Mantruste Systems, Inc. vs. Court of Appeals

A lessee is not a possessor or builder in good faith and has no right of retention over the leased premises pending reimbursement of its advances, so it has no legally demandable right to protect by injunction; and Section 31 of Proclamation No. 50-A, which prohibits courts from issuing restraining orders or injunctions against the Asset Privatization Trust in the acquisition, sale, or disposition of transferred assets, does not infringe the judicial power defined in Section 1, Article VIII of the 1987 Constitution.

The Bayview Plaza Hotel was owned by the Development Bank of the Philippines, a government bank, and was operated by Mantruste Systems, Inc. under an interim lease agreement. On December 8, 1986, the President issued Proclamation No. 50, launching a program for the expeditious disposition or privatization of certain government corporations and/or their acquired assets and creating the Committee on Privatization and the Asset Privatization Trust; Bayview was among the government assets identified for privatization. Proclamation No. 50-A, dated December 15, 1986, followed, and its Section 31 provided that no court or administrative agency shall issue any restraining order or injunction against the Trust in connection with the acquisition, sale or disposition of assets transferred to it, nor against any purchaser of assets sold by the Trust to prevent such purchaser from taking possession of any asset purchased by him.

Mantruste Systems, Inc. entered into an "interim lease agreement" dated August 26, 1986 with the Development Bank of the Philippines, owner of the Bayview Plaza Hotel, under which MSI would operate the hotel for "a minimum of three months or until such time that the said properties are sold to MSI or other third parties by DBP." Paragraph 2 of the Contract of Lease embodied that same term, fixing the lease at a minimum of three months or until the properties were sold to MSI or other third parties by DBP.

On December 8, 1986, the President issued Proclamation No. 50, and the Bayview Hotel properties, having been identified among the government assets for privatization, were transferred from DBP to the Asset Privatization Trust for disposition. To effect the disposition, DBP notified MSI that it was terminating the interim lease agreement. In a certificate dated September 18, 1987 signed by Ernesto S. Salgado, MSI's President and Chairman of the Board, MSI agreed to the termination on the following terms: that thirty days from the signing of the certification the lease between MSI and DBP would be considered terminated; that the Bayview Prince Hotel would be made available for inspection at all times by other bidders; and that the hotel would be ready for delivery to any new owners thirty days from the signing of the certification. On October 7, 1987, the APT sent MSI, through Salgado, a letter granting an extension of thirty days from October 18 within which to effect delivery of the Bayview Prince Hotel to the APT, given to allow MSI to wind up its affairs and to facilitate a smooth turn-over of the facilities to its new owners without necessarily interrupting the hotel's regular operation; Salgado signed the letter on the lower left hand under the word "CONFORME."

Fifteen days later, on October 22, 1987, MSI, through Executive Vice-President Rolando C. Cipriano, informed the APT that since its lease on the hotel properties had been for more than one year, its lease status had taken the character of a long-term one, and that as lessee it had acquired certain rights and privileges under law and equity, including a priority right to the purchase of the Bayview Hotel properties over and above other interested parties. The APT responded firmly, informing MSI that it had not found any stipulation tending to support the claim that MSI, as lessee, had acquired a priority right to purchase the hotel, and pointing out that the pre-bidding conference for the sale of the hotel had already been conducted, so that to favorably consider MSI's request would not be in consonance with law, equity and fair play. On October 28, Salgado, speaking for MSI, wrote the APT informing it of an alleged "legal lien" over the hotel in the amount of ₱10,000,000 (should be ₱12,000,000) and demanding that the Trust consider MSI a "very preferred" bidder.

On November 4, 1987, MSI prepared to submit its bid to the APT for ₱95,000,000 in cash or ₱120,000,000 in installment terms, and on the same occasion asked the Trust for clarification on (a) whether the APT had a clean title over the property, (b) whether the Trust knew the hotel had back taxes, (c) who should pay the tax arrears, and (d) whether MSI's advances made in behalf of DBP would be treated as part of the bid offer. From there the versions of MSI and the Trust diverged: according to MSI, it was immediately disqualified from the public bidding because of the questions it posed; the Trust alleged that MSI voluntarily desisted from participating in the bidding. The property was eventually awarded to Makati Agro-Trading, Inc. and La Filipina Uy Gongco Corporation, which submitted a bid for ₱83,000,000 (should be ₱85,000,000).

