G.R. No.
152809 August 3, 2006 Davao City where Arlene and her family could transfer and settle down. This
MERCEDES MORALIDAD, Petitioner,
vs.
SPS. DIOSDADO PERNES and ARLENE PERNES, Respondents.
DECISION
GARCIA, J.:
Under consideration is this petition for review on certiorari under Rule 45 of
the Rules of Court to nullify and set aside the following issuances of the Court of
Appeals (CA) in CA-G.R. SP No. 61610, to wit:
1. Decision dated September 27, 2001, 1 affirming an earlier decision of the
Regional Trial Court (RTC) of Davao City which reversed that of the Municipal
Trial Court in Cities (MTCC), Davao City, Branch 1, in an action for unlawful
detainer thereat commenced by the petitioner against the herein respondents;
and
2. Resolution dated February 28, 2002, 2 denying petitioner’s motion for
reconsideration.
At the heart of this controversy is a parcel of land located in Davao City and
registered in the name of petitioner Mercedes Moralidad under Transfer
Certificate of Title (TCT) No. T-123125 of the Registry of Deeds of Davao City.
In her younger days, petitioner taught in Davao City, Quezon City and Manila.
While teaching in Manila, she had the good fortune of furthering her studies at
the University of Pennsylvania, U.S.A. While schooling, she was offered to teach
at the Philadelphia Catholic Archdiocese, which she did for seven (7) years.
Thereafter, she worked at the Mental Health Department of said University for
the next seventeen (17) years.
During those years, she would come home to the Philippines to spend her two-
month summer vacation in her hometown in Davao City. Being single, she
would usually stay in Mandug, Davao City, in the house of her niece, respondent
Arlene Pernes, a daughter of her younger sister, Rosario.
Back in the U.S.A. sometime in 1986, she received news from Arlene that
Mandug at the outskirts of Davao City was infested by NPA rebels and many
women and children were victims of crossfire between government troops and
the insurgents. Shocked and saddened about this development, she immediately
sent money to Araceli, Arlene’s older sister, with instructions to look for a lot in
was why she bought the parcel of land covered by TCT No. T-123125.
Petitioner acquired the lot property initially for the purpose of letting Arlene
move from Mandug to Davao City proper but later she wanted the property to
be also available to any of her kins wishing to live and settle in Davao City.
Petitioner made known this intention in a document she executed on July 21,
1986. 3 The document reads:
I, MERCEDES VIÑA MORALIDAD, of legal age, single, having been born on the
29th day of January, 1923, now actually residing at 8021 Lindbergh Boulevard,
Philadelphia, Pennsylvania, U.S.A., wishes to convey my honest intention
regarding my properties situated at Palm Village Subdivision, Bajada, Davao
City, 9501, … and hereby declare:
1. That it is my desire that Mr. and Mrs. Diosdado M. Pernes may build their
house therein and stay as long as they like;
2. That anybody of my kins who wishes to stay on the aforementioned real
property should maintain an atmosphere of cooperation, live in harmony and
must avoid bickering with one another;
3. That anyone of my kins may enjoy the privilege to stay therein and may avail
the use thereof. Provided, however, that the same is not inimical to the purpose
thereof;
4. That anyone of my kins who cannot conform with the wishes of the
undersigned may exercise the freedom to look for his own;
5. That any proceeds or income derived from the aforementioned properties
shall be allotted to my nearest kins who have less in life in greater percentage
and lesser percentage to those who are better of in standing.
xxx xxx xxx
Following her retirement in 1993, petitioner came back to the Philippines to
stay with the respondents’ on the house they build on the subject property. In
the course of time, their relations turned sour because members of the Pernes
family were impervious to her suggestions and attempts to change certain
practices concerning matters of health and sanitation within their compound.
For instance, Arlene’s eldest son, Myco Pernes, then a fourth year veterinary
medicine student, would answer petitioner back with clenched fist and at one
time hurled profanities when she corrected him. Later, Arlene herself followed
suit. Petitioner brought the matter to the local barangay lupon where she
lodged a complaint for slander, harassment, threat and defamation against the
Pernes Family. Deciding for petitioner, the lupon apparently ordered the Pernes
family to vacate petitioner’s property but not after they are reimbursed for the
value of the house they built thereon. Unfortunately, the parties could not agree
on the amount, thus prolonging the impasse between them.
Other ugly incidents interspersed with violent confrontations meanwhile
transpired, with the petitioner narrating that, at one occasion in July 1998, she
sustained cuts and wounds when Arlene pulled her hair, hit her on the face,
neck and back, while her husband Diosdado held her, twisting her arms in the
process.
Relations having deteriorated from worse to worst, petitioner, on July 29, 1998,
lodged a formal complaint before the Regional Office of the Ombudsman for
Mindanao, charging the respondent spouses, who were both government
employees, with conduct unbecoming of public servants. This administrative
case, however, did not prosper.
Then, on August 3, 1998, petitioner filed with the MTCC of Davao City an
unlawful detainer suit against the respondent spouses. Petitioner alleged that
she is the registered owner of the land on which the respondents built their
house; that through her counsel, she sent the respondent spouses a letter
demanding them to vacate the premises and to pay rentals therefor, which the
respondents refused to heed.
In their defense, the respondents alleged having entered the property in
question, building their house thereon and maintaining the same as their
residence with petitioner’s full knowledge and express consent. To prove their
point, they invited attention to her written declaration of July 21, 1986, supra,
wherein she expressly signified her desire for the spouses to build their house
on her property and stay thereat for as long as they like.
The MTCC, resolving the ejectment suit in petitioner’s favor, declared that the
respondent spouses, although builders in good faith vis-à-vis the house they
