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Showing posts with label 1987. Show all posts
Showing posts with label 1987. Show all posts

Jurisprudence: G.R. No. 72593 April 30, 1987



SECOND DIVISION

G.R. No. 72593 April 30, 1987

CONSOLIDATED PLYWOOD INDUSTRIES, INC., HENRY WEE, and RODOLFO T. VERGARA, Petitioners, vs. IFC LEASING AND ACCEPTANCE CORPORATION, Respondent.



GUTIERREZ, JR., J.:

This is a petition for certiorari under Rule 45 of the Rules of Court which assails on questions of law a decision of the Intermediate Appellate Court in AC-G.R. CV No. 68609 dated July 17, 1985, as well as its resolution dated October 17, 1985, denying the motion for reconsideration.

The antecedent facts culled from the petition are as follows:

The petitioner is a corporation engaged in the logging business. It had for its program of logging activities for the year 1978 the opening of additional roads, and simultaneous logging operations along the route of said roads, in its logging concession area at Baganga, Manay, and Caraga, Davao Oriental. For this purpose, it needed two (2) additional units of tractors.

Cognizant of petitioner-corporation's need and purpose, Atlantic Gulf & Pacific Company of Manila, through its sister company and marketing arm, Industrial Products Marketing (the "seller-assignor"), a corporation dealing in tractors and other heavy equipment business, offered to sell to petitioner-corporation two (2) "Used" Allis Crawler Tractors, one (1) an HDD-21-B and the other an HDD-16-B.

In order to ascertain the extent of work to which the tractors were to be exposed, (t.s.n., May 28, 1980, p. 44) and to determine the capability of the "Used" tractors being offered, petitioner-corporation requested the seller-assignor to inspect the job site. After conducting said inspection, the seller-assignor assured petitioner-corporation that the "Used" Allis Crawler Tractors which were being offered were fit for the job, and gave the corresponding warranty of ninety (90) days performance of the machines and availability of parts. (t.s.n., May 28, 1980, pp. 59-66).

With said assurance and warranty, and relying on the seller-assignor's skill and judgment, petitioner-corporation through petitioners Wee and Vergara, president and vice- president, respectively, agreed to purchase on installment said two (2) units of "Used" Allis Crawler Tractors. It also paid the down payment of Two Hundred Ten Thousand Pesos (P210,000.00).

On April 5, 1978, the seller-assignor issued the sales invoice for the two 2) units of tractors (Exh. "3-A"). At the same time, the deed of sale with chattel mortgage with promissory note was executed (Exh. "2").

Simultaneously with the execution of the deed of sale with chattel mortgage with promissory note, the seller-assignor, by means of a deed of assignment (E exh. " 1 "), assigned its rights and interest in the chattel mortgage in favor of the respondent.

Immediately thereafter, the seller-assignor delivered said two (2) units of "Used" tractors to the petitioner-corporation's job site and as agreed, the seller-assignor stationed its own mechanics to supervise the operations of the machines.

Barely fourteen (14) days had elapsed after their delivery when one of the tractors broke down and after another nine (9) days, the other tractor likewise broke down (t.s.n., May 28, 1980, pp. 68-69).

On April 25, 1978, petitioner Rodolfo T. Vergara formally advised the seller-assignor of the fact that the tractors broke down and requested for the seller-assignor's usual prompt attention under the warranty (E exh. " 5 ").

In response to the formal advice by petitioner Rodolfo T. Vergara, Exhibit "5," the seller-assignor sent to the job site its mechanics to conduct the necessary repairs (Exhs. "6," "6-A," "6-B," 16 C," "16-C-1," "6-D," and "6-E"), but the tractors did not come out to be what they should be after the repairs were undertaken because the units were no longer serviceable (t. s. n., May 28, 1980, p. 78).

Because of the breaking down of the tractors, the road building and simultaneous logging operations of petitioner-corporation were delayed and petitioner Vergara advised the seller-assignor that the payments of the installments as listed in the promissory note would likewise be delayed until the seller-assignor completely fulfills its obligation under its warranty (t.s.n, May 28, 1980, p. 79).

Since the tractors were no longer serviceable, on April 7, 1979, petitioner Wee asked the seller-assignor to pull out the units and have them reconditioned, and thereafter to offer them for sale. The proceeds were to be given to the respondent and the excess, if any, to be divided between the seller-assignor and petitioner-corporation which offered to bear one-half (1/2) of the reconditioning cost (E exh. " 7 ").

No response to this letter, Exhibit "7," was received by the petitioner-corporation and despite several follow-up calls, the seller-assignor did nothing with regard to the request, until the complaint in this case was filed by the respondent against the petitioners, the corporation, Wee, and Vergara.

The complaint was filed by the respondent against the petitioners for the recovery of the principal sum of One Million Ninety Three Thousand Seven Hundred Eighty Nine Pesos & 71/100 (P1,093,789.71), accrued interest of One Hundred Fifty One Thousand Six Hundred Eighteen Pesos & 86/100 (P151,618.86) as of August 15, 1979, accruing interest thereafter at the rate of twelve (12%) percent per annum, attorney's fees of Two Hundred Forty Nine Thousand Eighty One Pesos & 71/100 (P249,081.7 1) and costs of suit.

The petitioners filed their amended answer praying for the dismissal of the complaint and asking the trial court to order the respondent to pay the petitioners damages in an amount at the sound discretion of the court, Twenty Thousand Pesos (P20,000.00) as and for attorney's fees, and Five Thousand Pesos (P5,000.00) for expenses of litigation. The petitioners likewise prayed for such other and further relief as would be just under the premises.

In a decision dated April 20, 1981, the trial court rendered the following judgment:

        WHEREFORE, judgment is hereby rendered:

        1. ordering defendants to pay jointly and severally in their official and personal capacities the principal sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED NINETY EIGHT PESOS & 71/100 (P1,093,798.71) with accrued interest of ONE HUNDRED FIFTY ONE THOUSAND SIX HUNDRED EIGHTEEN PESOS & 86/100 (P151,618.,86) as of August 15, 1979 and accruing interest thereafter at the rate of 12% per annum;

        2. ordering defendants to pay jointly and severally attorney's fees equivalent to ten percent (10%) of the principal and to pay the costs of the suit.

        Defendants' counterclaim is disallowed. (pp. 45-46, Rollo)

On June 8, 1981, the trial court issued an order denying the motion for reconsideration filed by the petitioners.

Thus, the petitioners appealed to the Intermediate Appellate Court and assigned therein the following errors:

I

THAT THE LOWER COURT ERRED IN FINDING THAT THE SELLER ATLANTIC GULF AND PACIFIC COMPANY OF MANILA DID NOT APPROVE DEFENDANTS-APPELLANTS CLAIM OF WARRANTY.

II

THAT THE LOWER COURT ERRED IN FINDING THAT PLAINTIFF- APPELLEE IS A HOLDER IN DUE COURSE OF THE PROMISSORY NOTE AND SUED UNDER SAID NOTE AS HOLDER THEREOF IN DUE COURSE.

On July 17, 1985, the Intermediate Appellate Court issued the challenged decision affirming in toto the decision of the trial court. The pertinent portions of the decision are as follows:

        xxx xxx xxx

        From the evidence presented by the parties on the issue of warranty, We are of the considered opinion that aside from the fact that no provision of warranty appears or is provided in the Deed of Sale of the tractors and even admitting that in a contract of sale unless a contrary intention appears, there is an implied warranty, the defense of breach of warranty, if there is any, as in this case, does not lie in favor of the appellants and against the plaintiff-appellee who is the assignee of the promissory note and a holder of the same in due course. Warranty lies in this case only between Industrial Products Marketing and Consolidated Plywood Industries, Inc. The plaintiff-appellant herein upon application by appellant corporation granted financing for the purchase of the questioned units of Fiat-Allis Crawler,Tractors.

        xxx xxx xxx

        Holding that breach of warranty if any, is not a defense available to appellants either to withdraw from the contract and/or demand a proportionate reduction of the price with damages in either case (Art. 1567, New Civil Code). We now come to the issue as to whether the plaintiff-appellee is a holder in due course of the promissory note.

        To begin with, it is beyond arguments that the plaintiff-appellee is a financing corporation engaged in financing and receivable discounting extending credit facilities to consumers and industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable duly authorized pursuant to R.A. 5980 otherwise known as the Financing Act.

