Special Civil Actions 1

G.R. No. 175064

September 18, 2009

PROVINCE OF CAMARINES SUR, represented by Governor LUIS

RAYMUND F. VILLAFUERTE, Jr., Petitioner,
vs.
HONORABLE COURT OF APPEALS; and CITY OF NAGA, represented by
Mayor JESSE M. ROBREDO, Respondents.
DECISION
CHICO-NAZARIO, J.:
This Petition for Certiorari1 under Rule 65 of the Rules of Court seeks to annul
and set aside the Decision2 dated 28 June 2004 and the Resolution 3 dated 11
August 2006 of the Court of Appeals in CA-G.R. SP No. 56243. The assailed
Decision of the appellate court denied due course the Petition for Review on
Certiorari4 filed by petitioner Province of Camarines Sur (Camarines Sur), while
the assailed Resolution denied the Motion for Reconsideration of the earlier
Decision.
The property subject of the instant case is a parcel of land, known as Plaza
Rizal, situated within the territory of herein respondent City of Naga and with an
aggregate area of 4,244 square meters, more or less. Plaza Rizal is located in
front of the old provincial capitol building, where the Provincial Government of
Camarines Sur used to have its seat, at the time when the then Municipality of
Naga was still the provincial capital.
On 18 June 1948, Republic Act No. 305 5 took effect and, by virtue thereof, the
Municipality of Naga was converted into the City of Naga. Subsequently, on 16
June 1955, Republic Act No. 13366 was approved, transferring the site of the
provincial capitol of Camarines Sur from the City of Naga to the barrio of
Palestina, Municipality of Pili.7 The Municipality of Pili was also named as the
new provincial capital.8
On 13 January 1997, the City of Naga filed a Complaint 9 for Declaratory Relief
and/or Quieting of Title against Camarines Sur before the Regional Trial Court
(RTC) of the City of Naga, Branch 61, which was docketed as Civil Case No. 973691.
The City of Naga alleged that, for a considerable length of time, Camarines Sur
possessed and claimed ownership of Plaza Rizal because of a tax declaration

over the said property in the name of the province. As a result, Camarines Sur
had long exercised administrative control and management of Plaza Rizal, to the
exclusion of the City of Naga. The City of Naga could not introduce
improvements on Plaza Rizal, and its constituents could not use the property
without securing a permit from the proper officials of Camarines Sur. The
situation had created a conflict of interest between the parties herein and had
generated animosities among their respective officials.
The City of Naga stressed that it did not intend to acquire ownership of Plaza
Rizal. Being a property of the public domain, Plaza Rizal could not be claimed
by any subdivision of the state, as it belonged to the public in general. Instead,
the City of Naga sought a declaration that the administrative control and
management of Plaza Rizal should be vested in it, given that the said property is
situated within its territorial jurisdiction. The City of Naga invoked Section 2,
Article I of Republic Act No. 305, the Charter of the City of Naga, which states:
SEC. 2. Territory of the City of Naga. The city of Naga which is hereby
created, shall comprise the present territorial jurisdiction of the municipality of
Naga, in the Province of Camarines Sur.
On 21 February 1997, Camarines Sur filed an Answer with Motion to Dismiss. 10
It argued that it was the legal and absolute owner of Plaza Rizal and, therefore,
had the sole right to maintain, manage, control, and supervise the said property.
Camarines Sur asserted that the City of Naga was without any cause of action
because the Complaint lacked any legal or factual basis. Allegedly, Section 2 of
Republic Act No. 305 merely defined the territorial jurisdiction of the City of Naga
and did not vest any color of right to the latter to manage and control any
property owned by Camarines Sur. Furthermore, the remedy of Declaratory
Relief was inappropriate because there was no justiciable controversy, given
that the City of Naga did not intend to acquire ownership of Plaza Rizal; and
Camarines Sur, being the owner of Plaza Rizal, had the right to the
management, maintenance, control, and supervision thereof. There was likewise
no actual or impending controversy, since Plaza Rizal had been under the
control and supervision of Camarines Sur since time immemorial. The remedy of
Quieting of Title was inappropriate, as the City of Naga had no legal or equitable
title to or interest in Plaza Rizal that needed protection. Lastly, Camarines Sur
stated that Plaza Rizal was not a property of public domain, but a property
owned by Camarines Sur which was devoted to public use.
In an Order11 dated 28 May 1997, the RTC denied the Motion to Dismiss of
Camarines Sur, since the grounds cited therein were legal issues that were
evidentiary in nature and could only be threshed out in a full-blown trial.

Special Civil Actions 2

On 10 March 1999, the RTC rendered a Decision 12 in favor of the City of Naga,
the pertinent portions of which provide:
As understood in the Law of Nations, the right of jurisdiction accorded a
sovereign state consists of first, its personal jurisdiction, which in a sense is its
authority over its nationals who are in a foreign country and second, territorial
jurisdiction, which is its authority over persons and properties within the territorial
boundaries x x x.
"The territorial jurisdiction of a state is based on the right of domain. The domain
of a State includes normally only the expanse of its territory over which it
exercises the full rights of sovereignty." x x x
"Sovereignty, in turn, refers to the supreme power of a State to command and
enforce obedience; it is the power, to which, legally speaking all interest[s] are
practically subject and all wills subordinate." x x x Indeed, from the point of view
of national law, it is in a sense absolute control over a definite territory. x x x.
In summation therefore from the above-quoted citations, when territorial
jurisdiction is being referred to, it means the entire territory over which a State
(or any local government unit) can exercise absolute control.
In the instant case, [Camarines Sur] thru (sic) counsel admitted during the pretrial conference that indeed, the property in question, which is Plaza Rizal, is
within the territorial jurisdiction of the [City of Naga]. Thus, applying the abovequoted principles concerning territorial jurisdiction, [Camarines Sur] is barred by
its express admission from claiming that it is the Province of Camarines Sur who
has the right to administratively control, manage and supervise said Plaza Rizal.
[The contention of Camarines Sur] that [Section 2, Article I] of [Republic Act No.]
305 merely defines [the] territory of the City of Naga has no strong leg to stand
on.
The unequivocal and specific import of said provision provides the extent into
which the City of Naga can exercise its powers and functions over all its
constituents and properties found within its territory. Further, Art. II, Sec. 9, par. b
of [Republic Act No.] 305 provides one of the general powers and duties of the
City Mayor, to wit:

"To safeguard all the lands, buildings, records, moneys, credits and other
property and rights of the city, and subject to the [provisions] of this Charter,
have control of all its property."
Considering that the Province [of Camarines Sur] expressly acknowledged that
[Section 2, Article I] of [Republic Act No.] 305 merely defines the territory of [the
City of Naga], then it is safe to assume that it also accept that the City of Naga
as represented by the City Mayor exercises control of all the properties of the
City, for properties as used in the above-quoted provision refers to lands,
buildings, records, moneys[,] credits and other property and rights of the city. x x
x Since [Section 2, Article I] of [Republic Act No.] 305 defines the territory of [the
City of] Naga and Plaza Rizal is within its territorial jurisdiction, ergo, it is the City
[of Naga] who has the right of administrative control and management of Plaza
Rizal.
The RTC thus decreed:
WHEREFORE, premises considered, [Section 2, Article I] of [Republic Act No.]
305 is hereby interpreted and declared in this Court to mean that the
administrative control and management of Plaza Rizal is within the City of Naga
and not with the Province of Camarines Sur.13
Camarines Sur received a copy of the foregoing Decision on 16 March 1999,
and filed a Motion for Reconsideration 14 of the same on 30 March 1999. The
RTC denied the Motion for Reconsideration of Camarines Sur in an Order 15
dated 1 September 1999. The RTC reiterated that the enactment of Republic Act
No. 305, which converted the Municipality of Naga into an independent city, had
ipso facto ceased the power of administrative control and supervision exercised
by Camarines Sur over the property within the territorial jurisdiction of the
Municipality of Naga and vested into the City of Naga. The administrative control
and supervision exercised by Camarines Sur over Plaza Rizal, since the time of
the creation of the City of Naga and up to the time of the filing of the instant
case, was by mere tolerance on the part of the said city. Furthermore, the claim
of ownership of Plaza Rizal by Camarines Sur was wanting, given that there was
no express legislative action therefor. Public streets, squares, plazas and the
like, are not the private property of either the City of Naga or Camarines Sur.
Camarines Sur received a copy of the RTC Order dated 1 September 1999,
denying its Motion for Reconsideration, on 3 September 1999. On 8 September
1999, Camarines Sur filed with the RTC a Notice of Appeal. 16 In an Order17
dated 13 September 1999, the RTC disapproved the Notice of Appeal for non-

Special Civil Actions 3

compliance with the material data rule, which requires the statement of such
data as will show that the appeal was perfected on time.
On 13 September 1999, Camarines Sur filed a second Notice of Appeal, 18 which
was again disapproved by the RTC in an Order 19 dated 14 September 1999 for
having been filed outside of the reglementary period. The RTC noted that
Camarines Sur received a copy of the RTC Decision dated 10 March 1999 on
16 March 1999. It thus had a period of 15 days therefrom to file a motion for
reconsideration or appeal. Camarines Sur filed its Motion for Reconsideration on
30 March 1999 or on the fourteenth day of the reglementary period. Said Motion
for Reconsideration was denied by the RTC in an Order dated 1 September
1999, which was received by Camarines Sur on 3 September 1999. Thereafter,
Camarines Sur only had two days left to file its Notice of Appeal, but the
province filed said Notice on 8 September 1999, or five days after receipt of the
Order denying its Motion for Reconsideration.201avvphi1
On 18 October 1999, Camarines Sur filed before the Court a Petition for Review
on Certiorari,21 which was docketed as G.R. No. 139838. Camarines Sur
questioned in its Petition the act of the RTC of giving due course to the
Complaint for Declaratory Relief and/or Quieting of Title and the interpretation of
said trial court of Section 2, Article 1 of Republic Act No. 305.
In a Resolution22 dated 17 November 1999, the Court referred the Petition for
Review filed by Camarines Sur to the Court of Appeals for appropriate action,
holding that the latter had jurisdiction concurrent with that of the former over the
case, and no special and important reason was cited for the Court to take
cognizance of the case in the first instance. Before the appellate court, the
Petition for Review of Camarines Sur was docketed as CA-G.R. SP No. 56243.
On 28 June 2004, the Court of Appeals promulgated the assailed Decision
denying the Petition in CA-G.R. SP No. 56243. It pronounced:
We deny the petition.
Where an appeal would have been an adequate remedy but it was lost through
petitioners inexcusable negligence, certiorari is not in order. x x x Certiorari
cannot be resorted to as a substitute for the lost remedy of appeal x x x. It is
notable that Camarines Sur took this recourse of petition for certiorari only after
it twice attempted to avail of appeal, but both of which were DISAPPROVED.
Because it made these attempts to appeal, it goes without saying that
Camarines Sur believed that the errors it claimed were committed by the court a
quo were correctible only by appeal and not by certiorari. Thus, when it

subsequently filed the instant petition, it was availing of it as a disallowed

substitute remedy for a lost appeal. Time and again it has been ruled that [the]
remedies of appeal and certiorari are mutually exclusive and not alternative or
successive x x x.
But disregarding for the nonce the lost appeal and its disallowed substitution by
certiorari, still the petition would fail because of the absence of grave abuse of
discretion. The court a quo had declared that:
The existence of the Municipality of Naga was governed by the provisions of
Chapter 57 of the Old Revised Administrative Code, otherwise known as the
Regular Municipal Law. A law under which the municipalities in regularly
organized provinces like the province of Camarines Sur may be organized. As a
consequence of its creation, the Municipality of Naga acquired title to all the
property, powers, rights and obligations falling within its territorial limits (62
C.J.S. 193). Being a political subdivision created within an organized province,
the administration of the higher political subdivision, the province of Camarines
Sur x x x has stood as trustee of all the properties belonging to the State within
its territorial limits. This is the legal and logical reason why[,] before the
conversion of the municipality of Naga to a City[,] [Camarines Sur] was
exercising control and supervision over Plaza Rizal. x x x
This finds support in one of the provisions of the old Administrative Code of the
Philippine Islands where it was provided that:
SEC. 2168. Beginning of the corporate existence of new municipality. x x x.
When a township or other local territorial division is converted or fused into a
municipality all property rights vested in the original territorial organization shall
become vested in the government of the municipality. x x x.
When Naga was converted from a municipality into a city, all properties under its
territorial jurisdiction including Plaza Rizal was vested upon it. 23 (Emphasis
ours.)
The fallo of the Court of Appeals decision reads:
WHEREFORE, the petition is DENIED DUE COURSE and DISMISSED. 24

