G.R. No. 197743 - Heirs of Mariano vs. City of Naga

Case Summary (G.R. No. 197743)

Factual Background

In 1954 the City Heights Subdivision, through its officers and the registered landowners Macario Mariano and Jose A. Gimenez, offered to construct and to donate an area of not less than two hectares for a City Hall and ultimately amended the offer to donate five hectares of land comprising part of TCT No. 671. The Municipal Board adopted Resolution No. 89 accepting the offer and authorized the mayor to execute a deed of donation. The City asserts that a Deed of Donation was executed on August 16, 1954 and that the City thereafter entered and constructed a government center and other agencies built offices on the premises. Petitioners contend the donation failed because the construction contract was later awarded to a third party, Francisco O. Sabaria, and that Macario subsequently demanded return or purchase of the land. Macario died in 1971 and, after prolonged succession litigation, petitioners as heirs discovered the property in 1997 and demanded its return in 2003.

Unlawful Detainer Complaint and Defences

Petitioners filed an unlawful detainer complaint in February 2004 seeking possession of Blocks 25 and 26 of the subdivision plan and monthly compensation of P2,500,000 from the date of demand. The City moved to dismiss for lack of jurisdiction, arguing that the case involved ownership. The City asserted ownership by donation based on a purported Deed of Donation dated August 16, 1954 and alternatively argued that ownership vested by designation as subdivision open space, or that petitioners’ claim was barred by laches or prescription. Petitioners denied laches and prescription, maintained that the Deed of Donation was not consummated or registered, and alleged that the City possessed by mere tolerance or in bad faith.

MTC and RTC Dispositions

The MTC admitted the Deed of Donation into evidence but dismissed the complaint for lack of jurisdiction on the ground that the defense of ownership removed the case from unlawful detainer. On appeal the RTC reversed the MTC on June 20, 2005. The RTC found no valid Deed of Donation, rejected the City’s tax declarations as determinative against the Torrens title, held petitioners free of laches, and concluded the City acted in bad faith as a builder. The RTC ordered the City and instrumentalities to vacate, awarded possession to petitioners, assessed monthly compensation at P2,500,000 from November 30, 2003 until vacation, awarded attorney’s fees, and imposed costs.

Court of Appeals Rulings

The Court of Appeals, in its March 7, 2011 decision, partially granted the City’s appeal and modified the RTC award. The CA reduced the monthly rental to Php 500,000 and limited possession relief to the City of Naga alone, deleting orders against other government instrumentalities not impleaded, and reduced attorney’s fees to Php 200,000. After motions for reconsideration, the CA issued an Amended Decision on July 20, 2011 that granted the City’s motion for reconsideration, annulled the RTC decision, and reinstated the MTC decision dismissing the ejectment case. The CA’s Amended Decision rested primarily on exclusion of a photocopy of Macario’s May 14, 1968 letter under the best evidence rule and on the CA’s acceptance of secondary evidence of the Deed of Donation in light of a certification that the Manila notarial records had been destroyed by fire.

Issues Presented to the Supreme Court

The principal legal questions reviewed by the Supreme Court were whether the purported Deed of Donation met the formal requisites for donation of an immovable and was effective to vest ownership in the City; whether secondary evidence and certain contemporaneous letters should be admitted; whether the registered owners or their heirs had the better right to possession in the unlawful detainer action; whether laches or prescription barred petitioners’ claim; whether designation as subdivision open space or the City’s long occupation vested ownership automatically; whether the City acted as a builder in good faith; the appropriate measure of reasonable compensation and attorney’s fees; and whether the judgment binds government offices occupying the premises as the City’s privies.

The Supreme Court’s Disposition

The Supreme Court granted the petition for review under Rule 45. It set aside the Court of Appeals’ Amended Decision dated July 20, 2011 and reinstated the RTC decision of June 20, 2005 with two modifications: petitioners shall be paid only one half of the adjudged monthly rental of P2,500,000, and attorney’s fees were reduced to P75,000. The Supreme Court affirmed that its judgment in the unlawful detainer action determined only the better right to possession and did not preclude a separate action to decide ownership.