        A study of the questioned promissory note reveals that it is a negotiable instrument which was discounted or sold to the IFC Leasing and Acceptance Corporation for P800,000.00 (Exh. "A") considering the following. it is in writing and signed by the maker; it contains an unconditional promise to pay a certain sum of money payable at a fixed or determinable future time; it is payable to order (Sec. 1, NIL); the promissory note was negotiated when it was transferred and delivered by IPM to the appellee and duly endorsed to the latter (Sec. 30, NIL); it was taken in the conditions that the note was complete and regular upon its face before the same was overdue and without notice, that it had been previously dishonored and that the note is in good faith and for value without notice of any infirmity or defect in the title of IPM (Sec. 52, NIL); that IFC Leasing and Acceptance Corporation held the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves and may enforce payment of the instrument for the full amount thereof against all parties liable thereon (Sec. 57, NIL); the appellants engaged that they would pay the note according to its tenor, and admit the existence of the payee IPM and its capacity to endorse (Sec. 60, NIL).

        In view of the essential elements found in the questioned promissory note, We opine that the same is legally and conclusively enforceable against the defendants-appellants.

        WHEREFORE, finding the decision appealed from according to law and evidence, We find the appeal without merit and thus affirm the decision in toto. With costs against the appellants. (pp. 50-55, Rollo)

The petitioners' motion for reconsideration of the decision of July 17, 1985 was denied by the Intermediate Appellate Court in its resolution dated October 17, 1985, a copy of which was received by the petitioners on October 21, 1985.

Hence, this petition was filed on the following grounds:

I.

ON ITS FACE, THE PROMISSORY NOTE IS CLEARLY NOT A NEGOTIABLE INSTRUMENT AS DEFINED UNDER THE LAW SINCE IT IS NEITHER PAYABLE TO ORDER NOR TO BEARER.

II

THE RESPONDENT IS NOT A HOLDER IN DUE COURSE: AT BEST, IT IS A MERE ASSIGNEE OF THE SUBJECT PROMISSORY NOTE.

III.

SINCE THE INSTANT CASE INVOLVES A NON-NEGOTIABLE INSTRUMENT AND THE TRANSFER OF RIGHTS WAS THROUGH A MERE ASSIGNMENT, THE PETITIONERS MAY RAISE AGAINST THE RESPONDENT ALL DEFENSES THAT ARE AVAILABLE TO IT AS AGAINST THE SELLER- ASSIGNOR, INDUSTRIAL PRODUCTS MARKETING.

IV.

THE PETITIONERS ARE NOT LIABLE FOR THE PAYMENT OF THE PROMISSORY NOTE BECAUSE:

A) THE SELLER-ASSIGNOR IS GUILTY OF BREACH OF WARRANTY UNDER THE LAW;

B) IF AT ALL, THE RESPONDENT MAY RECOVER ONLY FROM THE SELLER-ASSIGNOR OF THE PROMISSORY NOTE.

V.

THE ASSIGNMENT OF THE CHATTEL MORTGAGE BY THE SELLER- ASSIGNOR IN FAVOR OF THE RESPONDENT DOES NOT CHANGE THE NATURE OF THE TRANSACTION FROM BEING A SALE ON INSTALLMENTS TO A PURE LOAN.

VI.

THE PROMISSORY NOTE CANNOT BE ADMITTED OR USED IN EVIDENCE IN ANY COURT BECAUSE THE REQUISITE DOCUMENTARY STAMPS HAVE NOT BEEN AFFIXED THEREON OR CANCELLED.

The petitioners prayed that judgment be rendered setting aside the decision dated July 17, 1985, as well as the resolution dated October 17, 1985 and dismissing the complaint but granting petitioners' counterclaims before the court of origin.

On the other hand, the respondent corporation in its comment to the petition filed on February 20, 1986, contended that the petition was filed out of time; that the promissory note is a negotiable instrument and respondent a holder in due course; that respondent is not liable for any breach of warranty; and finally, that the promissory note is admissible in evidence.

The core issue herein is whether or not the promissory note in question is a negotiable instrument so as to bar completely all the available defenses of the petitioner against the respondent-assignee.

Preliminarily, it must be established at the outset that we consider the instant petition to have been filed on time because the petitioners' motion for reconsideration actually raised new issues. It cannot, therefore, be considered pro- formal.

The petition is impressed with merit.

First, there is no question that the seller-assignor breached its express 90-day warranty because the findings of the trial court, adopted by the respondent appellate court, that "14 days after delivery, the first tractor broke down and 9 days, thereafter, the second tractor became inoperable" are sustained by the records. The petitioner was clearly a victim of a warranty not honored by the maker.

The Civil Code provides that:

        ART. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.

        ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows:

        (1) Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the sellers skill or judge judgment (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;

        xxx xxx xxx

        ART. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade.

        xxx xxx xxx

        ART. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold even though he was not aware thereof.

        This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (Emphasis supplied).

It is patent then, that the seller-assignor is liable for its breach of warranty against the petitioner. This liability as a general rule, extends to the corporation to whom it assigned its rights and interests unless the assignee is a holder in due course of the promissory note in question, assuming the note is negotiable, in which case the latter's rights are based on the negotiable instrument and assuming further that the petitioner's defenses may not prevail against it.

Secondly, it likewise cannot be denied that as soon as the tractors broke down, the petitioner-corporation notified the seller-assignor's sister company, AG & P, about the breakdown based on the seller-assignor's express 90-day warranty, with which the latter complied by sending its mechanics. However, due to the seller-assignor's delay and its failure to comply with its warranty, the tractors became totally unserviceable and useless for the purpose for which they were purchased.

Thirdly, the petitioner-corporation, thereafter, unilaterally rescinded its contract with the seller-assignor.

Articles 1191 and 1567 of the Civil Code provide that:

        ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

        The injured party may choose between the fulfillment and the rescission of the obligation with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

        xxx xxx xxx

        ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (Emphasis supplied)

Petitioner, having unilaterally and extrajudicially rescinded its contract with the seller-assignor, necessarily can no longer sue the seller-assignor except by way of counterclaim if the seller-assignor sues it because of the rescission.

In the case of the University of the Philippines v. De los Angeles (35 SCRA 102) we held:

        In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for adjudgement before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203). (Emphasis supplied)

Going back to the core issue, we rule that the promissory note in question is not a negotiable instrument.

The pertinent portion of the note is as follows:

        FOR VALUE RECEIVED, I/we jointly and severally promise to pay to the INDUSTRIAL PRODUCTS MARKETING, the sum of ONE MILLION NINETY THREE THOUSAND SEVEN HUNDRED EIGHTY NINE PESOS & 71/100 only (P 1,093,789.71), Philippine Currency, the said principal sum, to be payable in 24 monthly installments starting July 15, 1978 and every 15th of the month thereafter until fully paid. ...

Considering that paragraph (d), Section 1 of the Negotiable Instruments Law requires that a promissory note "must be payable to order or bearer, " it cannot be denied that the promissory note in question is not a negotiable instrument.

        The instrument in order to be considered negotiablility-i.e. must contain the so-called 'words of negotiable, must be payable to 'order' or 'bearer'. These words serve as an expression of consent that the instrument may be transferred. This consent is indispensable since a maker assumes greater risk under a negotiable instrument than under a non-negotiable one. ...

        xxx xxx xxx

        When instrument is payable to order.

        SEC. 8. WHEN PAYABLE TO ORDER. - The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. . . .

        xxx xxx xxx

        These are the only two ways by which an instrument may be made payable to order. There must always be a specified person named in the instrument. It means that the bill or note is to be paid to the person designated in the instrument or to any person to whom he has indorsed and delivered the same. Without the words "or order" or"to the order of, "the instrument is payable only to the person designated therein and is therefore non-negotiable. Any subsequent purchaser thereof will not enjoy the advantages of being a holder of a negotiable instrument but will merely "step into the shoes" of the person designated in the instrument and will thus be open to all defenses available against the latter." (Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, Third Edition, page 38). (Emphasis supplied)

Therefore, considering that the subject promissory note is not a negotiable instrument, it follows that the respondent can never be a holder in due course but remains a mere assignee of the note in question. Thus, the petitioner may raise against the respondent all defenses available to it as against the seller-assignor Industrial Products Marketing.

This being so, there was no need for the petitioner to implied the seller-assignor when it was sued by the respondent-assignee because the petitioner's defenses apply to both or either of either of them. Actually, the records show that even the respondent itself admitted to being a mere assignee of the promissory note in question, to wit:

                ATTY. PALACA:

                Did we get it right from the counsel that what is being assigned is the Deed of Sale with Chattel Mortgage with the promissory note which is as testified to by the witness was indorsed? (Counsel for Plaintiff nodding his head.) Then we have no further questions on cross,

                COURT:

                You confirm his manifestation? You are nodding your head? Do you confirm that?

