Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-17870             September 29, 1962

MINDANAO BUS COMPANY, petitioner, vs.THE CITY ASSESSOR & TREASURER and the BOARD OF TAX APPEALS of Cagayan de Oro City,respondents.

Binamira, Barria and Irabagon for petitioner.Vicente E. Sabellina for respondents.

LABRADOR, J.:

This is a petition for the review of the decision of the Court of Tax Appeals in C.T.A. Case No. 710 holding that the petitioner Mindanao Bus Company is liable to the payment of the realty tax on its maintenance and repair equipment hereunder referred to.

Respondent City Assessor of Cagayan de Oro City assessed at P4,400 petitioner's above-mentioned equipment. Petitioner appealed the assessment to the respondent Board of Tax Appeals on the ground that the same are not realty. The Board of Tax Appeals of the City sustained the city assessor, so petitioner herein filed with the Court of Tax Appeals a petition for the review of the assessment.

In the Court of Tax Appeals the parties submitted the following stipulation of facts:

Petitioner and respondents, thru their respective counsels agreed to the following stipulation of facts:

1. That petitioner is a public utility solely engaged in transporting passengers and cargoes by motor trucks, over its authorized lines in the Island of Mindanao, collecting rates approved by the Public Service Commission;

2. That petitioner has its main office and shop at Cagayan de Oro City. It maintains Branch Offices and/or stations at Iligan City, Lanao; Pagadian, Zamboanga del Sur; Davao City and Kibawe, Bukidnon Province;

3. That the machineries sought to be assessed by the respondent as real properties are the following:

(a) Hobart Electric Welder Machine, appearing in the attached photograph, marked Annex "A";

(b) Storm Boring Machine, appearing in the attached photograph, marked Annex "B";

(c) Lathe machine with motor, appearing in the attached photograph, marked Annex "C";

(d) Black and Decker Grinder, appearing in the attached photograph, marked Annex "D";

(e) PEMCO Hydraulic Press, appearing in the attached photograph, marked Annex "E";

(f) Battery charger (Tungar charge machine) appearing in the attached photograph, marked Annex "F"; and

(g) D-Engine Waukesha-M-Fuel, appearing in the attached photograph, marked Annex "G".

4. That these machineries are sitting on cement or wooden platforms as may be seen in the attached photographs which form part of this agreed stipulation of facts;

5. That petitioner is the owner of the land where it maintains and operates a garage for its TPU motor trucks; a repair shop; blacksmith and carpentry shops, and with these machineries which are placed therein, its TPU trucks are made; body constructed; and same are repaired in a condition to be serviceable in the TPU land transportation business it operates;

6. That these machineries have never been or were never used as industrial equipments to produce finished products for sale, nor to repair machineries, parts and the like offered to the

general public indiscriminately for business or commercial purposes for which petitioner has never engaged in, to date.1awphîl.nèt

The Court of Tax Appeals having sustained the respondent city assessor's ruling, and having denied a motion for reconsideration, petitioner brought the case to this Court assigning the following errors:

1. The Honorable Court of Tax Appeals erred in upholding respondents' contention that the questioned assessments are valid; and that said tools, equipments or machineries are immovable taxable real properties.

2. The Tax Court erred in its interpretation of paragraph 5 of Article 415 of the New Civil Code, and holding that pursuant thereto the movable equipments are taxable realties, by reason of their being intended or destined for use in an industry.

3. The Court of Tax Appeals erred in denying petitioner's contention that the respondent City Assessor's power to assess and levy real estate taxes on machineries is further restricted by section 31, paragraph (c) of Republic Act No. 521; and

4. The Tax Court erred in denying petitioner's motion for reconsideration.

Respondents contend that said equipments, tho movable, are immobilized by destination, in accordance with paragraph 5 of Article 415 of the New Civil Code which provides:

Art. 415. — The following are immovable properties:

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. (Emphasis ours.)

Note that the stipulation expressly states that the equipment are placed on wooden or cement platforms. They can be moved around and about in petitioner's repair shop. In the case of B. H. Berkenkotter vs. Cu Unjieng, 61 Phil. 663, the Supreme Court said:

Article 344 (Now Art. 415), paragraph (5) of the Civil Code, gives the character of real property to "machinery, liquid containers, instruments or implements intended by the owner of any building or land for use in connection with any industry or trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry."

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

So that movable equipments to be immobilized in contemplation of the law must first be "essential and principal elements" of an industry or works without which such industry or works would be "unable to function or carry on the industrial purpose for which it was established." We may here distinguish, therefore, those movable which become immobilized by destination because they are essential and principal elements in the industry for those which may not be so considered immobilized because they are merely incidental, not essential and principal. Thus, cash registers, typewriters, etc., usually found and used in hotels, restaurants, theaters, etc. are merely incidentals and are not and should not be considered immobilized by destination, for these businesses can continue or carry on their functions without these equity comments. Airline companies use forklifts, jeep-wagons, pressure pumps, IBM machines, etc. which are incidentals, not essentials, and thus retain their movable nature. On the other hand, machineries of breweries used in the manufacture of liquor and soft drinks, though movable in nature, are immobilized because they are essential to said industries; but the delivery trucks and adding machines which they usually own and use and are found within their industrial compounds are merely incidental and retain their movable nature.

Similarly, the tools and equipments in question in this instant case are, by their nature, not essential and principle municipal elements of petitioner's business of transporting passengers and cargoes by motor trucks. They are merely incidentals — acquired as movables and used only for expediency to facilitate and/or improve its service. Even without such tools and equipments, its business may be carried on, as petitioner has carried on, without such equipments, before the war. The transportation business could be carried on without the repair or service shop if its rolling equipment is repaired or serviced in another shop belonging to another.

The law that governs the determination of the question at issue is 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; (Civil Code of the Phil.)

Aside from the element of essentiality the above-quoted provision also requires that the industry or works be carried on in a building or on a piece of land. Thus in the case of Berkenkotter vs. Cu Unjieng, supra, the "machinery, liquid containers, and instruments or implements" are found in a building constructed on the land. A sawmill would also be installed in a building on land more or less permanently, and the sawing is conducted in the land or building.

But in the case at bar the equipments in question are destined only to repair or service the transportation business, which is not carried on in a building or permanently on a piece of land, as demanded by the law. Said equipments may not, therefore, be deemed real property.

Resuming what we have set forth above, we hold that the equipments in question are not absolutely essential to the petitioner's transportation business, and petitioner's business is not carried on in a building, tenement or on a specified land, so said equipment may not be considered real estate within the meaning of Article 415 (c) of the Civil Code.

WHEREFORE, the decision subject of the petition for review is hereby set aside and the equipment in question declared not subject to assessment as real estate for the purposes of the real estate tax. Without costs.

So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.Regala, Concepcion and Barrera JJ., took no part.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

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.

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 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 inStandard 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.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-11139             April 23, 1958

SANTOS EVANGELISTA, petitioner, vs.ALTO SURETY & INSURANCE CO., INC., respondent.

Gonzalo D. David for petitioner.Raul A. Aristorenas and Benjamin Relova for respondent.

CONCEPCION, J.:

This is an appeal by certiorari from a decision of the Court of Appeals.

Briefly, the facts are: On June 4, 1949, petitioner herein, Santos Evangelista, instituted Civil Case No. 8235 of the Court of First, Instance of Manila entitled " Santos Evangelista vs. Ricardo Rivera," for a sum of money. On the same date, he obtained a writ of attachment, which levied upon a house, built by Rivera on a land situated in Manila and leased to him, by filing copy of said writ and the corresponding notice of attachment with the Office of the Register of Deeds of Manila, on June 8, 1949. In due course, judgment was rendered in favor of Evangelista, who, on October 8, 1951, bought the house at public auction held in compliance with the writ of execution issued in said case. The corresponding definite deed of sale was issued to him on October 22, 1952, upon expiration of the period of redemption. When Evangelista sought to take possession of the house, Rivera refused to surrender it, upon the ground that he had leased the property from the Alto Surety & Insurance Co., Inc. — respondent herein — and that the latter is now the true owner of said property. It appears that on May 10, 1952, a definite deed of sale of the same house had been issued to respondent, as the highest bidder at an auction sale held, on September 29, 1950, in compliance with a writ of execution issued in Civil Case No. 6268 of the same court, entitled "Alto Surety & Insurance Co., Inc. vs. Maximo Quiambao, Rosario Guevara and Ricardo Rivera," in which judgment, for the sum of money, had been rendered in favor respondent herein, as plaintiff therein. Hence, on June 13, 1953, Evangelista instituted the present action against respondent and Ricardo Rivera, for the purpose of establishing his (Evangelista) title over said house, securing possession thereof, apart from recovering damages.

In its answer, respondent alleged, in substance, that it has a better right to the house, because the sale made, and the definite deed of sale executed, in its favor, on September 29, 1950 and May 10, 1952, respectively, precede the sale to Evangelista (October 8, 1951) and the definite deed of sale in his favor (October 22, 1952). It, also, made some special defenses which are discussed hereafter. Rivera, in effect, joined forces with respondent. After due trial, the Court of First Instance of Manila rendered judgment for Evangelista, sentencing Rivera and respondent to deliver the house in question to petitioner herein and to pay him, jointly and severally, forty pesos (P40.00) a month from October, 1952, until said delivery, plus costs.

On appeal taken by respondent, this decision was reversed by the Court of Appeals, which absolved said respondent from the complaint, upon the ground that, although the writ of attachment in favor of Evangelista had been filed with the Register of Deeds of Manila prior to the sale in favor of respondent, Evangelista did not acquire thereby a preferential lien, the attachment having been levied as if the house in question were immovable property, although in the opinion of the Court of Appeals, it is "ostensibly a personal property." As such, the Court of Appeals held, "the order of attachment . . . should have been served in the manner provided in subsection (e) of section 7 of Rule 59," of the Rules of Court, reading:

The property of the defendant shall be attached by the officer executing the order in the following manner:

(e) Debts and credits, and other personal property not capable of manual delivery, by leaving with the person owing such debts, or having in his possession or under his control, such credits or other personal property, or with, his agent, a copy of the order, and a notice that the debts owing by him to the defendant, and the credits and other personal property in his possession, or under his control, belonging to the defendant, are attached in pursuance of such order. (Emphasis ours.)

However, the Court of Appeals seems to have been of the opinion, also, that the house of Rivera should have been attached in accordance with subsection (c) of said section 7, as "personal property capable of manual delivery, by taking and safely keeping in his custody", for it declared that "Evangelists could not have . . . validly purchased Ricardo Rivera's house from the sheriff as the latter was not in possession thereof at the time he sold it at a public auction."

Evangelista now seeks a review, by certiorari, of this decision of the Court of Appeals. In this connection, it is not disputed that although the sale to the respondent preceded that made to Evangelists, the latter would have a better right if the writ of attachment, issued in his favor before the sale to the respondent, had been properly executed or enforced. This question, in turn, depends upon whether the house of Ricardo Rivera is real property or not. In the affirmative case, the applicable provision would be subsection (a) of section 7, Rule 59 of the Rules of Court, pursuant to which the attachment should be made "by filing with the registrar of deeds a copy of the order, together with a description of the property attached, and a notice that it is attached, and by leaving a copy of such order, description, and notice with the occupant of the property, if any there be."

Respondent maintains, however, and the Court of Appeals held, that Rivera's house is personal property, the levy upon which must be made in conformity with subsections (c) and (e) of said section 7 of Rule 59. Hence, the main issue before us is whether a house, constructed the lessee of the land on which it is built, should be dealt with, for purpose, of attachment, as immovable property, or as personal property.

It is, our considered opinion that said house is not personal property, much less a debt, credit or other personal property not capable of manual delivery, but immovable property. As explicitly held, in Laddera vs. Hodges (48 Off. Gaz., 5374), "a true building (not merely superimposed on the soil) is immovable or real property, whether it is erected by the owner of the land or by usufructuary or lessee. This is the doctrine of our Supreme Court in Leung Yee vs. Strong Machinery Company, 37 Phil., 644. And it is amply supported by the rulings of the French Court. . . ."

It is true that the parties to a deed of chattel mortgage may agree to consider a house as personal property for purposes of said contract (Luna vs. Encarnacion, * 48 Off. Gaz., 2664; Standard Oil Co. of New York vs. Jaramillo, 44 Phil., 630; De Jesus vs. Juan Dee Co., Inc., 72 Phil., 464). However, this view is good only insofar as thecontracting parties are concerned. It is based, partly, upon the principle of estoppel. Neither this principle, nor said view, is applicable to strangers to said contract. Much less is it in point where there has been no contractwhatsoever, with respect to the status of the house involved, as in the case at bar. Apart from this, in Manarang vs. Ofilada (99 Phil., 108; 52 Off. Gaz., 3954), we held:

The question now before us, however, is: Does the fact that the parties entering into a contract regarding a house gave said property the consideration of personal property in their contract, bind the sheriff in advertising the property's sale at public auction as personal property? It is to be remembered that in the case at bar the action was to collect a loan secured by a chattel mortgage on the house. It is also to be remembered that in practice it is the judgment creditor who points out to the sheriff the properties that the sheriff is to levy upon in execution, and the judgment creditor in the case at bar is the party in whose favor the owner of the house had conveyed it by way of chattel mortgage and, therefore, knew its consideration as personal property.

These considerations notwithstanding, we hold that the rules on execution do not allow, and, we should notinterpret them in such a way as to allow, the special consideration that parties to a contract may have desired to impart to real estate, for example, as personal property, when they are, not ordinarily so. Sales on execution affect the public and third persons. The regulation governing sales on execution are for public officials to follow. The form of proceedings prescribed for each kind of property is suited to its character, not to the character, which the parties have given to it or desire to give it. When the rules speak of personal property, property which is ordinarily so considered is meant; and when real property is spoken of, it means property which is generally known as real property. The regulations were never intended to suit the consideration that parties may have privately given to the property levied upon. Enforcement of regulations would be difficult were the convenience or agreement of private parties to determine or govern the nature of the proceedings. We therefore hold that the mere fact that a house was the subject of the chattel mortgage and was considered as personal property by the parties does not make said house personal property for purposes of the notice to be given for its sale of public auction. This ruling is demanded by the need for a definite, orderly and well defined regulation for official and public guidance and would prevent confusion and misunderstanding.

We, therefore, declare that the house of mixed materials levied upon on execution, although subject of a contract of chattel mortgage between the owner and a third person, is real property within the purview of Rule 39, section 16, of the Rules of Court as it has become a permanent fixture of the land, which, is real property. (42 Am. Jur. 199-200; Leung Yee vs. Strong Machinery Co., 37 Phil., 644; Republic vs. Ceniza, et al., 90 Phil., 544; Ladera,, et al. vs. Hodges, et al., [C.A.] Off. Gaz. 5374.)" (Emphasis ours.)

The foregoing considerations apply, with equal force, to the conditions for the levy of attachment, for it similarly affects the public and third persons.

It is argued, however, that, even if the house in question were immovable property, its attachment by Evangelista was void or ineffective, because, in the language of the Court of Appeals, "after presenting a Copy of the order of attachment in the Office of the Register of Deeds, the person who might then be in possession of the house, the sheriff took no pains to serve Ricardo Rivera, or other copies thereof." This finding of the Court of Appeals is neither conclusive upon us, nor accurate.

The Record on Appeal, annexed to the petition for Certiorari, shows that petitioner alleged, in paragraph 3 of the complaint, that he acquired the house in question "as a consequence of the levy of an attachment and execution of the judgment in Civil Case No. 8235" of the Court of First Instance of Manila. In his answer (paragraph 2), Ricardo Rivera admitted said attachment execution of judgment. He alleged, however, by way a of special defense, that the title of respondent "is superior to that of plaintiff because it is based on a public instrument," whereas Evangelista relied upon a "promissory note" which "is only a private instrument"; that said Public instrument in favor of respondent "is superior also to the judgment in Civil Case No. 8235"; and that plaintiff's claim against Rivera amounted only to P866, "which is much below the real value" of said house, for which reason it would be "grossly unjust to acquire the property for such an inadequate consideration." Thus, Rivera impliedly admitted that his house had been attached, that the house had been sold to Evangelista in accordance with the requisite formalities, and that said attachment was valid, although allegedly inferior to the rights of respondent, and the consideration for the sale to Evangelista was claimed to be inadequate.

Respondent, in turn, denied the allegation in said paragraph 3 of the complaint, but only " for the reasons stated in its special defenses" namely: (1) that by virtue of the sale at public auction, and the final deed executed by the sheriff in favor of respondent, the same became the "legitimate owner of the house" in question; (2) that respondent "is a buyer in good faith and for value"; (3) that respondent "took possession and control of said house"; (4) that "there was no valid attachment by the plaintiff and/or the Sheriff of Manila of the property in question as neither took actual or constructive possession or control of the property at any time"; and (5) "that the alleged registration of plaintiff's attachment, certificate of sale and final deed in the Office of Register of Deeds, Manila, if there was any, is likewise, not valid as there is no registry of transactions covering houses erected on land belonging to or leased from another." In this manner, respondent claimed a better right, merely under the theory that, in case of double sale of immovable property, the purchaser who first obtains possession in good faith, acquires title, if the sale has not been "recorded . . . in the Registry of Property" (Art. 1544, Civil Code of the Philippines), and that the writ of attachment and the notice of attachment in favor of Evangelista should be considered unregistered, "as there is no registry of transactions covering houses erected on land belonging to or leased from another." In fact, said article 1544 of the Civil Code of the Philippines, governing double sales, was quoted on page 15 of the brief for respondent in the Court of Appeals, in support of its fourth assignment of error therein, to the effect that it "has preference or priority over the sale of the same property" to Evangelista.

In other words, there was no issue on whether copy of the writ and notice of attachment had been served on Rivera. No evidence whatsoever, to the effect that Rivera had not been served with copies of said writ and notice, was introduced in the Court of First Instance. In its brief in the Court of Appeals, respondent did not aver, or even, intimate, that no such copies were served by the sheriff upon Rivera. Service thereof on Rivera had been impliedly admitted by the defendants, in their respective answers, and by their behaviour throughout the proceedings in the Court of First Instance, and, as regards respondent, in the Court of Appeals. In fact, petitioner asserts in his brief herein (p. 26) that copies of said writ and notice were delivered to Rivera, simultaneously with copies of the complaint, upon service of summons, prior to the filing of copies of said writ and notice with the register deeds, andthe truth of this assertion has not been directly and positively challenged or denied in the brief filed before us by respondent herein. The latter did not dare therein to go beyond making a statement — for the first time in the course of these proceedings, begun almost five (5) years ago (June 18, 1953) — reproducing substantially the aforementioned finding of the Court of Appeals and then quoting the same.

Considering, therefore, that neither the pleadings, nor the briefs in the Court of Appeals, raised an issue on whether or not copies of the writ of attachment and notice of attachment had been served upon Rivera; that the defendants had impliedly admitted-in said pleadings and briefs, as well as by their conduct during the entire proceedings, prior to the rendition of the decision of the Court of Appeals — that Rivera had received copies of said documents; and that, for this reason, evidently, no proof was introduced thereon, we, are of the opinion, and so hold that the finding of the Court of Appeals to the effect that said copies had not been served upon Rivera is based upon a misapprehension of the specific issues involved therein and goes beyond the range of such issues, apart from being contrary to the aforementioned admission by the parties, and that, accordingly, a grave abuse of discretion was committed in making said finding, which is, furthermore, inaccurate.

Wherefore, the decision of the Court of Appeals is hereby reversed, and another one shall be entered affirming that of the Court of First Instance of Manila, with the costs of this instance against respondent, the Alto Surety and Insurance Co., Inc. It is so ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Reyes, J.B.L., Endencia and Felix, JJ.,concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 120098            October 2, 2001

RUBY L. TSAI, petitioner, vs.HON. COURT OF APPEALS, EVER TEXTILE MILLS, INC. and MAMERTO R VILLALUZ, respondents.

x---------------------------------------------------------x

[G.R. No. 120109. October 2, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs.HON. COURT OF APPEALS, EVER TEXTILE MILLS and MAMERTO R VILLALUZ, respondents.

QUISUMBING, J.:

These consolidated cases assail the decision1 of the Court of Appeals in CA-G.R. CV No. 32986, affirming the decision2 of the Regional Trial Court of Manila, Branch 7, in Civil Case No. 89-48265. Also assailed is respondent court's resolution denying petitioners' motion for reconsideration.

On November 26, 1975, respondent Ever Textile Mills, Inc. (EVERTEX) obtained a three million peso (P3,000,000.00) loan from petitioner Philippine Bank of Communications (PBCom). As security for the loan, EVERTEX executed in favor of PBCom, a deed of Real and Chattel Mortgage over the lot under TCT No. 372097, where its factory stands, and the chattels located therein as enumerated in a schedule attached to the mortgage contract. The pertinent portions of the Real and Chattel Mortgage are quoted below:

MORTGAGE

(REAL AND CHATTEL)

xxx           xxx           xxx

The MORTGAGOR(S) hereby transfer(s) and convey(s), by way of First Mortgage, to the MORTGAGEE, . . . certain parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter exist thereon, situated in . . .

"Annex A"

(Real and Chattel Mortgage executed by Ever Textile Mills in favor of PBCommunications — continued)

LIST OF MACHINERIES & EQUIPMENT

A. Forty Eight (48) units of Vayrow Knitting Machines-Tompkins made in Hongkong:

Serial Numbers Size of Machines

xxx           xxx           xxx

B. Sixteen (16) sets of Vayrow Knitting Machines made in Taiwan.

xxx           xxx           xxx

C. Two (2) Circular Knitting Machines made in West Germany.

xxx           xxx           xxx

D. Four (4) Winding Machines.

xxx           xxx           xxx

SCHEDULE "A"

I. TCT # 372097 - RIZAL

xxx           xxx           xxx

II. Any and all buildings and improvements now existing or hereafter to exist on the above-mentioned lot.

III. MACHINERIES & EQUIPMENT situated, located and/or installed on the above-mentioned lot located at . . .

(a) Forty eight sets (48) Vayrow Knitting Machines . . .

(b) Sixteen sets (16) Vayrow Knitting Machines . . .

(c) Two (2) Circular Knitting Machines . . .

(d) Two (2) Winding Machines . . .

(e) Two (2) Winding Machines . . .

IV. Any and all replacements, substitutions, additions, increases and accretions to above properties.

xxx           xxx           xxx3

On April 23, 1979, PBCom granted a second loan of P3,356,000.00 to EVERTEX. The loan was secured by a Chattel Mortgage over personal properties enumerated in a list attached thereto. These listed properties were similar to those listed in Annex A of the first mortgage deed.

After April 23, 1979, the date of the execution of the second mortgage mentioned above, EVERTEX purchased various machines and equipments.

On November 19, 1982, due to business reverses, EVERTEX filed insolvency proceedings docketed as SP Proc. No. LP-3091-P before the defunct Court of First Instance of Pasay City, Branch XXVIII. The CFI issued an order on November 24, 1982 declaring the corporation insolvent. All its assets were taken into the custody of the Insolvency Court, including the collateral, real and personal, securing the two mortgages as abovementioned.

In the meantime, upon EVERTEX's failure to meet its obligation to PBCom, the latter commenced extrajudicial foreclosure proceedings against EVERTEX under Act 3135, otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" and Act 1506 or "The Chattel Mortgage Law". A Notice of Sheriff's Sale was issued on December 1, 1982.

On December 15, 1982, the first public auction was held where petitioner PBCom emerged as the highest bidder and a Certificate of Sale was issued in its favor on the same date. On December 23, 1982, another public auction was held and again, PBCom was the highest bidder. The sheriff issued a Certificate of Sale on the same day.

On March 7, 1984, PBCom consolidated its ownership over the lot and all the properties in it. In November 1986, it leased the entire factory premises to petitioner Ruby L. Tsai for P50,000.00 a month. On May 3, 1988, PBCom sold the factory, lock, stock and barrel to Tsai for P9,000,000.00, including the contested machineries.

On March 16, 1989, EVERTEX filed a complaint for annulment of sale, reconveyance, and damages with the Regional Trial Court against PBCom, alleging inter alia that the extrajudicial foreclosure of subject mortgage was in violation of the Insolvency Law. EVERTEX claimed that no rights having been transmitted to PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights over such assets sold to her, and should reconvey the assets.

Further, EVERTEX averred that PBCom, without any legal or factual basis, appropriated the contested properties, which were not included in the Real and Chattel Mortgage of November 26, 1975 nor in the Chattel Mortgage of April 23, 1979, and neither were those properties included in the Notice of Sheriff's Sale dated December 1, 1982 and Certificate of Sale . . . dated December 15, 1982.

The disputed properties, which were valued at P4,000,000.00, are: 14 Interlock Circular Knitting Machines, 1 Jet Drying Equipment, 1 Dryer Equipment, 1 Raisin Equipment and 1 Heatset Equipment.

The RTC found that the lease and sale of said personal properties were irregular and illegal because they were not duly foreclosed nor sold at the December 15, 1982 auction sale since these were not included in the schedules attached to the mortgage contracts. The trial court decreed:

WHEREFORE, judgment is hereby rendered in favor of plaintiff corporation and against the defendants:

1. Ordering the annulment of the sale executed by defendant Philippine Bank of Communications in favor of defendant Ruby L. Tsai on May 3, 1988 insofar as it affects the personal properties listed in par. 9 of the complaint, and their return to the plaintiff corporation through its assignee, plaintiff Mamerto R. Villaluz, for disposition by the Insolvency Court, to be done within ten (10) days from finality of this decision;

2. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P5,200,000.00 as compensation for the use and possession of the properties in question from November 1986 to February 1991 and P100,000.00 every month thereafter, with interest thereon at the legal rate per annum until full payment;

3. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P50,000.00 as and for attorney's fees and expenses of litigation;

4. Ordering the defendants to pay jointly and severally the plaintiff corporation the sum of P200,000.00 by way of exemplary damages;

5. Ordering the dismissal of the counterclaim of the defendants; and

6. Ordering the defendants to proportionately pay the costs of suit.

SO ORDERED.4

Dissatisfied, both PBCom and Tsai appealed to the Court of Appeals, which issued its decision dated August 31, 1994, the dispositive portion of which reads:

WHEREFORE, except for the deletion therefrom of the award; for exemplary damages, and reduction of the actual damages, from P100,000.00 to P20,000.00 per month, from November 1986 until subject personal properties are restored to appellees, the judgment appealed from is hereby AFFIRMED, in all other respects. No pronouncement as to costs.5

Motion for reconsideration of the above decision having been denied in the resolution of April 28, 1995, PBCom and Tsai filed their separate petitions for review with this Court.

In G.R No. 120098, petitioner Tsai ascribed the following errors to the respondent court:

I

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN EFFECT MAKING A CONTRACT FOR THE PARTIES BY TREATING THE 1981 ACQUIRED MACHINERIES AS CHATTELS INSTEAD OF REAL PROPERTIES WITHIN THEIR EARLIER 1975 DEED OF REAL AND CHATTEL MORTGAGE OR 1979 DEED OF CHATTEL MORTGAGE.

II

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING THAT THE DISPUTED 1981 MACHINERIES ARE NOT REAL PROPERTIES DEEMED PART OF THE MORTGAGE — DESPITE THE CLEAR IMPORT OF THE EVIDENCE AND APPLICABLE RULINGS OF THE SUPREME COURT.

III

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN DEEMING PETITIONER A PURCHASER IN BAD FAITH.

IV

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN ASSESSING PETITIONER ACTUAL DAMAGES, ATTORNEY'S FEES AND EXPENSES OF LITIGATION — FOR WANT OF VALID FACTUAL AND LEGAL BASIS.

V

THE HONORABLE COURT OF APPEALS (SECOND DIVISION) ERRED IN HOLDING AGAINST PETITIONER'S ARGUMENTS ON PRESCRIPTION AND LACHES.6

In G.R. No. 120098, PBCom raised the following issues:

I.

DID THE COURT OF APPEALS VALIDLY DECREE THE MACHINERIES LISTED UNDER PARAGRAPH 9 OF THE COMPLAINT BELOW AS PERSONAL PROPERTY OUTSIDE OF THE 1975 DEED OF REAL ESTATE MORTGAGE AND EXCLUDED THEM FROM THE REAL PROPERTY EXTRAJUDICIALLY FORECLOSED BY PBCOM DESPITE THE PROVISION IN THE 1975 DEED THAT ALL AFTER-ACQUIRED PROPERTIES DURING THE LIFETIME OF THE MORTGAGE SHALL FORM PART THEREOF, AND DESPITE THE UNDISPUTED FACT THAT SAID MACHINERIES ARE BIG AND HEAVY, BOLTED OR CEMENTED ON THE REAL PROPERTY MORTGAGED BY EVER TEXTILE MILLS TO PBCOM, AND WERE ASSESSED FOR REAL ESTATE TAX PURPOSES?

II

CAN PBCOM, WHO TOOK POSSESSION OF THE MACHINERIES IN QUESTION IN GOOD FAITH, EXTENDED CREDIT FACILITIES TO EVER TEXTILE MILLS WHICH AS OF 1982 TOTALLED P9,547,095.28, WHO HAD SPENT FOR MAINTENANCE AND SECURITY ON THE DISPUTED MACHINERIES AND HAD TO PAY ALL THE BACK TAXES OF EVER TEXTILE MILLS BE LEGALLY COMPELLED TO RETURN TO EVER THE SAID MACHINERIES OR IN LIEU THEREOF BE ASSESSED DAMAGES. IS THAT SITUATION TANTAMOUNT TO A CASE OF UNJUST ENRICHMENT?7

The principal issue, in our view, is whether or not the inclusion of the questioned properties in the foreclosed properties is proper. The secondary issue is whether or not the sale of these properties to petitioner Ruby Tsai is valid.

For her part, Tsai avers that the Court of Appeals in effect made a contract for the parties by treating the 1981 acquired units of machinery as chattels instead of real properties within their earlier 1975 deed of Real and Chattel Mortgage or 1979 deed of Chattel Mortgage.8 Additionally, Tsai argues that respondent court erred in holding that the disputed 1981 machineries are not real properties.9 Finally, she contends that the Court of Appeals erred in holding against petitioner's arguments on prescription and laches10 and in assessing petitioner actual damages, attorney's fees and expenses of litigation, for want of valid factual and legal basis.11

Essentially, PBCom contends that respondent court erred in affirming the lower court's judgment decreeing that the pieces of machinery in dispute were not duly foreclosed and could not be legally leased nor sold to Ruby Tsai. It further argued that the Court of Appeals' pronouncement that the pieces of machinery in question were personal properties have no factual and legal basis. Finally, it asserts that the Court of Appeals erred in assessing damages and attorney's fees against PBCom.

In opposition, private respondents argue that the controverted units of machinery are not "real properties" but chattels, and, therefore, they were not part of the foreclosed real properties, rendering the lease and the subsequent sale thereof to Tsai a nullity.12

Considering the assigned errors and the arguments of the parties, we find the petitions devoid of merit and ought to be denied.

Well settled is the rule that the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misapprehension of facts.13 This rule is applied more stringently when the findings of fact of the RTC is affirmed by the Court of Appeals.14

The following are the facts as found by the RTC and affirmed by the Court of Appeals that are decisive of the issues: (1) the "controverted machineries" are not covered by, or included in, either of the two mortgages, the Real Estate and Chattel Mortgage, and the pure Chattel Mortgage; (2) the said machineries were not included in the list of properties appended to the Notice of Sale, and neither were they included in the Sheriff's Notice of Sale of the foreclosed properties.15

Petitioners contend that the nature of the disputed machineries, i.e., that they were heavy, bolted or cemented on the real property mortgaged by EVERTEX to PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the New Civil Code. This assertion, however, does not settle the issue. Mere nuts and bolts do not foreclose the controversy. We have to look at the parties' intent.