Special Civil Actions 4

Camarines Sur sought a reconsideration 25 of the aforequoted Decision, but the

Court of Appeals denied the same in the assailed Resolution dated 11 August
2006.
Camarines Sur, thus, filed the instant Petition, raising the sole issue of:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT TREATED THE [PETITION FOR REVIEW UNDER
RULE 45 FILED BY CAMARINES SUR] AS ONE FOR CERTIORARI UNDER
RULE 65 THEREBY DENYING DUE COURSE AND DISMISSING THE
PETITION AND EVEN THE MOTION FOR RECONSIDERATION ON THE
GROUND THAT THE PETITION WAS AVAILED OF AS A SUBSTITUTE FOR
THE LOST APPEAL AND FOR ABSENCE OF GRAVE ABUSE OF
DISCRETION.
Camarines Sur argues that the Court of Appeals went beyond its authority and
gravely abused its discretion when it treated and resolved the Petition for
Review on Certiorari under Rule 45 of the Rules of Court as a Petition for
Certiorari under Rule 65, which must allege grave abuse of discretion on the
part of the RTC, and which cannot be made a substitute for a lost appeal.
Camarines Sur insists that what it filed was a Petition under Rule 45, which
raised all reversible errors committed by the RTC and presented all questions of
laws.
Moreover, as the Court of Appeals upheld the Decision dated 16 March 1999 of
the RTC based on a wrong premise and application of legal principles,
Camarines Sur pleads for this Court to decide on the questions of law raised in
the dismissed Petition.
First, Camarines Sur avers that the filing of the Complaint for Declaratory Relief
and/or Quieting of Title was improper as it was hinged on a pretended
controversy. Essentially, the complaint of the City of Naga did not show "an
active antagonistic assertion of a legal right, on one side, and a denial thereof,
on the other." Such action sought merely to create an unwarranted inference not
of a clear right, but of a theoretical implication that a property, even if not legally
owned or possessed by a city, could be administratively controlled and managed
by it on the sheer expediency of being located within its territorial jurisdiction.
Thus, there was no actual controversy between Camarines Sur and the City of
Naga, considering that Camarines Sur had always managed and
administratively controlled the same, the projects installed thereon and the
programs and activities held therein, without any question from the previous

Mayors of the City of Naga or from any national official, department, bureau or
agency.
Second, Camarines Sur contends that since Plaza Rizal is admittedly located
within the territorial jurisdiction of the City of Naga, the question of law is
whether the management and administrative control of said land should be
vested in the City of Naga, simply because of Article 1, Section 2 of the Charter
of the City of Naga. Naga never possessed administrative control and
management of Plaza Rizal when it was still a municipality, and it cannot be
deemed to have been vested with the same, just because it was converted into
the City of Naga especially when the City admits it does not intend to acquire
ownership of Plaza Rizal.
Petition for Review v. Petition for Certiorari
At the outset, the Court holds that the Court of Appeals indeed committed grave
abuse of discretion amounting to lack or excess of jurisdiction in erroneously
and inexplicably resolving the Petition, which was initially filed by Camarines Sur
before the Court, but later referred to the appellate court, as if the same were a
Petition for Certiorari under Rule 65 of the Rules of Court. This mistake is
evident in the preliminary statement of the case, as found in the first paragraph
of the Decision dated 28 June 2004, where the Court of Appeals stated that:
The petitioner Province of Camarines Sur (or Camarines Sur for brevity),
represented by Gov. Luis Villafuerte, asks through this Petition for Certiorari that
the Decision of Branch 61 of the Regional Trial Court stationed at Naga City x x
x be reversed and set aside x x x. 26 (Emphasis ours.)
For a Petition for Certiorari under Rule 65 of the Rules of Court to prosper, the
following requisites must be present: (1) the writ is directed against a tribunal, a
board or an officer exercising judicial or quasi-judicial functions; (2) such
tribunal, board or officer has acted without or in excess of jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction; and (3)
there is no appeal or any plain, speedy and adequate remedy in the ordinary
course of law.27
There is grave abuse of discretion "when there is a capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, such as where the
power is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and it must be so patent and gross so as to amount to an
evasion of positive duty or to a virtual refusal to perform the duty enjoined or to
act at all in contemplation of law."28

Special Civil Actions 5

On the other hand, Rule 45 of the Rules of Court pertains to a Petition for
Review on Certiorari, whereby "a party desiring to appeal by certiorari from a
judgment, final order or resolution of the x x x the Regional Trial Court x x x, may
file with the Supreme Court a verified petition for review on certiorari. The
petition may include an application for a writ of preliminary injunction or other
provisional remedies and shall raise only questions of law, which must be
distinctly set forth."29

The requisites of an action for declaratory relief are: (1) there must be a
justiciable controversy between persons whose interests are adverse; (2) the
party seeking the relief has a legal interest in the controversy; and (3) the issue
is ripe for judicial determination.33

A perusal of the petition referred to the Court of Appeals lays bare the fact that
the same was undoubtedly a Petition for Review on Certiorari under Rule 45 of
the Rules of Court. Not only does the title of the Petition indicate it as such, but a
close reading of the issues and allegations set forth therein also discloses that it
involved pure questions of law. A question of law arises when there is doubt as
to what the law is on a certain state of facts. For a question to be one of law, the
same must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances. 30 The Court
of Appeals, thus, could not fault Camarines Sur for failing to allege, much less
prove, grave abuse of discretion amounting to lack or excess of jurisdiction on
the part of the RTC when such is not required for a Petition for Review on
Certiorari.

In the instant case, the controversy concerns the construction of the provisions
of Republic Act No. 305 or the Charter of the City of Naga. Specifically, the City
of Naga seeks an interpretation of Section 2, Article I of its Charter, as well as a
declaration of the rights of the parties to this case thereunder.

Likewise, the doctrine that certiorari cannot be resorted to as a substitute for the
lost remedy of appeal applies only when a party actually files a Petition for
Certiorari under Rule 65 in lieu of a Petition for Review under Rule 45, since the
latter remedy was already lost through the fault of the petitioning party. In the
instant case, Camarines Sur actually filed a Petition for Review under Rule 45;
the Court of Appeals only mistook the same for a Petition for Certiorari under
Rule 65.
Be that as it may, the Court still finds that the questions of law invoked by
Camarines Sur must be resolved against it.
Declaratory Relief
Declaratory relief is defined as an action by any person interested in a deed, will,
contract or other written instrument, executive order or resolution, to determine
any question of construction or validity arising from the instrument, executive
order or regulation, or statute; and for a declaration of his rights and duties
thereunder.31 The only issue that may be raised in such a petition is the question
of construction or validity of provisions in an instrument or statute. 32

The Court rules that the City of Naga properly resorted to the filing of an action
for declaratory relief.

To recall, Section 2, Article I of Republic Act No. 305 defines the territory of the
City of Naga, providing that the City shall comprise the present territorial
jurisdiction of the Municipality of Naga. By virtue of this provision, the City of
Naga prays that it be granted the right to administratively control and supervise
Plaza Rizal, which is undisputedly within the territorial jurisdiction of the City.
Clearly, the interests of the City of Naga and Camarines Sur in this case are
adverse. The assertion by the City of Naga of a superior right to the
administrative control and management of Plaza Rizal, because said property of
the public domain is within its territorial jurisdiction, is clearly antagonistic to and
inconsistent with the insistence of Camarines Sur. The latter asserted in its
Complaint for Declaratory Relief and/or Quieting of Title that it should maintain
administrative control and management of Plaza Rizal having continuously
possessed the same under a claim of ownership, even after the conversion of
the Municipality of Naga into an independent component city. The City of Naga
further asserted that as a result of the possession by Camarines Sur, the City of
Naga could not introduce improvements on Plaza Rizal; its constituents were
denied adequate use of said property, since Camarines Sur required that the
latters permission must first be sought for the use of the same; and it was still
Camarines Sur that was able to continuously use Plaza Rizal for its own
programs and projects. The City of Naga undoubtedly has a legal interest in the
controversy, given that Plaza Rizal is undisputedly within its territorial
jurisdiction. Lastly, the issue is ripe for judicial determination in that, in view of
the conflicting interests of the parties to this case, litigation is inevitable, and
there is no adequate relief available in any other form or proceeding. 34
Administrative control and supervision of Plaza Rizal

