LUMEN POLICARPIO, PETITIONER, VS. HON. COURT OF APPEALS (NOW INTERMEDIATE APPELLATE COURT), HON. ELVIRO L. PERALTA, AND PHILIPPINE TRUST COMPANY, RESPONDENTS.

We order the remand of the case at bar to the Intermediate Appellate
Court pursuant to the provisions of Section 9 of the Judiciary
Reorganization Act of 1980 (Batas Pambansa Blg. 129) which grant the
Intermediate Appellate Court “power to try cases and conduct hearings,
receive evidence and perform any and all acts necessary to resolve
factual issues raised in cases falling within its original and appellate
jurisdiction, including the power to grant and conduct new trials or
further proceedings.”

The remand is warranted and necessary in the light of facts and
circumstances appearing in the records which impel Us to grant the
relief prayed for in the instant petition seeking, among others, that
respondent Judge Elviro L. Peralta be directed “to receive the evidence
for herein petitioner as a builder in good faith under the provisions of
Article 546 in relation with Articles 448 and 450 of the Civil Code, in
Civil Case No. 41518 of Branch XVII of the Court of First Instance of
Manila.”

Before citing said facts and circumstances, a recital of the petition’s case history is necessary.

In 1959, the spouses Simeon and Modesta Policarpio together with
daughter Iluminada (Lumen) R. Policarpio mortgaged to the Philippine
Trust Company certain properties with TCT No. 24182 located in Navotas,
Malabon, Rizal as security for a P300,000.00 loan. In 1963, for failure
to pay the loan, the mortgage was foreclosed judicially by the bank in
Civil Case No. 41518 and the properties mortgaged were sold at public
auction on October 15, 1970 and was confirmed by the court on March 9,
1971. In the meantime, Simeon Policarpio died on April 16, 1971.

On October 20, 1976, the Philippine Trust Company filed in said case No.
41518 a Motion for Writ of Possession of the properties it had
purchased at the auction sale, which was opposed separately by herein
petitioner, and her brothers and sister, namely Ricardo, Leonila,
Abelardo, Jose and Ruben, all surnamed Policarpio, on the ground of lack
of notice of the auction sale to them. The trial court rejected their
position, ruling that since the foreclosure sale took place before the
death of Simeon Policarpio, his heirs who are the petitioner, her
brothers and sister, were bound by the foreclosure proceedings and the
subsequent sale, and that the bank had the right of possession of the
properties after the confirmation of the sale. The court, however, did
not issue the writ prayed for at that stage because there were
circumstances of record which deterred the issuance, said circumstances
being, in the words of the court’s Order dated February 28, 1977, to
wit:

“Whereas, in the exercise of its power to enforce its own decree
and thus avoid circuitous action and vexatious litigation this court can
give possession to the plaintiff without driving it to an action at law
to obtain possession (Ramos vs. Mañalac, 89 Phil. 270), there are
circumstances of record which deter it from issuing the writ prayed for
at this stage. Firstly, on the supposition that the new house of
defendants was constructed with the knowledge of the plaintiff, they
would be builders in good faith with the right to retain the land on
which said structure stands until they are reimbursed the expenses in
the construction thereof (Article 546, Civil Code), should the plaintiff
elect to retain the land, instead of obliging the defendants to buy it
in accordance with the provisions of Article 448 of the Civil Code.
Secondly, since the defendants including the ‘compulsory heirs’,
successors in interest of the deceased defendant, who have been in the
possession of the property are deemed the lessees thereof, it would be
in keeping with the policy of avoiding circuitous suits if evidence be
introduced on the following: – whether or not defendants are builders in
good faith of the house mentioned above, the value of the same, and the
reasonable value of the use by the defendants or the heirs of the
premises since the period to redeem expired – matters which this court
can in this incident determine in much the same manner as it could
oblige the plaintiff to render to the defendants an accounting of the
fruits of the property had it taken possession thereof from the date of
the confirmation of the sale. (Matta, et al. vs. PNB, et al., 66 Phil.
379). Moreover, the plaintiff has to articulate which of the
alternatives in Article 448 or Article 450 of the Civil Code it would
choose to elect depending on whether defendants are builders in good
faith or bad faith.

“The proposal of Atty. Policarpio to buy the property is purely a
matter for her to take up with the plaintiff, one the court cannot dip
its fingers into, much less use as reason to delay the writ of
assistance to plaintiff.

“In view of the foregoing, the court for the moment defers further
action until the parties shall have adduced evidence on the matters set
forth above, which they will do on March 31, 1977, at 8:30 in the
morning.

