I.

GENERAL CONCEPTS AND CONSIDERATION

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

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

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

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

MALCOLM, J.:

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

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

That on the expiration of the period agreed upon, all the improvements and buildings introduced
and erected by the party of the second part shall pass to the exclusive ownership of the party of
the first part without any obligation on its part to pay any amount for said improvements and
buildings; also, in the event the party of the second part should leave or abandon the land leased
before the time herein stipulated, the improvements and buildings shall likewise pass to the
ownership of the party of the first part as though the time agreed upon had expired: Provided,
however, That the machineries and accessories are not included in the improvements which will
pass to the party of the first part on the expiration or abandonment of the land leased.

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

1
As connecting up with the facts, it should further be explained that the Davao Saw Mill Co., Inc., has on a
number of occasions treated the machinery as personal property by executing chattel mortgages in favor
of third persons. One of such persons is the appellee by assignment from the original mortgages.

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

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

xxx xxx xxx

5. Machinery, liquid containers, instruments or implements intended by the owner of any building
or land for use in connection with any industry or trade being carried on therein and which are
expressly adapted to meet the requirements of such trade of industry.

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

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

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

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

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

2
 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.

Villa-Real, Imperial, Butte, and Goddard, JJ., concur.

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G.R. No. L-58469 May 16, 1983

MAKATI LEASING and FINANCE CORPORATION, petitioner,

vs.
WEAREVER TEXTILE MILLS, INC., and HONORABLE COURT OF APPEALS, respondents.

Loreto C. Baduan for petitioner.

Ramon D. Bagatsing & Assoc. (collaborating counsel) for petitioner.

Jose V. Mancella for respondent.

DE CASTRO, J.:

Petition for review on certiorari of the decision of the Court of Appeals (now Intermediate Appellate
Court) promulgated on August 27, 1981 in CA-G.R. No. SP-12731, setting aside certain Orders later
specified herein, of Judge Ricardo J. Francisco, as Presiding Judge of the Court of First instance of Rizal
Branch VI, issued in Civil Case No. 36040, as wen as the resolution dated September 22, 1981 of the said
appellate court, denying petitioner's motion for reconsideration.

It appears that in order to obtain financial accommodations from herein petitioner Makati Leasing and
Finance Corporation, the private respondent Wearever Textile Mills, Inc., discounted and assigned several
receivables with the former under a Receivable Purchase Agreement. To secure the collection of the
receivables assigned, private respondent executed a Chattel Mortgage over certain raw materials
inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.

Upon private respondent's default, petitioner filed a petition for extrajudicial foreclosure of the properties
mortgage to it. However, the Deputy Sheriff assigned to implement the foreclosure failed to gain entry
into private respondent's premises and was not able to effect the seizure of the aforedescribed
machinery. Petitioner thereafter filed a complaint for judicial foreclosure with the Court of First Instance
of Rizal, Branch VI, docketed as Civil Case No. 36040, the case before the lower court.

Acting on petitioner's application for replevin, the lower court issued a writ of seizure, the enforcement
of which was however subsequently restrained upon private respondent's filing of a motion for
reconsideration. After several incidents, the lower court finally issued on February 11, 1981, an order
lifting the restraining order for the enforcement of the writ of seizure and an order to break open the
premises of private respondent to enforce said writ. The lower court reaffirmed its stand upon private
respondent's filing of a further motion for reconsideration.

On July 13, 1981, the sheriff enforcing the seizure order, repaired to the premises of private respondent
and removed the main drive motor of the subject machinery.

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The Court of Appeals, in certiorari and prohibition proceedings subsequently filed by herein private
respondent, set aside the Orders of the lower court and ordered the return of the drive motor seized by
the sheriff pursuant to said Orders, after ruling that the machinery in suit cannot be the subject of replevin,
much less of a chattel mortgage, because it is a real property pursuant to Article 415 of the new Civil Code,
the same being attached to the ground by means of bolts and the only way to remove it from respondent's
plant would be to drill out or destroy the concrete floor, the reason why all that the sheriff could do to
enfore the writ was to take the main drive motor of said machinery. The appellate court rejected
petitioner's argument that private respondent is estopped from claiming that the machine is real property
by constituting a chattel mortgage thereon.

A motion for reconsideration of this decision of the Court of Appeals having been denied, petitioner has
brought the case to this Court for review by writ of certiorari. It is contended by private respondent,
however, that the instant petition was rendered moot and academic by petitioner's act of returning the
subject motor drive of respondent's machinery after the Court of Appeals' decision was promulgated.

The contention of private respondent is without merit. When petitioner returned the subject motor drive,
it made itself unequivocably clear that said action was without prejudice to a motion for reconsideration
of the Court of Appeals decision, as shown by the receipt duly signed by respondent's representative. 1
Considering that petitioner has reserved its right to question the propriety of the Court of Appeals'
decision, the contention of private respondent that this petition has been mooted by such return may not
be sustained.

The next and the more crucial question to be resolved in this Petition is whether the machinery in suit is
real or personal property from the point of view of the parties, with petitioner arguing that it is a
personality, while the respondent claiming the contrary, and was sustained by the appellate court, which
accordingly held that the chattel mortgage constituted thereon is null and void, as contended by said
respondent.

A similar, if not Identical issue was raised in Tumalad v. Vicencio, 41 SCRA 143 where this Court, speaking
through Justice J.B.L. Reyes, ruled:

Although there is no specific statement referring to the subject house as personal

property, yet by ceding, selling or transferring a property by way of chattel mortgage
defendants-appellants could only have meant to convey the house as chattel, or at least,
intended to treat the same as such, so that they should not now be allowed to make an
inconsistent stand by claiming otherwise. Moreover, the subject house stood on a rented
lot to which defendants-appellants merely had a temporary right as lessee, and although
this can not in itself alone determine the status of the property, it does so when combined
with other factors to sustain the interpretation that the parties, particularly the
mortgagors, intended to treat the house as personality. Finally, unlike in the Iya cases,
Lopez vs. Orosa, Jr. & Plaza Theatre, Inc. & Leung Yee vs. F.L. Strong Machinery &
Williamson, wherein third persons assailed the validity of the chattel mortgage, it is the
defendants-appellants themselves, as debtors-mortgagors, who are attacking the validity
of the chattel mortgage in this case. The doctrine of estoppel therefore applies to the
herein defendants-appellants, having treated the subject house as personality.

Examining the records of the instant case, We find no logical justification to exclude the rule out, as the
appellate court did, the present case from the application of the abovequoted pronouncement. If a house

5
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 rejecting petitioner's assertion on the applicability of the Tumalad doctrine, the Court of Appeals lays
stress on the fact that the house involved therein was built on a land that did not belong to the owner of
such house. But the law makes no distinction with respect to the ownership of the land on which the
house is built and We should not lay down distinctions not contemplated by law.

It must be pointed out that the characterization of the subject machinery as chattel by the private
respondent is indicative of intention and impresses upon the property the character determined by the
parties. As stated in Standard Oil Co. of New York v. Jaramillo, 44 Phil. 630, it is undeniable that the parties
to a contract may by agreement treat as personal property that which by nature would be real property,
as long as no interest of third parties would be prejudiced thereby.

Private respondent contends that estoppel cannot apply against it because it had never represented nor
agreed that the machinery in suit be considered as personal property but was merely required and
dictated on by herein petitioner to sign a printed form of chattel mortgage which was in a blank form at
the time of signing. This contention lacks persuasiveness. As aptly pointed out by petitioner and not
denied by the respondent, the status of the subject machinery as movable or immovable was never placed
in issue before the lower court and the Court of Appeals except in a supplemental memorandum in
support of the petition filed in the appellate court. Moreover, even granting that the charge is true, such
fact alone does not render a contract void ab initio, but can only be a ground for rendering said contract
voidable, or annullable pursuant to Article 1390 of the new Civil Code, by a proper action in court. There
is nothing on record to show that the mortgage has been annulled. Neither is it disclosed that steps were
taken to nullify the same. On the other hand, as pointed out by petitioner and again not refuted by
respondent, the latter has indubitably benefited from said contract. Equity dictates that one should not
benefit at the expense of another. Private respondent could not now therefore, be allowed to impugn the
efficacy of the chattel mortgage after it has benefited therefrom,

From what has been said above, the error of the appellate court in ruling that the questioned machinery
is real, not personal property, becomes very apparent. Moreover, the case of Machinery and Engineering
Supplies, Inc. v. CA, 96 Phil. 70, heavily relied upon by said court is not applicable to the case at bar, the
nature of the machinery and equipment involved therein as real properties never having been disputed
nor in issue, and they were not the subject of a Chattel Mortgage. Undoubtedly, the Tumalad case bears
more nearly perfect parity with the instant case to be the more controlling jurisprudential authority.

WHEREFORE, the questioned decision and resolution of the Court of Appeals are hereby reversed and set
aside, and the Orders of the lower court are hereby reinstated, with costs against the private respondent.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion Jr., Guerrero and Escolin JJ., concur.

6
Abad Santos, J., concurs in the result.

SERGS PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE, INC.,
respondent. G.R. No. 137705. August 22, 2000

DECISION

PANGANIBAN, J.:

After agreeing to a contract stipulating that a real or immovable property be considered as personal or
movable, a party is estopped from subsequently claiming otherwise. Hence, such property is a proper
subject of a writ of replevin obtained by the other contracting party.

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision1[1] of the Court of
Appeals (CA)2[2] in CA-GR SP No. 47332 and its February 26, 1999 Resolution3[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[4]

In its February 18, 1998 Order,5[5] the Regional Trial Court (RTC) of Quezon City (Branch 218)6[6] issued
a Writ of Seizure.7[7] The March 18, 1998 Resolution8[8] denied petitioners Motion for Special Protective
Order, praying that the deputy sheriff be enjoined from seizing immobilized or other real properties in

7
(petitioners) factory in Cainta, Rizal and to return to their original place whatever immobilized machineries
or equipments he may have removed.9[9]

The Facts

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

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

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

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

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

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

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

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

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

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject machines were personal
property, and that they had only been leased, not owned, by petitioners. It also ruled that the words of
the contract are clear and leave no doubt upon the true intention of the contracting parties. Observing

8
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[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[12]

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

The Courts Ruling

The Petition is not meritorious.

Preliminary Matter:Procedural Questions

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

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

9
While Judge Laqui should not have been impleaded as a respondent,14[14] substantial justice requires
that such lapse by itself should not warrant the dismissal of the present Petition. In this light, the Court
deems it proper to remove, motu proprio, the name of Judge Laqui from the caption of the present case.

Main Issue: Nature of the Subject Machinery

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

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

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

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

ART. 415. The following are immovable property:

x x x....................................x x x....................................x x x

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

x x x....................................x x x....................................x x x

In the present case, the machines that were the subjects of the Writ of Seizure were placed by petitioners
in the factory built on their own land. Indisputably, they were essential and principal elements of their
chocolate-making industry. Hence, although each of them was movable or personal property on its own,
all of them have become immobilized by destination because they are essential and principal elements in
the industry.16[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[17]

10
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[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[19] the Court upheld the intention of the parties to treat a house as a
personal property because it had been made the subject of a chattel mortgage. The Court ruled:

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

Applying Tumalad, the Court in Makati Leasing and Finance Corp. v. Wearever Textile Mills20[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[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.

11
Clearly then, petitioners are estopped from denying the characterization of the subject machines as
personal property. Under the circumstances, they are proper subjects of the Writ of Seizure.

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

Validity of the Lease Agreement

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

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

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

In other words, the law does not allow the defendant to file a motion to dissolve or discharge the writ of
seizure (or delivery) on ground of insufficiency of the complaint or of the grounds relied upon therefor, as
in proceedings on preliminary attachment or injunction, and thereby put at issue the matter of the title

12
or right of possession over the specific chattel being replevied, the policy apparently being that said matter
should be ventilated and determined only at the trial on the merits.28[28]

Besides, these questions require a determination of facts and a presentation of evidence, both of which
have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in this Court
under Rule 45.29[29]

Reliance on the Lease Agreement

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

Makati Leasing and Finance Corporation30[30] is also instructive on this point. In that case, the Deed of
Chattel Mortgage, which characterized the subject machinery as personal property, was also assailed
because respondent had allegedly been required to sign a printed form of chattel mortgage which was in
a blank form at the time of signing. The Court rejected the argument and relied on the Deed, ruling as
follows:

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

Alleged Injustice Committed on the Part of Petitioners

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

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

SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants bond, or of
the surety or sureties thereon, he cannot immediately require the return of the property, but if he does

13
not so object, he may, at any time before the delivery of the property to the applicant, require the return
thereof, by filing with the court where the action is pending a bond executed to the applicant, in double
the value of the property as stated in the applicants affidavit for the delivery thereof to the applicant, if
such delivery be adjudged, and for the payment of such sum to him as may be recovered against the
adverse party, and by serving a copy bond on the applicant.

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

SO ORDERED.

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

G.R. No. 155076 February 27, 2006

LUIS MARCOS P. LAUREL, Petitioner,

vs.

14
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati City, Branch 150, PEOPLE
OF THE PHILIPPINES& PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. SP
No. 68841 affirming the Order issued by Judge Zeus C. Abrogar, Regional Trial Court (RTC), Makati City,
Branch 150, which denied the "Motion to Quash (With Motion to Defer Arraignment)" in Criminal Case
No. 99-2425 for theft.

Philippine Long Distance Telephone Company (PLDT) is the holder of a legislative franchise to render local
and international telecommunication services under Republic Act No. 7082.2 Under said law, PLDT is
authorized to establish, operate, manage, lease, maintain and purchase telecommunication systems,
including transmitting, receiving and switching stations, for both domestic and international calls. For this
purpose, it has installed an estimated 1.7 million telephone lines nationwide. PLDT also offers other
services as authorized by Certificates of Public Convenience and Necessity (CPCN) duly issued by the
National Telecommunications Commission (NTC), and operates and maintains an International Gateway
Facility (IGF). The PLDT network is thus principally composed of the Public Switch Telephone Network
(PSTN), telephone handsets and/or telecommunications equipment used by its subscribers, the wires and
cables linking said telephone handsets and/or telecommunications equipment, antenna, the IGF, and
other telecommunications equipment which provide interconnections.3 1avvphil.net

PLDT alleges that one of the alternative calling patterns that constitute network fraud and violate its
network integrity is that which is known as International Simple Resale (ISR). ISR is a method of routing
and completing international long distance calls using International Private Leased Lines (IPL), cables,
antenna or air wave or frequency, which connect directly to the local or domestic exchange facilities of
the terminating country (the country where the call is destined). The IPL is linked to switching equipment
which is connected to a PLDT telephone line/number. In the process, the calls bypass the IGF found at the
terminating country, or in some instances, even those from the originating country.4

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.

15
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. 40112 against 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

16
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 to
Laurel, the P20,370,651.92 stated in the Information, if anything, represents the rental for the use of PLDT
facilities, and not the value of anything owned by it. Finally, he averred that the allegations in the
Amended Information are already subsumed under the Information for violation of Presidential Decree
(P.D.) No. 401 filed and pending in the Metropolitan Trial Court of Makati City, docketed as Criminal Case
No. 276766.

The prosecution, through private complainant PLDT, opposed the motion,14 contending that the movant
unlawfully took personal property belonging to it, as follows: 1) intangible telephone services that are
being offered by PLDT and other telecommunication companies, i.e., the connection and interconnection
to their telephone lines/facilities; 2) the use of those facilities over a period of time; and 3) the revenues
derived in connection with the rendition of such services and the use of such facilities.15

The prosecution asserted that the use of PLDTs intangible telephone services/facilities allows electronic
voice signals to pass through the same, and ultimately to the called partys number. It averred that such
service/facility is akin to electricity which, although an intangible property, may, nevertheless, be
appropriated and be the subject of theft. Such service over a period of time for a consideration is the
business that PLDT provides to its customers, which enables the latter to send various messages to
installed recipients. The service rendered by PLDT is akin to merchandise which has specific value, and
therefore, capable of appropriation by another, as in this case, through the ISR operations conducted by
the movant and his co-accused.

The prosecution further alleged that "international business calls and revenues constitute personal
property envisaged in Article 308 of the Revised Penal Code." Moreover, the intangible telephone
services/facilities belong to PLDT and not to the movant and the other accused, because they have no
telephone services and facilities of their own duly authorized by the NTC; thus, the taking by the movant
and his co-accused of PLDT services was with intent to gain and without the latters consent.

The prosecution pointed out that the accused, as well as the movant, were paid in exchange for their
illegal appropriation and use of PLDTs telephone services and facilities; on the other hand, the accused

17
did not pay a single centavo for their illegal ISR operations. Thus, the acts of the accused were akin to the
use of a "jumper" by a consumer to deflect the current from the house electric meter, thereby enabling
one to steal electricity. The prosecution emphasized that its position is fortified by the Resolutions of the
Department of Justice in PLDT v. Tiongson, et al. (I.S. No. 97-0925) and in PAOCTF-PLDT v. Elton John
Tuason, et al. (I.S. No. 2000-370) which were issued on August 14, 2000 finding probable cause for theft
against the respondents therein.

On September 14, 2001, the RTC issued an Order16 denying the Motion to Quash the Amended
Information. The court declared that, although there is no law that expressly prohibits the use of ISR, the
facts alleged in the Amended Information "will show how the alleged crime was committed by conducting
ISR," to the damage and prejudice of PLDT.

Laurel filed a Motion for Reconsideration17 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,20 where 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 co-accused 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

18
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 and interconnection to their telephone lines/facilities," such service cannot be the subject of
theft as defined in Article 308 of the Revised Penal Code.23

He further declared that to categorize "business" as personal property under Article 308 of the Revised
Penal Code would lead to absurd consequences; in prosecutions for theft of gas, electricity or water, it
would then be permissible to allege in the Information that it is the gas business, the electric business or
the water business which has been stolen, and no longer the merchandise produced by such enterprise.24

Laurel further cited the Resolution of the Secretary of Justice in Piltel v. Mendoza,25 where it was ruled
that the Revised Penal Code, legislated as it was before present technological advances were even
conceived, is not adequate to address the novel means of "stealing" airwaves or airtime. In said resolution,
it was noted that the inadequacy prompted the filing of Senate Bill 2379 (sic) entitled "The Anti-
Telecommunications Fraud of 1997" to deter cloning of cellular phones and other forms of
communications fraud. The said bill "aims to protect in number (ESN) (sic) or Capcode, mobile
identification number (MIN), electronic-international mobile equipment identity (EMEI/IMEI), or
subscriber identity module" and "any attempt to duplicate the data on another cellular phone without
the consent of a public telecommunications entity would be punishable by law."26 Thus, Laurel concluded,
"there is no crime if there is no law punishing the crime."

On August 30, 2002, the CA rendered judgment dismissing the petition.27 The appellate court ruled that a
petition for certiorari under Rule 65 of the Rules of Court was not the proper remedy of the petitioner.
On the merits of the petition, it held that while business is generally an activity

which is abstract and intangible in form, it is nevertheless considered "property" under Article 308 of the
Revised Penal Code. The CA opined that PLDTs business of providing international calls is personal
property which may be the object of theft, and cited United States v. Carlos28 to support such conclusion.
The tribunal also cited Strochecker v. Ramirez,29 where this Court ruled that one-half interest in a days
business is personal property under Section 2 of Act No. 3952, otherwise known as the Bulk Sales Law.
The appellate court held that the operations of the ISR are not subsumed in the charge for violation of
P.D. No. 401.

Laurel, now the petitioner, assails the decision of the CA, contending that -

THE COURT OF APPEALS ERRED IN RULING THAT THE PERSONAL PROPERTY ALLEGEDLY STOLEN
PER THE INFORMATION IS NOT THE "INTERNATIONAL LONG DISTANCE CALLS" BUT THE "BUSINESS
OF PLDT."

THE COURT OF APPEALS ERRED IN RULING THAT THE TERM "BUSINESS" IS PERSONAL PROPERTY
WITHIN THE MEANING OF ART. 308 OF THE REVISED PENAL CODE.30

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.

19
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

The petition is meritorious.

The issues for resolution are as follows: (a) whether or not the petition for certiorari is the proper remedy
of the petitioner in the Court of Appeals; (b) whether or not international telephone calls using Bay Super
Orient Cards through the telecommunication services provided by PLDT for such calls, or, in short, PLDTs
business of providing said telecommunication services, are proper subjects of theft under Article 308 of
the Revised Penal Code; and (c) whether or not the trial court committed grave abuse of discretion

20
amounting to excess or lack of jurisdiction in denying the motion of the petitioner to quash the amended
information.

On the issue of whether or not the petition for certiorari instituted by the petitioner in the CA is proper,
the general rule is that a petition for certiorari under Rule 65 of the Rules of Court, as amended, to nullify
an order denying a motion to quash the Information is inappropriate because the aggrieved party has a
remedy of appeal in the ordinary course of law. Appeal and certiorari are mutually exclusive of each other.
The remedy of the aggrieved party is to continue with the case in due course and, when an unfavorable
judgment is rendered, assail the order and the decision on appeal. However, if the trial court issues the
order denying the motion to quash the Amended Information with grave abuse of discretion amounting
to excess or lack of jurisdiction, or if such order is patently erroneous, or null and void for being contrary
to the Constitution, and the remedy of appeal would not afford adequate and expeditious relief, the
accused may resort to the extraordinary remedy of certiorari.35 A special civil action for certiorari is also
available where there are special circumstances clearly demonstrating the inadequacy of an appeal. As
this Court held in Bristol Myers Squibb (Phils.), Inc. v. Viloria:36

Nonetheless, the settled rule is that a writ of certiorari may be granted in cases where, despite availability
of appeal after trial, there is at least a prima facie showing on the face of the petition and its annexes that:
(a) the trial court issued the order with grave abuse of discretion amounting to lack of or in excess of
jurisdiction; (b) appeal would not prove to be a speedy and adequate remedy; (c) where the order is a
patent nullity; (d) the decision in the present case will arrest future litigations; and (e) for certain
considerations such as public welfare and public policy.37

In his petition for certiorari in the CA, petitioner averred that the trial court committed grave abuse of its
discretion amounting to excess or lack of jurisdiction when it denied his motion to quash the Amended
Information despite his claim that the material allegations in the Amended Information do not charge
theft under Article 308 of the Revised Penal Code, or any offense for that matter. By so doing, the trial
court deprived him of his constitutional right to be informed of the nature of the charge against him. He
further averred that the order of the trial court is contrary to the constitution and is, thus, null and void.
He insists that he should not be compelled to undergo the rigors and tribulations of a protracted trial and
incur expenses to defend himself against a non-existent charge.

Petitioner is correct.

An information or complaint must state explicitly and directly every act or omission constituting an
offense38 and must allege facts establishing conduct that a penal 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

21
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

22
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

23
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

24
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 non-existent. 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

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.

In this modern age of technology, telecommunications systems have become so tightly merged with
computer systems that it is difficult to know where one starts and the other finishes. The telephone set is
highly computerized and allows computers to communicate across long distances.71 The instrumentality
at issue in this case is not merely a telephone but a telephone inexplicably linked to a computerized
communications system with the use of Baynet Cards sold by the Baynet Card Ltd. The corporation uses
computers, modems and software, among others, for its ISR.72

The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a slang term for the action
of making a telephone system to do something that it normally should not allow by "making the phone
company bend over and grab its ankles"). A "phreaker" is one who engages in the act of manipulating
phones and illegally markets telephone services.73 Unless the phone company replaces all its hardware,
phreaking would be impossible to stop. The phone companies in North America were impelled to replace
all their hardware and adopted full digital switching system known as the Common Channel Inter Office
Signaling. Phreaking occurred only during the 1960s and 1970s, decades after the Revised Penal Code
took effect.

The petitioner is not charged, under the Amended Information, for theft of telecommunication or
telephone services offered by PLDT. Even if he is, the term "personal property" under Article 308 of the
Revised Penal Code cannot be interpreted beyond its seams so as to include "telecommunication or
telephone services" or computer services for that matter. The word "service" has a variety of meanings
dependent upon the context, or the sense in which it is used; and, in some instances, it may include a sale.

25
For instance, the sale of food by restaurants is usually referred to as "service," although an actual sale is
involved.74 It may also mean the duty or labor to be rendered by one person to another; performance of
labor for the benefit of another.75 In the case of PLDT, it is to render local and international
telecommunications services and such other services as authorized by the CPCA issued by the NTC. Even
at common law, neither time nor services may be taken and occupied or appropriated.76 A service is
generally not considered property and a theft of service would not, therefore, constitute theft since there
can be no caption or asportation.77 Neither is the unauthorized use of the equipment and facilities of PLDT
by the petitioner theft under the aforequoted provision of the Revised Penal Code.78

If it was the intent of the Philippine Legislature, in 1930, to include services to be the subject of theft, it
should have incorporated the same in Article 308 of the Revised Penal Code. The Legislature did not. In
fact, the Revised Penal Code does not even contain a definition of services.

If taking of telecommunication services or the business of a person, is to be proscribed, it must be by

special statute79 or an amendment of the Revised Penal Code. Several states in the United States, such as
New York, New Jersey, California and Virginia, realized that their criminal statutes did not contain any
provisions penalizing the theft of services and passed laws defining and penalizing theft of telephone and
computer services. The Pennsylvania Criminal Statute now penalizes theft of services, thus:

(a) Acquisition of services. --

(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

26
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,80 declaring 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:

27
a) Hacking or cracking which refers to unauthorized access into or interference in a computer
system/server or information and communication system; or any access in order to corrupt, alter, steal,
or destroy using a computer or other similar information and communication devices, without the
knowledge and consent of the owner of the computer or information and communications system,
including the introduction of computer viruses and the like, resulting on the corruption, destruction,
alteration, theft or loss of electronic data messages or electronic documents shall be punished by a
minimum fine of One hundred thousand pesos (P100,000.00) and a maximum commensurate to the
damage incurred and a mandatory imprisonment of six (6) months to three (3) years.

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.

G.R. No. 163072 April 2, 2009

MANILA INTERNATIONAL AIRPORT AUTHORITY, Petitioner,

vs.

28
CITY OF PASAY, SANGGUNIANG PANGLUNGSOD NG PASAY, CITY MAYOR OF PASAY, CITY TREASURER
OF PASAY, and CITY ASSESSOR OF PASAY, Respondents.

DECISION

CARPIO, J.:

This is a petition for review on certiorari1 of the Decision2 dated 30 October 2002 and the Resolution dated
19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416.

The Facts

Petitioner Manila International Airport Authority (MIAA) operates and administers the Ninoy Aquino
International Airport (NAIA) Complex under Executive Order No. 903 (EO 903),3 otherwise known as the
Revised Charter of the Manila International Airport Authority. EO 903 was issued on 21 July 1983 by then
President Ferdinand E. Marcos. Under Sections 34 and 225 of EO 903, approximately 600 hectares of land,
including the runways, the airport tower, and other airport buildings, were transferred to MIAA. The NAIA
Complex is located along the border between Pasay City and Paraaque City.

On 28 August 2001, MIAA received Final Notices of Real Property Tax Delinquency from the City of Pasay
for the taxable years 1992 to 2001. MIAAs real property tax delinquency for its real properties located in
NAIA Complex, Ninoy Aquino Avenue, Pasay City (NAIA Pasay properties) is tabulated as follows:

TAX DECLA- TAXABLE

TAX DUE PENALTY TOTAL
RATION YEAR

A7-183-08346 1997-2001 243,522,855.00 123,351,728.18 366,874,583.18

A7-183-05224 1992-2001 113,582,466.00 71,159,414.98 184,741,880.98

A7-191-00843 1992-2001 54,454,800.00 34,115,932.20 88,570,732.20

A7-191-00140 1992-2001 1,632,960.00 1,023,049.44 2,656,009.44

A7-191-00139 1992-2001 6,068,448.00 3,801,882.85 9,870,330.85

A7-183-05409 1992-2001 59,129,520.00 37,044,644.28 96,174,164.28

A7-183-05410 1992-2001 20,619,720.00 12,918,254.58 33,537,974.58

A7-183-05413 1992-2001 7,908,240.00 4,954,512.36 12,862,752.36

A7-183-05412 1992-2001 18,441,981.20 11,553,901.13 29,995,882.33

A7-183-05411 1992-2001 109,946,736.00 68,881,630.13 178,828,366.13

A7-183-05245 1992-2001 7,440,000.00 4,661,160.00 12,101,160.00

GRAND TOTAL 642,747,726.20 373,466,110.13 1,016,213,836.33

29
On 24 August 2001, the City of Pasay, through its City Treasurer, issued notices of levy and warrants of
levy for the NAIA Pasay properties. MIAA received the notices and warrants of levy on 28 August 2001.
Thereafter, the City Mayor of Pasay threatened to sell at public auction the NAIA Pasay properties if the
delinquent real property taxes remain unpaid.

On 29 October 2001, MIAA filed with the Court of Appeals a petition for prohibition and injunction with
prayer for preliminary injunction or temporary restraining order. The petition sought to enjoin the City of
Pasay from imposing real property taxes on, levying against, and auctioning for public sale the NAIA Pasay
properties.

On 30 October 2002, the Court of Appeals dismissed the petition and upheld the power of the City of
Pasay to impose and collect realty taxes on the NAIA Pasay properties. MIAA filed a motion for
reconsideration, which the Court of Appeals denied. Hence, this petition.

The Court of Appeals Ruling

The Court of Appeals held that Sections 193 and 234 of Republic Act No. 7160 or the Local Government
Code, which took effect on 1 January 1992, withdrew the exemption from payment of real property taxes
granted to natural or juridical persons, including government-owned or controlled corporations, except
local water districts, cooperatives duly registered under Republic Act No. 6938, non-stock and non-profit
hospitals and educational institutions. Since MIAA is a government-owned corporation, it follows that its
tax exemption under Section 21 of EO 903 has been withdrawn upon the effectivity of the Local
Government Code.

The Issue

The issue raised in this petition is whether the NAIA Pasay properties of MIAA are exempt from real
property tax.

The Courts Ruling

The petition is meritorious.

In ruling that MIAA is not exempt from paying real property tax, the Court of Appeals cited Sections 193
and 234 of the Local Government Code which read:

SECTION 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are
hereby withdrawn upon the effectivity of this Code.

SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the real
property tax:

30
 (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;

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

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

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

(e) Machinery and equipment used for pollution control and environment protection.

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

The Court of Appeals held that as a government-owned corporation, MIAAs tax exemption under Section
21 of EO 903 has already been withdrawn upon the effectivity of the Local Government Code in 1992.

In Manila International Airport Authority v. Court of Appeals6 (2006 MIAA case), this Court already
resolved the issue of whether the airport lands and buildings of MIAA are exempt from tax under existing
laws. The 2006 MIAA case originated from a petition for prohibition and injunction which MIAA filed with
the Court of Appeals, seeking to restrain the City of Paraaque from imposing real property tax on, levying
against, and auctioning for public sale the airport lands and buildings located in Paraaque City. The only
difference between the 2006 MIAA case and this case is that the 2006 MIAA case involved airport lands
and buildings located in Paraaque City while this case involved airport lands and buildings located in
Pasay City. The 2006 MIAA case and this case raised the same threshold issue: whether the local
government can impose real property tax on the airport lands, consisting mostly of the runways, as well
as the airport buildings, of MIAA. In the 2006 MIAA case, this Court held:

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the
Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock
corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII
of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a
government instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the
Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA
because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the
beneficial use of real property owned by the Republic is given to a taxable entity.

31
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are
properties of public dominion. Properties of public dominion are owned by the State or the Republic.
Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

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

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

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and
Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether
intended for public use or public service, the Airport Lands and Buildings are properties of public dominion.
As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus
exempt from real estate tax under Section 234(a) of the Local Government Code. 7 (Emphasis in the
original)

The definition of "instrumentality" under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase "includes x x x government-owned or controlled
corporations" which means that a government "instrumentality" may or may not be a "government-
owned or controlled corporation." Obviously, the term government "instrumentality" is broader than the
term "government-owned or controlled corporation." Section 2(10) provides:

SEC. 2. General Terms Defined. x x x

(10) Instrumentality refers to any agency of the national Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and government-owned or
controlled corporations.

The term "government-owned or controlled corporation" has a separate definition under Section 2(13)8
of the Introductory Provisions of the Administrative Code of 1987:

SEC. 2. General Terms Defined. x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock
corporation, vested with functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: Provided, That government-owned or controlled corporations may further be categorized by the
department of Budget, the Civil Service Commission, and the Commission on Audit for the purpose of the
exercise and discharge of their respective powers, functions and responsibilities with respect to such
corporations.

32
The fact that two terms have separate definitions means that while a government "instrumentality" may
include a "government-owned or controlled corporation," there may be a government "instrumentality"
that will not qualify as a "government-owned or controlled corporation."

A close scrutiny of the definition of "government-owned or controlled corporation" in Section 2(13) will
show that MIAA would not fall under such definition. MIAA is a government "instrumentality" that does
not qualify as a "government-owned or controlled corporation." As explained in the 2006 MIAA case:

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation."

MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has
no capital stock divided into shares. MIAA has no stockholders or voting shares. x x x

Section 3 of the Corporation Code defines a stock corporation as one whose "capital stock is divided into
shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital
but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a
stock corporation.

xxx

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code
defines a non-stock corporation as "one where no part of its income is distributable as dividends to its
members, trustees or officers." A non-stock corporation must have members. Even if we assume that the
Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation.
Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the
MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.
This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable,
religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service,
or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of
these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for
public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned
or controlled corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is that
MIAA is vested with corporate powers. x x x

When the law vests in a government instrumentality corporate powers, the instrumentality does not
become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate
powers. Thus, MIAA exercises the governmental powers of eminent domain, police authority and the
levying of fees and charges. At the same time, MIAA exercises "all the powers of a corporation under the
Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive
Order."9

33
Thus, MIAA is not a government-owned or controlled corporation but a government instrumentality
which is exempt from any kind of tax from the local governments. Indeed, the exercise of the taxing power
of local government units is subject to the limitations enumerated in Section 133 of the Local Government
Code.10 Under Section 133(o)11 of the Local Government Code, local government units have no power to
tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real
property tax for the NAIA Pasay properties.

Furthermore, the airport lands and buildings of MIAA are properties of public dominion intended for
public use, and as such are exempt from real property tax under Section 234(a) of the Local Government
Code. However, under the same provision, if MIAA leases its real property to a taxable person, the specific
property leased becomes subject to real property tax.12 In this case, only those portions of the NAIA Pasay
properties which are leased to taxable persons like private parties are subject to real property tax by the
City of Pasay.

WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 30 October 2002 and the
Resolution dated 19 March 2004 of the Court of Appeals in CA-G.R. SP No. 67416. We DECLARE the NAIA
Pasay properties of the Manila International Airport Authority EXEMPT from real property tax imposed
by the City of Pasay. We declare VOID all the real property tax assessments, including the final notices of
real property tax delinquencies, issued by the City of Pasay on the NAIA Pasay properties of the Manila
International Airport Authority, except for the portions that the Manila International Airport Authority
has leased to private parties.

No costs.

SO ORDERED.

G.R. No. 109791 July 14, 2003

34
PHILIPPINE PORTS AUTHORITY, petitioner,
vs.
CITY OF ILOILO, respondent.

AZCUNA, J.:

Before us is a petition for review on certiorari assailing the Decision of the Regional Trial Court of Iloilo
City, Branch 39, dated February 26, 1993 in Civil Case No. 18477, a case for collection of a sum of money.
Seeking to raise questions purely of law, petitioner Philippine Ports Authority (PPA) would want us to set
aside the ruling ordering it to pay real property and business taxes to respondent City of Iloilo.

The factual antecedents are summarized by the trial court:

This is an action for the "recovery of sum of money" filed by [respondent] City of Iloilo, a public
corporation organized under the laws of the Republic of the Philippines, represented by the Hon.
Rodolfo T. Ganzon as City Mayor, against petitioner, Philippine Ports Authority (PPA), a
government corporation created by P.D. 857.

[Respondent] seeks to collect from [petitioner] real property taxes as well as business taxes,
computed from the last quarter of 1984 up to fourth quarter of 1988.

[Respondent] alleges that [petitioner] is engaged in the business of arrastre and stevedoring
services and the leasing of real estate for which it should be obligated to pay business taxes. It
further alleges that [petitioner] is the declared and registered owner of a warehouse which is used
in the operation of its business and is also thereby subject to real property taxes.

It demands the aggregate amount of P510,888.86 in realty and business taxes as of December
1988 (real property tax last quarter of 1984 to 1988; business tax- 1984 to 1988) including its
corresponding interests and penalty charges.

On July 19, 1989, [petitioner] filed a motion to dismiss but [it] was denied by this court. A motion
for reconsideration was filed, but the same was still denied, after which [petitioner] filed its
answer.

During the pre-trial conference, the following factual and legal issues were defined and clarified.

Factual Issues:

1. Whether or not [petitioner] is engaged in business;

2. Whether or not the assessment of tax by [respondent] is accurate as of 4th quarter of 1988
from the year 1984; real property tax in the amount of P180,953.93 and business tax in the
amount of P329,934.93 as of December 31, 1988.

Legal Issues:

35
 1. Whether or not Philippine Ports Authority is exempt from the payment of real property tax and
business tax;

2. Whether by filing a motion to dismiss, [petitioner] impliedly admitted the allegations in the
complaint;

3. Whether Philippine Ports Authority is engaged in business. If in the negative, whether or not it
is exempt from payment of business taxes.

During trial, [respondent] presented two witnesses, namely: Mrs. Rizalina F. Tulio and Mr. Leoncio
Macrangala.

xxx xxx xxx

After [respondent] had rested its case, [petitioner] did not present any evidence. Instead, its
counsel asked the court to give him time to file a memorandum, as said counsel is convinced that
the issues involved in this case are purely legal issues.

He has no quarrel as regards the computation of the real property and business taxes made by
[respondent]. He is convinced, however, that the issue in this case involves a question of law and
that [petitioner] is not liable to pay any kind of taxes to the City of Iloilo.1

The court a quo rendered its decision holding petitioner liable for real property taxes from the last quarter
of 1984 to December 1986, and for business taxes with respect to petitioners lease of real property from
the last quarter of 1984 up to 1988. It, however, held that respondent may not collect business taxes on
petitioners arrastre and stevedoring services, as these form part of petitioners governmental functions.
The dispositive portion of said decision states:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay the plaintiff, as follows:

1. the amount of P98,519.16 as real property tax, from [the] last quarter of 1984 up to December
1986;

2. the amount of P3,828.07, as business tax, for leasing of real estate from [the] last quarter of
1984 up to 1988.2

Petitioner now seeks a review of the case, contending that the court a quo decided a question of
substance which has not been decided by us in that:

(i) It decreed a property of public dominion (port facility) as subject to realty taxes just because
the mentioned property is being administered by what it perceived to be a taxable government
corporation. And,

(ii) It declared that petitioner PPA is subject to "business taxes" for leasing to private persons or
entities real estate without considering that petitioner PPA is not engaged in "business."3

36
In its Comment, respondent in addition raises the issue of whether or not petitioner may change its theory
on appeal. It points out that petitioner never raised the issue that the subject property is of public
dominion during the trial nor did it mention it in the memorandum it filed with the lower court. It further
contends that such change of theory patently contradicts petitioners admission in its pleadings and is
disallowed under applicable jurisprudence.4

The records show that the theory of petitioner before the trial court was different from that of the present
petition. In fact, even while at the trial court stage, petitioner was not consistent in its theory.5 Initially in
its pleadings therein, it argued that as a government-owned corporation, it is exempt from paying real
property taxes by virtue of its specific exemption in its charter,6 Section 40 of the Real Property Tax Code
and Executive Order No. 93. Subsequently, in the memorandum it filed with the trial court, it omitted its
earlier argument and changed its theory by alleging that it is a government instrumentality, which,
according to applicable jurisprudence, may not be taxed by the local government. After obtaining an
adverse decision from the trial court, it adopts yet another stance on appeal before us, contesting the
taxability of its warehouse. It argued for the first time that since "ports constructed by the State" are
considered under the Civil Code as properties of public dominion, its warehouse, which it insists to be part
of its port, should be treated likewise. To support this, it invokes Article 420 of the Civil Code, which
provides:

Art. 420. The following things are property of public dominion:

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

xxx xxx xxx

[Emphasis supplied]

Insisting that the subject warehouse is considered as part of its port, it points to Section 3 (e) of its charter
quoted hereunder:

e) "port" means a place where ships may anchor or tie up for the purpose of shelter, repair,
loading or discharge of cargo, or for other such activities connected with water-borne commerce,
and including all the land and water areas and the structures, equipment and facilities related to
these functions. [Emphasis supplied]

A perusal of the records shows that this thesis was never presented nor discussed at the trial stage.

