Professional Documents
Culture Documents
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 169211
March 6, 2013
Branch Operation Head Joey P. Singh and Asst. Vice President Anita O. Abad over
the merchandise and stocks-in-trade covered by the continuing chattel mortgages.9
On 26 August 1992, RCBC, Metrobank and Union Bank (creditor banks with RCBC
instituted as the trustee bank) entered into a Mortgage Trust Indenture (MTI) with
Paper City. In the said MTI, Paper City acquired an additional loan of One Hundred
Seventy Million Pesos (P170,000,000.00) from the creditor banks in addition to the
previous loan from RCBC amounting to P110,000,000.00 thereby increasing the
entire loan to a total of P280,000,000.00. The old loan of P110,000,000.00 was partly
secured by various parcels of land covered by TCT Nos. T-157743, V-13515, V-1184,
V-1485, V-13518 and V-13516 situated in Valenzuela City pursuant to five (5) Deeds
of Real Estate Mortgage dated 8 January 1990, 27 February 1990, 19 July 1990, 20
February 1992 and 12 March 1992.10 The new loan obligation of P170,000,000.00
would be secured by the same five (5) Deeds of Real Estate Mortgage and additional
real and personal properties described in an annex to MTI, Annex "B." 11 Annex "B" of
the said MTI covered the machineries and equipments of Paper City.12
The MTI was later amended on 20 November 1992 to increase the contributions of
the RCBC and Union Bank toP80,000,000.00 and P70,000,000.00, respectively. As a
consequence, they executed a Deed of Amendment to MTI13 but still included as part
of the mortgaged properties by way of a first mortgage the various machineries and
equipments located in and bolted to and/or forming part of buildings generally
described as:
Annex "A"
A.
Office Building
Building 1, 2, 3, 4, and 5
Boiler House
Workers Quarter/Restroom
Canteen
Guardhouse, Parking Shed, Elevated Guard
Post and other amenities
B.
C.
Annex "B"
D.
the price and the remaining possible liabilities of Paper City shall be condoned by the
bank. Paper City likewise waived all its claim and counter charges against Union
Bank and agreed to turn-over its proportionate share over the property within 120
days from the date of agreement.22
On the other hand, the negotiations between the other creditor banks and Paper City
remained pending. During the interim, Paper City filed with the trial court a
Manifestation with Motion to Remove and/or Dispose Machinery on 18 December
2002 reasoning that the machineries located inside the foreclosed land and building
were deteriorating. It posited that since the machineries were not included in the
foreclosure of the real estate mortgage, it is appropriate that it be removed from the
building and sold to a third party.23
Acting on the said motion, the trial court, on 28 February 2003 issued an Order
denying the prayer and ruled that the machineries and equipments were included in
the annexes and form part of the MTI dated 26 August 1992 as well as its subsequent
amendments. Further, the machineries and equipments are covered by the Certificate
of Sale issued as a consequence of foreclosure, the certificate stating that the
properties described therein with improvements thereon were sold to creditor banks
to the defendants at public auction.24
Paper City filed its Motion for Reconsideration25 on 4 April 2003 which was favorably
granted by the trial court in its Order dated 15 August 2003. The court justified the
reversal of its order on the finding that the disputed machineries and equipments are
chattels by agreement of the parties through their inclusion in the four (4) Deeds of
Chattel Mortgage dated 28 January 1990, 19 July 1990, 28 June 1991 and 28
November 1991. It further ruled that the deed of cancellation executed by RCBC on
25 August 1992 was not valid because it was done unilaterally and without the
consent of Paper City and the cancellation only refers to the merchandise/stocks-intrade and not to machineries and equipments.26
RCBC in turn filed its Motion for Reconsideration to persuade the court to reverse its
15 August 2003 Order. However, the same was denied by the trial court through its 1
December 2003 Order reiterating the finding and conclusion of the previous Order.27
Aggrieved, RCBC filed with the CA a Petition for Certiorari under Rule 65 to annul the
Orders dated 15 August 2003 and 1 December 2003 of the trial court,28 for the
reasons that:
I. Paper City gave its conformity to consider the subject machineries and
equipment as real properties when the president and Executive Vice
President of Paper City signed the Mortgage Trust Indenture as well as its
subsequent amendments and all pages of the annexes thereto which
itemized all properties that were mortgaged.29
II. Under Section 8 of Act No. 1508, otherwise known as "The Chattel
Mortgage Law" the consent of the mortgagor (Paper City) is not required in
order to cancel a chattel mortgage. Thus the "Cancellation of Deed of
Continuing Chattel Mortgage on Inventory of Merchandise/Stocks-in-Trade"
dated August 25, 1992 is valid and binding on the Paper City even assuming
that it was executed unilaterally by petitioner RCBC.30
III. The four (4) Deeds of Chattel Mortgage that were attached as Annexes
"A" to "D" to the December 18, 2003 "Manifestation with Motion to Remove
and/or Dispose of Machinery" were executed from January 8, 1990 until
November 28, 1991. On the other hand, the "Cancellation of Deed of
Continuing Chattel Mortgage" was executed on August 25, 1992 while the
MTI and the subsequent supplemental amendments thereto were executed
from August 26, 1992 until January 24, 1995. It is of the contention of RCBC
that Paper Citys unreasonable delay of ten
(10) years in assailing that the disputed machineries and equipments were
personal amounted to estoppel and ratification of the characterization that
the same were real properties.31
IV. The removal of the subject machineries or equipment is not among the
reliefs prayed for by the Paper City in its June 11, 1999 Complaint. The
Paper City sought the removal of the subject machineries and equipment
only when it filed its December 18, 2002 Manifestation with Motion to
Remove and/or Dispose of Machinery.32
Paper City argued further that the subject machineries and equipments were not
included in the foreclosure of the mortgage on real properties particularly the eight (8)
parcels of land. Further, the Certificate of Sale of the Foreclosed Property referred
only to "lands and improvements" without any specification and made no mention of
the inclusion of the subject properties.37
In its Reply,38 RCBC admitted that there was indeed a provision in the MTI mentioning
a chattel mortgage in the amount of P13,800,000.00. However, it justified that its
inclusion in the MTI was merely for the purpose of ascertaining the amount of the loan
to be extended to Paper City.39 It reiterated its position that the machineries and
equipments were no longer treated as chattels but already as real properties following
the MTI.40
On 8 March 2005, the CA affirmed 41 the challenged orders of the trial court. The
dispositive portion reads:
WHEREFORE, finding no grave abuse of discretion committed by public respondent,
the instant petition is hereby DISMISSED for lack of merit. The assailed Orders dated
15 August and 2 December 2003, issued by Hon. Judge Floro P. Alejo are hereby
AFFIRMED. No costs at this instance.42
The CA relied on the "plain language of the MTIs:
V. Paper City did not specify in its various motions filed with the respondent
judge the subject machineries and equipment that are allegedly excluded
from the extrajudicial foreclosure sale.33
VI. The machineries and equipments mentioned in the four (4) Deeds of
Chattel Mortgage that were attached on the Manifestation with Motion to
Remove and/or Dispose of Machinery are the same machineries and
equipments included in the MTI and supplemental amendments, hence, are
treated by agreement of the parties as real properties.34
In its Comment,35 Paper City refuted the claim of RCBC that it gave its consent to
consider the machineries and equipments as real properties. It alleged that the
disputed properties remained within the purview of the existing chattel mortgages
which in fact were acknowledged by RCBC in the MTI particularly in Section 11.07
which reads:
Section 11.07. This INDENTURE in respect of the MORTGAGE OBLIGATIONS in the
additional amount not exceeding TWO HUNDRED TWENTY MILLION SIX
HUNDRED FIFTEEN THOUSAND PESOS (P220,615,000.00) shall be registered
with the Register of Deeds of Valenzuela, Metro Manila, apportioned based on the
corresponding loanable value of the MORTGAGED PROPERTIES, viz:
a. Real Estate Mortgage P206,815,000.00
b. Chattel Mortgage P13,800,000.0036
Undoubtedly, nowhere from any of the MTIs executed by the parties can we find the
alleged "express" agreement adverted to by petitioner. There is no provision in any of
the parties MTI, which expressly states to the effect that the parties shall treat the
equipments and machineries as real property. On the contrary, the plain and
unambiguous language of the aforecited MTIs, which described the same as personal
properties, contradicts petitioners claims.43
It was also ruled that the subject machineries and equipments were not included in
the extrajudicial foreclosure sale. The claim of inclusion was contradicted by the very
caption of the petition itself, "Petition for Extra-Judicial Foreclosure of Real Estate
Mortgage Under Act No. 3135 As Amended." It opined further that this inclusion was
further stressed in the Certificate of Sale which enumerated only the mortgaged real
properties bought by RCBC without the subject properties.44
RCBC sought reconsideration but its motion was denied in the CAs Resolution dated
8 August 2005.
RCBC before this Court reiterated all the issues presented before the appellate court:
1. Whether the unreasonable delay of ten (10) years in assailing that the
disputed machineries and equipments were personal properties amounted to
estoppel on the part of Paper City;
xxxx
GRANTING CLAUSE
2. The Mortgage Trust Indenture and the Real Estate Mortgage are hereby amended
to include as part of the Mortgage Properties, by way of a first mortgage and for paripassu and pro-rata benefit of the existing and new creditors, various machineries and
equipment owned by the Paper City, located in and bolted to and forming part of the
following, generally describes as x x x more particularly described and listed in
Annexes "A" and "B" which are attached and made integral parts of this Amendment.
The machineries and equipment listed in Annexes "A" and "B" form part of the
improvements listed above and located on the parcels of land subject of the Mortgage
Trust Indenture and the Real Estate Mortgage.46 (Emphasis and underlining ours)
A Second Supplemental Indenture to the 26 August 1992 MTI executed on 7 June
1994 to increase the amount of loan from P280,000,000.00 to P408,900,000.00 also
contains a similar provision in this regard:
WHEREAS, the Paper City desires to increase its borrowings to be secured by the
INDENTURE from PESOS: TWO HUNDRED EIGHTY MILLION (P280,000,000.00) to
PESOS: FOUR HUNDRED EIGHT MILLION NINE HUNDRED THOUSAND
(P408,900,000.00) or an increase of PESOS: ONE HUNDRED TWENTY EIGHT
MILLION NINE HUNDRED THOUSAND (P128,900,000.00) x x x which represents
additional loan/s granted to the Paper City to be secured against the existing
properties composed of land, building, machineries and equipment and inventories
more particularly described in Annexes "A" and "B" of the INDENTURE x x x.47
loan, totaling hundreds of millions of pesos, Paper City had to offer all valuable
properties acceptable to the creditor banks.
The plain and obvious inclusion in the mortgage of the machineries and equipments
of Paper City escaped the attention of the CA which, instead, turned to another "plain
language of the MTI" that "described the same as personal properties." It was error
for the CA to deduce from the "description" exclusion from the mortgage.
1. The MTIs did not describe the equipments and machineries as personal property.
Had the CA looked into Annexes "A" and "B" which were referred to by the phrase
"real and personal properties," it could have easily noted that the captions describing
the listed properties were "Buildings," "Machineries and Equipments," "Yard and
Outside," and "Additional Machinery and Equipment." No mention in any manner was
made in the annexes about "personal property." Notably, while "personal" appeared in
the granting clause of the original MTI, the subsequent Deed of Amendment
specifically stated that:
x x x The machineries and equipment listed in Annexes "A" and "B" form part of the
improvements listed above and located on the parcels of land subject of the Mortgage
Trust Indenture and the Real Estate Mortgage.
As held in Gateway Electronics Corp. v. Land Bank of the Philippines, 49 the rule in this
jurisdiction is that the contracting parties may establish any agreement, term, and
condition they may deem advisable, provided they are not contrary to law, morals or
public policy. The right to enter into lawful contracts constitutes one of the liberties
guaranteed by the Constitution.
The word "personal" was deleted in the corresponding granting clauses in the Deed
of Amendment and in the First, Second and Third Supplemental Indentures.
It has been explained by the Supreme Court in Norton Resources and Development
Corporation v. All Asia Bank Corporation50 in reiteration of the ruling in Benguet
Corporation v. Cabildo51 that:
2. Law and jurisprudence provide and guide that even if not expressly so stated, the
mortgage extends to the improvements.
Art. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation becomes
due, and to the amount of the indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether the estate
remains in the possession of the mortgagor, or it passes into the hands of a third
person. (Underlining ours)
In the early case of Bischoff v. Pomar and Cia. General de Tabacos, 53 the Court ruled
that even if the machinery in question was not included in the mortgage expressly,
Article 111 of the old Mortgage Law provides that chattels permanently located in a
building, either useful or ornamental, or for the service of some industry even though
they were placed there after the creation of the mortgage shall be considered as
mortgaged with the estate, provided they belong to the owner of said estate. The
provision of the old Civil Code was cited. Thus:
The plain language and literal interpretation of the MTIs must be applied. The
petitioner, other creditor banks and Paper City intended from the very first execution
of the indentures that the machineries and equipments enumerated in Annexes "A"
and "B" are included. Obviously, with the continued increase in the amount of the
Article 1877 provides that a mortgage includes the natural accessions, improvements,
growing fruits, and rents not collected when the obligation is due, and the amount of
the indemnities granted or due the owner by the underwriters of the property
mortgaged or by virtue of the exercise of eminent domain by reason of public utility,
Then till now the pronouncement has been that if the language used is as clear as
day and readily understandable by any ordinary reader, there is no need for
construction.52
with the declarations, amplifications, and limitations established by law, in case the
estate continues in the possession of the person who mortgaged it, as well as when it
passes into the hands of a third person.54
The real estate mortgage over the machineries and equipments is even in full accord
with the classification of such properties by the Civil Code of the Philippines as
immovable property. Thus:
The case of Cu Unjieng e Hijos v. Mabalacat Sugar Co. 55 relied on this provision. The
issue was whether the machineries and accessories were included in the mortgage
and the subsequent sale during public auction. This was answered in the affirmative
by the Court when it ruled that the machineries were integral parts of said sugar
central hence included following the principle of law that the accessory follows the
principal.
Further, in the case of Manahan v. Hon. Cruz, 56 this Court denied the prayer of
Manahan to nullify the order of the trial court including the building in question in the
writ of possession following the public auction of the parcels of land mortgaged to the
bank. It upheld the inclusion by relying on the principles laid upon in Bischoff v. Pomar
and Cia. General de Tabacos57 and Cu Unjieng e Hijos v. Mabalacat Sugar Co.58
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
xxxx
One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet) which
sells "Bay Super Orient Card" phone cards to people who call their friends and
relatives in the Philippines. With said card, one is entitled to a 27-minute call to the
Philippines for about 37.03 per minute. After dialing the ISR access number
indicated in the phone card, the ISR operator requests the subscriber to give the PIN
number also indicated in the phone card. Once the callers identity (as purchaser of
the phone card) is confirmed, the ISR operator will then provide a Philippine local line
to the requesting caller via the IPL. According to PLDT, calls made through the IPL
never pass the toll center of IGF operators in the Philippines. Using the local line, the
Baynet card user is able to place a call to any point in the Philippines, provided the
local line is National Direct Dial (NDD) capable.5
PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course its
incoming international long distance calls from Japan. The IPL is linked to switching
equipment, which is then connected to PLDT telephone lines/numbers and
equipment, with Baynet as subscriber. Through the use of the telephone lines and
other auxiliary equipment, Baynet is able to connect an international long distance call
from Japan to any part of the Philippines, and make it appear as a call originating
from Metro Manila. Consequently, the operator of an ISR is able to evade payment of
access, termination or bypass charges and accounting rates, as well as compliance
with the regulatory requirements of the NTC. Thus, the ISR operator offers
international telecommunication services at a lower rate, to the damage and prejudice
of legitimate operators like PLDT.6
PLDT pointed out that Baynet utilized the following equipment for its ISR activities:
lines, cables, and antennas or equipment or device capable of transmitting air waves
or frequency, such as an IPL and telephone lines and equipment; computers or any
equipment or device capable of accepting information applying the prescribed
process of the information and supplying the result of this process; modems or any
equipment or device that enables a data terminal equipment such as computers to
communicate with other data terminal equipment via a telephone line; multiplexers or
any equipment or device that enables two or more signals from different sources to
pass through a common cable or transmission line; switching equipment, or
equipment or device capable of connecting telephone lines; and software, diskettes,
tapes or equipment or device used for recording and storing information.7
PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone
lines/numbers.8 Based on the Traffic Study conducted on the volume of calls passing
through Baynets ISR network which bypass the IGF toll center, PLDT incurred an
estimated monthly loss of P10,185,325.96. 9 Records at the Securities and Exchange
Commission (SEC) also revealed that Baynet was not authorized to provide
international or domestic long distance telephone service in the country. The following
are its officers: Yuji Hijioka, a Japanese national (chairman of the board of directors);
Gina C. Mukaida, a Filipina (board member and president); Luis Marcos P. Laurel, a
Filipino (board member and corporate secretary); Ricky Chan Pe, a Filipino (board
member and treasurer); and Yasushi Ueshima, also a Japanese national (board
member).
Upon complaint of PLDT against Baynet for network fraud, and on the strength of two
search warrants10 issued by the RTC of Makati, Branch 147, National Bureau of
Investigation (NBI) agents searched its office at the 7th Floor, SJG Building, Kalayaan
Avenue, Makati City on November 8, 1999. Atsushi Matsuura, Nobuyoshi Miyake,
Edourd D. Lacson and Rolando J. Villegas were arrested by NBI agents while in the
act of manning the operations of Baynet. Seized in the premises during the search
were numerous equipment and devices used in its ISR activities, such as
multiplexers, modems, computer monitors, CPUs, antenna, assorted computer
peripheral cords and microprocessors, cables/wires, assorted PLDT statement of
accounts, parabolic antennae and voltage regulators.
State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a
Resolution11 on January 28, 2000, finding probable cause for theft under Article 308 of
the Revised Penal Code and Presidential Decree No. 401 12against the respondents
therein, including Laurel.
On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of
Makati City charging Matsuura, Miyake, Lacson and Villegas with theft under Article
308 of the Revised Penal Code. After conducting the requisite preliminary
investigation, the State Prosecutor filed an Amended Information impleading Laurel (a
partner in the law firm of Ingles, Laurel, Salinas, and, until November 19, 1999, a
member of the board of directors and corporate secretary of Baynet), and the other
members of the board of directors of said corporation, namely, Yuji Hijioka, Yasushi
Ueshima, Mukaida, Lacson and Villegas, as accused for theft under Article 308 of the
Revised Penal Code. The inculpatory portion of the Amended Information reads:
On or about September 10-19, 1999, or prior thereto, in Makati City, and within the
jurisdiction of this Honorable Court, the accused, conspiring and confederating
together and all of them mutually helping and aiding one another, with intent to gain
and without the knowledge and consent of the Philippine Long Distance Telephone
(PLDT), did then and there willfully, unlawfully and feloniously take, steal and use the
international long distance calls belonging to PLDT by conducting International
Simple Resale (ISR), which is a method of routing and completing international long
distance calls using lines, cables, antennae, and/or air wave frequency which connect
directly to the local or domestic exchange facilities of the country where the call is
destined, effectively stealing this business from PLDT while using its facilities in the
estimated amount of P20,370,651.92 to the damage and prejudice of PLDT, in the
said amount.
CONTRARY TO LAW.13
Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on the
ground that the factual allegations in the Amended Information do not constitute the
felony of theft under Article 308 of the Revised Penal Code. He averred that the
Revised Penal Code, or any other special penal law for that matter, does not prohibit
ISR operations. He claimed that telephone calls with the use of PLDT telephone lines,
whether domestic or international, belong to the persons making the call, not to PLDT.
He argued that the caller merely uses the facilities of PLDT, and what the latter owns
are the telecommunication infrastructures or facilities through which the call is made.
He also asserted that PLDT is compensated for the callers use of its facilities by way
of rental; for an outgoing overseas call, PLDT charges the caller per minute, based on
the duration of the call. Thus, no personal property was stolen from PLDT. According
Laurel filed a Motion for Reconsideration 17 of the Order, alleging that international
long distance calls are not personal property, and are not capable of appropriation.
He maintained that business or revenue is not considered personal property, and that
the prosecution failed to adduce proof of its existence and the subsequent loss of
personal property belonging to another. Citing the ruling of the Court in United States
v. De Guzman,18 Laurel averred that the case is not one with telephone calls which
originate with a particular caller and terminates with the called party. He insisted that
telephone calls are considered privileged communications under the Constitution and
cannot be considered as "the property of PLDT." He further argued that there is no
kinship between telephone calls and electricity or gas, as the latter are forms of
energy which are generated and consumable, and may be considered as personal
property because of such characteristic. On the other hand, the movant argued, the
telephone business is not a form of energy but is an activity.
In its Order19 dated December 11, 2001, the RTC denied the movants Motion for
Reconsideration. This time, it ruled that what was stolen from PLDT was its
"business" because, as alleged in the Amended Information, the international long
distance calls made through the facilities of PLDT formed part of its business. The
RTC noted that the movant was charged with stealing the business of PLDT. To
support its ruling, it cited Strochecker v. Ramirez, 20where the Court ruled that interest
in business is personal property capable of appropriation. It further declared that,
through their ISR operations, the movant and his co-accused deprived PLDT of fees
for international long distance calls, and that the ISR used by the movant and his coaccused was no different from the "jumper" used for stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the RTC.
He alleged that the respondent judge gravely abused his discretion in denying his
Motion to Quash the Amended Information. 21 As gleaned from the material averments
of the amended information, he was charged with stealing the international long
distance calls belonging to PLDT, not its business. Moreover, the RTC failed to
distinguish between the business of PLDT (providing services for international long
distance calls) and the revenues derived therefrom. He opined that a "business" or its
revenues cannot be considered as personal property under Article 308 of the Revised
Penal Code, since a "business" is "(1) a commercial or mercantile activity customarily
engaged in as a means of livelihood and typically involving some independence of
judgment and power of decision; (2) a commercial or industrial enterprise; and (3)
refers to transactions, dealings or intercourse of any nature." On the other hand, the
term "revenue" is defined as "the income that comes back from an investment (as in
real or personal property); the annual or periodical rents, profits, interests, or issues of
any species of real or personal property."22
Laurel further posited that an electric companys business is the production and
distribution of electricity; a gas companys business is the production and/or
distribution of gas (as fuel); while a water companys business is the production and
distribution of potable water. He argued that the "business" in all these cases is the
commercial activity, while the goods and merchandise are the products of such
activity. Thus, in prosecutions for theft of certain forms of energy, it is the electricity or
gas which is alleged to be stolen and not the "business" of providing electricity or gas.
However, since a telephone company does not produce any energy, goods or
merchandise and merely renders a service or, in the words of PLDT, "the connection
Petitioner avers that the petition for a writ of certiorari may be filed to nullify an
interlocutory order of the trial court which was issued with grave abuse of discretion
amounting to excess or lack of jurisdiction. In support of his petition before the Court,
he reiterates the arguments in his pleadings filed before the CA. He further claims
that while the right to carry on a business or an interest or participation in business is
considered property under the New Civil Code, the term "business," however, is not.
He asserts that the Philippine Legislature, which approved the Revised Penal Code
way back in January 1, 1932, could not have contemplated to include international
long distance calls and "business" as personal property under Article 308 thereof.
In its comment on the petition, the Office of the Solicitor General (OSG) maintains
that the amended information clearly states all the essential elements of the crime of
theft. Petitioners interpretation as to whether an "international long distance call" is
personal property under the law is inconsequential, as a reading of the amended
information readily reveals that specific acts and circumstances were alleged
charging Baynet, through its officers, including petitioner, of feloniously taking,
stealing and illegally using international long distance calls belonging to respondent
PLDT by conducting ISR operations, thus, "routing and completing international long
distance calls using lines, cables, antenna and/or airwave frequency which connect
directly to the local or domestic exchange facilities of the country where the call is
destined." The OSG maintains that the international long distance calls alleged in the
amended information should be construed to mean "business" of PLDT, which, while
abstract and intangible in form, is personal property susceptible of
appropriation.31 The OSG avers that what was stolen by petitioner and his co-accused
is the business of PLDT providing international long distance calls which, though
intangible, is personal property of the PLDT.32
For its part, respondent PLDT asserts that personal property under Article 308 of the
Revised Penal Code comprehends intangible property such as electricity and gas
which are valuable articles for merchandise, brought and sold like other personal
property, and are capable of appropriation. It insists that the business of international
calls and revenues constitute personal property because the same are valuable
articles of merchandise. The respondent reiterates that international calls involve (a)
the intangible telephone services that are being offered by it, that is, the connection
and interconnection to the telephone network, lines or facilities; (b) the use of its
telephone network, lines or facilities over a period of time; and (c) the income derived
in connection therewith.33
PLDT further posits that business revenues or the income derived in connection with
the rendition of such services and the use of its telephone network, lines or facilities
are personal properties under Article 308 of the Revised Penal Code; so is the use of
said telephone services/telephone network, lines or facilities which allow electronic
voice signals to pass through the same and ultimately to the called partys number. It
is akin to electricity which, though intangible property, may nevertheless be
appropriated and can be the object of theft. The use of respondent PLDTs telephone
network, lines, or facilities over a period of time for consideration is the business that
it provides to its customers, which enables the latter to send various messages to
intended recipients. Such use over a period of time is akin to merchandise which has
value and, therefore, can be appropriated by another. According to respondent PLDT,
this is what actually happened when petitioner Laurel and the other accused below
conducted illegal ISR operations.34
statute makes criminal;39 and describes the property which is the subject of theft to
advise the accused with reasonable certainty of the accusation he is called upon to
meet at the trial and to enable him to rely on the judgment thereunder of a
subsequent prosecution for the same offense.40 It must show, on its face, that if the
alleged facts are true, an offense has been committed. The rule is rooted on the
constitutional right of the accused to be informed of the nature of the crime or cause
of the accusation against him. He cannot be convicted of an offense even if proven
unless it is alleged or necessarily included in the Information filed against him.