On November 13, 1987, MSI filed a complaint with the RTC of Manila, docketed as Civil Case No. 18319, praying for a restraining order enjoining the APT from approving the winning bid and awarding the Bayview property to the private respondents and from ejecting MSI or terminating the contract of lease, and for the award of the Bayview property to MSI as the highest bidder. The trial court granted the temporary restraining order on November 13, 1987 and, on December 19, 1987, issued the writ of preliminary injunction. The CA later nullified the writ for being violative of Section 31 of Proclamation No. 50-A, and the SC found that the winning bidders had paid ₱85 million for the hotel only to be deprived of its possession by the issuance of the injunction.

• Grave Abuse of Discretion / Propriety of Injunction: Petitioner argued that the CA gravely abused its discretion in substituting its own discretion for that of the trial court on the propriety of issuing the writ of preliminary injunction, which was needed to preserve the status quo and to protect MSI's contractual right to retain possession of the Bayview Hotel until all its advances were paid.
• Non-Existent Property Rights: Petitioner argued that the CA erred in holding that MSI's property rights were non-existent except its right to the refund of its alleged advances.
• Constitutionality of Section 31 of Proclamation No. 50-A: Petitioner argued that the CA erred in not declaring unconstitutional Section 31 of Proclamation No. 50-A, which prohibits the issuance of an injunction against the APT.
• Fault for Failure to Bid: Petitioner argued that the CA erred in finding that MSI was to blame for its failure to participate in the bidding for the Bayview Hotel.

• No Priority Right to Purchase: Respondent APT maintained that it had not found any stipulation tending to support MSI's claim that, as lessee, it had acquired a priority right to purchase the Bayview Hotel, and that the pre-bidding conference for the sale of the hotel had already been conducted, so that to favorably consider MSI's request would not be in consonance with law, equity and fair play.
• Voluntary Desistance from Bidding: Respondent APT alleged that MSI voluntarily desisted from participating in the bidding, contrary to MSI's claim that it was immediately disqualified because of the questions it posed to the Trust.

• Right of Retention / Propriety of Injunction: Whether the CA gravely abused its discretion in setting aside the writ of preliminary injunction, and whether MSI had a clear legal right to retain possession of the Bayview Hotel until its advances were reimbursed.
• Constitutionality of Section 31 of Proclamation No. 50-A: Whether Section 31 of Proclamation No. 50-A, prohibiting courts from issuing restraining orders and writs of injunction against the APT and purchasers of assets sold by it, is unconstitutional for infringing judicial power and depriving MSI of property without due process of law.
• Right of First Refusal / Failure to Bid: Whether the lease contract gave MSI a preferred standing or right of first refusal over the Bayview Hotel, and whether it lost any such preference by failing to participate in the bidding.

• Right of Retention / Propriety of Injunction: No. MSI had no patent contractual right to retain possession of the hotel pending reimbursement of its advances; a lessee is not a possessor in good faith, so Article 546 of the Civil Code affords it no right of retention, and under Section 3, Rule 58 of the Rules of Court, without a right there is no right to the relief of injunction.
• Constitutionality of Section 31 of Proclamation No. 50-A: No. The provision does not infringe judicial power; the power to define, prescribe and apportion the jurisdiction of the courts belongs to the legislature, and Proclamation No. 50-A, not being inconsistent with the Constitution and not having been repealed or revoked by Congress, remained operative under Section 3, Article XVIII of the 1987 Constitution.
• Right of First Refusal / Failure to Bid: No. Paragraph 2 of the Contract of Lease gave MSI only the right, equally with others, to bid for the property, not a preferred standing or a right of first refusal; in any event, assuming such preferred status, MSI lost it by failing to participate in the bidding.

