J.A.B. Bulao & Associates

EMMANUEL BABAS ET AL VS. LORENZO SHIPPING CORPORATION (G.R. NO. 86091, 15 DECEMBER 2010, NACHURA J.)

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DOCTRINES

IN A PETITION, THOSE WHO DO NOT SIGN THE VERIFICATION AND CERTIFICATION ON NON-FORUM SHOPPING HAVE NO LEGAL STANDING. THE PETITION AS REGARDS THEM WILL BE DISMISSED OUTRIGHT.

Before resolving the petition, we note that only seven (7) of the nine petitioners signed the Verification and Certification.^[1][14]  Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao (Anajao) did not sign the Verification and Certification, because they could no longer be located by their co-petitioners.^[2][15]

In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor Relations Commission,^[3][16] citing Loquias v. Office of the Ombudsman,^[4][17] we stated that the petition satisfies the formal requirements only with regard to the petitioner who signed the petition, but not his co-petitioner who did not sign nor authorize the other petitioner to sign it on his behalf.  Thus, the petition can be given due course only as to the parties who signed it. The other petitioners who did not sign the verification and certificate against forum shopping cannot be recognized as petitioners and have no legal standing before the Court. The petition should be dismissed outright with respect to the non-conforming petitioners.

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.

THE CHARACTER OF THE BUSINESS, I.E., WHETHER AS LABOR-ONLY CONTRACTOR OR AS JOB CONTRACTOR, SHOULD BE MEASURED IN TERMS OF, AND DETERMINED BY, THE CRITERIA SET BY STATUTE. THE PARTIES CANNOT DICTATE BY THE MERE EXPEDIENCE OF A UNILATERAL DECLARATION IN A CONTRACT THE CHARACTER OF THEIR BUSINESS.

Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an independent contractor, but a labor-only contractor.  LSC, on the other hand, maintains that BMSI is an independent contractor, with adequate capital and investment.  LSC capitalizes on the ratiocination made by the CA. 

 In declaring BMSI as an independent contractor, the CA, in the challenged Decision, heavily relied on the provisions of the Agreement, wherein BMSI declared that it was an independent contractor, with substantial capital and investment. 

De Los Santos v. NLRC^[5][18] instructed us that the character of the business, i.e., whether as labor-only contractor or as job contractor, should be measured in terms of, and determined by, the criteria set by statute. The parties cannot dictate by the mere expedience of a unilateral declaration in a contract the character of their business. 

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,^[6][19] this Court explained:

Despite the fact that the service contracts contain stipulations which are earmarks of independent contractorship, they do not make it legally so.  The language of a contract is neither determinative nor conclusive of the relationship between the parties. Petitioner SMC and AMPCO cannot dictate, by a declaration in a contract, the character of AMPCO’s business, that is, whether as labor-only contractor, or job contractor. AMPCO’s character should be measured in terms of, and determined by, the criteria set by statute. 

Thus, in distinguishing between prohibited labor-only contracting and permissible job contracting, the totality of the facts and the surrounding circumstances of the case are to be considered. 

WHAT IS  LABOR-ONLY CONTRACTING?

Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal.  In labor-only contracting, the following elements are present:  (a) the contractor or subcontractor does not have substantial capital or investment to actually perform the job, work, or service under its own account and responsibility;  and (b) the employees recruited, supplied, or placed by such contractor or subcontractor perform activities which are directly related to the main business of the principal.^[7][20]

WHAT IS PERMISSIBLE JOB CONTRACTING OR SUBCONTRACTING?

On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out with the contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period, regardless of whether such job, work, or service is to be performed or completed within or outside the premises of the principal. ^[8][21]

A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

(a) The contractor carries on a distinct and independent business and undertakes the contract work on his account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of his work except as to the results thereof;

(b) The contractor has substantial capital or investment; and

(c) The agreement between the principal and the contractor or subcontractor assures the contractual employees’ entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social welfare benefits.^[9][22]

WHY BMSI IS ENGAGED IN LABOR-ONLY CONTRACTING? THIS IS AN EXAMPLE OF LABOR-ONLY CONTRACTING FIRM.

Given the above standards, we sustain the petitioners’ contention that BMSI is engaged in labor-only contracting.

First, petitioners worked at LSC’s premises, and nowhere else. Other than the provisions of the Agreement, there was no showing that it was BMSI which established petitioners’ working procedure and methods, which supervised petitioners in their work, or which evaluated the same. There was absolute lack of evidence that BMSI exercised control over them or their work, except for the fact that petitioners were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital.  The record before us is bereft of any proof pertaining to the contractor’s capitalization, nor to its investment in tools, equipment, or implements actually used in the performance or completion of the job, work, or service that it was contracted to render.  What is clear was that the equipment used by BMSI were owned by, and merely rented from, LSC. 

In Mandaue Galleon Trade, Inc. v. Andales,^[10][23] we held:

The law casts the burden on the contractor to prove that it has substantial capital, investment, tools, etc. Employees, on the other hand, need not prove that the contractor does not have substantial capital, investment, and tools to engage in job-contracting.

          Third, petitioners performed activities which were directly related to the main business of LSC. The work of petitioners as checkers, welders, utility men, drivers, and mechanics could only be characterized as part of, or at least clearly related to, and in the pursuit of, LSC’s business. Logically, when petitioners were assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor LSC refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

BUT BMSI HAS A CERTIFICATE OF REGISTRATION WITH THE DOLE AS AN INDEPENDENT CONTRACTOR. SC RULED THIS IS NOT CONCLUSIVE.  IT ONLY PREVENTS THE LEGAL PRESUMPTION OF BEING A MERE LABOR-ONLY CONTRACTOR FROM ARISING.

The CA erred in considering BMSI’s Certificate of Registration as sufficient proof that it is an independent contractor.  In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,^[11][24] we held that a Certificate of Registration issued by the Department of Labor and Employment is not conclusive evidence of such status. The fact of registration simply prevents the legal presumption of being a mere labor-only contractor from arising.^[12][25] 

THE WORKERS OF A LABOR-ONLY CONTRACTOR BECOME REGULAR EMPLOYEES OF THE COMPANY WHERE THEY WORK.

