Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 168557 February 16, 2007 FELS ENERGY, INC., Petitioner, vs. THE PROVINCE OF BATANGAS and THE OFFICE OF THE PROVINCIAL ASSESSOR OF BATANGAS, Respondents. x------x G.R. No. 170628 February 16, 2007 NATIONAL POWER CORPORATION, Petitioner, vs. LOCAL BOARD OF ASSESSMENT APPEALS OF BATANGAS, LAURO C. ANDAYA, in his capacity as the Assessor of the Province of Batangas, and the PROVINCE OF BATANGAS represented by its Provincial Assessor, Respondents. D E C I S I O N

CALLEJO, SR., J.:

Before us are two consolidated cases docketed as G.R. No. 168557 and G.R. No. 170628, which were filed by petitioners FELS Energy, Inc. (FELS) and National Power Corporation (NPC), respectively. The first is a petition for review on certiorari assailing the August 25, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 67490 and its Resolution2 dated June 20, 2005; the second, also a petition for review on certiorari, challenges the February 9, 2005 Decision3 and November 23, 2005 Resolution4 of the CA in CA-G.R. SP No. 67491. Both petitions were dismissed on the ground of prescription.

The pertinent facts are as follows:

On January 18, 1993, NPC entered into a lease contract with Polar Energy, Inc. over 3x30 MW diesel engine power barges moored at Balayan Bay in Calaca, Batangas. The contract, denominated as an Energy Conversion Agreement5 (Agreement), was for a period of five years. Article 10 reads:

10.1 RESPONSIBILITY. NAPOCOR shall be responsible for the payment of (a) all taxes, import duties, fees, charges and other levies imposed by the National Government of the Republic of the Philippines or any agency or instrumentality thereof to which POLAR may be or become subject to or in relation to the performance of their obligations under this agreement (other than (i) taxes imposed or calculated on the basis of the net income of POLAR and Personal Income Taxes of its employees and (ii) construction permit fees, environmental permit fees and other similar fees and charges) and (b) all real estate taxes and assessments, rates and other charges in respect of the Power Barges.6

Subsequently, Polar Energy, Inc. assigned its rights under the Agreement to FELS. The NPC initially opposed the assignment of rights, citing paragraph 17.2 of Article 17 of the Agreement.

1 On August 7, 1995, FELS received an assessment of real property taxes on the power barges from Provincial Assessor Lauro C. Andaya of Batangas City. The assessed tax, which likewise covered those due for 1994, amounted to P56,184,088.40 per annum. FELS referred the matter to NPC, reminding it of its obligation under the Agreement to pay all real estate taxes. It then gave NPC the full power and authority to represent it in any conference regarding the real property assessment of the Provincial Assessor.

In a letter7 dated September 7, 1995, NPC sought reconsideration of the Provincial Assessor’s decision to assess real property taxes on the power barges. However, the motion was denied on September 22, 1995, and the Provincial Assessor advised NPC to pay the assessment.8 This prompted NPC to file a petition with the Local Board of Assessment Appeals (LBAA) for the setting aside of the assessment and the declaration of the barges as non-taxable items; it also prayed that should LBAA find the barges to be taxable, the Provincial Assessor be directed to make the necessary corrections.9

In its Answer to the petition, the Provincial Assessor averred that the barges were real property for purposes of taxation under Section 199(c) of Republic Act (R.A.) No. 7160.

Before the case was decided by the LBAA, NPC filed a Manifestation, informing the LBAA that the Department of Finance (DOF) had rendered an opinion 10 dated May 20, 1996, where it is clearly stated that power barges are not real property subject to real property assessment.

On August 26, 1996, the LBAA rendered a Resolution11 denying the petition. The fallo reads:

WHEREFORE, the Petition is DENIED. FELS is hereby ordered to pay the real estate tax in the amount ofP56,184,088.40, for the year 1994.

SO ORDERED.12

The LBAA ruled that the power plant facilities, while they may be classified as movable or personal property, are nevertheless considered real property for taxation purposes because they are installed at a specific location with a character of permanency. The LBAA also pointed out that the owner of the barges–FELS, a private corporation–is the one being taxed, not NPC. A mere agreement making NPC responsible for the payment of all real estate taxes and assessments will not justify the exemption of FELS; such a privilege can only be granted to NPC and cannot be extended to FELS. Finally, the LBAA also ruled that the petition was filed out of time.

Aggrieved, FELS appealed the LBAA’s ruling to the Central Board of Assessment Appeals (CBAA).

On August 28, 1996, the Provincial Treasurer of Batangas City issued a Notice of Levy and Warrant by Distraint13over the power barges, seeking to collect real property taxes amounting to P232,602,125.91 as of July 31, 1996. The notice and warrant was officially served to FELS on November 8, 1996. It then filed a Motion to Lift Levy dated November 14, 1996, praying that the Provincial Assessor be further restrained by the CBAA from enforcing the disputed assessment during the pendency of the appeal.

On November 15, 1996, the CBAA issued an Order14 lifting the levy and distraint on the properties of FELS in order not to preempt and render ineffectual, nugatory and illusory any resolution or judgment which the Board would issue.

2 Meantime, the NPC filed a Motion for Intervention15 dated August 7, 1998 in the proceedings before the CBAA. This was approved by the CBAA in an Order16 dated September 22, 1998.

During the pendency of the case, both FELS and NPC filed several motions to admit bond to guarantee the payment of real property taxes assessed by the Provincial Assessor (in the event that the judgment be unfavorable to them). The bonds were duly approved by the CBAA.

On April 6, 2000, the CBAA rendered a Decision17 finding the power barges exempt from real property tax. The dispositive portion reads:

WHEREFORE, the Resolution of the Local Board of Assessment Appeals of the Province of Batangas is hereby reversed. Respondent-appellee Provincial Assessor of the Province of Batangas is hereby ordered to drop subject property under ARP/Tax Declaration No. 018-00958 from the List of Taxable Properties in the Assessment Roll. The Provincial Treasurer of Batangas is hereby directed to act accordingly.

SO ORDERED.18

Ruling in favor of FELS and NPC, the CBAA reasoned that the power barges belong to NPC; since they are actually, directly and exclusively used by it, the power barges are covered by the exemptions under Section 234(c) of R.A. No. 7160.19 As to the other jurisdictional issue, the CBAA ruled that prescription did not preclude the NPC from pursuing its claim for tax exemption in accordance with Section 206 of R.A. No. 7160. The Provincial Assessor filed a motion for reconsideration, which was opposed by FELS and NPC.

In a complete volte face, the CBAA issued a Resolution20 on July 31, 2001 reversing its earlier decision. The fallo of the resolution reads:

WHEREFORE, premises considered, it is the resolution of this Board that:

(a) The decision of the Board dated 6 April 2000 is hereby reversed.

(b) The petition of FELS, as well as the intervention of NPC, is dismissed.

(d) The real property tax assessment on FELS by the Provincial Assessor of Batangas is likewise hereby affirmed.

SO ORDERED.21

FELS and NPC filed separate motions for reconsideration, which were timely opposed by the Provincial Assessor. The CBAA denied the said motions in a Resolution22 dated October 19, 2001.

Dissatisfied, FELS filed a petition for review before the CA docketed as CA-G.R. SP No. 67490. Meanwhile, NPC filed a separate petition, docketed as CA-G.R. SP No. 67491.

3 On January 17, 2002, NPC filed a Manifestation/Motion for Consolidation in CA-G.R. SP No. 67490 praying for the consolidation of its petition with CA-G.R. SP No. 67491. In a Resolution23 dated February 12, 2002, the appellate court directed NPC to re-file its motion for consolidation with CA-G.R. SP No. 67491, since it is the ponente of the latter petition who should resolve the request for reconsideration.

NPC failed to comply with the aforesaid resolution. On August 25, 2004, the Twelfth Division of the appellate court rendered judgment in CA-G.R. SP No. 67490 denying the petition on the ground of prescription. The decretal portion of the decision reads:

WHEREFORE, the petition for review is DENIED for lack of merit and the assailed Resolutions dated July 31, 2001 and October 19, 2001 of the Central Board of Assessment Appeals are AFFIRMED.

SO ORDERED.24

On September 20, 2004, FELS timely filed a motion for reconsideration seeking the reversal of the appellate court’s decision in CA-G.R. SP No. 67490.

Thereafter, NPC filed a petition for review dated October 19, 2004 before this Court, docketed as G.R. No. 165113, assailing the appellate court’s decision in CA- G.R. SP No. 67490. The petition was, however, denied in this Court’s Resolution25 of November 8, 2004, for NPC’s failure to sufficiently show that the CA committed any reversible error in the challenged decision. NPC filed a motion for reconsideration, which the Court denied with finality in a Resolution 26 dated January 19, 2005.

Meantime, the appellate court dismissed the petition in CA-G.R. SP No. 67491. It held that the right to question the assessment of the Provincial Assessor had already prescribed upon the failure of FELS to appeal the disputed assessment to the LBAA within the period prescribed by law. Since FELS had lost the right to question the assessment, the right of the Provincial Government to collect the tax was already absolute.

NPC filed a motion for reconsideration dated March 8, 2005, seeking reconsideration of the February 5, 2005 ruling of the CA in CA-G.R. SP No. 67491. The motion was denied in a Resolution27 dated November 23, 2005.

The motion for reconsideration filed by FELS in CA-G.R. SP No. 67490 had been earlier denied for lack of merit in a Resolution28 dated June 20, 2005.

On August 3, 2005, FELS filed the petition docketed as G.R. No. 168557 before this Court, raising the following issues:

Whether power barges, which are floating and movable, are personal properties and therefore, not subject to real property tax.

Assuming that the subject power barges are real properties, whether they are exempt from real estate tax under Section 234 of the Local Government Code ("LGC").

4 C.

Assuming arguendo that the subject power barges are subject to real estate tax, whether or not it should be NPC which should be made to pay the same under the law.

Assuming arguendo that the subject power barges are real properties, whether or not the same is subject to depreciation just like any other personal properties.

Whether the right of the petitioner to question the patently null and void real property tax assessment on the petitioner’s personal properties is imprescriptible. 29

On January 13, 2006, NPC filed its own petition for review before this Court (G.R. No. 170628), indicating the following errors committed by the CA:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE APPEAL TO THE LBAA WAS FILED OUT OF TIME.

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE POWER BARGES ARE NOT SUBJECT TO REAL PROPERTY TAXES.

III

THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT THE ASSESSMENT ON THE POWER BARGES WAS NOT MADE IN ACCORDANCE WITH LAW.30

Considering that the factual antecedents of both cases are similar, the Court ordered the consolidation of the two cases in a Resolution31 dated March 8, 2006.1awphi1.net

In an earlier Resolution dated February 1, 2006, the Court had required the parties to submit their respective Memoranda within 30 days from notice. Almost a year passed but the parties had not submitted their respective memoranda. Considering that taxes—the lifeblood of our economy—are involved in the present controversy, the Court was prompted to dispense with the said pleadings, with the end view of advancing the interests of justice and avoiding further delay.

In both petitions, FELS and NPC maintain that the appeal before the LBAA was not time-barred. FELS argues that when NPC moved to have the assessment reconsidered on September 7, 1995, the running of the period to file an appeal with the LBAA was tolled. For its part, NPC posits that the 60-day period for appealing to the LBAA should be reckoned from its receipt of the denial of its motion for reconsideration. 5 Petitioners’ contentions are bereft of merit.

Section 226 of R.A. No. 7160, otherwise known as the Local Government Code of 1991, provides:

SECTION 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

We note that the notice of assessment which the Provincial Assessor sent to FELS on August 7, 1995, contained the following statement:

If you are not satisfied with this assessment, you may, within sixty (60) days from the date of receipt hereof, appeal to the Board of Assessment Appeals of the province by filing a petition under oath on the form prescribed for the purpose, together with copies of ARP/Tax Declaration and such affidavits or documents submitted in support of the appeal.32

Instead of appealing to the Board of Assessment Appeals (as stated in the notice), NPC opted to file a motion for reconsideration of the Provincial Assessor’s decision, a remedy not sanctioned by law.

The remedy of appeal to the LBAA is available from an adverse ruling or action of the provincial, city or municipal assessor in the assessment of the property. It follows then that the determination made by the respondent Provincial Assessor with regard to the taxability of the subject real properties falls within its power to assess properties for taxation purposes subject to appeal before the LBAA.33

We fully agree with the rationalization of the CA in both CA-G.R. SP No. 67490 and CA-G.R. SP No. 67491. The two divisions of the appellate court cited the case of Callanta v. Office of the Ombudsman,34 where we ruled that under Section 226 of R.A. No 7160,35 the last action of the local assessor on a particular assessment shall be the notice of assessment; it is this last action which gives the owner of the property the right to appeal to the LBAA. The procedure likewise does not permit the property owner the remedy of filing a motion for reconsideration before the local assessor. The pertinent holding of the Court in Callanta is as follows: x x x [T]he same Code is equally clear that the aggrieved owners should have brought their appeals before the LBAA. Unfortunately, despite the advice to this effect contained in their respective notices of assessment, the owners chose to bring their requests for a review/readjustment before the city assessor, a remedy not sanctioned by the law. To allow this procedure would indeed invite corruption in the system of appraisal and assessment. It conveniently courts a graft-prone situation where values of real property may be initially set unreasonably high, and then subsequently reduced upon the request of a property owner. In the latter instance, allusions of a possible covert, illicit trade-off cannot be avoided, and in fact can conveniently take place. Such occasion for mischief must be prevented and excised from our system.36

For its part, the appellate court declared in CA-G.R. SP No. 67491: x x x. The Court announces: Henceforth, whenever the local assessor sends a notice to the owner or lawful possessor of real property of its revised assessed value, the former shall no longer have any jurisdiction to entertain any request for a review or readjustment. The appropriate forum where the aggrieved party may bring

6 his appeal is the LBAA as provided by law. It follows ineluctably that the 60-day period for making the appeal to the LBAA runs without interruption. This is what We held in SP 67490 and reaffirm today in SP 67491.37

To reiterate, if the taxpayer fails to appeal in due course, the right of the local government to collect the taxes due with respect to the taxpayer’s property becomes absolute upon the expiration of the period to appeal.38 It also bears stressing that the taxpayer’s failure to question the assessment in the LBAA renders the assessment of the local assessor final, executory and demandable, thus, precluding the taxpayer from questioning the correctness of the assessment, or from invoking any defense that would reopen the question of its liability on the merits.39

In fine, the LBAA acted correctly when it dismissed the petitioners’ appeal for having been filed out of time; the CBAA and the appellate court were likewise correct in affirming the dismissal. Elementary is the rule that the perfection of an appeal within the period therefor is both mandatory and jurisdictional, and failure in this regard renders the decision final and executory.40

In the Comment filed by the Provincial Assessor, it is asserted that the instant petition is barred by res judicata; that the final and executory judgment in G.R. No. 165113 (where there was a final determination on the issue of prescription), effectively precludes the claims herein; and that the filing of the instant petition after an adverse judgment in G.R. No. 165113 constitutes forum shopping.

FELS maintains that the argument of the Provincial Assessor is completely misplaced since it was not a party to the erroneous petition which the NPC filed in G.R. No. 165113. It avers that it did not participate in the aforesaid proceeding, and the Supreme Court never acquired jurisdiction over it. As to the issue of forum shopping, petitioner claims that no forum shopping could have been committed since the elements of litis pendentia or res judicata are not present.

We do not agree.

Res judicata pervades every organized system of jurisprudence and is founded upon two grounds embodied in various maxims of common law, namely: (1) public policy and necessity, which makes it to the interest of the

State that there should be an end to litigation – republicae ut sit litium; and (2) the hardship on the individual of being vexed twice for the same cause – nemo debet bis vexari et eadem causa. A conflicting doctrine would subject the public peace and quiet to the will and dereliction of individuals and prefer the regalement of the litigious disposition on the part of suitors to the preservation of the public tranquility and happiness.41 As we ruled in Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals:42 x x x An existing final judgment or decree – rendered upon the merits, without fraud or collusion, by a court of competent jurisdiction acting upon a matter within its authority – is conclusive on the rights of the parties and their privies. This ruling holds in all other actions or suits, in the same or any other judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.

x x x

Courts will simply refuse to reopen what has been decided. They will not allow the same parties or their privies to litigate anew a question once it has been considered and decided with finality. Litigations must end and terminate sometime and somewhere. The effective and efficient administration of justice requires

7 that once a judgment has become final, the prevailing party should not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same parties.

This is in accordance with the doctrine of res judicata which has the following elements: (1) the former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and the second actions, identity of parties, subject matter and causes of action. The application of the doctrine of res judicata does not require absolute identity of parties but merely substantial identity of parties. There is substantial identity of parties when there is community of interest or privity of interest between a party in the first and a party in the second case even if the first case did not implead the latter.43

To recall, FELS gave NPC the full power and authority to represent it in any proceeding regarding real property assessment. Therefore, when petitioner NPC filed its petition for review docketed as G.R. No. 165113, it did so not only on its behalf but also on behalf of FELS. Moreover, the assailed decision in the earlier petition for review filed in this Court was the decision of the appellate court in CA-G.R. SP No. 67490, in which FELS was the petitioner. Thus, the decision in G.R. No. 165116 is binding on petitioner FELS under the principle of privity of interest. In fine, FELS and NPC are substantially "identical parties" as to warrant the application of res judicata. FELS’s argument that it is not bound by the erroneous petition filed by NPC is thus unavailing.

On the issue of forum shopping, we rule for the Provincial Assessor. Forum shopping exists when, as a result of an adverse judgment in one forum, a party seeks another and possibly favorable judgment in another forum other than by appeal or special civil action or certiorari. There is also forum shopping when a party institutes two or more actions or proceedings grounded on the same cause, on the gamble that one or the other court would make a favorable disposition. 44

Petitioner FELS alleges that there is no forum shopping since the elements of res judicata are not present in the cases at bar; however, as already discussed, res judicata may be properly applied herein. Petitioners engaged in forum shopping when they filed G.R. Nos. 168557 and 170628 after the petition for review in G.R. No. 165116. Indeed, petitioners went from one court to another trying to get a favorable decision from one of the tribunals which allowed them to pursue their cases.

It must be stressed that an important factor in determining the existence of forum shopping is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs.45 The rationale against forum shopping is that a party should not be allowed to pursue simultaneous remedies in two different fora. Filing multiple petitions or complaints constitutes abuse of court processes, which tends to degrade the administration of justice, wreaks havoc upon orderly judicial procedure, and adds to the congestion of the heavily burdened dockets of the courts.46

Thus, there is forum shopping when there exist: (a) identity of parties, or at least such parties as represent the same interests in both actions, (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and (c) the identity of the two preceding particulars is such that any judgment rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other.47

Having found that the elements of res judicata and forum shopping are present in the consolidated cases, a discussion of the other issues is no longer necessary. Nevertheless, for the peace and contentment of petitioners, we shall shed light on the merits of the case.

As found by the appellate court, the CBAA and LBAA power barges are real property and are thus subject to real property tax. This is also the inevitable conclusion, considering that G.R. No. 165113 was dismissed for failure to sufficiently show any reversible error. Tax assessments by tax examiners are presumed

8 correct and made in good faith, with the taxpayer having the burden of proving otherwise.48 Besides, factual findings of administrative bodies, which have acquired expertise in their field, are generally binding and conclusive upon the Court; we will not assume to interfere with the sensible exercise of the judgment of men especially trained in appraising property. Where the judicial mind is left in doubt, it is a sound policy to leave the assessment undisturbed. 49 We find no reason to depart from this rule in this case.

In Consolidated Edison Company of New York, Inc., et al. v. The City of New York, et al.,50 a power company brought an action to review property tax assessment. On the city’s motion to dismiss, the Supreme Court of New York held that the barges on which were mounted gas turbine power plants designated to generate electrical power, the fuel oil barges which supplied fuel oil to the power plant barges, and the accessory equipment mounted on the barges were subject to real property taxation.

Moreover, Article 415 (9) of the New Civil Code provides that "[d]ocks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast" are considered immovable property. Thus, power barges are categorized as immovable property by destination, being in the nature of machinery and other implements intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work.51

Petitioners maintain nevertheless that the power barges are exempt from real estate tax under Section 234 (c) of R.A. No. 7160 because they are actually, directly and exclusively used by petitioner NPC, a government- owned and controlled corporation engaged in the supply, generation, and transmission of electric power.

We affirm the findings of the LBAA and CBAA that the owner of the taxable properties is petitioner FELS, which in fine, is the entity being taxed by the local government. As stipulated under Section 2.11, Article 2 of the Agreement:

OWNERSHIP OF POWER BARGES. POLAR shall own the Power Barges and all the fixtures, fittings, machinery and equipment on the Site used in connection with the Power Barges which have been supplied by it at its own cost. POLAR shall operate, manage and maintain the Power Barges for the purpose of converting Fuel of NAPOCOR into electricity.52

It follows then that FELS cannot escape liability from the payment of realty taxes by invoking its exemption in Section 234 (c) of R.A. No. 7160, which reads:

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

x x x

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

Indeed, the law states that the machinery must be actually, directly and exclusively used by the government owned or controlled corporation; nevertheless, petitioner FELS still cannot find solace in this provision because Section 5.5, Article 5 of the Agreement provides:

9 OPERATION. POLAR undertakes that until the end of the Lease Period, subject to the supply of the necessary Fuel pursuant to Article 6 and to the other provisions hereof, it will operate the Power Barges to convert such Fuel into electricity in accordance with Part A of Article 7.53

It is a basic rule that obligations arising from a contract have the force of law between the parties. Not being contrary to law, morals, good customs, public order or public policy, the parties to the contract are bound by its terms and conditions.54

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception.55 The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. 56 Thus, applying the rule of strict construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial corporations, we hold that FELS is considered a taxable entity.

The mere undertaking of petitioner NPC under Section 10.1 of the Agreement, that it shall be responsible for the payment of all real estate taxes and assessments, does not justify the exemption. The privilege granted to petitioner NPC cannot be extended to FELS. The covenant is between FELS and NPC and does not bind a third person not privy thereto, in this case, the Province of Batangas.

It must be pointed out that the protracted and circuitous litigation has seriously resulted in the local government’s deprivation of revenues. The power to tax is an incident of sovereignty and is unlimited in its magnitude, acknowledging in its very nature no perimeter so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay for it.57 The right of local government units to collect taxes due must always be upheld to avoid severe tax erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments 58 and the objective of the Local Government Code that they enjoy genuine and meaningful local autonomy to empower them to achieve their fullest development as self- reliant communities and make them effective partners in the attainment of national goals.59

In conclusion, we reiterate that the power to tax is the most potent instrument to raise the 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.60

WHEREFORE, the Petitions are DENIED and the assailed Decisions and Resolutions AFFIRMED.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 155076 February 27, 2006 LUIS MARCOS P. LAUREL, Petitioner, vs. HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati City, Branch 150, PEOPLE OF THE PHILIPPINES& PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Respondents. 10 D E C I S I O N

CALLEJO, SR., J.:

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

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

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

One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet) which sells "Bay Super Orient Card" phone cards to people who call their friends and relatives in the Philippines. With said card, one is entitled to a 27-minute call to the Philippines for about ¥37.03 per minute. After dialing the ISR access number indicated in the phone card, the ISR operator requests the subscriber to give the PIN number also indicated in the phone card. Once the caller’s identity (as purchaser of the phone card) is confirmed, the ISR operator will then provide a Philippine local line to the requesting caller via the IPL. According to PLDT, calls made through the IPL never pass the toll center of IGF operators in the Philippines. Using the local line, the Baynet card user is able to place a call to any point in the Philippines, provided the local line is National Direct Dial (NDD) capable.5

PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course its incoming international long distance calls from Japan. The IPL is linked to switching equipment, which is then connected to PLDT telephone lines/numbers and equipment, with Baynet as subscriber. Through the use of the telephone lines and other auxiliary equipment, Baynet is able to connect an international long distance call from Japan to any part of the Philippines, and make it appear as a call originating from Metro Manila. Consequently, the operator of an ISR is able to evade payment of access, termination or bypass charges and accounting rates, as well as compliance with the regulatory requirements of the NTC. Thus, the ISR operator offers international telecommunication services at a lower rate, to the damage and prejudice of legitimate operators like PLDT.6

11 PLDT pointed out that Baynet utilized the following equipment for its ISR activities: lines, cables, and antennas or equipment or device capable of transmitting air waves or frequency, such as an IPL and telephone lines and equipment; computers or any equipment or device capable of accepting information applying the prescribed process of the information and supplying the result of this process; modems or any equipment or device that enables a data terminal equipment such as computers to communicate with other data terminal equipment via a telephone line; multiplexers or any equipment or device that enables two or more signals from different sources to pass through a common cable or transmission line; switching equipment, or equipment or device capable of connecting telephone lines; and software, diskettes, tapes or equipment or device used for recording and storing information.7

PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone lines/numbers.8 Based on the Traffic Study conducted on the volume of calls passing through Baynet’s ISR network which bypass the IGF toll center, PLDT incurred an estimated monthly loss of P10,185,325.96. 9 Records at the Securities and Exchange Commission (SEC) also revealed that Baynet was not authorized to provide international or domestic long distance telephone service in the country. The following are its officers: Yuji Hijioka, a Japanese national (chairman of the board of directors); Gina C. Mukaida, a Filipina (board member and president); Luis Marcos P. Laurel, a Filipino (board member and corporate secretary); Ricky Chan Pe, a Filipino (board member and treasurer); and Yasushi Ueshima, also a Japanese national (board member).

Upon complaint of PLDT against Baynet for network fraud, and on the strength of two search warrants10 issued by the RTC of Makati, Branch 147, National Bureau of Investigation (NBI) agents searched its office at the 7th Floor, SJG Building, Kalayaan Avenue, Makati City on November 8, 1999. Atsushi Matsuura, Nobuyoshi Miyake, Edourd D. Lacson and Rolando J. Villegas were arrested by NBI agents while in the act of manning the operations of Baynet. Seized in the premises during the search were numerous equipment and devices used in its ISR activities, such as multiplexers, modems, computer monitors, CPUs, antenna, assorted computer peripheral cords and microprocessors, cables/wires, assorted PLDT statement of accounts, parabolic antennae and voltage regulators.

State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a Resolution11 on January 28, 2000, finding probable cause for theft under Article 308 of the Revised Penal Code and Presidential Decree No. 40112 against the respondents therein, including Laurel.

On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of Makati City charging Matsuura, Miyake, Lacson and Villegas with theft under Article 308 of the Revised Penal Code. After conducting the requisite preliminary investigation, the State Prosecutor filed an Amended Information impleading Laurel (a partner in the law firm of Ingles, Laurel, Salinas, and, until November 19, 1999, a member of the board of directors and corporate secretary of Baynet), and the other members of the board of directors of said corporation, namely, Yuji Hijioka, Yasushi Ueshima, Mukaida, Lacson and Villegas, as accused for theft under Article 308 of the Revised Penal Code. The inculpatory portion of the Amended Information reads:

On or about September 10-19, 1999, or prior thereto, in Makati City, and within the jurisdiction of this Honorable Court, the accused, conspiring and confederating together and all of them mutually helping and aiding one another, with intent to gain and without the knowledge and consent of the Philippine Long Distance Telephone (PLDT), did then and there willfully, unlawfully and feloniously take, steal and use the international long distance calls belonging to PLDT by conducting International Simple Resale (ISR), which is a method of routing and completing international long distance calls using lines, cables, antennae, and/or air wave frequency which connect directly to the local or domestic exchange facilities of the country where the call is destined, effectively stealing this business from PLDT while using its facilities in the estimated amount of P20,370,651.92 to the damage and prejudice of PLDT, in the said amount.

CONTRARY TO LAW.13

12 Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on the ground that the factual allegations in the Amended Information do not constitute the felony of theft under Article 308 of the Revised Penal Code. He averred that the Revised Penal Code, or any other special penal law for that matter, does not prohibit ISR operations. He claimed that telephone calls with the use of PLDT telephone lines, whether domestic or international, belong to the persons making the call, not to PLDT. He argued that the caller merely uses the facilities of PLDT, and what the latter owns are the telecommunication infrastructures or facilities through which the call is made. He also asserted that PLDT is compensated for the caller’s use of its facilities by way of rental; for an outgoing overseas call, PLDT charges the caller per minute, based on the duration of the call. Thus, no personal property was stolen from PLDT. According to Laurel, the P20,370,651.92 stated in the Information, if anything, represents the rental for the use of PLDT facilities, and not the value of anything owned by it. Finally, he averred that the allegations in the Amended Information are already subsumed under the Information for violation of Presidential Decree (P.D.) No. 401 filed and pending in the Metropolitan Trial Court of Makati City, docketed as Criminal Case No. 276766.

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

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

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

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

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

Laurel filed a Motion for Reconsideration17 of the Order, alleging that international long distance calls are not personal property, and are not capable of appropriation. He maintained that business or revenue is not considered personal property, and that the prosecution failed to adduce proof of its existence and the

13 subsequent loss of personal property belonging to another. Citing the ruling of the Court in United States v. De Guzman, 18Laurel averred that the case is not one with telephone calls which originate with a particular caller and terminates with the called party. He insisted that telephone calls are considered privileged communications under the Constitution and cannot be considered as "the property of PLDT." He further argued that there is no kinship between telephone calls and electricity or gas, as the latter are forms of energy which are generated and consumable, and may be considered as personal property because of such characteristic. On the other hand, the movant argued, the telephone business is not a form of energy but is an activity.

In its Order19 dated December 11, 2001, the RTC denied the movant’s Motion for Reconsideration. This time, it ruled that what was stolen from PLDT was its "business" because, as alleged in the Amended Information, the international long distance calls made through the facilities of PLDT formed part of its business. The RTC noted that the movant was charged with stealing the business of PLDT. To support its ruling, it cited Strochecker v. Ramirez, 20 where the Court ruled that interest in business is personal property capable of appropriation. It further declared that, through their ISR operations, the movant and his co-accused deprived PLDT of fees for international long distance calls, and that the ISR used by the movant and his co-accused was no different from the "jumper" used for stealing electricity.

Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the RTC. He alleged that the respondent judge gravely abused his discretion in denying his Motion to Quash the Amended Information.21 As gleaned from the material averments of the amended information, he was charged with stealing the international long distance calls belonging to PLDT, not its business. Moreover, the RTC failed to distinguish between the business of PLDT (providing services for international long distance calls) and the revenues derived therefrom. He opined that a "business" or its revenues cannot be considered as personal property under Article 308 of the Revised Penal Code, since a "business" is "(1) a commercial or mercantile activity customarily engaged in as a means of livelihood and typically involving some independence of judgment and power of decision; (2) a commercial or industrial enterprise; and (3) refers to transactions, dealings or intercourse of any nature." On the other hand, the term "revenue" is defined as "the income that comes back from an investment (as in real or personal property); the annual or periodical rents, profits, interests, or issues of any species of real or personal property."22

Laurel further posited that an electric company’s business is the production and distribution of electricity; a gas company’s business is the production and/or distribution of gas (as fuel); while a water company’s business is the production and distribution of potable water. He argued that the "business" in all these cases is the commercial activity, while the goods and merchandise are the products of such activity. Thus, in prosecutions for theft of certain forms of energy, it is the electricity or gas which is alleged to be stolen and not the "business" of providing electricity or gas. However, since a telephone company does not produce any energy, goods or merchandise and merely renders a service or, in the words of PLDT, "the connection and interconnection to their telephone lines/facilities," such service cannot be the subject of theft as defined in Article 308 of the Revised Penal Code.23

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

Laurel further cited the Resolution of the Secretary of Justice in Piltel v. Mendoza,25 where it was ruled that the Revised Penal Code, legislated as it was before present technological advances were even conceived, is not adequate to address the novel means of "stealing" airwaves or airtime. In said resolution, it was noted that the inadequacy prompted the filing of Senate Bill 2379 (sic) entitled "The Anti-Telecommunications Fraud of 1997" to deter cloning of cellular phones and other forms of communications fraud. The said bill "aims to protect in number (ESN) (sic) or Capcode, mobile identification number (MIN), electronic-international

14 mobile equipment identity (EMEI/IMEI), or subscriber identity module" and "any attempt to duplicate the data on another cellular phone without the consent of a public telecommunications entity would be punishable by law."26 Thus, Laurel concluded, "there is no crime if there is no law punishing the crime."

On August 30, 2002, the CA rendered judgment dismissing the petition.27 The appellate court ruled that a petition for certiorari under Rule 65 of the Rules of Court was not the proper remedy of the petitioner. On the merits of the petition, it held that while business is generally an activity which is abstract and intangible in form, it is nevertheless considered "property" under Article 308 of the Revised Penal Code. The CA opined that PLDT’s business of providing international calls is personal property which may be the object of theft, and cited United States v. Carlos28 to support such conclusion. The tribunal also cited Strochecker v. Ramirez,29 where this Court ruled that one-half interest in a day’s business is personal property under Section 2 of Act No. 3952, otherwise known as the Bulk Sales Law. The appellate court held that the operations of the ISR are not subsumed in the charge for violation of P.D. No. 401.

