Sagrada Orden de Predicadores del Santisimo Rosario de Filipinas vs. National Coconut Corporation

An occupant who enters and uses property with the permission of the Alien Property Administration under the Trading with the Enemy Act, and without any express or implied agreement to pay rentals, cannot be held liable to the former owner for compensation for use and occupation prior to the annulment of the enemy purchaser's title, because no obligation arises from law, contract or quasi-contract, crime, or negligence; the Alien Property Administration is a trustee of the United States Government, not of the former owner.

Sagrada Orden de Predicadores del Santisimo Rosario de Filipinas was the registered owner of land and warehouses in Pandacan, Manila before the war. During the Japanese military occupation, the property was acquired by Taiwan Tekkosho, a Japanese corporation, and title was issued in its name. After liberation, the United States Alien Property Custodian took possession, control, and custody under section 12 of the Trading with the Enemy Act because the property belonged to an enemy national, and National Coconut Corporation later occupied the property. The dispute concerns whether the former owner could recover rentals from the occupant for the period before the sale to the Japanese corporation was annulled.

Sagrada Orden de Predicadores del Santisimo Rosario de Filipinas owned land and warehouses in Pandacan, Manila, with title registered in its name before the war. On January 4, 1943, during the Japanese military occupation, Taiwan Tekkosho, a Japanese corporation, acquired the land for P140,000, and transfer certificate of title No. 64330 was issued in its name in the Register of Deeds of Manila.

After liberation, on April 4, 1946, the Alien Property Custodian of the United States took possession, control, and custody of the property under section 12 of the Trading with the Enemy Act, 40 Stat. 411, because it belonged to an enemy national. During 1946 the Copra Export Management Company occupied the property under a custodianship agreement with the United States Alien Property Custodian, and when it vacated, National Coconut Corporation occupied the property. The Philippine Government made representations with the Office of the Alien Property Custodian for the use of the property by the Government. On March 31, 1947, National Coconut Corporation was authorized to repair the warehouse and spent P26,898.27 on repairs. In 1948, it leased one-third of the warehouse to Dioscoro Sarile at a monthly rental of P500, later raised to P1,000; Sarile did not pay rents, and an action was brought against him, though it is not shown whether the judgment was executed.

Plaintiff made a claim to the property before the Alien Property Custodian, but it was denied. Plaintiff then brought an action in the Court of First Instance of Manila, civil case No. 5007, against the Philippine Alien Property Administrator, with the Republic of the Philippines as intervenor, to annul the sale to Taiwan Tekkosho and recover possession. The case did not go to trial because the parties presented a joint petition. Plaintiff claimed the sale to Taiwan Tekkosho was null and void because it was executed under threats, duress, and intimidation. The parties agreed that the title issued in Taiwan Tekkosho's name be cancelled and plaintiff's original title re-issued; that the claims, rights, title, and interest of the Alien Property Custodian be cancelled and held for naught; that National Coconut Corporation, as occupant, had until February 28, 1949 to recover its equipment and vacate the premises; that plaintiff, upon entry of judgment, pay the Philippine Alien Property Administration P140,000; and that the Philippine Alien Property Administration be free from responsibility or liability for any act of National Coconut Corporation. Pursuant to the agreement, the court rendered judgment releasing the defendant and intervenor from liability but reserving to plaintiff the right to recover from National Coconut Corporation reasonable rentals for the use and occupation of the premises.

The present action was to recover reasonable rentals from August 1946, when National Coconut Corporation began to occupy the premises, to the date it vacated. National Coconut Corporation did not contest liability for rentals at P3,000 per month from February 28, 1949, the date specified in the judgment in civil case No. 5007, but resisted the claim for any period prior to that date. It interposed the defense that it occupied the property in good faith and under no obligation to pay rentals for its use and occupation.

The trial court rendered judgment for plaintiff, ordering National Coconut Corporation to pay P3,000 per month as reasonable rentals from August 1946 to the date it vacates the premises. It declared that plaintiff had always been the owner because the sale to the Japanese purchaser was void ab initio; that the Alien Property Administration never acquired any right to the property but held it in trust until it was determined whether the owner was an enemy citizen; and that National Coconut Corporation could not claim better rights than its predecessor, the Alien Property Administration, and, having used the property and subleased a portion, must pay reasonable rentals. National Coconut Corporation appealed, assigning as error the holding that it was liable for rentals or compensation from the middle of August 1946 to December 14, 1948.

• Ownership Rights of the Alien Property Administration: Defendant-appellant argued that the want of "ownership rights" of the Philippine Alien Property Administration did not render illegal or invalidate its grant to defendant of the free use of the property.
• Conclusiveness of Civil Case No. 5007: Defendant-appellant argued that the decision of the Court of First Instance of Manila declaring the sale by plaintiff to the Japanese purchaser null and void ab initio, and plaintiff the legal owner without legal interruption, is not conclusive.
• Reservation Not Binding: Defendant-appellant argued that the reservation to plaintiff of the right to recover from the defendant corporation is not binding on the latter.
• Commercial Use Alone: Defendant-appellant argued that use of the property for commercial purposes in itself alone does not justify payment of rentals.
• Good Faith Possession: Defendant-appellant argued that its possession was in good faith.
• Usufruct: Defendant-appellant argued that its possession was in the nature of usufruct.

