Republic of the Philippines vs. Ballocanag

A planter in good faith on land subsequently declared inalienable timberland is entitled to reimbursement for useful improvements under Articles 448 and 546 of the Civil Code, but the right to remove such improvements may be restricted under Article 547 when removal would damage the principal thing; in that event, the State must pay the value of the improvements rather than allow their removal, to avoid unjust enrichment and to protect environmental policy.

The Republic, acting through the Office of the Solicitor General on behalf of the Bureau of Forest Development (DENR), filed a complaint for cancellation of title and reversion against Danilo Reyes, seeking to nullify Free Patent No. V-79606 and OCT No. P-2388 in the name of Regina Castillo, as well as the derivative TCT No. 45232 in Reyes's name. The complaint alleged that approximately 162,500 square meters of the 182,941-square-meter land covered by the titles formed part of the timberland of Oriental Mindoro per BFD Land Classification Map Nos. 2319 and 1715, and that the same area fell entirely within the 140-hectare Agro-Forestry Farm Lease Agreement No. 175 issued in favor of Atty. Augusto D. Marte. Timberland is property of public dominion, outside the commerce of man, and not subject to disposition or registration under any existing law.

Sometime in 1970, Danilo Reyes purchased a 182,941-square-meter parcel of land in Barangay Banus, Pinamalayan, Oriental Mindoro, from one Regina Castillo. The land was titled in Castillo's name under Original Transfer Certificate of Title No. P-2388, issued pursuant to Free Patent No. V-79606. Immediately after the purchase, Reyes introduced improvements on the property, planting approximately one thousand mango trees, more than a hundred Mandarin citrus trees, and more than a hundred guyabano trees. He also had the title transferred to his name and was issued TCT No. 45232. Reyes possessed and cultivated the land in the honest belief that he was its lawful owner.

On May 13, 1987, the Republic, through the Office of the Solicitor General and on behalf of the Bureau of Forest Development, filed a complaint for cancellation of title and reversion against Reyes. The complaint alleged that approximately 162,500 square meters of the land covered by OCT No. P-2388 was, at the time the free patent was applied for, part of the timberland of Oriental Mindoro per BFD Land Classification Map Nos. 2319 and 1715. The Republic further alleged that the 162,500-square-meter area fell entirely within the 140-hectare Agro-Forestry Farm Lease Agreement No. 175 issued in favor of Atty. Augusto D. Marte by the Ministry of Natural Resources in 1986, expiring on December 21, 2011. The Republic presented documentary evidence and the testimonies of DENR cartographer Armando Cruz, DENR surveyor Alberto Cardiño, and geodetic engineer Vicente Mendoza, who testified that only about two hectares of the land were alienable and disposable, and that Castillo's carpeta lacked the essential certification from the Bureau of Forestry. Reyes, for his part, presented evidence of his extensive development of and investment in the land but failed to squarely rebut the issue of inalienability.

The RTC, in its decision dated April 13, 1992, declared Free Patent No. V-79606, OCT No. P-2388, and TCT No. 45232 null and void ab initio, ordered Reyes to surrender the owner's duplicate copy of TCT No. 45232 and vacate the premises, directed the Register of Deeds to cancel the title, and declared the reversion of the land to the government subject to AFFLA No. 175. The two-hectare portion that appeared alienable and disposable was likewise declared null and void for failure to secure certification from the Bureau of Forest Development. Reyes's counterclaims were denied for lack of merit. The CA affirmed the RTC decision on September 16, 1996, and the Supreme Court denied Reyes's petition for review on June 23, 1997, with finality on November 24, 1997.

On February 4, 1998, after the reversion decision had become final, Reyes filed a motion to remove the improvements he had introduced on the property, invoking Section 10(d), Rule 39 of the 1997 Rules of Civil Procedure. He averred that he had occupied the land in good faith for approximately thirty years, spent millions of pesos planting fruit-bearing trees, and prayed that he be given at least one year to cut and remove the trees and to appropriate the unharvested fruits in the meantime. The Republic opposed the motion, arguing that timberland is property of public dominion outside the commerce of man, that the land never ceased to belong to the Republic, and that Reyes ceased to be a planter in good faith from the time the reversion case was filed in 1987. Meanwhile, on March 2, 1998, Atty. Marte filed a complaint for injunction against Reyes, alleging that Reyes had encroached upon and taken possession by stealth of some sixteen hectares of his leased area. The RTC, in its Joint Order dated December 28, 1998, granted Reyes's motion and dismissed Marte's complaint, finding it just and equitable to allow Reyes to enjoy the fruits of his labor on land he honestly believed was legally his. The Republic's motion for reconsideration was denied. The Republic then filed a petition for certiorari with the CA, which dismissed the petition and affirmed the RTC, holding that Reyes sowed and planted in good faith and that Articles 445 and 448 of the Civil Code were applicable.

