G.R. No.

L-22006 July 28, 1975

BASILIO PEREZ and PETRA MONTALBO, petitioners,
vs.
NICOLAS MENDOZA, MARGARITA MACALALAD and the HONORABLE COURT OF
APPEALS, respondents.
Pedro T. Panganiban for petitioners.
Julio D. Enriquez, Sr. for respondents.

MUNOZ PALMA, J.:

Civil Case 689 of the Court of First Instance of Batangas was an action to quiet title over a piece of land
filed on March 20, 1959, by spouses Basilio Perez and Petra Montalbo with spouses Nicolas Mendoza and
Margarita Macalalad as defendants. According to the complaint, the land in controversy is located in barrio
Dagatan, municipality of Taysan, Batangas, with an area of approximately 4,765 sq. meters, declared for
taxation purposes in the name of the "Heirs of Estanislao Montalbo", and is "bounded on the north by a
school site, on the east by Calixto Flores, on the south by a creek, and on the west by a creek and the land
of Gregorio Mendoza." On the basis of evidence adduced by the parties, the trial court then presided by
Hon. Lorenzo Relova rendered judgment on February 19, 1962, dismissing the complaint and declaring the
spouses Mendoza "to have a better right to the property in question."1
Spouses Perez elevated the Relova decision to the Court of Appeals which, however, affirmed in toto the
findings of the court a quo, and declared that "upon the evidence it has been shown by a great
preponderance that the land in question belongs to the defendants."2
The case is now before Us on a petition for certiorari filed by spouses Perez.
The findings of fact both of the trial court and the Court of Appeals may be briefly summarized as follows:
The litigated parcel of land was originally part of a bigger tract owned by Estanislao Montalbo. When
Estanislao died in 1918, his properties passed on to his children Petra, Felisa, and Pedro all surnamed
Montalbo, and because Pedro died single the two women remained as the only heirs. By mutual agreement
Petra and Felisa divided between themselves the lands of their father and the parcel of which the litigated
land was a part was assigned to Felisa. Sometime in 1922 Felisa exchanged the above-mentioned parcel
with a land belonging to her aunt. Andrea Montalbo, a sister of her father. The reason for the exchange was
that Andrea wanted to donate a piece of land to the municipality for use as a school site and the land of
Felisa was what the municipality preferred as it was adjacent to other properties of the municipality. (Exh. 5
for defendants Mendoza) Upon her acquisition of Felisa's aforementioned land, Andrea donated to the
municipality the northern portion thereof which constituted almost one-half of the entire parcel, and since
then that portion was declared for taxation purposes by the municipality together with its adjoining
properties (Exhs. 6, 6-A, 6-B). In 1927 the remainder of the lot was given by Andrea Montalbo to her
1äwphï1.ñët

daughter Margarita Macalalad on the occasion of her marriage to Nicolas Mendoza, and from the time of
their marriage the couple possessed the said property. That donation was confirmed subsequently in a
public instrument dated August 15, 1951 (Exh. 2 for the Mendozas). Nicolas Mendoza sought to transfer
the tax declaration of the property to his name and of his wife and for that purpose he submitted a deed of
exchange of property dated January 14, 1922, allegedly executed by Felisa Montalbo and Andrea
Montalbo in the presence of the municipal secretary Rafael Manahan (Exh. 5). When Basilio Perez came to
know about the supposed deed of exchange, he had it investigated and upon discovering that the signature
of Rafael Manahan appearing on the document was forged, he filed a criminal complaint before the Fiscal's
office which led to an accusation for falsification of private document against Andrea Montalbo and Nicolas
Mendoza. Only Nicolas Mendoza was arraigned and tried and was convicted by the Court of First Instance
of Batangas, but on appeal he was acquitted by the Court of Appeals for insufficiency of evidence to show
that he participated in affixing the signature of Rafael Manahan or that he was aware of the falsity of the
document in question when he presented it to the tax assessor's office.3 Notwithstanding the forged
signature of Rafael Manahan on the document Exhibit 5, there is sufficient evidence to prove that an
exchange of property did in fact occur in 1922 between Andrea and Felisa Montalbo, and that Felisa's land
passed on to Andrea who in turn gave part of it to the municipality and part to her daughter, Margarita;
hence, the decision in favor of the spouses Mendoza.
On the other hand, petitioners contend that the disputed property was inherited by Petra and Felisa
Montalbo from their father Estanislao who died in 1918 and since that date the two sisters were in
possession of said land. In 1934 a deed of partition of the various properties of Estanislao was executed
between Petra and the heirs of Felisa, and the land in question was divided equally, between them; among
those who signed as witnesses to that agreement was Andrea Montalbo(Exh. D for petitioners). In 1952
Felisa's husband, Jose Ortega, and children sold their one-half share to spouses Petra Montalbo and
Basilio Perez, now petitioners, but the deed of sale was lost a year after. Sometime in 1946 petitioners
leased the property to the Mendozas and when the lease expired in 1951 they demanded for the return of
the land but the Mendozas refused and so petitioners had to file an ejectment suit before the justice of the
peace court of Taysan which was still pending at the time of the trial of the civil case in 1960. (tsn. witness
Basilio Perez, December 15, 1960, pp. 16-34)
For not giving credit to the foregoing evidence, petitioners now assail the adverse decision of respondent
court on four assigned errors.
