PROPERTY SET 4

(1) G.R. No. 35223 September 17, 1931

THE BACHRACH MOTOR CO., INC., plaintiff-appellee,

vs. TALISAY-SILAY MILLING CO., ET AL., defendants-appellees.

THE PHILIPPINE NATIONAL BANK, intervenor-appellant.

ROMUALDEZ, J.:

This proceeding originated in a complaint filed by the Bachrach Motor Co., Inc., against

the Talisay-Silay Milling Co., Inc., for the delivery of the amount P13,850 or promissory

notes or other instruments or credit for that sum payable on June 30, 1930, as bonus in

favor of Mariano Lacson Ledesma; the complaint further prays that the sugar central

be ordered to render an accounting of the amounts it owes Mariano Lacson Ledesma

by way of bonus, dividends, or otherwise, and to pay the plaintiff a sum sufficient to

satisfy the judgment mentioned in the complaint, and that the sale made by said

Mariano Lacson Ledesma be declared null and void.

The Philippine National Bank filed a third party claim alleging a preferential right to

receive any amount which Mariano Lacson Ledesma might be entitled to from the

Talisay-Silay Milling Co. as bonus, because that would be civil fruits of the land

mortgaged to said bank by said debtor for the benefit of the central referred to, and by

virtue of a deed of assignment, and praying that said central be ordered to delivered

directly to the intervening bank said sum on account of the latter's credit against the

aforesaid Mariano Lacson Ledesma.

The corporation Talisay-Silay Milling Co., Inc., answered the complaint stating that of

Mariano Lacson Ledesma's credit, P7,500 belonged to Cesar Ledesma because he

had purchased it, and praying that it be absolved from the complaint and that the

proper party be named so that the remainder might be delivered.

Cesar Ledesma, in turn, claiming to be the owner by purchase in good faith an for a

reconsideration of the P7,500 which is a part of the credit referred to above, answered

praying that he be absolved from the complaint.

The plaintiff Bachrach Motor Co., Inc., answered the third party claim alleging that its

credit against Mariano Lacson Ledesma was prior and preferential to that of the

intervening bank, and praying that the latter's complaint be dismissed.

At the trial all the parties agreed to recognize and respect the sale made in favor of

Cesar Ledesma of the P7,500 part of the credit in question, for which reason the trial

court dismissed the complaint and cross-complaint against Cesar Ledesma authorizing

the defendant central to deliver to him the aforementioned sum of P7,500. And upon

conclusion of the hearing, the court held that the Bachrach Motor Co., Inc., had a

preferred right to receive the amount of P11,076.02 which was Mariano Lacson

Ledesma's bonus, and it ordered the defendant central to deliver said sum to the

plaintiff.

The Philippine National Bank appeals, assigning the following alleged errors as

committed by the trial court:

1. In holding that the bonus which the Talisay-Silay Milling Co., Inc., bound itself

to pay the planters who had mortgaged their land to the Philippine National Bank

to secure the payment of the debt of said central to said bank is not civil fruits of

said land.

2. In not holding that said bonus became subject to the mortgage executed by

the defendant Mariano Lacson Ledesma to the Philippine National Bank to

secure the payment of his personal debt to said bank when it fell due.

3. In holding that the assignment (Exhibit 9, P.N.B.) of said bonus made on

March 7, 1930, by Mariano Lacson Ledesma to the Philippine National Bank to

be applied to the payment of his debt to said Philippine National Bank is

fraudulent.

4. In holding that the Bachrach Motor Co. Inc., in civil case No. 31597 of the

Court of First Instance of Manila levied a valid attachment upon the bonus in

question.

5. In admitting and considering the supplementary complaint filed by the

Bachrach Motor Co., Inc., alleging as a cause of action the attachment of the

bonus in question which said Bachrach Motor Co., Inc., in civil case No. 31821 of

the Court of First Instance of Manila levied after the filing of the original complaint

in this case, and after Mariano Lacson Ledesma in this case had been declared

in default.

6. In holding that the Bachrach Motor Co., Inc., has a preferential right to receive

from the Talisay-Silay Milling Co., Inc., the amount of P11,076.02 which is in the

possession of said corporation as the bonus to be paid to Mariano Lacson

Ledesma, and in ordering the Talisay-Silay Milling Co., Inc., to deliver said

amount to the Bachrach Motor Co., Inc.

7. In not holding that the Philippine National Bank has a preferential right to

receive from the Talisay-Silay Milling Co., Inc., the amount of P11,076.02 held by

said corporation as Mariano Lacson Ledesma's bonus, and in not ordering said

Talisay-Silay Milling Co., Inc., to deliver said amount to the Philippine National

Bank.

8. In not holding that the amended complaint and the supplementary complaint of

the Bachrach Motor Co., Inc., do not state facts sufficient to constitute a cause of

action in favor of the Bachrach Motor Co., Inc., and against the Talisay-Silay

Milling Co., Inc., or against the Philippine National Bank.

The appellant bank bases its preferential right upon the contention that the bonus in

question is civil fruits of the lands which the owners had mortgaged for the benefit of

the central giving the bonus, and that, as civil fruits of said land, said bonus was

assigned by Mariano Lacson Ledesma on March 7, 1930, by virtue of the document

Exhibit 9 of said intervening institution, which admitted in its brief that "if the bonus in

question is not civil fruits or rent which became subject to the mortgage in favor of the

Philippine National Bank when Mariano Lacson Ledesma's personal obligation fell due,

the assignment of March 7, 1930 (Exhibit 9, P.N.B.), is null and void, not because it is

fraudulent, for there was no intent of fraud in executing the deed, but that the cause or

consideration of the assignment was erroneous, for it was based upon the proposition

that the bonus was civil fruits of the land mortgaged to the Philippine National Bank."

(P. 31.)

The fundamental question, then, submitted to our consideration is whether or not the

bonus in question is civil fruits.

This is how the bonus came to be granted: On December 22, 1923, the Talisay-Silay

Milling Co., Inc., was indebted to the Philippine National Bank. To secure the payment

of its debt, it succeeded in inducing its planters, among whom was Mariano Lacson

Ledesma, to mortgage their land to the creditor bank. And in order to compensate

those planters for the risk they were running with their property under the mortgage,

the aforesaid central, by a resolution passed on that same date, i.e., December 22,

1923, undertook to credit the owners of the plantation thus mortgaged every year with

a sum equal to two per centum of the debt secured according to yearly balance, the

payment of the bonus being made at once, or in part from time to time, as soon as the

central became free of its obligations to the aforesaid bank, and of those contracted by

virtue of the contract of supervision, and had funds which might be so used, or as soon

as it obtained from said bank authority to make such payment. (Exhibits 5, 6; P.N.B.)

Article 355 of the Civil Code considers three things as civil fruits: First, the rents of

buildings; second, the proceeds from leases of lands; and, third, the income from

perpetual or life annuities, or other similar sources of revenue. It may be noted that

according to the context of the law, the phrase "u otras analogas" refers only to rent or

income, for the adjectives "otras" and "analogas" agree with the noun "rentas," as do

also the other adjectives"perpetuas" and "vitalicias." That is why we say that by "civil

fruits" the Civil Code understands one of three and only three things, to wit: the rent of

a building, the rent of land, and certain kinds of income.

As the bonus in question is not rent of a building or of land, the only meaning of "civil

fruits" left to be examined is that of "income."

Assuming that in broad juridical sense of the word "income" it might be said that the

bonus in question is "income" under article 355 of the Civil Code, it is obvious to inquire

whether it is derived from the land mortgaged by Mariano Lacson Ledesma to the

appellant bank for the benefit of the central; for it is not obtained from that land but

from something else, it is not civil fruits of that land, and the bank's contention is

untenable.

It is to be noted that the said bonus bears no immediate, but only a remote accidental

relation to the land mentioned, having been granted as compensation for the risk of

having subjected one's land to a lien in favor of the bank, for the benefit of the entity

granting said bonus. If this bonus be income or civil fruits of anything, it is income

arising from said risk, or, if one chooses, from Mariano Lacson Ledesma's generosity

in facing the danger for the protection of the central, but certainly it is not civil fruits or

income from the mortgaged property, which, as far as this case is concerned, has

nothing to do with it. Hence, the amount of the bonus, according to the resolution of the

central granting it, is not based upon the value, importance or any other circumstance

of the mortgaged property, but upon the total value of the debt thereby secured,

according to the annual balance, which is something quite distinct from and

independent of the property referred to.

Finding no merit in this appeal, the judgment appealed from is affirmed, without

express finding as to costs. So ordered.

(2) G.R. No. L-21783 November 29, 1969

PACIFIC FARMS, INC., plaintiff-appellee,

vs.SIMPLICIO G. ESGUERRA, ET AL., defendants,

CARRIED LUMBER COMPANY, defendant-appellant.

CASTRO, J.:

Before us for review, on appeal by the defendant Carried Lumber Company

(hereinafter referred to as the Company), is the decision, dated May 30, 1962, of the

Court of First Instance of Pangasinan in civil case D-1317, annulling the levy and

certificate of sale covering six buildings owned by the plaintiff Pacific Farms, Inc.,

executed by the defendant deputy provincial sheriff Simplicio G. Esguerra in favor of

the Company to satisfy a money judgment against the Insular Farms, Inc., the plaintiff's

predecessor-in-interest over the said buildings.

The environmental setting is uncontroverted.

On several occasions from October 1, 1956 to March 2, 1957 the Company sold and

delivered lumber and construction materials to the Insular Farms, Inc. which the latter

used in the construction of the aforementioned six buildings at its compound in

Bolinao, Pangasinan, of the total procurement price of P15,000, the sum of P4,710.18

has not been paid by Insular Farms, Inc. Consequently, on October 17, 1958 the

Company instituted civil case D-775 with the Court of First Instance of Pangasinan to

recover the said unpaid balance from the Insular Farms, Inc. On August 23, 1961 the

trial court rendered judgment sustaining the Company's claim. The judgment debtor did

not appeal; so on December 19, 1961 the corresponding writ of execution was issued.

On January 16, 1962 the defendant sheriff levied upon the six buildings. On January

30, 1962 the Pacific Farms, Inc. filed a third-party claim, subscribed by its corporate

president, asserting ownership over the levied buildings which it had acquired from the

Insular Farms, Inc. by virtue of a deed of absolute sale executed on March 21, 1958,

about seven months before the Company filed the above-mentioned action (civil case

D-775). Shielded by an indemnity bond of P7,120 put up by the Company and the

Cosmopolitan Insurance Company, Inc., the sheriff proceeded with the announced

public auction on February 12, 1962 and sold the levied buildings to the Company for

P6,110.78.

Asserting absolute and exclusive ownership of the buildings in question, the Pacific

Farms, Inc. filed a complaint on May 14, 1962 against the Company and the sheriff

with the court a quo, praying that judgment be rendered, (a) declaring null and void the

levy and judicial sale of the six buildings, and (b) adjudging the defendants jointly and

severally liable to the plaintiff in the sum of P2,000 by way of actual damages and for

such amount as the court may deem proper and just to impose by way of exemplary

damages and for costs of the suit.

After due trial, the court a quo on May 30, 1963 rendered judgment annulling the levy

of January 16, 1962 and the certificate of sale of February 12, 1962. The court,

however, denied the plaintiff's claim for actual and exemplary damages on the ground

that it was not "prepared to find that there was gross negligence or bad faith on the part

of any of the defendants."

Hence this appeal, imputing errors which, according to the appellant's formulation, are

the following:

1. The lower court erred in holding that the credit of the defendant-appellant,

Carried Lumber Company, against the Insular Farms, Inc., consisting of the value

of lumber and construction materials used in the buildings which were later

acquired by the Pacific Farms, Inc., the appellee, was not a statutory lien on

those buildings; .

2. The lower court, likewise, erred in holding that the doctrine laid down in De

Barretto, et al. vs. Villanueva, et al. (G.R. No. L-14938, December 29, 1962) is

applicable to the facts of this case as found by said court; and .

3. The lower court erred, finally, in declaring that the sale at public auction

conducted by the defendant deputy provincial sheriff of Pangasinan, covering the

six buildings described in the certificate of sale dated February 12, 1962, was null

and void.

1. In ruling against the appellant below, the trial court relied mainly on the resolution

(on the motion for reconsideration) promulgated on December 29, 1962 by this Court

in De Barretto, et al. vs. Villanueva, et al., L-14938 (6 SCRA 928). The said case,

however, is inapplicable because it concerned not one but two or more preferred

creditors who, pursuant to articles 2242 and 2249 of the Civil Code, must necessarily

be convened and the nature and extent of their respective claims ascertained. Thus,

we held that before there can be a pro rata payment of credits entitled to preference as

to the same specific real property, there must first be some proceeding where the

claims of all the preferred creditors may be bindingly adjudicated, such as insolvency,

the settlement of a decedent's estate under Rule 87 of the Rules of Court, or liquidation

proceedings of similar import.

But the case before us does not involve a question of preference of credits, and is not

one where two or more creditors have separate and distinct claims against the same

debtor who has insufficient property. Indeed, it is a matter of necessity and logic that

the question of preference should arise only where the debtor cannot pay his debts in

full. For, if debtor A is able in full to pay all his three creditors, B, C, and D, how can the

need arise for determining which of the three creditors shall be paid first or whether

they shall be paid out of the proceeds of a specific property?

2. It is undenied and undeniable that the appellant furnished lumber and construction

materials to the Insular Farms, Inc. (the appellee's predecessor-in-interest) which the

latter used in the construction of the six buildings. Likewise unchallenged is the lower

court's factual finding that out of the total procurement price of P15,000, the amount of

P4,710.18 remains outstanding and unpaid by the Insular Farms, Inc. The appellant is

therefore an unpaid furnisher of materials.

Whether there exists a materialman's lien over the six buildings in favor of the

appellant, is a question we do not here decide. To our mind the application by analogy

of the rules of accession would suffice for a just adjudication.

Article 447 of the Civil Code1 provides:

The owner of the land who makes thereon personally or through another,

plantings, constructions or works with the materials of another, shall pay their

value; and, if he acted in bad faith, he shall also be obliged to the reparation of

damages. The owner of the materials shall have the right to remove them only in

case he can do so without injury to the work constructed, or without the plantings,

constructions or works being destroyed. However, if the landowner acted in bad

faith, the owner of the materials may remove them in any event with a right to be

indemnified for damages.

The abovequoted legal provision contemplates a principal and an accessory, the land

being considered the principal, and the plantings, constructions or works, the

accessory. The owner of the land who in good faith — whether personally or through

another — makes constructions or works thereon, using materials belonging to

somebody else, becomes the owner of the said materials with the obligation however

of praying for their value.2The owner of the materials, on the other hand, is entitled to

remove them, provided no substantial injury is caused to the landowner. Otherwise, he

has the right to reimbursement for the value of his materials.

Although it does not appear from the records of this case that the land upon which the

six buildings were built is owned by the appellee, nevertheless, that the appellee

claims that it owns the six buildings constructed out of the lumber and construction

materials furnished by the appellant, is indubitable. Therefore, applying article 447 by

analogy, we perforce consider the buildings as the principal and the lumber and

construction materials that went into their construction as the accessory. Thus the

appellee, if it does own the six buildings, must bear the obligation to pay for the value

of the said materials; the appellant — which apparently has no desire to remove the

materials, and, even if it were minded to do so, cannot remove them without

necessarily damaging the buildings — has the corresponding right to recover the value

of the unpaid lumber and construction materials.

Well-established in jurisprudence is the rule that compensation should be borne by the

person who has been benefited by the accession.3 No doubt, the appellee benefited

from the accession, i.e., from the lumber and materials that went into the construction

of the six buildings. It should therefore shoulder the compensation due to the appellant

as unpaid furnisher of materials.

Of course, the character of a buyer in good faith and for value, if really possessed by

the appellee, could possibly exonerate it from making compensation.

But the appellee's stance that it is an innocent purchaser for value and in good faith is

open to grave doubt because of certain facts of substantial import (evident from the

records) that cannot escape notice.

In the deed of absolute sale, exhibit 1, the Insular Farms, Inc. (vendor) was

represented in the contract by its president, J. Antonio Araneta. The latter was a

director of the appellee (Pacific Farms, Inc.) and was the counsel who signed the

complaint filed by the appellee in the court below. J. Antonio Araneta was, therefore,

not only the president of the Insular Farms, Inc. but also a director and counsel of the

appellee.

During the trial of civil case D-775 the Insular Farms, Inc. was represented by Attorney

Amado Santiago, Jr. of the law firm of J. Antonio Araneta. The latter was one of the

counsels of the Pacific Farms, Inc. The appellee cannot claim ignorance of the

pendency of civil case D-775 because the Insular Farms, Inc. was defended by the

same lawyer from the same law firm that commenced the present action. J. Antonio

Araneta, as counsel for the Pacific Farms, Inc., cannot close his eyes to facts of which

he as president of the Insular Farms, Inc. had actual knowledge. Significantly, exhibit 1

(supra) itself shows that the Insular Farms, Inc. and the Pacific Farms, Inc. were

housed in adjacent rooms (nos. 304 and 303, respectively), of the same building, the

Insular Life Building, as early as March 21, 1958.

It is reasonable therefore to conclude that the appellee, through its director and

counsel, J. Antonio Araneta, knew about the unpaid balance of the purchase price of

the lumber and construction materials supplied or furnished by the appellant to the

Insular Farms, Inc.

Parenthetically, it is likewise worth our attention that despite the appellee's knowledge

of the suit instituted by the appellant against the Insular Farms, Inc. (the appellee's

predecessor-in-interest) for the recovery of the unpaid balance of the purchase price of

the lumber and materials used in the construction of its six buildings, it merely folded

its arms in disinterest and waited, so to speak. Not until a decision was rendered

therein in favor of the appellant, a writ of execution issued, and the six buildings levied

upon by the sheriff, did it file a third-party claim over the levied buildings. In the face of

the knowledge that its predecessor-in-interest had not fully paid for the lumber and

construction materials used in the six buildings it had purchased, its natural and

expected reaction should have been to intervene in the suit filed by the appellant

against the Insular Farms, Inc. and hold the latter to account for breach of the

warranties deemed included in the deed of absolute sale conveying said building to it.

Curiously enough, although the six buildings in question were supposedly sold by the

Insular Farms to the appellee on March 21, 1958, as evidenced by the deed of

absolute sale (exhibit 1), about seven months before the appellant filed civil case D-

775, the Insular Farms, Inc. never moved to implead the appellee therein as a

necessary party-defendant, and remained completely and strangely silent about the

sale. It is not amiss to surmise that it is entirely possible that the Insular Farms, Inc.

and the appellee chose to remain silent in the hope that the appellant's claim against

the Insular Farms, Inc. in civil case D-775 would be dismissed or non-suited.

Moreover, the appellee was in a better position to protect its interest. It knew that the

Insular Farms, Inc., its predecessor-in-interest, was a mere lessee of the premises on

which the buildings were located. This should have placed it on guard and compelled it

to ascertain the circumstances surrounding the construction of the said buildings on

the premises.

On the other hand, the appellant was not as advantageously situated as the appellee.

There being no separate registry of property for buildings and no procedure provided

by law for registering or annotating the claim of an unpaid furnisher of materials, it was

helpless to prevent the sale of the property built from lumber and construction

materials it furnished. But certainly, because it has a right, pursuant to article

447, supra, to reimbursement for the value of its unpaid materials, the appellant could

pursue any remedy available to it under the law in order to enforce the said right. Thus,

the appellant acted correctly in bringing an action (D-775) against the Insular Farms,

Inc. and enforcing its right of reimbursement through the execution of the final

judgment it obtained in the said case against the six buildings in the possession of the

appellee who now stands to benefit therefrom. It follows, as a necessary corollary, that

the sale at public auction conducted by the defendant sheriff of the six buildings

described in the certificate of sale dated February 12, 1962, exhibit 7, was valid and

effective.

ACCORDINGLY, the judgment a quo is reversed, and the complaint is hereby

dismissed.

In view, however, of the equities clearly attendant in this case, it is the sense of this

Court that the plaintiff-appellee Pacific Farms, Inc. should be, as it is hereby, granted a

period of thirty (30) days from the date this judgment becomes final, within which it may

exercise the option of redeeming the six buildings, by paying to the defendant-

appellant Carried Lumber Company the sum of P4,710.18, with legal interest from

September 23, 1961 (the date the judgment in civil case D-775 became final), until the

said amount shall have been fully paid.

No pronouncement as to costs.

(3) G.R. No. L-44606 November 28, 1938

VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant,

vs.CATALINO BATACLAN, defendant-appellant.

TORIBIO TEODORO, purchaser-appellee.

LAUREL, J.:

This is an appeal taken by both the plaintiff and the defendant from the order of

September 26, 1935, hereinabove referred to, of the Court of First Instance of Cavite in

Civil Case No. 2428.

There is no controversy as to the facts. By a contract of sale executed from Pastor

Samonte and others ownership of a parcel of land of about 90 hectares situated in sitio

Balayunan, Silang, Cavite. To secure possession of the land from the vendors the said

plaintiff, on July 20, 1929, instituted Civil Case No. 1935 in the Court of First Instance

of Cavite. The trial court found for the plaintiff in a decision which was affirmed by this

Supreme Court on appeal (G.R. No. 33017). 1 When plaintiff entered upon the

premises, however, he found the defendant herein, Catalino Bataclan, who appears to

have been authorized by former owners, as far back as 1922, to clear the land and

make improvements thereon. As Bataclan was not a party in Case No. 1935, plaintiff,

on June 11, 1931, instituted against him, in the Court of First Instance of Cavite, Civil

Case No. 2428. In this case, plaintiff was declared owner but the defendant was held

to be a possessor in good faith, entitled to reimbursement in the total sum of P1,642,

for work done and improvements made. The dispositive part of the decision reads:

Por las consideraciones expuestas, se declara al demandante Vicente Santo

Domingo Bernardo dueño con derecho a la posesion del terreno que se describe

en la demanda, y al demandado Catalino Bataclan con derecho a que del

demandante le pague la suma de P1,642 por gastos utiles hechos de buena fe

en el terreno, y por el cerco y ponos de coco y abaca existentes en el mismo, y

con derecho, ademas a retener la posesion del terreno hasta que se le pague

dicha cantidad. Al demandante puede optar, en el plazo de treinta dias, a partir

de la fecha en que fuere notificado de la presente, por pagar esa suma al

demandado, haciendo asi suyos el cerco y todas las plantaciones existentes en

el terreno, u obligar al demandado a pagarle el precio terreno, a razon de

trescientos pesos la hectarea. En el caso de que el demandante optara por que

el demandado le pagara el precio del terreno, el demandado efectuara el pago

en el plazo convenientes por las partes o que sera fijado por el Juzgado. Sin

costas.

Both parties appealed to this court (G. R. No. 37319). 2 The decision appealed from

was modified by allowing the defendant to recover compensation amounting to P2,212

and by reducing the price at which the plaintiff could require the defendant to purchase

the land in question from P300 to P200 per hectare. Plaintiff was given by this court 30

days from the date when the decision became final within which to exercise his option,

either to sell the land to the defendant or to buy the improvements from him. On

January 9, 1934, the plaintiff manifested to the lower court his desire "to require the

defendant to pay him the value of the land at the rate of P200 per hectare or a total

price of P18,000 for the whole tract of land." The defendant informed the lower court

that he was unable to pay the land and, on January 24, 1934, an order was issued

giving the plaintiff 30 days within which to pay the defendant the sum of P2,212 stating

that, in the event of failure to make such payment, the land would be ordered sold at

public auction "Para hacer pago al demandante de la suma de P2,212 y el remanente

despues de deducidos los gastos legales de la venta en publica subasta sera

entregado al demandante." On February 21, 1934, plaintiff moved to reconsider the

foregoing order so that he would have preference over the defendant in the order of

payment. The motion was denied on March 1, 1934 but on March 16 following the

court below, motu proprio modified its order of January 24, "en el sentido de que el

demandante tiene derecho preferente al importe del terreno no se vendiere en publica

subasta, a razon de P200 por hectares y el remanente, si acaso lo hubiere se

entregara al demandado en pago de la cantidad de P2,212 por la limpieza del terreno

y las mejoras introducidas en el mismo por el citado demandado." On April 24, 1934,

the court below, at the instance of the plaintiff and without objection on the part of the

defendant, ordered the sale of the land in question at public auction. The land was sold

on April 5, 1935 to Toribio Teodoro, the highest bidder, for P8,000. In the certificate of

sale issued to said purchaser on the very day of sale, it was stated that the period of

redemption of the land sold was to expire on April 5, 1936. Upon petition of Toribio

Teodoro the court below ordered the provincial sheriff to issue another certificate not

qualified by any equity of redemption. This was complied with by the sheriff on July 30,

1935. On September 18, 1935, Teodoro moved that he be placed in possession of the

land purchased by him. The motion was granted by order of September 26, 1935, the

dispositive part of which is as follows:

Por tanto, se ordena al Sheriff Provincial de Cavite ponga a Toribio Teodoro en

posesion del terreno comprado por el en subasta publica y por el cual se le

expidio certificado de venta definitiva, reservando al demandado su derecho de

ejercitar una accion ordinaria para reclamar del demandante la cantidad de

P2,212 a que tiene derecho por la limpieza y mejoras del terreno y cuya suma,

en justicia y equidad, debe ser descontada y deducida de la suma de P8,000

que ya ha recibido el demandante.

The Civil Code confirms certain time-honored principles of the law of property. One of

these is the principle of accession whereby the owner of property acquires not only that

which it produces but that which is united to it either naturally or artificially. (Art. 353.)

Whatever is built, planted or sown on the land of another, and the improvements or

repairs made thereon, belong to the owner of the land (art. 358). Where, however, the

planter, builder, or sower has acted in good faith, a conflict of rights arises between the

owners and it becomes necessary to protect the owner of the improvements without

causing injustice to the owner of the land. In view of the impracticability of creating

what Manresa calls a state of "forced coownership" (vol. 3, 4th ed., p. 213), the law has

provided a just and equitable solution by giving the owner of the land the option to

acquire the improvements after payment of the proper indemnity or to oblige the

builder or planter to pay for the land and the sower to pay the proper rent (art. 361). It

is the owner of the land who is allowed to exercise the option because his right is older

and because, by the principle of accession, he is entitled to the ownership of the

accessory thing (3 Manresa, 4th ed., p. 213). In the case before us, the plaintiff, as

owner of the land, chose to require the defendant, as owner of the improvements, to

pay for the land.

The defendant states that he is a possessor in good faith and that the amount of

P2,212 to which he is entitled has not yet been paid to him. Therefore, he says, he has

a right to retain the land in accordance with the provisions of article 453 of the Civil

Code. We do not doubt the validity of the premises stated. "Considera la ley tan

saarada y legitima la deuda, que, hasta que sea pagada, no consiente que la cosa se

restituya all vencedor." (4 Manresa, 4th ed, p., 304.) We find, however, that the

defendant has lost his right of retention. In obedience to the decision of this court in

G.R. No. 37319, the plaintiff expressed his desire to require the defendant to pay for

the value of the land. The said defendant could have become owner of both land and

improvements and continued in possession thereof. But he said he could not pay and

the land was sold at public auction to Toribio Teodoro. The law, as we have already

said, requires no more than that the owner of the land should choose between

indemnifying the owner of the improvements or requiring the latter to pay for the land.

When he failed to pay for the land, the defendant herein lost his right of retention.

The sale at public auction having been asked by the plaintiff himself (p. 22, bill of

exceptions) and the purchase price of P8,000 received by him from Toribio Teodoro,

we find no reason to justify a rapture of the situation thus created between them, the

defendant-appellant not being entitled, after all, to recover from the plaintiff the sum of

P2,212. lawphi1.net

The judgment of the lower court is accordingly modified by eliminating therefrom the

reservation made in favor of the defendant-appellant to recover from the plaintiff the

sum of P2,212. In all the respects, the same is affirmed, without pronouncement

regarding costs. So ordered.

