SECOND DIVISION

G.R. No. 180110, May 30, 2016

CAPITOL WIRELESS, INC., Petitioner, v. THE PROVINCIAL TREASURER OF BATANGAS, THE PROVINCIAL

ASSESSOR OF BATANGAS, THE MUNICIPAL TREASURER AND ASSESSOR OF NASUGBU, BATANGAS, Respondents.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the
Court of Appeals' Decision1 dated May 30, 2007 and Resolution2 dated October 8, 2007 in CA-G.R. SP No. 82264, which both
denied the appeal of petitioner against the decision of the Regional Trial Court.

Below are the facts of the case.

Petitioner Capitol Wireless Inc. (Capwire) is a Philippine corporation in the business of providing international
telecommunications services.3 As such provider, Capwire has signed agreements with other local and foreign
telecommunications companies covering an international network of submarine cable systems such as the Asia Pacific Cable
Network System (APCN) (which connects Australia, Thailand, Malaysia, Singapore, Hong Kong, Taiwan, Korea, Japan,
Indonesia and the Philippines); the Brunei-Malaysia-Philippines Cable Network System (BMP-CNS), the Philippines-Italy
(SEA-ME-WE-3 CNS), and the Guam Philippines (GP-CNS) systems.4 The agreements provide for co-ownership and other
rights among the parties over the network.5

Petitioner Capwire claims that it is co-owner only of the so-called "Wet Segment" of the APCN, while the landing stations or
terminals and Segment E of APCN located in Nasugbu, Batangas are allegedly owned by the Philippine Long Distance
Telephone Corporation (PLDT).6 Moreover, it alleges that the Wet Segment is laid in international, and not Philippine, waters.7

Capwire claims that as co-owner, it does not own any particular physical part of the cable system but, consistent with its
financial contributions, it owns the right to use a certain capacity of the said system.8This property right is allegedly reported
in its financial books as "Indefeasible Rights in Cable Systems."9

However, for loan restructuring purposes, Capwire claims that "it was required to register the value of its right," hence, it
engaged an appraiser to "assess the market value of the international submarine cable system and the cost to Capwire."10 On
May 15, 2000, Capwire submitted a Sworn Statement of True Value of Real Properties at the Provincial Treasurer's Office,
Batangas City, Batangas Province, for the Wet Segment of the system, stating:

System Sound Value

APCN P 203,300,000.00
BMP-CNS P 65,662,000.00
SEA-ME-WE-3 CNS P P 7,540,000.00
GP-CNS P1,789,000.00

Capwire claims that it also reported that the system "interconnects at the PLDT Landing Station in Nasugbu, Batangas,"
which is covered by a transfer certificate of title and tax declarations in the name of PLDT.11

As a result, the respondent Provincial Assessor of Batangas (Provincial Assessor) issued the following Assessments of Real
Property (ARP) against Capwire:

ARP Cable System Assessed Value

019-00967 BMP-CNS P 52,529,600.00
019-00968 APCN P 162,640,000.00
019-00969 SEA-ME-WE3-CNS P 6,032,000.00
019-00970 GP-CNS P 1,431,200.00
In essence, the Provincial Assessor had determined that the submarine cable systems described in Capwire's Sworn
Statement of True Value of Real Properties are taxable real property, a determination that was contested by Capwire in an
exchange of letters between the company and the public respondent.12 The reason cited by Capwire is that the cable system
lies outside of Philippine territory, i.e., on international waters.13

On February 7, 2003 and March 4, 2003, Capwire received a Warrant of Levy and a Notice of Auction Sale, respectively, from
the respondent Provincial Treasurer of Batangas (Provincial Treasurer).14

On March 10, 2003, Capwire filed a Petition for Prohibition and Declaration of Nullity of Warrant of Levy, Notice of Auction
Sale and/or Auction Sale with the Regional Trial Court (RTC) of Batangas City.15

Alter the filing of the public respondents' Comment,16 on May 5, 2003, the RTC issued an Order dismissing the petition for
failure of the petitioner Capwire to follow the requisite of payment under protest as well as failure to appeal to the Local
Board of Assessment Appeals (LBAA), as provided for in Sections 206 and 226 of Republic Act (R.A.) No. 7160, or the Local
Government Code.17

Capwire filed a Motion for Reconsideration, but the same was likewise dismissed by the RTC in an Order19dated August 26,
2003. It then filed an appeal to the Court of Appeals.20

On May 30, 2007, the Court of Appeals promulgated its Decision dismissing the appeal filed by Capwire and affirming the
order of the trial court. The dispositive portion of the CA's decision states:

WHEREFORE, premises considered, the assailed Orders dated May 5, 2003 and August 26, 2003 of the Regional Trial Court,
Branch 11 of Batangas City, are AFFIRMED.

SO ORDERED.21

The appellate court held that the trial court correctly dismissed Capwire's petition because of the latter's failure to comply
with the requirements set in Sections 226 and 229 of the Local Government Code, that is, by not availing of remedies before
administrative bodies like the LBAA and the Central Board of Assessment Appeals (CBAA).22 Although Capwire claims that it
saw no need to undergo administrative proceedings because its petition raises purely legal questions, the appellate court did
not share this view and noted that the case raises questions of fact, such as the extent to which parts of the submarine cable
system lie within the territorial jurisdiction of the taxing authorities, the public respondents.23 Further, the CA noted that
Capwire failed to pay the tax assessed against it under protest, another strict requirement under Section 252 of the Local
Government Code.24

Hence, the instant petition for review of Capwire.

Petitioner Capwire asserts that recourse to the Local Board of Assessment Appeals, or payment of the tax under protest, is
inapplicable to the case at bar since there is no question of fact involved, or that the question involved is not the
reasonableness of the amount assessed but, rather, the authority and power of the assessor to impose the tax and of the
treasurer to collect it.25 It contends that there is only a pure question of law since the issue is whether its submarine cable
system, which it claims lies in international waters, is taxable.26 Capwire holds the position that the cable system is not
subject to tax.27
cralawred

Respondents assessors and treasurers of the Province of Batangas ana Municipality of Nasugbu, Batangas disagree with
Capwire and insist that the case presents questions of fact such as the extent and portion of the submarine cable system that
lies within the jurisdiction of the said local governments, as well as the nature of the so-called indefeasible rights as property
of Capwire.28 Such questions are allegedly resolvable only before administrative agencies like the Local Board of Assessment
Appeals.29

The Court confronts the following issues: Is the case cognizable by the administrative agencies and covered by the
requirements in Sections 226 and 229 of the Local Government Code which makes the dismissal of Capwire's petition by the
RTC proper? May submarine communications cables be classified as taxable real property by the local governments?

The petition is denied. No error attended the ruling of the appellate court that the case involves factual questions that should
have been resolved before the appropriate administrative bodies.