1. Petitioners contend that respondent court erred in considering the criminal case for falsification res
adjudicataon the matter of ownership of the land in litigation when the "question of ownership was not
actually and directly in issue in the criminal case and the latter was not the proper vehicle for the
determination of the ownership of the land." (p. 9, petitioners brief) Petitioners refer to portions in the
decision of respondent court, viz:
The land in question, together with that portion that was acquired by the municipality of
Taysan, the identity of which is admitted by the parties, belonged to Felisa Montalbo, as
held in the decision of the Court of Appeals, thus — "The said parcel of land previously
belonged to Felisa Montalbo (married to Jose Ortega), who inherited it from her deceased
father, the aforecited Estanislao Montalbo;", and the land in question was donated propter
nuptias by Andrea Montalbo to Margarita Macalalad and Nicolas Mendoza, the defendants,
(Margarita Macalalad is the daughter of Andrea Montalbo) on the occasion of their marriage
on February 27, 1927, as found and held in the decision of the Court of Appeals, thus —
"and this land was acquired by the donor (Andrea Montalbo) by means of a barter with her
own parcel of land planted with bamboos and mango trees"
Upon the basis of the findings of fact and conclusion arrived at in the decision of the Court
of Appeals, it clearly appears that although the document of exchange of the lands was
found to be falsified, nevertheless the Court found upon the facts as demonstrated by the
evidence that the land in question "previously belonged to Felisa Montalbo (married to Jose
Ortega), who inherited it from her deceased father, the aforesaid Estanislao Montalbo ...";
that said land was donated propter nuptias by Andrea Montalbo to the defendants on the
occasion of their marriage on February 27, 1927; and that "this land was acquired by the
donor by means of a barter with her own parcel of land planted with bamboos and mango
trees". From the context of the decision the natural and logical inference is that factually the
exchange of the lands had been consummated.... (pp. 6-7, CA decision at pp. 20-21, rollo;
emphasis supplied to indicate disputed statements)
Undoubtedly, there is merit to the contention of petitioners that the pronouncements or findings of fact
made by the Court of Appeals in the criminal case concerning the possession and ownership of the land
now in litigation in the civil case, do not constitute the law on the matter and cannot be taken or adopted as
a basis for deciding the question of ownership of said land in this civil case. Since there is no identity of
parties in the two cases — the petitioners here not being parties in the criminal case — and the object or
subject matter in the criminal prosecution is different, the latter being concerned with the guilt or innocence
of accused Nicolas Mendoza for falsification of private document, it follows that the judgment in the criminal
action cannot be used as evidence in the civil case where the issue is ownership of a piece of land. It is the
rule that the plea of res judicata generally cannot be interposed except where the parties, facts, and
questions are the
same,4 hence, the judgment in a criminal case cannot be pleaded as res judicata in a civil action.5
But whatever error was committed by respondent court in this regard, the same is not sufficient to nullify
the appealed decision.
Analyzing the decision of respondent court. We see that the latter made its own appraisal and evaluation of
the evidence existing in the record relative to the possession and ownership of the land in question. Thus it
said that the conclusions arrived at by the Court of Appeals in the criminal case to wit(1) that there was an
exchange of lands consummated between Andrea and Felisa and (2) that the exchanged land was later
donated by Andrea to her daughter Margarita in 1927, "can hardly be doubted if we take account of the
undisputed fact that the defendants have been in possession of the land since 1927, and the
plaintiffs (meaning spouses Perez) have not attempted to disturb defendants' possession of the land until
1952 when said plaintiffs filed an action of unlawful detainer against the defendants." (p. 7 of appealed
decision at p. 21, SC rollo; emphasis supplied) Continuing, respondent court expounded:
Contrary to the allegation in the complaint — "That plaintiffs were in possession of the land
prior and up to January, 1946, when the same was leased to the defendants ...", and the
testimony of Basilio Perez to the same tenor, the evidence has conclusively shown that the
defendants have been in continuous possession of the land since 1927 to the present time,
and they have built a house on the land in 1928 where they have resided and lived to the
present, as testified to by the defendant Mendoza, ....
The plaintiffs have contended, however, with the support of the testimony of Basilio Perez,
that the possession of the defendants since 1946 was that of a mere lessee of the land. On
this matter, the trial court said, "the records do not show any documentary evidence to
support such contention. Nor is any document, say receipts of payment of rentals presented
to bolster their theory. On the contrary their averment has been strongly denied by the
defendants and the records show that it was only in 1952 that a civil action was instituted by
the plaintiffs against the defendants in the Justice of the Peace Court of Taysan, Batangas,
for detainer and damages", and said allegation of possession of the defendants as lessees
of the land "is not supported by positive and convincing evidence". We find no reason to
disagree with the foregoing findings of fact and conclusion of the trial court because the
same is supported by the preponderance of evidence, and the plaintiffs have not pointed to
us any fact of significance or influence which have been disregarded by the court, other
than the testimony of Basilio Perez who testified about the supposed contract of lease. (pp.
21-22, 23, ibid.; emphasis supplied)
Digging further into the evidence of herein petitioners, respondent court found for itself that the agreement
of partition dated May 27, 1934, Exhibit D, is not incontrovertible proof that in 1934 the litigated property
belonged in common to Petra and the heirs of Felisa Montalbo both of whom may have been guided by the
fact that the property was still declared for taxation purposes in the name of Estanislao Montalbo, and that
the document of partition "did not overcome the evidence on record that Andrea Montalbo became the
owner of the land, and that since 1927 the defendants have been in continuous possession of the land,
openly, adversely and in the concept of owners thereby acquiring ownership of the land through acquisitive
prescription." (p. 10 of CA decision at p. 24, SC rollo)
Independently therefore of the pronouncements of the Court of Appeals in the criminal case, respondent
court examined the evidence in this civil case and made its own findings of fact on the basis of which it
affirmed the decision of the trial court.
We could have stopped here and resolved this petition under well-entrenched precepts in Philippine
jurisprudence that findings of fact of the Court of Appeals are as a rule conclusive and binding upon this
Court;6 nonetheless, to set our mind at rest that the conclusions of respondent court were not grounded on
speculation, surmises or conjectures,7 We went over the evidence before Us.
Certain salient facts strongly support the claim of respondents Mendoza over the property in dispute:
First, the northern boundary of the land in controversy is undisputably a school site which originally was
part of a bigger tract belonging to Estanislao Montalbo. This is admitted by petitioner Basilio Perez who to a
question propounded by his counsel, Atty. Panganiban, declared:
Mr. Panganiban: (Counsel of petitioners)
 Q. According to these tax declarations which you said covers the land in
question, the boundaries on the north, school site; on the east, land of
Calixto Flores; on the south, estero; and on the west, estero and Gregoria
Mendoza, why is it that there is a discrepancy?
A. Because from the whole parcel of land a portion was taken for the school
site, and that which remains now is the land in question, sir. (tsn December
15, 1960, pp. 22-23)
No explanation however was offered by Perez as to how that portion became a school site. On the other
hand, there is evidence of respondent Mendoza that because Andrea Montalbo wanted to donate a piece
of land to be used as a school site and the municipality preferred the location of the land inherited by Felisa
from her father, the two women exchanged lands after which Andrea gave one-half of the property to the
municipality while the remaining portion which is the land now in litigation was donated propter nuptias to
her daughter Margarita way back in 1927. (tsn October 24, 1961, pp. 14-18) This donation of Andrea was
not disproved by any evidence of petitioners. On the part of respondents Mendoza, their documentary
evidence, Exhibits 6, 6-A and 6-B, show that the municipality of Taysan declared the donated property in its
name as early as July, 1925, which supports respondents' claim that the exchange of properties between
Andrea and Felisa Montalbo took place sometime in 1922.
Second, the provincial authorities authorities dealt with the Mendozas for the widening of the provincial
road which traverses the land in question. Nicolas Mendoza testified that the land covered by the complaint
actually consists of two lots which he described in his sketch, Exhibit 1, with letters "A" and "B" respectively,
separated by a provincial road leading to the municipality of Lobo; that lot "A" which is the bigger parcel is
the one donated to his wife, Margarita, by Andrea Montalbo on the occasion of their marriage in 1927 (Exh.
2); while lot "B" was bought from Donata Mendoza in 1951 as shown by the deed of sale, Exhibit 7; that
sometime in 1937-38, the province widened the provincial road traversing the two lots, and he and his wife
were approached by the provincial authorities more particularly, Engineer Ramirez, for them to give without
compensation from lot "A" a stretch of land of one meter in width to widen said road, and they agreed. At
that time Donata Mendoza still owned lot "B" and she was also asked to give part of her land for the road
but she was paid for the value of the plants destroyed in the process.(tsn October 24, 1961, pp. 32-34) For
his part, petitioner Perez admitted during the cross-examination conducted by the opposite counsel, Atty.
Julio Enriquez, that the provincial authorities did not deal with him at all during the widening of that
particular road. (tsn September 25, 1961, p. 34) This is of marked significance, because if it were true as
claimed by petitioners that they were in possession of the property since the death of Estanislao Montalbo
in 1918 or even after the deed of partition in 1934, they would have been the persons approached by the
authorities for the widening of the road. The fact that the Mendozas were the ones who gave away part of
the land for the widening of the Lobo road shows that they were in possession of the property and were
living there at the time.
Third, respondents Mendoza have been in possession of the property since 1927 in concept of owners
thereof. We have the testimony of respondent Nicolas Mendoza that after the land was donated to his wife
in 1927 they built a house on it and lived there continuously, witness referring particularly to what he
described as lot "A" in his sketch Exhibit 1. (tsn October 24, 1961, pp. 7, .30-31) Respondent's testimony
was found both by the trial and appellate courts credible because (1) petitioner Basilio Perez himself
admitted during cross-examination that even before the last world war the Mendozas had constructed a
house on the land in litigation (tsn September 25, 1971, pp. 37-39; see Exh. E-3) which admission
disproves the allegation in the complaint and Perez' testimony that it was only in 1946 when the Mendozas
occupied the property as lessees; (2) the testimony of Nicolas Mendoza was corroborated by witness
Adriano Gonzales, a retired justice of the peace of Taysan, Batangas, who declared that he knew the
Mendozas since 1937 and he saw them living on the land in question and they have not changed
residence at all since he had known them (tsn December 6, 1961, pp. 5-6); and (3) the respondents
Mendoza were the ones who were living on the property and not the petitioners at the time the provincial
government in 1937 widened the Lobo road which crosses said land.
The court a quo and the respondent appellate court did not err when they upheld the claim of ownership of
the Mendozas principally on the ground that the latter were in actual possession of the property since 1927
and were sought to be dispossessed by petitioners herein only in 1952 when an ejectment suit was filed
against them.
Possession is an indicium of ownership of the thing possessed and to the possessor goes the presumption
that he holds the thing under a claim of ownership. 8 Article 433 of the Civil Code provides that "(A)ctual
possession under claim of ownership raises a disputable presumption of ownership. The true owner must
resort to judicial process for the recovery of the property." In Chan vs. Court of Appeals, et al., L-27488,
June 30, 1970, 33 SCRA 737, this Court upheld the finding of the Court of Appeals that the litigated
property belonged to the private respondents therein based on their possession of the property, not only
because such findings of fact of the appellate court are conclusive and binding on this Court but because
the conclusion is in accordance with Articles 433 and 531 of the Civil Code. 9
As we have here conflicting claims of possession by the parties over the land in controversy and because the fact of possession cannot be recognized at the
same time in two different personalities except in cases of co-possession, the present possessor is to be preferred pursuant to Article 538 of the Civil Code which
We quote:

Possession as a fact cannot be recognized at the same time in two different personalities
except in the cases of co-possession. Should a question arise regarding the fact of
possession, the present possessor shall be preferred; if there are two possessors, the one
longer in possession; if the dates of the possession are the same, the one who presents a
title; and if all these conditions are equal, the thing shall be placed in judicial deposit
pending determination of its possession or ownership through proper proceedings." 10
The pretension of petitioners that the possession of the Mendozas is that of a mere lessee was not
believed by the trial judge and the appellate court not only because of the absence of any written or oral
evidence on the matter other than the bare testimony of petitioner Basilio Perez, but also due to the
circumstances present in the case which We indicated and enumerated at pages 7 to 9 of this decision. In
fine, it is a fact that the Mendozas are presently in possession of the property and the presumption of
ownership in their favor has not been successfully rebutted by evidence that they are mere lessees of the
land in their possession as claimed by petitioners.
2. In their second assigned error, petitioners contend that respondent court should not have given weight to
the evidence of respondent Mendoza because the latter's Exhibit 5 was proven to be a falsified document.
To recall, Exhibit 5 is the alleged deed of exchange or barter of lands between Andrea and Felisa Montalbo
dated January 14, 1922. On this point, petitioners overlook the fact that Exhibit 5 was made the basis of a
criminal accusation of falsification of private document solely on the allegation that the signature of Rafael
Manahan, the person before whom the parties to the document allegedly appeared, was not his. There was
no finding in that criminal case as per decision rendered therein that the barter or exchange of lands
between Andrea and Felisa Montalbo did not in effect take place. On the contrary, what appears in said
decision offered by petitioners as their Exhibit J are the following findings of the Court of Appeals, viz: that
the land donated by Andrea Montalbo to her daughter Margarita Macalalad "was acquired by the donor by
means of a barter with her own parcel of land planted with bamboos and mango trees"; that while it is true
that because of this presentation of the falsified document appellant (now respondent Nicolas Mendoza)
was able to secure the declaration of the property donated in his name, no criminal liability should be
imposed upon him in the absence of any evidence that he presented said exhibit with the knowledge that it
was forged "especially if we take into consideration the fact that he and his wife were and are still in
possession of the land donated since 1927"; that in fact, the color and appearance of the document in
question show that it is not a new document but an old one thus confirming Mendoza's theory that it was
executed in or about the year 1922 as appearing in the document or five years before his marriage. (pp. 1,
5, 6 of Exh. J, folder of exhibits) Thus, if the document Exhibit 5 was held to be forged, it was simply
because the municipal secretary, Rafael Manahan, did not sign it and not for any other reason. What is
material and relevant to the civil case is that both the trial court and respondent appellate court found for a
fact that there was an exchange of lands between Andrea and Felisa Montalbo on the basis of evidence
other than the disputed Exhibit 5. As to what the evidence is, has been discussed above.