(4) G.R. No. 157044 October 5, 2005

RODOLFO V. ROSALES, (represented by his heirs, Rodolfo, Jr., Romeo Allan,

Lillian Rhodora, Roy Victor, Roger Lyle and Alexander Nicolai, all surnamed

Rosales) and LILY ROSQUETA-ROSALES,Petitioners

vs.MIGUEL CASTELLTORT, JUDITH CASTELLTORT, and LINA LOPEZ-

VILLEGAS, assisted by her Attorney-in-Fact, Rene Villegas, Respondents.

CARPIO MORALES, J.:

The present petition for review on certiorari assails the October 2, 2002 Decision1 and

February 6, 2003 Resolution2 of the Court of Appeals (CA) in CA G.R. CV No. 64046

and seeks to reinstate the April 21, 1999 Decision3 of the Regional Trial Court (RTC) of

Calamba, Laguna, Branch 34 in Civil Case No. 2229-95-C.

Spouses-petitioners Rodolfo V. Rosales and Lily Rosqueta-Rosales (petitioners) are

the registered owners of a parcel of land with an area of approximately 315 square

meters, covered by Transfer Certificate of Title (TCT) No. 368564 and designated as

Lot 17, Block 1 of Subdivision Plan LRC Psd-55244 situated in Los Baños, Laguna.

On August 16, 1995, petitioners discovered that a house was being constructed on

their lot, without their knowledge and consent, by respondent Miguel Castelltort

(Castelltort).5

It turned out that respondents Castelltort and his wife Judith had purchased a lot, Lot

16 of the same Subdivision Plan, from respondent Lina Lopez-Villegas (Lina) through

her son-attorney-in-fact Rene Villegas (Villegas) but that after a survey thereof by

geodetic engineer Augusto Rivera, he pointed to Lot 17 as the Lot 16 the Castelltorts

purchased.

Negotiations for the settlement of the case thus began, with Villegas offering a larger

lot near petitioners’ lot in the same subdivision as a replacement thereof.6 In the

alternative, Villegas proposed to pay the purchase price of petitioners’ lot with legal

interest.7 Both proposals were, however, rejected by petitioners8 whose counsel, by

letter9 of August 24, 1995, directed Castelltort to stop the construction of and demolish

his house and any other structure he may have built thereon, and desist from entering

the lot.

Petitioners subsequently filed on September 1, 1995 a complaint10 for recovery of

possession and damages with prayer for the issuance of a restraining order and

preliminary injunction against spouses-respondents Miguel and Judith Castelltort

before the RTC of Calamba, Laguna, docketed as Civil Case No. 2229-95-C.

To the complaint, the Castelltorts claimed in their Answer with Counterclaim11 that they

were builders in good faith.

Lina, represented by her son-attorney-in-fact Villegas, soon filed a Motion for

Intervention12 before the RTC which was granted by Order13 of December 19, 1995.

In her Answer to the complaint,14 Lina alleged that the Castelltorts acted in good faith in

constructing the house on petitioners’ lot as they in fact consulted her before

commencing any construction thereon, they having relied on the technical description

of the lot sold to them, Lot 16, which was verified by her officially designated geodetic

engineer.

Nevertheless, Lina proposed to give petitioners a lot containing an area of 536 square

meters together with the house and duplex structure built thereon or, if petitioners

choose, to encumber the 536 square meter lot as collateral "to get immediate cash"

through a financing scheme in order to compensate them for the lot in question.15

Ruling out good faith, the RTC, by Decision of April 21, 1999, found for petitioners in

this wise:

In the instant case, there is no well-founded belief of ownership by the defendants of

the land upon which they built their house. The title or mode of acquisition upon which

they based their belief of such ownership stemmed from a Contract to Sell (Exhibit "P")

of which they were not even parties, the designated buyer being Elizabeth Yson Cruz

and the sale even subjected to the judicial reconstitution of the title. And by their own

actions, particularly defendant Miguel Castelltort, defendants betrayed this very belief

in their ownership when realizing the inutility of anchoring their ownership on the basis

of the Contract of Sale, defendant Miguel Castelltort in his testimony declared

Elizabeth Yson Cruz as his wife (tsn, pp. 7-8, March 24, 1998) despite an admission in

their answer that they are the spouses named as defendants (tsn, p. 8, January 12,

1998) and which declaration is an utter falsehood as the Contract to Sell itself indicates

the civil status of said Elizabeth Yson Cruz to be single.

Even if we are to concede that defendants built their house in good faith on account of

the representation of attorney-in-fact Rene Villegas, their failure to comply with the

requirements of the National Building Code, particularly the procurement of a building

permit, stained such good faith and belief.

x x x

From any and all indications, this deliberate breach is an unmitigated manifestation of

bad faith. And from the evidence thus adduced, we hold that defendants and the

intervenor were equally guilty of negligence which led to the construction of the

defendants’ house on plaintiffs’ property and therefore jointly and severally liable for all

the damages suffered by the plaintiffs.16 (Underscoring supplied)

The dispositive portion of the trial court’s Decision reads, quoted verbatim:

ACCORDINGLY, in view of all the foregoing, judgment is hereby rendered in favor of

plaintiffs and against the defendants, ordering the latter to surrender the possession of

the property covered by TCT No. 36856 of the Register of Deeds of Laguna including

any and all improvements built thereon to the plaintiffs.

Defendants and intervenors are likewise jointly and severally directed to pay to

plaintiffs the following damages:

a) TWO THOUSAND (P2,000.00) PESOS per month from February 1995 by way of

reasonable compensation for the use of plaintiffs’ property until the surrender of the

same;

b) FIFTY THOUSAND (P50,000.00) PESOS by way of moral damages;

c) THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages;

d) TWENTY THOUSAND (P20,000.00) PESOS as attorney’s fees and cost of suit.

The counterclaim interposed by the defendants in their responsive pleading is hereby

dismissed for lack of merit.

SO ORDERED.17

Respondents thereupon filed their respective appeals with the CA.

Petitioner Rodolfo Rosales, in the meantime, died on December 7, 2001. His heirs

Rodolfo, Jr., Romeo Allan, Lillian Rhodora, Roy Victor, Roger Lyle and Alexander

Nicolai, all surnamed Rosales, filed their Appearance18 as his substitute.

By Decision of October 2, 2002, the CA granted the appeal and set aside the April 21,

1999 RTC Decision. The dispositive portion of the Decision reads, quoted verbatim:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED and the

assailed decision of the court a quo REVERSED AND SET ASIDE. In accordance with

the cases of Technogas Philippines Manufacturing Corp. vs. Court of

Appeals and Depra vs. Dumlao, applying Article 448 of the Civil Code, this case

is REMANDEDto the Regional Trial Court of Calamba, Laguna, Branch 34, for further

proceedings, as follows:

1. to determine the present fair price of appellees’ 315 square meter area of land and

the amount of the expenses actually spent by the appellants for building the house as

of 21 August 1995, which is the time they were notified of appellees’ rightful claim over

Lot 17.

2. to order the appellees to exercise their option under the law (Article 448, Civil Code),

whether to appropriate the house as their own by paying to the appellants the amount

of the expenses spent for the house as determined by the court a quo in accordance

with the limitations as aforestated or to oblige the appellants to pay the price of the

land.

In case the appellees exercise the option to oblige the appellants to pay the price of

the land but the latter reject such purchase because, as found by the court, the value

of the land is considerably more than that of the house, the court shall order the parties

to agree upon the terms of a forced lease, and give the court a quo a formal written

notice of such agreement and its provisos. If no agreement is reached by the parties,

the court a quo shall then fix the terms of the forced lease, provided that the monthly

rental to be fixed by the Court shall not be less that Two Thousand Pesos (P2,000.00)

per month, payable within the first five (5) days of each calendar month and the period

thereof shall not be more than two (2) years, counted from the finality of the judgment.

Upon the expiration of the forced lease, or upon default by the appellants in the

payment of rentals for two (2) consecutive months, the appellees shall be entitled to

terminate the forced lease, to recover their land, and to have the improvement

removed by the appellants at the latter’s expense. The rentals herein provided shall be

tendered by the appellants to the court for payment to the appellees, and such tender

shall constitute evidence of whether or not compliance was made within the period

fixed by the court.

In any event, the appellants shall pay the appellees the amount of Two Thousand

Pesos (P2,000.00) as reasonable compensation for their occupancy of the encroached

property from the time said appellants’ good faith cease (sic) to exist until such time the

possession of the property is delivered to the appellees subject to the reimbursement

of the aforesaid expenses in favor of the appellants or until such time the payment of

the purchase price of the said lot be made by the appellants in favor of the appellees in

case the latter opt for the compulsory sale of the same.

SO ORDERED.19 (Emphasis in the original)

In reversing the trial court, the CA held:

x x x

x x x A perusal of the records readily reveals that said court instead relied on flimsy, if

not immaterial, allegations of the appellees, which have no direct bearing in the

determination of whether the appellants are builders in bad faith.

For one, the pivotal issue to be resolved in this case, i.e. whether appellant Miguel is a

builder in good faith, was ignored by the court a quo. The instant case does not in any

way concern the personal and property relations of spouses-appellants and Elizabeth

Yson Cruz which is an altogether different matter that can be ventilated by the

concerned parties through the institution of a proper action. xxx The court a quo should

have focused on the issue of whether appellant Miguel built, in good faith, the subject

house without notice of the adverse claim of the appellees and under the honest belief

that the lot which he used in the construction belongs to him. xxx

xxx As it is, appellant Miguel relied on the title which the intervenor showed to him

which, significantly, has no annotation that would otherwise show a prior adverse

claim. Thus, as far as appellant Miguel is concerned, his title over the subject lot, as

well as the title of the intervenor thereto, is clean and untainted by an adverse claim or

other irregularities.

For another, the appellants’ failure to secure a building permit from the Municipal

Engineer’s Office on their construction on Lot 17 does not impinge on the good faith of

the appellants. In fact, it can be told that a building permit was actually filed by

appellant Miguel with respect to Lot 16 and it was only due to the confusion and

misapprehension by the intervenor of the exact parameters of the property which

caused appellant’s belief that Lot 17 [the questioned lot], is his. This fact bolsters

appellant Miguel’s good faith in building his house on appellees’ lot under the mistaken

belief that the same is his property. Otherwise, he should have secured a building

permit on Lot 17 instead or should not have bothered to take the necessary measures

to obtain a building permit on Lot 16 in the first place.

By and large, the records show that, as testified to by Engr. Rebecca T.

Lanuang, appellant Miguel had already applied for a building permit as early as

February 1994 and was in fact issued a temporary building permit pending the

completion of the requirements for said permit. Although the building permit was

belatedly issued in January 1996, this does not in any way detract from appellant

Miguel’s good faith.

x x x

In holding the appellants as builders in bad faith, the court a quo defied law and settled

jurisprudence considering that the factual basis of its findings and the incontrovertible

evidence in support thereof prove that the appellant Miguel, in good faith, built the

house on appellees’ land without knowledge of an adverse claim or any other

irregularities that might cast a doubt as to the veracity of the assurance given to him by

the intervenor. Having been assured by the intervenor that the stone monuments were

purposely placed, albeit wrongfully, by the land surveyor in said land to specifically

identify the lot and its inclusive boundaries, the appellants cannot be faulted for having

relied on the expertise of the land surveyor who is more equipped and experienced in

the field of land surveying. Although under the Torrens system of land registration, the

appellant is presumed to have knowledge of the metes and bounds of the property with

which he is dealing, appellant however, considering that he is a layman not versed in

the technical description of his property, cannot be faulted in his reliance on the survey

plan that was delivered to him by the intervenor and the stone monuments that were

placed in the encroached property.

x x x

Peremptorily, contrary to the flawed pronouncements made by the court a quo that

appellant Miguel is deemed as a builder in bad faith on the basis of a mere assertion

that he built his house without initially satisfying himself that he owns the said property,

this Court finds reason to maintain good faith on the part of the appellant. Admittedly,

the appellants’ house erroneously encroached on the property of the appellees due to

a mistake in the placement of stone monuments as indicated in the survey plan, which

error is directly attributable to the fault of the geodetic engineer who conducted the

same. This fact alone negates bad faith on the part of appellant Miguel.

x x x

Moreover, it is quite illogical for appellant Miguel to knowingly build his house on a

property which he knew belongs to another person. x x x

x x x

In view of the good faith of both parties in this case, their rights and obligations

are to be governed byArticle 448, which has been applied to improvements or

portions of improvements built by mistaken belief on land belonging to the

adjoining owner. x x x

x x x20 (Emphasis and underscoring supplied)

Petitioners’ Motion for Reconsideration21 dated October 22, 2002 having been denied

by the CA by Resolution of March 13, 2002, the present petition was filed raising the

following issues:

I.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A

GRAVE ABUSE OF DISCRETION IN MAKING A FINDING THAT IS CONTRARY TO

THE ADMISSIONS BY THE PARTIES

II.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR OF LAW IN CONCLUDING THAT THE TRIAL COURT, IN

DECIDING THE CASE, RELIED ON FLIMSY, IF NOT IMMATERIAL, ALLEGATIONS

OF THE PETITIONERS, WHICH HAVE NO DIRECT BEARING IN THE

DETERMINATION OF WHETHER THE RESPONDENTS ARE BUILDERS IN GOOD

FAITH

III.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR OF LAW IN RENDERING A DECISION THAT IS

UNENFORCEABLE AGAINST BOTH RESPONDENT JUDITH CASTELLTORT AND

THIRD-PARTY ELIZABETH CRUZ22

Petitioners initially hammer against respondents’ proving that Castelltort and a certain

Elizabeth Cruz are the builders of the house on the subject property, they faulting them

with estoppel for alleging in their Answer before the trial court that "they (respondents

Castelltort and Judith) caused the construction of their house which they bought from a

certain Lina Lopez-Villegas."

Petitioners rely on the following doctrine established in Elayda v. Court of Appeals:23

"an admission made in the pleadings cannot be controverted by the party making such

admission and are conclusive as to him and that all proofs submitted by him contrary

thereto or inconsistent therewith, should be ignored, whether objection is interposed by

the party or not x x x"

Petitioners’ contention is hardly relevant to the case at bar. Whether it was Castelltort

and Judith or Castelltort and Elizabeth Cruz who purchased the property from Lina is

not material to the outcome of the instant controversy. As found by the CA:

The fact remains that appellant [Castelltort] is the builder of the house on Lot 17 xxx

The court a quo should have focused on the issue of whether appellant Miguel built, in

good faith, the subject house without notice of the adverse claim of the appellees and

under the honest belief that the lot which he used in the construction belongs to him.

xxx it cannot be gainsaid that appellant Miguel has a title over the land that was

purchased from the intervenor x x x24

At all events, as this Court held in the case of Gardner v. Court of Appeals:25

In its Resolution reversing the original Decision, respondent Court discredited the

testimony of Ariosto SANTOS for being at variance with the allegations in his Answer.

The fact, however, that the allegations made by Ariosto SANTOS in his pleadings and

in his declarations in open Court differed will not militate against the findings herein

made nor support the reversal by respondent Court. As a general rule, facts alleged in

a party’s pleading are deemed admissions of that party and binding upon it, but this is

not an absolute and inflexible rule. An Answer is a mere statement of fact which the

party filing it expects to prove, but it is not evidence. As Ariosto SANTOS himself, in

open Court, had repudiated the defenses he had raised in his Answer and against his

own interest, his testimony is deserving of weight and credence.26 (Underscoring

supplied)

The issue determinative of the controversy in the case at bar hinges on whether

Castelltort is a builder in good faith.

A builder in good faith is one who builds with the belief that the land he is building on is

his, or that by some title one has the right to build thereon, and is ignorant of any

defect or flaw in his title.27

Article 527 of the Civil Code provides that good faith is always presumed, and upon

him who alleges bad faith on the part of a possessor rests the burden of proof.28

In the case at bar, Lot 16 was sold by Lina, through her attorney-in-fact Villegas, to

Castelltort and a certain Elizabeth Cruz29 for a consideration of P500,000.00. While

prior to the sale, what Villegas showed Castelltort as evidence of his mother Lina’s

ownership of the property was only a photocopy of her title TCT No. (T-42171) T-

1855030 he explaining that the owner’s duplicate of the title was lost and that judicial

reconstitution thereof was ongoing, Castelltort acted in the manner of a prudent man

and went to the Registry of Deeds of Laguna to procure a certified true copy of the

TCT.31 The certified true copy bore no annotation indicating any prior adverse claim on

Lot 16.

The records indicate that at the time Castelltort began constructing his house on

petitioners’ lot, he believed that it was the Lot 16 he bought and delivered to him by

Villegas.

In his cross-examination, Villegas testified:

Q: You said the surveyor placed a mujon along boundary of the property?

A: Yes.

Q: When were the mujons placed in the boundary of the property?

A: These mujons were the basis for my locating the property in pointing to Mr.

Castelltort.

x x x

Q: Is it not a fact that before Miguel Castelltort started constructing that house he

sought your advice or permission to construct the same over that particular lot?

A: Yes.

Q: And you gave your consent?

A: Yes, because based on my knowledge also that that was the lot as pointed by

Engr. Rivera.

x x x

Q: Was there any remarkable difference between lot 16 and 17 at the time that this

particular lot was sold to Miguel Castelltort and Elizabeth Cruz?

x x x

A: Both lots 16 and 17 are practically the same. The (sic) have the same frontage.

There is only a difference of 4 square meters, one is 311 square meters and the other

315 square meters. Both sides were fenced, as drawn they were facing the same road.

They are practically the same.

Q: But at the time or immediately before Mr. Castelltort started the construction of the

house, was there any remarkable distinction between these two properties?

A: None.32 (Emphasis and underscoring supplied)

The confusion in the identification of Lot 16 was eventually traced to the error

committed by geodetic engineer Augusto Rivera’s employees in placing stone

monuments on petitioners’ property, instead of on Lot 16, the lot sold to Castelltort,

based on the survey made by the engineer in 1992.

The engineer so testified:

Q: Now, aside from inspecting personally the site, what else did your men or assistants

do?

A: After computing the subdivision lots, they went back to the field to plant those

subdivision corners with concrete monuments.

Q: Which is (sic) also called as "mohons"?

A: Yes, sir.

Q: Now, can you point to this Honorable Court where exactly did your men place these

additional mohons and how many?

A: Later on we discovered that they placed the mohons in the adjoining lot, lot 17.

x x x

Q: x x x when again did you meet Mr. Rene Villegas or after how many months or

year?

A: Maybe after a year, sir.

Q: And you met him again because he had a problem regarding the property of one

Engr. Rosales?

A: Yes, sir.

Q: And when he confided to you this matter, did you go to the site of Lot 16 or 17?

A: Yes, sir.

Q: And what did you see there?

A: A house being constructed then I rechecked the location of the house and it turned

out to be in Lot 17.

x x x

Q: Considering that you found out that a mistake was actually made by your assistants

Dennis Orencio, Mario Carpio and Sovejano when you allowed them to proceed on

their own to make this computation, did you confront these men of yours afterwards?

A: Yes, sir.

Q: In what manner?

A: I actually reprimanded them verbally and also I dismissed Mario Carpio from my

office.

x x x

Q: And did you investigate how your men committed this mistake of planting these

monuments on another lot when corners 4 & 1 were clearly planted on the ground?

A: I myself rechecked it and found out that they committed an error.

x x x

Q: And now, you are saying that your men committed a mistake by placing thereon

monuments by planting these monuments not on Lot 16 but on Lot 17?

A: When I investigated how did they commit (sic) a mistake it came to be like this.

Before when we surveyed first this in 1992, at that time Dante Villegas contracted my

services there was a fence here then when we went back, the road was already

removed so they committed an error that this point is Lot 19, they thought that it was

Lot 19, the back portion.

x x x

Q: In this particular case, did you find out how your men checked the succeeding lots,

how they determine (sic) the exact location of lot 16?

A: They just relied on one side of the subdivision.

Q: By just counting the number of lots?

A: Yes, sir.

Q: Without making any actual measurement?

A: They made an actual measurement but the reference point is not the one, the

correct one because they also checked it with the other corner of the road going back.

x x x

Q: And how did they commit a mistake when you said they checked the lot at the back

of Lot 16?

A: Because they were quite confident since we had already relocated the property two

years ago so they thought that they get (sic) the right lot without checking the other

side of the subdivision.

x x x

Q: Now, you said that when you went to the place because you heard from Rene

Villegas that there was a mistake you no longer could find the monuments on lines 1

and 4 and according to you the reason is that a fence was already constructed?

A: Yes, sir.

Q: For clarification, is this line 1 & 4 on Lot 16 a common line 1 &4 on Lot 17?

A: Yes, sir a common line.

Q: In other words, this line 1 &4 devides (sic) Lot 16 & 17?

A: Yes, sir.

Q: So that when these monuments were placed on lines 1 & 4 somebody could

mistake it for Lot 17 also because there were monuments now 1 &4 for lot 16 since

these are common lines for

Lot 17 also with Lot 16, it could also be construed that these are monuments for Lot

17?

A: Yes, sir possible.33 (Underscoring supplied)

As correctly found by the CA, both parties having acted in good faith at least until

August 21, 1995, the applicable provision in this case is Article 448 of the Civil Code

which reads:

Art. 448. The owner of the land on which anything has been built, sown or planted in

good faith, shall have the right to appropriate as his own the works, sowing or planting,

after payment of the indemnity provided for in Articles 546 and 548, or to oblige the

one who built or planted to pay the price of the land, and the one who sowed, the

proper rent. However, the builder or planter cannot be obliged to buy the land if its

value is considerably more than that of the building or trees. In such case, he shall pay

reasonable rent, if the owner of the land does not choose to appropriate the building or

trees after proper indemnity. The parties shall agree upon the terms of the lease and in

case of disagreement, the court shall fix the terms thereof.

Under the foregoing provision, the landowner can choose between appropriating the

building by paying the proper indemnity or obliging the builder to pay the price of the

land, unless its value is considerably more than that of the structures, in which case

the builder in good faith shall pay reasonable rent.34 If the parties cannot come to terms

over the conditions of the lease, the court must fix the terms thereof.

The choice belongs to the owner of the land, a rule that accords with the principle of

accession, i.e., that the accessory follows the principal and not the other way around.

Even as the option lies with the landowner, the grant to him, nevertheless, is

preclusive.35 The landowner cannot refuse to exercise either option and compel instead

the owner of the building to remove it from the land.36

The raison d’etre for this provision has been enunciated thus:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises

between the owners, and it becomes necessary to protect the owner of the

improvements without causing injustice to the owner of the land. In view of the

impracticability of creating a state of forced co-ownership, the law has provided a just

solution by giving the owner of the land the option to acquire the improvements after

payment of the proper indemnity, or to oblige the builder or planter to pay for the land

and the sower the proper rent. He cannot refuse to exercise either option. It is the

owner of the land who is authorized to exercise the option, because his right is older,

and because, by the principle of accession, he is entitled to the ownership of the

accessory thing.37

Possession acquired in good faith does not lose this character except in the case and

from the moment facts exist which show that the possessor is not unaware that he

possesses the thing improperly or wrongfully.38 The good faith ceases or is legally

interrupted from the moment defects in the title are made known to the possessor, by

extraneous evidence or by suit for recovery of the property by the true owner.39

In the case at bar, Castelltort’s good faith ceased on August 21, 1995 when petitioners

personally apprised him of their title over the questioned lot. As held by the CA, should

petitioners then opt to appropriate the house, they should only be made to pay for that

part of

the improvement built by Castelltort on the questioned property at the time good faith

still existed on his part or until August 21, 1995.

The CA, however, failed to qualify that said part of the improvement should be pegged

at its current fair market value consistent with this Court’s pronouncement in Pecson v.

Court of Appeals.40

And, as correctly found by the CA, the commencement of Castelltort’s payment of

reasonable rent should start on August 21, 1995 as well, to be paid until such time that

the possession of the property is delivered to petitioners, subject to the reimbursement

of expenses, that is, if such option is for petitioners to appropriate the house.

This Court quotes the CA’s ratiocination with approval:

x x x Generally, Article 448 of the Civil Code provides that the payment of reasonable

rent should be made only up to the date appellees serve notice of their option as

provided by law upon the appellants and the court a quo; that is, if such option is for

appellees to appropriate the encroaching structure. In such event, appellants would

have a right to retain the land on which they have built in good faith until they are

reimbursed the expenses incurred by them. This is so because the right to retain the

improvements while the corresponding indemnity is not paid implies the tenancy or

possession in fact of the land on which it is built, planted or sown.

However, considering that appellants had ceased as builders in good faith at the time

that appellant Miguel was notified of appellees’ lawful title over the disputed property,

the payment of reasonable rent should accordingly commence at that time since he

can no longer avail of the rights provided under the law for builders in good faith.41

If the option chosen by petitioners is compulsory sale, however, the payment of rent

should continue up to the actual transfer of ownership.42

Respecting petitioners’ argument that the appellate court erred in rendering a decision

that is "unenforceable against Judith who is not the owner of the house and Elizabeth

Cruz who was found to be a part owner of the house built on their lot but is not a party

to the case," the same does not lie.

While one who is not a party to a proceeding shall not be affected or bound43 by a

judgment rendered therein,44like Elizabeth Cruz, this does not detract from the validity

and enforceability of the judgment on petitioners and respondents Castelltorts.

WHEREFORE, the petition is DENIED. The Decision dated October 2, 2002 and

Resolution dated February 6, 2003 of the Court of Appeals

are AFFIRMED with MODIFICATION such that the trial court shall include for

determination the increase in value ("plus value") which petitioners’ 315 square meter

lot may have acquired by reason of the existence of that portion of the house built

before respondents Miguel and Judith Castelltort were notified of petitioners’ rightful

claim on said lot, and the current fair market value of said portion.

SO ORDERED.

(5) G.R. No. L-8220 October 29, 1955

SALVACION MIRANDA, plaintiff-appellants, vs.ESTEBAN FADULLON and spouses

DIONISIO SEGARRA and CLEMENCIA N. DE SEGARRA, defendants-appellees.

MONTEMAYOR, J.:

The present appeal was first taken to the Court of Appeals. Later by resolution of the

said court it was certified to us under section 17, paragraph 6 of the Judiciary Act of

1948, as amended, the said Tribunal being of the opinion that the case involved only

questions of law. The facts as may be gathered from the pleadings filed by the parties

may be briefly stated as follows. In the year 1939 one Lucio Tio was the owner of a

parcel of land, lot 1589-J of the Banilad Estate, Cebu, under Transfer Certificate of

Title No. 10548. On December 29, 1939, a power of attorney in favor of one Esteban

Fadullon executed by Lucio Tio was registered in the land records of Cebu City and

annotated on the same certificate of title. In the year 1946, on the strength of the said

power of attorney Fadullon to make the repurchase within this period, the Segarras

about ten days after the expiration of the period filed a sword petition for the

consolidation of their ownership and registered said petition in the office of the Register

of Deeds on May 15, 1946. Apprised of the sale of his property, Lucio Tio on June 4,

1946, filed a complaint in the Court of First Instance of Cebu, Civil Case No. 181 to

annul the sale. Service of summons was made upon the Segarras on June 10, 1946.

After hearing the trial court rendered judgment annulling the sale. The Segarras

appealed to the Court of Appeals under CA—G. R. No.6550-R and the said Tribunal

affirmed the appealed decision and further required the Segarras to pay plaintiff the

reasonable rentals on the property from the filing of the action until said property shall

have been returned to plaintiff. Upon the decision becoming final the corresponding

writ of execution was issued directing the Sheriff to put plaintiff Tio in possession of the

lot. It turned out however that during the possession of the property by the Segarras

they had introduced improvements thereon consisting of a building of three rooms and

a storage room, and one artesian well, with tower and water tank and a cement flooring

covering about one-third of the lot which according to the Segarras cost them P5,300.

They then filed a motion with the trial court claiming that they were possessors in good

faith of the lot in question, and that they had introduced the improvements

aforementioned in good faith and asked the court to order the plaintiff to pay for the

said improvements valued at P5,300 or to allow them to buy the land should the

plaintiff decide not to pay for the improvements. On August 28, 1952, the trial court

issued the following order:

The attorney for the plaintiff has been accordingly served with copy of

defendant's motion of July 31, 1952, filed through counsel.

As prayed for, without opposition, the plaintiff is hereby ordered to either pay the

defendant spouses, Dionisio Segarra and Clemencia N. Segarra (possessors in

good faith) the sum of P5,300, value of the building erected on the land in

question, or otherwise allow said defendants to purchase the aforementioned lot.

The plaintiff filed a motion for reconsideration claiming that the Segarras were

possessors and builders in bad faith and so were not entitled to reimbursement for the

value of the improvements; that the reason he (plaintiff) did not file an opposition to the

motion of the defendants asking for reimbursement was that he thought that the trial

court was sufficiently informed and impressed with the bad faith with which defendants

bought the land and introduced improvements thereon and that it would consequently

deny their motion; and in support of his motion for reconsideration plaintiff quoted

portions of the decision of the trial court and the Court of Appeals. Upon the denial of

his motion for reconsideration, he took the present appeal.

After a careful review of the record we agree with the plaintiff-appellant. The trial court

in its decision declaring the sale of the land to the defendants null and void and

commenting on the alleged good faith of defendants in buying the property said the

following:

There are two circumstances which seem to stubbornly belie the professed good

faith on the part of the Segarras in buying this property; namely. the

circumstances of the power-of-attorney appearing on the back of the title as of

five or six years previous and the other circumstances of the comparatively

limited period of one month granted vendor Fadullon to redeem the property.

Above all these, is the further circumstance that the said property had already

been mortgaged in favor of the Cebu Mutual Building and Loan Association by

virtue of that power-of-attorney.

While the evidence did not disclose a collusion or conspiracy between Fadullon

and the Segarras, yet, considering the short period of one month within which to

redeem and the surrounding circumstances, the possibility of such collusion

lingers.

Obviously there was in this transaction a prevailing intention of railroading the

property into a new ownership as may be proven by the fact that said purchasers

filed a sworn petition for consolidating their ownership barely ten days after the

expiration of thirty days, that is, on April 13, 1946, and registered with the office

of Register of Deeds for Cebu twelve days thereafter, or on May 15, 1946.

The Court of Appeals in its decision affirming that of the trial court said:

The Segarra spouses maintain that they are purchasers in good faith. We will

now examine the record on this point. The alleged power of attorney executed by

the late Lucio Tio in favor of appellant Fadullon was registered in the land record

of the Register of Deeds of Cebu Citly and annotated at the back of Transfer

Certificate of Title No. 10548 on December 29, 1939. On the same date, the

deed of mortgage in favor of the Cebu Mutual Building and Loan Association was

annotated in the said Torrens title (Exhibits 1 and 1-B). This encumbrance alone

should have been sufficient to put the Segarra spouses upon an inquiry as to the

authority of Fadullon to sell to them the same property six years later. For

instance, the Segarras could have asked themselves this question: Did not the

mortgage of P400 serve the purpose for which the power of attorney was

executed?

The Segarras did not require Fadullon to produce his power of attorney. While it

is true that said power of attorney is annotated at the back of the Torrens title of

Tio, it was still incumbent upon the Segarras to ascertain the scope and authority

of Fadullon under said power of attorney. Fadullon executed the sale with the

right to repurchase within the extraordinary short period of 30 days. This

circumstance, again, should have placed the Segarras on their guards, knowing,

as they did, that they were dealing with an agent under a power of attorney

executed before the war. These unusual circumstances would seem to engender

in our minds the possibility of collusion between the appellants, to hasten the

registration of the title of the Segarras to the land in dispute . . .

. . . the transfer of dominion on the property in question to the Segarras was null

and void and of no effect. The new Certificate of Torrens Title No. 392 on the

property now in the name of the Segarras is hereby ordered cancelled and that a

new one issued in the name of Lucio Tio and his wife Salvacion Miranda;

ordering the Segarras to return the possession of said property to plaintiff;

The defendants Segarras are furthermore required to pay plaintiff the reasonable

rentals on the property from the filing of this action until such time as the said

property shall have been returned to plaintiff . . ."

Although neither the trial court nor the Court of Appeals did expressly say and in so

many words that the defendants-appellees were possessors in bad faith, from a

reading of their decisions particularly those we have just quoted, one can logically infer

that that was the conclusion of the two courts, or to say it more mildly, that the

defendants were not possessors in good faith. Moreover, the very fact that the Court of

Appeals sentenced the defendants to pay rentals is an indication, even proof that

defendants were considered possessors and builders in bad faith, or at least that they

were not possessors and builders in good faith. A builder in good faith may not be

required to pay rentals. He has a right to retain the land on which he has built in good

faith until he is reimbursed the expenses incurred by him. Possibly he might be

required to pay rental only when the owner of the land chooses not to appropriate the

improvement and requires the builder in good faith to pay for the land, but that the

builder is unwilling or unable to buy the land, and then they decide to leave things as

they are and assume the relation of lessor and lessee, and should they disagree as to

the amount of the rental then they can go to the court to fix that amount. Furthermore,

plaintiff-appellant in her brief (page 7) says without denial or refutation on the part of

defendants-appellees that they (defendants) applied for a building permit to construct

the improvements in question on December 4, 1946, and the permit was granted on

January 11, 1947, all this about seven months after they received the summons on

June 10, 1946, meaning to say that the improvements were introduced long after their

alleged good faith as possessors had ended.

In view of the foregoing, the appealed order of August 28, 1952 and the order of

October 15, 1952, denying plaintiff's motion for reconsideration are set aside. With

costs against appellees.

(6) G.R. No. L-175 April 30, 1946

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS

IGNACIO, petitioners, vs.ELIAS HILARIO and his wife DIONISIA DRES, and FELIPE

NATIVIDAD, Judge of First Instance of Pangasinan, respondents.

MORAN, C.J.:

This is a petition for certiorari arising from a case in the Court of First Instance of

Pangasinan between the herein respondents Elias Hilario and his wife Dionisia Dres as

plaintiffs, and the herein petitioners Damian, Francisco and Luis, surnamed Ignacio, as

defendants, concerning the ownership of a parcel of land, partly rice-land and partly

residential. After the trial of the case, the lower court, presided over by Hon. Alfonso

Felix, rendered judgment holding plaintiffs as the legal owners of the whole property

but conceding to defendants the ownership of the houses and granaries built by them

on the residential portion with the rights of a possessor in good faith, in accordance

with article 361 of the Civil Code. The dispositive part of the decision, hub of this

controversy, follows:

Wherefore, judgment is hereby rendered declaring:

(1) That the plaintiffs are the owners of the whole property described in transfer

certificate of title No. 12872 (Exhibit A) issued in their name, and entitled to the

possession of the same;

(2) That the defendants are entitled to hold the position of the residential lot until

after they are paid the actual market value of their houses and granaries erected

thereon, unless the plaintiffs prefer to sell them said residential lot, in which case

defendants shall pay the plaintiffs the proportionate value of said residential lot

taking as a basis the price paid for the whole land according to Exhibit B; and

(3) That upon defendant's failure to purchase the residential lot in question, said

defendants shall remove their houses and granaries after this decision becomes

final and within the period of sixty (60) days from the date that the court is

informed in writing of the attitude of the parties in this respect.

No pronouncement is made as to damages and costs.

Once this decision becomes final, the plaintiffs and defendants may appear again

before this court for the purpose of determining their respective rights under

article 361 of the Civil Code, if they cannot come to an extra-judicial settlement

with regard to said rights.

Subsequently, in a motion filed in the same Court of First Instance but now presided

over by the herein respondent Judge Hon. Felipe Natividad, the plaintiffs prayed for an

order of execution alleging that since they chose neither to pay defendants for the

buildings nor to sell to them the residential lot, said defendants should be ordered to

remove the structure at their own expense and to restore plaintiffs in the possession of

said lot. Defendants objected to this motion which, after hearing, was granted by Judge

Natividad. Hence, this petition by defendants praying for (a) a restraint and annulment

of the order of execution issued by Judge Natividad; (b) an order to compel plaintiffs to

pay them the sum of P2,000 for the buildings, or sell to them the residential lot for P45;

or (c), a rehearing of the case for a determination of the rights of the parties upon

failure of extra-judicial settlement.

The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil

Code which are as follows:

ART. 361. The owner of land on which anything has been built, sown or planted

in good faith, shall have the right to appropriate as his own the work, sowing or

planting, after the payment of the indemnity stated in articles 453 and 454, or to

oblige the one who built or planted to pay the price of the land, and the one who

sowed, the proper rent.

ART. 453. Necessary expenses shall be refunded to every possessor; but only

the possessor in good faith may retain the thing until such expenses are made

good to him.

Useful expenses shall be refunded to the possessor in good faith with the same

right of retention, the person who has defeated him in the possession having the

option of refunding the amount of the expenses or paying the increase in value

which the thing may have acquired in consequence thereof.

The owner of the building erected in good faith on a land owned by another, is entitled

to retain the possession of the land until he is paid the value of his building, under

article 453. The owner of the land, upon the other hand, has the option, under article

361, either to pay for the building or to sell his land to the owner of the building. But he

cannot, as respondents here did, refuse both to pay for the building and to sell the land

and compel the owner of the building to remove it from the land where it is erected. He

is entitled to such remotion only when, after having chosen to sell his land, the other

party fails to pay for the same. But this is not the case before us.

We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners

to remove their buildings from the land belonging to plaintiffs-respondents only

because the latter chose neither to pay for such buildings not to sell the land, is null

and void, for it amends substantially the judgment sought to be executed and is,

furthermore, offensive to articles 361 and 453 of the Civil Code.

There is, however, in the decision of Judge Felix a question of procedure which calls

for the clarification, to avoid uncertainty and delay in the disposition of cases. In that

decision, the rights of both parties are well defined under articles 361 and 453 of the

Civil Code, but it fails to determine the value of the buildings and of the lot where they

are erected as well as the periods of time within which the option may be exercised

and payment should be made, these particulars having been left for determination

apparently after the judgment has become final. This procedure is erroneous, for after

the judgment has become final, no additions can be made thereto and nothing can be

done therewith except its execution. And execution cannot be had, the sheriff being

ignorant as to how, for how much, and within what time may the option be exercised,

and certainly no authority is vested in him to settle these matters which involve

exercise of judicial discretion. Thus the judgment rendered by Judge Felix has never

become final, it having left matters to be settled for its completion in a subsequent

proceeding, matters which remained unsettled up to the time the petition is filed in the

instant case.

For all the foregoing, the writ of execution issued by Judge Natividad is hereby set

aside and the lower court ordered to hold a hearing in the principal case wherein it

must determine the prices of the buildings and of the residential lot where they are

erected, as well as the period of time within which the plaintiffs-respondents may

exercise their option either to pay for the buildings or to sell their land, and, in the last

instance, the period of time within which the defendants-petitioners may pay for the

land, all these periods to be counted from the date the judgment becomes executory or

unappealable. After such hearing, the court shall render a final judgment according to

the evidence presented by the parties.

The costs shall be paid by plaintiffs-respondents.

(7) G.R. No. L-57348 May 16, 1985

FRANCISCO DEPRA, plaintiff-appellee, vs.

AGUSTIN DUMLAO, defendant-appellant.

MELENCIO-HERRERA, J.:

This is an appeal from the Order of the former Court of First Instance of Iloilo to the

then Court of Appeals, which the latter certified to this instance as involving pure

questions of law

Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under

Transfer Certificate of Title No. T3087, known as Lot No. 685, situated in the

municipality of Dumangas, Iloilo, with an area of approximately 8,870 square meters.

Agustin Dumlao, defendant-appellant, owns an adjoining lot, designated as Lot No.

683, with an approximate area of 231 sq. ms.

Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen

thereof had encroached on an area of thirty four (34) square meters of DEPRA's

property, After the encroachment was discovered in a relocation survey of DEPRA's lot

made on November 2,1972, his mother, Beatriz Depra after writing a demand letter

asking DUMLAO to move back from his encroachment, filed an action for Unlawful

Detainer on February 6,1973 against DUMLAO in the Municipal Court of of Dumangas,

docketed as Civil Case No 1, Said complaint was later amended to include DEPRA as

a party plain. plaintiff.

After trial, the Municipal Court found that DUMLAO was a builder in good faith, and

applying Article 448 of the Civil Code, rendered judgment on September 29, 1973, the

dispositive portion of which reads:

Ordering that a forced lease is created between the parties with the

plaintiffs, as lessors, and the defendants as lessees, over the disputed

portion with an area of thirty four (34) square meters, the rent to be paid is

five (P5.00) pesos a month, payable by the lessee to the lessors within the

first five (5) days of the month the rent is due; and the lease shall

commence on the day that this decision shall have become final.

From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it

would have ordinarily lapsed into finality, but even then, DEPRA did not accept

payment of rentals so that DUMLAO deposited such rentals with the Municipal Court.

On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO

before the then Court of First Instance of Iloilo, Branch IV (Trial Court), involving the

very same 34 square meters, which was the bone of contention in the Municipal Court.

DUMLAO, in his Answer, admitted the encroachment but alleged, in the main, that the

present suit is barred by res judicata by virtue of the Decision of the Municipal Court,

which had become final and executory.

After the case had been set for pre-trial, the parties submitted a Joint Motion for

Judgment based on the Stipulation of Facts attached thereto. Premised thereon, the

Trial Court on October 31, 1974, issued the assailed Order, decreeing:

WHEREFORE, the Court finds and so holds that the thirty four (34) square

meters subject of this litigation is part and parcel of Lot 685 of the Cadastral

Survey of Dumangas of which the plaintiff is owner as evidenced by

Transfer Certificate of Title No. 3087 and such plaintiff is entitled to

possess the same.

Without pronouncement as to costs.

SO ORDERED.

Rebutting the argument of res judicata relied upon by DUMLAO, DEPRA claims that

the Decision of the Municipal Court was null and void ab initio because its jurisdiction is

limited to the sole issue of possession, whereas decisions affecting lease, which is an

encumbrance on real property, may only be rendered by Courts of First Instance.

Addressing out selves to the issue of validity of the Decision of the Municipal Court, we

hold the same to be null and void. The judgment in a detainer case is effective in

respect of possession only (Sec. 7, Rule 70, Rules of Court). 1 The Municipal Court

over-stepped its bounds when it imposed upon the parties a situation of "forced lease",

which like "forced co-ownership" is not favored in law. Furthermore, a lease is an

interest in real property, jurisdiction over which belongs to Courts of First Instance (now

Regional Trial Courts) (Sec. 44(b), Judiciary Act of 1948; 2 Sec. 19 (2) Batas

Pambansa Blg. 129). 3 Since the Municipal Court, acted without jurisdiction, its

Decision was null and void and cannot operate as res judicata to the subject complaint

for Queting of Title. Besides, even if the Decision were valid, the rule on res

judicata would not apply due to difference in cause of action. In the Municipal Court,

the cause of action was the deprivation of possession, while in the action to quiet title,

the cause of action was based on ownership. Furthermore, Sec. 7, Rule 70 of the

Rules of Court explicitly provides that judgment in a detainer case "shall not bar an

action between the same parties respecting title to the land. " 4

Conceded in the Stipulation of Facts between the parties is that DUMLAO was a

builder in good faith. Thus,

8. That the subject matter in the unlawful detainer case, Civil Case No. 1,

before the Municipal Court of Dumangas, Iloilo involves the same subject

matter in the present case, the Thirty-four (34) square meters portion of

land and built thereon in good faith is a portion of defendant's kitchen and

has been in the possession of the defendant since 1952 continuously up to

the present; ... (Emphasis ours)

Consistent with the principle that our Court system, like any other, must be a dispute

resolving mechanism, we accord legal effect to the agreement of the parties, within the

context of their mutual concession and stipulation. They have, thereby, chosen a legal

formula to resolve their dispute to appeal ply to DUMLAO the rights of a "builder in

good faith" and to DEPRA those of a "landowner in good faith" as prescribed in Article

448. Hence, we shall refrain from further examining whether the factual situations of

DUMLAO and DEPRA conform to the juridical positions respectively defined by law, for

a "builder in good faith" under Article 448, a "possessor in good faith" under Article 526

and a "landowner in good faith' under Article 448.

In regards to builders in good faith, Article 448 of the Civil Code provides:

ART. 448. The owner of the land on which anything has been built sown or planted in

good faith,

shall have the right

to appropriate as his own the works, sowing or planting, after payment of

the indemnity provided for in articles 546 and 548, or

to oblige the one who built or planted to pay the price of the land, and the

one who sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land if its value

is considerably more than that of the building or trees. In such case, he

shall pay reasonable rent, if the owner of the land does not choose to

appropriate the building or trees after proper indemnity. The parties shall

agree upon the terms of the lease and in case of disagreement, the court

shall fix the terms thereof (Paragraphing supplied)

Pursuant to the foregoing provision, DEPRA has the option either to pay for the

encroaching part of DUMLAO's kitchen, or to sell the encroached 34 square meters of

his lot to DUMLAO. He cannot refuse to pay for the encroaching part of the building,

and to sell the encroached part of his land, 5 as he had manifested before the

Municipal Court. But that manifestation is not binding because it was made in a void

proceeding.

However, the good faith of DUMLAO is part of the Stipulation of Facts in the Court of

First Instance. It was thus error for the Trial Court to have ruled that DEPRA is "entitled

to possession," without more, of the disputed portion implying thereby that he is

entitled to have the kitchen removed. He is entitled to such removal only when, after

having chosen to sell his encroached land, DUMLAO fails to pay for the same. 6 In this

case, DUMLAO had expressed his willingness to pay for the land, but DEPRA refused

to sell.

The owner of the building erected in good faith on a land owned by

another, is entitled to retain the possession of the land until he is paid the

value of his building, under article 453 (now Article 546). The owner of the

land, upon the other hand, has the option, under article 361 (now Article

448), either to pay for the building or to sell his land to the owner of the

building. But he cannot as respondents here did refuse both to pay for the

building and to sell the land and compel the owner of the building to

remove it from the land where it erected. He is entitled to such remotion

only when, after having chosen to sell his land. the other party fails to pay

for the same (italics ours).

We hold, therefore, that the order of Judge Natividad compelling

defendants-petitioners to remove their buildings from the land belonging to

plaintiffs-respondents only because the latter chose neither to pay for such

buildings nor to sell the land, is null and void, for it amends substantially the

judgment sought to be executed and is. furthermore, offensive to articles

361 (now Article 448) and 453 (now Article 546) of the Civil Code. (Ignacio

vs. Hilario, 76 Phil. 605, 608[1946]).

A word anent the philosophy behind Article 448 of the Civil rode.

The original provision was found in Article 361 of the Spanish Civil Code; which

provided:

ART. 361. The owner of land on which anything has been built, sown or

planted in good faith, shall have the right to appropriate as his own the

work, sowing or planting, after the payment of the indemnity stated in

Articles 453 and 454, or to oblige the one who built or planted to pay the

price of the land, and the one who sowed, the proper rent.

As will be seen, the Article favors the owner of the land, by giving him one of the two

options mentioned in the Article. Some commentators have questioned the preference

in favor of the owner of the land, but Manresa's opinion is that the Article is just and

fair.

. . . es justa la facultad que el codigo da al dueno del suelo en el articulo

361, en el caso de edificacion o plantacion? Algunos comentaristas la

conceptuan injusta, y como un extraordinario privilegio en favor de la

propiedad territorial. Entienden que impone el Codigo una pena al

poseedor de buena fe y como advierte uno de los comentaristas aludidos

'no se ve claro el por que de tal pena . . . al obligar al que obro de buena fe

a quedarse con el edificio o plantacion, previo el pago del terreno que

ocupa, porque si bien es verdad que cuando edifico o planto demostro con

este hecho, que queria para si el edificio o plantio tambien lo es que el que

edifico o planto de buena fe lo hizo en la erronea inteligencia de creerse

dueno del terreno Posible es que, de saber lo contrario, y de tener noticia

de que habia que comprar y pagar el terreno, no se hubiera decidido a

plantar ni a edificar. La ley obligandole a hacerlo fuerza su voluntad, y la

fuerza por un hecho inocente de que no debe ser responsable'. Asi podra

suceder pero la realidad es que con ese hecho voluntario, aunque sea

inocente, se ha enriquecido torticeramente con perjuicio de otro a quien es

justo indemnizarle,

En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas

justa y equitativa y respetando en lo possible el principio que para la

accesion se establece en el art. 358. 7

Our own Code Commission must have taken account of the objections to Article 361 of

the Spanish Civil Code. Hence, the Commission provided a modification thereof, and

Article 448 of our Code has been made to provide:

ART. 448. The owner of the land on which anything has been built, sown or

planted in good faith, shall have the right to appropriate as his own the

works, sowing or planting, after payment of the indemnity provided for in

articles 546 and 548, or to oblige the one who built or planted to pay the

price of the land, and the one who sowed, the proper rent. However, the

builder or planter cannot be obliged to buy the land if its value is

considerably more than that of the building or trees. In such case, he shall

pay reasonable rent, if the owner of the land does not choose to

appropriate the building or trees after proper indemnity. The parties shall

agree upon the terms of the lease and in case of disagreement, the court

shall fix the terms thereof.

Additional benefits were extended to the builder but the landowner retained his options.

The fairness of the rules in Article 448 has also been explained as follows:

Where the builder, planter or sower has acted in good faith, a conflict of

rights arises between the owners, and it becomes necessary to protect the

owner of the improvements without causing injustice to the owner of the

land. In view of the impracticability of creating a state of forced co-

ownership, the law has provided a just solution by giving the owner of the

land the option to acquire the improvements after payment of the proper

indemnity, or to oblige the builder or planter to pay for the land and the

sower to pay for the proper rent. It is the owner of the land who is

authorized to exercise the option, because his right is older, and because,

by the principle of accession, he is entitled to the ownership of the

accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz.

1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article

applied: see Cabral, et al vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs.

Velasco, [C.A.] 52 Off. Gaz. 2050). 8

WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is

hereby ordered remanded to the Regional Trial Court of Iloilo for further proceedings

consistent with Articles 448 and 546 of the Civil Code, as follows:

1. The trial Court shall determine

a) the present fair price of DEPRA's 34 square meter area of land;

b) the amount of the expenses spent by DUMLAO for the building of the

kitchen;

c) the increase in value ("plus value") which the said area of 34 square

meters may have acquired by reason thereof, and

d) whether the value of said area of land is considerably more than that of

the kitchen built thereon.

2. After said amounts shall have been determined by competent evidence, the

Regional, Trial Court shall render judgment, as follows:

a) The trial Court shall grant DEPRA a period of fifteen (15) days within

which to exercise his option under the law (Article 448, Civil Code), whether

to appropriate the kitchen as his own by paying to DUMLAO either the

amount of tile expenses spent by DUMLAO f or the building of the kitchen,

or the increase in value ("plus value") which the said area of 34 square

meters may have acquired by reason thereof, or to oblige DUMLAO to pay

the price of said area. The amounts to be respectively paid by DUMLAO

and DEPRA, in accordance with the option thus exercised by written notice

of the other party and to the Court, shall be paid by the obligor within fifteen

(15) days from such notice of the option by tendering the amount to the

Court in favor of the party entitled to receive it;

b) The trial Court shall further order that if DEPRA exercises the option to

oblige DUMLAO to pay the price of the land but the latter rejects such

purchase because, as found by the trial Court, the value of the land is

considerably more than that of the kitchen, DUMLAO shall give written

notice of such rejection to DEPRA and to the Court within fifteen (15) days

from notice of DEPRA's option to sell the land. In that event, the parties

shall be given a period of fifteen (15) days from such notice of rejection

within which to agree upon the terms of the lease, and give the Court

formal written notice of such agreement and its provisos. If no agreement is

reached by the parties, the trial Court, within fifteen (15) days from and

after the termination of the said period fixed for negotiation, shall then fix

the terms of the lease, provided that the monthly rental to be fixed by the

Court shall not be less than Ten Pesos (P10.00) per month, payable within

the first five (5) days of each calendar month. The period for the forced

lease shall not be more than two (2) years, counted from the finality of the

judgment, considering the long period of time since 1952 that DUMLAO

has occupied the subject area. The rental thus fixed shall be increased by

ten percent (10%) for the second year of the forced lease. DUMLAO shall

not make any further constructions or improvements on the kitchen. Upon

expiration of the two-year period, or upon default by DUMLAO in the

payment of rentals for two (2) consecutive months, DEPRA shall be entitled

to terminate the forced lease, to recover his land, and to have the kitchen

removed by DUMLAO or at the latter's expense. The rentals herein

provided shall be tendered by DUMLAO to the Court for payment to

DEPRA, and such tender shall constitute evidence of whether or not

compliance was made within the period fixed by the Court.

c) In any event, DUMLAO shall pay DEPRA an amount computed at Ten

Pesos (P10.00) per month as reasonable compensation for the occupancy

of DEPRA's land for the period counted from 1952, the year DUMLAO

occupied the subject area, up to the commencement date of the forced

lease referred to in the preceding paragraph;

d) The periods to be fixed by the trial Court in its Precision shall be

inextendible, and upon failure of the party obliged to tender to the trial

Court the amount due to the obligee, the party entitled to such payment

shall be entitled to an order of execution for the enforcement of payment of

the amount due and for compliance with such other acts as may be

required by the prestation due the obligee.

No costs,

SO ORDERED.

(8) G.R. No. L-32974 July 30, 1979

BARTOLOME ORTIZ, petitioner, vs.

HON. UNION C. KAYANAN, in his capacity as Judge of the Court of First Instance

of Quezon, Branch IV; ELEUTERIO ZAMORA, QUIRINO COMINTAN, VICENTE

FERRO, AND GREGORIO PAMISARAN, respondents.

ANTONIO, J.:1äwphï1.ñët

Petition for certiorari and Prohibition with Preliminary Injunction to nullify the Order of

respondent Judge directing the execution of the final judgment in Civil Case No. C-90,

entitled "Bartolome Ortiz vs. Secretary of Agriculture and Natural Resources, et al.,"

and the Writ of Execution issued to implement said Order, allegedly for being

inconsistent with the judgment sought to be enforced.

Civil Case No. C-90 was filed by Bartolome Ortiz who sought the review and/or

annulment of the decision of the Secretary of Agriculture and Natural Resources,

giving preference to the sales applications of private respondents Quirino Comintan

and Eleuterio Zamora over Lot No. 5785, PLS-45, located at Barrio Cabuluan,

Calauag, Quezon.

I

The factual background of the case, as found by respondent Court, is as

follows:têñ.£îhqwâ£

... The lot in controversy was formerly the subject of Homestead Application

No. 122417 of Martin Dolorico II, plaintiff's ward who died on August 20,

1931; that since then it was plaintiff who continued the cultivation and

possession of the property, without however filing any application to

acquire title thereon; that in the Homestead Application No. 122417, Martin

Dolorico II named his uncle, Martin Dolorico I as his heir and successor in

interest, so that in 1951 Martin Dolorico I executed an affidavit relinquishing

his rights over the property in favor of defendants Quirino Comintan and

Eleuterio Zamora, his grandson and son-in-law, respectively, and

requested the Director of Lands to cancel the homestead application; that

on the strength of the affidavit, Homestead Application No. 122417 was

cancelled and thereafter, defendants Comintan and Zamora filed their

respective sales applications Nos. 8433 and 9258; that plaintiff filed his

protest on November 26, 1951 alleging that he should be given preference

to purchase the lot inasmuch as he is the actual occupant and has been in

continuous possession of the same since 1931; and inspite of plaintiff's

opposition, "Portion A" of the property was sold at public auction wherein

defendant Comintan was the only bidder; that on June 8, 1957,

investigation was conducted on plaintiff's protest by Assistant Public Lands

Inspector Serapion Bauzon who submitted his report to the Regional Land

Officer, and who in turn rendered a decision on April 9, 1958, dismissing

plaintiff's claim and giving due course to defendants' sales applications on

the ground that the relinquishment of the homestead rights of Martin

Dolorico I in favor of Comintan and Zamora is proper, the former having

been designated as successor in interest of the original homestead

applicant and that because plaintiff failed to participate in the public

auction, he is forever barred to claim the property; that plaintiff filed a

motion for reconsideration of this decision which was denied by the Director

of Lands in his order dated June 10, 1959; that, finally, on appeal to the

Secretary of Agriculture and Natural Resources, the decision rendered by

the Regional Land Officer was affirmed in toto. 1

On March 22, 1966, respondent Court rendered judgment in the afore-mentioned civil

case, the dispositive portion of which reads as follows:têñ.£îhqwâ£

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby

rendered awarding Lot No. 5785-A of PLS-45, (Calauag Public Land

Subdivision) one-half portion of the property in litigation located at Bo.

Cabuluan, Calauag, Quezon, in favor of defendant QUIRINO COMINTAN,

being the successful bidder in the public auction conducted by the bureau

of Lands on April 18, 1955, and hereby giving due course to the Sales

Application No. 9258 of defendant Eleuterio Zamora over the other half, Lot

No. 5785-B of PLS-45, Calauag, without prejudice to the right of plaintiff

BARTOLOME ORTIZ to participate in the public bidding of the same to be

announced by the Bureau of Lands, Manila. However, should plaintiff

Bartolome Ortiz be not declared the successful bidder thereof, defendants

Quirino Comintan and Eleuterio Zamora are ordered to reimburse jointly

said plaintiff the improvements he has introduced on the whole property in

the amount of THIRTEEN THOUSAND SIX HUNDRED THIRTY-TWO

(P13,632.00) PESOS, the latter having the right to retain the property until

after he has been fully paid therefor, without interest since he enjoys the

fruits of the property in question, with prejudice and with costs again the

plaintiff. 2

Plaintiff appealed the decision to the Court of Appeals.

Two (2) years after the rendition of the judgment by the court a quo, while the case

was pending appeal and upon petition of private respondents Quirino Comintan and

Eleuterio Zamora, respondent Court appointed respondent Vicente Ferro, Clerk of

Court, as Receiver to collect tolls on a portion of the property used as a diversion road.

On August 19, 1969, the Court of Appeals issued a Resolution annulling the Order

appointing the Receiver. Subsequently, on February 19, 1970, the Appellate Court

affirmed the decision of the trial court. A petition for review on certiorari of the decision

of the Court of Appeals was denied by this Court on April 6, 1970. At this point, private

respondents filed a petition for appointment of a new receiver with the court a quo. This

petition was granted and the receiver was reappointed. Petitioner sought the

annulment of this Order with the Court of Appeals, but said Court ruled that its decision

had already become final and that the records of the case were to be remanded to the

trial court.

Not satisfied with such denial, petitioner filed a petitioner for certiorari, prohibition and

mandamus with preliminary injunction before this Court, 3 praying for the annulment of

the Order reappointing the Receiver. On July 13, 1970, the petition was dismissed by

this Court on the ground of insufficient showing of grave abuse of discretion.

II

The judgment having become final and executory private respondents filed a motion

for the execution of the same, praying as follows:têñ.£îhqwâ£

WHEREFORE, it is respectfully prayed of this Honorable Court to order the

issuance of a writ of execution in accordance with the judgment of this

Honorable Court, confirmed by the Court of Appeals and the Supreme

Court, commanding any lawful officer to deliver to defendants Comintan

and Zamora the land subject of the decision in this case but allowing

defendants to file a bond in such amount as this Honorable Court may fix,

in lieu of the P13,632.00 required to be paid to plaintiff, conditioned that

after the accounting of the tools collected by plaintiff, there is still an

amount due and payable to said plaintiff, then if such amount is not paid on

demand, including the legal interests, said bond shall be held answerable.

Ordering further the plaintiff to render an accounting of the tolls he collected

from March of 1967 to December 31, 1968 and from September 1969 to

March 31, 1970, and deliver said tolls collected to the receiver and if

judgment is already executed, then to Quirino Comintan and Eleuterio

Zamora; and,

Finally, to condemn plaintiff to pay moral damages for withholding the tools

which belong to your movant in an amount this Court may deem just in the

premises. 4

Acting upon the foregoing motion, respondent Judge issued an Order, dated

September 23, 1970, stating, among others, the following: têñ.£îhqwâ£

The records further disclosed that from March 1967 to December 31, 1968,

piaintiff Bartolome Ortiz collected tolls on a portion of the propertv in

question wherein he has not introduced anv improvement particularlv on

Lot No. 5785-A; PLS-45 awarded to defendant Quirino Comintan, thru

which vehicular traffic was detoured or diverted, and again from September

1969 to March 31, 1970, the plaintiff resumed the collection of tools on the

same portion without rendering any accounting on said tolls to the

Receiver, who, was reappointed after submitting the required bond and

specifically authorized only to collect tolls leaving the harvesting of the

improvements to the plaintiff.

xxx xxx xxx

ln virtue of he findings of this Court as contained in the dispositive portion

of its decision, the defendants are jointly obligated to pay the plaintiff in the

amount of P13,632.00 as reasonable value of the improvements he

introduced on the whole property in question, and that he has the right of

retention until fully paid. It can be gleaned from the motion of the

defendants that if plaintiff submits an accounting of the tolls he collected

during the periods above alluded to, their damages of about P25,000.00

can more than offset their obligation of P13,362.00 in favor of the plaintiff,

thereafter the possession of the land be delivered to the defendants since

the decision of the Supreme Court has already become final and executory,

but in the interregnum pending such accounting and recovery by the

Receiver of the tolls collected by the plaintiff, the defendants pray that they

allowed to put up a bond in lieu of the said P13,632.00 to answer for

damages of the former, if any.

On the other hand, plaintiff contends in his opposition, admitting that the

decision of the Supreme Court has become final and executory; (1) the

offer of a bond in lieu of payment of P13,632.00 does not, and cannot,

satisfy the condition imposed in the decision of this Court which was

affirmed in toto;(2) the public sale of Portion "B" of the land has still to take

place as ordained before the decision could be executed; and, (3) that

whatever sums plaintiff may derive from the property cannot be set off

against what is due him for the improvements he made, for which he has to

be reimbursed as ordered.

xxx xxx xxx

Let it be known that plaintiff does not dispute his having collected tolls

during the periods from March 1967 to December 31, 1968 and from

September 1969 to March 31, 1970. The Supreme Court affirmed the

decision of this Court its findings that said tolls belong to the defendant,

considering that the same were collected on a portion of the land question

where the plaintiff did not introduce any improvement. The reimbursement

to the plaintiff pertains only to the value of the improvements, like coconut

trees and other plants which he introduced on the whole property. The tolls

collected by the plaintiff on an unimproved portion naturally belong to the

defendants, following the doctrine on accretion. Further, the reappointment

of a Receiver by this Court was upheld by the Supreme Court when it

denied the petition for certiorari filed by the plaintiff, bolstering the legal

claim of defendants over said tolls. Thus, the decision of the Supreme

Court rendered the decision of this Court retroactive from March 22, 1966

although pending accounting of the tolls collected by the plaintiff is justified

and will not prejudice anybody, but certainly would substantially satisfy the

conditions imposed in the decision. However, insofar as the one-half

portion "B" of the property, the decision may be executed only after public

sale by the Bureau of Lands shall be accomplished.

WHEREFORE, finding the Motion for Execution filed by the defendants to

be meritorious, the same is granted; provided, however, that they put up a

bond equal the adjudicated amount of P13,632.00 accruing in favor of the

plaintiff, from a reputable or recognized bonding or surety company,

conditioned that after an accounting of the tolls collected by the plaintiff

should there be found out any balance due and payable to him after

reckoning said obligation of P13,632.00 the bond shall be held answerable

therefor. 5

Accordingly, a Writ of Execution was issued after private respondent Quirino Comintan

had filed the required bond. The writ directed the Sheriff to enforce the decision of the

Court, and stated, part in, the following:têñ.£îhqwâ£

But should there be found any amount collectible after accounting and

deducting the amount of P3,632.00, you are hereby ordered that of the

goods and chattels of Bartolome Ortiz of Bo. Kabuluan, Calauag, Quezon,

be caused to be made any excess in the above-metioned amount together

with your lawful fees and that you render same to defendant Quirino

Comintan. If sufficient personal property cannot be found thereof to satisfy

this execution and lawful fees thereon, then you are commanded that of the

lands and buildings of the said BARTOLOME ORTIZ you make the said

excess amount in the manner required by the Rules of Court, and make

return of your proceedings within this Court within sixty (60) days from date

of service.

You are also ordered to cause Bartolome Ortiz to vacate the property within

fifteen (15) days after service thereof the defendant Quirino Comintan

having filed the required bond in the amount of THIRTEEN THOUSAND

SIX HUNDRED THIRTY-TWO (P13,632.00) PESOS. 6

On October 12, 1970, petitioner filed a Motion for Reconsideration of the aforesaid

Order and Writ of Execution, alleging:têñ.£îhqwâ£

(a) That the respondent judge has no authority to place respondents in

possession of the property;

(b) That the Supreme Court has never affirmed any decision of the trial

court that tolls collected from the diversionary road on the property, which

is public land, belong to said respondents;

(c) That to assess petitioner a P25,000.00 liability for damages is purely

punitive imposition without factual or legal justification.

The foregoing Motion for Reconsideration was denied by respondent Judge per Order

dated November 18, 1970. Saod Order states, in part:têñ.£îhqwâ£

It goes without saying that defendant Comintan is entitled to be placed in

possession of lot No. 5785-A of PLS-45 (Calauag Public Land Subdivision)

and enjoyment of the tolls from March, 1967 to March, 1968 and from

September, 1969 to March 31, l970 which were received by plaintiff

Bartolome Ortiz, collected from the property by reason of the diversion road

where vehicular traffic was detoured. To defendant Comintan belongs the

tolls thus collected from a portion of the land awarded to him used as a

diversionary road by the doctrine of accretion and his right over the same

is ipso jure, there being no need of any action to possess said addition. It is

so because as consistently maintained by the Supreme Court, an applicant

who has complied with all the terms and conditions which entitle him to a

patent for a particular tract of publlic land, acquires a vested right therein

and is to be regarded as equitable owner thereof so that even without a

patent, a perfected homestead or sales application is a property right in the

fullest sense, unaffectcd by the fact that the paramount title is still in the

Government and no subsequent law can deprive him of that vested right

The question of the actual damages suffered by defendant Comintan by

reason of the unaccounted tolls received by plaintiff had already been fully

discussed in the order of September 23, 1970 and the Court is honestly

convinced and believes it to be proper and regular under the

circumstances.

Incidentally, the Court stands to correct itself when in the same order, it

directed the execution of he decision with respect to the one-half portion

"B" of the property only after the public sale by the Bureau of Lands, the

same being an oversight, it appearing that the Sales Application of

defendant Eleuterio Zamora had already been recognized and full

confirmed by the Supreme Court.

In view thereof, finding the motion filed by plaintiff to be without merit, the

Court hereby denies the same and the order of September 23, 1970 shall

remain in full force subject to the amendment that the execution of the

decision with respect to the one-half portion "B" shall not be conditioned to

the public sale by the Bureau of Lands.

SO ORDERED. 7

III

Petitioner thus filed the instant petition, contending that in having issued the Order and

Writ of Execution, respondent Court "acted without or in excess of jurisdiction, and/or

with grave abuse of discretion, because the said order and writ in effect vary the terms

of the judgment they purportedly seek to enforce." He argued that since said judgment

declared the petitioner a possessor in good faith, he is entitled to the payment of the

value of the improvements introduced by him on the whole property, with right to retain

the land until he has been fully paid such value. He likewise averred that no payment

for improvements has been made and, instead, a bond therefor had been filed by

defendants (private respondents), which, according to petitioner, is not the payment

envisaged in the decision which would entitle private respondents to the possession of

the property. Furthermore, with respect to portion "B", petitioner alleges that, under the

decision, he has the right to retain the same until after he has participated and lost in

the public bidding of the land to be conducted by the Bureau of Lands. It is claimed that

it is only in the event that he loses in the bidding that he can be legally dispossessed

thereof.

It is the position of petitioner that all the fruits of the property, including the tolls

collected by him from the passing vehicles, which according to the trial court amounts

to P25,000.00, belongs to petitioner and not to defendant/private respondent Quirino

Comintan, in accordance with the decision itself, which decreed that the fruits of the

property shall be in lieu of interest on the amount to be paid to petitioner as

reimbursement for improvements. Any contrary opinion, in his view, would be

tantamount to an amendment of a decision which has long become final and executory

and, therefore, cannot be lawfully done.

Petitioner, therefore, prayed that: (1) a Writ of Preliminary Injunction be issued

enjoining the enforcement of the Orders of September 23, 1970 and November 18,

1970, and the Writ of Execution issued thereto, or restoring to petitioner the

possession of the property if the private respondents had been placed in possession

thereof; (2) annulling said Orders as well as the Writ of Execution, dissolving the

receivership established over the property; and (3) ordering private respondents to

account to petitioner all the fruits they may have gathered or collected from the

property in question from the time of petitioiier's illegal dispossession thereof.

On January 29, 1971, this Court issued the Writ of Preliminary Injunction. On January

30, 1971, private respondents filed a Motion for Reconsideration and/or Modification of

the Order dated January 29, 1971. This was followed by a Supplemental Motion for

Reconsideration and Manifestation on February 3, 1971. In the latter motion, private

respondents manifested that the amount of P14,040.96, representing the amount

decreed in the judgment as reimbursement to petitioner for the improvements, plus

interest for six months, has already been deposited by them in court, "with the

understanding that said amount shall be turned over to the plaintiff after the court a

quo shall have determined the improvement on Lot 5785-A, and subsequently the

remaining balance of the deposit shall be delivered to the petitioner (plaintiff therein) in

the event he loses the bid for Lot 5785-B in favor of private respondent Eleuterio

Zamora." 8 The deposit is evidenced by a certification made by the Clerk of the Court a

quo. 9 Contending that said deposit was a faithful compliance with the judgment of the

trial court, private respondent Quirino Comintan prayed for the dissolution of the Writ of

Injunction.

It appears that as a consequence of the deposit made by private respondents, the

Deputy, Sheriff of Calauag, Quezon ousted petitioner's representative from the land in

question and put private respondents in possession thereof. 10

On March 10, 1971, petitioner filed a "Comment on Respondents' 'Motion for

Reconsideration' dated January 29, 1971' and 'Supplemental Motion for

Reconsideration and Manifestation,'" contending that the tender of deposit mentioned

in the Suplemental Motion was not really and officially made, "inasmuch as the same

is not supported by any official receipt from the lower court, or from its clerk or cashier,

as required by law;" that said deposit does not constitute sufficient compliance with the

judgment sought to be enforced, neither was it legally and validly made because the

requisites for consignation had not been complied with; that the tender of legal interest

for six months cannot substitute petitioner's enjoyment of the fruits of the property as

long as the judgment in Civil Case No. C-90 has not been implemented in the manner

decreed therein; that contrary to the allegations of private respondents, the value of the

improvements on the whole property had been determined by the lower court, and the

segregation of the improvements for each lot should have been raised by them at the

opportune moment by asking for the modification of the decision before it became final

and executory; and that the tolls on the property constituted "civil fruits" to which the

petitioner is entitled under the terms of the decision.

IV

The issue decisive of the controvery is—after the rendition by the trial court of its

judgment in Civil Case No. C-90 on March 22, 1966 confirming the award of one-half of

the property to Quirino Comintan—whether or not petitioner is still entitled to retain for

his own exclusive benefit all the fruits of the property, such as the tolls collected by him

from March 1967 to December 1968, and September 1969 to March 31, 1970,

amounting to about P25,000.00. In other words, petitioner contends that so long as the

aforesaid amount of P13,632,00 decreed in the judgment representing the expenses

for clearing the land and the value of the coconuts and fruit trees planted by him

remains unpaid, he can appropriate for his exclusive benefit all the fruits which he may

derive from the property, without any obligation to apply any portion thereof to the

payment of the interest and the principal of the debt.

We find this contention untenable.

There is no question that a possessor in good faith is entitled to the fruits received

before the possession is legally interrupted. 11 Possession in good faith ceases or is

legally interrupted from the moment defects in the title are made known to the

possessor, by extraneous evidence or by the filing of an action in court by the true

owner for the recovery of the property. 12 Hence, all the fruits that the possessor may

receive from the time he is summoned in court, or when he answers the complaint,

must be delivered and paid by him to the owner or lawful possessor. 13

However, even after his good faith ceases, the possessor in fact can still retain the

property, pursuant to Article 546 of the New Civil Code, until he has been fully

reimbursed for all the necessary and useful expenses made by him on the property.

This right of retention has been considered as one of the conglomerate of measures

devised by the law for the protection of the possessor in good faith. Its object is to

guarantee the reimbursement of the expenses, such as those for the preservation of

the property, 14 or for the enhancement of its utility or productivity. 15It permits the actual

possessor to remain in possession while he has not been reimbursed by the person

who defeated him in the possession for those necessary expenses and useful

improvements made by him on the thing possessed. The principal characteristic of the

right of retention is its accessory character. It is accessory to a principal obligation.

Considering that the right of the possessor to receive the fruits terminates when his

good faith ceases, it is necessary, in order that this right to retain may be useful, to

concede to the creditor the right to secure reimbursement from the fruits of the property

by utilizing its proceeds for the payment of the interest as well as the principal of the

debt while he remains in possession. This right of retention of the property by the

creditor, according to Scaevola, in the light of the provisions of Article 502 of the

Spanish Civil Code, 16 is considered not a coercive measure to oblige the debtor to

pay, depriving him temporarily of the enjoyment of the fruits of his property, but as a

means of obtainitig compensation for the debt. The right of retention in this case is

analogous to a contract of antichresis and it cati be considered as a means of

extinguishing the obligation, inasmuch as the right to retain the thing lasts only for the

period necessary to enable the creditor to be reimbursed from the fruits for the

necessary and useful expenses. 17

According to Manresa, the right of retention is, therefore, analogous to that of a pledge,

if the property retained is a movable, and to that of antichresis, if the property held is

immovable. 18 This construction appears to be in harmony with similar provisions of the

civil law which employs the right of retention as a means or device by which a creditor

is able to obtain the payment of a debt. Thus, under Article 1731 of the New Civil

Code, any person who has performed work upon a movable has a right to retain it by

way of pledge until he is paid. Similarly, under Article 1914 of the same Code, the

agent may retain in pledge the things which are the object of the agency until the

principal effects reimbursement of the funds advanced by the former for the execution

of the agency, or he is indemnified for all damages which he may have suffered as a

consequence of the execution of the agency, provided he is free from fault. To the

same effect, the depositary, under Article 1994 of the same Code, may retain the thing

in pledge until the full payment of what may be due him by reason of the deposit. The

usufructuary, pursuant to Article 612 of the same Code, may retain the property until

he is reimbursed for the amount paid for taxes levied on the capital (Article 597) and

tor extraordinary repairs (Article 594).

In all of these cases, the right of retention is used as a means of extinguishing the

obligation. As amply observed by Manresa: "El derecho de retencion, lo hemos dicho,

es el derecho de prenda o el de anticresis constituido por la ley con independencia de

las partes." 19 In a pledge, if the thing pledged earns or produces fruits, income,

dividends or interests, the creditor shall compensate what he receives with those which

are owing him. 20 In the same manner, in a contract of antichresis, the creditor acquires

the right to receive the fruits of an immovable of his debtor with the obligation to apply

them to payment of the interest, if owing, and thereafter to the principal of his

credit. 21 The debtor can not reacquire enjoyment of the immovable until he has

actually paid what he owes the creditor. 22

Applying the afore-cited principles to the case at bar, petitioner cannot appropriate for

his own exclusive benefit the tolls which he collected from the property retained by him.

It was his duty under the law, after deducting the necessary expenses for his

administration, to apply such amount collected to the payment of the interest, and the

balance to the payment of the obligation.

We hold, therefore, that the disputed tolls, after deducting petitioner's expenses for

administration, belong to Quirino Comintan, owner of the land through which the toll

road passed, further considering that the same was on portions of the property on

which petitioner had not introduced any improvement. The trial court itself clarified this

matter when it placed the toll road under receivership. The omission of any mention of

the tolls in the decision itself may be attributed to the fact that the tolls appear to have

been collected after the rendition of the judgment of the trial court.

The records further reveal that earnest efforts have been made by private respondents

to have the judgment executed in the most practicable manner. They deposited in

court the amount of the judgment in the sum of P13,632.00 in cash, subject only to the

accounting of the tolls collected by the petitioner so that whatever is due from him may

be set off with the amount of reimbursement. This is just and proper under the

circumstances and, under the law, compensation or set off may take place, either

totally or partially. Considering that petitioner is the creditor with respect to the

judgment obligation and the debtor with respect to the tolls collected, Comintan being

the owner thereof, the trial court's order for an accounting and compensation is in

accord with law. 23

With respect to the amount of reimbursement to be paid by Comintan, it appears that

the dispositive portion of the decision was lacking in specificity, as it merely provided

that Comintan and Zamora are jointly liable therefor. When two persons are liable

under a contract or under a judgment, and no words appear in the contract or judgment

to make each liable for the entire obligation, the presumption is that their obligation is

joint or mancomunada, and each debtor is liable only for a proportionate part of the

obligation. 24 The judgment debt of P13,632.00 should, therefore, be pro-rated in equal

shares to Comintan and Zamora.

Regarding Lot 5785-B, it appears that no public sale has yet been conducted by the

Bureau of Lands and, therefore, petitioner is entitled to remain in possession thereof.

This is not disputed by respondent Eleuterio Zamora. 25 After public sale is had and in

the event that Ortiz is not declared the successful bidder, then he should be

reimbursed by respondent Zamora in the corresponding amount for the improvements

on Lot 5785-B.

WHEREFORE, in view hereof, the Order of respondent Court of November 18, 1970 is

hereby modified to conform to the foregoing judgment. The Writ of Preliminary

Injunction, dated January 29, 1971, is hereby dissolved. Without special

pronouncement as to costs.

(9) G.R. No. 72876 January 18, 1991

FLORENCIO IGNAO, petitioner, vs.

HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO, substituted by his

Legal Heirs, and ISIDRO IGNAO, respondents.

FERNAN, C.J.:p

In this petition for review by certiorari, petitioner seeks the reversal of the decision of

the Intermediate Appellate Court (now Court of Appeals) affirming in toto the decision

of the Court of First Instance of Cavite, ordering petitioner Florencio Ignao to sell to

private respondents Juan and Isidro Ignao, that part of his property where private

respondents had built a portion of their houses.

The antecedent facts are as follows:

Petitioner Florencio Ignao and his uncles private respondents Juan Ignao and Isidro

Ignao were co-owners of a parcel of land with an area of 534 square meters situated in

Barrio Tabon, Municipality of Kawit, Cavite. Pursuant to an action for partition filed by

petitioner docketed as Civil Case No. N-1681, the then Court of First Instance of Cavite

in a decision dated February 6, 1975 directed the partition of the aforesaid land,

alloting 133.5 square meters or 2/8 thereof to private respondents Juan and Isidro, and

giving the remaining portion with a total area of 266.5 square meters to petitioner

Florencio. However, no actual partition was ever effected. 1

On July 17, 1978, petitioner instituted a complaint for recovery of possession of real

property against private respondents Juan and Isidro before the Court of First Instance

of Cavite, docketed as Civil Case No. 2662. In his complaint petitioner alleged that the

area occupied by the two (2) houses built by private respondents exceeded the 133.5

square meters previously alloted to them by the trial court in Civil Case No. N-1681.

Consequently, the lower court conducted an ocular inspection. It was found that the

houses of Juan and Isidro actually encroached upon a portion of the land belonging to

Florencio. Upon agreement of the parties, the trial court ordered a licensed geodetic

engineer to conduct a survey to determine the exact area occupied by the houses of

private respondents. The survey subsequently disclosed that the house of Juan

occupied 42 square meters while that of Isidro occupied 59 square meters of

Florencio's land or a total of 101 square meters.

In its decision, the trial court (thru Judge Luis L. Victor) ruled that although private

respondents occupied a portion of Florencio's property, they should be considered

builders in good faith. The trial court took into account the decision of the Court of First

Instance of Cavite in the action for partition 2 and quoted:

. . . . Hence, it is the well-considered opinion of the Court that although it

turned out that the defendants had, before partition, been in possession of

more than what rightfully belongs to them,their possession of what is in

excess of their rightful share can at worst be possession in good faith which

exempts them from being condemned to pay damages by reason thereof. 3

Furthermore, the trial court stated that pursuant to Article 448 of the Civil Code, the

owner of the land (Florencio) should have the choice to either appropriate that part of

the house standing on his land after payment of indemnity or oblige the builders in

good faith (Juan and Isidro) to pay the price of the land. However, the trial court

observed that based on the facts of the case, it would be useless and unsuitable for

Florencio to exercise the first option since this would render the entire houses of Juan

and Isidro worthless. The trial court then applied the ruling in the similar case of Grana

vs. Court of Appeals, 4 where the Supreme Court had advanced a more "workable

solution". Thus, it ordered Florencio to sell to Juan and Isidro those portions of his land

respectively occupied by the latter. The dispositive portion of said decision reads as

follows:

WHEREFORE, judgment is hereby rendered in favor of the defendants

and—

(a) Ordering the plaintiff Florencio Ignao to sell to the defendants Juan and

Isidro Ignao that portion of his property with an area of 101 square meters

at P40.00 per square meter, on which part the defendants had built their

houses; and

(b) Ordering the said plaintiff to execute the necessary deed of conveyance

to the defendants in accordance with paragraph (a) hereof.

Without pronouncement as to costs. 5

Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On August 27,

1985, the Appellate Court, Second Civil Cases Division, promulgated a

decision, 6 affirming the decision of the trial court.

Hence the instant petition for review which attributes to the Appellate Court the

following errors:

1. That the respondent Court has considered private respondents builders

in good faith on the land on question, thus applying Art. 448 of the Civil

Code, although the land in question is still owned by the parties in co-

ownership, hence, the applicable provision is Art. 486 of the Civil Code,

which was not applied.

2. That, granting for the sake of argument that Art. 448 . . . is applicable,

the respondent Court has adjudged the working solution suggested in

Grana and Torralba vs. CA. (109 Phil. 260), which is just an opinion by way

of passing, and not the judgment rendered therein, which is in accordance

with the said provision of the Civil Code, wherein the owner of the land to

buy (sic) the portion of the building within 30 days from the judgment or sell

the land occupied by the building.

3. That, granting that private respondents could buy the portion of the land

occupied by their houses, the price fixed by the court is unrealistic and pre-

war price. 7

The records of the case reveal that the disputed land with an area of 534 square

meters was originally owned by Baltazar Ignao who married twice. In his first marriage,

he had four children, namely Justo (the father of petitioner Florencio), Leon and private

respondents Juan and Isidro. In his second marriage, Baltazar had also four children

but the latter waived their rights over the controverted land in favor of Justo. Thus,

Justo owned 4/8 of the land which was waived by his half-brothers and sisters plus his

1/8 share or a total of 5/8. Thereafter, Justo acquired the 1/8 share of Leon for P500.00

which he later sold to his son Florencio for the same amount. When Justo died,

Florencio inherited the 5/8 share of his father Justo plus his 1/8 share of the land which

he bought or a total of 6/8 (representing 400.5 square meters). Private respondents,

Juan and Isidro, on the other hand, had 1/8 share (66.75 square meters) each of the

land or a total of 133.5 square meters.

