a large library."39 He had all the legal resources to determine the applicable law. It was
incumbent upon him to exercise his functions as ancillary administrator with reasonable
diligence, and to discharge the trust reposed on him faithfully. Unfortunately, petitioner failed to
perform his fiduciary duties.

Moreover, whether his omission was intentional or not, the fact remains that the trial court failed
to consider said law when it issued the assailed RTC Orders dated February 12, 1988 and April
7, 1988, declaring Richard and Kyle as Audrey’s heirs, and distributing Audrey’s estate
according to the project of partition submitted by petitioner. This eventually prejudiced
respondent and deprived her of her full successional right to the Makati property.

In GSIS v. Bengson Commercial Bldgs., Inc.,40 the Court held that when the rule that the
negligence or mistake of counsel binds the client deserts its proper office as an aid to justice
and becomes a great hindrance and chief enemy, its rigors must be relaxed to admit exceptions
thereto and to prevent a miscarriage of justice, and the court has the power to except a
particular case from the operation of the rule whenever the purposes of justice require it.

The CA aptly noted that petitioner was remiss in his responsibilities as ancillary administrator of
Audrey’s estate. The CA likewise observed that the distribution made by petitioner was
prompted by his concern over Kyle, whom petitioner believed should equally benefit from the
Makati property. The CA correctly stated, which the Court adopts, thus:

In claiming good faith in the performance of his duties and responsibilities, defendant Alonzo H.
Ancheta invokes the principle which presumes the law of the forum to be the same as the
foreign law (Beam vs. Yatco, 82 Phil. 30, 38) in the absence of evidence adduced to prove the
latter law (Slade Perkins vs. Perkins, 57 Phil. 205, 210). In defending his actions in the light of
the foregoing principle, however, it appears that the defendant lost sight of the fact that his
primary responsibility as ancillary administrator was to distribute the subject estate in
accordance with the will of Audrey O’Neill Guersey. Considering the principle established under
Article 16 of the Civil Code of the Philippines, as well as the citizenship and the avowed domicile
of the decedent, it goes without saying that the defendant was also duty-bound to prove the
pertinent laws of Maryland on the matter.

The record reveals, however, that no clear effort was made to prove the national law of Audrey
O’Neill Guersey during the proceedings before the court a quo. While there is claim of good faith
in distributing the subject estate in accordance with the Philippine laws, the defendant appears
to put his actuations in a different light as indicated in a portion of his direct examination, to wit:

xxx

It would seem, therefore, that the eventual distribution of the estate of Audrey O’Neill Guersey
was prompted by defendant Alonzo H. Ancheta’s concern that the subject realty equally benefit
the plaintiff’s adopted daughter Kyle Guersey.

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Well-intentioned though it may be, defendant Alonzo H. Ancheta’s action appears to have
breached his duties and responsibilities as ancillary administrator of the subject estate. While
such breach of duty admittedly cannot be considered extrinsic fraud under ordinary
circumstances, the fiduciary nature of the said defendant’s position, as well as the
resultant frustration of the decedent’s last will, combine to create a circumstance that is
tantamount to extrinsic fraud. Defendant Alonzo H. Ancheta’s omission to prove the national
laws of the decedent and to follow the latter’s last will, in sum, resulted in the procurement of the
subject orders without a fair submission of the real issues involved in the case.41 (Emphasis
supplied)

This is not a simple case of error of judgment or grave abuse of discretion, but a total disregard
of the law as a result of petitioner’s abject failure to discharge his fiduciary duties. It does not
rest upon petitioner’s pleasure as to which law should be made applicable under the
circumstances. His onus is clear. Respondent was thus excluded from enjoying full rights to the
Makati property through no fault or negligence of her own, as petitioner’s omission was beyond
her control. She was in no position to analyze the legal implications of petitioner’s omission and
it was belatedly that she realized the adverse consequence of the same. The end result was a
miscarriage of justice. In cases like this, the courts have the legal and moral duty to provide
judicial aid to parties who are deprived of their rights.42

The trial court in its Order dated December 6, 1991 in Special Proceeding No. M-888 noted the
law of the State of Maryland on Estates and Trusts, as follows:

Under Section 1-301, Title 3, Sub-Title 3 of the Annotated Code of the Public General Laws of
Maryland on Estates and Trusts, "all property of a decedent shall be subject to the estate of
decedents law, and upon his death shall pass directly to the personal representative, who shall
hold the legal title for administration and distribution," while Section 4-408 expressly provides
that "unless a contrary intent is expressly indicated in the will, a legacy passes to the legatee the
entire interest of the testator in the property which is the subject of the legacy". Section 7-101,
Title 7, Sub-Title 1, on the other hand, declares that "a personal representative is a fiduciary"
and as such he is "under the general duty to settle and distribute the estate of the decedent in
accordance with the terms of the will and the estate of decedents law as expeditiously and with
as little sacrifice of value as is reasonable under the circumstances".43

In her will, Audrey devised to Richard her entire estate, consisting of the following: (1) Audrey’s
conjugal share in the Makati property; (2) the cash amount of P12,417.97; and (3) 64,444
shares of stock in A/G Interiors, Inc. worth P64,444.00. All these properties passed on to
Richard upon Audrey’s death. Meanwhile, Richard, in his will, bequeathed his entire estate to
respondent, except for his rights and interests over the A/G Interiors, Inc. shares, which he left
to Kyle. When Richard subsequently died, the entire Makati property should have then passed
on to respondent. This, of course, assumes the proposition that the law of the State of Maryland
which allows "a legacy to pass to the legatee the entire estate of the testator in the property
which is the subject of the legacy," was sufficiently proven in Special Proceeding No. 9625.
Nevertheless, the Court may take judicial notice thereof in view of the ruling in Bohanan v.
Bohanan.44 Therein, the Court took judicial notice of the law of Nevada despite failure to prove
the same. The Court held, viz.:

We have, however, consulted the records of the case in the court below and we have found that
during the hearing on October 4, 1954 of the motion of Magdalena C. Bohanan for withdrawal of
P20,000 as her share, the foreign law, especially Section 9905, Compiled Nevada Laws, was
introduced in evidence by appellants' (herein) counsel as Exhibit "2" (See pp. 77-79, Vol. II, and
t.s.n. pp. 24-44, Records, Court of First Instance). Again said law was presented by the counsel
for the executor and admitted by the Court as Exhibit "B" during the hearing of the case on
January 23, 1950 before Judge Rafael Amparo (see Records, Court of First Instance, Vol. 1).

In addition, the other appellants, children of the testator, do not dispute the above-quoted
provision of the laws of the State of Nevada. Under all the above circumstances, we are
constrained to hold that the pertinent law of Nevada, especially Section 9905 of the Compiled
Nevada Laws of 1925, can be taken judicial notice of by us, without proof of such law having
been offered at the hearing of the project of partition.