As a general prerequisite, a motion to quash on the ground that the Information does
not constitute the offense charged, or any offense for that matter, should be resolved
on the basis of said allegations whose truth and veracity are hypothetically
committed;41 and on additional facts admitted or not denied by the prosecution.42 If the
facts alleged in the Information do not constitute an offense, the complaint or
information should be quashed by the court.43
We have reviewed the Amended Information and find that, as mentioned by the
petitioner, it does not contain material allegations charging the petitioner of theft of
personal property under Article 308 of the Revised Penal Code. It, thus, behooved the
trial court to quash the Amended Information. The Order of the trial court denying the
motion of the petitioner to quash the Amended Information is a patent nullity.
On the second issue, we find and so hold that the international telephone calls placed
by Bay Super Orient Card holders, the telecommunication services provided by PLDT
and its business of providing said services are not personal properties under Article
308 of the Revised Penal Code. The construction by the respondents of Article 308 of
the said Code to include, within its coverage, the aforesaid international telephone
calls, telecommunication services and business is contrary to the letter and intent of
the law.
The rule is that, penal laws are to be construed strictly. Such rule is founded on the
tenderness of the law for the rights of individuals and on the plain principle that the
power of punishment is vested in Congress, not in the judicial department. It is
Congress, not the Court, which is to define a crime, and ordain its punishment. 44 Due
respect for the prerogative of Congress in defining crimes/felonies constrains the
Court to refrain from a broad interpretation of penal laws where a "narrow
interpretation" is appropriate. The Court must take heed to language, legislative
history and purpose, in order to strictly determine the wrath and breath of the conduct
the law forbids.45 However, when the congressional purpose is unclear, the court must
apply the rule of lenity, that is, ambiguity concerning the ambit of criminal statutes
should be resolved in favor of lenity.46
Penal statutes may not be enlarged by implication or intent beyond the fair meaning
of the language used; and may not be held to include offenses other than those which
are clearly described, notwithstanding that the Court may think that Congress should
have made them more comprehensive.47 Words and phrases in a statute are to be
construed according to their common meaning and accepted usage.
As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry the
principle that a case which is within the reason or
mischief of a statute is within its provision, so far as to punish a crime not enumerated
in the statute because it is of equal atrocity, or of kindred character with those which
are enumerated.48 When interpreting a criminal statute that does not explicitly reach
the conduct in question, the Court should not base an expansive reading on
inferences from subjective and variable understanding.49
Article 308 of the Revised Penal Code defines theft as follows:
Art. 308. Who are liable for theft. Theft is committed by any person who, with intent
to gain but without violence, against or intimidation of persons nor force upon things,
shall take personal property of another without the latters consent.
The provision was taken from Article 530 of the Spanish Penal Code which reads:
1. Los que con nimo de lucrarse, y sin violencia o intimidacin en las personas ni
fuerza en las cosas, toman las cosas muebles ajenas sin la voluntad de su dueo.50
For one to be guilty of theft, the accused must have an intent to steal (animus furandi)
personal property, meaning the intent to deprive another of his ownership/lawful
possession of personal property which intent is apart from and concurrently with the
general criminal intent which is an essential element of a felony of dolo (dolus malus).
An information or complaint for simple theft must allege the following elements: (a)
the taking of personal property; (b) the said property belongs to another; (c) the taking
be done with intent to gain; and (d) the taking be accomplished without the use of
violence or intimidation of person/s or force upon things.51
One is apt to conclude that "personal property" standing alone, covers both tangible
and intangible properties and are subject of theft under the Revised Penal Code. But
the words "Personal property" under the Revised Penal Code must be considered in
tandem with the word "take" in the law. The statutory definition of "taking" and
movable property indicates that, clearly, not all personal properties may be the proper
subjects of theft. The general rule is that, only movable properties which have
physical or material existence and susceptible of occupation by another are proper
objects of theft.52 As explained by Cuelo Callon: "Cosa juridicamente es toda
sustancia corporal, material, susceptible de ser aprehendida que tenga un valor
cualquiera."53
According to Cuello Callon, in the context of the Penal Code, only those movable
properties which can be taken and carried from the place they are found are proper
subjects of theft. Intangible properties such as rights and ideas are not subject of theft
because the same cannot be "taken" from the place it is found and is occupied or
appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de hurto. La
sustraccin de cosas inmuebles y la cosas incorporales (v. gr., los derechos, las
ideas) no puede integrar este delito, pues no es posible asirlas, tomarlas, para
conseguir su apropiacin. El Codigo emplea la expresin "cosas mueble" en el
sentido de cosa que es susceptible de ser llevada del lugar donde se encuentra,
como dinero, joyas, ropas, etctera, asi que su concepto no coincide por completo
con el formulado por el Codigo civil (arts. 335 y 336).54
Thus, movable properties under Article 308 of the Revised Penal Code should be
distinguished from the rights or interests to which they relate. A naked right existing
merely in contemplation of law, although it may be very valuable to the person who is
entitled to exercise it, is not the subject of theft or larceny. 55 Such rights or interests
are intangible and cannot be "taken" by another. Thus, right to produce oil, good will
or an interest in business, or the right to engage in business, credit or franchise are
properties. So is the credit line represented by a credit card. However, they are not
proper subjects of theft or larceny because they are without form or substance, the
mere "breath" of the Congress. On the other hand, goods, wares and merchandise of
businessmen and credit cards issued to them are movable properties with physical
and material existence and may be taken by another; hence, proper subjects of theft.
There is "taking" of personal property, and theft is consummated when the offender
unlawfully acquires possession of personal property even if for a short time; or if such
property is under the dominion and control of the thief. The taker, at some particular
amount, must have obtained complete and absolute possession and control of the
property adverse to the rights of the owner or the lawful possessor thereof. 56 It is not
necessary that the property be actually carried away out of the physical possession of
the lawful possessor or that he should have made his escape with it. 57 Neither
asportation nor actual manual possession of property is required. Constructive
possession of the thief of the property is enough.58
The essence of the element is the taking of a thing out of the possession of the owner
without his privity and consent and without animus revertendi.59
Taking may be by the offenders own hands, by his use of innocent persons without
any felonious intent, as well as any mechanical device, such as an access device or
card, or any agency, animate or inanimate, with intent to gain. Intent to gain includes
the unlawful taking of personal property for the purpose of deriving utility, satisfaction,
enjoyment and pleasure.60
We agree with the contention of the respondents that intangible properties such as
electrical energy and gas are proper subjects of theft. The reason for this is that, as
explained by this Court in United States v. Carlos61 and United States v.
Tambunting,62 based on decisions of the Supreme Court of Spain and of the courts in
England and the United States of America, gas or electricity are capable of
appropriation by another other than the owner. Gas and electrical energy may be
taken, carried away and appropriated. In People v. Menagas,63 the Illinois State
Supreme Court declared that electricity, like gas, may be seen and felt. Electricity, the
same as gas, is a valuable article of merchandise, bought and sold like other personal
property and is capable of appropriation by another. It is a valuable article of
merchandise, bought and sold like other personal property, susceptible of being
severed from a mass or larger quantity and of being transported from place to place.
Electrical energy may, likewise, be taken and carried away. It is a valuable
commodity, bought and sold like other personal property. It may be transported from
place to place. There is nothing in the nature of gas used for illuminating purposes
which renders it incapable of being feloniously taken and carried away.
In People ex rel Brush Electric Illuminating Co. v. Wemple, 64 the Court of Appeals of
New York held that electric energy is manufactured and sold in determinate quantities
at a fixed price, precisely as are coal, kerosene oil, and gas. It may be conveyed to
the premises of the consumer, stored in cells of different capacity known as an
accumulator; or it may be sent through a wire, just as gas or oil may be transported
either in a close tank or forced through a pipe. Having reached the premises of the
consumer, it may be used in any way he may desire, being, like illuminating gas,
capable of being transformed either into heat, light, or power, at the option of the
purchaser. In Woods v. People,65 the Supreme Court of Illinois declared that there is
nothing in the nature of gas used for illuminating purposes which renders it incapable
of being feloniously taken and carried away. It is a valuable article of merchandise,
bought and sold like other personal property, susceptible of being severed from a
mass or larger quantity and of being transported from place to place.
Gas and electrical energy should not be equated with business or services provided
by business entrepreneurs to the public. Business does not have an exact definition.
Business is referred as that which occupies the time, attention and labor of men for
the purpose of livelihood or profit. It embraces everything that which a person can be
employed.66 Business may also mean employment, occupation or profession.
Business is also defined as a commercial activity for gain benefit or
advantage.67 Business, like services in business, although are properties, are not
proper subjects of theft under the Revised Penal Code because the same cannot be
"taken" or "occupied." If it were otherwise, as claimed by the respondents, there
would be no juridical difference between the taking of the business of a person or the
services provided by him for gain, vis--vis, the taking of goods, wares or
merchandise, or equipment comprising his business.68 If it was its intention to include
"business" as personal property under Article 308 of the Revised Penal Code, the
Philippine Legislature should have spoken in language that is clear and definite: that
business is personal property under Article 308 of the Revised Penal Code.69
We agree with the contention of the petitioner that, as gleaned from the material
averments of the Amended Information, he is charged of "stealing the international
long distance calls belonging to PLDT" and the use thereof, through the ISR. Contrary
to the claims of the OSG and respondent PLDT, the petitioner is not charged of
stealing P20,370,651.95 from said respondent. Said amount of P20,370,651.95
alleged in the Amended Information is the aggregate amount of access, transmission
or termination charges which the PLDT expected from the international long distance
calls of the callers with the use of Baynet Super Orient Cards sold by Baynet Co. Ltd.
In defining theft, under Article 308 of the Revised Penal Code, as the taking of
personal property without the consent of the owner thereof, the Philippine legislature
could not have contemplated the human voice which is converted into electronic
impulses or electrical current which are transmitted to the party called through the
PSTN of respondent PLDT and the ISR of Baynet Card Ltd. within its coverage.
When the Revised Penal Code was approved, on December 8, 1930, international
telephone calls and the transmission and routing of electronic voice signals or
impulses emanating from said calls, through the PSTN, IPL and ISR, were still nonexistent. Case law is that, where a legislative history fails to evidence congressional
awareness of the scope of the statute claimed by the respondents, a narrow
interpretation of the law is more consistent with the usual approach to the
construction of the statute. Penal responsibility cannot be extended beyond the fair
scope of the statutory mandate.70
Penal Code. The Legislature did not. In fact, the Revised Penal Code does not even
contain a definition of services.
Respondent PLDT does not acquire possession, much less, ownership of the voices
of the telephone callers or of the electronic voice signals or current emanating from
said calls. The human voice and the electronic voice signals or current caused
thereby are intangible and not susceptible of possession, occupation or appropriation
by the respondent PLDT or even the petitioner, for that matter. PLDT merely transmits
the electronic voice signals through its facilities and equipment. Baynet Card Ltd.,
through its operator, merely intercepts, reroutes the calls and passes them to its toll
center. Indeed, the parties called receive the telephone calls from Japan.
(1) A person is guilty of theft if he intentionally obtains services for himself or for
another which he knows are available only for compensation, by deception or threat,
by altering or tampering with the public utility meter or measuring device by which
such services are delivered or by causing or permitting such altering or tampering, by
making or maintaining any unauthorized connection, whether physically, electrically or
inductively, to a distribution or transmission line, by attaching or maintaining the
attachment of any unauthorized device to any cable, wire or other component of an
electric, telephone or cable television system or to a television receiving set
connected to a cable television system, by making or maintaining any unauthorized
modification or alteration to any device installed by a cable television system, or by
false token or other trick or artifice to avoid payment for the service.
In the State of Illinois in the United States of America, theft of labor or services or use
of property is penalized:
(a) A person commits theft when he obtains the temporary use of property, labor or
services of another which are available only for hire, by means of threat or deception
or knowing that such use is without the consent of the person providing the property,
labor or services.
In 1980, the drafters of the Model Penal Code in the United States of America arrived
at the conclusion that labor and services, including professional services, have not
been included within the traditional scope of the term "property" in ordinary theft
statutes. Hence, they decided to incorporate in the Code Section 223.7, which defines
and penalizes theft of services, thus:
(1) A person is guilty of theft if he purposely obtains services which he knows are
available only for compensation, by deception or threat, or by false token or other
means to avoid payment for the service. "Services" include labor, professional
service, transportation, telephone or other public service, accommodation in hotels,
restaurants or elsewhere, admission to exhibitions, use of vehicles or other movable
property. Where compensation for service is ordinarily paid immediately upon the
rendering of such service, as in the case of hotels and restaurants, refusal to pay or
absconding without payment or offer to pay gives rise to a presumption that the
service was obtained by deception as to intention to pay; (2) A person commits theft
if, having control over the disposition of services of others, to which he is not entitled,
he knowingly diverts such services to his own benefit or to the benefit of another not
entitled thereto.
Interestingly, after the State Supreme Court of Virginia promulgated its decision in
Lund v. Commonwealth,80declaring that neither time nor services may be taken and
carried away and are not proper subjects of larceny, the General Assembly of Virginia
enacted Code No. 18-2-98 which reads:
Computer time or services or data processing services or information or data stored
in connection therewith is hereby defined to be property which may be the subject of
larceny under 18.2-95 or 18.2-96, or embezzlement under 18.2-111, or false
pretenses under 18.2-178.
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of
1975 penalizes theft of services:
"A person commits the crime of theft of services if: (a) He intentionally obtains
services known by him to be available only for compensation by deception, threat,
false token or other means to avoid payment for the services "
In the Philippines, Congress has not amended the Revised Penal Code to include
theft of services or theft of business as felonies. Instead, it approved a law, Republic
Act No. 8484, otherwise known as the Access Devices Regulation Act of 1998, on
February 11, 1998. Under the law, an access device means any card, plate, code,
account number, electronic serial number, personal identification number and other
telecommunication services, equipment or instrumentalities-identifier or other means
of account access that can be used to obtain money, goods, services or any other
thing of value or to initiate a transfer of funds other than a transfer originated solely by
paper instrument. Among the prohibited acts enumerated in Section 9 of the law are
the acts of obtaining money or anything of value through the use of an access device,
with intent to defraud or intent to gain and fleeing thereafter; and of effecting
transactions with one or more access devices issued to another person or persons to
receive payment or any other thing of value. Under Section 11 of the law, conspiracy
to commit access devices fraud is a crime. However, the petitioner is not charged of
violation of R.A. 8484.
Significantly, a prosecution under the law shall be without prejudice to any liability for
violation of any provisions of the Revised Penal Code inclusive of theft under Rule
308 of the Revised Penal Code and estafa under Article 315 of the Revised Penal
Code. Thus, if an individual steals a credit card and uses the same to obtain services,
he is liable of the following: theft of the credit card under Article 308 of the Revised
Penal Code; violation of Republic Act No. 8484; and estafa under Article 315(2)(a) of
the Revised Penal Code with the service provider as the private complainant. The
petitioner is not charged of estafa before the RTC in the Amended Information.
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:
Sec. 33. Penalties. The following Acts shall be penalized by fine and/or
imprisonment, as follows:
THIRD DIVISION
BPI FAMILY BANK,
account had P1,000,000.00 with a maturity date of August 31, 1990. The total amount
of P2,000,000.00 used to open these accounts is traceable to a check issued by
Tevesteco allegedly in consideration of Francos introduction of Eladio Teves, [7]who
was looking for a conduit bank to facilitate Tevestecos business transactions, to
Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In turn, the funding
for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from
FMICs time deposit account and credited to Tevestecos current account pursuant to
an Authority to Debit purportedly signed by FMICs officers.
YNARES-SANTIAGO,
It appears, however, that the signatures of FMICs officers on the Authority to Debit
Chairperson,
were forged.[8]On September 4, 1989, Antonio Ong,[9] upon being shown the Authority
AUSTRIA-MARTINEZ, to Debit, personally declared his signature therein to be a forgery. Unfortunately,
CHICO-NAZARIO,
Tevesteco had already effected several withdrawals from its current account (to which
NACHURA, and
had been credited the P80,000,000.00 covered by the forged Authority to Debit)
amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.
REYES, JJ.
- versus -
Promulgated:
November 23, 2007
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost
fidelity.We reiterate this exhortation in the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court of
Appeals (CA) Decision[1] in CA-G.R. CV No. 43424 which affirmed with modification
the judgment[2] of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil
Case No. 90-53295.
This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI
Family Bank (BPI-FB) allegedly by respondent Amado Franco (Franco) in conspiracy
with other individuals,[3] some of whom opened and maintained separate accounts
with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a
savings and current account with BPI-FB. Soon thereafter, or on August 25, 1989,
First Metro Investment Corporation (FMIC) also opened a time deposit account with
the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year
thence.
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,
[4]
savings,[5]and time deposit,[6] with BPI-FB. The current and savings accounts were
respectively funded with an initial deposit of P500,000.00 each, while the time deposit
between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian,
on the other, spoke volumes of Francos participation in the fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of
which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered in favor of [Franco] and against [BPI-FB], ordering the
latter to pay to the former the following sums:
1. P76,500.00 representing the legal rate of interest on the amount
of P450,000.00 from May 18, 1990to October 31, 1991;
2. P498,973.23 representing the balance on [Francos] savings
account as of May 18, 1990, together with the interest thereon in
accordance with the banks guidelines on the payment therefor;
3. P30,000.00 by way of attorneys fees; and
4. P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual
and legal anchor.
Costs against [BPI-FB].
SO ORDERED.[28]
Unsatisfied with the decision, both parties filed their respective appeals before the
CA. Franco confined his appeal to the Manila RTCs denial of his claim for moral and
exemplary damages, and the diminutive award of attorneys fees. In affirming with
modification the lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is
hereby AFFIRMED with modification ordering [BPI-FB] to pay
[Franco] P63,189.00 representing the interest deducted from the
time deposit of plaintiff-appellant. P200,000.00 as moral damages
and P100,000.00 as exemplary damages, deleting the award of
nominal damages (in view of the award of moral and exemplary
damages) and increasing the award of attorneys fees
from P30,000.00 to P75,000.00.
Cost against [BPI-FB].
SO ORDERED.[29]
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a
better right to the deposits in the subject accounts which are part of the proceeds of a
forged Authority to Debit; (2) Franco is entitled to interest on his current account; (3)
Franco can recover the P400,000.00 deposit in Quiaoits savings account; (4) the
dishonor of Francos checks was not legally in order; (5) BPI-FB is liable for interest
on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs
counter-claim has no factual and legal anchor.
and credited to Tevestecos, and subsequently traced to Francos account. In fact, this
is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim
on the money itself which passed from one account to another, commencing with the
forged Authority to Debit.
We are in full accord with the common ruling of the lower courts that BPI-FB cannot
unilaterally freeze Francos accounts and preclude him from withdrawing his
deposits. However, contrary to the appellate courts ruling, we hold that Franco is not
entitled to unearned interest on the time deposit as well as to moral and exemplary
damages.
[34]
First. On the issue of who has a better right to the deposits in Francos accounts, BPIFB urges us that the legal consequence of FMICs forgery claim is that the money
transferred by BPI-FB to Tevesteco is its own, and considering that it was able to
recover possession of the same when the money was redeposited by Franco, it had
the right to set up its ownership thereon and freeze Francos accounts.
BPI-FB contends that its position is not unlike that of an owner of personal property
who regains possession after it is stolen, and to illustrate this point, BPI-FB gives the
following example: where Xs television set is stolen by Y who thereafter sells it to Z,
and where Z unwittingly entrusts possession of the TV set to X, the latter would have
the right to keep possession of the property and preclude Z from recovering
possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code,
which provides:
Article 559. The possession of movable property acquired in good
faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been
unlawfully deprived, has acquired it in good faith at a public sale,
the owner cannot obtain its return without reimbursing the price
paid therefor.
BPI-FBs argument is unsound. To begin with, the movable property mentioned in
Article 559 of the Civil Code pertains to a specific or determinate thing. [30] A
determinate or specific thing is one that is individualized and can be identified or
distinguished from others of the same kind.[31]
In this case, the deposit in Francos accounts consists of money which, albeit
characterized as a movable, is generic and fungible.[32] The quality of being fungible
depends upon the possibility of the property, because of its nature or the will of the
parties, being substituted by others of the same kind, not having a distinct
individuality.[33]
Significantly, while Article 559 permits an owner who has lost or has been
unlawfully deprived of a movable to recover the exact same thing from the current
possessor, BPI-FB simply claims ownership of the equivalent amount of
money, i.e., the value thereof, which it had mistakenly debited from FMICs account
There is no doubt that BPI-FB owns the deposited monies in the accounts of
Franco, but not as a legal consequence of its unauthorized transfer of FMICs deposits
to Tevestecos account. BPI-FB conveniently forgets that the deposit of money in
banks is governed by the Civil Code provisions on simple loan or mutuum.[36] As there
is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Francos deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand.[37] Although BPI-FB
owns the deposits in Francos accounts, it cannot prevent him from demanding
payment of BPI-FBs obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus, when Franco issued
checks drawn against his current account, he had every right as creditor to expect
that those checks would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the
accounts of Franco based on its mere suspicion that the funds therein were proceeds
of the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or
any bank for that matter, the right to take whatever action it pleases on deposits which
it supposes are derived from shady transactions, would open the floodgates of public
distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of
Appeals[38] continues to resonate, thus:
The banking system is an indispensable institution in the modern
world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and
commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble
wage-earner has not hesitated to entrust his lifes savings to the
bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with
equal faith, usually maintains a modest checking account for
security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. x x x.
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as promptly
as possible. This has to be done if the account is to reflect at any
given time the amount of money the depositor can dispose of as he
sees fit, confident that the bank will deliver it as and to whomever
directs. A blunder on the part of the bank, such as the dishonor of
the check without good reason, can cause the depositor not a little
embarrassment if not also financial loss and perhaps even civil and
criminal litigation.
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation
to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know
the signatures of its customers. Having failed to detect the forgery in the Authority to
Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB
cannot now shift liability thereon to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their respective accounts without the
appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the
authenticity of the signature in the Authority to Debit, effected the transfer
of P80,000,000.00 from FMICs to Tevestecos account, when FMICs account was a
time deposit and it had already paid advance interest to FMIC. Considering that there
is as yet no indubitable evidence establishing Francos participation in the forgery, he
remains an innocent party. As between him and BPI-FB, the latter, which made
possible the present predicament, must bear the resulting loss or inconvenience.
Second. With respect to its liability for interest on Francos current account,
BPI-FB argues that its non-compliance with the Makati RTCs Order Lifting the Order
of Attachment and the legal consequences thereof, is a matter that ought to be taken
up in that court.
The argument is tenuous. We agree with the succinct holding of the
appellate court in this respect. The Manila RTCs order to pay interests on Francos
current account arose from BPI-FBs unjustified refusal to comply with its obligation to
pay Franco pursuant to their contract of mutuum. In other words, from the time BPIFB refused Francos demand for the release of the deposits in his current account,
specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon.
[39]
Undeniably, the Makati RTC is vested with the authority to determine the
legal consequences of BPI-FBs non-compliance with the Order Lifting the Order of
Attachment. However, such authority does not preclude the Manila RTC from ruling
on BPI-FBs liability to Franco for payment of interest based on its continued and
unjustified refusal to perform a contractual obligation upon demand. After all, this was
the core issue raised by Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoits account, we find
no reason to depart from the factual findings of both the Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits in his
account are actually owned by Franco who simply accommodated Jaime Sebastians
request to temporarily transferP400,000.00 from Francos savings account to Quiaoits
account.[40] His testimony cannot be characterized as hearsay as the records reveal
that he had personal knowledge of the arrangement made between Franco,
Sebastian and himself.[41]
BPI-FB makes capital of Francos belated allegation relative to this particular
arrangement. It insists that the transaction with Quiaoit was not specifically alleged in
Francos complaint before the Manila RTC. However, it appears that BPI-FB had
impliedly consented to the trial of this issue given its extensive cross-examination of
Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried
with the express or implied consent of the parties, they shall
be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at
any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is now within the issues
made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable
the amendment to be made. (Emphasis supplied)
In all, BPI-FBs argument that this case is not the right forum for Franco to recover
the P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial,
unequivocally disclaimed ownership of the funds in his account, and pointed to
Franco as the actual owner thereof. Clearly, Francos action for the recovery of his
deposits appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor
of Francos checks respectively dated September 11 and 18, 1989 was legally in order
in view of the Makati RTCs supplemental writ of attachment issued on September 14,
1989. It posits that as the party that applied for the writ of attachment before the
Makati RTC, it need not be served with the Notice of Garnishment before it could
place Francos accounts under garnishment.