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

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

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

Petitioner avers that the petition for a writ of certiorari may be filed to nullify an interlocutory order of the trial court which was issued with grave abuse of discretion amounting to excess or lack of jurisdiction. In support of his petition before the Court, he reiterates the arguments in his pleadings filed before the CA. He further claims that while the right to carry on a business or an interest or participation in business is considered property under the New Civil Code, the term "business," however, is not. He asserts that the Philippine Legislature, which approved the Revised Penal Code way back in January 1, 1932, could not have contemplated to include international long distance calls and "business" as personal property under Article 308 thereof.

In its comment on the petition, the Office of the Solicitor General (OSG) maintains that the amended information clearly states all the essential elements of the crime of theft. Petitioner’s interpretation as to whether an "international long distance call" is personal property under the law is inconsequential, as a reading of the amended information readily reveals that specific acts and circumstances were alleged charging Baynet, through its officers, including petitioner, of feloniously taking, stealing and illegally using international long distance calls belonging to respondent PLDT by conducting ISR operations, thus, "routing and completing international long distance calls using lines, cables, antenna and/or airwave frequency which connect directly to the local or domestic exchange facilities of the country where the call is destined." The OSG maintains that the international long distance calls alleged in the amended information should be construed to mean "business" of PLDT, which, while abstract and intangible in form, is personal property susceptible of appropriation.31 The OSG avers that what was stolen by petitioner and his co-accused is the business of PLDT providing international long distance calls which, though intangible, is personal property of the PLDT. 32

For its part, respondent PLDT asserts that personal property under Article 308 of the Revised Penal Code comprehends intangible property such as electricity and gas which are valuable articles for merchandise, brought and sold like other personal property, and are capable of appropriation. It insists that the business of international calls and revenues constitute personal property because the same are valuable articles of merchandise. The respondent reiterates that international

15 calls involve (a) the intangible telephone services that are being offered by it, that is, the connection and interconnection to the telephone network, lines or facilities; (b) the use of its telephone network, lines or facilities over a period of time; and (c) the income derived in connection therewith. 33

PLDT further posits that business revenues or the income derived in connection with the rendition of such services and the use of its telephone network, lines or facilities are personal properties under Article 308 of the Revised Penal Code; so is the use of said telephone services/telephone network, lines or facilities which allow electronic voice signals to pass through the same and ultimately to the called party’s number. It is akin to electricity which, though intangible property, may nevertheless be appropriated and can be the object of theft. The use of respondent PLDT’s telephone network, lines, or facilities over a period of time for consideration is the business that it provides to its customers, which enables the latter to send various messages to intended recipients. Such use over a period of time is akin to merchandise which has value and, therefore, can be appropriated by another. According to respondent PLDT, this is what actually happened when petitioner Laurel and the other accused below conducted illegal ISR operations.34

The petition is meritorious.

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

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

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

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

16 Petitioner is correct.

An information or complaint must state explicitly and directly every act or omission constituting an offense38 and must allege facts establishing conduct that a penal statute makes criminal;39 and describes the property which is the subject of theft to advise the accused with reasonable certainty of the accusation he is called upon to meet at the trial and to enable him to rely on the judgment thereunder of a subsequent prosecution for the same offense. 40 It must show, on its face, that if the alleged facts are true, an offense has been committed. The rule is rooted on the constitutional right of the accused to be informed of the nature of the crime or cause of the accusation against him. He cannot be convicted of an offense even if proven unless it is alleged or necessarily included in the Information filed against him.

As a general prerequisite, a motion to quash on the ground that the Information does not constitute the offense charged, or any offense for that matter, should be resolved on the basis of said allegations whose truth and veracity are hypothetically committed;41 and on additional facts admitted or not denied by the prosecution.42 If the facts alleged in the Information do not constitute an offense, the complaint or information should be quashed by the court.43

We have reviewed the Amended Information and find that, as mentioned by the petitioner, it does not contain material allegations charging the petitioner of theft of personal property under Article 308 of the Revised Penal Code. It, thus, behooved the trial court to quash the Amended Information. The Order of the trial court denying the motion of the petitioner to quash the Amended Information is a patent nullity.

On the second issue, we find and so hold that the international telephone calls placed by Bay Super Orient Card holders, the telecommunication services provided by PLDT and its business of providing said services are not personal properties under Article 308 of the Revised Penal Code. The construction by the respondents of Article 308 of the said Code to include, within its coverage, the aforesaid international telephone calls, telecommunication services and business is contrary to the letter and intent of the law.

The rule is that, penal laws are to be construed strictly. Such rule is founded on the tenderness of the law for the rights of individuals and on the plain principle that the power of punishment is vested in Congress, not in the judicial department. It is Congress, not the Court, which is to define a crime, and ordain its punishment.44 Due respect for the prerogative of Congress in defining crimes/felonies constrains the Court to refrain from a broad interpretation of penal laws where a "narrow interpretation" is appropriate. The Court must take heed to language, legislative history and purpose, in order to strictly determine the wrath and breath of the conduct the law forbids.45 However, when the congressional purpose is unclear, the court must apply the rule of lenity, that is, ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity.46

Penal statutes may not be enlarged by implication or intent beyond the fair meaning of the language used; and may not be held to include offenses other than those which are clearly described, notwithstanding that the Court may think that Congress should have made them more comprehensive. 47 Words and phrases in a statute are to be construed according to their common meaning and accepted usage.

As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry the principle that a case which is within the reason or mischief of a statute is within its provision, so far as to punish a crime not enumerated in the statute because it is of equal atrocity, or of kindred character with those which are enumerated.48 When interpreting a criminal statute that does not explicitly reach the conduct in question, the Court should not base an expansive reading on inferences from subjective and variable understanding.49

17 Article 308 of the Revised Penal Code defines theft as follows:

Art. 308. Who are liable for theft.– Theft is committed by any person who, with intent to gain but without violence, against or intimidation of persons nor force upon things, shall take personal property of another without the latter’s consent.

The provision was taken from Article 530 of the Spanish Penal Code which reads:

1. Los que con ánimo de lucrarse, y sin violencia o intimidación en las personas ni fuerza en las cosas, toman las cosas muebles ajenas sin la voluntad de su dueño.50

For one to be guilty of theft, the accused must have an intent to steal (animus furandi) personal property, meaning the intent to deprive another of his ownership/lawful possession of personal property which intent is apart from and concurrently with the general criminal intent which is an essential element of a felony of dolo (dolus malus).

An information or complaint for simple theft must allege the following elements: (a) the taking of personal property; (b) the said property belongs to another; (c) the taking be done with intent to gain; and (d) the taking be accomplished without the use of violence or intimidation of person/s or force upon things. 51

One is apt to conclude that "personal property" standing alone, covers both tangible and intangible properties and are subject of theft under the Revised Penal Code. But the words "Personal property" under the Revised Penal Code must be considered in tandem with the word "take" in the law. The statutory definition of "taking" and movable property indicates that, clearly, not all personal properties may be the proper subjects of theft. The general rule is that, only movable properties which have physical or material existence and susceptible of occupation by another are proper objects of theft.52 As explained by Cuelo Callon: "Cosa juridicamente es toda sustancia corporal, material, susceptible de ser aprehendida que tenga un valor cualquiera."53

According to Cuello Callon, in the context of the Penal Code, only those movable properties which can be taken and carried from the place they are found are proper subjects of theft. Intangible properties such as rights and ideas are not subject of theft because the same cannot be "taken" from the place it is found and is occupied or appropriated.

Solamente las cosas muebles y corporales pueden ser objeto de hurto. La sustracción de cosas inmuebles y la cosas incorporales (v. gr., los derechos, las ideas) no puede integrar este delito, pues no es posible asirlas, tomarlas, para conseguir su apropiación. El Codigo emplea la expresión "cosas mueble" en el sentido de cosa que es susceptible de ser llevada del lugar donde se encuentra, como dinero, joyas, ropas, etcétera, asi que su concepto no coincide por completo con el formulado por el Codigo civil (arts. 335 y 336).54

Thus, movable properties under Article 308 of the Revised Penal Code should be distinguished from the rights or interests to which they relate. A naked right existing merely in contemplation of law, although it may be very valuable to the person who is entitled to exercise it, is not the subject of theft or larceny. 55 Such rights or interests are intangible and cannot be "taken" by another. Thus, right to produce oil, good will or an interest in business, or the right to engage in business, credit or franchise are properties. So is the credit line represented by a credit card. However, they are not proper subjects of theft or larceny because they are without form or substance, the mere "breath" of the Congress. On the other hand, goods, wares and merchandise of businessmen and credit cards issued to them are movable properties with physical and material existence and may be taken by another; hence, proper subjects of theft.

18 There is "taking" of personal property, and theft is consummated when the offender unlawfully acquires possession of personal property even if for a short time; or if such property is under the dominion and control of the thief. The taker, at some particular amount, must have obtained complete and absolute possession and control of the property adverse to the rights of the owner or the lawful possessor thereof.56 It is not necessary that the property be actually carried away out of the physical possession of the lawful possessor or that he should have made his escape with it.57 Neither asportation nor actual manual possession of property is required. Constructive possession of the thief of the property is enough.58

The essence of the element is the taking of a thing out of the possession of the owner without his privity and consent and without animus revertendi. 59

Taking may be by the offender’s own hands, by his use of innocent persons without any felonious intent, as well as any mechanical device, such as an access device or card, or any agency, animate or inanimate, with intent to gain. Intent to gain includes the unlawful taking of personal property for the purpose of deriving utility, satisfaction, enjoyment and pleasure.60

We agree with the contention of the respondents that intangible properties such as electrical energy and gas are proper subjects of theft. The reason for this is that, as explained by this Court in United States v. Carlos61 and United States v. Tambunting,62 based on decisions of the Supreme Court of Spain and of the courts in England and the United States of America, gas or electricity are capable of appropriation by another other than the owner. Gas and electrical energy may be taken, carried away and appropriated. In People v. Menagas,63 the Illinois State Supreme Court declared that electricity, like gas, may be seen and felt. Electricity, the same as gas, is a valuable article of merchandise, bought and sold like other personal property and is capable of appropriation by another. It is a valuable article of merchandise, bought and sold like other personal property, susceptible of being severed from a mass or larger quantity and of being transported from place to place. Electrical energy may, likewise, be taken and carried away. It is a valuable commodity, bought and sold like other personal property. It may be transported from place to place. There is nothing in the nature of gas used for illuminating purposes which renders it incapable of being feloniously taken and carried away.

In People ex rel Brush Electric Illuminating Co. v. Wemple,64 the Court of Appeals of New York held that electric energy is manufactured and sold in determinate quantities at a fixed price, precisely as are coal, kerosene oil, and gas. It may be conveyed to the premises of the consumer, stored in cells of different capacity known as an accumulator; or it may be sent through a wire, just as gas or oil may be transported either in a close tank or forced through a pipe. Having reached the premises of the consumer, it may be used in any way he may desire, being, like illuminating gas, capable of being transformed either into heat, light, or power, at the option of the purchaser. In Woods v. People,65 the Supreme Court of Illinois declared that there is nothing in the nature of gas used for illuminating purposes which renders it incapable of being feloniously taken and carried away. It is a valuable article of merchandise, bought and sold like other personal property, susceptible of being severed from a mass or larger quantity and of being transported from place to place.

Gas and electrical energy should not be equated with business or services provided by business entrepreneurs to the public. Business does not have an exact definition. Business is referred as that which occupies the time, attention and labor of men for the purpose of livelihood or profit. It embraces everything that which a person can be employed.66 Business may also mean employment, occupation or profession. Business is also defined as a commercial activity for gain benefit or advantage.67 Business, like services in business, although are properties, are not proper subjects of theft under the Revised Penal Code because the same cannot be "taken" or "occupied." If it were otherwise, as claimed by the respondents, there would be no juridical difference between the taking of the business of a person or the services provided by him for gain, vis-à-vis, the taking of goods, wares or merchandise, or equipment comprising his business. 68 If it was its intention to include "business" as personal property under Article 308 of the Revised Penal Code, the Philippine Legislature should have spoken in language that is clear and definite: that business is personal property under Article 308 of the Revised Penal Code.69

19 We agree with the contention of the petitioner that, as gleaned from the material averments of the Amended Information, he is charged of "stealing the international long distance calls belonging to PLDT" and the use thereof, through the ISR. Contrary to the claims of the OSG and respondent PLDT, the petitioner is not charged of stealing P20,370,651.95 from said respondent. Said amount of P20,370,651.95 alleged in the Amended Information is the aggregate amount of access, transmission or termination charges which the PLDT expected from the international long distance calls of the callers with the use of Baynet Super Orient Cards sold by Baynet Co. Ltd.

In defining theft, under Article 308 of the Revised Penal Code, as the taking of personal property without the consent of the owner thereof, the Philippine legislature could not have contemplated the human voice which is converted into electronic impulses or electrical current which are transmitted to the party called through the PSTN of respondent PLDT and the ISR of Baynet Card Ltd. within its coverage. When the Revised Penal Code was approved, on December 8, 1930, international telephone calls and the transmission and routing of electronic voice signals or impulses emanating from said calls, through the PSTN, IPL and ISR, were still non-existent. Case law is that, where a legislative history fails to evidence congressional awareness of the scope of the statute claimed by the respondents, a narrow interpretation of the law is more consistent with the usual approach to the construction of the statute. Penal responsibility cannot be extended beyond the fair scope of the statutory mandate.70

Respondent PLDT does not acquire possession, much less, ownership of the voices of the telephone callers or of the electronic voice signals or current emanating from said calls. The human voice and the electronic voice signals or current caused thereby are intangible and not susceptible of possession, occupation or appropriation by the respondent PLDT or even the petitioner, for that matter. PLDT merely transmits the electronic voice signals through its facilities and equipment. Baynet Card Ltd., through its operator, merely intercepts, reroutes the calls and passes them to its toll center. Indeed, the parties called receive the telephone calls from Japan.

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

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

The petitioner is not charged, under the Amended Information, for theft of telecommunication or telephone services offered by PLDT. Even if he is, the term "personal property" under Article 308 of the Revised Penal Code cannot be interpreted beyond its seams so as to include "telecommunication or telephone services" or computer services for that matter. The word "service" has a variety of meanings dependent upon the context, or the sense in which it is used; and, in some instances, it may include a sale. For instance, the sale of food by restaurants is usually referred to as "service," although an actual sale is involved. 74 It may also mean the duty or labor to be rendered by one person to another; performance of labor for the benefit of another. 75 In the case of PLDT, it is to render local and international telecommunications services and such other services as authorized by the CPCA issued by the NTC. Even at common law, neither time nor services may be taken and occupied or appropriated.76A service is generally not considered property and a theft of service would not, therefore, constitute theft since there

20 can be no caption or asportation.77 Neither is the unauthorized use of the equipment and facilities of PLDT by the petitioner theft under the aforequoted provision of the Revised Penal Code.78

If taking of telecommunication services or the business of a person, is to be proscribed, it must be by special statute 79 or an amendment of the Revised Penal Code. Several states in the United States, such as New York, New Jersey, California and Virginia, realized that their criminal statutes did not contain any provisions penalizing the theft of services and passed laws defining and penalizing theft of telephone and computer services. The Pennsylvania Criminal Statute now penalizes theft of services, thus:

(a) Acquisition of services. --

(1) A person is guilty of theft if he intentionally obtains services for himself or for another which he knows are available only for compensation, by deception or threat, by altering or tampering with the public utility meter or measuring device by which such services are delivered or by causing or permitting such altering or tampering, by making or maintaining any unauthorized connection, whether physically, electrically or inductively, to a distribution or transmission line, by attaching or maintaining the attachment of any unauthorized device to any cable, wire or other component of an electric, telephone or cable television system or to a television receiving set connected to a cable television system, by making or maintaining any unauthorized modification or alteration to any device installed by a cable television system, or by false token or other trick or artifice to avoid payment for the service.

In the State of Illinois in the United States of America, theft of labor or services or use of property is penalized:

(a) A person commits theft when he obtains the temporary use of property, labor or services of another which are available only for hire, by means of threat or deception or knowing that such use is without the consent of the person providing the property, labor or services.

In 1980, the drafters of the Model Penal Code in the United States of America arrived at the conclusion that labor and services, including professional services, have not been included within the traditional scope of the term "property" in ordinary theft statutes. Hence, they decided to incorporate in the Code Section 223.7, which defines and penalizes theft of services, thus:

(1) A person is guilty of theft if he purposely obtains services which he knows are available only for compensation, by deception or threat, or by false token or other means to avoid payment for the service. "Services" include labor, professional service, transportation, telephone or other public service, accommodation in hotels, restaurants or elsewhere, admission to exhibitions, use of vehicles or other movable property. Where compensation for service is ordinarily paid immediately upon the rendering of such service, as in the case of hotels and restaurants, refusal to pay or absconding without payment or offer to pay gives rise to a presumption that the service was obtained by deception as to intention to pay; (2) A person commits theft if, having control over the disposition of services of others, to which he is not entitled, he knowingly diverts such services to his own benefit or to the benefit of another not entitled thereto.

Interestingly, after the State Supreme Court of Virginia promulgated its decision in Lund v. Commonwealth,80declaring that neither time nor services may be taken and carried away and are not proper subjects of larceny, the General Assembly of Virginia enacted Code No. 18-2-98 which reads:

21 Computer time or services or data processing services or information or data stored in connection therewith is hereby defined to be property which may be the subject of larceny under § § 18.2-95 or 18.2-96, or embezzlement under § 18.2-111, or false pretenses under § 18.2-178.

In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of 1975 penalizes theft of services:

"A person commits the crime of theft of services if: (a) He intentionally obtains services known by him to be available only for compensation by deception, threat, false token or other means to avoid payment for the services …"

In the Philippines, Congress has not amended the Revised Penal Code to include theft of services or theft of business as felonies. Instead, it approved a law, Republic Act No. 8484, otherwise known as the Access Devices Regulation Act of 1998, on February 11, 1998. Under the law, an access device means any card, plate, code, account number, electronic serial number, personal identification number and other telecommunication services, equipment or instrumentalities- identifier or other means of account access that can be used to obtain money, goods, services or any other thing of value or to initiate a transfer of funds other than a transfer originated solely by paper instrument. Among the prohibited acts enumerated in Section 9 of the law are the acts of obtaining money or anything of value through the use of an access device, with intent to defraud or intent to gain and fleeing thereafter; and of effecting transactions with one or more access devices issued to another person or persons to receive payment or any other thing of value. Under Section 11 of the law, conspiracy to commit access devices fraud is a crime. However, the petitioner is not charged of violation of R.A. 8484.

Significantly, a prosecution under the law shall be without prejudice to any liability for violation of any provisions of the Revised Penal Code inclusive of theft under Rule 308 of the Revised Penal Code and estafa under Article 315 of the Revised Penal Code. Thus, if an individual steals a credit card and uses the same to obtain services, he is liable of the following: theft of the credit card under Article 308 of the Revised Penal Code; violation of Republic Act No. 8484; and estafa under Article 315(2)(a) of the Revised Penal Code with the service provider as the private complainant. The petitioner is not charged of estafa before the RTC in the Amended Information.

Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:

Sec. 33. Penalties.— The following Acts shall be penalized by fine and/or imprisonment, as follows: a) Hacking or cracking which refers to unauthorized access into or interference in a computer system/server or information and communication system; or any access in order to corrupt, alter, steal, or destroy using a computer or other similar information and communication devices, without the knowledge and consent of the owner of the computer or information and communications system, including the introduction of computer viruses and the like, resulting on the corruption, destruction, alteration, theft or loss of electronic data messages or electronic documents shall be punished by a minimum fine of One hundred thousand pesos (P100,000.00) and a maximum commensurate to the damage incurred and a mandatory imprisonment of six (6) months to three (3) years.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders of the Regional Trial Court and the Decision of the Court of Appeals are REVERSED and SET ASIDE. The Regional Trial Court is directed to issue an order granting the motion of the petitioner to quash the Amended Information.

SO ORDERED.

22 Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

G.R. No. 179408, March 05, 2014

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner, v. ABIGAIL R. RAZON ALVAREZ AND VERNON R. RAZON, Respondents.

D E C I S I O N

BRION, J.:

Before the Court is a petition for review on certiorari1 assailing the decision2 dated August 11, 2006 and the resolution3 dated August 22, 2007 of the Court of Appeals (CA) in CA–G.R. SP No. 89213 on the validity of the four search warrants issued by the Regional Trial Court (RTC) of Pasay City, Branch 115.

The CA rulings (i) quashed the first two search warrants, similarly docketed as Search Warrant No. 03–063, issued for violation of Article 308, in relation to Article 309, of the Revised Penal Code (RPC), and (ii) declared void paragraphs 7, 8 and 9 of the other two search warrants, also similarly docketed as Search Warrant No. 03–064, issued for violation of Presidential Decree (PD) No. 401.4

FACTUAL ANTECEDENTS

Philippine Long Distance Telephone Company (PLDT) is the grantee of a legislative franchise5 which authorizes it to carry on the business of providing basic and enhanced telecommunications services in and between areas in the Philippines and between the Philippines and other countries and territories, 6and, accordingly, to establish, operate, manage, lease, maintain and purchase telecommunications system for both domestic and international calls.7 Pursuant to its franchise, PLDT offers to the public wide range of services duly authorized by the National Telecommunications Commission (NTC).

PLDT’s network is principally composed of the Public Switch Telephone Network, telephone handsets and/or telecommunications equipment used by its subscribers, the wires and cables linking these handsets and/or equipment, antennae, transmission facilities, the international gateway facility (IGF) and other telecommunications equipment providing interconnections.8 To safeguard the integrity of its network, PLDT regularly conducts investigations on various prepaid cards marketed and sold abroad to determine alternative calling patterns (ACP) and network fraud that are being perpetrated against it.

To prevent or stop network fraud, PLDT’s ACP Detection Division (ACPDD) regularly visits foreign countries to conduct market research on various prepaid phone cards offered abroad that allow their users to make overseas calls to PLDT subscribers in the Philippines at a cheaper rate.

The ACPDD bought The Number One prepaid card — a card principally marketed to Filipinos residing in the United Kingdom for calls to the Philippines – to make test calls using two telephone lines: the dialing phone – an IDD–capable9 telephone line which makes the call and through which the access number and the PIN 23 number printed at the back of the card are entered; and the receiving phone – a caller identification (caller id) unit–equipped telephone line which would receive the call and reflect the incoming caller’s telephone number.

During a test call placed at the PLDT–ACPDD office, the receiving phone reflected a PLDT telephone number (2–8243285) as the calling number used, as if the call was originating from a local telephone in Metro Manila. Upon verification with the PLDT’s Integrated Customer Management (billing) System, the ACPDD learned that the subscriber of the reflected telephone number is Abigail R. Razon Alvarez, with address at 17 Dominic Savio St., Savio Compound, Barangay Don Bosco, Parañaque City. It further learned that several lines are installed at this address with Abigail and Vernon R. Razon (respondents), among others, as subscribers.10

To validate its findings, the ACPDD conducted the same test calls on November 5, 2003 at the premises of the NTC in Quezon City (and in the presence of an NTC representative11) using the same prepaid card (validation test). The receiving phone at the NTC premises reflected the telephone numbers registered in the name of Abigail as the calling number from the United Kingdom.12

Similar test calls subsequently conducted using the prepaid cards Unity Card and IDT Supercalling Card revealed the same results. The caller–id–equipped receiving phone reflected telephone numbers13 that are in the names of Experto Enterprises and Experto Phils, as subscribers, with a common address at No. 38 Indonesia St., Better Living Subdivision, Barangay Don Bosco, Parañaque City. It turned out that the actual occupant of these premises is also Abigail. Subsequently, a validation test was also conducted, yielding several telephone numbers registered in the name of Experto Phils./Experto Enterprises as the calling numbers supposedly from the United Kingdom.14

According to PLDT, had an ordinary and legitimate call been made, the screen of the caller–id–equipped receiving phone would not reflect a local number or any number at all. In the cards they tested, however, once the caller enters the access and pin numbers, the respondents would route the call via the internet to a local telephone number (in this case, a PLDT telephone number) which would connect the call to the receiving phone. Since calls through the internet never pass the toll center of the PLDT’s IGF, users of these prepaid cards can place a call to any point in the Philippines (provided the local line is NDD–capable) without the call appearing as coming from abroad.15

On November 6, 2003 and November 19, 2003, Mr. Lawrence Narciso of the PLDT’s Quality Control Division, together with the operatives of the Philippine National Police (PNP), conducted an ocular inspection at 17 Dominic Savio St., Savio Compound and at No. 38 Indonesia St., Better Living Subdivision – both in Barangay Don Bosco, Paranaque City – and discovered that PLDT telephone lines were connected to several pieces of equipment. 16 Mr. Narciso narrated the results of the inspection, thus – 10. During [the] ocular inspection [at 17 Dominic Savio St., Savio Compound], Ms. Abigail Razon Alvarez allowed us to gain entry and check the telephone installations within their premises. First, we checked the location of the telephone protectors that are commonly installed at a concrete wall boundary inside the compound. Some of these protectors are covered with a fabricated wooden cabinet. Other protectors are installed beside the said wooden cabinet, xxx. The inside wiring installations from telephone protectors to connecting block were routed to the said adjacent room passing through the house ceiling.

11. xxx. Upon entering the so–called adjacent room, we immediately noticed that the PLDT telephone lines were connected to the equipment situated at multi– layered rack. The equipment room contains the following: a. 6 Quintum router; b. 13 Com router; c. 1 Cisco 800 router; d. 1 Nokia Modem for PLDT DSL; e. 1 Meridian Subscriber’s Unit[;] 24 f. 5 Personal Computers[;] g. 1 Computer Printer[; and] h. 1 Flat–bed Scanner[.] 12. We also noticed that these routers are connected to the Meridian’s subscriber unit ("SU” ) that has an outdoor antenna installed on the top of the roof. Meridian’s SU and outdoor antenna are service components used to connect with wireless broadband internet access service of Meridian Telekoms. xxxx

18. During the site inspection [at No. 38 Indonesia St., Better Living Subdivision], we noticed that the protector of each telephone line/number xxx were enclosed in a fabricated wooden cabinet with safety padlock. Said wooden cabinet was situated on the concrete wall inside the compound near the garage entrance gate. The telephone inside the wiring installations from the protector to the connecting blocks were placed in a plastic electrical conduit routed to the adjacent room at the second floor.17 On December 3, 2003, Police Superintendent Gilbert C. Cruz filed a consolidated application for a search warrant18 before Judge Francisco G. Mendiola of the RTC, for the crimes of theft and violation of PD No. 401. According to PLDT, the respondents are engaged in a form of network fraud known as International Simple Resale (ISR) which amounts to theft under the RPC.

ISR is a method of routing and completing international long distance calls using lines, cables, antennae and/or wave frequencies which are connected directly to the domestic exchange facilities of the country where the call is destined (terminating country); and, in the process, bypassing the IGF at the terminating country.19

Judge Mendiola found probable cause for the issuance of the search warrants applied for. Accordingly, four search warrants20 were issued for violations of Article 308, in relation to Article 309, of the RPC (SW A–1 and SW A–2) and of PD No. 401, as amended (SW B–1 and SW B–2) for the ISR activities being conducted at 17 Dominic Savio St., Savio Compound and at No. 38 Indonesia St., Better Living Subdivision, both in Barangay Don Bosco, Paranaque City. The four search warrants enumerated the objects to be searched and seized as follows: 1. MERIDIAN SUBSCRIBERS UNIT AND PLDT DSL LINES and/or CABLES AND ANTENNAS and/or similar equipment or device capable of transmitting air waves or frequency, such as a Meridian Subscriber’s Unit, Broadband DSL and telephone lines;

2. PERSONAL COMPUTERS or any similar equipment or device capable of accepting information applying the prescribed process of the information and supplying the result of this process;

3. NOKIA MODEM or any similar equipment or device that enables data terminal equipment such as computers to communicate with other data terminal equipment via a telephone line;

4. QUINTUM Equipment or any similar equipment capable of receiving digital signals from the internet and converting those signals to voice;

5. QUINTUM, 3COM AND CISCO Routers or any similar equipment capable of switching packets of data to their assigned destination or addresses;

6. LINKS DSL SWITCH or any similar equipment capable of switching data;

7. COMPUTER PRINTERS AND SCANNERS or any similar equipment or device used for copying and/or printing data and/or information;

25 8. SOFTWARE, DISKETTES, TAPES or any similar equipment or device used for recording or storing information; and

9. Manuals, phone cards, access codes, billing statements, receipts, contracts, checks, orders, communications and documents, lease and/or subscription agreements or contracts, communications and documents relating to securing and using telephone lines and/or equipment[.]21 On the same date, the PNP searched the premises indicated in the warrants. On December 10, 2003, a return was made with a complete inventory of the items seized.22 On January 14, 2004, the PLDT and the PNP filed with the Department of Justice a joint complaint–affidavit for theft and for violation of PD No. 401 against the respondents.23

On February 18, 2004, the respondents filed with the RTC a motion to quash24 the search warrants essentially on the following grounds: first, the RTC had no authority to issue search warrants which were enforced in Parañaque City; second, the enumeration of the items to be searched and seized lacked particularity; and third, there was no probable cause for the crime of theft.

On March 12, 2004, PLDT opposed the respondents' motion.25

In a July 6, 2004 order,26 the RTC denied the respondents' motion to quash. Having been rebuffed27in their motion for reconsideration,28 the respondents filed a petition for certiorari with the CA.” 29

RULING OF THE CA

On August 11, 2006, the CA rendered the assailed decision and resolution, granting the respondents' petition for certiorari. The CA quashed SW A–l and SW A– 2 (for theft) on the ground that they were issued for “non–existent crimes.” 30 According to the CA, inherent in the determination of probable cause for the issuance of search warrant is the accompanying determination that an offense has been committed. Relying on this Court’s decision in Laurel v. Judge Abrogar,31 the CA ruled that the respondents could not have possibly committed the crime of theft because PLDT’s business of providing telecommunication services and these services themselves are not personal properties contemplated under Article 308 of the RPC.

With respect to SW B–l and SW B–2 (for violation of PD No. 401), the CA upheld paragraphs one to six of the enumeration of items subject of the search. The CA held that the stock phrase “or similar equipment or device” found in paragraphs one to six of the search warrants did not make it suffer from generality since each paragraph’s enumeration of items was sufficiently qualified by the citation of the specific objects to be seized and by its functions which are inherently connected with the crime allegedly committed.

The CA, however, nullified the ensuing paragraphs, 7, 8 and 9, for lack of particularity and ordered the return of the items seized under these provisions. While the same stock phrase appears in paragraphs 7 and 8, the properties described therein – i.e., printer and scanner, software, diskette and tapes – include even those for the respondents' personal use, making the description of the things to be seized too general in nature.

With the denial of its motion for reconsideration,32 PLDT went to this Court via this Rule 45 petition.

THE PETITIONER'S ARGUMENTS

PLDT faults the CA for relying on Laurel on three grounds: first, Laurel cannot be cited yet as an authority under the principle of stare decisis because Laurel is not yet final and executory; in fact, it is the subject of a pending motion for reconsideration filed by PLDT itself; second, even assuming that Laurel is already final, the facts in Laurel vary from the present case. Laurel involves the quashalof an information on the ground that the information does not charge any offense; hence, the determination of the existence of the elements of the crime of theft is indispensable in resolving the motion to quash. In contrast, the present case involves the quashal of a search warrant. Third, accordingly, in resolving the motion, the issuing court only has to be convinced that there is probable cause to hold that: (i) the

26 items to be seized are connected to a criminal activity; and (ii) these items are found in the place to be searched. Since the matter of quashing a search warrant may be rooted on matters “extrinsic of the search warrant,” 33 the issuing court does not need to look into the elements of the crime allegedly committed in the same manner that the CA did in Laurel.

PLDT adds that a finding of grave abuse of discretion in the issuance of search warrant may be justified only when there is “disregard of the requirements for the issuance of a search warrant[.]” 34In the present case, the CA did not find (and could not have found) any grave abuse of discretion on the part of the RTC because at the time the RTC issued the search warrants in 2003, Laurel had not yet been promulgated.

In defending the validity of the nullified provisions of SW B–l and SW B–2, PLDT argues that PD No. 401 also punishes unauthorized installation of telephone connections. Since the enumerated items are connected to the computers that are illegally connected to PLDT telephone lines, then these items bear a direct relation to the offense of violation of PD No. 401, justifying their seizure.

The enumeration in paragraph 8 is likewise a proper subject of seizure because they are the fruits of the offense as they contain information on PLDT’s business profit and other information relating to the commission of violation of PD No. 401. Similarly, paragraph 9 specifies the fruits and evidence of violation of PD No. 401 since it supports PLDT’s claim that the respondents have made a business out of their illegal connections to PLDT lines.

THE RESPONDENTS' ARGUMENTS

The respondents counter that while Laurel may not yet be final, at least it has a persuasive effect as the current jurisprudence on the matter. Even without Laurel, the CA’s nullification of SW A–l and SW A–2 can withstand scrutiny because of the novelty of the issue presented before it. The nullification of paragraphs 7, 8 and 9 of SW B–l and SW B–2 must be upheld not only on the ground of broadness but for lack of any relation whatsoever with PD No. 401 which punishes the theft of electricity.

OUR RULING

We partially grant the petition.

Laurel and its reversal by the Court En Banc

Before proceeding with the case, a review of Laurel is in order as it involves substantially similar facts as in the present case.