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In this case, given that the pertinent law of the State of Maryland has been brought to record
before the CA, and the trial court in Special Proceeding No. M-888 appropriately took note of
the same in disapproving the proposed project of partition of Richard’s estate, not to mention
that petitioner or any other interested person for that matter, does not dispute the existence or
validity of said law, then Audrey’s and Richard’s estate should be distributed according to their
respective wills, and not according to the project of partition submitted by petitioner.
Consequently, the entire Makati property belongs to respondent.

Decades ago, Justice Moreland, in his dissenting opinion in Santos v. Manarang,45 wrote:

A will is the testator speaking after death. Its provisions have substantially the same force and
effect in the probate court as if the testator stood before the court in full life making the
declarations by word of mouth as they appear in the will. That was the special purpose of the
law in the creation of the instrument known as the last will and testament. Men wished to speak
after they were dead and the law, by the creation of that instrument, permitted them to do so x x
x All doubts must be resolved in favor of the testator's having meant just what he said.

Honorable as it seems, petitioner’s motive in equitably distributing Audrey’s estate cannot


prevail over Audrey’s and Richard’s wishes. As stated in Bellis v. Bellis:46

x x x whatever public policy or good customs may be involved in our system of legitimes,
Congress has not intended to extend the same to the succession of foreign nationals. For it has
specifically chosen to leave, inter alia, the amount of successional rights, to the decedent's
national Law. Specific provisions must prevail over general ones.47

Before concluding, the Court notes the fact that Audrey and Richard Guersey were American
citizens who owned real property in the Philippines, although records do not show when and
how the Guerseys acquired the Makati property.

Under Article XIII, Sections 1 and 4 of the 1935 Constitution, the privilege to acquire and exploit
lands of the public domain, and other natural resources of the Philippines, and to operate public
utilities, were reserved to Filipinos and entities owned or controlled by them. In Republic v.
Quasha,48 the Court clarified that the Parity Rights Amendment of 1946, which re-opened to
American citizens and business enterprises the right in the acquisition of lands of the public
domain, the disposition, exploitation, development and utilization of natural resources of the
Philippines, does not include the acquisition or exploitation of private agricultural lands. The
prohibition against acquisition of private lands by aliens was carried on to the 1973 Constitution
under Article XIV, Section 14, with the exception of private lands acquired by hereditary
succession and when the transfer was made to a former natural-born citizen, as provided in
Section 15, Article XIV. As it now stands, Article XII, Sections 7 and 8 of the 1986 Constitution
explicitly prohibits non-Filipinos from acquiring or holding title to private lands or to lands of the
public domain, except only by way of legal succession or if the acquisition was made by a
former natural-born citizen.

In any case, the Court has also ruled that if land is invalidly transferred to an alien who
subsequently becomes a citizen or transfers it to a citizen, the flaw in the original transaction is
considered cured and the title of the transferee is rendered valid.49 In this case, since the Makati
property had already passed on to respondent who is a Filipino, then whatever flaw, if any, that
attended the acquisition by the Guerseys of the Makati property is now inconsequential, as the
objective of the constitutional provision to keep our lands in Filipino hands has been achieved.

WHEREFORE, the petition is denied. The Decision dated March 18, 1999 and the Resolution
dated August 27, 1999 of the Court of Appeals are AFFIRMED.

Petitioner is ADMONISHED to be more circumspect in the performance of his duties as an


official of the court.

No pronouncement as to costs.

SO ORDERED.

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G. R. No. L-41001 September 30, 1976

MANILA LODGE NO. 761, BENEVOLENT AND PROTECTIVE ORDER OF THE ELKS,
INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, CITY OF MANILA, and TARLAC DEVELOPMENT
CORPORATION, respondents.

No. L-41012 September 30, 1976

TARLAC DEVELOPMENT CORPORATION, petitioner,


vs.
HONORABLE COURT OF APPEALS, CITY OF MANILA, LODGE NO. 761, BENEVOLENT
AND PROTECTIVE ORDER OF ELKS, INC., respondents.

CASTRO, C.J.:têñ.£îhqwâ£

STATEMENT OF THE CASE AND STATEMENTOF THE FACTS

These two cases are petitions on certiorari to review the decision dated June 30, 1975 of the
Court of Appeals in CA-G.R. No. 51590-R entitled "Tarlac Development Corporation vs. City of
Manila, and Manila Lodge No. 761, Benevolent and Protective Order of Elks, Inc.," affirming the
trial court's finding in Civil Case No. 83009 that the property subject of the decision a quo is a
"public park or plaza."

On June 26, 1905 the Philippine Commission enacted Act No. l360 which authorized the City of
Manila to reclaim a portion of Manila Bay. The reclaimed area was to form part of the Luneta
extension. The Act provided that the reclaimed area "Shall be the property of the City of Manila"
and that "the City of Manila is hereby authorized to set aside a tract of the reclaimed land
formed by the Luneta extension x x x at the north end not to exceed five hundred feet by six
hundred feet in size, for a hotel site, and to lease the same, with the approval of the Governor
General, to a responsible person or corporation for a term not exceed ninety-nine years."

Subsequently, the Philippine Commission passed on May 18, 1907 Act No. 1657, amending Act
No. 1360, so as to authorize the City of' Manila either to lease or to sell the portion set aside as
a hotel site.

The total area reclaimed was a little over 25 hectares. The City of Manila applied for the
registration of the reclaimed area, and on January 20, 1911, O.C.T. No. 1909 was issued in the
name of the City of Manila. The title described the registered land as "un terreno conocido con
el nombre de Luneta Extension, situato en el distrito de la Ermita x x x." The registration was
"subject, however to such of the incumbrances mentioned in Article 39 of said law (Land
Registration Act) as may be subsisting" and "sujeto a las disposiciones y condiciones impuestas
en la Ley No. 1360; y sujeto tambein a los contratos de venta, celebrados y otorgados por la
Ciudad de Manila a favor del Army and Navy Club y la Manila Lodge No. 761, Benevolent and
Protective Order of Elks, fechados respectivamente, en 29 de Diciembre de 1908 y 16 de Enero
de 1909." 1

On July 13, 1911 the City of Manila, affirming a prior sale dated January 16, 1909 cancelled
5,543.07 square meters of the reclaimed area to the Manila Lodge No. 761, Benevolent and
Protective Order of Elks of the U.S.A. (BPOE, for short) on the basis of which TCT No.
2195 2 was issued to the latter over the Marcela de terreno que es parte de la Luneta Extension,
Situada en el Distrito le la Ermita ... ." At the back of this title vas annotated document 4608/T-
1635, which in part reads as follows: "que la citada Ciusdad de Manila tendra derecho a su
opcion, de recomparar la expresada propiedad para fines publicos solamete in cualquier tiempo
despues de cincuenta anos desde el 13 le Julio le 1911, precio de la misma propiedad, mas el
valor que entonces tengan las mejoras."

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For the remainder of the Luneta Extension, that is, after segregating therefrom the portion sold
to the Manila Lodge No. 761, PBOE, a new Certificate of Title No. 2196 3 was issued on July 17,
1911 to the City of Manila.

