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G.R. No. 76217 September 14, 1989 GERMAN MANAGEMENT & SERVICES, INC., petitioner, vs. HON.

COURT OF APPEALS and ERNESTO VILLEZA, respondents. G.R. No. L-76216 September 14, 1989 GERMAN MANAGEMENT & SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS and ORLANDO GERNALE, respondents. Alam, Verano & Associates for petitioner. Francisco D. Lozano for private respondents.

FERNAN, C.J.: Spouses Cynthia Cuyegkeng Jose and Manuel Rene Jose, residents of Pennsylvania, Philadelphia, USA are the owners of a parcel of land situated in Sitio Inarawan, San Isidro, Antipolo, Rizal, with an area of 232,942 square meters and covered by TCT No. 50023 of the Register of Deeds of the province of Rizal issued on September 11, 1980 which canceled TCT No. 56762/ T-560. The land was originally registered on August 5, 1948 in the Office of the Register of Deeds of Rizal as OCT No. 19, pursuant to a Homestead Patent granted by the President of the Philippines on July 27, 1948, under Act No. 141. On February 26, 1982, the spouses Jose executed a special power of attorney authorizing petitioner German Management Services to develop their property covered by TCT No. 50023 into a residential subdivision. Consequently, petitioner on February 9,1983 obtained Development Permit No. 00424 from the Human Settlements Regulatory Commission for said development. Finding that part of the property was occupied by private respondents and twenty other persons, petitioner advised the occupants to vacate the premises but the latter refused. Nevertheless, petitioner proceeded with the development of the subject property which included the portions occupied and cultivated by private respondents. Private respondents filed an action for forcible entry against petitioner before the Municipal Trial Court of Antipolo, Rizal, alleging that they are mountainside farmers of Sitio Inarawan, San Isidro, Antipolo, Rizal and members of the Concerned Citizens of Farmer's Association; that they have occupied and tilled their farmholdings some twelve to fifteen years prior to the promulgation of P.D. No. 27; that during the first week of August 1983, petitioner, under a permit from the Office of the Provincial Governor of Rizal, was allowed to improve the Barangay Road at Sitio Inarawan, San Isidro,

Antipolo, Rizal at its expense, subject to the condition that it shag secure the needed right of way from the owners of the lot to be affected; that on August 15, 1983 and thereafter, petitioner deprived private respondents of their property without due process of law by: (1) forcibly removing and destroying the barbed wire fence enclosing their farmholdings without notice; (2) bulldozing the rice, corn fruit bearing trees and other crops of private respondents by means of force, violence and intimidation, in violation of P.D. 1038 and (3) trespassing, coercing and threatening to harass, remove and eject private respondents from their respective farmholdings in violation of P.D. Nos. 316, 583, 815, and 1028. 1 On January 7,1985, the Municipal Trial Court dismissed private respondents' complaint for forcible entry. 2 On appeal, the Regional Trial Court of Antipolo, Rizal, Branch LXXI sustained the dismissal by the Municipal Trial Court. 3 Private respondents then filed a petition for review with the Court of Appeals. On July 24,1986, said court gave due course to their petition and reversed the decisions of the Municipal Trial Court and the Regional Trial Court. 4 The Appellate Court held that since private respondents were in actual possession of the property at the time they were forcibly ejected by petitioner, private respondents have a right to commence an action for forcible entry regardless of the legality or illegality of possession. 5 Petitioner moved to reconsider but the same was denied by the Appellate Court in its resolution dated September 26, 1986. 6 Hence, this recourse. The issue in this case is whether or not the Court of Appeals denied due process to petitioner when it reversed the decision of the court a quo without giving petitioner the opportunity to file its answer and whether or not private respondents are entitled to file a forcible entry case against petitioner. 7 We affirm. The Court of Appeals need not require petitioner to file an answer for due process to exist. The comment filed by petitioner on February 26, 1986 has sufficiently addressed the issues presented in the petition for review filed by private respondents before the Court of Appeals. Having heard both parties, the Appellate Court need not await or require any other additional pleading. Moreover, the fact that petitioner was heard by the Court of Appeals on its motion for reconsideration negates any violation of due process. Notwithstanding petitioner's claim that it was duly authorized by the owners to develop the subject property, private respondents, as actual possessors, can commence a forcible entry case against petitioner because ownership is not in issue. Forcible entry is merely a quieting process and never determines the actual title to an estate. Title is not involved. 8