As a rule, a party who deliberately adopts a certain theory upon which the case is tried and decided by
the lower court will not be permitted to change theory on appeal.7 Points of law, theories, issues and
arguments not brought to the attention of the lower court need not be, and ordinarily will not be,
considered by a reviewing court, as these cannot be raised for the first time at such late stage. Basic
considerations of due process underlie this rule.8 It would be unfair to the adverse party who would have
no opportunity to present further evidence material to the new theory, which it could have done had it
been aware of it at the time of the hearing before the trial court.9 To permit petitioner in this case to
change its theory on appeal would thus be unfair to respondent, and offend the basic rules of fair play,
justice and due process.10

37
Petitioner however cites an exception to the rule, as enunciated in Lianga Lumber Co. v. Lianga Timber
Co., Inc.,11 wherein we said:

[I]n the interest of justice and within the sound discretion of the appellate court, a party may
change his theory on appeal only when the factual bases thereof would not require presentation
of any further evidence by the adverse party in order to enable it to properly meet the issue raised
in the new theory.

Petitioner contends that its new theory falls under the aforecited exception, as the issue does not involve
any disputed evidentiary matter.

Contrary to petitioners claim, we find that the new issue raised is not a purely legal question. It must be
emphasized that the enumeration of properties of public dominion under Article 420 of the Civil Code
specifically states "ports constructed by the State." Thus, in order to consider the port in the case at bar
as falling under the said classification, the fact that the port was constructed by the State must first be
established by sufficient evidence. This fact proved crucial in Santos v. Moreno,12 where the issue raised
was whether the canals constructed by private persons were of public or private ownership. We ruled
that the canals were privately owned, thus:

Under Art. 420, canals constructed by the State and devoted and devoted to public use are of
public ownership. Conversely, canals constructed by private persons within private lands and
devoted exclusively for private use must be of private ownership.

In the case at bar, no proof was adduced to establish that the port was constructed by the State. Petitioner
cannot have us automatically conclude that its port qualified as "property of public dominion." It would
be unfair to respondent, which would be deprived of its opportunity to present evidence to disprove the
factual basis of the new theory. It is thus clear that the Lianga exception cannot apply in the case at bar.

Moreover, as correctly pointed out by respondent, we cannot ignore the fact that petitioners new
position runs contrary to its own admission in the pleadings filed in the trial court. Under paragraph 3 of
respondents complaint quoted hereunder, the fact of petitioners ownership of the property was
specifically alleged as follows:

III

Defendant is likewise the declared and registered owner of a warehouse standing on Lot No. 1065
situated at Bgy. Concepcion, City Proper, declared under Tax Declaration No. 56325. Xerox copy
of the said Tax Declaration is hereto attached as annex "D" and formns] an integral part of herein
complaint;13

In its Answer, referring to the abovecited complaint, petitioner stated, "Paragraph 3 is admitted."14
Notably, this admission was never questioned nor put at issue during the trial.

Now before us, petitioner contradicts its earlier admission by claiming that the subject warehouse is a
property of public dominion. This inconsistency is made more apparent by looking closely at what public
dominion means. Tolentino explains this in this wise:

38
 Private ownership is defined elsewhere in the Code; but the meaning of public dominion is
nowhere defined. From the context of various provisions, it is clear that public dominion does not
carry the idea of ownership; property of public dominion is not owned by the State, but pertains
to the State, which as territorial sovereign exercises certain judicial prerogatives over such
property. The ownership of such property, which has the special characteristics of a collective
ownership for the general use and enjoyment, by virtue of their application to the satisfaction of
collective needs, is in the social group, whether national, provincial, or municipal. Their purpose
is not to serve the State as a juridical person, but the citizens; they are intended for the common
and public welfare, and so they cannot be the object of appropriation, either by the State or by
private persons.15 [Emphasis supplied]

Following the above, properties of public dominion are owned by the general public and cannot be
declared to be owned by a public corporation, such as petitioner.

As the object of the pleadings is to draw the lines of battle, so to speak, between the litigants and to
indicate fairly the nature of the claims or defenses of both parties, a party cannot subsequently take a
position contrary to, or inconsistent, with his pleadings.16 Unless a party alleges palpable mistake or denies
such admission, judicial admissions cannot be controverted.17 Petitioner is thus bound by its admission of
ownership of the subject property and is barred from claiming otherwise.

We also note that petitioner failed to raise the issue of ownership during the pre-trial. In its petition, it
insists that to determine liability for real property tax, the ownership of the property must first be
ascertained.18 In the pre-trial order, however, to which petitioner did not object, nowhere was the issue
of ownership included in the stipulated factual or legal issues.19

We have ruled that a pre-trial is primarily intended to make certain that all issues necessary to the
disposition of a case are properly raised. Thus to obviate the element of surprise, parties are expected to
disclose at the pre-trial conference all issues of law and fact which they intend to raise at the trial.
Consequently, the determination of issues at a pre-trial conference bars the consideration of other
questions on appeal.20 Hence, in the case at bar, the fact that the issue of ownership is outside of what
has been delimited during the pre-trial further justifies the disallowance of petitioners new theory.

Therefore, on the basis of the foregoing considerations and in the absence of compelling reasons to rule
otherwise, we hold that petitioner may not be permitted to change its theory at this stage. Well-settled
is the rule that questions that were not raised in the lower court cannot be raised for the first time on
appeal.21

In any case, granting that petitioners present theory is allowed at this stage, we nevertheless find it
untenable. Concededly, "ports constructed by the State" are properties of the public dominion, as Article
420 of the Civil Code enumerates these as properties "intended for public use." It must be stressed
however that what is being taxed in the present case is petitioners warehouse, which, although located
within the port, is distinct from the port itself. In Light Rail Transit Authority v. Central Board of Assessment
Appeals et al.,22 petitioner therein similarly sought an exemption from real estate taxes on its passenger
terminals, arguing that said properties are considered as part of the "public roads," which are classified
as property of public dominion in the Civil Code.23 We ruled therein that:

39
 [T]he properties of petitioner are not exclusively considered as public roads being
improvements placed upon the public road, and this [separable] nature of the structure in itself
physically distinguishes it from a public road. Considering further that carriageways or passenger
terminals are elevated structures which are not freely accessible to the public, vis--vis roads
which are public improvements openly utilized by the public, the former are entirely different
from the latter.

Using the same reasoning, the warehouse in the case at bar may not be held as part of the port,
considering its separable nature as an improvement upon the port, and the fact that it is not open for use
by everyone and freely accessible to the public. In the same way that we ruled in one case that the
exemption of public property from taxation does not extend to improvements made thereon by
homesteaders or occupants at their own expense,24 we likewise uphold the taxability of the warehouse in
the instant case, it being a mere improvement built on an alleged property of public dominion, assuming
petitioners port to be so. Moreover, petitioner may not invoke the definition of "port" in its charter to
expand the meaning of "ports constructed by the State" in the Civil Code to include improvements built
thereon. It must be noted that the charter itself limited the use of said definition only for the
interpretation of Presidential Decree (P.D.) No. 857, its by-laws, regulations and rules,25 and not of other
statutes such as the Civil Code. Given these parameters, therefore, petitioners move to present its new
theory, even if allowed, would nonetheless prove to be futile.

The trial court correctly ruled that for the assessed period of 1984 to 1988, petitioners exemption from
real property taxes was withdrawn by P.D. No. 1931, at least for the period of 1984 to 1986.

Originally, petitioner was exempt from real property taxes on the basis of the Real Property Tax Code26
then governing, which provided:

SECTION 40. Exemptions from Real Property Tax. The exemption shall be as follows:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions and
any government-owned corporation so exempt by its charter: Provided; however, That this
exemption shall not apply to real property of the above-named entities the beneficial use of which
has been granted, for consideration or otherwise, to a taxable person.

Petitioners charter, P.D. 857,27 further specifically exempted it from real property taxes:

SECTION 25. Exemption from Realty Taxes The Authority shall be exempt from the payment of
real property taxes imposed by the Republic of the Philippines, its agencies, instrumentalities or
political subdivisions; Provided, That no tax exemptions shall be extended to any subsidiaries of
the Authority that may be organized; Provided, finally, That investments in fixed assets shall be
deductible for income tax purposes.

It can thus be seen from the foregoing that petitioner, as a government-owned or controlled corporation,
enjoyed an exemption from real property taxes.

On June 11, 1984, however, P.D. 1931 effectively withdrew all tax exemption privileges granted to
government-owned or controlled corporations as stated in Section 1 thereof, which reads:

40
 Sec. 1. The provisions of special or general law to the contrary notwithstanding, all exemptions
from the payment of duties, taxes, fees, imposts and other charges heretofore granted in favor
of government-owned or controlled corporations including their subsidiaries, are hereby
withdrawn.

Under the same law, the exemption can be restored in special cases through an application for restoration
with the Secretary of Finance,28 which, notably, petitioner did not avail.

Subsequently, Executive Order (E.O.) No. 93 was enacted on December 17, 1986 restoring tax exemptions
provided under certain laws, one of which is the Real Property Tax Code. The pertinent portion of said law
provides:

SECTION 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted to government and private entities are hereby withdrawn, except:

xxx xxx xxx

e) those conferred under four basic codes namely:

(i) the Tariff and Customs Code, as amended;

(ii) the National Internal Revenue Code, as amended;

(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

[Emphasis supplied]

The abovecited laws, therefore, indicate that petitioners tax exemption from real property taxes was
withdrawn by P.D. 1931 effective June 11, 1984, but was subsequently restored by virtue of E.O. 93,
starting December 17, 1986.29 Hence, petitioner is liable for real property taxes on its warehouse,
computed from the last quarter of 1984 up to December 1986.

Petitioner, however, seeks to be excused from liability for taxes by invoking the pronouncement in Basco
v. PAGCOR30 (Basco) quoted hereunder:

PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is
governmental, which places it in the category of an agency or instrumentality of the Government.
Being an instrumentality of the Government, PAGCOR should be and actually is exempt from local
taxes. Otherwise, its operation might be burdened, impeded or subject to control by a mere Local
government. [Emphasis supplied]

Petitioner points out that its exercise of regulatory functions as decreed by its charter31 places it within
the category of an "agency or instrumentality of the government," which, according to Basco, is beyond
the reach of local taxation.

41
Reliance in the abovecited case is unavailing considering that P.D. 1931 was never raised therein, and
given that the issue in said case focused on the constitutionality of P.D. 1869, the charter of PAGCOR. The
said decision did not absolutely prohibit local governments from taxing government instrumentalities. In
fact we stated therein:

The power of local government to "impose taxes and fees" is always subject to "limitations" which
Congress may provide by law. Since P.D. 1869 remains an "operative" law until "amended,
repealed or revoked"its "exemption clause" remains an exemption to the exercise of the power
of local governments to impose taxes and fees.32

Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos,33 where
the Basco case was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from
decreeing that even instrumentalities or agencies of the Government performing governmental functions
may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no
one can doubt its wisdom." The fact that tax exemptions of government-owned or controlled corporations
have been expressly withdrawn by the present Local Government Code34 clearly attests against
petitioners claim of absolute exemption of government instrumentalities from local taxation.

Petitioner also contends that the term "government-owned or controlled corporations" referred in P.D.
1931 covers only those not performing governmental functions. This argument is without legal basis for
it reads into the law a distinction that is not there. It runs contrary to the clear intent of the law to
withdraw from all units of the government, including government-owned or controlled corporations, their
exemptions from taxes. Had it been otherwise, the law would have said so.35

Moreover, the trial court correctly pointed out that if indeed petitioner were not subject to local taxation,
petitioners charter would not have specifically provided for its exemption from the payment of real
property tax. Its exemption therein therefore proves that it was only an exception to the general rule of
taxability of petitioner. Given that said privilege was withdrawn by subsequent law, petitioners claim for
exemption from real property taxes for the entire assessed period fails.

We affirm the finding of the lower court on petitioners liability for business taxes for the lease of its
building to private corporations. During the trial, petitioner did not present any evidence to refute
respondents proof of petitioners income from the lease of its property. Neither did it present any proof
of exemption from business taxes. Instead, it emphasized its charter provisions defining its functions as
governmental in nature. It averred that it allowed port users to occupy certain premises within the port
area only to ensure order and convenience in discharging its governmental functions. It hence claimed
that it is not engaged in business, as the act of leasing out its property was not motivated by profit, but
by its duty to manage and control port operations.

The argument is unconvincing. As admitted by petitioner, it leases out its premises to private persons for
"convenience" and not necessarily as part of its governmental function of administering port operations.
In fact, its charter classifies such act of leasing out port facilities as one of petitioners corporate powers.36
Any income or profit generated by an entity, even of a corporation organized without any intention of
realizing profit in the conduct of its activities, is subject to tax.37 What matters is the established fact that
it leased out its building to ten private entities from which it regularly earned substantial income. Thus, in
the absence of any proof of exemption therefrom, petitioner is liable for the assessed business taxes.

42
In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately
suffers no loss. In National Power Corp. v. Presiding Judge, RTC, Br. XXV,38 we elucidated:

Actually, the State has no reason to decry the taxation of NAPOCORs properties, as and by way
of real property taxes. Real property taxes, after all, form part and parcel of the financing
apparatus of the Government in development and nation-building, particularly in the local
government level.

xxx xxx xxx

To all intents and purposes, real property taxes are funds taken by the State with one hand and
given to the other. In no measure can the government be said to have lost anything.

Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption
privileges granted to government-owned and controlled corporations and all other units of government
was that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, hence resulting in the need for these entities to share in the requirements of
development, fiscal or otherwise, by paying the taxes and other charges due from them.39

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Davide, Jr., (Chairman), Vitug, Ynares-Santiago, and Carpio, JJ., concur.

43
G.R. No. 136438 November 11, 2004

TEOFILO C. VILLARICO, petitioner,

vs.
VIVENCIO SARMIENTO, SPOUSES BESSIE SARMIENTO-DEL MUNDO & BETH DEL MUNDO, ANDOKS
LITSON CORPORATION and MARITES CARINDERIA, respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals dated December
7, 1998 in CA-G.R. CV No. 54883, affirming in toto the Decision2 of the Regional Trial Court (RTC) of
Paraaque City, Branch 259, dated November 14, 1996, in Civil Case No. 95-044.

The facts of this case, as gleaned from the findings of the Court of Appeals, are:

Teofilo C. Villarico, petitioner, is the owner of a lot in La Huerta, Paraaque City, Metro Manila with an
area of sixty-six (66) square meters and covered by Transfer Certificate of Title (T.C.T.) No. 95453 issued
by the Registry of Deeds, same city.

Petitioners lot is separated from the Ninoy Aquino Avenue (highway) by a strip of land belonging to the
government. As this highway was elevated by four (4) meters and therefore higher than the adjoining
areas, the Department of Public Works and Highways (DPWH) constructed stairways at several portions
of this strip of public land to enable the people to have access to the highway.

Sometime in 1991, Vivencio Sarmiento, his daughter Bessie Sarmiento and her husband Beth Del Mundo,
respondents herein, had a building constructed on a portion of said government land. In November that
same year, a part thereof was occupied by Andoks Litson Corporation and Marites Carinderia, also
impleaded as respondents.

In 1993, by means of a Deed of Exchange of Real Property, petitioner acquired a 74.30 square meter
portion of the same area owned by the government. The property was registered in his name as T.C.T.
No. 74430 in the Registry of Deeds of Paraaque City.

In 1995, petitioner filed with the RTC, Branch 259, Paraaque City, a complaint for accion publiciana
against respondents, docketed as Civil Case No. 95-044. He alleged inter alia that respondents structures
on the government land closed his "right of way" to the Ninoy Aquino Avenue; and encroached on a
portion of his lot covered by T.C.T. No. 74430.

Respondents, in their answer, specifically denied petitioners allegations, claiming that they have been
issued licenses and permits by Paraaque City to construct their buildings on the area; and that petitioner
has no right over the subject property as it belongs to the government.

After trial, the RTC rendered its Decision, the dispositive portion of which reads:

"WHEREFORE, premises considered, judgment is hereby rendered:

44
 1. Declaring the defendants to have a better right of possession over the subject land
except the portion thereof covered by Transfer Certificate of Title No. 74430 of the
Register of Deeds of Paraaque;

2. Ordering the defendants to vacate the portion of the subject premises described in
Transfer Certificate of Title No. 74430 and gives its possession to plaintiff; and

3. Dismissing the claim for damages of the plaintiff against the defendants, and likewise
dismissing the claim for attorneys fees of the latter against the former.

Without pronouncement as to costs.

SO ORDERED."3

The trial court found that petitioner has never been in possession of any portion of the public land in
question. On the contrary, the defendants are the ones who have been in actual possession of the area.
According to the trial court, petitioner was not deprived of his "right of way" as he could use the Kapitan
Tinoy Street as passageway to the highway.

On appeal by petitioner, the Court of Appeals issued its Decision affirming the trial courts Decision in
toto, thus:

"WHEREFORE, the judgment hereby appealed from is hereby AFFIRMED in toto, with costs against
the plaintiff-appellant.

SO ORDERED."4

In this petition, petitioner ascribes to the Court of Appeals the following assignments of error:

"I

THE FINDINGS OF FACT OF THE HON. COURT OF APPEALS CONTAINED A CONCLUSION WITHOUT
CITATION OF SPECIFIC EVIDENCE ON WHICH THE SAME WAS BASED.

II

THE HON. COURT OF APPEALS ERRED IN CONSIDERING THAT THE ONLY ISSUE IN THIS CASE IS
WHETHER OR NOT THE PLAINTIFF-APPELLANT HAS ACQUIRED A RIGHT OF WAY OVER THE LAND
OF THE GOVERNMENT WHICH IS BETWEEN HIS PROPERTY AND THE NINOY AQUINO AVENUE.

III

THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT ACCION PUBLICIANA IS NOT THE
PROPER REMEDY IN THE CASE AT BAR.

IV

45
 THE HON. COURT OF APPEALS ERRED IN CONCLUDING THAT THE EXISTENCE OF THE PLAINTIFF-
APPELLANTS RIGHT OF WAY DOES NOT CARRY POSSESSION OVER THE SAME.

THE HON. COURT OF APPEALS ERRED IN NOT RESOLVING THE ISSUE OF WHO HAS THE BETTER
RIGHT OF POSSESSION OVER THE SUBJECT LAND BETWEEN THE PLAINTIFF-APPELLANT AND THE
DEFENDANT-APPELLEES."5

In their comment, respondents maintain that the Court of Appeals did not err in ruling that petitioners
action for accion publiciana is not the proper remedy in asserting his "right of way" on a lot owned by the
government.

Here, petitioner claims that respondents, by constructing their buildings on the lot in question, have
deprived him of his "right of way" and his right of possession over a considerable portion of the same lot,
which portion is covered by his T.C.T. No. 74430 he acquired by means of exchange of real property.

It is not disputed that the lot on which petitioners alleged "right of way" exists belongs to the state or
property of public dominion. Property of public dominion is defined by Article 420 of the Civil Code as
follows:

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

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

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

Public use is "use that is not confined to privileged individuals, but is open to the indefinite public."6
Records show that the lot on which the stairways were built is for the use of the people as passageway to
the highway. Consequently, it is a property of public dominion.

Property of public dominion is outside the commerce of man and hence it: (1) cannot be alienated or
leased or otherwise be the subject matter of contracts; (2) cannot be acquired by prescription against the
State; (3) is not subject to attachment and execution; and (4) cannot be burdened by any voluntary
easement.7

Considering that the lot on which the stairways were constructed is a property of public dominion, it can
not be burdened by a voluntary easement of right of way in favor of herein petitioner. In fact, its use by
the public is by mere tolerance of the government through the DPWH. Petitioner cannot appropriate it
for himself. Verily, he can not claim any right of possession over it. This is clear from Article 530 of the
Civil Code which provides:

"ART. 530. Only things and rights which are susceptible of being appropriated may be the object
of possession."

46
Accordingly, both the trial court and the Court of Appeals erred in ruling that respondents have better
right of possession over the subject lot.

However, the trial court and the Court of Appeals found that defendants buildings were constructed on
the portion of the same lot now covered by T.C.T. No. 74430 in petitioners name. Being its owner, he is
entitled to its possession.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated December 7,
1998 in CA-G.R. CV No. 54883 is AFFIRMED with MODIFICATION in the sense that neither petitioner nor
respondents have a right of possession over the disputed lot where the stairways were built as it is a
property of public dominion. Costs against petitioner.

SO ORDERED.

Panganiban, (Chairman), Carpio Morales and Garcia, JJ., concur.

Corona, J., on leave.

47
G.R. No. 183416, October 05, 2016

PROVINCIAL ASSESSOR OF AGUSAN DEL SUR, Petitioner, v. FILIPINAS PALM OIL PLANTATION, INC.,
Respondent.

DECISION

LEONEN, J.:

The exemption from real property taxes given to cooperatives applies regardless of whether or not the
land owned is leased. This exemption benefits the cooperative's lessee. The characterization of machinery
as real property is governed by the Local Government Code and not the Civil Code.

This Petition1 for review assails the Decision2 dated September 26, 2007 and the Resolution3 dated May
26, 2008 of the Court of Appeals in CA-G.R. SP No. 74060. The Court of Appeals affirmed the Decision of
the Central Board of Assessment Appeals (CBAA) exempting Filipinas Palm Oil Plantation Inc. from
payment of real property taxes.4chanrobleslaw

Filipinas Palm Oil Plantation Inc. (Filipinas) is a private organization engaged in palm oil plantation 5 with a
total land area of more than 7,000 hectares of National Development Company (NDC) lands in Agusan del
Sur.6 Harvested fruits from oil palm trees are converted into oil through Filipinas' milling plant in the
middle of the plantation area.7 Within the plantation, there are also three (3) plantation roads and a
number of residential homes constructed by Filipinas for its employees.8chanrobleslaw

After the Comprehensive Agrarian Reform Law9 was passed, NDC lands were transferred to
Comprehensive Agrarian Reform Law beneficiaries who formed themselves as the merged NDC-Guthrie
Plantations, Inc. - NDC-Guthrie Estates, Inc. (NGPI-NGEI) Cooperatives.10 Filipinas entered into a lease
contract agreement with NGPI-NGEI.11chanrobleslaw

The Provincial-Assessor of Agusan del Sur (Provincial Assessor) is a government agency in charge with the
assessment of lands under the public domain.12 It assessed Filipinas' properties found within the
plantation area,13 which Filipinas assailed before the Local Board of Assessment Appeals (LBAA) on the
following grounds:

chanRoblesvirtualLawlibrary

(1.) The [petitioner] Provincial Assessors of Agusan del Sur ERRED in finding that the Market Value of
a single fruit bearing oil palm tree is P207.00 when it should only be P42.00 pesos per tree;
(2.) The [petitioner] ERRED in finding that the total number of standing and fruit bearing oil palm tree
is PI 10 [sic] trees per hectare when it should be only 92 trees;
(3.) The [petitioner] ERRED in finding that the Market Value[s] of the plantation roads are:

A.) P270,000.00 per kilometer for primary roads

B.) P135,000.00 for secondary roads
C.) P67,567.00 for tertiary roads constructed by the company.

It should only be:

A.) P105,000.00 for primary roads

48
 B.) P52,300.00 for secondary roads
C.) P26,250.00 for tertiary roads

Likewise, bridges, culverts, canals and pipes should not be assessed separately from plantation roads, the
same being components of the roads thereof;

(4.) The [petitioner] ERRED in imposing real property taxes against the petitioner for roads, bridges,
culverts, pipes and canals as these belonged to the cooperatives;

([5].) The [petitioner] ERRED in finding that the Market Value of NDC service area is P11,000.00 per hectare
when it should only be P6,000.00 per hectare;

([6].) The [petitioner] ERRED in imposing realty taxes on Residential areas built by [respondent] except for
three of them;

([7].) The [petitioner] ERRED when it included haulers and other equipments [sic] which are unmovable as
taxable real properties.14

In its Decision15 dated June 8, 1999, the LBAA found that the P207.00 market value declared in the
assessment by the Provincial Assessor was unreasonable.16 It found that the market value should not have
been more than P85.00 per oil palm tree.17 The sudden increase of realty tax assessment level from P42.00
for each oil palm tree in 1993 to P207.00 was confiscatory.18chanrobleslaw

The LBAA adopted Filipinas' claim that the basis for assessment should only be 98 trees.19 Although one
(1) hectare of land can accommodate 124 oil palm trees, the mountainous terrain of the plantation should
be considered.20 Because of the terrain, not every meter of land can be fully planted with trees.21 The
LBAA found that roads of any kind, as well as all their improvements, should not be taxed since these
roads were intermittently used by the public.22 It resolved that the market valuation should be based on
the laws of the Department of Agrarian Reform since the area is owned by the NDC, a quasi-governmental
body of the Philippines.23chanrobleslaw

The LBAA exempted the low-cost housing units from taxation except those with a market value of more
than P150,000.00 under the Local Government Code.24 Finally, the LBAA considered the road equipment
and mini haulers as movables that are vital to Filipinas' business.

Filipinas appealed before the CBAA on July 16, 1999.26 On November 21, 2001, the CBAA rendered a
decision, the dispositive portion of which reads:

WHEREFORE, this Board has decided to set aside, as it does hereby set aside, the decision rendered by
the Local Board of Assessment Appeals of the Province of Agusan del Sur on June 8, 1999 in an
unnumbered case entitled "[F]ilipinas Palm Oil Co., Inc. Petitioner, versus the Provincial Assessors Office
of Agusan del Sur, Respondent" and hereby orders as follows:

A. The market value for each oil palm tree should be FIFTY- SEVEN & 55/100 PESOS (57.55), effective
January 1, 1991. The assessment for each municipality shall be based on the corresponding number of
trees as listed in Petitioner-Appellee's "Hectarage Statement" discussed hereinabove;

49
B. Petitioner-Appellee should not be made to pay for the real property taxes due on the roads starting from
January 1, 1991;

C. Petitioner-Appellee is not liable to the Government for real property taxes on the lands owned by the
Multi-purpose Cooperative;

D. The housing units with a market value of PI75,000.00 or less each shall be subjected to 0% assessment
level, starting 1994;

E. Road Equipment and haulers are not real properties and, accordingly, Petitioner-Appellee is not liable
for real property tax thereon;

F. Any real property taxes already paid by Petitioner-Appellee which, by virtue "of this decision, were not
due, shall be applied to future taxes rightfully due from Petitioner-Appellee.

SO ORDERED.27 (Emphasis supplied)

The CBAA denied the Motion for Reconsideration filed by the Provincial Assessor.28 The Provincial
Assessor filed a Petition for Review before the Court of Appeals, which, in turn, sustained the CBAA's
Decision.29chanrobleslaw

The Court of Appeals held that the land owned by NGPI-NGEI, which Filipinas has been leasing, cannot be
subjected to real property tax since these are owned by cooperatives that are tax-exempt.30 Section
133(n) of the Local Government Code provides:

SECTION 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:
....

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight (R.A. No. 6938)
otherwise known as the "Cooperative Code of the Philippines." (Emphasis supplied)

Section 234(d) of the Local Government Code exempts duly registered cooperatives, like NGPI-NGEI, from
payment of real property taxes:

SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:
....

(d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938[.]
(Emphasis supplied)

The Court of Appeals held that the pertinent provisions "neither distinguishes nor specifies" that the
exemption only applies to real properties used by the cooperatives.31 It ruled that "[t]he clear absence of
any restriction or limitation in the provision could only mean that the exemption applies to wherever the
properties are situated and to whoever uses them."32 Therefore, the exemption privilege extends to

50
Filipinas as the cooperatives' lessee.

On the roads constructed by Filipinas, the Court of Appeals held that although it is undisputed that the
roads were built primarily for Filipinas' benefit, the roads should be tax-exempt since these roads were
also being used by the cooperatives and the public.34 It applied, by analogy, Bislig Bay Lumber Company,
Inc. v. Provincial Government of Surigao:

We are inclined to uphold the theory of appellee. In the first place, it cannot be disputed that the
ownership of the road that was constructed by appellee belongs to the government by right accession not
only because it is inherently incorporated or attached to the timber land leased to appellee but also
because upon the expiration of the concession, said road would ultimately pass to the national
government. In the second place, while the road was constructed by appellee primarily for its use and
benefit, the privilege is not exclusive, for, under the lease contract entered into by the appellee and the
government and by public in by the general. Thus, under said lease contract, appellee cannot prevent the
use of portions, of the concession for homesteading purposes. It is also in duty bound to allow the free
use of forest products within the concession for the personal use of individuals residing in or within the
vicinity of the land. . . . In other words, the government has practically reserved the rights to use the road
to promote its varied activities. Since, as above shown, the road in question cannot be considered as an
improvement which belongs to appellee, although in part is for its benefit, it is clear that the same cannot
be the subject of assessment within the meaning of section 2 of Commonwealth Act No. 470.36 (Citations
omitted)

Furthermore, the Court of Appeals agreed with the CBAA that the roads constructed by Filipinas had
become permanent improvements on the land owned by NGPI-NGEI.37 Articles 440 and 445 of the Civil
Code provide that these improvements redound to the benefit of the land owner under the right of
accession:

Article 440. The ownership of property gives the right by accession to everything which is produced
thereby, or which is incorporated or attached thereto, either naturally or artificially.
. . . .

Article 445. Whatever is built, planted or sown on the land of another and the improvements or repairs
made thereon, belong to the owner of the land, subject to the provisions of the following articles.

On the road equipment and mini haulers as real properties subject to tax, the Court of Appeals affirmed
the CBAA's Decision that these are only movables.39 Section 199(o) of the Local Government Code
provides a definition of machinery subject to real property taxation:

SECTION 199. Definition of Terms. When used in this Title, the term:
....

(o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or

apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes
the physical facilities for production, the installations and appurtenant service facilities, those which are
mobile, self-powered or self-propelled, and those not permanently attached to the real property which
are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity
and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining.

51
The Court of Appeals held that Section 19^(o) of the Local Government Code should be construed to
include machineries covered by the meaning of real properties provided for under Article 415(5) of the
Civil Code:

Article 415. The following are immovable property:

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

The Court of Appeals cited Davao Sawmill Company v. Castillo,41 where it has been held that machinery
that is movable by nature becomes immobilized only when placed by the owner of the tenement, but not
so when placed by a tenant or any other person having a temporary right unless this person acts as an
agent of the owner.42 Thus, the mini haulers and other road equipment retain their nature as movables.

The Provincial Assessor filed before this Court a Petition for Review raising the following issues:

First, whether the exemption privilege of NGPI-NGEI from payment of real property tax extends to
respondent Filipinas Palm Oil Plantation Inc. as lessee of the parcel of land owned by cooperatives; and

Second, whether respondent's road equipment and mini haulers are movable properties and have not
been immobilized by destination for real property taxation.

Petitioner argues that based on Mactan Cebu International Airport Authority v. Ferdinand J. Marcos,44
cooperatives cannot extend its exemption from real property tax to taxable persons.45 It argues that
Sections 198, 199, 205, and 217 of the Local Government Code provide that real property taxes are
assessed based on actual use.46 Moreover, the exemption of cooperatives applies only when it is the
cooperative that actually, directly, and exclusively uses and possesses the properties.47 Sections 198, 199,
205, and 217 of the Local Government Code provide:

SECTION 198. Fundamental Principles. The appraisal, assessment, levy and collection of real property
tax shall be guided by the following fundamental principles:
. . . .
(b) Real property shall be classified for assessment purposes on the basis of its actual use[.]
. . . .
SECTION 199. Definition of Terms. When used in this Title, the term:
. . . .
(b) "Actual Use" refers to the purpose for which the property is principally or predominantly utilized by the
person in possession thereof[.]
. . . .
SECTION 205. Listing of Real Property in the Assessment Rolls.
. . . .
(d) Real property owned by the Republic of the Philippines, its instrumentalities and political subdivisions,
the beneficial use of which has been granted, for consideration or otherwise, to a taxable person, shall be
listed, valued and assessed in the name of the possessor, grantee or of the public entity if such property
has been acquired or held for resale or lease.
. . . .

52
SECTION 217. Actual Use of Real Property as Basis for Assessment. Real property shall be classified,
valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and
whoever uses it. (Emphasis supplied)

Petitioner claims that Section 199(o) of the Local Government Code specifically covers respondent's road
equipment and mini haulers since these are directly and exclusively used to meet the needs of
respondent's industry, business, or activity.48 Article 415(5) of the Civil Code, which defines real property,
should not be made to control the Local Government Code,49 a subsequent legislation that specifically
defines "machinery" for taxation purposes.

In the Resolution51 dated October 13, 2008, this Court denied the Petition for Review due to procedural
missteps, which included the failure to attach legible duplicate original or certified true copies of the
assailed decision and failure to pay proper fees. On November 25, 2008, petitioner moved for
reconsideration,52 praying for the reversal of the Petition's denial due to mere technicalities.

On January 26, 2009, this Court granted Petitioner's Motion for Reconsideration.53 It directed the
reinstatement of the Petition and required respondent to comment.

On November 20, 2009, respondent filed its Comment.

Respondent reiterates the rulings of the CBAA and the Court of Appeals that the exemption of
cooperatives from real property taxes extends to it as the lessee.56 It asserts that under its lease
agreement with NGPI-NGEI, it pays an Annual Fixed Rental, which includes the payment of taxes.57 It
claims that in case NGPI-NGEI is liable to the local government for real property tax on the land, the tax
should be taken from the Annual Fixed Rental.58 To make respondent pay real property taxes on the leased
land would be equivalent to assessing it twice for the same property.

On the road equipment and mini haulers being subjected to real property taxation, respondent maintains
that it should be spared from real property tax since the equipment and mini haulers are movables.

The Petition is granted to modify the Court of Appeals Decision, but only with respect to the nature of
respondent's road equipment and mini haulers.

Under Section 133(n) of the Local Government Code, the taxing power of local government units shall not
extend to the levy of taxes, fees, or charges on duly registered cooperatives under the Cooperative Code.61
Section 234(d) of the Local Government Code specifically provides for real property tax exemption to
cooperatives:

SECTION 234. Exemptions from Real Property Tax. The following are exempted from payment of the
real property tax:
. . . .

(d) All real property owned by duly registered cooperatives as provided for under [Republic Act] No. 6938[.]
(Emphasis supplied)

NGPI-NGEI, as the owner of the land being leased by respondent, falls within the purview of the law.
Section 234 of the Local Government Code exempts all real property owned by cooperatives without

53
distinction. Nothing in the law suggests that the real property tax exemption only applies when the
property is used by the cooperative itself. Similarly, the instance that the real property is leased to either
an individual or corporation is not a ground for withdrawal of tax exemption.

In arguing the first issue, petitioner hinges its claim on a misplaced reliance in Mactan, which refers to the
revocation of tax exemption due to the effectivity of the Local Government Code. However, Mactan does
not refer to the tax exemption extended to cooperatives. The portion that petitioner cited specifically
mentions that the exemption granted to cooperatives has not been withdrawn by the effectivity of the
Local Government Code:

[S]ection 232 must be deemed to qualify Section 133.

Thus, reading together Sections 133, 232, and 234 of the L[ocal] G[overnment] C[ode], we conclude that
as a general rule, as laid down in Section 133, the taxing powers of local government units cannot extend
to the levy of, inter alia, "taxes, fees and charges of any kind on the National Government, its agencies
and instrumentalities, and local government units"; however, pursuant to Section 232, provinces, cities,
and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia,
"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," as
provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons,

including government-owned and controlled corporations, Section 193 of the L[ocal] G[overnment]
C[ode] prescribes the general rule, viz., they are withdrawn upon the effectivity of the L[ocal]
G[overnment] C[ode], except those granted to local water districts, cooperatives duly registered under
R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise
provided in the L[ocal] Gfovernment] C[ode]. The latter proviso could refer to Section 234 which
enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the
retention only to those enumerated therein; all others not included in the enumeration lost the privilege
upon the effectivity of the L[ocal] G[overnment] C[ode]. Moreover, even as to real property owned by the
Republic of the Philippines or any of its political subdivisions covered by item (a) of the first paragraph of
Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to a
taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the L[ocal]
G[overnment] C[ode], exemptions from payment of real property taxes granted to natural or juridical
persons, including government-owned or controlled corporations, except as provided in the said section,
and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its
exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any
claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions
provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said
section is qualified by Sections 232 and 234.

In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the
local government units cannot extend to the levy of:

54
(o) taxes, fees or charges of any kind on the National Government, its agencies or instrumentalities, and
local government units.

It must show that the parcels of land in question, which are real property, are any one of those
enumerated in Section 234, either by virtue of ownership, character, or use of the property.63 (Emphasis
supplied)

The roads that respondent constructed within the leased area should not be assessed with real property
taxes. Bislig Bay finds application here. Bislig Bay Lumber Company, Inc. (Bislig Bay) was a timber
concessionaire of a portion of public forest in the provinces of Agusan and Surigao.64 To aid in developing
its concession, Bislig Bay built a road at its expense from a barrio leading towards its area.65 The Provincial
Assessor of Surigao assessed Bislig Bay with real property tax on the constructed road, which was paid by
the company under protest.66 It claimed that even if the road was constructed on public land, it should be
subjected to real property tax because it was built by the company for its own benefit.67 On the other
hand, Bislig Bay asserted that the road should be exempted from real property tax because it belonged to
national government by right of accession.68 Moreover, the road constructed already became an
inseparable part of the land.69 The records also showed that the road was not only built for the benefit of
Bislig Bay, but also of the public.70 This Court ruled for Bislig Bay, thus:

We are inclined to uphold the theory of appellee. In the first place, it cannot be disputed that the
ownership of the road that was constructed by appellee belongs to the government by right accession not
only because it is inherently incorporated or attached to the timber land leased to appellee but also
because upon the expiration of the concession, said road would ultimately pass to the national
government. ... In the second place, while the road was constructed by appellee primarily for its use and
benefit, the privilege is not exclusive, for, under the lease contract entered into by the appellee and the
government and by public in by the general. Thus, under said lease contract, appellee cannot prevent the
use of portions, of the concession for homesteading purposes. ... It is also in duty bound to allow the free
use of forest products within the concession for the personal use of individuals residing in or within the
vicinity of the land. ... In other words, the government has practically reserved the rights to use the road
to promote its varied activities. Since, as above shown, the road in question cannot be considered as an
improvement which belongs to appellee, although in part is for its benefit, it is clear that the same cannot
be the subject of assessment within the meaning of section 2 of Commonwealth Act No. 470.71

This was reiterated in Board of Assessment Appeals of Zamboanga del Sur v. Samar Mining Company,
Inc.72 Samar Mining Company, Inc. (Samar Mining) was a domestic corporation engaged in the mining
industry.73 Since Samar Mining's mining site and mill were in an inland location entailing long distance
from its area to the loading point, Samar Mining was constrained to construct a road for its convenience.74
Initially, Samar Mining filed miscellaneous lease applications for a road right of way covering lands under
the jurisdiction of the Bureau of Lands and the Bureau of Forestry where the proposed road would pass
through.75 Samar Mining was given a "temporary permit to occupy and use the lands applied for by it"; 76
hence, it was able to build what was eventually known as the Samico Road. Samar Mining was assessed
by the Provincial Assessor of Zamboanga del Sur with real property taxes on the road, which prompted it
to appeal before the Board of Assessment Appeals.77 Invoking Bislig Bay, Samar Mining claimed that it
should not be assessed with real property tax since the road was constructed on public land. This Court
ruled for Samar Mining, thus:

There is no question that the road constructed by respondent Saimar on the public lands leased to it by
the government is an improvement. But as to whether the same is taxable under the aforequoted

55
provision of the Assessment Law, this question has already been answered in the negaitive by this Court.
In the case of Bislig Bay Lumber Co., Inc. vs. Provincial Government of Surigao, where a similar issue was
raised. . ..
. . . .