• Right of Retention / Propriety of Injunction: The basic purpose of a preliminary injunction is to preserve the status quo of the property subject of the action so as to protect the rights of the plaintiff respecting the same during the pendency of the suit, and generally the exercise of sound judicial discretion by the lower court will not be interfered with. The CA, however, correctly found that under the lease agreement between DBP and MSI, the latter's claim to a "patent contractual right to retain possession of the Bayview Hotel until all its advances are paid" is non-existent; as the right of retention does not exist, neither does the right to the relief of injunction demanded under Section 3, Rule 58 of the Rules of Court. A mere lessee like MSI is not a builder in good faith, hence the right of retention given to a possessor in good faith under Article 546 of the Civil Code, pending reimbursement of advances for necessary repairs and useful improvements on another's property, is not available to a lessee whose possession is not that of an owner. A lessee is not entitled to retain possession of the premises leased until reimbursed for alleged improvements, for a lessee cannot pretend to act in good faith in making improvements; to be entitled to one-half the value of the improvements or to remove them should the lessor refuse to reimburse that half value, the lessee must show that the improvements were introduced in good faith, are useful, and are suitable to the use for which the lease is intended without altering the form and substance of the premises. Knowing that its right to occupy the premises was temporary, MSI is deemed to have built at its own risk, and lessees are not possessors in good faith because they know that their occupancy continues only during the life of the lease. MSI's right to reimbursement for its advances, the exact amount of which remains to be determined, may not be denied, but its claim to a right of retention pending such reimbursement is illusory and non-existent; it is not without adequate remedy, since it may sue either DBP or its successor-in-interest, the APT, for payment of the claim. Against this, the greater prejudice and injustice to the winning bidders, who paid ₱85 million to purchase the hotel and were deprived of its possession by the illegal issuance of the writ, may not be glossed over.
• Constitutionality of Section 31 of Proclamation No. 50-A: Section 31 does not infringe any provision of the Constitution and does not impair the inherent power of courts to settle actual controversies involving rights which are legally demandable and enforceable and to determine whether there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government. The power to define, prescribe and apportion the jurisdiction of the various courts belongs to the legislature, except that it may not deprive the Supreme Court of its jurisdiction over the cases enumerated in Section 5, Article VIII of the Constitution. The President, in the exercise of her legislative power under the Freedom Constitution, issued Proclamation No. 50-A prohibiting courts from issuing restraining orders and writs of injunction against the APT and the purchasers of assets sold by it, precisely to prevent courts from interfering in the discharge, by this instrumentality of the executive branch, of its task of carrying out the expeditious disposition and privatization of certain government corporations and/or their assets, absent any grave abuse of discretion amounting to excess or lack of jurisdiction on its part. Not being inconsistent with the Constitution and not having been repealed or revoked by Congress, the proclamation has remained operative under Section 3, Article XVIII of the 1987 Constitution. While judicial power may appear pervasive, under the system of separation of powers the power of the courts over the other branches and instrumentalities of the Government is limited to the determination of whether there has been grave abuse of discretion amounting to lack or excess of jurisdiction in the exercise of their authority and in the performance of their assigned tasks; courts may not substitute their judgment for that of the APT, nor block by injunction the discharge of its functions and the implementation of its decisions in connection with the acquisition, sale or disposition of assets transferred to it. There can be no justification for judicial interference in the business of an administrative agency except when it violates a citizen's constitutional rights, or commits a grave abuse of discretion, or acts in excess of, or without jurisdiction.
• Right of First Refusal / Failure to Bid: Paragraph 2 of the Contract of Lease, fixing the term at a minimum of three months or until the properties are sold to MSI or other third parties by DBP, does not give MSI preferred standing or a right of first refusal as a prospective buyer of the Bayview Hotel; that provision gives it only the right, equally with others, to bid for the property. In any event, assuming that MSI did have that preferred status — it having been assured by Estela Ladrido, DBP's officer-in-charge of the Bayview Hotel, that "all things equal (sic) DBP would be more inclined to sell the Bayview property to MSI" — MSI lost that preferential right by failing to participate in the bidding for the property. Its allegation that it would have submitted a higher bid than the winning bidders is futile, for the fact is that it did not submit a bid, and its excuses for failing to do so are unconvincing. Its own statement that, having made capital expenditures of more than ₱12 million, it would need uninterrupted, peaceful and continued possession of Bayview for more than twenty years to complete the offsetting process may provide a clue that MSI banked on its alleged ₱12 million advance to keep it in possession of the hotel for twenty years without having to buy it at the APT's auction.