Manila Lodge No. 761, BPOE, subsequently sold the said 5,543.07 square meters to the Elks
Club, Inc., to which was issued TCT No. 67488. 4 The registered owner, "The Elks Club, Inc.,"
was later changed by court oder to "Manila Lodge No. 761, Benevolent and Protective Order of
Elks, Inc."

In January 1963 the BPOE. petitioned the Court of First Instance of Manila, Branch IV, for the
cancellation of the right of the City of Manila to repurchase the property This petition was
granted on February 15, 1963.

On November 19, 1963 the BPOE sold for the sum of P4,700,000 the land together with all the
improvements thereon to the Tarlac Development Corporation (TDC, for short) which paid
P1,700.000 as down payment and mortgaged to the vendor the same realty to secure the
payment of the balance to be paid in quarterly installments.5At the time of the sale,, there was
no annotation of any subsisting lien on the title to the property. On December 12, 1963 TCT No.
73444 was issued to TDC over the subject land still described as "UNA PARCELA DE
TERRENO, que es parte de la Luneta Extension, situada en el Distrito de Ermita ... ."

In June 1964 the City of Manila filed with the Court of First Instance of Manila a petition for the
reannotation of its right to repurchase; the court, after haering, issued an order, dated
November 19, 1964, directing the Register of Deeds of the City of Manila to reannotate in
toto the entry regarind the right of the City of Manila to repurchase the property after fifty years.
From this order TDC and BPOE appealed to this Court which on July 31, 1968 affirmed in G.R.
Nos. L-24557 and L-24469 the trial court's order of reannotation, but reserved to TDC the right
to bring another action for the clarification of its rights.

As a consequence of such reservation, TDC filed on April 28, 1971 against the City of Manila
and the Manila Lodge No. 761, BPOE, a complaint, docketed as Civil Case No. 83009 of the
Court of First Instance of Manila, containing three causes of action and praying -

a) On the first cause of action, that the plaintiff TDC be declared to have purchased the parcel of
land now in question with the buildings and improvements thereon from the defendant BPOE for
value and in good faith, and accordingly ordering the cancellation of Entry No. 4608/T-1635 on
Transfer Certificate of Title No. 73444 in the name of the Plaintiff;

b) On the second cause of action, ordering the defendant City of Manila to pay the plaintiff TDC
damages in the sum of note less than one hundred thousand pesos (P100,000.00);

c) On the third cause of action, reserving to the plaintiff TDC the right to recover from the
defendant BPOE the amounts mentioned in par. XVI of the complaint in accordance with Art.
1555 of the Civil Code, in the remote event that the final judgment in this case should be that
the parcel of land now in question is a public park; and

6
d) For costs, and for such other and further relief as the Court may deem just and equitable.

Therein defendant City of Manila, in its answer dated May 19, 1971, admitted all the facts
alleged in the first cause of action except the allegation that TDC purchased said property "for
value and in good faith," but denied for lack of knowledge or information the allegations in the
second and third causes of action. As, special and affirmative defense, the City of Manila
claimed that TDC was not a purchaser in good faith for it had actual notice of the City's right to
repurchase which was annotated at the back of the title prior to its cancellation, and that,
assuming arguendo that TDC had no notice of the right to repurchase, it was, nevertheless,
under obligation to investigate inasmuch as its title recites that the property is a part of the
Luneta extension. 7

The Manila Lodge No. 761, BPOE, in its answer dated June 7, 1971, admitted having sold the
land together with the improvements thereon for value to therein plaintiff which was in good
faith, but denied for lack of knowledge as to their veracity the allegations under the second

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cause of action. It furthermore admitted that TDC had paid the quarterly installments until
October l5, 1964 but claimed that the latter failed without justifiable cause to pay the subsequent
installments. It also asserted that it was a seller for value in good faith without having
misrepresented or concealed tacts relative to the title on the property. As counterclaim, Manila
Lodge No. 761 (BPOE) sought to recover the balance of the purchase price plus interest and
costs. 8

On June 15, 1971 TDC answered the aforesaid counterclaim, alleging that its refusal to make
further payments was fully justified.9

After due trial the court a quo rendered on July 14, 1972 its decision finding the subject land to
be part of the "public park or plaza" and, therefore, part of the public domain. The court
consequently declared that the sale of the subject land by the City of Manila to Manila Lodge
No. 761, BPOE, was null and void; that plaintiff TDC was a purchaser thereof in g faith and for
value from BPOE and can enforce its rights against the latter; and that BPOE is entitled to
recover from the City of Manila whatever consideration it had 'paid the latter. 'The dispositive
part of the decision reads: ñé+.£ªwph!1

WHEREFORE, the Court hereby declares that the parcel of land formerly
covered by Transfer Certificate of Title Nos 2195 and 67488 in the name of
BPOE and now by Transfer Certificate of Title No. 73444 in the name of Tarlac
Development Corporation is a public' park or plaza, and, consequently, instant
complaint is dimissed, without pronouncement as to costs.

In view of the reservation made by plaintiff Tarlac Development Corporation to


recover from defendant BPOE the amounts mentioned in paragraph XVI of the
complaint in accordance with Article 1555 of the Civil Code, the Court makes no
pronouncement on this point. 10

From said decision the therein plaintiff TDC as well as the defendant Manila Lodge No. 761,
BPOE, appealed to the Court of Appeals.

In its appeal docketed as CA-G.R. No. 51590-R, the Manila Lodge No. 761, BPOE, avers that
the trial court committed the following errors, namely:

1. In holding that the property subject of the action is not patrimonial property of the City of
Manila; and

2. In holding that the Tarlac Development Corporation may recover and enforce its right against
the defendant BPOE. 11

The Tarlac Development Corporation, on the other hand, asserts that the trial court erred:

(1) In finding that the property in question is or was a public park and in consequently nullifying
the sale thereof by the City of Manila to BPOE;

(2) In applying the cases of Municipality of Cavite vs. Rojas, 30 Phil. 602, and Government vs.
Cabangis, 53 Phil. 112, to the case at bar; and

(3) In not holding that the plaintiff-appellant is entitled to ,recover damages from the defendant
City of Manila. 12

Furthermore, TDC as appellee regarding the second assignment of error raised by BPOE,
maintained that it can recover and enforce its rigth against BPOE in the event that the land in
question is declared a public park or part thereof.13

In its decision promulgated on June 30, 1975, the Court of Appeals concur ed in the findings
and conclusions of the lower court upon the ground that they are supported by he evidence and
are in accordance with law, and accordingly affirmed the lower court's judgment.

Hence, the present petitions for review on certiorari.

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G.R. No. L-41001

The Manila Lodge No. 761, BPOE, contends, in its petition for review on certiorari docketed as
G.R. No. L-41001, that the Court of Appeals erred in (1) disregarding the very enabling acts
and/or statutes according to which the subject property was, and still is, patrimonial property of
the City of Manila and could therefore be sold and/or disposed of like any other private property;
and (2) in departing from the accepted and usual course of judicial proceedings when it simply
made a general affirmance of the court a quo's findings and conclusions without bothering to
discuss or resolve several vital points stressed by the BPOE in its assigned errrors. 14

G.R. No. L-41012

The Tarlac Development Corporation, in its petition for review on certiorari docketed as G.R.
No. L-41012, relies on the following grounds for the allowance of its petition:

1. that the Court of Appeals did not correctly interpret Act No. 1360, as amended by Act No.
1657, of the Philippine Commission; and

2. that the Court of Appeals has departed from the accepted and usual course of judicial
15
proceedings in that it did not make its own findings but simply recited those of the lower court.

ISSUES AND ARGUMENTS

FIRST ISSUE

Upon the first issue, both petitioners claim that the property subject of the action, pursuant to the
provisions of Act No. 1360, as amended by Act No. 1657, was patrimonial property of the City of
Manila and not a park or plaza.

Arguments of Petitioners

In G.R. No. L-41001, the Manila Lodge No. 761, BPOE, admits that "there appears to be some
logic in the conclusion" of the Court of Appeals that "neither Act No. 1360 nor Act No. 1657
could have meant to supply the City of Manila the authority to sell the subject property which is
located at the south end not the north — of the reclaimed area." 16 It argues, however, that when
Act No. 1360, as amended, authorized the City of Manila to undertake the construction of the
Luneta extension by reclaimed land from the Manila Bay, and declared that the reclaimed land
shall be the "property of the City of Manila," the State expressly granted the ownership thereof
to the City of Manila which. consequently. could enter into transactions involving it; that upon the
issuance of O.C.T. No. 1909, there could he no doubt that the reclaimed area owned by the City
was its patrimonial property;" that the south end of the reclaimed area could not be for public
use for. as argued by TDC a street, park or promenade can be property for public use pursuant
to Article 344 of the Spanish Civil Code only when it has already been so constructed or laid
out, and the subject land, at the time it was sold to the Elk's Club, was neither actually
constructed as a street, park or promenade nor laid out as a street, park or promenade;" that
even assuming that the subject property was at the beginning property of public dominion, it
was subsequently converted into patrimonial property pursuant to Art. 422 of the Civil Code,
inasmuch as it had never been used, red or utilized since it was reclaimed in 1905 for purpose
other than this of an ordinary real estate for sale or lease; that the subject property had never
been intended for public use, is further shown by the fact that it was neither included as a part of
the Luneta Park under Plan No. 30 of the National Planning Commission nor considered a part
of the Luneta National Park (now Rizal Park) by Proclamation No. 234 dated December 19,
1955 of President Ramon Magsaysay or by Proclamation Order No. 274 dated October 4, 1967
of President Ferdinand E. Marcos;" 19 that, such being the case, there is no reason why the
subject property should -not be considered as having been converted into patrimonial property,
pursuant to the ruling in Municipality vs. Roa 7 Phil. 20, inasmuch as the City of Manila has
considered it as its patrimonial property not only bringing it under the operation of the Land
Registration Act but also by disposing of it; 20 and that to consider now the subject property as a
public plaza or park would not only impair the obligations of the parties to the contract of sale
(rated July 13, 1911, but also authorize deprivation of property without due process of law.21

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G.R. No. L-410112

In L-41012, the petitioner TDC stresses that the principal issue is the interpretation of Act No.
1360, as amended by. Act No. 1657 of the Philippine Commission, 22 and avers that inasmuch
as Section 6 of Act No. 1360, as amended by Act 1657, provided that the reclamation of the
Luneta extension was to be paid for out of the funds of the City of Manila which was authorized
to borrow P350,000 "to be expended in the construction of Luneta Extension," the reclaimed
area became "public land" belonging to the City of Manila that spent for the reclamation,
conformably to the holding in Cabangis,23 and consequently, said land was subject to sale and
other disposition; that the Insular Government itself considered the reclaimed Luneta extension
as patrimonial property subject to disposition as evidenced by the fact that See. 3 of Act 1360
declared that "the land hereby reclaimed shall be the property of the City of Manila;" that this
property cannot be property for public use for according to Article 344 of the Civil Code, the
character of property for public use can only attach to roads and squares that have already
been constructed or at least laid out as such, which conditions did not obtain regarding the
subject land, that Sec. 5 of Act 1360 authorized the City of Manila to lease the northern part of
the reclaimed area for hotel purposes; that Act No. 1657 furthermore authorized the City of
Manila to sell the same; 24 that the express statutory authority to lease or sell the northern part
of the reclaimed area cannot be interpreted to mean that the remaining area could not be sold
inasmuch as the purpose of the statute was not merely to confer authority to sell the northern
portion but rather to limit the city's power of disposition thereof, to wit: to prevent disposition of
the northern portion for any purpose other than for a hotel site that the northern and southern
ends of the reclaimed area cannot be considered as extension of the Luneta for they lie beyond
the sides of the original Luneta when extended in the direction of the sea, and that is the reason
why the law authorized the sale of the northern portion for hotel purposes, and, for the same
reason, it is implied that the southern portion could likewise be disposed of.26

TDC argues likewise that there are several items of uncontradicted circumstantial evidence
which may serve as aids in construing the legislative intent and which demonstrate that the
subject property is patrimonial in nature, to wit: (1) Exhibits "J" and "J-1", or Plan No. 30 of the
National Planning Commission showing the Luneta and its vicinity, do not include the subject
property as part of the Luneta Park; (2) Exhibit "K", which is the plan of the subject property
covered by TCT No. 67488 of BPOE, prepared on November 11, 1963, indicates that said
property is not a public park; (3) Exhibit "T", which is a certified copy of Proclamation No. 234
issued on December 15, 1955 is President Magsaysay, and Exhibit "U" which is Proclamation
Order No. 273 issued on October 4, 1967 by President Marcos, do not include the subject
property in the Luneta Park-, (4) Exhibit "W", which is the location plan of the Luneta National
Park under Proclamations Nos. 234 and 273, further confirms that the subject property is not a
public park; and (5) Exhibit "Y", which is a copy of O.C.T. No. 7333 in the name of the United
States of America covering the land now occupied by the America covering the land now
occupied by the American Embassy, the boundaries of which were delineated by the Philippine
Legislature, states that the said land is bounded on the northwest by properties of the Army and
Navy Club (Block No. 321) and the Elks Club (Block No. 321), and this circumstance shows that
even the Philippine Legislature recognized the subject property as private property of the Elks
Club. 27