Before the decision in the partition case was promulgated, Florencio sold 134 square

meters of his share to a certain Victa for P5,000.00 on January 27, 1975. When the

decision was handed down on February 6,1975, the lower court alloted 2/8 of the land

to private respondents Juan and Isidro, or a total of 133.5 square meters.

It should be noted that prior to partition, all the co-owners hold the property in common

dominion but at the same time each is an owner of a share which is abstract and

undetermined until partition is effected. As cited in Eusebio vs. Intermediate Appellate

Court, 8 "an undivided estate is co-ownership by the heirs."

As co-owners, the parties may have unequal shares in the common property,

quantitatively speaking. But in a qualitative sense, each co-owner has the same right

as any one of the other co-owners. Every co-owner is therefore the owner of the whole,

and over the whole he exercises the right of dominion, but he is at the same time the

owner of a portion which is truly abstract, because until division is effected such portion

is not concretely determined. 9

Petitioner Florencio, in his first assignment of error, asseverates that the court a

quo erred in applying Article 448 of the Civil Code, since this article contemplates a

situation wherein the land belongs to one person and the thing built, sown or planted

belongs to another. In the instant case, the land in dispute used to be owned in

common by the contending parties.

Article 448 provides:

Art. 448. The owner of the land on which anything has been built, sown or

planted in good faith, shall have the right to appropriate as his own the

works, sowing or planting, after payment of the indemnity provided for in

articles 546 and 548, or to oblige the one who built or planted to pay the

price of the land, and the one who sowed, the proper rent. However, the

builder or planter cannot be obliged to buy the land if its value is

considerably more than that of the building or trees. In such case, he shall

pay reasonable rent, if the owner of the land does not choose to

appropriate the building or trees after proper indemnity. The parties shall

agree upon the terms of the lease and in case of disagreement, the court

shall fix the terms thereof.

Whether or not the provisions of Article 448 should apply to a builder in good faith on a

property held in common has been resolved in the affirmative in the case of Spouses

del Campo vs. Abesia, 10 wherein the Court ruled that:

The court a quo correctly held that Article 448 of the Civil Code cannot

apply where a co-owner builds, plants or sows on the land owned in

common for then he did not build, plant or sow upon land that exclusively

belongs to another but of which he is a co-owner. The co-owner is not a

third person under the circumstances, and the situation is governed by the

rules of co-ownership.

However, when, as in this case, the ownership is terminated by the partition

and it appears that the home of defendants overlaps or occupies a portion

of 5 square meters of the land pertaining to plaintiffs which the defendants

obviously built in good faith, then the provisions of Article 448 of the new

Civil Code should apply. Manresa and Navarro Amandi agree that the said

provision of the Civil Code may apply even when there is a co-ownership if

good faith has been established. 11

In other words, when the co-ownership is terminated by a partition and it appears that

the house of an erstwhile co-owner has encroached upon a portion pertaining to

another co-owner which was however made in good faith, then the provisions of Article

448 should apply to determine the respective rights of the parties.

Petitioner's second assigned error is however well taken. Both the trial court and the

Appellate Court erred when they peremptorily adopted the "workable solution" in the

case of Grana vs. Court of appeals, 12 and ordered the owner of the land, petitioner

Florencio, to sell to private respondents, Juan and Isidro, the part of the land they

intruded upon, thereby depriving petitioner of his right to choose. Such ruling

contravened the explicit provisions of Article 448 to the effect that "(t)he owner of the

land . . . shall have the right to appropriate . . .or to oblige the one who built . . . to pay

the price of the land . . . ." The law is clear and unambiguous when it confers the right

of choice upon the landowner and not upon the builder and the courts.

Thus, in Quemuel vs. Olaes, 13 the Court categorically ruled that the right to

appropriate the works or improvements or to oblige the builder to pay the price of the

land belongs to the landowner.

As to the third assignment of error, the question on the price to be paid on the land

need not be discussed as this would be premature inasmuch as petitioner Florencio

has yet to exercise his option as the owner of the land.

WHEREFORE, the decision appealed from is hereby MODIFIED as follows: Petitioner

Florencio Ignao is directed within thirty (30) days from entry of judgment to exercise his

option to either appropriate as his own the portions of the houses of Juan and Isidro

Ignao occupying his land upon payment of indemnity in accordance with Articles 546

and 548 of the Civil Code, or sell to private respondents the 101 square meters

occupied by them at such price as may be agreed upon. Should the value of the land

exceed the value of the portions of the houses that private respondents have erected

thereon, private respondents may choose not to buy the land but they must pay

reasonable rent for the use of the portion of petitioner's land as may be agreed upon by

the parties. In case of disagreement, the rate of rental and other terms of the lease

shall be determined by the trial court. Otherwise, private respondents may remove or

demolish at their own expense the said portions of their houses encroaching upon

petitioner's land. 14 No costs.

SO ORDERED.

(10) G.R. No. L-12812 September 29, 1959

FILIPINAS COLLEGES, INC., plaintiff-appellee,

vs.MARIA GARCIA TIMBANG, ET AL., defendants.

------------------------------

G.R. No. L-12813 September 29, 1959

MARIA GARCIA TIMBANG, ET AL., plaintiffs.

MARIA GARICA TIMBANG, plaintiff-appellant,

vs.

MARIA GERVACIO BLAS, defendant-appellee.

De Guzman and Fernandez for appellee Filipinas Colleges, Inc.

San Huan, Africa and Benedicto for appellant Maria Garcia Timbang.

Nicanor S. Sison for appellee Maria Gervacio Blas.

BARRERA, J.:

This is an appeal taken from an order of the Court of First Instance of Manila dated

May 10, 1957 (a) declaring the Sheriff's certificate of sale covering a school building

sold at public auction null and void unless within 15 days from notice of said order the

successful bidders, defendants-appellants spouses Maria Garcia Timbang and

Marcelino Timbang, shall pay to, appellee Maria Gervacio Blas directly or through the

Sheriff of Manila the sum of P5,750.00 that the spouses Timbang had bid for the

building at the Sheriff's sale; (b) declaring the other appellee Filipinas Colleges, Inc.

owner of 24,500/3,285,934 undivided interest in Lot No. 2-a covered by certificate of

tile No 45970, on which the building sold in the auction sale is situated; and (c)

ordering the sale in public auction of the said undivided interest of the Filipinas

Colleges, Inc., in lot No. 2-a aforementioned to satisfy the unpaid portion of the

judgment in favor of appellee Blas and against Filipinas Colleges, Inc. in the amount of

P8,200.00 minus the sum of P5,750.00 mentioned in (a) above.

The order appealed from is the result of three motions filed in the court a quo in the

course of the execution of a final judgment of the Court of Appeals rendered in 2 cases

appealed to it in which the spouses Timbang, the Filipinas Colleges, Inc., and Maria

Gervacio Blas were the parties. IN that judgment of the Court of Appeals, the

respective rights of the litigants have been adjudicated as follows:1âwphïl.nêt

(1) Filipinas Colleges, Inc. was declared to have acquired the rights of the

spouses Timbang in and to lot No. 2-a mentioned above and in consideration

thereof, Filipinas Colleges, Inc., was ordered to pay the spouses Timbang the

amount of P15,807.90 plus such other amounts which said spouses might have

paid or had to pay after February, 1953, to Hoskins and Co. Inc., agent of the

Urban Estates, Inc., original vendor of the lot. Filipinas Colleges, Inc. original

vendor of the total amount with the court within 90 days after the decision shall

have become final.

(2) Maria Gervacio Blas was declared to be a builder in good faith of the school

building constructed on the lot in question and entitled to be paid the amount of

P19,000.00 for the same. Filipinas Colleges, Inc., purchaser of the said building

was ordered to deliver to Blas stock certificate (Exh. C) for 108 shares of

Filipinas Colleges, Inc. with a par value of P10,800.00 and to pay Blas the sum of

P8,200.00 of the house.

(3) In case Filipinas Colleges, Inc. failed to deposit the value of the land, which

after liquidation was fixed at P32,859.34, within the 90-day period set by the

court, Filipinas Colleges would lose all its rights to the land and the spouses

Timbang would then become the owners thereof. In that eventuality, the

Timbangs would make known to the court their option under Art. 448 of the Civil

Code whether they would appropriate the building in question, in which even they

would have to pay Filipinas Colleges, Inc. the sum of P19,000.00, or would

compel the latter to acquire the land and pay the price thereof.

Filipinas Colleges, Inc. having failed to pay or deposit the sum of P32,859.34 within the

time prescribed, the spouses Timbang, in compliance with the judgment of the Court of

Appeals, on September 28, 1956, made known to the court their decision that they had

chosen not of appropriate the building but to compel Filipinas Colleges, Inc., for the

payment of the sum of P32,859,34. The motion having been granted, a writ of

execution was issued on January 8, 1957.

On January 16, 1957, appellee Blas in turn filed a motion for execution of her judgment

of P8,200.00 representing the unpaid portion of the price of the house sold to Filipinas

Colleges, Inc. Over the object of the Timbangs, the court grated the motion and the

corresponding writ of execution was issued on January 30, 1957, date of the granting

of the motion for execution, Blas through counsel, sent a letter to the Sheriff of Manila

advising him of her preferential claim or lien on the house to satisfy the unpaid balance

of the purchase price thereof under Article 2242 of the Civil Code, and to withhold from

the proceed of the auction sale the sum of P8,200.00. Levy having been made on the

house in virtue of the writs of execution, the Sheriff of Manila on March 5, 1957, sold

the building in public auction in favor of the spouses Timbang, as the highest bidders,

in the amount of P5,750.00. Personal properties of Filipinas Colleges, Inc. were also

auctioned for P245.00 in favor of the spouses Timbang.

As a result of these actuation, three motion were subsequently filed before the lower

court:

(1) By appellee Blas, praying that the Sheriff of Manila and/or the Timbang

spouses be ordered to pay and deliver to her the sum of P5,750.00 representing

the proceeds of the auction sale of the building of Filipinas Colleges, Inc. over

which she has a lien of P8,200.00 for the unpaid balance of the purchase price

thereof;.

(2) Also by the appellee Bals, praying that there being still two unsatisfied

executions, one for the sum of P32,859.34 in favor the land involved, Lot No. 2-a,

be sold at public auction; and (3) By Filipinas Colleges, Inc. praying that because

its properties, the house and some personal properties, have been auctioned for

P5,750.00 and P245.00 respectively in favor of the Timbang spouses who

applied the proceeds to the partial payment of the sum of P32,859.34 value of

the land, Lot No. 2-a, it (Filipinas Colleges, Inc.) be declared part owner of said

lot to the extent of the total amount realized from the execution sale of its

properties.1âwphïl.nêt

The Timbang spouses presented their opposition to each and all of these motion. After

due hearing the lower court rendered its resolution in the manner indicated at the

beginning of this decision, from which the Timbangs alone have appealed.

In assailing the order of the court a quo directing the appellants to pay appellee Blas

the amount of their bid (P5,750.00) made at the public auction, appellants' counsel has

presented a novel, albeit ingenious, argument. It is contended that because the builder

in good faith has failed to pay the price of the land after the owners thereof exercised

their option under Article 448 of the Civil Code, the builder lost his right of retention

provided in Article 546 and by operation of Article 445, the appellants as owners of the

land automatically became the owners ipso facto, the execution sale of the house in

their favor was superfluous. Consequently, they are not bound to make good their bid

of P5,750.00 as that would be to make goods to pay for their own property. By the

same token, Blas claim for preference on account of the unpaid balance of the

purchase price of the house does not apply because preference applies only with

respect to the property of the debtor, and the Timbangs, owners of the house, are not

the debtors of Blas.

This Court cannot accept this oversimplification of appellants' position. Article 448 and

546 of the Civil Code defining the right of the parties in case a person in good faith

builds, sows or plants on the land of another, respectively provides:

ART. 448. The owner of the land on which anything has been built, sown or

plated in good faith shall have the right to appropriate as his own the works,

sowing or planting, after payment of the indemnify provided for in article 546 and

548, or to obligate the one who built or planted to pay the price of the land, and

the one who sowed, the proper rent. However, the builder or planter cannot be

obliged to buy the land if its value is considerably more than that of the building

or trees. In such case, he shall pay reasonable rent, if the owner of the land does

not choose to appropriate the building or trees after proper indemnity. The parties

shall agree upon the terms of the lease and in case of disagreement, the court

shall fix the terms thereof.

ART. 546. Necessary expenses shall be refunded to every possessor; but only

the possessor in good faith may retain the thing until he has reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the

same right of retention the person who has defeated him in the possession

having to option of refunding the amount of expenses or of paying the case in

value which thing may have acquired by reason thereof.

Under the terms of these article, it is true that the owner of the land has the right to

choose between appropriating the building by reimbursing the builder of the value

thereof or compelling the builder in good faith to pay for his land. Even this second

right cannot be exercised if the value of the land is considerably more than that of the

building. In addition to the right of the builder to be paid the value of his improvement,

Article 546 gives him the corollary right of retention of the property until he is

indemnified by the owner of the land. There is nothing in the language of these two

article, 448 and 546, which would justify the conclusion of appellants that, upon the

failure of the builder to pay the value of the land, when such is demanded by the land-

owner, the latter becomes automatically the owner of the improvement under Article

445. The case of Bernardo vs. Bataclan, 66 Phil., 590 cited by appellants is no

authority for this conclusion. Although it is true it was declared therein that in the event

of the failure of the builder to pay the land after the owner thereof has chosen this

alternative, the builder's right of retention provided in Article 546 is lost, nevertheless

there was nothing said that as a consequence thereof, the builder loses entirely all

rights over his own building. The question is; what is the recourse or remedy left to the

parties in such eventuality where the builder fails to pay the value of the land? While

the Code is silent on this Court in the cases of Miranda vs. Fadullon, et al., 97 Phil.,

801; 51 Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76 Phil., 605 and the cited case

of Bernardo vs. Bataclan, supra.

In the first case, this Court has said:

A builder in good faith not be required to pay rentals. he has right to retain the

land on which he has built in good faith until he is reimbursed the expenses

incurred by him. Possibly he might be made to pay rental only when the owner of

the land chooses not to appropriate the improvement and requires the builder in

good faith to pay for the land but that the builder is unwilling or unable to pay the

land, and then they decide to leave things as they are and assume the relation of

lessor and lessee, and should they disagree as to the amount of rental then they

can go to the court to fix that amount. (Emphasis supplied)

Should the parties not agree to leave things as they are and to assume the relation of

lessor and lessee, another remedy is suggested in the case of Ignacio vs. Hilario,

supra, wherein the court has ruled that the owner of the land in entitled to have the

improvement removed when after having chosen to sell his land to the other party, i.e.,

the builder in good faith fails to pay for the same.

A further remedy is indicated in the case of Bernardo vs. Bataclan, supra, where this

Court approved the sale of the land and the improvement in a public auction applying

the proceeds thereof first to the payment of the value of the land and the excess, if

any, to be delivered to the owner of the house in payment thereof.

The appellants herein, owners o the land, instead of electing any of the alternative

above indicated chose to seek recovery of the value of their land by asking for a writ of

execution; levying on the house of the builder; and selling the same in public auction.

Sand because they are the highest bidder in their own auction sale, they now claim

they acquired title to the building without necessity of paying in cash on account of their

bid. In other words, they in effect pretend to retain their land and acquire the house

without paying a cent therefor.

This contention is without merit. This Court has already held in Matias vs. The

Provincial Sheriff of Nueva Ecija (74 Phil., 326) that while it is the inveriable practice,

dictated by common sense, that where the successful bidder is the execution creditor

himself, he need not pay down the amount of the bid if it does not exceed the amount

of his judgement, nevertheless, when their is a claim by a third-party, to the proceeds

of the sale superior to his judgment credit, the execution creditor, as successful bidder,

must pay in cash the amount of his bid as a condition precedent to the issuance to him

of the certificate of sale. In the instant case, the Court of Appeals has already adjudged

that appellee Blas is entitled to the payment of the unpaid balance of the purchase

price of the school building. Blas is actually a lien on the school building are

concerned. The order of the lower court directing the Timbang spouses, as successful

bidders, to pay in cash the amount of their bid in the sum of P5,750.00 is therefore

correct.

With respect to the order of the court declaring appellee Filipinas Colleges, Inc. part

owner of the land to the extent of the value of its personal properties sold at public

auction in favor of the Timbang, this Court Likewise finds the same as justified, for

such amount represents, in effect, a partial payment of the value of the land. If this

resulted in the continuation of the so-called involuntary partnership questioned by the

difference between P8,200.00 — the unpaid balance of the purchase price of the

building and the sum of P5,750.00 — amount to be paid by the Timbangs, the order of

the court directing the sale of such undivided interest of the Filipinas Colleges, Inc. is

likewise justified to satisfy the claim of the appellee Blas.

Considering that the appellant spouses Marcelino Timbang and Maria Garcia Timbang

may not voluntarily pay the sum of P5,750.00 as ordered, thereby further delaying the

final termination of this case, the first part of the dispositive portion of the order

appealed from is modified in the sense that upon failure of the Timbang spouses to pay

to the Sheriff or to Manila Gervacio Blas said sum of P5,750.00 within fifteen (15) days

from notice of the final judgment, an order of execution shall issue in favor of Maria

Gervasio Blas to be levied upon all properties of the Timbang spouses not exempt

from execution for the satisfaction of the said amount.

In all other respects, the appealed order of the court a quo is hereby affirmed, with

costs against the appellants.

It is so ordered.

(11) G.R. No. L-47475 August 19, 1988

MANOTOK REALTY, INC., petitioner, vs.

THE HONORABLE JOSE H. TECSON, Judge of the Court of First Instance of

Manila and NILO MADLANGAWA, respondents.

GUTIERREZ, JR., J.:

In a complaint filed by the petitioner for recovery of possession and damages against

the private respondent, the then Court of First Instance of Manila rendered judgment,

the dispositive portion of which provides inter alia:

WHEREFORE, judgment is hereby rendered:

xxx xxx xxx

xxx xxx xxx

(c) In Civil Case No. 72872, declaring the defendant Nilo Madlangawa as a

builder or possessor in good faith; ordering the plaintiff to recognize the

right of said defendant to remain in Lot No. 345, Block 1, of the Clara

Tambunting Subdivision until after he shall have been reimbursed by the

plaintiff the sum of P7,500.00, without pronouncement as to costs. (p. 24,

Rollo)

Not satisfied with the trial court's decision, the petitioner appealed to the Court of

Appeals and upon affirmance by the latter of the decision below, the petitioner elevated

its case to this Court.

On July 13, 1977, we issued a resolution dated July 11, 1977 denying the petitioner's

petition for lack of merit. Hence, on August 5, 1977, the petitioner filed with the trial

court, presided over by respondent Judge Jose H. Tecson, a motion for the approval of

petitioner's exercise of option and for satisfaction of judgment, praying that the court

issue an order: a) approving the exercise of petitioner's option to appropriate the

improvements introduced by the private respondent on the property; b) thereafter,

private respondent be ordered to deliver possession of the property in question to the

petitioner.

On October 7, 1977, the respondent judge issued the disputed order, to wit:

Acting on the motion for approval of plaintiffs exercise of option and for

satisfaction of judgment filed by the plaintiff, and the opposition thereto

interposed by the defendant, both through counsels, and after a judicious

review of all the facts and circumstances obtaining in this case, in the light

of statutory provisions (Art. 6, New Civil Code) and jurisprudential doctrines

(Vide, Benares v. Capitol Subdivision, Inc., L-7330 (Nov. 29, 1960), and

considering further the definitive ruling of our Supreme Tribunal in the case

of Jose C. Cristobal v. Alejandro Melchor, G.R. No. L-43203 promulgated

on July 29, 1977, wherein the Court says:

"This Court, applying the principle of equity, need not be bound to a rigid

application of the law but rather its action should conform to the conditions

or exigencies of a given problem or situation in order to grant relief that it

will serve the ends of justice."

xxx xxx xxx

the Court is of the considered view that under the peculiar circumstances which

supervened after the institution of this case, like, for instance, the introduction of

certain major repairs of and other substantial improvements on the controverted

property, the instant motion of the plaintiff is not well-taken and therefore not legally

proper and tenable.

WHEREFORE, and for lack of merit, the instant motion for approval of the

plaintiff's fai-rn of option and for satisfaction of judgment should be, as

hereby it is, denied. (pp. 45-46, Rollo)

After a denial of its motion for reconsideration, the petitioner filed the present petition

for mandamus alleging that the respondent judge committed grave abuse of discretion

in denying his motion to exercise option and for execution of judgment on the grounds

that under Articles 448 and 546 of the Civil Code, the exercise of option belongs to the

owner of the property, who is the petitioner herein, and that upon finality of judgment,

the prevailing party is entitled, as a matter of right, to its execution which is only a

ministerial act on the part of the respondent judge.

On April 15, 1978, the private respondent filed his comment on the petition alleging

that the same has already become moot and academic for two reasons: first, fire

gutted not only the house of the private respondent but the majority of the houses in

Tambunting Estate; and second, as a result of the said fire, the then First Lady and

Metro Manila Governor Imelda R. Marcos has placed the disputed area under her

Zonal Improvement Project, thereby allowing the victims of the fire to put up new

structures on the premises, so that the willingness and readiness of the petitioner to

exercise the alleged option can no longer be exercised since the subject-matter thereof

has been extinguished by the fire. Furthermore, the President of the Philippines has

already issued a Presidential Decree for the expropriation of certain estates in Metro

Manila including the Tambunting Estate. Therefore, the beneficient and humanitarian

purpose of the Zonal Improvement Project and the expropriation proceeding would be

defeated if petitioner is allowed to exercise an option which would result in the

ejectment of the private respondent.

On December 28, 1980, Presidential Decree (P.D.) No. 1669 was issued providing for

the expropriation of the Tambunting Estate. However, this decree was challenged

before this Court in G.R. No, 55166 entitled The "Elisa R. Manotok, et al. v. National

Housing Authority, et al." Hence, we decided to hold the decision on this petition

pending the resolution of the above entitled case.

On May 21, 1987, the Court rendered a decision in the Elisa Manotok case (Manotok

v. National Housing Authority, 150 SCRA 89) ruling that P.D. 1669 is unconstitutional

for being violative of the due process clause. Thus, since the present petition has not

been rendered moot and academic by the decision in said case, we will now decide on

its merits.

As stated earlier, the petitioner argues that since the judgment of the trial court has

already become final, it is entitled to the execution of the same and that moreover,

since the house of the private respondent was gutted by fire, the execution of the

decision would now involve the delivery of possession of the disputed area by the

private respondent to the petitioner.

We find merit in these arguments.

When the decision of the trial court became final and executory, it became incumbent

upon the respondent judge to issue the necessary writ for the execution of the same.

There is, therefore, no basis for the respondent judge to deny the petitioner's motion to

avail of its option to approriate the improvements made on its property.

In the case of Duenas v. Mandi (151 SCRA 530, 545), we said:

xxx xxx xxx

...Likewise settled is the rule that after a judgment has become final, no

additions can be made thereto, and nothing can be done therewith except

its execution, otherwise there would be no end to legal processes. (Fabular

v. Court of Appeals, 11 9 SCRA 329)

Neither can the respondent judge deny the issuance of a writ of execution because the

private respondent was adjudged a builder in good faith or on the ground of "peculiar

circumstances which supervened after the institution of this case, like, for instance, the

introduction of certain major repairs of and other substantial improvements..." because

the option given by law either to retain the premises and pay for the improvements

thereon or to sell the said premises to the builder in good faith belongs to the owner of

the property. As we have in Quemel v. Olaes (1 SCRA 1159,1163):

xxx xxx xxx

...The plaintiffs claim that their second cause of action is based on Article

448 in connection with Art. 546, of the new Civil Code. A cursory reading of

these provisions, however, will show that they are not applicable to

plaintiff's case. Under Article 448, the right to appropriate the works or

improvements or to oblige the one who built or planted to pay the price of

the land' belongs to the owner of the land. The only right given to the

builder in good faith is the right to reimbursement for the improvements; the

builder, cannot compel the owner of the land to sell such land to the former.

...

Again, in the recent case of Paz Mercado, et al. v. Hon. Court of Appeals, et al., (G.R.

No. L- 44001, June 10, 1988), we said:

... To be deemed a builder in good faith, it is essential that a person assert

title to the land on which he builds; i.e., that he be a possessor in concept

of owner (Art. 525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading Co.,

Inc., 98 Phil. 348) and that he be unaware 'that there exists in his title or

mode of acquisition any flaw which invalidates it.' (Art. 526, Civil Code;

Granados v. Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14 Phil.

627; See also Manotok Realty, Inc. v. C.A., 134 SCRA 329, citing Caram v.

Laureta, 103 SCRA 7) It is such a builder in good faith who is given the

1ight to retain the thing, even as against the real owner, until he has been

reimbursed in full not only for the necessary expenses but also for useful

expenses. (Art. 546, Civil Code; Policarpio v. CA., 129 SCRA 51;

Sarmiento v. Agana, 129 SCRA 1221; cf, Queto v. C.A., 122 SCRA 206) ...

Furthermore, the private respondent's good faith ceased after the filing of the complaint

below by the petitioner. In the case of Mindanao Academy, Inc. v. Yap (13 SCRA

190,196), we ruled:

xxx xxx xxx

...Although the bad faith of one party neutralizes that of the other and

hence as between themselves their rights would be as if both of them had

acted in good faith at the time of the transaction, this legal fiction of Yap's

good faith ceased when the complaint against him was filed, and

consequently the court's declaration of liability for the rents thereafter is

correct and proper . A possessor in good faith is entitled to the fruits only so

long as his possession is not legally interrupted, and such interruption

takes place upon service of judicial summons (Arts. 544 and 1123, Civil

Code).

Thus, the repairs and improvements introduced by the said respondents after the

complaint was filed cannot be considered to have been built in good faith, much less,

justify the denial of the petitioner's fai-rn of option.

Since the improvements have been gutted by fire, and therefore, the basis for private

respondent's right to retain the premises has already been extinguished without the

fault of the petitioner, there is no other recourse for the private respondent but to

vacate the premises and deliver the same to herein petitioner.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED and the

respondent judge is hereby ordered to immediately issue a writ of execution ordering

the private respondent to vacate the disputed premises and deliver possession of the

same to the petitioner.

SO ORDERED.

(12) G.R. No. L-49219 April 15, 1988

SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO DEL

CANTO, plaintiffs-appellees,

vs.BERNARDA FERNANDEZ ABESIA, defendant-appellant.

GANCAYCO, J.:

In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified to

this Court by the Court of Appeals on account of the question of law involved, the sole

issue is the applicability of the provisions of Article 448 of the Civil Code relating to a

builder in good faith when the property involved is owned in common.

This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu, with

an area of only about 45 square meters, situated at the corner of F. Flores and Cavan

Streets, Cebu City covered by TCT No. 61850. An action for partition was filed by

plaintiffs in the CFI of Cebu. Plaintiffs and defendants are co-owners pro indiviso of this

lot in the proportion of and 1/3 share each, respectively. The trial court appointed a

commissioner in accordance with the agreement of the parties. ,the Id commissioner

conducted a survey, prepared a sketch plan and submitted a report to the trial court on

May 29, 1976, recommending that the property be divided into two lots: Lot 1161-A

with an area of 30 square meters for plaintiffs and Lot No. 1161-B with an area of 15

square meters for the defendants. The houses of plaintiffs and defendants were

surveyed and shown on the sketch plan. The house of defendants occupied the portion

with an area of 5 square meters of Lot 1161-A of plaintiffs. The parties manifested their

conformity to the report and asked the trial court to finally settle and adjudicate who

among the parties should take possession of the 5 square meters of the land in

question.