Special Civil Actions 6

Republic Act No. 305 took effect on 18 June 1948. At that time, the Spanish Civil
Code of 1889 was still in effect in the Philippines. Properties of local government
units under the Spanish Civil Code were limited to properties of public use and
patrimonial property.35 Article 344 of the Spanish Civil Code provides:
Art. 344. Property of public use, in provinces and in towns, comprises the
provincial and town roads, the squares, streets, fountains, and public waters, the
promenades, and public works of general service paid for by such towns or
provinces.
All other property possessed by either is patrimonial and shall be governed by
the provisions of this code, unless otherwise provided by special laws.
Under the 1950 Civil Code, the properties of local government units are set forth
in Article 424 thereof, which reads:
Art. 424. Property for public use, in the provinces, cities, and municipalities,
consist of the provincial roads, city streets, municipal streets, the squares,
fountains, public waters, promenades, and public works for public service paid
for by said provinces, cities, or municipalities.
All other property possessed by any of them is patrimonial and shall be
governed by this Code, without prejudice to the provisions of special laws.
Manifestly, the definition of what constitutes the properties for public use and
patrimonial properties of local government units has practically remained
unchanged.
As regards properties for public use, the principle is the same: property for
public use can be used by everybody, even by strangers or aliens, in
accordance with its nature; but nobody can exercise over it the rights of a private
owner.36
It is, therefore, vital to the resolution of this case that the exact nature of Plaza
Rizal be ascertained. In this regard, the description thereof by Camarines Sur is
enlightening, viz:
The land subject of the Action filed by the City of Naga against the Province of
Camarines Sur was a garden that served as the front lawn of the old capitol site
in Naga. A monument in honor of our national hero was built by the Provincial
Government of Camarines Sur sometime in 1911 on a portion of subject land.

Within the same land, a structure as a memorial for Ninoy Aquino was also
constructed by the Provincial Government of Camarines Sur; and nearby, a
stage in honor of President Manuel Quezon was also built. In the post-martial
[law] period there was inscribed in the wall of the said garden the following
words: "Freedom Park of Camarines Sur."
A historical marker was erected in the said place which attests to the long
standing ownership, possession and management by the Province of Camarines
Sur of said place.
All the improvements in said place, such as the construction of monuments and
memorial structures, the concreting of its flooring and the walkways, planting of
trees and ornamental plants, the construction of the skating or skateboard ring,
a public TV facility, an internet caf, a gazebo where people from all walks of life
discuss religion, political, social and economic issues, a portable stage where
cultural shows are held, a giant chessboard on the tiled ground with large pieces
for playing, where portable booths are installed for the trade fairs during fiesta or
Christmas season, where year-round lights are wrapped around the trees, all of
which have been constructed, operated and maintained by the Province of
Camarines Sur (not by Naga City) where millions of pesos had been spent for
construction and millions of pesos are budgeted annually for maintenance,
operating expenses and personnel services by the Province of Camarines Sur.37
Unmistakable from the above description is that, at present, Plaza Rizal
partakes of the nature of a public park or promenade. As such, Plaza Rizal is
classified as a property for public use.
In Municipality of San Carlos, Pangasinan v. Morfe, 38 the Court recognized that a
public plaza is a public land belonging to, and, subject to the administration and
control of, the Republic of the Philippines. Absent an express grant by the
Spanish Government or that of the Philippines, the local government unit where
the plaza was situated, which in that case was the Municipality of San Carlos,
had no right to claim it as its patrimonial property. The Court further held that
whatever right of administration the Municipality of San Carlos may have
exercised over said plaza was not proprietary, but governmental in nature. The
same did not exclude the national government. On the contrary, it was
possessed on behalf and in representation thereof, the municipal government of
San Carlos being -- in the performance of its political functions -- a mere agency
of the Republic, acting for its benefit.
Applying the above pronouncements to the instant case, Camarines Sur had the
right to administer and possess Plaza Rizal prior to the conversion of the then

Special Civil Actions 7

Municipality of Naga into the independent City of Naga, as the plaza was then
part of the territorial jurisdiction of the said province. Said right of administration
by Camarines Sur was governmental in nature, and its possession was on
behalf of and in representation of the Republic of the Philippines, in the
performance of its political functions.
Thereafter, by virtue of the enactment of Republic Act No. 305 and as specified
in Section 2, Article I thereof, the City of Naga was created out of the territory of
the old Municipality of Naga. Plaza Rizal, which was located in the said
municipality, thereby ceased to be part of the territorial jurisdiction of Camarines
Sur and was, instead transferred to the territorial jurisdiction of the City of Naga.
Theretofore, the local government unit that is the proper agent of the Republic of
the Philippines that should administer and possess Plaza Rizal is the City of
Naga.
Camarines Sur cannot claim that Plaza Rizal is part of its patrimonial property.
The basis for the claim of ownership of Camarines Sur, i.e., the tax declaration 39
covering Plaza Rizal in the name of the province, hardly convinces this Court.
Well-settled is the rule that a tax declaration is not conclusive evidence of
ownership or of the right to possess land, when not supported by any other
evidence. The same is merely an indicia of a claim of ownership.40 In the same
manner, the Certification41 dated 14 June 1996 issued by the Department of
Environment and Natural ResourcesCommunity Environment and Natural
Resources Office (DENR-CENRO) in favor of Camarines Sur, merely stating
that the parcel of land described therein, purportedly Plaza Rizal, was being
claimed solely by Camarines Sur, hardly constitutes categorical proof of the
alleged ownership of the said property by the province.
Thus, being a property for public use within the territorial jurisdiction of the City
of Naga, Plaza Rizal should be under the administrative control and supervision
of the said city.
WHEREFORE, premises considered, the Petition for Certiorari under Rule 65 of
the Rules of Court is hereby DISMISSED. The administrative control and
supervision of Plaza Rizal is hereby vested in the City of Naga. Costs against
petitioner.
SO ORDERED.
G.R. No. L-58340

