REPUBLIC OF THE PHILIPPINES (LAND AUTHORITY), PLAINTIFF-APPELLANT, VS. HERACLIO D. DIAZ, DEFENDANT-APPELLEE.

This appeal of the Republic of the Philippines (Land Authority)
from the Order dated June 24, 1970, of the Court of First Instance of Nueva Ecija, Branch I, in Civil
Case No. 5143, entitled “Republic of the Philippines (Land Authority) vs. Heraclio D. Diaz,” dismissing its Complaint for
recovery of possession of Lot No. 1467 of the Santa Rosa Cadastre, Nueva Ecija, was certified to
this Court by the Third Division of the Court of Appeals** in a Resolution promulgated on February 19,
1973, on the ground that only a pure question of law is involved.^[1]

The following are the antecedental
facts:

The Republic of the Philippines
owns a parcel of land identified as Lot No. 1467 of the Santa Rosa Cadastre,
situated in Santa Rosa, Nueva Ecija, containing an area
of 131,7992 hectares, and covered by Original Certificate of Title No. 9950.^[2]
Lot No. 1467 formed part of the “Crisostomo
Estate”.  The records before us are
devoid of accurate information on the history of the acquisition by the
Philippine Government of that Estate which would be helpful in the disposition
of the present controversy.  However, an
examination of the pertinent documents, now in the possession of the Records
Management Division of the Ministry of Agrarian Reform, reveals that while the
original documents and papers including the owner’s copy of the title, were destroyed
during the last World War, we found on pages 162-165 of Volume 3 of the Crisostomo Estate Record a signed duplicate original copy
of the letter, dated March 28, 1947, of the then Di­rector of Lands Jose P. Dans addressed to the Secretary of Justice, from which we
can gather the following data:

In his Last Will and Testament, dated February 15, 1918, Reverend
Gregorio Crisostomo, a “non-secular” priest
of Malolos, Bulacan,
donated certain tracts of land in Cabanatuan and Sta.
Rosa, Nueva Ecija, forming
part of the estate he had inherited, to the Government of the Philippine
Islands “in order that the same may be invested in the erection of any
building for charitable purposes such as hospital, orphanage, maternity house,
or such others which may redound to the benefit of the Filipino people,”
and appointed as his executor the Attorney General of the Philippine Islands.^[3]

The then Attorney General represented the Government in the probate
of the Will and when the properties left by the testator were partitioned and
those pertaining to the Government ascertained and taken over, the Office of
the Attorney General continued with the administration of the properties
consisting of commercial and residential lots as well as agricultural lands.

Subsequently, however, the Attorney General, concurring with the
opinion of the Auditor General, ruled that the properties should properly be
administered by the Bureau of Lands.  Conformably
with this ruling, the late Governor General Leonard Wood issued a Memorandum
Order designating the Director of Lands as the administrator of the Crisostomo Estate. 
Thereafter, the pro­perties and all records were transferred to said
Bureau.

The interpretation given by the Bureau to the Will was that the
Government had to keep intact the properties donated to it from the Crisostomo Estate and could use only the income derived therefrom in the form of rents paid by the tenants
therein.  Conformably thereto, the Governor
General, on September 7, 1932,
created a Committee composed of the Director of Lands, as Chairman, and the
Directors of Health and of Public Welfare, as members, to make recommendations
for the disposition of the Crisostomo Estate in order
to carry out the wishes of the donor in a fitting manner.  This Committee had been instrumental in
giving away several thousands of pesos as donations to different municipalities
in the Philippines
for the construction of puericulture centers and
maternity houses, most noteworthy of which were the maternity pavilion of the Provincial
Hospital at Malolos
and that of the Provincial Hospital
in Cabanatuan,
Nueva Ecija.  At the same time, three of the lots, other
than Lot 1467 in question, were leased to Ismael Lapuz for a period of ten
years.  The dis­puted lot itself was also
leased to one Zacarias de Guzman for a period of ten
years, but as of March 28, 1947,
the land was vacant and the rental thereon had not been paid since 1946.

On May 19, 1947,
President Manuel Roxas issued Administrative Order
No. 36 transferring the administration of all the properties pertaining to the Crisostomo Estate from the Bureau of Lands to the Rural
Progress Administration.