We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection
and not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind
contemplated in Article 2201 and should not be held liable for all damages now being
imputed to it for its breach of obligation. For the same reason, it is not liable for the
unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest
purpose or some moral obliquity and conscious doing of wrong; it partakes of the
nature of fraud.[44] We have held that it is a breach of a known duty through some
motive of interest or ill will.[45] In the instant case, we cannot attribute to BPI-FB fraud
or even a motive of self-enrichment. As the trial court found, there was no denial
whatsoever by BPI-FB of the existence of the accounts. The computer-generated
document which indicated that the current account was not on file resulted from the
prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the
garnishment, or even the outright refusal to honor any transaction thereon was
resorted to solely for the purpose of holding on to the funds as a security for its
intended court action,[46] and with no other goal but to ensure the integrity of the
accounts.
We have had occasion to hold that in the absence of fraud or bad faith, [47] moral
damages cannot be awarded; and that the adverse result of an action does not per se
make the action wrongful, or the party liable for it. One may err, but error alone is not
a ground for granting such damages.[48]
An award of moral damages contemplates the existence of the following requisites:
(1) there must be an injury clearly sustained by the claimant, whether physical, mental
or psychological; (2) there must be a culpable act or omission factually established;
(3) the wrongful act or omission of the defendant is the proximate cause of the injury
sustained by the claimant; and (4) the award for damages is predicated on any of the
cases stated in Article 2219 of the Civil Code.[49]
Franco could not point to, or identify any particular circumstance in Article 2219 of the
Civil Code,[50] upon which to base his claim for moral damages.
Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages
under Article 2220 of the Civil Code for breach of contract.[51]
We also deny the claim for exemplary damages. Franco should show that he is
entitled to moral, temperate, or compensatory damages before the court may even
consider the question of whether exemplary damages should be awarded to him.
[52]
As there is no basis for the award of moral damages, neither can exemplary
damages be granted.
While it is a sound policy not to set a premium on the right to litigate, [53] we, however,
find that Franco is entitled to reasonable attorneys fees for having been compelled to
go to court in order to assert his right. Thus, we affirm the CAs grant of P75,000.00 as
attorneys fees.
Attorneys fees may be awarded when a party is compelled to litigate or incur
expenses to protect his interest,[54] or when the court deems it just and equitable. [55] In
the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the
Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering
assertion that the P400,000.00 was part of Francos savings account. This refusal
constrained Franco to incur expenses and litigate for almost two (2) decades in order
to protect his interests and recover his deposits. Therefore, this Court deems it just
and equitable to grant Franco P75,000.00 as attorneys fees. The award is reasonable
in view of the complexity of the issues and the time it has taken for this case to be
resolved.[56]
Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs
ruling, as affirmed by the CA, that BPI-FB is not entitled to recover P3,800,000.00 as
actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as
already pointed out, of its own making. Accordingly, the denial of its counter-claim is
in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision
datedNovember 29, 1995 is AFFIRMED with the MODIFICATION that the award of
unearned interest on the time deposit and of moral and exemplary damages
is DELETED.
No pronouncement as to costs.
SO ORDERED.
EN BANC
G.R. No. L-11658
favor of the sheriff in the sum of P12,000, in reliance upon which the sheriff sold the
property at public auction to the plaintiff, who was the highest bidder at the sheriff's
sale.
This action was instituted by the plaintiff to recover possession of the building from
the machinery company.
The trial judge, relying upon the terms of article 1473 of the Civil Code, gave
judgment in favor of the machinery company, on the ground that the company had its
title to the building registered prior to the date of registry of the plaintiff's certificate.
Article 1473 of the Civil Code is as follows:
CARSON, J.:
The "Compaia Agricola Filipina" bought a considerable quantity of rice-cleaning
machinery company from the defendant machinery company, and executed a chattel
mortgage thereon to secure payment of the purchase price. It included in the
mortgage deed the building of strong materials in which the machinery was installed,
without any reference to the land on which it stood. The indebtedness secured by this
instrument not having been paid when it fell due, the mortgaged property was sold by
the sheriff, in pursuance of the terms of the mortgage instrument, and was bought in
by the machinery company. The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery company in satisfaction of the
mortgage was annotated in the same registry on December 29, 1913.
A few weeks thereafter, on or about the 14th of January, 1914, the "Compaia
Agricola Filipina" executed a deed of sale of the land upon which the building stood to
the machinery company, but this deed of sale, although executed in a public
document, was not registered. This deed makes no reference to the building erected
on the land and would appear to have been executed for the purpose of curing any
defects which might be found to exist in the machinery company's title to the building
under the sheriff's certificate of sale. The machinery company went into possession of
the building at or about the time when this sale took place, that is to say, the month of
December, 1913, and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the
machinery company, the mortgagor, the "Compaia Agricola Filipina" executed
another mortgage to the plaintiff upon the building, separate and apart from the land
on which it stood, to secure payment of the balance of its indebtedness to the plaintiff
under a contract for the construction of the building. Upon the failure of the mortgagor
to pay the amount of the indebtedness secured by the mortgage, the plaintiff secured
judgment for that amount, levied execution upon the building, bought it in at the
sheriff's sale on or about the 18th of December, 1914, and had the sheriff's certificate
of the sale duly registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant
machinery company, which was in possession, filed with the sheriff a sworn statement
setting up its claim of title and demanding the release of the property from the levy.
Thereafter, upon demand of the sheriff, the plaintiff executed an indemnity bond in
If the same thing should have been sold to different vendees, the ownership
shall be transfer to the person who may have the first taken possession
thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first
recorded it in the registry.
Should there be no entry, the property shall belong to the person who first
took possession of it in good faith, and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
The registry her referred to is of course the registry of real property, and it must be
apparent that the annotation or inscription of a deed of sale of real property in a
chattel mortgage registry cannot be given the legal effect of an inscription in the
registry of real property. By its express terms, the Chattel Mortgage Law
contemplates and makes provision for mortgages of personal property; and the sole
purpose and object of the chattel mortgage registry is to provide for the registry of
"Chattel mortgages," that is to say, mortgages of personal property executed in the
manner and form prescribed in the statute. The building of strong materials in which
the rice-cleaning machinery was installed by the "Compaia Agricola Filipina" was
real property, and the mere fact that the parties seem to have dealt with it separate
and apart from the land on which it stood in no wise changed its character as real
property. It follows that neither the original registry in the chattel mortgage of the
building and the machinery installed therein, not the annotation in that registry of the
sale of the mortgaged property, had any effect whatever so far as the building was
concerned.
We conclude that the ruling in favor of the machinery company cannot be sustained
on the ground assigned by the trial judge. We are of opinion, however, that the
judgment must be sustained on the ground that the agreed statement of facts in the
court below discloses that neither the purchase of the building by the plaintiff nor his
inscription of the sheriff's certificate of sale in his favor was made in good faith, and
that the machinery company must be held to be the owner of the property under the
third paragraph of the above cited article of the code, it appearing that the company
first took possession of the property; and further, that the building and the land were
sold to the machinery company long prior to the date of the sheriff's sale to the
plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code
require "good faith," in express terms, in relation to "possession" and "title," but
contain no express requirement as to "good faith" in relation to the "inscription" of the
property on the registry, it must be presumed that good faith is not an essential
requisite of registration in order that it may have the effect contemplated in this article.
We cannot agree with this contention. It could not have been the intention of the
legislator to base the preferential right secured under this article of the code upon an
inscription of title in bad faith. Such an interpretation placed upon the language of this
section would open wide the door to fraud and collusion. The public records cannot
be converted into instruments of fraud and oppression by one who secures an
inscription therein in bad faith. The force and effect given by law to an inscription in a
public record presupposes the good faith of him who enters such inscription; and
rights created by statute, which are predicated upon an inscription in a public registry,
do not and cannot accrue under an inscription "in bad faith," to the benefit of the
person who thus makes the inscription.
Construing the second paragraph of this article of the code, the supreme court of
Spain held in its sentencia of the 13th of May, 1908, that:
This rule is always to be understood on the basis of the good faith
mentioned in the first paragraph; therefore, it having been found that the
second purchasers who record their purchase had knowledge of the
previous sale, the question is to be decided in accordance with the following
paragraph. (Note 2, art. 1473, Civ. Code, Medina and Maranon [1911]
edition.)
Although article 1473, in its second paragraph, provides that the title of
conveyance of ownership of the real property that is first recorded in the
registry shall have preference, this provision must always be understood on
the basis of the good faith mentioned in the first paragraph; the legislator
could not have wished to strike it out and to sanction bad faith, just to comply
with a mere formality which, in given cases, does not obtain even in real
disputes between third persons. (Note 2, art. 1473, Civ. Code, issued by the
publishers of the La Revista de los Tribunales, 13th edition.)
The agreed statement of facts clearly discloses that the plaintiff, when he bought the
building at the sheriff's sale and inscribed his title in the land registry, was duly notified
that the machinery company had bought the building from plaintiff's judgment debtor;
that it had gone into possession long prior to the sheriff's sale; and that it was in
possession at the time when the sheriff executed his levy. The execution of an
indemnity bond by the plaintiff in favor of the sheriff, after the machinery company had
filed its sworn claim of ownership, leaves no room for doubt in this regard. Having
bought in the building at the sheriff's sale with full knowledge that at the time of the
levy and sale the building had already been sold to the machinery company by the
judgment debtor, the plaintiff cannot be said to have been a purchaser in good faith;
and of course, the subsequent inscription of the sheriff's certificate of title must be
held to have been tainted with the same defect.
Perhaps we should make it clear that in holding that the inscription of the sheriff's
certificate of sale to the plaintiff was not made in good faith, we should not be
understood as questioning, in any way, the good faith and genuineness of the
plaintiff's claim against the "Compaia Agricola Filipina." The truth is that both the
plaintiff and the defendant company appear to have had just and righteous claims
against their common debtor. No criticism can properly be made of the exercise of the
utmost diligence by the plaintiff in asserting and exercising his right to recover the
amount of his claim from the estate of the common debtor. We are strongly inclined to
believe that in procuring the levy of execution upon the factory building and in buying
it at the sheriff's sale, he considered that he was doing no more than he had a right to
do under all the circumstances, and it is highly possible and even probable that he
thought at that time that he would be able to maintain his position in a contest with the
machinery company. There was no collusion on his part with the common debtor, and
no thought of the perpetration of a fraud upon the rights of another, in the ordinary
sense of the word. He may have hoped, and doubtless he did hope, that the title of
the machinery company would not stand the test of an action in a court of law; and if
later developments had confirmed his unfounded hopes, no one could question the
legality of the propriety of the course he adopted.
But it appearing that he had full knowledge of the machinery company's claim of
ownership when he executed the indemnity bond and bought in the property at the
sheriff's sale, and it appearing further that the machinery company's claim of
ownership was well founded, he cannot be said to have been an innocent purchaser
for value. He took the risk and must stand by the consequences; and it is in this
sense that we find that he was not a purchaser in good faith.
One who purchases real estate with knowledge of a defect or lack of title in his
vendor cannot claim that he has acquired title thereto in good faith as against the true
owner of the land or of an interest therein; and the same rule must be applied to one
who has knowledge of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his
vendor. A purchaser cannot close his eyes to facts which should put a reasonable
man upon his guard, and then claim that he acted in good faith under the belief that
there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists, or his willful closing of his eyes to the possibility of the existence of a
defect in his vendor's title, will not make him an innocent purchaser for value, if
afterwards develops that the title was in fact defective, and it appears that he had
such notice of the defects as would have led to its discovery had he acted with that
measure of precaution which may reasonably be acquired of a prudent man in a like
situation. Good faith, or lack of it, is in its analysis a question of intention; but in
ascertaining the intention by which one is actuated on a given occasion, we are
necessarily controlled by the evidence as to the conduct and outward acts by which
alone the inward motive may, with safety, be determined. So it is that "the honesty of
intention," "the honest lawful intent," which constitutes good faith implies a "freedom
from knowledge and circumstances which ought to put a person on inquiry," and so it
is that proof of such knowledge overcomes the presumption of good faith in which the
courts always indulge in the absence of proof to the contrary. "Good faith, or the want
of it, is not a visible, tangible fact that can be seen or touched, but rather a state or
condition of mind which can only be judged of by actual or fancied tokens or signs."
(Wilder vs. Gilman, 55 Vt., 504, 505; Cf. Cardenas Lumber Co. vs. Shadel, 52 La.
Ann., 2094-2098; Pinkerton Bros. Co. vs. Bromley, 119 Mich., 8, 10, 17.)
We conclude that upon the grounds herein set forth the disposing part of the decision
and judgment entered in the court below should be affirmed with costs of this instance
against the appellant. So ordered.
PARAS, J.:
This is a petition for review on certiorari of the November 13, 1978
Decision * of the then Court of First Instance of Zambales and Olongapo City in Civil Case No.
2443-0 entitled "Spouses Fernando A. Magcale and Teodula Baluyut-Magcale vs. Hon. Ramon Y.
Pardo and Prudential Bank" declaring that the deeds of real estate mortgage executed by respondent
spouses in favor of petitioner bank are null and void.
The undisputed facts of this case by stipulation of the parties are as follows:
... on November 19, 1971, plaintiffs-spouses Fernando A. Magcale
and Teodula Baluyut Magcale secured a loan in the sum of
P70,000.00 from the defendant Prudential Bank. To secure
payment of this loan, plaintiffs executed in favor of defendant on the
aforesaid date a deed of Real Estate Mortgage over the following
described properties:
l. A 2-STOREY, SEMI-CONCRETE, residential building with
warehouse spaces containing a total floor area of 263 sq. meters,
more or less, generally constructed of mixed hard wood and
concrete materials, under a roofing of cor. g. i. sheets; declared and
assessed in the name of FERNANDO MAGCALE under Tax
Declaration No. 21109, issued by the Assessor of Olongapo City
with an assessed value of P35,290.00. This building is the only
improvement of the lot.
2. THE PROPERTY hereby conveyed by way of MORTGAGE
includes the right of occupancy on the lot where the above property
is erected, and more particularly described and bounded, as
follows:
Apart from the stipulations in the printed portion of the aforestated deed of
mortgage, there appears a rider typed at the bottom of the reverse side of the
document under the lists of the properties mortgaged which reads, as follows:
AND IT IS FURTHER AGREED that in the event the Sales Patent on the lot
applied for by the Mortgagors as herein stated is released or issued by the
Bureau of Lands, the Mortgagors hereby authorize the Register of Deeds to
hold the Registration of same until this Mortgage is cancelled, or to annotate
this encumbrance on the Title upon authority from the Secretary of Agriculture
and Natural Resources, which title with annotation, shall be released in favor
of the herein Mortgage.
From the aforequoted stipulation, it is obvious that the mortgagee (defendant
Prudential Bank) was at the outset aware of the fact that the mortgagors
(plaintiffs) have already filed a Miscellaneous Sales Application over the lot,
possessory rights over which, were mortgaged to it.
Exhibit "A" (Real Estate Mortgage) was registered under the Provisions of Act
3344 with the Registry of Deeds of Zambales on November 23, 1971.
On May 2, 1973, plaintiffs secured an additional loan from defendant
Prudential Bank in the sum of P20,000.00. To secure payment of this additional
loan, plaintiffs executed in favor of the said defendant another deed of Real
Estate Mortgage over the same properties previously mortgaged in Exhibit "A."
(Exhibit "B;" also Exhibit "2" for defendant). This second deed of Real Estate
Mortgage was likewise registered with the Registry of Deeds, this time in
Olongapo City, on May 2,1973.
1972 UNDER ACT NO. 730 AND THE COVERING ORIGINAL CERTIFICATE OF
TITLE NO. P-2554 ON MAY 15,1972 HAVE THE EFFECT OF INVALIDATING THE
DEEDS OF REAL ESTATE MORTGAGE. (Memorandum for Petitioner, Rollo, p. 122).
This petition is impressed with merit.
The pivotal issue in this case is whether or not a valid real estate mortgage can be
constituted on the building erected on the land belonging to another.
The answer is in the affirmative.
In the enumeration of properties under Article 415 of the Civil Code of the Philippines,
this Court ruled that, "it is obvious that the inclusion of "building" separate and distinct
from the land, in said provision of law can only mean that a building is by itself an
immovable property." (Lopez vs. Orosa, Jr., et al., L-10817-18, Feb. 28, 1958;
Associated Inc. and Surety Co., Inc. vs. Iya, et al., L-10837-38, May 30,1958).
Thus, while it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would be
still a real estate mortgage for the building would still be considered immovable
property even if dealt with separately and apart from the land (Leung Yee vs. Strong
Machinery Co., 37 Phil. 644). In the same manner, this Court has also established
that possessory rights over said properties before title is vested on the grantee, may
be validly transferred or conveyed as in a deed of mortgage (Vda. de Bautista vs.
Marcos, 3 SCRA 438 [1961]).
Coming back to the case at bar, the records show, as aforestated that the original
mortgage deed on the 2-storey semi-concrete residential building with warehouse and
on the right of occupancy on the lot where the building was erected, was executed on
November 19, 1971 and registered under the provisions of Act 3344 with the Register
of Deeds of Zambales on November 23, 1971. Miscellaneous Sales Patent No. 4776
on the land was issued on April 24, 1972, on the basis of which OCT No. 2554 was
issued in the name of private respondent Fernando Magcale on May 15, 1972. It is
therefore without question that the original mortgage was executed before the
issuance of the final patent and before the government was divested of its title to the
land, an event which takes effect only on the issuance of the sales patent and its
subsequent registration in the Office of the Register of Deeds (Visayan Realty Inc. vs.
Meer, 96 Phil. 515; Director of Lands vs. De Leon, 110 Phil. 28; Director of Lands vs.
Jurado, L-14702, May 23, 1961; Pena "Law on Natural Resources", p. 49). Under the
foregoing considerations, it is evident that the mortgage executed by private
respondent on his own building which was erected on the land belonging to the
government is to all intents and purposes a valid mortgage.
As to restrictions expressly mentioned on the face of respondents' OCT No. P-2554, it
will be noted that Sections 121, 122 and 124 of the Public Land Act, refer to land
already acquired under the Public Land Act, or any improvement thereon and
therefore have no application to the assailed mortgage in the case at bar which was
executed before such eventuality. Likewise, Section 2 of Republic Act No. 730, also a
SO ORDERED.
The Facts
The undisputed facts are summarized by the Court of Appeals as
follows:[10]
THIRD DIVISION
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.
SERGS
PRODUCTS,
INC.,
and
SERGIO
T.
GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE,
INC., respondent.
DECISION
PANGANIBAN, J.:
After agreeing to a contract stipulating that a real or immovable
property be considered as personal or movable, a party is estopped from
subsequently claiming otherwise. Hence, such property is a proper subject
of a writ of replevin obtained by the other contracting party.
The Case
Before us is a Petition for Review on Certiorari assailing the January
6, 1999 Decision[1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332
and its February 26, 1999 Resolution[3] denying reconsideration. The
decretal portion of the CA Decision reads as follows:
WHEREFORE, premises considered, the assailed Order dated February 18, 1998
and Resolution dated March 31, 1998 in Civil Case No. Q-98-33500 are
hereby AFFIRMED. The writ of preliminary injunction issued on June 15, 1998 is
hereby LIFTED.[4]
In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of
Quezon City (Branch 218)[6]issued a Writ of Seizure.[7] The March 18, 1998
Resolution[8] denied petitioners Motion for Special Protective Order, praying
that the deputy sheriff be enjoined from seizing immobilized or other real
properties in (petitioners) factory in Cainta, Rizal and to return to their
original place whatever immobilized machineries or equipments he may
have removed.[9]
On March 24, 1998, in implementation of said writ, the sheriff proceeded to petitioners
factory, seized one machinery with [the] word that he [would] return for the other
machineries.
On March 25, 1998, petitioners filed a motion for special protective order (Annex C),
invoking the power of the court to control the conduct of its officers and amend and
control its processes, praying for a directive for the sheriff to defer enforcement of the
writ of replevin.
This motion was opposed by PCI Leasing (Annex F), on the ground that the
properties [were] still personal and therefore still subject to seizure and a writ of
replevin.
In their Reply, petitioners asserted that the properties sought to be seized [were]
immovable as defined in Article 415 of the Civil Code, the parties agreement to the
contrary notwithstanding. They argued that to give effect to the agreement would be
prejudicial to innocent third parties. They further stated that PCI Leasing [was]
estopped from treating these machineries as personal because the contracts in which
the alleged agreement [were] embodied [were] totally sham and farcical.
On April 6, 1998, the sheriff again sought to enforce the writ of seizure and take
possession of the remaining properties. He was able to take two more, but was
prevented by the workers from taking the rest.
On April 7, 1998, they went to [the CA] via an original action for certiorari.
contract are clear and leave no doubt upon the true intention of the
contracting parties. Observing that Petitioner Goquiolay was an
experienced businessman who was not unfamiliar with the ways of the
trade, it ruled that he should have realized the import of the document he
signed. The CA further held:
Furthermore, to accord merit to this petition would be to preempt the trial court in
ruling upon the case below, since the merits of the whole matter are laid down before
us via a petition whose sole purpose is to inquire upon the existence of a grave abuse
of discretion on the part of the [RTC] in issuing the assailed Order and
Resolution. The issues raised herein are proper subjects of a full-blown trial,
necessitating presentation of evidence by both parties. The contract is being enforced
by one, and [its] validity is attacked by the other a matter x x x which respondent court
is in the best position to determine.
Hence, this Petition.
[11]
The Issues
In their Memorandum, petitioners submit the following issues for our
consideration:
A. Whether or not the machineries purchased and imported by SERGS became real
property by virtue of immobilization.
B. Whether or not the contract between the parties is a loan or a lease.[12]
In the main, the Court will resolve whether the said machines are
personal, not immovable, property which may be a proper subject of a writ
of replevin. As a preliminary matter, the Court will also address briefly the
procedural points raised by respondent.
In the present case, the machines that were the subjects of the Writ
of Seizure were placed by petitioners in the factory built on their own
land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was movable or
personal property on its own, all of them have become immobilized by
destination because they are essential and principal elements in the
industry.[16] In that sense, petitioners are correct in arguing that the said
machines are real, not personal, property pursuant to Article 415 (5) of the
Civil Code.[17]
Be that as it may, we disagree with the submission of the petitioners
that the said machines are not proper subjects of the Writ of Seizure.
The Court has held that contracting parties may validly stipulate that
a real property be considered as personal.[18] After agreeing to such
stipulation,
they
are
consequently
estopped
from
claiming
otherwise. Under the principle of estoppel, a party to a contract is ordinarily
precluded from denying the truth of any material fact found therein.
Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the
parties to treat a houseas a personal property because it had been made
the subject of a chattel mortgage. The Court ruled:
x x x. Although there is no specific statement referring to the subject house as
personal property, yet by ceding, selling or transferring a property by way of chattel
mortgage defendants-appellants could only have meant to convey the house as
chattel, or at least, intended to treat the same as such, so that they should not now be
allowed to make an inconsistent stand by claiming otherwise.
Applying Tumalad, the Court in Makati Leasing and Finance Corp. v.
Wearever Textile Mills[20]also held that the machinery used in a factory and
essential to the industry, as in the present case, was a proper subject of a
writ of replevin because it was treated as personal property in a
contract.Pertinent portions of the Courts ruling are reproduced hereunder:
x x x. If a house of strong materials, like what was involved in the above Tumalad
case, may be considered as personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so agree and no innocent
third party will be prejudiced thereby, there is absolutely no reason why a machinery,
which is movable in its nature and becomes immobilized only by destination or
purpose, may not be likewise treated as such. This is really because one who has so
agreed is estopped from denying the existence of the chattel mortgage.
In the present case, the Lease Agreement clearly provides that the
machines
in
question
are
to
be
considered as
personal
property. Specifically, Section 12.1 of the Agreement reads as follows:[21]
12.1 The PROPERTY is, and shall at all times be and remain, personal property
notwithstanding that the PROPERTY or any part thereof may now be, or hereafter
become, in any manner affixed or attached to or embedded in, or permanently resting
upon, real property or any building thereon, or attached in any manner to what is
permanent.
Clearly then, petitioners are estopped from denying the
characterization of the subject machines as personal property. Under the
circumstances, they are proper subjects of the Writ of Seizure.
house in question to petitioner herein and to pay him, jointly and severally, forty pesos
(P40.00) a month from October, 1952, until said delivery, plus costs.