• Lessee as Non-Possessor in Good Faith — A lessee is not a possessor or builder in good faith because it knows that its occupancy of the premises continues only during the life of the lease. Consequently, the right of retention granted to a possessor in good faith under Article 546 of the Civil Code, pending reimbursement of advances for necessary repairs and useful improvements on another's property, is not available to a lessee whose possession is not that of an owner, and the lessee cannot as a matter of right recover the value of its improvements from the lessor, much less retain the premises until reimbursed.
• Requisites for a Lessee's Claim over Improvements — To be entitled to one-half the value of the improvements introduced on the leased premises, or to remove them should the lessor refuse to reimburse the half value, the lessee must show that the improvements were introduced in good faith, are useful, and are suitable to the use for which the lease is intended without altering the form and substance of the premises. One who knows that its right to occupy is temporary is deemed to have built at its own risk.
• No Right, No Injunction — A preliminary injunction may issue only to protect a right the plaintiff actually holds; where the claimed right of retention is non-existent, the right to the relief of injunction under Section 3, Rule 58 of the Rules of Court does not exist either. The purpose of the writ is to preserve the status quo of the property subject of the action during the pendency of the suit.
• Judicial Power Is Not Unqualified — Under the separation of powers, the power of courts over the other branches and instrumentalities of the Government is limited to determining whether there has been grave abuse of discretion amounting to lack or excess of jurisdiction. Courts may not substitute their judgment for that of an administrative agency such as the APT, nor block by injunction the discharge of its functions and the implementation of its decisions.
• Limits of Judicial Interference in Administrative Action — There is no justification for judicial interference in the business of an administrative agency except when it violates a citizen's constitutional rights, or commits a grave abuse of discretion, or acts in excess of, or without jurisdiction.
• Legislative Power to Define and Apportion Jurisdiction — The power to define, prescribe and apportion the jurisdiction of the various courts belongs to the legislature, subject only to the limitation that it may not deprive the Supreme Court of its jurisdiction over the cases enumerated in Section 5, Article VIII of the 1987 Constitution. A statute or proclamation restricting the issuance of injunctions against a government instrumentality is therefore a valid regulation of the exercise of judicial power, not a deprivation of it.
• Survival of Pre-1987 Issuances — Laws, decrees, executive orders, proclamations, letters of instructions and other executive issuances existing at the effectivity of the 1987 Constitution and not inconsistent with it remain operative until amended, repealed, or revoked, by force of Section 3, Article XVIII. Proclamation No. 50-A, issued under the Freedom Constitution, thus continued in force.
• Right to Bid vs. Right of First Refusal — A lease stipulation granting the lessee the right to buy the property in the event of a sale, read with a term of "a minimum of three months or until such time that said properties are sold to MSI or other third parties by DBP," confers only the right, equally with others, to bid for the property; it does not create a preferred standing or a right of first refusal. Any such preference is lost by failure to participate in the bidding.

• "A mere lessee, like Mantruste, is not a builder in good faith, hence, the right of retention given to a possessor in good faith under Article 546 of the Civil Code, pending reimbursement of his advances for necessary repairs and useful improvements on another's property is not available to a lessee whose possession is not that of an owner." — The core ruling on the first issue: it demolishes MSI's asserted right of retention and, with it, the basis for the injunction.
• "It is a settled rule that lessees are not possessors in good faith, because they know that their occupancy of the premises continues only during the life of the lease, hence they cannot, as a matter of right, recover the value of their improvements from the lessor, much less retain the premises until they are reimbursed therefor." — States the settled doctrine in its canonical formulation, distinguishing the lessee from the possessor in good faith under the Civil Code.
• "While the judicial power may appear to be pervasive, the truth is that under the system of separation of powers set up in the Constitution, the power of the courts over the other branches and instrumentalities of the Government is limited only to the determination of 'whether or not there has been a grave abuse of discretion (by them) amounting to lack or excess of jurisdiction' in the exercise of their authority and in the performance of their assigned tasks." — The constitutional foundation for upholding Section 31 of Proclamation No. 50-A against the charge that it impairs judicial power.
• "That provision of the lease contract gives it only the right, equally with others, to bid for the property." — Defines the narrow scope of the lease stipulation and disposes of the claim to a right of first refusal.