. . . What is emphasized in the Bislig case is that the improvement is exempt from taxation because it is an
integral part of the public land on which it is constructed and the improvement is the property of the
government by right of accession. Under Section 3(a) of the Assessment Law, all properties owned by the
government, without any distinction, are exempt from taxation.79 (Emphasis supplied, citations omitted)

The roads that respondent constructed became permanent improvements on the land owned by the
NGPI-NGEI by right of accession under the Civil Code, thus:

Article 440. The ownership of property gives the right by accession to everything which is produced
thereby, or which is incorporated or attached thereto, either naturally or artificially.
. . . .
Article 445. Whatever is built, planted or sown on the land of another and the improvements or repairs
made thereon, belong to the owner of the land[.]

Despite the land being leased by respondent when the roads were constructed, the ownership of the
improvement still belongs to NGPI-NGEI. As provided under Article 440 and 445 of the Civil Code, the land
is owned by the cooperatives at the time respondent built the roads. Hence, whatever is incorporated in
the land, either naturally or artificially, belongs to the NGPI-NGEI as the landowner.

Although the roads were primarily built for respondent's benefit, the roads were also being used by the
members of NGPI and the public.80 Furthermore, the roads inured to the benefit of NGPI-NGEI as owners
of the land not only by right of accession but through the express provision in the lease agreement:

On March 7, 1990 NGPI Multi-Purpose Cooperative, Inc., as Lessor, and NDC-Guthrie Plantations, Inc., as
Lessee, entered into a "Lease Agreement" . . . covering the agricultural lands transferred by NDC to the
DAR, which lands the DAR ultimately distributed undivided to qualified workers-beneficiaries. . . .
. . . .

Clause No. 6.3 of the same lease agreement provides that "All taxes due on the improvements on the
Leased Property except those improvements on the Area that the LESSOR shall have utilized under Clause
1.2 hereof, shall be for the account of the LESSEE."

Clause No. 9.4 of the same lease agreement provides that ". . . All fixed and permanent improvements,
such as roads and palm trees introduced on the Leased Property, shall automatically accrue to the LESSOR
upon termination of this Lease Agreement without need of reimbursement."

All the above-cited stipulations in the lease agreement between NGPI Multi-Purpose Cooperative and
NDC-Guthrie Plantations, Inc. were reconfirmed and reaffirmed in the Addendum to Lease Agreement
entered into by and between NGPI Multi-Purpose Cooperative and Filipinas Palmoil Plantations, Inc. on
January 30, 1998. . . . The main subject of the said Addendum was the extension of the term of the lease
agreement up to December 31, 2032, along with economic benefits to the lessor other than rentals.

There is no dispute that the roads are on the land owned by NGPI Multi-Purpose Cooperative which leased

56
the same to Petitioner-Appellee. These roads belong to the Multi-Purpose Cooperative, not only by right
of accession but also by express provisions of the Contract of Lease[.]81

Respondent claims that under its lease agreement with NGPI-NGEI, it pays an Annual Fixed Rental, which
includes the payment of taxes.82 If NGPI-NGEI were liable to the local government for real property tax on
the land, the tax should be taken from the Annual Fixed Rental:

"2.1. In consideration of this Lease Agreement, the LESSEE shall pay the LESSOR the following annual
rentals:
"1) An annual fixed rental, in the following amount "SIX HUNDRED THIRTY FIVE PESOS" (P635.00) PER
HECTARE PER ANNUM which would cover the following:

"(1) All Taxes on the Land

"(2) Administration Charges
"(3) Amortization charges

"It is understood that, if the annual fixed rental of "SIX HUNDRED THIRTY FIVE PESOS" (p 635.00) is
insufficient to pay any increase on the land taxes, the Lessee shall pay the difference, provided such
increase does not exceed ten percent (10%) of the immediately preceding tax imposed on the land;
provided further, that any increase beyond these percentage shall be borne equally by the LESSOR and
LESSEE.

"The foregoing notwithstanding, it is understood and agreed that at all times, liability for realty taxes on
the Leased Property Primarily and principally lies with the LESSOR and any reference herein to payment by
LESSEE of said taxes is only for purposes of earmarking the proceeds of the rentals herein agreed upon."
Clause No. 6.3 of the same lease agreement provides that "All taxes due on the improvements on the
Leased Property except those improvements on the Area that the LESSOR shall have utilized under Clause
1.2 hereof, shall be for the account of the LESSEE."83 (Emphasis supplied)

Therefore, NGPI-NGEI, as owner of the roads that permanently became part of the land being leased by
respondent, shall be liable for real property taxes, if any. However, by express provision of the Local
Government Code, NGPI-NGEI is exempted from payment of real property tax.

II

The road equipment and mini haulers shall be considered as real property, subject to real property tax.

Section 199(o) of the Local Government Code defines "machinery" as real property subject to real
property tax,85 thus:

SECTION 199. Definition of Terms. When used in this Title, the term:
....

(o) "Machinery" embraces machines, equipment, mechanical contrivances, instruments, appliances or

apparatus which may or may not be attached, permanently or temporarily, to the real property. It includes
the physical facilities for production, the installations and appurtenant service facilities, those which are
mobile, self-powered or self-propelled, and those not permanently attached to the real property which
are actually, directly, and exclusively used to meet the needs of the particular industry, business or activity

57
and which by their very nature and purpose are designed for, or necessary to its manufacturing, mining,
logging, commercial, industrial or agricultural purposes[.]

Article 415(5) of the New Civil Code defines "machinery" as that which constitutes an immovable property:

chanRoblesvirtualLawlibrary
Article 415. The following are immovable property:
. . . .
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land, and which tend directly to
meet the needs of the said industry or works[.] (Emphasis supplied)

Petitioner contends that the second sentence of Section 199(o) includes the road equipment and mini
haulers since these are directly and exclusively used by respondent to meet the needs of its operations.86
It further claims that Article 415(5) of the New Civil Code should not control the Local Government Code,
a subsequent legislation.

On the other hand, respondent claims that the road equipment and mini haulers are movables by nature.
It asserts that although there may be a difference between the meaning of "machinery" under the Local
Government Code arid that of immovable property under Article 415(5) of the Civil Code, "the controlling
interpretation of Section 199(o) of [the Local Government Code] is the interpretation of Article 415(5) of
the Civil Code."

In Manila Electric Company v. City Assessor,89 a similar issue of which definition of "machinery" prevails
to warrant the assessment of real property tax on it was raised.

Manila Electric Company (MERALCO) insisted on harmonizing the provisions of the Civil Code and the Local
Government Code and asserted that "machinery" contemplated under Section 199(o) of the Local
Government must still be within the contemplation of immovable property under Article 415 of the Civil
Code.90 However, this Court ruled that harmonizing such laws "would necessarily mean imposing
additional requirements for classifying machinery as real property for real property tax purposes not
provided for, or even in direct conflict with, the provisions of the Local Government Code."91 Thus:

While the Local Government Code still does not provide for a specific definition of "real property,"
Sections 199(o) and 232 of the said Code, respectively, gives an extensive definition of what constitutes
"machinery" and unequivocally subjects such machinery to real property tax. The Court reiterates that
the machinery subject to real property tax under the Local Government Code "may or may not be
attached, permanently or temporarily to the real property"; and the physical facilities for production,
installations, and appurtenant service facilities, those which are mobile, self-powered or self-propelled,
or are not permanently attached must (a) be actually, directly, and exclusively used to meet the needs of
the particular industry, business, or activity; and (b) by their very nature and purpose, be designed for, or
necessary for manufacturing, mining, logging, commercial, industrial, or agricultural purposes.
. . . .

Article 415, paragraph (5) of the Civil Code considers as immovables or real properties "[m]achinery,
receptacles, instruments or implements intended by the owner of the tenement for an industry or works
which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of
the said industry or works." The Civil Code, however, does not define "machinery."

58
The properties under Article 415, paragraph (5) of the Civil Code are immovables by destination, or "those
which are essentially movables, but by the purpose for which they have been placed in an immovable,
partake of the nature of the latter because of the added utility derived therefrom." These properties,
including machinery, become immobilized if the following requisites concur: (a) they are placed in the
tenement by the owner of such tenement; (b) they are destined for use in the industry or work in the
tenement; and (c) they tend to directly meet the needs of said industry or works. The first two requisites
are not found anywhere in the Local Government Code.92 (Emphasis supplied, citations omitted)

Section 199(o) of the Local Government prevails over Article 415(5) of the Civil Code. In Manila Electric
Company:

As between the Civil Code, a general law governing property and property relations, and the Local
Government Code, a special law granting local government units the power to impose real property tax,
then the latter shall prevail. As the Court pronounced in Disomangcop v. The Secretary of the Department
of Public Works and Highways Simeon A. Datumanong:

It is a finely-imbedded principle in statutory construction that a special provision or law prevails over a
general one. Lex specialis derogant generali. As this Court expressed in the case of Leveriza v. Intermediate
Appellate Court, "another basic principle of statutory construction mandates that general legislation must
give way to special legislation on the same subject, and generally be so interpreted as to embrace only
cases in which the special provisions are not applicable, that specific statute prevails over a general statute
and that where two statutes are of equal theoretical application to a particular case, the one designed
therefor specially should prevail."

The Court also very clearly explicated in Vinzons-Chato v. Fortune Tobacco Corporation that:

A general law and a special law on the same subject are statutes in pari materia and should, accordingly,
be read together and harmonized, if possible, with a view to giving effect to both. The rule is that where
there are two acts, one of which is special and particular and the other general which, if standing alone,
would include the same matter and thus conflict with the special act, the special law must prevail since it
evinces the legislative intent more clearly than that of a general statute and must not be taken as intended
to affect the more particular and specific provisions of the earlier act, unless it is absolutely necessary so
to construe it in order to give its words any meaning at all.

The circumstance that the special law is passed before or after the general act does not change the
principle. Where the special law is later, it will be regarded as an exception to, or a qualification of, the
prior general act; and where the general act is later, the special statute will be construed as remaining an
exception to its terms, unless repealed expressly or by necessary implication.
Furthermore, in Caltex (Philippines), Inc. v. Central Board of Assessment Appeals, the Court acknowledged
that "[i]t is a familiar phenomenon to see things classed as real property for purposes of taxation which
on general principle might be considered personal property[.]"

Therefore, for determining whether machinery is real property subject to real property tax, the definition
and requirements under the Local Government Code are controlling.93 (Emphasis supplied, citations
omitted)

Respondent is engaged in palm oil plantation.94 Thus, it harvests fruits from palm trees for oil conversion

59
through its milling plant.95 By the nature of respondent's business, transportation is indispensable for its
operations.

Under the definition provided in Section 199(o) of the Local Government Code, the road equipment and
the mini haulers are classified as machinery, thus:

SECTION 199. Definition of Terms. When used in this Title, the terra:
....

(o) "Machinery" . . . includes the physical facilities for production, the installations and appurtenant
service facilities, those which are mobile, self-powered or self-propelled, and those not permanently
attached to the real property which are actually, directly, and exclusively used to meet the needs of the
particular industry, business or activity and which by their very nature and purpose are designed for, or
necessary to its manufacturing, mining, logging, commercial, industrial or agricultural purposes [.]
(Emphasis supplied)

Petitioner is correct in claiming that the phrase pertaining to physical facilities for production is
comprehensive enough to include the road equipment and mini haulers as actually, directly, and
exclusively used by respondent to meet the needs of its operations in palm oil production.96 Moreover,
"mini-haulers are farm tractors pulling attached trailers used in the hauling of seedlings during planting
season and in transferring fresh palm fruits from the farm [or] field to the processing plant within the
plantation area."97 The indispensability of the road equipment and mini haulers in transportation makes
it actually, directly, and exclusively used in the operation of respondent's business.

In its Comment, respondent claims that the equipment is no longer vital to its operation because it is
currently employing equipment outside the company to do the task.98 However, respondent never raised
this contention before the lower courts. Hence, this is a factual issue of which this Court cannot take
cognizance. This Court is not a trier of facts.99 Only questions of law are entertained in a petition for review
assailing a Court of Appeals decision.

WHEREFORE, the Petition is PARTLY GRANTED. The Decision of the Court of Appeals dated September
26, 2007 and the Resolution dated May 26, 2008 in CA-G.R. SP No. 74060 are AFFIRMED with
MODIFICATION, in that the road equipment and the mini haulers should be assessed with real property
taxes.

SO ORDERED.

Carpio, (Chairperson), Del Castillo, , and Mendoza, JJ., concur.

Brion, J., on leave.

60
G.R. No. 92013 July 25, 1990

SALVADOR H. LAUREL, petitioner,

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

G.R. No. 92047 July 25, 1990

DIONISIO S. OJEDA, petitioner,

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

Arturo M. Tolentino for petitioner in 92013.

GUTIERREZ, JR., J.:

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

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

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

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

61
(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an area of
approximately 2,489.96 square meters, and is at present the site of the Philippine Embassy Chancery;

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

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

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

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

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

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

62
On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino citizens or entities to
avail of separations' capital goods and services in the event of sale, lease or disposition. The four
properties in Japan including the Roppongi were specifically mentioned in the first "Whereas" clause.

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

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

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

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

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

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

II

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

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

63
of public dominion so long as the government has not used it for other purposes nor adopted any measure
constituting a removal of its original purpose or use.

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

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

III

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

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

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

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

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

64
(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned by Filipino citizens
of capital goods received by the Philippines under the Reparations Act (Sections 2 and 12 of Rep. Act No.
1789); and

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

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

IV

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

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

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

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

The applicable provisions of the Civil Code are:

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

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

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

65
 (2) Those which belong to the State, without being for public use, and are intended for
some public service or for the development of the national wealth.

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

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

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

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

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

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

Executive Order No. 296, though its title declares an "authority to sell", does not have a provision in its
text expressly authorizing the sale of the four properties procured from Japan for the government sector.
The executive order does not declare that the properties lost their public character. It merely intends to
make the properties available to foreigners and not to Filipinos alone in case of a sale, lease or other
disposition. It merely eliminates the restriction under Rep. Act No. 1789 that reparations goods may be
sold only to Filipino citizens and one hundred (100%) percent Filipino-owned entities. The text of Executive
Order No. 296 provides:

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

66
Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi and the three
other properties were earlier converted into alienable real properties. As earlier stated, Rep. Act No. 1789
differentiates the procurements for the government sector and the private sector (Sections 2 and 12, Rep.
Act No. 1789). Only the private sector properties can be sold to end-users who must be Filipinos or entities
owned by Filipinos. It is this nationality provision which was amended by Executive Order No. 296.

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

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

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

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

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

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

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

67
The subsequent approval on October 4, 1988 by President Aquino of the recommendation by the
investigating committee to sell the Roppongi property was premature or, at the very least, conditioned
on a valid change in the public character of the Roppongi property. Moreover, the approval does not have
the force and effect of law since the President already lost her legislative powers. The Congress had
already convened for more than a year.

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

There is no law authorizing its conveyance.

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

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

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

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

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

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

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

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

Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale of the Roppongi
property does not withdraw the property from public domain much less authorize its sale. It is a mere
resolution; it is not a formal declaration abandoning the public character of the Roppongi property. In
fact, the Senate Committee on Foreign Relations is conducting hearings on Senate Resolution No. 734

68
which raises serious policy considerations and calls for a fact-finding investigation of the circumstances
behind the decision to sell the Philippine government properties in Japan.

The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon the
constitutionality of Executive Order No. 296. Contrary to respondents' assertion, we did not uphold the
authority of the President to sell the Roppongi property. The Court stated that the constitutionality of the
executive order was not the real issue and that resolving the constitutional question was "neither
necessary nor finally determinative of the case." The Court noted that "[W]hat petitioner ultimately
questions is the use of the proceeds of the disposition of the Roppongi property." In emphasizing that
"the decision of the Executive to dispose of the Roppongi property to finance the CARP ... cannot be
questioned" in view of Section 63 (c) of Rep. Act No. 6657, the Court did not acknowledge the fact that
the property became alienable nor did it indicate that the President was authorized to dispose of the
Roppongi property. The resolution should be read to mean that in case the Roppongi property is re-
classified to be patrimonial and alienable by authority of law, the proceeds of a sale may be used for
national economic development projects including the CARP.

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

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

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

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

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

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

69
 Roppongi is no ordinary property. It is one ceded by the Japanese government in
atonement for its past belligerence for the valiant sacrifice of life and limb and for deaths,
physical dislocation and economic devastation the whole Filipino people endured in
World War II.

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

Roppongi is a reminder that cannot should not be dissipated ... (Rollo-92047, p. 9)

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

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

SO ORDERED.

Melencio-Herrera, Paras, Bidin, Grio-Aquino and Regalado, JJ., concur.

II. OWNERSHIP

G.R. No. 146997. April 26, 2005

SPOUSES GODOFREDO & DOMINICA FLANCIA, Petitioners,

vs.
COURT OF APPEALS & WILLIAM ONG GENATO, Respondents.

DECISION

CORONA, J.:

70
Before us is a petition for review under Rule 45 of the Rules of Court, seeking to set aside the October 6,
2000 decision1 of the Court of Appeals in CA-G.R. CV No. 56035.

The facts as outlined by the trial court2 follow.

This is an action to declare null and void the mortgage executed by defendant Oakland Development
Resources Corp. xxx in favor of defendant William Ong Genato over the house and lot plaintiffs spouses
Godofredo and Dominica Flancia purchased from defendant corporation.

In the complaint, plaintiffs allege that they purchased from defendant corporation a parcel of land known
as Lot 12, Blk. 3, Phase III-A containing an area of 128.75 square meters situated in Prater Village Subd. II
located at Brgy. Old Balara, Quezon City; that by virtue of the contract of sale, defendant corporation
authorized plaintiffs to transport all their personal belongings to their house at the aforesaid lot; that on
December 24, 1992, plaintiffs received a copy of the execution foreclosing [the] mortgage issued by the
RTC, Branch 98 ordering defendant Sheriff Sula to sell at public auction several lots formerly owned by
defendant corporation including subject lot of plaintiffs; that the alleged mortgage of subject lot is null
and void as it is not authorized by plaintiffs pursuant to Art. 2085 of the Civil Code which requires that the
mortgagor must be the absolute owner of the mortgaged property; that as a consequence of the nullity
of said mortgage, the execution foreclosing [the] mortgage is likewise null and void; that plaintiffs advised
defendants to exclude subject lot from the auction sale but the latter refused. Plaintiffs likewise prayed
for damages in the sum of 50,000.00.

Defendant William Ong Genato filed a motion to dismiss the complaint which was opposed by the
plaintiffs and denied by the Court in its Order dated February 16, 1993.

Defendant Genato, then filed his answer averring that on May 19, 1989 co-defendant Oakland
Development Resources Corporation mortgaged to Genato two (2) parcels of land covered by TCT Nos.
356315 and 366380 as security and guaranty for the payment of a loan in the sum of 2,000,000.00; that
it appears in the complaint that the subject parcel of land is an unsubdivided portion of the aforesaid TCT
No. 366380 which covers an area of 4,334 square meters more or less; that said real estate mortgage has
been duly annotated at the back of TCT No. 366380 on May 22, 1989; that for non-payment of the loan
of 2,000,000.00 defendant Genato filed an action for foreclosure of real estate mortgage against co-
defendant corporation; that after [trial], a decision was rendered by the Regional Trial Court of Quezon
City, Branch 98 against defendant corporation which decision was affirmed by the Honorable Court of
Appeals; that the decision of the Court of Appeals has long become final and thus, the Regional Trial Court,
Brach 98 of Quezon City issued an Order dated December 7, 1992 ordering defendant Sheriff Ernesto Sula
to cause the sale at public auction of the properties covered by TCT No. 366380 for failure of defendant
corporation to deposit in Court the money judgment within ninety (90) days from receipt of the decision
of the Court of Appeals; that plaintiffs have no cause of action against defendant Genato; that the alleged
plaintiffs Contract to Sell does not appear to have been registered with the Register of Deeds of Quezon
City to affect defendant Genato and the latter is thus not bound by the plaintiffs Contract to Sell; that the
registered mortgage is superior to plaintiffs alleged Contract to Sell and it is sufficient for defendant
Genato as mortgagee to know that the subject TCT No. 366380 was clean at the time of the execution of
the mortgage contract with defendant corporation and defendant Genato is not bound to go beyond the
title to look for flaws in the mortgagors title; that plaintiffs alleged Contract to Sell is neither a mutual
promise to buy and sell nor a Contract of Sale. Ownership is retained by the seller, regardless of delivery
and is not to pass until full payment of the price; that defendant Genato has not received any advice from

71
plaintiffs to exclude the subject lot from the auction sale, and by way of counterclaim, defendant Genato
prays for 150,000.00 moral damages and 20,000.00 for attorneys fees.

On the other hand, defendant Oakland Development Resources Corporation likewise filed its answer and
alleged that the complaint states no cause of action; xxx Defendant corporation also prays for attorneys
fees of 20,000.00 in its counterclaim.3

After trial, the assisting judge4 of the trial court rendered a decision dated August 16, 1996, the decretal
portion of which provided:

Wherefore, premises considered, judgment is hereby rendered.

1) Ordering defendant Oakland Devt. Resources Corporation to pay plaintiffs:

a) the amount of 10,000.00 representing payment for the option to purchase lot;

b) the amount of 140,000.00 representing the first downpayment of the contract price;

c) the amount of 20,520.80 representing five monthly amortizations for February, March, April, May and
June 1990;

d) the amount of 3,000.00 representing amortization for November 1990; all plus legal interest from the
constitution of the mortgage up to the time the instant case was filed.

2) Ordering said defendant corporation to pay further to plaintiffs the sum of 30,000.00 for moral
damages, 10,000.00 for exemplary damages and 20,000.00 for and as reasonable attorneys fees plus
cost;

3) Dismissing defendant corporations counterclaim;

4) Dismissing defendant Genatos counterclaim.5

On motion for reconsideration, the regular presiding judge set aside the judgment of the assisting judge
and rendered a new one on November 27, 1996, the decretal portion of which read:

WHEREFORE, premises considered, the Motion for Reconsideration is hereby GRANTED. The decision
dated August 16, 1996 is hereby set aside and a new one entered in favor of the plaintiffs, declaring the
subject mortgage and the foreclosure proceedings held thereunder as null and void insofar as they affect
the superior right of the plaintiffs over the subject lot, and ordering as follows:

1. Defendant Oakland Development Resources to pay to plaintiffs the amount of 20,000.00 for litigation-
related expenses;

2. Ordering defendant Sheriff Ernesto L. Sula to desist from conducting further proceedings in the extra-
judicial foreclosure insofar as they affect the plaintiffs, or, in the event that title has been consolidated in
the name of defendant William O. Genato, ordering said defendant to reconvey to plaintiffs the title

72
corresponding to Lot 12, Blk. 3, Phase III-A of Prater Village [Subd. II], located in Old Balara, Quezon City,
containing an area of 128.75 square meters; and

3. Dismissing the counterclaims of defendants Oakland and Genato and with costs against them.6

On appeal, the Court of Appeals issued the assailed order:

Wherefore, foregoing premises considered, the appeal having merit in fact and in law is hereby GRANTED
and the decision of the Trial Court dated 27 November 1996 hereby SET ASIDE and REVERSED, and its
judgment dated August 16, 1996 REINSTATED and AFFIRMED IN TOTO. No Costs.

SO ORDERED.7

Hence, this petition.

For resolution before us now are the following issues:

(1) whether or not the registered mortgage constituted over the property was valid;

(2) whether or not the registered mortgage was superior to the contract to sell; and

(3) whether or not the mortgagee was in good faith.

Under the Art. 2085 of the Civil Code, the essential requisites of a contract of mortgage are: (a) that it be
constituted to secure the fulfillment of a principal obligation; (b) that the mortgagor be the absolute
owner of the thing mortgaged; and (c) that the persons constituting the mortgage have the free disposal
of their property, and in the absence thereof, that they be legally authorized for the purpose.

All these requirements are present in this case.

FIRST ISSUE: WAS THE REGISTERED MORTGAGE VALID?

As to the first essential requisite of a mortgage, it is undisputed that the mortgage was executed on May
15, 1989 as security for a loan obtained by Oakland from Genato.

As to the second and third requisites, we need to discuss the difference between a contract of sale and a
contract to sell.

In a contract of sale, title to the property passes to the vendee upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved by the vendor and is not to pass to the vendee until
full payment of the purchase price.

Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover
it unless and until the contract is resolved or rescinded; in a contract to sell, title is retained by the vendor
until full payment of the price.8

73
In the contract between petitioners and Oakland, aside from the fact that it was denominated as a
contract to sell, the intention of Oakland not to transfer ownership to petitioners until full payment of the
purchase price was very clear. Acts of ownership over the property were expressly withheld by Oakland
from petitioner. All that was granted to them by the "occupancy permit" was the right to possess it.

Specifically, the contract between Oakland and petitioners stated:

xxx xxx xxx

7. That the BUYER/S may be allowed to enter into and take possession of the property upon issuance of
Occupancy Permit by the OWNER/DEVELOPER exclusively, although title has not yet passed to the
BUYER/S, in which case his possession shall be that of a possessor by mere tolerance Lessee, subject to
certain restrictions contained in this deed.

xxx xxx xxx

13. That the BUYER/S cannot sell, mortgage, cede, transfer, assign or in any manner alienate or dispose
of, in whole or in part, the rights acquired by and the obligations imposed on the BUYER/S by virtue of this
contract, without the express written consent of the OWNER/DEVELOPER.

xxx xxx xxx

24. That this Contract to Sell shall not in any way [authorize] the BUYER/S to occupy the assigned house
and lot to them.9

xxx xxx xxx

Clearly, when the property was mortgaged to Genato in May 1989, what was in effect between Oakland
and petitioners was a contract to sell, not a contract of sale. Oakland retained absolute ownership over
the property.

Ownership is the independent and general power of a person over a thing for purposes recognized by law
and within the limits established thereby.10 According to Art. 428 of the Civil Code, this means that:

The owner has the right to enjoy and dispose of a thing, without other limitations than those established
by law.

xxx xxx xxx

Aside from the jus utendi and the jus abutendi 11 inherent in the right to enjoy the thing, the right to
dispose, or the jus disponendi, is the power of the owner to alienate, encumber, transform and even
destroy the thing owned.12

Because Oakland retained all the foregoing rights as owner of the property, it was entitled absolutely to
mortgage it to Genato. Hence, the mortgage was valid.

SECOND ISSUE: WAS THE REGISTERED MORTGAGE SUPERIOR TO THE CONTRACT TO SELL?

74
In their memorandum, petitioners cite our ruling in State

Investment House, Inc. v. Court of Appeals 13 to the effect that an unregistered sale is preferred over a
registered mortgage over the same property. The citation is misplaced.

This Court in that case explained the rationale behind the rule:

The unrecorded sale between respondents-spouses and SOLID is preferred for the reason that if the
original owner xxx had parted with his ownership of the thing sold then he no longer had ownership and
free disposal of that thing as to be able to mortgage it again.

State Investment House is completely inapplicable to the case at bar. A contract of sale and a contract to
sell are worlds apart. State Investment House clearly pertained to a contract of sale, not to a contract to
sell which was what Oakland and petitioners had. In State Investment House, ownership had passed
completely to the buyers and therefore, the former owner no longer had any legal right to mortgage the
property, notwithstanding the fact that the new owner-buyers had not registered the sale. In the case
before us, Oakland retained absolute ownership over the property under the contract to sell and therefore
had every right to mortgage it.

In sum, we rule that Genatos registered mortgage was superior to petitioners contract to sell, subject to
any liabilities Oakland may have incurred in favor of petitioners by irresponsibly mortgaging the property
to Genato despite its commitments to petitioners under their contract to sell.

THIRD ISSUE: WAS THE MORTGAGE IN GOOD FAITH?

The third issue involves a factual matter which should not be raised in this petition. Only questions of law
may be raised in a Rule 45 petition. This Court is not a trier of facts. The resolution of factual issues is the
function of the lower courts. We therefore adopt the factual findings of the Court of Appeals and uphold
the good faith of the mortgagee Genato.

RELIANCE ON WHAT APPEARS IN THE TITLE

Just as an innocent purchaser for value may rightfully rely on what appears in the certificate of title, a
mortgagee has the right to rely on what appears in the title presented to him. In the absence of anything
to arouse suspicion, he is under no obligation to look beyond the certificate and investigate the title of
the mortgagor appearing on the face of the said certificate. 14

We agree with the findings and conclusions of the trial court regarding the liabilities of Oakland in its
August 16, 1996 decision, as affirmed by the Court of Appeals:

Anent [plaintiffs] prayer for damages, the Court finds that defendant corporation is liable to return to
plaintiffs all the installments/payments made by plaintiffs consisting of the amount of 10,000.00
representing payment for the option to purchase lot; the amount of 140,000.00 which was the first
downpayment; the sum of 20,520.80 representing five monthly amortizations for February, March, April,
May and June 1990 and the amount of 3,000.00 representing amortization for November 1990 plus legal
interest from the time of the mortgage up to the time this instant case was filed. Further, considering that
defendant corporation wantonly and fraudulently mortgaged the subject property without regard to

75
[plaintiffs] rights over the same, said defendant should pay plaintiffs moral damages in the reasonable
amount of 30,000.00. xxx Furthermore, since defendant [corporations] acts have compelled the
plaintiffs to litigate and incur expenses to protect their interest, it should likewise be adjudged to pay
plaintiffs attorneys fees of 20,000.00 under Article 2208 paragraph two (2) of the Civil Code.15

WHEREFORE, the petition for review is hereby DENIED. The decision of the Court of Appeals reinstating
the August 16, 1996 decision of the trial court is hereby AFFIRMED.

SO ORDERED.

Panganiban, (Chairman), Sandoval-Gutierrez, Carpio-Morales and Garcia, JJ., concur.

G.R. No. 161589 November 24, 2014

PENTA PACIFIC REALTY CORPORATION, Petitioner,

vs.
LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent.

DECISION

BERSAMIN, J.:

76
Jurisdiction over the subject matter of an action is determined from the allegations of the initiatory
pleading.

The Case

Under review is the decision promulgated on October 9, 2003,1 whereby the Court of Appeals (CA)
affirmed the judgment rendered on June 10, 2002 by the Regional Trial Court (RTC), Branch 58, in Makati
City2 nullifying for lack of jurisdiction the decision rendered on January 12, 2000 by the Metropolitan Trial
Court (MeTC), Branch 64, in Makati City.3

Antecedents

The petitioner owned the 25th floor of the Pacific Star Building located in Makati City with an area of
1,068.67 square meters. The respondent leased 444.03 square meters of the premises (subject property)
through the petitioners authorized agent, Century Properties Management, Inc. (Century Properties).
Under the terms of the contract of lease dated January 31, 1997, the petitioner gavethe respondent
possession of the subject property under a stipulation to the effect that in case of the respondents default
in its monthly rentals, the petitioner could immediately repossess the subject property.

On March 19, 1997, the respondent expressed the intention to purchase the entire 1,068.67 square
meters, including the subject property. The parties executed a contract to sell, denominated as a
reservation agreement, in which they set the purchase price at US$3,420,540.00, with the following terms
of payment: 20%down payment equivalent of US$684,108.00 payable within eight months; and
US$85,513.00/monthly for eight months with interestof 9.75%, commencing on the 6th month. The 80%
balance was to be paid in 13 installments beginning on March 1, 1997 until March 1, 1998. The reservation
agreement contained the following cancellation or forfeiture provision, viz:

Any failure on [the respondents] part to pay the full downpayment, or deliver the post-dated checks or
pay the monthly amortization on the due date, shall entitle [the petitioner], at its option, to impose a
penalty interest at the rate of three percent (3%) per month on the outstanding balance or to cancel this
agreement without need of any court action and to forfeit, in its favor, any reservation deposits or
payments already made on the unit, without prior notice.4

After paying US$538,735.00, the respondent stopped paying the stipulated monthly amortizations. An
exchange of letters ensued between Janet C. Ley, President of the respondent, or Efren Yap, Assistant to
the President of the respondent, on one hand, and Jose B.E. Antonio, ViceChairman of the petitioner, and
the petitioners counsel, Atty. Reynaldo Dizon, on the other. In the September 23, 1997 letter,5 the
respondent asked the petitioner to modify the terms of the reservation agreement to allow it to purchase
only the subject property. In the February 5, 1998 letter,6 the petitioners counsel reminded the
respondent of its US$961,546.50 liability to the petitioner under the terms of the reservation agreement.
In another letter dated February 5, 1998,7 the petitioners counsel informed the respondent of its failure
to pay its amortizations since August 1997, and demanded the payment of US$961,564.50.

Through its letter of February 17, 1998,8 the respondent submitted the following proposals, namely: (1)
that the US$538,735.00 paid under the reservation agreement be applied asrental payments for the use
and occupation of the subject property in the period from March 1997 to February 28, 1998; (2) that the
balance of US$417,355.45 after deducting the rental payments from March 1997 to February 28, 1998

77
should be returned to it; and (3) that the respondent be allowed to lease the subject property beginning
March 1998.

The petitioner, through its counsels letter of March 9, 1998,9 rejected the respondents proposals, and
demanded the payment of US$3,310,568.00, representing the respondents unpaid balance (as of March
2, 1998) under the reservation agreement. The petitioner further evinced its intention to cancel the
contract to sell, and to charge the respondent for the rentals of the subject property corresponding to the
period from August 1997 to March 1998, during which no amortization payments were made.

In the letter dated February 4, 1999,10 the petitioners counsel informed the respondent of the
cancellation of the reservation agreement and the forfeiture of the respondents payments; and
demanded that respondent pay the rentals of 9,782,226.50 and vacate the subject property.

In its letter of May 25, 1999,11 the petitioners counsel wrote to the respondent thuswise:

We write in behalf of our client, Penta Pacific Realty Corporation, regarding the Reservation Agreement
and/or sale between you and our client over the latters unit located at the 25th Floor, Pacific Star Building,
Sen. Gil Puyat Avenue corner Makati Avenue, Makati City.

We regret to inform you that inview of your continued refusal and/or failure to pay to our client the
balance of the agreed-upon purchase price of the office unit you are currently occupying, our client is
constrained to make a notarial cancellation of the Reservation Agreement and/or sale of the above-
mentioned unit and to forfeit the payments you made in favor of our client.

In this connection, there is no more valid reason for you to continue occupying the subject premises.
Hence, final and formal demand is hereby made upon you to peacefully and quietly vacate the same within
ten (10) days from receipt hereof. Otherwise, we shall be constrained to file the appropriate legal action
to protect our clients interests.

Lastly, we would like to inform you that our client will also be constrained to charge you the amount of
9,782,226.50 corresponding to reasonable rentals and other charges as of January 22, 1999.

Trusting that you are guided accordingly.

On July 9, 1999, the petitioner filed the complaint for ejectment in the MeTC following the respondents
failure to comply with the demands to pay and vacate.

The respondent resisted the complaint,12 arguing that the contract of lease dated January 31, 1997 had
been simulated or, in the alternative, had been repealed, negated, extinguished and/or novated by the
reservation agreement; that the petitioner had failed to observe its undertaking to allow the respondent
to collect rentals from the other lessees of the subject property; that the petitioner had unjustifiably
refused to renegotiate or to amend the reservation agreement; and that the petitioner had violated the
rule on non-forum shopping considering the pendency of another case between the parties in Branch 57
of the RTC in Makati City.13

Decision of the MeTC

78
On January 12, 2000, the MeTC, ruling in favor of the petitioner, found that the respondents lawful
possession of the property had been by virtue of the contract of lease, but had become unlawful when
the respondent had failed to comply with its obligation to pay the monthly rentals for the subject
property; and that, in any event, the reservation agreement proved that the petitioner had held the better
right to possess the subject property as the owner thereof. The MeTC disposed:

WHEREFORE, judgment is rendered ordering defendant Ley Construction and Development Corporation
and all persons claiming rights under it to vacate and surrender the possession of the Property to the
plaintiff; to pay the sum of 32,456,953.06 representing unpaid rentals and other charges as of June 23,
1999; the further amount of 443,741.38 starting July, 1999, and the same amount every month
thereafter as reasonable compensation for the continued and illegal use and occupancy of the Property,
until finally restituted to the plaintiff; the sum of 100,000.00 for as (sic) attorneysfees plus cost of suit.14

The respondent appealed to the RTC.

In the meantime, on November 6, 2001, the respondent turned over the possession of the leased premises
to the petitioner.

Judgment of the RTC

On June 10, 2002, the RTC rendered its judgment nullifying the MeTCs decision on the ground of lackof
jurisdiction, holding that the appropriate action was either accion publiciana or accion reivindicatoria over
which the MeTC had no jurisdiction. It found that the basis of recovery of possession by the petitioner
was the respondents failure to pay the amortizations arising from the violations of the reservation
agreement; that the complaint did not specifically aver facts constitutive of unlawful detainer, i.e., it did
not show how entry had been effected and how the dispossession had started; and that the requirement
of formal demand had not been complied with by the petitioner.

Decision of the CA

The petitioner appealed to the CA.

By its decision promulgated on October 9, 2003, the CA affirmed the judgment of the RTC,15 declaring
that the respondents possession was not by virtue of the contract of lease but pursuant to the reservation
agreement, which was more of a "contract of sale."16 It concluded that the petitioners action was not
unlawful detainer, but another kind of action for the recovery of possession.17

Not in agreement with the decision of the CA, the petitioner filed the present petition.

Issue

The decisive question is whether the complaint was for unlawful detainer, or accion publiciana, or accion
reivindicatoria.

The petitioner submits that the MeTC had jurisdiction because its complaint made out a clear case of
unlawful detainer, emphasizing that the basis of the complaint was the failure of the respondent to pay
the stipulated monthly rentals under the revived contract of lease; that even if the cause of action was

79
upon the nonpayment of the purchase price under the reservation agreement, the MeTC still had
jurisdiction over the action because an unlawful detainer case could also arise from a vendor-vendee
relationship; and that, accordingly, the nonpayment ofrentals or of the purchase price sufficiently
established its better right to possess the subject property.

In contrast, the respondent maintains that it had not violated any existing contract of lease with the
petitioner because the contract of lease dated January 31, 1997 was based on the agreement between
the respondent and Century Properties; that it had entered into the possession of the subject property as
the buyer-owner pursuant tothe reservation agreement; and that the recovery of possession should have
been by accion publiciana or accion reivindicatoria, not unlawful detainer.

Ruling

The appeal has merit.

1. Kinds of Possessory Actions

There are three kinds of real actions affecting title to or possession of real property, or interest therein,
namely: accion de reivindicacion, accion publiciana and accion interdictal. The first seeks the recovery of
ownership as well as possession of realty.18 The second proposes to recover the right to possess and is a
plenary action in an ordinary civil proceeding.19 The third refers to the recovery of physical or actual
possession only (through a special civil action either for forcible entry or unlawful detainer).