built on her property, cannot invoke their bona fides as a valid excuse for not
complying with the demand to vacate. To the MTCC, respondents’ continued
possession of the premises turned unlawful upon their receipt of the demand to
vacate, such possession being merely at petitioner’s tolerance, and sans any
rental. Accordingly, in its decision dated November 17, 1999, 4 the MTCC
rendered judgment for the petitioner, as plaintiff therein, to wit:
WHEREFORE, judgment is hereby rendered in favor of herein plaintiff and
against the defendants, as follows:
a) Directing the defendants, their agents and other persons acting on their
behalf to vacate the premises and to yield peaceful possession thereof to
plaintiff;
b) Ordering defendants to pay P2,000.00 a month from the filing of this
complaint until they vacate premises;
c) Sentencing defendants to pay the sum of P120,000.00 5 as attorney’s fees and
to pay the cost of suit.
Defendants counterclaim are hereby dismissed except with respect to the claim
for reimbursement of necessary and useful expenses which should be litigated
in an ordinary civil actions. (sic)
Dissatisfied, the respondent spouses appealed to the RTC of Davao City.
In the meantime, petitioner filed a Motion for Execution Pending Appeal. The
motion was initially granted by the RTC in its Order of February 29, 2000, but
the Order was later withdrawn and vacated by its subsequent Order dated May
9, 2000 6 on the ground that immediate execution of the appealed decision was
not the prudent course of action to take, considering that the house the
respondents constructed on the subject property might even be more valuable
than the land site.
Eventually, in a decision 7 dated September 30, 2000, the RTC reversed that of
the MTCC, holding that respondents’ possession of the property in question was
not, as ruled by the latter court, by mere tolerance of the petitioner but rather
by her express consent. It further ruled that Article 1678 of the Civil Code on
reimbursement of improvements introduced is inapplicable since said provision
contemplates of a lessor-lessee arrangement, which was not the factual milieu
obtaining in the case. Instead, the RTC ruled that what governed the parties’
relationship are Articles 448 and 546 of the Civil Code, explaining thus:
Since the defendants-appellees [respondents] are admittedly possessors of the
property by permission from plaintiff [petitioner], and builders in good faith,
they have the right to retain possession of the property subject of this case until
they have been reimbursed the cost of the improvements they have introduced
on the property.
Indeed, this is a substantive right given to the defendants by law, and this right
is superior to the procedural right to [sic] plaintiff to immediately ask for their
removal by a writ of execution by virtue of a decision which as we have shown
is erroneous, and therefore invalid. (Words in brackets supplied),
and accordingly dismissed petitioner’s appeal, as follows:
WHEREFORE, in view of the foregoing, the Decision appealed from is
REVERSED and declared invalid. Consequently, the motion for execution
pending appeal is likewise denied.
Counter-claims of moral and exemplary damages claimed by defendants are
likewise dismissed. However, attorney’s fees in the amount of fifteen thousand
pesos is hereby awarded in favor of defendants-appellants, and against
plaintiffs.
SO ORDERED. 8
Therefrom, petitioner went to the CA in CA-G.R. SP No. 61610.
On September 27, 2001, the CA, while conceding the applicability of Articles 448
and 546 of the Civil Code to the case, ruled that it is still premature to apply the
same considering that the issue of whether respondents’ right to possess a
portion of petitioner’s land had already expired or was already terminated was
not yet resolved. To the CA, the unlawful detainer suit presupposes the
cessation of respondents’ right to possess. The CA further ruled that what
governs the rights of the parties is the law on usufruct but petitioner failed to
establish that respondents’ right to possess had already ceased. On this premise,
the CA concluded that the ejectment suit instituted by the petitioner was
premature. The appellate court thus affirmed the appealed RTC decision,
disposing:
WHEREFORE, premises considered, the instant petition for review is hereby
denied for lack of merit. Accordingly, the petitioner’s complaint for Unlawful
Detainer is DISMISSED.
SO ORDERED.
With the CA’s denial of her motion for reconsideration in its Resolution of
February 28, 2002, petitioner is now before this Court raising the following
issues:
I. WHETHER OR NOT THE COURT OF APPEALS ERRED IN DISMISSING THE
UNLAWFUL DETAINER CASE FOR BEING PREMATURE WHICH DECISION IS
NOT IN ACCORDANCE WITH LAW AND JURISPRUDENCE.
II. WHETHER OR NOT THE COURT OF APPEALS ERRED IN APPLYING ARTICLES
448 AND 546 AND THE PROVISIONS OF THE CODE ON USUFRUCT INSTEAD OF
ARTICLE 1678 OF THE CIVIL CODE.
The Court rules for the petitioner.
The Court is inclined to agree with the CA that what was constituted between
the parties herein is one of usufruct over a piece of land, with the petitioner
being the owner of the property upon whom the naked title thereto remained
and the respondents being two (2) among other unnamed usufructuaries who
were simply referred to as petitioner’s kin. The Court, however, cannot go along
with the CA’s holding that the action for unlawful detainer must be dismissed on
ground of prematurity.
Usufruct is defined under Article 562 of the Civil Code in the following wise:
ART. 562. Usufruct gives a right to enjoy the property of another with the
obligation of preserving its form and substance, unless the title constituting it or
the law otherwise provides.
Usufruct, in essence, is nothing else but simply allowing one to enjoy another’s
property. 9 It is also defined as the right to enjoy the property of another
temporarily, including both the jus utendi and the jus fruendi, 10 with the owner
retaining the jus disponendi or the power to alienate the same. 11
It is undisputed that petitioner, in a document dated July 21, 1986, supra, made
known her intention to give respondents and her other kins the right to use and
to enjoy the fruits of her property. There can also be no quibbling about the
respondents being given the right "to build their own house" on the property
and to stay thereat "as long as they like." Paragraph #5 of the same document
earmarks "proceeds or income derived from the aforementioned properties" for