• Alien Property Administration as Administrator: Plaintiff-appellee contended that the Philippine Alien Property Administration was a mere administrator of the owner, who ultimately was decided to be plaintiff.
• Commercial Use and Sublease: Plaintiff-appellee contended that because defendant used the property for commercial purposes and leased a portion of it, defendant should be responsible to the owner, who had been deprived of possession for many years.

• Liability for Pre-Annulment Rentals: Whether defendant-appellant is liable for rentals or compensation for the use and occupation of the property from the middle of August 1946 to December 14, 1948, or to February 28, 1949.
• Source of Obligation: Whether defendant-appellant's liability can be predicated on any of the four sources of obligations—law, contract or quasi-contract, crime, or negligence.
• Alien Property Administration's Status: Whether the Alien Property Administration held the property as trustee of plaintiff or of the United States Government, and whether its grant of free use to defendant creates liability to plaintiff for rentals.
• Reservation of Right to Recover: Whether the reservation in the judgment in civil case No. 5007 of plaintiff's right to recover rentals from defendant is binding and creates a right to rentals.
• Good Faith Possession and Rents: Whether defendant's possession in good faith entitles it to the rents collected from its lessee and precludes liability for rentals to plaintiff.

• Liability for Pre-Annulment Rentals: No. The part of the judgment sentencing defendant to pay rentals from August 1946 to February 28, 1949 was reversed; no obligation to pay plaintiff arose for that period.
• Source of Obligation: No. Defendant's liability could not arise from law, contract or quasi-contract, crime, or negligence under Article 1089 of the Spanish Civil Code.
• Alien Property Administration's Status: No. The Alien Property Administration held the property as trustee of the United States Government, not of plaintiff, and defendant occupied with its permission; any rentals would accrue to the United States, not plaintiff.
• Reservation of Right to Recover: No. The reservation did not vest a new right; if no right to rentals existed when the reservation was made, none arose from the reservation alone.
• Good Faith Possession and Rents: Yes, as to good faith. Rents collected from defendant's lessee accrued to defendant as a possessor in good faith; no implied agreement to pay rentals existed.

• Liability for Pre-Annulment Rentals: The trial court's conclusion that National Coconut Corporation was liable merely because plaintiff owned the property and the corporation occupied and used it was unsupported. If the corporation was liable at all, its obligation had to arise from one of the four sources under Article 1089 of the Spanish Civil Code: law, contract or quasi-contract, crime, or negligence. It committed no offense because it entered and occupied the premises with the permission of the Alien Property Administration, which had legal control and administration. It was not negligent. There was no privity between the Alien Property Custodian and Taiwan Tekkosho, which had secured possession from plaintiff by duress, such that the Custodian or its permittee could be held responsible for the illegality of Taiwan Tekkosho's occupation. The claim for rentals before the judgment annulling the sale could not therefore be predicated on offense, negligence, or contract, express or implied. No law, quasi-contract, or equity principle supported the claim. Because the corporation entered possession without expectation of liability for use and occupation, it could not be held liable for such rentals.

• Source of Obligation: Article 1089 of the Spanish Civil Code enumerates the sources of obligations: law, contract or quasi-contract, crime, or negligence. Each was examined. National Coconut Corporation was not guilty of any offense; it occupied with permission of the Alien Property Administration. There was no negligence. There was no contract, express or implied, between the Alien Property Custodian and the corporation for payment of rentals. The existence of an implied agreement was contrary to the circumstances: the Copra Export Management Company, which preceded the corporation, occupied under a custodianship agreement with no provision for rentals or compensation; the Trading with the Enemy Act was originally a conservation measure, making it unlikely that rentals were demanded; and the corporation, a government corporation, succeeded to possession while the Philippine Government was taking steps to secure the property for it. No quasi-contract or equity principle supported the claim. Thus none of the four sources of obligation existed.

• Alien Property Administration's Status: The Alien Property Administration had control and administration of the property not as successor to the interests of the enemy titleholder Taiwan Tekkosho, but by express provision of the Trading with the Enemy Act. It was not a trustee of the former owner, plaintiff, but a trustee of the United States Government, in its own right, to the exclusion of and against the claim or title of the enemy owner. From August 1946, when National Coconut Corporation took possession, until the date of judgment on February 28, 1949, the Alien Property Administration had absolute control of the property as trustee of the United States Government, with power to dispose of it by sale or otherwise as though it were the absolute owner. Therefore, even if the corporation were liable to the Alien Property Administration for rentals, those rentals would not accrue to plaintiff but to the United States Government.

• Reservation of Right to Recover: The reservation in the judgment in civil case No. 5007 could not be considered as vesting a new right. If no right to claim rentals existed at the time of the reservation, no right could arise or accrue from the reservation alone. The reservation did not create a cause of action that the law did not otherwise give plaintiff.