In disputes involving real property taxation, the general rule is to require the taxpayer to first avail of administrative
remedies and pay the tax under protest before allowing any resort to a judicial action, except when the assessment itself is
alleged to be illegal or is made without legal authority.30 For example, prior resort to administrative action is required when
among the issues raised is an allegedly erroneous assessment, like when the reasonableness of the amount is challenged,
while direct court action is permitted when only the legality, power, validity or authority of the assessment itself is in
question.31 Stated differently, the general rule of a prerequisite recourse to administrative remedies applies when questions
of fact are raised, but the exception of direct court action is allowed when purely questions of law are involved.32
This Court has previously and rather succinctly discussed the difference between a question of fact and a question of law.
In Cosmos Bottling Corporation v. Nagrama, Jr.,33 it held:

The Court has made numerous dichotomies between questions of law and fact. A reading of these dichotomies shows that
labels attached to law and fact are descriptive rather than definitive. We are not alone in Our difficult task of clearly
distinguishing questions of feet from questions of law. The United States Supreme Court has ruled that: "we [do not| yet
know of any other rule or principle that will unerringly distinguish a tactual finding from a legal conclusion."

In Ramos v. Pepsi-Cola Bottling Co. of the P.I., the Court ruled:

There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of
facts; there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts.

We shall label this the doubt dichotomy.

In Republic v. Sandiganbayan, the Court ruled:

x x x A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a
certain set of facts; or when the issue docs not call for an examination of the probative value of the evidence presented, the
truth or falsehood of facts being admitted. In contrast, a question of fact exists when the doubt or difference arises as to the
truth or falsehood of facts or when the query invites calibration of the whole evidence considering mainly the credibility of
the witnesses, the existence and relevancy of specific surrounding circumstances as well as their relation to each other and
to the whole, and the probability of the situation.

For the sake of brevity, We shall label this the law application and calibration dichotomy.

In contrast, the dynamic legal scholarship in the United States has birthed many commentaries on the question of law and
question of fact dichotomy. As early as 1944, the law was described as growing downward toward "roots of fact" which grew
upward to meet it. In 1950, the late Professor Louis Jaffe saw fact and law as a spectrum, with one shade blending
imperceptibly into the other. Others have defined questions of law as those that deal with the general body of legal
principles; questions of fact deal with "all other phenomena x x x." Kenneth Gulp Davis also weighed in and noted that the
difference between fact and law has been characterized as that between "ought" questions and "is" questions.34

Guided by the quoted pronouncement, the Court sustains the CA's finding that petitioner's case is one replete with questions
of fact instead of pure questions of law, which renders its filing in a judicial forum improper because it is instead cognizable
by local administrative bodies like the Board of Assessment Appeals, which are the proper venues for trying these factual
issues. Verily, what is alleged by Capwire in its petition as "the crux of the controversy," that is, "whether or not an
indefeasible right over a submarine cable system that lies in international waters can be subject to real property tax in the
Philippines,"35 is not the genuine issue that the case presents - as it is already obvious and fundamental that real property
that lies outside of Philippine territorial jurisdiction cannot be subjected to its domestic and sovereign power of real property
taxation - but, rather, such factual issues as the extent and status of Capwire's ownership of the system, the actual length of
the cable/s that lie in Philippine territory, and the corresponding assessment and taxes due on the same, because the public
respondents imposed and collected the assailed real property tax on the finding that at least a portion or some portions of
the submarine cable system that Capwire owns or co-owns lies inside Philippine territory. Capwire's disagreement with such
findings of the administrative bodies presents little to no legal question that only the courts may directly resolve.

Instead, Capwire argues and makes claims on mere assumptions of certain facts as if they have been already admitted or
established, when they have not, since no evidence of such have yet been presented in the proper agencies and even in the
current petition. As such, it remains unsettled whether Capwire is a mere co-owner, not full owner, of the subject submarine
cable and, if the former, as to what extent; whether all or certain portions of the cable are indeed submerged in water; and
whether the waters wherein the cable/s is/are laid are entirely outside of Philippine territorial or inland waters, i.e., in
international waters. More simply, Capwire argues based on mere legal conclusions, culminating on its claim of illegality of
respondents' acts, but the conclusions are yet unsupported by facts that should have been threshed out quasi-judicially
before the administrative agencies. It has been held that "a bare characterization in a petition of unlawfulness, is merely a
legal conclusion and a wish of the pleader, and such a legal conclusion unsubstantiated by facts which could give it life, has
no standing in any court where issues must be presented and determined by facts in ordinary and concise
language."36 Therefore, Capwire's resort to judicial action, premised on its legal conclusion that its cables (the equipment
being taxed) lie entirely on international waters, without first administratively substantiating such a factual premise, is
improper and was rightly denied. Its proposition that the cables lie entirely beyond Philippine territory, and therefore, outside
of Philippine sovereignty, is a fact that is not subject to judicial notice since, on the contrary, and as will be explained later, it
is in fact certain that portions of the cable would definitely lie within Philippine waters. Jurisprudence on the Local
Government Code is clear that facts such as these must be threshed out administratively, as the courts in these types of
cases step in at the first instance only when pure questions of law are involved.

Nonetheless, We proceed to decide on whether submarine wires or cables used for communications may be taxed like other
real estate.
We hold in the affirmative.

Submarine or undersea communications cables are akin to electric transmission lines which this Court has recently declared
in  Manila Electric Company v. City Assessor and City Treasurer of Lucena City,37 as "no longer exempted from real property
tax" and may qualify as "machinery" subject to real property tax under the Local Government Code. To the extent that the
equipment's location is determinable to be within the taxing authority's jurisdiction, the Court sees no reason to distinguish
between submarine cables used for communications and aerial or underground wires or lines used for electric transmission,
so that both pieces of property do not merit a different treatment in the aspect of real property taxation. Both electric lines
and communications cables, in the strictest sense, are not directly adhered to the soil but pass through posts, relays or
landing stations, but both may be classified under the term "machinery" as real property under Article 415(5)38 of the Civil
Code for the simple reason that such pieces of equipment serve the owner's business or tend to meet the needs of his
industry or works that are on real estate. Even objects in or on a body of water may be classified as such, as "waters" is
classified as an immovable under Article 415(8)39 of the Code. A classic example is a boathouse which, by its nature, is a
vessel and, therefore, a personal property but, if it is tied to the shore and used as a residence, and since it floats on waters
which is immovable, is considered real property.40 Besides, the Court has already held that "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."41

Thus, absent any showing from Capwire of any express grant of an exemption for its lines and cables from real property
taxation, then this interpretation applies and Capwire's submarine cable may be held subject to real property tax.