• Calo vs. Roldan, 76 Phil. 445, 452 — Cited for the basic purpose of a preliminary injunction: to preserve the status quo of the property subject of the action to protect the plaintiff's rights during the pendency of the suit.
• Lasala vs. Fernandez, 5 SCRA 79 — Cited, with Calo, for the same settled purpose of the writ of preliminary injunction.
• Rivera vs. Florendo, 144 SCRA 643 — Cited, with Calo and Lasala, for the purpose and function of the writ of preliminary injunction.
• Rodulfa vs. Alfonso, 76 Phil. 225, 232 — Cited for the rule that the exercise of sound judicial discretion by the lower court in injunctive matters will generally not be interfered with — a rule the SC acknowledged before finding that the CA correctly ruled on the absence of a right.
• Imperial Insurance, Inc. vs. Simon, 14 SCRA 855 — Cited for the requisites a lessee must establish to claim one-half the value of improvements or to remove them: good faith, usefulness, and suitability to the intended use without altering the form and substance of the premises.
• Lopez, Inc. vs. Phil. & Eastern Trading Co., Inc., 98 Phil. 348 — Cited for the rule that one who knows its right to occupy the premises is temporary is deemed to have built at its own risk, defeating the claim of being a builder in good faith.
• Bacaling vs. Laguna, et al., 54 SCRA 243 — Cited for the settled rule that lessees are not possessors in good faith and cannot as a matter of right recover the value of their improvements, much less retain the premises until reimbursed.

• Section 31, Proclamation No. 50-A (December 15, 1986) — Bars any court or administrative agency from issuing any restraining order or injunction against the Trust in connection with the acquisition, sale or disposition of assets transferred to it, and from issuing such order or injunction against any purchaser of assets sold by the Trust to prevent such purchaser from taking possession of any asset purchased by him. Applied to nullify the writ of preliminary injunction issued by the RTC against the APT and the winning bidders, and upheld as constitutional.
• Section 3, Article XVIII, 1987 Constitution — Provides that all existing laws, decrees, executive orders, proclamations, letters of instructions and other executive issuances not inconsistent with the Constitution shall remain operative until amended, repealed, or revoked. Applied to hold that Proclamation No. 50-A continued in force after the effectivity of the 1987 Constitution.
• Section 1, Article VIII, 1987 Constitution — Defines judicial power as the duty of courts to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. Applied to hold that Section 31 of Proclamation No. 50-A does not impair judicial power, which over the other branches is limited to correcting grave abuse of discretion.
• Section 2, Article VIII, 1987 Constitution — Vests in Congress the power to define, prescribe and apportion the jurisdiction of the various courts, subject to the limitation that it may not deprive the Supreme Court of its jurisdiction over the cases enumerated in Section 5. Applied to sustain the validity of the statutory prohibition on injunctions against the APT.
• Section 5, Article VIII, 1987 Constitution — Enumerates the cases over which the Supreme Court has jurisdiction; cited as the limit on the legislature's power to apportion jurisdiction.
• Article 546, Civil Code — Grants a possessor in good faith the right to retain property pending reimbursement of necessary repairs and useful improvements. Held inapplicable to MSI because a lessee is not a possessor in good faith.
• Section 3, Rule 58, Rules of Court — Governs the grounds for the issuance of a preliminary injunction. Applied to hold that because MSI's right of retention does not exist, neither does its right to the injunctive relief demanded.
• Proclamation No. 50 (December 8, 1986) — Launched the program for the expeditious disposition or privatization of certain government corporations and/or their acquired assets, and created the Committee on Privatization and the Asset Privatization Trust. Cited as the source of the APT's mandate to dispose of the Bayview Hotel properties.

• Justice Gutierrez, Jr. (Concurring in the result) — Separate opinion; its text is not included.