Petitioners cite Gonzales vs. Mauricio, 53 Phil. 728 where this Court stated inter alia that the introduction of
a forged instrument by a witness renders the testimony of the latter practically worthless. That statement
however is not applicable to the situation before Us because in Gonzalez the particular document or receipt
referred to was found to be entirely false as to its contents, handwriting, and signature, whereas here all
that was found to be false is the signature of a witnessing official.
3. The last argument of petitioners is the object of the third assigned error. It is contended that the appellate
court erred in not giving effect to the deed of partition, Exhibit D, notwithstanding the fact that the name of
Andrea Montalbo appears in the document as one of the witnesses thereto.
Exhibit D appears to be a document dated May 27, 1934, wherein certain properties allegedly belonging to
Estanislao Montalbo were divided between Petra Montalbo and Jose Ortega, husband of deceased Felisa
Montalbo. Petitioner Basilio Perez declared that one of the parcels of land mentioned in the document is
the land now in litigation which is particularly marked as Exhibit D-1. He also testified that Exhibit D was
signed by him and his wife, Petra Montalbo, by Jose Ortega, husband of deceased Felisa Montalbo, and
thumbmarked by the latter's children all in his presence. (tsn December 15,1960, pp. 19-24) Surprisingly,
however, Basilio Perez did not at all mention during the course of his testimony that the old woman, Andrea
Montalbo, signed the deed of partition as a witness. We have gone over the transcript of Basilio Perez'
declaration on direct and cross-examination (tsn December 15, 1960, pp. 15-34; September 25, 1961, pp.
3-40) and at no instance did he ever state that Andrea Montalbo was present during the preparation of the
document, that she read or knew the contents thereof which by the way consists of six handwritten pages,
and that she signed her name on the document. It was incumbent upon petitioners to identify the signature
of Andrea Montalbo on the document if her signature was truly there. As a matter of fact, examining the
document Exhibit D We entertain doubts whether the name referred to by petitioners is "Andrea Montalbo",
for, as written, it also can read "Maria Montalbo". At any rate, whatever is the import of said deed of
partition, the same binds only the parties thereto but does not affect third persons such as Andrea Montalbo
or the herein Mendozas in the absence of proof that they participated in one way or another in the
preparation and execution of thedocument. As it is, Andrea Montalbo was a stranger to that deed of
partition and any recital therein concerning the property under litigation cannot be used as evidence to
prejudice her and her successors-in-interest or place her in estoppel as to her claims over the
property. Res inter alios acta alteri nocere non debet. A transaction between two parties ought not to
operate to the prejudice of a third person or stranger. 11
4. In the fourth assignment of error, petitioners claim that the appellate court should have rendered a
decision in their favor. That both the trial court and respondent appellate court have correctly evaluated the
evidence, has been clearly demonstrated by Us.
IN VIEW OF ALL THE ABOVE CONSIDERATIONS, We find no reversible error in the decision under
review and We AFFIRM the same with costs against petitioners.
So Ordered.
Castro (Chairman), Makasiar, Esguerra and Martin, JJ., concur.
Teehankee, J., is on leave.

FIRST DIVISION

G.R. No. 101929 January 6, 1993

BENJAMIN DIZON, ZACARIAS DIZON, AFRICA DIZON, PERFECTO DIZON, CARMEN DIZON (Heirs of
Paula Galang), JULIA GALANG, CONSOLACION TABORA, ABELARDO TABORA, CECILIA TABORA,
AVELINA TABORA, TRINIDAD TABORA, REMEDIOS TABORA, VIRGINIA TABORA, DELFIN TABORA,
PENINA TABORA, FRANCISCO TABORA, CIPRIANA GALANG, RUFINO DELOS SANTOS, PEPITO
DELOS SANTOS (Heirs of Donata Vergara), ARNEO VERGARA, BENIGNO VERGARA, JOSE
VERGARA, SCION VERGARA, DEMETRIA VERGARA (all heirs of Dionisio Galang), petitioners,
vs.
COURT OF APPEALS, AUREO REYES, AURELIO SAMIA, ALFONSO SAMIA, POTENCIANO
GALANG, LEONCIA GARCIA, BIENVENIDO TAPNIO, LYDIA BALINGIT VDA. DE GARCIA,
BENEDICTO GARCIA, ROMULADO GARCIA, AMY GARCIA, ALEXANDER GARCIA, LUDIVINA
GARCIA, MONTANO GUEVARRA, CORAZON LAMPA, RUDY LAMPA, EDUARDO LAMPA,
ILLUMINADA GUEVARRA, CARMELITA MASANQUE VDA. DE GARCIA, MA. CONCEPCION AQUINO
VDA. DE GUEVARRA, HONZAI GUEVARRA, RODA REBECCA GUEVARRA, RUTH GUEVARRA,
minors represented by their mother Ma. Concepcion Vda. de Guevarra, PRIMITIVA GUEVARRA,
JOSIAS N. GARCIA, LUCITA M. GARCIA, VICTOR M. GARCIA, LUTERO M. GARCIA, SAMSON M.
GARCIA, FELIXBERTO M. GARCIA, JR., HERMENIGILDA GARCIA, CONSTANCIO GARCIA,
REYNALDO GARCIA, AGAPITA GARCIA, ERNESTO GARCIA, NORICO GARCIA, PACIFICO GARCIA,
NORMANDO GARCIA, ARTURO GARCIA, ESTELLA GARCIA, DIOSDADO GARCIA (representing
LEONCIA GARCIA), GREGORIA MENDOZA, ELEUTERIA BAUTISTA, PEDRO ATIENZA, BENITA
SAMANIEGO, NENE SAMANIEGO (representing FLAVIANA GALANG), LETICIA REYES, MANUEL
REYES (representing MARCIANA GALANG), CARMEN ROQUE VDA. DE DIMABUYU, PORFIRIO R.
DIMABUYU, CARMEN R. DIMABUYU, CARIDAD R. DIMABUYU, PEDRO R. DIMABUYU, MARCOS
DIMABUYU (representing GERTRUDES GALANG), respondents.
Heminio Z. Canlas for petitioners.
Lagunzad, Juan, Rubin & Cabaron Law Office for respondents.

PADILLA, J.:
In this petition for review on certiorari, petitioners seek to nullify the decision ** of the Court of Appeals,
dated 29 April 1991, in CA-G.R. CV. No. 14312, the dispositive portion of which reads as follows:
WHEREFORE, the appealed judgment is hereby REVERSED; and the Deed of Extra-
Judicial Settlement of the estate of the deceased Dionisio Galang (Exh. "D"), in so far as it
relates to Lots 3548 and 3562 the Bacolor Cadastre, and Transfer Certificates of Title Nos.
182670-R and 182671-R issued by virtue thereof are hereby declared null and void.
Conformably, the Register of Deeds concerned is hereby ordered to cancel the said titles;
and subject Lots 3548 and 3562 are hereby adjudicated to the heirs of the deceased co-
owners to be partitioned among them as follows:
a. one-sixth to the Heirs of Marciana Galang;
b. one-sixth to the Heirs of Dionisio Galang;
c. one-sixth to the Heirs of Flaviana Galang;
d. one-sixth to the Heirs of Gertrudes Galang;
e. one-sixth to the Heirs of Potenciana Galang;
f. one-sixth to the Heirs of Leoncia Galang.
Costs against defendants-appellees.
SO ORDERED. 1
It appears that on 21 August 1984, Aureo Reyes, et al. (hereafter "respondents") filed an amended
complaint before the Regional Trial Court of San Fernando, Pampanga, docketed as Civil Case No. 6752,
for the annulment of a deed of extra-judicial settlement and partition of the estate of Dionisio Galang,
claiming to have been deprived thereby of their shares, as co-owners, in Lot Nos. 3548 and 3562 Bacolor
cadastre, and that OCT Nos. 9010 and 9102, issued in the name of Dionisio Galang, covering said lots, are
fraudulent and should therefore be annulled and cancelled.
The facts of the case, as culled from the Court of Appeals decision, are as follows:
The spouses Hilario Galang and Martina Laxamana owned two (2) lots located in San Agustin, Potrero,
Municipality of Bacolor, Province of Pampanga. They had six (6) children, namely, Dionisio, Marciana,
Potenciana, Flaviana, Leonora and Gertrudes.
The spouses (Hilario and Martina) mortgaged the aforesaid lots to Camilo Angeles. It is alleged by the
respondents that Dionisio Galang redeemed these lots in his own name, despite the fact that part of the
funds used for the redemption came from his sisters. 2 A cadastral survey involving the two (2) lots was
conducted, and on 19 May 1919, the Court of First Instance ordered the issuance in Cadastral Case No.
14, of OCT Nos. 9010 (for lot 3548) and 9102 (for lot 3562) in the name solely of Dionisio Galang
( hereafter Galang).
Respondents, who are heirs of Galang's sisters, claim that Galang and his five (5) sisters had partitioned
the subject lots on 27 June 1920, as embodied in an unnotarized affidavit executed by Galang (Exh. "C").
As a consequence thereof, Galang's sisters constructed their houses on Lot 3548. The structures passed
on from generation to generation, with each of Galang's sisters and their descendants enjoying the benefits
therefrom. No one questioned or disturbed them until the petitioners (heirs of Galang), informed them that
the lots in question were titled in Galang's name and had been partitioned, on the basis of a Deed of
Extrajudicial Partition (Exh. "D"), into three (3) equal parts corresponding to his (Galang's) three (3)
children; that petitioners had succeeded in subdividing the lots and in obtaining titles thereto in their name
(TCT Nos. 182670-R and 182671-R) despite their (respondents') earlier demands for an extrajudicial
settlement of their dispute.
Petitioners, on the other hand, contend that the cadastral case which culminated in the issuance of the
original certificates of title over the subject lots in the sole name of Galang, was a proceeding in rem, thus
binding on the whole world; that when original certificates of title (OCT Nos. 9010 and 9102) were issued
on 9 January 1922 to Galang, respondents did not raise any objection until March 1983 when they filed the
complaint in Civil Case No. 6752, or after a lapse of sixty-one (61) years.
The trial court3 upheld Galang's titles over the lots which, as aforestated, had been issued as early as 1922
in his name. The trial court further held that respondents' action had long prescribed, having been filed only
on 24 March 1983, or after a lapse of sixty-one (61) long years from the issuance of said titles. The court
also noted respondents' failure to establish their relationship to Galang's five (5) sisters, premising their
claim solely on an unsubstantiated assertion that they are descendants of the deceased Galang
sisters.4 The presence or construction of the houses on Lot No. 3548 was also not considered as evidence
in respondents' favor, since no proof was submitted establishing respondents' right to occupy the place.
The documentary evidence (Exh. "C" and "C-1") allegedly showing co-ownership among Dionisio and his
co-heirs, was likewise ignored by the trial court as this did not specifically refer to the disputed Lots 3548
and 3562.
On appeal by the respondents, respondent Court of Appeals reversed the trial court by upholding
respondents' rights. It focused on two (2) issues.
Thus —
Are the properties in question owned in common by the predecessors-in-interest of
appellants and appellees? And has appellants' present action for partition prescribed?5
The appellate court declared that co-ownership existed between respondents' predecessors-in-interest and
those of petitioners, on the basis of Galang's affidavit which, although unnotarized, was nonetheless an
ancient document, pursuant to Sec. 22, Rule 132 of the Rules of Court, since it was executed on 27 June
1920. As such, proof of its due execution and authentication could be dispensed with, according to the
appellate court.
Hence, this recourse in turn by the petitioners.
We find the petition impressed with merit.
It is a fact that Dionisio Galang's ownership over the disputed lots (3548 and 3562) had been judicially
confirmed on 19 May 1919 in Cadastral Case No. 14, G.L.R.O. No. 51, which is a proceeding in rem and
hence binding "on the whole world." OCT No. 1056 (9010) and OCT No. 1057 (9102) were, as a
consequence, issued on 9 January 1922. None of Galang's co-heirs objected to or protested their
issuance. These titles became indefeasible and incontrovertible. Then it was only after sixty-one (61) years
or on 24 March 1983 that the descendants of Galang's co-heirs asserted co-ownership claims over the
subject lots.
It is true that Galang executed an affidavit, unnotarized at that, on 27 June 1920 which states in part as
follows (per English translation [Exh.
"C-1"]):6
That on this date, I have received from all my sisters and nephews who are my co-heirs,
 namely Potenciana Galang, Flaviana Galang, Gertrudes Galang, who are my sisters, and
Silverio Garcia and Hilarion Samia, in their own names and for their brothers and sisters
who are also co-heirs, the sum of ONE HUNDRED AND SIX PESOS (P106.00), Philippine
Currency, as complete payment for the discharge of the land we co-inherited, which is the
one we partitioned this date also, which was mortgaged to the Angeles family.7
However, as can be gleaned from the foregoing, there is no reference to Lot Nos. 3548 and 3562. Said
affidavit is not therefore a sufficient basis or support for what is alleged by respondents as a partition
among Dionisio and his now deceased sisters. It does not, as correctly stated by the trial court, amount to
anything insofar as the two (2) lots involved in this case are concerned:
Even their presentation of the document purportedly executed by Dionisio Galang on June
27, 1910 (Exh. "C" and "C-1") where the latter acknowledges that he and his co-heirs
named therein as co-owners of a certain property which they had mortgaged to a certain
family surnamed Angeles does not amount to anything for nothing in this document shows
that it pertains to the two lots involved herein. It merely referred to a certain "land" which
Dionisio Galang and his co-heirs "co-inherited" and partitioned without any indication as to
which property is being referred
to.8
We likewise agree with the trial court that in the absence of definite proof establishing respondents'
link/relationship to their alleged predecessors-in-interest, i.e., the Galang sisters, they do not have any
cause of action, and the suit for partition must necessarily fall. The trial court aptly observed:
. . . the plaintiffs thru their witnesses Bienvenido Tapnio, Marcos Dimabuyu, Pedro Atienza,
and Carmelita Galang, tried to prove that all the plaintiffs herein are heirs and direct
descendants, respectively, of Marciana Galang, Potenciana Galang, Flaviana Galang,
Leoncia Galang and Gertrudes Galang who, in their lifetime, together with their late brother
Dionisio Galang, are the co-owners of these two lots, namely, Lots Nos. 3548 and 3562.