In the case at bar, it is undisputed that at the time petitioner entered the property, private respondents were already in possession thereof . There is no evidence that the spouses Jose were ever in possession of the subject property. On the contrary, private respondents' peaceable possession was manifested by the fact that they even planted rice, corn and fruit bearing trees twelve to fifteen years prior to petitioner's act of destroying their crops. Although admittedly petitioner may validly claim ownership based on the muniments of title it presented, such evidence does not responsively address the issue of prior actual possession raised in a forcible entry case. It must be stated that regardless of the actual condition of the title to the property, the party in peaceable quiet possession shall not be turned out by a strong hand, violence or terror. 9 Thus, a party who can prove prior possession can recover such possession even against the owner himself. Whatever may be the character of his prior possession, if he has in his favor priority in time, he has the security that entitles him to remain on the property until he is lawfully ejected by a person having a better right by accion publiciana or accion reivindicatoria. 10 Both the Municipal Trial Court and the Regional Trial Court have rationalized petitioner's drastic action of bulldozing and destroying the crops of private respondents on the basis of the doctrine of self-help enunciated in Article 429 of the New Civil Code. 11 Such justification is unavailing because the doctrine of self-help can only be exercised at the time of actual or threatened dispossession which is absent in the case at bar. When possession has already been lost, the owner must resort to judicial process for the recovery of property. This is clear from Article 536 of the Civil Code which states, "(I)n no case may possession be acquired through force or intimidation as long as there is a possessor who objects thereto. He who believes that he has an action or right to deprive another of the holding of a thing, must invoke the aid of the competent court, if the holder should refuse to deliver the thing." WHEREFORE, the Court resolved to DENY the instant petition. The decision of the Court of Appeals dated July 24,1986 is hereby AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. 138053 May 31, 2000 CORNELIO M. ISAGUIRRE, petitioner, vs. FELICITAS DE LARA, respondent.

GONZAGA-REYES, J.: In this petition for review on certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, petitioner Cornelio M. Isaguirre assails the October 5, 1998 decision1 of the Court of Appeals2 and its Resolution promulgated on March 5, 1999. The antecedent facts of the present case are as follows: Alejandro de Lara was the original applicant-claimant for a Miscellaneous Sales Application over a parcel of land identified as portion of Lot 502, Guianga Cadastre, filed with the Bureau of Lands on January 17, 1942 and with an area of 2,324 square meters. Upon his death, Alejandro de Lara was succeeded by his wife respondent Felicitas de Lara, as claimant. On November 19, 1954, the Undersecretary of Agriculture and Natural Resources amended the sales application to cover only 1,600 square meters. Then, on November 3, 1961, by virtue of a decision rendered by the Secretary of Agriculture and Natural Resources dated November 19, 1954, a subdivision survey was made and the area was further reduced to 1,000 square meters. On this lot stands a two-story residential-commercial apartment declared for taxation purposes under TD 43927 in the name of respondent's sons Apolonio and Rodolfo, both surnamed de Lara. Sometime in 1953, respondent obtained several loans from the Philippine National Bank. When she encountered financial difficulties, respondent approached petitioner Cornelio M. Isaguirre, who was married to her niece, for assistance. On February 10, 1960, a document denominated as "Deed of Sale and Special Cession of Rights and Interests" was executed by respondent and petitioner, whereby the former sold a 250 square meter portion of Lot No. 502, together with the two-story commercial and residential structure standing thereon, in favor of petitioner, for and in consideration of the sum of P5,000. Sometime in May, 1968, Apolonio and Rodolfo de Lara filed a complaint against petitioner for recovery of ownership and possession of the two-story building.3 However, the case was dismissed for lack of jurisdiction. On August 21, 1969, petitioner filed a sales application over the subject property on the basis of the deed of sale. His application was approved on January 17, 1984, resulting in the issuance of Original Certificate of Title No. P-11566 on February 13, 1984, in the name of petitioner. Meanwhile, the sales application of respondent over the entire 1,000 square meters of subject property (including the 250 square meter portion claimed by petitioner) was also given due

course, resulting in the issuance of Original Certificate of Title No. P-13038 on June 19, 1989, in the name of respondent.4 Due to the overlapping of titles, petitioner filed an action for quieting of title and damages with the Regional Trial Court of Davao City against respondent on May 17, 1990. The case was docketed as Civil Case No. 20124-90. After trial on the merits, the trial court rendered judgment on October 19, 1992, in favor of petitioner, declaring him to be the lawful owner of the disputed property. However, the Court of Appeals reversed the trial court's decision, holding that the transaction entered into by the parties, as evidenced by their contract, was an equitable mortgage, not a sale.5 The appellate court's decision was based on the inadequacy of the consideration agreed upon by the parties, on its finding that the payment of a large portion of the "purchase price" was made after the execution of the deed of sale in several installments of minimal amounts; and finally, on the fact that petitioner did not take steps to confirm his rights or to obtain title over the property for several years after the execution of the deed of sale. As a consequence of its decision, the appellate court also declared Original Certificate of Title No. P11566 issued in favor of petitioner to be null and void. On July 8, 1996, in a case docketed as G.R. No. 120832, this Court affirmed the decision of the Court of Appeals and on September 11, 1996, we denied petitioner's motion for reconsideration. On May 5, 1997, respondent filed a motion for execution with the trial court, praying for the immediate delivery of possession of the subject property, which motion was granted on August 18, 1997. On February 3, 1998, respondent moved for a writ of possession, invoking our ruling in G.R. No. 120832. Petitioner opposed the motion, asserting that he had the right of retention over the property until payment of the loan and the value of the improvements he had introduced on the property. On March 12, 1998, the trial court granted respondent's motion for writ of possession. Petitioner's motion for reconsideration was denied by the trial court on May 21, 1998. Consequently, a writ of possession dated June 16, 1998, together with the Sheriff's Notice to Vacate dated July 7, 1998, were served upon petitioner. Petitioner filed with the Court of Appeals a special civil action for certiorari and prohibition with prayer for a temporary restraining order or preliminary injunction to annul and set aside the March 12, 1998 and May 21, 1998 orders of the trial court, including the writ of possession dated June 16, 1998 and the sheriff's notice to vacate dated July 7, 1998.6 The appellate court summarized the issues involved in the case as follows: (1) whether or not the mortgagee in an equitable mortgage has the right to retain possession of the property pending actual payment to him of the amount of indebtedness by the mortgagor; and (b) whether or not petitioner can be considered a builder in good faith with respect to the improvements he made on the property before the transaction was declared to be an equitable mortgage. The Court of Appeals held that petitioner was not entitled to retain possession of the subject property. It said that . . . the mortgagee merely has to annotate his claim at the back of the certificate of title in order to protect his rights against third persons and thereby secure the debt. There is therefore no necessity for him to actually possess the property. Neither