From the records, it now appears that on November 28, 1950, Executive Order No. 376 was
issued abolishing the Rural Progress Administration, transferring its powers,
duties and functions to the Bureau of Lands, and creating a Division of Landed
Estates in the latter Bureau “to handle the various phases of the activities
presently undertaken by the Rural Progress Administration.”^[4]

On March 31, 1955, the then Director of Lands, Zoilo Castrillo, “acting for
and in behalf of the Bureau of Lands which succeeded the defunct Rural Progress
Administration,” entered into a contract of lease with defendant Heraclio D. Diaz over Lot No. 1467 of the Santa Rosa
Cadastre under the following terms and conditions:

“1. That the
lessee shall pay to the lessor an annual rental of
P800.50 on or before March 30 of every year for the occupation and use of Lot
No. 1467 of the Santa Rosa Cadastre, a portion of the Crisostomo
Estate, with an area of 131.7992 hectares;

“2. That this lease shall cover a period of ten
(10) years from the execution of this contract renewable for another period of
ten (10) years at the option of the lessee unless sooner revoked or renewed as
provided hereinafter;

“3. That the
land shall be used for agricultural purposes and that no construction of any
kind that may be detrimental or may cause damage to the property shall be made
by the lessee;

“4. That the
whole, or any part of the land leased shall not be sublet, transferred,
assigned, encumbered or in any way alienated without the previous written
permission of the lessor;

“5. The lessor has the
right to terminate this lease any time the lot covered thereby or a part
thereof is needed by the government for any public improvements and the lessee
agrees to vacate the premises within 30 days from his receipt of notice therefor;

“6. That
violation of any of the terms and conditions hereinabove set forth shall be
sufficient cause for the rescission or termination of this contract without prejudice
to claiming whatever damages that may be caused by the lessee in the premises
and to enforcing the collection of unsettled obligations in favor of the government.”^[5]

Thereafter, portions of Lot No. 1467 were actually cultivated by
thirteen “helpers-tenants” of defendant covering roughly forty-three
(43) hectares, while the remaining area was possessed by defendant himself.^[6]

In the meantime, the Division of Landed Estates in the Bureau of
Lands was ordered abolished upon the organization of the Land Tenure
Administration created under Republic Act No. 1400, which took effect on
September 9, 1955, and its functions, powers and duties, among other things,
were transferred to this new agency.  The
Land Tenure Administration was, in turn, abolished upon the effectivity,
on August 8, 1963, of
Republic Act No. 3844, and its powers and functions which were not inconsistent
with the newly-created Land Authority, as well as agricultural lands, public
and private under its administration, were transferred to the latter body.

As early as January 31,
1962, the tenants of Lot No. 1467, other landless farmers in the
area and the Barrio Council of San Gregorio, Santa Rosa,
Nueva Ecija, had filed
various petitions to allow them and other farmers of the barrio to lease Lot
No. 1467 directly from the Government.^[7]

Before the expiration of his lease contract, defendant, in a
letter dated January 11, 1965, addressed to the Governor of the Land Authority,
gave notice that he was exercising his option to renew the lease contract for
another period of ten (10) years, and at the same time requested that he be
given written permission to assign his leasehold rights over said lot to the
Development Bank of the Philippines as an additional guaranty for payment of a
loan intended for the purchase of farm implements.^[8]

Sometime in May 1965, the Land Authority sent an investigator to
verify the various petitions concerning Lot No. 1467 and to conduct an ocular
inspection of said property.^[9] A
study on the legal aspects of the lease contract was also made.^[10]

On October 12, 1965, the Governor of the Land Authority, Hon.
Benjamin M. Gozon, sent a reply-letter to defendant
informing the latter that the Office could not agree to the latter’s exercise
of his alleged option to renew the contract of lease over Lot No. 1467 for
another period of ten (10) years “in view of the fact that the same is in
contravention of the provisions of Article 1878 of the New Civil Code which was
already prevailing when the lease contract was entered into” and which
limits to one (1) year only the period for which an administrator without
special power of attorney could effectively lease real property to another, and
inviting Diaz to enter into a contract of lease with the Office for the current
agricultural year, inasmuch as he (Diaz) had already begun cultivating the
property.^[11]