Baynet Co., Ltd. (Baynet) sells prepaid cards, “Bay Super Orient Card,” that allow their users to place a call to the Philippines from Japan. PLDT asserted that Baynet is engaged in ISR activities by using an international private leased line (IPL) to course Baynet’s incoming international long distance calls. The IPL is linked to a switching equipment, which is then connected to PLDT telephone lines/numbers and equipment, with Baynet as subscriber.

To establish its case, PLDT obtained a search warrant. On the strength of the items seized during the search of Baynet’s premises, the prosecutor found probable cause for theft against Luis Marcos Laurel (Laurel) and other Baynet officials. Accordingly, an information was filed, alleging that the Baynet officials “take, steal and use the international long distance calls belonging to PLDT by [ISR activities] xxx effectively stealing this business from PLDT while using its facilities in the estimated amount of P20,370,651.92 to the damage and prejudice of PLDT[.]” 35

Laurel moved to quash the information on the bold assertion that ISR activities do not constitute a crime under Philippine law. Laurel argued that an ISR activity cannot entail taking of personal property because the international long distance telephone calls using PLDT telephone lines belong to the caller himself; the amount stated in the information, if at all, represents the rentals due PLDT for the caller’s usage of its facilities. Laurel argued that the business of providing international long distance calls, i.e., PLDT’s service, and the revenue derived therefrom are not personal property that can be appropriated. 27 Laurel went to the Court after failing to secure the desired relief from the trial and appellate courts,36raising the core issue of whether PLDT’s business of providing telecommunication services for international long distance calls is a proper subject of theft under Article 308 of the RPC. The Court’s First Division granted Laurel’s petition and ordered the quashal of the information.

Taking off from the basic rule that penal laws are construed strictly against the State, the Court ruled that international long distance calls and the business of providing telecommunication or telephone services by PLDT are not personal properties that can be the subject of theft. One is apt to conclude that “personal property” standing alone, covers both tangible and intangible properties and are subject of theft under the Revised Penal Code. But the words “Personal property” under the Revised Penal Code must be considered in tandem with the word “take” in the law. The statutory definition of “taking” and movable property indicates that, clearly, not all personal properties may be the proper subjects of theft. The general rule is that, only movable properties which have physical or material existence and susceptible of occupation by another are proper objects of theft, xxx. xxxx xxx. Business, like services in business, although are properties, are not proper subjects of theft under the Revised Penal Code because the same cannot be “taken” or “occupied.” If it were otherwise, xxx there would be no juridical difference between the taking of the business of a person or the services provided by him for gain, vis–a–vis, the taking of goods, wares or merchandise, or equipment comprising his business. If it was its intention to include “business” as personal property under Article 308 of the Revised Penal Code, the Philippine Legislature should have spoken in language that is clear and definite: that business is personal property under Article 308 of the Revised Penal Code. xxxx

The petitioner is not charged, under the Amended Information, for theft of telecommunication or telephone services offered by PLDT. Even if he is, the term “personal property” under Article 308 of the Revised Penal Code cannot be interpreted beyond its seams so as to include “telecommunication or telephone services” or computer services for that matter. xxx. Even at common law, neither time nor services may be taken and occupied or appropriated. A service is generally not considered property and a theft of service would not, therefore, constitute theft since there can be no caption or asportation. Neither is the unauthorized use of the equipment and facilities of PLDT by [Laurel] theft under [Article 308].

If it was the intent of the Philippine Legislature, in 1930, to include services to be the subject of theft, it should have incorporated the same in Article 308 of the Revised Penal Code. The Legislature did not. In fact, the Revised Penal Code does not even contain a definition of services. 37 PLDT38 moved for reconsideration and referral of the case to the Court En Banc. The Court’s First Division granted the referral.

On January 13, 2009 (or while the present petition was pending in court), the Court En Bancunanimously granted PLDT’s motion for reconsideration.39 The Court ruled that even prior to the passage of the RPC, jurisprudence is settled that “any personal property, tangible or intangible, corporeal or incorporeal, capable of appropriation can be the object of theft.” 40 This jurisprudence, in turn, applied the prevailing legal meaning of the term “personal property” under the old Civil Code as “anything susceptible of appropriation and not included in the foregoing chapter (not real property).” 41 PLDT’s telephone service or its business of providing this was appropriable personal property and was, in fact, the subject of appropriation in an ISR operation, facilitated by means of the unlawful use of PLDT’s facilities. In this regard, the Amended Information inaccurately describes the offense by making it appear that what [Laurel] took were the international long distance telephone calls, rather than respondent PLDT’s business. xxxx

Indeed, while it may be conceded that “international long distance calls,” the matter alleged to be stolen xxx, take the form of electrical energy, it cannot be said 28 that such international long distance calls were personal properties belonging to PLDT since the latter could not have acquired ownership over such calls. PLDT merely encodes, augments, enhances, decodes and transmits said calls using its complex communications infrastructure and facilities. PLDT not being the owner of said telephone calls, then it could not validly claim that such telephone calls were taken without its consent. It is the use of these communications facilities without the consent of PLDT that constitutes the crime of theft, which is the unlawful taking of the telephone services and business.

Therefore, the business of providing telecommunication and the telephone service are personal property under Article 308 of the Revised Penal Code, and the act of engaging in ISR is an act of “subtraction” penalized under said article.42 The Court En Banc’s reversal of its Laurel Division ruling during the pendency of this petition significantly impacts on how the Court should resolve the present case for two reasons:chanRoblesvirtualLawlibrary

First, the Laurel En Banc ruling categorically equated an ISR activity to theft under the RPC. In so doing, whatever alleged factual variance there may be between Laurel and the present case cannot render Laurel inapplicable.

Second, and more importantly, in a Rule 45 petition, the Court basically determines whether the CA was legally correct in determining whether the RTC committed grave abuse of discretion. Under this premise, the CA ordinarily gauges the grave abuse of discretion at the time the RTC rendered its assailed resolution. In quashing SW A–l and SW A–2, note that the CA relied on the Laurel Division ruling at the time when it was still subject of a pending motion for reconsideration. The CA, in fact, did not expressly impute grave abuse of discretion on the RTC when the RTC issued the search warrants and later refused to quash these. Understandably, the CA could not have really found the presence of grave abuse of discretion for there was no Laurel ruling to speak of at the time the RTC issued the search warrants.

These peculiar facts require us to more carefully analyze our prism of review under Rule 45.

Requisites for the issuance of search warrant; probable cause requires the probable existence of an offense

Section 2, Article III of the 1987 Constitution guarantees the right of persons to be free from unreasonable searches and seizures. Section 2. The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized. The purposes of the constitutional provision against unlawful searches and seizures are to: (i) prevent the officers of the law from violating private security in person and property and illegally invading the sanctity of the home; and (ii) give remedy against such usurpations when attempted or committed.43

The constitutional requirement for the issuance of a search warrant is reiterated under Sections 4 and 5, Rule 126 of the Revised Rules of Criminal Procedure. These sections lay down the following requirements for the issuance of a search warrant: (1) the existence of probable cause; (2) the probable cause must be determined personally by the judge; (3) the judge must examine, in writing and under oath or affirmation, the complainant and the witnesses he or she may produce; (4) the applicant and the witnesses testify on the facts personally known to them; and (5) the warrant specifically describes the place to be searched and the things to be seized.44 Should any of these requisites be absent, the party aggrieved by the issuance and enforcement of the search warrant may file a motion to quash the search warrant with the issuing court or with the court where the action is subsequently instituted.45

A search warrant proceeding is a special criminal and judicial process akin to a writ of discovery. It is designed by the Rules of Criminal Procedure to respond only to an incident in the main case, if one has already been instituted, or in anticipation thereof. Since it is at most incidental to the main criminal case, an order granting or denying a motion to quash a search warrant may be questioned only via a petition for certiorari under Rule 65.46

When confronted with this petition, the higher court must necessarily determine the validity of the lower court’s action from the prism of whether it was tainted 29 with grave abuse of discretion. By grave abuse of discretion, jurisprudence refers to the capricious and whimsical exercise of judgment equivalent to lack of jurisdiction, or to the exercise of power in an arbitrary or despotic manner by reason of passion or personal hostility or in a manner so patent and gross as to amount to an invasion of positive duty or to the virtual refusal to perform the duty enjoined or to act at all in contemplation of the law.47

In a certiorari proceeding, the determination translates to an inquiry on whether the requirements and limitations provided under the Constitution and the Rules of Court were properly complied with, from the issuance of the warrant up to its implementation. In view of the constitutional objective of preventing stealthy encroachment upon or the gradual depreciation of the rights secured by the Constitution, strict compliance with the constitutional and procedural requirements is required. A judge who issues a search warrant without complying with these requirements commits grave abuse of discretion. 48

One of the constitutional requirements for the validity of a search warrant is that it must be issued based on probable cause which, under the Rules, must be in connection with one specific offense. In search warrant proceedings, probable cause is defined as such facts and circumstances that would lead a reasonably discreet and prudent man to believe that an offense has been committed and that the objects sought in connection with the offense are in the place sought to be searched.49

In the determination of probable cause, the court must necessarily determine whether an offense exists to justify the issuance or quashal of the search warrant50 because the personal properties that may be subject of the search warrant are very much intertwined with the “one specific offense” requirement of probable cause.51 Contrary to PLDT’s claim, the only way to determine whether a warrant should issue in connection with one specific offense is to juxtapose the facts and circumstances presented by the applicant with the elements of the offense that are alleged to support the search warrant.

Reviewing the RTC’s denial of the motion to quash SWA–l and SW A–2 a. From the prism of Rule 65

The facts of the present case easily call to mind the case of Columbia Pictures, Inc. v. CA52 involving copyright infringement. In that case, the CA likewise voided the search warrant issued by the trial court by applying a doctrine that added a new requirement (i.e., the production of the master tape for comparison with the allegedly pirate copies) in determining the existence of probable cause for the issuance of search warrant in copyright infringement cases. The doctrine referred to was laid down in 20th Century Fox Film Corporation v. Court of Appeals. 20th Century Fox, however, was promulgated more than eight months after the search warrants were issued by the RTC. In reversing the CA, the Court ruled:chanRoblesvirtualLawlibrary

Mindful as we are of the ramifications of the doctrine of stare decisis and the rudiments of fair play, it is our considered view that the 20th Century Fox ruling cannot be retroactively applied to the instant case to justify the quashal of Search Warrant No. 87–053. [The] petitioners' consistent position that the order of the lower court[,] xxx [which denied the respondents'] motion to lift the order of search warrant^] was properly issued, [because there was] satisfactory compliance with the then prevailing standards under the law for determination of probable cause, is indeed well taken. The lower court could not possibly have expected more evidence from petitioners in their application for a search warrant other than what the law and jurisprudence, then existing and judicially accepted, required with respect to the finding of probable cause.53

Columbia could easily be cited in favor of PLDT to sustain the RTC’s refusal to quash the search warrant. Indeed, in quashing SW A–l and SW A–2, the CA never intimated that the RTC disregarded any of the requisites for the issuance of a search warrant as these requirements were interpreted and observed under the then prevailing jurisprudence. The CA could not have done so because precisely the issue of whether telephone services or the business of providing these services could be the subject of theft under the RPC had not yet reached the Court when the search warrants were applied for and issued.

However, what distinguishes Columbia from the present case is the focus of Columbia’s legal rationale. Columbia’s focus was not on whether the facts and circumstances would reasonably lead to the conclusion that an offense has been or is being committed and that the objects sought in connection with the offense

30 were in the place to be searched – the primary points of focus of the present case. Columbia’s focus was on whether the evidence presented at the time the search warrant was applied for was sufficient to establish the facts and circumstances required for establishing probable cause to issue a search warrant.

Nonetheless, Columbia serves as a neat guide for the CA to decide the respondents' certioraripetition. In Columbia, the Court applied the principle of non– retroactivity of its ruling in 20th Century Fox, whose finality was not an issue, in reversing a CA ruling. The Court’s attitude in that case should have been adopted by the CA in the present case a fortiori since the ruling that the CA relied upon was not yet final at the time the CA resolved to quash the search warrants. b. Supervening events justifying a broader review under Rule 65

Ordinarily, the CA’s determination under Rule 65 is limited to whether the RTC gravely abused its discretion in granting or denying the motion to quash based on facts then existing. Nonetheless, the Court recognizes that supervening facts may transpire after the issuance and implementation of the search warrant that may provide justification for the quashal of the search warrant via a petition forcertiorari.

For one, if the offense for which the warrant is issued is subsequently decriminalized during the pendency of the petition for certiorari, then the warrant may be quashed.54 For another, a subsequent ruling from the Court that a similar set of facts and circumstances does not constitute an offense, as alleged in the search warrant application, may be used as a ground to quash a warrant.55In both instances, the underlying reason for quashing the search warrant is the absence of probable cause which can only possibly exist when the combination of facts and circumstances points to the possible commission of an offense that may be evidenced by the personal properties sought to be seized. To the CA, the second instance mentioned justified the quashal of the search warrants.

We would have readily agreed with the CA if the Laurel Division ruling had not been subsequently reversed. As things turned out, however, the Court granted PLDT’s motion for reconsideration of the Court First Division’s ruling in Laurel and ruled that “the act of engaging in ISR is xxx penalized under xxx article [308 of the RPC].” 56 As the RTC itself found, PLDT successfully established in its application for a search warrant a probable cause for theft by evidence that Laurel’s ISR activities deprived PLDT of its telephone services and of its business of providing these services without its consent. b1. the stare decisis aspect

With the Court En Banc’s reversal of the earlier Laurel ruling, then the CA’s quashal of these warrants would have no leg to stand on. This is the dire consequence of failing to appreciate the full import of the doctrine of stare decisis that the CA ignored.

Under Article 8 of the Civil Code, the decisions of this Court form part of the country’s legal system. While these decisions are not laws pursuant to the doctrine of separation of powers, they evidence the laws' meaning, breadth, and scope and, therefore, have the same binding force as the laws themselves. 57 Hence, the Court’s interpretation of a statute forms part of the law as of the date it was originally passed because the Court’s construction merely establishes the contemporaneous legislative intent that the interpreted law carries into effect.58

Article 8 of the Civil Code embodies the basic principle of stare decisis et non quieta movere (to adhere to precedents and not to unsettle established matters) that enjoins adherence to judicial precedents embodied in the decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis, in turn, is based on the principle that once a question of law has been examined and decided, it should be deemed settled and closed to further argument.59 The doctrine of (horizontal) stare decisisis one of policy, grounded on the necessity of securing certainty and stability of judicial decisions.60

In the field of adjudication, a case cannot yet acquire the status of a “decided” case that is “deemedsettled and closed to further argument” if the Court’s decision is still the subject of a motion for reconsideration seasonably filed by the moving party. Under the Rules of Court, a party is expressly allowed to file a motion for

31 reconsideration of the Court’s decision within 15 days from notice.61 Since the doctrine of stare decisis is founded on the necessity of securing certainty and stability in law, then these attributes will spring only once the Court’s ruling has lapsed to finality in accordance with law. In Ting v. Velez–Ting,62 we ruled that: The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by this Court in its final decisions. It is based on the principle that once a question of law has been examined and decided, it should be deemed settled and closed to further argument. In applying Laurel despite PLDT’s statement that the case is still subject of a pending motion for reconsideration,63 the CA legally erred in refusing to reconsider its ruling that largely relied on a non–fmal ruling of the Court. While the CA’s dutiful desire to apply the latest pronouncement of the Court in Laurel is expected, it should have acted with caution, instead of excitement, on being informed by PLDT of its pending motion for reconsideration; it should have then followed the principle of stare decisis. The appellate court’s application of an exceptional circumstance when it may order the quashal of the search warrant on grounds not existing at the time the warrant was issued or implemented must still rest on prudential grounds if only to maintain the limitation of the scope of the remedy of certiorari as a writ to correct errors of jurisdiction and not mere errors of judgment.

Still, the respondents attempt to justify the CA’s action by arguing that the CA would still rule in the way it did64 even without Laurel. As PLDT correctly pointed out, there is simply nothing in the CA’s decision that would support its quashal of the search warrant independently of Laurel. We must bear in mind that the CA’s quashal of SW A–l and SW A–2 operated under the strictures of a certioraripetition, where the presence of grave abuse of discretion is necessary for the corrective writ to issue since the appellate court exercises its supervisory jurisdiction in this case. We simply cannot second–guess what the CA’s action could have been.

Lastly, the CA’s reliance on Savage v. Judge Taypin65 can neither sustain the quashal of SW A–l and SW A–2. In Savage, the Court granted the certiorari petition and quashed the search warrant because the alleged crime (unfair competition involving design patents) that supported the search warrant had already been repealed, and the act complained of, if at all, gave rise only to civil liability (for patent infringement). Having been decriminalized, probable cause for the crime alleged could not possibly exist.

In the present case, the issue is whether the commission of an ISR activity, in the manner that PLDT’s evidence shows, sufficiently establishes probable cause for the issuance of search warrantsfor the crime of theft. Unlike in Savage, the Court in Laurel was not confronted with the issue of decriminalization (which is a legislative prerogative) but whether the commission of an ISR activity meets the elements of the offense of theft for purposes of quashing an information. Since the Court, in Laurel, ultimately ruled then an ISR activity justifies the elements of theft that must necessarily be alleged in the information a fortiori, the RTC’s determination should be sustained on certiorari.

The requirement of particularity in SWB–1 and SWB–2

On the issue of particularity in SW B–l and SW B–2, we note that the respondents have not appealed to us the CA ruling that sustained paragraphs 1 to 6 of the search warrants. Hence, we shall limit our discussion to the question of whether the CA correctly ruled that the RTC gravely abused its discretion insofar as it refused to quash paragraphs 7 to 9 of SW B–l and SWB–2.

Aside from the requirement of probable cause, the Constitution also requires that the search warrant must particularly describe the place to be searched and the things to be seized. This requirement of particularity in the description, especially of the things to be seized, is meant to enable the law enforcers to readily identify the properties to be seized and, thus, prevent the seizure of the wrong items. It seeks to leave the law enforcers with no discretion at all regarding these articles and to give life to the constitutional provision against unreasonable searches and seizures.66 In other words, the requisite sufficient particularity is aimed at preventing the law enforcer from exercising unlimited discretion as to what things are to be taken under the warrant and ensure that only those connected with the offense for which the warrant was issued shall be seized.67

The requirement of specificity, however, does not require technical accuracy in the description of the property to be seized. Specificity is satisfied if the personal properties' description is as far as the circumstances will ordinarily allow it to be so described. The nature of the description should vary according to whether the identity of the property or its character is a matter of concern.68 One of the tests to determine the particularity in the description of objects to be seized under a search warrant is when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued.69 32 Additionally, the Rules require that a search warrant should be issued “in connection with one specific offense” to prevent the issuance of a scatter–shot warrant.70 The one–specific–offense requirement reinforces the constitutional requirement that a search warrant should issue only on the basis of probable cause.71 Since the primary objective of applying for a search warrant is to obtain evidence to be used in a subsequent prosecution for an offense for which the search warrant was applied, a judge issuing a particular warrant must satisfy himself that the evidence presented by the applicant establishes the facts and circumstances relating to this specific offense for which the warrant is sought and issued.72 Accordingly, in a subsequent challenge against the validity of the warrant, the applicant cannot be allowed to maintain its validity based on facts and circumstances that may be related to other search warrants but are extrinsic to the warrant in question.

Under the Rules, the following personal property may be subject of search warrant: (i) the subject of the offense; (ii) fruits of the offense; or (iii) those used or intended to be used as the means of committing an offense. In the present case, we sustain the CA’s ruling nullifying paragraphs 7, 8 and 9 of SW B–l and SW B–2 for failing the test of particularity. More specifically, these provisions do not show how the enumerated items could have possibly been connected with the crime for which the warrant was issued, i.e., P.D. No. 401. For clarity, PD No. 401 punishes: Section 1. Any person who installs any water, electrical, telephone or piped gasconnection without previous authority from xxx the Philippine Long Distance Telephone Company, xxx, tampers and/or uses tampered water, electrical or gas meters, jumpers or other devices whereby water, electricity or piped gas is stolen; steals or pilfers water, electric or piped gas meters, or water, electric and/or telephone wires, or piped gas pipes or conduits; knowingly possesses stolen or pilfered water, electrical or gas meters as well as stolen or pilfered water, electrical and/or telephone wires, or piped gas pipes and conduits, shall, upon conviction, be punished with prision correccional in its minimum period or a fine ranging from two thousand to six thousand pesos, or both.73 Paragraphs 7 to 8 of SW B–l and SW B–2 read as follows: 7. COMPUTER PRINTERS AND SCANNERS or any similar equipment or device used for copying and/or printing data and/or information;

8. SOFTWARE, DISKETTES, TAPES or any similar equipment or device used for recording or storing information; and

9. Manuals, phone cards, access codes, billing statements, receipts, contracts, checks, orders, communications and documents, lease and/or subscription agreements or contracts, communications and documents relating to securing and using telephone lines and/or equipment[.]74 According to PLDT, the items in paragraph 7 have a direct relation to violation of PD No. 401 because the items are connected to computers that, in turn, are linked to the unauthorized connections to PLDT telephone lines. With regard to the software, diskette and tapes in paragraph 8, and the items in paragraph 9, PLDT argues that these items are “fruits of the offense” and that the information it contains “constitutes the business profit” of PLDT. According to PLDT, it corroborates the fact that the respondents have made a business out of their illegal connections to its telephone lines.

We disagree with PLDT. The fact that the printers and scanners are or may be connected to the other illegal connections to the PLDT telephone lines does not make them the subject of the offense or fruits of the offense, much less could they become a means of committing an offense.

It is clear from PLDT’s submission that it confuses the crime for which SW B–l and SW B–2 were issued with the crime for which SW A–l and SWA–2 were issued: SW B–l and SW B–2 were issued for violation of PD No. 401, to be enforced in two different places as identified in the warrants. The crime for which these search warrants were issued does not pertain to the crime of theft – where matters of personal property and the taking thereof with intent to gain become significant – but to PD No. 401.

These items could not be the subject of a violation of PD No. 401 since PLDT itself does not claim that these items themselves comprise the unauthorized installations. For emphasis, what PD No. 401 punishes is the unauthorized installation of telephone connection without the previous consent of PLDT. In the present case, PLDT has not shown that connecting printers, scanners, diskettes or tapes to a computer, even if connected to a PLDT telephone line, would or should require its prior authorization.

Neither could these items be a means of committing a violation of PD No. 401 since these copying, printing and storage devices in no way aided the respondents in 33 making the unauthorized connections. While these items may be accessory to the computers and other equipment linked to telephone lines, PD No. 401 does not cover this kind of items within the scope of the prohibition. To allow the seizure of items under the PLDT’s interpretation would, as the CA correctly observed, allow the seizure under the warrant of properties for personal use of the respondents.

If PLDT seeks the seizure of these items to prove that these installations contain the respondents' financial gain and the corresponding business loss to PLDT, then that purpose is served by SW A–l and SW A–2 since this is what PLDT essentially complained of in charging the respondents with theft. However, the same reasoning does not justify its seizure under a warrant for violation of PD No. 401 since these items are not directly connected to the PLDT telephone lines and PLDT has not even claimed that the installation of these items requires prior authorization from it.

WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The decision and the resolution of the Court of Appeals in CA–G.R. SP No. 89213 are hereby MODIFIED in that SW A–l and SW A–2 are hereby declared valid and constitutional.

SO ORDERED.

Carpio, (Chairperson), Del Castillo, Perez, and Perlas–Bernabe, JJ., concur

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

G.R. No. 173423, March 05, 2014

SPS. ANTONIO FORTUNA AND ERLINDA FORTUNA, Petitioners, v. REPUBLIC OF THE PHILIPPINES, Respondents.

D E C I S I O N

BRION, J.:

Before the Court is a petition for review on certiorari1 filed by the petitioners, spouses Antonio and Erlinda Fortuna, assailing the decision dated May 16, 20052 and the resolution dated June 27, 20063of the Court of Appeals (CA) in CA-G.R. CV No. 71143. The CA reversed and set aside the decision dated May 7, 20014 of the Regional Trial Court (RTC) of San Fernando, La Union, Branch 66, in Land Registration Case (LRC) No. 2372.

THE BACKGROUND FACTS

In December 1994, the spouses Fortuna filed an application for registration of a 2,597-square meter land identified as Lot No. 4457, situated in Bo. Canaoay, San Fernando, La Union. The application was filed with the RTC and docketed as LRC No. 2372.

The spouses Fortuna stated that Lot No. 4457 was originally owned by Pastora Vendiola, upon whose death was succeeded by her children, Clemente and Emeteria Nones. Through an affidavit of adjudication dated August 3, 1972, Emeteria renounced all her interest in Lot No. 4457 in favor of Clemente. Clemente 34 later sold the lot in favor of Rodolfo Cuenca on May 23, 1975. Rodolfo sold the same lot to the spouses Fortuna through a deed of absolute sale dated May 4, 1984.

The spouses Fortuna claimed that they, through themselves and their predecessors-in-interest, have been in quiet, peaceful, adverse and uninterrupted possession of Lot No. 4457 for more than 50 years, and submitted as evidence the lot’s survey plan, technical description, and certificate of assessment.

Although the respondent, Republic of the Philippines (Republic), opposed the application,5 it did not present any evidence in support of its opposition. Since no private opposition to the registration was filed, the RTC issued an order of general default on November 11, 1996 against the whole world, except the Republic.6crallawlibrary

In its Decision dated May 7, 2001,7 the RTC granted the application for registration in favor of the spouses Fortuna. The RTC declared that “[the spouses Fortuna] have established [their] possession, including that of their predecessors-in-interest of the land sought to be registered, has been open, continuous, peaceful, adverse against the whole world and in the concept of an ownersince 1948, or for a period of over fifty (50) years.”8crallawlibrary

The Republic appealed the RTC decision with the CA, arguing that the spouses Fortuna did not present an official proclamation from the government that the lot has been classified as alienable and disposable agricultural land. It also claimed that the spouses Fortuna’s evidence - Tax Declaration No. 8366 - showed that possession over the lot dates back only to 1948, thus, failing to meet the June 12, 1945 cut-off period provided under Section 14(1) of Presidential Decree (PD) No. 1529 or the Property Registration Decree (PRD).

In its decision dated May 16, 2005,9the CA reversed and set aside the RTC decision. Although it found that the spouses Fortuna were able to establish the alienable and disposable nature of the land,10 they failed to show that they complied with the length of possession that the law requires, i.e., since June 12, 1945. It agreed with the Republic’s argument that Tax Declaration No. 8366 only showed that the spouses Fortuna’s predecessor-in-interest, Pastora, proved that she had been in possession of the land only since 1948.

The CA denied the spouses Fortuna’s motion for reconsideration of its decision in its resolution dated June 27, 2006.11crallawlibrary

THE PARTIES’ ARGUMENTS

Through the present petition, the spouses Fortuna seek a review of the CA rulings.

They contend that the applicable law is Section 48(b) of Commonwealth Act No. 141 or the Public Land Act (PLA), as amended by Republic Act (RA) No. 1942. RA No. 1942 amended the PLA by requiring 30 years of open, continuous, exclusive, and notorious possession to acquire imperfect title over an agricultural land of the public domain. This 30-year period, however, was removed by PD No. 1073 and instead required that the possession should be since June 12, 1945. The amendment introduced by PD No. 1073 was carried in Section 14(1) of the PRD.12crallawlibrary

The spouses Fortuna point out that PD No. 1073 was issued on January 25, 1977 and published on May 9, 1977; and the PRD was issued on June 11, 1978 and published on January 2, 1979. On the basis of the Court’s ruling in Tañada, et al. v. Hon. Tuvera, etc., et al.,13 they allege that PD No. 1073 and the PRD should be deemed effective only on May 24, 1977 and January 17, 1979, respectively. By these dates, they claim to have already satisfied the 30-year requirement under the RA No. 1942 amendment because Pastora’s possession dates back, at the latest, to 1947.

They allege that although Tax Declaration No. 8366 was made in 1948, this does not contradict that fact that Pastora possessed Lot No. 4457 before 1948. The failure to present documentary evidence proving possession earlier than 1948 was explained by Filma Salazar, Records Officer of the Provincial Assessor’s Office, who testified that the records were lost beyond recovery due to the outbreak of World War II.

35 Notwithstanding the absence of documents executed earlier than 1948, the spouses Fortuna contend that evidence exists indicating that Pastora possessed the lot even before 1948. First, Tax Declaration No. 8366 does not contain a statement that it is a new tax declaration. Second, the annotation found at the back of Tax Declaration No. 8366 states that “this declaration cancels Tax Nos. 10543[.]”14Since Tax Declaration No. 8366 was issued in 1948, the cancelled Tax Declaration No. 10543 was issued, at the latest, in 1947, indicating that there was already an owner and possessor of the lot before 1948. Third, they rely on the testimony of one Macaria Flores in LRC No. 2373. LRC No. 2373 was also commenced by the spouses Fortuna to register Lot Nos. 4462, 27066, and 27098,15which were also originally owned by Pastora and are adjacent to the subject Lot No. 4457. Macaria testified that she was born in 1926 and resided in a place a few meters from the three lots. She stated that she regularly passed by these lots on her way to school since 1938. She knew the property was owned by Pastora because the latter’s family had constructed a house and planted fruit-bearing trees thereon; they also cleaned the area. On the basis of Macaria’s testimony and the other evidence presented in LRC No. 2373, the RTC granted the spouses Fortuna’s application for registration of Lot Nos. 4462, 27066, and 27098 in its decision of January 3, 2005.16 The RTC’s decision has lapsed into finality unappealed.

The spouses Fortuna claim that Macaria’s testimony in LRC No. 2373 should be considered to prove Pastora’s possession prior to 1948. Although LRC No. 2373 is a separate registration proceeding, it pertained to lots adjacent to the subject property, Lot No. 4457, and belonged to the same predecessor-in-interest. Explaining their failure to present Macaria in the proceedings before the RTC in LRC No. 2372, the spouses Fortuna said “it was only after the reception of evidence x x x that [they] were able to trace and establish the identity and competency of Macaria[.]”17crallawlibrary

Commenting on the spouses Fortuna’s petition, the Republic relied mostly on the CA’s ruling which denied the registration of title and prayed for the dismissal of the petition.

THE COURT’S RULING

We deny the petition for failure of the spouses Fortuna to sufficiently prove their compliance with the requisites for the acquisition of title to alienable lands of the public domain.

The nature of Lot No. 4457 as alienable and disposable public land has not been sufficiently established

The Constitution declares that all lands of the public domain are owned by the State.18 Of the four classes of public land, i.e., agricultural lands, forest or timber lands, mineral lands, and national parks, only agricultural lands may be alienated.19 Public land that has not been classified as alienable agricultural land remains part of the inalienable public domain. Thus, it is essential for any applicant for registration of title to land derived through a public grant to establish foremost the alienable and disposable nature of the land. The PLA provisions on the grant and disposition of alienable public lands, specifically, Sections 11 and 48(b), will find application only from the time that a public land has been classified as agricultural and declared as alienable and disposable.

Under Section 6 of the PLA,20 the classification and the reclassification of public lands are the prerogative of the Executive Department. The President, through a presidential proclamation or executive order, can classify or reclassify a land to be included or excluded from the public domain. The Department of Environment and Natural Resources (DENR) Secretary is likewise empowered by law to approve a land classification and declare such land as alienable and disposable.21 Accordingly, jurisprudence has required that an applicant for registration of title acquired through a public land grant must present incontrovertible evidence that the land subject of the application is alienable or disposable by establishing the existence of a positive act of the government, such as a presidential proclamation or an executive order; an administrative action; investigation reports of Bureau of Lands investigators; and a legislative act or a statute.

In this case, the CA declared that the alienable nature of the land was established by the notation in the survey plan,22 which states:chanRoblesVirtualawlibrary

36 This survey is inside alienable and disposable area as per Project No. 13 L.C. Map No. 1395 certified August 7, 1940. It is outside any civil or military reservation. 23

It also relied on the Certification dated July 19, 1999 from the DENR Community Environment and Natural Resources Office (CENRO) that “there is, per record, neither any public land application filed nor title previously issued for the subject parcel[.]”24 However, we find that neither of the above documents is evidence of a positive act from the government reclassifying the lot as alienable and disposable agricultural land of the public domain.

Mere notations appearing in survey plans are inadequate proof of the covered properties’ alienable and disposable character.25 These notations, at the very least, only establish that the land subject of the application for registration falls within the approved alienable and disposable area per verification through survey by the proper government office. The applicant, however, must also present a copy of the original classification of the land into alienable and disposable land, as declared by the DENR Secretary or as proclaimed by the President.26 In Republic v. Heirs of Juan Fabio,27 the Court ruled that

[t]he applicant for land registration must prove that the DENR Secretary had approved the land classification and released the land of the public domain as alienable and disposable, and that the land subject of the application for registration falls within the approved area per verification through survey by the PENRO28 or CENRO. In addition, the applicant must present a copy of the original classification of the land into alienable and disposable, as declared by the DENR Secretary, or as proclaimed by the President.

The survey plan and the DENR-CENRO certification are not proof that the President or the DENR Secretary has reclassified and released the public land as alienable and disposable. The offices that prepared these documents are not the official repositories or legal custodian of the issuances of the President or the DENR Secretary declaring the public land as alienable and disposable.29crallawlibrary

For failure to present incontrovertible evidence that Lot No. 4457 has been reclassified as alienable and disposable land of the public domain though a positive act of the Executive Department, the spouses Fortuna’s claim of title through a public land grant under the PLA should be denied.