July 16, 1991

KAWASAKI PORT SERVICE CORPORATION, NAIKAI SHIPPING CO. LTD.,

NAIKAI TUG BOAT SERVICE CO., THE PORT SERVICE CORPORATION,
LICENSED LAND SEA PILOTS ASSOCIATION, HAYAKOMA UNYU K.K.,
TOKYO KISEN COMPANY, LTD., OMORI KAISOTEN, LTD., TOHOKU UNYU
CO., LTD. AND SEITETSU UNYU CO., LTD., petitioners,
vs.
THE HON. AUGUSTO M. AMORES, Judge of Br. XXIV, Court of First
Instance of Manila, and C.F. SHARP & CO., INC., respondents.
Quasha, Asperilla, Ancheta, Pea & Nolasco for petitioners.
Chuidian Law Office for private respondent.
BIDIN, J.:p
This is a petition for certiorari seeking to set aside the orders of the then Court of
First Instance of Manila, * Branch XXIV in Civil Case No. 132077: (a) dated July
13, 1981 denying the special appearances of petitioners as defendants in said
case to question the court's jurisdiction over the persons of the defendants and
(b) dated September 22, 1981, denying the motion for reconsideration of said
order.
The antecedents of this case are as follows:
On May 7, 1980, the private respondent C.F. Sharp & Co., Inc. filed a complaint
for injunction and/or declaratory relief in the then Court of First Instance of
Manila against seventy-nine (79) Japanese corporations as defendants, among
which are the petitioners herein. Said complaint was docketed as Civil Case No.
132077. The complaint alleges, among others, that the plaintiff is a corporation
organized and existing under the laws of the Philippines; that there is another
corporation organized under the law of Japan with the corporate name C.F.
Sharp Kabushiki Kaisha; that the plaintiff and C.F. Sharp Kabushiki Kaisha are in
all respects separate and distinct from each other; that C.F. Sharp Kabushiki
Kaisha appears to have incurred obligations to several creditors amongst which
are defendants, also foreign corporations organized and existing under the laws
of Japan; that due to financial difficulties, C.F. Sharp Kabushiki Kaisha failed
and/or refused to pay its creditors; and that in view of the failure and/or refusal of
said C.F. Sharp Kabushiki Kaisha to pay its alleged obligations to defendants,
the latter have been demanding or have been attempting to demand from C.F.
Sharp & Co., Inc., the payment of the alleged obligations to them of C.F. Sharp
Kabushiki Kaisha, notwithstanding that C.F. Sharp & Co., Inc. is a corporation
separate and distinct from that of C.F. Sharp Kabushiki Kaisha and that the

Special Civil Actions 8

former had no participation whatsoever or liability in connection with the

transactions between the latter and the defendants.
As alleged in the complaint, the private respondent prayed for injunctive relief
against the petitioners' demand from the private respondent for the payment of
C.F. Sharp Kabushiki Kaisha's liabilities to the petitioners.
As an alternative to injunction, the private respondent prayed that a judicial
declaration be made that, as a separate and independent corporation, it is not
liable for the obligations and liabilities of C.F. Sharp Kabushiki Kaisha.
Since the defendants are non-residents, without business addresses in the
Philippines but in Japan, the private respondent prayed for leave of court to
effect extraterritorial service of summons.
On June 11, 1980, the respondent judge issued an order authorizing the private
respondent to effect extraterritorial service of summons on defendants therein.
Subsequently, private respondent filed an urgent ex-parte motion dated June 23,
1980 for Extraterritorial Service of Summons Upon Defendants by registered
mail with return cards pursuant to Section 17 of Rule 14 of the Rules of Court.
Acting on said motion, the respondent judge issued an order dated June 30,
1980 granting the motion and authorizing extraterritorial service of summons
upon defendants to be effected by registered mail with return cards.
On March 11, 1981, five of the petitioners, Kawasaki Port Service Corporation,
Naikai Shipping Co., Ltd., Naikai Tug Boat Service Co., Ltd., The Port Service
Corporation and Licensed Land Sea Pilots Association filed their "Special
Appearance to Question Jurisdiction of This Honorable Court Over Persons of
Defendants" contending that the lower court does not and cannot acquire
jurisdiction over the persons of defendants on the grounds that private
respondent's action does not refer to its personal status; that the action does not
have for subject matter property contemplated in Section 17 of Rule 14 of the
Rules of Court, that the action does not pray that defendants be excluded from
any interest or property in the Philippines; that no property of the defendants has
been attached; that the action is in personam; and that the action does not fall
within any of the four cases mentioned in Section 17, Rule 14 of the Rules of
Court.

On March 17, 1981, another three of herein petitioners, Hayakoma Unyu K.K.,
Tokyo Kisen Company, Ltd. and Omori Kaisoten, Ltd. also filed their special
appearance adopting the same arguments as that of the first five.
On April 28, 1981, the two other petitioners, Tohoku Unyu Co., Ltd. and Seitetsu
Unyu Co., Ltd., filed their "Special Appearance to Question the Jurisdiction of the
Honorable Court" over their persons adopting in toto as theirs the "Special
Appearance" dated March 11, 1981 of Kawasaki Port Service.
On July 13, 1981, the respondent Court issued its order denying said special
appearances. The motion for reconsideration of said order filed by the
petitioners was also denied on September 22, 1981.
Hence, the present petition.
After the required pleadings were filed, the First Division of this Court, in the
resolution of April 14, 1982, gave due course to the petition and required both
parties to submit simultaneous memoranda within thirty (30) days from notice.
Both parties complied by submitting the required memoranda.
The main issue in this case is whether or not private respondent's complaint for
injunction and/or declaratory relief is within the purview of the provisions of
Section 17, Rule 14 of the Rules of Court.
The petitioners contend that the respondent judge acted contrary to the
provisions of Section 17 of Rule 14 for the following reasons: (1) private
respondent's prayer for injunction, as a consequence of its alleged non-liability
to the petitioners for debts of C.F. Sharp Kabushiki Kaisha of Japan,
conclusively establishes that private respondent's cause of action does not
affect its status; (2) the respondent court cannot take jurisdiction of actions
against the petitioners as they are non-residents and own no property within the
state; (3) the petitioners have not as yet claimed a lien or interest in the property
within the Philippines at the time the action was filed which is a requirement
under Section 17 of Rule 14; (4) extra-territorial service on a non-resident
defendant is authorized, among others, when the subject of the action is
property within the Philippines in which the relief demanded consists in
excluding defendant from any interest therein; and (5) inasmuch as the reliefs
prayed for by the private respondent in the complaint are in personam, service
by registered mail cannot be availed of because Section 17 of Rule 14
authorized this mode of service only in actions in rem or quasi in rem.

Special Civil Actions 9

For its part, the private respondent countered that (1) the action refers to its
status because the basic issue presented to the lower court for determination is
its status as a corporation which has a personality that is separate, distinct and
independent from the personality of another corporation, i.e., C.F. Sharp
Kabushiki Kaisha of Japan; (2) under Section 17 of Rule 14, the subject matter
or property involved in the action does not have to belong to the defendants.
The provisions of said section contemplate of a situation where the property
belongs to the plaintiff but the defendant has a claim over said property, whether
that claim be actual or contingent; (3) the prayer of the plaintiff that the
defendants be excluded from any interest in the properties of the plaintiff within
the Philippines has the effect of excluding the defendants from the properties of
the plaintiff in the Philippines for the purpose of answering for the debts of C.F.
Sharp Kabushiki Kaisha of Japan to the defendants in accordance with Section
17 of Rule 14; and (4) the action before the lower court is an action quasi in rem
as the remedies raised in the complaint affect the personal status of the plaintiff
as a separate, distinct and independent corporation and relates to the properties
of the plaintiff in the Philippines over which the petitioners have or claim an
interest, actual or contingent.