In a letter dated January 27, 1966, addressed to defendant, the
Governor of the Land Authority, this time, Hon. Conrado
F. Estrella, requested defendant to vacate the
premises on or before April 1, 1966 (Lot No. 1467), the lease of which was
extended in his favor for the agricultural year terminating on March 31, 1966,
“in order to enable (the) Office to administer the property in line with
the land reform program and in a manner that will best serve the purposes for
which the property has been entrusted to the Government.”^[12]

Sometime in February 1966, defendant personally went to the
Office of the Land Authority and verbally requested for recon­sideration of its
decision, for which reason, a team of investigators was again sent to
investigate.  After the investigating
team ren­dered its report dated April 5, 1966, defendant was invited, through
two telegrams sent on two different occasions, to a conference but he failed to
come on the days appointed nor on any other day.^[13]

Meanwhile, a report was submitted to the Governor of the Land
Authority to the effect that defendant was able to pay to the Cashier of the
Land Authority advance rentals on the litigated property for the years 1966 to
1970, which payments were considered unauthorized by the Land Authority as per
letter of the Chief, Col­lection and Accounts Division, dated April 25, 1966,
addressed to defendant.^[14]

On April 25, 1966, the Land Authority received a letter from
defendant mentioning the exercise by him of his option on January 11, 1965 and
informing that office that he had already been granted a loan by the
Development Bank of the Philippines, for which reason, there would be no
further need for the deed of assignment of leasehold rights mentioned in his
letter of January 11, 1965.^[15]

In a letter dated May 18, 1966, addressed to defendant, Governor Conrado F. Estrella of the Land
Authority informed the latter that the decision of the Land Authority contained
in its letter of October 12, 1965 to the effect that it could not agree to the
exercise of the defendant’s option in the lease contract is “in line with
the policy of the government, as expressed in the Agricultural Land Reform
Code, which favors the actual tillers of the land to be the direct lessees
thereof and not crop-sharers or sub-lessees.” The Governor also informed
defendant of the decision of the Land Authority to lease the property directly
to the latter’s tenants who are actually cultivating the same and to other
landless farmers in the area; that effective April 1, 1966, the Land Authority
would cease to recognize any leasehold right which he might claim on the
property; and requested him to desist from exercising any such right thereon
and to surrender to the Land Authority the possession of the portion of Lot No.
1467 which was being cultivated by him through mechanization.^[16]

On February 21, 1969,
the Governor of the Land Authority entered into agricultural lease contracts
with the actual occupants of Lot No. 1467 numbering fifteen (15) in all, which
were all registered in the Office of the Municipal Treasurer of Santa
Rosa, Nueva Ecija, on March 5,
1969, pursuant to the Land Reform Code.^[17]

On January 20, 1970, the Office of the Solicitor General, (Mr.
Justice Felix V. Makasiar was then the Solicitor
General), for and in behalf of the Republic of the Philippines (Land
Authority), lodged this Complaint for recovery of possession against defendant
in the Court of First Instance of Nueva Ecija, Branch I, docketed therein as Civil Case No. 5143,
entitled “Republic of the Philippines (Land Authority) versus Heraclio D. Diaz,” alleging therein as its first cause
of action, that the rest of Lot No. 1467 still in the possession of defendant,
is needed by the Republic to enable it to lease the land directly to the
persons working on and/or tilling it in line with its policy and to effectively
solve the existing socio-economic problem in Central Luzon, particularly in the
locality where the land in question is situated; and, as its second cause of
action, that, the nullity of the exercise by defendant of the option to renew
the lease contract notwithstanding, the Republic was entitled to reasonable
compensation for the use and occupation of the parcel of land in question from
April 1, 1966 until he vacates and returns possession thereof.

The Complaint prayed for judgment:

a)     
declaring null and void and of no legal force
and effect the exercise by Heraclio D. Diaz of the
right or option to renew the contract of lease of Lot No. 1467 for another
period of ten (10) years from March 31, 1965;

b)     
declaring illegal the possession by Heraclio D. Diaz of said parcel of land since April 1, 1966 to the present;

c)     
directing Heraclio D.
Diaz to vacate said parcel of land and deliver possession thereof to the
Republic through the Land Authority; and

d)     
directing Heraclio D.
Diaz to pay to the Republic the amount of P4,000.00 per agricultural year from
April 1, 1966 until he vacates and surrenders actual possession of said parcel
of land, as reasonable compensation for the use and occupation thereof.^[18]

