Privatization and Management Office vs. Legaspi Towers 300, Inc.

No voluntary easement arises from improvements placed by an owner on his own property for the benefit of another property he also owns, and such apparent signs of easement do not survive alienation when the deed of conveyance expressly transfers the property free from all liens and encumbrances. The condominium corporation must remove the improvements and compensate the owner for the unjustified use of the property.

Caruff Development Corporation owned several contiguous parcels of land along Roxas Boulevard, Manila, including lots covered by TCT Nos. 120311, 120312, 120313, and 127649 (later TCT No. 200760). Caruff obtained a loan from the Philippine National Bank (PNB) secured by a real estate mortgage over three of these lots, on which it constructed a 21-storey condominium project. Upon completion, the condominium was constituted as Legaspi Towers 300, Inc. under the Condominium Act (Republic Act No. 4726). Caruff built a powerhouse (generating set) and two sump pumps on the adjacent lot covered by TCT No. 127649 for the benefit of the condominium. After Caruff defaulted, PNB foreclosed the mortgage, and the acquired properties were eventually transferred to the National Government through the Asset Privatization Trust (APT), later succeeded by the Privatization and Management Office (PMO), pursuant to Proclamation No. 50 and Executive Order No. 323.

Caruff Development Corporation owned several contiguous parcels of land along Roxas Boulevard, Manila, including lots covered by TCT Nos. 120311, 120312, 120313, and 127649 (later renumbered as TCT No. 200760). In December 1975, Caruff obtained a loan from PNB to finance the construction of a 21-storey condominium, secured by a real estate mortgage over the three lots covered by TCT Nos. 120311, 120312, and 120313. Construction began in 1979, and among the appurtenances Caruff built were a powerhouse (generating set) and two sump pumps on the adjacent lot covered by TCT No. 127649, which was not included in the mortgage. After completion, the condominium project was constituted as Legaspi Towers 300, Inc. under the Condominium Act.

Caruff defaulted on its loan, prompting PNB to foreclose the mortgage. At the sheriff's auction sale on January 30, 1985, PNB acquired some of Caruff's properties. Thereafter, Proclamation No. 50 was issued, creating the Asset Privatization Trust (APT) for the disposition of non-performing government assets. By virtue of Administrative Order No. 14 and a Deed of Transfer executed by PNB, the National Government through APT became the assignee of PNB's rights and interests in its receivables with Caruff, including the foreclosed properties.

Meanwhile, Caruff had filed a case against PNB before the RTC of Manila seeking nullification of the foreclosure, docketed as Civil Case No. 85-29512. The parties—Caruff, PNB, and the National Government through APT—eventually entered into a Compromise Agreement dated August 31, 1988, under which Caruff agreed to transfer and convey in favor of the National Government through APT the lot covered by TCT No. 127649, where the generating set and sump pumps had been built. The Compromise Agreement expressly stated that all titles being conveyed were "free from any and all liens and encumbrances." On September 9, 1988, the RTC approved the Compromise Agreement and rendered judgment in accordance with its terms.

On July 5, 1989, respondent Legaspi Towers 300, Inc. filed a case for Declaration of the existence of an easement before the RTC of Manila, alleging that Caruff's construction of the powerhouse and sump pumps on the adjacent property constituted a voluntary easement in favor of the respondent. APT, in its Answer, contended that it acquired absolute ownership of the property free from liens and encumbrances, that it was not privy to any transaction between Caruff and respondent, and that respondent's continued use of the property without consent constituted an encroachment warranting compensation. After trial, the RTC declared the existence of an easement over the portion occupied by the powerhouse and sump pumps. The CA affirmed, and PMO, having succeeded APT, elevated the case to the Supreme Court.

• Nature of the Improvements: Petitioner argued that the generating set and sump pumps are mere improvements and appurtenances complementing the condominium complex, not constituting an easement, and have not attained the character of immovability.
• Compromise Agreement: Petitioner maintained that, as improvements of the condominium, the generating set and sump pumps should have been removed after Caruff undertook to deliver the subject property free from any liens and encumbrances under the court-approved Compromise Agreement, and that Caruff could not have intended to include a voluntary easement as an encumbrance when alienating the property in favor of APT/PMO.
• Absence of Requisites for Easement: Petitioner posited that respondent failed to present evidence proving the necessary requisites for the establishment of an easement, particularly any concrete evidence showing Caruff's clear and unequivocal intention to establish the placement of the generating set and sump pumps as an easement in favor of respondent.
• Encroachment and Unjust Enrichment: Petitioner contended that respondent is a "squatter" for encroaching on the property without consent and without paying rent or indemnity, and that such encroachment cannot be properly considered an easement because it impairs the usefulness of the servient estate to the point of effectively canceling the owner's rights. Petitioner insisted that respondent should compensate the National Government for the use of the property from August 28, 1989 to the present.