Indubitably, BMSI can only be classified as a labor-only contractor.   The CA, therefore, erred when it ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular employees of the latter.^[13][26]  Having gained regular status, petitioners were entitled to security of tenure and could only be dismissed for just or authorized causes and after they had been accorded due process.

Petitioners lost their employment when LSC terminated its Agreement with BMSI.  However, the termination of LSC’s Agreement with BMSI cannot be considered a just or an  authorized cause for petitioners’ dismissal.  In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,^[14][27] this Court declared:

The sole reason given for the dismissal of petitioners by SSASI was the termination of its service contract with respondent. But since SSASI was a labor-only contractor, and petitioners were to be deemed the employees of respondent, then the said reason would not constitute a just or authorized cause for petitioners’ dismissal. It would then appear that petitioners were summarily dismissed based on the aforecited reason, without compliance with the procedural due process for notice and hearing.

Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement without loss of seniority rights and other privileges and to full back wages, inclusive of allowances, and to other benefits or their monetary equivalents computed from the time compensation was withheld up to the time of actual reinstatement.  Their earnings elsewhere during the periods of their illegal dismissal shall not be deducted therefrom.

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DECISION

NACHURA, J.: 

          Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, Maximo Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal by certiorari under Rule 45 of the Rules of Court the October 10, 2008 Decision^[1][1] of the Court of Appeals (CA) in CA-G.R. SP. No. 103804, and the January 21, 2009 Resolution,^[2][2] denying its reconsideration.

          Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation engaged in the shipping industry; it owns several equipment necessary for its business. On September 29, 1997, LSC entered into a General Equipment Maintenance Repair and Management Services Agreement^[3][3] (Agreement) with Best Manpower Services, Inc. (BMSI).  Under the Agreement, BMSI undertook to provide maintenance and repair services to LSC’s container vans, heavy equipment, trailer chassis, and generator sets.  BMSI further undertook to provide checkers to inspect all containers received for loading to and/or unloading from its vessels.

          Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and tractors to BMSI.^[4][4]  The period of lease was coterminous with the Agreement. 

         BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men, clerks, forklift operators, motor pool and machine shop workers, technicians, trailer drivers, and mechanics.    Six years later, or on May 1, 2003, LSC entered into another contract with BMSI, this time, a service contract.^[5][5] 

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization against LSC and BMSI.  On October 1, 2003, LSC terminated the Agreement, effective October 31, 2003.  Consequently, petitioners lost their employment.

BMSI asserted that it is an independent contractor.  It averred that it was willing to regularize petitioners; however, some of them lacked the requisite qualifications for the job.  BMSI was willing to reassign petitioners who were willing to accept reassignment.  BMSI denied petitioners’ claim for underpayment of wages and non-payment of 13^th month pay and other benefits.

          LSC, on the other hand, averred that petitioners were employees of BMSI and were assigned to LSC by virtue of the Agreement.  BMSI is an independent job contractor with substantial capital or investment in the form of tools, equipment, and machinery necessary in the conduct of its business. The Agreement between LSC and BMSI constituted legitimate job contracting.  Thus, petitioners were employees of BMSI and not of LSC.

          After due proceedings, the LA rendered a decision^[6][6] dismissing petitioners’ complaint.  The LA found that petitioners were employees of BMSI.  It was BMSI which hired petitioners, paid their wages, and exercised control over them. 

          Petitioners appealed to the National Labor Relations Commission (NLRC), arguing that BMSI was engaged in labor-only contracting.  They insisted that their employer was LSC.

          On January 16, 2008, the NLRC promulgated its decision.^[7][7]  Reversing the LA, the NLRC held:

We find from the records of this case that respondent BMSI is not engaged in legitimate job contracting.

            First, respondent BMSI has no equipment, no office premises, no capital and no investments as shown in the Agreement itself which states:

x x x x

VI.    RENTAL OF EQUIPMENT

         [6.01.] That the CLIENT has several forklifts and truck tractor, and has offered to the CONTRACTOR the use of the same by way of lease, the monthly rental of which shall be deducted from the total monthly billings of the CONTRACTOR for the services covered by this Agreement.

         6.02.    That the CONTRACTOR has agreed to rent the CLIENT’s forklifts and truck tractor.

  6.03.    The parties herein have agreed to execute a Contract of Lease for the forklifts and truck tractor that will be rented by the CONTRACTOR. (p. 389, Records) 

True enough, parties signed a Lease Contract (p. 392, Records) wherein respondent BMSI leased several excess equipment of LSC to enable it to discharge its obligation under the Agreement.  So without the equipment which respondent BMSI leased from respondent LSC, the former would not be able to perform its commitments in the Agreement.

            In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

            x x x.  The phrase “substantial capital and investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business,” in the Implementing Rules clearly contemplates tools, equipment, etc., which are directly related to the service it is being contracted to render.  One who does not have an independent business for undertaking the job contracted for is just an agent of the employer. (underscoring ours)

            Second, respondent BMSI has no independent business or activity or job to perform in respondent LSC free from the control of respondent LSC except as to the results thereof.  In view of the absence of such independent business or activity or job to be performed by respondent BMSI in respondent LSC [petitioners] performed work that was necessary and desirable to the main business of respondent LSC. Respondents were not able to refute the allegations of [petitioners] that they performed the same work that the regular workers of LSC performed and they stood side by side with regular employees of respondent LSC performing the same work.  Necessarily, the control on the manner and method of doing the work was exercised by respondent LSC and not by respondent BMSI since the latter had no business of its own to perform in respondent LSC.

            Lastly, respondent BMSI has no other client but respondent LSC.  If respondent BMSI were a going concern, it would have other clients to which to assign [petitioners] after its Agreement with LSC expired.  Since there is only one client, respondent LSC, it is easy to conclude that respondent BMSI is a mere supplier of labor.

            After concluding that respondent BMSI is engaged in prohibited labor-only contracting, respondent LSC became the employer of [petitioners] pursuant to DO 18-02.

            [Petitioners] therefore should be reinstated to their former positions or equivalent positions in respondent LSC as regular employees with full backwages and other benefits without loss of seniority rights from October 31, 2003, when they lost their jobs, until actual reinstatement (Vinoya v. NLRC, 324 SCRA 469). If reinstatement is not feasible, [petitioners] then should be paid separation pay of one month pay for every year of service or a fraction of six months to be considered as one year, in addition to full backwages.