On appeal taken by respondent, this decision was reversed by the Court of Appeals,
which absolved said respondent from the complaint, upon the ground that, although
the writ of attachment in favor of Evangelista had been filed with the Register of
Deeds of Manila prior to the sale in favor of respondent, Evangelista did not acquire
thereby a preferential lien, the attachment having been levied as if the house in
question were immovable property, although in the opinion of the Court of Appeals, it
is "ostensibly a personal property." As such, the Court of Appeals held, "the order of
attachment . . . should have been served in the manner provided in subsection (e) of
section 7 of Rule 59," of the Rules of Court, reading:
The property of the defendant shall be attached by the officer executing the
order in the following manner:
CONCEPCION, J.:
(e) Debts and credits, and other personal property not capable of manual
delivery, by leaving with the person owing such debts, or having in his
possession or under his control, such credits or other personal property, or
with, his agent, a copy of the order, and a notice that the debts owing by him
to the defendant, and the credits and other personal property in his
possession, or under his control, belonging to the defendant, are attached in
pursuance of such order. (Emphasis ours.)
However, the Court of Appeals seems to have been of the opinion, also, that the
house of Rivera should have been attached in accordance with subsection (c) of said
section 7, as "personal property capable of manual delivery, by taking and safely
keeping in his custody", for it declared that "Evangelists could not have . . . validly
purchased Ricardo Rivera's house from the sheriff as the latter was not in possession
thereof at the time he sold it at a public auction."
Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals.
In this connection, it is not disputed that although the sale to the respondent preceded
that made to Evangelists, the latter would have a better right if the writ of attachment,
issued in his favor before the sale to the respondent, had been properly executed or
enforced. This question, in turn, depends upon whether the house of Ricardo Rivera
is real property or not. In the affirmative case, the applicable provision would be
subsection (a) of section 7, Rule 59 of the Rules of Court, pursuant to which the
attachment should be made "by filing with the registrar of deeds a copy of the order,
together with a description of the property attached, and a notice that it is attached,
and by leaving a copy of such order, description, and notice with the occupant of the
property, if any there be."
Respondent maintains, however, and the Court of Appeals held, that Rivera's house
is personal property, the levy upon which must be made in conformity with
subsections (c) and (e) of said section 7 of Rule 59. Hence, the main issue before us
is whether a house, constructed the lessee of the land on which it is built, should be
dealt with, for purpose, of attachment, as immovable property, or as personal
property.
It is, our considered opinion that said house is not personal property, much less a
debt, credit or other personal property not capable of manual delivery, but immovable
property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true
building (not merely superimposed on the soil) is immovable or real property, whether
it is erected by the owner of the land or by usufructuary or lessee. This is the doctrine
of our Supreme Court in Leung Yee vs. Strong Machinery Company, 37 Phil., 644.
And it is amply supported by the rulings of the French Court. . . ."
We, therefore, declare that the house of mixed materials levied upon on
execution, although subject of a contract of chattel mortgage between the
owner and a third person, is real property within the purview of Rule 39,
section 16, of the Rules of Court as it has become a permanent fixture of the
land, which, is real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong
Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544;
Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)
It is true that the parties to a deed of chattel mortgage may agree to consider a house
as personal property for purposes of said contract (Luna vs. Encarnacion, * 48 Off.
Gaz., 2664; Standard Oil Co. of New York vs. Jaramillo, 44 Phil., 630; De Jesus vs.
Juan Dee Co., Inc., 72 Phil., 464). However, this view is good only insofar as
thecontracting parties are concerned. It is based, partly, upon the principle of
estoppel. Neither this principle, nor said view, is applicable to strangers to said
contract. Much less is it in point where there has been no contractwhatsoever, with
respect to the status of the house involved, as in the case at bar. Apart from this,
in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held:
The foregoing considerations apply, with equal force, to the conditions for the levy of
attachment, for it similarly affects the public and third persons.
The question now before us, however, is: Does the fact that the parties
entering into a contract regarding a house gave said property the
consideration of personal property in their contract, bind the sheriff in
advertising the property's sale at public auction as personal property? It is to
be remembered that in the case at bar the action was to collect a loan
secured by a chattel mortgage on the house. It is also to be remembered
that in practice it is the judgment creditor who points out to the sheriff the
properties that the sheriff is to levy upon in execution, and the judgment
creditor in the case at bar is the party in whose favor the owner of the house
had conveyed it by way of chattel mortgage and, therefore, knew its
consideration as personal property.
The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner
alleged, in paragraph 3 of the complaint, that he acquired the house in question "as a
consequence of the levy of an attachment and execution of the judgment in Civil
Case No. 8235" of the Court of First Instance of Manila. In his answer (paragraph 2),
Ricardo Rivera admitted said attachment execution of judgment. He alleged,
however, by way a of special defense, that the title of respondent "is superior to that
of plaintiff because it is based on a public instrument," whereas Evangelista relied
upon a "promissory note" which "is only a private instrument"; that said Public
instrument in favor of respondent "is superior also to the judgment in Civil Case No.
8235"; and that plaintiff's claim against Rivera amounted only to P866, "which is much
below the real value" of said house, for which reason it would be "grossly unjust to
acquire the property for such an inadequate consideration." Thus, Rivera impliedly
admitted that his house had been attached, that the house had been sold to
Evangelista in accordance with the requisite formalities, and that said attachment was
valid, although allegedly inferior to the rights of respondent, and the consideration for
the sale to Evangelista was claimed to be inadequate.
It is argued, however, that, even if the house in question were immovable property, its
attachment by Evangelista was void or ineffective, because, in the language of the
Court of Appeals, "after presenting a Copy of the order of attachment in the Office of
the Register of Deeds, the person who might then be in possession of the house, the
sheriff took no pains to serve Ricardo Rivera, or other copies thereof." This finding of
the Court of Appeals is neither conclusive upon us, nor accurate.
Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but
only " for the reasons stated in its special defenses" namely: (1) that by virtue of the
sale at public auction, and the final deed executed by the sheriff in favor of
respondent, the same became the "legitimate owner of the house" in question; (2)
that respondent "is a buyer in good faith and for value"; (3) that respondent "took
possession and control of said house"; (4) that "there was no valid attachment by the
plaintiff and/or the Sheriff of Manila of the property in question as neither took actual
or constructive possession or control of the property at any time"; and (5) "that the
alleged registration of plaintiff's attachment, certificate of sale and final deed in the
Office of Register of Deeds, Manila, if there was any, is likewise, not valid as there is
no registry of transactions covering houses erected on land belonging to or leased
from another." In this manner, respondent claimed a better right, merely under the
theory that, in case of double sale of immovable property, the purchaser who first
obtains possession in good faith, acquires title, if the sale has not been "recorded . . .
in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and that the writ
August 7, 1935
In another action, wherein the Davao Light & Power Co., Inc., was the plaintiff and the
Davao, Saw, Mill Co., Inc., was the defendant, a judgment was rendered in favor of
the plaintiff in that action against the defendant in that action; a writ of execution
issued thereon, and the properties now in question were levied upon as personalty by
the sheriff. No third party claim was filed for such properties at the time of the sales
thereof as is borne out by the record made by the plaintiff herein. Indeed the bidder,
which was the plaintiff in that action, and the defendant herein having consummated
the sale, proceeded to take possession of the machinery and other properties
described in the corresponding certificates of sale executed in its favor by the sheriff
of Davao.
As connecting up with the facts, it should further be explained that the Davao Saw Mill
Co., Inc., has on a number of occasions treated the machinery as personal property
by executing chattel mortgages in favor of third persons. One of such persons is the
appellee by assignment from the original mortgages.
Article 334, paragraphs 1 and 5, of the Civil Code, is in point. According to the Code,
real property consists of
1. Land, buildings, roads and constructions of all kinds adhering to the soil;
xxx
xxx
xxx
but not when so placed by a tenant, a usufructuary, or any person having only a
temporary right, unless such person acted as the agent of the owner. In the opinion
written by Chief Justice White, whose knowledge of the Civil Law is well known, it was
in part said:
To determine this question involves fixing the nature and character of the
property from the point of view of the rights of Valdes and its nature and
character from the point of view of Nevers & Callaghan as a judgment
creditor of the Altagracia Company and the rights derived by them from the
execution levied on the machinery placed by the corporation in the plant.
Following the Code Napoleon, the Porto Rican Code treats as immovable
(real) property, not only land and buildings, but also attributes immovability in
some cases to property of a movable nature, that is, personal property,
because of the destination to which it is applied. "Things," says section 334
of the Porto Rican Code, "may be immovable either by their own nature or
by their destination or the object to which they are applicable." Numerous
illustrations are given in the fifth subdivision of section 335, which is as
follows: "Machinery, vessels, instruments or implements intended by the
owner of the tenements for the industrial or works that they may carry on in
any building or upon any land and which tend directly to meet the needs of
the said industry or works." (See also Code Nap., articles 516, 518 et seq. to
and inclusive of article 534, recapitulating the things which, though in
themselves movable, may be immobilized.) So far as the subject-matter with
which we are dealing machinery placed in the plant it is plain, both
under the provisions of the Porto Rican Law and of the Code Napoleon, that
machinery which is movable in its nature only becomes immobilized when
placed in a plant by the owner of the property or plant. Such result would not
be accomplished, therefore, by the placing of machinery in a plant by a
tenant or a usufructuary or any person having only a temporary right.
(Demolombe, Tit. 9, No. 203; Aubry et Rau, Tit. 2, p. 12, Section 164;
Laurent, Tit. 5, No. 447; and decisions quoted in Fuzier-Herman ed. Code
Napoleon under articles 522 et seq.) The distinction rests, as pointed out by
Demolombe, upon the fact that one only having a temporary right to the
possession or enjoyment of property is not presumed by the law to have
applied movable property belonging to him so as to deprive him of it by
causing it by an act of immobilization to become the property of another. It
follows that abstractly speaking the machinery put by the Altagracia
Company in the plant belonging to Sanchez did not lose its character of
movable property and become immovable by destination. But in the concrete
immobilization took place because of the express provisions of the lease
under which the Altagracia held, since the lease in substance required the
putting in of improved machinery, deprived the tenant of any right to charge
against the lessor the cost such machinery, and it was expressly stipulated
that the machinery so put in should become a part of the plant belonging to
the owner without compensation to the lessee. Under such conditions the
tenant in putting in the machinery was acting but as the agent of the owner
in compliance with the obligations resting upon him, and the immobilization
of the machinery which resulted arose in legal effect from the act of the
owner in giving by contract a permanent destination to the machinery.
xxx
xxx
xxx
The machinery levied upon by Nevers & Callaghan, that is, that which was
placed in the plant by the Altagracia Company, being, as regards Nevers &
Callaghan, movable property, it follows that they had the right to levy on it
under the execution upon the judgment in their favor, and the exercise of
that right did not in a legal sense conflict with the claim of Valdes, since as to
him the property was a part of the realty which, as the result of his
obligations under the lease, he could not, for the purpose of collecting his
debt, proceed separately against. (Valdes vs. Central Altagracia [192], 225
U.S., 58.)
Finding no reversible error in the record, the judgment appealed from will be affirmed,
the costs of this instance to be paid by the appellant.
October 2, 2001
all the buildings and improvements now existing or which may hereafter exist
thereon, situated in . . .
"Annex A"
(Real and Chattel Mortgage executed by Ever Textile Mills in favor of
PBCommunications continued)
LIST OF MACHINERIES & EQUIPMENT
x---------------------------------------------------------x
xxx
xxx
xxx
xxx
QUISUMBING, J.:
These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV
No. 32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in
Civil Case No. 89-48265. Also assailed is respondent court's resolution denying
petitioners' motion for reconsideration.
On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a
three million peso (P3,000,000.00) loan from petitioner Philippine Bank of
Communications (PBCom). As security for the loan, EVERTEX executed in favor of
PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097,
where its factory stands, and the chattels located therein as enumerated in a
schedule attached to the mortgage contract. The pertinent portions of the Real and
Chattel Mortgage are quoted below:
xxx
xxx
xxx
xxx
SCHEDULE "A"
xxx
xxx
II. Any and all buildings and improvements now existing or hereafter to exist
on the above-mentioned lot.
MORTGAGE
xxx
xxx
xxx
of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her,
and should reconvey the assets.
xxx
xxx3
Further, EVERTEX averred that PBCom, without any legal or factual basis,
appropriated the contested properties, which were not included in the Real and
Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23,
1979, and neither were those properties included in the Notice of Sheriff's Sale dated
December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.
The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock
Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin
Equipment and 1 Heatset Equipment.
The RTC found that the lease and sale of said personal properties were irregular and
illegal because they were not duly foreclosed nor sold at the December 15, 1982
auction sale since these were not included in the schedules attached to the mortgage
contracts. The trial court decreed:
WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation
and against the defendants:
1. Ordering the annulment of the sale executed by defendant Philippine
Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988
insofar as it affects the personal properties listed in par. 9 of the complaint,
and their return to the plaintiff corporation through its assignee, plaintiff
Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done
within ten (10) days from finality of this decision;
2. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P5,200,000.00 as compensation for the use and
possession of the properties in question from November 1986 to February
1991 and P100,000.00 every month thereafter, with interest thereon at the
legal rate per annum until full payment;
3. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P50,000.00 as and for attorney's fees and expenses
of litigation;
4. Ordering the defendants to pay jointly and severally the plaintiff
corporation the sum of P200,000.00 by way of exemplary damages;
5. Ordering the dismissal of the counterclaim of the defendants; and
6. Ordering the defendants to proportionately pay the costs of suit.
SO ORDERED.4
Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its
decision dated August 31, 1994, the dispositive portion of which reads:
WHEREFORE, except for the deletion therefrom of the award; for exemplary
damages, and reduction of the actual damages, from P100,000.00 to P20,000.00 per
month, from November 1986 until subject personal properties are restored to
appellees, the judgment appealed from is hereby AFFIRMED, in all other respects.
No pronouncement as to costs.5
Motion for reconsideration of the above decision having been denied in the resolution
of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this
Court.
In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent
court:
I
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE
1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL
PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND
CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.
II
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL
PROPERTIES DEEMED PART OF THE MORTGAGE DESPITE THE
CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF
THE SUPREME COURT.
III
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
DEEMING PETITIONER A PURCHASER IN BAD FAITH.
IV
THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN
ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND
EXPENSES OF LITIGATION FOR WANT OF VALID FACTUAL AND
LEGAL BASIS.
V
personal properties have no factual and legal basis. Finally, it asserts that the Court of
Appeals erred in assessing damages and attorney's fees against PBCom.
In opposition, private respondents argue that the controverted units of machinery are
not "real properties" but chattels, and, therefore, they were not part of the foreclosed
real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity.12
Considering the assigned errors and the arguments of the parties, we find the
petitions devoid of merit and ought to be denied.
Well settled is the rule that the jurisdiction of the Supreme Court in a petition for
review on certiorari under Rule 45 of the Revised Rules of Court is limited to
reviewing only errors of law, not of fact, unless the factual findings complained of are
devoid of support by the evidence on record or the assailed judgment is based on
misapprehension of facts.13 This rule is applied more stringently when the findings of
fact of the RTC is affirmed by the Court of Appeals.14
The following are the facts as found by the RTC and affirmed by the Court of Appeals
that are decisive of the issues: (1) the "controverted machineries" are not covered by,
or included in, either of the two mortgages, the Real Estate and Chattel Mortgage,
and the pure Chattel Mortgage; (2) the said machineries were not included in the list
of properties appended to the Notice of Sale, and neither were they included in the
Sheriff's Notice of Sale of the foreclosed properties.15
Petitioners contend that the nature of the disputed machineries, i.e., that they were
heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom,
make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code.
This assertion, however, does not settle the issue. Mere nuts and bolts do not
foreclose the controversy. We have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal of
the contract of Real and Chattel Mortgage executed by the parties herein gives us a
contrary indication. In the case at bar, both the trial and the appellate courts reached
the same finding that the true intention of PBCOM and the owner, EVERTEX, is to
treat machinery and equipment as chattels. The pertinent portion of respondent
appellate court's ruling is quoted below:
As stressed upon by appellees, appellant bank treated the machineries as
chattels; never as real properties. Indeed, the 1975 mortgage contract,
which was actually real and chattel mortgage, militates against appellants'
posture. It should be noted that the printed form used by appellant bank was
mainly for real estate mortgages. But reflective of the true intention of
appellant PBCOM and appellee EVERTEX was the typing in capital letters,
immediately following the printed caption of mortgage, of the phrase "real
and chattel." So also, the "machineries and equipment" in the printed form of
the bank had to be inserted in the blank space of the printed contract and
connected with the word "building" by typewritten slash marks. Now, then, if
the machineries in question were contemplated to be included in the real
estate mortgage, there would have been no necessity to ink a chattel
Petitioner Tsai also argued that assuming that PBCom's title over the contested
properties is a nullity, she is nevertheless a purchaser in good faith and for value who
now has a better right than EVERTEX.
To the contrary, however, are the factual findings and conclusions of the trial court
that she is not a purchaser in good faith. Well-settled is the rule that the person who
asserts the status of a purchaser in good faith and for value has the burden of proving
such assertion.18 Petitioner Tsai failed to discharge this burden persuasively.
Moreover, a purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of purchase, or before
he has notice of the claims or interest of some other person in the property.19 Records
reveal, however, that when Tsai purchased the controverted properties, she knew of
respondent's claim thereon. As borne out by the records, she received the letter of
respondent's counsel, apprising her of respondent's claim, dated February 27,
1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of
respondent's claim, she proceeded to buy the contested units of machinery on May 3,
1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.
Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed
properties are located is equally unavailing. This defense refers to sale of lands and
not to sale of properties situated therein. Likewise, the mere fact that the lot where the
factory and the disputed properties stand is in PBCom's name does not automatically
make PBCom the owner of everything found therein, especially in view of EVERTEX's
letter to Tsai enunciating its claim.
Finally, petitioners' defense of prescription and laches is less than convincing. We find
no cogent reason to disturb the consistent findings of both courts below that the case
for the reconveyance of the disputed properties was filed within the reglementary
period. Here, in our view, the doctrine of laches does not apply. Note that upon
petitioners' adamant refusal to heed EVERTEX's claim, respondent company
immediately filed an action to recover possession and ownership of the disputed
properties. There is no evidence showing any failure or neglect on its part, for an
unreasonable and unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier. The doctrine of stale demands
would apply only where by reason of the lapse of time, it would be inequitable to allow
a party to enforce his legal rights. Moreover, except for very strong reasons, this
Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights
of an owner.22
As to the award of damages, the contested damages are the actual compensation,
representing rentals for the contested units of machinery, the exemplary damages,
and attorney's fees.
As regards said actual compensation, the RTC awarded P100,000.00 corresponding
to the unpaid rentals of the contested properties based on the testimony of John
Chua, who testified that the P100,000.00 was based on the accepted practice in
banking and finance, business and investments that the rental price must take into
account the cost of money used to buy them. The Court of Appeals did not give full
credence to Chua's projection and reduced the award to P20,000.00.
Basic is the rule that to recover actual damages, the amount of loss must not only be
capable of proof but must actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable of the actual amount
thereof.23 However, the allegations of respondent company as to the amount of
unrealized rentals due them as actual damages remain mere assertions unsupported
by documents and other competent evidence. In determining actual damages, the
court cannot rely on mere assertions, speculations, conjectures or guesswork but
must depend on competent proof and on the best evidence obtainable regarding the
actual amount of loss.24 However, we are not prepared to disregard the following
dispositions of the respondent appellate court:
. . . In the award of actual damages under scrutiny, there is nothing on
record warranting the said award of P5,200,000.00, representing monthly
rental income of P100,000.00 from November 1986 to February 1991, and
the additional award of P100,000.00 per month thereafter.
As pointed out by appellants, the testimonial evidence, consisting of the
testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is
necessary to substantiate the actual damages allegedly sustained by
appellees, by way of unrealized rental income of subject machineries and
equipments.
The testimony of John Cua (sic) is nothing but an opinion or projection
based on what is claimed to be a practice in business and industry. But such
a testimony cannot serve as the sole basis for assessing the actual
damages complained of. What is more, there is no showing that had
appellant Tsai not taken possession of the machineries and equipments in
question, somebody was willing and ready to rent the same for P100,000.00
a month.
xxx
xxx
xxx
Then, too, even assuming arguendo that the said machineries and
equipments could have generated a rental income of P30,000.00 a month,
as projected by witness Mamerto Villaluz, the same would have been a
gross income. Therefrom should be deducted or removed, expenses for
maintenance and repairs . . . Therefore, in the determination of the actual
damages or unrealized rental income sued upon, there is a good basis to
calculate that at least four months in a year, the machineries in dispute
would have been idle due to absence of a lessee or while being repaired. In
the light of the foregoing rationalization and computation, We believe that a
net unrealized rental income of P20,000.00 a month, since November 1986,
is more realistic and fair.25
As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the
Court of Appeals deleted. But according to the CA, there was no clear showing that
EN BANC
G.R. No. L-17870
LABRADOR, J.:
This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A.
Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the
payment of the realty tax on its maintenance and repair equipment hereunder referred
to.
5. That petitioner is the owner of the land where it maintains and operates a
garage for its TPU motor trucks; a repair shop; blacksmith and carpentry
shops, and with these machineries which are placed therein, its TPU trucks
are made; body constructed; and same are repaired in a condition to be
serviceable in the TPU land transportation business it operates;
In the Court of Tax Appeals the parties submitted the following stipulation of facts:
6. That these machineries have never been or were never used as industrial
equipments to produce finished products for sale, nor to repair machineries,
parts and the like offered to the general public indiscriminately for business
or commercial purposes for which petitioner has never engaged in, to
date.1awphl.nt
The Court of Tax Appeals having sustained the respondent city assessor's ruling, and
having denied a motion for reconsideration, petitioner brought the case to this Court
assigning the following errors:
1. The Honorable Court of Tax Appeals erred in upholding respondents'
contention that the questioned assessments are valid; and that said tools,
equipments or machineries are immovable taxable real properties.
2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of
the New Civil Code, and holding that pursuant thereto the movable
equipments are taxable realties, by reason of their being intended or
destined for use in an industry.
3. The Court of Tax Appeals erred in denying petitioner's contention that the
respondent City Assessor's power to assess and levy real estate taxes on
xxx
xxx
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xxx
So ordered.
AQUINO, J.:
This case is about the imposition of the realty tax on two oil storage tanks installed in
1969 by Manila Electric Company on a lot in San Pascual, Batangas which it leased
in 1968 from Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound.
They have a total capacity of 566,000 barrels. They are used for storing fuel oil for
Meralco's power plants.
According to Meralco, the storage tanks are made of steel plates welded and
assembled on the spot. Their bottoms rest on a foundation consisting of compacted
earth as the outermost layer, a sand pad as the intermediate layer and a two-inch
thick bituminous asphalt stratum as the top layer. The bottom of each tank is in
contact with the asphalt layer,
The steel sides of the tank are directly supported underneath by a circular wall made
of concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according
to Meralco, the tank is not attached to its foundation. It is not anchored or welded to
the concrete circular wall. Its bottom plate is not attached to any part of the foundation
by bolts, screws or similar devices. The tank merely sits on its foundation. Each
empty tank can be floated by flooding its dike-inclosed location with water four feet
deep. (pp. 29-30, Rollo.)
On the other hand, according to the hearing commissioners of the Central Board of
Assessment Appeals, the area where the two tanks are located is enclosed with
earthen dikes with electric steel poles on top thereof and is divided into two parts as
the site of each tank. The foundation of the tanks is elevated from the remaining area.
On both sides of the earthen dikes are two separate concrete steps leading to the
foundation of each tank.
Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch
thick. Pipelines were installed on the sides of each tank and are connected to the
pipelines of the Manila Enterprises Industrial Corporation whose buildings and
pumping station are near Tank No. 2.
The Board concludes that while the tanks rest or sit on their foundation, the
foundation itself and the walls, dikes and steps, which are integral parts of the tanks,
are affixed to the land while the pipelines are attached to the tanks. (pp. 60-61, Rollo.)
In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an assessment
made by the provincial assessor, required Meralco to pay realty taxes on the two
tanks. For the five-year period from 1970 to 1974, the tax and penalties amounted to
P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the tax and penalties
as a condition for entertaining its appeal from the adverse decision of the Batangas
board of assessment appeals.
The Central Board of Assessment Appeals (composed of Acting Secretary of Finance
Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and
Secretary of Local Government and Community Development Jose Roo as
members) in its decision dated November 5, 1976 ruled that the tanks together with
the foundation, walls, dikes, steps, pipelines and other appurtenances constitute
taxable improvements.
Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it
filed a motion for reconsideration which the Board denied in its resolution of
November 25, 1977, a copy of which was received by Meralco on February 28, 1978.
On March 15, 1978, Meralco filed this special civil action of certiorari to annul the
Board's decision and resolution. It contends that the Board acted without jurisdiction
and committed a grave error of law in holding that its storage tanks are taxable real
property.
Meralco contends that the said oil storage tanks do not fall within any of the kinds of
real property enumerated in article 415 of the Civil Code and, therefore, they cannot
be categorized as realty by nature, by incorporation, by destination nor by analogy.
