CASES ON PROPERTY, OWNERSHIP AND ITS MODIFICATIONS 2013

CLASSIFICATION OF PROPERTY:
SERG'S PRODUCTS, INC., and SERGIO T. GOQUIOLAY vs. PCI LEASING AND FINANCE, INC.; G.R. No. 137705 August 22, 2000 After agreeing to a contract stipulating that a real or immovable property be considered as personal or movable, a party is estopped from subsequently claiming otherwise. Hence, such property is a proper subject of a writ of replevin obtained by the other contracting party. The Case Before us is a Petition for Review on Certiorari assailing the January 6, 1999 Decision1 of the Court of Appeals (CA)2 in CA-GR SP No. 47332 and its February 26, 1999 Resolution3 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 Resolution8 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 petitioners factory, seized one machinery with [the] word that he [would] return for the other machineries. "On March 25, 1998, petitioners filed a motion for special protective order (Annex C), invoking the power of the court to control the conduct of its officers and amend and control its processes, praying for a directive for the sheriff to defer enforcement of the writ of replevin. "This motion was opposed by PCI Leasing (Annex F), on the ground that the properties [were] still personal and therefore still subject to seizure and a writ of replevin. "In their Reply, petitioners asserted that the properties sought to be seized [were] immovable as defined in Article 415 of the Civil Code, the parties agreement to the contrary notwithstanding. They argued that to give effect to the agreement would be prejudicial to innocent third parties. They further stated that PCI Leasing [was] estopped from treating these machineries as personal because the contracts in which the alleged agreement [were] embodied [were] totally sham and farcical. PUP COLLEGE OF LAW Page 1

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"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 SERGS became real property by virtue of immobilization. B. Whether or not the contract between the parties is a loan or a lease. "12 In the main, the Court will resolve whether the said machines are personal, not immovable, property which may be a proper subject of a writ of replevin. As a preliminary matter, the Court will also address briefly the procedural points raised by respondent. The Courts Ruling The Petition is not meritorious. Preliminary Matter:Procedural Questions Respondent contends that the Petition failed to indicate expressly whether it was being filed under Rule 45 or Rule 65 of the Rules of Court. It further alleges that the Petition erroneously impleaded Judge Hilario Laqui as respondent. There is no question that the present recourse is under Rule 45. This conclusion finds support in the very title of the Petition, which is "Petition for Review on Certiorari." 13 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.

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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: xxx xxx xxx

(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; xxx xxx 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.18After 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 Mills20 also held that the machinery used in a factory and essential to the industry, as in the present case, was a proper subject of a writ of replevin because it was treated as personal property in a contract. Pertinent portions of the Courts ruling are reproduced hereunder:

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"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 respondents Comment, they furth er 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 Tondea Distillers v. CA,27 the Court explained that the policy under Rule 60 was that questions involving title to the subject property questions which petitioners are now raising -- should be determined in the trial. In that case, the Court noted that the remedy of defendants under Rule 60 was either to post a counter-bond or to question the sufficiency of the plaintiffs bond. They were not allowed, however, t o 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

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It should be pointed out that the Court in this case may rely on the Lease Agreement, for nothing on record shows that it has been nullified or annulled. In fact, petitioners assailed it first only in the RTC proceedings, which had ironically been instituted by respondent. Accordingly, it must be presumed valid and binding as the law between the parties. Makati Leasing and Finance Corporation30 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. 1wphi1 As earlier discussed, law and jurisprudence support its propriety. Verily, the above-mentioned consequences, if they come true, should not be blamed on this Court, but on the petitioners for failing to avail themselves of the remedy under Section 5 of Rule 60, which allows the filing of a counter-bond. The provision states: "SEC. 5. Return of property. -- If the adverse party objects to the sufficiency of the applicants bond, or of the surety or sureties thereon, he cannot immediately require the return of the property, but if he does not so object, he may, at any time before the delivery of the property to the applicant, require the return thereof, by filing with the court where the action is pending a bond executed to the applicant, in double the value of the property as stated in the applicants affidavit for the delivery thereof to the applicant, if such delivery be adjudged, and for the payment of such sum to him as may be recovered against the adverse party, and by serving a copy bond on the applicant." WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED. Costs against petitioners. MANILA INTERNATIONAL AIRPORT AUTHORITY vs. COURT OF APPEALS; G.R. No. 155650 July 20, 2006 The Antecedents Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Paraaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos. Subsequently, Executive Order Nos. 909 1 and 2982 amended the MIAA Charter. As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines. 5 On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA PUP COLLEGE OF LAW Page 5

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under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Paraaque to pay the real estate tax imposed by the City. MIAA then paid some of the real estate tax already due. On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Paraaque for the taxable years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows: TAX DECLARATION E-016-01370 E-016-01374 E-016-01375 E-016-01376 E-016-01377 E-016-01378 E-016-01379 E-016-01380 *E-016-013-85 *E-016-01387 *E-016-01396 GRAND TOTAL TAXABLE YEAR 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1992-2001 1998-2001 1998-2001 1998-2001 TAX DUE 19,558,160.00 111,689,424.90 20,276,058.00 58,144,028.00 18,134,614.65 111,107,950.40 4,322,340.00 7,776,436.00 6,444,810.00 34,876,800.00 75,240.00 P392,435,861.95 PENALTY 11,201,083.20 68,149,479.59 12,371,832.00 35,477,712.00 11,065,188.59 67,794,681.59 2,637,360.00 4,744,944.00 2,900,164.50 5,694,560.00 33,858.00 P232,070,863.47 TOTAL 30,789,243.20 179,838,904.49 32,647,890.00 93,621,740.00 29,199,803.24 178,902,631.99 6,959,700.00 12,521,380.00 9,344,974.50 50,571,360.00 109,098.00 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75 #9476101 for P28,676,480.00 #9476103 for P49,115.006 On 17 July 2001, the City of Paraaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Paraaque threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061. On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax. On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for preliminary injunction or temporary restraining order. The petition sought to restrain the City of Paraaque from imposing real estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No. 66878. On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review.7 Meanwhile, in January 2003, the City of Paraaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez, Sto. Nio, and Tambo, Paraaque City; in the public market of Barangay La Huerta; and in the main lobby of the Paraaque City Hall. The City of Paraaque published the notices in the 3 and 10 January 2003 PUP COLLEGE OF LAW Page 6

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issues of the Philippine Daily Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Paraaque City. A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent ExParte and Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents the City of Paraaque, City Mayor of Paraaque, Sangguniang Panglungsod ng Paraaque, City Treasurer of Paraaque, and the City Assessor of Paraaque ("respondents") from auctioning the Airport Lands and Buildings. On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the public auction. On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO. On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing, MIAA, respondent City of Paraaque, and the Solicitor General subsequently submitted their respective Memoranda. MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments. MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos 8 where we held that the Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax. The Issue This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments issued by the City of Paraaque, and all proceedings taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot. PUP COLLEGE OF LAW Page 7

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The Court's Ruling We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments. First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax. 1. MIAA is Not a Government-Owned or Controlled Corporation Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax. Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of the Local Government Code withdrew the real estate tax exemption of governmentowned or controlled corporations. The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax. There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as follows: SEC. 2. General Terms Defined. x x x x (13) Government-owned or controlled corporation refers to any agency organized as a stock or nonstock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied) A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter9provides: SECTION 10. Capital. The capital of the Authority to be contributed by the National Government shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of: (a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and Management and the Commission on Audit on the date of such contribution or transfer after making due allowances for depreciation and other deductions taking into account the loans and other liabilities of the Authority at the time of the takeover of the assets and other properties; (b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General Appropriations Act. Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

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Section 3 of the Corporation Code10 defines a stock corporation as one whose " capital stock is divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation. MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.11 This prevents MIAA from qualifying as a non-stock corporation. Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry, agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an international and domestic airport for public use. Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled corporation. What then is the legal status of MIAA within the National Government? MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows: SEC. 2. General Terms Defined. x x x x (10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied) When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain,12 police authority13 and the levying of fees and charges.14 At the same time, MIAA exercises "all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order."15 Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that transforming MIAA into a "separate and autonomous body" 16 will make its operation more "financially viable."17 Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal relationship and status of government entities. PUP COLLEGE OF LAW Page 9

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A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states: SEC. 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units.(Emphasis and underscoring supplied) Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the Congress may provide."18 When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local governments seek to tax national government instrumentalities. Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.: The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies.19 There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another. There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government instrumentalities for the delivery of essential public services for sound and compelling policy considerations. There must be express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such power exists is resolved against local governments. Thus, Section 133 of the Local Government Code states that " unless otherwise provided" in the Code, local governments cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation: The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments.

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"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them ." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 20 2. Airport Lands and Buildings of MIAA are Owned by the Republic a. Airport Lands and Buildings are of Public Dominion The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. The Civil Code provides: ARTICLE 419. Property is either of public dominion or of private ownership. ARTICLE 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. (Emphasis supplied) ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property. ARTICLE 422. 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. No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like " roads, canals, rivers, torrents, ports and bridges constructed by the State ," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines. The Airport Lands and Buildings are devoted to public use because they are used by the public for international and domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the maintenance of public roads.

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The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do not affect the public character of the road. The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable a principle of taxation mandated in the 1987 Constitution.21 The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and domestic air traffic,"22 are properties of public dominion because they are intended for public use. As properties of public dominion, they indisputably belong to the State or the Republic of the Philippines. b. Airport Lands and Buildings are Outside the Commerce of Man The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are outside the commerce of man . The Court has ruled repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus: According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces." The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do. The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: " Communal things that cannot be sold because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc. " (Emphasis supplied) 23 Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man: xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general. They are outside the commerce of man and cannot be disposed of or even leased by the municipality to private parties. While in case of war or during an emergency, town plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the town officials should see to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private constructions.24 (Emphasis supplied)

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The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an auction sale.25 Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction sale. This will happen if the City of Paraaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA for non-payment of real estate tax. Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral lands,"27 provide: SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village and other improvements for the public benefit. SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring supplied) Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines. The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states: SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government . (1) The President shall have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific public purpose indicated until otherwise provided by law or proclamation ; x x x x. (Emphasis supplied) There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man. c. MIAA is a Mere Trustee of the Republic MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus: PUP COLLEGE OF LAW Page 13

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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) In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of conveyance.28 d. Transfer to MIAA was Meant to Implement a Reorganization The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air Transportation of the Department of Transportation and Communications. The MIAA Charter provides: SECTION 3. Creation of the Manila International Airport Authority. x x x x The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines . (Emphasis supplied) SECTION 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other property , movable or immovable, belonging to the Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis supplied) SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and Transitory Provisions. The Manila International Airport including the Manila Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished. x x x x. The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or even stock since MIAA is not a stock corporation. The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus: WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic air traffic, is required to provide standards of airport accommodation and service comparable with the best airports in the world; PUP COLLEGE OF LAW Page 14

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WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current and future air traffic and other demands of aviation in Metro Manila; WHEREAS, a management and organization study has indicated that the objectives of providing high standards of accommodation and service within the context of a financially viable operation, will best be achieved by a separate and autonomous body ; and WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the Philippines is given continuing authority to reorganize the National Government, which authority includes the creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied) The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate and autonomous body . The Republic remains the beneficial owner of the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the Republic. The MIAA Charter expressly provides that the Airport Lands and Buildings " shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines ." This only means that the Republic retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and Buildings. At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic. e. Real Property Owned by the Republic is Not Taxable Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides: SEC. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; x x x. (Emphasis supplied) This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies andinstrumentalities x x x." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax. The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of the real property. Such arrangement does not result in the loss of the tax exemption. PUP COLLEGE OF LAW Page 15

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Section 234(a) of the Local Government Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax. However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration to ataxable person and therefore such land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled: Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or nonpaying, are exempt from real property taxes.29 3. Refutation of Arguments of Minority The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of 1991 withdrew the tax exemption of "all persons, whether natural or juridical " upon the effectivity of the Code. Section 193 provides: SEC. 193. Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied) The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares: It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the explicit provision. The term "All persons" encompasses the two classes of persons recognized under our laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original) The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status whether MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA's claim of exemption." The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) states:

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SEC. 133. Common Limitations on the Taxing Powers of Local Government Units . Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxxx (o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local government units. (Emphasis and underscoring supplied) By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic. The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities specifically enumerated as exempt in Section 193. Thus, the minority states: x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied) The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this theory, local governments can impose any kind of local tax, and not only real estate tax, on the national government. Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine Rice Research Institute,31Laguna Lake Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority,34Philippine Ports Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National Railways.39 The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities. Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means that unless the Local Government Code grants an express authorization, local governments have no power to tax the national government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government, its agencies and instrumentalities. As an exception to this rule, local PUP COLLEGE OF LAW Page 17

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governments may tax the national government, its agencies and instrumentalities only if the Local Government Code expressly so provides. The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government Code provides: SEC. 234. Exemptions from Real Property Tax The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. x x x. (Emphasis supplied) Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is when the government gives the beneficial use of the real property to a taxable entity. The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person. The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later provisions prevail over Section 133. Thus, the minority asserts: x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied) The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons. First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section 193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its power. Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies and instrumentalities. There is no clearer limitation on the taxing power than this. Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the PUP COLLEGE OF LAW Page 18

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taxing power of local governments in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can impose any kind of tax on the national government, its agencies and instrumentalities a gross absurdity. Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this Code." This exception which is an exception to the exemption of the Republic from real estate tax imposed by local governments refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the beneficial use of such property is given to a taxable entity. The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions are not controlling when it provides: SEC. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: xxxx The minority then concludes that reliance on the Administrative Code definition is "flawed." The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that "unless the specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase "government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in the Administrative Code prevails. The minority does not point to any provision in the Local Government Code defining the phrase "governmentowned or controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however, expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that the Administrative Code definition of the phrase "governmentowned or controlled corporation" applies to the Local Government Code. The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the Administrative Code prevail. The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority sees no reason why government corporations with special charters should have a capital stock. Thus, the minority declares: I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to those corporations owned by the government or its instrumentalities which are created not by legislative enactment, but formed and organized under the Corporation Code through registration with the Securities and Exchange Commission. In short, these are GOCCs without original charters. PUP COLLEGE OF LAW Page 19

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xxxx It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares. The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also result in gross absurdities. First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should not distinguish. Second, Congress has created through special charters several government-owned corporations organized as stock corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special charter40 of the Land Bank of the Philippines provides: SECTION 81. Capital. The authorized capital stock of the Bank shall be nine billion pesos, divided into seven hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied) Likewise, the special charter41 of the Development Bank of the Philippines provides: SECTION 7. Authorized Capital Stock Par value. The capital stock of the Bank shall be Five Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares are available for subscription by the National Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied) Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized under special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-owned or controlled corporations because they are not registered with the Securities and Exchange Commission would remove them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax. Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the governmentowned or controlled corporation must be established for the common good. The second condition is that the government-owned or controlled corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides: SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private corporations. Government-owned or controlled corporations may be created or established by special charters in the interest of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied) The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words, Congress has no power to create government-owned or controlled corporations PUP COLLEGE OF LAW Page 20

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with special charters unless they are made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market place. Being essentially economic vehicles of the State for the common good meaning for economic development purposes these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary private corporations. In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to in Section 16, Article XII of the 1987 Constitution. Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate powers but performing essential governmental or public functions. Congress has plenary authority to create government instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public services. However, when the legislature creates through special charters corporations that perform economic or commercial activities, such entities known as "government-owned or controlled corporations" must meet the test of economic viability because they compete in the market place. This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-owned or controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers. Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose of this test, as follows: MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation, there is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through new equity infusions from the government and what is always invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers' money which could have been relocated to agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public employees. And yet this is all going down the drain. Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good.45 Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary: The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the ideas that they must show capacity to function efficiently in business and that they should not go into activities which the private sector can do better. Moreover, economic viability is more PUP COLLEGE OF LAW Page 21

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than financial viability but also includes capability to make profit and generate benefits not quantifiable in financial terms.46 (Emphasis supplied) Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. The State is obligated to render essential public services regardless of the economic viability of providing such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such essential services from the public. However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in Section 2(10) of the Administrative Code. The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market place. MIAA does not compete in the market place because there is no competing international airport operated by the private sector. MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an international airport requires the presence of personnel from the following government agencies: 1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out those without visas or travel documents, or those with hold departure orders; 2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations; 3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious diseases into the country; 4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country; 5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of criminals, as well as to secure the airport premises from terrorist attack or seizure; 6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off from, the airport; and 7. The MIAA, to provide the proper premises such as runway and buildings for the government personnel, passengers, and airlines, and to manage the airport operations. All these agencies of government perform government functions essential to the operation of an international airport. MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or administrative fees47 and not income from commercial transactions. MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code, which provides:

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SEC. 2. General Terms Defined. x x x x (10) Instrumentality refers to any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied) The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled corporations" under Section 16, Article XII of the 1987 Constitution. The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of "government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned or controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error. To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity. Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides: Art. 420. The following things are property of public dominion: (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. (Emphasis supplied) The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code. 4. Conclusion Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to PUP COLLEGE OF LAW Page 23

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"[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Paraaque. Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale. WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport Authority EXEMPT from the real estate tax imposed by the City of Paraaque. We declare VOID all the real estate tax assessments, including the final notices of real estate tax delinquencies, issued by the City of Paraaque on the Airport Lands and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has leased to private parties. We also declareVOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the Manila International Airport Authority. DISSENTING OPINION TINGA, J. : The legally correct resolution of this petition would have had the added benefit of an utterly fair and equitable result a recognition of the constitutional and statutory power of the City of Paraaque to impose real property taxes on the Manila International Airport Authority (MIAA), but at the same time, upholding a statutory limitation that prevents the City of Paraaque from seizing and conducting an execution sale over the real properties of MIAA. In the end, all that the City of Paraaque would hold over the MIAA is a limited lien, unenforceable as it is through the sale or disposition of MIAA properties. Not only is this the legal effect of all the relevant constitutional and statutory provisions applied to this case, it also leaves the room for negotiation for a mutually acceptable resolution between the City of Paraaque and MIAA. Instead, with blind but measured rage, the majority today veers wildly off-course, shattering statutes and judicial precedents left and right in order to protect the precious Ming vase that is the Manila International Airport Authority (MIAA). While the MIAA is left unscathed, it is surrounded by the wreckage that once was the constitutional policy, duly enacted into law, that was local autonomy. Make no mistake, the majority has virtually declared war on the seventy nine (79) provinces, one hundred seventeen (117) cities, and one thousand five hundred (1,500) municipalities of the Philippines.1 The icing on this inedible cake is the strained and purposely vague rationale used to justify the majority opinion. Decisions of the Supreme Court are expected to provide clarity to the parties and to students of jurisprudence, as to what the law of the case is, especially when the doctrines of long standing are modified or clarified. With all due respect, the decision in this case is plainly so, so wrong on many levels. More egregious, in the majority's resolve to spare the Manila International Airport Authority (MIAA) from liability for real estate taxes, no clear-cut rule emerges on the important question of the power of local government units (LGUs) to tax government corporations, instrumentalities or agencies. The majority would overturn sub silencio, among others, at least one dozen precedents enumerated below: 1) Mactan-Cebu International Airport Authority v. Hon. Marcos, 2 the leading case penned in 1997 by recently retired Chief Justice Davide, which held that the express withdrawal by the Local Government Code of previously PUP COLLEGE OF LAW Page 24

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granted exemptions from realty taxes applied to instrumentalities and government-owned or controlled corporations (GOCCs) such as the Mactan-Cebu International Airport Authority (MCIAA). The majority invokes the ruling in Basco v. Pagcor,3 a precedent discredited in Mactan, and a vanguard of a doctrine so noxious to the concept of local government rule that the Local Government Code was drafted precisely to counter such philosophy. The efficacy of several rulings that expressly rely on Mactan, such as PHILRECA v. DILG Secretary, 4City Government of San Pablo v. Hon. Reyes5 is now put in question. 2) The rulings in National Power Corporation v. City of Cabanatuan, 6 wherein the Court, through Justice Puno, declared that the National Power Corporation, a GOCC, is liable for franchise taxes under the Local Government Code, and succeeding cases that have relied on it such as Batangas Power Corp. v. Batangas City7 The majority now states that deems instrumentalities as defined under the Administrative Code of 1987 as purportedly beyond the reach of any form of taxation by LGUs, stating "[l]ocal governments are devoid of power to tax the national government, its agencies and instrumentalities."8 Unfortunately, using the definition employed by the majority, as provided by Section 2(d) of the Administrative Code, GOCCs are also considered as instrumentalities, thus leading to the astounding conclusion that GOCCs may not be taxed by LGUs under the Local Government Code. 3) Lung Center of the Philippines v. Quezon City,9 wherein a unanimous en banc Court held that the Lung Center of the Philippines may be liable for real property taxes. Using the majority's reasoning, the Lung Center would be properly classified as an instrumentality which the majority now holds as exempt from all forms of local taxation. 10 4) City of Davao v. RTC,11 where the Court held that the Government Service Insurance System (GSIS) was liable for real property taxes for the years 1992 to 1994, its previous exemption having been withdrawn by the enactment of the Local Government Code.12 This decision, which expressly relied on Mactan, would be directly though silently overruled by the majority. 5) The common essence of the Court's rulings in the two Philippine Ports Authority v. City of Iloilo, 13 cases penned by Justices Callejo and Azcuna respectively, which relied in part on Mactan in holding the Philippine Ports Authority (PPA) liable for realty taxes, notwithstanding the fact that it is a GOCC. Based on the reasoning of the majority, the PPA cannot be considered a GOCC. The reliance of these cases on Mactan, and its rationale for holding governmental entities like the PPA liable for local government taxation is mooted by the majority. 6) The 1963 precedent of Social Security System Employees Association v. Soriano, 14 which declared the Social Security Commission (SSC) as a GOCC performing proprietary functions. Based on the rationale employed by the majority, the Social Security System is not a GOCC. Or perhaps more accurately, "no longer" a GOCC. 7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit Authority v. Central Board of Assessment.15 The characterization therein of the Light Rail Transit Authority (LRTA) as a "service-oriented commercial endeavor" whose patrimonial property is subject to local taxation is now rendered inconsequential, owing to the majority's thinking that an entity such as the LRTA is itself exempt from local government taxation 16, irrespective of the functions it performs. Moreover, based on the majority's criteria, LRTA is not a GOCC. 8) The cases of Teodoro v. National Airports Corporation17 and Civil Aeronautics Administration v. Court of Appeals.18 wherein the Court held that the predecessor agency of the MIAA, which was similarly engaged in the operation, administration and management of the Manila International Agency, was engaged in the exercise of proprietary, as opposed to sovereign functions. The majority would hold otherwise that the property maintained by MIAA is actually patrimonial, thus implying that MIAA is actually engaged in sovereign functions. 9) My own majority in Phividec Industrial Authority v. Capitol Steel, 19 wherein the Court held that the Phividec Industrial Authority, a GOCC, was required to secure the services of the Office of the Government Corporate Counsel for legal representation.20 Based on the reasoning of the majority, Phividec would not be a GOCC, and the mandate of the Office of the Government Corporate Counsel extends only to GOCCs. 10) Two decisions promulgated by the Court just last month (June 2006), National Power Corporation v. Province of Isabela21 and GSIS v. City Assessor of Iloilo City.22 In the former, the Court pronounced that "[a]lthough as a PUP COLLEGE OF LAW Page 25

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general rule, LGUs cannot impose taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, this rule admits of an exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the aforementioned entities." Yet the majority now rules that the exceptions in the LGC no longer hold, since "local governments are devoid of power to tax the national government, its agencies and instrumentalities."23 The ruling in the latter case, which held the GSIS as liable for real property taxes, is now put in jeopardy by the majority's ruling. There are certainly many other precedents affected, perhaps all previous jurisprudence regarding local government taxation vis-a-vis government entities, as well as any previous definitions of GOCCs, and previous distinctions between the exercise of governmental and proprietary functions (a distinction laid down by this Court as far back as 191624). What is the reason offered by the majority for overturning or modifying all these precedents and doctrines? None is given, for the majority takes comfort instead in the pretense that these precedents never existed. Only children should be permitted to subscribe to the theory that something bad will go away if you pretend hard enough that it does not exist. I. Case Should Have Been Decided Following Mactan Precedent The core issue in this case, whether the MIAA is liable to the City of Paraaque for real property taxes under the Local Government Code, has already been decided by this Court in the Mactan case, and should have been resolved by simply applying precedent. Mactan Explained A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority (MCIAA) claimed that it was exempt from payment of real property taxes to the City of Cebu, invoking the specific exemption granted in Section 14 of its charter, Republic Act No. 6958, and its status as an instrumentality of the government performing governmental functions.25 Particularly, MCIAA invoked Section 133 of the Local Government Code, precisely the same provision utilized by the majority as the basis for MIAA's exemption. Section 133 reads: Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx (o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local government units. (emphasis and underscoring supplied). However, the Court in Mactan noted that Section 133 qualified the exemption of the National Government, its agencies and instrumentalities from local taxation with the phrase "unless otherwise provided herein." It then considered the other relevant provisions of the Local Government Code, particularly the following: SEC. 193. Withdrawal of Tax Exemption Privileges. Unless otherwise provided in this Code, tax exemption or incentives granted to, or enjoyed by all persons, whether natural or juridical, including government-owned and controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. 26 SECTION 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically exempted.27

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SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person: (b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for religious charitable or educational purposes; (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned and controlled corporations engaged in the distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and (e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code.28 Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to tax the National Government, its agencies and instrumentalities, as evidenced by these cited provisions which "otherwise provided." But what was the extent of the limitation under Section 133? This is how the Court, correctly to my mind, defined the parameters in Mactan: The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following clauses: (1) "unless otherwise provided herein" in the opening paragraph of Section 133; (2) "Unless otherwise provided in this Code" in Section 193; (3) "not hereafter specifically exempted" in Section 232; and (4) "Except as provided herein" in the last paragraph of Section 234 initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course, the section, it should have used the clause "unless otherwise provided in this Code." The former results in absurdity since the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions are explicitly indicated in the next. For instance, in item (a) which excepts income taxes "when levied on banks and other financial institutions"; item (d) which excepts "wharfage on wharves constructed and maintained by the local government unit concerned"; and item (1) which excepts taxes, fees and charges for the registration and issuance of licenses or permits for the driving of "tricycles." It may also be observed that within the body itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section interchangeably uses therein the clause, "except as otherwise provided herein" as in items (c) and (i), or the clause "except as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere surplusages if the opening clause of the section were "Unless otherwise provided in this Code" instead of "Unless otherwise provided herein." In any event, even if the latter is used, since under Section

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232 local government units have the power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133. Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133, the taxing powers of local government units cannot extend to the levy of, inter alia, "taxes, fees and charges of any kind on the National Government, its agencies and instrumentalities, and local government units"; however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person," as provided in item (a) of the first paragraph of Section 234. As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to a taxable person for consideration or otherwise. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections 232 and 234.29 The Court in Mactan acknowledged that under Section 133, instrumentalities were generally exempt from all forms of local government taxation, unless otherwise provided in the Code. On the other hand, Section 232 "otherwise provided" insofar as it allowed LGUs to levy an ad valorem real property tax, irrespective of who owned the property. At the same time, the imposition of real property taxes under Section 232 is in turn qualified by the phrase "not hereinafter specifically exempted." The exemptions from real property taxes are enumerated in Section 234, which specifically states that only real properties owned "by the Republic of the Philippines or any of its political subdivisions" are exempted from the payment of the tax. Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234.30 Mactan Overturned the Precedents Now Relied Upon by the Majority But the petitioners in Mactan also raised the Court's ruling in Basco v. PAGCOR, 31 decided before the enactment of the Local Government Code. The Court in Basco declared the PAGCOR as exempt from local taxes, justifying the exemption in this wise: Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers xxx PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the Government,

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PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be burdened, impeded or subjected to control by a mere Local government. "The states have no power by taxation or otherwise, to retard impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government." (McCulloch v. Marland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments. "Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activates or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it.32 Basco is as strident a reiteration of the old guard view that frowned on the principle of local autonomy, especially as it interfered with the prerogatives and privileges of the national government. Also consider the following citation from Maceda v. Macaraig,33 decided the same year as Basco. Discussing the rule of construction of tax exemptions on government instrumentalities, the sentiments are of a similar vein. Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of a government political subdivision or instrumentality. The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions, even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize differential treatment and foster impartiality, fairness, and equality of treatment among tax payers. The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be handled by government in the course of its operations. For these reasons, provisions granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies. In the case of property owned by the state or a city or other public corporations, the express exemption should not be construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such property "exemption is the rule and taxation the exception." 34 Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This evinces the perspective from which the majority is coming from. It is admittedly a viewpoint once shared by this Court, and en vogue prior to the enactment of the Local Government Code of 1991. However, the Local Government Code of 1991 ushered in a new ethos on how the art of governance should be practiced in the Philippines, conceding greater powers once held in the private reserve of the national government to LGUs. The majority might have private qualms about the wisdom of the policy of local autonomy, but the members of the Court are not expected to substitute their personal biases for the legislative will, especially when the 1987 Constitution itself promotes the principle of local autonomy. PUP COLLEGE OF LAW Page 29

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Article II. Declaration of Principles and State Policies xxx Sec. 25. The State shall ensure the autonomy of local governments. Article X. Local Government xxx Sec. 2. The territorial and political subdivisions shall enjoy local autonomy. Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units. xxx Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. xxx The Court in Mactan recognized that a new day had dawned with the enactment of the 1987 Constitution and the Local Government Code of 1991. Thus, it expressly rejected the contention of the MCIAA that Basco was applicable to them. In doing so, the language of the Court was dramatic, if only to emphasize how monumental the shift in philosophy was with the enactment of the Local Government Code: Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine Amusement and Gaming Corporation is unavailing since it was decided before the effectivity of the [Local Government Code]. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom.35 (emphasis supplied) The Court Has Repeatedly Reaffirmed Mactan Over the Precedents Now Relied Upon By the Majority Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead. The notion that instrumentalities may be subjected to local taxation by LGUs was again affirmed in National Power Corporation v. City of Cabanatuan,36 which was penned by Justice Puno. NPC or Napocor, invoking its continued exemption from payment of franchise taxes to the City of Cabanatuan, alleged that it was an instrumentality of the National Government which could not be taxed by a city government. To that end, Basco was cited by NPC. The Court had this to say about Basco. xxx[T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. However, as this Court ruled in the case of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. In enacting the LGC, Congress exercised its prerogative PUP COLLEGE OF LAW Page 30

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to tax instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national government, was subject to real property tax.37 In the 2003 case of Philippine Ports Authority v. City of Iloilo, 38 the Court, in the able ponencia of Justice Azcuna, affirmed the levy of realty taxes on the PPA. Although the taxes were assessed under the old Real Property Tax Code and not the Local Government Code, the Court again cited Mactan to refute PPA's invocation of Basco as the basis of its exemption. [Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact we stated therein: The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since P.D. 1869 remains an "operative" law until "amended, repealed or revoked". . . its "exemption clause" remains an exemption to the exercise of the power of local governments to impose taxes and fees. Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos, where the Basco case was similarly invoked for tax exemption, we stated: "[N]othing can prevent Congress from decreeing that even instrumentalities or agencies of the Government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom." The fact that tax exemptions of government-owned or controlled corporations have been expressly withdrawn by the present Local Government Code clearly attests against petitioner's claim of absolute exemption of government instrumentalities from local taxation.39 Just last month, the Court in National Power Corporation v. Province of Isabela 40 again rejected Basco in emphatic terms. Held the Court, through Justice Callejo, Sr.: Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court noted primarily that the Basco case was decided prior to the effectivity of the LGC, when no law empowering the local government units to tax instrumentalities of the National Government was in effect. It further explained that in enacting the LGC, Congress empowered the LGUs to impose certain taxes even on instrumentalities of the National Government.41 The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of Iloilo 42 case, a decision also penned by Justice Callejo, Sr., wherein the Court affirmed the sale of PPA's properties at public auction for failure to pay realty taxes. The Court again reiterated that "it was the intention of Congress to withdraw the tax exemptions granted to or presently enjoyed by all persons, including government-owned or controlled corporations, upon the effectivity" of the Code.43 The Court in the second Public Ports Authority case likewise cited Mactan as providing the "raison d'etre for the withdrawal of the exemption," namely, "the State policy to ensure autonomy to local governments and the objective of the [Local Government Code] that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities. . . . "44 Last year, the Court, in City of Davao v. RTC,45 affirmed that the legislated exemption from real property taxes of the Government Service Insurance System (GSIS) was removed under the Local Government Code. Again, Mactan was relied upon as the governing precedent. The removal of the tax exemption stood even though the then GSIS law46 prohibited the removal of GSIS' tax exemptions unless the exemption was specifically repealed, "and a provision is enacted to substitute the declared policy of exemption from any and all taxes as an essential factor for the solvency of the fund."47 The Court, citing established doctrines in statutory construction and Duarte v. Dade48 ruled that such proscription on future legislation was itself prohibited, as "the legislature cannot bind a future legislature to a particular mode of repeal."49 And most recently, just less than one month ago, the Court, through Justice Corona in Government Service Insurance System v. City Assessor of Iloilo50 again affirmed that the Local Government Code removed the previous

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exemption from real property taxes of the GSIS. Again Mactan was cited as having "expressly withdrawn the [tax] exemption of the [GOCC].51 Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule employed by the Court since its adoption, the doctrine therein consistent with the Local Government Code. Corollarily, Basco, the polar opposite of Mactan has been emphatically rejected and declared inconsistent with the Local Government Code. II. Majority, in Effectively Overturning Mactan, Refuses to Say Why Mactan Is Wrong The majority cites Basco in support. It does not cite Mactan, other than an incidental reference that it is relied upon by the respondents.52 However, the ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The majority provides for a wildly different interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as can be obviously deducted from the fact that both petitioners are airport authorities operating under similarly worded charters. And the fact that the majority cites doctrines contrapuntal to the Local Government Code as in Basco and Maceda evinces an intent to go against the Court's jurisprudential trend adopting the philosophy of expanded local government rule under the Local Government Code. Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on the majority's studied murkiness vis--vis the Mactan precedent. The majority is obviously inconsistent with Mactan and there is no way these two rulings can stand together. Following basic principles in statutory construction, Mactan will be deemed as giving way to this new ruling. However, the majority does not bother to explain why Mactan is wrong. The interpretation in Mactan of the relevant provisions of the Local Government Code is elegant and rational, yet the majority refuses to explain why this reasoning of the Court in Mactan is erroneous. In fact, the majority does not even engage Mactan in any meaningful way. If the majority believes that Mactan may still stand despite this ruling, it remains silent as to the viable distinctions between these two cases. The majority's silence on Mactan is baffling, considering how different this new ruling is with the ostensible precedent. Perhaps the majority does not simply know how to dispense with the ruling in Mactan. If Mactan truly deserves to be discarded as precedent, it deserves a more honorable end than death by amnesia or ignonominous disregard. The majority could have devoted its discussion in explaining why it thinks Mactan is wrong, instead of pretending that Mactan never existed at all. Such an approach might not have won the votes of the minority, but at least it would provide some degree of intellectual clarity for the parties, LGUs and the national government, students of jurisprudence and practitioners. A more meaningful debate on the matter would have been possible, enriching the study of law and the intellectual dynamic of this Court. There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged in the business of operating an airport. They are the owners of airport properties they respectively maintain and hold title over these properties in their name.53 These entities are both owned by the State, and denied by their respective charters the absolute right to dispose of their properties without prior approval elsewhere.54 Both of them are not empowered to obtain loans or encumber their properties without prior approval the prior approval of the President.55 III. Instrumentalities, Agencies And GOCCs Generally Liable for Real Property Tax PUP COLLEGE OF LAW Page 32

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I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my position lies with Mactan, which will further demonstrate why the majority has found it inconvenient to even grapple with the precedent that is Mactan in the first place. Mactan held that the prohibition on taxing the national government, its agencies and instrumentalities under Section 133 is qualified by Section 232 and Section 234, and accordingly, the only relevant exemption now applicable to these bodies is as provided under Section 234(o), or on "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." It should be noted that the express withdrawal of previously granted exemptions by the Local Government Code do not even make any distinction as to whether the exempt person is a governmental entity or not. As Sections 193 and 234 both state, the withdrawal applies to "all persons, including [GOCCs]", thus encompassing the two classes of persons recognized under our laws, natural persons56 and juridical persons.57 The fact that the Local Government Code mandates the withdrawal of previously granted exemptions evinces certain key points. If an entity was previously granted an express exemption from real property taxes in the first place, the obvious conclusion would be that such entity would ordinarily be liable for such taxes without the exemption. If such entities were already deemed exempt due to some overarching principle of law, then it would be a redundancy or surplusage to grant an exemption to an already exempt entity. This fact militates against the claim that MIAA is preternaturally exempt from realty taxes, since it required the enactment of an express exemption from such taxes in its charter. Amazingly, the majority all but ignores the disquisition in Mactan and asserts that government instrumentalities are not taxable persons unless they lease their properties to a taxable person. The general rule laid down in Section 232 is given short shrift. In arriving at this conclusion, several leaps in reasoning are committed. Majority's Flawed Definition of GOCCs. The majority takes pains to assert that the MIAA is not a GOCC, but rather an instrumentality. However, and quite grievously, the supposed foundation of this assertion is an adulteration. The majority gives the impression that a government instrumentality is a distinct concept from a government corporation.58 Most tellingly, the majority selectively cites a portion of Section 2(10) of the Administrative Code of 1987, as follows: Instrumentality refers to any agency of the National Government not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. xxx 59 (emphasis omitted) However, Section 2(10) of the Administrative Code, when read in full, makes an important clarification which the majority does not show. The portions omitted by the majority are highlighted below: (10)Instrumentality refers to any agency of the National Government not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and governmentowned or controlled corporations.60 Since Section 2(10) makes reference to "agency of the National Government," Section 2(4) is also worth citing in full: (4) Agency of the Government refers to any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein. (emphasis supplied)61 PUP COLLEGE OF LAW Page 33

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Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an agency of the National Government. Thus, there actually is no point in the majority's assertion that MIAA is not a GOCC, since based on the majority's premise of Section 133 as the key provision, the material question is whether MIAA is either an instrumentality, an agency, or the National Government itself. The very provisions of the Administrative Code provide that a GOCC can be either an instrumentality or an agency, so why even bother to extensively discuss whether or not MIAA is a GOCC? Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer,62 the Supreme Court already noted that a corporation of which the government is the majority stockholder "remains an agency or instrumentality of government."63 Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal. However, the entire discussion of the majority on the definition of a GOCC, obiter as it may ultimately be, deserves emphatic refutation. The views of the majority on this matter are very dangerous, and would lead to absurdities, perhaps unforeseen by the majority. For in fact, the majority effectively declassifies many entities created and recognized as GOCCs and would give primacy to the Administrative Code of 1987 rather than their respective charters as to the definition of these entities. Majority Ignores the Power Of Congress to Legislate and Define Chartered Corporations First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must be "organized as a stock or non-stock corporation," as defined under the Corporation Code. To insist on this as an absolute rule fails on bare theory. Congress has the undeniable power to create a corporation by legislative charter, and has been doing so throughout legislative history. There is no constitutional prohibition on Congress as to what structure these chartered corporations should take on. Clearly, Congress has the prerogative to create a corporation in whatever form it chooses, and it is not bound by any traditional format. Even if there is a definition of what a corporation is under the Corporation Code or the Administrative Code, these laws are by no means sacrosanct. It should be remembered that these two statutes fall within the same level of hierarchy as a congressional charter, since they all are legislative enactments. Certainly, Congress can choose to disregard either the Corporation Code or the Administrative Code in defining the corporate structure of a GOCC, utilizing the same extent of legislative powers similarly vesting it the putative ability to amend or abolish the Corporation Code or the Administrative Code. These principles are actually recognized by both the Administrative Code and the Corporation Code. The definition of GOCCs, agencies and instrumentalities under the Administrative Code are laid down in the section entitled "General Terms Defined," which qualifies: Sec. 2. General Terms Defined. Unless the specific words of the text, or the context as a whole, or a particular statute, shall require a different meaning: (emphasis supplied) xxx Similar in vein is Section 6 of the Corporation Code which provides: SEC. 4. Corporations created by special laws or charters. Corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. (emphasis supplied) Thus, the clear doctrine emerges the law that governs the definition of a corporation or entity created by Congress is its legislative charter. If the legislative enactment defines an entity as a corporation, then it is a corporation, no matter if the Corporation Code or the Administrative Code seemingly provides otherwise. In case of conflict between the legislative charter of a government corporation, on one hand, and the Corporate Code and the Administrative Code, on the other, the former always prevails.

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Majority, in Ignoring the Legislative Charters, Effectively Classifies Duly Established GOCCs, With Disastrous and Far Reaching Legal Consequences Second, the majority claims that MIAA does not qualify either as a stock or non-stock corporation, as defined under the Corporation Code. It explains that the MIAA is not a stock corporation because it does not have any capital stock divided into shares. Neither can it be considered as a non-stock corporation because it has no members, and under Section 87, a non-stock corporation is one where no part of its income is distributable as dividends to its members, trustees or officers. This formulation of course ignores Section 4 of the Corporation Code, which again provides that corporations created by special laws or charters shall be governed primarily by the provisions of the special law or charter, and not the Corporation Code. That the MIAA cannot be considered a stock corporation if only because it does not have a stock structure is hardly a plausible proposition. Indeed, there is no point in requiring a capital stock structure for GOCCs whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or alienate their capital shares. Admittedly, there are GOCCs established in such a manner, such as the National Power Corporation (NPC), which is provided with authorized capital stock wholly subscribed and paid for by the Government of the Philippines, divided into shares but at the same time, is prohibited from transferring, negotiating, pledging, mortgaging or otherwise giving these shares as security for payment of any obligation. 64 However, based on the Corporation Code definition relied upon by the majority, even the NPC cannot be considered as a stock corporation. Under Section 3 of the Corporation Code, stock corporations are defined as being "authorized to distribute to the holders of its shares dividends or allotments of the surplus profits on the basis of the shares held." 65 On the other hand, Section 13 of the NPC's charter states that "the Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion." 66 Can the holder of the shares of NPC, the National Government, receive its surplus profits on the basis of its shares held? It cannot, according to the NPC charter, and hence, following Section 3 of the Corporation Code, the NPC is not a stock corporation, if the majority is to be believed. The majority likewise claims that corporations without members cannot be deemed non-stock corporations. This would seemingly exclude entities such as the NPC, which like MIAA, has no ostensible members. Moreover, nonstock corporations cannot distribute any part of its income as dividends to its members, trustees or officers. The majority faults MIAA for remitting 20% of its gross operating income to the national government. How about the Philippine Health Insurance Corporation, created with the "status of a tax-exempt government corporation attached to the Department of Health" under Rep. Act No. 7875. 67 It too cannot be considered as a stock corporation because it has no capital stock structure. But using the criteria of the majority, it is doubtful if it would pass muster as a non-stock corporation, since the PHIC or Philhealth, as it is commonly known, is expressly empowered "to collect, deposit, invest, administer and disburse" the National Health Insurance Fund. 68 Or how about the Social Security System, which under its revised charter, Republic Act No. 8282, is denominated as a "corporate body."69The SSS has no capital stock structure, but has capital comprised of contributions by its members, which are eventually remitted back to its members. Does this disqualify the SSS from classification as a GOCC, notwithstanding this Court's previous pronouncement in Social Security System Employees Association v. Soriano?70 In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or non-stock,71 declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government.72 But according to the majority, non-stock corporations are prohibited from declaring any part of its income as dividends. But if Republic Act No. 7656 requires even non-stock corporations to declare dividends from income, should it not follow that the prohibition against declaration of dividends by non-stock corporations under the Corporation Code does not apply to government-owned or controlled corporations? For if not, and the majority's illogic is pursued, Republic Act No. 7656, passed in 1993, would be fatally flawed, as it would contravene the Administrative Code of 1987 and the Corporation Code. PUP COLLEGE OF LAW Page 35

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In fact, the ruinous effects of the majority's hypothesis on the nature of GOCCs can be illustrated by Republic Act No. 7656. Following the majority's definition of a GOCC and in accordance with Republic Act No. 7656, here are but a few entities which are not obliged to remit fifty (50%) of its annual net earnings to the National Government as they are excluded from the scope of Republic Act No. 7656: 1) Philippine Ports Authority73 has no capital stock74, no members, and obliged to apply the balance of its income or revenue at the end of each year in a general reserve.75 2) Bases Conversion Development Authority76 - has no capital stock,77 no members. 3) Philippine Economic Zone Authority78 - no capital stock,79 no members. 4) Light Rail Transit Authority80 - no capital stock,81 no members. 5) Bangko Sentral ng Pilipinas82 - no capital stock,83 no members, required to remit fifty percent (50%) of its net profits to the National Treasury.84 6) National Power Corporation85 - has capital stock but is prohibited from "distributing to the holders of its shares dividends or allotments of the surplus profits on the basis of the shares held;" 86 no members. 7) Manila International Airport Authority no capital stock87, no members88, mandated to remit twenty percent (20%) of its annual gross operating income to the National Treasury.89 Thus, for the majority, the MIAA, among many others, cannot be considered as within the coverage of Republic Act No. 7656. Apparently, President Fidel V. Ramos disagreed. How else then could Executive Order No. 483, signed in 1998 by President Ramos, be explained? The issuance provides: WHEREAS, Section 1 of Republic Act No. 7656 provides that: "Section 1. Declaration of Policy. - It is hereby declared the policy of the State that in order for the National Government to realize additional revenues, government-owned and/or controlled corporations, without impairing their viability and the purposes for which they have been established, shall share a substantial amount of their net earnings to the National Government." WHEREAS, to support the viability and mandate of government-owned and/or controlled corporations [GOCCs], the liquidity, retained earnings position and medium-term plans and programs of these GOCCs were considered in the determination of the reasonable dividend rates of such corporations on their 1997 net earnings. WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the adjustment on the percentage of annual net earnings that shall be declared by the Manila International Airport Authority [MIAA] and Phividec Industrial Authority [PIA] in the interest of national economy and general welfare. NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers vested in me by law, do hereby order: SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA as dividends to the National Government as provided for under Section 3 of Republic Act No. 7656 is adjusted from at least fifty percent [50%] to the rates specified hereunder: 1. Manila International Airport Authority - 35% [cash] 2. Phividec Industrial Authority - 25% [cash] PUP COLLEGE OF LAW Page 36

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SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997 net earnings of the concerned government-owned and/or controlled corporations. Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a GOCC, for how else could it have come under the coverage of Republic Act No. 7656, a law applicable only to GOCCs? But, the majority apparently disagrees, and resultantly holds that MIAA is not obliged to remit even the reduced rate of thirty five percent (35%) of its net earnings to the national government, since it cannot be covered by Republic Act No. 7656. All this mischief because the majority would declare the Administrative Code of 1987 and the Corporation Code as the sole sources of law defining what a government corporation is. As I stated earlier, I find it illogical that chartered corporations are compelled to comply with the templates of the Corporation Code, especially when the Corporation Code itself states that these corporations are to be governed by their own charters. This is especially true considering that the very provision cited by the majority, Section 87 of the Corporation Code, expressly says that the definition provided therein is laid down "for the purposes of this [Corporation] Code." Read in conjunction with Section 4 of the Corporation Code which mandates that corporations created by charter be governed by the law creating them, it is clear that contrary to the majority, MIAA is not disqualified from classification as a non-stock corporation by reason of Section 87, the provision not being applicable to corporations created by special laws or charters. In fact, I see no real impediment why the MIAA and similarly situated corporations such as the PHIC, the SSS, the Philippine Deposit Insurance Commission, or maybe even the NPC could at the very least, be deemed as no stock corporations (as differentiated from non-stock corporations). The point, stripped to bare simplicity, is that entity created by legislative enactment is a corporation if the legislature says so. After all, it is the legislature that dictates what a corporation is in the first place. This is better illustrated by another set of entities created before martial law. These include the Mindanao Development Authority,90 the Northern Samar Development Authority,91 the Ilocos Sur Development Authority,92 the Southeastern Samar Development Authority93 and the Mountain Province Development Authority.94 An examination of the first section of the statutes creating these entities reveal that they were established "to foster accelerated and balanced growth" of their respective regions, and towards such end, the charters commonly provide that "it is recognized that a government corporation should be created for the purpose," and accordingly, these charters "hereby created a body corporate."95 However, these corporations do not have capital stock nor members, and are obliged to return the unexpended balances of their appropriations and earnings to a revolving fund in the National Treasury. The majority effectively declassifies these entities as GOCCs, never mind the fact that their very charters declare them to be GOCCs. I mention these entities not to bring an element of obscurantism into the fray. I cite them as examples to emphasize my fundamental pointthat it is the legislative charters of these entities, and not the Administrative Code, which define the class of personality of these entities created by Congress. To adopt the view of the majority would be, in effect, to sanction an implied repeal of numerous congressional charters for the purpose of declassifying GOCCs. Certainly, this could not have been the intent of the crafters of the Administrative Code when they drafted the "Definition of Terms" incorporated therein. MIAA Is Without Doubt, A GOCC Following the charters of government corporations, there are two kinds of GOCCs, namely: GOCCs which are stock corporations and GOCCs which are no stock corporations (as distinguished from non-stock corporation). Stock GOCCs are simply those which have capital stock while no stock GOCCs are those which have no capital stock. Obviously these definitions are different from the definitions of the terms in the Corporation Code. Verily, GOCCs which are not incorporated with the Securities and Exchange Commission are not governed by the Corporation Code but by their respective charters. For the MIAA's part, its charter is replete with provisions that indubitably classify it as a GOCC. Observe the following provisions from MIAA's charter:

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SECTION 3. Creation of the Manila International Airport Authority.There is hereby established a body corporate to be known as the Manila International Airport Authority which shall be attached to the Ministry of Transportation and Communications. The principal office of the Authority shall be located at the New Manila International Airport. The Authority may establish such offices, branches, agencies or subsidiaries as it may deem proper and necessary; Provided, That any subsidiary that may be organized shall have the prior approval of the President. The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. xxx SECTION 5. Functions, Powers, and Duties. The Authority shall have the following functions, powers and duties: xxx (d) To sue and be sued in its corporate name; (e) To adopt and use a corporate seal; (f) To succeed by its corporate name; (g) To adopt its by-laws, and to amend or repeal the same from time to time; (h) To execute or enter into contracts of any kind or nature; (i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land, building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any interest therein; (j) To exercise the power of eminent domain in the pursuit of its purposes and objectives; xxx (o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order. xxx SECTION 16. Borrowing Power. The Authority may, after consultation with the Minister of Finance and with the approval of the President of the Philippines, as recommended by the Minister of Transportation and Communications, raise funds, either from local or international sources, by way of loans, credits or securities, and other borrowing instruments, with the power to create pledges, mortgages and other voluntary liens or encumbrances on any of its assets or properties. All loans contracted by the Authority under this Section, together with all interests and other sums payable in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and shall rank equally with one another, but shall have priority over any other claim or charge on the revenue and assets of the Authority: Provided, That this provision shall not be construed as a prohibition or restriction on the power of the Authority to create pledges, mortgages, and other voluntary liens or encumbrances on any assets or property of the Authority. PUP COLLEGE OF LAW Page 38

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Except as expressly authorized by the President of the Philippines the total outstanding indebtedness of the Authority in the principal amount, in local and foreign currency, shall not at any time exceed the net worth of the Authority at any given time. xxx The President or his duly authorized representative after consultation with the Minister of Finance may guarantee, in the name and on behalf of the Republic of the Philippines, the payment of the loans or other indebtedness of the Authority up to the amount herein authorized. These cited provisions establish the fitness of MIAA to be the subject of legal relations. 96 MIAA under its charter may acquire and possess property, incur obligations, and bring civil or criminal actions. It has the power to contract in its own name, and to acquire title to real or personal property. It likewise may exercise a panoply of corporate powers and possesses all the trappings of corporate personality, such as a corporate name, a corporate seal and bylaws. All these are contained in MIAA's charter which, as conceded by the Corporation Code and even the Administrative Code, is the primary law that governs the definition and organization of the MIAA. In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself in the very first paragraph of the present petition before this Court.97 So does, apparently, the Department of Budget and Management, which classifies MIAA as a "government owned & controlled corporation" on its internet website.98 There is also the matter of Executive Order No. 483, which evinces the belief of the then-president of the Philippines that MIAA is a GOCC. And the Court before had similarly characterized MIAA as a government-owned and controlled corporation in the earlier MIAA case, Manila International Airport Authority v. Commission on Audit. 99 Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is because MIAA is actually an instrumentality. But the very definition relied upon by the majority of an instrumentality under the Administrative Code clearly states that a GOCC is likewise an instrumentality or an agency. The question of whether MIAA is a GOCC might not even be determinative of this Petition, but the effect of the majority's disquisition on that matter may even be more destructive than the ruling that MIAA is exempt from realty taxes. Is the majority ready to live up to the momentous consequences of its flawed reasoning? Novel Proviso in 1987 Constitution Prescribing Standards in the Creation of GOCCs Necessarily Applies only to GOCCs Created After 1987. One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to Section 16, Article XII of the 1987 Constitution, which mandates that the creation of GOCCs through special charters be "in the interest of the common good and subject to the test of economic viability." For the majority, the test of economic viability does not apply to government entities vested with corporate powers and performing essential public services. But this test of "economic viability" is new to the constitutional framework. No such test was imposed in previous Constitutions, including the 1973 Constitution which was the fundamental law in force when the MIAA was created. How then could the MIAA, or any GOCC created before 1987 be expected to meet this new precondition to the creation of a GOCC? Does the dissent seriously suggest that GOCCs created before 1987 may be declassified on account of their failure to meet this "economic viability test"? Instrumentalities and Agencies Also Generally Liable For Real Property Taxes Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then argues that MIAA is an instrumentality. It cites incompletely, as earlier stated, the provision of Section 2(10) of the Administrative Code. A more convincing view offered during deliberations, but which was not adopted by the ponencia, argued that MIAA is not an instrumentality but an agency, considering the fact that under the Administrative Code, the MIAA is attached within the department framework of the Department of Transportation and Communications.100Interestingly, Executive Order No. 341, enacted by President Arroyo in 2004, similarly calls MIAA an agency. Since instrumentalities are expressly defined as "an agency not integrated within the department framework," that view concluded that MIAA cannot be deemed an instrumentality. PUP COLLEGE OF LAW Page 39

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Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative Code considers GOCCs as agencies,101 so the fact that MIAA is an agency does not exclude it from classification as a GOCC. On the other hand, the majority justifies MIAA's purported exemption on Section 133 of the Local Government Code, which similarly situates "agencies and instrumentalities" as generally exempt from the taxation powers of LGUs. And on this point, the majority again evades Mactan and somehow concludes that Section 133 is the general rule, notwithstanding Sections 232 and 234(a) of the Local Government Code. And the majority's ultimate conclusion? "By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and instrumentalities."102 The Court's interpretation of the Local Government Code in Mactan renders the law integrally harmonious and gives due accord to the respective prerogatives of the national government and LGUs. Sections 133 and 234(a) ensure that the Republic of the Philippines or its political subdivisions shall not be subjected to any form of local government taxation, except realty taxes if the beneficial use of the property owned has been granted for consideration to a taxable entity or person. On the other hand, Section 133 likewise assures that government instrumentalities such as GOCCs may not be arbitrarily taxed by LGUs, since they could be subjected to local taxation if there is a specific proviso thereon in the Code. One such proviso is Section 137, which as the Court found in National Power Corporation,103 permits the imposition of a franchise tax on businesses enjoying a franchise, even if it be a GOCC such as NPC. And, as the Court acknowledged in Mactan, Section 232 provides another exception on the taxability of instrumentalities. The majority abjectly refuses to engage Section 232 of the Local Government Code although it provides the indubitable general rule that LGUs "may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvements not hereafter specifically exempted." The specific exemptions are provided by Section 234. Section 232 comes sequentially after Section 133(o),104 and even if the sequencing is irrelevant, Section 232 would fall under the qualifying phrase of Section 133, "Unless otherwise provided herein." It is sad, but not surprising that the majority is not willing to consider or even discuss the general rule, but only the exemptions under Section 133 and Section 234. After all, if the majority is dead set in ruling for MIAA no matter what the law says, why bother citing what the law does say. Constitution, Laws and Jurisprudence Have Long Explained the Rationale Behind the Local Taxation Of GOCCs. This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more evident than in the succeeding discussion of the majority, which asserts that the power of local governments to tax national government instrumentalities be construed strictly against local governments. The Maceda case, decided before the Local Government Code, is cited, as is Basco. This section of the majority employs deliberate pretense that the Code never existed, or that the fundamentals of local autonomy are of limited effect in our country. Why is it that the Local Government Code is barely mentioned in this section of the majority? Because Section 5 of the Code, purposely omitted by the majority provides for a different rule of interpretation than that asserted: Section 5. Rules of Interpretation. In the interpretation of the provisions of this Code, the following rules shall apply: (a) Any provision on a power of a local government unit shall be liberally interpreted in its favor, and in case of doubt, any question thereon shall be resolved in favor of devolution of powers and of the lower local government unit. Any fair and reasonable doubt as to the existence of the power shall be interpreted in favor of the local government unit concerned; (b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local government unit enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or relief granted by any local government unit pursuant to the provisions of this Code shall be construed strictly against the person claiming it; xxx

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Yet the majority insists that "there is no point in national and local governments taxing each other, unless a sound and compelling policy requires such transfer of public funds from one government pocket to another."105 I wonder whether the Constitution satisfies the majority's desire for "a sound and compelling policy." To repeat: Article II. Declaration of Principles and State Policies xxx Sec. 25. The State shall ensure the autonomy of local governments. Article X. Local Government xxx Sec. 2. The territorial and political subdivisions shall enjoy local autonomy. xxx Section 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local governments. Or how about the Local Government Code, presumably an expression of sound and compelling policy considering that it was enacted by the legislature, that veritable source of all statutes: SEC. 129. Power to Create Sources of Revenue. - Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. Justice Puno, in National Power Corporation v. City of Cabanatuan, 106 provides a more "sound and compelling policy considerations" that would warrant sustaining the taxability of government-owned entities by local government units under the Local Government Code. Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of the local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. As this Court observed in the Mactan case, "the original reasons for the withdrawal of tax exemption privileges granted to government-owned or controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises." With the added burden of devolution, it is even more imperative for government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or other charges due from them.107 I dare not improve on Justice Puno's exhaustive disquisition on the statutory and jurisprudential shift brought about the acceptance of the principles of local autonomy: In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz:

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"Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments." This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the country's highly centralized government structure has bred a culture of dependence among local government leaders upon the national leadership. It has also "dampened the spirit of initiative, innovation and imaginative resilience in matters of local development on the part of local government leaders." 35 The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of basic services, and confer them sufficient powers to generate their own sources for the purpose. To achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local government code that will, consistent with the basic policy of local autonomy, set the guidelines and limitations to this grant of taxing powers, viz: "Section 3. The Congress shall enact a local government code which shall provide for a more responsive and accountable local government structure instituted through a system of decentralization with effective mechanisms of recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities, and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of the local units." To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio Charter of 1959, the Local Autonomy Act of 1959, the Decentralization Act of 1967 and the Local Government Code of 1983. Despite these initiatives, however, the shackles of dependence on the national government remained. Local government units were faced with the same problems that hamper their capabilities to participate effectively in the national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel of national line agencies. Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws such as the imposition of taxes on forest products, forest concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the determination of the actual rates to the respective sanggunian. 108 And the Court's ruling through Justice Azcuna in Philippine Ports Authority v. City of Iloilo 109, provides especially clear and emphatic rationale: In closing, we reiterate that in taxing government-owned or controlled corporations, the State ultimately suffers no loss. In National Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated: Actually, the State has no reason to decry the taxation of NPC's properties, as and by way of real property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the Government in development and nation-building, particularly in the local government level. xxxxxxxxx To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the other. In no measure can the government be said to have lost anything. Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government was that such PUP COLLEGE OF LAW Page 42

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privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.110 How does the majority counter these seemingly valid rationales which establish the soundness of a policy consideration subjecting national instrumentalities to local taxation? Again, by simply ignoring that these doctrines exist. It is unfortunate if the majority deems these cases or the principles of devolution and local autonomy as simply too inconvenient, and relies instead on discredited precedents. Of course, if the majority faces the issues squarely, and expressly discusses why Basco was right and Mactan was wrong, then this entire endeavor of the Court would be more intellectually satisfying. But, this is not a game the majority wants to play. Mischaracterization of My Views on the Tax Exemption Enjoyed by the National Government Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing my views on that provision as if I had been interpreting the provision as making "the national government, which itself is a juridical person, subject to tax by local governments since the national government is not included in the enumeration of exempt entities in Section 193."111 Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the majority. My main thesis on the matter merely echoes the explicit provision of Section 193 that unless otherwise provided in the Local Government Code (LGC) all tax exemptions enjoyed by all persons, whether natural or juridical, including GOCCs, were withdrawn upon the effectivity of the Code. Since the provision speaks of withdrawal of tax exemptions of persons, it follows that the exemptions theretofore enjoyed by MIAA which is definitely a person are deemed withdrawn upon the advent of the Code. On the other hand, the provision does not address the question of who are beyond the reach of the taxing power of LGUs. In fine, the grant of tax exemption or the withdrawal thereof assumes that the person or entity involved is subject to tax. Thus, Section 193 does not apply to entities which were never given any tax exemption. This would include the national government and its political subdivisions which, as a general rule, are not subjected to tax in the first place.112 Corollarily, the national government and its political subdivisions do not need tax exemptions. And Section 193 which ordains the withdrawal of tax exemptions is obviously irrelevant to them. Section 193 is in point for the disposition of this case as it forecloses dependence for the grant of tax exemption to MIAA on Section 21 of its charter. Even the majority should concede that the charter section is now ineffectual, as Section 193 withdraws the tax exemptions previously enjoyed by all juridical persons. With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the effectivity of the LGC, for MIAA to continue enjoying exemption from realty tax, it will have to rely on a basis other than Section 21 of its charter. Lung Center of the Philippines v. Quezon City113 provides another illustrative example of the jurisprudential havoc wrought about by the majority. Pursuant to its charter, the Lung Center was organized as a trust administered by an eponymous GOCC organized with the SEC.114 There is no doubt it is a GOCC, even by the majority's reckoning. Applying the Administrative Code, it is also considered as an agency, the term encompassing even GOCCs. Yet since the Administrative Code definition of "instrumentalities" encompasses agencies, especially those not attached to a line department such as the Lung Center, it also follows that the Lung Center is an instrumentality, which for the majority is exempt from all local government taxes, especially real estate taxes. Yet just in 2004, the Court unanimously held that the Lung Center was not exempt from real property taxes. Can the majority and Lung Center be reconciled? I do not see how, and no attempt is made to demonstrate otherwise. Another key point. The last paragraph of Section 234 specifically asserts that any previous exemptions from realty taxes granted to or enjoyed by all persons, including all GOCCs, are thereby withdrawn. The majority's interpretation of Sections 133 and 234(a) however necessarily implies that all instrumentalities, including GOCCs, can never be subjected to real property taxation under the Code. If that is so, what then is the sense of the last PUP COLLEGE OF LAW Page 43

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paragraph specifically withdrawing previous tax exemptions to all persons, including GOCCs when juridical persons such as MIAA are anyway, to his view, already exempt from such taxes under Section 133? The majority's interpretation would effectively render the express and emphatic withdrawal of previous exemptions to GOCCs inutile. Ut magis valeat quam pereat. Hence, where a statute is susceptible of more than one interpretation, the court should adopt such reasonable and beneficial construction which will render the provision thereof operative and effective, as well as harmonious with each other.115 But, the majority seems content rendering as absurd the Local Government Code, since it does not have much use anyway for the Code's general philosophy of fiscal autonomy, as evidently seen by the continued reliance on Basco or Maceda. Local government rule has never been a grant of emancipation from the national government. This is the favorite bugaboo of the opponents of local autonomy the fallacy that autonomy equates to independence. Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government instrumentality is beyond the reach of local taxation because it is not subject to taxes, fees or charges of any kind. Moreover, the taxation of national instrumentalities and agencies by LGUs should be strictly construed against the LGUs, citing Maceda and Basco. No mention is made of the subsequent rejection of these cases in jurisprudence following the Local Government Code, including Mactan. The majority is similarly silent on the general rule under Section 232 on real property taxation or Section 5 on the rules of construction of the Local Government Code. V. MIAA, and not the National Government Is the Owner of the Subject Taxable Properties Section 232 of the Local Government Code explicitly provides that there are exceptions to the general rule on rule property taxation, as "hereafter specifically exempted." Section 234, certainly "hereafter," provides indubitable basis for exempting entities from real property taxation. It provides the most viable legal support for any claim that an governmental entity such as the MIAA is exempt from real property taxes. To repeat: SECTION 234. Exemptions from Real Property Tax. -- The following are exempted from payment of the real property tax: xxx (f) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person: The majority asserts that the properties owned by MIAA are owned by the Republic of the Philippines, thus placing them under the exemption under Section 234. To arrive at this conclusion, the majority employs four main arguments. MIAA Property Is Patrimonial And Not Part of Public Dominion The majority claims that the Airport Lands and Buildings are property of public dominion as defined by the Civil Code, and therefore owned by the State or the Republic of the Philippines. But as pointed out by Justice Azcuna in the first PPA case, if indeed a property is considered part of the public dominion, such property is "owned by the general public and cannot be declared to be owned by a public corporation, such as [the PPA]." Relevant on this point are the following provisions of the MIAA charter: Section 3. Creation of the Manila International Airport Authority. xxx The land where the Airport is presently located as well as the surrounding land area of approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, PUP COLLEGE OF LAW Page 44

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subject to existing rights, if any. xxx Any portion thereof shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines. Section 22. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers rights, interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air operations, including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. Clearly, it is the MIAA, and not either the State, the Republic of the Philippines or the national government that asserts legal title over the Airport Lands and Buildings. There was an express transfer of ownership between the MIAA and the national government. If the distinction is to be blurred, as the majority does, between the State/Republic/Government and a body corporate such as the MIAA, then the MIAA charter showcases the remarkable absurdity of an entity transferring property to itself. Nothing in the Civil Code or the Constitution prohibits the State from transferring ownership over property of public dominion to an entity that it similarly owns. It is just like a family transferring ownership over the properties its members own into a family corporation. The family exercises effective control over the administration and disposition of these properties. Yet for several purposes under the law, such as taxation, it is the corporation that is deemed to own those properties. A similar situation obtains with MIAA, the State, and the Airport Lands and Buildings. The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful doctrines in this regard. The Court refuted the claim that the properties of the PPA were owned by the Republic of the Philippines, noting that PPA's charter expressly transferred ownership over these properties to the PPA, a situation which similarly obtains with MIAA. The Court even went as far as saying that the fact that the PPA "had not been issued any torrens title over the port and port facilities and appurtenances is of no legal consequence. A torrens title does not, by itself, vest ownership; it is merely an evidence of title over properties. xxx It has never been recognized as a mode of acquiring ownership over real properties." 116 The Court further added: xxx The bare fact that the port and its facilities and appurtenances are accessible to the general public does not exempt it from the payment of real property taxes. It must be stressed that the said port facilities and appurtenances are the petitioner's corporate patrimonial properties, not for public use, and that the operation of the port and its facilities and the administration of its buildings are in the nature of ordinary business. The petitioner is clothed, under P.D. No. 857, with corporate status and corporate powers in the furtherance of its proprietary interests xxx The petitioner is even empowered to invest its funds in such government securities approved by the Board of Directors, and derives its income from rates, charges or fees for the use by vessels of the port premises, appliances or equipment. xxx Clearly then, the petitioner is a profit-earning corporation; hence, its patrimonial properties are subject to tax.117 There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use. A similar argument was propounded by the Light Rail Transit Authority in Light Rail Transit Authority v. Central Board of Assessment,118 which was cited in Philippine Ports Authority and deserves renewed emphasis. The Light Rail Transit Authority (LRTA), a body corporate, "provides valuable transportation facilities to the paying public." 119 It claimed that its carriage-ways and terminal stations are immovably attached to government-owned national roads, and to impose real property taxes thereupon would be to impose taxes on public roads. This view did not persuade the Court, whose decision was penned by Justice (now Chief Justice) Panganiban. It was noted: Though the creation of the LRTA was impelled by public service to provide mass transportation to alleviate the traffic and transportation situation in Metro Manila its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass transport industry. Given that it is PUP COLLEGE OF LAW Page 45

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engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a government-owned or controlled corporation. xxx Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the carriageways and terminal stations are the commuting public. It adds that the public use character of the LRT is not negated by the fact that revenue is obtained from the latter's operations. We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business and earns money therefrom.120 xxx Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity. 121 There is no substantial distinction between the properties held by the PPA, the LRTA, and the MIAA. These three entities are in the business of operating facilities that promote public transportation. The majority further asserts that MIAA's properties, being part of the public dominion, are outside the commerce of man. But if this is so, then why does Section 3 of MIAA's charter authorize the President of the Philippines to approve the sale of any of these properties? In fact, why does MIAA's charter in the first place authorize the transfer of these airport properties, assuming that indeed these are beyond the commerce of man? No Trust Has Been Created Over MIAA Properties For The Benefit of the Republic The majority posits that while MIAA might be holding title over the Airport Lands and Buildings, it is holding it in trust for the Republic. A provision of the Administrative Code is cited, but said provision does not expressly provide that the property is held in trust. Trusts are either express or implied, and only those situations enumerated under the Civil Code would constitute an implied trust. MIAA does not fall within this enumeration, and neither is there a provision in MIAA's charter expressly stating that these properties are being held in trust. In fact, under its charter, MIAA is obligated to retain up to eighty percent (80%) of its gross operating income, not an inconsequential sum assuming that the beneficial owner of MIAA's properties is actually the Republic, and not the MIAA. Also, the claim that beneficial ownership over the MIAA remains with the government and not MIAA is ultimately irrelevant. Section 234(a) of the Local Government Code provides among those exempted from paying real property taxes are "[r]eal property owned by the [Republic] except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person." In the context of Section 234(a), the identity of the beneficial owner over the properties is not determinative as to whether the exemption avails. It is the identity of the beneficial user of the property owned by the Republic or its political subdivisions that is crucial, for if said beneficial user is a taxable person, then the exemption does not lie. I fear the majority confuses the notion of what might be construed as "beneficial ownership" of the Republic over the properties of MIAA as nothing more than what arises as a consequence of the fact that the capital of MIAA is contributed by the National Government.122 If so, then there is no difference between the State's ownership rights over MIAA properties than those of a majority stockholder over the properties of a corporation. Even if such shareholder effectively owns the corporation and controls the disposition of its assets, the personality of the stockholder remains separately distinct from that of the corporation. A brief recall of the entrenched rule in corporate law is in order: PUP COLLEGE OF LAW Page 46

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The first consequence of the doctrine of legal entity regarding the separate identity of the corporation and its stockholders insofar as their obligations and liabilities are concerned, is spelled out in this general rule deeply entrenched in American jurisprudence: Unless the liability is expressly imposed by constitutional or statutory provisions, or by the charter, or by special agreement of the stockholders, stockholders are not personally liable for debts of the corporation either at law or equity. The reason is that the corporation is a legal entity or artificial person, distinct from the members who compose it, in their individual capacity; and when it contracts a debt, it is the debt of the legal entity or artificial person the corporation and not the debt of the individual members. (13A Fletcher Cyc. Corp. Sec. 6213) The entirely separate identity of the rights and remedies of a corporation itself and its individual stockholders have been given definite recognition for a long time. Applying said principle, the Supreme Court declared that a corporation may not be made to answer for acts or liabilities of its stockholders or those of legal entities to which it may be connected, or vice versa. (Palay Inc. v. Clave et. al. 124 SCRA 638) It was likewise declared in a similar case that a bonafide corporation should alone be liable for corporate acts duly authorized by its officers and directors. (Caram Jr. v. Court of Appeals et.al. 151 SCRA, p. 372)123 It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the powers of a corporation under the Corporation Law, including the right to corporate succession, and the right to sue and be sued in its corporate name.124 The national government made a particular choice to divest ownership and operation of the Manila International Airport and transfer the same to such an empowered entity due to perceived advantages. Yet such transfer cannot be deemed consequence free merely because it was the State which contributed the operating capital of this body corporate. The majority claims that the transfer the assets of MIAA was meant merely to effect a reorganization. The imputed rationale for such transfer does not serve to militate against the legal consequences of such assignment. Certainly, if it was intended that the transfer should be free of consequence, then why was it effected to a body corporate, with a distinct legal personality from that of the State or Republic? The stated aims of the MIAA could have very well been accomplished by creating an agency without independent juridical personality. VI. MIAA Performs Proprietary Functions Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its political subdivisions from realty taxation. The obvious question is what comprises "the Republic of the Philippines." I think the key to understanding the scope of "the Republic" is the phrase "political subdivisions." Under the Constitution, political subdivisions are defined as "the provinces, cities, municipalities and barangays."125 In correlation, the Administrative Code of 1987 defines "local government" as referring to "the political subdivisions established by or in accordance with the Constitution." Clearly then, these political subdivisions are engaged in the exercise of sovereign functions and are accordingly exempt. The same could be said generally of the national government, which would be similarly exempt. After all, even with the principle of local autonomy, it is inherently noxious and self-defeatist for local taxation to interfere with the sovereign exercise of functions. However, the exercise of proprietary functions is a different matter altogether. Sovereign and Proprietary Functions Distinguished Sovereign or constituent functions are those which constitute the very bonds of society and are compulsory in nature, while ministrant or proprietary functions are those undertaken by way of advancing the general interests of society and are merely optional.126 An exhaustive discussion on the matter was provided by the Court in Bacani v. NACOCO:127 PUP COLLEGE OF LAW Page 47

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xxx This institution, when referring to the national government, has reference to what our Constitution has established composed of three great departments, the legislative, executive, and the judicial, through which the powers and functions of government are exercised. These functions are twofold: constituent and ministrant. The former are those which constitute the very bonds of society and are compulsory in nature; the latter are those that are undertaken only by way of advancing the general interests of society, and are merely optional. President Wilson enumerates the constituent functions as follows: "'(1) The keeping of order and providing for the protection of persons and property from violence and robbery. '(2) The fixing of the legal relations between man and wife and between parents and children. '(3) The regulation of the holding, transmission, and interchange of property, and the determination of its liabilities for debt or for crime. '(4) The determination of contract rights between individuals. '(5) The definition and punishment of crime. '(6) The administration of justice in civil cases. '(7) The determination of the political duties, privileges, and relations of citizens. '(8) Dealings of the state with foreign powers: the preservation of the state from external danger or encroachment and the advancement of its international interests.'" (Malcolm, The Government of the Philippine Islands, p. 19.) The most important of the ministrant functions are: public works, public education, public charity, health and safety regulations, and regulations of trade and industry. The principles determining whether or not a government shall exercise certain of these optional functions are: (1) that a government should do for the public welfare those things which private capital would not naturally undertake and (2) that a government should do these things which by its very nature it is better equipped to administer for the public welfare than is any private individual or group of individuals. (Malcolm, The Government of the Philippine Islands, pp. 19-20.) From the above we may infer that, strictly speaking, there are functions which our government is required to exercise to promote its objectives as expressed in our Constitution and which are exercised by it as an attribute of sovereignty, and those which it may exercise to promote merely the welfare, progress and prosperity of the people. To this latter class belongs the organization of those corporations owned or controlled by the government to promote certain aspects of the economic life of our people such as the National Coconut Corporation. These are what we call government-owned or controlled corporations which may take on the form of a private enterprise or one organized with powers and formal characteristics of a private corporations under the Corporation Law. 128 The Court in Bacani rejected the proposition that the National Coconut Corporation exercised sovereign functions: Does the fact that these corporations perform certain functions of government make them a part of the Government of the Philippines? The answer is simple: they do not acquire that status for the simple reason that they do not come under the classification of municipal or public corporation. Take for instance the National Coconut Corporation. While it was organized with the purpose of "adjusting the coconut industry to a position independent of trade preferences in the United States" and of providing "Facilities for the better curing of copra products and the proper utilization of coconut by-products," a function which our government has chosen to exercise to promote the coconut industry, however, it was given a corporate power separate and distinct from our government, for it was made subject to the provisions of our Corporation Law in so far as its corporate existence and the powers that it may exercise are concerned (sections 2 and 4, Commonwealth Act No. 518). It may sue and be sued in the same manner as any other PUP COLLEGE OF LAW Page 48

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private corporations, and in this sense it is an entity different from our government. As this Court has aptly said, "The mere fact that the Government happens to be a majority stockholder does not make it a public corporation" (National Coal Co. vs. Collector of Internal Revenue, 46 Phil., 586-587). "By becoming a stockholder in the National Coal Company, the Government divested itself of its sovereign character so far as respects the transactions of the corporation. . . . Unlike the Government, the corporation may be sued without its consent, and is subject to taxation. Yet the National Coal Company remains an agency or instrumentality of government." (Government of the Philippine Islands vs. Springer, 50 Phil., 288.) The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez bears noting: The fact that government corporations are instrumentalities of the State does not divest them with immunity from suit. (Malong v. PNR, 138 SCRA p. 63) It is settled that when the government engages in a particular business through the instrumentality of a corporation, it divests itself pro hoc vice of its sovereign character so as to subject itself to the rules governing private corporations, (PNB v. Pabolan 82 SCRA 595) and is to be treated like any other corporation. (PNR v. Union de Maquinistas Fogonero y Motormen, 84 SCRA 223) In the same vein, when the government becomes a stockholder in a corporation, it does not exercise sovereignty as such. It acts merely as a corporator and exercises no other power in the management of the affairs of the corporation than are expressly given by the incorporating act. Nor does the fact that the government may own all or a majority of the capital stock take from the corporation its character as such, or make the government the real party in interest. (Amtorg Trading Corp. v. US 71 F2d 524, 528) 129 MIAA Performs Proprietary Functions No Matter How Vital to the Public Interest The simple truth is that, based on these accepted doctrinal tests, MIAA performs proprietary functions. The operation of an airport facility by the State may be imbued with public interest, but it is by no means indispensable or obligatory on the national government. In fact, as demonstrated in other countries, it makes a lot of economic sense to leave the operation of airports to the private sector. The majority tries to becloud this issue by pointing out that the MIAA does not compete in the marketplace as there is no competing international airport operated by the private sector; and that MIAA performs an essential public service as the primary domestic and international airport of the Philippines. This premise is false, for one. On a local scale, MIAA competes with other international airports situated in the Philippines, such as Davao International Airport and MCIAA. More pertinently, MIAA also competes with other international airports in Asia, at least. International airlines take into account the quality and conditions of various international airports in determining the number of flights it would assign to a particular airport, or even in choosing a hub through which destinations necessitating connecting flights would pass through. Even if it could be conceded that MIAA does not compete in the market place, the example of the Philippine National Railways should be taken into account. The PNR does not compete in the marketplace, and performs an essential public service as the operator of the railway system in the Philippines. Is the PNR engaged in sovereign functions? The Court, in Malong v. Philippine National Railways, 130 held that it was not.131 Even more relevant to this particular case is Teodoro v. National Airports Corporation,132 concerning the proper appreciation of the functions performed by the Civil Aeronautics Administration (CAA), which had succeeded the defunction National Airports Corporation. The CAA claimed that as an unincorporated agency of the Republic of the Philippines, it was incapable of suing and being sued. The Court noted: Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute contracts of any kind, to purchase property, and to grant concession rights, and under Section 4, to charge landing fees, royalties on sales to aircraft of aviation gasoline, accessories and supplies, and rentals for the use of any property under its management.