In judicial confirmation of imperfect or incomplete title, the period of possession should commence, at the latest, as of May 9, 1947

Although the above finding that the spouses Fortuna failed to establish the alienable and disposable character of Lot No. 4457 serves as sufficient ground to deny the petition and terminate the case, we deem it proper to continue to address the other important legal issues raised in the petition.

As mentioned, the PLA is the law that governs the grant and disposition of alienable agricultural lands. Under Section 11 of the PLA, alienable lands of the public domain may be disposed of, among others, by judicial confirmation of imperfect or incomplete title. This mode of acquisition of title is governed by Section 48(b) of the PLA, the original version of which states:chanRoblesVirtualawlibrary

Sec. 48. The following-described citizens of the Philippines, occupying lands of the public domain or claiming to own any such lands or an interest therein, but whose titles have not been perfected or completed, may apply to the Court of First Instance of the province where the land is located for confirmation of their claims and the issuance of a certificate of title therefor, under the Land Registration Act, to wit:chanRoblesVirtualawlibrary x x x x

(b) Those who by themselves or through their predecessors-in- interest have been in open, continuous, exclusive, and notorious possession and occupation of

37 agricultural lands of the public domain, under a bona fide claim of acquisition or ownership, except as against the Government, since July twenty-sixth, eighteen hundred and ninety-four, except when prevented by war or force majeure. These shall be conclusively presumed to have performed all the conditions essential to a government grant and shall be entitled to a certificate of title under the provisions of this chapter. [emphasis supplied]

On June 22, 1957, the cut-off date of July 26, 1894 was replaced by a 30-year period of possession under RA No. 1942. Section 48(b) of the PLA, as amended by RA No. 1942, read:chanRoblesVirtualawlibrary

(b) Those who by themselves or through their predecessors in interest have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least thirty years immediately preceding the filing of the application for confirmation of title, except when prevented by war or force majeure. [emphasis and underscore ours]

On January 25, 1977, PD No. 1073 replaced the 30-year period of possession by requiring possession since June 12, 1945. Section 4 of PD No. 1073 reads:chanRoblesVirtualawlibrary

SEC. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII of the Public Land Act are hereby amended in the sense that these provisions shall apply only to alienable and disposable lands of the public domain which have been in open, continuous, exclusive and notorious possession and occupation by the applicant himself or thru his predecessor-in-interest, under a bona fide claim of acquisition of ownership,since June 12, 1945. [emphasis supplied]

Under the PD No. 1073 amendment, possession of at least 32 years - from 1945 up to its enactment in 1977 - is required. This effectively impairs the vested rights of applicants who had complied with the 30-year possession required under the RA No. 1942 amendment, but whose possession commenced only after the cut-off date of June 12, 1945 was established by the PD No. 1073 amendment. To remedy this, the Court ruled in Abejaron v. Nabasa30 that “Filipino citizens who by themselves or their predecessors-in-interest have been, prior to the effectivity of P.D. 1073 on January 25, 1977, in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least 30 years, or at least since January 24, 1947 may apply for judicial confirmation of their imperfect or incomplete title under Sec. 48(b) of the [PLA].” January 24, 1947 was considered as the cut-off date as this was exactly 30 years counted backward from January 25, 1977 - the effectivity date of PD No. 1073.

It appears, however, that January 25, 1977 was the date PD No. 1073 was enacted; based on the certification from the National Printing Office,31PD No. 1073 was published in Vol. 73, No. 19 of the Official Gazette, months later than its enactment or on May 9, 1977. This uncontroverted fact materially affects the cut-off date for applications for judicial confirmation of incomplete title under Section 48(b) of the PLA.

Although Section 6 of PD No. 1073 states that “[the] Decree shall take effect upon its promulgation,” the Court has declared in Tañada, et al. v. Hon. Tuvera, etc., et al.32 that the publication of laws is an indispensable requirement for its effectivity. “[A]ll statutes, including those of local application and private laws, shall be published as a condition for their effectivity, which shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature.”33 Accordingly, Section 6 of PD No. 1073 should be understood to mean that the decree took effect only upon its publication, or on May 9, 1977. This, therefore, moves the cut-off date for applications for judicial confirmation of imperfect or incomplete title under Section 48(b) of the PLA to May 8, 1947.In other words, applicants must prove that they have been in open, continuous, exclusive and notorious possession and occupation of agricultural lands of the public domain, under a bona fide claim of acquisition of ownership, for at least 30 years, or at least since May 8, 1947.

The spouses Fortuna were unable to prove that they possessed Lot No. 4457 since May 8, 1947

38 Even if the Court assumes that Lot No. 4457 is an alienable and disposable agricultural land of the public domain, the spouses Fortuna’s application for registration of title would still not prosper for failure to sufficiently prove that they possessed the land since May 8, 1947.

The spouses Fortuna’s allegation that: (1) the absence of a notation that Tax Declaration No. 8366 was a new tax declaration and (2) the notation stating that Tax Declaration No. 8366 cancels the earlier Tax Declaration No. 10543 both indicate that Pastora possessed the land prior to 1948 or, at the earliest, in 1947. We also observe that Tax Declaration No. 8366 contains a sworn statement of the owner that was subscribed on October 23, 1947.34 While these circumstances may indeed indicate possession as of 1947, none proves that it commenced as of the cut-off date of May 8, 1947. Even if the tax declaration indicates possession since 1947, it does not show the nature of Pastora’s possession. Notably, Section 48(b) of the PLA speaks of possession and occupation. “Since these words are separated by the conjunction and, the clear intention of the law is not to make one synonymous with the other. Possession is broader than occupation because it includes constructive possession. When, therefore, the law adds the word occupation, it seeks to delimit the all encompassing effect of constructive possession. Taken together with the words open, continuous, exclusive and notorious, the word occupation serves to highlight the fact that for an applicant to qualify, his possession must not be a mere fiction.”35 Nothing in Tax Declaration No. 8366 shows that Pastora exercised acts of possession and occupation such as cultivation of or fencing off the land. Indeed, the lot was described as “cogonal.”36crallawlibrary

The spouses Fortuna seeks to remedy the defects of Tax Declaration No. 8366 by relying on Macaria’s testimony in a separate land registration proceeding, LRC No. 2373. Macaria alleged that she passed by Pastora’s lots on her way to school, and she saw Pastora’s family construct a house, plant fruit-bearing trees, and clean the area. However, the Court is not convinced that Macaria’s testimony constituted as the “well-nigh incontrovertible evidence” required in cases of this nature.

The records disclose that the spouses Fortuna acquired adjoining parcels of land, all of which are claimed to have previously belonged to Pastora. These parcels of land were covered by three separate applications for registration, to wit:chanRoblesVirtualawlibrary

a. LRC No. N-1278, involving Lot Nos. 1 and 2, with a total area of 2,961 sq. m., commenced by Emeteria;

b. LRC No. 2373, involving Lot Nos. 4462, 27066, and 27098, with a total area of 4,006 sq. m., commenced by the spouses Fortuna; and

c. LRC No. 2372 (the subject case), involving Lot No. 4457, with a total area of 2,597 sq. m.

As these cases involved different but adjoining lots that belonged to the same predecessor-in-interest, the spouses Fortuna alleged that the final rulings in LRC Nos. N-1278 and 2373,37 upholding Pastora’s ownership, be taken into account in resolving the present case.

Notably, the total land area of the adjoining lots that are claimed to have previously belonged to Pastora is 9,564 sq. m. This is too big an area for the Court to consider that Pastora’s claimed acts of possession and occupation (as testified to by Macaria) encompassed the entirety of the lots. Given the size of the lots, it is unlikely that Macaria (age 21 in 1947) could competently assess and declare that its entirety belonged to Pastora because she saw acts of possession and occupation in what must have been but a limited area. As mentioned, Tax Declaration No. 8366 described Lot No. 4457 as “cogonal,” thus, Macaria could not have also been referring to Lot No. 4457 when she said that Pastora planted fruit-bearing trees on her properties.

The lower courts’ final rulings in LRC Nos. N-1278 and 2373, upholding Pastora’s possession, do not tie this Court’s hands into ruling in favor of the spouses Fortuna. Much to our dismay, the rulings in LRC Nos. N-1278 and 2373 do not even show that the lots have been officially reclassified as alienable lands of the public domain or that the nature and duration of Pastora’s occupation met the requirements of the PLA, thus, failing to convince us to either disregard the rules of evidence or consider their merits. In this regard, we reiterate our directive in Santiago v. De los Santos:38crallawlibrary

39 Both under the 1935 and the present Constitutions, the conservation no less than the utilization of the natural resources is ordained. There would be a failure to abide by its command if the judiciary does not scrutinize with care applications to private ownership of real estate. To be granted, they must be grounded in well-nigh incontrovertible evidence. Where, as in this case, no such proof would be forthcoming, there is no justification for viewing such claim with favor. It is a basic assumption of our polity that lands of whatever classification belong to the state. Unless alienated in accordance with law, it retains its rights over the same as dominus.

WHEREFORE, the petition is DENIED. The decision dated May 16, 2005 and the resolution dated June 27, 2006 of the Court of Appeals in CA-G.R. CV No. 71143 are AFFIRMED insofar as these dismissed the spouses Antonio and Erlinda Fortuna’s application of registration of title on the basis of the grounds discussed above. Costs against the spouses Fortuna.

SO ORDERED.

Carpio, (Chairperson), Del Castillo, Perez, and Perlas-Bernabe, JJ., concur

SUPREME COURT Manila FIRST DIVISION G.R. No. 202651 August 28, 2013

LUCENA B. RALLOS, PETITIONER, vs. CITY OF CEBU, HONORABLE MICHAEL RAMA, HONORABLE JOY AUGUSTUS YOUNG, HONORABLE SISINIO ANDALES, HONORABLE RODRIGO ABELLANOSA, HONORABLE ALVIN ARCILLA, HONORABLE RAUL ALCOSEBA, HONORABLE MA. NIDA CABRERA, HONORABLE ROBERTO CABARRUBIAS, HONORABLE ALVIN DIZON, HONORABLE RONALD CUENCO, HONORABLE LEA JAPSON, HONORABLE JOSE DALUZ III, HONORABLE EDGARDO LABELLA, HONORABLE MARGARITA OSMEÑA, HONORABLE AUGUSTUS PE, HONORABLE RICHARD OSMEÑA, HONORABLE NOEL WENCESLAO, HONORABLE EDUARDO RAMA, JR., HONORABLE MICHAEL RALOTA, HONORABLE JOHN PHILIP ECHAVEZ-PO, ATTY. JOSEPH BERNALDEZ, ATTY. JUNE MARATAS, ATTY. JERONE CASTILLO, ATTY. MARY ANN SUSON, ATTY. LESLIE ANN REYES, ATTY. CARLO VINCENT GIMENA, ATTY. FERDINAND CAÑETE, ATTY. ISMAEL GARAYGAY III, ATTY. LECEL LLAMEDO AND ATTY. MARIE VELLE ABELLA, RESPONDENTS.

R E S O L U T I O N

REYES, J.:

One of the Heirs of Reverend Father Vicente Rallos (Heirs of Fr. Rallos), Lucena B. Rallos 1 (Lucena), is now before this Court with a petition2 praying for the citation for indirect contempt of the City of Cebu, Mayor Michael Rama (Mayor Rama), the presiding officer and members of the Sangguniang Panlungsod, and lawyers from the Office of the City Attorney (respondents). The instant petition is anchored on Lucena's allegation that the respondents impede the execution of final and executory judgments rendered by this Court in G.R. Nos. 179662 3and 1941114. G.R. Nos. 179662 and 194111 were among a string of suits which originated from a Complaint for Forfeiture of Improvements or Payment of Fair Market Value with Moral and Exemplary Damages 5 filed in 1997 by the Heirs of Fr. Rallos before the Regional Trial Court (RTC) of Cebu City, Branch 9, against the City of Cebu relative to two parcels of land 6 with a total area of 4,654 square meters located in Barangay Sambag I which were expropriated in 1963 for road construction purposes.

40 Antecedent Facts

At the root of the controversy are Lots 485-D and 485-E of the Banilad Estate, Sambag I, Cebu City, which were expropriated to be used as a public road in 1963. The Heirs of Fr. Rallos alleged that the City of Cebu occupied the lots in bad faith sans the authority of the former's predecessors-in-interest, who were the registered owners of the subject parcels of land.

On June 11, 1997, the Heirs of Fr. Rallos filed before the RTC a Complaint for Forfeiture of Improvements or Payment of Fair Market Value with Moral and Exemplary Damages against the City of Cebu.

In its Answer filed on October 6, 1997, the City of Cebu contended that the subject parcels of land are road lots and are not residential in character. They have been withdrawn from the commerce of men and were occupied by the City of Cebu without expropriation proceedings pursuant to Ordinance No. 416 which was enacted in 1963 or more than 35 years before the Heirs of Fr. Rallos instituted their complaint.

On January 14, 2000, the RTC rendered a Decision,7 which found the City of Cebu liable to pay the Heirs of Fr. Rallos just compensation in the amount still to be determined by a board of three commissioners, one each to be designated by the contending parties and the court.

To assail the Decision rendered on January 14, 2000, the City of Cebu filed a Motion for Reconsideration, which was however denied by the RTC on February 5, 2001.8

The members of the Board of Commissioners thereafter submitted their respective appraisal reports. On July 24, 2001, the RTC rendered a Decision, 9 the dispositive portion of which, in part, reads:

WHEREFORE, the [RTC] hereby renders judgment, ordering [the City of Cebu] to pay [the Heirs of Fr. Rallos] as just compensation for Lots 485-D and 485-E the amount of Php34,905,000.00 plus interest at 12% per annum to start 40 days from [the] date of this decision and to continue until the whole amount shall have been fully paid. [The City of Cebu] is further ordered to pay [the Heirs of Fr. Rallos] the following amounts:

1. Php50,000.00 as reimbursement for attorney's fees; 2. Php50,000.00 as reimbursement for litigation expenses.10

The contending parties both moved for the reconsideration of the Decision rendered on July 24, 2001. The City of Cebu argued that the reckoning period for the computation of just compensation should be at least not later than 1963 when the said lots were initially occupied. On the other hand, the Heirs of Fr. Rallos insisted that the amount of just compensation payable by the City of Cebu should be increased from Php 7,500.00 to Php 12,500.00 per sq m, the latter being the fair market value of the subject lots. They also prayed for the award of damages in the amount of Php 16,186,520.00, which was allegedly the value of the loss of usage of the properties involved from 1963 to 1997 as computed by Atty. Fidel Kwan, the commissioner appointed by the RTC.

On March 21, 2002, the RTC issued a Consolidated Order11 denying the Motion for Reconsideration filed by the City of Cebu, but modifying the Decision rendered on July 24, 2001. Through the said order, the RTC increased the amount of just compensation payable to the Heirs of Fr. Rallos from Php 7,500.00 to Php 9,500.00 per sq m. The City of Cebu filed with the RTC a Notice of Appeal, which was opposed by the Heirs of Fr. Rallos.

In the Decision12 rendered on May 29, 2007, which resolved the appeal13 filed by the City of Cebu, the CA opined that the RTC erred in holding that the reckoning point for the determination of the amount of just compensation should be from 1997, the time the complaint for just compensation was filed by the Heirs of Fr. Rallos. Notwithstanding the foregoing, the CA still dismissed on procedural grounds the appeal filed by the City of Cebu. The CA pointed out that pursuant to

41 Sections 214 and 9,15 Rule 41 and Section 1,16 Rule 50 of the Rules of Court, a record on appeal and not a notice of appeal should have been filed before it by the City of Cebu to assail the RTC's Decisions rendered on January 14, 2000 and July 24, 2001 and the Orders issued on February 5, 2001 and March 21, 2002.

The City of Cebu filed before this Court a Petition for Review on Certiorari17 to assail the Decision rendered by the CA on May 29, 2007. This Court denied the same through a Minute Resolution18 issued on December 5, 2007. The said Minute Resolution was recorded in the Book of Entries of Judgments on April 21, 2008. 19

The Heirs of Fr. Rallos thereafter filed before the RTC a Motion for Execution relative to the Decision rendered on July 24, 2001. They claimed that in 2001, the City of Cebu paid them Php 34,905,000.00, but there remained a balance of Php 46,546,920.00 left to be paid, computed as of September 2, 2008. On its part, the City of Cebu admitted still owing the Heirs of Fr. Rallos but only in the amount of Php 16,893,162.08.20 On December 4, 2008, the RTC issued a writ of execution in favor of the Heirs of Fr. Rallos, which in part, reads:

NOW, THEREFORE, you are hereby commanded to serve a copy hereof to judgment obligor City of Cebu and demand for the immediate payment of Php 44,213,000.00, less the partial payment of Php 34,905,000.00 plus interest at 12% per annum to start 40 days from date of the July 24, 2001 Decision and to continue until the whole amount has been fully paid; Php 50,000.00 as attorney's fees; and Php 50,000.00 as litigation expenses. x x x. 21

Sheriff Antonio Bellones (Sheriff Bellones) then served upon the City of Cebu a demand letter, dated December 4, 2008, and which was amended on January 26, 2009, indicating that:

DEMAND is hereby made for the judgment obligor City of Cebu x x x to facilitate the prompt payment of the following: (a) just compensation of Lots 485-D and 485- E in the amount of Php 44,213,000.00 plus interest of 12% per annum starting 40 days from the July 24, 2001 Decision and to continue until the whole amount has been duly paid less partial payment of Php 34,905,000.00 x x x.22

The City of Cebu sought the reiteration of the directives stated in the Writ of Execution issued on December 4, 2008 and the setting aside of the amended demand letter served upon it by Sheriff Bellones.

On March 16, 2009, the RTC issued an Order23 denying the City of Cebu's motion for the reiteration of the writ of execution. The RTC, however, set aside the demand letter served upon the City of Cebu by Sheriff Bellones and interpreted the directives of the writ of execution issued on December 4, 2008 as:

[T]he entire amount of Php 44,213,000.00 shall be subjected to a 12% interest per annum to start 40 days from the date the decision on July 24, 2001 [was rendered] until the amount of Php 34,905,000.00 was partially paid by the City of Cebu. After the payment by the City of Cebu of a partial amount, the balance shall again be subjected to 12% interest until the same shall have been fully paid.24

The Heirs of Fr. Rallos assailed the abovementioned order on the ground that it effectively modified the final and executory Decision rendered on July 24, 2001. They likewise sought the application of Article 221225 of the New Civil Code and jurisprudence so as to entitle them to legal interest on the interest due to them pursuant to the Decision rendered on July 24, 2001. In the Order issued on May 20, 2009, the RTC did not favorably consider the preceding claims.

A Petition for Certiorari and Mandamus26 was then filed by the Heirs of Fr. Rallos before the CA to challenge the Orders issued by the RTC on March 16, 2009 and May 20, 2009. The CA granted the petition after finding that the two assailed orders effectively modified the final and executory disposition made by the RTC on March 21, 2002. The CA likewise ruled that the case calls for the application of Article 2212 of the New Civil Code, hence, it directed the City of Cebu to pay interest at the rate of 12% per annum upon the interest due, to be computed from the date of the filing of the complaint until full satisfaction of the obligation. The CA stated:

Note that the final and executory consolidated decision of July 24, 2001 as modified by the final and executory order of March 21, 2002, clearly directed herein respondent Cebu City to pay interest at the rate of 12% per annum based on the amount of [Php]9,500.00 per square meter starting 40 days from the date of the 42 decision and to continue until the entire amount shall have been fully paid. Yet, the assailed orders x x x, now directed that the 12% interest per annum be paid on the declining balance contrary to the directive in the final and executory judgment x x x. x x x x x x x [The Heirs of Fr. Rallos] are without a doubt entitled to 12% interest per annum on the interest due from finality until its satisfaction x x x. The same is proper even if not expressly stated in the final and executory judgment x x x.27

The City of Cebu assailed the Decision in CA-G.R. SP No. 04418 by way of a Petition for Review on Certiorari 28filed before this Court. The same was denied through a Minute Resolution29 issued on December 6, 2010. The said resolution was recorded in this Court's Book of Entries of Judgments on June 16, 2011. 30

The Heirs of Fr. Rallos then moved for execution relative to Civil Case No. CEB-20388. The RTC granted the motion through the Order 31 issued on September 23, 2011.

The City of Cebu thereafter filed the following: (1) Urgent Omnibus Motions to Quash the Writ of Execution, and to Set Aside the Notice of Garnishment; (2) Supplemental Urgent Omnibus Motions to Quash the Writ of Execution, and to Set Aside the Notice of Garnishment; (3) Motion for Issuance of Status Quo Order Pending Resolution of [the City of Cebu's] Urgent Omnibus Motions to Quash the Writ of Execution and to Set Aside the Notice of Garnishment; 32 and (4) Motion to Strike out or Expunge Urgent Omnibus Motion and Supplemental Urgent Omnibus Motion with Manifestation and Reservation. The RTC denied the four motions in the Order33 issued on October 26, 2011. The RTC's Order34 issued on January 26, 2012 likewise did not favorably consider the motion for reconsideration filed by the City of Cebu. The RTC emphasized that the Convenio35 already existed way back in 1940, hence, it cannot be considered as a supervening event which transpired after the judgment in Civil Case No. CEB-20388 had become final and executory. The City of Cebu no longer filed any motion or action to assail the RTC Orders issued on October 26, 2011 and January 26, 2012. Meanwhile, in response to Mayor Rama's query, the Commission on Audit's (COA) Regional Director Delfin P. Aguilar wrote the former a letter 36 dated October 27, 2011 opining that:

Under Administrative Circular No. 10-200037 issued by the Supreme Court, it was clearly stated that the prosecution, enforcement or satisfaction of state liability must be pursued in accordance with the rules and procedures laid down in Presidential Decree No. 1445, otherwise known as the Government Auditing Code of the Philippines, wherein it is provided that all money claims against the government must first be filed with the [COA]. x x x.

Clearly, based on the aforementioned Supreme Court issuance and in the line with the rulings of the Supreme Court in various cases against garnishment of public funds or property to satisfy money judgment against the government, we are of the view that the issuance of the writ of execution for the satisfaction of the money judgment against the City of Cebu may be considered beyond the powers of the court.

On the other hand, Section 1, Rule VIII of the 2009 Revised Rules of Procedure of the COA provides that a money judgment is considered as a money claim which is within the original jurisdiction of the Commission Proper (CP) of the COA and which shall be filed directly with the Commission Secretary x x x. 38

On February 27, 2012, the RTC issued another Order39 directing under pain of contempt the Cebu branches of Philippine Veterans Bank and Postal Savings Bank to release to the concerned RTC sheriff certifications indicating the correct account names and numbers maintained by the City of Cebu in the said banks. The Order also directed the Sangguniang Panlungsod to enact an appropriation ordinance relative to the money judgment. Upon presentment of the ordinance, the above-mentioned banks were expected to release the amounts stated therein to satisfy the judgment rendered in favor of the Heirs of Fr. Rallos. The City of Cebu filed a Motion for Reconsideration40 against the Order dated February 27, 2012.

Even before the Motion for Reconsideration to the Order dated February 27, 2012 can be resolved by the RTC, the City of Cebu filed before the CA a Petition for Annulment of Final Decision/s and Order/s with prayer for the issuance of injunctive reliefs.41 The City of Cebu claimed that the act of the Heirs of Fr. Rallos of suppressing the existence of the Convenio amounted to extrinsic fraud which would justify the annulment of the RTC's decisions and orders relative to Civil Case 43 No. CEB-20388. In praying for the issuance of injunctive reliefs, the City of Cebu stressed that it had already paid the Heirs of Fr. Rallos Php 56,196,369.42 for a 4,654 sq m property or at a price of Php 12,074.85 per sq m. Further, the procedures prescribed in Presidential Decree (P.D.) No. 1445, this Court's Administrative Circular (Admin. Circular) No. 10-2000 and Rule VIII of the COA's Revised Rules of Procedure were not yet complied with, hence, public funds cannot be released notwithstanding the rendition of the decisions and issuance of the orders by the RTC relative to Civil Case No. CEB-20388.

On April 13, 2012, the CA, through a Resolution,42 granted the City of Cebu's application for the issuance of a temporary restraining order (TRO) relative to CA- G.R. SP No. 06676. Subsequently, a writ of preliminary injunction was likewise issued through the Resolution43 dated June 26, 2012.

Lucena then filed the following petitions for indirect contempt, all of which in relation with Civil Case No. CEB-20388:

Title Docket Number Date Filed Forum

Lucina C. Rallos v. Mayor SCA No. CEB-38121 October 3, 2011 RTC of Cebu City Michael Rama, Eileen Branch 10 Mangubat and Doris Bongac44

Lucina B. Rallos v. Nicanor SCA No. CEB-38196 October 25, RTC of Cebu City, Valles, Ricardo Balbido, Jr., and 2011 Branch 14 Mayor Michael Rama45

Lucina B. Rallos v. Philippine SCA No. CEB-3812 November 4, RTC of Cebu City, Veterans Bank, et al. 2011 Branch 7

Lucina B. Rallos v. City of Cebu, SCA No. CEB-38292 December 6, RTC of Cebu City, Michael Rama, et al.46 2011 Branch 14

Lucena B. Rallos v. Honorable G.R. No. 202515 July 19, 2012 This Court Justices Gabriel T. Ingles, Pamela Ann Abella Maximo and Carmelita Salandanan Manahan47

The instant petition G.R. No. 202651 August 1, 2012 This Court

Issue and the Contending Parties' Claims

Lucena anchors the instant petition on the sole issue of whether or not the City of Cebu, Mayor Rama, the presiding officer and members of the Sangguniang Panlungsod and the lawyers from the Office of the City Attorney committed several acts of indirect contempt all geared towards preventing the execution of final and executory judgments rendered by this Court in G.R. Nos. 179662 and 194111.

Lucena enumerates the allegedly contumacious acts of the respondents as the filing: (a) with the CA of a Petition for Annulment of Final Decision/s and Order/s48 again on the basis of the Convenio, which was already presented and considered in the proceedings before the RTC, and despite the finality of the decisions and orders rendered or issued relative to Civil Case No. CEB-20388; and (b) of several motions 49 before the RTC in Civil Case No. CEB-20388 for the purpose of preventing or delaying the execution of decisions and orders which had already attained finality. 44 The respondents, on the other hand, seek the dismissal of the instant action contending that: (a) the rules on litis pendentia and forum shopping bar this Court from giving due course to Lucena's petition since there are five other contempt proceedings filed involving the same issues and parties; (b) the injunctive writs granted to the City of Cebu by the CA in CA-G-R. SP No. 06676 relative to the execution of the decisions and orders in Civil Case No. CEB-20388 rendered the instant action as moot and academic; (c) the legal remedies they availed of were all pursued to protect public funds; (d) the RTC sheriff, in attempting to execute the decisions and orders in Civil Case No. CEB-20388, miserably failed to comply with the requirements provided for by law, to wit, Section 305(a) 50 of the Local Government Code, this Court's Admin. Circular No. 10-2000,51 P.D. No. 1445 and Rule VIII of COA's Revised Rules of Procedure; (e) in Parel v. Heirs of Simeon Prudencio,52 this Court declared that a writ of execution may be assailed when it varies the judgment, where there has been a change in the situation of parties making execution unjust or inequitable, or when the judgment debt has been paid or satisfied; (f) it would unduly overburden the City of Cebu to pay Php 133,469,962.55 for the subject lots the huge portions of which are now occupied by settlers and establishments claiming to be owners, practically leaving a very small and insignificant area for use; (g) in the case of City of Caloocan v. Hon. Allarde, 53 this Court ruled that government funds maintained in any official depository may not be garnished in the absence of a corresponding appropriation as required by law; and (h) the Sangguniang Panlungsod cannot be compelled to pass an appropriations ordinance to satisfy the claims of the Heirs of Fr. Rallos for to do otherwise would be to intrude into the exercise of a discretionary authority to decide a political question.

This Court's Disquisition

The instant petition lacks merit. Lucena engaged in forum shopping. "Forum shopping is the act of litigants who repetitively avail themselves of multiple judicial remedies in different fora, simultaneously or successively, all substantially founded on the same transactions and the same essential facts and circumstances; and raising substantially similar issues either pending in or already resolved adversely by some other court; or for the purpose of increasing their chances of obtaining a favorable decision, if not in one court, then in another."54

"Forum shopping exists when the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in another. Litis pendentia requires the concurrence of the following requisites: (1) identity of parties, or at least such parties as those representing the same interests in both actions; (2) identity of rights asserted and reliefs prayed for, the reliefs being founded on the same facts; and (3) identity with respect to the two preceding particulars in the two cases, such that any judgment that may be rendered in the pending case, regardless of which party is successful, would amount to res judicata in the other case."55

In the Verification and Non-Forum Shopping Certification56 attached to the instant petition and executed by Lucena, she admitted that there are five other pending actions for indirect contempt which she filed relative to Civil Case No. CEB-20388. She, however, claims that the issues in the other five petitions are different from that raised before this Court now.

Lucena's claim cannot be sustained. A comparison of the instant petition with SCA No. CEB-3829257 filed before the RTC of Cebu City, Branch 14 follows:

Instant Petition SCA No. CEB-38292

Nature of Petition for Indirect Petition for Indirect Contempt Action Contempt of Court

Petitioner Lucena B. Rallos Lucina B. Rallos

45 Respondents City of Cebu City of Cebu Mayor Michael Rama Mayor Michael Rama City Councilors City Councilors Joy Augustus Young Joy Augustus Young Sisinio Andales Sisinio Andales Rodrigo Abellanosa Rodrigo Abellanosa Alvin Arcilla Alvin Arcilla Raul Alcoseba Raul Alcoseba Ma. Nida Cabrera Ma. Nida Cabrera Roberto Cabarrubias Roberto Cabarrubias Alvin Dizon Alvin Dizon Ronald Cuenco Ronald Cuenco Lea Japson Lea Japson Jose Daluz III Jose Daluz III Edgardo Labella Edgardo Labella Margarita Osmena Margarita Osmena Augustus Pe Augustus Pe Richard Osmena Richard Osmena Noel Wenceslao Noel Wenceslao Eduardo Rama, Jr. Eduardo Rama, Jr. Michael Ralota Michael Ralota John Philip Echavez-Po John Philip Echavez-Po City Attorney Atty. Joseph Bernaldez Atty. Jun Maratas Atty. Jerone Castillo Atty. Mary Ann Suson Atty. Leslie Ann Reyes Atty. Carlo Vincent Gimena Atty. Ferdinand Canete Atty. Ismael Garaygay III Atty. Lecel Llamedo Atty. Marie Velle Abella

Prayer Prayer Respondents be Respondents, except the City of declared guilty of indirect Cebu, be imprisoned until they contempt in relation to their perform the said act of non-compliance with the complying or causing the directives contained in the compliance with the specific dispositive portion of the directives contained in the Consolidated Order issued dispositive portion of the final on March 21, 2002 by the and executory Consolidated RTC in Civil Case No. CEB- Order dated March 21, 2002.59

46 20388.58

In Arevalo,60 this Court enumerated the three requisites of litis pendentia. There is a confluence of these requisites relative to the instant petition and SCA No. CEB-38292. Litis pendentia does not require the exact identity of parties involved in the actions. Although the lawyers from the Office of the City Attorney are parties herein but are not made respondents in SCA No. CEB-38292, they do not in any way represent any interest distinct or separate from that of the City of Cebu and the public officers involved. Further, the instant petition superficially makes reference to the Minute Resolutions rendered by this Court in G.R. Nos. 179662 and 194111 which Lucena claims had lapsed into finality and should thus be executed. However, stripped of the unnecessary details, the reliefs saliently sought in both the instant petition and SCA No. CEB-38292 are founded on the same set of facts, to wit, the alleged non compliance by the respondents with the directives contained in the dispositive portion of the Consolidated Order issued by the RTC on March 21, 2002 relative to Civil Case No. CEB-20388. Finally, citation for indirect contempt in either the instant petition or SCA No. CEB-38292 would amount to res judicata in the other considering the identities of the parties and issues involved.

Since the elements of litis pendentia concur in the instant petition and SCA No. CEB-38292, this Court so holds Lucena guilty of forum shopping.

"[T]he grave evil sought to be avoided by the rule against forum shopping is the rendition by two competent tribunals of two separate and contradictory decisions. To avoid any confusion, this Court adheres strictly to the rules against forum shopping, and any violation of these rules results in the dismissal of a case." 61

Further, "once there is a finding of forum shopping, the penalty is summary dismissal not only of the petition pending before this Court, but also of the other case that is pending in a lower court. This is so because twin dismissal is a punitive measure to those who trifle with the orderly administration of justice." 62

Even if in the higher interest of justice, this Court were to be exceptionally liberal and gloss over Lucena's act of forum shopping, the instant petition would still be susceptible to dismissal.

While this Court does not intend to downplay the rights accruing to the owners of properties expropriated by the government, it bears stressing that the exercise and enforcement of those rights are subject to compliance with the requirements provided for by law to protect public funds.

Lucena avers that the respondents willfully and maliciously defy the execution of final and executory decisions and orders rendered or issued relative to Civil Case No. CEB-20388.

Such averment is untenable.