Having determined that Capwire is liable, and public respondents have the right to impose a real property tax on its
submarine cable, the issue that is unresolved is how much of such cable is taxable based on the extent of Capwire's
ownership or co-ownership of it and the length that is laid within respondents' taxing jurisdiction. The matter, however,
requires a factual determination that is best performed by the Local and Central Boards of Assessment Appeals, a remedy
which the petitioner did not avail of.

At any rate, given the importance of the issue, it is proper to lay down the other legal bases for the local taxing authorities'
power to tax portions of the submarine cables of petitioner. It is not in dispute that the submarine cable system's Landing
Station in Nasugbu, Batangas is owned by PLDT and not by Capwire. Obviously, Capwire is not liable for the real property tax
on this Landing Station. Nonetheless, Capwire admits that it co-owns the submarine cable system that is subject of the tax
assessed and being collected by public respondents. As the Court takes judicial notice that Nasugbu is a coastal town and the
surrounding sea falls within what the United Nations Convention on the Law of the Sea (UNCLOS) would define as the
country's territorial sea (to the extent of 12 nautical miles outward from the nearest baseline, under Part II, Sections 1 and
2) over which the country has sovereignty, including the seabed and subsoil, it follows that indeed a portion of the submarine
cable system lies within Philippine territory and thus falls within the jurisdiction of the said local taxing authorities.42 It easily
belies Capwire's contention that the cable system is entirely in international waters. And even if such portion does not lie in
the 12-nautical-mile vicinity of the territorial sea but further inward, in Prof. Magallona v. Hon. Ermita, et al.43 this Court held
that "whether referred to as Philippine 'internal waters' under Article I of the Constitution44 or as 'archipelagic waters' under
UNCLOS Part III, Article 49(1, 2, 4),45 the Philippines exercises sovereignty over the body of water lying landward of (its)
baselines, including the air space over it and the submarine areas underneath." Further, under Part VI, Article 7946 of the
UNCLOS, the Philippines clearly has jurisdiction with respect to cables laid in its territory that are utilized in support of other
installations and structures under its jurisdiction.

And as far as local government units are concerned, the areas described above are to be considered subsumed under the
term "municipal waters" which, under the Local Government Code, includes "not only streams, lakes, and tidal waters within
the municipality, not being the subject of private ownership and not comprised within the national parks, public forest,
timber lands, forest reserves or fishery reserves, but also marine waters included between two lines drawn perpendicularly to
the general coastline from points where the boundary lines of the municipality or city touch the sea at low tide and a third
line parallel with the general coastline and fifteen (15) kilometers from it."47 Although the term "municipal waters" appears in
the Code in the context of the grant of quarrying and fisheries privileges for a fee by local governments,48 its inclusion in the
Code's Book II which covers local taxation means that it may also apply as guide in determining the territorial extent of the
local authorities' power to levy real property taxation.

Thus, the jurisdiction or authority over such part of the subject submarine cable system lying within Philippine jurisdiction
includes the authority to tax the same, for taxation is one of the three basic and necessary attributes of sovereignty,49 and
such authority has been delegated by the national legislature to the local governments with respect to real property
taxation.50

As earlier stated, a way for Capwire to claim that its cable system is not covered by such authority is by showing a domestic
enactment or even contract, or an international agreement or treaty exempting the same from real property taxation. It
failed to do so, however, despite the fact that the burden of proving exemption from local taxation is upon whom the subject
real property is declared.51 Under the Local Government Code, every person by or for whom real property is declared, who
shall claim tax exemption for such property from real property taxation "shall file with the provincial, city or municipal
assessor within thirty (30) days from the date of the declaration of real property sufficient documentary evidence in support
of such claim."52 Capwire omitted to do so. And even under Capwire's legislative franchise, RA 4387, which amended RA
2037, where it may be derived that there was a grant of real property tax exemption for properties that are part of its
franchise, or directly meet the needs of its business,53 such had been expressly withdrawn by the Local Government Code,
which took effect on January 1, 1992, Sections 193 and 234 of which provide:54
Section 193. Withdrawal of Tax Exemption Privileges. - Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938,
nonstock and nonprofit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code.

xxxx

Section 234. Exemptions from Real Property Tax. - The following arc exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use
thereof has been granted, for consideration of otherwise, to a taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious, charitable or
educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-
owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of
electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and

(c) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to, or presently
enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations
arc hereby withdrawn upon the effectivity of this Code.55

Such express withdrawal had been previously held effective upon exemptions bestowed by legislative franchises granted
prior to the effectivity of the Local Government Code.56 Capwire fails to allege or provide any other privilege or exemption
that were granted to it by the legislature after the enactment of the Local Government Code. Therefore, the presumption
stays that it enjoys no such privilege or exemption. Tax exemptions are strictly construed against the taxpayer because
taxes are considered the lifeblood of the nation.57

WHEREFORE, the petition is DENIED. The Court of Appeals' Decision dated May 30, 2007 and Resolution dated October 8,
2007 are AFFIRMED.

SERGS PRODUCTS, INC., and SERGIO T.

GOQUIOLAY, Petitioners, vs. PCI LEASING AND FINANCE,
INC., Respondent.

DECISION

PANGANIBAN, J.:  chanrobles virtual law library

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  chanrobles virtual law library

Before us is a Petition for Review on Certiorari assailing the January 6,
1999 Decision1 of the Court of Appeals (CA)[2 in CA-GR SP No. 47332
and its February 26, 1999 Resolution[3 denying reconsideration. The
decretal portion of the CA Decision reads as follows:  chanrobles virtual law library

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 chanrobles virtual law library

In its February 18, 1998 Order,5 the Regional Trial Court (RTC) of

Quezon City (Branch 218)[6 issued a Writ of Seizure.[7 The March 18,
1998 Resolution[8 denied petitioners Motion for Special Protective
Order, praying that the deputy sheriff be enjoined from seizing
immobilized or other real properties in (petitioners) factory in Cainta,
Rizal and to return to their original place whatever immobilized
machineries or equipments he may have removed.[9

The Facts  chanrobles virtual law library

The undisputed facts are summarized by the Court of Appeals as

follows:10  chanrobles virtual law library

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.  chanrobles virtual law library

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.  chanrobles virtual law library

On March 24, 1998, in implementation of said writ, the sheriff

proceeded to petitioners factory, seized one machinery with [the]
word that he [would] return for the other machineries.  chanrobles virtual law library

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. 
chanrobles virtual law library
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.  chanrobles virtual law library

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.  chanrobles virtual law library

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. 
chanrobles virtual law library

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

Ruling of the Court of Appeals  chanrobles virtual law library

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:  chanrobles virtual law library

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.  chanrobles virtual law library

Hence, this Petition.11

The Issues  chanrobles virtual law library

In their Memorandum, petitioners submit the following issues for our
consideration:  chanrobles virtual law library

A. Whether or not the machineries purchased and imported by SERGS

became real property by virtue of immobilization.  chanrobles virtual law library

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

lease.12  chanrobles virtual law library

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

The Courts Ruling  chanrobles virtual law library

The Petition is not meritorious.