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These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue and be sued. The power to sue and be sued is implied from the power to transact private business. And if it has the power to sue and be sued on its behalf, the Civil Aeronautics Administration with greater reason should have the power to prosecute and defend suits for and against the National Airports Corporation, having acquired all the properties, funds and choses in action and assumed all the liabilities of the latter. To deny the National Airports Corporation's creditors access to the courts of justice against the Civil Aeronautics Administration is to say that the government could impair the obligation of its corporations by the simple expedient of converting them into unincorporated agencies. 133 xxx Eventually, the charter of the CAA was revised, and it among its expanded functions was "[t]o administer, operate, manage, control, maintain and develop the Manila International Airport."134 Notwithstanding this expansion, in the 1988 case of CAA v. Court of Appeals135 the Court reaffirmed the ruling that the CAA was engaged in "private or non-governmental functions."136 Thus, the Court had already ruled that the predecessor agency of MIAA, the CAA was engaged in private or non-governmental functions. These are more precedents ignored by the majority. The following observation from the Teodoro case very well applies to MIAA. The Civil Aeronautics Administration comes under the category of a private entity. Although not a body corporate it was created, like the National Airports Corporation, not to maintain a necessary function of government, but to run what is essentially a business, even if revenues be not its prime objective but rather the promotion of travel and the convenience of the traveling public. It is engaged in an enterprise which, far from being the exclusive prerogative of state, may, more than the construction of public roads, be undertaken by private concerns. 137 If the determinative point in distinguishing between sovereign functions and proprietary functions is the vitality of the public service being performed, then it should be noted that there is no more important public service performed than that engaged in by public utilities. But notably, the Constitution itself authorizes private persons to exercise these functions as it allows them to operate public utilities in this country 138 If indeed such functions are actually sovereign and belonging properly to the government, shouldn't it follow that the exercise of these tasks remain within the exclusive preserve of the State? There really is no prohibition against the government taxing itself,139 and nothing obscene with allowing government entities exercising proprietary functions to be taxed for the purpose of raising the coffers of LGUs. On the other hand, it would be an even more noxious proposition that the government or the instrumentalities that it owns are above the law and may refuse to pay a validly imposed tax. MIAA, or any similar entity engaged in the exercise of proprietary, and not sovereign functions, cannot avoid the adverse-effects of tax evasion simply on the claim that it is imbued with some of the attributes of government. VII. MIAA Property Not Subject to Execution Sale Without Consent Of the President. Despite the fact that the City of Paraaque ineluctably has the power to impose real property taxes over the MIAA, there is an equally relevant statutory limitation on this power that must be fully upheld. Section 3 of the MIAA charter states that "[a]ny portion [of the [lands transferred, conveyed and assigned to the ownership and administration of the MIAA] shall not be disposed through sale or through any other mode unless specifically approved by the President of the Philippines."140 Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be deemed as repealing this prohibition under Section 3, even if it effectively forecloses one possible remedy of the LGU in the collection of delinquent real property taxes. While the Local Government Code withdrew all previous local tax exemptions of the MIAA and other natural and juridical persons, it did not similarly withdraw any previously enacted prohibitions on properties owned by GOCCs, agencies or instrumentalities. Moreover, the resulting legal effect, subjecting on one hand the MIAA to local taxes but on the other hand shielding its properties from any form of sale or disposition, is PUP COLLEGE OF LAW Page 50

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not contradictory or paradoxical, onerous as its effect may be on the LGU. It simply means that the LGU has to find another way to collect the taxes due from MIAA, thus paving the way for a mutually acceptable negotiated solution.141 There are several other reasons this statutory limitation should be upheld and applied to this case. It is at this juncture that the importance of the Manila Airport to our national life and commerce may be accorded proper consideration. The closure of the airport, even by reason of MIAA's legal omission to pay its taxes, will have an injurious effect to our national economy, which is ever reliant on air travel and traffic. The same effect would obtain if ownership and administration of the airport were to be transferred to an LGU or some other entity which were not specifically chartered or tasked to perform such vital function. It is for this reason that the MIAA charter specifically forbids the sale or disposition of MIAA properties without the consent of the President. The prohibition prevents the peremptory closure of the MIAA or the hampering of its operations on account of the demands of its creditors. The airport is important enough to be sheltered by legislation from ordinary legal processes. Section 3 of the MIAA charter may also be appreciated as within the proper exercise of executive control by the President over the MIAA, a GOCC which despite its separate legal personality, is still subsumed within the executive branch of government. The power of executive control by the President should be upheld so long as such exercise does not contravene the Constitution or the law, the President having the corollary duty to faithfully execute the Constitution and the laws of the land.142 In this case, the exercise of executive control is precisely recognized and authorized by the legislature, and it should be upheld even if it comes at the expense of limiting the power of local government units to collect real property taxes. Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA properties could not be subject of execution sale without the consent of the President, I suspect that the parties would feel little distress. Through such action, both the Local Government Code and the MIAA charter would have been upheld. The prerogatives of LGUs in real property taxation, as guaranteed by the Local Government Code, would have been preserved, yet the concerns about the ruinous effects of having to close the Manila International Airport would have been averted. The parties would then be compelled to try harder at working out a compromise, a task, if I might add, they are all too willing to engage in.143 Unfortunately, the majority will cause precisely the opposite result of unremitting hostility, not only to the City of Paraaque, but to the thousands of LGUs in the country. VIII. Summary of Points My points may be summarized as follows: 1) Mactan and a long line of succeeding cases have already settled the rule that under the Local Government Code, enacted pursuant to the constitutional mandate of local autonomy, all natural and juridical persons, even those GOCCs, instrumentalities and agencies, are no longer exempt from local taxes even if previously granted an exemption. The only exemptions from local taxes are those specifically provided under the Local Government Code itself, or those enacted through subsequent legislation. 2) Under the Local Government Code, particularly Section 232, instrumentalities, agencies and GOCCs are generally liable for real property taxes. The only exemptions therefrom under the same Code are provided in Section 234, which include real property owned by the Republic of the Philippines or any of its political subdivisions. 3) The subject properties are owned by MIAA, a GOCC, holding title in its own name. MIAA, a separate legal entity from the Republic of the Philippines, is the legal owner of the properties, and is thus liable for real property taxes, as it does not fall within the exemptions under Section 234 of the Local Government Code.

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4) The MIAA charter expressly bars the sale or disposition of MIAA properties. As a result, the City of Paraaque is prohibited from seizing or selling these properties by public auction in order to satisfy MIAA's tax liability. In the end, MIAA is encumbered only by a limited lien possessed by the City of Paraaque. On the other hand, the majority's flaws are summarized as follows: 1) The majority deliberately ignores all precedents which run counter to its hypothesis, including Mactan. Instead, it relies and directly cites those doctrines and precedents which were overturned by Mactan. By imposing a different result than that warranted by the precedents without explaining why Mactan or the other precedents are wrong, the majority attempts to overturn all these ruling sub silencio and without legal justification, in a manner that is not sanctioned by the practices and traditions of this Court. 2) The majority deliberately ignores the policy and philosophy of local fiscal autonomy, as mandated by the Constitution, enacted under the Local Government Code, and affirmed by precedents. Instead, the majority asserts that there is no sound rationale for local governments to tax national government instrumentalities, despite the blunt existence of such rationales in the Constitution, the Local Government Code, and precedents. 3) The majority, in a needless effort to justify itself, adopts an extremely strained exaltation of the Administrative Code above and beyond the Corporation Code and the various legislative charters, in order to impose a wholly absurd definition of GOCCs that effectively declassifies innumerable existing GOCCs, to catastrophic legal consequences. 4) The majority asserts that by virtue of Section 133(o) of the Local Government Code, all national government agencies and instrumentalities are exempt from any form of local taxation, in contravention of several precedents to the contrary and the proviso under Section 133, "unless otherwise provided herein [the Local Government Code]." 5) The majority erroneously argues that MIAA holds its properties in trust for the Republic of the Philippines, and that such properties are patrimonial in character. No express or implied trust has been created to benefit the national government. The legal distinction between sovereign and proprietary functions, as affirmed by jurisprudence, likewise preclude the classification of MIAA properties as patrimonial. IX. Epilogue If my previous discussion still fails to convince on how wrong the majority is, then the following points are wellworth considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko Sentral) as a government instrumentality that exercises corporate powers but not organized as a stock or non-stock corporation. Correspondingly for the majority, the Bangko ng Sentral is exempt from all forms of local taxation by LGUs by virtue of the Local Government Code. Section 125 of Rep. Act No. 7653, The New Central Bank Act, states: SECTION 125. Tax Exemptions. The Bangko Sentral shall be exempt for a period of five (5) years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges and assessments. The New Central Bank Act was promulgated after the Local Government Code if the BSP is already preternaturally exempt from local taxation owing to its personality as an "government instrumentality," why then the need to make a new grant of exemption, which if the majority is to be believed, is actually a redundancy. But even more tellingly, does not this provision evince a clear intent that after the lapse of five (5) years, that the Bangko Sentral will be liable for provincial, municipal and city taxes? This is the clear congressional intent, and it is Congress, not this Court which dictates which entities are subject to taxation and which are exempt.

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Perhaps this notion will offend the majority, because the Bangko Sentral is not even a government owned corporation, but a government instrumentality, or perhaps "loosely", a "government corporate entity." How could such an entity like the Bangko Sentral , which is not even a government owned corporation, be subjected to local taxation like any mere mortal? But then, see Section 1 of the New Central Bank Act: SECTION 1. Declaration of Policy. The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit. In line with this policy, and considering its unique functions and responsibilities, the central monetary authority established under this Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy. Apparently, the clear legislative intent was to create a government corporation known as the Bangko Sentral ng Pilipinas. But this legislative intent, the sort that is evident from the text of the provision and not the one that needs to be unearthed from the bowels of the archival offices of the House and the Senate, is for naught to the majority, as it contravenes the Administrative Code of 1987, which after all, is "the governing law defining the status and relationship of government agencies and instrumentalities" and thus superior to the legislative charter in determining the personality of a chartered entity. Its like saying that the architect who designed a school building is better equipped to teach than the professor because at least the architect is familiar with the geometry of the classroom. Consider further the example of the Philippine Institute of Traditional and Alternative Health Care (PITAHC), created by Republic Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a body corporate,144 and empowered with the attributes of a corporation,145 including the power to purchase or acquire real properties.146 However the PITAHC has no capital stock and no members, thus following the majority, it is not a GOCC. The state policy that guides PITAHC is the development of traditional and alternative health care, 147 and its objectives include the promotion and advocacy of alternative, preventive and curative health care modalities that have been proven safe, effective and cost effective.148 "Alternative health care modalities" include "other forms of non-allophatic, occasionally non-indigenous or imported healing methods" which include, among others "reflexology, acupuncture, massage, acupressure" and chiropractics. 149 Given these premises, there is no impediment for the PITAHC to purchase land and construct thereupon a massage parlor that would provide a cheaper alternative to the opulent spas that have proliferated around the metropolis. Such activity is in line with the purpose of the PITAHC and with state policy. Is such massage parlor exempt from realty taxes? For the majority, it is, for PITAHC is an instrumentality or agency exempt from local government taxation, which does not fall under the exceptions under Section 234 of the Local Government Code. Hence, this massage parlor would not just be a shelter for frazzled nerves, but for taxes as well. Ridiculous? One might say, certainly a decision of the Supreme Court cannot be construed to promote an absurdity. But precisely the majority, and the faulty reasoning it utilizes, opens itself up to all sorts of mischief, and certainly, a tax-exempt massage parlor is one of the lesser evils that could arise from the majority ruling. This is indeed a very strange and very wrong decision. I dissent. DANTE O. TINGA Associate Justice SALVADOR H. LAUREL vs. RAMON GARCIA G.R. No. 92047 July 25, 1990 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 PUP COLLEGE OF LAW Page 53

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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 PUP COLLEGE OF LAW Page 54

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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. VicePresident 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. PUP COLLEGE OF LAW Page 55

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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). itc-asl (2) The preference for Filipino citizens in the grant of rights, privileges and concessions covering the national economy and patrimony (Section 10, Article VI, Constitution); (3) The protection given to Filipino enterprises against unfair competition and trade practices; (4) The guarantee of the right of the people to information on all matters of public concern (Section 7, Article III, Constitution); (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 PUP COLLEGE OF LAW Page 56

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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 PUP COLLEGE OF LAW Page 57

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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. PUP COLLEGE OF LAW Page 58

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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 capable of acquiring the lots, the Secretary merely explains that it is the foreign law which should determine who can acquire the properties so that the constitutional limitation on acquisition of lands of the public domain to Filipino citizens and entities wholly owned by Filipinos is inapplicable. We see no point in belaboring whether or not this opinion is correct. Why should we discuss who can acquire the Roppongi lot when there is no showing that it can be sold? 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.

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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 reclassified 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.

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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. 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.

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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) PUP COLLEGE OF LAW Page 62

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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, 2 this 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, Minatoku 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 PUP COLLEGE OF LAW Page 63

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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

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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 PUP COLLEGE OF LAW Page 65

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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. PUP COLLEGE OF LAW Page 66

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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 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 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 is authorization 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: PUP COLLEGE OF LAW Page 67

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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).itc-asl 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.

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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. CIPRIANO E UNSON vs. HON. ARSENIO H. LACSON; G.R. No. L-7909 January 18, 1957 This is an action to annual a municipal ordinance and cancel a contract of lease of part of "Callejon de Carmen," in the City of Manila. Its Mayor and the Genato Commercial Corporation hereinafter referred to as Genato, for the sake of brevity lessor and lessee, respectively, under said contract, are the respondents herein. After due trial, the Court of First Instance of Manila rendered a decision dismissing the petition, with costs against the petitioner, who has appealed from said decision. The case is before us the validity of a municipal ordinance is involved therein. Petitioner, Cipriano E. Unson, is the owner of Lot No. 10, Block 2537, of the Cadastral Survey of the City of Manila, with an area of 1,537.20 square meters, more or less. It is bounded, on the North, by R. Hidalgo Streets; on the East or Northeast, by Lot No. 12, belonging to Genato, and, also, by a narrow strip of land running eastward (from 1.68 to 2.87 meters in width and from 29.90 to 28.4 meters in lenght), known as Lot No. 11 (of about 123.7 squares meters), which the City of Manila regards as its patrimonial property; on the West, by private property whose owner is not named in the record; and on the South or Southeast, by a strip of land, narrower than Lot 11, running from East to West (about 1.68 meters in which in width and 26.14 meters in lenght, or an area of about 45 square meters, more or less), known as Lot No. 9, which is also claimed by said City as its patrimonial property. Immediately South of this Lot No. 9 is the Northern half of Callejon del Carmen, which is separated from its Southern half by the Estro de San Sebastian. Several structures exist on the lot of petitioner Unson. There is a sizeable building on the Northern part, adjoining R. Hidalgo Street, and a small building known as "Commerce Building" on the Southern portion, which adjoins the aforesaid Lot No. 9. Unson's lot is, and for several years has been leased to the National Government, for use by the "Mapa High School", as "Rizal Annex" thereof, which has an enrollment of over 1,500 students. On or about September 28, 1951, the Municipal Board of Manila passed Ordinance No. 3470 withdrawing said Northern portion of Callejon del Carmen from public use, declaring it patrimonial property of the City and authorizing its lease to Genato. The ordinance provides:

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SECTION 1. Those portions of the Callejon del Carmen, Quiapo, having an aggregate area of 709.27 square meters and adjacent to the premises of the Genato Commercial Corporation, are hereby withdrawn from public use. SEC. 2. The above piece of land described in Section 1 hereof is hereby declared as patrimonial property of the government of the City of Manila. SEC. 3. The lessee of the aforesaid city property with an aggregate area of 709.27 square meters to Genato Commercial Corporation at a monthly rental of P0.20 per square meters is hereby authorized. SEC. 4. This Ordinance shall take effect upon its approval. (Exhibit 2-A, p. 10, Folder of Exhs.) Upon approval of this ordinance by the City Mayor, the lease contract therein mentioned (pp. 13-21, Record on Appeal) was entered into and Genato constructed a building on said portion of Callejon del Carmen, at a distance of about 0.765 meter from the Southern boundary of said Lot No. 9. This strip of Callejon del Carmen and said Lot No. 9 thus form an open space of about 2.445 meters in width, more or less, separating said building constructed by Genato and the "Commerce Building" on Unson's lot. Prior thereto, the latter had, on its Southern boundary, two (2) exits on Callejon del Carmen, which exits had to be closed upon the construction of said building by Genato. Hence, alleging that Ordinance No. 3470 and the aforementioned contract of lease with Genato are illegal, petitioner instituted this action, with the prayer (a) That respondent Genato Commercial Corporation be immediately enjoined from doing further work in the construction of a wall/or building on that portion of Callejon del Carmen leased to them immediately upon the petitioner's filing a nominal bond of P500.00, in such other amount as the court may fix; (b) That, after trial, the injunction above-mentioned be made permanent, and ordering the respondent Genato Commercial Corporation to remove whatever construction has been done by them on said property; (c) That, also after trial, the Hon. Arsenio H. Lacson, Mayor of the City of Manila, be ordered to cancel or revoke the building permit and the lease granted to him over the Callejon del Carmen to the Genato Commercial Corporation; (d) That respondents be ordered to pay the costs of this suit: and for whatever equitable relief this Honorable Court may deem just and proper under the premises. (Record on Appeal, p. 5). The respondents filed their respective answers maintaining the legality of the municipal ordinance and the contract of lease in question, and, after due trial, the lower court rendered its aforementioned decision dismissing the case, upon the ground that as owner of Callejon del Carmen, the City of Manila "has full authority to withdraw such alley from public use and to convert it into patrimonial property" and that . . . The City of Manila as owner has the right to use and to dispose of such alley without other limitations that those established by law (Article 428, New Civil Code), so that when the city of Manila withdrew it from public use and converted it into patrimonial property, it simply exercised its right of ownership. The fact that in the Manila Charter there is no provision authorizing the Municipal Board to withdraw from public use a street and to convert it into patrimonial property, can not be construed to mean that the Municipal Board has no right at all to do so. That would be a negation of its right of ownership. Section 18, letter (x),of the Manila Charter gives the Municipal Board power and authority to lay out, construct and improve streets, avenues, alleys, sidewalks, etc. and as corollary to that right is the right to close a street and to convert it into patrimonial property. Furthermore, Ordinance No. 3470 of the Municipal Board was submitted to and approved by the National Planning Commission. This body was created by an executive order of the President of the Republic, and vested with the power and authority to lay out, construct, vacate, and close streets, avenues, sidewalks, etc. Assuming that the power and authority to vacate or close a street rest with the State, this power as PUP COLLEGE OF LAW Page 70

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delegated to the National Planning Commission by the President in the exercise of his emergency power, and when this body approved said ordinance, it did so in the exercise of the power delegated to it by the State. Hence the validity of the ordinance is unquestionable. (Record on Appeal, pp. 27-29.) Hence, this appeal taken by petitioner Unson, who insists that said Municipal Ordinance No. 3470 is illegal and, accordingly, that the aforementioned contract of lease between Genato and the City of Manila is null and void. In this connection, respondents have been unable to cite any legal provision specifically vesting in the City of Manila the power to close Callejon del Carmen. Indeed, section 18 (x) of Republic Act No. 409 upon which appellees rely authorizes the Municipal Board of Manila, "subject to the provisions of existing laws, to provide for the laying out, construction and improvement . . . of streets, avenues, alleys . . . and other public places," but it says nothing about the closing of any such places. The significance of this silence becomes apparent when contrasted with section 2246 of the Revised Administrative Code, explicitly vesting in municipal councils of regularly organized municipalities the power to close any municipal road, street, alley, park or square, provided that persons prejudiced thereby are duly indemnified, and that the previous approval of the Department Head shall have been secured. The express grant of such power to the aforementioned municipalities and the absence of said grant to the City of Manila lead to no other conclusion than that the power was intended to be withheld from the latter. Incidentally, said section 2246 refutes the view, set forth in the decision appealed from, to the effect that the power to withdraw a public street from public use is incidental to the alleged right of ownership of the City of Manila, and that the authority to close a thorough fare is a corollary to the right to open the same. If the ownership of the public road carried with it necessarily the unqualified right of a municipal corporation to close it, by withdrawing the same from public use, then Congress would have no power to require, as a condition sine qua non, to the exercise of such right, either the prior approval of the Department Head or the payment of indemnity to the persons injured thereby. Again, pursuant to section 2243 of the Revised Administrative Code, the municipal council of regular municipalities shall have authority, among others: (a) To establish and maintain municipal roads, streets, alleys, sidewalks, plazas, parks, playgrounds, levees, and canals. If, as the lower court held, the power to "construct" an alley entailed the authority to "close" it, then section 2246, above referred to, would have been unnecessary. To our mind, the main flaw in appellees' pretense and in the position taken by his Honor, the trial Judge, is one of perspective. They failed to note that municipal corporations in the Philippines are mere creatures of Congress; that, as such, said corporations possess, and may exercise,only such power as Congress may deem to fit to grant thereto; that charters of municipal corporations should not be construed in the same manner as constitutions;1 and that doubts, on the powers of such corporations, must be resolved in favor of the State, and against the grantee.2 Lastly, the authority of the local governments to enact municipal ordinances is subject to the general limitation that the same shall not be "repugnant to law". This is so by specific provision of section 2238 of the Revised Administrative Code, as well as because Congress must be presumed to have withheld from municipal corporations, as its agents or delegates, the authority to defeat, set at naughty or nullify its own acts (of Congress)unless the contrary appears in the most explicit, indubitable, and unequivocal manner and it does no so appear in the case at bar. What is more, section 18(x) of Republic Act No. 409, positively declares that the power of the City of Manila to provide for the construction of streets and alleys shall be "subject to the provisions of existing law. . . . However, the ordinance and the contract of the lease under consideration are inconsistent with Article 638 of the Civil Code of the Philippines, the first paragraph of which reads: The banks of rivers and streams, even in case they are of private ownership, are subject throughout their entire length and within a zone of three meters along their margins, to the easement of the public use in the general interest of navigation, float age, fishing and salvage.

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Obviously, the building constructed by Genato on the portion of Callejon del Carmen in dispute renders it impossible for the public to use the zone of three meters along the Northern margin of the Estero de San Sebastian for the purposes set forth in said Article 638. We are not unmindful of the cases of Ayala de Roxas vs. City of Manila (6 Phil., 251) and Chang Hang Ling vs. City of Manila (9 Phil., 215), in which this Court refused to enforce a similar easement provided for in Article 553 of the Civil Code of Spain upon private property adjoining the Estero de Sibacong and the Estero de la Quinta, respectively. The decisions in said cases were predicated, however, upon the fact that, under the Spanish Law of Waters, "the power of the administration do not extend to the establishment of new easements upon private property but simply to preserve old ones," and that, pursuant to the Philippine Bill (Act of Congress of July 1, 1902) and Article 349 of the Civil Code of Spain, no one shall be deprived of his property, except by competent authority and with sufficient cause of public utility, always after proper indemnity. These considerations are inapplicable to the case at bar, for, as regards Callejon del Carmen, the aforementioned easement of public use is not new. Besides, said alley is not private property. It belongs to the State.3 And, even if it were for it is not patrimonial property of the City of Manila, the same as a creature of Congress, which may abolish said municipal corporation and assume the power to administer directly the patrimony of the City, for the benefit of its inhabitants cannot so use or dispose of said alley as to defeat the policy set forth in the said Article 638 by the very legal creator of said political unit. (III Dillon on Municipal Corporations, pp. 1769-1771, 1781-1783,1803-1804.) It is urged, however, that the absence of authority of the Municipal Board of Manila has been cured by the fact that Ordinance no. 3470 had been approved by the National Urban Planning Commission. This pretense in untenable for: 1. In the case of the University of the East vs. The City of Manila (96 Phil., 316), decided on December 23, 1954, we held, in effect, that the grant of powers to the National Urban Planning Commission, under Executive Orders Nos. 98 and 367, amounted to an undue delegation of legislative powers, for lack of "specific standards and limitations to guide the commission in the exercise of the wide discretion granted to it." 2. Said Commission created by the Executive Order No. 98, dated March 11, 1946, pursuant to the emergency powers of the President under Commonwealth Act No. 671, could not possibly confer upon the City of Manila any power denied thereto by its New Charter Republic Act No. 409 not only because said emergency powers became inoperative as soon as Congress met in regular sessions after the liberation of the Philippines (Aranetavs. Dinglasan, Rodriguez vs. Treasurer of the Philippines, Guerrero vs. Com. of Customs, and Barredo vs.Commission on Elections, 45 Off. Gaz., 4411, 4419; Rodriguez vs. Gella, 49 Off. Gaz., 465), but, also, because in case of conflict between said executive order, dated March 11, 1946, and the aforementioned Republic Act. No. 409, which was approved, and became effective, on June 18, 1949, the latter must prevail, being posterior in point of time, as well as act of the principal (in relation to the emergency powers delegated to the President, by Commonwealth Act No. 671), which must prevail over that of the agent. 3. Pursuant to said executive order, the acts of the municipal corporations, relative to the reconstruction and development of urban areas even if within the scope of the general authority vested in said local governments by the charters thereof shall be ineffective unless approved by the National Urban Planning Commission, or in accordance with the plans adopted or regulations issued by the same. In other words, the purpose of said executive order was not to enlarge the powers of local governments, but to qualify and limit the same, with a view to accomplishing a coordinated, adjusted, harmonious reconstruction and development of said urban areas. 4. Properties devoted to public use, such as public streets, alleys and parks are presumed to belong to the State. Municipal corporations may not acquire the same, as patrimonial property, without a grant from the National Government, the title of which may not be divested by prescription (Municipality of Tigbauan vs. Director of Lands, 35 Phil., 584). Hence, such corporations may not register a public plaza (Nicolas vs. Jose, 6 Phil., 598). A local government may not even lease the same (Municipality of Cavite vs. Rojas, 30 Phil., 602). Obviously, it may not establish title thereto, adverse to the State, by withdrawing the plaza and, hence, an alley from public use and declaring the same to be patrimonial property of the municipality or city concerned, without express, or, at least, clear grant of authority therefor by Congress.

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5. In fact, the Department of Engineering and Public Works of the City of Manila had objected to the lease in question, upon the ground that Callejon del Carmen is communal property. In its 1st indorsement of June 4, 1953, to the City of Mayor, said department used the following language: 1. Records in the present lease of Genato Commercial Corporation of a portion of City property measuring 709.27 square meters, more or less, show that this Office had consistently been strongly against the lessee of this City property. Even before the passage of Ordinance No. 3470 (withdrawing from public use those portions of Callejon del Carmen, Quiapo, adjacent to the premises of Genato Commercial Corporations; declaring the same as patrimonial property of the government of the City of Manila and authorizing the lease of said City property with an aggregate area of 709.27 square meters to Genato Commercial Corporation at a monthly rental of P0.20 per square meter), this office had voiced its vigorous protest to the lease of this City property to Genato Commercial Corporation several times, in view of the fact that the lots applied for are communal property which can not be leased or otherwise disposed of (Cavite vs. Roxas, 30 Phil., 602).This Office had registered its strong objection to the lease of this property as per our 2nd Indorsement dated Aug. 2, 1951, 4th Indorsement dated August 7, 1951 and 3rd Indorsement dated August 27, 1951, all of which were submitted by this Office prior to the enactment of Ordinance 3470 on September 28,1951 and its subsequent approval on October 3, 1951. . . . It can, therefore, clearly be seen from the foregoing, thatthis Office had been strongly against the lease of this City property in view of the fact that this is a communal property. The property herein applied by Mr. Francisco G. Genato is also communal property of the City of Manila and disapproval of the same is strongly recommended. (Exhibit C, pp. 4-5, par. 1, Folder of Exhibits; emphasis supplied.) Wherefore, the decision appealed from is hereby reversed and another one shall be entered declaring Ordinance No. 3470, as well as the contract of the lease in dispute, null and void, with costs against the respondents. It is so ordered. MANILA ELECTRIC COMPANY vs. CENTRAL BOARD OF ASSESSMENT APPEALS; G.R. No. L47943 May 31, 1982 This case is about the imposition of the realty tax on two oil storage tanks installed in 1969 by Manila Electric Company on a lot in San Pascual, Batangas which it leased in 1968 from Caltex (Phil.), Inc. The tanks are within the Caltex refinery compound. They have a total capacity of 566,000 barrels. They are used for storing fuel oil for Meralco's power plants. According to Meralco, the storage tanks are made of steel plates welded and assembled on the spot. Their bottoms rest on a foundation consisting of compacted earth as the outermost layer, a sand pad as the intermediate layer and a two-inch thick bituminous asphalt stratum as the top layer. The bottom of each tank is in contact with the asphalt layer, The steel sides of the tank are directly supported underneath by a circular wall made of concrete, eighteen inches thick, to prevent the tank from sliding. Hence, according to Meralco, the tank is not attached to its foundation. It is not anchored or welded to the concrete circular wall. Its bottom plate is not attached to any part of the foundation by bolts, screws or similar devices. The tank merely sits on its foundation. Each empty tank can be floated by flooding its dike-inclosed location with water four feet deep. (pp. 29-30, Rollo.) On the other hand, according to the hearing commissioners of the Central Board of Assessment Appeals, the area where the two tanks are located is enclosed with earthen dikes with electric steel poles on top thereof and is divided into two parts as the site of each tank. The foundation of the tanks is elevated from the remaining area. On both sides of the earthen dikes are two separate concrete steps leading to the foundation of each tank. Tank No. 2 is supported by a concrete foundation with an asphalt lining about an inch thick. Pipelines were installed on the sides of each tank and are connected to the pipelines of the Manila Enterprises Industrial Corporation whose buildings and pumping station are near Tank No. 2.

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The Board concludes that while the tanks rest or sit on their foundation, the foundation itself and the walls, dikes and steps, which are integral parts of the tanks, are affixed to the land while the pipelines are attached to the tanks. (pp. 60-61, Rollo.) In 1970, the municipal treasurer of Bauan, Batangas, on the basis of an assessment made by the provincial assessor, required Meralco to pay realty taxes on the two tanks. For the five-year period from 1970 to 1974, the tax and penalties amounted to P431,703.96 (p. 27, Rollo). The Board required Meralco to pay the tax and penalties as a condition for entertaining its appeal from the adverse decision of the Batangas board of assessment appeals. The Central Board of Assessment Appeals (composed of Acting Secretary of Finance Pedro M. Almanzor as chairman and Secretary of Justice Vicente Abad Santos and Secretary of Local Government and Community Development Jose Roo as members) in its decision dated November 5, 1976 ruled that the tanks together with the foundation, walls, dikes, steps, pipelines and other appurtenances constitute taxable improvements. Meralco received a copy of that decision on February 28, 1977. On the fifteenth day, it filed a motion for reconsideration which the Board denied in its resolution of November 25, 1977, a copy of which was received by Meralco on February 28, 1978. On March 15, 1978, Meralco filed this special civil action of certiorari to annul the Board's decision and resolution. It contends that the Board acted without jurisdiction and committed a grave error of law in holding that its storage tanks are taxable real property. Meralco contends that the said oil storage tanks do not fall within any of the kinds of real property enumerated in article 415 of the Civil Code and, therefore, they cannot be categorized as realty by nature, by incorporation, by destination nor by analogy. Stress is laid on the fact that the tanks are not attached to the land and that they were placed on leased land, not on the land owned by Meralco. This is one of those highly controversial, borderline or penumbral cases on the classification of property where strong divergent opinions are inevitable. The issue raised by Meralco has to be resolved in the light of the provisions of the Assessment Law, Commonwealth Act No. 470, and the Real Property Tax Code, Presidential Decree No. 464 which took effect on June 1, 1974. Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is reproduced with some modification in the Real Property Tax Code which provides: Sec. 38. Incidence of Real Property Tax. They shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted. The Code contains the following definition in its section 3: k) Improvements is a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes. We hold that while the two storage tanks are not embedded in the land, they may, nevertheless, be considered as improvements on the land, enhancing its utility and rendering it useful to the oil industry. It is undeniable that the two tanks have been installed with some degree of permanence as receptacles for the considerable quantities of oil needed by Meralco for its operations. Oil storage tanks were held to be taxable realty in Standard Oil Co. of New Jersey vs. Atlantic City, 15 Atl. 2nd 271.

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For purposes of taxation, the term "real property" may include things which should generally be regarded as personal property(84 C.J.S. 171, Note 8). It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). The case of Board of Assessment Appeals vs. Manila Electric Company, 119 Phil. 328, wherein Meralco's steel towers were held not to be subject to realty tax, is not in point because in that case the steel towers were regarded as poles and under its franchise Meralco's poles are exempt from taxation. Moreover, the steel towers were not attached to any land or building. They were removable from their metal frames. Nor is there any parallelism between this case and Mindanao Bus Co. vs. City Assessor, 116 Phil. 501, where the tools and equipment in the repair, carpentry and blacksmith shops of a transportation company were held not subject to realty tax because they were personal property. WHEREFORE, the petition is dismissed. The Board's questioned decision and resolution are affirmed. No costs.

OWNERSHIP:
GERMAN MANAGEMENT & SERVICES, INC. vs. HON. COURT OF APPEALS; G.R. No. 76217 September 14, 1989 Spouses Cynthia Cuyegkeng Jose and Manuel Rene Jose, residents of Pennsylvania, Philadelphia, USA are the owners of a parcel of land situated in Sitio Inarawan, San Isidro, Antipolo, Rizal, with an area of 232,942 square meters and covered by TCT No. 50023 of the Register of Deeds of the province of Rizal issued on September 11, 1980 which canceled TCT No. 56762/ T-560. The land was originally registered on August 5, 1948 in the Office of the Register of Deeds of Rizal as OCT No. 19, pursuant to a Homestead Patent granted by the President of the Philippines on July 27, 1948, under Act No. 141. On February 26, 1982, the spouses Jose executed a special power of attorney authorizing petitioner German Management Services to develop their property covered by TCT No. 50023 into a residential subdivision. Consequently, petitioner on February 9,1983 obtained Development Permit No. 00424 from the Human Settlements Regulatory Commission for said development. Finding that part of the property was occupied by private respondents and twenty other persons, petitioner advised the occupants to vacate the premises but the latter refused. Nevertheless, petitioner proceeded with the development of the subject property which included the portions occupied and cultivated by private respondents. Private respondents filed an action for forcible entry against petitioner before the Municipal Trial Court of Antipolo, Rizal, alleging that they are mountainside farmers of Sitio Inarawan, San Isidro, Antipolo, Rizal and members of the Concerned Citizens of Farmer's Association; that they have occupied and tilled their farmholdings some twelve to fifteen years prior to the promulgation of P.D. No. 27; that during the first week of August 1983, petitioner, under a permit from the Office of the Provincial Governor of Rizal, was allowed to improve the Barangay Road at Sitio Inarawan, San Isidro, Antipolo, Rizal at its expense, subject to the condition that it shag secure the needed right of way from the owners of the lot to be affected; that on August 15, 1983 and thereafter, petitioner deprived private respondents of their property without due process of law by: (1) forcibly removing and destroying the barbed wire fence enclosing their farmholdings without notice; (2) bulldozing the rice, corn fruit bearing trees and other crops of private respondents by means of force, violence and intimidation, in violation of P.D. 1038 and (3) trespassing, coercing and threatening to harass, remove and eject private respondents from their respective farmholdings in violation of P.D. Nos. 316, 583, 815, and 1028. 1 On January 7,1985, the Municipal Trial Court dismissed private respondents' complaint for forcible entry. 2 On appeal, the Regional Trial Court of Antipolo, Rizal, Branch LXXI sustained the dismissal by the Municipal Trial Court. 3

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Private respondents then filed a petition for review with the Court of Appeals. On July 24,1986, said court gave due course to their petition and reversed the decisions of the Municipal Trial Court and the Regional Trial Court. 4 The Appellate Court held that since private respondents were in actual possession of the property at the time they were forcibly ejected by petitioner, private respondents have a right to commence an action for forcible entry regardless of the legality or illegality of possession. 5 Petitioner moved to reconsider but the same was denied by the Appellate Court in its resolution dated September 26, 1986. 6 Hence, this recourse. The issue in this case is whether or not the Court of Appeals denied due process to petitioner when it reversed the decision of the court a quo without giving petitioner the opportunity to file its answer and whether or not private respondents are entitled to file a forcible entry case against petitioner. 7 We affirm. The Court of Appeals need not require petitioner to file an answer for due process to exist. The comment filed by petitioner on February 26, 1986 has sufficiently addressed the issues presented in the petition for review filed by private respondents before the Court of Appeals. Having heard both parties, the Appellate Court need not await or require any other additional pleading. Moreover, the fact that petitioner was heard by the Court of Appeals on its motion for reconsideration negates any violation of due process. Notwithstanding petitioner's claim that it was duly authorized by the owners to develop the subject property, private respondents, as actual possessors, can commence a forcible entry case against petitioner because ownership is not in issue. Forcible entry is merely a quieting process and never determines the actual title to an estate. Title is not involved. 8 In the case at bar, it is undisputed that at the time petitioner entered the property, private respondents were already in possession thereof . There is no evidence that the spouses Jose were ever in possession of the subject property. On the contrary, private respondents' peaceable possession was manifested by the fact that they even planted rice, corn and fruit bearing trees twelve to fifteen years prior to petitioner's act of destroying their crops. Although admittedly petitioner may validly claim ownership based on the muniments of title it presented, such evidence does not responsively address the issue of prior actual possession raised in a forcible entry case. It must be stated that regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be turned out by a strong hand, violence or terror. 9 Thus, a party who can prove prior possession can recover such possession even against the owner himself. Whatever may be the character of his prior possession, if he has in his favor priority in time, he has the security that entitles him to remain on the property until he is lawfully ejected by a person having a better right by accion publiciana or accion reivindicatoria .10 Both the Municipal Trial Court and the Regional Trial Court have rationalized petitioner's drastic action of bulldozing and destroying the crops of private respondents on the basis of the doctrine of self-help enunciated in Article 429 of the New Civil Code. 11 Such justification is unavailing because the doctrine of self-help can only be exercised at the time of actual or threatened dispossession which is absent in the case at bar. When possession has already been lost, the owner must resort to judicial process for the recovery of property. This is clear from Article 536 of the Civil Code which states, "(I)n no case may possession be acquired through force or intimidation as long as there is a possessor who objects thereto. He who believes that he has an action or right to deprive another of the holding of a thing, must invoke the aid of the competent court, if the holder should refuse to deliver the thing." WHEREFORE, the Court resolved to DENY the instant petition. The decision of the Court of Appeals dated July 24,1986 is hereby AFFIRMED. Costs against petitioner. GRAND UNION SUPERMARKET, INC. vs. JOSE J. ESPINO JR; G.R. No. L-48250 December 28, 1979

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This is a petition tor certiorari by way of appeal from the decision of the Court of Appeals 1 dated September 26, 1977 rendered in CA-G.R. No. 55186-R entitled "Jose J. Espino, Jr., plaintiff-appellant. versus Grand Union Supermarket, Inc. and Nelia Santos-Fandino, defendants-appellees," the dispositive portion of which states; WHEREFORE, the appealed judgment is hereby reversed and set aside. Defendants are ordered to pay plaintiff-jointly and severally, the sum of Seventy-Five Thousand Pesos (P75,000.00) by way of moral damages. Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages, and Five Thousand Pesos (P5,000.00) as attorney's fee, Costs of both instances shall be taxed against the defendant defendants. The facts of the case are as stated in the decision of the respondent court to wit: "Upon the evidence, and from the findings of the lower court, it appears that in the morning of August 22, 1970, plaintiff Jose J. Espino. Jr., a civil engineer and an executive of Procter and Gamble Philippines, Inc., and his wife and their two daughters went to shop at the defendants' South Supermarket in Makati. While his wife was shopping at the groceries section, plaintiff browsed around the other parts of the market. Finding a cylindrical "rat tail" file which he needed in his hobby and had been wanting to buy, plaintiff picked up that item from one of the shelves. He held it in his hand thinking that it might be lost, because of its tiny size, if he put it in his wife's grocery cart. In the course of their shopping, plaintiff and his wife saw the maid of plaintiff's aunt. While talking to this maid, plaintiff stuck the file into the front breast pocket of his shirt with a good part of the merchandise exposed. "At the check-out counter, the plaintiff paid for his wife's purchases which amounted to P77.00, but he forgot to pay for the file. As he was leaving by the exit of the supermarket on his way to his car, carrying two bags of groceries and accompanied by his wife and two daughter, plaintiff was approached by a uniformed guard of the supermarket who said: "Excuse me, Mr., I think you have something in your pocket which you have not paid for." (p. 5, tsn, Aug. 13, 1971), pointing to his left front breast pocket. Suddenly reminded of the file, plaintiff apologized thus: "I am sorry," and he turned back toward the cashier to pay for the file. But the guard stopped him and led him instead toward the rear of the supermarket. The plaintiff protested but the guard was firm saying: "No, Mr., please come with me. It is the procedure of the supermarket to bring people that we apprehend to the back of the supermarket" (p. 8, Ibid). The time was between 9 and 10 o'clock. A crowd of customers on their way into the supermarket saw the plaintiff being stopped and led by a uniformed guard toward the rear of the supermarket. Plaintiff acquiesced and signaled to his wife and daughters to wait. "Into a cubicle which was immediately adjacent to the area where deliveries to the supermarket were being made, the plaintiff was ushered. The guard directed him to a table and gave the file to the man seated at the desk. Another man stood beside the plaintiff. The man at the desk looked at the plaintiff and the latter immediately explained the circumstances that led to the finding of the file in his possession. The man at the desk pulled out a sheet of paper and began to ask plaintiff's name, age, residence and other personal data. Plaintiff was asked to make a brief statement, and on the sheet of paper or "Incident Report" he wrote down the following: "While talking to my aunt's maid with my wife, I put this item in my shirt pocket. I forgot to check it out with my wife's items" (Exhibit A). Meanwhile, the plaintiff's wife joined him and asked what had taken him so long. "The guard who had accosted plaintiff took him back inside the supermarket in the company of his wife. Plaintiff and his wife were directed across the main entrance to the shopping area, down the line of check-out counters, to a desk beside the first checkout counter. To the woman seated at the desk, who turned out to be defendant Nelia Santos-Fandino, the guard presented the incident report and the file, Exhibit B. Defendant Fandino read the report and addressing the guard remarked: "Ano, nakaw na naman ito" (p. 22, Id.). Plaintiff explained and narrated the incident that led to the finding of the file in his pocket, telling Fandino that he was going to pay for the file because he needed it. But this defendant replied: "That is all they say, the people whom we cause not paying for the goods say... They all intended to pay for the things that are found to them." (p. 23, Id). Plaintiff objected and said that he was a regular customer of the supermarket. "Extracting a P5.00 bill from his pocket, plaintiff told Fandino that he was paying for the file whose cost was P3.85. Fandino reached over and took the P5.00 bill from plaintiff with these words: "We are fining you P5.00. That is your the fine." Plaintiff was shocked. He and his wife objected vigorously that he was not a common criminal, and PUP COLLEGE OF LAW Page 77

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they wanted to get back the P5.00. But Fandino told them that the money would be given as an incentive to the guards who apprehend pilferers. People were milling around them and staring at the plaintiff. Plaintiff gave up the discussion. He drew a P50.00 bill and took back the file. Fandino directed him to the nearest check-out counter where he had to fall in line. The people who heard the exchange of words between Fandino and plaintiff continued to stare at him. At the trial, plaintiff expressed his embarrassment and humiliation thus: " I felt as though I wanted to disappear into a hole on the ground" (p. 34, Id.). After paying for the file, plaintiff and his wife walked as fast as they could out of the supermarket. His first impulse was to go back to the supermarket that night to throw rocks at its glass windows. But reason prevailed over passion and he thought that justice should take its due course. "Plaintiff was certain during the trial that when he signed the incident report, Exhibit A, inside the cubicle at the back of the supermarket only his brief statement of the facts (Exhibit A-2), aside from his name and personal circumstances, was written thereon. He swore that the following were not in the incident report at, the time he signed it: Exhibit A-I which says opposite the stenciled word SUBJECT "Shoplifting" Exhibit A-3 which says opposite the stenciled words Action Taken: Released by Mrs. Fandino after paying the item. Exhibit A-4 which says opposite the stenciled words Remarks Noted: "Grd. Ebreo requested Grd. Paunil to apprehend subject shoplifter. Private respondent's complaint filed on October 8, 1970 is founded on Article 21 in relation to Article 2219 of the New Civil Code and prays for moral damages, exemplary damages, attorney s fees and 'expenses of litigation, costs of the suit and the return of the P5.00 fine. After trial, the Court of First Instance of Pasig, Rizal, Branch XIX dismissed the complaint, Interposing the appeal to the Court of Appeals, the latter reversed and set aside the appealed judgment, granting and damages as earlier stated. Not satisfied with the decision of the respondent court, petitioners instituted the present petition and submits the following grounds and/or assignment of errors, to wit: I Respondent Court of Appeals erred in awarding moral and exemplary damages to the respondent Espino under Articles 19 and 21 in relation to Article 2219 of the Civil Code, considering that A. Respondent Espino was guilty of theft; B. Petitioners legitimately exercised their right of defense of property within the context of Article 429 of the Civil Code negating the application of Articles 19 and 21 of the same Code; C. Petitioners acted upon probable cause in stopping and investigating respondent Espino for shoplifting and as held in various decisions in the United States on shoplifting, a merchant who acts upon probable cause should not be held liable in damages by the suspected shoplifter; D. Petitioners did not exercise their right maliciously, wilfully or in bad faith; and/or E. The proximate cause of respondent Espino's alleged injury or suffering was his own negligence or forgetfulness; petitioners acted in good faith. II

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Assuming arguendo that petitioners are hable for moral and exemplary damages, the award of P75,000.00 for moral damages and P25,000.00 for exemplary damages by the respondent Court of Appeals is not legally justified and/or is grossly excessive in the premises. III The award of P5,000.00 for attorney's fees by the respondent Court of Appeals is unjustified and unwarranted under Article 2199 of the Civil Code. We agree with the holding of the respondent appellate court that "the evidence sustains the court's finding that the plaintiff had absolutely no intention to steal the file." The totality of the facts and circumstances as found by the Court of Appeals unerringly points to the conclusion that private respondent did not intend to steal the file and that is act of picking up the file from the open shelf was not criminal nor done with malice or criminal intent for on the contrary, he took the item with the intention of buying and paying for it. This Court needs only to stress the following undisputed facts which strongly and convincingly uphold the conclusion that private respondent was not "shoplifting." Thus, the facts that private respondent after picking the cylindrical "rat-tail" file costing P3.85 had placed it inside his left front breast pocket with a good portion of the item exposed to view and that he did not conceal it in his person or hid it from sight as well as the fact that he paid the purchases of his wife amounting to P77.00 at the checkout counter of the Supermarket, owed that he was not acting suspiciously or furtively. And the circumstance that he was with his family consisting of his wife Mrs. Caridad Jayme Espino, and their two daughters at the time negated any criminal intent on his part to steal. Moreover, when private respondent was approached by the guard of the Supermarket as he was leaving by the exit to his car who told him, "Excuse me, Mr., I think you have something in your pocket which you have not paid for," Espino, immediately apologized and answered, "I am sorry," which indicated his sincere apology or regrets. He turned back towards the cashier to pay for the file which proved his honesty sincerity and good faith in buying the item, and not to shoplift the same. His brief statement on the sheet of paper called the Incident Report where private respondent wrote the following: "While talking to my aunt's maid with my wife, I put this item in in my shirt pocket. I forgot to check it out with my wife's item," was an instant and contemporaneous explanation of the incident. Considering further the personal circumstances of the private respondent. his education, position and character showing that he is a graduate Mechanical Engineer from U.P. Class 1950, employed as an executive of Proctor & Gamble Phils., Inc., a corporate manager incharge of motoring and warehousing therein; honorably discharged from the Philippine Army in 1946; a Philippine government pensionado of the United States for six months; member of the Philippine veterans Legion; author of articles published in the Manila Sunday Times and Philippines Free Press; member of the Knights of Columbus, Council No. 3713; son of the late Jose Maria Espino, retired Minister, Department of Foreign Affairs at the Philippine Embassy Washington, We are fully convinced, as the trial and appellate courts were, that private respondent did not intend to steal the article costing P3.85. Nothing in the records intimates or hints whatsoever that private respondent has had any police record of any sort much less suspicion of stealing or shoplifting. We do not lay down here any hard-and-fast rule as to what act or combination of acts constitute the crime of shoplifting for it must be stressed that each case must be considered and adjudged on a case-to-case basis and that in the determination of whether a person suspected of shoplifting has in truth and in fact committed the same, all the attendant facts and circumstances should be considered in their entirety and not from any single fact or circumstance from which to impute the stigma of shoplifting on any person suspected and apprehended therefor. We likewise concur with the Court of Appeals that "(u)pon the facts and under the law, plaintiff has clearly made the cause of action for damages against the defendants. Defendants wilfully caused loss or injury to plaintiff in a manner that was contrary to morals, good customs or public policy, making them amenable to damages under Articles 19 and 21 in relation to Article 2219 of the Civil Code." 2 That private respondent was falsely accused of shoplifting is evident. The Incident Report (Exhibit A) with the entries thereon under Exhibit A-1 which says opposite the stenciled word SUBJECT: "Shoplifting," Exhibit A-3 PUP COLLEGE OF LAW Page 79

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which says opposite the stenciled words Action Taken: Relesed by Mrs. Fandino after paying the item," Exhibit A-4 which says opposite the stenciled words Remarks Noted: Grd. Ebreo requested Grd. Paunil to apprehend subject shoplifter," established the opinion, judgment or thinking of the management of petitioner's supermarket upon private respondent's act of picking up the file. ln plain words, private respondent was regarded and pronounced a shoplifter and had committed "shoplifting." We also affirm the Court of Appeals' finding that petitioner Nelia Santos Fandino, after reading the incident report, remarked the following: "Ano, nakaw na naman ito". Such a remark made in the presence of private respondent and with reference to the incident report with its entries, was offensive to private respondent's dignity and defamatory to his character and honesty. When Espino explained that he was going to pay the file but simply forgot to do so, Fandino doubted the explanation. saying: "That is all what they say, the people whom we caught not paying for the goods say... they all intended to pay for the things that are found to them." Private respondent objected and said that he was a regular customer of the Supermarket. The admission of Fandino that she required private respondent to pay a fine of P5.00 and did in fact take the P5.00 bill of private respondent tendered by the latter to pay for the file, as a fine which would be given as an incentive to the guards who apprehend pilferers clearly proved that Fandino branded private respondent as a thief which was not right nor justified. The testimony of the guard that management instructed them to bring the suspected customers to the public area for the people to see those kind of customers in order that they may be embarassed (p. 26, tsn, Sept. 30, 1971); that management wanted "the customers to be embarrassed in public so that they will not repeat the stealing again" (p. 2, tsn, Dec. 10, 1971); that the management asked the guards "to bring these customers to different cashiers in order that they will know that they are pilferers" (p. 2, Ibid.) may indicate the manner or pattern whereby a confirmed or self-confessed shoplifter is treated by the Supermarket management but in the case at bar, there is no showing that such procedure was taken in the case of the private respondent who denied strongly and vehemently the charge of shoplifting. Nonetheless, the false accusation charged against the private respondent after detaining and interrogating him by the uniformed guards and the mode and manner in which he was subjected, shouting at him, imposing upon him a fine, threatening to call the police and in the presence and hearing of many people at the Supermarket which brought and caused him humiliation and embarrassment, sufficiently rendered the petitioners liable for damages under Articles 19 and 21 in relation to Article 2219 of the Civil Code. We rule that under the facts of the case at bar, petitioners wilfully caused loss or injury to private respondent in a manner that was contrary to morals, good customs or public policy. It is against morals, good customs and public policy to humiliate, embarrass and degrade the dignity of a person. Everyone must respect the dignity, personality, privacy and peace of mind of his neighbors and other persons (Article 26, Civil Code). And one must act with justice, give everyone his due and observe honesty and good faith (Article 19, Civil Code). Private respondent is entitled to damages but We hold that the award of Seventy-Five Thousand Pesos (P75,000.00) for moral damages and Twenty-Five Thousand Pesos (P25,000.00, for exemplary damages is unconscionable and excessive. While no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated, the assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case (Art. 2216, New Civil Code). In the case at bar, there is no question that the whole incident that befell respondent had arisen in such a manner that was created unwittingly by his own act of forgetting to pay for the file. It was his forgetfullness in checking out the item and paying for it that started the chain of events which led to his embarassment and humiliation thereby causing him mental anguish, wounded feelings and serious anxiety. Yet, private respondent's act of omission contributed to the occurrence of his injury or loss and such contributory negligence is a factor which may reduce the damages that private respondent may recover (Art. 2214, New Civil Code). Moreover, that many people were present and they saw and heard the ensuing interrogation and altercation appears to be simply a matter of coincidence in a supermarket which is a public place and the crowd of onlookers, hearers or bystanders was not deliberately sought or called by management to witness private respondent's predicament. We do not believe that private respondent was PUP COLLEGE OF LAW Page 80

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intentionally paraded in order to humiliate or embarrass him because petitioner's business depended for its success and patronage the good will of the buying public which can only be preserved and promoted by good public relations. As succinctly expressed by Mr. Justice J. B. L. Reyes in his concurring and dissenting opinion in Pangasinan Transportation Company, Inc, vs. Legaspi, 12 SCRA 598, the purpose of moral damages is essentially indemnity or reparation, both punishment or correction. Moral damages are emphatically not intended to enrich a complainant at the expense of a defendant; they are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendant's culpable action. In other words, the award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual status quo ante and, it must be proportionate to the suffering inflicted. In Our considered estimation and assessment, moral damages in the amount of Five Thousand Pesos (P5,000.00) is reasonable and just to award to private respondent. The grant of Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages is unjustified. Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages (Art. 2229, New Civil Code). Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they could be adjudicated (Art. 2223, New Civil Code). Considering that exemplary damages are awarded for wanton acts, that they are penal in character granted not by way of compensation but as a punishment to the offender and as a warning to others as a sort of deterrent, We hold that the facts and circumstances of the case at bar do not warrant the grant of exemplary damages. Petitioners acted in good faith in trying to protect and recover their property, a right which the law accords to them. Under Article 429, New Civil Code, the owner or lawful possessor of a thing has a right to exclude any person from the enjoyment and disposal thereof and for this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property. And since a person who acts in the fulfillment of a duty or in the lawful exercise of a right or office exempts him from civil or criminal liability, petitioner may not be punished by imposing exemplary damages against him. We agree that petitioners acted upon probable cause in stopping and investigating private respondent for taking the file without paying for it, hence, the imposition of exemplary damages as a warning to others by way of a deterrent is without legal basis. We, therefore, eliminate the grant of exemplary damages to the private respondent. In the light of the reduction of the damages, We hereby likewise reduce the original award of Five Thousand Pesos (P5,000.00) as attorney's fees to Two Thousand Pesos (P2,000.00). WHEREFORE, IN VIEW OF THE FOREGOING, the judgment of the Court of Appeals is hereby modified. Petitioners are hereby ordered to pay, jointly and severally, to private respondent moral damages in the sum of Five Thousand Pesos (P5,000.00) and the amount of Two Thousand Pesos (P2,000.00) as and for attorney's fees; and further, to return the P5.00 fine to private respondent. No costs. ANITA TAN vs. STANDARD VACUUM OIL CO.; G.R. No. L-4160 July 29, 1952 Anita Tan is the owner of the house of strong materials based in the City of Manila, Philippines. On May 3, 1949, the Standard Vacuum Oil Company ordered the delivery to the Rural Transit Company at its garage at Rizal Avenue Extension, City of Manila, of 1,925 gallons of gasoline using a gasoline tank-truck trailer. The truck was driven by Julito Sto. Domingo, who was helped Igmidio Rico. While the gasoline was being discharged to the underground tank, it caught fire, whereupon Julito Sto. Domingo drove the truck across the Rizal Avenue Extension and upon reaching the middle of the street he abondoned the truck with continued moving to the opposite side of the first street causing the buildings on that side to be burned and detroyed. The house of Anita Tan was among those destroyed and for its repair she spent P12,000.

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As an aftermath of the fire, Julito Sto. Domingo and Imigidio Rico were charged with arson through reckless imprudence in the Court of First Instance of Manila where, after trial, both were acquitted, the court holding that their negligence was not proven and the fire was due to an unfortunate accident. Anita Tan then brought the action against the Standard Vacuum Oil Company and the Rural Transit Company;, including the two employees, seeking to recover the damages she has suffered for the destruction of her house. Defendants filed separate motions to dismiss alleging in substance that ( a) plaintiff's action is barred by prior judgment and (b) plaintiff's complaint states no cause of action; and this motion having been sustained, plaintiff elevated the case to this Court imputing eight errors to the court a quo. The record discloses that the lower court dismissed this case in view of the acquittal of the two employees of defendant Standard Vacuum Oil Company who were charged with arson through reckless imprudence in the Court of First Instance of Manila. In concluding that accused were not guilty of the acts charged because of the fire was accidental, the court made the following findings: "the accused Imigidio Rico cannot in any manner be held responsible for the fire to the three houses and goods therein above mentioned. He was not the cause of it, and he took all the necessary precautions against such contingency as he was confronted with. The evidence throws no light on the cause of fire. The witnesses for the prosecution and for the defense testified that they did not know what caused the fire. It was unfortunate accident for which the accused Iigmidio Rico cannot be held responsible." And a similar finding was made with respect to the other accused that the information filed against the accused by the Fiscal contains an itemized statement of the damages suffered by the victims, including the one suffered by Anita Tan, thereby indicating the intention of the prosecution to demand indemnity from the accused in the same action, but that notwithstanding this statement with respect to damages, Anita Tan did not make any reservation of her right to file a separate civil action against the accused as required by the Rules of Court Rule 107, section 1-(a). As Anita Tan failed to make reservation, and the accused were acquitted, the lower court ruled that she is now barred from filing this action against the defendants. This ruling is so far as defendants Julio Sto. Domingo and Imigidio Rico are concerned is correct. The rule is that "extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from the declaration in a final judgment that the fact from which the civil might arise did not exist" (Rule 107, section 1-d, Rules of Court). This provision means that the acquittal of the accused from the criminal charge will not necessarily extinguish the civil liability unless the court declares in the judgment that the fact from which the civil liability might arise and did not exist. Here it is true that Julito Sto. Domingo and Igmidio Rico were acquitted, the court holding that they were not responsible for the fire that destroyed the house of the plaintiff,which as a rule will not necessarily extinguish their civil liability,but the court went further by stating that the evidence throws no light on the cause of fire and that it was an unfortunate accident for which the accused cannot be held responsible. In our opinion, this declaration fits well into the exception of the rule which exempts the two accused from civil liability. When the court acquitted the accused because the fire was due to an unfortunate accident it actually said that the fire was due to a fortuitous event for which the accused are not to blame. It actually exonerated them from civil liability. But the case takes a different aspect with respect to the other defendants. For one thing, the principle of res judicata cannot apply to them for the simple reason that they were not included as co-accused in the criminal case. Not having been included in the criminal case they cannot enjoy the benefit resulting from the acquittal of the accused. This benefit can only be claimed by the accused if a subsequent action is later taken against them under the Revised Penal Code. And this action can only be maintained if proper reservation is made and there is no express declaration that the basis of the civil action has not existed. It is, therefore, an error for the lower court to dismiss the case against these two defendants more so when their civil liability is predicated or facts other than those attributed to the two employees in the criminal case. Take, for instance, of the Standard Vacuum Oil Company. this company is sued not precisely because of supposed negligent acts of its two employees Julito Sto. Domingo and Igmidio Rico but because of acts of its own which might have contributed to the fire that destroyed the house of the plaintiff. The complaint contains definite allegations of negligent acts properly attributable to the company which proven and not refuted may serve as basis of its civil liability. Thus, in paragraph 5 of the first cause of action, it is expressly alleged that this company, through its PUP COLLEGE OF LAW Page 82

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employees, failed to take the necessary precautions or measures to insure safety and avoid harm to person and damage to property as well as to observe that degree of care, precaution and vigilance which the circumstances justly demanded, thereby causing the gasoline they were unloading to catch fire. the precautions or measures which this company has allegedly failed to take to prevent fire are not clearly stated, but they are matters of evidence which need not now be determined. Suffice it to say that such allegation furnishes enough basis for a cause of action against this company. There is no need for the plaintiff to make a reservation of her right to file a separate civil action, for as this court already held in a number of cases, such reservation is not necessary when the civil action contemplated is not derived from the criminal liability but one based on culpa aquiliana under the Old Civil Code (articles 1902 to 1910). These two acts are separate and distinct and should not be confused one with the other. Plaintiff can choose either (Asuncion Parker vs. Hon. A.J Panlilio supra, p. 1.) The case of the Rural Transit Co. is even more different as it is predicated on a special provisions of the Revised Penal Code. Thus, article 101, Rule 2, of said Code provides: Art. 101. Rules regarding civil liability in certain cases . The exemption from criminal liability established in subdivisions 1, 2, 3, 5 and 6 of article 12 and in subdivision 4 of article 11 of this Code does not include exemption from civil liability, which shall be enforced to the following rules: xxx xxx xxx

Second. In cases falling within subdivision 4 of article 11, the persons for whose benefit the harm has been prevented shall be civilly liable in proportion to the benefit which they have received. And on this point, the complaint contains the following averments: 3. That after the corresponding trial the said defendants were acquitted and defendant Julio Sto. Domingo was acquitted, on the ground that he so acted causing damage to another in order to avoid a greater evil or injury, under article 11, paragraph 4 of the Revised Penal Code, as shown by the pertinent portion of the decision of this Honorable Court in said case, dated October 28, 1949, which reads as follows: Under the foregoing facts, there can be no doubt that had the accused Julito Sto. Domingo not taken the gasoline tank-truck trailer out in the street, a bigger conflagration would have occurred in Rizal Avenue Extension, and, perhaps, there might have been several deaths and bearing in mind the provisions of Article 11, paragraph 4 of the Revised Penal Code the accused Julito Sto. Domingo incurred no criminal liability. 4. That it was consequently the defendant Rural Transit Co., from whose premises the burning gasoline tank-truck trailer was driven out by defendant Julito Sto. Domingo in order to avoid a greater evil or injury, for whose benefit the harm has been prevented under article 101, second subsection of the Revised Penal Code. Considering the above quoted law and facts, the cause of action against the Rural Transit Company can hardly be disputed, it appearing that the damage caused to the plaintiff was brought about mainly because of the desire of driver Julito Sto. Domingo to avoid greater evil or harm, which would have been the case had he not brought the tank-truck trailer to the middle of the street, for then the fire would have caused the explosion of the gasoline deposit of the company which would have resulted in a conflagration of much greater proportion and consequences to the houses nearby or surrounding it. It cannot be denied that this company is one of those for whose benefit a greater harm has been prevented, and as such it comes within the purview of said penal provision. The acquittal of the accused cannot, therefore, be deemed a bar to a civil action against this company because its civil liability is completely divorced from the criminal liability of the accused. The rule regarding reservation of the right to file a separate civil action does not apply to it. Wherefore, the order appealed from is hereby modified as follows: it is affirmed with regard to defendants Julito Sto. Domingo and Igmidio Rico; but it is reserved with regard to defendants Standard Vacuum Oil Company and Rural Transit Company, with costs. PUP COLLEGE OF LAW Page 83

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NATIONAL POWER CORPORATION vs. LUCMAN G. IBRAHIM; G.R. No. 168732 June 29, 2007 This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul the Decision1 dated June 8, 2005 rendered by the Court of Appeals (CA) in C.A.-G.R. CV No. 57792. The facts are as follows: On November 23, 1994, respondent Lucman G. Ibrahim, in his personal capacity and in behalf of his co-heirs Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania G. Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G. Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim, instituted an action against petitioner National Power Corporation (NAPOCOR) for recovery of possession of land and damages before the Regional Trial Court (RTC) of Lanao del Sur. In their complaint, Ibrahim and his co-heirs claimed that they were owners of several parcels of land described in Survey Plan FP (VII-5) 2278 consisting of 70,000 square meters, divided into three (3) lots, i.e. Lots 1, 2, and 3 consisting of 31,894, 14,915, and 23,191 square meters each respectively. Sometime in 1978, NAPOCOR, through alleged stealth and without respondents knowledge and prior consent, took possession of the sub -terrain area of their lands and constructed therein underground tunnels. The existence of the tunnels was only discovered sometime in July 1992 by respondents and then later confirmed on November 13, 1992 by NAPOCOR itself through a memorandum issued by the latters Acting Assistant Project Manager. The tu nnels were apparently being used by NAPOCOR in siphoning the water of Lake Lanao and in the operation of NAPOCORs Agus II, III, IV, V, VI, VII projects located in Saguiran, Lanao del Sur; Nangca and Balo-i in Lanao del Norte; and Ditucalan and Fuentes in Iligan City. On September 19, 1992, respondent Omar G. Maruhom requested the Marawi City Water District for a permit to construct and/or install a motorized deep well in Lot 3 located in Saduc, Marawi City but his request was turned down because the construction of the deep well would cause danger to lives and property. On October 7, 1992, respondents demanded that NAPOCOR pay damages and vacate the sub-terrain portion of their lands but the latter refused to vacate much less pay damages. Respondents further averred that the construction of the underground tunnels has endangered their lives and properties as Marawi City lies in an area of local volcanic and tectonic activity. Further, these illegally constructed tunnels caused them sleepless nights, serious anxiety and shock thereby entitling them to recover moral damages and that by way of example for the public good, NAPOCOR must be held liable for exemplary damages. Disputing respondents claim, NAPOCOR filed an answer with counterclaim denying the materia l allegations of the complaint and interposing affirmative and special defenses, namely that (1) there is a failure to state a cause of action since respondents seek possession of the sub-terrain portion when they were never in possession of the same, (2) respondents have no cause of action because they failed to show proof that they were the owners of the property, and (3) the tunnels are a government project for the benefit of all and all private lands are subject to such easement as may be necessary for the same.2 On August 7, 1996, the RTC rendered a Decision, the decretal portion of which reads as follows: WHEREFORE, judgment is hereby rendered: 1. Denying plaintiffs [private respondents] prayer for defendant [petitioner] National Power Corporation to dismantle the underground tunnels constructed between the lands of plaintiffs in Lots 1, 2, and 3 of Survey Plan FP (VII-5) 2278; 2. Ordering defendant to pay to plaintiffs the fair market value of said 70,000 square meters of land covering Lots 1, 2, and 3 as described in Survey Plan FP (VII-5) 2278 less the area of 21,995 square meters at P1,000.00 per square meter or a total of P48,005,000.00 for the remaining unpaid portion of 48,005 square meters; with 6% interest per annum from the filing of this case until paid; PUP COLLEGE OF LAW Page 84

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3. Ordering defendant to pay plaintiffs a reasonable monthly rental of P0.68 per square meter of the total area of 48,005 square meters effective from its occupancy of the foregoing area in 1978 or a total of P7,050,974.40. 4. Ordering defendant to pay plaintiffs the sum of P200,000.00 as moral damages; and 5. Ordering defendant to pay the further sum of P200,000.00 as attorneys fees and the costs. SO ORDERED.3 On August 15, 1996, Ibrahim, joined by his co-heirs, filed an Urgent Motion for Execution of Judgment Pending Appeal. On the other hand, NAPOCOR filed a Notice of Appeal by registered mail on August 19, 1996. Thereafter, NAPOCOR filed a vigorous opposition to the motion for execution of judgment pending appeal with a motion for reconsideration of the Decision which it had received on August 9, 1996. On August 26, 1996, NAPOCOR filed a Manifestation and Motion withdrawing its Notice of Appeal purposely to give way to the hearing of its motion for reconsideration. On August 28, 1996, the RTC issued an Order granting execution pending appeal and denying NAPOC ORs motion for reconsideration, which Order was received by NAPOCOR on September 6, 1996. On September 9, 1996, NAPOCOR filed its Notice of Appeal by registered mail which was denied by the RTC on the ground of having been filed out of time. Meanwhile, the Decision of the RTC was executed pending appeal and funds of NAPOCOR were garnished by respondents Ibrahim and his co-heirs. On October 4, 1996, a Petition for Relief from Judgment was filed by respondents Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Potrisam G. Maruhom and Lumba G. Maruhom asserting as follows: 1) they did not file a motion to reconsider or appeal the decision within the reglementary period of fifteen (15) days from receipt of judgment because they believed in good faith that the decision was for damages and rentals and attorneys fees only as prayed for in the complaint: 2) it was only on August 26, 1996 that they learned that the amounts awarded to the plaintiffs represented not only rentals, damages and attorneys fees but the greatest portion of which was payment of just compensation which in effect would make the defendant NPC the owner of the parcels of land involved in the case; 3) when they learned of the nature of the judgment, the period of appeal has already expired; 4) they were prevented by fraud, mistake, accident, or excusable negligence from taking legal steps to protect and preserve their rights over their parcels of land in so far as the part of the decision decreeing just compensation for petitioners properties; 5) they would never have agreed to the alienation of their property in favor of anybody, considering the fact that the parcels of land involved in this case were among the valuable properties they inherited from their dear father and they would rather see their land crumble to dust than sell it to anybody. 4 The RTC granted the petition and rendered a modified judgment dated September 8, 1997, thus: WHEREFORE, a modified judgment is hereby rendered: 1) Reducing the judgment award of plaintiffs for the fair market value of P48,005,000.00 by 9,526,000.00 or for a difference by P38,479,000.00 and by the further sum of P33,603,500.00 subject of the execution pending appeal PUP COLLEGE OF LAW Page 85

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leaving a difference of 4,878,500.00 which may be the subject of execution upon the finality of this modified judgment with 6% interest per annum from the filing of the case until paid. 2) Awarding the sum of P1,476,911.00 to herein petitioners Omar G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mahmod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Portrisam G. Maruhom and Lumba G. Maruhom as reasonable rental deductible from the awarded sum of P7,050,974.40 pertaining to plaintiffs. 3) Ordering defendant embodied in the August 7, 1996 decision to pay plaintiffs the sum of P200,000.00 as moral damages; and further sum of P200,000.00 as attorneys fees and costs. SO ORDERED.5 Subsequently, both respondent Ibrahim and NAPOCOR appealed to the CA. In the Decision dated June 8, 2005, the CA set aside the modified judgment and reinstated the original Decision dated August 7, 1996, amending it further by deleting the award of moral damages and reducing the amount of rentals and attorneys fees, thus: WHEREFORE, premises considered, herein Appeals are hereby partially GRANTED, the Modified Judgment is ordered SET ASIDE and rendered of no force and effect and the original Decision of the court a quo dated 7 August 1996 is hereby RESTORED with the MODIFICATION that the award of moral damages is DELETED and the amounts of rentals and attorneys fees are REDUCED to P6,888,757.40 and P50,000.00, respectively. In this connection, the Clerk of Court of RTC Lanao del Sur is hereby directed to reassess and determine the additional filing fee that should be paid by Plaintiff-Appellant IBRAHIM taking into consideration the total amount of damages sought in the complaint vis--vis the actual amount of damages awarded by this Court. Such additional filing fee shall constitute a lien on the judgment. SO ORDERED.6 Hence, this petition ascribing the following errors to the CA: (a) RESPONDENTS WERE NOT DENIED THE BENEFICIAL USE OF THEIR SUBJECT PROPERTIES TO ENTITLE THEM TO JUST COMPENSATION BY WAY OF DAMAGES; (b) ASSUMING THAT RESPONDENTS ARE ENTITLED TO JUST COMPENSATION BY WAY OF DAMAGES, NO EVIDENCE WAS PRESENTED ANENT THE VALUATION OF RESPONDENTS PROPERTY AT THE TIME OF ITS TAKING IN THE YEAR 1978 TO JUSTIFY THE AWARD OF ONE THOUSAND SQUARE METERS (P1000.00/SQ. M.) EVEN AS PAYMENT OF BACK RENTALS IS ITSELF IMPROPER. This case revolves around the propriety of paying just compensation to respondents, and, by extension, the basis for computing the same. The threshold issue of whether respondents are entitled to just compensation hinges upon who owns the sub-terrain area occupied by petitioner. Petitioner maintains that the sub-terrain portion where the underground tunnels were constructed does not belong to respondents because, even conceding the fact that respondents owned the property, their right to the subsoil of the same does not extend beyond what is necessary to enable them to obtain all the utility and convenience that such property can normally give. In any case, petitioner asserts that respondents were still able to use the subject property even with the existence of the tunnels, citing as an example the fact that one of the respondents, Omar G. Maruhom, had established his residence on a part of the property. Petitioner concludes that the underground tunnels 115 meters below respondents property could not have caused damage or prejudice to respondents and their claim to this effect was, therefore, purely conjectural and speculative.7

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The contention lacks merit. Generally, in an appeal by certiorari under Rule 45 of the Rules of Court, the Court does not pass upon questions of fact. Absent any showing that the trial and appellate courts gravely abused their discretion, the Court will not examine the evidence introduced by the parties below to determine if they correctly assessed and evaluated the evidence on record.8 The jurisdiction of the Court in cases brought to it from the CA is limited to reviewing and revising the errors of law imputed to it, its findings of fact being as a rule conclusive and binding on the Court. In the present case, petitioner failed to point to any evidence demonstrating grave abuse of discretion on the part of the CA or to any other circumstances which would call for the application of the exceptions to the above rule. Consequently, the CAs findings which upheld those of the trial court that respondents owne d and possessed the property and that its substrata was possessed by petitioner since 1978 for the underground tunnels, cannot be disturbed. Moreover, the Court sustains the finding of the lower courts that the sub-terrain portion of the property similarly belongs to respondents. This conclusion is drawn from Article 437 of the Civil Code which provides: ART. 437. The owner of a parcel of land is the owner of its surface and of everything under it, and he can construct thereon any works or make any plantations and excavations which he may deem proper, without detriment to servitudes and subject to special laws and ordinances. He cannot complain of the reasonable requirements of aerial navigation. Thus, the ownership of land extends to the surface as well as to the subsoil under it. In Republic of the Philippines v. Court of Appeals,9 this principle was applied to show that rights over lands are indivisible and, consequently, require a definitive and categorical classification, thus: The Court of Appeals justified this by saying there is "no conflict of interest" between the owners of the surface rights and the owners of the sub-surface rights. This is rather strange doctrine, for it is a well-known principle that the owner of a piece of land has rights not only to its surface but also to everything underneath and the airspace above it up to a reasonable height. Under the aforesaid ruling, the land is classified as mineral underneath and agricultural on the surface, subject to separate claims of title. This is also difficult to understand, especially in its practical application. Under the theory of the respondent court, the surface owner will be planting on the land while the mining locator will be boring tunnels underneath. The farmer cannot dig a well because he may interfere with the mining operations below and the miner cannot blast a tunnel lest he destroy the crops above. How deep can the farmer, and how high can the miner go without encroaching on each others rights? Where is the dividing line between the surface and the sub-surface rights? The Court feels that the rights over the land are indivisible and that the land itself cannot be half agricultural and half mineral. The classification must be categorical; the land must be either completely mineral or completely agricultural. Registered landowners may even be ousted of ownership and possession of their properties in the event the latter are reclassified as mineral lands because real properties are characteristically indivisible. For the loss sustained by such owners, they are entitled to just compensation under the Mining Laws or in appropriate expropriation proceedings.10 Moreover, petitioners argument that the landowners right extends to the sub -soil insofar as necessary for their practical interests serves only to further weaken its case. The theory would limit the right to the sub-soil upon the economic utility which such area offers to the surface owners. Presumably, the landowners right extends to such height or depth where it is possible for them to obtain some benefit or enjoyment, and it is extinguished beyond such limit as there would be no more interest protected by law.11 In this regard, the trial court found that respondents could have dug upon their property motorized deep wells but were prevented from doing so by the authorities precisely because of the construction and existence of the tunnels PUP COLLEGE OF LAW Page 87

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underneath the surface of their property. Respondents, therefore, still had a legal interest in the sub-terrain portion insofar as they could have excavated the same for the construction of the deep well. The fact that they could not was appreciated by the RTC as proof that the tunnels interfered with respondents enjoyment of their pr operty and deprived them of its full use and enjoyment, thus: Has it deprived the plaintiffs of the use of their lands when from the evidence they have already existing residential houses over said tunnels and it was not shown that the tunnels either destroyed said houses or disturb[ed] the possession thereof by plaintiffs? From the evidence, an affirmative answer seems to be in order. The plaintiffs and [their] co-heirs discovered [these] big underground tunnels in 1992. This was confirmed by the defendant on November 13, 1992 by the Acting Assistant Project Manager, Agus 1 Hydro Electric Project (Exh. K). On September 16, 1992, Atty. Omar Maruhom (co-heir) requested the Marawi City Water District for permit to construct a motorized deep well over Lot 3 for his residential house (Exh. Q). He was refused the permit "because the construction of the deep well as (sic) the parcels of land will cause danger to lives and property." He was informed that "beneath your lands are constructed the Napocor underground tunnel in connection with Agua Hydroelectric plant" (Exh. Q-2). There in fact exists ample evidence that this construction of the tunnel without the prior consent of plaintiffs beneath the latters property endangered the lives and properties of said plainti ffs. It has been proved indubitably that Marawi City lies in an area of local volcanic and tectonic activity. Lake Lanao has been formed by extensive earth movements and is considered to be a drowned basin of volcano/tectonic origin. In Marawi City, there are a number of former volcanoes and an extensive amount of faulting. Some of these faults are still moving. (Feasibility Report on Marawi City Water District by Kampsa-Kruger, Consulting Engineers, Architects and Economists, Exh. R). Moreover, it has been shown that the underground tunnels [have] deprived the plaintiffs of the lawful use of the land and considerably reduced its value. On March 6, 1995, plaintiffs applied for a two-million peso loan with the Amanah Islamic Bank for the expansion of the operation of the Ameer Construction and Integrated Services to be secured by said land (Exh. N), but the application was disapproved by the bank in its letter of April 25, 1995 (Exh. O) stating that: "Apropos to this, we regret to inform you that we cannot consider your loan application due to the following reasons, to wit: That per my actual ocular inspection and verification, subject property offered as collateral has an existing underground tunnel by the NPC for the Agus I Project, which tunnel is traversing underneath your property, hence, an encumbrance. As a matter of bank policy, property with an existing encumbrance cannot be considered neither accepted as collateral for a loan." All the foregoing evidence and findings convince this Court that preponderantly plaintiffs have established the condemnation of their land covering an area of 48,005 sq. meters located at Saduc, Marawi City by the defendant National Power Corporation without even the benefit of expropriation proceedings or the payment of any just compensation and/or reasonable monthly rental since 1978.12 In the past, the Court has held that if the government takes property without expropriation and devotes the property to public use, after many years, the property owner may demand payment of just compensation in the event restoration of possession is neither convenient nor feasible. 13 This is in accordance with the principle that persons shall not be deprived of their property except by competent authority and for public use and always upon payment of just compensation.14 Petitioner contends that the underground tunnels in this case constitute an easement upon the property of respondents which does not involve any loss of title or possession. The manner in which the easement was created by petitioner, however, violates the due process rights of respondents as it was without notice and indemnity to them and did not go through proper expropriation proceedings. Petitioner could have, at any time, validly exercised the power of eminent domain to acquire the easement over respondents property as this power encompasses not only the taking or appropriation of title to and possession of the expropriated property but likewise covers even the imposition of a mere burden upon the owner of the condemned property.15 Significantly, though, landowners cannot be deprived of their right over their land until expropriation proceedings are instituted in court. The court must then see to it that the taking is for public use, that there is payment of just compensation and that there is due process of law.16 PUP COLLEGE OF LAW Page 88

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In disregarding this procedure and failing to recognize respondents ownership of the sub -terrain portion, petitioner took a risk and exposed itself to greater liability with the passage of time. It must be emphasized that the acquisition of the easement is not without expense. The underground tunnels impose limitations on respondents use of the property for an indefinite period and deprive them of its ordinary use. Based upon the foregoing, respondents are clearly entitled to the payment of just compensation.17 Notwithstanding the fact that petitioner only occupies the sub-terrain portion, it is liable to pay not merely an easement fee but rather the full compensation for land. This is so because in this case, the nature of the easement practically deprives the owners of its normal beneficial use. Respondents, as the owners of the property thus expropriated, are entitled to a just compensation which should be neither more nor less, whenever it is possible to make the assessment, than the money equivalent of said property.18 The entitlement of respondents to just compensation having been settled, the issue now is on the manner of computing the same. In this regard, petitioner claims that the basis for the computation of the just compensation should be the value of the property at the time it was taken in 1978. Petitioner also impugns the reliance made by the CA upon National Power Corporation v. Court of Appeals and Macapanton Mangondato 19 as the basis for computing the amount of just compensation in this action. The CA found that "the award of damages is not excessive because the P1000 per square meter as the fair market value was sustained in a case involving a lot adjoining the property in question which case involved an expropriation by [petitioner] of portion of Lot 1 of the subdivision plan (LRC) PSD 116159 which is adjacent to Lots 2 and 3 of the same subdivision plan which is the subject of the instant controversy."20 Just compensation has been understood to be the just and complete equivalent of the loss 21 and is ordinarily determined by referring to the value of the land and its character at the time it was taken by the expropriating authority.22 There is a "taking" in this sense when the owners are actually deprived or dispossessed of their property, where there is a practical destruction or a material impairment of the value of their property, or when they are deprived of the ordinary use thereof. There is a "taking" in this context when the expropriator enters private property not only for a momentary period but for more permanent duration, for the purpose of devoting the property to a public use in such a manner as to oust the owner and deprive him of all beneficial enjoyment thereof.23 Moreover, "taking" of the property for purposes of eminent domain entails that the entry into the property must be under warrant or color of legal authority.24 Under the factual backdrop of this case, the last element of taking mentioned, i.e., that the entry into the property is under warrant or color of legal authority, is patently lacking. Petitioner justified its nonpayment of the indemnity due respondents upon its mistaken belief that the property formed part of the public dominion. This situation is on all fours with that in the Mangondato case. NAPOCOR in that case took the property of therein respondents in 1979, using it to build its Aqua I Hydroelectric Plant Project, without paying any compensation, allegedly under the mistaken belief that it was public land. It was only in 1990, after more than a decade of beneficial use, that NAPOCOR recognized therein respondents ownership and negotiated for the voluntary purchase of the property. In Mangondato, this Court held: The First Issue: Date of Taking or Date of Suit? The general rule in determining "just compensation" in eminent domain is the value of the property as of the date of the filing of the complaint, as follows: "Sec. 4. Order of Condemnation. When such a motion is overruled or when any party fails to defend as required by this rule, the court may enter an order of condemnation declaring that the plaintiff has a lawful right to take the property sought to be condemned, for the public use or purpose described in the complaint, upon the payment of just compensation to be determined as of the date of the filing of the complaint. x x x" (Italics supplied).

