Chua Hai vs. Hon. Ruperto Kapunan, Jr.

A possessor in good faith of movable property is entitled to be respected and protected in his possession as if he were the true owner thereof, until a competent court rules otherwise, and cannot be compelled to surrender possession pending the outcome of a criminal case against his transferor. The filing of an information for estafa does not warrant disturbing the possession of a bona fide purchaser, and the judge taking cognizance of the criminal case has no right to interfere with the possession of one who is not a party to the criminal proceedings.

The petitioner, Chua Hai, purchased 100 sheets of galvanized iron roofing from Roberto Sotto, who had earlier acquired the sheets from Youngstown Hardware, owned by respondent Ong Shu. The respondent sought the return of the sheets in the criminal case for estafa filed against Sotto, invoking Article 105 of the Revised Penal Code on restitution. The case involves the interplay between the criminal law on restitution and the civil law rules on ownership and possession of movable property, particularly the protection afforded to purchasers in good faith.

On January 31, 1956, Roberto Sotto purchased from Youngstown Hardware, owned by Ong Shu, 700 corrugated galvanized iron sheets and 249 pieces of round iron bar for P6,137.70. In payment, Sotto issued a check drawn against the Security Bank and Trust Company for P7,000.00, without informing Ong Shu that he had no sufficient funds in said bank to answer for the same. When the check was presented for payment, it was dishonored for insufficiency of funds.

Sotto thereafter sold 165 sheets in Pangasinan and 535 sheets in Calapan, Mindoro. Of those sold in Pangasinan, 100 sheets were sold to petitioner Chua Hai on February 1, 1956. When the case for estafa was filed in the Court of First Instance of Manila against Sotto, the offended party filed a petition asking that the 700 galvanized iron sheets, which were deposited with the Manila Police Department, be returned to him as owner of the Youngstown Hardware. Petitioner opposed the motion with respect to the 100 sheets he had bought from Sotto.

Notwithstanding the opposition, the court ordered the return of the galvanized iron sheets to Ong Shu, subject to the condition that the complainant post a bond in an amount equal to twice the value of 100 sheets in favor of Chua Hai, and without prejudice to Chua Hai filing the corresponding action on the matter of ownership. Petitioner moved for reconsideration, alleging that the return violated the contract of deposit under which he had delivered the 100 sheets to the Manila Police Department, and that the return amounted to a deprivation of his property without due process of law. Petitioner also claimed that Article 105 of the Revised Penal Code could be invoked only after the termination of the criminal case, not while it was still pending trial. The motion was denied, and petitioner brought the present petition to the Supreme Court.

• Deprivation of Property Without Due Process: Petitioner argued that the order of the respondent judge constituted a deprivation of his property without due process of law, violating the contract of deposit under which the sheets were delivered to the police department of the City of Manila.
• Premature Application of Article 105: Petitioner claimed that Article 105 of the Revised Penal Code, under whose authority the return was ordered, can be invoked only after the termination of the criminal case and not while said criminal case is still pending trial.
• Grave Abuse of Discretion: Petitioner alleged that the order determining the respective rights of petitioner and respondent Ong Shu without a previous trial of the criminal case constituted grave abuse of discretion and excess of jurisdiction.

• Right to Recover Possession: Respondent Ong Shu claimed that as owner of the property, he has the right to recover possession thereof even if said property appears to have fallen into the possession of a third party who acquired it by legal means, provided that said form of acquisition is not that provided for in Article 464 of the Civil Code.
• Recovery from Good Faith Possessor: Respondent argued that even if the property was acquired in good faith, the owner who has been unlawfully deprived thereof may recover it from the person in possession of the same unless a person in possession acquired it in good faith at a public sale, citing Article 559 of the Civil Code.
• Applicability of Article 105: Respondent claimed that under Article 105 of the Revised Penal Code, restitution is made by a return of the thing itself whenever possible, and that there is no provision of law requiring that the criminal case must first be finally disposed of before restitution of the goods swindled can be ordered returned to the owner.
• Due Process Complied With: Respondent alleged that the claim of deprivation of property without due process of law is without foundation because the petitioner was given ample time to be heard.
• Sufficiency of Bond: Respondent argued that petitioner's rights, if any, are sufficiently protected by the bond that the court has required to be filed.

• Protection of Possessor in Good Faith: Whether a possessor in good faith of movable property may be compelled to surrender possession to a claimant in a pending criminal case before the latter has proved that he was illegally deprived thereof.
• Applicability of Article 105 of the Revised Penal Code: Whether Article 105 of the Revised Penal Code may be invoked to order the return of property to the offended party while the criminal case is still pending trial.
• Effect of the Indemnity Bond: Whether the posting of a redelivery bond by the claimant justifies the disturbance of the possessor's property rights.

