Primary Holding

The Supreme Court reversed the Court of Appeals' Amended Decision and reinstated the Regional Trial Court's decision, as modified. It ordered the City of Naga to vacate the subject property, peacefully surrender possession to the petitioners, pay a monthly rental of PHP 2,500,000 (later modified to PHP 75,000 for attorney's fees), and recognized that the donation was void and the petitioners had a better right to possession based on their Torrens title.

Background

In 1954, City Heights Subdivision offered to donate 5 hectares of land to the City of Naga for the City Hall, conditional on the subdivision being awarded the construction contract. The Municipal Board accepted the donation, and the City took possession and built the City Hall and other government offices. However, the construction contract was awarded to a different contractor. The landowners and their heirs later demanded the return of the property, arguing the condition for donation was not met, and the donation was not properly executed.

Facts

• 1. City Heights Subdivision offered to construct the Naga City Hall and donate land not less than two hectares within the subdivision to the City of Naga, provided they get the construction contract.
• 2. The City Municipal Board requested a larger area, and the Subdivision amended its offer to donate five hectares.
• 3. A Deed of Donation was purportedly executed on August 16, 1954.
• 4. The City took possession and constructed the City Hall and other government offices on the property.
• 5. The construction contract was not awarded to the Subdivision but to Sabaria.
• 6. Landowners through letters and meetings demanded the return of the property due to non-fulfillment of the condition and lack of payment.
• 7. The Deed of Donation was found to be defective in form and not properly acknowledged by the donors.
• 8. The subject property remained registered under the names of the original landowners, Macario Mariano and Jose Gimenez.
• 9. Heirs of the landowners filed an ejectment suit against the City of Naga.

Arguments of the Petitioners

• 1. There was no valid donation as the condition of awarding the construction contract to the Subdivision was not met.
• 2. The Deed of Donation was not validly executed as it lacked proper formalities and acknowledgement.
• 3. The City's possession was by mere tolerance, which ceased when they demanded the property's return.
• 4. The City is a builder in bad faith as it knew the donation was conditional and the condition was not fulfilled.
• 5. Laches and prescription do not apply because the land is registered under Torrens system and they acted to recover the property after discovering their rights.

Arguments of the Respondents

• 1. A valid donation occurred as evidenced by the Deed of Donation.
• 2. Even without a donation, ownership vested in the City when the land was designated as open space in the subdivision.
• 3. Recovery is no longer feasible due to the long period of occupation and public use; just compensation is sufficient.
• 4. The complaint should be dismissed due to laches and prescription.
• 5. The City is a builder in good faith.

Issues

• 1. Was there a valid donation of the subject property to the City of Naga?
• 2. Is the City of Naga entitled to possess the subject property?
• 3. Are the petitioners guilty of laches or is their claim barred by prescription?
• 4. Is the City a builder in good faith?
• 5. What is the appropriate monthly rental for the subject property?

Ruling

• 1. No, there was no valid donation because the Deed of Donation was not a public document as required by Article 749 of the Civil Code due to defects in its acknowledgment. The condition for the donation was not fulfilled.
• 2. No, the City is not entitled to possess the property. Their possession was by mere tolerance, which ceased upon demand. The City's claim of ownership based on void donation and subdivision regulations is untenable. Petitioners, as registered owners' heirs, have a better right to possession.
• 3. No, laches and prescription do not apply. Actions to recover registered land do not prescribe. Petitioners acted within a reasonable time after discovering their rights and were not guilty of unreasonable delay.
• 4. No, the City is a builder in bad faith as it continued construction and occupation knowing the condition for donation was unmet.
• 5. The Supreme Court modified the CA's rental reduction and reinstated the RTC's award, but ultimately reduced attorney's fees to PHP 75,000. The monthly rental of PHP 2,500,000 initially set by RTC was modified to half due to co-ownership but later the SC focused on the validity of donation and right to possess rather than the rental amount. However, the dispositive portion reduced attorney's fees.

Doctrines

• 1. Best Evidence Rule: Governs admissibility of evidence, particularly secondary evidence when original is unavailable. Applied to the Deed of Donation copy.
• 2. Public Document Requirement for Donation of Immovable Property (Article 749, Civil Code): Donation of immovable property must be in a public document to be valid. Non-compliance renders donation void.
• 3. Unlawful Detainer: Action to recover possession of property when possession is unlawfully withheld after lawful entry.
• 4. Torrens System: Land registration system where a certificate of title is conclusive evidence of ownership. Registered owners have a superior right to possess.
• 5. Laches: Failure or neglect for an unreasonable time to do something which should have been done, implying abandonment of right.
• 6. Prescription: Acquisition of rights or loss of rights by the lapse of time. Does not apply to registered land under Torrens system in actions for recovery by registered owner.
• 7. Builder in Bad Faith (Articles 449 and 450, Civil Code): One who builds on another's land knowing they have no right. Loses improvements without indemnity.
• 8. Ejusdem Generis: General words following specific words in a statute are construed to embrace only things of the same kind as those specifically enumerated. Used to interpret "open space" in subdivision regulations.
• 9. Power of Eminent Domain: Inherent right of the state to take private property for public use upon just compensation. Distinguished from the case as no expropriation occurred.
• 10. Privity: Succession or chain of relationship to the same thing or right. Government agencies occupying property under the City are privies and bound by the judgment.