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Normally, the time of the taking coincides with the filing of the complaint for expropriation. Hence, many ruling of this Court have equated just compensation with the value of the property as of the time of filing of the complaint consistent with the above provision of the Rules. So too, where the institution of the action precedes entry to the property, the just compensation is to be ascertained as of the time of filing of the complaint. The general rule, however, admits of an exception: where this Court fixed the value of the property as of the date it was taken and not the date of the commencement of the expropriation proceedings. In the old case of Provincial Government of Rizal vs. Caro de Araullo, the Court ruled that "x x x the owners of the land have no right to recover damages for this unearned increment resulting from the construction of the public improvement (lengthening of Taft Avenue from Manila to Pasay) from which the land was taken. To permit them to do so would be to allow them to recover more than the value of the land at the time it was taken, which is the true measure of the damages, or just compensation, and would discourage the construction of important public improvements." In subsequent cases, the Court, following the above doctrine, invariably held that the time of taking is the critical date in determining lawful or just compensation. Justifying this stance, Mr. Justice (later Chief Justice) Enrique Fernando, speaking for the Court in Municipality of La Carlota vs. The Spouses Felicidad Baltazar and Vicente Gan, said, "x x x the owner as is the constitutional intent, is paid what he is entitled to according to the value of the property so devoted to public use as of the date of taking. From that time, he had been deprived thereof. He had no choice but to submit. He is not, however, to be despoiled of such a right. No less than the fundamental law guarantees just compensation. It would be injustice to him certainly if from such a period, he could not recover the value of what was lost. There could be on the other hand, injustice to the expropriator if by a delay in the collection, the increment in price would accrue to the owner. The doctrine to which this Court has been committed is intended precisely to avoid either contingency fraught with unfairness." Simply stated, the exception finds the application where the owner would be given undue incremental advantages arising from the use to which the government devotes the property expropriated -- as for instance, the extension of a main thoroughfare as was in the case in Caro de Araullo. In the instant case, however, it is difficult to conceive of how there could have been an extra-ordinary increase in the value of the owners land arising from the expropriation, as indeed the records do not show any evidence that the valuation of P1,000.00 reached in 1992 was due to increments directly caused by petitioners use of the land. Since the petitioner is claiming an exception to Rule 67, Section 4, it has the burden in proving its claim that its occupancy and use -- not ordinary inflation and increase in land values -- was the direct cause of the increase in valuation from 1978 to 1992. Side Issue: When is there "Taking" of Property? But there is yet another cogent reason why this petition should be denied and why the respondent Court should be sustained. An examination of the undisputed factual environment would show that the "taking" was not really made in 1978. This Court has defined the elements of "taking" as the main ingredient in the exercise of power of eminent domain, in the following words: "A number of circumstances must be present in "taking" of property for purposes of eminent domain: (1) the expropriator must enter a private property; (2) the entrance into private property must be for more than a momentary period; (3) the entry into the property should be under warrant or color of legal authority; (4) the property must be devoted to a public use or otherwise informally appropriated or injuriously affected; and (5) the utilization of the property for public use must be in such a way to oust the owner and deprive him of all beneficial enjoyment of the property."(Italics supplied) In this case, the petitioners entrance in 1978 was without intent to expropriate or was not made under warrant or color of legal authority, for it believed the property was public land covered by Proclamation No. 1354. When the private respondent raised his claim of ownership sometime in 1979, the petitioner flatly refused the claim for PUP COLLEGE OF LAW Page 90

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compensation, nakedly insisted that the property was public land and wrongly justified its possession by alleging it had already paid "financial assistance" to Marawi City in exchange for the rights over the property. Only in 1990, after more than a decade of beneficial use, did the petitioner recognize private respondents ownership and negotiate for the voluntary purchase of the property. A Deed of Sale with provisional payment and subject to negotiations for the correct price was then executed. Clearly, this is not the intent nor the expropriation contemplated by law. This is a simple attempt at a voluntary purchase and sale. Obviously, the petitioner neglected and/or refused to exercise the power of eminent domain. Only in 1992, after the private respondent sued to recover possession and petitioner filed its Complaint to expropriate, did petitioner manifest its intention to exercise the power of eminent domain. Thus the respondent Court correctly held: "If We decree that the fair market value of the land be determined as of 1978, then We would be sanctioning a deceptive scheme whereby NAPOCOR, for any reason other than for eminent domain would occupy anothers property and when later pressed for payment, first negotiate for a low price and then conveniently expropriate the property when the land owner refuses to accept its offer claiming that the taking of the property for the purpose of the eminent domain should be reckoned as of the date when it started to occupy the property and that the value of the property should be computed as of the date of the taking despite the increase in the meantime in the value of the property." In Noble vs. City of Manila, the City entered into a lease-purchase agreement of a building constructed by the petitioners predecessor-in-interest in accordance with the specifications of the former. The Court held that being bound by the said contract, the City could not expropriate the building. Expropriation could be resorted to "only when it is made necessary by the opposition of the owner to the sale or by the lack of any agreement as to the price." Said the Court: "The contract, therefore, in so far as it refers to the purchase of the building, as we have interpreted it, is in force, not having been revoked by the parties or by judicial decision. This being the case, the city being bound to buy the building at an agreed price, under a valid and subsisting contract, and the plaintiff being agreeable to its sale, the expropriation thereof, as sought by the defendant, is baseless. Expropriation lies only when it is made necessary by the opposition of the owner to the sale or by the lack of any agreement as to the price. There being in the present case a valid and subsisting contract, between the owner of the building and the city, for the purchase thereof at an agreed price, there is no reason for the expropriation." (Italics supplied) In the instant case, petitioner effectively repudiated the deed of sale it entered into with the private respondent when it passed Resolution No. 92-121 on May 25, 1992 authorizing its president to negotiate, inter alia, that payment "shall be effective only after Agus I HE project has been placed in operation." It was only then that petitioners intent to expropriate became manifest as privat e respondent disagreed and, barely a month, filed suit.25 In the present case, to allow petitioner to use the date it constructed the tunnels as the date of valuation would be grossly unfair. First, it did not enter the land under warrant or color of legal authority or with intent to expropriate the same. In fact, it did not bother to notify the owners and wrongly assumed it had the right to dig those tunnels under their property. Secondly, the "improvements" introduced by petitioner, namely, the tunnels, in no way contributed to an increase in the value of the land. The trial court, therefore, as affirmed by the CA, rightly computed the valuation of the property as of 1992, when respondents discovered the construction of the huge underground tunnels beneath their lands and petitioner confirmed the same and started negotiations for their purchase but no agreement could be reached.26 As to the amount of the valuation, the RTC and the CA both used as basis the value of the adjacent property, Lot 1 (the property involved herein being Lots 2 and 3 of the same subdivision plan), which was valued at P1,000 per sq. meter as of 1990, as sustained by this Court in Mangondato, thus: The Second Issue: Valuation

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We now come to the issue of valuation. The fair market value as held by the respondent Court, is the amount of P1,000.00 per square meter. In an expropriation case where the principal issue is the determination of just compensation, as is the case here, a trial before Commissioners is indispensable to allow the parties to present evidence on the issue of just compensation. Inasmuch as the determination of just compensation in eminent domain cases is a judicial function and factual findings of the Court of Appeals are conclusive on the parties and reviewable only when the case falls within the recognized exceptions, which is not the situation obtaining in this petition, we see no reason to disturb the factual findings as to valuation of the subject property. As can be gleaned from the records, the court-and-the-partiesappointed commissioners did not abuse their authority in evaluating the evidence submitted to them nor misappreciate the clear preponderance of evidence. The amount fixed and agreed to by the respondent appellate Court is not grossly exorbitant. To quote: "Commissioner Ali comes from the Office of the Register of Deeds who may well be considered an expert, with a general knowledge of the appraisal of real estate and the prevailing prices of land in the vicinity of the land in question so that his opinion on the valuation of the property cannot be lightly brushed aside. "The prevailing market value of the land is only one of the determinants used by the commissioners report the other being as herein shown: xxx xxx "Commissioner Doromals report, recommending P300.00 per square meter, differs from the 2 commissioners o nly because his report was based on the valuation as of 1978 by the City Appraisal Committee as clarified by the latters chairman in response to NAPOCORs general counsels query." In sum, we agree with the Court of Appeals that petitioner has failed to show why it should be granted an exemption from the general rule in determining just compensation provided under Section 4 of Rule 67. On the contrary, private respondent has convinced us that, indeed, such general rule should in fact be observed in this case.27 Petitioner has not shown any error on the part of the CA in reaching such a valuation. Furthermore, these are factual matters that are not within the ambit of the present review. WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in C.A.-G.R. CV No. 57792 dated June 8, 2005 is AFFIRMED. Spouses ISMAEL and TERESITA MACASAET vs. Spouses VICENTE and ROSARIO MACASAET; G.R. Nos. 154391-92 September 30, 2004 The present case involves a dispute between parents and children. The children were invited by the parents to occupy the latters two lots, out of parental love and a desire to foster family solidarity. Unfortunately, an unresolved conflict terminated this situation. Out of pique, the parents asked them to vacate the premises. Thus, the children lost their right to remain on the property. They have the right, however, to be indemnified for the useful improvements that they constructed thereon in good faith and with the consent of the parents. In short, Article 448 of the Civil Code applies. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the March 22, 2002 Decision 2and the June 26, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR SP Nos. 56205 & 56467. The challenged Decision disposed as follows: PUP COLLEGE OF LAW Page 92

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"WHEREFORE, the assailed Decision is AFFIRMED with the following MODIFICATIONS: 1. Vicente and Rosario should reimburse Ismael and Teresita one -half of the value of the useful improvements introduced in the premises prior to demand, which is equivalent to P475,000.00. In case the former refuse to reimburse the said amount, the latter may remove the improvements, even though the land may suffer damage thereby. They shall not, however, cause any more impairment upon the property leased than is necessary. 2. The award of attorneys fees is DELETED. 3. The records of these consolidated cases are REMANDED to the Court of origin for further proceedings to determine the option to be taken by Vicente and Rosario and to implement the same with dispatch."4 The assailed Resolution denied petitioners Motion for Reconsideration. The Facts Petitioners Ismael and Teresita5 Macasaet and Respondents Vicente and Rosario Macasaet are first-degree relatives. Ismael is the son of respondents, and Teresita is his wife.6 On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of Lipa City an ejectment suit against the children.7 Respondents alleged that they were the owners of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. T-78521 and T-103141, situated at Banay-banay, Lipa City; that by way of a verbal lease agreement, Ismael and Teresita occupied these lots in March 1992 and used them as their residence and the situs of their construction business; and that despite repeated demands, petitioners failed to pay the agreed rental of P500 per week.8 Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that respondents had invited them to construct their residence and business on the subject lots in order that they could all live near one other, employ Marivic (the sister of Ismael), and help in resolving the problems of the family.9 They added that it was the policy of respondents to allot the land they owned as an advance grant of inheritance in favor of their children. Thus, they contended that the lot covered by TCT No. T-103141 had been allotted to Ismael as advance inheritance. On the other hand, the lot covered by TCT No. T-78521 was allegedly given to petitioners as payment for construction materials used in the renovation of respondents house. 10 The MTCC11 ruled in favor of respondents and ordered petitioners to vacate the premises. It opined that Ismael and Teresita had occupied the lots, not by virtue of a verbal lease agreement, but by tolerance of Vicente and Rosario.12 As their stay was by mere tolerance, petitioners were necessarily bound by an implied promise to vacate the lots upon demand.13 The MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on the ground that successional rights were inchoate. Moreover, it disbelieved petitioners allegation that the other parcel had been given as payment for construction materials.14 On appeal, the regional trial court15 (RTC) upheld the findings of the MTCC. However, the RTC allowed respondents to appropriate the building and other improvements introduced by petitioners, after payment of the indemnity provided for by Article 448 in relation to Articles 546 and 548 of the Civil Code. 16 It added that respondents could oblige petitioners to purchase the land, unless its value was considerably more than the building. In the latter situation, petitioners should pay rent if respondents would not choose to appropriate the building. 17 Upon denial of their individual Motions for Reconsideration, the parties filed with the CA separate Petitions for Review, which were later consolidated.18 Ruling of the Court of Appeals PUP COLLEGE OF LAW Page 93

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The CA sustained the finding of the two lower courts that Ismael and Teresita had been occupying the subject lots only by the tolerance of Vicente and Rosario.19 Thus, possession of the subject lots by petitioners became illegal upon their receipt of respondents letter to vacate it. 20 Citing Calubayan v. Pascual,21 the CA further ruled that petitioners status was analogous to that of a lessee or a tenant whose term of lease had expired, but whose occupancy continued by tolerance of the owner.22Consequently, in ascertaining the right of petitioners to be reimbursed for the improvements they had introduced on respondents properties,23 the appellate court applied the Civil Codes provisions on lease. The CA modified the RTC Decision by declaring that Article 448 of the Civil Code was inapplicable. The CA opined that under Article 1678 of the same Code, Ismael and Teresita had the right to be reimbursed for one half of the value of the improvements made. 24 Not satisfied with the CAs ruling, petitioners brought this recourse to this Court.25 The Issues Petitioners raise the following issues for our consideration: "1. a) Whether or not Section 17[,] Rule 70 of the Rules of Court on Judgment should apply in the rendition of the decision in this case; b) Whether or not the Complaint should have been dismissed; c) Whether or not damages including attorneys fees should have been awarded to herein petitioners; "2. a) Whether or not the rule on appearance of parties during the Pretrial should apply on appearance of parties during Preliminary Conference in an unlawful detainer suit; b) Whether or not the case of Philippine Pryce Assurance Corporation vs. Court of Appeals (230 SCRA 164) is applicable to appearance of parties in an unlawful detainer suit; "3. Whether or not Article 1678 of the Civil Code should apply to the case on the matters of improvements, or is it Article 447 of the Civil Code in relation to the Article 453 and 454 thereof that should apply, if ever to apply the Civil Code; "4. Whether or not the [D]ecision of the Court of Appeals is supported by evidence, appropriate laws, rules and jurisprudence; "5. Whether or not Assisting Judge Norberto Mercado of the MTCC Lipa City should be held accountable in rendering the MTCC [D]ecision; "6. Whether or not Atty. Glenn Mendoza and Atty. Andrew Linatoc of the same [l]aw office should be held accountable for pursuing the [e]jectment case[.]"26 The Courts Ruling The Petition is partly meritorious. First Issue: Ejectment

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Who is entitled to the physical or material possession of the premises? At the outset, we stress that this is the main issue in ejectment proceedings.27 In the present case, petitioners failed to justify their right to retain possession of the subject lots, which respondents own. Since possession is one of the attributes of ownership,28 respondents clearly are entitled to physical or material possession. Allegations of the Complaint Petitioners allege that they cannot be ejected from the lots, because respondents based their Complaint regarding the nonpayment of rentals on a verbal lease agreement, which the latter failed to prove. 29 Petitioners contend that the lower courts erred in using another ground (tolerance of possession) to eject them. In actions for unlawful detainer, possession that was originally lawful becomes unlawful upon the expiration or termination of the defendants right to possess, arising from an express or implied contract. 30 In other words, the plaintiffs cause of action comes from the expiration or termination of the defendants right to continue possession.31 The case resulting therefrom must be filed within one year from the date of the last demand. To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally withholding possession from the plaintiff is sufficient. The complaint may lie even if it does not employ the terminology of the law, provided the said pleading is couched in a language adequately stating that the withholding of possession or the refusal to vacate has become unlawful.32 It is equally settled that the jurisdiction of the court, as well as the nature of the action, is determined from the averments of the complaint.33 In the present case, the Complaint alleged that despite demands, petitioners "refused to pay the accrued rentals and [to] vacate the leased premises."34 It prayed that judgment be rendered "[o]rdering [petitioners] and all those claiming rights under them to vacate the properties x x x and remove the structures x x x constructed thereon."35Effectively then, respondents averred that petitioners original lawful occupation of the subject lots had become unlawful. The MTCC found sufficient cause to eject petitioners. While it disbelieved the existence of a verbal lease agreement, it nevertheless concluded that petitioners occupation of the subject lots was by mere tolerance of respondents. Basing its conclusion on the fact that the parties were close relatives, the MTCC ruled thus: "x x x [T]he parties herein are first degree relatives. Because of this relationship, this Court takes judicial notice of the love, care, concern and protection imbued upon the parents towards their [children], i.e., in the instant case, the love, care, concern and protection of the [respondents] to the [petitioners]. With this in mind, this Court is inclined to believe the position of the [petitioners] that there was no such verbal lease agreement between the parties herein that took place in 1992. x x x. "From the allegations of the [petitioners], this Court is convinced that their stay and occupancy of the subject premises was by mere tolerance of the [respondents], and not by virtue of a verbal lease agreement between them."36 Having found a cause of action for unlawful detainer, the MTCC (as well as the RTC and the CA) did not err in ordering the ejectment of petitioners as prayed for by respondents. There was no violation of Section 17 of Rule 7037 of the Rules of Court. As earlier explained, unlawful detainer was sufficiently alleged in the Complaint and duly proven during the trial. Significantly, the issue of whether there was enough ground to eject petitioners was raised during the preliminary conference.38 Not Merely Tolerated Possession

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Petitioners dispute the lower courts finding that they occupied th e subject lots on the basis of mere tolerance. They argue that their occupation was not under such condition, since respondents had invited, offered and persuaded them to use those properties.39 This Court has consistently held that those who occupy the la nd of another at the latters tolerance or permission, without any contract between them, are necessarily bound by an implied promise that the occupants will vacate the property upon demand.40 A summary action for ejectment is the proper remedy to enforce this implied obligation.41 The unlawful deprivation or withholding of possession is to be counted from the date of the demand to vacate.42 Toleration is defined as "the act or practice of permitting or enduring something not wholly approved of." 43 Sarona v. Villegas44 described what tolerated acts means, in this language: "Professor Arturo M. Tolentino states that acts merely tolerated are those which by reason of neighborliness or familiarity, the owner of property allows his neighbor or another person to do on the property; they are generally those particular services or benefits which ones property can give to another without material injury or prejudice to the owner, who permits them out of friendship or courtesy. x x x. And, Tolentino continues, even though this is continued for a long time, no right will be acquired by prescription." x x x. Further expounding on the concept, Tolentino writes: There is tacit consent of the possessor to the acts which are merely tolerated. Thus, not every case of knowledge and silence on the part of the possessor can be considered mere tolerance. By virtue of tolerance that is considered as an authorization, permission or license, acts of possession are realized or performed. The question reduces itself to the existence or non-existence of the permission."45 We hold that the facts of the present case rule out the finding of possession by mere tolerance. Petitioners were able to establish that respondents had invited them to occupy the subject lots in order that they could all live near one other and help in resolving family problems.46 By occupying those lots, petitioners demonstrated their acceptance of the invitation. Hence, there was a meeting of minds, and an agreement regarding possession of the lots impliedly arose between the parties. The occupancy of the subject lots by petitioners was not merely "something not wholly approved of" by respondents. Neither did it arise from what Tolentino refers to as "neighborliness or familiarity." In point of fact, their possession was upon the invitation of and with the complete approval of respondents, who desired that their children would occupy the premises. It arose from familial love and a desire for family solidarity, which are basic Filipino traits. Right to Use the Lots Terminated That Ismael and Teresita had a right to occupy the lots is therefore clear. The issue is the duration of possession. In the absence of a stipulation on this point, Article 1197 of the Civil Code allows the courts to fix the duration or the period. "Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. "The courts shall also fix the duration of the period when it depends upon the will of the debtor. "In every case the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them." Article 1197, however, applies to a situation in which the parties intended a period. Such qualification cannot be inferred from the facts of the present case.

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To repeat, when Vicente and Rosario invited their children to use the lots, they did so out of parental love and a desire for solidarity expected from Filipino parents. No period was intended by the parties. Their mere failure to fix the duration of their agreement does not necessarily justify or authorize the courts to do so. 47 Based on respondents reasons for gratuitously allowing petitioners to use the lots, it can be safely concluded that the agreement subsisted as long as the parents and the children mutually benefited from the arrangement. Effectively, there is a resolutory condition in such an agreement.48 Thus, when a change in the condition existing between the parties occurs -- like a change of ownership, necessity, death of either party or unresolved conflict or animosity -- the agreement may be deemed terminated. Having been based on parental love, the agreement would end upon the dissipation of the affection. When persistent conflict and animosity overtook the love and solidarity between the parents and the children, the purpose of the agreement ceased.49 Thus, petitioners no longer had any cause for continued possession of the lots. Their right to use the properties became untenable. It ceased upon their receipt of the notice to vacate. And because they refused to heed the demand, ejectment was the proper remedy against them. Their possession, which was originally lawful, became unlawful when the reason therefor -- love and solidarity -- ceased to exist between them. No Right to Retain Possession Petitioners have not given this Court adequate reasons to reverse the lower courts dismissal of their contention that Lots T-78521 and T-103141, respectively, were allegedly allotted to them as part of their inheritance and given in consideration for past debts. The right of petitioners to inherit from their parents is merely inchoate and is vested only upon the latt ers demise. Indisputably, rights of succession are transmitted only from the moment of death of the decedent. 50 Assuming that there was an "allotment" of inheritance, ownership nonetheless remained with respondents. Moreover, an intention to confer title to certain persons in the future is not inconsistent with the owners taking back possession in the meantime for any reason deemed sufficient.51 Other than their self-serving testimonies and their affidavits, petitioners offered no credible evidence to support their outlandish claim of inheritance "allocation." We also agree with the lower courts that petitioners failed to prove the allegation that, through a dation in payment, Lot T-78521 had been transferred to the latter as payment for respondents debts .52 The evidence presented by petitioners related only to the alleged indebtedness of the parents arising from the latters purported purchases and advances.53 There was no sufficient proof that respondents had entered into a contract of dation to settle the alleged debt. Petitioners even stated that there was a disagreement in the accounting of the purported debt, 54 a fact that disproves a meeting of the minds with the parents. Petitioners also admitted that a portion of the alleged debt is the subject matter of a collection case against respondents (Civil Case No. 0594-96).55 Thus, the formers allegation that the indebtedness has been paid through a dation cannot be given credence, inconsistent as it is with their action to recover the same debt. Despite their protestations, petitioners recognized the right of the parents to recover the premises when they admitted in their Position Paper filed with the MTCC that respondents had a title to the lots. "The [respondents] want to get their property because the title is theirs, the [petitioners] do not object but what is due the [petitioners] including the reparation for the tarnish of their dignity and honor must be given the [petitioners] for the benefits of their children before the premises will be turned over."56 As a rule, the right of ownership carries with it the right of possession. Second Issue: PUP COLLEGE OF LAW Page 97

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Appearance at the Preliminary Conference Section 8 of Rule 70 of the Rules of Court requires the appearance of the plaintiff and the defendant during the preliminary conference. On the basis of this provision, petitioners claim that the MTCC should have dismissed the case upon the failure of respondents to attend the conference. However, petitioners do not dispute that an attorneyin-fact with a written authorization from respondents appeared during the preliminary conference.57 The issue then is whether the rules on ejectment allow a representative to substitute for a partys personal appearance. Unless inconsistent with Rule 70, the provisions of Rule 18 on pretrial applies to the preliminary conference.58Under Section 4 of this Rule, the nonappearance of a party may be excused by the showing of a valid cause; or by the appearance of a representative, who has been fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of documents.59 Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the spirit behind the exception to personal appearance under the rules on pretrial is applicable to the preliminary conference. If there are valid reasons or if a representative has a "special authority," a partys appearance may be waived. As petitioners are challenging only the applicability of the rules on pretrial to the rule on preliminary conference, the written authorization from respondents can indeed be readily considered as a "special authorization." Third Issue: Rights of a Builder in Good Faith As applied to the present case, accession refers to the right of the owner to everything that is incorporated or attached to the property.60 Accession industrial -- building, planting and sowing on an immovable -- is governed by Articles 445 to 456 of the Civil Code. Articles 447 and 1678 of the Civil Code Inapplicable To buttress their claim of reimbursement for the improvements introduced on the property, petitioners cite Article 447.61 They allege that the CA erred in applying Article 1678, since they had no lease agreement with respondents. We clarify. Article 447 is not applicable, because it relates to the rules that apply when the owner of the property uses the materials of another. It does not refer to the instance when a possessor builds on the property of another, which is the factual milieu here. In view of the unique factual setting of the instant case, the contention of petitioners regarding the inapplicability of Article 1678 deserves attention. The CA applied the provisions on lease, because it found their possession by mere tolerance comparable with that of a lessee, per the pronouncement in Calubayan v. Pascual, 62 from which we quote: "x x x. It has been held that a person who occupies the land of another at the latters tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate upon demand, failing which a summary action for ejectment is the proper remedy against them. The status of defendant is analogous to that of a lessee or tenant whose term of lease has expired but whose occupancy continued by tolerance of the owner. In such a case, the unlawful deprivation or withholding of possession is to be counted from the date of the demand to vacate."63 (Emphasis in the original.) As explained earlier, Ismael and Teresitas possession of the two lots was not by mere tolerance, a circumstance that negates the applicability of Calubayan.

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Article 448 Applicable On the other hand, when a person builds in good faith on the land of another, the applicable provision is Article 448, which reads:64 "Article 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof." This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto. 65 It does not apply when the interest is merely that of a holder, such as a mere tenant, agent or usufructuary.66 From these pronouncements, good faith is identified by the belief that the land is owned; or that -- by some title -- one has the right to build, plant, or sow thereon.67 However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this limited definition. Thus, in Del Campo v. Abesia,68 this provision was applied to one whose house -- despite having been built at the time he was still co-owner -- overlapped with the land of another.69 This article was also applied to cases wherein a builder had constructed improvements with the consent of the owner. The Court ruled that the law deemed the builder to be in good faith.70 In Sarmiento v. Agana,71 the builders were found to be in good faith despite their reliance on the consent of another, whom they had mistakenly believed to be the owner of the land. 72 Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of this case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the children occupied the lots upon their invitation, the parents certainly knew and approved of the construction of the improvements introduced thereon.73 Thus, petitioners may be deemed to have been in good faith when they built the structures on those lots. The instant case is factually similar to Javier v. Javier. 74 In that case, this Court deemed the son to be in good faith for building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land upon which it was built. Thus, Article 44875 was applied. Rule on Useful Expenses The structures built by petitioners were "useful" improvements, because they augmented the value or income of the bare lots.76 Thus, the indemnity to be paid by respondents under Article 448 is provided for by Article 546, which we quote: "Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain the thing until he has been reimbursed therefor. "Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired by reason thereof." Consequently, respondents have the right to appropriate -- as their own -- the building and other improvements on the subject lots, but only after (1) refunding the expenses of petitioners or (2) paying the increase in value acquired by the properties by reason thereof. They have the option to oblige petitioners to pay the price of the land, unless its value is considerably more than that of the structures -- in which case, petitioners shall pay reasonable rent. PUP COLLEGE OF LAW Page 99

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In accordance with Depra v. Dumlao,77 this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that respondents would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. We disagree with the CAs computation of useful expenses, which were based only on petitioners bare allegations in their Answer.78 Ruling on Improvement Justified While, ordinarily, the jurisdiction of the MTCC on ejectment proceedings is limited to the issue of physical or material possession of the property in question, this Court finds it necessary to abbreviate the issue on the improvements in relation to Article 448. First, the determination of the parties right to those improvements is intimately connected with the MTCC proceedings in the light of the ejectment of petitioners. Second, there is no dispute that while they constructed the improvements, respondents owned the land. Third, both parties raised no objection when the RTC and the CA ruled accordingly on this matter. Equitable considerations compel us to settle this point immediately, pro hoc vice, to avoid needless delay. Both parties have already been heard on this issue; to dillydally or equivocate would not serve the cause of substantial justice. Other Issues Raised Given the foregoing rulings, it is no longer necessary to ad dress petitioners allegation that the MTCC judge and respondents lawyers should be respectively held personally accountable for the Decision and for filing the case.79The insinuation of petitioners that the lawyers manipulated the issuance of a false barangay certification is unavailing.80 Their contention that respondents did not attend the barangay conciliation proceedings was based solely on hearsay, which has little or no probative value.81 WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with the followingMODIFICATIONS: 1. The portion requiring Spouses Vicente and Rosario Macasaet to reimburse one half of the value of the useful improvements, amounting to P475,000, and the right of Spouses Ismael and Rosita Macasaet to remove those improvements (if the former refuses to reimburse) is DELETED. 2. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code, specifically to the following matters: a. Spouses Vicente and Rosario Macasaets option to appropriate -- as their own -- the improvements on the lots, after paying the indemnity, as provided under Article 546 in relation to Article 448 of the Civil Code; or in requiring Spouses Ismael and Rosita Macasaet to pay for the value of the lots, unless it is considerably more than that of the improvements, in which case petitioners shall pay reasonable rent based upon the terms provided under the Civil Code b. The value of the useful expenses incurred by Spouses Ismael and Rosita Macasaet in the construction of the improvements on the lots c. The increase in value acquired by the lots by reason of the useful improvements d. Spouses Vicente and Rosario Macasaets choice of type of indemnity to be paid (whether b or c) e. Whether the value of the lots is considerably more than that of the improvements built thereon

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THE GOVERNMENT OF THE PHILIPPINE ISLANDS vs. COLEGIO DE SAN JOSE, ET AL; G.R. No. L30829 August 28, 1929 This is an appeal taken by the Government of the Philippine Islands from a decision of the Court of First Instance of Laguna, rendered in cadastral case No. 30, G. L. R. O. Record No. 359 of the municipality of San Pedro, Province of Laguna, ordering the registration of the two parcels of land known as lots 1 and 2 described in the application, in favor of the Colegio de San Jose in accordance with the provisions of law, without special pronouncement as to the costs, it being understood, however, that the lease of said lands executed by the aforesaid Colegio de San Jose in favor of Carlos Young y Baldwin is valid and subsists under the terms and conditions set forth in the instruments, Exhibits Y-1 and Y-2, and providing for the issuance of the proper decree once said decision becomes final. In support of the appeal, the appellant assigns the following alleged errors as committed by the court below in its judgment, to wit: 1. The lower court erred in not holding that the parcels of land in question are part of the bed of Laguna Lake and, therefore, belong to the public domain. 2. The lower court erred in finding that said lands are included in the title of the appellee and in finding that the appellee has been in the possession and occupation of the same. 3. The lower court erred in qualifying as extraordinary inundations the fact that the lands in dispute are under water during the rainy season. 4. The lower court erred in decreeing the registration of the lands in dispute to the appellee and in denying the appellant's motion for a new trial. The pertinent facts necessary to decide the questions of fact and of law raised in the instant appeal, are as follows: During the months of September, October and November every year, the waters of Laguna de Bay cover a long strip of land along the eastern border of the two parcels of land in question, the width of which strip varies from 50 to 70 meters according to the evidence of the Colegio de San Jose and up to the eastern border of the pass claimed by the municipality of San Pedro Tunasan, according to some witnesses for the Insular Government; and, according to other witnesses for the Insular Government, the flooded strip includes the aforementioned pass itself, which is usually completely covered with water, so that the people can fish in said flooded strip. The claimant Colegio de San Jose contends, and its evidence tends to prove, that the above-named parcels of land are a part of the Hacienda de San Pedro Tunasan belonging to said claimant, which has been in possession thereof since time immemorial by means of its tenants or lessees and farmers. On the other hand, the Government of the Philippine Islands contends that the said two parcels of land belong to the public domain, and its evidence tends to prove that they have always been known as the shores of Laguna de Bay, and they are situated alongside the highway running parallel to said shore; that the water of the lake has receded a great distance on that side; that said parcels of land had been under water formerly; that at present, during the rainy season, the water of the lake reaches the highway, and that when the water recedes the people of the place occupy and cultivate said lands during the dry season. The only question to be decided in the present appeal is whether the two aforesaid parcels of land in controversy belong to the Hacienda de San Pedro Tunasan and are owned by the claimant Colegio de San Jose, or whether they belong to the public domain as a part of the bed of Laguna de Bay. It is of primary importance to determine whether the body of water called Laguna de Bay is naturally and legally a lake or a lagoon.

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The Enciclopedia Juridica Espanola, volume XXI, pages 124 and 125, defines "lake" and "lagoon" as follows: LAKE. A body of water formed in depressions of the earth. Ordinarily fresh water, coming from rivers, brooks, or springs, and connected with the sea by them. LAGOON. A small lake, the hollow bed of which is bounded by elevations of land. Laguna de Bay is a body of water formed in depressions of the earth; it contains fresh water coming from rivers and brooks or springs, and is connected with Manila Bay by the Pasig River. According to the definition just quoted, Laguna de Bay is a lake. Inasmuch as Laguna de Bay is a lake, we must resort to the legal provisions governing the ownership and use of lakes and their beds and shores, in order to determine the character and ownership of the parcels of land in question. Article 407 of the Civil Code says the following in its pertinent part: ART. 407. The following are of public ownership: xxx xxx xxx

4. Lakes and ponds formed by nature on public lands, and their channels. xxx xxx xxx

And article 44 of the Law of Waters of August 3, 1866, provides as follows: ART. 44. Natural ponds and lakes existing upon public lands and fed by public waters, belong to the public domain. xxx xxx xxx

It is beyond discussion that Laguna de Bay belongs to the public domain, being a natural lake existing upon public lands, and fed by public waters from rivers, brooks and springs. Now then, what is the bed of Laguna de Bay? Article 74 of the Law of Waters cited above defines the bed of lake as follows: ART. 74. The natural bed or basin of lakes, ponds, or pools, is the ground covered by their waters when at their highest ordinary depth. This definition raises the question: Which is the natural bed or basin of Laguna de Bay? The evidence shows tat during the dry season, that is, during the months of December, January, February, March, April, May, June, July and August, the water of the lake at its highest depth reaches no farther that the line forming the northeastern boundary of the two parcels of land in controversy, and that it is only during the wet season, that is, during the months of September, October, and November, that said water rises to the highway, completely covering said parcels of land. Therefore, the waters of Laguna de Bay have two different levels during the year: One during the dry season, which obtains during nine months, and the other during the wet season, which continues for three months. Which of these two heights marks the land limit of the waters of Laguna de Bay, that is, PUP COLLEGE OF LAW Page 102

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which of them forms its natural bed or basin? The law says, the highest ordinary depth. Now then, which of the two aforesaid depths of the waters of Laguna de Bay is the ordinary one? The word "ordinary" is defined in the Dictionary of the Spanish Academy as follows: ORDINARY. Not exceeding the average; common, natural, occurring always or most of the time; not going beyond what happens or takes place. The word extraordinary is defined in the same dictionary as follows: EXTRAORDINARY. Uncommon, transcending the general rule, order or measure; exceeding, surpassing, or going beyond that which is ordinary, commonly met with, current, settled, or admitted by the majority. According to the foregoing definitions of the words "ordinary" and "extraordinary," the highest depth of the waters of Laguna de Bay during the dry season is the ordinary one, and the highest depth they attain during the rainy season is the extraordinary one; inasmuch as the former is the one which is regular, common, natural, which occurs always or most of the time during the year, while the latter is uncommon, transcends the general rule, order of measure, and goes beyond that which is the ordinary depth. If, according to the definition given by article 74 of the Law of Waters quoted above, the natural bed or basin of the lakes is the ground covered by their waters when at their highest ordinary depth, the natural bed or basin of Laguna de Bay is the ground covered by its waters when at their highest depth during the dry season, that is, up to the northeastern boundary of the two parcels of land in question. Inasmuch as, according to article 407 of the Civil Code, cited above, lakes and their beds belong to the public domain, and inasmuch as, according to article 74 of the Law of Waters cited above, the bed of lake is the ground covered by its waters at their highest ordinary depth; whereas the waters of Laguna de Bay at their highest depth reach no farther than the northeastern boundary of the two parcels of land in question, said parcels are outside said bed and, consequently, do not belong to the public domain. The Government of the Philippine Islands also contends that as the waters of Laguna de Bay have receded very much, as a result of which the two parcels of land under discussion, which had been under water before, were left uncovered, the claimant Colegio de San Jose which owned the estate bordering upon said Laguna de Bay, did not acquire said two parcels of land, in accordance with the provisions of article 367 of the Civil Code, as follows: ART. 367. The owners of estates bordering on ponds or lagoons, do not acquire the land left dry by the natural decrease of the waters, nor lose those inundated by them in extraordinary floods. As may be seen, the legal provision quoted above, cited by the appellant in support of its contention, refers to ponds and lagoons, and has therefore no application to the case at bar, which refers to a lake, a lagoon being legally distinct in character from a lake. Having pointed out that the inundations of the two parcels of land in question during the months of September, October and November, is extraordinary, the legal provision applicable to the case is that contained in article 77 of the aforesaid Law of Waters, which reads: ART. 77. Lands accidentally inundated by the waters of lakes, or by creeks, rivers, and other streams, shall continue to be the property of their respective owners. If, as we have seen, the two parcels of land in litigation form no part of the bed of Laguna de Bay, and consequently, do not belong to the public domain, they must belong to the claimant Colegio de San Jose as a part of the Hacienda de San Pedro Tunasan, owned by it, the northeastern part of which borders on said lake, and in accordance with the legal provision just quoted, the fact that they are inundated by its waters during extraordinary risings, which take place during the months of September, October and November, does not deprive said claimant of the ownership thereof. PUP COLLEGE OF LAW Page 103

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Article 84 of the said Law of Waters further provides: ART 84. Accretions deposited gradually upon lands contiguous to creeks, streams, rivers, and lakes, by accessions or sediments from the waters thereof, belong to the owners of such lands. xxx xxx xxx

Even if, therefore, the two parcels of land in litigation were considered as accretions gradually deposited by accessions or sediments from the waters of Laguna de Bay, they would still, according to the legal provision just quoted, belong to the claimant Colegio de San Jose as owner of the lands bordering on said Laguna de Bay. The appellant also contends that the two parcels of land form a part of the shores of Laguna de Bay and are therefore of public ownership, citing paragraph 3 of article 1 of the Law of Waters, which says: 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 is the line reached by the highest equinoctial 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. As the court below correctly held, this legal provision refers to the waters of the sea, being included under Title I, which treats of the ownership and use of said waters of the sea. Lake waters, being terrestrial waters, their ownership and use are governed by Title II of said Law of Waters. In the same manner as the shore of the sea is that space covered and uncovered by the waters during the tides, its interior or terrestrial limit being the line reached by its highest ordinary depth. In the instant case, the interior or terrestrial limit of the Laguna de Bay is the ground covered by its waters in its highest ordinary depth, that is, up to the northeastern boundary of the two parcels of land in question. Summarizing, we find: (1) That the natural bed or basin of Laguna de Bay is the ground covered by its waters at their highest ordinary depth during the dry season, that is, during the months of December, January, February, March, April, May, June, July and August; (2) that the highest depth reached by said waters during the rainy season, or during the months of September, October and November, is extraordinary; (3) that the two parcels of land in litigation form an integral part of the Hacienda de San Pedro Tunasan belonging to the claimant Colegio de San Jose; (4) that said two parcels of land, being accidentally inundated by the waters of Laguna de Bay continue to be the property of the claimant Colegio de San Jose (art. 77, Law of Waters of August 3, 1866); (5) that even supposing that the said two parcels of land have been formed by accession or deposits of sediment by the waters of said Laguna de Bay, they still belong to the said claimant Colegio de San Jose, as owner of the land of the Hacienda de San Pedro Tunasan, bordering on said Laguna de Bay (art. 84, Law of Waters of August 3, 18660; (6) that the provisions of the Law of Waters regulating the ownership and use of the waters of the sea are not applicable to the ownership and use of lakes, which are governed by special provisions. In the view of the foregoing considerations, we are of the opinion and so hold, that the judgment appealed from should be affirmed, without special pronouncements as to costs. So ordered.

CO- OWNERSHIP:
THE HEIRS OF SALUD DIZON SALAMAT vs. NATIVIDAD DIZON TAMAYO; G.R. No. 110644 October 30, 1998

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Before us is a petition for certiorari under Rule 45 of the Rules of Court seeking the reversal of the decision rendered by the Court of Appeals dated June 15, 1993. Agustin Dizon died intestate on May 15, 1942 leaving behind his five children Eduardo, Gaudencio, Salud, Valenta and Natividad as surviving heirs. Among the properties left by the decedent was a parcel of land in Barrio San Nicolas, Hagonoy, Bulacan, with an area of 2,188 square meters covered by Original Certificate of Title No. 10384. 1 On January 8, 1944, Eduardo sold his hereditary rights in the sum of P3,000 to his sister Salud Dizon Salamat. The sale was evidenced by a private document bearing the signatures of his sisters Valenta and Natividad as witnesses. 2 On June 2, 1949, Gaudencio likewise sold his hereditary rights for the sum of P4,000 to his sister Salud. The sale was evidenced by a notarized document which bore the signature of Eduardo Dizon and a certain Angela Ramos as witnesses. 3 Gaudencio died on May 30, 1951 leaving his daughters Priscila D. Rivera and Maria D. Jocson as heirs. Sometime in 1987, petitioners instituted an action for compulsory judicial partition of real properties registered in the name of Agustin Dizon with the Regional Trial Court, Branch 18 of Malolos, Bulacan. The action was prompted by the refusal of herein respondent Natividad Dizon Tamayo to agree to the formal distribution of the properties of deceased Agustin Dizon among his heirs. Respondent's refusal stemmed from her desire to keep for herself the parcel of land covered by OCT 10384 where she presently resides, claiming that her father donated it to her sometime in 1936 with the conformity of the other heirs. The subject property is also declared for taxation purposes under Tax Declaration No. 10376 in the name of respondent. The trial court noted that the alleged endowment which was made orally by the deceased Agustin Dizon to herein respondent partook of the nature of a donation which required the observance of certain formalities set by law. Nevertheless, the trial court rendered judgment in favor of respondent, the dispositive portion of which reads as follows: WHEREFORE, finding that the partition of the estate of Agustin Dizon is in order, let a project of partition be drawn pursuant to Sec 2, Rule 69, Rules of Court assigning to each heir the specific share to which he is entitled taking into consideration the disposition made in favor of Salud Dizon Salamat and the adjudication of Lot 2557, Hagonoy Cadastre 304-D owned by Natividad Dizon Tamayo, together with the improvements thereon, in her favor and the house owned by Valenta Dizon Garcia, executing, if necessary, proper instruments of conveyance for confirmation and approval by the Court. Parties are enjoined to draw the prospect of partition as equitably and equally as possible with the least inconvenience and disruption of those in possession or in actual occupation of the property. Should the parties fail to come up with an acceptable of partition, the Court will appoint commissioners as authorized by Sec 3, Rule 69, Rules of Court, who will be guided by the dispositive portion hereof. All costs and expenses incurred in connection with the partition are to be shared equally by the parties. SO ORDERED. Petitioners contend that Lot 2557, Cad 304-D, described and covered by OCT 10384 in the name of the heirs of Agustin Dizon is part of the Dizon estate while respondent claims that her father donated it to her sometime in 1936 with the consent of her co-heirs. In support of her claim, respondent Natividad presented a private document of conformity which was allegedly signed and executed by her elder brother, Eduardo, in 1936. Petitioners, however, question the authenticity of the document inasmuch as it is marred by unexplained erasures and alterations. PUP COLLEGE OF LAW Page 105

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The Court of Appeals, in affirming the decision of the RTC, stated that notwithstanding the unexplained erasures and alterations, a cursory reading of the signed statement of Eduardo Dizon, which execution is undisputed, showed that there was an oral donation of the litigated land from Agustin Dizon to Natividad Dizon Tamayo 4 in 1936. The Court of Appeals further stated that the attestation by Eduardo, of the oral donation of the subject land made by his father to respondent Natividad, in 1936, coupled with the tax declaration and payment of taxes in respondent's name would show that the trial court did not err in ruling that the subject land should pertain to Natividad Tamayo as inheritance from her parents. We reverse. Art 749 of the Civil Code reads: In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form and this step shall be noted in both instruments. It is clear from Article 749 that a transfer of real property from one person to another cannot take effect as a donation unless embodied in a public document. The alleged donation in the case at bar was done orally and not executed in a public document. Moreover, the document which was presented by respondent in support of her claim that her father donated the subject parcel of land to her was a mere private document of conformity which was executed by her elder brother, Eduardo in 1956.5 It may not be amiss to point out that the brothers Eduardo and Gaudencio had already ceded their hereditary interests to petitioner Salud Dizon Salamat even before 1950. The Court of Appeals, however, placed much reliance on the said document and made the dubious observation that ". . . a cursory reading of the signed statement of Eduardo Dizon, which execution is undisputed, shows that there was an oral donation . . . ." Significantly, the document relied upon by the Court of Appeals could hardly satisfy the requirements of the rule on ancient documents on account of unexplained alterations. An anciert document refers to a private document which is more than thirty (30) years old, produced from a custody in which it would naturally be found if genuine, and is unblemished by alteration or circumstances of suspicion. 6 To repeat, the document which was allegedly executed by Eduardo was marred by unexplained erasures and alterations. While the document was originally penned in black ink, the number thirty-six (36) in blue ink was superimposed on the number fifty-six (56) to make it appear that the document was executed in 1936 instead of in 1956. Moreover, a signature was blotted out with a black pentel pen and the three other signatures 7 of the alleged witnesses to the execution of the document at the lower portion of the document were dated June 1, 1951. This could only mean that the witnesses attested to the veracity of the document 5 years earlier, if the document was executed in 1956 or 15 years later, if we are to give credence to respondent's claim, that the document was executed in 1936. Curiously, two of the signatories, namely, Priscila D. Rivera and Maria D. Jocson signed the document as witnesses two days after the death of their father Gaudencio, who, as earlier mentioned, had already sold his hereditary rights to his sister Salud in 1949. PUP COLLEGE OF LAW Page 106

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In any case, assuming that Agustin really made the donation to respondent, albeit orally, respondent cannot still claim ownership over the property. While it is true that a void donation may be the basis of ownership which may ripen into title by prescription, 8 it is well settled that possession, to constitute the foundation of a prescriptive right, must be adverse and under a claim of title. Respondent was never in adverse and continous possession of the property. It is undeniable that petitioners and respondent, being heirs of the deceased, are co-owners of the properties left by the latter. A co-ownership is a form of a trust, with each owner being a trustee for each other 9 and possession of a co-owner shall not be regarded as adverse to other co-owner but in fact is beneficial to them. Mere actual possession by one will not give rise to the inference that the possession was adverse because a co-owner is, after all, entitled to possession of the property. In the case of Salvador v. Court of Appeals, 10 we had occasion to state that a mere silent possession by a co-owner, his receipt of rents, fruits or profits from the property, the erection of buildings and fences and the planting of trees thereon and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out by clear and convincing evidence that he exercised acts of possession which unequivocably constituted an ouster or deprivation of the rights of the other co-owners. The elements in order that a co-owner's possession may be deemed adverse to the cestui que trust or the co-owner are: (1) that he has performed unequivocal acts of repudiation amounting to ouster of the cestui que trustor other co-owners (2) that such positive acts or repudiation have been made known to the cestui que trust or other coowners and (3) that the evidence thereon must be clear and convincing. 11 Not one of the aforesaid requirements is present in the case at bar. There are two houses standing on the subject property. One is the house where respondent presently resides while the other is a house built by respondent's sister Valenta. Records show that the house on Lot 227 where the respondent lives is actually the ancestral house of the Dizons although respondent has remodelled it, constructed a piggery and has planted trees thereon. 12Respondent herself testified: xxx xxx xxx Q: Now who is in possession of this particular residential land in Bo. San Nicolas, Hagonoy, Bulacan? A: I am in possession of that land, Sir. Q: Do you have your residential house there? A: Yes, sir. Q: Now, you said that you have your residential house there, since when have you stayed there? A: I was born there, Sir. Q: And you are staying there up to the present? A: Yes, Sir. xxx xxx xxx. 13 It is obvious from the foregoing that since respondent never made unequivocal acts of repudiation, she cannot acquire ownership over said property through acquisitive prescription. The testimony of her son that she merely PUP COLLEGE OF LAW Page 107

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allowed her sister Valenta to build a house on the lot 14 is pure hearsay as respondent herself could have testified on the matter but chose not to. Finally, the fact that the subject property is declared for taxation purposes in the name of respondent who pays realty taxes thereon under Tax Declaration No. 14376 is of no moment. It is well settled that tax declarations or realty tax payments are not conclusive evidence of ownership. 15 As regards the improvements introduced by the respondent on the questioned lot, the parties should be guided by Article 500 of the Civil Code which states that: "Upon partition, there shall be a mutual accounting for benefits received and reimbursements for expenses made. . . ." WHEREFORE, the decision of the Court of Appeals is hereby REVERSED. Lot 2557, Hagonoy Cadastre 304-D covered by Original Certificate of Title No. 10384 is hereby declared to belong the estate of Agustin Dizon. No costs. REMEDIOS G. SALVADOR and GRACIA G. SALVADOR vs. COURT OF APPEALS; G.R. No. 109910 April 5, 1995 Assailed in this petition is the legal determination made by the Court of Appeals on the issues of which portion of Lot No. 6080 and Lot No. 6180 formed part of the conjugal assets of the spouses Pastor Makibalo and Maria Yabo, and of whether or not the rights of Pastor's co-heirs in the estate of Maria Yabo were extinguished through prescription or laches. Alipio Yabo was the owner of Lot No. 6080 and Lot No. 6180 situated in Barrio Bulua, Cagayan de Oro City, containing an area of 1,267 and 3,816 square meters, respectively. Title thereto devolved upon his nine children, namely, Victoriano, Procopio, Lope, Jose, Pelagia, Baseliza, Francisca, Maria, and Gaudencia, upon his death sometime before or during the second world war. On 28 April 1976, Pastor Makibalo, who is the husband of Maria Yabo, one of Alipio's children, filed with the then Court of First Instance of Misamis Oriental a complaint, docketed as Civil Case No. 5000, against the spouses Alberto and Elpia Yabo for "Quieting of Title, Annulment of Documents, and Damages." In the complaint, he alleged that he owned a total of eight shares of the subject lots, having purchased the shares of seven of Alipio's children and inherited the share of his wife, Maria, and that except for the portion corresponding to Gaudencia's share which he did not buy, he occupied, cultivated, and possessed continuously, openly, peacefully, and exclusively the two parcels of land. He then prayed that he be declared the absolute owner of 8/9 of the lots in question. 1 On 8 October 1976, the grandchildren and great-grandchildren of the late Alipio Yabo 2 lodged with the same court a complaint for partition and quieting of title with damages, 3 docketed as Civil Case No. 5174, against Pastor Makibalo, Enecia Cristal, and the spouses Eulogio and Remedies Salvador. They alleged that Lot No. 6080 and Lot No. 6180 are the common property of the heirs of Alipio Yabo, namely, the plaintiffs, defendant Enecia Cristal, Maria Yabo and Jose Yabo, whose share had been sold to Alberto Yabo; that after Alipio's death, the spouses Pastor and Maria Makibalo, Enecia Cristal and Jose Yabo became the de facto administrators of the said properties; and that much to their surprise, they discovered that the Salvador spouses, who were strangers to the family, have been harvesting coconuts from the lots, which act as a cloud on the plaintiffs' title over the lots. The plaintiffs then prayed that (a) they, as well as defendant Pastor Makibalo, in representation of his wife, and Enecia Cristal, in representation of Gaudencia, be declared as the owners of the lots; (b) the Salvador spouses be declared as having no rights thereto except as possible assignees of their co-defendants, Pastor Makibalo and Enecia Cristal; (c) the lots be partitioned according to law among the aforementioned co-owners; and (d) the defendants be made to pay for the value of the fruits they harvested from the lots and for moral and exemplary damages, attorney's fees, expenses of the litigation, and costs of the suit. The two cases were consolidated and jointly heard by Branch 5 of the Court of First Instance of Cagayan de Oro City. PUP COLLEGE OF LAW Page 108

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By evidence, Pastor, Makibalo sought to prove the following allegations: He was married to Maria Yabo who died on 17 March 1962. 4 In August 1949, Jose and Victoriano, both surnamed Yabo, sold their respective shares in the disputed lots to one Pedro Ebarat, and in 1952 the latter sold both shares to Pastor Makibalo. 5 Ebarat formalized this conveyance by executing an Affidavit of Waiver and Quitclaim dated 30 May 1969 in favor of Pastor. 6 On 16 January 1951, the heirs of the late Lope Yabo sold Lope's shares in the litigated properties to one Dominador Canomon, 7 who, in turn, sold the same to Pastor. 8 Canomon afterwards executed an Affidavit of Waiver and Quitclaim in favor of the latter. 9 Pastor Makibalo likewise purchased the shares of Baseliza in the two lots in 1942, of Procopio in 1957, of Francisca in 1958, and of Pelagia in 1967. The only share he did not buy was that of Gaudencia. After every purchase, he took possession of the portions bought and harvested the products thereof. 10 In 1966, Pastor sold back to Alberto a portion of Lot No. 6180 which was formerly the share of Alberto's father, Procopio. 11 In December 1968, Pastor mortgaged the two lots to the spouses Eulogio and Remedios Salvador. 12 On 26 September 1978, he executed a document denominated as a "Confirmation and Quitclaim" whereby he waived all his rights, interests, and participation in the lots in favor of the Salvador spouses. 13 On the other hand, by their evidence, l4 the spouses Alberto and Elpia Yabo tried to prove that they had repurchased from Pastor Makibalo the share of Procopio, which was previously sold to Pastor, and had bought the shares of Jose and Maria. 15 Filoteo Yabo denied having sold the share of his father, Lope Yabo, in the contested lots and disowned his signature and those of his mother, brothers, and sisters appearing at the back of Exhibit "C". 16 Ignacio Yabo testified that his father, Victoriano Yabo, did not know how to write and sign his name. He further declared that he had no knowledge that his father affixed his thumbmark in the document marked as Exhibit "A" purporting to alienate his father's share in the disputed lots. l7 On 15 January 1983, the trial court rendered its decision 18 holding as follows: Assuming that the thumbmark on the typewritten name "Jose Yabo" in Exh. 3 was that of Jose Yabo, Alberto Yabo and Elpia R. Yabo purchased the share of Jose Yabo in bad faith because they knew before and up to the execution of Exh. 3 on October 24, 1972 that Jose Yabo was no longer the owner of that area because from the documents she borrowed from Mrs. Salvador they came to know that Jose Yabo had sold his shares to Pedro Ebarat, and they have seen that Pastor Makibalo has been in possession of those shares together with the seven others exclusively as owner, he having mortgaged them to Mrs. Salvador. As Jose Yabo was no longer the owner of the one-ninth (1/9) shares which he sold to Alberto Yabo and Elpia Yabo under Exh. 3, the sale is null and void, and Alberto and Elpia acquired nothing because Jose Yabo had no more title, right or interest to dispose of. ... Pastor Makibalo had been in possession of Jose Yabo's share since 1949 after purchasing it from Ebarat, and has been in possession thereof up to September 26, 1978 when he sold it to the spouses Eulogio Salvador and Remedios Salvador, who are now in possession of the same.

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Exh. A, evidencing the sale of Victoriano Yabo's share to Pedro Ebarat was identified by the latter who testified that he sold it to Pastor Makibalo in 1951. Exh. A is an ancient document 1949 when the document came to existence up to now is more than 30 years, and the document had been in the possession of Pastor Makibalo, then Remedios Salvador who had interest in its preservation. As regards the shares of Lope Yabo, the same had been sold by his surviving spouse Juana Legaspi, and his children Filoteo, Andresa, Jovita, Bonifacio, and Rundino for P105.00 on January 16, 1951 to Dominador Conomon (Exh. C and C-1), who in turn sold it to Pastor Makibalo in 1952, executing a formal Deed of Waiver and Quitclaim on May 30, 1969 (Exh. D). Exh. C is an ancient document, being more than 30 years old and has been in the possession of Pastor Makibalo and then the spouses Eulogio and Remedios Salvador who had an interest in its preservation. The claim of Filoteo Yabo that the signatures appearing in Exh. C are not his and those of his brothers and sisters are of no avail, for if they were not the ones who affixed those signatures and so they did not sell the shares of their father Lope Yabo, why did they not then take possession of said shares they remained silent from 1951 to September 16, 1976 a period of 25 years. They are now [e]stopped by laches. And as regards the shares of Baseliza, Francisca and Pelagia, there is no evidence presented to effectively rebut the testimony of Pastor Makibalo that he acquired the shares of Baseliza Yabo in 1942 by changing it with a buffalo; that he bought the shares of Francisca Yabo in 1958 and that he bought the shares of Pelagia Yabo in 1967; Pastor Makibalo had been in possession of these shares from the time he acquired them, continuously, adversely, openly, and peacefully, as owner up to the time he sold his rights and interest therein to the spouses Eulogio and Remedies Salvador. The heirs of Baseliza, Francisca and Pelagia have not taken any step to protect their rights over those shares for over 40 years in the case of Baseliza's share, for about 20 years in the case of Francisca's share, and for more than 10 years in the case of Pelagia's share. Laches, likewise has rendered their rights stale. On March 10, 1966 Pastor Makibalo sold back to Alberto Yabo the share of Procopio Yabo in Lot 6180 (Exh. 1 and 2), but there is nothing to show that. Pastor Makibalo also sold back Procopio's share in Lot 6080. So then, by purchase, Pastor Makibalo and Maria Yabo acquired the shares of Baseliza, Victoriano, Jose, Lope, Procopio and Francisca, or six (6) shares from Lots 6080 and 6180. These belonged to the conjugal partnership of Pastor Makibalo and Maria Yabo. Maria Yabo had also a share from Lots 6080 and 6180, and Pastor Makibalo acquired the shares of Pelagia Yabo in both Lots 6080 and 6180. All in all; Pastor Makibalo acquired eight shares in both Lot 6080 and 6180. While Maria Yabo died on March 17, 1962, and so one-fourth (1/4) of the shares of Baseliza, Victoriano, Jose, Lope, and Francisca, or one-fourth of five-ninth (5/9) of both lots and one-fourth (1/4) of Lot 6080 should go to the children of the brothers and sisters of Maria Yabo by virtue of the provisions of Article 1001 of the New Civil Code, the latter have lost their rights thereto by laches for their inaction for a very long period and their rights have become stale. On the other hand, Pastor Makibalo who had been in possession of the whole of the eight shares in both Lots 6080 and 6180, enjoying the fruits thereof exclusively, uninterruptedly, publicly, peacefully, and continuously from the death of Maria Yabo up to the filing of the complaint in Civil Case No. 5174 on October 8, 1976, or a period of 14 years, had acquired title to the whole of the eight shares in Lot 6080 and seven shares in Lot 6180 (the share of Procopio in Lot 6180 had been sold back to Alberto Yabo). IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered finding Pastor Makibalo, now Eulogio Salvador and Remedios Salvador the owner of eight (8) shares, equivalent to eight-ninth (8/9) of Lot No. 6080, and of seven (7) shares, equivalent to seven-ninth (7/9) of Lot No. 6180, and PUP COLLEGE OF LAW Page 110

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therefore, ordering the partition of Lot 6080 so that the one-ninth (1/9) alloted to Gaudencia Yabo will go to her heirs or their assigns, and the remaining eight-ninth (8/9) will go to the spouses Eulogio Salvador and Remedios Salvador, as successor of Pastor Makibalo, and the partition of Lot 6180 so that the seven-ninth (7/9) portion which formerly belonged to Baseliza, Victoriano, Jose, Lope, Maria, Francisca, and Pelagia will go to the spouses Eulogio and Remedios Salvador, the oneninth (1/9) which formerly belonged to Procopio, will go to Alberto Yabo, and the remaining oneninth (1/9) which formerly belonged to Gaudencia, will go to Gaudencia's heirs or their assigns. Doc. No. 720, recorded on page 28 of Notarial Register No. VII, and acknowledged before Notary Public Isidro S. Baculio (Exh. E) [purportedly executed by Maria Yabo and Pastor Makibalo] is hereby declared null and void, and so the Office of the City Fiscal is directed to cause an investigation of this matter to find out the person or persons responsible for the falsification of the said document, and if the evidence warrants, to file the corresponding criminal action in court. The Office of the City Assessor of Cagayan de Oro City is, likewise, directed to cause the cancellation of Tax Declarations Nos. 33553, marked as Exh. H-3, 33557, marked as Exh. H-2, both in the name of Alberto Yabo, for having been issued on the basis of a falsified document. Let copies of this decision be furnished the Offices of the City Fiscal and City Assessor, both of Cagayan de Oro City. No pronouncement as to damages, attorney's fees and costs. SO ORDERED. 19 The defendants in Civil Case No. 5000 and the plaintiffs in Civil Case No. 5174 appealed from the decision to the Court of Appeals on 19 August 1983. 20 In its decision of 3 February 1993, 21 the Court of Appeals held that (a) Maria Yabo did not sell her share to Alberto and Elpia Yabo; (b) prescription and laches have not run against the private respondents with respect to the 1/9 share of Maria Yabo in the estate of her father and to her conjugal share in the portions acquired from her brothers and sisters; and (c) Procopio never sold his share in Lot No. 6080 to Pastor Makibalo. More specifically it stated: Exh. E is the document found by the lower court to be a falsification. This finding appellants do not dispute and have not raised an error. ... While acknowledging. that upon the death of Maria Yabo on March 17, 1962, one-half (1/2) of the share of Maria Yabo in Lots 6080 and 6180 and one-half (1/2) of Maria Yabo's conjugal share in the portions bought from Basiliza, Victoriano, Jose, Lope, Pelagia and Francisca should go to the children of the brothers and sisters of Maria in accordance with Article 1001 of the Civil Code, the lower court rule that said children have lost their rights by laches "for their inaction for a very long period and their rights have become stale" (Decision, p. 16; Record, Vol. 2, p. 158). Appellants in their second assignment of error aver that this is an error. We agree that the lower court erred. While between March 17, 1962 when Maria Yabo died and October 8, 1976, when Civil Case No. 5174 for partition was filed, was a period of more than fourteen (14) years, that alone to our mind would not suffice to establish laches or prescription. Upon the death of Maria Yabo, appellee Pastor Makibalo and appellants and the other children of the brothers and sisters of Maria, by operation of law become co-owners of the one-ninth (1/9) share of Maria as heir of her father Alipio and the conjugal share of Maria in the portions acquired from Basiliza, Victoriano, Jose, Lope, Pelagia and Francisca. Time alone is not a decisive factor. Appellee Pastor Makibalo, it must be remembered, is the husband of Maria and, therefore, an uncle in-law of appellants. In our culture, a demand by an PUP COLLEGE OF LAW Page 111

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heir or heirs for partition immediately upon the death of a relative is more often taken not as a legitimate assertion of a right but of something else, like greed. It must also be noted that the spouses, the appellee Pastor Makibalo and his deceased wife Maria, were childless and, therefore, appellants and the other children of the brothers and sisters of Maria must have felt that at any rate the property would go to them in the course of time. This probably explains why appellants started asserting their right over the property only after appellee Pastor Makibalo sold the same to the spouses Eulogio and Remedios Salvador. Besides, Lots 6080 and 6180 have a combined area only of 5,083 square meters and before the development of Northern Mindanao, and even in 1962 when Maria Yabo died, were not that valuable. This is shown by the fact that each heir sold his other share only for P110.00. As we have said not time alone. In the early case of Cortes v. Oliva, 33 Phil. 480, it was held that"(o)rdinarily, possession by one joint owner will not be presumed to be adverse to the others, but will, as a rule, be held to be for the benefit of all. Much stronger evidence is required to show an adverse holding by one of several joint owners than by a stranger; and in such cases, to sustain a plea of prescription, it must always clearly appear that one who was originally a joint owner has repudiated the claims of his co-owners, and that his co-owners were apprised or should have been apprised of his claim of adverse and exclusive ownership before the alleged prescription began to run (at page 484). This ruling on prescription should apply with equal force to laches. The third assignment of error challenges the finding of the lower court that "there is nothing to show that Pastor Makibalo also sold back Procopio's share in Lot 6080" (Decision, p. 16; Records, Vol. 2,p. 158). Exhibits 1 and 2 cover only Procopio's share in Lot 6180. In other words, Exhibits 1 and. 2 conveyed back to Alberto Yabo only his father, Procopio's share in Lot 6180. There is indeed no evidence that Pastor Makibalo also sold back to Alberto, his father Procopio's share in Lot 6080. But from the evidence it appears that Procopio Yabo never sold his share in Lot 6080 to Pastor Makibalo. So there was no need to convey back Procopio's share in Lot 6080. This fact is evident from the Affidavit of Confirmation of Sale (Exh. M) dated April 22, 1970, executed by Alberto Yabo, which is the very document relied upon by the lower court (Decision, p. 11; Record, Vol. 2, p. 153) in finding that "Alberto Yabo admitted that the share of his father Procopio Yabo was previously bought by Pastor Makibalo." A look at Exh. M, particularly par. 3 thereof, reveals that AlbertoYabo merely acknowledged or confirmed the sale of his father's share to Pastor Makibalo in Lot 6180. In effect, it at the same time proves that Lot 6080 was never sold by Procopio to appellee Pastor Makibalo; otherwise, it would have been included in the said Affidavit of Confirmation of Sale. The Deed of Absolute Sale (Exh. 2) subsequently executed by Pastor Makibalo in favor of Alberto Yabo on April 23, 1970, further proves this point, since the latter merely bought back what was previously sold, his father's share in Lot 6180. 22 The respondent court then concluded and held as follows: In summary, appellee Pastor Makibalo and his assigns, the spouses Eulogio and Remedios Salvador, are entitled only to one-half () of the one-ninth (1/9) share of Maria and three-fourths (3/4) of the six-ninth (6/9) shares acquired from Basiliza, Victoriano, Jose, Lope, Pelagia and Francisca. Accordingly, the partition should be done as follows: (1) 1/9 of Lots 6080 end 6180 should be given to the heirs of Gaudencia Yabo or their successors and assigns;

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(2) 1/9 of Lot 6180 should go to Alberto Yabo and his wife Elpia Yabo; (3) 1/9 of Lot 6080 should be given to the heirs of Procopio Yabo and their successors end assigns, including Alberto Yabo; (4) The 1/9 share of Maria Yabo in Lots 6080 and 6180 should be partitioned: One-half (1/2) for the surviving spouse Pastor Makibalo (now the spouses Eulogio Salvador and Remedios Salvador) and the other half for the children of the brothers and sisters of Maria Yabo in equal shares. (5) The remaining 6/9, one-half (1/2) of which is conjugal between Maria Yabo and appellee Pastor Makibalo should be partitioned three-fourths (3/4) for Pastor Makibalo (now the spouses Eulogio Salvador and Remedios Salvador) and onefourth (1/4) for the children of the brothers and sisters of Maria Yabo in equal shares. (6) Jose Yabo if he is still alive should participate in the partition as heir of Maria otherwise he shall be represented by his children. WHEREFORE, premises considered, subject to the modification in the partition, as indicated above, the decision appealed from is AFFIRMED, without pronouncement as to costs. The lower court is directed if necessary to fully effect the partition, to conduct further hearings and determine whether Jose Yabo is still alive and who are the children of the brothers and sisters of Maria Yabo. 23 Unable to obtain a reconsideration of the said-decision, Remedios Salvador, together with her daughter, Ma. Gracia Salvador, as one of the successors-in-interest of Eulogio M. Salvador who died during the pendency of the appeal, 24 elevated the case to this Court contending that the respondent court erred in ruling that: (1) the shares of Pelagia Yabo should be included in the partition; (2) prescription and laches have not run against the private respondents in relation to the 1/9 share of Maria Yabo in the estate of her father and to her conjugal share in those acquired by purchase; (3) Procopio Yabo never sold to Pastor Makibalo his share in Lot No. 6080; and(4) Jose Yabo should be allowed to participate as heir of Maria even as he had openly rejected this option by refusing to participate in both civil cases. 25 Article 160 of the Civil Code provides that all property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains .exclusively to the husband or to the wife. Since the shares of Jose, Victoriano, Lope, Baseliza, Procopio, and Francisca in Lot No. 6180 and Lot No. 6080 had been purchased by Pastor during his marriage with Maria, and there is no proof that these were acquired with his exclusive money, the same are deemed conjugal properties. Not forming part of the conjugal partnership are: (1) the 1/9 share inherited by Maria which remained as her exclusive property pursuant to Article 146 (2) of the Civil Code; (2) the 1/9 share of Gaudencia which was not sold to Pastor; and (3) the 1/9 share of Pelagia which was acquired by Pastor in 1967 or five years after the death of his wife and which was therefore his exclusive property. There is, thus; merit in the petitioners' first assigned error. The Court of .Appeals should have excluded from the conjugal partnership the share of Pelagia which Pastor had acquired after his wife's death. Upon Maria's death in 1962, the conjugal partnership of gains was dissolved. 26 Half of the conjugal properties, together with Maria's l/9 hereditary share in the disputed lots, constituted Maria's estate and should thus go to her surviving heirs. 27 Under Article 1001 of the Civil Code, her heirs are her spouse, Pastor Makibalo, who shall be entitled to-one-half (1/2) of her estate, her brother, Jose, and the children of her other brothers and sisters, who shall inherit the other half. There having been no actual partition of the estate yet, the said heirs became co-owners thereof by operation of law. 28 We now determine whether prescription and laches can be applied against the co-heirs of Pastor Makibalo. PUP COLLEGE OF LAW Page 113

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It has been said that Article 494 of the Civil Code which provides that each co-owner may demand at any time the partition of the common property implies that an action to demand partition is imprescriptible or cannot be barred by laches. 29 The imprescriptibility of the action cannot, however, be invoked when one of the co-owners has possessed the property as exclusive owner and for a period sufficient to acquire it by prescription. 30 What needs to be addressed first is whether or not Pastor Makibalo has acquired by prescription the shares of his other co-heirs or co-owners. Prescription as a mode of acquiring ownership requires a continuous, open, peaceful, public, and adverse possession for a period of time fixed by law. This Court has held that the possession of a co-owner is like that of a trustee and shall not be regarded as adverse to the other co-owners but in fact as beneficial to all of them. 31 Acts which may be considered adverse to strangers may not be considered adverse insofar as co-owners are concerned. A mere silent possession by a co-owner, his receipt of rents, fruits or profits from the property, the erection of buildings and fences and the planting of trees thereon, and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out by clear and convincing evidence that he exercised acts of possession which unequivocably constituted an ouster or deprivation of the rights of the other co-owners. 32 Thus, in order that a co-owner's possession may be deemed adverse to the cestui que trust or the other co-owners, the following elements must concur: (1) that he has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust or the other co-owners; (2) that such positive acts of repudiation have been made known to the cestui que trust or the other co-owners; and (3) that the evidence thereon must be clear and convincing. 33 In Pangan vs. Court of Appeals, 34 this Court had occasion to lay down specific acts which are considered as acts of repudiation: Filing by a trustee of an action in court against the trustor to quiet title to property, or for recovery of ownership thereof, held in possession by the former, may constitute an act of repudiation of the trust reposed on him by the latter. The issuance of the certificate of title would constitute an open and clear repudiation of any trust, and the lapse of more than 20 years, open and adverse possession as owner would certainly suffice to vest title by prescription. An action for the reconveyance of land based on implied or constructive trust prescribes within 10 years. And it is from the date of the issuance of such title that the effective assertion of adverse title for purposes of the statute of limitation is counted. The prescriptive period may only be counted from the time petitioners repudiated the trust relation in 1955 upon the filing of the complaint for recovery of possession against private respondents so that the counterclaim of the private respondents contained in their amended answer wherein they asserted absolute ownership of the disputed realty by reason of the continuous and adverse possession of the same is well within the l0-year prescriptive period. There is clear repudiation of a trust when one who is an apparent administrator of property causes the cancellation of the title thereto in the name of the apparent beneficiaries and gets a new certificate of title in his own name. It is only when the defendants, alleged co-owners of the property in question, executed a deed of partition and on the strength thereof obtained the cancellation of the title in the name of their predecessor and the issuance of a new one wherein they appear as the new owners of a definite area each, thereby in effect denying or repudiating the ownership of one of the plaintiffs over his alleged share in the entire lot, that the statute of limitations started to run for the purposes of the action PUP COLLEGE OF LAW Page 114

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instituted by the latter seeking a declaration of the existence of the co-ownership and of their rights thereunder. The records do not show that Pastor Makibalo adjudicated to himself the whole estate of his wife by means of an affidavit filed with the Office of the Register of Deeds as allowed under Section 1 Rule 74 of the Rules of Court, or that he caused the issuance of a certificate of title in his name or the cancellation of the tax declaration in Alipio's name and the issuance of a new one in his own name. The only act which may be deemed as a repudiation by Pastor of the co-ownership over the lots is his filing on 28 April 1976 of an action to quiet title (Civil Case No. 5000). The period of prescription started to run only from this repudiation. However, this was tolled when his co-heirs, the private respondents herein, instituted on 8 October 1976 an action for partition (Civil Case No. 5174) of the lots. Hence, the adverse possession by Pastor being for only about six months would not vest in him exclusive ownership of his wife's estate, and absent acquisitive prescription of ownership, laches and prescription of the action for partition will not lie in favor of Pastor. 35 The issue presented by the petitioners in their third assigned error involves a question of fact. This Court is not ordinarily a trier of facts, its jurisdiction being limited to errors of law. Thus; the findings of facts of the Court of Appeals are as a rule deemed conclusive. However, when the findings of facts of the appellate court vary with those of the trial court, this Court has to review the evidence in order to arrive at the correct findings. 36 In the instant case, a conflict in the findings of facts of the lower courts exists. The trial court found that Pastor was the owner of Procopio's share in Lot No. 6080, as there was nothing to show that he sold it back to Alberto Yabo. The respondent court on the other hand, held that Procopio Yabo never sold his share in Lot No. 6080 to pastor, thus, there was no need to convey it back to Procopio's son, Alberto. At this juncture, it is worthy to quote pertinent portions of the testimony of Pastor Makibalo: COURT: (To the witness.) Q Where is AlbertoYabo living? A It is there in their house at Bulua. ATTY. JARAULA: (Continuing.) Q In whose land? A Alipio Yabo's land. Q What relation has that land to the two (2) parcels of land under litigation? A I bought already. Q So, will you please tell the Honorable Court, why Alberto Yabo is staying on that land when you said you have bought that land already. A So, I sold back a portion to them because they requested me. COURT: (To the witness.) Q When was that when you said that Alberto Yabo requested a portion? A In 1967. PUP COLLEGE OF LAW Page 115

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COURT: Q Did you give that portion which they requested? A Their share being inherited from their father Procopio was the portion they requested. COURT Q Yes. Did you grant that? A Yes. Q That is the area you sold to Alberto Yabo, pursuant to his request? A Because that was the land they inherited from their father that was what they requested. Q All right. So that, the area now being occupied by Alberto Yabo? A Yes. That land in the Centro. Q This is now identified as Lot No. 6180? A Yes, Your Honor. ATTY. JARAULA: (Continuing.) Q Where did you sign a document ceding that portion requested by Alberto Yabo? A We did not make any receipt in favor of AlbertoYabo because they got only the receipt of that of his father. COURT: (To the witness.) Q You mean to say, that the receipt which Procopio signed when he sold his share for [sic] the document which Alberto got? A Yes. COURT: All right. ATTY. JARAULA (Continuing.) Q Now, for how much did you buy. the shares of each of the brothers and sisters of your wife? A One Hundred Ten (P110.00) Pesos.

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Q When you sold back to Alberto Yabo, the portion corresponding to the share of his father Procopio in the Poblacion, how much did he pay you? A The same. Q By the same, you are referring by the same amount of One Hundred Ten (P110.00) Pesos? A Yes, Sir. The same amount. 37 The petitioners contend that the sales or conveyances made by Alipio's heirs were for their consolidated shares in the two lots. If this was so, and the receipt which Procopio signed when he sold his consolidated share to Pastor was turned over to Alberto, the inevitable conclusion is that Alberto redeemed his father's share in both lots, not only in Lot: No. 6180. This conclusion is further buttressed by the above-quoted testimony of Pastor that he bought the shares (consolidated) of each of Alipio's heirs for P110.00 and that when he sold back to Alberto the former share of Procopio, Alberto paid him the same amount of P110.00. However, since the share of Procopio in the two litigated parcels of land was purchased by Pastor during his marriage with Maria, the same became conjugal property, and half of it formed part of Maria's estate upon her death in 1962. Accordingly, Pastor's resale in favor of Alberto could only be valid with respect to Pastor's one-half (1/2) conjugal share and one-fourth (1/4) hereditary share as heir of Maria. 38 The remaining one-fourth (1/4) should go to Pastor's co-heirs, the private respondents herein. Now on the fourth assigned error. Section 1, Rule 69 of the Rules of Court requires that all persons interested in the land sought to be partitioned must be joined as defendants in the complaints. All co-owners and persons having an interest in the property are considered indispensable parties and an action for partition will not lie without the joinder of said persons. 39 It has been held that the absence of an indispensable party in a case renders ineffective all the proceedings subsequent to the filing of the complaint including the judgment. 40 It must be recalled that in Civil Case No. 5174 the private respondents sought the partition of the two lots based on the co-ownership which arose from the right of succession to Alipio's estate. Since Jose Yabo confirmed, through his thumbmark in the verification of the complaint, that he had already parted with his share in Alipio's estate, he in effect admitted that he had ceased to be a co-owner of the two lots which comprised his father's estate. Thus, his non-joinder as a party-plaintiff in the complaint would appear to be proper. He does not, as well, appear to be an indispensable party in Civil Case No. 5000. As it turned out, however, the evidence and the issues which cropped up rendered imperative the determination of the conjugal assets of Pastor Makibalo and Maria Yabo and the partition of the latter's estate among her heirs. Her estate consists of one-half() of the conjugal properties, which should then be divided pursuant to Article 1001 of the Civil Code since the marriage produced no child; thus: one-half () to Pastor, and the other half to her brother Jose, and to her nephews and nieces. Insofar as the partition of Maria Yabo's estate is concerned, Jose is an indispensable party. Strictly, the rule on indispensable parties may bar a partition of Maria's estate. Considering, however, that such estate or its partition are but incidents in Civil Case No. 5000 and Civil Case No. 5174, and the parties have not offered any objection to the propriety of the determination and partition of her estate, then in the light of Section 11 of Rule 3 41 and Sections 1 and 5, Rule 10 42 of the Rules of Court, and following the rulings of this Court in the 1910 case of Alonso vs. Villamor 43 and the 1947 case of Cuyugan vs. Dizon, 44 an amendment of the complaint in Civil Case No. 5174 to implead Jose Yabo as party plaintiff would be in order. In Alonso, it was held that under Section 110 of the Code of Civil Procedure whose first paragraph is substantially the same as the aforesaid Section 1 of Rule 10 and Section 503 thereof, this Court "has full power, apart from that PUP COLLEGE OF LAW Page 117

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power and authority which is inherent, to amend the process, pleadings, proceedings, and decision in this case by substituting, as party plaintiff, the real party in interest." Our ruling in Cuyugan states: We, however, do not believe that the case should be dismissed for plaintiff's failure to join her husband. (Sec. 11, Rule 2, Rules of Court). Nor should the case be remanded to the court below and a new trial ordered on this account. The complaint may and should be amended here, to cure the defect of party plaintiffs, after final decision is rendered. Section 11, Rule 2, and Section 2, Rule 17, explicitly authorize such procedure. As this Court had occasion to say in Quison vs. Salud, (12 Phil., 109, 116), "a second action would be but a repetition of the first and would involve both parties, plaintiffs and defendant, in much additional expense and would cause much delay, in that way defeating the purpose of the section, which is expressly stated to be "that the actual merits of the controversy may speedily be determined without regard to technicalities and in the most expeditious and inexpensive manner." (See also Diaz vs. De la Rama, 73 Phil., 104) To avoid further delay in the disposition of this case, we declare Civil Case No. 5174 as thus duly amended. Consequently, Jose Yabo may participate in the partition of the estate of Maria Yabo. The fourth assigned error must then be rejected. In view of the foregoing disquisitions, the appealed judgment should be modified as follows: (a) the former 1/9 share of Pelagia Yabo in Lots No. 6180 and 6080 which she sold to Pastor should be treated as the latter's exclusive property which should now pertain to the petitioners, his successors-in-interest; and (b) the former 1/9 share of Procopio Yabo in both lots should be divided as follows: 3/4 (respondent Pastor's 1/2 conjugal share and 1/4 representing his share therein as Maria's heir) for the spouses Alberto and Elpia Yabo, and 1/4 (representing the share therein of Maria's collateral relatives as Maria's heirs) for the private respondents, including Alberto and Jose Yabo. The partition of the two lots in controversy should therefore be made in this wise: (1) 1/9 share of Gaudencia Yabo should be allotted to her heirs or successors-in-interest; (2) 1/9 share formerly belonging to Pelagia Yabo to the petitioners as successors-in-interest of Pastor Makibalo; (3) 1/9 hereditary share of Maria Yabo to be divided as follows: (a) 1/2 for the petitioners (as successors-in-interest of Pastor Makibalo), and (b) 1/2 for the private respondents, including Jose Yabo or his heirs; (4) 1/9 share formerly belonging to Procopio Yabo to be divided thus: (a) 3/4 for Spouses Alberto and Elpia Yabo, and (b) 1/4 for the other private respondents, including Jose Yabo or his heirs; (5) 5/9 shares which became the conjugal properties of Pastor Makibalo and Maria Yabo to be divided thus: (a) 3/4 for the petitioners (as successors-in-interest of Pastor Makibalo), and (b) for the private respondents, including Jose Yabo or his heirs. In sum, Lots Nos. 6180 anid 6080 should be partitioned as follows: 1/9 or 4/36 to Guadencia Yabo's heirs or successors-in-interest; PUP COLLEGE OF LAW Page 118

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3/4 of 1/9 or 3/36 to the spouses Alberto and Elpina Yabo; 8/36 to the private respondents, including Jose Yabu or his heirs; 21/36 to the petitioners as successors-in-interest of Pastor Makibalo. WHEREFORE, the challenged decision of the Court of Appeals of 8 February 1993 in CA-G.R. CV No. 12839 is AFFIRMED, subject to the modifications indicated above. Upon the finality of this decision, let this case be forthwith remanded to the court a quo for further proceedings on the partition of Lots Nos. 6180 and 6080 in conformity with this decision. HEIRS OF FLORES RESTAR vs. HEIRS OF DOLORES R. CICHON; G.R. No. 161720 November 22, 2005 In 1935, Emilio Restar (Restar) died intestate, leaving eight (8) children-compulsory heirs, namely: Flores Restar, Dolores Restar-Cichon, Perpetua Restar-Sta. Maria, Paciencia Restar-Manares, Dominica Restar-Relojero, Policarpio Restar, Maria Restar-Rose and Adolfo Restar. In 1960, Restars eldest child, Flores, on the basis of a July 12, 1959 Joint Affidavit 1 he executed with one Helen Restar, caused the cancellation of Tax Declaration No. 66962 in Restars name covering a 5,9183 square meter parcel of land, Lot 3177 (the lot), located at Barangay Carugdog, Lezo, Aklan which was among the properties left by Restar, and the issuance of Tax Declaration No. 11134 in his name. Flores died on June 10, 1989. On November 5, 1998, the co-heirs of Flores discovered the cancellation of Restars Tax Declaration No. 6696 and the issuance in lieu thereof of Tax Declaration No. 11134 4 in his name. On January 21, 1999, the heirs of Flores sisters Dolores R. Cichon, Perpetua Sta. Maria, and Maria Rose who had in the meantime died, together with Flores surviving sisters Dominica Restar -Relojero and Paciencia Restar-Manares, filed a Complaint5 against Flores heirs for "partition [of the lot], declaration of nullity of documents, ownership with damages and preliminary injunction" before the Regional Trial Court (RTC) of Aklan. Flores brothers Policarpio and Adolfo were impleaded also as defendants, they being unwilling co-plaintiffs. The plaintiffs, herein respondents, alleged that, inter alia, during the lifetime of Flores, they were given their shares of palay from the lot and even after Flores death up to 1991; after Flores death in 1989, his widow Esmenia appealed to them to allow her to hold on to the lot to finance the education of her children, to which they (the plaintiffs) agreed on the condition that after the children had finished their education, it would be divided into eight (8) equal parts; and upon their demand for partition of the lot, the defendants Heirs of Flores refused, they claiming that they were the lawful owners thereof as they had inherited it from Flores. By Answer6 filed February 23, 1999, the defendants-herein petitioners Heirs of Flores claimed that they had been in possession of the lot in the concept of owner for more than thirty (30) years and have been paying realty taxes since time immemorial. And they denied having shared with the plaintiffs the produce of the lot or that upon Flores death in 1989, Esmenia requested the plaintiffs to allow her to hold on to it to f inance her childrens education, they contending that by 1977, the children had already finished their respective courses. 7 The defendants Heirs of Flores further claimed that after World War II and under the "new Tax Declaration in 1945," Flores caused the transfer of parcels of ricelands situated in Carugdog, Lezo, Aklan to his siblings as their shares from the estate of their father Restar;8 and an extra-judicial partition was subsequently executed on September 28, 1973 by Restars heirs, which was notarized by one Atty. Jose Igtanloc, dividing and apportioning among themselves four (4) parcels of land. 9 PUP COLLEGE OF LAW Page 119

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The defendant Adolfo Restar, by separate Answer,10 alleged that the complaint did not state a cause of action as against him for he interposed no objection to the partition of the lot among the heirs of Restar. As for the defendant Policarpio Restar, he in his Amended Answer 11 acknowledged Flores as the owner of the lot but claimed that a portion of it, 1,315 square meters, was sold to him as shown by a Deed of Absolute Sale dated May 14, 1981.12 He thus prayed that, among other things, an order for the partition of the lot among Restars heirs be issued excluding, however, that portion sold to him by Flores.13 After trial, Branch 3 of the RTC of Kalibo, Aklan held that Flores share in Restars estate was not the lot but that covered by Cadastral Lot No. 3183. Nevertheless, the trial court, holding that Flores and his heirs had performed acts sufficient to constitute repudiation of the co-ownership, concluded that they had acquired the lot by prescription.14 Respecting the defendant Policarpios claim that a portion of the lot was sold to him, the trial court discredited the same upon noting that Flores signature in the purported Deed of Sale differed from those appear ing in other documents submitted by the parties; in 1981, when the said Deed of Sale was alleged to have been executed, Flores was admittedly paralyzed and bedridden and could not have written his name in a "straight" manner, as in fact his signature appearing in at least two documents dated 1980 was "crooked," and there existed discrepancies in the spelling of Flores wifes signature which read "Esmea" in the deed, and not as "Esmenia." 15 The trial court thus dismissed the complaint by Decision of June 30, 1999.16 On appeal by the defendants Heirs of Flores and Policarpio Restar, the appellate court, by Decision of October 29, 2002.17 reversed the decision of the trial court, it finding that the defendants Heirs of Flores failed to prove that their possession of the lot excluded their co-owners or that they derived title to it from a separate conveyance to them by Restar. The appellate court further found that there was no adequate notice by Flores to his other co-heirs/co-owners of the repudiation of the co-ownership and neither was there a categorical assertion by the defendants of their exclusive right to the entire lot that barred the plaintiffs claim of ownership.18 And the appellate court found it credible for the plaintiffs to have failed to immediately take legal action to protect their rights on account of forbearance towards their eldest brother who had asked them to continue cultivating the lot to support his childrens education.19 Respecting the defendant Policarpios claim that part of the lot had been sold to him by Flores, the appel late court sustained the trial courts rejection thereof. Accordingly, the appellate court disposed: WHEREFORE, in view of all the foregoing, the appeal is hereby GRANTED in so far as plaintiffs-appellants Heirs of Dolores Cichon, et al., are concerned and DENIED in so far as defendant-appellant Policarpio Restar. The decision of the Regional Trial Court of Kalibo, Aklan, Branch 3, dated June 30, 1999 is MODIFIED. The ruling of the said court that the heirs of Flores Restar have acquired ownership by adverse possession of the land in question, Cadastral Lot No. 6686, is hereby REVERSED. SO ORDERED. (Emphasis in the original) The appellate court having denied reconsideration of its decision, only the defendants Heirs of Flores filed the present petition, assigning the following errors:

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A. THE COURT OF APPEALS PATENTLY ERRED IN REVERSING THE RULING OF THE LOWER COURT THAT THE PETITIONERS AS HEIRS OF FLORES RESTAR HAVE ACQUIRED OWNERSHIP BY ADVERSE POSSESSION OF THE LAND IN QUESTION. B. THE COURT OF APPEALS PATENTLY ERRED IN NOT RULING THAT THERE WAS ACQUISITIVE PRESCRIPTION ON THE LAND IN QUESTION NOTWITHSTANDING THAT THE LAND IN QUESTION HAS BEEN DECLARED IN THE NAME OF FLORES RESTAR, FATHER OF PETITIONERS, AS EARLY AS 1960 AND THAT PETITIONERS AND THEIR PREDECESSOR-IN-INTEREST HAVE BEEN IN OPEN, CONTINUOUS, EXCLUSIVE AND NOTORIOUS POSSESSION OF THE LAND IN QUESTION IN THE CONCEPT OF OWNER FOR MORE THAN THIRTY (30) YEARS.20 The petition is impressed with merit. Article 494 of the New Civil Code expressly provides: ART. 494. No co-owner shall be obliged to remain in the co-ownership. Each co-owner may demand at any time the partition of the thing owned in common, insofar as his share is concerned. xxx No prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs so long as he expressly or impliedly recognizes the co-ownership. While the action to demand partition of a co-owned property does not prescribe, a co-owner may acquire ownership thereof by prescription21 where there exists a clear repudiation of the co-ownership, and the co-owners are apprised of the claim of adverse and exclusive ownership.22 Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession of things in good faith and with just title for a period of ten years. Without good faith and just title, acquisitive prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty years. Thus, the New Civil Code provides: ART. 1117. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law. ART. 1134. Ownership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years. ART. 1137. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith. Resolving the main issue of whether petitioners acquired ownership over the lot by extraordinary prescription, the appellate court held in the negative. While this Court is not a trier of facts, if the inference drawn by the appellate court from the facts is manifestly mistaken, it may, in the interest of justice, review the evidence in order to arrive at the correct factual conclusions based on the record.23

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Contrary to the findings of the appellate court, the records of the case amply support petitioners claim that the requirements for extraordinary prescription had been duly met. When Restar died in 1935, his eight children became pro indiviso co-owners of the lot by intestate succession. Respondents never possessed the lot, however, much less asserted their claim thereto until January 21, 1999 when they filed the complaint for partition subject of the present petition. In contrast, Flores took possession of the lot after Restars death and exercised acts of dominion thereon tilling and cultivating the land, introducing improvements, and enjoying the produce thereof. The statutory period of prescription, however, commenced not in 1935 but in 1960 when Flores, who had neither title nor good faith, secured a tax declaration in his name and may, therefore, be said to have adversely claimed ownership of the lot. And respondents were also deemed to have been on said date become aware of the adverse claim.24 Flores possession thus ripened into ownership through acquisitive p rescription after the lapse of thirty years in accordance with the earlier quoted Article 1137 of the New Civil Code. The following observations of the trial court thus merit this Courts approval. The evidence proved that as far back as 1959, Flores Restar adjudicated unto himself the whole land in question as his share from his father by means of a joint affidavit which he executed with one Helen Restar, and he requested the Provincial Treasurer/Assessor to have the land declared in his name. It was admitted by the parties during the pre-trial that this affidavit was the basis of the transfer of Tax Declaration No. 6686 from Emilio Restar to Flores Restar. So that from 1960 the land was declared in the name of Flores Restar (Exhibit 10). This was the first concrete act of repudiation made by Flores of the co-ownership over the land in question. x x x Plaintiffs did not deny that aside from the verbal partition of one parcel of land in Carugdog, Lezo, Aklan way back in 1945, they also had an amicable partition of the lands of Emilio Restar in Cerrudo and Palale, Banga Aklan on September 28, 1973 (exhibit "20"). If they were able to demand the partition, why then did they not demand the inclusion of the land in question in order to settle once and for all the inheritance from their father Emilio Restar, considering that at that time all of the brothers and sisters, the eight heirs of Emilio Restar, were still alive and participated in the signing of the extra-judicial partition? Also it was admitted that Flores died only in 1989. Plaintiffs had all the chances (sic) to file a case against him from 1960, or a period of 29 years when he was still alive, yet they failed to do so. They filed the instant case only on January 22, 1999, almost ten (10) years after Flores death. From the foregoing evidence, it can be seen that the adverse possession of Flores started in 1960, the time when the tax declaration was transferred in his name. The period of acquisitive prescription started to run from this date. Hence, the adverse possession of Flores Restar from 1960 vested in him exclusive ownership of the land considering the lapse of more than 38 years. Acquisitive prescription of ownership, laches and prescription of the action for partition should be considered in favor of Flores Restar and his heirs. 25 While tax declarations and receipts are not conclusive evidence of ownership and do not prove title to the land, nevertheless, when coupled with actual possession, they constitute evidence of great weight 26 and can be the basis of a claim of ownership through prescription.27 As for respondents claim that they have been receiving shares from the produce of the land, it was correctly discredited by the trial court. [P]laintiffs claim that Flores Restar gave them five to eight gantas each as their shares in the produce cannot be sustained. A few gantas cannot be considered one-eight share of sixty (60) cavans of palay produced per cropping. One eight of sixty cavans would be at least six cavans, not merely gantas after excluding expenses for cultivation and PUP COLLEGE OF LAW Page 122

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production. If plaintiffs were to be believed, their whole 7/8 share of the produce would total two cavans, six gantas only at the usual rate of 25 gantas per cavan.28 Unless there are strong and impelling reasons to disturb the trial courts findings of facts which must, as a matter of judicial policy, be accorded with the highest respect, they must remain. Respondents have not, however, proffered any reason warranting the disturbance of the trial courts findings of facts. Indeed, the following acts of Flores show possession adverse to his co-heirs: the cancellation of the tax declaration certificate in the name of Restar and securing another in his name; the execution of a Joint Affidavit stating that he is the owner and possessor thereof to the exclusion of respondents; payment of real estate tax and irrigation fees without respondents having ever contributed any share therein; and continued enjoyment of the property and its produce to the exclusion of respondents. And Flores adverse possession was continued by his heirs. The appellate courts crediting of respondents justification for failing to immediately take legal action to protect their rights forbearance toward Flores and/or his wife who asked to be allowed to cultivate the land to support their childrens education does not impress. For assuming such justification to be true, why did not any of respondents assail Flores continuous possession after his children completed their college education in 1977? The trial courts finding and conclusion that Flores and his heirs had for more than 38 years possessed the land in open, adverse and continuous possession in the concept of owner which length of possession had never been questioned, rebutted or disputed by any of respondents, being thus duly supported by substantial evidence, he and his heirs have become owner of the lot by extraordinary prescription. It is unfortunate that respondents slept on their rights. Dura lex sed lex. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE and the June 30, 1999 decision of the trial court is REINSTATED.

SPECIAL PROPERTIES:
PRESIDENTIAL DECREE No. 1067 December 31, 1976 A DECREE INSTITUTING A WATER CODE, THEREBY REVISING AND CONSOLIDATING THE LAWS GOVERNING THE OWNERSHIP, APPROPRIATION, UTILIZATION, EXPLOITATION, DEVELOPMENT, CONSERVATION AND PROTECTION OF WATER RESOURCES WHEREAS, Article XIV, Section 8 of the New Constitution of the Philippines provides, inter alia, that all waters of the Philippines belong to the State; WHEREAS, existing water legislations are piece-meal and inadequate to cope with increasing scarcity of water and changing patterns of water use; WHEREAS, there is a need for a Water Code based on rational concepts or integrated and multipurpose management of water resources and sufficiently flexible to adequately meet future developments; WHEREAS, water is vital to national development and it has become increasingly necessary for government to intervene actively in improving the management of water resources; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers in me vested by the Constitution, do hereby order and decree the enactment of the water Code of the Philippines of 1976, as follows: CHAPTER I DECLARATION OF OBJECTIVES AND PRINCIPLES PUP COLLEGE OF LAW Page 123

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Article 1. This Code shall be known as The Water Code of the Philippines. Article 2. The objectives of this Code are: (a) To establish the basic principles and framework relating to the appropriation, control and conservation of water resources to achieve the optimum development and rational utilization of these resources; (b) To define the extent of the rights and obligations of water users and owners including the protection and regulation of such rights; (c) To adopt a basic law governing the ownership, appropriation, utilization, exploitation, development, conservation and protection of water resources and rights to land related thereto; and (d) To identify the administrative agencies which will enforce this Code. Article 3. The underlying principles of this code are: (a) All waters belong to the State. (b) All waters that belong to the State can not be the subject to acquisitive prescription. (c) The State may allow the use or development of waters by administrative concession. (d) The utilization, exploitation, development, conservation and protection of water resources shall be subject to the control and regulation of the government through the National Water Resources Council, hereinafter referred to as the Council. (e) Preference in the use and development of waters shall consider current usages and be responsive to the changing needs of the country. Article 4. Waters, as used in this Code, refers to water under the grounds, water above the ground, water in the atmosphere and the waters of the sea within the territorial jurisdiction of the Philippines. CHAPTER II OWNERSHIP OF WATERS Article 5. The following belong to the State: (a) Rivers and their natural beds; (b) Continuous or intermittent waters of springs and brooks running in their natural beds and the beds themselves; (c) Natural lakes and lagoons; (d) All other categories of surface waters such as water flowing over lands, water from rainfall whether natural, or artificial, and water from agriculture runoff, seepage and drainage; (e) Atmospheric water; (f) Subterranean or ground waters; and, PUP COLLEGE OF LAW Page 124

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(g) Seawater. Article 6. The following waters found on private lands belong to the State: (a) Continuous or intermittent waters rising on such lands; (b) Lakes and lagoons naturally occuring on such lands; (c) Rain water falling on such lands; (d) Subterranean or ground waters; and, (e) Water in swamps and marshes. The owner of the land where the water is found may use the same for domestic purposes without securing a permit, provided that such use shall be registered, when required by the Council. The Council, however, may regulate such when there is wastage, or in times of emergency. Article 7. Subject to the provisions of this Code, any person who captures or collects water by means of cisterns, tanks, or pools shall have exclusive control over such water and the right to dispose of the same. Article 8. Water legally appropriated shall be subject to the control of the appropriator from the moment it reaches the appropriator's canal or aqueduct leading to the place where the water will be used or stored and, thereafter, so long as it is being beneficially used for the purposes for which it was appropriated. CHAPTER III APPROPRIATION OF WATERS Article 9. Waters may be appropriated and used in accordance with the provisions of this Code. Appropriation of water, as used in this Code, is the acquisition of rights over the use of waters or the taking or diverting of waters from a natural source in the manner and for any purpose allowed by law. Article 10. Water may be appropriated for the following purposes: (a) Domestic (b) Municipal (c) Irrigation (d) Power generation (e) Fisheries (f) Livestock raising (g) Industrial (h) Recreational, and

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(i) Other purposes Use of water for domestic purposes is the utilization of water for drinking, washing, bathing, cooking or other household needs, home gardens, and watering of lawns or domestic animals. Use of water for municipal purposes is the utilization of water for supplying the water requirements of the community. Use of water for irrigation is the utilization of water for producing agricultural crops. Use of water for power generation is the utilization of water for producing electrical or mechanical power. Use of water for fisheries is the utilization of water for the propagation and culture of fish as a commercial enterprise. Use of water for livestock raising is the utilization of water for large herds or flocks of animals raised as a commercial enterprise. Use of water for industrial purposes is the utilization of water in factories, industrial plants and mines, including the use of water as an ingredient of a finished product. Use of water for recreational purposes is the utilization of water for swimming pools, bath houses, boating, water skiing, golf courses and other similar facilities in resorts and other places of recreation. Article 11. The State, for reasons of public policy, may declare waters not previously appropriated, in whole or in part, exempt from appropriation for any or all purposes and, thereupon, such waters may not be appropriated for those purposes. Article 12. Waters appropriated for a particular purpose may be applied for another purpose only upon prior approval of the Council and on condition that the new use does not unduly prejudice the rights of other permittees, or require an increase in the volume of water. Article 13. Except as otherwise herein provided, no person, including government instrumentalities or government-owned or controlled corporations, shall appropriate water without a water right, which shall be evidenced by a document known as a water permit. Water right is the privilege granted by the government to appropriate and use water. Article 14. Subject to the provisions of this Code concerning the control, protection, conservation, and regulation of the appropriation and use of waters, any person may appropriate or use natural bodies of water without securing a water permit for any of the following: (a) Appropriation of water by means of handcarried receptacles; and (b) Bathing or washing, watering or dipping of domestic or farm animals, and navigation of watercrafts or transportation of logs and other objects by flotation. Article 15. Only citizens of the Philippines, of legal age, as well as juridical persons, who are duly qualified by law to exploit and develop water resources, may apply for water permits. Article 16. Any person who desires to obtain a water permit shall file an application with the Council who shall make known said application to the public for any protests. PUP COLLEGE OF LAW Page 126

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In determining whether to grant or deny an application, the Council shall consider the following: protests filed, if any; prior permits granted; the availability of water; the water supply needed for beneficial use; possible adverse effects; land-use economics; and other relevant factors. Upon approval of an application, a water permit shall be issued and recorded. Article 17. The right to the use of water is deemed acquired as of the date of filing of the application for a water permit in case of approved permits, or as of the date of actual use in a case where no permit is required. Article 18. All water permits granted shall be subject to conditions of beneficial use, adequate standards of design and construction, and such other terms and conditions as may be imposed by the Council. Such permits shall specify the maximum amount of water which may be diverted or withdrawn, the maximum rate of diversion or withdrawal, the time or times during the year when water may be diverted or withdrawn, the points or points of diversion or location of wells, the place of use, the purposes of which water may be used and such other requirements the Council deems desirable. Article 19. Water rights may be leaded or transferred in whole or in part to another person with prior approval of the Council, after due notice and hearing. Article 20. The measure and limit of appropriation of water shall be beneficial use. Beneficial use of water is the utilization of water in the right amount during the period that the water is needed for producing the benefits for which the water is appropriated. Article 21. Standards of beneficial use shall be prescribed by the council for the appropriator of water for different purposes and conditions, and the use of waters which are appropriated shall be measured and controlled in accordance therewith. Excepting for domestic use, every appropriator of water shall maintain water control and measuring devices, and keep records of water withdrawal. When required by the Council, all appropriators of water shall furnish information on water use. Article 22. Between two or more appropriators of water from the same sources of supply, priority in time of appropriation shall give the better right, except that in times of emergency the use of water for domestic and municipal purposes shall have a better right over all other uses; Provided, the where water shortage is recurrent and the appropriator for municipal use has a lower priority in time of appropriation, then it shall be his duty to find an alternative source of supply in accordance with conditions prescribed by the Council. Article 23. Priorities may be altered on grounds of greater beneficial use, multi-purpose use, and other similar grounds after due notice and hearing, subject to payment of compensation is proper cases. Article 24. A water right shall be exercised in such a manner that the rights of third persons or of other appropriators are not prejudiced thereby. Article 25. A holder of water permit may demand the establishment of easements necessary for the construction and maintenance of the works and facilities needed for the beneficial use of the waters to be appropriated subject to the requirements of just compensation and to the following conditions: (a) That he is the owner, lessee, mortgagee or one having real right over the land upon which he proposes to use water; and (b) That the proposed easement is the most convenient and the least onerous to the servient estate. PUP COLLEGE OF LAW Page 127

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Easements relating to the appropriation and use of waters may be modified by agreement of the contracting parties provided the same is not contrary to law or prejudicial to third persons. Article 26. Where water shortage is recurrent, the use of the water pursuant to a permit may, in the interest of equitable distribution of the benefits among legal appropriators, reduce after due notice and hearing. Article 27. Water users shall bear the diminution of any water supply due to natural causes or force majeure. Article 28. Water permits shall continue to be valid as long as water is beneficially used; however, it maybe suspended on the grounds of non-compliance with approved plans and specifications or schedules of water distribution; use of water for a purpose other than that for which it was granted; non-payment of water charges; wastage; failure to keep records of water diversion, when required; and violation of any term or condition of any permit or rules and regulations promulgated by the Council. Temporary permits may be issued for the appropriation and use of water for short periods under special circumstances. Article 29. Water permits may be revoked after due notice and hearing on grounds of non-use; gross violation of the conditions imposed in the permit; unauthorized sale of water; willful failure or refusal to comply with rules and regulations of any lawful order; pollution, public nuisance or acts detrimental to public health and safety; when the appropriator is found to be disqualified under the law to exploit and develop natural resources of the Philippines; when, in the case, of irrigation, the land is converted to non-agricultural purposes; and other similar grounds. Article 30. All water permits are subject to modification or cancellation by the council, after due notice and hearing, in favor of a project of greater beneficial use or for multi-purpose development, and a water permittee who suffers thereby shall be duly compensated by the entity or person in whose favor the cancellation was made. CHAPTER IV UTILIZATION OF WATERS Article 31. Preference in the development of water resources shall consider security of the State, multiple use, beneficial effects, adverse effects and costs of development. Article 32. The utilization of subterranean or ground water shall be coordinated with that of surface waters such as rivers, streams, springs and lakes, so that a superior right in one not adversely affected by an inferior right in the other. For this purpose the Council shall promulgate rules and regulations and declare the existence of control areas for the coordinated development, protection, and utilization of subterranean or ground water and surface waters. Control area is an area of land where subterranean or ground water and surface water are so interrelated that withdrawal and use in one similarly affects the other. The boundary of a control area may be altered from time to time, as circumstances warrant. Article 33. Water contained in open canals, aqueducts or reservoirs of private persons may be used by any person for domestic purpose or for watering plants as long as the water is withdrawn by manual methods without checking the stream or damaging the canal, aqueduct or reservoir; Provided, That this right may be restricted by the owner should it result in loss or injury to him. Article 34. A water permittee or appropriator may use any watercourse to convey water to another point in the watercourse for the purpose stated in a permit and such water may be diverted or recaptured at that point by said permittee in the same amount less allowance for normal losses in transit.

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Article 35. Works for the storage, diversion, distribution and utilization of water resources shall contain adequate provision for the prevention and control of diseases that may be induced or spread by such works when required by the Council. Article 36. When the reuse of waste water is feasible, it shall be limited as much as possible, to such uses other than direct human consumption. No person or agency shall distribute such water for public consumption until it is demonstrated that such consumption will not adversely affect the health and safety of the public. Article 37. In the construction and operation of hydraulic works, due consideration shall be given to the preservation of scenic places and historical relics and, in addition to the provisions of existing laws, no works that would required the destruction or removal of such places or relics shall be undertaken without showing that the distribution or removal is necessary and unaviodable. Article 38. Authority for the construction of dams, bridges and other structures across of which may interfere with the flow of navigable or flotable waterways shall first be secured from the Department of Public Works, Transportation and Communications. Article 39. Except in cases of emergency to save life or property, the construction or repair of the following works shall be undertaken only after the plans and specifications therefor, as may be required by the Council, are approved by the proper government agency; dams for the diversion or storage of water; structures for the use of water power, installations for the utilization of subterranean or ground water and other structures for utilization of water resources. Article 40. No excavation for the purpose of emission of a hot spring or for the enlargement of the existing opening thereof shall be made without prior permit. Any person or agency who intends to develop a hot spring for human consumption must first obtain a permit from the Department of Health. Article 41. No person shall develop a stream, lake, or spring for recreational purposes without first securing a permit from the Council. Article 42. Unless-otherwise ordered by the President of the Philippines and only in time of national calamity or emergency, no person shall induce or restrain rainfall by any method such as cloud seeding without a permit from the proper government emergency. Article 43. No person shall raise or lower the water level of a river stream, lake, lagoon, or marsh nor drain the same without a permit. Article 44. Drainage systems shall be so constructed that their outlets are rivers, lakes, the sea, natural bodies of water, or such other water course as may be approved by the proper government agency. Article 45. When a drainage channel is constructed by a number of persons for their common benefit, the cost of construction and maintenance of the channel shall be borne by each in proportion to the benefits drived. Article 46. When artificial means are employed to drain water from higher to lower land, the owner of the higher land shall select the routes and methods of drainage that will cause the minimum damage to the lower lands, subject to the requirements of just compensation. Article 47. When the use, conveyance or storage of waters results in damage to another, the person responsible for the damage shall pay compensation.

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Article 48. When a water resources project interferes with the access of landowner to a portion of his property or with the conveyance of irrigation or drainage water, the person or agency constructing the project shall bear the cost of construction and maintenance of the bridges, flumes and other structures necessary for maintaining access, irrigation, or drainage, in addition to paying compensation for land and incidental damages. Article 49. Any person having an easement for an aqueduct may enter upon the servient land for the purpose of cleaning, repairing or replacing the aqueduct or the removal of obstructions therefrom. Article 50. Lower estates are obliged to receive the waters which naturally and without the intervention of man flow from the higher estate, as well as the stone or earth which they carry with them. The owner of the lower estate can not construct works which will impede this natural flow, unless he provides an alternative method of drainage; neither can the owner of the higher estate make works which will increase this natural flow. Article 51. The banks of rivers and streams and the shores of the seas and lakes throughout their entire length and within a zone of three (3) meters in urban areas, twenty (20) meters in agricultural areas and forty (40) meters in forest areas, along their margins are subject to the easement of public use in the interest of recreation, navigation, floatage, fishing and salvage. No person shall be allowed to stay in this zone longer than what is necessary for recreation, navigation, floatage, fishing or salvage or to build structures of any kind. Article 52. The establishment, extent, form, and conditions of easements of water not expressly determined by the provisions of this Code shall be governed by the provisions of the Civil Code. CHAPTER V CONTROL OF WATERS Article 53. To promote the best interest and the coordinated protection of flood plain lands, the Secretary of Public Works, Transportation and Communications may declare flood control areas and promulgate guidelines for governing flood plain management plans in these areas. Article 54. In declared flood control areas, rules and regulations may be promulgated to prohibit or control activities that may damage or cause deterioration or lakes and dikes, obstruct the flow of water, change the natural flow of the river, increase flood losses or aggravate flood problems. Article 55. The government may construct necessary flood control structures in declared flood control areas, and for this purpose it shall have a legal easement as wide as may be needed along and adjacent to the river bank and outside of the bed or channel of the river. Article 56. River beds, sand bars and tidal flats may not be cultivated except upon prior permission from the Secretary of the Department of Public Works, Transportation and Communication and such permission shall not be granted where such cultivation obstructs the flow of water or increase flood levels so as to cause damage to other areas. Article 57. Any person may erect levees or revetments to protect his property from flood, encroachment by the river or change in the course of the river, provided that such constructions does not cause damage to the property of another. Article 58. When a river or stream suddenly changes its course to traverse private lands, the owners of the affected lands may not compel the government to restore the river to its former bed; nor can they restrain the government from taking steps to revert the river or stream to its former course. The owners of the land thus affected are not entitled to compensation for any damage sustained thereby. However, the former owners of the new bed shall be the owners of the abandoned bed in proportion to the area lost by each. PUP COLLEGE OF LAW Page 130

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The owners of the affected lands may undertake to return the river or stream to its old bed at their own expense; Provided, That a permit therefor is secured from the Secretary of Public Works, Transportation and Communication and work pertaining thereto are commenced within two years from the change in the course of the river or stream. Article 59. Rivers, lakes and lagoons may, upon the recommendation of the Philippines Coast Guard, be declared navigable either in whole or in part. Article 60. The rafting of logs and other objects on rivers and lakes which are flotable may be controlled or prohibited during designated season of the year with due regard to the needs of irrigation and domestic water supply and other uses of water. Article 61. The impounding of water in ponds or reservoirs may be prohibited by the Council upon consultation with the Department of Health if it is dangerous to public health, or it may order that such pond or reservoir be drained if such is necessary for the protection of public health. Article 62. Waters of a stream may be stored in a reservoir by a permittee in such amount as will not prejudice the right of any permittee downstream. Whoever operates the reservoir shall, when required, release water for minimum stream flow. All reservoir operations shall be subject to rules and regulations issued by the Council or any proper government agency. Article 63. The operator of a dam for the storage of water may be required to employ an engineer possessing qualifications prescribed for the proper operations, maintenance and administration of the dam. Article 64. The Council shall approve the manner, location, depth, and spacing in which borings for subterranean or ground water may be made, determine the requirements for the registration of every boring or alteration to existing borings as well as other control measures for the exploitation of subterranean or ground water resources, and in coordination with the Professional Regulation Commission prescribe the qualifications of those who would drill such borings. No person shall drill a well without prior permission from the Council. Article 65. Water from one river basin may be transferred to another river basin only with approval of the Council. In considering any request for such transfer, the Council shall take into account the full costs of the transfer, the benefits that would accrue to the basin of origin without the transfer, the benefits would accrue to the receiving basin on account of the transfer, alternative schemes for supplying water to the receiving basin, and other relevant factors. CHAPTER VI CONSERVATION AND PROTECTION OF WATERS AND WATERSHEDS AND RELATED LAND RESOURCES Article 66. After due notice and hearing when warranted by circumstances, minimum stream flows for rivers and streams, and minimum water levels for lakes may be established by the Council under such conditions as may be necessary for the protection of the environment, control of pollution, navigation, prevention of salt damage, and general public use. Article 67. Any watershed or any area of land adjacent to any surface water or overlying any ground water may declared by the Department of Natural Resources as protected area Rules and regulations may be promulgated by such Department to prohibit or control such activities by the owners or occupants thereof within the protected area which may damage or cause the deterioration of the surface water or ground water or interfere with the investigation, use, control, protection, management or administration of such waters. PUP COLLEGE OF LAW Page 131

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Article 68. It shall be the duty of any person in control of a well to prevent the water from flowing on the surface of the land, or into any surface water, or any porous stratum under neath the surface without being beneficially used. Article 69. It shall be the duty of any person in control of a well containing water with minerals or other substances injurious to man, animals, agriculture, and vegetation to prevent such waters from flowing on the surface of the land or into any surface water or into any other aquifer or porous stratum. Article 70. No person shall utilize an existing well or pond or spread waters for recharging substerranean or ground water supplies without prior permission of the Council. Article 71. To promote better water conservation and usage for irrigation purposes, the merger of irrigation associations and the appropriation of waters by associations instead of by individuals shall be encouraged. No water permit shall be granted to an individual when his water requirement can be supplied through an irrigation association. Article 72. In the consideration of a proposed water resource project, due regard shall be given to ecological changes resulting from the construction of the project in order to balance the needs of development and the protection of the environment. Article 73. The conservation of fish and wildlife shall receive proper consideration and shall be coordinated with other features of water resources development programs to insure that fish and wildlife values receive equal attention with other project purposes. Article 74. Swamps and marshes which are owned by the State and which primary value for waterfowl propagation or other wildlife purposes may be reserved and protected from drainage operation and development. Article 75. No person shall, without prior permission from the National Pollution Control Commission, build any works that may produce dangerous or noxious substances or perform any act which may result in the introduction of sewage, industrial waste, or any pollutant into any source of water supply. Water pollution is the impairment of the quality of water beyond a certain standard. This standard may vary according to the use of the water and shall be set by the National Pollution Control Commission. Article 76. The establishment of cemeteries and waste disposal areas that may affect the source of a water supply or a reservoir for domestic or municipal use shall be subject to the rules and regulations promulgated by the Department of Health. Article 77. Tailings from mining operations and sediments from placer mining shall not be dumped into rivers and waterways without prior permission from the Council upon recommendation by the National Pollution Control Commission. Article 78. The application of agricultural fertilizers and pesticides may be prohibited or regulated by the National Pollution Control Commission in the areas where such application may cause pollution of a source of water supply. CHAPTER VII ADMINISTRATION OF WATERS AND ENFORCEMENT OF THE PROVISIONS OF THIS CODE Article 79. The Administration and enforcement of the provisions of this Code, including the granting of permits and the imposition of penalties for administrative violations hereof, are hereby vested in the Council, and except in regard to those functions which under this Code are specifically conferred upon other agencies of the government, the Council is hereby empowered to make all decisions and determinations provided for in this Code.

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Article 80. The Council may deputize any official or agency of the government to perform any of its specific functions or activities. Article 81. The Council shall provide a continuing program for data collection, research and manpower development needed for the appropriation, utilization, exploitation, conservation, and protection of the water resources of the country. Article 82. In the implementation of the provisions of this code, the Council shall promulgate the necessary rules and regulations which may provide for penalties consisting of a fine not exceeding One Thousand Pesos (P1,000.00) and/or suspension or revocation of the water permit or other right to the use of water. Violations of such rules and regulations may be administratively dealt with by the Council. Such rules and regulations prescribed by any government agency that pertain to the utilization, exploitation, development, control, conservation, or protection of water resources shall, if the Council so requires, be subject to its approval. Article 83. The Council is hereby authorized to impose and collect reasonable fees or charges for water resources development from water appropriators, except when it is for purely domestic purposes. Article 84. The Council and other agencies authorized to enforce this Code are empowered to enter upon private lands, with previous notice to the owner, for the purpose of conducting surveys and hydrologic investigations, and to perform such other acts as are necessary in carrying out their functions including the power to exercise the right of eminent domain. Article 85. No program or project involving the appropriation, utilization, exploitation, development, control, conservation, or protection of water resources may be undertaken without prior approval of the Council, except those which the Council may, in its discretion, exempt. The Council may require consultation with the public prior to the implementation of certain water resources development projects. Article 86. When plans and specifications of a hydraulic structure are submitted for approval, the government agency whose functions embrace the type of project for which the structure is intended, shall review the plans and specifications and recommended to the Council proper action thereon and the latter shall approve the same only when they are inconformity with the requirements of this Code and the rules and regulations promulgated by the Council. Notwithstanding such approval, neither the engineer who drew up the plans and specifications of the hydraulic structure, nor the constructor who built it, shall be relieved of his liability for damages in case of failure thereof by reason of defect in plans and specifications, or failure due to defect in construction, within ten (10) years from the completion of the structure. Any action recover such damages must be brought within five (5) years following such failure. Article 87. The Council or its duly authorized representatives, in the exercise of its power to investigate and decide cases brought to its cognizance, shall have the power to administer oaths, compel the attendance of witnesses by subpoena and the production of relevant documents by subpoena duces tecum. Non-compliance of violation of such orders or subpoena and subpoena duces tecum shall be punished in the same manner as indirect contempt of an inferior court upon application by the aggrieved party with the proper Court of First Instance in accordance with the provisions of Rules 71 of the Rules of the Court. Article 88. The Council shall have original jurisdiction over all disputes to relating to appropriation, utilization, exploitation, development, control, conservation and protection of waters within the meaning and context of the provisions of this Code. PUP COLLEGE OF LAW Page 133

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The decisions of the Council on water rights controversies shall be immediately executory and the enforcement thereof may be suspended only when a bond, in a amount fixed by the Council to answer for damages occasioned by the suspension or stay of execution, shall have been filed by the appealing party, unless the suspension is virtue of an order of a competent court. All dispute shall be decided within sixty (60) days after the parties submit the same for decision or resolution. The Council shall have the power to issue writs of execution and enforce its decisions with the assistance of local or national police agencies. Article 89. The decisions of the Council on water rights controversies may be appealed to the Court of First Instance of the province where the subject matter of the controversy is situated within fifteen (15) days from the date the party appealing receives a copy of the decision, on any of the following grounds; (1) grave abuse of discretion; (2) question of law; and (3) questions of fact and law. CHAPTER VIII PENAL PROVISIONS Article 90. The following acts shall be penalized by suspension or revocation of the violator's water permit or other right to the use of water and/or a fine of not exceeding One Thousand Pesos (P1,000.00), in the discretion of the Council: (a)Appropriation of subterranean or ground water for domestic use by an overlying landowner without registration required by the Council. (b) Non-observance of any standard of beneficial use of water. (c) Failure of the appropriator to keep a record of water withdrawal, when required. (d) Failure to comply with any of the terms or conditions in a water permit or a water rights grant. (e) Unauthorized use of water for a purpose other than that for which a right or permit was granted. (f) Construction or repair of any hydraulic work or structure without duly approved plans and specifications, when required. (g) Failure to install a regulating and measuring device for the control of the volume of water appropriated, when required. (h) Unauthorized sale, lease, or transfer of water and/or water rights. (i) Failure to provide adequate facilities to prevent or control diseases when required by the Council in the construction of any work for the storage, diversion, distribution and utilization of water. (j) Drilling of a well without permission of the Council. (k) Utilization of an existing well or ponding or spreading of water for recharging subterranean or ground water supplies without permission of the Council. (l) Violation of or non-compliance with any order, rules, or regulations of the Council. (m) Illegal taking or diversion of water in an open canal, aqueduct or reservoir. PUP COLLEGE OF LAW Page 134

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(n) Malicious destruction of hydraulic works or structure valued at not exceeding P5,000.00. Article 91. A. A fine of not exceeding Three Thousand Pesos (P3,000.00) or imprisonment for not more than three (3) years, or both such fine and imprisonment, in the discretion of the Court, shall be imposed upon any person who commits any of the following acts: 1. Appropriation of water without a water permit, unless such person is expressly exempted from securing a permit by the provisions of this Code. 2. Unauthorized obstruction of an irrigation canal. 3. Cultivation of a river bed, sand bar or tidal flat without permission. 4. Malicious destruction of hydraulic works or structure valued at not exceeding Twenty-Five Thousand Pesos (P25,000.00). B. A fine exceeding Three Thousand Pesos P3,000.00) but not more than Six Thousand Pesos P6,000.00) or imprisonment exceeding three (3) years but not more than six (6) years, or both such fine and imprisonment in the discretion of the Court, shall be imposed on any person who commits any of the following acts: 1. Distribution for public consumption of water which adversely affects the health and safety of the public. 2. Excavation or enlargement of the opening of a hot spring without permission. 3. Unauthorized obstruction of a river or waterway, or occupancy of a river bank or seashore without permission. 4. Establishment of a cemetery or a waste disposal area near a source of water supply or reservoir for domestic municipal use without permission. 5. Constructing, without prior permission of the government agency concerned, works that produce dangerous or noxious substances, or performing acts that result in the introduction of sewage, industrial waste, or any substance that pollutes a source of water supply. 6. Dumping mine tailings and sediments into rivers of waterways without permission. 7. Malicious destruction of hydraulic works or structure valued more than Twenty-Five Thousand Pesos (P25,000.00) but at not exceeding One Hundred Thousand Peso (100,000.00). C. A fine exceeding Six Thousand Pesos (P6,000.00) but not more than Ten Thousand Pesos (P10,000.00) or imprisonment exceeding six (6) years but not more than twelve (12) years, or both such fine and imprisonment, in the discretion of the Court, shall be imposed upon any person who commits any of the following acts: 1. Misrepresentation of citizenship in order to qualify for water permit. 2. Malicious destruction of a hydraulic works or structure, valued at more than One Hundred Thousand Pesos (P100,000.00).

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Article 92. If the offense is committed by a corporation, trust, firm, partnership, association or any other juridical person, the penalty shall be imposed upon the President, General Manager, and other guilty officer or officers of such corporation, trust firm, partnership, association or entity, without prejudice to the filing of a civil action against said juridical person. If the offender is an alien, he shall be deported after serving his sentence, without further proceedings. After final judgment of conviction, the Court upon petition of the prosecution attorney in the same proceedings, and after due hearing, may, when the public interest so requires, order suspension of or dissolution of such corporation, trust, firm, partnership, association or juridical person. Article 93. All actions for offenses punishable under Article 91 of this Code shall be brought before the proper court. Article 94. Actions for offenses punishable under this Code by a fine of not more than Three Thousand Pesos (P3,000.00) or by an imprisonment of not more than three (3) years, or both such fine and imprisonment, shall prescribe in five (5) years; those punishable by a fine exceeding Three Thousand Pesos (P3,000.00) but not more than Six Thousand Pesos (P6,000.00) or an imprisonment exceeding three (3) years but not more than six (6) years, or both such fine and imprisonment, shall prescribe in seven (7) years; and those punishable by a fine exceeding Six Thousand Pesos (P6,000.00) but not more than Ten Thousand Pesos (P10,000.00) or an imprisonment exceeding six (6) years but not more than twelve (12) years, or both such fine and imprisonment, shall prescribe in ten (10) years. CHAPTER IX TRANSITORY AND FINAL PROVISIONS Article 95. Within two (2) years from the promulgation of this Code, all claims for a right to use water existing on or before December 31, 1974 shall be registered with the Council which shall confirm said rights in accordance with the provisions of this Code, and shall set their respective priorities. When priority in time of appropriation from a certain source of supply cannot be determined, the order of preference in the use of the waters shall be as follows: (a) Domestic and municipal use (b) Irrigation (c) Power generation (d) Fisheries (e) Livestock raising (f) Industrial use, and (g) Other uses. Any claim not registered within said period shall be considered waived and the use of the water deemed abandoned, and the water shall thereupon be available for disposition as unappropriated waters in accordance with the provisions of this Code. Article 96. No vested or acquired right to the use of water can arise from acts or omissions which are against the law or which infringe upon the rights of others. PUP COLLEGE OF LAW Page 136

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Article 97. Acts and contract under the regime of old laws, if they are valid in accordance therewith, shall be respected, subject to the limitations established in this Code. Any modification or extension of these acts and contracts after the promulgation of this Code, shall be subject to the provisions hereof. Article 98. Interim rules and regulations promulgated by the Council shall continue to have binding force and effect, when not in conflict with the provisions of this Code. Article 99. If any provision or part of this Code, or the application thereof to any person or circumstance, is declared unconstitutional or invalid for any reason, the other provisions or parts therein shall not be affected. Article 100. The following laws, parts and/or provisions of laws are hereby repealed: (a) The provisions of the Spanish Law on Waters of August 3, 1866, the Civil Code of Spain of 1889 and the Civil Code of the Philippines (R.A. 386) on ownership of waters, easements relating to waters, use of public waters and acquisitive prescription on the use of waters, which are inconsistent with the provisions of this Code; (b) The provisions of R.A. 6395, otherwise known as the Revised Charter of National Power Corporation, particularly section 3, paragraph (f), and section 12, insofar as they relate to the appropriation of waters and the grant thereof; (c) The provisions of Act No. 2152, as amended, otherwise known as the Irrigation Act, section 3, paragraphs (k) and (m) of P.D. No. 813, R.A. 2056; Section 90, C.A. 137; and, (d) All Decree, Laws, Acts, parts of Acts, rules of Court, executive orders, and administrative regulations which are contrary to or inconsistent with the provisions of this Code. Article 101. This Code shall take effect upon its promulgation. Done in the City of Manila, this 31st day of December, Nineteen Hundred and Seventy-Six.

MINERALS:
ARTICLE XII NATIONAL ECONOMY AND PATRIMONY Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or productionsharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may be the measure and limit of the grant. The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens. The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays, and lagoons. PUP COLLEGE OF LAW Page 137

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The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution. Section 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands and national parks. Agricultural lands of the public domain may be further classified by law according to the uses to which they may be devoted. Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area. Citizens of the Philippines may lease not more than five hundred hectares, or acquire not more than twelve hectares thereof, by purchase, homestead, or grant. Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor.

TRADEMARKS AND TRADE NAMES:

McDonalds vs. LC Big Mak, G.R. No. 143993, August 28, 2004 The Case This is a petition for review1 of the Decision dated 26 November 1999 of the Court of Appeals 2 finding respondent L.C. Big Mak Burger, Inc. not liable for trademark infringement and unfair competition and ordering petitioners to pay respondents P1,900,000 in damages, and of its Resolution dated 11 July 2000 denying reconsideration. The Court of Appeals' Decision reversed the 5 September 1994 Decision 3 of the Regional Trial Court of Makati, Branch 137, finding respondent L.C. Big Mak Burger, Inc. liable for trademark infringement and unfair competition. The Facts Petitioner McDonald's Corporation ("McDonald's") is a corporation organized under the laws of Delaware, United States. McDonald's operates, by itself or through its franchisees, a global chain of fast-food restaurants. McDonald's4 owns a family of marks5 including the "Big Mac" mark for its "double-decker hamburger sandwich."6McDonald's registered this trademark with the United States Trademark Registry on 16 October 1979.7 Based on this Home Registration, McDonald's applied for the registration of the same mark in the Principal Register of the then Philippine Bureau of Patents, Trademarks and Technology ("PBPTT"), now the Intellectual Property Office ("IPO"). Pending approval of its application, McDonald's introduced its "Big Mac" hamburger sandwiches in the Philippine market in September 1981. On 18 July 1985, the PBPTT allowed registration of the "Big Mac" mark in the Principal Register based on its Home Registration in the United States.

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Like its other marks, McDonald's displays the "Big Mac" mark in items 8 and paraphernalia9 in its restaurants, and in its outdoor and indoor signages. From 1982 to 1990, McDonald's spent P10.5 million in advertisement for "Big Mac" hamburger sandwiches alone.10 Petitioner McGeorge Food Industries ("petitioner McGeorge"), a domestic corporation, is McDonald's Philippine franchisee.11 Respondent L.C. Big Mak Burger, Inc. ("respondent corporation") is a domestic corporation which operates fastfood outlets and snack vans in Metro Manila and nearby provinces. 12 Respondent corporation's menu includes hamburger sandwiches and other food items. 13 Respondents Francis B. Dy, Edna A. Dy, Rene B. Dy, William B. Dy, Jesus Aycardo, Araceli Aycardo, and Grace Huerto ("private respondents") are the incorporators, stockholders and directors of respondent corporation.14 On 21 October 1988, respondent corporation applied with the PBPTT for the registration of the "Big Mak" mark for its hamburger sandwiches. McDonald's opposed respondent corporation's application on the ground that "Big Mak" was a colorable imitation of its registered "Big Mac" mark for the same food products. McDonald's also informed respondent Francis Dy ("respondent Dy"), the chairman of the Board of Directors of respondent corporation, of its exclusive right to the "Big Mac" mark and requested him to desist from using the "Big Mac" mark or any similar mark. Having received no reply from respondent Dy, petitioners on 6 June 1990 sued respondents in the Regional Trial Court of Makati, Branch 137 ("RTC"), for trademark infringement and unfair competition. In its Order of 11 July 1990, the RTC issued a temporary restraining order ("TRO") against respondents enjoining them from using the "Big Mak" mark in the operation of their business in the National Capital Region.15 On 16 August 1990, the RTC issued a writ of preliminary injunction replacing the TRO.16 In their Answer, respondents admitted that they have been using the name "Big Mak Burger" for their fast-food business. Respondents claimed, however, that McDonald's does not have an exclusive right to the "Big Mac" mark or to any other similar mark. Respondents point out that the Isaiyas Group of Corporations ("Isaiyas Group") registered the same mark for hamburger sandwiches with the PBPTT on 31 March 1979. One Rodolfo Topacio ("Topacio") similarly registered the same mark on 24 June 1983, prior to McDonald's registration on 18 July 1985.Alternatively, respondents claimed that they are not liable for trademark infringement or for unfair competition, as the "Big Mak" mark they sought to register does not constitute a colorable imitation of the "Big Mac" mark. Respondents asserted that they did not fraudulently pass off their hamburger sandwiches as those of petitioners' Big Mac hamburgers.17 Respondents sought damages in their counterclaim. In their Reply, petitioners denied respondents' claim that McDonald's is not the exclusive owner of the "Big Mac" mark. Petitioners asserted that while the Isaiyas Group and Topacio did register the "Big Mac" mark ahead of McDonald's, the Isaiyas Group did so only in the Supplemental Register of the PBPTT and such registration does PUP COLLEGE OF LAW Page 139

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not provide any protection. McDonald's disclosed that it had acquired Topacio's rights to his registration in a Deed of Assignment dated 18 May 1981.18 The Trial Court's Ruling On 5 September 1994, the RTC rendered judgment ("RTC Decision") finding respondent corporation liable for trademark infringement and unfair competition. However, the RTC dismissed the complaint against private respondents and the counterclaim against petitioners for lack of merit and insufficiency of evidence. The RTC held: Undeniably, the mark "B[ig] M[ac]" is a registered trademark for plaintiff McDonald's, and as such, it is entitled [to] protection against infringement. xxxx There exist some distinctions between the names "B[ig] M[ac]" and "B[ig] M[ak]" as appearing in the respective signages, wrappers and containers of the food products of the parties. But infringement goes beyond the physical features of the questioned name and the original name. There are still other factors to be considered. xxxx Significantly, the contending parties are both in the business of fast-food chains and restaurants. An average person who is hungry and wants to eat a hamburger sandwich may not be discriminating enough to look for a McDonald's restaurant and buy a "B[ig] M[ac]" hamburger. Once he sees a stall selling hamburger sandwich, in all likelihood, he will dip into his pocket and order a "B[ig] M[ak]" hamburger sandwich. Plaintiff McDonald's fast-food chain has attained wide popularity and acceptance by the consuming public so much so that its air-conditioned food outlets and restaurants will perhaps not be mistaken by many to be the same as defendant corporation's mobile snack vans located along busy streets or highways. But the thing is that what is being sold by both contending parties is a food item a hamburger sandwich which is for immediate consumption, so that a buyer may easily be confused or deceived into thinking that the "B[ig] M[ak]" hamburger sandwich he bought is a food-product of plaintiff McDonald's, or a subsidiary or allied outlet thereof. Surely, defendant corporation has its own secret ingredients to make its hamburger sandwiches as palatable and as tasty as the other brands in the market, considering the keen competition among mushrooming hamburger stands and multinational fast-food chains and restaurants. Hence, the trademark "B[ig] M[ac]" has been infringed by defendant corporation when it used the name "B[ig] M[ak]" in its signages, wrappers, and containers in connection with its food business. xxxx

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Did the same acts of defendants in using the name "B[ig] M[ak]" as a trademark or tradename in their signages, or in causing the name "B[ig] M[ak]" to be printed on the wrappers and containers of their food products also constitute an act of unfair competition under Section 29 of the Trademark Law? The answer is in the affirmative. xxxx The xxx provision of the law concerning unfair competition is broader and more inclusive than the lawconcerning the infringement of trademark, which is of more limited range, but within its narrower range recognizes a more exclusive right derived by the adoption and registration of the trademark by the person whose goods or services are first associated therewith. xxx Notwithstanding the distinction between an action for trademark infringement and an action for unfair competition, however, the law extends substantially the same relief to the injured party for both cases. (See Sections 23 and 29 of Republic Act No. 166) Any conduct may be said to constitute unfair competition if the effect is to pass off on the public the goods of one man as the goods of another. The choice of "B[ig] M[ak]" as tradename by defendant corporation is not merely for sentimental reasons but was clearly made to take advantage of the reputation, popularity and the established goodwill of plaintiff McDonald's. For, as stated in Section 29, a person is guilty of unfair competition who in selling his goods shall give them the general appearance, of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon, or in any other feature of their appearance, which would likely influence purchasers to believe that the goods offered are those of a manufacturer or dealer other than the actual manufacturer or dealer. Thus, plaintiffs have established their valid cause of action against the defendants for trademark infringement and unfair competition and for damages. 19 The dispositive portion of the RTC Decision provides: WHEREFORE, judgment is rendered in favor of plaintiffs McDonald's Corporation and McGeorge Food Industries, Inc. and against defendant L.C. Big Mak Burger, Inc., as follows: 1. The writ of preliminary injunction issued in this case on [16 August 1990] is made permanent; 2. Defendant L.C. Big Mak Burger, Inc. is ordered to pay plaintiffs actual damages in the amount ofP400,000.00, exemplary damages in the amount of P100,000.00, and attorney's fees and expenses of litigation in the amount of P100,000.00; 3. The complaint against defendants Francis B. Dy, Edna A. Dy, Rene B. Dy, Wiliam B. Dy, Jesus Aycardo, Araceli Aycardo and Grace Huerto, as well as all counter-claims, are dismissed for lack of merit as well asfor insufficiency of evidence.20 PUP COLLEGE OF LAW Page 141

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Respondents appealed to the Court of Appeals. The Ruling of the Court of Appeals On 26 November 1999, the Court of Appeals rendered judgment ("Court of Appeals' Decision") reversing the RTC Decision and ordering McDonald's to pay respondents P1,600,000 as actual and compensatory damages and P300,000 as moral damages. The Court of Appeals held: Plaintiffs-appellees in the instant case would like to impress on this Court that the use of defendantsappellants of its corporate name the whole "L.C. B[ig] M[ak] B[urger], I[nc]." which appears on their food packages, signages and advertisements is an infringement of their trademark "B[ig] M[ac]" which they use to identify [their] double decker sandwich, sold in a Styrofoam box packaging material with the McDonald's logo of umbrella "M" stamped thereon, together with the printed mark in red bl[o]ck capital letters, the words being separated by a single space. Specifically, plaintiffs-appellees argue that defendants-appellants' use of their corporate name is a colorable imitation of their trademark "Big Mac". xxxx To Our mind, however, this Court is fully convinced that no colorable imitation exists. As the definition dictates, it is not sufficient that a similarity exists in both names, but that more importantly, the over-all presentation, or in their essential, substantive and distinctive parts is such as would likely MISLEAD or CONFUSE persons in the ordinary course of purchasing the genuine article. A careful comparison of the way the trademark "B[ig] M[ac]" is being used by plaintiffs-appellees and corporate name L.C. Big Mak Burger, Inc. by defendants-appellants, would readily reveal that no confusion could take place, or that the ordinary purchasers would be misled by it. As pointed out by defendants-appellants, the plaintiffsappellees' trademark is used to designate only one product, a double decker sandwich sold in a Styrofoam box with the "McDonalds" logo. On the other hand, what the defendants-appellants corporation is using is not a trademark for its food product but a business or corporate name. They use the business name "L.C. Big Mak Burger, Inc." in their restaurant business which serves diversified food items such as siopao, noodles, pizza, and sandwiches such as hotdog, ham, fish burger and hamburger. Secondly, defendantsappellants' corporate or business name appearing in the food packages and signages are written in silhouette red-orange letters with the "b" and "m" in upper case letters. Above the words "Big Mak" are the upper case letter "L.C.". Below the words "Big Mak" are the words "Burger, Inc." spelled out in upper case letters.Furthermore, said corporate or business name appearing in such food packages and signages is always accompanied by the company mascot, a young chubby boy named Maky who wears a red T-shirt with the upper case "m" appearing therein and a blue lower garment. Finally, the defendants-appellants' food packages are made of plastic material. xxxx PUP COLLEGE OF LAW Page 142

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xxx [I]t is readily apparent to the naked eye that there appears a vast difference in the appearance of the product and the manner that the tradename "Big Mak" is being used and presented to the public. As earlier noted, there are glaring dissimilarities between plaintiffs-appellees' trademark and defendants-appellants' corporate name. Plaintiffs-appellees' product carrying the trademark "B[ig] M[ac]" is a double decker sandwich (depicted in the tray mat containing photographs of the various food products xxx sold in a Styrofoam box with the "McDonald's" logo and trademark in red, bl[o]ck capital letters printed thereon xxx at a price which is more expensive than the defendants-appellants' comparable food products. In order to buy a "Big Mac", a customer needs to visit an air-conditioned "McDonald's" restaurant usually located in a nearby commercial center, advertised and identified by its logo - the umbrella "M", and its mascot "Ronald McDonald". A typical McDonald's restaurant boasts of a playground for kids, a second floor to accommodateadditional customers, a drive-thru to allow customers with cars to make orders without alighting from their vehicles, the interiors of the building are well-lighted, distinctly decorated and painted with pastel colors xxx. In buying a "B[ig] M[ac]", it is necessary to specify it by its trademark. Thus, a customer needs to look for a "McDonald's" and enter it first before he can find a hamburger sandwich which carry the mark "Big Mac". On the other hand, defendants-appellants sell their goods through snack vans xxxx Anent the allegation that defendants-appellants are guilty of unfair competition, We likewise find the same untenable. Unfair competition is defined as "the employment of deception or any other means contrary to good faith by which a person shall pass off the goods manufactured by him or in which he deals, or his business, or service, for those of another who has already established good will for his similar good, business or services, or any acts calculated to produce the same result" (Sec. 29, Rep. Act No. 166, as amended). To constitute unfair competition therefore it must necessarily follow that there was malice and that the entity concerned was in bad faith. In the case at bar, We find no sufficient evidence adduced by plaintiffs-appellees that defendants-appellants deliberately tried to pass off the goods manufactured by them for those of plaintiffs-appellees. The mere suspected similarity in the sound of the defendants-appellants' corporate name with the plaintiffsappellees' trademark is not sufficient evidence to conclude unfair competition. Defendants-appellants explained that the name "M[ak]" in their corporate name was derived from both the first names of the mother and father of defendant Francis Dy, whose names are Maxima and Kimsoy. With this explanation, it is up to the plaintiffs-appellees to prove bad faith on the part of defendants-appellants. It is a settled rule that the law always presumes good faith such that any person who seeks to be awarded damages due to acts of another has the burden of proving that the latter acted in bad faith or with ill motive. 21

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Petitioners sought reconsideration of the Court of Appeals' Decision but the appellate court denied their motion in its Resolution of 11 July 2000. Hence, this petition for review. Petitioners raise the following grounds for their petition: I. THE COURT OF APPEALS ERRED IN FINDING THAT RESPONDENTS' CORPORATE NAME "L.C. BIG MAK BURGER, INC." IS NOT A COLORABLE IMITATION OF THE MCDONALD'S TRADEMARK "BIG MAC", SUCH COLORABLE IMITATION BEING AN ELEMENT OF TRADEMARK INFRINGEMENT. A. Respondents use the words "Big Mak" as trademark for their products and not merely as their business or corporate name. B. As a trademark, respondents' "Big Mak" is undeniably and unquestionably similar to petitioners' "Big Mac" trademark based on the dominancy test and the idem sonans test resulting inexorably in confusion on the part of the consuming public. II. THE COURT OF APPEALS ERRED IN REFUSING TO CONSIDER THE INHERENT SIMILARITY BETWEEN THE MARK "BIG MAK" AND THE WORD MARK "BIG MAC" AS AN INDICATION OF RESPONDENTS' INTENT TO DECEIVE OR DEFRAUD FOR PURPOSES OF ESTABLISHING UNFAIR COMPETITION.22 Petitioners pray that we set aside the Court of Appeals' Decision and reinstate the RTC Decision. In their Comment to the petition, respondents question the propriety of this petition as it allegedly raises only questions of fact. On the merits, respondents contend that the Court of Appeals committed no reversible error in finding them not liable for trademark infringement and unfair competition and in ordering petitioners to pay damages. The Issues The issues are: 1. Procedurally, whether the questions raised in this petition are proper for a petition for review under Rule 45. 2. On the merits, (a) whether respondents used the words "Big Mak" not only as part of the corporate name "L.C. Big Mak Burger, Inc." but also as a trademark for their hamburger products, and (b) whether respondent corporation is liable for trademark infringement and unfair competition. 23

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The Court's Ruling The petition has merit. On Whether the Questions Raised in the Petition are Proper for a Petition for Review A party intending to appeal from a judgment of the Court of Appeals may file with this Court a petition for review under Section 1 of Rule 45 ("Section 1")24 raising only questions of law. A question of law exists when the doubt or difference arises on what the law is on a certain state of facts. There is a question of fact when the doubt or difference arises on the truth or falsity of the alleged facts. 25 Here, petitioners raise questions of fact and law in assailing the Court of Appeals' findings on respondent corporation's non-liability for trademark infringement and unfair competition. Ordinarily, the Court can deny due course to such a petition. In view, however, of the contradictory findings of fact of the RTC and Court of Appeals, the Court opts to accept the petition, this being one of the recognized exceptions to Section 1. 26 We took a similar course of action in Asia Brewery, Inc. v. Court of Appeals27 which also involved a suit for trademark infringement and unfair competition in which the trial court and the Court of Appeals arrived at conflicting findings. On the Manner Respondents Used

"Big Mak" in their Business Petitioners contend that the Court of Appeals erred in ruling that the corporate name "L.C. Big Mak Burger, Inc." appears in the packaging for respondents' hamburger products and not the words "Big Mak" only. The contention has merit. The evidence presented during the hearings on petitioners' motion for the issuance of a writ of preliminary injunction shows that the plastic wrappings and plastic bags used by respondents for their hamburger sandwiches bore the words "Big Mak." The other descriptive words "burger" and "100% pure beef" were set in smaller type, along with the locations of branches.28 Respondents' cash invoices simply refer to their hamburger sandwiches as "Big Mak."29 It is respondents' snack vans that carry the words "L.C. Big Mak Burger, Inc." 30 It was only during the trial that respondents presented in evidence the plastic wrappers and bags for their hamburger sandwiches relied on by the Court of Appeals.31 Respondents' plastic wrappers and bags were identical with those petitioners presented during the hearings for the injunctive writ except that the letters "L.C." and the words "Burger, Inc." in respondents' evidence were added above and below the words "Big Mak," respectively. Since petitioners' complaint was based on facts existing before and during the hearings on the injunctive writ, the facts

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established during those hearings are the proper factual bases for the disposition of the issues raised in this petition. On the Issue of Trademark Infringement Section 22 ("Section 22) of Republic Act No. 166, as amended ("RA 166"), the law applicable to this case, 32defines trademark infringement as follows: Infringement, what constitutes. Any person who [1] shall use, without the consent of the

registrant, anyreproduction, counterfeit, copy or colorable imitation of any registered mark or tradename in connection with the sale, offering for sale, or advertising of any goods, business or services on or in connection withwhich such use is likely to cause confusion or mistake or to deceive purchasers or others as to the source or origin of such goods or services, or identity of such business; or [2] reproduce, counterfeit, copy, or colorably imitate any such mark or trade-name and apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers, receptacles or advertisements intended to be usedupon or in connection with such goods, business or services, shall be liable to a civil action by the registrant for any or all of the remedies herein provided.33 Petitioners base their cause of action under the first part of Section 22, i.e. respondents allegedly used, without petitioners' consent, a colorable imitation of the "Big Mac" mark in advertising and selling respondents' hamburger sandwiches. This likely caused confusion in the mind of the purchasing public on the source of the hamburgers or the identity of the business. To establish trademark infringement, the following elements must be shown: (1) the validity of plaintiff's mark; (2) the plaintiff's ownership of the mark; and (3) the use of the mark or its colorable imitation by the alleged infringer results in "likelihood of confusion."34 Of these, it is the element of likelihood of confusion that is the gravamen of trademark infringement.35 On the Validity of the "Big Mac"Mark

and McDonald's Ownership of such Mark A mark is valid if it is "distinctive" and thus not barred from registration under Section 4 36 of RA 166 ("Section 4").However, once registered, not only the mark's validity but also the registrant's ownership of the mark is prima facie presumed.37 Respondents contend that of the two words in the "Big Mac" mark, it is only the word "Mac" that is valid because the word "Big" is generic and descriptive (proscribed under Section 4[e]), and thus "incapable of exclusive appropriation."38

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The contention has no merit. The "Big Mac" mark, which should be treated in its entirety and not dissected word for word,39 is neither generic nor descriptive. Generic marks are commonly used as the name or description of akind of goods,40 such as "Lite" for beer41 or "Chocolate Fudge" for chocolate soda drink.42 Descriptive marks, on the other hand, convey the characteristics, functions, qualities or ingredients of a product to one who has never seen it or does not know it exists,43 such as "Arthriticare" for arthritis medication.44 On the contrary, "Big Mac" falls under the class of fanciful or arbitrary marks as it bears no logical relation to the actual characteristics of the product it represents.45 As such, it is highly distinctive and thus valid. Significantly, the trademark "Little Debbie" for snack cakes was found arbitrary or fanciful.46 The Court also finds that petitioners have duly established McDonald's exclusive ownership of the "Big Mac" mark. Although Topacio and the Isaiyas Group registered the "Big Mac" mark ahead of McDonald's, Topacio, as petitioners disclosed, had already assigned his rights to McDonald's. The Isaiyas Group, on the other hand, registered its trademark only in the Supplemental Register. A mark which is not registered in the PrincipalRegister, and thus not distinctive, has no real protection.47 Indeed, we have held that registration in the Supplemental Register is not even a prima facie evidence of the validity of the registrant's exclusive right to use the mark on the goods specified in the certificate.48 On Types of Confusion Section 22 covers two types of confusion arising from the use of similar or colorable imitation marks, namely, confusion of goods (product confusion) and confusion of business (source or origin confusion). In Sterling Products International, Incorporated v. Farbenfabriken Bayer Aktiengesellschaft, et al.,49 the Court distinguished these two types of confusion, thus: [Rudolf] Callman notes two types of confusion. The first is the confusion of goods "in which event the ordinarily prudent purchaser would be induced to purchase one product in the belief that he was purchasing the other." xxx The other is the confusion of business: "Here though the goods of the parties are different, the defendant's product is such as might reasonably be assumed to originate with the plaintiff, and the public would then be deceived either into that belief or into the belief that there is some connection between the plaintiff and defendant which, in fact, does not exist." Under Act No. 666,50 the first trademark law, infringement was limited to confusion of goods only, when the infringing mark is used on "goods of a similar kind." 51 Thus, no relief was afforded to the party whose registered mark or its colorable imitation is used on different although related goods. To remedy this situation, Congress enacted RA 166 on 20 June 1947. In defining trademark infringement, Section 22 of RA 166 deleted the requirement in question and expanded its scope to include such use of the mark or its colorable imitation that is likely to result in confusion on "the source or origin of such goods or services, or identity of such business." 52Thus, while there is confusion of goods when the products are competing, confusion of business exists when the products are non-competing but related enough to produce confusion of affiliation.53 PUP COLLEGE OF LAW Page 147

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On Whether Confusion of Goods and

Confusion of Business are Applicable Petitioners claim that respondents' use of the "Big Mak" mark on respondents' hamburgers results in confusion of goods, particularly with respect to petitioners' hamburgers labeled "Big Mac." Thus, petitioners alleged in their complaint: 1.15. Defendants have unduly prejudiced and clearly infringed upon the property rights of plaintiffs in the McDonald's Marks, particularly the mark "B[ig] M[ac]". Defendants' unauthorized acts are likely, and calculated, to confuse, mislead or deceive the public into believing that the products and services offered by defendant Big Mak Burger, and the business it is engaged in, are approved and sponsored by, or affiliated with, plaintiffs.54 (Emphasis supplied) Since respondents used the "Big Mak" mark on the same goods, i.e. hamburger sandwiches, that petitioners' "Big Mac" mark is used, trademark infringement through confusion of goods is a proper issue in this case. Petitioners also claim that respondents' use of the "Big Mak" mark in the sale of hamburgers, the same business that petitioners are engaged in, results in confusion of business. Petitioners alleged in their complaint: 1.10. For some period of time, and without the consent of plaintiff McDonald's nor its licensee/franchisee, plaintiff McGeorge, and in clear violation of plaintiffs' exclusive right to use and/or appropriate the McDonald's marks, defendant Big Mak Burger acting through individual defendants, has been operating "Big Mak Burger", a fast food restaurant business dealing in the sale of hamburger and cheeseburger sandwiches, french fries and other food products, and has caused to be printed on the wrapper of defendant's food products and incorporated in its signages the name "Big Mak Burger", which is confusingly similar to and/or is a colorable imitation of the plaintiff McDonald's mark "B[ig] M[ac]", xxx. Defendant Big Mak Burger has thus unjustly created the impression that its business is approved and sponsored by, or affiliated with, plaintiffs . xxxx 2.2 As a consequence of the acts committed by defendants, which unduly prejudice and infringe upon the property rights of plaintiffs McDonald's and McGeorge as the real owner and rightful proprietor, and the licensee/franchisee, respectively, of the McDonald's marks, and which are likely to have caused confusion or deceived the public as to the true source, sponsorship or affiliation of defendants' food products and restaurant business, plaintiffs have suffered and continue to suffer actual damages in the form of injury to their business reputation and goodwill, and of the dilution of the distinctive quality of the McDonald's marks, in particular, the mark "B[ig] M[ac]".55 (Emphasis supplied)

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Respondents admit that their business includes selling hamburger sandwiches, the same food product that petitioners sell using the "Big Mac" mark. Thus , trademark infringement through confusion of business is also a proper issue in this case. Respondents assert that their "Big Mak" hamburgers cater mainly to the low-income group while petitioners' "Big Mac" hamburgers cater to the middle and upper income groups. Even if this is true, the likelihood of confusion of business remains, since the low-income group might be led to believe that the "Big Mak" hamburgers are the lowend hamburgers marketed by petitioners. After all, petitioners have the exclusive right to use the "Big Mac" mark.On the other hand, respondents would benefit by associating their low-end hamburgers, through the use of the "Big Mak" mark, with petitioners' high-end "Big Mac" hamburgers, leading to likelihood of confusion in the identity of business. Respondents further claim that petitioners use the "Big Mac" mark only on petitioners' double-decker hamburgers, while respondents use the "Big Mak" mark on hamburgers and other products like siopao, noodles and pizza. Respondents also point out that petitioners sell their Big Mac double-deckers in a styrofoam box with the "McDonald's" logo and trademark in red, block letters at a price more expensive than the hamburgers of respondents. In contrast, respondents sell their Big Mak hamburgers in plastic wrappers and plastic bags. Respondents further point out that petitioners' restaurants are air-conditioned buildings with drive-thru service, compared to respondents' mobile vans. These and other factors respondents cite cannot negate the undisputed fact that respondents use their "Big Mak" mark on hamburgers, the same food product that petitioners' sell with the use of their registered mark "Big Mac." Whether a hamburger is single, double or triple-decker, and whether wrapped in plastic or styrofoam, it remains the same hamburger food product. Even respondents' use of the "Big Mak" mark on non-hamburger food products cannot excuse their infringement of petitioners' registered mark, otherwise registered marks will lose their protection under the law. The registered trademark owner may use his mark on the same or similar products, in different segments of the market, and at different price levels depending on variations of the products for specific segments of the market. The Court has recognized that the registered trademark owner enjoys protection in product and market areas that are the normal potential expansion of his business. Thus, the Court has declared: Modern law recognizes that the protection to which the owner of a trademark is entitled is not limited to guarding his goods or business from actual market competition with identical or similar products of the parties, but extends to all cases in which the use by a junior appropriator of a trade-mark or trade-name is likely to lead to a confusion of source, as where prospective purchasers would be misled into thinking that the complaining party has extended his business into the field (see 148 ALR 56 et seq; 53 Am Jur. 576) or is in any way connected with the activities of the infringer; or when it forestalls the normal potential expansion of his business (v. 148 ALR, 77, 84; 52 Am. Jur. 576, 577).56 (Emphasis supplied) PUP COLLEGE OF LAW Page 149

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On Whether Respondents' Use of the "Big Mak"

Mark Results in Likelihood of Confusion In determining likelihood of confusion, jurisprudence has developed two tests, the dominancy test and the holistic test.57 The dominancy test focuses on the similarity of the prevalent features of the competing trademarks that might cause confusion. In contrast, the holistic test requires the court to consider the entirety of the marks as applied to the products, including the labels and packaging, in determining confusing similarity. The Court of Appeals, in finding that there is no likelihood of confusion that could arise in the use of respondents' "Big Mak" mark on hamburgers, relied on the holistic test. Thus, the Court of Appeals ruled that "it is not sufficientthat a similarity exists in both name(s), but that more importantly, the overall presentation, or in their essential, substantive and distinctive parts is such as would likely MISLEAD or CONFUSE persons in the ordinary course of purchasing the genuine article." The holistic test considers the two marks in their entirety, as they appear on the goods with their labels and packaging. It is not enough to consider their words and compare the spelling and pronunciation of the words.58 Respondents now vigorously argue that the Court of Appeals' application of the holistic test to this case is correct and in accord with prevailing jurisprudence. This Court, however, has relied on the dominancy test rather than the holistic test. The dominancy test considers the dominant features in the competing marks in determining whether they are confusingly similar. Under the dominancy test, courts give greater weight to the similarity of the appearance of the product arising from theadoption of the dominant features of the registered mark, disregarding minor differences.59 Courts will consider more the aural and visual impressions created by the marks in the public mind, giving little weight to factors like prices, quality, sales outlets and market segments. Thus, in the 1954 case of Co Tiong Sa v. Director of Patents,60 the Court ruled: xxx It has been consistently held that the question of infringement of a trademark is to be determined by the test of dominancy. Similarity in size, form and color, while relevant, is not conclusive. If the competing trademark contains the main or essential or dominant features of another, and confusion and deception is likely to result, infringement takes place . Duplication or imitation is not necessary; nor is it necessary that the infringing label should suggest an effort to imitate. (G. Heilman Brewing Co. vs. Independent Brewing Co., 191 F., 489, 495, citing Eagle White Lead Co. vs. Pflugh (CC) 180 Fed. 579). The question at issue in cases of infringement of trademarks is whether the use of the marks involved would be likely to cause confusion or mistakes in the mind of the public or deceive purchasers. (Auburn Rubber Corporation vs. Honover Rubber Co., 107 F. 2d 588; xxx) (Emphasis supplied.)

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The Court reiterated the dominancy test in Lim Hoa v. Director of Patents,61 Phil. Nut Industry, Inc. v. Standard Brands Inc.,62 Converse Rubber Corporation v. Universal Rubber Products, Inc.,63 and Asia Brewery, Inc. v. Court of Appeals .64 In the 2001 case of Societe Des Produits Nestl, S.A. v. Court of Appeals,65 the Court explicitly rejected the holistic test in this wise: [T]he totality or holistic test is contrary to the elementary postulate of the law on trademarks and unfair competition that confusing similarity is to be determined on the basis of visual, aural, connotative comparisons and overall impressions engendered by the marks in controversy as they areencountered in the realities of the marketplace. (Emphasis supplied) The test of dominancy is now explicitly incorporated into law in Section 155.1 of the Intellectual Property Code which defines infringement as the "colorable imitation of a registered mark xxx or a dominant feature thereof." Applying the dominancy test, the Court finds that respondents' use of the "Big Mak" mark results in likelihood of confusion. First, "Big Mak" sounds exactly the same as "Big Mac." Second, the first word in "Big Mak" is exactly the same as the first word in "Big Mac." Third, the first two letters in "Mak" are the same as the first two letters in "Mac." Fourth, the last letter in "Mak" while a "k" sounds the same as "c" when the word "Mak" is pronounced. Fifth, in Filipino, the letter "k" replaces "c" in spelling, thus "Caloocan" is spelled "Kalookan." In short, aurally the two marks are the same, with the first word of both marks phonetically the same, and the second word of both marks also phonetically the same. Visually, the two marks have both two words and six letters, with the first word of both marks having the same letters and the second word having the same first two letters. In spelling, considering the Filipino language, even the last letters of both marks are the same. Clearly, respondents have adopted in "Big Mak" not only the dominant but also almost all the features of "Big Mac." Applied to the same food product of hamburgers, the two marks will likely result in confusion in the public mind. The Court has taken into account the aural effects of the words and letters contained in the marks in determining the issue of confusing similarity. Thus, in Marvex Commercial Co., Inc. v. Petra Hawpia & Co., et al.,66 the Court held: The following random list of confusingly similar sounds in the matter of trademarks, culled from Nims, Unfair Competition and Trade Marks, 1947, Vol. 1, will reinforce our view that "SALONPAS" and "LIONPAS" are confusingly similar in sound: "Gold Dust" and "Gold Drop"; "Jantzen" and "Jass-Sea"; "Silver Flash" and "Supper Flash"; "Cascarete" and "Celborite"; "Celluloid" and "Cellonite"; "Chartreuse" and "Charseurs"; "Cutex" and "Cuticlean"; "Hebe" and "Meje"; "Kotex" and "Femetex"; "Zuso" and "Hoo Hoo". Leon Amdur, in his book "Trade-Mark Law and Practice", pp. 419-421, cities, as coming within the purview of the idem sonans rule, "Yusea" and "U-C-A", "Steinway Pianos" and "Steinberg Pianos", and PUP COLLEGE OF LAW Page 151

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"Seven-Up" and "Lemon-Up". In Co Tiong vs. Director of Patents, this Court unequivocally said that "Celdura" and "Cordura" are confusingly similar in sound; this Court held in Sapolin Co. vs. Balmaceda, 67 Phil. 795 that the name "Lusolin" is an infringement of the trademark "Sapolin", as the sound of the two names is almost the same. (Emphasis supplied) Certainly, "Big Mac" and "Big Mak" for hamburgers create even greater confusion, not only aurally but also visually. Indeed, a person cannot distinguish "Big Mac" from "Big Mak" by their sound. When one hears a "Big Mac" or "Big Mak" hamburger advertisement over the radio, one would not know whether the "Mac" or "Mak" ends with a "c" or a "k." Petitioners' aggressive promotion of the "Big Mac" mark, as borne by their advertisement expenses, has built goodwill and reputation for such mark making it one of the easily recognizable marks in the market today. Thisincreases the likelihood that consumers will mistakenly associate petitioners' hamburgers and business with those of respondents'. Respondents' inability to explain sufficiently how and why they came to choose "Big Mak" for their hamburger sandwiches indicates their intent to imitate petitioners' "Big Mac" mark. Contrary to the Court of Appeals' finding, respondents' claim that their "Big Mak" mark was inspired by the first names of respondent Dy's mother (Maxima) and father (Kimsoy) is not credible. As petitioners well noted: [R]espondents, particularly Respondent Mr. Francis Dy, could have arrived at a more creative choice for a corporate name by using the names of his parents, especially since he was allegedly driven by sentimental reasons. For one, he could have put his father's name ahead of his mother's, as is usually done in this patriarchal society, and derived letters from said names in that order. Or, he could have taken an equalnumber of letters (i.e., two) from each name, as is the more usual thing done. Surely, the more plausible reason behind Respondents' choice of the word "M[ak]", especially when taken in conjunction with the word "B[ig]", was their intent to take advantage of Petitioners' xxx "B[ig] M[ac]" trademark, with their allegedsentiment-focused "explanation" merely thought of as a convenient, albeit unavailing, excuse or defense for such an unfair choice of name.67 Absent proof that respondents' adoption of the "Big Mak" mark was due to honest mistake or was fortuitous,68 the inescapable conclusion is that respondents adopted the "Big Mak" mark to "ride on the coattails" of the more established "Big Mac" mark.69 This saves respondents much of the expense in advertising to create market recognition of their mark and hamburgers.70 Thus, we hold that confusion is likely to result in the public mind. We sustain petitioners' claim of trademark infringement.