This Court had ruled that extraterritorial service of summons is proper only in
four (4) instances, namely: "(1) when the action affects the personal status of the
plaintiffs: (2) when the action relates to, or the subject of which is, property
within the Philippines, in which the defendant has or claims a lien or interest,
actual or contingent; (3) when the relief demanded in such action consists,
wholly or in part, in excluding the defendant from any interest in property located
in the Philippines; and (4) when the defendant non-resident's property has been
attached within the Philippines." (De Midgely v. Ferandos, 64 SCRA 23 [1975];
The Dial Corporation v. Soriano, 161 SCRA 737 [1988]).

The petition is impressed with merit.

It is easy to see in the instant case, that what is sought is a declaration not only
that private respondent is a corporation for there is no dispute on that matter but
also that it is separate and distinct from C.F. Sharp Kabushiki Kaisha and
therefore, not liable for the latter's indebtedness. It is evident that monetary
obligations does not, in any way, refer to status, lights and obligations.
Obligations are more or less temporary, but status is relatively permanent. But
more importantly, as cited in the case of (Dy Poco v. Commissioner of
Immigration, et al., 16 SCRA 618 [1966]), the prevailing rule is that "where a
declaratory judgment as to a disputed fact would be determinative of issues
rather than a construction of definite stated rights, status and other relations,
commonly expressed in written instrument, the case is not one for declaratory
judgment." Thus, considering the nature of a proceeding for declaratory
judgment, wherein relief may be sought only to declare rights and not to
determine or try issues, there is more valid reason to adhere to the principle that
a declaratory relief proceeding is unavailable where judgment would have to be
made, only after a judicial investigation of disputed issues (ibid). In fact, private
respondent itself perceives that petitioners may even seek to pierce the veil of
corporate identity (Rollo, p. 63).

Section 17, Rule 14 of the Rules of Court provides:

Section 17. Extraterritorial service. When the defendant does
not reside and is not found in the Philippines and the action
affects the personal status of the plaintiff or relates to, or the
subject of which is, property within the Philippines, in which the
defendant has or claims a lien or interest, actual or contingent,
or in which the relief demanded consists, wholly or in part, in
excluding the defendant from any interest therein, or the
property of the defendant has been attached within the
Philippines, service may, by leave of court, be effected out of
the Philippines by personal service as under section 7; or by
publication in a newspaper of general circulation in such places
and for such times as the court may order, in which case a copy
of the summons and order of the court shall be sent by
registered mail to the last known address of the defendant, or in
any other manner the court may deem sufficient. Any order
granting such leave shall specify a reasonable time, which shall
not be less than sixty (60) days after notice, within which the
defendant must answer.

In the case at bar, private respondent has two (2) alternative principal causes of
action, to wit: either for declaratory relief or for injunction. Allegedly, in both
cases, the status of the plaintiff is not only affected but is the main issue at hand.
As defined, "Status means a legal personal relationship, not temporary in nature
nor terminable at the mere will of the parties, with which third persons and the
state are concerned" (Holzer v. Deutsche Reichsbahn Gesellschaft, 290 NYS
181; cited in 40 Words and Phrases, 129, Permanent Edition).

Private respondent alleges that most if not all, of the petitioners have merely
demanded or have attempted to demand from the former the payment of the
obligations of C.F. Sharp K.K., (Rollo, p. 63). Otherwise stated, there is no action
relating to or the subject of which are the properties of the defendants in the

Special Civil Actions 10

Philippines for it is beyond dispute that they have none in this jurisdiction nor
can it be said that they have claimed any lien or interest, actual or contingent
over any property herein, for as above stated, they merely demanded or
attempted to demand from private respondent payment of the monetary
obligations of C.F. Sharp K.K., No action in court has as yet ensued. Verily, the
fact that C.F. Sharp Philippines is an entity separate and distinct from C.F. Sharp
K.K., is a matter of defense that can be raised by the former at the proper time.
Finally, the alternative relief sought is injunction, that is to enjoin petitioners from
demanding from private respondent the payment of the obligations of C.F. Sharp
K.K., It was not prayed that petitioners be excluded from any property located in
the Philippines, nor was it alleged, much less shown, that the properties of the
defendants, if any, have been attached.
Hence, as ruled by this Court, where the complaint does not involve the
personal status of plaintiff, nor any property in the Philippines in which
defendants have or claim an interest, or which the plaintiff has attached, but
purely an action for injunction, it is a personal action as well as an action in
personam, not an action in rem or quasi in rem. As a personal action, personal
or substituted service of summons on the defendants, not extraterritorial service,
is necessary to confer jurisdiction on the court. In an action for injunction, extraterritorial service of summons and complaint upon the non-resident defendants
cannot subject them to the processes of the regional trial courts which are
powerless to reach them outside the region over which they exercise their
authority. Extra-territorial service of summons will not confer on the court
jurisdiction or Power to compel them to obey its orders (Dial Corporation v.
Soriano, 161 SCRA 738 [1988] citing Section 3-a Interim Rules of Court, Section
21, subpar. 1, BP Blg. 129).
Considering that extra-territorial service of summons on the petitioners was
improper, the same was null and void.
WHEREFORE, the petition is Granted and the questioned orders dated July 13,
1981 and September 22, 1981 of the respondent Judge, are Reversed and Set
Aside.
SO ORDERED.
Gutierrez, Jr., Feliciano and Davide, Jr., JJ., concur.
Fernan, C.J.,, took no part.

G.R. No. 150806

January 28, 2008

EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners,

vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.
DECISION
NACHURA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, of
the Decision1 of the Court of Appeals (CA), dated September 3, 2001, in CAG.R. CV No. 67784, and its Resolution 2 dated November 19, 2001. The assailed
Decision affirmed with modification the Decision 3 of the Regional Trial Court
(RTC), Makati City, Branch 136, dated May 9, 2000 in Civil Case No. 98-411.
Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as
lessee, represented by its president Ramon H. Garcia, renewed its Contract of
Lease4 with Ponciano L. Almeda (Ponciano), as lessor, husband of petitioner
Eufemia and father of petitioner Romel Almeda. Under the said contract,
Ponciano agreed to lease a portion of the Almeda Compound, located at 2208
Pasong Tamo Street, Makati City, consisting of 7,348.25 square meters, for a
monthly rental of P1,107,348.69, for a term of four (4) years from May 1, 1997
unless sooner terminated as provided in the contract. 5 The contract of lease
contained the following pertinent provisions which gave rise to the instant case:

Special Civil Actions 11

SIXTH - It is expressly understood by the parties hereto that the rental

rate stipulated is based on the present rate of assessment on the
property, and that in case the assessment should hereafter be increased
or any new tax, charge or burden be imposed by authorities on the lot
and building where the leased premises are located, LESSEE shall pay,
when the rental herein provided becomes due, the additional rental or
charge corresponding to the portion hereby leased; provided, however,
that in the event that the present assessment or tax on said property
should be reduced, LESSEE shall be entitled to reduction in the
stipulated rental, likewise in proportion to the portion leased by him;
SEVENTH - In case an extraordinary inflation or devaluation of
Philippine Currency should supervene, the value of Philippine peso at
the time of the establishment of the obligation shall be the basis of
payment;6

petitioners filed a Notice of Dismissal.12 They subsequently refiled the complaint

before the Metropolitan Trial Court of Makati; the case was raffled to Branch 139
and was docketed as Civil Case No. 53596.
Petitioners later moved for the dismissal of the declaratory relief case for being
an improper remedy considering that respondent was already in breach of the
obligation and that the case would not end the litigation and settle the rights of
the parties. The trial court, however, was not persuaded, and consequently,
denied the motion.
After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent
and against petitioners. The pertinent portion of the decision reads:
WHEREFORE, premises considered, this Court renders judgment on
the case as follows:

During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt
with petitioners. In a letter7 dated December 29, 1997, petitioners advised
respondent that the former shall assess and collect Value Added Tax (VAT) on
its monthly rentals. In response, respondent contended that VAT may not be
imposed as the rentals fixed in the contract of lease were supposed to include
the VAT therein, considering that their contract was executed on May 1, 1997
when the VAT law had long been in effect.8

1) declaring that plaintiff is not liable for the payment of Value-Added Tax
(VAT) of 10% of the rent for [the] use of the leased premises;

On January 26, 1998, respondent received another letter from petitioners

informing the former that its monthly rental should be increased by 73%
pursuant to condition No. 7 of the contract and Article 1250 of the Civil Code.
Respondent opposed petitioners' demand and insisted that there was no
extraordinary inflation to warrant the application of Article 1250 in light of the
pronouncement of this Court in various cases.9

3) holding defendants liable to plaintiff for the total amount of

P1,119,102.19, said amount representing payments erroneously made
by plaintiff as VAT charges and rental adjustment for the months of
January, February and March, 1999; and

Respondent refused to pay the VAT and adjusted rentals as demanded by

petitioners but continued to pay the stipulated amount set forth in their contract.
On February 18, 1998, respondent instituted an action for declaratory relief for
purposes of determining the correct interpretation of condition Nos. 6 and 7 of
the lease contract to prevent damage and prejudice. 10 The case was docketed
as Civil Case No. 98-411 before the RTC of Makati.
On March 10, 1998, petitioners in turn filed an action for ejectment, rescission
and damages against respondent for failure of the latter to vacate the premises
after the demand made by the former.11 Before respondent could file an answer,

2) declaring that plaintiff is not liable for the payment of any rental
adjustment, there being no [extraordinary] inflation or devaluation, as
provided in the Seventh Condition of the lease contract, to justify the
same;

4) holding defendants liable to plaintiff for the amount of P1,107,348.69,

said amount representing the balance of plaintiff's rental deposit still with
defendants.
SO ORDERED.13
The trial court denied petitioners their right to pass on to respondent the burden
of paying the VAT since it was not a new tax that would call for the application of
the sixth clause of the contract. The court, likewise, denied their right to collect
the demanded increase in rental, there being no extraordinary inflation or
devaluation as provided for in the seventh clause of the contract. Because of the
payment made by respondent of the rental adjustment demanded by petitioners,

Special Civil Actions 12

the court ordered the restitution by the latter to the former of the amounts paid,
notwithstanding the well-established rule that in an action for declaratory relief,
other than a declaration of rights and obligations, affirmative reliefs are not
sought by or awarded to the parties.

WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE

CASE OF DEL ROSARIO VS. THE SHELL COMPANY OF THE
PHILIPPINES, 164 SCRA 562, THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED ON A QUESTION OF LAW.

Petitioners elevated the aforesaid case to the Court of Appeals which affirmed
with modification the RTC decision. The fallo reads:

IV.

WHEREFORE, premises considered, the present appeal is DISMISSED

and the appealed decision in Civil Case No. 98-411 is hereby
AFFIRMED with MODIFICATION in that the order for the return of the
balance of the rental deposits and of the amounts representing the 10%
VAT and rental adjustment, is hereby DELETED.
No pronouncement as to costs.

WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF

APPEALS THAT RESPONDENT IS NOT LIABLE TO PAY THE 10%
VALUE ADDED TAX IS IN ACCORDANCE WITH THE MANDATE OF
RA 7716.
V.
WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE
PLAINTIFF-APPELLEE WAS IN BREACH WHEN THE PETITION FOR
DECLARATORY RELIEF WAS FILED BEFORE THE TRIAL COURT.

SO ORDERED.14
The appellate court agreed with the conclusions of law and the application of the
decisional rules on the matter made by the RTC. However, it found that the trial
court exceeded its jurisdiction in granting affirmative relief to the respondent,
particularly the restitution of its excess payment.

In fine, the issues for our resolution are as follows: 1) whether the action for
declaratory relief is proper; 2) whether respondent is liable to pay 10% VAT
pursuant to Republic Act (RA) 7716; and 3) whether the amount of rentals due
the petitioners should be adjusted by reason of extraordinary inflation or
devaluation.

Petitioners now come before this Court raising the following issues:
I.
WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS
APPLICABLE TO THE CASE AT BAR.
II.
WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE
AND FOUNDRY CORP. VS. NAWASA CASE, 161 SCRA 32 AND
COMPANION CASES ARE (sic) APPLICABLE IN THE CASE AT BAR.
III.

Declaratory relief is defined as an action by any person interested in a deed, will,

contract or other written instrument, executive order or resolution, to determine
any question of construction or validity arising from the instrument, executive
order or regulation, or statute, and for a declaration of his rights and duties
thereunder. The only issue that may be raised in such a petition is the question
of construction or validity of provisions in an instrument or statute. Corollary is
the general rule that such an action must be justified, as no other adequate relief
or remedy is available under the circumstances. 15
Decisional law enumerates the requisites of an action for declaratory relief, as
follows: 1) the subject matter of the controversy must be a deed, will, contract or
other written instrument, statute, executive order or regulation, or ordinance; 2)
the terms of said documents and the validity thereof are doubtful and require
judicial construction; 3) there must have been no breach of the documents in
question; 4) there must be an actual justiciable controversy or the "ripening
seeds" of one between persons whose interests are adverse; 5) the issue must
be ripe for judicial determination; and 6) adequate relief is not available through
other means or other forms of action or proceeding. 16