While it is true that the controverted properties appear to be immobile, a perusal of the contract of Real and Chattel Mortgage executed by the parties herein gives us a contrary indication. In the case at bar, both the trial and the appellate courts reached the same finding that the true intention of PBCOM and the owner, EVERTEX, is to treat machinery and equipment as chattels. The pertinent portion of respondent appellate court's ruling is quoted below:

As stressed upon by appellees, appellant bank treated the machineries as chattels; never as real properties. Indeed, the 1975 mortgage contract, which was actually real and chattel mortgage, militates against appellants' posture. It should be noted that the printed form used by appellant

bank was mainly for real estate mortgages. But reflective of the true intention of appellant PBCOM and appellee EVERTEX was the typing in capital letters, immediately following the printed caption of mortgage, of the phrase "real and chattel." So also, the "machineries and equipment" in the printed form of the bank had to be inserted in the blank space of the printed contract and connected with the word "building" by typewritten slash marks. Now, then, if the machineries in question were contemplated to be included in the real estate mortgage, there would have been no necessity to ink a chattel mortgage specifically mentioning as part III of Schedule A a listing of the machineries covered thereby. It would have sufficed to list them as immovables in the Deed of Real Estate Mortgage of the land and building involved.

As regards the 1979 contract, the intention of the parties is clear and beyond question. It refers solely tochattels. The inventory list of the mortgaged properties is an itemization of sixty-three (63) individually described machineries while the schedule listed only machines and 2,996,880.50 worth of finished cotton fabrics and natural cotton fabrics.16

In the absence of any showing that this conclusion is baseless, erroneous or uncorroborated by the evidence on record, we find no compelling reason to depart therefrom.

Too, assuming arguendo that the properties in question are immovable by nature, nothing detracts the parties from treating it as chattels to secure an obligation under the principle of estoppel. As far back as Navarro v. Pineda, 9 SCRA 631 (1963), an immovable may be considered a personal property if there is a stipulation as when it is used as security in the payment of an obligation where a chattel mortgage is executed over it, as in the case at bar.

In the instant case, the parties herein: (1) executed a contract styled as "Real Estate Mortgage and Chattel Mortgage," instead of just "Real Estate Mortgage" if indeed their intention is to treat all properties included therein as immovable, and (2) attached to the said contract a separate "LIST OF MACHINERIES & EQUIPMENT". These facts, taken together, evince the conclusion that the parties' intention is to treat these units of machinery as chattels. A fortiori, the contested after-acquired properties, which are of the same description as the units enumerated under the title "LIST OF MACHINERIES & EQUIPMENT," must also be treated as chattels.

Accordingly, we find no reversible error in the respondent appellate court's ruling that inasmuch as the subject mortgages were intended by the parties to involve chattels, insofar as equipment and machinery were concerned, the Chattel Mortgage Law applies, which provides in Section 7 thereof that: "a chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding."

And, since the disputed machineries were acquired in 1981 and could not have been involved in the 1975 or 1979 chattel mortgages, it was consequently an error on the part of the Sheriff to include subject machineries with the properties enumerated in said chattel mortgages.

As the auction sale of the subject properties to PBCom is void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have.17

Petitioner Tsai also argued that assuming that PBCom's title over the contested properties is a nullity, she is nevertheless a purchaser in good faith and for value who now has a better right than EVERTEX.

To the contrary, however, are the factual findings and conclusions of the trial court that she is not a purchaser in good faith. Well-settled is the rule that the person who asserts the status of a purchaser in good faith and for value has the burden of proving such assertion.18 Petitioner Tsai failed to discharge this burden persuasively.

Moreover, a purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time of purchase, or before he has notice of the claims or interest of some other person in the property.19 Records reveal, however, that when Tsai purchased the controverted properties, she knew of respondent's claim thereon. As borne out by the records, she received the letter of respondent's counsel, apprising her of respondent's claim, dated February 27, 1987.20 She replied thereto on March 9, 1987.21 Despite her knowledge of respondent's claim, she proceeded to buy the contested units of machinery on May 3, 1988. Thus, the RTC did not err in finding that she was not a purchaser in good faith.

Petitioner Tsai's defense of indefeasibility of Torrens Title of the lot where the disputed properties are located is equally unavailing. This defense refers to sale of lands and not to sale of properties situated therein. Likewise, the mere fact that the lot where the factory and the disputed properties stand is in PBCom's name does not automatically make PBCom the owner of everything found therein, especially in view of EVERTEX's letter to Tsai enunciating its claim.

Finally, petitioners' defense of prescription and laches is less than convincing. We find no cogent reason to disturb the consistent findings of both courts below that the case for the reconveyance of the disputed properties was filed within the reglementary period. Here, in our view, the doctrine of laches does not apply. Note that upon petitioners' adamant refusal to heed EVERTEX's claim, respondent company immediately filed an action to recover possession and ownership of the disputed properties. There is no evidence showing any failure or neglect on its part, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands would apply only where by reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights. Moreover, except for very strong reasons, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the rights of an owner.22

As to the award of damages, the contested damages are the actual compensation, representing rentals for the contested units of machinery, the exemplary damages, and attorney's fees.

As regards said actual compensation, the RTC awarded P100,000.00 corresponding to the unpaid rentals of the contested properties based on the testimony of John Chua, who testified that the P100,000.00 was based on the accepted practice in banking and finance, business and investments that the rental price must take into account the cost of money used to buy them. The Court of Appeals did not give full credence to Chua's projection and reduced the award to P20,000.00.

Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.23 However, the allegations of respondent company as to the amount of unrealized rentals due them as actual damages remain mere assertions unsupported by documents and other competent evidence. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.24 However, we are not prepared to disregard the following dispositions of the respondent appellate court:

. . . In the award of actual damages under scrutiny, there is nothing on record warranting the said award of P5,200,000.00, representing monthly rental income of P100,000.00 from November 1986 to February 1991, and the additional award of P100,000.00 per month thereafter.

As pointed out by appellants, the testimonial evidence, consisting of the testimonies of Jonh (sic) Chua and Mamerto Villaluz, is shy of what is necessary to substantiate the actual damages allegedly sustained by appellees, by way of unrealized rental income of subject machineries and equipments.

The testimony of John Cua (sic) is nothing but an opinion or projection based on what is claimed to be a practice in business and industry. But such a testimony cannot serve as the sole basis for assessing the actual damages complained of. What is more, there is no showing that had appellant Tsai not taken possession of the machineries and equipments in question, somebody was willing and ready to rent the same for P100,000.00 a month.

xxx           xxx           xxx

Then, too, even assuming arguendo that the said machineries and equipments could have generated a rental income of P30,000.00 a month, as projected by witness Mamerto Villaluz, the same would have been a gross income. Therefrom should be deducted or removed, expenses for maintenance and repairs . . . Therefore, in the determination of the actual damages or unrealized rental income sued upon, there is a good basis to calculate that at least four months in a year, the machineries in dispute would have been idle due to absence of a lessee or while being repaired. In the light of the foregoing rationalization and computation, We believe that a net unrealized rental income of P20,000.00 a month, since November 1986, is more realistic and fair.25

As to exemplary damages, the RTC awarded P200,000.00 to EVERTEX which the Court of Appeals deleted. But according to the CA, there was no clear showing that petitioners acted malevolently, wantonly and oppressively. The evidence, however, shows otherwise.It is a requisite to award exemplary damages that the wrongful act must be accompanied by bad faith,26 and the guilty acted in a wanton, fraudulent, oppressive, reckless or malevolent manner.27 As previously stressed, petitioner Tsai's act of purchasing the controverted properties despite her knowledge of EVERTEX's claim was oppressive and subjected the already insolvent respondent to gross disadvantage. Petitioner PBCom also received the same letters of Atty. Villaluz, responding thereto on March 24, 1987.28 Thus, PBCom's act of taking all the properties found in the factory of the financially handicapped respondent, including those properties not covered by or included in the mortgages, is equally oppressive and tainted with bad faith. Thus, we are in agreement with the RTC that an award of exemplary damages is proper.

The amount of P200,000.00 for exemplary damages is, however, excessive. Article 2216 of the Civil Code provides that no proof of pecuniary loss is necessary for the adjudication of exemplary damages, their assessment being left to the discretion of the court in accordance with the circumstances of each case.29 While the imposition of exemplary damages is justified in this case, equity calls for its reduction. In Inhelder Corporation v. Court of Appeals, G.R. No. L-52358, 122 SCRA 576, 585, (May 30, 1983), we

laid down the rule that judicial discretion granted to the courts in the assessment of damages must always be exercised with balanced restraint and measured objectivity. Thus, here the award of exemplary damages by way of example for the public good should be reduced to P100,000.00.

By the same token, attorney's fees and other expenses of litigation may be recovered when exemplary damages are awarded.30 In our view, RTC's award of P50,000.00 as attorney's fees and expenses of litigation is reasonable, given the circumstances in these cases.

WHEREFORE, the petitions are DENIED. The assailed decision and resolution of the Court of Appeals in CA-G.R. CV No. 32986 are AFFIRMED WITH MODIFICATIONS. Petitioners Philippine Bank of Communications and Ruby L. Tsai are hereby ordered to pay jointly and severally Ever Textile Mills, Inc. the following: (1) P20,000.00 per month, as compensation for the use and possession of the properties in question from November 198631 until subject personal properties are restored to respondent corporation; (2) P100,000.00 by way of exemplary damages, and (3) P50,000.00 as attorney's fees and litigation expenses. Costs against petitioners.

SO ORDERED.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

THIRD DIVISION

[G.R. No. 137705.  August 22, 2000]

SERG’S PRODUCTS, INC., and SERGIO T. GOQUIOLAY, petitioners, vs. PCI LEASING AND FINANCE, INC., respondent.

D E C I S I O N

PANGANIBAN, J.:

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

The Case

Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision [1] of the Court of Appeals (CA)[2] in CA-GR SP No. 47332 and its February 26, 1999 Resolution[3] denying reconsideration.  The decretal portion of the CA Decision reads as follows:

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

In its February 18, 1998 Order,[5] the Regional Trial Court (RTC) of Quezon City (Branch 218)[6] issued a Writ of Seizure.[7] The March 18, 1998 Resolution[8] denied petitioners’ Motion for Special Protective Order, praying that the deputy sheriff be enjoined “from seizing immobilized or other real properties in (petitioners’) factory in Cainta, Rizal and to return to their original place whatever immobilized machineries or equipments he may have removed.”[9]

The Facts

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

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

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

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

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

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

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

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

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

Ruling of the Court of Appeals

Citing the Agreement of the parties, the appellate court held that the subject machines were personal property, and that they had only been leased, not owned, by petitioners.   It also

ruled that the “words of the contract are clear and leave no doubt upon the true intention of the contracting parties.”  Observing that Petitioner Goquiolay was an experienced businessman who was “not unfamiliar with the ways of the trade,”  it ruled that he “should have realized the import of the document he signed.”  The CA further held:

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

Hence, this Petition.[11]

The Issues

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

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

B. Whether or not the contract between the parties is a loan or a lease.”[12]

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

The Court’s Ruling

The Petition is not meritorious.

Preliminary Matter: Procedural Questions

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

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

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

Main Issue:   Nature of the Subject Machinery

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] 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] In that sense, petitioners are correct in arguing that the said machines are real, not personal, property pursuant to Article 415 (5) of the Civil Code.[17]

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

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

Hence, in Tumalad v. Vicencio,[19] the Court upheld the intention of the parties to treat a 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 Mills[20] also held that the machinery used in a factory and essential to the industry, as in the present case, was a proper subject of a writ of replevin because it was treated as personal property in a contract.  Pertinent portions of the Court’s ruling are reproduced hereunder:

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

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

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

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

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

Validity of the Lease Agreement

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

These arguments are unconvincing.  The validity and the nature of the contract are the lis mota of the civil action pending before the RTC.  A resolution of these questions, therefore, is

effectively a resolution of the merits of the case.  Hence, they should be threshed out in the trial, not in the proceedings involving the issuance of the Writ of Seizure.

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

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

Besides, these questions require a determination of facts and a presentation of evidence, both of which have no place in a petition for certiorari in the CA under Rule 65 or in a petition for review in this Court under Rule 45.[29]

Reliance on the Lease Agreement

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

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

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

SO ORDERED.

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

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. Nos. L-10817-18             February 28, 1958

ENRIQUE LOPEZ, petitioner, vs.VICENTE OROSA, JR., and PLAZA THEATRE, INC., respondents.

Nicolas Belmonte and Benjamin T. de Peralta for petitioner.Tolentino & Garcia and D. R. Cruz for respondent Luzon Surety Co., Inc. Jose B. Macatangay for respondent Plaza Theatre, Inc.

FELIX, J.:

Enrique Lopez is a resident of Balayan, Batangas, doing business under the trade name of Lopez-Castelo Sawmill. Sometime in May, 1946, Vicente Orosa, Jr., also a resident of the same province, dropped at Lopez' house and invited him to make an investment in the theatre business. It was intimated that Orosa, his family and close friends were organizing a corporation to be known as Plaza Theatre, Inc., that would engage in such venture. Although Lopez expressed his unwillingness to invest of the same, he agreed to supply the lumber necessary for the construction of the proposed theatre, and at Orosa's behest and assurance that the latter would be personally liable for any account that the said construction might incur, Lopez further agreed that payment therefor would be on demand and not cash on delivery basis. Pursuant to said verbal agreement, Lopez delivered the lumber which was used for the construction of the Plaza Theatre on May 17, 1946, up to December 4 of the same year. But of the total cost of the materials amounting to P62,255.85, Lopez was paid only P20,848.50, thus leaving a balance of P41,771.35.

We may state at this juncture that the Plaza Theatre was erected on a piece of land with an area of 679.17 square meters formerly owned by Vicente Orosa, Jr., and was acquired by the corporation on September 25, 1946, for P6,000. As Lopez was pressing Orosa for payment of the remaining unpaid obligation, the latter and Belarmino Rustia, the president of the corporation, promised to obtain a bank loan by mortgaging the properties of the Plaza Theatre., out of which said amount of P41,771.35 would be satisfied, to which assurance Lopez had to accede. Unknown to him, however, as early as November, 1946, the corporation already got a loan for P30,000 from the Philippine National Bank with the Luzon Surety Company as surety, and the corporation in turn executed a mortgage on the land and building in favor of said company as counter-security. As the land at that time was not yet brought under the operation of the Torrens System, the mortgage on the same was registered on November 16, 1946, under Act No. 3344. Subsequently, when the corporation applied for the registration of the land under Act 496, such mortgage was not revealed and thus Original Certificate of Title No. O-391 was correspondingly issued on October 25, 1947, without any encumbrance appearing thereon.

Persistent demand from Lopez for the payment of the amount due him caused Vicente Orosa, Jr. to execute on March 17, 1947, an alleged "deed of assignment" of his 420 shares of stock of the Plaza Theater, Inc., at P100 per share or with a total value of P42,000 in favor of the creditor, and as the obligation still remained unsettled, Lopez filed on November 12, 1947, a complaint with the Court of First Instance of Batangas (Civil Case No. 4501 which later became R-57) against Vicente Orosa, Jr. and Plaza Theater, Inc., praying that defendants be sentenced to pay him jointly and severally the sum of P41,771.35, with legal interest from the firing of the action; that in case defendants fail to pay the same, that the building and the land covered by OCT No. O-391 owned by the corporation be sold at public auction and the proceeds thereof be applied to said indebtedness; or that the 420 shares of the capital stock of the Plaza Theatre, Inc., assigned by Vicente Orosa, Jr., to said plaintiff be sold at public auction for the same purpose; and for such other remedies as may be warranted by the circumstances. Plaintiff also caused the annotation of a notice of lis pendens on said properties with the Register of Deeds.

Defendants Vicente Orosa, Jr. and Plaza Theatre, Inc., filed separate answers, the first denying that the materials were delivered to him as a promoter and later treasurer of the corporation, because he had purchased and received the same on his personal account; that the land on which the movie house was constructed was not charged with a lien to secure the payment of the aforementioned unpaid obligation; and that the 420 shares of stock of the Plaza Theatre, Inc., was not assigned to plaintiff as collaterals but as direct security for the payment of his indebtedness. As special defense, this defendant contended that as the 420 shares of stock assigned and conveyed by the assignor and accepted by Lopez as direct security for the payment of the amount of P41,771.35 were personal properties, plaintiff was barred from recovering any deficiency if the proceeds of the sale thereof at public auction would not be sufficient to cover and satisfy the obligation. It was thus prayed that he be declared exempted from the payment of any deficiency in case the proceeds from the sale of said personal properties would not be enough to cover the amount sought to be collected.

Defendant Plaza Theatre, Inc., on the other hand, practically set up the same line of defense by alleging that the building materials delivered to Orosa were on the latter's personal account; and that there was no understanding that said materials would be paid jointly and severally by Orosa and the corporation, nor was a lien charged on the properties of the latter to secure payment of the same obligation. As special defense, defendant corporation averred that while it was true that the materials purchased by Orosa were sold by the latter to the corporation, such transactions were in good faith and for valuable consideration thus when plaintiff failed to claim said materials within 30 days from the time of removal thereof from Orosa, lumber became a different and distinct specie and plaintiff lost whatever rights he might have in the same and consequently had no recourse against the Plaza Theatre, Inc., that the claim could not have been refectionary credit, for such kind of obligation referred to an indebtedness incurred in the repair or reconstruction of something already existing and this concept did not include an entirely new work; and that the Plaza Theatre, Inc., having been incorporated on October 14, 1946, it could not have contracted any obligation prior to said date. It was, therefore, prayed that the complaint be dismissed; that said defendant be awarded the sum P 5,000 for damages, and such other relief as may be just and proper in the premises.

The surety company, in the meantime, upon discovery that the land was already registered under the Torrens System and that there was a notice of lis pendens thereon, filed on August 17, 1948, or within the 1-year period after the issuance of the certificate of title, a petition for review of the decree of the land registration court dated October 18, 1947, which was made the basis of OCT No. O-319, in order to annotate the rights and interests of the surety company over said properties (Land Registration Case No. 17 GLRO Rec. No. 296). Opposition thereto was offered by Enrique Lopez, asserting that the amount demanded by him constituted a preferred lien over the properties of the obligors; that the surety company was guilty of negligence when it failed to present an opposition to the application for registration of the property; and that if any violation of the rights and interest of said surety would ever be made, same must be subject to the lien in his favor.

The two cases were heard jointly and in a decision dated October 30, 1952, the lower Court, after making an exhaustive and detailed analysis of the respective stands of the parties and the evidence adduced at the trial, held that defendants Vicente Orosa, Jr., and the Plaza Theatre, Inc., were jointly liable for the unpaid balance of the cost of lumber used in the construction of the building and the plaintiff thus acquired the materialman's lien over the same. In making the pronouncement that the lien was merely confined to the building and did not extend to the land on which the construction was made, the trial judge took into consideration the fact that when plaintiff started the delivery of lumber in May, 1946, the land was not yet owned by the corporation; that the mortgage in favor of Luzon Surety Company was previously registered under Act No. 3344; that the codal provision (Art. 1923 of the old Spanish Civil Code) specifying that refection credits are preferred could refer only to buildings which are also classified as real properties, upon which said refection was made. It was, however, declared that plaintiff's lien on the building was superior to the right of the surety company. And finding that the Plaza Theatre, Inc., had no objection to the review of the decree issued in its favor by the land registration court and the inclusion in the title of the encumbrance in favor of the surety company, the court a quo granted the petition filed by the latter company. Defendants Orosa and the Plaza Theatre, Inc., were thus required to pay jointly the amount of P41,771.35 with legal interest and costs within 90 days from notice of said decision; that in case of default, the 420 shares of stock assigned by Orosa to plaintiff be sold at public auction and the proceeds thereof be applied to the payment of the amount due the plaintiff, plus interest and costs; and that the encumbrance in favor of the surety company be endorsed at the back of OCT No. O-391, with notation I that with respect to the building, said mortgage was subject to the materialman's lien in favor of Enrique Lopez.

Plaintiff tried to secure a modification of the decision in so far as it declared that the obligation of therein defendants was joint instead of solidary, and that the lien did not extend to the land, but same was denied by order the court of December 23, 1952. The matter was thus appealed to the Court of appeals, which affirmed the lower court's ruling, and then to this Tribunal. In this instance, plaintiff-appellant raises 2 issues: (1) whether a materialman's lien for the value of the materials used in the construction of a building attaches to said structure alone and does not extend to the land on which the building is adhered to; and (2) whether the lower court and the Court of Appeals erred in not providing that the material mans liens is superior to the mortgage executed in favor surety company not only on the building but also on the land.

It is to be noted in this appeal that Enrique Lopez has not raised any question against the part of the decision sentencing defendants Orosa and Plaza Theatre, Inc., to pay jointly the sum of P41,771.35, so We will not take up or consider anything on that point. Appellant, however, contends that the lien created in favor of the furnisher of the materials used for the construction, repair or refection of a building, is also extended to the land which the construction was made, and in support thereof he relies on Article 1923 of the Spanish Civil Code, pertinent law on the matter, which reads as follows:

ART. 1923. With respect to determinate real property and real rights of the debtor, the following are preferred:

x x x           x x x           x x x

5. Credits for refection, not entered or recorded, with respect to the estate upon which the refection was made, and only with respect to other credits different from those mentioned in four preceding paragraphs.

It is argued that in view of the employment of the phrase real estate, or immovable property, and inasmuch as said provision does not contain any specification delimiting the lien to the building, said article must be construed as to embrace both the land and the building or structure adhering thereto. We cannot subscribe to this view, for while it is true that generally, real estate connotes the land and the building constructed thereon, it is obvious that the inclusion of the building, separate and distinct from the land, in the enumeration of what may constitute real properties1 could mean only one thing — that a building is by itself an immovable property, a doctrine already pronounced by this Court in the case of Leung Yee vs. Strong Machinery Co., 37 Phil., 644. Moreover, and in view of the absence of any specific provision of law to the contrary, a building is an immovable property, irrespective of whether or not said structure and the land on which it is adhered to belong to the same owner.

A close examination of the provision of the Civil Code invoked by appellant reveals that the law gives preference to unregistered refectionary credits only with respect to the real estate upon which the refection or work was made. This being so, the inevitable conclusion must be that the lien so created

attaches merely to the immovable property for the construction or repair of which the obligation was incurred. Evidently, therefore, the lien in favor of appellant for the unpaid value of the lumber used in the construction of the building attaches only to said structure and to no other property of the obligors.

Considering the conclusion thus arrived at, i.e., that the materialman's lien could be charged only to the building for which the credit was made or which received the benefit of refection, the lower court was right in, holding at the interest of the mortgagee over the land is superior and cannot be made subject to the said materialman's lien.

Wherefore, and on the strength of the foregoing considerations, the decision appealed from is hereby affirmed, with costs against appellant. It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-32917 July 18, 1988

JULIAN S. YAP, petitioner, vs.HON. SANTIAGO O. TAÑADA, etc., and GOULDS PUMPS INTERNATIONAL (PHIL.), INC., respondents.

Paterno P. Natinga for private respondent.

 

NARVASA, J.:

The petition for review on certiorari at bar involves two (2) Orders of respondent Judge Tañada 1 in Civil Case No. 10984. The first, dated September 16, 1970, denied petitioner Yap's motion to set aside execution sale and to quash alias writ of execution. The second, dated November 21, 1970, denied Yap's motion for reconsideration. The issues concerned the propriety of execution of a judgment claimed to be "incomplete, vague and non-final," and the denial of petitioner's application to prove and recover damages resulting from alleged irregularities in the process of execution.

The antecedents will take some time in the telling. The case began in the City Court of Cebu with the filing by Goulds Pumps International (Phil.), Inc. of a complaint 2 against Yap and his wife 3 seeking recovery of P1,459.30 representing the balance of the price and installation cost of a water pump in the latter's premises. 4 The case resulted in a judgment by the City Court on November 25, 1968, reading as follows:

When this case was called for trial today, Atty. Paterno Natinga appeared for the plaintiff Goulds and informed the court that he is ready for trial. However, none of the defendants appeared despite notices having been served upon them.

Upon petition Atty. Natinga, the plaintiff is hereby allowed to present its evidence ex-parte.

After considering the evidence of the plaintiff, the court hereby renders judgment in favor of the plaintiff and against the defendant (Yap), ordering the latter to pay to the former the sum of Pl,459.30 with interest at the rate of 12% per annum until fully paid, computed from August 12, 1968, date of the filing of the complaint; to pay the sum of P364.80 as reasonable attorney's fees, which is equivalent " to 25% of the unpaid principal obligation; and to pay the costs, if any.

Yap appealed to the Court of First Instance. The appeal was assigned to the sala of respondent Judge Tañada. For failure to appear for pre-trial on August 28, 1968, this setting being intransferable since the pre-trial had already been once postponed at his instance, 5 Yap was declared in default by Order of Judge Tañada dated August 28, 1969, 6 reading as follows:

When this case was called for pre-trial this morning, the plaintiff and counsel appeared, but neither the defendants nor his counsel appeared despite the fact that they were duly notified of the pre-trial set this morning. Instead he filed an Ex-Parte Motion for Postponement which this Court received only this morning, and on petition of counsel for the plaintiff that the Ex-Parte Motion for Postponement was not filed in accordance with the Rules of Court he asked that the same be denied and the defendants be declared in default; .. the motion for the plaintiff being well- grounded, the defendants are hereby declared in default and the Branch Clerk of Court ..is hereby authorized to receive evidence for the plaintiff and .. submit his report within ten (10) days after reception of evidence.

Goulds presented evidence ex parte and judgment by default was rendered the following day by Judge Tañada requiring Yap to pay to Goulds (1) Pl,459.30 representing the unpaid balance of the pump purchased by him; (2) interest of 12% per annum thereon until fully paid; and (3) a sum equivalent to 25% of the amount due as attorney's fees and costs and other expenses in prosecuting the action. Notice of the judgment was served on Yap on September 1, 1969. 7

On September 16, 1969 Yap filed a motion for reconsideration. 8 In it he insisted that his motion for postponement should have been granted since it expressed his desire to explore the possibility of an amicable settlement; that the court should give the parties time to arrive at an amicable settlement failing which, he should be allowed to present evidence in support of his defenses (discrepancy as to the price and breach of warranty). The motion was not verified or accompanied by any separate affidavit. Goulds opposed the motion. Its opposition 9 drew attention to the eleventh-hour motion for postponement of Yap which had resulted in the cancellation of the prior hearing of June 30, 1969 despite Goulds' vehement objection, and the re-setting thereof on August 28, 1969 with intransferable character; it averred that Yap had again sought postponement of this last hearing by another eleventh-hour motion on the plea that an amicable settlement would be explored, yet he had never up to that time ever broached the matter, 10 and that this pattern of seeking to obtain last-minute postponements was discernible also in the proceedings before the City Court. In its opposition, Goulds also adverted to the examination made by it of the pump, on instructions of the City Court, with a view to remedying the defects claimed to exist by Yap; but the examination had disclosed the pump's perfect condition. Yap's motion for reconsideration was denied by Order dated October 10, 1969, notice of which was received by Yap on October 4, 1969. 11

On October 15, 1969 Judge Tañada issued an Order granting Goulds' Motion for Issuance of Writ of Execution dated October 14, 1969, declaring the reasons therein alleged to be meritorious. 12 Yap forthwith filed an "Urgent Motion for Reconsideration of Order" dated October 17, 1969, 13 contending that the judgment had not yet become final, since contrary to Goulds' view, his motion for reconsideration was not pro forma for lack of an affidavit of merit, this not being required under Section 1 (a) of Rule 37 of the Rules of Court upon which his motion was grounded. Goulds presented an opposition dated October 22, 1969. 14 It pointed out that in his motion for reconsideration Yap had claimed to have a valid defense to the action, i.e., ".. discrepancy as to price and breach of seller's warranty," in effect, that there was fraud on Goulds' paint; Yap's motion for reconsideration should therefore have been supported by an affidavit of

merit respecting said defenses; the absence thereof rendered the motion for reconsideration fatally defective with the result that its filing did not interrupt the running of the period of appeal. The opposition also drew attention to the failure of the motion for reconsideration to specify the findings or conclusions in the judgment claimed to be contrary to law or not supported by the evidence, making it a pro forma motion also incapable of stopping the running of the appeal period. On October 23, 1969, Judge Tañada denied Yap's motion for reconsideration and authorized execution of the judgment.  15 Yap sought reconsideration of this order, by another motion dated October 29, 1969. 16 This motion was denied by Order dated January 26, 1970. 17 Again Yap moved for reconsideration, and again was rebuffed, by Order dated April 28, 1970. 18

In the meantime the Sheriff levied on the water pump in question, 19 and by notice dated November 4, 1969, scheduled the execution sale thereof on November 14, 1969. 20 But in view of the pendency of Yap's motion for reconsideration of October 29, 1969, suspension of the sale was directed by Judge Tañada in an order dated November 6, 1969. 21

Counsel for the plaintiff is hereby given 10 days time to answer the Motion, dated October 29, 1969, from receipt of this Order and in the meantime, the Order of October 23, 1969, insofar as it orders the sheriff to enforce the writ of execution is hereby suspended.

It appears however that a copy of this Order was not transmitted to the Sheriff "through oversight, inadvertence and pressure of work" of the Branch Clerk of Court. 22 So the Deputy Provincial Sheriff went ahead with the scheduled auction sale and sold the property levied on to Goulds as the highest bidder. 23 He later submitted the requisite report to the Court dated November 17, 1969, 24 as well as the "Sheriffs Return of Service" dated February 13, 1970, 25 in both of which it was stated that execution had been "partially satisfied." It should be observed that up to this time, February, 1970, Yap had not bestirred himself to take an appeal from the judgment of August 29, 1969.

On May 9, 1970 Judge Tañada ordered the issuance of an alias writ of execution on Gould's ex parte motion therefor. 26 Yap received notice of the Order on June 11. Twelve (1 2) days later, he filed a "Motion to Set Aside Execution Sale and to Quash Alias Writ of Execution." 27 As regards the original, partial execution of the judgment, he argued that —

1) "the issuance of the writ of execution on October 16, 1969 was contrary to law, the judgment sought to be executed not being final and executory;" and

2) "the sale was made without the notice required by Sec. 18, Rule 39, of the New Rules of Court," i.e., notice by publication in case of execution sale of real property, the pump and its accessories being immovable because attached to the ground with character of permanency (Art. 415, Civil Code).

And with respect to the alias writ, he argued that it should not have issued because —

1) "the judgment sought to be executed is null and void" as "it deprived the defendant of his day in court" and "of due process;"

2) "said judgment is incomplete and vague" because there is no starting point for computation of the interest imposed, or a specification of the "other expenses incurred in prosecuting this case" which Yap had also been ordered to pay;

3) "said judgment is defective because it contains no statement of facts but a mere recital of the evidence; and

4) "there has been a change in the situation of the parties which makes execution unjust and inequitable" because Yap suffered damages by reason of the illegal execution.

Goulds filed an opposition on July 6, 1970. Yap's motion was thereafter denied by Order dated September 16, 1970. Judge Tañada pointed out that the motion had "become moot and academic" since the decision of August 29, 1969, "received by the defendant on September 1, 1969 had long become final when the Order for the Issuance of a Writ of Execution was promulgated on October 15, 1969." His Honor also stressed that —

The defendant's Motion for Reconsideration of the Courts decision was in reality one for new trial. Regarded as motion for new trial it should allege the grounds for new trial, provided for in the Rules of Court, to be supported by affidavit of merits; and this the defendant failed to do. If the defendant sincerely desired for an opportunity to submit to an amicable settlement, which he failed to do extra judicially despite the ample time before him, he should have appeared in the pre- trial to achieve the same purpose.