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On Actual Confusion Petitioners' failure to present proof of actual confusion does not negate their claim of trademark infringement. As noted in American Wire & Cable Co. v. Director of Patents ,71 Section 22 requires the less stringent standard of "likelihood of confusion" only. While proof of actual confusion is the best evidence of infringement, its absence is inconsequential.72 On the Issue of Unfair Competition Section 29 ("Section 29")73 of RA 166 defines unfair competition, thus: xxxx Any person who will employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be subject to an action therefor. In particular, and without in any way limiting the scope of unfair competition, the following shall be deemed guilty of unfair competition: (a) Any person, who in selling his goods shall give them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon , or in any feature of their appearance, which would be likely to influence purchasers to believe that the goods offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or who otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade, or anysubsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose; (b) Any person who by any artifice, or device, or who employs any other means calculated to induce the false belief that such person is offering the services of another who has identified such services in the mind of the public; or (c) Any person who shall make any false statement in the course of trade or who shall commit any other act contrary to good faith of a nature calculated to discredit the goods, business or services of another. (Emphasis supplied) the Lack of Proof of

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The essential elements of an action for unfair competition are (1) confusing similarity in the general appearance of the goods, and (2) intent to deceive the public and defraud a competitor. 74 The confusing similarity may or may not result from similarity in the marks, but may result from other external factors in the packaging or presentation of the goods. The intent to deceive and defraud may be inferred from the similarity of the appearance of the goods as offered for sale to the public.75 Actual fraudulent intent need not be shown.76 Unfair competition is broader than trademark infringement and includes passing off goods with or without trademark infringement. Trademark infringement is a form of unfair competition. 77 Trademark infringement constitutes unfair competition when there is not merely likelihood of confusion, but also actual or probable deception on the public because of the general appearance of the goods. There can be trademark infringement without unfair competition as when the infringer discloses on the labels containing the mark that he manufactures the goods, thus preventing the public from being deceived that the goods originate from the trademark owner. 78 To support their claim of unfair competition, petitioners allege that respondents fraudulently passed off their hamburgers as "Big Mac" hamburgers. Petitioners add that respondents' fraudulent intent can be inferred from the similarity of the marks in question.79 Passing off (or palming off) takes place where the defendant, by imitative devices on the general appearance of the goods, misleads prospective purchasers into buying his merchandise under the impression that they are buying that of his competitors.80 Thus, the defendant gives his goods the general appearance of the goods of his competitor with the intention of deceiving the public that the goods are those of his competitor. The RTC described the respective marks and the goods of petitioners and respondents in this wise: The mark "B[ig] M[ac]" is used by plaintiff McDonald's to identify its double decker hamburger sandwich. The packaging material is a styrofoam box with the McDonald's logo and trademark in red with block capital letters printed on it. All letters of the "B[ig] M[ac]" mark are also in red and block capital letters. On the other hand, defendants' "B[ig] M[ak]" script print is in orange with only the letter "B" and "M" being capitalized and the packaging material is plastic wrapper. xxxx Further, plaintiffs' logo and mascot are the umbrella "M" and "Ronald McDonald's", respectively, compared to the mascot of defendant Corporation which is a chubby boy called "Macky" displayed or printed between the words "Big" and "Mak." 81 (Emphasis supplied) Respondents point to these dissimilarities as proof that they did not give their hamburgers the general appearance of petitioners' "Big Mac" hamburgers. The dissimilarities in the packaging are minor compared to the stark similarities in the words that give respondents' "Big Mak" hamburgers the general appearance of petitioners' "Big Mac" hamburgers. Section 29(a) expressly provides that the similarity in the general appearance of the goods may be in the "devices or words" used PUP COLLEGE OF LAW Page 154

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on the wrappings. Respondents have applied on their plastic wrappers and bags almost the same wordsthat petitioners use on their styrofoam box. What attracts the attention of the buying public are the words "Big Mak" which are almost the same, aurally and visually, as the words "Big Mac." The dissimilarities in the material and other devices are insignificant compared to the glaring similarity in the words used in the wrappings. Section 29(a) also provides that the defendant gives "his goods the general appearance of goods of another manufacturer." Respondents' goods are hamburgers which are also the goods of petitioners. If respondents sold egg sandwiches only instead of hamburger sandwiches, their use of the "Big Mak" mark would not give their goods the general appearance of petitioners' "Big Mac" hamburgers. In such case, there is only trademark infringement but no unfair competition. However, since respondents chose to apply the "Big Mak" mark on hamburgers, just like petitioner's use of the "Big Mac" mark on hamburgers, respondents have obviously clothed their goods with the general appearance of petitioners' goods. Moreover, there is no notice to the public that the "Big Mak" hamburgers are products of "L.C. Big Mak Burger, Inc." Respondents introduced during the trial plastic wrappers and bags with the words "L.C. Big Mak Burger, Inc." to inform the public of the name of the seller of the hamburgers. However, petitioners introduced during the injunctive hearings plastic wrappers and bags with the "Big Mak" mark without the name "L.C. Big Mak Burger, Inc." Respondents' belated presentation of plastic wrappers and bags bearing the name of "L.C. Big Mak Burger, Inc." as the seller of the hamburgers is an after-thought designed to exculpate them from their unfair business conduct. As earlier stated, we cannot consider respondents' evidence since petitioners' complaint was based on facts existing before and during the injunctive hearings. Thus, there is actually no notice to the public that the "Big Mak" hamburgers are products of "L.C. Big Mak Burger, Inc." and not those of petitioners who have the exclusive right to the "Big Mac" mark. This clearly shows respondents' intent to deceive the public. Had respondents' placed a notice on their plastic wrappers and bags that the hamburgers are sold by "L.C. Big Mak Burger, Inc.", then they could validly claim that they did not intend to deceive the public. In such case, there is only trademark infringement but no unfair competition. 82Respondents, however, did not give such notice. We hold that as found by the RTC, respondent corporation is liable for unfair competition. The Remedies Available to Petitioners Under Section 2383 ("Section 23") in relation to Section 29 of RA 166, a plaintiff who successfully maintains trademark infringement and unfair competition claims is entitled to injunctive and monetary reliefs. Here, the RTC did not err in issuing the injunctive writ of 16 August 1990 (made permanent in its Decision of 5 September 1994) and in ordering the payment of P400,000 actual damages in favor of petitioners. The injunctive writ is indispensable to prevent further acts of infringement by respondent corporation. Also , the amount of actual damages is a reasonable percentage (11.9%) of respondent corporation's gross sales for three (1988-1989 and 1991) of the six years (1984-1990) respondents have used the "Big Mak" mark.84 PUP COLLEGE OF LAW Page 155

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The RTC also did not err in awarding exemplary damages by way of correction for the public good85 in view of the finding of unfair competition where intent to deceive the public is essential. The award of attorney's fees and expenses of litigation is also in order.86 WHEREFORE, we GRANT the instant petition. We SET ASIDE the Decision dated 26 November 1999 of the Court of Appeals and its Resolution dated 11 July 2000 and REINSTATE the Decision dated 5 September 1994 of the Regional Trial Court of Makati, Branch 137, finding respondent L.C. Big Mak Burger, Inc. liable for trademark infringement and unfair competition.

POSSESSION:
REPUBLIC OF THE PHILIPPINES vs. COURT OF APPEALS; G.R. No. 108926 July 12, 1996 Petitioner implores this Court review and set aside the decision 1 February 8, 1993 of the Court of Appeals in CAG.R. CV No. 34950 which affirmed the decision of June 14, 1991 of the Regional Trial Court of Makati in LRC Case No. M-99 confirming respondent Democrito O. Plaza's title over Rel. Plan 1059, which is the relocation plan of Psu97886. After the filing of private respondent's Comment, this Court, in its resolution of May 24, 1993, gave due course to the petition and required the parties to submit their respective Memoranda. The petitioner filed its Memorandum on June 29, 1993 while private respondent filed his Memorandum on July 6, 1993. The factual background is summarized in the Decision 2 of the Court of Appeals as follows: According to petitioner-appellee, the subject property situated at Liwanag, Talon (formerly Pamplona), Las Pinas, Rizal, now Metro Manila, having an area of 45,295 sq. m., was first owned by Santos de la Cruz who declared the same in his name under Tax Declaration Nos. 3932 for the year 1913; 3933 for 1917; and 6905, for 1921 (Exhs. 2-B, 2-C and 2-D, Exh. K for petitioner-appellee, pp. 514-516, Record). Subsequently, the subject property was successively bought or acquired by Pedro Cristobal, Regino Gervacio, Diego Calugdan and Gil Alhambra. To evidence their respective acquisition of the property in question, Tax Declaration Nos. 7937, for the year 1923; 8463, for 1927; 9467, for 1934; and 2708 (year not available) were presented. 3 After Gil Alhambra died, his heirs extra-judicially partitioned the subject property and declared it in their names under Tax Declaration Nos. 5595 and 5596 for the year 1960. 4 On 5 July 1966, they executed a "Deed of Sale With Mortgage" deeding the subject property to petitioner-appellee for P231,340.00 payable in three (3) installments, the payment of which was secured by a mortgage on the property. Upon receipt of the full payment, they executed a "Release of Mortgage" on 1 August 1968. 5 After the sale, petitioner-appellee took possession of the subject property and paid the taxes due thereon for the years 1966 up to 1986, and in 1985 declared it in his name under Tax Declaration Nos. B-01301392 and B-013-01391. 6 He appointed Mauricio Plaza and Jesus Magcanlas as the administrator and caretaker thereof, respectively. Due to losses, the property in question was cultivated only for a while. Five (5) years according to Mauricio Plaza, and from 1966, up to 1978 according to Jesus Magcanlas. 7 On 14 November 1986, petitioner-appellee filed a petition, which was amended on 17 July 1987, for the registration and confirmation of his title over the subject property alleging among others, that: 1. by virtue of the deed of sale, he is the owner thereof;

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2. he and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of the property prior to, and since 12 June 1945; 3. other than himself, there is no other person occupying, or having any interest over the property; and, 4. there are no tenants or agricultural lessees thereon. 8 On 24 February 1988, oppositor-appellant, the Republic of the Philippines (Republic, for brevity), filed its opposition maintaining, among others, that: (1) petitioner-appellee and his predecessorsin-interest have not been in open, continuous, exclusive and notorious possession and occupation of the land in question since 12 June 1945 or prior thereto; (2) the muniment of title and tax declarations as well as tax payments relied upon do not constitute sufficient evidence of a bona fide acquisition of the land by petitioner-appellee and of his open, continuous possession and occupation thereof in the concept of owner since 12 June 1945, or prior thereto, and (3) the subject property pertains to the public domain and is not subject to private appropriation. 9 On 9 March 1988, after the compliance of the jurisdiction requirements was proved and, on motion, the lower court issued its order of general default. 10 Aside from the Republic, there were others who opposed the petition and filed their opposition thereto prior to, or were allowed to submit their opposition despite, and after, the issuance of the order of general default. They are: (a) Arsenio Medina who withdraw his opposition on 29 May 1989; 11 (b) Emilio, Leopoldo and Abraham, all surnamed Borbon; Heirs of Andres Reyes; Maximo Lopez; and, Marilou Castanares who prayed that the lower court direct petitioner-appellee to see to it that their respective property, which adjoins the land in question, are not included in the petition;12 (c) the Heirs of Santos de la Cruz and the Kadakilaan Estate. Upon their respective motion, the order of default was set aside as to them and they were allowed to file their opposition. The Heirs of Santos de la Cruz argue that: (1) their predecessor-in-interest, Santos de la Cruz, is the "primitive owner" of the subject lot; and, (2) he, his heirs, and upon their tolerance, some other persons have been in open, peaceful, notorious and continuous possession of the land in question since time immemorial until the present. The Kadakilaan Estate contends that: (1) by reason of its Titulo de Propiedad de Terrenos of 1891 Royal Decree 01-4, with approved plans registered under the Torrens System in compliance with, and as a consequence of, P.D. 872, it is the owner of the subject property; and, (2) petitionerappellee or his predecessors-in-interest have not been in open, continuous, exclusive and notorious possession and occupation of the land in question since 12 June 1945 or earlier. 13 (d) the Heirs of Hermogenes Rodriguez. They allege, among others, that by reason of a Titulo de Propiedad de Terrenos of 1891; Royal Decree No. 01-4, Protocol of 1891; Decree No. 659, approved Plan of the Bureau of Lands No. 12298 dated 10 September 1963, their predecessor-in-interest is the owner of the subject property. Despite (sic) that their motion to lift order of default as to them and admit their opposition, which motion was opposed by petitioner-appellee, does not appear to have been acted upon by the lower court, they were able to present one (1) witness; 14 and, PUP COLLEGE OF LAW Page 157

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(e) Phase II Laong Plaza Settlers Association, Inc. It filed a motion to intervene in the case but the motion does not appear to have been acted upon by the lower court. 15 On 13 March 1990, the Community Environment and Natural Resources Office, West Sector (CENRO-WEST) of the Department of Environment and Natural Resources requested the lower court to furnish it photocopies of the records of the petition as the property in question was the subject of a request for a Presidential Proclamation reserving the land in question for Slum Improvement and Resettlement Site (SIR) of the National Housing Authority. 16 On 22 June 1990, upon order of the lower court, an ocular inspection was conducted on the subject property by the court-appointed commissioner who submitted his report on 2 July 1990. 17 On 3 January 1991 Proclamation No. 679 was issued by the President of the Republic of the Philippines withdrawing the subject property from sale or settlement and reserve (the same) for slum improvement and sites and services program under the administration and disposition of the National Housing Authority in coordination with the National Capital Region, Department of Environment and Natural Resources subject to actual survey and private rights if any there be, . . . The National Housing Authority was authorized to develop, administer and dispose of the area in accordance with LOI 555, as amended (by LOI Nos. 686 and 1283), and LOI 557. 18 On 31 May 1991 petitioner-appellee filed his memorandum. 19 The oppositors did not. Nevertheless, among them, only the Republic and the Heirs of Santos de la Cruz formally offered their evidence. 20 On 14 June 1991 the lower court rendered the judgment referred to earlier. On 8 July 1991, from among the oppositors, only the Republic filed a notice of appeal which was approved on 10 July 1991. 21 By reason of the approval thereof, the motion filed on 23 July 1991 by the Heirs of Hermogenes Rodriguez for the reconsideration of the judgment was denied on 1 August 1991. 22 On February 8, 1993, the Court of Appeals rendered a decision affirming the trial court's judgment. Hence, this petition filed by he Republic of the Philippines alleging that: THE DECISION OF THE COURT OF APPEALS AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT GRANTING PRIVATE RESPONDENT'S APPLICATION FOR REGISTRATION, IS NOT SUPPORTED BY AND IS CONTRARY TO LAW, THE EVIDENCE AND EXISTING JURISPRUDENCE. Petitioner argues that he burden rests on the applicant to show by convincing evidence that he has a registrable title over the property sought to be titled, which the latter failed to do. According to petitioner, aside from mere tax declarations all of which are of recent vintage, private respondent has not established actual possession of the property in question in the manner required by law (Section 14, P.D. 1529) and settled jurisprudence on the matter. Thus, no evidence was adduced that private respondent cultivated much less, fenced the subject property if only to prove actual possession. The actual fencing of the property was done only starting 1988 when the actual occupants were forcibly ejected and driven out from their respective abodes and that its witnesses namely: Elascio Domitita, Manuel Dolom, Bernadette Aguinaldo and Virginia Franco, who were all actual residents of the questioned area, categorically testified on this score, summarized as follows: 1. In their long stay in the area, the longest staying occupant being Domitita who had been in the premises for more than thirty (30) years nobody ever claimed ownership over the subject property; PUP COLLEGE OF LAW Page 158

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2. It was only in 1988 that they learned that private respondent had filed a petition to have the property titled in his name; 3. Private respondent had not introduced any improvement nor was there a caretaker assigned by him to look after the property; and, 4. Aside from them, there were about 200 more families residing in the area but through force, intimidation and illegal demolitions, were driven out by private respondent from the premises. We are not persuaded. On this point, the respondent Court correctly found that: Proof that petitioner-appellee and his predecessors-in-interest have acquired and have been in open, continuous, exclusive and notorious possession of the subject property for a period of 30 years under a bona fide claim of ownership are the tax declarations of petitioner-appellee's predecessors-in-interest, the deed of sale, tax payment receipts and petitioner-appellee's tax declarations. The evidence on record reveals that: (1) the predecessors-in-interest of petitionerappellee have been declaring the property in question in their names in the years 1923, 1927, 1934 and 1960; and, (2) in 1966, petitioner-appellee purchased the same from the Heirs of Gil Alhambra and since then paid the taxes due thereon and declared the property in his name in 1985. xxx xxx xxx . . . Considering the dates of the tax declarations and the realty tax payments, they can hardly be said to be of recent vintage indicating petitioner-appellee's pretended possession of the property. On the contrary, they are wrong evidence of possession in the concept of owner by petitionerappellee and his predecessors-in-interest. Moreover, the realty tax payment receipts show that petitioner-appellee has been very religious in paying the taxes due on the property. This is indicative of his honest belief that he is the owner of the subject property. We are, therefore, of the opinion that petitioner-appellee has proved that he and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession of the subject property in the concept of owner for a period of 30 years since 12 June 1945 and earlier. By operation of law, the property in question has become private property. 23 Contrary to the representations of the Republic, petitioner-appellee had introduced some improvements on the subject property from the time he purchased it. His witnesses testified that petitioner-appellee developed the subject property into a ricefield and planted it with rice, but only for about five years because the return on investment was not enough to sustain the continued operation of the riceland. Though not in the category of permanent structures, the preparation of the land into a ricefield and planting it with rice are considered "improvements" thereon. 24 Although tax declarations or realty tax payments of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. 25 They constitute at least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of property for taxation purposes manifests not only one's sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties, but also the intention to contribute needed revenues to the Government. Such an act strengthens one's bona fideclaim of acquisition of ownership. 26 Neither do we find merit in the assertions of petitioner's witnesses Elascio Domitita, Manuel Dolom, Bernadette Aguinaldo and Virginia Franco. As properly stated by the public respondent, . . . Their alleged possession is not based on any right. Neither do they claim to have title or interest over the subject property. As a matter of fact, they did not bother to oppose the petition. The most PUP COLLEGE OF LAW Page 159

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that can be said of their alleged possession is that it was only with the tolerance of rightful owners of the property plaintiff-appellee and his predecessors-in-interest, hence, is no bar to the granting of the petition. We do not see why we should accept the bare assertions of the alleged occupants at their face value as against the claim of ownership of plaintiff-appellee backed up by legal documents, tax declarations, and tax receipts. 27 Well-settled and oft-repeated is the rule that findings of facts of the Court of Appeals are final and conclusive on the Supreme Court except: 1.) when the conclusion is a finding grounded entirely on speculation, surmises and conjectures; 2.) when the inference made is manifestly mistaken, absurd or impossible; 3.) when there is a grave abuse of discretion; 4.) when the judgment is based on a misapprehension of facts; 5.) when the findings of facts are conflicting; 6.) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; 7.) when the findings of the Court of Appeals are contrary to those of the trial court; and 8.) when the findings of fact are conclusions without citation of specific evidence on which they are based. 28 Concededly, none of the above exceptions obtains in the case at bar. Petitioner also alleges that the land in question had been withdrawn from the alienable portion of the public domain pursuant to Presidential Proclamation No. 679 entitled "Reserving for Slum Improvement and Resettlement (SIR) Sites and Services of the National Housing Authority, A Certain Parcel of Land of the Public Domain Situated in the Municipality of Las Pinas, Metro Manila," which was issued on January 7, 1991 or almost 6 months prior to the issuance of the trial court's decision. The Court of Appeals opined that "the issuance of the proclamation did not have any effect on the subject property as the proclamation only withdrew it from sale or settlement and reserved the same for slum improvement and sites and services program, but subject to actual survey and existing private rights. The proclamation did not prohibit the registration of title of one who claims, and proves, to be the owner thereof." We agree. At any rate, registration does not vest title. It is merely evidence of such title. 29 Our land Registration laws do not give the holder any better title than what he actually has. When the conditions set by law are complied with, the possessor of the land, by operation of law, acquires a right to a grant, a government grant, without the necessity of a certificate of title being issued. The Torrens system was not established as a means for the acquisition of title to private land, as it merely confirms, but does not confer ownership. 30 Of the particular relevance is the finding of the respondent Court of Appeals to the effect that We have found that petitioner-appellee has proven his claim of ownership over the subject property. As provided in the proclamation itself, his ownership of the subject property must be respected and he cannot be barred from having the land titled in his name. This does not contravene or negate the intention of the proclamation. Besides, its implementing Letters of Instruction recognize that there may be lands declared included in the Slum Improvement Resettlement (SIR) program that are privately owned. Paragraph 10 of LOI No. 555 provides that if the land declared to be included in the SIR program is privately owned, the concerned local government, upon the approval by the National Housing Authority of its project plan, shall acquire the property through expropriation. In LOI No. 686 paragraph 3, it is mandated that the NHA, upon request of the local government, expropriate or otherwise acquire land for the SIR program. Proclamation No. 679 is, therefore, not a valid justification to deny the petition. . . . At the time the Proclamation was issued, the controversy over the subject property was subjudice. The conflicting rights over it had been presented to the court for resolution. That jurisdiction could not be removed from it by subsequent legislation. The President must have been aware of this. Hence, the inclusion of the cautionary clause "subject to existing private rights." 31

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Over time, Courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law Quod est inconveniens, aut contra rationem non permissum est in lege . Undoubtedly, reason and law find respondent entitled to rights of ownership over the disputed property. ACCORDINGLY, the assailed decision dated February 8, 1993 is hereby AFFIRMED and the instant petition is hereby DISMISSED. APOLONIA CALMA, ET AL vs. EULALIO CALMA; G.R. No. 34004 September 12, 1931 Under three causes of action the plaintiffs pray that the defendant be ordered to liquidate the yearly crops of the plantation described in paragraph II of the complaint, from the year 1903, delivering to the plaintiffs their share, or its value; that said property be divided equally into two parts and the half which, in justice and equity, belongs to the plaintiffs be adjudicated to them; that the defendant be compelled to restore to the plaintiffs the property described in paragraph VIII of the complaint, or its value, which is P56,300, and to pay them P66,000 damages, and the costs. After entering a general and specific denial of the complaint, the defendant set up a number of special defenses and a counterclaim, praying that he be absolved from the complaint and the plaintiffs be sentenced to pay him P13,660.40 on several counterclaims, besides the costs. After hearing the evidence, the Court of First Instance of Tarlac found that both the complaint and the counterclaim had prescribed, and dismissed both, without pronouncement of costs. Both parties appealed from that decision, the plaintiffs assigning the following errors: 1. In finding that the plaintiffs' cause of action petitioning for the liquidation of the rents or profits from lot No. 283, cadastral survey of Gerona, Tarlac, has prescribed. 2. In not holding that the plaintiffs, as undivided co-owners of one-half of said lot are entitled to one-half of the annual income of 450 cavanes, i. e., 225 cavanes of palay a year, or their cash value, according to the current prices during the period from 1903 to 1927; 3. In not finding that the total value of the one-half belonging to the plaintiffs of said rental is P17,554; and "4. In dismissing the plaintiffs' action and in not sentencing the defendant to pay said plaintiffs the aforesaid sum of P17,554, with legal interest from the date of the complaint, and the costs of the trial. The defendant, in turn, assigned the following errors to the court below, to wit: 1. The court a quo erred in applying the statute of limitations to the counterclaims of the appellant. 2. The court a quo erred in refusing to order Facundo Salazar, official stenographer thereof, to transcribe his notes on the testimony of Ernesto Quirino. The question raised by the plaintiffs on appeal is summed up in their first cause of action, with reference to the crops grown on lot No. 283 from the year 1930, contending that the statute of limitations invoked by the defendant in his amended answer is not in point because the latter has been in possession only as a joint owner, and because even if he were in possession as the exclusive owner, the running of the prescriptive period was interrupted by the decision of the competent court in 1927 declaring that the defendant was only a coowner, and not the sole owner of the lot in question. The record shows that the defendant was in possession of all the land from 1903 until 1927 not as a mere administrator, as the complaint alleges, nor even as a mere coowner, but as the sole and absolute owner, in good faith, and adversely to the plaintiffs. He is therefore protected by subsection 3 of section 43 of the Code of Civil PUP COLLEGE OF LAW Page 161

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Procedure. The interruption of his possession in 1927 did not deprive him of the right which, as a possessor in good faith, he had to take for himself the products of the land up to that year, according to article 451 of the Civil Code. The plaintiffs' appeal, then, is not well taken. As to that for the defendant, similarly confined to items (a), (f) and (h) of his counterclaim, with reference to certain sums alleged to have been disbursed by the defendant for the benefit of Gabino Calma, the predecessor in interest of the plaintiffs, for P3,995 paid to creditors, P500 paid to attorney Pedro Liongson, and for P750 or P500 paid to Paulo Macasaquit, which comprise the one-half which the plaintiff's predecessor had to pay; it is contended that the trial court should not have applied the statute of limitations in favor of the plaintiffs, inasmuch as they had not set it up as a defense. We have indeed failed to find among the plaintiffs' pleadings any allegation of prescription against the defendant's counterclaim. The statute of limitations must be pleaded in the answer and cannot be set up by a demurrer or proved under a general denial. (Domingo vs. Osorio, 7 Phil., 405; Pelaez vs. Abreu, 26 Phil., 415; Karagdag vs. Barado, 33 Phil., 529.) The plaintiffs should have replied to the counterclaim if they had desired to set up such an affirmative defense as the statute of limitations, because silence meant only that they generally denied the allegations of the defendant's answer. (Sec. 104, Code of Civil Procedure; Herranz & Garriz vs. Barbudo, 12 Phil., 5; Yu Chin Piao vs. Lim Tuaco, 33 Phil., 92.) It happens, however, that the plaintiffs are not under obligation to pay the debts of their late father, such as items (a), (f), and (h) of the counterclaim. It does not appear that they personally bound themselves to pay them, and the mere fact that they are the deceased's heirs does not make them answerable for such credits against their predecessor in interest, inasmuch as article 1003 of the Civil Code is no longer in force, having been abrogated by certain provisions of the Code of Civil Procedure (Pavia vs. De la Rosa, 8 Phil., 70). With respect to the transcript of attorney Quirino's testimony, which is dealt with in the second assignment of error in the defendant's brief, it is of no importance, for whether or not this claim of the defendant's is proved, the plaintiff's are not responsible therefor, as we have just stated. Finding no error in the dispositive part of the judgment appealed from, it is hereby affirmed, without pronouncement as to costs in this instance. So ordered. EDUARDO CUAYCONG, ET AL vs. RAMONA BENEDICTO, ET AL; G.R. No. L-9989 March 13, 1918 The issues in this case relate to the right of plaintiffs to make use of two roads existing on the Hacienda Toreno, a tract of land in the municipality of Victorias, Negros Occidental, the property of the defendants, Blasa Benedicto and Ramona Benedicto. One of these roads is referred to in the proceedings as the Nanca-Victorias road and the other as the Dacuman Toreno road. The Court of First Instance held that those of the plaintiffs who claimed to be entitled to make use of the Dacuman Toreno road had failed to establish the asserted right, and dismissed the action as to them. From this decision they appealed to this court but, their brief not having been filed within the time prescribed by the rules, their appeal was dismissed, on motion of defendants, by resolution dated February 14, 1916. Consequently, the issues presented on this appeal are limited to those which relate to the rights of the parties with respect to the Nanca-Victorias road, and the determination of the correctness of the decision of the court concerning that part of the controversy submitted to its decision. The allegations in the complaint with respect to the Nanca-Victorias road are that the appellees, Eduardo Cuaycong, Lino Cuaycong, and Eulalio Dolor, are the owners of a group of haciendas situated between the southern boundary of the Hacienda Toreno and the barrio of Nanca, of the municipality of Seravia, and that the appellees Silverio Ginoo, Gervasio Ascalon, and Juan Ledesma, are the lessees of part of said haciendas; that more than twenty years the appellees and their predecessors in interest have made use of the Nanca-Victorias road, which crosses the Hacienda Toreno, openly, publicly, and continiously, with the knowledge of the owners of the said hacienda, for the purpose of conveying the products of their haciendas to the town of Victorias and to the landing place there situated, and for the purpose of transporting supplies from those points to their haciendas, making use of the said road by means of carts, carabaos, and other usual means of transportation; that there is no outlet to a public road from the hacienda occupied by these plaintiffs, the only road and way by which the products of the plaintiffs' PUP COLLEGE OF LAW Page 162

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property can be taken to the town of Victorias and to the landing place there being across the Hacienda Toreno by the road marked on the plan attached to the complaint; that on the fifteenth day of November, 1912, the defendants closed the road in question at the point at which it crosses the Hacienda Toreno, and refused to permit plaintiffs to continue using it; that plaintiffs were about to commence to grind their crop of sugar cane, and that, if prevented from transporting their sugar across the Hacienda Toreno to their point of embarkation, would suffer damages difficult to estimate. Upon these averments of fact the plaintiffs prayed for a judgment that they are entitled to use the road in question as they have been using it in the past, and that a perpetual injunction be issued against plaintiffs restraining them from impending such use. Upon the filing of the complaint, plaintiffs moved the court to issue a preliminary injunction restraining defendants from interfering with the use of the road during the pendency of the suit, which motion was granted by the court. Defendants in their answer put in issue all the special averments of the complaint, as above set forth, and by way of counterclaim and special defense, averred that the road crossing the Hacienda Toreno, over which plaintiffs claim the right of passage, is the private property of defendants; and, further, that they have not refused plaintiffs permission to pass over this road but have required them to pay toll for the privilege of doing so. Defendants also claimed damages for the use of the road by plaintiffs during the pendency of the suit, alleging that the preliminary injunction had been improvidently issued upon false statements contained in the verified complaint filed by plaintiffs. The case was tried in July, 1913. The court on December 8, 1913, rendered judgment, dismissing the complaint with respect to the plaintiffs Felix Suarez, Probo Jereza, Enrique Azcona, and Melecio Pido, these being the plaintiffs who claimed the right to use the Dacuman Toreno road. With respect to the Nanca-Victorias road, the court held that it was a public highway over which the public had acquired a right of use by immemorial prescription, and ordered the issuance of a perpetual injunction against plaintiffs, restraining them from interfering in any manner with the use of the said road. The conclusion of the court with respect to the facts affecting the Nanca-Victorias road are as follows: Turning to a consideration of the evidence relative to the Nanca-Victorias road we find incontestable proof that it has been in existence for at least forty years. That the hacenderos located in the southwestern section of Victorias and the public generally passed over it freely and that it was used for all purposes of transportation of farm produce, animals, etc. and by pedestrians as well as carromatas and other conveyances without break or interruption until two or three years ago when the defendants announced that the road was private and that those who wished to pass over it with sugar carts would be obliged to pay a toll of ten centavos all other vehicles, it appears, were permitted to pass free charge. This arrangement seems to have existed during the years of 1911 and 1912 and part of 1913, the money being collected apparently from some hacenderos and not from others. There is some reason to believe from the evidence presented by defendants themselves that the practice of making these payments to hacienda 'Toreno' originated in an attempt to raise a fund for the repair of the road. There is no evidence that any other hacenderos between Nanca and Victorias or any other person made any attempt to close the road or to collect toll. On the contrary the road appears to have been repaired by the hacenderos when it needed repairing and everyone used it on equal terms until the defendants in 1910 or 1911 interposed the objection that the road in dispute was private. This we think is a fair deduction from the evidence and although it is asserted that toll was collected at an earlier date by the late Leon Montinola, brother of the defendant Ruperto Montinola, there is no tangible evidence that this was so and that toll has been paid only during the years of 1911, 1912, and part of 1913. The question presented by the assignment of error are in effect: (a) Is the Nanca-Victorias road at the point at which it traverses the Hacienda Toreno a public highway or not? (b) If it be held that the road in question is not a public highway, have plaintiffs proven their acquisition of an easement of way over the Hacienda Toreno at the point traversed by the road in question?

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The trial judge, in holding that the road in question is public, bases in conclusion upon the fact, which he deems to have been proven, that the road has been in existence "from time immemorial," and had been "continiously used as a public road . . . and open to public as such for thirty or forty years . . . until . . . the defendants undertook to claim it as private and to collect toll for the passage of carts." (Bill of Exceptions, p. 56.) There is no doubt that for the past thirty or forty years a road has existed between the former site of the town of Victorias and the barrio of Nanca, of the municipality of Seravia, and that this road crosses defendants' hacienda. It is also true that during this period the plaintiffs and their predecessors in the ownership of the hacienda now held by them have made use of this road for the purpose of going and coming from their haciendas to the town of Victorias; but the question is whether this use was limited to the plaintiffs, and their tenants and employees, or whether it was, as held by the lower court, a use enjoyed by the public in general. Plaintiffs produced only two witnesses, Segundo de Leon (stet. notes, pp. 2122) and Eduardo Cuaycong, (stet. notes, pp. 27-33) to testify as regards the use of the Nanca-Victorias road. Several other witnesses testified on behalf of plaintiffs, but their testimony relates to the Dacuman Toreno road, which is not involved in this appeal. We have carefully read the testimony of the witnesses Leon and Cuaycong, given upon their direct and cross examination, but we have been unable to find that either of them has testified that the road in question was ever used by the public in general. These witnesses testified with regard to the use of the road by the present and former owners and occupants of the estates of Bacayan, Esperanza, Alcaigan, Pusot, and Dolores for the transportation of the products of these estates to the town of Victorias, and of supplies and agricultural implements from Victorias to the haciendas, but neither of them testified expressly that any other use had been made of said road. Nevertheless, it may be reasonably inferred from the testimony of these witnesses that all persons having occasion to travel between Victorias and the haciendas of Bacayan, Esperanza, Alacaigan, Pusot, and Dolores, whether or not they were owners, tenants, or employees of said estates, made use of the road now in dispute, crossing the Hacienda Toreno, and to this limited extent it may be said that the public made use of the road, but there is nothing in the evidence to indicate that the so called public use extended beyond this. Apart from the fact that there is no direct evidence to support the finding of the court concerning the general public use of the road in dispute, the record contains data strongly tending to show that when the complaint was filed plaintiffs did not contend that the road was a public highway, but merely contended that they had acquired by prescription an easement of way across the Hacienda Toreno. For example, the action is entitled an "action concerning a right of away." (Bill of Exceptions, pp. 64 and 65.) It is not averred in the complaint that the road in question was used by the public. On the contrary, it is averred that it was used by the plaintiffs and their predecessors. The averment in paragraph 8 of the complaint that the plaintiffs have no other "outlet to a public road" than that which they have been accustomed to used by going across the defendants' hacienda for the purpose of going to the town of Victorias also shows that when they commenced this action they had in mind the provisions of articles 564, et seq. of the Civil Code, which relate to the method of establishing the compulsory easement of way. The owners of an existing easement, as well as those whose properties are adjacent with a public road, have no occasion to invoke these provisions of the Code, which relate to the creation of new rights, and not the enforcement of rights already in existence. It is true in the opening statement made to the court, counsel for plaintiffs, who was not the same attorney by whom the complaint was signed, stated that plaintiffs contend that the road in question is public, but as no evidence was introduced tending to establish this contention concerning the Nanca Victorias road, counsel for defendants had no occasion to object upon the ground that such testimony was not relevant to the averments of the complaint. No evidence was taken to indicate that at any time since the road in question has been in existence any part of the expense of its upkeep has been defrayed by the general government, the province, or the municipality. The trial judge said upon this subject: It is true that whatever repairs were made on the road were made irregularly. The municipality of Victorias had no funds to devote to the construction and repair of roads, and the upkeep of the road depending entirely therefore on the initiative of the persons who used it, was attended to only at such times as repairs were absolutely necessary. (Bill of Exceptions, p. 49.) The court also held that it appears from the government grant issued in 1885 to the original owner of the hacienda adjacent to the Hacienda Toreno on its western boundary, that the Nanca-Victorias road at that time separated that estate from the Jalbuena Hacienda, and that these facts constitute "circumstantial evidence that the road was in existence in 1885." We have examined the document to which the court refers, and we agree that the road in PUP COLLEGE OF LAW Page 164

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question existed in 1885; but we do not believe that the document in question proves that the road was public highway. Another circumstance established by the evidence, and which is some importance in the determination of this issue, is that although the defendants closed the Nanca-Victorias road in the month of February, 1911, and since that time have collected toll from persons passing over it with carts loaded with sugar, including those belonging to several of the plaintiffs, nothing was done by them to prevent the continuation of this restriction until December, 1912, when this action was commenced. It is natural to assume that if plaintiffs had considered that the road in question was public, they would have protested immediately against the action of the defendants, and would have either commenced a civil action, as they subsequently did, or would have brought about a prosecution under section 16 of Act No. 1511. Upon the evidence taken and admissions contained in the pleadings and those made during the course of the trial we consider that the following findings are warranted: 1. The town of Victorias has always been the shipping point of the products of the Hacienda Toreno, and of the haciendas of appellees, as well as the place from which supplies were brought to those properties. 2. For thirty or forty years before the commencement of the suit a wagon road, herein called the Nanca-Victorias road, has been in existence, connecting the haciendas of appellees with the town of Victorias, and this road traverses the property of defendants. Since the removal of the town of Victorias to a new site the Nanca-Victorias road has been used by appellees in travelling between their properties and the provincial road which crosses the Hacienda Toreno from east to west. 3. No public funds have at any time been expended on the construction or upkeep of the Nanca-Victorias road, but from time to time work has been done on it by the laborers employed by the present and former owners of the Hacienda Toreno and the haciendas owned by the appellees and their predecessors in title. 4. The Nanca-Victorias wagon road, including that part of it which crosses the Hacienda Toreno, has for thirty-five or forty years been used by the appellees and their predecessors in title for the transportation, by the usual means, of the products of their estates to their shipping points in or near the town of Victorias, and the transportation to their estates of all supplies required by them, and has been used by all persons having occasion to travel to and from all or any of the estates now owned by the appellees. 5. The use of the Nanca-Victorias road in the manner and by the person above mentioned was permitted without objection by the owners of the Hacienda Toreno until the year 1911, when they closed it, and began charging a toll of 5 centavos for each cart which passed over the road, including carts belonging to the appellants, until restrained from continuing to do so by the preliminary injunction granted in this case. 6. The Nanca-Victorias road constitutes the only outlet from the estates of appellants to the nearest public road which is the provincial road which crosses the Hacienda Toreno from east to west. Upon these facts the questions of law to be decided are: (a) Is the Nanca-Victorias road a public highway? (b) If the Nanca-Victoria road, or that part of it which crosses the Hacienda Toreno, is not a public highway, is it subject to a private easement of way in favor of the appellees? The defendants are the owners of the Hacienda Toreno under a Torrens title issued in accordance with the Land Registration Act, conferring to them its absolute ownership, subject only to the limitations of paragraph four of section 39 of said Act. It is admitted that there is no annotation on the certificate of title regarding the road here in question, either as a "public road" or as a "private way established by law," and, therefore, the questions presented by this appeal are to be determined precisely as they would be had the Hacienda Toreno not been brought under the PUP COLLEGE OF LAW Page 165

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operation of the Land Registration Act. The plaintiffs being the owners of the property in question, the presumption of law is that it is free from any lien or encumbrance whatever, and the burden therefore rests upon plaintiffs to establish the contrary. As this court said in case of Fabie vs. Lichauco and the children of Francisco L. Roxas (11 Phil. Rep., 14): It is settled of law that a property is assumed to be free from all encumbrance unless the contrary is proved. There is admittedly no evidence to show that the land occupied by the road here in question was any time conveyed to the general government or any of its political subdivisions by the present or any of the former owners of the Hacienda Toreno. There is no evidence, even remotely, tending to show that the road existed prior to the time when the property now known as the Hacienda Toreno passed from the State into private ownership. The record fails to disclose any evidence whatever tending to show that the Government has at any time asserted any right or title in or to the land occupied by the road, or that it has incurred any expense whatever in its upkeep or construction. The Civil Code defines as public roads those which are constructed by the State (art. 339), and as provincial and town roads those "the expense of which is borne by such towns or provinces." (Civil Code, art. 344.) While it is not contended that this definition is exclusive, it does show that during the Spanish regime, under normal conditions, roads which were public were maintained at the public expense, and that the fact that at no time was any expense incurred by the Government with respect to the road here in question tends strongly to support the contention of the defendants that it is private way. During the Spanish regime the law required each able to bodied citizen not within one of the exempted classes to work a certain number of days in each year, his labor to be devoted to "services of general utility" to the municipality of his residence. (Royal Decree of July 11, 1883, art. 5.) Under this Decree and the Regulations for its enforcement (Berriz, vol. 11, 258) the greater part of the work on the public road of the Islands was accomplished. Had the road here in question been a public way, it is reasonable to assume that the polistas of the town of Victorias would have been employed in maintaining it. It is most significant that no mention is made in the testimony of the plaintiffs' witnesses of any work of this character having been done on the road at any time, particularly in view of the fact that their attention was drawn to this point. (Stet. note, pp. 8, 10, 11, 12, 13 and 14.) The evidence shows that the repairs were made by the owners of the estates benefited by the road, and by their laborers, as a pure voluntary act for their own convenience and interest. There being no evidence of a direct grant to the government of the land occupied by the road in question or that any Government funds or labor were expended upon it, the question presents itself whether the use to which the road has been put was such as to justify the conclusion of the lower court that it has become public property. There being no evidence that the original use of the road by plaintiffs' predecessors was based upon any grant of the fee to the road or of an easement of way, or that it began under the assertion of a right on their part, the presumption must be that the origin of the use was the mere tolerance or license of the owners of the estates affected. This being so, has that merely permissive use been converted into a title vested in the public at large, or in the plaintiffs by reason of their ownership of the land beneficially affected by the use? Had it been shown that the road had been maintained at the public expense, with the acquiescence of the owners of the estates crossed by it, this would indicate such adverse possession by the government as in course of time would ripen into title or warrant the presumption of a grant or of a dedication. But in this case there is no such evidence, and the claims of plaintiffs, whether regarded as members of the public asserting a right to use the road as such, or as persons claiming a private easement of way over the land of another must be regarded as resting upon the mere fact of user. If the owner of a tract of land, to accommodate his neighbors or the public in general, permits them to cross his property, it is reasonable to suppose that it is not his intention, in so doing, to divest himself of the ownership of the land so used, or to establish an easement upon it and that the persons to whom such permission, tacit or express, is granted, do not regard their privilege of use as being based upon an essentially revocable license. If the use continues for a long period of time, no change being made in the relations of the parties by any express or implied agreement, does the owner of the property affected lose his right of revocation? Or, putting the same question in another form, does the mere permissive use ripen into title by prescription? PUP COLLEGE OF LAW Page 166

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It is a fundamental principle of the law in this jurisdiction concerning the possession of real property that such possession is not affected by acts of a possessory character which are "merely tolerated" by the possessor, or which are due to his license (Civil Code, arts. 444 and 1942). This principle is applicable not only with respect to the prescription of the dominium as a whole, but to the prescription of right in rem. In the case of Cortes vs. Palanca Yu Tibo (2 Phil. Rep., 24, 38), the Court said: The provision of article 1942 of the Civil Code to the effect that acts which are merely tolerated produce no effect with respect to possession is applicable as much to the prescription of real rights as to the prescription of the fee, it being a glaring and self-evident error to affirm the contrary, as does the appellant in his motion papers. Possession is the fundamental basis of the prescription. Without it no kind of prescription is possible, not even the extraordinary. Consequently, if acts of mere tolerance produce no effect with respect to possession, as that article provides, in conformity with article 444 of the same Code, it is evident that they can produce no effect with respect to prescription, whether ordinary or extraordinary. This is true whether the prescriptive acquisition be of a fee or of real rights, for the same reason holds in one and the other case; that is, that there has been no true possession in the legal sense of the word. (See also Ayala de Roxas vs. Maglonso, 8 Phil Rep., 745; Municipality of Nueva Caceres vs. Director of Lands and Roman Catholic Bishop of Nueva Caceres, 24 Phil. Rep., 485.) Possession, under the Civil Code, to constitute the foundation of a prescriptive right, must be possession under claim of title (en concepto de dueno), or use the common law equivalent of the term, it must be adverse. Acts of a possessory character performed by one who holds by mere tolerance of the owner are clearly not en concepto de dueo, and such possessory acts, no matter how long so continued, do not start the running of the period of prescription. A similar question was presented in the case of the Roman Catholic Archbishop of Manila vs. Roxas (22 Phil. Rep., 450), in which case it appeared that Roxas, the owner of the Hacienda de San Pedro Macati, claimed a right of way across the property of the church to Calle Tejeron, a public street of the town of San Pedro Macati. The proof showed that the road in question had been used by the tenants of the Hacienda de San Pedro Macati for the passage of carts in coming and leaving the hacienda "from time immemorial," and further that the road had been used for time out of mind, not only by the tenants of the hacienda but by many other people in going and coming from a church half-way between the boundary line of the hacienda and Calle Tejeron. The court held that the facts did not give rise to a prescriptive right of easement in favor of the owner of the hacienda, upon the ground that such use "is to be regarded as permissive and under an implied license, and not adverse. Such a use is not inconsistent with the only use which the proprietor thought fit to make of the land, and until the appellee thinks proper to inclose it, such use is not adverse and will not preclude it from enclosing the land when other views of its interest render it proper to do so. And though an adjacent proprietor may make such use of the open land more frequently than another, yet the same rule will apply unless there be some decisive act indicating a separate and exclusive use under a claim of right. A different doctrine would have a tendency to destroy all neighborhood accommodations in the way of travel; for if it were once understood that a man, by allowing his neighbor to pass through his farm without objection over the pass-way which he used himself, would thereby, after the lapse of time, confer a right on such neighbor to require the pass-way to be kept open for his benefit and enjoyment, a prohibition against all such travel would immediately ensue." The decisions of the supreme court of Louisiana, a State whose jurisdiction is based, as is our own, upon the Roman Law, and whose Civil Code is taken, as is our own,. very largely from the Code of Napoleon, are particularly persuasive in matters of this character. In the case of Torres vs. Fargoust (37 La. Ann., 497), cited by appellants in their brief, in which the issues were very similar to those of the present case, the court held that The mere fact that for thirty or forty years the public was permitted to pass over this ground would not of itself constitute the place a locus publicus . . . dedication must be shown by evidence so conclusive as to exclude all idea of private ownership; . . . such dedication cannot be inferred from ere user alone; . . . no one is presumed to give away his property. The burden is on him who avers a divestiture of ownership to prove it clearly.

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We are, therefore, of the opinion, and so hold, that upon the facts established by the evidence it does not appear that the road in question is a public road or way. We are also of the opinion that plaintiffs have failed to show that they have acquired by prescription a private right of passage over the lands of defendants. The supreme court of Spain has decided that under the law in force before the enactment of the Civil Code, the easement of way was discontinous, and that while such an easement might be acquired by prescription, it must be used in good faith, in the belief of the existence of the right, and such user must have been continuous from time immemorial. (Judgment of December 15, 1882.) In the appealed decision the court below says that the plaintiffs and their predecessors made use of the road in question "from time immemorial," but there is no evidence whatever in the record to sup[port this finding, although it is true that the evidence shows the existence of the road and its use by the plaintiffs and their predecessors for thirty-five or forty years. Speaking of the evidence required under the present Code of Civil Procedure to show immemorial use of an easement, this court said in the case of Ayal de Roxas vs. Case (8 Phil. Rep., 197, 198): Third Partida in title 31, law 15 . . . says that discontinues servitudes . . . must be proved by usage or a term so long that men can not remember its commencement. . . . In many judgments the supreme court of Spain has refused to accept proof of any definite number of years as a satisfaction of this requirement of the law. . . . We are of the opinion that in order to establish a right of prescription [title of prescription based upon use from time immemorial] something more required than memory of living witnesses. Whether this something should be the declaration of persons long dead, repeated by those who testify, as exacted by the Spanish law, or should be the common reputation of ownership recognized by the Code of Procedure, it is unnecessary for us to decide. On either theory the appellant has failed in his proof . . . . The same thing may be said in this case. Witnesses have testified that they have known the road for a certain period of years, beginning at a time prior to the enactment of the Civil Code, but no evidence has been made to prove immemorial use by either of the means of proof mentioned in this decision cited, nor is immemorial user averred in the complaint as the basis of the right. It is evident, therefore, that no vested right by user from time immemorial had been acquired by plaintiffs at the time the Civil Code took effect. Under that Code (art 539) no discontinuous easement could be acquired by prescription in any event. Assuming, without deciding, that this rule has been changed by the provisions of the present Code of Civil Procedure relating to prescription, and that since its enactment discontinuous easement may be required by prescription, it is clear that this would not avail plaintiffs. The Code of Civil Procedure went into effect on October 1, 1901. The term of prescription for the acquisition of rights in real estate is fixed by the Code (sec. 41) at ten years. The evidence shows that in February, 1911, before the expiration of the term of ten years since the time the Code of Civil Procedure took effect, the defendants interrupted the use of the road by the plaintiffs by constructing and maintaining a toll gate on it and collecting toll from persons making use of it with carts and continued to do so until they were enjoined by the granting of the preliminary injunction by the trial court in December, 1912. Our conclusion is, therefore, that the plaintiffs have not acquired by prescription a right to an easement of way over the defendant's property; that their use of the Nanca-Victorias road across the Hacienda Toreno was due merely to the tacit license and tolerance of the defendants and their predecessors in title; that license was essentially revokable; and that, therefore, the defendants were within their rights when they closed the road in 1911. While in the allegations from the plaintiffs' complaint it might be inferred that it was their purpose to seek to impose upon the defendants the easement to which arts. 564 et seq. of the Civil Code relate, that purpose was evidently abandoned, and the case was tried upon a wholly different theory. Proof was offered to show that the right of passage across defendants' land is necessary to enable plaintiffs to get their products to market, but there was no offer on their part to pay defendants the indemnity required by section 564. For the reasons stated the judgment of the court below is reversed, the injunction issued against defendants is allowed on this appeal. So ordered. Separate Opinions JOHNSON, J., concur. Judgment reversed; injunction dissolved, and action dismissed. PUP COLLEGE OF LAW Page 168

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DOMINADOR DIZON vs. LOURDES G. SUNTAY; G.R. No. L-30817 September 29, 1972 In essence there is nothing novel in this petition for review of a decision of the Court of Appeals affirming a lower court judgment sustaining the right of an owner of a diamond ring, respondent Lourdes G. Suntay, as against the claim of petitioner Dominador Dizon, who owns and operates a pawnshop. The diamond ring was turned over to a certain Clarita R. Sison, for sale on commission, along with other pieces of jewelry of respondent Suntay. It was then pledged to petitioner. Since what was done was violative of the terms of the agency, there was an attempt on her part to recover possession thereof from petitioner, who refused. She had to file an action then for its recovery. She was successful, as noted above, both in the lower court and thereafter in the Court of Appeals. She prevailed as she had in her favor the protection accorded by Article 559 of the Civil Code. 1 The matter was then elevated to us by petitioner. Ordinarily, our discretion would have been exercised against giving due course to such petition for review. The vigorous plea however, grounded on estoppel, by his counsel, Atty. Andres T. Velarde, persuaded us to act otherwise. After a careful perusal of the respective contentions of the parties, we fail to perceive any sufficient justification for a departure from the literal language of the applicable codal provision as uniformly interpreted by this Court in a number of decisions. The invocation of estoppel is therefore unavailing. We affirm. The statement of the case as well as the controlling facts may be found in the Court of Appeals decision penned by Justice Perez. Thus: "Plaintiff is the owner of a three-carat diamond ring valued at P5,500.00. On June 13, 1962, the plaintiff and Clarita R. Sison entered into a transaction wherein the plaintiff's ring was delivered to Clarita R. Sison for sale on commission. Upon receiving the ring, Clarita R. Sison executed and delivered to the plaintiff the receipt ... . The plaintiff had already previously known Clarita R. Sison as the latter is a close friend of the plaintiff's cousin and they had frequently met each other at the place of the plaintiff's said cousin. In fact, about one year before their transaction of June 13, 1962 took place, Clarita R. Sison received a piece of jewelry from the plaintiff to be sold for P500.00, and when it was sold, Clarita R. Sison gave the price to the plaintiff. After the lapse of a considerable time without Clarita R. Sison having returned to the plaintiff the latter's ring, the plaintiff made demands on Clarita R. Sison for the return of her ring but the latter could not comply with the demands because, without the knowledge of the plaintiff, on June 15, 1962 or three days after the ring above-mentioned was received by Clarita R. Sison from the plaintiff, said ring was pledged by Melia Sison, niece of the husband of Clarita R. Sison, evidently in connivance with the latter, with the defendant's pawnshop for P2,600.00 ... ." 2 Then came this portion of the decision under review: "Since the plaintiff insistently demanded from Clarita R. Sison the return of her ring, the latter finally delivered to the former the pawnshop ticket ... which is the receipt of the pledge with the defendant's pawnshop of the plaintiff's ring. When the plaintiff found out that Clarita R. Sison pledged, she took steps to file a case of estafa against the latter with the fiscal's office. Subsequently thereafter, the plaintiff, through her lawyer, wrote a letter ... dated September 22, 1962, to the defendant asking for the delivery to the plaintiff of her ring pledged with defendant's pawnshop under pawnshop receipt serial-B No. 65606, dated June 15, 1962 ... . Since the defendant refused to return the ring, the plaintiff filed the present action with the Court of First Instance of Manila for the recovery of said ring, with P500.00 as attorney's fees and costs. The plaintiff asked for the provisional remedy of replevin by the delivery of the ring to her, upon her filing the requisite bond, pending the final determination of the action. The lower court issued the writ of replevin prayed for by plaintiff and the latter was able to take possession of the ring during the pendency of the action upon her filing the requisite bond." 3 It was then noted that the lower court rendered judgment declaring that plaintiff, now respondent Suntay, had the right to the possession of the ring in question. Petitioner Dizon, as defendant, sought to have the judgment reversed by the Court of Appeals. It did him no good. The decision of May 19, 1969, now on review, affirmed the decision of the lower court. In the light of the facts as thus found by the Court of Appeals, well-nigh conclusive on use, with the applicable law being what it is, this petition for review cannot prosper. To repeat, the decision of the Court of Appeals stands. 1. There is a fairly recent restatement of the force and effect of the governing codal norm in De Gracia v. Court of Appeals. 4 Thus: "The controlling provision is Article 559 of the Civil Code. It reads thus: 'The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same. If the possessor of a movable lost of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.' Respondent Angelina D. Guevara, having been unlawfully deprived of the diamond ring in question, was entitled to recover it from petitioner PUP COLLEGE OF LAW Page 169

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Consuelo S. de Garcia who was found in possession of the same. The only exception the law allows is when there is acquisition in good faith of the possessor at a public sale, in which case the owner cannot obtain its return without reimbursing the price. As authoritatively interpreted in Cruz v. Pahati, the right of the owner cannot be defeated even by proof that there was good faith in the acquisition by the possessor. There is a reiteration of this principle in Aznar v. Yapdiangco. Thus: 'Suffice it to say in this regard that the right of the owner to recover personal property acquired in good faith by another, is based on his being dispossessed without his consent. The common law principle that were one of two innocent persons must suffer by a fraud perpetrated by another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to be committed, cannot be applied in a case which is covered by an express provision of the new Civil Code, specifically Article 559. Between a common law principle and a statutory provision, the latter must prevail in this jurisdiction." " 5 2. It must have been a recognition of the compulsion exerted by the above authoritative precedents that must have caused petitioner to invoke the principle of estoppel. There is clearly a misapprehension. Such a contention is devoid of any persuasive force. Estoppel as known to the Rules of Court 6 and prior to that to the Court of Civil Procedure, 7 has its roots in equity. Good faith is its basis. 8 It is a response to the demands of moral right and natural justice. 9 For estoppel to exist though, it is indispensable that there be a declaration, act or omission by the party who is sought to be bound. Nor is this all. It is equally a requisite that he, who would claim the benefits of such a principle, must have altered his position, having been so intentionally and deliberately led to comport himself thus, by what was declared or what was done or failed to be done. If thereafter a litigation arises, the former would not be allowed to disown such act, declaration or omission. The principle comes into full play. It may successfully be relied upon. A court is to see to it then that there is no turning back on one's word or a repudiation of one's act. So it has been from our earliest decisions. As Justice Mapa pointed out in the first case, a 1905 decision, Rodriguez v. Martinez, 10 a party should not be permitted "to go against his own acts to the prejudice of [another]. Such a holding would be contrary to the most rudimentary principles of justice and law." 11 He is not, in the language of Justice Torres, in Irlanda v. Pitargue, 12 promulgated in 1912, "allowed to gainsay [his] own acts or deny rights which [he had] previously recognized." 13 Some of the later cases are to the effect that an unqualified and unconditional acceptance of an agreement forecloses a claim for interest not therein provided. 14 Equally so the circumstance that about a month after the date of the conveyance, one of the parties informed the other of his being a minor, according to Chief Justice Paras, "is of no moment, because [the former's] previous misrepresentation had already estopped him from disavowing the contract. 15 It is easily understandable why, under the circumstances disclosed, estoppel is a frail reed to hang on to. There was clearly the absence of an act or omission, as a result of which a position had been assumed by petitioner, who if such elements were not lacking, could not thereafter in law be prejudiced by his belief in what had been misrepresented to him. 16 As was put by Justice Labrador, "a person claimed to be estopped must have knowledge of the fact that his voluntary acts would deprive him of some rights because said voluntary acts are inconsistent with said rights." 17 To recapitulate, there is this pronouncement not so long ago, from the pen of Justice Makalintal, who reaffirmed that estoppel "has its origin in equity and, being based on moral right and natural justice, finds applicability wherever and whenever the special circumstances of a case so demand." 18 How then can petitioner in all seriousness assert that his appeal finds support in the doctrine of estoppel? Neither the promptings of equity nor the mandates of moral right and natural justice come to his rescue. He is engaged in a business where presumably ordinary prudence would manifest itself to ascertain whether or not an individual who is offering a jewelry by way of a pledge is entitled to do so. If no such care be taken, perhaps because of the difficulty of resisting opportunity for profit, he should be the last to complain if thereafter the right of the true owner of such jewelry should be recognized. The law for this sound reason accords the latter protection. So it has always been since Varela v. Finnick, 19 a 1907 decision. According to Justice Torres: "In the present case not only has the ownership and the origin of the jewels misappropriated been unquestionably proven but also that the accused, acting fraudulently and in bad faith, disposed of them and pledged them contrary to agreement, with no right of ownership, and to the prejudice of the injured party, who was thereby illegally deprived of said jewels; therefore, in accordance with the provisions of article 464, the owner has an absolute right to recover the jewels from the possession of whosoever holds them, ... ." 20 There have been many other decisions to the same effect since then. At least nine may be cited. 21 Nor could any other outcome be expected, considering the civil code provisions both in the former Spanish legislation 22 and in the present Code. 23 Petitioner ought to have been on his guard before accepting the pledge in question. Evidently there was no such precaution availed of. He therefore, has only himself to blame for the fix he is PUP COLLEGE OF LAW Page 170

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now in. It would be to stretch the concept of estoppel to the breaking point if his contention were to prevail. Moreover, there should have been a realization on his part that courts are not likely to be impressed with a cry of distress emanating from one who is in a business authorized to impose a higher rate of interest precisely due to the greater risk assumed by him. A predicament of this nature then does not suffice to call for less than undeviating adherence to the literal terms of a codal provision. Moreover, while the activity he is engaged in is no doubt legal, it is not to be lost sight of that it thrives on taking advantage of the necessities precisely of that element of our population whose lives are blighted by extreme poverty. From whatever angle the question is viewed then, estoppel certainly cannot be justly invoked. WHEREFORE, the decision of the Court of Appeals of May 19, 1969 is affirmed, with costs against petitioner. Separate Opinions TEEHANKEE, J., concurring: I concur in the main opinion of Mr. Justice Fernando, tracing and confirming the long settled and uniform jurisprudence since 1905 based on the express statutory provision of article 559 of our Civil Code (formerly article 464 of the old Civil Code) that the owner "who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same," the only exception expressly provided in the codal article being that "if the possessor of a movable lost of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor." 1 Senator Tolentino's submittal in his commentaries on the Civil Code "that the better view is to consider 'unlawfully deprived' as limited to unlawful taking, such as theft or robbery, and should not include disposition through abuse of confidence. Thus, if the owner has entrusted personal property to a bailee, such as for transportation, pledge, loan or deposit, without transmitting ownership, and the latter alienates it to a third person who acquires it in good faith, the owner cannot recover it from such third person, "is, as he himself admits, based on the express provision of the French Code which allows the true owner of personal property to recover it from the possessor in good faith without reimbursement only "if it has been stolen from him." He concedes likewise that "our Code, following the Spanish code, uses broader language than that used in the French code" since our Code provides that the owner who has been "unlawfully deprived" of personal property may recover it from the possessor without reimbursement, with the sole exception where the possessor acquired the article in good faith at a public sale. 2 He thus concedes finally that "(T)here are writers who believe that the phrase 'unlawfully deprived' in our Code does not have the same meaning as stolen in the French code; that it is used in the general sense, and is not used in the specific sense of deprivation by robbery or theft. Under this view, it extends to all cases where there has been no valid transmission of ownership, including the case where the proprietor has entrusted the thing to a borrower, depositary, or lessee who has sold the same. It is believed that the owner in such case is undoubtedly unlawfully deprived of his property, and may recover the same from a possessor in good faith" (citing De Buen: 2-II Colin & Capitant 1008; 1 Bonet 234) 3 and cites the long unbroken line of decisions of the Court of Appeals and of this Court upholding the import of the broader language of the codal article in question. Indeed, if our legislature had intended to narrow the scope of the term "unlawfully deprived" to "stolen" as advocated by Tolentino, it certainly would have adopted and used such a narrower term rather than the broad language of article 464 of the old Spanish Civil Code with its long-established and accepted meaning in accordance with our jurisprudence. Petitioner's contentions at bar had long been disposed of in the Court's 1911 decision of Arenas vs. Raymundo, 4per Mr. Justice Florentino Torres, reiterating the doctrine of the earlier cases and holding that Even supposing that the defendant Raymundo had acted in good faith in accepting the pledge of the jewelry in litigation, even then he would not be entitled to retain it until the owner thereof reimburse him for the amount loaned to the embezzler, since the said owner of the jewelry, the PUP COLLEGE OF LAW Page 171

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plaintiff, did not make any contract with the pledgee, that would obligate him to pay the amount loaned to Perello, and the trial record does not disclose any evidence, even circumstantial, that the plaintiff Arenas consented to or had knowledge of the pledging of her jewelry in the pawnshop of the defendant. For this reason, and because Concepcion Perello was not the legitimate owner of the jewelry which she pledged to the defendant Raymundo, for a certain sum that she received from the latter as a loan, the contract of pledge entered into by both, is of course, null and void, and, consequently the jewelry so pawned can not serve as security for the payment of the sum loaned, nor can the latter be collected out of the value of the said jewelry. Article 1857 of the Civil Code prescribes as one of the essential requisites of the contracts of pledge and of mortgage, that the thing pledged or mortgaged must belong to the person who pledges or mortgages it. This essential requisite for the contract of pledge between Perello and the defendant being absent as the former was not the owner of the jewelry given in pledge, the contract is as devoid of value and force as if it had not been made, and as it was executed with marked violation of an express provision of the law, it can not confer upon the defendant any rights in the pledged jewelry, nor impose any obligation toward him on the part of the owner thereof, since the latter was deprived of her possession by means of the illegal pledging of the said jewelry, a criminal act. Between the supposed good faith of the defendant Raymundo and the undisputed good faith of the plaintiff Arenas, the owner of the jewelry, neither law nor justice permit that the latter, after being the victim of embezzlement, should have to choose one of the two extremes of a dilemma, both of which, without legal ground or reason, are injurious and prejudicial to her interests and rights, that is, she must either lose her jewelry or pay a large sum received by the embezzler as a loan from the defendant, when the plaintiff Arenas is not related to the latter by any legal or contractual bond out of which legal obligations arise. xxx xxx xxx The business of pawnshops, in exchange for the high and onerous interest which constitutes its enormous profits, is always exposed to the contingency of receiving in pledge or security for the loans, jewels and other articles that have been robbed, stolen, or embezzled from their legitimate owners; and as the owner of the pawnshop accepts the pledging of jewelry from the first bearer who offers the same and asks for money on it, without assuring himself whether such bearer is or is not the owner thereof, he can not, by such procedure, expect from the law better and more preferential protection than the owner of the jewels or other articles, who was deprived thereof by means of a crime and is entitled to be excused by the courts. Antonio Matute, the owner of another pawnshop, being convinced that he was wrong, refrained from appealing from the judgment wherein he was sentenced to return, without redemption, to the plaintiffs, another jewel of great value which had been pledged to him by the same Perello. He undoubtedly had in mind some of the previous decisions of this court, one of which was against himself. By the same token, the contention that the owner may recover the lost article of which he has been unlawfully deprived without reimbursement of the sum received by the embezzler from the pawnshop only after a criminal conviction of the embezzler, is to add a requirement that is not in the codal article and to unduly prejudice the victim of embezzlement, as pointed out by the Court in Arenas, supra. The civil action that the owner must resort to for the recovery of his personal property of which he has been unlawfully deprived as against the possessor (where the latter refuses to honor the claim, presumably on same valid doubts as to the genuineness of the claim) gives the possessor every adequate protection and opportunity to contest the owner's claim of recovery. The owner must therein establish by competent evidence his lawful claim, and show PUP COLLEGE OF LAW Page 172

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to the court's satisfaction his lawful ownership of the article claimed and that he had been unlawfully deprived thereof. I therefore find no reason to set aside the long settled interpretation given by our jurisprudence to article 559 (formerly article 464) of our Civil Code in accordance with its clear and unambiguous language, as reaffirmed in the case at bar.

USUFRUCT:
JACINTO DEL SAZ OROZCO vs. SALVADOR ARANETA; G.R. No. L-3691 November 21, 1951 Eugenio del Saz Orozco died on February 7, 1922, leaving a will which he had executed on March 5, 1921, and was afterwards duly admitted to probate. The pertinent clause of that will provided that certain properties should be given in life usufruct to his son Jacinto del Saz Orozco y Mortera, with the obligation on his part to preserve said properties in favor of the other heirs who were declared the naked owners thereof. Among these properties were 5,714 shares of stock of the Benguet Consolidated Mining Company, according to the project of partition executed pursuant to said will and duly approved by the court. On September 11, 1934, the Benguet Consolidated Mining Company declared and distributed stock dividends out of its surplus profits, the plaintiff receiving his proportionate portion of 11,428 shares. On November 17, 1939, said Mining Company again declared stock dividends out of its surplus profits, of which the plaintiff received 17,142 shares, making a total of 28,570 shares. The question at this issue is whether the stock dividend is part of the capital which should be preserved in favor of the owners or an income of fruits of the capital which should be given to and enjoyed by the life usufructuary, the plaintiff herein, as his own exclusive property. The same question was raised in the Matter of the Testate Estate of Emil Maurice Bachrach, * G.R. No. L-2659 the decision of which was promulgated on October 12, 1950. In that case, the question raised was stated as follows: Is a stock dividend fruit or income, which belongs to the usufructuary, or is it capital or part of the corpus of the estate, which pertains to the remainderman. That is the question raised in this appeal. In said case, Emil Maurice Bachrach was the owner of 108,000 shares of stock of the Atok Big Wedge Mining Co., Inc. He received 54,000 shares, representing 50 per cent stock dividend on said original shares. On June 10, 1948, Mary MacDonald Bachrach as life tenant or usufructuary of the estate filed a motion asking the Court of First Instance to authorize the Peoples Bank and Trust Company, as administrator of the estate of Emil Maurice Bachrach, to transfer to her the said 54,000 shares of stock dividend by indorsing and delivering to her the corresponding certificates of stock, claiming that said dividend, although paid out in the form of stock, was fruit or income and, therefore, belonged to her as usufructuary. The other heirs of Bachrach opposed the motion on the ground that the stock dividend was part of the capital or corpus of the estate and belonged to the remainderman. The court granted the motion and the other heirs appealed. Justice Ozaeta, with the unanimous concurrence of the other members of this Court, ruled that a dividend, whether in the form of cash or stock, is income and, consequently, should go to the usufructuary, taking into consideration that a stock dividend as well as a cash dividend can be declared only out of profits of the corporation, for it were declared out of the capital it would be a serious violation of the law. For the reason sustaining the doctrine, we refer to that recent decision. The appellees attempt to differentiate the present case from that case, contending that, while the doctrine in that case effected a just and equitable distribution, the application of it in the present case would cause an injustice, for, quoting Justice Holmes, "abstract propositions do not decide concrete cases." We have examined the two cases PUP COLLEGE OF LAW Page 173

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carefully and we have not perceived any difference which would justify a reversal or modification of the doctrine in the Bachrach case. One of the differences pointed out is that by the declaration of stock dividends the voting power of the original shares of stock is considerably diminished, and, if the stock dividends are not given to the remaindermen, the voting power of the latter would be greatly impaired. Bearing in mind that the number of shares of stock of the Benguet Consolidated Mining company is so large, the diminution of the voting power of the original shares of stock in this case cannot possibly affect or influence the control of the policies of the corporation which is vested in the owners of the great block of shares. This would not be a sufficient reason for modifying the doctrine of the Bachrach case. These remarks are made in answer to the argument of the appellees in this particular case, but they do not imply that if the diminution of the voting power were considerable the doctrine should be modified. With regard to the sum of P3,428.40 which is alleged to have been received by the plaintiff from the Benguet Consolidated Mining Company, as a result of the reduction of its capital in January, 1926, it appears that it has not been proven that the plaintiff has received said sum; on the contrary, it was denied by him as soon as he arrived in the Philippines from Spain. There is no ground, therefore, for ordering the plaintiff to deliver such sum to the defendants. In view of the foregoing, the judgment appealed from is reversed, and it is declared that the stock dividends amounting to 28,570 shares, above mentioned, belongs to the plaintiff-appellant Jacinto del Saz Orozco y Mortera exclusively and in absolute ownership. Without costs. It is so ordered.

EASEMENTS OR SERVITUDES:
NICOLAS VALISNO vs. FELIPE ADRIANO; G.R. No. L-37409 May 23, 1988 This case was certified to this Court by the Court of Appeals in a resolution dated August 10, 1973, the sole issue being a question of law and beyond its jurisdiction. to decide. Admitted by the parties in their pleading and established during the trial on the merits are the following material facts: On June 20, 1960, 'the plaintiff-appellant file against the defendant-appellee an action for damages docketed as Civil Case No. 3472 in the Court of First Instance of Nueva Ecija. The complaint alleged that the plaintiff is the absolute owner and actual possessor of a 557,949-square-meter parcel of land in La Fuente, Santa Rosa, Nueva Ecija, and more particularly described in his Transfer Certificate of Title No. NT-16281. The plaintiff-appellant Valisno bought the land from the defendant-appellees sister, Honorata Adriano Francisco, on June 6,1959. (Deed of Absolute Sale, Exh. "A".) The land which is planted with watermelon, peanuts, corn, tobacco, and other vegetables adjoins that of the appellee Felipe Adriano on the bank of the Pampanga River. Both parcels of land had been inherited by Honorata Adriano Francisco and her brother, Felipe Adriano, from their father, Eladio Adriano. At the time of the sale of the land to Valisno, the land was irrigated by water from the Pampanga River through a canal about seventy (70) meters long, traversing the appellee's land. On December 16, 1959, the appellee levelled a portion of the irrigation canal so that the appellant was deprived of the irrigation water and prevented from cultivating his 57-hectare land. The appellant filed in the Bureau of Public Works and Communications a complaint for deprivation of water rights. A decision was rendered on March 22, 1960 ordering Adriano to reconstruct the irrigation canal, "otherwise judicial action shall be taken against him under the provisions of Section 47 of Act 2152 (the Irrigation Act), as amended." Instead of restoring the irrigation canal, the appellee asked for a reinvestigation of the case by the Bureau of Public Works and Communications. A reinvestigation was granted.

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In the meantime, plaintiff Valisno rebuilt the irrigation canal at his own expense because his need for water to irrigate his watermelon fields was urgent. On June 20, 1960, he filed a complaint for damages in the Court of First Instance (now Regional Trial Court) of Nueva Ecija (Civil Case No. 3472) claiming that he suffered damages amounting to P8,000 when he failed to plant his fields that year (1960) for lack of irrigation water, P800 to reconstruct the canal on defendant Adriano's land, and P1,500 for attorney's fees and the costs of suit. On October 25, 1961, the Secretary of Public Works and Communications reversed the Bureau's decision by issuing a final resolution dismissing Valisno's complaint. The Secretary held that Eladio Adriano's water rights which had been granted in 1923 ceased to be enjoyed by him in 1936 or 1937, when his irrigation canal collapsed. His non-use of the water right since then for a period of more than five years extinguished the grant by operation of law, hence the water rights did not form part of his hereditary estate which his heirs partitioned among themselves. Valisno, as vendee of the land which Honorata received from her father's estate did not acquire any water rights with the land purchased. In his answer to the damage suit (Civil Case No. 3472), the defendant Felipe Adriano admitted that he levelled the irrigation canal on his land, but he averred: that neither his late father nor his sister Honorata possessed water rights for the land which she sold to the appellant; that he (the appellee) applied for water rights for his land in 1956 and obtained the same in 1958; and that he had a perfect right to level his land for his own use because he merely allowed his sister to use his water rights when she still owned the adjacent land. He set up a counterclaim for P3,000 as damages incurred by him in levelling the land on which the appellant dug an irrigation canal, P2,000 as actual damages, P3,000 as attorney's fees, and expenses of litigation. In a decision dated April 21, 1966, the trial court held that the plaintiff had no right to pass through the defendant's land to draw water from the Pampanga River. It pointed out that under Section 4 of the Irrigation Law, controversies between persons claiming a right to water from a stream are within the jurisdiction of the Secretary of Public Works and his decision on the matter is final, unless an appeal is taken to the proper court within thirty days. The court may not pass upon the validity of the decision of the Public Works Secretary collaterally. Furthermore, there was nothing in the plaintiff 's evidence to show that the resolution was not valid. It dismissed the complaint and counterclaim. The plaintiff's motion for reconsideration of the decision was denied by the trial court. The plaintiff appealed to the Court of Appeals which certified the case to Us upon the legal question of whether the provisions of the Irrigation Act (Act No. 2152) or those of the Civil Code should apply to this case. The plaintiff-appellant argues that while the trial court correctly held that the Secretary of Public Works may legally decide who between the parties is entitled to apply for water rights under the Irrigation Act, it erred in ruling that the Secretary has authority to hear and decide the plaintiff 's claim for damages for the defendant's violation of his (plaintiff's) right to continue to enjoy the easement of aqueduct or water through the defendant's land under Articles 642, 643, and 646 of the Civil Code, which provide: Article 642. Any person who may wish to use upon his own estate any water of which he can dispose shall have the right to make it flow through the intervening estates, with the obligation to indemnify their owners, as well as the owners of the lower estates upon which the waters may filter or descend. Article 643. One desiring to make use of the right granted inthe preceding article is obliged: (1) To prove that he can dispose of the water and that it is sufficient for the use for which it is intended; (2) To show that the proposed right of way is the most convenient and the least onerous to third persons; PUP COLLEGE OF LAW Page 175

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(3) To indemnify the owner of the servient estate in the manner determined by the laws and regulations. Article 646. For legal purposes, the easement of aqueduct shall be considered as continuous and apparent, even though the flow of the water may not be continuous, or its use depends upon the needs of the dominant estate, or upon a schedule of alternate days or hours. The existence of the irrigation canal on defendant's land for the passage of water from the Pampanga River to Honorata's land prior to and at the time of the sale of Honorata's land to the plaintiff was equivalent to a title for the vendee of the land to continue using it as provided in Article 624 of the Civil Code: Article 624. The existence of an apparent sign of easement between two estates, established or maintained by the owner of both shall be considered, should either of them be alienated, as a title in order that he easement may continue actively and passively, unless at the time, theownership of the two estates is divided, the contrary should be provided in the title of conveyance of either of them, or the sign aforesaid should be removed before the execution of the deed. This provision shall also apply in case of the division of a thing owned in common on by two or more persons (Civil Code) This provision was lifted from Article 122 of the Spanish Law of Waters which provided: Article 122. Whenever a tract of irrigated land which previously received its waters from a single point is divided through inheritance, sale or by virtue of some other title, between two or more owners, the owners of the higher estates are under obligation to give free passage to the water as an easement of conduit for the irrigation of the lower estates, and without right to any compensation therefore unless otherwise stipulated in the deed of conveyance. (Art. 122, Spanish Law of Waters of August 3, 1866.) No enlightened concept of ownership can shut out the Idea of restrictions thereon, such as easements. Absolute and unlimited dominion is unthinkable, inasmuch as the proper enjoyment of property requires mutual service and forbearance among adjoining estates (Amor vs. Florentino, 74 Phil. 403). As indicated in the decision dated March 22, 1960 of the Bureau of Works "the principal issue involved in this case falls under the subject of servitude of waters which are governed by Article 648 of the new Civil Code and the suppletory laws mentioned in the cases of Lunod vs. Meneses 11 Phil. 128) and Osmena vs. Camara (C.A. 380 62773) which are the irrigation law and the Spanish Law of Waters of August 3, 1866, specifically Article 122 thereof. The deed of sale in favor of Valisno included the "conveyance and transfer of the water rights and improvements" appurtenant to Honorata Adriano's property. By the terms of the Deed of Absolute Sale, the vendor Honorata Adriano Francisco sold, ceded, conveyed and transferred to Dr. Nicolas Valisno all "rights, title, interest and participations over the parcel of land above- described, together with one Berkely Model 6 YRF Centrifugal Pump G" suction, 6" discharge 500-1500 GPM, with Serial No. 5415812 and one (1) set of suction pipe and discharge of pipe with elbow, nipples, flanges and footvalves," and the water rights and such other improvements appertaining to the property subject of this sale. According to the appellant, the water right was the primary consideration for his purchase of Honorata's property, for without it the property would be unproductive. Water rights, such as the right to use a drainage ditch for irrigation purposes, which are appurtenant to a parcel of land, pass with the conveyance of the land, although not specifically mentioned in the conveyance. The purchaser's easement of necessity in a water ditch running across the grantor's land cannot be defeated even if the water is supplied by a third person (Watson vs. French, 112 Me 371 19 C.J. 868-897). The fact that an easement by grant may also have qualified as an easement of necessity does detract from its permanency as property right, which survives the determination of the necessity (Benedicto vs. CA, 25 SCRA 145).<re||an1w> PUP COLLEGE OF LAW Page 176

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As an easement of waters in favor of the appellant has been established, he is entitled to enjoy it free from obstruction, disturbance or wrongful interference (19 CJ 984), such as the appellee's act of levelling the irrigation canal to deprive him of the use of water from the Pampanga River. WHEREFORE, the appealed decision is set aside, and a new one is entered ordering the appellee to grant the appellant continued and unimpeded use of the irrigation ditch traversing his land in order to obtain water from the Pampanga River to irrigate appellant's land. Let the records of this case be remanded to the court a quo for the reception of evidence on the appellant's claim for damages. SEVERO AMOR vs. GABRIEL FLORENTINO, ET AL.; G.R. No. L-48384 October 11, 1943 The petitioner asks for the setting aside of the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Ilocos Sur. The trial court declared that an easement of light and view had been established in favor of the property of the plaintiffs (respondents herein) and ordered the petitioner to remove within 30 days all obstruction to the windows of respondents' house, to abstain from constructing within three meters from the boundary line, and to pay P200.00 damages. It appears that over 50 years ago, Maria Florentino owned a house and a camarin or warehouse in Vigan, Ilocos Sur. The house had and still has, on the north side, three windows on the upper story, and a fourth one on the ground floor. Through these windows the house receives light and air from the lot where the camarin stands. On September 6, 1885, Maria Florentino made a will, devising the house and the land on which it is situated to Gabriel Florentino, one of the respondents herein, and to Jose Florentino, father of the other respondents. In said will, the testatrix also devised the warehouse and the lot where it is situated to Maria Encarnancion Florentino. Upon the death of the testatrix in 1882, nothing was said or done by the devisees in regard to the windows in question. On July 14, 1911, Maria Encarnacion Florentino sold her lot and the warehouse thereon to the petitioner, Severo Amor, the deed of sale stating that the vendor had inherited the property from her aunt, Maria Florentino. In January, 1938, petitioner destroyed the old warehouse and started to build instead a two-story house. On March 1st of that year, respondents filed an action to prohibit petitioner herein from building higher than the original structure and from executing any work which would shut off the light and air that had for many years been received through the four windows referred to. The Court of First Instance found on the 15th of the same month that the construction of the new house had almost been completed, so the court denied the writ of preliminary injunction. I. Inasmuch as Maria Florentino died in 1892, according to the finding of fact of the Court of Appeals, Articles 541 of the Civil Code governs this case. The facts above recited created the very situation provided for in said article, which reads as follows: (Spanish - page 406) Art. 551. La existencia de un signo aparente de servidumbre entre dos fincas, establecido por el propietario de ambas, se considerara, si se enjenare una, como titulo para que la servidumbre continue activa y pasivamente, a no ser que, al tiempo de separarse la propiedad de las dos fincas, se exprese lo contrario en el titulo de enajenacion de cualquiera de ellas, o se haga desaparecer acquel signo antes del otorgamiento de la escritura. Art. 541. The existence of an apparent sign of easement between two estates, established by the proprietor of both, shall be considered, if one of them is alienated, as a title so that the easement will continue actively and passively, unless at the time the ownership of the two estates is divided, the contrary is stated in the deed of alienation of either of them, or the sign is made to disappear before the instrument is executed. When the original owner, Maria Florentino, died in 1892, the ownership of the house and its lot passed to respondents while the dominion over the camarin and its lot was vested in Maria Encarnancion Florentino, from PUP COLLEGE OF LAW Page 177

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whom said property was later bought by petitioner. At the time the devisees took possession of their respective portions of the inheritance, neither the respondents nor Maria Encarnacion Florentino said or did anything with respect to the four windows of the respondents' house. The respondents did not renounce the use of the windows, either by stipulation or by actually closing them permanently. On the contrary, they exercised the right of receiving light and air through those windows. Neither did the petitioner's predecessor in interest, Maria Encarnacion Florentino, object to them or demand that they be close. The easement was therefore created from the time of the death of the original owner of both estates, so when petitioner bought the land and the camarin thereon from Maria Encarnancion Florentino, the burden of this easement continued on the real property so acquired because according to Article 534, "easements are inseparable from the estate to which they actively or passively pertain." An incidental question that arises at this juncture is whether or not Article 541 applies to a division of property by succession. The affirmative has been authoritatively declared. (Manresa, "Comentarios al Codigo Civil Espanol," vol. 4, p. 619; Sentence of the Supreme Tribunal of Spain, November 17, 1911). Petitioner assigns as an error of the Court of Appeals the supposed failure of that tribunal to pass upon his motion to consider certain allegedly new evidence to prove that Maria Florentino, the original owner of the properties, died in 1885. Petitioner alleges that Maria Florentino died in 1885 and, therefore, the Law of the Partidas should be followed in this case and not the Civil Code. However, the petitioner's contention cannot be upheld without rejecting the finding of fact made by the Court of Appeals, as follows: Hebiendo pasado la propiedad de la casa de manposteria a los demandantes, a la muerte de Maria Florentino, ocurrida en 1892, (el demandado sostiene que fue con anterioridad a 1889) no hay duda ninguna de que los demandantes adquirieron la servidumbre mediante titulo y por prescripcion (Art. 537). We cannot review the above finding of fact by the Court of Appeals that Maria Florentino die in 1892. The evidentiary fact from which the Court of Appeals drew the above finding is that Gregorio Florentino during the trial in 1938 testified to facts of his own personal knowledge, and he was then 58 years old, having been born in 1880. If Maria Florentino, as claimed by petitioner, had died in 1885, Gregorio Florentino would have been only 5 years of age at the time of Maria Florentino's death. The Court of Appeals therefore concluded that Maria Florentino died in 1892, when Gregorio Florentino was ten 12 years of age. We do not believe we can disturb the finding of the Court of Appeals, because its deductions as to the date of Maria Florentino's death may be right or wrong, according to one's own reasoning. In other words, its conclusion of fact from Gregorio Florentino's testimony is not necessarily and unavoidably mistaken. On the contrary, it is reasonable to believe that a person 58 years old cannot remember facts of inheritance as far back as when he was only 5 years of age. Furthermore, the burial certificate and the gravestone, whose copy and photograph, respectively, were offered by petitioner in a motion for new trial filed in the Court of Appeals, could have been discovered by petitioner before the trial in the Court of First Instance by the exercise of due diligence. There is no reason why this evidence could be found when the case was already before the Court of Appeals, but could not be found before the trial in the Court of First Instance. It was easy, before such trial, for the petitioner to inquire from the relatives of Maria Florentino as to when she died. And having ascertained the date, it was also easy to secure the burial certificate and a photograph of the gravestone, supposing them to be really of Maria Florentino. The fact is, petitioner never tried to find out such date and never tried to secure the additional evidence till his counsel raised this issue for the first time before the Court of Appeals. That Court was therefore died in 1885. (Sec. 497, Act. 190). The petitioner's statement in his brief (p. 11) that the Court of Appeals neither passed upon his motion nor took the burial certificate and the gravestone into account is not true, because the very words of the Court of Appeals clearly show that the Court had in mind said motion and evidence when the decision was signed. The decision said: "a la muerte de Maria Florentino ocurrida en 1892 (el demandado sostiene que fue con anteriodad a 1889)" (Emphasis supplied). Lastly, the issue as to the date of Maria Florentino's death cannot be raised for the first time on appeal. Petitioner did not in the trial court allege or prove this point. He presented this issue for the first time in the Court of Appeals. (Sec. 497, Act. 190). Let us now consider Article 541 more closely in its application to the easement of light and view and to the easement not to build higher (altius non tollendi). These two easements necessarily go together because an PUP COLLEGE OF LAW Page 178

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easement of light and view requires that the owner of the servient estate shall not build to a height that will obstruct the window. They are, as it were, the two sides of the same coin. While an easement of light and view is positive, that of altius non tollendi is negative. Clemente de Diego states that when article 538 speaks of the time for the commencement of prescription for negative easements, "it refers to those negative easements which are the result and consequence of others that are positive, such as the easement not to build higher, or not to construct, which is indispensable to the easement of light." (Se refiere a aquellas servidumbres negativas que son sucuela y consecuencia de otras positivaas, como la de no levantar mas alto, o de no edificar, que es imprescindible para la servidumbre de luces.") ("Curso Elemental de Derecho Civil Espaos, Comun y Foral," vol. 3, p. 450). This relation of these two easements should be borned in mind in connection with the following discussion of (1) the modes of establishing and acquiring easements; (2) the meaning of article 541; and (3) the doctrine in the case of Cortes vs. Yu-Tibo. First, as to the modes of establishing and acquiring easements. According to Article 536, easements are established by law or by will of th owners. Acquisition of easements is first by title or its equivalent and seconly by prescription. What acts take the place of title? They are mentioned in Articles 540 and 541, namely, (1) a deed of recognition by the owner of the servient estate; (2) a final judgment; and (3) an apparent sign between two estates, established by the owner of both, which is the case of article 541. Sanchez Roman calls cuh apparent sign under article 541 "supletoria del titulo constitutivo de la servidumbre (Derecho Civil, vol. 3, p. 656). The same jurist says in regard to the ways of constituting easements: (Spanish word - page 410) In the Sentence of the Supreme Tribunal of Spain dated November 7, 1911, it was held that under article 541 of the Civil Code, the visible and permanent sign of an easement "is the title that characterizes its existence" ("es el titulo caracteristico de su existencia.") It will thus be seen that under article 541 the existence of the apparent sign in the instance case, to wit, the four windows under consideration, had for all legal purposes the same character and effect as a title of acquisition of the easement of light and view by the respondents upon the death of the original owner, Maria Florentino. Upon the establishment of that easement of light and view, the con-comitant and concurrent easement of altius non tollendi was also constituted, the heir of the camarin and its lot, Maria Encarnacion Florention, not having objected to the existence of the windows. The theory of article 541, of making the existence of the apparent sign equivalent to a title, when nothing to the contrary is said or done by the two owners, is sound and correct, because as it happens in this case, there is an implied contract between them that the easements in question should be constituted. Analyzing article 541 further, it sees that its wording is not quite felicitous when it says that the easement should continue. Sound juridical thinking rejects such an idea because, properly speaking, the easement is not created till the division of the property, inasmuch as a predial or real easement is one of the rights in another's property, or jura in re aliena and nobdy can have an easement over his own property, nimini sua res servit. In the instant case, therefore, when the original owner, Maria Florentino, opened the windows which received light and air from another lot belonging to her, she was merely exercising her right of dominion. Consequently, the moment of the constitution of the easement of light and view, together with that of altius non tollendi, as the time of the death of the original owner of both properties. At that point, the requisite that there must be two proprietors one of the dominant estate and another of the servient estate was fulfilled. (Article 530, Civil Code.) Upon the question of the time when the easement in article 541 is created, Manresa presents a highly interesting theory, whether one may agree with it or not. He says: La servidumbre encubierta, digamoslo asi, por la unidad de dueo, se hace ostensible, se revela con toda su verdadera importancia al separarse la propiedad de las fincas o porciones de finca que respectivamente deben representar el papel de predios sirviente y dominante.

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The concealed easement, as it were by the oneness of the owner, becomes visible, and is revealed in all its importance when the ownership of the estate or portions of the estate which respectively should play the role of servient and dominant estates is divided. Such a view cannot be fully accepted because before the division of the estate there is only a service in fact but not an easement in the strictly juridical sense between the two buildings or parcels of land. We come now to the case of Cortes vs. Yu-Tibo, 2 Phil., 24 decided in 1903, Mr. Justice, later Chief Justice, Mapa speaking for the Court. Counsel for petitioner contends that the doctrine in that case is controlling in the present one. If the essential facts of the two cases were the same, there is not doubt but that the early opinion would be decisive inasmuch as it is by its cogent reasoning one of the landmarks in Philippine jurisprudence. However, the facts and theories of both cases are fundamentally dissimilar. What is more, as will presently be explained, that every decision makes a distinction between that case and the situation provided for in article 541. In that case, Cortes sought an injunction to restrain Yu-Tibo from continuing the construction of certain buildings. Cortes' wife owned a house in Manila which had windows that had been in existence since 1843. The defendant, who occupied a house on the adjoining lot, commenced to raise the roof of the house in such a manner that one-half of the windows in the house owned by plaintiff's wife had been covered. This Court, in affirming the judgment of the lower court which dissolved the preliminary injunction, held that the opening of windows through one's own wall does not in itself create an easement, because it is merely tolerated by the owner of the adjoining lot, who may freely build upon his land to the extent of covering the windows, under article 581, and that his kind of easement is negative which can be acquired through prescription by counting the time from the date when the owner of the dominant estate in a formal manner forbids the owner of the servient estate from obstructing the light, which had not been done by the plaintiff in this case. It will thus be clear that one of the essential differences between that case and the present is that while the YuTibo case involved acquisition of easement by prescription, in the present action the question is the acquisition of easement by title, or its equivalent, under article 541. Therefore, while a formal prohibition was necessary in the former case in order to start the period of prescription, no such act is necessary here because the existence of the apparent sign when Maria Florentino died was sufficient title in itself to created the easement. Another difference is that while in the Yu-Tibo case, there were tow different owners of two separate houses from the beginning, in the present case there was only one original owner of the two structures. Each proprietor in the Yu-Tibo case was merely exercising his rights of dominion, while in the instant case, the existence of the apparent sign upon the death of the original owner ipso facto burdened the land belonging to petitioner's predecessor in interest, with the easements of light and view and altius non tollendi in virtue of article 541. The very decision in Cortes vs. Yu-Tibo distinguishes that case from the situation foreseen in article 541. Said this Court in that case: It is true that the Supreme Court of Spain, in its decisions of February 7 and May 5, 1986, has classified as positive easements of light which were the object of the suits in which these decisions were rendered in cassation, and from these it might be believed at first glance, that the former holdings of the supreme court upon this subject had been overruled. But this is not so, as a matter of fact, inasmuch as there is no conflict between these decisions and the former decisions above cited. In the first of the suits referred to, the question turned upon two houses which had formerly belonged to the same owner, who established a service of light on one of them for the benefit of the other. These properties were subsequently conveyed to two different persons, but at the time of the separation of the property noting was said as to the discontinuance of the easement, nor were the windows which constituted the visible sign thereof removed. The new owner of the house subject to the easement endeavored to free it from the incumbrance, notwithstanding the fact that the easement had been in existence for thirty-five years, and alleged that the owner of the dominant estate had not performed any act of opposition which might serve as a starting point for the acquisition of a prescriptive title. The supreme court, in deciding this case, on the 7th of February, 1896, held that the easement in this particular case was positive, because it consisted in the active enjoyment of the light. This doctrine is doubtless based upon article 541 of the Code, PUP COLLEGE OF LAW Page 180

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which is of the following tenor: "The existence of apparent sign of an easement between two tenements, established by the owner of both of them, shall be considered, should one be sold, as a title for the active and passive continuance of the easement, unless, at the time of the division of the ownership of both tenements, the contrary should be expressed in the deed of conveyance of either of them, or such sign is taken away before the execution of such deed.' The word "active" used in the decision quoted in classifying the particular enjoyment of light referred to therein, presuposes on the part of the owner of the dominant estate a right to such enjoyment arising, in the particular cases passed upon by that decision, from the voluntary act of the original owner of the two houses, by which he imposed upon one of them an easement for the benefit of the other. It is well known that easements are established, among other cases, by the will of the owners. (Article 536 of the Code.) It was an act which was, in fact, respected and acquiesced in by the new owner of the servient estate, since he purchased it without making any stipulation against the easement existing thereon, but, on the contrary, acquiesced in the continuance of the apparent sign thereof. As is stated in the decision itself, "It is a principle of law that upon a division of a tenement among various persons in the absence of any mention in the contract of a mode of enjoyment different from that to which the former owner was accustomed such easements as may be necessary for the continuation of such enjoyment are understood to subsist." It will be seen, then, that the phrase "active enjoyment" involves an idea directly opposed to the enjoyment which is the result of a mere tolerance on the part of the adjacent owner, and which, as it is not based upon an absolute, enforceable right, may be considered as of a merely passive character. (2 Phil., 29-31). Finally, the Yu-Tibo case was decided upon the theory if the negative easement of altius non tollendi, while the instant case is predicated on the idea of the positive easement of light and view under article 541. On this point, suffice it to quote from Manresa's work. He says: Que en las servidumbres cuyo aspecto positivo aparece enlazado al negativo, asi como al efecto de la precripcion ha de considerarse prefente el aspecto negativo, al efecto del art. 541 basta atender al aspecto positivo, y asi la exitencia de huecos o ventanas entre dos fincas que fueron de un mismo dueo es bastante para considerar establecidas, al separarse la propiedad de esas fincas, las servidumbres de luces o vista, y con ellas las de no edificar on no levantar mas ato, porque sin estas no prodrian existir aquellas. That in easements whose positive aspect appears tied up with the negative aspect, just as for the purposes of prescription the negative aspect has to be considered preferential, so for the purposes of Article 541 it is sufficient to view the positive aspect, and therefore the existence of openings or windows between two estates which belonged to the same owner is sufficient to establish, when the ownership of these estates is divided, the easement of light or view, and with them the easements of altius non tollendibecause without the latter, the former cannot exists. There are several decisions of the Supreme Court of Spain which have applied Article 541. Some of them are those of February 7, 1986; February 6, 1904; May 29, 1911; and November 17, 1911. The sentence of February 7, 1896, dealt with windows established in one house by the original of two houses. When he died, the two houses were adjudicated to different heirs. The court held that there was an easement of light. Considerando que, segun lo establecido por este Supremo Tribunal en repetidas sentencias, y consignado, muy principalmente, en la dictada en 21 de Octubre de 1892, lo preceptuado en la ley 14, titulo 31 de la Partida 3.a, al tratar del mode de constituirse las servidumbres, no esta en oposicion con el pricipio mediante el que, dividida una finca entre diversas personas, sin que en el contrato se mencione cosa alguna acerca de un modo de aprovenchamiento distinto del que usaba el primitivo dueo de ella, se entieden subsistentes las servidumbres ncesarias para que aquel pueda tener lugar.

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Considerando que ese principio y jurisprudencia han obtenido nueva sancion, puesto que a ellos obedece el concepto claro y concreto del articulo 541 del Codigo Civil, aplicable al caso, . . . (Ruiz, Codigo Civil, Vol. V, pp. 349-350). Considering that, according to what has been established by this Supreme Tribunal in repeated sentences, and principally declared in the sentence promulgated on October 21, 1892, the provision of law 14, title 31 of Partida 3 in treating of the mode of constituting easements, is not contrary to the principle that when an estate is divided between different persons, and in the contract nothing is said out a mode of enjoyment different from that used by the original owner thereof, the necessary easements for said mode of enjoyment are understood to be subsisting; Considering that such principle and jurisprudence have obtained a new santion, for due to them is the clear and concrete concept of Article 541 applicable to the case . . . . Therefore, considering that Maria Florentino died in 1892, according to a finding of fact by the Court of Appeals, there is an easement of light and view in favor of the respondents' property under article 541 of the Civil Code. But granting, arguendo, that Maria Florentino died in 1885, as contended by petitioner, nevertheless the same principle enunciated in article 541 of the Spanish Civil Code was already an integral part of the Spanish law prior to the Civil Code, the easement in question would also have to be upheld. That the law before the Civil Code was the same as at present is shown by the following: 1. Under Law 14, Title 31, Partida 3, this easement was constituted by an implied contract among the heirs of Maria Florentino. 2. Granting for the sake of argument that this easement was not created through an implied contract according to Law 14, Title 31, Partida 3, yet that provision of the Partidas was not inconsistent with the principle in question, so that there was a gap in the Partidas which the Supreme Court of Spain filled up from the Roman Law and modern civil codes, by recognizing the existence of this kind of easement. 3. Law 17, Title 31, Partida 3 regarding the extinguishment of an easement did not prohibit the easement in the instant case, Therefore, we should adhere to the decisions of the Supreme Court of Spain which maintain this easement under the Spanish law prior to Civil Code. 4. Other considerations show that the principle of apparent sign as announced by the Supreme Tribunal of Spain is not incompatible with the Partidas. First, as to the implied contract. Law 14, Title 31, Partida 3 provided that easements were acquired bycontract, by will and by prescription. Upon the death of the original owner, Maria Florentino, the four windows under consideration already existed and were visible. One of the heirs, Maria Encarnacion Florentino, to whom thecamarin and its lot had been devised, having failed to object to the same, knowingly consented to their continuance. Nor did Gabriel and Jose Florentino (devisees of the house that had the four windows) permanently close the windows. There was consequently an implied agreement between her and the devisees of the house with the four windows to the effect that the service of these windows would continue, thus creating the easement of light and view and the concomitant easement of altius non tollendi. Hence, the easement in question was acquired by Gabriel and Jose Florentino through contract under Law 14, Title 31, Partida 3. Secondly, with respect to the doctrine of the Supreme Tribunal of Spain. In a series of decisions of that court, it was held that Law 14, Title 31, Partida 3 was not opposed to the easement under review. One of those decisions is that of November 7, 1883, which held: (Spanish word - page 418) PUP COLLEGE OF LAW Page 182

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Other decisions of the Supreme Tribunal of Spain to the same effect are those of September 14, 1867 and June 7, 1883. (See Scaevola, "Codigo Civil Comentado" vol. 10, pp. 272-274.) So that, granting for the sake of argument, that the easement was not created through an implied contract according to Law 14, Title 31, Partida 3, yet that provision of the Partidas, according to decisions of the Supreme Tribunal of Spain, was not inconsistent with the principle in question. The problem in this case not having been foreseen in Law 14, Title 31, Partida 3, there was a gap in the old legislation, which the Supreme Tribunal of Spain filled up from the Roman Law and from modern Civil Codes. The principle in question was deeply rooted in the Roman Law. It is from the Roman Law that the Supreme Tribunal of Spain obtained this principle, in order to solve a question not provided for by the Partidas, whose main source was also the Roman law. In other words, the Partidas being silent on the point under consideration, the Supreme Tribunal of Spain resorted to the authoritative voice of the Roman law from which the Law of the Partidas had derived its inspiration. The following quotations from the Spanish version the Roman Law Digest will prove the assertions just made: (Spanish word - page 419) Among the modern civil codes which contain the rule in question are those of France, Belgium, Holland, Portugal, Mexico and Chile. It is presumed that the Supreme Tribunal of Spain had also in mind at least one of them when it decided cases involving this principle before the promulgation of the Spanish Civil Code. When, therefore, Maria Florentino died (supposing she died in 1885), the status of the Spanish law was in favor of the doctrine in question. We cannot change it because it was in full force at the time of the alleged date of Maria Florentino's death. We cannot reject a doctrine established by the Spanish Supreme Tribunal as an integral part of the Spanish law before the promulgation of the Civil Code in 1889. And we know that jurisprudence in the sense of court decisions is one of the sources of the law. Thirdly, concerning Law 17, Title 31, Partida 3. It is true that the eminent jurist, Manresa, is of the opinion that "el precepto del art. 541 no solo no existia en nuestra antigua legislacion, sino que podia deducirse claramente lo contrario de la ley 17, tit. 31, Partida 3.a . . . ." However, a careful reading of this provision of the Partidas reveals that the same did not militate against the creation of an easement by an apparent sign if nothing was said or done when the property is divided. Law 17, Title 31, Partida 3, read as follows: (spanish word - page 420-21) This law regulates the extinguishment of an easement by merger of the dominant and the servient estates. Speaking of this law of the Partidas and of article 546, par. 1, of the Civil Code, both of which refer to merger of the two estates, Acaevola says: (p. 319, vol. 10) But there is a world of difference between extinguishment of an easement by merger of the two estates and the constitution of an easement by an apparent sign when nothing is done or said upon the division of the property. Law 17, title 31, Partida 3, having in mind only the modes of extinguishment, the legislator did not intend to cover the question involved in the present case, which refers to the creation of an easement. What, then, are the differences between the extinguishment of an easement by merger under Law 17, title 31, Partida 3, and the constitution of an easement in this case, both before and after the Civil Code went into effect? First, in merger under Law 17, Title 31, Partida 3, there were from the very beginning, already two separate estates, the dominant and the servient estates, whereas in this case, there was only one estate.

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Second, in merger under said Law 17, there were already two owners, whereas in this case, there was only one owner, Maria Florentino. Third, in merger under Law 17, there was already an easement in the legal sense, whereas in the instant case, there was only a service between the two lots, (while Maria Florentino was living) but there was as yet no easement from the juridical viewpoint. 4. Other considerations prove that the principle of apparent sign as enunciated by the Supreme Tribunal of Spain is not inconsistent with the Partidas. These considerations are: 1. Article 537, Civil Code, provides that continuous and apparent easements are acquired by title, or by prescription. However, side by side with that article is article 541 which contemplates an easement upon division of an estate, unless a stipulation to the contrary is agreed upon, or the sign is destroyed. Bearing in mind that "title" includes a contract, our view is that if Article 537 and 541 of the Civil Code can stand together, there is no reason why Law 14, title 31, Partida 3, whereby easements are acquired by contract, by will and by prescription should be considered incompatible with the easement under review. 2. Article 546, par. 1 of the Civil Code ordains that by merger of the two estates in the same owner an easement is extinguished. Yet, coexistent with such provision is that of article 541 regarding the apparent sign which is a title for the easement. If these two principles can and do stand together under the Civil Code, the doctrine laid down by the Supreme Tribunal of Spain before the Civil Code was in force about the effect of an apparent sign can also stand together with Law 17, title 31, Partida 3 declaring the extinguishment of an easement by merger. 3. Under article 546, par. 1 of the Civil Code, merger extinguishes an easement. So in case the estate is again divided by purchase, etc., the easement is not, under the Civil Code automatically revived. That is the same provision of law 17, title 31, Partida 3, which does not reject the principle in question, just as article 546, par. 1 of the Civil Code does not reject article 541 about an apparent sign. III. Aside from the foregoing reasons that support the easement under consideration, the same has been acquired by respondents through prescriptions. The easement involved in this case is of two aspects: light and view and altius non tollendi. These two aspects necessarily go together because an easement of light and view prevents the owner of the sevient estate from building to a height that will obstruct the windows. This court in Cortes vs. Yu-Tibo, supra, held that the easement concerned when there is an apparent sign established by the owner of two estates is positive. Manresa is of the same opinion, supra. This being so, and inasmuch as the original heirs of Maria Florentino succeeded to these two estates either in 1885 or in 1892 and as petitioner bought one of the lots in 1911, the prescriptive period under any legislation that may be applied the Partidas, Civil Code or Code of Civil Procedure has elapsed without the necessity of formal prohibition on the owner of the servient estate. The respondent's action was brought in 1938. The persons who were present, and 20 years between absentees. (4 Manresa, 605). According to article 537 of the Civil Code, continous and apparent easements may be acquired by prescription for 20 years. Under sections 40 and 41 of the Code of Civil Procedure, the period is 10 years. IV. The petitioner maintains that he is an innocent purchaser for value of the lot and camarin thereon, and that he was not bound to know the existence of the easement because the mere opening of windows on one's own wall does not ipso facto create an easement of light. Such contention might perhaps be in point if the estates had not originally belonged to the same owner, who opened the windows. But the petitioner was in duty bound to inquire into the significance of the windows, particularly because in the deed of sale, it was stated that the seller had inherited the property from her aunt, Maria Florentino. Referring to the Sentence of the Supreme Court of Spain PUP COLLEGE OF LAW Page 184

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dated February 7, 1896, which applied Article 541, this Court in the case of Cortes vs. Yu-Tibo already cited, said that the establishment of the easement "was an act which was in fact respected and acquiesced in by the new owner of the servient estate, since he purchased it without making any stipulation against the easement existing thereon, but on the contrary acquiesced in the new owner of the servient estate, since he purchased it without making any stipulation against the easement existing thereon, but on the contrary, acquiesced in the continuance of the apparent sign thereof." (p. 31). Moreover, it has been held that purchasers of lands burdened with apparent easements do not enjoy the rights of third persons who acquire property, though the burden it not recorded. (Sentence of the Supreme Tribunal of Spain, April 5, 1898). V. Let us now discuss the case from the standpoint of justice and public policy. First. When Maria Encarnacion Florentino, as one of the devisees, accepted the camarin and the lot, she could not in fairness receive the benefit without assuming the burden of the legacy. That burden consisted of the service in fact during the lifetime of the original owner, which service became a true easement upon her death. Second. According to Scaevola, the reason for the principle in question is that there is a tacit contract. He says in vol. 10, p. 277: (spanish word - page 424) Aun hay mas: hay, en nuestro entender, no solo presuncion de voluntad del enajenante, o sea del dueo de las fincas que estuvieren confundidas, sino convencion, siquiera sea tacita, entre el vendedor y al adquirente de la finca vendida. Puesto que pudiendo estipular la no existencia de la servidumbre, nada dicen o nada hacen, fuerza es presumir que el segundo (comprador) acepta el estado jurisdico creado por el primero (vendedor). It is not just to allow Maria Encarnacion Florentino or her successor in interest to repudiate her own undertaking, implied, it is true, but binding nevertheless. This easement is therefore a burden which Maria Encarnacion Florentino and her successor in interest willingly accepted. They cannot now murmur against any inconvenience consequent upon their own agreement. Third. During the construction of the new house by the petitioner, the respondents filed an action to stop the work. But petitioner continued the construction, so that when the Court of First Instance was ready to pass upon the preliminary injunction, the work had almost been finished. Petitioner, therefore, cannot complain if he is now ordered to tear down part of the new structure so as not to shut off the light from respondents' windows. Fourth. When petitioner bought this lot from the original coheir, Maria Encarnacion Florentino, the windows on respondents' house were visible. It was petitioner's duty to inquire into the significance of those windows. Having failed to do so, he cannot now question the easement against the property which he purchased. (spanish word - page 425) This idea of easements can never become obsolete in the face of modern progress. On the contrary, its need is all the more pressing and evident, considering that this mutual assistance and giving way among estates is demanded by the complexities of modern conditions, such as those which obtain in large cities where buildings, large and small, are so close together. VI. Recapitulating, we believe the easement of light and view has been established in favor of the property of respondents, for these reasons: PUP COLLEGE OF LAW Page 185

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1. Maria Florentino having died in 1892, according to a finding of fact of the Court of Appeals, which we cannot review, Article 541 of the Civil Code is applicable to this case. 2. Granting, arguendo, that Maria Florentino died in 1885, nevertheless that same principle embodied in article 541 of the Civil Code was already an integral part of the Spanish law before the promulgation of the Civil Code in 1889, and therefore, even if the instant case should be governed by the Spanish law prior to the Civil Code, the easement in question would also have to be upheld. 3. The easement under review has been acquired by respondents through prescription. 4. The petitioner was not an innocent purchaser, as he was in duty bound to inquire into the significance of the windows. 5. Justice and public policy are on the side of the respondents. Wherefore, the judgment appealed from should be and is hereby affirmed, with costs against the petitioner. So ordered. Separate Opinions OZAETA, J., dissenting: I regret to say that the omnibus opinion of the majority is a straddle over the baseless finding that Maria Florentino died in 1892 and the assumption that she died in 1885. Since she could not have died twice and the date of her demise was properly raised as an issue in this case the equivocal position thus taken rests on no solid factual foundation. Straddling and tottering as it is on shaky ground, the opinion as a whole appears to me untenable and its validity questionable. Did Maria Florentino pass away in 1892? or based on the assumption that she died in 1885 is a mere obiter dictum; and if she died in 1885, then Part I of the opinion based on the assumption that she died in 1892 is likewise a mere obiter dictum. Thus it is not permissible for the Court to straddle the issue. There is absolutely no basis in the evidence for the finding that Maria Florentino died in 1892. Indeed in its findings of fact the Court of Appeals made no mention of the date of Maria Florentino's demise, but in its conclusion of law the year she died was incidentally mentioned in the following manner: . . . Habiendo pasado la propiedad de la casa de mamposteria a los demandantes, a la muerte de Maria Florentino, ocurrida en 1892 (el damandado sostiene que fue con anterioridad a 1889), no hay duda ninguna de que los demandantes adquirieron la servidumbre de luces y vistas sobre el camarin del demandado mediante titulo y por prescripcion (Art. 537). The indirect statement to the effect that Maria Florentino died in 1892 was not based on any evidence but solely on the conjecture indulged in by counsel for the respondents in his brief: That she must have died in the year 1892 because the respondent Gabriel Florentino testified during the trial as to facts of his own personal knowledge, and since he was fifty-eight years old when he testified in 1938, it must be presumed that he was at least twelve years old when his aunt Maria Florentino died, and that therefore the death of the latter must have occurred in the year 1892. Such deductions were absurd on their face and the Court of Appeals clearly committed an error of law in adopting them. A finding of fact must be based on competent proofs not on a mere conjecture. The respondents themselves alleged under oath in their original as well as in their amended complaint (but were silent as to this in their second amended complaint) that the death of Maria Florentino occurred in the year 1888. No evidence was presented during the trial as to said date, but nevertheless the trial court applied the Civil Code. The petitioner as appellant before the Court of Appeals contended that the Partidas and not the Civil Code was the law applicable. It was then that respondents (appellees below) tried to show by deduction and conjecture that Maria Florentino must have died in 1892. To rebut that, appellant and his attorney made inquiries as to the true date of Maria Florentino's demise and discovered from the church record of burials as well as from her PUP COLLEGE OF LAW Page 186

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gravestone that she died on September 7, 1885, and was buried on the following day, September 8, 1885. They alleged in their affidavit that they had been unable to ascertain that date before on account of the misleading allegation in appellees' complaint that Maria Florentino die in 1888. A certified copy of the partida de entierro as well as a photograph of the gravestone showing the inscription of the date of Maria Florentino's death, were offered by appellant in a motion for new trial filed in the Court of Appeals on March 4, 1940; and on March 14, 1940, the Court of Appeals ordered that said motion, together with the exhibits accompanying it, "be attached to the record and brought to the attention of the Court when the case is considered on its merits." Nevertheless the Court of Appeals either ignored or overlooked said motion and the documentary evidence accompanying it when it considered and decided the case on the merits. Under section 2 of Rule 55, as well as under sections 497 of Act No. 190, the court should have considered the new evidence together with that adduced in the trial below. Thus, I think it cannot be doubted that Maria Florentino died on September 7, 1885, more than four years before the Civil Code took effect. The majority seem to feel bound by the conjecture indulged in by the respondents and adopted by the Court of Appeals that Maria Florentino died in 1892, considering it as a finding of fact by the Court of Appeals. I beg to differ. A statement of fact not based on any proof whatever should not be accepted by this Court, especially when, as in this case, it is indubitably shown to be contrary to the truth. It is said that the church record of Maria Florentino's burial and the photograph of her gravestone showing the inscription: D. O. M. AQUIYACEN LOS RESTOS MOORTALES DE D. BONIFACIO F. ANATASIO FALLECIO EN 26 DE OCTUBRE DE 1890 Y SU ESPOSA Da MARIA FLORENTINO QUE MURIO EN 7 DE SETIEMBRE DE 1885 RECUERDO DE Da ENCARNACION FLORENTINO are not newly discovered evidence because they "could have been discovered by petitioner before the trial in the Court of First Instance by the exercise of due diligence." I disagree again. There was no incentive on the part f the petitioner to look for evidence of the exact date of Maria Florentino's demise while the case was being tried in the court below, for the respondents themselves alleged under oath in their original and amended complaints that she died in 1888, i.e., before the Civil Code took effect, and introduced no evidence whatever that she died after 1889. It was only when the respondents in their brief before the Court of Appeals tried to show by mental acrobatism that she must have died in 1892 in order to justify the application of the Civil Code, that the petitioner became interested in finding out the exact date of her death in order to impugn that contention. Under the circumstances, I entertain no doubt that the proofs offered may be considered newly discovered within the purview of our procedural law. After all, the rules of evidence are but a means to an end to help establish the truth. To illustrate the irrationality of applying the rules of evidence too rigidly, let us suppose that an accused has been convicted of murder and sentenced to death, but during the pendency of his appeal his counsel discovers that the PUP COLLEGE OF LAW Page 187

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alleged victim is living and in good health, and counsel offers to prove that fact and even presents the "murdered" man in person before the court. Should this Court reject the offer of proof and affirm the death sentence simply because the appellant could have discovered the existence of the alleged victim by the exercise of due diligence? Judging from the opinion of the majority in this case, it should. What a travesty on justice As a last argument on this point the majority say: Lastly, the issue as to the date of Maria Florentino's death cannot be raised for the first time on appeal. Petitioner did not in the trial court allege or prove this point. He presented this issue for the first time in the Court of Appeals. (Sec. 497, Act. 190) That is incorrect. Plaintiffs had the burden of proof. They are the ones who invoke the Civil Code. It was up to them to prove that the transaction took place after 1889. They realized that only during the appeal and, to supply their omission and even contradict their own sworn allegation, they resorted to amazing deductions from the age of one witness. So it was the respondents who "presented this issue for the first time in the Court of Appeals." The petitioner had the right to meet in then and there. Since I cannot ignore the glaring fact that Maria Florentino died not in 1892 but in 1885, I cannot give my assent to the application of article 541 of the Civil Code to the controversy between the parties. I therefore regard all the profuse discussions of the law and citations of jurisprudence found in Part I of the majority opinion as purely academic. Part II of the opinion is based on the assumption that Maria Florentino died in 1885. Here I agree with my esteemed colleagues on the factual basis but not on the legal conclusions. The transitory provisions of the Civil Code, Rules I and 2, provide that "rights vested under the legislation prior to this Code by virtue of acts which transpired while it was in force, shall be govern by such prior legislation even if the code should otherwise provide with respect thereto, or should not recognize such rights"; and that "acts and contracts executed under the prior legislation, and which are valid in accordance therewith, shall produce all their effects as by these rules." The prior legislation referred to, insofar as this case is concerned, was none other than the Partidas. How were easements acquire under the Partidas? In three ways only: By contract, by testament, or by prescription. (See law 14, title 31, Partida 3.) There was no provision in the Partidas similar to article 541 of the Civil Code regarding the creation or acquisition of an easement thru the establishment of an apparent sign thereof by the owner of two estates. In their second alternative opinion the majority say that easement in question was constituted by an implied contract among the heirs of Maria Florentino under law 14, title 31, Partida 3. The law cited mentions "contract" and not "implied contract." As a source of right or obligation, "contract" is entirely different from "implied" contract." The former is based upon the mutual consent of the parties, supported by a lawful consideration, and with a definite subject matter, as, for instance, a contract of lease (articles 1254 and 1261, Civil Code); while the latter is merely imposed or implied by law from an act performed or committed by one of the parties without the consent and even against the will of the other, as, for instance, the obligation of an embezzler to indemnify his victim and the right of the latter to demand such indemnity. The mere fact that one has used the property of another by tolerance or implied consent of the latter can never give rise to an implied contract under which the former may assert and enforce a right to the continued use of that property against the owner. Next it is said: "Granting for the sake of argument that this easement was not created through an implied contract according to Law 14, Title 31, Partida 3, yet that provision of the Partidas was not inconsistent with the principle in question, so that there was a gap in the Partidas which the Supreme Court of Spain filled up from the Roman Law and modern codes by recognizing the existence of this kind of easement." (The principle referred to is that embodied in article 541 of the Civil Code.)

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Under this alternative argument it is admitted that the Partidas (the pre-Civil Code legislation) contained no provision similar to article 541 of the Civil Code and hence it was necessary (?) to import a principle from the Roman Law in order to fill "a gap in the old legislation" as was done by the Supreme Court of Spain. in the last analysis, the alternative opinion applies to this case not the previous legislation as required by the Civil Code transitory provision but a principle of law imported from ancient Rome. I disagree as to the necessity for such importation and "filling the gap" in order to justice to the parties in this case. Let us consider the facts: Before Maria Florentino died on September 7, 1885, she owned a parcel of land in the commercial center of Vigan on which were built a house and camarin. The camarin was one story and the house two stories high. Naturally, it was convenient for her to open windows on that side of the house overlooking the camarin so long as she did not decide to rebuild and raise the latter. The pivotal question is, Did those windows constitute an apparent sign of easement of light and view in favor of the house and against the camarin under the legislation in force here at that time, so that upon the subsequent division of the two estates that sign would constitute a title of and create such an easement? The negative answer is inescapable because the Partidas, unlike the Civil Code, contained no provision supporting the affirmative. But my learned colleagues, emulating the Supreme Court of Spain in similar cases, apply principle of the Roman Law to "fill the gap" and justify the affirmative. The practical result of such "filling the gap" is to give retroactive effect to article 541 of the Civil Code, in violation of the transitory provision. The laws of Spain did not ex propio vigoreapply to the Philippines. They had to be expressly extended here by Royal Decrees. Witness the Civil Code, the Partidas, etc. That being so, the opinion of the Supreme Court of Spain could not and did not have the force of law in the Philippines. For this reason, I cannot agree with what the majority say that "we cannot reject a doctrine established by the Spanish Supreme Tribunal as an integral part of the Spanish law before the promulgation of the Civil Code in 1889." I know of no Royal Decree making such doctrine an integral part of the Spanish law in the Philippines. If we do not apply article 541 of the Civil Code and we cannot apply it because Maria Florentino died in 1885 there is really a gap in the case for the respondents, but none in the case for the petitioner. 1 Under thePartidas, or rather in the absence of an express provision therein similar to article 541, the petitioner should win; and since the parties litigant herein are entitled to have their case decided in accordance with the pre-Civil Code legislation in force in the Philippines as provided in the transitory provisions, since that legislation without any "gap-filling" is in favor of the petitioner, and since to "fill the gap" would prejudice him and unduly favor the respondents, the Court should abstain from so doing as a matter of law and justice. I repeat that as a matter of law and justice the Court should not go out of its way to "fill a gap in the Partidas" by resorting to a principle in the Roman Law which was not a part of the law of this country at the time the transactions involved took place, and for which reason it could not have been in the mind of the parties. How can we charge Maria Florentino with knowledge of that principle of the Roman Law, or even of the decisions of the Spanish Supreme Court, when she constructed the windows in question? How can we make that principle binding upon her heirs, or assume that they acted in accordance therewith, when they took possession of their respective hereditary portions upon her death on September 7, 1885? Who knows but that had they been apprised of such a principle of Roman Law and told that it would be held binding on them they would have closed the windows in question or made an agreement regarding its continuance as long as the camarin was not rebuilt?lawphil.net It is argued that, as the Supreme Court of Spain has held, the principle in question is not inconsistent with the provisions of the Partidas regarding the mode of acquiring and extinguishing easements. To that I reply: Is the Court authorized to amend the law by adding thereto a provision not inconsistent therewith and, what is worse, make the amendment retroactive? The Supreme Court of Spain of the last century apparently thought so, but as I cannot agree with it I must disregard its voice and follow the light of my own reason in the premises. By adopting and following the doctrine of the Supreme Court of Spain the majority of this Court have, I fear, established here a pernicious precedent. Hereafter no one in this country can safely rely on our codes and statutes as enacted by our own legislature, for the court may at any time read into them any provision or principle of law of any other jurisdiction even of ancient and archaic Rome so long as such provision or principle is not inconsistent therewith; altho, if we would stop and reflect for a moment, we should realize that, logically and legally speaking, any provision not included in the law must necessarily be considered inconsistent with the legislative will, for the

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legislature has not seen fir to incorporate i therein. "That is unfair! It is absurd! No court would do that!" you would protest. Then, I ask, "why do you do it in the instant case?" As a third alternative opinion (Part III) the majority hold that the easement in question has been acquired by respondents thru prescription. This opinion, however, is predicated upon the assumption that the opening of the windows in question constituted an apparent sign of the positive easement of light and view, thus making the period of prescription run from the date of the demise of the original owner. But as we have seen , that assumption is wrong because it is promised upon the improper and unlawful application of either article 541 or its equivalent principle derived from the Roman Law and adopted by the Supreme Court of Spain. Without such assumption, the period of prescription in this case commenced to run only from January, 1938, when the petitioner began the construction of the new house and when it is supposed the respondents for the first time made a formal prohibition against the petitioner's raising his building and obstructing respondents' light and view, in accordance with the YuTibo case cited in the majority opinion. Hence I think the prescription theory is also untenable. "Filling the gap" is particularly unfortunate and disastrous in the present case because as a consequence the petitioner will be compelled to tear down a portion of his newly built strong-material house, which in the present emergency, for lack of building materials, he will be unable to repair or patch up, thus not only causing him unnecessary loss and hardship but also leaving the torn-off new building for the public to gape at and be scandalized with. The good Ilocanos would perhaps not be able to understand why, on top of wanton and horrible daily destructions by bombs now savagely going on in this war-torn world, the Court should find it necessary to add another without any apparent substantial or material benefit to anybody. "Verily," they would say, "this is a made world!" In this age of fluorescent lights and air conditioning devices, the concommitant easements of light and view and altius non tollendi would seem to be only a deterrent to economic progress and should not be considered established except when the law applicable clearly so justifies. For the foregoing reasons I vote for the reversal of the judgment appealed from. PARAS, J., concurring: I concur in the foregoing dissenting opinion of Mr. Justice Ozaeta, ANASTACIA QUIMEN vs. COURT OF APPEALS and YOLANDA Q. OLIVEROS; G.R. No. 112331 May 29, 1996 IN EASEMENT OF RIGHT OF WAY that easement where the way is shortest and will cause least prejudice shall be chosen. However, if the two circumstances do not concur in a single tenement, the way where damage will be least shall be used even if not the shortest route. 1 This is so because least prejudice prevails over shortest distance. This means that the court is not bound to establish what is the shortest distance; a longer way may be adopted to avoid injury to the servient estate, such as when there are constructions or walls which can be avoided by a round about way, or to secure the interest of the dominant owner, such as when the shortest distance would place the way on a dangerous decline. Thus we conclude from the succeeding facts: Petitioner Anastacia Quimen together with her brothers Sotero, Sulpicio, Antonio and sister Rufina inherited a piece of property situated in Pandi, Bulacan. They agreed to subdivide the property equally among themselves, as they did, with the shares of Anastacia, Sotero, Sulpicio and Rufina abutting the municipal road. The share of Anastacia, located at the extreme left, was designated as Lot No. 1448-B-1. It is bounded on the right by the property of Sotero designated as Lot. No. 14413-B-2. Adjoining Sotero's property on the right are Lots Nos. 1448-B-3 and 1448-B-4 originally owned by Rufina and Sulpicio, respectively, but which were later acquired by a certain Catalina Santos. Located directly behind the lots of Anastacia and Sotero is the share of their brother Antonio designated as Lot No. 1448-B-C which the latter divided into two (2) equal parts, now Lots Nos. 1448-B-6-

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A and 1448-B-6-B, each with an area of 92 square meters. Lot No. 1448-B-6-A is located behind Anastacia's Lot No. 1448-B-1, while Lot No. 1448-B-6-B is behind the property of Sotero, father of respondent Yolanda. In February 1982 Yolanda purchased Lot No. 1448-B-6-A from her uncle Antonio through her aunt Anastacia who was then acting as his administratrix. According to Yolanda, when petitioner offered her the property for sale she was hesitant to buy as it had no access to a public road. But Anastacia prevailed upon her to buy the lot with the assurance that she would give her a right of way on her adjoining property for P200.00 per square meter. Thereafter, Yolanda constructed a house on the lot she bought using as her passageway to the public highway a portion of Anastacia's property. But when Yolanda finally offered to pay for the use of the pathway Anastacia refused to accept the payment. In fact she was thereafter barred by Anastacia from passing through her property. 2 In February 1986 Yolanda purchased the other lot of Antonio Quimen, Lot No. 1448-B-6-B, located directly behind the property of her parents who provided her a pathway gratis et amore between their house, extending about nineteen (19) meters from the lot of Yolanda behind the sari sari store of Sotero, and Anastacia's perimeter fence. The store is made of strong materials and occupies the entire frontage of the lot measuring four (4) meters wide and nine meters (9) long. Although the pathway leads to the municipal road it is not adequate for ingress and egress. The municipal road cannot be reached with facility because the store itself obstructs the path so that one has to pass through the back entrance and the facade of the store to reach the road. On 29 December 1987 Yolanda filed an action with the proper court praying for a right of way through Anastacia's property. An ocular inspection upon instruction of the presiding judge was conducted by the branch clerk of court. The report was that the proposed right of way was at the extreme right of Anastacia's property facing the public highway, starting from the back of Sotero's sari-sari store and extending inward by one (1) meter to her property and turning left for about five (5) meters to avoid the store of Sotero in order to reach the municipal road 3 and the way was unobstructed except for an avocado tree standing in the middle. 4 But on 5 September 1991 the trial court dismissed the complaint for lack of cause of action; explaining that the right of way through Sotero's property was a straight path and to allow a detour by cutting through Anastacia's property would no longer make the path straight. Hence the trial court concluded that it was more practical to extend the existing pathway to the public road by removing that portion of the store blocking the path as that was the shortest route to the public road and the least prejudicial to the parties concerned than passing through Anastacia's property. 5 On appeal by respondent Yolanda, the Court of Appeals reversed the lower court and held that she was entitled to a right of way on petitioner's property and that the way proposed by Yolanda would cause the least damage and detriment to the servient estate. 6 The appellate court however did not award damages to private respondent as petitioner did not act in bad faith in resisting the claim. Petitioner now comes to us imputing ERROR to respondent Court of Appeals: (a) in disregarding the agreement of the parties; (b) in considering petitioner's property as a servient estate despite the fact that it does not abut or adjoin the property of private respondent; and, (c) in holding that the one-meter by five-meter passage way proposed by private respondent is the least prejudicial and the shortest distance to the public road. Incidentally, petitioner denies having promised private respondent a right of way. She claims that her agreement with private respondent was to provide the latter with a right of way on the other lot of Antonio Quimen under her administration when it was not yet sold to private respondent. Petitioner insists that passing through the property of Yolanda's parents is more accessible to the public road than to make a detour to her property and cut down the avocado tree standing thereon. Petitioner further argues that when Yolanda purchased Lot No. 1448-B-6-B in 1986 the easement of right of way she provided her (petitioner) was ipso jure extinguished as a result of the merger of ownership of the dominant and the servient estates in one person so that there was no longer any compelling reason to provide private respondent with a right of way as there are other surrounding lots suitable for PUP COLLEGE OF LAW Page 191

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the purpose. Petitioner strongly maintains that the proposed right of way is not the shortest access to the public road because of the detour and that, moreover, she is likely to suffer the most damage as she derives a net income of P600.00 per year from the sale of the fruits of her avocado tree, and considering that an avocado has an average life span of seventy (70) years, she expects a substantial earning from it. 7 But we find no cogent reason to disturb the ruling of respondent appellate court granting a right of way to private respondent through petitioner's property. In fact, as between petitioner Anastacia and respondent Yolanda their agreement has already been rendered moot insofar as it concerns the determination of the principal issue herein presented. The voluntary easement in favor of private respondent, which petitioner now denies but which the court is inclined to believe, has in fact become a legal easement or an easement by necessity constituted by law. 8 As defined, an easement is a real right on another's property, corporeal and immovable, whereby the owner of the latter must refrain from doing or allowing somebody else to do or something to be done on his property, for the benefit of another person or tenement. 9 It is jus in re aliena, inseparable, indivisible and perpetual, unless extinguished by causes provided by law. A right of way in particular is a privilege constituted by covenant or granted by law 10 to a person or class of persons to pass over another's property when his tenement is surrounded by realties belonging to others without an adequate outlet to the public highway. The owner of the dominant estate can demand a right of way through the servient estate provided he indemnifies the owner thereof for the beneficial use of his property. 11 The conditions sine quo non for a valid grant of an easement of right of way are: (a) the dominant estate is surrounded by other immovables without an adequate outlet to a public highway; (b) the dominant estate is willing to pay the proper indemnity; (c) the isolation was not due to the acts of the dominant estate; and, (d) the right of way being claimed is at a point least prejudicial to the servient estate. 12 A cursory examination of the complaint of respondent Yolanda for a right of way 13 readily shows that [E]ven before the purchase of the said parcels of land the plaintiff was reluctant to purchase the same for they are enclosed with permanent improvements like a concrete fence and store and have (sic) no egress leading to the road but because of the assurance of the defendant that plaintiff will be provided one (1) meter wide and five (5) meters long right of way in the sum of P200.00 per square meter to be taken from Anastacia's lot at the side of a concrete store until plaintiff reach(es) her father's land, plaintiff was induced to buy the aforesaid parcels of land . . . That the aforesaid right of way is the shortest, most convenient and the least onerous leading to the road and being used by the plaintiff's predecessors-in-interest from the very inception . . . The evidence clearly shows that the property of private respondent is hemmed in by the estates of other persons including that of petitioner; that she offered to pay P200.00 per square meter for her right of way as agreed between her and petitioner; that she did not cause the isolation of her property; that the right of way is the least prejudicial to the servient estate. 14 These facts are confirmed in the ocular inspection report of the clerk of court, more so that the trial court itself declared that "[t]he said properties of Antonio Quimen which were purchased by plaintiff Yolanda Quimen Oliveros were totally isolated from the public highway and there appears an imperative need for an easement of right of way to the public highway." 15 Petitioner finally insists that respondent court erroneously concluded that the right of way proposed by private respondent is the least onerous to the parties. We cannot agree. Article 650 of the New Civil Code explicitly states that the easement of right of way shall be established at the point least prejudicial to the servient estate and, insofar as consistent with this rule, where the distance from the dominant estate to a public highway may be the shortest. The criterion of least prejudice to the servient estate must prevail over the criterion of shortest distance although this is a matter of judicial appreciation. While shortest distance may ordinarily imply least prejudice, it is not always so as when there are permanent structures obstructing the shortest distance; while on the other hand, the longest distance may be free of obstructions and the easiest or most convenient to pass through. In other words, where the easement may be established on any of several tenements surrounding the dominant estate, the one where the way is shortest and will cause the least damage should be chosen. However, as elsewhere stated, if these two (2) PUP COLLEGE OF LAW Page 192

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circumstances do not concur in a single tenement, the way which will cause the least damage should be used, even if it will not be the shortest. 16 This is the test. In the trial court, petitioner openly admitted Q. You testified during your direct examination about this plan, kindly go over this and please point to us in what portion of this plan is the house or store of the father of the (plaintiff )? A. This one, sir (witness pointed a certain portion located near the proposed right of way). xxx xxx xxx Q. Now, you will agree with me . . . that this portion is the front portion of the lot owned by the father of the plaintiff and which was (sic) occupied by a store made up of strong materials? A. It is not true, sir. Q. What materials does (sic) this store of the father of the plaintiff made of? A. Hollow blocks and the side is made of wood, sir. xxx xxx xxx Q. Just before your brother disposed that 1/2 portion of the lot in question, what right of way does (sic) he use in reaching the public road, kindly point to this sketch that he is (sic) using in reaching the public road? A. In my property, sir. Q. Now you will agree with me . . . the main reason why your brother is (sic) using this property is because there was a store located near this portion? A. Yes, and according to the father of Yolanda there is no other way than this, sir. 17 The trial court found that Yolanda's property was situated at the back of her father's property and held that there existed an available space of about nineteen (19) meters long which could conveniently serve as a right of way between the boundary line and the house of Yolanda's father; that the vacant space ended at the left back of Sotero's store which was made of strong materials; that this explained why Yolanda requested a detour to the lot of Anastacia and cut an opening of one (1) meter wide and five (5) meters long to serve as her right of way to the public highway. But notwithstanding its factual observations, the trial court concluded, although erroneously, that Yolanda was not entitled to a right of way on petitioner's property since a detour through it would not make the line straight and would not be the route shortest to the public highway. In applying Art. 650 of the New Civil Code, respondent Court of Appeals declared that the proposed right of way of Yolanda, which is one (1) meter wide and five (5) meters long at the extreme right of petitioner's property, will cause the least prejudice and/or damage as compared to the suggested passage through the property of Yolanda's father which would mean destroying the sari sari store made of strong materials. Absent any showing that these findings and conclusion are devoid of factual support in the records, or are so glaringly erroneous, this Court accepts and adopts them. As between a right of way that would demolish a store of strong materials to provide egress to a public PUP COLLEGE OF LAW Page 193

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highway, and another right of way which although longer will only require an avocado tree to be cut down, the second alternative should be preferred. After all, it is not the main function of this Court to analyze or weigh the evidence presented all over again where the petition would necessarily invite calibration of the whole evidence considering primarily the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other, and the probabilities of the situation. 18 In sum, this Court finds that the decision of respondent appellate court is thoroughly backed up by law and the evidence. WHEREFORE, no reversible error having been committed by respondent Court of Appeals, the petition is DENIED and the decision subject of review is AFFIRMED. Costs against petitioner. MAXIMO CORTES vs. JOSE PALANCA YU-TIBO; G.R. No. 911 March 12, 1903 This suit was brought to obtain an injunction, in accordance with the provisions of section 162 to 172 of the Code of Civil Procedure, for the purpose of restraining the continuation of certain buildings commenced by the defendant. The court below issued a preliminary injunction during the trial, but, upon, rendering final judgment, dissolved the injunction, with the costs against the plaintiff. The latter excepted to this judgment and assigns error: In the trial the following facts were admitted without contradiction: (1) That house No. 65 Calle Rosario, this city, property of the wife of the plaintiff, has certain windows therein, through which it receives light and air, said windows opening on the adjacent house, No. 63 of the same street; (2) that these windows have been in the existence since the year 1843 and (3) that the defendant, the tenant of the said house No. 63, has commenced certain work with the view to raising the roof of the house in such a manner that onehalf of the windows in said house No. 65 has been covered, thus depriving the building of a large part of the air and light formerly received through the window. In its decision the court below practically finds the preceding facts, and further finds that the plaintiff has not proven that he has, by any formal act, prohibited the owner of house No. 63, from making improvements of any kind therein at any time prior to the complaint. The contention of the plaintiff is that by the constant and uninterrupted use of the windows referred to above during a period of fifty-nine years he acquired from prescription an easement of light in favor of the house No. 65, and as a servitude upon house No. 63, and, consequently, has acquired the right to restrain the making of any improvements in the latter house which might in any manner be prejudicial to the enjoyment of the said easement. He contends that the easement of light is positive; and that therefore the period of possession for the purposes of the acquisition of a prescriptive title is to begin from the date on which the enjoyment of the same commenced, or, in other words, applying the doctrine to this case, from the time that said windows were opened with the knowledge of the owner of the house No. 63, and without opposition on this part. The defendant, on the contrary, contends that the easement is negative, and that therefore the time for the prescriptive acquisition thereof must begin from the date on which the owner of the dominant estate may have prohibited, by a formal act, the owner of the servient estate from doing something which would be lawful but for the existence of the easement. The court below in its decision held in the easement of light is negative, and this ruling has been assigned by the plaintiff as error to be corrected by this court. A building may receive light in various manners in the enjoyment of an easement of light, because the openings through which the light penetrates may be made in one's own wall, in the wall of one's neighbor, or in a party wall. The legal doctrine applicable in either one of these cases is different, owing to the fact that, although anyone may open windows in his own wall, no one has a right to do so in the wall of another without the consent of the owner, and it is also necessary, in accordance with article 580 of the Civil Code, to obtain the consent of the other coowner when the opening is to be made in a party wall. This suit deals with the first case; that is, windows opened in a wall belonging to the wife of the plaintiff, and it is this phase of the easement which it is necessary to consider in this opinion. PUP COLLEGE OF LAW Page 194

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When a person opens windows in his own building he does nothing more than exercise an act of ownership inherent in the right of property, which, under article 348 of the Civil Code, empowers him to deal with his property as he may see fit, with no limitations other than those established by law. By reason of the fact that such an act is performed wholly on a thing which is wholly the property of the one opening the window, it does not in itself establish any easement, because the property is used by its owner in the exercise of dominion, and not as the exercise of an easement: "For a man," says law 13, title 31, third partida, "should not use that which belongs to him as if it were a service only, but as his own property." Coexistent with this right is the right of the owner of the adjacent property to cover up such windows by building on his own land or raising a wall contiguously to the wall in which the windows are opened (art. 581 of the same Code), by virtue of the reciprocity of rights which should exist between abutting owners, and which would cease to exist if one could do what he pleased on his property and the other could not do the same on his. Hence it is that the use of the windows opened in a wall of one's own property, in the absence of some covenant or express agreement to the contrary, is regarded as an act of mere tolerance on the part of the owner of the abutting property (judgments of the supreme court of Spain of the 17th of May, 1876; 10th of May, 1884; 30th of May, 1890), and does not create any right to maintain the windows to the prejudice of the latter (judgment of the supreme court of Spain of the 13th of June, 1877). The mere toleration of such an act does not imply on the part of the abutting owner a waiver of his right to freely build upon his land as high as he may see fit, nor does it avail the owner of the windows for the effects of possession according to article 1942 of the Civil Code, because it is a mere possession at will. From all this it follows that the easement of light with respect to the openings made in one's own edifice does not consist precisely in the fact of opening them or using them, inasmuch as they may be covered up at any time by the owner of the abutting property, and, as Manresa says in his commentaries on the Civil Code, "there is no true easement as long as the right to impede its use exists ." The easement really consists of in prohibiting or restraining the adjacent owner from doing anything which may tend to cut off or interrupt the light; in short, it is limited to the obligation of not impeding the light ( ne luminibus officiatur). The latter coincides in its effects, from this point of view, with the obligation of refraining from increasing the height of a building (altius non tollendi), which, although it constitutes a special easement, has for its object, at times, the prevention of any interruption of the light enjoyed by the adjacent owner. It will be readily observed that the owner of the servient estate subject to such easement is under no obligation whatsoever to allow anything to be done on his tenement, nor to do anything there himself, but is simply restrained from doing anything thereon which may tend to cut off the light from the dominant estate, which he would undoubtedly be entitled to do were it not for the existence of the easement. If, then, the first condition is that which is peculiar to positive easements, and the second condition that which is peculiar to negative easements, according to the definition of article 533 of the Civil Code, it is our opinion that the easement of lights in the case of windows opened in one's own wall is of a negative character, and, as such, can not be acquired by prescription under article 538 of the Civil Code, except by counting the time of possession from the date on which the owner of the dominant estate may, by a formal act have prohibited the owner of the servient estate from doing something which it would be lawful from him to do were it not for the easement. The supreme court of Spain, in its decisions upon this subject, has established these principles by a long line of cases. In its judgment of May 14, 1861, the said court holds that "the prescription of the easement of lights does not take place unless there has been some act of opposition on the part of the person attempting to acquire such a right against the person attempting to obstruct its enjoyment." The easements of light and view," says the judgment of March 6, 1875, "because they are of a negative character, can not be acquired by a prescriptive title, even if continuous, or although they may have been used for more than twenty-eight years, if the indispensable requisite for prescription is absent, which is the prohibition on the one part, and the consent on the other, of the freedom of the tenement which it is sought to charge with the easement." In its judgment of June 13, 1877, it is also held that use does not confer the right to maintain lateral openings or windows in one's own wall to the prejudice of the owner of the adjacent tenement, who, being entitled to make use of the soil and of the space above it, may, without restriction, build on his line or increase the height of existing buildings, unless he has been " forbidden to increase the height of his buildings and to thus cut off the light," and such prohibition has been consented to and the time fixed by law subsequently expired. The court also holds that it is error to give the mere existence or use of windows in a wall standing wholly on the land of one proprietor the creative force of true easement, although they may have existed from the time immemorial. Finally, the judgments of the 12th of November, 1899, and the 31st of May, 1890, hold that "as this supreme court has decided, openings made in walls standing wholly on the land of one proprietor and which overlook the land of another exist by mere tolerance in the absence of an agreement to the contrary, and can not be acquired by prescription, except by computing the time from the execution of some act of PUP COLLEGE OF LAW Page 195

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possession which tends to deprive the owner of the tenement affected of the right to build thereon." Various other judgments might be cited, but we consider that those above mentioned are sufficient to demonstrate the uniformity of the decisions upon this point. It is true that the supreme court of Spain, in its decisions of February 7 and May 5, 1896, has classified as positive easements of lights which were the object of the suits in which these decisions were rendered in cassation, and from these it might be believed at first glance that the former holdings of the supreme court upon this subject had been overruled. But this is not so, as a matter of fact, inasmuch as there is no conflict between these decisions and the former decisions above cited. In the first of the suits referred to, the question turned upon two houses which had formerly belonged to the same owner, who established a service of light on one of them for the benefit of the other. These properties were subsequently conveyed to two different persons, but at the time of the separation of the property nothing was said as to the discontinuance of the easement, nor were the windows which constituted the visible sign thereof removed. The new owner of the house subject to the easement endeavored to free it from the incumbrance, notwithstanding the fact that the easement had been in existence for thirty-five years, and alleged that the owner of the dominant estate had not performed any act of opposition which might serve as a starting point for the acquisition of a prescriptive title. The supreme court, in deciding this case, on the 7th of February, 1896, held that the easement in this particular case was positive, because it consisted in the active enjoyment of the light. This doctrine is doubtless based upon article 541 of the Code, which is of the following tenor: "The existence of apparent sign of an easement between two tenements, established by the owner of both of them, shall be considered, should one be sold, as a title for the active and passive continuance of the easement, unless, at the time of the division of the ownership of both tenements, the contrary should be expressed in the deed of conveyance of either of them, or such sign is taken away before the execution of such deed." The word "active" used in the decision quoted in classifying the particular enjoyment of light referred to therein, presupposes on the part of the owner of the dominant estate a right to such enjoyment arising, in the particular case passed upon by that decision, from the voluntary act of the original owner of the two houses, by which he imposed upon one of them an easement for the benefit of the other. It is well known that easements are established, among other cases, by the will of the owners. (Article 536 of the Code). It was an act which was, in fact, respected and acquiesced in by the new owner of the servient estate, since he purchased it without making any stipulation against the easement existing thereon, but, on the contrary, acquiesced in the continuance of the apparent sign thereof. As is stated in the decision itself, "It is a principle of law that upon a division of a tenement among various persons -- in the absence of any mention in the contract of a mode of enjoyment different from that to which the former owner was accustomed -- such easements as may be necessary for the continuation of such enjoyment are understood to subsist." It will be seen, then, that the phrase "active enjoyment" involves an idea directly opposed to the enjoyment which is the result of a mere tolerance on the part of the adjacent owner, and which, as it is not based upon an absolute, enforceable right, may be considered as of a merely passive character. Therefore, the decision in question is not in conflict with the former rulings of the supreme court of Spain upon the subject, inasmuch as it deals with an easement of light established by the owner of the servient estate, and which continued in force after the estate was sold, in accordance with the special provisions of article 541 of the Civil Code. Nor is the other decision cited, of May 5, 1896, in conflict with the doctrine above laid down, because it refers to windows opened in a party wall, and not in a wall the sole and exclusive property of the owner of the dominant tenement, as in the cases referred to by the other decisions, and as in the case at bar. The reason for the difference of the doctrine in the one and the other case is that no part owner can, without the consent of the other, make in a party wall a window or opening of any kind, as provided by article 580 of the Civil Code. The very fact of making such openings in such a wall might, therefore, be the basis for the acquisition of a prescriptive title without the necessity of any active opposition, because it always presupposes the express or implied consent of the other part owner of the wall, which consent, in turn, implies the voluntary waiver of the right of such part owner to oppose the making of such openings or windows in such a wall. With respect to the provisions of law 15, title 31, third partida, which the appellant largely relied upon in this oral argument before the court, far from being contrary to it, is entirely in accord with the doctrine of the decisions above referred to. This law provides that "if anyone shall open a window in the wall of his neighbor, through which the light enters his house," by this sole fact he shall acquire a prescriptive title to the easement of light, if the time fixed in the same law (ten years as to those in the country and twenty years as to absentees) expires without PUP COLLEGE OF LAW Page 196

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opposition on the part of the owner of the wall; but, with the exception of this case, that is to say, when the windows are not opened in the wall of the neighbor, the law referred to requires as a condition to the commencement of the running of the time for the prescriptive acquisition of the easement, that "the neighbor be prohibited from raising his house, and from thereby interrupting the light." That is to say, he must be prohibited from exercising his right to build upon his land, and cover the window of the other. This prohibition, if consented to, serves as a starting point for the prescriptive acquisition of the easement. It is also an indispensable requisite, therefore, in accordance with the law of the partidas, above mentioned, that some act of opposition be performed, in order that an easement may be acquired with respect to openings made in one's own wall. For a proper understanding of this doctrine, it is well to hold in mind that the Code of the partidas, as well as the Roman law, clearly distinguishes two classes of easements with respect to the lights of houses, as may be seen in law 2 of title 31, of the third partida. One of them consists in "the right to pierce the wall of one's neighbor to open a window through which the light may enter one's house" (equivalent to the so-called easement of luminum of the Romans); the other is "the easement which one house enjoys over another, whereby the latter can not at any time be raised to a greater height than it had at the time the easement was established, to the end at the light be not interrupted." (Ne luminibus officiatur.) For the prescriptive acquisition of the former the time must begin, as we have seen, from the opening of the window in the neighbor's wall. As to the second, the time commences from the date on which he was "prevented from raising his house." Some of the judgments which establish the doctrine above laid down were rendered by the supreme court of Spain interpreting and applying the above cited law 15, title 31, partida 3, and therefore they can not in any sense be regarded as antagonistic to the law itself. The question as to whether the windows of the house of the plaintiff are, or are not, so-called regulation windows, we consider of but little importance in this case, both because the authority of the decisions of the law of thepartidas, above cited, refers to all kinds of windows, and not to regulation windows solely, and because the record does not disclose, nor has the appellant even stated, the requirements as to such regulation windows under the law in operation prior to the Civil Code, which he asserts should be applied and on which he relies to demonstrate that he has acquired by prescription the easement in question. With respect to the watershed which, according to the plaintiff, exists over the window in question, the record does not disclose that the same has been destroyed by the defendant. He expressly denies it on page 7 of his brief, and affirms (p. 8) that the tenant of the appellant's property himself removed it, by reason of the notice served on him; on the other hand, the judgment of the court below contains no findings with respect to this fact, nor does it disclose the former existence of any such watershed. Furthermore, the opinion which we have formed with respect to this matter, in so far as we are able to understand the merits of the case, is that this shed was a mere accessory of the window, apparently having no other purpose than that of protecting it against the inclemency of the weather; this being so, we are of opinion that it should follow the condition of the window itself, in accordance with the legal maxim that the accessory always follows the principal. The appellant contends that the shed should be regarded as a projection within the provisions of article 582 of the Code; but it is sufficient to observe that this article speaks of windows with direct views, balconies, or similar projections, in order to conclude that the article does not refer to such watersheds, which have not the slightest degree of similarity to balconies, nor are they constructed for the purpose of obtaining the view -this being the subject-matter which this article expressly purports to control -- inasmuch as such sheds have rather the effect of limiting the scope of the view than of increasing it. The fact that the defendant did not cover the windows of the other house adjacent No. 63 at the time he covered the windows of the appellant, a fact which the latter adduces as proof of the recognition on the part of the former of the prescriptive acquisition of the easement of the light in favor of that house, which, according to his statement, is under precisely the same conditions as the house of the plaintiff, does not necessarily imply, in our opinion, any such recognition, as it might be the result of a mere tolerance on the part of the defendant. Certainly the fact of his tolerating the use by the owner of that house of such windows, supposing the facts to be as stated, does not carry with it as a result an obligation to exercise the same forbearance with respect to the plaintiff; but whatever may be the legal status of the windows in the house referred to with respect to the house No. 63, we cannot pass upon the point, nor can we form suppositions concerning the matter for the purpose of drawing conclusions of any kind therefrom to support our opinion, for the simple reason that it is not a point at issue in the case, and more especially because the defendant not only denied the existence of the alleged easement of light in favor of the house referred to, but, on the contrary, he affirms that demand has been made that the windows in said house be closed, as may be seen on page 8 of his brief. PUP COLLEGE OF LAW Page 197

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The point discussed in this trial being whether the plaintiff has acquired the easement which he seeks to enforce over the house of which the defendant is tenant, it is evident that the provisions of article 585 of the Civil Code can not be invoked without taking for granted the very point at issue. This article refers to cases in which, under any title, the right has been acquired to have direct views, balconies, or belvederes over contiguous property. The existence of such a right being the very point at issue, the supposition upon which the article rests is lacking, and it is therefore not in point. As a result of the opinion above expressed, we hold: 1. That the easement of light which is the object of this litigation is of a negative character, and therefore pertains to the class which can not be acquired by prescription as provided by article 538 of the Civil Code, except by counting the time of possession from the date on which the owner of the dominant estate has, in a formal manner, forbidden the owner of the servient estate to do an act which would be lawful were it not for the easement. 2. That, in consequence thereof, the plaintiff, not having executed any formal act of opposition to the right of the owner of the house No. 63 Calle Rosario (of which the defendant is tenant), to make therein improvements which might obstruct the light of the house No. 65 of the same street, the property of the wife of the appellant, at any time prior to the complaint, as found by the court below in the judgment assigned as error, he has not acquired, nor could he acquire by prescription, such easement of light, no matter how long a time have elapsed since the windows were opened in the wall of the said house No. 65, because the period which the law demands for such prescriptive acquisition could not have commenced to run, the act with which it must necessarily commence not having been performed. Therefore, we affirm the judgment of the court below and condemn the appellant to the payment of all damages caused to the plaintiff, and to the payment of the costs of this appeal. So ordered. ON MOTION FOR A REHEARING. The plaintiff asks for a rehearing of the decision of the court of March 12th last upon the ground that the same contains error: First, because the decision holds that the window opened in the plaintiff's own wall and watershed do not constitute the continuous and apparent easements of prospect, light, and ventilation, or jus projitiendi and jus spillitiendi, this ruling being in opposition to the provisions of laws 12, 14, and 15, title 31, third partida, and articles 530, 532, 533, 537, 538, 582, and 585 of the Civil Code. This allegation is entirely unfounded, inasmuch as the decision of the court contains no declaration as to whether the windows and watershed do or do not constitute continuous and apparent easements, or jus projitiendi and jus spillitiendi. These questions were not drawn into issue by the complaint, and therefore any decision thereon one way or the other would have been mere dicta. What the court did hold was that the easement of light, when it is sought to claim such benefit from a window opened in one's own wall, as does the appellant with respect to the tenement of the defendant, belongs to the class of negative easements, and that on hold on that account the time of possession for prescriptive acquisition of the title thereto must be counted, not from the time of the opening of the windows, but from the time at which the owner thereof has executed some act of opposition tending to deprive the owner of the servient tenement of his right, under the law, build upon it to such height as he might see fit in the legitimate use of his rights of ownership. With respect to the watershed, the court held that the shed in question in the case is not included within the class of projections referred to in article 582 of the Civil Code, and certain it is that neither this article nor any of the other provisions of law cited by the appellant in his motion papers established any doctrine contrary to that laid down in the decision, either with regard to the watershed or with respect to the windows. It is not necessary to say anything further upon this point. It is sufficient to read the text of the laws cited to reach the conclusion that the assertion made by the appellant in his motion papers is entirely gratuitous. Article 582 provides that windows with direct views, balconies, or other similar projections opening upon the tenement of one's neighbor are not permissible unless there are two meters distance between the wall in which such PUP COLLEGE OF LAW Page 198

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openings are constructed and the adjacent tenement. From this the appellant draws the conclusion that he who opens windows in his own wall without respecting the distance mentioned does not exercise an act of ownership, as stated in the decision, inasmuch as he violates an express provisions of the law. The conclusion reached is evidently false. The appellant confounds the facts with the law -- an act of ownership with the right of ownership. The owner of a thing does not cease to be such owner because in his manner of use or enjoyment thereof he violates some provision of law. The acts which he performs, in our opinion, even if abusive or contrary to law, are in a strict sense acts of ownership, acts in the exercise of dominion, because this character is not derived from a greater or less degree of compliance with the provisions of law, but from the existence of the status of owner on the part of the person who exercises such acts. In order that the act performed by the owner of a wall in opening windows therein be a true act of ownership it is a matter of indifference whether or not the distance prescribed by article 582 of the Code has been respected, although, considered from a legal point of view, it might be an illegal act, as not complying with the conditions imposed by law. The doctrine laid down by law 13, title 31, partida 3, cited in the decision, to the effect that "a man should not use that which belongs to him as if it were a service only, but as his own property" is of general application, and does not refer to the easements which is a property owner may establish for the benefit of his heirs, as is erroneously believed by the appellant. The very same law provides that easements which "a man imposes upon his house must be for the benefit of the tenement or thing of another, and not that of his own tenement;" and this is because things are of service to their owner by reason of dominion, and not in the exercise of a right of easement. " Res sua," says a legal maxim, "nemini jure servitutis servit." The provision of article 1942 of the Civil Code to the effect that acts which are merely tolerated procedure no effect with respect to possession is applicable as much as to the prescription of real rights as to the prescription of the fee, it being a glaring and self-evident error to affirm the contrary, as does the appellant in his motion papers. Possession is the fundamental basis of the prescription. Without it no kind of prescription is possible, not even the extraordinary. Consequently, if acts of mere tolerance produce no effect with respect to possession, as that article provides, in conformity with article 444 of the same Code, it is evident that they can produce no effect with respect to prescription, whether ordinary or extraordinary. This is true whether the prescriptive acquisition be of a fee or of real rights, for the same reason holds in one and the other case; that is, that there has been no true possession in the legal sense of the word. Hence, it is because the use of windows in one's own wall is the result of a mere tolerance that the supreme court of Spain, in its judgment of June 13, 1877, has held that such user lacks the creative force of a true easement, although continued from time immemorial. The citation of article 1959 of the Civil Code and of law 21, title 29, partida 3, made by the petitioner, is therefore not in point, because both of these provisions of law, which refer to the extraordinary period of prescription presuppose possession as a necessary requisite, even if without either just title or good faith. The second error assigned is that in the decision the court holds that the gravamina constituted by the window and the projection are negative easements, against the provisions of article 533, which define them as positive, which definition, he adds, is supported by the judgments of the supreme court of Spain of February 7 and May 5, 1896, cited in paragraph 12 of the said decision, which judgments declare that the easement resulting from a window is positive. It is not true that article 533 of the Civil Code says that the easement of light is positive, because it does nothing more than give in general terms the definition of positive easements and negative easements, without attempting to specify whether the easement of lights pertains to the first or to the second class. We have declared that the easement is negative, having in mind this very definition of the Code and the doctrine established by the judgments of the supreme court of Spain which have been cited in our opinion. The interpretation which the appellant attempts to give the article of the Civil Code cited is evidently erroneous and, consequently, the citation made by him in support of his contention is not in point. Our opinion of the true extent and meaning of the judgments of the supreme court of Spain of February 7 and May 5, 1896, has been already sufficiently explained, and it is therefore unnecessary to go into the subject again here. We refer to our decision with respect to what was said therein upon this subject. PUP COLLEGE OF LAW Page 199

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The decision of the court does not contain the declaration, as gratuitously assumed by the appellant, that the easement resulting from a projection is of a negative character; nor, in fact, had we any occasion to make such a declaration, in view of the nature of the issues raised and discussed during the trial. What we did, indeed, hold was that the watershed mentioned in the complaint, the purpose of which was simply to protect the window in question from sun and rain, was a mere accessory to that window, and that in no case could it be considered as a projection within the provisions of article 582 of the Civil Code, as so erroneously contended by the appellant at the trial. We find nothing in his motion papers which can in any way weaken this holding. The third error is assigned is that the court holds that the easement of light, as negative, can not be acquired by prescription except by counting the period of possession from the time at which the owner of the servient tenement has been prohibited from making improvements which might interfere with said easement, contrary to the provisions of law 14, title 31, partida 3, and articles 538 and 585 of the Civil Code, which establish the contrary. This assertion is entirely destitute of foundation, inasmuch as neither in the law of the partidas nor in the articles of the Civil Code mentioned is to be found the doctrine which the appellant arbitrarily seeks to deduce from them. It is sufficient to read the text to reach the conclusion that the assertion is wholly gratuitous. The fourth error assigned is that the court holds that the watershed, as being an accessory of the window, can not in itself constitute an easement, this being contrary to the provisions of articles 582 and 585 of the Civil Code, and law 2, title 31, partida 3, which do not make any such distinction. Neither of the law cited speaks expressly of watersheds. We have held that article 582 refers solely to windows, balconies, and other similar projections, and that the watershed in question does not pertain to this class of projections, our holding being based upon the reasons given in our decision. The appellant advances no argument worthy of serious consideration, and therefore we continue to believe that our opinion in this matter is strictly in accordance with the law. The appellant has attached to his motion for a rehearing two judgments, one rendered by the Royal Audiencia of Manila September 6, 1877, and the other by the supreme court of Spain on the 22d of February, 1892, and we think it well to say a few words concerning them. In the opinion of the appellant these judgments support the theory contended for by him at the trial, that the easement of lights is positive and not negative. His error in so believing is evident, inasmuch as neither of the judgments referred to establishes any such doctrine. On the contrary, it appears clear, from the first of these judgments, that the easement referred to is negative in the opinion of the court which rendered it. This appears from the eight conclusion of law therein, which is literally as follows: "From the evidence introduced by the defendant, and even from the testimony of witnesses of the plaintiff, it has been proven that since 1828 the house in question has suffered no change or alteration in its roof, which projects over Cosio's lot, which constitutes the active opposition necessary in order to acquire by prescription the right to the light ." It will be seen, then, that the latter part of the preceding transcript of the conclusion of law days down precisely the same doctrine as that expressed in our decision -- that active opposition is a necessary condition for prescriptive acquisition of an easement of light. And this also demonstrates conclusively that the court which rendered the judgment referred to considered the easement to be negative, inasmuch as positive easements do not require any active opposition as a basis for their prescriptive acquisition, such an act being solely necessary to the prescription of negative easements. It would appear, judging from his allegations as a whole, that the appellant confuses positive easements with continuous easements, and the judgments referred to, in fact, declares in its fourth conclusion of law that the easement of light is continuous. If these were really so the error of the appellant would be manifest, because continuity is not a quality exclusively peculiar to positive easements; there are negative easements which are also continuous. Hence if is that the Civil Code, after classifying easements, in article 532, as continuous and discontinuous, classifies them also as positive and negative (art. 533), thus giving to understand that this latter classification depends upon other characteristics entirely distinct from the continuity or discontinuity of easements. If all continuous easements were positive and all discontinuous easements were negative, then the express division of easements into positive and negative made by the Code, after establishing the division of the same as continuous or discontinuous, would be entirely unnecessary, as they would be entirely merged or included in the latter PUP COLLEGE OF LAW Page 200

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classification. It is sufficient to read the text of the Code to understand beyond the possibility of a doubt that a negative easement may be continuous, and that a positive easement may be discontinuous, according to the special nature of each one. With respect to the second judgment -- the judgment of the supreme court of Spain of February 22, 1892 -- it is certainly difficult to understand how the appellant could have imagined that he had found therein the slightest ground for his contention, inasmuch as it lays down no doctrine which relates even inference to the subject of easements, and simply holds, in the first of only two paragraphs in which its conclusions are contained, that "judgments should be clear, precise, and responsive to the complaint and the issues properly raised at the trial;" and in the second, that "the judgment appealed was contradictory as to the questions it decides, because it makes certain declarations favorable to some of the contentions in the plaintiff's complaint and then gives judgment for the defendant, without making any distinction." It was for this reason alone, and for no other, that the judgment appealed was reversed and annulled. In the judgment rendered by the same supreme court upon the merits of the case, as a result of this decision in cassation, no other doctrine is laid down than that "the judgment must be that the defendant comply with those claims advanced by the complaint to which he was consented, and that he must be discharged as to those allegations which have been denied by him and which have not been proved by the plaintiff." There is not one word on these judgments which says that the easement of lights is positive, nor that a watershed constitutes a true projection within the meaning attached to this word in article 582 of the Civil Code, as has been vainly contended by the appellant in the trial. Therefore the appellant's motion for a rehearing of the decision of March 12, 1903, is denied. ON MOTION FOR WRIT OF ERROR TO REMOVE THE CASE TO THE SUPREME COURT OF THE UNITED STATES. WILLARD, J.: The application to this court for the allowance of a writ of error or appeal for the purpose of removing this case to the Supreme Court of the United States is denied. Section 10 of the act of Congress of July 1, 1902, is as follows: SEC. 10. That the Supreme Court of the United States shall have jurisdiction to review, revise, reverse, modify, or affirm the final judgments and decrees of the Supreme Court of the Philippine Islands in all actions, cases, causes, and proceedings now pending therein or hereafter determined thereby in which the Constitution or any statute, treaty, title, right, or privilege of the United States is involved, or in causes in which the value in controversy exceeds twenty-five thousand dollars, or in which the title or possession of real estate exceeding in value the sum of twenty-five thousand dollars, to be ascertained by the oath of either party or of other competent witnesses, is involved or brought in question; and such final judgments or decrees may and can be reviewed, revised, reversed, modified, or affirmed by said Supreme Court of the United States on appeal or writ of error by the party aggrieved, in the same manner, under the same regulations, and by the same procedure, as far as applicable, as the final judgments and decrees of the circuit courts of the United States. There is no question in the case relating to the Constitution or any statute of the United States. The evidence submitted by the applicant shows that the value of his property over which the litigation turns is $11,867.70, money of the United States. The fact that the plaintiff owns other houses in different parts of the city as to which he claims an easement of light similar to the one claimed in this case, that the decision in this case destroys all of these claimed easements, and that the value of those other houses exceeds $25,000, gold, is not important. The test is the value of the matter in controversy. The matter in controversy here was the easement of light and air over the property No. 63 Calle del Rosario and in favor of house No. 65. That easement could not be worth more than the house itself. PUP COLLEGE OF LAW Page 201

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The easements in favor of other houses of the plaintiff over other lots than No. 63 were not in controversy in this suit. (Town of Elgin vs. Marshall, 106 U. S., 578.) So ordered. TIBURCIO SAENZ vs. FIGUERAS HERMANOS; G.R. L-No. 2085 August 10, 1909 It appears from the record that the plaintiff and the defendant own adjoining lots within the municipality of Iloilo; that the defendant had constructed or was constructing a house of strong materials upon its lot; that the line of the said house on the side toward the lot belonging to the plaintiff was less than two meters from dividing line of the two lots; that the said house was of two stories; that on the side of the house toward the lot of the plaintiff, the defendant in the first story had placed three windows and in the second story had placed five windows, each looking directly upon the lot of the plaintiff; and that the defendant had not obtained the permission of the plaintiff to place the said windows and balconies in the manner above indicated. The defendant filed a general and a special denial. In its special denial the defendant alleged that its house was being constructed in accordance with the law and customs of the place. After the hearing the evidence adduced during the trial of said cause, the lower court made the following findings of fact: The plaintiff's lot is now vacant but he intends to build a house thereon for business purposes, and with that end in view has already deposited some lumber in said lot. The defendants have constructed a two-story house on their lot, using the ground floor for stores, and the upper floor as a dwelling. They have erected said house at a distance of 71 centimeters from the dividing line at the front part, and at a distance of 70 centimeters at the rear. The house of the defendants is being put to the use for which it was built. The defendants have opened three windows on the ground floor of their house, in the part that overlooks the lot of the plaintiff, each window being 1 meter and 20 centimeters wide and 2 meters high; on the upper floor they have opened 5 windows, each 2 meters and 11 centimeters high and 1 meter and 60 centimeters wide; they have also constructed a balcony at the front part of the house above the ground floor, opening directly upon the lot of the plaintiff, and another balcony at the rear part of the house, which up to the present time opens directly upon the plaintiff's lot, although the defendants state that, according to the plan, said part is to be closed with boards. All of said windows are required for the proper lighting and ventilation of said house, and for the circulation of air therein. The house of the defendants is 23 meters long and built almost parallel to the dividing line between the plaintiff's lot and that of the defendants. All of said windows and balconies are at a distance of less than one meter from the dividing line of the plaintiff's lot and that of the defendants, and are looking directly over the same. The plaintiff claims that, under articles 581 and 582 of the Civil Code, the defendant is prohibited from constructing his house and opening the windows and balconies looking directly upon his property in the manner above described, and prays that the court issue an order directing the defendant to close said windows and that the said defendant be prohibited perpetually from constructing openings in its house except in conformity with said articles of the Civil Code. The lower court, after a full consideration of the evidence adduced during the trial of the cause and after making the above findings of fact, concluded his sentence in the following language: In view of the circumstances mentioned above, and although I find that the windows of the house come within the prohibition contained in article 582 of the Civil Code, I am of the opinion that the plaintiff is not entitled to the judgment asked for, or for any other judgment in his favor. Therefore, it is ordered that judgment be entered in favor of the defendant for the recovery of the costs herein. (Signed) Henry C. Bates, judge of the Ninth Judicial District. From this sentence the plaintiff appealed.

