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' Decision 1 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.27cralawred

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.4chanrobles 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 Questionschanrobles 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 Machinerychanrobles 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: chanrobles
virtual law library
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. chanrobles virtual
law library

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: chanrobles virtual law library

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 certiorari1 seeking to annul and set aside the Decision2 dated June 30,
2011 and, Resolution3 dated November 14, 2011 of the Court of Appeals (CA) in CA-G.R. CV No.
01753-MIN which reversed and set aside the Decision4 dated October 24, 2008 of the Regional Trial
Court (RTC) of Davao City, Branch 16, in 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/Quitclaim5 on
November 25, 1981 in favor of Rollie Pagarigan (Pagarigan). 6

Pagarigan filed his own Free Patent Application (FPA)7 and subsequently, Free Patent No. (XI-
1)5133 was issued to him over said lot. Original Certificate of Title (OCT) No. P-111828 was thereby
issued in his name on November 25, 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-
912 instituted by the 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 Decision14 against Pagarigan, the salient portion
and the fallo of which read as 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. 36698316 was 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. 19 Confronted with the issue of who
among the 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.21 The case was raffled to Branch 16 thereof.

On October 24, 2008, the RTC Branch 16 rendered a Decision 22 dismissing the respondent's
complaint. The court 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
Decision24 reversing 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,26 Yap,27 and Villamor28 sought reconsideration of the CA decision, but their motion was
evenly denied in the Resolution29 dated November 14, 2011.

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, 31 that in reversion proceedings the same must be
proved by clear and convincing 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.321âwphi1

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,33 Yap asserts that the respondent failed to
discharge the burden 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.34 (Emphasis and underlining ours, and emphasis in the original
deleted)

In Nabus v. CA,35 the Court stressed that when a party seeks relief upon a cause of action different
from the one 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.36 However, in Calalang v. Register of Deeds of Quezon City,37 the Court clarified that the bar
on re-litigation of a matter or question extends to those 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. 38 "If the
record of the former trial shows that the judgment could not have been rendered without
deciding a particular matter, it will be considered as having settled that matter as to all future
actions between the parties."39 Verily, as developed, these principles now embody paragraph (c) of
Section 47, Rule 39 of 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."41 That Yap and Villamor were 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, 43 it was clear that the
trial court was without jurisdiction in an 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.45 (Emphasis ours)

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.46(Citation omitted)

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. 50Stated simply, Yap and Villamor purchased the
subject property not from the registered owner.

In Trifonia D. Gabutan, et al. v. Dante D. Nacalaban, et al.,51 the Court held that:

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.53(Emphasis in the original)

Neither estoppel nor laches lies

against the respondent m the
present case

Citing the cases of Saad Agro-Jndustries54 and Republic of the Philippines v. CA,55 the RTC Branch
16 opined that in 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,56 therein petitioner instituted an action to annul the certificates of
title that were 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.1âwphi1 The respondent cannot be faulted for having been misled into
believing that an applicant is legally 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 decision57 of the DENR Secretary. Shortly after the protestants filed a formal protest
with the Bureau on October 24, 1990, the Officer-in-Charge, Regional Executive Director (RED) of the
DENR Region XI, Davao City immediately ordered an investigation on November 15, 1990, 58 and the
same commenced on November 19, 1990. On February 14, 1994, the RED issued a decision
dismissing the protestants' protest.59 Undaunted, the protestants elevated their 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.,60 the Court reiterated that a Torrens title emanating from a
free patent which 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.62 is instructive:

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.63 (Citations omitted)

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.,64 the Court pointed out that:

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.