should a mortgagee in an equitable mortgage fear that the contract relied upon is not registered and hence, may not operate as a mortgage to justify its foreclosure. In Feliza Zubiri v. Lucio Quijano, 74 Phil 47, it was ruled "that when a contract . . . is held as an equitable mortgage, the same shall be given effect as if it had complied with the formal requisites of mortgage. . . . by its very nature the lien thereby created ought not to be defeated by requiring compliance with the formalities necessary to the validity of a voluntary real estate mortgage, as long as the land remains in the hands of the petitioner (mortgagor) and the rights of innocent parties are not affected. Proceeding from the foregoing, petitioner's imagined fears that his lien would be lost by surrendering possession are unfounded. In the same vein, there is nothing to stop the mortgagor de Lara from acquiring possession of the property pending actual payment of the indebtedness to petitioner. This does not in anyway endanger the petitioner's right to security since, as pointed out by private respondents, the petitioner can always have the equitable mortgage annotated in the Certificate of Title of private respondent and pursue the legal remedies for the collection of the alleged debt secured by the mortgage. In this case, the remedy would be to foreclose the mortgage upon failure to pay the debt within the required period. It is unfortunate however, that the Court of Appeals, in declaring the transaction to be an equitable mortgage failed to specify in its Decision the period of time within which the private respondent could settle her account, since such period serves as the reckoning point by which foreclosure could ensue. As it is, petitioner is now in a dilemma as to how he could enforce his rights as a mortgagee. . . . Hence, this Court, once and for all resolves the matter by requiring the trial court to determine the amount of total indebtedness and the period within which payment shall be made. Petitioner's claims that he was a builder in good faith and entitled to reimbursement for the improvements he introduced upon the property were rejected by the Court of Appeals. It held that petitioner knew, or at least had an inkling, that there was a defect or flaw in his mode of acquisition. Nevertheless, the appellate court declared petitioner to have the following rights: . . . He is entitled to reimbursement for the necessary expenses which he may have incurred over the property, in accordance with Art. 526 and Art. 452 of the Civil Code. Moreover, considering that the transaction was merely an equitable mortgage, then he is entitled to payment of the amount of indebtedness plus interest, and in the event of non-payment to foreclose the mortgage. Meanwhile, pending receipt of the total amount of debt, private respondent is entitled to possession over the disputed property. The case was finally disposed of by the appellate court in the following manner:

WHERFORE, the Petition is hereby DISMISSED, and this case is ordered remanded to the Regional Trial Court of Davao City for further proceedings, as follows: 1) The trial court shall determine a) The period within which the mortgagor must pay his total amount of indebtedness. b) The total amount of indebtedness owing the petitioner-mortgagee plus interest computed from the time when the judgment declaring the contract to be an equitable mortgage became final. c) The necessary expenses incurred by petitioner over the property.7 On March 5, 1999, petitioner's motion for reconsideration was denied by the appellate court.8 Hence, the present appeal wherein petitioner makes the following assignment of errors: A. THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT THE RTC ACTED WITHOUT OR IN EXCESS OF ITS JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ISSUING A WRIT OF POSSESSION IN FAVOR OF RESPONDENT. A.1 The RTC patently exceeded the scope of its authority and acted with grave abuse of discretion in ordering the immediate delivery of possession of the Property to respondent as said order exceeded the parameters of the final and executory decision and constituted a variance thereof. B. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS NOT ENTITLED TO THE POSSESSION OF THE PROPERTY PRIOR TO THE PAYMENT OF RESPONDENT'S MORTGAGE LOAN. C. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PETITIONER WAS NOT A BUILDER IN GOOD FAITH. D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS ENTITLED TO INTEREST COMPUTED ONLY FROM THE TIME WHEN THE JUDGMENT DECLARING THE

