prop - ownership

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1 ARTICLE 428 SECOND DIVISION [G.R. No. 126699. August 7, 1998] AYALA CORPORATION, petitioner, vs. RAY BURTON DEVELOPMENT CORPORATION, respondent. D E C I S I O N MARTINEZ, J.: Petitioner Ayala Corporation (AYALA) is the owner of the Ayala estate located in Makati City. The said estate was originally a raw land which was subdivided for sale into different lots devoted for residential, commercial and industrial purposes. The development of the estate consisted of road and building construction and installation of a central sewerage treatment plant and drainage system which services the whole Ayala Commercial Area. On March 20, 1984, Karamfil Import-Export Company Ltd. (KARAMFIL) bought from AYALA a piece of land identified as Lot 26, Block 2 consisting of 1,188 square meters, located at what is now known as H.V. de la Costa Street, Salcedo Village, Makati City. The said land, which is now the subject of this case, is more particularly described as follows: “A parcel of land (Lot 26, Block 2, of the subdivision plan [LRC] Psd-6086, being a portion of Block D, described as plan [LRC] Psd-5812 LRC [GLRO] Rec. No. 2029) situated in the Municipality of Makati, Province of Rizal, Is. of Luzon. Bounded on the NE., points 2 to 3 by Lot 31, Block 2 (Creek 6.00 m. wide) of the subdivision plan, on the SE., points 3 to 4 by Lot 27, Block 2 of the Subdivision plan; on the SW, points 4 to 5, by proposed Road, 17.00 m. wide (Block C[LRC] Psd-5812); points 5 to 1 by Street Lot 2 (17.00 m. wide) of the subdivision plan. On the NW, points 1 to 2 by Lot 25, Block 2 of the subdivision plan. x x x beginning, containing an area of ONE THOUSAND ONE HUNDRED EIGHTY EIGHT (1,188) SQUARE METERS.” The transaction was documented in a Deed of Sale [1] of even date, which provides, among others, that the vendee would comply with certain special conditions and restrictions on the use or occupancy of the land, among which are -

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ARTICLE 428 SECOND DIVISION [G.R. No. 126699. August 7, 1998]

AYALA CORPORATION, petitioner, vs. RAY BURTON DEVELOPMENT CORPORATION, respondent.

D E C I S I O N

MARTINEZ, J.:

Petitioner Ayala Corporation (AYALA) is the owner of the Ayala estate located in Makati City. The said estate was originally a raw land which was subdivided for sale into different lots devoted for residential, commercial and industrial purposes. The development of the estate consisted of road and building construction and installation of a central sewerage treatment plant and drainage system which services the whole Ayala Commercial Area.

On March 20, 1984, Karamfil Import-Export Company Ltd. (KARAMFIL) bought from AYALA a piece of land identified as Lot 26, Block 2 consisting of 1,188 square meters, located at what is now known as H.V. de la Costa Street, Salcedo Village, Makati City. The said land, which is now the subject of this case, is more particularly described as follows:

“A parcel of land (Lot 26, Block 2, of the subdivision plan [LRC] Psd-6086, being a portion of Block D, described as plan [LRC] Psd-5812 LRC [GLRO] Rec. No. 2029) situated in the Municipality of Makati, Province of Rizal, Is. of Luzon. Bounded on the NE., points 2 to 3 by Lot 31, Block 2 (Creek 6.00 m. wide) of the subdivision plan, on the SE., points 3 to 4 by Lot 27, Block 2 of the Subdivision plan; on the SW, points 4 to 5, by proposed Road, 17.00 m. wide (Block C[LRC] Psd-5812); points 5 to 1 by Street Lot 2 (17.00 m. wide) of the subdivision plan. On the NW, points 1 to 2 by Lot 25, Block 2 of the subdivision plan. x x x beginning, containing an area of ONE THOUSAND ONE HUNDRED EIGHTY EIGHT (1,188) SQUARE METERS.”

The transaction was documented in a Deed of Sale[1] of even date, which provides, among others, that the vendee would comply with certain special conditions and restrictions on the use or occupancy of the land, among which are -

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Deed Restrictions:[2]

a) The total height of the building to be constructed on the lot shall not be more than forty-two (42) meters, nor shall it have a total gross floor area of more than five (5) times the lot area; and

b) The sewage disposal must be by means of connection into the sewerage system servicing the area.

Special Conditions:[3]

a) The vendee must obtain final approval from AYALA of the building plans and specifications of the proposed structures that shall be constructed on the land;

b) The lot shall not be sold without the building having been completed; and

c) Any breach of the stipulations and restrictions entitles AYALA to rescission of the contract.

As a result of the sale, a Transfer Certificate of Title No. 132086[4] was issued in the name of KARAMFIL. The said special conditions and restrictions were attached as an annex to the deed of sale and incorporated in the “Memorandum of Encumbrances” at the reverse side of the title of the lot as Entry No. 2432/T-131086.

On February 18, 1988, KARAMFIL sold the lot to Palmcrest Development and Realty Corporation (PALMCREST) under a Deed of Absolute Sale[5] of even date. This deed was submitted to AYALA for approval in order to obtain the latter’s waiver of the special condition prohibiting the resale of the lot until after KARAMFIL shall have constructed a building thereon. AYALA gave its written conformity to the sale but reflecting in its approval the same special conditions/restrictions as in the previous sale. AYALA’s conformity was annotated on the deed of sale.[6]PALMCREST did not object to the stipulated conditions and restrictions.[7]

PALMCREST in turn sold the lot to Ray Burton Development Corporation (RBDC), now respondent, on April 11, 1988, with the agreement that AYALA retains possession of the Owner’s Duplicate copy of the title until a building is

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erected on said parcel of land in accordance with the requirements and/or restrictions of AYALA.[8] The Deed of Absolute Sale[9] executed on the said date was also presented to AYALA for approval since no building had yet been constructed on the lot at the time of the sale. As in the KARAMFIL-PALMCREST transaction, AYALA gave its conformity to the sale, subject to RBDC’s compliance with the special conditions/restrictions which were annotated in the deed of sale, thus:

“With our conformity, subject to the compliance by the Vendees of the Special Conditions of Sale on the reverse side of the Deed of Sale dated March 20, 1984 per Doc. No. 140, Page No. 29, Book No. 1, Series of 1984 of the Notary Public Silverio Aquino.”[10]

The conditions and restrictions of the sale were likewise entered as encumbrances at the reverse side of the Transfer Certificate of Title No. 155384 which was later issued in the name of RBDC.[11] Like PALMCREST, RBDC was not also averse to the aforesaid conditions and restrictions.[12]

Sometime in June of 1989, RBDC submitted to AYALA for approval a set of architectural plans for the construction of a 5-storey office building on the subject lot, with a height of 25.85 meters and a total gross floor area of 4,989.402 square meters.[13] The building was to be known as “Trafalgar Tower” but later renamed “Trafalgar Plaza.” Since the building was well within the 42-meter height restriction, AYALA approved the architectural plans.

Upon written request[14] made by RBDC, AYALA likewise agreed to release the owner’s copy of the title covering the subject lot to the China Banking Corporation as guarantee of the loan granted to RBDC for the construction of the 5-storey building.

Meanwhile, on November 28, 1989, RBDC, together with the Makati Developers Association, Inc. (MADAI), of which RBDC is a member, and other lot owners, filed a complaint against AYALA before the Housing and Land Use Regulatory Board (HLRB), docketed as HLRB Case No. REM-A-0818 (OAALA-REM-111489-4240). The complaint sought the nullification of the very same Deed Restrictions incorporated in the deeds of sale of the lots purchased by the complainants from AYALA and annotated on their certificates of title, on the grounds, inter alia, that said restrictions purportedly: (a) place unreasonable

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control over the lots sold by AYALA, thereby depriving the vendees of the full enjoyment of the lots they bought, in violation of Article 428 of the Civil Code; (b) have been superseded by Presidential Decree No. 1096 (the National Building Code) and Metro Manila Commission Zoning Ordinance No. 81-01; (c) violate the constitutional provision on equal protection of the laws, since the restrictions are imposed without regard to reasonable standards or classifications; and (d) are contracts of adhesion[15] since AYALA would not sell the lots unless the buyers agree to the deed restrictions. The complaint also alleged that AYALA is in estoppel from enforcing the restrictions in question when it allowed the construction of other high-rise buildings in Makati City beyond the height and floor area limits. AYALA was further charged with unsound business practice.

Early in June of 1990, RBDC made another set of building plans for “Trafalgar Plaza” and submitted the same for approval, this time to the Building Official of the Makati City Engineer’s Office,[16] not to AYALA. In these plans, the building was to be 26-storey high, or a height of 98.60 meters, with a total gross floor area of 28,600 square meters. After having obtained the necessary building permits from the City Engineer’s Office, RBDC began to construct “Trafalgar Plaza” in accordance with these new plans.

On July 11, 1990, the majority of the lot owners in the Makati City area, including the Salcedo and Legaspi Village areas, in a general assembly of the Makati Commercial Estate Association, Inc. (MACEA), approved the revision of the Deed Restrictions, which revision was embodied in the “Consolidated and Revised Deed Restrictions”[17] (Revised Deed Restrictions) wherein direct height restrictions were abolished in favor of floor area limits computed on the basis of “floor area ratios” (FARs). In the case of buildings devoted solely to office use in Salcedo Village – such as the “Trafalgar Plaza” – the same could have a maximum gross floor area of only eight (8) times the lot area. Thus, under the Revised Deed Restrictions, “Trafalgar Plaza” could be built with a maximum gross floor area of only 9,504 square meters (1,188 sq. m. – the size of the subject lot – multiplied by 8). Even under the Revised Deed Restrictions, Trafalgar would still exceed 19,065 square meters of floor area on the basis of a FARs of 8:1. RBDC did not vote for the approval of the Revised Deed Restrictions and, therefore, it continued to be bound by the original Deed Restrictions.

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In the meantime, on August 22, 1990, the HLRB En Banc rendered a decision[18] (a) upholding the Deed Restrictions; (b) absolving AYALA from the charge of unsound business practice; and (c) dismissing HLRB Case No. REM-A-0818. MADAI and RBDC separately appealed the decision to the Office of the President, which appeal was docketed as O.P. Case No. 4476.

While the appeal was pending before the Office of the President, the September 21, 1990 issue of the Business World magazine[19] featured the “Trafalgar Plaza” as a modern 27-storeystructure which will soon rise in Salcedo Village, Makati City. Stunned by this information, AYALA, through counsel, then sent a letter[20] to RBDC demanding the latter to cease the construction of the building which dimensions do not conform to the previous plans it earlier approved. RBDC, through counsel, replied with a series of letters[21] requesting for time to assess the merits of AYALA’s demand.

For failing to heed AYALA’s bidding, RBDC was sued on January 25, 1991 before the Regional Trial Court of Makati City (Branch 148). AYALA’s complaint for Specific Performance or Rescission, docketed as Civil Case No. 91-220, prayed inter alia that judgment be rendered –

“x x x x x x x x x

b. Ordering the defendant to comply with its contractual obligations and to remove or demolish the portions or areas of the Trafalgar Tower/Plaza Building constructed beyond or in excess of the approved height as shown by building plans approved by the plaintiff, including any other portion of the building constructed not in accordance with the building plans and specifications submitted to and approved by plaintiff.

c. Alternatively, in the event specific performance becomes impossible:

i) Ordering the cancellation and rescission of the Deed of Sale dated March 20, 1984 (Annex ‘A’ hereof) and ordering defendant to return to plaintiff Lot 26, Block 2 of Salcedo Village;

ii) Ordering the cancellation of Transfer Certificate of Title No. 155384 (in the name of defendant) and directing the Makati Register of Deeds to issue a new title over the Lot in the name of plaintiff; and

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d. Ordering defendant to pay plaintiff attorney’s fees in the amount of P500,000.00, exemplary damages in the amount of P5,000.00 and the costs of the instant suit..”[22]

In its answer (with counterclaim) to the complaint, RBDC denied having “actual or constructive notice of the Deed Restrictions” imposed by AYALA on the subject lot. RBDC alleged in essence that even if said deed restrictions exist, the same are not economically viable and should not be enforced because they constitute unreasonable restrictions on its property rights and are, therefore, contrary to law, morals, good customs, public order or public policy. Moreover, RBDC claimed that the enforcement of the deed restrictions has also been arbitrary or discriminatory since AYALA has not made any action against a number of violators of the deed restrictions.

Meantime, the appeal of MADAI in O.P. Case No. 44761 was considered resolved when it entered into a compromise agreement with AYALA wherein the latter adopted and acknowledged as binding the Revised Deed Restrictions of July 11, 1990.[23] On the other hand, RBDC’s appeal was dismissed in an Order dated February 13, 1992, for the reason that, “insofar as the disposition of the appealed (HLRB) decision is concerned, there is virtually no more actual controversy on the subject of the ‘Deed Restrictions’ because the same has been overriden by the ‘Revised (Deed) Restrictions’ which the appellee Ayala Corporation has in fact acknowledged as binding and in full force and effect x x x.”[24] Accordingly, aside from dismissing RBDC’s appeal, the Order of February 13, 1992 also “set aside” the appealed HLRB decision. From this order, AYALA sought a reconsideration or clarification, noting, inter alia, that while the said order has ruled that AYALA can no longer enforce the Deed Restrictions against RBDC, it does not expressly state that RBDC is bound by the Revised Deed Restrictions. Clarifying this matter, the Office of the President issued a Resolution dated April 21, 1992,[25] modifying the February 13, 1992 order, ruling: (1) that RBDC is bound by the original Deed Restrictions, but it has the option to accept and be bound by the Revised Deed Restrictions in lieu of the former; and (2) that the “HLRB decision dated 22 August 1990, to the extent that it absolved Ayala from the charge of unsound business practice, subject of the basic complaint, is affirmed.” This time RBDC moved for a reconsideration of the April 21, 1992 Order, but the motion was denied in a Resolution dated October 15, 1993.[26] Another Resolution of March 21,

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1994[27] was issued denying with finality RBDC’s second motion for reconsideration.

AYALA then filed a Manifestation[28] in Civil Case No. 91-220, informing the trial court of the pertinent rulings/resolutions in the proceedings before the HLRB and the Office of the President, which rulings, AYALA suggested, amount to res judicata on the issue of the validity and enforceability of the Deed Restrictions involved in the said civil case.

After trial on the merits, the trial court rendered a Decision on April 28, 1994 in favor of RBDC, the dispositive portion of which reads:

“WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendant and against the plaintiff, and as a consequence:

1. The instant case is hereby dismissed; 2. The motion/application for the annotation of the lis pendens is hereby DENIED; 3. The motion/application to hold defendant in continuing contempt is hereby also DENIED; 4. No damages is awarded to any of the parties; 5. Plaintiff is hereby ordered to pay the defendant P30,000.00 for and as attorney’s fees and litigation expenses;

“With costs against plaintiff.

“SO ORDERED.”[29]

The trial court’s decision is based on its findings that: (1) RBDC had neither actual nor constructive notice of the 42-meter height limitation of the building to be constructed on the subject lot; (2) even if the Deed Restrictions did exist, AYALA is estopped from enforcing the same against RBDC by reason of the former’s failure to enforce said restrictions against other violators in the same area; (3) the Deed Restrictions partake of the nature of a contract of adhesion; (4) since the Trafalgar Plaza building is in accord with the minimum requirements of P.D. No. 1096 (The National Building Code), the Deed Restrictions may not be followed by RBDC; and (5) the rulings of the HLRB and the Office of the President do not have binding effect in the instant case.

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Dissatisfied, AYALA appealed to the Court of Appeals which affirmed the judgment of the trial court in a Decision[30] dated February 27, 1996 in CA-G.R. CV No. 46488. AYALA’s motion for reconsideration was likewise denied in the Resolution[31] of October 7, 1996.

AYALA now interposes the present petition for review on certiorari, citing several errors in the decision of the Court of Appeals, some of which involve questions of fact.

The resolution of factual issues raised in the petition would certainly call for a review of the Court of Appeals’ findings of fact. As a rule, the re-examination of the evidence proffered by the contending parties during the trial of the case is not a function that this Court normally undertakes inasmuch as the findings of fact of the Court of Appeals are generally binding and conclusive on the Supreme Court.[32] The jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law.[33] A reevaluation of factual issues by this Court is justified when the findings of fact complained of are devoid of support by the evidence on record, or when the assailed judgment is based on misapprehension of facts.[34]

The present petition has shown that certain relevant facts were overlooked by the Court of Appeals, which facts, if properly appreciated, would justify a different conclusion from the one reached in the assailed decision.

The principal error raised here by petitioner AYALA pertains to the Court of Appeals’ finding that RBDC did not have actual or constructive notice of the 42-meter height restriction, since what was annotated on its (RBDC’s) title is the erroneous 23-meter height limit which, according to AYALA’s own witness, Jose Cuaresma, was not applicable to RBDC.[35] Thus, the Court of Appeals concluded, RBDC “has the right to enjoy the subject property as if no restrictions and conditions were imposed thereon.”[36]

The above finding and conclusion of the Court of Appeals, AYALA submits, are based on “surmises and conjectures” which are “contrary to the evidence on record and (RBDC’s) own admissions.”[37]

There is merit in AYALA’s submission.

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The erroneous annotation of the 23-meter height restriction in RBDC’s title was explained by Jose Cuaresma, AYALA’s Assistant Manager for Marketing and Sales. Cuaresma testified that when the deed of sale between PALMCREST and RBDC was submitted to the Register of Deeds of Makati and the corresponding title was issued in the name of RBDC, the Register of Deeds annotated the wrong height limit in Entry No. 2432 on the said title, but he emphasized that the incorrect annotation does not apply to RBDC.[38]

Jose Cuaresma further clarified that the correct height restriction imposed by AYALA on RBDC was 42 meters.[39] This height ceiling, he said, is based on the deed of restrictions attached as annex to the deed of sale,[40] and the same has been uniformly imposed on the transferees beginning from the original deed of sale between AYALA and KARAMFIL.[41]

This clarificatory statement of Jose Cuaresma should have cautioned the Court of Appeals from making the unfounded and sweeping conclusion that RBDC can do anything it wants on the subject property “as if no restrictions and conditions were imposed thereon,” on the mistaken premise that RBDC was unaware of the correct 42-meter height limit. It must be stressed that Cuaresma’s testimony is bolstered by documentary evidence and circumstances of the case which would show that RBDC was put on notice about the 42-meter height restriction.

The record reveals that the subject Lot 26 was first sold by AYALA to KARAMFIL under a deed of sale (Exhibit "A") dated March 20, 1984 and duly notarized by Notary Public Silverio Aquino. Attached to the deed of sale is an appendix of special conditions/restrictions (deed restrictions), which provides, inter alia, that the building to be constructed on the lot must have a total height of not more than 42 meters, and that any building plans and specifications of the proposed structures must have the approval of AYALA. The deed restrictions were incorporated in the memorandum of encumbrances at the reverse side of the title of the lot as Entry No. 2432. When the lot was sold by KARAMFIL to PALMCREST, the deed of sale (Exhibit "B") on this transaction bears an annotation of AYALA's conformity to the transfer, with the condition that the approval was "subject to the compliance by the vendee of the special conditions of sale on the reverse side of the deed of sale dated March 20, 1984, per Doc. No. 140, Page No. 29, Book No. 1, Series of 1984 of Notary Public Silverio F. Aquino" (Exhibit "B-1"). PALMCREST later resold the lot to RBDC by virtue of a deed of sale (Exhibit

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"C"), to which AYALA's approval was also annotated therein (Exhibit "C-1"), but with the same explicit inscription that RBDC, as vendee, must comply with the special deed restrictions appended to the AYALA-KARAMFIL deed of sale of March 20, 1984. All these three (3) deeds of sale and the accompanying special deed restrictions imposing a 42-meter height limit, were duly registered with the Register of Deeds. Thus, RBDC cannot profess ignorance of the 42-meter height restriction and other special conditions of the sale.

Verily, the deed restrictions are integral parts of the PALMCREST-RBDC deed of sale, considering that AYALA's required conformity to the transfer, as annotated therein, was conditioned upon RBDC's compliance of the deed restrictions. Consequently, as a matter of contractual obligation, RBDC is bound to observe the deed restrictions which impose a building height of not more than 42 meters.

Moreover, RBDC was fully aware that it was bound by the 42-meter height limit. This is shown by the fact that, pursuant to the special conditions/restrictions of the sale, it submitted to AYALA, for approval, building plans for a 5-storey structure with a height of 25.85 meters. Certainly, RBDC would not have submitted such plans had it truly believed that it was restricted by a lower 23-meter height ceiling, in the same manner that RBDC did not seek AYALA’s approval when it later made another set of building plans for the 26-storey “Trafalgar Plaza,” knowing that the same would be disapproved for exceeding the 42-meter height restriction. The fact that RBDC was later issued a building permit from the Makati City Engineer's Office for the construction of the “Trafalgar Plaza” is not a valid justification to disregard the stipulated contractual restriction of 42 meters.

Another error which AYALA claims to have been committed by the Court of Appeals is the latter’s finding that AYALA, under the principle of estoppel, is now barred from enforcing the deed restrictions because it had supposedly failed to act against other violators of the said restrictions. AYALA argues that such finding is baseless and is contrary to the Civil Code provisions on estoppel and applicable jurisprudence.

We agree with the petitioner.

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In support of its finding that estoppel operates against AYALA, the Court of Appeals merely cited its decision dated November 17, 1993, in CA-G.R. SP No. 29157, entitled Rosa-Diana Realty and Development Corporation, Petitioner vs. Land Registration Authority and Ayala Corporation, Respondents, and reiterated its findings therein, to wit:

“Also, Ayala is barred from enforcing the deed of restrictions in question, pursuant to the doctrines of waiver and estoppel. Under the terms of the deed of sale, the vendee Sy Ka Kieng assumed faithful compliance with the special conditions of sale and with the Salcedo Village deed of restrictions. One of the conditions was that a building would be constructed within one year. Ayala did nothing to enforce the terms of the contract. In fact, it even agreed to the sale of the lot by Sy Ka Kieng in favor of the petitioner realty in 1989, or thirteen (13) years later. We, therefore, see no justifiable reason for Ayala to attempt to enforce the terms of the conditions of the sale against the petitioner. It should now be estopped from enforcing the said conditions through any means.

x x x x x x x x x

“Even assuming that petitioner RDR violated the floor area and height restrictions, it is markedly significant that Ayala disregarded the fact that it had previously allowed and tolerated similar and repeated violations of the same restrictive covenants by property owners which it now seeks to enforce against the herein petitioner. Some examples of existing buildings in Salcedo Village that greatly exceeded the gross floor area (5 times lot area) and height (42 meters) limitations are (Rollo, p. 32):

(1) Pacific Star (Nauru Center Building – 29 stories and 112.5 meters high) (2) Sagittarius Building – 16 stories (3) Shell House Building – 14 stories (4) Eurovilla Building – 15 stories (5) LPL Plaza Building – 18 stories (6) LPL Tower Building – 24 stories.”[42]

An examination of the decision in the said Rosa Diana case reveals that the sole issue raised before the appellate court was the propriety of the lis pendens annotation. However, the appellate court went beyond the sole issue

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and made factual findings bereft of any basis in the record to inappropriately rule that AYALA is in estoppel and has waived its right to enforce the subject restrictions. Such ruling was immaterial to the resolution of the issue of the propriety of the annotation of the lis pendens. The finding of estoppel was thus improper and made in excess of jurisdiction.

Moreover, the decision in CA-G.R. SP No. 29157 is not binding on the parties herein, simply because, except for Ayala, RBDC is not a party in that case. Section 49, Rule 39 of the Revised Rules of Court (now Sec. 47, Rule 39 of the 1997 Rules of Civil Procedure) provides in part:

Sec. 49. Effect of judgments. The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

(a) x x x;

(b) In other cases the judgment or order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of action or special proceeding, litigating for the same thing and under the same title and in the same capacity; (emphasis supplied)

(c) x x x.”

The clear mandate of the above-quoted rule is that a final judgment or order of a court is conclusive and binding only upon the parties to a case and their successors in interest. Both the present case and the Rosa-Diana case, however, involve different parties who are not litigating “for the same thing” nor “under the same title and in the same capacity.” Hence, the Rosa-Diana decision cannot have binding effect against either party to the instant case.

In any case, AYALA asserts that a few gross violators of the deed restrictions “have been, or are being, proceeded against.”[43] AYALA admits, though, that there are other violations of the restrictions but these are of a minor nature which do not detract from substantial compliance by the lot owners of the deed restrictions. AYALA submits that minor violations are insufficient to warrant judicial action, thus:

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“As a rule, non-objection to trivial breaches of a restrictive covenant does not result in loss of the right to enforce the covenant by injunction, and acquiescence in violations of a restrictive covenant which are immaterial and do not affect or injure one will not preclude him from restraining violations thereof which would so operate as to cause him to be damaged.” (20 Am Jur. 2d Sec. 271, p. 835; underscoring provided).

“Occasional and temporary violations by lot owners of a covenant forbidding the use of property for mercantile purposes are not sufficient as a matter of law to warrant a finding of a waiver or abandonment of the right to enforce the restriction. A waiver in favor of one person and for a limited purpose is not a waiver as to all persons generally.” (id., at 836; underscoring provided).[44]

It is the sole prerogative and discretion of AYALA to initiate any action against violators of the deed restrictions. This Court cannot interfere with the exercise of such prerogative/discretion.

How AYALA could be considered in estoppel as found by both the trial court and the Court of Appeals, was not duly established. “Under the doctrine of estoppel, an admission orrepresentation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them.”[45] Here, we find no admission, false representation or concealment that can be attributed to AYALA relied upon by RBDC.

What is clear from the record, however, is that RBDC was the party guilty of misrepresentation and/or concealment when it resorted to the fraudulent scheme of submitting two (2) sets of building plans, one (1) set conformed to the Deed Restrictions, which was submitted to and approved by AYALA,[46] while another set violated the said restrictions, and which it presented to the Makati City Building Official in order to secure from the latter the necessary building permit.[47] It is noteworthy that after the submission of the second set of building plans to the Building Official, RBDC continued to make representations to AYALA that it would build the five-storey building in accordance with the first set of plans approved by AYALA, obviously for the purpose of securing the release of the title of the subject

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lot to obtain bank funding. AYALA relied on RBDC's false representations and released the said title. Hence, RBDC was in bad faith.

AYALA further assigns as error the finding of the respondent court that, “while the Deed of Sale to Ray Burton (RBDC) did not appear to be a contract of adhesion,” however, “the subject Deed Restrictions annotated therein appeared to be one.”[48] The only basis for such finding is that the Deed Restrictions and Special Conditions were “pre-printed” and “prepared” by AYALA, and that RBDC’s participation thereof was “only to sign the Deed of Sale with the said restrictions and conditions.”[49]

The respondent court erred in ruling that the Deed Restrictions is a contract of adhesion.

A contract of adhesion in itself is not an invalid agreement. This type of contract is as binding as a mutually executed transaction. We have emphatically ruled in the case of Ong Yiu vs. Court of Appeals, et. al.[50] that “contracts of adhesion wherein one party imposes a ready-made form of contract on the other x x x are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres he gives his consent.” This ruling was reiterated in Philippine American General Insurance Co., Inc. vs. Sweet Lines, Inc., et. al.,[51]wherein we further declared through Justice Florenz Regalado that “not even an allegation of ignorance of a party excuses non-compliance with the contractual stipulations since the responsibility for ensuring full comprehension of the provisions of a contract of carriage (a contract of adhesion) devolves not on the carrier but on the owner, shipper, or consignee as the case may be.”

Contracts of adhesion, however, stand out from other contracts (which are bilaterally drafted by the parties) in that the former is accorded inordinate vigilance and scrutiny by the courts in order to shield the unwary from deceptive schemes contained in ready-made covenants. As stated by this Court, speaking through Justice J.B.L. Reyes, in Qua Chee Gan vs. Law Union and Rock Insurance Co., Ltd.:[52]

“The courts cannot ignore that nowadays, monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with themcunningly prepared ‘agreements’ that the weaker party may not change one whit, his participation in the ‘agreement’ being reduced

15

to the alternative to ‘take it or leave it’ labeled since Raymond Saleilles ‘contracts by adherence’ (contracts d’ adhesion) in contrast to those entered into by parties bargaining on an equal footing. Such contracts (of which policies of insurance and international bill of lading are prime examples) obviously call for greater strictness and vigilance on the part of the courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary.”[53] (Emphasis supplied)

The stringent treatment towards contracts of adhesion which the courts are enjoined to observe is in pursuance of the mandate in Article 24 of the New Civil Code that "(i)n all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection."

Thus, the validity and/or enforceability of a contract of adhesion will have to be determined by the peculiar circumstances obtaining in each case and the situation of the parties concerned.

In the instant case, the stipulations in the Deed Restrictions and Special Conditions are plain and unambiguous which leave no room for interpretation. Moreover, there was even no attempt on the part of RBDC to prove that, in the execution of the Deed of Sale on the subject lot, it was a weaker or a disadvantaged party on account of its moral dependence, ignorance, mental weakness or other handicap. On the contrary, as testified to by Edwin Ngo, President of RBDC, the latter is a realty firm and has been engaged in realty business,[54] and that he, a businessman for 30 years,[55] represented RBDC in the negotiations and in the eventual purchase of the subject lot from PALMCREST.[56] Edwin Ngo's testimony proves that RBDC was not an unwary party in the subject transaction. Instead, Edwin Ngo has portrayed RBDC as a knowledgeable realty firm experienced in real estate business.

In sum, there is more than ample evidence on record pinpointing RBDC’s violation of the applicable FAR restrictions in the Consolidated and Revised Deed Restrictions (CRDRs) when it constructed the 27-storey Trafalgar Plaza. The prayer of petitioner is that judgment be rendered as follows:

16

“a. Ordering Ray Burton to comply with its contractual obligations in the construction of ‘Trafalgar Plaza’ by removing or demolishing the portions of areas thereof constructed beyond or in excess of the approved height, as shown by the building plans submitted to, and approved by, Ayala, including any other portion of the building constructed not in accordance with the said building plans;

b. Alternatively, in the event specific performance becomes impossible:

(1) ordering the cancellation and rescission of the March 20, 1984 ‘Deed of Sale’ and all subsequent ‘Deeds of Sale’ executed in favor of the original vendee’s successors-in-interest and ordering Ray Burton to return to Ayala Lot 26, Lot 2 of Salcedo Village;

(2) ordering the cancellation of Transfer Certificate of Title No. 155384 (in the name of defendant) and directing the Office of the Register of Deeds of Makati to issue a new title over the lot in the name of Ayala; and

x x x x x x x x x.”[57]

However, the record reveals that construction of Trafalgar Plaza began in 1990, and a certificate of completion thereof was issued by the Makati City Engineer’s Office per ocular inspection on November 7, 1996.[58] Apparently Trafalgar Plaza has been fully built, and we assume, is now fully tenanted. The alternative prayers of petitioner under the CRDRs, i.e., the demolition of excessively built space or to permanently restrict the use thereof, are no longer feasible.

Thus, we perforce instead rule that RBDC may only be held alternatively liable for substitute performance of its obligations – the payment of damages. In this regard, we note that the CRDRs impose development charges on constructions which exceed the estimated Gross Limits permitted under the original Deed Restrictions but which are within the limits of the CRDRs.

In this regard, we quote hereunder pertinent portions of The Revised Deed Restrictions, to wit:

"3. DEVELOPMENT CHARGE

For any building construction within the Gross Floor Area limits defined under Paragraphs C-2.1 to C-2.4 above, but which will result in a Gross Floor Area

17

exceeding certain standards defined in Paragraphs C-3.1-C below, the OWNER shall pay MACEA, prior to the start of construction of any new building or any expansion of an existing building, a DEVELOPMENT CHARGE as a contribution to a trust fund to be administered by MACEA. This trust fund shall be used to improve facilities and utilities in the Makati Central Business District.

3.1 The amount of the development charge that shall be due from the OWNER shall be computed as follows:

DEVELOPMENT CHARGE = A x (B - C - D)

where:

A - is equal to the Area Assessment which shall be set at Five Hundred Pesos (P500.00) until December 31, 1990. Each January 1st thereafter, such amount shall increase by ten percent (10%) over the Area Assessment charged in the immediately preceding year; provided that, beginning 1995 and at the end of every successive five-year period thereafter, the increase in the Area Assessment shall be reviewed and adjusted by the VENDOR to correspond to the accumulated increase in the construction cost index during the immediately preceding five years as based on the weighted average of wholesale price and wage indices of the National Census and Statistics Office and the Bureau of Labor Statistics.

B - is equal to the total Gross Floor Area of the completed or expanded building in square meters.

C - is equal to the estimated Gross Floor Area permitted under the original deed restrictions, derived by multiplying the lot area by the effective original FAR shown below for each location:"[59]

Accordingly, in accordance with the unique, peculiar circumstance of the case at hand, we hold that the said development charges are a fair measure of compensatory damages which RBDC has caused in terms of creating a disproportionate additional burden on the facilities of the Makati Central Business District.

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As discussed above, Ray Burton Development Corporation acted in bad faith in constructing Trafalgar Plaza in excess of the applicable restrictions upon a double submission of plans and exercising deceit upon both AYALA and the Makati Engineer's Office, and thus by way of example and correction, should be held liable to pay AYALA exemplary damages in the sum ofP2,500,000.00.

Finally, we find the complaint to be well-grounded, thus it is AYALA which is entitled to an award of attorney's fees, and while it prays for the amount of P500,000.00, we award the amount ofP250,000.00 which we find to be reasonable under the circumstances.

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated February 27, 1996, in CA-G.R. CV No. 46488, and its Resolution dated October 7, 1996 are hereby REVERSED and SET ASIDE, and in lieu thereof, judgment is hereby rendered finding that:

(1) The Deed Restrictions are valid and petitioner AYALA is not estopped from enforcing them against lot owners who have not yet adopted the Consolidated and Revised Deed Restrictions;

(2) Having admitted that the Consolidated and Revised Deed Restrictions are the applicable Deed Restrictions to Ray Burton Development Corporation’s Trafalgar Plaza, RBDC should be, and is, bound by the same;

(3) Considering that Ray Burton Development Corporation’s Trafalgar Plaza exceeds the floor area limits of the Deed Restrictions, RBDC is hereby ordered to pay development charges as computed under the provisions of the Consolidated and Revised Deed Restrictions currently in force.

(4) Ray Burton Development Corporation is further ordered to pay AYALA exemplary damages in the amount of P2,500,000.00, attorney’s fees in the amount of P250,000.00, and the costs of suit. SO ORDERED.

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THIRD DIVISION [G.R. No. 134692. August 1, 2000]

ELISEO FAJARDO, JR., and MARISSA FAJARDO, petitioners, vs. FREEDOM TO BUILD, INC., respondent.

D E C I S I O N

VITUG, J.:

Freedom To Build, Incorporated, an owner-developer and seller of low-cost housing, sold to petitioner-spouses, a house and lot designated Lot No. 33, Block 14, of the De la Costa Homes in Barangka, Marikina, Metro Manila. The Contract to Sell executed between the parties, contained a Restrictive Covenant providing certain prohibitions, to wit:[1]

"Easements. For the good of the entire community, the homeowner must observe a two-meter easement in front. No structure of any kind (store, garage, bodega, etc.) may be built on the front easement.

"x x x.............................x x x.............................x x x

"Upward expansion. A second storey is not prohibited. But the second storey expansion must be placed above the back portion of the house and should not extend forward beyond the apex of the original building.

"x x x.............................x x x.............................x x x

"Front expansion: 2nd Storey: No unit may be extended in the front beyond the line as designed and implemented by the developer in the 60 sq. m. unit. In other words, the 2nd floor expansion, in front, is 6 meters back from the front property line and 4 meters back from the front wall of the house, just as provided in the 60 sq. m. units."[2]

The above restrictions were also contained in Transfer Certificate of Title No. N-115384 covering the lot issued in the name of petitioner-spouses.

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The controversy arose when petitioners, despite repeated warnings from respondent, extended the roof of their house to the property line and expanded the second floor of their house to a point directly above the original front wall.[3] Respondent filed before the Regional Trial Court, National Capital Judicial Region, Branch 261, Pasig City, an action to demolish the unauthorized structures.

After trial, judgment was rendered against petitioners; thus:

"WHEREFORE, premises considered, defendant spouses Eliseo B. Fajardo, Jr., and Marissa F. Fajardo are hereby directed to immediately demolish and remove the extension of their expanded housing unit that exceeds the limitations imposed by the Restrictive Covenant, otherwise the Branch Sheriff of this Court shall execute this decision at the expense of the defendants.

"As to damages and attorney's fees, it appearing from the records of this case that no evidence to sustain the same was adduced by either of the parties, the Court deems it proper not to award any.

"SO ORDERED."[4]

On appeal to it, the Court of Appeals affirmed the decision of the trial court.