If the dispossession is not alleged totake place by any of the means provided by Section 1,20 Rule 70,
Rules of Court, or, if the dispossession allegedly took place by any of such means but the action is not
brought within one year from deprivation ofpossession, the action is properly a plenary action of accion
publiciana or accion de reivindicacion. The explanation is simply that the disturbance of the peace and
quiet of the local community due to the dispossession did not materialize; hence, the possessor thus
deprived has no need for the summary proceeding of accion interdictal under Rule 70.

The Municipal Trial Court (MTC) has exclusive original jurisdiction over accion interdictal. Until April 15,
1994, the MTC had no original jurisdiction over the other possessory actions. By such date, its jurisdiction
was expanded to vest it with exclusive original jurisdiction over the other possessory actions ofaccion
publiciana and accion de reivindicacion where the assessed value of the realty involved did not exceed
20,000.00, or, if the realty involved was in Metro Manila, such value did not exceed 50,000.00. The
expansion of jurisdiction was by virtue of the amendment by Section 1 of Republic Act No. 769121 to
make Section 19 of Batas Pambansa Blg. 129 pertinently provide thusly:

Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction:

xxxx

(2) In all civil actions which involve the title to, or possession of, real property, or any interest therein,
where the assessed value of the property involved exceeds Twenty thousand pesos (20,000.00) or, for
civil actions in Metro Manila, where such value exceeds Fifty thousand pesos (50,000.00) except actions
for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is
conferred upon the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts;

80
xxxx

Section 3 of Republic Act No. 7691 similarly revised Section 33 of Batas Pambansa Blg. 129 (the provision
defining the exclusive original jurisdiction of the MTC over civil actions) to make the latter provision state,
pertinently, thus:

Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts in Civil Cases. Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts
shall exercise:

xxxx

(3) Exclusive original jurisdiction in all civil actions which involve title to, or possession of, real property,
or any interest therein where the assessed value of the property or interest therein does not exceed
Twenty thousand pesos (20,000.00) or, in civil actions in Metro Manila, where such assessed value does
not exceed Fifty thousand pesos (50,000.00) exclusive of interest, damages of whatever kind, attorney's
fees, litigation expenses and costs: Provided, That in cases of land not declared for taxation purposes, the
value of such property shall be determined by the assessed value of the adjacent lots.

xxxx

As can be seen, the amendments have made the assessed value of the property whose possession or
ownership is in issue, or the assessed value of the adjacent lots if the disputed land is not declared for
taxation purposes determinative of jurisdiction. The allegation of the assessed value of the realty must be
found in the complaint, if the action (other than forcible entry or unlawful detainer) involves title to or
possession of the realty, including quieting of title of the realty. If the assessed value is not found in the
complaint, the action should be dismissed for lack of jurisdiction because the trial court is not thereby
afforded the means of determining from the allegations of the basic pleading whether jurisdiction over
the subject matter of the action pertains to it or to another court. Courts cannot take judicial notice of the
assessed or market value of the realty.22

2. MeTC had jurisdiction over

the complaint of the petitioner

The settled rule is that the nature of the action as appearing from the averments in the complaint or other
initiatory pleading determines the jurisdiction of a court; hence, such averments and the character of the
relief sought are to be consulted.23 The court must interpret and apply the law on jurisdiction in relation
to the averments of ultimate facts in the complaint or other initiatory pleading regardless ofwhether or
not the plaintiff or petitioner is entitled to recover upon all or some of the claims asserted therein.24 The
reliefs to which the plaintiff or petitioner is entitled based on the facts averred, although not the reliefs
demanded, determine the nature of the action.25 The defense contained in the answer of the defendant
is generally not determinant.26

Is this present action onefor unlawful detainer?

81
A suit for unlawful detainer is premised on Section 1, Rule 70, 1997 Rules of Civil Procedure, of which
there are two kinds, namely: (1) that filed against a tenant, and (2) that brought against a vendee or
vendor, or other person unlawfully withholding possession of any land or building after the expiration or
termination of the rightto hold possession by virtue of any contract, express or implied.

"In an action for forcible entry or unlawful detainer, the main issue is possession de facto, independently
of any claim of ownership or possession de jurethat either party may set forth in his pleading."27 The
plaintiff must prove that it was in prior physical possession of the premises until it was deprived thereof
by the defendant.28 The principal issue must be possession de facto, or actual possession, and ownership
is merely ancillary to such issue. The summary character of the proceedings is designed to quicken the
determination of possession de factoin the interest of preserving the peace of the community, but the
summary proceedings may not be proper to resolve ownership of the property. Consequently, any issue
on ownership arising in forcible entry or unlawful detainer is resolved only provisionally for the purpose
of determining the principal issue of possession.29 On the other hand, regardless of the actual condition
of the title to the property and whatever may be the character of the plaintiffs prior possession, if it has
in its favor priority in time, it has the security that entitles it to remain on the property until it is lawfully
ejected through an accion publiciana or accion reivindicatoria by another having a better right.30

In unlawful detainer, the complaint must allege the cause of action according to the manner set forth in
Section 1, Rule 70 of the Rules of Court, to wit:

Section 1. Who may institute proceedings, and when. Subject to the provisions of the next succeeding
section, a person deprived of the possession of any land or building by force, intimidation, threat, strategy,
or stealth, or a lessor, vendor, vendee, or other person against whom the possession of any land or
building is unlawfully withheld after the expiration or termination of the rightto hold possession, by virtue
of any contract, express or implied, or the legal representatives or assigns of any such lessor, vendor,
vendee, or other person, may, at any time within one (1) year after such unlawful deprivation or
withholding of possession, bring an action in the proper Municipal Trial Court against the person or
persons unlawfully withholding or depriving of possession, or any person or persons claiming under them,
for the restitution of such possession, together with damages and costs. (Emphasis supplied)

The complaint must further allege the plaintiffs compliance with the jurisdictional requirement of
demand as prescribed by Section 2, Rule 70 of the Rules of Court, viz:

Section 2. Lessor to proceed against lessee only after demand. Unless otherwise stipulated, suchaction
by the lessor shall be commenced only after demand to pay orcomply with the conditions of the lease and
to vacate is made upon the lessee, or by serving written notice of such demand upon the person found
on the premises, or by posting such notice on the premises if no person be found thereon, and the lessee
fails to comply therewith after fifteen (15) days in the case of land or five (5) days in the case of buildings.

For the action to come under the exclusive original jurisdiction of the MTC, therefore, the complaint must
allege that: (a) the defendant originally had lawful possession of the property, either by virtue of a contract
or by tolerance of the plaintiff; (b) the defendants possession of the property eventually became illegal
or unlawful upon notice by the plaintiff to the defendant of the expiration or the termination of the
defendants right of possession; (c) the defendant thereafter remained in possession of the property and
thereby deprived the plaintiff the enjoyment thereof; and (d) the plaintiff instituted the action within one
year from the unlawful deprivation or withholding of possession.31

82
The complaint herein sufficientlyalleged all the foregoing requisites for unlawful detainer, to wit: x x x x

3. On January 31, 1997, the defendant and the plaintiffs authorized agent, Century Properties
Management Inc. (CPMI), a corporation duly organized and existing under and by virtue of the laws of the
x x x Philippines x x x entered into a Contract of Lease whereby the latter leased from the former a portion
of the 25th Floor of the PSB (hereinafter referred to as the PROPERTY). x x x.

4. On March 19, 1997, the defendant decided to purchase from the plaintiff the 25th Floor of the PSB by
virtue of a Reservation Agreement of the same date. x x x.

5. However, on August 1997, the defendant started to default in its amortization payments on the above-
mentioned purchase. x x x.

xxxx

8. Sometime in March 1999, the defendant requested from the plaintiff and CPMI that the Reservation
Agreement be cancelled and in lieu thereof, the above-mentioned Contract of Lease be revived. The
plaintiff and CPMI acceded to such request x x x.

9. However, contrary to the express provisions of the Contract of Lease, the defendant failed to pay to the
plaintiff the rentals for the use of the PROPERTY when they fell due.

10. x x x the plaintiff also formally made a notarial cancellation of the aforementioned purchase and
demanded that defendant peacefully vacate the PROPERTY. x x x.

11. However, despite such demand, the defendant has failed and/or refused and continues to refuse and
fail to peacefully vacate the PROPERTY. x x x.32

As earlier shown, the final letter dated May 25, 1999 of the petitioners counsel demanded that the
respondent vacate the subject property,33 to wit:

In this connection, there is no more valid reason for you to continue occupying the subject
premises.1wphi1 Hence,final and formal demand is hereby made upon you to peacefully and quietly
vacate the same within ten (10) days from receipt hereof. Otherwise, we shall be constrained to file the
appropriate legal action to protect our clients interests.

Lastly, we would like to inform you that our client will also be constrained to charge you the amount of
9,782,226.50 corresponding to reasonable rentals and other charges as of January 22, 1999.

After the demand went unheeded, the petitioner initiated this suit in the MeTC on July 9, 1999, well within
the one-year period from the date of the last demand.

The aforequoted allegations of the complaint made out a case of unlawful detainer, vesting the MeTC
with exclusive original jurisdiction over the complaint. As alleged therein,the cause of action of the
petitioner was to recover possession of the subject property from the respondent upon the latters failure
to comply with the formers demand tovacate the subject property after the latters right to remain
thereon terminated by virtue of the demand to vacate. Indeed, the possession of the latter, although

83
lawful at its commencement, became unlawful upon its non-compliance with the formers demand to
vacate.

The jurisdiction of the MeTC was not ousted by the fact that what was ultimately proved as to how entry
by the respondent had been made or when the dispossession had started might have departed from that
alleged in the complaint. As earlier stated, jurisdiction over the subject matter was determined from the
allegations of the complaint, which clearly set forth a cause of action for unlawful detainer.34

The MeTC correctly exercised its authority in finding for the petitioner as the plaintiff. In unlawful detainer,
the possession was originally lawful but became unlawful by the expiration or termination of the right to
possess; hence, the issue of rightful possession is decisive for, in the action, the defendant is in actual
possession and the plaintiffs cause of action is the termination of the defendant's right to continue in
possession.35

A defendant's claim of possession de Jure or his averment of ownership does not render the ejectment
suit either accion publiciana or accion reivindicatoria. The suit remains an accion interdictal, a summary
proceeding that can proceed independently of any claim of ownership.36 Even when the question of
possession cannot be resolved without deciding the issue of ownership, the issue of ownership is to be
resolved only to determine the issue of possession.37

WHEREFORE, we REVERSE and SET ASIDE the decision promulgated on October 9, 2003 by the Court of
Appeals affirming the decision rendered on June 10, 2002 by the Regional Trial Court of Makati City,
Branch 58; REINSTATE the decision rendered on January 12, 2000 by the Metropolitan Trial Court, Branch
64, of Makati City; and ORDER the respondent to pay the costs of suit.

SO ORDERED.

G.R. No. 169793 September 15, 2006

VICTORIANO M. ENCARNACION, petitioner,

vs.
NIEVES AMIGO, respondent.

DECISION

YNARES-SANTIAGO, J.:

84
This petition for review assails the June 30, 2005 Decision1 of the Court of Appeals in CA-G.R. SP No. 73857,
ordering the remand of Civil Case No. Br. 20-1194 to the Regional Trial Court of Cauayan, Isabela, Branch
20, for further proceedings.

The antecedent facts are as follows:

Petitioner Victoriano M. Encarnacion is the registered owner of Lot No. 2121-B-1, consisting of 100 square
meters and covered by TCT No. T-256650; and Lot No. 2121-B-2 consisting of 607 square meters with TCT
No. T-256651, located at District 1, National Hi-way, Cauayan, Isabela. Said two lots originally form part
of Lot No. 2121, a single 707 square meter track of land owned by Rogelio Valiente who sold the same to
Nicasio Mallapitan on January 18, 1982. On March 21, 1985, Mallapitan sold the land to Victoriano
Magpantay. After the death of the latter in 1992, his widow, Anita N. Magpantay executed an Affidavit of
Waiver2 on April 11, 1995 waving her right over the property in favor of her son-in-law, herein petitioner,
Victoriano Encarnacion. Thereafter, the latter caused the subdivision of the land into two lots 3 and the
issuance of titles in his name on July 18, 1996.4

Respondent Nieves Amigo allegedly entered the premises and took possession of a portion of the property
sometime in 1985 without the permission of the then owner, Victoriano Magpantay. Said occupation by
respondent continued even after TCT Nos. T-256650 and T-256651 were issue to petitioner.

Consequently, petitioner, through his lawyer sent a letter5 dated Febuary 1, 2001 demanding that the
respondent vacate the subject property. As evidenced by the registry return receipt, the demand letter
was delivered by registered mail to the respondent on February 12, 2001. Notwithstanding receipt of the
demand letter, respondent still refused to vacate the subject property. Thereafter, on March 2, 2001,
petitioner filed a complaint6 for ejectment, damages with injunction and prayer for restraining order with
the Municipal Trial Court in Cities of Isabela which was docketed as CV-01-030. In his Answer, respondent
alleged that he has been in actual possession and occupation of a portion of the subject land since 1968
and that the issuance of Free Patent and titles in the name of petitioner was tainted with irregularities.7

On October 24, 2001, the Municipal Trial Court in Cities rendered judgment, which reads:

WHERE[FO]RE, there being a preponderance of evidence, a JUDGMENT is hereby rendered in

favor of the plaintiff VICTORIANO M. ENCARNACION and against the defendant NIEVES AMIGOE
(sic) as follows:

a) ORDERING the defendant to vacate the portion of the parcels of land described in Transfer
Certificates of Title Nos. T-256650 and T-256651 he is now occupying and surrender it to the
plaintiff;

b) ORDERING the defendant to pay the plaintiff the sum of FIVE THOUSAND PESOS (P5,000) as
attorney's fees, and

c) ORDERING the defendant to pay rentals equivalent [to] P500.00 per month from February, 2001
until the portion of the land occupied by him is surrendered to the plaintiff.

COSTS against the defendant.

85
 SO ORDERED.8

On appeal, the Regional Trial Court of Cauayan, Isabela, Branch 20, ruled as follows:

WHEREFORE, judgment is hereby rendered dismissing the case on the ground that as the
Municipal Court had no jurisdiction over the case, this Court acquired no appellate jurisdiction
thereof. Costs against plaintiff-appellee.

SO ORDERED.9

Aggrieved, petitioner filed a petition for review10 under Rule 42 of the Rules of Court before the Court of
Appeals which promulgated the assailed Decision remanding the case to the Regional Trial Court. The
dispositive portion thereof reads:

WHEREFORE, premises considered, this case is hereby REMANDED to Branch 20, Regional Trial
Court of Cauayan, Isabela for further proceedings.

No costs.

SO ORDERED.11

Hence the present petition raising the sole issue:

[WHETHER] THE COURT OF APPEALS ERRED IN HOLDING THAT THE PROPER ACTION IN THIS CASE
IS ACCION PUBLICIANA AND NOT UNLAWFUL DETAINER AS DETERMINED BY THE ALLEGATIONS
IN THE COMPLAINT FILED BY PETITIONER.12

The petition lacks merit.

In this jurisdiction, the three kinds of actions for the recovery of possession of real property are:

1. Accion interdictal, or an ejectment proceeding which may be either that for forcible entry
(detentacion) or unlawful detainer (desahucio), which is a summary action for recovery of physical
possession where the dispossession has not lasted for more than one year, and should be brought
in the proper inferior court;

2. Accion publiciana or the plenary action for the recovery of the real right of possession, which
should be brought in the proper Regional Trial Court when the dispossession has lasted for more
than one year; and

3. Accion reinvindicatoria or accion de reivindicacion, which is an action for the recovery of

ownership which must be brought in the proper Regional Trial Court.13

Based on the foregoing distinctions, the material element that determines the proper action to be filed
for the recovery of the possession of the property in this case is the length of time of dispossession. Under
the Rules of Court, the remedies of forcible entry and unlawful detainer are granted to a person deprived
of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor,

86
vendor, vendee, or other person against whom the possession of any land or building is unlawfully
withheld after the expiration or termination of the right to hold possession by virtue of any contract,
express or implied, or the legal representatives or assigns of any such lessor, vendor, vendee, or other
person. These remedies afford the person deprived of the possession to file at any time within one year
after such unlawful deprivation or withholding of possession, an action in the proper Municipal Trial Court
against the person or persons unlawfully withholding or depriving of possession, or any person or persons
claiming under them, for the restitution of such possession, together with damages and costs.14 Thus, if
the dispossession has not lasted for more than one year, an ejectment proceeding is proper and the
inferior court acquires jurisdiction. On the other hand, if the dispossession lasted for more than one year,
the proper action to be filed is an accion publiciana which should be brought to the proper Regional Trial
Court.

After a careful evaluation of the evidence on record of this case, we find that the Court of Appeals
committed no reversible error in holding that the proper action in this case is accion publiciana; and in
ordering the remand of the case to the Regional Trial Court of Cauayan, Isabela, Branch 20, for further
proceedings.

Well settled is the rule that jurisdiction of the court over the subject matter of the action is determined
by the allegations of the complaint at the time of its filing, irrespective of whether or not the plaintiff is
entitled to recover upon all or some of the claims asserted therein. What determines the jurisdiction of
the court is the nature of the action pleaded as appearing from the allegations in the complaint. The
averments therein and the character of the relief sought are the ones to be consulted.15 On its face, the
complaint must show enough ground for the court to assume jurisdiction without resort to parol
testimony.16

From the allegations in the complaint, it appears that the petitioner became the owner of the property
on April 11, 1995 by virtue of the waiver of rights executed by his mother-in-law. He filed the complaint
for ejectment on March 2, 2001 after his February 1, 2001 letter to the respondent demanding that the
latter vacate the premises remained unheeded. While it is true that the demand letter was received by
the respondent on February 12, 2001, thereby making the filing of the complaint for ejectment fall within
the requisite one year from last demand for complaints for unlawful detainer, it is also equally true that
petitioner became the owner of the subject lot in 1995 and has been since that time deprived possession
of a portion thereof. From the date of the petitioner's dispossession in 1995 up to his filing of his complaint
for ejectment in 2001, almost 6 years have elapsed. The length of time that the petitioner was
dispossessed of his property made his cause of action beyond the ambit of an accion interdictal and
effectively made it one for accion publiciana. After the lapse of the one-year period, the suit must be
commenced in the Regional Trial Court via an accion publiciana which is a suit for recovery of the right to
possess. It is an ordinary civil proceeding to determine the better right of possession of realty
independently of title. It also refers to an ejectment suit filed after the expiration of one year from the
accrual of the cause of action or from the unlawful withholding of possession of the realty.17

Previously, we have held that if the owner of the land knew that another person was occupying his
property way back in 1977 but the said owner only filed the complaint for ejectment in 1995, the proper
action would be one for accion publiciana and not one under the summary procedure on ejectment. As
explained by the Court:

We agree with the Court of Appeals that if petitioners are indeed the owners of the subject lot
and were unlawfully deprived of their right of possession, they should present their claim before

87
 the regional trial court in an accion publiciana or an accion reivindicatoria, and not before the
metropolitan trial court in a summary proceeding for unlawful detainer or forcible entry. For even
if one is the owner of the property, the possession thereof cannot be wrested from another who
had been in physical or material possession of the same for more than one year by resorting to a
summary action for ejectment.18

Hence, we agree with the Court of Appeals when it declared that:

The respondent's actual entry on the land of the petitioner was in 1985 but it was only on March
2, 2001 or sixteen years after, when petitioner filed his ejectment case. The respondent should
have filed an accion publiciana case which is under the jurisdiction of the RTC.

However, the RTC should have not dismissed the case.

Section 8, Rule 40 of the Rules of Court provides:

SECTION 8. Appeal from orders dismissing case without trial; lack of jurisdiction. If an
appeal is taken from an order of the lower court dismissing the case without a trial on the
merits, the Regional Trial Court may affirm or reverse it, as the case may be. In case of
affirmance and the ground of dismissal is lack of jurisdiction over the subject matter, the
Regional Trial Court, if it has jurisdiction thereover, shall try the case on the merits as if
the case was originally filed with it. In case of reversal, the case shall be remanded for
further proceedings.

If the case was tried on the merits by the lower court without jurisdiction over the subject
matter, the Regional Trial Court on appeal shall not dismiss the case if it has original
jurisdiction thereof, but shall decide the case in accordance with the preceding section,
without prejudice to the admission of amended pleadings and additional evidence in the
interest of justice.

The RTC should have taken cognizance of the case. If the case is tried on the merits by the
Municipal Court without jurisdiction over the subject matter, the RTC on appeal may no longer
dismiss the case if it has original jurisdiction thereof. Moreover, the RTC shall no longer try the
case on the merits, but shall decide the case on the basis of the evidence presented in the lower
court, without prejudice to the admission of the amended pleadings and additional evidence in
the interest of justice.19

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated June 30, 2005 in CA-G.R.
SP No. 73857 ordering the remand of Civil Case No. Br. 20-1194 to the Regional Trial Court of Cauayan,
Isabela, Branch 20, for further proceedings, is AFFIRMED.

No costs.

SO ORDERED.

Panganiban, C.J., Chairperson, Austria-Martinez, Callejo, Sr., Chico-Nazario, J.J., concur.

88
G..R. No. 132424 May 2, 2006

SPOUSES BONIFACIO R. VALDEZ, JR. and VENIDA M. VALDEZ, Petitioners,

vs.
HON. COURT OF APPEALS, SPOUSES GABRIEL FABELLA and FRANCISCA FABELLA, Respondents.

DECISION

CHICO-NAZARIO, J.:

89
This petition for review under Rule 45 of the Rules of Court, filed by petitioners spouses Bonifacio R.
Valdez, Jr. and Venida M. Valdez, seeks to nullify and set aside the 22 April 1997 decision1 and 30 January
1998 resolution of the Court of Appeals in CA-G.R. SP No. 43492, which reversed the judgment, dated 8
January 1997, of the Regional Trial Court of Antipolo, Rizal, Branch 74, in Civil Case No. 3607, which, in
turn, affirmed in toto the decision rendered by the Municipal Trial Court of Antipolo, Rizal, Branch II, in
Civil Case No. 2547.

This case originated from a complaint for unlawful detainer filed by petitioners Bonifacio and Venida
Valdez against private respondents Gabriel and Francisca Fabella before the Municipal Trial Court of
Antipolo, Rizal. The complaint alleges these material facts:

2. That plaintiffs are the registered owner[s] of a piece of residential lot denominated as Lot [N]o.
3 Blk 19 located at Carolina Executive Village, Brgy. Sta. Cruz, Antipolo, Rizal which [they] acquired
from Carolina Realty, Inc. Sometime [i]n November 1992 by virtue of Sales Contract, xerox copy
of which is hereto attached marked as Annex "A" and the xerox copy of the Torrens Certificate of
Title in her name marked as Annex "B";

3. That defendants, without any color of title whatsoever occupie[d] the said lot by building their
house in the said lot thereby depriving the herein plaintiffs rightful possession thereof;

4. That for several times, plaintiffs orally asked the herein defendants to peacefully surrender the
premises to them, but the latter stubbornly refused to vacate the lot they unlawfully occupied;

5. That despite plaintiffs referral of the matter to the Barangay, defendants still refused to heed
the plea of the former to surrender the lot peacefully;

6. That because of the unfounded refusal of the herein defendants to settle the case amicably,
the Barangay Captain was forced to issue the necessary Certification to File Action in favor of the
herein plaintiffs in order that the necessary cause of action be taken before the proper court,
xerox copy of which is hereto attached marked as Annex "C";

7. That by reason of the deliberate, malicious and unfounded refusal of the defendants to
vacate/surrender the premises in question, the herein plaintiffs were constrained to engage the
professional services of counsel thus incurring expenses amounting to TEN THOUSAND PESOS
(P10,000.00) representing acceptance fee and additional ONE THOUSAND PESOS (P1,000.00) per
appearance, who on July 12, 1994 sent a formal demand was likewise ignored, (sic) copy of which
is hereto attached as Annex "D";

8. That likewise by virtue of the adamant refusal of the defendants to vacate/surrender the said
premises in question, plaintiff[s] suffered serious anxiety, sleepless nights, mental torture and
moral erosion; x x x2

In their answer, private respondents contended that the complaint failed to state that petitioners had
prior physical possession of the property or that they were the lessors of the former. In the alternative,
private respondents claimed ownership over the land on the ground that they had been in open,
continuous, and adverse possession thereof for more than thirty years, as attested by an ocular inspection

90
report from the Department of Environment and Natural Resources. They also stressed that the complaint
failed to comply with Supreme Court Circular No. 28-91 regarding affidavits against non-forum shopping.

The Municipal Trial Court (MTC) rendered a decision in favor of the petitioners, ordering private
respondents to vacate the property and to pay rent for the use and occupation of the same plus attorneys
fees.

Private respondents appealed the MTCs decision to the Regional Trial Court (RTC). The RTC, in a decision
dated 8 January 1997, affirmed in toto the decision of the MTC.

Undeterred, the private respondents filed a petition for review with the Court of Appeals on 10 March
1997 questioning the decision of the RTC.

In a decision dated 22 April 1997, the Court of Appeals reversed and set aside the decision of the RTC. It
held that petitioners failed to make a case for unlawful detainer because they failed to show that they
had given the private respondents the right to occupy the premises or that they had tolerated private
respondents possession of the same, which is a requirement in unlawful detainer cases. It added that the
allegations in petitioners complaint lack jurisdictional elements for forcible entry which requires an
allegation of prior material possession. The Court of Appeals ratiocinated thus:

An examination of the complaint reveals that key jurisdictional allegations that will support an action for
ejectment are conspicuously lacking. In particular, an allegation of prior material possession is mandatory
in forcible entry, xxx and the complaint is deficient in this respect. On the other hand, neither does there
appear to be a case of unlawful detainer, since the private respondents failed to show that they had given
the petitioners the right to occupy the premises, which right has now [been] extinguished.

xxx

In light of the foregoing, the conclusion is inevitable that the Municipal Trial Court before which the action
for ejectment was filed had no jurisdiction over the case. Consequently, the dismissal thereof is in order.

WHEREFORE, the Petition is hereby GIVEN DUE COURSE, and GRANTED. The decision dated 08 January
1997 rendered by the respondent court is hereby REVERSED and SET ASIDE, and judgment is hereby
rendered DISMISSING the complaint in Civil Case No. 2547 of the Municipal Trial Court of Antipolo, Rizal
for lack of jurisdiction.3

Petitioners filed a motion for reconsideration which was denied in a resolution dated 30 January 1998.4

Hence, the instant petition.

Petitioners submit the following issues for the Courts consideration5:

A. WHETHER OR NOT THE ALLEGATIONS OF THE COMPLAINT CLEARLY MADE OUT A CASE FOR UNLAWFUL
DETAINER.

91
B. WHETHER OR NOT BASED ON THE ALLEGATION(S) OF THE COMPLAINT, THE MUNICIPAL TRIAL COURT
OF ANTIPOLO, RIZAL, CLEARLY HAS ORIGINAL JURISDICTION OVER THE INSTANT COMPLAINT FILED
BEFORE IT.

Since the two issues are closely intertwined, they shall be discussed together.

In the main, petitioners claim that the averments of their complaint make out a case for unlawful detainer
having alleged that private respondents unlawfully withheld from them the possession of the property in
question, which allegation is sufficient to establish a case for unlawful detainer. They further contend that
the summary action for ejectment is the proper remedy available to the owner if another occupies the
land at the formers tolerance or permission without any contract between the two as the latter is bound
by an implied promise to vacate the land upon demand by the owner.

The petition is not meritorious.

Under existing law and jurisprudence, there are three kinds of actions available to recover possession of
real property: (a) accion interdictal; (b) accion publiciana; and (c) accion reivindicatoria.6

Accion interdictal comprises two distinct causes of action, namely, forcible entry (detentacion) and
unlawful detainer (desahuico).7 In forcible entry, one is deprived of physical possession of real property
by means of force, intimidation, strategy, threats, or stealth whereas in unlawful detainer, one illegally
withholds possession after the expiration or termination of his right to hold possession under any
contract, express or implied.8 The two are distinguished from each other in that in forcible entry, the
possession of the defendant is illegal from the beginning, and that the issue is which party has prior de
facto possession while in unlawful detainer, possession of the defendant is originally legal but became
illegal due to the expiration or termination of the right to possess.9

The jurisdiction of these two actions, which are summary in nature, lies in the proper municipal trial court
or metropolitan trial court.10 Both actions must be brought within one year from the date of actual entry
on the land, in case of forcible entry, and from the date of last demand, in case of unlawful detainer.11 The
issue in said cases is the right to physical possession.

Accion publiciana is the plenary action to recover the right of possession which should be brought in the
proper regional trial court when dispossession has lasted for more than one year.12 It is an ordinary civil
proceeding to determine the better right of possession of realty independently of title.13 In other words,
if at the time of the filing of the complaint more than one year had elapsed since defendant had turned
plaintiff out of possession or defendants possession had become illegal, the action will be, not one of the
forcible entry or illegal detainer, but an accion publiciana. On the other hand, accion reivindicatoria is an
action to recover ownership also brought in the proper regional trial court in an ordinary civil
proceeding.14

To justify an action for unlawful detainer, it is essential that the plaintiffs supposed acts of tolerance must
have been present right from the start of the possession which is later sought to be recovered.15
Otherwise, if the possession was unlawful from the start, an action for unlawful detainer would be an
improper remedy.16 As explained in Sarona v. Villegas17:

92
But even where possession preceding the suit is by tolerance of the owner, still, distinction should be
made.

If right at the incipiency defendants possession was with plaintiffs tolerance, we do not doubt that the
latter may require him to vacate the premises and sue before the inferior court under Section 1 of Rule
70, within one year from the date of the demand to vacate.

xxxx

A close assessment of the law and the concept of the word "tolerance" confirms our view heretofore
expressed that such tolerance must be present right from the start of possession sought to be recovered,
to categorize a cause of action as one of unlawful detainer - not of forcible entry. Indeed, to hold otherwise
would espouse a dangerous doctrine. And for two reasons: First. Forcible entry into the land is an open
challenge to the right of the possessor. Violation of that right authorizes the speedy redress in the
inferior court - provided for in the rules. If one year from the forcible entry is allowed to lapse before suit
is filed, then the remedy ceases to be speedy; and the possessor is deemed to have waived his right to
seek relief in the inferior court. Second, if a forcible entry action in the inferior court is allowed after the
lapse of a number of years, then the result may well be that no action of forcible entry can really prescribe.
No matter how long such defendant is in physical possession, plaintiff will merely make a demand, bring
suit in the inferior court upon a plea of tolerance to prevent prescription to set in - and summarily throw
him out of the land. Such a conclusion is unreasonable. Especially if we bear in mind the postulates that
proceedings of forcible entry and unlawful detainer are summary in nature, and that the one year time-
bar to suit is but in pursuance of the summary nature of the action.18 (Underlining supplied)

It is the nature of defendants entry into the land which determines the cause of action, whether it is
forcible entry or unlawful detainer. If the entry is illegal, then the action which may be filed against the
intruder is forcible entry. If, however, the entry is legal but the possession thereafter becomes illegal, the
case is unlawful detainer.

Indeed, to vest the court jurisdiction to effect the ejectment of an occupant, it is necessary that the
complaint should embody such a statement of facts as brings the party clearly within the class of cases
for which the statutes provide a remedy, as these proceedings are summary in nature.19 The complaint
must show enough on its face the court jurisdiction without resort to parol testimony.20

The jurisdictional facts must appear on the face of the complaint. When the complaint fails to aver facts
constitutive of forcible entry or unlawful detainer, as where it does not state how entry was affected or
how and when dispossession started, the remedy should either be an accion publiciana or an accion
reivindicatoria in the proper regional trial court.21 Thus, in Go, Jr. v. Court of Appeals,22 petitioners filed
an unlawful detainer case against respondent alleging that they were the owners of the parcel of land
through intestate succession which was occupied by respondent by mere tolerance of petitioners as well
as their deceased mother. Resolving the issue on whether or not petitioners case for unlawful detainer
will prosper, the court ruled23:

Petitioners alleged in their complaint that they inherited the property registered under TCT No. C-32110
from their parents; that possession thereof by private respondent was by tolerance of their mother, and
after her death, by their own tolerance; and that they had served written demand on December, 1994,
but that private respondent refused to vacate the property. x x x

93
It is settled that one whose stay is merely tolerated becomes a deforciant illegally occupying the land the
moment he is required to leave. It is essential in unlawful detainer cases of this kind, that plaintiffs
supposed acts of tolerance must have been present right from the start of the possession which is later
sought to be recovered. This is where petitioners cause of action fails. The appellate court, in full
agreement with the MTC made the conclusion that the alleged tolerance by their mother and after her
death, by them, was unsubstantiated. x x x

The evidence revealed that the possession of defendant was illegal at the inception and not merely
tolerated as alleged in the complaint, considering that defendant started to occupy the subject lot and
then built a house thereon without the permission and consent of petitioners and before them, their
mother. xxx Clearly, defendants entry into the land was effected clandestinely, without the knowledge of
the owners, consequently, it is categorized as possession by stealth which is forcible entry. As explained
in Sarona vs. Villegas, cited in Muoz vs. Court of Appeals [224 SCRA 216 (1992)] tolerance must be present
right from the start of possession sought to be recovered, to categorize a cause of action as one of
unlawful detainer not of forcible entry x x x.

And in the case of Ten Forty Realty and Development Corp. v. Cruz,24 petitioners complaint for unlawful
detainer merely contained the bare allegations that (1) respondent immediately occupied the subject
property after its sale to her, an action merely tolerated by petitioner; and (2) her allegedly illegal
occupation of the premises was by mere tolerance. The court, in finding that the alleged tolerance did not
justify the action for unlawful detainer, held:

To justify an action for unlawful detainer, the permission or tolerance must have been present at the
beginning of the possession. x x x

xxxx

In this case, the Complaint and the other pleadings do not recite any averment of fact that would
substantiate the claim of petitioner that it permitted or tolerated the occupation of the property by
Respondent Cruz. The complaint contains only bare allegations that 1) respondent immediately occupied
the subject property after its sale to her, an action merely tolerated by petitioner; and 2) her allegedly
illegal occupation of the premises was by mere tolerance.

These allegations contradict, rather than support, petitioners theory that its cause of action is for
unlawful detainer. First, these arguments advance the view that respondents occupation of the property
was unlawful at its inception. Second, they counter the essential requirement in unlawful detainer cases
that petitioners supposed act of sufferance or tolerance must be present right from the start of a
possession that is later sought to be recovered.25

In the instant case, the allegations in the complaint do not contain any averment of fact that would
substantiate petitioners claim that they permitted or tolerated the occupation of the property by
respondents. The complaint contains only bare allegations that "respondents without any color of title
whatsoever occupies the land in question by building their house in the said land thereby depriving
petitioners the possession thereof." Nothing has been said on how respondents entry was effected or
how and when dispossession started. Admittedly, no express contract existed between the parties. This
failure of petitioners to allege the key jurisdictional facts constitutive of unlawful detainer is fatal.26 Since
the complaint did not satisfy the jurisdictional requirement of a valid cause for unlawful detainer, the

94
municipal trial court had no jurisdiction over the case.27 It is in this light that this Court finds that the Court
of Appeals correctly found that the municipal trial court had no jurisdiction over the complaint.

WHEREFORE, the petition is DENIED and the judgment of the Court of Appeals dismissing the complaint
in Civil Case No. 2547 of the MTC Antipolo, Rizal for lack of jurisdiction is hereby AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

95
G.R. No. 153914 July 31, 2007

FELIPE REGIS, JR., Petitioner,

vs.
THE HON. COURT OF APPEALS and AGAPITO GARCIA, Respondents.

DECISION

NACHURA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court assailing the Decision1 of the Court of
Appeals, dated September 13, 2001, and the Resolution2 dated February 15, 2002 in CA-G.R. SP No. 57003.

The Facts

The present petition stems from two separate ejectment cases involving the same parties, albeit at
different times, in two different branches of the Municipal Trial Court in Cities (MTCC) of Iligan City.

The first, Civil Case No. II-236, entitled "Felipe Regis and Genoviva Garcia v. Agapito Garcia," was a
complaint for forcible entry, filed with the MTCC, Branch II, Iligan City. The plaintiffs are the parents of the
petitioner (Regis) herein. On March 13, 1989, the MTCC rendered a Decision3 dismissing the case. The
pertinent portions of the decision read:

[T]he Court, finds that the defendant [Garcia] is a possessor and owner in fee simple of a residential lot
along the former shorelines of Cabili Avenue, Iligan City. That [the] defendant [Garcia] possessed a parcel
of land of about 200 square meters since 1947 (sic). x x x Sometime in 1973, the government[,] upon
seeing the area to have been developed and reclaimed from the sea, it surveyed the area and opened it
for disposition and alienation under the Miscellaneous Sales System. Defendant [Garcia] filed his
Miscellaneous Sales Application for the entire 200 sq. meters he reclaimed [which] was eventually
awarded to him. That sometime in the year 1970[,] a certain Delvo had filed an adverse claim over the
same property in issue but, the Regional Trial Court and the Court of Appeals ruled in favor of the
defendant [Garcia] herein over said parcel wherein the claim of herein plaintiff [Regis] is part.

xxxx

Further, defendants [Garcia] possession of this land in issue started before 1950 while the plaintiff
enter[ed] the scene later, having purchased the rights of the defendants [Garcia] father over the portion,
defendants [Garcia] father [had] occupied and claimed [as his] own.

Finally, the Court, opined that the issue here could be settled by determining the true boundaries of each
lot claimed by party-litigants. But, even if this Court would do so yet, the action of this Court, would [be]
an effort in futility[,] the matter of ownership on the entire portion of land claimed by defendant [Garcia]
having been passed over (sic) by the Regional Trial Court and lately was awarded by the government to
defendant [Garcia] under Miscellaneous Sales Application.

96
WHEREFORE, premises considered, the Court hereby opine[s] that plaintiff [Regis] had failed to prove any
cause of action against defendant [Garcia], hence, the Court hereby order[s] the Dismissal of the case for
[having] no cause of action.

SO ORDERED.

No appeal was taken from this decision.

The second case, entitled "Agapito Garcia v. Felipe Regis, Junior and the Members of His Family," docketed
as Civil Case No. 1-429 in the MTCC, Branch 01, Iligan City, was for ejectment, filed by Agapito Garcia
(Garcia), respondent herein. In its Decision4 dated February 11, 1999, the MTCC dismissed the complaint
for failure of Garcia to prove his prior physical possession of the property in question. The lower court
went on to say that the evidence presented by Garcia proved only his right of possession, not his prior
physical possession of the contested property which is the core issue in forcible entry cases.

Garcia appealed the February 11, 1999 Decision of the MTCC to Regional Trial Court (RTC), Branch 03,
Iligan City, docketed as Civil Case No. 4607. On September 2, 1999, the RTC issued a Decision5 reversing
the decision of the trial court and ordering Regis and the members of his family to remove their structures
and to vacate the property under dispute. The RTC took heed of the earlier Decision of the MTCC in Civil
Case No. II-236 that had become final and executory, and declared:

On the findings of the lower court, it would appear that the herein plaintiff-appellant [Garcia] took
possession, ahead of anybody else, including the defendant-appellee [Regis] of the 200 square meters,
wherein the disputed area of 40 square meters is merely a portion.

