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 Sale1 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 -

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. 1320864 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 Sale5 of even date. This deed was submitted to AYALA for approval in order to obtain the latters 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. AYALAs 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 Owners Duplicate copy of the title until a building is erected on said parcel of land in accordance with the requirements and/or restrictions of AYALA.8 The Deed of Absolute Sale9 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 RBDCs 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 a5-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 request14 made by RBDC, AYALA likewise agreed to release the owners 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 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 adhesion15 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 Engineers 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 Engineers 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 Restrictions17 (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.

In the meantime, on August 22, 1990, the HLRB En Banc rendered a decision18(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 magazine19 featured the Trafalgar Plaza as a modern 27-storey structure which will soon rise in Salcedo Village, Makati City. Stunned by this information, AYALA, through counsel, then sent a letter20 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 letters21 requesting for time to assess the merits of AYALAs demand.

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

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

d. Ordering defendant to pay plaintiff attorneys 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, RBDCs 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 RBDCs 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, 1993.26Another Resolution of March 21, 199427 was issued denying with finality RBDCs second motion for reconsideration.

AYALA then filed a Manifestation28 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 attorneys fees and litigation expenses;

With costs against plaintiff.

SO ORDERED.29

The trial courts 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 formers 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.

Dissatisfied, AYALA appealed to the Court of Appeals which affirmed the judgment of the trial court in a Decision30dated February 27, 1996 in CA-G.R. CV No. 46488. AYALAs motion for reconsideration was likewise denied in the Resolution31 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 (RBDCs) title is the erroneous 23-meter height limit which, according to AYALAs 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 (RBDCs) own admissions.37

There is merit in AYALAs submission.

The erroneous annotation of the 23-meter height restriction in RBDCs title was explained by Jose Cuaresma, AYALAs 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 Cuaresmas 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 thespecial 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 "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 AYALAs 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 latters 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.

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 andestoppel. 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

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 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 bindingonly 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:

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 or representation 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 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 RBDCs 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 them cunningly prepared agreementsthat the weaker party may not change one whit, his participation in the agreement being reduced 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,54and 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 RBDCs 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:

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 vendees 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 .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 Engineers 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 exceeding certain standards defined in Paragraphs C-3.1-C below, the OWNERshall pay MACEA, prior to the start of construction of any new building or any expansion of an existing building, aDEVELOPMENT 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.

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 of P2,500,000.00.

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 of P250,000.00 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 Corporations Trafalgar Plaza, RBDC should be, and is, bound by the same;

(3) Considering that Ray Burton Development Corporations 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, attorneys fees in the amount of P250,000.00, and the costs of suit.

SO ORDERED.

G. R. No. G.R. No. 150936 - August 18, 2004

NATIONAL POWER CORPORATION, Petitioner, vs. MANUBAY AGRO-INDUSTRIAL DEVELOPMENT CORPORATION, Respondents.

D E C I S I O N

PANGANIBAN, J.:

How much just compensation should be paid for an easement of a right of way over a parcel of land that will be traversed by high-powered transmission lines? Should such compensation be a simple easement fee or the full value of the property? This is the question to be answered in this case.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse and set aside the November 23, 2001 Decision2 of the Court of Appeals (CA) in CA-GR CV No. 60515. The CA affirmed the June 24, 1998 Decision3 of the Regional Trial Court4 (RTC) of Naga City (Branch 26), directing the National Power Corporation (NPC) to pay the value of the land expropriated from respondent for the use thereof in NPCs Leyte-Luzon HVDC Power Transmission Project.

The Facts

The CA summarized the antecedents of the case as follows:

"In 1996, [Petitioner] NATIONAL POWER CORPORATION, a government-owned and controlled corporation created for the purpose of undertaking the development and generation of hydroelectric power, commenced its 350 KV Leyte-Luzon HVDC Power Transmission Project. The project aims to transmit the excess electrical generating capacity coming from Leyte Geothermal Plant to Luzon and various load centers in its vision to interconnect the entire country into a single power grid. Apparently, the project is for a public purpose.

"In order to carry out this project, it is imperative for the [petitioners] transmission lines to cross over certain lands owned by private individuals and entities. One of these lands, [where] only a portion will be traversed by the transmission lines, is owned by [respondent] MANUBAY AGRO-INDUSTRIAL DEVELOPMENT CORPORATION.

"Hence, on 03 December 1996, [petitioner] filed a complaint for expropriation before the Regional Trial Court of Naga City against [respondent] in order to acquire an easement of right of way over the land which the latter owns. The said land is situated at Km. 8, Barangay Pacol, Naga City, Camarines Sur and described with more particularity, as follows:

TCT/OCT NO. IN SQ.M.

TOTAL AREA AFFECTED IN SQ. M.

AREA CLASS. OF LAND

17795 490,232 21,386.16 Agri.

17797 40,848 1,358.17 Agri.

17798 5,279 217.38 Agri.

TOTAL 22,961.71

"On 02 January 1997, [respondent] filed its answer. Thereafter, the court a quo issued an order dated 20 January 1997 authorizing the immediate issuance of a writ of possession and directing Ex-Officio Provincial Sheriff to immediately place [petitioner] in possession of the subject land.

"Subsequently, the court a quo directed the issuance of a writ of condemnation in favor of [petitioner] through an order dated 14 February 1997. Likewise, for the purpose of determining the fair and just compensation due to [respondent], the court appointed three commissioners composed of one representative of the petitioner, one for the respondent and the other from the court, namely: OIC-Branch Clerk of Court Minda B. Teoxon as Chairperson and Philippine National Bank-Naga City Loan Appraiser Mr. Isidro Virgilio Bulao, Jr. and City Assessor Ramon R. Albeus as members.

"On 03 and 06 March 1997, respectively, Commissioners Ramon Albeus and Isidro Bulao, Jr. took their oath of office before OIC Branch Clerk of Court and Chairperson Minda B. Teoxon.

"Accordingly, the commissioners submitted their individual appraisal/valuation reports. The commissioner for the [petitioner], Commissioner Albeus, finding the subject land irregular and sloppy, classified the same as low density residential zone and recommended the price of P115.00 per square meter. On the other hand, Commissioner Bulao, commissioner for the [respondent], recommended the price of P550.00 per square meter. The courts Commissioner and Chairperson of the Board Minda Teoxon, on the other hand, found Commissioner Albeus appraisal low as compared to the BIR Zonal Valuation and opted to adopt the price recommended by Commissioner Bulao. On the assumption that the subject land will be developed into a first class subdivision, she recommended the amount ofP550.00 per square meter as just compensation for the subject property, or the total amount ofP12,628,940.50 for the entire area affected."5

Taking into consideration the condition, the surroundings and the potentials of respondents expropriated property, the RTC approved Chairperson Minda B. Teoxons recommended amount of P550 per square meter as just compensation for the property. The trial court opined that the installation thereon of the 350 KV Leyte-Luzon HVDC Power Transmission Project would impose a limitation on the use of the land for an indefinite period of time, thereby justifying the payment of the full value of the property.

Further, the RTC held that it was not bound by the provision cited by petitioner -- Section 3-A6 of Republic Act 63957, as amended by Presidential Decree 938. This law prescribes as just compensation for the acquired easement of a right of way over an expropriated property an easement fee in an amount not exceeding 10 percent of the market value of such property. The trial court relied on the earlier pronouncements of this Court that the determination of just compensation in eminent domain cases is a judicial function. Thus, valuations made by the executive branch or the legislature are at best initial or preliminary only.

Ruling of the Court of Appeals

Affirming the RTC, the CA held that RA 6395, as amended by PD No. 938, did not preclude expropriation. Section 3-A thereof allowed the power company to acquire not just an easement of a right of way, but even the land itself. Such easement was deemed by the appellate court to be a "taking" under the power of eminent domain.

The CA observed that, given their nature, high-powered electric lines traversing respondents property would necessarily diminish -- if not damage entirely -- the value and the use of the affected property; as well as endanger lives and limbs because of the high-tension current conveyed through the lines. Respondent was therefore deemed entitled to a just compensation, which should be neither more nor less than the monetary equivalent of the property taken. Accordingly, the appellate found the award of P550 per square meter to be proper and reasonable.

Hence, this Petition.8

Issues

In its Memorandum, petitioner submits this lone issue for our consideration:

"Whether or not the Honorable Court of Appeals gravely erred in affirming the Decision dated June 24, 1998 of the Regional Trial Court, Branch 26, Naga City considering that its Decision dated November 23, 2001 is not in accord with law and the applicable decisions of this Honorable Court."9

The Courts Ruling

The Petition is devoid of merit.

Sole Issue:Just Compensation

Petitioner contends that the valuation of the expropriated property -- fixed by the trial court and affirmed by the CA -- was too high a price for the acquisition of an easement of a mere aerial right of way, because respondent would continue to own and use the subject land anyway. Petitioner argues that in a strict sense, there is no "taking" of property, but merely an imposition of an encumbrance or a personal easement/servitude under Article 61410 of the Civil Code. Such encumbrance will not result in ousting or depriving respondent of the beneficial enjoyment of the property. And even if there was a "taking," petitioner points out that the loss is limited only to a portion of the aerial domain above the property of respondent. Hence, the latter should be compensated only for what it would actually lose.

We are not persuaded.

Petitioner averred in its Complaint in Civil Case No. RTC 96-3675 that it had sought to acquire an easement of a right of way over portions of respondents land -- a total area of 22,961.71 square meters.11 In its prayer, however, it also sought authority to enter the property and demolish all improvements existing thereon, in order to commence and undertake the construction of its Power Transmission Project.

In other words, the expropriation was not to be limited to an easement of a right of way. In its Answer, respondent alleged that it had already authorized petitioner to take possession of the affected portions of the property and to install electric towers thereon.12 The latter did not controvert this material allegation.