Judge Tañada thereafter promulgated another Order dated September 21, 1970 granting a motion of Goulds for completion of execution of the judgment of August 29, 1969 to be undertaken by the City Sheriff of Cebu. Once more, Yap sought reconsideration. He submitted a "Motion for Reconsideration of Two Orders" dated October 13, 1970, 28 seeking the setting aside not only of this Order of September 21,

1970 but also that dated September 16, 1970, denying his motion to set aside execution dated June 23, 1970. He contended that the Order of September 21, 1970 (authorizing execution by the City Sheriff) was premature, since the 30-day period to appeal from the earlier order of September 16, 1970 (denying his motion to set aside) had not yet expired. He also reiterated his view that his motion for reconsideration dated September 15, 1969 did not require that it be accompanied by an affidavit of merits. This last motion was also denied for "lack of merits," by Order dated November 21, 1970. 29

On December 3, 1970, Yap filed a "Notice of Appeal" manifesting his intention to appeal to the Supreme Court on certiorari only on questions of law, "from the Order ... of September 16, 1970 ... and from the Order ... of November 21, 1970, ... pursuant to sections 2 and 3 of Republic Act No. 5440." He filed his petition for review with this Court on January 5, 1971, after obtaining an extension therefor. 30

The errors of law he attributes to the Court a quo are the following: 31

1) refusing to invalidate the execution pursuant to its Order of October 16, 1969 although the judgment had not then become final and executory and despite its being incomplete and vague;

2) ignoring the fact that the execution sale was carried out although it (the Court) had itself ordered suspension of execution on November 6, 1969;

3) declining to annul the execution sale of the pump and accessories subject of the action although made without the requisite notice prescribed for the sale of immovables; and

4) refusing to allow the petitioner to prove irregularities in the process of execution which had resulted in damages to him.

Notice of the Trial Court's judgment was served on Yap on September 1, 1969. His motion for reconsideration thereof was filed 15 days thereafter, on September 16, 1969. Notice of the Order denying the motion was received by him on October 14, 1969. The question is whether or not the motion for reconsideration — which was not verified, or accompanied by an affidavit of merits (setting forth facts constituting his meritorious defenses to the suit) or other sworn statement (stating facts excusing his failure to appear at the pre-trial was pro forma and consequently had not interrupted the running of the period of appeal. It is Yap's contention that his motion was notpro forma for lack of an affidavit of merits, such a document not being required by Section 1 (a) of Rule 37 of the Rules of Court upon which his motion was based. This is incorrect.

Section 2, Rule 37 precisely requires that when the motion for new trial is founded on Section 1 (a), it should be accompanied by an affidavit of merit.

xxx xxx xxx

When the motion is made for the causes mentioned in subdivisions (a) and (b) of the preceding section, it shall be proved in the manner provided for proof of motions. Affidavit or affidavits of merits shall also be attached to a motion for the cause mentioned in subdivision (a) which may be rebutted by counter-affidavits.

xxx xxx xxx 32

Since Yap himself asserts that his motion for reconsideration is grounded on Section 1 (a) of Rule 37, 33 i.e., fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which ... (the) aggrieved party has probably been impaired in his rights" — this being in any event clear from a perusal of the motion which theorizes that he had "been impaired in his rights" because he was denied the right to present evidence of his defenses (discrepancy as to price and breach of warranty) — it was a fatal omission to fail to attach to his motion an affidavit of merits, i.e., an affidavit "showing the facts (not conclusions) constituting the valid x x defense which the movant may prove in case a new trial is granted." 34 The requirement of such an affidavit is essential because obviously "a new trial would be a waste of the court's time if the complaint turns out to be groundless or the defense ineffective." 35

In his motion for reconsideration, Yap also contended that since he had expressed a desire to explore the possibility of an amicable settlement, the Court should have given him time to do so, instead of declaring him in default and thereafter rendering judgment by default on Gould's ex parte evidence.

The bona fides of this desire to compromise is however put in doubt by the attendant circumstances. It was manifested in an eleventh-hour motion for postponement of the pre-trial which had been scheduled with intransferable character since it had already been earlier postponed at Yap's instance; it had never been mentioned at any prior time since commencement of the litigation; such a possible compromise (at least in general or preliminary terms) was certainly most appropriate for consideration at the pre-trial; in fact Yap was aware that the matter was indeed a proper subject of a pre-trial agenda, yet he sought to avoid appearance at said pre-trial which he knew to be intransferable in character. These considerations and the dilatory tactics thus far attributable to him-seeking postponements of hearings, or failing to appear therefor despite notice, not only in the Court of First Instance but also in the City Court — proscribe belief

in the sincerity of his avowed desire to negotiate a compromise. Moreover, the disregard by Yap of the general requirement that "(n)otice of a motion shall be served by the applicant to all parties concerned at least three (3) days before the hearing thereof, together with a copy of the motion, and of any affidavits and other papers accompanying it," 36 for which no justification whatever has been offered, also militates against the bona fides of Yap's expressed wish for an amicable settlement. The relevant circumstances do not therefore justify condemnation, as a grave abuse of discretion, or a serious mistake, of the refusal of the Trial Judge to grant postponement upon this proferred ground.

The motion for reconsideration did not therefore interrupt the running of the period of appeal. The time during which it was pending before the court — from September 16, 1969 when it was filed with the respondent Court until October 14, 1969 when notice of the order denying the motion was received by the movant — could not be deducted from the 30-day period of appeal. 37 This is the inescapable conclusion from a consideration of Section 3 of Rule 41 which in part declares that, "The "time during which a motion to set aside the judgment or order or for a new trial has been pending shall be deducted, unless such motion fails to satisfy the requirements of Rule 37. 38

Notice of the judgment having been received by Yap on September 1, 1969, and the period of appeal therefrom not having been interrupted by his motion for reconsideration filed on September 16, 1969, the reglementary period of appeal expired thirty (30) days after September 1, 1969, or on October 1, 1969, without an appeal being taken by Yap. The judgment then became final and executory; Yap could no longer take an appeal therefrom or from any other subsequent orders; and execution of judgment correctly issued on October 15, 1969, "as a matter of right." 39

The next point discussed by Yap, that the judgment is incomplete and vague, is not well taken. It is true that the decision does not fix the starting time of the computation of interest on the judgment debt, but this is inconsequential since that time is easily determinable from the opinion, i.e., from the day the buyer (Yap) defaulted in the payment of his obligation, 40 on May 31, 1968. 41 The absence of any disposition regarding his counterclaim is also immaterial and does not render the judgment incomplete. Yap's failure to appear at the pre-trial without justification and despite notice, which caused the declaration of his default, was a waiver of his right to controvert the plaintiff s proofs and of his right to prove the averments of his answer, inclusive of the counterclaim therein pleaded. Moreover, the conclusion in the judgment of the merit of the plaintiff s cause of action was necessarily and at the same time a determination of the absence of merit of the defendant's claim of untenability of the complaint and of malicious prosecution.

Yap's next argument that the water pump had become immovable property by its being installed in his residence is also untenable. The Civil Code considers as immovable property, among others, anything "attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object." 42 The pump does not fit this description. It could be, and was in fact separated from Yap's premises without being broken or suffering deterioration. Obviously the separation or removal of the pump involved nothing more complicated than the loosening of bolts or dismantling of other fasteners.

Yap's last claim is that in the process of the removal of the pump from his house, Goulds' men had trampled on the plants growing there, destroyed the shed over the pump, plugged the exterior casings with rags and cut the electrical and conduit pipes; that he had thereby suffered actual-damages in an amount of not less than P 2,000.00, as well as moral damages in the sum of P 10,000.00 resulting from his deprivation of the use of his water supply; but the Court had refused to allow him to prove these acts and recover the damages rightfully due him. Now, as to the loss of his water supply, since this arose from acts legitimately done, the seizure on execution of the water pump in enforcement of a final and executory judgment, Yap most certainly is not entitled to claim moral or any other form of damages therefor.

WHEREFORE, the petition is DENIED and the appeal DISMISSED, and the Orders of September 16, 1970 and November 21, 1970 subject thereof, AFFIRMED in toto. Costs against petitioner.

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-7057           October 29, 1954

MACHINERY & ENGINEERING SUPPLIES, INC., petitioner, vs.THE HONORABLE COURT OF APPEALS, HON. POTENCIANO PECSON, JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, IPO LIMESTONE CO., INC., and ANTONIO VILLARAMA, respondents.

Vicente J. Francisco for petitioner.Capistrano and Capistrano for respondents.

CONCEPCION, J.:

This is an appeal by certiorari, taken by petitioner Machinery and Engineering Supplies Inc., from a decision of the Court of Appeals denying an original petition for certiorari filed by said petitioner against Hon. Potenciano Pecson, Ipo Limestone Co., Inc., and Antonio Villarama, the respondents herein.

The pertinent facts are set forth in the decision of the Court of Appeals, from which we quote:

On March 13, 1953, the herein petitioner filed a complaint for replevin in the Court of First Instance of Manila, Civil Case No. 19067, entitled "Machinery and Engineering Supplies, Inc., Plaintiff, vs. Ipo Limestone Co., Inc., and Dr. Antonio Villarama, defendants", for the recovery of the machinery and equipment sold and delivered to said defendants at their factory in barrio Bigti, Norzagaray, Bulacan. Upon application ex-parte of the petitioner company, and upon approval of petitioner's bond in the sum of P15,769.00, on March 13,1953, respondent judge issued an order, commanding the Provincial Sheriff of Bulacan to seize and take immediate possession of the properties specified in the order (Appendix I, Answer). On March 19, 1953, two deputy sheriffs of Bulacan, the said Ramon S. Roco, and a crew of technical men and laborers proceeded to Bigti, for the purpose of carrying the court's order into effect. Leonardo Contreras, Manager of the respondent Company, and Pedro Torres, in charge thereof, met the deputy sheriffs, and Contreras handed to them a letter addressed to Atty. Leopoldo C. Palad, ex-oficio Provincial Sheriff of Bulacan, signed by Atty. Adolfo Garcia of the defendants therein, protesting against the seizure of the properties in question, on the ground that they are not personal properties. Contending that the Sheriff's duty is merely ministerial, the deputy sheriffs, Roco, the latter's crew of technicians and laborers, Contreras and Torres, went to the factory. Roco's attention was called to the fact that the equipment could not possibly be dismantled without causing damages or injuries to the wooden frames attached to them. As Roco insisted in dismantling the equipment on his own responsibility, alleging that the bond was posted for such eventuality, the deputy sheriffs directed that some of the supports thereof be cut (Appendix 2). On March 20, 1953, the defendant Company filed an urgent motion, with a counter-bond in the amount of P15,769, for the return of the properties seized by the deputy sheriffs. On the same day, the trial court issued an order, directing the Provincial Sheriff of Bulacan to return the machinery and equipment to the place where they were installed at the time of the seizure (Appendix 3). On March 21, 1953, the deputy sheriffs returned the properties seized, by depositing them along the road, near the quarry, of the defendant Company, at Bigti, without the benefit of inventory and without re-installing hem in their former position and replacing the destroyed posts, which rendered their use impracticable. On March 23, 1953, the defendants' counsel asked the provincial Sheriff if the machinery and equipment, dumped on the road would be re-installed tom their former position and condition (letter, Appendix 4). On March 24, 1953, the Provincial Sheriff filed an urgent motion in court, manifesting that Roco had been asked to furnish the Sheriff's office with the expenses, laborers, technical men and equipment, to carry into effect the court's order, to return the seized properties in the same way said Roco found them on the day of seizure, but said Roco absolutely refused to do so, and asking the court that the Plaintiff therein be ordered to provide the required aid or relieve the said Sheriff of the duty of complying with the said order dated March 20, 1953 (Appendix 5). On March 30, 1953, the trial court ordered the Provincial Sheriff and the Plaintiff to reinstate the machinery and equipment removed by them in their original condition in which they were found before their removal at the expense of the Plaintiff (Appendix 7). An urgent motion of the Provincial Sheriff dated April 15, 1953, praying for an extension of 20 days within which to comply with the order of the Court (appendix 10) was denied; and on May 4, 1953, the trial court ordered the Plaintiff therein to furnish the Provincial Sheriff within 5 days with the necessary funds, technical men, laborers, equipment and materials to effect the repeatedly mentioned re-installation (Appendix 13). (Petitioner's brief, Appendix A, pp. I-IV.)

Thereupon petitioner instituted in the Court of Appeals civil case G.R. No. 11248-R, entitled "Machinery and Engineering Supplies, Inc. vs. Honorable Potenciano Pecson, Provincial Sheriff of Bulacan, Ipo Limestone Co., Inc., and Antonio Villarama." In the petition therein filed, it was alleged that, in ordering the petitioner to furnish the provincial sheriff of Bulacan "with necessary funds, technical men, laborers, equipment and materials, to effect the installation of the machinery and equipment" in question, the Court of Firs Instance of Bulacan had committed a grave abuse if discretion and acted in excess of its jurisdiction, for which reason it was prayed that its order to this effect be nullified, and that, meanwhile, a writ of preliminary injunction be issued to restrain the enforcement o said order of may 4, 1953. Although the aforementioned writ was issued by the Court of Appeals, the same subsequently dismissed by the case for lack of merit, with costs against the petitioner, upon the following grounds:

While the seizure of the equipment and personal properties was ordered by the respondent Court, it is, however, logical to presume that said court did not authorize the petitioner or its agents to destroy, as they did, said machinery and equipment, by dismantling and unbolting the same from their concrete basements, and cutting and sawing their wooden supports, thereby rendering them unserviceable and beyond repair, unless those parts removed, cut and sawed be replaced, which the petitioner, not withstanding the respondent Court's order, adamantly refused to do. The Provincial Sheriff' s tortious act, in obedience to the insistent proddings of the president of the Petitioner, Ramon S. Roco, had no justification in law, notwithstanding the Sheriffs' claim that his duty was ministerial. It was the bounden duty of the respondent Judge to give redress to the respondent Company, for the unlawful and wrongful acts committed by the petitioner and its agents. And as this was the true object of the order of March 30, 1953, we cannot hold that same was within its jurisdiction to issue. The ministerial duty of the Sheriff should have its limitations. The Sheriff knew or must have known what is inherently right and inherently wrong, more so when, as in this particular case, the deputy sheriffs were shown a letter of respondent Company's attorney, that the machinery were not personal properties and, therefore, not subject to seizure by the terms of the order. While it may be conceded that this was a question of law too technical to decide on the spot, it would not have costs the Sheriff much time and difficulty to bring the letter to the court's attention and have the equipment and machinery guarded, so as not to frustrate the order of seizure issued by the trial court. But acting upon the directives of the president of the

Petitioner, to seize the properties at any costs, in issuing the order sought to be annulled, had not committed abuse of discretion at all or acted in an arbitrary or despotic manner, by reason of passion or personal hostility; on the contrary, it issued said order, guided by the well known principle that of the property has to be returned, it should be returned in as good a condition as when taken (Bachrach Motor Co., Inc., vs. Bona, 44 Phil., 378). If any one had gone beyond the scope of his authority, it is the respondent Provincial Sheriff. But considering that fact that he acted under the pressure of Ramon S. Roco, and that the order impugned was issued not by him, but by the respondent Judge, We simply declare that said Sheriff' act was most unusual and the result of a poor judgment. Moreover, the Sheriff not being an officer exercising judicial functions, the writ may not reach him, forcertiorari lies only to review judicial actions.

The Petitioner complains that the respondent Judge had completely disregarded his manifestation that the machinery and equipment seized were and still are the Petitioner's property until fully paid for and such never became immovable. The question of ownership and the applicability of Art. 415 of the new Civil Code are immaterial in the determination of the only issue involved in this case. It is a matter of evidence which should be decided in the hearing of the case on the merits. The question as to whether the machinery or equipment in litigation are immovable or not is likewise immaterial, because the only issue raised before the trial court was whether the Provincial Sheriff of Bulacan, at the Petitioner's instance, was justified in destroying the machinery and in refusing to restore them to their original form , at the expense of the Petitioner. Whatever might be the legal character of the machinery and equipment, would not be in any way justify their justify their destruction by the Sheriff's and the said Petitioner's. (Petitioner's brief, Appendix A, pp. IV-VII.)

A motion for reconsideration of this decision of the Court of Appeals having been denied , petitioner has brought the case to Us for review by writ of certiorari. Upon examination of the record, We are satisfied, however that the Court of Appeals was justified in dismissing the case.

The special civil action known as replevin, governed by Rule 62 of Court, is applicable only to "personal property".

Ordinarily replevin may be brought to recover any specific personal property unlawfully taken or detained from the owner thereof, provided such property is capable of identification and delivery; but replevin will not lie for the recovery of real property or incorporeal personal property. (77 C. J. S. 17) (Emphasis supplied.)

When the sheriff repaired to the premises of respondent, Ipo Limestone Co., Inc., machinery and equipment in question appeared to be attached to the land, particularly to the concrete foundation of said premises, in a fixed manner, in such a way that the former could not be separated from the latter "without breaking the material or deterioration of the object." Hence, in order to remove said outfit, it became necessary, not only to unbolt the same, but , also, to cut some of its wooden supports. Moreover, said machinery and equipment were "intended by the owner of the tenement for an industry" carried on said immovable and tended." For these reasons, they were already immovable property pursuant to paragraphs 3 and 5 of Article 415 of Civil Code of the Philippines, which are substantially identical to paragraphs 3 and 5 of Article 334 of the Civil Code of Spain. As such immovable property, they were not subject to replevin.

In so far as an article, including a fixture annexed by a tenant, is regarded as part of the realty, it is not the subject for personality; . . . .

. . . the action of replevin does not lie for articles so annexed to the realty as to be part as to be part thereof, as, for example, a house or a turbine pump constituting part of a building's cooling system; . . . (36 C. J. S. 1000 & 1001)

Moreover, as the provincial sheriff hesitated to remove the property in question, petitioner's agent and president, Mr. Ramon Roco, insisted "on the dismantling at his own responsibility," stating that., precisely, "that is the reason why plaintiff posted a bond ." In this manner, petitioner clearly assumed the corresponding risks.

Such assumption of risk becomes more apparent when we consider that, pursuant to Section 5 of Rule 62 of the Rules of Court, the defendant in an action for replevin is entitled to the return of the property in dispute upon the filing of a counterbond, as provided therein. In other words, petitioner knew that the restitution of said property to respondent company might be ordered under said provision of the Rules of Court, and that, consequently, it may become necessary for petitioner to meet the liabilities incident to such return.

Lastly, although the parties have not cited, and We have not found, any authority squarely in point — obviously real property are not subject to replevin — it is well settled that, when the restitution of what has been ordered, the goods in question shall be returned in substantially the same condition as when taken (54 C.J., 590-600, 640-641). Inasmuch as the machinery and equipment involved in this case were duly installed and affixed in the premises of respondent company when petitioner's representative caused said

property to be dismantled and then removed, it follows that petitioner must also do everything necessary to the reinstallation of said property in conformity with its original condition.

Wherefore, the decision of the Court of Appeals is hereby affirmed, with costs against the petitioner. So ordered.

Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo and Reyes, J.B.L., JJ., concur.Paras, C.J., concurs in the result.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-17500             May 16, 1967

PEOPLE'S BANK AND TRUST CO. and ATLANTIC GULF AND PACIFIC CO. OF MANILA, plaintiffs-appellants, vs.DAHICAN LUMBER COMPANY, DAHICAN AMERICAN LUMBER CORPORATION and CONNELL BROS. CO. (PHIL.), defendants-appellants.

Angel S. Gamboa for defendants-appellants.Laurel Law Offices for plaintiffs-appellants.

DIZON, J.:

On September 8, 1948, Atlantic Gulf & Pacific Company of Manila, a West Virginia corporation licensed to do business in the Philippines — hereinafter referred to as ATLANTIC — sold and assigned all its rights in the Dahican Lumber concession to Dahican Lumber Company — hereinafter referred to as DALCO — for the total sum of $500,000.00, of which only the amount of $50,000.00 was paid. Thereafter, to develop the concession, DALCO obtained various loans from the People's Bank & Trust Company — hereinafter referred to as the BANK — amounting, as of July 13, 1950, to P200,000.00. In addition, DALCO obtained, through the BANK, a loan of $250,000.00 from the Export-Import Bank of Washington D.C., evidenced by

five promissory notes of $50,000.00 each, maturing on different dates, executed by both DALCO and the Dahican America Lumber Corporation, a foreign corporation and a stockholder of DALCO, — hereinafter referred to as DAMCO, all payable to the BANK or its order.

As security for the payment of the abovementioned loans, on July 13, 1950 DALCO executed in favor of the BANK — the latter acting for itself and as trustee for the Export-Import Bank of Washington D.C. — a deed of mortgage covering five parcels of land situated in the province of Camarines Norte together with all the buildings and other improvements existing thereon and all the personal properties of the mortgagor located in its place of business in the municipalities of Mambulao and Capalonga, Camarines Norte (Exhibit D). On the same date, DALCO executed a second mortgage on the same properties in favor of ATLANTIC to secure payment of the unpaid balance of the sale price of the lumber concession amounting to the sum of $450,000.00 (Exhibit G). Both deeds contained the following provision extending the mortgage lien to properties to be subsequently acquired — referred to hereafter as "after acquired properties" — by the mortgagor:

All property of every nature and description taken in exchange or replacement, and all buildings, machinery, fixtures, tools equipment and other property which the Mortgagor may hereafter acquire, construct, install, attach, or use in, to, upon, or in connection with the premises, shall immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if now included therein, and the Mortgagor shall from time to time during the existence of this mortgage furnish the Mortgagee with an accurate inventory of such substituted and subsequently acquired property.

Both mortgages were registered in the Office of the Register of Deeds of Camarines Norte. In addition thereto DALCO and DAMCO pledged to the BANK 7,296 shares of stock of DALCO and 9,286 shares of DAMCO to secure the same obligations.

Upon DALCO's and DAMCO's failure to pay the fifth promissory note upon its maturity, the BANK paid the same to the Export-Import Bank of Washington D.C., and the latter assigned to the former its credit and the first mortgage securing it. Subsequently, the BANK gave DALCO and DAMCO up to April 1, 1953 to pay the overdue promissory note.

After July 13, 1950 — the date of execution of the mortgages mentioned above — DALCO purchased various machineries, equipment, spare parts and supplies in addition to, or in replacement of some of those already owned and used by it on the date aforesaid. Pursuant to the provision of the mortgage deeds quoted theretofore regarding "after acquired properties," the BANK requested DALCO to submit complete lists of said properties but the latter failed to do so. In connection with these purchases, there appeared in the books of DALCO as due to Connell Bros. Company (Philippines) — a domestic corporation who was acting as the general purchasing agent of DALCO — thereinafter called CONNELL — the sum of P452,860.55 and to DAMCO, the sum of P2,151,678.34.

On December 16, 1952, the Board of Directors of DALCO, in a special meeting called for the purpose, passed a resolution agreeing to rescind the alleged sales of equipment, spare parts and supplies by CONNELL and DAMCO to it. Thereafter, the corresponding agreements of rescission of sale were executed between DALCO and DAMCO, on the one hand and between DALCO and CONNELL, on the other.

On January 13, 1953, the BANK, in its own behalf and that of ATLANTIC, demanded that said agreements be cancelled but CONNELL and DAMCO refused to do so. As a result, on February 12, 1953; ATLANTIC and the BANK, commenced foreclosure proceedings in the Court of First Instance of Camarines Norte against DALCO and DAMCO. On the same date they filed an ex-parte application for the appointment of a Receiver and/or for the issuance of a writ of preliminary injunction to restrain DALCO from removing its properties. The court granted both remedies and appointed George H. Evans as Receiver. Upon defendants' motion, however, the court, in its order of February 21, 1953, discharged the Receiver.

On March 2, 1953, defendants filed their answer denying the material allegations of the complaint and alleging several affirmative defenses and a counterclaim.

On March 4 of the same year, CONNELL, filed a motion for intervention alleging that it was the owner and possessor of some of the equipments, spare parts and supplies which DALCO had acquired subsequent to the execution of the mortgages sought to be foreclosed and which plaintiffs claimed were covered by the lien. In its order of March 18,1953 the Court granted the motion, as well as plaintiffs' motion to set aside the order discharging the Receiver. Consequently, Evans was reinstated.

On April 1, 1953, CONNELL filed its answer denying the material averment of the complaint, and asserting affirmative defenses and a counterclaim.

Upon motion of the parties the Court, on September 30, 1953, issued an order transferring the venue of the action to the Court of First Instance of Manila where it was docketed as Civil Case No. 20987.

On August 30, 1958, upon motion of all the parties, the Court ordered the sale of all the machineries, equipment and supplies of DALCO, and the same were subsequently sold for a total consideration of P175,000.00 which was deposited in court pending final determination of the action. By a similar agreement one-half (P87,500.00) of this amount was considered as representing the proceeds obtained from the sale of the "undebated properties" (those not claimed by DAMCO and CONNELL), and the other half as representing those obtained from the sale of the "after acquired properties".

After due trial, the Court, on July 15, 1960, rendered judgment as follows:

IN VIEW WHEREFORE, the Court:

1. Condemns Dahican Lumber Co. to pay unto People's Bank the sum of P200,000,00 with 7% interest per annum from July 13, 1950, Plus another sum of P100,000.00 with 5% interest per annum from July 13, 1950; plus 10% on both principal sums as attorney's fees;

2. Condemns Dahican Lumber Co. to pay unto Atlantic Gulf the sum of P900,000.00 with 4% interest per annum from July 3, 1950, plus 10% on both principal as attorney's fees;

3. Condemns Dahican Lumber Co. to pay unto Connell Bros, the sum of P425,860.55, and to pay unto Dahican American Lumber Co. the sum of P2,151,678.24 both with legal interest from the date of the filing of the respective answers of those parties, 10% of the principals as attorney's fees;

4. Orders that of the sum realized from the sale of the properties of P175,000.00, after deducting the recognized expenses, one-half thereof be adjudicated unto plaintiffs, the court no longer specifying the share of each because of that announced intention under the stipulation of facts to "pool their resources"; as to the other one-half, the same should be adjudicated unto both plaintiffs, and defendant Dahican American and Connell Bros. in the proportion already set forth on page 9, lines 21, 22 and 23 of the body of this decision; but with the understanding that whatever plaintiffs and Dahican American and Connell Bros. should receive from the P175,000.00 deposited in the Court shall be applied to the judgments particularly rendered in favor of each;

5. No other pronouncement as to costs; but the costs of the receivership as to the debated properties shall be borne by People's Bank, Atlantic Gulf, Connell Bros., and Dahican American Lumber Co., pro-rata.

On the following day, the Court issued the following supplementary decision:

IN VIEW WHEREOF, the dispositive part of the decision is hereby amended in order to add the following paragraph 6:

6. If the sums mentioned in paragraphs 1 and 2 are not paid within ninety (90) days, the Court orders the sale at public auction of the lands object of the mortgages to satisfy the said mortgages and costs of foreclosure.

From the above-quoted decision, all the parties appealed.

Main contentions of plaintiffs as appellants are the following: that the "after acquired properties" were subject to the deeds of mortgage mentioned heretofore; that said properties were acquired from suppliers other than DAMCO and CONNELL; that even granting that DAMCO and CONNELL were the real suppliers, the rescission of the sales to DALCO could not prejudice the mortgage lien in favor of plaintiffs; that considering the foregoing, the proceeds obtained from the sale of the "after acquired properties" as well as those obtained from the sale of the "undebated properties" in the total sum of P175,000.00 should have been awarded exclusively to plaintiffs by reason of the mortgage lien they had thereon; that damages should have been awarded to plaintiffs against defendants, all of them being guilty of an attempt to defraud the former when they sought to rescind the sales already mentioned for the purpose of defeating their mortgage lien, and finally, that defendants should have been made to bear all the expenses of the receivership, costs and attorney's fees.

On the other hand, defendants-appellants contend that the trial court erred: firstly, in not holding that plaintiffs had no cause of action against them because the promissory note sued upon was not yet due when the action to foreclose the mortgages was commenced; secondly, in not holding that the mortgages aforesaid were null and void as regards the "after acquired properties" of DALCO because they were not registered in accordance with the Chattel Mortgage Law, the court erring, as a consequence, in holding that said properties were subject to the mortgage lien in favor of plaintiffs; thirdly, in not holding that the provision of the fourth paragraph of each of said mortgages did not automatically make subject to such mortgages the "after acquired properties", the only meaning thereof being that the mortgagor was willing to constitute a lien over such properties; fourthly, in not ruling that said stipulation was void as against DAMCO and CONNELL and in not awarding the proceeds obtained from the sale of the "after acquired properties" to the latter exclusively; fifthly, in appointing a Receiver and in holding that the damages suffered by DAMCO and CONNELL by reason of the depreciation or loss in value of the "after acquired

properties" placed under receivership was damnum absque injuria and, consequently, in not awarding, to said parties the corresponding damages claimed in their counterclaim; lastly, in sentencing DALCO and DAMCO to pay attorney's fees and in requiring DAMCO and CONNELL to pay the costs of the Receivership, instead of sentencing plaintiffs to pay attorney's fees.

Plaintiffs' brief as appellants submit six assignments of error, while that of defendants also as appellants submit a total of seventeen. However, the multifarious issues thus before Us may be resolved, directly or indirectly, by deciding the following issues:

Firstly, are the so-called "after acquired properties" covered by and subject to the deeds of mortgage subject of foreclosure?; secondly, assuming that they are subject thereto, are the mortgages valid and binding on the properties aforesaid inspite of the fact that they were not registered in accordance with the provisions of the Chattel Mortgage Law?; thirdly, assuming again that the mortgages are valid and binding upon the "after acquired properties", what is the effect thereon, if any, of the rescission of sales entered into, on the one hand, between DAMCO and DALCO, and between DALCO and CONNELL, on the other?; and lastly, was the action to foreclose the mortgages premature?

A. Under the fourth paragraph of both deeds of mortgage, it is crystal clear that all property of every nature and description taken in exchange or replacement, as well as all buildings, machineries, fixtures, tools, equipments, and other property that the mortgagor may acquire, construct, install, attach; or use in, to upon, or in connection with the premises — that is, its lumber concession — "shall immediately be and become subject to the lien" of both mortgages in the same manner and to the same extent as if already included therein at the time of their execution. As the language thus used leaves no room for doubt as to the intention of the parties, We see no useful purpose in discussing the matter extensively. Suffice it to say that the stipulation referred to is common, and We might say logical, in all cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold, or to be used — thus becoming subject to the inevitable wear and tear — but with the understanding — express or implied — that they shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by circumstances, the original value of the properties given as security. Indeed, if such properties were of the nature already referred to, it would be poor judgment on the part of the creditor who does not see to it that a similar provision is included in the contract.

B. But defendants contend that, granting without admitting, that the deeds of mortgage in question cover the "after acquired properties" of DALCO, the same are void and ineffectual because they were not registered in accordance with the Chattel Mortgage Law. In support of this and of the proposition that, even if said mortgages were valid, they should not prejudice them, the defendants argue (1) that the deeds do not describe the mortgaged chattels specifically, nor were they registered in accordance with the Chattel Mortgage Law; (2) that the stipulation contained in the fourth paragraph thereof constitutes "mere executory agreements to give a lien" over the "after acquired properties" upon their acquisition; and (3) that any mortgage stipulation concerning "after acquired properties" should not prejudice creditors and other third persons such as DAMCO and CONNELL.

The stipulation under consideration strongly belies defendants contention. As adverted to hereinbefore, it states that all property of every nature, building, machinery etc. taken in exchange or replacement by the mortgagor "shall immediately be and become subject to the lien of this mortgage in the same manner and to the same extent as if now included therein". No clearer language could have been chosen.

Conceding, on the other hand, that it is the law in this jurisdiction that, to affect third persons, a chattel mortgage must be registered and must describe the mortgaged chattels or personal properties sufficiently to enable the parties and any other person to identify them, We say that such law does not apply to this case.

As the mortgages in question were executed on July 13, 1950 with the old Civil Code still in force, there can be no doubt that the provisions of said code must govern their interpretation and the question of their validity. It happens however, that Articles 334 and 1877 of the old Civil Code are substantially reproduced in Articles 415 and 2127, respectively, of the new Civil Code. It is, therefore, immaterial in this case whether we take the former or the latter as guide in deciding the point under consideration.

Article 415 does not define real property but enumerates what are considered as such, among them being machinery, receptacles, instruments or replacements intended by owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and shall tend directly to meet the needs of the said industry or works.

On the strength of the above-quoted legal provisions, the lower court held that inasmuch as "the chattels were placed in the real properties mortgaged to plaintiffs, they came within the operation of Art. 415, paragraph 5 and Art. 2127 of the New Civil Code".

