National Housing Authority vs. Baello

An issue actually and directly adjudicated in a prior final judgment between the same parties is conclusive in a subsequent action even if the causes of action differ, and a builder or possessor in bad faith loses what he has built on another's land without right of indemnity. Accordingly, the NHA's challenge to the Baello heirs' certificate of title and its claim of good faith — both resolved against it in G.R. No. 143230 — were barred by conclusiveness of judgment, and its expenses in developing the respondents' property were not reimbursable under Article 449 of the Civil Code.

The respondents are among the 32 heirs of Pedro Baello, who, together with his sister Nicanora Baello, obtained confirmation of title to a 147,972-square-meter parcel in Sitio Talisay, Caloocan, in a registration proceeding that culminated in Original Certificate of Title No. (804) 53839. The National Housing Authority is the government agency tasked with implementing the Dagat-Dagatan development, a relocation and housing program for families displaced by the Tondo Foreshore Urban Renewal Project, which was placed under the expropriation mandate of Presidential Decree No. 569 issued on 30 October 1974 and later included in the areas declared for priority development and urban land reform by Proclamation No. 2284. The dispute concerns the NHA's occupation and disposition of the Baello property in pursuance of that program, and the respondents' claim to possession, compensation, and damages.

On 21 September 1951, Pedro Baello and Nicanora Baello filed an application for registration of a 147,972-square-meter parcel of land in Sitio Talisay, Municipality of Caloocan, which they had inherited from their mother, Esperanza Baello; the application was docketed as LRC Case No. 520 before the Court of First Instance of Rizal. On 2 November 1953, the CFI of Rizal confirmed their title pro indiviso, awarding two-thirds of the land to Pedro and one-third to Nicanora. The Republic of the Philippines, through the Director of the Bureau of Lands, did not appeal, and the decision became final and executory. On 27 October 1954, acting on the orders of the CFI, the Land Registration Commission issued Decree No. 13400 in favor of "Pedro T. Baello, married to Josefa Caiña," for the two-thirds portion and in favor of "Nicanora T. Baello, married to Manuel J. Rodriguez" for the remaining one-third, and the Register of Deeds issued Original Certificate of Title No. (804) 53839 in their names. The property was later subdivided into Lot A (the Baello property), with an area of 98,648 square meters and covered by TCT No. 181493, and Lot B (the Rodriguez property), with an area of 49,324 square meters; the subdivision plan was approved on 27 July 1971.

Pedro died intestate on 3 December 1971, leaving 32 surviving heirs, among them the respondents Corazon B. Baello, Wilhelmina Baello-Sotto, and Ernesto B. Baello, Jr. Nicanora died intestate on 22 August 1975, and her husband died a few days later, on 30 August 1975.

On 30 October 1974, during the martial law regime, President Ferdinand E. Marcos issued Presidential Decree No. 569, creating a committee to expropriate the Dagat-Dagatan Lagoon and its adjacent areas, including the Baello and Rodriguez properties, which the government intended to develop into an industrial and commercial complex and a residential area for the permanent relocation of families affected by the Tondo Foreshore Urban Renewal Project; the Dagat-Dagatan Project launched by First Lady Imelda R. Marcos, a showcase program for the homeless, likewise covered the properties, and the National Housing Authority was tasked to develop the area, subdivide it, and award the lots to beneficiaries. Thereafter, a truckload of fully armed military personnel entered the Baello property and ejected the family caretaker at gunpoint; the soldiers demolished the two-storey residential structure and destroyed the fishpond improvements. The NHA then took possession of the Baello and Rodriguez properties. For fear of losing their lives and those of their families, the Baello and Rodriguez heirs decided to remain silent and did not complain. The NHA executed separate conditional contracts to sell subdivision lots in favor of chosen beneficiaries, who were awarded 620 lots from the Baello property and 275 lots from the Rodriguez property.

On 13 April 1983, Proclamation No. 2284 declared Metropolitan Manila, including the Dagat-Dagatan area, an area for priority development and an Urban Land Reform Zone, again covering the two properties. On 17 January 1986, Minister of Natural Resources Rodolfo P. Del Rosario issued BFD Administrative Order No. 4-1766, declaring and certifying forestlands in Caloocan City, Malabon, and Navotas, with an aggregate area of 6,762 hectares, as alienable or disposable for cropland and other purposes. After the EDSA People Power Revolution, on 23 February 1987, the heirs of Pedro executed an extrajudicial partition of his estate, which included the Baello property. Respondents were issued TCT No. 280647 over an undivided portion of 8,404 square meters of the Baello property; Corazon and Wilhelmina later sold their shares to Ernesto, who was issued TCT No. C-362547 in his name.