• Res Judicata: The Republic maintained that Reyes's motion to remove improvements was barred by prior judgment under Section 47, Rule 39, because the issue of improvements had already been raised and resolved in the reversion case, which had attained finality. The Republic pointed out that Reyes had assigned as error before the CA the RTC's failure to grant his counterclaims and claims for improvements, and the CA had denied those counterclaims.
• Immutability of Final Judgments: The Republic argued that the RTC and CA could not vary a decision that had already attained finality; what is controlling for execution is the dispositive portion of the decision; and the RTC had lost jurisdiction over the case except to order execution. The dispositive portion of the reversion decision did not provide for the removal of improvements.
• Inalienability of Timberland: The Republic contended that the subject land, being timberland, is property of public dominion outside the commerce of man and cannot be leased, donated, sold, or be the object of any contract. Because the land never ceased to belong to the Republic, there were no improvements to speak of, even if Reyes claimed to be a purchaser in good faith for over thirty years.
• Bad Faith After Filing of Reversion Case: The Republic asserted that, assuming Reyes was initially a planter in good faith, Article 448 of the Civil Code could not apply absolutely because from the time the reversion case was filed on May 13, 1987, Reyes ceased to be a planter in good faith and became a planter in bad faith.

• Good Faith Planter: Reyes argued that he was a planter in good faith, as the CA found, and that Articles 445 and 448 of the Civil Code were applicable. He possessed the land and introduced improvements from 1970, received notice of the Republic's claim only when the reversion case was filed in 1987, and held a TCT issued in his name.
• Incident to Reversion Case: Reyes maintained that his motion was not an entirely new case but merely an incident to the reversion case, a consequence of its grant and a legal solution to an issue overlooked by the State and the courts in the reversion decisions. He invoked Section 10(d), Rule 39 of the 1997 Rules of Civil Procedure.
• Unjust Enrichment and Confiscation Without Compensation: Reyes contended that the land on which the trees were planted had been leased by the government to Atty. Marte, who entered into possession when the trees were already bearing fruit. If the trees were not removed, Marte would be unduly enriched as the beneficiary of the fruits without spending a single centavo. Denying Reyes the right to remove the trees would constitute grave injustice and confiscation without just compensation, violative of the Constitution.
• Procedural Defect: Reyes averred that the petition failed to comply with the proof of service requirement under Section 13, Rule 13 of the 1997 Rules of Civil Procedure.

• Res Judicata and Finality of Judgment: Whether the CA erred in affirming the RTC's grant of Reyes's motion to remove improvements, given that the reversion decision had long become final and executory and the issue of improvements had allegedly been resolved therein.
• Good Faith of the Planter: Whether Reyes was a planter in good faith entitled to the benefits of Articles 448 and 546 of the Civil Code.
• Removal of Improvements vs. Reimbursement: Whether Reyes should be allowed to remove the fruit-bearing trees he planted, or whether the Republic should instead pay the value of the improvements.
• Unjust Enrichment: Whether ordering the reversion of the land without compensating Reyes for the improvements he introduced in good faith would result in unjust enrichment of the State.

• Res Judicata and Finality of Judgment: No. The denial of Reyes's counterclaim in the reversion case did not foreclose his rights over the improvements, because the counterclaim was denied for failure to prove damages and pay docket fees, not on the merits of the improvements issue. The reversion decisions did not consider or provide any remedy for the improvements.
• Good Faith of the Planter: Yes. Reyes was a planter in good faith from 1970 until the filing of the reversion case on May 13, 1987, holding a TCT issued in his name and unaware of any flaw in his title.
• Removal of Improvements vs. Reimbursement: No, removal is no longer feasible. Allowing Reyes to remove the full-grown fruit-bearing trees would risk substantial damage to the timberland subject of AFFLA No. 175, violating Article 547 of the Civil Code and constitutional environmental policies. The Republic must instead pay the value of the improvements.
• Unjust Enrichment: Yes. Ordering reversion without compensation for improvements introduced in good faith would unjustly enrich the State at Reyes's expense. The doctrine of unjust enrichment under Article 22 of the Civil Code applies, and an exception to the immutability of final judgments is warranted.