Granting arguendo that what petitioner acquired over respondents property was purely an easement of a right of way, still, we cannot sustain its view that it should pay only an easement fee, and not the full value of the property. The acquisition of such an easement falls within the purview of the power of eminent domain. This conclusion finds support in similar cases in which the Supreme Court sustained the award of just compensation for private property condemned for public use.13 Republic v. PLDT14 held thus:

"x x x. Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession of, the expropriated property; but no cogent reason appears why the said power may not be availed of to impose only a burden upon the owner of condemned property, without loss of title and possession. It is unquestionable that real property may, through expropriation, be subjected to an easement of right of way."15

True, an easement of a right of way transmits no rights except the easement itself, and respondent retains full ownership of the property. The acquisition of such easement is, nevertheless, not gratis. As correctly observed by the CA, considering the nature and the effect of the installation power lines, the limitations on the use of the land for an indefinite period would deprive respondent of normal use of the property. For this reason, the latter is entitled to payment of a just compensation, which must be neither more nor less than the monetary equivalent of the land.16

Just compensation is defined as the full and fair equivalent of the property taken from its owner by the expropriator. The measure is not the takers gain, but the owners loss. The word "just" is used to intensify the meaning of the word "compensation" and to convey thereby the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample.17

In eminent domain or expropriation proceedings, the just compensation to which the owner of a condemned property is entitled is generally the market value. Market value is "that sum of money which a person desirous but not compelled to buy, and an owner willing but not compelled to sell, would agree on as a price to be given and received therefor."18 Such amount is not limited to the assessed value of the property or to the schedule of market values determined by the provincial or city appraisal committee. However, these values may serve as factors to be considered in the judicial valuation of the property.19

The parcels of land sought to be expropriated are undeniably undeveloped, raw agricultural land. But a dominant portion thereof has been reclassified by the Sangguniang Panlungsod ng Naga -- per Zoning Ordinance No. 94-076 dated August 10, 1994 -- as residential, per the August 8, 1996 certification of Zoning Administrator Juan O. Villegas Jr.20 The property is also covered by Naga City Mayor Jesse M. Robredos favorable endorsement of the issuance of a certification for land use conversion by the Department of Agrarian Reform (DAR) on the ground that the locality where the property was located had become highly urbanized and would have greater economic value for residential or commercial use.21

The nature and character of the land at the time of its taking is the principal criterion for determining how much just compensation should be given to the landowner.22 All the facts as to the condition of the property and its surroundings, as well as its improvements and capabilities, should be considered.23

In fixing the valuation at P550 per square meter, the trial court had considered the Report of the commissioners and the proofs submitted by the parties. These documents included the following: (1) the established fact that the property of respondent was located along the Naga-Carolina provincial road; (2) the fact that it was about 500 meters from the Kayumanggi Resort and 8 kilometers from the Naga City Central Business District; and a half kilometer from the main entrance of the fully developed Naga City Sports Complex -- used as the site of the Palarong Pambansa -- and the San Francisco Village Subdivision, a first class subdivision where lots were priced at P2,500 per square meter; (3) the fair market value of P650 per square meter proffered by respondent, citing its recently concluded sale of a portion of the same property to Metro Naga Water District at a fixed price of P800 per square meter; (4) the BIR zonal valuation of residential lots in Barangay Pacol, Naga City, fixed at a price of P220 per square meter as of 1997; and (5) the fact that the price of P430 per square meter had been determined by the RTC of Naga City (Branch 21)24 as just compensation for the Mercados adjoining property, which had been expropriated by NPC for the same power transmission project.

The chairperson of the Board of Commissioners, in adopting the recommendation of Commissioner Bulaos, made a careful study of the property. Factors considered in arriving at a reasonable estimate of just compensation for respondent were the location; the most profitable likely use of the remaining area; and the size, shape, accessibility as well as listings of other properties within the vicinity. Averments pertaining to these factors were supported by documentary evidence.

On the other hand, the commissioner for petitioner -- City Assessor Albeus -- recommended a price of P115 per square meter in his Report dated June 30, 1997. No documentary evidence, however, was attached to substantiate the opinions of the banks and the realtors, indicated in the commissioners Report and computation of the market value of the property.

The price of P550 per square meter appears to be the closest approximation of the market value of the lots in the adjoining, fully developed San Francisco Village Subdivision. Considering that the parcels of land in question are still undeveloped raw land, it appears to the Court that the just compensation of P550 per square meter is justified.

Inasmuch as the determination of just compensation in eminent domain cases is a judicial function,25 and the trial court apparently did not act capriciously or arbitrarily in setting the price at P550 per square meter -- an award affirmed by the CA -- we see no reason to disturb the factual findings as to the valuation of the property. Both the Report of Commissioner Bulao and the commissioners majority Report were based on uncontroverted facts supported by documentary evidence and confirmed by their ocular inspection of the property. As can be gleaned from the records, they did not abuse their authority in evaluating the evidence submitted to them; neither did they misappreciate the clear preponderance of evidence. The amount fixed and agreed to by the trial court and respondent appellate court has not been grossly exorbitant or otherwise unjustified.26

Majority Report ofCommissioners Sufficient

Deserving scant consideration is petitioners contention that the Report adopted by the RTC and affirmed by the CA was not the same one submitted by the board of commissioners, but was only that of its chairperson. As correctly pointed out by the trial court, the commissioners Report was actually a decision of the majority of the board. Note that after reviewing the Reports of the other commissioners, Chairperson Teoxon opted to adopt the recommendation of Commissioner Bulao. There has been no claim that fraud or prejudice tainted the majority

Report. In fact, on December 19, 1997, the trial court admitted the commissioners Report without objection from any of the parties.27

Under Section 8 of Rule 67 of the Rules of Court, the court may "accept the report and render judgment in accordance therewith; or for cause shown, it may recommit the same to the commissioners for further report of facts, or it may set aside the report and appoint new commissioners, or it may accept the report in part and reject it in part; x x x." In other words, the reports of commissioners are merely advisory and recommendatory in character, as far as the courts are concerned.28

Thus, it hardly matters whether the commissioners have unanimously agreed on their recommended valuation of the property. It has been held that the report of only two commissioners may suffice, even if the third commissioner dissents.29 As a court is not bound by commissioners reports it may make such order or render such judgment as shall secure for the plaintiff the property essential to the exercise of the latters right of condemnation; and for the defendant, just compensation for the property expropriated. For that matter, the court may even substitute its own estimate of the value as gathered from the evidence on record.30

WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 169453 : December 6, 2006

CAPITOL STEEL CORPORATION, Petitioner, v. PHIVIDEC INDUSTRIAL AUTHORITY, Respondent.

D E C I S I O N

CARPIO MORALES, J.:

Capitol Steel Corporation (Capitol Steel) challenges the Court of Appeals Decision1 of February 7, 2005 in CA-G.R. SP No. 84067 as well as its Resolution2 dated August 24, 2005 ordering the Presiding Judge of Branch 20, Regional Trial Court (RTC) of Misamis Oriental to issue a writ of possession in favor of Phividec Industrial Authority (PHIVIDEC).

Petitioner, Capitol Steel, is a domestic corporation which owns 65 parcels of land3 with a total land area of 337,733 square meters (the properties) located in the barrios of Sugbongcogon and Casinglot, Municipality of Tagoloan, Province of Misamis Oriental.

Respondent, PHIVIDEC, is a government-owned and controlled corporation organized and existing under Presidential Decree No. 538,4 as amended, which is vested with governmental and proprietary functions5 including the power of eminent domain for the purpose of acquiring rights of way or any property for the establishment or expansion of the Phividec Industrial Areas.6 cra

The properties of Capitol Steel were identified as the most ideal site for the Mindanao International Container Terminal Project (MICTP), a PHIVIDEC project which involves the phased production of an 800-meter berth and the acquisition of port equipment7 to handle the volume of seaborne break-bulk and container traffic in Mindanao.8 cra

On August 24, 1999, PHIVIDEC filed an expropriation case before the RTC of Misamis Oriental,9 docketed as Civil Case No. 99-477, and raffled to Branch 38 thereof.

On September 1, 1999, Branch 38 of the Misamis Oriental RTC issued a writ of possession in favor of PHIVIDEC.10Due, however, to the unauthorized engagement by PHIVIDEC of the legal services of a private lawyer, the expropriation case was dismissed, without prejudice to the filing of a similar petition through a proper legal officer or counsel.11 cra

In the meantime, Capitol Steel requested the Technical Committee on Real Property Valuation (TCRPV) of the Bureau of Internal Revenue (BIR), by letter of March 27, 2001, for a revaluation of its properties. The TCRPV thereafter issued Resolution No. 36-200112 (TCRPV Resolution) dated December 11, 2001 fixing the "reasonable and realistic zonal valuation" of the properties at P700 per square meter.

This Court in "Phividec Industrial Authority v. Capitol Steel Corporation,"13 annulled the entire proceedings in Civil Case No. 99-477, by Decision of October 23, 2003.

By letter14 of November 21, 2003, PHIVIDEC informed Capitol Steel that it would file anew an expropriation case and that it had deposited the amount of P116,563,500 in the name of Capitol Steel, P51,818,641 of which was deposited at the Landbank of the Philippines (Landbank) and P64,744,859 at the Development Bank of the Philippines (DBP). PHIVIDEC further informed Capitol Steel that the total amount deposited represents the zonal value of the properties, and may be withdrawn at any time.

Subsequently, PHIVIDEC, represented by the Government Corporate Counsel, re-filed on November 24, 2003 an expropriation case, docketed as Civil Case No. 2003-346, and raffled to Branch 20 of RTC of Misamis Oriental.

And on December 8, 2003, PHIVIDEC filed an Urgent Motion for the Issuance of a Writ of Possession15 to which it attached a Certificate of Availability of Funds,16 and Certifications from the Landbank17 and the DBP18 that it deposited the total amount of P116,563,500 required under Republic Act No. 8974 (R.A. 8974), "AN ACT TO FACILITATE THE ACQUISITION OF RIGHT-OF-WAY, SITE OR LOCATION FOR NATIONAL GOVERNMENT INFRASTRUCTURE PROJECTS AND FOR OTHER PURPOSES."

The total amount deposited represents one hundred percent (100%) of the value of the properties based on the schedule of zonal valuation for real properties under Department Order No. 40-9719 (D.O. 40-97) fixing the zonal valuation of the properties at Sugbongcogon and Casinglot at P300 and P500 per square meter, respectively.

Capitol Steel opposed the application of D.O. 40-97, claiming instead that under the TCRPV Resolution, the properties have been revalued at P700 per square meter.20 cra

By Order21 of February 3, 2004, the trial court denied PHIVIDEC's Motion for the Issuance of a Writ of Possession, noting that the amount deposited was "seemingly inadequate"22 and was made simply out of PHIVIDEC's "interpretation of the prevailing zonal valuation and was not mutually agreed"23 upon.