            Concerning [petitioners’] prayer to be paid wage differentials and benefits under the CBA, We have no doubt that [petitioners] would be entitled to them if they are covered by the said CBA.  For this purpose, [petitioners] should first enlist themselves as union members if they so desire, or pay agency fee.  Furthermore, only [petitioners] who signed the appeal memorandum are covered by this Decision.  As regards the other complainants who did not sign the appeal, the Decision of the Labor Arbiter dismissing this case became final and executory.^[8][8]

The NLRC disposed thus:

          WHEREFORE, the appeal of [petitioners] is GRANTED.  The Decision of the Labor Arbiter is hereby REVERSED, and a NEW ONE rendered finding respondent Best Manpower Services, Inc. is engaged in prohibited labor-only-contracting and finding respondent Lorenzo Shipping Corp. as the employer of the following [petitioners]:

1.                  Emmanuel  B. Babas

2.                  Danilo Banag

3.                  Edwin L. Javier

4.                  Rex Allesa

5.                  Arturo Villarin, [Sr.]

6.                  Felixberto C. Anajao

7.                  Arsenio Estorque

8.                  Maximo N. Soriano, Jr.

9.                  Sandi G. Bermeo

            Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to their former positions as regular employees and pay their wage differentials and benefits under the CBA.

            If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best Manpower Services are adjudged jointly and solidarily to pay [petitioners] separation pay of one month for every year of service, a fraction of six months to be considered as one year.

            In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners’] full backwages from October 31, 2003 until actual reinstatement or, if reinstatement is not feasible, until finality of this Decision.

            Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable for attorney’s fees equivalent to ten (10%) of the total monetary award.

x x x x

SO ORDERED.^[9][9]

          LSC went to the CA via certiorari.  On October 10, 2008, the CA rendered the now challenged Decision,^[10][10] reversing the NLRC.  In holding that BMSI was an independent contractor, the CA relied on the provisions of the Agreement, wherein BMSI warranted that it is an independent contractor, with adequate capital, expertise, knowledge, equipment, and personnel necessary for the services rendered to LSC.   According to the CA, the fact that BMSI entered into a contract of lease with LSC did not ipso facto make BMSI a labor-only contractor; on the contrary, it proved that BMSI had substantial capital.  The CA was of the view that the law only required substantial capital or investment. Since BMSI had substantial capital, as shown by its ability to pay rents to LSC, then it qualified as an independent contractor. It added that even under the control test, BMSI would be the real employer of petitioners, since it had assumed the entire charge and control of petitioners’ services.  The CA further held that BMSI’s Certificate of Registration as an independent contractor was sufficient proof that it was an independent contractor.  Hence, the CA absolved LSC from liability and instead held BMSI as employer of petitioners.

          The fallo of the CA Decision reads:

          WHEREFORE, premises considered, the instant petition is GRANTED and the assailed decision and resolution of public respondent NLRC are REVERSED and SET ASIDE.  Consequently, the decision of the Labor Arbiter dated September 29, 2004 is REINSTATED.

            SO ORDERED.^[11][11]

Petitioners filed a motion for reconsideration, but the CA denied it on January 21, 2009.^[12][12] 

Hence, this appeal by petitioners, positing that:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAR EVIDENCE OF RECORD THAT RESPONDENT WAS ENGAGED IN LABOR-ONLY CONTRACTING TO DEFEAT PETITIONERS’ RIGHT TO SECURITY OF TENURE.^[13][13]

Before resolving the petition, we note that only seven (7) of the nine petitioners signed the Verification and Certification.^[14][14]  Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao (Anajao) did not sign the Verification and Certification, because they could no longer be located by their co-petitioners.^[15][15]

In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor Relations Commission,^[16][16] citing Loquias v. Office of the Ombudsman,^[17][17] we stated that the petition satisfies the formal requirements only with regard to the petitioner who signed the petition, but not his co-petitioner who did not sign nor authorize the other petitioner to sign it on his behalf.  Thus, the petition can be given due course only as to the parties who signed it. The other petitioners who did not sign the verification and certificate against forum shopping cannot be recognized as petitioners and have no legal standing before the Court. The petition should be dismissed outright with respect to the non-conforming petitioners.

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.

Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an independent contractor, but a labor-only contractor.  LSC, on the other hand, maintains that BMSI is an independent contractor, with adequate capital and investment.  LSC capitalizes on the ratiocination made by the CA. 

 In declaring BMSI as an independent contractor, the CA, in the challenged Decision, heavily relied on the provisions of the Agreement, wherein BMSI declared that it was an independent contractor, with substantial capital and investment. 

De Los Santos v. NLRC^[18][18] instructed us that the character of the business, i.e., whether as labor-only contractor or as job contractor, should

be measured in terms of, and determined by, the criteria set by statute. The parties cannot dictate by the mere expedience of a unilateral declaration in a contract the character of their business. 

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,^[19][19] this Court explained:

Despite the fact that the service contracts contain stipulations which are earmarks of independent contractorship, they do not make it legally so.  The language of a contract is neither determinative nor conclusive of the relationship between the parties. Petitioner SMC and AMPCO cannot dictate, by a declaration in a contract, the character of AMPCO’s business, that is, whether as labor-only contractor, or job contractor. AMPCO’s character should be measured in terms of, and determined by, the criteria set by statute. 

Thus, in distinguishing between prohibited labor-only contracting and permissible job contracting, the totality of the facts and the surrounding circumstances of the case are to be considered. 

Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies, or places workers to perform a job, work, or service for a principal.  In labor-only contracting, the following elements are present:  (a) the contractor or subcontractor does not have substantial capital or investment to actually perform the job, work, or service under its own account and responsibility;  and (b) the employees recruited, supplied, or placed by such contractor or subcontractor perform activities which are directly related to the main business of the principal.^[20][20]

On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out with the contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period, regardless of whether such job, work, or service is to be performed or completed within or outside the premises of the principal. ^[21][21]

A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

(a) The contractor carries on a distinct and independent business and undertakes the contract work on his account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of his work except as to the results thereof;

(b) The contractor has substantial capital or investment; and

(c) The agreement between the principal and the contractor or subcontractor assures the contractual employees’ entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social welfare benefits.^[22][22]

Given the above standards, we sustain the petitioners’ contention that BMSI is engaged in labor-only contracting.

First, petitioners worked at LSC’s premises, and nowhere else. Other than the provisions of the Agreement, there was no showing that it was BMSI which established petitioners’ working procedure and methods, which supervised petitioners in their work, or which evaluated the same. There was absolute lack of evidence that BMSI exercised control over them or their work, except for the fact that petitioners were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital.  The record before us is bereft of any proof pertaining to the contractor’s capitalization, nor to its investment in tools, equipment, or implements actually used in the performance or completion of the job, work, or service that it was contracted to render.  What is clear was that the equipment used by BMSI were owned by, and merely rented from, LSC. 

In Mandaue Galleon Trade, Inc. v. Andales,^[23][23] we held:

The law casts the burden on the contractor to prove that it has substantial capital, investment, tools, etc. Employees, on the other hand, need not prove that the contractor does not have substantial capital, investment, and tools to engage in job-contracting.

          Third, petitioners performed activities which were directly related to the main business of LSC. The work of petitioners as checkers, welders, utility men, drivers, and mechanics could only be characterized as part of, or at least clearly related to, and in the pursuit of, LSC’s business. Logically, when petitioners were assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor LSC refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

The CA erred in considering BMSI’s Certificate of Registration as sufficient proof that it is an independent contractor.  In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,^[24][24] we held that a Certificate of Registration issued by the Department of Labor and Employment is not conclusive evidence of such status. The fact of registration simply prevents the legal presumption of being a mere labor-only contractor from arising.^[25][25] 

Indubitably, BMSI can only be classified as a labor-only contractor.   The CA, therefore, erred when it ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular employees of the latter.^[26][26]  Having gained regular status, petitioners were entitled to security of tenure and could only be dismissed for just or authorized causes and after they had been accorded due process.

Petitioners lost their employment when LSC terminated its Agreement with BMSI.  However, the termination of LSC’s Agreement with BMSI cannot be considered a just or an  authorized cause for petitioners’ dismissal.  In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,^[27][27] this Court declared:

The sole reason given for the dismissal of petitioners by SSASI was the termination of its service contract with respondent. But since SSASI was a labor-only contractor, and petitioners were to be deemed the employees of respondent, then the said reason would not constitute a just or authorized cause for petitioners’ dismissal. It would then appear that petitioners were summarily dismissed based on the aforecited reason, without compliance with the procedural due process for notice and hearing.

Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement without loss of seniority rights and other privileges and to full back wages, inclusive of allowances, and to other benefits or their monetary equivalents computed from the time compensation was withheld up to the time of actual reinstatement.  Their earnings elsewhere during the periods of their illegal dismissal shall not be deducted therefrom.

Accordingly, we hold that the NLRC committed no grave abuse of discretion in its decision.  Conversely, the CA committed a reversible error when it set aside the NLRC ruling.

WHEREFORE, the petition is GRANTED.  The Decision and the Resolution of the Court of Appeals in CA-G.R. SP. No. 103804 are REVERSED and SET ASIDE.  Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, and Arsenio Estorque are declared regular employees of Lorenzo Shipping Corporation.   Further, LSC is ordered to reinstate the seven petitioners to their former position without loss of seniority rights and other privileges, and to pay full backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed from the time compensation was withheld up to the time of actual reinstatement.

No pronouncement as to costs.

SO ORDERED.

                                      ANTONIO EDUARDO B. NACHURA

                                      Associate Justice

WE CONCUR:

                                         ANTONIO T. CARPIO

Associate Justice

Chairperson

JOSE CATRAL MENDOZA

Associate Justice

A T T E S T A T I O N

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                             ANTONIO T. CARPIO

                                      Associate Justice

                                      Chairperson, Second Division

C E R T I F I C A T I O N

          Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                      RENATO C. CORONA

                                                                     Chief Justice

MAXWELL HEAVY EQUIPMENT CORPORATION VS. ERIC UYCHIAOCO YU (G.R. NO. 179395, 15 DECEMBER 2010, CARPIO, J.) SUBJECTS: SC NO TRIER OF FACTS; RTC DECISION AFFIRMED BY CA DEEMED FINAL. (BRIEF TITLE: MAXWELL HEAVY EQUIPMENT VS. YU)

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SUPREME COURT IS NOT A TRIER OF FACTS

This Court is not a trier of facts.⁸ It is not the Court’s function to analyze or weigh the evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court.⁹

In this case, the question of whether Maxwell’s transactions with BPI were accommodation loans for Yu’s benefit is clearly factual, and thus, beyond the Court’s review.

WHEN RTC DECISION IS AFFIRMED BY CA, SAID DECISION IS DEEMED FINAL AND CONCLUSIVE.

Appeals, will not be disturbed by this Court.¹⁰ As a rule, such findings by the lower courts are entitled to great weight and respect, and are deemed final and conclusive on this Court when supported by the evidence on record.¹¹ The foregoing principle applies to the present controversy.

In this case, the Court of Appeals affirmed the trial court’s finding that “it was Yu who accommodated Maxwell by allowing the use of his real properties as collateral [for Maxwell’s loans].” The appellate court concurred with the trial court that Maxwell is the principal borrower since it was Maxwell which paid interest on the loans. Additionally, various documents designated Maxwell as borrower and communications demanding payment of the loans sent by BPI were addressed to Maxwell as the borrower, with Yu indicated only as the owner of the real properties as loan collateral.

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D E C I S I O N

CARPIO, J.:

The Case

This petition for review¹ assails the 21 June 2007 Decision² of the Court of Appeals in CA-G.R. CV No. 84522. The Court of Appeals affirmed with modification the 11 January 2005 Decision³ of the Regional Trial Court, National Capital Judicial Region, Branch 167, Pasig City. The trial court ordered, among others, the reimbursement by petitioner Maxwell Heavy Equipment Corporation (Maxwell) of the amount of P8,888,932.33 to respondent Eric Uychiaoco Yu (Yu) for the latter’s payment of Maxwell’s loan obligation with the Bank of Philippine Islands (BPI).