In their petition for review to this Court, the spouses contest the judgment of the courts below. Adjacent owners reportedly have no objection to the construction, and have even expressed interest in undertaking a similar expansion in their respective residences. Moreover, the couple's two children, a son and a daughter, might soon get married and then share, with their families, living quarters with petitioners. The latter also assail the personality of private respondent to question the construction which have effectively relinquished its ownership, right or interest over the subdivision upon the execution of the Deed of Absolute Sale in favor of the individual homeowners. Per the contract between Freedom to Build Incorporated and the De la Costa Low Income Project Homeowners' Association (hereinafter homeowners' association), petitioners aver, the enforcement of the prohibitions contained in the "Restrictive Covenant" originally residing on

21

respondent is now lodged in the homeowners' association. Petitioners maintain that it is incumbent upon the homeowners' association, not on respondent, to enforce compliance with the provisions of the covenant.

A perusal of the provisions of the covenant would show that the restrictions therein imposed were intended -

"For the protection and benefit of the De La Costa Low Income Housing Project, and of all the persons who may now, or hereafter become owners of any part of the project, and as part of the consideration for the conveyance of the housing unit, these restrictions are promulgated in order that; the intents and purposes for which the project was designed shall be upheld; to wit: subsequent duly approved sale and assignments of housing units shall be made only to low income families; a certain level of privacy shall be observed; a community spirit shall be fostered; and an undisturbed possession and occupancy at the homeowners shall be maintained."[5]

Restrictive covenants are not, strictly speaking, synonymous with easements. While it may be correct to state that restrictive covenants on the use of land or the location or character of buildings or other structures thereon may broadly be said to create easements or rights, it can also be contended that such covenants, being limitations on the manner in which one may use his own property,[6] do not result in true easements,[7] but a case of servitudes (burden), sometimes characterized to be negative easements or reciprocal negative easements. Negative easement is the most common easement created by covenant or agreement whose effect is to preclude the owner of the land from doing an act, which, if no easement existed, he would be entitled to do.[8]

Courts which generally view restrictive covenants with disfavor for being a restriction on the use of one's property, have, nevertheless, sustained them[9] where the covenants are reasonable,[10] not contrary to public policy,[11] or to law,[12] and not in restraint of trade.[13] Subject to these limitations, courts enforce restrictions to the same extent that will lend judicial sanction to any other valid contractual relationship.[14] In general,

22

frontline restrictions on constructions have been held to be valid stipulations.[15]

The provisions in a restrictive covenant prescribing the type of the building to be erected are crafted not solely for the purpose of creating easements, generally of light and view, nor as a restriction as to the type of construction,[16] but may also be aimed as a check on the subsequent uses of the building[17] conformably with what the developer originally might have intended the stipulations to be. In its Memorandum, respondent states in arguing for the validity of the restrictive covenant that the -

"x x x restrictions are not without specific purpose. In a low cost-socialized housing, it is of public knowledge that owners-developers are constrained to build as many number of houses on a limited land area precisely to accommodate marginalized lot buyers, providing as much as possible the safety, aesthetic and decent living condition by controlling overcrowding. Such project has been designed to accommodate at least 100 families per hectare."[18]

There appears to be no cogent reasons for not upholding restrictive covenants aimed to promote aesthetics, health, and privacy or to prevent overcrowding.

Viewed accordingly, the statement of petitioners that their immediate neighbors have not opposed the construction is unavailing to their cause, the subject restrictive covenant not being intended for the benefit of adjacent owners but to prescribe the uses of the building, i.e., to ensure, among other things, that the structures built on De la Costa Homes Subdivision would prevent overcrowding and promote privacy among subdivision dwellers. The argument then of petitioners that expansion is necessary in order to accommodate the individual families of their two children must fail for like reason. Nor can petitioners claim good faith; the restrictive covenants are explicitly written in the Contract To Sell and annotated at the back of the Transfer Certificate of Title.

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Petitioners raise the issue of the personality of respondent to enforce the provisions of the covenant. Broadly speaking, a suit for equitable enforcement of a restrictive covenant can only be made by one for whose benefit it is intended.[19] It is not thus normally enforceable by one who has no right nor interest in the land for the benefit of which the restriction has been imposed.[20] Thus, a developer of a subdivision can enforce restrictions, even as against remote grantees of lots, only if he retains part of the land.[21] There would have been merit in the argument of petitioners - that respondent, having relinquished ownership of the subdivision to the homeowners, is precluded from claiming any right or interest on the same property - had not the homeowners' association, confirmed by its board of directors, allowed respondent to enforce the provisions of the restrictive covenant.

Finally, petitioners argue that for lack of a specific provision, prescribing the penalty of demolition in the "Restrictive Covenant" in the event of a breach thereof, the prayer of respondent to demolish the structure should fail. This argument has no merit; Article 1168 of the New Civil Code states:

"When the obligation consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense."

This Court is not unaware of its ruling in Ayala Corporation vs. Ray Burton Development Corporation,[22] which has merely adjudged the payment of damages in lieu of demolition. In the aforementioned case, however, the elaborate mathematical formula for the determination of compensatory damages which takes into account the current construction cost index during the immediately preceding 5 years based on the weighted average of wholesale price and wage indices of the National Census and Statistics Office and the Bureau of Labor Statistics is explicitly provided for in the Deed of Restrictions entered into by the parties. This unique and peculiar circumstance, among other strong justifications therein mentioned, is not extant in the case at bar.

In sum, the Court holds that -

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(1)....The provisions of the Restrictive Covenant are valid;

(2)....Petitioners must be held to be bound thereby; and

(3)....Since the extension constructed exceeds the floor area limits of the Restrictive Covenant, petitioner-spouses can be required to demolish the structure to the extent that it exceeds the prescribed floor area limits.

WHEREFORE, the assailed decision, dated 13 July 1998, of the Court of Appeals in CA-G.R. CV No. 50085, sustaining that of the court a quo, is AFFIRMED. No costs.

SO ORDERED.

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SECOND DIVISION [G.R. No. 134971. March 25, 2004]

HERMINIO TAYAG, petitioner, vs. AMANCIA LACSON, ROSENDO LACSON, ANTONIO LACSON, JUAN LACSON, TEODISIA LACSON-ESPINOSA and THE COURT OF APPEALS, respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision[1] and the Resolution[2] of respondent Court of Appeals in CA-G.R. SP No. 44883.

The Case for the Petitioner

Respondents Angelica Tiotuyco Vda. de Lacson,[3] and her children Amancia, Antonio, Juan, and Teodosia, all surnamed Lacson, were the registered owners of three parcels of land located in Mabalacat, Pampanga, covered by Transfer Certificates of Title (TCT) Nos. 35922-R, 35923-R, and 35925-R, registered in the Register of Deeds of San Fernando, Pampanga. The properties, which were tenanted agricultural lands,[4] were administered by Renato Espinosa for the owner.

On March 17, 1996, a group of original farmers/tillers, namely, Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, and another group, namely, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores,[5] individually executed in favor of the petitioner separate Deeds of Assignment[6] in which the assignees assigned to the petitioner their respective rights as tenants/tillers of the landholdings possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was made payable “when the legal impediments to the sale of the property to the petitioner no

26

longer existed.” The petitioner was also granted the exclusive right to buy the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the property. In the interim, the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the said amounts.

On July 24, 1996, the petitioner called a meeting of the defendants-tenants to work out the implementation of the terms of their separate agreements.[7] However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the petitioner stating that they were not attending the meeting and instead gave notice of their collective decision to sell all their rights and interests, as tenants/lessees, over the landholding to the respondents.[8] Explaining their reasons for their collective decision, they wrote as follows:

Kami ay nagtiwala sa inyo, naging tapat at nanindigan sa lahat ng ating napagkasunduan, hindi tumanggap ng ibang buyer o ahente, pero sinira ninyo ang aming pagtitiwala sa pamamagitan ng demanda ninyo at pagbibigay ng problema sa amin na hindi naman nagbenta ng lupa.

Kaya kami ay nagpulong at nagpasya na ibenta na lang ang aming karapatan o ang aming lupang sinasaka sa landowner o sa mga pamilyang Lacson, dahil ayaw naming magkaroon ng problema.

Kaya kung ang sasabihin ninyong ito’y katangahan, lalo sigurong magiging katangahan kung ibebenta pa namin sa inyo ang aming lupang sinasaka, kaya pasensya na lang Mister Tayag. Dahil sinira ninyo ang aming pagtitiwala at katapatan.[9]

On August 19, 1996, the petitioner filed a complaint with the Regional Trial Court of San Fernando, Pampanga, Branch 44, against the defendants-tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment. The petitioner also prayed for a writ of preliminary injunction against the defendants and the respondents therein.[10] The case was docketed as Civil Case No. 10910.

27

In his complaint, the petitioner alleged, inter alia, the following:

4. That defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino, Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos are original farmers or direct tillers of landholdings over parcels of lands covered by Transfer Certificate of Title Nos. 35922-R, 35923-R and 35925-R which are registered in the names of defendants LACSONS; while defendants Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Alfredo Gozun, Jose Tiamson, Augusto Tolentino, Sixto Hernandez, Alex Quiambao, Isidro Tolentino, Ceferino de Leon, Alberto Hernandez, and Aurelio Flores are sub-tenants over the same parcel of land.

5. That on March 17, 1996 the defendants TIAMSON, et al., entered into Deeds of Assignment with the plaintiff by which the defendants assigned all their rights and interests on their landholdings to the plaintiff and that on the same date (March 17, 1996), the defendants received from the plaintiff partial payments in the amounts corresponding to their names. Subsequent payments were also received:

1st PAYMENT 2nd PAYMENT CHECK NO.

TOTAL

1.Julio Tiamson - - - - - -

P 20,000 P 10,621.54 231281 P 30,621.54

2. Renato Gozun - - - - - -

P 10,000 96,000 106,000.00

[son of Felix Gozun (deceased)]

3. Rosita Hernandez - - - -

P 5,000 14,374.24 231274 P 19,374.24

4. Bienvenido P 10,000 14,465.90 231285 24,465.90

28

Tongol - - -

[Son of Abundio Tongol (deceased)]

5. Alfonso Flores - - - - - -

P 30,000 26,648.40 231271 56,648.40

6. Norma Quiambao - - - -

P 10,000 41,501.10 231279 51,501.10

7. Rosita Tolentino - - - - -

P 10,000 22,126.08 231284 32,126.08

8. Jose Sosa - - - - - - - - -

P 10,000 14,861.31 231291 24,861.31

9. Francisco Tolentino, Sr.

P 10,000 24,237.62 231283 34,237.62

10. Emiliano Laxamana - -

P 10,000 ------ ------ ------

11. Ruben Torres - - - - - -

P 10,000 P 33,587.31 ------ P 43,587.31

[Son of Mariano Torres (deceased)]

12. Meliton Allanigue

P 10,000 12,944.77 231269 P 22,944.77

13. Dominga Laxamana

P 5,000 22,269.02 231275 27,269.02

14. Felicencia de Leon

10,000 ------ ------ ------

15. Emiliano Ramos 5,000 18,869.60 231280 23,869.60

16. Felino G. 10,000 ------ ------ ------

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Tolentino

17. Rica Gozun 5,000 ------ ------ ------

18. Perla Gozun 10,000 ------ ------ ------

19. Benigno Tolentino

10,000 ------ ------ ------

20. Rodolfo Quiambao

10,000 ------ ------ ------

21. Roman Laxamana

10,000 ------ ------ ------

22. Eddie San Luis

10,000 ------ ------ ------

23. Ricardo Hernandez

10,000 ------ ------ ------

24. Nicenciana Miranda

10,000 ------ ------ ------

25. Jose Gozun 10,000 ------ ------ ------

26. Alfredo Sosa 5,000 ------ ------ ------

27. Jose Tiamson 10,000 ------ ------ ------

28. Augusto Tolentino

5,000 ------ ------ ------

29. Sixto Hernandez

10,000 ------ ------ ------

30. Alex Quiambao 10,000 ------ ------ ------

31. Isidro 10,000 ------ ------ ------

30

Tolentino

32. Ceferino de Leon ------ 11,378.70 231270 ------

33. Alberto Hernandez

10,000 ------ ------ ------

34. Orlando Florez 10,000 ------ ------ ------

35. Aurelio Flores

10,000 ------ ------ ------

6. That on July 24, 1996, the plaintiff wrote the defendants TIAMSON, et al., inviting them for a meeting regarding the negotiations/implementations of the terms of their Deeds of Assignment;

7. That on August 8, 1996, the defendants TIAMSON, et al., through Joven Mariano, replied that they are no longer willing to pursue with the negotiations, and instead they gave notice to the plaintiff that they will sell all their rights and interests to the registered owners (defendants LACSONS).

A copy of the letter is hereto attached as Annex “A” etc.;

8. That the defendants TIAMSON, et. al., have no right to deal with the defendants LACSON or with any third persons while their contracts with the plaintiff are subsisting; defendants LACSONS are inducing or have induced the defendants TIAMSON, et. al., to violate their contracts with the plaintiff;

9. That by reason of the malicious acts of all the defendants, plaintiff suffered moral damages in the forms of mental anguish, mental torture and serious anxiety which in the sum of P500,000.00 for which defendants should be held liable jointly and severally.[11]

In support of his plea for injunctive relief, the petitioner, as plaintiff, also alleged the following in his complaint:

11. That to maintain the status quo, the defendants TIAMSON, et al., should be restrained from rescinding their contracts with the plaintiff, and the defendants

31

LACSONS should also be restrained from accepting any offer of sale or alienation with the defendants TIAMSON, et al., in whatever form, the latter’s rights and interests in the properties mentioned in paragraph 4 hereof; further, the LACSONS should be restrained from encumbering/alienating the subject properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R, Registry of Deeds of San Fernando, Pampanga;

12. That the defendants TIAMSON, et al., threaten to rescind their contracts with the plaintiff and are also bent on selling/alienating their rights and interests over the subject properties to their co-defendants (LACSONS) or any other persons to the damage and prejudice of the plaintiff who already invested much money, efforts and time in the said transactions;

13. That the plaintiff is entitled to the reliefs being demanded in the complaint;

14. That to prevent irreparable damages and prejudice to the plaintiff, as the latter has no speedy and adequate remedy under the ordinary course of law, it is essential that a Writ of Preliminary Injunction be issued enjoining and restraining the defendants TIAMSON, et al., from rescinding their contracts with the plaintiff and from selling/alienating their properties to the LACSONS or other persons;

15. That the plaintiff is willing and able to put up a reasonable bond to answer for the damages which the defendants would suffer should the injunction prayed for and granted be found without basis.[12]

The petitioner prayed, that after the proceedings, judgment be rendered as follows:

1. Pending the hearing, a Writ of Preliminary Injunction be issued prohibiting, enjoining and restraining defendants Julio Tiamson, Renato Gozun, Rosita Hernandez, Bienvenido Tongol, Alfonso Flores, Norma Quiambao, Rosita Tolentino, Jose Sosa, Francisco Tolentino Sr., Emiliano Laxamana, Ruben Torres, Meliton Allanigue, Dominga Laxamana, Felicencia de Leon, Emiliano Ramos, Felino G. Tolentino, Rica Gozun, Perla Gozun, Benigno Tolentino, Rodolfo Quiambao, Roman Laxamana, Eddie San Luis, Ricardo Hernandez, Nicenciana Miranda, Jose Gozun, Alfredo Sosa, Jose Tiamson, Augusto Tolentino, Ceferino de Leon, Alberto Hernandez, Orlando Flores, and Aurelio Flores from rescinding their contracts with

32

the plaintiff and from alienating their rights and interest over the aforementioned properties in favor of defendants LACSONS or any other third persons; and prohibiting the defendants LACSONS from encumbering/alienating TCT Nos. 35922-R, 35923-R and 35925-R of the Registry of Deeds of San Fernando, Pampanga.

2. And pending the hearing of the Prayer for a Writ of Preliminary Injunction, it is prayed that a restraining order be issued restraining the aforementioned defendants (TIAMSON, et al.) from rescinding their contracts with the plaintiff and from alienating the subject properties to the defendants LACSONS or any third persons; further, restraining and enjoining the defendants LACSONS from encumbering/selling the properties covered by TCT Nos. 35922-R, 35923-R, and 35925-R of the Registry of Deeds of San Fernando, Pampanga.

3. Fixing the period within which plaintiff shall pay the balance of the purchase price to the defendants TIAMSON, et al., after the lapse of legal impediment, if any.

4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants to pay the plaintiff the sum of P500,000.00 as moral damages;

6. Ordering the defendants to pay the plaintiff attorney’s fees in the sum of P100,000.00 plus litigation expenses of P50,000.00;

Plaintiff prays for such other relief as may be just and equitable under the premises.[13]

In their answer to the complaint, the respondents as defendants asserted that (a) the defendant Angelica Vda. de Lacson had died on April 24, 1993; (b) twelve of the defendants were tenants/lessees of respondents, but the tenancy status of the rest of the defendants was uncertain; (c) they never induced the defendants Tiamson to violate their contracts with the petitioner; and, (d) being merely tenants-tillers, the defendants-tenants had no right to enter into any transactions involving their properties without their knowledge and consent. They also averred that the transfers or assignments of leasehold rights made by the defendants-

33

tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).[14] The respondents interposed counterclaims for damages against the petitioner as plaintiff.

The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages, that the money each of them received from the petitioner were in the form of loans, and that they were deceived into signing the deeds of assignment:

a) That all the foregoing allegations in the Answer are hereby repleaded and incorporated in so far as they are material and relevant herein;

b) That the defendants Tiamson, et al., in so far as the Deeds of Assignment are concern[ed] never knew that what they did sign is a Deed of Assignment. What they knew was that they were made to sign a document that will serve as a receipt for the loan granted [to] them by the plaintiff;

c) That the Deeds of Assignment were signed through the employment of fraud, deceit and false pretenses of plaintiff and made the defendants believe that what they sign[ed] was a mere receipt for amounts received by way of loans;

d) That the documents signed in blank were filled up and completed after the defendants Tiamson, et al., signed the documents and their completion and accomplishment was done in the absence of said defendants and, worst of all, defendants were not provided a copy thereof;

e) That as completed, the Deeds of Assignment reflected that the defendants Tiamson, et al., did assign all their rights and interests in the properties or landholdings they were tilling in favor of the plaintiff. That if this is so, assuming arguendo that the documents were voluntarily executed, the defendants Tiamson, et al., do not have any right to transfer their interest in the landholdings they are tilling as they have no right whatsoever in the landholdings, the landholdings belong to their co-defendants, Lacson, et al., and therefore, the contract is null and void;

34

f) That while it is admitted that the defendants Tiamson, et al., received sums of money from plaintiffs, the same were received as approved loans granted by plaintiff to the defendants Tiamson, et al., and not as part consideration of the alleged Deeds of Assignment; and by way of:…[15]

At the hearing of the petitioner’s plea for a writ of preliminary injunction, the respondents’ counsel failed to appear. In support of his plea for a writ of preliminary injunction, the petitioner adduced in evidence the Deeds of Assignment,[16] the receipts[17] issued by the defendants-tenants for the amounts they received from him; and the letter[18] the petitioner received from the defendants-tenants. The petitioner then rested his case.

The respondents, thereafter, filed a Comment/Motion to dismiss/deny the petitioner’s plea for injunctive relief on the following grounds: (a) the Deeds of Assignment executed by the defendants-tenants were contrary to public policy and P.D. No. 27 and Rep. Act No. 6657; (b) the petitioner failed to prove that the respondents induced the defendants-tenants to renege on their obligations under the “Deeds of Assignment;” (c) not being privy to the said deeds, the respondents are not bound by the said deeds; and, (d) the respondents had the absolute right to sell and dispose of their property and to encumber the same and cannot be enjoined from doing so by the trial court.

The petitioner opposed the motion, contending that it was premature for the trial court to resolve his plea for injunctive relief, before the respondents and the defendants-tenants adduced evidence in opposition thereto, to afford the petitioner a chance to adduce rebuttal evidence and prove his entitlement to a writ of preliminary injunction. The respondents replied that it was the burden of the petitioner to establish the requisites of a writ of preliminary injunction without any evidence on their part, and that they were not bound to adduce any evidence in opposition to the petitioner’s plea for a writ of preliminary injunction.

On February 13, 1997, the court issued an Order[19] denying the motion of the respondents for being premature. It directed the hearing to proceed for the respondents to adduce their evidence. The court ruled that the petitioner, on the basis of the material allegations of the complaint, was entitled to injunctive relief. It also held that before the court could resolve the petitioner’s plea for injunctive relief, there was need for a hearing to enable the respondents and the defendants-tenants to adduce evidence to controvert that of the petitioner. The

35

respondents filed a motion for reconsideration, which the court denied in its Order dated April 16, 1997. The trial court ruled that on the face of the averments of the complaint, the pleadings of the parties and the evidence adduced by the petitioner, the latter was entitled to injunctive relief unless the respondents and the defendants-tenants adduced controverting evidence.

The respondents, the petitioners therein, filed a petition for certiorari in the Court of Appeals for the nullification of the February 13, 1997 and April 16, 1997 Orders of the trial court. The case was docketed as CA-G.R. SP No. 44883. The petitioners therein prayed in their petition that:

1. An order be issued declaring the orders of respondent court dated February 13, 1997 and April 16, 1997 as null and void;

2. An order be issued directing the respondent court to issue an order denying the application of respondent Herminio Tayag for the issuance of a Writ of Preliminary Injunction and/or restraining order.

3. In the meantime, a Writ of Preliminary Injunction be issued against the respondent court, prohibiting it from issuing its own writ of injunction against Petitioners, and thereafter making said injunction to be issued by this Court permanent.

Such other orders as may be deemed just & equitable under the premises also prayed for.[20]

The respondents asserted that the Deeds of Assignment executed by the assignees in favor of the petitioner were contrary to paragraph 13 of P.D. No. 27 and the second paragraph of Section 70 of Rep. Act No. 6657, and, as such, could not be enforced by the petitioner for being null and void. The respondents also claimed that the enforcement of the deeds of assignment was subject to a supervening condition:

3. That this exclusive and absolute right given to the assignee shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE.[21]

The respondents argued that until such condition took place, the petitioner would not acquire any right to enforce the deeds by injunctive

36

relief. Furthermore, the petitioner’s plea in his complaint before the trial court, to fix a period within which to pay the balance of the amounts due to the tenants under said deeds after the “lapse” of any legal impediment, assumed that the deeds were valid, when, in fact and in law, they were not. According to the respondents, they were not parties to the deeds of assignment; hence, they were not bound by the said deeds. The issuance of a writ of preliminary injunction would restrict and impede the exercise of their right to dispose of their property, as provided for in Article 428 of the New Civil Code. They asserted that the petitioner had no cause of action against them and the defendants-tenants.

On April 17, 1998, the Court of Appeals rendered its decision against the petitioner, annulling and setting aside the assailed orders of the trial court; and permanently enjoining the said trial court from proceeding with Civil Case No. 10901. The decretal portion of the decision reads as follows:

However, even if private respondent is denied of the injunctive relief he demands in the lower court still he could avail of other course of action in order to protect his interest such as the institution of a simple civil case of collection of money against TIAMSON, et al.

For all the foregoing considerations, the orders dated 13 February 1997 and 16 April 1997 are hereby NULLIFIED and ordered SET ASIDE for having been issued with grave abuse of discretion amounting to lack or excess of jurisdiction. Accordingly, public respondent is permanently enjoined from proceeding with the case designated as Civil Case No. 10901.[22]

The CA ruled that the respondents could not be enjoined from alienating or even encumbering their property, especially so since they were not privies to the deeds of assignment executed by the defendants-tenants. The defendants-tenants were not yet owners of the portions of the landholdings respectively tilled by them; as such, they had nothing to assign to the petitioner. Finally, the CA ruled that the deeds of assignment executed by the defendants-tenants were contrary to P.D. No. 27 and Rep. Act No. 6657.

On August 4, 1998, the CA issued a Resolution denying the petitioner’s motion for reconsideration.[23]

37

Hence, the petitioner filed his petition for review on certiorari before this Court, contending as follows:

I

A MERE ALLEGATION IN THE ANSWER OF THE TENANTS COULD NOT BE USED AS EVIDENCE OR BASIS FOR ANY CONCLUSION, AS THIS ALLEGATION, IS STILL THE SUBJECT OF TRIAL IN THE LOWER COURT (RTC).[24]

II

THE COURT OF APPEALS CANNOT ENJOIN THE HEARING OF A PETITION FOR PRELIMINARY INJUNCTION AT A TIME WHEN THE LOWER COURT (RTC) IS STILL RECEIVING EVIDENCE PRECISELY TO DETERMINE WHETHER OR NOT THE WRIT OF PRELIMINARY INJUNCTION BEING PRAYED FOR BY TAYAG SHOULD BE GRANTED OR NOT.[25]

III

THE COURT OF APPEALS CANNOT USE “FACTS” NOT IN EVIDENCE, TO SUPPORT ITS CONCLUSION THAT THE TENANTS ARE NOT YET “AWARDEES OF THE LAND REFORM.[26]

IV

THE COURT OF APPEALS CANNOT CAUSE THE PERMANENT STOPPAGE OF THE ENTIRE PROCEEDINGS BELOW INCLUDING THE TRIAL ON THE MERITS OF THE CASE CONSIDERING THAT THE ISSUE INVOLVED ONLY THE PROPRIETY OF MAINTAINING THE STATUS QUO.[27]

V

THE COURT OF APPEALS CANNOT INCLUDE IN ITS DECISION THE CASE OF THE OTHER 35 TENANTS WHO DO NOT QUESTION THE JURISDICTION OF THE LOWER COURT (RTC) OVER THE CASE AND WHO ARE IN FACT STILL PRESENTING THEIR EVIDENCE TO OPPOSE THE INJUNCTION PRAYED FOR, AND TO PROVE AT THE SAME TIME THE COUNTER-CLAIMS THEY FILED AGAINST THE PETITIONER.[28]

VI

38

THE LOWER COURT (RTC) HAS JURISDICTION OVER THE CASE FILED BY TAYAG FOR “FIXING OF PERIOD” UNDER ART. 1197 OF THE NEW CIVIL CODE AND FOR “DAMAGES” AGAINST THE LACSONS UNDER ART. 1314 OF THE SAME CODE. THIS CASE CANNOT BE SUPPRESSED OR RENDERED NUGATORY UNCEREMONIOUSLY.[29]

The petitioner faults the Court of Appeals for permanently enjoining the trial court from proceeding with Civil Case No. 10910. He opines that the same was too drastic, tantamount to a dismissal of the case. He argues that at that stage, it was premature for the appellate court to determine the merits of the case since no evidentiary hearing thereon was conducted by the trial court. This, the Court of Appeals cannot do, since neither party moved for the dismissal of Civil Case No. 10910. The petitioner points out that the Court of Appeals, in making its findings, went beyond the issue raised by the private respondents, namely, whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction when it denied the respondent’s motion for the denial/dismissal of the petitioner’s plea for a writ of preliminary injunction. He, likewise, points out that the appellate court erroneously presumed that the leaseholders were not DAR awardees and that the deeds of assignment were contrary to law. He contends that leasehold tenants are not prohibited from conveying or waiving their leasehold rights in his favor. He insists that there is nothing illegal with his contracts with the leaseholders, since the same shall be effected only when there are no more “legal impediments.”

At bottom, the petitioner contends that, at that stage, it was premature for the appellate court to determine the merits of his case since no evidentiary hearing on the merits of his complaint had yet been conducted by the trial court.

The Comment/Motion of the Respondents to Dismiss/Deny Petitioner’s Plea for a Writ of Preliminary Injunction Was Not Premature.

Contrary to the ruling of the trial court, the motion of the respondents to dismiss/deny the petitioner’s plea for a writ of preliminary injunction after the petitioner had adduced his evidence, testimonial and documentary, and had rested his case on the incident, was proper and timely. It bears stressing that the

39

petitioner had the burden to prove his right to a writ of preliminary injunction. He may rely solely on the material allegations of his complaint or adduce evidence in support thereof. The petitioner adduced his evidence to support his plea for a writ of preliminary injunction against the respondents and the defendants-tenants and rested his case on the said incident. The respondents then had three options: (a) file a motion to deny/dismiss the motion on the ground that the petitioner failed to discharge his burden to prove the factual and legal basis for his plea for a writ of preliminary injunction and, if the trial court denies his motion, for them to adduce evidence in opposition to the petitioner’s plea; (b) forgo their motion and adduce testimonial and/or documentary evidence in opposition to the petitioner’s plea for a writ of preliminary injunction; or, (c) waive their right to adduce evidence and submit the incident for consideration on the basis of the pleadings of the parties and the evidence of the petitioner. The respondents opted not to adduce any evidence, and instead filed a motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction against them, on their claim that the petitioner failed to prove his entitlement thereto. The trial court cannot compel the respondents to adduce evidence in opposition to the petitioner’s plea if the respondents opt to waive their right to adduce such evidence. Thus, the trial court should have resolved the respondents’ motion even without the latter’s opposition and the presentation of evidence thereon.

The RTC Committed a Grave Abuse of Discretion Amounting to Excess or Lack of Jurisdiction in Issuing its February 13, 1997 and April 16, 1997 Orders

In its February 13, 1997 Order, the trial court ruled that the petitioner was entitled to a writ of preliminary injunction against the respondents on the basis of the material averments of the complaint. In its April 16, 1997 Order, the trial court denied the respondents’ motion for reconsideration of the previous order, on its finding that the petitioner was entitled to a writ of preliminary injunction based on the material allegations of his complaint, the evidence on record, the pleadings of the parties, as well as the applicable laws:

… For the record, the Court denied the LACSONS’ COMMENT/MOTION on the basis of the facts culled from the evidence presented, the pleadings and the law

40

applicable unswayed by the partisan or personal interests, public opinion or fear of criticism (Canon 3, Rule 3.02, Code of Judicial Ethics).[30]

Section 3, Rule 58 of the Rules of Court, as amended, enumerates the grounds for the issuance of a writ of preliminary injunction, thus:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

A preliminary injunction is an extraordinary event calculated to preserve or maintain the status quo of things ante litem and is generally availed of to prevent actual or threatened acts, until the merits of the case can be heard. Injunction is accepted as the strong arm of equity or a transcendent remedy.[31] While generally the grant of a writ of preliminary injunction rests on the sound discretion of the trial court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion.[32] Indeed, in Olalia v. Hizon,[33] we held:

It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an adequate or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not be granted lightly or precipitately. It

41

should be granted only when the court is fully satisfied that the law permits it and the emergency demands it.[34]

The very foundation of the jurisdiction to issue writ of injunction rests in the existence of a cause of action and in the probability of irreparable injury, inadequacy of pecuniary compensation and the prevention of the multiplicity of suits. Where facts are not shown to bring the case within these conditions, the relief of injunction should be refused.[35]

For the court to issue a writ of preliminary injunction, the petitioner was burdened to establish the following: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious damage.[36] Thus, in the absence of a clear legal right, the issuance of the injunctive writ constitutes a grave abuse of discretion. Where the complainant’s right is doubtful or disputed, injunction is not proper. Injunction is a preservative remedy aimed at protecting substantial rights and interests. It is not designed to protect contingent or future rights. The possibility of irreparable damage without proof of adequate existing rights is not a ground for injunction.[37]

We have reviewed the pleadings of the parties and found that, as contended by the respondents, the petitioner failed to establish the essential requisites for the issuance of a writ of preliminary injunction. Hence, the trial court committed a grave abuse of its discretion amounting to excess or lack of jurisdiction in denying the respondents’ comment/motion as well as their motion for reconsideration.

First. The trial court cannot enjoin the respondents, at the instance of the petitioner, from selling, disposing of and encumbering their property. As the registered owners of the property, the respondents have the right to enjoy and dispose of their property without any other limitations than those established by law, in accordance with Article 428 of the Civil Code. The right to dispose of the property is the power of the owner to sell, encumber, transfer, and even destroy the property. Ownership also includes the right to recover the possession of the property from any other person to whom the owner has not transmitted such property, by the appropriate action for restitution, with the fruits, and for indemnification for damages.[38] The right of ownership of the respondents is not, of course, absolute. It is limited by those set forth by law, such as the agrarian

42

reform laws. Under Article 1306 of the New Civil Code, the respondents may enter into contracts covering their property with another under such terms and conditions as they may deem beneficial provided they are not contrary to law, morals, good conduct, public order or public policy.

The respondents cannot be enjoined from selling or encumbering their property simply and merely because they had executed Deeds of Assignment in favor of the petitioner, obliging themselves to assign and transfer their rights or interests as agricultural farmers/laborers/sub-tenants over the landholding, and granting the petitioner the exclusive right to buy the property subject to the occurrence of certain conditions. The respondents were not parties to the said deeds. There is no evidence that the respondents agreed, expressly or impliedly, to the said deeds or to the terms and conditions set forth therein. Indeed, they assailed the validity of the said deeds on their claim that the same were contrary to the letter and spirit of P.D. No. 27 and Rep. Act No. 6657. The petitioner even admitted when he testified that he did not know any of the respondents, and that he had not met any of them before he filed his complaint in the RTC. He did not even know that one of those whom he had impleaded as defendant, Angelica Vda. de Lacson, was already dead.

Q: But you have not met any of these Lacsons?

A: Not yet, sir.

Q: Do you know that two (2) of the defendants are residents of the United States?

A: I do not know, sir.

Q: You do not know also that Angela Tiotuvie (sic) Vda. de Lacson had already been dead?

A: I am aware of that, sir.[39]

We are one with the Court of Appeals in its ruling that:

We cannot see our way clear on how or why injunction should lie against petitioners. As owners of the lands being tilled by TIAMSON, et al., petitioners, under the law, have the right to enjoy and dispose of the same. Thus, they have the right to possess the lands, as well as the right to encumber or alienate

43

them. This principle of law notwithstanding, private respondent in the lower court sought to restrain the petitioners from encumbering and/or alienating the properties covered by TCT No. 35922-R, 35923-R and TCT No. 35925-R of the Registry of Deeds of San Fernando, Pampanga. This cannot be allowed to prosper since it would constitute a limitation or restriction, not otherwise established by law on their right of ownership, more so considering that petitioners were not even privy to the alleged transaction between private respondent and TIAMSON, et al.[40]

Second. A reading the averments of the complaint will show that the petitioner clearly has no cause of action against the respondents for the principal relief prayed for therein, for the trial court to fix a period within which to pay to each of the defendants-tenants the balance of the P50.00 per square meter, the consideration under the Deeds of Assignment executed by the defendants-tenants. The respondents are not parties or privies to the deeds of assignment. The matter of the period for the petitioner to pay the balance of the said amount to each of the defendants-tenants is an issue between them, the parties to the deed.

Third. On the face of the complaint, the action of the petitioner against the respondents and the defendants-tenants has no legal basis. Under the Deeds of Assignment, the obligation of the petitioner to pay to each of the defendants-tenants the balance of the purchase price was conditioned on the occurrence of the following events: (a) the respondents agree to sell their property to the petitioner; (b) the legal impediments to the sale of the landholding to the petitioner no longer exist; and, (c) the petitioner decides to buy the property. When he testified, the petitioner admitted that the legal impediments referred to in the deeds were (a) the respondents’ refusal to sell their property; and, (b) the lack of approval of the Department of Agrarian Reform:

Q : There is no specific agreement prior to the execution of those documents as when they will pay?

A : We agreed to that, that I will pay them when there are no legal impediment, sir.

Q : Many of the documents are unlattered (sic) and you want to convey to this Honorable Court that prior to the execution of these documents you

44

have those tentative agreement for instance that the amount or the cost of the price is to be paid when there are no legal impediment, you are using the word “legal impediment,” do you know the meaning of that?

A : When there are (sic) no more legal impediment exist, sir.

Q : Did you make how (sic) to the effect that the meaning of that phrase that you used the unlettered defendants?

A : We have agreed to that, sir.

ATTY. OCAMPO:

May I ask, Your Honor, that the witness please answer my question not to answer in the way he wanted it.

COURT:

Just answer the question, Mr. Tayag.

WITNESS:

Yes, Your Honor.

ATTY. OCAMPO:

Q : Did you explain to them?

A : Yes, sir.

Q : What did you tell them?

A : I explain[ed] to them, sir, that the legal impediment then especially if the Lacsons will not agree to sell their shares to me or to us it would be hard to (sic) me to pay them in full. And those covered by DAR. I explain[ed] to them and it was clearly stated in the title that there is [a] prohibited period of time before you can sell the property. I explained every detail to them.[41]

It is only upon the occurrence of the foregoing conditions that the petitioner would be obliged to pay to the defendants-tenants the balance of the P50.00 per square meter under the deeds of assignment. Thus:

2. That in case the ASSIGNOR and LANDOWNER will mutually agree to sell the said lot to the ASSIGNEE, who is given an exclusive and absolute right to buy the lot,

45

the ASSIGNOR shall receive the sum of FIFTY PESOS (P50.00) per square meter as consideration of the total area actually tilled and possessed by the ASSIGNOR, less whatever amount received by the ASSIGNOR including commissions, taxes and all allowable deductions relative to the sale of the subject properties.

3. That this exclusive and absolute right given to the ASSIGNEE shall be exercised only when no legal impediments exist to the lot to effect the smooth transfer of lawful ownership of the lot/property in the name of the ASSIGNEE;

4. That the ASSIGNOR will remain in peaceful possession over the said property and shall enjoy the fruits/earnings and/or harvest of the said lot until such time that full payment of the agreed purchase price had been made by the ASSIGNEE.[42]

There is no showing in the petitioner’s complaint that the respondents had agreed to sell their property, and that the legal impediments to the agreement no longer existed. The petitioner and the defendants-tenants had yet to submit the Deeds of Assignment to the Department of Agrarian Reform which, in turn, had to act on and approve or disapprove the same. In fact, as alleged by the petitioner in his complaint, he was yet to meet with the defendants-tenants to discuss the implementation of the deeds of assignment. Unless and until the Department of Agrarian Reform approved the said deeds, if at all, the petitioner had no right to enforce the same in a court of law by asking the trial court to fix a period within which to pay the balance of the purchase price and praying for injunctive relief.

We do not agree with the contention of the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts.[43] An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract.[44] The second party gets in praesenti, not lands, not an

46

agreement that he shall have the lands, but the right to call for and receive lands if he elects.[45] An option contract is a separate and distinct contract from which the parties may enter into upon the conjunction of the option.[46]

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered owners of the property. Not being the registered owners of the property, the defendants-tenants could not legally grant to the petitioner the option, much less the “exclusive right” to buy the property. As the Latin saying goes, “NEMO DAT QUOD NON HABET.”

Fourth. The petitioner impleaded the respondents as parties-defendants solely on his allegation that the latter induced or are inducing the defendants-tenants to violate the deeds of assignment, contrary to the provisions of Article 1314 of the New Civil Code which reads:

Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.

In So Ping Bun v. Court of Appeals,[47] we held that for the said law to apply, the pleader is burdened to prove the following: (1) the existence of a valid contract; (2) knowledge by the third person of the existence of the contract; and (3) interference by the third person in the contractual relation without legal justification.

Where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.[48]

In fine, one who is not a party to a contract and who interferes thereon is not necessarily an officious or malicious intermeddler. The only evidence adduced by the petitioner to prove his claim is the letter from the defendants-tenants informing him that they had decided to sell their rights and interests over the landholding to the respondents, instead of honoring their obligation under the deeds of assignment because, according to them, the petitioner harassed those

47

tenants who did not want to execute deeds of assignment in his favor, and because the said defendants-tenants did not want to have any problem with the respondents who could cause their eviction for executing with the petitioner the deeds of assignment as the said deeds are in violation of P.D. No. 27 and Rep. Act No. 6657.[49] The defendants-tenants did not allege therein that the respondents induced them to breach their contracts with the petitioner. The petitioner himself admitted when he testified that his claim that the respondents induced the defendants-assignees to violate contracts with him was based merely on what “he heard,” thus:

Q: Going to your last statement that the Lacsons induces (sic) the defendants, did you see that the Lacsons were inducing the defendants?

A: I heard and sometime in [the] first week of August, sir, they went in the barrio (sic). As a matter of fact, that is the reason why they sent me letter that they will sell it to the Lacsons.

Q: Incidentally, do you knew (sic) these Lacsons individually?

A: No, sir, it was only Mr. Espinosa who I knew (sic) personally, the alleged negotiator and has the authority to sell the property.[50]

Even if the respondents received an offer from the defendants-tenants to assign and transfer their rights and interests on the landholding, the respondents cannot be enjoined from entertaining the said offer, or even negotiating with the defendants-tenants. The respondents could not even be expected to warn the defendants-tenants for executing the said deeds in violation of P.D. No. 27 and Rep. Act No. 6657. Under Section 22 of the latter law, beneficiaries under P.D. No. 27 who have culpably sold, disposed of, or abandoned their land, are disqualified from becoming beneficiaries.

From the pleadings of the petitioner, it is quite evident that his purpose in having the defendants-tenants execute the Deeds of Assignment in his favor was to acquire the landholding without any tenants thereon, in the event that the respondents agreed to sell the property to him. The petitioner knew that under Section 11 of Rep. Act No. 3844, if the respondents agreed to sell the property, the defendants-tenants shall have preferential right to buy the same under reasonable terms and conditions:

48

SECTION 11. Lessee’s Right of Pre-emption. – In case the agricultural lessor desires to sell the landholding, the agricultural lessee shall have the preferential right to buy the same under reasonable terms and conditions:Provided, That the entire landholding offered for sale must be pre-empted by the Land Authority if the landowner so desires, unless the majority of the lessees object to such acquisition: Provided, further, That where there are two or more agricultural lessees, each shall be entitled to said preferential right only to the extent of the area actually cultivated by him. …[51]

Under Section 12 of the law, if the property was sold to a third person without the knowledge of the tenants thereon, the latter shall have the right to redeem the same at a reasonable price and consideration. By assigning their rights and interests on the landholding under the deeds of assignment in favor of the petitioner, the defendants-tenants thereby waived, in favor of the petitioner, who is not a beneficiary under Section 22 of Rep. Act No. 6657, their rights of preemption or redemption under Rep. Act No. 3844. The defendants-tenants would then have to vacate the property in favor of the petitioner upon full payment of the purchase price. Instead of acquiring ownership of the portions of the landholding respectively tilled by them, the defendants-tenants would again become landless for a measly sum of P50.00 per square meter. The petitioner’s scheme is subversive, not only of public policy, but also of the letter and spirit of the agrarian laws. That the scheme of the petitioner had yet to take effect in the future or ten years hence is not a justification. The respondents may well argue that the agrarian laws had been violated by the defendants-tenants and the petitioner by the mere execution of the deeds of assignment. In fact, the petitioner has implemented the deeds by paying the defendants-tenants amounts of money and even sought their immediate implementation by setting a meeting with the defendants-tenants. In fine, the petitioner would not wait for ten years to evict the defendants-tenants. For him, time is of the essence.

The Appellate Court Erred In Permanently Enjoining The Regional Trial Court From Continuing with the Proceedings in Civil Case No. 10910.

49

We agree with the petitioner’s contention that the appellate court erred when it permanently enjoined the RTC from continuing with the proceedings in Civil Case No. 10910. The only issue before the appellate court was whether or not the trial court committed a grave abuse of discretion amounting to excess or lack of jurisdiction in denying the respondents’ motion to deny or dismiss the petitioner’s plea for a writ of preliminary injunction. Not one of the parties prayed to permanently enjoin the trial court from further proceeding with Civil Case No. 10910 or to dismiss the complaint. It bears stressing that the petitioner may still amend his complaint, and the respondents and the defendants-tenants may file motions to dismiss the complaint. By permanently enjoining the trial court from proceeding with Civil Case No. 10910, the appellate court acted arbitrarily and effectively dismissed the complaint motu proprio, including the counterclaims of the respondents and that of the defendants-tenants. The defendants-tenants were even deprived of their right to prove their special and affirmative defenses.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals nullifying the February 13, 1996 and April 16, 1997 Orders of the RTC is AFFIRMED. The writ of injunction issued by the Court of Appeals permanently enjoining the RTC from further proceeding with Civil Case No. 10910 is hereby LIFTED and SET ASIDE. The Regional Trial Court of Mabalacat, Pampanga, Branch 44, is ORDERED to continue with the proceedings in Civil Case No. 10910 as provided for by the Rules of Court, as amended.

SO ORDERED.

50

SECOND DIVISION

ROSS RICA SALES CENTER, G.R. No. 132197 INC. and JUANITO KING & SONS, INC., Present: Petitioners, PUNO, J.,

Chairman, AUSTRIA-MARTINEZ, - versus - CALLEJO, SR., TINGA, and

CHICO-NAZARIO, JJ.

SPOUSES GERRY ONG and ELIZABETH ONG, Promulgated: Respondents. August 16, 2005 x-------------------------------------------------------------------x

D E C I S I O N

TINGA, J.:

In a Decision[1] dated 6 January 1998, the Former First Division of the Court of

Appeals overturned the decisions of the Municipal Trial Court (MTC) and the

Regional Trial Court (RTC) of Mandaue City, ruling instead that the MTC had no

jurisdiction over the subject complaint for unlawful detainer. This petition for

review prays for the reversal of the aforesaid Court of Appeals’ Decision.

The case originated from a complaint for ejectment filed by petitioners

against respondents, docketed as Civil Case No. 2376, before the MTC of Mandaue

City, Branch I. In the complaint, petitioners alleged the fact of their ownership of

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three (3) parcels of land covered by Transfer Certificates of Title (TCT) Nos. 36466,

36467 and 36468. Petitioners likewise acknowledged respondent Elizabeth Ong’s

ownership of the lots previous to theirs. On 26 January 1995, Atty. Joseph M.

Baduel, representing Mandaue Prime Estate Realty, wrote respondents informing

them of its intent to use the lots and asking them to vacate within thirty (30) days

from receipt of the letter. But respondents refused to vacate, thereby unlawfully

withholding possession of said lots, so petitioners alleged.

Ross Rica Sales Center, Inc. and Juanito King and Sons, Inc. (petitioners) had

acquired the lands from Mandaue Prime Estate Realty through a sale made on 23

March 1995. In turn, it appears that Mandaue Prime Estate Realty had acquired

the properties from the respondents through a Deed of Absolute Sale dated 14

July 1994. However, this latter deed of sale and the transfers of title consequential

thereto were subsequently sought to be annulled by respondents in a complaint

filed on 13 February 1995 before the Mandaue RTC against Mandaue Prime Estate

Realty.[2] Per record, this case is still pending resolution.

Meanwhile, the MYC resolved the ejectment case on 24 April 1996, with the

decision ordering respondents to vacate the premises in question and to

peacefully turn over possession thereof to petitioners.

On appeal, the RTC rendered on 1 March 1997 a judgment affirming the

MTC’s decision in its entirety.

On 8 May 1997, respondents filed a notice of appeal. However, on the

following day, they filed a motion for reconsideration.

On 23 June 1997, the RTC issued an Order which concurrently gave due

course to respondents’ notice of appeal filed on 8 May 1997; denied their motion

for reconsideration dated 9 May 1997,[3] and granted petitioners’ motion for

immediate execution pending appeal.

52

In a Petition for Certiorari with Injunction filed with the Court of Appeals and

treated as a Petition for Review, the appellate court ruled that the MTC had no

jurisdiction over said case as there was no contract between the parties, express

or implied, as would qualify the same as one for unlawful detainer. Thus, the

assailed Orders of the MTC and RTC were set aside.

Petitioners then took this recourse via Petition for Review under Rule 45 of

the Rules of Court. The principal issues raised before this Court are: (i) whether

the RTC decision has already become final and executory at the time the petition

for review was filed; (ii) whether the allegations in the complaint constitute a case

for unlawful detainer properly cognizable by the MTC; and, (iii) whether

petitioners, as registered owners, are entitled to the possession of the subject

premises.

We resolve the first argument to be without merit.

The following sequence of events is undisputed:

(1) On 1 March 1997, the RTC rendered the questioned decision affirming

the judgment of the MTC.

(2) On 28 April 1997, respondents received a copy of the aforementioned

decision.

(3) On 8 May 1997, respondents filed a Notice of Appeal with the RTC.

(4) On 9 May 1997, respondents filed likewise with the RTC a Motion for

Reconsideration of the aforementioned 1 March 1997 decision.

(5) On 23 June 1997, the RTC of Mandaue issued an Order denying

respondents’ Motion for Reconsideration.

(6) On 9 July 1997, respondents received a copy of the aforementioned 23

June 1997 Order.

(7) On 24 July 1997, respondents filed with the Court of Appeals their motion

for an additional period of ten (10) days within which to file their

Petition for Review.

53

(8) On 30 July 1997, respondents filed with the Court of Appeals

their Petition for Review.

Petitioners assert that the Petition for Review was filed beyond the fifteen

(15)-day period for appeal. They theorize that the period started running on 28

April 1995, the date of receipt of the RTC decision, and ended on 13 May

1997. According to them, this reglementary period could not have been

interrupted by the filing on 9 May 1997 of the Motion for Reconsideration because

of the filing one day earlier of the Notice of Appeal. This Notice of Appeal dated 8

May 1997, albeit the wrong mode of appeal, expressly manifested their intention

to file a petition for review to either the Court of Appeals or the Supreme Court.[4]

Petitioners further argue that respondents, after having filed the Notice of

Appeal which was given due course by the RTC, cannot take an inconsistent stand

such as filing a Motion for Reconsideration. Such filing, therefore, did not toll the

fifteen (15)-day period which started running from the date of receipt of the RTC

decision on 28 April 1997 and ended on 13 May 1997.

Respondents, in their Comment,[5] submit that the filing of the Notice of

Appeal dated 8 May 1997 was improper, and as such did not produce any legal

effect. Therefore, the filing of the Motion for Reconsideration immediately on the

following day cured this defect. The RTC refused to subscribe respondents’

position. It justified the denial of the Motion for Reconsideration on the ground

that the respondents had already filed a Notice of Appeal. The Order dated 23

June 1997 stated:

On record is a Notice of Appeal by Certiorari filed by Defendants

on May 8, 1997. Likewise filed by Defendants on May 9, 1997 is a Motion for

Reconsideration.

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Considering the Notice of Appeal filed earlier which the court hereby approves, the Motion for Reconsideration is DENIED.

The Motion for Immediate Execution Pending Appeal being

meritorious, is GRANTED.[6] (Emphasis in the original.)

Strangely enough, the Court of Appeals passed no comment on this point

when it took cognizance of respondents’ position and reversed the RTC. But does

this necessarily mean that the RTC was correct when it declared that the Motion

for Reconsideration was barred by the filing of the Notice of Appeal, no matter

how erroneous the latter mode was?

Rule 42 governs the mode of appeal applicable in this case. Sec. 1 provides: Section 1. How appeal taken; time for filing. -- A party desiring to appeal from a decision of the RTC rendered in the exercise of its appellate jurisdiction may file a verified petition for review with the Court of Appeals, paying at the same time to the clerk of said court the corresponding docket and other lawful fees, depositing the amount of P500.00 for costs, and furnishing the Regional Trial Court and the adverse party with a copy of the petition. The petition shall be filed and served within fifteen (15) days from notice of the decision sought to be reviewed or of the denial of petitioner’s motion for new trial or reconsideration filed in due time after judgment. Upon proper motion and the payment of the full amount of the docket and other lawful fees and the deposit for costs before the expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days.

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Since the unlawful detainer case was filed with the MTC and affirmed by the

RTC, petitioners should have filed a Petition for Review with the Court of Appeals

and not a Notice of Appeal with the RTC. However, we consider this to have been

remedied by the timely filing of theMotion for Reconsideration on the following

day. Section 3, Rule 50 of the Rules of Court allows the withdrawal of appeal at

any time, as a matter of right, before the filing of the appellee’s brief. Applying

this rule contextually, the filing of the Motion for Reconsideration may be deemed

as an effective withdrawal of the defective Notice of Appeal.

Perforce, the period of appeal was tolled by the Motion for

Reconsideration and started to run again from the receipt of the order denying

the Motion for Reconsideration. A Motion for Additional Time to File the

Petition was likewise filed with the Court of Appeals. Counting fifteen (15) days

from receipt of the denial of the Motion for Reconsideration and the ten (10)-day

request for additional period, it is clear that respondents filed their Petition for

Review on time.

Petitioners invoke to the ruling in People v. De la Cruz[7] that once a notice of

appeal is filed, it cannot be validly withdrawn to give way to a motion for

reconsideration. The factual circumstances in the two cases are different.

De la Cruz is a criminal case, governed by criminal procedure. Section 3, Rule

122 of the Rules of Court provides that the proper mode of appeal from a decision

of the RTC is a notice of appeal and an appeal is deemed perfected upon filing of

the notice of appeal.

In the case at bar, a petition for review before the Court of Appeals is the

proper mode of appeal from a decision of the RTC. Since the filing of the notice of

appeal is erroneous, it is considered as if no appeal was interposed.

56

Now on the second and more important issue raised by petitioners: whether

the Complaint satisfies the jurisdictional requirements for a case of unlawful

detainer properly cognizable by the MTC.

The MTC considered itself as having jurisdiction over the ejectment

complaint and disposed of the same in favor of petitioners. Said ruling was

affirmed by the RTC. The Court of Appeals reversed the lower courts and found the

complaint to be one not for unlawful detainer based on two (2) grounds, namely:

that the allegations fail to show that petitioners were deprived of possession by

force, intimidation, threat, strategy or stealth; and that there is no contract,

express or implied, between the parties as would qualify the case as one of

unlawful detainer.

We disagree with the Court of Appeals.

The complaint for unlawful detainer contained the following material

allegations: . . . . 3. That plaintiffs are the owners of Lot No. 2, which is covered by T.C.T. No. 36466 of the Register of Deeds of Mandaue City, Lot No. 1-A which is covered by T.C.T. No. 36467 of the Register of Deeds of Mandaue City and Lot No. 86-A which is covered by T.C.T. No. 36468 of the Register of Deeds of Mandaue City, all situated in the City of Mandaue. Copies of said Transfer Certificate of Titles are hereto attached as Annexes “A”, “B”, and “C” respectively and made an integral part hereof; 4. That defendant Elizabeth Ong is the previous registered owner of said lots; 5. That as the previous registered owner of said lots, defendant Elizabeth Ong and her husband and co-defendant Jerry Ong have been living in the house constructed on said lots;

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6. That on May 6, 1995, plaintiffs, through the undersigned counsel, wrote defendants a letter informing them or their intent to use said lots and demanded of them to vacate said lots within 30 days from receipt of said letter. Copy of said letter is hereto attached as Annex “D” and made an integral part thereof; 7. That despite demand to vacate, the defendants have refused and still refuse to vacate said lots, thus, unlawfully withholding possession of said lots from plaintiffs and depriving plaintiffs of the use of their lots; 8. That in unlawfully withholding the possession of said lots from the plaintiffs, plaintiffs have suffered damages in the form of unearned rentals in the amount of P10,000.00 a month . . . .[8]

Well-settled is the rule that what determines the nature of an action as well

as which court has jurisdiction over it are the allegations of the complaint and the

character of the relief sought.[9]

Respondents contend that the complaint did not allege that petitioners’

possession was originally lawful but had ceased to be so due to the expiration of the right to possess by virtue of any express or implied contract.

The emphasis placed by the Court of Appeals on the presence of a contract

as a requisite to qualify the case as one of unlawful detainer contradicts the

various jurisprudence dealing on the matter.

In Javelosa v. Court of the Appeals,[10] it was held that the allegation in the

complaint that there was unlawful withholding of possession is sufficient to make

out a case for unlawful detainer. It is equally settled that in an action for unlawful

detainer, an allegation that the defendant is unlawfully withholding possession

58

from the plaintiff is deemed sufficient, without necessarily employing the

terminology of the law.[11]

Hence, the phrase "unlawful withholding" has been held to imply possession

on the part of defendant, which was legal in the beginning, having no other source

than a contract, express or implied, and which later expired as a right and is being

withheld by defendant.[12] InRosanna B. Barba v. Court of Appeals,[13] we held that

a simple allegation

that the defendant is unlawfully withholding possession from plaintiff is sufficient.

Based on this premise, the allegation in the Complaint that:

. . . . despite demand to vacate, the defendants have refused and still refuse to vacate said lots, thus, unlawfully withholding possession of said lots from plaintiffs and depriving plaintiffs of the use of their lots;[14]

is already sufficient to constitute an unlawful detainer case.

In the subject complaint, petitioners alleged that they are the registered

owners of the lots covered by TCT Nos. 36466, 36467 and 36468. By their implied

tolerance, they have allowed respondents, the former owners of the properties, to

remain therein. Nonetheless, they eventually sent a letter to respondents asking

that the latter vacate the said lots. Respondents refused, thereby depriving

petitioners of possession of the lots. Clearly, the complaint establishes the basic

elements of an unlawful detainer case, certainly sufficient for the purpose of

vesting jurisdiction over it in the MTC.

Respondents would like to capitalize on the requisites as cited in the case

of Raymundo dela Paz v. Panis.[15] But the citation is a mere reiteration of Sec. 1,

Rule 70[16] of the Rules of Court. The case doesid not provide for rigid standards in

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the drafting of the ejectment complaint. The case of Co Tiamco v. Diaz[17] justifies a

more liberal approach, thus:

. . . The principle underlying the brevity and simplicity of pleadings in forcible entry and unlawful detainer cases rests upon considerations of public policy. Cases of forcible entry and detainer are summary in nature, for they involve perturbation of social order which must be restored as promptly as possible and, accordingly, technicalities or details of procedure should be carefully avoided.[18]

Moreover, petitioners fail to mention any of the incidents of the pending

case involving the annulment of deed of sale and title over said

property. Petitioners know better than to question this in an ejectment

proceeding, which brings us to the nature of the action in this case.

Respondents insist that the RTC, and not the MTC, had jurisdiction over the

action, it being an accion reivindicatoria according to them, on the ground that

petitioners were constantly claiming ownership over the lands in the guise of filing

an action for ejectment. In theirComment,[19] respondents maintain that they

occupy the subject lots as the legal owners. Petitioners, on the other hand, are

seeking recovery of possession under a claim of ownership which is tantamount to

recovery of possession based on alleged title to the lands, and therefore is within

the original jurisdiction of the RTC, so respondents conclude.

This contention is not tenable.

The issue involved in accion reivindicatoria is the recovery of ownership of

real property. This differs from accion publiciana where the issue is the better

right of possession or possession de jure, and accion interdictal where the issue is

material possession or possession de facto. In an action for unlawful detainer, the

question of possession is primordial while the issue of ownership is generally

unessential.[20]

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Neither the allegation in petitioners’ complaint for ejectment nor the

defenses thereto raised by respondents sufficiently convert this case into

an accion reivindicatoria which is beyond the province of the MTC to decide.

Petitioners did not institute the complaint for ejectment as a means of claiming or

obtaining ownership of the properties. The acknowledgment in their pleadings of

the fact of prior ownership by respondents does not constitute a recognition of

respondents’ present ownership. This is meant only to establish one of the

necessary elements for a case of unlawful detainer, specifically the unlawful

withholding of possession. Petitioners, in all their pleadings, only sought to recover

physical possession of the subject property. The mere fact that they claim

ownership over the parcels of land as well did not deprive the MTC of jurisdiction

to try the ejectment case.

Even if respondents claim ownership as a defense to the complaint for

ejectment, the conclusion would be the same for mere assertion of ownership by

the defendant in an ejectment case will not therefore oust the municipal court of

its summary jurisdiction.[21] This Court in Ganadin v. Ramos[22] stated that if what

is prayed for is ejectment or recovery of possession, it does not matter if

ownership is claimed by either party. Therefore, the pending actions for

declaration of nullity of deed of sale and Transfer Certificates of Title and quieting

of title in Civil Case No. MAN-2356 will not abate the ejectment case.

In Drilon v. Gaurana,[23] this Court ruled that the filing of an action for

reconveyance of title over the same property or for annulment of the deed of sale

over the land does not divest the MTC of its jurisdiction to try the forcible entry or

unlawful detainer case before it, the rationale being that, while there may be

identity of parties and subject matter in the forcible entry case and the suit for

annulment of title and/or reconveyance, the rights asserted and the relief prayed

for are not the same.[24]

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In Oronce v. Court of Appeals,[25] this Court held that the fact that

respondents had previously filed a separate action for the reformation of a deed of

absolute sale into one of pacto de retro sale or equitable mortgage in the same

Court of First Instance is not a valid reason to frustrate the summary remedy of

ejectment afforded by law to the plaintiff. Consequently, an adjudication made in

an ejectment proceeding regarding the issue of ownership should be regarded as

merely provisional and, therefore, would not bar or prejudice an action between

the same parties involving title to the land. The foregoing doctrine is a necessary

consequence of the nature of forcible entry and unlawful detainer cases where the

only issue to be settled is the physical or material possession over the real

property, that is, possession de facto and not possession de jure.

The Court reiterated this in the case of Tecson v. Gutierrez[26] when it ruled:

We must stress, however, that before us is only the initial

determination of ownership over the lot in dispute, for the purpose of settling the issue of possession, although the issue of ownership is inseparably linked thereto. As such, the lower court's adjudication of ownership in the ejectment case is merely provisional, and our affirmance of the trial courts' decisions as well, would not bar or prejudice an action between the same parties involving title to the property, if and when such action is brought seasonably before the proper forum.

The long settled rule is that the issue of ownership cannot be subject of a

collateral attack.

In Apostol v. Court of Appeals,[27] this Court had the occasion to clarify this:

. . . Under Section 48 of Presidential Decree No. 1529, a certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled, except in a direct proceeding for that purpose in

62

accordance with law. The issue of the validity of the title of the respondents can only be assailed in an action expressly instituted for that purpose. Whether or not the petitioners have the right to claim ownership over the property is beyond the power of the court a quo to determine in an action for unlawful detainer.[28]

With the conclusion of the second issue in favor of petitioners, there is no

need to discuss the third assignment of error which is related to the second issue.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals

dated 6 January 1998 is REVERSED and SET ASIDE and the Decision dated 24

April 1996 of the Municipal Trial Court of Mandaue City REINSTATED and

AFFIRMED. Costs against respondents. SO ORDERED.

63

ARTICLE 429

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,

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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

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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

66

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.

67

FIRST DIVISION

G.R. No. L-48250 December 28, 1979

GRAND UNION SUPERMARKET, INC. and NELIA SANTOS FANDINO, petitioners, vs. JOSE J. ESPINO JR., and THE HONORABLE COURT OF APPEALS, respondents.

GUERRERO, J.

This is a petition tor certiorari by way of appeal from the decision of the Court of Appeals 1 dated September 26, 1977 rendered in CA-G.R. No. 55186-R entitled "Jose J. Espino, Jr., plaintiff-appellant. versus Grand Union Supermarket, Inc. and Nelia Santos-Fandino, defendants-appellees," the dispositive portion of which states;

WHEREFORE, the appealed judgment is hereby reversed and set aside. Defendants are ordered to pay plaintiff-jointly and severally, the sum of Seventy-Five Thousand Pesos (P75,000.00) by way of moral damages. Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages, and Five Thousand Pesos (P5,000.00) as attorney's fee, Costs of both instances shall be taxed against the defendant defendants.

The facts of the case are as stated in the decision of the respondent court to wit:

"Upon the evidence, and from the findings of the lower court, it appears that in the morning of August 22, 1970, plaintiff Jose J. Espino. Jr., a civil engineer and an executive of Procter and Gamble Philippines, Inc., and his wife and their two daughters went to shop at the defendants' South Supermarket in Makati. While his wife was shopping at the groceries section, plaintiff browsed around the other parts of the market. Finding a cylindrical "rat tail" file which he needed in his hobby and had been wanting to buy, plaintiff picked up that item from one of the shelves. He held it in his hand thinking that it might be lost, because of its tiny size, if he put it in his wife's grocery cart. In the course of their shopping, plaintiff and his wife saw the maid of plaintiff's aunt. While talking to this maid, plaintiff stuck

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the file into the front breast pocket of his shirt with a good part of the merchandise exposed.

"At the check-out counter, the plaintiff paid for his wife's purchases which amounted to P77.00, but he forgot to pay for the file. As he was leaving by the exit of the supermarket on his way to his car, carrying two bags of groceries and accompanied by his wife and two daughter, plaintiff was approached by a uniformed guard of the supermarket who said: "Excuse me, Mr., I think you have something in your pocket which you have not paid for." (p. 5, tsn, Aug. 13, 1971), pointing to his left front breast pocket. Suddenly reminded of the file, plaintiff apologized thus: "I am sorry," and he turned back toward the cashier to pay for the file. But the guard stopped him and led him instead toward the rear of the supermarket. The plaintiff protested but the guard was firm saying: "No, Mr., please come with me. It is the procedure of the supermarket to bring people that we apprehend to the back of the supermarket" (p. 8, Ibid). The time was between 9 and 10 o'clock. A crowd of customers on their way into the supermarket saw the plaintiff being stopped and led by a uniformed guard toward the rear of the supermarket. Plaintiff acquiesced and signaled to his wife and daughters to wait.

"Into a cubicle which was immediately adjacent to the area where deliveries to the supermarket were being made, the plaintiff was ushered. The guard directed him to a table and gave the file to the man seated at the desk. Another man stood beside the plaintiff. The man at the desk looked at the plaintiff and the latter immediately explained the circumstances that led to the finding of the file in his possession. The man at the desk pulled out a sheet of paper and began to ask plaintiff's name, age, residence and other personal data. Plaintiff was asked to make a brief statement, and on the sheet of paper or "Incident Report" he wrote down the following: "While talking to my aunt's maid with my wife, I put this item in my shirt pocket. I forgot to check it out with my wife's items" (Exhibit A). Meanwhile, the plaintiff's wife joined him and asked what had taken him so long.

"The guard who had accosted plaintiff took him back inside the supermarket in the company of his wife. Plaintiff and his wife were directed across the main entrance to the shopping area, down the line of check-out counters, to a desk beside the first checkout counter. To the woman seated at the desk, who turned out to be defendant Nelia Santos-Fandino, the guard presented the incident report and the

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file, Exhibit B. Defendant Fandino read the report and addressing the guard remarked: "Ano, nakaw na naman ito" (p. 22, Id.). Plaintiff explained and narrated the incident that led to the finding of the file in his pocket, telling Fandino that he was going to pay for the file because he needed it. But this defendant replied: "That is all they say, the people whom we cause not paying for the goods say... They all intended to pay for the things that are found to them." (p. 23, Id). Plaintiff objected and said that he was a regular customer of the supermarket.

"Extracting a P5.00 bill from his pocket, plaintiff told Fandino that he was paying for the file whose cost was P3.85. Fandino reached over and took the P5.00 bill from plaintiff with these words: "We are fining you P5.00. That is your the fine." Plaintiff was shocked. He and his wife objected vigorously that he was not a common criminal, and they wanted to get back the P5.00. But Fandino told them that the money would be given as an incentive to the guards who apprehend pilferers. People were milling around them and staring at the plaintiff. Plaintiff gave up the discussion. He drew a P50.00 bill and took back the file. Fandino directed him to the nearest check-out counter where he had to fall in line. The people who heard the exchange of words between Fandino and plaintiff continued to stare at him. At the trial, plaintiff expressed his embarrassment and humiliation thus: " I felt as though I wanted to disappear into a hole on the ground" (p. 34, Id.). After paying for the file, plaintiff and his wife walked as fast as they could out of the supermarket. His first impulse was to go back to the supermarket that night to throw rocks at its glass windows. But reason prevailed over passion and he thought that justice should take its due course.

"Plaintiff was certain during the trial that when he signed the incident report, Exhibit A, inside the cubicle at the back of the supermarket only his brief statement of the facts (Exhibit A-2), aside from his name and personal circumstances, was written thereon. He swore that the following were not in the incident report at, the time he signed it:

Exhibit A-I which says opposite the stenciled word SUBJECT "Shoplifting"

Exhibit A-3 which says opposite the stenciled words Action Taken: Released by Mrs. Fandino after paying the item.

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Exhibit A-4 which says opposite the stenciled words Remarks Noted: "Grd. Ebreo requested Grd. Paunil to apprehend subject shoplifter.

Private respondent's complaint filed on October 8, 1970 is founded on Article 21 in relation to Article 2219 of the New Civil Code and prays for moral damages, exemplary damages, attorney s fees and 'expenses of litigation, costs of the suit and the return of the P5.00 fine. After trial, the Court of First Instance of Pasig, Rizal, Branch XIX dismissed the complaint, Interposing the appeal to the Court of Appeals, the latter reversed and set aside the appealed judgment, granting and damages as earlier stated.

Not satisfied with the decision of the respondent court, petitioners instituted the present petition and submits the following grounds and/or assignment of errors, to wit:

I

Respondent Court of Appeals erred in awarding moral and exemplary damages to the respondent Espino under Articles 19 and 21 in relation to Article 2219 of the Civil Code, considering that —

A. Respondent Espino was guilty of theft;

B. Petitioners legitimately exercised their right of defense of property within the context of Article 429 of the Civil Code negating the application of Articles 19 and 21 of the same Code;

C. Petitioners acted upon probable cause in stopping and investigating respondent Espino for shoplifting and as held in various decisions in the United States on shoplifting, a merchant who acts upon probable cause should not be held liable in damages by the suspected shoplifter;

D. Petitioners did not exercise their right maliciously, wilfully or in bad faith; and/or

E. The proximate cause of respondent Espino's alleged injury or suffering was his own negligence or forgetfulness; petitioners acted in good faith.

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II

Assuming arguendo that petitioners are hable for moral and exemplary damages, the award of P75,000.00 for moral damages and P25,000.00 for exemplary damages by the respondent Court of Appeals is not legally justified and/or is grossly excessive in the premises.

III

The award of P5,000.00 for attorney's fees by the respondent Court of Appeals is unjustified and unwarranted under Article 2199 of the Civil Code.

We agree with the holding of the respondent appellate court that "the evidence sustains the court's finding that the plaintiff had absolutely no intention to steal the file." The totality of the facts and circumstances as found by the Court of Appeals unerringly points to the conclusion that private respondent did not intend to steal the file and that is act of picking up the file from the open shelf was not criminal nor done with malice or criminal intent for on the contrary, he took the item with the intention of buying and paying for it.

This Court needs only to stress the following undisputed facts which strongly and convincingly uphold the conclusion that private respondent was not "shoplifting." Thus, the facts that private respondent after picking the cylindrical "rat-tail" file costing P3.85 had placed it inside his left front breast pocket with a good portion of the item exposed to view and that he did not conceal it in his person or hid it from sight as well as the fact that he paid the purchases of his wife amounting to P77.00 at the checkout counter of the Supermarket, owed that he was not acting suspiciously or furtively. And the circumstance that he was with his family consisting of his wife Mrs. Caridad Jayme Espino, and their two daughters at the time negated any criminal intent on his part to steal. Moreover, when private respondent was approached by the guard of the Supermarket as he was leaving by the exit to his car who told him, "Excuse me, Mr., I think you have something in your pocket which you have not paid for," Espino, immediately apologized and answered, "I am sorry," which indicated his sincere apology or regrets. He turned back towards the cashier to pay for the file which proved his honesty sincerity and

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good faith in buying the item, and not to shoplift the same. His brief statement on the sheet of paper called the Incident Report where private respondent wrote the following: "While talking to my aunt's maid with my wife, I put this item in in my shirt pocket. I forgot to check it out with my wife's item," was an instant and contemporaneous explanation of the incident.

Considering further the personal circumstances of the private respondent. his education, position and character showing that he is a graduate Mechanical Engineer from U.P. Class 1950, employed as an executive of Proctor & Gamble Phils., Inc., a corporate manager incharge of motoring and warehousing therein; honorably discharged from the Philippine Army in 1946; a Philippine government pensionado of the United States for six months; member of the Philippine veterans Legion; author of articles published in the Manila Sunday Times and Philippines Free Press; member of the Knights of Columbus, Council No. 3713; son of the late Jose Maria Espino, retired Minister, Department of Foreign Affairs at the Philippine Embassy Washington, We are fully convinced, as the trial and appellate courts were, that private respondent did not intend to steal the article costing P3.85. Nothing in the records intimates or hints whatsoever that private respondent has had any police record of any sort much less suspicion of stealing or shoplifting.

We do not lay down here any hard-and-fast rule as to what act or combination of acts constitute the crime of shoplifting for it must be stressed that each case must be considered and adjudged on a case-to-case basis and that in the determination of whether a person suspected of shoplifting has in truth and in fact committed the same, all the attendant facts and circumstances should be considered in their entirety and not from any single fact or circumstance from which to impute the stigma of shoplifting on any person suspected and apprehended therefor.

We likewise concur with the Court of Appeals that "(u)pon the facts and under the law, plaintiff has clearly made the cause of action for damages against the defendants. Defendants wilfully caused loss or injury to plaintiff in a manner that was contrary to morals, good customs or public policy, making them amenable to damages under Articles 19 and 21 in relation to Article 2219 of the Civil Code." 2

That private respondent was falsely accused of shoplifting is evident. The Incident Report (Exhibit A) with the entries thereon under Exhibit A-1 which says opposite

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the stenciled word SUBJECT: "Shoplifting," Exhibit A-3 which says opposite the stenciled words Action Taken: Relesed by Mrs. Fandino after paying the item," Exhibit A-4 which says opposite the stenciled words Remarks Noted: Grd. Ebreo requested Grd. Paunil to apprehend subject shoplifter," established the opinion, judgment or thinking of the management of petitioner's supermarket upon private respondent's act of picking up the file. ln plain words, private respondent was regarded and pronounced a shoplifter and had committed "shoplifting."

We also affirm the Court of Appeals' finding that petitioner Nelia Santos Fandino, after reading the incident report, remarked the following: "Ano, nakaw na naman ito". Such a remark made in the presence of private respondent and with reference to the incident report with its entries, was offensive to private respondent's dignity and defamatory to his character and honesty. When Espino explained that he was going to pay the file but simply forgot to do so, Fandino doubted the explanation. saying: "That is all what they say, the people whom we caught not paying for the goods say... they all intended to pay for the things that are found to them." Private respondent objected and said that he was a regular customer of the Supermarket.

The admission of Fandino that she required private respondent to pay a fine of P5.00 and did in fact take the P5.00 bill of private respondent tendered by the latter to pay for the file, as a fine which would be given as an incentive to the guards who apprehend pilferers clearly proved that Fandino branded private respondent as a thief which was not right nor justified.

The testimony of the guard that management instructed them to bring the suspected customers to the public area for the people to see those kind of customers in order that they may be embarassed (p. 26, tsn, Sept. 30, 1971); that management wanted "the customers to be embarrassed in public so that they will not repeat the stealing again" (p. 2, tsn, Dec. 10, 1971); that the management asked the guards "to bring these customers to different cashiers in order that they will know that they are pilferers" (p. 2, Ibid.) may indicate the manner or pattern whereby a confirmed or self-confessed shoplifter is treated by the Supermarket management but in the case at bar, there is no showing that such procedure was taken in the case of the private respondent who denied strongly and vehemently the charge of shoplifting.

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Nonetheless, the false accusation charged against the private respondent after detaining and interrogating him by the uniformed guards and the mode and manner in which he was subjected, shouting at him, imposing upon him a fine, threatening to call the police and in the presence and hearing of many people at the Supermarket which brought and caused him humiliation and embarrassment, sufficiently rendered the petitioners liable for damages under Articles 19 and 21 in relation to Article 2219 of the Civil Code. We rule that under the facts of the case at bar, petitioners wilfully caused loss or injury to private respondent in a manner that was contrary to morals, good customs or public policy. It is against morals, good customs and public policy to humiliate, embarrass and degrade the dignity of a person. Everyone must respect the dignity, personality, privacy and peace of mind of his neighbors and other persons (Article 26, Civil Code). And one must act with justice, give everyone his due and observe honesty and good faith (Article 19, Civil Code).

Private respondent is entitled to damages but We hold that the award of Seventy-Five Thousand Pesos (P75,000.00) for moral damages and Twenty-Five Thousand Pesos (P25,000.00, for exemplary damages is unconscionable and excessive.

While no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated, the assessment of such damages, except liquidated ones, is left to the discretion of the court, according to the circumstances of each case (Art. 2216, New Civil Code). In the case at bar, there is no question that the whole incident that befell respondent had arisen in such a manner that was created unwittingly by his own act of forgetting to pay for the file. It was his forgetfullness in checking out the item and paying for it that started the chain of events which led to his embarassment and humiliation thereby causing him mental anguish, wounded feelings and serious anxiety. Yet, private respondent's act of omission contributed to the occurrence of his injury or loss and such contributory negligence is a factor which may reduce the damages that private respondent may recover (Art. 2214, New Civil Code). Moreover, that many people were present and they saw and heard the ensuing interrogation and altercation appears to be simply a matter of coincidence in a supermarket which is a public place and the crowd of onlookers, hearers or bystanders was not deliberately sought or called by management to witness private respondent's predicament. We do not believe that private respondent was

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intentionally paraded in order to humiliate or embarrass him because petitioner's business depended for its success and patronage the good will of the buying public which can only be preserved and promoted by good public relations.

As succinctly expressed by Mr. Justice J. B. L. Reyes in his concurring and dissenting opinion in Pangasinan Transportation Company, Inc, vs. Legaspi, 12 SCRA 598, the purpose of moral damages is essentially indemnity or reparation, both punishment or correction. Moral damages are emphatically not intended to enrich a complainant at the expense of a defendant; they are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of the defendant's culpable action. In other words, the award of moral damages is aimed at a restoration, within the limits of the possible, of the spiritual status quo ante and, it must be proportionate to the suffering inflicted.

In Our considered estimation and assessment, moral damages in the amount of Five Thousand Pesos (P5,000.00) is reasonable and just to award to private respondent.

The grant of Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages is unjustified. Exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages (Art. 2229, New Civil Code). Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they could be adjudicated (Art. 2223, New Civil Code). Considering that exemplary damages are awarded for wanton acts, that they are penal in character granted not by way of compensation but as a punishment to the offender and as a warning to others as a sort of deterrent, We hold that the facts and circumstances of the case at bar do not warrant the grant of exemplary damages.

Petitioners acted in good faith in trying to protect and recover their property, a right which the law accords to them. Under Article 429, New Civil Code, the owner or lawful possessor of a thing has a right to exclude any person from the enjoyment and disposal thereof and for this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property. And since a person who acts in the

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fulfillment of a duty or in the lawful exercise of a right or office exempts him from civil or criminal liability, petitioner may not be punished by imposing exemplary damages against him. We agree that petitioners acted upon probable cause in stopping and investigating private respondent for taking the file without paying for it, hence, the imposition of exemplary damages as a warning to others by way of a deterrent is without legal basis. We, therefore, eliminate the grant of exemplary damages to the private respondent.

In the light of the reduction of the damages, We hereby likewise reduce the original award of Five Thousand Pesos (P5,000.00) as attorney's fees to Two Thousand Pesos (P2,000.00).

WHEREFORE, IN VIEW OF THE FOREGOING, the judgment of the Court of Appeals is hereby modified. Petitioners are hereby ordered to pay, jointly and severally, to private respondent moral damages in the sum of Five Thousand Pesos (P5,000.00) and the amount of Two Thousand Pesos (P2,000.00) as and for attorney's fees; and further, to return the P5.00 fine to private respondent. No costs.

SO ORDERED.

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SECOND DIVISION [G.R. No. 142668. August 31, 2004]

UNITED COCONUT PLANTERS BANK and LUIS MA. ONGSIAPCO, petitioners, vs. RUBEN E. BASCO, respondent.

D E C I S I O N

CALLEJO, SR., J.:

This is a petition for review on certiorari assailing the Decision[1] of the Court of Appeals dated March 30, 2000, affirming, with modifications, the Decision[2] of the Regional Trial Court (RTC),Makati City, Branch 146, which found the petitioner bank liable for payment of damages and attorney’s fees.

The Case for the Respondent

Respondent Ruben E. Basco had been employed with the petitioner United Coconut Planters Bank (UCPB) for seventeen (17) years.[3] He was also a stockholder thereof and owned 804 common shares of stock at the par value of P1.00.[4] He likewise maintained a checking account with the bank at its Las Piñas Branch under Account No. 117-001520-6.[5] Aside from his employment with the bank, the respondent also worked as an underwriter at the United Coconut Planters Life Association (Coco Life), a subsidiary of UCPB since December, 1992.[6] The respondent also solicited insurance policies from UCPB employees.

On June 19, 1995, the respondent received a letter from the UCPB informing him of the termination of his employment with the bank for grave abuse of discretion and authority, and breach of trust in the conduct of his job as Bank Operations Manager of its Olongapo Branch. The respondent thereafter filed a complaint for illegal dismissal, non-payment of salaries, and damages against the bank in the National Labor Relations Commission (NLRC), docketed as NLRC Cases Nos. 00-09-05354-92 and 00-09-05354-93. However, the respondent still frequented the UCPB main office in Makati City to solicit insurance policies from the employees thereat. He also discussed the complaint he filed against the bank with the said employees.[7]

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The respondent was also employed by All-Asia Life Insurance Company as an underwriter. At one time, the lawyers of the UCPB had an informal conference with him at the head office of the bank, during which the respondent was offered money so that the case could be amicably settled. The respondent revealed the incident to some of the bank employees.[8]

On November 15, 1995, Luis Ma. Ongsiapco, UCPB First Vice-President, Human Resource Division, issued a Memorandum to Jesus Belanio, the Vice-President of the Security Department, informing him that the respondent’s employment had been terminated as of June 19, 1995, that the latter filed charges against the bank and that the case was still on-going. Ongsiapco instructed Belanio not to allow the respondent access to all bank premises.[9] Attached to the Memorandum was a passport-size picture of the respondent. The next day, the security guards on duty were directed to strictly impose the security procedure in conformity with Ongsiapco’s Memorandum.[10]

On December 7, 1995, the respondent, through counsel, wrote Ongsiapco, requesting that such Memorandum be reconsidered, and that he be allowed entry into the bank premises.[11] His counsel emphasized that –

In the meantime, we are more concerned with your denying Mr. Basco “access to all bank premises.” As you may know, he is currently connected with Cocolife as insurance agent. Given his 17-year tenure with your bank, he has established good relationships with many UCPB employees, who comprise the main source of his solicitations. In the course of his work as insurance agent, he needs free access to your bank premises, within reason, to add the unnecessary. Your memorandum has effectively curtailed his livelihood and he is once again becoming a victim of another “illegal termination,” so to speak. And Shakespeare said: “You take his life when you do take the means whereby he lives.”

Mr. Basco’s work as an insurance agent directly benefits UCPB, Cocolife’s mother company. He performs his work in your premises peacefully without causing any disruption of bank operations. To deny him access to your premises for no reason except the pendency of the labor case, the outcome of which is still in doubt – his liability, if any, certainly has not been proven – is a clear abuse of right in violation of our client’s rights. Denying him access to the bank, which is of a quasi-public nature, is an undue restriction on his freedom of movement and right to make a

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livelihood, comprising gross violations of his basic human rights. (This is Human Rights Week, ironically).

We understand that Mr. Basco has been a stockholder of record of 804 common shares of the capital stock of UCPB since July 1983. As such, he certainly deserves better treatment than the one he has been receiving from your office regarding property he partly owns. He is a particle of corporate sovereignty. We doubt that you can impose the functional equivalent of the penalty of destierro on our client who really wishes only to keep his small place in the sun, to survive and breathe. No activity can be more legitimate than to toil for a living. Let us live and let live.[12]

In his reply dated December 12, 1995, Ongsiapco informed the respondent that his request could not be granted:

As you understand, we are a banking institution; and as such, we deal with matters involving confidences of clients. This is among the many reasons why we, as a matter of policy, do not allow non-employees to have free access to areas where our employees work. Of course, there are places where visitors may meet our officers and employees to discuss business matters; unfortunately, we have limited areas where our officers and employees can entertain non-official matters.

Furthermore, in keeping with good business practices, the Bank prohibits solicitation, peddling and selling of goods, service and other commodities within its premises as it disrupts the efficient performance and function of the employees.

Please be assured that it is farthest from our intention to discriminate against your client. In the same vein, it is highly improper for us to carve exceptions to our policies simply to accommodate your client’s business ventures.[13]

The respondent was undaunted. At 5:30 p.m. of December 21, 1995, he went to the office of Junne Cacay, the Assistant Manager of the Makati Branch. Cacay was then having a conference with Bong Braganza, an officer of the UCPB Sucat Branch. Cacay entertained the respondent although the latter did have an appointment. Cacay even informed him that he had a friend who wanted to procure an insurance policy.[14] Momentarily, a security guard of the bank

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approached the respondent and told him that it was already past office hours. He was also reminded not to stay longer than he should in the bank premises.[15] Cacay told the guard that the respondent would be leaving shortly.[16] The respondent was embarrassed and told Cacay that he was already leaving.[17]

At 1:30 p.m. of January 31, 1996, the respondent went to the UCPB Makati Branch to receive a check from Rene Jolo, a bank employee, and to deposit money with the bank for a friend.[18]He seated himself on a sofa fronting the teller’s booth[19] where other people were also seated.[20] Meanwhile, two security guards approached the respondent. The guards showed him the Ongsiapco’s Memorandum and told him to leave the bank premises. The respondent pleaded that he be allowed to finish his transaction before leaving. One of the security guards contacted the management and was told to allow the respondent to finish his transaction with the bank.

Momentarily, Jose Regino Casil, an employee of the bank who was in the 7th floor of the building, was asked by Rene Jolo to bring a check to the respondent, who was waiting in the lobby in front of the teller’s booth.[21] Casil agreed and went down to the ground floor of the building, through the elevator. He was standing in the working area near the Automated Teller Machine (ATM) Section[22] in the ground floor when he saw the respondent standing near the sofa[23] near the two security guards.[24] He motioned the respondent to come and get the check, but the security guard tapped the respondent on the shoulder and prevented the latter from approaching Casil. The latter then walked towards the respondent and handed him the check from Jolo.

Before leaving, the respondent requested the security guard to log his presence in the logbook. The guard did as requested and the respondent’s presence was recorded in the logbook.[25]

On March 11, 1996, the respondent filed a complaint for damages against the petitioners UCPB and Ongsiapco in the RTC of Manila, alleging inter alia, that –

12. It is readily apparent from this exchange of correspondence that defendant bank'’ acknowledged reason for barring plaintiff from its premises - the pending labor case – is a mere pretense for its real vindictive and invidious intent: to prevent plaintiff, and plaintiff alone, from carrying out his trade as an insurance

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agent among defendant bank’s employees, a practice openly and commonly allowed and tolerated (encouraged even, for some favored proverbial sacred cows) in the bank premises, now being unjustly denied to plaintiff on spurious grounds.

13. Defendants, to this day, have refused to act on plaintiff’s claim to be allowed even in only the “limited areas where [the bank’s] officers and employees can entertain non-official matters” and have maintained the policy banning plaintiff from all bank premises. As he had dared exercised his legal right to question his dismissal, he is being penalized with a variation of destierro, available in criminal cases where the standard however, after proper hearing, is much more stringent and based on more noble grounds than mere pique or vindictiveness.

14. This appallingly discriminatory policy resulted in an incident on January 31, 1996 at 1:30 p.m. at defendant bank’s branch located at its head office, which caused plaintiff tremendous undeserved humiliation, embarrassment, and loss of face.[26]

15. Defendants’ memorandum and the consequent acts of defendants’ security guards, together with defendant Ongsiapco’s disingenuous letter of December 12, 1995, are suggestive of malice and bad faith in derogation of plaintiff’s right and dignity as a human being and citizen of this country, which acts have caused him considerable undeserved embarrassment. Even if defendants, for the sake of argument, may be acting within their rights, they cannot exercise same abusively, as they must, always, act with justice and in good faith, and give plaintiff his due.[27]

The respondent prayed that, after trial, judgment be rendered in his favor, as follows:

WHEREFORE, it is respectfully prayed that judgment issue ordering defendants:

1. To rescind the directive to its agents barring plaintiff from all bank premises as embodied in the memorandum of November 15, 1995, and allow plaintiff access to the premises of defendant bank, including all its branches, which are open to

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members of the general public, during reasonable hours, to be able to conduct lawful business without being subject to invidious discrimination; and

2. To pay plaintiff P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P50,000.00 by way of attorney’s fees.

Plaintiff likewise prays for costs, interest, the disbursements of this action, and such other further relief as may be deemed just and equitable in the premises.[28]

In their Answer to the complaint, the petitioners interposed the following affirmative defenses:

9. Plaintiff had been employed as Branch Operations Officer, Olongapo Branch, of defendant United Coconut Planters Bank.

In or about the period May to June 1992, he was, together with other fellow officers and employees, investigated by the bank in connection with various anomalies. As a result of the investigation, plaintiff was recommended terminated on findings of fraud and abuse of discretion in the performance of his work. He was found by the bank’s Committee on Employee Discipline to have been guilty of committing or taking part in the commission of the following:

a. Abuse of discretion in connection with actions taken beyond or outside the limits of his authority.

b. Borrowing money from a bank client. c. Gross negligence or dereliction of duty in the implementation of

bank policies or valid orders from management. d. Direct refusal or willful failure to perform, or delay in performing, an

assigned task. e. Fraud or willful breach of trust in the conduct of his work. f. Falsification or forgery of bank records/documents.

10. Plaintiff thereafter decided to contest his termination by filing an action for illegal dismissal against the bank.

Despite the pendency of this litigation, plaintiff was reported visiting employees of the bank in their place of work during work hours, and circulating false information

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concerning the status of his case against the bank, including alleged offers by management of a monetary settlement for his “illegal dismissal.”

11. Defendants acted to protect the bank’s interest by preventing plaintiff’s access to the bank’s offices, and at the same time informing him of that decision.

Plaintiff purported to insist on seeing and talking to the bank’s employees despite this decision, claiming he needed to do this in connection with his insurance solicitation activities, but the bank has not reconsidered.

12. The complaint states, and plaintiff has, no cause of action against defendants.[29]

The petitioners likewise interposed compulsory counterclaims for damages.

The Case for the Petitioners

The petitioners adduced evidence that a day or so before November 15, 1995, petitioner Ongsiapco was at the 10th floor of the main office of the bank where the training room of the Management Development Training Office was located. Some of the bank’s management employees were then undergoing training. The bank also kept important records in the said floor. When Ongsiapco passed by, he saw the respondent talking to some of the trainees. Ongsiapco was surprised because non-participants in the training were not supposed to be in the premises.[30] Besides, the respondent had been dismissed and had filed complaints against the bank with the NLRC. Ongsiapco was worried that bank records could be purloined and employees could be hurt.

The next day, Ongsiapco contacted the training supervisor and inquired why the respondent was in the training room the day before. The supervisor replied that he did not know why.[31] Thus, on November 15, 1995, Ongsiapco issued a Memorandum to Belanio, the Vice-President for Security Services, directing the latter not to allow the respondent access to the bank premises near the working area.[32] The said Memorandum was circulated by the Chief of Security to the security guards and bank employees.

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At about 12:30 p.m. on January 31, 1996, Security Guard Raul Caspe, a substitute for the regular guard who was on leave, noticed the respondent seated on the sofa in front of the teller’s booth.[33] Caspe notified his superior of the respondent’s presence, and was instructed not to confront the respondent if the latter was going to make a deposit or withdrawal.[34] Caspe was also instructed not to allow the respondent to go to the upper floors of the building.[35] The respondent went to the teller’s booth and, after a while, seated himself anew on the sofa. Momentarily, Caspe noticed Casil, another employee of the bank who was at the working section of the Deposit Service Department (DSD), motioning to the respondent to get the check. The latter stood up and proceeded in the direction of Casil’s workstation. After the respondent had taken about six to seven paces from the sofa, Caspe and the company guard approached him. The guards politely showed Ongsiapco’s Memorandum to the respondent and told the latter that he was not allowed to enter the DSD working area; it was lunch break and no outsider was allowed in that area.[36]The respondent looked at the Memorandum and complied.

On May 29, 1998, the trial court rendered judgment in favor of the respondent. The fallo of the decision reads:

WHEREFORE, premises considered, defendants are hereby adjudged liable to plaintiff and orders them to rescind and set-aside the Memorandum of November 15, 1995 and orders them to pay plaintiff the following:

1) the amount of P100,000.00 as moral damages; 2) the amount of P50,000.00 as exemplary damages; 3) P50,000.00 for and as attorney’s fees;

4) Cost of suit.

Defendants’ counterclaim is dismissed for lack of merit.

SO ORDERED.[37]

The trial court held that the petitioners abused their right; hence, were liable to the respondent for damages under Article 19 of the New Civil Code.

The petitioners appealed the decision to the Court of Appeals and raised the following issues:

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4.1 Did the appellants abuse their right when they issued the Memorandum?

4.2 Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 21 December 1995?

4.3. Did the appellants abuse their right when Basco was asked to leave the bank premises, in implementation of the Memorandum, on 31 January 1995?

4.4. Is Basco entitled to moral and exemplary damages and attorney’s fees?

4.5. Are the appellants entitled to their counterclaim?[38]

The CA rendered a Decision on March 30, 2000, affirming the decision of the RTC with modifications. The CA deleted the awards for moral and exemplary damages, but ordered the petitioner bank to pay nominal damages on its finding that latter abused its right when its security guards stopped the respondent from proceeding to the working area near the ATM section to get the check from Casil. The decretal portion of the decision reads:

WHEREFORE, the Decision of the Regional Trial Court dated May 29, 1998 is hereby MODIFIED as follows:

1. The awards for moral and exemplary damages are deleted;

2. The award for attorney’s fees is deleted;

3. The order rescinding Memorandum dated November 15, 1995 is set aside; and

4. UCPB is ordered to pay nominal damages in the amount of P25,000.00 to plaintiff-appellee.

Costs de oficio.[39]

The Present Petition

The petitioners now raise the following issues before this Court:

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I. Whether or not the appellate court erred when it found that UCPB excessively exercised its right to self-help to the detriment of Basco as a depositor, when on January 31, 1996, its security personnel stopped respondent from proceeding to the area restricted to UCPB’s employees.

II. Whether or not the appellate court erred when it ruled that respondent is entitled to nominal damages.

III. Whether or not the appellate court erred when it did not award the petitioners’ valid and lawful counterclaim.[40]

The core issues are the following: (a) whether or not the petitioner bank abused its right when it issued, through petitioner Ongsiapco, the Memorandum barring the respondent access to all bank premises; (b) whether or not petitioner bank is liable for nominal damages in view of the incident involving its security guard Caspe, who stopped the respondent from proceeding to the working area of the ATM section to get the check from Casil; and (c) whether or not the petitioner bank is entitled to damages on its counterclaim.

The Ruling of the Court

On the first issue, the petitioners aver that the petitioner bank has the right to prohibit the respondent from access to all bank premises under Article 429 of the New Civil Code, which provides that:

Art. 429. The owner or lawful possessor of a thing has the right to exclude any person from the enjoyment and disposal thereof. For this purpose, he may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property.

The petitioners contend that the provision which enunciates the principle of self-help applies when there is a legitimate necessity to personally or through another, prevent not only an unlawful, actual, but also a threatened unlawful aggression or usurpation of its properties and records, and its personnel and customers/clients who are in its premises. The petitioners assert that petitioner Ongsiapco issued his Memorandum dated November 15, 1995 because the respondent had been dismissed from his employment for varied grave offenses;

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hence, his presence in the premises of the bank posed a threat to the integrity of its records and to the persons of its personnel. Besides, the petitioners contend, the respondent, while in the bank premises, conversed with bank employees about his complaint for illegal dismissal against the petitioner bank then pending before the Labor Arbiter, including negotiations with the petitioner bank’s counsels for an amicable settlement of the said case.

The respondent, for his part, avers that Article 429 of the New Civil Code does not give to the petitioner bank the absolute right to exclude him, a stockholder and a depositor, from having access to the bank premises, absent any clear and convincing evidence that his presence therein posed an imminent threat or peril to its property and records, and the persons of its customers/clients.

We agree with the respondent bank that it has the right to exclude certain individuals from its premises or to limit their access thereto as to time, to protect, not only its premises and records, but also the persons of its personnel and its customers/clients while in the premises. After all, by its very nature, the business of the petitioner bank is so impressed with public trust; banks are mandated to exercise a higher degree of diligence in the handling of its affairs than that expected of an ordinary business enterprise.[41] Banks handle transactions involving millions of pesos and properties worth considerable sums of money. The banking business will thrive only as long as it maintains the trust and confidence of its customers/clients. Indeed, the very nature of their work, the degree of responsibility, care and trustworthiness expected of officials and employees of the bank is far greater than those of ordinary officers and employees in the other business firms.[42]Hence, no effort must be spared by banks and their officers and employees to ensure and preserve the trust and confidence of the general public and its customers/clients, as well as the integrity of its records and the safety and well being of its customers/clients while in its premises. For the said purpose, banks may impose reasonable conditions or limitations to access by non-employees to its premises and records, such as the exclusion of non-employees from the working areas for employees, even absent any imminent or actual unlawful aggression on or an invasion of its properties or usurpation thereof, provided that such limitations are not contrary to the law.[43]

It bears stressing that property rights must be considered, for many purposes, not as absolute, unrestricted dominions but as an aggregation of qualified

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privileges, the limits of which are prescribed by the equality of rights, and the correlation of rights and obligations necessary for the highest enjoyment of property by the entire community of proprietors.[44] Indeed, in Rellosa vs. Pellosis,[45] we held that:

Petitioner might verily be the owner of the land, with the right to enjoy and to exclude any person from the enjoyment and disposal thereof, but the exercise of these rights is not without limitations. The abuse of rights rule established in Article 19 of the Civil Code requires every person to act with justice, to give everyone his due; and to observe honesty and good faith. When right is exercised in a manner which discards these norms resulting in damage to another, a legal wrong is committed for which the actor can be held accountable.

Rights of property, like all other social and conventional rights, are subject to such reasonable limitations in their enjoyment and to such reasonable restraints established by law.[46]

In this case, the Memorandum of the petitioner Ongsiapco dated November 15, 1995, reads as follows:

MEMO TO : MR. JESUS M. BELANIO Vice President

Security Department

D A T E : 15 November 1995

R E : MR. RUBEN E. BASCO

Please be advised that Mr. Ruben E. Basco was terminated for a cause by the Bank on 19 June 1992. He filed charges against the bank and the case is still on-going.

In view of this, he should not be allowed access to all bank premises.

(Sgd.) LUIS MA. ONGSIAPCO First Vice President

Human Resource Division

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16 November 1995

TO: ALL GUARDS ON DUTY

Strictly adhere/impose Security Procedure RE: Admission to Bank premises.

For your compliance.

(Signature) 11/16/95 JOSE G. TORIAGA[47]

On its face, the Memorandum barred the respondent, a stockholder of the petitioner bank and one of its depositors, from gaining access to all bank premises under all circumstances. The said Memorandum is all-embracing and admits of no exceptions whatsoever. Moreover, the security guards were enjoined to strictly implement the same.

We agree that the petitioner may prohibit non-employees from entering the working area of the ATM section. However, under the said Memorandum, even if the respondent wished to go to the bank to encash a check drawn and issued to him by a depositor of the petitioner bank in payment of an obligation, or to withdraw from his account therein, or to transact business with the said bank and exercise his right as a depositor, he could not do so as he was barred from entry into the bank. Even if the respondent wanted to go to the petitioner bank to confer with the corporate secretary in connection with his shares of stock therein, he could not do so, since as stated in the Memorandum of petitioner Ongsiapco, he would not be allowed access to all the bank premises. The said Memorandum, as worded, violates the right of the respondent as a stockholder or a depositor of the petitioner bank, for being capricious and arbitrary.

The Memorandum even contravenes Article XII, paragraph 4 (4.1 and 4.2) of the Code of Ethics issued by the petitioner bank itself, which provides that one whose employment had been terminated by the petitioner bank may, nevertheless, be allowed access to bank premises, thus:

4.1 As a client of the Bank in the transaction of a regular bank-client activity.

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4.2 When the offending party is on official business concerning his employment with the Bank with the prior approval and supervision of the Head of HRD or of the Division Head, or of the Branch Head in case of branches.[48]

For another, the Memorandum, as worded, is contrary to the intention of the petitioners. Evidently, the petitioners did not intend to bar the respondent from access to all bank premises under all circumstances. When he testified, petitioner Ongsiapco admitted that a bank employee whose services had been terminated may be allowed to see an employee of the bank and may be allowed access to the bank premises under certain conditions, viz:

ATTY. R. ALIKPALA

Q So the permission you are referring to is merely a permission to be granted by the security guard?

A No, sir, not the security guard. The security will call the office where they are going. Because this is the same procedure they do for visitors. Anybody who wants to see anybody in the bank before they are allowed access or entry, they call up the department or the division.

Q So I want to clarify, Mr. Witness. Former bank employees are not allowed within the bank premises until after the security guard call, which ever department they are headed for, and that they give the permission and they tell the security guard to allow the person?

A Yes, Sir, that is the usual procedure.

Q If an employee resigned from the bank, same treatment?

A Yes, Sir.

Q If an employee was terminated by the bank for cause, same treatment?

A Yes, Sir.

Q Outsiders who are not employees or who were never employees of the bank also must ask permission?

A Yes, Sir. Because there is a security control at the lobby.

Q You mentioned that this is a general rule?

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A Yes, Sir.

Q Is this rule written down in black and white anywhere?

A I think this is more of a security procedure.

Q But being a huge financial institution, we expect Cocobank has its procedure written down in black and white?

ATTY. A. BATUHAN

Your Honor, objection. Argumentative, Your Honor. There is no question posed at all, Your Honor.

C O U R T

Answer. Is there any guideline?

A There must be a guideline of the security.

Q But you are not very familiar about the security procedures?

A Yes, Sir.

ATTY. R. ALIKPALA

Q Mr. Ongsiapco, the agency that you hired follows certain procedures?

A Yes, Sir.

Q Which of course are under the direct control and supervision of the bank?

A Yes, Sir.

Q And did the security agency have any of this procedure written down?

A It will be given to them by the Security Department, because they are under the Security Department.

Q But if an employee is only entering the ground floor bank area, where customers of the bank are normally allowed, whether depositors or not, they don’t need to ask for express permission, is that correct?

A Yes, if they are client.

Q Even if they are not client, but let us say they have to encash a check paid to them by someone?

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A He is a client then.

Q But he is not yet a client when he enters the bank premises. He only becomes … you know because you do not all these people, you do not know every client of the bank so you just allow them inside the bank?

A Yes, the premises.[49]

Petitioner Ongsiapco also testified that a former employee who is a customer/client of the petitioner bank also has access to the bank premises, except those areas reserved for its officers and employees, such as the working areas:

ATTY. R. ALIKPALA

Q So Mr. Witness, just for the sake of clarity. The ground floor area is where the regular consumer banking services are held? What do you call this portion?

A That is the Deposit Servicing Department.

Q Where the ….

A Where the people transact business.

ATTY. R. ALIKAPALA

Q They are freely allowed in this area?

A Yes, Sir.

Q This is the area where there are counters, Teller, where a person would normally go to let us say open a bank account or to request for manager’s check, is that correct?

A Yes, Sir.

Q So, in this portion, no, I mean beyond this portion, meaning the working areas and second floor up, outsiders will have to ask express permission from the security guard?

A Yes, Sir.

Q And you say that the security guards are instructed to verify the purpose of every person who goes into this area?

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A As far as I know, sir.[50]

It behooved the petitioners to revise such Memorandum to conform to its Code of Ethics and their intentions when it was issued, absent facts and circumstances that occurred pendente litewhich warrant the retention of the Memorandum as presently worded.

On the second issue, the Court of Appeals ruled that the petitioner bank is liable for nominal damages to the respondent despite its finding that the petitioners had the right to issue the Memorandum. The CA ratiocinated that the petitioner bank should have allowed the respondent to walk towards the restricted area of the ATM section until they were sure that he had entered such area, and only then could the guards enforce the Memorandum of petitioner Ongsiapco. The Court of Appeals ruled that for such failure of the security guards, the petitioner bank thereby abused its right of self-help and violated the respondent's right as one of its depositors:

With respect, however, to the second incident on January 31, 1996, it appears that although according to UCPB security personnel they tried to stop plaintiff-appellee from proceeding to the stairs leading to the upper floors, which were limited to bank personnel only (TSN, pp. 6-9, June 4, 1997), the said act exposed plaintiff-appellee to humiliation considering that it was done in full view of other bank customers. UCPB security personnel should have waited until they were sure that plaintiff-appellee had entered the restricted areas and then implemented the memorandum order by asking him to leave the premises. Technically, plaintiff-appellee was still in the depositing area when UCPB security personnel approached him. In this case, UCPB’s exercise of its right to self-help was in excess and abusive to the detriment of the right of plaintiff-appellee as depositor of said Bank, hence, warranting the award of nominal damages in favor of plaintiff-appellee. Nominal damages are adjudicated in order that a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized and not for the purpose of indemnifying any loss suffered by him (Japan Airlines vs. Court of Appeals, 294 SCRA 19).[51]

The petitioners contend that the respondent is not entitled to nominal damages and that the appellate court erred in so ruling for the following reasons: (a) the respondent failed to prove that the petitioner bank violated any of his

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rights; (b) the respondent did not suffer any humiliation because of the overt acts of the security guards; (c) even if the respondent did suffer humiliation, there was no breach of duty committed by the petitioner bank since its security guards politely asked the respondent not to proceed to the working area of the ATM section because they merely acted pursuant to the Memorandum of petitioner Ongsiapco, and accordingly, under Article 429 of the New Civil Code, this is a case of damnum absque injuria;[52] and (d) the respondent staged the whole incident so that he could create evidence to file suit against the petitioners.

We rule in favor of the petitioners.

The evidence on record shows that Casil was in the working area of the ATM section on the ground floor when he motioned the respondent to approach him and receive the check. The respondent then stood up and walked towards the direction of Casil. Indubitably, the respondent was set to enter the working area, where non-employees were prohibited entry; from there, the respondent could go up to the upper floors of the bank’s premises through the elevator or the stairway. Caspe and the company guard had no other recourse but prevent the respondent from going to and entering such working area. The security guards need not have waited for the respondent to actually commence entering the working area before stopping the latter. Indeed, it would have been more embarrassing for the respondent to have started walking to the working area only to be halted by two uniformed security guards and disallowed entry, in full view of bank customers. It bears stressing that the security guards were polite to the respondent and even apologized for any inconvenience caused him. The respondent could have just motioned to Casil to give him the check at the lobby near the teller’s booth, instead of proceeding to and entering the working area himself, which the respondent knew to be an area off-limits to non-employees. He did not.

The respondent failed to adduce evidence other than his testimony that people in the ground floor of the petitioner bank saw him being stopped from proceeding to the working area of the bank. Evidently, the respondent did not suffer embarrassment, inconvenience or discomfort which, however, partakes of the nature of damnum absque injuria, i.e. damage without injury or damage inflicted without injustice, or loss or damage without violation of legal rights, or a wrong

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due to a pain for which the law provides no remedy.[53] Hence, the award of nominal damages by the Court of Appeals should be deleted.

On the third issue, we now hold that the petitioner bank is not entitled to damages and attorney’s fees as its counterclaim. There is no evidence on record that the respondent acted in bad faith or with malice in filing his complaint against the petitioners. Well-settled is the rule that the commencement of an action does not per se make the action wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the right to litigate.

We reiterate case law that if damages result from a party’s exercise of a right, it is damnum absque injuria.[54]

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED and SET ASIDE. The complaint of the respondent in the trial court and the counterclaims of the petitioners are DISMISSED.

No costs.

SO ORDERED.

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ARTICLE 434

THIRD DIVISION

CORNELIO DEL FIERRO,

GREGORIO DEL FIERRO,

ILDEFONSO DEL FIERRO,

ASUNCION DEL FIERRO,

CIPRIANO DEL FIERRO,

MANUELA DEL FIERRO, and

FRANCISCO DEL FIERRO

Petitioners,

-versus-

RENE SEGUIRAN,

Respondent.

G.R. No. 152141

Present:

CARPIO, * J.,

VELASCO, JR., J., Chairperson,

BRION,**

PERALTA, and

SERENO, ***JJ.

Promulgated:

August 8, 2011

x-----------------------------------------------------------------------------------------x

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D E C I S I O N

PERALTA, J.:

This is a petition for review on certiorari of the Decision of the Court of Appeals dated October 2, 2001, and its Resolution dated February 11, 2002 in CA-G.R. CV No. 60520.

The Court of Appeals affirmed the decision of the Regional Trial Court (RTC)

of Iba, Zambales, Branch 71, in Civil Case No. RTC-233-1, dismissing petitioners’ complaint for reconveyance of property and cancellation of titles for insufficiency of evidence as to the identity of the properties sought to be recovered.

The factual background of this case, as stated by the Court of Appeals, is as follows: The subject of this case are two parcels of agricultural land, Lot Nos. 1625 and 1626 with an area of 72,326 square meters and 116,598 square meters, respectively. Both lots are situated in Locloc, Palauig, Zambales. The cadastral survey of these lots were conducted sometime in December 1962 (Cad. 364-D, Palauiag Cadastre, Zambales).[1] The records of the Lands Management Bureau, RLO III, San Fernando, Pampanga show that the claimants of Lot No. 1625 was Lodelfo Marcial[2] versus Miguel del Fierro, while the claimants of Lot No. 1626 were Lodelfo Marcial versus Francisco Santos and Narciso Marcial.[3]

On April 29, 1965, Francisco Santos filed an application for free patent over Lot No. 1626 with the Bureau of Lands, District Land Office No. 40 at Olongapo, Zambales. The application remained pending until the commencement of this litigation in 1985.[4] Francisco Santos died on December 9, 1978.

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Meanwhile, on August 21, 1964, the heirs of Miguel del Fierro, led by his widow Generosa Jimenez Vda. del Fierro, filed an ejectment case (forcible entry) against Lodelfo Marcial and Narciso Marcial before the Municipal Trial Court of Palauig, Zambales.[5] On October 31, 1972, the municipal court rendered a decision in favor of the Del Fierros.[6] On appeal, the Court of First Instance (CFI) of Zambales, Branch II-Iba, in a Decision[7] dated August 1, 1973, sustained the right of the Del Fierros to the possession of the subject premises and ordered the Marcials to vacate the premises.

On June 29, 1964, Lodelfo Marcial mortgaged to the Rural Bank of San Marcelino, Inc. a parcel of land covered by Tax Declaration No. 21492 with an area of 140,000 square meters.[8] The property is more particularly described as:

A parcel of land suitable for cultivation, upland rice, riceland and

nipa land, situated in Marala, Palauig, Zambales, containing an area of

140,000, sq. m., the improvements consists of mango trees in the

possession of the mortgagor; bounded on the North by River; on the

South by China Sea; on the East by heirs of Miguel del Fierro and on the

West by River; this property has been declared under Tax Declaration

No. 21492 and assessed at P1,550.00 in the name of the mortgagor; the

visible limits at simple sight on the North and East are Rivers; on the

South by China Sea and fence on the East.[9]

On December 26, 1972, the bank extrajudicially foreclosed the real estate mortgage and was the highest bidder in the sale of the property per the Certificate of Sale issued by the Provincial Sheriff.[10] On April 22, 1982, the Rural Bank of San Marcelino, Inc. consolidated its ownership over the property.[11]

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On October 28, 1981, Lodelfo Marcial executed in favor of respondent Rene Seguiran a Deed of Absolute Sale over a parcel of swampland designated as Lot Nos. 1625 and 1626, Palauig Cadastre with Free Patent Application No. L-4-201 applied for by Marcial in 1967 and covered by Tax Declaration No. 3250 for the year 1974.[12] Marcial had Lot Nos. 1625 and 1626 surveyed by a private surveyor on October 19, 1969.[13] On November 9, 1981, respondent Rene Seguiran purchased Marcial’s foreclosed property from the Rural Bank of San Marcelino Inc.[14] Respondent then filed an application for free patent over Lot Nos. 1625 and 1626, which was approved by the Bureau of Lands. On July 11, 1983, Free Patent Nos. 598462 (Lot No. 1625) and 598461 (Lot No. 1626) were issued in respondent’s name. On July 29, 1983, the Register of Deeds of Zambales issued in the name of respondent Original Certificate of Title (OCT) Nos. P-7013 and P-7014 covering Lot Nos. 1625 and 1626, respectively.[15] On September 21, 1983, respondent had Lot Nos. 1625 and 1626 surveyed by a private surveyor.[16] He also paid the real property taxes and declared the property in his name beginning the year 1985.[17] On August 26, 1983, petitioner petitioned the RTC of Iba, Zambales to conduct a relocation survey of Lot Nos. 1625 and 1626, which petition was approved by the court. However, on February 16, 1985, the heirs of Miguel and Generosa del Fierro filed a Motion to Quash Order of Execution,[18] claiming they are in actual physical possession of Lot Nos. 1625 and 1626, and that prior to the sale of the said lots to respondent, the vendor, Lodelfo Marcial no longer had any right over the properity, since he lost in Civil Case No. 706-1 for ejectment filed by the Del Fierros. In an Order[19] dated March 20, 1985, the RTC of lba, Zambales, Branch LXX held in abeyance the implementation of its earlier orders regarding the relocation survey of the lots subject of the petition filed by petitioners.

On September 13, 1985, the heirs of Miguel and Generosa del Fierro, namely, Cornelio, Gregorio, Ildefonso, Asuncion, Cipriano, Manuela and Francisco, all surnamed Del Fierro, petitioners herein, filed a Complaint for reconveyance and cancellation of titles against defendant Rene Seguiran, respondent herein, before the RTC of Iba, Zambales, Branch 71 (trial court).

The Complaint[20] alleged that plaintiffs (petitioners) were the owners and

possessors of a parcel of land identified as Lot Nos. 1625 and 1626, formerly part

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of Lot No. 1197, situated at Barangay Locloc, Palauig, Zambales. On July 26, 1964, Lodelfo and Narciso Marcial unlawfully entered the land occupied by plaintiffs. Plaintiffs sued them for forcible entry[21] before the Municipal Court of Palauig. The municipal court ruled in favor of plaintiffs, which decision was affirmed on appeal by the CFI of Iba, Zambales, Branch II on August 1, 1973. Consequently, Lodelfo and Narciso Marcial were ejected from the premises. Meanwhile, on June 29, 1964, Marcial had mortgaged the lots to the Rural Bank of San Marcelino, Inc., which foreclosed the real estate mortgage on December 26, 1972, and consolidated ownership over the lots on April 22, 1982. On October 28, 1981, defendant Rene S. Seguiran purchased from Lodelfo Marcial (deceased) the subject lots. On November 9, 1981, defendant purchased the subject lots again from the Rural Bank of San Marcelino, Inc.

Moreover, plaintiffs alleged that Lodelfo Marcial, predecessor-in-interest of

defendant, had no legal right to convey the said lots to plantiffs, since he was merely a deforciant in the said lots. Further, defendant, with evident bad faith, fraudulently applied with the Bureau of Lands for a free patent over the said lots, alleging that he was the actual possessor thereof, which constitutes a false statement, since the plaintiffs were the ones in actual possession. Despite knowing that the said lots were the subject of legal controversy before the CFI of Iba, Zambales, Branch II, defendant fraudulently secured a certification from the Court of Olongapo to prove that the said parcels of land were not subject of any court action. As a consequence of the foregoing illegal and fraudulent acts, defendant was able to secure OCT Nos. P-7013 and P-7014 for Lot Nos. 1625 and 1626, respectively.

Plaintiffs prayed that after trial, judgment be rendered: (1) ordering

defendant to reconvey the parcels of land covered by OCT Nos. P-7013 and P-7014 to them (plaintiffs); (2) ordering the Register of Deeds of lba, Zambales to cancel the said titles and issue a new one in favor of plaintiffs; and (3) ordering defendant to pay plaintiffs P40,000.00 as actual and consequential damages; P50,000.00 as moral damages; and P10,000.00 as exemplary damages.[22]

Defendant was declared in default for failure to file an Answer, and plaintiffs

were allowed to present evidence ex parte.[23] On October 13, 1986, after the

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completion of the testimonial evidence of the plaintiffs, the case was submitted for decision.[24]

Meanwhile, on December 9, 1986, the heirs of Francisco Santos, who

intervened in the case, filed a protest[25] with the Bureau of Lands, questioning the award of free patent in favor of respondent Rene Seguiran over Lot No. 1626 when they were the actual owners and possessors of the said lot, since their father was the registered claimant and applicant of the said lot, while respondent had never set foot on the lot. The Director of Lands directed Land Investigator Alfredo S. Mendoza of the Bureau of Lands District Office in Iba, Zambales to investigate the matter.[26]

On February 26, 1981, the heirs of Francisco Santos, represented by their

attorney-in-fact Olivia C. Olaivar, filed a Motion for Leave to File a Complaint-in-Intervention, which was granted by the trial court.[27] Intervenors claimed ownership and possession of Lot No. 1626, being the heirs of the late Francisco Santos who was the registered claimant of the said lot under the Cadastral Survey Notification Card in 1962. The intervenors prayed that after hearing, the trial court render judgment (1) annulling the Free Patent Application No (III-4) (1) 467-A (Patent No. 598461) issued to defendant Rene Seguiran; (2) declaring the intervenors the true and lawful owners of Lot No. 1626, since they are the legal heirs of the late Francisco Santos; and (3) requiring defendant to pay to the intervenors P5,000.00 as attorney’s fees.[28]

In their Answer to [the] Complaint-in-Intervention,[29] plaintiffs denied that

the intervenors were the owners and possessors of Lot No. 1626; hence, the intervenors had no cause of action against them. Plaintiffs prayed that the complaint-in-intervention be dismissed.

On May 20, 1988, defendant filed his Answer,[30] claiming that when he

bought the land in dispute on October, 28, 1981, Lodelfo Marcial was no longer its owner, but the Rural Bank of San Marcelino, Inc., since Marcial failed to redeem the land within the one-year period of redemption. His only purpose for buying the land from the mortgagor, Lodelfo Marcial in November 1981 was for the peaceful turn-over of the property to him by Marcial. Defendant denied any fraud, illegality

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or bad faith in securing OCT Nos. P-7013 and P-7014. He asserted that when he secured a certification from the RTC on June 6, 1983, there was in truth no pending case involving the subject properties in any court in Zambales; hence, no bad faith could be attributed to him. Defendant prayed that judgment be rendered by the trial court dismissing the complaint and ordering plaintiffs to pay him actual, moral and exemplary damages as well as attorney’s fees and the expenses of litigation.

On August 2, 1988, defendant also filed his Answer to the Complaint-in-

Intervention[31] with the same defenses and counterclaim. On motion of defendant, the earlier order declaring him in default was set aside, and the trial court granted defendant’s counsel the right to cross-examine the witnesses who had testified during the proceedings already conducted.[32]

At the pre-trial conference held on October 20, 1988, only the plaintiffs and

intervenors admitted that Lot No. 1625 was actually being occupied by the plaintiffs (Del Fierros), while Lot No. 1626 was being occupied by the intervenors (the heirs of Francisco Santos). Defendant did not admit the said facts.[33]

On October 13, 1995, intervenors filed a Motion to Hold the Proceedings in

Abeyance,[34] since their pending administrative protest, which involved the same lots, had been scheduled for pre-trial conference on October 3, 1995 by the Bureau of Lands.

In an Order[35] dated January 8, 1996, the trial court directed that the

proceedings be held in abeyance until after the resolution of the administrative case. However, after plaintiffs sought reconsideration of the Order, the trial court continued the proceedings in the interest of justice because the administrative case for cancellation of title had yet to commence the reception of evidence, while in this case, the intervenors (the complainants in the administrative case) had already presented witnesses and marked evidences on their behalf; and the suspension of this case would prove to be more expensive for all party litigants.[36] The intervenors’ motion for whole or partial reconsideration of the said order of reversal was denied by the trial court for lack of merit.[37]

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On April 23, 1998, the trial court rendered judgment in favor of defendant, respondent herein, the dispositive portion of which reads:

WHEREFORE, premises considered, the complaint dated September 12, 1985 is dismissed for insufficiency of evidence as to the identity of the properties sought to be recovered. The complaint-in-intervention dated February 24, 1987 is dismissed for prematurity and insufficiency of evidence.[38] The trial court held that plaintiffs (petitioners) failed to prove the identity of

the property sought to be recovered. The numerous documents they presented to prove ownership of Lot Nos. 1625 and 1626 showed that the properties covered by sale or pacto de retro are located at Liozon,[39] Palauig, Zambales, while Lot Nos. 1625 and 1626 are located at Locloc, Palauig, Zambales; and there is no clear showing that parts of Liozon became Locloc. Moreover, although the Del Fierros were declared as the possessors of the property in the ejectment case (forcible entry)[40] filed by Generosa del Fierro against Lodelfo and Narciso Marcial, the property concerned in the said case is Lot No. 1197. There was no evidence as to the original size of Lot No. 1197 and no proof that Lot Nos. 1625 and 1626 formed part of Lot No. 1197. Based on the foregoing, the trial court dismissed plaintiffs’ complaint.

The trial court also dismissed the complaint of intervenors on the ground of non-exhaustion of administrative remedies as the protest filed earlier by them against defendant (respondent) with the Bureau of Lands was still pending.

Both plaintiffs (petitioners) and intervenors appealed the decision of the trial court to the Court of Appeals.

On October 2, 2001, the Court of Appeals upheld the decision of the trial

court. The dispositive portion of the appellate court’s decision reads:

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WHEREFORE, premises considered, the present appeals are hereby DISMISSED and the appealed Decision in Civil case No. RTC-233-1 is hereby AFFIRMED and UPHELD.[41]

The Court of Appeals held that petitioners are not entitled to reconveyance

of Lot Nos. 1625 and 1626, since they failed to prove the identity of the parcels of land over which they claim ownership. The evidence they adduced to prove their ownership of the said lots showed that the Spanish deeds of conveyance involved properties that were located in Barrio Liozon and not in Locloc, Palauig, Zambales, which is the actual location of Lot Nos. 1625 and 1626.

Moreover, the Court of Appeals stated that the fact that Lodelfo Marcial was

defeated in the forcible entry case filed by petitioners prior to the purchase by respondent of the foreclosed property from Marcial and from the mortgagee bank in 1973 could not serve as the basis for petitioners’ right of ownership or title over Lot Nos. 1625 and 1626 as only Lot No. 1197 was involved in the ejectment case and only the issues of possession thereof was adjudicated therein. The appellate court stated that the said court decision could have buttressed petitioners’ claim of ownership over Lot Nos. 1625 and 1626 if petitioners were able to establish in this case that the said lots indeed formed part of Lot No. 1197.

In addition, the Court of Appeals held that petitioners failed to prove by clear

and convincing evidence that the issuance of the certificates of title in favor of respondent was attended by fraud.

The Court of Appeals declared as unmeritorious the argument of intervenors

that this case is not covered by the rule on exhaustion of administrative remedies. It citedGarcia v. Aportadera,[42] wherein it was held that where a party seeks for the cancellation of a free patent with the Bureau of Lands, he must pursue his action in the proper Department and a review by the court will not be permitted unless the administrative remedies are first exhausted. Further, an applicant for a free patent may not file an action for reconveyance for that is the remedy of an owner whose land has been erroneously registered in the name of another.[43]

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Petitioners’ motion for reconsideration was denied for lack of merit by the Court of Appeals in a Resolution[44] dated February 11, 2002.

Petitioners filed this petition, raising the following issues:

I THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF

THE REGIONAL TRIAL COURT ON THE BASIS OF ISSUES NOT RAISED BY RESPONDENT IN THE TRIAL COURT. II

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT VIS-À-VIS THE JUDICIAL ADMISSION OF RESPONDENT ON THE RIGHT OF THE PETITIONERS TO THE PROPERTY.

III THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF

THE REGIONAL TRIAL COURT DESPITE THE FACT THAT THE CONCLUSIONS OF LAW RUN COUNTER AND ARE DIAMETRICALLY OPPOSED TO (THE) SUMMARY OF THE EVIDENCE GIVEN BY THE REGIONAL TRIAL COURT.

The main issues are whether petitioners are entitled to reconveyance of Lot

Nos. 1625 and 1626, and whether the certificates of title of respondent to the said lots should be cancelled.

The requisites of reconveyance are provided for in Article 434 of the Civil

Code, thus:

Art. 434. In an action to recover, the property must be identified, and the plaintiff must rely on the strength of his title and not on the weakness of the defendant’s claim. Article 434 of the Civil Code provides that to successfully maintain an action

to recover the ownership of a real property, the person who claims a better right

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to it must prove two (2) things: first, the identity of the land claimed; and second, his title thereto.[45]

In regard to the first requisite, in an accion reinvindicatoria, the person who claims that he has a better right to the property must first fix the identity of the land he is claiming by describing the location, area and boundaries thereof.[46] Anent the second requisite, i.e., the claimant's title over the disputed area, the rule is that a party can claim a right of ownership only over the parcel of land that was the object of the deed.[47]

In this case, petitioners failed to prove the identity of the parcels of land sought to be recovered and their title thereto. Petitioners contend that they are the owners of Lot Nos. 1625 and 1626 by virtue of the decision of the Municipal Court of Palauig, Zambales in the ejectment case (forcible entry)[48] against Lodelfo and Narciso Marcial, declaring them (petitioners) as the ones in possession of the property, which decision was affirmed on appeal. However, as stated by the trial court and the Court of Appeals, the property involved in the ejectment case was Lot No. 1197, and it was never mentioned in the respective decisions[49] of the Municipal Court of Palauig, Zambales and the CFI of Zambales, Branch II-Iba that the portion intruded upon was Lot Nos. 1625 and 1626. Moreover, petitioners failed to adduce in evidence the technical description of Lot No. 1197 and failed to prove that Lot Nos. 1625 and 1626 were part of or used to be part of Lot No. 1197.

Further, the documents presented by petitioners to prove their title over Lot

Nos. 1625 and 1626 showed that the properties covered therein were located in Barrio Liozon, Palauig, Zambales, while Lot Nos. 1625 and 1626 are located in Barrio Locloc, Palauig, Zambales. In addition, petitioners failed to establish which of the deeds of sale, donation or documents evidencing transfer of properties to their father, Miguel del Fierro, which were adduced in evidence, covered Lot Nos. 1625 and 1626. The Court of Appeals stated:

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In support of their claim of ownership over Lot Nos. 1625 and 1626, plaintiffs-appellants (petitioners) submitted in evidence various Spanish documents or deeds of purchase: (1) a Spanish document dated June 1927, "Venta Real de Terreno” executed by J.L. Faranal in favor of Miguel del Fierro, over a parcel of land situated in Marala, Barrio Liozon, Palauig, Zambales; (2) a Spanish document dated December 18, 1939 executed by Justo Apostol in favor of Miguel del Fierro, for the sale of a riceland situated in Barrio Liozon, Palauig, Zambales (1,350 sq.m.); (3) “Escritura de Compra Venta” dated June 1, 1918 executed by Alejandro Abaga in favor of Feliciana Frase over a parcel of land situated in Marala, Barrio Lioson, Palauig, Zambales; (4) “Renuncia De Derecho” (Waiver of Rights) dated September 6, 1928 executed by Juan Saclolo in favor of Miguel del Fierro over a riceland situated in Marala, Barrio Lioson, Palauig, Zambales; (5) "Venta Con Pacto de Retro de Terrenos dated April 8, 1927 executed by Faustino Barrentos in favor of Don Miguel del Fierro over a coconut plantation located at Sitio Sasa, Barrio Liozon, Palauig, Zambales; (6) “Venta Real de Terrenos" dated July 24, 1926 executed by Jose Trinidad and Ursula Villanueva in favor of Miguel de1 Fierro over a riceland situated in Barrio Liozon, Palauig, Zambales (25,610 sq. ms.); (7) "Escritura de Cancelacion de Hipoteca de Bienes Inmuebles" (Contract of Cancellation of Mortgage of Real Estate Property) executed by Pedro Redona in favor of Ursula Villanueva over a riceland situated in Barrio Lioson, Palauig, Zambales; (8) "Declaracion Jurada" (Sworn Statement) dated January 11, 1928 executed by Demetrio Sison, Aurea Sison and Severino Anguac affirming the contract of sale dated September 25, 1925 signed by their deceased mother in favor of Miguel del Fierro over a riceland situated in Barrio Lioson, Palauig, Zambales (15,660 sq. ms.); (9) "Escritura de Compra Venta" dated September 25, 1925 executed by Justa Romero and Aurea Sison in favor of Don Miguel del Fierro over a piece of land situated in [Sitio] Sasa, Barrio Lioson, Palauig, Zambales (1 hectare, 56 ares and 60 centares); (10) "Escritura de Compra Venta" dated August 29, 1921 executed by Juan Sison in favor of Miguel del Fierro over a parcel of coconut land (83 ares and 70 centares) situated in Barrio Lioson, Palauig, Zambales; (11) “Venta Real de Terrenos"

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dated September 16, 1925 executed by Agustin Abaga in favor of Miguel del Fierro over a parcel of land situated in [Sitio] Sasa, Barrio Lioson, Palauig, Zambales (7,200 sq. ms.); and (12) "Escritura de Donacion" (Deed of Gift or Pure Donation) executed by Eugenio del Fierro in favor of his son, Miguel del Fierro of a land situated in Marala, Barrio Lioson, Paiauig, Zambales (12 hectares, 77 ares and 90 centares). In addition to the foregoing documents, plaintiffs-appellants presented various tax declarations for the years 1944 (Miguel del Fierro), 1952, 1968, 1974, 1977, 1980, 1985 and 1987 (Heirs of Miguel del Fierro). These tax declarations pertain to lots situated in Locloc, Palauig, Zambales but the designation of Lots 1625 and 1626 (as part of Lot 1197) was made only in TD Nos. 11-0099 and 11-0100 for 1984 and 1987, respectively.

A perusal of these documents would readily show that the lots indicated in the Spanish deeds of conveyence were located in Barrio Lioson and not in Locloc, Palauig, Zambales, the actual location of the Lot Nos. 1625 and 1626. As to the tax declarations, the real properties declared therein, although situated in Locloc, Palauig, Zambales were not designated as Lot Nos. 1625 and 1626 until the year 1985, the same year the said lots were titled in the name of defendant-appellee. And even without such designation of Lot Nos. 1625 and 1626, plaintiffs-appellants failed to show that the separate lots which their predecessor-in-interest, Don Miguel del Fierro, had acquired in the 1920’s, were the very same land (or included therein) which have been designated as Lot Nos. 1625 and 1626, or which was covered by the land supposedly donated by their grandfather to Don Miguel del Fierro. In other words, the identity of the land being claimed by plaintiffs-appellants could not be clearly established on the basis of either the Spanish deeds of purchase and donation or the old tax declarations presented by plaintiffs-appellants.[50]

Based on the foregoing, petitioners failed to prove the identity of the

properties sought to be recovered and their title thereto.

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Petitioners argue that the issue of identity of the subject parcels of lands was

not among those raised during pre-trial or even during the trial. They contend that the findings of the trial court, which were affirmed by the Court of Appeals, on the issue of supposed insufficiency of evidence as to the identity of the properties not only surprised them, but caused them manifest injustice. They assert that issues not raised in the trial court cannot be raised for the first time on appeal.

Petitioners’ argument is unmeritorious. Petitioners filed an action for reconveyance and cancellation of titles. Hence,

it was incumbent on petitioners to prove the requisites of reconveyance, one of which is to establish the identity of the parcels of land petitioners are claiming. To reiterate, in an accion reinvindicatoria, the person who claims that he has a better right to the property must first fix the identity of the land he is claiming by describing the location, area and boundaries thereof.[51] Petitioners’ failure to present sufficient evidence on the identity of the properties sought to be recovered and their title thereto resulted in the dismissal of their complaint.

As regards the second issue raised, petitioners contend that the Partial Pre-

Trial Order stated that during the pre-trial conference the following facts were stipulated on:

1) By the plaintiffs and intervenor – that Lot 1625 is actually

occupied by the Del Fierros, while Lot 1626, Cad. Lot 364-D of the Palauig is occupied by the heirs of Francisco Santos, who is already deceased. The defendant did not admit this fact.

2) The plaintiffs and defendants—that there exists a decision

rendered by the then Court of First Instance of Zambales thru Honorable Judge Pedro Cenzon in favor of the plaintiffs in this case, affirming the decision of the Municipal Trial Court of Palauig, Zambales where it was stated that the plaintiffs are the ones in possession of Lots 1625 and 1626, which is docketed as Civil Case No. 706-I entitled

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“Generosa Jimenez Vda. de Del Fierro, et al. versus Leodolfo Marcial, et al.” The intervenor did not admit this fact.[52] Petitioners contend that the said judicial admission is binding and conclusive

on the respondent and it cannot just be ignored by the trial court without doing violence to Section 4, Rule 129 of the Rules of Evidence.[53] Petitioners also contend that the decision of the appellate court in the ejectment case (Civil Case No. 706-I), filed by petitioners against Lodelfo Marcial, respondent’s predecessor-in-interest, is conclusive as to petitioners’ possession of Lot Nos. 1625 and 1626. Since petitioners are in possession, respondent fraudulently applied for and procured free patents, as the consideration in qualifying as a patentee is that the applicant is in actual possession of the land applied for. Moreover, the undisputed possession of petitioners and their predecessors of the land as early as 1920s had long converted the parcels of land to private land and no longer part of the public domain.

Petitioners’ contention does not persuade. As stated by the trial court and the Court of Appeals, the ejectment

case entitled Generosa Jimenez Vda. de Del Fierro, et al. v. Leodolfo Marcial, et al. involved Lot No. 1197, and there was no mention of Lot Nos. 1625 and 1626 therein. The land involved in the ejectment case was described by the plaintiffs (petitioners) in their Complaint[54] as follows:

Consisting of 21.3196 hectares, more or less, and bounded on the

North by Leoncia Apostol, Heirs of P. Lesaca, Justa Ponce and P. Artiquera; East by Hrs. of Potenciano Lesaca, M. Abdon, P. Artiquera, David Abdon and D. Abdon; South by P. Garcia, Barrio Road and Maximo Abdon and West by River and Beach. It is designated as Lot No. 1197 of the Palauig Cadastre and declared for taxation purposes in the name of the Heirs of Miguel del Fierro under Tax Declaration No. 18324 and assessed at P5,330.00.[55]

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Moreover, in this case, petitioners failed to prove that Lot Nos. 1625 and 1626 were part of Lot No. 1197. The Survey Map[56] of Lot 1626 showed that Lot Nos. 1197, 1625, and 1626 are distinct lots. The cadastral survey of Lot Nos. 1625 and 1626 was conducted sometime in 1962.[57] The ejectment case was filed in 1964, after the cadastral survey of Lot Nos. 1625 and 1626, yet petitioners did not mention in their complaint that the ejectment case involved Lot Nos. 1625 and 1626.

In view of the foregoing, the Partial Pre-trial Order[58] mistakenly stated that

petitioners were declared as the ones in possession of Lot Nos. 1625 and 1626 in the ejectment case. Even the trial court stated during the pre-trial conference held on October 28, 1988 that there was no mention of Lot Nos. 1625 and 1626 in the decision[59] of the CFI of Zambales, Branch II-Iba in the ejectment case (Civil Case No. 706-I).[60] Moreover, contrary to the contention of petitioners, respondent did not admit that petitioners and the intervenors were in possession of Lot Nos. 1625 and 1626, respectively, which fact was clearly stated in the Partial Pre-trial Order.

As regards the third issue raised, petitioners cited their testimonial evidence

as narrated by the trial court, and contend that the identity of the land and their possession thereof were established as shown by the decision of the trial court. They contend that they seek reconveyance because the free patent titles were issued to respondent on false representation as they (petitioners) were in possession of the land.

The contention lacks merit. The testimonial evidence of petitioners showed that they did not know the

land area of Lot Nos. 1625 and 1626;[61] they had no tax declaration specifically for Lot Nos. 1625 and 1626;[62] they did not know who was residing in Lot No. 1626; they could not identify which of the documents evidencing transfer of properties to their father, Miguel del Fierro, covered Lot Nos. 1625 and 1626;[63] and they had no survey plan of the property over which they were claiming ownership. However, Ildefonso del Fierro testified that he has a fishpond and an approximately two-hectare riceland in Lot No. 1625;[64] hence, he did not allow the relocation survey by respondent of Lot Nos. 1625 and 1626,

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because it would pass through his fishpond and it would be disturbed.[65] Nevertheless, petitioners failed to identify the specific area of Lot No. 1625 or of Lot No. 1626 where the fishpond, riceland or houses of petitioners are located. Instead, they claim possession of the entire area of Lot Nos. 1625 and 1626, but not one of their documents showing transfer of properties in the name of their father, Miguel del Fierro, specifically states that it covers Lot No. 1625 or Lot No. 1626, and petitioner could not identify which documents referred to Lot Nos. 1625 and 1626. Thus, petitioners erred in claiming that their testimonial evidence established the identity of the parcels of land sought to be recovered and their title thereto.

The Court notes that the trial court did not discuss the merits of the testimonial evidence of petitioners, but the Court of Appeals did, stating thus:

x x x [T]he testimonies of plaintiffs’ witnesses did not serve to clarify the matter of identity of the subject properties as they even failed to indicate the precise boundaries or areas of Lot Nos. 1625 and 1626, and likewise admitted they have no tax declaration specifically for Lot Nos. 1625 and 1526 even after the cadastral survey in 1962. Failing in their duty to clearly identify the lands sought to be recovered by them, plaintiffs-appellants’ action for reconveyance must necessarily fail. To reiterate, in order that an action to recover ownership of real property may prosper, the person who claims he has a better right to it must prove not only his ownership of the same but also satisfactorily prove the identity thereof. x x x [66] In fine, petitioners failed to prove the identity of the properties over which

they claimed ownership and sought to be reconveyed to them, and they also failed to prove their title over Lot Nos. 1625 and 1626; hence, the Court of Appeals did not err in affirming the decision of the trial court, which dismissed petitioners’ Complaint.

WHEREFORE, the petition is DENIED. The Court of Appeals’ Decision dated

October 2, 2001 and its Resolution dated February 11, 2002 in CA-G.R. CV No. 60520 are hereby AFFIRMED.

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No costs. SO ORDERED.

114

THIRD DIVISION

DATU KIRAM SAMPACO,

substituted by HADJI SORAYA S.

MACABANDO,

Petitioner,

- versus -

HADJI SERAD MINGCA

LANTUD,

Respondent.

G.R. No. 163551

Present:

CARPIO,* J.,

VELASCO, JR., J., Chairperson,

PERALTA,

ABAD, and

MENDOZA, JJ.

Promulgated:

July 18, 2011

x-----------------------------------------------------------------------------------------x

D E C I S I O N PERALTA, J.:

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This is a petition for review on certiorari of the Court of Appeals’ Decision dated August 15, 2003 in CA-G.R. CV No. 63801 and its Resolution dated May 13, 2004, denying petitioner’s motion for reconsideration.

The facts, as stated by the Court of Appeals, are as follows: On September 14, 1984, respondent Hadji Serad Mingca Lantud, the plaintiff

in the lower court, filed an action to quiet title with damages[1] with the Regional Trial Court (RTC) of Lanao del Sur, Branch 8, Marawi City (trial court), against petitioner Datu Kiram Sampaco (deceased), the defendant in the lower court, who has been substituted by his heirs, represented by Hadji Soraya Sampaco-Macabando.[2]

Respondent alleged in his Complaint[3] that he is the owner in fee simple of

a parcel of residential lot located at Marinaut, Marawi City, with an area of 897 square meters covered by Original Certificate of Title (OCT) No. P-658. On August 25, 1984, petitioner Datu Kiram Sampaco, through his daughter Soraya Sampaco-Macabando with several armed men, forcibly and unlawfully entered his property and destroyed the nursery buildings, cabbage seedlings and other improvements therein worth P10,000.00. On August 30, 1984, Barangay Captain Hadji Hassan Abato and his councilmen prepared and issued a decision[4] in writing stating that petitioner Datu Kiram Sampaco is the owner of the subject parcel of land. Respondent stated that the acts of petitioner and the said decision of the Barangay Captain may cast a cloud over or otherwise prejudice his title. Respondent stated that he and his predecessors-in-interest have been in open, public and exclusive possession of the subject property. He prayed that the acts of petitioner and the decision of Barangay Captain Hadji Hassan Abato and his councilmen be declared invalid, and that petitioner be ordered to pay respondent damages in the amount of P10,000.00 and attorney’s fees.

In his Answer,[5] defendant Datu Kiram Sampaco, petitioner herein, denied

the material allegations of the Complaint. Petitioner asserted that he and his predecessors-in-interest are the ones who had been in open, public, continuous, and exclusive possession of the property in dispute. Petitioner alleged that OCT No. P-658 was secured in violation of laws and through fraud, deception and

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misrepresentation, considering that the subject parcel of land is a residential lot and the title issued is a free patent. Moreover, respondent and his predecessors-in-interest had never taken actual possession or occupied the land under litigation. On the contrary, petitioner has all the evidence of actual possession and ownership of permanent improvements and other plants on the land in dispute.

Petitioner filed a counterclaim for actual and moral damages, and attorney's

fees for the unfounded complaint and prayed for its dismissal. He also sought the cancellation of respondent’s OCT No. P-658 and the reconveyance of the subject parcel of land.

During the trial, respondent Hadji Lantud testified that he acquired the

subject lot from his grandmother, Intumo Pagsidan, a portion thereof from his grandmother’s helper, Totop Malacop, pursuant to a court decision after litigating with him.[6] Respondent had been residing on the lot for more than 30 years, applied for a title thereto and was issued OCT No. P-658.[7] He paid the corresponding real estate taxes for the land.[8] He planted assorted trees and plants on the lot like bananas, jackfruits, coconuts and others.[9] He testified that he was not aware of the alleged litigation over the lot before Barangay Captain Hadji Hassan Abato, although he was furnished a copy of the decision.[10]

On the other hand, petitioner Datu Kiram Sampaco testified that the land

under litigation is only a portion of the 1,800 square meters of land that he inherited in 1952 from his father, Datu Sampaco Gubat.[11] Since then, he had been in adverse possession and ownership of the subject lot, cultivating and planting trees and plants through his caretaker Hadji Mustapha Macawadib.[12] In 1962, he mortgaged the land (1,800 square meters) with the Development Bank of the Philippines, Ozamis branch.[13] He declared the land (1,800 square meters) for taxation purposes[14] and paid real estate taxes, and adduced in evidence the latest Tax Receipt No. 1756386 dated September 15, 19[9]3.[15]Petitioner presented four corroborating witnesses as regards his possession of the subject property.

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After trial on the merits, the trial court rendered a Decision on March 31, 1999 in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, premises considered the court is of the opinion and

so holds that the preponderance of evidence is in favor of the defendant and against the plaintiff. Judgment is hereby rendered as follows:

1. Dismissing plaintiff’s complaint for lack of merit; 2. Declaring Original Certificate of Title No. P-658 (Exh. A)

null and void and of no legal effect; 3. Declaring the defendant the absolute or true owner and

possessor of the land in dispute; and 4. Ordering the plaintiff to pay the defendant the sum

of P10,000.00 for attorney’s fees plus P500.00 per appearance.[16]

The trial court held that the issuance of respondent’s title, OCT No. P-658,

was tainted with fraud and irregularities and the title is, therefore, spurious; hence, it is null and void, and without any probative value. The finding of fraud was based on: (1) the Certification issued by Datu Samra Andam, A/Adm. Assistant II, Natural Resources District No. XII-3, Marawi City, stating that the data contained in respondent’s title were verified and had no record in the said office; (2) the said Certification was not refuted or rebutted by respondent; (3) while free patents are normally issued for agricultural lands, respondent’s title is a free patent title issued over a residential land as the lot is described in the Complaint as a residential lot; and (4) Yusoph Lumampa, an employee of the local Bureau of Lands, to whom respondent allegedly entrusted the paperwork of the land titling, was not presented as a witness.

Moreover, the trial court stated that respondent failed to establish with

competent and credible evidence that he was in prior possession of the subject property. No corroborative witness was presented to further prove his prior possession.

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On the other hand, the trial court stated that petitioner offered documentary

evidence, consisting of a contract of real estate mortgage of the subject property, tax declarations, an official tax receipt, and testimonial evidence to prove that he had been in open, public, continuous, and lawful possession of the subject property in the concept of owner. Respondent appealed the decision of the trial court to the Court of Appeals.

On August 15, 2003, the Court of Appeals rendered a Decision reversing the decision of the trial court, the dispositive portion of which reads:

WHEREFORE:

1. The appeal is granted and the appealed judgment is hereby totally REVERSED.

2. To quiet his title, plaintiff-appelant Hadji Serad Mingca Lantud is confirmed the owner of the parcel of land covered by Original Certificate of Title No. P-658;

3. The defendant-appellee is ordered to pay P50,000.00 as attorney’s fees to the plaintiff-appellant; and

4. Costs against the defendant-appellee.[17] Petitioner’s motion for reconsideration was denied by the Court of Appeals

in its Resolution[18] dated May 13, 2004. The Court of Appeals held that there is no controversy that respondent is a

holder of a Torrens title; hence, he is the owner of the subject property. The appellate court stressed that Section 47[19] of the Land Registration Act (Act No. 496) provides that the certificate of title covering registered land shall be received as evidence in all courts of thePhilippines and shall be conclusive as to all matters stated therein.

The Court of Appeals stated that the Torrens title has three attributes: (1) a

Torrens title is the best evidence of ownership over registered land and, unless annulled in an appropriate proceeding, the title is conclusive on the issue of ownership; (2) a Torrens title is incontrovertible and indefeasible upon the

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expiration of one year from the date of the entry of the decree of registration;[20] and (3) a Torrens title is not subject to collateral attack.[21]

The Court of Appeals held that petitioner’s counterclaim filed on October 15,

1984 for cancellation of respondent’s original certificate of title issued on May 22, 1981 was filed beyond the statutory one-year period; hence, petitioner’s title had become indefeasible, and cannot be affected by the decision made by Barangay Captain Hadji Hassan Abato and his councilmen. Moreover, the appellate court held that petitioner’s prayer for the cancellation of respondent’s title, OCT No. P-658, through a counterclaim included in his Answer is a collateral attack, which the law does not allow, citing Cimafranca v. Court of Appeals[22] and Natalia Realty Corporation v. Valdez.[23]

The allegation of fraud in securing OCT No. P-658 on the ground that the

property in dispute is a residential lot and not subject of a free patent was not given weight by the appellate court as it was supported only by testimonial evidence that did not show how (by metes and bounds) and why the property in dispute could not have been the subject of a free patent. The appellate court stated that a mere preponderance of evidence is not adequate to prove fraud;[24] it must be established by clear and convincing evidence.

The Court of Appeals also noted that petitioner claimed that the subject

property is only part of his larger property. Although petitioner introduced proof of payment of the real estate taxes of the said property, as well as a previous mortgage of the property, petitioner did not show that the disputed property is part of his larger property. Hence, the appellate court stated that under such circumstances, it cannot rule that petitioner owned the land under litigation, since petitioner failed to show that it is part of his larger property.

The Court of Appeals did not award actual and moral damages, because

respondent failed to prove the amount of any actual damages sustained, and the instances enumerated under Article 2219 of the Civil Code warranting the award of moral damages were not present.

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However, the Court of Appeals awarded attorney's fees in the amount of P50,000.00, considering that respondent was forced to incur expenses to protect his right through the action to quiet title.

Petitioner filed this petition raising the following issues:

I THE COURT OF APPEALS MISERABLY FAILED TO CONSIDER THE

FACT THAT THE TORRENS TITLE INVOLVED HEREIN WAS ISSUED PURSUANT TO A FREE PATENT WHICH COULD NOT BE VALIDLY ISSUED OVER A PRIVATE LAND.

II

THE COURT OF APPEALS ERRED IN DISREGARDING THE FACT THAT AS CERTIFIED TO BY THE BUREAU OF LANDS ITSELF NO SUCH FREE PATENT OVER THESUBJECT LAND WAS ISSUED BY IT; HENCE, SAID FREE PATENT IS SPURIOUS.

III

THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT THAT THE SUBJECT LOT HAD LONG BEEN OWNED, POSSESSED AND CULTIVATED BY THE DEFENDANT (PETITIONER HEREIN) OR HIS PREDECESSORS-IN-INTEREST SINCE TIME IMMEMORIAL IN THE CONCEPT OF AN OWNER.

IV

THE COURT OF APPEALS ERRED IN RULING THAT THE PETITIONER’S COUNTERCLAIM FOR CANCELLATION OF RESPONDENT’S TITLE IS BARRED.

V

THE COURT OF APPEALS ERRED IN RULING THAT THE COUNTERCLAIM IN THE INSTANT CASE IS A COLLATERAL ATTACK ON RESPONDENT-PLAINTIFF’S TITLE.

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VI THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S

MOTION FOR RECONSIDERATION.[25]

The main issue is whether or not the Court of Appeals erred in sustaining the

validity of OCT No. P-658 and confirming respondent as owner of the property in dispute.

Petitioner contends that the Court of Appeals erred in disregarding the fact

that the Torrens title was issued to respondent by virtue of a free patent covering a residential lot that is private land as it has been acquired by petitioner through open, public, continuous and lawful possession of the land in the concept of owner. Petitioner thus prayed for the cancellation of respondent’s title and the reconveyance of the subject property. Hence, the Court of Appeals erred in declaring that the subject lot belongs to respondent.

The contention is without merit. The Torrens title is conclusive evidence with respect to the ownership of the

land described therein, and other matters which can be litigated and decided in land registration proceedings.[26] Tax declarations and tax receipts cannot prevail over a certificate of title which is an incontrovertible proof of ownership.[27] An original certificate of title issued by the Register of Deeds under an administrative proceeding is as indefeasible as a certificate of title issued under judicial proceedings.[28] However, the Court has ruled that indefeasibility of title does not attach to titles secured by fraud and misrepresentation.[29]

In this case, petitioner alleged in his Answer to respondent’s Complaint in the

trial court that respondent’s title, OCT No. P-658, was secured in violation of the law and through fraud, deception and misrepresentation, because the subject parcel of land is a residential lot, which cannot be subject of a free patent, since only agricultural lands are subject of a free patent.

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The trial court found that “[t]he lot under litigation as clearly described in the complaint is a residential lot and a free patent title thereto cannot validly be issued.” This finding was one of the bases for the trial court’s declaration that the issuance of OCT was tainted with fraud and irregularities and is, therefore, spurious; thus, OCT No. P-658 is null and void.

It should be pointed out that the allegation in the Complaint that the land is residential was made only by respondent, but the true classification of the disputed land as residential was not shown to have been made by the President, upon recommendation by the Secretary of Environment and Natural Resources, pursuant to Section 9 of Commonwealth Act No. 141, otherwise known as The Public Land Act.[30] Hence, the trial court erred in concluding that there was fraud in the issuance of respondent’s free patent title on the ground that it covered residential land based only on the Complaint which stated that the property was residential land when it was not shown that it was the President who classified the disputed property as residential, and OCT No. P-658 itself stated that the free patent title covered agricultural land. It has been stated that at present,not only agricultural lands, but also residential lands, have been made available by recent legislation for acquisition by free patent by any natural born Filipino citizen.[31] Nevertheless, the fact is that in this case, the free patent title was granted over agricultural land as stated in OCT No. P-658.

Moreover, petitioner contends in his petition that the

Certification[32] dated July 24, 1987 issued by Datu Samra I. Andam, A/Adm. Assistant II, Natural Resources District No. XII-3, Bureau of Lands, Marawi City, certifying that the data contained in OCT No. P-658 in respondent’s name had no records in the said office, showed that respondent’sTorrens title was spurious.

The Court holds that the certification, by itself, is insufficient to prove the

alleged fraud. Fraud and misrepresentation, as grounds for cancellation of patent and annulment of title, should never be presumed, but must be proved by clear and convincing evidence, mere preponderance of evidence not being adequate.[33] Fraud is a question of fact which must be proved.[34] The signatory of the certification, Datu Samra Andam, A/Adm. Assistant II, Natural Resources District No. XII-3, Marawi City, was not presented in court to testify on the due

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issuance of the certification, and to testify on the details of his certification, particularly the reason why the said office had no records of the data contained in OCT No. P-658 or to testify on the fact of fraud, if any.

Thus, the Court holds that the evidence on record is insufficient to prove that

fraud was committed in the issuance of respondent’s Torrens title. Hence, respondent’sTorrens title is a valid evidence of his ownership of the land in dispute.

On the other hand, petitioner claims ownership of the subject lot, which is

merely a portion of a larger property (1,800 square meters) that he allegedly inherited from his father in 1952, by virtue of open, public and continuous possession of the land in the concept of owner making it petitioner’s private property. Hence, petitioner prays for reconveyance of the said property.

Article 434 of the Civil Code governs an action for reconveyance, thus:

Art. 434. In an action to recover, the property must be identified, and the plaintiff must rely on the strength of his title and not on the weakness of the defendant’s claim. Under Article 434 of the Civil Code, to successfully maintain an action to

recover the ownership of a real property, the person who claims a better right to it must prove two (2) things: first, the identity of the land claimed; and second, his title thereto.[35]

In regard to the first requisite, in an accion reinvindicatoria, the person who claims that he has a better right to the property must first fix the identity of the land he is claiming by describing the location, area and boundaries thereof.[36]

In this case, petitioner claims that the property in dispute is part of his larger property. However, petitioner failed to identify his larger property by providing

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evidence of the metes and bounds thereof, so that the same may be compared with the technical description contained in the title of respondent, which would have shown whether the disputed property really formed part of petitioner’s larger property. The appellate court correctly held in its Resolution dated May 13, 2004 that petitioner’s claim is solely supported by testimonial evidence, which did not conclusively show the metes and bounds of petitioner’s larger property in relation to the metes and bounds of the disputed property; thus, there is no sufficient evidence on record to support petitioner’s claim that the disputed property is part of his larger property.

In regard to the second requisite of title to property, both petitioner and

respondent separately claim that they are entitled to ownership of the property by virtue of open, public, continuous and exclusive possession of the same in the concept of owner. Petitioner claims that he inherited the subject property from his father in 1952, while respondent claims that he acquired the property from his grandmother Intumo Pagsidan, a portion thereof from his grandmother’s helper Totop Malacop pursuant to a court decision after litigating with him.[37] Respondent has OCT No. P-658 to prove his title to the subject property, while petitioner merely claims that the property is already his private land by virtue of his open, public, continuous possession of the same in the concept of owner.

The Court holds that petitioner failed to prove the requisites of reconveyance

as he failed to prove the identity of his larger property in relation to the disputed property, and his claim of title by virtue of open, public and continuous possession of the disputed property in the concept of owner is nebulous in the light of a similar claim by respondent who holds a free patent title over the subject property. As stated in Ybañez v. Intermediate Appellate Court,[38] it is relatively easy to declare and claim that one owns and possesses public agricultural land, but it is entirely a different matter to affirmatively declare and to prove before a court of law that one actually possessed and cultivated the entire area to the exclusion of other claimants who stand on equal footing under the Public Land Act (Commonwealth Act No. 141, as amended) as any other pioneering claimants.

Further, petitioner contends that the Court of Appeals erred in ruling that petitioner’s counterclaim is time-barred, since the one-year prescriptive period

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does not apply when the person seeking annulment of title or reconveyance is in possession of the lot, citing Heirs of Simplicio Santiago v. Heirs of Mariano E. Santiago.[39] Petitioner also contends that the Court of Appeals erred in ruling that the counterclaim in this case is a collateral attack on respondent’s title, citing Cimafranca v. Intermediate Appellate Court.[40] Petitioner cites the case of Heirs of Simplicio Santiago v. Heirs of Mariano E. Santiago,[41] which held that a counterclaim can be considered a direct attack on the title.

The Court notes that the case of Cimafranca v. Intermediate Appellate

Court,[42] cited by the Court of Appeals to support its ruling that the prayer for the cancellation of respondent’s title through a counterclaim included in petitioner’s Answer is a collateral attack on the said title, is inapplicable to this case. In Cimafranca, petitioners therein filed a complaint for Partition and Damages, and respondents therein indirectly attacked the validity of the title involved in their counterclaim. Hence, the Court ruled that a Torrenstitle cannot be attacked collaterally, and the issue on its validity can be raised only in an action expressly instituted for that purpose.

Here, the case cited by petitioner, Heirs of Simplicio Santiago v. Heirs of

Mariano E. Santiago, declared that the one-year prescriptive period does not apply when the party seeking annulment of title or reconveyance is in possession of the lot, as well as distinguished a collateral attack under Section 48 of PD No. 1529 from a direct attack, and held that a counterclaim may be considered as a complaint or an independent action and can be considered a direct attack on the title, thus:

The one-year prescriptive period, however, does not apply when the person seeking annulment of title or reconveyance is in possession of the lot. This is because the action partakes of a suit to quiet title which is imprescriptible. In David v. Malay, we held that a person in actual possession of a piece of land under claim of ownership may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, and his undisturbed possession gives him the continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his title.

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x x x x

Section 48 of P.D. 1529, the Property Registration Decree, provides that a certificate of title shall not be subject to collateral attack and cannot be altered, modified, or canceled except in a direct proceeding. An action is an attack on a title when the object of the action is to nullify the title, and thus challenge the judgment or proceeding pursuant to which the title was decreed. The attack is direct when the object of an action is to annul or set aside such judgment, or enjoin its enforcement. On the other hand, the attack is indirect or collateral when, in an action to obtain a different relief, an attack on the judgment or proceeding is nevertheless made as an incident thereof. x x x A counterclaim can be considered a direct attack on the title. In Development Bank of the Philippines v. Court Appeals, we ruled on the validity of a certificate of title despite the fact that the nullity thereof was raised only as a counterclaim. It was held that a counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff. It stands on the same footing and is to be tested by the same rules as if it were an independent action. x x x[43]

The above ruling of the court on the definition of collateral attack under

Section 48 of P.D. No. 1529 was reiterated in Leyson v. Bontuyan,[44] Heirs of Enrique Diaz v. Virata,[45] Arangote v. Maglunob,[46] and Catores v. Afidchao.[47]

Based on the foregoing, the Court holds that petitioner’s counterclaim for cancellation of respondent’s title is not a collateral attack, but a direct attack on the Torrens title of petitioner. However, the counterclaim seeking for the cancellation of title and reconveyance of the subject property has prescribed as

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petitioner has not proven actual possession and ownership of the property due to his failure to prove the identity of his larger property that would show that the disputed property is a part thereof, and his claim of title to the subject property by virtue of open, public and continuous possession in the concept of owner is nebulous in the light of a similar claim by respondent who holds a Torrens title to the subject property.

Respondent’s original certificate of title was issued on May 22, 1981, while

the counterclaim was filed by petitioner on October 15, 1984, which is clearly beyond the one-year prescriptive period.

In fine, the Court of Appeals did not err in confirming that respondent is the

owner of the parcel of land covered by OCT No. P-658. WHEREFORE, the petition is DENIED. The Court of Appeals’

decision dated August 15, 2003, and its Resolution dated May 13, 2004 in CA-G.R. CV No. 63801, are hereby AFFIRMED. No costs. SO ORDERED.

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FIRST DIVISION

ROGELIO J. JAKOSALEM and

GODOFREDO B. DULFO

G.R. No. 175025

Petitioners, Present:

CORONA, C. J.,

Chairperson,

LEONARDO-DE CASTRO,

- versus- DEL CASTILLO,

PEREZ,⃰ and

SERENO, ⃰ ⃰ JJ.

ROBERTO S. BARANGAN, Promulgated:

Respondent. February 15, 2012

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

DEL CASTILLO, J.:

This case exemplifies the age-old rule that the one who holds a Torrens title over a lot is the one entitled to its possession.[1]

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This Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court assails the Decision[3] dated August 3, 2006 and the Resolution[4] dated October 4, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 79283.

Factual Antecedents

On August 13, 1966, respondent Col. Roberto S. Barangan (respondent Barangan) entered into a Land Purchase Agreement[5] with Ireneo S. Labsilica of Citadel Realty Corporation whereby respondent Barangan agreed to purchase on installment a 300 square meter parcel of land, covered by Transfer Certificate of Title (TCT) No. 165456,[6] located in Antipolo, Rizal.[7] Upon full payment of the purchase price, a Deed of Absolute Sale[8] was executed on August 31, 1976 in his favor.[9] Consequently, the old title, TCT No. 171453,[10] which was a transfer from TCT No. 165456,[11] was cancelled and a new one, TCT No. N-10772,[12] was issued in his name.[13] Since then, he has been dutifully paying real property taxes for the said property.[14] He was not, however, able to physically occupy the subject property because as a member of the Philippine Air Force, he was often assigned to various stations in the Philippines.[15]

On December 23, 1993, when he was about to retire from the government service, respondent Barangan went to visit his property, where he was planning to build a retirement home. It was only then that he discovered that it was being occupied by petitioner Godofredo Dulfo (petitioner Dulfo) and his family.[16]

On February 4, 1994, respondent Barangan sent a letter[17] to petitioner Dulfo demanding that he and his family vacate the subject property within 30 days. In reply, petitioner Atty. Rogelio J. Jakosalem (petitioner Jakosalem), the son-in-law of petitioner Dulfo, sent a letter[18] claiming ownership over the subject property.

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On February 19, 1994, respondent Barangan filed with Barangay San Luis, Antipolo, Rizal, a complaint for Violation of Presidential Decree No. 772 or the Anti-Squatting Law against petitioners.[19] No settlement was reached; hence, the complaint was filed before the Prosecutor’s Office of Rizal.[20] The case, however, was dismissed because the issue of ownership must first be resolved in a civil action.[21]

On May 28, 1994, respondent Barangan commissioned Geodetic Engineer Lope C. Jonco (Engr. Jonco) of J. Surveying Services to conduct a relocation survey of the subject property based on the technical description appearing on respondent Barangan’s TCT.[22] The relocation survey revealed that the property occupied by petitioner Dulfo and his family is the same property covered by respondent Barangan’s title.[23]

On November 17, 1994, respondent Barangan filed a Complaint[24] for Recovery of Possession, docketed as Civil Case No. 94-3423, against petitioners Dulfo and Jakosalem with the Regional Trial Court (RTC), Branch 73, Antipolo City. Respondent Barangan prayed that petitioners Dulfo and Jakosalem be ordered to vacate the subject property and pay a monthly rental ofP3,000.00 for the use and occupancy of the subject property from May 1979 until the time the subject property is vacated, plus moral and exemplary damages and cost of suit.[25]

In their Answer with Counterclaim,[26] petitioners Dulfo and Jakosalem claimed that the subject property was assigned to petitioner Jakosalem by Mr. Nicanor Samson (Samson);[27]that they have been in possession of the subject property since May 8, 1979;[28] and that the property covered by respondent Barangan’s title is not the property occupied by petitioner Dulfo and his family.[29]

During the trial, respondent Barangan testified for himself and presented three witnesses: (1) Gregorio Estardo (Estardo), the caretaker of Villa Editha Subdivision and Rodville Subdivision[30] employed by Citadel Realty Corporation, who stated under oath that petitioner Dulfo used to rent the lot owned by Dionisia Ordialez (Estardo’s Aunt) and that when petitioner Dulfo could no longer pay the rent, he and his family squatted on the property of respondent Barangan;[31] (2) Candida Lawis, a representative of the

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Municipal Assessor of Antipolo, Rizal, who confirmed that respondent Barangan is included in the list of registered owners of lots in Villa Editha Subdivision III and Rodville Subdivision[32] and; (3) Engr. Jonco, who testified that the property occupied by petitioner Dulfo and his family and the property owned by respondent Barangan are one and the same.[33]

The defense moved for the dismissal of the case on demurrer to evidence but was denied by the RTC.[34] Thus, the defense presented petitioner Jakosalem who maintained that he acquired the subject property by assignment from its previous owner, Samson.[35] The defense likewise requested an ocular inspection of the subject property to show that it is not the property covered by respondent Barangan’s title.[36] However, instead of granting the request, the RTC issued an Order[37] dated September 15, 2000 directing Engr. Romulo Unciano of the Department of Environment and Natural Resources (DENR) Antipolo City to conduct a resurvey or replotting of land based on the title of respondent Barangan and to submit a report within 15 days.[38] The resurvey, however, did not push through because the defense in an Omnibus Motion[39] dated September 20, 2000 abandoned its request for an ocular inspection claiming that it was no longer necessary.[40]

Ruling of the Regional Trial Court

On March 19, 2003, the RTC rendered a Decision[41]against respondent Barangan for failure to present sufficient evidence to prove his claim.[42] The RTC further said that even if the subject property is owned by respondent Barangan, prescription and laches have already set in; thus, respondent Barangan may no longer recover the same.[43] The dispositive portion reads:

WHEREFORE, premises considered, for insufficiency of evidence

judgment is hereby rendered in favor of the defendant and against the

plaintiff. By way of counterclaim, the plaintiff is hereby ordered to pay

defendant Jakosalem the following amounts:

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a. P100,000 for moral damages;

b. P50,000 as actual damages;

c. P25,000 as exemplary damages;

d. P20,000 for litigation expenses; and

e. Costs of suit.

SO ORDERED.[44]

Ruling of the Court of Appeals

On appeal, the CA reversed the findings of the RTC. It found respondent Barangan entitled to recover possession of the subject property because he was able to sufficiently prove the identity of the subject property and that the same is owned by him, as evidenced by TCT No. N-10772.[45] And since respondent Barangan was deprived of possession of the subject property, the CA ruled that he is entitled to reasonable compensation for the use of the property with interest, as well as the payment of moral, temperate or moderate damages, and attorney’s fees,[46] to wit:

WHEREFORE, premises considered, the appeal is GRANTED. The

Decision dated 19 March 2003 of the Regional Trial Court of Antipolo City,

Branch 73 in Civil Case No. 94-3423 is hereby REVERSED AND SET ASIDE and

a new one is rendered declaring, as follows:

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1. Appellant Roberto S. Barangan is entitled to the possession

of the subject property-Lot 11, Block 5, of the subdivision plan (LRC) Psd-

60846 situated in Rodville Subdivision, Barangay San Luis, Antipolo, Rizal,

covered by Transfer Certificate of Title No. N-10772 of the Registry of Deeds

for the Province of Rizal;

2. Appellees and all persons deriving rights under them who are

occupants of the subject property are ordered to vacate the subject

property and surrender peaceful possession thereof to appellant;

3. Appellees and all persons deriving rights under them who are

occupants of the subject property are ordered to pay to appellant

reasonable compensation for the use of the subject property in the amount

of Php3,000.00 per month from 17 November 1994 until they vacate the

subject property and turn over the possession to appellant, plus legal

interest of 12% per annum, from the date of promulgation of this Decision

until full payment of all said reasonable compensation; and

4. Appellees are ordered to pay to appellant the amount of

Php100,000.00 as moral damages, Php50,000.00 as temperate or moderate

damages, and Php50,000.00 as attorney’s fees.

Cost against appellees.

SO ORDERED.[47]

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Issues

Hence, the instant petition with the following issues:

1. WHETHER X X X [BARANGAN] WAS ABLE TO IDENTIFY

THE EXACT LOCATION OF HIS PROPERTY DESCRIBED UNDER TCT NO.

N-10772 [AND WHETHER] THE PROPERTY OCCUPIED BY DULFO [IS]

THE SAME PROPERTY CLAIMED BY [BARANGAN];

2. WHETHER X X X [BARANGAN] HAS FULLY SATISFIED

THE REQUIREMENTS OF ARTICLE 434 OF THE CIVIL CODE X X X;

3. WHETHER X X X THE AMOUNT OF PHP3,000.00 AS

MONTHLY LEASE RENTAL OR COMPENSATION FOR THE USE OF THE

PROPERTY IS REASONABLE;

4. WHETHER X X X THE GRANT OF XXX MORAL,

TEMPERATE OR MODERATE [DAMAGES] AND ATTORNEY’S FEES, X X X

IS IN ACCORDANCE WITH EVIDENCE AND LAW;

5. WHETHER X X X LACHES AND PRESCRIPTION [HAVE]

BARRED THE FILING OF THIS CASE.[48]

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Petitioners’ Arguments

Petitioners Dulfo and Jakosalem contend that the CA erred in reversing the findings of the RTC as respondent Barangan’s property was not properly identified.[49] They claim that the relocation survey conducted by Engr. Jonco violated the agreement they made before the Barangay that the survey should be conducted in the presence of both parties.[50] They also claim that the title number stated in the Land Purchase Agreement is not the same number found in the Deed of Absolute Sale.[51] They likewise insist that laches and prescription barred respondent Barangan from filing the instant case.[52] Lastly, they contend that the damages ordered by the CA are exorbitant, excessive and without factual and legal bases.[53]

Respondent’s Arguments

Respondent Barangan, on the other hand, argues that being the registered owner of the subject property, he is entitled to its possession.[54] He maintains that his Torrens title prevails over the Assignment of a Right[55] presented by petitioners.[56] Moreover, laches and prescription do not apply against him as there was no delay on his part to assert his right to the property.[57]

Our Ruling

The petition lacks merit.

Respondent Barangan is entitled to recover the subject property

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Article 434 of the Civil Code provides that “[i]n an action to recover, the property must be identified, and the plaintiff must rely on the strength of his title and not on the weakness of the defendant’s claim.” In other words, in order to recover possession, a person must prove (1) the identity of the land claimed, and (2) his title.[58]

In this case, respondent Barangan was able to prove the identity of the property and his title. To prove his title to the property, he presented in evidence the following documents: (1) Land Purchase Agreement;[59] (2) Deed of Absolute Sale;[60] (3) and a Torrens title registered under his name, TCT No. N-10772.[61] To prove the identity of the property, he offered the testimonies of Engr. Jonco, who conducted the relocation survey,[62] and Estardo, the caretaker of the subdivision, who showed respondent Barangan the exact location of the subject property.[63] He likewise submitted as evidence the Verification Survey Plan of Lot 11, Block 5, (LRC) Psd-60846, which was plotted based on the technical description appearing on respondent Barangan’s title.[64]

Petitioners’ contention that the relocation survey was done in violation of their agreement deserves scant consideration. Petitioners were informed[65] beforehand of the scheduled relocation survey on May 29, 1994 but they opted not to attend. In fact, as testified by respondent Barangan and Engr. Jonco, the relocation survey had to be postponed several times because petitioners refused to participate.[66] By refusing to attend and participate in the relocation survey, they are now estopped from questioning the results of the relocation survey.[67]

Records also show that during the trial, the RTC ordered the DENR to conduct a resurvey of the subject property; but petitioners moved that the same be abandoned claiming that the resurvey would only delay the proceedings.[68] To us, the persistent refusal of petitioners to participate in the relocation survey does not speak well of their claim that they are not occupying respondent Barangan’s property. In fact, their unjustified refusal only shows either of two things: (1) that they know for a fact that the result would be detrimental to their case; or (2) that they have doubts that the result would be in their favor.

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Neither is there any discrepancy between the title number stated in the Land

Purchase Agreement and the Deed of Absolute Sale. As correctly found by the CA, TCT

No. 171453, the title stated in the Deed of Absolute Sale, is a transfer from TCT No.

165456, the title stated in the Land Purchase Agreement.[69] Hence, both TCTs pertain

to the same property.

Respondent Barangan is entitled to actual and moral damages as well as attorney’s fees

Since respondent Barangan was deprived of possession of the subject property, he is entitled to reasonable compensation in the amount of P3,000.00[70] per month from November 17, 1994, the date of judicial demand, up to the time petitioners vacate the subject property. The legal interest of which shall be at the rate of 6% per annum from November 17, 1994 and at the rate of 12% per annum from the time the judgment of this Court becomes final and executory until the obligation is fully satisfied.[71]

The award of temperate damages in the amount of P50,000.00, representing the expenses for the relocation survey, however, must be deleted as these expenses were not alleged in the complaint.[72]

For the mental anguish, sleepless nights, and serious anxiety suffered by respondent Barangan, he is entitled to moral damages under Article 2217[73] of the Civil Code but in the reduced amount of P50,000.00, which is the amount prayed for in the complaint.[74]

Although not alleged in the complaint, we sustain the CA’s award of P50,000.00 as attorney’s fees because it is sanctioned by law, specifically, paragraphs 2 and 11 of Article 2208[75]of the Civil Code.[76]

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Laches and prescription do not apply

Finally, as to the issue of laches and prescription, we agree with the CA that these

do not apply in the instant case. Jurisprudence consistently holds that “prescription and laches can not apply to registered land covered by the Torrens system” because “under the Property Registration Decree, no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession.”[77]

WHEREFORE, the petition is hereby DENIED. The assailed Decision dated August 3, 2006 and the Resolution dated October 4, 2006 of the Court of Appeals in CA-G.R. CV No. 79283 are hereby AFFIRMED with MODIFICATIONS. The award of moral damages is REDUCED to P50,000.00 while the award of temperate damages is DELETED. The reasonable monthly rental of P3,000.00 shall earn legal interest of six percent (6%) per annum from November 17, 1994, and at the rate of twelve percent (12%) per annum from the finality of this judgment until the obligation is fully satisfied.

SO ORDERED.

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ARTICLE 435 SECOND DIVISION [G.R. No. 158563. June 30, 2005]

AIR TRANSPORTATION OFFICE (ATO) and MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), petitioners, vs. APOLONIO GOPUCO, JR., respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

When private land is expropriated for a particular public use, and that particular public use is abandoned, does its former owner acquire a cause of action for recovery of the property?

The trial court’s ruling in the negative was reversed by the Court of Appeals in its Decision[1] of 28 February 2001. Hence this petition for review under Rule 45 of the 1997 Rules of Civil Procedure of the said Decision of the court a quo, and its Resolution[2] of 22 May 2003 dismissing petitioners’ motion for reconsideration.

The facts, as adduced from the records, are as follows:

Respondent Apolonio Gopuco, Jr. was the owner of Cadastral Lot No. 72 consisting of 995 square meters located in the vicinity of the Lahug Airport in Cebu City covered by Transfer Certificate of Title (TCT) No. 13061-T.

The Lahug Airport had been turned over by the Unites States Army to the Republic of the Philippines sometime in 1947 through the Surplus Property Commission, which accepted it in behalf of the Philippine Government. In 1947, the Surplus Property Commission was succeeded by the Bureau of Aeronautics, which office was supplanted by the National Airport Corporation (NAC). The NAC was in turn dissolved and replaced with the Civil Aeronautics Administration (CAA).[3]

Sometime in 1949, the NAC informed the owners of the various lots surrounding the Lahug Airport, including the herein respondent, that the government was acquiring their lands for purposes of expansion. Some landowners were convinced to sell their properties on the assurance that they

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would be able to repurchase the same when these would no longer be used by the airport. Others, including Gopuco, refused to do so.

Thus, on 16 April 1952, the CAA filed a complaint with the Court of First Instance (CFI) of Cebu for the expropriation of Lot No. 72 and its neighboring realties, docketed as Civil Case No. R-1881.

On 29 December 1961, the CFI promulgated a Decision,

1. Declaring the expropriation of [the subject lots, including Lot No. 72] justified and in lawful exercise of the right of eminent domain;

2. Declaring …. a balance of P1,990 in favor of Apolonio Go Puco, Jr. with legal interest from November 16, 1947 until fully paid…. ;

3. After the payment of the foregoing financial obligation to the landowners, directing the latter to deliver to the plaintiff the corresponding Transfer Certificates of Title to their respective lots; and upon the presentation of the said titles to the Register of Deeds, ordering the latter to cancel the same and to issue, in lieu thereof, new Transfer Certificates of Title in the name of the plaintiff.[4]

No appeal was taken from the above Decision on Lot No. 72, and the judgment of condemnation became final and executory. Thereafter, on 23 May 1962, absolute title to Lot No. 72 was transferred to the Republic of the Philippines under TCT No. 25030.[5]

Subsequently, when the Mactan International Airport commenced operations, the Lahug Airport was ordered closed by then President Corazon C. Aquino in a Memorandum of 29 November 1989.[6] Lot No. 72 was thus virtually abandoned.[7]

On 16 March 1990, Gopuco wrote[8] the Bureau of Air Transportation, through the manager of the Lahug Airport, seeking the return of his lot and offering to return the money previously received by him as payment for the expropriation. This letter was ignored.[9]

In the same year, Congress passed Republic Act No. 6958 creating the Mactan-Cebu International Airport Authority (MCIAA) and in part providing for the transfer of the assets of the Lahug Airport thereto. Consequently, on 08 May 1992, ownership of Lot No. 72 was transferred to MCIAA under TCT No. 120356.[10]

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On 06 August 1992, Apolonio Gopuco, Jr. filed an amended complaint[11] for recovery of ownership of Lot No. 72 against the Air Transportation Office[12] and the Province of Cebu with the Regional Trial Court (RTC) of Cebu, Branch X, docketed as Civil Case No. CEB-11914. He maintained that by virtue of the closure of the Lahug Airport, the original purpose for which the property was expropriated had ceased or otherwise been abandoned, and title to the property had therefore reverted to him.

Gopuco further alleged that when the original judgment of expropriation had been handed down, and before they could file an appeal thereto, the CAA offered them a compromise settlement whereby they were assured that the expropriated lots would be resold to them for the same price as when it was expropriated in the event that the Lahug Airport would be abandoned. Gopuco claims to have accepted this offer.[13] However, he failed to present any proof on this matter, and later admitted that insofar as the said lot was concerned, no compromise agreement was entered into by the government and the previous owners.[14]

Lastly, Gopuco asserted that he had come across several announcements in the papers that the Lahug Airport was soon to be developed into a commercial complex, which he took to be a scheme of the Province of Cebu to make permanent the deprivation of his property.

On 20 May 1994, the trial court rendered a Decision[15] dismissing the complaint and directing the herein respondent to pay the MCIAA exemplary damages, litigation expenses and costs.

Aggrieved by the holding of the trial court, Gopuco appealed to the Court of Appeals, which overturned the RTC decision, ordered the herein petitioners to reconvey Lot No. 72 to Gopuco upon payment of the reasonable price as determined by it, and deleted the award to the petitioners of exemplary damages, litigation expenses and costs.

The Motion for Reconsideration was denied[16] on 22 May 2003, hence this petition, which raises the following issues:

WHETHER THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT HAS THE RIGHT TO RECLAIM OWNERSHIP OVER THE SUBJECT EXPROPRIATED LOT

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BASED ON THE IMPORT OF THE DECEMBER 29, 1961 DECISION IN CIVIL CASE NO. 1881.

WHETHER THE COURT OF APPEALS ERRED IN DELETING THE AWARD OF LITIGATION EXPENSES AND COSTS IN FAVOR OF PETITIONERS.

In deciding the original expropriation case that gave rise to the present controversy, Civil Case No. R-1881, the CFI reasoned that the planned expansion of the airport justified the exercise of eminent domain, thus:

As for the public purpose of the expropriation proceeding, it cannot be doubted. Although the Mactan Airport is being constructed, it does not take away the actual usefulness and importance of the Lahug Airport; it is handling the air traffic both civilian and military. From it aircrafts fly to Mindanao and Visayas and pass thru it on their return flights to the North and Manila. Then, no evidence was adduced to show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be closed immediately thereafter. It is for the other departments of the Government to determine said matters. The Court cannot substitute its judgment for those of the said departments or agencies. In the absence of such a showing, the Court will presume that the Lahug Airport will continue to be in operation.[17] (emphasis supplied)

By the time Gopuco had filed his action for recovery of ownership of Lot No. 72, Lahug Airport had indeed ceased to operate. Nevertheless, the trial court held:

The fact of abandonment or closure of the Lahug Airport admitted by the defendant did not by itself, result in the reversion of the subject property back to the plaintiff. Nor did it vest in the plaintiff the right to demand reconveyance of said property.

When real property has been acquired for public use unconditionally, either by eminent domain or by purchase, the abandonment or non-use of the real property, does not ipso facto give to the previous owner of said property any right to recover the same (Fery vs. Municipality of Cabanatuan, 42 Phil. 28).[18]

In reversing the trial court, the Court of Appeals called attention to the fact that both parties cited Fery v. Municipality of Cabanatuan,[19] which the trial court also

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relied on in its Decision. The court a quo agreed in Gopuco’s interpretation of Fery that when the CFI in Civil Case No. R-1881 held that,

. . . [T]hen, no evidence was adduced to show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be closed immediately thereafter….In the absence of such a showing, the Court will presume that the Lahug Airport will continue to be in operation, . . . .[20]

the expropriation of the property was conditioned on its continued devotion to its public purpose. Thus, although the MCIAA stressed that nothing in the judgment of expropriation expressly stated that the lands would revert to their previous owners should the public use be terminated or abandoned, the Court of Appeals nevertheless ruled that,

. . . [W]hile, there is no explicit statement that the land is expropriated with the condition that when the purpose is ended the property shall return to its owner, the full import of the decision (in Civil Case No. R-1881) suggests that the expropriation was granted because there is no clear showing that Lahug Airport will be closed, the moment Mactan International Airport is put to operation. It stands to reason that should that public use be abandoned, then the expropriated property should revert back to its former owner.

Moreover, the foundation of the right to exercise the power of eminent domain is genuine necessity. Condemnation is justified only if it is for the public good and there is genuine necessity of a public character. Thus, when such genuine necessity no longer exists as when the State abandons the property expropriated, government interest must yield to the private right of the former land owner, whose property right was disturbed as a consequence of the exercise of eminent domain.

Justice, equity and fair play demand that the property should revert back to plaintiff-appellant upon paying the reasonable value of the land to be based on the prevailing market value at the time of judicial demand to recover the property. If the State expects landowners to cooperate in its bid to take private property for its public use, so must it apply also the same standard, to allow the landowner to reclaim the property, now that the public use has been abandoned.[21]

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In this petition, the MCIAA reiterates that the Republic of the Philippines validly expropriated Lot No. 72 through the proceedings in Civil Case No. R-1881, the judgment of which had long become final and executory. It further asserts that said judgment vested absolute and unconditional title in the government, specifically on the petitioners, there having been no condition whatsoever that the property should revert to its owners in case the Lahug Airport should be abandoned.

On the other hand, the respondent would have us sustain the appellate court’s interpretation of Fery as applied to the original judgment of expropriation, to the effect that this was subject to the condition “that the Lahug Airport will continue to be in operation.”

We resolve to grant the petition.

In Fery, the Court asked and answered the same question confronting us now: When private land is expropriated for a particular public use, and that particular public use is abandoned, does the land so expropriated return to its former owner?[22]

The answer to that question depends upon the character of the title acquired by the expropriator, whether it be the State, a province, a municipality, or a corporation which has the right to acquire property under the power of eminent domain. If, for example, land is expropriated for a particular purpose, with the condition that when that purpose is ended or abandoned the property shall return to its former owner, then, of course, when the purpose is terminated or abandoned the former owner reacquires the property so expropriated. If, for example, land is expropriated for a public street and the expropriation is granted upon condition that the city can only use it for a public street, then, of course, when the city abandons its use as a public street, it returns to the former owner, unless there is some statutory provision to the contrary. . . If upon the contrary, however, the decree of expropriation gives to the entity a fee simple title, then of course, the land becomes the absolute property of the expropriator, whether it be the State, a province, or municipality, and in that case the non-user does not have the effect of defeating the title acquired by the expropriation proceedings. (10 R.C.L., 240, sec. 202; 20 C.J. 1234, secs. 593-599 and numerous cases cited;

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Reichling vs. Covington Lumber Co., 57 Wash., 225; 135 Am. St. Rep., 976; McConihay vs. Wright, 121 U.S., 201.)

When land has been acquired for public use in fee simple, unconditionally, either by the exercise of eminent domain or by purchase, the former owner retains no rights in the land, and the public use may be abandoned or the land may be devoted to a different use, without any impairment of the estate or title acquired, or any reversion to the former owner. (Fort Wayne vs. Lake Shore, etc. Ry. Co., 132 Ind., 558; 18 L.R.A., 367.) (Emphases Supplied)[23]

Did the judgment of expropriation in Civil Case No. R-1881 vest absolute and unconditional title in the government? We have already had occasion to rule on this matter in Mactan-Cebu International Airport Authority v. Court of Appeals,[24] which is a related action for reconveyance of a parcel of land also subject of the expropriation proceedings in Civil Case No. R-1881. One of the landowners affected by the said proceeding was Virginia Chiongbian, to whom the CFI ordered the Republic of the Philippines to pay P34,415.00, with legal interest computed from the time the government began using her land. Like the herein respondent, she did not appeal from the CFI’s judgment. Also like Gopuco, she eventually filed for the reconveyance of her property when the airport closed. Although she was upheld by both the RTC of Cebu and the Court of Appeals, on appeal we held that “the terms of the judgment (in Civil Case No. R-1881) are clear and unequivocal and granted title to Lot No. 941 in fee simple to the Republic of the Philippines. There was no condition imposed to the effect that the lot would return to CHIONGBIAN or that CHIONGBIAN had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport.”[25] Moreover, we held that although other lot owners were able to successfully reacquire their lands by virtue of a compromise agreement, since CHIONGBIAN was not a party to any such agreement, she could not validly invoke the same.

The respondent would have us revisit this ruling for three reasons. First, because he claims there is no showing that the government benefited from entering into compromise agreements with the other lot owners; second, because such a doctrine supposedly discriminates against those who have “neither the

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werewithal nor the savvy to contest the expropriation,” or agree to modify the judgment; and third, because there exists between the government and the owners of expropriated realty an “implied contract” that the properties involved will be used only for the public purpose for which they were acquired in the first place.

As to respondent’s first and second arguments, we have time and again ruled that a compromise agreement, when not contrary to law, public order, public policy, morals, or good customs, is a valid contract which is the law between the parties.[26] It is a contract perfected by mere consent,[27] whereby the parties, making reciprocal concessions, avoid litigation or put an end to one already commenced. It has the force of law and is conclusive between the parties,[28] and courts will not relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be unwise.[29] Note that respondent has not shown that any of the compromise agreements were in any way tainted with illegality, irregularity or imprudence. Indeed, anyone who is not a party to a contract or agreement cannot be bound by its terms, and cannot be affected by it.[30] Since Gopuco was not a party to the compromise agreements, he cannot legally invoke the same.[31]

Lastly, Gopuco argues that there is present, in cases of expropriation, an “implied contract” that the properties will be used only for the public purpose for which they were acquired. No such contract exists.

Eminent domain is generally described as “the highest and most exact idea of property remaining in the government” that may be acquired for some public purpose through a method in the nature of a forced purchase by the State.[32] Also often referred to as expropriation and, with less frequency, as condemnation, it is, like police power and taxation, an inherent power of sovereignty and need not be clothed with any constitutional gear to exist; instead, provisions in our Constitution on the subject are meant more to regulate, rather than to grant, the exercise of the power. It is a right to take or reassert dominion over property within the state for public use or to meet a public exigency and is said to be an essential part of governance even in its most primitive form and thus inseparable from sovereignty.[33] In fact, “all separate interests of individuals in property are held of the government under this tacit agreement or implied reservation. Notwithstanding the grant to individuals, the eminent domain, the

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highest and most exact idea of property, remains in the government, or in the aggregate body of people in their sovereign capacity; and they have the right to resume the possession of the property whenever the public interest so requires it.”[34]

The ubiquitous character of eminent domain is manifest in the nature of the expropriation proceedings. Expropriation proceedings are not adversarial in the conventional sense, for the condemning authority is not required to assert any conflicting interest in the property. Thus, by filing the action, the condemnor in effect merely serves notice that it is taking title and possession of the property, and the defendant asserts title or interest in the property, not to prove a right to possession, but to prove a right to compensation for the taking.[35]

The only direct constitutional qualification is thus that “private property shall not be taken for public use without just compensation.”[36] This prescription is intended to provide a safeguard against possible abuse and so to protect as well the individual against whose property the power is sought to be enforced.[37]

In this case, the judgment on the propriety of the taking and the adequacy of the compensation received have long become final. We have also already held that the terms of that judgment granted title in fee simple to the Republic of the Philippines. Therefore, pursuant to our ruling in Fery, as recently cited in Reyes v. National Housing Authority,[38] no rights to Lot No. 72, either express or implied, have been retained by the herein respondent.

We are not unaware of the ruling in Heirs of Timoteo Moreno v. Mactan-Cebu International Airport Authority,[39] concerning still another set of owners of lots declared expropriated in the judgment in Civil Case No. R-1881. As with Chiongbian and the herein respondent, the owners of the lots therein did not appeal the judgment of expropriation, but subsequently filed a complaint for reconveyance. In ordering MCIAA to reconvey the said lots in their favor, we held that the predicament of petitioners therein involved a constructive trust “akin to the implied trust referred to in Art. 1454[40] of the Civil Code.”[41] However, we qualified our Decision in that case, to the effect that,

We adhere to the principles enunciated in Fery and in Mactan-Cebu International Airport Authority, and do not overrule them. Nonetheless the weight of their import, particularly our ruling as regards the properties of respondent Chiongbian

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in Mactan-Cebu International Airport Authority, must be commensurate to the facts that were established therein as distinguished from those extant in the case at bar. Chiongbian put forth inadmissible and inconclusive evidence, while in the instant case we have preponderant proof as found by the trial court of the existence of the right of repurchase in favor of petitioners.

Neither has Gopuco, in the present case, adduced any evidence at all concerning a right of repurchase in his favor. Heirs of Moreno is thus not in point.

The trial court was thus correct in denying Gopuco’s claim for the reconveyance of Lot No. 72 in his favor. However, for failure of the petitioners to present any proof that this case was clearly unfounded or filed for purposes of harassment, or that the herein respondent acted in gross and evident bad faith, the reimposition of litigation expenses and costs has no basis. It is not sound public policy to set a premium upon the right to litigate where such right is exercised in good faith, as in the present case.[42]

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 49898 dated 28 February 2001, and its Resolution of 22 May 2003 are hereby REVERSED and SET ASIDE. The Decision of RTC-Branch X of Cebu dated 20 May 1994 in Civil Case No. CEB-11914 is REINSTATED with the modification that the award of exemplary damages, litigation expenses and costs are DELETED.

SO ORDERED.

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EN BANC [G.R. No. 161656. June 29, 2005]

REPUBLIC OF THE PHILIPPINES, GENERAL ROMEO ZULUETA, COMMODORE EDGARDO GALEOS, ANTONIO CABALUNA, DOROTEO MANTOS & FLORENCIO BELOTINDOS, petitioners, vs. VICENTE G. LIM, respondent.

R E S O L U T I O N

SANDOVAL-GUTIERREZ, J.:

Justice is the first virtue of social institutions.[1]

When the state wields its power of eminent domain, there arises a correlative obligation on its part to pay the owner of the expropriated property a just compensation. If it fails, there is a clear case of injustice that must be redressed. In the present case, fifty-seven (57) years have lapsed from the time the Decision in the subject expropriation proceedings became final, but still the Republic of the Philippines, herein petitioner, has not compensated the owner of the property. To tolerate such prolonged inaction on its part is to encourage distrust and resentment among our people – the very vices that corrode the ties of civility and tempt men to act in ways they would otherwise shun.

A revisit of the pertinent facts in the instant case is imperative.

On September 5, 1938, the Republic of the Philippines (Republic) instituted a special civil action for expropriation with the Court of First Instance (CFI) of Cebu, docketed as Civil Case No. 781, involving Lots 932 and 939 of the Banilad Friar Land Estate, Lahug, Cebu City, for the purpose of establishing a military reservation for the Philippine Army. Lot 932 was registered in the name of Gervasia Denzon under Transfer Certificate of Title (TCT) No. 14921 with an area of 25,137 square meters, while Lot 939 was in the name of Eulalia Denzon and covered by TCT No. 12560 consisting of 13,164 square meters.

After depositing P9,500.00 with the Philippine National Bank, pursuant to the Order of the CFI dated October 19, 1938, the Republic took possession of the lots. Thereafter, or on May 14, 1940, the CFI rendered its Decision ordering the Republic to pay the Denzons the sum of P4,062.10 as just compensation.

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The Denzons interposed an appeal to the Court of Appeals but it was dismissed on March 11, 1948. An entry of judgment was made on April 5, 1948.

In 1950, Jose Galeos, one of the heirs of the Denzons, filed with the National Airports Corporation a claim for rentals for the two lots, but it “denied knowledge of the matter.” Another heir, Nestor Belocura, brought the claim to the Office of then President Carlos Garcia who wrote the Civil Aeronautics Administration and the Secretary of National Defense to expedite action on said claim. On September 6, 1961, Lt. Manuel Cabal rejected the claim but expressed willingness to pay the appraised value of the lots within a reasonable time.

For failure of the Republic to pay for the lots, on September 20, 1961, the Denzons’ successors-in-interest, Francisca Galeos-Valdehueza and Josefina Galeos-Panerio,

[2] filed with the same CFI an action for recovery

of possession with damages against the Republic and officers of the Armed Forces of the Philippines in possession of the property. The case was docketed as Civil Case No. R-7208.

In the interim or on November 9, 1961, TCT Nos. 23934 and 23935 covering Lots 932 and 939 were issued in the names of Francisca Valdehueza and Josefina Panerio, respectively. Annotated thereon was the phrase “subject to the priority of the National Airports Corporation to acquire said parcels of land, Lots 932 and 939 upon previous payment of a reasonable market value.”

On July 31, 1962, the CFI promulgated its Decision in favor of Valdehueza and Panerio, holding that they are the owners and have retained their right as such over Lots 932 and 939 because of the Republic’s failure to pay the amount of P4,062.10, adjudged in the expropriation proceedings. However, in view of the annotation on their land titles, they were ordered to execute a deed of sale in favor of the Republic. In view of “the differences in money value from 1940 up to the present,” the court adjusted the market value at P16,248.40, to be paid with 6% interest per annum from April 5, 1948, date of entry in the expropriation proceedings, until full payment.

After their motion for reconsideration was denied, Valdehueza and Panerio appealed from the CFI Decision, in view of the amount in

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controversy, directly to this Court. The case was docketed as No. L-21032.

[3] On May 19, 1966, this Court rendered its Decision affirming the

CFI Decision. It held that Valdehueza and Panerio are still the registered owners of Lots 932 and 939, there having been no payment of just compensation by the Republic. Apparently, this Court found nothing in the records to show that the Republic paid the owners or their successors-in-interest according to the CFI decision. While it deposited the amount of P9,500,00, and said deposit was allegedly disbursed, however, the payees could not be ascertained.

Notwithstanding the above finding, this Court still ruled that Valdehueza and Panerio are not entitled to recover possession of the lots but may only demand the payment of their fair market value, ratiocinating as follows:

“Appellants would contend that: (1) possession of Lots 932 and 939 should be

restored to them as owners of the same; (2) the Republic should be ordered to pay

rentals for the use of said lots, plus attorney’s fees; and (3)the court a quo in the

present suit had no power to fix the value of the lots and order the execution of the

deed of sale after payment.

It is true that plaintiffs are still the registered owners of the land, there not having

been a transfer of said lots in favor of the Government. The records do not show

that the Government paid the owners or their successors-in-interest according to the

1940 CFI decision although, as stated, P9,500.00 was deposited by it, and said

deposit had been disbursed. With the records lost, however, it cannot be known

who received the money (Exh. 14 says: ‘It is further certified that the corresponding

Vouchers and pertinent Journal and Cash Book were destroyed during the last

World War, and therefore the names of the payees concerned cannot be

ascertained.’) And the Government now admits that there is no available

record showing that payment for the value of the lots in question has been

made (Stipulation of Facts, par. 9, Rec. on Appeal, p. 28).

The points in dispute are whether such payment can still be made and, if so, in

what amount. Said lots have been the subject of expropriation

proceedings. By final and executory judgment in said proceedings, they were

condemned for public use, as part of an airport, and ordered sold to the

Government. In fact, the abovementioned title certificates secured by plaintiffs

over said lots contained annotations of the right of the National Airports

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Corporation (now CAA) to pay for and acquire them. It follows that both by

virtue of the judgment, long final, in the expropriation suit, as well as the

annotations upon their title certificates, plaintiffs are not entitled to recover

possession of their expropriated lots – which are still devoted to the public use

for which they were expropriated – but only to demand the fair market value

of the same.”

Meanwhile, in 1964, Valdehueza and Panerio mortgaged Lot 932 to Vicente Lim, herein respondent,

[4] as security for their loans. For their

failure to pay Lim despite demand, he had the mortgage foreclosed in 1976. Thus, TCT No. 23934 was cancelled, and in lieu thereof, TCT No. 63894 was issued in his name.

On August 20, 1992, respondent Lim filed a complaint for quieting of title with the Regional Trial Court (RTC), Branch 10, Cebu City, against General Romeo Zulueta, as Commander of the Armed Forces of the Philippines, Commodore Edgardo Galeos, as Commander of Naval District V of the Philippine Navy, Antonio Cabaluna, Doroteo Mantos and Florencio Belotindos, herein petitioners. Subsequently, he amended the complaint to implead the Republic.

On May 4, 2001, the RTC rendered a decision in favor of respondent, thus:

“WHEREFORE, judgment is hereby rendered in favor of plaintiff Vicente Lim

and against all defendants, public and private, declaring plaintiff Vicente Lim the

absolute and exclusive owner of Lot No. 932 with all the rights of an absolute

owner including the right to possession. The monetary claims in the complaint

and in the counter claims contained in the answer of defendants are ordered

Dismissed.

Petitioners elevated the case to the Court of Appeals, docketed therein as CA-G.R. CV No. 72915. In its Decision

[5] dated September 18, 2003, the

Appellate Court sustained the RTC Decision, thus:

“Obviously, defendant-appellant Republic evaded its duty of paying what was

due to the landowners. The expropriation proceedings had already become

final in the late 1940’s and yet, up to now, or more than fifty (50) years after,

the Republic had not yet paid the compensation fixed by the court while

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continuously reaping benefits from the expropriated property to the prejudice

of the landowner. x x x. This is contrary to the rules of fair play because the

concept of just compensation embraces not only the correct determination of

the amount to be paid to the owners of the land, but also the payment for the

land within a reasonable time from its taking. Without prompt payment,

compensation cannot be considered “just” for the property owner is made to

suffer the consequence of being immediately deprived of his land while being

made to wait for a decade or more, in this case more than 50 years, before

actually receiving the amount necessary to cope with the loss. To allow the

taking of the landowners’ properties, and in the meantime leave them empty-

handed by withholding payment of compensation while the government

speculates on whether or not it will pursue expropriation, or worse, for

government to subsequently decide to abandon the property and return it to

the landowners, is undoubtedly an oppressive exercise of eminent domain that

must never be sanctioned. (Land Bank of the Philippines vs. Court of Appeals, 258

SCRA 404).

x x x x x x

An action to quiet title is a common law remedy for the removal of any cloud or

doubt or uncertainty on the title to real property. It is essential for the plaintiff or

complainant to have a legal or equitable title or interest in the real property, which

is the subject matter of the action. Also the deed, claim, encumbrance or

proceeding that is being alleged as cloud on plaintiff’s title must be shown to be in

fact invalid or inoperative despite its prima facie appearance of validity or legal

efficacy (Robles vs. Court of Appeals, 328 SCRA 97). In view of the foregoing

discussion, clearly, the claim of defendant-appellant Republic constitutes a

cloud, doubt or uncertainty on the title of plaintiff-appellee Vicente Lim that

can be removed by an action to quiet title.

WHEREFORE, in view of the foregoing, and finding no reversible error in the

appealed May 4, 2001 Decision of Branch 9, Regional Trial Court of Cebu City, in

Civil Case No. CEB-12701, the said decision isUPHELD AND

AFFIRMED. Accordingly, the appeal is DISMISSED for lack of merit.”

Undaunted, petitioners, through the Office of the Solicitor General, filed with this Court a petition for review on certiorari alleging that the Republic

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has remained the owner of Lot 932 as held by this Court in Valdehueza vs. Republic.

[6]

In our Resolution dated March 1, 2004, we denied the petition outright on the ground that the Court of Appeals did not commit a reversible error. Petitioners filed an urgent motion for reconsideration but we denied the same with finality in our Resolution of May 17, 2004.

On May 18, 2004, respondent filed an ex-parte motion for the issuance of an entry of judgment. We only noted the motion in our Resolution of July 12, 2004.

On July 7, 2004, petitioners filed an urgent plea/motion for clarification, which is actually a second motion for reconsideration. Thus, in our Resolution of September 6, 2004, we simply noted without action the motion considering that the instant petition was already denied with finality in our Resolution of May 17, 2004.

On October 29, 2004, petitioners filed a very urgent motion for leave to file a motion for reconsideration of our Resolution dated September 6, 2004 (with prayer to refer the case to the En Banc). They maintain that the Republic’s right of ownership has been settled in Valdehueza.

The basic issue for our resolution is whether the Republic has retained ownership of Lot 932 despite its failure to pay respondent’s predecessors-in-interest the just compensation therefor pursuant to the judgment of the CFI rendered as early as May 14, 1940.

Initially, we must rule on the procedural obstacle.

While we commend the Republic for the zeal with which it pursues the present case, we reiterate that its urgent motion for clarification filed on July 7, 2004 is actually a second motion for reconsideration. This motion is prohibited under Section 2, Rule 52, of the 1997 Rules of Civil Procedure, as amended, which provides:

“Sec. 2. Second motion for reconsideration. – No second motion for reconsideration

of a judgment or final resolution by the same party shall be entertained.”

Consequently, as mentioned earlier, we simply noted without action the motion since petitioners’ petition was already denied with finality.

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Considering the Republic’s urgent and serious insistence that it is still the owner of Lot 932 and in the interest of justice, we take another hard look at the controversial issue in order to determine the veracity of petitioner’s stance.

One of the basic principles enshrined in our Constitution is that no person shall be deprived of his private property without due process of law; and in expropriation cases, an essential element of due process is that there must be just compensation whenever private property is taken for public use.

[7] Accordingly, Section 9, Article III, of our Constitution mandates:

“Private property shall not be taken for public use without just compensation.”

The Republic disregarded the foregoing provision when it failed and refused to pay respondent’s predecessors-in-interest the just compensation for Lots 932 and 939. The length of time and the manner with which it evaded payment demonstrate its arbitrary high-handedness and confiscatory attitude. The final judgment in the expropriation proceedings (Civil Case No. 781) was entered on April 5, 1948. More than half of a century has passed, yet, to this day, the landowner, now respondent, has remained empty-handed. Undoubtedly, over 50 years of delayed payment cannot, in any way, be viewed as fair. This is more so when such delay is accompanied by bureaucratic hassles. Apparent from Valdehueza is the fact that respondent’s predecessors-in-interest were given a “run around” by the Republic’s officials and agents. In 1950, despite the benefits it derived from the use of the two lots, the National Airports Corporation denied knowledge of the claim of respondent’s predecessors-in-interest. Even President Garcia, who sent a letter to the Civil Aeronautics Administration and the Secretary of National Defense to expedite the payment, failed in granting relief to them. And, on September 6, 1961, while the Chief of Staff of the Armed Forces expressed willingness to pay the appraised value of the lots, nothing happened.

The Court of Appeals is correct in saying that Republic’s delay is contrary to the rules of fair play, as “just compensation embraces not only the correct determination of the amount to be paid to the owners of the land, but also the payment for the land within a reasonable time from its taking. Without prompt payment, compensation cannot be considered ‘just.’” In jurisdictions similar to ours, where an entry to the

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expropriated property precedes the payment of compensation, it has been held that if the compensation is not paid in a reasonable time, the party may be treated as a trespasser ab initio.

[8]

Corollarily, in Provincial Government of Sorsogon vs. Vda. De Villaroya,

[9] similar to the present case, this Court expressed its disgust over

the government’s vexatious delay in the payment of just compensation, thus:

“The petitioners have been waiting for more than thirty years to be paid for

their land which was taken for use as a public high school. As a matter of fair

procedure, it is the duty of the Government, whenever it takes property from private

persons against their will, to supply all required documentation and facilitate

payment of just compensation. The imposition of unreasonable requirements

and vexatious delays before effecting payment is not only galling and arbitrary

but a rich source of discontent with government. There should be some kind of

swift and effective recourse against unfeeling and uncaring acts of middle or

lower level bureaucrats.”

We feel the same way in the instant case.

More than anything else, however, it is the obstinacy of the Republic that prompted us to dismiss its petition outright. As early as May 19, 1966, in Valdehueza, this Court mandated the Republic to pay respondent’s predecessors-in-interest the sum of P16,248.40 as “reasonable market value of the two lots in question.” Unfortunately, it did not comply and allowed several decades to pass without obeying this Court’s mandate. Such prolonged obstinacy bespeaks of lack of respect to private rights and to the rule of law, which we cannot countenance. It is tantamount to confiscation of private property. While it is true that all private properties are subject to the need of government, and the government may take them whenever the necessity or the exigency of the occasion demands, however, the Constitution guarantees that when this governmental right of expropriation is exercised, it shall be attended by compensation.

[10] From

the taking of private property by the government under the power of eminent domain, there arises an implied promise to compensate the owner for his loss.

[11]

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Significantly, the above-mentioned provision of Section 9, Article III of the Constitution is not a grant but a limitation of power. This limiting function is in keeping with the philosophy of the Bill of Rights against the arbitrary exercise of governmental powers to the detriment of the individual’s rights. Given this function, the provision should therefore be strictly interpreted against the expropriator, the government, and liberally in favor of the property owner.

[12]

Ironically, in opposing respondent’s claim, the Republic is invoking this Court’s Decision in Valdehueza, a Decision it utterly defied. How could the Republic acquire ownership over Lot 932 when it has not paid its owner the just compensation, required by law, for more than 50 years? The recognized rule is that title to the property expropriated shall pass from the owner to the expropriator only upon full payment of the just compensation. Jurisprudence on this settled principle is consistent both here and in other democratic jurisdictions. In Association of Small Landowners in the Philippines, Inc. et al., vs. Secretary of Agrarian Reform,

[13] thus:

“Title to property which is the subject of condemnation proceedings does not

vest the condemnor until the judgment fixing just compensation is entered and

paid, but the condemnor’s title relates back to the date on which the petition under

the Eminent Domain Act, or the commissioner’s report under the Local

Improvement Act, is filed.

x x x Although the right to appropriate and use land taken for a canal is

complete at the time of entry, title to the property taken remains in the owner

until payment is actually made. (Emphasis supplied.)

In Kennedy v. Indianapolis, the US Supreme Court cited several cases holding that

title to property does not pass to the condemnor until just compensation had actually

been made. In fact, the decisions appear to be uniform to this effect. As early as

1838, in Rubottom v. McLure, it was held that ‘actual payment to the owner of

the condemned property was a condition precedent to the investment of the

title to the property in the State’ albeit ‘not to the appropriation of it to public

use.’ In Rexford v. Knight, the Court of Appeals of New York said that the

construction upon the statutes was that the fee did not vest in the State until the

payment of the compensation although the authority to enter upon and appropriate

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the land was complete prior to the payment. Kennedy further said that ‘both on

principle and authority the rule is . . . that the right to enter on and use the

property is complete, as soon as the property is actually appropriated under

the authority of law for a public use, but that the title does not pass from the

owner without his consent, until just compensation has been made to him.”

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes,

that:

‘If the laws which we have exhibited or cited in the preceding discussion are

attentively examined it will be apparent that the method of expropriation

adopted in this jurisdiction is such as to afford absolute reassurance that no

piece of land can be finally and irrevocably taken from an unwilling owner

until compensation is paid...’”(Emphasis supplied.)

Clearly, without full payment of just compensation, there can be no transfer of title from the landowner to the expropriator. Otherwise stated, the Republic’s acquisition of ownership is conditioned upon the full payment of just compensation within a reasonable time.

[14]

Significantly, in Municipality of Biñan v. Garcia[15]

this Court ruled that the expropriation of lands consists of two stages, to wit:

“x x x The first is concerned with the determination of the authority of the plaintiff

to exercise the power of eminent domain and the propriety of its exercise in the

context of the facts involved in the suit. It ends with an order, if not of dismissal of

the action, “of condemnation declaring that the plaintiff has a lawful right to take

the property sought to be condemned, for the public use or purpose described in the

complaint, upon the payment of just compensation to be determined as of the date

of the filing of the complaint” x x x.

The second phase of the eminent domain action is concerned with the determination

by the court of “the just compensation for the property sought to be taken.” This is

done by the court with the assistance of not more than three (3) commissioners.

x x x.

It is only upon the completion of these two stages that expropriation is said to have been completed. In Republic v. Salem Investment Corporation,

[16] we ruled that, “the process is not completed until payment of

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just compensation.” Thus, here, the failure of the Republic to pay respondent and his predecessors-in-interest for a period of 57 years rendered the expropriation process incomplete.

The Republic now argues that under Valdehueza, respondent is not entitled to recover possession of Lot 932 but only to demand payment of its fair market value. Of course, we are aware of the doctrine that “non-payment of just compensation (in an expropriation proceedings) does not entitle the private landowners to recover possession of the expropriated lots.” This is our ruling in the recent cases of Republic of the Philippines vs. Court of Appeals, et al.,

[17] and Reyes vs. National Housing

Authority.[18]

However, the facts of the present case do not justify its application. It bears stressing that the Republic was ordered to pay just compensation twice, the first was in the expropriation proceedings and the second, in Valdehueza. Fifty-seven (57) years have passed since then. We cannot but construe the Republic’s failure to pay just compensation as a deliberate refusal on its part. Under such circumstance, recovery of possession is in order. In several jurisdictions, the courts held that recovery of possession may be had when property has been wrongfully taken or is wrongfully retained by one claiming to act under the power of eminent domain

[19] or where a rightful entry is made and the

party condemning refuses to pay the compensation which has been assessed or agreed upon;

[20]or fails or refuses to have the compensation

assessed and paid.[21]

The Republic also contends that where there have been constructions being used by the military, as in this case, public interest demands that the present suit should not be sustained.

It must be emphasized that an individual cannot be deprived of his property for the public convenience.

[22] In Association of Small Landowners

in the Philippines, Inc. vs. Secretary of Agrarian Reform,[23]

we ruled:

“One of the basic principles of the democratic system is that where the rights of the

individual are concerned, the end does not justify the means. It is not enough that

there be a valid objective; it is also necessary that the means employed to pursue it

be in keeping with the Constitution. Mere expediency will not excuse constitutional

shortcuts. There is no question that not even the strongest moral conviction or

the most urgent public need, subject only to a few notable exceptions, will

160

excuse the bypassing of an individual's rights. It is no exaggeration to say that

a person invoking a right guaranteed under Article III of the Constitution is a

majority of one even as against the rest of the nation who would deny him that

right.

The right covers the person’s life, his liberty and his property under Section 1

of Article III of the Constitution. With regard to his property, the owner

enjoys the added protection of Section 9, which reaffirms the familiar rule that

private property shall not be taken for public use without just compensation.”

The Republic’s assertion that the defense of the State will be in grave danger if we shall order the reversion of Lot 932 to respondent is an overstatement. First, Lot 932 had ceased to operate as an airport. What remains in the site is just the National Historical Institute’s marking stating that Lot 932 is the “former location of Lahug Airport.” And second, there are only thirteen (13) structures located on Lot 932, eight (8) of which are residence apartments of military personnel. Only two (2) buildings are actually used as training centers. Thus, practically speaking, the reversion of Lot 932 to respondent will only affect a handful of military personnel. It will not result to “irreparable damage” or “damage beyond pecuniary estimation,” as what the Republic vehemently claims.

We thus rule that the special circumstances prevailing in this case entitle respondent to recover possession of the expropriated lot from the Republic. Unless this form of swift and effective relief is granted to him, the grave injustice committed against his predecessors-in-interest, though no fault or negligence on their part, will be perpetuated. Let this case, therefore, serve as a wake-up call to the Republic that in the exercise of its power of eminent domain, necessarily in derogation of private rights, it must comply with the Constitutional limitations. This Court, as the guardian of the people’s right, will not stand still in the face of the Republic’s oppressive and confiscatory taking of private property, as in this case.

At this point, it may be argued that respondent Vicente Lim acted in bad faith in entering into a contract of mortgage with Valdehueza and Panerio despite the clear annotation in TCT No. 23934 that Lot 932 is “subject to the priority of the National Airports Corporation [to acquire said parcels of land] x x x upon previous payment of a reasonable market value.”

161

The issue of whether or not respondent acted in bad faith is immaterial considering that the Republic did not complete the expropriation process. In short, it failed to perfect its title over Lot 932 by its failure to pay just compensation. The issue of bad faith would have assumed relevance if the Republic actually acquired title over Lot 932. In such a case, even if respondent’s title was registered first, it would be the Republic’s title or right of ownership that shall be upheld. But now, assuming that respondent was in bad faith, can such fact vest upon the Republic a better title over Lot 932? We believe not. This is because in the first place, the Republic has no title to speak of.

At any rate, assuming that respondent had indeed knowledge of the annotation, still nothing would have prevented him from entering into a mortgage contract involving Lot 932 while the expropriation proceeding was pending. Any person who deals with a property subject of an expropriation does so at his own risk, taking into account the ultimate possibility of losing the property in favor of the government. Here, the annotation merely served as a caveat that the Republic had a preferential right to acquire Lot 932 upon its payment of a “reasonable market value.” It did not proscribe Valdehueza and Panerio from exercising their rights of ownership including their right to mortgage or even to dispose of their property. In Republic vs. Salem Investment Corporation,

[24] we

recognized the owner’s absolute right over his property pending completion of the expropriation proceeding, thus:

“It is only upon the completion of these two stages that expropriation is said to have

been completed. Moreover, it is only upon payment of just compensation that title

over the property passes to the government. Therefore, until the action for

expropriation has been completed and terminated, ownership over the property

being expropriated remains with the registered owner. Consequently, the latter

can exercise all rights pertaining to an owner, including the right to dispose of

his property subject to the power of the State ultimately to acquire it through

expropriation.

It bears emphasis that when Valdehueza and Panerio mortgaged Lot 932 to respondent in 1964, they were still the owners thereof and their title had not yet passed to the petitioner Republic. In fact, it never did. Such title or ownership was rendered conclusive when we categorically ruled

162

in Valdehueza that: “It is true that plaintiffs are still the registered owners of the land, there not having been a transfer of said lots in favor of the Government.”

For respondent’s part, it is reasonable to conclude that he entered into the contract of mortgage with Valdehueza and Panerio fully aware of the extent of his right as a mortgagee. A mortgage is merely an accessory contract intended to secure the performance of the principal obligation. One of its characteristics is that it is inseparable from the property. It adheres to the property regardless of who its owner may subsequently be.

[25] Respondent must have known that even if Lot 932 is ultimately

expropriated by the Republic, still, his right as a mortgagee is protected. In this regard, Article 2127 of the Civil Code provides:

“Art. 2127. The mortgage extends to the natural accessions, to the improvements,

growing fruits, and the rents or income not yet received when the obligation

becomes due, and to the amount of the indemnity granted or owing to the

proprietor from the insurers of the property mortgaged, or in virtue of

expropriation for public use, with the declarations, amplifications, and limitations

established by law, whether the estate remains in the possession of the

mortgagor or it passes in the hands of a third person.

In summation, while the prevailing doctrine is that “the non-payment of just compensation does not entitle the private landowner to recover possession of the expropriated lots,

[26] however, in cases where the

government failed to pay just compensation within five (5)[27]

years from the finality of the judgment in the expropriation proceedings, the owners concerned shall have the right to recover possession of their property. This is in consonance with the principle that “the government cannot keep the property and dishonor the judgment.”

[28] To be sure, the

five-year period limitation will encourage the government to pay just compensation punctually. This is in keeping with justice and equity. After all, it is the duty of the government, whenever it takes property from private persons against their will, to facilitate the payment of just compensation. In Cosculluela v. Court of Appeals,

[29] we defined just

compensation as not only the correct determination of the amount to be paid to the property owner but also the payment of the property within

163

a reasonable time. Without prompt payment, compensation cannot be considered “just.”

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 72915 is AFFIRMED in toto.

The Republic’s motion for reconsideration of our Resolution dated March 1, 2004 is DENIED with FINALITY. No further pleadings will be allowed.

Let an entry of judgment be made in this case.

SO ORDERED.

164

Republic of the Philippines

Supreme Court

Manila

FIRST DIVISION

NATIONAL POWER

CORPORATION, Petitioner,

- versus -

HEIRS OF MACABANGKIT

SANGKAY, namely: CEBU,

BATOWA-AN, SAYANA,

NASSER, MANTA, EDGAR,

PUTRI , MONGKOY*, and

AMIR, all surnamed

MACABANGKIT, Respondents.

G.R. No. 165828

Present:

CORONA, C.J., Chairperson,

LEONARDO-DE CASTRO,

BERSAMIN,

DEL CASTILLO, and

VILLARAMA, JR., JJ.

Promulgated:

August 24, 2011

x-----------------------------------------------------------------------------------------x

D E C I S I O N

BERSAMIN, J.:

Private property shall not be taken for public use without just

compensation.

– Section 9, Article III, 1987 Constitution

The application of this provision of the Constitution is the focus of this

appeal.

165

Petitioner National Power Corporation (NPC) seeks the review

on certiorari of the decision promulgated on October 5, 2004,[1]

whereby the Court

of Appeals (CA) affirmed the decision dated August 13, 1999 and the supplemental

decision dated August 18, 1999, ordering NPC to pay just compensation to the

respondents, both rendered by the Regional Trial Court, Branch 1, in Iligan City

(RTC).

Antecedents

Pursuant to its legal mandate under Republic Act No. 6395 (An Act Revising

the Charter of the National Power Corporation), NPC undertook the Agus River

Hydroelectric Power Plant Project in the 1970s to generate electricity for Mindanao.

The project included the construction of several underground tunnels to be used in

diverting the water flow from the Agus River to the hydroelectric plants.[2]

On November 21, 1997, the respondents, namely: Cebu, Bangowa-an,

Sayana, Nasser, Manta, Edgar, Putri, Mongkoy and Amir, all surnamed

Macabangkit (Heirs of Macabangkit), as the owners of land with an area

of 221,573 square meters situated in Ditucalan, Iligan City, sued NPC in the RTC

for the recovery of damages and of the property, with the alternative prayer for the

payment of just compensation.[3]

They alleged that they had belatedly discovered

that one of the underground tunnels of NPC that diverted the water flow of the Agus

River for the operation of the Hydroelectric Project in Agus V, Agus VI and Agus

VII traversed their land; that their discovery had occurred in 1995 after Atty. Saidali

C. Gandamra, President of the Federation of Arabic Madaris School, had rejected

their offer to sell the land because of the danger the underground tunnel might pose

to the proposed Arabic Language Training Center and Muslims Skills Development

Center; that such rejection had been followed by the withdrawal by Global Asia

Management and Resource Corporation from developing the land into a housing

project for the same reason; that Al-Amanah Islamic Investment Bank of the

Philippines had also refused to accept their land as collateral because of the

presence of the underground tunnel; that the underground tunnel had been

constructed without their knowledge and consent; that the presence of the tunnel

deprived them of the agricultural, commercial, industrial and residential value of

their land; and that their land had also become an unsafe place for habitation

because of the loud sound of the water rushing through the tunnel and the constant

shaking of the ground, forcing them and their workers to relocate to safer grounds.

166

In its answer with counterclaim,[4]

NPC countered that the Heirs of

Macabangkit had no right to compensation under section 3(f) of Republic Act No.

6395, under which a mere legal easement on their land was established; that their

cause of action, should they be entitled to compensation, already prescribed due to

the tunnel having been constructed in 1979; and that by reason of the tunnel being

an apparent and continuous easement, any action arising from such easement

prescribed in five years.

Ruling of the RTC

On July 23, 1998, an ocular inspection of the land that was conducted by RTC

Judge Mamindiara P. Mangotara and the representatives of the parties resulted in

the following observations and findings:

a. That a concrete post which is about two feet in length from the

ground which according to the claimants is the middle point of the

tunnel.

b. That at least three fruit bearing durian trees were uprooted and as a

result of the construction by the defendant of the tunnel and about one

hundred coconuts planted died.

c. That underground tunnel was constructed therein.[5]

After trial, the RTC ruled in favor of the plaintiffs (Heirs of

Macabangkit),[6]

decreeing:

WHEREFORE, premises considered:

1. The prayer for the removal or dismantling of defendant’s

tunnel is denied. However, defendant is hereby directed and ordered:

167

a)To pay plaintiffs’ land with a total area of 227,065 square

meters, at the rate of FIVE HUNDRED (P500.00) PESOS per

square meter, or a total of ONE HUNDRED THIRTEEN MILLION

FIVE HUNDRED THIRTY TWO THOUSAND AND FIVE

HUNDRED (P113,532,500.00), PESOS, plus interest, as actual

damages or just compensation;

b) To pay plaintiff a monthly rental of their land in the

amount of THIRTY THOUSAND (P30,000.00) PESOS from 1979

up to July 1999 with 12% interest per annum;

c)To pay plaintiffs the sum of TWO HUNDRED THOUSAND

(P200,000.00) PESOS, as moral damages;

d) To pay plaintiffs, the sum of TWO HUNDRED

THOUSAND (P200,000.00) PESOS, as exemplary damages;

e)To pay plaintiffs, the sum equivalent to 15% of the total

amount awarded, as attorney’s fees, and to pay the cost.

SO ORDERED.

The RTC found that NPC had concealed the construction of the tunnel in

1979 from the Heirs of Macabangkit, and had since continuously denied its

existence; that NPC had acted in bad faith by taking possession of the subterranean

portion of their land to construct the tunnel without their knowledge and prior

consent; that the existence of the tunnel had affected the entire expanse of the land,

and had restricted their right to excavate or to construct a motorized deep well; and

that they, as owners, had lost the agricultural, commercial, industrial and residential

value of the land.

The RTC fixed the just compensation at P500.00/square meter based on the

testimony of Dionisio Banawan, OIC-City Assessor of Iligan City, to the effect that

the appraised value of the adjoining properties ranged from P700.00 to P750.00,

while the appraised value of their affected land ranged from P400.00 to P500.00.

168

The RTC also required NPC to pay rentals from 1979 due to its bad faith in

concealing the construction of the tunnel from the Heirs of Macabangkit.