In view of the conflicting zonal valuations, the trial court found it necessary to first make a "judicial interpretation" to determine the prevailing market value of the properties on the basis of the zonal valuation through a full-blown trial where the parties would be afforded the opportunity to present their respective evidence.24 cra

PHIVIDEC thus presented the Assistant Revenue District Officer of Revenue District 98 of the BIR in Cagayan de Oro City, Bernadette H. Honculada (Bernadette). Bernadette testified that barangays Sugbungcogon and Casinglot in Tagoloan are within the jurisdiction of Revenue District 9825 and that under D.O. 40-97, the zonal valuations of the properties are P300 and P500 per square meter, respectively.26 cra

Bernadette further testified that her office continues to use the zonal valuations provided in D.O. No. 40-97 in computing internal revenue taxes.27 cra

For its part, Capitol Steel presented a representative of the Philippine Association of Realty Appraisers to the TCRPV, Victor T. Salinas (Salinas), who testified that TCRPV is authorized under Revenue Delegation of Authority Order No. 4-2001 to conduct reappraisals of the zonal valuation of properties on a "case to case level"28 upon the request of any taxpayer.29 cra

Salinas further testified that he was sent together with a representative from the Bureau of Local Government Finance to inspect the properties, and to prepare a report and submit the same to the TCRPV for deliberation;30 that after deliberation, the TCRPV issued a resolution fixing the zonal valuation of the properties at P700 per square meter, which was thereafter approved by the Chairman of the TCRPV, Nora Tamayo, who then transmitted the resolution to the parties concerned - the Revenue District Officer and the "taxpayer who requested for the adjustment" or Capitol Steel.31 cra

Salinas furthermore testified that the valuation was arrived at after comparing the "values of same features of some of the lands in the area and also the neighboring cities like Cagayan de Oro City" and that TCRPV "ma[d]e use of the report[s] of the two independent appraisers" and also "the valuation [of] the Assessor's Office."32 cra

By Order33 of April 15, 2004, the RTC denied PHIVIDEC's motion for reconsideration34 of its February 3, 2004 Order denying its Motion for the Issuance of a Writ of Possession, it sustaining the TCRPV's fair market valuation of the properties at P700 per square meter, and accordingly ordering PHIVIDEC to "immediately deposit the total amount" to call for the issuance of the writ.

It is the finding of this Court that indubitably the Technical Committee on Real Property Valuation (TCRPV), is the body tasked to fix the valuation of the property sought to be appropriated and, hence, there is no sustainable evidence to merit the reconsideration of the Court's order dated February 4, 2004, the motion thereof is hereby denied and taking into account the preponderance of evidence proffered by defendant in arriving at the prevailing zonal valuation based in the evidence adduced, this Court hereby sustains the fair market value of defendant's property at Seven hundred ( P 700.00) Pesos per square meter , thereby plaintiff is ordered to immediately deposit the total amount in defendant's name for this Court to issue the writ of possession as mandated by Republic Act 8974.35

Claiming that the RTC acted without or in excess of jurisdiction and with grave abuse of discretion in issuing its Orders dated February 3, 2004 and April 24, 2004, PHIVIDEC filed before the appellate court a petition for certiorariwith a prayer for the issuance of a writ of preliminary mandatory injunction.36 cra

The appellate court, by Decision37 of February 7, 2005, holding that the zonal valuation established under D.O. 40-97 should be the basis in computing the provisional value of the properties, and that the valuation made by the TCRPV was neither binding nor effective for failure to comply with the guidelines relative to the establishment of zonal values of real properties under Revenue Memorandum Order No. 56-89,38 as amended by Revenue Memorandum Order No. 56-94,39 granted PHIVIDEC's petition and accordingly directed the RTC to issue a writ of possession in favor of PHIVIDEC.

Capitol Steel filed a motion for reconsideration of the appellate court's February 7, 2005 decision, claiming that Revenue Memorandum Order No. 56-89, as amended by Revenue Memorandum Order No. 56-94, applies only when all the properties in a province or a city are revalued, not when the properties of a single taxpayer40 are revalued.

Acting on Capitol Steel's motion for reconsideration,41 the appellate court conducted a hearing following which it ordered the parties to submit their respective memoranda and position papers.

In the meantime, the RTC, by Order42 of June 6, 2005, granted the supplemental motion for execution of Capitol Steel and allowed it to withdraw from the Landbank and the DBP the total amount of P116,563,500.

The appellate court eventually denied Capitol Steel's motion for reconsideration of its Decision of February 7, 2005, by Resolution43 of August 24, 2005.

Capitol Steel (petitioner) now comes before this Court on a petition for review, positing the following arguments:

1. THE PETITION FOR CERTIORARI [BEFORE THE COURT OF APPEALS] SHOULD BE DISMISSED OUTRIGHT BECAUSE IT IS FATALLY DEFECTIVE FOR SUPPRESSION OF NECESSARY AND RELEVANT DOCUMENTS.

2. THE ORDERS OF FEBRUARY 3, 2004 AND APRIL 15, 2004 OF THE REGIONAL TRIAL COURT OF MISAMIS ORIENTAL CANNOT BE THE SUBJECT OF A PETITION FOR CERTIORARI.

3. THE REGIONAL TRIAL COURT OF MISAMIS ORIENTAL CORRECTLY USED THE ZONAL VALUATION OF THE PROPERTIES SOUGHT TO BE EXPROPRIATED MADE IN 2001 AS BASIS FOR THE ISSUANCE OF A WRIT OF POSSESSION.44 (Underscoring supplied)

Respondent's failure to attach to its petition before the appellate court these documents, to wit: the Urgent Motion for the Issuance of the Writ of Possession, the Opposition thereto, the Reply, the Rejoinder, the transcript of the testimony of Salinas and the documents-exhibits of petitioner did not suffice to merit the dismissal of the petition.

As the appellate court found, respondent's omission did not detract from the substantial completeness of its petition. Neither, held the appellate court, did it deprive its authority to hear and decide the petition.

Additionally, petitioner failed to show that it was prejudiced in any way by respondent's failure to append the said documents.

Petitioner contends that the trial court's determination of the provisional value of the properties, having been arrived at after a hearing and evaluation of the parties' evidence, cannot, being factual, be assailed in a petition forcertiorari before the appellate court.45 cra

Petitioner's contention fails.

While the correctness of the RTC's determination of the zonal valuation was assailed by respondent before the appellate court, the same was merely appurtenant to the principal issue of whether the RTC has the authority, for purposes of denying or granting a writ of possession, to vary the zonal valuation of the properties as established by the BIR46 under D.O. 40-97.

On the main issue raised - whether the appellate court erred in ordering the RTC to issue a writ of possession in favor of respondent:cra:nad

Significantly, after a writ of possession was issued in favor of respondent on September 1, 1999 in the first expropriation case-Civil Case No. 99-477, respondent commenced the construction of infrastructure buildings and container port terminals. Possession of the properties has since remained with respondent, with the MICTP now complete and fully operational.47 cra

When the second expropriation case was re-filed, R.A. 8974, which provides for substantive requirements before a writ of possession is issued, was already in force and in effect.

SECTION 4. Guidelines for Expropriation Proceedings. - Whenever it is necessary to acquire real property for the right-of-way, site or location for any national government infrastructure project through expropriation, the appropriate implementing agency shall initiate the expropriation proceedings before the proper court under the following guidelines:cra:nad

(a) Upon the filing of the complaint, and after due notice to the defendant, the implementing agency shall immediately pay the owner of the property the amount equivalent to the sum of one hundred percent (100%) of the value of the property based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the improvements and/or structures as determined under Section 7 hereof;

(b) In provinces, cities, municipalities and other areas where there is no zonal valuation, the BIR is hereby mandated within the period of sixty (60) days from the date of filing of the expropriation case, to come up with a zonal valuation for said area; and

(c) In case the completion of a government infrastructure project is of utmost urgency and importance, and there is no existing valuation of the area concerned, the implementing agency shall immediately pay the owner of the property its proffered value taking into consideration the standards prescribed in Section 5 hereof.

Upon compliance with the guidelines abovementioned, the court shall immediately issue to the implementing agency an order to take possession of the property   and start the implementation of the project.

Before the court can issue a Writ of Possession, the implementing agency shall present to the court a certificate of availability of funds from the proper official concerned.

In the event that the owner of the property contests the implementing agency's proffered value, the court shall determine the just compensation to be paid the owner within sixty (60) days from the date of filing of the expropriation case. When the decision of the court becomes final and executory, the implementing agency shall pay the owner the difference between the amount already paid and the just compensation as determined by the court. (Emphasis and underscoring supplied)

Under R.A. 8974, the requirements for authorizing immediate entry in expropriation proceedings involving real property are: (1) the filing of a complaint for expropriation sufficient in form and substance; (2) due notice to the defendant; (3) payment of an amount equivalent to 100% of the value of the property based on the current relevant zonal valuation of the BIR including payment of the value of the improvements and/or structures if any, or if no such valuation is available and in cases of utmost urgency, the payment of the proffered value of the property to be seized; and (4) presentation to the court of a certificate of availability of funds from the proper officials.

Upon compliance with the requirements, a petitioner in an expropriation case, in this case respondent, is entitled to a writ of possession as a matter of right and it becomes the ministerial duty of the trial court to forthwith issue the writ of possession. No hearing is required48 and the court neither exercises its discretion or judgment in determining the amount of the provisional value of the properties to be expropriated as the legislature has fixed the amount under Section 4 of R.A. 8974.

To clarify, the payment of the provisional value as a prerequisite to the issuance of a writ of possession differs from the payment of just compensation for the expropriated property. While the provisional value is based on the current relevant zonal valuation, just compensation is based on the prevailing fair market value of the property. As the appellate court explained:

The first refers to the preliminary or provisional determination of the value of the property. It serves a double-purpose of pre-payment if the property is fully expropriated, and of an indemnity for damages if the proceedings are dismissed. It is not a final determination of just

compensation and may not necessarily be equivalent to the prevailing fair market value of the property. Of course, it may be a factor to be considered in the determination of just compensation.

Just compensation, on the other hand, is the final determination of the fair market value of the property. It has been described as "the just and complete equivalent of the loss which the owner of the thing expropriated has to suffer by reason of the expropriation." Market values, has also been described in a variety of ways as the "price fixed by the buyer and seller in the open market in the usual and ordinary course of legal trade and competition; the price and value of the article established as shown by sale, public or private, in the ordinary way of business; the fair value of the property between one who desires to purchase and one who desires to sell; the current price; the general or ordinary price for which property may be sold in that locality.49 (Emphasis and underscoring supplied)

There is no need for the determination with reasonable certainty of the final amount of just compensation before the writ of possession may be issued.50 The trial court, however, failed to distinguish the "provisional value of the property" from "just compensation" when it ruled, viz:

The Court is of the sound observation that the propriety of the granting of the writ of possession will greatly depend on the just compensation mandated by Republic Act No. 8974, hence, it will follow that any deposit to be made therein, in compliance with said law, should be the prevailing fair market value on the basis of the zonal valuation within the locality and virtually agreed upon by both parties. This Court, therefore, opted to rule and so holds that considering the conflicting zonal valuation, a judicial interpretation must first be held to determine the prevailing market value on the basis of the zonal valuation approved by the government agency tasked to fix the same.51 (Underscoring supplied)

Petitioner insists that the RTC was correct in ruling that the P700 per square meter valuation should be used in computing the provisional value of the property as the valuation under D.O. 40-97 has been "effectively superseded" by the TCRPV Resolution.

Petitioner's proposition fails.