Stress is laid on the fact that the tanks are not attached to the land and that they were
placed on leased land, not on the land owned by Meralco.
This is one of those highly controversial, borderline or penumbral cases on the
classification of property where strong divergent opinions are inevitable. The issue
raised by Meralco has to be resolved in the light of the provisions of the Assessment
Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential
Decree No. 464 which took effect on June 1, 1974.
Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is reproduced with some modification in
the Real Property Tax Code which provides:
require the removal or transfer of the pipes by and at the concessionaire's expense
should they be affected by any road repair or improvement.
Pursuant to the Assessment Law, Commonwealth Act No. 470, the provincial
assessor of Laguna treated the pipeline as real property and issued Tax Declarations
Nos. 6535-6537, San Pedro; 7473-7478, Cabuyao; 7967-7971, Sta. Rosa; 98829885, Bian and 15806-15810, Calamba, containing the assessed values of portions
of the pipeline.
MERALCO
SECURITIES
INDUSTRIAL
CORPORATION, petitioner,
vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, BOARD OF ASSESSMENT
APPEALS OF LAGUNA and PROVINCIAL ASSESSOR OF LAGUNA, respondents.
AQUINO, J.:
Meralco Securities brought the case to the Central Board of Assessment Appeals. As
already stated, that Board, composed of Acting Secretary of Finance Pedro M.
Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary
of Local Government and Community Development Jose Roo as members, ruled
that the pipeline is subject to realty tax (p. 40, Rollo).
SECOND DIVISION
A copy of that decision was served on Meralco Securities' counsel on August 27,
1976. Section 36 of the Real Property Tax Code, Presidential Decree No. 464, which
took effect on June 1, 1974, provides that the Board's decision becomes final and
executory after the lapse of fifteen days from the date of receipt of a copy of the
decision by the appellant.
Under Rule III of the amended rules of procedure of the Central Board of Assessment
Appeals (70 O.G. 10085), a party may ask for the reconsideration of the Board's
decision within fifteen days after receipt. On September 7, 1976 (the eleventh day),
Meralco Securities filed its motion for reconsideration.
Secretary of Finance Cesar Virata and Secretary Roo (Secretary Abad Santos
abstained) denied the motion in a resolution dated December 2, 1976, a copy of
which was received by appellant's counsel on May 24, 1977 (p. 4, Rollo). On June 6,
1977, Meralco Securities filed the instant petition for certiorari.
The Solicitor General contends that certiorari is not proper in this case because the
Board acted within its jurisdiction and did not gravely abuse its discretion and Meralco
Securities was not denied due process of law.
Meralco Securities explains that because the Court of Tax Appeals has no jurisdiction
to review the decision of the Central Board of Assessment Appeals and because no
judicial review of the Board's decision is provided for in the Real Property Tax Code,
Meralco Securities' recourse is to file a petition for certiorari.
We hold that certiorari was properly availed of in this case. It is a writ issued by a
superior court to an inferior court, board or officer exercising judicial or quasi-judicial
functions whereby the record of a particular case is ordered to be elevated for review
and correction in matters of law (14 C.J.S. 121-122; 14 Am Jur. 2nd 777).
Pipeline means a line of pipe connected to pumps, valves and control devices for
conveying liquids, gases or finely divided solids. It is a line of pipe running upon or in
the earth, carrying with it the right to the use of the soil in which it is placed (Note
21[10],54 C.J.S. 561).
"The purpose of judicial review is to keep the administrative agency within its
jurisdiction and protect substantial rights of parties affected by its decisions" (73
C.J.S. 507, See. 165). The review is a part of the system of checks and balances
which is a limitation on the separation of powers and which forestalls arbitrary and
unjust adjudications.
Article 415[l] and [3] provides that real property may consist of constructions of all
kinds adhered to the soil and everything attached to an immovable in a fixed manner,
in such a way that it cannot be separated therefrom without breaking the material or
deterioration of the object.
Judicial review of the decision of an official or administrative agency exercising quasijudicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of
discretion, fraud or collusion or in case the administrative decision is corrupt, arbitrary
or capricious (Mafinco Trading Corporation vs. Ople, L-37790, March 25, 1976, 70
SCRA 139, 158; San Miguel Corporation vs. Secretary of Labor, L-39195, May 16,
1975, 64 SCRA 56, 60, Mun. Council of Lemery vs. Prov. Board of Batangas, 56 Phil.
260, 268).
The Central Board of Assessment Appeals, in confirming the ruling of the provincial
assessor and the provincial board of assessment appeals that Meralco Securities'
pipeline is subject to realty tax, reasoned out that the pipes are machinery or
improvements, as contemplated in the Assessment Law and the Real Property Tax
Code; that they do not fall within the category of property exempt from realty tax
under those laws; that articles 415 and 416 of the Civil Code, defining real and
personal property, have no application to this case; that even under article 415, the
steel pipes can be regarded as realty because they are constructions adhered to the
soil and things attached to the land in a fixed manner and that Meralco Securities is
not exempt from realty tax under the Petroleum Law (pp. 36-40).
Meralco Securities insists that its pipeline is not subject to realty tax because it is not
real property within the meaning of article 415. This contention is not sustainable
under the provisions of the Assessment Law, the Real Property Tax Code and the
Civil Code.
Section 2 of the Assessment Law provides that the realty tax is due "on real property,
including land, buildings, machinery, and other improvements" not specifically
exempted in section 3 thereof. This provision is reproduced with some modification in
the Real Property Tax Code which provides:
SEC. 38. Incidence of Real Property Tax. There shall be levied,
assessed and collected in all provinces, cities and municipalities an
annual ad valorem tax on real property, such as land, buildings,
machinery and other improvements affixed or attached to real
property not hereinafter specifically exempted. *
It is incontestable that the pipeline of Meralco Securities does not fall within any of the
classes of exempt real property enumerated in section 3 of the Assessment Law and
section 40 of the Real Property Tax Code.
The pipeline system in question is indubitably a construction adhering to the soil (Exh.
B, p. 39, Rollo). It is attached to the land in such a way that it cannot be separated
therefrom without dismantling the steel pipes which were welded to form the pipeline.
Insofar as the pipeline uses valves, pumps and control devices to maintain the flow of
oil, it is in a sense machinery within the meaning of the Real Property Tax Code.
It should be borne in mind that what are being characterized as real property are not
the steel pipes but the pipeline system as a whole. Meralco Securities has apparently
two pipeline systems.
A pipeline for conveying petroleum has been regarded as real property for tax
purposes (Miller County Highway, etc., Dist. vs. Standard Pipe Line Co., 19 Fed. 2nd
3; Board of Directors of Red River Levee Dist. No. 1 of Lafayette County, Ark vs. R. F.
C., 170 Fed. 2nd 430; 50 C. J. 750, note 86).
The other contention of Meralco Securities is that the Petroleum Law exempts it from
the payment of realty taxes. The alleged exemption is predicated on the following
provisions of that law which exempt Meralco Securities from local taxes and make it
liable for taxes of general application:
ART. 102. Work obligations, taxes, royalties not to be changed.
Work obligations, special taxes and royalties which are fixed by the
provisions of this Act or by the concession for any of the kinds of
concessions to which this Act relates, are considered as inherent
on such concessions after they are granted, and shall not be
increased or decreased during the life of the concession to which
they apply; nor shall any other special taxes or levies be applied to
such concessions, nor shall 0concessionaires under this Act be
subject to any provincial, municipal or other local taxes or
levies; nor shall any sales tax be charged on any petroleum
produced from the concession or portion thereof, manufactured by
the concessionaire and used in the working of his concession. All
such concessionaires, however, shall be subject to such taxes as
are of general application in addition to taxes and other levies
specifically provided in this Act.
Meralco Securities argues that the realty tax is a local tax or levy and not a tax of
general application. This argument is untenable because the realty tax has always
been imposed by the lawmaking body and later by the President of the Philippines in
the exercise of his lawmaking powers, as shown in section 342 et seq. of the Revised
Administrative Code, Act No. 3995, Commonwealth Act No. 470 and Presidential
Decree No. 464.
The realty tax is enforced throughout the Philippines and not merely in a particular
municipality or city but the proceeds of the tax accrue to the province, city,
municipality and barrio where the realty taxed is situated (Sec. 86, P.D. No. 464). In
contrast, a local tax is imposed by the municipal or city council by virtue of the Local
Tax Code, Presidential Decree No. 231, which took effect on July 1, 1973 (69 O.G.
6197).
We hold that the Central Board of Assessment Appeals did not act with grave abuse
of discretion, did not commit any error of law and acted within its jurisdiction in
sustaining the holding of the provincial assessor and the local board of assessment
appeals that Meralco Securities' pipeline system in Laguna is subject to realty tax.
WHEREFORE, the questioned decision and resolution are affirmed. The petition is
dismissed. No costs.
SO ORDERED.
FIRST DIVISION
[G.R. No. 149420. October 8, 2003]
SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL.,
INC.,respondent.
DECISION
YNARES-SANTIAGO, J.:
Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation
engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business
under the name and style Sans Enterprises, is a building contractor. On February 22,
1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80.
[1] He paid a downpayment in the amount of P150,000.00. The balance was made
payable in ten monthly installments.
AndtheASSIGNORdoesherebygranttheASSIGNEE,itssuccessorsandassigns,thefull
powerandauthoritytodemand,collect,receive,compound,compromiseandgiveacquittance
forthesameoranypartthereof,andinthenameandsteadofthesaidASSIGNOR;
And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its
successorsandassignsthatsaiddebtisjustlyowingandduetotheASSIGNORforJomero
RealtyCorporationandthatsaidASSIGNORhasnotdoneandwillnotcauseanythingtobe
donetodiminishordischargesaiddebt,ordelayortopreventtheASSIGNEE,itssuccessors
orassigns,fromcollectingthesame;
AndtheASSIGNORfurtheragreesandstipulatesasaforesaidthatthesaidASSIGNOR,his
heirs,executors,administrators,orassigns,shallandwillattimeshereafter,attherequestof
saidASSIGNEE,itssuccessorsorassigns,athiscostandexpense,executeanddoallsuch
furtheractsanddeedsasshallbereasonablynecessarytoeffectuallyenablesaidASSIGNEE
torecoverwhatevercollectiblessaidASSIGNORhasinaccordancewiththetrueintentand
meaningofthesepresents.xxx[5](Italicssupplied)
However, when respondent tried to collect the said credit from Jomero Realty
Corporation, the latter refused to honor the Deed of Assignment because it claimed
that petitioner was also indebted to it.[6] On November 26, 1990, respondent sent a
letter[7] to petitioner demanding payment of his obligation, but petitioner refused to pay
claiming that his obligation had been extinguished when they executed the Deed of
Assignment.
WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house
locatedatGreenmeadowAvenue,QuezonCityownedbyJomeroRealtyCorporation;
WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR
purchasedonaccountscaffoldingequipmentsfromtheASSIGNEEpayabletothelatter;
WHEREAS,uptothepresenttheASSIGNORhasanobligationtotheASSIGNEEforthe
purchaseoftheaforementionedscaffoldingsnowintheamountofThreeHundredThirtyFive
ThousandFourHundredSixtyTwoand14/100Pesos(P335,462.14);
NOW, THEREFORE, for andin considerationof thesum ofThree HundredThirty Five
ThousandFourHundredSixtyTwoand14/100Pesos(P335,462.14),PhilippineCurrency
which represents part of the ASSIGNORs collectible from Jomero Realty Corp., said
ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles
amountingtothesaidamountofP335,462.14;
During the trial, petitioner argued that his obligation was extinguished with the
execution of the Deed of Assignment of credit. Respondent, for its part, presented the
testimony of its employee,Almeda Baaga, who testified that Jomero Realty refused to
honor the assignment of credit because it claimed that petitioner had an outstanding
indebtedness to it.
On August 25, 1994, the trial court rendered a decision [9] dismissing the
complaint on the ground that the assignment of credit extinguished the obligation. The
decretal portion thereof provides:
WHEREFORE,inviewoftheforegoing,theCourtherebyrendersjudgmentinfavorofthe
defendantandagainsttheplaintiff,dismissingthecomplaintandorderingtheplaintifftopay
thedefendantattorneysfeesintheamountofP25,000.00.
Respondent appealed the decision to the Court of Appeals. On April 19, 2001,
the appellate court rendered a decision,[10] the dispositive portion of which reads:
WHEREFORE,findingmeritinthisappeal,thecourtREVERSEStheappealedDecisionand
enters judgment ordering defendantappellee Sonny Lo to pay the plaintiffappellant KJS
ECOFORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand
Four Hundred SixtyTwo and 14/100 (P335,462.14) with legal interest of 6% per annum
fromJanuary10,1991(filingoftheComplaint)untilfullypaidandattorneysfeesequivalent
to10%oftheamountdueandcostsofthesuit.
SOORDERED.[11]
In finding that the Deed of Assignment did not extinguish the obligation of the
petitioner to the respondent, the Court of Appeals held that (1) petitioner failed to
comply with his warranty under the Deed; (2) the object of the Deed did not exist at
the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code;
and (3) petitioner violated the terms of the Deed of Assignment when he failed to
execute and do all acts and deeds as shall be necessary to effectually enable the
respondent to recover the collectibles.[12]
Petitioner filed a motion for reconsideration of the said decision, which was
denied by the Court of Appeals.[13]
In this petition for review, petitioner assigns the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN
DECLARINGTHEDEEDOFASSIGNMENT(EXH.4)ASNULLANDVOIDFOR
LACKOFOBJECTONTHEBASISOFAMEREHEARSAYCLAIM.
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE DEED OF ASSIGNMENT (EXH. 4) DID NOT EXTINGUISH
PETITIONERS OBLIGATION ON THE WRONG NOTION THAT
PETITIONER FAILED TO COMPLY WITH HIS WARRANTY
THEREUNDER.
III
THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE
DECISION OF THE TRIAL COURT AND IN ORDERING PAYMENT OF
INTERESTS AND ATTORNEYS FEES.[14]
The petition is without merit.
An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor.[15]
Corollary thereto, in dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt.[16] In order that there be a valid dation in payment, the following are
the requisites: (1) There must be the performance of the prestation in lieu of payment
(animo solvendi) which may consist in the delivery of a corporeal thing or a real right
or a credit against the third person; (2) There must be some difference between
the prestation due and that which is given in substitution (aliud pro alio); (3) There
must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from
that due.[17] The undertaking really partakes in one sense of the nature of sale, that is,
the creditor is really buying the thing or property of the debtor, payment for which is to
be charged against the debtors debt. As such, the vendor in good faith shall be
responsible, for the existence and legality of the credit at the time of the sale but not
for the solvency of the debtor, in specified circumstances.[18]
Hence, it may well be that the assignment of credit, which is in the nature of a
sale of personal property,[19] produced the effects of a dation in payment which may
extinguish the obligation.[20]However, as in any other contract of sale, the vendor or
assignor is bound by certain warranties.More specifically, the first paragraph of Article
1628 of the Civil Code provides:
Thevendoringoodfaithshallberesponsiblefortheexistenceandlegalityofthecreditatthe
timeofthesale,unlessitshouldhavebeensoldasdoubtful;butnotforthesolvencyofthe
debtor,unlessithasbeensoexpresslystipulatedorunlesstheinsolvencywaspriortothesale
andofcommonknowledge.
From the above provision, petitioner, as vendor or assignor, is bound to warrant
the existence and legality of the credit at the time of the sale or
assignment. When Jomero claimed that it was no longer indebted to petitioner since
the latter also had an unpaid obligation to it, it essentially meant that its obligation to
petitioner has been extinguished by compensation. [21] In other words, respondent
alleged the non-existence of the credit and asserted its claim to petitioners warranty
under the assignment. Therefore, it behooved on petitioner to make good its warranty
and paid the obligation.
Furthermore, we find that petitioner breached his obligation under the Deed of
Assignment, to wit:
AndtheASSIGNORfurtheragreesandstipulatesasaforesaidthatthesaidASSIGNOR,his
heirs,executors,administrators,orassigns,shallandwillattimeshereafter,attherequestof
saidASSIGNEE,itssuccessorsorassigns,athiscostandexpense,executeanddoallsuch
furtheractsanddeedsasshallbereasonablynecessarytoeffectuallyenablesaidASSIGNEE
torecoverwhatevercollectiblessaidASSIGNORhasinaccordancewiththetrueintentand
meaningofthesepresents.[22](underscoringours)
On the other hand, ARB is the owner and developer of Soldiers Hills Subdivision in
Bacoor, Cavite, which is composed of four phases. Phase I of the subdivision was
already accessible from the Marcos Alvarez Avenue. To provide the same
accessibility to the residents of Phase II of the subdivision, ARB constructed the
disputed road to link the two phases.
As found by the appellate court, petitioners' properties sit right in the middle of several
estates: Phase I of Soldiers Hills Subdivision in the north, a creek in the east and
Green Valley Subdivision the farther east, a road within Soldiers Hills Subdivision IV
which leads to the Marcos Alvarez Avenue in the west and Phase III of Soldiers Hills
Subdivision in the south.
Initially, petitioners offered to pay ARB P50,000 as indemnity for the use of the road.
Adamant, ARB refused the offer and fenced the perimeter of the road fronting the
properties of petitioners. By doing so, ARB effectively cut off petitioners' access to
and from the public highway.
After failing to settle the matter amicably, petitioners jointly filed a complaint 4 in the
RTC of Imus, Cavite to enjoin ARB from depriving them of the use of the disputed
subdivision road and to seek a compulsory right of way after payment of proper
indemnity. On November 24, 1995, the trial court rendered its decision in favor of
petitioners:
The reasons why this case is not one for a right of way as an easement are not
difficult to discern.
FIRST DIVISION
G.R. No. 157285
The questioned road is part and parcel of the road network of Soldiers Hills IV, Phase
II. This road was constructed pursuant to the approved subdivision plan of Soldiers
Hills IV, Phase II. As such, the road has already been withdrawn from the commerce
of men as the ownership of which was automatically vested in the government without
need of any compensation, although it is still registered in the name of the [ARB], the
moment the subdivision plan was approved. While it is not yet donated to the
government [,] [it] is of no moment for donating this road to the government is a mere
formality.
DECISION
CORONA, J.:
Petitioners Woodridge School, Inc. (Woodridge) and Miguela Jimenez-Javier come to
us assailing the decision1dated September 30, 2002 and resolution 2 dated February
14, 2003 of the Court of Appeals in CA-G.R. CV No. 515333 which, in turn, modified
the ruling of the Regional Trial Court (RTC) of Imus, Cavite awarding P500,000 to
respondent ARB Construction Co., Inc. (ARB) as reasonable indemnity for the use of
ARB's road lot.3
Woodridge is the usufructuary of a parcel of land covered by Transfer Certificate of
Title (TCT) No. T-363902 in the name of spouses Ernesto T. Matugas and Filomena
U. Matugas. Its co-petitioner, Miguela Jimenez-Javier, is the registered owner of the
adjacent lot under TCT No. T-330688.
Unsatisfied with the ruling of the appellate court, petitioners filed this petition for
review on certiorari insisting that ARB is not entitled to be paid any indemnity.
ARB elevated the case to the Court of Appeals. Finding merit in the appeal, the
appellate court reversed the decision of the lower court. It explained that the 1991
case of White Plains Subdivision[7] did not apply to the present case which was
decided under a different factual milieu:
In the assailed Decision, the Court below relied on the ruling of the Supreme Court
in White Plains Association, Inc. vs. Legaspi (193 SCRA 765). The ruling is not
applicable. In the White Plains case, the disputed area was specifically set aside by
the Quezon City Government, with the concurrence of the owner and developer of the
White Plains Subdivision in Quezon City, for the purpose of constructing a major
thoroughfare open to the general public. The case was filed by the association of
homeowners of White Plains in Quezon City when the owner-developer sought to
convert the disputed lot to residential lots. The Supreme Court initially held that the
disputed lot was not longer within the commerce of men, it having been segregated
for a particular purpose, that of being used as "part of a mandatory open space
reserved for public use to be improved into the widened Katipunan Road". It was
within this context that the Supreme Court held that "ownership was automatically
vested in the Quezon City government and/or the Republic of the Philippines, without
need of paying any compensation".8
The appellate court went on to rule that a compulsory right of way exists in favor of
petitioners as "[t]here is no other existing adequate outlet to and from [petitioners']
properties to the Marcos Alvarez Avenue other than the subject existing road lot
designated as Lot No. 5827-F-1 belonging to [ARB]." 9 In addition, it
awarded P500,000 to ARB as reasonable indemnity for the use of the road lot.
Acting on petitioners' motion for reconsideration, the appellate court justified the
monetary award in this manner:
In [o]ur Decision, [w]e awarded the amount of P500,000.00 merely as reasonable
indemnity for the use of the road lot, not the alienation thereof. The amount was
based on equitable considerations foremost of which is that, while there is no
alienation to speak of, the easement is of long-standing, that is, until a shorter and
adequate outlet is established. Moreover, [ARB] should be compensated for the wear
and tear that [petitioners'] use of the road would contribute to; it is [ARB] which is
solely to be credited for the completion of the road lot. Going by the conservative
valuation of the Municipality of Bacoor, Cavite presented by [petitioners], the 4,760
sq. m. road lot would costP1,904,000 but as stated what is compensated is the use of
the road lot not its alienation.
[Petitioners'] original offer cannot be considered a reasonable indemnity, there being
a knotty legal question involved and it is not [ARB's] fault that the parties had to resort
to the courts for a resolution.10
Petitioners argue that the contested road lot is a property of public dominion pursuant
to Article 42011 of the Civil Code. Specifically, petitioners point out that the disputed
road lot falls under the category "others of similar character" which is the last clause
of Article 420 (1).12 Hence, it is a property of public dominion which can be used by
the general public without need for compensation. Consequently, it is wrong for ARB
to exclude petitioners from using the road lot or to make them pay for the use of the
same.
We disagree.
In the case of Abellana, Sr. v. Court of Appeals,13 the Court held that "the road lots in
a private subdivision are private property, hence, the local government should first
acquire them by donation, purchase, or expropriation, if they are to be utilized as a
public road."14 Otherwise, they remain to be private properties of the owner-developer.
Contrary to the position of petitioners, the use of the subdivision roads by the general
public does not strip it of its private character. The road is not converted into public
property by mere tolerance of the subdivision owner of the public's passage through
it. To repeat, "the local government should first acquire them by donation, purchase,
or expropriation, if they are to be utilized as a public road."15
Likewise, we hold the trial court in error when it ruled that the subject road is public
property pursuant to Section 2 of Presidential Decree No. 1216. 16 The pertinent
portion of the provision reads:
Section 2. xxx xxx xxx
Upon their completion as certified to by the Authority, the roads, alleys, sidewalks and
playgrounds shall be donated by the owner or developer to the city or municipality
and it shall be mandatory for the local governments to accept them provided,
however, that the parks and playgrounds may be donated to the Homeowners
Association of the project with the consent of the city or municipality concerned
The law is clear. The transfer of ownership from the subdivision owner-developer to
the local government is not automatic but requires a positive act from the ownerdeveloper before the city or municipality can acquire dominion over the subdivision
roads. Therefore, until and unless the roads are donated,17 ownership remains with
the owner-developer.18
Since no donation has been made in favor of any local government and the title to the
road lot is still registered in the name of ARB, the disputed property remains private.
This is not to say that ARB may readily exclude petitioners from passing through the
property. As correctly pointed out by the Court of Appeals, the circumstances clearly
make out a case of legal easement of right of way. It is an easement which has been
imposed by law and not by the parties and it has "for (its) object either public use or
the interest of private persons."19
countenance. The Civil Code has clearly laid down the parameters and we cannot
depart from them. Verba legis non est recedendum.
Having settled the legal issues, we order the remand of this case to the trial court for
reception of evidence and determination of the limits of the property to be covered by
the easement, the proper indemnity to be paid and the respective contributions of
petitioners.
The appellate and trial courts found that the properties of petitioners are enclosed by
other estates without any adequate access to a public highway except the subject
road lot which leads to Marcos Alvarez Avenue. 21 Although it was shown that the
shortest distance from the properties to the highway is toward the east across a
creek, this alternative route does not provide an adequate outlet for the students of
the proposed school. This route becomes marshy as the creek overflows during the
rainy season and will endanger the students attending the school.
All told, the only requisite left unsatisfied is the payment of proper indemnity.
Petitioners assert that their initial offer of P50,000 should be sufficient compensation
for the right of way. Further, they should not be held accountable for the increase in
the value of the property since the delay was attributable to the stubborn refusal of
ARB to accept their offer.22
Again, we are not persuaded.
In the case of a legal easement, Article 649 of the Civil Code prescribes the
parameters by which the proper indemnity may be fixed. Since the intention of
petitioners is to establish a permanent passage, the second paragraph of Article 649
of the Civil Code particularly applies:
Art 649. xxx xxx xxx
Should this easement be established in such a manner that its use may be
continuous for all the needs of the dominant estate, establishing a permanent
passage, the indemnity shall consist of the value of the land occupied and the
amount of the damage caused to the servient estate. xxx. (Emphasis supplied)
On that basis, we further hold that the appellate court erred in arbitrarily awarding
indemnity for the use of the road lot.
The Civil Code categorically provides for the measure by which the proper indemnity
may be computed: value of the land occupied plus the amount of the damage caused
to the servient estate. Settled is the rule in statutory construction that "when the law is
clear, the function of the courts is simple application." 23 Thus, to award the indemnity
using factors different from that given by the law is a complete disregard of these
clear statutory provisions and is evidently arbitrary. This the Court cannot
For the guidance of the trial court, the fact that the disputed road lot is used by the
general public may be taken in consideration to mitigate the amount of damage that
the servient estate is entitled to, in the sense that the wear and tear of the subject
road is not entirely attributable to petitioners.
WHEREFORE, this petition is partially GRANTED. The September 30, 2002 Decision
and February 14, 2003 resolution of the Court of Appeals in CA-G.R. CV No. 515333
are ANNULLED and SET ASIDE in so far as petitioners are ordered to pay an
indemnity of P500,000. The case is hereby remanded to the trial court for reception of
evidence and determination of the limits of the property to be covered by the
easement, the proper indemnity to be paid and the respective contributions of
petitioners.
SO ORDERED.
EN BANC
G.R. No. L-13334
A well-known legal principle is that when an appellate court has once declared the law
in a case, such declaration continues to be the law of that cae even on the
subsequent appeal. The rule made by an appellate court, while it may be reversed in
other cases, cannot be departed from in subsequent proceedings in the same case.
The "Law of the Case," as applied to a former decision of an appellate court, merely
expresses the practice of the courts in refusing to reopen what has been decided.
Such a rule is "necessary to en bale an appellate court to perform its duties
satisfactorily and efficiently, which would be impossible if a question, once considered
and decided by it, were to be litigated anew in the same case upon any and every
subsequent appeal." Again, the rule is necessary as a matter of policy in order to end
litigation. "There would be no end to a suit if every obstinate litigant could, by
repeated appeals, compel a court to listen to criticism on their opinions, or speculate
of chances from changes in its members." (See Great Western Tel. Co. vs. Burnham
[1895], 162 U.S., 339, 343; Roberts vs. cooper [1857], 20 How., 467, 481;
Messinger vs. Anderson [1912], 225 U.S., 436.)
The phrase "Law of the Case" is described in a decision coming from the Supreme
Court of Missouri in the following graphical language:
The general rule, nakedly and badly but, is that legal conclusions announced
on a first appeal, whether on the general law or the law as applied to the
concrete facts, not only prescribed the duty and limit the power of the trial
court to strict obedience and conformity thereto, but they become and
remain the law of the case in all after steps below or above on subsequent
appeal. The rule is grounded on convenience, experience, and reason.
Without the rule there would be no end to criticism, reagitation,
reexamination, and reformulation. In Short, there would be endless litigant
were allowed to speculate on changes in the personnel of a court, or on the
chance of our rewriting proposition once gravely ruled on solemn argument
and handed down as the law of a given case. An itch to reopen questions
foreclosed on a first appeal, would result in the foolishness of the inquisitive
youth who pulled up his corn to see how it grew. Courts are allowed, if they
so choose, to act like ordinary sensible persons. The Administration of
justice is a practical affair. The rule is a practical and a good one of frequent
and beneficial use. (Mangold vs. Bacon [1911], 237 Mo., 496, 512.)
Judgment is affirmed with costs against appellant. So ordered.
Arellano, C.J., Johnson, Carson, Street, Avancea and Moir, JJ., concur.
Separate Opinions
TORRES, J., concurring:
It has not been proven by the petitioner that the land occupied by Apolonio Gamido
was his own property, and in view of the fact that the said land is not public land, it
can not be the object of a homestead application, and for this reason it follows that
the judgment appealed from should be affirmed with costs.
Supreme Court
- versus Manila
EN BANC
MAYOR JOSE S. YAP, LIBERTAD
THE SECRETARY OF THE G.R. No. 167707
DEPARTMENT OF ENVIRONMENT
x--------------------------------------------------x
THE LANDOWNERS OF
BORACAY SIMILARLY
Petitioners,
- versus -
declaratory relief filed by respondents-claimants Mayor Jose Yap, et al. and ordered
the survey of Boracay for titling purposes. The second is G.R. No. 173775, a petition
for prohibition, mandamus, and nullification of Proclamation No. 1064[3] issued by
President Gloria Macapagal-Arroyo classifying Boracay into reserved forest and
agricultural land.
The Antecedents
REGIONAL TECHNICAL
Boracay Island in the Municipality of Malay, Aklan, with its powdery white
sand beaches and warm crystalline waters, is reputedly a premier Philippine tourist
destination.The island is also home to 12,003 inhabitants [4] who live in the boneshaped islands threebarangays.[5]
x--------------------------------------------------x
DECISION
3(a) of Presidential Decree (PD) No. 705 or the Revised Forestry Code, [11] as
amended.
The OSG moved for reconsideration but its motion was denied. [23] The
Republic then appealed to the CA.
On December 9, 2004, the appellate court affirmed in toto the RTC decision,
disposing as follows:
On July 14, 1999, the RTC rendered a decision in favor of respondentsclaimants, with a fallo reading:
WHEREFORE, in view of the foregoing, the Court
declares that Proclamation No. 1801 and PTA Circular No. 3-82
pose no legal obstacle to the petitioners and those similarly situated
to acquire title to their lands in Boracay, in accordance with the
applicable laws and in the manner prescribed therein; and to have
their lands surveyed and approved by respondent Regional
Technical Director of Lands as the approved survey does not in
itself constitute a title to the land.
SO ORDERED.[17]
The RTC upheld respondents-claimants right to have their occupied lands
titled in their name. It ruled that neither Proclamation No. 1801 nor PTA Circular No.
3-82 mentioned that lands in Boracay were inalienable or could not be the subject of
disposition.[18] The Circular itself recognized private ownership of lands.[19] The trial
court cited Sections 87[20] and 53[21] of the Public Land Act as basis for acknowledging
private ownership of lands in Boracay and that only those forested areas in public
lands were declared as part of the forest reserve.[22]
On November 21, 2006, this Court ordered the consolidation of the two
petitions as they principally involve the same issues on the land classification
of Boracay Island.[33]
Issues
G.R. No. 167707
The OSG raises the lone issue of whether Proclamation No. 1801
and PTA Circular No. 3-82 pose any legal obstacle for respondents, and all those
similarly situated, to acquire title to their occupied lands in Boracay Island.[34]
In capsule, the main issue is whether private claimants (respondentsclaimants in G.R. No. 167707 and petitioners-claimants in G.R. No. 173775) have a
right to secure titles over their occupied portions in Boracay. The twin petitions pertain
to their right, if any, to judicial confirmation of imperfect title under CA No. 141, as
amended. They do not involve their right to secure title under other pertinent laws.
Our Ruling
terms they may be granted such privilege, not excluding the placing of obstacles in
the way of their exercise of what otherwise would be ordinary acts of ownership.[49]
Our present land law traces its roots to the Regalian Doctrine. Upon the
Spanish conquest of the Philippines, ownership of all lands, territories and
possessions in thePhilippines passed to the Spanish Crown.[50] The Regalian doctrine
was first introduced in the Philippines through the Laws of the Indies and the Royal
Cedulas, which laid the foundation that all lands that were not acquired from the
Government, either by purchase or by grant, belong to the public domain.[51]
The Laws of the Indies was followed by the Ley Hipotecaria or the Mortgage
Law of 1893. The Spanish Mortgage Law provided for the systematic registration of
titles and deeds as well as possessory claims.[52]
The Royal Decree of 1894 or the Maura Law[53] partly amended the Spanish
Mortgage Law and the Laws of the Indies. It established possessory information as
the method of legalizing possession of vacant Crown land, under certain conditions
which were set forth in said decree. [54] Under Section 393 of the Maura Law,
an informacion posesoriaor possessory information title,[55] when duly inscribed in the
Registry of Property, is converted into a title of ownership only after the lapse of
twenty (20) years of uninterrupted possession which must be actual, public, and
adverse,[56] from the date of its inscription.[57]However, possessory information title had
to be perfected one year after the promulgation of the Maura Law, or until April 17,
1895. Otherwise, the lands would revert to the State.[58]
In sum, private ownership of land under the Spanish regime could only be
founded on royal concessions which took various forms, namely: (1) titulo real or
royal grant; (2)concesion especial or special grant; (3) composicion con el estado or
adjustment title; (4)titulo de compra or title by purchase; and (5) informacion
posesoria or possessory information title.[59]
The first law
governing
the
disposition
of
public
lands
in
the Philippines under American rule was embodied in the Philippine Bill of 1902.[60] By
this law, lands of the public domain in the Philippine Islands were classified into three
(3) grand divisions, to wit: agricultural, mineral, and timber or forest lands. [61] The act
provided for, among others, the disposal of mineral lands by means of absolute grant
(freehold system) and by lease (leasehold system).[62] It also provided the definition by
exclusion of agricultural public lands.[63] Interpreting the meaning of agricultural lands
under the Philippine Bill of 1902, the Court declared in Mapa v. Insular Government:[64]
x x x In other words, that the phrase agricultural land as
used in Act No. 926 meansthose public lands acquired
from Spain which are not timber or mineral lands. x x x[65](Emphasis
Ours)
On February 1, 1903, the Philippine Legislature passed Act No. 496,
otherwise known as the Land Registration Act. The act established a system of
registration by which recorded title becomes absolute, indefeasible, and
imprescriptible. This is known as the Torrenssystem.[66]
ownership), who must prove that the land subject of the application is alienable or
disposable.[83] To overcome this presumption, incontrovertible evidence must be
established that the land subject of the application (or claim) is alienable or
disposable.[84] There must still be a positive act declaring land of the public domain as
alienable and disposable. To prove that the land subject of an application for
registration is alienable, the applicant must establish the existence of a positive act of
the government such as a presidential proclamation or an executive order; an
administrative action; investigation reports of Bureau of Lands investigators; and a
legislative act or a statute.[85] The applicant may also secure a certification from the
government that the land claimed to have been possessed for the required number of
years is alienable and disposable.[86]
In the case at bar, no such proclamation, executive order, administrative
action, report, statute, or certification was presented to the Court. The records are
bereft of evidence showing that, prior to 2006, the portions of Boracay occupied by
private claimants were subject of a government proclamation that the land is alienable
and disposable. Absent such well-nigh incontrovertible evidence, the Court cannot
accept the submission that lands occupied by private claimants were already open to
disposition before 2006. Matters of land classification or reclassification cannot be
assumed. They call for proof.[87]
Ankron and De Aldecoa did not make the whole of Boracay Island, or
portions of it, agricultural lands. Private claimants posit that Boracay was already an
agricultural land pursuant to the old cases Ankron v. Government of the
Philippine Islands (1919)[88] and De Aldecoa v. The Insular Government (1909).
[89]
These cases were decided under the provisions of the Philippine Bill of 1902 and
Act No. 926. There is a statement in these old cases that in the absence of evidence
to the contrary, that in each case the lands are agricultural lands until the contrary is
shown.[90]
Private claimants reliance on Ankron and De Aldecoa is misplaced. These
cases did not have the effect of converting the whole of Boracay Island or portions of
it into agricultural lands. It should be stressed that the Philippine Bill of 1902 and Act
No. 926 merely provided the manner through which land registration courts would
classify lands of the public domain.Whether the land would be classified as timber,
mineral, or agricultural depended on proof presented in each case.
Ankron and De Aldecoa were decided at a time when the President of the
Philippines had no power to classify lands of the public domain into mineral, timber,
and agricultural. At that time, the courts were free to make corresponding
classifications in justiciable cases, or were vested with implicit power to do so,
depending upon the preponderance of the evidence.[91] This was the Courts ruling
in Heirs of the Late Spouses Pedro S. Palanca and Soterranea Rafols Vda. De
Palanca v. Republic,[92] in which it stated, through Justice Adolfo Azcuna, viz.:
x x x Petitioners furthermore insist that a particular land
need not be formally released by an act of the Executive before it
can be deemed open to private ownership, citing the cases
of Ramos v. Director of Lands and Ankron v. Government of the
Philippine Islands.
xxxx
of the extent and present or future value of the forestry and of the
minerals. While, as we have just said, many definitions have been
given for agriculture, forestry, and mineral lands, and that in each
case it is a question of fact, we think it is safe to say that in order to
be forestry or mineral land the proof must show that it is more
valuable for the forestry or the mineral which it contains than it is for
agricultural purposes. (Sec. 7, Act No. 1148.) It is not sufficient to
show that there exists some trees upon the land or that it bears
some mineral. Land may be classified as forestry or mineral today,
and, by reason of the exhaustion of the timber or mineral, be
classified as agricultural land tomorrow. And vice-versa, by reason
of the rapid growth of timber or the discovery of valuable minerals,
lands classified as agricultural today may be differently classified
tomorrow. Each case must be decided upon the proof in that
particular case, having regard for its present or future value for one
or the other purposes. We believe, however, considering the fact
that it is a matter of public knowledge that a majority of the lands in
the Philippine Islands are agricultural lands that the courts have a
right to presume, in the absence of evidence to the contrary, that in
each case the lands are agricultural lands until the contrary is
shown.Whatever the land involved in a particular land registration
case is forestry or mineral land must, therefore, be a matter of
proof. Its superior value for one purpose or the other is a question
of fact to be settled by the proof in each particular case. The fact
that the land is a manglar [mangrove swamp] is not sufficient for the
courts to decide whether it is agricultural, forestry, or mineral land. It
may perchance belong to one or the other of said classes of
land. The Government, in the first instance, under the provisions of
Act No. 1148, may, by reservation, decide for itself what portions of
public land shall be considered forestry land, unless private
interests have intervened before such reservation is made. In the
latter case, whether the land is agricultural, forestry, or mineral, is a
question of proof. Until private interests have intervened, the
Government, by virtue of the terms of said Act (No. 1148), may
decide for itself what portions of the public domain shall be set
aside and reserved as forestry or mineral land. (Ramos vs. Director
of Lands, 39 Phil. 175; Jocson vs. Director of Forestry,supra)
[95]
(Emphasis ours)
Since 1919, courts were no longer free to determine the classification of
lands from the facts of each case, except those that have already became private
lands.[96] Act No. 2874, promulgated in 1919 and reproduced in Section 6 of CA No.
141, gave the Executive Department, through the President, the exclusive prerogative
to classify or reclassify public lands into alienable or disposable, mineral or forest.96a
Since then, courts no longer had the authority, whether express or implied, to
determine the classification of lands of the public domain.[97]
Here, private claimants, unlike the Heirs of Ciriaco Tirol who were issued
their title in 1933,[98] did not present a justiciable case for determination by the land
registration court of the propertys land classification. Simply put, there was no
opportunity for the courts then to resolve if the land the Boracay occupants are now
claiming were agricultural lands. When Act No. 926 was supplanted by Act No. 2874
in 1919, without an application for judicial confirmation having been filed by private
claimants or their predecessors-in-interest, the courts were no longer authorized to
determine the propertys land classification. Hence, private claimants cannot bank on
Act No. 926.
We note that the RTC decision[99] in G.R. No. 167707 mentioned Krivenko v.
Register of Deeds of Manila,[100] which was decided in 1947 when CA No. 141, vesting
the Executive with the sole power to classify lands of the public domain was already
in effect.Krivenko cited the old cases Mapa v. Insular Government,[101] De Aldecoa v.
The Insular Government,[102] and Ankron v. Government of the Philippine Islands.[103]
Krivenko, however, is not controlling here because it involved a totally
different issue. The pertinent issue in Krivenko was whether residential lots were
included in the general classification of agricultural lands; and if so, whether an alien
could acquire a residential lot.This Court ruled that as an alien, Krivenko was
prohibited by the 1935 Constitution[104]from acquiring agricultural land, which included
residential lots. Here, the issue is whether unclassified lands of the public domain are
automatically deemed agricultural.
Notably, the definition of agricultural public lands mentioned
in Krivenko relied on the old cases decided prior to the enactment of Act No. 2874,
including Ankron and De Aldecoa.[105] As We have already stated, those cases cannot
apply here, since they were decided when the Executive did not have the authority to
classify lands as agricultural, timber, or mineral.
Private claimants continued possession under Act No. 926 does not create a
presumption that the land is alienable. Private claimants also contend that their
continued possession of portions of Boracay Island for the requisite period of ten (10)
years under Act No. 926[106] ipso facto converted the island into private
ownership. Hence, they may apply for a title in their name.
A similar argument was squarely rejected by the Court in Collado v. Court of
Appeals.[107] Collado, citing the separate opinion of now Chief Justice Reynato S.
Puno in Cruz v. Secretary of Environment and Natural Resources,107-a ruled:
Act No. 926, the first Public Land Act,
was passed in pursuance of the provisions of the
Philippine Bill of 1902. The law governed the
disposition of lands of the public domain. It
prescribed rules and regulations for the
homesteading, selling and leasing of portions of
the public domain of the Philippine Islands, and
prescribed the terms and conditions to enable
persons to perfect their titles to public lands in
the Islands. It also provided for the issuance of
patents to certain native settlers upon public
lands, for the establishment of town sites and
sale of lots therein, for the completion of
imperfect titles, and for the cancellation or
confirmation of Spanish concessions and grants
in the Islands. In short, the Public Land Act
More importantly, Proclamation No. 1801 covers not only Boracay Island, but
sixty-four (64) other islands, coves, and peninsulas in the Philippines, such as
Fortune and Verde Islands in Batangas, Port Galera in Oriental Mindoro, Panglao and
Balicasag Islands in Bohol, Coron Island, Puerto Princesa and surrounding areas in
Palawan, Camiguin Island in Cagayan de Oro, and Misamis Oriental, to name a
few. If the designation of Boracay Islandas tourist zone makes it alienable and
disposable by virtue of Proclamation No. 1801, all the other areas mentioned would
likewise be declared wide open for private disposition. That could not have been, and
is clearly beyond, the intent of the proclamation.
It was Proclamation No. 1064 of 2006 which positively declared part of
Boracay as alienable and opened the same to private ownership. Sections 6 and 7 of
CA No. 141[120]provide that it is only the President, upon the recommendation of the
proper department head, who has the authority to classify the lands of the public
domain into alienable or disposable, timber and mineral lands.[121]
In issuing Proclamation No. 1064, President Gloria Macapagal-Arroyo
merely exercised the authority granted to her to classify lands of the public domain,
presumably subject to existing vested rights. Classification of public lands is the
exclusive prerogative of the Executive Department, through the Office of the
President. Courts have no authority to do so.[122] Absent such classification, the land
remains unclassified until released and rendered open to disposition.[123]
Proclamation No. 1064 classifies Boracay into 400 hectares of reserved
forest land and 628.96 hectares of agricultural land. The Proclamation likewise
provides for a 15-meter buffer zone on each side of the center line of roads and trails,
which are reserved for right of way and which shall form part of the area reserved for
forest land protection purposes.
Contrary to private claimants argument, there was nothing invalid or
irregular, much less unconstitutional, about the classification of Boracay Island made
by the President through Proclamation No. 1064. It was within her authority to make
such classification, subject to existing vested rights.
Proclamation No. 1064 does not violate the Comprehensive Agrarian Reform
Law.Private claimants further assert that Proclamation No. 1064 violates the provision
of the Comprehensive Agrarian Reform Law (CARL) or RA No. 6657 barring
conversion of public forests into agricultural lands. They claim that since Boracay is a
public forest under PD No. 705, President Arroyo can no longer convert it into an
agricultural land without running afoul of Section 4(a) of RA No. 6657, thus:
SEC. 4. Scope. The Comprehensive Agrarian Reform Law
of 1988 shall cover, regardless of tenurial arrangement and
commodity produced, all public and private agricultural lands as
provided in Proclamation No. 131 and Executive Order No. 229,
including other lands of the public domain suitable for agriculture.
More specifically, the following lands are covered by the
Comprehensive Agrarian Reform Program:
(a) All alienable and disposable lands of the
public domain devoted to or suitable for
agriculture. No reclassification of forest or
mineral lands to agricultural lands shall be
undertaken after the approval of this Act
until Congress, taking into account
ecological, developmental and equity
considerations, shall have determined by
law, the specific limits of the public domain.
That Boracay Island was classified as a public forest under PD No. 705 did
not bar the Executive from later converting it into agricultural land. Boracay Island still
remained an unclassified land of the public domain despite PD No. 705.
In Heirs of the Late Spouses Pedro S. Palanca and Soterranea Rafols v.
Republic,[124]the Court stated that unclassified lands are public forests.
While it is true that the land classification map does not
categorically state that the islands are public forests, the fact that
they were unclassified lands leads to the same result. In the
absence of the classification as mineral or timber land, the land
remains unclassified land until released and rendered open to
disposition.[125] (Emphasis supplied)
Moreover, the prohibition under the CARL applies only to a reclassification of
land. If the land had never been previously classified, as in the case of Boracay, there
can be no prohibited reclassification under the agrarian law. We agree with the
opinion of the Department of Justice[126] on this point:
Indeed, the key word to the correct application of the
prohibition in Section 4(a) is the word reclassification. Where there
has been no previous classification of public forest [referring, we
repeat, to the mass of the public domain which has not been the
subject of the present system of classification for purposes of
determining which are needed for forest purposes and which are
not] into permanent forest or forest reserves or some other forest
uses under the Revised Forestry Code, there can be no
reclassification of forest lands to speak of within the meaning of
Section 4(a).
Neither may private claimants apply for judicial confirmation of imperfect title
under Proclamation No. 1064, with respect to those lands which were classified as
agricultural lands. Private claimants failed to prove the first element of open,
continuous, exclusive, and notorious possession of their lands in Boracay since June
12, 1945.
We cannot sustain the CA and RTC conclusion in the petition for declaratory
relief that private claimants complied with the requisite period of possession.
In issuing Proclamation No. 1064, the government has taken the step
necessary to open up the island to private ownership. This gesture may not be
sufficient to appease some sectors which view the classification of the island partially
into a forest reserve as absurd. That the island is no longer overrun by trees,
however, does not becloud the vision to protect its remaining forest cover and to strike
a healthy balance between progress and ecology.Ecological conservation is as
important as economic progress.
On October 26, 2004, then President Gloria Macapagal-Arroyo issued E.O. No. 380
transforming PEA into PRA, which shall perform all the powers and functions of the
PEA relating to reclamation activities.
THIRD DIVISION
By virtue of its mandate, PRA reclaimed several portions of the foreshore and
offshore areas of Manila Bay, including those located in Paraaque City, and was
issued Original Certificates of Title (OCT Nos. 180, 202, 206, 207, 289, 557, and 559)
and Transfer Certificates of Title (TCT Nos. 104628, 7312, 7309, 7311, 9685, and
9686) over the reclaimed lands.
by R.A. No. 7160 and that PRA failed to comply with the procedural requirements in
Section 206 thereof.
Not in conformity, PRA filed this petition for certiorari assailing the January 8, 2010
RTC Order based on the following GROUNDS
I
THE TRIAL COURT GRAVELY ERRED IN FINDING THAT PETITIONER IS LIABLE
TO PAY REAL PROPERTY TAX ON THE SUBJECT RECLAIMED LANDS
CONSIDERING
THAT PETITIONER IS AN INCORPORATED INSTRUMENTALITY OF THE
NATIONAL GOVERNMENT AND IS, THEREFORE, EXEMPT FROM PAYMENT OF
REAL PROPERTY TAX UNDER SECTIONS 234(A) AND 133(O) OF REPUBLIC ACT
7160 OR THE LOCAL GOVERNMENT CODE VIS--VIS MANILA INTERNATIONAL
AIRPORT AUTHORITY V. COURT OF APPEALS.
II
THE TRIAL COURT GRAVELY ERRED IN FAILING TO CONSIDER THAT
RECLAIMED LANDS ARE PART OF THE PUBLIC DOMAIN AND, HENCE, EXEMPT
FROM REAL PROPERTY TAX.
It explains that reclaimed lands are part of the public domain, owned by the State,
thus, exempt from the payment of real estate taxes. Reclaimed lands retain their
inherent potential as areas for public use or public service. While the subject
reclaimed lands are still in its hands, these lands remain public lands and form part of
the public domain. Hence, the assessment of real property taxes made on said lands,
as well as the levy thereon, and the public sale thereof on April 7, 2003, including the
issuance of the certificates of sale in favor of the respondent Paraaque City, are
invalid and of no force and effect.
On the other hand, the City of Paraaque (respondent) argues that PRA since its
creation consistently represented itself to be a GOCC. PRAs very own charter (P.D.
No. 1084) declared it to be a GOCC and that it has entered into several thousands of
contracts where it represented itself to be a GOCC. In fact, PRA admitted in its
original and amended petitions and pre-trial brief filed with the RTC of Paraaque City
that it was a GOCC.