Validity of the Purported Deed of Donation and Evidentiary Findings

The Supreme Court held that donation of an immovable requires a public instrument under Article 749, Civil Code, and that the purported Deed of Donation lacked the essential formalities. The notarial acknowledgment was defective because it did not show acknowledgment by the donors or the donee but only by subdivision officers, and because the mayor’s signature postdated the notarization. The Court explained that defective notarization strips an instrument of public character and renders it a private document. A void solemn contract of donation produces no juridical effect and cannot support a possessory defense in an unlawful detainer case. Accordingly, the City’s alleged deed could not confer ownership or a superior possessory right. The Court further held that consideration of secondary evidence would be futile where the instrument invoked is void.

Possession, Torrens Title and the City’s Failure to Assert Title

The Supreme Court observed that the subject land remained registered in the names of Macario and Gimenez and that the City never annotated the title or secured registration in its name. The Court reiterated the settled rule that a Torrens certificate is evidence of indefeasible title and confers the superior right to possession. Given the absence of a valid public document conveying ownership to the City, the registered owners and their heirs had the better right to possession in the unlawful detainer proceeding.

Subdivision Open Space, Donation and Expropriation

The Court rejected the City’s argument that designation as subdivision open space or reservation automatically vested ownership in the City. It construed the Subdivision Regulations and PD No. 1216 to require a non‑buildable open space and to permit donation to local government only by a positive act of conveyance. The Court distinguished this case from White Plains Association, Inc. v. Judge Legaspi, explaining subsequent jurisprudence that subdivision areas do not vest in government automatically and that donation, purchase or expropriation is necessary to transfer ownership. The Court found no exercise of eminent domain here and held that petitioners could not be limited to a claim for just compensation in lieu of possession.

Good Faith, Bad Faith, and Consequences for Improvements

Applying the civil law standards of good faith, the Court concluded that the City was not a builder in good faith. The proposed donation was conditional on the Subdivision’s award of the construction contract. The award to Sabaria in 1959 and the City’s subsequent conduct, including assurances to buy the land and prolonged inaction, showed knowledge of the flaw in the City’s claim. The Court invoked Arts. 449 and 450, Civil Code, and held that where improvements are made in bad faith the owner may appropriate the improvements without indemnity and the builder has no refund right. Thus petitioners were entitled to the improvements built on the property without paying indemnity.

Admissibility of Macario’s Letters and the Best Evidence Rule

The Supreme Court addressed the CA’s exclusion of a photocopy of Macario’s May 14, 1968 letter under Section 3, Rule 130 and the best evidence rule. The Court noted that both Macario’s September 17, 1959 letter and the photocopy of the 1968 letter were offered by petitioners and admitted by the MTC without objection from the City. The Court applied the principle that evidence not objected to is deemed admitted and becomes part of the record such that a party is bound by the consequences of its admission. The Court therefore considered those writings in assessing the City’s knowledge and conduct.

Laches, Prescription and the Registered Owner’s Remedy

The Supreme Court rejected the City’s laches defense. It explained that laches depends on circumstances and equitable considerations and should not defeat justice. Petitioners had taken steps to pursue recovery once they acquired knowledge and legal capacity to act, including predecessor litigation concerning succession and Danilo’s discovery following his appointment as administrator in 1997. The Court further reiterated that actions to recover possession of registered land are imprescriptible under Section 44, Act No. 496, and that heirs step into the registered owner’s shoes. Consequently, neither laches nor prescription barred petitioners’ u

Case Syllabus (G.R. No. 197743)

Parties and Procedural Posture

Petitioners are the heirs of Jose Mariano and Helen S. Mariano who filed an unlawful detainer action against City of Naga to recover possession of Blocks 25 and 26 (LRC) Psd-9674 forming part of TCT No. 671.
Respondent is the City of Naga, which has occupied the subject property and under which several national agencies erected offices.
The case proceeded from the Municipal Trial Court (MTC) dismissal to reversal by the Regional Trial Court (RTC), Branch 26, Naga City, which ordered eviction and awarded damages.
The Court of Appeals (CA) partly modified the RTC in its March 7, 2011 Decision and thereafter issued an Amended Decision dated July 20, 2011 reinstating the MTC dismissal.
Petitioners filed a petition for review under Rule 45, Rules of Court before the Supreme Court to challenge the CA Amended Decision.