CONTRACT TO BE AN EQUITABLE MORTGAGE BECAME FINAL.9 Basically, petitioner claims that he is entitled to retain possession of the subject property until payment of the loan and the value of the necessary and useful improvements he made upon such property. 10 According to petitioner, neither the Court of Appeals' decision in G.R. CV No. 42065 nor this Court's decision in G.R. No. 120832 ordered immediate delivery of possession of the subject property to respondent. The dispositive portion of the March 31, 1995 decision of the Court of Appeals in G.R. CV No. 42065, which was affirmed by this Court, provides that IN VIEW OF ALL THE FOREGOING, the judgment appealed from is REVERSED and SET ASIDE and a new one entered: (1) dismissing the complaint; (2) declaring the "Document of Sale and Special Cession of Rights and Interests" (Exhibit B) dated February 10, 1960, to be an equitable mortgage not a sale; (3) upholding the validity of OCT No. P-13038 in the name of Felicitas de Lara; and (3) declaring null and void OCT No. P-11566 in the name of plaintiff Cornelio Isaguirre. All other counterclaims for damages are likewise dismissed. Costs against the appellee. 11 Petitioner argues that the abovementioned decision merely settled the following matters: (1) that the transaction between petitioner and respondent was not a sale but an equitable mortgage; (2) that OCT No. P-13038 in the name of respondent is valid; and (3) that OCT No. P-11566 in the name of petitioner is null and void. Since the aforementioned decision did not direct the immediate ouster of petitioner from the subject property and the delivery thereof to respondent, the issuance of the writ of possession by the trial court on June 16, 1998 constituted an unwarranted modification or addition to the final and executory decision of this Court in G.R. No. 120832. 12 We do not agree with petitioner's contentions. On the contrary, the March 31, 1995 decision of the appellate court, which was affirmed by this Court on July 8, 1996, served as more than adequate basis for the issuance of the writ of possession in favor of respondent since these decisions affirmed respondent's title over the subject property. As the sole owner, respondent has the right to enjoy her property, without any other limitations than those established by law. 1 Corollary to such right, respondent also has the right to exclude from the possession of her property any other person to whom she has not transmitted such property. 14 It is true that, in some instances, the actual possessor has some valid rights over the property enforceable even against the owner thereof, such as in the case of a tenant or lessee. 15 Petitioner anchors his own claim to possession upon his declared status as a mortgagee. In his Memorandum, he argues that 4.8 It was respondent who asserted that her transfer of the Property to petitioner was by way of an equitable mortgage and not by sale. After her assertion was

sustained by the Courts, respondent cannot now ignore or disregard the legal effects of such judicial declaration regarding the nature of the transaction. xxx xxx xxx 4.13 Having delivered possession of the Property to petitioner as part of the constitution of the equitable mortgage thereon, respondent is not entitled to the return of the Property unless and until the mortgage loan is discharged by full payment thereof. Petitioner's right as mortgagee to retain possession of the Property so long as the mortgage loan remains unpaid is further supported by the rule that a mortgage may not be extinguished even though then mortgagor-debtor may have made partial payments on the mortgage loan: Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or the creditor. Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. Neither can the creditor's heir who has received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid. (Emphasis supplied.) xxx xxx xxx 4.14 To require petitioner to deliver possession of the Property to respondent prior to the full payment of the latter's mortgage loan would be equivalent to the cancellation of the mortgage. Such effective cancellation would render petitioner's rights ineffectual and nugatory and would constitute unwarranted judicial interference. xxx xxx xxx 4.16 The fact of the present case show that respondent delivered possession of the Property to petitioner upon the execution of the Deed of Absolute Sale and Special Cession of Rights and Interest dated 10 February 1960. Hence, transfer of possession of the Property to petitioner was an essential part of whatever agreement the parties entered into, which, in this case, the Supreme Court affirmed to be an equitable mortgage. xxx xxx xxx 4.19 Petitioner does not have the mistaken notion that the mortgagee must be in actual possession of the mortgaged property in order to secure the debt. However,