                ATTY. ILAGAN:

                The Deed of Sale cannot be assigned. A deed of sale is a transaction between two persons; what is assigned are rights, the rights of the mortgagee were assigned to the IFC Leasing & Acceptance Corporation.

                COURT:

                He puts it in a simple way as one-deed of sale and chattel mortgage were assigned; . . . you want to make a distinction, one is an assignment of mortgage right and the other one is indorsement of the promissory note. What counsel for defendants wants is that you stipulate that it is contained in one single transaction?

                ATTY. ILAGAN:

                We stipulate it is one single transaction. (pp. 27-29, TSN., February 13, 1980).

Secondly, even conceding for purposes of discussion that the promissory note in question is a negotiable instrument, the respondent cannot be a holder in due course for a more significant reason.

The evidence presented in the instant case shows that prior to the sale on installment of the tractors, there was an arrangement between the seller-assignor, Industrial Products Marketing, and the respondent whereby the latter would pay the seller-assignor the entire purchase price and the seller-assignor, in turn, would assign its rights to the respondent which acquired the right to collect the price from the buyer, herein petitioner Consolidated Plywood Industries, Inc.

A mere perusal of the Deed of Sale with Chattel Mortgage with Promissory Note, the Deed of Assignment and the Disclosure of Loan/Credit Transaction shows that said documents evidencing the sale on installment of the tractors were all executed on the same day by and among the buyer, which is herein petitioner Consolidated Plywood Industries, Inc.; the seller-assignor which is the Industrial Products Marketing; and the assignee-financing company, which is the respondent. Therefore, the respondent had actual knowledge of the fact that the seller-assignor's right to collect the purchase price was not unconditional, and that it was subject to the condition that the tractors -sold were not defective. The respondent knew that when the tractors turned out to be defective, it would be subject to the defense of failure of consideration and cannot recover the purchase price from the petitioners. Even assuming for the sake of argument that the promissory note is negotiable, the respondent, which took the same with actual knowledge of the foregoing facts so that its action in taking the instrument amounted to bad faith, is not a holder in due course. As such, the respondent is subject to all defenses which the petitioners may raise against the seller-assignor. Any other interpretation would be most inequitous to the unfortunate buyer who is not only saddled with two useless tractors but must also face a lawsuit from the assignee for the entire purchase price and all its incidents without being able to raise valid defenses available as against the assignor.

Lastly, the respondent failed to present any evidence to prove that it had no knowledge of any fact, which would justify its act of taking the promissory note as not amounting to bad faith.

Sections 52 and 56 of the Negotiable Instruments Law provide that: negotiating it.

        xxx xxx xxx

        SEC. 52. WHAT CONSTITUTES A HOLDER IN DUE COURSE. - A holder in due course is a holder who has taken the instrument under the following conditions:

        xxx xxx xxx

        xxx xxx xxx

        (c) That he took it in good faith and for value

        (d) That the time it was negotiated by him he had no notice of any infirmity in the instrument of deffect in the title of the person negotiating it

        xxx xxx xxx

        SEC. 56. WHAT CONSTITUTES NOTICE OF DEFFECT. - To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounts to bad faith. (Emphasis supplied)

We subscribe to the view of Campos and Campos that a financing company is not a holder in good faith as to the buyer, to wit:

        In installment sales, the buyer usually issues a note payable to the seller to cover the purchase price. Many times, in pursuance of a previous arrangement with the seller, a finance company pays the full price and the note is indorsed to it, subrogating it to the right to collect the price from the buyer, with interest. With the increasing frequency of installment buying in this country, it is most probable that the tendency of the courts in the United States to protect the buyer against the finance company will , the finance company will be subject to the defense of failure of consideration and cannot recover the purchase price from the buyer. As against the argument that such a rule would seriously affect "a certain mode of transacting business adopted throughout the State," a court in one case stated:

                It may be that our holding here will require some changes in business methods and will impose a greater burden on the finance companies. We think the buyer-Mr. & Mrs. General Public-should have some protection somewhere along the line. We believe the finance company is better able to bear the risk of the dealer's insolvency than the buyer and in a far better position to protect his interests against unscrupulous and insolvent dealers. . . .

                If this opinion imposes great burdens on finance companies it is a potent argument in favor of a rule which win afford public protection to the general buying public against unscrupulous dealers in personal property. . . . (Mutual Finance Co. v. Martin, 63 So. 2d 649, 44 ALR 2d 1 [1953]) (Campos and Campos, Notes and Selected Cases on Negotiable Instruments Law, Third Edition, p. 128).

In the case of Commercial Credit Corporation v. Orange Country Machine Works (34 Cal. 2d 766) involving similar facts, it was held that in a very real sense, the finance company was a moving force in the transaction from its very inception and acted as a party to it. When a finance company actively participates in a transaction of this type from its inception, it cannot be regarded as a holder in due course of the note given in the transaction.

In like manner, therefore, even assuming that the subject promissory note is negotiable, the respondent, a financing company which actively participated in the sale on installment of the subject two Allis Crawler tractors, cannot be regarded as a holder in due course of said note. It follows that the respondent's rights under the promissory note involved in this case are subject to all defenses that the petitioners have against the seller-assignor, Industrial Products Marketing. For Section 58 of the Negotiable Instruments Law provides that "in the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. ... "

Prescinding from the foregoing and setting aside other peripheral issues, we find that both the trial and respondent appellate court erred in holding the promissory note in question to be negotiable. Such a ruling does not only violate the law and applicable jurisprudence, but would result in unjust enrichment on the part of both the assigner- assignor and respondent assignee at the expense of the petitioner-corporation which rightfully rescinded an inequitable contract. We note, however, that since the seller-assignor has not been impleaded herein, there is no obstacle for the respondent to file a civil Suit and litigate its claims against the seller- assignor in the rather unlikely possibility that it so desires,

WHEREFORE, in view of the foregoing, the decision of the respondent appellate court dated July 17, 1985, as well as its resolution dated October 17, 1986, are hereby ANNULLED and SET ASIDE. The complaint against the petitioner before the trial court is DISMISSED.

SO ORDERED.

Fernan, Paras, Padilla, Bidin and Cortes, JJ., concur.

Jurisprudence: G.R. No. 73002 December 29, 1986

EN BANC

G.R. No. 73002 December 29, 1986

THE DIRECTOR OF LANDS, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and ACME PLYWOOD & VENEER CO. INC., ETC., respondents.

D. Nacion Law Office for private respondent.



NARVASA, J.:

The Director of Lands has brought this appeal by certiorari from a judgment of the Intermediate Appellate Court affirming a decision of the Court of First Instance of Isabela, which ordered registration in favor of Acme Plywood & Veneer Co., Inc. of five parcels of land measuring 481, 390 square meters, more or less, acquired by it from Mariano and Acer Infiel, members of the Dumagat tribe.

The registration proceedings were for confirmation of title under Section 48 of Commonwealth Act No. 141 (The Public Land Act). as amended: and the appealed judgment sums up the findings of the trial court in said proceedings in this wise:

1. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario is a corporation duly organized in accordance with the laws of the Republic of the Philippines and registered with the Securities and Exchange Commission on December 23, 1959;

2. That Acme Plywood & Veneer Co. Inc., represented by Mr. Rodolfo Nazario can acquire real properties pursuant to the provisions of the Articles of Incorporation particularly on the provision of its secondary purposes (paragraph (9), Exhibit 'M-l');

3. That the land subject of the Land Registration proceeding was ancestrally acquired by Acme Plywood & Veneer Co., Inc., on October 29, 1962, from Mariano Infiel and Acer Infiel, both members of the Dumagat tribe and as such are cultural minorities;

4. That the constitution of the Republic of the Philippines of 1935 is applicable as the sale took place on October 29, 1962;

5. That the possession of the Infiels over the land relinquished or sold to Acme Plywood & Veneer Co., Inc., dates back before the Philippines was discovered by Magellan as the ancestors of the Infiels have possessed and occupied the land from generation to generation until the same came into the possession of Mariano Infiel and Acer Infiel;

6. That the possession of the applicant Acme Plywood & Veneer Co., Inc., is continuous, adverse and public from 1962 to the present and tacking the possession of the Infiels who were granted from whom the applicant bought said land on October 29, 1962, hence the possession is already considered from time immemorial.