the petitioner’s "nearest kins who have less in life in greater percentage and
lesser percentage to those who are better of (sic) in standing." The established
facts undoubtedly gave respondents not only the right to use the property but
also granted them, among the petitioner’s other kins, the right to enjoy the
fruits thereof. We have no quarrel, therefore, with the CA’s ruling that usufruct
was constituted between petitioner and respondents. It is thus pointless to
discuss why there was no lease contract between the parties.
However, determinative of the outcome of the ejectment case is the resolution
of the next issue, i.e., whether the existing usufruct may be deemed to have been
extinguished or terminated. If the question is resolved in the affirmative, then
the respondents’ right to possession, proceeding as it did from their right of
usufruct, likewise ceased. In that case, petitioner’s action for ejectment in the
unlawful detainer case could proceed and should prosper.
The CA disposed of this issue in this wise:
xxx Section 1, Rule 70 of the 1997 Rules of Civil Procedure, as amended,
provides xxx
xxx xxx xxx
From the foregoing provision, it becomes apparent that for an action for
unlawful detainer to prosper, the plaintiff [petitioner] needs to prove that
defendants’ [respondents’] right to possess already expired and terminated.
Now, has respondents’ right to possess the subject portion of petitioner’s
property expired or terminated? Let us therefore examine respondents’ basis
for occupying the same.
It is undisputed that petitioner expressly authorized respondents o occupy
portion of her property on which their house may be built. Thus – "it is my
desire that Mr. and Mrs. Diosdado M. Pernes may build their house therein and
stay as long as they like." From this statement, it seems that petitioner had given
the respondents the usufructuary rights over the portion that may be occupied
by the house that the latter would build, the duration of which being dependent
on how long respondents would like to occupy the property. While petitioner
had already demanded from the respondents the surrender of the premises, this
Court is of the opinion that the usufructuary rights of respondents had not been
terminated by the said demand considering the clear statement of petitioner
that she is allowing respondents to occupy portion of her land as long as the
latter want to. Considering that respondents still want to occupy the premises,
petitioner clearly cannot eject respondents. 12
We disagree with the CA’s conclusion of law on the matter. The term or period
of the usufruct originally specified provides only one of the bases for the right of
a usufructuary to hold and retain possession of the thing given in usufruct.
There are other modes or instances whereby the usufruct shall be considered
terminated or extinguished. For sure, the Civil Code enumerates such other
modes of extinguishment:
ART. 603. Usufruct is extinguished:
(1) By the death of the usufructuary, unless a contrary intention clearly
appears;
(2) By expiration of the period for which it was constituted, or by the fulfillment
of any resolutory condition provided in the title creating the usufruct;
(3) By merger of the usufruct and ownership in the same person;
(4) By renunciation of the usufructuary;
(5) By the total loss of the thing in usufruct;
(6) By the termination of the right of the person constituting the usufruct;
(7) By prescription. (Emphasis supplied.)
The document executed by the petitioner dated July 21, 1986 constitutes the
title creating, and sets forth the conditions of, the usufruct. Paragraph #3
thereof states "[T]hat anyone of my kins may enjoy the privilege to stay therein
and may avail the use thereof. Provided, however, that the same is not inimical
to the purpose thereof" (Emphasis supplied). What may be inimical to the
purpose constituting the usufruct may be gleaned from the preceding
paragraph wherein petitioner made it abundantly clear "that anybody of my
kins who wishes to stay on the aforementioned property should maintain an
atmosphere of cooperation, live in harmony and must avoid bickering with one
another." That the maintenance of a peaceful and harmonious relations between
and among kin constitutes an indispensable condition for the continuance of the
usufruct is clearly deduced from the succeeding Paragraph #4 where petitioner
stated "[T]hat anyone of my kins who cannot conform with the wishes of the
undersigned may exercise the freedom to look for his own." In fine, the
occurrence of any of the following: the loss of the atmosphere of cooperation,
the bickering or the cessation of harmonious relationship between/among kin
constitutes a resolutory condition which, by express wish of the petitioner,
extinguishes the usufruct.
From the pleadings submitted by the parties, it is indubitable that there were
indeed facts and circumstances whereby the subject usufruct may be deemed
terminated or extinguished by the occurrence of the resolutory conditions
provided for in the title creating the usufruct, namely, the document adverted to
which the petitioner executed on July 21, 1986.
As aptly pointed out by the petitioner in her Memorandum, respondents’ own
evidence before the MTCC indicated that the relations between the parties
"have deteriorated to almost an irretrievable level." 13 There is no doubt then
that what impelled petitioner to file complaints before the local barangay lupon,
the Office of the Ombudsman for Mindanao, and this instant complaint for
unlawful detainer before the MTCC is that she could not live peacefully and
harmoniously with the Pernes family and vice versa.
Thus, the Court rules that the continuing animosity between the petitioner and
the Pernes family and the violence and humiliation she was made to endure,
despite her advanced age and frail condition, are enough factual bases to
consider the usufruct as having been terminated.
To reiterate, the relationship between the petitioner and respondents No pronouncement as to costs.
respecting the property in question is one of owner and usufructuary.
Accordingly, respondents’ claim for reimbursement of the improvements they SO ORDERED.
introduced on the property during the effectivity of the usufruct should be
governed by applicable statutory provisions and principles on usufruct. In this
regard, we cite with approval what Justice Edgardo Paras wrote on the matter:

If the builder is a usufructuary, his rights will be governed by Arts. 579 and 580.
In case like this, the terms of the contract and the pertinent provisions of law
should govern (3 Manresa 215-216; se also Montinola vs. Bantug, 71 Phil.
449). 14 (Emphasis ours.)

By express provision of law, respondents, as usufructuary, do not have the right

to reimbursement for the improvements they may have introduced on the
property. We quote Articles 579 and 580 of the Civil Code:

Art. 579. The usufructuary may make on the property held in usufruct such
useful improvements or expenses for mere pleasure as he may deem proper,
provided he does not alter its form or substance; but he shall have no right to be
indemnified therefor. He may, however, remove such improvements, should it
be possible to do so without damage to the property. (Emphasis supplied.)

Art. 580. The usufructuary may set off the improvements he may have made on
the property against any damage to the same.

Given the foregoing perspective, respondents will have to be ordered to vacate

the premises without any right of reimbursement. If the rule on reimbursement
or indemnity were otherwise, then the usufructuary might, as an author pointed
out, improve the owner out of his property. 15 The respondents may, however,
remove or destroy the improvements they may have introduced thereon
without damaging the petitioner’s property.

Out of the generosity of her heart, the petitioner has allowed the respondent
spouses to use and enjoy the fruits of her property for quite a long period of
time. They opted, however, to repay a noble gesture with unkindness. At the end
of the day, therefore, they really cannot begrudge their aunt for putting an end
to their right of usufruct. The disposition herein arrived is not only legal and
called for by the law and facts of the case. It is also right.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of