On August 18, 1999, the RTC issued a supplemental decision,[7]

viz:

Upon a careful review of the original decision dated August 13,

1999, a sentence should be added to paragraph 1(a) of the dispositive

portion thereof, to bolster, harmonize, and conform to the findings of the

Court, which is quoted hereunder, to wit:

“Consequently, plaintiffs’ land or properties are hereby

condemned in favor of defendant National Power Corporation, upon

payment of the aforesaid sum.”

Therefore, paragraph 1(a) of the dispositive portion of the original

decision should read, as follows:

a) To pay plaintiffs’ land with a total area of 227,065 square

meters, at the rate of FIVE HUNDRED (P500.00) PESOS per

square meter, or a total of ONE HUNDRED THIRTEEN

MILLION FIVE HUNDRED THIRTY TWO THOUSAND

AND FIVE HUNDRED (P113,532,500.00) PESOS, plus interest,

as actual damages or just compensation; Consequently, plaintiffs’

land or properties are hereby condemned in favor of defendant

National Power Corporation, upon payment of the aforesaid sum;

This supplemental decision shall be considered as part of

paragraph 1(a) of the dispositive portion of the original decision.

Furnish copy of this supplemental decision to all parties

immediately.

SO ORDERED.

On its part, NPC appealed to the CA on August 25, 1999.[8]

169

Earlier, on August 18, 1999, the Heirs of Macabangkit filed an urgent motion

for execution of judgment pending appeal.[9]

The RTC granted the motion and

issued a writ of execution,[10]

prompting NPC to assail the writ by petition

for certiorari in the CA. On September 15, 1999, the CA issued a temporary

restraining order (TRO) to enjoin the RTC from implementing its decision. The

Heirs of Macabangkit elevated the ruling of the CA (G.R. No. 141447), but the

Court upheld the CA on May 4, 2006.[11]

Ruling of the CA

NPC raised only two errors in the CA, namely:

I

THE COURT A QUO SERIOUSLY ERRED IN RULING THAT

NAPOCOR’S UNDERGROUND TUNNEL IN ITS AGUS RIVER

HYDRO-ELECTRIC PLANT PROJECT TRAVERSED AND/OR

AFFECTED APPELLEES’ PROPERTY AS THERE IS NO CLEAR

EVIDENCE INDUBITABLY ESTABLISHING THE SAME

II

THE COURT A QUO SERIOUSLY ERRED IN GRANTING

APPELLEES’ CLAIMS IN THEIR ENTIRETY FOR GRANTING

ARGUENDO THAT NAPOCOR’S UNDERGROUND TUNNEL

INDEED TRAVERSED APPELLEE’S PROPERTY, THEIR CAUSE

OF ACTION HAD ALREADY BEEN BARRED BY PRESCRIPTION,

ESTOPPEL AND LACHES

On October 5, 2004, the CA affirmed the decision of the RTC, holding that

the testimonies of NPC’s witness Gregorio Enterone and of the respondents’

witness Engr. Pete Sacedon, the topographic survey map, the sketch map, and the

ocular inspection report sufficiently established the existence of the underground

tunnel traversing the land of the Heirs of Macabangkit; that NPC did not

substantiate its defense that prescription already barred the claim of the Heirs of

Macabangkit; and that Section 3(i) of R.A. No. 6395, being silent about tunnels, did

not apply, viz:

170

As regard Section 3(i) of R.A. No. 6395 (An Act Revising the

Charter of the National Power Corporation), it is submitted that the same

provision is not applicable. There is nothing in Section 3(i) of said law

governing claims involving tunnels. The same provision is applicable to

those projects or facilities on the surface of the land, that can easily be

discovered, without any mention about the claims involving tunnels,

particularly those surreptitiously constructed beneath the surface of the

land, as in the instant case.

Now, while it is true that Republic Act No. 6395 authorizes

NAPOCOR to take water from any public stream, river, creek, lake,

spring or waterfall in the Philippines for the realization of the purposes

specified therein for its creation; to intercept and divert the flow of

waters from lands of riparian owners (in this case, the “Heirs”), and

from persons owning or interested in water which are or may be

necessary to said purposes, the same Act expressly mandates the

payment of just compensation.

WHEREFORE, premises considered, the instant appeal is hereby

DENIED for lack of merit. Accordingly, the appealed Decision dated

August 13, 1999, and the supplemental Decision dated August 18, 1999,

are hereby AFFIRMED in toto.

SO ORDERED.[12]

Issue

NPC has come to the Court, assigning the lone error that:

THE APPELLATE COURT ERRED ON A QUESTION OF LAW

WHEN IT AFFIRMED THE DECISION AND SUPPLEMENTAL

DECISION OF THE COURT A QUO DIRECTING AND ORDERING

PETITIONER TO PAY JUST COMPENSATION TO

RESPONDENTS.

NPC reiterates that witnesses Enterone and Sacedon lacked personal

knowledge about the construction and existence of the tunnel and were for that

171

reason not entitled to credence; and that the topographic and relocation maps

prepared by Sacedon should not be a basis to prove the existence and location of the

tunnel due to being self-serving.

NPC contends that the CA should have applied Section 3(i) of Republic Act

No. 6395, which provided a period of only five years from the date of the

construction within which the affected landowner could bring a claim against it; and

that even if Republic Act No. 6395 should be inapplicable, the action of the Heirs of

Macabangkit had already prescribed due to the underground tunnel being

susceptible to acquisitive prescription after the lapse of 10 years pursuant to Article

620 of the Civil Code due to its being a continuous and apparent legal easement

under Article 634 of the Civil Code.

The issues for resolution are, therefore, as follows:

(1) Whether the CA and the RTC erred in holding that there was an

underground tunnel traversing the Heirs of Macabangkit’s land

constructed by NPC; and

(2) Whether the Heirs of Macabangkit’s right to claim just

compensation had prescribed under section 3(i) of Republic Act No.

6395, or, alternatively, under Article 620 and Article 646 of the Civil

Code.

Ruling

We uphold the liability of NPC for payment of just compensation.

1.

Factual findings of the RTC,

when affirmed by the CA, are binding

The existence of the tunnel underneath the land of the Heirs of Macabangkit,

being a factual matter, cannot now be properly reviewed by the Court, for questions

of fact are beyond the pale of a petition for review on certiorari. Moreover, the

factual findings and determinations by the RTC as the trial court are generally

172

binding on the Court, particularly after the CA affirmed them.[13]

Bearing these

doctrines in mind, the Court should rightly dismiss NPC’s appeal.

NPC argues, however, that this appeal should not be dismissed because the

Heirs of Macabangkit essentially failed to prove the existence of the underground

tunnel. It insists that the topographic survey map and the right-of-way map

presented by the Heirs of Macabangkit did not at all establish the presence of any

underground tunnel.

NPC still fails to convince.

Even assuming, for now, that the Court may review the factual findings of the

CA and the RTC, for NPC to insist that the evidence on the existence of the tunnel

was not adequate and incompetent remains futile. On the contrary, the evidence on

the tunnel was substantial, for the significance of the topographic survey map and

the sketch map (as indicative of the extent and presence of the tunnel construction)

to the question on the existence of the tunnel was strong, as the CA correctly

projected in its assailed decision, viz:

Among the pieces of documentary evidence presented showing the

existence of the said tunnel beneath the subject property is the

topographic survey map. The topographic survey map is one conducted

to know about the location and elevation of the land and all existing

structures above and underneath it. Another is the Sketch Map which

shows the location and extent of the land traversed or affected by the

said tunnel. These two (2) pieces of documentary evidence readily

point the extent and presence of the tunnel construction coming

from the power cavern near the small man-made lake which is the

inlet and approach tunnel, or at a distance of about two (2)

kilometers away from the land of the plaintiffs-appellees, and then

traversing the entire and the whole length of the plaintiffs-appellees’

property, and the outlet channel of the tunnel is another small man-

made lake. This is a sub-terrain construction, and considering that both

inlet and outlet are bodies of water, the tunnel can hardly be noticed. All

constructions done were beneath the surface of the plaintiffs-appellees’

property. This explains why they could never obtain any knowledge of

173

the existence of such tunnel during the period that the same was

constructed and installed beneath their property.[14]

The power cavern and the inlet and outlet channels established the presence

of the underground tunnel, based on the declaration in the RTC by Sacedon, a

former employee of the NPC.[15]

It is worthy to note that NPC did not deny the

existence of the power cavern, and of the inlet and outlet channels adverted to and

as depicted in the topographic survey map and the sketch map. The CA cannot be

faulted for crediting the testimony of Sacedon despite the effort of NPC to discount

his credit due to his not being an expert witness, simply because Sacedon had

personal knowledge based on his being NPC’s principal engineer and supervisor

tasked at one time to lay out the tunnels and transmission lines specifically for the

hydroelectric projects,[16]

and to supervise the construction of the Agus 1

Hydroelectric Plant itself[17]

from 1978 until his retirement from NPC.[18]

Besides,

he declared that he personally experienced the vibrations caused by the rushing

currents in the tunnel, particularly near the outlet channel.[19]

Under any

circumstances, Sacedon was a credible and competent witness.

The ocular inspection actually confirmed the existence of the tunnel

underneath the land of the Heirs of Macabangkit. Thus, the CA observed:

More so, the Ocular inspection conducted on July 23, 1998 further

bolstered such claim of the existence and extent of such tunnel. This was

conducted by a team composed of the Honorable Presiding Judge of the

Regional Trial Court, Branch 01, Lanao del Norte, herself and the

respective lawyers of both of the parties and found that, among others,

said underground tunnel was constructed beneath the subject

property.[20]

It bears noting that NPC did not raise any issue against or tender any contrary

comment on the ocular inspection report.

2.

Five-year prescriptive period under Section 3(i) of Republic Act No.

6395 does not apply to claims for just compensation

174

The CA held that Section 3(i) of Republic Act No. 6395 had no application to

this action because it covered facilities that could be easily discovered, not tunnels

that were inconspicuously constructed beneath the surface of the land.[21]

NPC disagrees, and argues that because Article 635[22]

of the Civil

Code directs the application of special laws when an easement, such as the

underground tunnel, was intended for public use, the law applicable was Section

3(i) of Republic Act No. 6395, as amended, which limits the action for recovery of

compensation to five years from the date of construction. It posits that the five-year

prescriptive period already set in due to the construction of the underground tunnel

having been completed in 1979 yet.

Without necessarily adopting the reasoning of the CA, we uphold its

conclusion that prescription did not bar the present action to recover just

compensation.

Section 3 (i) of Republic Act No. 6395, the cited law, relevantly provides:

Section 3. Powers and General Functions of the Corporation. – The

powers, functions, rights and activities of the Corporation shall be the

following:

xxx

(i) To construct works across, or otherwise, any stream,

watercourse, canal, ditch, flume, street, avenue, highway or

railway of private and public ownership, as the location of said

works may require:Provided, That said works be constructed in

such a manner as not to endanger life or property; And provided,

further, That the stream, watercourse, canal ditch, flume, street,

avenue, highway or railway so crossed or intersected be restored

as near as possible to their former state, or in a manner not to

impair unnecessarily their usefulness. Every person or entity

whose right of way or property is lawfully crossed or intersected

by said works shall not obstruct any such crossings or

intersection and shall grant the Board or its representative, the

proper authority for the execution of such work. The Corporation

175

is hereby given the right of way to locate, construct and maintain

such works over and throughout the lands owned by the Republic

of the Philippines or any of its branches and political

subdivisions. The Corporation or its representative may also enter

upon private property in the lawful performance or prosecution of

its business and purposes, including the construction of the

transmission lines thereon; Provided, that the owner of such

property shall be indemnified for any actual damage caused

thereby;Provided, further, That said action for damages is filed

within five years after the rights of way, transmission lines,

substations, plants or other facilities shall have been

established; Provided, finally, That after said period, no suit shall

be brought to question the said rights of way, transmission lines,

substations, plants or other facilities;

A cursory reading shows that Section 3(i) covers the construction of “works

across, or otherwise, any stream, watercourse, canal, ditch, flume, street, avenue,

highway or railway of private and public ownership, as the location of said works

may require.” It is notable that Section 3(i) includes no limitation except those

enumerated after the termworks. Accordingly, we consider the term works as

embracing all kinds of constructions, facilities, and other developments that can

enable or help NPC to meet its objectives of developing hydraulic power expressly

provided under paragraph (g) of Section 3.[23]

The CA’s restrictive construal of

Section 3(i) as exclusive of tunnels was obviously unwarranted, for the provision

applies not only to development works easily discoverable or on the surface of the

earth but also to subterranean works like tunnels. Such interpretation accords with

the fundamental guideline in statutory construction that when the law does not

distinguish, so must we not.[24]

Moreover, when the language of the statute is plain

and free from ambiguity, and expresses a single, definite, and sensible meaning,

that meaning is conclusively presumed to be the meaning that the Congress

intended to convey.[25]

Even so, we still cannot side with NPC.

We rule that the prescriptive period provided under Section 3(i) of Republic

Act No. 6395 is applicable only to an action for damages, and does not extend to an

176

action to recover just compensation like this case. Consequently, NPC cannot

thereby bar the right of the Heirs of Macabangkit to recover just compensation for

their land.

The action to recover just compensation from the State or its expropriating

agency differs from the action for damages. The former, also known as inverse

condemnation, has the objective to recover the value of property taken in fact by the

governmental defendant, even though no formal exercise of the power of eminent

domain has been attempted by the taking agency.[26]

Just compensation is the full

and fair equivalent of the property taken from its owner by the expropriator. The

measure is not the taker’s gain, but the owner’s loss. The word just is used to

intensify the meaning of the word compensation in order to convey the idea that the

equivalent to be rendered for the property to be taken shall be real, substantial, full,

and ample.[27]

On the other hand, the latter action seeks to vindicate a legal wrong

through damages, which may be actual, moral, nominal, temperate, liquidated, or

exemplary. When a right is exercised in a manner not conformable with the norms

enshrined in Article 19[28]

and like provisions on human relations in the Civil

Code,and the exercise results to the damage of another, a legal wrong is committed

and the wrongdoer is held responsible.[29]

The two actions are radically different in nature and purpose. The action to

recover just compensation is based on the Constitution[30]

while the action for

damages is predicated on statutory enactments. Indeed, the former arises from the

exercise by the State of its power of eminent domain against private property for

public use, but the latter emanates from the transgression of a right. The fact that the

owner rather than the expropriator brings the former does not change the essential

nature of the suit as an inverse condemnation,[31]

for the suit is not based on tort, but

on the constitutional prohibition against the taking of property without just

compensation.[32]

It would very well be contrary to the clear language of the

Constitution to bar the recovery of just compensation for private property taken for

a public use solely on the basis of statutory prescription.

Due to the need to construct the underground tunnel, NPC should have first

moved to acquire the land from the Heirs of Macabangkit either by voluntary tender

to purchase or through formal expropriation proceedings. In either case, NPC would

have been liable to pay to the owners the fair market value of the land, for Section

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3(h) of Republic Act No. 6395 expressly requires NPC to pay the fair market value

of such property at the time of the taking, thusly:

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage,

encumber and otherwise dispose of property incident to, or necessary,

convenient or proper to carry out the purposes for which the

Corporation was created: Provided, That in case a right of way is

necessary for its transmission lines, easement of right of way shall only

be sought: Provided, however, That in case the property itself shall be

acquired by purchase, the cost thereof shall be the fair market value

at the time of the taking of such property.

This was what NPC was ordered to do in National Power Corporation v.

Ibrahim,[33]

where NPC had denied the right of the owners to be paid just

compensation despite their land being traversed by the underground tunnels for

siphoning water from Lake Lanao needed in the operation of Agus II, Agus III,

Agus IV, Agus VI and Agus VII Hydroelectric Projects in Saguiran, Lanao del Sur,

in Nangca and Balo-I in Lanao del Norte and in Ditucalan and Fuentes in Iligan

City. There, NPC similarly argued that the underground tunnels constituted a mere

easement that did not involve any loss of title or possession on the part of the

property owners, but the Court resolved against NPC, to wit:

Petitioner contends that the underground tunnels in this case

constitute an easement upon the property of the respondents which does

not involve any loss of title or possession. The manner in which the

easement was created by petitioner, however, violates the due process

rights of respondents as it was without notice and indemnity to them and

did not go through proper expropriation proceedings. Petitioner could

have, at any time, validly exercised the power of eminent domain to

acquire the easement over respondents’ property as this power

encompasses not only the taking or appropriation of title to and

possession of the expropriated property but likewise covers even the

imposition of a mere burden upon the owner of the condemned property.

Significantly, though, landowners cannot be deprived of their right over

their land until expropriation proceedings are instituted in court. The

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court must then see to it that the taking is for public use, that there is

payment of just compensation and that there is due process of law.[34]

3.

NPC’s construction of the tunnel

constituted taking of the land, and

entitled owners to just compensation

The Court held in National Power Corporation v. Ibrahim that NPC was

“liable to pay not merely an easement fee but rather the full compensation for land”

traversed by the underground tunnels, viz:

In disregarding this procedure and failing to recognize respondents’

ownership of the sub-terrain portion, petitioner took a risk and exposed

itself to greater liability with the passage of time. It must be emphasized

that the acquisition of the easement is not without expense. The

underground tunnels impose limitations on respondents’ use of the

property for an indefinite period and deprive them of its ordinary use.

Based upon the foregoing, respondents are clearly entitled to the

payment of just compensation. Notwithstanding the fact that

petitioner only occupies the sub-terrain portion, it is liable to pay

not merely an easement fee but rather the full compensation for

land. This is so because in this case, the nature of the easement

practically deprives the owners of its normal beneficial use.

Respondents, as the owner of the property thus expropriated, are

entitled to a just compensation which should be neither more nor

less, whenever it is possible to make the assessment, than the money

equivalent of said property.[35]

Here, like in National Power Corporation v. Ibrahim, NPC constructed a

tunnel underneath the land of the Heirs of Macabangkit without going through

formal expropriation proceedings and without procuring their consent or at least

informing them beforehand of the construction. NPC’s construction adversely

affected the owners’ rights and interests because the subterranean intervention by

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NPC prevented them from introducing any developments on the surface, and from

disposing of the land or any portion of it, either by sale or mortgage.

Did such consequence constitute taking of the land as to entitle the owners to

just compensation?

We agree with both the RTC and the CA that there was a full taking on the

part of NPC, notwithstanding that the owners were not completely and actually

dispossessed. It is settled that the taking of private property for public use, to be

compensable, need not be an actual physical taking or appropriation.[36]

Indeed, the

expropriator’s action may be short of acquisition of title, physical possession, or

occupancy but may still amount to a taking.[37]

Compensable taking includes

destruction, restriction, diminution, or interruption of the rights of ownership or of

the common and necessary use and enjoyment of the property in a lawful manner,

lessening or destroying its value.[38]

It is neither necessary that the owner be wholly

deprived of the use of his property,[39]

nor material whether the property is removed

from the possession of the owner, or in any respect changes hands.[40]

As a result, NPC should pay just compensation for the entire land. In that

regard, the RTC pegged just compensation at P500.00/square meter based on its

finding on what the prevailing market value of the property was at the time of the

filing of the complaint, and the CA upheld the RTC.

We affirm the CA, considering that NPC did not assail the valuation in the

CA and in this Court. NPC’s silence was probably due to the correctness of the

RTC’s valuation after careful consideration and weighing of the parties’ evidence,

as follows:

The matter of what is just compensation for these parcels of land is a

matter of evidence. These parcels of land is (sic) located in the City of

Iligan, the Industrial City of the South. Witness Dionisio Banawan, OIC-

City Assessor’s Office, testified, “Within that area, that area is classified

as industrial and residential. That plaintiffs’ land is adjacent to many

subdivisions and that is within the industrial classification. He testified

and identified Exhibit “AA” and “AA-1”, a Certification, dated April 4,

1997, showing that the appraised value of plaintiffs land ranges

from P400.00 to P500.00 per square meter (see, TSN, testimony of

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Dionisio Banawan, pp. 51, 57, and 71, February 9, 1999). Also, witness

Banawan, testified and identified Two (2) Deeds of Sale, marked as

Exhibit “AA-2” and “AA-3,[”] showing that the appraised value of the

land adjoining or adjacent to plaintiff land ranges from P700.00

to P750.00 per square meter. As between the much lower price of the

land as testified by defendant’s witness Gregorio Enterone, and that of

the City Assessor of Iligan City, the latter is more credible. Considering

however, that the appraised value of the land in the area as determined

by the City Assessor’s Office is not uniform, this Court, is of the opinion

that the reasonable amount of just compensation of plaintiff’s land

should be fixed at FIVE HUNDRED (500.00) PESOS, per square meter.

xxx.[41]

The RTC based its fixing of just compensation ostensibly on the prevailing

market value at the time of the filing of the complaint, instead of reckoning from

the time of the taking pursuant to Section 3(h) of Republic Act No. 6395. The CA

did not dwell on the reckoning time, possibly because NPC did not assign that as an

error on the part of the RTC.

We rule that the reckoning value is the value at the time of the filing of the

complaint, as the RTC provided in its decision. Compensation that is reckoned on

the market value prevailing at the time either when NPC entered or when it

completed the tunnel, as NPC submits, would not be just, for it would compound

the gross unfairness already caused to the owners by NPC’s entering without the

intention of formally expropriating the land, and without the prior knowledge and

consent of the Heirs of Macabangkit. NPC’s entry denied elementary due process of

law to the owners since then until the owners commenced the inverse condemnation

proceedings. The Court is more concerned with the necessity to prevent NPC from

unjustly profiting from its deliberate acts of denying due process of law to the

owners. As a measure of simple justice and ordinary fairness to them, therefore,

reckoning just compensation on the value at the time the owners commenced these

inverse condemnation proceedings is entirely warranted.

In National Power Corporation v. Court of Appeals,[42]

a case that involved

the similar construction of an underground tunnel by NPC without the prior consent

and knowledge of the owners, and in which we held that the basis in fixing just

compensation when the initiation of the action preceded the entry into the property

181

was the time of the filing of the complaint, not the time of taking,[43]

we pointed out

that there was no taking when the entry by NPC was made “without intent to

expropriate or was not made under warrant or color of legal authority.”

4.

Awards for rentals, moral damages, exemplary

damages, and attorney’s fees are deleted

for insufficiency of factual and legal bases

The CA upheld the RTC’s granting to the Heirs of Macabangkit of rentals

of P 30,000.00/month “from 1979 up to July 1999 with 12% interest per annum” by

finding NPC guilty of bad faith in taking possession of the land to construct the

tunnel without their knowledge and consent.

Granting rentals is legally and factually bereft of justification, in light of the

taking of the land being already justly compensated. Conformably with the ruling

in Manila International Airport Authority v. Rodriguez,[44]

in which the award of

interest was held to render the grant of back rentals unwarranted, we delete the

award of back rentals and in its place prescribe interest of 12% interest per

annum from November 21, 1997, the date of the filing of the complaint, until the

full liability is paid by NPC. The imposition ofinterest of 12% interest per

annum follows a long line of pertinent jurisprudence,[45]

whereby the Court has

fixed the rate of interest on just compensation at 12% per annumwhenever the

expropriator has not immediately paid just compensation.

The RTC did not state any factual and legal justifications for awarding to the

Heirs of Macabangkit moral and exemplary damages each in the amount

of P200,000.00. The awards just appeared in the fallo of its decision. Neither did

the CA proffer any justifications for sustaining the RTC on the awards. We consider

the omissions of the lower courts as pure legal error that we feel bound to correct

even if NPC did not submit that for our consideration. There was, to begin with, no

factual and legal bases mentioned for the awards. It is never trite to remind that

moral and exemplary damages, not by any means liquidated or assessed as a matter

of routine, always require evidence that establish the circumstances under which the

claimant is entitled to them. Moreover, the failure of both the RTC and the CA to

render the factual and legal justifications for the moral and exemplary damages in

182

the body of their decisions immediately demands the striking out of the awards for

being in violation of the fundamental rule that the decision must clearly state the

facts and the law on which it is based. Without the factual and legal justifications,

the awards are exposed as the product of conjecture and speculation, which have no

place in fair judicial adjudication.

We also reverse and set aside the decree of the RTC for NPC to pay to the

Heirs of Macabangkit “the sum equivalent to 15% of the total amount awarded, as

attorney’s fees, and to pay the cost.” The body of the decision did not state the

factual and legal reasons why NPC was liable for attorney’s fees. The

terse statement found at the end of the body of the RTC’s decision, stating: “xxx

The contingent attorney’s fee is hereby reduced from 20% to only 15% of the total

amount of the claim that may be awarded to plaintiffs,” without more, did

not indicate or explain why and how the substantial liability of NPC for attorney’s

fees could have arisen and been determined.

In assessing attorney’s fees against NPC and in favor of the respondents, the

RTC casually disregarded the fundamental distinction between the two concepts of

attorney’s fees — the ordinary and the extraordinary. These concepts were aptly

distinguished in Traders Royal Bank Employees Union-Independent v.

NLRC,[46]

thuswise:

There are two commonly accepted concepts of attorney’s fees, the

so-called ordinary and extraordinary. In its ordinary concept, an

attorney’s fee is the reasonable compensation paid to a lawyer by his

client for the legal services he has rendered to the latter. The basis of this

compensation is the fact of his employment by and his agreement with

the client.

In its extraordinary concept, an attorney’s fee is an indemnity for

damages ordered by the court to be paid by the losing party in a

litigation. The basis of this is any of the cases provided by law where

such award can be made, such as those authorized in Article 2208, Civil

Code, and is payable not to the lawyer but to the client, unless they have

agreed that the award shall pertain to the lawyer as additional

compensation or as part thereof.

183

By referring to the award as contingency fees, and reducing the award from

20% to 15%, the RTC was really referring to a supposed agreement on attorney’s

fees between the Heirs of Macabangkit and their counsel. As such, the concept of

attorney’s fees involved was the ordinary. Yet, the inclusion of the attorney’s fees

in the judgment among the liabilities of NPC converted the fees to extraordinary.

We have to disagree with the RTC thereon, and we express our discomfort that the

CA did not do anything to excise the clearly erroneous and unfounded grant.

An award of attorney’s fees has always been the exception rather than the

rule. To start with, attorney’s fees are not awarded every time a party prevails in a

suit.[47]

Nor should an adverse decision ipso facto justify an award of attorney’s

fees to the winning party.[48]

The policy of the Court is that no premium should be

placed on the right to litigate.[49]

Too, such fees, as part of damages, are assessed

only in the instances specified in Art. 2208, Civil Code.[50]

Indeed, attorney’s fees

are in the nature of actual damages.[51]

But even when a claimant is compelled to

litigate with third persons or to incur expenses to protect his rights, attorney’s fees

may still be withheld where no sufficient showing of bad faith could be reflected in

a party’s persistence in a suit other than an erroneous conviction of the

righteousness of his cause.[52]

And, lastly, the trial court must makeexpress findings

of fact and law that bring the suit within the exception. What this demands is that

the factual, legal or equitable justifications for the award must be set forth

not only in the fallo but also in the text of the decision, or else, the award should be

thrown out for being speculative and conjectural.[53]

Sound policy dictates that even if the NPC failed to raise the issue of

attorney’s fees, we are not precluded from correcting the lower

courts’ patently erroneous application of the law.[54]

Indeed, the Court, in

supervising the lower courts, possesses the ample authority to

review legal matters like this one even if not specifically raised or assigned as error

by the parties.

5.

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Attorney’s fees under quantum meruit principle

are fixed at 10% of the judgment award

Based on the pending motions of Atty. Macarupung Dibaratun and Atty.

Manuel D. Ballelos to assert their respective rights to attorney’s fees, both

contending that they represented the Heirs of Macabangkit in this case, a conflict

would ensue from the finality of the judgment against NPC.

A look at the history of the legal representation of the Heirs of Macabangkit

herein provides a helpful predicate for resolving the conflict.

Atty. Dibaratun was the original counsel of the Heirs of Macabangkit. When

the appeal was submitted for decision in the CA,[55]

Atty. Ballelos filed his entry of

appearance,[56]

and a motion for early decision.[57]

Atty. Ballelos

subsequently filed also a manifestation,[58]

supplemental manifestation,[59]

reply,[60]

and ex parte motion reiterating the motion for early decision.[61]

It appears

that a copy of the CA’s decision was furnished solely to Atty. Ballelos. However,

shortly before the rendition of the decision, Atty. Dibaratun filed in the CA a

motion to register attorney’s lien,[62]

alleging that he had not withdrawn his

appearance and had not been aware of the entry of appearance by Atty. Ballelos. A

similar motion was also received by the Court from Atty. Dibaratun a few days after

the petition for review was filed.[63]

Thus, on February 14, 2005,[64]

the Court

directed Atty. Dibaratun to enter his appearance herein. He complied upon filing the

comment.[65]

Amir Macabangkit confirmed Atty. Dibaratun’s representation through an ex

parte manifestation that he filed in his own behalf and on behalf of his siblings

Mongkoy and Putri.[66]

Amir reiterated his manifestation on March 6, 2006,[67]

and

further imputed malpractice to Atty. Ballelos for having filed an entry of

appearance bearing Amir’s forged signature and for plagiarism, i.e., copying

verbatim the arguments contained in the pleadings previously filed by Atty.

Dibaratun.[68]

On September 11, 2008, Atty. Ballelos submitted two motions, to wit: (a) a

manifestation and motion authorizing a certain Abdulmajeed Djamla to receive his

185

attorney’s fees equivalent of 15% of the judgment award,[69]

and (b) a motion to

register his attorney’s lien that he claimed was contingent.[70]

Both Atty. Dibaratun and Atty. Ballelos posited that their entitlement to

attorney’s fees was contingent. Yet, a contract for a contingent fees is an

agreement in writing by which the fees, usually a fixed percentage of what may be

recovered in the action, are made to depend upon the success in the effort to enforce

or defend a supposed right. Contingent fees depend upon an express contract,

without which the attorney can only recover on the basis of quantum

meruit.[71]

With neither Atty. Dibaratun nor Atty. Ballelos presenting a written

agreement bearing upon their supposed contingent fees, the only way to determine

their right to appropriate attorney’s fees is to apply the principle of quantum meruit.

Quantum meruit – literally meaning as much as he deserves – is used as

basis for determining an attorney’s professional fees in the absence of an express

agreement.[72]

The recovery of attorney’s fees on the basis of quantum meruit is a

device that prevents an unscrupulous client from running away with the fruits of the

legal services of counsel without paying for it and also avoids unjust enrichment on

the part of the attorney himself.[73]

An attorney must show that he is entitled to

reasonable compensation for the effort in pursuing the client’s cause, taking into

account certain factors in fixing the amount of legal fees.[74]

Rule 20.01 of the Code of Professional Responsibility lists the guidelines for

determining the proper amount of attorney fees, to wit:

Rule 20.1 – A lawyer shall be guided by the following factors in

determining his fees:

a) The time spent and the extent of the services rendered or

required;

b) The novelty and difficult of the questions involved;

c) The important of the subject matter;

d) The skill demanded;

186

e) The probability of losing other employment as a result of

acceptance of the proffered case;

f) The customary charges for similar services and the schedule

of fees of the IBP chapter to which he belongs;

g) The amount involved in the controversy and the benefits

resulting to the client from the service;

h) The contingency or certainty of compensation;

i) The character of the employment, whether occasional or

established; and

j) The professional standing of the lawyer.

In the event of a dispute as to the amount of fees between the attorney and his

client, and the intervention of the courts is sought, the determination requires that

there be evidence to prove the amount of fees and the extent and value of the

services rendered, taking into account the facts determinative thereof.[75]

Ordinarily,

therefore, the determination of the attorney’s fees on quantum meruit is remanded

to the lower court for the purpose. However, it will be just and equitable to now

assess and fix the attorney’s fees of both attorneys in order that the resolution of “a

comparatively simple controversy,” as Justice Regalado put it in Traders Royal

Bank Employees Union-Independent v. NLRC,[76]

would not be needlessly

prolonged, by taking into due consideration the accepted guidelines and so much of

the pertinent data as are extant in the records.

Atty. Dibaratun and Atty. Ballelos each claimed attorney’s fees equivalent to

15% of the principal award of P113,532,500.00, which was the amount granted by

the RTC in its decision. Considering that the attorney’s fees will be defrayed by the

Heirs of Macabangkit out of their actual recovery from NPC, giving to each of the

two attorney’s 15% of the principal award as attorney’s fees would be excessive

and unconscionable from the point of view of the clients. Thus, the Court, which

holds and exercises the power to fix attorney’s fees on a quantum meruit basis in

the absence of an express written agreement between the attorney and the client,

now fixes attorney’s fees at 10% of the principal award of P113,532,500.00.

187

Whether it is Atty. Dibaratun or Atty. Ballelos, or both, who should receive

attorney’s fees from the Heirs of Macabangkit is a question that the Court must next

determine and settle by considering the amount and quality of the work each

performed and the results each obtained.

Atty. Dibaratun, the attorney from the outset, unquestionably carried the bulk

of the legal demands of the case. He diligently prepared and timely filed in behalf

of the Heirs of Macabangkit every pleading and paper necessary in the full

resolution of the dispute, starting from the complaint until the very last motion filed

in this Court. He consistently appeared during the trial, and examined and cross-

examined all the witnesses presented at that stage of the proceedings. The nature,

character, and substance of each pleading and the motions he prepared for the Heirs

of Macabangkit indicated that he devoted substantial time and energy in researching

and preparing the case for the trial. He even advancedP250,000.00 out of his own

pocket to defray expenses from the time of the filing of the motion to execute

pending appeal until the case reached the Court.[77]

His representation of all the

Heirs of Macabangkit was not denied by any of them.

We note that Atty. Dibaratun possessed some standing in the legal profession

and in his local community. He formerly served as a member of the Board of

Director of the Integrated Bar of the Philippines (IBP), Lanao del Norte-Iligan City

Chapter, and was an IBP national awardee as Best Legal Aid Committee Chairman.

He taught at Mindanao State University College of Law Extension. He was

a Municipal Mayor of Matungao, Lanao del Norte, and was enthroned Sultan a

Gaus.

In contrast, not much about the character and standing of Atty. Ballelos, as

well as the nature and quality of the legal services he rendered for the Heirs of

Macabangkit are in the records. The motions he filed in the

Court and in the CA lacked enlightening research and were insignificant to the

success of the clients’ cause. His legal service, if it can be called that, manifested no

depth or assiduousness, judging from the quality of the pleadings from him. His

written submissions in the case appeared either to have been lifted verbatim from

the pleadings previously filed by Atty. Dibaratun, or to have been merely quoted

from the decisions and resolutions of the RTC and the CA. Of the Heirs of

Macabangkit, only Cebu, Batowa-an, Sayana, Nasser, Manta, Mongkoy[78]

and

188

Edgar gave their consent to Atty. Ballelos to appear in their behalf in the CA, which

he did despite Atty. Dibaratun not having yet filed any withdrawal of his

appearance. The Court did not receive any notice of appearance for the Heirs of

Macabangkit from Atty. Ballelos, but that capacity has meanwhile become doubtful

in the face of Amir’s strong denial of having retained him.

In fairness and justice, the Court accords full recognition to Atty. Dibaratun as

the counsel de parte of the Heirs of Macabangkit who discharged his responsibility

in the prosecution of the clients’ cause to its successful end. It is he, not Atty.

Ballelos, who was entitled to the full amount of attorney’s fees that the clients ought

to pay to their attorney. Given the amount and quality of his legal work, his

diligence and the time he expended in ensuring the success of his prosecution of the

clients’ cause, he deserves the recognition, notwithstanding that some of the clients

might appear to have retained Atty. Ballelos after the rendition of a favorable

judgment.[79]

Atty. Ballelos may claim only from Cebu, Batowa-an, Sayana, Nasser, Manta

and Edgar, the only parties who engaged him. The Court considers his work in the

case as very minimal. His compensation under the quantum meruit principle is fixed

at P5,000.00, and only the Heirs of Macabangkit earlier named are liable to him.

WHEREFORE, the Court AFFIRMS the decision promulgated on October

5, 2004 by the Court of Appeals, subject to the following MODIFICATIONS, to

wit:

(a) Interest at the rate of 12% per annum is IMPOSED on the principal

amount of P113,532,500.00 as just compensation, reckoned from the

filing of the complaint on November 21, 1997 until the full liability is

paid;

(b) The awards of P30,000.00 as rental fee, P200,000.00 as moral

damages, and P200,000.00 as exemplary damages are DELETED;

and

(c) The award of 15% attorney’s fees decreed to be paid by National

Power Corporation to the Heirs of Macabangkit is DELETED.

189

The Court PARTLY GRANTS the motion to register attorney’s lien filed by

Atty. Macarupung Dibaratun, and FIXES Atty. Dibaratun’s attorney’s fees on the

basis ofquantum meruit at 10% of the principal award of P113,532,500.00.

The motion to register attorney’s lien of Atty. Manuel D. Ballelos

is PARTLY GRANTED, and Atty. Ballelos is DECLARED ENTITLED TO

RECOVER from Cebu, Batowa-an, Sayana, Nasser, Manta and Edgar, all

surnamed Macabangkit, the amount of P5,000.00 as attorney’s fees on the basis

of quantum meruit.

Costs of suit to be paid by the petitioner.

SO ORDERED.