“SO ORDERED.

“Manila, Philippines, February 28, 1977.”

Subsequently, a number of orders was issued by the court dated May 6,
1977, February 14, 1979 and February 27, 1979 repeatedly calling for
evidence on the alleged good faith or bad faith of the Policarpios. We
cite below pertinent portions of these orders, thus:

Order dated May 6, 1977

“In view of the foregoing, let the incident be rescheduled for
June 14 and June 15, 1977, at 8:30 in the morning, the court calling the
attention of the parties to the fact that it cannot issue the writ
prayed for unless evidence will be adduced on whether the defendants and
the oppositors who claim themselves to be the heirs of Simeon
Policarpio are builders in bad faith of the building admittedly
constructed or reconstructed after the period to retain the property had
expired, and on how much should said parties pay the plaintiff for
their use of the premises since the time plaintiff was entitled to the
possession and enjoyment of the same.”

Order of February 14, 1979

“After the Court will have ruled on the exhibits of the
plaintiff, it will set the incident for the purpose of receiving the
evidence of the Policarpios. Mr. Jose B. R. Policarpio, his brothers
and sisters who are allied with him in this case, are hereby directed to
employ the services of an attorney to substitute Atty. David Flores,
deceased, as promised in their pleading of November 17, 1978, otherwise
in the hearing, the Court will consider that they waived assistance of
counsel in connection therewith.”

Order of February 27, 1979:

“Nevertheless, in a spirit of chivalry, the Court hereby sets
the hearing for the last time to April 20, 1979, at 8:30 in the morning,
for it to at least start hearing from the Policarpios on the evidence
contem­plated in the several orders of this Court.”

It appears from the orders cited above that the can­cellation of the
hearings for the reception of evidence was due to the fact that “in the
past few weeks Atty. Lumen Policarpio had been suffering from
dermatitis,” that she (Atty. Lumen Policarpio) “cannot appear in court
because she is presently with a rare species of skin disease.”

Notwithstanding the above orders and inspite of the reasons for the
postponement or cancellation of the scheduled hearings for the reception
of the evidence, which to Us ap­pears reasonable and justifiable, the
trial court received the evidence of the plaintiff Philippine Trust
Company on April 23, 1979 as shown in the assailed order of May 28,
1979, to wit:

“Plaintiff presented the following: Letter of Paterno M. Sisante,
then president of the plaintiff, dated January 15, 1974, addressed to
Atty. Lumen Policarpio, informing her that the Board of Directors of
said plaintiff in its meeting of January 8, said year, rejected her
request of December 11, 1973, to repurchase the property foreclosed
because (apparently) while possession should have been delivered upon
confirmation of the sale on March 24, 1971, she filed an action relative
to said property, ob­taining a restraining order, which however was
dismissed by the Supreme Court on September 4, 1973 (Exhibit “E”);
letter dated March 29, 1974, of Atty. Policarpio to the said Board
appealing for a reconsideration of its stand and announ­cing that the
family would be repurchasing the property, with interest on the ‘sales
price’, ‘plus accrued interest, legal cost, real estate taxes and other
miscellaneous expenses incurred and contributed to the damage of your
bank for the delay and failure to pay your bank on time’ as soon as the
loan applied by the purchaser, for the purchase price of their Rizal
Avenue property, would be released by the Far East Bank (Exhibit “F”);
letter dated August 21, 1974, of Ricardo G. Verzosa, then vice-president
of the Bank, in answer to the letter of Miss Policarpio giving the
Policarpios ‘an exclusive option to repurchase the said properties
within a period of forty-five (45) days from the date hereof (also the
date of its receipt by the addressee) at P2,000,000.00 in spot cash’
with the understanding that they were ‘to account for and remit to us
the rentals you have been collecting from tenants leasing certain
portions of the said properties, which rentals, we understand,
aggregated P1,150.00 monthly, as well as the rentals on the residential
house being occupied by your family which is fixed at the rate of
P500.00 per month, from March 24, 1971’ (Exhibit “G”); letter of Antonio
M. Nuyles of the Bank’s legal department, dated February 9, 1976,
demanding vacation of the property as there were already buyers of the
same and payment of rents for the use thereof (Exhibits “H”); affidavit
of Leonides de la Llana, president of the Bank from October 1, 1976 to
May 15, 1978, to the effect that Atty. Policarpio did not repurchase the
property within the time granted her, upon her repeated requests, to so
repurchase (Exhibit “A”); affidavit of Oscar Ledesma, chairman of the
Board of Directors of plaintiff, to the effect that he had never given
his consent to Miss Policarpio as one of the defendants and as counsel
of defendants to build a house on the property (Exhibit “B”); letter,
dated June 21, 1978, of President Rafael Arnaldo of the plaintiff
informing Miss Policarpio of the rejection by the Board of Directors of
her request contained in her letter of May 15, 1978, for an extension
from June 25, 1978 to October 25, 1978, to repurchase the property
(Exhibit “D”); letter of said Arnaldo to Atty. Policarpio, dated
September 28, 1978, informing her of the rejection by the Board of her
request (apparently for reconsideration) of July 28, 1978, and of the
reaffirmation by the said Board of its former decision, that contained
in Exhibit “D” (Exhibit “C”); and a statement of the rents the
Policarpios owe for the use of the property from March 24, 1971 to April
30, 1979, amounting to P48,500.00 as well as rents collected by them
from portions of the property they leased to third persons in the total
sum of P102,820.00 as of April 30, 1979 (Exhibit “I”).”

The court further added that it committed a mistake in calling for
evidence on whether or not the Policarpios are builders of a supposed
renovated building in good faith. In the words of the court, We quote
the pertinent portion of its Order dated May 28, 1979, as follows:

“Going over the records of the case once again, the Court realizes
that it committed a mistake in calling for evidence on whether or not
the Policarpios are builders of a supposed renovated building in good
faith. The mortgage which was foreclosed contains the following
provision:

‘Now, therefore, as security for the payment of the principal and
interest of the indebtedness herein referred to, the Mortgagor hereby
conveys, by way of first mortgage, to the Mortgagee, its successors and
assigns that (those certain parcel(s) of land, together with all the
buildings and improvements existing thereon and which may hereafter be
placed thereon x x x x”

The above, coupled, not so much with the affidavit of Ledesma (Exhibit
“B”), which is hearsay, as with the utter absence of any evidence on the
part of the Policarpios which the Court may utilize as basis for not
following the underscored provision of the mortgage contract, erases all
obstacles to the delivery of the property to the plaintiff.

“A different consideration has to be accorded the matter of
rentals. Exhibit “I” of the plaintiff is both hearsay and self-serving.
Defendant Simeon Policarpio died on April 16, 1971; and while in her
letter of March 29, 1974, Atty. Policarpio mentioned that her mother,
defendant Modesta Reyes, was in a serious and critical condition by
reason of a lingering illness, the records do not show whether or not
she is still alive. The Court has to-date no way of knowing who among
the heirs of defendant Simeon Policarpio other than Atty. Policarpio –
Ricardo, Felizardo, Leonida, Concordia, Abelardo, Jose and Ruben, all
oppositors to the motion for a writ of possession – had enjoyed the
property in their rights as heirs after the death of their father. The
Court in the absence of adequate evidence cannot make any accurate
assessment, not determine whom to assess, in respect the rentals or
fruits of the property bought by the plaintiff, not from March 24, 1971,
as claimed by the plaintiff, but from March 24, 1972, as ruled by the
Court in its order of March 24, 1971. (See Page 230, Records).

“Considering the probable traumatic effect this order may have
upon the Policarpios, the havoc it may cause upon their lives, for it
would appear that the property is their ancestral home, and the hardship
of looking for a place to live, the Court hereby orders the issue of a
writ of possession for the plaintiff with instructions to the
implementing sheriff to give the defendants, their successors subsequent
to the suit herein, and all the persons acting in their behalf or under
them, a period of three (3) months from the service, which he shall
make forthwith, of said writ upon each and every one of them within
which to leave the premises.”

In the dispositive portion of the May 28, 1979 Order, the Court directed
that “(f)urther hearing on the matter of rentals and who should pay
them shall be set at the pleasure of the plaintiff. The pendency of
said matter is without prejudice to the service and implementation of
the writ of possession.”

Acting on her own behalf, petitioner Lumen Policarpio filed Motion for
Reconsideration of the Order dated May 28, 1979 on the ground of equity
but which the Court ordered striken out per its Order of September 30,
1979. Again petitioner moved for a reconsideration of the September 30,
1979 order. On November 27, 1979, the court denied the second Motion
for Reconsideration and directed that the Order of May 28, 1979 be then
implemented.

Petitioner appealed to the Court of Appeals, now the Intermediate Appellate Court, on a Petition for Certiorari with
Preliminary Injunction, docketed as CA-G.R. No. 10802, “Lumen
Policarpio vs. Hon. Elviro L. Peralta, (Presiding Judge, Court of First
Instance of Manila, Branch XVII) and Philippine Trust Company”.

In a decision promulgated August 29, 1980, the Court of Appeals, after
consolidating the case with a similar petition filed in CA-G.R. No.
10129-SP entitled “Ricardo Policarpio, et al. vs. Hon. Elviro L.
Peralta, Presiding Judge, Court of First Instance of Manila, Br. XVII,
et al.” which was dismissed previously by the Court of Appeals in its
decision of March 12, 1980, similarly dismissed the appeal of herein
petitioner. Petitioner filed a Motion for Reconsideration on September
9, 1980 which was denied by the appellate court in its Resolution dated
January 5, 1981.

Petitioner now comes to Us in the instant petition for review on certiorari.

In Our Resolution of November 11, 1981, We denied the petition for lack
of merit. Petitioner then filed Motion for Reconsideration dated
January 4, 1982 and We required respondents to comment thereon, which
they did on February 8, 1982. Petitioner submitted a Reply to which
respondents filed a Rejoinder. We then heard the parties on oral
argument on September 15, 1982, at which time petitioner argued and
submitted Exhibits “A” to “Q” in support of her rebuttal arguments,
among which are photographs of the new building constructed on the
mortgaged land 3 years after the foreclosure and sale of the same which
petitioner claims to have made in good faith and would entitle her to
the rights granted under Article 546 in relation to Articles 448 and 450
of the New Civil Code.

As indicated earlier, the lower court had called for evidence on the
matter of good faith in numerous orders quoted above. While the
hearings scheduled for the reception of petitioner’s evidence were
cancelled due to the illness of petitioner, the Court proceeded to
reverse itself and in the absence of the petitioner, heard, received and
admitted the evidence of the respondent Philippine Trust Company. We
hold that the lower court acted arbitrarily, whimsically and
capriciously, which is tantamount to denying petitioner the right to due
process, much more, so when the court denied the petitioner the
opportunity to cross-examine the witnesses for the plaintiff and
thereafter to adduce evidence as builder in good faith.

The reason of the lower court in reversing itself on the ground that the
stipulation in the mortgage deed included “all the buildings and
improvements existing thereon and which may hereafter be placed thereon”
is not tenable.

Whether the above-cited stipulation foreclosed the right of the
petitioner to be reimbursed for improvements made in the construction or
renovation of the residential building in question was not in issue
before the respondent Judge. What was before the court was the question
of good faith on the part of the petitioner that would have entitled
her to the right of reimbursement with the right of retention until
payment thereof in accordance with Article 546 in relation to Articles
448 and 450 of the New Civil Code. Not only did the court evade the
issue before it but also, after admitting the evidence of the plaintiff
bank, the herein private respondent, the respondent Judge arbitrarily
and with grave abuse of discretion denied the petitioner the opportunity
to cross-examine the witnesses for the plaintiff bank and to adduce
evidence on her behalf as builder in good faith.

Appealing to the respondent Court of Appeals on certiorari to
reverse the assailed order of May 28, 1979 on the ground of abuse of
discretion, the appellate court simply dismissed the petition for lack
of merit on the ground of res judicata since the right of the
Philippine Trust Company to a writ of possession of property sold at
public auction on October 15, 1970 and confirmed by the court on March
16, 1971 had already been previously resolved in CA-G.R. No. 10129-SP,
passing sub silencio the issue raised by petitioner as to her right of
reimbursement for expenses in building the new house and the consequent
retention of possession thereof based on good faith.

The right of petitioner under the cited provisions of the New Civil Code
to retain possession of the property involved until reimbursement is
paid for the improvements made thereon in good faith in the new
construction and/or renovation after the destruction of the building by
typhoon must be respected as much as the right of the bank to the
possession of the foreclosed property it had purchased at the public
auction sale. Since petitioner’s right depends on the existence of good
faith, such fact in issue must first be resolved.

We hold that petitioner is entitled to present her evidence to prove the
alleged good faith which fact in issue may be resolved by the
Intermediate Appellate Court pursuant to the Judiciary Reorganization
Act of 1980, Batas Pambansa Blg. 129, Section 9 thereof.

WHEREFORE, the decision appealed from is SET ASIDE and the case at bar
is hereby REMANDED to the Intermediate Appellate Court to resolve the
factual issue raised herein under the provisions of Article 546 in
relation to Articles 448 and 450 of the New Civil Code, and thereafter
decide accordingly.

SO ORDERED.

Makasiar, (Chairman), Concepcion, Jr., De Castro, and Escolin, JJ., concur.

Aquino and Abad Santos, JJ., no part.