NATIONAL HOUSING AUTHORITY, PETITIONER, VS. COURT OF APPEALS, BULACAN GARDEN CORPORATION AND MANILA SEEDLING BANK FOUNDATION, INC., RESPONDENTS.

National Housing Authority versus Bulacan Garden Corporation

The Case

This is a petition for review brought by the National Housing Authority against the Court of Appeals, Bulacan Garden Corporation, and the Manila Seedling Bank Foundation. Bulacan Garden had sued to stop the National Housing Authority from demolishing its facilities on a lot it leased from the Manila Seedling Bank Foundation, which claims usufructuary rights over that lot. The case matters because it fixes the boundaries of a usufruct granted to a corporation by proclamation, and because it reminds us that a usufructuary may lease the property but may never exceed the area the title gives it.

Procedural History

Bulacan Garden filed a complaint for injunction before Branch 87 of the Regional Trial Court of Quezon City, later amending it to include the Manila Seedling Bank Foundation as co-plaintiff. The trial court dismissed the complaint, holding that the Foundation failed to act seasonably on its right to survey the seven-hectare area. Bulacan Garden appealed to the Court of Appeals, which reversed the trial court and enjoined the National Housing Authority from demolishing Bulacan Garden's structures during the existence of its lease with the Foundation. The National Housing Authority moved for reconsideration, which the appellate court denied. The National Housing Authority then came to the Supreme Court by petition for review.

Facts

In October 1968, Proclamation No. 481 set aside a 120-hectare portion of land in Quezon City owned by the National Housing Authority as the site of the National Government Center. In September 1977, Proclamation No. 1670 removed a seven-hectare portion from that coverage and gave the Manila Seedling Bank Foundation usufructuary rights over it, with the area to be determined by a future survey under the administration of the Foundation.

The Foundation occupied the area, but over the years its occupancy exceeded seven hectares. By 1987 it occupied approximately 16 hectares, bounded by Epifanio de los Santos Avenue to the west, Agham Road to the east, Quezon Avenue to the south, and a creek to the north. In August 1987 the Foundation leased a portion facing Epifanio de los Santos Avenue, measuring 4,590 square meters, to Bulacan Garden.

In November 1987, President Corazon Aquino issued Memorandum Order No. 127, which revoked the reserved status of the remaining 50 hectares of the National Housing Authority property and authorized the Authority to commercialize and sell the area. Acting on that authority, the National Housing Authority gave Bulacan Garden ten days to vacate, failing which its structures would be demolished. Bulacan Garden then sued for injunction. The trial court dismissed the complaint, and the National Housing Authority demolished Bulacan Garden's facilities soon thereafter.

Issues

• Whether or not the petition is moot because of the demolition of Bulacan Garden's structures.
• Whether or not the premises leased by Bulacan Garden from the Manila Seedling Bank Foundation lie within the seven-hectare area that Proclamation No. 1670 granted to the Foundation by way of usufruct.

Applicable Provisions

Article 565 of the Civil Code provides:

Article 565. The rights and obligations of the usufructuary shall be those provided in the title constituting the usufruct; in default of such title, or in case it is deficient, the provisions contained in the two following Chapters shall be observed.

This makes Proclamation No. 1670 the governing title of the usufruct, and it is that title which authorizes the Foundation to determine the location of its seven-hectare area.

Article 601 of the Civil Code provides:

Article 601. The usufructuary shall be obliged to notify the owner of any act of a third person, of which he may have knowledge, that may be prejudicial to the rights of ownership, and he shall be liable should he not do so, for damages, as if they had been caused through his own fault.

This embodies the usufructuary's duty to protect the owner's interests, which the Foundation violated by occupying land beyond its grant.

Article 605 of the Civil Code provides:

Article 605. Usufruct cannot be constituted in favor of a town, corporation, or association for more than fifty years. If it has been constituted, and before the expiration of such period the town is abandoned, or the corporation or association is dissolved, the usufruct shall be extinguished by reason thereof.

This caps the usufruct in favor of the Foundation at fifty years, counted from the issuance of Proclamation No. 1670 in September 1977.

Ruling

On the first issue, the Court held that the petition is not moot. Bulacan Garden may have lost interest after the demolition, but its co-plaintiff, the Foundation, has not, since the exact location of the seven-hectare area directly affects its usufructuary rights. The Court stressed the need to settle the question to forestall future disputes and to put this twenty-year litigation to rest.

On the second issue, the Court held that the Foundation may choose the location of its seven-hectare area, and that it seasonably exercised that right through two surveys, in 1984 and 1986, well before the controversy began. The trial court erred in dismissing those surveys as self-serving. The Court found further support in the fact that the Foundation's main structures, namely its main office, three green houses, warehouse, and composting area, stand within the area indicated by its survey, while the National Housing Authority's delineation would leave only the hardening bays and display area. The location of a gate is not a sufficient basis for fixing a boundary.

Yet the Court also held that the Foundation abused its privilege by occupying more than seven hectares. A usufructuary may lease the object held in usufruct, and the owner must respect that lease while the usufruct exists, so the National Housing Authority may not evict Bulacan Garden if its 4,590 square meters lie within the seven hectares. But the Authority may evict if the area lies outside. Because the parties' surveys conflict, the Court ordered a new joint survey to determine the metes and bounds of the seven-hectare portion, which must be contiguous and must include as much as possible all existing major improvements of the Foundation.

Doctrine

A usufructuary may lease the object held in usufruct, and the owner must respect that lease so long as the usufruct exists. The rights and obligations of the usufructuary are governed first by the title constituting the usufruct, as Article 565 commands. A usufructuary has the duty to preserve the form and substance of the property and to protect the owner's interests under Article 601, so its rights begin and end within the area granted. Finally, under Article 605, a usufruct in favor of a corporation or association cannot exceed fifty years.

Disposition

The Court set aside the decision and resolution of the Court of Appeals and remanded the case to the trial court to order a joint survey by the National Housing Authority and the Manila Seedling Bank Foundation to fix the metes and bounds of the seven-hectare portion, with the parties to submit the survey for approval within sixty days from the order.

Remember This

The single line to memorize is that a usufructuary may lease what it holds in usufruct, but its rights begin and end within the area its title grants, and a corporate usufruct lasts no more than fifty years. Examiners use this case on the powers and duties of the usufructuary, on the lease of property held in usufruct, and on the fifty-year limit for corporations under Article 605.