the CA are REVERSED and SET ASIDE. Accordingly, the decision of the MTCC is
REINSTATED with MODIFICATION that all of respondents’ counterclaims are
dismissed, including their claims for reimbursement of useful and necessary
expenses.
 [G.R. No. 148830. April 13, 2005]
NATIONAL HOUSING AUTHORITY, petitioner, vs. COURT OF APPEALS,
BULACAN GARDEN CORPORATION and MANILA SEEDLING BANK
FOUNDATION, INC., respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] seeking to set aside the Decision[2] dated 30
March 2001 of the Court of Appeals (appellate court) in CA-G.R. CV No. 48382,
as well as its Resolution dated 25 June 2001 denying the motion for
reconsideration. The appellate court reversed the Decision[3] of Branch 87 of the
Regional Trial Court of Quezon City (trial court) dated 8 March 1994 in Civil
Case No. Q-53464. The trial court dismissed the complaint for injunction filed by
Bulacan Garden Corporation (BGC) against the National Housing Authority
(NHA). BGC wanted to enjoin the NHA from demolishing BGCs facilities on a lot
leased from Manila Seedling Bank Foundation, Inc. (MSBF). MSBF allegedly has
usufructuary rights over the lot leased to BGC.
Antecedent Facts
On 24 October 1968, Proclamation No. 481 issued by then President
Ferdinand Marcos set aside a 120-hectare portion of land in Quezon City owned
by the NHA[4] as reserved property for the site of the National Government
Center (NGC). On 19 September 1977, President Marcos issued Proclamation
No. 1670, which removed a seven-hectare portion from the coverage of the NGC.
Proclamation No. 1670 gave MSBF usufructuary rights over this segregated
portion, as follows:
Pursuant to the powers vested in me by the Constitution and the laws of the
Philippines, I, FERDINAND E. MARCOS, President of the Republic of the
Philippines, do hereby exclude from the operation of Proclamation No. 481,
dated October 24, 1968, which established the National Government Center
Site, certain parcels of land embraced therein and reserving the same for the
Manila Seedling Bank Foundation, Inc., for use in its operation and
projects, subject to private rights if any there be, and to future survey, under
the administration of the Foundation.
This parcel of land, which shall embrace 7 hectares, shall be determined by
the future survey based on the technical descriptions found in Proclamation
No. 481, and most particularly on the original survey of the area, dated July
1910 to June 1911, and on the subdivision survey dated April 19-25, 1968.
(Emphasis added)
MSBF occupied the area granted by Proclamation No. 1670. Over the years,
MSBFs occupancy exceeded the seven-hectare area subject to its usufructuary
rights. By 1987, MSBF occupied approximately 16 hectares. By then the land
occupied by MSBF was bounded by Epifanio de los Santos Avenue (EDSA) to the
west, Agham Road to the east, Quezon Avenue to the south and a creek to the
north.
On 18 August 1987, MSBF leased a portion of the area it occupied to BGC
and other stallholders. BGC leased the portion facing EDSA, which occupies
4,590 square meters of the 16-hectare area.
On 11 November 1987, President Corazon Aquino issued Memorandum
Order No. 127 (MO 127) which revoked the reserved status of the 50 hectares,
more or less, remaining out of the 120 hectares of the NHA property reserved as
site of the National Government Center. MO 127 also authorized the NHA to
commercialize the area and to sell it to the public.
On 15 August 1988, acting on the power granted under MO 127, the NHA
gave BGC ten days to vacate its occupied area. Any structure left behind after
the expiration of the ten-day period will be demolished by NHA.
BGC then filed a complaint for injunction on 21 April 1988 before the trial
court. On 26 May 1988, BGC amended its complaint to include MSBF as its co-
plaintiff.
The Trial Courts Ruling
The trial court agreed with BGC and MSBF that Proclamation No. 1670
gave MSBF the right to conduct the survey, which would establish the seven-
hectare area covered by MSBFs usufructuary rights. However, the trial court
held that MSBF failed to act seasonably on this right to conduct the survey. The
trial court ruled that the previous surveys conducted by MSBF covered 16
hectares, and were thus inappropriate to determine the seven-hectare area. The
trial court concluded that to allow MSBF to determine the seven-hectare area
now would be grossly unfair to the grantor of the usufruct.
 On 8 March 1994, the trial court dismissed BGCs complaint for injunction.
Thus:
Premises considered, the complaint praying to enjoin the National Housing
Authority from carrying out the demolition of the plaintiffs structure,
improvements and facilities in the premises in question is hereby DISMISSED,
but the suggestion for the Court to rule that Memorandum Order 127 has
repealed Proclamation No. 1670 is DENIED. No costs.
SO ORDERED.[5]
The NHA demolished BGCs facilities soon thereafter.
The Appellate Courts Ruling
Not content with the trial courts ruling, BGC appealed the trial courts
Decision to the appellate court. Initially, the appellate court agreed with the trial
court that Proclamation No. 1670 granted MSBF the right to determine the
location of the seven-hectare area covered by its usufructuary rights. However,
the appellate court ruled that MSBF did in fact assert this right by conducting
two surveys and erecting its main structures in the area of its choice.
On 30 March 2001, the appellate court reversed the trial courts ruling.
Thus:
WHEREFORE, premises considered, the Decision dated March 8, 1994 of the
Regional Trial Court of Quezon City, Branch 87, is hereby REVERSED and SET
ASIDE. The National Housing Authority is enjoined from demolishing the
structures, facilities and improvements of the plaintiff-appellant Bulacan
Garden Corporation at its leased premises located in Quezon City which
premises were covered by Proclamation No. 1670, during the existence of the
contract of lease it (Bulacan Garden) had entered with the plaintiff-appellant
Manila Seedling Bank Foundation, Inc.
No costs.
SO ORDERED.[6]
The NHA filed a motion for reconsideration, which was denied by the
appellate court on 25 June 2001.
Hence, this petition.
The Issues
The following issues are considered by this Court for resolution:
WHETHER THE PETITION IS NOW MOOT BECAUSE OF THE
DEMOLITION OF THE STRUCTURES OF BGC; and
WHETHER THE PREMISES LEASED BY BGC FROM MSBF IS WITHIN
THE SEVEN-HECTARE AREA THAT PROCLAMATION NO. 1670
GRANTED TO MSBF BY WAY OF USUFRUCT.
The Ruling of the Court
We remand this petition to the trial court for a joint survey to determine
finally the metes and bounds of the seven-hectare area subject to MSBFs
usufructuary rights.
Whether the Petition is Moot because of the
Demolition of BGCs Facilities
BGC claims that the issue is now moot due to NHAs demolition of BGCs
facilities after the trial court dismissed BGCs complaint for injunction. BGC