in this particular case, the delivery of possession of the Property was an integral part of the contract between petitioner and respondent. After all, it was supposed to be a contract of sale. If delivery was not part of the agreement entered into by the parties in 1960, why did respondent surrender possession thereof to petitioner in the first place? 4.20 Now that the Courts have ruled that the transaction was not a sale but a mortgage, petitioner's entitlement to the possession of the Property should be deemed as one of the provisions of the mortgage, considering that at the time the contract was entered into, possession of the Property was likewise delivered to petitioner. Thus, until respondent has fully paid her mortgage loan, petitioner should be allowed to retain possession of the subject property. 16 Petitioner's position lacks sufficient legal and factual moorings. A mortgage is a contract entered into in order to secure the fulfillment of a principal obligation. 17 It is constituted by recording the document in which it appears with the proper Registry of Property, although, even if it is not recorded, the mortgage is nevertheless binding between the parties. 18 Thus, the only right granted by law in favor of the mortgagee is to demand the execution and the recording of the document in which the mortgage is formalized. 19 As a general rule, the mortgagor retains possession of the mortgaged property since a mortgage is merely a lien and title to the property does not pass to the mortgagee. 20 However, even though a mortgagee does not have possession of the property, there is no impairment of his security since the mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. 21 If the debtor is unable to pay his debt, the mortgage creditor may institute an action to foreclose the mortgage, whether judicially or extrajudicially, whereby the mortgaged property will then be sold at a public auction and the proceeds therefrom given to the creditor to the extent necessary to discharge the mortgage loan. Apparently, petitioner's contention that "[t]o require [him] . . . to deliver possession of the Property to respondent prior to the full payment of the latter's mortgage loan would be equivalent to the cancellation of the mortgage" is without basis. Regardless of its possessor, the mortgaged property may still be sold, with the prescribed formalities, in the event of the debtor's default in the payment of his loan obligation. Moreover, this Court cannot find any justification in the records to uphold petitioner's contention that respondent delivered possession of the subject property upon the execution of the "Deed of Sale and Special Cession of Rights and Interests" on February 10, 1960 and that the transfer of possession to petitioner must therefore be considered an essential part of the agreement between the parties. This self-serving assertion of petitioner was directly contradicted by respondent in her pleadings. 22 Furthermore, nowhere in the Court of Appeals' decisions promulgated on March 31, 1995 (G.R. CV No. 42065) and on October 5, 1998 (G.R. SP No. 48310), or in our own decision promulgated on July 8, 1996 (G.R. No. 120832) was it ever established that the mortgaged properties were delivered by respondent to petitioner. In Alvano v. Batoon, 2 this Court held that "[a] simple mortgage does not give the mortgagee a right to the possession of the property unless the mortgage should contain some special provision

to that effect." Regrettably for petitioner, he has not presented any evidence, other than his own gratuitous statements, to prove that the real intention of the parties was to allow him to enjoy possession of the mortgaged property until full payment of the loan. Therefore, we hold that the trial court correctly issued the writ of possession in favor of respondent. Such writ was but a necessary consequence of this Court's ruling in G.R. No. 120832 affirming the validity of the original certificate of title (OCT No. P-13038) in the name of respondent Felicitas de Lara, while at the same time nullifying the original certificate of title (OCT No. P-11566) in the name of petitioner Cornelio Isaguirre. Possession is an essential attribute of ownership; thus, it would be redundant for respondent to go back to court simply to establish her right to possess subject property. Contrary to petitioner's claims, the issuance of the writ of possession by the trial court did not constitute an unwarranted modification of our decision in G.R. No. 120832, but rather, was a necessary complement thereto. 24 It bears stressing that a judgment is not confined to what appears upon the face of the decision, but also those necessarily included therein or necessary thereto. 25 With regard to the improvements made on the mortgaged property, we confirm the Court of Appeals' characterization of petitioner as a possessor in bad faith. Based on the factual findings of the appellate court, it is evident that petitioner knew from the very beginning that there was really no sale and that he held respondent's property as mere security for the payment of the loan obligation. Therefore, petitioner may claim reimbursement only for necessary expenses; however, he is not entitled to reimbursement for any useful expenses 26 which he may have incurred. 27 Finally, as correctly pointed out by the Court of Appeals, this case should be remanded to the Regional Trial Court of Davao City for a determination of the total amount of the loan, the necessary expenses incurred by petitioner, and the period within which respondent must pay such amount. 28 However, no interest is due on the loan since there has been no express stipulation in writing. 29 WHEREFORE, the assailed Decision of the Court of Appeals dated October 5, 1998 and its Resolution dated March 5, 1999 are hereby AFFIRMED. Respondent is entitled to delivery of possession of the subject property. This case is hereby REMANDED to the trial court for determination of the amount of the loan, the necessary expenses incurred by petitioner and the period within which the respondent must pay the same. SO ORDERED.

G.R. No. L-43938 April 15, 1988 REPUBLIC OF THE PHILIPPINES (DIRECTOR OF FOREST DEVELOPMENT), petitioner, vs. HON. COURT OF APPEALS (THIRD DIVISION) and JOSE Y. DE LA ROSA, respondents. G.R. No. L-44081 April 15, 1988 BENGUET CONSOLIDATED, INC., petitioner, vs. HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORIA, BENJAMIN and EDUARDO, all surnamed DE LA ROSA, represented by their father JOSE Y. DE LA ROSA, respondents. G.R. No. L-44092 April 15, 1988 ATOK-BIG WEDGE MINING COMPANY, petitioner, vs. HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORlA, BENJAMIN and EDUARDO, all surnamed DE LA ROSA, represented by their father, JOSE Y. DE LA ROSA, respondents.