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No motion was made for a new trial in the court below. The plaintiff excepted only to the judgment of the lower court, basing his objection upon the ground that the sentence of the lower court was contrary to the provisions of said article 582, and in this court insists that he has a right under said provisions of the Civil Code to have said windows closed and to have the defendant prohibited from making openings in the side of the house overlooking his yard except those openings provided for under said article. Article 581 of the Civil Code is as follows: ART. 581. The owner of a wall which is not a party wall, adjoining another's estate, may make in it windows or openings to admit light, at the height of the ceiling joists or immediately under the ceiling, of the dimensions of thirty centimeters square, and, in any case, with an iron grate embedded in the wall and a wire screen. However, the owner of the house or estate adjoining the wall in which the openings are made may close them, if he acquires the part ownership of the wall and should there be no agreement to the contrary. He may also obstruct them by building on his land or raising a wall adjacent to that having such opening or window. Article 582 of the Civil Code provides as follows: ART. 582. Windows with direct views, or balconies or any similar openings projecting over the estate of the neighbor, can not be made if there is not a distance of, at least, two meters between the wall in which they are built and said estate. Neither can side nor oblique views be opened over said property, unless there is a distance of sixty centimeters. The foregoing provisions of the Civil Code enumerate the conditions under which an adjoining lot owner may enjoy the easement of light and view. These provisions are positive and persons attempting to exercise easement of light and view upon property of adjoining landowners are governed by its provisions. Said article 582 absolutely prohibits the construction of windows with direct views, or balconies or any similar openings projecting over adjoining property, unless there is a distance of at least 2 meters between the wall in which they are built and the adjoining property. The evidence adduced during the trial in the court below was not brought here. Therefore, we are governed as to the facts by the findings of the lower court. The lower court found that the distance between the wall of the house of the defendant and the dividing line between the two lots was only 71 centimeters. The defendant, therefore, has violated the provisions of said article 582 by building in his house nearer the line of the property of the plaintiff than a distance of 2 meters. Said article 581 provides the character of windows or openings in a wall adjoining the property of another when such wall is constructed nearer the dividing line of the two properties than 2 meters. In the present case the defendant constructed his house so that the wall looking upon the property of the plaintiff was less than 2 meters from the dividing line. He can, therefore, only construct such windows as are provided for in said article 581. The lower court bases his conclusions largely upon the fact that the plaintiff had stood by and permitted the defendant to construct, or partially construct, his house without having made any objections, as well as the further fact that the plaintiff had received no damages whatever except purely sentimental damages. The first ground would seem to imply that the lower court was of the opinion that the plaintiff was estopped from insisting upon his rights under the law, he having permitted the defendant to partially construct the house in the manner above described. There is nothing in the decision of the lower court which shows that the plaintiff at any time before the commencement of the present action knew that the house of the defendant was being constructed in violation of the provisions of said above-quoted articles. It was the duty of the defendant to construct his house in accordance with the provisions of the law. The plaintiff was not obliged to stand by for the purpose of seeing that the defendant had not violated the law. There are many cases where the doctrine of estopped may be invoked against one who claims a PUP COLLEGE OF LAW Page 203

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right where he has stood by and either expressly or tacitly given his consent to a violation of his right by another. This doctrine, however, can not be invoked where the law imposes an express duty upon the other person and prohibits him from the exercise of certain acts in a certain way. The defendant only can blame himself for not constructing his house in the manner provided for by law under the facts in the present case. (See decision of the supreme court of Spain, June 6, 1892; 4 Manresa, 734, 735, 736-739; 9 Alcubilla, 541.) Under all of the facts and the law presented in the present case, we are of the opinion, and so hold, that the defendant is not entitled to the easement of light and view which the windows and openings , which he was made in the house in question, give him, and, because of the fact that he has constructed his houses nearer than 2 meters to the dividing line between his property and the property of the plaintiff, he is only entitled to the easement of light and view provided for in said article 581 above quoted. Therefore, let a judgment be entered reversing the judgment of the lower court with costs, and directing the defendants, within a period of thirty days from the receipt of the notice of this decision, to close the said openings and windows, in the said house, looking directly upon the property of the plaintiff. So ordered.

NUISANCE:
AC ENTERPRISES, INC. vs. FRABELLE PROPERTIES CORPORATION; CA-G.R. SP No. 82166 SEPTEMBER 21, 2004 This petition for certiorari and prohibition under Rule 65 of the Rules of Court seeks to nullify and set aside the Orders1 dated 15 September 2003 and 03 December 2003, and to prohibit the public respondent judge from conducting further proceedings in Civil Case No. 3745-MN entitled Frabelle Properties Corp. vs. AC Enterprises, Inc. Petitioner AC Enterprises, Inc. is the owner and operator of the Feliza Building, a ten -story office building, which is located at Herrera Street, Legaspi Village, Makati City. The building operates a central air-conditioning system with blowers servicing the same. The blowers are located at the rear portion of the airconditioning units, with four blowers on each floor, which are divided into groups of two for each floor. Upon the other hand, private respondent Frabelle Properties Corp. is the developer of Frabella 1, a twenty nine-story condominium, which is situated right across a narrow street from Feliza Building. According to private respondent Frabelle Properties Corp., these blowers are pointed towards its building, which creates and unbearable vibrating noise and blasts a continuing stream of hot air towards Frabella 1 Condominium affecting the tenants thereof. Consequently, private respondent instituted a complaint for Abatement of Nuisance with Damages with Prayer for I ssuance of a Writ of Preliminary Injunction against herein petitioner before the Regional Trial Court of Malabon, which was docketed as Civil Case No. 3745-MN. Summons was served on petitioner directing it to file its answer to the complaint. Also, petitioner was served a notice to appear for hearing on the application for the writ of preliminary injunction prayed for in the complaint.2 Instead of filing its answer, petitioner filed its Motion to Dismiss3 the complaint filed by private respondent Frabelle Properties Corp. and the application for preliminary injunction based on the following grounds: a) the court has no jurisdiction over the subject matter of the complaint; b) the complaint is barred by prior judgment or res judicata; c) the complaint is barred by litis pendentia; d) complainant is guilty of forum-shopping; and e) lack of cause of action. After the filing of their respective position papers, public respondent judge issued the assailed PUP COLLEGE OF LAW Page 204

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Order4 denying petitioners Motion to Dismiss and applicat ion for preliminary injunction, the decretal portion of which states: WHEREFORE, the Motion to Dismiss and application for preliminary injunction are hereby denied for lack of merit. SO ORDERED. Not satisfied, petitioner filed its Motion for Reconsideration,6 which the public respondent Judge denied in its assailed Order.7 Hence, petitioner filed this instant petition8 raising the following grounds, to wit: THE PUBLIC RESPONDENT ACTED WITHOUT JURISDICTION, OR WITH GRAVE ABUSE OF DISCRETION SO GRAVE AS TO LOSE JURISDICTION IN CIVIL CASE NO. 03-3745-MN CONSIDERING THAT: A. THE HONORABLE COURT HAS NO JURISDICTION OVER THE SUBJECT MATTER OF THE COMPLAINT. JURISDICTION IS VESTED WITH THE MAKATI CITY GOVERNMENT, THE LOCAL GOVERNMENT UNIT CONCERNED. B. THE COMPLAINT IS BARRED BY RES JUDICATA. THE MAKATI CITY GOVERNMENT HAS ALREADY DECIDED A COMPLAINT FILED BY FRABELLE. FRABELLE DID NOT ELEVATE THE SAME ON APPEAL, OR IN ANY WAY QUESTION SUCH DECISION. THUS, THE DECISION BY THE MAKATI CITY GOVERNMENT IS NOW FINAL AND EXECUTORY. C. AT THE TIME THE COMPLAINT WAS FILED, IT WAS BARRED BY LITIS PENDENTIA. A SIMILAR ACTION WAS PENDING WITH THE POLLUTIONS ADJUDICATION BOARD (PAB) WHICH SUBSEQUENTLY FOUND NO LIABILITY ON THE PART OF AC. FRABELLE IS CLEARLY AND UNDENIABLY GUILTY OF FORUMSHOPPING. D. PLAINTIFF FRABELLE HAS NO CAUSE OF ACTION AND THE COMPLAINT FAILS TO STATE A CAUSE OF ACTION AGAINST AC ENTERPRISES. 9 As a preliminary, the petition for certiorari and prohibition filed by herein petitioner is not the proper remedy to question public respondent judges denial of its motion to dismiss in Civil Case No. 3745 -MN. Public respondent judges denial of its motion to dismiss in the assailed Orders10 is merely interlocutory. An interlocutory order does not terminate nor finally dispose of the case, but leaves something to be done by the court before the case is finally decided on the merits.11 It is always under the control of the court and may be modified or rescinded upon sufficient grounds shown at any time before judgment.12 This proceeds from the courts inherent power to control its process and orders so as to make them conformable to law and justice. The only limitation is that the judge cannot act with grave abuse of discretion, or that no injustice results thereby.13 not present in this case. This limitation is

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Petitioner contends that jurisdiction over the subject matter of the complaint is lodged with the City Government of Makati by virtue of Republic Act No. 7160 (Local Government Code of 1991) which provides for the devolution of the powers of national agencies or offices to local government units, viz: Section 17. Basic Services and Facilities. xxx (e) National agencies or offices concerned shall devolve to local government units the responsibility for the provision of basic services and facilities enumerated in this Section within six (6) months after the effectivity of this Code. As used in this Code, the term devolution refers to the act by which the National Government confers power and authority upon the various local government units to perform specific functions and responsibilities. xxx xxx xxx (b) Such services and facilities include, but are not limited to, the following: (3) For a Province: xxx (iii) Pursuant to national policies and subject to supervision, control and review of the DENR, enforcement of forestry laws limited to community-based forestry projects, pollution control law xxx xxx (4) For a City: All the services and facilities of the municipality and province, and in addition thereto, the following: xxx 14 Corollarily, petitioner further contends that Administrative Order No. 30 issued by the Department of Environment and Natural Resources (DENR) devolved to the local government unit the following: Section 3. Devolved Functions, Programs and Projects. Pursuant to Section 17 of the Code and subject to the provisions herein, particularly the policies enunciated in Sec. 1, above, the following functions, programs and projects of the DENR are hereby devolved to the concerned LGUs: xxx

3.3 Environmental Management xxx (a) Enforcement of the following pollution control and environmental protection laws, rules and regulations: xxx (c) Abatement of noise and other forms of nuisance as defined by law; and (d) Implementation of Cease and Desist Orders issued by the Pollution and Adjudication Board. xxx15 In traversing petitioners contention, private respondent argues that R.A. 7160 refers to pollution control but not to the abatement of a nuisance, and while Administrative Order No. 30 of the DENR devolved to the local government unit the functions of abatement of notice and other forms of nuisance defined by law, the same, however, is not a law hence Administrative Order No. 30 cannot deprive the lower court of its jurisdiction over the case. The court agrees with the private respondent. Nowhere in the provisions of RA 7160 would specifically point out that cases of abatement of nuisance is within the exclusive jurisdiction of the local government units. The cited PUP COLLEGE OF LAW Page 206

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provisions of RA 7160 clearly refer to the enforcement of pollution control law and not to complaints involving the abatement of a nuisance. While Administrative Order No. 30 of the DENR devolved to local government units the abatement of noise and other forms of nuisance defined by law, this does not necessarily deprive the courts to hear and decide cases involving abatement of nuisances. As alleged to by private respondent in its complaint, it had already sought the intercession of the following offices: (1) Barangay San Lorenzo, (2) Makati Commercial (5) Estate Association, Inc. (MACEA), (3) Metro Manila Development Authority, (4) Office, and Makati City Government, (6) Department of Makati Pollution Natural Environment and Resources.16 Thus, it is but proper for private respondent to bring its case before the courts of law. While the doctrine of primary jurisdiction does not warrant a court to arrogate unto itself the authority to resolve a controversy the jurisdiction over which is initially lodged with an administrative body of special competence,17 the court can take cognizance of the case when the issues raised involved a question of law. It bears stressing that the filing of its Motion to Dismiss, petitioner has hypothetically admitted the factual allegations in private respondents complaint. The rule is that a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted all the averments thereof.18 Hence, what is left for the court to adjudicate is the application of the laws that deals with nuisance. Significantly, the principle of exhaustion of administrative remedies need not be adhered to when the question is purely legal. As held in the case of Castro vs. Gloria,19 the Supreme Court ruled that, where the case involves only legal question, the litigant need not exhaust all administrative remedies before such judicial relief can be sought. This is because issues of law cannot be resolved with finality by the administrative officer.20 Contrary to petit ioners contention, the filing of Civil Case No. 3745-MN is not barred by res judicata. Res judicata exists when the following elements are present: (a) the former judgment must be final; (b) the court which rendered the judgment had jurisdiction over the parties and the subject matter; (c) it must be a judgment on the merits; (d) and there must be between the first and second actions identity of parties, subject matter, and cause of action.21 The first element is not present. Judgment as defined in Blacks Law Dictionary22 is the official and authentic decision of a court of justice upon the respective rights and claim of the parties to an action or suit therein litigated and submitted to its determination. This presupposes an adversarial proceeding or in administrative bodies exercising quasi-judicial functions, the submission of relevant evidence and position papers. In this case, the judgment or decision adverted to by petitioner was only a letter of City Engineer Morales in response to petitioners complaint. No adversarial proceedings or the submission of evidence and position papers took place before the Office of the City Engineer. At best, the letter of City Engineer Morales with regard to private respondents complaint is only an exercise of the city governments administrative powers and not in the exercise of its judicial or quasi-judicial functions. For one, City Engineer Morales does not exercise judicial functions. quasi-judicial functions. Neither does he exercise Quasi-judicial function is defined as a term which applies to the actions, discretion, etc. of public administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion of judicial nature. As already stated, no adversarial proceedings took place or hearings were conducted before the Office of the City Engineer.

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Also, private respondents filing of the complaint before the Regional Trial Court of Malabon is not barred by litis pendentia. For litis pendentia to be invoked the concurrence of the following requisites is necessary: (a) identity of parties; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) the identity in the two cases should be such that the judgment may be rendered in one would regardless of which party is successful, amount to res judicata in the other.24 It is worthy to note that the complaint filed before the Pollution Adjudication Board was initiated by the Frabella 1 Condominium Corporation as complainant against herein petitioner, while the case pending before the Regional Trial Court of Malabon was filed by private respondent Frabelle Properties Corporation. Obviously, there is no identity of parties between those filed before the Pollution Adjudication Board and the Regional Trial Court. The Frabella 1 Condominium Corporation has a personality of its own which is separate and distinct from that of private respondent Frabelle Properties Corporation. As a juridical entity, it has the power to sue and be sued. Thus, there is no litis pendentia to speak of when the requirement of identity of parties is lacking. In line with this, where the elements of litis pendentia are not present or where a final judgment in one case will not amount to res judicata in the other, there is no forum-shopping. With respect to petitioners assertion that private respondents complaint states no cause of action, the same is without merit. A cause of action is the act or omission by which a party violates a right of another. A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages.26 The foregoing elements are present in this case. Due to the unbearable noise and hot air allegedly caused by the blowers installed at petitioners building, private respondents tenants have been complaining, forcing them to vacate their units while others refused to pay their rent and threatened to sue herein petitioner because of the unabated nuisance. Private respondent, in order to avert future business losses, has the right to abate this nuisance. On the other hand, petitioner allegedly refused to abate the said nuisance. Thus, private respondent, as in this case, may file an action to protect its property and proprietary rights. Prescinding from all of the foregoing, the court could not ascribe grave abuse of discretion on the part of the public respondent in issuing the assailed Orders.27 WHEREFORE, premises considered, the petition is DISMISSED for lack of merit. Accordingly, the dismissal of the petition rendered the application for a temporary restraining order or writ of preliminary injunction moot and academic. SO ORDERED. JOSE "PEPITO" TIMONER vs. THE PEOPLE OF THE PHILIPPINES AND THE HONORABLE COURT OF APPEALS, IV DIVISION; G.R. No. L-62050 November 25, 1983

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Petition for review of the affirmance in toto by the Court of Appeals, now the Intermediate Appellate Court, of the judgment of conviction handed down by the then Municipal Court of Daet, Camarines Norte, in Criminal Case No. 4281, entitled People of the Philippines vs. Jose Timoner, finding petitioner guilty of the crime of grave coercion, as follows: t.hqw WHEREFORE this Court finds the accused JOSE 'PEPITO' TIMONER guilty beyond reasonable doubt of the crime of Grave Coercion as penalized under Art. 286 in the Revised Penal Code, and hereby sentences the said accused pursuant to the provision of Rule 64, Par. 3, to suffer SIX MONTHS OF IMPRISONMENT OF ARRESTO MAYOR IN ITS MAXIMUM PERIOD, to pay a fine of P300.00 and to pay the offended party in the amount of P5,000.00 as damages, without subsidiary liability in case of insolvency. The other accused SAMUEL MORENA and ERNESTO QUIBRAL are hereby ordered ACQUITTED. The salient facts are not disputed. At about 10:00 in the evening of December 13, 1971, petitioner, then Mayor of Daet, Camarines Norte, accompanied by two uniformed policemen, Samuel Morena and Ernesto Quibral, and six laborers, arrived in front of the stalls along Maharlika highway, the main thoroughfare of the same town. Upon orders of petitioner, these laborers proceeded to nail together rough lumber slabs to fence off the stalls which protruded into the sidewalk of the Maharlika highway. Among the structures thus barricaded were the barbershop of Pascual Dayaon, the complaining witness and the store belonging to one Lourdes Pia-Rebustillos. These establishments had been recommended for closure by the Municipal Health Officer, Dra. Alegre, for noncompliance with certain health and sanitation requirements. Thereafter, petitioner filed a complaint in the Court of First Instance of Camarines Norte against Lourdes PiaRebustillos and others for judicial abatement of their stalls. The complaint, docketed as Civil Case No. 2257, alleged that these stalls constituted public nuisances as well as nuisances per se. Dayaon was never able to reopen his barbershop business. Subsequently, petitioner and the two policemen, Morena and Quibral, were charged with the offense of grave coercion before the Municipal Court of Daet. As already noted, the said court exonerated the two policemen, but convicted petitioner of the crime charged as principal by inducement. On appeal, the Court of Appeals affirmed in full the judgment of the trial court. Hence, the present recourse. Petitioner contends that the sealing off of complainant Dayaon's barbershop was done in abatement of a public nuisance and, therefore, under lawful authority. We find merit in this contention. Unquestionably, the barbershop in question did constitute a public nuisance as defined under Article Nos. 694 and 695 of the Civil Code, to wit: t.hqw ART. 694. A nuisance is any act, omission, establishment, business, condition of property, or anything else which: (1) Injures or endangers the health or safety of others; or (2) Annoys or offends the senses; or (3) Shocks, defies or disregards decency or morality; or (4) Obstructs or interferes with the free passage of any public highway or street, or any body of water; or (5) Hinders or impairs the use of property.

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ART. 695. Nuisance is either public or private. A public nuisance affects a community or neighborhood or any considerable number of persons, although the extent of the annoyance, danger or damage upon individuals may be unequal A private nuisance is one that is not included in the foregoing definition. The barbershop occupied a portion of the sidewalk of the poblacion's main thoroughfare and had been recommended for closure by the Municipal Health Officer. In fact, the Court of First Instance of Camarines Norte, in its decision in Civil Case No. 2257, declared said barbershop as a nuisance per-se. Thus: t.hqw Under the facts of the case, as well as the law in point, there is no semblance of any legality or right that exists in favor of the defendants to build a stall and conduct their business in a sidewalk, especially in a highway where it does not only constitute a menace to the health of the general public passing through the street and also of the unsanitary condition that is bred therein as well as the unsightly and ugly structures in the said place. Moreover, even if it is claimed and pretended that there was a license, permit or toleration of the defendants' makeshift store and living quarters for a number of years does not lend legality to an act which is a nuisance per se. Such nuisance affects the community or neighborhood or any considerable number of persons and the general public which posed a danger to the people in general passing and using that place, for in addition, this is an annoyance to the public by the invasion of its rights the fact that it is in a public place and annoying to all who come within its sphere [Baltazar vs. Carolina Midland, Ry, Co., 54 S.C. 242, 32 SB 258, cited in 11 Tolentino's Civil Code of the Philippines, p. 375; Kapisanan Lingkod ng Bayan, Inc. vs. Lacson, CA-G.R. No. 27260R, March 25, 1964; 61 O.G. 2487]. xxx xxx xxx ... IN VIEW OF THE FOREGOING, the Court hereby declares that the structures subject of this complaint as well as those occupied by the impleaded defendants are nuisances per se and therefore orders the defendants to demolish the stall and vacate the premises immediately ... But even without this judicial pronouncement, petitioner could not have been faulted for having fenced off said barbershop. Paragraph 3, Article 699 of the Civil Code authorizes the abatement of a public nuisance without judicial proceedings. ART. 699. The remedies against a public nuisance are: [l] A prosecution under the Penal Code or any local ordinance; or [2] A civil action; or [3] Abatement, without judicial proceedings. In the case at bar, petitioner, as mayor of the town, merely implemented the aforesaid recommendation of the Municipal Health Officer. Having then acted in good faith in the performance of his duty, petitioner incurred no criminal liability. Grave coercion is committed when "a person who, without authority of law, shall by means of violence, prevent another from doing something not prohibited by law or compel to do something against his will, either it be right or wrong." 1 The three elements of grave coercion are: [1] that any person be prevented by another from doing something not prohibited by law, or compelled to do something against his will, be it right or wrong; [2] that the prevention or compulsion be effected by violence, either by material force or such display of it as would produce intimidation and control the will of the offended party, and [3] that the person who restrained the will and liberty of another had no right to do so, or, in other words, that the restraint was not made under authority of law or in the exercise of a lawful right. 2 PUP COLLEGE OF LAW Page 210

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The third element being absent in the case at bar, petitioner cannot be held guilty of grave coercion. WHEREFORE, the decision of the Court of Appeals in CA G.R. No. 19534-CR, is hereby set aside and petitioner is acquitted of the crime charged. Costs de oficio.

REGISTRY OF PROPERTY:
REPUBLIC OF THE PHILIPPINES vs. DANTE C. ABRIL; G.R. No. 180453 September 25, 2009 Dante C. Abril, (respondent) represented by his attorney-in-fact, Manuel C. Blanco, Jr. (Blanco), filed on December 16, 1997 before the Municipal Circuit Trial Court (MCTC) of Ibajay-Nabas, Aklan an Application dated November 18, 1997 for registration of title over a 25,969 square meter parcel of land situated in Barangay Rizal, Nabas, Aklan, identified as Lot No. 9310, Cad. 578-D, Nabas Cadastre (the lot), which he claimed to have acquired by Deed of Sale from the "anterior owners" and which lot he claimed to be "presently in [his] possession . . . through his adjoining owners] whom he named as N.: Lot 9316 Lot 9317 Esperanza Manlabao - - - - - Rizal, Nabas, Aklan Jovita Colindon - - - - - - - Molada River E.: Lot 9308 Ursula Janoya - - - - - - - - Lot 9309 Gaudioso Baliguat - - - - - S.: -------------------------- Rosario Manlabao - - - - - Rizal, Nabas, Aklan Rizal, Nabas, Aklan Molada River Rizal, Nabas, Aklan.1 Rizal, Nabas, Aklan

W.: Lot 9315

The Application was docketed as LRC Case No. 053 (LRA Record No. 69113). To the Application respondent attached as Annex "A" the Special Power of Attorney he executed in favor of his attorney-in-fact Blanco, notarized on March 27, 1995. In support of his Application, respondent presented through his attorney-in-fact Blanco, among other documents, a carbon copy of a mimeographed form of a Deed of Sale 2 dated September 21, 1994, with typewritten entries thereon, bearing the signatures of the widow and children of Aurelio Manlabao (Manlabao), alleged possessor of the land; Declaration of Real Property (effective 1999) in petitioners name;3 Certified Machine Copy of Tax Receipt dated March 16, 1999 in petitioners name;4 and the technical description and survey plan of the lot. Respondent also presented at the witness stand Blanco, Manlabaos daughter Amalia Tapleras, and Sanrita Francisco who claimed to be an adjacent lot owner. Blanco testified that petitioner is a resident of San Pedro, Laguna; and that respondent acquired the lot from Manlabao by Deed of Sale dated September 21, 1994 which deed he identified and was marked Exhibits "R" to "R-2" inclusive. He identified too some of the documents in support of petitioners Application. Amalia Tapleras, a mat weaver who was 40 years old at the time she took the witness stand on November 5, 1999, stated that she came to know of the lot when she was seven years old, when it was in the "possession" of her father Manlabao.

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Sanrita Francisco, a housekeeper, said to be 62 years old at the time she took the witness stand on February 18, 2000, claimed to be the owner of an adjacent lot ("beneat h" respondents lot), declared that she was five years old when Manlabao began to possess the lot "before 1945" or during World War II; and that when Manlabao died (she could not remember when), his wife continued the possession of the lot. The Republic of the Philippines (petitioner), represented by the Office of the Solicitor General, opposed the Application, claiming that the requirements of Section 14 (1) of Presidential Decree No. 1529 or the Property Registration Decree were not complied with. By Order of May 31, 2000, the MCTC granted respondents Application in light of its finding that the requirements of Section 14 of P.D. No. 1529, specifically paragraphs 1, 2 and 4 which read: Section 14. Who may apply. The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: (1) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. (2) Those who have acquired ownership of private lands by prescription under the provision of existing laws. xxxx (4) Those who have acquired ownership of land in any other manner provided for by law. xxxx have been satisfactorily met. Thus the trial court disposed: WHEREFORE, premises considered, judgment is hereby rendered GRANTING the application for registration of the parcel land designated in the approved Survey Plan (Exhibit "C") known as Lot No. 9310, Cad. 758-D, Nabas Cadastre and described in the Technical Description (Exhibit "D") with an area of TWENTY FIVE THOUSAND NINE HUNDRED SIXTY NINE (25,969) SQUARE METERS, more or less, situated at Barangay Rizal, Municipality of Nabas, Province of Aklan, Island of Panay, Philippines, under the Property Registration Decree (PD 1529), and title thereto registered and confirmed in the name of DANTE ABRIL, Filipino citizen, married to Helen Castillo, with postal address at 133 Magsaysay Cataquez Village, Landayan, San Pedro, Laguna, Philippines. After this decision shall have become final and executory, an order for the issuance of the Decree of Registration of Title shall issue in favor of the applicant. SO ORDERED. 5 Petitioner appealed to the Court of Appeals, faulting the MCTC for granting responden ts Application despite his failure I . . . to submit the original tracing cloth plan. II PUP COLLEGE OF LAW Page 212

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. . . to prove that the land is alienable and disposable land of the public domain. III . . . to prove that he and his predecessors-in-interest had been in open, continuous and adverse possession of the land in the concept of owners for more than thirty (30) years in accordance with Section 44, Commonwealth Act No. 141 as amended.6 (Underscoring supplied) Brushing aside the first assigned error, the appellate court, held: As long as the identity of the location of the lot can be established by other competent evidence like a duly approved blueprint copy of the plan of Lot 9310, Cad 758-D, Nabas Cadastre and technical description of the said lot, containing and identifying the boundaries, actual area and location of the lot, the presentation of the original tracing cloth plan may be excused. In the case at bench, these competent evidence are obtaining.7(Underscoring supplied) Respecting petitioners second and third assigned errors, the appellate court brushed them aside too, holding that respondent was able to prove by preponderant evidence the alienable character of the lot and his entitlement to and ownership thereof. It quoted with approval the following portions of the MCTC decision crediting respondents documentary and testimonial evidence: Applicant Dante Abril has the property subject of this application declared in his name for taxation purposes, Exhibit "S", and paid taxes thereof from September 21, 1994 up to the present, it has never been disturbed of its possession at anytime by anybody, (tsn. p. 7, 6/18/99, Manuel C. Blanco, Jr.). That the property is planted to coconuts and mango trees which are "from 50 to 60 years old", (tsn. p. 7, 6/18/99, Manuel C. Blanco, Jr.). That it "was verified by this office to be within Project No. 12, alienable and disposable per LC Map No. 2922 certified as such on October 15, 1980. While it is true that by themselves tax receipts and declarations of ownership for taxation purposes are not incontrovertible evidence of ownership they become strong evidence of ownership acquired by prescription by proof of actual possession of the property (Republic vs. Court of Appeals, 131 SCRA 532)". Nobody ever disturbed the application in its possession up to the present. The land was never mortgaged nor encumbered. That the land subject of this application is "not needed by the government", Exhibit "T". Having been in open, exclusive and undisputed possession for more than 30 years of alienable and disposable public land, applicants possession has attained the character and duration equivalent to an express grant from the government. They shall be conclusively presumed to have performed all the conditions essential to a government grant and shall be entitled to a certificate of title (Republic vs. De Porkan, 151 SCRA 88). Alienable public land held by a possessor personally or thru his predecessor-in-interest, openly, continuously, for 30 years as prescribed by law, becomes private property (Director of Lands vs. Bengson, 151 SCRA 369). Moreover, where a parcel of land, registration to which is applied for has been possessed and cultivated by an applicant and his predecessors-ininterest for a considerable number of years without the government taking any action to dislodge the occupants from their holdings and where the lands has passed from one hand to another by inheritance or by purchase, the burden is upon the government to prove that land is a public domain (Raymundo vs. Diaz, et al., 28 O.G. 37, September 10, 1962).8 (Citation omitted) The Court of Appeals thus affirmed the MCTC decision by Decision of October 8, 2007. 91avvphi1 Hence, the present petition for review on certiorari which echoes the second and third errors petitioner attributed to the MCTC before the appellate court.1avvphi1 The pertinent provision of Section 14 of the Property Registration Decree sets forth the requirements for registration of title, viz: PUP COLLEGE OF LAW Page 213

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SECTION 14. Who may apply. The following persons may file in the proper Court of First Instance an application for registration of title to land, whether personally or through their duly authorized representatives: (1) Those who by themselves or through their predecessors-in-interest have been in open, continuous, exclusive and notorious possession and occupation of alienable and disposable lands of the public domain under a bona fide claim of ownership since June 12, 1945, or earlier. x x x x (Emphasis and underscoring supplied) Under said provision of law, three requisites must thus be satisfied: (1) open, exclusive, and notorious possession and occupation of the land since June 12, 1945 or earlier; (2) alienable and disposable character of the land of the public domain, and (3) a bona fide claim of ownership. The record shows that respondent had earlier sought the registration of the same lot. The October 19, 1999 Report of the Land Registration Authority (LRA) submitted to the MCTC reflects so: xxxx 2. LRA Records show that the same subject lot was previously the subject of registration of title in Land Reg. Case No. 430, LRA Record No. N-65380 by the same applicant, however, said application was deniedfor the following reasons as quoted from the decision dated 2 October 1996, to wit: 2. The applicant has not shown that he and his predecessors-in-interest have been in continuous, exclusive and notorious possession of the subject property. The petition did not state in what manner the applicant or his predecessors-in-interest came into possession of the property, either by possession as owner for more than thirty (30) years or possession since time immemorial. The testimony of Emilia Baldevieso who is only 33 years old to the effect that her father, Aurelio Manlaban [sic], Sr., and before him, her grandfather, Martin Manlabao, were the prior owners of this property, are more conclusion of law which requires factual support and substantiation. Of course, the Court noted that the applicant tried to cure this deficiency by presenting tax declarations as early as 1953 in the name of Martin Manlabao buttax declarations are not sufficient to prove ownership. x x x 3. A letter of the Chief, Surveys Division, Lands Management Services, Region VI, Iloilo City dated August 13, 1999 was received by this Authority, with the information that lot 9310, plan Ap-06-005304 is not a portion of previously approved isolated survey, and 4. This Authority is not in a position to verify whether or not the parcel of land subject of registration is already covered by land patent.10 (Emphasis and underscoring supplied) In the same Report, the LRA recommended that should the application be given due course, the DENR, Lands Management Bureau and CENRO be ordered to submit a report on the status of Lot 9310 to determine whether it is already covered by a land patent. The recommendation was not acted upon by the MCTC, however. In vigorously sustaining its opposition to respondents Application, the Republic posits The testimonies of respondents witnesses only delved on the transfer of the subject property from a certain Aurelio Manlabao [sic] sometime in 1994. The testimony of witnesses Amalia Tapleras only tends to show that the subject property previously belonged to her father, Aurelio Manlabao. There is nothing from her testimony that would show the period when Aurelio Manlabao or the latters heirs had been in possession of said property. Neither is there any evidence of specific acts showing the same nature of possession of Aurelio Manlabao or the latters successors ininterest over the property. Equally important, it was not even clearly shown how the property was transferred from Aurelio Manlabao to his heirs, the vendors of the property to respondent.

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The testimony of respondents attorney-in-fact Manuel C. Blanco with respect to the alleged actual, peaceful and adverse possession of respondent is merely conclusion of law unsupported by any evidence. His testimony that the property has been declared for taxation purposes in the name of respondent and that respondent has never been disturbed of his possession over the property from the time the property was transferred to him in 1994 does not prove respondents nature of possession over the property. His statement regarding the existence of coconut trees which are about 50 to 60 years old is also unsupported by any independent and competent evidence. Even assuming it is true, its only supports the character of the property as timberland the possession thereof cannot ripen into ownership. It also bears pointing out that Manuel C. Blanco did not even try to point any cultivation or improvement done by respondent on the property. The testimony of sixty-two year old witness Sanrita Francisco does not suffice to establish that Aurelio Manlabao had adverse possession of the property before 1945 as claimed by respondent. Although she claims that at the age of five, she remembered Aurelio Manlabao in possession of the land, her statement remained vagueconsidering her claim that Aurelio Manlabao held the land "for a long time because it was their land." The same witness could not even remember her age during the second World War which was the time Aurelio Manlabao allegedly started possession of the property. She did not even specify the manner and the nature of the improvements introduced in the land. Given her failing recollection, her testimony does not deserve credence. Clearly, the evidence adduced by respondent failed to establish the nature of possession by him and his predecessors-in-interest. There was even no documentary proof on any payment made by the predecessors-in-interest of the real estate tax on the subject property. This failure to pay taxes belies respondents allegation that his predecessors-in-interest had asserted claim or interest over the subject lot. Equally important, there was no proof that Aurelio Manlabao or his heirs had introduced improvements on the property or cultivated the same during the alleged period that they were in possession of the property. x x x 11 The Court finds for the Republic. The documentary evidence of respondent consists, in the main, of a 1999 Tax Clearance effective 1999 and Tax Receipt dated 1999. Not only do these documents refer to the year 1999, they are not incontrovertible evidence of ownership. As for respondents testimonial evidence, the same does not impress. Respondents attorney-in-fact Blanco identified the Deed of Sale in support of his claim that respondent purchased the lot from the heirs of Manlabao. But Blanco was not even a witness to the forging, as in fact he did not so state, of the Deed of Sale. Amalia Tapleras claimed that she was seven when she became aware that her father Manlabao was in possession of the lot. How Manlabao came into possession of the lot and what was the nature of his possession, Amalia was silent. The 62 year old (in 2000 when she testified) Samarita Francisco claimed to be an adjacent lot owner of the subject lot. She is not, however, among those listed by respondent in his Application as adjacent owner, which was earlier quoted. And as petitioner observes, her testimony that Manlabao had possessed the lot since she was five years old cannot be relied upon, given its vagueness and lack of details determinative of the nature of Manlabaos possession. Even by respondents testimonial evidence which petitioner finds, to reflect mere conclusions of law and to which this Court agrees, respondent failed to prove that he and his predecessors-in-interest had been "in open, continuous, exclusive and notorious possession" of the lot under a bona fide claim of ownership since June 12, 1945 or earlier.

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In fine, as in his previous try to register the same subject lot, respondent failed to meet the first requisite for the purpose open, exclusive and notorious possession of the land since June 12, 1945 or earlier. This leaves it unnecessary to still dwell on the other requisites for a grant of respondents Application. WHEREFORE, the Court SETS ASIDE the assailed issuances of the Court of Appeals. LRC Case No. 053 (LRA Record No. 69113), the Application for registration of respondent, Dante C. Abril over Lot No. 9310, Cad. 578-D, Nabas Cadastre, filed before the Municipal Circuit Trial Court of Ibajay-Nabas, Aklan, is DISMISSED.

INTELLECTUAL CREATION:
PEARL & DEAN (PHIL.), INCORPORATED vs. SHOEMART, 148222. August 15, 2003 INCORPORATED; G.R. No.

In the instant petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Pearl & Dean (Phil.) Inc. (P & D) assails the May 22, 2001 decision[1] of the Court of Appeals reversing the October 31, 1996 decision [2] of the Regional Trial Court of Makati, Branch 133, in Civil Case No. 92-516 which declared private respondents Shoemart Inc. (SMI) and North Edsa Marketing Inc. (NEMI) liable for infringement of trademark and copyright, and unfair competition.

FACTUAL ANTECEDENTS The May 22, 2001 decision of the Court of Appeals[3] contained a summary of this dispute: Plaintiff-appellant Pearl and Dean (Phil.), Inc. is a corporation engaged in the manufacture of advertising display units simply referred to as light boxes. These units utilize specially printed posters sandwiched between plastic sheets and illuminated with back lights. Pearl and Dean was able to secure a Certificate of Copyright Registration dated January 20, 1981 over these illuminated display units. The advertising light boxes were marketed under the trademark Poster Ads. The application for registration of the trademark was filed with the Bureau of Patents, Trademarks and Technology Transfer on June 20, 1983, but was approved only on September 12, 1988, per Registration No. 41165. From 1981 to about 1988, Pearl and Dean employed the services of Metro Industrial Services to manufacture its advertising displays. Sometime in 1985, Pearl and Dean negotiated with defendant-appellant Shoemart, Inc. (SMI) for the lease and installation of the light boxes in SM City North Edsa. Since SM City North Edsa was under construction at that time, SMI offered as an alternative, SM Makati and SM Cubao, to which Pearl and Dean agreed. On September 11, 1985, Pearl and Deans General Manager, Rodolfo Vergara, submitted for signature the contracts covering SM Cubao and SM Makati to SMIs Advertising Promotions and Publicity Division Manager, Ramonlito Abano. Only the contract for SM Makati, however, was returned signed. On October 4, 1985, Vergara wrote Abano inquiring about the other contract and reminding him that their agreement for installation of light boxes was not only for its SM Makati branch, but also for SM Cubao. SMI did not bother to reply. Instead, in a letter dated January 14, 1986, SMIs house counsel informed Pearl and Dean that it was rescinding the contract for SM Makati due to non-performance of the terms thereof. In his reply dated February 17, 1986, Vergara protested the unilateral action of SMI, saying it was without basis. In the same letter, he pushed for the signing of the contract for SM Cubao. Two years later, Metro Industrial Services, the company formerly contracted by Pearl and Dean to fabricate its display units, offered to construct light boxes for Shoemarts chain of stores. SMI approved the proposal and ten (10) light boxes were subsequently fabricated by Metro Industrial for SMI. After its contract with Metro Industrial was terminated, SMI engaged the services of EYD Rainbow Advertising Corporation to make the light boxes. Some PUP COLLEGE OF LAW Page 216

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300 units were fabricated in 1991. These were delivered on a staggered basis and installed at SM Megamall and SM City. Sometime in 1989, Pearl and Dean, received reports that exact copies of its light boxes were installed at SM City and in the fastfood section of SM Cubao. Upon investigation, Pearl and Dean found out that aside from the two (2) reported SM branches, light boxes similar to those it manufactures were also installed in two (2) other SM stores. It further discovered that defendant-appellant North Edsa Marketing Inc. (NEMI), through its marketing arm, Prime Spots Marketing Services, was set up primarily to sell advertising space in lighted display units located in SMIs different branches. Pearl and Dean noted that NEMI is a sister company of SMI. In the light of its discoveries, Pearl and Dean sent a letter dated December 11, 1991 to both SMI and NEMI enjoining them to cease using the subject light boxes and to remove the same from SMIs establishments. It also demanded the discontinued use of the trademark Poster Ads, and the payment to Pearl and Dean of compensatory damages in the amount of Twenty Million Pesos (P20,000,000.00). Upon receipt of the demand letter, SMI suspended the leasing of two hundred twenty-four (224) light boxes and NEMI took down its advertisements for Poster Ads from the lighted display units in SMIs stores. Claiming that both SMI and NEMI failed to meet all its demands, Pearl and Dean filed this instant case for infringement of trademark and copyright, unfair competition and damages. In denying the charges hurled against it, SMI maintained that it independently developed its poster panels using commonly known techniques and available technology, without notice of or reference to Pearl and Deans copyright. SMI noted that the registration of the mark Poster Ads was only for stationeries such as letterheads, envelopes, and the like. Besides, according to SMI, the word Poster Ads is a generic term which cannot be appropriated as a trademark, and, as such, registration of such mark is invalid. It also stressed that Pearl and Dean is not entitled to the reliefs prayed for in its complaint since its advertising display units contained no copyright notice, in violation of Section 27 of P.D. 49. SMI alleged that Pearl and Dean had no cause of action against it and that the suit was purely intended to malign SMIs good name. On this basis, SMI, aside from praying for the dismissal of the case, also counterclaimed for moral, actual and exemplary damages and for the cancellation of Pearl and Deans Certification of Copyright Registration No. PD-R-2558 dated January 20, 1981 and Certificate of Trademark Registration No. 4165 dated September 12, 1988. NEMI, for its part, denied having manufactured, installed or used any advertising display units, nor having engaged in the business of advertising. It repleaded SMIs averments, admissions and denials and prayed for similar reli efs and counterclaims as SMI. The RTC of Makati City decided in favor of P & D: Wherefore, defendants SMI and NEMI are found jointly and severally liable for infringement of copyright under Section 2 of PD 49, as amended, and infringement of trademark under Section 22 of RA No. 166, as amended, and are hereby penalized under Section 28 of PD 49, as amended, and Sections 23 and 24 of RA 166, as amended. Accordingly, defendants are hereby directed: (1) (a) to pay plaintiff the following damages: actual damages P16,600,000.00, representing profits derived by defendants as a result of infringement of plaintiffs copyright from 1991 to 1992 moral damages - P1,000.000.00 Page 217

(b)

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(c) (d) exemplary damages - P1,000,000.00 attorneys fees plus costs of suit; (2) to deliver, under oath, for impounding in the National Library, all light boxes of SMI which were fabricated by Metro Industrial Services and EYD Rainbow Advertising Corporation; to deliver, under oath, to the National Library, all filler-posters using the trademark Poster Ads, for destruction; and to permanently refrain from infringing the copyright on plaintiffs light boxes and its trademark Poster Ads. - P1,000,000.00

(e)

(3)

(4)

Defendants counterclaims are hereby ordered dismissed for lack of merit. SO ORDERED.[4] On appeal, however, the Court of Appeals reversed the trial court: Since the light boxes cannot, by any stretch of the imagination, be considered as either prints, pictorial illustrations, advertising copies, labels, tags or box wraps, to be properly classified as a copyrightable class O work, we have to agree with SMI when it posited that what was copyrighted were the technical drawings only, and not the light boxes themselves, thus: 42. When a drawing is technical and depicts a utilitarian object, a copyright over the drawings like plaintiffappellants will not extend to the actual object. It has so been held under jurisprudence, of which the leading case isBaker vs. Selden (101 U.S. 841 (1879). In that case, Selden had obtained a copyright protection for a book entitled Seldens Condensed Ledger or Bookkeeping Simplified which purported to explain a new system of bookkeeping. Included as part of the book were blank forms and illustrations consisting of ruled lines and headings, specially designed for use in connection with the system explained in the work. These forms showed the entire operation of a day or a week or a month on a single page, or on two pages following each other. The defendant Baker then produced forms which were similar to the forms illustrated in Seldens copyr ighted books. The Court held that exclusivity to the actual forms is not extended by a copyright. The reason was that to grant a monopoly in the underlying art when no examination of its novelty has ever been made would be a surprise and a fraud upon the public; that is the province of letters patent, not of copyright. And that is precisely the point. No doubt aware that its alleged original design would never pass the rigorous examination of a patent application, plaintiff-appellant fought to foist a fraudulent monopoly on the public by conveniently resorting to a copyright registration which merely employs a recordal system without the benefit of an in-depth examination of novelty. The principle in Baker vs. Selden was likewise applied in Muller vs. Triborough Bridge Authority [43 F. Supp. 298 (S.D.N.Y. 1942)]. In this case, Muller had obtained a copyright over an unpublished drawing entitled Bridge Approach the drawing showed a novel bridge approach to unsnarl traffic congestion. The defendant constr ucted a bridge approach which was alleged to be an infringement of the new design illustrated in plaintiffs drawings. In this case it was held that protection of the drawing does not extend to the unauthorized duplication of the object drawn because copyright extends only to the description or expression of the object and not to the object itself. It does not prevent one from using the drawings to construct the object portrayed in the drawing. In two other cases, Imperial Homes Corp. v. Lamont, 458 F. 2d 895 and Scholtz Homes, Inc. v. Maddox, 379 F. 2d 84, it was held that there is no copyright infringement when one who, without being authorized, uses a copyrighted architectural plan to construct a structure. This is because the copyright does not extend to the structures themselves. PUP COLLEGE OF LAW Page 218

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In fine, we cannot find SMI liable for infringing Pearl and Deans copyright over the technical drawings of the latters advertising display units. xxx xxx xxx

The Supreme Court trenchantly held in Faberge, Incorporated vs. Intermediate Appellate Court that the protective mantle of the Trademark Law extends only to the goods used by the first user as specified in the certificate of registration, following the clear mandate conveyed by Section 20 of Republic Act 166, as amended, otherwise known as the Trademark Law, which reads: SEC. 20. Certification of registration prima facie evidence of validity .- A certificate of registration of a mark or trade-name shall be prima facie evidence of the validity of the registration, the registrants ownership of the mark or trade-name, and of the registrants exclusive right to use the same in connection with the goods, business or services specified in the certificate, subject to any conditions and limitations stated therein. (underscoring supplied) The records show that on June 20, 1983, Pearl and Dean applied for the registration of the trademark Poster Ads with the Bureau of Patents, Trademarks, and Technology Transfer. Said trademark was recorded in the Principal Register on September 12, 1988 under Registration No. 41165 covering the following products: stationeries such as letterheads, envelopes and calling cards and newsletters. With this as factual backdrop, we see no legal basis to the finding of liability on the part of the defendantsappellants for their use of the words Poster Ads, in the advertising display units in suit. Jurisprudence has interpreted Section 20 of the Trademark Law as an implicit permission to a manufacturer to venture int o the production of goods and allow that producer to appropriate the brand name of the senior registrant on goods other than those stated in the certificate of registration. The Supreme Court further emphasized the restrictive meaning of Section 20 when it stated, through Justice Conrado V. Sanchez, that: Really, if the certificate of registration were to be deemed as including goods not specified therein, then a situation may arise whereby an applicant may be tempted to register a trademark on any and all goods which his mind may conceive even if he had never intended to use the trademark for the said goods. We believe that such omnibus registration is not contemplated by our Trademark Law. While we do not discount the striking similarity between Pearl a nd Deans registered trademark and defendantsappellants Poster Ads design, as well as the parallel use by which said words were used in the parties respective advertising copies, we cannot find defendants-appellants liable for infringement of trademark. Poster Ads was registered by Pearl and Dean for specific use in its stationeries, in contrast to defendants-appellants who used the same words in their advertising display units. Why Pearl and Dean limited the use of its trademark to stationeries is simply beyond us. But, having already done so, it must stand by the consequence of the registration which it had caused. xxx xxx xxx

We are constrained to adopt the view of defendants-appellants that the words Poster Ads are a simple contraction of the generic term poster advertising. In the absence of any convincing proof that Poster Ads has acquired a secondary meaning in this jurisdiction, we find that Pearl and Deans exclusive right to the use of Poster Ads is limited to what is written in its certificate of registration, namely, stationeries. Defendants-appellants cannot thus be held liable for infringement of the trademark Poster Ads. There being no finding of either copyright or trademark infringement on the part of SMI and NEMI, the monetary award granted by the lower court to Pearl and Dean has no leg to stand on. xxx PUP COLLEGE OF LAW xxx xxx Page 219

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WHEREFORE, premises considered, the assailed decision is REVERSED and SET ASIDE, and another is rendered DISMISSING the complaint and counterclaims in the above-entitled case for lack of merit.[5] Dissatisfied with the above decision, petitioner P & D filed the instant petition assigning the following errors for the Courts consideration: A. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NO COPYRIGHT INFRINGEMENT WAS COMMITTED BY RESPONDENTS SM AND NEMI; THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NO INFRINGEMENT OF PEARL & DEANS TRADEMARK POSTER ADS WAS COMMITTED BY RESPONDENTS SM AND NEMI; THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE AWARD OF THE TRIAL COURT, DESPITE THE LATTERS FINDING, NOT DISPUTED BY THE HONORA BLE COURT OF APPEALS, THAT SM WAS GUILTY OF BAD FAITH IN ITS NEGOTIATION OF ADVERTISING CONTRACTS WITH PEARL & DEAN. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING RESPONDENTS SM AND NEMI LIABLE TO PEARL & DEAN FOR ACTUAL, MORAL & EXEMPLARY DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.[6]

B.

C.

D.

ISSUES In resolving this very interesting case, we are challenged once again to put into proper perspective four main concerns of intellectual property law patents, copyrights, trademarks and unfair competition arising from infringement of any of the first three. We shall focus then on the following issues: (1) if the engineering or technical drawings of an advertising display unit (light box) are granted copyright protection (copyright certificate of registration) by the National Library, is the light box depicted in such engineering drawings ipso facto also protected by such copyright? (2) or should the light box be registered separately and protected by a patent issued by the Bureau of Patents Trademarks and Technology Transfer (now Intellectual Property Office) in addition to the copyright of the engineering drawings? (3) can the owner of a registered trademark legally prevent others from using such trademark if it is a mere abbreviation of a term descriptive of his goods, services or business?

ON THE ISSUE OF COPYRIGHT INFRINGEMENT Petitioner P & Ds complaint was that SMI infringed on its copyright over the light boxes when SMI had the units manufactured by Metro and EYD Rainbow Advertising for its own account. Obviously, petitioners position was premised on its belief that its copyright over the engineering drawings extended ipso facto to the light boxes depicted or illustrated in said drawings. In ruling that there was no copyright infringement, the Court of Appeals held that the copyright was limited to the drawings alone and not to the light box itself. We agree with the appellate court. First, petitioners application for a copyright certificate as well as Copyright Certificate No. PD-R2588 issued by the National Library on January 20, 1981 clearly stated that it was for a class O work under Section 2 (O) of PUP COLLEGE OF LAW Page 220

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PD 49 (The Intellectual Property Decree) which was the statute then prevailing. Said Section 2 expressly enumerated the works subject to copyright: SEC. 2. The rights granted by this Decree shall, from the moment of creation, subsist with respect to any of the following works: xxxxxx xxx

(O) Prints, pictorial illustrations, advertising copies, labels, tags, and box wraps; xxxxxx xxx

Although petitioners copyright certificate was entitled Advertising Display Units (which depicted the box type electrical devices), its claim of copyright infringement cannot be sustained. Copyright, in the strict sense of the term, is purely a statutory right. Being a mere statutory grant, the rights are limited to what the statute confers. It may be obtained and enjoyed only with respect to the subjects and by the persons, and on terms and conditions specified in the statute. [7] Accordingly, it can cover only the works falling within the statutory enumeration or description.[8] P & D secured its copyright under the classification class O work. This being so, petitioners copyright protection extended only to the technical drawings and not to the light box itself because the latter was not at all in the category of prints, pictorial illustrations, advertising copies, labels, tags and box wraps. Stated otherwise, even as we find that P & D indeed owned a valid copyright, the same could have referred only to the technical drawings within the category of pictorial illustrations. It could not have possibly stretched out to include the underlying light box. The strict application[9] of the laws enumeration in Section 2 prevents us from giving petitioner even a little leeway, that is, even if its copyright certificate was entitled Advertising Display Units. What the law does not include, it excludes, and for the good reason: the light box was not a literary or artistic piece which could be copyrighted under the copyright law. And no less clearly, neither could the lack of statutory authority to make the light box copyrightable be remedied by the simplistic act of entitling the copyright certificate issued by the National Library as Advertising Display Units. In fine, if SMI and NEMI reprinted P & Ds technical drawings for sale to the public without license from P & D, then no doubt they would have been guilty of copyright infringement. But this was not the case. SMIs and NEMIs acts complained of by P & D were to have units similar or identical to the light box illustrated in the technical drawings manufactured by Metro and EYD Rainbow Advertising, for leasing out to different advertisers. Was this an infringement of petitioners copyright over the technical drawings? We do not think so. During the trial, the president of P & D himself admitted that the light box was neither a literary not an artistic work but an engineering or marketing invention. [10] Obviously, there appeared to be some confusion regarding what ought or ought not to be the proper subjects of copyrights, patents and trademarks. In the leading case of Kho vs. Court of Appeals,[11] we ruled that these three legal rights are completely distinct and separate from one another, and the protection afforded by one cannot be used interchangeably to cover items or works that exclusively pertain to the others: Trademark, copyright and patents are different intellectual property rights that cannot be interchanged with one another. A trademark is any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an enterprise and shall include a stamped or marked container of goods . In relation thereto, a trade name means the name or designation identifying or distinguishing an enterprise. Meanwhile, the scope of a copyright is confined to literary and artistic works which are original intellectual creations in the literary and artistic domain protected from the moment of their creation. Patentable inventions, on the other hand, refer to any technical solution of a problem in any field of human activity which is new, involves an inventive step and is industrially applicable.

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This brings us to the next point: if, despite its manufacture and commercial use of the light boxes without license from petitioner, private respondents cannot be held legal ly liable for infringement of P & Ds copyright over its technical drawings of the said light boxes , should they be liable instead for infringement of patent? We do not think so either. For some reason or another, petitioner never secured a patent for the light boxes. It therefore acquired no patent rights which could have protected its invention, if in fact it really was. And because it had no patent, petitioner could not legally prevent anyone from manufacturing or commercially using the contraption. In Creser Precision Systems, Inc. vs. Court of Appeals ,[12] we held that there can be no infringement of a patent until a patent has been issued, since whatever right one has to the invention covered by the patent arises alone from the grant of patent. x x x (A)n inventor has no common law right to a monopoly of his invention. He has the right to make use of and vend his invention, but if he voluntarily discloses it, such as by offering it for sale, the world is free to copy and use it with impunity. A patent, however, gives the inventor the right to exclude all others. As a patentee, he has the exclusive right of making, selling or using the invention. [13] On the assumption that petitioners advertising units were patentable inventions, petitioner revealed them fully to the public by submitting the engineering drawings thereof to the National Library. To be able to effectively and legally preclude others from copying and profiting from the invention, a patent is a primordial requirement. No patent, no protection. The ultimate goal of a patent system is to bring new designs and technologies into the public domain through disclosure.[14] Ideas, once disclosed to the public without the protection of a valid patent, are subject to appropriation without significant restraint. [15] On one side of the coin is the public which will benefit from new ideas; on the other are the inventors who must be protected. As held in Bauer & Cie vs. ODonnel,[16] The act secured to the inventor the exclusive right to make use, and vend the thing patented, and consequently to prevent others from exercising like privileges without the consent of the patentee. It was passed for the purpose of encouraging useful invention and promoting new and useful inventions by the protection and stimulation given to inventive genius, and was intended to secure to the public, after the lapse of the exclusive privileges granted the benefit of such inventions and improvements. The law attempts to strike an ideal balance between the two interests: (The p)atent system thus embodies a carefully crafted bargain for encouraging the creation and disclosure of new useful and non-obvious advances in technology and design, in return for the exclusive right to practice the invention for a number of years. The inventor may keep his invention secret and reap its fruits indefinitely. In consideration of its disclosure and the consequent benefit to the community, the patent is granted. An exclusive enjoyment is guaranteed him for 17 years, but upon the expiration of that period, the knowledge of the invention inures to the people, who are thus enabled to practice it and profit by its use. [17] The patent law has a three-fold purpose: first, patent law seeks to foster and reward invention; second, it promotes disclosures of inventions to stimulate further innovation and to permit the public to practice the invention once the patent expires; third, the stringent requirements for patent protection seek to ensure that ideas in the public domain remain there for the free use of the public. [18] It is only after an exhaustive examination by the patent office that a patent is issued. Such an in-depth investigation is required because in rewarding a useful invention, the rights and welfare of the community must be fairly dealt with and effectively guarded. To that end, the prerequisites to obtaining a patent are strictly observed and when a patent is issued, the limitations on its exercise are equally strictly enforced. To begin with, a genuine invention or discovery must be demonstrated lest in the constant demand for new appliances, the heavy hand of tribute be laid on each slight technological advance in art. [19] There is no such scrutiny in the case of copyrights nor any notice published before its grant to the effect that a person is claiming the creation of a work. The law confers the copyright from the moment of creation [20] and the copyright certificate is issued upon registration with the National Library of a sworn ex-parte claim of creation. Therefore, not having gone through the arduous examination for patents, the petitioner cannot exclude others from the manufacture, sale or commercial use of the light boxes on the sole basis of its copyright certificate over the technical drawings.

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Stated otherwise, what petitioner seeks is exclusivity without any opportunity for the patent office (IPO) to scrutinize the light boxs eligibility as a patentable invention. The irony here is that, had petitioner secured a patent instead, its exclusivity would have been for 17 years only. But through the simplified procedure of copyrightregistration with the National Library without undergoing the rigor of defending the patentability of its invention before the IPO and the public the petitioner would be protected for 50 years. This situation could not have been the intention of the law. In the oft-cited case of Baker vs. Selden[21], the United States Supreme Court held that only the expression of an idea is protected by copyright, not the idea itself. In that case, the plaintiff held the copyright of a book which expounded on a new accounting system he had developed. The publication illustrated blank forms of ledgers utilized in such a system. The defendant reproduced forms similar to those illustrated in the plaintiffs copyrighted book. The US Supreme Court ruled that: There is no doubt that a work on the subject of book-keeping, though only explanatory of well known systems, may be the subject of a copyright; but, then, it is claimed only as a book. x x x. But there is a clear distinction between the books, as such, and the art, which it is, intended to illustrate. The mere statement of the proposition is so evident that it requires hardly any argument to support it. The same distinction may be predicated of every other art as well as that of bookkeeping. A treatise on the composition and use of medicines, be they old or new; on the construction and use of ploughs or watches or churns; or on the mixture and application of colors for painting or dyeing; or on the mode of drawing lines to produce the effect of perspective, would be the subject of copyright; but no one would contend that the copyright of the treatise would give the exclusive right to the art or manufacture described therein. The copyright of the book, if not pirated from other works, would be valid without regard to the novelty or want of novelty of its subject matter. The novelty of the art or thing described or explained has nothing to do with the validity of the copyright. To give to the author of the book an exclusive property in the art described therein, when no examination of its novelty has ever been officially made, would be a surprise and a fraud upon the public. That is the province of letters patent, not of copyright. The claim to an invention of discovery of an art or manufacture must be subjected to the examination of the Patent Office before an exclusive right therein can be obtained; and a patent from the government can only secure it. The difference between the two things, letters patent and copyright, may be illustrated by reference to the subjects just enumerated. Take the case of medicines. Certain mixtures are found to be of great value in the healing art. If the discoverer writes and publishes a book on the subject (as regular physicians generally do), he gains no exclusive right to the manufacture and sale of the medicine; he gives that to the public. If he desires to acquire such exclusive right, he must obtain a patent for the mixture as a new art, manufacture or composition of matter. He may copyright his book, if he pleases; but that only secures to him the exclusive right of printing and publishing his book. So of all other inventions or discoveries. The copyright of a book on perspective, no matter how many drawings and illustrations it may contain, gives no exclusive right to the modes of drawing described, though they may never have been known or used before. By publishing the book without getting a patent for the art, the latter is given to the public. x x x Now, whilst no one has a right to print or publish his book, or any material part thereof, as a book intended to convey instruction in the art, any person may practice and use the art itself which he has described and illustrated therein. The use of the art is a totally different thing from a publication of the book explaining it. The copyright of a book on bookkeeping cannot secure the exclusive right to make, sell and use account books prepared upon the plan set forth in such book. Whether the art might or might not have been patented, is a question, which is not before us. It was not patented, and is open and free to the use of the public. And, of course, in using the art, the ruled lines and headings of accounts must necessarily be used as incident to it. The plausibility of the claim put forward by the complainant in this case arises from a confusion of ideas produced by the peculiar nature of the art described in the books, which have been made the subject of copyright. In PUP COLLEGE OF LAW Page 223

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describing the art, the illustrations and diagrams employed happened to correspond more closely than usual with the actual work performed by the operator who uses the art. x x x The description of the art in a book, though entitled to the benefit of copyright, lays no foundation for an exclusive claim to the art itself. The object of the one is explanation; the object of the other is use. The former may be secured by copyright. The latter can only be secured, if it can be secured at all, by letters patent. (underscoring supplied)

ON THE ISSUE OF TRADEMARK INFRINGEMENT This issue concerns the use by respondents of the mark Poster Ads which petitioners president said was a contraction of poster advertising. P & D was able t o secure a trademark certificate for it, but one where the goods specified were stationeries such as letterheads, envelopes, calling cards and newsletters. [22] Petitioner admitted it did not commercially engage in or market these goods. On the contrary, it dealt in electrically operated backlit advertising units and the sale of advertising spaces thereon, which, however, were not at all specified in the trademark certificate. Under the circumstances, the Court of Appeals correctly cited Faberge Inc. vs. Intermediate Appellate Court,[23] where we, invoking Section 20 of the old Trademark Law, ruled that the certificate of registration issued by the Director of Patents can confer (upon petitioner) the exclusive right to use its own symbol only to those goods specified in the certificate, subject to any conditions and limitations specified in the certificate x x x. One who has adopted and used a trademark on his goods does not prevent the adoption and use of the same trademark by others for products which are of a different description.[24] Faberge, Inc. was correct and was in fact recently reiterated in Canon Kabushiki Kaisha vs. Court of Appeals.[25] Assuming arguendo that Poster Ads could validly qualify as a trademark, the failure of P & D to secure a trademark registration for specific use on the light boxes meant that there could not have been any trademark infringement since registration was an essential element thereof.

ON THE ISSUE OF UNFAIR COMPETITION If at all, the cause of action should have been for unfair competition, a situation which was possible even if P & D had no registration.[26] However, while the petitioners complaint in the RTC also cited unfair competition, the trial court did not find private respondents liable therefor. Petitioner did not appeal this particular point; hence, it cannot now revive its claim of unfair competition. But even disregarding procedural issues, we nevertheless cannot hold respondents guilty of unfair competition. By the nature of things, there can be no unfair competition under the law on copyrights although it is applicable to disputes over the use of trademarks. Even a name or phrase incapable of appropriation as a trademark or tradename may, by long and exclusive use by a business (such that the name or phrase becomes associated with the business or product in the mind of the purchasing public), be entitled to protection against unfair competition.[27] In this case, there was no evidence that P & Ds use of Poster Ads was distinctive or well -known. As noted by the Court of Appeals, petitioners expert witnesses himself had testified that Poster Ads was too generic a name. So it was difficult to identify it with any company, honestly speaking. [28] This crucial admission by its own expert witness that Poster Ads could not be associated with P & D showed that, in the mind of the public, the goods and services carrying the trademark Poster Ads could not be distinguished from the goods and services of other entities. This fact also prevented the application of the doctrine of secondary meaning. Poster Ads was generic and incapable of being used as a trademark because it was used in the field of poster advertising, the very business engaged in by petitioner. Secondary meaning means that a word or phrase originally incapable of exclusive appropriation with reference to an article in the market (because it is geographically or otherwise descriptive) might nevertheless have been used for so long and so exclusively by one producer with reference to his article that, in the PUP COLLEGE OF LAW Page 224

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trade and to that branch of the purchasing public, the word or phrase has come to mean that the article was his property.[29] The admission by petitioners own expert witness that he himself could not associate Poster Ads with petitioner P & D because it was too generic definitely precluded the application of this exception. Having discussed the most important and critical issues, we see no need to belabor the rest. All told, the Court finds no reversible error committed by the Court of Appeals when it reversed the Regional Trial Court of Makati City. WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals dated May 22, 2001 is AFFIRMED in toto.

DONATION:
HEIRS OF ROSENDO SEVILLA FLORENCIO vs. HEIRS OF TERESA SEVILLA DE LEON; G.R. No. 149570 March 12, 2004 Before us is a petition for review of the Joint Decision1 of the Court of Appeals in CA-G.R. SP Nos. 59698-99 which affirmed the June 5, 2000 Decisions2 of the Regional Trial Court of Malolos, Bulacan, Branch 20 in Civil Cases No. 1018-M-99 and 1019-M-99, and the resolution of the appellate court denying the petitioners motion for reconsideration. The Antecedents Teresa Sevilla de Leon, owned a residential lot with an area of 828 square meters located in San Miguel, Bulacan. The said lot was covered by Transfer Certificate of Title (TCT) No. T-44349.3 In the 1960s, De Leon allowed the spouses Rosendo and Consuelo Florencio to construct a house on the said property and stay therein without any rentals therefor. On September 26, 1966, De Leon, with the consent of her husband Luis, leased the aforesaid parcel of land forP5 per month to Bienvenido Santos "for as long as the lessor (Teresa de Leon) had an outstanding loan with the Second Quezon City Development Bank of Quezon City but not to exceed the period of fifteen (15) years." 4 De Leon assigned her leasehold right in favor of the Second Quezon City Development Bank. The lease and De Leons leasehold right were annotated at the back of TCT No. T-44349 as Entry Nos. 152248 and 152249,5respectively. Thereafter, Bienvenido Santos constructed a house thereon. In November 1978, De Leon, then already a widow, died intestate. In deference to her wishes, her heirs allowed Rosendo Florencio to continue staying in the property. In March 1995, Florencio died intestate, but his heirs, the respondents, remained in the property. On April 26, 1995, the heirs of De Leon, through counsel, sent a letter to the heirs of Florencio, demanding that they vacate the property within ninety (90) days from receipt thereof. 6 The latter refused and failed to vacate the property. The heirs of De Leon, through Valeriana L. Morente, thereafter filed a complaint for ejectment against the heirs of Florencio before the Municipal Trial Court of San Miguel, Bulacan, docketed as Civil Case No. 2061. Therein, the plaintiffs alleged that they were the pro-indiviso owners of the 828 square-meter lot covered by TCT No. T-44349, which they inherited from their mother. During her lifetime, their mother allowed Florencio and his family to occupy the property without any compensation, subject to the condition that they shall vacate the same upon demand; such arrangement went on even after their mothers demise. They further averred that sometime in 1995, they demanded that the heirs of Florencio vacate the property, but that the latter refused to do so. 7 The plaintiff thence prayed: WHEREFORE, premises considered, it is most respectfully prayed that after due hearing, judgment be rendered ordering defendants to: PUP COLLEGE OF LAW Page 225

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1. Vacate the premises which they are presently occupying; 2. Pay plaintiff the amount of P100,000.00 as and by way of attorneys fees; 3. Pay plaintiff P100,000.00 as moral damages; 4. Pay plaintiff P100,000.00 as exemplary damages. 5. Pay plaintiff P10,000.00 per month from April 26, 1995 up to and until defendants vacate the premises. Plaintiff prays for other reliefs just and equitable under the circumstances.8 In their answer to the complaint, the heirs of Florencio alleged that the plaintiffs had no cause of action against them, as Teresa de Leon had executed a Deed of Donation on October 1, 1976 over the said parcel of land in favor of their predecessor, Rosendo Florencio. The latter accepted the donation, as shown by his signature above his typewritten name on page one of the deed. The execution of the deed was witnessed by Patria L. Manotoc and Valeriana L. Morente. Atty. Tirso L. Manguiat, a notary public in the City of Manila, notarized the deed on said date and entered it in his notarial record as Doc. No. 1724, page 71, Book IV, series of 1976. 9 The heirs of Florencio further averred that since then, their predecessor and his family possessed the aforesaid property as owners. After De Leons death, Florencio and his children, in coordination with Jose de Leon, the administrator of the aforesaid property, arranged for the registration of the land subject of the donation in the name of Rosendo Florencio, which was, however, superseded by the untimely demise of Jose de Leon in 1991. Thus, the property remained in the name of Teresa Sevilla de Leon, even after Florencios death in March of 1995. 10 On February 1, 1996, the heirs of De Leon, represented by Valeriana L. Morente, also filed a complaint for ejectment against the heirs of Bienvenido Santos before the MTC of San Miguel, Bulacan, docketed as Civil Case No. 2062.11 They prayed, thus: WHEREFORE, premises considered, it is most respectfully prayed that after due hearing, judgment be rendered ordering defendants to: 1. Vacate the premises which they are presently occupying; 2. Pay plaintiff the amount of P100,000.00 as and by way of attorneys fees; 3. Pay plaintiff P100,000.00 as moral damages; 4. Pay plaintiff P100,000.00 as exemplary damages; 5. Pay plaintiff P10,000.00 per month from April 26, 1995 up to and until defendants vacate the premises. Plaintiff prays for other reliefs just and equitable under the circumstances.12 In their answer to the complaint, the heirs of Bienvenido Santos, through counsel, alleged that the plaintiffs had no cause of action against them, and that they did not occupy the property by mere tolerance but on the basis of a contract of lease executed by De Leon on September 26, 1966. Furthermore, De Leon donated the property to Rosendo Florencio on October 1, 1976, and the latter, after the expiration of the contract of lease, allowed and permitted them to continue and remain in possession of the property without any compensation. According to the heirs of Bienvenido Santos, only Florencios heirs had the right to cause their eviction from the property by reason of the deed of donation executed in favor of the latter.

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The trial of the two cases was consolidated. The parties agreed to litigate the following issues: After the preliminary conference, parties submitted their respective position papers. Plaintiffs raised and argued on the following issues: a). Defendants possession of the premises was merely on the tolerance of the late Teresa de Leon. b). The alleged Deed of Donation does not exist, is patently a falsified document and can never be the source of any right whatsoever. Defendants, on the other hand, raised and argued on the following issues: a). Defendants do not have only a better right of possession over the questioned parcel of land and they do not have only the absolute and lawful possession of the same but they have the absolute and lawful ownership of the same not only against the plaintiffs but against the whole world. b). Defendants are entitled to their counterclaim.13 On motion of the plaintiffs in both cases, the court issued an Order directing the heirs of Florencio to produce the original of the Deed of Donation purportedly executed by Teresa de Leon. However, they failed to comply with the order of the court and submitted a mere photocopy of the same.14 The plaintiffs adduced in evidence the following: (1) TCT No. T-44349 in the name of Teresa Sevilla;15 (2) demand letters sent by the plaintiffs counsel to the defendants demanding that the latter vacate the subject premises; 16 (3) affidavit-complaint of Valeriana Morente filed in the Office of the Provincial Prosecutor of Bulacan docketed as I.S. No. 96-1513 for falsification, perjury and applicable crimes against Rodrigo Florencio and Atty. Tirso Manguiat, dated May 8, 1996;17 (4) affidavit-complaint executed by Ramon de Leon Manotoc dated May 8, 1996; 18 (5) copies of Teresa de Leons passport issued on April 28, 1975 containing specimens of her signature;19 (6) copy of Patria Manotocs passport issued on September 16, 1997 with her specimen signature therein; 20 (7) copy of Valeriana Morentes passports issued on the following dates: (a) February 20, 1967; 21 (b) April 28, 1975;22 (c) October 4, 1984;23 and (d) August 22, 1994,24 with specimens of her signature appearing therein covering a span of thirty years; (8) copy of the Certificate of Death of Patria Manotoc;25 (9) Certification dated April 23, 1996 issued by Teresita R. Ignacio, Chief, Archives Division of the Records Management and Archives Division of Manila 26 to the effect that nothing in the notarial register of Atty. Tirso L. Manguiat show that he notarized a deed of donation dated October 1, 1976 in favor of Rosendo Florencio; (10) copy of Sinumpaang Salaysay dated July 19, 1996 executed by one Rodolfo Apolinario;27 and, (11) copies of the official receipts of the real estate taxes paid. 28 For their part, the heirs of Florencio adduced in evidence a photocopy of the Deed of Donation dated October 1, 1976 purportedly executed by De Leon in favor of Rosendo Florencio. 29 The heirs of Bienvenido Santos submitted in evidence as Exhibits "1" and "1-H" the Contract of Lease dated September 6, 1966 between Teresa Sevilla and Bienvenido R. Santos.30 On December 3, 1996, the MTC rendered a decision in Civil Cases Nos. 2061 and 2062 dismissing the complaints for lack of jurisdiction upon the finding that the issue of possession cannot be determined without resolving, in a full blown trial, the issue of ownership.31 The heirs of De Leon appealed the decisions of the MTC to the RTC of Bulacan, Branch 83, which rendered judgment reversing the decision of the court a quo. It held that the MTC had jurisdiction over the cases; as such, the trial court should proceed and render judgment therefor. PUP COLLEGE OF LAW Page 227

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In the course of the proceedings, the defendants adduced in evidence a copy of the Deed of Donation as certified by the RTC of Bulacan on May 29, 1996.32 On August 27, 1999, the MTC rendered an Amended Decision in Civil Case No. 2061 in favor of the defendants and against the plaintiffs. The dispositive portion of the decision reads: WHEREFORE, the court finds the defendants as having a better right of possession over the subject parcel of land as against the plaintiffs and hereby orders this case DISMISSED. For lack of evidence to prove bad faith on the part of the plaintiffs in the filing of this case, and in line with the policy not to put premium on the right to litigate, the counterclaim of the defendants is, likewise, ordered DISMISSED. With no pronouncements as to costs. SO ORDERED.33 The decision was appealed to the RTC of Bulacan. On June 5, 2000, the RTC rendered judgment reversing the decision of the MTC and rendered a new judgment in favor of the plaintiffs, as follows: WHEREFORE, premises considered, the Decision dated August 27, 1999, rendered by the Municipal Trial Court of San Miguel, Bulacan, in Civil Case No. 2061, is hereby set aside and a new one is hereby rendered, as follows: a) Ordering the heirs of Rosendo Florencio and all those claiming any rights under them to vacate the subject premises, particularly that parcel of land covered by Transfer Certificate of Title (TCT) No. T-44349, situated in San Jose, San Miguel, Bulacan; b) Ordering the Heirs of Rosendo Florencio to pay the heirs of Teresa Sevilla the amount of P2,000.00 per month as reasonable monthly rental on the premises, to commence on April 1995 until the premises is vacated by them; and c) Ordering the heirs of Rosendo Florencio to pay the heirs of Teresa Sevilla the amount of P10,000.00, as attorneys fees and expenses of litigation. SO ORDERED.34 The RTC ruled that the deed of donation was insufficient to support the claim of the heirs of Florencio that they were the owners of the property and were, thus, entitled to its possession. The defendants, now the petitioners, filed a petition for review with the Court of Appeals of the decision of the RTC. On May 28, 2001, the Court of Appeals rendered judgment dismissing the petition and affirming the RTC decision. The CA adopted the findings of the RTC and its disquisitions on why the deed of donation was not a credible piece of evidence to support the petitioners claim over the property; hence, did not transfer title over the property in favor of the petitioners. First. The deed of donation (Exh. "1"), which purports to have been executed in 1976, is not annotated on the title to the property which remains registered in the name of Teresa Sevilla under TCT No. T-44349 (Exh. "A" and "A-1"). There is no showing whatsoever that the same or a copy thereof was submitted to the Office of the Register of Deeds. Second. As earlier pointed out, throughout the years, the real estate taxes on the property continued to be paid in the name of Teresa Sevilla by the caretaker Rodolfo Apolinario and nobody else. There is no showing that the PUP COLLEGE OF LAW Page 228

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defendants had previously laid any claim of title or ownership over the property and attempted to pay the taxes thereon. Third. Although it purports to have been notarized in the City of Manila by one Atty. Tirso L. Manguiat, there is no indication of its existence in the notarial record of Atty. Manguiat, as per Certification dated April 23, 1996 (Exh. "L") of the Manila Records Management and Archives Office. One can only wonder why from the place of execution in San Miguel, Bulacan on October 1, 1976, its notarization on the same date had to be in the City of Manila. Fourth. The Court has noted, as anyone can easily do, that the signature purported to be that of Teresa de Leon appearing in the deed of donation (Exh. "1-B"), is dissimilar to her customary signatures affixed to her passports (Exhs. "E" and "E-1"). The same is true with those of Patria Manotoc and Valeriana L. Morente appearing in the same deed of donation (Exhs. "1-D and "1-E"), with those of their customary signatures appearing in their respective passports (Exhs. "F" and "F-1"; "G," "G-1" and "G-2"; "H," "H-1" and "H-2"; "I" and "I-1" and "J" and "J1"). And Fifth. There is no explanation given why since 1976, when the deed of donation was supposedly executed, up to the present, the defendants did not register the same to secure a new title in their names. In fact, there is no showing that efforts toward that end were ever executed. As it is, the Court holds that the deed of donation in question is not a credible piece of evidence to support the defendants claim of acquisition of title and ownership over the subject property and therefore insufficient to justify their continuing possession and occupancy thereof. Thus, as against defendants claim which is unregistered, the plaintiffs right over the property as the legal heirs and successors -in-interest of the registered owner must prevail.35 The Present Petition The petitioners now contend in this case that the Court of Appeals and the RTC erred in rendering judgment for the respondents, thus: 1. In finding no reversible error committed by the Regional Trial Court as an appellate court and affirming its decision. 2. In concluding that the evidence presented reveals serious doubts as to the veracity and authenticity of the notarized deed of donation, contrary to the findings of the trial court that there is a legal presumption of regularity in the execution thereof. 3. In holding that private respondents are entitled to possess the subject property notwithstanding petitioners claim to the contrary and despite the latters continuous, open and adverse possession for more than forty years.36 The petitioners aver that donation is one of the modes of acquiring ownership. Their claim for possession is precisely based on the deed of donation executed by Teresa Sevilla de Leon on October 1, 1976 in favor of their father, Rosendo Florencio. The aforesaid deed was duly notarized, and by virtue of its notarization, such deed became a public document. Furthermore, according to the petitioners, an examination of the deed reveals that it had conformed to all the essential requisites of donation, as required by the provisions of the New Civil Code; hence, its validity must be presumed.37 From the time of the donation up to the present, the petitioners assert that they possessed the property openly, publicly and against the whole world. As regards the alleged forgery of the signatures of the donor and the witnesses, the petitioners assert that absent any clear, positive and convincing evidence that the same were forged, the presumption is that they are genuine. The mere variance in the signatures of the donor and the witnesses cannot be considered as conclusive proof of the forgery. They aver that the Certification dated April 23, 1996 of the Manila Records Management and Archives Office stating that no such notarized deed existed in the notarial records of Atty. Manguiat cannot be conclusive evidence that no donation ever existed. According to the petitioners, such certification was merely preponderant PUP COLLEGE OF LAW Page 229

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and, therefore, not enough to overthrow the presumption of regularity in the notarization as well as the genuineness of the document. The petitioners posit that their failure to register the deed of donation did not affect its validity, it not being a requisite of a valid donation. They allege that their effort to register the same during the lifetime of Jose de Leon, the administrator of the property, did not materialize bec ause of the latters untimely death in 1991. The petitioners conclude that because of the respondents failure to destroy the validity of the deed of donation, their right over the property should prevail; the petitioners right accrued on October 1, 1976, while that of the respondents accrued only in November of 1978. In their comment, the respondents, through counsel, argue that the deed of donation executed by De Leon dated October 1, 1976 in favor of Rosendo Florencio is not a credible piece of evidence. The deed is insufficient to justify the petitioners stay in the premises because the original copy was never presented to them or to the court. Furthermore, while the photocopy of the deed of donation states that it was notarized by a certain Tirso Manguiat, a notary public for the City of Manila, under Doc. 1724, Page No. 71, Book No. IV, Series of 1976, the presumption of regularity in the notarization of the deed was destroyed by the certification from the Records Management and Archives Office of Manila that no such deed exists. The respondents further assert that the signatures appearing on the said deed, i.e., that of Teresa Sevilla de Leon, Patria Manotoc and Valeriana Morente, were all forgeries. According to the respondents, the following facts bolster the incredibility of the deed of donation: (a) the deed of donation was executed in 1976 but was not registered; (b) the TCT is still registered in the name of Teresa Sevilla de Leon; (c) the owners duplicate copy of the TCT should have been transmitted to the donees; and, (d) the real estate taxes were continuously paid in the name of Teresa Sevilla de Leon. Thus, the respondents, as her heirs, are the legal owners of the property. The Ruling of the Court The threshold issue in this case is whether or not the petitioners, as heirs of Rosendo Florencio, who appears to be the donee under the unregistered Deed of Donation, have a better right to the physical or material possession of the property over the respondents, the heirs of Teresa de Leon, the registered owner of the property. The petition has no merit. Prefatorily, in ejectment cases, the issue is the physical or material possession (possession de facto) and any pronouncement made by the trial court on the question of ownership is provisional in nature.38 A judgment rendered in ejectment cases shall not bar an action between the same parties respecting title to the land and shall not be conclusive as to the facts found therein in a case between the same parties upon a different cause of action involving possession of the same property.39 We agree with the petitioners that under the New Civil Code, donation is one of the modes of acquiring ownership.40 Among the attributes of ownership is the right to possess the property. 41 The essential elements of donation are as follows: (a) the essential reduction of the patrimony of the donor; (b) the increase in the patrimony of the donee; and (c) the intent to do an act of liberality or animus donandi. When applied to a donation of an immovable property, the law further requires that the donation be made in a public document and that the acceptance thereof be made in the same deed or in a separate public instrument; in cases where the acceptance is made in a separate instrument, it is mandated that the donor be notified thereof in an authentic form, to be noted in both instruments.42 As a mode of acquiring ownership, donation results in an effective transfer of title over the property from the donor to the donee, and is perfected from the moment the donor is made aware of the acceptance by the donee, provided that the donee is not disqualified or prohibited by law from accepting the donation. 43 Once the donation is accepted, it is generally considered irrevocable, and the donee becomes the absolute owner of the property, except on account of officiousness, failure by the donee to comply with the charge imposed in the donation, or ingratitude. 44 The PUP COLLEGE OF LAW Page 230