argues that there is nothing more to enjoin and that there are no longer any
rights left for adjudication.
We disagree.
BGC may have lost interest in this case due to the demolition of its
premises, but its co-plaintiff, MSBF, has not. The issue for resolution has a
direct effect on MSBFs usufructuary rights. There is yet the central question of
the exact location of the seven-hectare area granted by Proclamation No. 1670
to MSBF. This issue is squarely raised in this petition. There is a need to settle
this issue to forestall future disputes and to put this 20-year litigation to rest.
On the Location of the Seven-Hectare Area Granted by
Proclamation No. 1670 to MSBF as Usufructuary
 Rule 45 of the 1997 Rules of Civil Procedure limits the jurisdiction of this
Court to the review of errors of law.[7] Absent any of the established grounds for
exception,[8] this Court will not disturb findings of fact of lower courts. Though
the matter raised in this petition is factual, it deserves resolution because the
findings of the trial court and the appellate court conflict on several points.
The entire area bounded by Agham Road to the east, EDSA to the west,
Quezon Avenue to the south and by a creek to the north measures
approximately 16 hectares. Proclamation No. 1670 gave MSBF a usufruct over
only a seven-hectare area. The BGCs leased portion is located along EDSA.
A usufruct may be constituted for a specified term and under such
conditions as the parties may deem convenient subject to the legal provisions
on usufruct.[9] A usufructuary may lease the object held in usufruct.[10] Thus, the
NHA may not evict BGC if the 4,590 square meter portion MSBF leased to BGC is
within the seven-hectare area held in usufruct by MSBF. The owner of the
property must respect the lease entered into by the usufructuary so long as the
usufruct exists.[11] However, the NHA has the right to evict BGC if BGC occupied
a portion outside of the seven-hectare area covered by MSBFs usufructuary
rights.
MSBFs survey shows that BGCs stall is within the seven-hectare area. On
the other hand, NHAs survey shows otherwise. The entire controversy revolves
on the question of whose land survey should prevail.
MSBFs survey plots the location of the seven-hectare portion by starting its
measurement from Quezon Avenue going northward along EDSA up until the
creek, which serves as the northern boundary of the land in question. Mr. Ben
Malto (Malto), surveyor for MSBF, based his survey method on the fact that
MSBFs main facilities are located within this area.
On the other hand, NHAs survey determines the seven-hectare portion by
starting its measurement from Quezon Avenue going towards Agham Road. Mr.
Rogelio Inobaya (Inobaya), surveyor for NHA, based his survey method on the
fact that he saw MSBFs gate fronting Agham Road.
BGC presented the testimony of Mr. Lucito M. Bertol (Bertol), General
Manager of MSBF. Bertol presented a map,[12] which detailed the area presently
occupied by MSBF. The map had a yellow-shaded portion, which was supposed
to indicate the seven-hectare area. It was clear from both the map and Bertols
testimony that MSBF knew that it had occupied an area in excess of the seven-
hectare area granted by Proclamation No. 1670.[13] Upon cross-examination,
Bertol admitted that he personally did not know the exact boundaries of the
seven-hectare area.[14] Bertol also admitted that MSBF prepared the map
without consulting NHA, the owner of the property.[15]
BGC also presented the testimony of Malto, a registered forester and the
Assistant Vice-President of Planning, Research and Marketing of MSBF. Malto
testified that he conducted the land survey, which was used to construct the
map presented by Bertol.[16] Bertol clarified that he authorized two surveys, one
in 1984 when he first joined MSBF, and the other in 1986.[17] In both instances,
Mr. Malto testified that he was asked to survey a total of 16 hectares, not just
seven hectares. Malto testified that he conducted the second survey in 1986 on
the instruction of MSBFs general manager. According to Malto, it was only in the
second survey that he was told to determine the seven-hectare portion. Malto
further clarified that he based the technical descriptions of both surveys on a
previously existing survey of the property.[18]
The NHA presented the testimony of Inobaya, a geodetic engineer
employed by the NHA. Inobaya testified that as part of the NHAs Survey
Division, his duties included conducting surveys of properties administered by
the NHA.[19] Inobaya conducted his survey in May 1988 to determine whether
BGC was occupying an area outside the seven-hectare area MSBF held in
usufruct.[20] Inobaya surveyed the area occupied by MSBF following the same
technical descriptions used by Malto. Inobaya also came to the same conclusion
that the area occupied by MSBF, as indicated by the boundaries in the technical
descriptions, covered a total of 16 hectares. He further testified that the seven-
hectare portion in the map presented by BGC,[21] which was constructed by
Malto, does not tally with the boundaries BGC and MSBF indicated in their
complaint.
Article 565 of the Civil Code states:
ART. 565. The rights and obligations of the usufructuary shall be those provided
in the title constituting the usufruct; in default of such title, or in case it is
deficient, the provisions contained in the two following Chapters shall be
observed.
In the present case, Proclamation No. 1670 is the title constituting the usufruct.
Proclamation No. 1670 categorically states that the seven-hectare area shall be
determined by future survey under the administration of the Foundation
subject to private rights if there be any. The appellate court and the trial court
agree that MSBF has the latitude to determine the location of its seven-hectare
usufruct portion within the 16-hectare area. The appellate court and the trial
court disagree, however, whether MSBF seasonably exercised this right.
It is clear that MSBF conducted at least two surveys. Although both surveys
covered a total of 16 hectares, the second survey specifically indicated a seven-
hectare area shaded in yellow. MSBF made the first survey in 1984 and the
second in 1986, way before the present controversy started. MSBF conducted
the two surveys before the lease to BGC. The trial court ruled that MSBF did not
act seasonably in exercising its right to conduct the survey. Confronted with
evidence that MSBF did in fact conduct two surveys, the trial court dismissed
the two surveys as self-serving. This is clearly an error on the part of the trial
court. Proclamation No. 1670 authorized MSBF to determine the location of the
seven-hectare area. This authority, coupled with the fact that Proclamation No.
1670 did not state the location of the seven-hectare area, leaves no room for
doubt that Proclamation No. 1670 left it to MSBF to choose the location of the