On 18 August 1987, the NHA filed an action for eminent domain against the heirs of Baello and Rodriguez before the Regional Trial Court of Caloocan City, Branch 120, docketed as Civil Case No. C-169, and also secured a writ of possession. In an Order dated 5 September 1990, the RTC dismissed the complaint on the grounds of res judicata and lack of cause of action; the Court of Appeals affirmed on 21 August 1992, and this Court denied due course to the NHA's petition in G.R. No. 107582 by Resolution dated 3 May 1993, later denying reconsideration and entering judgment. On 5 November 1993, the NHA filed a complaint for nullity of OCT No. (804) 53839, docketed as Civil Case No. C-16399 before the RTC of Caloocan City, Branch 128, which dismissed it on 17 October 1995 on grounds of estoppel and res judicata, the issue of the legal nature and ownership of the property being already barred by the final judgment in LRC Case No. 520; the Court of Appeals affirmed on 26 January 2000, and this Court, in G.R. No. 143230, denied the NHA's petition on 20 August 2004, holding that the NHA was barred by judicial estoppel from assailing OCT No. (804) 53839 and its derivative titles.

Meanwhile, on 30 June 1994, during the pendency of Civil Case No. C-16399, respondents filed an action for Recovery of Possession and Damages against the NHA and other defendants, docketed as Civil Case No. C-16578. In its Answer, the NHA alleged that OCT No. (804) 53839, from which respondents derived their title, had been obtained fraudulently because the land covered was declared alienable and disposable only on 17 January 1986. The case was initially sent to the archives upon the parties' joint motion, pending this Court's resolution of G.R. No. 143230, and trial resumed after the denial of the NHA's petition in that case. The trial court found that the NHA took possession of the property in 1976 through fully armed military personnel who ejected the caretaker at gunpoint and demolished the residence and fishpond improvements; that the NHA introduced improvements and disposed of the property despite knowledge that ownership pertained to the Baello and Rodriguez heirs; and that its conduct was characterized by bad faith, arbitrariness, and grave abuse of discretion, in violation of due process and of the constitutional mandate that private property shall not be taken without just compensation.

• Bad Faith: Petitioner NHA argued that the Court of Appeals committed reversible error in declaring it a possessor in bad faith, there having been no proceeding that proved bad faith; it contended that the decision in G.R. No. 143230 merely affirmed the dismissal of the complaint and that the facts relied upon therein were not proven before the trial court.
• Adoption of Facts from G.R. No. 143230: Petitioner maintained that the Court of Appeals erred in adopting the facts found in G.R. No. 143230 when that case was not tried on the merits.
• Respondents' Negligence: Petitioner asserted that respondents never attempted to claim the property and negligently slept on their rights, justifying their inaction by a fabricated scenario of terror, forcible military take-over, and other falsehoods.
• Damages: Petitioner alleged that it is not liable for damages because it acted in good faith; in the alternative, it claimed that any liability should run only from the time ownership was transferred to respondents.
• Reimbursement: Petitioner claimed the right to retain the property until it is reimbursed for the expenses it incurred in developing the same.

• Bad Faith: Whether the Court of Appeals committed a reversible error in finding that the NHA was a builder or possessor in bad faith.
• Adoption of Facts from G.R. No. 143230: Whether the Court of Appeals committed a reversible error in adopting the facts in G.R. No. 143230 when the case was not tried on the merits.
• Damages: Whether the Court of Appeals committed a reversible error in awarding damages to respondents.

• Bad Faith: No. The finding that the NHA was a builder and possessor in bad faith had been categorically adjudicated in G.R. No. 143230 and is conclusive between the parties under the rule on conclusiveness of judgment.
• Adoption of Facts from G.R. No. 143230: No. The facts were not contrived but cited exhaustively from the records, and the trial court's findings had been affirmed by the Court of Appeals and by this Court in G.R. No. 107582.
• Damages: No. Bad faith having been established, the award of damages and attorney's fees was properly sustained, and Article 449 of the Civil Code denies a builder in bad faith any right of indemnity.