The respondents allege and Lucena does not refute, that the City of Cebu had already paid the Heirs of Fr. Rallos Php 56,196,369.42 for a 4,654 sq m property or at a price of Php 12,074.85 per sq m. The controversy remains and the parties resort to all legal maneuverings because the Heirs of Fr. Rallos obdurately insist that they are still entitled to collect from the City of Cebu a balance of Php 133,469,962.55.

The Heirs of Fr. Rallos are bent on collecting the amount allegedly still unpaid by the City of Cebu in accordance with the computations stated in the decisions and orders in Civil Case No. CEB-20388. However, the Heirs of Fr. Rallos are impervious to the requisites laid down by law in enforcing their claims. The requisites are two-fold as discussed below.

An appropriation ordinance should be passed prior to the disbursement of public funds.

47 "Even though the rule as to immunity of a state from suit is relaxed, the power of the courts ends when the judgment is rendered. Although the liability of the state has been judicially ascertained, the state is at liberty to determine for itself whether to pay the judgment or not, and execution cannot issue on a judgment against the state. Such statutes do not authorize a seizure of state property to satisfy judgments recovered, and only convey an implication that the legislature will recognize such judgment as final and make provision for the satisfaction thereof."63

Section 4(1) of P.D. No. 1445 and Section 305(a) of the Local Government Code both categorically state that no money shall be paid out of any public treasury or depository except in pursuance of an appropriation law or other specific statutory authority. Based on considerations of public policy, government funds and properties may not be seized under writs of execution or garnishment to satisfy judgments rendered by the courts and disbursements of public funds must be covered by the corresponding appropriation as required by law.64

In the case at bar, no appropriation ordinance had yet been passed relative to the claims of the Heirs of Fr. Rallos. Such being the case, the respondents, as public officers, are acting within lawful bounds in refusing the execution of the decisions and orders in Civil Case No. CEB-20388.

Despite the rendition of a final and executory judgment validating a money claim against an agency or instrumentality of the Government, its filing with the COA is a sine qua non condition before payment can be effected.

Section 26 of P.D. No. 1445 states that the COA has jurisdiction to examine, audit and settle all debts and claims of any sort due from or owing to the Government or any of its subdivisions, agencies and instrumentalities. Under Section 5(b), Rule II of COA's Revised Rules of Procedure, local government units are expressly included as among the entities within the COA's jurisdiction. Section 2,65 Rule VIII lays down the procedure in filing money claims against the Government. Section 4, Rule X provides that any case brought to the COA shall be decided within 60 days from the date it is submitted for decision or resolution. Section 1, Rule XII allows the aggrieved party to file a petition for certiorari before this Court to assail any decision, order or resolution of the COA within 30 days from receipt of a copy thereof.

This Court, in the case of University of the Philippines v. Dizon, 66 thus held that despite the existence of a final and executory judgment validating the claim against an agency or instrumentality of the Government, the settlement of the said claim is still subject to the primary jurisdiction of the COA. Ineluctably, the claimant has to first seek the COA's approval of the monetary claim.67

Without compliance by Lucena and the Heirs of Fr. Rallos with the provisions of P.D. No. 1445 and the COA's Revised Rules of Procedure, their lamentations that the respondents are unjustly refusing the execution of the decisions and orders in Civil Case No. CEB-20388 do not hold any water.

IN VIEW OF THE FOREGOING, the instant petition is DISMISSED. Further, on account of Lucena Rallos' act of forum shopping, the Regional Trial Court of Cebu City, Branch 14, is likewise directed to dismiss her petition for contempt, docketed as SCA No. CEB-38292, which she filed against the respondents.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

G.R. No. 175399 October 27, 2009

48 OPHELIA L. TUATIS, Petitioner, vs. SPOUSES ELISEO ESCOL and VISMINDA ESCOL; HONORABLE COURT OF APPEALS, 22nd DIVISION, CAGAYAN DE ORO CITY; REGIONAL TRIAL COURT, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE; and THE SHERIFF OF RTC, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

This Petition for Certiorari and Mandamus1 under Rule 65 of the Rules of Court seeks the annulment of the following Resolutions of the Court of Appeals in CA- G.R. SP No. 00737-MIN: (a) Resolution2 dated 10 February 2006 dismissing the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction of herein petitioner Ophelia L. Tuatis (Tuatis); (b) Resolution3 dated 25 July 2006 denying Tuatis’ Motion for Reconsideration of the Resolution dated 10 February 2006; and (c) Resolution4 dated 9 October 2006 denying Tuatis’ Motion for Leave to File a Second Motion for Reconsideration. The instant Petition further prays for the annulment of the Order5 dated 26 September 2005 of the Regional Trial Court (RTC) of Sindangan, Zamboanga del Norte, Branch 11, in Civil Case No. S-618, ordering the Sheriff to immediately serve the Writ of Execution issued on 7 March 2002.

The dispute arose from the following factual and procedural antecedents:

On 18 June 1996, Tuatis filed a Complaint for Specific Performance with Damages6 against herein respondent Visminda Escol (Visminda) before the RTC, docketed as Civil Case No. S-618.

Tuatis alleged in her Complaint that sometime in November 1989, Visminda, as seller, and Tuatis, as buyer, entered into a Deed of Sale of a Part of a Registered Land by Installment7 (Deed of Sale by Installment). The subject matter of said Deed was a piece of real property situated in Poblacion, Sindangan, Zamboanga del Norte and more particularly described as "[a] part of a registered land being known as Lot No. 251, Pls-66 covered under OCT [Original Certificate of Title] No. P- 5421; x x x with an area of THREE HUNDRED (300) square meters, more or less" (subject property).

The significant portions of the Deed of Sale by Installment stated:

That for and in consideration of the sum of TEN THOUSAND PESOS (P10,000.00), Philippine currency, the SELLER [Visminda8] hereby SELLS to the BUYER [Tuatis], the above-described parcel of land under the following terms and conditions:

1. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of THREE THOUSAND PESOS (P3,000.00), as downpayment;

2. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of FOUR THOUSAND PESOS (P4,000.00), on or before December 31, 1989;

3. That the remaining balance of THREE THOUSAND PESOS (P3,000.00) shall be paid by the BUYER [Tuatis] to the SELLER [Visminda] on or before January 31, 1990;

49 4. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].9

Tuatis claimed that of the entire purchase price of P10,000.00, she had paid Visminda P3,000.00 as downpayment. The exact date of said payment was not, however, specified. Subsequently, Tuatis paid P3,000.00 as installment on 19 December 1989, and another P1,000.00 installment on 17 February 1990. Tuatis averred that she paid Visminda the remaining P3,000.00 on 27 February 1990 in the presence of Eric Selda (Eric), a clerk in the law office of one Atty. Alanixon Selda. In support of this averment, Tuatis attached to her Complaint a certification10 executed by Eric on 27 May 1996.

In the meantime, Tuatis already took possession of the subject property and constructed a residential building thereon.

In 1996, Tuatis requested Visminda to sign a prepared absolute deed of sale covering the subject property, but the latter refused, contending that the purchase price had not yet been fully paid. The parties tried to amicably settle the case before the Lupon Barangay, to no avail. 11

Tuatis contended that Visminda failed and refused to sign the absolute deed of sale without any valid reason. Thus, Tuatis prayed that the RTC order Visminda to do all acts for the consummation of the contract sale, sign the absolute deed of sale and pay damages, as well as attorney’s fees.

In her Answer,12 Visminda countered that, except for the P3,000.00 downpayment and P1,000.00 installment paid by Tuatis on 19 December 1989 and 17 February 1990,13 respectively, Tuatis made no other payment to Visminda. Despite repeated verbal demands, Tuatis failed to comply with the conditions that she and Visminda agreed upon in the Deed of Sale by Installment for the payment of the balance of the purchase price for the subject property. Visminda asked that the RTC dismiss Tuatis’ Complaint, or in the alternative, order Tuatis to return the subject property to Visminda after Visminda’s reimbursement of the P4,000.00 she had received from Tuatis.

After trial, the RTC rendered a Decision14 on 29 April 1999 in Civil Case No. S-618 in Visminda’s favor. The RTC concluded:

Under the facts and circumstances, the evidence for [Tuatis] has not established by satisfactory proof as to (sic) her compliance with the terms and conditions setforth (sic) in [the Deed of Sale by Installment] x x x. x x x x

In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force x x x. x x x x

50 As the contract x x x is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties, and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, [the] same should be given its full force and effect.

EVIDENCE (sic) at hand points of no full payment of the price, hence No. 4 of the stipulation applies[,] which provides:

"That failure (sic) of the Buyer [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the Buyer [Tuatis] shall return the land subject of this Contract to the Seller [Visminda] and the Seller [Visminda] [shall] likewise return all the (sic) amount paid by the Buyer [Tuatis]."

This stipulation is the law between the [Buyer] and [Seller], and should be complied with in good faith x x x.

[Tuatis] constructed the building x x x in bad faith for, (sic) she had knowledge of the fact that the Seller [Visminda] is still the absolute owner of the subject land. There was bad faith also on the part of [Visminda] in accordance with the express provisions of Article 454 [of the New Civil Code] 15 since [she] allowed [Tuatis] to construct the building x x x without any opposition on [her] part and so occupy it. The rights of the parties must, therefore, be determined as if they both had acted in bad faith. Their rights in such cases are governed by Article 448 of the New Civil Code of the Philippines.16

The RTC decreed the dismissal of Tuatis’ Complaint for lack of merit, the return by Tuatis of physical possession of the subject property to Visminda, and the return by Visminda of the P4,000.00 she received from Tuatis.

Tuatis filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 65037. In a Resolution17 dated 29 August 2000, however, the appellate court dismissed the appeal for failure of Tuatis to serve and file her appellant’s brief within the second extended period for the same. An Entry of Judgment 18 was made in CA-G.R. CV No. 65037 on 29 September 2000, as a result of which, the appealed RTC Decision dated 29 April 1999 in Civil Case No. S-618 became final and executory.

Visminda filed a Motion for Issuance of a Writ of Execution19 before the RTC on 14 January 2002. The RTC granted Visminda’s Motion in a Resolution dated 21 February 2002, and issued the Writ of Execution20 on 7 March 2002.

Tuatis thereafter filed before the RTC on 22 April 2002 a Motion to Exercise Right under Article 448 of the Civil Code of the Philippines. 21 Tuatis moved that the RTC issue an order allowing her to buy the subject property from Visminda. While Tuatis indeed had the obligation to pay the price of the subject property, she opined that such should not be imposed if the value of the said property was considerably more than the value of the building constructed thereon by Tuatis. Tuatis alleged that the building she constructed was valued at P502,073.00,22 but the market value of the entire piece of land measuring 4.0144 hectares, of which the subject property measuring 300 square meters formed a part, was only about P27,000.00.23 Tuatis maintained that she then had the right to choose between being indemnified for the value of her residential building or buying from Visminda the parcel of land subject of the case. Tuatis stated that she was opting to exercise the second option.

On 20 December 2004, Visminda deposited the amount of P4,000.00 to the office of the Clerk of Court of the RTC, pursuant to the Decision of the trial court dated 29 April 1999.24

51 In the intervening time, the Writ of Execution issued on 7 March 2002 was yet to be served or implemented by the Sheriff. This prompted Visminda to write a letter to the Office of the Court Administrator (OCA) to complain about the said delay. The OCA endorsed the letter to the RTC.

On 26 September 2005, the RTC issued an Order25 directing the Sheriff to immediately serve or enforce the Writ of Execution previously issued in Civil Case No. S- 618, and to make a report and/or return on the action taken thereon within a period of fifteen (15) days from receipt of the order.

On 10 October 2005, Tuatis filed before the RTC a Motion for Reconsideration26 of the Order dated 26 September 2005, praying that the same be set aside in view of the pendency of her previous Motion to Exercise Right under Article 448 of the Civil Code of the Philippines. However, before the RTC could rule upon Tuatis’ Motion for Reconsideration, the Sheriff enforced the Writ of Execution on 27 October 2005 and submitted his Return to the RTC on 2 November 2005, reporting that the subject writ was fully satisfied.

Tuatis immediately filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction,27 which was docketed as CA-G.R. No. 00737-MIN. Tuatis sought in said Petition the annulment of the RTC Order dated 26 September 2005, as well as the issuance of an order commanding the RTC and the Sheriff to desist from undertaking any further proceedings in Civil Case No. S-618, and an order directing the RTC to determine the rights of the parties under Article 448 of the Civil Code.

In a Resolution28 dated 10 February 2006, the Court of Appeals dismissed outright Tuatis’ Petition for failure to completely pay the required docket fees, to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and to indicate the place of issue of her counsel’s IBP and PTR Official Receipts.

Tuatis filed a Motion for Reconsideration29 of the Resolution dated 10 February 2006, but said Motion was denied by the appellate court in another Resolution dated 25 July 2006 on the ground that Tuatis had not taken any action to rectify the infirmities of her Petition.

Tuatis subsequently filed a Motion for Leave to File a Second Motion for Reconsideration,30 but it was similarly denied by the Court of Appeals in a Resolution dated 9 October 2006, as Section 2, Rule 5231 of the Rules of Court proscribes the filing of a second motion for reconsideration.

Hence, Tuatis filed the instant Petition, principally arguing that Article 448 of the Civil Code must be applied to the situation between her and Visminda.

According to Tuatis, grave abuse of discretion, amounting to lack or excess of their jurisdiction, was committed by the RTC in issuing the Order dated 26 September 2005, and by the Sheriff in enforcing the Writ of Execution on 27 October 2005. Tuatis insists that the Motion for Reconsideration of the Order dated 26 September 2005 that she filed on 10 October 2005 legally prevented the execution of the RTC Decision dated 29 April 1999, since the rights of the parties to the case had yet to be determined pursuant to Article 448 of the Civil Code.32 Tuatis reiterates that the building she constructed is valued at P502,073.00, per assessment of the Municipal Assessor of Sindangan, Zamboanga del Norte; while the entire piece of land, which includes the subject property, has a market value of only about P27,000.00, based on Tax Declaration No. 12464 issued in the year 2000.33 Such being the case, Tuatis posits that she is entitled to buy the land at a price to be determined by the Court or, alternatively, she is willing to sell her house to Visminda in the amount of P502,073.00.

52 In addition, Tuatis attributes grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Court of Appeals for dismissing outright her Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction, and subsequently denying her Motion for Reconsideration and Motion for Leave to File a Second Motion for Reconsideration.

The Court grants the present Petition but for reasons other than those proffered by Tuatis.

Procedural deficiencies of Tuatis’ Petition before the Court of Appeals

It is true that Tuatis committed several procedural faux pas that would have, ordinarily, warranted the dismissal of her Petition in CA-G.R. No. 00737-MIN before the Court of Appeals.

In its Resolution dated 10 February 2006, the Court of Appeals dismissed outright the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction filed by Tuatis for failure to comply with the following requirements for such a petition: (a) to completely pay the required docket fees, (b) to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and (c) to indicate the place of issue of her counsel’s IBP and PTR Official Receipts.

Section 3, Rule 46 of the Rules of Court lays down the requirements for original cases filed before the Court of Appeals and the effect of non-compliance therewith, relevant portions of which are reproduced below:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. – x x x. x x x x

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the respondent with the original copy intended for the court indicated as such by the petitioner, and shall be accompanied by a clearly legible duplicate original or certified true copy of the judgment, order, resolution, or ruling subject thereof, such material portions of the record as are referred to therein, and other documents relevant or pertinent thereto. The certification shall be accomplished by the proper clerk of court or by his duly authorized representative, or by the proper officer of the court, tribunal, agency or office involved or by his duly authorized representative. The other requisite number of copies of the petition shall be accompanied by clearly legible plain copies of all documents attached to the original. x x x x

The petitioner shall pay the corresponding docket and other lawful fees to the clerk of court and deposit the amount of P500.00 for costs at the time of the filing of the petition.

The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient ground for the dismissal of the petition. (Emphases ours.)

53 The sound reason behind the policy of the Court in requiring the attachment to the petition for certiorari, prohibition, mandamus, or quo warranto of a clearly legible duplicate original or certified true copy of the assailed judgment or order, is to ensure that the said copy submitted for review is a faithful reproduction of the original, so that the reviewing court would have a definitive basis in its determination of whether the court, body, or tribunal which rendered the assailed judgment or order committed grave abuse of discretion.34 Also, the Court has consistently held that payment of docket fees within the prescribed period is jurisdictional and is necessary for the perfection of an appeal.35

Indeed, the last paragraph of Section 3, Rule 46 states that non-compliance with any of the requirements stated therein shall constitute sufficient ground for the dismissal of the petition. However, the Court, in several cases,36also declared that said provision must not be taken to mean that the petition shall be automatically dismissed in every instance of non-compliance. The power conferred upon the Court of Appeals to dismiss an appeal, or even an original action, as in this case, is discretionary and not merely ministerial. With that affirmation comes the caution that such discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case.37

It must be borne in mind that the rules of procedure are intended to promote, rather than frustrate, the ends of justice, and while the swift unclogging of court dockets is a laudable objective, it, nevertheless, must not be met at the expense of substantial justice. Technical and procedural rules are intended to help secure, not suppress, the cause of justice; and a deviation from the rigid enforcement of the rules may be allowed to attain that prime objective for, after all, the dispensation of justice is the core reason for the existence of courts.38

Hence, technicalities must be avoided. The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. A litigation is not a game of technicalities. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. Litigations must be decided on their merits and not on technicality. Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override, substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage, of justice.39

In this case, the Court finds that the Court of Appeals committed grave abuse of discretion in focusing on the procedural deficiencies of Tuatis’ Petition and completely turning a blind eye to the merits of the same. The peculiar circumstances of the present case and the interest of substantial justice justify the setting aside, pro hac vice, of the procedural defects of Tuatis’ Petition in CA-G.R. No. 00737-MIN.

Perusal of the RTC Decision dated 29 April 1999

The RTC, in the body of its Decision dated 29 April 1999 in Civil Case No. S-618, found that Tuatis breached the conditions stipulated in the Deed of Sale by Installment between her and Visminda; but since both Tuatis and Visminda were guilty of bad faith, "[t]heir rights in such cases are governed by Article 448 of the New Civil Code of the Philippines."40

Article 448 of the Civil Code, referred to by the RTC, provides:

54 ART. 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. (Emphases supplied.)

According to the aforequoted provision, the landowner can choose between appropriating the building by paying the proper indemnity for the same, as provided for in Articles 54641 and 54842 of the Civil Code; or obliging the builder to pay the price of the land, unless its value is considerably more than that of the structures, in which case the builder in good faith shall pay reasonable rent.43

The Court notes, however, that the RTC, in the dispositive portion of its 29 April 1999 Decision, which exactly reads –

WHEREFORE, premises studiedly considered, judgment is hereby rendered as follows:

(1) DISMISSING the Complaint for lack of merit;

(2) ORDERING [Tuatis] to return the physical possession of the land in question to [Visminda]; and,

(3) ORDERING [Visminda] to return the P4,000.00 she received as evidenced by Exhibit "B" and Exhibit "C"44 to [Tuatis].45 utterly failed to make an adjudication on the rights of Tuatis and Visminda under Article 448 of the Civil Code. It would seem that the decretal part of said RTC judgment was limited to implementing the following paragraph in the Deed of Sale by Installment:

4. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].46 without considering the effects of Article 448 of the Civil Code.

It was this apparent incompleteness of the fallo of the RTC Decision dated 29 April 1999 that resulted in the present controversy, and that this Court is compelled to address for a just and complete settlement of the rights of the parties herein.

Finality of the RTC Decision dated 19 April 1999

The Court has not lost sight of the fact that the RTC Decision dated 29 April 1999 in Civil Case No. S-618 already became final and executory in view of the dismissal by the appellate court of Tuatis’ appeal in CA-G.R. CV No. 650307 and the entry of judgment made on 29 September 2000.

55 Nothing is more settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest Court of the land. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time. The only recognized exceptions are the corrections of clerical errors or the making of the so-called nunc pro tunc entries, in which case there is no prejudice to any party, and, of course, where the judgment is void.47

Equally well-settled is the rule that the operative part in every decision is the dispositive portion or the fallo, and where there is conflict between the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order, while the opinion in the body is merely a statement, ordering nothing.48

Jurisprudence also provides, however, that where there is an ambiguity caused by an omission or a mistake in the dispositive portion of the decision, the Court may clarify such an ambiguity by an amendment even after the judgment has become final. In doing so, the Court may resort to the pleadings filed by the parties and the findings of fact and the conclusions of law expressed in the text or body of the decision.49 Therefore, even after the RTC Decision dated 29 April 1999 had already become final and executory, this Court cannot be precluded from making the necessary amendment thereof, so that the fallo will conform to the body of the said decision.

If the Court does not act upon the instant Petition, Tuatis loses ownership over the building she constructed, and in which she has been residing, allegedly worth P502,073.00, without any recompense therefor whatsoever; while Visminda, by returning Tuatis’ previous payments totaling P4,000.00, not just recovers the subject property, but gains the entire building without paying indemnity for the same. Hence, the decision of the Court to give due course to the Petition at bar, despite the finality of the RTC Decision dated 29 April 1999, should not be viewed as a denigration of the doctrine of immutability of final judgments, but a recognition of the equally sacrosanct doctrine that a person should not be allowed to profit or enrich himself inequitably at another's expense.

Furthermore, the Court emphasizes that it is not even changing or reversing any of the findings of fact and law of the RTC in its Decision dated 29 April 1999. This Court is still bound by said RTC judgment insofar as it found that Tuatis failed to fully pay for the price of the subject property; but since both Tuatis and Visminda were in bad faith, Article 448 of the Civil Code would govern their rights. The Court herein is simply clarifying or completing the obviously deficient decretal portion of the decision, so that said portion could effectively order the implementation of the actual ruling of the RTC, as clearly laid down in the rationale of the same decision.

Applying Article 448 and other related provisions of the Civil Code

Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda has the following options:

Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary 50 and useful expenses51 the latter incurred for said building, as provided in Article 546 of the Civil Code.

It is worthy to mention that in Pecson v. Court of Appeals,52 the Court pronounced that the amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement, thus: 56 The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila [40 Phil. 717 (1920)] that the said provision was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued income-yielding four- unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to adduce evidence on the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by the landowner. (Emphasis ours.)

Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain possession of the building and the subject property.

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land.53 The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Visminda’s rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis’ obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code.1avvphi1

Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property vis-à-vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda.

The Court highlights that the options under Article 448 are available to Visminda, as the owner of the subject property. There is no basis for Tuatis’ demand that, since the value of the building she constructed is considerably higher than the subject property, she may choose between buying the subject property from Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending on Visminda’s choice, Tuatis’ rights as a builder under Article 448 are limited to the following: (a) under the first option, a right to retain the building and subject property until Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged to pay for the price of the subject property, if it is considerably higher than the value of the building, in which case, she can only be obliged to pay reasonable rent for the same.

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. 54 The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.55

The raison d’etre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment

57 of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.56

Visminda’s Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to recover possession of the subject property under the first option, since the options under Article 448 of the Civil Code and their respective consequences were also not clearly presented to her by the 19 April 1999 Decision of the RTC. She must then be given the opportunity to make a choice between the options available to her after being duly informed herein of her rights and obligations under both.

As a final note, the directives given by the Court to the trial court in Depra v. Dumlao57 may prove useful as guidelines to the RTC herein in ensuring that the additional proceedings for the final settlement of the rights of the parties under Article 448 of the Civil Code shall be conducted as thoroughly and promptly as possible.

WHEREFORE, premises considered, the Court:

(1) GRANTS the instant Petition;

(2) ANNULS AND SETS ASIDE (a) the Resolution dated 21 February 2002 of the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, ordering the issuance of a writ for the execution of the Decision dated 19 April 1999 of the said trial court in Civil Case No. S-618; (b) the Writ of Execution issued on 7 March 2002; and (c) the actions undertaken by the Sheriff to enforce the said Writ of Execution;

(3) DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to conduct further proceedings to determine with deliberate dispatch: (a) the facts essential to the proper application of Article 448 of the Civil Code, and (b) respondent Visminda Escol’s choice of option under the same provision; and

(4) Further DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to undertake the implementation of respondent Visminda Escol’s choice of option under Article 448 of the Civil Code, as soon as possible.

No costs.

SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 163794 November 28, 2008 58 REPUBLIC OF THE PHILIPPINES, represented by Romeo T. Acosta (formerly Jose D. Malvas), Director of Forest Management Bureau, Department of Environment and Natural Resources,petitioners, vs. HON. NORMELITO J. BALLOCANAG, Presiding Judge, Branch 41, Regional Trial Court, Pinamalayan, Oriental Mindoro and DANILO REYES, respondents.

D E C I S I O N

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision2 dated June 4, 2004, in CA-G.R. SP No. 52261, which affirmed the Joint Order 3 of the Regional Trial Court (RTC) of Pinamalayan, Oriental Mindoro, Branch 41, dated December 28, 1998.

The facts, as summarized by the CA, are as follows:

Sometime in 1970, [private respondent Danilo] Reyes bought the subject 182,941-square-meter land at Bgy. Banus, Pinamalayan, Oriental Mindoro [subject land] from one Regina Castillo (or Castillo) in whose name it was titled under Original Transfer Certificate of Title No. P-2388 issued pursuant to Free Patent No. V- 79606. Right after his purchase, Reyes introduced improvements and planted the land with fruit trees, including about a thousand mango[es], more than a hundred Mandarin citrus, and more than a hundred guyabanos. He also had the title transferred in his name and was issued TCT No. 45232.

Reyes so prized this land which he bought in good faith. Unfortunately, it turned out that about 162,500 square meters of this land is part of the timberland of Oriental Mindoro and, therefore, cannot be subject to any disposition or acquisition under any existing law, and is not registrable.

Thus, in the Complaint (Annex "A", pp. 15 to 21, rollo) for "Cancellation of Title and/or Reversion" filed by the Office of the Solicitor General (or OSG) in behalf of the Republic [petitioner], as represented by the Bureau of Forest Development (or BFD), it was explained that the source[,] Original Transfer Certificate of Title No. P-2388 of Castillo, issued pursuant to Free Patent No. V-79606, is spurious, fictitious and irregularly issued on account of: a) ONE HUNDRED SIXTY-TWO THOUSAND FIVE HUNDRED (162,500) SQUARE METERS, more or less, of the land covered by OCT No. P-2388 was, at the time it was applied for patent and or titling, a part of the timberland of Oriental Mindoro, per BFD Land Classification Map Nos. 2319 and 1715. Copy of said maps are attached hereto asAnnexes "B" and "C"; b) The 162,500 square meters covered by OCT No. P-2388 are entirely inside the 140 hectares Agro-Forestry Farm Lease Agreement No. 175 in favor of Atty. Augusto D. Marte4 [Atty. Marte], copy of the Map of AFFLA No. 175 and AFFLA No. 175 are attached hereto as Annexes "D" and "E"; c) Neither the private defendant nor his predecessors-in-interest have been in possession of the property because the rightful occupant is Atty. Augusto D. Marte by virtue of the Agro-Forestry Farm Lease Agreement [AFFLA] No. 175, issued to him by the Ministry of Natural Resources in 1986 to expire on December 21, 2011; d) Since the parcel of land covered by TCT No. 45232, in the name of defendant Danilo Reyes, is a part of the timberland of Oriental Mindoro, per BFD Land Classification Map Nos. 2319 & 1715, the same cannot be the subject of any disposition or acquisition under any existing law (Li Hong Giap vs. Director of Lands, 55 Phil. 693; Veno vs. Gov't of P.I.41 Phil. 161; Director of Lands vs. Abanzado, 65 SCRA 5). (pp. 18 to 19, rollo)

Aside from the documentary evidence presented to support these allegations, the Republic presented as well and called to the witness stand:

59 a) Armando Cruz, the supervising cartographer of the DENR, who explained that based on Land Classification Map No. 1715 (Exh. "A") which was later amended to LC Map No. 2319 (Exh. "B"), the plotting shows that the 162,000 square meters covered by OCT No. 2388 are entirely inside the 140 hectares of the Agro- Forestry Farm Lease Agreement No. 175 in favor of Atty. Marte and the alienable and disposable area of Castillo's land is only around two (2) hectares; b) Alberto Cardiño, an employee of the DENR who conducted the survey on the land under litigation, corroborated the testimony of Cruz that only two hectares is alienable and disposable land; and c) Vicente Mendoza, a Geodetic Engineer, who expounded on the procedure before the title could be issued to an applicant for a disposable and alienable public land. He clarified that he did not make the survey for Castillo but upon presentation to him of the carpeta in open court he noticed that, while it appears to be valid, it however has no certification of the Bureau of Forestry - an essential requirement before title could be issued.

For his side, Reyes presented evidence showing his extensive development of and investment in the land, but however failed to traverse squarely the issue raised by the Republic against the inalienability and indisposability of his acquired land. His lame argument that the absence of the Certification by the Bureau of Forestry on his carpeta does not necessarily mean that there was none issued, failed to convince the court a quo.

Hence, Judge Edilberto Ramos, the then Presiding Judge of Branch 41 of the Regional Trial Court of Pinamalayan, Oriental Mindoro, held5 that:

The defendants in this case did not assail the evidence of the plaintiff but concentrated itself to the expenses incurred in the cultivation and in the planting of trees in that disputed areas. Aside thereto, the plaintiff cited that it is elementary principle of law that said areas not being capable of registration their inclusion in a certification of ownership or confer title on the registrant. (Republic of the Philippines, et al. vs. Hon. Judge Jaime de los Angeles of the Court of First Instance of Balayan, Batangas, et al., G.R. No. L-30240) It is also a matter of principle that public forest [are non-alienable public lands. Accession of public forests] on the part of the claimant, however long, cannot convert the same into private property. (Vano v. Government of PI, 41 Phils. 161)

In view thereof, it appears that the preponderance of evidence is in favor of the plaintiff and against the defendants and therefore it is hereby declared that Free Patent No. V-79606 issued on July 22, 1957 with Psu No. 155088 and OCT No. P-2388 in the name of Regina Castillo and its derivative TCT No. 45232 in the name of Danilo Reyes is hereby declared null and void; and the defendant Danilo Reyes is hereby ordered to surrender the owner's duplicate copy of TCT No. 45232 and to vacate the premises and directing the defendant Register of Deeds of Calapan, Oriental Mindoro, to cancel the title as null and void ab initio; and declaring the reversion of the land in question to the government subject to the Agro-Forestry Farm Lease Agreement No. 175, to form part of the public domain in the province of Oriental Mindoro.

The two-hectare lot, which appears disposable and alienable, is declared null and void for failure to secure certification from the Bureau of Forest Development. The counter-claim of the defendant is hereby denied for lack of merit, with cost against the defendant.6

Reyes appealed the aforementioned RTC Decision to the CA. In its Decision 7 dated September 16, 1996, the CA affirmed the RTC Decision. His motion for reconsideration was denied.8

Thus, Reyes sought relief from this Court via a petition for review on certiorari. But in our Resolution9dated June 23, 1997, we resolved to deny his petition for failure to sufficiently show that the CA had committed any reversible error in the questioned judgment. On November 24, 1997, this Court denied with finality Reyes' motion for reconsideration.10

On February 4, 1998, Reyes filed a Motion11 to Remove Improvements Introduced by Defendant Danilo D. Reyes on the Property which is the Subject of Execution in Accordance with Rule 39, Section 10, paragraph (d) of the 1997 Rules of Civil Procedure (motion). 12 There he averred that: he occupied in good faith the subject land for around thirty years; he had already spent millions of pesos in planting fruit-bearing trees thereon; and he employed many workers who regularly took care 60 of the trees and other plants. Reyes prayed that he and/or his agents be given at least one (1) year from the issuance of the corresponding order to remove his mango, citrus and guyabano trees, and that they be allowed to stay in the premises within that period to work on the cutting and removal of the said trees. He also asked the RTC that in the meantime that these trees are not yet removed, all the unharvested fruits be appropriated by him, as provided for by law, to the exclusion of all other persons who may take advantage of the situation and harvest said fruits.

Petitioner opposed the motion, citing the principle of accession under Article 44013 of the Civil Code. It further argued that the subject land, being timber land, is property of public dominion and, therefore, outside the commerce of man and cannot be leased, donated, sold, or be the object of any contract. This being the case, there are no improvements to speak of, because the land in question never ceased to be a property of the Republic, even if Reyes claimed that he was a purchaser for value and in good faith and was in possession for more than thirty (30) years. Moreover, petitioner averred that, assuming Reyes was initially a planter/sower in good faith, Article 448 of the Civil Code cannot be of absolute application since from the time the reversion case was filed by the petitioner on May 13, 1987, Reyes ceased to be a planter/sower in good faith and had become a planter/sower in bad faith.14

Meanwhile, on March 2, 1998, Atty. Marte filed a Complaint for Injunction With an Ancillary Prayer for the Immediate Issuance of a Temporary Restraining Order against Reyes for allegedly encroaching upon and taking possession by stealth, fraud and strategy some 16 hectares of his leased area without his permission or acquiescence and planted trees thereon in bad faith despite the fact that the area is non-disposable and part of the public domain, among others.