In solving the issue the trial court held as follows:

The Court believed that the plaintiffs cannot be obliged to pay for the value

of the portion of the defendants' house which has encroached an area of

five (5) sq. meters of the land alloted to them. The defendants cannot also

be obliged to pay for the price of the said five (5) square meters. The rights

of a builder in good faith under Article 448 of the New Civil Code does (sic)

not apply to a case where one co-owner has built, planted or sown on the

land owned in common. "Manresa agreeing with Sanchez Roman, says

that as a general rule this article is not applicable because the matter

should be governed more by the provisions on co-ownership than on

accession. Planiol and Ripert are also of the opinion that this article is not

applicable to a co-owner who constructs, plants or sows on the community

property, even if the land where the construction, planting or sowing is

made is a third person under the circumstances, and the situation is

governed by the rules of co-ownership. Our Court of Appeals has held that

this article cannot be invoked by one co-owner against another who builds,

plants or sows upon their land, since the latter does not do so on land not

belonging to him. (C.A.), O.G. Supp., Aug. 30, 194, p. 126). In the light of

the foregoing authorities and considering that the defendants have

expressed their conformity to the partition that was made by the

commissioner as shown in the sketch plan attached to the commissioner's

report, said defendants have no other alternative except to remove and

demolish part of their house that has encroached an area of five (5) sq.

meters of the land allotted to the plaintiffs.

WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an

area of thirty (30) sq. meters to the plaintiffs spouses Concepcion

Fernandez Abesia, Lourdes Fernandez Rodil, Genaro Fernandez and

Dominga A. Fernandez, in the respective metes and bounds as shown in

the subdivision sketch plan attached to the Commissioner's Report dated

may 29, 1976 prepared by the Commissioner, Geodetic Engineer Espiritu

Bunagan. Further, the defendants are hereby ordered at their expense to

remove and demolish part of their house which has encroached an area of

five (5) square meters from Lot 1161-A of the plaintiffs; within sixty (60)

days from date hereof and to deliver the possession of the same to the

plaintiffs. For the Commissioner's fee of P400.00, the defendants are

ordered to pay, jointly and severally, the sum of P133.33 and the balance

thereof to be paid by the plaintiffs. The costs of suit shall be paid by the

plaintiffs and the defendants in the proportion of two-thirds (2/3) and one-

third (1/3) shares respectively. A certified copy of this judgment shall be

recorded in the office of the Register of Deeds of the City of Cebu and the

expense of such recording shall be taxed as a part of the costs of the

action.

Hence, this appeal interposed by the defendants with the following assignments of

errors:

I

THE TRIAL COURT ERRED IN NOT APPLYING THE RIGHTS OF A

BUILDER IN GOOD FAITH UNDER ART. 448 OF THE NEW CIVIL CODE

TO DEFENDANTS-APPELLANTS WITH RESPECT TO THAT PART OF

THEIR HOUSE OCCUPYING A PROTION OF THE LOT ASSIGNED TO

PLAINTIFFS-APPELLEES.

II

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS-

APPELLANTS TO REMOVE AND DEMOLISH AT THEIR EXPENSE,

THAT PART OF THEIR HOUSE WHICH HAS ENCROACHED ON AN

AREA OF FIVE SQUARE METERS OF LOT 1161-A OF PLAINTIFFS-

APPELLEES.

Article 448 of the New Civil Code provides as follows:

Art. 448. The owner of the land on which anything has been built, sown, or

planted in good faith, shall have the right to appropriate as his own the

works, sowing or planting, after payment of the indemnity provided for in

articles 546 and 548, or to oblige the one who built or planted to pay the

price of the land, and the one who sowed, the proper rent. However, the

builder or planter cannot be obliged to buy the land if its value is

considerably more than that of the building or trees. In such case, he shall

pay reasonable rent, if the owner of the land does not choose to

appropriate the building or trees after proper indemnity. The parties shall

agree upon the terms of the lease and in case of disagreement, the court

shall fix the terms thereof.

The court a quo correctly held that Article 448 of the Civil Code cannot apply where a

co-owner builds, plants or sows on the land owned in common for then he did not

build, plant or sow upon land that exclusively belongs to another but of which he is a

co-owner. The co-owner is not a third person under the circumstances, and the

situation is governed by the rules of co-ownership. 1

However, when, as in this case, the co-ownership is terminated by the partition and it

appears that the house of defendants overlaps or occupies a portion of 5 square

meters of the land pertaining to plaintiffs which the defendants obviously built in good

faith, then the provisions of Article 448 of the new Civil Code should apply. Manresa

and Navarro Amandi agree that the said provision of the Civil Code may apply even

when there was co-ownership if good faith has been established. 2

Applying the aforesaid provision of the Civil Code, the plaintiffs have the right to

appropriate said portion of the house of defendants upon payment of indemnity to

defendants as provided for in Article 546 of the Civil Code. Otherwise, the plaintiffs

may oblige the defendants to pay the price of the land occupied by their house.

However, if the price asked for is considerably much more than the value of the portion

of the house of defendants built thereon, then the latter cannot be obliged to buy the

land. The defendants shall then pay the reasonable rent to the plaintiff upon such

terms and conditions that they may agree. In case of disagreement, the trial court shall

fix the terms thereof. Of course, defendants may demolish or remove the said portion

of their house, at their own expense, if they so decide.

WHEREFORE, the decision appealed from is hereby MODIFIED by ordering plaintiff to

indemnify defendants for the value of the Id portion of the house of defendants in

accordance with Article 546 of the Civil Code, if plaintiffs elect to appropriate the same.

Otherwise, the defendants shall pay the value of the 5 square meters of land occupied

by their house at such price as may be agreed upon with plaintiffs and if its value

exceeds the portion of the house that defendants built thereon, the defendants may

choose not to buy the land but defendants must pay a reasonable rental for the use of

the portion of the land of plaintiffs As may be agreed upon between the parties. In case

of disagreement, the rate of rental shall be determined by the trial court. Otherwise,

defendants may remove or demolish at their own expense the said portion of their

house. No costs.

SO ORDERED.

(13) G.R. No. 115814 May 26, 1995

PEDRO P. PECSON, petitioner, vs.

COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA

NUGUID, respondents.

DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision 1 of the Court of

Appeals in CA-G.R. SP No. 32679 affirming in part the order 2 of the Regional Trial

Court (RTC) of Quezon City, Branch 101, in Civil Case No. Q-41470.

The factual and procedural antecedents of this case as gathered from the record are

as follows:

Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias

Street, Quezon City, on which he built a four-door two-storey apartment building. For

his failure to pay realty taxes amounting to twelve thousand pesos (P12,000.00), the lot

was sold at public auction by the city Treasurer of Quezon City to Mamerto

Nepomuceno who in turn sold it on 12 October 1983 to the private respondents, the

spouses Juan Nuguid and Erlinda Tan-Nuguid, for one hundred three thousand pesos

(P103,000.00).

The petitioner challenged the validity of the auction sale in Civil Case No. Q-41470

before the RTC of Quezon City. In its decision of 8 February 1989, the RTC dismissed

the complaint, but as to the private respondents' claim that the sale included the

apartment building, it held that the issue concerning it was "not a subject of the . . .

litigation." In resolving the private respondents' motion to reconsider this issue, the trial

court held that there was no legal basis for the contention that the apartment building

was included in the sale. 3

Both parties then appealed the decision to the Court of Appeals. The case was

docketed as CA-G.R. CV No. 2931. In its decision of 30 April 1992, 4 the Court of

Appeals affirmed in toto the assailed decision. It also agreed with the trial court that the

apartment building was not included in the auction sale of the commercial lot. Thus:

Indeed, examining the record we are fully convinced that it was only the

land — without the apartment building — which was sold at the auction

sale, for plaintiff's failure to pay the taxes due thereon. Thus, in the

Certificate of Sale of Delinquent Property To Purchaser (Exh. K, p. 352,

Record) the property subject of the auction sale at which Mamerto

Nepomuceno was the purchaser is referred to as Lot No. 21-A, Block No.

K-34, at Kamias, Barangay Piñahan, with an area of 256.3 sq. m., with no

mention whatsoever, of the building thereon. The same description of the

subject property appears in the Final Notice To Exercise The Right of

Redemption (over subject property) dated September 14, 1981 (Exh. L, p.

353, Record) and in the Final Bill of Sale over the same property dated

April 19, 1982 (Exh. P, p. 357, Record). Needless to say, as it was only the

land without any building which Nepomuceno had acquired at the auction

sale, it was also only that land without any building which he could have

legally sold to the Nuguids. Verily, in the Deed of Absolute Sale of

Registered Land executed by Mamerto Nepomuceno in favor of the

Nuguids on October 25, 1983 (Exh. U, p. 366, Record) it clearly appears

that the property subject of the sale for P103,000.00 was only the parcel of

land, Lot 21-A, Blk. K-34 containing an area of 256.3 sq. meters, without

any mention of any improvement, much less any building thereon.

(emphases supplied)

The petition to review the said decision was subsequently denied by this Court. 5 Entry

of judgment was made on 23 June 1993. 6

On November 1993, the private respondents filed with the trial court a motion for

delivery of possession of the lot and the apartment building, citing article 546 of the

Civil Code. 7 Acting thereon, the trial court issued on 15 November 1993 the challenged

order 8 which reads as follows:

Submitted for resolution before this Court is an uncontroverted [sic] for the

Delivery of Possession filed by defendants Erlinda Tan, Juan Nuguid, et al.

considering that despite personal service of the Order for plaintiff to file

within five (5) days his opposition to said motion, he did not file any.

In support of defendant's motion, movant cites the law in point as Article

546 of the Civil Code . . .

Movant agrees to comply with the provisions of the law considering that

plaintiff is a builder in good faith and he has in fact, opted to pay the cost of

the construction spent by plaintiff. From the complaint itself the plaintiff

stated that the construction cost of the apartment is much more than the

lot, which apartment he constructed at a cost of P53,000.00 in 1965 (par. 8

complaint). This amount of P53,000.00 is what the movant is supposed to

pay under the law before a writ of possession placing him in possession of

both the lot and apartment would be issued.

However, the complaint alleges in paragraph 9 that three doors of the

apartment are being leased. This is further confirmed by the affidavit of the

movant presented in support of the motion that said three doors are being

leased at a rental of P7,000.00 a month each. The movant further alleges

in his said affidavit that the present commercial value of the lot is

P10,000.00 per square meter or P2,500,000.00 and the reasonable rental

value of said lot is no less than P21,000.00 per month.

The decision having become final as per Entry of Judgment dated June 23,

1993 and from this date on, being the uncontested owner of the property,

the rents should be paid to him instead of the plaintiff collecting them. From

June 23, 1993, the rents collected by plaintiff amounting to more than

P53,000.00 from tenants should be offset from the rents due to the lot

which according to movant's affidavit is more than P21,000.00 a month.

WHEREFORE, finding merit in the Motion, the Court hereby grants the

following prayer that:

1. The movant shall reimburse plaintiff the construction cost of

P53,000.00.

2. The payment of P53,000.00 as reimbursement for the

construction cost, movant Juan Nuguid is hereby entitled to

immediate issuance of a writ of possession over the Lot and

improvements thereon.

3. The movant having been declared as the uncontested owner

of the Lot in question as per Entry of Judgment of the Supreme

Court dated June 23, 1993, the plaintiff should pay rent to the

movant of no less than P21,000.00 per month from said date as

this is the very same amount paid monthly by the tenants

occupying the lot.

4. The amount of P53,000.00 due from the movant is hereby

offset against the amount of rents collected by the plaintiff from

June 23, 1993, to September 23, 1993.

SO ORDERED.

The petitioner moved for the reconsideration of the order but it was not acted upon by

the trial court. Instead, on 18 November 1993, it issued a writ of possession directing

the deputy sheriff "to place said movant Juan Nuguid in possession of subject property

located at No. 79 Kamias Road, Quezon City, with all the improvements thereon and to

eject therefrom all occupants therein, their agents, assignees, heirs and

representatives." 9

The petitioner then filed with the Court of Appeals a special civil action

for certiorari and prohibition assailing the order of 15 November 1993, which was

docketed as CA-G.R. SP No. 32679. 10 In its decision of 7 June 1994, the Court of

Appeals affirmed in part the order of the trial court citing Article 448 of the Civil Code.

In disposing of the issues, it stated:

As earlier pointed out, private respondent opted to appropriate the

improvement introduced by petitioner on the subject lot, giving rise to the

right of petitioner to be reimbursed of the cost of constructing said

apartment building, in accordance with Article 546 of the . . . Civil Code,

and of the right to retain the improvements until he is reimbursed of the

cost of the improvements, because, basically, the right to retain the

improvement while the corresponding indemnity is not paid implies the

tenancy or possession in fact of the land on which they are built . . . [2

TOLENTINO, CIVIL CODE OF THE PHILIPPINES (1992) p. 112]. With the

facts extant and the settled principle as guides, we agree with petitioner

that respondent judge erred in ordering that "the movant having been

declared as the uncontested owner of the lot in question as per Entry of

Judgment of the Supreme Court dated June 23, 1993, the plaintiff should

pay rent to the movant of no less than P21,000 per month from said date

as this is the very same amount paid monthly by the tenants occupying the

lot.

We, however, agree with the finding of respondent judge that the amount of

P53,000.00 earlier admitted as the cost of constructing the apartment

building can be offset from the amount of rents collected by petitioner from

June 23, 1993 up to September 23, 1993 which was fixed at P7,000.00 per

month for each of the three doors. Our underlying reason is that during the

period of retention, petitioner as such possessor and receiving the fruits

from the property, is obliged to account for such fruits, so that the amount

thereof may be deducted from the amount of indemnity to be paid to him by

the owner of the land, in line with Mendoza vs. De Guzman, 52 Phil. 164 . .

. .

The Court of Appeals then ruled as follows:

WHEREFORE, while it appears that private respondents have not yet

indemnified petitioner with the cost of the improvements, since Annex I

shows that the Deputy Sheriff has enforced the Writ of Possession and the

premises have been turned over to the possession of private respondents,

the quest of petitioner that he be restored in possession of the premises is

rendered moot and academic, although it is but fair and just that private

respondents pay petitioner the construction cost of P53,000.00; and that

petitioner be ordered to account for any and all fruits of the improvements

received by him starting on June 23, 1993, with the amount of P53,000.00

to be offset therefrom.

IT IS SO ORDERED. 11

Aggrieved by the Court of Appeals' decision, the petitioner filed the instant petition.

The parties agree that the petitioner was a builder in good faith of the apartment

building on the theory that he constructed it at the time when he was still the owner of

the lot, and that the key issue in this case is the application of Articles 448 and 456 of

the Civil Code.

The trial court and the Court of Appeals, as well as the parties, concerned themselves

with the application of Articles 448 and 546 of the Civil Code. These articles read as

follows:

Art. 448. The owner of the land on which anything has been built, sown or

planted in good faith, shall have the right to appropriate as his own the

works, sowing or planting, after payment of the indemnity provided for in

articles 546 and 548, or to oblige the one who built or planted to pay the

price of the land, and the one who sowed, the proper rent. However, the

builder or planter cannot be obliged to buy the land if its value is

considerably more than that of the building or trees. In such case, he shall

pay reasonable rent, if the owner of the land does not choose to

appropriate the building or trees after proper indemnity. The parties shall

agree upon the terms of the lease and in case of disagreement, the court

shall fix the terms thereof. (361a)

xxx xxx xxx

Art. 546. Necessary expenses shall be refunded to every possessor; but

only the possessor in good faith may retain the thing until he has been

reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with

the same right of retention, the person who has defeated him in the

possession having the option of refunding the amount of the expenses or of

paying the increase in value which the thing may have acquired by reason

thereof. (453a)

By its clear language, Article 448 refers to a land whose ownership is claimed by two

or more parties, one of whom has built some works, or sown or planted something.

The building, sowing or planting may have been made in good faith or in bad faith. The

rule on good faith laid down in Article 526 of the Civil Code shall be applied in

determining whether a builder, sower or planter had acted in good faith. 12

Article 448 does not apply to a case where the owner of the land is the builder, sower,

or planter who then later loses ownership of the land by sale or donation. This Court

said so in Coleongco vs. Regalado: 13

Article 361 of the old Civil Code is not applicable in this case, for Regalado

constructed the house on his own land before he sold said land to

Coleongco. Article 361 applies only in cases where a person constructs a

building on the land of another in good or in bad faith, as the case may be.

It does not apply to a case where a person constructs a building on his own

land, for then there can be no question as to good or bad faith on the part

of the builder.

Elsewise stated, where the true owner himself is the builder of works on his own land,

the issue of good faith or bad faith is entirely irrelevant.

Thus in strict point of law, Article 448 is not apposite to the case at bar. Nevertheless,

we believe that the provision therein on indemnity may be applied by analogy

considering that the primary intent of Article 448 is to avoid a state of forced co-

ownership and that the parties, including the two courts below, in the main agree that

Articles 448 and 546 of the Civil Code are applicable and indemnity for the

improvements may be paid although they differ as to the basis of the indemnity.

Article 546 does not specifically state how the value of the useful improvements should

be determined. The respondent court and the private respondents espouse the belief

that the cost of construction of the apartment building in 1965, and not its current

market value, is sufficient reimbursement for necessary and useful improvements

made by the petitioner. This position is, however, not in consonance with previous

rulings of this Court in similar cases. In Javier vs. Concepcion, Jr., 14 this Court pegged

the value of the useful improvements consisting of various fruits, bamboos, a house

and camarin made of strong material based on the market value of the said

improvements. In Sarmiento vs. Agana, 15 despite the finding that the useful

improvement, a residential house, was built in 1967 at a cost of between eight

thousand pesos (P8,000.00) to ten thousand pesos(P10,000.00), the landowner was

ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00),

the value of the house at the time of the trial. In the same way, the landowner was

required to pay the "present value" of the house, a useful improvement, in the case

of De Guzman vs. De la Fuente, 16 cited by the petitioner.

The objective of Article 546 of the Civil Code is to administer justice between the

parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman

Catholic Archbishop of Manila 17 that the said provision was formulated in trying to

adjust the rights of the owner and possessor in good faith of a piece of land, to

administer complete justice to both of them in such a way as neither one nor the other

may enrich himself of that which does not belong to him. Guided by this precept, it is

therefore the current market value of the improvements which should be made the

basis of reimbursement. A contrary ruling would unjustly enrich the private respondents

who would otherwise be allowed to acquire a highly valued income-yielding four-unit

apartment building for a measly amount. Consequently, the parties should therefore be

allowed to adduce evidence on the present market value of the apartment building

upon which the trial court should base its finding as to the amount of reimbursement to

be paid by the landowner.

The trial court also erred in ordering the petitioner to pay monthly rentals equal to the

aggregate rentals paid by the lessees of the apartment building. Since the private

respondents have opted to appropriate the apartment building, the petitioner is thus

entitled to the possession and enjoyment of the apartment building, until he is paid the

proper indemnity, as well as of the portion of the lot where the building has been

constructed. This is so because the right to retain the improvements while the

corresponding indemnity is not paid implies the tenancy or possession in fact of the

land on which it is built, planted or sown. 18 The petitioner not having been so paid, he

was entitled to retain ownership of the building and, necessarily, the income therefrom.

It follows, too, that the Court of Appeals erred not only in upholding the trial court's

determination of the indemnity, but also in ordering the petitioner to account for the

rentals of the apartment building from 23 June 1993 to 23 September 1993.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the

Order of 15 November 1993 of the Regional Trial Court, Branch 101, Quezon City in

Civil Case No. Q-41470 are hereby SET ASIDE.

The case is hereby remanded to the trial court for it to determine the current market

value of the apartment building on the lot. For this purpose, the parties shall be allowed

to adduce evidence on the current market value of the apartment building. The value

so determined shall be forthwith paid by the private respondents to the petitioner

otherwise the petitioner shall be restored to the possession of the apartment building

until payment of the required indemnity.

No costs.

SO ORDERED.

(14) G.R. No. L-23497 April 26, 1968

J.M. TUASON and CO., INC., petitioner, vs.

ESTRELLA VDA. DE LUMANLAN and the COURT OF APPEALS (FIFTH

DIVISION), respondents.

REYES, J.B.L., Actg. C.J.:

J. M. Tuason & Co., Inc. petitioned for a review by certiorari of the decision issued by

the Court of Appeals (Fifth Division) in its case CA-G.R. No. 27259-R, reversing the

judgment rendered by the Court of First Instance of Rizal (Civil Case No. Q-4243) that

ordered defendant (now respondent) Estrella Vda. de Lumanlan to vacate the lot

occupied by her in Sta. Mesa Heights Subdivision, barrio Tatalon, Quezon City, and to

remove therefrom the house and other structures constructed thereon, paying P240.00

a month until restoration of the premises to plaintiff.

The facts are stated in the decision of the Court of Appeals (accepted by both parties)

in this wise:1äwphï1.ñët

. . . That in the complaint filed in this case by plaintiff, J. M. Tuason & Co., Inc.,

hereinafter called Tuason, on 30 April, 1969, the basis is that it being the

registered owner of the property known as Santa Mesa Heights Subdivision,

situated at Barrio North Tatalon, Quezon City, herein defendant sometime in

April, 1949 unlawfully entered into possession of 800 square meters, and therein

constructed his house so that plaintiff prayed for ejectment and damages for the

occupancy; and defendant in her answer set forthaffirmative defense that on 12

March, 1949, she had bought the property she was occupying from one Pedro

Deudor, and that in a compromise agreement between Pedro and Tuason on 16

March 1953, approved by the Court of First Instance of Quezon City, she was

one of the buyers therein recognized, so that she asked that her rights be

recognized and the complaint dismissed; but on the basis of the evidence

presented by both parties in the trial, Lower Court sustained plaintiff, holding that

Tuason being the registered owner, and the question being purely one of

possession, therefore, defendant's said evidence was "completely immaterial". . .

. (Page 2 of Decision, Annex "A" of Petition.)

Upon the facts thus stated, the Fifth Division of the Court of Appeals held that,

pursuant to this Supreme Court's ruling in Evangelista vs. Deudor, L-12826,

September 10, 1959, the Compromise Agreement (Exh. 2) between the petitioner

Tuason & Co. and the Deudors constituted a valid defense against the possessory

action filed by Tuason & Co.; that under paragraph 7 of said Compromise Agreement,

petitioner bound and committed itself to sell to respondent Lumanlan the lot occupied

by her at a reasonable price; that said respondent had a right to compel petitioner to

accept payment for the lot in question; and that the compromise agreement legalized

the possession of respondent.

These pronouncements are assailed by the petitioner in this appeal as legally incorrect

and contrary to the decisions of this Court.

The terms of the compromise agreement between the heirs of Telesforo Deudor and J.

M. Tuason & Co. have been taken cognizance of in many decisions of this Court

(Evangelista vs. Deudor, jam. cit; Deudor vs. J. M. Tuason & Co., L-18768, May 30,

1961, and L-20105, Oct. 31, 1963; J. M. Tuason vs. Jaramillo, et al., L-18932-34, Sept.

30, 1963; J. M. Tuason vs. Macalindong, L-15398, Dec. 29, 1962 and others). The

Deudors had therein recognized the registered title of Tuason & Co. over the lands

claimed by them, and received payment of certain sums of money; but as the Deudors

had, prior to the compromise, sold their possessory rights to various persons,

paragraph seventh of the compromise agreement (case Q-135 of the court of origin)

provided:

That the sales of the possessory rights claimed by the DEUDORS, are described

in the lists submitted by them to the OWNERS which are attached hereto marked

Annexes "B" and "C" and made part hereof. Whatever amounts may have been

collected by the DEUDORS on account thereof, shall be deducted from the total

sum of P1,201,063.00 to be paid to them. It shall be the joint and solidary

obligation of the DEUDORS to make the buyer of the lots purportedly sold by

them to recognize the title of the OWNERS over the property purportedly bought

by them, and to make them sign, whenever possible, new contracts of purchase

for said property at the current paces and terms specified by the OWNERS in

their sales of lots in their subdivision known at "Sta. Mesa Heights Subdivision."

The DEUDORS HEREBY advised the OWNERS that the buyer listed in Annex

"B" herein with the annotation "continue" shall buy the lots respectively occupied

by them and shall sign contracts, but the sums already paid by them to the

DEUDORS amounting to P134,922.84 (subject to verification by the Court) shall

be credited to the buyers and shall be deducted from the sums to be paid to the

DEUDORS by the OWNERS. The DEUDORS also advise the OWNERS that, the

buyers listed in Annex "C" herein with the annotation "Refund" have decided not

to continue with their former contracts or purchases with the DEUDORS and the

sums already paid by them to the DEUDORS TOTALLING P101,182.42 (subject

to verification by the Court) shall be refunded to them by the OWNERS and

deducted from the sums that may be due to the DEUDORS from the OWNERS

(J.M. Tuason & Co., Inc. vs. Jaramillo, L-18932, Sept. 30, 1963);

Careful analysis of this paragraph of the compromise agreement will show that while

the same created "a sort of contractual relation" between the J. M. Tuason & Co., Inc.,

and the Deudor vendees (as ruled by this Court in Evangelista vs. Deudor, ante), the

same in no way obligated Tuason & Co. to sell to those buyers the lots occupied by

them at the price stipulated with the Deudors, but at "the current prices and terms

specified by the OWNERS (Tuason) in their sales of lots in their subdivision known as

'Sta. Mesa Heights Subdivision'". This is what is expressly provided. Further, the

paragraph plainly imports that these buyers of the Deudors must "recognize the title of

the OWNERS (Tuason) over the property purportedly bought by them" from the

Deudors, and "sign, whenever possible, new contracts of purchase for said property";

and, if and when they do so, "the sums paid by them to the Deudors . . . shall be

credited to the buyers." All that Tuason & Co. agreed to, therefore, was to grant the

Deudor buyers preferential right to purchase "at current prices and terms" the lots

occupied by them, upon their recognizing the title of Tuason & Co., Inc., and

signing new contracts therefor; and to credit them for the amounts they had paid to the

Deudors.

Nowhere in her answer did the respondent Estrella Vda. de Lumanlan claim that she

had signed a new contract with J. M. Tuason & Co., Inc. for the purchase of the lot

occupied. What is worse, instead of recognizing the title of the owners (Tuason & Co.)

as required by the aforementioned compromise agreement, she charged in paragraph

6 of her special defense (Rec. on Appeal, p. 10) that "Pedro Deudor and his co-owners

and the plaintiff herein . . .conspired together and helped each other . . . by entering

into a supposed Compromise" whereby "Pedro Deudor and his co-owners renounced,

ceded, waived and quitclaimed all their rights, title and interest in the property including

the land sold to herein defendant, in favor of the plaintiff J. M. Tuason & Co., Inc., in

consideration of the sum of P1,201,063.00, without the knowledge and consent,

and much less the intervention of the herein defendant." In other words, the

respondent Lumanlan in her answer repudiated and assailed the compromise between

the Deudors and J. M. Tuason & Co. How then can she now claim to take advantage

and derive rights from that compromise?

Without the compromise agreement, Lumanlan must justify her possession on the

basis of a pretended superiority of the Deudors' old Spanish informacion

posesoria over Tuason's Certificate of Title No. 1267, traceable back to the original

Certificate of Title No. 735 of Rizal, issued under the Registration Act No. 496. But, as

ruled by this Court in previous cases, Lumanlan is by now barred from assailing the

decree of registration in favor of Tuason & Co., Inc.'s predecessors twenty years after

its issuance (Tiburcio vs. PHHC, L-13429, Oct. 31, 1959; Tuason & Co. vs. Bolaños,

95 Phil. 107; Tuason & Co. vs. Santiago, 99 Phil. 622-623; Tuason & Co. vs.

Macalindong, supra; Tuason & Co. vs. Jaramillo, L-16827, Jan. 31, 1963).

It is thus apparent that no legal basis exists for the pronouncement in the appealed

decision that Tuason & Co. had committed itself to sell to Lumanlan the lot occupied by

her at a reasonable price, or that the compromise agreement legalized the possession

of the respondent, since the latter does not rely on the compromise but, on the

contrary, she assails it.