Preliminary Matter:Procedural Questions chanrobles virtual law library

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.  chanrobles virtual law library

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  chanrobles virtual law library

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 chanrobles virtual law library

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.  chanrobles virtual law library

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

On the other hand, Article 415 of the Civil Code enumerates

immovable or real property as follows:  chanrobles virtual law library

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x  chanrobles virtual law library

(5) Machinery, receptacles, instruments or implements intended by

the owner of the tenement for an industry or works which may be
carried on in a building or on a piece of land, and which tend directly
to meet the needs of the said industry or works;

x x x....................................x x x....................................x x x  chanrobles virtual law library

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  chanrobles virtual law library

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. 
virtual law library
chanrobles

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

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:  chanrobles virtual law library

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.  chanrobles virtual law library

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.

Wearever Textile Mills[20] also held that the machinery used in a
factory and essential to the industry, as in the present case, was a
proper subject of a writ of replevin because it was treated as personal
property in a contract. Pertinent portions of the Courts ruling are
reproduced hereunder:  chanrobles virtual law library

x x x. If a house of strong materials, like what was involved in the

above Tumalad case, may be considered as personal property for
purposes of executing a chattel mortgage thereon as long as the
parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery,
which is movable in its nature and becomes immobilized only by
destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the
existence of the chattel mortgage.  chanrobles virtual law library

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  chanrobles virtual law library

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.  chanrobles virtual law library

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.  chanrobles virtual law library

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.[23In any event, there is no showing that any
specific third party would be adversely affected.
 Validity of the Lease Agreement  chanrobles virtual law library

In their Memorandum, petitioners contend that the Agreement is a

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

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.  chanrobles virtual law library

Indeed, in La Tondea Distillers v. CA,27 the Court explained that the

policy under Rule 60 was that questions involving title to the subject
property questions which petitioners are now raising -- should be
determined in the trial. In that case, the Court noted that the remedy
of defendants under Rule 60 was either to post a counter-bond or to
question the sufficiency of the plaintiffs bond. They were not allowed,
however, to invoke the title to the subject property. The Court ruled: 
library
chanrobles virtual law

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 
chanrobles virtual law library

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  chanrobles virtual law library

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.  chanrobles virtual law library

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: chanrobles virtual law library

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  chanrobles virtual law library

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.  chanrobles virtual law library

Petitioners arguments do not preclude the implementation of the Writ.

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

SEC. 5. Return of property. -- If the adverse party objects to the

sufficiency of the applicants bond, or of the surety or sureties thereon,
he cannot immediately require the return of the property, but if he
does not so object, he may, at any time before the delivery of the
property to the applicant, require the return thereof, by filing with the
court where the action is pending a bond executed to the applicant, in
double the value of the property as stated in the applicants affidavit
for the delivery thereof to the applicant, if such delivery be adjudged,
and for the payment of such sum to him as may be recovered against
the adverse party, and by serving a copy bond on the applicant.  chanrobles virtual law library
WHEREFORE, the Petition is DENIED and the assailed Decision of the
Court of Appeals AFFIRMED. Costs against petitioners.  chanrobles virtual law library

SO ORDERED.  chanrobles virtual law library

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

G.R. No. 199810

BEVERLY ANNE C. YAP, Petitioner 

vs
REPUBLIC OF THE PHILIPPINES, represented by THE REGIONAL EXECUTIVE DIRECTOR, DEPARTMENT
OF ENVIRONMENT AND NATURAL RESOURCES (DENR), Respondent

DECISION

REYES, J.:

This is a petition for review on certiorari  seeking to annul and set aside the Decision  dated June 30, 2011 and,
1 2

Resolution  dated November 14, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 01753-MIN which reversed
3

and set aside the Decision  dated October 24, 2008 of the Regional Trial Court (RTC) of Davao City, Branch 16, in
4

Civil Case No. 29,705-03, dismissing the complaint for reversion of a parcel of land.

Antecedent Facts

Consuelo Vda. de dela Cruz applied for free patent over a parcel of land constituting about 1,292 square meters,
designated as Lot No. 9087, Cad. 102, located in Daliao, Toril, Davao City. As she could not wait for the approval of
her application, she executed a Deed of Waiver/Quitclaim  on November 25, 1981 in favor of Rollie Pagarigan
5

(Pagarigan). 6

Pagarigan filed his own Free Patent Application (FPA)  and subsequently, Free Patent No. (XI-1)5133 was issued to
7

him over said lot. Original Certificate of Title (OCT) No. P-11182  was thereby issued in his name on November 25,
8

1982.9

On September 5, 1989, Pagarigan mortgaged the lot to Banco Davao-Davao City Development Bank (the Bank).
For failure to pay his loan, the property was foreclosed, and was eventually sold to the Bank at public auction on
October 26, 1990. These proceedings were duly annotated in the title. 10

However, the land covered by OCT No. P-11182 was allegedly occupied by Teodoro Valparaiso and Pedro Malalis
(protestants). On October 24, 1990, the protestants filed a formal protest with the Bureau of Lands (Bureau). They
prayed for the recall of the free patent issued to Pagarigan, and for the institution of a corresponding action for
reversion considering that they have been in adverse, exclusive, and continuous occupation of the subject property
since 1945, cultivating it, and planting various crops, nipa palms and coconut trees on said land. 11

On January 2 7, 1992, the protestants caused the annotation of a notice of lis pendens in OCT No. P-11182.
Assigned as Entry No. 647677, said notice of lis pendens pertained to Civil Case No. 20-435-9  instituted by the 12

protestants against Pagarigan, Menardo Metran and Rene Galope to enjoin them from demolishing the former's
houses pending the determination of the Department of Environment and Natural Resources (DENR) on the
propriety of cancelling the title obtained by Pagarigan. 13

The administrative protest of the protestants reached the Office of the Secretary of the DENR. On May 15, 1995,
Secretary Angel C. Alcala rendered a Decision  against Pagarigan, the salient portion and the fallo of which read as
14

follows:
From the Investigation Reports submitted by both the Department's Regional Office involved and this Office as well
as from the other pieces of evidence available, both documentary and testimonial, it is obvious that actual fraud and
bad faith have been committed by [Pagarigan] in his subject public land application which led to the issuance of the
title. The following facts and circumstances are uncontroverted, to wit; that the [protestants] have been in actual
occupation of the land in dispute since 1945 and have introduced improvements thereon; that [Pagarigan] never
occupied the same nor his predecessor-in-interest, Consuelo dela Cruz, that [Pagarigan] misrepresented in his
application that he was the actual occupant and that there were no others who occupied the lot in dispute; that the
title was issued sans an actual ground survey; and that [Pagarigan] did not post a copy of his Notice for [FPA] on
both the Bulletin Boards of Daliao and Lizardo as required by law.

xxxx

WHEREFORE, the instant appeal is hereby given DUE COURSE and the subject Decision appealed from SET
ASIDE and REVOKED. Consequently, the Regional Executive Director (RED), DENR Region XI, Davao City, is
hereby ordered to institute an action for cancellation of Original Certificate of Title (OCT) No. V-11182 of the
Registry of Deeds of Davao City covering Lot No. 9087, Cad-102, and for the reversion of the property covered
thereby to the government.