But the respondent RTC dismissed the said complaint in the assailed Joint Order and ruled in favor of Reyes, finding Rule 39, Section 10, paragraph (d) of the 1997 Rules of Civil Procedure, applicable. The RTC ratiocinated:

Under the circumstance, it is but just and fair and equitable that Danilo Reyes be given the opportunity to enjoy the fruits of his labor on the land which he honestly believes was legally his. He was not aware that his certificate of title which was derived from OCT No. P-2388 issued in 1957 by the government itself in the name of Regina Castillo contained legal infirmity, otherwise he would not have expoused (sic) himself from the risk of being ejected from the land and losing all improvements thereon. Any way, if the court will grant the motion for the defendant's (sic) Danilo Reyes to remove his improvements on the disputed property, it will not prejudice Augusto Marte, otherwise, as the court sees it, he will immensely [benefit] from the toils of Danilo Reyes. and then disposed, as follows:

WHEREFORE, premises considered, the motion to remove improvements filed by defendant Danilo Reyes dated January 28, 1998 is hereby GRANTED pursuant to the provisions of section 10, paragraph (d) of Rule 39 of the 1997 Rules of Civil Procedure and he is given a period of one (1) year from the issuance of this ORDER to remove, cut and appropriate the fruit-bearing trees which he had planted in the property in disputes (sic).

The COMMENT filed by the Office of the Solicitor General dated August 11, 1998 is hereby denied for lack of merit.

The [C]omplaint for Injunction filed by Augusto D. Marte on March 2, 1998 against Danilo Reyes is hereby ordered dismissed for lack of merit.

Petitioner, through the OSG, filed its Motion for Reconsideration15 which was denied by the RTC.16Aggrieved, petitioner went to the CA via Certiorari under Rule 65 of the Rules of Civil Procedure17ascribing to the RTC grave abuse of discretion and acting without jurisdiction in granting Reyes' motion to remove improvements.

However, the CA dismissed the petition for certiorari, and affirmed the ruling of the RTC, in this wise:

It is notable that in the course of the suit for "Cancellation of Title and/or Reversion" there was not an iota of evidence presented on record that Reyes was in bad faith in acquiring the land nor in planting thereon perennial plants. So it could never be said and held that he was a planter/sower in bad faith. Thus, this Court holds that Reyes sowed and planted in good faith, and that being so the appropriate provisions on right accession are Articles 445 and 448 also of the Civil Code. 18

61 Hence, this Petition based on the sole ground that: THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING THAT THE MOTION TO REMOVE IMPROVEMENTS FILED BY PRIVATE RESPONDENT IS BUT AN INCIDENT OF THE REVERSION CASE OVER WHICH THE TRIAL COURT STILL HAS JURISDICTION DESPITE THE FACT THAT THE DECISION IN THE REVERSION CASE HAD LONG BECOME FINAL AND EXECUTORY.19

The OSG posits that Reyes' assailed motion is barred by prior judgment under Section 47, Rule 39 of the 1997 Rules of Civil Procedure because said motion merely sprang from the civil case of reversion tried and decided on the merits by the RTC, and the decision is already final, after it was duly affirmed by the CA and by this Court. The OSG stresses that one of Reyes' assigned errors in the reversion case before the CA was that the RTC "erred in not granting his (Reyes') counterclaims as well as his claims for improvements." The OSG claims that such assigned error was duly resolved by the CA when it held, to wit:

The non-award of appellant's "counterclaims" is understandable. To begin with, no evidence whatsoever was presented by the appellant to sustain his plea for damages. In fact, appellant never testified to prove his allegations as regards his counterclaims.

Then, too, there is no showing that appellant paid the docket fees for the court to acquire jurisdiction over his purported counterclaims (Metal Engineering Resources Corp. vs. Court of Appeals, 203 SCRA 273).

Lastly, the allegations made in the Answer in support of the so-called "counterclaims" clearly negate the nature of the claims as compulsory counterclaim like that of reimbursement of the useful expenses (Cabangis vs. Court of Appeals, 200 SCRA 414).20

Thus, the OSG posits that the issue of the improvements cannot be made the subject of the assailed motion on the pretext that such removal of improvements is merely incidental to the reversion case. The OSG submits that the consideration of the issue is now barred by res judicata. Lastly, the OSG argues that: the RTC and CA cannot vary a decision which has already attained finality; for purposes of execution, what is controlling is the dispositive portion of the decision; the RTC, except to order the execution of a decision which had attained finality, had long lost jurisdiction over the case; and the RTC erred and acted without jurisdiction when it granted Reyes' motion to remove the improvements when the dispositive portion of the decision in the reversion case did not provide for the removal of the same.21

In his Comment22 on the OSG petition, Reyes avers that the points raised by the OSG are merely rehashed arguments which were adequately passed upon by the CA. He fully agrees with the ruling of the CA that: he is a planter/sower in good faith, as such, Articles 445 and 448 of the New Civil Code are applicable; his motion is not entirely a new case, but merely an incident to the reversion case, a consequence of its grant and a legal solution to an important issue overlooked, if not ignored by the State and by the courts in their decisions in the reversion case; under Section 10, Rule 39 of the 1997 Rules of Civil Procedure, he is allowed to remove the improvements; and the instant Petition failed to abide with the proper manner as to the "proof of service" required under Section 13, Rule 13 of the 1997 Rules of Civil Procedure. Most importantly, Reyes avers that the land on which about 1,000 mango trees, 100 mandarin citrus trees and 100 guyabano trees are planted, was leased by the government to Atty. Marte, who entered into the possession of the subject land when the trees were already bearing fruits. Thus, if said trees are not removed, Atty. Marte would be unduly enriched as the beneficiary of these fruits without even spending a single centavo, at the expense of Reyes. Reyes posits that it is a well-established fact, unrebutted by the petitioner, that he planted these trees and to deny him the right to remove them would constitute a grave injustice and amount to confiscation without just compensation which is violative of the Constitution.

The OSG counters that copies of the instant Petition were properly served as shown by the photocopies of the registry return cards. Moreover, the OSG avers that granting, without admitting, that another person would stand to be benefited by the improvements that Reyes introduced on the land is beside the point and is not the fault of the petitioner because the particular issue of the improvements was already resolved with finality in the reversion case. The OSG claims that a lower court cannot reverse or set aside decisions or orders of a superior court, for to do so will negate the principle of hierarchy of courts and nullify the essence of review - a final judgment, albeit erroneous, is binding on the whole world.23

62 The instant Petition lacks merit.

In an action for reversion, the pertinent allegations in the complaint would admit State ownership of the disputed land. 24 Indeed, the ownership over the subject land reverted to the State by virtue of the decisions of the RTC and CA and our Resolution on the matter. But these decisions simply ordered the reversion of the property to the State, and did not consider the improvements that Reyes had introduced on the property or provide him with any remedy relative thereto. Thus, Reyes was left out in the cold, faced with the prospect of losing not only the land which he thought he owned, but also of forfeiting the improvements that he painstakingly built with his effort, time and money.

We cannot agree with the OSG that the denial by the CA of Reyes' counterclaim in the reversion case had the effect of completely foreclosing whatever rights Reyes may have over these improvements. We note that the counterclaim was denied because Reyes failed to prove that it was in the nature of a compulsory counterclaim, and he did not pay docket fees thereon, even as the CA found that Reyes "never testified to prove his allegations as regards his counterclaims." Yet, the records of the reversion case reveal that Reyes adduced ample evidence of the extent of the improvements he introduced and the expenses he incurred therefor. This is reflected in the findings of the CA in the case at bench, and we concur with the appellate court when it said:

But this Court notes that while Reyes was half-hearted in his opposition to the reversion, he instead focused on proving the improvements he has introduced on the land, its extent and his expenses. Despite these proofs, the Decision of April 13, 1992 made no mention nor provision for the improvements on the land. With this legal vacuum, Reyes could not exercise the options allowed the sower and planter in good faith. This thus left him no other alternative but to avail of Paragraph (d) of Section 10 of Rule 39 of the 1997 Rules of Civil Procedure in order to collect or get a return of his investment as allowed to a sower and planter in good faith by the Civil Code.

Correlatively, the courts in the reversion case overlooked the issue of whether Reyes, vis-à-vis his improvements, is a builder or planter in good faith. In the instant case, the issue assumes full significance, because Articles 44825 and 54626 of the Civil Code grant the builder or planter in good faith full reimbursement of useful improvements and retention of the premises until reimbursement is made. A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title to the land at the time he builds or plants on it. 27

On this issue, we are disposed to agree with the CA that Reyes was a planter in good faith. Reyes was of the belief that he was the owner of the subject land; in fact, a TCT over the property was issued in his name. He tilled the land, planted fruit trees thereon, and invested money from 1970. He received notice of the Republic's claim only when the reversion case was filed on May 13, 1987. The trees are now full-grown and fruit-bearing.

To order Reyes to simply surrender all of these fruit-bearing trees in favor of the State -- because the decision in the reversion case declaring that the land is part of inalienable forest land and belongs to the State is already final and immutable -- would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith.

Nemo cum alterius detrimento locupletari potest.28 This basic doctrine on unjust enrichment simply means that a person shall not be allowed to profit or enrich himself inequitably at another's expense.29 There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.30 Article 22 of the Civil Code states the rule in this wise:

ART. 22. Every person who, through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

The requisites for the application of this doctrine are present in the instant case. There is enrichment on the part of the petitioner, as the State would come into possession of -- and may technically appropriate -- the more than one thousand fruit-bearing trees planted by the private respondent. There is impoverishment on the part of Reyes, because he stands to lose the improvements he had painstakingly planted and invested in. There is lack of valid cause for the State to acquire

63 these improvements, because, as discussed above, Reyes introduced the improvements in good faith. Thus, the Court of Appeals did not commit any error in ruling that Reyes is entitled to the benefits of Articles 448 and 546 of the Civil Code.

Thus, even if we accept the OSG's submission that Reyes' entitlement to these benefits is not absolute because he can no longer claim good faith after the filing of the reversion case in 1987, still, there is no gainsaying that prior to that ―― all the way back to 1970 he had possessed the land and introduced improvements thereon in good faith. At the very least, then, Reyes is entitled to these benefits for the 17 years that he had been a planter in good faith.

However, we are mindful of the fact that the subject land is currently covered by Agro-Forestry Farm Lease Agreement (AFFLA) No. 175 issued by the Ministry of (now Department of Environment and) Natural Resources in favor of Atty. Augusto D. Marte, which will expire on December 21, 2011. By the terms of the AFFLA, the lessee shall, among others, do all in his power to suppress fires, cooperate with the Bureau of Forest Development (BFD) in the protection and conservation of the forest growth in the area and undertake all possible measures to insure the protection of watershed and environmental values within the leased area and areas adjacent thereto. This obligation to prevent any damage to the land subject of the lease is consonant with fundamental principles and state policies set forth in Section 16,31 Article II and Section 4,32 Article XII of the Constitution.

To allow Reyes to remove the fruit-bearing trees now full-grown on the subject land, even if he is legally entitled to do so, would be risking substantial damage to the land. It would negate the policy consideration underlying the AFFLA -- to protect and preserve the biodiversity and the environment, and to prevent any damage to the land. Further, it would violate the implicit mandate of Article 547 of the Civil Code which provides: ART. 547. If the useful improvements can be removed without damage to the principal thing, the possessor in good faith may remove them unless the person who recovers the possession exercises the option under paragraph 2 of the preceding article.

In this light, the options that Reyes may exercise under Articles 448 and 546 of the Civil Code have been restricted. It is no longer feasible to permit him to remove the trees he planted. The only equitable alternative would be to order the Republic to pay Reyes the value of the improvements he introduced on the property. This is only fair because, after all, by the terms of the AFFLA, upon the expiration of the lease or upon its cancellation if there be any violation or breach of its terms, all permanent improvements on the land shall pass to the ownership of the Republic without any obligation on its part to indemnify the lessee.

However, the AFFLA is not due to expire until December 21, 2011. In the interim, it is logical to assume that the lessee, Atty. Augusto D. Marte, will derive financial gain from the fruits that the trees planted by Reyes would yield. In fact, Atty. Marte may already have profited therefrom in the past several years. It is, therefore, reasonable to grant the Republic the right of subrogation against the lessee who may have benefited from the improvements. The Republic may, thus, demand reimbursement from Atty. Marte for whatever amount it will have to pay Reyes for these improvements.

As to the OSG's insistent invocation of res judicata and the immutability of final judgments, our ruling in Temic Semiconductors, Inc. Employees Union (TSIEU)-FFW, et al. v. Federation of Free Workers (FFW), et al.33 is instructive:

It is axiomatic that a decision that has acquired finality becomes immutable and unalterable. A final judgment may no longer be modified in any respect, even if the modification is meant to correct erroneous conclusions of fact and law; and whether it be made by the court that rendered it or by the highest court in the land. Any act which violates such principle must immediately be struck down. Indeed, the principle of conclusiveness of prior adjudications is not confined in its operation to the judgments of what are ordinarily known as courts, but it extends to all bodies upon which judicial powers had been conferred.

The only exceptions to the rule on the immutability of a final judgment are: (1) the correction of clerical errors; (2) the so-called nunc pro tunc entries which cause no prejudice to any party; (3) void judgments; and (4) whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.

In the exercise of our mandate as a court of justice and equity, 34 we rule in favor of Reyes pro hac vice. We reiterate that this Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for 64 technicality.35Indubitably, to order the reversion of the subject land without payment of just compensation, in absolute disregard of the rights of Reyes over the improvements which he, in good faith, introduced therein, would not only be unjust and inequitable but cruel as well.

WHEREFORE, the instant Petition is DENIED. The Decision dated June 4, 2004 of the Court of Appeals isAFFIRMED with MODIFICATION in that:

1) The Regional Trial Court of Pinamalayan, Oriental Mindoro, Branch 41, is hereby DIRECTED to determine the actual improvements introduced on the subject land, their current value and the amount of the expenses actually spent by private respondent Danilo Reyes for the said improvements thereon from 1970 until May 13, 1987 with utmost dispatch. 2) The Republic, through the Bureau of Forest Development of the Department of Environment and Natural Resources, is DIRECTED to pay private respondent Danilo Reyes the value of such actual improvements he introduced on the subject land as determined by the Regional Trial Court, with the right of subrogation against Atty. Augusto D. Marte, the lessee in Agro-Forestry Farm Lease Agreement No. 175. No costs. SO ORDERED.

. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 140528 December 7, 2011

MARIA TORBELA, represented by her heirs, namely: EULOGIO TOSINO, husband and children: CLARO, MAXIMINO, CORNELIO, OLIVIA and CALIXTA, all surnamed TOSINO, APOLONIA TOSINO VDA. DE RAMIREZ and JULITA TOSINO DEAN; PEDRO TORBELA, represented by his heirs, namely: JOSE and DIONISIO, both surnamed TORBELA; EUFROSINA TORBELA ROSARIO, represented by her heirs, namely: ESTEBAN T. ROSARIO, MANUEL T. ROSARIO, ROMULO T. ROSARIO and ANDREA ROSARIO-HADUCA; LEONILA TORBELA TAMIN; FERNANDO TORBELA, represented by his heirs, namely: SERGIO T. TORBELA, EUTROPIA T. VELASCO, PILAR T. ZULUETA, CANDIDO T. TORBELA, FLORENTINA T. TORBELA and PANTALEON T. TORBELA; DOLORES TORBELA TABLADA; LEONORA TORBELA AGUSTIN, represented by her heirs, namely: PATRICIO, SEGUNDO, CONSUELO and FELIX, all surnamed AGUSTIN; and SEVERINA TORBELA ILDEFONSO, Petitioners, vs. SPOUSES ANDRES T. ROSARIO and LENA DUQUE-ROSARIO and BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Respondents. x ------x G.R. No. 140553 LENA DUQUE-ROSARIO, Petitioner, vs. BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Respondent

D E C I S I O N

LEONARDO-DE CASTRO, J.:

Presently before the Court are two consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court, both assailing the Decision 1 dated June 29, 1999 and Resolution2 dated October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.

65 The petitioners in G.R. No. 140528 are siblings Maria Torbela,3 Pedro Torbela,4 Eufrosina Torbela Rosario,5Leonila Torbela Tamin, Fernando Torbela,6 Dolores Torbela Tablada, Leonora Torbela Agustin,7 and Severina Torbela Ildefonso (Torbela siblings).

The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was married to, but now legally separated from, Dr. Andres T. Rosario (Dr. Rosario). Dr. Rosario is the son of Eufrosina Torbela Rosario and the nephew of the other Torbela siblings.

The controversy began with a parcel of land, with an area of 374 square meters, located in Urdaneta City, Pangasinan (Lot No. 356-A). It was originally part of a larger parcel of land, known as Lot No. 356 of the Cadastral Survey of Urdaneta, measuring 749 square meters, and covered by Original Certificate of Title (OCT) No. 16676,8 in the name of Valeriano Semilla (Valeriano), married to Potenciana Acosta. Under unexplained circumstances, Valeriano gave Lot No. 356-A to his sister Marta Semilla, married to Eugenio Torbela (spouses Torbela). Upon the deaths of the spouses Torbela, Lot No. 356-A was adjudicated in equal shares among their children, the Torbela siblings, by virtue of a Deed of Extrajudicial Partition9 dated December 3, 1962.

On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim10 over Lot No. 356-A in favor of Dr. Rosario. According to the said Deed, the Torbela siblings "for and in consideration of the sum of NINE PESOS (P9.00) x x x transfer[red] and convey[ed] x x x unto the said Andres T. Rosario, that undivided portion of THREE HUNDRED SEVENTY-FOUR square meters of that parcel of land embraced in Original Certificate of Title No. 16676 of the land records of Pangasinan x x x."11 Four days later, on December 16, 1964, OCT No. 16676 in Valeriano’s name was partially cancelled as to Lot No. 356-A and TCT No. 5275112 was issued in Dr. Rosario’s name covering the said property.

Another Deed of Absolute Quitclaim13 was subsequently executed on December 28, 1964, this time by Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela siblings and was already returning the same to the latter for P1.00. The Deed stated:

That for and in consideration of the sum of one peso (P1.00), Philippine Currency and the fact that I only borrowed the above described parcel of land from MARIA TORBELA, married to Eulogio Tosino, EUFROSINA TORBELA, married to Pedro Rosario, PEDRO TORBELA, married to Petra Pagador, LEONILA TORBELA, married to Fortunato Tamen, FERNANDO TORBELA, married to Victoriana Tablada, DOLORES TORBELA, widow, LEONORA TORBELA, married to Matias Agustin and SEVERINA TORBELA, married to Jorge Ildefonso, x x x by these presents do hereby cede, transfer and convey by way of this ABSOLUTE QUITCLAIM unto the said Maria, Eufrosina, Pedro, Leonila, Fernando, Dolores, Leonora and Severina, all surnamed Torbela the parcel of land described above.14 (Emphasis ours.)

The aforequoted Deed was notarized, but was not immediately annotated on TCT No. 52751.

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development Bank of the Philippines (DBP) on February 21, 1965 in the sum of P70,200.00, secured by a mortgage constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751 on September 21, 1965 as Entry No. 243537.15 Dr. Rosario used the proceeds of the loan for the construction of improvements on Lot No. 356-A.

On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of Adverse Claim,16 on behalf of the Torbela siblings. Cornelio deposed in said Affidavit: 3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the former owners by virtue of a Deed of Absolute Quitclaim which he executed before Notary Public Banaga, and entered in his Notarial Registry as Dec. No. 43; Page No. 9; Book No. I; Series of 1964;

4. That it is the desire of the parties, my aforestated kins, to register ownership over the above-described property or to perfect their title over the same but their Deed could not be registered because the registered owner now, ANDRES T. ROSARIO mortgaged the property with the DEVELOPMENT BANK OF THE PHILIPPINES, on September 21, 1965, and for which reason, the Title is still impounded and held by the said bank;

5. That pending payment of the obligation with the DEVELOPMENT BANK OF THE PHILIPPINES or redemption of the Title from said bank, I, CORNELIO T. TOSINO, in behalf of my mother MARIA TORBELA-TOSINO, and my Aunts EUFROSINA TORBELA, LEONILA TORBELA-TAMEN, DOLORES TORBELA, LEONORA TORBELA-AGUSTIN, SEVERINA TORBELA-ILDEFONSO, and my Uncles PEDRO TORBELA and FERNANDO, also surnamed TORBELA, I request the Register of 66 Deeds of Pangasinan to annotate their adverse claim at the back of Transfer Certificate of Title No. 52751, based on the annexed document, Deed of Absolute Quitclaim by ANDRES T. ROSARIO, dated December 28, 1964, marked as Annex "A" and made a part of this Affidavit, and it is also requested that the DEVELOPMENT BANK OF THE PHILIPPINES be informed accordingly.17

The very next day, on May 17, 1967, the Torbela siblings had Cornelio’s Affidavit of Adverse Claim dated May 16, 1967 and Dr. Rosario’s Deed of Absolute Quitclaim dated December 28, 1964 annotated on TCT No. 52751 as Entry Nos. 27447118 and 274472,19 respectively.

The construction of a four-storey building on Lot No. 356-A was eventually completed. The building was initially used as a hospital, but was later converted to a commercial building. Part of the building was leased to PT&T; and the rest to Mrs. Andrea Rosario-Haduca, Dr. Rosario’s sister, who operated the Rose Inn Hotel and Restaurant.

Dr. Rosario was able to fully pay his loan from DBP. Under Entry No. 520197 on TCT No. 5275120 dated March 6, 1981, the mortgage appearing under Entry No. 243537 was cancelled per the Cancellation and Discharge of Mortgage executed by DBP in favor of Dr. Rosario and ratified before a notary public on July 11, 1980.

In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank (PNB) sometime in 1979-1981. Records do not reveal though the original amount of the loan from PNB, but the loan agreement was amended on March 5, 1981 and the loan amount was increased to P450,000.00. The loan was secured by mortgages constituted on the following properties: (1) Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosario’s name; (2) Lot No. 4489, with an area of 1,862 square meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832; and (3) Lot No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters, located in Nancayasan, Urdaneta, Pangasinan, covered by TCT No. 104189.21 The amended loan agreement and mortgage on Lot No. 356-A was annotated on TCT No. 52751 on March 6, 1981 as Entry No. 520099.22 Five days later, on March 11, 1981, another annotation, Entry No. 520469,23 was made on TCT No. 52751, canceling the adverse claim on Lot No. 356-A under Entry Nos. 274471-274472, on the basis of the Cancellation and Discharge of Mortgage executed by Dr. Rosario on March 5, 1981. Entry No. 520469 consisted of both stamped and handwritten portions, and exactly reads:

Entry No. 520469. Cancellation of Adverse Claim executed by Andres Rosario in favor of same. The incumbrance/mortgage appearing under Entry No. 274471- 72 is now cancelled as per Cancellation and Discharge of Mortgage Ratified before Notary Public Mauro G. Meris on March 5, 1981: Doc. No. 215; Page No.44; Book No. 1; Series Of 1981. Lingayen, Pangasinan, 3-11, 19981 [Signed: Pedro dela Cruz] Register of Deeds 24

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario), acquired a third loan in the amount of P1,200,000.00 from Banco Filipino Savings and Mortgage Bank (Banco Filipino). To secure said loan, the spouses Rosario again constituted mortgages on Lot No. 356-A, Lot No. 4489, and Lot No. 5- F-8-C-2-B-2-A. The mortgage on Lot No. 356-A was annotated on TCT No. 52751 as Entry No. 533283 25 on December 18, 1981. Since the construction of a two- storey commercial building on Lot No. 5-F-8-C-2-B-2-A was still incomplete, the loan value thereof as collateral was deducted from the approved loan amount. Thus, the spouses Rosario could only avail of the maximum loan amount of P830,064.00 from Banco Filipino.

Because Banco Filipino paid the balance of Dr. Rosario’s loan from PNB, the mortgage on Lot No. 356-A in favor of PNB was cancelled per Entry No. 533478 26 on TCT No. 52751 dated December 23, 1981.

On February 13, 1986, the Torbela siblings filed before the Regional Trial Court (RTC) of Urdaneta, Pangasinan, a Complaint for recovery of ownership and possession of Lot No. 356-A, plus damages, against the spouses Rosario, which was docketed as Civil Case No. U-4359. On the same day, Entry Nos. 593493 and 593494 were made on TCT No. 52751 that read as follows:

67 Entry No. 593494 – Complaint – Civil Case No. U-4359 (For: Recovery of Ownership and Possession and Damages. (Sup. Paper). Entry No. 593493 – Notice of Lis Pendens – The parcel of land described in this title is subject to Lis Pendens executed by Liliosa B. Rosario, CLAO, Trial Attorney dated February 13, 1986. Filed to TCT No. 52751 February 13, 1986-1986 February 13 – 3:30 p.m. (SGD.) PACIFICO M. BRAGANZA Register of Deeds27

The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of April 2, 1987, the spouses Rosario’s outstanding principal obligation and penalty charges amounted to P743,296.82 and P151,524.00, respectively.28

Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. During the public auction on April 2, 1987, Banco Filipino was the lone bidder for the three foreclosed properties for the price of P1,372,387.04. The Certificate of Sale29 dated April 2, 1987, in favor of Banco Filipino, was annotated on TCT No. 52751 on April 14, 1987 as Entry No. 610623.30 On December 9, 1987, the Torbela siblings filed before the RTC their Amended Complaint,31 impleading Banco Filipino as additional defendant in Civil Case No. U- 4359 and praying that the spouses Rosario be ordered to redeem Lot No. 356-A from Banco Filipino.

The spouses Rosario instituted before the RTC on March 4, 1988 a case for annulment of extrajudicial foreclosure and damages, with prayer for a writ of preliminary injunction and temporary restraining order, against Banco Filipino, the Provincial Ex Officio Sheriff and his Deputy, and the Register of Deeds of Pangasinan. The case was docketed as Civil Case No. U-4667. Another notice of lis pendens was annotated on TCT No. 52751 on March 10, 1988 as Entry No. 627059, viz:

Entry No. 627059 – Lis Pendens – Dr. Andres T. Rosario and Lena Duque Rosario, Plaintiff versus Banco Filipino, et. al. Civil Case No. U-4667 or Annulment of ExtraJudicial Foreclosure of Real Estate Mortgage – The parcel of land described in this title is subject to Notice of Lis Pendens subscribed and sworn to before Notary Public Mauro G. Meris, as Doc. No. 21; Page No. 5; Book 111; S-1988. March 7, 1988-1988 March 10, 1:00 p.m. (SGD.) RUFINO M. MORENO, SR. Register of Deeds32

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990, the RTC issued an Order 33 dismissing without prejudice Civil Case No. U-4667 due to the spouses Rosario’s failure to prosecute. Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but their efforts were unsuccessful. Upon the expiration of the one-year redemption period in April 1988, the Certificate of Final Sale34and Affidavit of Consolidation35 covering all three foreclosed properties were executed on May 24, 1988 and May 25, 1988, respectively.

On June 7, 1988, new certificates of title were issued in the name of Banco Filipino, particularly, TCT No. 165812 for Lot No. 5-F-8-C-2-B-2-A and TCT No. 165813 for Lot No. 356-A .36

The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint37 for annulment of the Certificate of Final Sale dated May 24, 1988, judicial cancelation of TCT No. 165813, and damages, against Banco Filipino, the Ex Officio Provincial Sheriff, and the Register of Deeds of Pangasinan, which was docketed as Civil Case No. U-4733.

On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta City a Petition for the issuance of a writ of possession. In said Petition, docketed as Pet. Case No. U-822, Banco Filipino prayed that a writ of possession be issued in its favor over Lot No. 5-F-8-C-2-B-2-A and Lot No. 356-A, plus the improvements thereon, and the spouses Rosario and other persons presently in possession of said properties be directed to abide by said writ.

68 The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822. The Decision 38 on these three cases was promulgated on January 15, 1992, the dispositive portion of which reads:

WHEREFORE, judgment is rendered: 1. Declaring the real estate mortgage over Lot 356-A covered by TCT 52751 executed by Spouses Andres Rosario in favor of Banco Filipino, legal and valid; 2. Declaring the sheriff’s sale dated April 2, 1987 over Lot 356-A covered by TCT 52751 and subsequent final Deed of Sale dated May 14, 1988 over Lot 356-A covered by TCT No. 52751 legal and valid; 3. Declaring Banco Filipino the owner of Lot 356-A covered by TCT No. 52751 (now TCT 165813); 4. Banco Filipino is entitled to a Writ of Possession over Lot 356-A together with the improvements thereon (Rose Inn Building). The Branch Clerk of Court is hereby ordered to issue a writ of possession in favor of Banco Filipino; 5. [The Torbela siblings] are hereby ordered to render accounting to Banco Filipino the rental they received from tenants of Rose Inn Building from May 14, 1988; 6. [The Torbela siblings] are hereby ordered to pay Banco Filipino the sum of P20,000.00 as attorney’s fees; 7. Banco Filipino is hereby ordered to give [the Torbela siblings] the right of first refusal over Lot 356-A. The Register of Deeds is hereby ordered to annotate the right of [the Torbela siblings] at the back of TCT No. 165813 after payment of the required fees; 8. Dr. Rosario and Lena Rosario are hereby ordered to reimburse [the Torbela siblings] the market value of Lot 356-A as of December, 1964 minus payments made by the former; 9. Dismissing the complaint of [the Torbela siblings] against Banco Filipino, Pedro Habon and Rufino Moreno in Civil Case No. U-4733; and against Banco Filipino in Civil Case No. U-4359.39

The RTC released an Amended Decision40 dated January 29, 1992, adding the following paragraph to the dispositive:

Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-2-A of the subdivision plan (LRC) Psd-122471, covered by Transfer Certificate of Title 104189 of the Registry of Deeds of Pangasinan[.]41

The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.

In its Decision42 dated June 29, 1999, the Court of Appeals decreed:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification. Items No. 6 and 7 of the appealed decision are DELETED. Item No. 8 is modified requiring [Dr. Rosario] to pay [the Torbela siblings] actual damages, in the amount of P1,200,000.00 with 6% per annum interest from finality of this decision until fully paid. [Dr. Rosario] is further ORDERED to pay [the Torbela siblings] the amount of P300,000.00 as moral damages; P200,000.00 as exemplary damages and P100,000.00 as attorney’s fees.

Costs against [Dr. Rosario].43

The Court of Appeals, in a Resolution44 dated October 22, 1999, denied the separate Motions for Reconsideration of the Torbela siblings and Dr. Rosario.

The Torbela siblings come before this Court via the Petition for Review in G.R. No. 140528, with the following assignment of errors:

First Issue and Assignment of Error: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE REGISTRATION OF THE DEED OF ABSOLUTE QUITCLAIM EXECUTED BY [DR. ANDRES T. ROSARIO] IN FAVOR OF THE [TORBELA SIBLINGS] DATED DECEMBER 28, 1964 AND THE REGISTRATION OF THE NOTICE OF ADVERSE CLAIM EXECUTED BY THE [TORBELA SIBLINGS], SERVE AS THE OPERATIVE ACT TO CONVEY OR AFFECT THE LAND AND IMPROVEMENTS THEREOF IN SO FAR AS THIRD PERSONS ARE CONCERNED. 69 Second Issue and Assignment of Error: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE SUBJECT PROPERTY COVERED BY T.C.T. NO. 52751 IS CLEAN AND FREE, DESPITE OF THE ANNOTATION OF ENCUMBRANCES OF THE NOTICE OF ADVERSE CLAIM AND THE DEED OF ABSOLUTE QUITCLAIM APPEARING AT THE BACK THEREOF AS ENTRY NOS. 274471 AND 274472, RESPECTIVELY.

Third Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE NOTICE OF ADVERSE CLAIM OF THE [TORBELA SIBLINGS] UNDER ENTRY NO. 274471 WAS VALIDLY CANCELLED BY THE REGISTER OF DEEDS, IN THE ABSENCE OF A PETITION DULY FILED IN COURT FOR ITS CANCELLATION.

Fourth Issue and Assignment of Error: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK IS A MORTGAGEE IN GOOD FAITH.

Fifth Issue and Assignment of Error: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE FILING OF A CIVIL CASE NO. U-4359 ON DECEMBER 9, 1987, IMPLEADING RESPONDENT BANCO FILIPINO AS ADDITIONAL PARTY DEFENDANT, TOLL OR SUSPEND THE RUNNING OF THE ONE YEAR PERIOD OF REDEMPTION.

Sixth Issue and Assignment of Error: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE OWNERSHIP OVER THE SUBJECT PROPERTY WAS PREMATURELY CONSOLIDATED IN FAVOR OF RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK.

Seventh Issue and Assignment of Error: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE SUBJECT PROPERTY IS AT LEAST WORTH P1,200,000.00.45

The Torbela siblings ask of this Court: WHEREFORE, in the light of the foregoing considerations, the [Torbela siblings] most respectfully pray that the questioned DECISION promulgated on June 29, 1999 (Annex "A", Petition) and the RESOLUTION dated October 22, 1999 (Annex "B", Petition) be REVERSED and SET ASIDE, and/or further MODIFIED in favor of the [Torbela siblings], and another DECISION issue ordering, among other reliefs, the respondent Banco Filipino to reconvey back Lot No. 356-A, covered by T.C.T. No. 52751, in favor of the [Torbela siblings] who are the actual owners of the same.

The [Torbela siblings] likewise pray for such other reliefs and further remedies as may be deemed just and equitable under the premises. 46 Duque-Rosario, now legally separated from Dr. Rosario, avers in her Petition for Review in G.R. No. 140553 that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A were registered in her name, and she was unlawfully deprived of ownership of said properties because of the following errors of the Court of Appeals:

A THE HON. COURT OF APPEALS PATENTLY ERRED IN NOT FINDING THAT THE PERIOD TO REDEEM THE PROPERTY HAS NOT COMMENCED, HENCE, THE CERTIFICATE OF SALE, THE CONSOLIDATION OF OWNERSHIP BY [BANCO FILIPINO], ARE NULL AND VOID.