The "current relevant zonal valuation" under Section 4 of R.A. 8974 pertains to the values reflected in the schedule of zonal values embodied in a Department Order issued pursuant to Revenue Memorandum Order (RMO) No. 56-89 issued by the Commissioner of Internal Revenue.52 cra

RMO 56-89 provides for the procedures for the establishment of the zonal values of real properties, viz:

(1). The submission or review by the Revenue District Offices Sub-Technical Committee of the schedule of recommended zonal values to the TCRPV;

(2) The evaluation by TCRPV of the submitted schedule of recommended zonal values of real properties;

(3) Except in cases of correction or adjustment, the TCRPV finalizes the schedule and submits the same to the Executive Committee on Real Property Valuation (ECRPV);

(4) Upon approval of the schedule of zonal values by the ECRPV, the same is embodied in a Department Order for implementation and signed by the Secretary of Finance. Thereafter, the schedule takes effect (15) days after its publication in the Official Gazette53 or in any newspaper of general circulation.

This Court finds that the determination of P300 and P500 per square meter zonal values were, along with the zonal values of other real properties located in all municipalities under the

jurisdiction of Revenue District Office No. 98 (Cagayan de Oro City), Revenue Region No. 16 (Cagayan de Oro City), the subject of a public hearing on February 5, 1996. On March 19, 1997, the zonal values were approved by both the TCRPV and the ECRPV and on even date, the Secretary of Finance, upon the recommendation of the BIR, issued D.O. 40-97 to implement the schedule of zonal values. D.O. 40-97 thereafter took effect on October 21, 1997, 15 days after its publication in The Philippine Journal.

In contrast, the P700 per square meter zonal value provided for under TCRPV Resolution was not approved by the ECRPV, was not embodied in a Department Order, and did not undergo the required public hearing and publication required under RMO 56-89.

As reflected in the TCRP Resolution, the revaluation was based on a letter-request dated March 27, 2001 of Berck Y. Cheng, Executive Assistant of Capitol Steel. While the resolution took into account the investigation, analysis and evaluation conducted by the two private appraisers hired by Capitol Steel, the Saromo Realty and Valueworld Appraisers, Inc.,54 PHIVIDEC, as the implementing expropriating agency, was not notified55 and afforded the opportunity to participate in the revaluation.

The revaluation under the TCRPV Resolution having failed to comply with the requirements under RMO 12-89, the disregard by the RTC of the zonal valuation under D.O. 40-97 is impermissible. Petitioner's argument that TCRPV Resolution effectively superseded D.O. 40-97 does not thus impress.

The TCRPV was created under Ministry Order No. 20-86 for the purpose of assisting the Commissioner of Internal Revenue in prescribing real property values for purposes of computing any internal revenue tax. Ministry Order No. 20-86 was later amended by Department Order 12-89 (D.O. 12-89) providing for the composition of the TCRPV, with the Assistant Commissioner of the Assessment Service of the BIR as Chairman.56 Under D.O. 12-89, the task of TCRPV and the Sub-Technical Committees on Real Property Valuation (STCRPV) is limited to the study and preparation of the schedules of zonal values for the purpose of computing internal revenue taxes, viz:

Under the direct supervision of the Commissioner of Internal Revenue, the Committee shall study and prepare zonal schedules of fair market values on real properties to be used as basis for the computation of any internal revenue tax.

All provincial, city and municipal assessors are hereby directed to render assistance to the Committee in the DETERMINATION OF THE REALISTIC VALUATION OF REAL PROPERTIES IN THEIR RESPECTIVE AREAS OF JURISDICTION.57

On October 24, 1989, RMO 56-89 was issued to "guide and facilitate the goal/activities of the Sub-Technical Committee on Real Property Valuation (STCRPV) pursuant to Department Order No. 12-89 dated February 27, 1989relative to the establishment of zonal values of real properties situated within the jurisdiction of Revenue District Offices."58 Verily, while the TCRPV and the STCRPV are vested with authority to study and prepare the schedule of zonal values, the valuation can only be implemented if it is later embodied in a Department Order and is rendered effective only upon its publication in the Official Gazette as provided under RMO 56-89.

Petitioner nevertheless claims that TCRPV Resolution was issued pursuant to Revenue Delegation Authority No. 4-2001 (RDAO 4-2001), hence, it need not comply with RMO 56-89.

The claim is bereft of merit.

A revaluation pursuant to RDAO 4-2001 cannot be used to determine the provisional value of the properties in view of the specific and limited objectives by which said order was issued. Pertinent portions of RDAO 4-2001 are hereunder reproduced:

SUBJECT : Delegation of Authority to Approve and Sign Resolutions by the Technical Committee on Real Property Valuation Involving Case-to-Case Requests for Revaluation of Established Zonal Values of Real Properties

TO : All Internal Revenue Officers and Employees and Others Concerned

I. OBJECTIVES

1. To update the delineation of authority and responsibility of the revenue official who shall approve and sign the resolutions by the Technical Committee on Real Property Valuation (TCRPV) involving case-to-case requests for revaluation of established zonal values of real properties pursuant to Section 7 of the National Internal Revenue Code of 1997; and

2. To facilitate action on taxpayers' requests for such revaluation in accordance with Section 6(E) of the Tax Code in order to expedite the issuance of appropriate clearances relative to the covered real property transactions.

II. DELEGATED SIGNING AUTHORITY

The authority to sign the aforementioned TCRPV resolutions is hereby delegated to the Assistant Commissioner, Assessment Service.

x x x x

The specific and limited objective of RDAO 4-2001 is to facilitate action on taxpayers' requests for revaluation in accordance with Section 6(E)59 of the 1997 National Internal Revenue Code "in order to expedite the issuance of appropriate clearances relative to the covered real property transactions." For this purpose, the Commissioner of Internal Revenue delegated to the Assistant Commissioner of the Assessment Service the authority to approve and sign TCRPV resolutions issued pursuant to such requests.

The "appropriate clearances" under RDAO 4-2001 refer to the Tax Clearance (TCL) or Certificate Authorizing Registration (CAR), which are issued by the BIR after the taxpayer pays the proper capital gains and documentary stamp taxes.60 cra

Admittedly, the revaluation was not sought by petitioner for the purpose of computing any internal revenue taxes in order to secure the appropriate clearances from the BIR, but for the purpose of computing the provisional valuation of the properties sought to be expropriated.61 cra

Clearly, while the law grants to the Commissioner of Internal Revenue the power to determine zonal values, including the authority to delegate to the Assistant Commissioner of the Assessment Service the authority to approve and sign TCRPV resolutions involving requests for revaluation of established zonal values of real properties, the same is for the purpose of computing internal revenue taxes.

The revaluation under RDAO 4-2001 is, as correctly held by the appellate court, "a specific rather than a zonal valuation," and is "not a revaluation of the schedule of zonal values [under D.O. 40-97] but merely the fine tuning of the value of a specific property of an individual taxpayer in order to reflect fair market values."62

It is the movant's thesis that a concerned property owner may invoke Department order No. 12-89 and Revenue Delegation of Authority Order No. 4-2001 to challenge the current relevant zonal valuation of his property as the basis for preliminary or provisional payment in the proceedings below.

x x x We cannot accept the contention that "revaluation", as understood in Revenue Delegation of Authority Order No. 4-200[1] constitutes a revision of the schedule of zonal values.

First, such a theory raises the possibility that all zonal valuations duly published will be rendered inutile for the intention of merely establishing a preliminary or provisional valuation for purposes of the expropriating agency's entry into the property.

Secondly, movant's thesis will erase the distinction between preliminary payment based on zonal valuation and the final determination by the court of fair market value or just compensation. This We are not prepared to do especially since that distinction lies at the heart of Republic Act No, 8974. We are not prepared to hold that by means of Department Order No. 12-89 or Revenue Delegation of Authority Order No. 4-2001 the property owner can truncate the expropriation process under the Rules and impel the trial court to proceed directly into the issue of the final determination of just compensation. Recourse to these.urges the trial court prematurely to a full-blown trial on the determination of the fair market value which is contrary to the obvious intent of Republic Act No. 8974.

Finally, this theory is rife with mischievous consequences and will place the state or the expropriating agency at the mercy of the property owner. It raises the specter of unwarranted delays in infrastructure and other important projects of the government. For the avowed purpose of Republic Act No. 8974 is precisely to provide the court in expropriation proceedings with a ready reference or standard upon which to base the preliminary or provisional payment to the property owner allowing the said court to proceed with dispatch to the final phase of the proceeding which is the final determination of just compensation.63

Moreover, there is nothing under Republic Act No. 8974 which can be read to allow an owner of the properties to be expropriated recourse to a "case to case" revaluation "when it disagrees with the zonal valuation by the BIR."64Resort to this procedure would undeniably cause delay in government infrastructure projects, and leave the determination of the provisional value of the expropriated properties to the property owner and the TCRPV, without the participation from the implementing expropriating agency. Such is contrary to R.A. 8974 which permits, in cases of utmost urgency and importance and when there is no existing valuation of the area concerned, an expedited means by which the government can immediately take possession of the property without having to await precise determination of the valuation, by paying the property owner the implementing government agency's proffered value of the property.65 cra

Petitioner finally posits that considering that the properties contain several favorable features which no other lots in the vicinity possess, and that the zonal valuation relied upon by respondent was made way back in 1996, the P700 per square meter valuation made in 2001 is reasonable.

Again, the provisional character of the payment means that it is not final, albeit sufficient under the law to entitle the government to the writ of possession over the expropriated property.66 For purposes of a writ of possession, there is no need to look into the peculiar and favorable features of the properties to be expropriated, the court is being statutorily bound to rely only on the current relevant zonal valuation of the BIR. Petitioner, however, may in the determination of just compensation, properly present and introduce evidence bearing on the properties' fair market value.67 cra

Thus Section 5 of Republic Act No. 8974 provides:

SECTION 5. Standards for the Assessment of the Value of the Land Subject of Expropriation Proceedings or Negotiated Sale. - In order to facilitate the determination of just compensation, the court may consider, among other well-established factors, the following relevant standards:cra:nad

(a) The classification and use for which the property is suited;

(b) The developmental costs for improving the land;

(c) The value declared by the owners;

(d) The current selling price of similar lands in the vicinity;

(e) The reasonable disturbance compensation for the removal and/or demolition of certain improvements on the land and for the value of improvements thereon;

(f) The size, shape or location, tax declaration and zonal valuation of the land;

(g) The price of the land as manifested in the ocular findings, oral as well as documentary evidence presented; and

(h) Such facts and events as to enable the affected property owners to have sufficient funds to acquire similarly-situated lands of approximate areas as those required from them by the government, and thereby rehabilitate themselves as early as possible.

In fine, all the requirements set forth under Section 4 of R.A. 8974 have been satisfactorily complied with, there is no legal impediment to the issuance of a writ of possession in favor of respondent.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution dated February 7, 2005 and August 24, 2005 of the Court of Appeals are AFFIRMED.

Costs against petitioner.

SO ORDERED.

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.

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 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 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 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 facieappearance 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 is UPHELD 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 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.