After the cancellation of the subject title and the land already reverted to the government, Regional. Executive.
Director (RED) concerned shall then order the ground survey of the land in dispute and give due course to the
public land applications of the [protestants].

so ORDERED. 15

Meanwhile, on November 5, 1992, without consolidating title over the land in its name, the Bank sold the subject
property to herein petitioner Beverly Anne C. Yap (Yap) and Rosanna F. Villamor (Villamor). Upon the execution of
the deed of sale, OCT No. P-11182 was delivered to them and Transfer Certificate of Title No. 366983  was 16

eventually issued in the name ofYap and Villamor on December 16, 2003. 17

On February 28, 1997, the Department of Transportation and Communication filed a complaint for expropriation of a
portion of the subject lot before the RTC of Davao City, Branch 13, docketed as Civil Case No. 25,084-97. 18

On February 19, 2003, the RTC Branch 13 rendered its Decision.  Confronted with the issue of who among the
19

claimants shall be entitled to just compensation, the trial court ruled in this wise:

WHEREFORE, it is the judgment of this court that[:]

1. The plaintiff is entitled to expropriate the land subject of this case for the purpose of road right of way to the
Davao Fish Port, which is for public use;

2. The just compensation for the land is ₱278,[000].00;

3. [Villamor and Yap] are the ones entitled to the payment of just compensation for the property subject of this case,
and plaintiff is directed to pay the said amount to the said defendants;

4. The Commissioner's Fee of ₱3,850.00 shall be paid by plaintiff to Asian Appraisal Company, Inc., and may be
deducted from the just compensation for the land being expropriated.

This case is now considered closed.

SO ORDERED. 20

Ruling of the RTC

On May 22, 2003, the respondent, through the Office of the Solicitor General (OSG), filed the Complaint for
Cancellation of Patent, Nullification of Title and Reversion with the RTC of Davao City.  The case was raffled to
21

Branch 16 thereof.

On October 24, 2008, the RTC Branch 16 rendered a Decision  dismissing the respondent's complaint. The court
22

ruled that since the subject land has already been sold to third persons, it must be shown that the latter were part of
the fraud and/or misrepresentation committed by the original grantee, or at least were aware of it. However, since
the RTC Branch 13 already declared in its decision in Civil Case No. 25,084-97 that Yap and Villamor were
purchasers in good faith and for value of the land in question, RTC Branch 16 maintained that, as a court of co-
equal jurisdiction, it is bound by the said finding under the principle of conclusiveness of judgment. Moreover, the
fact that it took the respondent 26 years, from the issuance of the free patent before it instituted an action for
reversion, militates against its cause. Thefallo of the trial court's decision reads:

IN VIEW of the foregoing, judgment 1s hereby rendered dismissing the instant complaint.

Defendants' [sic] [Bank] and Pagarigan compulsory counterclaim[ s] are likewise dismissed in the absence of proof
that there was malice or bad faith on [the respondent's] part when it sought the reversion of the property.

The dismissal of the action necessarily carries with it the dismissal of defendant's [sic] [Bank] cross-claim against
[Pagarigan].

SO ORD[E]RED. 23

Ruling of the CA

The respondent elevated its case to the CA. On June 30, 2011 , the CA rendered the assailed Decision  reversing
24

that of the trial court. In so ruling, the CA adopted the findings of the DENR as to the commission of fraud by
Pagarigan in his FPA, and held that neither the Bank nor Yap and Villamor were innocent purchasers for value.
Further, the CA maintained that the decision of the RTC Branch 13 did not constitute res judicata insofar as the
same has not yet attained finality. The fallo of the CA decision reads:

WHEREFORE, We GRANT the appeal and REVERSE the decision of the [RTC]. We declare Free Patent No. (XI-
1)5133 and [OCT] No. P-11182 issued in the name of [Pagarigan], and [TCT] No. T-366983 in the name of [Yap]
and [Villamar], and all subsequent [TCTs] derived therefrom, as null and void. We order the reversion of Lot 9087,
Cad. 102, [l]ocated in Daliao, ToriI, Davao City, to the mass of public domain.

SO ORDERED. 25

The Bank,  Yap,  and Villamor  sought reconsideration of the CA decision, but their motion was evenly denied in
26 27 28

the Resolution  dated November 14, 2011.

29

Hence this petition filed solely by Yap.

Yap propounds the following assignments of errors:

I. Whether or not the decision of the CA is not in accord with the applicable decision enunciated by the Court in the
case of Spouses Macadangdang v. Spouses Martinez; 30

II. Whether or not the CA departed from the rule declared by the Court in the case of Saad Agro-Industries, Inc. v.
Republic of the Philippines,  that in reversion proceedings the same must be proved by clear and convincing
31

evidence, mere preponderance of evidence not even being adequate; and

III. Whether or not the decision of the CA runs counter to the rule on res judicata.
32
1âwphi1

Yap asserts that she and Villamor purchased the subject property in good faith and for value. She maintains that on
its face, nothing appears in OCT No. P-11182 indicating that some other person has a right to, or interest over the
property covered thereby. As such, there was no obligation on their part to look beyond the certificate of title to
determine the legal condition of the concerned property.

Granting that a notice of lis pendens was annotated in OCT No. P- 11182 filed before the Register of Deeds of
Davao City, the same, however, was not offered in evidence and should not have been considered. Accordingly, the
presumption that Yap and Villamor were purchasers in good faith and for value was not effectively rebutted.

Moreover, in the case for expropriation heard before the RTC Branch 13, they were already adjudged as innocent
purchasers for value. Under the principle of res judicata, it was but proper for RTC Branch 16 to uphold said
pronouncement. Accordingly, it was an error on the part of the CA to reverse the same.

Invoking the Court's ruling in Saad Agro-Jndustries,  Yap asserts that the respondent failed to discharge the burden
33

of proving the alleged fraud and misrepresentation which attended Pagarigan's FPA.

Ruling of the Court

Yap's contentions are untenable. The decision of the CA does not run counter to the rule on conclusiveness of
judgment.