A Motion for the issuance of a Writ of Preliminary Mandatory
Injunction and Writ of Preliminary Injunction was filed on March 6, 1970 by the
Solicitor General (this time Associate Justice Felix Q. Antonio was the
Solicitor General) giving as ground therefor the
alleged failure and continued refusal of Heraclio D.
Diaz, despite repeated demands, to vacate the subject parcel of land and
deliver possession thereof to the Government. 
And in support of the prayer for the issuance of a Writ of Preliminary
Injunction, the Solicitor General alleged that defendant had sent letters to
the agricultural lessees asking them to vacate the parcels of land leased to
them by the Government and had bulldozed these landholdings, as shown by an
attached copy of the letter received by agricultural lessee Mario de la Paz from
defendant and by the joint affidavit of agricultural lessees Leon Mariano and Ceferino Purificacion; and that
defendant had been committing acts calculated to instill fear upon the agricul­tural
lessees so as to prevent them from using, enjoying and working on their
landholdings.^[19]

On March 16, 1970, an urgent ex-parte
Motion for a Restraining Order was filed by the Solicitor General praying that
an Order be issued restraining defendant, his agents or representatives, du­ring
the pendency of the hearing on the Motion for
Preliminary Man­datory Injunction and Preliminary Injunction, from divesting
the agricultural lessees of their respective landholdings or from mo­lesting or
disturbing them in their possession.^[20]

On March 31, 1970, defendant filed a Motion to Dismiss the
Complaint on two grounds:  first, that
the cause of action is barred by the statute of limitations (Section 1(f), Rule
16, Rules of Court) and, second, that the Complaint states no cause of action (Section
1(g), Rule 16, Rules of Court).^[21]
On the same date, March 31, 1970,
defendant also filed an Opposition to the Motion for Issuance of Writ of
Preliminary Mandatory Injunction and Writ of Preliminary Injunction. ^[22]

On April 20, 1970,
the Solicitor General filed an opposition to the Motion to Dismiss and a Reply
to the Opposition to the issuance of Writs of Injunction.^[23]

In an Order dated June
24, 1970, the Court of First Instance of Nueva
Ecija, Branch I, dismissed the Complaint of the
Republic and decreed:

“WHEREFORE, the complaint is hereby dismissed without
pronouncement as to costs.  The plaintiff
(Land Authority) or any person or persons acting in its behalf, or any of its
agents, representatives and personnel are enjoined from disturbing, molesting,
or in any manner preventing the defendant from the peaceful and actual possession
and enjoyment of the Crisostomo Estate described in
paragraph 2 of the complaint and in the Contract of Lease (Annex “A”
to the Complaint).

“IT IS FURTHER DECLARED that the right or option to renew the
contract of lease for a period of ten (10) years and the exercise of the right
or option to renew the contract of lease by the defendant on March 31, 1965 is
valid and shall remain in full force and effect during its effectivity
from March 31, 1965 to March 31, 1975.

“SO ORDERED.”^[24]

On July 31, 1970,
plaintiff appealed to the Court of Appeals.^[25]

After the parties had filed their respective Briefs, the Court of
Appeals issued a Resolution on February 19, 1973, certifying the case to this
Court as “only a pure question of law is involved, that is, the
interpretation of the pertinent laws relative to the contract of lease executed
by the Director of Lands in favor of defendant.”^[26]

The appellant Republic made the following Assignments of Error in
the Court of Appeals:

1.      
THE LOWER COURT
ERRED IN HOLDING THAT THE CONTRACT OF LEASE IN QUESTION IS VALID INCLUDING ALL
THE TERMS AND CONDITIONS THEREOF AS WELL AS THE EXERCISE OF THE OPTION TO RENEW
THE CONTRACT OF LEASE FOR ANOTHER PERIOD OF TEN (10) YEARS COMMENCING FROM MARCH 31, 1965 AND ENDING MARCH 31, 1975.

2.      
THE LOWER COURT
ERRED IN DECLARING THAT THE LAND AUTHORITY HAS NO BUSINESS DISTURBING THE
POSSESSION BY THE DEFENDANT OF THE LAND IN QUESTION DURING THE EFFECTIVITY OF THE CONTRACT OF LEASE AS RENEWED.