TDC furthermore contends that the City of Manila is estopped from questioning the validity of
the sale of the subject property that it executed on July 13, 1911 to the Manila Lodge No. 761,
BPOE, for several reasons, namely: (1) the City's petition for the reannotation of Entry No.
4608/T-1635 was predicated on the validity of said sale; (2) when the property was bought by
the petitioner TDC it was not a public plaza or park as testified to by both Pedro Cojuanco,
treasurer of TDC, and the surveyor, Manuel Añoneuvo, according to whom the subject property
was from all appearances private property as it was enclosed by fences; (3) the property in
question was cadastrally surveyed and registered as property of the Elks Club, according to
Manuel Anonuevo; (4) the property was never used as a public park, for, since the issuance of
T.C.T. No. 2165 on July 17, 1911 in the name of the Manila Lodge NO. 761, the latter used it as
private property, and as early as January 16, 1909 the City of Manila had already executed a
deed of sale over the property in favor of the Manila Lodge No. 761; and (5) the City of Manila
has not presented any evidence to show that the subject property has ever been proclaimed or
used as a public park. 28

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TDC, moreover, contends that Sec. 60 of Com. Act No. 141 cannot apply to the subject land, for
Com. Act No. 141 took effect on December 1, 1936 and at that time the subject land was no
longer part of the part of the public domain. 29

TDC also stresses that its rights as a purchaser in good faith cannot be disregarded, for the
mere mention in the certificate of title that the lot it purchased was "part of the Luneta extension"
was not a sufficient warning that tile title to the City of Manila was invalid; and that although the
trial court, in its decision affirmed by the Court of Appeals, found the TDC -to has been an
innocent purchaser for value, the court disregarded the petitioner's rights as such purchaser that
relied on Torrens certificate of title. 30

The Court, continues the petitioner TDC erred in not holding that the latter is entitled to recover
from the City of Manila damages in the amount of P100,000 caused by the City's petition for-
reannotation of its right to repurchase.

DISCUSSION AND RESOLUTION OF FIRST ISSUE

It is a cardinal rule of statutory construction that courts must give effect to the general legislative
intent that can be discovered from or is unraveled by the four corners of the statute, 31 and in
order to discover said intent, the whole statute, and not only a particular provision thereof,
should be considered.32 It is, therefore, necessary to analyze all the provisions of Act No. 1360,
as amended, in order to unravel the legislative intent.

Act No. 1360 which was enacted by the Philippine Commission on June 26, 1905, as amended
by Act No. 1657 enacted on May 18, 1907, authorized the "construction of such rock and timber
bulkheads or sea walls as may be necessary for the making of an extension to the Luneta"
(Sec. 1 [a]), and the placing of the material dredged from the harbor of Manila "inside the
bulkheads constructed to inclose the Luneta extension above referred to" (Sec. 1 [a]). It likewise
provided that the plan of Architect D. H. Burnham as "a general outline for the extension and
improvement of the Luneta in the City of Manila" be adopted; that "the reclamation from the Bay
of Manila of the land included in said projected Luneta extension... is hereby authorized and the
land thereby reclaimed shall be the property of the City of Manila" (Sec. 3); that "the City of
Manila is hereby authorized to set aside a tract of the reclaimed land formed by the Luneta
extension authorized by this Act at the worth end of said tract, not to exceed five hundred feet
by six hundred feet in size, for a hotel site, and to lease the same with the approval of the
Governor General, ... for a term not exceeding ninety-nine years; that "should the Municipal
Board ... deem it advisable it is hereby authorized to advertise for sale to sell said tract of land ...
;" "that said tract shall be used for hotel purposes as herein prescribed, and shall not be devoted
to any other purpose or object whatever;" "that should the grantee x x x fail to maintain on said
tract a first-class hotel x x x then the title to said tract of land sold, conveyed, and transferred,
and shall not be devoted to any other purpose or object whatever;" "that should the grantee x x
x fail to maintain on said tract a first-class hotel x x x then the title to said tract of land sold,
conveyed, and transferred to the grantee shall revert to the City of Manila, and said City of
Manila shall thereupon become entitled to immediate possession of said tract of land" (Sec. 5);
that the construction of the rock and timber bulkheads or sea wall "shall be paid for out of the
funds of the City of Manila, but the area to be reclaimed by said proposed Luneta extension
shall be filled, without cost to the City of Manila, with material dredged from Manila Bay at the
expense of the Insular Government" (Sec. 6); and that "the City of Manila is hereby authorized
to borrow from the Insular Government ... the sum of three hundred thousand pesos, to be
expended in the construction of Luneta extension provided for by paragraph (a) of section one
hereof" (Sec.7).

The grant made by Act No. 1360 of the reclaimed land to the City of Manila is a grant of "public"
nature, the same having been made to a local political subdivision. Such grants have always
been strictly construed against the grantee.33 One compelling reason given for the strict
interpretation of a public grant is that there is in such grant a gratuitous donation of, public
money or resources which results in an unfair advantage to the grantee and for that reason, the
grant should be narrowly restricted in favor of the public.34 This reason for strict interpretation
obtains relative to the aforesaid grant, for, although the City of Manila was to pay for the
construction of such work and timber bulkheads or sea walls as may be necessary for the
making of the Luneta extension, the area to be reclaimed would be filled at the expense of the

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Insular Government and without cost to the City of Manila, with material dredged from Manila
Bay. Hence, the letter of the statute should be narrowed to exclude maters which if included
would defeat the policy of the legislation.

The reclaimed area, an extension to the Luneta, is declared to be property of the City of Manila.
Property, however, is either of public ownership or of private ownership. 35 What kind of
property of the City is the reclaimed land? Is it of public ownership (dominion) or of private
ownership?

We hold that it is of public dominion, intended for public use.

Firstly, if the reclaimed area was granted to the City of Manila as its patrimonial property, the
City could, by virtue of its ownership, dispose of the whole reclaimed area without need
of authorization to do so from the lawmaking body. Thus Article 348 of the Civil Code of Spain
provides that "ownership is the right to enjoy and dispose of a thing without further limitations
than those established by law." 36 The right to dispose (jus disponendi) of one's property is an
attribute of ownership. Act No. 1360, as amended, however, provides by necessary implication,
that the City of Manila could not dispose of the reclaimed area without being authorized by the
lawmaking body. Thus the statute provides that "the City of Manila is hereby authorized to set
aside a tract ... at the north end, for a hotel site, and to lease the same ... should the municipal
board ... deem it advisable, it is hereby authorized ...to sell said tract of land ... " (Sec. 5). If the
reclaimed area were patrimonial property of the City, the latter could dispose of it without need
of the authorization provided by the statute, and the authorization to set aside ... lease ... or sell
... given by the statute would indeed be superfluous. To so construe the statute s to render the
term "authorize," which is repeatedly used by the statute, superfluous would violate the
elementary rule of legal hermeneutics that effect must be given to every word, clause, and
sentence of the statute and that a statute should be so interpreted that no part thereof becomes
inoperative or superfluous. 37 To authorize means to empower, to give a right to act. 38 Act No.
1360 furthermore qualifies the verb it authorize" with the adverb "hereby," which means "by
means of this statue or section," Hence without the authorization expressly given by Act No.
1360, the City of Manila could not lease or sell even the northern portion; much less could it
dispose of the whole reclaimed area. Consequently, the reclaimed area was granted to the City
of Manila, not as its patrimonial property. At most, only the northern portion reserved as a hotel
site could be said to be patrimonial property for, by express statutory provision it could be
disposed of, and the title thereto would revert to the City should the grantee fail to comply with
the terms provided by the statute.