7. That the land sought to be registered is a private land pursuant to the provisions of Republic Act No. 3872 granting absolute ownership to members of the non-Christian Tribes on land occupied by them or their ancestral lands, whether with the alienable or disposable public land or within the public domain;

8. That applicant Acme Plywood & Veneer Co. Inc., has introduced more than Forty-Five Million (P45,000,000.00) Pesos worth of improvements, said improvements were seen by the Court during its ocular investigation of the land sought to be registered on September 18, 1982;

9. That the ownership and possession of the land sought to be registered by the applicant was duly recognized by the government when the Municipal Officials of Maconacon, Isabela, have negotiated for the donation of the townsite from Acme Plywood & Veneer Co., Inc., and this negotiation came to reality when the Board of Directors of the Acme Plywood & Veneer Co., Inc., had donated a part of the land bought by the Company from the Infiels for the townsite of Maconacon Isabela (Exh. 'N') on November 15, 1979, and which donation was accepted by the Municipal Government of Maconacon, Isabela (Exh. 'N-l'), during their special session on November 22, 1979.

The Director of Lands takes no issue with any of these findings except as to the applicability of the 1935 Constitution to the matter at hand. Concerning this, he asserts that, the registration proceedings have been commenced only on July 17, 1981, or long after the 1973 Constitution had gone into effect, the latter is the correctly applicable law; and since section 11 of its Article XIV prohibits private corporations or associations from holding alienable lands of the public domain, except by lease not to exceed 1,000 hectares (a prohibition not found in the 1935 Constitution which was in force in 1962 when Acme purchased the lands in question from the Infiels), it was reversible error to decree registration in favor of Acme Section 48, paragraphs (b) and (c), of Commonwealth Act No. 141, as amended, reads:

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:

xxx xxx xxx

(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 or 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. 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.

(c) Members of the National Cultural minorities who by themselves or through their predecessors-in-interest have been in open. continuous, exclusive and notorious possession and occupation of lands of the public domain suitable to agriculture, whether disposable or not, under a bona fide claim of ownership for at least 30 years shall be entitled to the rights granted in subsection (b) hereof.

The Petition for Review does not dispute-indeed, in view of the quoted findings of the trial court which were cited and affirmed by the Intermediate Appellate Court, it can no longer controvert before this Court-the fact that Mariano and Acer Infiel, from whom Acme purchased the lands in question on October 29, 1962, are members of the national cultural minorities who had, by themselves and through their progenitors, possessed and occupied those lands since time immemorial, or for more than the required 30-year period and were, by reason thereof, entitled to exercise the right granted in Section 48 of the Public Land Act to have their title judicially confirmed. Nor is there any pretension that Acme, as the successor-in-interest of the Infiels, is disqualified to acquire and register ownership of said lands under any provisions of the 1973 Constitution other than Section 11 of its Article XIV already referred to.

Given the foregoing, the question before this Court is whether or not the title that the Infiels had transferred to Acme in 1962 could be confirmed in favor of the latter in proceedings instituted by it in 1981 when the 1973 Constitution was already in effect, having in mind the prohibition therein against private corporations holding lands of the public domain except in lease not exceeding 1,000 hectares.

The question turns upon a determination of the character of the lands at the time of institution of the registration proceedings in 1981. If they were then still part of the public domain, it must be answered in the negative. If, on the other hand, they were then already private lands, the constitutional prohibition against their acquisition by private corporations or associations obviously does not apply.

In this regard, attention has been invited to Manila Electric Company vs. Castro-Bartolome, et al, 1 where a similar set of facts prevailed. In that case, Manila Electric Company, a domestic corporation more than 60% of the capital stock of which is Filipino-owned, had purchased in 1947 two lots in Tanay, Rizal from the Piguing spouses. The lots had been possessed by the vendors and, before them, by their predecessor-in-interest, Olimpia Ramos, since prior to the outbreak of the Pacific War in 1941. On December 1, 1976, Meralco applied to the Court of First Instance of Rizal, Makati Branch, for confirmation of title to said lots. The court, assuming that the lots were public land, dismissed the application on the ground that Meralco, a juridical person, was not qualified to apply for registration under Section 48(b) of the Public Land Act which allows only Filipino citizens or natural persons to apply for judicial confirmation of imperfect titles to public land. Meralco appealed, and a majority of this Court upheld the dismissal. It was held that:

..., the said land is still public land. It would cease to be public land only upon the issuance of the certificate of title to any Filipino citizen claiming it under section 48(b). Because it is still public land and the Meralco, as a juridical person, is disqualified to apply for its registration under section 48(b), Meralco's application cannot be given due course or has to be dismissed.

Finally, it may be observed that the constitutional prohibition makes no distinction between (on the one hand) alienable agricultural public lands as to which no occupant has an imperfect title and (on the other hand) alienable lands of the public domain as to which an occupant has on imperfect title subject to judicial confirmation.

Since section 11 of Article XIV does not distinguish, we should not make any distinction or qualification. The prohibition applies to alienable public lands as to which a Torrens title may be secured under section 48(b). The proceeding under section 48(b) 'presupposes that the land is public' (Mindanao vs. Director of Lands, L-19535, July 30, 1967, 20 SCRA 641, 644).

The present Chief Justice entered a vigorous dissent, tracing the line of cases beginning with Carino in 1909 2 thru Susi in 1925 3 down to Herico in 1980, 4 which developed, affirmed and reaffirmed the doctrine that open, exclusive and undisputed possession of alienable public land for the period prescribed by law creates the legal fiction whereby the land, upon completion of the requisite period ipso jure and without the need of judicial or other sanction, ceases to be public land and becomes private property. That said dissent expressed what is the better — and, indeed, the correct, view-becomes evident from a consideration of some of the principal rulings cited therein,

The main theme was given birth, so to speak, in Carino involving the Decree/Regulations of June 25, 1880 for adjustment of royal lands wrongfully occupied by private individuals in the Philippine Islands. It was ruled that:

It is true that the language of articles 4 and 5 5 attributes title to those 'who may prove' possession for the necessary time and we do not overlook the argument that this means may prove in registration proceedings. It may be that an English conveyancer would have recommended an application under the foregoing decree, but certainly it was not calculated to convey to the mind of an Igorot chief the notion that ancient family possessions were in danger, if he had read every word of it. The words 'may prove' (acrediten) as well or better, in view of the other provisions, might be taken to mean when called upon to do so in any litigation. There are indications that registration was expected from all but none sufficient to show that, for want of it, ownership actually gained would be lost. The effect of the proof, wherever made, was not to confer title, but simply to establish it, as already conferred by the decree, if not by earlier law. ...

That ruling assumed a more doctrinal character because expressed in more categorical language, in Susi:

.... In favor of Valentin Susi, there is, moreover, the presumption juris et de jure established in paragraph (b) of section 45 of Act No. 2874, amending Act No. 926, that all the necessary requirements for a grant by the Government were complied with, for he has been in actual and physical possession, personally and through his predecessors, of an agricultural land of the public domain openly, continuously, exclusively and publicly since July 26, 1984, with a right to a certificate of title to said land under the provisions of Chapter VIII of said Act. So that when Angela Razon applied for the grant in her favor, Valentin Susi had already acquired, by operation of law not only a right to a grant, but a grant of the Government, for it is not necessary that a certificate of title should be issued in order that said grant may be sanctioned by the courts, an application therefore is sufficient, under the provisions of section 47 of Act No. 2874. If by a legal fiction, Valentin Susi had acquired the land in question by a grant of the State, it had already ceased to be of the public domain and had become private property, at least by presumption, of Valentin Susi, beyond the control of the Director of Lands. Consequently, in selling the land in question of Angela Razon, the Director of Lands disposed of a land over which he had no longer any title or control, and the sale thus made was void and of no effect, and Angela Razon did not thereby acquire any right. 6

Succeeding cases, of which only some need be mentioned, likeof Lacaste vs. Director of Lands, 7 Mesina vs. Vda. de Sonza, 8 Manarpac vs. Cabanatuan, 9 Miguel vs. Court of Appeals 10 and Herico vs. Dar, supra, by invoking and affirming the Susi doctrine have firmly rooted it in jurisprudence.