The Court of Appeals ruled that the price to be paid by Lumanlan to Tuason & Co.,

Inc., is governed by Article 1474 of the new Civil Code of the Philippines, which

provides that:

Where the price cannot be determined in accordance with the preceding articles,

or in any other manner, the contract is inefficacious. However, if the thing or any

part thereof has been delivered to and appropriated by the buyer, he must pay a

reasonable price therefor. What is a reasonable price is a question of fact

dependent on the circumstances of each particular case.

Since there has been no contract between petitioner Tuason & Co. and respondent

Lumanlan for the sale of the lot occupied by the latter, and by paragraph 7 of the

Compromise Agreement (assuming that respondent-appellee still has the right to

invoke the same, and seek refuge thereunder), Tuason & Co. did not consider itself

bound by the sales made by the Deudors, but demanded that the Deudor buyers

should sign new contracts with it at current prices specified for the sales of lots in "Sta.

Mesa Heights Subdivision" (ante) the aforequoted Article 1474 can have no bearing on

the case, Lumanlan not being a buyer from Tuason & Co.

As to Lumanlan's allegation in her counterclaim that she should be deemed a builder in

good faith, a similar contention has been rejected in Tuason & Co. vs. Macalindong, L-

15398, December 29, 1962, where we ruled that there being a presumptive knowledge

of the Torrens titles issued to Tuason & Co. and its predecessors-in-interest since

1914, the buyer from the Deudors (or from their transferees) can not, in good

conscience, say now that she believed her vendor had rights of ownership over the lot

purchased. The reason given by the Court is that —

Had he investigated before buying and before building his house on the

questioned lot, he would have been informed that the land is registered under the

Torrens system in the name of J. M. Tuason & Co., Inc., If he failed to make the

necessary inquiry, appellant is now bound conclusively by appellee's Torrens title

(Sec. 51, Act 496; Emas vs. Zuzuarregui, 35 Phil. 144) (Tuason & Co., Inc. vs.

Macalindong, ante).

Lumanlan had chosen to ignore the Torrens title of Tuason & Co., Inc. and relied

instead upon the Deudors' claim of ownership, perhaps because such course

appeared to her as more advantageous; hence, she has only herself to blame for the

consequences now that the Deudors' claim has been abandoned by the Deudors

themselves, and can not pretend good faith. The Court of First Instance, therefore, did

not err in holding that she was not a rightful possessor and sentencing her to vacate.

Respondent could have asked that she recover or be credited with the amounts paid

by her to the Deudors, but as no claim to such credit was ever advanced by her in the

trial Court, no pronouncement can be made thereon in this appeal. Equity demands,

however, that her right to claim such return, or to have the amount offset against the

sums she was sentenced to pay, should be, as it is, reserved.

WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court

of First Instance reinstated. Costs against respondent, Estrella Vda. de Lumanlan.

(15) G.R. No. 77423 March 13, 1989

SPOUSES DIOSDADO NUGUID AND MARIQUETA VENEGAS, petitioners,

vs.COURT OF APPEALS, AMORITA GUEVARRA, TERESITA GUEVARRA,

NARCISO GUEVARRA, MARCIANA DELA ROSA, BERNABE BUENAVENTURA,

AND JULIETA BUENAVENTURA, respondents.

SARMIENTO, J.:

This petition seeks the reversal of the decision of the Court of Appeals declaring the

private respondents owners of one-half portion of the property subject of this case.

The petitioners were the defendants in a suit commenced by the private respondents

before the Court of First Instance (now Regional Trial Court) of Bataan. 1 The

antecedent facts may be summarized as follows:

The deceased spouses Victorino and Crisanta dela Rosa were the registered owners

of a parcel of land with an area of 231 square meters, situated in Orani Bataan, and

covered by original Certificate of Title No. 3778. On or about May 4, 1931, Victorino

dela Rosa (widowed by then) sold one-half of the said property to Juliana Salazar for P

95.00. This sale, though evidenced by a document, 2 was not registered. Immediately

after the sale, Juliana Salazar constructed a house on the lot she purchased.

On March 10, 1964, petitioner spouses (defendants below) caused the registration of a

document entitled "Kasulatan ng Partihan at Bilihan"' (hereinafter referred to as Exhibit

"D"), 3 dated June 6, 1961. In this document, Marciana dela Rosa (who is among the

private respondents), Victoria Buenaventura, Ernesto Buenaventura, Virgilio

Buenaventura, and Felicisimo Buenaventura-all heirs of Victorino and Crisanta dela

Rosa- sold to the petitioners the entire area of the property abovementioned for the

sum of P 300.00. Subsequently, OCT No. 3778 was cancelled by the Register of

Deeds of Bataan, and Transfer Certificate of Title No. T-12782 was issued in the

names of the petitioners.

The private respondents claim that Exhibit "D" is a forged deed in that: 1) the signature

of Marciana dela Rosa appearing therein is a forgery; 2) it is not true that, as stated in

the deed, Luisa dela Rosa (sister of Marciana), at the time of her death, was a widow;

3) none of the heirs-signatories to the deed received any consideration for the

supposed sale; and 4) Luisa dela Rosa is survived not only by four, but by five children

(the fifth child, respondent Julieta Buenaventura, was not mentioned in the deed).

The private respondents allegedly discovered the forged deed as well as the certificate

of title in the name of the petitioners much later, that is, on February 28, 1978, when

respondents Amorita Guevarra and Teresita Guevarra thought of having the title of

their grandmother Juliana Salazar, registered.

On the other hand, the petitioners assert that sometime in the latter part of 1960, the

land subject of this case was offered to them for sale by Nicolas dela Rosa, uncle of

respondent Marciana dela Rosa and grandfather of the other heirs-signatories to

Exhibit "D". Apparently, Nicolas dela Rosa claimed that he had already purchased the

shares of the heirs over the subject property as evidenced by a private document

entitled "Kasunduan" (hereinafter referred to as Exhibit "6") dated August 31, 1955; as

a matter of fact, he had in his possession the original certificate of title covering the

property in the name of the deceased Victorino and Crisanta dela Rosa. He promised,

however, that he would arrange for a direct sale to be made by the heirs in favor of the

petitioners. Consequently, Exhibit "D" as mentioned earlier, was executed. The

petitioners stress that even before they decided to buy the subject property, they made

an ocular inspection thereof and questioned the occupants therein to verify its real

ownership. They underscore the fact that the persons whom they found occupying the

property did not at all assert adverse ownership over the same.

The trial court rendered judgment dismissing the complaint filed by the private

respondents, but on appeal, this was reversed by the Court of Appeals. 4 To quote the

dispositive portion of the appellate court's decision:

WHEREFORE, finding the decision of the lower court to be with reversible

error the decision dated May 1, 1982 is hereby ordered REVERSED and a

new one entered declaring plaintiffs to be owners of 115.5 square meters of

Lot 678. Defendants are hereby ordered to execute a deed of

reconveyance in favor of plaintiffs over the said area within thirty (30) days

from the finality of this decision, otherwise, the Register of Deeds will be

ordered to execute one in favor of the plaintiffs. With costs against the

defendants plus attorney's fees in the amount of P 500.00.

SO ORDERED. 5

From the foregoing, this petition for review was filed.

We find merit in the petition.

From the start, the respondent court erred in treating the private respondents as

though they all belong to one group of heirs whose right is derived from one ancestor,

when actually, the private respondents should be categorized into two groups.

To one group belong the respondents Amorita, Teresita and Narcism, all surnamed

Guevarra. As children of Pedro Guevarra and Pascuala Tolentino, and grandchildren

of Juliana Salazar, they claim to have succeeded to the ownership over the onehalf

portion of land which was sold to Juliana Salazar. The remaining private respondents,

Marciana dela Rosa, Bernabe Buenaventura, and Julieta Buenaventura, make up the

second group of heirs who claim to have derived, by succession, their ownership over

the other half of the subject property from their predecessors-in-interest, the original

registrants, Victorino and Crisanta dela Rosa.

Analyzing the case before us in this manner, we can immediately discern another error

in the decision of the respondent court, which is that said court, with absolutely no

basis, sweepingly adjudged all of the respondents co-owners of one-half of the subject

property. Clearly, it was a glaring error for the Court of Appeals to have so ruled

because as a matter of fact, the respondent heirs of Victorino dela Rosa were claiming

a half of the entire property which is separate and distinct from the other half claimed

by the respondents Guevarras. 6

Surprisingly, none of the private respondents appealed the above decision of the Court

of Appeals. Consequently, they are deemed to have accepted the said erroneous

decision declaring them, collectively, owners of one-half of the subject property. In

effect, only this portion of the Property is being presently disputed by the contending

parties. As regards the other onehalf portion, it is now settled (by virtue of the private

respondents' acceptance of the Court of Appeals decision) that the same is the

property of the petitioners.

Insofar as the respondent heirs of Victorino dela Rosa are concerned, undoubtedly

they are not entitled to any portion of the disputed property. Respondent Marciana dela

Rosa is bound by her signature appearing on Exhibit "D". This public document

evidencing the sale of the subject property to the petitioners was executed with all the

legal formalities of a public document, to wit:

The "Kasulatan ng Partihan at Bilihan" (Exhibit D, Exhibit 1) was duly

witnessed by Ricardo L. Santos and Pablo R. Buenaventura, proven to be

relatives both of Marciana dela Rosa and the Buenaventuras who were

then at the municipal building of Orani Bataan, when the '"Kasulatan ng

Partihan at Bilihan" was notarized by Fernando J. Rivera, Justice of the

peace of Orani Bataan, in his capacity as ex officio notary public. It should

be noted that all the parties were from Orani Bataan, and the notary public,

who notarized the document, was the justice of the peace of Orani Bataan,

acting in his capacity as ex officio notary public. 7

Indeed, the legal presumption of the regularity of the above notarized contract was not

rebutted successfully. The courts below were one in concluding that the alleged forgery

of respondent Marciana dela Rosa's signature was not proven. Likewise, the private

respondents' allegation of absence of consideration of the contract was not

substantiated. Under Art. 1354 of the Civil Code, it is presumed that consideration

exists and is lawful, unless the debtor proves the contrary. 8

Noteworthy is the fact that of the five heirs who signed Exhibit "D", only one, the

respondent Marciana dela Rosa, impugned its genuineness and due execution, as well

as the authenticity of her signature thereon; and she alone joined the other

respondents in this suit.

In the case of the respondents Bernabe Buenaventura and Julieta Buenaventura, the

trial court correctly declared that:

... With his signature appearing in the "Kasulatan" 9 (Exhibit 6) and his

affirmation that his wife, Luisa dela Rosa, who was a sister of Marciana

dela Rosa and also a daughter of Victorino dela Rosa and Crisanta dela

Cruz, had sold her share of Lot No. 678 to Nicolas dela Rosa, plaintiff

Bernabe Buenaventura could no longer be heard to complain. And if,

plaintiff Julieta Buenaventura were prejudiced, her logical recourse would

be to go after her own kin. 10

Since no evidence was introduced on the point, the trial court surmised that

respondent Julieta Buenaventura was probably a minor at the time of signing of

Exhibits "D" and "6".

It must be noted that although respondent Bernabe Buenaventura disowned his

signature on Exhibit "6", there was no effort on his part to prove such claim. Forgery

cannot be presumed. It must be proved. 11

At any rate, the question of whether or not the abovementioned signatures were forged

would become irrelevant if, on the other hand, the petitioners are able to establish that

they acquired the subject property in good faith. For, indeed, an innocent purchaser for

value is protected such that when land has already passed into the hands of an

innocent purchaser for value, reconveyance of the same can no longer be made.12

On the other hand, the claimed ownership of the respondent heirs of Pedro and

Pascuala Guevarra over the property is anchored on the prior sale thereof to their

grandmother, Juliana Salazar. The situation, in effect, is that contemplated by Article

1544 of the Civil Code, 13 a double sale. Parenthetically, although the second sale (to

the petitioners herein) was made by the heirs of the deceased Victorino dela Rosa, the

said heirs are deemed the judicial continuation of the personality of the

decedent.14Essentially, therefore, the first and second sales were made by the same

person, as envisioned under Article 1544 of the Civil Code, quoted earlier (footnote No.

13). The disputed property being immovable property, the ownership should belong to

the vendee who in good faith first recorded it in the Registry of Property, pursuant to

the same article.

It is an established fact that the first sale to Juliana Salazar was not registered while

the sale to the petitioners was registered. However, it is contended by the respondents

Guevarras that they have a better right as against the petitioners because the element

of good faith was lacking as regards the latter.

Whether or not there was good faith in the purchase of the land and in the subsequent

registration of title acquired in the Registry of Property is, therefore, the central issue in

this case.

We agree with the trial court's finding that the petitioners are purchasers in good faith.

The Original Certificate of Title No. 3778 covering the entire property was clean and

free from any annotation of an encumbrance, 15 and there was nothing whatsoever to

indicate on its face any vice or infirmity in the title of the registered owners-the spouses

Victorino and Crisanta dela Rosa. Thus, the petitioners could not have known of the

prior sale to Juliana Salazar as, precisely, it was not registered. The general rule is that

if the property sold is registered land, the purchaser in good faith has a right to rely on

the certificate of title and is under no duty to go behind it to look for flaws.16 This'

notwithstanding, the petitioners did not rely solely upon the certificate of title. They

personally inspected the subject property. Undeniably, they found the same to be

occupied by two houses, one belonging to a certain Doray dela Rosa and the other to

spouses Pedro Guevarra and Pascuala Tolentino, parents of the respondents

Guevarras. Upon being informed of the petitioners' desire to purchase the land, Doray

dela Rosa apparently offered to sell her house, which offer was accepted by the

petitioners. As regards the spouses Guevarra, we find no reason to disturb the trial

court's finding that they themselves requested that they be allowed to refrain on the

property until such time that the petitioners would need the entire premises; and in lieu

of rentals to the petitioners, they offered to continue paying the real estate taxes for

one-half of the property as this was their arrangement with the previous owners-to

which request the petitioners acceded.17 Evidently, neither Doray dela Rosa nor the

spouses Guevarra professed ownership over the portions of land they were occupying;

on the contrary, by their actuations they expressly acknowledged that they were not

the real owners of the said property. The spouses Guevarra, in particular, made no

mention of the prior unregistered sale to their predecessor-in-interest, Juliana Salazar.

Thus, when the petitioners registered the sale in their favor with the Register of Deeds,

they did so without any knowledge about the prior sale in favor of Juliana Salazar. The

petitioners, therefore, had acted in good faith.

The basis for the Court of Appeals' conclusion that petitioners were buyers in bad faith

is, to say the least, ambiguous. Said court appears to have relied on the singular

circumstance that the petitioners are, like the respondents, from Orani Bataan, and as

such, according to the court, they should have personally known that the private

respondents were the persons in actual possession and not Doray dela Rosa and

Pedro Guevarra. The respondent court's premise, therefore, is that the private

respondents were the actual occupants of the property.

There is, however, nothing in the record to sustain the validity of the above premise. At

the time of the purchase, the petitioners dealt with Pedro Guevarra and Pascuala

Tolentino, the latter being the actual occupants. The respondents Guevarras children

of the said Pedro and Pascuala Guevarra, came into the picture only after their parents

died. As for the respondent heirs of Victorino dela Rosa, their being in actual

possession of any portion of the property was, likewise, simply presumed or taken for

granted by the Court of Appeals.

The private respondents can not honestly claim that they became aware of the

petitioners' title only in 1978. Ever since the petitioners bought the property in 1961,

they have occupied the same openly, publicly, and continuously in the concept of

owners, even building their house thereon. For seventeen years they were in peaceful

possession, with the respondents Guevarras occupying less than one-half of the same

property. If the petitioners are mere usurpers, why did the private respondents

complain only now? Moreover, they have not bothered to explain in what capacity are

the petitioners occupying the land, if not as legal owners. Consequently, we are more

inclined to accept the petitioners' explanation that the private respondents have

initiated this suit because of their (the petitioners') refusal to sell to the respondents

Guevarras that portion of the land which the latter are occupying, coupled with the

petitioners' demand for the said private respondents to vacate the same.

Anent the other issues raised in the petition, these do not need further discussion,

being merely subordinate to the main issue of good faith.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals is SET

ASIDE, and that of the Court of First Instance (now Regional Trial Court) of Bataan,

Branch I is hereby REINSTATED.

Costs against the private respondents.

SO ORDERED.

(16) G.R. No. 108894 February 10, 1997

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner, vs.

COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and

EDUARDO UY, respondents.

PANGANIBAN, J.:

The parties in this case are owners of adjoining lots in Parañaque, Metro Manila. It was

discovered in a survey, that a portion of a building of petitioner, which was presumably

constructed by its predecessor-in-interest, encroached on a portion of the lot owned by

private respondent. What are the rights and obligations of the parties? Is petitioner

considered a builder in bad faith because, as held by respondent Court, he is

"presumed to know the metes and bounds of his property as described in his certificate

of title"? Does petitioner succeed into the good faith or bad faith of his predecessor-in-

interest which presumably constructed the building?

These are the questions raised in the petition for review of the Decision 1 dated August

28, 1992, in CA-G.R. CV No. 28293 of respondent Court 2 where the disposition

reads: 3

WHEREFORE, premises considered, the Decision of the Regional Trial

Court is hereby reversed and set aside and another one entered —

1. Dismissing the complaint for lack of cause of action;

2. Ordering Tecnogas to pay the sum of P2,000.00 per month as

reasonable rental from October 4, 1979 until appellee vacates the land;

3. To remove the structures and surrounding walls on the encroached area;

4. Ordering appellee to pay the value of the land occupied by the two-

storey building;

5. Ordering appellee to pay the sum of P20,000.00 for and as attorney's

fees;

6. Costs against appellee.

Acting on the motions for reconsideration of both petitioner and private respondent,

respondent Court ordered the deletion of paragraph 4 of

the dispositive portion in an Amended Decision dated February 9, 1993, as follows: 4

WHEREFORE, premises considered, our decision of August 28, 1992 is

hereby modified deleting paragraph 4 of the dispositive portion of our

decision which reads:

4. Ordering appellee to pay the value of the land occupied by

the two-storey building.

The motion for reconsideration of appellee is hereby DENIED for lack of

merit.

The foregoing Amended Decision is also challenged in the instant petition.

The Facts

The facts are not disputed. Respondent Court merely reproduced the factual findings

of the trial court, as follows:5

That plaintiff (herein petitioner) which is a corporation duly organized and

existing under and by virtue of Philippine laws is the registered owner of a

parcel of land situated in Barrio San Dionisio, Parañaque, Metro Manila

known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral

Survey of Parañaque, Metro Manila, covered by Transfer Certificate of Title

No. 409316 of the Registry of Deeds of the Province of Rizal; that said land

was purchased by plaintiff from Pariz Industries, Inc. in 1970, together with

all the buildings and improvements including the wall existing thereon; that

the defendant (herein private respondent) is the registered owner of a

parcel of land known as Lot No. 4531-B of Lot 4531 of the Cadastral

Survey of Parañaque, LRC (GLRO) Rec. No. 19645 covered by Transfer

Certificate of Title No. 279838, of the Registry of Deeds for the Province of

Rizal; that said land which adjoins plaintiff's land was purchased by

defendant from a certain Enrile Antonio also in 1970; that in 1971,

defendant purchased another lot also adjoining plaintiffs land from a certain

Miguel Rodriguez and the same was registered in defendant's name under

Transfer Certificate of Title No. 31390, of the Registry of Deeds for the

Province of Rizal; that portions of the buildings and wall bought by plaintiff

together with the land from Pariz Industries are occupying a portion of

defendant's adjoining land; that upon learning of the encroachment or

occupation by its buildings and wall of a portion of defendant's land, plaintiff

offered to buy from defendant that particular portion of defendant's land

occupied by portions of its buildings and wall with an area of 770 square

meters, more or less, but defendant, however, refused the offer. In 1973,

the parties entered into a private agreement before a certain Col. Rosales

in Malacañang, wherein plaintiff agreed to demolish the wall at the back

portion of its land thus giving to defendant possession of a portion of his

land previously enclosed by plaintiff's wall; that defendant later filed a

complaint before the office of Municipal Engineer of Parañaque, Metro

Manila as well as before the Office of the Provincial Fiscal of Rizal against

plaintiff in connection with the encroachment or occupation by plaintiff's

buildings and walls of a portion of its land but said complaint did not

prosper; that defendant dug or caused to be dug a canal along plaintiff's

wall, a portion of which collapsed in June, 1980, and led to the filing by

plaintiff of the supplemental complaint in the above-entitled case and a

separate criminal complaint for malicious mischief against defendant and

his wife which ultimately resulted into the conviction in court of defendant's

wife for the crime of malicious mischief; that while trial of the case was in

progress, plaintiff filed in Court a formal proposal for settlement of the case

but said proposal, however, was ignored by defendant.

After trial on the merits, the Regional Trial Court 6 of Pasay City, Branch 117, in Civil

Case No. PQ-7631-P, rendered a decision dated December 4, 1989 in favor of

petitioner who was the plaintiff therein. The dispositive portion

reads: 7

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against

defendant and ordering the latter to sell to plaintiff that portion of land

owned by him and occupied by portions of plaintiff's buildings and wall at

the price of P2,000.00 per square meter and to pay the former:

1. The sum of P44,000.00 to compensate for the losses in

materials and properties incurred by plaintiff through thievery as

a result of the destruction of its wall;

2. The sum of P7,500.00 as and by way of attorney's fees; and

3. The costs of this suit.

Appeal was duly interposed with respondent Court, which as previously stated,

reversed and set aside the decision of the Regional Trial Court and rendered the

assailed Decision and Amended Decision. Hence, this recourse under Rule 45 of the

Rules of Court.

The Issues

The petition raises the following issues: 8

(A)

Whether or not the respondent Court of Appeals erred in holding the

petitioner a builder in bad faith because it is "presumed to know the metes

and bounds of his property."

(B)

Whether or not the respondent Court of Appeals erred when it used the

amicable settlement between the petitioner and the private respondent,

where both parties agreed to the demolition of the rear portion of the fence,

as estoppel amounting to recognition by petitioner of respondent's right

over his property including the portions of the land where the other

structures and the building stand, which were not included in the

settlement.

(C)

Whether or not the respondent Court of Appeals erred in ordering the

removal of the "structures and surrounding walls on the encroached area"

and in withdrawing its earlier ruling in its August 28, 1992 decision for the

petitioner "to pay for the value of the land occupied" by the building, only

because the private respondent has "manifested its choice to demolish" it

despite the absence of compulsory sale where the builder fails to pay for

the land, and which "choice" private respondent deliberately deleted from

its September 1, 1980 answer to the supplemental complaint in the

Regional Trial Court.

In its Memorandum, petitioner poses the following issues:

A.

The time when to determine the good faith of the builder under Article 448

of the New Civil Code, is reckoned during the period when it was actually

being built; and in a case where no evidence was presented nor introduced

as to the good faith or bad faith of the builder at that time, as in this case,

he must be presumed to be a "builder in good faith," since "bad

faith cannot be presumed." 9

B.

In a specific "boundary overlap situation" which involves a builder in good

faith, as in this case, it is now well settled that the lot owner, who builds on

the adjacent lot is not charged with "constructive notice" of the technical

metes and bounds contained in their torrens titles to determine the exact

and precise extent of his boundary perimeter. 10

C.

The respondent court's citation of the twin cases of Tuason &

Co. v. Lumanlan and Tuason & Co. v.Macalindong is not the "judicial

authority" for a boundary dispute situation between adjacent torrens titled

lot owners, as the facts of the present case do not fall within nor square

with the involved principle of a dissimilar case. 11

D.

Quite contrary to respondent Uy's reasoning, petitioner Tecnogas

continues to be a builder in good faith, even if it subsequently built/repaired

the walls/other permanent structures thereon while the case a quo was

pending and even while respondent sent the petitioner many letters/filed

cases thereon. 12

D.(E.)

The amicable settlement between the parties should be interpreted as a

contract and enforced only in accordance with its explicit terms,

and not over and beyond that agreed upon; because the courts donot have

the power to create a contract nor expand its scope. 13

E.(F.)

As a general rule, although the landowner has the option to choose

between: (1) "buying the building built in good faith", or (2) "selling the

portion of his land on which stands the building" under Article 448 of the

Civil Code; the first option is not absolute, because an exception thereto,

once it would be impractical for the landowner to choose to exercise the

first alternative, i.e. buy that portion of the house standing on his land, for

the whole building might be rendered useless. The workable solution is for

him to select the second alternative, namely, to sell to the builder that part

of his land on which was constructed a portion of the house. 14

Private respondent, on the other hand, argues that the petition is "suffering from the

following flaws: 15

1. It did not give the exact citations of cases decided by the Honorable

Supreme Court that allegedly contradicts the ruling of the Hon. Court of

Appeals based on the doctrine laid down in Tuason vs.Lumanlan case

citing also Tuason vs. Macalindong case (Supra).

2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is

contradictory to the doctrine inTuason vs. Lumanlan and Tuason

vs. Macalindong, the two cases being more current, the same should

prevail.

Further, private respondent contends that the following "unmistakably" point to the bad

faith of petitioner: (1) private respondent's purchase of the two lots, "was ahead of the

purchase by petitioner of the building and lot from Pariz Industries"; (2) the declaration

of the General Manager of Tecnogas that the sale between petitioner and Pariz

Industries "was not registered" because of some problems with China Banking

Corporation; and (3) the Deed of Sale in favor of petitioner was registered in its name

only in "the month of May 1973." 16

The Court's Ru1ing

The petition should be granted.

Good Faith or Bad Faith

Respondent Court, citing the cases of J.M. Tuason & Co., Inc. vs. Vda. de

Lumanlan 17 and J.M. Tuason & Co., Inc.vs. Macalindong, 18 ruled that petitioner

"cannot be considered in good faith" because as a land owner, it is "presumed to know

the metes and bounds of his own property, specially if the same are reflected in a

properly issued certificate of title. One who erroneously builds on the adjoining lot

should be considered a builder in (b)ad (f)aith, there being presumptive knowledge of

the Torrens title, the area, and the extent of the boundaries." 19

We disagree with respondent Court. The two cases it relied upon do not support its

main pronouncement that a registered owner of land has presumptive knowledge of

the metes and bounds of its own land, and is therefore in bad faith if he mistakenly

builds on an adjoining land. Aside from the fact that those cases had factual moorings

radically different from those obtaining here, there is nothing in those cases which

would suggest, however remotely, that bad faith is imputable to a registered owner of

land when a part of his building encroaches upon a neighbor's land, simply because he

is supposedly presumed to know the boundaries of his land as described in his

certificate of title. No such doctrinal statement could have been made in those cases

because such issue was not before the Supreme Court. Quite the contrary, we have

rejected such a theory in Co Tao vs. Chico, 20 where we held that unless one is versed

in the science of surveying, "no one can determine the precise extent or location of his

property by merely examining his paper title."