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 expropriated property precedes the payment of compensation, it has been held that if the compensation is not paid in areasonable 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]

Significantly, the above-mentioned provision of Section 9, Article III of the Constitution is not a grant but a limitationof 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 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 Bian 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 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] InAssociation 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 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. Andsecond, 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.

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 caveatthat 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 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 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.

G.R. No. 134284, December 1, 2000.

AYALA CORPORATION, petitioner. vs.ROSA-DIANA REALTY AND DEVELOPMENT CORPORATION, Respondent.

DE LEON, J.:

Before us is a petition for review on certiorari seeking the reversal of a decision rendered by the Court of Appeals in C.A. G.R. C.V. No. 4598 entitled "Ayala Corporation vs. Rosa-Diana Realty and Development Corporation, dismissing Ayala Corporations petition for lack of merit.

The facts of the case are not in dispute:

Petitioner Ayala Corporation (herein-after referred to as Ayala) was the registration owner of a parcel of land located in Alfaro Street, Salcedo Village, Makati City with an area of 840 square meters, more or less and covered by Transfer Certificate of Title (TCT) No. 233435 of the Register of Deeds of Rizal.

On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po and Sy Ka Kieng married to Rosa Chan. The Deed of Sale executed between Ayala and the buyers contained Special conditions of sale and Deed Restrictions. Among the Special Conditions of Sale were.

a. The vendee shall build on the lot and submit the building plans to the vendor before September 30, 1976 for the latters approval.

b. The construction of the building shall start on or before March 30, 1977 and completed before 1979. Before such completion, neither no the title released even if the purchase price shall have been fully paid.

c. There shall be no resale of the property.

The Deed Restrictions, on the other hand, contained the stipulation that the gross floor area of the building to be constructed shall not be more than five (5) times the lot area and the total height shall not exceed forty two (42) meters. The restrictions were to expire in the year 2025.

Manuel Sy and Sy Ka Kieng failed to construct the building in violation of the Special Conditions of Sale. Notwithstanding the violation, Manuel Sy anf Sy Ka Kieng, in April 1989, were able to sell the lot to respondent Rosa-Diana Realty and Development Corporation (hereinafter referred to as Rosa-Diana) with Ayalas approval. As a consideration for Ayala to release the Certificate of title of the subject property, Rosa Diana, on July 27, 1989 executed an Undertaking, together with the buildings plans for a condominium project, known as "The Peak", Ayala released title to the lot, thereby enabling Rosa-Diana t register the deed of sale in its favor and obtain Certificate of Title No. 165720 in its name. The title carried as encumbrances the special conditions of sale and the deed restrictions. Rosa-Dianas building plans as approved by Ayala were subject to strict compliance of cautionary notices appearing on the building plans and to the restrictions encumbering the Lot regarding the use and occupancy of the same.

Thereafter, Rosa-Diana submitted to the building official of Makati another set of building plans for "The Peak" which Rosa-Diana submitted to Ayala for approval envisioned a 24-meter high, seven (7) storey condominium project with a gross floor area of 3,968.56 square meters, the building plans which Rosa-Diana submitted to the building official of Makati, contemplated a 91.65 meter high, 38 storey condominium building with a gross floor area of 23,305.09 square meters.1 Needless to say, while the first set of building plans complied with the deed restrictions, the latter set seceded the same.

During the construction of Rosa-Dianas condominium project, Ayala filed an action with the Regional Trial Court (RTC) of Makati, Branch 139 for specific performance, with application for a writ of preliminary injunction/temporary restraining order against Rosa-Diana Realty seeking to compel the latter to comply with the contractual obligations under the deed of restrictions annotated on its title as well as with the building plans it submitted to the latter. In the alternative, Ayala prayed for rescission of the sale of the subject lot to Rosa-Diana Realty.

The lower court denied Ayalas prayer for injunctive relief, thus enabling Rosa-Diana to complete the construction of the building. Undeterred, Ayala tried to cause the annotation of a notice of lis pendens on Rosa-Dianas title. The Register of Deeds of Makati, however, refused registration of the notice of lis pendens on the ground that the case pending before the trial court, being an action for specific performance and/or rescission, is an action in personal which does not involve the title, use or possession of the property.2 The Land Registration Authority (LRA) reversed the ruling of the Register of Deeds saying that an action for specific performance or recession may be classified as a proceeding of any kind in court directly affecting title to the land or the use or occupation thereof for which a notice of lis pendens may be held proper.3 The decision of the LRA, however, was overturned by the Court of Appeals in C.A. G.R. S.P. No. 29157. In G.R. No. 112774, We affirmed the ruling of the CA on February 16, 1994 saying.

We agree with respondent court that the notice of lis pendens is not proper in this instance. The case before the trial court is a personal action since the cause of action thereof arises primarily from the alleged violation of the Deed of Restriction.

In the meantime, Ayala completed its presentation of evidence before the trial court. Rosa-Diana filed a Demurrer to Evidence averring that Ayala failed to establish its right to the relief sought in-as much as (a) Ayala admittedly does not enforce the deed restrictions uniformly and strictly (b) Ayala has lost its right/power to enforce the restrictions due to its own acts and omissions; and (c) the deed restrictions are no longer valid and effective against lot buyers in Ayalas controlled subdivision.

The trial court sustained Rosa-Dianas Demurrer to Evidence saying that Ayala was guilty of abandonment and/or estoppel due to its failure to enforce the terms of deed of restrictions and special conditions of sale against Manuel Sy and Sy Ka Kieng. The trial court noted that notwithstanding the violation of the special conditions of sale, Manuel Sy and Sy Ka Kieng were able to transfer the title to Rosa-Diana with the approval of Ayala. The trial court added that Ayalas failure to enforce the restrictions with respect to Trafalgar, Shellhouse, Eurovilla, LPL Plaza, Parc Regent, LPL Mansion and Leronville, which are located within Salcedo Village, shows that Ayala discriminated against those which it wants to have the obligation enforced. The trial court then concluded that for Ayala to discriminatory choose which obligor would be made to follow certain conditions and which should not, did not seem fair and legal.

The Court of Appeals affirmed the ruling of the trial court saying that the "appeal is seated by the doctrine of the law of the case in C.A. G.R. S.P. No. 29157" where it was stated that

xxx Ayala is bared from enforcing the Deed of Restriction in question pursuant to the doctrine 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. However, Sy Ka Kieng failed to construct the building as required under the Deed Sale. 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 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 sale against the petitioner.

xxx

The Court of Appeals also cited C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray Burton Development Corporation which relied on C.A. G.R. S.P. No. 29157 in ruling that Ayala is barred from enforcing the deed restrictions in dispute. Upon a motion for reconsideration filed by herein petitioner, the Court of Appeals clarified that "the citation of the decision in Ayala Corporation vs. Ray Burton Development Corporation, Ca G.R. C.V. No. 46488, February 27, 1996, was made not because said decision is res judicata to the case at bar but rather because it is precedential under the doctrine of stare decisis."

Upon denial of said motion for reconsideration, Ayala filed the present appeal.

Ayala contends that the pronouncement of the Court of Appeals in C.A. G.R. S.P. No. 29157 that it is estopped from enforcing the deed restrictions is merely obiter dicta inasmuch as the only issue raised in the aforesaid case was the propriety of a lis pendens annotation on Rosa-Dianas certificate of title.

Ayala avers that Rosa-Diana presented no evidence whatsoever on Ayalas supposed waiver or estoppel in C.A. G.R. S.P. No. 29157. Ayala likewise pointed out that at the time C.A. G.R. S.P. No. 29157 was on appeal, the issues of the validity and continued viability of the deed of restrictions and their enforceability by Ayala wereined and then being tried before the trial court.

Petitioners assignment of errors in the present appeal may essentially be summarized as follows:

I. The Court of Appeals acted in manner not in accord with law and the applicable decisions of the Supreme Court in holding that the doctrine of the law of the case, or stare decisis, operated to dismiss Ayalas appeal.

II. The Court of Appeals erred as a matter of law and departed from the accepted and usual course of judicial proceedings when it failed to expressly pass upon the specific errors assigned in Ayalas appeal.

 

A discussion on the distinctions between law of the case, stare decisis and obiter dicta is in order.

The doctrine of the law of the case has certain affinities with, but is clearly distinguishable from, the doctrines of res judicata and stare decisis, principally on the ground that the rule of the law of the case operates only in the particular case and only as a rule of policy and not as one of law.4 At variance with the doctrine of stare decisis, the ruling adhered to in the particular case under the doctrine of the law of the case need not be followed as a precedent in subsequent litigation between other parties, neither by the appellate court which made the decision followed on a subsequent appeal in the same case, nor by any other court. The ruling covered by the doctrine of the law of the case is adhered to in the single case where it arises, but is not carried into other cases as a precedent.5On the other hand, under the doctrine of stare decisis, once a point of law has been established by the court, that point of law will, generally, be followed by the same court and by all courts of lower rank in subsequent cases where the same legal issue is raised.6 Stare decisis proceeds from the first principle of justice that, absent powerful countervailing considerations, like cases ought to be decided alike.7

The Court of Appeals, in ruling against petitioner Ayala Corporation stated that the appeal is sealed by the doctrine of the law of the case, referring to G.R. No. 112774 entitled "Ayala Corporation, petitioner vs. Courts of Appeals, et al.,respondents". The Court of Appeals likewise made reference to C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray Burton Development Corporation, Inc." in ruling against petitioner saying that it is jurisprudentially under the doctrine of stare decisis.

It must be pointed out that the only issue that was raised before the Court of Appeals in C.A. G.R. S.P. No. 29157 was whether or not the annotation of lis pendens is proper. The Court of Appeals, in its decision, in fact stated "the principal issue to be resolved is: whether or not an action for specific performance, or in the alternative, rescission of deed of sale to enforce the deed of restrictions governing the use of property, is a real or personal action, or one that affects title thereto and its use or occupation thereof.8

In the aforesaid decision, the Court of Appeals even justified the cancellation of the notice of lis pendens on the ground that Ayala had ample protection should it succeed in proving its allegations regarding the violation of the deed of restrictions, without unduly curtailing the right of the petitioner to fully enjoy its property in the meantime that there is as yet no decision by the trial court.9

From the foregoing, it is clear that the Court of Appeals was aware that the issue as to whether petitioner is estopped from enforcing the deed of restrictions has yet to be resolved by the trial court. Though it did make a pronouncement that the petitioner is estopped from enforcing the deed of restrictions, it also mentioned at the same time that this particular issue has yet to be resolved by the trial court. Notably, upon appeal to this Court, We have affirmed the ruling of the Court of Appeals only as regards the particular issue of the propriety of the cancellation of the notice of lis pendens.