We find the above ruling in agreement with our decisions on the subject:

(1) In Berkenkotter vs. Cu Unjieng, 61 Phil. 663, We held that Article 334, paragraph 5 of the Civil Code (old) gives the character of real property to machinery, liquid containers, instruments or replacements

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

(2) In Cu Unjieng e Hijos vs. Mabalacat Sugar Co., 58 Phil. 439, We held that a mortgage constituted on a sugar central includes not only the land on which it is built but also the buildings, machinery and accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof .

It is not disputed in the case at bar that the "after acquired properties" were purchased by DALCO in connection with, and for use in the development of its lumber concession and that they were purchased in addition to, or in replacement of those already existing in the premises on July 13, 1950. In Law, therefore, they must be deemed to have been immobilized, with the result that the real estate mortgages involved herein — which were registered as such — did not have to be registered a second time as chattel mortgages in order to bind the "after acquired properties" and affect third parties.

But defendants, invoking the case of Davao Sawmill Company vs. Castillo, 61 Phil. 709, claim that the "after acquired properties" did not become immobilized because DALCO did not own the whole area of its lumber concession all over which said properties were scattered.

The facts in the Davao Sawmill case, however, are not on all fours with the ones obtaining in the present. In the former, the Davao Sawmill Company, Inc., had repeatedly treated the machinery therein involved as personal property by executing chattel mortgages thereon in favor of third parties, while in the present case the parties had treated the "after acquired properties" as real properties by expressly and unequivocally agreeing that they shall automatically become subject to the lien of the real estate mortgages executed by them. In the Davao Sawmill decision it was, in fact, stated that "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" (61 Phil. 112, emphasis supplied). In the present case, the characterization of the "after acquired properties" as real property was made not only by one but by both interested parties. There is, therefore, more reason to hold that such consensus impresses upon the properties the character determined by the parties who must now be held in estoppel to question it.

Moreover, quoted in the Davao Sawmill case was that of Valdez vs. Central Altagracia, Inc. (225 U.S. 58) where it was held that while under the general law of Puerto Rico, machinery placed on property by a tenant does not become immobilized, yet, when the tenant places it there pursuant to contract that it shall belong to the owner, it then becomes immobilized as to that tenant and even as against his assignees and creditors who had sufficient notice of such stipulation. In the case at bar it is not disputed that DALCO purchased the "after acquired properties" to be placed on, and be used in the development of its lumber concession, and agreed further that the same shall become immediately subject to the lien constituted by the questioned mortgages. There is also abundant evidence in the record that DAMCO and CONNELL had full notice of such stipulation and had never thought of disputed validity until the present case was filed. Consequently all of them must be deemed barred from denying that the properties in question had become immobilized.

What We have said heretofore sufficiently disposes all the arguments adduced by defendants in support their contention that the mortgages under foreclosure are void, and, that, even if valid, are ineffectual as against DAMCO and CONNELL.

Now to the question of whether or not DAMCO CONNELL have rights over the "after acquired properties" superior to the mortgage lien constituted thereon in favor of plaintiffs. It is defendants' contention that in relation to said properties they are "unpaid sellers"; that as such they had not only a superior lien on the "after acquired properties" but also the right to rescind the sales thereof to DALCO.

This contention — it is obvious — would have validity only if it were true that DAMCO and CONNELL were the suppliers or vendors of the "after acquired properties". According to the record, plaintiffs did not know their exact identity and description prior to the filing of the case bar because DALCO, in violation of its obligation under the mortgages, had failed and refused theretofore to submit a complete list thereof. In the course of the proceedings, however, when defendants moved to dissolve the order of receivership and the writ of preliminary injunction issued by the lower court, they attached to their motion the lists marked as Exhibits 1, 2 and 3 describing the properties aforesaid. Later on, the parties agreed to consider said lists as identifying and describing the "after acquire properties," and engaged the services of auditors to examine the books of DALCO so as to bring out the details thereof. The report of the auditors and its annexes (Exhibits V, V-1 — V4) show that neither DAMCO nor CONNELL had supplied any of the goods of which they respective claimed to be the unpaid seller; that all items were supplied by different parties, neither of whom appeared to be DAMCO or CONNELL that, in fact, CONNELL collected a 5% service charge on the net value of all items it claims to have sold to DALCO and which, in truth, it had purchased for DALCO as the latter's general agent; that CONNELL had to issue its own invoices in addition to those o f the real suppliers in order to collect and justify such service charge.

Taking into account the above circumstances together with the fact that DAMCO was a stockholder and CONNELL was not only a stockholder but the general agent of DALCO, their claim to be the suppliers of the "after acquired required properties" would seem to be preposterous. The most that can be claimed on the basis of the evidence is that DAMCO and CONNELL probably financed some of the purchases. But if DALCO still owes them any amount in this connection, it is clear that, as financiers, they can not claim

any right over the "after acquired properties" superior to the lien constituted thereon by virtue of the deeds of mortgage under foreclosure. Indeed, the execution of the rescission of sales mentioned heretofore appears to be but a desperate attempt to better or improve DAMCO and CONNELL's position by enabling them to assume the role of "unpaid suppliers" and thus claim a vendor's lien over the "after acquired properties". The attempt, of course, is utterly ineffectual, not only because they are not the "unpaid sellers" they claim to be but also because there is abundant evidence in the record showing that both DAMCO and CONNELL had known and admitted from the beginning that the "after acquired properties" of DALCO were meant to be included in the first and second mortgages under foreclosure.

The claim that Belden, of ATLANTIC, had given his consent to the rescission, expressly or otherwise, is of no consequence and does not make the rescission valid and legally effective. It must be stated clearly, however, in justice to Belden, that, as a member of the Board of Directors of DALCO, he opposed the resolution of December 15, 1952 passed by said Board and the subsequent rescission of the sales.

Finally, defendants claim that the action to foreclose the mortgages filed on February 12, 1953 was premature because the promissory note sued upon did not fall due until April 1 of the same year, concluding from this that, when the action was commenced, the plaintiffs had no cause of action. Upon this question the lower court says the following in the appealed judgment;

The other is the defense of prematurity of the causes of action in that plaintiffs, as a matter of grace, conceded an extension of time to pay up to 1 April, 1953 while the action was filed on 12 February, 1953, but, as to this, the Court taking it that there is absolutely no debate that Dahican Lumber Co., was insolvent as of the date of the filing of the complaint, it should follow that the debtor thereby lost the benefit to the period.

x x x unless he gives a guaranty or security for the debt . . . (Art. 1198, New Civil Code);

and as the guaranty was plainly inadequate since the claim of plaintiffs reached in the aggregate, P1,200,000 excluding interest while the aggregate price of the "after-acquired" chattels claimed by Connell under the rescission contracts was P1,614,675.94, Exh. 1, Exh. V, report of auditors, and as a matter of fact, almost all the properties were sold afterwards for only P175,000.00, page 47, Vol. IV, and the Court understanding that when the law permits the debtor to enjoy the benefits of the period notwithstanding that he is insolvent by his giving a guaranty for the debt, that must mean a new and efficient guaranty, must concede that the causes of action for collection of the notes were not premature.

Very little need be added to the above. Defendants, however, contend that the lower court had no basis for finding that, when the action was commenced, DALCO was insolvent for purposes related to Article 1198, paragraph 1 of the Civil Code. We find, however, that the finding of the trial court is sufficiently supported by the evidence particularly the resolution marked as Exhibit K, which shows that on December 16, 1952 — in the words of the Chairman of the Board — DALCO was "without funds, neither does it expect to have any funds in the foreseeable future." (p. 64, record on appeal).

The remaining issues, namely, whether or not the proceeds obtained from the sale of the "after acquired properties" should have been awarded exclusively to the plaintiffs or to DAMCO and CONNELL, and if in law they should be distributed among said parties, whether or not the distribution should be pro-rata or otherwise; whether or not plaintiffs are entitled to damages; and, lastly, whether or not the expenses incidental to the Receivership should be borne by all the parties on a pro-rata basis or exclusively by one or some of them are of a secondary nature as they are already impliedly resolved by what has been said heretofore.

As regard the proceeds obtained from the sale of the of after acquired properties" and the "undebated properties", it is clear, in view of our opinion sustaining the validity of the mortgages in relation thereto, that said proceeds should be awarded exclusively to the plaintiffs in payment of the money obligations secured by the mortgages under foreclosure.

On the question of plaintiffs' right to recover damages from the defendants, the law (Articles 1313 and 1314 of the New Civil Code) provides that creditors are protected in cases of contracts intended to defraud them; and that any third person who induces another to violate his contract shall be liable for damages to the other contracting party. Similar liability is demandable under Arts. 20 and 21 — which may be given retroactive effect (Arts. 225253) — or under Arts. 1902 and 2176 of the Old Civil Code.

The facts of this case, as stated heretofore, clearly show that DALCO and DAMCO, after failing to pay the fifth promissory note upon its maturity, conspired jointly with CONNELL to violate the provisions of the fourth paragraph of the mortgages under foreclosure by attempting to defeat plaintiffs' mortgage lien on the "after acquired properties". As a result, the plaintiffs had to go to court to protect their rights thus jeopardized. Defendants' liability for damages is therefore clear.

However, the measure of the damages suffered by the plaintiffs is not what the latter claim, namely, the difference between the alleged total obligation secured by the mortgages amounting to around P1,200,000.00, plus the stipulated interest and attorney's fees, on the one hand, and the proceeds obtained from the sale of "after acquired properties", and of those that were not claimed neither by

DAMCO nor CONNELL, on the other. Considering that the sale of the real properties subject to the mortgages under foreclosure has not been effected, and considering further the lack of evidence showing that the true value of all the properties already sold was not realized because their sale was under stress, We feel that We do not have before Us the true elements or factors that should determine the amount of damages that plaintiffs are entitled recover from defendants. It is, however, our considered opinion that, upon the facts established, all the expenses of the Receivership, which was deemed necessary to safeguard the rights of the plaintiffs, should be borne by the defendants, jointly and severally, in the same manner that all of them should pay to the plaintiffs, jointly a severally, attorney's fees awarded in the appealed judgment.

In consonance with the portion of this decision concerning the damages that the plaintiffs are entitled to recover from the defendants, the record of this case shall be remanded below for the corresponding proceedings.

Modified as above indicated, the appealed judgment is affirmed in all other respects. With costs.

Concepcion, C.J., Reyes, J.B.L., Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.

EN BANC

[G. R. No.  133250.  May 6, 2003]

FRANCISCO I. CHAVEZ, petitioner, vs. PUBLIC ESTATES AUTHORITY and AMARI COASTAL BAY DEVELOPMENT CORPORATION, respondents.

R E S O L U T I O N

CARPIO, J.:

For resolution of the Court are the following motions: (1) Motion to Inhibit and for Re-Deliberation filed by respondent Amari Coastal Bay Development Corporation (“Amari” for brevity) on September 13, 2002;  (2) Motion to Set Case for Hearing on Oral Argument filed by Amari on August 20, 2002;   (3) Motion for Reconsideration and Supplement to Motion for Reconsideration filed by Amari on July 26, 2002 and August 20, 2002, respectively; (4) Motion for Reconsideration and Supplement to Motion for Reconsideration filed by respondent Public Estates Authority (“PEA” for brevity) on July 26, 2002 and August 8, 2002, respectively; and (5) Motion for Reconsideration and/or Clarification filed by the Office of the Solicitor General on July 25, 2002.  Petitioner Francisco I. Chavez filed on November 13, 2002 his Consolidated Opposition to the main and supplemental motions for reconsideration.

To recall, the Court’s decision of July 9, 2002 (“Decision” for brevity) on the instant case states in its summary:

We can now summarize our conclusions as follows:

1.  The 157.84 hectares of reclaimed lands comprising the Freedom Islands, now covered by certificates of title in the name of PEA, are alienable lands of the public domain.  PEA may lease these lands to private corporations but may not sell or transfer ownership of these lands to private corporations.  PEA may only sell these lands to Philippine citizens, subject to the ownership limitations in the 1987 Constitution and existing laws.

2.  The 592.15 hectares of submerged areas of Manila Bay remain inalienable natural resources of the public domain until classified as alienable or disposable lands open to disposition and declared no longer needed for public service. The government can make such classification and declaration only after PEA has reclaimed these submerged areas.  Only then can these lands qualify as agricultural lands of the public domain, which are the only natural resources the government can alienate.  In their present state, the 592.15 hectares of submerged areas are inalienable and outside the commerce of man.

3.  Since the Amended JVA seeks to transfer to AMARI, a private corporation, ownership of 77.34 hectares of the Freedom Islands, such transfer is void for being contrary to Section 3, Article XII of the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable land of the public domain.

4.  Since the Amended JVA also seeks to transfer to AMARI ownership of 290.156 hectares of still submerged areas of Manila Bay, such transfer is void for being contrary to Section 2, Article XII of the 1987 Constitution which prohibits the alienation of natural resources other than agricultural lands of the public domain.  PEA may reclaim these submerged areas. Thereafter, the government can classify the reclaimed lands as alienable or disposable, and further declare them no longer needed for public service.  Still, the transfer of such reclaimed alienable lands of the public domain to AMARI will be void in view of Section 3, Article XII of the 1987 Constitution which prohibits private corporations from acquiring any kind of alienable land of the public domain.

Clearly, the Amended JVA violates glaringly Sections 2 and 3, Article XII of the 1987 Constitution.  Under Article 1409 of the Civil Code, contracts whose “object or purpose is contrary to law,” or whose “object is outside the commerce of men,” are “inexistent and void from the beginning.”  The Court must perform its duty to defend and uphold the Constitution, and therefore declares the Amended JVA null and void ab initio.

Amari seeks the inhibition of Justice Antonio T. Carpio, ponente of the Decision, on the ground that Justice Carpio, before his appointment to the Court, wrote in his Manila Times column of July 1, 1997, “I have always maintained that the law requires the public bidding of reclamation projects.”   Justice Carpio, then a private law practitioner, also stated in the same column, “The Amari-PEA reclamation contract is legally flawed because it was not bid out by the PEA.”  Amari claims that because of these statements Justice Carpio should inhibit himself “on the grounds of bias and prejudgment” and that the instant case should be “re-deliberated” after being assigned to a new ponente.

The motion to inhibit Justice Carpio must be denied for three reasons.  First, the motion to inhibit came after Justice Carpio had already rendered his opinion on the merits of the case.   The rule is that a motion to inhibit must be denied if filed after a member of the Court had already given an opinion on the merits of the case,[1] the rationale being that “a litigant cannot be permitted to speculate upon the action of the Court xxx (only to) raise an objection of this sort after a decision has been rendered.”   Second, as can be readily gleaned from the summary of the Decision quoted above, the absence of public bidding is not one of the ratio decidendi of the Decision which is anchored on violation of specific provisions of the Constitution.  The absence of public bidding was not raised as an issue by the parties.   The absence of public bidding was mentioned in the Decision only to complete the discussion on the law affecting reclamation contracts for the guidance of public officials.  At any rate, the Office of the Solicitor General in its Motion for Reconsideration concedes that the absence of public bidding in the disposition of the Freedom Islands rendered the Amended JVA null and void. [2] Third, judges and justices are not disqualified from participating in a case just because they have written legal articles on the law involved in the case.  As stated by the Court in Republic v. Cocofed,[3] -

The mere fact that, as a former columnist, Justice Carpio has written on the coconut levy will not disqualify him, in the same manner that jurists will not be disqualified just because they may have given their opinions as textbook writers on the question involved in a case. 

Besides, the subject and title of the column in question was “The CCP reclamation project” and the column referred to the Amari-PEA contract only in passing in one sentence.

Amari’s motion to set the case for oral argument must also be denied since the pleadings of the parties have discussed exhaustively the issues involved in the case.

The motions for reconsideration reiterate mainly the arguments already discussed in the Decision.   We shall consider in this Resolution only the new arguments raised by respondents.

In its Supplement to Motion for Reconsideration, Amari argues that the Decision should be made to apply prospectively, not retroactively to cover the Amended JVA.  Amari argues that the existence of a statute or executive order prior to its being adjudged void is an operative fact to which legal consequences are attached, citing De Agbayani v. PNB,[4] thus:

x x x. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a determination [of unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration.  The effect of the subsequent ruling as to invalidity may have to be considered in various aspects, - with respect to particular relations, individual and corporate, and particular conduct, private and official."  This language has been quoted with approval in a resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores.  x x x.

x x x

x x x  That before the decision they were not constitutionally infirm was admitted expressly. There is all the more reason then to yield assent to the now prevailing principle that the existence of a statute or executive order prior to its being adjudged void is an operative fact to which legal consequences are attached.

Amari now claims that “assuming arguendo that Presidential Decree Nos. 1084 and 1085, and Executive Order Nos. 525 and 654 are inconsistent with the 1987 Constitution, the limitation imposed by the Decision on these decrees and executive orders should only be applied prospectively from the finality of the Decision.”

Amari likewise asserts that a new doctrine of the Court cannot operate retroactively if it impairs vested rights.  Amari maintains that the new doctrine embodied in the Decision cannot apply retroactively on those who relied on the old doctrine in good faith, citing Spouses Benzonan v. Court of Appeals,[5] thus:

At that time, the prevailing jurisprudence interpreting section 119 of R.A. 141 as amended was that enunciated in Monge and Tupas cited above. The petitioners Benzonan and respondent Pe and the DBP are bound by these decisions for pursuant to Article 8 of the Civil Code "judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines." But while our decisions form part of the law of the land, they are also subject to Article 4 of the Civil Code which provides that "laws shall have no retroactive effect unless the contrary is provided." This is expressed in the familiar legal maxim lex prospicit, non respicit, the law looks forward not backward. The rationale against retroactivity is easy to perceive. The retroactive application of a law usually divests rights that have already become vested or impairs the obligations of contract and hence, is unconstitutional (Francisco v. Certeza, 3 SCRA 565 [1961]).

The same consideration underlies our rulings giving only prospective effect to decisions enunciating new doctrines. Thus, we emphasized in People v. Jabinal, 55 SCRA 607 [1974] "x x x when a doctrine of this Court is overruled and a different view is adopted, the new doctrine should be applied prospectively and should not apply to parties who had relied on the old doctrine and acted on the faith thereof.

There may be special cases where weighty considerations of equity and social justice will warrant a retroactive application of doctrine to temper the harshness of statutory law as it applies to poor farmers or their widows and orphans. In the present petitions, however, we find no such equitable considerations. Not only did the private respondent apply for free agricultural land when he did not need it and he had no intentions of applying it to the noble purposes behind the law, he would now repurchase for only P327,995.00, the property purchased by the petitioners in good faith for P1,650,000.00 in 1979 and which, because of improvements and the appreciating value of land must be worth more than that amount now.

The buyers in good faith from DBP had a right to rely on our rulings in Monge and Tupas when they purchased the property from DBP in 1979 or thirteen (13) years ago. Under the rulings in these two cases, the period to repurchase the disputed lot given to respondent Pe expired on June 18, 1982. He failed to exercise his right. His lost right cannot be revived by relying on the 1988 case of Belisario. The right of petitioners over the subject lot had already become vested as of that time and cannot be impaired by the retroactive application of the Belisario ruling.

Amari’s reliance on De Agbayani and Spouses Benzonan is misplaced.  These cases would apply if the prevailing law or doctrine at the time of the signing of the Amended JVA was that a private corporation could acquire alienable lands of the public domain, and the Decision annulled the law or reversed this doctrine.  Obviously, this is not the case here.

Under the 1935 Constitution, private corporations were allowed to acquire alienable lands of the public domain.  But since the effectivity of the 1973 Constitution, private corporations were banned from holding, except by lease, alienable lands of the public domain.  The 1987 Constitution continued this constitutional prohibition.  The prevailing law before, during and after the signing of the Amended JVA is that private corporations cannot hold, except by lease, alienable lands of the public domain.  The Decision has not annulled or in any way changed the law on this matter.  The Decision, whether made retroactive or not, does not change the law since the Decision merely reiterates the law that prevailed since the effectivity of the 1973 Constitution.  Thus, De Agbayani, which refers to a law that is invalidated by a decision of the Court, has no application to the instant case.

Likewise, Spouses Benzonan is inapplicable because it refers to a doctrine of the Court that is overruled by a subsequent decision which adopts a new doctrine.  In the instant case, there is no previous doctrine that is overruled by the Decision.  Since the case of Manila Electric Company v. Judge Castro-Bartolome,[6] decided on June 29, 1982, the Court has applied consistently the constitutional provision that private corporations cannot hold, except by lease, alienable lands of the public domain.  The Court reiterated this in numerous cases, and the only dispute in the application of this constitutional provision is whether the land in question had already become private property before the effectivity of the 1973 Constitution.[7] If the land was already private land before the 1973 Constitution because the corporation had possessed it openly, continuously, exclusively and adversely for at least thirty years since June 12, 1945 or earlier, then the corporation could apply for judicial confirmation of its imperfect title. But if the land remained public land upon the effectivity of the 1973 Constitution, then the corporation could never hold, except by lease, such public land.  Indisputably, the Decision does not overrule any previous doctrine of the Court.

The prevailing doctrine before, during and after the signing of the Amended JVA is that private corporations cannot hold, except by lease, alienable lands of the public domain.  This is one of the two main reasons why the Decision annulled the Amended JVA.  The other main reason is that submerged areas of Manila Bay, being part of the sea, are inalienable and beyond the commerce of man, a doctrine that has remained immutable since the Spanish Law on Waters of 1886. Clearly, the Decision merely reiterates, and does not overrule, any existing judicial doctrine. 

Even on the characterization of foreshore lands reclaimed by the government, the Decision does not overrule existing law or doctrine.  Since the adoption of the Regalian doctrine in this jurisdiction, the sea and its foreshore areas have always been part of the public domain.  And since the enactment of Act No. 1654 on May 18, 1907 until the effectivity of the 1973 Constitution, statutory law never allowed foreshore lands reclaimed by the government to be sold to private corporations.  The 1973 and 1987 Constitution enshrined and expanded the ban to include any alienable land of the public domain. 

There are, of course, decisions of the Court which, while recognizing a violation of the law or Constitution, hold that the sale or transfer of the land may no longer be invalidated because of “weighty considerations of equity and social justice.”[8] The invalidation of the sale or transfer may also be superfluous if the purpose of the statutory or constitutional ban has been achieved.  But none of these cases apply to Amari.

Thus, the Court has ruled consistently that where a Filipino citizen sells land to an alien who later sells the land to a Filipino, the invalidity of the first transfer is corrected by the subsequent sale to a citizen.[9] Similarly, where the alien who buys the land subsequently acquires Philippine citizenship, the sale is validated since the purpose of the constitutional ban to limit land ownership to Filipinos has been achieved.[10] In short, the law disregards the constitutional disqualification of the buyer to hold land if the land is subsequently transferred to a qualified party, or the buyer himself becomes a qualified party.  In the instant case, however, Amari has not transferred the Freedom Islands, or any portion of it, to any qualified party.  In fact, Amari admits that title to the Freedom Islands still remains with PEA. [11]

The Court has also ruled consistently that a sale or transfer of the land may no longer be questioned under the principle of res judicata, provided the requisites for res judicata are present.[12]Under this principle, the courts and the parties are bound by a prior final decision, otherwise there will be no end to litigation. As the Court declared in Toledo-Banaga v. Court of Appeals,[13] “once a judgement has become final and executory, it can no longer be disturbed no matter how erroneous it may be.”   In the instant case, there is no prior final decision adjudicating the Freedom Islands to Amari.

There are, moreover, special circumstances that disqualify Amari from invoking equity principles.  Amari cannot claim good faith because even before Amari signed the Amended JVA on March 30, 1999, petitioner had already filed the instant case on April 27, 1998 questioning precisely the qualification of Amari to acquire the Freedom Islands.   Even before the filing of this petition, two Senate Committees[14] had already approved on September 16, 1997 Senate Committee Report No. 560.   This Report concluded, after a well-publicized investigation into PEA’s sale of the Freedom Islands to Amari, that the Freedom Islands are inalienable lands of the public domain. Thus, Amari signed the Amended JVA knowing and assuming all the attendant risks, including the annulment of the Amended JVA.

Amari has also not paid to PEA the full reimbursement cost incurred by PEA in reclaiming the Freedom Islands.  Amari states that it has paid PEA only P300,000,000.00[15] out of theP1,894,129,200.00 total reimbursement cost agreed upon in the Amended JVA.  Moreover, Amari does not claim to have even initiated the reclamation of the 592.15 hectares of submerged areas covered in the Amended JVA, or to have started to construct any permanent infrastructure on the Freedom Islands.   In short, Amari does not claim to have introduced any physical improvement or development on the reclamation project that is the subject of the Amended JVA.  And yet Amari claims that it had already spent a “whopping P9,876,108,638.00” as its total development cost as of June 30, 2002. [16] Amari does not explain how it spent the rest of the P9,876,108,638.00 total project cost after paying

PEA P300,000,000.00.  Certainly, Amari cannot claim to be an innocent purchaser in good faith and for value.

In its Supplement to Motion for Reconsideration, PEA claims that it is “similarly situated” as the Bases Conversion Development Authority (BCDA) which under R.A. No. 7227 is tasked to sell portions of the Metro Manila military camps and other military reservations.  PEA’s comparison is incorrect.  The Decision states as follows:

As the central implementing agency tasked to undertake reclamation projects nationwide, with authority to sell reclaimed lands, PEA took the place of DENR as the government agency charged with leasing or selling reclaimed lands of the public domain.  The reclaimed lands being leased or sold by PEA are not private lands, in the same manner that DENR, when it disposes of other alienable lands, does not dispose of private lands but alienable lands of the public domain.  Only when qualified private parties acquire these lands will the lands become private lands.  In the hands of the government agency tasked and authorized to dispose of alienable or disposable lands of the public domain, these lands are still public, not private lands.

PEA is the central implementing agency tasked to undertake reclamation projects nationwide.  PEA took the place of Department of Environment and Natural Resources (“DENR” for brevity) as the government agency charged with leasing or selling all reclaimed lands of the public domain.  In the hands of PEA, which took over the leasing and selling functions of DENR, reclaimed foreshore lands are public lands in the same manner that these same lands would have been public lands in the hands of DENR.  BCDA is an entirely different government entity.  BCDA is authorized by law to sell specific government lands that have long been declared by presidential proclamations as military reservations for use by the different services of the armed forces under the Department of National Defense.  BCDA’s mandate is specific and limited in area, while PEA’s mandate is general and national.  BCDA holds government lands that have been granted to end-user government entities – the military services of the armed forces.  In contrast, under Executive Order No. 525, PEA holds the reclaimed public lands, not as an end-user entity, but as the government agency “primarily responsible for integrating, directing, and coordinating all reclamation projects for and on behalf of the National Government.” 

In Laurel v. Garcia,[17] cited in the Decision, the Court ruled that land devoted to public use by the Department of Foreign Affairs, when no longer needed for public use, may be declared patrimonial property for sale to private parties provided there is a law authorizing such act.   Well-settled is the doctrine that public land granted to an end-user government agency for a specific public use may subsequently be withdrawn by Congress from public use and declared patrimonial property to be sold to private parties.  R.A. No. 7227 creating the BCDA is a law that declares specific military reservations no longer needed for defense or military purposes and reclassifies such lands as patrimonial property for sale to private parties. 

Government owned lands, as long they are patrimonial property, can be sold to private parties, whether Filipino citizens or qualified private corporations.  Thus, the so-called Friar Lands acquired by the government under Act No. 1120 are patrimonial property [18] which even private corporations can acquire by purchase.  Likewise, reclaimed alienable lands of the public domain if sold or transferred to a public or municipal corporation for a monetary consideration become patrimonial property in the hands of the public or municipal corporation. Once converted to patrimonial property, the land may be sold by the public or municipal corporation to private parties, whether Filipino citizens or qualified private corporations.

We reiterate what we stated in the Decision is the rationale for treating PEA in the same manner as DENR with respect to reclaimed foreshore lands, thus:

To allow vast areas of reclaimed lands of the public domain to be transferred to PEA as private lands will sanction a gross violation of the constitutional ban on private corporations from acquiring any kind of alienable land of the public domain.   PEA will simply turn around, as PEA has now done under the Amended JVA, and transfer several hundreds of hectares of these reclaimed and still to be reclaimed lands to a single private corporation in only one transaction.   This scheme will effectively nullify the constitutional ban in Section 3, Article XII of the 1987 Constitution which was intended to diffuse equitably the ownership of alienable lands of the public domain among Filipinos, now numbering over 80 million strong.

This scheme, if allowed, can even be applied to alienable agricultural lands of the public domain since PEA can “acquire x x x any and all kinds of lands.”  This will open the floodgates to corporations and even individuals acquiring hundreds, if not thousands, of hectares of alienable lands of the public domain under the guise that in the hands of PEA these lands are private lands.  This will result in corporations amassing huge landholdings never before seen in this country - creating the very evil that the constitutional ban was designed to prevent.  This will completely reverse the clear direction of constitutional development in this country.  The 1935 Constitution allowed private corporations to acquire not more than 1,024 hectares of public lands.  The 1973 Constitution prohibited private corporations from acquiring any kind of public land, and the 1987 Constitution has unequivocally reiterated this prohibition.

Finally, the Office of the Solicitor General and PEA argue that the cost of reclaiming deeply submerged areas is “enormous” and “it would be difficult for PEA to accomplish such project without the participation of private corporations.”[19] The Decision does not bar private corporations from participating in reclamation projects and being paid for their services in reclaiming lands.  What the Decision prohibits, following the explicit constitutional mandate, is for private corporations to acquire reclaimed lands of the public domain.  There is no prohibition on the directors, officers and stockholders of private corporations, if they are Filipino citizens, from acquiring at public auction reclaimed alienable lands of the public

domain.  They can acquire not more than 12 hectares per individual, and the land thus acquired becomes private land.

Despite the nullity of the Amended JVA, Amari is not precluded from recovering from PEA in the proper proceedings, on a quantum meruit basis, whatever Amari may have incurred in implementing the Amended JVA prior to its declaration of nullity.

WHEREFORE, finding the Motions for Reconsideration to be without merit, the same are hereby DENIED with FINALITY.  The Motion to Inhibit and for Re-Deliberation and the Motion to Set Case for Hearing on Oral Argument are likewise DENIED.

SO ORDERED.

Davide, Jr., C.J., Vitug, Panganiban, Quisumbing, Austria- Martinez, Carpio-Morales, and Callejo, Sr., JJ., concur.

Bellosillo, J., please see separate opinion, concurring and dissenting.Puno, J., please see separate opinion.Ynares-Santiago, and Sandoval-Gutierrez, JJ., please see dissenting opinion.Corona, J., I dissent.Azcuna, J., I take no part.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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.

I

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

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

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

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

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

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

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

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

disposition/utilization of Philippine government properties in Tokyo and Kobe, Japan through Administrative Order No. 3, followed by Administrative Orders Numbered 3-A, B, C and D.

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

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

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

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

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

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

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

II

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

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

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

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

public service purpose; and (7) the resolution of this Court dismissing the petition in Ojeda v. Bidding Committee, et al., G.R. No. 87478 which sought to enjoin the second bidding of the Roppongi property scheduled on March 30, 1989.

III

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

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

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

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

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

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

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

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

IV

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

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

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

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

The applicable provisions of the Civil Code are:

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

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

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

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

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

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

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

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

The respondents enumerate various pronouncements by concerned public officials insinuating a change of intention. We emphasize, however, that an abandonment of the intention to use the Roppongi property for public service and to make it patrimonial property under Article 422 of the Civil Code must be 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.

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 situsrule 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 capableof acquiring the lots, the Secretary merely explains that it is the foreign law which should determinewho 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?

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

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

There is no law authorizing its conveyance.

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

Section 79 (f ) Conveyances and contracts to which the Government is a party. — In cases in which the Government of the Republic of the Philippines is a party to any deed or other instrument conveying the title to real estate or to any other property the value of which is in excess of one hundred thousand pesos, the respective Department Secretary shall prepare the necessary papers which, together with the proper recommendations, shall be submitted to the Congress of the Philippines for approval by the same. Such deed, instrument, or contract shall be executed and signed by the President of the Philippines on behalf of the Government of the Philippines unless the Government of the Philippines unless the authority therefor be expressly vested by law in another officer. (Emphasis supplied)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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, Griño-Aquino and Regalado, JJ., concur.