Even granting arguendo that the appellee [Regis] was in possession of the property before the alleged
forcible entry was filed in 1989, the appellant [Garcia] was already there long before the intrusion of the
40 square meters which is a portion of the whole 200 square meters, earlier applied for by the appellant
[Garcia].

xxxx

In the case at bar, and in addition to the findings of the lower court in Civil Case No. II-236, appellant
[Garcia] took possession of the property in 1946 (Exhibit "A") and introduced improvements thereon. To
strengthen his hold on the property he filed a Sales Application (Exhibit "D") in 1973 and declared it for
taxation purposes (Exhibit "C") in 1973.

On the other hand, the documentary evidence shown by the appellee [Regis], i.e., Declaration of Real
Property (Exhibits "3-B" and "3-C") were secured only very recently or in October 1993 and June 1986[,]
respectively. The two (2) tax receipts were issued only on January 7, 1998.

Evidently the appellant [Garcia] has indeed occupied the property way ahead of the parents of the
appellee [Regis] and much earlier than the appellee [Regis] himself.

In sum, the Court believes that plaintiff-appellant [Garcia] is the rightful possessor of the lot in dispute
and that defendant-appellee [Regis] being an intruder and deforciant should be ordered to restore the lot
to the plaintiff-appellant [Garcia].

97
Aggrieved, Regis filed an appeal with the Court of Appeals (CA) docketed as CA-G.R. SP No. 57003, praying
for the reinstatement in toto of the MTCC Decision dated February 11, 1999 in Civil Case No. 1-429. On
September 13, 2001, the CA rendered a Decision,6 the fallo of which reads:

WHEREFORE, the Decision of the Regional Trial Court of Iligan City, Branch 3 in Civil Case No. 4607,
reversing the judgment in Civil Case No 1-236 (sic) rendered by the Municipal Trial Court in Cities, Branch
1, Iligan City, and ordering the petitioner [Regis] to remove the structures and to vacate the property in
dispute is hereby AFFIRMED in toto.

A motion for reconsideration was filed by Regis but the same was denied by the CA in a Resolution7 dated
February 15, 2002.

The Issues to be Resolved

On May 27, 2002, Regis filed a Petition8 for certiorari before this Court contending, as follows:

THE COURT OF APPEALS HAS NO JURISDICTION IN DECIDING CA-G.R. SP NO. 57003, AN APPEALED
FORCIBLE ENTRY CASE (ILIGAN CITY MTCC 1-429) AS AN ACCION PUBLICIANA, AND SAID COURT ALSO
VIOLATED PETITIONERS CONSTITUTIONAL RIGHT (Pages 6-11) TO

(a) Due Process (Pages 8 to 9) and,

(b) To a day in Court (Pages 10-11)

II

[THE CA ERRED] IN HOLDING THAT PRIVATE RESPONDENT GARCIA WAS IN "PRIOR POSSESSION" OF THE
40 SQUARE METER LOT IN QUESTION SINCE HIS FATHER, DEMETRIO GARCIA OCCUPIED IT IN 1946 AND
PETITIONER FELIPE REGIS JR. AND HIS PARENTS TOOK POSSESSION ONLY IN 1962 (Pages 11 to 19)9

The Ruling of the Court

The petition is devoid of merit.

At the outset, we reiterate that the special civil action for certiorari cannot be availed of even if it is based
upon lack of jurisdiction or grave abuse of discretion when the remedy of appeal is available.10 Certiorari
is proper only if there is no appeal, or when there is no plain, speedy, and adequate remedy in the ordinary
course of law.11 Regis cannot invoke the extraordinary writ of certiorari as a substitute for the lost remedy
of appeal.

Regis filed the present petition for certiorari on May 22, 2002, or more than fifteen (15) days from his
receipt of the CAs denial of the motion for reconsideration on March 26, 2002. Although filed within the
period for filing a petition for certiorari under Rule 65, the arguments presented by Regis show that his

98
recourse should have been an appeal via a petition for review on certiorari under Rule 45 of the Rules of
Court. To avoid this procedural pitfall, Regis invokes lack of jurisdiction of the court a quo as basis for filing
the petition. However, upon review of the arguments he has marshaled, it is apparent that what he is
really questioning is whether or not an action for forcible entry may be treated as an accion publiciana,
which is a question of law. The pertinent portion of the CA Decision that is in issue reads:

Before finally concluding this matter, the records of this case clearly show the compliance by respondent
[Garcia] with the requisites, as aforementioned, in commencing the ejectment proceedings before the
court a quo. In this regard, We take note of the MTCCs observations to be quite significant:

"(W)hether or not defendants (sic) [Regis] have the right to occupy the said area, this issue is irrelevant
to ejectment cases considering that this is now a question of who has a better right of possession, hence
a proper case of accion publiciana. To the mind of the court, plaintiffs [Garcia] remedy in the instant case
is to file an action for the recovery of ownership or accion reinvidicatoria [which also includes the recovery
of possession][.]

Granting ex argumenti that the previously quoted comment made by the court a quo is correct, there is
no reason for this Court to dismiss the present case based on the alleged error of the respondent [Garcia]
in not filing an accion publiciana. To do so would only result in a senseless re-litigation of the same matter
and the issues that is now before Us. As an appellate court, We can rule on the same issues based on the
same set of evidence had it been an accion publiciana the respondent [Garcia] commenced before the
proper RTC, and the results would have been no different.12

A cursory reading of the CA Decision would reveal that it did not decide the forcible entry case as accion
publiciana. The CA only commented on the observation of the RTC that it would have been better if Garcia
filed an accion publiciana instead of a complaint for forcible entry. This is a legitimate comment of the
appellate court on the discussion in the RTC decision.

A complaint for forcible entry may be brought within a year from unlawful dispossession before a
municipal trial court in a summary proceeding.13 This summary action is for the recovery of physical
possession only. Title or ownership over the property is not in issue. However, when the defendant raises
the defense of ownership in his pleadings and the question of possession cannot be resolved without
deciding the same, then the issue of ownership shall be resolved in order to decide the issue of
possession.14 The judgment rendered shall be conclusive with respect to possession only, shall not bind
the title or affect the ownership of the property, and shall not bar an action between the same parties
respecting title to the land or building.15

In an action for forcible entry, whether or not the person occupying the property has the right to occupy
the same is not important. What is essential is that the party filing the case be able to prove that his
peaceful physical possession of the property was arbitrarily intruded by another. The rationale for this
remedy is that a person who is in peaceful possession of property must not be ejected therefrom by force,
intimidation, threat, strategy, or stealth. A person who believes that he has a right of possession over a
certain property that is in the hands of another must not take the law into his own hands. He cannot just
barge in and take the property that is actually occupied by another.

99
A year after the unlawful dispossession of property, the aggrieved party may file an accion
publiciana.1awphi1 The better right to possession, as distinguished from the right to physical possession,
is litigated in this plenary action16 as an ordinary civil proceeding in the RTC.

Recovery of ownership, which includes the right to possession over real property, can be commenced
through an accion reivindicatoria. The action is filed in the RTC.

On the issue of whether or not an action for forcible entry can be treated as accion publiciana, we rule in
the negative. Forcible entry is distinct from accion publiciana. First, forcible entry should be filed within
one year from the unlawful dispossession of the real property, while accion publiciana is filed a year after
the unlawful dispossession of the real property. Second, forcible entry is concerned with the issue of the
right to the physical possession of the real property; in accion publiciana, what is subject of litigation is
the better right to possession over the real property. Third, an action for forcible entry is filed in the
municipal trial court and is a summary action, while accion publiciana is a plenary action in the RTC.17

In the instant case, the CA acted within its jurisdiction in issuing the assailed judgment. To repeat, the CA
did not treat the forcible entry case as an accion publiciana. What was litigated before the appellate court
was the very same case for forcible entry initiated at the MTCC. Not being a new case, petitioner cannot
claim that he was deprived of due process or denied his day in court. Furthermore, Regis, after appealing
his case to the CA and having taken part in the proceedings therein, is estopped from assailing the
jurisdiction of such tribunal after receiving an unfavorable judgment.

II

The issue of who had prior possession over the disputed property that is located at Del Mar St., Iligan City
can no longer be reviewed by this Court. As a rule, the findings of fact of the trial court, especially when
adopted and affirmed by the CA, are final and conclusive, and may not be reviewed on appeal by this
Court. This Court is not a trier of facts, and generally does not weigh anew the evidence already passed
upon by the CA. Absent any showing that some facts of certain weight and substance were overlooked,
which, if considered, would affect the outcome of the case, the Court, as in this case, will uphold the
findings of the RTC and the CA.18

The Court takes judicial notice of the Decision of MTCC, Branch II, Iligan City, dated March 13, 1989. This
decision of the MTCC was never appealed and thus, became final and conclusive as to the parties therein.
The family, relatives, and other privies of the parties in ejectment cases are as much bound by the
judgment as the party from whom they derive their possession.19 In this case, Regis is barred by res
judicata from questioning the MTCC finding that Garcia had prior possession. Thus, the following findings
of fact of the MTCC in Civil Case No. II-236, the RTC in Civil Case No. 4607, and of the CA in CA-G.R. SP No.
57003, are deemed conclusive: a) Garcia was already the owner of the 200-square-meter lot when his
Miscellaneous Sales Application was favorably granted; b) The 40-square-meter lot that is contested in
this case is embraced within the said 200-square-meter lot owned by Garcia; and c) Garcias possession
of the contested property dates back to 1946, while the possession of Regis goes back only to 1962.

WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals, dated September 13, 2001,
and the Resolution dated February 15, 2002, in CA-G.R. SP No. 57003, are hereby AFFIRMED. Costs against
the petitioner. SO ORDERED. ANTONIO EDUARDO B. NACHURA
Associate Justice

100
March 15, 2017

G.R. No. 185627

SPOUSES BERNARDITO AND ARSENIA GAELA (DECEASED), SUBSTITUTED BY HER HEIRS NAMELY:
BERNARDITO GAELA AND JOSELINE E. PAGUIRIGAN, Petitioners
vs
SPOUSES TAN TIAN HEANG AND SALLY TAN,, Respondents

DECISION

REYES, J.:

Assailed in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court are the Decision2
dated April 28, 2008 and Resolution3 dated September 4, 2008 of the Court of Appeals (CA) in CA-G.R. SP
No. 101375, which affirmed the Decision4 dated October 2, 2007 of the Regional Trial Court (RTC) of Pasig
City, Branch 157, in S.C.A. Case No. 3083. The RTC decision reversed and set aside the Decision5 dated
February 12, 2007 of the Metropolitan Trial Court (MeTC) of Pasig City, Branch 68, in Civil Case No. 11369
for Ejectment.

The Facts

This petition stemmed from a complaint for ejectment over two parcels of land both situated in Barrio
Rosario, Municipality of Pasig, covered by Transfer Certificates of Title (TCT) Nos. PT-1264466 and PT-
1264507 filed by Spouses Tan Tian Heang and Sally Tan (respondents) against Spouses Bernardito and
Arsenia Gaela (petitioners).8

The petitioners claimed that they are the lawful owners of the subject properties. They said that sometime
in 2002, their daughter Bemardita Gaela (Bemardita) took the certificates of title registered in their names
and forged their signatures in the Real Estate Mortgage9 that Bemardita executed in favor of Alexander
Tam Wong (Wong). Thus, their certificates of title were cancelled and new ones were issued to Wong,
who then sold the subject properties to the respondents on December 20, 2004. Afterwards, they sought
the annulment of sale of the subject properties and cancellation of TCT Nos. PT-126446 and PT-126450 in
the name of the respondents in Civil Case No. 70250 before the RTC of Pasig City, Branch 71. They averred
that before the transfer of title from Wong to the respondents, they were able to cause the annotation of
a notice of lis pendens on the respondents' titles.10

For their part, the respondents countered that they are the lawful and legal owners of the subject
properties which they acquired in good faith from its former owner Wong. They narrated that the subject
properties were mortgaged by the petitioners to Wong for 2,000,000.00, and said mortgage was
annotated at the back of the petitioners' titles. However, the petitioners ceased to pay the real property
tax due on the subject properties. Thereafter, new titles were issued in favor of Wong. On December 18,
2004, they bought the subject properties and paid the taxes due thereon as early as January 13, 2005.
Nonetheless, while they were waiting for the transfer and release of new titles in their names, the
petitioners filed Civil Case No. 70250 against Wong and caused its annotation on the latter's titles. This
annotation was then carried over and appeared in their titles. Subsequently, they made demands to the
petitioners to vacate the subject properties but the latter refused to do so.11

101
On February 12, 2007, the MeTC rendered its Decision12 in favor of the petitioners, dismissing the
complaint on the ground of lack of cause of action. The MeTC ruled, among others, that:

In the instant case, [the respondents] have indeed made a formal demand upon the [petitioners] to vacate
the premises. However, such demand cannot be used as the point to determine the unlawfulness of [the
petitioners'] possession for the reason that even before [the respondents] could make a formal demand
upon the [petitioners], let alone, have the premises titled in their names, [the petitioners] have already
filed an action to assert their ownership over the premises which is even annotated to the title of [Wong]
and is likewise annotated on [the respondents'] title. Thus, the Court unreservedly finds it difficult to
determine from the evidentiary records the point where [the petitioners'] possession became unlawful as
[the respondents] were never in possession of the premises.13

Aggrieved, the respondents filed an appeal before the RTC.14

In a Decision15 dated October 2, 2007, the RTC granted the appeal and set aside the MeTC's ruling. The
dispositive portion of the decision reads:

WHEREFORE, the instant appeal is hereby GRANTED. The assailed Decision dated February 12, 2007,
rendered by the [MeTC] of Pasig City, is set aside and judgment is rendered as follows:

1. Declaring [the petitioners'] possession of the subject parcels of land unlawful, and ordering them to
vacate the subject parcels of land;

2. Ordering [the petitioners] to pay reasonable monthly rentals of l0,000[.00] starting from March 16,
2005, until they fully vacate and turn over to [the respondents] the subject properties; and 3. Pay the cost
of suit.

SO ORDERED.16

In overturning the MeTC's ruling, the RTC held that the respondents have the better right to possess the
subject properties since they are the registered owners of the same. The respondents' lack of prior
physical possession over the subject properties is of no moment since it is enough that they have a better
right of possession over the petitioners. The RTC further said that the case for annulment of title and the
annotation of a notice of lis pendens on the respondents' TCTs did not in any way legitimize the
petitioners' continued possession of the subject properties.17

On appeal,18 the CA, in its Decision19 dated April 28, 2008, denied the petition and affirmed the RTC's
judgment in toto. The CA held that the allegation in the respondents' complaint make out a case for
unlawful detainer and it was filed well within the one-year reglementary period.20

Upset by the foregoing disquisition, the petitioners moved for reconsideration21 but it was denied by the
CA in its Resolution22 dated September 4, 2008. Hence, the present petition for review on certiorari.

The Issue

WHO BETWEEN THE PARTIES HAS A BETTER RIGHT TO POSSESS THE SUBJECT PROPERTIES.

102
Ruling of the Court

The petition is bereft of merit.

At the outset, the Court noted that the issue of ownership between the parties herein is already the
subject of a pending litigation before the RTC of Pasig City, Branch 71. Hence, the only matter to be
resolved in this case is the issue of possession over the subject properties.

To begin with, it is perceptible from the arguments of the petitioners that they are calling for the Court to
reassess the evidence presented by the parties. The petitioners are, therefore, raising questions of facts
beyond the ambit of the Court's review. In a petition for review under Rule 45 of the Rules of Court, the
jurisdiction of this Court in cases brought before it from the CA is limited to the review and revision of
errors of law allegedly committed by the appellate court.23 However, the conflicting findings of facts and
rulings of the MeTC on one hand, and the RTC and the CA on the other, compel this Court to revisit the
records of this case. But even if the Court were to re-evaluate the evidence presented, considering the
divergent positions of the courts below, the petition would still fail.

In the instant case, the petitioners mainly dispute the respondents' ownership of the subject properties
by contending that they are the true owners of the same. They aver that the allegations of the
respondents do not sufficiently show a cause of action for unlawful detainer. They claim that the
respondents failed to prove that they had prior physical possession of the subject properties before they
were unlawfully deprived of it. The respondents, however, only sought to recover the physical possession
of the subject properties. The respondent rebuts the petitioners' claims by contending that they acquired
the subject properties in good faith and have registered the same under their names and have been issued
certificates of title. The respondents assert their ownership over the subject properties to lay the basis for
their right to possess the same that was unlawfully withheld from them by the petitioners.

After reviewing the records of this case, the Court sustains the findings of the RTC and the CA that the
nature of action taken by the respondents is one for unlawful detainer.

Unlawful detainer is an action to recover possession of real property from one who unlawfully withholds
possession after the expiration or termination of his right to hold possession under any contract, express
or implied. The possession of the defendant in an unlawful detainer case is originally legal but becomes
illegal due to the expiration or termination of the right to possess. The sole issue for resolution in an
unlawful detainer case is physical or material possession of the property involved, independent of any
claim of ownership by any of the parties.24

For the action to come under the exclusive original jurisdiction of the MeTC, the complaint must allege
that: (a) the defendant originally had lawful possession of the property, either by virtue of a contract or
by tolerance of the plaintiff; (b) the defendant's possession of the property eventually became illegal or
unlawful upon notice by the plaintiff to the defendant of the expiration or the termination of the
defendant's right of possession; (c) the defendant thereafter remained in possession of the property and
thereby deprived the plaintiff the enjoyment thereof; and (d) the plaintiff instituted the action within one
year from the unlawful deprivation or withholding of possession.25

Guided by the foregoing norms, the allegations of the respondents' complaint made out a case of unlawful
detainer, vesting the MeTC with exclusive original jurisdiction over the complaint. The record showed that

103
the respondents' TCTs were issued on February 21, 2005.26 Thereafter, the demand to vacate was made
against the petitioners on March 16, 2005, which is the reckoning point of the petitioners' unlawful
possession. Thus, the filing of the ejectment complaint on April 21, 2005 is within the one-year
reglementary period.27

Indeed, the cause of action of the respondents was to recover possession of the subject properties from
the petitioners upon the latter's failure to comply with the former's demand to vacate the subject
properties after the latter's right to remain thereon terminated. The respondents initiated the ejectment
suit in the MeTC well within the one-year period from the date of the last demand. Thus, the possession
of the petitioners, although lawful at its commencement, became unlawful upon its non-compliance with
the respondents' demand to vacate.

Also, the petitioners erroneously argued that the respondents' prior physical possession is necessary for
an action for unlawful detainer to prosper.1wphi1 Contrary to the petitioners' argument, nowhere does
it appear in Section 128 of Rule 70 of the Rules of Court that, in an action for unlawful detainer, the plaintiff
must be in prior physical possession of the property. The Court has repeatedly ruled that prior physical
possession by the plaintiff is not an indispensable requirement in an unlawful detainer case brought by a
vendee or other person against whom the possession of any land is unlawfully withheld after the
expiration or termination of a right to hold possession.29

There is no dispute with the fact that the petitioners were the previous owners of the subject properties.
However, the respondents were able to prove by preponderance of evidence that they are now the new
owners and the rightful possessors of the subject properties being its registered owners under TCT Nos.
PT-126446 and PT-126450.1wphi1 The TCTs of the respondents are, therefore, evidence of indefeasible
title over the subject properties and, as its holders, they are entitled to its possession as a matter of right.

Conversely, aside from their bare allegation of bad faith on the part of the respondents, the petitioners
presented nothing to support their claim. They failed to submit any piece of evidence showing their right
to possess the subject properties. Thus, their unsubstantiated arguments are not, by themselves, enough
to offset the respondents' right as the registered owners.

In this case, the evidence showed that as between the parties, it is the respondents who have a Torrens
title to the subject properties. The RTC and the CA relied on the Torrens title in the name of the
respondents to support their finding that the respondents are the owners of the subject properties.

The Court also noted that in assailing the respondents' right over the subject properties, the petitioners
contended that the respondents obtained their certificates of title through forgery. Obviously, this
argument is equivalent to a collateral attack against the Torrens title of the respondents - an attack that
the Court cannot allow in the instant unlawful detainer case.

Time and again, the Court had emphasized that when the property is registered under the Torrens system,
the registered owner's title to the property is presumed legal and cannot be collaterally attacked,
especially in a mere action for unlawful detainer, and it does not even matter if the party's title to the
property is questionable.30

At any rate, it is fundamental that a certificate of title serves as evidence of an indefeasible and
incontrovertible title to the property in favor of the person whose name appears therein. The title holder

104
is entitled to all the attributes of ownership of the property, including possession. Thus, the Court must
uphold the age-old rule that the person who has a Torrens title over a land is entitled to its possession.31

Lastly, it must be underscored that this award of possession de facto over the subject properties in favor
of the respondents will not constitute res judicata or will not bar or prejudice the action between the
parties involving their claim of ownership over the subject properties which are already the subject of a
pending litigation.

In fine, this Court finds no cogent reason to annul the findings and conclusions of the CA. The respondents,
as the title holders of the subject properties, are the recognized owners of the same and consequently
have the better right to its possession.

WHEREFORE, the appeal is DENIED. The Decision dated April 28, 2008 and Resolution dated September
4, 2008 of the Court of Appeals in CA-G.R. SP No. 101375 are AFFIRMED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

105
G.R. No. 102998 July 5, 1996

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ROBERTO M. REYES, respondents.

VITUG, J.:p

The case at bar is a suit for replevin and damages. The petition for review on certiorari assails the decision
of the Court of Appeals1 in CA-G.R. CV No. 23605 affirming that of the Regional Trial Court of Manila,
Branch
XX,2 which has disposed of its Civil Case No. 87-42270 in this wise:

WHEREFORE, the case against defendant-spouses (sic) Reynaldo Manahan is hereby

dismissed without prejudice, for failure to prosecute. Plaintiff having failed to show the
liability of defendant John Doe in the person of Roberto M. Reyes, the case against the
latter should likewise be dismissed. Moreover, plaintiff is hereby directed to return the
vehicle seized by virtue of the order of seizure issued by this Court with all its accessories
to the said Roberto M. Reyes.3

The decisions of both the appellate court and the court a quo are based on a like finding of the facts
hereinafter briefly narrated.

The spouses Reynaldo and Florencia Manahan executed, on 15 May 1980, a promissory note4 binding
themselves to pay Carmasters, Inc., the amount of P83,080.00 in thirty-six monthly installments
commencing 01 July 1980. To secure payment, the Manahan spouses executed a deed of chattel
mortgage5 over a motor vehicle, a Ford Cortina 1.6 GL, with motor and serial number CUBFWE-801010.
Carmasters later assigned6 the promissory note and the chattel mortgage to petitioner BA Finance
Corporation with the conformity of the Manahans. When the latter failed to pay the due installments,
petitioner sent demand letters. The demands not having been heeded, petitioner, on 02 October 1987,
filed a complaint for replevin with damages against the spouses, as well as against a John Doe, praying for
the recovery of the vehicle with an alternative prayer for the payment of a sum of money should the
vehicle not be returned. Upon petitioner's motion and the filing of a bond in the amount of P169,161.00
the lower court issued a writ of replevin. The court, however, cautioned petitioner that should summons
be not served on the defendants within thirty (30) days from the writ's issuance, the case would be
dismissed to failure to prosecute.7 The warning was based on what the court perceived to be the
deplorable practice of some mortgagees of "freezing (the) foreclosure or replevin cases" which they would
so "conveniently utilize as a leverage for the collection of unpaid installments on mortgaged chattels."8

The service of summons upon the spouses Manahan was caused to be served by petitioner at No. 35
Lantana St., Cubao, Quezon City. The original of the summons had the name and the signature of private
respondent Roberto M. Reyes indicating that he received, on 14 October 1987, a copy of the summons
and the complaint.9 Forthwith, petitioner, through its Legal Assistant, Danilo E. Solano, issued a
certification to the effect that it had received from Orson R. Santiago, the deputy sheriff of the Regional
Trial Court of Manila, Branch 20, the Ford Cortina seized from private respondent Roberto M. Reyes, the

106
John Doe referred to in the complaint, 10 in Sorsogon, Sorsogon. 11 On 20 October 1987, the lower court
came out with an order of seizure.

Alleging possession in good faith, private respondent filed, on 26 October 1987, a motion for an extension
of time within which to file his answer and/or a motion for intervention. The court granted the motion.

A few months later, or on 18 February 1988, the court issued an order which, in part, stated:

Perusal of the record shows that an order for the seizure of personal property was issued
on October 20, 1987 in pursuance to a previous order of the Court dated October 13,
1987. However, to date, there is no showing that the principal defendants were served
with summons inspite of the lapse of four (4) months.

Considering, this is a replevin case and to forestall the evils that arise from this practice,
plaintiff failing to heed the Order dated October 13, 1987, particularly second paragraph
thereof, the above-entitled case is hereby ordered DISMISSED for failure to prosecute and
further ordering the plaintiff to return the property seized with all its accessories to
defendant John Doe in the person of Roberto M. Reyes.

SO ORDERED. 12

On 26 February 1988, petitioner filed a notice of dismissal of the case "without prejudice and without
pronouncement as to costs, before service of Summons and Answer, under Section 1, Rule 17, of the Rules
of Court." 13 It also sought in another motion the withdrawal of the replevin bond. In view of the earlier
dismissal of the case (for petitioner's failure to prosecute), the court, on 02 March 1988, merely noted the
notice of dismissal and denied the motion to withdraw the replevin bond considering that the writ of
replevin had meanwhile been implemented. 14

On 09 March 1988, private respondent filed a motion praying that petitioner be directed to comply with
the court order requiring petitioner to return the vehicle to him. In turn, petitioner filed, on 14 March
1988, a motion for the reconsideration of the orders of 18 February 1988 and 02 March 1988 contending
that: (a) the dismissal of the case was tantamount to adjudication on the merits that thereby deprived it
with the remedy to enforce the promissory note, the chattel mortgage and the deed of assignment, under
Section 3, Rule 117, of the Rules of Court; (b) the order to return the vehicle to private respondent was a
departure from jurisprudence recognizing the right of the mortgagor to foreclose the property to respond
to the unpaid obligation secured by the chattel mortgage, and (c) there were no legal and factual bases
for the court's view that the filing of the replevin case was "characterized (by) evil practices." 15

On 20 April 1988, the court granted petitioner's motion for reconsideration and accordingly recalled the
order directing the return of the vehicle to private respondent, set aside the order dismissing the case,
directed petitioner "to cause the service of summons together with a copy of the complaint on the
principal defendants within five (5) days from receipt" 16 thereof at petitioner's expense, and ordered
private respondent to answer the complaint.

A few months later, or on 02 August 1988, petitioner filed a motion to declare private respondent in
default. The court granted the motion on that same day and declared private respondent "in default for
his failure to file the . . . answer within the reglementary period." 17 The court likewise granted petitioner's

107
motion to set the case for the presentation, ex parte, of evidence. Petitioner, thereupon, submitted the
promissory note, the deed of chattel mortgage, the deed of assignment, a statement of account in the
name of Florencia Manahan and two demand letters.

On 27 February 1989, the trial court rendered a decision dismissing the complaint against the Manahans
for failure of petitioner to prosecute the case against them. It also dismissed the case against private
respondent for failure of petitioner to show any legal basis for said respondent's liability. The court
ratiocinated:

. . . . Roberto M. Reyes is merely ancillary debtor in this case. The defendant spouses
Manahan being the principal debtor(s) and as there is no showing that the latter has been
brought before the jurisdiction of this court, it must necessarily follow that the plaintiff
has no cause of action against said Roberto M. Reyes herein before referred to as
defendant John Doe. Under the circumstances, it is incumbent upon the plaintiff to return
the seized vehicle unto the said Roberto M. Reyes. 18

In its appeal to the Court of Appeals, petitioner has asserted that a suit for replevin aimed at the
foreclosure of the chattel is an action quasi in rem which does not necessitate the presence of the principal
obligors as long as the court does not render any personal judgment against them. This argument did not
persuade the appellate court, the latter holding that

. . . . In action quasi in rem an individual is named as defendant and the purpose of the
proceeding is to subject his interest therein to the obligation or lien burdening the
property, such as proceedings having for their sole object the sale or disposition of the
property of the defendant, whether by attachment, foreclosure, or other form of remedy
(Sandejas vs. Robles, 81 Phil. 421). In the case at bar, the court cannot render any
judgment binding on the defendants spouses for having allegedly violated the terms and
conditions of the promissory note and the contract of chattel mortgage on the ground
that the court has no jurisdiction over their persons no summons having been served on
them. That judgment, it rendered, is void for having denied the defendants spouses due
process of law which contemplates notice and opportunity to be heard before judgment
is rendered, affecting one's person or property (Macabingkil vs. Yatco, 26 SCRA 150, 157).

It is next contended by appellant that as between appellant, as mortgagee, and John Doe,
whose right to possession is dubious if not totally non-existent, it is the former which has
the superior right of possession.

We cannot agree.

It is an undisputed fact that the subject motor vehicle was taken from the possession of
said Roberto M. Reyes, a third person with respect to the contract of chattel mortgage
between the appellant and the defendants spouses Manahan.

The Civil Code expressly provides that every possessor has a right to be respected in his
possession (Art. 539, New Civil Code); that good faith is always presumed, and upon him
who alleges bad faith on the part of a possessor rests the burden of proof (Art. 527, ibid.);
and that the possession of movable property acquired in good faith is equivalent to a title;

108
 nevertheless, one who has lost any movable or has been unlawfully deprived thereof,
may recover it from the person in possession of the same (Art. 559, ibid.). Thus, it has
been held that a possessor in good faith is entitled to be respected and protected in his
possession as if he were the true owner thereof until a competent court rules otherwise
(Chus Hai vs. Kapunan, 104 Phil. 110; Yu, et al. vs. Hon. Honrado, etc., et al., 99 SCRA 237).
In the case at bar, the trial court did not err in holding that the complaint does not state
any cause of action against Roberto M. Reyes, and in ordering the return of the subject
chattel to him. 19

The appellate court, subsequently, denied petitioner's motion for reconsideration.

In the instant appeal, petitioner insists that a mortgagee can maintain an action for replevin against any
possessor of the object of a chattel mortgage even if the latter were not a party to the mortgage.

Replevin, broadly understood, is both a form of principal remedy and of a provisional relief. It may refer
either to the action itself, i.e., to regain the possession of personal chattels being wrongfully detained
from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to retain the thing
during the pendency of the action and hold it pendente lite. 20 The action is primarily possessory in nature
and generally determines nothing more than the right of possession. Replevin is so usually described as a
mixed action, being partly in rem and partly in personam in rem insofar as the recovery of specific
property is concerned, and in personam as regards to damages involved. As an "action in rem," the gist of
the replevin action is the right of the plaintiff to obtain possession of specific personal property by reason
of his being the owner or of his having a special interest therein. 21 Consequently, the person in
possession of the property sought to be replevied is ordinary the proper and only necessary party
defendant, and the plaintiff is not required to so join as defendants other persons claiming a right on the
property but not in possession thereof. Rule 60 of the Rules of Court allows an application for the
immediate possession of the property but the plaintiff must show that he has a good legal basis, i.e., a
clear title thereto, for seeking such interim possession.

Where the right of the plaintiff to the possession of the specific property is so conceded or evident, the
action need only be maintained against him who so possesses the property. In rem actio est per quam
rem nostram quae ab alio possidetur petimus, et semper adversus eum est qui rem possidet. In Northern
Motors, Inc. vs. Herrera, 22 the Court has said:

There can be no question that persons having a special right of property in the goods the
recovery of which is sought; such as a chattel mortgagee, may maintain an action for
replevin therefor. Where the mortgage authorizes the mortgagee to take possession of
the property on default, he may maintain an action to recover possession of the
mortgaged chattels from the mortgagor or from any person in whose hands he may find
them. 23

In effect then, the mortgagee, upon the mortgagor's default, is constituted an attorney-in-fact of
the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly, that
the defendant is not privy to the chattel mortgage should be inconsequential. By the fact that the
object of replevin is traced to his possession, one properly can be a defendant in an action for
replevin. It is here assumed that the plaintiffs right to possess the thing is not or cannot be
disputed.

109
In case the right of possession on the part of the plaintiff, or his authority to claim such possession or that
of his principal, is put to great doubt (a contending party might contest the legal bases for plaintiffs cause
of action or an adverse and independent claim of ownership or right of possession is raised by that party),
it could become essential to have other persons involved and accordingly impleaded for a complete
determination and resolution of the controversy. For instance, in Servicewide Specialists, Inc., vs. Court of
Appeals, et al., G.R. No. 103301, 08 December 1995, this Court ruled.

While, in its present petition for review on certiorari, Servicewide has raised a number of
points, the crucial issue still remains, however, to be whether or not an action filed by the
mortgagee for replevin to effect a foreclosure of the property covered by the chattel
mortgage would require that the mortgagor be so impleaded as an indispensable party
thereto.

Rule 60 of the Rules of Court allows a plaintiff, in an action for the recovery of possession
of personal property, to apply for a writ of replevin if it can be shown that he is the owner
of the property claimed . . . or is entitled to the possession thereof.' The plaintiff need not
be the owner so long as he is able to specify his right to the possession of the property
and his legal basis therefor. The question then, insofar as the matter finds relation to the
instant case, is whether or not the plaintiff (herein petitioner) who has predicated his
right on being the mortgagee of a chattel mortgage should implead the mortgagor in his
complaint that seeks to recover possession of the encumbered property in order to effect
its foreclosure.

The answer has to be in the affirmative. In a suit for replevin, a clear right of possession
must be established. A foreclosure under a chattel mortgage may properly be
commenced only once there is default on the part of the mortgagor of his obligation
secured by the mortgage. The replevin in the instant case has been sought to pave the
way for the foreclosure of the object covered by the chattel mortgage. The conditions
essential for that foreclosure would be to show, firstly, the existence of the chattel
mortgage and, secondly, the default of the mortgagor. These requirements must be
established since the validity of the plaintiffs exercise of the right of foreclosure are
inevitably dependent thereon. It would thus seem, considering particularly an adverse
and independent claim of ownership by private respondent that the lower court acted
improvidently when it granted the dismissal of the complaint against Dollente, albeit on
petitioner's (then plaintiff) plea, on the ground that the "non-service of summons upon
Ernesto Dollente (would) only delay the determination of the merits of the case, to the
prejudice of the parties." In Imson v. Court of Appeals, we have explained:

. . . . An indispensable party is one whose interest will be affected by the

court's action in the litigation, and without whom no final determination
of the case can be had. The party's interest in the subject matter of the
suit and in the relief sought are so inextricably intertwined with the other
parties' that his legal presence as a party to the proceeding is an absolute
necessity. In his absence there cannot be a resolution of the dispute of
the parties before the court which is effective, complete, or equitable.

Conversely, a party is not indispensable to the suit if his interest in the

controversy or subject matter is distinct and divisible from the interest of

110
 the other parties and will not necessarily be prejudiced by a judgment
which does complete justice to the parties in court. He is not
indispensable if his presence would merely permit complete relief
between him and those already parties to the action or will simply avoid
multiple litigation.

Without the presence of indispensable parties to a suit or proceeding, a judgment of a

court cannot attain real finality. (Footnotes omitted.)

A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to the possession of the property
unless and until the mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon. Since
the mortgagee's right of possession is conditioned upon the actual fact of default which itself may be
controverted, the inclusion of other parties like the debtor or the mortgagor himself, may be required in
order to allow a full and conclusive determination of the case. When the mortgagee seeks a replevin in
order to effect the eventual foreclosure of the mortgage, it is not only the existence of, but also the
mortgagor's default on, the chattel mortgage that, among other things, can properly uphold the right to
replevy the property. The burden to establish a valid justification for that action lies with the plaintiff. An
adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound
by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for
replevin.

The appellate court, accordingly, acted well in arriving at its now questioned judgment.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED No costs.

SO ORDERED.

Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

111
G.R. No. 152141 August 8, 2011

CORNELIO DEL FIERRO, GREGORIO DEL FIERRO, ILDEFONSO DEL FIERRO, ASUNCION DEL FIERRO,
CIPRIANO DEL FIERRO, MANUELA DEL FIERRO, and FRANCISCO DEL FIERRO Petitioners,
vs.
RENE SEGUIRAN, Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals dated October 2, 2001,
and its Resolution dated February 11, 2002 in CA-G.R. CV No. 60520.

The Court of Appeals affirmed the decision of the Regional Trial Court (RTC) of Iba, Zambales, Branch 71,
in Civil Case No. RTC-233-1, dismissing petitioners complaint for reconveyance of property and
cancellation of titles for insufficiency of evidence as to the identity of the properties sought to be
recovered.

The factual background of this case, as stated by the Court of Appeals, is as follows:

The subject of this case are two parcels of agricultural land, Lot Nos. 1625 and 1626 with an area of 72,326
square meters and 116,598 square meters, respectively. Both lots are situated in Locloc, Palauig,
Zambales. The cadastral survey of these lots were conducted sometime in December 1962 (Cad. 364-D,
Palauiag Cadastre, Zambales).1 The records of the Lands Management Bureau, RLO III, San Fernando,
Pampanga show that the claimants of Lot No. 1625 was Lodelfo Marcial2 versus Miguel del Fierro, while
the claimants of Lot No. 1626 were Lodelfo Marcial versus Francisco Santos and Narciso Marcial.3

On April 29, 1965, Francisco Santos filed an application for free patent over Lot No. 1626 with the Bureau
of Lands, District Land Office No. 40 at Olongapo, Zambales. The application remained pending until the
commencement of this litigation in 1985.4 Francisco Santos died on December 9, 1978.

Meanwhile, on August 21, 1964, the heirs of Miguel del Fierro, led by his widow Generosa Jimenez Vda.
del Fierro, filed an ejectment case (forcible entry) against Lodelfo Marcial and Narciso Marcial before the
Municipal Trial Court of Palauig, Zambales.5 On October 31, 1972, the municipal court rendered a decision
in favor of the Del Fierros.6 On appeal, the Court of First Instance (CFI) of Zambales, Branch II-Iba, in a
Decision7 dated August 1, 1973, sustained the right of the Del Fierros to the possession of the subject
premises and ordered the Marcials to vacate the premises.

On June 29, 1964, Lodelfo Marcial mortgaged to the Rural Bank of San Marcelino, Inc. a parcel of land
covered by Tax Declaration No. 21492 with an area of 140,000 square meters.8 The property is more
particularly described as:

A parcel of land suitable for cultivation, upland rice, riceland and nipa land, situated in Marala, Palauig,
Zambales, containing an area of 140,000, sq. m., the improvements consists of mango trees in the
possession of the mortgagor; bounded on the North by River; on the South by China Sea; on the East by
heirs of Miguel del Fierro and on the West by River; this property has been declared under Tax Declaration

112
No. 21492 and assessed at 1,550.00 in the name of the mortgagor; the visible limits at simple sight on
the North and East are Rivers; on the South by China Sea and fence on the East.9

On December 26, 1972, the bank extrajudicially foreclosed the real estate mortgage and was the highest
bidder in the sale of the property per the Certificate of Sale issued by the Provincial Sheriff.10 On April 22,
1982, the Rural Bank of San Marcelino, Inc. consolidated its ownership over the property.11

On October 28, 1981, Lodelfo Marcial executed in favor of respondent Rene Seguiran a Deed of Absolute
Sale over a parcel of swampland designated as Lot Nos. 1625 and 1626, Palauig Cadastre with Free Patent
Application No. L-4-201 applied for by Marcial in 1967 and covered by Tax Declaration No. 3250 for the
year 1974.12 Marcial had Lot Nos. 1625 and 1626 surveyed by a private surveyor on October 19, 1969. 13
On November 9, 1981, respondent Rene Seguiran purchased Marcials foreclosed property from the Rural
Bank of San Marcelino Inc.14 Respondent then filed an application for free patent over Lot Nos. 1625 and
1626, which was approved by the Bureau of Lands. On July 11, 1983, Free Patent Nos. 598462 (Lot No.
1625) and 598461 (Lot No. 1626) were issued in respondents name. On July 29, 1983, the Register of
Deeds of Zambales issued in the name of respondent Original Certificate of Title (OCT) Nos. P-7013 and P-
7014 covering Lot Nos. 1625 and 1626, respectively.15 On September 21, 1983, respondent had Lot Nos.
1625 and 1626 surveyed by a private surveyor.16 He also paid the real property taxes and declared the
property in his name beginning the year 1985.17 On August 26, 1983, petitioner petitioned the RTC of Iba,
Zambales to conduct a relocation survey of Lot Nos. 1625 and 1626, which petition was approved by the
court. However, on February 16, 1985, the heirs of Miguel and Generosa del Fierro filed a Motion to Quash
Order of Execution,18 claiming they are in actual physical possession of Lot Nos. 1625 and 1626, and that
prior to the sale of the said lots to respondent, the vendor, Lodelfo Marcial no longer had any right over
the properity, since he lost in Civil Case No. 706-1 for ejectment filed by the Del Fierros. In an Order19
dated March 20, 1985, the RTC of lba, Zambales, Branch LXX held in abeyance the implementation of its
earlier orders regarding the relocation survey of the lots subject of the petition filed by petitioners.

On September 13, 1985, the heirs of Miguel and Generosa del Fierro, namely, Cornelio, Gregorio,
Ildefonso, Asuncion, Cipriano, Manuela and Francisco, all surnamed Del Fierro, petitioners herein, filed a
Complaint for reconveyance and cancellation of titles against defendant Rene Seguiran, respondent
herein, before the RTC of Iba, Zambales, Branch 71 (trial court).

The Complaint20 alleged that plaintiffs (petitioners) were the owners and possessors of a parcel of land
identified as Lot Nos. 1625 and 1626, formerly part of Lot No. 1197, situated at Barangay Locloc, Palauig,
Zambales. On July 26, 1964, Lodelfo and Narciso Marcial unlawfully entered the land occupied by
plaintiffs. Plaintiffs sued them for forcible entry21 before the Municipal Court of Palauig. The municipal
court ruled in favor of plaintiffs, which decision was affirmed on appeal by the CFI of Iba, Zambales, Branch
II on August 1, 1973. Consequently, Lodelfo and Narciso Marcial were ejected from the premises.
Meanwhile, on June 29, 1964, Marcial had mortgaged the lots to the Rural Bank of San Marcelino, Inc.,
which foreclosed the real estate mortgage on December 26, 1972, and consolidated ownership over the
lots on April 22, 1982. On October 28, 1981, defendant Rene S. Seguiran purchased from Lodelfo Marcial
(deceased) the subject lots. On November 9, 1981, defendant purchased the subject lots again from the
Rural Bank of San Marcelino, Inc.

Moreover, plaintiffs alleged that Lodelfo Marcial, predecessor-in-interest of defendant, had no legal right
to convey the said lots to plantiffs, since he was merely a deforciant in the said lots. Further, defendant,
with evident bad faith, fraudulently applied with the Bureau of Lands for a free patent over the said lots,
alleging that he was the actual possessor thereof, which constitutes a false statement, since the plaintiffs

113
were the ones in actual possession. Despite knowing that the said lots were the subject of legal
controversy before the CFI of Iba, Zambales, Branch II, defendant fraudulently secured a certification from
the Court of Olongapo to prove that the said parcels of land were not subject of any court action. As a
consequence of the foregoing illegal and fraudulent acts, defendant was able to secure OCT Nos. P-7013
and P-7014 for Lot Nos. 1625 and 1626, respectively.

Plaintiffs prayed that after trial, judgment be rendered: (1) ordering defendant to reconvey the parcels of
land covered by OCT Nos. P-7013 and P-7014 to them (plaintiffs); (2) ordering the Register of Deeds of
lba, Zambales to cancel the said titles and issue a new one in favor of plaintiffs; and (3) ordering defendant
to pay plaintiffs 40,000.00 as actual and consequential damages; 50,000.00 as moral damages; and
10,000.00 as exemplary damages.22

Defendant was declared in default for failure to file an Answer, and plaintiffs were allowed to present
evidence ex parte.23 On October 13, 1986, after the completion of the testimonial evidence of the
plaintiffs, the case was submitted for decision.24

Meanwhile, on December 9, 1986, the heirs of Francisco Santos, who intervened in the case, filed a
protest25 with the Bureau of Lands, questioning the award of free patent in favor of respondent Rene
Seguiran over Lot No. 1626 when they were the actual owners and possessors of the said lot, since their
father was the registered claimant and applicant of the said lot, while respondent had never set foot on
the lot. The Director of Lands directed Land Investigator Alfredo S. Mendoza of the Bureau of Lands District
Office in Iba, Zambales to investigate the matter.26

On February 26, 1981, the heirs of Francisco Santos, represented by their attorney-in-fact Olivia C. Olaivar,
filed a Motion for Leave to File a Complaint-in-Intervention, which was granted by the trial court.27
Intervenors claimed ownership and possession of Lot No. 1626, being the heirs of the late Francisco Santos
who was the registered claimant of the said lot under the Cadastral Survey Notification Card in 1962. The
intervenors prayed that after hearing, the trial court render judgment (1) annulling the Free Patent
Application No (III-4) (1) 467-A (Patent No. 598461) issued to defendant Rene Seguiran; (2) declaring the
intervenors the true and lawful owners of Lot No. 1626, since they are the legal heirs of the late Francisco
Santos; and (3) requiring defendant to pay to the intervenors 5,000.00 as attorneys fees.28

In their Answer to [the] Complaint-in-Intervention,29 plaintiffs denied that the intervenors were the
owners and possessors of Lot No. 1626; hence, the intervenors had no cause of action against them.
Plaintiffs prayed that the complaint-in-intervention be dismissed.

On May 20, 1988, defendant filed his Answer,30 claiming that when he bought the land in dispute on
October, 28, 1981, Lodelfo Marcial was no longer its owner, but the Rural Bank of San Marcelino, Inc.,
since Marcial failed to redeem the land within the one-year period of redemption. His only purpose for
buying the land from the mortgagor, Lodelfo Marcial in November 1981 was for the peaceful turn-over of
the property to him by Marcial. Defendant denied any fraud, illegality or bad faith in securing OCT Nos. P-
7013 and P-7014. He asserted that when he secured a certification from the RTC on June 6, 1983, there
was in truth no pending case involving the subject properties in any court in Zambales; hence, no bad faith
could be attributed to him. Defendant prayed that judgment be rendered by the trial court dismissing the
complaint and ordering plaintiffs to pay him actual, moral and exemplary damages as well as attorneys
fees and the expenses of litigation.

114
On August 2, 1988, defendant also filed his Answer to the Complaint-in-Intervention31 with the same
defenses and counterclaim. On motion of defendant, the earlier order declaring him in default was set
aside, and the trial court granted defendants counsel the right to cross-examine the witnesses who had
testified during the proceedings already conducted.32

At the pre-trial conference held on October 20, 1988, only the plaintiffs and intervenors admitted that Lot
No. 1625 was actually being occupied by the plaintiffs (Del Fierros), while Lot No. 1626 was being occupied
by the intervenors (the heirs of Francisco Santos). Defendant did not admit the said facts.33

On October 13, 1995, intervenors filed a Motion to Hold the Proceedings in Abeyance,34 since their
pending administrative protest, which involved the same lots, had been scheduled for pre-trial conference
on October 3, 1995 by the Bureau of Lands.

In an Order35 dated January 8, 1996, the trial court directed that the proceedings be held in abeyance until
after the resolution of the administrative case. However, after plaintiffs sought reconsideration of the
Order, the trial court continued the proceedings in the interest of justice because the administrative case
for cancellation of title had yet to commence the reception of evidence, while in this case, the intervenors
(the complainants in the administrative case) had already presented witnesses and marked evidences on
their behalf; and the suspension of this case would prove to be more expensive for all party litigants. 36
The intervenors motion for whole or partial reconsideration of the said order of reversal was denied by
the trial court for lack of merit.37

On April 23, 1998, the trial court rendered judgment in favor of defendant, respondent herein, the
dispositive portion of which reads:

WHEREFORE, premises considered, the complaint dated September 12, 1985 is dismissed for insufficiency
of evidence as to the identity of the properties sought to be recovered. The complaint-in-intervention
dated February 24, 1987 is dismissed for prematurity and insufficiency of evidence.38

The trial court held that plaintiffs (petitioners) failed to prove the identity of the property sought to be
recovered. The numerous documents they presented to prove ownership of Lot Nos. 1625 and 1626
showed that the properties covered by sale or pacto de retro are located at Liozon,39 Palauig, Zambales,
while Lot Nos. 1625 and 1626 are located at Locloc, Palauig, Zambales; and there is no clear showing that
parts of Liozon became Locloc. Moreover, although the Del Fierros were declared as the possessors of the
property in the ejectment case (forcible entry)40 filed by Generosa del Fierro against Lodelfo and Narciso
Marcial, the property concerned in the said case is Lot No. 1197. There was no evidence as to the original
size of Lot No. 1197 and no proof that Lot Nos. 1625 and 1626 formed part of Lot No. 1197. Based on the
foregoing, the trial court dismissed plaintiffs complaint.

The trial court also dismissed the complaint of intervenors on the ground of non-exhaustion of
administrative remedies as the protest filed earlier by them against defendant (respondent) with the
Bureau of Lands was still pending.

Both plaintiffs (petitioners) and intervenors appealed the decision of the trial court to the Court of
Appeals.

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On October 2, 2001, the Court of Appeals upheld the decision of the trial court. The dispositive portion of
the appellate courts decision reads:

WHEREFORE, premises considered, the present appeals are hereby DISMISSED and the appealed Decision
in Civil case No. RTC-233-1 is hereby AFFIRMED and UPHELD.41

The Court of Appeals held that petitioners are not entitled to reconveyance of Lot Nos. 1625 and 1626,
since they failed to prove the identity of the parcels of land over which they claim ownership. The evidence
they adduced to prove their ownership of the said lots showed that the Spanish deeds of conveyance
involved properties that were located in Barrio Liozon and not in Locloc, Palauig, Zambales, which is the
actual location of Lot Nos. 1625 and 1626.

Moreover, the Court of Appeals stated that the fact that Lodelfo Marcial was defeated in the forcible entry
case filed by petitioners prior to the purchase by respondent of the foreclosed property from Marcial and
from the mortgagee bank in 1973 could not serve as the basis for petitioners right of ownership or title
over Lot Nos. 1625 and 1626 as only Lot No. 1197 was involved in the ejectment case and only the issues
of possession thereof was adjudicated therein. The appellate court stated that the said court decision
could have buttressed petitioners claim of ownership over Lot Nos. 1625 and 1626 if petitioners were
able to establish in this case that the said lots indeed formed part of Lot No. 1197.

In addition, the Court of Appeals held that petitioners failed to prove by clear and convincing evidence
that the issuance of the certificates of title in favor of respondent was attended by fraud.

The Court of Appeals declared as unmeritorious the argument of intervenors that this case is not covered
by the rule on exhaustion of administrative remedies. It cited Garcia v. Aportadera,42 wherein it was held
that where a party seeks for the cancellation of a free patent with the Bureau of Lands, he must pursue
his action in the proper Department and a review by the court will not be permitted unless the
administrative remedies are first exhausted. Further, an applicant for a free patent may not file an

action for reconveyance for that is the remedy of an owner whose land has been erroneously registered
in the name of another.43

Petitioners motion for reconsideration was denied for lack of merit by the Court of Appeals in a
Resolution44 dated February 11, 2002.

Petitioners filed this petition, raising the following issues:

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT ON
THE BASIS OF ISSUES NOT RAISED BY RESPONDENT IN THE TRIAL COURT.

II

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT VIS-
-VIS THE JUDICIAL ADMISSION OF RESPONDENT ON THE RIGHT OF THE PETITIONERS TO THE
PROPERTY.

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 III

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT
DESPITE THE FACT THAT THE CONCLUSIONS OF LAW RUN COUNTER AND ARE DIAMETRICALLY
OPPOSED TO (THE) SUMMARY OF THE EVIDENCE GIVEN BY THE REGIONAL TRIAL COURT.

The main issues are whether petitioners are entitled to reconveyance of Lot Nos. 1625 and 1626, and
whether the certificates of title of respondent to the said lots should be cancelled.

The requisites of reconveyance are provided for in Article 434 of the Civil Code, thus:

Art. 434. In an action to recover, the property must be identified, and the plaintiff must rely on the
strength of his title and not on the weakness of the defendants claim.

Article 434 of the Civil Code provides that to successfully maintain an action to recover the ownership of
a real property, the person who claims a better right to it must prove two (2) things: first, the identity of
the land claimed; and second, his title thereto.45

In regard to the first requisite, in an accion reinvindicatoria, the person who claims that he has a better
right to the property must first fix the identity of the land he is claiming by describing the location, area
and boundaries thereof.46 Anent the second requisite, i.e., the claimant's title over the disputed area, the
rule is that a party can claim a right of ownership only over the parcel of land that was the object of the
deed.47

In this case, petitioners failed to prove the identity of the parcels of land sought to be recovered and their
title thereto. Petitioners contend that they are the owners of Lot Nos. 1625 and 1626 by virtue of the
decision of the Municipal Court of Palauig, Zambales in the ejectment case (forcible entry)48 against
Lodelfo and Narciso Marcial, declaring them (petitioners) as the ones in possession of the property, which
decision was affirmed on appeal. However, as stated by the trial court and the Court of Appeals, the
property involved in the ejectment case was Lot No. 1197, and it was never mentioned in the respective
decisions49 of the Municipal Court of Palauig, Zambales and the CFI of Zambales, Branch II-Iba that the
portion intruded upon was Lot Nos. 1625 and 1626. Moreover, petitioners failed to adduce in evidence
the technical description of Lot No. 1197 and failed to prove that Lot Nos. 1625 and 1626 were part of or
used to be part of Lot No. 1197.

Further, the documents presented by petitioners to prove their title over Lot Nos. 1625 and 1626 showed
that the properties covered therein were located in Barrio Liozon, Palauig, Zambales, while Lot Nos. 1625
and 1626 are located in Barrio Locloc, Palauig, Zambales. In addition, petitioners failed to establish which
of the deeds of sale, donation or documents evidencing transfer of properties to their father, Miguel del
Fierro, which were adduced in evidence, covered Lot Nos. 1625 and 1626. The Court of Appeals stated:

In support of their claim of ownership over Lot Nos. 1625 and 1626, plaintiffs-appellants (petitioners)
submitted in evidence various Spanish documents or deeds of purchase: (1) a Spanish document dated
June 1927, "Venta Real de Terreno" executed by J.L. Faranal in favor of Miguel del Fierro, over a parcel of
land situated in Marala, Barrio Liozon, Palauig, Zambales; (2) a Spanish document dated December 18,
1939 executed by Justo Apostol in favor of Miguel del Fierro, for the sale of a riceland situated in Barrio
Liozon, Palauig, Zambales (1,350 sq.m.); (3) "Escritura de Compra Venta" dated June 1, 1918 executed by

117
Alejandro Abaga in favor of Feliciana Frase over a parcel of land situated in Marala, Barrio Lioson, Palauig,
Zambales; (4) "Renuncia De Derecho" (Waiver of Rights) dated September 6, 1928 executed by Juan
Saclolo in favor of Miguel del Fierro over a riceland situated in Marala, Barrio Lioson, Palauig, Zambales;
(5) "Venta Con Pacto de Retro de Terrenos dated April 8, 1927 executed by Faustino Barrentos in favor of
Don Miguel del Fierro over a coconut plantation located at Sitio Sasa, Barrio Liozon, Palauig, Zambales; (6)
"Venta Real de Terrenos" dated July 24, 1926 executed by Jose Trinidad and Ursula Villanueva in favor of
Miguel de1 Fierro over a riceland situated in Barrio Liozon, Palauig, Zambales (25,610 sq. ms.); (7)
"Escritura de Cancelacion de Hipoteca de Bienes Inmuebles" (Contract of Cancellation of Mortgage of Real
Estate Property) executed by Pedro Redona in favor of Ursula Villanueva over a riceland situated in Barrio
Lioson, Palauig, Zambales; (8) "Declaracion Jurada" (Sworn Statement) dated January 11, 1928 executed
by Demetrio Sison, Aurea Sison and Severino Anguac affirming the contract of sale dated September 25,
1925 signed by their deceased mother in favor of Miguel del Fierro over a riceland situated in Barrio
Lioson, Palauig, Zambales (15,660 sq. ms.); (9) "Escritura de Compra Venta" dated September 25, 1925
executed by Justa Romero and Aurea Sison in favor of Don Miguel del Fierro over a piece of land situated
in [Sitio] Sasa, Barrio Lioson, Palauig, Zambales (1 hectare, 56 ares and 60 centares); (10) "Escritura de
Compra Venta" dated August 29, 1921 executed by Juan Sison in favor of Miguel del Fierro over a parcel
of coconut land (83 ares and 70 centares) situated in Barrio Lioson, Palauig, Zambales; (11) "Venta Real
de Terrenos" dated September 16, 1925 executed by Agustin Abaga in favor of Miguel del Fierro over a
parcel of land situated in [Sitio] Sasa, Barrio Lioson, Palauig, Zambales (7,200 sq. ms.); and (12) "Escritura
de Donacion" (Deed of Gift or Pure Donation) executed by Eugenio del Fierro in favor of his son, Miguel
del Fierro of a land situated in Marala, Barrio Lioson, Paiauig, Zambales (12 hectares, 77 ares and 90
centares). In addition to the foregoing documents, plaintiffs-appellants presented various tax declarations
for the years 1944 (Miguel del Fierro), 1952, 1968, 1974, 1977, 1980, 1985 and 1987 (Heirs of Miguel del
Fierro).1avvphi1 These tax declarations pertain to lots situated in Locloc, Palauig, Zambales but the
designation of Lots 1625 and 1626 (as part of Lot 1197) was made only in TD Nos. 11-0099 and 11-0100
for 1984 and 1987, respectively.

A perusal of these documents would readily show that the lots indicated in the Spanish deeds of
conveyence were located in Barrio Lioson and not in Locloc, Palauig, Zambales, the actual location of the
Lot Nos. 1625 and 1626. As to the tax declarations, the real properties declared therein, although situated
in Locloc, Palauig, Zambales were not designated as Lot Nos. 1625 and 1626 until the year 1985, the same
year the said lots were titled in the name of defendant-appellee. And even without such designation of
Lot Nos. 1625 and 1626, plaintiffs-appellants failed to show that the separate lots which their predecessor-
in-interest, Don Miguel del Fierro, had acquired in the 1920s, were the very same land (or included
therein) which have been designated as Lot Nos. 1625 and 1626, or which was covered by the land
supposedly donated by their grandfather to Don Miguel del Fierro. In other words, the identity of the land
being claimed by plaintiffs-appellants could not be clearly established on the basis of either the Spanish
deeds of purchase and donation or the old tax declarations presented by plaintiffs-appellants.50

Based on the foregoing, petitioners failed to prove the identity of the properties sought to be recovered
and their title thereto.

Petitioners argue that the issue of identity of the subject parcels of lands was not among those raised
during pre-trial or even during the trial. They contend that the findings of the trial court, which were
affirmed by the Court of Appeals, on the issue of supposed insufficiency of evidence as to the identity of
the properties not only surprised them, but caused them manifest injustice. They assert that issues not
raised in the trial court cannot be raised for the first time on appeal.

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Petitioners argument is unmeritorious.

Petitioners filed an action for reconveyance and cancellation of titles. Hence, it was incumbent on
petitioners to prove the requisites of reconveyance, one of which is to establish the identity of the parcels
of land petitioners are claiming. To reiterate, in an accion reinvindicatoria, the person who claims that he
has a better right to the property must first fix the identity of the land he is claiming by describing the
location, area and boundaries thereof.51 Petitioners failure to present sufficient evidence on the identity
of the properties sought to be recovered and their title thereto resulted in the dismissal of their complaint.

As regards the second issue raised, petitioners contend that the Partial Pre-Trial Order stated that during
the pre-trial conference the following facts were stipulated on:

1) By the plaintiffs and intervenor that Lot 1625 is actually occupied by the Del Fierros, while Lot
1626, Cad. Lot 364-D of the Palauig is occupied by the heirs of Francisco Santos, who is already
deceased. The defendant did not admit this fact.

2) The plaintiffs and defendantsthat there exists a decision rendered by the then Court of First
Instance of Zambales thru Honorable Judge Pedro Cenzon in favor of the plaintiffs in this case,
affirming the decision of the Municipal Trial Court of Palauig, Zambales where it was stated that
the plaintiffs are the ones in possession of Lots 1625 and 1626, which is docketed as Civil Case No.
706-I entitled "Generosa Jimenez Vda. de Del Fierro, et al. versus Leodolfo Marcial, et al." The
intervenor did not admit this fact.52

Petitioners contend that the said judicial admission is binding and conclusive on the respondent and it
cannot just be ignored by the trial court without doing violence to Section 4, Rule 129 of the Rules of
Evidence.53 Petitioners also contend that the decision of the appellate court in the ejectment case (Civil
Case No. 706-I), filed by petitioners against Lodelfo Marcial, respondents predecessor-in-interest, is
conclusive as to petitioners possession of Lot Nos. 1625 and 1626. Since petitioners are in possession,
respondent fraudulently applied for and procured free patents, as the consideration in qualifying as a
patentee is that the applicant is in actual possession of the land applied for. Moreover, the undisputed
possession of petitioners and their predecessors of the land as early as 1920s had long converted the
parcels of land to private land and no longer part of the public domain.

Petitioners contention does not persuade.

As stated by the trial court and the Court of Appeals, the ejectment case entitled Generosa Jimenez Vda.
de Del Fierro, et al. v. Leodolfo Marcial, et al. involved Lot No. 1197, and there was no mention of Lot Nos.
1625 and 1626 therein. The land involved in the ejectment case was described by the plaintiffs
(petitioners) in their Complaint54 as follows:

Consisting of 21.3196 hectares, more or less, and bounded on the North by Leoncia Apostol, Heirs of P.
Lesaca, Justa Ponce and P. Artiquera; East by Hrs. of Potenciano Lesaca, M. Abdon, P. Artiquera, David
Abdon and D. Abdon; South by P. Garcia, Barrio Road and Maximo Abdon and West by River and Beach.
It is designated as Lot No. 1197 of the Palauig Cadastre and declared for taxation purposes in the name of
the Heirs of Miguel del Fierro under Tax Declaration No. 18324 and assessed at P5,330.00.55

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Moreover, in this case, petitioners failed to prove that Lot Nos. 1625 and 1626 were part of Lot No. 1197.
The Survey Map56 of Lot 1626 showed that Lot Nos. 1197, 1625, and 1626 are distinct lots. The cadastral
survey of Lot Nos. 1625 and 1626 was conducted sometime in 1962.57 The ejectment case was filed in
1964, after the cadastral survey of Lot Nos. 1625 and 1626, yet petitioners did not mention in their
complaint that the ejectment case involved Lot Nos. 1625 and 1626.

In view of the foregoing, the Partial Pre-trial Order58 mistakenly stated that petitioners were declared as
the ones in possession of Lot Nos. 1625 and 1626 in the ejectment case. Even the trial court stated during
the pre-trial conference held on October 28, 1988 that there was no mention of Lot Nos. 1625 and 1626
in the decision59 of the CFI of Zambales, Branch II-Iba in the ejectment case (Civil Case No. 706-I).60
Moreover, contrary to the contention of petitioners, respondent did not admit that petitioners and the
intervenors were in possession of Lot Nos. 1625 and 1626, respectively, which fact was clearly stated in
the Partial Pre-trial Order.

As regards the third issue raised, petitioners cited their testimonial evidence as narrated by the trial court,
and contend that the identity of the land and their possession thereof were established as shown by the
decision of the trial court. They contend that they seek reconveyance because the free patent titles were
issued to respondent on false representation as they (petitioners) were in possession of the land.

The contention lacks merit.

The testimonial evidence of petitioners showed that they did not know the land area of Lot Nos. 1625 and
1626;61 they had no tax declaration specifically for Lot Nos. 1625 and 1626;62 they did not know who was
residing in Lot No. 1626; they could not identify which of the documents evidencing transfer of properties
to their father, Miguel del Fierro, covered Lot Nos. 1625 and 1626;63 and they had no survey plan of the
property over which they were claiming ownership. However, Ildefonso del Fierro testified that he has a
fishpond and an approximately two-hectare riceland in Lot No. 1625;64 hence, he did not allow the
relocation survey by respondent of Lot Nos. 1625 and 1626, because it would pass through his fishpond
and it would be disturbed.65 Nevertheless, petitioners failed to identify the specific area of Lot No. 1625
or of Lot No. 1626 where the fishpond, riceland or houses of petitioners are located. Instead, they claim
possession of the entire area of Lot Nos. 1625 and 1626, but not one of their documents showing transfer
of properties in the name of their father, Miguel del Fierro, specifically states that it covers Lot No. 1625
or Lot No. 1626, and petitioner could not identify which documents referred to Lot Nos. 1625 and 1626.
Thus, petitioners erred in claiming that their testimonial evidence established the identity of the parcels
of land sought to be recovered and their title thereto.

The Court notes that the trial court did not discuss the merits of the testimonial evidence of petitioners,
but the Court of Appeals did, stating thus:

x x x [T]he testimonies of plaintiffs witnesses did not serve to clarify the matter of identity of the subject
properties as they even failed to indicate the precise boundaries or areas of Lot Nos. 1625 and 1626, and
likewise admitted they have no tax declaration specifically for Lot Nos. 1625 and 1526 even after the
cadastral survey in 1962. Failing in their duty to clearly identify the lands sought to be recovered by them,
plaintiffs-appellants action for reconveyance must necessarily fail. To reiterate, in order that an action to
recover ownership of real property may prosper, the person who claims he has a better right to it must
prove not only his ownership of the same but also satisfactorily prove the identity thereof. x x x 66

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In fine, petitioners failed to prove the identity of the properties over which they claimed ownership and
sought to be reconveyed to them, and they also failed to prove their title over Lot Nos. 1625 and 1626;
hence, the Court of Appeals did not err in affirming the decision of the trial court, which dismissed
petitioners Complaint.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated October 2, 2001 and its
Resolution dated February 11, 2002 in CA-G.R. CV No. 60520 are hereby AFFIRMED.

No costs.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

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G.R. No. 170189 September 1, 2010

SPOUSES ELEGIO* CAEZO and DOLIA CAEZO, Petitioners,

vs.
SPOUSES APOLINARIO and CONSORCIA L. BAUTISTA, Respondents.

DECISION

CARPIO, J.:

G.R. No. 170189 is a petition for review1 assailing the Decision2 promulgated on 17 October 2005 by the
Court of Appeals (appellate court) in CA-G.R. CV No. 75685. The appellate court granted the appeal filed
by the Spouses Apolinario and Consorcia L. Bautista (spouses Bautista) and dismissed the complaint for
the issuance of a writ of demolition with damages filed by the Spouses Elegio and Dolia Caezo (spouses
Caezo) without prejudice to the filing of the appropriate action with the proper forum. In its Decision3
on Civil Case No. MC-00-1069 dated 25 March 2002, Branch 213 of the Regional Trial Court of
Mandaluyong City (trial court) rendered judgment in favor of the spouses Caezo. The trial court also
ordered the issuance of a writ of demolition directing the removal of the structures built by the spouses
Bautista on the portion of the land belonging to the spouses Caezo.

The Facts

The appellate court narrated the facts as follows:

Spouses Elegio and Dolia Caezo (hereafter appellees) are the registered owner[s] of a parcel of land with
an area of One Hundred Eighty Six (186) square meters, covered by Transfer Certificate of Title (TCT) No.
32911.

Spouses Apolinario and Consorcia Bautista (hereafter appellants) are the registered owners of a parcel of
land, containing an area of One Hundred Eighty One (181) square meters, covered by Transfer Certificate
of Title (TCT) No. 31727. Both parcels of land are located at Coronado Heights, Barangka Ibaba,
Mandaluyong City and registered with the Registry of Deeds of Mandaluyong City. Appellants lot is
adjacent to that of appellees [sic].

Sometime in 1995, appellees started the construction of a building on their lot. During the construction,
appellees discovered that their lot was encroached upon by the structures built by appellants without
appellees knowledge and consent.

The three (3) surveys conducted confirmed the fact of encroachment. However, despite oral and written
demands, appellants failed and refused to remove the structures encroaching appellees lot.

Attempts were made to settle their dispute with the barangay lupon, but to no avail. Appellees initiated
a complaint with the RTC for the issuance of a writ of demolition.

For failure to file an Answer within the extended period granted by the court, appellants were declared in
default. Appellees were allowed to present their evidence ex parte before an appointed commissioner.
Thereafter the RTC rendered the assailed decision in the terms earlier set forth.4

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The spouses Caezo filed their complaint for the issuance of a writ of demolition with damages on 13 April
2000. In an Order dated 15 August 2000, the trial court declared the spouses Bautista in default for failure
to answer within the reglementary period. The Public Attorneys Office, which represented the spouses
Bautista at the time, filed a Motion to Admit Answer dated 15 June 2000. The trial court denied the motion
in its Decision.

The Trial Courts Ruling

On 25 March 2002, the trial court promulgated its Decision in favor of the spouses Caezo. The trial court
found that the spouses Bautista built structures encroaching on the land owned by the spouses Caezo.
The spouses Bautista also refused to remove the structures and respect the boundaries as established by
the various surveyors. A referral to the Barangay Lupon failed to settle the controversy amicably. The trial
court thus ruled that the spouses Bautista are builders in bad faith, such that the spouses Caezo are
entitled to an issuance of a writ of demolition with damages.

The dispositive portion of the Decision reads as follows:

IN VIEW WHEREOF, judgment is hereby rendered in favor of the plaintiffs and against the defendants. Let
a writ of demolition be accordingly issued directing the removal/demolition of the structures built by the
defendants upon the portion of land belonging [to] the plaintiffs at the formers expense.

Further,

1. the defendant is ordered to pay 50,000.00 (Philippine Currency) as and by way of moral
damages[; and]

2. [t]he defendant is hereby ordered to pay P30,000.00 as and by way of attorneys fees.

SO ORDERED.5

The spouses Bautista filed a notice of appeal dated 29 April 2002 before the appellate court.

The Appellate Courts Ruling

On 17 October 2005, the appellate court rendered its Decision which reversed the 25 March 2002 Decision
of the trial court. The appellate court ruled that since the last demand was made on 27 March 2000, or
more than a year before the filing of the complaint, the spouses Caezo should have filed a suit for
recovery of possession and not for the issuance of a writ of demolition. A writ of demolition can be granted
only as an effect of a final judgment or order, hence the spouses Caezos complaint should be dismissed.
The spouses Caezo failed to specify the assessed value of the encroached portion of their property.
Because of this failure, the complaint lacked sufficient basis to constitute a cause of action. Finally, the
appellate court ruled that should there be a finding of encroachment in the action for recovery of
possession and that the encroachment was built in good faith, the market value of the encroached portion
should be proved to determine the appropriate indemnity.

The dispositive portion of the appellate courts Decision reads as follows:

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WHEREFORE, premises considered, the instant appeal is GRANTED. The complaint filed by plaintiffs-
appellees is hereby DISMISSED without prejudice to the filing of the appropriate action with the proper
forum.

SO ORDERED.6

Issues

The spouses Caezo enumerated the following grounds to support their Petition:

I. Whether the Honorable Court of Appeals gravely erred in granting the petition of the [spouses
Bautista] and reversing the Decision of the Court a quo; [and]

II. Whether the Honorable Court of Appeals gravely erred in stating that the petitioners should
have filed recovery of possession and not writ of demolition.7

The Courts Ruling

The petition has merit.

The present case, while inaccurately captioned as an action for a "Writ of Demolition with Damages" is in
reality an action to recover a parcel of land or an accion reivindicatoria under Article 434 of the Civil Code.
Article 434 of the Civil Code reads: "In an action to recover, the property must be identified, and the
plaintiff must rely on the strength of his title and not on the weakness of the defendants claim." Accion
reivindicatoria seeks the recovery of ownership and includes the jus utendi and the jus fruendi brought in
the proper regional trial court. Accion reivindicatoria is an action whereby plaintiff alleges ownership over
a parcel of land and seeks recovery of its full possession.8

In order that an action for the recovery of title may prosper, it is indispensable, in accordance with the
precedents established by the courts, that the party who prosecutes it must fully prove, not only his
ownership of the thing claimed, but also the identity of the same.9 However, although the identity of the
thing that a party desires to recover must be established, if the plaintiff has already proved his right of
ownership over a tract of land, and the defendant is occupying without right any part of such tract, it is
not necessary for plaintiff to establish the precise location and extent of the portions occupied by the
defendant within the plaintiffs property.10

The spouses Caezo were able to establish their ownership of the encroached property. Aside from
testimonial evidence, the spouses Caezo were also able to present documentary and object evidence
which consisted of photographs,11 transfer certificates of title,12 and a relocation survey plan.13

The relocation survey plan also corroborated Elegio Caezos testimony on the reason for the spouses
Bautistas attitude regarding the encroached property. The relocation survey plan showed that the
spouses Bautistas property encroached upon that of the spouses Caezo by 0.97 centimeters, while the
spouses Bautistas property was encroached upon by 1.01 centimeters by another landowner. Elegio
Caezo testified thus:

Q I am showing you a survey plan of lot 13. Can you please tell us what is this survey plan?

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A That is the survey plan of the surveyor whom we hired sir.

Q Can you please point to us where in this plan is your property indicated?

A This is our property, sir.

Q The witness, your Honor, is pointing to "Lot 13" indicated in the survey plan. How about the
property of the defendants?

A The defendants property is this, sir.

Q The witness, your Honor, is pointing to "Lot 14" indicated in the survey plan. Now, Mr. Witness,
you said that the defendants wanted you to recover that portion of your property encroached on
from the property adjacent to theirs. Please illustrate to us by referring to this survey plan what
the defendants meant?

A The defendants want us to get the portion they had encroached on from "Lot 15" because,
according to them, Lot 15 also encroached on their lot, sir.

Q The witness, your Honor, is pointing to "Lot 15" indicated in the plan. What happened next?

A We told them that this is not possible because Lot 15 is not adjacent to our property, sir.

Q What did the defendants do?

A The defendants still refused to remove their structure, sir.

Q So, what happened?

A We filed a complaint against the defendants before the Office of the Barangay Captain of
Barangay Barangka, Ibaba, sir.

Q What happened in the Barangay?

A The Barangay council tried to settle the matter amicably between us. However, no settlement
was reached, sir.

Q While in the barangay, did you offer anything to the defendants in order to settle the case?

A Yes, sir.

Q What was it?

A We offered that if the defendants will remove the structures, we are willing to shoulder half of
the expenses for the removal.

Q What did the defendants say to this?

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 A They refused our offer and insisted on their previous position that we get our portion from Lot
15, sir.

Q What did the Barangay do after failing to settle the case?

A The Barangay issued a Certification to File Action, sir.14

Given the efforts made by the spouses Caezo to settle the present issue prior to the filing of a Complaint,
the trial court was justified in ruling that the spouses Bautista were in default and in not admitting their
Answer. The Complaint was not the spouses Bautistas first encounter with the present issue. Moreover,
the spouses Bautista failed to file their Answer even after the expiry of the motion of extension granted
to them.15

The testimony and the relocation survey plan both show that the spouses Bautista were aware of the
encroachment upon their lot by the owner of Lot 15 and thus they made a corresponding encroachment
upon the lot of the spouses Caezo. This awareness of the two encroachments made the spouses Bautista
builders in bad faith. The spouses Caezo are entitled to the issuance of a writ of demolition in their favor
and against the spouses Bautista, in accordance with Article 450 of the Civil Code.16

We affirm the awards made by the trial court in its Decision:

x x x Considering the length of time when [the spouses Caezo] were deprived of beneficial use on the
subject portion of land owned by them, the [spouses Bautista] are likewise liable to pay 30,000.00
(Philippine Currency) in accordance with Article 451 of the Civil Code.

With respect to the prayer for the award of 50,000.00 (Philippine Currency) as moral damages, the court
decides to give due course to it in view of the fact that the [spouses Caezo] satisfactorily proved the
existence of the factual basis of the damages and its causal relation to [the spouses Bautistas] acts. There
was bad faith on the part of the [spouses Bautista] when they built the structures upon the land not
belonging to them. This wrongful act is the proximate cause which made the [spouses Caezo] suffer
mental anguish, sleepless nights and serious anxiety.1avvph!1 The [spouses Caezo] positively testified
about these matters.

As regards the prayer for exemplary x x x damages, no sufficient evidence were adduced which would
warrant and justify this court to award the same. The prayer for attorneys fees however, is found
meritorious hence, the same is hereby granted.17

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. CV No. 75685
promulgated on 17 October 2005 is SET ASIDE and the dispositive portion of the Decision of Branch 213,
Regional Trial Court of Mandaluyong City promulgated on 25 March 2002 is AFFIRMED with
MODIFICATION. A writ of demolition of the encroaching structures should be issued against and at the
expense of Spouses Apolinario and Consorcia L. Bautista upon the finality of this judgment. Spouses
Apolinario and Consorcia L. Bautista are further ordered to pay Spouses Elegio and Dolia Caezo 30,000
as actual damages; 50,000 as moral damages; and 30,000 as attorneys fees. The interest rate of 12%
per annum shall apply from the finality of judgment until the total amount awarded is fully paid.SO
ORDERED. ANTONIO T. CARPIO
Associate Justice

126
G.R. No. 118114 December 7, 1995

TEODORO ACAP, petitioner,

vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.

PADILLA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals, 2nd Division, in CA-G.R.
No. 36177, which affirmed the decision2 of the Regional Trial Court of Himamaylan, Negros Occidental
holding that private respondent Edy de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral
Survey of Hinigaran, Negros Occidental based on a document entitled "Declaration of Heirship and Waiver
of Rights", and ordering the dispossession of petitioner as leasehold tenant of the land for failure to pay
rentals.

The facts of the case are as follows:

The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT
No. R-12179. The lot has an area of 13,720 sq. meters. The title was issued and is registered in the name
of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto
inherited the lot. In 1975, Felixberto executed a duly notarized document entitled "Declaration of Heirship
and Deed of Absolute Sale" in favor of Cosme Pido.

The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had been the
tenant of a portion of the said land, covering an area of nine thousand five hundred (9,500) meters. When
ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be the registered
tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon Pido's death, to his
widow Laurenciana.

The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs executed
a notarized document denominated as "Declaration of Heirship and Waiver of Rights of Lot No. 1130
Hinigaran Cadastre," wherein they declared; to quote its pertinent portions, that:

. . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died intestate
and without any known debts and obligations which the said parcel of land is (sic) held
liable.

That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA PIDO,
wife, ELY, ERVIN, ELMER, and ELECHOR all surnamed PIDO; children;

That invoking the provision of Section 1, Rule 74 of the Rules of Court, the above-
mentioned heirs do hereby declare unto [sic] ourselves the only heirs of the late Cosme
Pido and that we hereby adjudicate unto ourselves the above-mentioned parcel of land
in equal shares.

127
 Now, therefore, We LAURENCIANA3 , ELY, ELMER, ERVIN and ELECHOR all surnamed
PIDO, do hereby waive, quitclaim all our rights, interests and participation over the said
parcel of land in favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to VIRGINIA
DE LOS REYES, and resident of Hinigaran, Negros Occidental, Philippines. . . .4 (Emphasis
supplied)

The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not sign said
document.

It will be noted that at the time of Cosme Pido's death, title to the property continued to be registered in
the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his
favor, private respondent Edy de los Reyes filed the same with the Registry of Deeds as part of a notice of
an adverse claim against the original certificate of title.

Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he (Edy) had
become the new owner of the land and that the lease rentals thereon should be paid to him. Private
respondent further alleged that he and petitioner entered into an oral lease agreement wherein petitioner
agreed to pay ten (10) cavans of palay per annum as lease rental. In 1982, petitioner allegedly complied
with said obligation. In 1983, however, petitioner refused to pay any further lease rentals on the land,
prompting private respondent to seek the assistance of the then Ministry of Agrarian Reform (MAR) in
Hinigaran, Negros Occidental. The MAR invited petitioner to a conference scheduled on 13 October 1983.
Petitioner did not attend the conference but sent his wife instead to the conference. During the meeting,
an officer of the Ministry informed Acap's wife about private respondent's ownership of the said land but
she stated that she and her husband (Teodoro) did not recognize private respondent's claim of ownership
over the land.

On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for recovery of
possession and damages against petitioner, alleging in the main that as his leasehold tenant, petitioner
refused and failed to pay the agreed annual rental of ten (10) cavans of palay despite repeated demands.

During the trial before the court a quo, petitioner reiterated his refusal to recognize private respondent's
ownership over the subject land. He averred that he continues to recognize Cosme Pido as the owner of
the said land, and having been a registered tenant therein since 1960, he never reneged on his rental
obligations. When Pido died, he continued to pay rentals to Pido's widow. When the latter left for abroad,
she instructed him to stay in the landholding and to pay the accumulated rentals upon her demand or
return from abroad.

Petitioner further claimed before the trial court that he had no knowledge about any transfer or sale of
the lot to private respondent in 1981 and even the following year after Laurenciana's departure for
abroad. He denied having entered into a verbal lease tenancy contract with private respondent and that
assuming that the said lot was indeed sold to private respondent without his knowledge, R.A. 3844, as
amended, grants him the right to redeem the same at a reasonable price. Petitioner also bewailed private
respondent's ejectment action as a violation of his right to security of tenure under P.D. 27.

On 20 August 1991, the lower court rendered a decision in favor of private respondent, the dispositive
part of which reads:

128
 WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff,
Edy de los Reyes, and against the defendant, Teodoro Acap, ordering the following, to
wit:

1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate of Land

Transfer under Presidential Decree No. 27 and his farmholdings;

2. Ordering the defendant Teodoro Acap to deliver possession of said farm to plaintiff,
and;

3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of P1,000.00 as
expenses of litigation and the amount of P10,000.00 as actual damages.5

In arriving at the above-mentioned judgment, the trial court stated that the evidence had established that
the subject land was "sold" by the heirs of Cosme Pido to private respondent. This is clear from the
following disquisitions contained in the trial court's six (6) page decision:

There is no doubt that defendant is a registered tenant of Cosme Pido. However, when
the latter died their tenancy relations changed since ownership of said land was passed
on to his heirs who, by executing a Deed of Sale, which defendant admitted in his affidavit,
likewise passed on their ownership of Lot 1130 to herein plaintiff (private respondent).
As owner hereof, plaintiff has the right to demand payment of rental and the tenant is
obligated to pay rentals due from the time demand is made. . . .6

xxx xxx xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of itself
extinguish the relationship. There was only a change of the personality of the lessor in the
person of herein plaintiff Edy de los Reyes who being the purchaser or transferee,
assumes the rights and obligations of the former landowner to the tenant Teodoro Acap,
herein defendant.7

Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when it ruled
that private respondent acquired ownership of Lot No. 1130 and that he, as tenant, should pay rentals to
private respondent and that failing to pay the same from 1983 to 1987, his right to a certificate of land
transfer under P.D. 27 was deemed forfeited.

The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and Waiver of
Rights (Exhibit "D"), the document relied upon by private respondent to prove his ownership to the lot,
was excluded by the lower court in its order dated 27 August 1990. The order indeed noted that the
document was not identified by Cosme Pido's heirs and was not registered with the Registry of Deeds of
Negros Occidental. According to respondent court, however, since the Declaration of Heirship and Waiver
of Rights appears to have been duly notarized, no further proof of its due execution was necessary. Like
the trial court, respondent court was also convinced that the said document stands as prima facie proof
of appellee's (private respondent's) ownership of the land in dispute.

129
With respect to its non-registration, respondent court noted that petitioner had actual knowledge of the
subject sale of the land in dispute to private respondent because as early as 1983, he (petitioner) already
knew of private respondent's claim over the said land but which he thereafter denied, and that in 1982,
he (petitioner) actually paid rent to private respondent. Otherwise stated, respondent court considered
this fact of rental payment in 1982 as estoppel on petitioner's part to thereafter refute private
respondent's claim of ownership over the said land. Under these circumstances, respondent court ruled
that indeed there was deliberate refusal by petitioner to pay rent for a continued period of five years that
merited forfeiture of his otherwise preferred right to the issuance of a certificate of land transfer.

In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord with the
law and evidence when it rules that private respondent acquired ownership of Lot No. 1130 through the
aforementioned Declaration of Heirship and Waiver of Rights.

Hence, the issues to be resolved presently are the following:

1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF RIGHTS

IS A RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE
LOT IN QUESTION.

2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF SALE IN

FAVOR OF PRIVATE RESPONDENT OF THE LOT IN QUESTION.

Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly excluded the
document marked as Exhibit "D" (Declaration of Heirship, etc.) as private respondent's evidence because
it was not registered with the Registry of Deeds and was not identified by anyone of the heirs of Cosme
Pido. The Court of Appeals, however, held the same to be admissible, it being a notarized document,
hence, a prima facie proof of private respondents' ownership of the lot to which it refers.

Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the recognized
modes of acquiring ownership under Article 712 of the Civil Code. Neither can the same be considered a
deed of sale so as to transfer ownership of the land to private respondent because no consideration is
stated in the contract (assuming it is a contract or deed of sale).

Private respondent defends the decision of respondent Court of Appeals as in accord with the evidence
and the law. He posits that while it may indeed be true that the trial court excluded his Exhibit "D" which
is the Declaration of Heirship and Waiver of Rights as part of his evidence, the trial court declared him
nonetheless owner of the subject lot based on other evidence adduced during the trial, namely, the notice
of adverse claim (Exhibit "E") duly registered by him with the Registry of Deeds, which contains the
questioned Declaration of Heirship and Waiver of Rights as an integral part thereof.

We find the petition impressed with merit.

In the first place, an asserted right or claim to ownership or a real right over a thing arising from a juridical
act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must
be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are
acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the
actual process of acquisition or transfer of ownership over a thing in question.8

130
Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two (2)
classes, namely, the original mode (i.e., through occupation, acquisitive prescription, law or intellectual
creation) and the derivative mode (i.e., through succession mortis causa or tradition as a result of certain
contracts, such as sale, barter, donation, assignment or mutuum).

In the case at bench, the trial court was obviously confused as to the nature and effect of the Declaration
of Heirship and Waiver of Rights, equating the same with a contract (deed) of sale. They are not the same.

In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party to pay a price certain in money or its equivalent.9

Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument when
filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the
decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs
under Rule 74 of the Rules of Court.10

Hence, there is a marked difference between a sale of hereditary rights and a waiver of hereditary rights.
The first presumes the existence of a contract or deed of sale between the parties.11 The second is,
technically speaking, a mode of extinction of ownership where there is an abdication or intentional
relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of
other persons who are co-heirs in the succession.12 Private respondent, being then a stranger to the
succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole basis of
the waiver document which neither recites the elements of either a sale,13 or a donation,14 or any other
derivative mode of acquiring ownership.

Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a "sale"
transpired between Cosme Pido's heirs and private respondent and that petitioner acquired actual
knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss private
respondent's claim over the lot in question. This conclusion has no basis both in fact and in law.

On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights" was excluded by the
trial court in its order dated 27 August 1990 because the document was neither registered with the
Registry of Deeds nor identified by the heirs of Cosme Pido. There is no showing that private respondent
had the same document attached to or made part of the record. What the trial court admitted was Annex
"E", a notice of adverse claim filed with the Registry of Deeds which contained the Declaration of Heirship
with Waiver of rights and was annotated at the back of the Original Certificate of Title to the land in
question.

A notice of adverse claim, by its nature, does not however prove private respondent's ownership over the
tenanted lot. "A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner,
the validity of which is yet to be established in court at some future date, and is no better than a notice
of lis pendens which is a notice of a case already pending in court."15

It is to be noted that while the existence of said adverse claim was duly proven, there is no evidence
whatsoever that a deed of sale was executed between Cosme Pido's heirs and private respondent
transferring the rights of Pido's heirs to the land in favor of private respondent. Private respondent's right

131
or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be sufficient to
cancel the OCT to the land and title the same in private respondent's name.

Consequently, while the transaction between Pido's heirs and private respondent may be binding
on both parties, the right of petitioner as a registered tenant to the land cannot be perfunctorily
forfeited on a mere allegation of private respondent's ownership without the corresponding proof
thereof.

Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease rentals
thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his family (after Pido's
death), even if in 1982, private respondent allegedly informed petitioner that he had become the new
owner of the land.

Under the circumstances, petitioner may have, in good faith, assumed such statement of private
respondent to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to
private respondent. But in 1983, it is clear that petitioner had misgivings over private respondent's claim
of ownership over the said land because in the October 1983 MAR conference, his wife Laurenciana
categorically denied all of private respondent's allegations. In fact, petitioner even secured a certificate
from the MAR dated 9 May 1988 to the effect that he continued to be the registered tenant of Cosme
Pido and not of private respondent. The reason is that private respondent never registered the Declaration
of Heirship with Waiver of Rights with the Registry of Deeds or with the MAR. Instead, he (private
respondent) sought to do indirectly what could not be done directly, i.e., file a notice of adverse claim on
the said lot to establish ownership thereover.

It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by petitioner to
pay the lease rentals or amortizations to the landowner/agricultural lessor which, in this case, private
respondent failed to establish in his favor by clear and convincing evidence.16

Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer
under P.D. 27 and to the possession of his farmholdings should not be applied against petitioners, since
private respondent has not established a cause of action for recovery of possession against petitioner.

WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of the Court
of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan, Negros Occidental
dated 20 August 1991 is hereby SET ASIDE. The private respondent's complaint for recovery of possession
and damages against petitioner Acap is hereby DISMISSED for failure to properly state a cause of action,
without prejudice to private respondent taking the proper legal steps to establish the legal mode by which
he claims to have acquired ownership of the land in question.

SO ORDERED.

Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

132
G.R. No. 74761 November 6, 1990

NATIVIDAD V. ANDAMO and EMMANUEL R. ANDAMO, petitioners,

vs.
INTERMEDIATE APPELLATE COURT (First Civil Cases Division) and MISSIONARIES OF OUR LADY OF LA
SALETTE, INC., respondents.

Lope E. Adriano for petitioners.

Padilla Law Office for private respondent.

FERNAN, C.J.:

The pivotal issue in this petition for certiorari, prohibition and mandamus is whether a corporation, which
has built through its agents, waterpaths, water conductors and contrivances within its land, thereby
causing inundation and damage to an adjacent land, can be held civilly liable for damages under Articles
2176 and 2177 of the Civil Code on quasi-delicts such that the resulting civil case can proceed
independently of the criminal case.

The antecedent facts are as follows:

Petitioner spouses Emmanuel and Natividad Andamo are the owners of a parcel of land situated in Biga
(Biluso) Silang, Cavite which is adjacent to that of private respondent, Missionaries of Our Lady of La
Salette, Inc., a religious corporation.

Within the land of respondent corporation, waterpaths and contrivances, including an artificial lake, were
constructed, which allegedly inundated and eroded petitioners' land, caused a young man to drown,
damaged petitioners' crops and plants, washed away costly fences, endangered the lives of petitioners
and their laborers during rainy and stormy seasons, and exposed plants and other improvements to
destruction.

In July 1982, petitioners instituted a criminal action, docketed as Criminal Case No. TG-907-82, before the
Regional Trial Court of Cavite, Branch 4 (Tagaytay City), against Efren Musngi, Orlando Sapuay and Rutillo
Mallillin, officers and directors of herein respondent corporation, for destruction by means of inundation
under Article 324 of the Revised Penal Code.

Subsequently, on February 22, 1983, petitioners filed another action against respondent corporation, this
time a civil case, docketed as Civil Case No. TG-748, for damages with prayer for the issuance of a writ of
preliminary injunction before the same court. 1

On March 11, 1983, respondent corporation filed its answer to the complaint and opposition to the
issuance of a writ of preliminary injunction. Hearings were conducted including ocular inspections on the
land. However, on April 26, 1984, the trial court, acting on respondent corporation's motion to dismiss or
suspend the civil action, issued an order suspending further hearings in Civil Case No, TG-748 until after
judgment in the related Criminal Case No. TG-907-82.

133
Resolving respondent corporation's motion to dismiss filed on June 22, 1984, the trial court issued on
August 27, 1984 the disputed order dismissing Civil Case No. TG-748 for lack of jurisdiction, as the criminal
case which was instituted ahead of the civil case was still unresolved. Said order was anchored on the
provision of Section 3 (a), Rule III of the Rules of Court which provides that "criminal and civil actions
arising from the same offense may be instituted separately, but after the criminal action has been
commenced the civil action cannot be instituted until final judgment has been rendered in the criminal
action." 2

Petitioners appealed from that order to the Intermediate Appellate Court. 3

On February 17, 1986, respondent Appellate Court, First Civil Cases Division, promulgated a decision 4
affirming the questioned order of the trial court. 5 A motion for reconsideration filed by petitioners was
denied by the Appellate Court in its resolution dated May 19, 1986. 6

Directly at issue is the propriety of the dismissal of Civil Case No. TG-748 in accordance with Section 3 (a)
of Rule 111 of the Rules of Court. Petitioners contend that the trial court and the Appellate Court erred in
dismissing Civil Case No. TG-748 since it is predicated on a quasi-delict. Petitioners have raised a valid
point.

It is axiomatic that the nature of an action filed in court is determined by the facts alleged in the complaint
as constituting the cause of action. 7 The purpose of an action or suit and the law to govern it, including
the period of prescription, is to be determined not by the claim of the party filing the action, made in his
argument or brief, but rather by the complaint itself, its allegations and prayer for relief. 8 The nature of
an action is not necessarily determined or controlled by its title or heading but the body of the pleading
or complaint itself. To avoid possible denial of substantial justice due to legal technicalities, pleadings as
well as remedial laws should be liberally construed so that the litigants may have ample opportunity to
prove their respective claims. 9

Quoted hereunder are the pertinent portions of petitioners' complaint in Civil Case No. TG-748:

4) That within defendant's land, likewise located at Biga (Biluso), Silang, Cavite, adjacent
on the right side of the aforesaid land of plaintiffs, defendant constructed waterpaths
starting from the middle-right portion thereof leading to a big hole or opening, also
constructed by defendant, thru the lower portion of its concrete hollow-blocks fence
situated on the right side of its cemented gate fronting the provincial highway, and
connected by defendant to a man height inter-connected cement culverts which were
also constructed and lain by defendant cross-wise beneath the tip of the said cemented
gate, the left-end of the said inter-connected culverts again connected by defendant to a
big hole or opening thru the lower portion of the same concrete hollowblocks fence on
the left side of the said cemented gate, which hole or opening is likewise connected by
defendant to the cemented mouth of a big canal, also constructed by defendant, which
runs northward towards a big hole or opening which was also built by defendant thru the
lower portion of its concrete hollow-blocks fence which separates the land of plaintiffs
from that of defendant (and which serves as the exit-point of the floodwater coming from
the land of defendant, and at the same time, the entrance-point of the same floodwater
to the land of plaintiffs, year after year, during rainy or stormy seasons.

134
 5) That moreover, on the middle-left portion of its land just beside the land of plaintiffs,
defendant also constructed an artificial lake, the base of which is soil, which utilizes the
water being channeled thereto from its water system thru inter-connected galvanized
iron pipes (No. 2) and complimented by rain water during rainy or stormy seasons, so
much so that the water below it seeps into, and the excess water above it inundates,
portions of the adjoining land of plaintiffs.

6) That as a result of the inundation brought about by defendant's aforementioned water

conductors, contrivances and manipulators, a young man was drowned to death, while
herein plaintiffs suffered and will continue to suffer, as follows:

a) Portions of the land of plaintiffs were eroded and converted to deep,

wide and long canals, such that the same can no longer be planted to any
crop or plant.

b) Costly fences constructed by plaintiffs were, on several occasions,

washed away.

c) During rainy and stormy seasons the lives of plaintiffs and their laborers
are always in danger.

d) Plants and other improvements on other portions of the land of

plaintiffs are exposed to destruction. ... 10

A careful examination of the aforequoted complaint shows that the civil action is one under Articles 2176
and 2177 of the Civil Code on quasi-delicts. All the elements of a quasi-delict are present, to wit: (a)
damages suffered by the plaintiff, (b) fault or negligence of the defendant, or some other person for
whose acts he must respond; and (c) the connection of cause and effect between the fault or negligence
of the defendant and the damages incurred by the plaintiff. 11

Clearly, from petitioner's complaint, the waterpaths and contrivances built by respondent corporation are
alleged to have inundated the land of petitioners. There is therefore, an assertion of a causal connection
between the act of building these waterpaths and the damage sustained by petitioners. Such action if
proven constitutes fault or negligence which may be the basis for the recovery of damages.

In the case of Samson vs. Dionisio, 12 the Court applied Article 1902, now Article 2176 of the Civil Code
and held that "any person who without due authority constructs a bank or dike, stopping the flow or
communication between a creek or a lake and a river, thereby causing loss and damages to a third party
who, like the rest of the residents, is entitled to the use and enjoyment of the stream or lake, shall be
liable to the payment of an indemnity for loss and damages to the injured party.

While the property involved in the cited case belonged to the public domain and the property subject of
the instant case is privately owned, the fact remains that petitioners' complaint sufficiently alleges that
petitioners have sustained and will continue to sustain damage due to the waterpaths and contrivances
built by respondent corporation. Indeed, the recitals of the complaint, the alleged presence of damage to
the petitioners, the act or omission of respondent corporation supposedly constituting fault or negligence,

135
and the causal connection between the act and the damage, with no pre-existing contractual obligation
between the parties make a clear case of a quasi delict or culpa aquiliana.

It must be stressed that the use of one's property is not without limitations. Article 431 of the Civil Code
provides that "the owner of a thing cannot make use thereof in such a manner as to injure the rights of a
third person." SIC UTERE TUO UT ALIENUM NON LAEDAS. Moreover, adjoining landowners have mutual
and reciprocal duties which require that each must use his own land in a reasonable manner so as not to
infringe upon the rights and interests of others. Although we recognize the right of an owner to build
structures on his land, such structures must be so constructed and maintained using all reasonable care
so that they cannot be dangerous to adjoining landowners and can withstand the usual and expected
forces of nature. If the structures cause injury or damage to an adjoining landowner or a third person, the
latter can claim indemnification for the injury or damage suffered.

Article 2176 of the Civil Code imposes a civil liability on a person for damage caused by his act or omission
constituting fault or negligence, thus:

Article 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this chapter.

Article 2176, whenever it refers to "fault or negligence", covers not only acts "not punishable by law" but
also acts criminal in character, whether intentional and voluntary or negligent. Consequently, a separate
civil action lies against the offender in a criminal act, whether or not he is criminally prosecuted and found
guilty or acquitted, provided that the offended party is not allowed, (if the tortfeasor is actually charged
also criminally), to recover damages on both scores, and would be entitled in such eventuality only to the
bigger award of the two, assuming the awards made in the two cases vary. 13

The distinctness of quasi-delicta is shown in Article 2177 of the Civil Code, which states:

Article 2177. Responsibility for fault or negligence under the preceding article is entirely
separate and distinct from the civil liability arising from negligence under the Penal Code.
But the plaintiff cannot recover damages twice for the same act or omission of the
defendant.

According to the Report of the Code Commission "the foregoing provision though at first sight startling, is
not so novel or extraordinary when we consider the exact nature of criminal and civil negligence. The
former is a violation of the criminal law, while the latter is a distinct and independent negligence, which
is a "culpa aquiliana" or quasi-delict, of ancient origin, having always had its own foundation and
individuality, separate from criminal negligence. Such distinction between criminal negligence and "culpa
extra-contractual" or "cuasi-delito" has been sustained by decisions of the Supreme Court of Spain ... 14

In the case of Castillo vs. Court of Appeals, 15 this Court held that a quasi-delict or culpa aquiliana is a
separate legal institution under the Civil Code with a substantivity all its own, and individuality that is
entirely apart and independent from a delict or crime a distinction exists between the civil liability
arising from a crime and the responsibility for quasi-delicts or culpa extra-contractual. The same
negligence causing damages may produce civil liability arising from a crime under the Penal Code, or

136
create an action for quasi-delicts or culpa extra-contractual under the Civil Code. Therefore, the acquittal
or conviction in the criminal case is entirely irrelevant in the civil case, unless, of course, in the event of
an acquittal where the court has declared that the fact from which the civil action arose did not exist, in
which case the extinction of the criminal liability would carry with it the extinction of the civil liability.

In Azucena vs. Potenciano, 16 the Court declared that in quasi-delicts, "(t)he civil action is entirely
independent of the criminal case according to Articles 33 and 2177 of the Civil Code. There can be no
logical conclusion than this, for to subordinate the civil action contemplated in the said articles to the
result of the criminal prosecution whether it be conviction or acquittal would render meaningless
the independent character of the civil action and the clear injunction in Article 31, that his action may
proceed independently of the criminal proceedings and regardless of the result of the latter."

WHEREFORE, the assailed decision dated February 17, 1986 of the then Intermediate Appellate Court
affirming the order of dismissal of the Regional Trial Court of Cavite, Branch 18 (Tagaytay City) dated
August 17, 1984 is hereby REVERSED and SET ASIDE. The trial court is ordered to reinstate Civil Case No.
TG-748 entitled "Natividad V. Andamo and Emmanuel R. Andamo vs. Missionaries of Our Lady of La Salette
Inc." and to proceed with the hearing of the case with dispatch. This decision is immediately executory.
Costs against respondent corporation.

SO ORDERED.

137
G.R. No. 118127 April 12, 2005

CITY OF MANILA, HON. ALFREDO S. LIM as the Mayor of the City of Manila, HON. JOSELITO L. ATIENZA,
in his capacity as Vice-Mayor of the City of Manila and Presiding Officer of the City Council of Manila,
HON. ERNESTO A. NIEVA, HON. GONZALO P. GONZALES, HON. AVELINO S. CAILIAN, HON. ROBERTO C.
OCAMPO, HON. ALBERTO DOMINGO, HON. HONORIO U. LOPEZ, HON. FRANCISCO G. VARONA, JR.,
HON. ROMUALDO S. MARANAN, HON. NESTOR C. PONCE, JR., HON. HUMBERTO B. BASCO, HON.
FLAVIANO F. CONCEPCION, JR., HON. ROMEO G. RIVERA, HON. MANUEL M. ZARCAL, HON. PEDRO S. DE
JESUS, HON. BERNARDITO C. ANG, HON. MANUEL L. QUIN, HON. JHOSEP Y. LOPEZ, HON. CHIKA G. GO,
HON. VICTORIANO A. MELENDEZ, HON. ERNESTO V.P. MACEDA, JR., HON. ROLANDO P. NIETO, HON.
DANILO V. ROLEDA, HON. GERINO A. TOLENTINO, JR., HON. MA. PAZ E. HERRERA, HON. JOEY D. HIZON,
HON. FELIXBERTO D. ESPIRITU, HON. KARLO Q. BUTIONG, HON. ROGELIO P. DELA PAZ, HON. BERNARDO
D. RAGAZA, HON. MA. CORAZON R. CABALLES, HON. CASIMIRO C. SISON, HON. BIENVINIDO M.
ABANTE, JR., HON. MA. LOURDES M. ISIP, HON. ALEXANDER S. RICAFORT, HON. ERNESTO F. RIVERA,
HON. LEONARDO L. ANGAT, and HON. JOCELYN B. DAWIS, in their capacity as councilors of the City of
Manila, Petitioner,
vs.
HON. PERFECTO A.S. LAGUIO, JR., as Presiding Judge, RTC, Manila and MALATE TOURIST DEVELOPMENT
CORPORATION, Respondents.

DECISION

TINGA, J.:

I know only that what is moral is what you feel good after and what is immoral is what you feel
bad after.

Ernest Hermingway
Death in the Afternoon, Ch. 1

It is a moral and political axiom that any dishonorable act, if performed by oneself, is less immoral
than if performed by someone else, who would be well-intentioned in his dishonesty.

J. Christopher Gerald
Bonaparte in Egypt, Ch. I

The Court's commitment to the protection of morals is secondary to its fealty to the fundamental law of
the land. It is foremost a guardian of the Constitution but not the conscience of individuals. And if it need
be, the Court will not hesitate to "make the hammer fall, and heavily" in the words of Justice Laurel, and
uphold the constitutional guarantees when faced with laws that, though not lacking in zeal to promote
morality, nevertheless fail to pass the test of constitutionality.

The pivotal issue in this Petition1 under Rule 45 (then Rule 42) of the Revised Rules on Civil Procedure
seeking the reversal of the Decision2 in Civil Case No. 93-66511 of the Regional Trial Court (RTC) of Manila,
Branch 18 (lower court),3 is the validity of Ordinance No. 7783 (the Ordinance) of the City of Manila.4

The antecedents are as follows:

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Private respondent Malate Tourist Development Corporation (MTDC) is a corporation engaged in the
business of operating hotels, motels, hostels and lodging houses.5 It built and opened Victoria Court in
Malate which was licensed as a motel although duly accredited with the Department of Tourism as a
hotel.6 On 28 June 1993, MTDC filed a Petition for Declaratory Relief with Prayer for a Writ of Preliminary
Injunction and/or Temporary Restraining Order7 (RTC Petition) with the lower court impleading as
defendants, herein petitioners City of Manila, Hon. Alfredo S. Lim (Lim), Hon. Joselito L. Atienza, and the
members of the City Council of Manila (City Council). MTDC prayed that the Ordinance, insofar as it
includes motels and inns as among its prohibited establishments, be declared invalid and
unconstitutional.8

Enacted by the City Council9 on 9 March 1993 and approved by petitioner City Mayor on 30 March 1993,
the said Ordinance is entitled

AN ORDINANCE PROHIBITING THE ESTABLISHMENT OR OPERATION OF BUSINESSES PROVIDING

CERTAIN FORMS OF AMUSEMENT, ENTERTAINMENT, SERVICES AND FACILITIES IN THE ERMITA-
MALATE AREA, PRESCRIBING PENALTIES FOR VIOLATION THEREOF, AND FOR OTHER
PURPOSES.10

The Ordinance is reproduced in full, hereunder:

SECTION 1. Any provision of existing laws and ordinances to the contrary notwithstanding, no
person, partnership, corporation or entity shall, in the Ermita-Malate area bounded by Teodoro
M. Kalaw Sr. Street in the North, Taft Avenue in the East, Vito Cruz Street in the South and Roxas
Boulevard in the West, pursuant to P.D. 499 be allowed or authorized to contract and engage in,
any business providing certain forms of amusement, entertainment, services and facilities
where women are used as tools in entertainment and which tend to disturb the community,
annoy the inhabitants, and adversely affect the social and moral welfare of the community,
such as but not limited to:

1. Sauna Parlors

2. Massage Parlors

3. Karaoke Bars

4. Beerhouses

5. Night Clubs

6. Day Clubs

7. Super Clubs

8. Discotheques

9. Cabarets

139
 10. Dance Halls

11. Motels

12. Inns

SEC. 2 The City Mayor, the City Treasurer or any person acting in behalf of the said officials are
prohibited from issuing permits, temporary or otherwise, or from granting licenses and
accepting payments for the operation of business enumerated in the preceding section.

SEC. 3. Owners and/or operator of establishments engaged in, or devoted to, the businesses
enumerated in Section 1 hereof are hereby given three (3) months from the date of approval of
this ordinance within which to wind up business operations or to transfer to any place outside
of the Ermita-Malate area or convert said businesses to other kinds of business allowable within
the area, such as but not limited to:

1. Curio or antique shop

2. Souvenir Shops

3. Handicrafts display centers

4. Art galleries

5. Records and music shops

6. Restaurants

7. Coffee shops

8. Flower shops

9. Music lounge and sing-along restaurants, with well-defined activities for wholesome
family entertainment that cater to both local and foreign clientele.

10. Theaters engaged in the exhibition, not only of motion pictures but also of cultural
shows, stage and theatrical plays, art exhibitions, concerts and the like.

11. Businesses allowable within the law and medium intensity districts as provided for in
the zoning ordinances for Metropolitan Manila, except new warehouse or open-storage
depot, dock or yard, motor repair shop, gasoline service station, light industry with any
machinery, or funeral establishments.

SEC. 4. Any person violating any provisions of this ordinance, shall upon conviction, be punished
by imprisonment of one (1) year or fine of FIVE THOUSAND (P5,000.00) PESOS, or both, at the
discretion of the Court, PROVIDED, that in case of juridical person, the President, the General
Manager, or person-in-charge of operation shall be liable thereof; PROVIDED FURTHER, that in

140
 case of subsequent violation and conviction, the premises of the erring establishment shall be
closed and padlocked permanently.

SEC. 5. This ordinance shall take effect upon approval.

Enacted by the City Council of Manila at its regular session today, March 9, 1993.

Approved by His Honor, the Mayor on March 30, 1993. (Emphasis supplied)

In the RTC Petition, MTDC argued that the Ordinance erroneously and improperly included in its
enumeration of prohibited establishments, motels and inns such as MTDC's Victoria Court considering
that these were not establishments for "amusement" or "entertainment" and they were not "services or
facilities for entertainment," nor did they use women as "tools for entertainment," and neither did they
"disturb the community," "annoy the inhabitants" or "adversely affect the social and moral welfare of the
community."11

MTDC further advanced that the Ordinance was invalid and unconstitutional for the following reasons: (1)
The City Council has no power to prohibit the operation of motels as Section 458 (a) 4 (iv)12 of the Local
Government Code of 1991 (the Code) grants to the City Council only the power to regulate the
establishment, operation and maintenance of hotels, motels, inns, pension houses, lodging houses and
other similar establishments; (2) The Ordinance is void as it is violative of Presidential Decree (P.D.) No.
49913 which specifically declared portions of the Ermita-Malate area as a commercial zone with certain
restrictions; (3) The Ordinance does not constitute a proper exercise of police power as the compulsory
closure of the motel business has no reasonable relation to the legitimate municipal interests sought to
be protected; (4) The Ordinance constitutes an ex post facto law by punishing the operation of Victoria
Court which was a legitimate business prior to its enactment; (5) The Ordinance violates MTDC's
constitutional rights in that: (a) it is confiscatory and constitutes an invasion of plaintiff's property rights;
(b) the City Council has no power to find as a fact that a particular thing is a nuisance per se nor does it
have the power to extrajudicially destroy it; and (6) The Ordinance constitutes a denial of equal protection
under the law as no reasonable basis exists for prohibiting the operation of motels and inns, but not
pension houses, hotels, lodging houses or other similar establishments, and for prohibiting said business
in the Ermita-Malate area but not outside of this area.14

In their Answer15 dated 23 July 1993, petitioners City of Manila and Lim maintained that the City Council
had the power to "prohibit certain forms of entertainment in order to protect the social and moral welfare
of the community" as provided for in Section 458 (a) 4 (vii) of the Local Government Code,16
which reads, thus:

Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as
the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds
for the general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in
the proper exercise of the corporate powers of the city as provided for under Section 22 of this
Code, and shall:

....

141
 (4) Regulate activities relative to the use of land, buildings and structures within the city in order
to promote the general welfare and for said purpose shall:

....

(vii) Regulate the establishment, operation, and maintenance of any entertainment or

amusement facilities, including theatrical performances, circuses, billiard pools, public
dancing schools, public dance halls, sauna baths, massage parlors, and other places for
entertainment or amusement; regulate such other events or activities for amusement or
entertainment, particularly those which tend to disturb the community or annoy the
inhabitants, or require the suspension or suppression of the same; or, prohibit certain
forms of amusement or entertainment in order to protect the social and moral welfare of
the community.

Citing Kwong Sing v. City of Manila,17 petitioners insisted that the power of regulation spoken of in the
above-quoted provision included the power to control, to govern and to restrain places of exhibition and
amusement.18

Petitioners likewise asserted that the Ordinance was enacted by the City Council of Manila to protect the
social and moral welfare of the community in conjunction with its police power as found in Article III,
Section 18(kk) of Republic Act No. 409,19 otherwise known as the Revised Charter of the City of Manila
(Revised Charter of Manila)20 which reads, thus:

ARTICLE III

THE MUNICIPAL BOARD

. . .

Section 18. Legislative powers. The Municipal Board shall have the following legislative powers:

. . .

(kk) To enact all ordinances it may deem necessary and proper for the sanitation and safety, the
furtherance of the prosperity, and the promotion of the morality, peace, good order, comfort,
convenience, and general welfare of the city and its inhabitants, and such others as may be
necessary to carry into effect and discharge the powers and duties conferred by this chapter; and
to fix penalties for the violation of ordinances which shall not exceed two hundred pesos fine or
six months' imprisonment, or both such fine and imprisonment, for a single offense.

Further, the petitioners noted, the Ordinance had the presumption of validity; hence, private respondent
had the burden to prove its illegality or unconstitutionality.21

Petitioners also maintained that there was no inconsistency between P.D. 499 and the Ordinance as the
latter simply disauthorized certain forms of businesses and allowed the Ermita-Malate area to remain a
commercial zone.22 The Ordinance, the petitioners likewise claimed, cannot be assailed as ex post facto
as it was prospective in operation.23 The Ordinance also did not infringe the equal protection clause and

142
cannot be denounced as class legislation as there existed substantial and real differences between the
Ermita-Malate area and other places in the City of Manila.24

On 28 June 1993, respondent Judge Perfecto A.S. Laguio, Jr. (Judge Laguio) issued an ex-parte temporary
restraining order against the enforcement of the Ordinance.25 And on 16 July 1993, again in an intrepid
gesture, he granted the writ of preliminary injunction prayed for by MTDC.26

After trial, on 25 November 1994, Judge Laguio rendered the assailed Decision, enjoining the petitioners
from implementing the Ordinance. The dispositive portion of said Decision reads:27

WHEREFORE, judgment is hereby rendered declaring Ordinance No. 778[3], Series of 1993, of the
City of Manila null and void, and making permanent the writ of preliminary injunction that had
been issued by this Court against the defendant. No costs.

SO ORDERED.28

Petitioners filed with the lower court a Notice of Appeal29 on 12 December 1994, manifesting that they
are elevating the case to this Court under then Rule 42 on pure questions of law.30

On 11 January 1995, petitioners filed the present Petition, alleging that the following errors were
committed by the lower court in its ruling: (1) It erred in concluding that the subject ordinance is ultra
vires, or otherwise, unfair, unreasonable and oppressive exercise of police power; (2) It erred in holding
that the questioned Ordinance contravenes P.D. 49931 which allows operators of all kinds of commercial
establishments, except those specified therein; and (3) It erred in declaring the Ordinance void and
unconstitutional.32

In the Petition and in its Memorandum,33 petitioners in essence repeat the assertions they made before
the lower court. They contend that the assailed Ordinance was enacted in the exercise of the inherent
and plenary power of the State and the general welfare clause exercised by local government units
provided for in Art. 3, Sec. 18 (kk) of the Revised Charter of Manila and conjunctively, Section 458 (a) 4
(vii) of the Code.34 They allege that the Ordinance is a valid exercise of police power; it does not
contravene P.D. 499; and that it enjoys the presumption of validity.35

In its Memorandum36 dated 27 May 1996, private respondent maintains that the Ordinance is ultra vires
and that it is void for being repugnant to the general law. It reiterates that the questioned Ordinance is
not a valid exercise of police power; that it is violative of due process, confiscatory and amounts to an
arbitrary interference with its lawful business; that it is violative of the equal protection clause; and that
it confers on petitioner City Mayor or any officer unregulated discretion in the execution of the Ordinance
absent rules to guide and control his actions.

This is an opportune time to express the Court's deep sentiment and tenderness for the Ermita-Malate
area being its home for several decades. A long-time resident, the Court witnessed the area's many turn
of events. It relished its glory days and endured its days of infamy. Much as the Court harks back to the
resplendent era of the Old Manila and yearns to restore its lost grandeur, it believes that the Ordinance
is not the fitting means to that end. The Court is of the opinion, and so holds, that the lower court did not
err in declaring the Ordinance, as it did, ultra vires and therefore null and void.

143
The Ordinance is so replete with constitutional infirmities that almost every sentence thereof violates a
constitutional provision. The prohibitions and sanctions therein transgress the cardinal rights of persons
enshrined by the Constitution. The Court is called upon to shelter these rights from attempts at rendering
them worthless.

The tests of a valid ordinance are well established. A long line of decisions has held that for an ordinance
to be valid, it must not only be within the corporate powers of the local government unit to enact and
must be passed according to the procedure prescribed by law, it must also conform to the following
substantive requirements: (1) must not contravene the Constitution or any statute; (2) must not be unfair
or oppressive; (3) must not be partial or discriminatory; (4) must not prohibit but may regulate trade; (5)
must be general and consistent with public policy; and (6) must not be unreasonable.37

Anent the first criterion, ordinances shall only be valid when they are not contrary to the Constitution and
to the laws.38 The Ordinance must satisfy two requirements: it must pass muster under the test of
constitutionality and the test of consistency with the prevailing laws. That ordinances should be
constitutional uphold the principle of the supremacy of the Constitution. The requirement that the
enactment must not violate existing law gives stress to the precept that local government units are able
to legislate only by virtue of their derivative legislative power, a delegation of legislative power from the
national legislature. The delegate cannot be superior to the principal or exercise powers higher than those
of the latter.39

This relationship between the national legislature and the local government units has not been enfeebled
by the new provisions in the Constitution strengthening the policy of local autonomy. The national
legislature is still the principal of the local government units, which cannot defy its will or modify or violate
it.40

The Ordinance was passed by the City Council in the exercise of its police power, an enactment of the City
Council acting as agent of Congress. Local government units, as agencies of the State, are endowed with
police power in order to effectively accomplish and carry out the declared objects of their creation.41 This
delegated police power is found in Section 16 of the Code, known as the general welfare clause, viz:

SECTION 16. General Welfare.Every local government unit shall exercise the powers expressly
granted, those necessarily implied therefrom, as well as powers necessary, appropriate, or
incidental for its efficient and effective governance, and those which are essential to the
promotion of the general welfare. Within their respective territorial jurisdictions, local
government units shall ensure and support, among other things, the preservation and enrichment
of culture, promote health and safety, enhance the right of the people to a balanced ecology,
encourage and support the development of appropriate and self-reliant scientific and
technological capabilities, improve public morals, enhance economic prosperity and social justice,
promote full employment among their residents, maintain peace and order, and preserve the
comfort and convenience of their inhabitants.

Local government units exercise police power through their respective legislative bodies; in this case, the
sangguniang panlungsod or the city council. The Code empowers the legislative bodies to "enact
ordinances, approve resolutions and appropriate funds for the general welfare of the
province/city/municipality and its inhabitants pursuant to Section 16 of the Code and in the proper

144
exercise of the corporate powers of the province/city/ municipality provided under the Code.42 The
inquiry in this Petition is concerned with the validity of the exercise of such delegated power.

The Ordinance contravenes

the Constitution

The police power of the City Council, however broad and far-reaching, is subordinate to the constitutional
limitations thereon; and is subject to the limitation that its exercise must be reasonable and for the public
good.43 In the case at bar, the enactment of the Ordinance was an invalid exercise of delegated power as
it is unconstitutional and repugnant to general laws.