We see no reason then, how the law of the case or stare decisis can be held to be applicable in the case at bench. If at all, the pronouncement made by the Court of Appeals that petitioner Ayala is barred from enforcing the deed of restrictions can only be considered as obiter dicta. As earlier mentioned the only issue before the Court of Appeals at the time was the propriety of the annotation of the lis pendens. The additional pronouncement of the Court of Appeals

that Ayala is estopped from enforcing the deed of restrictions even as it recognized that this said issue is being tried before the trial court was not necessary to dispose of the issue as to the propriety of the annotation of the lis pendens. A dictum is an opinion of a judge which does not embody the resolution or determination of the court, and made without argument, or full consideration of the point, not the proffered deliberate opinion of the judge himself.10 It is not necessarily limited to issues essential to the decision but may also include expressions of opinion which are not necessary to support the decision reached by the court. Mere dicta are not binding under the doctrine of stare decisis11.

While the Court of Appeals did not err in ruling that the present petition is not barred by C.A. G.R. C.V. No. 46488 entitled "Ayala Corporation vs. Ray Burton Development Inc." under the doctrine of res judicata, neither, however, can the latter case be cited as presidential under the doctrine of stare decisis. It must be pointed out that at the time the assailed decision was rendered, C.A. G.R. C.V. No. 46488 was on appeal with this Court. Significantly, in the decision. We have rendered in Ayala Corporation vs. Ray Burton Development Corporation12 which became final and executory on July 5, 1999 we have clearly stated that "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 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 annotation of the lis pendens. The finding of estoppel was thus improper and made in excess of jurisdiction."

Coming now to the merits of the case, petitioner avers that the Court of Appeals departed from the usual course of judicial proceedings when it failed to expressly pass upon the specific errors assigned in its appeal. Petitioner reiterates its contention that law and evidence do not support the trial courts findings that Ayala has waived its right to enforce the deed of restrictions.

We find merit in the petition.

It is basic that findings of fact of the trial court and the Court of Appeals are conclusive upon the Supreme Court when supported by substantial evidence.13 We are constrained, however, to review the trial court' findings of fact, which the Court of Appeals chose not to pass upon, in as much as there is ample evidence on record to show that certain facts were overlooked which would affect the disposition of the case.

In its assailed decision of February 4, 1994, the trial court, ruled in favor of respondent Rosa-Diana Realty on the ground that Ayala had not acted fairly when it did not institute an action against the original vendees despite the latters violation of the Special Conditions of Sale but chose instead to file an action against herein respondent Rosa-Diana. The trial court added that although the 38-storey building of Rosa-Diana is beyond the total height restriction, it was not violative of the National Building Code. According to the trial court the construction of the 38 storey building known as "The Peak" has not been shown to have been prohibited by law and neither is it against public policy.

It bears emphasis that as complainant, Ayala had the prerogative to initiate an action against violators of the deed restrictions. That Rosa-Diana had acted in bad faith is manifested by the fact that it submitted two sets of building plans, one which was in conformity with the deed restrictions submitted to Ayala and MACEA, and the other, which exceeded the height requirement in the deed restrictions to the Makati building official for the purpose of procuring a building permit from the latter. Moreover, the violation of the deed restrictions committed by respondent can hardly be denominated as a minor violation. It should be pointed out that the original building plan which was submitted to and approved by petitioner Ayala Corporation, envisioned a twenty four (24) meter high, seven (7) storey condominium whereas the respondents building plan which was submitted to and approved by the building official of Makati is that of a thirty eight (38) storey, 91.65 meters high, building. At present, the Peak building of respondent which actually stands at 133.65 meters with a total gross floor area of 23,305.09 square meters, seriously violates the dimensions indicated in the building plans

submitted by Rosa-Diana to petitioner Ayala for approval in as much as the Peak building exceeds the approved height limit by about 109 meters and the allowable gross floor area under the applicable deed restrictions by about 19,105 square meters. Clearly, there was a gross violation of the deed restrictions and evident bad faith by the respondent.

It may not be amiss to mention that the deed restrictions were revised in a general membership meeting of the association of lot owners in Makati Central Business District the Makati Commercial Estate Association, Inc. (MACEA).

Whereby direct height restrictions were abolished in lieu of floor area limits. Respondent, however, did not vote for the approval of this revision during the General Membership meeting, which was held on July 11, 1990 at the Manila Polo Clud Pavilion, Makati, and Metro Manila. Hence, respondent continues to be bound by the original deed restrictions applicable to Lot 7, Block 1 and annotated on its title to said lot. In any event, assuming arguendo that respondent voted for the approval of direct height restrictions in lieu of floor area limits, the total floor area of its Peak building would still be violative of the floor area limits to the extent of about 9,865 square meters of allowable floor area under the MACEA revised restrictions.

Respondent Rosa-Diana avers that there is nothing illegal or unlawful in the building plans which it used in the construction of the Peak condominium inasmuch as it bears the imprimatur of the building official of Makati, who is tasked to determine whether building and construction plans are in accordance with the law, notably, the National Building Code."

Respondent Rosa-Diana, however, misses the point inasmuch as it has freely consented to be bound by the deed restrictions when it entered into a contract of sale with spouses Manuel Sy and Sy Ka Kieng. While respondent claims that it was under the impression that Ayala was no longer enforcing the deed restrictions, the Undertaking14it executed belies this same claim. In said Undertaking, respondent agreed to construct and complete the construction of the house on said lot as required under the special condition of sale." Respondent likewise bound itself to abide and comply with x x x the condition of the rescission of the scale by Ayala Land, Inc. on the grounds therein stated x x x.

Contractual obligations between parties have the force of law between them and absent any allegation that the same are contrary to law, morals, good custom, public order or public policy, they must be complied with in good faith. Hence, Article 1159 of the New Civil Code provides.

"Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."

Respondent Rosa-Diana insists that the trial court had already ruled that the undertaking executed by its Chairman and President cannot validly bind Rosa-Diana and hence, it should not be held bound by the deed restrictions.

We agree with petitioner Ayalas observation that respondent Rosa-Dianas special and affirmative defenses before the trial court never mentioned any allegation that its president and chairman were not authorized to execute the Undertaking. It was inappropriate therefore for the trial court to rule that in the absence of any authority or confirmation from the Board of Directors of respondent Rosa-Diana, its Chairman and the President cannot validly enter into an undertaking relative to the construction of the building on the lot within one year from July 27, 1989 and in accordance with the deed restrictions, Curiously, while the trial court stated that it cannot be presumed that the Chairman and the President can validly bind respondent Rosa-Diana to enter into the aforesaid Undertaking in the absence of any authority or confirmation from the Board of Directors, the trial court held that the ordinary presumption of regularity of business transactions is applicable as regards the Deed of Sale which was executed by Manuel Sy and Sy Ka Kieng and respondent Rosa-Diana. In the light of the fact that respondent Rosa-Diana never alleged in its Answer that its president and chairman were not authorized to execute the Undertaking, the aforesaid ruling of the trial court is without factual and legal basis and suppressing to say the least.

The fact alone that respondent Rosa-Diana conveniently prepared two sets of building plans with one set which fully conformed to the Deed Restrictions and another in gross violation of the same should have cautioned the trial court to conclude that respondent Rose-Diana was under the erroneous impression that the Deed Restrictions were no longer enforceable and that it never intended to be bound by the Undertaking signed by its President and Chairman. We reiterate that contractual obligations have the force of law between parties and unless the same is contrary to public policy morals and good customs, they must be complied by the parties in good faith.

Petitioners, in its Petition, prays that judgement be rendered:

a. ordering Rosa-Diana Realty and Development Corporation to comply with its contractual obligations in the construction of the Peak by removing, or closing down and prohibiting Rosa-Diana from using, selling, leasing or otherwise disposing, of 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, during the effectivity of the Deed Restrictions;

b. Alternatively, in the event specific performance has become impossible;

1. ordering the cancellation and recession of the April 20, 1976 Deed of Sale by Ayala in favor of the original vendees thereof as well as the subsequent Deed of Sale executed by such original vendees in favor of Rosa-Diana, and ordering Rosa-Diana to return Ayala Lot 7, Block 1 of Salcedo Village;

2. ordering the cancellation of Transfer Certificate of Title No. 165720 (in the name of Rosa-Diana) 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

3. Ordering Rosa-Diana to pay Ayala attorneys fees in the amount of P500, 000.00, exemplary damages in the amount of P5, 000,000.00 and the costs of suit.

It must be noted that during the trial respondent Rosa-Diana was able to complete the construction of The Peak as a building with a height of thirty-eight (38) floors or 133.65 meters. Having been completed for a number of years already, it would be reasonable to assume that it is now fully tenanted. Consequently, the remedy of specific performance by respondent is no longer feasible. However, neither can we grant petitioners prayer for the cancellation and rescission of the April 20, 1976 Deed of Sale by petitioner Ayala in favor of respondent Rosa-Diana inasmuch as the resale of the property by the original vendees, spouses Manuel Sy and Ka Kieng to comply with their obligation to construct a building within one year from April 20, 1976, has effectively waived its right to rescind the sale of the subject lot to the original vendees.

Faced with the same question as to the proper remedy available to petitioner in the case of "Ayala Corporation vs. Ray Burton Development Inc., a case which is on all fours with the case at bench, we ruled therein that the party guilty of violating the deed restrictions may only be held alternatively liable for substitute performance of its obligation, that is, for the payment of damages. In the aforesaid case it was observed that the Consolidated and Revised Deed Restrictions (CRDR) imposed 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.

The pertinent portion of the Deed of Restrictions reads:

3. DEVELOPMENT CAHRGE For 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 exceeding certain standards defined in Paragraphs C-3.1-C below, the OWNER shall pay MACEA, prior to the construction of any new 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 Makati Central District.

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

DEVELOPMENT

CAHRGE = A x (B-C-D)

Where:

A is equal to the a 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 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 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.

We then ruled in the aforesaid case that the development; charges are a fair measure of compensatory damages which therein respondent Ray Burton Development Inc. is liable to Ayala Corporation. The dispositive portion of the decision in the said case, which is squarely applicable to the case at bar, reads as, follows:

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated February 27, 1996, in CA G.R. C.V. No. 46488, and its Resolution dated October 7, 1996 are hereby REVERSED and SET ASIDE, and in lieu thereof judgement 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, RBDC should be, and is bound by the same.

3. Considering that Ray Burton Development Corporations 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 attorneys fees in the amount of P250,000.00

SO ORDERED:

There is no reason why the same rule should not be followed in the case at bar, the remedies of specific performance and/or rescission prayed for by petitioner no longer being feasible. In accordance with the peculiar circumstances of the case at bar, the development charges would certainly be a fair measure of compensatory damages to petitioner Ayala.

Exemplary damages in the sum of P2, 500,000.00 as prayed for by petitioner are also in order inasmuch as respondent Rosa-Diana was in evident bad faith when it submitted a set of building plans in conformity with the deed restrictions to petitioner Ayala for the sole purpose of obtaining title to the property, but only to prepare and later on submit another set of buildings plans which are in gross violation of the Deed Restrictions. Petitioner Ayala is likewise entitled to an award of attorneys fees in the sum of P250, 000.00.