 

 

Separate Opinions

 

CRUZ, J., concurring:

I concur completely with the excellent ponencia of Mr. Justice Gutierrez and will add the following observations only for emphasis.

It is clear that the respondents have failed to show the President's legal authority to sell the Roppongi property. When asked to do so at the hearing on these petitions, the Solicitor General was at best ambiguous, although I must add in fairness that this was not his fault. The fact is that there is -no such authority. Legal expertise alone cannot conjure that statutory permission out of thin air.

Exec. Order No. 296, which reads like so much legislative, double talk, does not contain such authority. Neither does Rep. Act No. 6657, which simply allows the proceeds of the sale of our properties abroad to be used for the comprehensive agrarian reform program. Senate Res. No. 55 was a mere request for the deferment of the scheduled sale of tile Roppongi property, possibly to stop the transaction altogether; and ill any case it is not a law. The sale of the said property may be authorized only by Congress through a duly enacted statute, and there is no such law.

Once again, we have affirmed the principle that ours is a government of laws and not of men, where every public official, from the lowest to the highest, can act only by virtue of a valid authorization. I am happy to note that in the several cases where this Court has ruled against her, the President of the Philippines has submitted to this principle with becoming grace.

 

PADILLA, J., concurring:

I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to make a few observations which could help in further clarifying the issues.

Under our tripartite system of government ordained by the Constitution, it is Congress that lays down or determines policies. The President executes such policies. The policies determined by Congress are embodied in legislative enactments that have to be approved by the President to become law. The President, of course, recommends to Congress the approval of policies but, in the final analysis, it is Congress that is the policy - determining branch of government.

The judiciary interprets the laws and, in appropriate cases, determines whether the laws enacted by Congress and approved by the President, and presidential acts implementing such laws, are in accordance with the Constitution.

The Roppongi property was acquired by the Philippine government pursuant to the reparations agreement between the Philippine and Japanese governments. Under such agreement, this property was acquired by the Philippine government for a specific purpose, namely, to serve as the site of the Philippine Embassy in Tokyo, Japan. Consequently, Roppongi is a property of public dominion and intended for public service, squarely falling within that class of property under Art. 420 of the Civil Code, which provides:

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

(1) ...

(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. (339a)

Public dominion property intended for public service cannot be alienated unless the property is first transformed into private property of the state otherwise known as patrimonial property of the state. 1The transformation of public dominion property to state patrimonial property involves, to my mind, a policy decision. It is a policy decision because the treatment of the property varies according to its classification. Consequently, it is Congress which can decide and declare the conversion of Roppongi from a public dominion property to a state patrimonial property. Congress has made no such decision or declaration.

Moreover, the sale of public property (once converted from public dominion to state patrimonial property) must be approved by Congress, for this again is a matter of policy (i.e. to keep or dispose of the property). Sec. 48, Book 1 of the Administrative Code of 1987 provides:

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)

But the record is bare of any congressional decision or approval to sell Roppongi. The record is likewise bare of any congressional authority extended to the President to sell Roppongi thru public bidding or otherwise.

It is therefore, clear that the President cannot sell or order the sale of Roppongi thru public bidding or otherwise without a prior congressional approval, first, converting Roppongi from a public dominion property to a state patrimonial property, and, second, authorizing the President to sell the same.

ACCORDINGLY, my vote is to GRANT the petition and to make PERMANENT the temporary restraining order earlier issued by this Court.

 

SARMIENTO, J., concurring:

The central question, as I see it, is whether or not the so-called "Roppongi property' has lost its nature as property of public dominion, and hence, has become patrimonial property of the State. I understand that the parties are agreed that it was property intended for "public service" within the contemplation of paragraph (2), of Article 430, of the Civil Code, and accordingly, land of State dominion, and beyond human commerce. The lone issue is, in the light of supervening developments, that is non-user thereof by the National Government (for diplomatic purposes) for the last thirteen years; the issuance of Executive Order No. 296 making it available for sale to any interested buyer; the promulgation of Republic Act No. 6657, the Comprehensive Agrarian Reform Law, making available for the program's financing, State assets sold; the approval by the President of the recommendation of the investigating committee formed to study the property's utilization; and the issuance of Resolution No. 55 of the Philippine Senate requesting for the deferment of its disposition it, "Roppongi", is still property of the public dominion, and if it is not, how it lost that character.

When land of the public dominion ceases to be one, or when the change takes place, is a question our courts have debated early. In a 1906 decision, 1 it was held that property of the public dominion, a public plaza in this instance, becomes patrimonial upon use thereof for purposes other than a plaza. In a later case, 2this ruling was reiterated. Likewise, it has been held that land, originally private property, has become of public dominion upon its donation to the town and its conversion and use as a public plaza. 3 It is notable that under these three cases, the character of the property, and any change occurring therein, depends on the actual use to which it is dedicated. 4

Much later, however, the Court held that "until a formal declaration on the part of the Government, through the executive department or the Legislative, to the effect that the land . . . is no longer needed for [public] service- for public use or for special industries, [it] continue[s] to be part of the public [dominion], not available for private expropriation or ownership." 5 So also, it was ruled that a political subdivision (the City of Cebu in this case) alone may declare (under its charter) a city road abandoned and thereafter, to dispose of it. 6

In holding that there is "a need for a law or formal declaration to withdraw the Roppongi property from public domain to make it alienable and a land for legislative authority to allow the sale of the property"7 the majority lays stress to the fact that: (1) An affirmative act — executive or legislative — is necessary to reclassify property of the public dominion, and (2) a legislative decree is required to make it alienable. It also clears the uncertainties brought about by earlier interpretations that the nature of property-whether public or patrimonial is predicated on the manner it is actually used, or not used, and in the same breath, repudiates the Government's position that the continuous non-use of "Roppongi", among other arguments, for "diplomatic purposes", has turned it into State patrimonial property.

I feel that this view corresponds to existing pronouncements of this Court, among other things, that: (1) Property is presumed to be State property in the absence of any showing to the contrary; 8 (2) With respect to forest lands, the same continue to be lands of the public dominion unless and until reclassified by the Executive Branch of the Government; 9 and (3) All natural resources, under the Constitution, and subject to exceptional cases, belong to the State. 10

I am elated that the Court has banished previous uncertainties.

 

FELICIANO, J., dissenting

With regret, I find myself unable to share the conclusions reached by Mr. Justice Hugo E. Gutierrez, Jr.

For purposes of this separate opinion, I assume that the piece of land located in 306 Roppongi, 5-Chome, Minato-ku Tokyo, Japan (hereinafter referred to as the "Roppongi property") may be characterized as property of public dominion, within the meaning of Article 420 (2) of the Civil Code:

[Property] which belong[s] to the State, without being for public use, and are intended for some public service -.

It might not be amiss however, to note that the appropriateness of trying to bring within the confines of the simple threefold classification found in Article 420 of the Civil Code ("property for public use property "intended for some public service" and property intended "for the development of the national wealth") all property owned by the Republic of the Philippines whether found within the territorial boundaries of the Republic or located within the territory of another sovereign State, is notself-evident. The first item of the classification property intended for public use — can scarcely be properly applied to property belonging to the Republic but found within the territory of another State. The third item of the classification property intended for the development of the national wealth is illustrated, in Article 339 of the Spanish Civil Code of 1889, by mines or mineral properties. Again, mineral lands owned by a sovereign State are rarely, if ever, found within the territorial base of another sovereign State. The task of examining in detail the applicability of the classification set out in Article 420 of our Civil Code to property that the Philippines happens to own outside its own boundaries must, however, be left to academicians.

For present purposes, too, I agree that there is no question of conflict of laws that is, at the present time, before this Court. The issues before us relate essentially to authority to sell the Roppongi property so far as Philippine law is concerned.

The majority opinion raises two (2) issues: (a) whether or not the Roppongi property has been converted into patrimonial property or property of the private domain of the State; and (b) assuming an affirmative answer to (a), whether or not there is legal authority to dispose of the Roppongi property.

I

Addressing the first issue of conversion of property of public dominion intended for some public service, into property of the private domain of the Republic, it should be noted that the Civil Code does not address the question of who has authority to effect such conversion. Neither does the Civil Code set out or refer to any procedure for such conversion.

Our case law, however, contains some fairly explicit pronouncements on this point, as Justice Sarmiento has pointed out in his concurring opinion. In Ignacio v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio argued that if the land in question formed part of the public domain, the trial court should have declared the same no longer necessary for public use or public purposes and which would, therefore, have become disposable and available for private ownership. Mr. Justice Montemayor, speaking for the Court, said:

Article 4 of the Law of Waters of 1866 provides that when a portion of the shore is no longer washed by the waters of the sea and is not necessary for purposes of public utility, or for the establishment of special industries, or for coast-guard service, the government shall declare it to be the property of the owners of the estates adjacent thereto and as an increment thereof. We believe that only the executive and possibly the legislative departments have the authority and the power to make the declaration that any land so gained by the sea, is not necessary for purposes of public utility, or for the establishment of special industries, or for coast-guard service. If no such declaration has been made by said departments, the lot in question forms part of the public domain. (Natividad v. Director of Lands, supra.)

The reason for this pronouncement, according to this Tribunal in the case of Vicente Joven y Monteverde v. Director of Lands, 93 Phil., 134 (cited in Velayo's Digest, Vol. 1, p. 52).

... is undoubtedly that the courts are neither primarily called upon, nor indeed in a position to determine whether any public land are to be used for the purposes specified in Article 4 of the Law of Waters. Consequently, until a formal declaration on the part of the Government, through the executive department or the Legislature, to the effect that the land in question is no longer needed for coast-guard service, for public use or for special industries, they continue to be part of the public domain not available for private appropriation or ownership.(108 Phil. at 338-339; emphasis supplied)

Thus, under Ignacio, either the Executive Department or the Legislative Department may convert property of the State of public dominion into patrimonial property of the State. No particular formula or procedure of conversion is specified either in statute law or in case law. Article 422 of the Civil Code simply states that: "Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State". I respectfully submit, therefore, that the only requirement which is legitimately imposable is that the intent to convert must be reasonably clear from a consideration of the acts or acts of the Executive Department or of the Legislative Department which are said to have effected such conversion.

The same legal situation exists in respect of conversion of property of public dominion belonging to municipal corporations, i.e., local governmental units, into patrimonial property of such entities. InCebu Oxygen Acetylene v. Bercilles (66 SCRA 481 [1975]), the City Council of Cebu by resolution declared a certain portion of an existing street as an abandoned road, "the same not being included in the city development plan". Subsequently, by another resolution, the City Council of Cebu authorized the acting City Mayor to sell the land through public bidding. Although there was no formal and explicit declaration of conversion of property for public use into patrimonial property, the Supreme Court said:

xxx xxx xxx

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

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

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

Accordingly, the withdrawal of the property in question from public use and its subsequent sale to the petitioner is valid. Hence, the petitioner has a registrable title over the lot in question. (66 SCRA at 484-; emphasis supplied)

Thus, again as pointed out by Sarmiento J., in his separate opinion, in the case of property owned by municipal corporations simple non-use or the actual dedication of public property to some use other than "public use" or some "public service", was sufficient legally to convert such property into patrimonial property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]- Municipality of Hinunganan v. Director of Lands 24 Phil. 124 [1913]; Province of Zamboanga del Norte v. City of Zamboanga, 22 SCRA 1334 (1968).

I would also add that such was the case not only in respect of' property of municipal corporations but also in respect of property of the State itself. Manresa in commenting on Article 341 of the 1889 Spanish Civil Code which has been carried over verbatim into our Civil Code by Article 422 thereof, wrote:

La dificultad mayor en todo esto estriba, naturalmente, en fijar el momento en que los bienes de dominio publico dejan de serlo. Si la Administracion o la autoridad competente legislative realizan qun acto en virtud del cual cesa el destino o uso publico de los bienes de que se trata naturalmente la dificultad queda desde el primer momento resuelta. Hay un punto de partida cierto para iniciar las relaciones juridicas a que pudiera haber lugar Pero puede ocurrir que no haya taldeclaracion expresa, legislativa or administrativa, y, sin embargo, cesar de hecho el destino publico de los bienes; ahora bien, en este caso, y para los efectos juridicos que resultan de entrar la cosa en el comercio de los hombres,' se entedera que se ha verificado la conversion de los bienes patrimoniales?

El citado tratadista Ricci opina, respecto del antiguo Codigo italiano, por la afirmativa, y por nuestra parte creemos que tal debe ser la soluciion. El destino de las cosas no depende tanto de una declaracion expresa como del uso publico de las mismas, y cuanda el uso publico cese con respecto de determinados bienes, cesa tambien su situacion en el dominio publico. Si una fortaleza en ruina se abandona y no se repara, si un trozo de la via publica se abandona tambien por constituir otro nuevo an mejores condiciones....ambos bienes cesan de estar Codigo, y leyes especiales mas o memos administrativas. (3 Manresa, Comentarios al Codigo Civil Espanol, p. 128 [7a ed.; 1952) (Emphasis supplied)

The majority opinion says that none of the executive acts pointed to by the Government purported, expressly or definitely, to convert the Roppongi property into patrimonial property — of the Republic. Assuming that to be the case, it is respectfully submitted that cumulative effect of the executive acts here involved was to convert property originally intended for and devoted to public service into patrimonial property of the State, that is, property susceptible of disposition to and appropration by private persons.

These executive acts, in their totality if not each individual act, make crystal clear the intent of the Executive Department to effect such conversion. These executive acts include:

(a) Administrative Order No. 3 dated 11 August 1985, which created a Committee to study the disposition/utilization of the Government's property in Japan, The Committee was composed of officials of the Executive Department: the Executive Secretary; the Philippine Ambassador to Japan; and representatives of the Department of Foreign Affairs and the Asset Privatization Trust. On 19 September 1988, the Committee recommended to the President the sale of one of the lots (the lot specifically in Roppongi) through public bidding. On 4 October 1988, the President approved the recommendation of the Committee.

On 14 December 1988, the Philippine Government by diplomatic note informed the Japanese Ministry of Foreign Affairs of the Republic's intention to dispose of the property in Roppongi. The Japanese Government through its Ministry of Foreign Affairs replied that it interposed no objection to such disposition by the Republic. Subsequently, the President and the Committee informed the leaders of the House of Representatives and of the Senate of the Philippines of the proposed disposition of the Roppongi property.

(b) Executive Order No. 296, which was issued by the President on 25 July 1987. Assuming that the majority opinion is right in saying that Executive Order No. 296 is insufficient to authorize the sale of the Roppongi property, it is here submitted with respect that Executive Order No. 296 is more than sufficient to indicate an intention to convert the property previously devoted to public service into patrimonial property that is capable of being sold or otherwise disposed of

(c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or for any other public purposes. Assuming (but only arguendo) that non-use does not, by itself, automatically convert the property into patrimonial property. I respectfully urge that prolonged non-use, conjoined with the other factors here listed, was legally effective to convert the lot in Roppongi into patrimonial property of the State. Actually, as already pointed out, case law involving property of municipal corporations is to the effect that simple non-use or the actual dedication of public property to some use other than public use or public service, was sufficient to convert such property into patrimonial property of the local governmental entity concerned. Also as pointed out above, Manresa reached the same conclusion in respect of conversion of property of the public domain of the State into property of the private domain of the State.

The majority opinion states that "abandonment cannot be inferred from the non-use alone especially if the non-use was attributable not to the Government's own deliberate and indubitable will but to lack of financial support to repair and improve the property" (Majority Opinion, p. 13). With respect, it may be stressed that there is no abandonment involved here, certainly no abandonment of property or of property rights. What is involved is the charge of the classification of the property from property of the public domain into property of the private domain of the State. Moreover, if for fourteen (14) years, the Government did not see fit to appropriate whatever funds were necessary to maintain the property in Roppongi in a condition suitable for diplomatic representation purposes, such circumstance may, with equal logic, be construed as a manifestation of the crystalizing intent to change the character of the property.

(d) On 30 March 1989, a public bidding was in fact held by the Executive Department for the sale of the lot in Roppongi. The circumstance that this bidding was not successful certainly does not argue against an intent to convert the property involved into property that is disposable by bidding.

The above set of events and circumstances makes no sense at all if it does not, as a whole, show at least the intent on the part of the Executive Department (with the knowledge of the Legislative Department) to convert the property involved into patrimonial property that is susceptible of being sold.

II

Having reached an affirmative answer in respect of the first issue, it is necessary to address the second issue of whether or not there exists legal authority for the sale or disposition of the Roppongi property.

The majority opinion refers to Section 79(f) of the Revised Administrative Code of 1917 which reads as follows:

SEC. 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 besubmitted 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 authority therefor be expressly vested by law in another officer. (Emphasis supplied)

The majority opinion then goes on to state that: "[T]he requirement has been retained in Section 4, Book I of the Administrative Code of 1987 (Executive Order No. 292)" which reads:

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)

Two points need to be made in this connection. Firstly, the requirement of obtaining specific approval of Congress when the price of the real property being disposed of is in excess of One Hundred Thousand Pesos (P100,000.00) under the Revised Administrative Code of 1917, has been deleted from Section 48 of the 1987 Administrative Code. What Section 48 of the present Administrative Code refers to isauthorization by law for the conveyance. Section 48 does not purport to be itself a source of legal authority for conveyance of real property of the Government. For Section 48 merely specifies the official authorized to execute and sign on behalf of the Government the deed of conveyance in case of such a conveyance.

Secondly, examination of our statute books shows that authorization by law for disposition of real property of the private domain of the Government, has been granted by Congress both in the form of (a) a general, standing authorization for disposition of patrimonial property of the Government; and (b) specific legislation authorizing the disposition of particular pieces of the Government's patrimonial property.

Standing legislative authority for the disposition of land of the private domain of the Philippines is provided by Act No. 3038, entitled "An Act Authorizing the Secretary of Agriculture and Natural Resources to Sell or Lease Land of the Private Domain of the Government of the Philippine Islands (now Republic of the Philippines)", enacted on 9 March 1922. The full text of this statute is as follows:

Be it enacted by the Senate and House of Representatives of the Philippines in Legislature assembled and by the authority of the same:

SECTION 1. The Secretary of Agriculture and Natural Resources (now Secretary of the Environment and Natural Resources) is hereby authorized to sell or lease land of the private domain of the Government of the Philippine Islands, or any part thereof, to such persons, corporations or associations as are, under the provisions of Act Numbered Twenty-eight hundred and seventy-four, (now Commonwealth Act No. 141, as amended) known as the Public Land Act, entitled to apply for the purchase or lease or agricultural public land.

SECTION 2. The sale of the land referred to in the preceding section shall, if such land is agricultural, be made in the manner and subject to the limitations prescribed in chapters five and six, respectively, of said Public Land Act, and if it be classified differently, in conformity with the provisions of chapter nine of said Act: Provided, however, That the land necessary for the public service shall be exempt from the provisions of this Act.

SECTION 3. This Act shall take effect on its approval.

Approved, March 9, 1922. (Emphasis supplied)

Lest it be assumed that Act No. 3038 refers only to agricultural lands of the private domain of the State, it must be noted that Chapter 9 of the old Public Land Act (Act No. 2874) is now Chapter 9 of the present Public Land Act (Commonwealth Act No. 141, as amended) and that both statutes refer to: "any tract of land of the public domain which being neither timber nor mineral land, is intended to be used for residential purposes or for commercial or industrial purposes other than agricultural" (Emphasis supplied).i•t•c-aüsl In other words, the statute covers the sale or lease or residential, commercial or industrial land of the private domain of the State.

Implementing regulations have been issued for the carrying out of the provisions of Act No. 3038. On 21 December 1954, the then Secretary of Agriculture and Natural Resources promulgated Lands Administrative Orders Nos. 7-6 and 7-7 which were entitled, respectively: "Supplementary Regulations Governing the Sale of the Lands of the Private Domain of the Republic of the Philippines"; and "Supplementary Regulations Governing the Lease of Lands of Private Domain of the Republic of the Philippines" (text in 51 O.G. 28-29 [1955]).

It is perhaps well to add that Act No. 3038, although now sixty-eight (68) years old, is still in effect and has not been repealed. 1

Specific legislative authorization for disposition of particular patrimonial properties of the State is illustrated by certain earlier statutes. The first of these was Act No. 1120, enacted on 26 April 1904, which provided for the disposition of the friar lands, purchased by the Government from the Roman Catholic Church, to bona fide settlers and occupants thereof or to other persons. In Jacinto v. Director of Lands (49 Phil. 853 [1926]), these friar lands were held to be private and patrimonial properties of the State. Act No. 2360, enacted on -28 February 1914, authorized the sale of the San Lazaro Estatelocated in the City of Manila, which had also been purchased by the Government from the Roman Catholic Church. In January 1916, Act No. 2555 amended Act No. 2360 by including therein all lands and buildings owned by the Hospital and the Foundation of San Lazaro theretofor leased by private persons, and which were also acquired by the Philippine Government.

After the enactment in 1922 of Act No. 3038, there appears, to my knowledge, to be only one statute authorizing the President to dispose of a specific piece of property. This statute is Republic Act No. 905, enacted on 20 June 1953, which authorized the

President to sell an Identified parcel of land of the private domain of the National Government to the National Press Club of the Philippines, and to other recognized national associations of professionals with academic standing, for the nominal price of P1.00. It appears relevant to note that Republic Act No. 905 was not an outright disposition in perpetuity of the property involved- it provided for reversion of the property to the National Government in case the National Press Club stopped using it for its headquarters. What Republic Act No. 905 authorized was really a donation, and not a sale.

The basic submission here made is that Act No. 3038 provides standing legislative authorization for disposition of the Roppongi property which, in my view, has been converted into patrimonial property of the Republic. 2

To some, the submission that Act No. 3038 applies not only to lands of the private domain of the State located in the Philippines but also to patrimonial property found outside the Philippines, may appear strange or unusual. I respectfully submit that such position is not any more unusual or strange than the assumption that Article 420 of the Civil Code applies not only to property of the Republic located within Philippine territory but also to property found outside the boundaries of the Republic.

It remains to note that under the well-settled doctrine that heads of Executive Departments are alter egos of the President (Villena v. Secretary of the Interior, 67 Phil. 451 [1939]), and in view of the constitutional power of control exercised by the President over department heads (Article VII, Section 17,1987 Constitution), the President herself may carry out the function or duty that is specifically lodged in the Secretary of the Department of Environment and Natural Resources (Araneta v. Gatmaitan 101 Phil. 328 [1957]). At the very least, the President retains the power to approve or disapprove the exercise of that function or duty when done by the Secretary of Environment and Natural Resources.

It is hardly necessary to add that the foregoing analyses and submissions relate only to the austere question of existence of legal power or authority. They have nothing to do with much debated questions of wisdom or propriety or relative desirability either of the proposed disposition itself or of the proposed utilization of the anticipated proceeds of the property involved. These latter types of considerations He within the sphere of responsibility of the political departments of government the Executive and the Legislative authorities.

For all the foregoing, I vote to dismiss the Petitions for Prohibition in both G.R. Nos. 92013 and 92047.

Fernan, C.J., Narvasa, Gancayco, Cortes and Medialdea, JJ., concurring.

 

 

Separate Opinions

CRUZ, J., concurring:

I concur completely with the excellent ponencia of Mr. Justice Gutierrez and will add the following observations only for emphasis.

It is clear that the respondents have failed to show the President's legal authority to sell the Roppongi property. When asked to do so at the hearing on these petitions, the Solicitor General was at best ambiguous, although I must add in fairness that this was not his fault. The fact is that there is -no such authority. Legal expertise alone cannot conjure that statutory permission out of thin air.

Exec. Order No. 296, which reads like so much legislative, double talk, does not contain such authority. Neither does Rep. Act No. 6657, which simply allows the proceeds of the sale of our properties abroad to be used for the comprehensive agrarian reform program. Senate Res. No. 55 was a mere request for the deferment of the scheduled sale of tile Roppongi property, possibly to stop the transaction altogether; and

ill any case it is not a law. The sale of the said property may be authorized only by Congress through a duly enacted statute, and there is no such law.

Once again, we have affirmed the principle that ours is a government of laws and not of men, where every public official, from the lowest to the highest, can act only by virtue of a valid authorization. I am happy to note that in the several cases where this Court has ruled against her, the President of the Philippines has submitted to this principle with becoming grace.

 

PADILLA, J., concurring:

I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to make a few observations which could help in further clarifying the issues.

Under our tripartite system of government ordained by the Constitution, it is Congress that lays down or determines policies. The President executes such policies. The policies determined by Congress are embodied in legislative enactments that have to be approved by the President to become law. The President, of course, recommends to Congress the approval of policies but, in the final analysis, it is Congress that is the policy - determining branch of government.

The judiciary interprets the laws and, in appropriate cases, determines whether the laws enacted by Congress and approved by the President, and presidential acts implementing such laws, are in accordance with the Constitution.

The Roppongi property was acquired by the Philippine government pursuant to the reparations agreement between the Philippine and Japanese governments. Under such agreement, this property was acquired by the Philippine government for a specific purpose, namely, to serve as the site of the Philippine Embassy in Tokyo, Japan. Consequently, Roppongi is a property of public dominion and intended for public service, squarely falling within that class of property under Art. 420 of the Civil Code, which provides:

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

(1) ...

(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. (339a)

Public dominion property intended for public service cannot be alienated unless the property is first transformed into private property of the state otherwise known as patrimonial property of the state. 1The transformation of public dominion property to state patrimonial property involves, to my mind, a policy decision. It is a policy decision because the treatment of the property varies according to its classification. Consequently, it is Congress which can decide and declare the conversion of Roppongi from a public dominion property to a state patrimonial property. Congress has made no such decision or declaration.

Moreover, the sale of public property (once converted from public dominion to state patrimonial property) must be approved by Congress, for this again is a matter of policy (i.e. to keep or dispose of the property). Sec. 48, Book 1 of the Administrative Code of 1987 provides:

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)

But the record is bare of any congressional decision or approval to sell Roppongi. The record is likewise bare of any congressional authority extended to the President to sell Roppongi thru public bidding or otherwise.

It is therefore, clear that the President cannot sell or order the sale of Roppongi thru public bidding or otherwise without a prior congressional approval, first, converting Roppongi from a public dominion property to a state patrimonial property, and, second, authorizing the President to sell the same.

ACCORDINGLY, my vote is to GRANT the petition and to make PERMANENT the temporary restraining order earlier issued by this Court.

 

SARMIENTO, J., concurring:

The central question, as I see it, is whether or not the so-called "Roppongi property' has lost its nature as property of public dominion, and hence, has become patrimonial property of the State. I understand that the parties are agreed that it was property intended for "public service" within the contemplation of paragraph (2), of Article 430, of the Civil Code, and accordingly, land of State dominion, and beyond human commerce. The lone issue is, in the light of supervening developments, that is non-user thereof by the National Government (for diplomatic purposes) for the last thirteen years; the issuance of Executive Order No. 296 making it available for sale to any interested buyer; the promulgation of Republic Act No. 6657, the Comprehensive Agrarian Reform Law, making available for the program's financing, State assets sold; the approval by the President of the recommendation of the investigating committee formed to study the property's utilization; and the issuance of Resolution No. 55 of the Philippine Senate requesting for the deferment of its disposition it, "Roppongi", is still property of the public dominion, and if it is not, how it lost that character.

When land of the public dominion ceases to be one, or when the change takes place, is a question our courts have debated early. In a 1906 decision, 1 it was held that property of the public dominion, a public plaza in this instance, becomes patrimonial upon use thereof for purposes other than a plaza. In a later case, 2this ruling was reiterated. Likewise, it has been held that land, originally private property, has become of public dominion upon its donation to the town and its conversion and use as a public plaza. 3 It is notable that under these three cases, the character of the property, and any change occurring therein, depends on the actual use to which it is dedicated. 4

Much later, however, the Court held that "until a formal declaration on the part of the Government, through the executive department or the Legislative, to the effect that the land . . . is no longer needed for [public] service- for public use or for special industries, [it] continue[s] to be part of the public [dominion], not available for private expropriation or ownership." 5 So also, it was ruled that a political subdivision (the City of Cebu in this case) alone may declare (under its charter) a city road abandoned and thereafter, to dispose of it. 6

In holding that there is "a need for a law or formal declaration to withdraw the Roppongi property from public domain to make it alienable and a land for legislative authority to allow the sale of the property"7 the majority lays stress to the fact that: (1) An affirmative act — executive or legislative — is necessary to reclassify property of the public dominion, and (2) a legislative decree is required to make it alienable. It also clears the uncertainties brought about by earlier interpretations that the nature of property-whether public or patrimonial is predicated on the manner it is actually used, or not used, and in the same breath, repudiates the Government's position that the continuous non-use of "Roppongi", among other arguments, for "diplomatic purposes", has turned it into State patrimonial property.

I feel that this view corresponds to existing pronouncements of this Court, among other things, that: (1) Property is presumed to be State property in the absence of any showing to the contrary; 8 (2) With respect to forest lands, the same continue to be lands of the public dominion unless and until reclassified by the Executive Branch of the Government; 9 and (3) All natural resources, under the Constitution, and subject to exceptional cases, belong to the State. 10

I am elated that the Court has banished previous uncertainties.

 

FELICIANO, J., dissenting

With regret, I find myself unable to share the conclusions reached by Mr. Justice Hugo E. Gutierrez, Jr.

For purposes of this separate opinion, I assume that the piece of land located in 306 Roppongi, 5-Chome, Minato-ku Tokyo, Japan (hereinafter referred to as the "Roppongi property") may be characterized as property of public dominion, within the meaning of Article 420 (2) of the Civil Code:

[Property] which belong[s] to the State, without being for public use, and are intended for some public service -.

It might not be amiss however, to note that the appropriateness of trying to bring within the confines of the simple threefold classification found in Article 420 of the Civil Code ("property for public use property "intended for some public service" and property intended "for the development of the national wealth") all property owned by the Republic of the Philippines whether found within the territorial boundaries of the Republic or located within the territory of another sovereign State, is notself-evident. The first item of the classification property intended for public use — can scarcely be properly applied to property belonging to the Republic but found within the territory of another State. The third item of the classification property

intended for the development of the national wealth is illustrated, in Article 339 of the Spanish Civil Code of 1889, by mines or mineral properties. Again, mineral lands owned by a sovereign State are rarely, if ever, found within the territorial base of another sovereign State. The task of examining in detail the applicability of the classification set out in Article 420 of our Civil Code to property that the Philippines happens to own outside its own boundaries must, however, be left to academicians.

For present purposes, too, I agree that there is no question of conflict of laws that is, at the present time, before this Court. The issues before us relate essentially to authority to sell the Roppongi property so far as Philippine law is concerned.

The majority opinion raises two (2) issues: (a) whether or not the Roppongi property has been converted into patrimonial property or property of the private domain of the State; and (b) assuming an affirmative answer to (a), whether or not there is legal authority to dispose of the Roppongi property.

I

Addressing the first issue of conversion of property of public dominion intended for some public service, into property of the private domain of the Republic, it should be noted that the Civil Code does not address the question of who has authority to effect such conversion. Neither does the Civil Code set out or refer to any procedure for such conversion.

Our case law, however, contains some fairly explicit pronouncements on this point, as Justice Sarmiento has pointed out in his concurring opinion. In Ignacio v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio argued that if the land in question formed part of the public domain, the trial court should have declared the same no longer necessary for public use or public purposes and which would, therefore, have become disposable and available for private ownership. Mr. Justice Montemayor, speaking for the Court, said:

Article 4 of the Law of Waters of 1866 provides that when a portion of the shore is no longer washed by the waters of the sea and is not necessary for purposes of public utility, or for the establishment of special industries, or for coast-guard service, the government shall declare it to be the property of the owners of the estates adjacent thereto and as an increment thereof. We believe that only the executive and possibly the legislative departments have the authority and the power to make the declaration that any land so gained by the sea, is not necessary for purposes of public utility, or for the establishment of special industries, or for coast-guard service. If no such declaration has been made by said departments, the lot in question forms part of the public domain. (Natividad v. Director of Lands, supra.)