3.      
THE LOWER COURT
ERRED IN HOLDING THAT THE CONTRACT OF LEASE ENTERED INTO BY THE LAND AUTHORITY
WITH THE AGRICULTURAL LESSEES OF THE LAND IN QUESTION HAS TRANSGRESSED THE
LEASEHOLD RELATIONS WITH THE DEFENDANT APPELLEE.^[27]

From the pleadings, the critical issue for resolution is whether
or not the Director of Lands had power to convey by way of lease the property
owned by the Republic for a period longer than one (1) year, for if he had,
then the validity of the lease in defendant’s favor will have to be upheld.

In its dismissal Order dated June 24, 1970, the Court a quo
stated that when the Director of Lands entered into a contract of lease with
defendant on March 31, 1955, the Director of Lands exercised his powers,
authority and functions not as a Director of Lands as constituted within the
meaning of the Revised Administrative Code but as head of the Division of
Landed Estates in the Bureau of Lands, with the same powers, functions and
authority vested in the Administrator of the defunct corporation Rural Progress
Administration; that the powers exercised by the Director of Lands was a
corporate power vested in him by Commonwealth Act No. 378 pursuant to Executive
Order No. 206 dated May 31, 1939; that as Administrator of the Crisostomo Estate which is a patrimonial property of the
State, the Director of Lands went down to the level of a private individual and
did not have to seek further authority for such authority has been vested in
him by law.

We hold that the Director of Lands acted within his power and
authority as head of the Division of Landed Estates when he entered into the
contract of lease with defendant on March
31, 1955 for a period of ten (10) years renewable for a like
period, at the lessee’s option.

The Director of Lands was not acting merely as an agent in the
sense that he still needed a special power of attorney to lease the real
property to another person for more than one (1) year under Article 1878 (8) of
the Civil Code.  After the war, administration
of the Crisostomo Estate was turned over to the Rural
Progress Administration by Administrative Order No. 36 issued by President
Manuel Roxas, and thereafter, on November 28, 1950,
administration reverted to the Bureau of Lands, particularly in the latter’s
newly created Division of Landed Estates. 
When the Di­rector of Lands, therefore, leased the property to
defendant, he did so as a public officer and he represented the Government and
stood for it as an “arm of the State.” He acted by virtue of an au­thority
vested in him by law and needed no further delegation of power.  He was clothed with some part of the
sovereignty of the State.  He acted as a
“vice principal” defined as “one vested with the entire
management, control, and supervision of a particular work to be done, so as to
say, not only what shall be done, but how it shall be done, and has full power
and authority to command the men under him in the work, and the work is under
his practical direction and control, save and except as he may receive
directions from time to time from his employer, and there is ordinarily no one
else present and authorized to superintend and direct the work of the men.  He then represents the employer — stands for
the employer.  When the foreman of a gang
of men is invested with such control he is a vice principal (Lindvall v. Woods, 44 F. 855, 857).”^[28]
Directly empowered “to handle the various phases of the activities
(presently) undertaken by the Rural Progress Administration,” it was his
duty to administer the Crisostomo Estate as he saw
best and fit.

“When power or jurisdiction is delegated to any public officer
over a subject matter, and its exercise is confided to his discretion, the acts
done in the exercise of the authority are, in general, binding and valid as to
the subject matter.”^[29]

At the time of the lease, the immediate objective was still to
generate funds to carry out the purposes of the donation, and lease was one of
the avenues therefor. 
In fact, on January 1, 1943,
Lots Nos. 301, 883 and 1885 of the Estate had been leased for a period of ten (10)
years to Ismael Lapuz;
while Lot No. 1467 itself had also been leased to Zacarias
de Guzman for a similar period.^[30]
The lease to defendant in 1955 for a period of ten (10) years, therefore, was
but a continuation of the pre-war policy.

The lease contract being valid, its renewal for a like period of
ten (10) years was likewise valid, the option therefor
having been given to and having been exercised by defendant lessee pursuant to
the terms of the lease, supra.