WHEREFORE, the assailed Decision of the Court of Appeals dated December 4, 1997 and its Resolution dated June 19, 1998, C.A. G.R. C.V. No. 4598, are REVERSED and SET ASIDE. In lieu thereof, judgement is rendered.

a. orderings respondent Rosa-Diana Realty and Development Corporation to pay development charges as computed under the provisions of the consolidated and Revised Deed Restrictions currently in force; and

b. ordering respondent Rosa-Diana Realty and Development Corporation to pay petitioner Ayala Corporation exemplary damages in the sum of P2,500,00.00, attorneys fees in the sum of P250,000.00 and the costs of the suit.

SO ORDERED.

G.R. No. 164079 : April 4, 2007

NATIONAL POWER CORPORATION, Petitioner, v. DR. ANTERO BONGBONG And ROSARIO BONGBONG,Respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is a Petition for Review of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 65913 dated May 23, 2003, and the Resolution2 dated April 12, 2004 denying the motion for reconsideration thereof.

Spouses Antero and Rosario Bongbong are the registered owners of a 364,451-square-meter parcel of land situated at Barangay Sambulawan, Villaba, Leyte. The property is covered by Original Certificate of Title (OCT) No. R-2189 of the Register of Deeds of the Province of Leyte.

As early as 1996, the National Power Corporation (NPC) negotiated with the spouses Bongbong to use a portion of the property for the construction of a 230 KV LCIP Malitbog-Tabango CETL TWR SITE 1046 for the Leyte-Cebu Interconnection Project. When the spouses Bongbong agreed, NPC occupied a 25,100-sq-m portion of the property.

On April 22, 1996, NPC paid the spouses Bongbong the amount of P33,582.00 representing the value of the improvements that were damaged by the construction of the project. The voucher for the payment of easement fee was prepared. However, when NPC offered a check for P163,150.00 (representing 10% of the total market value of the area affected) as payment for the easement fee, Antero refused to accept the amount and demanded that NPC pay the full value of the 25,100-sq-m portion it had occupied. On October 28, 1997, the spouses Bongbong received the P163,150.00 under protest.3 cra On October 3, 1997, the spouses Bongbong demanded that the NPC payP8,748,448.00 which they alleged to be the just and reasonable value for their land and improvements. The refusal of NPC to heed their demands prompted the spouses Bongbong to file a complaint4 for just compensation before the Regional Trial Court (RTC) of Palompon, Leyte. The case against NPC was docketed as Civil Case No. PN-0207.

In the complaint, the spouses Bongbong alleged that NPC was given the authority to enter the property due to its assurances and promises that it would pay just compensation, but it never

did. It pointed out that nearby landowners were paid P300.00 per sq m; considering that the price of land has increased with the devaluation of the peso, the amount of P250.00 per sq m was reasonable. They prayed, among others, that commissioners be appointed to determine the fair market value of the land as well as the improvements thereon; and to recommend that the total amount due and payable to them be at least P7,493,448.00 (P250.00 per square meter), and that they be paid 10% of the proceeds as attorney's fees, and P100,000.00 as litigation expenses.

In its Answer, NPC claimed that its obligation towards the spouses Bongbong had already been extinguished when it paid the amount of P33,582.15 for the damaged improvements on April 22, 1996, and the easement fee pursuant to Republic Act (R.A.) No. 6395, as amended by Presidential Decree (P.D.) No. 938, in the amount of P163,150.00 on October 28, 1997.

On May 21, 1999, the spouses Bongbong filed a Motion to Admit as Supplement to the Amended Complaint the New Reappraisal of Plaintiffs' Real Property and Improvements,5 dated February 8, 1999. In the said Reappraisal, which was issued by the Provincial Appraisal Committee (PAC) of Leyte (Resolution No. 03-99), the lot was valued atP300.00 per sq m.

NPC opposed the motion, alleging that the payment of just compensation should be based on the market value of the property at the time of its taking in 1997; pursuant to its charter, it paid only an easement fee.6 cra On July 2, 1999, the trial court issued another Order admitting the PAC Reappraisal.7 On August 2, 1999, the trial court directed the spouses Bongbong to submit in writing their proposal on the amount of just compensation, and to furnish a copy thereof to Atty. Marianito delos Santos, NPC's counsel, who was given ten days to comment thereon.8cra On August 18, 1999, the spouses Bongbong filed a Motion to Resolve the Market Value of Plaintiffs' Property and Improvements,9 praying that the court declare the value of the land at P350.00 per sq m or the total amount ofP8,785,000.00, and declare the value of the improvements to be P1,218,448.00, a total of P10,003,448.00.

Among the pertinent documents the spouses Bongbong submitted to the court were the following:

1. List of Affected Improvements for the Province of Leyte affected by the NPC Transmission Lines Project.10 cra 2. Original Certificate of Title No. N-2189 over the subject property;11 cra 3. Tax Declaration No. ARP No. 00034 covering the subject property;12 cra 4. Disbursement Voucher for the payment of the easement fee of P163,150.00;13 cra 5. Certification dated October 24, 1997, acknowledging receipt under protest of the payment of P163,150.00 as easement fee;14 cra 6. Resolution No. 11-97 of the Provincial Appraisal Committee dated May 2, 1997, finding the value of the subject property consisting of 25,100 square meters to be P1,631,500.00 at P65.00 per square meter;15 cra 7. Letter dated January 21, 1999 of Dante Polloso, Project Manager of NPC, to Atty. Rafael Iriarte, Leyte Provincial Assessor, requesting for the reappraisal of the subject property;16 chanroblesvirtuallawlibary

8. Reappraisal by the Provincial Appraisal Committee dated February 8, 1999, finding the market value of the subject property to be P7,530,000.00 at P300.00 per square meter;17 cra 9. Letter dated October 3, 1997 of Antero Bongbong to NPC, demanding payment of P7,530,000.00 for the 25,100 square meters of land plus P1,218,448.00 for coconuts and other damages;18 cra 10. Permission to Enter Property for Construction of Transmission Line Project;19 cra 11. Deed of Absolute Sale dated January 16, 1997 between NPC and Spouses Felipe and Mercedes Larrazabal over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 11,281 square meters for P3,384,300.00 at P300.00 per square meter;20 cra 12. Deed of Absolute Sale dated January 16, 1997 between NPC and Melchor Larrazabal, in behalf of Faustino Larrazabal, over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 5,027 square meters for P1,508,000.00 at P300.00 per square meter;21cra 13. Deed of Absolute Sale dated January 16, 1997 between NPC and Fedelina L. Tuazon over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 5,700 square meters forP1,710,000.00 at P300.00 per square meter;22 cra 14. Deed of Absolute Sale dated July 8, 1997 between NPC and Merlo Aznar, as representative of Aznar Enterprises, over a portion of a parcel of land situated in Tabango, San Isidro, Leyte

consisting of 61,008 square meters for P18,302,400.00 at P300.00 per square meter;23 cra 15. Deed of Absolute Sale dated January 16, 1997 between NPC and Florence Tan over a portion of a parcel of land situated in Naghalin, Kananga, Leyte consisting of 4,075 square meters for P1,426,250.00 at P350.00 per square meter;24 chanroblesvirtuallawlibary

16. Deed of Absolute Sale dated March 4, 1997 between NPC and Yolinda O. Beduya over a portion of a parcel of land situated in Campokpok, Tabango, Leyte consisting of 2,109 square meters forP632,700.00 at P300.00 per square meter;25 and

17. Deed of Absolute Sale dated March 4, 1997 between NPC and Trinidad O. Palanas over a parcel of land situated in Campokpok, Tabango, Leyte consisting of 2,109 square meters for P632,700.00 atP300.00 per square meter.26

On November 5, 1999, the trial court issued an Order27 fixing the just compensation due to respondent, thus:cra:nad

WHEREFORE, all the foregoing premises considered, this Court has determined that the value of the plaintiffs' property at the time of taking in 1997 is THREE HUNDRED (P300.00) PESOS per square meter or the total amount of SEVEN MILLION FIVE HUNDRED THIRTY THOUSAND (P7,530,000.00) PESOS.

SO ORDERED.28 cra The trial court stressed that just compensation should be reckoned from 1997 - when the taking took place. It noted that, in 1997, NPC consistently paid P300.00 per square meter to the spouses Felipe and Mercedes Larrazabal, Melchor Larrazabal, Fedelina Tuazon, Aznar Enterprises, Inc., Yolinda Beduya, and Trinidad Palanas for the properties it acquired for its transmission lines. It held that NPC should not discriminate against the spouses Bongbong, who should thus be paid the same rate.

NPC elevated the case to the CA through a notice of appeal. On May 23, 2003, the CA rendered a Decision29affirming the RTC decision, thus:cra:nad

WHEREFORE, the assailed November 5, 1999 Order of the Regional Trial Court of Palompon, Leyte is AFFIRMED in its entirety.

SO ORDERED.30 cra The CA found no cogent reason to reverse the finding of the trial court. It agreed with the trial court that the spouses Bongbong should not be discriminated against in the determination of just compensation. Considering therefore that NPC had paid P300.00 per square meter for properties belonging to other landowners in the Province of Leyte for the construction of its transmission line, it should pay respondents the same amount. The appellate court stressed that the value of the property at the time the government took possession of the land, not the increased value resulting from the passage of time, represents the true value to be paid as just compensation for the property taken.31 cra Moreover, the CA held that Section 5, Rule 67 of the Revised Rules of Civil Procedure on the creation of a board of commissioners does not apply to the present case since it is not an expropriation proceeding.32 cra On April 12, 2004, the CA resolved to deny NPC's motion for reconsideration.33 cra NPC, now petitioner, filed the instant petition seeking the reversal of the CA decision on the following grounds:

1. The Court of Appeals seriously and grossly erred in failing to consider: (a) the value of the land (which was P65.00 per square meter as of May 2, 1997) and its character (which was and still is agricultural) at the time of its taking by NAPOCOR in early 1997; and (b) that the P300.00 per square meter valuation thereof is the post-taking reappraisal value made by the Provincial Appraisal Committee (PAC) on February 8, 1999, and as such is inapplicable and cannot be given retroactive effect.

2. The Court of Appeals seriously and grossly erred in ignoring and in not applying NAPOCOR's Charter RA No. 6395, as amended, as legal basis for the payment of just compensation which should consist of simple right-of-way easement fee of ten [percent] (10%) of the value of the

land, instead of full compensation, as the reasonable and adequate disturbance or compensation fee for the right-of-way easement on agricultural land of respondents traversed by its overhead transmission lines.