TDC however, contends that the purpose of the authorization provided in Act No. 1360 to lease
or sell was really to limit the City's power of disposition. To sustain such contention is to beg the
question. If the purpose of the law was to limit the City's power of disposition then it is
necessarily assumed that the City had already the power to dispose, for if such power did not
exist, how could it be limited? It was precisely Act 1360 that gave the City the power to dispose
for it was hereby authorized by lease of sale. Hence, the City of Manila had no power to dispose
of the reclaimed land had such power not been granted by Act No. 1360, and the purpose of the
authorization was to empower the city to sell or lease the northern part and not, as TDC claims,
to limit only the power to dispose. Moreover, it is presumed that when the lawmaking body
enacted the statute, it had full knowledge of prior and existing laws and legislation on the
subject of the statute and acted in accordance or with respect thereto.39 If by another previous
law, the City of Manila could already dispose of the reclaimed area, which it could do if such
area were given to it as its patrimonial property, would it then not be a superfluity for Act No.
1360 to authorize the City to dispose of the reclaimed land? Neither has petitioner TDC pointed
to any other law that authorized the City to do so, nor have we come across any. What we do
know is that if the reclaimed land were patrimonial property, there would be no need of giving
special authorization to the City to dispose of it. Said authorization was given because the
reclaimed land was not intended to be patrimonial property of the City of Manila, and without the
express authorization to dispose of the northern portion, the City could not dispose of even that
part.

Secondly, the reclaimed area is an "extension to the Luneta in the City of Manila." 40 If the
reclaimed area is an extension of the Luneta, then it is of the same nature or character as the
old Luneta. Anent this matter, it has been said that a power to extend (or continue an act or
business) cannot authorize a transaction that is totally distinct. 41 It is not disputed that the old

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Luneta is a public park or plaza and it is so considered by Section 859 of the Revised
Ordinances of the City of Manila.42 Hence the "extension to the Luneta" must be also a public
park or plaza and for public use.

TDC, however, contends that the subject property cannot be considered an extension of the old
Luneta because it is outside of the limits of the old Luneta when extended to the sea. This is a
strained interpretation of the term "extension," for an "extension," it has been held, "signifies
enlargement in any direction — in length, breadth, or circumstance." 43

Thirdly, the reclaimed area was formerly a part of the manila Bay. A bay is nothing more than an
inlet of the sea. Pursuant to Article 1 of the Law of Waters of 1866, bays, roadsteads, coast sea,
inlets and shores are parts of the national domain open to public use. These are also property of
public ownership devoted to public use, according to Article 339 of the Civil Code of Spain.

When the shore or part of the bay is reclaimed, it does not lose its character of being property
for public use, according to Government of the Philippine Islands vs. Cabangis.44 The
predecessor of the claimants in this case was the owner of a big tract of land including the lots
in question. From 1896 said land began to wear away due to the action of the waters of Manila
Bay. In 1901 the lots in question became completely submerged in water in ordinary tides. It
remained in such a state until 1912 when the Government undertook the dredging of the Vitas
estuary and dumped the Sand and - silt from estuary on the low lands completely Submerged in
water thereby gradually forming the lots in question. Tomas Cabangis took possession thereof
as soon as they were reclaimed hence, the claimants, his successors in interest, claimed that
the lots belonged to them. The trial court found for the claimants and the Government appealed.
This Court held that when the lots became a part of the shore. As they remained in that
condition until reclaimed by the filling done by the Government, they belonged to the public
domain. for public use .4' Hence, a part of the shore, and for that purpose a part of the bay, did
not lose its character of being for public use after it was reclaimed.

Fourthly, Act 1360, as amended, authorized the lease or sale of the northern portion of the
reclaimed area as a hotel sites. The subject property is not that northern portion authorized to
be leased or sold; the subject property is the southern portion. Hence, applying the rule
of expresio unius est exlusio alterius, the City of Manila was not authorized to sell the subject
property. The application of this principle of statutory construction becomes the more imperative
in the case at bar inasmuch as not only must the public grant of the reclaimed area to the City of
Manila be, as above stated, strictly construed against the City of Manila, but also because a
grant of power to a municipal corporation, as happens in this case where the city is author ized
to lease or sell the northern portion of the Luneta extension, is strictly limited to such as are
expressly or impliedly authorized or necessarily incidental to the objectives of the corporation.

Fifthly, Article 344 of the Civil Code of Spain provides that to property of 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 paid for by such towns or
provinces." A park or plaza, such as the extension to the Luneta, is undoubtedly comprised in
said article.

The petitioners, however, argue that, according to said Article 344, in order that the character of
property for public use may be so attached to a plaza, the latter must be actually constructed or
at least laid out as such, and since the subject property was not yet constructed as a plaza or at
least laid out as a plaza when it was sold by the City, it could not be property for public use. It
should be noted, however, that properties of provinces and towns for public use are governed
by the same principles as properties of the same character belonging to the public domain.46 In
order to be property of public domain an intention to devote it to public use is sufficient. 47 The,
petitioners' contention is refuted by Manresa himself who said, in his comments", on Article 344,
that: ñé+.£ªwph!1

Las plazas, calles y paseos publicos correspondent sin duda aiguna aldominio
publico municipal ), porque se hallan establecidos sobre suelo municipal y estan
destinadas al uso de todos Laurent presenta tratando de las plazas, una
question relativa a si deben conceptuarse como de dominio publico los lugares
vacios libres, que se encuenttan en los Municipios rurales ... Laurent opina

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contra Pioudhon que toda vez que estan al servicio de todos pesos lugares,
deben considerable publicos y de dominion publico. Realmente, pala decidir el
punto, bastara siempre fijarse en el destino real y efectivo de los citados lugares,
y si este destino entraña un uso comun de todos, no hay duda que son de
dominio publico municipal si no patrimoniales.

It is not necessary, therefore, that a plaza be already constructed of- laid out as a plaza in order
that it be considered property for public use. It is sufficient that it be intended to be such In the
case at bar, it has been shown that the intention of the lawmaking body in giving to the City of
Manila the extension to the Luneta was not a grant to it of patrimonial property but a grant for
public use as a plaza.