The reason for this pronouncement, according to this Tribunal in the case of Vicente Joven y Monteverde v. Director of Lands, 93 Phil., 134 (cited in Velayo's Digest, Vol. 1, p. 52).

... is undoubtedly that the courts are neither primarily called upon, nor indeed in a position to determine whether any public land are to be used for the purposes specified in Article 4 of the Law of Waters. Consequently, until a formal declaration on the part of the Government, through the executive department or the Legislature, to the effect that the land in question is no longer needed for coast-guard service, for public use or for special industries, they continue to be part of the public domain not available for private appropriation or ownership.(108 Phil. at 338-339; emphasis supplied)

Thus, under Ignacio, either the Executive Department or the Legislative Department may convert property of the State of public dominion into patrimonial property of the State. No particular formula or procedure of conversion is specified either in statute law or in case law. Article 422 of the Civil Code simply states that: "Property of public dominion, when no longer intended for public use or for public service, shall form part of the patrimonial property of the State". I respectfully submit, therefore, that the only requirement which is legitimately imposable is that the intent to convert must be reasonably clear from a consideration of the acts or acts of the Executive Department or of the Legislative Department which are said to have effected such conversion.

The same legal situation exists in respect of conversion of property of public dominion belonging to municipal corporations, i.e., local governmental units, into patrimonial property of such entities. InCebu Oxygen Acetylene v. Bercilles (66 SCRA 481 [1975]), the City Council of Cebu by resolution declared a certain portion of an existing street as an abandoned road, "the same not being included in the city development plan". Subsequently, by another resolution, the City Council of Cebu authorized the acting City Mayor to sell the land through public bidding. Although there was no formal and explicit declaration of conversion of property for public use into patrimonial property, the Supreme Court said:

xxx xxx xxx

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

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

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

Accordingly, the withdrawal of the property in question from public use and its subsequent sale to the petitioner is valid. Hence, the petitioner has a registrable title over the lot in question. (66 SCRA at 484-; emphasis supplied)

Thus, again as pointed out by Sarmiento J., in his separate opinion, in the case of property owned by municipal corporations simple non-use or the actual dedication of public property to some use other than "public use" or some "public service", was sufficient legally to convert such property into patrimonial property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]- Municipality of Hinunganan v. Director of Lands 24 Phil. 124 [1913]; Province of Zamboanga del Norte v. City of Zamboanga, 22 SCRA 1334 (1968).

I would also add that such was the case not only in respect of' property of municipal corporations but also in respect of property of the State itself. Manresa in commenting on Article 341 of the 1889 Spanish Civil Code which has been carried over verbatim into our Civil Code by Article 422 thereof, wrote:

La dificultad mayor en todo esto estriba, naturalmente, en fijar el momento en que los bienes de dominio publico dejan de serlo. Si la Administracion o la autoridad competente legislative realizan qun acto en virtud del cual cesa el destino o uso publico de los bienes de que se trata naturalmente la dificultad queda desde el primer momento resuelta. Hay un punto de partida cierto para iniciar las relaciones juridicas a que pudiera haber lugar Pero puede ocurrir que no haya taldeclaracion expresa, legislativa or administrativa, y, sin embargo, cesar de hecho el destino publico de los bienes; ahora bien, en este caso, y para los efectos juridicos que resultan de entrar la cosa en el comercio de los hombres,' se entedera que se ha verificado la conversion de los bienes patrimoniales?

El citado tratadista Ricci opina, respecto del antiguo Codigo italiano, por la afirmativa, y por nuestra parte creemos que tal debe ser la soluciion. El destino de las cosas no depende tanto de una declaracion expresa como del uso publico de las mismas, y cuanda el uso publico cese con respecto de determinados bienes, cesa tambien su situacion en el dominio publico. Si una fortaleza en ruina se abandona y no se repara, si un trozo de la via publica se abandona tambien por constituir otro nuevo an mejores condiciones....ambos bienes cesan de estar Codigo, y leyes especiales mas o memos administrativas. (3 Manresa, Comentarios al Codigo Civil Espanol, p. 128 [7a ed.; 1952) (Emphasis supplied)

The majority opinion says that none of the executive acts pointed to by the Government purported, expressly or definitely, to convert the Roppongi property into patrimonial property — of the Republic. Assuming that to be the case, it is respectfully submitted that cumulative effect of the executive acts here involved was to convert property originally intended for and devoted to public service into patrimonial property of the State, that is, property susceptible of disposition to and appropration by private persons. These executive acts, in their totality if not each individual act, make crystal clear the intent of the Executive Department to effect such conversion. These executive acts include:

(a) Administrative Order No. 3 dated 11 August 1985, which created a Committee to study the disposition/utilization of the Government's property in Japan, The Committee was composed of officials of the Executive Department: the Executive Secretary; the Philippine Ambassador to Japan; and representatives of the Department of Foreign Affairs and the Asset Privatization Trust. On 19 September 1988, the Committee recommended to the President the sale of one of the lots (the lot specifically in Roppongi) through public bidding. On 4 October 1988, the President approved the recommendation of the Committee.

On 14 December 1988, the Philippine Government by diplomatic note informed the Japanese Ministry of Foreign Affairs of the Republic's intention to dispose of the property in Roppongi. The Japanese Government through its Ministry of Foreign Affairs replied that it interposed no objection to such disposition by the Republic. Subsequently, the President and the Committee informed the leaders of the House of Representatives and of the Senate of the Philippines of the proposed disposition of the Roppongi property.

(b) Executive Order No. 296, which was issued by the President on 25 July 1987. Assuming that the majority opinion is right in saying that Executive Order No. 296 is insufficient to authorize the sale of the Roppongi property, it is here submitted with respect that Executive Order No. 296 is more than sufficient to indicate an intention to convert the property previously devoted to public service into patrimonial property that is capable of being sold or otherwise disposed of

(c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or for any other public purposes. Assuming (but only arguendo) that non-use does not, by itself, automatically convert the property into patrimonial property. I respectfully urge that prolonged non-use, conjoined with the other factors here listed, was legally effective to convert the lot in Roppongi into patrimonial property of the State. Actually, as already pointed out, case law involving property of municipal corporations is to the effect that simple non-use or the actual dedication of public property to some use other than public use or public service, was sufficient to convert such property into patrimonial property of the local governmental entity concerned. Also as pointed out above, Manresa reached the same conclusion in respect of conversion of property of the public domain of the State into property of the private domain of the State.

The majority opinion states that "abandonment cannot be inferred from the non-use alone especially if the non-use was attributable not to the Government's own deliberate and indubitable will but to lack of financial support to repair and improve the property" (Majority Opinion, p. 13). With respect, it may be stressed that there is no abandonment involved here, certainly no abandonment of property or of property rights. What is involved is the charge of the classification of the property from property of the public domain into property of the private domain of the State. Moreover, if for fourteen (14) years, the Government did not see fit to appropriate whatever funds were necessary to maintain the property in Roppongi in a condition suitable for diplomatic representation purposes, such circumstance may, with equal logic, be construed as a manifestation of the crystalizing intent to change the character of the property.

(d) On 30 March 1989, a public bidding was in fact held by the Executive Department for the sale of the lot in Roppongi. The circumstance that this bidding was not successful certainly does not argue against an intent to convert the property involved into property that is disposable by bidding.

The above set of events and circumstances makes no sense at all if it does not, as a whole, show at least the intent on the part of the Executive Department (with the knowledge of the Legislative Department) to convert the property involved into patrimonial property that is susceptible of being sold.

II

Having reached an affirmative answer in respect of the first issue, it is necessary to address the second issue of whether or not there exists legal authority for the sale or disposition of the Roppongi property.

The majority opinion refers to Section 79(f) of the Revised Administrative Code of 1917 which reads as follows:

SEC. 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 besubmitted 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 authority therefor be expressly vested by law in another officer. (Emphasis supplied)

The majority opinion then goes on to state that: "[T]he requirement has been retained in Section 4, Book I of the Administrative Code of 1987 (Executive Order No. 292)" which reads:

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)

Two points need to be made in this connection. Firstly, the requirement of obtaining specific approval of Congress when the price of the real property being disposed of is in excess of One Hundred Thousand Pesos (P100,000.00) under the Revised Administrative Code of 1917, has been deleted from Section 48 of the 1987 Administrative Code. What Section 48 of the present Administrative Code refers to isauthorization by law for the conveyance. Section 48 does not purport to be itself a source of legal

authority for conveyance of real property of the Government. For Section 48 merely specifies the official authorized to execute and sign on behalf of the Government the deed of conveyance in case of such a conveyance.

Secondly, examination of our statute books shows that authorization by law for disposition of real property of the private domain of the Government, has been granted by Congress both in the form of (a) a general, standing authorization for disposition of patrimonial property of the Government; and (b) specific legislation authorizing the disposition of particular pieces of the Government's patrimonial property.

Standing legislative authority for the disposition of land of the private domain of the Philippines is provided by Act No. 3038, entitled "An Act Authorizing the Secretary of Agriculture and Natural Resources to Sell or Lease Land of the Private Domain of the Government of the Philippine Islands (now Republic of the Philippines)", enacted on 9 March 1922. The full text of this statute is as follows:

Be it enacted by the Senate and House of Representatives of the Philippines in Legislature assembled and by the authority of the same:

SECTION 1. The Secretary of Agriculture and Natural Resources (now Secretary of the Environment and Natural Resources) is hereby authorized to sell or lease land of the private domain of the Government of the Philippine Islands, or any part thereof, to such persons, corporations or associations as are, under the provisions of Act Numbered Twenty-eight hundred and seventy-four, (now Commonwealth Act No. 141, as amended) known as the Public Land Act, entitled to apply for the purchase or lease or agricultural public land.

SECTION 2. The sale of the land referred to in the preceding section shall, if such land is agricultural, be made in the manner and subject to the limitations prescribed in chapters five and six, respectively, of said Public Land Act, and if it be classified differently, in conformity with the provisions of chapter nine of said Act: Provided, however, That the land necessary for the public service shall be exempt from the provisions of this Act.

SECTION 3. This Act shall take effect on its approval.

Approved, March 9, 1922. (Emphasis supplied)

Lest it be assumed that Act No. 3038 refers only to agricultural lands of the private domain of the State, it must be noted that Chapter 9 of the old Public Land Act (Act No. 2874) is now Chapter 9 of the present Public Land Act (Commonwealth Act No. 141, as amended) and that both statutes refer to: "any tract of land of the public domain which being neither timber nor mineral land, is intended to be used for residential purposes or for commercial or industrial purposes other than agricultural" (Emphasis supplied). In other words, the statute covers the sale or lease or residential, commercial or industrial land of the private domain of the State.

Implementing regulations have been issued for the carrying out of the provisions of Act No. 3038. On 21 December 1954, the then Secretary of Agriculture and Natural Resources promulgated Lands Administrative Orders Nos. 7-6 and 7-7 which were entitled, respectively: "Supplementary Regulations Governing the Sale of the Lands of the Private Domain of the Republic of the Philippines"; and "Supplementary Regulations Governing the Lease of Lands of Private Domain of the Republic of the Philippines" (text in 51 O.G. 28-29 [1955]).

It is perhaps well to add that Act No. 3038, although now sixty-eight (68) years old, is still in effect and has not been repealed. 1

Specific legislative authorization for disposition of particular patrimonial properties of the State is illustrated by certain earlier statutes. The first of these was Act No. 1120, enacted on 26 April 1904, which provided for the disposition of the friar lands, purchased by the Government from the Roman Catholic Church, to bona fide settlers and occupants thereof or to other persons. In Jacinto v. Director of Lands (49 Phil. 853 [1926]), these friar lands were held to be private and patrimonial properties of the State. Act No. 2360, enacted on -28 February 1914, authorized the sale of the San Lazaro Estatelocated in the City of Manila, which had also been purchased by the Government from the Roman Catholic Church. In January 1916, Act No. 2555 amended Act No. 2360 by including therein all lands and buildings owned by the Hospital and the Foundation of San Lazaro theretofor leased by private persons, and which were also acquired by the Philippine Government.

After the enactment in 1922 of Act No. 3038, there appears, to my knowledge, to be only one statute authorizing the President to dispose of a specific piece of property. This statute is Republic Act No. 905, enacted on 20 June 1953, which authorized the

President to sell an Identified parcel of land of the private domain of the National Government to the National Press Club of the Philippines, and to other recognized national associations of professionals with academic standing, for the nominal price of P1.00. It appears relevant to note that Republic Act No. 905 was not an outright disposition in perpetuity of the property involved- it provided for reversion of the

property to the National Government in case the National Press Club stopped using it for its headquarters. What Republic Act No. 905 authorized was really a donation, and not a sale.

The basic submission here made is that Act No. 3038 provides standing legislative authorization for disposition of the Roppongi property which, in my view, has been converted into patrimonial property of the Republic. 2

To some, the submission that Act No. 3038 applies not only to lands of the private domain of the State located in the Philippines but also to patrimonial property found outside the Philippines, may appear strange or unusual. I respectfully submit that such position is not any more unusual or strange than the assumption that Article 420 of the Civil Code applies not only to property of the Republic located within Philippine territory but also to property found outside the boundaries of the Republic.

It remains to note that under the well-settled doctrine that heads of Executive Departments are alter egos of the President (Villena v. Secretary of the Interior, 67 Phil. 451 [1939]), and in view of the constitutional power of control exercised by the President over department heads (Article VII, Section 17,1987 Constitution), the President herself may carry out the function or duty that is specifically lodged in the Secretary of the Department of Environment and Natural Resources (Araneta v. Gatmaitan 101 Phil. 328 [1957]). At the very least, the President retains the power to approve or disapprove the exercise of that function or duty when done by the Secretary of Environment and Natural Resources.

It is hardly necessary to add that the foregoing analyses and submissions relate only to the austere question of existence of legal power or authority. They have nothing to do with much debated questions of wisdom or propriety or relative desirability either of the proposed disposition itself or of the proposed utilization of the anticipated proceeds of the property involved. These latter types of considerations He within the sphere of responsibility of the political departments of government the Executive and the Legislative authorities.

For all the foregoing, I vote to dismiss the Petitions for Prohibition in both G.R. Nos. 92013 and 92047.

Fernan, C.J., Narvasa, Gancayco, Cortes and Medialdea, JJ., concurring.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 136438             November 11, 2004

TEOFILO C. VILLARICO, petitioner, vs.VIVENCIO SARMIENTO, SPOUSES BESSIE SARMIENTO-DEL MUNDO & BETH DEL MUNDO, ANDOK’S LITSON CORPORATION and MARITES’ CARINDERIA, respondents.

D E C I S I O N

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 Parañaque 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, Parañaque 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.

Petitioner’s 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 Andok’s 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 Parañaque City.

In 1995, petitioner filed with the RTC, Branch 259, Parañaque 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 petitioner’s allegations, claiming that they have been issued licenses and permits by Parañaque 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:

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 Parañaque;

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 attorney’s 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 court’s 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

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

V

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 petitioner’s 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 petitioner’s 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."

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 petitioner’s 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.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 100709 November 14, 1997

REPUBLIC OF THE PHILIPPINES, represented by the DIRECTOR OF LANDS, petitioner, vs.COURT OF APPEALS, JOSEFINA L. MORATO, SPOUSES NENITA CO and ANTONIO QUILATAN AND THE REGISTER OF DEEDS OF QUEZON PROVINCE, respondents.

 

PANGANIBAN, J.:

Will the lease and/or mortgage of a portion of a realty acquired through free patent constitute sufficient ground for the nullification of such land grant? Should such property revert to the State once it is invaded by the sea and thus becomes foreshore land?

The Case

These are the two questions raised in the petition before us assailing the Court of Appeals' 1 Decision in CA-G.R. CV No. 02667 promulgated on June 13, 1991 which answered the said questions in the negative. 2 Respondent Court's dismissed 3 petitioner's appeal and affirmed in toto the decision of the Regional Trial Court 4 of Calauag, Quezon, dated December 28, 1983 in Civil Case No. C-608. In turn, the Regional Trial Court's decision dismissed petitioner's complaint for cancellation of the Torrens Certificate of Title of Respondent Morato and for reversion of the parcel of land subject thereof of the public domain.

The Facts

The petition of the solicitor general, representing the Republic of the Philippines, recites the following facts: 5

Sometime in December, 1972, respondent Morato filed a Free Patent Application No. III-3-8186-B on a parcel of land with an area of 1,265 square meters situated at Pinagtalleran, Calauag, Quezon. On January 16, 1974, the patent was approved and the Register of Deeds of Quezon at Lucena City issued on February 4, 1974 Original Certificate of Title No. P-17789. Both the free paten and the title specifically mandate that the land shall not be alienated nor encumbered within five years from the date of the issuance of the patent (Sections 118 and 124 of CA No. 141, as amended).

Subsequently, the District Land Officer in Lucena City, acting upon reports that respondent Morato had encumbered the land in violation of the condition of the patent, conducted an investigation. Thereafter, it was established that the subject land is a portion of the Calauag Bay, five (5) to six (6) feet deep under water during high tide and two (2) feet deep at low tide, and not suitable to vegetation. Moreover, on October 24, 1974, a portion of the land was mortgaged by respondent Morato to respondents Nenita Co and Antonio Quilatan for P10,000.00 (pp. 2, 25, Folder of Exhibits). The spouses Quilatan constructed a house on the land. Another portion of the land was leased to Perfecto Advincula on February 2, 1976 at P100.00 a month, where a warehouse was constructed.

On November 5, 1978, petitioner filed an amended complaint against respondents Morato, spouses Nenita Co and Antonio Quilatan, and the Register of Deeds of Quezon for the cancellation of title and reversion of a parcel of land to the public domain, subject of a free patent in favor of respondent Morato, on the grounds that the land is a foreshore land and was mortgaged and leased within the five-year prohibitory period (p. 46, Records).

After trial, the lower court, on December 28, 1983, rendered a decision dismissing petitioner's complaint. In finding for private respondents, the lower court ruled that there was no violation of the 5-year period ban against alienating or encumbering the land, because the land was merely leased and not alienated. It also found that the mortgage to Nenita Co and Antonio Quilatan covered only the improvement and not the land itself.

On appeal, the Court of Appeals affirmed the decision of the trial court. Thereafter, the Republic of the Philippines filed the present petition. 6

The Issues

Petitioner alleges that the following errors were committed by Respondent Court: 7

I

Respondent court erred in holding that the patent granted and certificate of title issued to Respondent Morato cannot be cancelled and annulled since the certificate of title becomes indefeasible after one year from the issuance of the title.

II

Respondent Court erred in holding that the questioned land is part of a disposable public land and not a foreshore land.

The Court's Ruling

The petition is meritorious.

First Issue: Indefeasibility of a Free Patent Title

In resolving the first issue against petitioner, Respondent Court held: 8

. . . As ruled in Heirs of Gregorio Tengco vs. Heirs of Jose Alivalas, 168 SCRA 198. ". . . The rule is well-settled that an original certificate of title issued on the strength of a homestead patent partakes of the nature of a certificate of title issued in a judicial proceeding, as long as the land disposed of is really part of the disposable land of the public domain, and becomes indefeasible and incontrovertible upon the expiration of one year from the date of promulgation of the order of the Director of Lands for the issuance of the patent. (Republic v. Heirs of Carle, 105 Phil. 1227 (1959); Ingaran v. Ramelo, 107 Phil. 498 (1960); Lopez v. Padilla, (G.R. No. L-27559, May 18, 1972, 45 SCRA 44). A homestead patent, one registered under the Land Registration Act, becomes as indefeasible as a Torrens Title. (Pamintuan v. San Agustin, 43 Phil. 558 (1982); El Hogar Filipino v. Olviga, 60 Phil. 17 (1934); Duran v. Oliva, 113 Phil. 144 (1961); Pajomayo v. Manipon, G.R. No. L-33676, June 30, 1971, 39 SCRA 676). (p. 203).

Again, in Lopez vs. Court of Appeals, 169 SCRA 271, citing Iglesia ni Cristo v. Hon. Judge, CFI of Nueva Ecija, Branch I, (123 SCRA 516 (1983) and Pajomayo, et al. v. Manipon, et al. (39 SCRA 676 (1971) held that once a homestead patent granted in accordance with the Public Land Act is registered pursuant to Section 122 of Act 496, the certificate of title issued in virtue of said patent has the force and effect of a Torrens Title issued under the Land Registration Act.

Indefeasibility of the title, however, may not bar the State, thru the Solicitor General, from filing an action for reversion, as ruled in Heirs of Gregorio Tengco v. Heirs of Jose Aliwalas, (supra), as follows:

But, as correctly pointed out by the respondent Court of Appeals, Dr. Aliwalas' title to the property having become incontrovertible, such may no longer be collaterally attacked. If indeed there had been any fraud or misrepresentation in obtaining the title, an action for reversion instituted by the Solicitor General would be the proper remedy (Sec. 101, C.A. No. 141; Director of Lands v. Jugado, G.R. No. L-14702, May 21, 1961, 2 SCRA 32; Lopez v. Padilla, supra). (p. 204).

Petitioner contends that the grant of Free Patent (IV-3) 275 and the subsequent issuance of Original Certificate of Title No. P-17789 to Respondent Josefina L. Morato were subject to the conditions provided for in Commonwealth Act (CA) No. 141. It alleges that on October 24, 1974, or nine (9) months and eight (8) days after the grant of the patent, mortgaged a portion of the land" to Respondent Nenita Co, who thereafter constructed a house thereon. Likewise, on February 2, 1976 and "within the five-year prohibitory period," Respondent Morato "leased a portion of the land to Perfecto Advincula at a monthly rent of P100.00 who, shortly thereafter, constructed a house of concrete materials on the subject land." 9 Further, petitioner argues that the defense of indefeasibility of title is "inaccurate." The original certificate of title issued to Respondent Morato "contains the seeds of its own cancellation": such certificate specifically states on its face that "it is subject to the provisions of Sections 118, 119, 121, 122, 124 of CA No. 141, as amended." 10

Respondent Morato counters by stating that although a "portion of the land was previously leased," it resulted "from the fact that Perfecto Advincula built a warehouse in the subject land without [her] prior consent." The mortgage executed over the improvement "cannot be considered a violation of the said grant since it can never affect the ownership." 11 She states further:

. . . . the appeal of the petitioner was dismissed not because of the principle of indefeasibility of title but mainly due to failure of the latter to support and prove the alleged violations of respondent Morato. The records of this case will readily show that although petitioner was able to establish that Morato committed some acts during the prohibitory period of 5 years, a perusal thereof will also show that what petitioner was able to prove never constituted a violation of the grant. 12

Respondent-Spouses Quilatan, on the other hand, state that the mortgage contract they entered into with Respondent Morato "can never be considered as [an] 'alienation' inasmuch as the ownership over the property remains with the owner." 13 Besides, it is the director of lands and not the Republic of the Philippines who is the real party in interest in this case, contrary to the provision of the Public Land Act which states that actions for reversion should be instituted by the solicitor general in the name of Republic of the Philippines. 14

We find for petitioner.

Quoted below are relevant sections of Commonwealth Act No. 141, otherwise known as the Public Land Act:

Sec. 118. Except in favor of the Government or any of its branches, units or institutions, or legally constituted banking corporations, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period; but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations.

No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, which approval shall not be denied except on constitutional and legal grounds. (As amended by Com. Act No. 456, approved June 8, 1939.)

xxx xxx xxx

Sec. 121. Except with the consent of the grantee and the approval of the Secretary of Agriculture and Natural Resources, and solely for educational, religious, or charitable

purposes or for a right of way, no corporation, association, or partnership may acquire or have any right, title, interest, or property right whatsoever to any land granted under the free patent, homestead, or individual sale provisions of this Act or to any permanent improvement on such land. (As amended by Com. Act No. 615, approved May 5, 1941)

Sec. 122. No land originally acquired in any manner under the provisions of this Act, nor any permanent improvement on such land, shall be encumbered, alienation or transferred, except to persons, corporations, association, or partnerships who may acquire lands of the public domain under this Act or to corporations organized in the Philippines authorized therefore by their charters.

Except in cases of hereditary successions, no land or any portion thereof originally acquired under the free patent, homestead, or individual sale provisions of this Act, or any permanent improvement on such land, shall be transferred or assigned to any individual, nor shall such land or any permanent improvement thereon be leased to such individual, when the area of said land, added to that of this own, shall exceed one hundred and forty-four hectares. Any transfer, assignment, or lease made in violation hereto shall be null and void. (As amended by Com Act No. 615, Id.).

xxx xxx xxx

Sec. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in violation of any of the provisions of sections one hundred and eighteen, one hundred and twenty, one hundred and twenty-one, one hundred and twenty-two, and one hundred and twenty-three of this Actshall be unlawful and null and void from its execution and shall produce the effect of annulling and cancelling the grant, title, patent, or permit originally issued, recognized or confirmed, actually or presumatively, and cause the reversion of the property and its improvements to the State. (Emphasis supplied)

The foregoing legal provisions clearly proscribe the encumbrance of a parcel of land acquired under a free patent or homestead within five years from the grant of such patent. Furthermore, such encumbrance results in the cancellation of the grant and the reversion of the land to the public domain. Encumbrance has been defined as "[a]nything that impairs the use or transfer of property; anything which constitutes a burden on the title; a burden or charge upon property; a claim or lien upon property." It may be a "legal claim on an estate for the discharge of which the estate is liable; and embarrassment of the estate or property so that it cannot be disposed of without being subject to it; an estate, interest, or right in lands, diminishing their value to the general owner; a liability resting upon an estate." 15 Do the contracts of lease and mortgage executed within five (5) years from the issuance of the patent constitute an "encumbrance" and violate the terms and conditions of such patent? Respondent Court answered in the negative: 16

From the evidence adduced by both parties, it has been proved that the area of the portion of the land, subject matter of the lease contract (Exh. "B") executed by and between Perfecto Advincula and Josefina L. Morato is only 10 x 12 square meters, where the total area of the land granted to Morato is 1,265 square meters. It is clear from this that the portion of the land leased by Advincula does not significantly affect Morato's ownership and possession. Above all, the circumstances under which the lease was executed do not reflect a voluntary and blatant intent to violate the conditions provided for in the patent issued in her favor. On the contrary, Morato was compelled to enter into that contract of leaseout of sympathy and the goodness of her heart to accommodate a fellow man. . . .

It is indisputable, however, that Respondent Morato cannot fully use or enjoy the land during the duration of the lease contract. This restriction on the enjoyment of her property sufficiently meets the definition of an encumbrance under Section 118 of the Public Land Act, because such contract "impairs the use of the property" by the grantee. In a contract of lease which is consensual, bilateral, onerous and commutative, the owner temporarily grants the use of his or her property to another who undertakes to pay rent therefor. 17 During the term of the lease, the grantee of the patent cannot enjoy the beneficial use of the land leased. As already observed, the Public Land Act does not permit a grantee of a free patent from encumbering any portion of such land. Such encumbrance is a ground for the nullification of the award.

Morato's resort to equity, i.e. that the lease was executed allegedly out of the goodness of her heart without any intention of violating the law, cannot help her. Equity, which has been aptly described as "justice outside legality," is applied only in the absence of, and never against, statutory law or judicial rules of procedure. Positive rules prevail over all abstract arguments based on equity contra legem. 18

Respondents failed to justify their position that the mortgage should not be considered an encumbrance. Indeed, we do not find any support for such contention. The questioned mortgage falls squarely within the term "encumbrance" proscribed by Section 118 of the Public Land Act. 19 Verily, a mortgage constitutes a legal limitation on the estate, and the foreclosure of such mortgage would necessarily result in the auction of the property. 20

Even if only part of the property has been sold or alienated within the prohibited period of five years from the issuance of the patent, such alienation is a sufficient cause for the reversion of the whole estate to the State. As a condition for the grant of a free patent to an applicant, the law requires that the land should not be encumbered, sold or alienated within five years from the issuance ofthe patent. The sale or the alienation of part of the homestead violates that condition. 21

The prohibition against the encumbrance — lease and mortgage included — of a homestead which, by analogy applies to a free patent, is mandated by the rationale for the grant, viz.: 22

It is well-known that the homestead laws were designed to distribute disposable agricultural lots of the State to land-destitute citizens for their home and cultivation. Pursuant to such benevolent intention the State prohibits the sale or incumbrance of the homestead (Section 116) within five years after the grant of the patent. After that five-year period the law impliedly permits alienation of the homestead; but in line with the primordial purpose to favor the homesteader and his family the statute provides that such alienation or conveyance (Section 117) shall be subject to the right of repurchase by the homesteader, his widow or heirs within five years. This section 117 is undoubtedly a complement of section 116. It aims to preserve and keep in the family of the homesteader that portion of public land which the State had gratuitously given to him. It would, therefore, be in keeping with this fundamental idea to hold, as we hold, that the right to repurchase exists not only when the original homesteader makes the conveyance, but also when it is made by his widow or heirs. This construction is clearly deducible from the terms of the statute.

By express provision of Section 118 of Commonwealth Act 141 and in conformity with the policy of the law, any transfer or alienation of a free patent or homestead within five years from the issuance of the patent is proscribed. Such transfer nullifies said alienation and constitutes a cause for the reversion of the property to the State.

The prohibition against any alienation or encumbrance of the land grant is a proviso attached to the approval of every application. 23 Prior to the fulfillment of the requirements of law, Respondent Morato had only an inchoate right to the property; such property remained part of the public domain and, therefore, not susceptible to alienation or encumbrance. Conversely, when a "homesteader has complied with all the terms and conditions which entitled him to a patent for [a] particular tract of public land, he acquires a vested interest therein and has to be regarded an equitable owner thereof." 24However, for Respondent Morato's title of ownership over the patented land to be perfected, she should have complied with the requirements of the law, one of which was to keep the property for herself and her family within the prescribed period of five (5) years. Prior to the fulfillment of all requirements of the law, Respondent Morato's title over the property was incomplete. Accordingly, if the requirements are not complied with, the State as the grantor could petition for the annulment of the patent and the cancellation of the title.

Respondent Morato cannot use the doctrine of the indefeasibility of her Torrens title to bar the state from questioning its transfer or encumbrance. The certificate of title issued to her clearly stipulated that its award was "subject to the conditions provided for in Sections 118, 119, 121, 122 and 124 of Commonwealth Act (CA) No. 141." Because she violated Section 118, the reversion of the property to the public domain necessarily follows, pursuant to Section 124.

Second Issue: Foreshore LandRevert to the Public Domain

There is yet another reason for granting this petition.

Although Respondent Court found that the subject land was foreshore land, it nevertheless sustained the award thereof to Respondent Morato: 25

First of all, the issue here is whether the land in question, is really part of the foreshore lands. The Supreme Court defines foreshore land in the case of Republic vs. Alagad, 169 SCRA 455, 464, as follows:

Otherwise, where the rise in water level is due to, the "extraordinary" action of nature, rainful, for instance, the portions inundated thereby are not considered part of the bed or basin of the body of water in question. It cannot therefore be said to be foreshore land but land outside of the public dominion, and land capable of registration as private property.

A foreshore land, on the other hand has been defined as follows:

. . . that part of (the land) which is between highand low water and left dry by the flux and reflux of the tides . . . . (Republic vs. C.A., Nos. L-43105, L-43190, August 31, 1984, 131 SCRA 532; Government vs. Colegio de San Jose, 53 Phil 423)

The strip of land that lies between the high and low water marks and that is alternatively wet and dry according to the flow of the tide. (Rep. vs. CA,supra, 539).