3. Assuming arguendo that full compensation, instead of simple easement fee is proper, the Court of Appeals seriously and grossly erred in not ordering the transfer of the title and ownership over the subject parcel of land in favor of NAPOCOR.34

Petitioner argues that the deeds of sale relied upon by the trial court involve parcels of land 20 to 40 kilometers away from Villaba, Leyte, and as such are classified and declared as either residential, industrial or commercial lots. On the other hand, respondents' property is classified as agricultural. It asserts that the value of the land and its character at the time it was taken by the government should be the criteria in determining just compensation; hence, it should not have been based on the reappraisal made by the PAC on February 8, 1999.35 cra Petitioner further contends that it should only pay an easement fee and not the full value of the property since it acquired only a simple right-of-way easement for the passage of its overhead transmission lines; respondents retained the full ownership and right to use the land. It points out that under Sec. 3-A36 of R.A. No. 6395, as amended by P.D. No. 938, it is only authorized to acquire a right-of-way easement where a portion of a land will be traversed by transmission lines, and to pay only an easement fee - 10% of the market value of the land.37 cra Finally, petitioner submits that the CA should have ordered the transfer of the title and ownership over the subject portion of the land to petitioner after it had adjudged the latter liable for the full market value of the property.38 cra Respondents, for their part, aver that the present petition should be dismissed for having been filed out of time. Petitioner's Motion for Extension to File a Petition for Review should have been filed on or before June 30, 2004, that is, fifteen days from its receipt of the notice denying its motion for reconsideration; respondent filed the petition only on July 8, 2006. The Court, in effect, granted no extension of time since petitioner failed to file its motion for extension of time.39cra Respondents further contend that the court a quo and the CA did not err in fixing the value of the land at P300.00 per sq m, the "reappraisal price" determined by the PAC of Leyte. They aver that, since petitioner did not file an expropriation case, it had no basis to insist that just compensation be fixed at the price of the property at the time of the taking (P65.00 per sq m). Finally, they assert that the CA was under no duty to order the transfer of the title and ownership of the land to petitioner since no payment had yet been made.40 cra The issues in this case are as follows: (1) whether the petition for review should be denied for having been filed out of time; (2) whether the trial court, as affirmed by the CA, was correct in fixing just compensation at P300.00 per sq m; (3) whether petitioner is obliged to pay the full value of the property taken or easement fee only; (4) whether the procedure laid down in Rule 67 should be followed in determining just compensation; and (5) whether the CA erred in not ordering the transfer of the title over the subject property to petitioner after it was ordered to pay its full market value.

The petition is partially granted.

The present petition has, indeed, been filed out of time. The records show that petitioner's Regional Counsel in Cebu City received the CA Resolution denying the motion for reconsideration on June 15, 2004; hence, petitioner had until June 30, 2004 to file a petition for review or a motion for extension of time to file a petition for review with this Court. On June 23, 2004, however, the case was indorsed to the Office of the Solicitor General (OSG). It was only on July 8, 2004 that the OSG was able to file a motion for extension of time to file a petition for review with the Court.

While we agree with respondent that the petition has been filed out of time, we do not agree with its plea that the petition should be dismissed solely on this ground. As much as possible, appeals should not be dismissed on a mere technicality in order to afford the litigants the maximum opportunity for the adjudication of their cases on the merits.41 While rules of procedure must be faithfully followed, they may be relaxed, for persuasive and weighty reasons, to relieve a litigant of an injustice commensurate with his failure to comply with the prescribed procedure.42cra Petitioner, through the OSG, explained that it failed to file the motion for extension of time because it did not participate in the proceedings below and the case had been indorsed to it only on June 23, 2004. Further, the Solicitor to whom it was

assigned received the records of the case only on July 2, 2004. We find this explanation adequate to warrant the relaxation of the rules. As will be shown later, a contrary view would cause an injustice to petitioner whose appeal deserves to be heard on the merits.

We agree with the contention of petitioner that the trial court erred in the determination of just compensation atP300.00 per sq m based on the fact that it paid a similar rate to the other landowners whose properties were likewise acquired by petitioner.

Just compensation is the fair value of the property as between one who receives, and one who desires to sell, fixed at the time of the actual taking by the government. This rule holds true when the property is taken before the filing of an expropriation suit, and even if it is the property owner who brings the action for compensation.43 The nature and character of the land at the time of its taking is the principal criterion for determining how much just compensation should be given to the landowner.44 In determining just compensation, all the facts as to the condition of the property and its surroundings, its improvements and capabilities, should be considered.45 cra In the present case, the trial court determined just compensation without considering the differences in the nature and character or condition of the property compared to the other properties in the province which petitioner had purchased. It simply relied on the fact that petitioner paid P300.00 per sq m to the other landowners whose lands had been taken as a result of the construction of transmission lines. But a perusal of the Deeds of Sale shows that the properties covered by the transmission lines are located in the municipalities of Kananga, Leyte or Tabango, Leyte, while the subject property is located in Villaba, Leyte; the Deeds of Sale describe the properties as industrial, residential/commercial, while the tax declaration of the subject property describes it as "agricultural." Petitioner consistently pointed out these differences and the trial court should not have ignored them. It must be stressed that although the determination of the amount of just compensation is within the court's discretion, it should not be done arbitrarily or capriciously. It must be based on all established rules, upon correct legal principles and competent evidence.46 cra In addition, petitioner insists that commissioners should at least be appointed to determine just compensation in accordance with the procedure in Section 547 of Rule 67. On this point, we do not agree with petitioner. Rule 67 need not be followed where the expropriator has violated procedural requirements. This is clearly expressed in Republic v. Court of Appeals.48 In the said case, the National Irrigation Administration (NIA) contended that it was deprived of due process when the trial court determined just compensation without the assistance of commissioners. The Court held as follows:cra:nad

Rule 67, however, presupposes that NIA exercised its right of eminent domain by filing a complaint for that purpose before the appropriate court. Judicial determination of the propriety of the exercise of the power of eminent domain and the just compensation for the subject property then follows. The proceedings give the property owner the chance to object to the taking of his property and to present evidence on its value and on the consequential damage to other parts of his property.

Respondent was not given these opportunities, as NIA did not observe the procedure in Rule 67. Worse, NIA refused to pay respondent just compensation. The seizure of one's property without payment, even though intended for public use, is a taking without due process of law and a denial of the equal protection of the laws. NIA, not respondent, transgressed the requirements of due process.

When a government agency itself violates procedural requirements, it waives the usual procedure prescribed in Rule 67. This Court ruled in the recent case of National Power Corporation ("NPC") v. Court of Appeals, to wit:cra:nad

We have held that the usual procedure in the determination of just compensation is waived when the government itself initially violates procedural requirements. NPC's taking of Pobre's property without filing the appropriate expropriation proceedings and paying him just compensation is a transgression of procedural due process. (Emphasis supplied.)

Like in NPC, the present case is not an action for expropriation. NIA never filed expropriation proceedings although it had ample opportunity to do so. Respondent's complaint is an ordinary civil action for the recovery of possession of the Property or its value, and damages. Under these circumstances, a trial before commissioners is not necessary.49cra In National Power Corporation v. Court of Appeals,50 the Court clarified that when there is no action for expropriation and the case involves only a complaint for damages or just compensation, the provisions of Rule 67 would not apply, thus:cra:nad

In this case, NPC appropriated Pobre's Property without resort to expropriation proceedings. NPC dismissed its own complaint for the second expropriation. At no point did NPC institute expropriation proceedings for the lots outside the 5,554 square-meter portion subject of the second expropriation. The only issues that the trial court had to settle were the amount of just compensation and damages that NPC had to pay Pobre.

This case ceased to be an action for expropriation when NPC dismissed its complaint for expropriation. Since this case has been reduced to a simple case of recovery of damages, the provisions of the Rules of Court on the ascertainment of the just compensation to be paid were no longer applicable. A trial before commissioners, for instance, was dispensable.51 cra Further, petitioner insists that if any amount should be paid to respondents, it should only be an easement fee of 10% the value of the property, not the full value, since it acquired only a simple right-of-way easement for the passage of its overhead transmission lines. It points out that its charter authorizes the acquisition only of a right-of-way easement for its transmission lines and the payment of an easement fee.

Again, we do not agree. The Court has consistently held that the determination of just compensation is a judicial function. No statute, decree, or executive order can mandate that its own determination shall prevail over the court's findings.52 cra In National Power Corporation v. Manubay Agro-Industrial Development Corporation,53petitioner (also the NPC) likewise sought the expropriation of certain properties which would be traversed by its transmission lines. In the said case, petitioner similarly argued that only an easement fee should be paid to respondent since the construction of the transmission lines would be a mere encumbrance on the property, and respondent would not be deprived of its beneficial enjoyment. It posited that respondent should be compensated only for what it would actually lose, that is, a portion of the aerial domain above its property. The Court noted, however, that petitioner sought, and was later granted, authority to enter the property and demolish all the improvements thereon. It, therefore, concluded that the expropriation would, in fact, not be limited to an easement of a right of way only.

Similarly, the expropriation by petitioner in the present case does not amount to a mere encumbrance on the property. The records in this case show that petitioner has occupied a 25,100-sq-m area of respondents' property. This was not disputed by Respondents. Further, the Court ruled in the Manubay case that:cra:nad

Granting arguendo that what petitioner acquired over respondent's property was purely an easement of a right of way, still, we cannot sustain its view that it should pay only an easement fee, and not the full value of the property. The acquisition of such an easement falls within the purview of the power of eminent domain. This conclusion finds support in similar cases in which the Supreme Court sustained the award of just compensation for private property condemned for public use. Republic v. PLDT held, thus:cra:nad

"x x x. Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession of, the expropriated property; but no cogent reason appears why the said power may not be availed of to impose only a burden upon the owner of condemned property, without loss of title and possession. It is unquestionable that real property may, through expropriation, be subjected to an easement of right of way."

True, an easement of a right of way transmits no rights except the easement itself, and respondent retains full ownership of the property. The acquisition of such easement is, nevertheless, not gratis. As correctly observed by the CA, considering the nature and the effect

of the installation power lines, the limitations on the use of the land for an indefinite period would deprive respondent of normal use of the property. For this reason, the latter is entitled to payment of just compensation, which must be neither more nor less than the monetary equivalent of the land.54chanroblesvirtuallawlibary

Finally, the CA did not err in not directing the transfer of the title over the subject property to petitioner since no payment has yet been made. It is only upon payment of just compensation that title over the property passes to the expropriator.55 cra In sum, we find that the trial court arbitrarily fixed the amount of just compensation due to respondent at P300.00 per sq m without considering the differences in the nature, character and condition of the subject property compared to other properties in the province which petitioner had acquired. For this reason, the Court has no alternative but to remand the case to the trial court for the proper determination of just compensation.

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The case is REMANDED to the Regional Trial Court of Palompon, Leyte, for the proper determination of just compensation.

SO ORDERED.