Yap asserts that the CA erred in setting aside the decision of RTC Branch 16 in violation of the rule on res
judicata. It was a finding already made by the RTC Branch 13, a co-equal branch that the land is now in the hands
of innocent purchasers for value. Thus, the respondent's complaint for reversion must be dismissed on the basis of
the principle of conclusiveness of judgment.

The Court does not agree.

In a catena of cases, the Court discussed the doctrine of conclusiveness of judgment, as a concept of res
judicata as follows:

The second concept - conclusiveness of judgment - states that a fact or question which was in issue in a former suit
and was there judicially passed upon and determined by a court of competent jurisdiction, is conclusively settled by
the judgment therein as far as the parties to that action and persons in privity with them are concerned and cannot
be again litigated in any future action between such parties or their privies, in the same court or any other court of
concurrent jurisdiction on either the same or different cause of action, while the judgment remains unreversed by
proper authority. It has been held that in order that a judgment in one action can be conclusive as to a particular
matter in another action between the same parties or their privies, it is essential that the issue be identical. If a
particular point or question is in issue in the second action, and the judgment will depend on the determination of
that particular point or question, a former judgment between the same parties or their privies will be final and
conclusive in the second if that same point or question was in issue and adjudicated in the first suit x x x. Identity of
cause of action is not required but merely identity of issue.

Justice Feliciano, in Smith Bell & Company (Phils.), Inc. v. Court of Appeals x x x, reiterated Lopez v. Reyes x x x in
regard to the distinction between bar by former judgment which bars the prosecution of a second action upon the
same claim, demand, or cause of action, and conclusiveness of judgment which bars the relitigation of particular
facts or issues in another litigation between the same parties on a different claim or cause of action.

The general rule precluding the re-litigation of material facts or questions which were in issue and adjudicated in
former action are commonly applied to all matters essentially connected with the subject matter of the litigation.
Thus, it extends to questions necessarily implied in the final judgment, although no specific finding may have been
made in reference thereto and although such matters were directly referred to in the pleadings and were not actually
or formally presented. Under this rule, if the record of the former trial shows that the judgment could not have been
rendered without deciding the particular matter, it will be considered as having settled that matter as to all future
actions between the parties and if a judgment necessarily presupposes certain premises, they are as conclusive as
the judgment itself.3  (Emphasis and underlining ours, and emphasis in the original deleted)
4

In Nabus v. CA,  the Court stressed that when a party seeks relief upon a cause of action different from the one
35

asserted by him in a previous one, the judgment in the former suit is conclusive only as to such points or
questions as were actually in issue or adjudicated therein.  However, in Calalang v. Register of Deeds of
36

Quezon City,  the Court clarified that the bar on re-litigation of a matter or question extends to those
37

questions necessarily implied in the final judgment, although no specific finding may have been made in reference
thereto, and although those matters were directly referred to in the pleadings and were not actually or formally
presented.  "If the record of the former trial shows that the judgment could not have been rendered without
38

deciding a particular matter, it will be considered as having settled that matter as to all future actions
between the parties."  Verily, as developed, these principles now embody paragraph (c) of Section 47, Rule 39 of
39

the Rules of Court, which reads:

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been
adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or which was
actually and necessarily included therein or necessary thereto.

Guided by the foregoing, the Court finds that RTC Branch 16 falsely appreciated the decision of RTC Branch 13.
The Court quotes the pertinent portions of the Decision dated February 19, 2003 of the RTC Branch 13:

THE COURT'S RULING:

CLAIMS OF [THE PROTESTANTS]:

[The protestants] claim that the decision of the Secretary of the DENR in effect conferred ownership of the land to
them, so that they should be paid the compensation and not defendants Yap and Villamar. In fact, defendant Malalis
had declared the property for taxation purposes, and had paid the taxes thereon from the time they had occupied
the land.

[The protestants] alleged that the land subject of this case is still in the name of [Pagarigan], and OCT No. P-11182
has not yet been cancelled and transferred in the names of defendants Yap and Villamar, who never even set foot
on the land, nor declared the land for taxation purposes. The alleged sale of [the Bank] of the land to Yap and
Villamor did not confer ownership of the land to them, because the land had not been delivered to them by the
owner, and they have not exercised ownership over the same. In short their claim of ownership is based on a
technicality, and no amount of technicality may serve as a solid foundation for the enjoyment of the fruits of fraud,
[the protestants] alleged.

CLAIMS OF DEFENDANTS YAP AND VILLAMOR:

Defendants Yap and Villamar for their part, dispute the claim of [the protestants]. They alleged that they were buyers
in good faith of the property, and in fact, the owner's copy of OCT No. P-11182 has been delivered to them by [the
Bank]. They alleged that the title which was issued to [Pagarigan] cannot be attacked collaterally as in this case.
There should be a case filed in court to annul the title if indeed the same was fraudulently issued. For as long as the
title is not yet declared null and void, the same remains valid, and whoever succeeds to the same is the owner of the
land, they alleged. Moreover, since they are purchasers in good faith, and for value, they have a right to be
protected, defendants Yap and Villamar alleged.

THE COURT'S RULING:

The Decision of the Secretary of the DENR, in the case cited by [the protestants] cannot justify the court to declare
that the title issued to [Pagarigan] is void, and that [the protestants] are the owners of the property in question.

As correctly stated by defendants Yap and Villamar in their Memorandum, a Torrens title cannot be collaterally
attacked. The title must be attacked directly in a case filed in court specifically to annul the said title. The alleged
fraud in the issuance of OCT No. P-11182 therefore cannot be raised in this case, and the court will not consider the
decision of the DENR Secretary to say that the title of [Pagarigan] is void, and that the [protestants] are the owners
of the land subject of this case.

Moreover, a Torrens title has the presumption of having been validly issued, and the defendants Yap and Villamor
are not expected to look beyond the title to determine its validity. They are purchasers in good faith and for value,
and are therefore entitled to the protection of the court.
Contrary to the allegation of [the protestants], there was in fact a valid delivery of the land to defendants Yap and
Villamor. The execution of a Deed of Sale in their favor by defendant [Bank], and delivery to them of the owner's
copy of OCT No. P-11182 is a constructive delivery of the property sold to them.

Although defendants Yap and Villamar had not taken actual physical possession of the property covered by OCT
No. P-11182, the same did not divest them of the ownership of the land covered by the said title. The occupation
and possession of [the protestants] of the land in question did not ripen into ownership because their occupation
(even in the concept of an owner) cannot defeat a Torrens title. OCT No. P-11182 is presumed to be valid until
declared void by the courts. 40

The foregoing shows that the question of whether or not Yap and Villamar are innocent purchasers was not an
actual issue of fact in the case before the RTC Branch 13, and which called for said court's adjudication. "An issue
of fact is a point supported by one party's evidence and controverted by another's."  That Yap and Villamor were
41

buyers in good faith is merely an allegation which was not proven in court. The RTC Branch 13 did not actually
make any clear pronouncement on the matter.