Herico, in particular, appears to be squarely affirmative: 11

.... Secondly, under the provisions of Republic Act No. 1942, which the respondent Court held to be inapplicable to the petitioner's case, with the latter's proven occupation and cultivation for more than 30 years since 1914, by himself and by his predecessors-in-interest, title over the land has vested on petitioner so as to segregate the land from the mass of public land. Thereafter, it is no longer disposable under the Public Land Act as by free patent. ....

xxx xxx xxx

As interpreted in several cases, when the conditions as specified in the foregoing provision are complied with, the possessor is deemed to have acquired, by operation of law, a right to a grant, a government grant, without the necessity of a certificate of title being issued. The land, therefore, ceases to be of the public domain and beyond the authority of the Director of Lands to dispose of. The application for confirmation is mere formality, the lack of which does not affect the legal sufficiency of the title as would be evidenced by the patent and the Torrens title to be issued upon the strength of said patent. 12

Nothing can more clearly demonstrate the logical inevitability of considering possession of public land which is of the character and duration prescribed by statute as the equivalent of an express grant from the State than the dictum of the statute itself 13 that the possessor(s) "... shall be conclusively presumed to have performed all the conditions essential to a Government grant and shall be entitled to a certificate of title .... " No proof being admissible to overcome a conclusive presumption, confirmation proceedings would, in truth be little more than a formality, at the most limited to ascertaining whether the possession claimed is of the required character and length of time; and registration thereunder would not confer title, but simply recognize a title already vested. The proceedings would not originally convert the land from public to private land, but only confirm such a conversion already affected by operation of law from the moment the required period of possession became complete. As was so well put in Carino, "... (T)here are indications that registration was expected from all, but none sufficient to show that, for want of it, ownership actually gained would be lost. The effect of the proof, wherever made, was not to confer title, but simply to establish it, as already conferred by the decree, if not by earlier law."

If it is accepted-as it must be-that the land was already private land to which the Infiels had a legally sufficient and transferable title on October 29, 1962 when Acme acquired it from said owners, it must also be conceded that Acme had a perfect right to make such acquisition, there being nothing in the 1935 Constitution then in force (or, for that matter, in the 1973 Constitution which came into effect later) prohibiting corporations from acquiring and owning private lands.

Even on the proposition that the land remained technically "public" land, despite immemorial possession of the Infiels and their ancestors, until title in their favor was actually confirmed in appropriate proceedings under the Public Land Act, there can be no serious question of Acmes right to acquire the land at the time it did, there also being nothing in the 1935 Constitution that might be construed to prohibit corporations from purchasing or acquiring interests in public land to which the vendor had already acquired that type of so-called "incomplete" or "imperfect" title. The only limitation then extant was that corporations could not acquire, hold or lease public agricultural lands in excess of 1,024 hectares. The purely accidental circumstance that confirmation proceedings were brought under the aegis of the 1973 Constitution which forbids corporations from owning lands of the public domain cannot defeat a right already vested before that law came into effect, or invalidate transactions then perfectly valid and proper. This Court has already held, in analogous circumstances, that the Constitution cannot impair vested rights.

We hold that the said constitutional prohibition 14 has no retroactive application to the sales application of Binan Development Co., Inc. because it had already acquired a vested right to the land applied for at the time the 1973 Constitution took effect.

That vested right has to be respected. It could not be abrogated by the new Constitution. Section 2, Article XIII of the 1935 Constitution allows private corporations to purchase public agricultural lands not exceeding one thousand and twenty-four hectares. Petitioner' prohibition action is barred by the doctrine of vested rights in constitutional law.

xxx xxx xxx

The due process clause prohibits the annihilation of vested rights. 'A state may not impair vested rights by legislative enactment, by the enactment or by the subsequent repeal of a municipal ordinance, or by a change in the constitution of the State, except in a legitimate exercise of the police power'(16 C.J.S. 1177-78).

xxx xxx xxx

In the instant case, it is incontestable that prior to the effectivity of the 1973 Constitution the right of the corporation to purchase the land in question had become fixed and established and was no longer open to doubt or controversy.

Its compliance with the requirements of the Public Land Law for the issuance of a patent had the effect of segregating the said land from the public domain. The corporation's right to obtain a patent for the land is protected by law. It cannot be deprived of that right without due process (Director of Lands vs. CA, 123 Phil. 919).<äre||anº•1àw> 15

The fact, therefore, that the confirmation proceedings were instituted by Acme in its own name must be regarded as simply another accidental circumstance, productive of a defect hardly more than procedural and in nowise affecting the substance and merits of the right of ownership sought to be confirmed in said proceedings, there being no doubt of Acme's entitlement to the land. As it is unquestionable that in the light of the undisputed facts, the Infiels, under either the 1935 or the 1973 Constitution, could have had title in themselves confirmed and registered, only a rigid subservience to the letter of the law would deny the same benefit to their lawful successor-in-interest by valid conveyance which violates no constitutional mandate.

The Court, in the light of the foregoing, is of the view, and so holds, that the majority ruling in Meralco must be reconsidered and no longer deemed to be binding precedent. The correct rule, as enunciated in the line of cases already referred to, is that alienable public land held by a possessor, personally or through his predecessors-in-interest, openly, continuously and exclusively for the prescribed statutory period (30 years under The Public Land Act, as amended) is converted to private property by the mere lapse or completion of said period, ipso jure. Following that rule and on the basis of the undisputed facts, the land subject of this appeal was already private property at the time it was acquired from the Infiels by Acme. Acme thereby acquired a registrable title, there being at the time no prohibition against said corporation's holding or owning private land. The objection that, as a juridical person, Acme is not qualified to apply for judicial confirmation of title under section 48(b) of the Public Land Act is technical, rather than substantial and, again, finds its answer in the dissent in Meralco:

6. To uphold respondent judge's denial of Meralco's application on the technicality that the Public Land Act allows only citizens of the Philippines who are natural persons to apply for confirmation of their title would be impractical and would just give rise to multiplicity of court actions. Assuming that there was a technical error not having filed the application for registration in the name of the Piguing spouses as the original owners and vendors, still it is conceded that there is no prohibition against their sale of the land to the applicant Meralco and neither is there any prohibition against the application being refiled with retroactive effect in the name of the original owners and vendors (as such natural persons) with the end result of their application being granted, because of their indisputable acquisition of ownership by operation of law and the conclusive presumption therein provided in their favor. It should not be necessary to go through all the rituals at the great cost of refiling of all such applications in their names and adding to the overcrowded court dockets when the Court can after all these years dispose of it here and now. (See Francisco vs. City of Davao)

The ends of justice would best be served, therefore, by considering the applications for confirmation as amended to conform to the evidence, i.e. as filed in the names of the original persons who as natural persons are duly qualified to apply for formal confirmation of the title that they had acquired by conclusive presumption and mandate of the Public Land Act and who thereafter duly sold to the herein corporations (both admittedly Filipino corporations duly qualified to hold and own private lands) and granting the applications for confirmation of title to the private lands so acquired and sold or exchanged.

There is also nothing to prevent Acme from reconveying the lands to the Infiels and the latter from themselves applying for confirmation of title and, after issuance of the certificate/s of title in their names, deeding the lands back to Acme. But this would be merely indulging in empty charades, whereas the same result is more efficaciously and speedily obtained, with no prejudice to anyone, by a liberal application of the rule on amendment to conform to the evidence suggested in the dissent in Meralco.

While this opinion seemingly reverses an earlier ruling of comparatively recent vintage, in a real sense, it breaks no precedent, but only reaffirms and re-established, as it were, doctrines the soundness of which has passed the test of searching examination and inquiry in many past cases. Indeed, it is worth noting that the majority opinion, as well as the concurring opinions of Chief Justice Fernando and Justice Abad Santos, in Meralco rested chiefly on the proposition that the petitioner therein, a juridical person, was disqualified from applying for confirmation of an imperfect title to public land under Section 48(b) of the Public Land Act. Reference to the 1973 Constitution and its Article XIV, Section 11, was only tangential limited to a brief paragraph in the main opinion, and may, in that context, be considered as essentially obiter. Meralco, in short, decided no constitutional question.

WHEREFORE, there being no reversible error in the appealed judgment of the Intermediate Appellate Court, the same is hereby affirmed, without costs in this instance.

SO ORDERED.

Feria, Yap, Fernan, Alampay, Cruz, Paras and Feliciano, JJ., concur.





Separate Opinions

GUTIERREZ, JR., J., concurring:

I reiterate my concurrence in Meralco v. Castro-Bartolome, and, therefore, dissent here.



TEEHANKEE, C.J., concurring:

I am honored by my brethren's judgment at bar that my dissenting opinion in the June, 1982 Meralco and Iglesia ni Cristo cases, 1 which is herein upheld, "expressed what is the better. . . . and indeed the correct view." My dissent was anchored on the landmark 1909 case of Carino 2 through the 1925 case of Susi 3 and the long line of cases cited therein to the latest 1980 case of Herico 4 that "it is established doctrine....... that an open, continuous, adverse and public possession of a land of the public domain for the period provided in the Public Land Act provision in force at the time (from July 26, 1894 in Susi under the old law [this period was reduced to 'at least thirty years immediately preceding the filing of the application for confirmation of title' by amendment of Commonwealth Act No. 141, equivalent to the period of acquisitive prescription 5 ]) by a private individual personally and through his predecessors confers an effective title on said possessor, whereby the land ceases to be land of the public domain and becomes private property." I hereby reproduce the same by reference for brevity's sake. But since we are reverting to the old above-cited established doctrine and precedents and discarding the Meralco and Iglesia ni Cristo cases which departed therefrom in the recent past, I feel constrained to write this concurrence in amplification of my views and ratio decidendi.

Under the express text and mandate of the cited Act, such possessors "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. "

The Court thus held in Susi that under the presumption juris et de jure established in the Act, the rightful possessor of the public land for the statutory period "already acquired, by operation of law, not only a right to a grant, but a grant of the Government, for it is not necessary that certificate of title should be issued an order that said grant may be sanctioned by the courts, an application therefore is sufficient . . . . If by a legal fiction, Valentin Susi had acquired the land in question by a grant of the State, it had already ceased to be of the public domain and had become private property, at least by presumption, of Valentin Susi, beyond the control of the Director of Lands [and beyond his authority to sell to any other person]. " 6

The root of the doctrine goes back to the pronouncement of Justice Oliver Wendell Holmes for the U.S. Supreme Court in the 1909 case of Carino (the Igorot chief who would have been deprived of ancestral family lands by the dismissal of his application for registration) which reversed the dismissal of the registration court (as affirmed by the Supreme Court) and adopted the liberal view that under the decree and regulations of June 25, 1880, "The words 'may prove' (acrediten), as well, or better, in view of the other provisions, might be taken to mean when called upon to do so in any litigation. There are indications that registration was expected from all, but none sufficient to show that, for want of it, ownership actually gained would be lost. The effect of the proof, whenever made, was not to confer title, but simply to establish it, as already conferred by the decree, if not by earlier law."

The Court's decision at bar now expressly overturns the Meralco and related cases subsequent thereto which failed to adhere to the aforecited established doctrine dating back to 1909 and was consistently applied up to June 29, 1982 (when the Meralco decision was promulgated). We reaffirm the established doctrine that such acquisitive prescription of alienable public lands takes place ipso jure or by operation of law without the necessity of a prior issuance of a certificate of title. The land ipso jure ceases to be of the public domain and becomes private property, which may be lawfully sold to and acquired by qualified corporations such as respondent corporation. (As stressed in Herico supra, "the application for confirmation is a mere formality, the lack of which does not affect the legal sufficiency of the title.")

Such ipso jure conversion into private property of public lands publicly held under a bona fide claim of acquisition or ownership is the public policy of the Act and is so expressly stated therein. By virtue of such conversion into private property, qualified corporations may lawfully acquire them and there is no "alteration or defeating" of the 1973 Constitution's prohibition against corporations holding or acquiring title to lands of the public domain, as claimed in the dissenting opinion, for the simple reason that no public lands are involved.

It should be noted that respondent corporation purchased the land from the Infiels on October 16, 1962 under the aegis of the 1935 Constitution which contained no prohibition against corporations holding public lands (except a limit of 1,024 hectares) unlike the later 1973 Constitution which imposed an absolute prohibition. Even on the erroneous assumption that the land remained public land despite the Infiels' open possession thereof as owners from time immemorial, respondent corporation's lawful purchase from them of the land in 1962 and P 45million investments redounding presumably to the welfare and progress of the community, particularly the municipality of Maconacon, Isabela to which it donated part of the land for the townsite created a vested right which could not be impaired by the prohibition adopted eleven years later. But as sufficiently stressed, the land of the Infiels had been ipso jure converted into private land and they had a legally sufficient and transferable title conferred by the conclusive presumption of the Public Land Act (which needed only to be established in confirmation of title proceedings for formalization and issuance of the certificate of title) which they lawfully and validly transferred to respondent corporation.

In fact, the many amendments to the Act extending the period for the filing of such applications for judicial confirmation of imperfect and incomplete titles to alienable and disposable public lands expressly reiterate that it has always been the "policy of the State to hasten the settlement, adjudication and quieting of titles to [such] unregistered lands," i.e. to recognize that such lands publicly and notoriously occupied and cultivated under bona fide claim of acquisition or ownership have ipso jure been converted into private property and grant the possessors the opportunity to establish and record such fact. Thus, the deadline for the filing of such application which would have originally expired first on December 31, 1938 was successively extended to December 31, 1941, then extended to December 31, 1957, then to December 31, 1968, further extended to December 31, 1976 and lastly extended to December 31, 1987. 7

The cited Act's provision that only natural persons may apply thereunder for confirmation of title is in effect a technicality of procedure and not of substance. My submittal in Meralco, mutatis mutandis, is properly applicable: "The ends of justice would best be served, therefore, by considering the applications for confirmation as amended to conform to the evidence, i.e. as filed in the names of the original persons who as natural persons are duly qualified to apply for formal confirmation of the title that they had acquired by conclusive presumption and mandate of the Public Land Act and who thereafter duly sold to the herein corporations (both admittedly Filipino corporations duly qualified to hold and own private lands) and granting the applications for confirmation of title to the private lands so acquired and sold or exchanged." 8 Indeed, then Chief Justice Enrique M. Fernando likewise dissented along the same line from the majority ruling therein and held: "I dissent insofar as the opinion of the Court would characterize such jurisdictional defect that the applicant was Meralco, a juridical person rather than the natural persons-transferors, under the particular circumstances of this case, as an insurmountable obstacle to the relief sought. I would apply by analogy, although the facts could be distinguished, the approach followed by us in Francisco v. City of Davao, where the legal question raised, instead of being deferred and possibly taken up in another case, was resolved. By legal fiction and in the exercise of our equitable jurisdiction, I feel that the realistic solution would be to decide the matter as if the application under Section 48(b) were filed by the Piguing spouses, who I assume suffer from no such disability." 9 Justice Vicente Abad Santos, now retired, while concurring in the procedural result, likewise, in effect dissented from the therein majority ruling on the question of substance, and stated his opinion that "the lots which are sought to be registered have ceased to be lands of the public domain at the time they were acquired by the petitioner corporation. They are already private lands because of acquisitive prescription by the predecessors of the petitioner and all that is needed is the confirmation of the title. Accordingly, the constitutional provision that no private corporation or association may hold alienable lands of the public domain is inapplicable. " 10

To my mind, the reason why the Act limits the filing of such applications to natural citizens who may prove their undisputed and open possession of public lands for the required statutory thirty-year period, tacking on their predecessors'-in-interest possession is that only natural persons, to the exclusion of juridical persons such as corporations, can actually, physically and in reality possess public lands for the required statutory 30-year period. That juridical persons or corporations cannot do so is obvious. But when the natural persons have fulfilled the required statutory period of possession, the Act confers on them a legally sufficient and transferable title. It is preferable to follow the letter of the law that they file the applications for confirmation of their title, although they have lawfully transferred their title to the land. But such procedural failure cannot and should not defeat the substance of the law, as stressed in the above-cited opinions, that the lands are already private lands because of acquisitive prescription by the corporation's predecessors and the realistic solution would be to consider the application for confirmation as filed by the natural persons-transferors, and in accordance with the evidence, confirm their title to the private lands so converted by operation of law and lawfully transferred by them to the corporation. The law, after all, recognizes the validity of the transfer and sale of the private land to the corporation. It should not be necessary to go in a round-about way and have the corporation reassign its rights to the private land to natural persons-(as I understand), was done after the decision in the Meralco and Iglesia ni Cristo cases) just for the purpose of complying on paper with the technicality of having natural persons file the application for confirmation of title to the private land.



MELENCIO-HERRERA, J., dissenting:

Section 48 of the Public Land Act, in part, provides:

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:

(a) ...

(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. These shall be conclusively presumed to have performed are the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

(c) ...

Article XIV, Section 11, of the 1973 Constitution, in part, provides:

SEC. 11. .... No private corporation or association may hold alienable lands of the public domain except by lease not to exceed one thousand hectares in area; nor may any citizen hold such lands by lease in excess of five hundred hectares ....

It has to be conceded that, literally, statutory law and constitutional provision prevent a corporation from directly applying to the Courts for the issuance of Original Certificates of Title to lands of the public domain (Manila Electric Company vs. Castro-Bartolome, 114 SCRA 799; Republic vs. Villanueva, 114 SCRA 875; Republic vs. Court of Appeals, 119 SCRA 449; Iglesia ni Cristo vs. Hon. Judge, CFI of Nueva Ecija, Br. 1). It is my opinion that the literalism should be adhered to in this case.

The reasoning of the majority can be restated in simple terms as follows:

(a) The INFIELS can successfully file an application for a certificate of title over the land involved in the case.

(b) After the INFIELS secure a certificate of title, they can sell the land to ACME.

(c) As ACME can eventually own the certificate of title, it should be allowed to directly apply to the Courts for the Certificate of Title, thus avoiding the circuituous "literal" requirement that the INFIELS should first apply to the courts for the titles, and afterwards transfer the title to ACME.

The majority opinion, in effect, adopted the following excerpt from a dissent in Manila Electric Company vs. Castro-Bartolome (114 SCRA 799, 823 [1982]).

To uphold respondent judge's denial of Meralco's application on the technicality that the Public Land Act allows only citizens of the Philippines who are natural persons to apply for confirmation of their title would be impractical and would just give rise to multiplicity of court actions. Assuming that there was a technical error in not having filed the application for registration in the name of the Piguing spouses as the original owners and vendors,

still it is conceded that there is no prohibition against their sale of the land to the applicant Meralco

and neither is there any prohibition against the application being refiled with retroactive effect in the name of the original owners and vendors (as such natural persons) with the end result of their application being granted, because of their indisputable acquisition of ownership by operation of law and the conclusive presumption therein provided in their favor.

It should not be necessary to go through all the rituals at the great cost of refiling of all such applications in their names and adding to the overcrowded court dockets when the Court can after all these years dispose of it here and now." (Paragraphing supplied)

The effect is that the majority opinion now nullifies the statutory provision that only citizens (natural persons) can apply for certificates of title under Section 48(b) of the Public Land Act, as well as the constitutional provision (Article XIV, Section 11) which prohibits corporations from acquiring title to lands of the public domain. That interpretation or construction adopted by the majority cannot be justified. "A construction adopted should not be such as to nullify, destroy or defeat the intention of the legislature" (New York State Dept. of Social Services v. Dublino [UST 37 L. Ed 2d 688, 93 S Ct 2507; United States v. Alpers 338 US 680, 94 L Ed 457, 70 S Ct 352; cited in 73 Am Jur. 2nd., p. 351).

It has also been said that:

In the construction of statutes, the courts start with the assumption that the legislature intended to enact an effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute. Hence, it is a general principle that the courts should, if reasonably possible to do so interpret the statute, or the provision being construed, so as to give it efficient operation and effect as a whole. An interpretation should, if possible, be avoided, under which the statute or provision being construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant, meaningless, inoperative, or nugatory. If a statute is fairly susceptible of two constructions, one of which will give effect to the act, while the other will defeat it, the former construction is preferred. One part of a statute may not be construed so as to render another part nugatory or of no effect. Moreover, notwithstanding the general rule against the enlargement of extension of a statute by construction, the meaning of a statute may be extended beyond the precise words used in the law, and words or phrases may be altered or supplied, where this is necessary to prevent a law from becoming a nullity. Wherever the provision of a statute is general everything which is necessary to make such provision effectual is supplied by implication. (Pliakos vs. Illinois Liquor Control Com. 11 III 2d 456, 143 NE2d 47; cited in 73 AM Jur. 2d pp. 422-423)

The statutory provision and the constitutional prohibition express a public policy. The proper course for the Court to take is to promote in the fullest manner the policy thus laid down and to avoid a construction which would alter or defeat that policy.

In fine, I confirm my adherence to the ruling of this Court in Meralco vs. Hon. Castro-Bartolome, 114 SCRA 799 [1982] and related cases.





Separate Opinions

GUTIERREZ, JR., J., concurring:

I reiterate my concurrence in Meralco v. Castro-Bartolome, and, therefore, dissent here.



TEEHANKEE, C.J., concurring:

I am honored by my brethren's judgment at bar that my dissenting opinion in the June, 1982 Meralco and Iglesia ni Cristo cases, 1 which is herein upheld, "expressed what is the better. . . . and indeed the correct view." My dissent was anchored on the landmark 1909 case of Carino 2 through the 1925 case of Susi 3 and the long line of cases cited therein to the latest 1980 case of Herico 4 that "it is established doctrine....... that an open, continuous, adverse and public possession of a land of the public domain for the period provided in the Public Land Act provision in force at the time (from July 26, 1894 in Susi under the old law [this period was reduced to 'at least thirty years immediately preceding the filing of the application for confirmation of title' by amendment of Commonwealth Act No. 141, equivalent to the period of acquisitive prescription 5 ]) by a private individual personally and through his predecessors confers an effective title on said possessor, whereby the land ceases to be land of the public domain and becomes private property." I hereby reproduce the same by reference for brevity's sake. But since we are reverting to the old above-cited established doctrine and precedents and discarding the Meralco and Iglesia ni Cristo cases which departed therefrom in the recent past, I feel constrained to write this concurrence in amplification of my views and ratio decidendi.

Under the express text and mandate of the cited Act, such possessors "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. "

The Court thus held in Susi that under the presumption juris et de jure established in the Act, the rightful possessor of the public land for the statutory period "already acquired, by operation of law, not only a right to a grant, but a grant of the Government, for it is not necessary that certificate of title should be issued an order that said grant may be sanctioned by the courts, an application therefore is sufficient . . . . If by a legal fiction, Valentin Susi had acquired the land in question by a grant of the State, it had already ceased to be of the public domain and had become private property, at least by presumption, of Valentin Susi, beyond the control of the Director of Lands [and beyond his authority to sell to any other person]. " 6

The root of the doctrine goes back to the pronouncement of Justice Oliver Wendell Holmes for the U.S. Supreme Court in the 1909 case of Carino (the Igorot chief who would have been deprived of ancestral family lands by the dismissal of his application for registration) which reversed the dismissal of the registration court (as affirmed by the Supreme Court) and adopted the liberal view that under the decree and regulations of June 25, 1880, "The words 'may prove' (acrediten), as well, or better, in view of the other provisions, might be taken to mean when called upon to do so in any litigation. There are indications that registration was expected from all, but none sufficient to show that, for want of it, ownership actually gained would be lost. The effect of the proof, whenever made, was not to confer title, but simply to establish it, as already conferred by the decree, if not by earlier law."

The Court's decision at bar now expressly overturns the Meralco and related cases subsequent thereto which failed to adhere to the aforecited established doctrine dating back to 1909 and was consistently applied up to June 29, 1982 (when the Meralco decision was promulgated).<äre||anº•1àw> We reaffirm the established doctrine that such acquisitive prescription of alienable public lands takes place ipso jure or by operation of law without the necessity of a prior issuance of a certificate of title. The land ipso jure ceases to be of the public domain and becomes private property, which may be lawfully sold to and acquired by qualified corporations such as respondent corporation. (As stressed in Herico supra, "the application for confirmation is a mere formality, the lack of which does not affect the legal sufficiency of the title.")

Such ipso jure conversion into private property of public lands publicly held under a bona fide claim of acquisition or ownership is the public policy of the Act and is so expressly stated therein. By virtue of such conversion into private property, qualified corporations may lawfully acquire them and there is no "alteration or defeating" of the 1973 Constitution's prohibition against corporations holding or acquiring title to lands of the public domain, as claimed in the dissenting opinion, for the simple reason that no public lands are involved.

It should be noted that respondent corporation purchased the land from the Infiels on October 16, 1962 under the aegis of the 1935 Constitution which contained no prohibition against corporations holding public lands (except a limit of 1,024 hectares) unlike the later 1973 Constitution which imposed an absolute prohibition. Even on the erroneous assumption that the land remained public land despite the Infiels' open possession thereof as owners from time immemorial, respondent corporation's lawful purchase from them of the land in 1962 and P 45million investments redounding presumably to the welfare and progress of the community, particularly the municipality of Maconacon, Isabela to which it donated part of the land for the townsite created a vested right which could not be impaired by the prohibition adopted eleven years later. But as sufficiently stressed, the land of the Infiels had been ipso jure converted into private land and they had a legally sufficient and transferable title conferred by the conclusive presumption of the Public Land Act (which needed only to be established in confirmation of title proceedings for formalization and issuance of the certificate of title) which they lawfully and validly transferred to respondent corporation.