The relevant constitutional provisions are the following:

SEC. 5. The maintenance of peace and order, the protection of life, liberty, and property, and the
promotion of the general welfare are essential for the enjoyment by all the people of the blessings
of democracy.44

SEC. 14. The State recognizes the role of women in nation-building, and shall ensure the
fundamental equality before the law of women and men.45

SEC. 1. No person shall be deprived of life, liberty or property without due process of law, nor
shall any person be denied the equal protection of laws.46

Sec. 9. Private property shall not be taken for public use without just compensation.47

A. The Ordinance infringes

the Due Process Clause

The constitutional safeguard of due process is embodied in the fiat "(N)o person shall be deprived of life,
liberty or property without due process of law. . . ."48

There is no controlling and precise definition of due process. It furnishes though a standard to which
governmental action should conform in order that deprivation of life, liberty or property, in each
appropriate case, be valid. This standard is aptly described as a responsiveness to the supremacy of
reason, obedience to the dictates of justice,49 and as such it is a limitation upon the exercise of the police
power.50

The purpose of the guaranty is to prevent governmental encroachment against the life, liberty and
property of individuals; to secure the individual from the arbitrary exercise of the powers of the
government, unrestrained by the established principles of private rights and distributive justice; to protect
property from confiscation by legislative enactments, from seizure, forfeiture, and destruction without a
trial and conviction by the ordinary mode of judicial procedure; and to secure to all persons equal and
impartial justice and the benefit of the general law.51

The guaranty serves as a protection against arbitrary regulation, and private corporations and
partnerships are "persons" within the scope of the guaranty insofar as their property is concerned.52

145
This clause has been interpreted as imposing two separate limits on government, usually called
"procedural due process" and "substantive due process."

Procedural due process, as the phrase implies, refers to the procedures that the government must follow
before it deprives a person of life, liberty, or property. Classic procedural due process issues are concerned
with what kind of notice and what form of hearing the government must provide when it takes a particular
action.53

Substantive due process, as that phrase connotes, asks whether the government has an adequate reason
for taking away a person's life, liberty, or property. In other words, substantive due process looks to
whether there is a sufficient justification for the government's action.54 Case law in the United States
(U.S.) tells us that whether there is such a justification depends very much on the level of scrutiny used.55
For example, if a law is in an area where only rational basis review is applied, substantive due process is
met so long as the law is rationally related to a legitimate government purpose. But if it is an area where
strict scrutiny is used, such as for protecting fundamental rights, then the government will meet
substantive due process only if it can prove that the law is necessary to achieve a compelling government
purpose.56

The police power granted to local government units must always be exercised with utmost observance of
the rights of the people to due process and equal protection of the law. Such power cannot be exercised
whimsically, arbitrarily or despotically57 as its exercise is subject to a qualification, limitation or restriction
demanded by the respect and regard due to the prescription of the fundamental law, particularly those
forming part of the Bill of Rights. Individual rights, it bears emphasis, may be adversely affected only to
the extent that may fairly be required by the legitimate demands of public interest or public welfare.58
Due process requires the intrinsic validity of the law in interfering with the rights of the person to his life,
liberty and property.59

Requisites for the valid exercise

of Police Power are not met

To successfully invoke the exercise of police power as the rationale for the enactment of the Ordinance,
and to free it from the imputation of constitutional infirmity, not only must it appear that the interests of
the public generally, as distinguished from those of a particular class, require an interference with private
rights, but the means adopted must be reasonably necessary for the accomplishment of the purpose and
not unduly oppressive upon individuals.60 It must be evident that no other alternative for the
accomplishment of the purpose less intrusive of private rights can work. A reasonable relation must exist
between the purposes of the police measure and the means employed for its accomplishment, for even
under the guise of protecting the public interest, personal rights and those pertaining to private property
will not be permitted to be arbitrarily invaded.61

Lacking a concurrence of these two requisites, the police measure shall be struck down as an arbitrary
intrusion into private rights62 a violation of the due process clause.

The Ordinance was enacted to address and arrest the social ills purportedly spawned by the
establishments in the Ermita-Malate area which are allegedly operated under the deceptive veneer of
legitimate, licensed and tax-paying nightclubs, bars, karaoke bars, girlie houses, cocktail lounges, hotels
and motels. Petitioners insist that even the Court in the case of Ermita-Malate Hotel and Motel Operators

146
Association, Inc. v. City Mayor of Manila63 had already taken judicial notice of the "alarming increase in
the rate of prostitution, adultery and fornication in Manila traceable in great part to existence of motels,
which provide a necessary atmosphere for clandestine entry, presence and exit and thus become the ideal
haven for prostitutes and thrill-seekers."64

The object of the Ordinance was, accordingly, the promotion and protection of the social and moral values
of the community. Granting for the sake of argument that the objectives of the Ordinance are within the
scope of the City Council's police powers, the means employed for the accomplishment thereof were
unreasonable and unduly oppressive.

It is undoubtedly one of the fundamental duties of the City of Manila to make all reasonable regulations
looking to the promotion of the moral and social values of the community. However, the worthy aim of
fostering public morals and the eradication of the community's social ills can be achieved through means
less restrictive of private rights; it can be attained by reasonable restrictions rather than by an absolute
prohibition. The closing down and transfer of businesses or their conversion into businesses "allowed"
under the Ordinance have no reasonable relation to the accomplishment of its purposes. Otherwise
stated, the prohibition of the enumerated establishments will not per se protect and promote the social
and moral welfare of the community; it will not in itself eradicate the alluded social ills of prostitution,
adultery, fornication nor will it arrest the spread of sexual disease in Manila.

Conceding for the nonce that the Ermita-Malate area teems with houses of ill-repute and establishments
of the like which the City Council may lawfully prohibit,65 it is baseless and insupportable to bring within
that classification sauna parlors, massage parlors, karaoke bars, night clubs, day clubs, super clubs,
discotheques, cabarets, dance halls, motels and inns. This is not warranted under the accepted definitions
of these terms. The enumerated establishments are lawful pursuits which are not per se offensive to the
moral welfare of the community.

That these are used as arenas to consummate illicit sexual affairs and as venues to further the illegal
prostitution is of no moment. We lay stress on the acrid truth that sexual immorality, being a human
frailty, may take place in the most innocent of places that it may even take place in the substitute
establishments enumerated under Section 3 of the Ordinance. If the flawed logic of the Ordinance were
to be followed, in the remote instance that an immoral sexual act transpires in a church cloister or a court
chamber, we would behold the spectacle of the City of Manila ordering the closure of the church or court
concerned. Every house, building, park, curb, street or even vehicles for that matter will not be exempt
from the prohibition. Simply because there are no "pure" places where there are impure men. Indeed,
even the Scripture and the Tradition of Christians churches continually recall the presence and universality
of sin in man's history.66

The problem, it needs to be pointed out, is not the establishment, which by its nature cannot be said to
be injurious to the health or comfort of the community and which in itself is amoral, but the deplorable
human activity that may occur within its premises. While a motel may be used as a venue for immoral
sexual activity, it cannot for that reason alone be punished. It cannot be classified as a house of ill-repute
or as a nuisance per se on a mere likelihood or a naked assumption. If that were so and if that were
allowed, then the Ermita-Malate area would not only be purged of its supposed social ills, it would be
extinguished of its soul as well as every human activity, reprehensible or not, in its every nook and cranny
would be laid bare to the estimation of the authorities.

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The Ordinance seeks to legislate morality but fails to address the core issues of morality. Try as the
Ordinance may to shape morality, it should not foster the illusion that it can make a moral man out of it
because immorality is not a thing, a building or establishment; it is in the hearts of men. The City Council
instead should regulate human conduct that occurs inside the establishments, but not to the detriment
of liberty and privacy which are covenants, premiums and blessings of democracy.

While petitioners' earnestness at curbing clearly objectionable social ills is commendable, they unwittingly
punish even the proprietors and operators of "wholesome," "innocent" establishments. In the instant
case, there is a clear invasion of personal or property rights, personal in the case of those individuals
desirous of owning, operating and patronizing those motels and property in terms of the investments
made and the salaries to be paid to those therein employed. If the City of Manila so desires to put an end
to prostitution, fornication and other social ills, it can instead impose reasonable regulations such as daily
inspections of the establishments for any violation of the conditions of their licenses or permits; it may
exercise its authority to suspend or revoke their licenses for these violations;67 and it may even impose
increased license fees. In other words, there are other means to reasonably accomplish the desired end.

Means employed are

constitutionally infirm

The Ordinance disallows the operation of sauna parlors, massage parlors, karaoke bars, beerhouses, night
clubs, day clubs, super clubs, discotheques, cabarets, dance halls, motels and inns in the Ermita-Malate
area. In Section 3 thereof, owners and/or operators of the enumerated establishments are given three (3)
months from the date of approval of the Ordinance within which "to wind up business operations or to
transfer to any place outside the Ermita-Malate area or convert said businesses to other kinds of business
allowable within the area." Further, it states in Section 4 that in cases of subsequent violations of the
provisions of the Ordinance, the "premises of the erring establishment shall be closed and padlocked
permanently."

It is readily apparent that the means employed by the Ordinance for the achievement of its purposes, the
governmental interference itself, infringes on the constitutional guarantees of a person's fundamental
right to liberty and property.

Liberty as guaranteed by the Constitution was defined by Justice Malcolm to include "the right to exist
and the right to be free from arbitrary restraint or servitude. The term cannot be dwarfed into mere
freedom from physical restraint of the person of the citizen, but is deemed to embrace the right of man
to enjoy the facilities with which he has been endowed by his Creator, subject only to such restraint as
are necessary for the common welfare."68 In accordance with this case, the rights of the citizen to be free
to use his faculties in all lawful ways; to live and work where he will; to earn his livelihood by any lawful
calling; and to pursue any avocation are all deemed embraced in the concept of liberty.69

The U.S. Supreme Court in the case of Roth v. Board of Regents,70 sought to clarify the meaning of
"liberty." It said:

While the Court has not attempted to define with exactness the liberty. . . guaranteed [by the
Fifth and Fourteenth Amendments], the term denotes not merely freedom from bodily restraint
but also the right of the individual to contract, to engage in any of the common occupations of
life, to acquire useful knowledge, to marry, establish a home and bring up children, to worship

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 God according to the dictates of his own conscience, and generally to enjoy those privileges long
recognizedas essential to the orderly pursuit of happiness by free men. In a Constitution for a
free people, there can be no doubt that the meaning of "liberty" must be broad indeed.

In another case, it also confirmed that liberty protected by the due process clause includes personal
decisions relating to marriage, procreation, contraception, family relationships, child rearing, and
education. In explaining the respect the Constitution demands for the autonomy of the person in making
these choices, the U.S. Supreme Court explained:

These matters, involving the most intimate and personal choices a person may make in a lifetime,
choices central to personal dignity and autonomy, are central to the liberty protected by the
Fourteenth Amendment. At the heart of liberty is the right to define one's own concept of
existence, of meaning, of universe, and of the mystery of human life. Beliefs about these matters
could not define the attributes of personhood where they formed under compulsion of the
State.71

Persons desirous to own, operate and patronize the enumerated establishments under Section 1 of the
Ordinance may seek autonomy for these purposes.

Motel patrons who are single and unmarried may invoke this right to autonomy to consummate their
bonds in intimate sexual conduct within the motel's premisesbe it stressed that their consensual sexual
behavior does not contravene any fundamental state policy as contained in the Constitution.72 Adults
have a right to choose to forge such relationships with others in the confines of their own private lives
and still retain their dignity as free persons. The liberty protected by the Constitution allows persons the
right to make this choice.73 Their right to liberty under the due process clause gives them the full right to
engage in their conduct without intervention of the government, as long as they do not run afoul of the
law. Liberty should be the rule and restraint the exception.

Liberty in the constitutional sense not only means freedom from unlawful government restraint; it must
include privacy as well, if it is to be a repository of freedom. The right to be let alone is the beginning of
all freedomit is the most comprehensive of rights and the right most valued by civilized men.74

The concept of liberty compels respect for the individual whose claim to privacy and interference
demands respect. As the case of Morfe v. Mutuc,75 borrowing the words of Laski, so very aptly stated:

Man is one among many, obstinately refusing reduction to unity. His separateness, his isolation,
are indefeasible; indeed, they are so fundamental that they are the basis on which his civic
obligations are built. He cannot abandon the consequences of his isolation, which are, broadly
speaking, that his experience is private, and the will built out of that experience personal to
himself. If he surrenders his will to others, he surrenders himself. If his will is set by the will of
others, he ceases to be a master of himself. I cannot believe that a man no longer a master of
himself is in any real sense free.

Indeed, the right to privacy as a constitutional right was recognized in Morfe, the invasion of which should
be justified by a compelling state interest. Morfe accorded recognition to the right to privacy
independently of its identification with liberty; in itself it is fully deserving of constitutional protection.
Governmental powers should stop short of certain intrusions into the personal life of the citizen.76

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There is a great temptation to have an extended discussion on these civil liberties but the Court chooses
to exercise restraint and restrict itself to the issues presented when it should. The previous
pronouncements of the Court are not to be interpreted as a license for adults to engage in criminal
conduct. The reprehensibility of such conduct is not diminished. The Court only reaffirms and guarantees
their right to make this choice. Should they be prosecuted for their illegal conduct, they should suffer the
consequences of the choice they have made. That, ultimately, is their choice.

Modality employed is
unlawful taking

In addition, the Ordinance is unreasonable and oppressive as it substantially divests the respondent of the
beneficial use of its property.77 The Ordinance in Section 1 thereof forbids the running of the enumerated
businesses in the Ermita-Malate area and in Section 3 instructs its owners/operators to wind up business
operations or to transfer outside the area or convert said businesses into allowed businesses. An
ordinance which permanently restricts the use of property that it can not be used for any reasonable
purpose goes beyond regulation and must be recognized as a taking of the property without just
compensation.78 It is intrusive and violative of the private property rights of individuals.

The Constitution expressly provides in Article III, Section 9, that "private property shall not be taken for
public use without just compensation." The provision is the most important protection of property rights
in the Constitution. This is a restriction on the general power of the government to take property. The
constitutional provision is about ensuring that the government does not confiscate the property of some
to give it to others. In part too, it is about loss spreading. If the government takes away a person's property
to benefit society, then society should pay. The principal purpose of the guarantee is "to bar the
Government from forcing some people alone to bear public burdens which, in all fairness and justice,
should be borne by the public as a whole.79

There are two different types of taking that can be identified. A "possessory" taking occurs when the
government confiscates or physically occupies property. A "regulatory" taking occurs when the
government's regulation leaves no reasonable economically viable use of the property.80

In the landmark case of Pennsylvania Coal v. Mahon,81 it was held that a taking also could be found if
government regulation of the use of property went "too far." When regulation reaches a certain
magnitude, in most if not in all cases there must be an exercise of eminent domain and compensation to
support the act. While property may be regulated to a certain extent, if regulation goes too far it will be
recognized as a taking.82

No formula or rule can be devised to answer the questions of what is too far and when regulation becomes
a taking. In Mahon, Justice Holmes recognized that it was "a question of degree and therefore cannot be
disposed of by general propositions." On many other occasions as well, the U.S. Supreme Court has said
that the issue of when regulation constitutes a taking is a matter of considering the facts in each case. The
Court asks whether justice and fairness require that the economic loss caused by public action must be
compensated by the government and thus borne by the public as a whole, or whether the loss should
remain concentrated on those few persons subject to the public action.83

What is crucial in judicial consideration of regulatory takings is that government regulation is a taking if it
leaves no reasonable economically viable use of property in a manner that interferes with reasonable

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expectations for use.84 A regulation that permanently denies all economically beneficial or productive
use of land is, from the owner's point of view, equivalent to a "taking" unless principles of nuisance or
property law that existed when the owner acquired the land make the use prohibitable.85 When the
owner of real property has been called upon to sacrifice all economically beneficial uses in the name of
the common good, that is, to leave his property economically idle, he has suffered a taking.86

A regulation which denies all economically beneficial or productive use of land will require compensation
under the takings clause. Where a regulation places limitations on land that fall short of eliminating all
economically beneficial use, a taking nonetheless may have occurred, depending on a complex of factors
including the regulation's economic effect on the landowner, the extent to which the regulation interferes
with reasonable investment-backed expectations and the character of government action. These inquiries
are informed by the purpose of the takings clause which is to prevent the government from forcing some
people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a
whole.87

A restriction on use of property may also constitute a "taking" if not reasonably necessary to the
effectuation of a substantial public purpose or if it has an unduly harsh impact on the distinct investment-
backed expectations of the owner.88

The Ordinance gives the owners and operators of the "prohibited" establishments three (3) months from
its approval within which to "wind up business operations or to transfer to any place outside of the Ermita-
Malate area or convert said businesses to other kinds of business allowable within the area." The directive
to "wind up business operations" amounts to a closure of the establishment, a permanent deprivation of
property, and is practically confiscatory. Unless the owner converts his establishment to accommodate
an "allowed" business, the structure which housed the previous business will be left empty and gathering
dust. Suppose he transfers it to another area, he will likewise leave the entire establishment idle.
Consideration must be given to the substantial amount of money invested to build the edifices which the
owner reasonably expects to be returned within a period of time. It is apparent that the Ordinance leaves
no reasonable economically viable use of property in a manner that interferes with reasonable
expectations for use.

The second and third options to transfer to any place outside of the Ermita-Malate area or to convert
into allowed businessesare confiscatory as well. The penalty of permanent closure in cases of
subsequent violations found in Section 4 of the Ordinance is also equivalent to a "taking" of private
property.

The second option instructs the owners to abandon their property and build another one outside the
Ermita-Malate area. In every sense, it qualifies as a taking without just compensation with an additional
burden imposed on the owner to build another establishment solely from his coffers. The proffered
solution does not put an end to the "problem," it merely relocates it. Not only is this impractical, it is
unreasonable, onerous and oppressive. The conversion into allowed enterprises is just as ridiculous. How
may the respondent convert a motel into a restaurant or a coffee shop, art gallery or music lounge without
essentially destroying its property? This is a taking of private property without due process of law, nay,
even without compensation.

The penalty of closure likewise constitutes unlawful taking that should be compensated by the
government. The burden on the owner to convert or transfer his business, otherwise it will be closed

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permanently after a subsequent violation should be borne by the public as this end benefits them as a
whole.

Petitioners cannot take refuge in classifying the measure as a zoning ordinance. A zoning ordinance,
although a valid exercise of police power, which limits a "wholesome" property to a use which can not
reasonably be made of it constitutes the taking of such property without just compensation. Private
property which is not noxious nor intended for noxious purposes may not, by zoning, be destroyed
without compensation. Such principle finds no support in the principles of justice as we know them. The
police powers of local government units which have always received broad and liberal interpretation
cannot be stretched to cover this particular taking.

Distinction should be made between destruction from necessity and eminent domain. It needs restating
that the property taken in the exercise of police power is destroyed because it is noxious or intended for
a noxious purpose while the property taken under the power of eminent domain is intended for a public
use or purpose and is therefore "wholesome."89 If it be of public benefit that a "wholesome" property
remain unused or relegated to a particular purpose, then certainly the public should bear the cost of
reasonable compensation for the condemnation of private property for public use.90

Further, the Ordinance fails to set up any standard to guide or limit the petitioners' actions. It in no way
controls or guides the discretion vested in them. It provides no definition of the establishments covered
by it and it fails to set forth the conditions when the establishments come within its ambit of prohibition.
The Ordinance confers upon the mayor arbitrary and unrestricted power to close down establishments.
Ordinances such as this, which make possible abuses in its execution, depending upon no conditions or
qualifications whatsoever other than the unregulated arbitrary will of the city authorities as the
touchstone by which its validity is to be tested, are unreasonable and invalid. The Ordinance should have
established a rule by which its impartial enforcement could be secured.91

Ordinances placing restrictions upon the lawful use of property must, in order to be valid and
constitutional, specify the rules and conditions to be observed and conduct to avoid; and must not admit
of the exercise, or of an opportunity for the exercise, of unbridled discretion by the law enforcers in
carrying out its provisions.92

Thus, in Coates v. City of Cincinnati,93 as cited in People v. Nazario,94 the U.S. Supreme Court struck
down an ordinance that had made it illegal for "three or more persons to assemble on any sidewalk and
there conduct themselves in a manner annoying to persons passing by." The ordinance was nullified as it
imposed no standard at all "because one may never know in advance what 'annoys some people but does
not annoy others.' "

Similarly, the Ordinance does not specify the standards to ascertain which establishments "tend to disturb
the community," "annoy the inhabitants," and "adversely affect the social and moral welfare of the
community." The cited case supports the nullification of the Ordinance for lack of comprehensible
standards to guide the law enforcers in carrying out its provisions.

Petitioners cannot therefore order the closure of the enumerated establishments without infringing the
due process clause. These lawful establishments may be regulated, but not prevented from carrying on
their business. This is a sweeping exercise of police power that is a result of a lack of imagination on the
part of the City Council and which amounts to an interference into personal and private rights which the

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Court will not countenance. In this regard, we take a resolute stand to uphold the constitutional guarantee
of the right to liberty and property.

Worthy of note is an example derived from the U.S. of a reasonable regulation which is a far cry from the
ill-considered Ordinance enacted by the City Council.

In FW/PBS, INC. v. Dallas,95 the city of Dallas adopted a comprehensive ordinance regulating "sexually
oriented businesses," which are defined to include adult arcades, bookstores, video stores, cabarets,
motels, and theaters as well as escort agencies, nude model studio and sexual encounter centers. Among
other things, the ordinance required that such businesses be licensed. A group of motel owners were
among the three groups of businesses that filed separate suits challenging the ordinance. The motel
owners asserted that the city violated the due process clause by failing to produce adequate support for
its supposition that renting room for fewer than ten (10) hours resulted in increased crime and other
secondary effects. They likewise argued than the ten (10)-hour limitation on the rental of motel rooms
placed an unconstitutional burden on the right to freedom of association. Anent the first contention, the
U.S. Supreme Court held that the reasonableness of the legislative judgment combined with a study which
the city considered, was adequate to support the city's determination that motels permitting room rentals
for fewer than ten (10 ) hours should be included within the licensing scheme. As regards the second
point, the Court held that limiting motel room rentals to ten (10) hours will have no discernible effect on
personal bonds as those bonds that are formed from the use of a motel room for fewer than ten (10)
hours are not those that have played a critical role in the culture and traditions of the nation by cultivating
and transmitting shared ideals and beliefs.

The ordinance challenged in the above-cited case merely regulated the targeted businesses. It imposed
reasonable restrictions; hence, its validity was upheld.

The case of Ermita Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila,96 it needs
pointing out, is also different from this case in that what was involved therein was a measure which
regulated the mode in which motels may conduct business in order to put an end to practices which could
encourage vice and immorality. Necessarily, there was no valid objection on due process or equal
protection grounds as the ordinance did not prohibit motels. The Ordinance in this case however is not a
regulatory measure but is an exercise of an assumed power to prohibit.97

The foregoing premises show that the Ordinance is an unwarranted and unlawful curtailment of property
and personal rights of citizens. For being unreasonable and an undue restraint of trade, it cannot, even
under the guise of exercising police power, be upheld as valid.

B. The Ordinance violates Equal

Protection Clause

Equal protection requires that all persons or things similarly situated should be treated alike, both as to
rights conferred and responsibilities imposed. Similar subjects, in other words, should not be treated
differently, so as to give undue favor to some and unjustly discriminate against others.98 The guarantee
means that no person or class of persons shall be denied the same protection of laws which is enjoyed by
other persons or other classes in like circumstances.99 The "equal protection of the laws is a pledge of
the protection of equal laws."100 It limits governmental discrimination. The equal protection clause
extends to artificial persons but only insofar as their property is concerned.101

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The Court has explained the scope of the equal protection clause in this wise:

What does it signify? To quote from J.M. Tuason & Co. v. Land Tenure Administration: "The
ideal situation is for the law's benefits to be available to all, that none be placed outside the sphere
of its coverage. Only thus could chance and favor be excluded and the affairs of men governed by
that serene and impartial uniformity, which is of the very essence of the idea of law." There is
recognition, however, in the opinion that what in fact exists "cannot approximate the ideal. Nor
is the law susceptible to the reproach that it does not take into account the realities of the
situation. The constitutional guarantee then is not to be given a meaning that disregards what is,
what does in fact exist. To assure that the general welfare be promoted, which is the end of law,
a regulatory measure may cut into the rights to liberty and property. Those adversely affected
may under such circumstances invoke the equal protection clause only if they can show that the
governmental act assailed, far from being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least, discrimination that finds no support in
reason." Classification is thus not ruled out, it being sufficient to quote from the Tuason decision
anew "that the laws operate equally and uniformly on all persons under similar circumstances or
that all persons must be treated in the same manner, the conditions not being different, both in
the privileges conferred and the liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall be given to every person
under circumstances which, if not identical, are analogous. If law be looked upon in terms of
burden or charges, those that fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest.102

Legislative bodies are allowed to classify the subjects of legislation. If the classification is reasonable, the
law may operate only on some and not all of the people without violating the equal protection clause.103
The classification must, as an indispensable requisite, not be arbitrary. To be valid, it must conform to the
following requirements:

1) It must be based on substantial distinctions.

2) It must be germane to the purposes of the law.

3) It must not be limited to existing conditions only.

4) It must apply equally to all members of the class.104

In the Court's view, there are no substantial distinctions between motels, inns, pension houses, hotels,
lodging houses or other similar establishments. By definition, all are commercial establishments providing
lodging and usually meals and other services for the public. No reason exists for prohibiting motels and
inns but not pension houses, hotels, lodging houses or other similar establishments. The classification in
the instant case is invalid as similar subjects are not similarly treated, both as to rights conferred and
obligations imposed. It is arbitrary as it does not rest on substantial distinctions bearing a just and fair
relation to the purpose of the Ordinance.

The Court likewise cannot see the logic for prohibiting the business and operation of motels in the Ermita-
Malate area but not outside of this area. A noxious establishment does not become any less noxious if
located outside the area.

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The standard "where women are used as tools for entertainment" is also discriminatory as
prostitutionone of the hinted ills the Ordinance aims to banishis not a profession exclusive to women.
Both men and women have an equal propensity to engage in prostitution. It is not any less grave a sin
when men engage in it. And why would the assumption that there is an ongoing immoral activity apply
only when women are employed and be inapposite when men are in harness? This discrimination based
on gender violates equal protection as it is not substantially related to important government
objectives.105 Thus, the discrimination is invalid.

Failing the test of constitutionality, the Ordinance likewise failed to pass the test of consistency with
prevailing laws.

C. The Ordinance is repugnant

to general laws; it is ultra vires

The Ordinance is in contravention of the Code as the latter merely empowers local government units to
regulate, and not prohibit, the establishments enumerated in Section 1 thereof.

The power of the City Council to regulate by ordinances the establishment, operation, and maintenance
of motels, hotels and other similar establishments is found in Section 458 (a) 4 (iv), which provides that:

Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as
the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds
for the general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in
the proper exercise of the corporate powers of the city as provided for under Section 22 of this
Code, and shall:

. . .

(4) Regulate activities relative to the use of land, buildings and structures within the city in order
to promote the general welfare and for said purpose shall:

. . .

(iv) Regulate the establishment, operation and maintenance of cafes, restaurants, beerhouses,
hotels, motels, inns, pension houses, lodging houses, and other similar establishments, including
tourist guides and transports . . . .

While its power to regulate the establishment, operation and maintenance of any entertainment or
amusement facilities, and to prohibit certain forms of amusement or entertainment is provided under
Section 458 (a) 4 (vii) of the Code, which reads as follows:

Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as
the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds
for the general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in
the proper exercise of the corporate powers of the city as provided for under Section 22 of this
Code, and shall:

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 . . .

(4) Regulate activities relative to the use of land, buildings and structures within the city in order
to promote the general welfare and for said purpose shall:

. . .

(vii) Regulate the establishment, operation, and maintenance of any entertainment or

amusement facilities, including theatrical performances, circuses, billiard pools, public
dancing schools, public dance halls, sauna baths, massage parlors, and other places for
entertainment or amusement; regulate such other events or activities for amusement or
entertainment, particularly those which tend to disturb the community or annoy the
inhabitants, or require the suspension or suppression of the same; or, prohibit certain
forms of amusement or entertainment in order to protect the social and moral welfare of
the community.

Clearly, with respect to cafes, restaurants, beerhouses, hotels, motels, inns, pension houses, lodging
houses, and other similar establishments, the only power of the City Council to legislate relative thereto
is to regulate them to promote the general welfare. The Code still withholds from cities the power to
suppress and prohibit altogether the establishment, operation and maintenance of such establishments.
It is well to recall the rulings of the Court in Kwong Sing v. City of Manila106 that:

The word "regulate," as used in subsection (l), section 2444 of the Administrative Code, means
and includes the power to control, to govern, and to restrain; but "regulate" should not be
construed as synonymous with "suppress" or "prohibit." Consequently, under the power to
regulate laundries, the municipal authorities could make proper police regulations as to the mode
in which the employment or business shall be exercised.107

And in People v. Esguerra,108 wherein the Court nullified an ordinance of the Municipality of Tacloban
which prohibited the selling, giving and dispensing of liquor ratiocinating that the municipality is
empowered only to regulate the same and not prohibit. The Court therein declared that:

(A)s a general rule when a municipal corporation is specifically given authority or power to
regulate or to license and regulate the liquor traffic, power to prohibit is impliedly withheld.109

These doctrines still hold contrary to petitioners' assertion110 that they were modified by the Code
vesting upon City Councils prohibitory powers.

Similarly, the City Council exercises regulatory powers over public dancing schools, public dance halls,
sauna baths, massage parlors, and other places for entertainment or amusement as found in the first
clause of Section 458 (a) 4 (vii). Its powers to regulate, suppress and suspend "such other events or
activities for amusement or entertainment, particularly those which tend to disturb the community or
annoy the inhabitants" and to "prohibit certain forms of amusement or entertainment in order to protect
the social and moral welfare of the community" are stated in the second and third clauses, respectively
of the same Section. The several powers of the City Council as provided in Section 458 (a) 4 (vii) of the
Code, it is pertinent to emphasize, are separated by semi-colons (;), the use of which indicates that the
clauses in which these powers are set forth are independent of each other albeit closely related to justify

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being put together in a single enumeration or paragraph.111 These powers, therefore, should not be
confused, commingled or consolidated as to create a conglomerated and unified power of regulation,
suppression and prohibition.112

The Congress unequivocably specified the establishments and forms of amusement or entertainment
subject to regulation among which are beerhouses, hotels, motels, inns, pension houses, lodging houses,
and other similar establishments (Section 458 (a) 4 (iv)), public dancing schools, public dance halls, sauna
baths, massage parlors, and other places for entertainment or amusement (Section 458 (a) 4 (vii)). This
enumeration therefore cannot be included as among "other events or activities for amusement or
entertainment, particularly those which tend to disturb the community or annoy the inhabitants" or
"certain forms of amusement or entertainment" which the City Council may suspend, suppress or prohibit.

The rule is that the City Council has only such powers as are expressly granted to it and those which are
necessarily implied or incidental to the exercise thereof. By reason of its limited powers and the nature
thereof, said powers are to be construed strictissimi juris and any doubt or ambiguity arising out of the
terms used in granting said powers must be construed against the City Council.113 Moreover, it is a
general rule in statutory construction that the express mention of one person, thing, or consequence is
tantamount to an express exclusion of all others. Expressio unius est exclusio alterium. This maxim is based
upon the rules of logic and the natural workings of human mind. It is particularly applicable in the
construction of such statutes as create new rights or remedies, impose penalties or punishments, or
otherwise come under the rule of strict construction.114

The argument that the City Council is empowered to enact the Ordinance by virtue of the general welfare
clause of the Code and of Art. 3, Sec. 18 (kk) of the Revised Charter of Manila is likewise without merit.
On the first point, the ruling of the Court in People v. Esguerra,115 is instructive. It held that:

The powers conferred upon a municipal council in the general welfare clause, or section 2238 of
the Revised Administrative Code, refers to matters not covered by the other provisions of the
same Code, and therefore it can not be applied to intoxicating liquors, for the power to regulate
the selling, giving away and dispensing thereof is granted specifically by section 2242 (g) to
municipal councils. To hold that, under the general power granted by section 2238, a municipal
council may enact the ordinance in question, notwithstanding the provision of section 2242 (g),
would be to make the latter superfluous and nugatory, because the power to prohibit, includes
the power to regulate, the selling, giving away and dispensing of intoxicating liquors.

On the second point, it suffices to say that the Code being a later expression of the legislative will must
necessarily prevail and override the earlier law, the Revised Charter of Manila. Legis posteriores priores
contrarias abrogant, or later statute repeals prior ones which are repugnant thereto. As between two
laws on the same subject matter, which are irreconcilably inconsistent, that which is passed later prevails,
since it is the latest expression of legislative will.116 If there is an inconsistency or repugnance between
two statutes, both relating to the same subject matter, which cannot be removed by any fair and
reasonable method of interpretation, it is the latest expression of the legislative will which must prevail
and override the earlier.117

Implied repeals are those which take place when a subsequently enacted law contains provisions contrary
to those of an existing law but no provisions expressly repealing them. Such repeals have been divided
into two general classes: those which occur where an act is so inconsistent or irreconcilable with an
existing prior act that only one of the two can remain in force and those which occur when an act covers

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the whole subject of an earlier act and is intended to be a substitute therefor. The validity of such a repeal
is sustained on the ground that the latest expression of the legislative will should prevail.118

In addition, Section 534(f) of the Code states that "All general and special laws, acts, city charters, decrees,
executive orders, proclamations and administrative regulations, or part or parts thereof which are
inconsistent with any of the provisions of this Code are hereby repealed or modified accordingly." Thus,
submitting to petitioners' interpretation that the Revised Charter of Manila empowers the City Council to
prohibit motels, that portion of the Charter stating such must be considered repealed by the Code as it is
at variance with the latter's provisions granting the City Council mere regulatory powers.

It is well to point out that petitioners also cannot seek cover under the general welfare clause authorizing
the abatement of nuisances without judicial proceedings. That tenet applies to a nuisance per se, or one
which affects the immediate safety of persons and property and may be summarily abated under the
undefined law of necessity. It can not be said that motels are injurious to the rights of property, health or
comfort of the community. It is a legitimate business. If it be a nuisance per accidens it may be so proven
in a hearing conducted for that purpose. A motel is not per se a nuisance warranting its summary
abatement without judicial intervention.119

Notably, the City Council was conferred powers to prevent and prohibit certain activities and
establishments in another section of the Code which is reproduced as follows:

Section 458. Powers, Duties, Functions and Compensation. (a) The sangguniang panlungsod, as
the legislative body of the city, shall enact ordinances, approve resolutions and appropriate funds
for the general welfare of the city and its inhabitants pursuant to Section 16 of this Code and in
the proper exercise of the corporate powers of the city as provided for under Section 22 of this
Code, and shall:

(1) Approve ordinances and pass resolutions necessary for an efficient and effective city
government, and in this connection, shall:

. . .

(v) Enact ordinances intended to prevent, suppress and impose appropriate penalties for habitual
drunkenness in public places, vagrancy, mendicancy, prostitution, establishment and
maintenance of houses of ill repute, gambling and other prohibited games of
chance, fraudulent devices and ways to obtain money or property, drug addiction, maintenance
of drug dens, drug pushing, juvenile delinquency, the printing, distribution or exhibition of
obscene or pornographic materials or publications, and such other activities inimical to the
welfare and morals of the inhabitants of the city;

. . .

If it were the intention of Congress to confer upon the City Council the power to prohibit the
establishments enumerated in Section 1 of the Ordinance, it would have so declared in uncertain terms
by adding them to the list of the matters it may prohibit under the above-quoted Section. The Ordinance
now vainly attempts to lump these establishments with houses of ill-repute and expand the City Council's
powers in the second and third clauses of Section 458 (a) 4 (vii) of the Code in an effort to overreach its

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prohibitory powers. It is evident that these establishments may only be regulated in their establishment,
operation and maintenance.

It is important to distinguish the punishable activities from the establishments themselves. That these
establishments are recognized legitimate enterprises can be gleaned from another Section of the Code.
Section 131 under the Title on Local Government Taxation expressly mentioned proprietors or operators
of massage clinics, sauna, Turkish and Swedish baths, hotels, motels and lodging houses as among the
"contractors" defined in paragraph (h) thereof. The same Section also defined "amusement" as a
"pleasurable diversion and entertainment," "synonymous to relaxation, avocation, pastime or fun;" and
"amusement places" to include "theaters, cinemas, concert halls, circuses and other places of amusement
where one seeks admission to entertain oneself by seeing or viewing the show or performances." Thus, it
can be inferred that the Code considers these establishments as legitimate enterprises and activities. It is
well to recall the maxim reddendo singula singulis which means that words in different parts of a statute
must be referred to their appropriate connection, giving to each in its place, its proper force and effect,
and, if possible, rendering none of them useless or superfluous, even if strict grammatical construction
demands otherwise. Likewise, where words under consideration appear in different sections or are widely
dispersed throughout an act the same principle applies.120

Not only does the Ordinance contravene the Code, it likewise runs counter to the provisions of P.D. 499.
As correctly argued by MTDC, the statute had already converted the residential Ermita-Malate area into
a commercial area. The decree allowed the establishment and operation of all kinds of commercial
establishments except warehouse or open storage depot, dump or yard, motor repair shop, gasoline
service station, light industry with any machinery or funeral establishment. The rule is that for an
ordinance to be valid and to have force and effect, it must not only be within the powers of the council to
enact but the same must not be in conflict with or repugnant to the general law.121 As succinctly
illustrated in Solicitor General v. Metropolitan Manila Authority:122

The requirement that the enactment must not violate existing law explains itself. Local political
subdivisions are able to legislate only by virtue of a valid delegation of legislative power from the
national legislature (except only that the power to create their own sources of revenue and to
levy taxes is conferred by the Constitution itself). They are mere agents vested with what is called
the power of subordinate legislation. As delegates of the Congress, the local government units
cannot contravene but must obey at all times the will of their principal. In the case before us, the
enactment in question, which are merely local in origin cannot prevail against the decree, which
has the force and effect of a statute.123

Petitioners contend that the Ordinance enjoys the presumption of validity. While this may be the rule, it
has already been held that although the presumption is always in favor of the validity or reasonableness
of the ordinance, such presumption must nevertheless be set aside when the invalidity or
unreasonableness appears on the face of the ordinance itself or is established by proper evidence. The
exercise of police power by the local government is valid unless it contravenes the fundamental law of
the land, or an act of the legislature, or unless it is against public policy or is unreasonable, oppressive,
partial, discriminating or in derogation of a common right.124

Conclusion

All considered, the Ordinance invades fundamental personal and property rights and impairs personal
privileges. It is constitutionally infirm. The Ordinance contravenes statutes; it is discriminatory and

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unreasonable in its operation; it is not sufficiently detailed and explicit that abuses may attend the
enforcement of its sanctions. And not to be forgotten, the City Council under the Code had no power to
enact the Ordinance and is therefore ultra vires, null and void.

Concededly, the challenged Ordinance was enacted with the best of motives and shares the concern of
the public for the cleansing of the Ermita-Malate area of its social sins. Police power legislation of such
character deserves the full endorsement of the judiciary we reiterate our support for it. But inspite of
its virtuous aims, the enactment of the Ordinance has no statutory or constitutional authority to stand on.
Local legislative bodies, in this case, the City Council, cannot prohibit the operation of the enumerated
establishments under Section 1 thereof or order their transfer or conversion without infringing the
constitutional guarantees of due process and equal protection of laws not even under the guise of
police power.

WHEREFORE, the Petition is hereby DENIED and the decision of the Regional Trial Court declaring the
Ordinance void is AFFIRMED. Costs against petitioners.

SO ORDERED.

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