70 THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO RULE THAT THE FILING OF THE COMPLAINT BEFORE THE COURT A QUO BY THE [TORBELA SIBLINGS] HAD ALREADY BEEN PRESCRIBED.47

Duque-Rosario prays that the appealed decision of the Court of Appeals be reversed and set aside, and that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A be freed from all obligations and encumbrances and returned to her.

Review of findings of fact by the RTC and the Court of Appeals warranted.

A disquisition of the issues raised and/or errors assigned in the Petitions at bar unavoidably requires a re-evaluation of the facts and evidence presented by the parties in the court a quo.

In Republic v. Heirs of Julia Ramos,48 the Court summed up the rules governing the power of review of the Court:

Ordinarily, this Court will not review, much less reverse, the factual findings of the Court of Appeals, especially where such findings coincide with those of the trial court.http://sc.judiciary.gov.ph/jurisprudence/2010/february2010/169481.htm - _ftn The findings of facts of the Court of Appeals are, as a general rule, conclusive and binding upon this Court, since this Court is not a trier of facts and does not routinely undertake the re-examination of the evidence presented by the contending parties during the trial of the case.

The above rule, however, is subject to a number of exceptions, such as (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the finding is grounded entirely on speculations, surmises, or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact 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 parties; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.49

As the succeeding discussion will bear out, the first, fourth, and ninth exceptions are extant in these case.

Barangay conciliation was not a pre-requisite to the institution of Civil Case No. U-4359.

Dr. Rosario contends that Civil Case No. U-4359, the Complaint of the Torbela siblings for recovery of ownership and possession of Lot No. 356-A, plus damages, should have been dismissed by the RTC because of the failure of the Torbela siblings to comply with the prior requirement of submitting the dispute to barangay conciliation.

The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986, when Presidential Decree No. 1508, Establishing a System of Amicably Settling Disputes at the Barangay Level, was still in effect.50 Pertinent provisions of said issuance read: Section 2. Subject matters for amicable settlement. The Lupon of each barangay shall have authority to bring together the parties actually residing in the same city or municipality for amicable settlement of all disputes except:

1. Where one party is the government, or any subdivision or instrumentality thereof; 2. Where one party is a public officer or employee, and the dispute relates to the performance of his official functions; 3. Offenses punishable by imprisonment exceeding 30 days, or a fine exceeding P200.00; 4. Offenses where there is no private offended party;

71 5. Such other classes of disputes which the Prime Minister may in the interest of justice determine upon recommendation of the Minister of Justice and the Minister of Local Government.

Section 3. Venue. Disputes between or among persons actually residing in the same barangay shall be brought for amicable settlement before the Lupon of said barangay. Those involving actual residents of different barangays within the same city or municipality shall be brought in the barangay where the respondent or any of the respondents actually resides, at the election of the complainant. However, all disputes which involved real property or any interest therein shall be brought in the barangay where the real property or any part thereof is situated.

The Lupon shall have no authority over disputes: 1. involving parties who actually reside in barangays of different cities or municipalities, except where such barangays adjoin each other; and 2. involving real property located in different municipalities. x x x x

Section 6. Conciliation, pre-condition to filing of complaint. – No complaint, petition, action or proceeding involving any matter within the authority of the Lupon as provided in Section 2 hereof shall be filed or instituted in court or any other government office for adjudication unless there has been a confrontation of the parties before the Lupon Chairman or the Pangkat and no conciliation or settlement has been reached as certified by the Lupon Secretary or the Pangkat Secretary, attested by the Lupon or Pangkat Chairman, or unless the settlement has been repudiated. x x x. (Emphases supplied.)

The Court gave the following elucidation on the jurisdiction of the Lupong Tagapayapa in Tavora v. Hon. Veloso51:

The foregoing provisions are quite clear. Section 2 specifies the conditions under which the Lupon of a barangay "shall have authority" to bring together the disputants for amicable settlement of their dispute: The parties must be "actually residing in the same city or municipality." At the same time, Section 3 — while reiterating that the disputants must be "actually residing in the same barangay" or in "different barangays" within the same city or municipality — unequivocably declares that the Lupon shall have "no authority" over disputes "involving parties who actually reside in barangays of different cities or municipalities," except where such barangays adjoin each other.

Thus, by express statutory inclusion and exclusion, the Lupon shall have no jurisdiction over disputes where the parties are not actual residents of the same city or municipality, except where the barangays in which they actually reside adjoin each other.

It is true that immediately after specifying the barangay whose Lupon shall take cognizance of a given dispute, Sec. 3 of PD 1508 adds:

"However, all disputes which involve real property or any interest therein shall be brought in the barangay where the real property or any part thereof is situated."

Actually, however, this added sentence is just an ordinary proviso and should operate as such.

The operation of a proviso, as a rule, should be limited to its normal function, which is to restrict or vary the operation of the principal clause, rather than expand its scope, in the absence of a clear indication to the contrary.

"The natural and appropriate office of a proviso is . . . to except something from the enacting clause; to limit, restrict, or qualify the statute in whole or in part; or to exclude from the scope of the statute that which otherwise would be within its terms." (73 Am Jur 2d 467.)

Therefore, the quoted proviso should simply be deemed to restrict or vary the rule on venue prescribed in the principal clauses of the first paragraph of Section 3, thus: Although venue is generally determined by the residence of the parties, disputes involving real property shall be brought in the barangay where the real property or any part thereof is situated, notwithstanding that the parties reside elsewhere within the same city/municipality.52 (Emphases supplied.) 72 The original parties in Civil Case No. U-4359 (the Torbela siblings and the spouses Rosario) do not reside in the same barangay, or in different barangays within the same city or municipality, or in different barangays of different cities or municipalities but are adjoining each other. Some of them reside outside Pangasinan and even outside of the country altogether. The Torbela siblings reside separately in Barangay Macalong, Urdaneta, Pangasinan; Barangay Consolacion, Urdaneta, Pangasinan; Pangil, Laguna; Chicago, United States of America; and Canada. The spouses Rosario are residents of Calle Garcia, Poblacion, Urdaneta, Pangasinan. Resultantly, the Lupon had no jurisdiction over the dispute and barangay conciliation was not a pre-condition for the filing of Civil Case No. U-4359.

The Court now looks into the merits of Civil Case No. U-4359.

There was an express trust between the Torbela siblings and Dr. Rosario. There is no dispute that the Torbela sibling inherited the title to Lot No. 356-A from their parents, the Torbela spouses, who, in turn, acquired the same from the first registered owner of Lot No. 356-A, Valeriano.

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12, 1964 in which they transferred and conveyed Lot No. 356-A to Dr. Rosario for the consideration of P9.00. However, the Torbela siblings explained that they only executed the Deed as an accommodation so that Dr. Rosario could have Lot No. 356-A registered in his name and use said property to secure a loan from DBP, the proceeds of which would be used for building a hospital on Lot No. 356-A – a claim supported by testimonial and documentary evidence, and borne out by the sequence of events immediately following the execution by the Torbela siblings of said Deed. On December 16, 1964, TCT No. 52751, covering Lot No. 356-A, was already issued in Dr. Rosario’s name. On December 28, 1964, Dr. Rosario executed his own Deed of Absolute Quitclaim, in which he expressly acknowledged that he "only borrowed" Lot No. 356-A and was transferring and conveying the same back to the Torbela siblings for the consideration of P1.00. On February 21, 1965, Dr. Rosario’s loan in the amount ofP70,200.00, secured by a mortgage on Lot No. 356-A, was approved by DBP. Soon thereafter, construction of a hospital building started on Lot No. 356-A.

Among the notable evidence presented by the Torbela siblings is the testimony of Atty. Lorenza Alcantara (Atty. Alcantara), who had no apparent personal interest in the present case. Atty. Alcantara, when she was still a boarder at the house of Eufrosina Torbela Rosario (Dr. Rosario’s mother), was consulted by the Torbela siblings as regards the extrajudicial partition of Lot No. 356-A. She also witnessed the execution of the two Deeds of Absolute Quitclaim by the Torbela siblings and Dr. Rosario.

In contrast, Dr. Rosario presented TCT No. 52751, issued in his name, to prove his purported title to Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals, 53 the Court made a clear distinction between title and the certificate of title:

The certificate referred to is that document issued by the Register of Deeds known as the Transfer Certificate of Title (TCT). By title, the law refers to ownership which is represented by that document. Petitioner apparently confuses certificate with title. Placing a parcel of land under the mantle of the Torrens system does not mean that ownership thereof can no longer be disputed. Ownership is different from a certificate of title. The TCT is only the best proof of ownership of a piece of land. Besides, the certificate cannot always be considered as conclusive evidence of ownership. Mere issuance of the certificate of title in the name of any person does not foreclose the possibility that the real property may be under co-ownership with persons not named in the certificate or that the registrant may only be a trustee or that other parties may have acquired interest subsequent to the issuance of the certificate of title. To repeat, registration is not the equivalent of title, but is only the best evidence thereof. Title as a concept of ownership should not be confused with the certificate of title as evidence of such ownership although both are interchangeably used. x x x.54 (Emphases supplied.) Registration does not vest title; it is merely the evidence of such title. Land registration laws do not give the holder any better title than what he actually has.55 Consequently, Dr. Rosario must still prove herein his acquisition of title to Lot No. 356-A, apart from his submission of TCT No. 52751 in his name.

Dr. Rosario testified that he obtained Lot No. 356-A after paying the Torbela siblings P25,000.00, pursuant to a verbal agreement with the latter. The Court though observes that Dr. Rosario’s testimony on the execution and existence of the verbal agreement with the Torbela siblings lacks significant details (such as the names of the parties present, dates, places, etc.) and is not corroborated by independent evidence. 73 In addition, Dr. Rosario acknowledged the execution of the two Deeds of Absolute Quitclaim dated December 12, 1964 and December 28, 1964, even affirming his own signature on the latter Deed. The Parol Evidence Rule provides that when the terms of the agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.56 Dr. Rosario may not modify, explain, or add to the terms in the two written Deeds of Absolute Quitclaim since he did not put in issue in his pleadings (1) an intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of the Deeds to express the true intent and the agreement of the parties thereto; (3) the validity of the Deeds; or (4) the existence of other terms agreed to by the Torbela siblings and Dr. Rosario after the execution of the Deeds. 57

Even if the Court considers Dr. Rosario’s testimony on his alleged verbal agreement with the Torbela siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two Deeds were executed only because he was "planning to secure loan from the Development Bank of the Philippines and Philippine National Bank and the bank needed absolute quitclaim[.]"58 While Dr. Rosario’s explanation makes sense for the first Deed of Absolute Quitclaim dated December 12, 1964 executed by the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario for P9.00.00), the same could not be said for the second Deed of Absolute Quitclaim dated December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosario’s Deed of Absolute Quitclaim (in which he admitted that he only borrowed Lot No. 356-A and was transferring the same to the Torbela siblings for P1.00.00) would actually work against the approval of Dr. Rosario’s loan by the banks. Since Dr. Rosario’s Deed of Absolute Quitclaim dated December 28, 1964 is a declaration against his self-interest, it must be taken as favoring the truthfulness of the contents of said Deed.59

It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over Lot No. 356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's admission in the said Deed that he merely borrowed Lot No. 356-A is deemed conclusive upon him. Under Article 1431 of the Civil Code, "[t]hrough estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon."60 That admission cannot now be denied by Dr. Rosario as against the Torbela siblings, the latter having relied upon his representation.

Considering the foregoing, the Court agrees with the RTC and the Court of Appeals that Dr. Rosario only holds Lot No. 356-A in trust for the Torbela siblings.

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties, while an implied trust comes into being by operation of law.61

Express trusts are created by direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust. Under Article 1444 of the Civil Code, "[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended."62 It is possible to create a trust without using the word "trust" or "trustee." Conversely, the mere fact that these words are used does not necessarily indicate an intention to create a trust. The question in each case is whether the trustor manifested an intention to create the kind of relationship which to lawyers is known as trust. It is immaterial whether or not he knows that the relationship which he intends to create is called a trust, and whether or not he knows the precise characteristics of the relationship which is called a trust.63

In Tamayo v. Callejo,64 the Court recognized that a trust may have a constructive or implied nature in the beginning, but the registered owner’s subsequent express acknowledgement in a public document of a previous sale of the property to another party, had the effect of imparting to the aforementioned trust the nature of an express trust. The same situation exists in this case. When Dr. Rosario was able to register Lot No. 356-A in his name under TCT No. 52751 on December 16, 1964, an implied trust was initially established between him and the Torbela siblings under Article 1451 of the Civil Code, which provides:

ART. 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner.

Dr. Rosario’s execution of the Deed of Absolute Quitclaim on December 28, 1964, containing his express admission that he only borrowed Lot No. 356-A from the Torbela siblings, eventually transformed the nature of the trust to an express one. The express trust continued despite Dr. Rosario stating in his Deed of Absolute 74 Quitclaim that he was already returning Lot No. 356-A to the Torbela siblings as Lot No. 356-A remained registered in Dr. Rosario’s name under TCT No. 52751 and Dr. Rosario kept possession of said property, together with the improvements thereon.

The right of the Torbela siblings to recover Lot No. 356-A has not yet prescribed.

The Court extensively discussed the prescriptive period for express trusts in the Heirs of Maximo Labanon v. Heirs of Constancio Labanon, 65 to wit:

On the issue of prescription, we had the opportunity to rule in Bueno v. Reyes that unrepudiated written express trusts are imprescriptible:

"While there are some decisions which hold that an action upon a trust is imprescriptible, without distinguishing between express and implied trusts, the better rule, as laid down by this Court in other decisions, is that prescription does supervene where the trust is merely an implied one. The reason has been expressed by Justice J.B.L. Reyes in J.M. Tuason and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows: Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real property prescribed in 10 years, excepting only actions based on continuing or subsisting trusts that were considered by section 38 as imprescriptible. As held in the case of Diaz v. Gorricho, L-11229, March 29, 1958, however, the continuing or subsisting trusts contemplated in section 38 of the Code of Civil Procedure referred only to express unrepudiated trusts, and did not include constructive trusts (that are imposed by law) where no fiduciary relation exists and the trustee does not recognize the trust at all."

This principle was amplified in Escay v. Court of Appeals this way: "Express trusts prescribe 10 years from the repudiation of the trust (Manuel Diaz, et al. vs. Carmen Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil Procedure)."

In the more recent case of Secuya v. De Selma, we again ruled that the prescriptive period for the enforcement of an express trust of ten (10) years starts upon the repudiation of the trust by the trustee.66

To apply the 10-year prescriptive period, which would bar a beneficiary’s action to recover in an express trust, the repudiation of the trust must be proven by clear and convincing evidence and made known to the beneficiary.67The express trust disables the trustee from acquiring for his own benefit the property committed to his management or custody, at least while he does not openly repudiate the trust, and makes such repudiation known to the beneficiary or cestui que trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the rules on adverse possession do not apply to "continuing and subsisting" (i.e., unrepudiated) trusts. In an express trust, the delay of the beneficiary is directly attributable to the trustee who undertakes to hold the property for the former, or who is linked to the beneficiary by confidential or fiduciary relations. The trustee's possession is, therefore, not adverse to the beneficiary, until and unless the latter is made aware that the trust has been repudiated.68

Dr. Rosario argues that he is deemed to have repudiated the trust on December 16, 1964, when he registered Lot No. 356-A in his name under TCT No. 52751, so when on February 13, 1986, the Torbela siblings instituted before the RTC Civil Case No. U-4359, for the recovery of ownership and possession of Lot No. 356-A from the spouses Rosario, over 21 years had passed. Civil Case No. U-4359 was already barred by prescription, as well as laches.

The Court already rejected a similar argument in Ringor v. Ringor69 for the following reasons:

A trustee who obtains a Torrens title over a property held in trust for him by another cannot repudiate the trust by relying on the registration. A Torrens Certificate of Title in Jose’s name did not vest ownership of the land upon him. The Torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. The Torrens system was not intended to foment betrayal in the performance of a trust. It does not permit one to enrich himself at the expense of another. Where one does not have a rightful claim to the property, the Torrens system of registration can confirm or record nothing. Petitioners cannot rely on the registration of the lands in Jose’s name nor in the name of the Heirs of Jose M. Ringor, Inc., for the wrong result they seek. For Jose could not repudiate a trust by relying on a Torrens title he held in trust for his co-heirs. The beneficiaries are entitled to enforce the trust, notwithstanding the irrevocability of the Torrens title. The intended trust must be sustained.70 (Emphasis supplied.) 75 In the more recent case of Heirs of Tranquilino Labiste v. Heirs of Jose Labiste,71 the Court refused to apply prescription and laches and reiterated that:

[P]rescription and laches will run only from the time the express trust is repudiated. The Court has held that for acquisitive prescription to bar the action of the beneficiary against the trustee in an express trust for the recovery of the property held in trust it must be shown that: (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the cestui que trust, and (c) the evidence thereon is clear and conclusive. Respondents cannot rely on the fact that the Torrens title was issued in the name of Epifanio and the other heirs of Jose. It has been held that a trustee who obtains a Torrens title over property held in trust by him for another cannot repudiate the trust by relying on the registration. The rule requires a clear repudiation of the trust duly communicated to the beneficiary. The only act that can be construed as repudiation was when respondents filed the petition for reconstitution in October 1993. And since petitioners filed their complaint in January 1995, their cause of action has not yet prescribed, laches cannot be attributed to them.72 (Emphasis supplied.) It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A by Dr. Rosario in his name under TCT No. 52751 on December 16, 1964 is not the repudiation that would have caused the 10-year prescriptive period for the enforcement of an express trust to run.

The Court of Appeals held that Dr. Rosario repudiated the express trust when he acquired another loan from PNB and constituted a second mortgage on Lot No. 356-A sometime in 1979, which, unlike the first mortgage to DBP in 1965, was without the knowledge and/or consent of the Torbela siblings.

The Court only concurs in part with the Court of Appeals on this matter.

For repudiation of an express trust to be effective, the unequivocal act of repudiation had to be made known to the Torbela siblings as the cestuis que trust and must be proven by clear and conclusive evidence. A scrutiny of TCT No. 52751 reveals the following inscription:

Entry No. 520099 Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in the sense that the consideration thereof has been increased to PHILIPPINE PESOS Four Hundred Fifty Thousand Pesos only (P450,000.00) and to secure any and all negotiations with PNB, whether contracted before, during or after the date of this instrument, acknowledged before Notary Public of Pangasinan Alejo M. Dato as Doc. No. 198, Page No. 41, Book No. 11, Series of 1985. Date of Instrument March 5, 1981 Date of Inscription March 6, 1981 73

Although according to Entry No. 520099, the original loan and mortgage agreement of Lot No. 356-A between Dr. Rosario and PNB was previously inscribed as Entry No. 490658, Entry No. 490658 does not actually appear on TCT No. 52751 and, thus, it cannot be used as the reckoning date for the start of the prescriptive period.

The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-A to PNB on March 6, 1981 when the amended loan and mortgage agreement was registered on TCT No. 52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole world 74 that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the amount of which was increased to P450,000.00. Hence, Dr. Rosario is deemed to have effectively repudiated the express trust between him and the Torbela siblings on March 6, 1981, on which day, the prescriptive period for the enforcement of the express trust by the Torbela siblings began to run.

From March 6, 1981, when the amended loan and mortgage agreement was registered on TCT No. 52751, to February 13, 1986, when the Torbela siblings instituted before the RTC Civil Case No. U-4359 against the spouses Rosario, only about five years had passed. The Torbela siblings were able to institute Civil Case No. U-4359 well before the lapse of the 10-year prescriptive period for the enforcement of their express trust with Dr. Rosario.

76 Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. As the Court explained in the preceding paragraphs, the Torbela siblings instituted Civil Case No. U-4359 five years after Dr. Rosario’s repudiation of the express trust, still within the 10-year prescriptive period for enforcement of such trusts. This does not constitute an unreasonable delay in asserting one's right. A delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief. Laches apply only in the absence of a statutory prescriptive period.75

Banco Filipino is not a mortgagee and buyer in good faith.

Having determined that the Torbela siblings are the true owners and Dr. Rosario merely the trustee of Lot No. 356-A, the Court is next faced with the issue of whether or not the Torbela siblings may still recover Lot No. 356-A considering that Dr. Rosario had already mortgaged Lot No. 356-A to Banco Filipino, and upon Dr. Rosario’s default on his loan obligations, Banco Filipino foreclosed the mortgage, acquired Lot No. 356-A as the highest bidder at the foreclosure sale, and consolidated title in its name under TCT No. 165813. The resolution of this issue depends on the answer to the question of whether or not Banco Filipino was a mortgagee in good faith.

Under Article 2085 of the Civil Code, one of the essential requisites of the contract of mortgage is that the mortgagor should be the absolute owner of the property to be mortgaged; otherwise, the mortgage is considered null and void. However, an exception to this rule is the doctrine of "mortgagee in good faith." Under this doctrine, even if the mortgagor is not the owner of the mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. This principle is based on the rule that all persons dealing with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to go beyond what appears on the face of the title. This is the same rule that underlies the principle of "innocent purchasers for value." The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled to protection. 76

On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in good faith because as early as May 17, 1967, they had already annotated Cornelio’s Adverse Claim dated May 16, 1967 and Dr. Rosario’s Deed of Absolute Quitclaim dated December 28, 1964 on TCT No. 52751 as Entry Nos. 274471- 274472, respectively.

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because per Section 70 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, the notice of adverse claim, registered on May 17, 1967 by the Torbela siblings under Entry Nos. 274471-274472 on TCT No. 52751, already lapsed after 30 days or on June 16, 1967. Additionally, there was an express cancellation of Entry Nos. 274471-274472 by Entry No. 520469 dated March 11, 1981. So when Banco Filipino approved Dr. Rosario’s loan forP1,200,000.00 and constituted a mortgage on Lot No. 356-A (together with two other properties) on December 8, 1981, the only other encumbrance on TCT No. 52751 was Entry No. 520099 dated March 6, 1981, i.e., the amended loan and mortgage agreement between Dr. Rosario and PNB (which was eventually cancelled after it was paid off with part of the proceeds from Dr. Rosario’s loan from Banco Filipino). Hence, Banco Filipino was not aware that the Torbela siblings’ adverse claim on Lot No. 356-A still subsisted. The Court finds that Banco Filipino is not a mortgagee in good faith. Entry Nos. 274471-274472 were not validly cancelled, and the improper cancellation should have been apparent to Banco Filipino and aroused suspicion in said bank of some defect in Dr. Rosario’s title.

The purpose of annotating the adverse claim on the title of the disputed land is to apprise third persons that there is a controversy over the ownership of the land and to preserve and protect the right of the adverse claimant during the pendency of the controversy. It is a notice to third persons that any transaction regarding the disputed land is subject to the outcome of the dispute.77

Adverse claims were previously governed by Section 110 of Act No. 496, otherwise known as the Land Registration Act, quoted in full below:

77 ADVERSE CLAIM SEC. 110. Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registration, may, if no other provision is made in this Act for registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under whom acquired, and a reference to the volume and page of the certificate of title of the registered owner, and a description of the land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant’s residence, and designate a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim, and the court, upon a petition of any party in interest, shall grant a speedy hearing upon the question of the validity of such adverse claim and shall enter such decree therein as justice and equity may require. If the claim is adjudged to be invalid, the registration shall be cancelled. If in any case the court after notice and hearing shall find that a claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble costs in its discretion.

Construing the aforequoted provision, the Court stressed in Ty Sin Tei v. Lee Dy Piao 78 that "[t]he validity or efficaciousness of the [adverse] claim x x x may only be determined by the Court upon petition by an interested party, in which event, the Court shall order the immediate hearing thereof and make the proper adjudication as justice and equity may warrant. And it is ONLY when such claim is found unmeritorious that the registration thereof may be cancelled." The Court likewise pointed out in the same case that while a notice of lis pendens may be cancelled in a number of ways, "the same is not true in a registered adverse claim, for it may be cancelled only in one instance, i.e., after the claim is adjudged invalid or unmeritorious by the Court x x x;" and "if any of the registrations should be considered unnecessary or superfluous, it would be the notice of lis pendens and not the annotation of the adverse claim which is more permanent and cannot be cancelled without adequate hearing and proper disposition of the claim."

With the enactment of the Property Registration Decree on June 11, 1978, Section 70 thereof now applies to adverse claims:

SEC. 70. Adverse claim. – Whoever claims any part or interest in registered land adverse to the registered owner, arising subsequent to the date of the original registrations, may, if no other provision is made in this Decree for registering the same, make a statement in writing setting forth fully his alleged right, or interest, and how or under whom acquired, a reference to the number of the certificate of title of the registered owner, the name of the registered owner, and a description of the land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant’s residence, and a place at which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration. After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest: Provided, however, that after cancellation, no second adverse claim based on the same ground shall be registered by the same claimant.

Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in any case, the court, after notice and hearing, shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an amount not less than one thousand pesos nor more than five thousand pesos, in its discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register of Deeds a sworn petition to that effect. (Emphases supplied.)

In Sajonas v. Court of Appeals,79 the Court squarely interpreted Section 70 of the Property Registration Decree, particularly, the new 30-day period not previously found in Section 110 of the Land Registration Act, thus:

In construing the law aforesaid, care should be taken that every part thereof be given effect and a construction that could render a provision inoperative should be avoided, and inconsistent provisions should be reconciled whenever possible as parts of a harmonious whole. For taken in solitude, a word or phrase might easily 78 convey a meaning quite different from the one actually intended and evident when a word or phrase is considered with those with which it is associated. In ascertaining the period of effectivity of an inscription of adverse claim, we must read the law in its entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides:

"The adverse claim shall be effective for a period of thirty days from the date of registration."

At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to thirty days. But the above provision cannot and should not be tre separately, but should be read in relation to the sentence following, which reads: "After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition therefor by the party in interest."

If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the lapse of thirty days, then it would not have been necessary to include the foregoing caveat to clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been automatically terminated by mere lapse of time, the law would not have required the party in interest to do a useless act.

A statute's clauses and phrases must not be taken separately, but in its relation to the statute's totality. Each statute must, in fact, be construed as to harmonize it with the pre-existing body of laws. Unless clearly repugnant, provisions of statutes must be reconciled. The printed pages of the published Act, its history, origin, and its purposes may be examined by the courts in their construction. x x x. x x x x Construing the provision as a whole would reconcile the apparent inconsistency between the portions of the law such that the provision on cancellation of adverse claim by verified petition would serve to qualify the provision on the effectivity period. The law, taken together, simply means that the cancellation of the adverse claim is still necessary to render it ineffective, otherwise, the inscription will remain annotated and shall continue as a lien upon the property. For if the adverse claim has already ceased to be effective upon the lapse of said period, its cancellation is no longer necessary and the process of cancellation would be a useless ceremony. It should be noted that the law employs the phrase "may be cancelled," which obviously indicates, as inherent in its decision making power, that the court may or may not order the cancellation of an adverse claim, notwithstanding such provision limiting the effectivity of an adverse claim for thirty days from the date of registration. The court cannot be bound by such period as it would be inconsistent with the very authority vested in it. A fortiori, the limitation on the period of effectivity is immaterial in determining the validity or invalidity of an adverse claim which is the principal issue to be decided in the court hearing. It will therefore depend upon the evidence at a proper hearing for the court to determine whether it will order the cancellation of the adverse claim or not.

To interpret the effectivity period of the adverse claim as absolute and without qualification limited to thirty days defeats the very purpose for which the statute provides for the remedy of an inscription of adverse claim, as the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property where the registration of such interest or right is not otherwise provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves as a warning to third parties dealing with said property that someone is claiming an interest or the same or a better right than the registered owner thereof.

The reason why the law provides for a hearing where the validity of the adverse claim is to be threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue where the propriety of his claimed interest can be established or revoked, all for the purpose of determining at last the existence of any encumbrance on the title arising from such adverse claim. This is in line with the provision immediately following:

"Provided, however, that after cancellation, no second adverse claim shall be registered by the same claimant."

Should the adverse claimant fail to sustain his interest in the property, the adverse claimant will be precluded from registering a second adverse claim based on the same ground. 79 It was held that "validity or efficaciousness of the claim may only be determined by the Court upon petition by an interested party, in which event, the Court shall order the immediate hearing thereof and make the proper adjudication as justice and equity may warrant. And it is only when such claim is found unmeritorious that the registration of the adverse claim may be cancelled, thereby protecting the interest of the adverse claimant and giving notice and warning to third parties."80 (Emphases supplied.)

Whether under Section 110 of the Land Registration Act or Section 70 of the Property Registration Decree, notice of adverse claim can only be cancelled after a party in interest files a petition for cancellation before the RTC wherein the property is located, and the RTC conducts a hearing and determines the said claim to be invalid or unmeritorious.

No petition for cancellation has been filed and no hearing has been conducted herein to determine the validity or merit of the adverse claim of the Torbela siblings. Entry No. 520469 cancelled the adverse claim of the Torbela siblings, annotated as Entry Nos. 274471-774472, upon the presentation by Dr. Rosario of a mere Cancellation and Discharge of Mortgage.

Regardless of whether or not the Register of Deeds should have inscribed Entry No. 520469 on TCT No. 52751, Banco Filipino could not invoke said inscription in support of its claim of good faith. There were several things amiss in Entry No. 520469 which should have already aroused suspicions in Banco Filipino, and compelled the bank to look beyond TCT No. 52751 and inquire into Dr. Rosario’s title. First, Entry No. 520469 does not mention any court order as basis for the cancellation of the adverse claim. Second, the adverse claim was not a mortgage which could be cancelled with Dr. Rosario’s Cancellation and Discharge of Mortgage. And third, the adverse claim was against Dr. Rosario, yet it was cancelled based on a document also executed by Dr. Rosario.

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation.81

While the defective cancellation of Entry Nos. 274471-274472 by Entry No. 520469 might not be evident to a private individual, the same should have been apparent to Banco Filipino. Banco Filipino is not an ordinary mortgagee, but is a mortgagee-bank, whose business is impressed with public interest. In fact, in one case, 82 the Court explicitly declared that the rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to banks. In another case,83 the Court adjudged that unlike private individuals, a bank is expected to exercise greater care and prudence in its dealings, including those involving registered lands. A banking institution is expected to exercise due diligence before entering into a mortgage contract. The ascertainment of the status or condition of a property offered to it as security for a loan must be a standard and indispensable part of its operations. Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in good faith at the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela siblings over Lot No. 356-A is superior over that of Banco Filipino; and as the true owners of Lot No. 356-A, the Torbela siblings are entitled to a reconveyance of said property even from Banco Filipino.

Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement was not the result of a dishonest purpose, some moral obliquity, or breach of a known duty for some interest or ill will that partakes of fraud that would justify damages.84 Given the reconveyance of Lot No. 356-A to the Torbela siblings, there is no more need to address issues concerning redemption, annulment of the foreclosure sale and certificate of sale (subject matter of Civil Case No. U-4733), or issuance of a writ of possession in favor of Banco Filipino (subject matter of Pet. Case No. U-822) insofar as Lot No. 356-A is concerned. Such would only be superfluous. Banco Filipino, however, is not left without any recourse should the foreclosure and sale of the two other mortgaged properties be insufficient to cover Dr. Rosario’s loan, for the bank may still bring a proper suit against Dr. Rosario to collect the unpaid balance.

80 The rules on accession shall govern the improvements on Lot No. 356-A and the rents thereof. The accessory follows the principal. The right of accession is recognized under Article 440 of the Civil Code which states that "[t]he ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially."

There is no question that Dr. Rosario is the builder of the improvements on Lot No. 356-A. The Torbela siblings themselves alleged that they allowed Dr. Rosario to register Lot No. 356-A in his name so he could obtain a loan from DBP, using said parcel of land as security; and with the proceeds of the loan, Dr. Rosario had a building constructed on Lot No. 356-A, initially used as a hospital, and then later for other commercial purposes. Dr. Rosario supervised the construction of the building, which began in 1965; fully liquidated the loan from DBP; and maintained and administered the building, as well as collected the rental income therefrom, until the Torbela siblings instituted Civil Case No. U-4359 before the RTC on February 13, 1986.

When it comes to the improvements on Lot No. 356-A, both the Torbela siblings (as landowners) and Dr. Rosario (as builder) are deemed in bad faith. The Torbela siblings were aware of the construction of a building by Dr. Rosario on Lot No. 356-A, while Dr. Rosario proceeded with the said construction despite his knowledge that Lot No. 356-A belonged to the Torbela siblings. This is the case contemplated under Article 453 of the Civil Code, which reads:

ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good faith. It is understood that there is bad faith on the part of the landowner whenever the act was done with his knowledge and without opposition on his part. (Emphasis supplied.) When both the landowner and the builder are in good faith, the following rules govern: ART. 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.

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.

ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount expended.

