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

Republic of the Philippines versus Diaz

The Case

This is an action by the Republic of the Philippines, acting through the Land Authority, against Heraclio D. Diaz for the recovery of possession of a large agricultural lot in Santa Rosa, Nueva Ecija, known as Lot Number 1467 of the Santa Rosa Cadastre, which formed part of the Crisostomo Estate. The Republic claims that the land is needed to carry out the land reform program by leasing it directly to the farmers actually tilling it, and that the defendant's claim of a renewed lease is void. The case matters because it fixes the rule on the authority of a public officer, the Director of Lands acting as head of the Division of Landed Estates, to lease government property for a period longer than one year without a special power of attorney, and because it applies the rule on the possessor in bad faith once a valid lease expires.

Procedural History

The Republic filed its complaint for recovery of possession before the Court of First Instance of Nueva Ecija, Branch One. The defendant moved to dismiss on the grounds that the cause of action was barred by the statute of limitations and that the complaint stated no cause of action. The trial court, in an order dated June 24, 1970, dismissed the complaint, declared the lease and the exercise of the option to renew valid until March 31, 1975, and enjoined the Land Authority from disturbing the defendant's possession. The Republic appealed to the Court of Appeals. That court, finding that only a pure question of law was involved, certified the case to the Supreme Court, which decided it on appeal.

Facts

Reverend Gregorio Crisostomo, by his last will and testament dated February 15, 1918, donated tracts of land in Cabanatuan and Santa Rosa, Nueva Ecija, to the Government of the Philippine Islands, to be invested in the erection of buildings for charitable purposes such as hospitals, orphanages, and maternity houses. The properties were administered at various times by the Attorney General, the Bureau of Lands, and the Rural Progress Administration. On November 28, 1950, Executive Order Number 376 abolished the Rural Progress Administration and transferred its powers and functions to the Bureau of Lands, creating a Division of Landed Estates to handle its activities.

On March 31, 1955, the Director of Lands, acting for the Bureau of Lands as successor of the Rural Progress Administration, entered into a contract of lease with the defendant over Lot Number 1467, with an area of 131.7992 hectares, for a period of ten years, renewable for another ten years at the lessee's option. The land was to be used for agricultural purposes. Portions of the lot were cultivated by thirteen helpers-tenants of the defendant, while the rest was possessed by the defendant himself.

Before the lease expired, the defendant gave notice on January 11, 1965 that he was exercising his option to renew for another ten years. The Land Authority refused, invoking Article 1878 of the Civil Code, which limits to one year the period for which an administrator without a special power of attorney may lease real property. The Land Authority later leased the property directly to the actual occupants under the land reform program. On January 20, 1970, the Republic filed this complaint for recovery of possession and for reasonable compensation.

Issues

• Whether or not the Director of Lands had the power to convey by way of lease property owned by the Republic for a period longer than one year without a special power of attorney.
• Whether or not the exercise by the defendant of his option to renew the lease for another ten years was valid.
• Whether or not the defendant, having remained in possession after the expiry of the renewed lease, is a possessor in bad faith liable for reasonable compensation.

Applicable Provisions

Article 1878 of the Civil Code, which the Land Authority invoked, provides:

Article 1878. Special powers of attorney are necessary in the following cases: ... (8) To lease any real property to another person for more than one year.

This provision bears on the case because the Land Authority argued that the Director of Lands, as an administrator, needed a special power of attorney to lease the property for more than one year.

Article 1671 of the Civil Code, on the lessee who continues in possession after the contract expires, provides:

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.

This provision bears on the case because the defendant remained in possession after the renewed lease expired on March 31, 1975.

Ruling

On the first issue, the Court held that the Director of Lands acted within his power and authority as head of the Division of Landed Estates when he entered into the lease on March 31, 1955. He was not acting merely as an agent who needed a special power of attorney under Article 1878 of the Civil Code. When he leased the property, he did so as a public officer representing the Government, an arm of the State, clothed with part of the sovereignty of the State. He acted by virtue of authority vested in him by law and needed no further delegation of power. The Court quoted the principle:

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.

On the second issue, the Court held that since the lease contract was valid, its renewal for a like period of ten years was likewise valid, the option having been given to and exercised by the defendant under the terms of the lease.

On the third issue, the Court held that the period of the lease, even as renewed, had already expired on March 31, 1975, and the defendant was still occupying the premises. His occupancy therefore no longer had any legal basis. He became a usurper and a possessor in bad faith, and the Republic was entitled to reasonable compensation for the use of the premises from April 1, 1976, the day after the expiry of the renewal period, not from April 1, 1966 as the Republic had claimed.

Doctrine

A public officer to whom the law delegates power over a subject matter, and whose exercise of that power is confided to his discretion, does not act as a mere agent. His acts done in the exercise of that authority are binding and valid as to the subject matter, and he needs no special power of attorney under Article 1878 of the Civil Code to lease real property for more than one year. When a valid lease expires and the lessee continues in possession over the lessor's objection, he becomes a possessor in bad faith under Article 1671 of the Civil Code and is liable for reasonable compensation for the use and occupation of the premises.

Disposition

The Supreme Court upheld the validity of the lease and its renewal, but ordered the defendant to vacate the premises and to pay reasonable compensation from April 1, 1976, since the renewed lease had already expired.

Remember This

Remember that a public officer acting under a delegated power of law is not a mere agent and needs no special power of attorney to lease government property for more than one year. Examiners use this case to test the distinction between an agent under Article 1878 and a public officer vested with authority by law, and the rule on the possessor in bad faith after a lease expires.