We have demonstrated ad satietatem that the Luneta extension as intended to be property of


the City of Manila for public use. But, could not said property-later on be converted, as the
petitioners contend, to patrimonial property? It could be. But this Court has already said,
in Ignacio vs. The Director of Lands, 49 the executive and possibly the legislation department
that has the authority and the power to make the declaration that said property, is no longer
required for public use, and until such declaration i made the property must continue to form
paint of the public domain. In the case at bar, there has been no such explicit or unequivocal
declaration It should be noted, furthermore, anent this matter, that courts are undoubted v not.
primarily called upon, and are not in a position, to determine whether any public land is still
needed for the purposes specified in Article 4 of the Law of Waters .50

Having disposed of the petitioners' principal arguments relative to the main issue, we now pass
to the items of circumstantial evidence which TDC claims may serve as aids in construing the
legislative intent in the enactment of Act No. 1360, as amended. It is noteworthy that all these
items of alleged circumstantial evidence are acts far removed in time from the date of the
enactment of Act No.1360 such that they cannot be considered contemporaneous with its
enactment. Moreover, it is not farfetched that this mass of circumstantial evidence might have
been influenced by the antecedent series of invalid acts, to wit: the City's having obtained over
the reclaimed area OCT No. 1909 on January 20,1911; the sale made by the City of the subject
property to Manila Lodge No. 761; and the issuance to the latter of T.C.T. No. 2195. It cannot
gainsaid that if the subsequent acts constituting the circumstantial evidence have been base on,
or at least influenced, by those antecedent invalid acts and Torrens titles S they can hardly be
indicative of the intent of the lawmaking body in enacting Act No. 1360 and its amendatory act.

TDC claims that Exhs. "J," "J-l" "K," "T," "U," "W" and "Y" show that the subject property is not a
park.

Exhibits "J" and "J-1," the "Luneta and vicinity showing proposed development" dated May 14,
1949, were prepared by the National Urban Planning Commission of the Office of the President.
It cannot be reasonably expected that this plan for development of the Luneta should show that
the subject property occupied by the ElksClub is a public park, for it was made 38 years after
the sale to the Elks, and after T.C.T. No. 2195 had been issued to Elks. It is to be assumed that
the Office of the President was cognizant of the Torrens title of BPOE. That the subject property
was not included as a part of the Luneta only indicated that the National Urban Planning
Commission that made the plan knew that the subject property was occupied by Elks and that
Elks had a Torrens title thereto. But this in no way proves that the subject property was
originally intended to be patrimonial property of the City of Manila or that the sale to Elks or that
the Torrens-title of the latter is valid.

Exhibit "K" is the "Plan of land covered by T.C.T . No ----, as prepared for Tarlac Development
Company." It was made on November 11, 1963 by Felipe F. Cruz, private land surveyor. This
surveyor is admittedly a surveyor for TDC. 51 This plan cannot be expected to show that the
subject property is a part of the Luneta Park, for he plan was made to show the lot that "was to
be sold to petitioner." This plan must have also assumed the existence of a valid title to the land
in favor of Elks.

Exhibits "T" and "U" are copies of Presidential Proclamations No. 234 issued on November 15,
1955 and No. 273 issued on October 4, 1967, respectively. The purpose of the said
Proclamations was to reserve certain parcels of land situated in the District of Ermita, City of

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Manila, for park site purposes. Assuming that the subject property is not within the boundaries
of the reservation, this cannot be interpreted to mean that the subject property was not originally
intended to be for public use or that it has ceased to be such. Conversely, had the subject
property been included in the reservation, it would mean, if it really were private property, that
the rights of the owners thereof would be extinguished, for the reservations was "subject to
private rights, if any there be." That the subject property was not included in the reservation only
indicates that the President knew of the existence of the Torrens titles mentioned above. The
failure of the Proclamations to include the subject property in the reservation for park site could
not change the character of the subject property as originally for public use and to form part of
the Luneta Park. What has been said here applies to Exhibits "V", "V-1" to "V-3," and "W" which
also refer to the area and location of the reservation for the Luneta Park.

Exhibit "Y" is a copy of O.C.T. No. 7333 dated November 13, 1935, covering the lot where now
stands the American Embassy [Chancery]. It states that the property is "bounded ... on the
Northwest by properties of Army and Navy Club (Block No.321) and Elks Club (Block No. 321)."
Inasmuch as the said bounderies delineated by the Philippine Legislature in Act No. 4269, the
petitioners contend that the Legislature recognized and conceded the existence of the Elks Club
property as a primate property (the property in question) and not as a public park or plaza. This
argument is non sequitur plain and simple Said Original Certificate of Title cannot be considered
as an incontrovertible declaration that the Elks Club was in truth and in fact the owner of such
boundary lot. Such mention as boundary owner is not a means of acquiring title nor can it
validate a title that is null and void.

TDC finally claims that the City of Manila is estopped from questioning the validity of the sale it
executed on July 13,'1911 conconveying the subject property to the Manila Lodge No. 761,
BPOE. This contention cannot be seriously defended in the light of the doctrine repeatedly
enunciated by this Court that the Government is never estopped by mistakes or errors on the
pan of its agents, and estoppel does not apply to a municipal corporation to validate a contract
that is prohibited by law or its against Republic policy, and the sale of July 13, 1911 executed by
the City of Manila to Manila Lodge was certainly a contract prohibited by law. Moreover,
estoppel cannot be urged even if the City of Manila accepted the benefits of such contract of
sale and the Manila Lodge No. 761 had performed its part of the agreement, for to apply the
doctrine of estoppel against the City of Manila in this case would be tantamount to enabling it to
do indirectly what it could not do directly. 52

The sale of the subject property executed by the City of Manila to the Manila Lodge No. 761,
BPOE, was void and inexistent for lack of subject matter. 53 It suffered from an incurable defect
that could not be ratified either by lapse of time or by express ratification. The Manila Lodge No.
761 therefore acquired no right by virtue of the said sale. Hence to consider now the contract
inexistent as it always has seen, cannot be, as claimed by the Manila Lodge No. 761, an
impairment of the obligations of contracts, for there was it, contemplation of law, no contract at
all.

The inexistence of said sale can be set up against anyone who asserts a right arising from it,
not only against the first vendee, the Manila Lodge No. 761, BPOE, but also against all its
suceessors, including the TDC which are not protected the doctrine of bona fide ii purchaser
without notice, being claimed by the TDC does not apply where there is a total absence of title
in the vendor, and the good faith of the purchaser TDC cannot create title where none exists. 55

The so-called sale of the subject property having been executed, the restoration or restitution of
what has been given is order 56

SECOND ISSUE

The second ground alleged in support of the instant petitions for review on certiorari is that the
Court of Appeals has departed from the accepted and usual course of judicial proceedings as to
call for an exercise of the power of supervision. TDC in L-41012, argues that the respondent
Court did not make its own findings but simply recited those of the lower court and made a
general affirmance, contrary to the requirements of the Constitution; that the respondent Court
made glaring and patent mistakes in recounting even the copied findings, palpably showing lack
of deliberate consideration of the matters involved, as, for example, when said court said that

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Act No. 1657 authorized the City of Manila to set aside a portion of the reclaimed land "formed
by the Luneta Extension of- to lease or sell the same for park purposes;" and that respondent
Court. further more, did not resolve or dispose of any of the assigned errors contrary to the
mandate of the Judiciary Act..57

The Manila Lodge No. 761, in L-41001, likewise alleges, as one of the reasons warranting
review, that the Court of Appeals departed from the accepted and usual course of Judicial
proceedings by simply making a general affirmance of the court a quo findings without bothering
to resolve several vital points mentioned by the BPOE in its assigned errors. 58

COMMENTS ON SECOND ISSUE

We have shown in our discussion of the first issue that the decision of the trial court is fully in
accordance with law. To follows that when such decision was affirmed by the Court of Appeals,
the affirmance was likewise in accordance with law. Hence, no useful purpose will be served in
further discussing the second issue.