The Facts

On 3 April 2001 and 2 May 2001, Maxwell obtained loans from BPI, G. Araneta Avenue Branch, in the total sum of P8,800,000.00 covered by two Promissory Notes and secured by a real estate mortgage over two lots registered in Yu’s name. Promissory Note No. 1-6743742-001 for P800,000.00 was due on 26 March 2002⁴ while Promissory Note No. 1-6743742-002 for P8,000,000.00 was due on 24 April 2002.⁵ Yu signed as Maxwell’s co-maker in the Promissory Note covering the P8,000,000 loan. It appears that Yu did not sign as co-maker in the Promissory Note for P800,000.

Maxwell defaulted in the payment of the loans, forcing Yu to pay BPI P8,888,932.33 representing the principal loan amounts with interest, through funds borrowed from his mother, Mina Yu, to prevent the foreclosure of his real properties.

Thereafter, Yu demanded reimbursement from Maxwell of the entire amount paid to BPI. However, Maxwell failed to reimburse Yu. Consequently, Yu filed with the trial court a complaint for sum of money and damages.

Maxwell denied liability for Yu’s claimed amount. Maxwell countered that the transactions with BPI were merely accommodation loans purely for Yu’s benefit. Maxwell likewise pointed out that Yu, having signed as co-maker, is solidarily liable for the loans. Maxwell also insisted that Yu’s mother is the real payor of the loans and thus, is the real party-in-interest to institute the complaint.

The trial court ruled in favor of Yu, disposing of the case as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Maxwell Heavy Equipment Corporation ordering the latter to pay the former the following sums of money:

a) The sum of Php 8,888,932.33/00, representing the principal obligation, with legal interest thereon computed at the legal rate from the time of default on 2 April 2002 until full payment thereof;

b) The sum of Php 200,000.00, for and as reasonable attorney’s fees and;

       c.            Costs of suit.

Bereft of evidence, the claim for moral as well as exemplary damages is hereby DENIED.

Also, for lack of sufficient factual and legal basis, the counterclaim is similarly DISMISSED.

SO ORDERED.⁶

On appeal, the Court of Appeals affirmed with modification the ruling of the trial court, by deleting the award of attorney’s fees and specifying the rate of interest on the allegedly reimbursable amount from Maxwell.

Hence, this petition.

The Ruling of the Court of Appeals

In affirming the trial court’s ruling, the Court of Appeals rejected Maxwell’s contention that the transactions with BPI were accommodation loans solely for Yu’s benefit since (1) Maxwell was paying for the loans’ interest and (2) various demand letters from BPI were addressed to Maxwell as the borrower.

The Court of Appeals gave credence to the testimonies of Yu and his mother on the liability of Maxwell for the claimed amount. On the other hand, it disbelieved the testimony of Caroline Yu, then president of Maxwell, denying Yu’s entitlement to reimbursement for the payment he made to BPI since it was uncorroborated by any documentary evidence.

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, the appealed Decision dated January 11, 2005 is affirmed, subject to the modification that:

1.      the award of attorney’s fees is deleted; and

2.      the legal rate of interest on the principal amount of P8,800,000.00 is twelve per cent (12%) per annum from the filing of the complaint on August 19, 2003 until the finality of this Decision. After this Decision becomes final and executory, the applicable rate shall also be twelve per cent (12%) per annum until its full satisfaction.

SO ORDERED.⁷

The Issue

The main issue in this case is whether Yu is entitled to reimbursement from Maxwell for the loan payment made to BPI. This issue in turn depends on whether the transactions with BPI were accommodation loans solely for Yu’s benefit.

The Ruling of the Court

The petition lacks merit.

This Court is not a trier of facts.⁸ It is not the Court’s function to analyze or weigh the evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court.⁹

In this case, the question of whether Maxwell’s transactions with BPI were accommodation loans for Yu’s benefit is clearly factual, and thus, beyond the Court’s review.

Moreover, factual findings of the trial court, when affirmed by the Court of Appeals, will not be disturbed by this Court.¹⁰ As a rule, such findings by the lower courts are entitled to great weight and respect, and are deemed final and conclusive on this Court when supported by the evidence on record.¹¹ The foregoing principle applies to the present controversy.

In this case, the Court of Appeals affirmed the trial court’s finding that “it was Yu who accommodated Maxwell by allowing the use of his real properties as collateral [for Maxwell’s loans].” The appellate court concurred with the trial court that Maxwell is the principal borrower since it was Maxwell which paid interest on the loans. Additionally, various documents designated Maxwell as borrower and communications demanding payment of the loans sent by BPI were addressed to Maxwell as the borrower, with Yu indicated only as the owner of the real properties as loan collateral.

Furthermore, we affirm the finding that Maxwell gravely failed to substantiate its claim that the loans were purely for Yu’s benefit. Maxwell’s evidence consisting of the testimony of Caroline Yu, Yu’s spouse and then president of Maxwell, was uncorroborated.

On the other hand, Yu’s and his mother’s testimonies were supported by various documents establishing the real nature of the loan, and belying Maxwell’s allegations. Yu presented the following: (1) Corporate Resolution to Borrow, dated 21 August 2000, where Maxwell authorized Caroline Yu to loan from BPI on its behalf; (2) the two Promissory Notes, dated 3 April 2001 and 2 May 2001, signed by Caroline Yu as Maxwell’s representative; and (3) two disclosure statements, dated 3 April 2001 and 2 May 2001, on “loan/credit transaction” signed by Caroline Yu, designating Maxwell as the borrower. Based on the foregoing, it is clear that Maxwell is the principal borrower solely liable for the payment of the loans.

While Maxwell is the real debtor, it was Yu who paid BPI the entire amount of Maxwell’s loans. Hence, contrary to Maxwell’s view, Article 1236 of the Civil Code applies. This provision reads:

The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.

The above provision grants the plaintiff (Yu) the right to recovery and creates an obligation on the part of the defendant (Maxwell) to reimburse the plaintiff. In this case, Yu paid BPI P8,888,932.33, representing the amount of the principal loans with interest, thereby extinguishing Maxwell’s loan obligation with BPI. Pursuant to Article 1236 of the Civil Code, Maxwell, which was indisputably benefited by Yu’s payment, must reimburse Yu the same amount of P8,888,932.33.¹²

WHEREFORE, the Court DENIES the petition and AFFIRMS the 21 June 2007 Decision of the Court of Appeals in CA-G.R. CV No. 84522.