Key Excerpts

• 1. "Void contracts may not be invoked as a valid action or defense in any court proceeding, including an ejectment suit."
• 2. "A deed of donation acknowledged before a notary public is a public document. The notary public shall certify that he knows the person acknowledging the instrument and that such person is the same person who executed the instrument, acknowledging that the instrument is his free act and deed."
• 3. "The right of eminent domain is 'the ultimate right of the sovereign power to appropriate, not only the public but the private property of all citizens within the territorial sovereignty, to public purpose.'"
• 4. "Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier…"
• 5. "Petitioners, as heirs of a registered owner of the subject property, have the preferred or better right of possession."

Precedents Cited

• 1. Department of Education, Culture and Sports (DECS) v. Del Rosario: Cited for the definition of a public document and requirements for a valid acknowledgment in a deed of donation.
• 2. Spouses Alcantara v. Nido, Roberts v. Papio, Ballesteros v. Abion: Cited to illustrate that void contracts cannot be a source of rights or a valid defense in unlawful detainer cases.
• 3. Spouses Pascual v. Spouses Coronel, Umpoc v. Mercado, Arambulo v. Gungab, Co v. Militar: Cited to support the doctrine that a Torrens title provides a superior right to possession in ejectment cases compared to unregistered deeds or claims.
• 4. White Plains Association, Inc. v. Judge Legaspi, White Plains Association v. Court of Appeals, Young v. City of Manila, Woodridge School, Inc. v. ARB Construction Co., Inc., Abellana, Sr. v. Court of Appeals: Cited to discuss the concept of open spaces in subdivisions and that automatic vesting of ownership to government without donation is not automatic and requires a positive act.
• 5. Alfonso v. Pasay City, Republic v. Court of Appeals, National Power Corporation v. Court of Appeals, Amigable v. Cuenca, etc., et. al., Ministerio v. CFI of Cebu, etc., et. al.: Cited and distinguished regarding the government's power of eminent domain and that this case is not about expropriation, hence just compensation is not the sole remedy.
• 6. Adelaida Meneses (deceased) v. Venturozo, Heirs of Victorino Sarili v. Lagrosa: Cited regarding the effect of defective notarization on a document.
• 7. Fuentes, et al. v. Rosa, et al., Fullido v. Grilli, Tan, Jr. v. Hosana: Cited regarding the nature of void contracts.
• 8. Heirs ofRosendo Sevilla Florencio v. Heirs of Teresa Sevilla de Leon: Cited regarding circumstances that can engender doubt about the validity of donation and right to possession based on it.
• 9. Heirs of Anacleto B. Nieto v. Municipality of Meycauayan, Bulacan: Cited on the imprescriptibility of actions to recover registered land and succession of rights to heirs.
• 10. Pelizloy Realty Corporation v. The Province of Benguet: Cited regarding interpretation of "open space".
• 11. Gov. Looyuko, et al., Sps. Dela Cruz v. Sps.Capco, Tolentino, et al. v. Laurel, et al., Manila Electric Company v. Heirs of Sps. Deloy, Aquino v. Aguilar, Interpacific Transit, Inc. v. Aviles, Bank of the Philippine Islands v. Mendoza, Heirs of Marcelino Doronio v. Heirs of Fortunato Doronio, Spouses Esmaquel and Sordevilla v. Coprada, Mateo v. Diaz, Province of Camarines Sur v. Bodega Glassware, Josefa v. San Buenaventura, Fernando v. Spouses Lim, Pro-guard Security Services Corp. v. Tormil Realty and Development Corp., Salandanan v. Spouses Mendez, Heirs of Maximo Regoso v. The Hon. Court of Appeals: Cited on various procedural and substantive points related to unlawful detainer, evidence, laches, prescription, builder in bad faith, and damages.

Statutory and Constitutional Provisions

• 1. Rule 45, Rules of Court: Petition for Review on Certiorari.
• 2. Rule 70, Rules of Court, Section 17 & 18: Judgment in ejectment cases and binding effect of judgment.
• 3. Rule 130, Rules of Court, Section 3 & 5: Best Evidence Rule, secondary evidence, admissibility.
• 4. Rule 132, Rules of Court, Section 19: Proof of Lack of Record.
• 5. Article 449, Civil Code: Builder, planter or sower in bad faith loses what is built, planted or sown without indemnity.
• 6. Article 450, Civil Code: Rights of landowner against builder, planter or sower in bad faith.
• 7. Article 485, Civil Code of the Philippines: Co-ownership presumption of equal shares.
• 8. Article 749, Civil Code: Formalities for donation of immovable property – public document requirement and acceptance.
• 9. Article 777, Civil Code of the Philippines: Succession rights are transmitted from the moment of death.
• 10. Article 2208, Civil Code of the Philippines: Attorney's fees recoverable in certain cases, including when compelled to litigate.
• 11. Presidential Decree (PD) No. 957: Regulating the Sale of Subdivision Lots and Condominiums.
• 12. PD No. 1216: Defining "Open Space" in Residential Subdivisions and Amending Section 31 of PD No. 957.
• 13. Section 14, 17, 19 & 31, 1948 Subdivision Regulations: Areas for community use, improvements, approval, and donation of roads and open spaces to local government.
• 14. Sections 245, 246, 247 of the Notarial Law: N/A (Petitioners' argument mentioned but not central to ruling).
• 15. Article 749 of the Civil Code: Formalities of Donation.
• 16. Section 44 of Act No. 496: No title to registered land in derogation of that of a registered owner shall be acquired by prescription or adverse possession.