• Protection of Possessor in Good Faith: No. The acquirer and possessor in good faith of a chattel or movable property is entitled to be respected and protected in his possession as if he were the true owner thereof, until a competent court rules otherwise. The possessor in good faith cannot be compelled to surrender possession nor be required to institute an action for the recovery of the chattel, whether or not an indemnity bond is issued in his favor.
• Applicability of Article 105 of the Revised Penal Code: No. The civil liability of the offender to make restitution under Article 105 of the Revised Penal Code does not arise until his criminal liability is finally declared, since the former is a consequence of the latter. Article 105 cannot be invoked to justify the order of the court below, since that very article recognizes the title of an innocent purchaser.
• Effect of the Indemnity Bond: No. An indemnity bond, while answering for damages, is not by itself alone sufficient reason for disturbing property rights, whether temporarily or permanently. If the invasion is not warranted, the filing of a bond will not make it justifiable.

• Protection of Possessor in Good Faith: The Court found the case meritorious since petitioner's good faith was not questioned. To deprive the possessor in good faith, even temporarily and provisionally, of the chattels possessed, violates the rule of Article 559 of the Civil Code, which declares that possession of chattels in good faith is equivalent to title. Until a decree is rendered by the proper court (which cannot be rendered in a criminal proceeding in which the possessor is not a party), the possessor, as presumptive owner, is entitled to hold and enjoy the thing. The decision of the court below reversed the legal rules by regarding the possessor of the chattel not as an owner but as a usurper, compelling him to surrender possession even before illegal deprivation is proved. It cannot be assumed at that stage of the proceedings that respondent Ong Shu is still the owner of the property, as that would take for granted that the estafa was in fact committed when the trial on the merits had not even started and the presumption of innocence holds full sway.

• Applicability of Article 105 of the Revised Penal Code: The Court held that the civil liability of the offender to make restitution under Article 105 of the Revised Penal Code does not arise until his criminal liability is finally declared, since the former is a consequence of the latter. Article 105 itself recognizes the title of an innocent purchaser when it provides that the thing itself shall be restored even though it be found in the possession of a third person who has acquired it by lawful means, saving to the latter his action against the proper person who may be liable to him, but that this provision is not applicable in cases in which the thing has been acquired by the third person in the manner and under the requirements which, by law, bar an action for its recovery. The last paragraph of Article 105 plainly refers to those cases where recovery is denied by the civil law, notwithstanding the fact that the former owner was deprived of his chattels through crime, such as the case provided for in Article 85 of the Code of Commerce, which rule has been confirmed by Article 1505 of the new Civil Code regarding purchases made in a merchant's store, or in fairs, or markets in accordance with the Code of Commerce and special laws.

• Effect of the Indemnity Bond: The Court ruled that an indemnity bond, while answering for damages, is not by itself alone sufficient reason for disturbing property rights, whether temporarily or permanently. If the invasion is not warranted, the filing of a bond will not make it justifiable. Questions of ownership and possession being eminently civil in character, they should not be settled by exclusive reference to the Revised Penal Code. If Ong Shu has reason to fear that petitioner Chua Hai may dispose of the chattels in dispute and thereby render nugatory his eventual right to restitution, then the proper remedy lies in a civil suit and attachment, not in an order presuming to adjudicate in a criminal case the civil rights of one who is not involved therein.

• Possession in good faith equivalent to title — Under Article 559 of the Civil Code, possession of chattels in good faith is equivalent to title; for all intents and purposes, the possessor is the owner until ordered by the proper court to restore the thing to the one who was illegally deprived thereof. The Court applied this doctrine to hold that the petitioner, as a possessor in good faith, could not be compelled to surrender the galvanized iron sheets to the respondent before the latter proved illegal deprivation in a proper proceeding.

• Restitution under Article 105 of the Revised Penal Code — The civil liability of the offender to make restitution does not arise until his criminal liability is finally declared, since the former is a consequence of the latter. The Court held that Article 105 cannot be invoked to justify an order returning property to the offended party while the criminal case is still pending, and that the article itself recognizes the title of an innocent purchaser by providing that restitution is not applicable where the thing has been acquired by a third person in the manner and under the requirements which, by law, bar an action for its recovery.

• Voidable title and protection of good faith purchasers — Under Article 1506 of the Civil Code, where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title. The Court applied this doctrine to hold that even assuming the consent of Ong Shu to the sale in favor of Sotto was obtained through fraud, the contract was only voidable, not void ab initio, and until set aside by a competent court, the validity of the petitioner's claim to the property could not be disputed.