The expropriation proceeding was filed on February 28, 1997. The protestants caused the annotation of a notice
of lis pendens on the original copy of OCT No. P-11182 on January 27, 1992. Accordingly, if indeed the question on
whether Yap and Villamar are buyers in good faith was an actual issue of fact before the expropriation proc;eeding,
the protestants could have easily controverted such claim by the mere expedience of presenting a certified original
copy of OCT No. P-11182. Forsooth, the notice at the back of a Torrens title serves as notice to the whole world of
the pending controversy over the land so registered. 42

The RTC Branch 13 basically anchored its judgment on the indefeasibility of a Torrens title. Pursuant to the well-
settled rule that a certificate of title cannot be subject to collateral attack and can only be altered, modified, or
cancelled in a direct proceeding in accordance with law,  it was clear that the trial court was without jurisdiction in an
43

expropriation proceeding, to rule whether the title issued to Pagarigan is void - notwithstanding the decision of the
DENR Secretary. Thereupon, since the position of the protestants rests mainly on the validity of Pagarigan's title
which cannot be considered in the action, RTC Branch 13, in effect, posited that there was no legal way for it to rule
otherwise.

Accordingly, and as similarly advanced by the OSG in its Comment, the RTC Branch 13's pronouncement that Yap
and Villamor were buyers in good faith was, at best, a mere obiter dictum. Contrary to Yap's claim, there was
nothing final or conclusive with the decision of the RTC Branch 13 which the CA should be bound.

Neither the Bank, nor Yap and Villamor were purchasers in good faith and for value. Reversion of subject lot is in
order.

"[F]actual findings of administrative or quasi-judicial bodies, which are deemed to have acquired expertise in matters
within their respective jurisdictions, are generally accorded not only respect but even finality, and bind the Court
when supported by substantial evidence." 44

The fact that Pagarigan fraudulently secured his free patent was duly established by the investigation conducted by
the DENR through Senior

Special Investigator Domingo Mendez. The decision of the DENR is very clear in this regard, thus:

From the Investigation Reports submitted by both the Department's Regional Office involved and this Office as well
as from the other pieces of evidence available, both documentary and testimonial, it is obvious that actual fraud and
bad faith have been committed by [Pagarigan] in his subject public land application which led to the issuance of the
title. The following facts and circumstances are uncontroverted, to wit; that the [protestants] have been in actual
occupation of the land in di spute since 1945 and have introduced improvements thereon; that [Pagarigan] never
occupied the same nor his predecessor-in-interest, Consuelo de la Cruz; that [Pagarigan] misrepresented in his
application that he was the actual occupant and that there were no others who occupied the lot in dispute; that the
title was issued sans an actual ground survey; and that [Pagarigan] did not post a copy of his Notice for [FPA] on
both the Bulletin Boards of Daliao and Lizardo as required by law.  (Emphasis ours)
45
Thus, the DENR ordered for the institution of the present action seeking the cancellation of the certificate of title
issued in the name of Pagarigan, and for the reversion of the land covered thereby to the government.

However, as adverted to above, Section 32 of Presidential Decree No. 1529 mandates that for a reversion case to
prosper, it is not enough to prove that the original grantee of a patent has obtained the same through fraud; it must
also be proven that the subject property has not yet been acquired by an innocent purchaser for value, because
fraudulent acquisition cannot affect the titles of the latter.

Henceforth, the ultimate resolution of this case boils down to the determination on whether the subsequent
conveyances of the subject lot from Pagarigan were made to innocent purchasers for value. Specifically, based on
the records, can we regard the Bank, and thereafter, Yap and Villamor as innocent purchasers for value?

The Court answers in the negative.

Verily, the Court is in full accord with the following disquisitions of the CA on the matter, thus:

It cannot be overemphasized that [the Bank], being in the business of extending loans secured by real estate
mortgage, is familiar with rules on land registration. As such, it was, as here, expected to exercise more care and
prudence than private individuals in its dealings with registered lands. Accordingly, given inter alia the suspicion-
provoking presence of occupants other than the owner on the land to be mortgaged, it behooved them to conduct a
more exhaustive investigation on the history of the mortgagor's title. That appellee Bank accepted in mortgage the
property in question notwithstanding the existence of structures on the property and which were in actual, visible,
and public possession of persons other than the mortgagor, constitutes gross negligence amounting to bad
faith. (Citation omitted)
46

Yap and Villamor are not innocent purchasers for value.

As pointed out by the CA, the respondent argued that at the time Yap and Villamar purchased the said lot from the
Bank, a notice of lis pendens was already annotated on OCT No. P-11182; hence, they cannot be considered as
innocent purchasers for value. Yap and Villamor, on the other hand, contended that the owner's duplicate copy they
received from the Bank did not contain any annotations of encumbrance or liens; hence, they cannot be bound by
such annotation. 47

In the present petition, Yap maintains that the presumption that she and Villamor are buyers in good faith and for
value has not been rebutted. She adds that even if it is assumed, for the sake of argument, that their predecessor-
in-interest committed fraud and misrepresentation, their title as innocent purchasers and for value will not in any way
be affected. 48

This Court cannot sanction Yap's assertion. Time and again, the Court has ruled that the burden of proof to
establish the status of a purchaser and registrant in good faith lies upon the one who asserts it. This onus
probandi cannot be discharged by mere invocation of the legal presumption of good faith. 49

It must be emphasized that aside from the fact that a notice of lis pendens was already annotated on OCT No. P-
11182 even before Yap and Villamar purchased the subject property, it was also established that when they did so,
the said property was still registered in the name of Pagarigan since the Bank did not consolidate its title
thereto. Stated simply, Yap and Villamor purchased the subject property not from the registered owner.
50

In Trifonia D. Gabutan, et al. v. Dante D. Nacalaban, et al.,  the Court held that:

51

A buyer for value in good Faith is one who buys property of another, without notice that some other person has a
right to, or interest in, such property and pays full and fair price for the same, at the time of such purchase, or before
he has notice of the claim or interest of some other persons in the property. He buys the property with the well-
founded belief that the person from whom he receives the thing had title to the property and capacity to convey it.

To prove good faith, a buyer of registered and titled land need only show that he relied on the face of the title to the
property. He need not prove that he made further inquiry for he is not obliged to explore beyond the four comers of
the title. Such degree of proof of good faith, however, is sufficient only when the following conditions
concur: first, the seller is the registered owner of the land; second, the latter is in possession thereof; and third, at
the time of the sale, the buyer was not aware of any claim or interest of some other person in the property, or of any
defect or restriction in the title of the seller or in his capacity to convey title to the property.