Key Factual Allegations

In July 1954 the City Heights Subdivision, through its officers, offered to construct a City Hall on a parcel to be designated as open space and amended that offer on July 30, 1954 to donate five hectares from TCT No. 671.
The Subdivision's amended offer was signed "conforme" by Macario Mariano and Jose A. Gimenez and evidenced marital consents from their spouses.
The Municipal Board adopted Resolution No. 89 on August 11, 1954 accepting the Subdivision's offer and authorizing the Mayor to execute a deed of donation.
The City asserted that a Deed of Donation dated August 16, 1954 conveyed five hectares to the City and that the City thereafter entered and constructed government buildings.
Petitioners asserted that the donation was aborted when the construction contract for the City Hall was awarded to a third party, Francisco O. Sabaria, and that Macario repeatedly sought return or purchase of the land without success.
Title to the subject land remained registered under TCT No. 671 in the names of Macario and Gimenez, and no annotation of the alleged donation appeared on the title.

Issues Presented

Whether the Deed of Donation dated August 16, 1954 is valid and gives the City a superior right to possession in an unlawful detainer action.
Whether secondary evidence of the alleged Deed may be admitted under the best evidence rule and related provisions.
Whether petitioners’ claim was barred by laches or prescription.
Whether the City acquired ownership by virtue of subdivision open-space designation or by operation of any rule vesting roads/open spaces in the government.
Whether the City was a builder in good faith with rights to indemnity for improvements.
What remedies, if any, petitioners are entitled to under an unlawful detainer action.

Contentions of Parties

Petitioners contended that the donation never materialized because the construction contract condition was not fulfilled, that the City’s possession was by mere tolerance, and that title remained indefeasible in their predecessors’ names.
City of Naga contended that the Deed of Donation vested ownership in the City in 1954, that the property had been used by government offices for decades, that petitioners’ claim was barred by laches and prescription, and alternatively that it was a builder in good faith entitled to keep improvements or be compensated.

MTC Ruling

The MTC gave weight to the Deed of Donation but dismissed the unlawful detainer complaint for lack of jurisdiction because the City’s ownership defense removed the case from the summary unlawful detainer remedy.
The MTC thereby declined to adjudicate possession on the merits due to the pleaded title issue.

RTC Ruling

The RTC reversed the MTC and rendered judgment for petitioners ordering the City and agencies occupying the property to vacate and surrender possession and awarding petitioners PHP 2,500,000 per month as reasonable compensation from November 30, 2003 until vacation.
The RTC found the purported Deed of Donation not established, relying on the absence of annotation on TCT No. 671 and certifications from archives that no original Deed could be located.
The RTC held that petitioners were not guilty of laches, that the City was a builder in bad faith, and that improvements erected by the City were forfeited in favor of petitioners.

CA March 7, 2011 Decision

The CA partially granted the City’s appeal and modified the RTC by directing the City to pay half of the adjudged monthly rental, fixed at Php 250,000.00 from November 3, 2003 until vacation, and by reducing attorney's fees to Php 200,000.00.
The CA deleted portions of the RTC order requiring other government instrumentalities to vacate because they were not parties to the case.
The CA reasoned that the City failed to present the original Deed of Donation and that certain petitioners’ documentary evidence including a photocopy of the May 14, 1968 letter lacked probative value under the best evidence rule.

CA Amended Decision (July 20, 2011)

In its Amended Decision, the CA granted the City's motion for reconsideration, annulled the RTC decision, and reinstated the MTC dismissal of the ejectment case without prejudice to a separate action on ownership.
The CA excused the City’s failure to produce the original Deed under Section 3, Rule 130 by