PRA asserts that it is not a GOCC under Section 2(13) of the Introductory Provisions
of the Administrative Code. Neither is it a GOCC under Section 16, Article XII of the
1987 Constitution because it is not required to meet the test of economic viability.
Instead, PRA is a government instrumentality vested with corporate powers and
performing an essential public service pursuant to Section 2(10) of the Introductory
Provisions of the Administrative Code. Although it has a capital stock divided into
shares, it is not authorized to distribute dividends and allotment of surplus and profits
to its stockholders. Therefore, it may not be classified as a stock corporation because
it lacks the second requisite of a stock corporation which is the distribution of
dividends and allotment of surplus and profits to the stockholders.
Respondent further argues that PRA is a stock corporation with an authorized capital
stock divided into 3 million no par value shares, out of which 2 million shares have
been subscribed and fully paid up. Section 193 of the LGC of 1991 has withdrawn tax
exemption privileges granted to or presently enjoyed by all persons, whether natural
or juridical, including GOCCs.
Hence, since PRA is a GOCC, it is not exempt from the payment of real property tax.
THE COURTS RULING
Moreover, PRA points out that it was not created to compete in the market place as
there was no competing reclamation company operated by the private sector. Also,
while PRA is vested with corporate powers under P.D. No. 1084, such circumstance
does not make it a corporation but merely an incorporated instrumentality and that the
mere fact that an incorporated instrumentality of the National Government holds title
to real property does not make said instrumentality a GOCC. Section 48, Chapter 12,
Book I of the Administrative Code of 1987 recognizes a scenario where a piece of
non-stock corporations, they must have members and must not distribute any part of
their income to said members.3
In the case at bench, PRA is not a GOCC because it is neither a stock nor a nonstock corporation. It cannot be considered as a stock corporation because although it
has a capital stock divided into no par value shares as provided in Section 7 4 of P.D.
No. 1084, it is not authorized to distribute dividends, surplus allotments or profits to
stockholders. There is no provision whatsoever in P.D. No. 1084 or in any of the
subsequent executive issuances pertaining to PRA, particularly, E.O. No. 525, 5 E.O.
No. 6546 and EO No. 7987 that authorizes PRA to distribute dividends, surplus
allotments or profits to its stockholders.
PRA cannot be considered a non-stock corporation either because it does not have
members. A non-stock corporation must have members.8 Moreover, it was not
organized for any of the purposes mentioned in Section 88 of the Corporation Code.
Specifically, it was created to manage all government reclamation projects.
Furthermore, there is another reason why the PRA cannot be classified as a GOCC.
Section 16, Article XII of the 1987 Constitution provides as follows:
Section 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled
corporations may be created or established by special charters in the interest of the
common good and subject to the test of economic viability.
The fundamental provision above authorizes Congress to create GOCCs through
special charters on two conditions: 1) the GOCC must be established for the common
good; and 2) the GOCC must meet the test of economic viability. In this case, PRA
may have passed the first condition of common good but failed the second one economic viability. Undoubtedly, the purpose behind the creation of PRA was not for
economic or commercial activities. Neither was it created to compete in the market
place considering that there were no other competing reclamation companies being
operated by the private sector. As mentioned earlier, PRA was created essentially to
perform a public service considering that it was primarily responsible for a
coordinated, economical and efficient reclamation, administration and operation of
lands belonging to the government with the object of maximizing their utilization and
hastening their development consistent with the public interest. Sections 2 and 4 of
P.D. No. 1084 reads, as follows:
Section 2. Declaration of policy. It is the declared policy of the State to provide for a
coordinated, economical and efficient reclamation of lands, and the administration
and operation of lands belonging to, managed and/or operated by the government,
with the object of maximizing their utilization and hastening their development
consistent with the public interest.
Section 4. Purposes. The Authority is hereby created for the following purposes:
(a) To reclaim land, including foreshore and submerged areas, by dredging,
filling or other means, or to acquire reclaimed land;
Clearly, the test of economic viability does not apply to government entities vested
with corporate powers and performing essential public services. The State is
obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential public
service does not excuse the State from withholding such essential services from the
public.
However, government-owned or controlled corporations with special charters,
organized essentially for economic or commercial objectives, must meet the test of
economic viability. These are the government-owned or controlled corporations that
are usually organized under their special charters as stock corporations, like the Land
Bank of the Philippines and the Development Bank of the Philippines. These are the
government-owned or controlled corporations, along with government-owned or
controlled corporations organized under the Corporation Code, that fall under the
definition of "government-owned or controlled corporations" in Section 2(10) of the
Administrative Code. [Emphases supplied]
This Court is convinced that PRA is not a GOCC either under Section 2(3) of the
Introductory Provisions of the Administrative Code or under Section 16, Article XII of
the 1987 Constitution. The facts, the evidence on record and jurisprudence on the
issue support the position that PRA was not organized either as a stock or a nonstock corporation. Neither was it created by Congress to operate commercially and
compete in the private market. Instead, PRA is a government instrumentality vested
with corporate powers and performing an essential public service pursuant to Section
2(10) of the Introductory Provisions of the Administrative Code. Being an incorporated
government instrumentality, it is exempt from payment of real property tax.
Clearly, respondent has no valid or legal basis in taxing the subject reclaimed lands
managed by PRA. On the other hand, Section 234(a) of the LGC, in relation to its
Section 133(o), exempts PRA from paying realty taxes and protects it from the taxing
powers of local government units.
Sections 234(a) and 133(o) of the LGC provide, as follows:
SEC. 234. Exemptions from Real Property Tax The following are exempted from
payment of the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person.
xxxx
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.
Unless otherwise provided herein, the exercise of the taxing powers of provinces,
cities, municipalities, and barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies and
instrumentalities, and local government units. [Emphasis supplied]
It is clear from Section 234 that real property owned by the Republic of the Philippines
(the Republic) is exempt from real property tax unless the beneficial use thereof has
been granted to a taxable person. In this case, there is no proof that PRA granted the
beneficial use of the subject reclaimed lands to a taxable entity. There is no showing
on record either that PRA leased the subject reclaimed properties to a private taxable
entity.
This exemption should be read in relation to Section 133(o) of the same Code, which
prohibits local governments from imposing "taxes, fees or charges of any kind on the
National Government, its agencies and instrumentalities x x x." The Administrative
Code allows real property owned by the Republic to be titled in the name of agencies
or instrumentalities of the national government. Such real properties remain owned by
the Republic and continue to be exempt from real estate tax.
Indeed, the Republic grants the beneficial use of its real property to an agency or
instrumentality of the national government. This happens when the title of the real
property is transferred to an agency or instrumentality even as the Republic remains
the owner of the real property. Such arrangement does not result in the loss of the tax
exemption, unless "the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person."10
The rationale behind Section 133(o) has also been explained in the case of the
Manila International Airport Authority,11 to wit:
Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the
power to tax. While the 1987 Constitution now includes taxation as one of the powers
of local governments, local governments may only exercise such power "subject to
such guidelines and limitations as the Congress may provide."
When local governments invoke the power to tax on national government
instrumentalities, such power is construed strictly against local governments. The rule
is that a tax is never presumed and there must be clear language in the law imposing
the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax
national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming
the exemption. However, when Congress grants an exemption to a national
government instrumentality from local taxation, such exemption is construed liberally
in favor of the national government instrumentality. As this Court declared in Maceda
v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the
benefit of the government itself or its agencies. In such case the practical effect of an
exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non taxliability of such agencies.
There is, moreover, no point in national and local governments taxing each other,
unless a sound and compelling policy requires such transfer of public funds from one
government pocket to another.
There is also no reason for local governments to tax national government
instrumentalities for rendering essential public services to inhabitants of local
governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any
doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise
provided" in the Code, local governments cannot tax national government
instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming
Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in
any manner control the operation of constitutional laws enacted by Congress to carry
into execution the powers vested in the federal government. (MC Culloch v. Maryland,
4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the "supremacy" of the National Government over local
governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire
absence of power on the part of the States to touch, in that way (taxation) at least, the
instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be
agreed that no state or political subdivision can regulate a federal instrumentality in
such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional
Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination
of what local authorities may perceive to be undesirable activities or enterprise using
the power to tax as "a tool for regulation." (U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the "power to destroy"
(McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or
creation of the very entity which has the inherent power to wield it. [Emphases
supplied]
The Court agrees with PRA that the subject reclaimed lands are still part of the public
domain, owned by the State and, therefore, exempt from payment of real estate
taxes.
Furthermore, PEA's charter expressly states that PEA "shall hold lands of the public
domain" as well as "any and all kinds of lands." PEA can hold both lands of the public
domain and private lands. Thus, the mere fact that alienable lands of the public
domain like the Freedom Islands are transferred to PEA and issued land patents or
certificates of title in PEA's name does not automatically make such lands private.13
Likewise, it is worthy to mention Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, thus:
SEC 14. Power to Reserve Lands of the Public and Private Dominion of the
Government.(1)The President shall have the power to reserve for settlement or public use, and for
specific public purposes, any of the lands of the public domain, the use of which is not
otherwise directed by law. The reserved land shall thereafter remain subject to the
specific public purpose indicated until otherwise provided by law or proclamation.
Reclaimed lands such as the subject lands in issue are reserved lands for public use.
They are properties of public dominion. The ownership of such lands remains with the
State unless they are withdrawn by law or presidential proclamation from public use.
Under Section 2, Article XII of the 1987 Constitution, the foreshore and submerged
areas of Manila Bay are part of the "lands of the public domain, waters x x x and other
natural resources" and consequently "owned by the State." As such, foreshore and
submerged areas "shall not be alienated," unless they are classified as "agricultural
lands" of the public domain. The mere reclamation of these areas by PEA does not
convert these inalienable natural resources of the State into alienable or disposable
lands of the public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to disposition
or concession. Moreover, these reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some public or quasi-public use.
As the Court has repeatedly ruled, properties of public dominion are not subject to
execution or foreclosure sale.14Thus, the assessment, levy and foreclosure made on
the subject reclaimed lands by respondent, as well as the issuances of certificates of
title in favor of respondent, are without basis.
WHEREFORE, the petition is GRANTED. The January 8, 2010 Order of the Regional
Trial Court, Branch 195, Paraaque City, is REVERSED and SET ASIDE. All
reclaimed properties owned by the Philippine Reclamation Authority are hereby
declared EXEMPT from real estate taxes. All real estate tax assessments, including
the final notices of real estate tax delinquencies, issued by the City of Paraaque on
the subject reclaimed properties; the assailed auction sale, dated April 7, 2003; and
the Certificates of Sale subsequently issued by the Paraaque City Treasurer in favor
of the City of Paraaque, are all declared VOID.
SO ORDERED.
EN BANC
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA,
LEONARDO DE CASTRO,
BRION,
REPUBLIC OF THE PHILIPPINES, PERALTA, and
Respondent. BERSAMIN, JJ.
Promulgated:
April 29, 2009
x--------------------------------------------------------------------------- x
DECISION
TINGA, J.:
One main reason why the informal sector has not become formal is
that from Indonesia toBrazil, 90 percent of the informal lands are not
titled and registered. This is a generalized phenomenon in the socalled Third World. And it has many consequences.
xxx
- Hernando De Soto[1]
This decision inevitably affects all untitled lands currently in possession of
persons and entities other than the Philippine government. The petition, while
unremarkable as to the facts, was accepted by the Court en banc in order to provide
definitive clarity to the applicability and scope of original registration proceedings
under Sections 14(1) and 14(2) of the Property Registration Decree. In doing so, the
Court confronts not only the relevant provisions of the Public Land Act and the Civil
Code, but also the reality on the ground. The countrywide phenomenon of untitled
lands, as well as the problem of informal settlement it has spawned, has unfortunately
been treated with benign neglect. Yet our current laws are hemmed in by their own
circumscriptions in addressing the phenomenon. Still, the duty on our part is primarily
to decide cases before us in accord with the Constitution and the legal principles that
have developed our public land law, though our social obligations dissuade us from
casting a blind eye on the endemic problems.
I.
On 20 February 1998, Mario Malabanan filed an application for land registration
covering a parcel of land identified as Lot 9864-A, Cad-452-D, Silang Cadastre,
[2]
situated in Barangay Tibig, Silang Cavite, and consisting of 71,324 square meters.
Malabanan claimed that he had purchased the property from Eduardo Velazco, [3] and
that he and his predecessors-in-interest had been in open, notorious, and continuous
adverse and peaceful possession of the land for more than thirty (30) years.
The application was raffled to the Regional Trial Court of (RTC) Cavite-Tagaytay City,
Branch 18. The Office of the Solicitor General (OSG) duly designated the Assistant
Provincial Prosecutor of Cavite, Jose Velazco, Jr., to appear on behalf of the State.
[4]
Apart from presenting documentary evidence, Malabanan himself and his witness,
Aristedes Velazco, testified at the hearing. Velazco testified that the property was
originally belonged to a twenty-two hectare property owned by his great-grandfather,
Lino Velazco. Lino had four sons Benedicto, Gregorio, Eduardo and Estebanthe
fourth being Aristedess grandfather. Upon Linos death, his four sons inherited the
property and divided it among themselves. But by 1966, Estebans wife, Magdalena,
had become the administrator of all the properties inherited by the Velazco sons from
their father, Lino. After the death of Esteban and Magdalena, their son Virgilio
Malabanan died while the case was pending with the Court of Appeals;
hence, it was his heirs who appealed the decision of the appellate court.
Petitioners, before this Court, rely on our ruling in Republic v. Naguit,[11] which was
handed down just four months prior to Herbieto. Petitioners suggest that the
discussion in Herbieto cited by the Court of Appeals is actually obiter dictum since the
Metropolitan Trial Court therein which had directed the registration of the property had
no jurisdiction in the first place since the requisite notice of hearing was published
only after the hearing had already begun. Naguit, petitioners argue, remains the
controlling doctrine, especially when the property in question is agricultural land.
Therefore, with respect to agricultural lands, any possession prior to the declaration of
the alienable property as disposable may be counted in reckoning the period of
possession to perfect title under the Public Land Act and the Property Registration
Decree.
[10]
The petition was referred to the Court en banc,[12] and on 11 November 2008,
the case was heard on oral arguments. The Court formulated the principal issues for
the oral arguments, to wit:
1. In order that an alienable and disposable land of the
public domain may be registered under Section 14(1) of Presidential
Decree No. 1529, otherwise known as the Property Registration
Decree, should the land be classified as alienable and disposable as
of June 12, 1945 or is it sufficient that such classification occur at
any time prior to the filing of the applicant for registration provided
that it is established that the applicant has been in open, continuous,
exclusive and notorious possession of the land under a bona
fide claim of ownership since June 12, 1945 or earlier?
2. For purposes of Section 14(2) of the Property
Registration Decree may a parcel of land classified as alienable and
disposable be deemed private land and therefore susceptible to
acquisition by prescription in accordance with the Civil Code?
SO ORDERED.
The Republic interposed an appeal to the Court of Appeals, arguing that
Malabanan had failed to prove that the property belonged to the alienable and
disposable land of the public domain, and that the RTC had erred in finding that he
had been in possession of the property in the manner and for the length of time
required by law for confirmation of imperfect title.
On 23 February 2007, the Court of Appeals rendered a Decision[8] reversing
the RTC and dismissing the application of Malabanan. The appellate court held that
under Section 14(1) of the Property Registration Decree any period of possession
prior to the classification of the lots as alienable and disposable was inconsequential
and should be excluded from the computation of the period of possession. Thus, the
appellate court noted that since the CENRO-DENR certification had verified that the
property was declared alienable anddisposable only on 15 March 1982, the Velazcos
possession prior to that date could not be factored in the computation of the period of
possession. This interpretation of the Court of Appeals of Section 14(1) of the
Property Registration Decree was based on the Courts ruling in Republic v. Herbieto.
[9]
14(1) was patently absurd. For its part, the OSG remains insistent that for Section
14(1) to apply, the land should have been classified as alienable and disposable as
of 12 June 1945. Apart from Herbieto, the OSG also cites the subsequent rulings
in Buenaventura
v.
Republic,[15] Fieldman
Agricultural
Trading
v.
Republic[16] and Republic v. Imperial Credit Corporation,[17] as well as the earlier case
ofDirector of Lands v. Court of Appeals.[18]
With respect to Section 14(2), petitioners submit that open, continuous,
exclusive and notorious possession of an alienable land of the public domain for more
than 30 years ipso jure converts the land into private property, thus placing it under
the coverage of Section 14(2). According to them, it would not matter whether the
land sought to be registered was previously classified as agricultural land of the public
domain so long as, at the time of the application, the property had already been
converted into private property through prescription. To bolster their argument,
petitioners cite extensively from our 2008 ruling inRepublic v. T.A.N. Properties.[19]
The arguments submitted by the OSG with respect to Section 14(2) are
more extensive. The OSG notes that under Article 1113 of the Civil Code, the
acquisitive prescription of properties of the State refers to patrimonial property, while
Section 14(2) speaks of private lands. It observes that the Court has yet to decide a
case that presented Section 14(2) as a ground for application for registration, and that
the 30-year possession period refers to the period of possession under Section 48(b)
of the Public Land Act, and not the concept of prescription under the Civil Code. The
OSG further submits that, assuming that the 30-year prescriptive period can run
against public lands, said period should be reckoned from the time the public land
was declared alienable and disposable.
Both sides likewise offer special arguments with respect to the particular
factual circumstances surrounding the subject property and the ownership thereof.
II.
First, we discuss Section 14(1) of the Property Registration Decree. For a full
understanding of the provision, reference has to be made to the Public Land Act.
A.
Commonwealth Act No. 141, also known as the Public Land Act, has, since
its enactment, governed the classification and disposition of lands of the public
domain. The President is authorized, from time to time, to classify the lands of the
public domain into alienable and disposable, timber, or mineral lands.[20] Alienable and
disposable lands of the public domain are further classified according to their uses
into (a) agricultural; (b) residential, commercial, industrial, or for similar productive
purposes; (c) educational, charitable, or other similar purposes; or (d) reservations for
town sites and for public and quasi-public uses.[21]
May a private person validly seek the registration in his/her name of
alienable and disposable lands of the public domain? Section 11 of the Public Land
Act acknowledges that public lands suitable for agricultural purposes may be
disposed of by confirmation of imperfect or incomplete titles through judicial
legalization.[22] Section 48(b) of the Public Land Act, as amended by P.D. No. 1073,
supplies the details and unmistakably grants that right, subject to the requisites stated
therein:
Sec. 48. The following described citizens of the
Philippines, occupying lands of the public domain or claiming to
own any such land or an interest therein, but whose titles have not
(1)
than establishing the right itself for the first time. It is proper to assert that it is the
Public Land Act, as amended by P.D. No. 1073 effective 25 January 1977, that has
primarily established the right of a Filipino citizen who has been in open, continuous,
exclusive, and notorious possession and occupation of alienable and disposable lands
of the public domain, under a bona fide claim of acquisition of ownership, since June
12, 1945 to perfect or complete his title by applying with the proper court for the
confirmation of his ownership claim and the issuance of the corresponding certificate
of title.
Section 48 can be viewed in conjunction with the afore-quoted Section 11 of
the Public Land Act, which provides that public lands suitable for agricultural purposes
may be disposed of by confirmation of imperfect or incomplete titles, and given the
notion that both provisions declare that it is indeed the Public Land Act that primarily
establishes the substantive ownership of the possessor who has been in possession
of the property since 12 June 1945. In turn, Section 14(a) of the Property Registration
Decree recognizes the substantive right granted under Section 48(b) of the Public
Land Act, as well provides the corresponding original registration procedure for the
judicial confirmation of an imperfect or incomplete title.
There is another limitation to the right granted under Section 48(b). Section 47 of the
Public Land Act limits the period within which one may exercise the right to seek
registration under Section 48. The provision has been amended several times, most
recently by Rep. Act No. 9176 in 2002. It currently reads thus:
Section 47. The persons specified in the next following
section are hereby granted time, not to extend beyond December
31, 2020 within which to avail of the benefits of this
Chapter: Provided, That this period shall apply only where the area
applied for does not exceed twelve (12) hectares: Provided, further,
That the several periods of time designated by the President in
accordance with Section Forty-Five of this Act shall apply also to the
lands comprised in the provisions of this Chapter, but this Section
shall not be construed as prohibiting any said persons from acting
under this Chapter at any time prior to the period fixed by the
President.[24]
xxx
Accordingly under the current state of the law, the substantive right granted under
Section 48(b) may be availed of only until 31 December 2020.
B.
Despite the clear text of Section 48(b) of the Public Land Act, as amended
and Section 14(a) of the Property Registration Decree, the OSG has adopted the
position that for one to acquire the right to seek registration of an alienable and
disposable land of the public domain, it is not enough that the applicant and his/her
predecessors-in-interest be in possession under abona fide claim of ownership since
12 June 1945; the alienable and disposable character of the property must have been
declared also as of 12 June 1945. Following the OSGs approach,all lands certified as
alienable and disposable after 12 June 1945 cannot be registered either under
Section 14(1) of the Property Registration Decree or Section 48(b) of the Public Land
Act as amended. The absurdity of such an implication was discussed in Naguit.
xxx
It is clear that Section 48 of the Public Land Act is more descriptive of the
nature of the right enjoyed by the possessor than Section 14 of the Property
Registration Decree, which seems to presume the pre-existence of the right, rather
City, stating that the lots involved were "found to be within the
alienable and disposable (sic) Block-I, Land Classification Project
No. 32-A, per map 2962 4-I555 dated December 9, 1980." This is
sufficient evidence to show the real character of the land subject of
private respondents application. Further, the certification enjoys a
presumption of regularity in the absence of contradictory
evidence, which is true in this case. Worth noting also was the
observation of the Court of Appeals stating that:
[n]o opposition was filed by the Bureaus
of Lands and Forestry to contest the application
of appellees on the ground that the property still
forms part of the public domain. Nor is there any
showing that the lots in question are forestal
land....
Thus, while the Court of Appeals erred in ruling that mere
possession of public land for the period required by law would
entitle its occupant to a confirmation of imperfect title, it did not err
in ruling in favor of private respondents as far as the first
requirement in Section 48(b) of the Public Land Act is concerned,
for they were able to overcome the burden of proving the
alienability of the land subject of their application.
As correctly found by the Court of Appeals, private
respondents were able to prove their open, continuous, exclusive
and notorious possession of the subject land even before the year
1927. As a rule, we are bound by the factual findings of the Court of
Appeals. Although there are exceptions, petitioner did not show that
this is one of them.[29]
Why did the Court in Ceniza, through the same eminent member who
authored Bracewell, sanction the registration under Section 48(b) of public domain
lands declared alienable or disposable thirty-five (35) years and 180 days after 12
June 1945? The telling difference is that in Ceniza, the application for registration was
filed nearly six (6) years after the land had been declared alienable or disposable,
while in Bracewell, the application was filed nine (9) years before the land was
declared alienable or disposable. That crucial difference was also stressed
in Naguit to contradistinguish it from Bracewell, a difference which the dissent seeks
to belittle.
III.
We next ascertain the correct framework of analysis with respect to Section 14(2).
The provision reads:
xxx
(2)
It is clear under the Civil Code that where lands of the public domain are patrimonial in
character, they are susceptible to acquisitive prescription. On the other hand, among
the public domain lands that are not susceptible to acquisitive prescription are timber
lands and mineral lands. The Constitution itself proscribes private ownership of timber
or mineral lands.
There are in fact several provisions in the Civil Code concerning the
acquisition of real property through prescription. Ownership of real property may be
acquired by ordinary prescription of ten (10) years,[32] or through extraordinary
prescription of thirty (30) years.[33] Ordinary acquisitive prescription requires
possession in good faith,[34] as well as just title.[35]
When Section 14(2) of the Property Registration Decree explicitly provides
that persons who have acquired ownership over private lands by prescription under
the provisions of existing laws, it unmistakably refers to the Civil Code as a valid basis
for the registration of lands. The Civil Code is the only existing law that specifically
allows the acquisition by prescription of private lands, including patrimonial property
belonging to the State. Thus, the critical question that needs affirmation is whether
Section 14(2) does encompass original registration proceedings over patrimonial
property of the State, which a private person has acquired through prescription.
The Naguit obiter had adverted to a frequently reiterated jurisprudence
holding that properties classified as alienable public land may be converted into
private property by reason of open, continuous and exclusive possession of at least
thirty (30) years.[36] Yet if we ascertain the source of the thirty-year period, additional
complexities relating to Section 14(2) and to how exactly it operates would emerge.
For there are in fact two distinct origins of the thirty (30)-year rule.
The first source is Rep. Act No. 1942, enacted in 1957, which amended
Section 48(b) of the Public Land Act by granting the right to seek original registration
of alienable public lands through possession in the concept of an owner for at least
thirty years.
The following-described citizens of the Philippines,
occupying lands of the public domain or claiming to own any such
lands or an interest therein, but whose titles have not been
perfected or completed, may apply to the Court of First Instance of
the province where the land is located for confirmation of their
claims and the issuance of a certificate of title therefor, under the
Land Registration Act, to wit:
xxx
xxx
xxx
registrability even of lands already declared alienable and disposable to the detriment
of the bona fide possessors or occupants claiming title to the lands. Yet this
interpretation is in accord with the Regalian doctrine and its concomitant assumption
that all lands owned by the State, although declared alienable or disposable, remain
as such and ought to be used only by the Government.