In fact, the many amendments to the Act extending the period for the filing of such applications for judicial confirmation of imperfect and incomplete titles to alienable and disposable public lands expressly reiterate that it has always been the "policy of the State to hasten the settlement, adjudication and quieting of titles to [such] unregistered lands," i.e. to recognize that such lands publicly and notoriously occupied and cultivated under bona fide claim of acquisition or ownership have ipso jure been converted into private property and grant the possessors the opportunity to establish and record such fact. Thus, the deadline for the filing of such application which would have originally expired first on December 31, 1938 was successively extended to December 31, 1941, then extended to December 31, 1957, then to December 31, 1968, further extended to December 31, 1976 and lastly extended to December 31, 1987. 7

The cited Act's provision that only natural persons may apply thereunder for confirmation of title is in effect a technicality of procedure and not of substance. My submittal in Meralco, mutatis mutandis, is properly applicable: "The ends of justice would best be served, therefore, by considering the applications for confirmation as amended to conform to the evidence, i.e. as filed in the names of the original persons who as natural persons are duly qualified to apply for formal confirmation of the title that they had acquired by conclusive presumption and mandate of the Public Land Act and who thereafter duly sold to the herein corporations (both admittedly Filipino corporations duly qualified to hold and own private lands) and granting the applications for confirmation of title to the private lands so acquired and sold or exchanged." 8 Indeed, then Chief Justice Enrique M. Fernando likewise dissented along the same line from the majority ruling therein and held: "I dissent insofar as the opinion of the Court would characterize such jurisdictional defect that the applicant was Meralco, a juridical person rather than the natural persons-transferors, under the particular circumstances of this case, as an insurmountable obstacle to the relief sought. I would apply by analogy, although the facts could be distinguished, the approach followed by us in Francisco v. City of Davao, where the legal question raised, instead of being deferred and possibly taken up in another case, was resolved. By legal fiction and in the exercise of our equitable jurisdiction, I feel that the realistic solution would be to decide the matter as if the application under Section 48(b) were filed by the Piguing spouses, who I assume suffer from no such disability." 9 Justice Vicente Abad Santos, now retired, while concurring in the procedural result, likewise, in effect dissented from the therein majority ruling on the question of substance, and stated his opinion that "the lots which are sought to be registered have ceased to be lands of the public domain at the time they were acquired by the petitioner corporation. They are already private lands because of acquisitive prescription by the predecessors of the petitioner and all that is needed is the confirmation of the title. Accordingly, the constitutional provision that no private corporation or association may hold alienable lands of the public domain is inapplicable. " 10

To my mind, the reason why the Act limits the filing of such applications to natural citizens who may prove their undisputed and open possession of public lands for the required statutory thirty-year period, tacking on their predecessors'-in-interest possession is that only natural persons, to the exclusion of juridical persons such as corporations, can actually, physically and in reality possess public lands for the required statutory 30-year period. That juridical persons or corporations cannot do so is obvious. But when the natural persons have fulfilled the required statutory period of possession, the Act confers on them a legally sufficient and transferable title. It is preferable to follow the letter of the law that they file the applications for confirmation of their title, although they have lawfully transferred their title to the land. But such procedural failure cannot and should not defeat the substance of the law, as stressed in the above-cited opinions, that the lands are already private lands because of acquisitive prescription by the corporation's predecessors and the realistic solution would be to consider the application for confirmation as filed by the natural persons-transferors, and in accordance with the evidence, confirm their title to the private lands so converted by operation of law and lawfully transferred by them to the corporation. The law, after all, recognizes the validity of the transfer and sale of the private land to the corporation. It should not be necessary to go in a round-about way and have the corporation reassign its rights to the private land to natural persons-(as I understand), was done after the decision in the Meralco and Iglesia ni Cristo cases) just for the purpose of complying on paper with the technicality of having natural persons file the application for confirmation of title to the private land.



MELENCIO-HERRERA, J., dissenting:

Section 48 of the Public Land Act, in part, provides:

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:

(a) ...

(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. These shall be conclusively presumed to have performed are the conditions essential to a Government grant and shall be entitled to a certificate of title under the provisions of this chapter.

(c) ...

Article XIV, Section 11, of the 1973 Constitution, in part, provides:

SEC. 11. .... No private corporation or association may hold alienable lands of the public domain except by lease not to exceed one thousand hectares in area; nor may any citizen hold such lands by lease in excess of five hundred hectares ....

It has to be conceded that, literally, statutory law and constitutional provision prevent a corporation from directly applying to the Courts for the issuance of Original Certificates of Title to lands of the public domain (Manila Electric Company vs. Castro-Bartolome, 114 SCRA 799; Republic vs. Villanueva, 114 SCRA 875; Republic vs. Court of Appeals, 119 SCRA 449; Iglesia ni Cristo vs. Hon. Judge, CFI of Nueva Ecija, Br. 1). It is my opinion that the literalism should be adhered to in this case.

The reasoning of the majority can be restated in simple terms as follows:

(a) The INFIELS can successfully file an application for a certificate of title over the land involved in the case.

(b) After the INFIELS secure a certificate of title, they can sell the land to ACME.

(c) As ACME can eventually own the certificate of title, it should be allowed to directly apply to the Courts for the Certificate of Title, thus avoiding the circuituous "literal" requirement that the INFIELS should first apply to the courts for the titles, and afterwards transfer the title to ACME.

The majority opinion, in effect, adopted the following excerpt from a dissent in Manila Electric Company vs. Castro-Bartolome (114 SCRA 799, 823 [1982]).

To uphold respondent judge's denial of Meralco's application on the technicality that the Public Land Act allows only citizens of the Philippines who are natural persons to apply for confirmation of their title would be impractical and would just give rise to multiplicity of court actions. Assuming that there was a technical error in not having filed the application for registration in the name of the Piguing spouses as the original owners and vendors,

still it is conceded that there is no prohibition against their sale of the land to the applicant Meralco

and neither is there any prohibition against the application being refiled with retroactive effect in the name of the original owners and vendors (as such natural persons) with the end result of their application being granted, because of their indisputable acquisition of ownership by operation of law and the conclusive presumption therein provided in their favor.

It should not be necessary to go through all the rituals at the great cost of refiling of all such applications in their names and adding to the overcrowded court dockets when the Court can after all these years dispose of it here and now." (Emphasis supplied)

The effect is that the majority opinion now nullifies the statutory provision that only citizens (natural persons) can apply for certificates of title under Section 48(b) of the Public Land Act, as well as the constitutional provision (Article XIV, Section 11) which prohibits corporations from acquiring title to lands of the public domain. That interpretation or construction adopted by the majority cannot be justified. "A construction adopted should not be such as to nullify, destroy or defeat the intention of the legislature" (New York State Dept. of Social Services v. Dublino [UST 37 L. Ed 2d 688, 93 S Ct 2507; United States v. Alpers 338 US 680, 94 L Ed 457, 70 S Ct 352; cited in 73 Am Jur. 2nd., p. 351).

It has also been said that:

In the construction of statutes, the courts start with the assumption that the legislature intended to enact an effective law, and the legislature is not to be presumed to have done a vain thing in the enactment of a statute. Hence, it is a general principle that the courts should, if reasonably possible to do so interpret the statute, or the provision being construed, so as to give it efficient operation and effect as a whole. An interpretation should, if possible, be avoided, under which the statute or provision being construed is defeated, or as otherwise expressed, nullified, destroyed, emasculated, repealed, explained away, or rendered insignificant, meaningless, inoperative, or nugatory. If a statute is fairly susceptible of two constructions, one of which will give effect to the act, while the other will defeat it, the former construction is preferred. One part of a statute may not be construed so as to render another part nugatory or of no effect. Moreover, notwithstanding the general rule against the enlargement of extension of a statute by construction, the meaning of a statute may be extended beyond the precise words used in the law, and words or phrases may be altered or supplied, where this is necessary to prevent a law from becoming a nullity. Wherever the provision of a statute is general everything which is necessary to make such provision effectual is supplied by implication. (Pliakos vs. Illinois Liquor Control Com. 11 III 2d 456, 143 NE2d 47; cited in 73 AM Jur. 2d pp. 422-423)

The statutory provision and the constitutional prohibition express a public policy. The proper course for the Court to take is to promote in the fullest manner the policy thus laid down and to avoid a construction which would alter or defeat that policy.

In fine, I confirm my adherence to the ruling of this Court in Meralco vs. Hon. Castro-Bartolome, 114 SCRA 799 [1982] and related cases.