CRUZ, J.: The Regalian doctrine reserves to the State all natural wealth that may be found in the bowels of the earth even if the land where the discovery is made be private. 1 In the cases at bar, which have been consolidated because they pose a common issue, this doctrine was not correctly applied. These cases arose from the application for registration of a parcel of land filed on February 11, 1965, by Jose de la Rosa on his own behalf and on behalf of his three children, Victoria, Benjamin and Eduardo. The land, situated in Tuding, Itogon, Benguet Province, was divided into 9 lots and covered by plan Psu-225009. According to the application, Lots 1-5 were sold to Jose de la Rosa and Lots 6-9 to his children by Mamaya Balbalio and Jaime Alberto, respectively, in 1964. 2 The application was separately opposed by Benguet Consolidated, Inc. as to Lots 1-5, Atok Big Wedge Corporation, as to Portions of Lots 1-5 and all of Lots 6-9, and by the Republic of the Philippines, through the Bureau of Forestry Development, as to lots 1-9.
3

In support of the application, both Balbalio and Alberto testified that they had acquired the subject land by virtue of prescription Balbalio claimed to have received Lots 1-5 from her father shortly after the Liberation. She testified she was born in the land, which was possessed by her parents under claim of ownership. 4 Alberto said he received Lots 6-9 in 1961 from his mother, Bella Alberto, who declared that the land was planted by Jaime and his predecessors-in-interest to bananas, avocado, nangka and camote, and was enclosed with a barbed-wire fence. She was corroborated by Felix Marcos, 67 years old at the time, who recalled the earlier possession of the land by Alberto's father. 5 Balbalio presented her tax declaration in 1956 and the realty tax receipts from that year to 1964, 6 Alberto his tax declaration in 1961 and the realty tax receipts from that year to 1964. 7 Benguet opposed on the ground that the June Bug mineral claim covering Lots 1-5 was sold to it on September 22, 1934, by the successors-in-interest of James Kelly, who located the claim in September 1909 and recorded it on October 14, 1909. From the date of its purchase, Benguet had been in actual, continuous and exclusive possession of the land in concept of owner, as evidenced by its construction of adits, its affidavits of annual assessment, its geological mappings, geological samplings and trench side cuts, and its payment of taxes on the land. 8 For its part, Atok alleged that a portion of Lots 1-5 and all of Lots 6-9 were covered by the Emma and Fredia mineral claims located by Harrison and Reynolds on December 25, 1930, and recorded on January 2, 1931, in the office of the mining recorder of Baguio. These claims were purchased from these locators on November 2, 1931, by Atok, which has since then been in open, continuous and exclusive possession of the said lots as evidenced by its annual assessment work on the claims, such as the boring of tunnels, and its payment of annual taxes thereon. 9 The location of the mineral claims was made in accordance with Section 21 of the Philippine Bill of 1902 which provided that:
SEC. 21. All valuable mineral deposits in public lands in the philippine Islands both surveyed and unsurveyed are hereby declared to be free and open to exploration, occupation and purchase and the land in which they are found to occupation and purchase by the citizens of the United States, or of said islands.

The Bureau of Forestry Development also interposed its objection, arguing that the land sought to be registered was covered by the Central Cordillera Forest Reserve under Proclamation No. 217 dated February 16, 1929. Moreover, by reason of its nature, it was not subject to alienation under the Constitutions of 1935 and 1973. 10 The trial court * denied the application, holding that the applicants had failed to prove their claim of possession and ownership of the land sought to be registered. 11 The applicants appealed to the respondent court, * which reversed the trial court and recognized the claims of the applicant, but subject to the rights of Benguet and Atok respecting their mining claims. 12 In other words, the Court of Appeals affirmed the surface rights of the de la Rosas over the land while at the same time reserving the subsurface rights of Benguet and Atok by virtue of their mining claims.

Both Benguet and Atok have appealed to this Court, invoking their superior right of ownership. The Republic has filed its own petition for review and reiterates its argument that neither the private respondents nor the two mining companies have any valid claim to the land because it is not alienable and registerable. It is true that the subject property was considered forest land and included in the Central Cordillera Forest Reserve, but this did not impair the rights already vested in Benguet and Atok at that time. The Court of Appeals correctly declared that:
There is no question that the 9 lots applied for are within the June Bug mineral claims of Benguet and the "Fredia and Emma" mineral claims of Atok. The June Bug mineral claim of plaintiff Benguet was one of the 16 mining claims of James E. Kelly, American and mining locator. He filed his declaration of the location of the June Bug mineral and the same was recorded in the Mining Recorder's Office on October 14, 1909. All of the Kelly claims ha subsequently been acquired by Benguet Consolidated, Inc. Benguet's evidence is that it had made improvements on the June Bug mineral claim consisting of mine tunnels prior to 1935. It had submitted the required affidavit of annual assessment. After World War II, Benguet introduced improvements on mineral claim June Bug, and also conducted geological mappings, geological sampling and trench side cuts. In 1948, Benguet redeclared the "June Bug" for taxation and had religiously paid the taxes. The Emma and Fredia claims were two of the several claims of Harrison registered in 1931, and which Atok representatives acquired. Portions of Lots 1 to 5 and all of Lots 6 to 9 are within the Emma and Fredia mineral claims of Atok Big Wedge Mining Company. The June Bug mineral claim of Benguet and the Fredia and Emma mineral claims of Atok having been perfected prior to the approval of the Constitution of the Philippines of 1935, they were removed from the public domain and had become private properties of Benguet and Atok. It is not disputed that the location of the mining claim under consideration was perfected prior to November 15, 1935, when the Government of the Commonwealth was inaugurated; and according to the laws existing at that time, as construed and applied by this court in McDaniel v. Apacible and Cuisia (42 Phil. 749), a valid location of a mining claim segregated the area from the public domain. Said the court in that case: The moment the locator discovered a valuable mineral deposit on the lands located, and perfected his location in accordance with law, the power of the United States Government to deprive him of the exclusive right to the possession and enjoyment of the located claim was gone, the lands had become mineral lands and they were exempted from lands that could be granted to any other person. The reservations of public lands cannot be made so as to include prior mineral perfected locations; and, of course, if a valid mining location is made upon public lands afterwards included in a reservation, such inclusion or reservation does not affect the validity of the former location. By such location and perfection, the land located is segregated from the public domain even as against the Government. (Union Oil Co. v. Smith, 249 U.S. 337; Van Mess v. Roonet, 160 Cal. 131; 27 Cyc. 546). "The legal effect of a valid location of a mining claim is not only to segregate the area from the public domain, but to grant to the locator the beneficial ownership of the claim and the right to a patent therefor upon

compliance with the terms and conditions prescribed by law. Where there is a valid location of a mining claim, the area becomes segregated from the public domain and the property of the locator." (St. Louis Mining & Milling Co. v. Montana Mining Co., 171 U.S. 650; 655; 43 Law ed., 320, 322.) "When a location of a mining claim is perfected it has the effect of a grant by the United States of the right of present and exclusive possession, with the right to the exclusive enjoyment of all the surface ground as well as of all the minerals within the lines of the claim , except as limited by the extralateral right of adjoining locators; and this is the locator's right before as well as after the issuance of the patent. While a lode locator acquires a vested property right by virtue of his location made in compliance with the mining laws, the fee remains in the government until patent issues."(18 R.C.L. 1152) (Gold Creek Mining Corporation v. Hon. Eulogio Rodriguez, Sec. of Agriculture and Commerce, and Quirico Abadilla, Director of the Bureau of Mines, 66 Phil. 259, 265-266) It is of no importance whether Benguet and Atok had secured a patent for as held in the Gold Creek Mining Corp. Case, for all physical purposes of ownership, the owner is not required to secure a patent as long as he complies with the provisions of the mining laws; his possessory right, for all practical purposes of ownership, is as good as though secured by patent. We agree likewise with the oppositors that having complied with all the requirements of the mining laws, the claims were removed from the public domain, and not even the government of the Philippines can take away this right from them. The reason is obvious. Having become the private properties of the oppositors, they cannot be deprived thereof 13 without due process of law.

Such rights were not affected either by the stricture in the Commonwealth Constitution against the alienation of all lands of the public domain except those agricultural in nature for this was made subject to existing rights. Thus, in its Article XIII, Section 1, it was categorically provided that:
SEC. 1. All agricultural, timber and mineral lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy and other natural resources of the Philipppines belong to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines or to corporations or associations at least 60% of the capital of which is owned by such citizens, subject to any existing right, grant, lease or concession at the time of the inauguration of the government established under this Constitution. Natural resources with the exception of public agricultural lands, shall not be alienated, and no license, concession, or lease for the exploitation, development or utilization of any of the natural resources shall be granted for a period exceeding 25 years, except as to water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, in which case beneficial use may be the measure and the limit of the grant.

Implementing this provision, Act No. 4268, approved on November 8, 1935, declared:
Any provision of existing laws, executive order, proclamation to the contrary notwithstanding, all locations of mining claim made prior to February 8, 1935 within lands set apart as forest reserve under Sec. 1826 of the Revised Administrative Code which would be valid and subsisting location except to the existence of said reserve are hereby declared to be valid and subsisting locations as of the date of their respective locations.