SO ORDERED.

ANTONIO T. CARPIO

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice

ANTONIO EDUARDO B. NACHURA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE C. MENDOZA

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA

Chief Justice

* Designated additional member per Raffle dated 2 June 2010.

1 Under Rule 45 of the Rules of Court.

2 Rollo, pp. 156-167. Penned by Associate Justice Fernanda Lampas Peralta, with Associate Justices Edgardo P. Cruz and Normandie B. Pizarro, concurring.

3 Id. at 104-110. Penned by Judge Alfredo C. Flores.

4 Id. at 74.

5 Id. at 76.

6 Id. at 110. Penned by Judge Alfredo C. Flores

7 Id. at 166.

8 De Guia v. Presiding Judge, RTC Br. 12, Malolos, Bulacan, G.R. No. 161074, 22 March 2010, 616 SCRA 284, 292; Madrigal v. Court of Appeals, 496 Phil. 149, 156 (2005), citing Bernardo v. CA, G.R. No. 101680, 7 December 1992, 216 SCRA 224 and Remalante v. Tibe, No. L-59514, 25 February 1988, 158 SCRA 138.

9 Madrigal v. Court of Appeals, supra.

10 Pacific Airways Corporation v. Tonda, 441 Phil. 156, 162 (2002); Austria v. Court of Appeals, 384 Phil. 408, 415 (2000).

11 Dimaranan v. Heirs of Spouses Hermogenes Arayata and Flaviana Arayata, G.R. No. 184193, 29 March 2010, 617 SCRA 101, 112-113; Espinosa v. People, G.R. No. 181071, 15 March 2010, 615 SCRA 446, 454, citing Republic v. Casimiro, G.R. No. 166139, 20 June 2006, 491 SCRA 499, 523.

12 See R.F.C. v. Court of Appeals, 94 Phil. 984 (1954), cited in Aquino, The Civil Code of the Philippines, Vol. 2, p. 301. See also Philippine Commercial International Bank v. Court of Appeals, G.R. No. 121989, 31 January 2006, 481 SCRA 127, 138.

SPOUSES MARCOS R. ESMAQUEL AND VICTORIA SORDEVILLA VS. MARIA COPRADA (G.R. NO. 152423, 15 DECEMBER 2010, PERALTA, J.)

x   – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – x

D E C I S I O N

PERALTA, J.:

          Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision^[1][1] and the Resolution^[2][2] of the Court of Appeals, dated April 6, 2001 and February 15, 2002, respectively, (CA) in CA-G.R. SP No. 49994.

          The antecedents are as follows:

          On February 24, 1997, petitioners, spouses Marcos Esmaquel and Victoria Sordevilla (Victoria) filed an ejectment case^[3][3] against respondent Maria V. Coprada before the 2^nd Municipal Circuit Trial Court (MCTC) of Magdalena, Liliw and Majayjay Laguna. Petitioners claimed that they are the registered owners of a parcel of land situated in M.H. Del Pilar St., Barangay San Miguel, Majayjay, Laguna, containing an area of Two Hundred Fifty-Three (253) square meters and covered by Transfer Certificate of Title (TCT) No. T-93542.  In 1945, respondent was able to persuade the petitioners to allow her and her family to use and occupy the land for their residence, under the condition that they will vacate the premises should petitioners need to use the same.  Respondent and her family were allowed to construct their residential house.  Since then, the petitioners never made an attempt to drive them away out of pity, knowing that respondent and her eight children have no other place to live in.  Also, respondent and her family have been occupying the subject premises free of rent, including payment of realty taxes.  Respondent’s present circumstances have completely improved, i.e., some of her children are already working; they are regularly sending her financial assistance; and she has acquired her own residential house at Barangay Panglan, Majayjay, Laguna.  Because of this, petitioners verbally demanded that respondent vacate the subject land, but the latter refused.  Thus, petitioners were forced to send a demand letter dated August 22, 1996, giving respondent until November 30, 1996 to vacate the subject premises.  However, respondent still ignored said demand, which prompted petitioners to bring a complaint before the barangay authorities.  No settlement was reached, hence, a certification to file action in Court was issued. Petitioners were, therefore, constrained to lodge an ejectment case against the respondent before the MCTC.

          Respondent admitted that petitioners are the registered owners of the subject land. However, she averred that in 1945, it was Emiliana Coprada (petitioner Victoria Sordevilla’s mother and original owner of the subject land) and not the petitioners who gave permission to her late husband Brigido Coprada to use the subject lot. Emiliana allowed her nephew Brigido and his family to occupy the lot as their permanent abode, because of her love and affection for her nephew, and also, due to the fact that the said lot is virtually a wasteland. Thereafter, Brigido and his family cleared the area and built therein a nipa hut to dwell in. When Emiliana died, the ownership of the property was inherited by her only child, petitioner Victoria Sordevilla. Respondent alleged that sometime in the early 1960’s, petitioner Victoria offered the said lot for sale for P2,000.00 to respondent, who readily agreed. The purchase price was paid in installments and was fully paid in 1962. Due to their close relationship, the agreement was never reduced to writing. Respondent further maintained that since the execution of the oral sale of the subject lot, she has been the one paying the realty taxes due on the property. After the sale, respondent built on the subject land a semi-concrete structure.  Respondent stated that petitioners’ claim is barred by laches. Even granting, without admitting, that respondent’s claim of ownership over the property is improper because petitioners are the registered owners thereof, respondent argued that she is a builder in good faith, because she was able to build the structure on the subject lot with the prior permission of the owner.

          In its Decision^[4][4] dated September 11, 1997, the MCTC rendered judgment dismissing the complaint. It held that laches had already set in which prevented petitioners from questioning the validity of the purported sale between Victoria and Maria.