Special Civil Actions 13

It is beyond cavil that the foregoing requisites are present in the instant case,
except that petitioners insist that respondent was already in breach of the
contract when the petition was filed.
We do not agree.
After petitioners demanded payment of adjusted rentals and in the months that
followed, respondent complied with the terms and conditions set forth in their
contract of lease by paying the rentals stipulated therein. Respondent religiously
fulfilled its obligations to petitioners even during the pendency of the present
suit. There is no showing that respondent committed an act constituting a
breach of the subject contract of lease. Thus, respondent is not barred from
instituting before the trial court the petition for declaratory relief.
Petitioners claim that the instant petition is not proper because a separate action
for rescission, ejectment and damages had been commenced before another
court; thus, the construction of the subject contractual provisions should be
ventilated in the same forum.
We are not convinced.
It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation 17 we held
that the petition for declaratory relief should be dismissed in view of the
pendency of a separate action for unlawful detainer. However, we cannot apply
the same ruling to the instant case. In Panganiban, the unlawful detainer case
had already been resolved by the trial court before the dismissal of the
declaratory relief case; and it was petitioner in that case who insisted that the
action for declaratory relief be preferred over the action for unlawful detainer.
Conversely, in the case at bench, the trial court had not yet resolved the
rescission/ejectment case during the pendency of the declaratory relief petition.
In fact, the trial court, where the rescission case was on appeal, itself initiated
the suspension of the proceedings pending the resolution of the action for
declaratory relief.
We are not unmindful of the doctrine enunciated in Teodoro, Jr. v. Mirasol18
where the declaratory relief action was dismissed because the issue therein
could be threshed out in the unlawful detainer suit. Yet, again, in that case, there
was already a breach of contract at the time of the filing of the declaratory relief
petition. This dissimilar factual milieu proscribes the Court from applying
Teodoro to the instant case.

Given all these attendant circumstances, the Court is disposed to entertain the
instant declaratory relief action instead of dismissing it, notwithstanding the
pendency of the ejectment/rescission case before the trial court. The resolution
of the present petition would write finis to the parties' dispute, as it would settle
once and for all the question of the proper interpretation of the two contractual
stipulations subject of this controversy.
Now, on the substantive law issues.
Petitioners repeatedly made a demand on respondent for the payment of VAT
and for rental adjustment allegedly brought about by extraordinary inflation or
devaluation. Both the trial court and the appellate court found no merit in
petitioners' claim. We see no reason to depart from such findings.
As to the liability of respondent for the payment of VAT, we cite with approval the
ratiocination of the appellate court, viz.:
Clearly, the person primarily liable for the payment of VAT is the lessor
who may choose to pass it on to the lessee or absorb the same.
Beginning January 1, 1996, the lease of real property in the ordinary
course of business, whether for commercial or residential use, when the
gross annual receipts exceed P500,000.00, is subject to 10% VAT.
Notwithstanding the mandatory payment of the 10% VAT by the lessor,
the actual shifting of the said tax burden upon the lessee is clearly
optional on the part of the lessor, under the terms of the statute. The
word "may" in the statute, generally speaking, denotes that it is directory
in nature. It is generally permissive only and operates to confer
discretion. In this case, despite the applicability of the rule under Sec. 99
of the NIRC, as amended by R.A. 7716, granting the lessor the option to
pass on to the lessee the 10% VAT, to existing contracts of lease as of
January 1, 1996, the original lessor, Ponciano L. Almeda did not charge
the lessee-appellee the 10% VAT nor provided for its additional
imposition when they renewed the contract of lease in May 1997. More
significantly, said lessor did not actually collect a 10% VAT on the
monthly rental due from the lessee-appellee after the execution of the
May 1997 contract of lease. The inevitable implication is that the lessor
intended not to avail of the option granted him by law to shift the 10%
VAT upon the lessee-appellee. x x x.19
In short, petitioners are estopped from shifting to respondent the burden of
paying the VAT.

Special Civil Actions 14

Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing.
This provision clearly states that respondent can only be held liable for new
taxes imposed after the effectivity of the contract of lease, that is, after May
1997, and only if they pertain to the lot and the building where the leased
premises are located. Considering that RA 7716 took effect in 1994, the VAT
cannot be considered as a "new tax" in May 1997, as to fall within the coverage
of the sixth stipulation.
Neither can petitioners legitimately demand rental adjustment because of
extraordinary inflation or devaluation.
Petitioners contend that Article 1250 of the Civil Code does not apply to this
case because the contract stipulation speaks of extraordinary inflation or
devaluation while the Code speaks of extraordinary inflation or deflation. They
insist that the doctrine pronounced in Del Rosario v. The Shell Company, Phils.
Limited20 should apply.
Essential to contract construction is the ascertainment of the intention of the
contracting parties, and such determination must take into account the
contemporaneous and subsequent acts of the parties. This intention, once
ascertained, is deemed an integral part of the contract. 21
While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation
or devaluation" as compared to Article 1250's "extraordinary inflation or
deflation," we find that when the parties used the term "devaluation," they really
did not intend to depart from Article 1250 of the Civil Code. Condition No. 7 of
the contract should, thus, be read in harmony with the Civil Code provision.
That this is the intention of the parties is evident from petitioners' letter 22 dated
January 26, 1998, where, in demanding rental adjustment ostensibly based on
condition No. 7, petitioners made explicit reference to Article 1250 of the Civil
Code, even quoting the law verbatim. Thus, the application of Del Rosario is not
warranted. Rather, jurisprudential rules on the application of Article 1250 should
be considered.
Article 1250 of the Civil Code states:
In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the

establishment of the obligation shall be the basis of payment, unless

there is an agreement to the contrary.
Inflation has been defined as the sharp increase of money or credit, or both,
without a corresponding increase in business transaction. There is inflation
when there is an increase in the volume of money and credit relative to available
goods, resulting in a substantial and continuing rise in the general price level. 23
In a number of cases, this Court had provided a discourse on what constitutes
extraordinary inflation, thus:
[E]xtraordinary inflation exists when there is a decrease or increase in
the purchasing power of the Philippine currency which is unusual or
beyond the common fluctuation in the value of said currency, and such
increase or decrease could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation.24
The factual circumstances obtaining in the present case do not make out a case
of extraordinary inflation or devaluation as would justify the application of Article
1250 of the Civil Code. We would like to stress that the erosion of the value of
the Philippine peso in the past three or four decades, starting in the mid-sixties,
is characteristic of most currencies. And while the Court may take judicial notice
of the decline in the purchasing power of the Philippine currency in that span of
time, such downward trend of the peso cannot be considered as the
extraordinary phenomenon contemplated by Article 1250 of the Civil Code.
Furthermore, absent an official pronouncement or declaration by competent
authorities of the existence of extraordinary inflation during a given period, the
effects of extraordinary inflation are not to be applied. 25
WHEREFORE, premises considered, the petition is DENIED. The Decision of
the Court of Appeals in CA-G.R. CV No. 67784, dated September 3, 2001, and
its Resolution dated November 19, 2001, are AFFIRMED.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice