G.R. No. 183543 . June 20, 2016.
NATIONAL HOUSING AUTHORITY, PETITIONER, VS. MANILA SEEDLING BANK FOUNDATION, INC., RESPONDENT.

FACTS

The National Housing Authority (NHA) owns a 120-hectare property in Quezon City. In 1977, Proclamation No. 1670 granted respondent Manila Seedling Bank Foundation, Inc. usufructuary rights over a specific seven-hectare portion of this land. However, respondent occupied and developed a total area of 16 hectares, leasing the nine-hectare excess to private tenants for income. In 1994, respondent filed an injunction suit to protect its occupancy under the Proclamation. The NHA counterclaimed, seeking possession of the excess area and payment of rent, exemplary damages, attorney’s fees, and litigation expenses.
The Regional Trial Court (RTC) issued a summary judgment in 1998, upholding respondent’s usufruct over the seven hectares but reserving the issue of the excess for the NHA’s counterclaim. Respondent eventually surrendered the excess area to the NHA in March 1999. In its 2005 Decision, the RTC ordered the turnover of the excess but denied the NHA’s claims for rent and damages, finding that respondent’s development and protection of the land, undertaken with the authority of a former minister, sufficiently compensated the NHA. The Court of Appeals affirmed this ruling.

ISSUE

Whether the NHA is entitled to recover rent, exemplary damages, attorney’s fees, and litigation expenses from respondent for its occupation of the excess nine-hectare area.

RULING

No, the NHA is not entitled to recover rent or damages. The Supreme Court affirmed the rulings of the lower courts. The legal foundation for this decision rests on the nature of respondent’s possession and the absence of a valid demand to vacate. Respondent’s possession of the excess area was by mere tolerance of the NHA. In such cases, the owner’s cause of action for unlawful detainer accrues only upon a demand to vacate, which also serves as the reckoning point for any liability for rent or damages. The Court found that the proposals for relocation made by an inter-agency committee were not the clear and unequivocal demand required by law. Since respondent voluntarily vacated the excess area without any prior valid demand from the NHA, no basis exists to hold it liable for back rent.
Furthermore, the Court found no bad faith on respondent’s part to warrant exemplary damages and attorney’s fees. While respondent exceeded its usufructuary rights, it did so under the apparent authority of a government minister to generate operational funds. It also invested in developing and securing the property, which the lower courts deemed adequate compensation for its use. The principle of unjust enrichment does not apply, as the NHA benefited from these improvements without cost. Consequently, in the absence of bad faith and a prior demand, the claims for rent, exemplary damages, and attorney’s fees were properly denied.