          On appeal, the Regional Trial Court (RTC) reversed the MCTC’s judgment. The RTC ruled that respondent’s occupation of the subject property was by virtue of petitioners’ tolerance and permission. Hence, respondent is bound by an implied promise that she will vacate the property upon demand. Thus, her possession over the subject property became unlawful after the petitioners demanded her to vacate the property. The RTC found that respondent failed to prove the alleged oral sale and that petitioners have adequately proven that they are entitled to the possession of the subject land as registered owners thereof. The RTC ordered the respondent and all other persons claiming rights under her to vacate and surrender the possession of the subject land to the petitioners and to remove any and all improvements she introduced on the parcel of land.^[5][5]

          Respondent filed a Motion for Reconsideration, which was denied by the RTC in an Order^[6][6] dated November 24, 1998. Obviously dissatisfied by the Decision, respondent filed with the CA a petition for review with prayer for temporary restraining order and preliminary injunction.^[7][7]

          In its Decision dated April 6, 2001, the CA granted respondent’s petition, reversed the Decision of the RTC and affirmed in toto the Decision of the MCTC. Petitioners filed a Motion for Reconsideration, which was denied by the CA in a Resolution^[8][8] dated February 15, 2002. Hence, the instant petition raising the following grounds:

I

THE RIGHT OF THE REGISTERED OWNERS TO RECOVER POSSESSION IS NEVER BARRED BY LACHES AND/OR THE PERSON WHO HAS A TORRENS TITLE OVER A PARCEL OF LAND IS ENTITLED TO THE POSSESSION THEREOF.

II

THE OWNERSHIP AND RIGHT OF PETITIONERS TO RECOVER POSSESSION OF THE SUBJECT PROPERTY CANNOT BE DEFEATED BY UNPROVEN ORAL SALE.

III

LACHES HAD SET IN AGAINST [RESPONDENT].

IV

THE CERTIFICATE  OF TITLE IS NOT SUBJECT TO COLLATERAL ATTACK.^[9][9]

          The petition is meritorious.

          The pertinent point of inquiry in this case is whether or not petitioners have a valid ground to evict respondent from the subject property.  

          An action for forcible entry or unlawful detainer is governed by Section 1, Rule 70 of the Rules of Court, which provides:

SECTION 1. Who may institute proceedings, and when. – Subject to the provisions of the next succeeding section, a person deprived of the possession of any land or building by force, intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against whom the possession of any land or building is unlawfully withheld after the expiration or termination of the right to hold possession by virtue of any contract, express or implied, or the legal representatives or assigns of any such lessor, vendor, vendee, or other person, may, at any time within one (1) year after such unlawful deprivation or withholding of possession, bring an action in the proper Municipal Trial Court against the person or persons unlawfully withholding or depriving of possession, or any person or persons claiming under them, for the restitution of such possession, together with damages and costs.

          In unlawful detainer cases, the possession of the defendant was originally legal, as his possession was permitted by the plaintiff on account of an express or implied contract between them. However, defendant’s possession became illegal when the plaintiff demanded that defendant vacate the subject property due to the expiration or termination of the right to possess under their contract, and defendant refused to heed such demand.^[10][10]

          The sole issue for resolution in an unlawful detainer case is physical or material possession of the property involved, independent of any claim of ownership by any of the parties. Where the issue of ownership is raised by any of the parties, the courts may pass upon the same in order to determine who has the right to possess the property. The adjudication is, however, merely provisional and would not bar or prejudice an action between the same parties involving title to the property.^[11][11] Since the issue of ownership was raised in the unlawful detainer case, its resolution boils down to which of the parties’ respective evidence deserves more weight.

          In the case at bar, petitioners’ cause of action for unlawful detainer is based on their ownership of the land covered by TCT No. T-93542 and on their claim that they merely tolerated respondent’s stay thereat.  Respondent’s possession, as well as those persons claiming right under her, became unlawful upon her refusal to vacate the premises. Petitioners contend that since they are the registered owners of the subject land, they are entitled to the possession thereof and their right to recover possession over it is never barred by laches. They maintain that respondent’s claim of ownership is based on an unproven oral sale, which does not exist. Further, respondent cannot rely on the Tax Declarations as she was paying taxes in the petitioners’ name, as the declared owners of the property. Moreover, she started paying the taxes only in 1984 despite her claim that the property was sold to her in 1962. Even assuming that the sale took place in 1962, respondent is guilty of laches as she failed to take any positive action for the delivery and conveyance to her of the portion of the property she is occupying. Finally, respondent cannot collaterally attack the title of the petitioners to the subject land.

          On her part, respondent, although admitting that the property is registered in petitioners’ name, claimed that the 100-square-meters portion of the property, where her house was erected, was already sold to her by petitioner Victoria. Thus, by virtue of the sale, she and her family have the right to possess the said property. The non-presentation of receipt and deed of sale, non-delivery of the owner’s certificate of title, and her payment of the real property taxes in the name of the petitioners were due to the close relationship between the parties and the existing practice of palabra de honor in their day to day transactions. Respondent further alleged that she is not guilty of laches; rather, it is the registered owners’ right to recover possession of their property which is barred by laches.

          In the present case, respondent failed to present evidence to substantiate her allegation that a portion of the land was sold to her in 1962. In fact, when petitioners sent a letter^[12][12] to the respondent, demanding her to vacate the subject property, the respondent, in reply^[13][13] to the said letter, never mentioned that she purchased the subject land in 1962. If the sale really took place, the respondent should have immediately and categorically claimed that in her letter response.  Clearly therefore, respondent’s submission that there was an oral sale is a mere afterthought.

          On the other hand, it is undisputed that the subject property is covered by Transfer Certificate of Title No. T-93542, registered in the name of the petitioners. As against the respondent’s unproven claim that she acquired a portion of the property from the petitioners by virtue of an oral sale, the Torrens title of petitioners must prevail. Petitioners’ title over the subject property is evidence of their ownership thereof. It is a fundamental principle in land registration that the certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears therein.  Moreover, the age-old rule is that the person who has a Torrens title over a land is entitled to possession thereof.^[14][14]

          Further, respondent’s argument that petitioners are no longer the owners of a portion of the subject land because of the sale in her favor is a collateral attack on the title of the petitioners, which is not allowed. The validity of petitioners’ certificate of title cannot be attacked by respondent in this case for ejectment. Under Section 48 of Presidential Decree No. 1529, a certificate of title shall not be subject to collateral attack. It cannot be altered, modified or canceled, except in a direct proceeding for that purpose in accordance with law. The issue of the validity of the title of the petitioners can only be assailed in an action expressly instituted for that purpose. Whether or not the respondent has the right to claim ownership over the property is beyond the power of the trial court to determine in an action for unlawful detainer.^[15][15]

In Rodriguez v. Rodriguez,^[16][16] citing the case of Co v. Militar,^[17][17] the Court held that:

[T]he Torrens System was adopted in this country because it was believed to be the most effective measure to guarantee the integrity of land titles and to protect their indefeasibility once the claim of ownership is established and recognized.