• Res Judicata and Finality of Judgment: The Court found that the reversion decisions simply ordered the reversion of the property to the State and did not consider the improvements Reyes had introduced or provide him with any remedy relative thereto. The counterclaim was denied because Reyes failed to prove it was a compulsory counterclaim, did not pay docket fees, and never testified to prove his allegations regarding the counterclaims. Yet the records revealed that Reyes adduced ample evidence of the extent of the improvements and the expenses he incurred. The CA itself noted that the reversion decision made no mention or provision for the improvements, creating a "legal vacuum" that left Reyes no alternative but to invoke Section 10(d), Rule 39. The issue of whether Reyes was a builder or planter in good faith vis-à-vis his improvements was never squarely passed upon. Thus, res judicata did not bar the motion. The Court further held that while final judgments are immutable, an exception applies whenever circumstances transpire after finality rendering execution unjust and inequitable. To order reversion without addressing the improvements would sacrifice justice for technicality.

• Good Faith of the Planter: The Court agreed with the CA that Reyes was a planter in good faith. A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title at the time he builds or plants. Reyes purchased the land in 1970, had a TCT issued in his name, tilled the land, planted fruit trees, and invested money from 1970. He received notice of the Republic's claim only when the reversion case was filed on May 13, 1987. Even accepting the Republic's argument that Reyes could no longer claim good faith after 1987, he was nonetheless entitled to the benefits of Articles 448 and 546 for the seventeen years he had been a planter in good faith prior to that date.

• Removal of Improvements vs. Reimbursement: Although Reyes would normally be entitled to remove useful improvements under Articles 448 and 546, the Court found that removal was no longer feasible. The subject land is covered by AFFLA No. 175, which obliges the lessee to protect and conserve forest growth and prevent damage to the land. Allowing removal of full-grown fruit-bearing trees would risk substantial damage to the land, negating the policy underlying the AFFLA and violating Article 547 of the Civil Code, which permits removal only if it can be done without damage to the principal thing. The only equitable alternative was to order the Republic to pay Reyes the value of the improvements. Under the AFFLA, all permanent improvements pass to the Republic upon expiration of the lease without indemnity to the lessee. Since the AFFLA does not expire until December 21, 2011, the lessee Marte would derive financial gain from the fruits of the trees in the interim. The Court therefore granted the Republic a right of subrogation against Marte for whatever amount it would have to pay Reyes.

• Unjust Enrichment: The Court applied the doctrine of unjust enrichment, expressed in the maxim Nemo cum alterius detrimento locupletari potest — no one shall enrich himself at the expense of another. The requisites were present: enrichment on the part of the State, which would come into possession of more than one thousand fruit-bearing trees; impoverishment of Reyes, who would lose the improvements he painstakingly planted and invested in; and absence of valid cause for the State to acquire the improvements, because Reyes introduced them in good faith. Article 22 of the Civil Code mandates return of what is acquired at another's expense without just or legal ground. The Court invoked its mandate as a court of justice and equity, ruling pro hac vice that blind adherence to the doctrine of immutability would involve the sacrifice of justice for technicality.

• Doctrine Against Unjust Enrichment (Nemo cum alterius detrimento locupletari potest) — A person shall not be allowed to profit or enrich himself inequitably at another's expense. The requisites are: (1) enrichment on the part of the defendant; (2) impoverishment on the part of the plaintiff; and (3) absence of a valid cause for the enrichment. The Court applied this doctrine to hold that the State would be unjustly enriched if it appropriated Reyes's fruit-bearing trees without compensation, since Reyes planted them in good faith on land he believed he owned.

• Builder or Planter in Good Faith — A builder or planter in good faith is one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title at the time he builds or plants. Under Articles 448 and 546 of the Civil Code, such a person is entitled to full reimbursement of useful improvements and retention of the premises until reimbursement is made. The Court found Reyes to be a planter in good faith from 1970 until the reversion case was filed in 1987.

• Immutability of Final Judgments and Exceptions — A decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect. The recognized exceptions are: (1) correction of clerical errors; (2) nunc pro tunc entries causing no prejudice; (3) void judgments; and (4) whenever circumstances transpire after finality rendering execution unjust and inequitable. The Court applied the fourth exception, holding that ordering reversion without compensating Reyes for improvements introduced in good faith would be unjust and inequitable.

• Inalienability of Timberland — Public forest lands are non-alienable public lands; accession of public forests on the part of a claimant, however long, cannot convert them into private property. The Court acknowledged this principle but held that it did not negate Reyes's right to reimbursement for improvements introduced in good faith.