Whatever is built, planted, or sown on the land of another, and the improvements or repairs made thereon, belong to the owner of the land. Where, however, the planter, builder, or sower has acted in good faith, a conflict of rights arises between the owners and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating what Manresa calls a state of "forced co-ownership," the law has provided a just and equitable solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity or to oblige the builder or planter to pay for the land and the sower to pay the proper rent. It is the owner of the land who is allowed to exercise the option because his right is older and because, by the principle of accession, he is entitled to the ownership of the accessory thing.85

The landowner has to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. But even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the owner of the building to remove the building from the land without first exercising either option. It is only if the owner chooses to sell his land, and the builder or planter fails to

81 purchase it where its value is not more than the value of the improvements, that the owner may remove the improvements from the land. The owner is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same.86

This case then must be remanded to the RTC for the determination of matters necessary for the proper application of Article 448, in relation to Article 546, of the Civil Code. Such matters include the option that the Torbela siblings will choose; the amount of indemnity that they will pay if they decide to appropriate the improvements on Lot No. 356-A; the value of Lot No. 356-A if they prefer to sell it to Dr. Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to Dr. Rosario but the value of the land is considerably more than the improvements. The determination made by the Court of Appeals in its Decision dated June 29, 1999 that the current value of Lot No. 356-A is P1,200,000.00 is not supported by any evidence on record.

Should the Torbela siblings choose to appropriate the improvements on Lot No. 356-A, the following ruling of the Court in Pecson v. Court of Appeals 87 is relevant in the determination of the amount of indemnity under Article 546 of the Civil Code:

Article 546 does not specifically state how the value of the useful improvements should be determined. The respondent court and the private respondents espouse the belief that the cost of construction of the apartment building in 1965, and not its current market value, is sufficient reimbursement for necessary and useful improvements made by the petitioner. This position is, however, not in consonance with previous rulings of this Court in similar cases. In Javier vs. Concepcion, Jr., this Court pegged the value of the useful improvements consisting of various fruits, bamboos, a house and camarin made of strong material based on the market value of the said improvements. In Sarmiento vs. Agana, despite the finding that the useful improvement, a residential house, was built in 1967 at a cost of between eight thousand pesos (P8,000.00) to ten thousand pesos (P10,000.00), the landowner was ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00), the value of the house at the time of the trial. In the same way, the landowner was required to pay the "present value" of the house, a useful improvement, in the case of De Guzman vs. De la Fuente, cited by the petitioner.

The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila that the said provision was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued income-yielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to adduce evidence on the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by the landowner.88 (Emphases supplied.) Still following the rules of accession, civil fruits, such as rents, belong to the owner of the building. 89 Thus, Dr. Rosario has a right to the rents of the improvements on Lot No. 356-A and is under no obligation to render an accounting of the same to anyone. In fact, it is the Torbela siblings who are required to account for the rents they had collected from the lessees of the commercial building and turn over any balance to Dr. Rosario. Dr. Rosario’s right to the rents of the improvements on Lot No. 356-A shall continue until the Torbela siblings have chosen their option under Article 448 of the Civil Code. And in case the Torbela siblings decide to appropriate the improvements, Dr. Rosario shall have the right to retain said improvements, as well as the rents thereof, until the indemnity for the same has been paid.90

Dr. Rosario is liable for damages to the Torbela siblings.

The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings P300,000.00 as moral damages;P200,000.00 as exemplary damages; and P100,000.00 as attorney’s fees.

Indeed, Dr. Rosario’s deceit and bad faith is evident when, being fully aware that he only held Lot No. 356-A in trust for the Torbela siblings, he mortgaged said property to PNB and Banco Filipino absent the consent of the Torbela siblings, and caused the irregular cancellation of the Torbela siblings’ adverse claim on TCT No. 52751. Irrefragably, Dr. Rosario’s betrayal had caused the Torbela siblings (which included Dr. Rosario’s own mother, Eufrosina Torbela Rosario) mental anguish, serious anxiety, and wounded feelings. Resultantly, the award of moral damages is justified, but the amount thereof is reduced to P200,000.00. 82 In addition to the moral damages, exemplary damages may also be imposed given that Dr. Rosario’s wrongful acts were accompanied by bad faith. However, judicial discretion granted to the courts in the assessment of damages must always be exercised with balanced restraint and measured objectivity. The circumstances of the case call for a reduction of the award of exemplary damages to P100,000.00.

As regards attorney's fees, they may be awarded when the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Because of Dr. Rosario’s acts, the Torbela siblings were constrained to institute several cases against Dr. Rosario and his spouse, Duque- Rosario, as well as Banco Filipino, which had lasted for more than 25 years. Consequently, the Torbela siblings are entitled to an award of attorney's fees and the amount of P100,000.00 may be considered rational, fair, and reasonable.

Banco Filipino is entitled to a writ of possession for Lot No. 5-F-8-C-2-B-2-A.

The Court emphasizes that Pet. Case No. U-822, instituted by Banco Filipino for the issuance of a writ of possession before the RTC of Urdaneta, included only Lot No. 5-F-8-C-2-B-2-A and Lot No. 356-A (Lot No. 4489, the third property mortgaged to secure Dr. Rosario’s loan from Banco Filipino, is located in Dagupan City, Pangasinan, and the petition for issuance of a writ of possession for the same should be separately filed with the RTC of Dagupan City). Since the Court has already granted herein the reconveyance of Lot No. 356-A from Banco Filipino to the Torbela siblings, the writ of possession now pertains only to Lot No. 5-F-8-C-2- B-2-A.

To recall, the Court of Appeals affirmed the issuance by the RTC of a writ of possession in favor of Banco Filipino. Dr. Rosario no longer appealed from said judgment of the appellate court. Already legally separated from Dr. Rosario, Duque-Rosario alone challenges the writ of possession before this Court through her Petition in G.R. No. 140553.

Duque-Rosario alleges in her Petition that Lot No. 5-F-8-C-2-B-2-A had been registered in her name under TCT No. 104189. Yet, without a copy of TCT No. 104189 on record, the Court cannot give much credence to Duque-Rosario’s claim of sole ownership of Lot No. 5-F-8-C-2-B-2-A. Also, the question of whether Lot No. 5-F- 8-C-2-B-2-A was the paraphernal property of Duque-Rosario or the conjugal property of the spouses Rosario would not alter the outcome of Duque-Rosario’s Petition.

The following facts are undisputed: Banco Filipino extrajudicially foreclosed the mortgage constituted on Lot No. 5-F-8-C-2-B-2-A and the two other properties after Dr. Rosario defaulted on the payment of his loan; Banco Filipino was the highest bidder for all three properties at the foreclosure sale on April 2, 1987; the Certificate of Sale dated April 2, 1987 was registered in April 1987; and based on the Certificate of Final Sale dated May 24, 1988 and Affidavit of Consolidation dated May 25, 1988, the Register of Deeds cancelled TCT No. 104189 and issued TCT No. 165812 in the name of Banco Filipino for Lot No. 5-F-8-C-2-B-2-A on June 7, 1988.

The Court has consistently ruled that the one-year redemption period should be counted not from the date of foreclosure sale, but from the time the certificate of sale is registered with the Registry of Deeds.91 No copy of TCT No. 104189 can be found in the records of this case, but the fact of annotation of the Certificate of Sale thereon was admitted by the parties, only differing on the date it was made: April 14, 1987 according to Banco Filipino and April 15, 1987 as maintained by Duque-Rosario. Even if the Court concedes that the Certificate of Sale was annotated on TCT No. 104189 on the later date, April 15, 1987, the one-year redemption period already expired on April 14, 1988.92 The Certificate of Final Sale and Affidavit of Consolidation were executed more than a month thereafter, on May 24, 1988 and May 25, 1988, respectively, and were clearly not premature.

It is true that the rule on redemption is liberally construed in favor of the original owner of the property. The policy of the law is to aid rather than to defeat him in the exercise of his right of redemption.93 However, the liberal interpretation of the rule on redemption is inapplicable herein as neither Duque-Rosario nor Dr. Rosario had made any attempt to redeem Lot No. 5-F-8-C-2-B-2-A. Duque-Rosario could only rely on the efforts of the Torbela siblings at redemption, which were unsuccessful. While the Torbela siblings made several offers to redeem Lot No. 356-A, as well as the two other properties mortgaged by Dr. Rosario, they did not 83 make any valid tender of the redemption price to effect a valid redemption. The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment. The redemption price should either be fully offered in legal tender or else validly consigned in court. Only by such means can the auction winner be assured that the offer to redeem is being made in good faith.94 In case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through judicial action, which in every case, must be filed within the one-year period of redemption. The filing of the court action to enforce redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing" the expiration of the one-year period. 95 But no such action was instituted by the Torbela siblings or either of the spouses Rosario.

Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-C-2-B-2-A in favor of Banco Filipino by invoking the pendency of Civil Case No. U-4359, the Torbela siblings’ action for recovery of ownership and possession and damages, which supposedly tolled the period for redemption of the foreclosed properties. Without belaboring the issue of Civil Case No. U-4359 suspending the redemption period, the Court simply points out to Duque-Rosario that Civil Case No. U-4359 involved Lot No. 356-A only, and the legal consequences of the institution, pendency, and resolution of Civil Case No. U-4359 apply to Lot No. 356-A alone.

Equally unpersuasive is Duque-Rosario’s argument that the writ of possession over Lot No. 5-F-8-C-2-B-2-A should not be issued given the defects in the conduct of the foreclosure sale (i.e., lack of personal notice to Duque-Rosario) and consolidation of title (i.e., failure to provide Duque-Rosario with copies of the Certificate of Final Sale). The right of the purchaser to the possession of the foreclosed property becomes absolute upon the expiration of the redemption period. The basis of this right to possession is the purchaser's ownership of the property. After the consolidation of title in the buyer's name for failure of the mortgagor to redeem, the writ of possession becomes a matter of right and its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function.961avvphi1

The judge with whom an application for a writ of possession is filed need not look into the validity of the mortgage or the manner of its foreclosure. Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of possession. Regardless of whether or not there is a pending suit for the annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice, of course, to the eventual outcome of the pending annulment case. The issuance of a writ of possession in favor of the purchaser in a foreclosure sale is a ministerial act and does not entail the exercise of discretion.97 WHEREFORE, in view of the foregoing, the Petition of the Torbela siblings in G.R. No. 140528 is GRANTED, while the Petition of Lena Duque-Rosario in G.R. No. 140553 is DENIED for lack of merit. The Decision dated June 29, 1999 of the Court of Appeals in CA-G.R. CV No. 39770, which affirmed with modification the Amended Decision dated January 29, 1992 of the RTC in Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822, is AFFIRMED WITH MODIFICATIONS, to now read as follows:

(1) Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela siblings; (2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in the name of Banco Filipino and to issue a new certificate of title in the name of the Torbela siblings for Lot No. 356-A; (3) The case is REMANDED to the RTC for further proceedings to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code, particularly: (a) the present fair market value of Lot No. 356-A; (b) the present fair market value of the improvements thereon; (c) the option of the Torbela siblings to appropriate the improvements on Lot No. 356-A or require Dr. Rosario to purchase Lot No. 356-A; and (d) in the event that the Torbela siblings choose to require Dr. Rosario to purchase Lot No. 356-A but the value thereof is considerably more than the improvements, then the reasonable rent of Lot No. 356-A to be paid by Dr. Rosario to the Torbela siblings; (4) The Torbela siblings are DIRECTED to submit an accounting of the rents of the improvements on Lot No. 356-A which they had received and to turn over any balance thereof to Dr. Rosario; (5) Dr. Rosario is ORDERED to pay the Torbela siblings P200,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney’s fees; and

84 (6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered by TCT No. 165812. The RTC Branch Clerk of Court is ORDERED to issue a writ of possession for the said property in favor of Banco Filipino. SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila EN BANC

G.R. No. L-30817 September 29, 1972 DOMINADOR DIZON, doing business under the firm name "Pawnshop of Dominador Dizon", petitioner, vs. LOURDES G. SUNTAY, respondent. Andres T. Velarde for petitioner.

Rafael G. Suntay for respondent.

FERNANDO, J.:

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 85 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 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 86 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 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.

Concepcion, C.J., Zaldivar, Makasiar, Antonio and Esguerra, JJ., concur. Makalintal and Barredo, JJ., took no part. Castro, J., reserves his vote.

87 Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION

G.R. No. 80298 April 26, 1990

EDCA PUBLISHING & DISTRIBUTING CORP., petitioner, vs. THE SPOUSES LEONOR and GERARDO SANTOS, doing business under the name and style of "SANTOS BOOKSTORE," and THE COURT OF APPEALS, respondents.

Emiliano S. Samson, R. Balderrama-Samson, Mary Anne B. Samson for petitioner. Cendana Santos, Delmundo & Cendana for private respondents.

CRUZ, J.:

The case before us calls for the interpretation of Article 559 of the Civil Code and raises the particular question of when a person may be deemed to have been "unlawfully deprived" of movable property in the hands of another. The article runs in full as follows:

Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

The movable property in this case consists of books, which were bought from the petitioner by an impostor who sold it to the private respondents. Ownership of the books was recognized in the private respondents by the Municipal Trial Court, 1 which was sustained by the Regional Trial Court, 2 which was in turn sustained by the Court of Appeals. 3 The petitioner asks us to declare that all these courts have erred and should be reversed.

88 This case arose when on October 5, 1981, a person identifying himself as Professor Jose Cruz placed an order by telephone with the petitioner company for 406 books, payable on delivery. 4 EDCA prepared the corresponding invoice and delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of P8,995.65. 5 On October 7, 1981, Cruz sold 120 of the books to private respondent Leonor Santos who, after verifying the seller's ownership from the invoice he showed her, paid him P1,700.00. 6

Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his first check, made inquiries with the De la Salle College where he had claimed to be a dean and was informed that there was no such person in its employ. Further verification revealed that Cruz had no more account or deposit with the Philippine Amanah Bank, against which he had drawn the payment check. 7 EDCA then went to the police, which set a trap and arrested Cruz on October 7, 1981. Investigation disclosed his real name as Tomas de la Peña and his sale of 120 of the books he had ordered from EDCA to the private respondents. 8

On the night of the same date, EDCA sought the assistance of the police in Precinct 5 at the UN Avenue, which forced their way into the store of the private respondents and threatened Leonor Santos with prosecution for buying stolen property. They seized the 120 books without warrant, loading them in a van belonging to EDCA, and thereafter turned them over to the petitioner. 9

Protesting this high-handed action, the private respondents sued for recovery of the books after demand for their return was rejected by EDCA. A writ of preliminary attachment was issued and the petitioner, after initial refusal, finally surrendered the books to the private respondents. 10 As previously stated, the petitioner was successively rebuffed in the three courts below and now hopes to secure relief from us.

To begin with, the Court expresses its disapproval of the arbitrary action of the petitioner in taking the law into its own hands and forcibly recovering the disputed books from the private respondents. The circumstance that it did so with the assistance of the police, which should have been the first to uphold legal and peaceful processes, has compounded the wrong even more deplorably. Questions like the one at bar are decided not by policemen but by judges and with the use not of brute force but of lawful writs.

Now to the merits

It is the contention of the petitioner that the private respondents have not established their ownership of the disputed books because they have not even produced a receipt to prove they had bought the stock. This is unacceptable. Precisely, the first sentence of Article 559 provides that "the possession of movable property acquired in good faith is equivalent to a title," thus dispensing with further proof.

The argument that the private respondents did not acquire the books in good faith has been dismissed by the lower courts, and we agree. Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing that they had been sold to Cruz, who said he was selling them for a discount because he was in financial need. Private respondents are in the business of buying and selling books and often deal with hard-up sellers who urgently have to part with their books at reduced prices. To Leonor Santos, Cruz must have been only one of the many such sellers she was accustomed to dealing with. It is hardly bad faith for any one in the business of buying and selling books to buy them at a discount and resell them for a profit.

But the real issue here is whether the petitioner has been unlawfully deprived of the books because the check issued by the impostor in payment therefor was dishonored.

89 In its extended memorandum, EDCA cites numerous cases holding that the owner who has been unlawfully deprived of personal property is entitled to its recovery except only where the property was purchased at a public sale, in which event its return is subject to reimbursement of the purchase price. The petitioner is begging the question. It is putting the cart before the horse. Unlike in the cases invoked, it has yet to be established in the case at bar that EDCA has been unlawfully deprived of the books.

The petitioner argues that it was, because the impostor acquired no title to the books that he could have validly transferred to the private respondents. Its reason is that as the payment check bounced for lack of funds, there was a failure of consideration that nullified the contract of sale between it and Cruz.

The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. According to the Civil Code:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

x x x x x x x x x

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price.

It is clear from the above provisions, particularly the last one quoted, that ownership in the thing sold shall not pass to the buyer until full payment of the purchase only if there is a stipulation to that effect. Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid.

Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of bouncing checks. But absent the stipulation above noted, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another.

In Asiatic Commercial Corporation v. Ang,11 the plaintiff sold some cosmetics to Francisco Ang, who in turn sold them to Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he had validly bought them from Ang, paying for the same in cash. Finding that there was no conspiracy between Tan and Ang to deceive Asiatic the Court of Appeals declared:

Yet the defendant invoked Article 464 12 of the Civil Code providing, among other things that "one who has been unlawfully deprived of personal property may recover it from any person possessing it." We do not believe that the plaintiff has been unlawfully deprived of the cartons of Gloco Tonic within the scope of this legal provision. It has voluntarily parted with them pursuant to a contract of purchase and sale. The circumstance that the price was not subsequently paid did not render illegal a transaction which was valid and legal at the beginning.

90 In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist, who sold it to Sanchez, who sold it to Jimenez. When the payment check issued to Tagatac by Feist was dishonored, the plaintiff sued to recover the vehicle from Jimenez on the ground that she had been unlawfully deprived of it by reason of Feist's deception. In ruling for Jimenez, the Court of Appeals held:

The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been unlawfully deprived of her car. At first blush, it would seem that she was unlawfully deprived thereof, considering that she was induced to part with it by reason of the chicanery practiced on her by Warner L. Feist. Certainly, swindling, like robbery, is an illegal method of deprivation of property. In a manner of speaking, plaintiff-appellant was "illegally deprived" of her car, for the way by which Warner L. Feist induced her to part with it is illegal and is punished by law. But does this "unlawful deprivation" come within the scope of Article 559 of the New Civil Code?

x x x x x x x x x

. . . The fraud and deceit practiced by Warner L. Feist earmarks this sale as a voidable contract (Article 1390 N.C.C.). Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified, the action to annul it is extinguished (Article 1392, N.C.C.) and the contract is cleansed from all its defects (Article 1396, N.C.C.); if the contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as a consequence (Article 1398, N.C.C.).

However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale remains valid and binding. When plaintiff-appellant Trinidad C. Tagatac delivered the car to Feist by virtue of said voidable contract of sale, the title to the car passed to Feist. Of course, the title that Feist acquired was defective and voidable. Nevertheless, at the time he sold the car to Felix Sanchez, his title thereto had not been avoided and he therefore conferred a good title on the latter, provided he bought the car in good faith, for value and without notice of the defect in Feist's title (Article 1506, N.C.C.). There being no proof on record that Felix Sanchez acted in bad faith, it is safe to assume that he acted in good faith.

The above rulings are sound doctrine and reflect our own interpretation of Article 559 as applied to the case before us.

Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly transfer to the private respondents. The fact that he had not yet paid for them to EDCA was a matter between him and EDCA and did not impair the title acquired by the private respondents to the books.

One may well imagine the adverse consequences if the phrase "unlawfully deprived" were to be interpreted in the manner suggested by the petitioner. A person relying on the seller's title who buys a movable property from him would have to surrender it to another person claiming to be the original owner who had not yet been paid the purchase price therefor. The buyer in the second sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith without even the right to reimbursement of the amount he had paid for it.

It bears repeating that in the case before us, Leonor Santos took care to ascertain first that the books belonged to Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had been paid for on delivery. By contrast, EDCA was less than cautious — in fact, too trusting in dealing with the impostor. Although it had never transacted with him before, it readily delivered the books he had ordered (by telephone) and as readily accepted his personal check in payment. It did not verify his identity although it was easy enough to do this. It did not wait to clear the check of this unknown drawer.

91 Worse, it indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in the buyer.

Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books being offered for sale by Cruz belonged to him; yet she did. Although the title of Cruz was presumed under Article 559 by his mere possession of the books, these being movable property, Leonor Santos nevertheless demanded more proof before deciding to buy them.

It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a result of its own negligence.1âwphi1We cannot see the justice in transferring EDCA's loss to the Santoses who had acted in good faith, and with proper care, when they bought the books from Cruz.

While we sympathize with the petitioner for its plight, it is clear that its remedy is not against the private respondents but against Tomas de la Peña, who has apparently caused all this trouble. The private respondents have themselves been unduly inconvenienced, and for merely transacting a customary deal not really unusual in their kind of business. It is they and not EDCA who have a right to complain.

WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs against the petitioner.

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

92 93 DIZON V. SUNTAY- Pledge of Immovable

An owner of a movable unlawfully pledged by another is not estopped from recovering possession. Where the owner delivered the diamond ring solely for sale on commission but the seller instead pawned it without authority, the owner is not stopped form pursuing an action against the pawnshop.

FACTS:

Lourdes Suntay is the owner of a 3-carat diamond ring valued at P5,500. She and Clarita Sison entered into a transaction wherein the ring would be sold on commission. Clarita received the ring and issued a receipt. After some time, Lourdes made demands for the return of the ring but the latter refused to comply. When Lourdes insisted on the return, Clarita gave her the pawnshop ticket which is the receipt of the pledge and she found out that 3 days after the ring was received by Clarita, it was pledged by Melia Sison, the niece of Clarita’s husband in connivance with Clarita with the pawnshop of Dominador Dizon for P2,600. Lourdes then filed an estafa case. She then asked Dominador Dizon for the return of the ring pledged but refused to return the ring thus the case filed by Lourdes.

The CFI issued a writ of replevin so Lourdes was able to have possession of the ring during the pendency of the case. The CFI also ruled in her favor which was affirmed by the CA on appeal. Thus the case at bar.

ISSUE:

W/N the CA erred in ruling that Lourdes has a right to possession of the ring

HELD: NO

It reiterated the ruling in de Garcia v. CA, that the controlling provision is Art. 559 of the CC which states that 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.

Lourdes, being unlawfully deprived of her ring thus she has a right to recover it from the current possessor. Dizon is engaged in a business where presumably ordinary prudence would require him to inquire whether or not an individual who is offering the jewelry by pledge is entitled to do so. The principle of estoppel cannot help him at all. Since there was no precaution availed of, perhaps because of the difficulty of resisting opportunity for profit, he only has himself to blame and should be the last to complain if the right of the true owner of the jewelry should be recognized.

Other issues raised: Principle of estoppel = has its roots in equity, moral right and natural justice. > For estoppel to exist, there must be a declaration, act or omission by the party who is sought to be bound.

> A party should not be permitted to go against his own acts to the prejudice of another. Concurring opinion by J. Teehankee:

> Interpretation of the “unlawfully deprived” in Art. 559 of the CC. It is understood to include all cases where there has been no valid transmission of ownership. If our legislature intended interpretation to be that of the French Code, it certainly would have adopted and used a narrower term than the broad language of Art. 559 (formerly 464) and the accepted meaning in accordance with our jurisprudence. 94

EDCA PUBLISHING v. SANTOS

Possession of movable property acquired in GF is equivalent to title. There is no need to produce a receipt.

FACTS:

EDCA Publishing sold 406 books to a certain Professor Jose Cruz who ordered these by telephone, which was agreed to be payable on delivery. The books were subsequently delivered to him with the corresponding invoice, and he paid with a personal check.

Cruz then sold the 120 of the books to Leonor Santos who asked for verification, and was then showed the invoice for the books.

EDCA became suspicious when Cruz ordered another set of books even before his check cleared. Upon investigation, EDCA found that he wasn’t the person he claimed to be (Dean in DLSU). EDCA had the police capture Cruz, as well as seize the books from Santos. Santos demanded the return of the books.

RTC granted the writ of preliminary attachment.

Subsequent dishonor of a check, which did not render the contract of sale void does not amount to unlawful deprivation of property. (There was a perfected contract of sale so the proper remedy is specific performance).

ISSUE:

Whether or not the owner was unlawfully deprived of the property?

HELD: No.

Santos was a good faith buyer after taking steps to verify the identity of the seller. When she was showed the invoice, she reasonably believed that he was a legitimate seller.

With regard to unlawful deprivation, EDCA was not unlawfully deprived of the property by mere failure of consideration. There was already a perfected contract of sale. Proof was even substantiated when EDCA gave the invoice as proof of payment upon delivery of the books. This did not amount to unlawful taking, because by the delivery of EDCA to Cruz, ownership of the books already transferred to him.

Torbela vs. Spouses Rosario GR 140528 Dec. 07, 2011

FACTS:

The issue is over a parcel of land inherited by the Torbela siblings from their parents. They executed a deed of absolute quitclaim over the property in favor of Dr. Rosario. Four days after, a TCT was issued in Dr. Rosario’s name covering the property.

95 Another deed of absolute quitclaim was subsequently executed twelve days after by Dr. Rosario acknowledging that he only borrowed the lot from the Torbela siblings and was already returning the same. This deed was notarized but not immediately annotated.

Dr. Rosario used the land as mortgage for a loan he obtain through DBP for P70,000.00. He used the proceeds of the loan to build a 4 storey building which was initially used as a hospital but later converted into a commercial space. Part was leased to PT&T and the rest to Rosario ’s sister who operated the Rose Inn Hotel and Restaurant.

Dr. Rosario fully paid the loan from DBP and the mortgage was cancelled and ratified by a notary public. However, Dr. Rosario took another loan from PNB. He later acquired a third loan from Banco Filipino and bought out the loan from PNB cancelling the mortgage with PNB. Rosario failed to pay their loan in Banco Filipino and the property was extrajudicially foreclosed.

Meanwhile, back in 1965, the Torbela siblings sought to register their ownership over the lot and to perfect their title but couldn’t because the title was still with DBP. They showed as proof the deed of absolute quitclaim presented executed by Rosario himself. In 1986, they filed a civil case for recovery of ownership and possession and damages. They tried to redeem the lot from Banco Filipino but failed. TCT was issued to Banco FIilipino.

The Torbela’s claim they have right over the rents of the building through accession because they are the land owners.

ISSUE:

Who has right over the improvements made on the lot and the rents thereof.

RULING:

According to Art. 440, the accessory follows the principal. Ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially.

However, in the case at bar, both Torbela siblings and Rosario are deemed in bad faith. The Torbelas knew Rosario built on the land and even allowed him to use the land to obtain a loan from DBP. Rosario on the other hand consciously built on land he knew was not his. They both had knowledge and did not oppose.

Art. 453 states that when both parties are in bad faith, the case shall be treated as though both were in good faith thus the application of Art. 448.

448 allows the Land Owner 2 options in the case at bar. Either indemnify Rosario and appropriate the lot to himself or ask Rosario to buy the lot or the rent rate. This case was remanded to the RTC for the Torbelas to make such decision.

Still following the rules of accession, civil fruits such as rent belong to the owner of the building. Rosario has rights over the rent and improvements and shall continue until the Torbela siblings have chosen an option from 448.

Ophelia Tuatis v. Spouses Eliseo and Visminda Escol; Court of Appeals, RTC Branch 11, Sindangan, Zamboanga Del Norte and its Sheriff

Facts:

96 Tuatis filed a Complaint for Specific Performance against respondent Visminda alleging that sometime in November 1989, Visminda as seller and Tuatis as buyer entered into a Deed of Sale of a Part of a Registered Land by Installment upon a piece of real property located at Poblacion, Sindangan, Zamboanga Del Norte, with an area of 300 square meters more or less, for and in consideration of P10,000.

The said of Deed of Sale stated the schedule of payments to be made by Tuatis in the following wise: P3000 as downpayment, P4000 on/before 31 December 1989 and P3000 on/before 31 January 1990. In No. 4 of the stipulations in the Deed of Sale, it was stated that should Tuatis fail to pay the remaining balance within the period of three months from the period stipulated in the contract, she shall return the land to Visminda who, in turn, shall return all the amounts paid thus far.

Tuatis claimed that she has paid P3000 as downpayment, another P3000 on 19 December 1989, P1000 on 27 February 1990 and the remaining P3000 in the presence of Eric Selda, a clerk in the law office of one Atty. Selda evidenced by a certification executed by Eric on 26 May 1996. In the meantime, Tuatis already took possession of the subject property and constructed a residential building thereon.

In 1996, Tuatis requested Visminda to sign a prepared absolute deed of sale but the latter refused contending that the purchase price had not yet been fully paid. Tuatis contended that Visminda failed and refused to sign the absolute deed of sale without any valid reason. Visminda countered that except for the downpayment and the P1000 installment paid to her, Tuatis made no other payments despite repeated verbal demands upon the latter.

The RTC rendered a decision in Visminda’s favor stating that No. 4 of the stipulations applies in this case because the evidence shows that the price had not been fully paid. The RTC further stated that Tuatis constructed the building in bad faith because she knew that Visminda was still the absolute owner of the land. On the other hand, Visminda was also in bad faith because she allowed Tuatis to construct the said building and occupy it without any opposition on her part; hence, the rights of the parties are governed by Art. 4481 of the Civil Code. The RTC decreed the dismissal of Tuatis’ Complaint for lack of merit, the return by Tuatis of physical possession of the subject property to Visminda, and the return by Visminda of the P4,000.00 she received from Tuatis.

Tuatis raised the case on appeal to the CA. However, the CA dismissed the appeal for failure of Tuatis to serve and file her appellant’s brief within the period allowed. The RTC decision became final and executory. Visminda then filed a Motion for Issuance of Writ of Execution before the RTC which was granted.

Tuatis thereafter filed before the RTC a Motion to Exercise Right under Article 448 of the Civil Code praying that the RTC issue an order allowing her to buy the subject property from Visminda opining that while she indeed have the obligation to pay the price of the property, such should not be imposed if the value of the property was considerably more than the value of the building constructed thereon. She alleged that her building was valued at P502,073 while the entire 4.0144 hectare land of which the subject 300 square meter property was a part was only about P27,000. Tuatis maintained that she then had the right to choose between being indemnified for the value of her residential building or buying the parcel of land.

The Writ of Execution earlier granted was enforced prompting Tuatis to file with the CA a Petition for Certiorari, Prohibition and Mandamus seeking the annulment of the order granting the Writ of Execution. The CA dismissed outright Tuatis’ petition for failure to completely pay the required docket fees, to attach a certified true or authenticated copy of the assailed RTC Order and to indicate the place of issue of her counsel’s IBP and PTR Official Receipts. Tuatis’ Motion for Reconsideration and Motion for Leave to File a Second Motion for Reconsideration were likewise denied by the CA. Hence, the instant petition principally arguing that Art. 448 must be applied in this case.

Preliminary Procedural Issue: Did the CA act with grave abuse of discretion amounting to lack or excess of jurisdiction in dismissing outright her petition and, likewise, her subsequent motions for reconsideration/motion for leave to file a second motion for reconsideration? (Yes)

97 Principal Issue: Should Art. 448 be applied in the instant case? (Yes)

Ruling and Reasoning: Petition granted; RTC Resolution granting the Writ of Execution, the Writ itself and the actions undertaken by the respondent Sheriff to enforce the Writ are annulled and set aside; RTC is directed to conduct further proceedings to determine the proper application of Art. 448 upon Visminda Escol’s choice of option under the same provision.

Tuatis’ procedural/technical lapses must be excused

It is true that Tuatis committed several procedural mistakes violative of Sec. 3, Rule 46 of the Rules of Court that would have, ordinarily, warranted the dismissal of her Petition before the CA. However, while the last paragraph of the said Section states that non-compliance with any of the requirements set forth therein shall constitute sufficient ground for the dismissal of the petition, the Court said that it doesn’t mean that dismissal is automatic in each instance of non-compliance.

Rules of procedure are intended to promote, rather than frustrate the ends of justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties.

Article 448 must be applied

The court noted that while the RTC stated that the rights of the parties in this case are governed by Art. 448, the dispositive of its decision failed to make an adjudication on their rights under the said provision. The decretal part of the judgment was limited to implementing No. 4 of the stipulations in the Deed of Sale by ordering Tuatis to return physical possession of the land and Visminda to return the P4000 she received as payment.

Despite the fact that the aforementioned decision had already become final and executory, the court stated that where there is an ambiguity caused by an omission or a mistake in the dispositive portion of the decision, the Court may clarify such an ambiguity by an amendment even after the judgment has become final. Therefore, even after the RTC Decision dated 29 April 1999 had already become final and executory, this Court cannot be precluded from making the necessary amendment thereof, so that the fallo will conform to the body of the said decision. The court stressed that is is not changing or reversing any findings of fact and law of the RTC decision; that it is simply clarifying the obviously deficient decretal portion of the decision.

Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda has the following options:

Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as provided in Article 546 of the Civil Code. In Pecson v. CA, the Court pronounced that the amount to be refunded to the builder under Art. 546 should be the current market value of the improvement in order to prevent unjust enrichment. Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain possession of the building and the subject property.

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land. The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Visminda’s rights under Article 448 of the Civil Code, and not under the said Deed.

98 Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings. Initially, the RTC should determine which of the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property vis-à-vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda.

There is no basis for Tuatis’ demand that, since the value of the building she constructed is considerably higher than the subject property, she may choose between buying the subject property from Visminda and selling the building to Visminda for P502,073.00. The court highlighted that the options under Art. 448 are available to Visminda as the owner of the property.

The rule that the choice under Art. 448 belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.