seven-hectare area under its usufruct.
More evidence supports MSBFs stand on the location of the seven-hectare
area. The main structures of MSBF are found in the area indicated by MSBFs
survey. These structures are the main office, the three green houses, the
warehouse and the composting area. On the other hand, the NHAs delineation of
the seven-hectare area would cover only the four hardening bays and the
display area. It is easy to distinguish between these two groups of structures.
The first group covers buildings and facilities that MSBF needs for its
operations. MSBF built these structures before the present controversy started.
The second group covers facilities less essential to MSBFs existence. This
distinction is decisive as to which survey should prevail. It is clear that the
MSBF intended to use the yellow-shaded area primarily because it erected its
main structures there.
Inobaya testified that his main consideration in using Agham Road as the
starting point for his survey was the presence of a gate there. The location of the
gate is not a sufficient basis to determine the starting point. MSBFs right as a
usufructuary as granted by Proclamation No. 1670 should rest on something
more substantial than where MSBF chose to place a gate.
To prefer the NHAs survey to MSBFs survey will strip MSBF of most of its
main facilities. Only the main building of MSBF will remain with MSBF since the
main building is near the corner of EDSA and Quezon Avenue. The rest of MSBFs
main facilities will be outside the seven-hectare area.
On the other hand, this Court cannot countenance MSBFs act of exceeding
the seven-hectare portion granted to it by Proclamation No. 1670. A usufruct is
not simply about rights and privileges. A usufructuary has the duty to protect
the owners interests. One such duty is found in Article 601 of the Civil Code
which states:
ART. 601. The usufructuary shall be obliged to notify the owner of any act of a
third person, of which he may have knowledge, that may be prejudicial to the
rights of ownership, and he shall be liable should he not do so, for damages, as if
they had been caused through his own fault.
A usufruct gives a right to enjoy the property of another with the obligation of
preserving its form and substance, unless the title constituting it or the law
otherwise provides.[22] This controversy would not have arisen had MSBF
respected the limit of the beneficial use given to it. MSBFs encroachment of its
benefactors property gave birth to the confusion that attended this case. To put
this matter entirely to rest, it is not enough to remind the NHA to respect MSBFs
choice of the location of its seven-hectare area. MSBF, for its part, must vacate
the area that is not part of its usufruct. MSBFs rights begin and end within the
seven-hectare portion of its usufruct. This Court agrees with the trial court that
MSBF has abused the privilege given it under Proclamation No. 1670. The direct
corollary of enforcing MSBFs rights within the seven-hectare area is the
negation of any of MSBFs acts beyond it.
The seven-hectare portion of MSBF is no longer easily determinable
considering the varied structures erected within and surrounding the area. Both
parties advance different reasons why their own surveys should be preferred.
At this point, the determination of the seven-hectare portion cannot be made to
rely on a choice between the NHAs and MSBFs survey. There is a need for a new
survey, one conducted jointly by the NHA and MSBF, to remove all doubts on
the exact location of the seven-hectare area and thus avoid future controversies.
This new survey should consider existing structures of MSBF. It should as much
as possible include all of the facilities of MSBF within the seven-hectare portion
without sacrificing contiguity.
A final point. Article 605 of the Civil Code states:
ART. 605. Usufruct cannot be constituted in favor of a town, corporation, or
association for more than fifty years. If it has been constituted, and before the
expiration of such period the town is abandoned, or the corporation or
association is dissolved, the usufruct shall be extinguished by reason thereof.
(Emphasis added)
The law clearly limits any usufruct constituted in favor of a corporation or
association to 50 years. A usufruct is meant only as a lifetime grant. Unlike a
natural person, a corporation or associations lifetime may be extended
indefinitely. The usufruct would then be perpetual. This is especially invidious
in cases where the usufruct given to a corporation or association covers public
land. Proclamation No. 1670 was issued 19 September 1977, or 28 years ago.
Hence, under Article 605, the usufruct in favor of MSBF has 22 years left.
MO 127 released approximately 50 hectares of the NHA property as
reserved site for the National Government Center. However, MO 127 does not
affect MSBFs seven-hectare area since under Proclamation No. 1670, MSBFs
seven-hectare area was already exclude[d] from the operation of Proclamation
No. 481, dated October 24, 1968, which established the National Government
Center Site.
WHEREFORE, the Decision of the Court of Appeals dated 30 March 2001
and its Resolution dated 25 June 2001 in CA-G.R. CV No. 48382 are SET ASIDE.
This case is REMANDED to Branch 87 of the Regional Trial Court of Quezon City,
which shall order a joint survey by the National Housing Authority and Manila
Seedling Bank Foundation, Inc. to determine the metes and bounds of the seven-
hectare portion of Manila Seedling Bank Foundation, Inc. under Proclamation
No. 1670. The seven-hectare portion shall be contiguous and shall include as
much as possible all existing major improvements of Manila Seedling Bank
Foundation, Inc. The parties shall submit the joint survey to the Regional Trial
Court for its approval within sixty days from the date ordering the joint survey.
SO ORDERED.
G.R. No. L-2659 October 12, 1950
In the matter of the testate estate of Emil Maurice Bachrach, deceased.
MARY McDONALD BACHRACH,petitioner-appellee,
vs.
SOPHIE SEIFERT and ELISA ELIANOFF, oppositors-appellants.
Ross, Selph, Carrascoso and Janda for appellants.
Delgado and Flores for appellee.
OZAETA, J.:
Is a stock dividend fruit or income, which belongs to the usufructuary, or is it
capital or part of the corpus of the estate, which pertains to the remainderman?
That is the question raised in the appeal.
The deceased E. M. Bachrach, who left no forced heir except his widow Mary
McDonald Bachrach, in his last will and testament made various legacies in cash
and willed the remainder of his estate as follows:
Sixth: It is my will and do herewith bequeath and devise to my beloved
wife Mary McDonald Bachrach for life all the fruits and usufruct of the
remainder of all my estate after payment of the legacies, bequests, and
gifts provided for above; and she may enjoy said usufruct and use or
spend such fruits as she may in any manner wish.