• Intention to Create Voluntary Easement: Respondent argued that it was Caruff's intention to have a voluntary easement on the subject property and for it to remain as such even after the property was assigned to APT, since Caruff itself constructed the generating set and sump pumps on its adjacent property for the use and benefit of the condominium.
• Permanent Installation: Respondent maintained that the manner in which the sump pumps were installed is permanent in nature, as their removal and transfer to another location would render them worthless and would cut off the supply of electricity and water to the condominium and its owners.
• Petitioner Cannot Assert Caruff's Intent: Respondent maintained that petitioner cannot assume Caruff intended to renounce the voluntary easement by virtue of the Compromise Agreement, since such defense can only be presented by Caruff and not by petitioner. Respondent added that petitioner had actual notice of the presence of the generating set and sump pumps during negotiations and at the time of transfer.
• No Basis for Rent Claim: Respondent argued that petitioner cannot claim payment of rent considering there was no written demand for respondent to pay rent or indemnity.
• No Conflict with Privatization Mandate: Respondent submitted that the mandate of petitioner to privatize or dispose of non-performing assets does not conflict with the declaration of an easement, as petitioner is not prevented from privatizing the property despite the presence of the voluntary easement.

• Existence of Easement: Whether the presence of the generating set and sump pumps on the subject property constitutes an easement in favor of respondent.
• Effect of Article 624: Whether an apparent sign of easement between two estates owned by the same person continues upon alienation of one estate, given the terms of the Compromise Agreement.
• Compensation for Use: Whether respondent should pay compensation to petitioner for the use of the subject property.

• Existence of Easement: No. No easement was constituted because both the condominium lot and the adjacent property where the improvements were built were owned by Caruff at the time of construction, precluding the application of Article 613 of the Civil Code, which requires that the dominant and servient estates belong to different owners.
• Effect of Article 624: No. While Article 624 contemplates the continuation of an apparent sign of easement upon alienation, the Compromise Agreement expressly conveyed the property "free from any and all liens and encumbrances," constituting a contrary provision in the title of conveyance that negates the continuation of any easement.
• Compensation for Use: Yes. Respondent must pay reasonable rent for the portion of the property occupied by the generating set and sump pumps, having unjustly enriched itself at the expense of the National Government, which was deprived of the use of the property for almost two decades.

• Existence of Easement: An easement is a real right constituted on another's property, corporeal and immovable, whereby the owner must abstain from doing or allow somebody else to do something on his property for the benefit of another thing or person, as defined in Article 613 of the Civil Code. The essential requisite is that the dominant and servient estates belong to different owners. Here, when the generating set and sump pumps were constructed on the subject property, both the lot where the condominium was being erected and the adjacent property where these appurtenances were placed belonged to Caruff. Since both properties were under single ownership, no true easement could have been constituted or existed at the time. Article 613 does not apply because the fundamental condition of diverse ownership was absent.

• Effect of Article 624: Article 624 of the Civil Code addresses the situation where an apparent sign of easement exists between two estates established or maintained by the owner of both. Upon alienation of either estate, the easement continues actively and passively, unless at the time ownership is divided, the contrary is provided in the title of conveyance, or the sign of easement is removed before execution of the deed. In this case, the Compromise Agreement—approved by the court—expressly stated that Caruff was assigning, transferring, and conveying the subject property "free from any and all liens and encumbrances." Compromise agreements are contracts whose terms, when clear and explicit, must be understood literally as they appear. The clear language of the Compromise Agreement constituted a contrary provision in the title of conveyance, negating any intent to preserve an easement. Caruff never intended to transfer the property burdened by the generating set and sump pumps, and respondent must therefore remove them.