The factual findings of the lower court regarding the nature of the parcel of land in question reads:

Evidence disclose that the marginal area of the land radically changed sometime in 1937 up to 1955 due to a strong earthquake followed by frequent storms eventually eroding the land. From 1955 to 1968, however, gradual reclamation was undertaken by the lumber company owned by the Moratos. Having thus restored the land thru mostly human hands employed by the lumber company, the area continued to be utilized by the owner of the sawmill up to the time of his death in 1965. On or about March 17, 1973, there again was a strong earthquake unfortunately causing destruction to hundreds of residential houses fronting the Calauag Bay including the Santiago Building, a cinema house constructed of concrete materials. The catastrophe totally caused the sinking of a concrete bridge at Sumulong river also in the municipality of Calauag, Quezon.

On November 13, 1977 a typhoon code named "Unding" wrought havoc as it lashed the main land of Calauag, Quezon causing again great erosion this time than that which the area suffered in 1937. The Court noted with the significance of the newspaper clipping entitled "Baryo ng Mangingisda Kinain ng Dagat" (Exh. "11").

xxx xxx xxx

Evidently this was the condition of the land when on or about December 5, 1972 defendant Josefina L. Morato filed with the Bureau of Lands her free patent application. The defendant Josefina Morato having taken possession of the land after the demise of Don Tomas Morato, she introduced improvement and continued developing the area, planted it to coconut tree. Having applied for a free patent, defendant had the land area surveyed and an approved plan (Exh. "9") based on the cadastral survey as early as 1927 (Exh. "10") was secured. The area was declared for taxation purposes in the name of defendant Josefina Morato denominated as Tax Declaration No. 4115 (Exh. "8") and the corresponding realty taxes religiously paid as shown by Exh. "8-A"). (pp. 12-14, DECISION).

Being supported by substantial evidence and for failure of the appellant to show cause which would warrant disturbance, the aforecited findings of the lower court, must be respected.

Petitioner correctly contends, however, that Private Respondent Morato cannot own foreshore land:

Through the encroachment or erosion by the ebb and flow of the tide, a portion of the subject land was invaded by the waves and sea advances. During high tide, at least half of the land (632.5 square meters) is 6 feet deep under water and three (3) feet deep during low tide. The Calauag Bay shore has extended up to a portion of the questioned land.

While at the time of the grant of free patent to respondent Morato, the land was not reached by the water, however, due to gradual sinking of the land caused by natural calamities, the sea advances had permanently invaded a portion of subject land. As disclosed at the trial, through the testimony of the court-appointed commissioner, Engr. Abraham B. Pili, the land was under water during high tide in the month of August 1978. The water margin covers half of the property, but during low tide, the water is about a kilometer (TSN, July 19, 1979, p. 12). Also, in 1974, after the grant of the patent, the land was covered with vegetation, but it disappeared in 1978 when the land was reached by the tides (Exh. "E-1", "E-14"). In fact, in its decision dated December 28, 1983, the lower court observed that the erosion of the land was caused by natural calamities that struck the place in 1977 (Cf. Decision, pp. 17-18). 26

Respondent-Spouses Quilatan argue, however, that it is "unfair and unjust if Josefina Morato will be deprived of the whole property just because a portion thereof was immersed in water for reasons not her own doing." 27

As a general rule, findings of facts of the Court of Appeals are binding and conclusive upon this Court, unless such factual findings are palpably unsupported by the evidence on record or unless the judgment

itself is based on a misapprehension of facts. 28 The application for a free patent was made in 1972. From the undisputed factual findings of the Court of Appeals, however, the land has since become foreshore. Accordingly, it can no longer be subject of a free patent under the Public Land Act. Government of the Philippine Islands vs. Cabañgis 29 explained the rationale for this proscription:

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

Art. 339. Property of public ownership is —

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

xxx xxx xxx

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

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

xxx xxx xxx

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

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

We should not be understood, by this decision, to hold that in a case of gradual encroachment or erosion by the ebb and flow of the tide, private property may not become "property of public ownership." as defined in article 339 of the code, where it appear that the owner has to all intents and purposes abandoned it and permitted it to be totally destroyed, so as to become a part of the "playa" (shore of the sea), "rada" (roadstead), or the like. . . .

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

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

In comparison, 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.

When the sea moved towards the estate and the tide invaded it, the invaded property became foreshore land and passed to the realm of the public domain. In fact, the Court in Government vs. Cabangis 30 annulled the registration of land subject of cadastral proceedings when the parcel subsequently became foreshore land. 31 In another case, the Court voided the registration decree of a trial court and held that said court had no jurisdiction to award foreshore land to any private person or entity. 32 The subject land in this case, being foreshore land, should therefore be returned to the public domain.

WHEREFORE, the petition is GRANTED. This Court hereby REVERSES and SETS ASIDE the assailed Decision of Respondent Court and ORDERS the CANCELLATION of Free Patent No. (IV-3) 275 issued to Respondent Morato and the subsequent Original Certificate of Title No. P-17789. The subject land therefore REVERTS to the State. No costs.

SO ORDERED.

Romero, Melo and Francisco, JJ., concur.

Narvasa, C.J., is on leave.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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

THE PROVINCE OF ZAMBOANGA DEL NORTE, plaintiff-appellee, vs.CITY OF ZAMBOANGA, SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE,defendants-appellants.

Fortugaleza, Lood, Sarmiento, M. T. Yap & Associates for plaintiff-appellee.Office of the Solicitor General for defendants-appellants.

BENGZON, J.P., J.:

          Prior to its incorporation as a chartered city, the Municipality of Zamboanga used to be the provincial capital of the then Zamboanga Province. On October 12, 1936, Commonwealth Act 39 was approved converting the Municipality of Zamboanga into Zamboanga City. Sec. 50 of the Act also provided that —

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

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

No. of Lots Use1 ................................................ Capitol Site3 ................................................ School Site

3 ................................................ Hospital Site3 ................................................ Leprosarium1 ................................................ Curuan School1 ................................................ Trade School2 ................................................ Burleigh School2 ................................................ High School Playground9 ................................................ Burleighs1 ................................................ Hydro-Electric Site (Magay)1 ................................................ San Roque

23 ................................................ vacant

          It appears that in 1945, the capital of Zamboanga Province was transferred to Dipolog. 2 Subsequently, or on June 16, 1948, Republic Act 286 was approved creating the municipality of Molave and making it the capital of Zamboanga Province.

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

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

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

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

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

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

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

          All buildings, properties and assets belonging to the former province of Zamboanga and located within the City of Zamboanga are hereby transferred, free of charge, in favor of the said City of Zamboanga. (Stressed for emphasis).

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

          This constrained plaintiff-appellee Zamboanga del Norte to file on March 5, 1962, a complaint entitled "Declaratory Relief with Preliminary Mandatory Injunction" in the Court of First Instance of Zamboanga del Norte against defendants-appellants Zamboanga City, the Secretary of Finance and the Commissioner of Internal Revenue. It was prayed that: (a) Republic Act 3039 be declared unconstitutional for depriving plaintiff province of property without due process and just compensation; (b) Plaintiff's rights and obligations under said law be declared; (c) The Secretary of Finance and the Internal Revenue Commissioner be enjoined from reimbursing the sum of P57,373.46 to defendant City; and (d) The latter be ordered to continue paying the balance of P704,220.05 in quarterly installments of 25% of its internal revenue allotments.

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

          WHEREFORE, judgment is hereby rendered declaring Republic Act No. 3039 unconstitutional insofar as it deprives plaintiff Zamboanga del Norte of its private properties, consisting of 50 parcels of land and the improvements thereon under certificates of title (Exhibits "A" to "A-49") in the name of the defunct province of Zamboanga; ordering defendant City of Zamboanga to pay to the plaintiff the sum of P704,220.05 payment thereof to be deducted from its regular quarterly internal revenue allotment equivalent to 25% thereof every quarter until said amount shall have been fully paid; ordering defendant Secretary of Finance to direct defendant Commissioner of Internal Revenue to deduct 25% from the regular quarterly internal revenue allotment for defendant City of Zamboanga and to remit the same to plaintiff Zamboanga del Norte until said sum of P704,220.05 shall have been fully paid; ordering plaintiff Zamboanga del Norte to execute through its proper officials the corresponding public instrument deeding to defendant City of Zamboanga the 50 parcels of land and the improvements thereon under the certificates of title (Exhibits "A" to "A-49") upon payment by the latter of the aforesaid sum of P704,220.05 in full; dismissing the counterclaim of defendant City of Zamboanga; and declaring permanent the preliminary mandatory injunction issued on June 8, 1962, pursuant to the order of the Court dated June 4, 1962. No costs are assessed against the defendants.

          It is SO ORDERED.

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

          The defendants then brought the case before Us on appeal.

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

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

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

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

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

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

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

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

          This was the norm applied by the lower court. And it cannot be said that its actuation was without jurisprudential precedent for in Municipality of Catbalogan v. Director of Lands, 8 and in Municipality of Tacloban v. Director of Lands, 9 it was held that the capitol site and the school sites in municipalities constitute their patrimonial properties. This result is understandable because, unlike in the classification

regarding State properties, properties for public service in the municipalities are not classified as public. Assuming then the Civil Code classification to be the chosen norm, the lower court must be affirmed except with regard to the two (2) lots used as playgrounds.

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

          Supporting jurisprudence are found in the following cases: (1) HINUNANGAN V. DIRECTOR OF LANDS, 11where it was stated that "... where the municipality has occupied lands distinctly for public purposes, such as for the municipal court house, the public school, the public market, or other necessary municipal building, we will, in the absence of proof to the contrary, presume a grant from the States in favor of the municipality; but, as indicated by the wording, that rule may be invoked only as to property which is used distinctly for public purposes...." (2) VIUDA DE TANTOCO V. MUNICIPAL COUNCIL OF ILOILO 12 held that municipal properties necessary for governmental purposes are public in nature. Thus, the auto trucks used by the municipality for street sprinkling, the police patrol automobile, police stations and concrete structures with the corresponding lots used as markets were declared exempt from execution and attachment since they were not patrimonial properties. (3) MUNICIPALITY OF BATANGAS VS. CANTOS 13 held squarely that a municipal lot which had always been devoted to school purposes is one dedicated to public use and is not patrimonial property of a municipality.

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

TCT Number Lot Number U s e2200 ...................................... 4-B ...................................... Capitol Site2816 ...................................... 149 ...................................... School Site3281 ...................................... 1224 ...................................... Hospital Site3282 ...................................... 1226 ...................................... Hospital Site3283 ...................................... 1225 ...................................... Hospital Site3748 ...................................... 434-A-1 ...................................... School Site5406 ...................................... 171 ...................................... School Site

5564 ...................................... 168 ...................................... High School Play-ground

5567 ...................................... 157 & 158 ...................................... Trade School

5583 ...................................... 167 ...................................... High School Play-ground

6181 ...................................... (O.C.T.) ...................................... Curuan School11942 ...................................... 926 ...................................... Leprosarium11943 ...................................... 927 ...................................... Leprosarium11944 ...................................... 925 ...................................... Leprosarium5557 ...................................... 170 ...................................... Burleigh School5562 ...................................... 180 ...................................... Burleigh School5565 ...................................... 172-B ...................................... Burleigh5570 ...................................... 171-A ...................................... Burleigh5571 ...................................... 172-C ...................................... Burleigh5572 ...................................... 174 ...................................... Burleigh5573 ...................................... 178 ...................................... Burleigh5585 ...................................... 171-B ...................................... Burleigh5586 ...................................... 173 ...................................... Burleigh5587 ...................................... 172-A ...................................... Burleigh

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

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

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

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

TCT Number Lot Number U s e5577 ...................................... 177 ...................................... Mydro, Magay13198 ...................................... 127-0 ...................................... San Roque5569 ...................................... 169 ...................................... Burleigh 15

5558 ...................................... 175 ...................................... Vacant5559 ...................................... 188 ...................................... "5560 ...................................... 183 ...................................... "5561 ...................................... 186 ...................................... "5563 ...................................... 191 ...................................... "5566 ...................................... 176 ...................................... "5568 ...................................... 179 ...................................... "5574 ...................................... 196 ...................................... "5575 ...................................... 181-A ...................................... "5576 ...................................... 181-B ...................................... "5578 ...................................... 182 ...................................... "5579 ...................................... 197 ...................................... "5580 ...................................... 195 ...................................... "5581 ...................................... 159-B ...................................... "5582 ...................................... 194 ...................................... "5584 ...................................... 190 ...................................... "5588 ...................................... 184 ...................................... "5589 ...................................... 187 ...................................... "5590 ...................................... 189 ...................................... "5591 ...................................... 192 ...................................... "5592 ...................................... 193 ...................................... "5593 ...................................... 185 ...................................... "7379 ...................................... 4147 ...................................... "

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

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

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

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

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

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

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

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

Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.Concepcion, C.J., is on leave.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

 

G.R. No. L-24661 February 28, 1974

BENJAMIN RABUCO, VENANCIO G. GUIRNALDA, LEODEGARIO ALOBA, ELEUTERIO IBAÑES, ROGELIO ARAGONES, ASENCIO ABANCO, BENEDICTO BAUTISTA, MAXIMO AQUINO, PAULINA DALUMIAS, NENITA RAMOS, GUILLERMO VARIAS, EMELDA ARELLANO, PEDRO BILBAO, ERNESTO BONBALES, ROSITA OCA BAUTISTA, TERESITA ESTEBAN, JOSE BENJAMIN, LORENZO BELDEVER, LEODEGARIO TUMLOS, PATRICIO MALATE, ANSELMO CORTEJOS, ANACLETA ADUCA, SALOME BARCELONA, ENRICO CELSO, IRENE CAMBA, MARIA COLLADO, RUFINO CANTIL, ANANIAS CANILLO, MAXIMO DE CASTRO, CEFERINO SALAZAR, PATRIA ANAYA, FELISA VELASCO, IGNACIO SARASPI, FLAVIO DINAGUIT, REMEDIOS BAROMETRO, PEDRO GEBANIA, RUBEN GEGABALEN, EMETRIO EDAÑO, LUCIANO ARAGONES, ADRIANO ESTRELLADO, BONIFACIO EVARISTO, ISIDORO EDORIA, TIMOTEA ECARUAN, BIENVENIDO COLLADO, CENON DAJUYA, RAFAELA FERNANDEZ, ALFONSO FAUSTINO, AVELINO GARCIA, RICARDO GUIRNALDA, FRANCISCO HENERAL, CARMEN KIONESALA, FELICIANO LUMACTOD, DOLORES VILLACAMPA, NARCISO LIM, EUFEMIO LEGASPI, MATILDE MABAQUIAO, EULOGIO VIÑA, MACARIO ANTONIO, JEREMIAS DE LA CRUZ, MARTIN MANGABAN, SIMEON MANGABA T., CARIDAD MER MILLA, FELIX MAHINAY, NAPOLEON MARZAN, ISAIAS MANALASTAS, JOSEFA CORVERA, JOSE APRUEDO, ARSENIO REYES, EUGENIA A. ONO, CORNELIO OPOLENCIA, SEDECIAS PASCUA, ABUNDIO PAGUNTALAN, ESPERANZA DE QUIROS, CRESENCIO SALEM, MOISES FERNANDEZ, FORTUNATO GONZALES, SOCORRO R. VALEN, RODOLFO COLLADO, VENERIO CELSO, GREGORIO DE LA CRUZ, CELSO ALCERA, NICOLAS ARAGONES, JOSEFINA MANANSALA, ADELAIDA CALASIN , JOSE AGUSTIN, TOMAS JOSEPH, MANUEL DADOR, SERGIO LIPATON, ERNESTO SUMAYDING, MARCELINO DIOSO, MIGUEL ALCERA, CRISANTA ENAMER, JUAN VIADO HILARION CHIOCO, EUROPIA CABAHUG, VICTORIA DUERO, CONSORCIO ENOC, MAMERTO GAMONIDO, BONIFACIO SABADO, MARIA INTROLIZO, HENRY ENOLBA, REYNALDO LIM, FORTUNATO LIPON, ERNESTO MALLOS, FLORENTINA PATRICIO, MAMERTO PALAPALA, RAMON DE PERALTA, JOSE PARRAS, APOLINARIO YAP, JUAN ROQUE, FELIX ROQUE, GLICERIA SALAZAR, MIGUELA SABIO, AGAPITO SAYAS, PAULINO SARROZA, PACIFICO JUANICO, LIBERADO TULAWAN, LIGAYA LAUS, ERNESTO VERZOSA, LEOPOLDO BERNALES, JAIME VISTA, ISAIAS AMURAO, BENITA M. BARENG, and BRIGIDA SANCHEZ,petitioners, vs.HON. ANTONIO J. VILLEGAS substituted by HON. RAMON BAGATSING as CITY MAYOR OF MANILA, HON. LADISLAO J. TOLENTINO, City Engineer of Manila, their agents, employees, assistants and all persons acting under them; HON. BENJAMIN GOZON, Administrator, Land Reform Authority substituted by HON CONRADO ESTRELLA as Secretary of the Department of Agrarian Reforms and his agents, employees, assistants and all persons acting under his orders, respondent. 1

G.R. No. L-24915 February 28, 1974

BENJAMIN RABUCO, et al., (the same co-petitioners in L-24661), petitioners, vs.HON. ANTONIO J. VILLEGAS substituted by HON. RAMON BAGATSING as CITY MAYOR OF MANILA, et al., (the same co-respondents in L-24661), respondents.

G.R. No. L-24916 February 28, 1974

BENJAMIN RABUCO, et al. (the same co-petitioners in L-24661), petitioners-appellants, vs.HON. ANTONIO J. VILLEGAS substituted by HON. RAMON BAGATSING as CITY MAYOR OF MANILA, et al., (the same co-respondents in L-24661), respondents-appellees.

Manuel D. Melotindos and Ricardo M. Guirnalda for petitioners.

Second Assistant City Fiscal Manuel T. Reyes for respondents.

 

TEEHANKEE, J.:p

The Court herein upholds the constitutionality of Republic Act 3120 on the strength of the established doctrine that the subdivision of communal land of the State (although titled in the name of the municipal corporation) and conveyance of the resulting subdivision lots by sale on installment basis to bona fide occupants by Congressional authorization and disposition does not constitute infringements of the due process clause or the eminent domain provisions of the Constitution but operates simply as a manifestation of the legislature's right of control and power to deal with State property.

The origin and background of the cases at bar which deal with the decisive issue of constitutionality of Republic Act 3120 enacted on June 17, 1961, as raised by respondent mayor of Manila in resisting petitioners' pleas that respondent mayor not only lacks the authority to demolish their houses or eject them as tenants and bona fide occupants of a parcel of land in San Andres, Malate 2 but is also expressly prohibited from doing so by section 2 of the Act, may be summarized from the Court of Appeals' 3 certification of resolution of May 31, 1965 as follows:

Case L-24916 involves petitioners' appeal to the Court of Appeals 4 from the decision of the Manila court of first instance dismissing their petition for injunction and mandamus to enjoin the demolition of their houses and the ejectment from the public lots in question and to direct respondent administrator of the Land Authority (now Secretary of Agrarian Reform) to implement the provisions of Republic Act 3120 for the subdivision and sale on installment basis of the subdivided lots to them as the tenants and bona fide occupants thereof, and instead ordering their ejectment.

Case L-24915 involves petitioners' independent petition for injunction filed directly with the Court of Appeals January 29, 1965 5 to forestall the demolition overnight of their houses pursuant to the order of demolition set for January 30, 1965 at 8 a.m. issued by respondents city officials pending the elevation of their appeal. The appellate court gave due course thereto and issued the writ of preliminary injunction as prayed for.

The two cases were ordered "consolidated into one" since they were "unavoidably interlaced." The appellate court, finding that the constitutionality of Republic Act 3120 was "the dominant and inextricable issue in the appeal" over which it had no jurisdiction and that the trial court incorrectly "sidetracked" the issue, thereafter certified the said cases to this Court, as follows:

The validity of Republic Act 3120 which was seasonably posed in issue in the court below was sidetracked by the trial court, thus:

The constitutionality of Republic Act No. 3120 need not be passed upon as the principal question in issue is whether the houses of the petitioners are public nuisances, which the court resolved in the affirmative. As a matter of fact even if the petitioners were already the owners of the land on which their respected houses are erected, the respondent city officials could cause the removal thereof as they were constructed in violation of city ordinances and constitute public nuisance.

It is significant to note, however, that what is sought by the respondent City Mayor and City Engineer of Manila is not only the demolition of the petitioners' houses in the premises in controversy, but their ejectment as well. Moreover, Republic Act 3120 does intend not only the dismissal of the ejectment proceedings against the petitioners from the land in controversy upon their motion, but as well that any demolition order issued against them shall also have to be dismissed. The law says:

Upon approval of this Act no ejectment proceedings against any tenants or bona fide occupant shall be instituted and any proceedings against any such tenant or bona fideoccupant shall be dismissed upon motion of the defendant. Provided, That any demolition order directed against any tenant or bona fide occupant thereof, shall be dismissed. (Sec. 2, R. A. 3120).

Indeed, the petitioners-appellants, who contended in the court below that it was not necessary to decide on the validity or constitutionality of the law, now asseverate that 'Republic Act No. 3120 expressly prohibits ejectment and demolition of petitioners' home.' The petitioners' argument in their appeal to this Court runs as follows:

1. Petitioners-appellants are entitled to the remedies of injunction and mandamus, being vested with lawful possession over Lot 21-B, Block 610, granted by law, Republic Act No. 3120.

2. Civil Case No. 56092 has not been barred by any prior judgment, as wrongly claimed by respondents-appellees.

3. Ejectment and demolition against petitioners-appellants are unlawful and clearly prohibited by Republic Act No. 3120.

The defense of the respondents Mayor and City Engineer of Manila to arguments 2 and 3 is the invalidity of the said Republic Act 3120 for being in violation of the Constitutional prohibition against the deprivation of property without due process of law and without just compensation. So that even if argument 2 interposed by the petitioners-appellants should be rejected, still they may claim a right, by virtue of the aforesaid provisions of Republic Act 3120, to continue possession and occupation of the premises and the lifting of the order of demolition issued against them. The constitutionality of the said Republic Act 3120, therefore, becomes the dominant and inextricable issue of the appeal.

Case L-24661 for the continuation and maintenance of the writ of preliminary injunction previously issued by the Court of Appeals for preservation of the status quo was filed by petitioners directly with this Court on June 21, 1965, pending transmittal of the records of Cases L-24915 and L-24916 to this Court as certified by the Court of Appeals which declared itself without jurisdiction over the principal and decisive issue of constitutionality of Republic Act 3120.

The Court gave due course thereto and on August 17, 1965 issued upon a P1,000 — bond the writ of preliminary injunction as prayed for enjoining respondents "from demolishing and/or continuing to demolish the houses of herein petitioners situated in Lot No. 21-B, Block No. 610 of the Cadastral Survey of the City of Manila, or from performing any act constituting an interference in or disturbance of their present possession."

The records of two cases certified by the appellate court, L-24915 and L-24916, were eventually forwarded to this Court which per its resolution of August 24, 1965 ordered that they be docketed and be considered together with case L-24661.

In the early morning of April 19, 1970, a large fire of undetermined origin gutted the Malate area including the lot on which petitioners had built their homes and dwellings. Respondents city officials then took over the lot and kept petitioners from reconstructing or repairing their burned dwellings. At petitioners' instance, the Court issued on June 17, 1970 a temporary restraining order enjoining respondents city officials "from performing any act constituting an interference in or disturbance of herein petitioners' possession of Lot No. 21-B, Block No. 610, of the Cadastral Survey of the City of Manila" as safeguarded them under the Court's subsisting preliminary injunction of August 17, 1965.

The "dominant and inextricable issue" at bar, as correctly perceived by the appellate court is the constitutionality of Republic Act 3120 whereby Congress converted the lot in question together with another lot in San Andres, Malate "which are reserved as communal property" into "disposable or alienable lands of the State to be placed under the administration and disposal of the Land Tenure Administration" for subdivision into small lots not exceeding 120 square meters per lot for sale on installment basis to the tenants or bona fide occupants thereof 6and expressly prohibited ejectment and demolition of petitioners' homes under section 2 of the Act as quoted in the appellate court's certification resolution, supra.

The incidental issue seized upon by the trial court as a main issue for "sidetracking" the decisive issue of constitutionality, to wit, that petitioners' houses as they stood at the time of its judgment in 1965 "were constructed in violation of city ordinances and constituted public nuisances" whose removal could be ordered "even if petitioners were already the owners of the land on which their respective houses are erected" has become moot with the burning down of the petitioners' houses in the fire of April 19, 1970.

If the Act is invalid and unconstitutional for constituting deprivation of property without due process of law and without just compensation as contended by respondents city officials, then the trial court's refusal to

enjoin ejectment and demolition of petitioners' houses may be upheld. Otherwise, petitioners' right under the Act to continue possession and occupation of the premises and to the lifting and dismissal of the order of demolition issued against them must be enforced and the trial court's judgment must be set aside.

Respondents city officials' contention that the Act must be stricken down as unconstitutional for depriving the city of Manila of the lots in question and providing for their sale in subdivided small lots to bona fide occupants or tenants without payment of just compensation is untenable and without basis, since the lots in question are manifestly owned by the city in its public and governmental capacity and are therefore public property over which Congress had absolute control as distinguished from patrimonial property owned by it in its private or proprietarycapacity of which it could not be deprived without due process and without just compensation. 7

Here, Republic Act 3120 expressly declared that the properties were "reserved as communal property" and ordered their conversion into "disposable and alienable lands of the State" for sale in small lots to the bona fide occupants thereof. It is established doctrine that the act of classifying State property calls for the exercise of wide discretionary legislative power which will not be interfered with by the courts.

The case of Salas vs. Jarencio 8 wherein the Court upheld the constitutionality of Republic Act 4118 whereby Congress in identical terms as in Republic Act 3120 likewise converted another city lot (Lot 1-B-2-B of Block 557 of the cadastral survey of Manila also in Malate) which was reserved as communal property into disposable land of the State for resale in small lots by the Land Tenure, Administration to the bona fide occupants is controlling in the case at bar.

The Court therein reaffirmed the established general rule that "regardless of the source or classification of land in the possession of a municipality, excepting those acquired with its own funds in its private or corporate capacity, such property is held in trust for the State for the benefit of its inhabitants, whether it be for governmental or proprietary purposes. It holds such lands subject to the paramount power of the legislature to dispose of the same, for after all it owes its creation to it as an agent for the performance of a part of its public work, the municipality being but a subdivision or instrumentality thereof for purposes of local administration. Accordingly, the legal situation is the same as if the State itself holds the property and puts it to a different use" 9 and stressed that "the property, as has been previously shown, was not acquired by the City of Manila with its own funds in its private or proprietary capacity. That it has in its name a registered title is not questioned, but this title should be deemed to be held in trust for the State as the land covered thereby was part of the territory of the City of Manila granted by the sovereign upon its creation."10

There as here, the Court holds that the Acts in question (Republic Acts 4118 in Salas and Republic Act 3120 in the case at bar) were intended to implement the social justice policy of the Constitution and the government program of land for the landless and that they were not "intended to expropriate the property involved but merely to confirm its character as communal land of the State and to make it available for disposition by the National Government: ... The subdivision of the land and conveyane of the resulting subdivision lots to the occupants by Congressional authorization does not operate as an exercise of the power of eminent domain without just compensation in violation of Section 1, subsection (2), Article III of the Constitution, 11 but simply as a manifestationof its right and power to deal with state property." 12

Since the challenge of respondents city officials against the constitutionality of Republic Act 3120 must fail as the City was not deprived thereby of anything it owns by acquisition with its private or corporate funds either under the due process clause or under the eminent domain provisions of the Constitution, the provisions of said Act must be enforced and petitioners are entitled to the injunction as prayed for implementing the Act's prohibition against their ejectment and demolition of their houses.

WHEREFORE, the appealed decision of the lower court (in Case No. L-24916) is hereby set aside, and the preliminary injunction heretofore issued on August 17, 1965 is hereby made permanent. The respondent Secretary of Agrarian Reform as successor agency of the Land Tenure Administration may now proceed with the due implementation of Republic Act 3120 in accordance with its terms and provisions. No costs.

Makalintal, C.J., Zaldivar, Castro, Barredo, Makasiar, Antonio, Esguerra, Muñoz Palma and Aquino, JJ., concur.

Fernandez, J., took no part

Separate Opinions

 

FERNANDO, J., concurring:

It is undoubted that the opinion of the Court penned by Justice Teehankee, with his customary lucidity and thoroughness, is in accordance with our past decisions on the matter. Reflection on the innovation introduced by the present Constitution on local government, did, however, give rise to doubts on my part as to the continuing authoritativeness of Province of Zamboanga del Norte v. City of

Zamboanga 1 and Salas v. Jarencio, 2 the two principal opinions relied upon, both of which decisions were promulgated before the effectivity of the new fundamental law. Hence this separate opinion setting forth the reasons why I join the rest of my brethren.

