The Supreme Court ruled that the National Power Corporation (NPC) was not liable to pay landowners twice for land expropriated for the Agus 1 project. NPC had already paid Macapanton Mangondato based on a final court decision. The Court held that NPC acted in good faith and cannot be forced to pay again to the Ibrahims and Maruhoms, who later claimed to be the rightful owners. This decision protects debtors who comply with court orders from facing double liability due to conflicting claims over a debt.

When Compliance Shields from Liability: The NPC Expropriation Saga

This case revolves around a parcel of land in Marawi City, which the National Power Corporation (NPC) took possession of in 1978 to build a hydroelectric power plant. Initially, NPC believed this land was public property under Proclamation No. 1354, s. 1974. However, the land was actually part of a private estate registered under Transfer Certificate of Title (TCT) No. 378-A, owned by Macapanton K. Mangondato. When Mangondato discovered NPC’s occupation in 1979, he demanded compensation.

For years, NPC refused, insisting the land was public. Eventually, in the early 1990s, NPC acknowledged Mangondato’s ownership and negotiated for compensation, but they couldn’t agree on a fair price. This impasse led to two separate lawsuits. Mangondato filed a complaint for reconveyance (Civil Case No. 605-92), seeking the land’s return and rental payments. NPC countered with an expropriation complaint (Civil Case No. 610-92) to legally acquire the land.

The Regional Trial Court (RTC) consolidated these cases and ruled in favor of NPC’s right to expropriate the land, ordering NPC to pay Mangondato P21,995,000.00 as just compensation, plus monthly rentals from 1978 to July 1992 with 12% annual interest. Dissatisfied with the compensation amount, NPC appealed, leading to CA-G.R. CV No. 39353. While this appeal was pending, a new complication arose: the Ibrahims and Maruhoms, herein respondents, filed Civil Case No. 967-93, claiming they were the true owners of the land, not Mangondato. They argued that Mangondato held the land in trust for them, as heirs of the original proprietor, Datu Magayo-ong Maruhom.

The Ibrahims and Maruhoms sought to receive any rental fees and expropriation indemnity for the land. They also secured a temporary restraining order (TRO) and a preliminary injunction to prevent NPC from paying Mangondato. However, the Court of Appeals upheld the RTC’s decision in CA-G.R. CV No. 39353, and the Supreme Court affirmed this in G.R. No. 113194, with a slight modification reducing the interest rate to 6%. With the Supreme Court’s final decision, Mangondato moved for execution of the judgment in Civil Cases No. 605-92 and 610-92.

NPC opposed, citing the preliminary injunction from Civil Case No. 967-93. The RTC rejected NPC’s opposition and issued a writ of execution and notice of garnishment for P21,801,951.00 against NPC’s bank accounts. NPC complied and paid Mangondato in full. Subsequently, the RTC in Civil Case No. 967-93 ruled that the Ibrahims and Maruhoms were the true owners of the land. The court ordered NPC and Mangondato to jointly and severally pay the expropriation indemnity to the Ibrahims and Maruhoms, leading to a situation where NPC was potentially liable to pay twice.

The RTC’s decision hinged on the finding that NPC acted in bad faith by paying Mangondato despite knowing of the Ibrahims and Maruhoms’ claim and the existing injunction. NPC appealed, arguing that it merely complied with a final and executory court order. The Court of Appeals upheld the RTC decision, leading to NPC’s petition to the Supreme Court, questioning whether it should be held liable to the Ibrahims and Maruhoms despite its prior payment to Mangondato. The central legal question is whether NPC acted in bad faith, justifying a second payment for the same expropriated land. The Supreme Court examined the concept of **bad faith** in legal terms, referencing several landmark cases.

In Lopez, et al. v. Pan American World Airways, the Court defined bad faith as “a breach of a known duty through some motive of interest or ill will.” Subsequent cases, such as Air France v. Carrascoso, et al., expanded on this, describing bad faith as “a state of mind affirmatively operating with furtive design or with some motive of self-interest or will or for ulterior purpose.” These definitions emphasize the deliberate and intentional nature of the wrongful act.

The Court in Board of Liquidators v. Heirs of M. Kalaw, stated that “bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means breach of a known duty thru some motive or interest of ill will; it partakes of the nature of fraud.” This definition clarifies that mere negligence or poor judgment does not constitute bad faith; there must be a deliberate intent to commit a wrongful act. Examining these precedents, the Court emphasized that bad faith involves the deliberate commission of a wrong, often equated with malicious or fraudulent motives, distinct from unintentional errors.

A finding of bad faith requires two key elements: knowledge of the wrongfulness of the action and a voluntary decision to proceed despite that knowledge. In this case, the RTC and Court of Appeals found bad faith in NPC’s payment to Mangondato, citing NPC’s awareness of the Ibrahims and Maruhoms’ claim and the TRO in Civil Case No. 967-93. However, the Supreme Court disagreed, emphasizing that NPC’s payment to Mangondato was mandated by a final and executory court decision, enforced through a writ of garnishment. The payment was not a deliberate choice but a compliance with a lawful court order.

The Supreme Court asserted that it was the trial court in Civil Cases No. 605-92 and 610-92 that ordered the payment, and NPC merely complied. Thus, NPC could not be considered to have acted in bad faith, even with prior knowledge of the competing claims. Therefore, absent bad faith, NPC cannot be held liable to the Ibrahims and Maruhoms. NPC’s payment to Mangondato, pursuant to the final judgment in Civil Cases No. 605-92 and 610-92, extinguished its obligation, regardless of who the true owner of the land was. This principle protects debtors who act in compliance with court orders.

If Mangondato is the true owner, NPC’s payment extinguished its debt. If the Ibrahims and Maruhoms are the true owners, NPC’s payment to Mangondato, made in good faith and under court order, is akin to a payment made in “good faith” to a person in “possession of credit” under Article 1242 of the Civil Code. Article 1242 states:

“Payment made in good faith to any person in possession of the credit shall release the debtor.”

This provision protects debtors who pay someone who appears to be the rightful creditor.

Under Article 1242, Mangondato, as the judgment creditor and registered owner, was a “possessor of credit.” Thus, NPC’s payment extinguished its obligation even against the true owners, the Ibrahims and Maruhoms. Consequently, if Mangondato owns the land, the Ibrahims and Maruhoms are not entitled to anything. If they are the true owners, they can only recover from Mangondato, not NPC. The extinguishment of NPC’s obligation negates the Ibrahims and Maruhoms’ cause of action against NPC in Civil Case No. 967-93. Therefore, Civil Case No. 967-93 should be dismissed against NPC, and NPC is absolved from paying attorney’s fees.

FAQs

What was the key issue in this case?	The key issue was whether the National Power Corporation (NPC) acted in bad faith when it paid Macapanton Mangondato for expropriated land, despite a claim from the Ibrahims and Maruhoms asserting their ownership. This determined if NPC was liable to pay twice.
Who were the conflicting claimants to the expropriation payment?	The conflicting claimants were Macapanton Mangondato, who was the registered owner of the land, and the Ibrahims and Maruhoms, who claimed to be the true owners as heirs of the original proprietor, Datu Magayo-ong Maruhom.
What is the legal significance of “good faith” in this case?	“Good faith” is crucial because Article 1242 of the Civil Code protects debtors who pay in good faith to a person in possession of the credit. This means that even if the payment was made to the wrong party, the debtor is released from the obligation if they acted without knowledge of the defect in the payee’s title.
How did the Supreme Court define “bad faith”?	The Supreme Court defined “bad faith” as involving a deliberate commission of a wrong, often equated with malicious or fraudulent motives, and distinct from unintentional errors or negligence. It requires both knowledge of the wrongfulness of the action and a voluntary decision to proceed despite that knowledge.
What was the effect of the final court decision in Civil Cases No. 605-92 and 610-92?	The final court decision in Civil Cases No. 605-92 and 610-92, which ordered NPC to pay Mangondato, was crucial. The Supreme Court determined that compliance with this order, even if the Ibrahims and Maruhoms were the true owners, protected NPC from further liability.
What is Article 1242 of the Civil Code and why is it relevant?	Article 1242 of the Civil Code states, “Payment made in good faith to any person in possession of the credit shall release the debtor.” This is relevant because it protects debtors who pay someone who appears to be the rightful creditor, even if that person is not.
What was the ultimate ruling of the Supreme Court?	The Supreme Court ruled that NPC did not act in bad faith and could not be held liable to the Ibrahims and Maruhoms. Civil Case No. 967-93 was dismissed against NPC, absolving them from any further liability in the case.
What happens to the P2,700,000.00 garnished from Mangondato’s account?	The Supreme Court indicated that if Mangondato is the true owner of the land, the Ibrahims and Maruhoms must return the P2,700,000.00 garnished from Mangondato’s account. If the Ibrahims and Maruhoms are the true owners, they can only recover from Mangondato up to the amount he received from NPC.

This case clarifies the importance of good faith in fulfilling obligations and protects parties who comply with court orders from facing double liability. The Supreme Court’s decision underscores that compliance with a final and executory judgment shields a debtor from further claims, even if later disputes arise regarding the true ownership of the debt.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: National Power Corporation vs. Lucman M. Ibrahim, G.R. No. 175863, February 18, 2015