• Good Faith Possession and Rents: National Coconut Corporation's possession was in good faith. As to the rents it collected from its lessee, they should accrue to it as a possessor in good faith, citing the prior resolution in National Coconut Corporation vs. Geronimo, 83 Phil. 467. The circumstances also negated any implied agreement to pay rentals, so the corporation was not liable to plaintiff for the value of its use and occupation.

• Sources of Obligations (Article 1089, Spanish Civil Code) — Obligations arise from law, contract or quasi-contract, crime, or negligence. The Court applied this enumeration as the test for National Coconut Corporation's alleged liability and found none of the sources present: the corporation occupied with permission, committed no offense or negligence, had no contract with the Alien Property Administration, and no quasi-contract or equity principle supported the claim.
• Alien Property Administration as Trustee of the United States Government — Under the Trading with the Enemy Act, the Alien Property Administration held enemy property by express provision of law, not as successor to the enemy titleholder and not as trustee of the former owner. It was a trustee of the United States Government, with absolute control and power to dispose of the property as though it were the absolute owner. Consequently, any rentals for use during its control would accrue to the United States, not to the former owner.
• No Implied Contract to Pay Rentals from Permission to Occupy — Permission to occupy property under a custodianship arrangement, without any provision for rentals and in circumstances showing no expectation of liability, does not give rise to an implied agreement to pay rentals. The Court found no express or implied agreement between the Alien Property Custodian and National Coconut Corporation, especially because the predecessor occupied under a custodianship agreement without rentals and the Trading with the Enemy Act was originally a conservation measure.
• Reservation of a Right Does Not Create a Right — A reservation of the right to recover rentals does not vest a new right. If no right to claim rentals existed at the time of the reservation, no right can arise or accrue from the reservation alone.
• Possessor in Good Faith Entitled to Rents — Rents collected from a lessee accrue to the possessor in good faith. The Court applied this to National Coconut Corporation with respect to rents it collected from its sublessee, citing National Coconut Corporation vs. Geronimo.

• "If defendant-appellant is liable at all, its obligations, must arise from any of the four sources of obligations, namley, law, contract or quasi-contract, crime, or negligence. (Article 1089, Spanish Civil Code.)" — The Court used this enumeration to test whether any obligation to pay rentals existed; finding none of the four sources, it reversed the award for the pre-annulment period.
• "The Allien Property Administration had the control and administration of the property not as successor to the interests of the enemy holder of the title, the Taiwan Tekkosho, but by express provision of law (Trading with the Enemy Act of the United States, 40 Stat., 411; 50 U.S.C.A., 189). Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a trustee of then Government of the United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and against the claim or title of, the enemy owner." — This defines the legal status of the Alien Property Administration and explains why rentals during its control would not accrue to the former owner.
• "There was no agreement between the Alien Property Custodian and the defendant-appellant for the latter to pay rentals on the property. The existence of an implied agreement to that effect is contrary to the circumstances." — This states the finding that no express or implied contract to pay rentals existed, a key reason National Coconut Corporation was not liable.
• "And as to the rents it collected from its lessee, the same should accrue to it as a possessor in good faith, as this Court has already expressly held. (Resolution, National Coconut Corporation vs. Geronimo, 83 Phil. 467.)" — This applies the good-faith possessor rule to the rents National Coconut Corporation collected from its sublessee.

• National Coconut Corporation vs. Geronimo, 83 Phil. 467 — Cited as the Court's prior express holding that rents collected by a possessor in good faith accrue to the possessor.
• Youghioheny & Ohio Coal Co. vs. Lasevich, 179 N.W. 355; 171 Wis. 347; 50 U.S.C.A. 282-283 — Cited for the proposition that the Alien Property Custodian is a trustee of the United States Government in its own right, to the exclusion of and against the claim or title of the enemy owner.
• U.S. vs. Chemical Foundation, 5 F.2d 191; 50 U.S.C.A. 283 — Cited for the Alien Property Administration's absolute control over the property and power to dispose of it as though it were the absolute owner.

• Article 1089, Spanish Civil Code — Provides that obligations arise from law, contract or quasi-contract, crime, or negligence. The Court applied this provision to hold that National Coconut Corporation had no obligation to pay rentals because none of the enumerated sources existed.
• Section 12, Trading with the Enemy Act, 40 Stat. 411; 50 U.S.C.A. 189 — Authorized the United States Alien Property Custodian to take possession, control, and custody of property belonging to an enemy national. The Court held that this gave the Alien Property Administration control and administration by express provision of law, not as successor to Taiwan Tekkosho.
• 50 U.S.C.A. 283 — Cited for the Alien Property Administration's status as trustee of the United States Government and its power to dispose of the property as absolute owner. The Court used this to conclude that any rentals during its control would accrue to the United States, not plaintiff.
• 50 U.S.C.A. 282-283 — Cited with Youghioheny & Ohio Coal Co. vs. Lasevich for the proposition that the Alien Property Custodian holds the property as trustee of the United States Government, in its own right, against the enemy owner's claim or title.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor, and Bautista Angelo, JJ.