• Bad Faith: The petition is barred by conclusiveness of judgment, the second aspect of res judicata, which ordains that issues actually and directly resolved in a former suit cannot again be raised in any future case between the same parties involving a different cause of action. The main issue raised by the NHA in its Answer before the trial court was the validity of OCT No. (804) 53839, and that validity had long been settled in G.R. No. 143230, where the Court ruled that the action to annul the certificate was barred by the decision in LRC Case No. 520. The Republic did not oppose the registration application of Pedro and Nicanora and did not appeal the CFI's decision; OCT No. (804) 53839 was issued in 1959, and no action to nullify the CFI's decision was filed until the NHA's complaint for nullity on 5 November 1993, which was the origin of G.R. No. 143230. The issue of whether the NHA was a builder in bad faith was likewise one of the issues raised and categorically resolved in G.R. No. 143230, where the Court declared that the NHA acted in gross bad faith when it took possession of the property in 1976, introduced improvements thereon, and disposed of the same despite knowledge that ownership pertained to the respondents. In determining good faith, Article 526 of the Civil Code applies: a possessor in good faith is one who is not aware of any flaw in his title or mode of acquisition, while one who possesses contrary to that rule is a possessor in bad faith. The Court in G.R. No. 143230 cited exhaustively from the records, including the trial court's findings in Civil Case No. C-169 that the NHA acted in bad faith and violated the Constitution, and those findings had been affirmed by the Court of Appeals and by this Court in G.R. No. 107582.

• Adoption of Facts from G.R. No. 143230: The NHA's assertion that the facts in G.R. No. 143230 had no basis because that case was not tried on the merits cannot prevail. In ruling against the NHA in G.R. No. 143230, the Court did not contrive the facts of the case but cited them exhaustively from the records, and it pointed out that the trial court's findings it cited were affirmed by the Court of Appeals and by this Court in G.R. No. 107582. The NHA's allegation that respondents negligently slept on their rights and manufactured a scenario of terror is likewise untenable, as it cannot prevail over the established findings that a truckload of fully armed military personnel entered the Baello property, at gunpoint forcibly ejected the family's caretaker, and demolished the two-storey residential structure and destroyed all the fishpond improvements. These were not a "scenario of terror" created by the respondents but clearly established facts.

• Damages: The NHA's challenge to the award of damages rests on its claim of good faith, which had already been rejected. The NHA raised the same issue in G.R. No. 143230, and having established that it acted in bad faith, the Court of Appeals did not err in sustaining the award of damages and attorney's fees to respondents. The related issue of reimbursement was also raised in G.R. No. 143230, where the NHA alleged that the Court of Appeals gravely erred in ruling that it was a builder in bad faith and therefore not entitled to reimbursement of the improvements it introduced on the property. Article 449 of the Civil Code governs: he who builds, plants, or sows in bad faith on the land of another loses what is built, planted, or sown without right of indemnity. Consequently, the NHA is not entitled to be reimbursed for the expenses it incurred in developing the respondents' property.

• Res judicata — When material facts or questions that were in issue in a former action and were admitted or judicially determined are conclusively settled by a judgment rendered therein, such facts or questions become res judicata and may not again be litigated in a subsequent action between the same parties or their privies regardless of the form of the latter. The concept embraces two aspects: (1) "bar by prior judgment," or "estoppel by verdict," which is the effect of a judgment as a bar to the prosecution of a second action upon the same claim, demand, or cause of action; and (2) "conclusiveness of judgment," otherwise known as the rule of auter action pendent, which ordains that issues actually and directly resolved in a former suit cannot again be raised in any future case between the same parties involving a different cause of action. In this case, the NHA's petition was barred under the second aspect because the validity of OCT No. (804) 53839 and the NHA's bad faith had been directly adjudicated in G.R. No. 143230.

• Conclusiveness of judgment — Conclusiveness of judgment does not require identity of the causes of action for it to work. If a particular point or question is in issue in the second action, and the judgment will depend on the determination of that particular point or question, a former judgment between the same parties will be final and conclusive in the second if that same point or question was in issue and adjudicated in the first suit; but the adjudication of an issue in the first case is not conclusive of an entirely different and distinct issue arising in the second. Thus, any right, fact, or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which judgment is rendered on the merits is conclusively settled by that judgment and cannot again be litigated between the parties and their privies, whether or not the claim, demand, purpose, or subject matter of the two actions is the same. The doctrine was applied to bar the NHA from relitigating the validity of the respondents' title and its own bad faith, notwithstanding that the present action was for recovery of possession and damages rather than for annulment of title.

• Builder in bad faith (Article 449, Civil Code) — One who builds, plants, or sows in bad faith on the land of another loses what is built, planted, or sown without right of indemnity. The provision was applied to deny the NHA reimbursement of the expenses it incurred in developing the respondents' property, its bad faith having been conclusively established in G.R. No. 143230.

• Possessor in good faith and in bad faith (Article 526, Civil Code) — A possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw that invalidates it; a possessor in bad faith is one who possesses in any case contrary to that rule. The provision supplied the standard by which the NHA's possession was measured, and its knowledge of the respondents' ownership at the time it took possession in 1976 rendered it a possessor in bad faith.