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acceptance, to be valid, must be made during the lifetime of both the donor and the donee. It must be made in the same deed or in a separate public document, and the donees acceptance must come to the knowledge of the donor.45 In order that the donation of an immovable property may be valid, it must be made in a public document.46Registration of the deed in the Office of the Register of Deeds or in the Assessors Office is not necessary for it to be considered valid and official. Registration does not vest title; it is merely evidence of such title over a particular parcel of land.47 The necessity of registration comes into play only when the rights of third persons are affected.48Furthermore, the heirs are bound by the deed of contracts executed by their predecessors-ininterest.49 On the other hand, the fundamental principle is that a certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein as the registered owner.50The registered owner has the right to possess, enjoy and dispose of the property without any limitations other than those imposed by law. In this case, the deed of donation, on its face, appears to bear all the essential requisites of a valid donation inter vivos. With Teresa de Leon as the donor and Rosendo Florencio as the donee, the deed of donation appears to have been notarized by Notary Public Tirso Manguiat. On this premise, Florencio, and after his death, his heirs, acquired ownership over the property although Certificate of Title No. T-44349 under the name of Teresa de Leon had not yet been cancelled. However, as pointed out by the RTC and the Court of Appeals, there are cogent facts and circumstances of substance which engender veritable doubts as to whether the petitioners have a better right of possession over the property other than the respondents, the lawful heirs of the deceased registered owner of the property, Teresa de Leon, based on the Deed of Donation. First. Teresa de Leon purportedly executed the Deed of Donation on October 1, 1976 in favor of Rosendo S. Florencio. If she, indeed, donated the property, she would surely have turned over the owners duplicate of TCT No. T-44349 to Florencio, to facilitate the issuance of a new title over the property in his favor. There was an imperative need for the deed to be registered in the Office of the Register of Deeds, and the title to the property to be thereafter issued in the name of the donee, Florencio. Before then, Florencio and his family had been residing in the property solely at the sufferance of Teresa de Leon and her husband. Their possession of the property and their continued stay therein was precarious. They could be driven out from the property at any time by De Leon if she disowned the deed or, after her death, by her heirs. It behooved Florencio to have the said deed filed and duly registered51 with the Office of the Register of Deeds without delay and, thereafter, to secure a new title under his name. This would have resulted in the cancellation of TCT No. T-44349 under the name of Teresa de Leon, and thereby averted any disturbance of Florencios possession of the property, and after his death, that of his heirs. At the very least, Florencio should have caused the annotation of the deed immediately after October 1, 1976 or shortly thereafter, at the dorsal portion of TCT No. T-44349. Such annotation would have been binding on the respondents, as De Leons successors-in-interest, as well as to third persons. However, Florencio failed to do so. Even as De Leon died intestate in 1978, Florencio failed to secure title over the property in his name before he himself died intestate in 1995. If, as the petitioners claimed, Florencio acquired ownership over the property under the deed, it is incredible that he would fail to register the deed and secure title over the property under his name for almost twenty years. All these years, Florencio, and thereafter, his heirs, remained passive and failed to act upon the deed of donation to protect their right. This, the Court finds difficult to understand. The claim that Florencio and his heirs sought the registration of the deed and the transfer of the title to and under Florencios name from 1978 to 1991, in coordination with Jose de Leon is incredible. There is no evidence on record that the deed of donation was ever filed with and registered in the Office of the Register of Deeds at any time during the period from 1978 to 1991. The petitioners claim that the registration of the deed was delayed and later aborted by the demise of Jose de Leon is not substantiated by evidence. Moreover, there is no reason why Florencio, or after his death, the petitioners, could not have had the deed registered even after Jose de Leons death. PUP COLLEGE OF LAW Page 231

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Second. Florencio failed to inform the heirs of De Leon that the latter, before her death, had executed a deed of donation on October 1, 1976 over the property in his favor. It was only in 1996, or eighteen years after the death of De Leon when the respondents sued the petitioners for ejectment that the latter claimed, for the first time, that De Leon had executed a deed of donation over the property in favor of their predecessor, Florencio. Third. In the meantime, the respondents consistently paid the realty taxes for the property from 1978 up to 1996, completely oblivious to the existence of the deed of donation. On the other hand, Florencio, and, after his death, the petitioners, never paid a single centavo for the realty taxes due on the property, even as they continued staying in the property without paying a single centavo therefor. The petitioners should have declared the property under their names and paid the realty taxes therefor, if they truly believed that they were its owners. They failed to do so. The fact of Florencios inaction and that of the petitioners weakened the latters claim that they acquired ownership over the property under the deed of donation. Fourth. The petitioners never adduced in evidence the owners duplicate of TCT No. T -44349 under the name of De Leon. Their possession of the owners duplicate of the title would have fortified their claim that i ndeed, De Leon had intended to convey the property by donation to Florencio. Furthermore, the petitioners did not explain why they failed to adduce in evidence the said owners duplicate of the title. The only conclusion is that the said owners duplicate copy was not turned over to Florencio contemporaneously with or after the execution of the deed of donation; hence, their failure to secure title over the property.52 Fifth. The respondents adduced in evidence the affidavit-complaint of Valeriana Morente dated May 8, 1996, one of the witnesses to the deed, for falsification and perjury against Florencio and Atty. Tirso Manguiat. They also adduced the Certification dated April 23, 1996 issued by Teresita R. Ignacio, Chief, Archives Division of the Records Management and Archives Division of Manila, to the effect that nothing in the notarial register of Atty. Tirso L. Manguiat, a notary public of Manila, showed that the latter notarized a Deed of Donation executed by De Leon and Florencio in San Miguel, Bulacan dated October 1, 1976. However, the petitioners failed to adduce in evidence Atty. Manguiats counter-affidavit to the said complaint, or, at the very least, a separate affidavit explaining the facts and circumstances surrounding the notarization of the deed of donation. Sixth. A reading of the deed will show that at the bottom of page one thereof, Florencio was to subscribe and swear to the truth of his acceptance of the donation before Municipal Mayor Marcelo G. Aure of San Miguel, Bulacan. However, the mayor did not affix his signature above his typewritten name, thus: SUBSCRIBED AND SWORN to before me this 1st day of October, 1976, the DONOR having exhibited her Res. Cert. No. A-3723337 issued at Quezon City on January 10, 1976. MARCELO G. AURE Municipal Mayor53 It appears that a second page was added, with the name of Atty. Manguiat typewritten therein as notary public, obviously, with the use of a different typewriter. In sum then, we agree with the RTC and the Court of Appeals that the deed of donation relied upon by the petitioners is unreliable as evidence on which to anchor a finding that the latter have a better right over the property than the respondents, who, admittedly, are the heirs of Teresa de Leon, the registered owner of the property under TCT No. T-44349 of the Registry of Deeds of Bulacan. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decisions of the Regional Trial Court of Malolos, Bulacan, Branch 20, in Civil Cases Nos. 1018-M-99 and 1019-M-99, and the Court of Appeals in CA-G.R. SP No. 59698-99, are AFFIRMED. APOLINARIA AUSTRIA-MAGAT vs. HON. COURT OF APPEALS; G.R. No. 106755. February 1, 2002

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Before us is a petition for review of the Decision [1] of the Court of Appeals,[2] dated June 30, 1989 reversing the Decision,[3] dated August 15, 1986 of the Regional Trial Court (RTC) ofCavite, Branch 17. The Decision of the RTC dismissed Civil Case No. 4426 which is an action for annulment of title, reconveyance and damages. The facts of the case are as follows: Basilisa Comerciante is a mother of five (5) children, namely, Rosario Austria, Consolacion Austria, herein petitioner Apolinaria Austria-Magat, Leonardo, and one of herein respondents, Florentino Lumubos. Leonardo died in a Japanese concentration camp at Tarlac during World War II. In 1953, Basilisa bought a parcel of residential land together with the improvement thereon covered and described in Transfer Certificate of Title No. RT-4036 (T-3268) and known as Lot 1, Block 1, Cavite Beach Subdivision, with an area of 150 square meters, located in Bagong Pook, San Antonio, Cavite City. On December 17, 1975, Basilisa executed a document designated as Kasulatan sa Kaloobpala (Donation). The said document which was notarized by Atty. Carlos Viniegra, reads as follows: KASULATANG SA KALOOBPALA (DONATION) TALASTASIN NG LAHAT AT SINUMAN: Na ako, si BASELISA COMERCIANTE, may sapat na gulang, Filipina, balo, at naninirahan sa blg. 809 L. Javier Bagong Pook, San Antonio, Lungsod ng Kabite, Filipinas, sa pamamagitan ng kasulatang itoy NAGSASALAYSAY Na alang-alang sa mabuting paglilingkod at pagtingin na iniukol sa akin ng apat kong mga tunay na anak na sila: ROSARIO AUSTRIA, Filipina, may sapat na gulang, balo, naninirahan sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod ng Kabite; CONSOLACION AUSTRIA, Filipina, may sapat na gulang, balo naninirahan sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod ng Kabite; APOLINARIA AUSTRIA, Filipina, may sapat na gulang, may asawa, naninirahan sa Pasong Kawayan, Hen. Trias, Kabite; FLORENTINO LUMUBOS, Filipino, may sapat na gulang, asawa ni Encarnacion Magsino, at naninirahan din sa 809 L. Javier, Bagong Pook, San Antonio, Lungsod ng Kabite; ay Kusang loob na ibinibigay ko at ipinagkakaloob ng ganap at hindi na mababawi sa naulit ng apat na anak ko at sa kanilang mga tagamagmana (sic), ang aking isang lupang residential o tirahan sampu ng aking bahay nahan ng nakatirik doon na nasa Bagong Pook din, San Antonio, Lungsod ng Kabite, at nakikilala bilang Lote no. 7, Block no.1, of Subdivision Plan Psd-12247; known as Cavite Beach Subdivision, being a portion of Lot No. 1055, of the Cadastral survey of Cavite, GLRO Cadastral Rec. no. 9539; may sukat na 150 metros cuadrados, at nakatala sa pangalan ko sa Titulo Torrens bilang TCT-T-3268 (RT-4036) ng Lungsod ng Kabite; Na ang Kaloob palang ito ay magkakabisa lamang simula sa araw na akoy pumanaw sa mundo, at sa ilalim ng kondision na: Magbubuhat o babawasin sa halaga ng nasabing lupa at bahay ang anumang magugul o gastos sa aking libing at nicho at ang anumang matitira ay hahatiin ng APAT na parte, parepareho isang parte sa bawat anak kong nasasabi sa itaas nito upang maliwanang (sic) at walang makakalamang sinoman sa kanila;

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At kaming apat na anak na nakalagda o nakadiit sa kasulatang ito ay TINATANGGAP NAMIN ang kaloob-palang ito ng aming magulang na si Basilisa Comerciante, at tuloy pinasasalamatan namin siya ng taos sa (sic) puso dahil sa kagandahan look (sic) niyang ito sa amin. SA KATUNAYAN, ay nilagdaan o diniitan namin ito sa Nobeleta, Kabite, ngayong ika-17 ng Disyembre taong 1975. HER MARK BASELISA COMERCIANTE Tagakaloobpala (Sgd.) APOLINARIA AUSTRIA Tagatanggap-pala (Sgd.)FLORENTINO LUMUBOS Tagatanggap-pala (Acknowledgment signed by Notary Public C.T. Viniegra is omitted).[4] Basilisa and her said children likewise executed another notarized document denominated as Kasulatan which is attached to the deed of donation. The said document states that: KASULATAN TALASTASIN NG MADLA: Na kaming mga nakalagda o nakadiit sa labak nito sila Basilisa Comerciante at ang kanyang mga anak na sila: Rosario Austria, Consolacion Austria, Apolonio Austria, at Florentino Lumubos, pawang may mga sapat na gulang, na lumagda o dumiit sa kasulatang kaloob pala, na sinangayunan namin sa harap ng Notario Publico, Carlos T. Viniegra, ay nagpapahayag ng sumusunod: Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng tirahan ng Bagong Pook na nababanggit sa nasabing kasulatan, ay mananatili sa poder o possession ng Ina, na si Basilisa Comerciante habang siya ay nabubuhay at Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang nasabing Basilisa Comerciante. Sa katunayan ang nagsilagda kaming lahat sa labak nito sa harap ng abogado Carlos T. Viniegra at dalawang saksi. Nobeleta, Kabite. Ika-17 ng Disyembre, 1975.[5] On February 6, 1979, Basilisa executed a Deed of Absolute Sale of the subject house and lot in favor of herein petitioner Apolinaria Austria-Magat for Five Thousand Pesos (P5,000.00). As the result of the registration of that sale, Transfer Certificate of Title (TCT for brevity) No. RT-4036 in the name of the donor was cancelled and in lieu thereof TCT No. T-10434 was issued by the Register of Deeds of Cavite City in favor of petitioner Apolinaria Austria-Magat on February 8, 1979. PUP COLLEGE OF LAW Page 234 HER MARK CONSOLACION AUSTRIA HER MARK ROSARIO AUSTRIA

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On September 21, 1983, herein respondents Teodora Carampot, Domingo Comia, and Ernesto Apolo (representing their deceased mother Consolacion Austria), Ricardo, Mamerto and Segunda, all surnamed Sumpelo (representing their deceased mother Rosario Austria) and Florentino Lumubos filed before the Regional Trial Court of Cavite an action, docketed as Civil Case No. 4426 against the petitioner for annulment of TCT No. T-10434 and other relevant documents, and for reconveyance and damages. On August 15,1986, the trial court dismissed Civil Case No. 4426 per its Decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, this Court hereby renders judgment for defendant dismissing this case and ordering plaintiffs to pay the amount of P3,000.00 as attorneys fees and the costs of suit. SO ORDERED.[6] According to the trial court, the donation is a donation mortis causa pursuant to Article 728 of the New Civil Code inasmuch as the same expressly provides that it would take effect upon the death of the donor; that the provision stating that the donor reserved the right to revoke the donation is a feature of a donation mortis causa which must comply with the formalities of a will; and that inasmuch as the donation did not follow the formalities pertaining to wills, the same is void and produced no effect whatsoever. Hence, the sale by the donor of the said property was valid since she remained to be the absolute owner thereof during the time of the said transaction. On appeal, the decision of the trial court was reversed by the Court of Appeals in its subject decision, the dispositive portion of which reads, to wit: WHEREFORE, in view of the foregoing, the appealed decision is hereby SET ASIDE and a new one rendered: 1. declaring null and void the Deed of Sale of Registered Land (Annex B) and Transfer Certificate of Title No. T-10434 of the Registry of Deeds of Cavite City (Annex E) and ordering the cancellation thereof; and 2. declaring appellants and appellee co-owners of the house and lot in question in accordance with the deed of donation executed by Basilisa Comerciante on December 17, 1975. No pronouncement as to costs. SO ORDERED.[7] The appellate court declared in its decision that: In the case at bar, the decisive proof that the deed is a donation inter vivos is in the provision that : Ibinibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat na anak ko at sa kanilang mga tagapagmana, ang aking lupang residential o tirahan sampu ng aking bahay nakatirik doon xxx. (emphasis supplied) This is a clear expression of the irrevocability of the conveyance. The irrevocability of the donation is a characteristic of a donation inter vivos. By the words hindi mababawi, the donor expressly renounced the right to freely dispose of the house and lot in question. The right to dispose of a property is a right essential to full ownership. Hence, ownership of the house and lot was already with the donees even during the donors lifetime. xxx xxx xxx xxx

In the attached document to the deed of donation, the donor and her children stipulated that: PUP COLLEGE OF LAW Page 235

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Gayon din ang nasabing titulo ay hindi mapapasangla o maipagbibili ang lupa habang may buhay ang nasabing Basilisa Comerciante. The stipulation is a reiteration of the irrevocability of the dispossession on the part of the donor. On the other hand, the prohibition to encumber, alienate or sell the property during the lifetime of the donor is a recognition of the ownership over the house and lot in issue of the donees for only in the concept of an owner can one encumber or dispose a property.[8] Hence this appeal grounded on the following assignment of errors: I THE RESPONDENT COURT OF APPEALS, WITH DUE RESPECT, IGNORED THE RULES OF INTERPRETATION OF CONTRACTS WHEN IT CONSIDERED THE DONATION IN QUESTION AS INTER VIVOS. II THE RESPONDENT COURT OF APPEALS, AGAIN WITH DUE RESPECT, ERRED IN NOT HOLDING THAT THE PRESENT ACTION HAS PRESCRIBED UNDER THE STATUTE OF LIMITATIONS. [9] Anent the first assignment of error, the petitioner argues that the Court of Appeals erred in ruling that the donation was a donation inter vivos. She claims that in interpreting a document, the other relevant provisions therein must be read in conjunction with the rest. While the document indeed stated that the donation was irrevocable, that must be interpreted in the light of the provisions providing that the donation cannot be encumbered, alienated or sold by anyone, that the property donated shall remain in the possession of the donor while she is alive, and that the donation shall take effect only when she dies. Also, the petitioner claims that the donation is mortis causa for the reason that the contemporaneous and subsequent acts of the donor, Basilisa Comerciante, showed such intention. Petitioner cites the testimony of Atty. Viniegra, who notarized the deed of donation, that it was the intent of the donor to maintain control over the property while she was alive; that such intent was shown when she actually sold the lot to herein petitioner. We affirm the appellate courts decision. The provisions in the subject deed of donation that are crucial for the determination of the class to which the donation belongs are, as follows: xxx xxx xxx

xxx(I)binibigay ko at ipinagkakaloob ng ganap at hindi mababawi sa naulit na apat na anak ko at sa kanilang mga tagapagmana, ang aking lupang residential o tirahan sampu ng aking bahay nakatirik doon na nasa Bagong Pook din, San Antonio, Lungsod ng Kabite xxx xxx xxx

Na ang Kaloob palang ito ay magkakabisa lamang simula sa araw na akoy pumanaw sa mundo, xxx. xxx xxx xxx

Na ang titulo numero TCT-T-2260 (RT-4036) ng Lungsod ng Kabite, bahay sa loteng tirahan ng Bagong Pook na nababanggit sa nasabing kasulatan, ay mananatili sa poder o possesion ng Ina, na si Basilisa Comerciante habang siya ay nabubuhay at Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang nasabing Basilisa Comerciante xxx. PUP COLLEGE OF LAW Page 236

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It has been held that whether the donation is inter vivos or mortis causa depends on whether the donor intended to transfer ownership over the properties upon the execution of the deed. [10] InBonsato v. Court of Appeals,[11] this Court enumerated the characteristics of a donation mortis causa, to wit: (1) It conveys no title or ownership to the transferee before the death of the transferor; or, what amounts to the same thing, that the transferor should retain the ownership (full or naked) and control of the property while alive; That before his death, the transfer should be revocable by the transferor at will, ad nutum; but revocability may be provided for indirectly by means of a reserved power in the donor to dispose of the properties conveyed; That the transfer should be void if the transferor should survive the transferee.

(2)

(3)

Significant to the resolution of this issue is the irrevocable character of the donation in the case at bar. In Cuevas v. Cuevas,[12] we ruled that when the deed of donation provides that the donor will not dispose or take away the property donated (thus making the donation irrevocable), he in effect is making a donation inter vivos. He parts away with his naked title but maintains beneficial ownership while he lives. It remains to be a donation inter vivos despite an express provision that the donor continues to be in possession and enjoyment of the donated property while he is alive. In the Bonsato case, we held that: (W)hat is most significant [in determining the type of donation] is the absence of stipulation that the donor could revoke the donations; on the contrary, the deeds expressly declare them to be irrevocable, a quality absolutely incompatible with the idea of conveyances mortis causa where revocability is of the essence of the act, to the extent that a testator can not lawfully waive or restrict his right of revocation (Old Civil Code, Art.737; New Civil Code, Art. 828).[13] Construing together the provisions of the deed of donation, we find and so hold that in the case at bar the donation is inter vivos. The express irrevocability of the same (hindi na mababawi) is the dis tinctive standard that identifies that document as a donation inter vivos. The other provisions therein which seemingly make the donation mortis causa do not go against the irrevocable character of the subject donation. According to the petitioner, the provisions which state that the same will only take effect upon the death of the donor and that there is a prohibition to alienate, encumber, dispose, or sell the same, are proofs that the donation is mortis causa. We disagree. The said provisions should be harmonized with its express irrevocability. In Bonsato where the donation per the deed of donation would also take effect upon the death of the donor with reservation for the donor to enjoy the fruits of the land, the Court held that the said statements o nly mean that after the donors death, the donation will take effect so as to make the donees the absolute owners of the donated property, free from all liens and encumbrances; for it must be remembered that the donor reserved for himself a share of the fruits of the land donated.[14] In Gestopa v. Court of Appeals,[15] this Court held that the prohibition to alienate does not necessarily defeat the inter vivos character of the donation. It even highlights the fact that what remains with the donor is the right of usufruct and not anymore the naked title of ownership over the property donated. In the case at bar, the provision in the deed of donation that the donated property will remain in the possession of the donor just goes to show that the donor has given up his naked title of ownership thereto and has maintained only the right to use ( jus utendi) and possess (jus possidendi) the subject donated property. Thus, we arrive at no other conclusion in that the petitioners cited provisions are only necessary assurances that during the donors lifetime, the latter would still enjoy the right of possession over the property; but, his naked title of ownership has been passed on to the donees; and that upon the donors death, t he donees would get all the rights of ownership over the same including the right to use and possess the same. Furthermore, it also appeared that the provision in the deed of donation regarding the prohibition to alienate the subject property is couched in general terms such that even the donor is deemed included in the said prohibition (Gayon din ang nasabing Titulo ay hindi mapapasangla o maipagbibili ang lupa habang maybuhay ang nasabing Basilisa Comerciante). Both the donor and the donees were prohibited from alienating and encumbering the property during the lifetime of the donor. If the donor intended to maintain full ownership over the said property until her death, she could have expressly stated therein a reservation of her right to dispose of the PUP COLLEGE OF LAW Page 237

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same. The prohibition on the donor to alienate the said property during her lifetime is proof that naked ownership over the property has been transferred to the donees. It also supports the irrevocable nature of the donation considering that the donor has already divested herself of the right to dispose of the donated property. On the other hand, the prohibition on the donees only meant that they may not mortgage or dispose the donated property while the donor enjoys and possesses the property during her lifetime. However, it is clear that the donees were already the owners of the subject property due to the irrevocable character of the donation. The petitioner argues that the subsequent and contemporaneous acts of the donor would show that her intention was to maintain control over her properties while she was still living. We disagree. Respondent Domingo Comia testified that sometime in 1977 or prior to the sale of the subject house and lot, his grandmother, the donor in the case at bar, delivered the title of the said property to him; and that the act of the donor was a manifestation that she was acknowledging the ownership of the donees over the property donated. [16] Moreover, Atty. Viniegra testified that when the donor sold the lot to the petitioner herein, she was not doing so in accordance with the agreement and intent of the parties in the deed of donation; that she was disregarding the provision in the deed of donation prohibiting the alienation of the subject property; and that she knew that the prohibition covers her as well as the donees.[17] Another indication in the deed of donation that the donation is inter vivos is the acceptance clause therein of the donees. We have ruled that an acceptance clause is a mark that the donation is inter vivos. Acceptance is a requirement for donations inter vivos. On the other hand, donations mortis causa, being in the form of a will, are not required to be accepted by the donees during the donors lifetime. [18] We now rule on whether the donor validly revoked the donation when one of her daughters and donees, Consolacion Austria, violated the prohibition to encumber the property. When Consolacion Austria mortgaged the subject property to a certain Baby Santos, the donor, Basilisa Comerciante, asked one of the respondents herein, Domingo Comia, to redeem the property, which the latter did. After the petitioner in turn redeemed the property from respondent Domingo, the donor, Basilisa, sold the property to the petitioner who is one of the donees. The act of selling the subject property to the petitioner herein cannot be considered as a valid act of revocation of the deed of donation for the reason that a formal case to revoke the donation must be filed pursuant to Article 764 of the Civil Code[19] which speaks of an action that has a prescriptive period of four (4) years from noncompliance with the condition stated in the deed of donation. The rule that there can be automatic revocation without benefit of a court action does not apply to the case at bar for the reason that the subject deed of donation is devoid of any provision providing for automatic revocation in event of non-compliance with the any of the conditions set forth therein. Thus, a court action is necessary to be filed within four (4) years from the noncompliance of the condition violated. As regards the ground of estoppel, the donor, Basilisa, cannot invoke the violation of the provision on the prohibition to encumber the subject property as a basis to revoke the donation thereof inasmuch as she acknowledged the validity of the mortgage executed by the donee, Consolacion Austria, when the said donor asked respondent Domingo Comia to redeem the same. Thereafter, the donor, Basilisa likewise asked respondent Florentino Lumubos and the petitioner herein to redeem the same. [20] Those acts implied that the donees have the right of control and naked title of ownership over the property considering that the donor, Basilisa condoned and acknowledged the validity of the mortgage executed by one of the donees, Consolacion Austria. Anent the second issue, the petitioner asserts that the action, against the petitioner, for annulment of TCT No. T-10434 and other relevant documents, for reconveyance and damages, filed by the respondents on September 21, 1983 on the ground of fraud and/or implied trust has already prescribed. The sale happened on February 6, 1979 and its registration was made on February 8, 1979 when TCT No. RT-4036 in the name of the donor was cancelled and in lieu thereof TCT No. T-10434 in the name of the petitioner was issued. Thus, more than four (4) years have passed since the sale of the subject real estate property was registered and the said new title thereto was issued to the petitioner. The petitioner contends that an action for reconveyance of property on the ground of alleged fraud must be filed within four (4) years from the discovery of fraud which is from the date of registration of the deed of sale on February 8, 1979; and that the same prescriptive period also applies to a suit predicated on a trust relationship that is rooted on fraud of breach of trust. When ones property is registered in anothers name without the formers consent, an implied trust is created by law in favor of the true owner. Article 1144 of the New Civil Code provides: Art. 1144. The following actions must be brought within ten years from the time the right of action accrues: PUP COLLEGE OF LAW Page 238

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(1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment. (n) Thus, an action for reconveyance of the title to the rightful owner prescribes in ten (10) years from the issuance of the title.[21] It is only when fraud has been committed that the action will be barred after four (4) years.[22] However, the four-year prescriptive period is not applicable to the case at bar for the reason that there is no fraud in this case. The findings of fact of the appellate court which are entitled to great respect, are devoid of any finding of fraud. The records do not show that the donor, Basilisa, and the petitioner ever intended to defraud the respondents herein with respect to the sale and ownership of the said property. On the other hand, the sale was grounded upon their honest but erroneous interpretation of the deed of donation that it is mortis causa, not inter vivos; and that the donor still had the rights to sell or dispose of the donated property and to revoke the donation. There being no fraud in the trust relationship between the donor and the donees including the herein petitioner, the action for reconveyance prescribes in ten (10) years. Considering that TCT No. T-10434 in the name of the petitioner and covering the subject property was issued only on February 8, 1979, the filing of the complaint in the case at bar in 1983 was well within the ten-year prescriptive period. The Court of Appeals, therefore, committed no reversible error in its appealed Decision. WHEREFORE, the appealed Decision dated June 30, 1989 of the Court of Appeals is hereby AFFIRMED. No pronouncement as to costs. LYDIA SUMIPAT vs. BRIGIDO BANGA; G.R. No. 155810 August 13, 2004 This is a Petition for Review on Certiorari1 of the Decision2 of the Court of Appeals which reversed and set aside the decision3 of the Regional Trial Court (RTC) and partially annulled the Deed of Absolute Transfer and/or Quitclaim (the deed) subject of this case. We quote the appellate courts findings of fact: The spouses Placida Tabo-tabo and Lauro Sumipat, who contracted marriage on July 20, 1939, acquired three parcels of land two of which were covered by Original Certificate of Title No. P-17842 and Transfer Certificate of Title No. T-15826. The couple was childless. Lauro Sumipat, however, sired five illegitimate children out of an extra-marital affair with Pedra Dacola, namely: herein defendants-appellees Lydia, Laurito, Alicia, Alejandro and Lirafe, all surnamed Sumipat. On January 5, 1983, Lauro Sumipat executed a document denominated "DEED OF ABSOLUTE TRANSFER AND/OR QUIT-CLAIM OVER REAL PROPERTIES" (the assailed document) in favor of defendantsappellees covering the three parcels of land (the properties). On the document appears the signature of his wife Placida which indicates that she gave her marital consent thereto. It appears that on January 5, 1983 when the assailed document was executed, Lauro Sumipat was already very sick and bedridden; that upon defendant-appellee Lydias request, their neighbor Benjamin Rivera lifted the body of Lauro Sumipat whereupon Lydia guided his (Lauro Sumipats) hand in affixing his signature on the assailed document which she had brought; that Lydia thereafter left but later returned on the same day and requested Lauros unlettered wife Placida to sign on the assailed document, as she did in haste, even without the latter getting a responsive answer to her query on what it was all about.

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After Lauro Sumipats death on January 30, 1984, his wife Placida, hereinafter referred to as plaintiffappellant, and defendants-appellees jointly administered the properties 50% of the produce of which went to plaintiff-appellant. As plaintiff-appellants share in the produce of the properties dwindled until she no longer received any and learning that the titles to the properties in question were already transferred/made in favor of the defendants-appellees, she filed a complaint for declaration of nullity of titles, contracts, partition, recovery of ownership now the subject of the present appeal. Defendant-appellee Lydia disclaims participation in the execution of the assailed document, she claiming to have acquired knowledge of its existence only on January 10, 1983 or five days after its execution when Lauro Sumipat gave the same to her. Branch 6 of the Regional Trial Court of Dipolog City decided the case in favor of defendants-appellees, it holding that by virtue of the assailed document the due execution of which was not contested by plaintiffappellant, the properties were absolutely transferred to defendants-appellees.4 The trial court found that the subject properties are conjugal having been acquired during the marriage of Lauro Sumipat and Placida Tabotabo (Placida). However, because Placida failed to question the genuineness and due execution of the deed and even admitted having affixed her signature thereon, the trial court declared that the entirety of the subject properties, and not just Lauro Sumipats conjugal share, were validly transferred to the defendants, the petitioners herein.5 On appeal,6 the appellate court held that since Placida was unlettered, 7 the appellees, the petitioners herein, as the parties interested in enforcing the deed, have the burden of proving that the terms thereof were fully explained to her.8 This they failed to do. Under the Civil Code, a contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable.9 In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract.10 The appellate court found that Placida did not understand the full import of the deed because the terms thereof were not explained to her either by the petitioners or by the notary public before whom the deed was acknowledged. According to the appellate court, Judge Pacifico Garcia (Judge Garcia), before whom the deed was acknowledged, did not identify Placida as having appeared before him on January 5, 1983 to acknowledge the deed. The jurat indicates that it was only Lauro Sumipat who appeared before Judge Garcia and to whom he explained the contents of the deed. Further, the appellate court noted that Judge Garcia himself was under the impression that the deed conveyed the exclusive properties of Lauro Sumipat. Hence, he could not have explained to Placida that the deed actually transferred the conjugal properties of Lauro Sumipat and Placida. 11 The Court of Appeals, therefore, annulled the deed insofar as it covers Placidas conjugal share in the subject properties because the latters consent thereto was vitiated by mistake when she affixed her signature on the document. The petitioners filed a Motion for Reconsideration on the grounds of estoppel, absence of fraud and prescription. The appellate court denied the Motion for Reconsideration in its Resolution12 dated October 16, 2002 ruling that the grounds relied upon have been addressed in its Decision dated April 11, 2002. Anent the ground of prescription, the appellate court held that since the properties were acquired through fraud or mistake, the petitioners are considered trustees of an implied trust for the benefit of Placida. Citing jurisprudence, 13 the Court of Appeals ruled that actions based on implied or constructive trust prescribe 10 years from the issuance of a Torrens Title over the property. Since two (2) of the subject properties were issued Transfer Certificates of Title (TCT) Numbered T4003714 and T-4003815 under the petitioners names on August 18, 1987, the Complaint for declaration of nullity of

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titles, partition, recovery of ownership and possession, reconveyance, accounting and damages, which was filed on March 3, 1993, was filed well within the prescriptive period. The petitioners are now before this Court principally claiming that Placida freely consented to the execution of the deed and that they did not commit fraudulent acts in connection with its execution. They also reiterate their argument that the Court of Appeals should have dismissed the case on the ground of prescription. It is their contention that the present action being one to annul a contract on the ground of fraud, it should have been filed within four (4) years from the discovery of fraud or registration of the instrument with the Registry of Deeds. The respondents filed their Comment16 dated February 7, 2003, essentially echoing the findings of the Court of Appeals on the matter of Placidas consent. According to them, Placida was deceived a nd misled into affixing her signature on the deed. They further claim that Placida did not actually appear before the notary public to acknowledge the instrument. In their Reply17 dated April 29, 2003, the petitioners insist that Placida was not illiterate and that Lauro Sumipat validly transferred the titles over the properties in question to them. They also argue that if Placida did not understand the import of the deed, she could have questioned Lauro Sumipat about it since the deed was executed a year before the latter died. The trial court and the Court of Appeals are in agreement that the subject properties are conjugal, having been acquired during the marriage of Lauro Sumipat and Placida. They came out, however, with disparate denouements. While the trial court upheld the validity of the deed as an instrument of transfer of all the litigated parcels of land in their entirety on the ground that Placida failed to question its authenticity and due execution, the appellate court struck the deed down insofar as the conjugal share of Placida is concerned based on its finding that her consent was vitiated by mistake. At bottom, the crux of the controversy is whether the questioned deed by its terms or under the surrounding circumstances has validly transferred title to the disputed properties to the petitioners. A perusal of the deed reveals that it is actually a gratuitous disposition of property a donation although Lauro Sumipat imposed upon the petitioners the condition that he and his wife, Placida, shall be entitled to one-half (1/2) of all the fruits or produce of the parcels of land for their subsistence and support. The preliminary clauses of the deed read: That conscious of my advanced age and failing health, I feel that I am not capable anymore of attending to and maintaining and keeping in continuous cultivation my above described properties; That my children are all desirous of taking over the task of maintaining my properties and have demonstrated since childhood the needed industry and hard work as they have in fact established possession over my real properties and introduced more improvements over my lands, the fruit of which through their concerted efforts and labors, I myself and my family have enjoyed; That it would be to the best interest of my above mentioned children that the ownership over my above described properties be transferred in their names, thereby encouraging them more in developing the lands to its fullest productivity.18 The deed covers three (3) parcels of land.19 Being a donation of immovable property, the requirements for validity set forth in Article 749 of the Civil Code should have been followed, viz: Art. 749. In order that the donation of the immovable may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. PUP COLLEGE OF LAW Page 241

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If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. Title to immovable property does not pass from the donor to the donee by virtue of a deed of donation until and unless it has been accepted in a public instrument and the donor duly notified thereof. The acceptance may be made in the very same instrument of donation. If the acceptance does not appear in the same document, it must be made in another. Where the deed of donation fails to show the acceptance, or where the formal notice of the acceptance, made in a separate instrument, is either not given to the donor or else not noted in the deed of donation and in the separate acceptance, the donation is null and void. 20 In this case, the donees acceptance of the donation is not manifested either in the deed itself or in a separate document. Hence, the deed as an instrument of donation is patently void. We also note the absence of any proof of filing of the necessary return, payment of donors taxes on the transfer, or exemption from payment thereof. Under the National Internal Revenue Code of 1977, the tax code in force at the time of the execution of the deed, an individual who makes any transfer by gift shall make a return and file the same within 30 days after the date the gift is made with the Revenue District Officer, Collection Agent or duly authorized Treasurer of the municipality in which the donor was domiciled at the time of the transfer. 21 The filing of the return and payment of donors taxes are mandatory. In fact, the registrar of deeds is mandated not to register in the registry of property any document transferring real property by way of gifts inter vivos unless a certification that the taxes fixed and actually due on the transfer had been paid or that the transaction is tax exempt from the Commissioner of Internal Revenue, in either case, is presented. 22 Neither can we give effect to the deed as a sale, barter or any other onerous conveyance, in the absence of valid cause or consideration and consent competently and validly given. 23 While it is true that the appellate court found Placidas consent to have been vitiated by mistake, her testimony on the matter actually makes out a case of total absence of consent, not merely vitiation thereof. She testified in this regard, thus: Q- What have you been doing on that day on January 5, 1983? A- I was at home boiling water. Q- While you were boiling water in the house, at that time who arrived, if there was any? A- Lydia Sumipat arrived. Court:-(To the witness) Q- Who is this Lydia Sumipat? A- The daughter of my husband with his paramour. Q- How old was she? A- I did not know if she was already 30 years old at that time because he was born in 1950. Atty. Legorio:-(To the witness) Q- When you said Lydia Sumipat, you are referring to one of the defendants in this case? A- Yes, sir. She is the one.

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Q- This Lydia Sumipat you are referring to as one of the principal defendant and daughter of your husband with his paramour, in January, 1983 what was her educational attainment, if you know? A- She has already finished schooling. Q- Do you know what she obtained? A- Teacher. Q- You said she arrived in the afternoon of January 5, 1983 in your house while you were boiling water. What did she do when she arrived there? A- She brought with her a paper. Q- What did she say to you? A- She told me to sign that paper immediately because there is the witness waiting and so I asked from her what was that paper I am going to sign. I asked her because I am unlettered but she said never mind just sign this immediately. Q- By the way, what is your highest educational attainment? A- I have never gone to school. Q- Do you know how to read or to write? A- I know how to write only my name. Q- You know how to write your name only? A- Yes, sir. Q- You said she told you to sign that piece of paper and you asked her what was that and she told you "you just sign that", what did you do then? A- She was in a hurry to let me sign that document so I signed it without knowing what was that. Q- Did she tell you that piece of paper was a document wherein the land including your land in Siayan were to be given to them? A- I did not give my land.24 During cross-examination, Placida again denied any knowledge of the nature of the deed: q You are aware that the titles over these lots had already been transferred in the name of the defendants? a They surreptitiously transferred the title in their names, I do not know about it. q You mean to say you signed a document transferring them in their names?

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a There was a piece of paper brought to me to be signed by Lydia; I asked whats all about but she did not tell me; I was forced to sign considering that according to her somebody was waiting for it. q What do you mean that you are force to sign? a She told me to sign that paper immediately because there is a witness waiting that paper but she was alone when she came to me. q So you signed that paper? a I signed it because she was in a hurry. q That was done during the lifetime of your husband? a Yes, sir. q And your husband also signed that paper? a I do not know because I have not seen my husband signed, Lydia only came to me to let me sign that paper. q Is it not a fact that you and your husband were brought before the office of Judge Pacifico Garcia of Manukan, and in the office you signed that document? a I have not gone to the Municipal building of Manukan and I do not know Judge Garcia. q But what you know now that the titles are transferred in the name of the defendants? a It was Lydia who caused the transfer of the titles in their names. q And you know that fact when you signed that paper? a At the time I signed the paper, I do not know yet that the title would be transferred, it was only at the time when I requested my niece to follow it up because according to them I am no longer entitled to the land. 25 In Baranda v. Baranda,26 this Court declared that the deeds of sale questioned therein are not merely voidable (as intimated by the plaintiffs themselves in their complaint for annulment of the deeds and reconveyance of the lots) but null and void ab initio as the supposed seller declared under oath that she signed the deeds without knowing what they were. The significant circumstance meant, the Court added, that her consent was not merely marred by vices of consent so as to make the contracts voidable, but that she had not given her consent at all. Parenthetically, as Placidas Complaint is entitled Declaration of Nullity of Titles; Contracts; Partition, Recovery of Ownership and Possession; Reconveyance; Accounting and Damages with Prayer for Preliminary Injunction and Receivership, the validity of the deed was directly assailed, but its absolute nullity was not specifically raised as an issue. Nevertheless, both the RTC and the appellate court took the cue from Placida s theory that the deed is merely voidable as regards her conjugal share of the properties. However, since the real issue is whether the questioned deed has validly transferred ownership of the litigated properties, it is appropriate for the Court to inquire into the form of the deed and the existence of valid consent thereto to ascertain the validity or nullity of the deed. From the substantive and procedural standpoints, the objectives to write finis to a protracted litigation and avoid multiplicity of suits are worth pursuing at all times. Conformably, we have ruled in a number of cases that an PUP COLLEGE OF LAW Page 244

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appellate court is accorded broad discretionary power to consider even errors not assigned. We have applied this tenet, albeit as a matter of exception, in the following instances: (1) grounds not assigned as errors but affecting jurisdiction over the subject matter; (2) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (3) matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (4) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (5) matters not assigned as errors on appeal but closely related to an error assigned; and (6) matters not assigned as errors on appeal but upon which the determination of a question properly assigned is dependent.27 In the instant case, the validity of the deed was directly assailed although both parties are of the view that it is not an absolute nullity. The correct characterization of the deed is, therefore, determinative of the present controversy. Elsewise framed, the issue of validity or nullity is interwoven with the positions adopted by the parties and the rulings made by the courts below. Hence, we shall be resolute in striking down the deed especially as it appears on its face to be a patent nullity. Having said this, we shall now proceed to the issue of prescription. Being an absolute nullity, both as a donation and as a sale, the deed is subject to attack at any time, in accordance with the rule in Article 1410 of the Civil Code that an action to declare the inexistence of a void contract does not prescribe. We are thus unimpressed by the petitioners contention that the appellate court should have dismissed Placidas appeal on the ground of prescription. Passage of time cannot cure the fatal flaw in an inexistent and void contract.28 The defect of inexistence of a contract is permanent and incurable; hence, it cannot be cured either by ratification or by prescription. 29 Turning now to the effects of the absolute nullity of the deed, it is well-settled that when there is a showing of illegality, the property registered is deemed to be simply held in trust for the real owner by the person in whose name it is registered, and the former then has the right to sue for the reconveyance of the property. The action for the purpose is also imprescriptible. As long as the land wrongfully registered under the Torrens system is still in the name of the person who caused such registration, an action in personam will lie to compel him to reconvey the property to the real owner.30 One final note. After this Decision shall have become final and executory, the parties may either extrajudicially divide the estates of Lauro Sumipat and Placida Tabotabo pursuant to Rule 74 of the Rules of Court or judicially settle the estates pursuant to Rules 78, et seq., in accordance with this Decision and the law. WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Regional Trial Court dated September 29, 1997 and the Decision of the Court of Appeals dated April 11, 2002, as well as its Resolutiondated October 16, 2002, are VACATED. In lieu thereof, judgment is hereby rendered in favor of the respondents, to wit: (i) DECLARING the Deed of Absolute Transfer and/or Quitclaim dated January 5, 1983 NULL AND VOID; and (ii) ORDERING the CANCELLATION of Transfer Certificates of Title Numbered T-40037 and T40038 (Zamboanga del Norte) and the tax declaration covering the unregistered parcel of land, all issued in the names of the petitioners Lydia, Laurito, Alicia, Alejandro and Lirafe, all surnamed Sumipat, and the REINSTATEMENT of Original Certificate of Title No. P-17842 (Zamboanga del Norte) Transfer Certificate Title No. T-15826 (Zamboanga del Norte) and the tax declaration covering the unregistered parcel of land, all in the name of "Lauro Sumipat . . . married to Placida Tabotabo." EUGENIO CAGAOAN vs. FELIX CAGAOAN; G.R. No. L-17900 June 21, 1922 It appears from the evidence that the plaintiff and the defendant Felix Cagaoan are brothers, the sons of Gregorio Cagaoan. On November 3, 1915, Gregorio Cagaoan executed a deed of gift of four parcels of land situated in the municipality of Tayug, Province of Pangasinan, in favor of Felix Cagaoan and on October 26, 1918, he executed a similar deed in favor of Eugenio Cagaoan for a parcel of land which, apparently, is the same as that described as PUP COLLEGE OF LAW Page 245

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parcel No. 4 in the deed of gift executed in favor of Felix. Both of the deeds of gift are free from formal defects and were duly accepted by the donees. Eugenio Cagaoan went into possession of the parcel donated to him immediately after the execution of the deed of gift in his favor, but on account of variance between the land description given in the deed and that appearing in the registry, he failed to get the donation recorded with the register of deeds. The deed given Felix was duly recorded on June 10, 1919, but though he appears to have held possession of parcels Nos. 1,2, and 3 described in his deed, at least since the year 1915, he has never had possession of parcel No. 4. Gregorio Cagaoan died on December 16, 1918. This action was brought to have Eugenio Cagaoan declared the owner of the parcel donated to him, to set aside for fraud the donation made in favor of Felix Cagaoan and to have the record of the same in the registry of deeds cancelled. The defendant Felix Cagaoan has presented cross-complaint asking that he awarded the possession of the land, with damages for its unlawful detention by the plaintiff. The trial court rendered judgment for the defendant ordering that the plaintiff surrender possession of the parcel in question to him and pay the costs. From this judgment the plaintiff appealed. There is no doubt that Gregorio Cagaoan signed both of the deeds of gift by means of his thumb-print and that therefore both of them are authentic, but there are strong indications in the evidence that some form of deception was practiced upon him at the time of the execution of the deed in favor of Felix Cagaoan and that he never intended to donate the parcel now in dispute to Felix. In fact, in view of the difficulty of obtaining direct evidence of fraud where the person deceived cannot be produced as witness, we might, perhaps be justified in holding that the circumstances shown by the evidence and which remain unexplained by the defendant, constitute sufficient evidence of fraud. But, be this as tit may, we think the judgment of the court below must be reversed for another reason. The case seems to use to be analogous to one where the same real property has been sold by the same vendor to two difference vendees. In such cases, under article 1473 of the Civil Code, the property goes to the vendee who first records his title in the registry of property. If the sale is not recorded by either vendee, the property goes to the one who first takes possession of its in good, faith, and in the absence of both record and possession, to the one who present oldest title, provided there is good faith. The supreme court of Spain has frequently held that inscription in the registry of property gives no preference of priority where the person relying on the inscription had full notice beforehand of the adverse claim. For instance, in sentence of July 9, 1900, the court held that "the provision of article 34 of the Mortgage Law presuppose that the cause of annulment or resolution of the right of the obligor which is not recorded in the property registry were unknown to the obligee at the time of contracting, because if the latter knew those causes, he did not have the character of a third person, and the basis of that legal fiction upon which the guaranty of registry rests was lacking." In sentence of May 123, 1908, it was held that "although article 1473, in its second paragraph, creates a preference for the title of ownership of realty first registered, this provision must be understood as being based always upon the good faith required in the first paragraph thereof, and it cannot be conceived that the legislator had intended to do away with, or to sanction, bad faith by requiring compliance with a mere formality (the act of registration) which does not always control even when third persons are involved." (See also Obras Pias vs.Devera Ignacio, 17 Phil., 45.) It clearly appears that Felix Cagaoan had full notice of the plaintiff's claim to the land before he had his deed of gift recorded with the register of deeds. Under the decisions above cited he was therefore not a third person within the meaning of article 34 of the Mortgage Law, and his position was, consequently, in now wise improved by the inscription of his document. The plaintiff Eugenio Cagaoan having first taken possession in good faith must therefore be considered to have the better right to the land in question. The judgment appealed from is therefore reversed, the plaintiff Eugenio Cagaoan is declared the owner of the land in question, the cross-complaint of the defendant Felix Cagaoan is dismissed, and it is ordered that the register of deeds cancel the inscription of The land in question in the name of Felix Cagaoan, who will pay the costs of this action in both instances. So Ordered.

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SOLEDAD CALICDAN vs. SILVERiO CENDAA; G.R. No. 155080 February 5, 2004 This petition for review seeks the reversal of the April 4, 2002 decision of the Court of Appeals in CA-G.R. CV No. 67266,1 which set aside the November 12, 1996 decision of the Regional Trial Court of Dagupan City, Branch 44 in Civil Case No. D-10270.2 The instant controversy involves a 760 square meter parcel of unregistered land located in Poblacion, Mangaldan, Pangasinan. The land was formerly owned by Sixto Calicdan, who died intestate on November 4, 1941. He was survived by his wife, Fermina, and three children, namely, petitioner Soledad, Jose and Benigno, all surnamed Calicdan.3 On August 25, 1947, Fermina executed a deed of donation inter vivos whereby she conveyed the land to respondent Silverio Cendaa,4 who immediately entered into possession of the land, built a fence around the land and constructed a two-storey residential house thereon sometime in 1949, where he resided until his death in 1998.5 On June 29, 1992, petitioner, through her legal guardian Guadalupe Castillo, filed a complaint for "Recovery of Ownership, Possession and Damages" against the respondent, alleging that the donation was void; that respondent took advantage of her incompetence in acquiring the land; and that she merely tolerated respondents possession of the land as well as the construction of his house thereon.6 In his "Answer with Motion to Dismiss", respondent alleged, by way of affirmative defenses, that the land was donated to him by Fermina in 1947; and that he had been publicly, peacefully, continuously, and adversely in possession of the land for a period of 45 years. Moreover, he argued that the complaint was barred by prior judgment in the special proceedings for the "Inventory of Properties of Incompetent Soledad Calicdan", where the court decreed the exclusion of the land from the inventory of properties of the petitioner. 7 On November 12, 1996, the trial court rendered a decision in favor of the petitioner, the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant as follows: 1. Ordering defendant Silverio Cendaa to vacate the land in question and surrender ownership and possession of the same to plaintiff; and 2. Ordering defendant to pay plaintiff P20,000.00 as moral damages, P20,000.00 as exemplary damages, P10,000.00 by way of attorneys fees and other litigation expenses, plus cost of suit. SO ORDERED.8 On appeal by the respondent, the Court of Appeals reversed the trial courts decision and declared that the donation was valid. Furthermore, it held that petitioner lost her ownership of the property by prescription. Hence, the instant petition for review on the following issues: (1) whether or not the donation inter vivos is valid; and (2) whether or not petitioner lost ownership of the land by prescription . As a rule, our jurisdiction in cases brought from the Court of Appeals is limited to the review and revision of errors of law allegedly committed by the appellate court. This is because its findings of fact are deemed conclusive and we are not duty-bound to analyze and weigh all over again the evidence already considered in the proceedings below. 9 The rule, however, admits of the following exceptions: PUP COLLEGE OF LAW Page 247

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(1) when the findings are grounded on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the factual findings of the trial and appellate courts are conflicting; (5) when the Court of Appeals, in making its findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; (6) when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to consider certain relevant facts which, if properly taken into account, will justify a different conclusion; (7) when the findings of fact are conclusions without citation of specific evidence upon which they are based; and (8) when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record.10 In the case at bar, the factual findings of the trial court and the Court of Appeals are conflicting; thus, we are constrained to review the findings of facts. The trial court found the donation of the land void because Fermina was not the owner thereof, considering that it was inherited by Sixto from his parents. Thus, the land was not part of the conjugal property of the spouses Sixto and Fermina Calicdan, because under the Spanish Civil Code, the law applicable when Sixto died in 1941, the surviving spouse had a right of usufruct only over the estate of the deceased spouse. Consequently, respondent, who derived his rights from Fermina, only acquired the right of usufruct as it was the only right which the latter could convey. After a review of the evidence on record, we find that the Court of Appeals ruling that the donation was valid was not supported by convincing proof. Respondent himself admitted during the cross examination that he had no personal knowledge of whether Sixto Calicdan in fact purchased the subject land from Felomino Bautista. Pertinent portions of his testimony read: Q. And Sixto Calicdan inherited this property from his parents? A. No, sir. Q. What do you mean by no? A. To my knowledge and information, Sixto Calicdan bought the property from his cousin, I think Flaviano or Felomino Bautista. Q. So, in other words, you have no personal knowledge about how Sixto Calicdan acquired this property? A. I think it was by purchase. Q. According to information, so you have no actual personal knowledge how Sixto Calicadan acquired this property?

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A. Yes, because when the property was bought by my uncle, I was not yet born, so information only. Q. So when you were born, you came to know already that Sixto Calicdan is the owner of this property? A. Yes, thru the son of Felomino Bautista who is now, I think, in Baguio. Q. You have not seen any document to show that Sixto Calicdan purchased the property from one Felomino Bautista? A. None, sir.11 In People v. Guittap,12 we held that: Under Rule 130, Section 36 of the Rules of Court, a witness can testify only to those facts which he knows of his own personal knowledge, i.e., which are derived from his own perception; otherwise, such testimony would be hearsay. Hearsay evidence is defined as "evidence not of what the witness knows himself but of what he has heard from others." The hearsay rule bars the testimony of a witness who merely recites what someone else has told him, whether orally or in writing. In Sanvicente v. People, we held that when evidence is based on what was supposedly told the witness, the same is without any evidentiary weight for being patently hearsay. Familiar and fundamental is the rule that hearsay testimony is inadmissible as evidence. The Court of Appeals thus erred in ruling based on respondents bare hearsay testimony as evidence of the donation made by Fermina. Notwithstanding the invalidity of the donation, we find that respondent has become the rightful owner of the land by extraordinary acquisitive prescription. Prescription is another mode of acquiring ownership and other real rights over immovable property. It is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse. Acquisitive prescription is either ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten years. In extraordinary prescription ownership and other real rights over immovable property are acquired through uninterrupted adverse possession thereof for thirty years without need of title or of good faith. 13 The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. 14 For purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. 15 Assuming arguendo that ordinary acquisitive prescription is unavailing in the case at bar as it demands that the possession be "in good faith and with just title,"16 and there is no evidence on record to prove respondents "good faith", nevertheless, his adverse possession of the land for more than 45 years aptly shows that he has met the requirements for extraordinary acquisitive prescription to set in. The records show that the subject land is an unregistered land. When the petitioner filed the instant case on June 29, 1992, respondent was in possession of the land for 45 years counted from the time of the donation in 1947. This is more than the required 30 years of uninterrupted adverse possession without just title and good faith. Such possession was public, adverse and in the concept of an owner. Respondent fenced the land and built his house in 1949, with the help of Guadalupes father as his contractor. His act of cultivating and reaping the fruits of the land was manifest and visible to all. He declared the land for taxation purposes and religiously paid the realty taxes thereon.17 Together with his actual possession of the land, these tax declarations constitute strong evidence of ownership of the land occupied by him. As we said in the case of Heirs of Simplicio Santiago v. Heirs of Mariano Santiago:18 PUP COLLEGE OF LAW Page 249

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Although tax declarations or realty tax payment of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or constructive possession. They constitute at least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of property for taxation purposes manifests not only ones sincere and honest desire to obtain title to the property and announces his adverse claim again st the State and all other interested parties, but also the intention to contribute needed revenues to the Government. Such an act strengthens ones bona fide claim of acquisition of ownership. Moreover, the deed of donation inter vivos, albeit void for having been executed by one who was not the owner of the property donated, may still be used to show the exclusive and adverse character of respondents possession. Thus, in Heirs of Segunda Maningding v. Court of Appeals,19 we held: Even assuming that the donation propter nuptias is void for failure to comply with formal requisites, it could still constitute a legal basis for adverse possession. With clear and convincing evidence of possession, a private document of donation may serve as basis for a claim of ownership. In Pensader v. Pensader we ruled that while the verbal donation under which the defendant and his predecessors-in-interest have been in possession of the lands in question is not effective as a transfer of title, still it is a circumstance which may explain the adverse and exclusive character of the possession. (Underscoring ours) In sum, the Court of Appeals correctly ordered the dismissal of Civil Case No. D-10270 before the Regional Trial Court of Dagupan City, Branch 44, and declared respondent the rightful owner of the subject property, not on the basis of the Deed of Donation Inter Vivos, which is hereby declared void, but on extraordinary acquisitive prescription. WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of Appeals dated April 4, 2002 in CA-G.R. CV No. 67266, which ordered the dismissal of Civil Case No. D-10270 before the Regional Trial Court of Dagupan City, Branch 44, is AFFIRMED.

PRESCRIPTION:
JULITA V. IMUAN vs. JUANITO CERENO; G.R. No. 167995 September 11, 2009 Before us is a petition for review on certiorari which seeks to set aside the Decision1 dated August 24, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 69446, which reversed the Decision of the Regional Trial Court (RTC), Branch 41, Dagupan City, in Civil Case No. 99-02910-D. Also assailed is the CA Resolution2 dated April 29, 2005 denying petitioners' motion for reconsideration. The facts are as follows: During his lifetime, Pablo de Guzman (Pablo) contracted two marriages. His first marriage was with Teodora Soriano (Teodora), with whom he had three children, namely, Alfredo de Guzman (Alfredo), Cristita G. Velasquez (Cristita), and Inday G. Soriano (Inday). His second marriage was in 1919 with Juana Velasquez (Juana), with whom he also had three children, namely: Nena De Guzman (Nena), Teodora de Guzman (Teodora), and Soledad G. Cereno (Soledad). All these children are now dead. Petitioners are Pablo's grandchildren by his first marriage, while respondent Juanito Cereno (Juanito) is Soledad's husband and the other respondents are their children. On July 15, 1936, Pablo died intestate leaving two parcels of land, to wit: (1) a parcel of coconut land located at Salaan Mangaldan, Pangasinan, containing an area of nine hundred eighty-six (986) square meters, more or less, declared under Tax Declaration No. 8032; and (2) a parcel of cornland located at (Inlambo) Palua, Mangaldan, Pangasinan, containing an area of three thousand three hundred thirty-four (3,334) square meters, more or less, declared under Tax Declaration No. 5155. PUP COLLEGE OF LAW Page 250

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After Pablo's death in 1936, his second wife Juana and their children continued to be in possession of the parcel of land located at Salaan, Mangaldan, Pangasinan (the disputed property), where they lived since they were married in 1919. On January 24, 1970, Juana executed a Deed of Absolute Sale3 in favor of respondents-spouses, Soledad, Juana and Pablo's daughter, and her husband Juanito conveying the subject property. The deed was duly registered with the Register of Deeds of Lingayen, Pangasinan. On January 26, 1970, a Joint Affidavit4 was executed by Alfredo de Guzman and Teofilo Cendana attesting to the fact that Pablo ceded the property in favor of Juana on the occasion of their marriage, but the document was lost. Subsequently, Tax Declaration No. 238035 was issued in the names of respondents-spouses who religiously paid the taxes due on the property. Since then respondents-spouses enjoyed exclusive, open and uninterrupted possession of the property. Later, the disputed property which originally consisted of one whole lot was traversed by a barangay road dividing it into two (2) lots, namely, Lot 3533, with an area of 690 square meters covered by Tax Declaration No. 212686; and Lot 3559, with an area of 560 square meters covered by Tax declaration No. 21269.7 Respondents-spouses Cereno built their house on Lot 3559 and had planted fruit-bearing trees on Lot 3533. Meanwhile, the parcel of cornland in Palua, Mangaldan, Pangasinan has never been in possession of any of the parties since it eroded and was submerged under water, eventually forming part of the riverbed. Sometime in January 1999, petitioners entered and took possession of Lot 3533 by building a small nipa hut thereon. Respondents then filed before the Municipal Trial Court (MTC) of Mangaldan, Pangasinan an ejectment case against petitioners. In an Order8 dated December 9, 1999, the MTC dismissed the case as both parties prayed for its dismissal considering that petitioners had already left Lot 3533 immediately after the filing of the complaint. On April 5, 1999, petitioners filed with the RTC of Dagupan City a Complaint for annulment of document, reconveyance and damages against respondents alleging that: (1) the estate of their grandfather Pablo has not yet been settled or partitioned among his heirs nor had Pablo made disposition of his properties during his lifetime; (2) it was only through their tolerance that Juana and his children constructed their house on Lot 3559; (3) the sale of the disputed property made by Juana to respondents-spouses Cereno and the issuance of tax declarations in the latter's names are null and void. Petitioners prayed for the annulment of the deed of sale, cancellation of Tax Declaration Nos. 21268 and 21269, the reconveyance of the property to them and damages. In their Answer, respondents claimed that after the death of Pablo's first wife, Pablo partitioned his property among his children and that spouses Nicomedes and Cristita Velasquez acquired most of the properties as they were more financially capable; that at the time Pablo married Juana, the properties he had were his exclusive share in the partition; that of the two parcels of land Pablo had at that time, he donated the subject property to Juana in a donation propter nuptias when they married; that the deed of donation was lost during the Japanese occupation and such loss was evidenced by the Joint Affidavit executed by Alfredo de Guzman and Teofilo Cendana attesting to such donation; that Juana could validly convey the property to the Spouses Cereno at the time of the sale because she was the owner; and that they have been in public and uninterrupted possession of the disputed lot since its acquisition and have been paying the realty taxes due thereon. As affirmative defense, respondents contended that petitioners' rights over the property were already barred by the statute of limitations. After trial, the RTC rendered its Decision9 dated November 10, 2000, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants: (a) Declaring as null and void the Deed of Absolute Sale; Tax Declaration Nos. 21268 for Lot 3533 & 21269 for Lot 3559 in the names of Juanito Cereno and Soledad de Guzman; (b) Ordering the defendants (1) to reconvey the property in question to the plaintiffs and to peacefully surrender the possession of the premises to the plaintiffs; and (2) to pay plaintiffs litigation expenses in the amount of P10,000.00. PUP COLLEGE OF LAW Page 251

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SO ORDERED.10 The RTC found that Juana and her children of the second nuptial built their house on the disputed property by tolerance of Pablos children of the first marriage; that Juana alone sold the property to respondents Spouses Cereno and such sale was not valid because she was not the owner of the property at the time she sold the same; that the estate of Pablo has not been settled among the heirs since the property was still in the name of Pablo at the time Juana sold the same; that respondents Spouses Cerenos claim that the property was donated to Juana by Pablo by way of donation propter nuptias was not supported by evidence; that Pablo could not have donated the property to Juana because Pablos children were the legal heirs of his first wife, and have rights and interests over the property. The RTC found the Joint Affidavit dated January 26, 197 0 executed by Alfredo, Pablos son by first marriage, and Teofilo Cendana, a former Chief of Police of Mangaldan, Pangasinan, attesting that the donation propter nuptias executed by Pablo in favor of Juana was lost during the Japanese occupation was inconsequential, since it cannot substitute for the donation which validity was highly questionable; that petitioners were able to prove that the property was the conjugal property of Pablo and his first wife which has not been divided between Pablo and his children of the first nuptial. On appeal, the CA rendered its assailed Decision, the dispositive portion of which reads as follows: WHEREFORE, premises considered, we hereby GRANT the appeal. The assailed decision dated November 10, 2000, of the Regional Trial Court (RTC), Branch 41, Dagupan City, in Civil Case No. 99-02910-D is consequently REVERSED and SET ASIDE. Costs against the plaintiffs-appellees. SO ORDERED.11 While the CA agreed with the findings of the RTC that there was no evidence that Pablo undertook a partition of the properties of his first marriage before he contracted his second marriage and that the Joint Affidavit dated January 26, 1970 could not be considered as conclusive proof of the transfer of the property by Pablo to Juana, it was not a sufficient basis for Juana to validly transfer the property to respondent Spouses Cereno, however, the CA gave probative value to the joint affidavit as it was executed long before the present controversy arose. The CA found that the joint affidavit was executed by Alfredo, one of Pablos children by his first marriage who was necessarily affected by the claimed donation propter nuptias and who ought to know the facts attested to; that the affidavit was evidence of the basis of Juana's own good faith belief that the property was hers to dispose of when she sold it to respondents Spouses Cereno; that the same affidavit can also be the basis of respondents Spouses Cereno's good faith belief that Juana, who had undisputably been in possession of the disputed property at the time of the sale, was the owner and could transfer the property to them by sale. The CA also gave probative value to the deed of sale executed by Juana in favor of respondents Spouses Cereno as it is still an evidence of the fact of transaction between Juana and respondents Spouses Cereno for the sale of the disputed property. The CA found that the deed of sale and the joint affidavit assumed great importance on the issue of prescription. The CA found that Juana possessed the property in the concept of an owner, which is a sufficient basis for the belief that Juana was the owner of the property she conveyed by sale and respondents Spouses Cereno had the good faith that acquisition by prescription requires when they became the purchasers in the contract of sale with her . The CA further stated that a sale, coupled with the delivery of the property sold, is one of the recognized modes of acquiring ownership of real property and that respondents Spouses Cereno immediately took possession of the property which showed that respondent Spouses Cereno have just title to the property. The CA further found that respondents Spouses Cereno are in peaceful possession of the property for 29 years and, thus, have satisfied the ten-year period of open, public and adverse possession in the concept of an owner that the law on prescription requires. The CA added that petitioners are now barred by laches from claiming ownership of the disputed property as they have been negligent in asserting their rights.

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Petitioners motion for reconsideration was denied in a Resolution dated April 29, 2005. Petitioners raise the following issues for our consideration: WHETHER THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT, BRANCH 41, DAGUPAN CITY. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING THE NATURE OF THE PROPERTY IN ISSUE WHEN IT RENDERED ITS DECISION. WHETHER LACHES/PRESCRIPTION BARRED HEREIN PETITIONERS FROM CLAIMING THEIR RIGHTFUL SHARE IN THE PROPERTY IN ISSUE.12 Petitioners contend that since the CA and the RTC found that there was no partition of the property and no valid donation propter nuptias was made by Pablo to Juana, the rule on co-ownership among Pablos heirs should govern the property; that when Juana sold the property to respondents Cerenos, the rights of petitioners as co-owners should not have been affected; that the CAs finding that the joint affidavit attesting to the donation propter nuptias can be the basis of a belief in good faith that Juana was the owner of the disputed property is erroneous, since Juana had knowledge from the time she got married to Pablo that the property was acquired during the latter's first marriage; that respondents Spouses Cereno could not be considered in good faith since Soledad is the daughter of Juana with her marriage to Pablo and could not be considered a third party to the dispute without knowledge of the nature of the property; that being co-owners, neither prescription nor laches can be used against them to divest them of their property rights. In their Comment, respondents argue that Juana in her own right had acquired the property by prescription; that the CA correctly considered respondents 29 years of actual and peaceful possession of the property aside from their purchase of the property from Juana in finding them as the true owners. Petitioners and respondents submitted their respective memoranda. The petition has no merit. We agree with the CA that respondents have acquired the disputed property by acquisitive prescription. Prescription is another mode of acquiring ownership and other real rights over immovable property.13 It is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse. 14 Possession is open when it is patent, visible, apparent, notorious and not clandestine.15 It is continuous when uninterrupted, unbroken and not intermittent or occasional;16 exclusive when the adverse possessor can show exclusive dominion over the land and an appropriation of it to his own use and benefit; and notorious when it is so conspicuous that it is generally known and talked of by the public or the people in the neighborhood.17 The party who asserts ownership by adverse possession must prove the presence of the essential elements of acquisitive prescription. 18 Acquisitive prescription of real rights may be ordinary or extraordinary.19 Ordinary acquisitive prescription requires possession in good faith and with just title for ten years.20 In extraordinary prescription, ownership and other real rights over immovable property are acquired through uninterrupted adverse possession for thirty years without need of title or of good faith.21 The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. 22 For purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.23

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Records show that as early as 1970, when the property was sold by Juana to respondents Spouses Cereno, the latter immediately took possession of the property. Since then, respondents possessed the property continuously, openly, peacefully, in the concept of an owner, exclusively and in good faith with just title, to the exclusion of the petitioners and their predecessors-in-interest until the filing of the complaint in 1999 which is the subject of this present petition. Notably, the property was traversed by a barangay road, thus, it was divided into two lots. The house of respondents is located on the eastern part of the road, while the lot on the western part of the road was planted to fruit- bearing trees by respondents.24 It was admitted by petitioners that they saw the house of respondents constructed on the lot and yet never questioned the same.25 It was also established that respondents are the ones gathering the fruits of the land and enjoying the same26 to the exclusion of petitioners and yet the latter never prevented them from doing so. In fact, while petitioners learned of the sale of the property by Juana to the Spouses Cereno in 1980, they never took any action to protect whatever rights they have over the property nor raised any objection on respondents' possession of the property. Petitioners' inaction is aggravated by the fact that petitioners just live a mere 100 meters away from the property.27 Moreover, immediately after the sale of the property to the Spouses Cereno, they declared the property in their names for taxation purposes28 and since then religiously paid the taxes29 due on the property. Petitioners admitted that they knew that the Spouses Cerenos are the ones paying the taxes; 30 yet, they never challenged the same for a long period of time which clearly establishes respondents' claim as owners of the property. Jurisprudence is clear that although tax declarations or realty tax payments of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive possession. 31They constitute at least proof that the holder has a claim of title over the property.32 As is well known, the payment of taxes, coupled with actual possession of the land covered by the tax declaration, strongly supports a claim of ownership. 33 Respondent Juanito also exercised dominion over the property by mortgaging the same to Manaoag Rural Bank in 199434 and the mortgage was cancelled only in January 1999.351avvphi1 While there is a question regarding the alleged donation propter nuptias at the time Juana executed the deed of sale in favor of the Spouses Cereno in 1970, however, the requirement of just title and good faith are still satisfied in this case. As the CA said: x x x [T]he joint affidavit that the defendants-appellants presented, attesting to the donation propter nuptias of the disputed property by Pablo to Juana, can be the basis of the belief in good faith that Juana was the owner of the disputed property. Related to this, it is undisputed that Pablo and Juana had lived in the disputed property from the time of their marriage in 1919, and Juana continued to live and to possess this property in the concept of an owner from the time of Pablo's death in 1936 up to the time she sold it to spouses Cereno in 1970. These circumstances, in our view, are sufficient bases for the belief that Juana was the owner of the property she conveyed by sale, and leave us convinced that the spouses Cereno had the "good faith" that acquisition by prescription requires when they became the purchasers in the contract of sale with Juana.36 Notably, one of the affiants in the joint affidavit which was executed in 1970 was Alfredo, Pablo's son by his first marriage, where he attested that the property was given by his father Pablo to Juana by donation propter nuptias. Not one among Alfredo's children had ever come out to assail the validity of the affidavit executed by their father. In fact, not one of Alfredo's heirs joined petitioners in this case.37 Moreover, not one among the children of the first marriage when they were still alive ever made a claim on their successional rights over the property by asking for its partition. Such joint affidavit could constitute a legal basis for Juana's adverse and exclusive character of the possession of the property38 and would show the Spouses Cereno's good faith belief that Juana was the owner of the property. Thus, when petitioners filed the instant case, more than 29 years had already elapsed, thus, the ten-year period for acquisitive prescription has already been satisfied. We likewise agree with the CA when it found that petitioners are guilty of laches that would bar them from belatedly asserting their claim. PUP COLLEGE OF LAW Page 254

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Laches is defined as the failure to assert a right for an unreasonable and unexplained length of time, warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it. This equitable defense is based upon grounds of public policy, which requires the discouragement of stale claims for the peace of society. 39 Juana sold the property to the Spouses Cereno in 1970 and since then have possessed the property peacefully and publicly without any opposition from petitioners. While petitioners claim that they knew about the sale only in 1980 yet they did not take any action to recover the same and waited until 1999 to file a suit without offering any excuse for such delay. Records do not show any justifiable reason for petitioners' inaction for a long time in asserting whatever rights they have over the property given the publicity of respondents' conduct as owners of the property. WHEREFORE, the petition is DENIED. The Decision dated August 24, 2004 and the Resolution dated April 29, 2005 of the Court of Appeals in CA-G.R. CV No. 69446 are AFFIRMED. JAIME ABALOS vs. HEIRS OF VICENTE TORIO; G.R. No. 175444 December 14, 2011 Before the Court is a petition for review on certiorari seeking to set aside the Decision1 dated June 30, 2006 and Resolution2 dated November 13, 2006 by the Court of Appeals (CA) in CA-G.R. SP No. 91887. The assailed Decision reversed and set aside the Decision3 dated June 14, 2005 of the Regional Trial Court (RTC) of Lingayen, Pangasinan, Branch 69, while the questioned Resolution denied petitioners' Motion for Reconsideration. The factual and procedural antecedents of the case are as follows: On July 24, 1996, herein respondents filed a Complaint for Recovery of Possession and Damages with the Municipal Trial Court (MTC) of Binmaley, Pangasinan against Jaime Abalos (Jaime) and the spouses Felix and Consuelo Salazar. Respondents contended that: they are the children and heirs of one Vicente Torio (Vicente) who died intestate on September 11, 1973; at the time of the death of Vicente, he left behind a parcel of land measuring 2,950 square meters, more or less, which is located at San Isidro Norte, Binmaley, Pangasinan; during the lifetime of Vicente and through his tolerance, Jaime and the Spouses Salazar were allowed to stay and build their respective houses on the subject parcel of land; even after the death of Vicente, herein respondents allowed Jaime and the Spouses Salazar to remain on the disputed lot; however, in 1985, respondents asked Jaime and the Spouses Salazar to vacate the subject lot, but they refused to heed the demand of respondents forcing respondents to file the complaint.4 Jaime and the Spouses Salazar filed their Answer with Counterclaim, denying the material allegations in the Complaint and asserting in their Special and Affirmative Defenses that: respondents' cause of action is barred by acquisitive prescription; the court a quo has no jurisdiction over the nature of the action and the persons of the defendants; the absolute and exclusive owners and possessors of the disputed lot are the deceased predecessors of defendants; defendants and their predecessors-in-interest had been in actual, continuous and peaceful possession of the subject lot as owners since time immemorial; defendants are faithfully and religiously paying real property taxes on the disputed lot as evidenced by Real Property Tax Receipts; they have continuously introduced improvements on the said land, such as houses, trees and other kinds of ornamental plants which are in existence up to the time of the filing of their Answer.5 On the same date as the filing of defendants' Answer with Counterclaim, herein petitioners filed their Answer in Intervention with Counterclaim. Like the defendants, herein petitioners claimed that their predecessors-in-interest were the absolute and exclusive owners of the land in question; that petitioners and their predecessors had been in possession of the subject lot since time immemorial up to the present; they have paid real property taxes and introduced improvements thereon.6 After the issues were joined, trial ensued. On December 10, 2003, the MTC issued a Decision, the dispositive portion of which reads as follows:

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WHEREFORE, in view of the foregoing consideration[s], the Court adjudged the case in favor of the plaintiffs and against the defendants and defendants-intervenors are ordered to turn over the land in question to the plaintiffs (Lot Nos. 869 and 870, Cad. 467-D. Binmaley Cadastre located in Brgy. San Isidro Norte, Binmaley, Pangasinan with an area of 2,950 sq. m., more or less, bounded and described in paragraph 3 of the Complaint[)]; ordering the defendants and defendants-intervenors to remove their respective houses standing on the land in dispute; further ordering the defendants and defendants-intervenors, either singly or jointly to pay the plaintiffs land rent in the amount of P12,000.00 per year to be reckoned starting the year 1996 until defendants and defendants-intervenors will finally vacate the premises; furthermore, defendants and defendants-intervenors are also ordered to pay, either singly or jointly, the amount of P10,000.00 as and by way of attorney's fees and costs of suit. SO ORDERED.7 Jaime and the Spouses Salazar appealed the Decision of the MTC with the RTC of Lingayen, Pangasinan. 8 Herein petitioners, who were intervenors, did not file an appeal. In its Decision dated June 14, 2005, the RTC ruled in favor of Jaime and the Spouses Salazar, holding that they have acquired the subject property through prescription. Accordingly, the RTC dismissed herein respondents' complaint. Aggrieved, herein respondents filed a petition for review with the CA assailing the Decision of the RTC. On June 30, 2006, the CA promulgated its questioned Decision, the dispositive portion of which reads, thus: WHEREFORE, the petition is GRANTED. The Decision dated June 14, 2005 of the Regional Trial Court, Branch 69, Lingayen, Pangasinan is hereby REVERSED and SET ASIDE. In its stead, a new one is entered reinstating the Decision dated December 10, 2003 of the Municipal Trial Court of Binmaley, Pangasinan. SO ORDERED.9 Jaime and the Spouses Salazar filed a Motion for Reconsideration, but the same was denied by the CA in its Resolution dated November 13, 2006. Hence, the instant petition based on a sole assignment of error, to wit: THE COURT OF APPEALS ERRED IN NOT APPRECIATING THAT THE PETITIONERS HEREIN ARE NOW THE ABSOLUTE AND EXCLUSIVE OWNERS OF THE LAND IN QUESTION BY VIRTUE OF ACQUISITIVE PRESCRIPTION.10 The main issue raised by petitioners is whether they and their predecessors-in-interest possessed the disputed lot in the concept of an owner, or whether their possession is by mere tolerance of respondents and their predecessors-ininterest. Corollarily, petitioners claim that the due execution and authenticity of the deed of sale upon which respondents' predecessors-in-interest derived their ownership were not proven during trial. The petition lacks merit. Preliminarily, the Court agrees with the observation of respondents that some of the petitioners in the instant petition were the intervenors11 when the case was filed with the MTC. Records would show that they did not appeal the Decision of the MTC.12 The settled rule is that failure to perfect an appeal renders the judgment final and executory.13 Hence, insofar as the intervenors in the MTC are concerned, the judgment of the MTC had already become final and executory. It also bears to point out that the main issue raised in the instant petition, which is the character or nature of petitioners' possession of the subject parcel of land, is factual in nature. PUP COLLEGE OF LAW Page 256

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Settled is the rule that questions of fact are not reviewable in petitions for review on certiorari under Rule 45 of the Rules of Court.14 Section 1 of Rule 45 states that petitions for review on certiorari "shall raise only questions of law which must be distinctly set forth." Doubtless, the issue of whether petitioners possess the subject property as owners, or whether they occupy the same by mere tolerance of respondents, is a question of fact. Thus, it is not reviewable. Nonetheless, the Court has, at times, allowed exceptions from the abovementioned restriction. Among the recognized exceptions are the following: (a) When the findings are grounded entirely on speculation, surmises, or conjectures; (b) When the inference made is manifestly mistaken, absurd, or impossible; (c) When there is grave abuse of discretion; (d) When the judgment is based on a misapprehension of facts; (e) When the findings of facts are conflicting; (f) When in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (g) When the CAs findings are contrary to those by the trial court; (h) When the findings are conclusions without citation of specific evidence on which they are based; (i) When the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; (j) When the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; or (k) When the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.15 In the present case, the findings of fact of the MTC and the CA are in conflict with those of the RTC. After a review of the records, however, the Court finds that the petition must fail as it finds no error in the findings of fact and conclusions of law of the CA and the MTC. Petitioners claim that they have acquired ownership over the disputed lot through ordinary acquisitive prescription. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. 16 Ordinary acquisitive prescription requires possession in good faith and with just title for ten (10) years.17 Without good faith and just title, acquisitive prescription can only be extraordinary in character which requires uninterrupted adverse possession for thirty (30) years.18 Possession "in good faith" consists in the reasonable belief that the person from whom the thing is received has been the owner thereof, and could transmit his ownership.19 There is "just title" when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. 20 PUP COLLEGE OF LAW Page 257

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In the instant case, it is clear that during their possession of the property in question, petitioners acknowledged ownership thereof by the immediate predecessor-in-interest of respondents. This is clearly shown by the Tax Declaration in the name of Jaime for the year 1984 wherein it contains a statement admitting that Jaime's house was built on the land of Vicente, respondents' immediate predecessor-in-interest.21 Petitioners never disputed such an acknowledgment. Thus, having knowledge that they nor their predecessors-in-interest are not the owners of the disputed lot, petitioners' possession could not be deemed as possession in good faith as to enable them to acquire the subject land by ordinary prescription. In this respect, the Court agrees with the CA that petitioners' possession of the lot in question was by mere tolerance of respondents and their predecessors-in-interest. Acts of possessory character executed due to license or by mere tolerance of the owner are inadequate for purposes of acquisitive prescription.22 Possession, to constitute the foundation of a prescriptive right, must be en concepto de dueo, or, to use the common law equivalent of the term, that possession should be adverse, if not, such possessory acts, no matter how long, do not start the running of the period of prescription. 23 Moreover, the CA correctly held that even if the character of petitioners' possession of the subject property had become adverse, as evidenced by their declaration of the same for tax purposes under the names of their predecessors-in-interest, their possession still falls short of the required period of thirty (30) years in cases of extraordinary acquisitive prescription. Records show that the earliest Tax Declaration in the name of petitioners was in 1974. Reckoned from such date, the thirty-year period was completed in 2004. However, herein respondents' complaint was filed in 1996, effectively interrupting petitioners' possession upon service of summons on them.24 Thus, petitioners possession also did not ripen into ownership, because they failed to meet the required statutory period of extraordinary prescription. This Court has held that the evidence relative to the possession upon which the alleged prescription is based, must be clear, complete and conclusive in order to establish the prescription. 25 In the present case, the Court finds no error on the part of the CA in holding that petitioners failed to present competent evidence to prove their alleged good faith in neither possessing the subject lot nor their adverse claim thereon. Instead, the records would show that petitioners' possession was by mere tolerance of respondents and their predecessors-in-interest.1avvphi1 Finally, as to the issue of whether the due execution and authenticity of the deed of sale upon which respondents anchor their ownership were not proven, the Court notes that petitioners did not raise this matter in their Answer as well as in their Pre-Trial Brief. It was only in their Comment to respondents' Petition for Review filed with the CA that they raised this issue. Settled is the rule that points of law, theories, issues, and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court.26They cannot be raised for the first time on appeal. To allow this would be offensive to the basic rules of fair play, justice and due process.27 Even granting that the issue of due execution and authenticity was properly raised, the Court finds no cogent reason to depart from the findings of the CA, to wit: xxxx Based on the foregoing, respondents [Jaime Abalos and the Spouses Felix and Consuelo Salazar] have not inherited the disputed land because the same was shown to have already been validly sold to Marcos Torio, who, thereupon, assigned the same to his son Vicente, the father of petitioners [herein respondents]. A valid sale was amply established and the said validity subsists because the deed evidencing the same was duly notarized. There is no doubt that the deed of sale was duly acknowledged before a notary public. As a notarized document, it has in its favor the presumption of regularity and it carries the evidentiary weight conferred upon it with respect to its due execution. It is admissible in evidence without further proof of its authenticity and is entitled to full faith and credit upon its face.28 Indeed, settled is the rule in our jurisdiction that a notarized document has in its favor the presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and more than merely

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preponderant; otherwise, the document should be upheld. 29 In the instant case, petitioners' bare denials will not suffice to overcome the presumption of regularity of the assailed deed of sale. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 91887 are AFFIRMED.

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