• "To deprive the possessor in good faith, even temporarily and provisionally, of the chattels possessed, violates the rule of Art. 559 of the Civil Code. The latter declares that possession of chattels in good faith is equivalent to title; i.e., that for all intents and purposes, the possessor is the owner, until ordered by the proper court to restore the thing to the one who was illegally deprived thereof." — This passage articulates the core ratio decidendi of the case, establishing the protection afforded to possessors in good faith under the Civil Code.

• "The civil liability of the offender to make restitution, under Art. 105 of the Revised Penal Code, does not arise until his criminal liability is finally declared, since the former is a consequence of the latter." — This passage defines the temporal scope of Article 105 of the Revised Penal Code, holding that restitution cannot be ordered before the accused's criminal liability is finally determined.

• "It is no excuse that the respondent Ong Shu was required to post a redelivery bond. An indemnity bond, while answering for damages, is not, by itself alone, sufficient reason for disturbing property rights, whether temporarily or permanently. If the invasion is not warranted, the filing of a bond will not make it justifiable." — This passage rejects the argument that a bond cures the defect of an otherwise unwarranted interference with property rights.

• "Questions of ownership and possession being eminently civil in character, they should not be settled by exclusive reference to the Revised Penal Code." — This passage establishes the principle that ownership and possession disputes should be resolved in civil proceedings, not through the criminal case.

• People vs. Ma Su (Chino), 90 Phil., 706 — Cited in the concurring opinion of Justice Felix to support the proposition that the first sale of the property having been legally consummated, the sheets could not be recovered from Chua Hai even in case of Sotto's conviction of estafa, because under Article 105 of the Revised Penal Code, restitution of the thing is not possible where the thing has been acquired by a third person in the manner and under the requirements which bar an action for its recovery.

• Article 105, Revised Penal Code — The Court held that this provision on restitution cannot be invoked to justify an order returning property to the offended party while the criminal case is still pending, since the civil liability of the offender does not arise until his criminal liability is finally declared. The article itself recognizes the title of an innocent purchaser by providing that restitution is not applicable where the thing has been acquired by a third person in the manner and under the requirements which, by law, bar an action for its recovery.

• Article 559, Civil Code — The Court applied this provision to hold that possession of chattels in good faith is equivalent to title, and that the possessor is the owner until ordered by the proper court to restore the thing to the one who was illegally deprived thereof.

• Article 539, Civil Code — The Court cited this provision to support the rule that every possessor has a right to be respected in his possession, and should he be disturbed therein, he shall be protected in or restored to said possession by the means established by the laws and the Rules of Court.

• Article 1496, Civil Code — The Court applied this provision to hold that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him, and that the failure of the buyer to make good the price does not cause the ownership to revest in the seller until the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191.

• Article 1390, Civil Code — The Court cited this provision to hold that a contract where consent is vitiated by fraud is only voidable or annullable, not void ab initio, and remains binding unless annulled by a proper action in court.

• Article 1505, Civil Code — The Court cited this provision to confirm the rule of Article 85 of the Code of Commerce regarding purchases made in a merchant's store, or in fairs, or markets, which bars an action for recovery of goods acquired in such manner.

• Article 1506, Civil Code — The Court applied this provision to hold that where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title.

• Article 85, Code of Commerce — The Court cited this provision to illustrate a case where recovery is denied by the civil law notwithstanding the fact that the former owner was deprived of his chattels through crime, specifically the purchase of merchandise in open warehouses or stores.

Paras, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Concepcion, and Endencia, JJ., concurred.

Justice Felix concurred, basing his vote on the principle that Article 105 of the Revised Penal Code cannot be invoked and made applicable to the case at bar, since the first sale of the property was legally consummated and the 100 sheets could not be recovered from Chua Hai even in case of Sotto's conviction of estafa, because the thing had been acquired by a third person in the manner and under the requirements which bar an action for its recovery.

• Justice Labrador — Dissented on the ground that as a case of certiorari, the only pertinent issue is whether the order was issued in excess of jurisdiction or with grave abuse of discretion. Justice Labrador found no merit in the contention that petitioner was deprived of possession without due process, as sufficient opportunity was given him to explain his right to possession. He argued that Article 599 (now 559) of the Civil Code applies, but that the applicable provision is paragraph 2, which allows the owner who has been unlawfully deprived of movable property to recover it from the person in possession, unless the possessor acquired it in good faith at a public sale. Since the petitioner did not prove acquisition at a public sale, the owner Ong Shu had a better right to recover possession, and the price was fully guaranteed by the bond approved by the court.