Absent one or two of the foregoing conditions, then the law itself puts the buyer on notice and obliges the latter to
exercise a higher degree of diligence by scrutinizing the certificate of title and examining all factual circumstances in
order to determine the seller's title and capacity to transfer any interest in the property. Under such circumstance, it
is no longer sufficient for said buyer to merely show that he relied on the face of the title; he must now also show
that he exercised reasonable precaution by inquiring beyond the title. Failure to exercise such degree of precaution
makes him a buyer in bad faith.52 (Emphasis and italics in the original)

Verily, as the Court held in a catena of cases:

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

This Court has consistently applied the stricter rule when it comes to deciding the issue of good faith of one who
buys from one who is not the registered owner, but who exhibits a certificate of title. (Emphasis in the original)
53

Neither estoppel nor laches lies

against the respondent m the
present case

Citing the cases of Saad Agro-Jndustries  and Republic of the Philippines v. CA,  the RTC Branch 16 opined that in
54 55

an action for reversion, the defenses of equitable estoppel, laches and Torrens System in land titles are available -
without, however, stating that the foregoing also applies in this case, and how.

In any event, neither of said cases is on all fours with the present case. Said cases did not dwell on whether an FPA
was granted through the employment of fraud and/or misrepresentation, nor the question of whether the concerned
properties were conveyed to innocent purchasers.

In Saad Agro-Industries, free patent was alleged to have been mistakenly issued over a property that was claimed
by therein respondent as inalienable for being part of a track of land classified as forest land. However, it was
established that government has not yet classified the lot in question as forest reserve prior to the issuance of the
concerned free patent. Moreover, it was also established that therein subject property was already conveyed to an
innocent purchaser for value, Saad Agro-Industries, Inc. before the action for reversion was instituted.

In Republic of the Philippines v. CA,  therein petitioner instituted an action to annul the certificates of title that were
56

issued on the basis of a null and void subdivision plan. While therein petitioner sufficiently proved that the actual
area of the disputed property was unduly enlarged in the said subdivision plan, it, however, presented no proof that
therein respondent committed fraud when it submitted the subdivision plan to the Land Registration Commission for
approval. Since the plan was presumed to have been subjected to investigation, study and verification by said
commission, there was no one to be blamed except therein petitioner, acting through said body, itself. Thus, for
having allowed and approved the subdivision plan, the government was held to be in estoppel to question the same,
and seek the annulment of titles issued pursuant thereto. Moreover, when the action was instituted, the subdivided
properties were already sold to innocent purchasers for value. Additionally, although therein petitioner asserted that
the action was instituted to protect the integrity of the Torrens System, it was, however, unjustifiable that it took
nearly 20 years before therein petitioner acted on the matter. Verily, therein petitioner's prolonged inaction was held
as tantamount to laches.

In the instant case, it was established that Pagarigan's FPA was secured on the basis of his fraudulent
representations.  The respondent cannot be faulted for having been misled into believing that an applicant is legally
1âwphi1

qualified to be granted free patent as to render it estopped from asserting its right to recover its own property. While
the action for reversion was instituted only in 2003, the circumstances leading to the institution of the case hardly
spells inaction or neglect on the part of the respondent as to be considered guilty of laches.

Forsooth, there was no prolonged inaction on the part of the respondent in this case. This can be gleaned in the
decision  of the DENR Secretary. Shortly after the protestants filed a formal protest with the Bureau on October 24,
57

1990, the Officer-in-Charge, Regional Executive Director (RED) of the DENR Region XI, Davao City immediately
ordered an investigation on November 15, 1990,  and the same commenced on November 19, 1990. On February
58

14, 1994, the RED issued a decision dismissing the protestants' protest.  Undaunted, the protestants elevated their
59

case to the Office of the DENR Secretary. On May 15, 1995, the DENR Secretary set-aside the RED's decision and
ordered the institution of appropriate action for the cancellation of OCT No. P-11182, and for the reversion of the
property covered thereby to the government.

The instant action does not

undermine the indefeasibility of
Torrens title

In the case of Lorzano v. Tabayag, Jr.,  the Court reiterated that a Torrens title emanating from a free patent which
60

was secured through fraud does not become indefeasible because the patent from whence the title sprung is itself
void and of no effect whatsoever. Thus:

Once a patent is registered and the corresponding certificate of title is issued, the land covered thereby ceases to
be part of public domain and becomes private property, and the Torrens Title issued pursuant to the patent
becomes indefeasible upon the expiration of one year from the date of such issuance. However, a title emanating
from a free patent which was secured through fraud does not become indefeasible, precisely because the patent
from whence the title sprung is itself void and of no effect whatsoever. 61

On this point, the Court's ruling m Republic v. Heirs of Felipe Alejaga, Sr.  is instructive:
62

True, once a patent is registered and the corresponding certificate of title [is] issued, the land covered by them
ceases to be part of the public domain and becomes private property. Further, the Torrens Title issued pursuant to
the patent becomes indefeasible a year after the issuance of the latter. However, this indefeasibility of a title does
not attach to titles secured by fraud and misrepresentation. Well-settled is the doctrine that the registration of a
patent under the Torrens System does not by itself vest title; it merely confirms the registrant's already existing one.
Verily, registration under the Torrens System is not a mode of acquiring ownership.  (Citations omitted)
63

A fraudulently acquired free patent

may only be assailed by the
government m an action for
reversion

Nonetheless, a free patent that was fraudulently acquired, and the certificate of title issued pursuant to the same,
may only be assailed by the government in an action for reversion, pursuant to Section 101 of the Public Land Act.
In Sherwill Development Corporation v. Sitio Sta. Nino Residents Association, Inc.,  the Court pointed out that:
64

It is also to the public interest that one who succeeds in fraudulently acquiring title to a public land should not be
allowed to benefit therefrom, and the State should, therefore, have an even existing authority, thru its duly-
authorized officers, to inquire into the circumstances surrounding the issuance of any such title, to the end that the
Republic, thru the Solicitor General or any other officer who may be authorized by Jaw, may file the corresponding
action for the reversion of the land involved to the public domain, subject thereafter to disposal to other qualified
persons in accordance with law. In other words, the indefeasibility of a title over land previously public is not a bar to
an investigation by the Director of Lands as to how such title has been acquired, if the purpose of such investigation
is to determine whether or not fraud had been committed in securing such title in order that the appropriate action
for reversion may be filed by the Government. 65

WHEREFORE, the petition is hereby DENIED. The Decision dated June 30, 2011 and Resolution dated November
14, 2011 of the Court of Appeals in CA-GR. CV No. 01753-MIN are AFFIRMED.