The will further provided that upon the death of Mary McDonald Bachrach, one-
half of the all his estate "shall be divided share and share alike by and between
my legal heirs, to the exclusion of my brothers."
The estate of E. M. Bachrach, as owner of 108,000 shares of stock of the Atok-
Big Wedge Mining Co., Inc., received from the latter 54,000 shares representing
50 per cent stock dividend on the said 108,000 shares. On June 10, 1948, Mary
McDonald Bachrach, as usufructuary or life tenant of the estate, petitioned the
lower court to authorize the Peoples Bank and Trust Company as administrator
of the estate of E. M. Bachrach, to her the said 54,000 share of stock dividend by
endorsing and delivering to her the corresponding certificate of stock, claiming
that said dividend, although paid out in the form of stock, is fruit or income and
therefore belonged to her as usufructuary or life tenant. Sophie Siefert and Elisa
Elianoff, legal heirs of the deceased, opposed said petition on the ground that
the stock dividend in question was not income but formed part of the capital
and therefore belonged not to the usufructuary but to the remainderman. And
they have appealed from the order granting the petition and overruling their
objection.
While appellants admits that a cash dividend is an income, they contend that a
stock dividend is not, but merely represents an addition to the invested capital.
The so-called Massachusetts rule, which prevails in certain jurisdictions in the
United States, supports appellants' contention . It regards cash dividends,
however large, as income, and stock dividends, however made, as capital.
(Minot vs. Paine, 99 Mass., 101; 96 Am. Dec., 705.) It holds that a stock dividend
is not in any true sense any true sense any dividend at all since it involves no
division or severance from the corporate assets of the dividend; that it does not
distribute property but simply dilutes the shares as they existed before; and
that it takes nothing from the property of the corporation, and nothing to the
interests of the shareholders.
On the other hand, so called Pennsylvania rule, which prevails in various other
jurisdictions in the United States, supports appellee's contention. This rule
declares that all earnings of the corporation made prior to the death of the
testator stockholder belong to the corpus of the estate, and that all earnings,
when declared as dividends in whatever form, made during the lifetime of the
usufructuary or life tenant. (Earp's Appeal, 28 Pa., 368.)
. . . It is clear that testator intent the remaindermen should have only
the corpus of the estate he left in trust, and that all dividends should go
the life tenants. It is true that profits realized are not dividends until
declared by the proper officials of the corporation, but distribution of
profits, however made, in dividends, and the form of the distribution is
immaterial. (In re Thompson's Estate, 262 Pa., 278; 105 Atl. 273, 274.)
In Hite vs. Hite (93 Ky., 257; 20 S. W., 778, 780), the Court of Appeals of
Kentucky, speaking thru its Chief Justice, said:
. . . Where a dividend, although declared in stock, is based upon the
earnings of the company, it is in reality, whether called by one name or
another, the income of the capital invested in it. It is but a mode of
distributing the profit. If it be not income, what is it? If it is, then it is
rightfully and equitably the property of the life tenant. If it be really
profit, then he should have it, whether paid in stock or money. A stock
dividend proper is the issue of new shares paid for by the transfer of a
sum equal to their par value from the profits and loss account to that
representing capital stock; and really a corporation has no right to a
dividend, either in cash or stock, except from its earnings; and a
singular state of case — it seems to us, an unreasonable one — is
presented if the company, although it rests with it whether it will
 declare a dividend, can bind the courts as to the proper ownership of it, dividend is equivalent to the payment of said profits. Said shares may be sold
and by the mode of payment substitute its will for that of that of the independently of the original shares, just as the offspring of a domestic animal
testator, and favor the life tenants or the remainder-men, as it may may be sold independently of its mother.
desire. It cannot, in reason, be considered that the testator
contemplated such a result. The law regards substance, and not form, The order appealed from, being in accordance with the above-quoted provisions
and such a rule might result not only in a violation of the testator's of the Civil Code, his hereby affirmed, with costs against the appellants.
intention, but it would give the power to the corporation to beggar the
life tenants, who, in this case, are the wife and children of the testator,
for the benefit of the remainder-men, who may perhaps be unknown to
the testator, being unborn when the will was executed. We are
unwilling to adopt a rule which to us seems so arbitrary, and devoid of
reason and justice. If the dividend be in fact a profit, although declared
in stock, it should be held to be income. It has been so held in
Pennsylvania and many other states, and we think it the correct rule.
Earp's Appeal, 28 Pa. St. 368; Cook, Stocks & S. sec. 554. . . .

We think the Pennsylvania rule is more in accord with our statutory laws than
the Massachusetts rule. Under section 16 of our Corporation Law, no
corporation may make or declare any dividend except from the surplus profits
arising from its business. Any dividend, therefore, whether cash or stock,
represents surplus profits. Article 471 of the Civil Code provides that the
usufructuary shall be entitled to receive all the natural, industrial, and civil
fruits of the property in usufruct. And articles 474 and 475 provide as follows:

ART. 474. Civil fruits are deemed to accrue day by day, and belong to
the usufructuary in proportion to the time the usufruct may last.

ART. 475. When a usufruct is created on the right to receive an income

or periodical revenue, either in money or fruits, or the interest on
bonds or securities payable to bearer, each matured payment shall be
considered as the proceeds or fruits such right.

When it consists of the enjoyment of the benefits arising from an

interest in an industrial or commercial enterprise, the profits of which
are not distributed at fixed periods, such profits shall have the same
consideration.lawphil.net

In either case they shall be distributed as civil fruits, and shall be

applied in accordance with the rules prescribed by the next preceding
article.

The 108,000 shares of stock are part of the property in usufruct. The 54,000
shares of stock dividend are civil fruits of the original investment. They
represent profits, and the delivery of the certificate of stock covering said