The perfection of the mining claim converted the property to mineral land and under the laws then in force removed it from the public domain. 14 By such act, the locators acquired exclusive rights over the land, against even the government, without need of any further act such as the purchase of the land or the obtention of a patent over it. 15 As the land had become the private property of the locators, they had the right to transfer the same, as they did, to Benguet and Atok. It is true, as the Court of Appeals observed, that such private property was subject to the "vicissitudes of ownership," or even to forfeiture by non-user or abandonment or, as the private respondents aver, by acquisitive prescription. However, the method invoked by the de la Rosas is not available in the case at bar, for two reasons. First, the trial court found that the evidence of open, continuous, adverse and exclusive possession submitted by the applicants was insufficient to support their claim of ownership. They themselves had acquired the land only in 1964 and applied for its registration in 1965, relying on the earlier alleged possession of their predecessors-ininterest. 16 The trial judge, who had the opportunity to consider the evidence first-hand and observe the demeanor of the witnesses and test their credibility was not convinced. We defer to his judgment in the absence of a showing that it was reached with grave abuse of discretion or without sufficient basis. 17 Second, even if it be assumed that the predecessors-in-interest of the de la Rosas had really been in possession of the subject property, their possession was not in the concept of owner of the mining claim but of the property as agricultural land, which it was not. The property was mineral land, and they were claiming it as agricultural land. They were not disputing the lights of the mining locators nor were they seeking to oust them as such and to replace them in the mining of the land. In fact, Balbalio testified that she was aware of the diggings being undertaken "down below" 18 but she did not mind, much less protest, the same although she claimed to be the owner of the said land. The Court of Appeals justified this by saying there is "no conflict of interest" between the owners of the surface rights and the owners of the sub-surface rights. This is rather doctrine, for it is a well-known principle that the owner of piece of land has rights not only to its surface but also to everything underneath and the airspace above it up to a reasonable height. 19 Under the aforesaid ruling, the land is classified as mineral underneath and agricultural on the surface, subject to separate claims of title. This is also difficult to understand, especially in its practical application. Under the theory of the respondent court, the surface owner will be planting on the land while the mining locator will be boring tunnels underneath. The farmer cannot dig a well because he may interfere with the operations below and the miner cannot blast a tunnel lest he destroy the crops above. How deep can the farmer, and how high can the miner, go without encroaching on each other's rights? Where is the dividing line between the surface and the sub-surface rights?

The Court feels that the rights over the land are indivisible and that the land itself cannot be half agricultural and half mineral. The classification must be categorical; the land must be either completely mineral or completely agricultural. In the instant case, as already observed, the land which was originally classified as forest land ceased to be so and became mineral and completely mineral once the mining claims were perfected. 20 As long as mining operations were being undertaken thereon, or underneath, it did not cease to be so and become agricultural, even if only partly so, because it was enclosed with a fence and was cultivated by those who were unlawfully occupying the surface. What must have misled the respondent court is Commonwealth Act No. 137, providing as follows:
Sec. 3. All mineral lands of the public domain and minerals belong to the State, and their disposition, exploitation, development or utilization, shall be limited to citizens of the Philippines, or to corporations, or associations, at least 60% of the capital of which is owned by such citizens, subject to any existing right, grant, lease or concession at the time of the inauguration of government established under the Constitution. SEC. 4. The ownership of, and the right to the use of land for agricultural, industrial, commercial, residential, or for any purpose other than mining does not include the ownership of, nor the right to extract or utilize, the minerals which may be found on or under the surface. SEC. 5. The ownership of, and the right to extract and utilize, the minerals included within all areas for which public agricultural land patents are granted are excluded and excepted from all such patents. SEC. 6. The ownership of, and the right to extract and utilize, the minerals included within all areas for which Torrens titles are granted are excluded and excepted from all such titles.

This is an application of the Regalian doctrine which, as its name implies, is intended for the benefit of the State, not of private persons. The rule simply reserves to the State all minerals that may be found in public and even private land devoted to "agricultural, industrial, commercial, residential or (for) any purpose other than mining." Thus, if a person is the owner of agricultural land in which minerals are discovered, his ownership of such land does not give him the right to extract or utilize the said minerals without the permission of the State to which such minerals belong. The flaw in the reasoning of the respondent court is in supposing that the rights over the land could be used for both mining and non-mining purposes simultaneously. The correct interpretation is that once minerals are discovered in the land, whatever the use to which it is being devoted at the time, such use may be discontinued by the State to enable it to extract the minerals therein in the exercise of its sovereign prerogative. The land is thus converted to mineral land and may not be used by any private party, including the registered owner thereof, for any other purpose that will impede the mining operations to be undertaken therein, For the loss sustained by such owner, he is of

course entitled to just compensation under the Mining Laws or in appropriate expropriation proceedings. 21 Our holding is that Benguet and Atok have exclusive rights to the property in question by virtue of their respective mining claims which they validly acquired before the Constitution of 1935 prohibited the alienation of all lands of the public domain except agricultural lands, subject to vested rights existing at the time of its adoption. The land was not and could not have been transferred to the private respondents by virtue of acquisitive prescription, nor could its use be shared simultaneously by them and the mining companies for agricultural and mineral purposes. WHEREFORE, the decision of the respondent court dated April 30, 1976, is SET ASIDE and that of the trial court dated March 11, 1969, is REINSTATED, without any pronouncement as to costs. SO ORDERED.