But while we are finding that the lease contract was valid as
well as the exercise by defendant of his option to renew, it is obvious that
the period of the lease contract, even as renewed, had already expired on March 31, 1975.  Since defendant is still occupying the
subject premises, according to a Manifestation dated January 16, 1979 of Ms. Lourdes C. Tabañag of the Bureau of Agrarian Legal Assistance of the
Ministry of Agrarian Reform, it will have to be held that defendant’s occupancy
thereof no longer finds any legal basis. 
He is a usurper and he has no right to legitimately continue in the use
and enjoyment of the premises.  He has
become a possessor in bad faith.

“If the lessee continues enjoying the thing after the
expiration of the contract, over the lessor’s
objection, the former shall be subject to the responsibilities of a possessor
in bad faith.”^[31]

As claimed by plaintiff, it is entitled to reasonable compensation
for the use of the premises by defendant. 
Plaintiff, however, reckons the date from April 1, 1966. 
Actually, considering our finding that the renewal of the lease was
valid, this should commence only from April
1, 1976, or the day after the expiry of the renewal period.  A detainer should
be sentenced to pay not necessarily the rental fixed in the contract of lease
that has expired but the reasonable compensation for the use and occupation of
the detained prem­ises.^[32]
Evidence herein as to such reasonable compensation is wanting, although
plaintiff has prayed for payment of P4,000.00 per agricultural year, which
defendant has not controverted.  While a remand to the Court a quo
for determination of such reasonable compensation is called for, it is our
opinion that this would only unduly delay the final disposition of this
case.  A protracted hearing on the issue
would not be far-fetched.  In the
interest of the faster termination of this suit, therefore, we fix the amount
of the reason­able compensation for the use and occupation of the premises at
P4,000.00 per year, which we find reasonable.

WHEREFORE, defendant Heraclio D.
Diaz is hereby ordered:

1) to vacate immediately Lot
No. 1467 of the Santa Rosa cadastre and deliver possession thereof to
plaintiff, Republic of the Philippines, through the Ministry of Agrarian Reform
as the successor of the Land Authority;

2) to pay plaintiff the
arrears in rentals, if any, during the renewed period of the lease from April
1, 1966 to March 31, 1975, with interest at the legal rate from the date of
delinquency; and

3) to pay plaintiff the
amount of P4,000.00 a year as the reasonable compensation for the use and
occupation of the leased premises commencing April 1, 1976, with interest at
the legal rate, until such time as defendant shall have vacated the property.

With costs against defendant-appellee.

SO ORDERED.

Teehankee, (Chairman), Fernandez,
Guerrero, and De Castro, JJ., concur.

Makasiar, J., took no part.

** Composed of Justices Hermogenes
Concepcion Jr., Ramon C. Fernandez and Emilio A. Gancayco.

^[1]
pp. 31-33, Rollo.

^[2]
p. 5, Record on Appeal.

^[3] See
p. 214, Vol. 3, Crisostomo Estate Record, for the
reproduction of the Last Will and Testament in Spanish; see also p. 337, Vol.
4, ibid, for the English translation.

^[4]
pp. 57-58, Record on Appeal; see also Executive Order No. 376, November 28, 1950.

^[5] pp.
12-15, Record on Appeal.

^[6]
pp. 4-5, Appellant’s Brief; see also p. 49, Record on Appeal.

^[7]
p. 19, Record on Appeal.

^[8]
p. 16, ibid.

^[9]
p. 19, ibid.

^[10] ibid.

^[11]
p. 17, ibid.

^[12]
p. 18, ibid.

^[13]
pp. 20-21, ibid.

^[14]
p. 21, ibid.

^[15] ibid.

^[16] pp.
19-22, Record on Appeal.

^[17]
pp. 7-9, ibid.

^[18]
pp. 4-11, ibid.

^[19]
pp. 23-31, ibid.

^[20]
pp. 33-34, ibid.

^[21]
p. 35, ibid.

^[22]
p. 40, ibid.

^[23]
p. 52, ibid.

^[24]
pp. 67-68, ibid.

^[25]
pp. 68-69, ibid.

^[26]
pp. 31-33, Rollo.

^[27]
pp. 1-2, Appellant’s Brief.

^[28]
Words & Phrases, Vice Principal, p. 404.

^[29]
63 Am Jur 2d, p. 786.

^[30]
Letter dated March 28, 1947
of the Director of Lands, Jose P. Dans to the
Secretary of Justice.

^[31]
Art. 1671, Civil Code.

^[32] Secs. 6 & 8, Rule 70, Rules of Court.