1. In the declaration of principles and state policies 3 it is specifically provided: "The State shall guarantee and promote the autonomy of local government units, especially the barrio, to ensure their fullest development as self-reliant communities." 4 What was succinctly expressed therein was made more definite in the article on local government. 5 Its first section reads: "The territorial and political subdivisions of the Philippines are the provinces, cities, municipalities, and barrios." 6 Then comes this provision: "The National Assembly shall enact a local government code which may not thereafter be amended except by a majority vote of all its Members, defining a more responsive and accountable local government structure with an effective system of recall, allocating among the different local government units their powers, responsibilities, and resources, and providing for the qualifications, election and removal, term, salaries, powers, functions, and duties of local officials, and all other matters relating to the organization and operation of the local units. However, any change in the existing form of local government shall not take effect until ratified by a majority of the votes cast in a plebiscite called for the purpose."  7 After which there is this limitation on the power of local government: "No province, city, municipality, or barrio may be created, divided, merged, abolished, or its boundary substantially altered, except in accordance with the criteria established in the local government code, and subject to the approval by a majority of the votes cast in a plebiscite in the unit or units affected." 8 The autonomy of cities and municipalities is guaranteed in these words: "(1) Provinces with respect to component cities and municipalities, and cities and municipalities with respect to component barrios, shall ensure that the acts of their component units are with the scope of their assigned powers and functions. Highly urbanized cities, as determined by standards established in the local government code, shall be independent of province."  9Then comes the last section: "Each local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such limitations as may be provided by law." 10

The objective is thus crystal-clear and well-defined. The goal is the fullest autonomy to local government units consistent with the basic theory of a unitary, not a federal, polity. It is the hope that thereby they will attain "their fullest development as self-reliant communities." 11 It is more than just the expression of an aspiration as attest by one of the articles of the Constitution devoted to such a subject. 12 It was not so under the 1935 charter. On this point, all that appeared therein was: "The President shall ... exercise general supervision over all local governments as may be provided by law ... . 13 According to Justice Laurel in Planas v. Gil, 14 "the deliberation of the Constitutional Convention show that the grant of the supervisory authority to the Chief Executive in this regard was in the nature of a compromise resulting from the conflict of views in that body, mainly between the historical view which recognizes the right of local self-government ... and the legal theory which sanctions the possession by the state of absolute control over local governments .. . The result was the recognition of the power of supervision and all its implications and the rejection of what otherwise would be an imperium in imperio to the detriment of a strong national government." 15 For the above provision starts with the vesting of control in the President "of all the executive departments, bureaus, or offices," as distinguished from "general supervision over all local governments as may be provided by law." 16 The difference in wording is highly significant. So it was stressed by the then Justice, later Chief Justice, Concepcion in Pelaez v. Auditor General: 17 "The power of control under this provision implies the right of the President to interfere in the exercise of such discretion as may be vested by law in the officers of the executive departments, bureaus, or offices of the national government, as well as to act in lieu of such officers. This power isdenied by the Constitution to the Executive, insofar as local governments are concerned. With respect to the latter, the fundamental law permits him to wield no more authority than that of checking whether said local governments or the officers thereof perform their duties as provided by statutory enactments. Hence, the President cannot interfere with local governments, so long as the same or its officers act within the scope of their authority. He may not enact an ordinance which the municipal council has failed or refused to pass, even if it had thereby violated a duty imposed thereto by law, although he may see to it that the corresponding provincial officials take appropriate disciplinary action therefor. Neither may he vote, set aside or annul an ordinance passed by said council within the scope of its jurisdiction, no matter how patently unwise it may be. He may not even suspend an elective official of a regular municipality or take any disciplinary action against him, except on appeal from a decision of the corresponding provincial board." 18

2. So it was that under the 1935 Constitution, the national government when acting through the executive had only such general supervisory authority as was provided by statute. There was no restriction, however, on the legislative body to create or to abolish local government units. What was more, the powers vested in them could be expanded or diminished depending on the will of Congress. It could hardly be assumed therefore that under the previous charter, they could justifiably lay claim to real autonomy. For so long as the legislation itself took care of delineating the matters that were appropriately within the scope of their competence, there could be no objection to its validity. No constitutional problem arose. Things have changed radically. We start with the declared principle of the State guaranteeing and promoting the autonomy of local government units. 19 We have likewise noted the earnestness of the framers as to the attainment of such declared objective as set forth in the specific article 20 on the matter. It is made obligatory on the National Assembly to enact a local government code. What is more, unlike the general run of statutes, it cannot be amended except by a majority vote of all its members. It is made to include "a more responsive and accountable local government structure with an effective system of recall," with an expressed reference to "qualifications, election and removal, term, salaries, powers, functions, and duties of local officials, [as well as] all other matters relating to the organization and operation of local units." 21 Mention is likewise made of the "powers, responsibilities, and resources,"22 items that are identified with local autonomy. As if that were not enough, the last sentence of

this particular provision reads: "However, any change in the existing form of local government shall not take effect until ratified by a majority of the votes cast in a plebiscite called for the purpose." 23 To the extent that the last section requires that the creation, division, merger, abolition or alteration of a boundary of a province, city, municipality, or barrio, must be in accordance with the criteria established in the local government code and subject to the approval by a majority of the votes cast in a plebiscite in such unit or units, the adherence to the basic principle of local self-government is quite clear. 24 Equally significant is the stress on the competence of a province, city, municipality or barrio "to create its own sources of revenue and to levy taxes subject to such limitations as may be provided by law." 25 The care and circumspection with which the framers saw to the enjoyment of real local self-government not only in terms of administration but also in terms of resources is thus manifest. Their intent is unmistakable. Unlike the case under the 1935 Constitution, there is thus a clear manifestation of the presumption now in favor of a local government unit. It is a well-nigh complete departure from what was. Nor should it be ignored that a highly urbanized city "shall be independent" not only of the national government but also of a province. 26Would it not follow then that under the present dispensation, the moment property is transferred to it by the national government, its control over the same should be as extensive and as broad as possible. Considerations of the above nature gave rise to doubts on my part as to the decisions in the Zamboanga del Norte and Salas cases still retaining unimpaired their doctrinal force. Would this be a case of Republic Act No. 3120 being rendered inoperative by virtue of its repugnancy to the present Constitution? 27

3. Nonetheless, such doubts were set at rest by two considerations. The opinion of Justice Teehankee makes reference to the ratio decidendi of Salas v. Jarencio as to the trust character impressed on communal property of a municipal corporation, even if already titled. As set forth in the opinion: "The Court [in Salas v. Jarencio] reaffirmed the established general rule that 'regardless of the source of classification of land in the possession of a municipality, excepting those acquired with its own funds in its private or corporate capacity, such property is held in trust for the State for the benefit of its inhabitants, whether it be governmental or proprietary purposes. It holds such lands subject to the paramount power of the legislature to dispose of the same, for after all it owes its creation to it as agent for the performance of a part of its public work, municipality being but a subdivision or instrumentality thereof for purposes of local administration. Accordingly, the legal situation is the same as if the State itself holds the property and puts it to a different use' and stressed that 'the property, as has been previously shown, was not acquired by the City of Manila with its own funds in its private or proprietary capacity. That it has in its name registered title is not questioned, but this title should be deemed to be held in trust for the State as the land covered thereby was part of the territory of the City of Manila granted by the sovereign upon its creation." 28

This is a doctrine which to my mind is unaffected by grant of extensive local autonomy under the present Constitution. Its basis is the regalian doctrine. It is my view that under the Constitution, as was the case under the 1935 charter, the holding of a municipal corporation as a unit of state does not impair the plenary power of the national government exercising dominical rights to dispose of it in a manner it sees fit, subject to applicable constitutional limitations as to the citizenship of the grantee. An excerpt from Lee Hong Hok v. David 29 is relevant: "As there are overtones indicative of skepticism, if not of outright rejection, of the well-known distinction in public law between the government authority possessed by the state which is appropriately embraced in the concept of sovereignty, and its capacity to own or acquire property, it is not inappropriate to pursue the matter further. The former comes under the heading of imperium and the latter of dominium. The use of this term is appropriate with reference to lands held by the state in its proprietary character. In such capacity, it may provide for the exploitation and use of lands and other natural resources, including their disposition, except as limited by the Constitution. Dean Pound did speak of the confusion that existed during the medieval era between such two concepts, but did note the existence of res publicae as a corollary to dominium. As far as the Philippines was concerned, there was a recognition by Justice Holmes in Cariño v. Insular Government, a case of Philippine origin, that 'Spain in its earlier decrees embodied the universal feudal theory that all lands were held from the Crown ... .' That was a manifestation of the concept of jura regalia, which was adopted by the present Constitution, ownership however being vested in the state as such rather than the head thereof." 30

4. Much more compelling is the reliance on the opinion of Justice Teehankee on the even more fundamental principle of social justice, which was given further stress and a wider scope in the present Constitution. According to the opinion of the Court: "There as here, the Court holds that the Acts in question (Republic Act 4118 in Salasand Republic Act 3120 in the case at bar) were intended to implement the social justice policy of the Constitution and the government program of land for the landless and that they were not 'intended to expropriate the property involved but merely to confirm its character as communal land of the State and to make it available for disposition by the National Government: ... The subdivision of the land and conveyance of the resulting subdivision lots to the occupants by Congressional authorization does not operate as an exercise of the power of eminent domain without just compensation in violation of Section 1, subsection (2), Article III of the Constitution, but simply as a manifestation of its right and power to deal with state property." 31 It is true of course, that a local government unit, if expressly authorized by statute, could make use of its property in the same manner. It does appear, however, that there was no such grant of authority. Moreover, the national government is not only in a better position to make a reality of the social justice principle but also is subject to less pressure on the part of the affluent, at least where the distribution of state property is concerned. It is thus a more efficient instrument than a province, city or municipality to attain this highly desirable goal. In an economy essentially based on capitalism, where the power of concentrated wealth cannot be underestimated, the countervailing force exerted by a strong national government sensitive to the needs of our countrymen, deeply mired in the morass of poverty, the disinherited of fortune, can make

itself much more effectively felt. If only for that cogent reason then, I am prepared to ignore whatever doubts or misgivings I did entertain at the outset.

Hence this concurrence.

Separate Opinions

FERNANDO, J., concurring:

It is undoubted that the opinion of the Court penned by Justice Teehankee, with his customary lucidity and thoroughness, is in accordance with our past decisions on the matter. Reflection on the innovation introduced by the present Constitution on local government, did, however, give rise to doubts on my part as to the continuing authoritativeness of Province of Zamboanga del Norte v. City of Zamboanga 1 and Salas v. Jarencio, 2 the two principal opinions relied upon, both of which decisions were promulgated before the effectivity of the new fundamental law. Hence this separate opinion setting forth the reasons why I join the rest of my brethren.

1. In the declaration of principles and state policies 3 it is specifically provided: "The State shall guarantee and promote the autonomy of local government units, especially the barrio, to ensure their fullest development as self-reliant communities." 4 What was succinctly expressed therein was made more definite in the article on local government. 5 Its first section reads: "The territorial and political subdivisions of the Philippines are the provinces, cities, municipalities, and barrios." 6 Then comes this provision: "The National Assembly shall enact a local government code which may not thereafter be amended except by a majority vote of all its Members, defining a more responsive and accountable local government structure with an effective system of recall, allocating among the different local government units their powers, responsibilities, and resources, and providing for the qualifications, election and removal, term, salaries, powers, functions, and duties of local officials, and all other matters relating to the organization and operation of the local units. However, any change in the existing form of local government shall not take effect until ratified by a majority of the votes cast in a plebiscite called for the purpose."  7 After which there is this limitation on the power of local government: "No province, city, municipality, or barrio may be created, divided, merged, abolished, or its boundary substantially altered, except in accordance with the criteria established in the local government code, and subject to the approval by a majority of the votes cast in a plebiscite in the unit or units affected." 8 The autonomy of cities and municipalities is guaranteed in these words: "(1) Provinces with respect to component cities and municipalities, and cities and municipalities with respect to component barrios, shall ensure that the acts of their component units are with the scope of their assigned powers and functions. Highly urbanized cities, as determined by standards established in the local government code, shall be independent of province."  9Then comes the last section: "Each local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such limitations as may be provided by law." 10

The objective is thus crystal-clear and well-defined. The goal is the fullest autonomy to local government units consistent with the basic theory of a unitary, not a federal, polity. It is the hope that thereby they will attain "their fullest development as self-reliant communities." 11 It is more than just the expression of an aspiration as attest by one of the articles of the Constitution devoted to such a subject. 12 It was not so under the 1935 charter. On this point, all that appeared therein was: "The President shall ... exercise general supervision over all local governments as may be provided by law ... . 13 According to Justice Laurel in Planas v. Gil, 14 "the deliberation of the Constitutional Convention show that the grant of the supervisory authority to the Chief Executive in this regard was in the nature of a compromise resulting from the conflict of views in that body, mainly between the historical view which recognizes the right of local self-government ... and the legal theory which sanctions the possession by the state of absolute control over local governments .. . The result was the recognition of the power of supervision and all its implications and the rejection of what otherwise would be an imperium in imperio to the detriment of a strong national government." 15 For the above provision starts with the vesting of control in the President "of all the executive departments, bureaus, or offices," as distinguished from "general supervision over all local governments as may be provided by law." 16 The difference in wording is highly significant. So it was stressed by the then Justice, later Chief Justice, Concepcion in Pelaez v. Auditor General: 17 "The power of control under this provision implies the right of the President to interfere in the exercise of such discretion as may be vested by law in the officers of the executive departments, bureaus, or offices of the national government, as well as to act in lieu of such officers. This power isdenied by the Constitution to the Executive, insofar as local governments are concerned. With respect to the latter, the fundamental law permits him to wield no more authority than that of checking whether said local governments or the officers thereof perform their duties as provided by statutory enactments. Hence, the President cannot interfere with local governments, so long as the same or its officers act within the scope of their authority. He may not enact an ordinance which the municipal council has failed or refused to pass, even if it had thereby violated a duty imposed thereto by law, although he may see to it that the corresponding provincial officials take appropriate disciplinary action therefor. Neither may he vote, set aside or annul an ordinance passed by said council within the scope of its jurisdiction, no matter how patently unwise it may be. He may not even suspend an elective official of a regular municipality or take any disciplinary action against him, except on appeal from a decision of the corresponding provincial board." 18

2. So it was that under the 1935 Constitution, the national government when acting through the executive had only such general supervisory authority as was provided by statute. There was no restriction, however, on the legislative body to create or to abolish local government units. What was more, the

powers vested in them could be expanded or diminished depending on the will of Congress. It could hardly be assumed therefore that under the previous charter, they could justifiably lay claim to real autonomy. For so long as the legislation itself took care of delineating the matters that were appropriately within the scope of their competence, there could be no objection to its validity. No constitutional problem arose. Things have changed radically. We start with the declared principle of the State guaranteeing and promoting the autonomy of local government units. 19 We have likewise noted the earnestness of the framers as to the attainment of such declared objective as set forth in the specific article 20 on the matter. It is made obligatory on the National Assembly to enact a local government code. What is more, unlike the general run of statutes, it cannot be amended except by a majority vote of all its members. It is made to include "a more responsive and accountable local government structure with an effective system of recall," with an expressed reference to "qualifications, election and removal, term, salaries, powers, functions, and duties of local officials, [as well as] all other matters relating to the organization and operation of local units." 21 Mention is likewise made of the "powers, responsibilities, and resources,"22 items that are identified with local autonomy. As if that were not enough, the last sentence of this particular provision reads: "However, any change in the existing form of local government shall not take effect until ratified by a majority of the votes cast in a plebiscite called for the purpose." 23 To the extent that the last section requires that the creation, division, merger, abolition or alteration of a boundary of a province, city, municipality, or barrio, must be in accordance with the criteria established in the local government code and subject to the approval by a majority of the votes cast in a plebiscite in such unit or units, the adherence to the basic principle of local self-government is quite clear. 24 Equally significant is the stress on the competence of a province, city, municipality or barrio "to create its own sources of revenue and to levy taxes subject to such limitations as may be provided by law." 25 The care and circumspection with which the framers saw to the enjoyment of real local self-government not only in terms of administration but also in terms of resources is thus manifest. Their intent is unmistakable. Unlike the case under the 1935 Constitution, there is thus a clear manifestation of the presumption now in favor of a local government unit. It is a well-nigh complete departure from what was. Nor should it be ignored that a highly urbanized city "shall be independent" not only of the national government but also of a province. 26Would it not follow then that under the present dispensation, the moment property is transferred to it by the national government, its control over the same should be as extensive and as broad as possible. Considerations of the above nature gave rise to doubts on my part as to the decisions in the Zamboanga del Norte and Salas cases still retaining unimpaired their doctrinal force. Would this be a case of Republic Act No. 3120 being rendered inoperative by virtue of its repugnancy to the present Constitution? 27

3. Nonetheless, such doubts were set at rest by two considerations. The opinion of Justice Teehankee makes reference to the ratio decidendi of Salas v. Jarencio as to the trust character impressed on communal property of a municipal corporation, even if already titled. As set forth in the opinion: "The Court [in Salas v. Jarencio] reaffirmed the established general rule that 'regardless of the source of classification of land in the possession of a municipality, excepting those acquired with its own funds in its private or corporate capacity, such property is held in trust for the State for the benefit of its inhabitants, whether it be governmental or proprietary purposes. It holds such lands subject to the paramount power of the legislature to dispose of the same, for after all it owes its creation to it as agent for the performance of a part of its public work, municipality being but a subdivision or instrumentality thereof for purposes of local administration. Accordingly, the legal situation is the same as if the State itself holds the property and puts it to a different use' and stressed that 'the property, as has been previously shown, was not acquired by the City of Manila with its own funds in its private or proprietary capacity. That it has in its name registered title is not questioned, but this title should be deemed to be held in trust for the State as the land covered thereby was part of the territory of the City of Manila granted by the sovereign upon its creation." 28

This is a doctrine which to my mind is unaffected by grant of extensive local autonomy under the present Constitution. Its basis is the regalian doctrine. It is my view that under the Constitution, as was the case under the 1935 charter, the holding of a municipal corporation as a unit of state does not impair the plenary power of the national government exercising dominical rights to dispose of it in a manner it sees fit, subject to applicable constitutional limitations as to the citizenship of the grantee. An excerpt from Lee Hong Hok v. David 29 is relevant: "As there are overtones indicative of skepticism, if not of outright rejection, of the well-known distinction in public law between the government authority possessed by the state which is appropriately embraced in the concept of sovereignty, and its capacity to own or acquire property, it is not inappropriate to pursue the matter further. The former comes under the heading of imperium and the latter of dominium. The use of this term is appropriate with reference to lands held by the state in its proprietary character. In such capacity, it may provide for the exploitation and use of lands and other natural resources, including their disposition, except as limited by the Constitution. Dean Pound did speak of the confusion that existed during the medieval era between such two concepts, but did note the existence of res publicae as a corollary to dominium. As far as the Philippines was concerned, there was a recognition by Justice Holmes in Cariño v. Insular Government, a case of Philippine origin, that 'Spain in its earlier decrees embodied the universal feudal theory that all lands were held from the Crown ... .' That was a manifestation of the concept of jura regalia, which was adopted by the present Constitution, ownership however being vested in the state as such rather than the head thereof." 30

4. Much more compelling is the reliance on the opinion of Justice Teehankee on the even more fundamental principle of social justice, which was given further stress and a wider scope in the present Constitution. According to the opinion of the Court: "There as here, the Court holds that the Acts in question (Republic Act 4118 in Salasand Republic Act 3120 in the case at bar) were intended to implement the social justice policy of the Constitution and the government program of land for the

landless and that they were not 'intended to expropriate the property involved but merely to confirm its character as communal land of the State and to make it available for disposition by the National Government: ... The subdivision of the land and conveyance of the resulting subdivision lots to the occupants by Congressional authorization does not operate as an exercise of the power of eminent domain without just compensation in violation of Section 1, subsection (2), Article III of the Constitution, but simply as a manifestation of its right and power to deal with state property." 31 It is true of course, that a local government unit, if expressly authorized by statute, could make use of its property in the same manner. It does appear, however, that there was no such grant of authority. Moreover, the national government is not only in a better position to make a reality of the social justice principle but also is subject to less pressure on the part of the affluent, at least where the distribution of state property is concerned. It is thus a more efficient instrument than a province, city or municipality to attain this highly desirable goal. In an economy essentially based on capitalism, where the power of concentrated wealth cannot be underestimated, the countervailing force exerted by a strong national government sensitive to the needs of our countrymen, deeply mired in the morass of poverty, the disinherited of fortune, can make itself much more effectively felt. If only for that cogent reason then, I am prepared to ignore whatever doubts or misgivings I did entertain at the outset.

Hence this concurrence.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

 

G.R. No. 97764 August 10, 1992

LEVY D. MACASIANO, Brigadier General/PNP Superintendent, Metropolitan Traffic Command, petitioner, vs.HONORABLE ROBERTO C. DIOKNO, Presiding Judge, Branch 62, Regional Trial Court of Makati, Metro Manila, MUNICIPALITY OF PARAÑAQUE, METRO MANILA, PALANYAG KILUSANG BAYAN FOR SERVICE,respondents.

Ceferino, Padua Law Office for Palanyag Kilusang Bayan for service.

Manuel de Guia for Municipality of Parañaque.

 

MEDIALDEA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court seeking the annulment of the decision of the Regional Trial Court of Makati, Branch 62, which granted the writ of preliminary injunction applied for by respondents Municipality of Parañaque and Palanyag Kilusang Bayan for Service (Palanyag for brevity) against petitioner herein.

The antecedent facts are as follows:

On June 13, 1990, the respondent municipality passed Ordinance No. 86, Series of 1990 which authorized the closure of J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena Streets located at Baclaran, Parañaque, Metro Manila and the establishment of a flea market thereon. The said ordinance was approved by the municipal council pursuant to MMC Ordinance No. 2, Series of 1979, authorizing and regulating the use of certain city and/or municipal streets, roads and open spaces within Metropolitan Manila as sites for flea market and/or vending areas, under certain terms and conditions.

On July 20, 1990, the Metropolitan Manila Authority approved Ordinance No. 86, s. 1990 of the municipal council of respondent municipality subject to the following conditions:

1. That the aforenamed streets are not used for vehicular traffic, and that the majority of the residents do not oppose the establishment of the flea market/vending areas thereon;

2. That the 2-meter middle road to be used as flea market/vending area shall be marked distinctly, and that the 2 meters on both sides of the road shall be used by pedestrians;

3. That the time during which the vending area is to be used shall be clearly designated;

4. That the use of the vending areas shall be temporary and shall be closed once the reclaimed areas are developed and donated by the Public Estate Authority.

On June 20, 1990, the municipal council of Parañaque issued a resolution authorizing Parañaque Mayor Walfrido N. Ferrer to enter into contract with any service cooperative for the establishment, operation, maintenance and management of flea markets and/or vending areas.

On August 8, 1990, respondent municipality and respondent Palanyag, a service cooperative, entered into an agreement whereby the latter shall operate, maintain and manage the flea market in the aforementioned streets with the obligation to remit dues to the treasury of the municipal government of Parañaque. Consequently, market stalls were put up by respondent Palanyag on the said streets.

On September 13, 1990, petitioner Brig. Gen. Macasiano, PNP Superintendent of the Metropolitan Traffic Command, ordered the destruction and confiscation of stalls along G.G. Cruz and J. Gabriel St. in Baclaran. These stalls were later returned to respondent Palanyag.

On October 16, 1990, petitioner Brig. General Macasiano wrote a letter to respondent Palanyag giving the latter ten (10) days to discontinue the flea market; otherwise, the market stalls shall be dismantled.

Hence, on October 23, 1990, respondents municipality and Palanyag filed with the trial court a joint petition for prohibition and mandamus with damages and prayer for preliminary injunction, to which the petitioner filed his memorandum/opposition to the issuance of the writ of preliminary injunction.

On October 24, 1990, the trial court issued a temporary restraining order to enjoin petitioner from enforcing his letter-order of October 16, 1990 pending the hearing on the motion for writ of preliminary injunction.

On December 17, 1990, the trial court issued an order upholding the validity of Ordinance No. 86 s. 1990 of the Municipality' of Parañaque and enjoining petitioner Brig. Gen. Macasiano from enforcing his letter-order against respondent Palanyag.

Hence, this petition was filed by the petitioner thru the Office of the Solicitor General alleging grave abuse of discretion tantamount to lack or excess of jurisdiction on the part of the trial judge in issuing the assailed order.

The sole issue to be resolved in this case is whether or not an ordinance or resolution issued by the municipal council of Parañaque authorizing the lease and use of public streets or thoroughfares as sites for flea markets is valid.

The Solicitor General, in behalf of petitioner, contends that municipal roads are used for public service and are therefore public properties; that as such, they cannot be subject to private appropriation or private contract by any person, even by the respondent Municipality of Parañaque. Petitioner submits that a property already dedicated to public use cannot be used for another public purpose and that absent a clear showing that the Municipality of Parañaque has been granted by the legislature specific authority to convert a property already in public use to another public use, respondent municipality is, therefore, bereft of any authority to close municipal roads for the establishment of a flea market. Petitioner also submits that assuming that the respondent municipality is authorized to close streets, it failed to comply with the conditions set forth by the Metropolitan Manila Authority for the approval of the ordinance providing for the establishment of flea markets on public streets. Lastly, petitioner contends that by allowing the municipal streets to be used by market vendors the municipal council of respondent municipality violated its duty under the Local Government Code to promote the general welfare of the residents of the municipality.

In upholding the legality of the disputed ordinance, the trial court ruled:

. . . that Chanter II Section 10 of the Local Government Code is a statutory grant of power given to local government units, the Municipality of Parañaque as such, is empowered under that law to close its roads, streets or alley subject to limitations stated therein (i.e., that it is in accordance with existing laws and the provisions of this code).

xxx xxx xxx

The actuation of the respondent Brig. Gen. Levi Macasiano, though apparently within its power is in fact an encroachment of power legally vested to the municipality, precisely because when the municipality enacted the ordinance in question — the authority of the respondent as Police Superintendent ceases to be operative on the ground that the streets covered by the ordinance ceases to be a public thoroughfare. (pp. 33-34, Rollo)

We find the petition meritorious. In resolving the question of whether the disputed municipal ordinance authorizing the flea market on the public streets is valid, it is necessary to examine the laws in force during the time the said ordinance was enacted, namely, Batas Pambansa Blg. 337, otherwise known as

Local Government Code, in connection with established principles embodied in the Civil Code an property and settled jurisprudence on the matter.

The property of provinces, cities and municipalities is divided into property for public use and patrimonial property (Art. 423, Civil Code). As to what consists of property for public use, Article 424 of Civil Code states:

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

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

Based on the foregoing, J. Gabriel G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena streets are local roads used for public service and are therefore considered public properties of respondent municipality. Properties of the local government which are devoted to public service are deemed public and are under the absolute control of Congress (Province of Zamboanga del Norte v. City of Zamboanga, L-24440, March 28, 1968, 22 SCRA 1334). Hence, local governments have no authority whatsoever to control or regulate the use of public properties unless specific authority is vested upon them by Congress. One such example of this authority given by Congress to the local governments is the power to close roads as provided in Section 10, Chapter II of the Local Government Code, which states:

Sec. 10. Closure of roads. — A local government unit may likewise, through its head acting pursuant to a resolution of its sangguniang and in accordance with existing law and the provisions of this Code, close any barangay, municipal, city or provincial road, street, alley, park or square. No such way or place or any part of thereof shall be close without indemnifying any person prejudiced thereby. A property thus withdrawn from public use may be used or conveyed for any purpose for which other real property belonging to the local unit concerned might be lawfully used or conveyed. (Emphasis ours).

However, the aforestated legal provision which gives authority to local government units to close roads and other similar public places should be read and interpreted in accordance with basic principles already established by law. These basic principles have the effect of limiting such authority of the province, city or municipality to close a public street or thoroughfare. Article 424 of the Civil Code lays down the basic principle that properties of public dominion devoted to public use and made available to the public in general are outside the commerce of man and cannot be disposed of or leased by the local government unit to private persons. Aside from the requirement of due process which should be complied with before closing a road, street or park, the closure should be for the sole purpose of withdrawing the road or other public property from public use when circumstances show that such property is no longer intended or necessary for public use or public service. When it is already withdrawn from public use, the property then becomes patrimonial property of the local government unit concerned (Article 422, Civil Code; Cebu Oxygen, etc. et al. v. Bercilles, et al., G.R. No. L-40474, August 29, 1975, 66 SCRA 481). It is only then that the respondent municipality can "use or convey them for any purpose for which other real property belonging to the local unit concerned might be lawfully used or conveyed" in accordance with the last sentence of Section 10, Chapter II of Blg. 337, known as Local Government Code. In one case, the City Council of Cebu, through a resolution, declared the terminal road of M. Borces Street, Mabolo, Cebu City as an abandoned road, the same not being included in the City Development Plan. Thereafter, the City Council passes another resolution authorizing the sale of the said abandoned road through public bidding. We held therein that the City of Cebu is empowered to close a city street and to vacate or withdraw the same from public use. Such withdrawn portion becomes patrimonial property which can be the object of an ordinary contract (Cebu Oxygen and Acetylene Co., Inc. v. Bercilles, et al., G.R. No.L-40474, August 29, 1975, 66 SCRA 481). However, those roads and streets which are available to the public in general and ordinarily used for vehicular traffic are still considered public property devoted to public use. In such case, the local government has no power to use it for another purpose or to dispose of or lease it to private persons. This limitation on the authority of the local government over public properties has been discussed and settled by this Court en banc in "Francisco V. Dacanay, petitioner v. Mayor Macaria Asistio, Jr., et al., respondents, G.R. No. 93654, May 6, 1992." This Court ruled:

There is no doubt that the disputed areas from which the private respondents' market stalls are sought to be evicted are public streets, as found by the trial court in Civil Case No. C-12921. A public street is property for public use hence outside the commerce of man (Arts. 420, 424, Civil Code). Being outside the commerce of man, it may not be the subject of lease or others contract (Villanueva, et al. v. Castañeda and Macalino, 15 SCRA 142 citing the Municipality of Cavite v. Rojas, 30 SCRA 602; Espiritu v. Municipal Council of Pozorrubio, 102 Phil. 869; And Muyot v. De la Fuente, 48 O.G. 4860).

As the stallholders pay fees to the City Government for the right to occupy portions of the public street, the City Government, contrary to law, has been leasing portions of the streets to them. Such leases or licenses are null and void for being contrary to law. The right of the public to use the city streets may not be bargained away through contract. The interests of a few should not prevail over the good of the greater number in the

community whose health, peace, safety, good order and general welfare, the respondent city officials are under legal obligation to protect.

The Executive Order issued by acting Mayor Robles authorizing the use of Heroes del '96 Street as a vending area for stallholders who were granted licenses by the city government contravenes the general law that reserves city streets and roads for public use. Mayor Robles' Executive Order may not infringe upon the vested right of the public to use city streets for the purpose they were intended to serve: i.e., as arteries of travel for vehicles and pedestrians.

Even assuming, in gratia argumenti, that respondent municipality has the authority to pass the disputed ordinance, the same cannot be validly implemented because it cannot be considered approved by the Metropolitan Manila Authority due to non-compliance by respondent municipality of the conditions imposed by the former for the approval of the ordinance, to wit:

1. That the aforenamed streets are not used for vehicular traffic, and that the majority of the residents do(es) not oppose the establishment of the flea market/vending areas thereon;

2. That the 2-meter middle road to be used as flea market/vending area shall be marked distinctly, and that the 2 meters on both sides of the road shall be used by pedestrians;

3. That the time during which the vending area is to be used shall be clearly designated;

4. That the use of the vending areas shall be temporary and shall be closed once the reclaimed areas are developed and donated by the Public Estate Authority. (p. 38, Rollo)

Respondent municipality has not shown any iota of proof that it has complied with the foregoing conditions precedent to the approval of the ordinance. The allegations of respondent municipality that the closed streets were not used for vehicular traffic and that the majority of the residents do not oppose the establishment of a flea market on said streets are unsupported by any evidence that will show that this first condition has been met. Likewise, the designation by respondents of a time schedule during which the flea market shall operate is absent.

Further, it is of public notice that the streets along Baclaran area are congested with people, houses and traffic brought about by the proliferation of vendors occupying the streets. To license and allow the establishment of a flea market along J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena streets in Baclaran would not help in solving the problem of congestion. We take note of the other observations of the Solicitor General when he said:

. . . There have been many instances of emergencies and fires where ambulances and fire engines, instead of using the roads for a more direct access to the fire area, have to maneuver and look for other streets which are not occupied by stalls and vendors thereby losing valuable time which could, otherwise, have been spent in saving properties and lives.

Along G.G. Cruz Street is a hospital, the St. Rita Hospital. However, its ambulances and the people rushing their patients to the hospital cannot pass through G.G. Cruz because of the stalls and the vendors. One can only imagine the tragedy of losing a life just because of a few seconds delay brought about by the inaccessibility of the streets leading to the hospital.

The children, too, suffer. In view of the occupancy of the roads by stalls and vendors, normal transportation flow is disrupted and school children have to get off at a distance still far from their schools and walk, rain or shine.

Indeed one can only imagine the garbage and litter left by vendors on the streets at the end of the day. Needless to say, these cause further pollution, sickness and deterioration of health of the residents therein. (pp. 21-22, Rollo)

Respondents do not refute the truth of the foregoing findings and observations of petitioners. Instead, respondents want this Court to focus its attention solely on the argument that the use of public spaces for the establishment of a flea market is well within the powers granted by law to a local government which should not be interfered with by the courts.

Verily, the powers of a local government unit are not absolute. They are subject to limitations laid down by toe Constitution and the laws such as our Civil Code. Moreover, the exercise of such powers should be subservient to paramount considerations of health and well-being of the members of the community. Every local government unit has the sworn obligation to enact measures that will enhance the public health, safety and convenience, maintain peace and order, and promote the general prosperity of the inhabitants of the local units. Based on this objective, the local government should refrain from acting towards that which might prejudice or adversely affect the general welfare.

As what we have said in the Dacanay case, the general public have a legal right to demand the demolition of the illegally constructed stalls in public roads and streets and the officials of respondent municipality have the corresponding duty arising from public office to clear the city streets and restore them to their specific public purpose.

The instant case as well as the Dacanay case, involves an ordinance which is void and illegal for lack of basis and authority in laws applicable during its time. However, at this point, We find it worthy to note that Batas Pambansa Blg. 337, known as Local Government Lode, has already been repealed by Republic Act No. 7160 known as Local Government Code of 1991 which took effect on January 1, 1992. Section 5(d) of the new Code provides that rights and obligations existing on the date of effectivity of the new Code and arising out of contracts or any other source of prestation involving a local government unit shall be governed by the original terms and conditions of the said contracts or the law in force at the time such rights were vested.

ACCORDINGLY, the petition is GRANTED and the decision of the respondent Regional Trial Court dated December 17, 1990 which granted the writ of preliminary injunction enjoining petitioner as PNP Superintendent, Metropolitan Traffic Command from enforcing the demolition of market stalls along J. Gabriel, G.G. Cruz, Bayanihan, Lt. Garcia Extension and Opena streets is hereby RESERVED and SET ASIDE.

SO ORDERED.

Narvasa, C.J., Gutierrez, Jr., Cruz, Feliciano, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero, Nocon and Bellosillo, JJ., concur.