There is no question that when petitioner purchased the land from Pariz Industries, the

buildings and other structures were already in existence. The record is not clear as to

who actually built those structures, but it may well be assumed that petitioner's

predecessor-in-interest, Pariz Industries, did so. Article 527 of the Civil Code presumes

good faith, and since no proof exists to show that the encroachment over a narrow,

needle-shaped portion of private respondent's land was done in bad faith by the builder

of the encroaching structures, the latter should be presumed to have built them in good

faith. 21 It is presumed that possession continues to be enjoyed in the same character

in which it was acquired, until the contrary is proved. 22 Good faith consists in the belief

of the builder that the land he is building on is his, and his ignorance of any defect or

flaw in his title. 23 Hence, such good faith, by law, passed on to Pariz's successor,

petitioner in this case. Further, "(w)here one derives title to property from another, the

act, declaration, or omission of the latter, while holding the title, in relation to the

property, is evidence against the former." 24And possession acquired in good faith does

not lose this character except in case and from the moment facts exist which show that

the possessor is not unaware that he possesses the thing improperly or

wrongfully. 25 The good faith ceases from the moment defects in the title are made

known to the possessor, by extraneous evidence or by suit for recovery of the property

by the true owner. 26

Recall that the encroachment in the present case was caused by a very slight deviation

of the erected wall (as fence) which was supposed to run in a straight line from point 9

to point 1 of petitioner's lot. It was an error which, in the context of the attendant facts,

was consistent with good faith. Consequently, the builder, if sued by the aggrieved

landowner for recovery of possession, could have invoked the provisions of Art. 448 of

the Civil Code, which reads:

The owner of the land on which anything has been built, sown or planted in

good faith, shall have the right to appropriate as his own the works, sowing

or planting, after payment of the indemnity provided for in articles 546 and

548, or to oblige the one who built or planted to pay the price of the land,

and the one who sowed, the proper rent. However, the builder or planter

cannot be obliged to buy the land if its value is considerably more than that

of the building or trees. In such case, he shall pay reasonable rent, if the

owner of the land does not choose to appropriate the building or trees after

proper indemnity. The parties shall agree upon the terms of the lease and

in case of disagreement, the court shall fix the terms thereof.

The obvious benefit to the builder under this article is that, instead of being

outrightly ejected from the land, he can compel the landowner to make a choice

between the two options: (1) to appropriate the building by paying the indemnity

required by law, or (2) sell the land to the builder. The landowner cannot refuse

to exercise either option and compel instead the owner of the building to remove

it from the land. 27

The question, however, is whether the same benefit can be invoked by petitioner who,

as earlier stated, is not the builder of the offending structures but possesses them as

buyer.

We answer such question in the affirmative.

In the first place, there is no sufficient showing that petitioner was aware of the

encroachment at the time it acquired the property from Pariz Industries. We agree with

the trial court that various factors in evidence adequately show petitioner's lack of

awareness thereof. In any case, contrary proof has not overthrown the presumption of

good faith under Article 527 of the Civil Code, as already stated, taken together with

the disputable presumptions of the law on evidence. These presumptions state, under

Section 3 (a) of Rule 131 of the Rules of Court, that the person is innocent of a crime

or wrong; and under Section 3 (ff) of Rule 131, that the law has been obeyed. In fact,

private respondent Eduardo Uy himself was unaware of such intrusion into his property

until after 1971 when he hired a surveyor, following his purchase of another adjoining

lot, to survey all his newly acquired lots. Upon being apprised of the encroachment,

petitioner immediately offered to buy the area occupied by its building — a species of

conduct consistent with good faith.

In the second place, upon delivery of the property by Pariz Industries, as seller, to the

petitioner, as buyer, the latter acquired ownership of the property. Consequently and

as earlier discussed, petitioner is deemed to have stepped into the shoes of the seller

in regard to all rights of ownership over the immovable sold, including the right to

compel the private respondent to exercise either of the two options provided under

Article 448 of the Civil Code.

Estoppel

Respondent Court ruled that the amicable settlement entered into between petitioner

and private respondent estops the former from questioning the private respondent's

"right" over the disputed property. It held that by undertaking to demolish the fence

under said settlement, petitioner recognized private respondent's right over the

property, and "cannot later on compel" private respondent "to sell to it the land since"

private respondent "is under no obligation to sell." 28

We do not agree. Petitioner cannot be held in estoppel for entering into the amicable

settlement, the pertinent portions of which read: 29

That the parties hereto have agreed that the rear portion of the fence that

separates the property of the complainant and respondent shall be

demolished up to the back of the building housing the machineries which

demolision (sic) shall be undertaken by the complainant at anytime.

That the fence which serve(s) as a wall housing the electroplating

machineries shall not be demolished in the mean time which portion shall

be subject to negotiation by herein parties.

From the foregoing, it is clear that petitioner agreed only to the demolition of a portion

of the wall separating the adjoining properties of the parties — i.e. "up to the back of

the building housing the machineries." But that portion of the fence which served as the

wall housing the electroplating machineries was not to be demolished. Rather, it was to

"be subject to negotiation by herein parties." The settlement may have recognized the

ownership of private respondent but such admission cannot be equated with bad faith.

Petitioner was only trying to avoid a litigation, one reason for entering into an amicable

settlement.

As was ruled in Osmeña vs. Commission on Audit, 30

A compromise is a bilateral act or transaction that is expressly

acknowledged as a juridical agreement by the Civil Code and is therein

dealt with in some detail. "A compromise," declares Article 2208 of said

Code, "is a contract whereby the parties, by making reciprocal

concessions, avoid a litigation or put an end to one already commenced."

xxx xxx xxx

The Civil Code not only defines and authorizes compromises, it in fact

encourages them in civil actions. Art. 2029 states that "The Court shall

endeavor to persuade the litigants in a civil case to agree upon some fair

compromise." . . .

In the context of the established facts, we hold that petitioner did not lose its rights

under Article 448 of the Civil Code on the basis merely of the fact that some years after

acquiring the property in good faith, it learned about — and aptly recognized — the

right of private respondent to a portion of the land occupied by its building. The

supervening awareness of the encroachment by petitioner does not militate against its

right to claim the status of a builder in good faith. In fact, a judicious reading of said

Article 448 will readily show that the landowner's exercise of his option can only take

place after the builder shall have come to know of the intrusion — in short, when both

parties shall have become aware of it. Only then will the occasion for exercising the

option arise, for it is only then that both parties will have been aware that a problem

exists in regard to their property rights.

Options of Private Respondent

What then is the applicable provision in this case which private respondent may invoke

as his remedy: Article 448 or Article 450 31 of the Civil Code?

In view of the good faith of both petitioner and private respondent, their rights and

obligations are to be governed by Art. 448. The essential fairness of this codal

provision has been pointed out by Mme. Justice Ameurfina Melencio-Herrera, citing

Manresa and applicable precedents, in the case of Depra vs. Dumlao, 32 to wit:

Where the builder, planter or sower has acted in good faith, a conflict of

rights arises between the owners, and it becomes necessary to protect the

owner of the improvements without causing injustice to the owner of the

land. In view of the impracticality of creating a state of forced co-ownership,

the law has provided a just solution by giving the owner of the land the

option to acquire the improvements after payment of the proper indemnity,

or to oblige the builder or planter to pay for the land and the sower to pay

the proper rent. It is the owner of the land who is authorized to exercise the

option, because his right is older, and because, by the principle of

accession, he is entitled to the ownership of the accessory thing. (3

Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan

Chico, G.R. No. 49167, April 30, 1949; Article applied; see Cabral, et al. vs.

Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz.

2050).

The private respondent's insistence on the removal of the encroaching structures as

the proper remedy, which respondent Court sustained in its assailed Decisions, is thus

legally flawed. This is not one of the remedies bestowed upon him by law. It would be

available only if and when he chooses to compel the petitioner to buy the land at a

reasonable price but the latter fails to pay such price. 33 This has not taken place.

Hence, his options are limited to: (1) appropriating the encroaching portion of

petitioner's building after payment of proper indemnity, or (2) obliging the latter to buy

the lot occupied by the structure. He cannot exercise a remedy of his own liking.

Neither is petitioner's prayer that private respondent be ordered to sell the land 34 the

proper remedy. While that was dubbed as the "more workable solution" in Grana and

Torralba vs. The Court of Appeals, et al., 35 it was not the relief granted in that case as

the landowners were directed to exercise "within 30 days from this decision their option

to either buy the portion of the petitioners' house on their land or sell to said petitioners

the portion of their land on which it stands." 36Moreover, in Grana and Torralba, the

area involved was only 87 square meters while this case involves 520 square meters37.

In line with the case of Depra vs. Dumlao, 38 this case will have to be remanded to the

trial court for further proceedings to fully implement the mandate of Art. 448. It is a rule

of procedure for the Supreme Court to strive to settle the entire controversy in a single

proceeding leaving no root or branch to bear the seeds of future

litigation. 39

Petitioner, however, must also pay the rent for the property occupied by its building as

prescribed by respondent Court from October 4, 1979, but only up to the date private

respondent serves notice of its option upon petitioner and the trial court; that is, if such

option is for private respondent to appropriate the encroaching structure. In such event,

petitioner would have a right of retention which negates the obligation to pay

rent. 40 The rent should however continue if the option chosen is compulsory sale, but

only up to the actual transfer of ownership.

The award of attorney's fees by respondent Court against petitioner is unwarranted

since the action appears to have been filed in good faith. Besides, there should be no

penalty on the right to litigate. 41

WHEREFORE, premises considered, the petition is hereby GRANTED and the

assailed Decision and the Amended Decision are REVERSED and SET ASIDE. In

accordance with the case of Depra vs. Dumlao, 42 this case is REMANDED to the

Regional Trial Court of Pasay City, Branch 117, for further proceedings consistent with

Articles 448 and 546 43 of the Civil Code, as follows:

The trial court shall determine:

a) the present fair price of private respondent's 520 square-meter area of

land;

b) the increase in value ("plus value") which the said area of 520 square

meters may have acquired by reason of the existence of the portion of the

building on the area;

c) the fair market value of the encroaching portion of the building; and

d) whether the value of said area of land is considerably more than the fair

market value of the portion of the building thereon.

2. After said amounts shall have been determined by competent evidence, the regional

trial court shall render judgment as follows:

a) The private respondent shall be granted a period of fifteen (15) days

within which to exercise his option under the law (Article 448, Civil

Code), whether to appropriate the portion of the building as his own by

paying to petitioner its fair market value, or to oblige petitioner to pay the

price of said area. The amounts to be respectively paid by petitioner and

private respondent, in accordance with the option thus exercised by written

notice of the other party and to the court, shall be paid by the obligor within

fifteen (15) days from such notice of the option by tendering the amount to

the trial court in favor of the party entitled to receive it;

b) If private respondent exercises the option to oblige petitioner to pay the

price of the land but the latter rejects such purchase because, as found by

the trial court, the value of the land is considerably more than that of the

portion of the building, petitioner shall give written notice of such rejection

to private respondent and to the trial court within fifteen (15) days from

notice of private respondent's option to sell the land. In that event, the

parties shall be given a period of fifteen (15) days from such notice of

rejection within which to agree upon the terms of the lease, and give the

trial court formal written notice of the agreement and its provisos. If no

agreement is reached by the parties, the trial court, within fifteen (15) days

from and after the termination of the said period fixed for negotiation, shall

then fix the terms of the lease provided that the monthly rental to be fixed

by the Court shall not be less than two thousand pesos (P2,000.00) per

month, payable within the first five (5) days of each calendar month. The

period for the forced lease shall not be more than two (2) years, counted

from the finality of the judgment, considering the long period of time since

1970 that petitioner has occupied the subject area. The rental thus fixed

shall be increased by ten percent (10%) for the second year of the forced

lease. Petitioner shall not make any further constructions or improvements

on the building. Upon expiration of the two-year period, or upon default by

petitioner in the payment of rentals for two (2) consecutive months, private

respondent shall be entitled to terminate the forced lease, to recover his

land, and to have the portion of the building removed by petitioner or at

latter's expense. The rentals herein provided shall be tendered by petitioner

to the trial court for payment to private respondent, and such tender shall

constitute evidence of whether or not compliance was made within the

period fixed by the said court.

c) In any event, petitioner shall pay private respondent an amount

computed at two thousand pesos (P2,000.00) per month as reasonable

compensation for the occupancy of private respondent's land for the period

counted from October 4, 1979, up to the date private respondent serves

notice of its option to appropriate the encroaching structures, otherwise up

to the actual transfer of ownership to petitioner or, in case a forced lease

has to be imposed, up to the commencement date of the forced lease

referred to in the preceding paragraph;

d) The periods to be fixed by the trial court in its decision shall be non-

extendible, and upon failure of the party obliged to tender to the trial court

the amount due to the obligee, the party entitled to such payment shall be

entitled to an order of execution for the enforcement of payment of the

amount due and for compliance with such other acts as may be required by

the prestation due the obligee.

No costs.

SO ORDERED.

(17) G.R. No. 79688 February 1, 1996

PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner, vs.

COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and

ELDRED JARDINICO,respondents.

PANGANIBAN, J.:

Is a lot buyer who constructs improvements on the wrong property erroneously

delivered by the owner's agent, a builder in good faith? This is the main issue resolved

in this petition for review on certiorari to reverse the Decision1 of the Court of

Appeals2 in CA-G.R. No. 11040, promulgated on August 20, 1987.

By resolution dated November 13, 1995, the First Division of this Court resolved to

transfer this case (along with several others) to the Third Division. After due

deliberation and consultation, the Court assigned the writing of this Decision to the

undersigned ponente.

The Facts

The facts, as found by respondent Court, are as follows:

Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II

and located at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975,

respondent Eldred Jardinico bought the rights to the lot from Robillo. At that time, Lot 9

was vacant.

Upon completing all payments, Jardinico secured from the Register of Deeds of

Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his

name. It was then that he discovered that improvements had been introduced on Lot 9

by respondent Wilson Kee, who had taken possession thereof.

It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same

subdivision from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent

of petitioner. Under the Contract to Sell on Installment, Kee could possess the lot even

before the completion of all installment payments. On January 20, 1975, Kee paid

CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for the

preparation of the lot plan. These amounts were paid prior to Kee's taking actual

possession of Lot 8. After the preparation of the lot plan and a copy thereof given to

Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kee's wife,

Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of land pointed by Octaviano

was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an auto

repair shop and other improvements on the lot.

After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The

parties tried to reach an amicable settlement, but failed.

On January 30, 1981, Jardinico's lawyer wrote Kee, demanding that the latter remove

all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed

with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for

ejectment with damages against Kee.

Kee, in turn, filed a third-party complaint against petitioner and CTTEI.

The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI.

It further ruled that petitioner and CTTEI could not successfully invoke as a defense the

failure of Kee to give notice of his intention to begin construction required under

paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari store

without the prior approval of petitioner required under paragraph 26 of said contract,

saying that the purpose of these requirements was merely to regulate the type of

improvements to be constructed on the Lot.3

However, the MTCC found that petitioner had already rescinded its contract with Kee

over Lot 8 for the latter's failure to pay the installments due, and that Kee had not

contested the rescission. The rescission was effected in 1979, before the complaint

was instituted. The MTCC concluded that Kee no longer had any right over the lot

subject of the contract between him and petitioner. Consequently, Kee must pay

reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim

reimbursement for the improvements he introduced on said lot.

The MTCC thus disposed:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows:

1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered by

TCT No. 106367 and to remove all structures and improvements he introduced

thereon;

2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of

P15.00 a day computed from the time this suit was filed on March 12, 1981 until

he actually vacates the premises. This amount shall bear interests (sic) at the

rate of 12 per cent (sic) per annum.

3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville

Subdivision are ordered to pay the plaintiff jointly and severally the sum of

P3,000.00 as attorney's fees and P700.00 as cost and litigation expenses.4

On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that

petitioner and CTTEI were not at fault or were not negligent, there being no

preponderant evidence to show that they directly participated in the delivery of Lot 9 to

Kee5. It found Kee a builder in bad faith. It further ruled that even

assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of

unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was

served with notice to vacate said lot, and thus was liable for rental.

The RTC thus disposed:

WHEREFORE, the decision appealed from is affirmed with respect to the order

against the defendant to vacate the premises of Lot No. 9 covered by Transfer

Certificate of Title No. T-106367 of the land records of Bacolod City; the removal

of all structures and improvements introduced thereon at his expense and the

payment to plaintiff (sic) the sum of Fifteen (P15.00) Pesos a day as reasonable

rental to be computed from January 30, 1981, the date of the demand, and not

from the date of the filing of the complaint, until he had vacated (sic) the

premises, with interest thereon at 12% per annum. This Court further renders

judgment against the defendant to pay the plaintiff the sum of Three Thousand

(P3,000.00) Pesos as attorney's fees, plus costs of litigation.

The third-party complaint against Third-Party Defendants Pleasantville

Development Corporation and C.T. Torres Enterprises, Inc. is dismissed. The

order against Third-Party Defendants to pay attorney's fees to plaintiff and costs

of litigation is reversed.6

Following the denial of his motion for reconsideration on October 20, 1986, Kee

appealed directly to the Supreme Court, which referred the matter to the Court of

Appeals.

The appellate court ruled that Kee was a builder in good faith, as he was unaware of

the "mix-up" when he began construction of the improvements on Lot 8. It further ruled

that the erroneous delivery was due to the negligence of CTTEI, and that such wrong

delivery was likewise imputable to its principal, petitioner herein. The appellate court

also ruled that the award of rentals was without basis.

Thus, the Court of Appeals disposed:

WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED,

and judgment is rendered as follows:

1. Wilson Kee is declared a builder in good faith with respect to the

improvements he introduced on Lot 9, and is entitled to the rights granted him

under Articles 448, 546 and 548 of the New Civil Code.

2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville

Development Corporation are solidarily liable under the following circumstances:

A. If Eldred Jardinico decides to appropriate the improvements and,

thereafter, remove these structures, the third-party defendants shall answer

for all demolition expenses and the value of the improvements thus

destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall

answer for the amount representing the value of Lot 9 that Kee should pay

to Jardinico.

3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville

Development Corporation are ordered to pay in solidum the amount of P3,000.00

to Jardinico as attorney's fees, as well as litigation expenses.

4. The award of rentals to Jardinico is dispensed with.

Furthermore, the case is REMANDED to the court of origin for the determination

of the actual value of the improvements and the property (Lot 9), as well as for

further proceedings in conformity with Article 448 of the New Civil Code.7

Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.

The Issues

The petition submitted the following grounds to justify a review of the respondent

Court's Decision, as follows:

1. The Court of Appeals has decided the case in a way probably not in accord

with law or the the (sic) applicable decisions of the Supreme Court on third-party

complaints, by ordering third-party defendants to pay the demolition expenses

and/or price of the land;

2. The Court of Appeals has so far departed from the accepted course of judicial

proceedings, by granting to private respondent-Kee the rights of a builder in good

faith in excess of what the law provides, thus enriching private respondent Kee at

the expense of the petitioner;

3. In the light of the subsequent events or circumstances which changed the

rights of the parties, it becomes imperative to set aside or at least modify the

judgment of the Court of Appeals to harmonize with justice and the facts;

4. Private respondent-Kee in accordance with the findings of facts of the lower

court is clearly a builder in bad faith, having violated several provisions of the

contract to sell on installments;

5. The decision of the Court of Appeals, holding the principal, Pleasantville

Development Corporation (liable) for the acts made by the agent in excess of its

authority is clearly in violation of the provision of the law;

6. The award of attorney's fees is clearly without basis and is equivalent to

putting a premium in (sic) court litigation.

From these grounds, the issues could be re-stated as follows:

(1) Was Kee a builder in good faith?

(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises,

Inc.? and

(3) Is the award of attorney's fees proper?

The First Issue: Good Faith

Petitioner contends that the Court of Appeals erred in reversing the RTC's ruling that

Kee was a builder in bad faith.

Petitioner fails to persuade this Court to abandon the findings and conclusions of the

Court of Appeals that Kee was a builder in good faith. We agree with the following

observation of the Court of Appeals:

The roots of the controversy can be traced directly to the errors committed by

CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is highly

improbable that a purchaser of a lot would knowingly and willingly build his

residence on a lot owned by another, deliberately exposing himself and his family

to the risk of being ejected from the land and losing all improvements thereon,

not to mention the social humiliation that would follow.

Under the circumstances, Kee had acted in the manner of a prudent man in

ascertaining the identity of his property. Lot 8 is covered by Transfer Certificate of

Title No. T-69561, while Lot 9 is identified in Transfer Certificate of Title No. T-

106367. Hence, under the Torrens system of land registration, Kee is presumed

to have knowledge of the metes and bounds of the property with which he is

dealing. . . .

xxx xxx xxx

But as Kee is a layman not versed in the technical description of his property, he

had to find a way to ascertain that what was described in TCT No. 69561

matched Lot 8. Thus, he went to the subdivision developer's agent and applied

and paid for the relocation of the lot, as well as for the production of a lot plan by

CTTEI's geodetic engineer. Upon Kee's receipt of the map, his wife went to the

subdivision site accompanied by CTTEI's employee, Octaviano, who

authoritatively declared that the land she was pointing to was indeed Lot 8.

Having full faith and confidence in the reputation of CTTEI, and because of the

company's positive identification of the property, Kee saw no reason to suspect

that there had been a misdelivery. The steps Kee had taken to protect his

interests were reasonable. There was no need for him to have acted ex-

abundantia cautela, such as being present during the geodetic engineer's

relocation survey or hiring an independent geodetic engineer to countercheck for

errors, for the final delivery of subdivision lots to their owners is part of the

regular course of everyday business of CTTEI. Because of CTTEI's blunder,

what Kee had hoped to forestall did in fact transpire. Kee's efforts all went to

naught.8

Good faith consists in the belief of the builder that the land he is building on is his and

his ignorance of any defect or flaw in his title 9. And as good faith is presumed,

petitioner has the burden of proving bad faith on the part of Kee 10.

At the time he built improvements on Lot 8, Kee believed that said lot was what he

bought from petitioner. He was not aware that the lot delivered to him was not Lot 8.

Thus, Kee's good faith. Petitioner failed to prove otherwise.

To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22

and 26 of the Contract of Sale on Installment.

We disagree. Such violations have no bearing whatsoever on whether Kee was a

builder in good faith, that is, on his state of mind at the time he built the improvements

on Lot 9. These alleged violations may give rise to petitioner's cause of action against

Kee under the said contract (contractual breach), but may not be bases to negate the

presumption that Kee was a builder in good faith.

Petitioner also points out that, as found by the trial court, the Contract of Sale on

Installment covering Lot 8 between it and Kee was rescinded long before the present

action was instituted. This has no relevance on the liability of petitioner, as such fact

does not negate the negligence of its agent in pointing out the wrong lot. to Kee. Such

circumstance is relevant only as it gives Jardinico a cause of action for unlawful

detainer against Kee.

Petitioner next contends that Kee cannot "claim that another lot was erroneously

pointed out to him" because the latter agreed to the following provision in the Contract

of Sale on installment, to wit:

13. The Vendee hereby declares that prior to the execution of his contract he/she

has personally examined or inspected the property made subject-matter hereof,

as to its location, contours, as well as the natural condition of the lots and from

the date hereof whatever consequential change therein made due to erosion, the

said Vendee shall bear the expenses of the necessary fillings, when the same is

so desired by him/her.11

The subject matter of this provision of the contract is the change of the location,

contour and condition of the lot due to erosion. It merely provides that the vendee,

having examined the property prior to the execution of the contract, agrees to shoulder

the expenses resulting from such change.

We do not agree with the interpretation of petitioner that Kee contracted away his right

to recover damages resulting from petitioner's negligence. Such waiver would be

contrary to public policy and cannot be allowed. "Rights may be waived, unless the

waiver is contrary to law, public order, public policy, morals, or good customs, or

prejudicial to a third person with a right recognized by law." 12

The Second Issue: Petitioner's Liability

Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by

the RTC after ruling that there was no evidence from which fault or negligence on the

part of petitioner and CTTEI can be inferred. The Court of Appeals disagreed and

found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee.

Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the

erroneous delivery of Lot 9 to Kee was an act which was clearly outside the scope of

its authority, and consequently, CTTEI I alone should be liable. It asserts that "while

[CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was never

authorized to deliver the wrong lot to Kee" 13.

Petitioner's contention is without merit.

The rule is that the principal is responsible for the acts of the agent, done within the

scope of his authority, and should bear the damage caused to third persons 14. On the

other hand, the agent who exceeds his authority is personally liable for the damage 15

CTTEI was acting within its authority as the sole real estate representative of petitioner

when it made the delivery to Kee. In acting within its scope of authority, it was,

however, negligent. It is this negligence that is the basis of petitioner's liability, as

principal of CTTEI, per Articles 1909 and 1910 of the Civil Code.

Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July

24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico

and Kee did not inform the Court of Appeals of such deal.

The deed of sale contained the following provision:

1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now pending

appeal with the Court of Appeals, regardless of the outcome of the decision shall

be mutually disregarded and shall not be pursued by the parties herein and shall

be considered dismissed and without effect whatso-ever; 16

Kee asserts though that the "terms and conditions in said deed of sale are strictly for

the parties thereto" and that "(t)here is no waiver made by either of the parties in said

deed of whatever favorable judgment or award the honorable respondent Court of

Appeals may make in their favor against herein petitioner Pleasantville Development

Corporation and/or private respondent C.T. Torres Enterprises; Inc." 17

Obviously, the deed of sale can have no effect on the liability of petitioner. As we have

earlier stated, petitioner's liability is grounded on the negligence of its agent. On the

other hand, what the deed of sale regulates are the reciprocal rights of Kee and

Jardinico; it stressed that they had reached an agreement independent of the outcome

of the case.

Petitioner further assails the following holding of the Court of Appeals:

2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville

Development Corporation are solidarily liable under the following circumstances:

a. If Eldred Jardinico decides to appropriate the improvements and,

thereafter, remove these structures, the third-party defendants shall answer

for all demolition expenses and the value of the improvements thus

destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall

answer for the amount representing the value of Lot 9 that Kee should pay

to Jardinico. 18

Petitioner contends that if the above holding would be carried out, Kee would be

unjustly enriched at its expense. In other words, Kee would be able to own the lot, as

buyer, without having to pay anything on it, because the aforequoted portion of

respondent Court's Decision would require petitioner and CTTEI jointly and solidarily to

"answer" or reimburse Kee therefor.

We agree with petitioner.

Petitioner' s liability lies in the negligence of its agent CTTEI. For such negligence, the

petitioner should be held liable for damages. Now, the extent and/or amount of

damages to be awarded is a factual issue which should be determined after evidence

is adduced. However, there is no showing that such evidence was actually presented

in the trial court; hence no damages could flow be awarded.

The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner

in good faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil

Code). It was error for the Court of Appeals to make a "slight modification" in the

application of such law, on the ground of "equity". At any rate, as it stands now, Kee

and Jardinico have amicably settled through their deed of sale their rights and

obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the dispositive

portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and

CTTEI solidarily liable.

The Third Issue: Attorney's Fees

The MTCC awarded Jardinico attorney's fees and costs in the amount of P3,000.00

and P700.00, respectively, as prayed for in his complaint. The RTC deleted the award,

consistent with its ruling that petitioner was without fault or negligence. The Court of

Appeals, however, reinstated the award of attorney's fees after ruling that petitioner

was liable for its agent's negligence.

The award of attorney's fees lies within the discretion of the court and depends upon

the circumstances of each case 19. We shall not interfere with the discretion of the

Court of Appeals. Jardinico was compelled to litigate for the protection of his interests

and for the recovery of damages sustained as a result of the negligence of petitioner's

agent 20.

In sum, we rule that Kee is a builder in good faith. The disposition of the Court of

Appeals that Kee "is entitled to the rights granted him under Articles 448, 546 and 548

of the New Civil Code" is deleted, in view of the deed of sale entered into by Kee and

Jardinico, which deed now governs the rights of Jardinico and Kee as to each other.

There is also no further need, as ruled by the appellate Court, to remand the case to

the court of origin "for determination of the actual value of the improvements and the

property (Lot 9), as well as for further proceedings in conformity with Article 448 of the

New Civil Code."

WHEREFORE , the petition is partially GRANTED. The Decision of the Court of

Appeals is hereby MODIFIED as follows:

(1) Wilson Kee is declared a builder in good faith;

(2) Petitioner Pleasantville Development Corporation and respondent C.T. Torres

Enterprises, Inc. are declared solidarily liable for damages due to negligence;

however, since the amount and/or extent of such damages was not proven

during the trial, the same cannot now be quantified and awarded;

(3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres

Enterprises, Inc. are ordered to pay in solidum the amount of P3,000.00 to

Jardinico as attorney's fees, as well as litigation expenses; and

(4) The award of rentals to Jardinico is dispensed with.

SO ORDERED.