• Compensation for Use: Respondent has been enjoying the use of the subject property for free since the rights over the property were transferred by Caruff to the National Government. Under Article 22 of the Civil Code, every person who acquires or comes into possession of something at the expense of another without just or legal ground shall return the same. The principle of unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that such benefit is derived at another's expense or damage. Both conditions are satisfied: there is no dispute as to the National Government's ownership, and it has been deprived of the use of the property for almost two decades. APT/PMO submitted evidence fixing the monthly rental fee at ₱56.25 per square meter. Accordingly, respondent must pay reasonable rent at that rate, reckoned from August 28, 1989 until the improvements are completely removed.

• Requisite of Diverse Ownership for Easements — An easement under Article 613 of the Civil Code requires that the dominant and servient estates belong to different owners. Where both properties are owned by the same person, no easement can be constituted, regardless of the nature of the improvements or signs present on the servient estate.

• Article 624 — Apparent Signs of Easement Upon Alienation — When the owner of two estates establishes or maintains an apparent sign of easement between them and subsequently alienates one, the easement continues unless (a) the contrary is provided in the title of conveyance of either estate at the time ownership is divided, or (b) the sign of easement is removed before execution of the deed. A conveyance expressly stating that the property is transferred "free from any and all liens and encumbrances" constitutes a contrary provision that extinguishes any apparent easement.

• Literal Interpretation of Compromise Agreements — Compromise agreements are contracts. When their terms are clear and explicit and do not justify reading into them any alleged intention of the parties, the terms are to be understood literally as they appear on the face of the contract.

• Unjust Enrichment (Article 22, Civil Code) — There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or retains money or property against fundamental principles of justice, equity, and good conscience. Two conditions must concur: (1) a person is benefited without a valid basis or justification, and (2) the benefit is derived at another's expense or damage.

• "Therefore, Article 613 of the Civil Code does not apply, since no true easement was constituted or existed, because both properties were owned by Caruff." — This passage states the ratio decidendi on the first issue, establishing that diverse ownership is an indispensable requisite for the existence of an easement.

• "Thus, when the subject property was assigned to the National Government thru the APT, no easement arose or was voluntarily created from the transfer of ownership, considering that the parties, more particularly, Caruff, pledged that it was assigning, transferring, and conveying the subject property in favor of the National Government thru the APT 'free from any and all liens and encumbrances.'" — This passage articulates the application of Article 624, demonstrating how the express language of the deed of conveyance negated the continuation of any apparent easement.

• "To rule otherwise would be unjust enrichment on the part of respondent at the expense of the Government." — This passage encapsulates the Court's rationale for awarding reasonable rent, grounding the remedy in the principle of unjust enrichment under Article 22 of the Civil Code.

• Valdez vs. Tabisura, G.R. No. 175510, July 28, 2008 — Cited for the definition of easement or servitude as a real right constituted on another's property, drawing from Sanchez Roman and Article 613 of the Civil Code.

• Alonzo vs. San Juan, G.R. No. 137549, February 11, 2005 — Cited for the principle that compromise agreements are contracts whereby parties undertake reciprocal obligations to resolve their differences and avoid or end litigation.

• First Fil-Sin Lending Corporation vs. Padillo, G.R. No. 160533, January 12, 2005 — Cited for the rule that when the terms of a contract are clear and explicit, they must be understood literally as they appear on the face of the contract.

• Car Cool Philippines, Inc. vs. Ushio Realty and Development Corporation, G.R. No. 138088, January 23, 2006 — Cited for the definition of unjust enrichment and the two conditions required under Article 22 of the Civil Code.

• Article 613, Civil Code — Defines an easement as an encumbrance imposed upon an immovable for the benefit of another immovable belonging to a different owner, identifying the dominant and servient estates. Applied to hold that no easement existed because both properties were owned by Caruff at the time the improvements were installed.

• Article 619, Civil Code — Classifies easements as either legal (established by law) or voluntary (established by the will of the owners). Cited to frame the analysis of whether a voluntary easement was constituted.

• Article 624, Civil Code — Provides that an apparent sign of easement between two estates established by the owner of both continues upon alienation unless the contrary is provided in the title of conveyance or the sign is removed before execution of the deed. Applied to hold that the Compromise Agreement's express conveyance "free from any and all liens and encumbrances" constituted a contrary provision extinguishing any apparent easement.

• Article 22, Civil Code — Requires every person who acquires or comes into possession of something at the expense of another without just or legal ground to return the same. Applied to order respondent to pay reasonable rent for unjust enrichment.

Consuelo Ynares-Santiago (Chairperson), Minita V. Chico-Nazario, Presbitero J. Velasco, Jr., and Antonio Eduardo B. Nachura concurred with the decision.