CONCLUSION

ACCORDINGLY, the petitions in both G.R. Nos. L-41001 and L-41012 are denied for lack of
merit, and the decision of the Court of Appeals of June 30, 1975, is hereby affirmed, at
petitioner's cost.

G.R. No. L-31606 March 28, 1983

DONATO REYES YAP and MELITONA MARAVILLAS, petitioners,


vs.
HON. EZEKIEL S. GRAGEDA, as Judge of the Court of First Instance of Albay and JOSE
A. RICO, respondents.

Jose P. Oira for petitioners.

Rodolfo A. Madrid for respondents.

GUTIERREZ, JR., J.:

We are asked in this petition to review the amended decision of the respondent court which
declared as absolutely null and void the sale of a residential lot in Guinobatan, Albay to a
Chinese national and ordered its reconveyance to the vendors thirty years after the sale inspite
of the fact that the vendee had been a naturalized Filipino citizen for fifteen years at the time.

We grant the petition. The questioned decision and the order amending it are reversed and set
aside.

The facts are not disputed.

On April 12, 1939, Maximino Rico, for and in his own behalf and that of the minors Maria Rico,
Filomeno Rico, Prisco Rico, and Lourdes' Rico, executed a Deed of Absolute Sale (Annex 'A' to
the complaint) over Lot 339 and a portion of Lot 327 in favor of the petitioner Donato Reyes Yap
who was then a Chinese national. Respondent Jose A. Rico is the eldest son of Maximino Rico,
one of the vendors in Annex 'A'.

Subsequently, the petitioner as vendee caused the registration of the instrument of sale and the
cancellation of Original Certificates of Title Nos. 29332 and 29410 and the consequent issuance
in his favor of Transfer Certificate of Title No. T-2433 covering the two lots subject matter of the
Contract of Sale.

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After the lapse of nearly fifteen years from and after the execution of the deed of absolute sale,
Donato Reyes Yap was admitted as a Filipino citizen and allowed to take his oath of allegiance
to the Republic of the Philippines. He was, thereafter, issued Certificate of Naturalization No. 7,
File No. 19 of the Court of First Instance of Albay.

On December 1, 1967, the petitioner ceded the major portion of Lot No. 327 consisting of 1,078
square meters which he acquired by purchase under the deed of sale in favor of his engineer
son, Felix Yap, who was also a Filipino citizen because of the Filipino citizenship of his mother
and the naturalization of his father Donato Reyes Yap.

Subsequently, Lourdes Rico, aunt and co-heir of respondent Jose A. Rico. sold the remaining
portion of Lot 327 to the petitioner who had his rights thereon duly registered under Act 496.
Petitioner, Donato Reyes Yap, has been in possession of the lots in question since 1939,
openly, publicly, continuously, and adversely in the concept of owner until the present time. The
petitioner has one surviving son by his first marriage to a Filipino wife. He has five children by
his second marriage also to a Filipina and has a total of 23 grandchildren all of whom are
Filipino citizens.

The respondent court considered Section 5, Article XIII of the 1935 Constitution that "no private
agricultural land shall be transferred or assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain in the Philippines" to be an
absolute and unqualified prohibition and, therefore, ruled that a conveyance contrary to it would
not be validated nor its void nature altered by the subsequent naturalization of the vendee.

The dispositive portion of the amended decision reads:

WHEREFORE, in view of all the foregoing, the Contract of Sale embodied in the
'Escritura de Compra Venta' which is attached to the Complaint as Annex 'A', is
hereby declared null and void ab initio and without any legal force and effect.

The action to recover Lot 339 of the Cadastral Survey of Guinobatan, Albay,
covered by Transfer Certificate of Title No. T2433. and Lot 327 covered by the
same Transfer Certificate of Title, is hereby granted to plaintiff, upon payment of
the consideration price of P150.00 and declaring plaintiff as the lawful owner and
entitled to the possession thereof.

Defendant Donato Reyes Yap is hereby ordered to produce his Transfer


Certificate of Title No. T-2433 to the Register of Deeds of Albay, so as to enable
said office to make the due and proper annotations on said title as well as in the
original of the declaration of nullity as herein adjudged. Let Transfer Certificate of
Title issued to plaintiff, concerning said Lots 339 and 327 of the Cadastral Survey
of Guinobatan, Albay.

COSTS AGAINST DEFENDANTS.

The rulings in Vasquez v.Leng Seng Giap et al. (96 Phil. 447) and Sarosa Vda. de Bersabia v.
Cuenco (113 SCRA 547) sustain the petitioner's contentions. We stated in Sarosa Vda de
Bersabia:

There should be no question that the sale of the land in question in 1936 by
Epifania to Ong King Po was inexistent and void from the beginning (Art. 1409
[7], Civil Code) because it was a contract executed against the mandatory
provision of the 1935 Constitution, which is an expression of public policy to
conserve lands for the Filipinos. Said provision reads:

Save in cases of hereditary succession, no private agricultural


land shall be transferred or assigned except to in. individuals,
corporations, or associations, qualified to acquire or hold lands of
the public domain.

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Had this been a suit between Epifania and Ong King Po she could have been
declared entitled to the litigated land on the basis, as claimed, of the ruling in
Philippine Banking Corporation vs. Lui She, reading:

... For another thing, and this is not only cogent but also important.
Article 1416 of the Civil Code provides as an exception to the rule
on pari delicto that when the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law is designed for
the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has sold or delivered. ...

But the factual set-up has changed. The litigated property is now in the hands of
a naturalized Filipino. It is no longer owned by a disqualified vendee.
Respondent, as a naturalized citizen, was constitutionally qualified to own the
subject property. There would be no more public policy to be served in allowing
petitioner Epifania to recover the land as it is already in the hands of a qualified
person. Applying by analogy the ruling of this Court in Vasquez vs. Giap and
Leng Seng Giap & Sons:

... if the ban on aliens from acquiring not only agricultural but also
urban lands, as construed by this Court in the Krivenko case, is to
preserve the nation's lands for future generations of Filipinos, that
aim or purpose would not be thwarted but achieved by making
lawful the acquisition of real estate by aliens who became Filipino
citizens by naturalization.

Only recently, we had occasion to reiterate the above rulings in Vicente Godines v. Fong Pak
Luen, et al. (G.R. No. L-36731, January 27, 1983).

WHEREFORE, the amended judgment of the respondent court is hereby REVERSED and SET
ASIDE. The complaint is DISMISSED.

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