Recourse does not lie with this Court in the matter. The duty of the Court is
to apply the Constitution and the laws in accordance with their language and intent.
The remedy is to change the law, which is the province of the legislative branch.
Congress can very well be entreated to amend Section 14(2) of the Property
Registration Decree and pertinent provisions of the Civil Code to liberalize the
requirements for judicial confirmation of imperfect or incomplete titles.
The operation of the foregoing interpretation can be illustrated by an actual
example. Republic Act No. 7227, entitled An Act Accelerating The Conversion Of
Military Reservations Into Other Productive Uses, etc., is more commonly known as
the BCDA law.Section 2 of the law authorizes the sale of certain military reservations
and portions of military camps in Metro Manila, including Fort Bonifacio and Villamor
Air Base. For purposes of effecting the sale of the military camps, the law mandates
the President to transfer such military lands to the Bases Conversion Development
Authority (BCDA)[40]which in turn is authorized to own, hold and/or administer them.
[41]
The President is authorized to sell portions of the military camps, in whole or in
part.[42] Accordingly, the BCDA law itself declares that the military lands subject
thereof are alienable and disposable pursuant to the provisions of existing laws and
regulations governing sales of government properties.[43]
From the moment the BCDA law was enacted the subject military lands have
become alienable and disposable. However, said lands did not become patrimonial,
as the BCDA law itself expressly makes the reservation that these lands are to be
sold in order to raise funds for the conversion of the former American bases
at Clark and Subic.[44] Such purpose can be tied to either public service or the
development of national wealth under Article 420(2). Thus, at that time, the lands
remained property of the public dominion under Article 420(2), notwithstanding their
status as alienable and disposable. It is upon their sale as authorized under the
BCDA law to a private person or entity that such lands become private property and
cease to be property of the public dominion.
C.
Should public domain lands become patrimonial because they are declared
as such in a duly enacted law or duly promulgated proclamation that they are no
longer intended for public service or for the development of the national wealth, would
the period of possession prior to the conversion of such public dominion into
patrimonial be reckoned in counting the prescriptive period in favor of the
possessors? We rule in the negative.
The limitation imposed by Article 1113 dissuades us from ruling that the period of
possession before the public domain land becomes patrimonial may be counted for
the purpose of completing the prescriptive period. Possession of public dominion
property before it becomes patrimonial cannot be the object of prescription according
to the Civil Code. As the application for registration under Section 14(2) falls wholly
within the framework of prescription under the Civil Code, there is no way that
possession during the time that the land was still classified as public dominion
property can be counted to meet the requisites of acquisitive prescription and justify
registration.
Are we being inconsistent in applying divergent rules for Section 14(1) and
Section 14(2)? There is no inconsistency. Section 14(1) mandates registration on
the basis ofpossession, while Section 14(2) entitles registration on the basis
of prescription.Registration under Section 14(1) is extended under the aegis of
the Property Registration Decree and the Public Land Act while registration
under Section 14(2) is made available both by the Property Registration Decree
and the Civil Code.
In the same manner, we can distinguish between the thirty-year period under Section
48(b) of the Public Land Act, as amended by Rep. Act No. 1472, and the thirty-year
period available through Section 14(2) of the Property Registration Decree in relation
to Article 1137 of the Civil Code. The period under the former speaks of a thirtyyear period of possession ,while the period under the latter concerns a thirtyyear period of extraordinary prescription. Registration under Section 48(b) of
the Public Land Act as amended by Rep. Act No. 1472 is based on thirty years
of possession alone without regard to the Civil Code, while the registration
under Section 14(2) of the Property Registration Decree is founded on
extraordinary prescription under the Civil Code.
It may be asked why the principles of prescription under the Civil Code should not
apply as well to Section 14(1). Notwithstanding the vaunted status of the Civil Code, it
ultimately is just one of numerous statutes, neither superior nor inferior to other
statutes such as the Property Registration Decree. The legislative branch is not
bound to adhere to the framework set forth by the Civil Code when it enacts
subsequent legislation. Section 14(2) manifests a clear intent to interrelate the
registration allowed under that provision with the Civil Code, but no such intent exists
with respect to Section 14(1).
IV.
the same time, there are indispensable requisitesgood faith and just title. The
ascertainment of good faith involves the application of Articles 526, 527, and 528, as
well as Article 1127 of the Civil Code, [45] provisions that more or less speak for
themselves.
On the other hand, the concept of just title requires some clarification. Under
Article 1129, there is just title for the purposes of prescription when the adverse
claimant came into possession of the property through one of the modes recognized
by law for the acquisition of ownership or other real rights, but the grantor was not the
owner or could not transmit any right. Dr. Tolentino explains:
Just title is an act which has for its purpose the
transmission of ownership, and which would have actually
transferred ownership if the grantor had been the owner. This vice or
defect is the one cured by prescription. Examples: sale with delivery,
exchange, donation, succession, and dacion in payment.[46]
The OSG submits that the requirement of just title necessarily precludes the
applicability of ordinary acquisitive prescription to patrimonial property. The major
premise for the argument is that the State, as the owner and grantor, could not
transmit ownership to the possessor before the completion of the required period of
possession.[47] It is evident that the OSG erred when it assumed that the grantor
referred to in Article 1129 is the State. The grantor is the one from whom the person
invoking ordinary acquisitive prescription derived the title, whether by sale, exchange,
donation, succession or any other mode of the acquisition of ownership or other real
rights.
Earlier, we made it clear that, whether under ordinary prescription or
extraordinary prescription, the period of possession preceding the classification of
public dominion lands as patrimonial cannot be counted for the purpose of computing
prescription. But after the property has been become patrimonial, the period of
prescription begins to run in favor of the possessor. Once the requisite period has
been completed, two legal events ensue: (1) the patrimonial property is ipso
jure converted into private land; and (2) the person in possession for the periods
prescribed under the Civil Code acquires ownership of the property by operation of
the Civil Code.
One of the keys to understanding the framework we set forth today is seeing how our
land registration procedures correlate with our law on prescription, which, under the
Civil Code, is one of the modes for acquiring ownership over property.
It is evident that once the possessor automatically becomes the owner of the
converted patrimonial property, the ideal next step is the registration of the property
under the Torrenssystem. It should be remembered that registration of property is not
a mode of acquisition of ownership, but merely a mode of confirmation of ownership.
The Civil Code makes it clear that patrimonial property of the State may be acquired
by private persons through prescription. This is brought about by Article 1113, which
states that [a]ll things which are within the commerce of man are susceptible to
prescription, and that [p]roperty of the State or any of its subdivisions not patrimonial
in character shall not be the object of prescription.
[48]
There are two modes of prescription through which immovables may be acquired
under the Civil Code. The first is ordinary acquisitive prescription, which, under Article
1117, requires possession in good faith and with just title; and, under Article 1134, is
completed through possession of ten (10) years. There is nothing in the Civil Code
that bars a person from acquiring patrimonial property of the State through ordinary
acquisitive prescription, nor is there any apparent reason to impose such a rule. At
Looking back at the registration regime prior to the adoption of the Property
Registration Decree in 1977, it is apparent that the registration system then did not
fully accommodate the acquisition of ownership of patrimonial property under the Civil
Code. What the system accommodated was the confirmation of imperfect title brought
about by the completion of a period of possession ordained under the Public Land Act
(either 30 years following Rep. Act No. 1942, or since 12 June 1945 following P.D.
No. 1073).
The Land Registration Act[49] was noticeably silent on the requisites for
alienable public lands acquired through ordinary prescription under the Civil Code,
though it arguably did not preclude such registration.[50] Still, the gap was lamentable,
considering that the Civil Code, by itself, establishes ownership over the patrimonial
property of persons who have completed the prescriptive periods ordained therein.
The gap was finally closed with the adoption of the Property Registration Decree in
1977, with Section 14(2) thereof expressly authorizing original registration in favor of
persons who have acquired ownership over private lands by prescription under the
provisions of existing laws, that is, the Civil Code as of now.
V.
We synthesize the doctrines laid down in this case, as follows:
(1) In connection with Section 14(1) of the Property Registration Decree, Section
48(b) of the Public Land Act recognizes and confirms that those who by themselves
or through their predecessors in interest have been in open, continuous, exclusive,
and notorious possession and occupation of alienable and disposable lands of the
public domain, under a bona fide claim of acquisition of ownership, since June 12,
1945 have acquired ownership of, and registrable title to, such lands based on the
length and quality of their possession.
(a) Since Section 48(b) merely requires possession since 12 June
1945 and does not require that the lands should have been alienable and
disposable during the entire period of possession, the possessor is entitled
to secure judicial confirmation of his title thereto as soon as it is declared
alienable and disposable, subject to the timeframe imposed by Section 47 of
the Public Land Act.[51]
(b) The right to register granted under Section 48(b) of the Public
Land Act is further confirmed by Section 14(1) of the Property Registration
Decree.
(2) In complying with Section 14(2) of the Property Registration Decree, consider that
under the Civil Code, prescription is recognized as a mode of acquiring ownership of
patrimonial property. However, public domain lands become only patrimonial property
not only with a declaration that these are alienable or disposable. There must also be
an express government manifestation that the property is already patrimonial or no
longer retained for public service or the development of national wealth, under Article
422 of the Civil Code. And only when the property has become patrimonial can the
prescriptive period for the acquisition of property of the public dominion begin to run.
(a) Patrimonial property is private property of the government. The
person acquires ownership of patrimonial property by prescription under the
Civil Code is entitled to secure registration thereof under Section 14(2) of the
Property Registration Decree.
(b) There are two kinds of prescription by which patrimonial
property may be acquired, one ordinary and other extraordinary. Under
ordinary acquisitive prescription, a person acquires ownership of a
patrimonial property through possession for at least ten (10) years, in good
faith and with just title. Under extraordinary acquisitive prescription, a
persons uninterrupted adverse possession of patrimonial property for at least
thirty (30) years, regardless of good faith or just title, ripens into ownership.
B.
We now apply the above-stated doctrines to the case at bar.
It is clear that the evidence of petitioners is insufficient to establish that Malabanan
has acquired ownership over the subject property under Section 48(b) of the Public
Land Act. There is no substantive evidence to establish that Malabanan or petitioners
as his predecessors-in-interest have been in possession of the property since 12
June 1945 or earlier. The earliest that petitioners can date back their possession,
according to their own evidencethe Tax Declarations they presented in particularis to
the year 1948. Thus, they cannot avail themselves of registration under Section 14(1)
of the Property Registration Decree.
Neither can petitioners properly invoke Section 14(2) as basis for registration. While
the subject property was declared as alienable or disposable in 1982, there is no
competent evidence that is no longer intended for public use service or for the
development of the national evidence, conformably with Article 422 of the Civil Code.
The classification of the subject property as alienable and disposable land of the
public domain does not change its status as property of the public dominion under
Article 420(2) of the Civil Code. Thus, it is insusceptible to acquisition by prescription.
VI.
A final word. The Court is comfortable with the correctness of the legal
doctrines established in this decision. Nonetheless, discomfiture over the implications
of todays ruling cannot be discounted. For, every untitled property that is occupied in
the country will be affected by this ruling. The social implications cannot be dismissed
lightly, and the Court would be abdicating its social responsibility to the Filipino people
if we simply levied the law without comment.
The informal settlement of public lands, whether declared alienable or not, is a
phenomenon tied to long-standing habit and cultural acquiescence, and is common
among the so-calledThird World countries. This paradigm powerfully evokes the
disconnect between a legal system and the reality on the ground. The law so far has
been unable to bridge that gap. Alternative means of acquisition of these
public domain lands, such as through homestead or free patent, have proven
unattractive due to limitations imposed on the grantee in the encumbrance or
alienation of said properties.[52] Judicial confirmation of imperfect title has emerged as
the most viable, if not the most attractive means to regularize the informal settlement
of alienable or disposable lands of the public domain, yet even that system, as
revealed in this decision, has considerable limits.
There are millions upon millions of Filipinos who have individually or exclusively held
residential lands on which they have lived and raised their families. Many more have
tilled and made productive idle lands of the State with their hands. They have been
regarded for generation by their families and their communities as common law
owners. There is much to be said about the virtues of according them legitimate
states. Yet such virtues are not for the Court to translate into positive law, as the law
itself considered such lands as property of the public dominion. It could only be up to
Congress to set forth a new phase of land reform to sensibly regularize and formalize
the settlement of such lands which in legal theory are lands of the public domain
before the problem becomes insoluble. This could be accomplished, to cite two
examples, by liberalizing the standards for judicial confirmation of imperfect title, or
amending the Civil Code itself to ease the requisites for the conversion of public
dominion property into patrimonial.
Ones sense of security over land rights infuses into every aspect of wellbeing not only of that individual, but also to the persons family. Once that sense of
security is deprived, life and livelihood are put on stasis. It is for the political branches
to bring welcome closure to the long pestering problem.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals
dated 23 February 2007 and Resolution dated 2 October 2007 are AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
EN BANC
Corona,
Carpio Morales,
Azcuna,
Tinga,
Chico-Nazario,
Velasco, Jr.,
Nachura,
Leonardo-De
Castro, and
Brion, JJ.
x ---------------------------------------------------------------------------------------- x
RESOLUTION
YNARES-SANTIAGO, J.:
On February 27, 2006, this Courts First Division rendered judgment in this case as
follows:
IN LIGHT OF ALL THE FOREGOING, the petition
is GRANTED. The assailed Orders of the Regional Trial Court and
the Decision of the Court of Appeals are REVERSED and SET
ASIDE. The Regional Trial Court is directed to issue an order
granting the motion of the petitioner to quash the Amended
Information. SO ORDERED.[1]
those not included therein are personal properties. Since Article 308 of the Revised
Penal Code used the words personal property without qualification, it follows that all
personal properties as understood in the context of the Civil Code, may be the subject
of theft under Article 308 of the Revised Penal Code. PLDT alleges that the
international calls and business of providing telecommunication or telephone service
are personal properties capable of appropriation and can be objects of theft.
PLDT also argues that taking in relation to theft under the Revised Penal
Code does not require asportation, the sole requisite being that the object should be
capable of appropriation. The element of taking referred to in Article 308 of the
Revised Penal Code means the act of depriving another of the possession and
dominion of a movable coupled with the intention, at the time of the taking, of
withholding it with the character of permanency. There must be intent to appropriate,
which means to deprive the lawful owner of the thing. Thus, the term personal
properties under Article 308 of the Revised Penal Code is not limited to only personal
properties which are susceptible of being severed from a mass or larger quantity and
of being transported from place to place.
PLDT likewise alleges that as early as the 1930s, international telephone
calls were in existence; hence, there is no basis for this Courts finding that the
Legislature could not have contemplated the theft of international telephone calls and
the unlawful transmission and routing of electronic voice signals or impulses
emanating from such calls by unlawfully tampering with the telephone device as
within the coverage of the Revised Penal Code.
According to respondent, the international phone calls which are electric
currents or sets of electric impulses transmitted through a medium, and carry a
pattern representing the human voice to a receiver, are personal properties which
may be subject of theft. Article 416(3) of the Civil Code deems forces of nature (which
includes electricity) which are brought under the control by science, are personal
property.
In his Comment to PLDTs motion for reconsideration, petitioner Laurel
claims that a telephone call is a conversation on the phone or a communication
carried out using the telephone. It is not synonymous to electric current or
impulses. Hence, it may not be considered as personal property susceptible of
appropriation. Petitioner claims that the analogy between generated electricity and
telephone calls is misplaced. PLDT does not produce or generate telephone calls. It
only provides the facilities or services for the transmission and switching of the
calls. He also insists that business is not personal property. It is not the business that
is protected but the right to carry on a business. This right is what is considered as
property. Since the services of PLDT cannot be considered as property, the same
may not be subject of theft.
The Office of the Solicitor General (OSG) agrees with respondent PLDT that
international phone calls and the business or service of providing international phone
calls are subsumed in the enumeration and definition of personal property under the
Civil Code hence, may be proper subjects of theft. It noted that the cases of United
States v. Genato,[3] United States v. Carlos[4] and United States v. Tambunting,[5]which
recognized intangible properties like gas and electricity as personal properties, are
deemed incorporated in our penal laws. Moreover, the theft provision in the Revised
Penal Code was deliberately couched in broad terms precisely to be all-
encompassing and embracing even such scenario that could not have been easily
anticipated.
According to the OSG, prosecution under Republic Act (RA) No. 8484 or
the Access Device Regulations Act of 1998 and RA 8792 or the Electronic Commerce
Act of 2000 does not preclude prosecution under the Revised Penal Code for the
crime of theft. The latter embraces unauthorized appropriation or use of PLDTs
international calls, service and business, for personal profit or gain, to the prejudice of
PLDT as owner thereof. On the other hand, the special laws punish the surreptitious
and advanced technical means employed to illegally obtain the subject service and
business. Even assuming that the correct indictment should have been under RA
8484, the quashal of the information would still not be proper. The charge of theft as
alleged in the Information should be taken in relation to RA 8484 because it is the
elements, and not the designation of the crime, that control.
Considering the gravity and complexity of the novel questions of law involved in this
case, the Special First Division resolved to refer the same to the Banc.
We resolve to grant the Motion for Reconsideration but remand the case to
the trial court for proper clarification of the Amended Information.
Article 308 of the Revised Penal Code provides:
Art. 308. Who are liable for theft. Theft is committed by any person
who, with intent to gain but without violence against, or intimidation
of persons nor force upon things, shall take personal property of
another without the latters consent.
The elements of theft under Article 308 of the Revised Penal Code are as
follows: (1) that there be taking of personal property; (2) that said property belongs to
another; (3) that the taking be done with intent to gain; (4) that the taking be done
without the consent of the owner; and (5) that the taking be accomplished without the
use of violence against or intimidation of persons or force upon things.
Prior to the passage of the Revised Penal Code on December 8, 1930, the definition
of the term personal property in the penal code provision on theft had been
established in Philippine jurisprudence. This Court, in United States v. Genato, United
States v. Carlos, and United States v. Tambunting, consistently ruled that any
personal property, tangible or intangible, corporeal or incorporeal, capable of
appropriation can be the object of theft.
Moreover, since the passage of the Revised Penal Code on December 8, 1930, the
term personal property has had a generally accepted definition in civil law. In Article
335 of the Civil Code of Spain, personal property is defined as anything susceptible
of appropriation and not included in the foregoing chapter (not real property). Thus,
the term personal property in the Revised Penal Code should be interpreted in the
context of the Civil Code provisions in accordance with the rule on statutory
construction that where words have been long used in a technical sense and have
been judicially construed to have a certain meaning, and have been adopted by the
legislature as having a certain meaning prior to a particular statute, in which they are
used, the words used in such statute should be construed according to the sense in
which they have been previously used. [6] In fact, this Court used the Civil Code
definition of personal property in interpreting the theft provision of the penal code
in United States v. Carlos.
Cognizant of the definition given by jurisprudence and the Civil Code of Spain to the
term personal property at the time the old Penal Code was being revised, still the
legislature did not limit or qualify the definition of personal property in the Revised
Penal Code. Neither did it provide a restrictive definition or an exclusive enumeration
of personal property in the Revised Penal Code, thereby showing its intent to retain
for the term an extensive and unqualified interpretation. Consequently, any property
which is not included in the enumeration of real properties under the Civil Code and
capable of appropriation can be the subject of theft under the Revised Penal Code.
The only requirement for a personal property to be the object of theft under the penal
code is that it be capable of appropriation. It need not be capable of asportation,
which is defined as carrying away.[7] Jurisprudence is settled that to take under the
theft provision of the penal code does not require asportation or carrying away.[8]
To appropriate means to deprive the lawful owner of the thing. [9] The word take in the
Revised Penal Code includes any act intended to transfer possession which, as held
in the assailed Decision, may be committed through the use of the offenders own
hands, as well as any mechanical device, such as an access device or card as in the
instant case. This includes controlling the destination of the property stolen to deprive
the owner of the property, such as the use of a meter tampering, as held in Natividad
v. Court of Appeals,[10] use of a device to fraudulently obtain gas, as held in United
States v. Tambunting, and the use of a jumper to divert electricity, as held in the cases
of United States v. Genato, United States v. Carlos, and United States v. Menagas.[11]
As illustrated in the above cases, appropriation of forces of nature which are brought
under control by science such as electrical energy can be achieved by tampering with
any apparatus used for generating or measuring such forces of nature, wrongfully
redirecting such forces of nature from such apparatus, or using any device to
fraudulently obtain such forces of nature. In the instant case, petitioner was charged
with engaging in International Simple Resale (ISR) or the unauthorized routing and
completing of international long distance calls using lines, cables, antennae, and/or
air wave frequency and connecting these calls directly to the local or domestic
exchange facilities of the country where destined.
As early as 1910, the Court declared in Genato that ownership over electricity (which
an international long distance call consists of), as well astelephone service, is
protected by the provisions on theft of the Penal Code. The pertinent provision of the
Revised Ordinance of the City ofManila, which was involved in the said case, reads
as follows:
Injury to electric apparatus; Tapping current; Evidence. No person
shall destroy, mutilate, deface, or otherwise injure or tamper with
any wire, meter, or other apparatus installed or used for generating,
containing, conducting, or measuring electricity, telegraph or
telephone service, nor tap or otherwise wrongfully deflect or take
any electric current from such wire, meter, or other apparatus.
other
words,
a
telecommunication
company
both
converts/reconverts the human voice/voice signal and provides the
medium for transmitting the same.
39. Moreover, in the case of an international telephone
call, once the electronic impulses originating from a foreign
telecommunication company country (i.e. Japan) reaches the
Philippines through a local telecommunication company (i.e. private
respondent PLDT), it is the latter which decodes, augments and
enhances the electronic impulses back to the human voice/voice
signal and provides the medium (i.e. electric current) to enable the
called party to receive the call. Thus, it is not true that the foreign
telecommunication company provides (1) the electric current which
transmits the human voice/voice signal of the caller and (2) the
electric current for the called party to receive said human
voice/voice signal.
40. Thus, contrary to petitioner Laurels assertion, once the
electronic impulses or electric current originating from a foreign
telecommunication company (i.e. Japan) reaches private
respondent PLDTs network, it is private respondent PLDT which
decodes, augments and enhances the electronic impulses back to
the human voice/voice signal and provides the medium (i.e. electric
current) to enable the called party to receive the call. Without
private respondent PLDTs network, the human voice/voice signal of
the calling party will never reach the called party.[16]
In the assailed Decision, it was conceded that in making the international phone calls,
the human voice is converted into electrical impulses or electric current which are
transmitted to the party called. A telephone call, therefore, is electrical energy. It was
also held in the assailed Decision that intangible property such as electrical energy is
capable of appropriation because it may be taken and carried away. Electricity is
personal property under Article 416 (3) of the Civil Code, which enumerates forces of
nature which are brought under control by science.[17]
Indeed, while it may be conceded that international long distance calls, the matter
alleged to be stolen in the instant case, take the form of electrical energy, it cannot be
said that such international long distance calls were personal properties belonging to
PLDT since the latter could not have acquired ownership over such calls. PLDT
merely encodes, augments, enhances, decodes and transmits said calls using its
complex communications infrastructure and facilities. PLDT not being the owner of
said telephone calls, then it could not validly claim that such telephone calls were
taken without its consent. It is the use of these communications facilities without the
consent of PLDT that constitutes the crime of theft, which is the unlawful taking of the
telephone services and business.
Therefore, the business of providing telecommunication and the telephone
service are personal property under Article 308 of the Revised Penal Code, and the
act of engaging in ISR is an act of subtraction penalized under said article. However,
the Amended Information describes the thing taken as, international long distance
calls, and only later mentions stealing the business from PLDT as the manner by
which the gain was derived by the accused. In order to correct this inaccuracy of
description, this case must be remanded to the trial court and the prosecution
directed to amend the Amended Information, to clearly state that the property subject
of the theft are the services and business of respondent PLDT. Parenthetically, this
amendment is not necessitated by a mistake in charging the proper offense, which
would have called for the dismissal of the information under Rule 110, Section 14 and
Rule 119, Section 19 of the Revised Rules on Criminal Procedure. To be sure, the
crime is properly designated as one of theft. The purpose of the amendment is simply
to ensure that the accused is fully and sufficiently apprised of the nature and cause of
the charge against him, and thus guaranteed of his rights under the Constitution.
ACCORDINGLY, the motion for reconsideration is GRANTED. The assailed
Decision dated February 27, 2006 is RECONSIDERED and SET ASIDE. The
Decision of the Court of Appeals in CA-G.R. SP No. 68841 affirming the Order issued
by Judge Zeus C. Abrogar of the Regional Trial Court of Makati City, Branch 150,
which denied the Motion to Quash (With Motion to Defer Arraignment) in Criminal
Case No. 99-2425 for theft, is AFFIRMED. The case is remanded to the trial court
and the Public Prosecutor of Makati City is hereby DIRECTEDto amend the Amended
Information to show that the property subject of the theft were services and business
of the private offended party.
SO ORDERED.