• Judicial estoppel — The Court, in G.R. No. 143230, held that the NHA was barred from assailing the validity of OCT No. (804) 53839 and its derivative titles on the ground of judicial estoppel, and that holding was treated in this case as conclusive on the NHA.

• "The rule is that when material facts or questions, which were in issue in a former action and were admitted or judicially determined are conclusively settled by a judgment rendered therein, such facts or questions become res judicata and may not again be litigated in a subsequent action between the same parties or their privies regardless of the form of the latter." — States the general rule of res judicata as the framework for the Court's disposition and explains why the NHA's challenge to the respondents' title could no longer be entertained.

• "Conclusiveness of judgment does not require identity of the causes of action for it to work. If a particular point or question is in issue in the second action, and the judgment will depend on the determination of that particular point or question, a former judgment between the same parties will be final and conclusive in the second if that same point or question was in issue and adjudicated in the first suit; but the adjudication of an issue in the first case is not conclusive of an entirely different and distinct issue arising in the second." — The canonical formulation of conclusiveness of judgment, which supplied the ratio decidendi for barring the NHA's petition despite the difference in the causes of action between G.R. No. 143230 and the present suit.

• "In light of our foregoing disquisitions, it is evident that the petitioner acted in gross bad faith when it took possession of the property in 1976, introduced improvements thereon and disposed of said property despite knowledge that the ownership thereof pertained to the respondents." — Quoted by the Court from its earlier ruling in G.R. No. 143230; it is the finding of bad faith that the Court treated as conclusive and that foreclosed the NHA's claims of good faith and reimbursement.

• "Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right of indemnity." — The controlling provision on which the denial of the NHA's claim for reimbursement of its development expenses rested.

• National Housing Authority vs. Baello, 480 Phil. 502 (2004) — The Court's earlier decision in G.R. No. 143230, treated in this case as the prior final judgment whose findings on the validity of OCT No. (804) 53839 and on the NHA's gross bad faith were conclusive; it is also the source of the ruling that the NHA is not entitled to reimbursement as a builder in bad faith.
• Ley Construction & Development Corporation vs. Philippine Commercial & International Bank, G.R. No. 160841, 23 June 2010, 621 SCRA 526 — Cited for the exposition of res judicata and its two aspects, namely bar by prior judgment and conclusiveness of judgment.
• Spouses Rasdas vs. Estenor, 513, 676 Phil. 664 (2005) — Cited for the formulation of conclusiveness of judgment, that any right, fact, or matter in issue directly adjudicated or necessarily involved in a prior judgment on the merits is conclusively settled and cannot again be litigated between the parties and their privies.
• Sumulong vs. Guerrero, 154 SCRA 461 — Cited within the trial court's findings, quoted in G.R. No. 143230, for the proposition that the immediate taking of possession, control, and disposition of property without due notice and hearing is violative of due process.
• Ignacio — Cited within the same quoted findings for the requisites that must be met before a writ of possession may issue in expropriation proceedings: a complaint sufficient in form and substance, a provisional determination of just compensation based on judicial discretion, and compliance with the deposit requirement under Section 2, Rule 67. No citation accompanies the reference in the text.

• Article 449, New Civil Code — Provides that one who builds, plants, or sows in bad faith on the land of another loses what is built, planted, or sown without right of indemnity. Applied to deny the NHA reimbursement of the expenses it incurred in developing the respondents' property, its bad faith having been conclusively established.
• Article 526, New Civil Code — Defines a possessor in good faith as one who is not aware of any flaw in his title or mode of acquisition, and a possessor in bad faith as one who possesses contrary to that rule. Quoted in the excerpt from G.R. No. 143230 and used as the standard for measuring the NHA's possession of the Baello property.
• Section 2, Rule 67, Rules of Court — The deposit requirement for the issuance of a writ of possession in expropriation proceedings, cited in the trial court's findings quoted in G.R. No. 143230, which noted that no complaint had been filed at the time of the seizure of the respondents' properties.
• Rule 45, 1997 Rules of Civil Procedure — The procedural basis of the NHA's petition for review on certiorari assailing the Court of Appeals' decision and resolution.
• Section 13, Article VIII, 1987 Constitution — The constitutional basis for the Chief Justice's certification that the conclusions of the Court had been reached in consultation before the case was assigned to the writer of the opinion of the Division.

Justice Arturo D. Brion, Justice Mariano C. Del Castillo, Justice Jose Portugal Perez, and Justice Estela M. Perlas-Bernabe concurred in the decision. Chief Justice Maria Lourdes P. A. Sereno certified that the conclusions of the Court had been reached in consultation before the case was assigned to the writer of the opinion of the Division. No separate concurring opinions are reflected in the text.