• "To order Reyes to simply surrender all of these fruit-bearing trees in favor of the State — because the decision in the reversion case declaring that the land is part of inalienable forest land and belongs to the State is already final and immutable — would inequitably result in unjust enrichment of the State at the expense of Reyes, a planter in good faith. Nemo cum alterius detrimento locupletari potest." — This passage articulates the ratio decidendi: the application of the unjust enrichment doctrine to prevent the State from appropriating a good-faith planter's improvements without compensation.

• "In the exercise of our mandate as a court of justice and equity, we rule in favor of Reyes pro hac vice. We reiterate that this Court is not precluded from rectifying errors of judgment if blind and stubborn adherence to the doctrine of immutability of final judgments would involve the sacrifice of justice for technicality." — This passage establishes the Court's invocation of the equity exception to the immutability doctrine, a principle frequently cited in subsequent jurisprudence on exceptions to finality.

• "However, we are mindful of the fact that the subject land is currently covered by Agro-Forestry Farm Lease Agreement (AFFLA) No. 175 issued by the Ministry of (now Department of Environment and) Natural Resources in favor of Atty. Augusto D. Marte, which will expire on December 21, 2011." — This passage introduces the factual basis for restricting Reyes's right to remove the improvements, anchoring the ruling on Article 547 and environmental policy considerations.

• Temic Semiconductors, Inc. Employees Union (TSIEU)-FFW, et al. vs. Federation of Free Workers (FFW), et al. — Cited for the doctrine on the immutability of final judgments and its recognized exceptions, particularly the exception when circumstances transpire after finality rendering execution unjust and inequitable. The Court applied this exception to justify ruling in favor of Reyes despite the finality of the reversion decision.

• Evangelista vs. Santiago — Cited for the proposition that in an action for reversion, the pertinent allegations in the complaint admit State ownership of the disputed land.

• Florentino vs. Supervalue, Inc. — Cited for the definition of a builder or planter in good faith as one who builds or plants on land with the belief that he is the owner thereof, unaware of any flaw in his title.

• Li Hong Giap vs. Director of Lands; Veno vs. Government of P.I.; Director of Lands vs. Abanzado — Cited in the Republic's complaint for the principle that timberland cannot be the subject of disposition or acquisition under any existing law.

• Heirs of Maura So vs. Obliosca — Cited for the principle that the Court is not precluded from rectifying errors of judgment when strict adherence to the immutability doctrine would sacrifice justice for technicality.

• Article 22, Civil Code — Provides that every person who, through an act or performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same. Applied as the statutory basis for the doctrine against unjust enrichment, requiring the State to compensate Reyes for improvements it would otherwise acquire without legal ground.

• Article 440, Civil Code — Provides that the ownership of property gives the right of accession to everything which is produced thereby or incorporated or attached thereto, either naturally or artificially. Cited by the Republic in opposition to Reyes's motion, arguing that accession belongs to the owner of the land.

• Article 448, Civil Code — Grants the owner of the land on which anything has been built, sown, or planted in good faith the right to appropriate the works after payment of indemnity, or to oblige the builder or planter to pay the price of the land. Applied to recognize Reyes's entitlement as a planter in good faith to reimbursement for useful improvements.

• Article 546, Civil Code — Provides that useful expenses shall be refunded only to the possessor in good faith, with the right of retention until reimbursement. Applied to confirm Reyes's right to reimbursement for the improvements he introduced in good faith.

• Article 547, Civil Code — Provides that if useful improvements can be removed without damage to the principal thing, the possessor in good faith may remove them. Applied to restrict Reyes's right of removal, since removing full-grown fruit-bearing trees would damage the timberland.

• Section 10(d), Rule 39, 1997 Rules of Civil Procedure — Governs the removal of improvements on property subject of execution, providing that the officer shall not destroy, demolish, or remove improvements except upon special order of the court after due hearing. Invoked by Reyes as the procedural basis for his motion to remove improvements.

• Section 16, Article II, 1987 Constitution — Declares that the State shall protect and advance the right of the people to a balanced and healthful ecology. Cited to support the policy against allowing removal of trees that would damage the land subject of the AFFLA.

• Section 4, Article XII, 1987 Constitution — Directs Congress to determine the specific limits of forest lands and national parks and provides that such forest lands shall be conserved. Cited as constitutional basis for the conservation policy underlying the AFFLA and the restriction on removal of improvements.

Consuelo Ynares-Santiago (Chairperson), Ma. Alicia Austria-Martinez, Minita V. Chico-Nazario, and Ruben T. Reyes concurred.