            It is settled that a Torrens Certificate of title is indefeasible and binding upon the whole world unless and until it has been nullified by a court of competent jurisdiction.  Under existing statutory and decisional law, the power to pass upon the validity of such certificate of title at the first instance properly belongs to the Regional Trial Courts in a direct proceeding for cancellation of title.

            As the registered owner, petitioner had a right to the possession of the property, which is one of the attributes of ownership. x x x  

            Anent the issue on laches, the CA’s ruling that petitioners’ long inaction to assert their rights over the subject land bars them from recovering the same is without basis. Also, the doctrine invoked by the appellate court that a registered owner may loose his right to recover its possession by reason of laches is not applicable here.

          Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it.^[18][18] There is no  absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances, with the question of laches addressed to the sound discretion of the court.  Because laches is an equitable doctrine, its application is controlled by equitable considerations and should not be used to defeat justice or to perpetuate fraud or injustice.^[19][19]

          Respondent first acquired possession of the subject lot by mere tolerance. From 1945 until the filing of the complaint for ejectment in 1997, the nature of that possession has never changed. Petitioners allowed the respondent to possess the property with the knowledge that the respondent will vacate the same upon demand. Hence, until such demand to vacate was communicated by the petitioners to the respondent, petitioners are not required to do any act to recover the subject land, precisely because they knew of the nature of the respondent’s possession, i.e., possession by mere tolerance. Thus, it cannot be said that petitioners are guilty of failure or neglect to assert a right within a reasonable time. Further, after the petitioners gave a demand letter to the respondent giving the latter until November 30, 1996 to vacate the subject premises, which respondent failed to heed, they immediately filed a complaint before the barangay authorities and, thereafter, lodged an ejectment case before the MCTC on February 24, 1997. In sum, We find that petitioners are not guilty of laches as would bar their claim to the property in question.

          In contrast, respondent, who is claiming that a portion of the property was sold to her in 1962, has herself failed within a long period of time to have that portion transferred in her name. Respondent had to wait for almost 35 years since 1962, and were it not for the filing of the ejectment suit in 1997, she would not have bothered to assert her rights under the alleged sale.  Respondent’s failure to assert that right only goes to prove that no sale ever transpired between the parties.

          Moreover, as the registered owners, petitioners’ right to eject any person illegally occupying their property is not barred by laches. In Gaudencio Labrador, represented by Lulu Labrador Uson, as Attorney-in-Fact v. Spouses Ildefonso Perlas and Pacencia Perlas and Spouse Rogelio Pobre and Melinda Fogata Pobre,^[20][20] the Court held that:

x x x As a registered owner, petitioner has a right to eject any person illegally occupying his property.  This right is imprescriptible and can never be barred by laches.  In Bishop v. Court of Appeals, we held, thus:

As registered owners of the lots in question, the private respondents have a right to eject any person illegally occupying their property. This right is imprescriptible. Even if it be supposed that they were aware of the petitioners’ occupation of the property, and regardless of the length of that possession, the lawful owners have a right to demand the return of their property at any time as long as the possession was unauthorized or merely tolerated, if at all. This right is never barred by laches.

          Since respondent’s occupation of the subject lot is by mere tolerance or permission of the petitioners, without any contract between them, respondent is bound by an implied promise that she will vacate the same upon demand, failing which a summary action for ejectment is the proper remedy against her.^[21][21]

          In respondent’s Answer filed before the MCTC, she claimed that since  she was able to build a structure on the subject lot with the prior permission from the owner, she is a builder in good faith and thus entitled to be reimbursed the necessary and useful expenses under Articles 546 and 548 of the Civil Code of the Philippines. Without such reimbursement, she has the right of retention over the property and she cannot just be ejected from the premises.

          Respondent’s argument does not hold water. Since respondent’s occupation of the subject property was by mere tolerance, she has no right to retain its possession under Article 448 of the Civil Code.  She is aware that her tolerated possession may be terminated any time and she cannot be considered as builder in good faith.^[22][22]    It is well settled that both Article 448^[23][23] and Article 546^[24][24] of the New Civil Code, which allow full reimbursement of useful improvements and retention of the premises until reimbursement is made, apply only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. Verily, persons whose occupation of a realty is by sheer tolerance of its owners are not possessors in good faith.^[25][25] At the time respondent built the improvements on the premises in 1945, she knew that her possession was by mere permission and tolerance of the petitioners; hence, she cannot be said to be a person who builds on land with the belief that she is the owner thereof.

          Respondent’s reliance on her payment of realty taxes on the property is unavailing.  She started paying taxes only in 1984 despite her claim that she bought the property in 1962. Further, aside from the rule that tax declarations and corresponding tax receipts cannot be used to prove title to or ownership of a real property inasmuch as they are not conclusive evidence of the same,^[26][26] the RTC found that although the payment for said taxes were received from respondent, the declared owner was petitioner Victoria.

          It must be stressed, however, that the court’s adjudication of ownership in an ejectment case is merely provisional, and affirmance of the RTC’s decision would not bar or prejudice an action between the same parties involving title to the property, if and when such action is brought seasonably before the proper forum.^[27][27]

          WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals, dated April 6, 2001 and February 15, 2002, respectively, in CA-G.R. SP No. 49994, affirming the Decision of the  2^nd Municipal Circuit Trial Court in Civil Case No. 1875, are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Santa Cruz, Laguna, Branch 26, in Civil Case No. SC-3580, is REINSTATED.

           SO ORDERED.

DIOSDADO M. PERALTA

                                                                             Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice

Chairperson

ANTONIO EDUARDO B. NACHURA                 ROBERTO A. ABAD                        

                  Associate Justice                                         Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

ATTESTATION

          I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                      ANTONIO T. CARPIO

                                         Associate Justice

                                         Second Division, Chairperson

CERTIFICATION

          Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

                                                                   RENATO C. CORONA

                                                                             Chief Justice