Lamentably, all that was proved in the process by the plaintiffs thru these witnesses despite
several proddings and suggestions made by the court toward this end was that each of
these plaintiffs are just related to one another in varying degrees of relationship. They failed
to establish their connection or relationship with any of these five sisters save for their
unfounded averment that they are indeed descendants and heirs of these deceased
individuals.9
WHEREFORE, the petition is GRANTED. The appealed decision of the Court of Appeals is hereby SET
ASIDE and the decision of the trial court dated 3 October 1986 in Civil Case No. 6752 is hereby
REINSTATED. No costs.
SO ORDERED.
Cruz, Griño-Aquino and Bellosillo, JJ., concur.

G.R. No. 137013 May 6, 2005

RUBEN SANTOS, petitioner,
vs.
SPOUSES TONY AYON and MERCY AYON, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the petition for review on certiorari assailing the Decision1 of the Court of Appeals
dated October 5, 1998 in CA-G.R. SP No. 4735 and its Resolution 2 dated December 11, 1998 denying the
motion for reconsideration.
The petition alleges that on November 6, 1996, Ruben Santos, petitioner, filed with the Municipal Trial
Court in Cities (MTCC), Branch 2, Davao City a complaint for illegal detainer against spouses Tony and
Mercy Ayon, respondents, docketed as Civil Case No. 3506-B-96.
In his complaint, petitioner averred that he is the registered owner of three lots situated at Lanzona
Subdivision, Matina, Davao City, covered by Transfer Certificates of Title (TCT) Nos. 108174, 108175, and
108176. Respondent spouses are the registered owners of an adjacent parcel of land covered by TCT No.
T-247792. The previous occupant of this property built a building which straddled both the lots of the herein
parties. Respondents have been using the building as a warehouse.
Petitioner further alleged in his complaint that in 1985, when he bought the three lots, he informed
respondents that the building occupies a portion of his land. However, he allowed them to continue using
the building. But in 1996, he needed the entire portion of his lot, hence, he demanded that respondents
demolish and remove the part of the building encroaching his property and turn over to him their
possession. But they refused. Instead, they continued occupying the contested portion and even made
improvements on the building. The dispute was then referred to the barangay lupon, but the parties failed
to reach an amicable settlement. Accordingly, on March 27, 1996, a certification to file action was issued.
In their answer, respondents sought a dismissal of this case on the ground that the court has no jurisdiction
over it since there is no lessor-lessee relationship between the parties. Respondents denied they were
occupying petitioner's property by mere tolerance, claiming they own the contested portion and have been
occupying the same long before petitioner acquired his lots in 1985.
On July 31, 1997, the MTCC rendered its Decision in favor of petitioner, thus:
"WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering
the latter, their successors-in-interest and other persons acting in their behalf to vacate the portion
of the subject properties and peacefully surrender possession thereof to plaintiff as well as
dismantle/remove the structures found thereon.
Defendants are further ordered to pay reasonable value for the use and occupation of the
encroached area in the amount of One Thousand Pesos (P1,000.00) a month beginning September
1996 and the subsequent months thereafter until premises are vacated; to pay attorney's fees of
Ten Thousand Pesos (P10,000.00); and to pay the costs of suit.
SO ORDERED."3
On appeal, the Regional Trial Court (RTC), Branch 11, Davao City, in its Decision dated February 12, 1998
in Civil Case No. 25, 654-97, affirmed in toto the MTCC judgment.4 The RTC upheld the finding of the
MTCC that respondents' occupation of the contested portion was by mere tolerance. Hence, when
petitioner needed the same, he has the right to eject them through court action.
Respondents then elevated the case to the Court of Appeals through a petition for review. In its Decision
dated October 5, 1988 now being challenged by petitioner, the Court of Appeals held that petitioner's
proper remedy should have been an accion publiciana before the RTC, not an action for unlawful detainer,
thus:
"In this case, petitioners were already in possession of the premises in question at the time private
respondent bought three (3) lots at the Lanzona Subdivision in 1985, a portion of which is occupied
by a building being used by the former as a bodega. Apart from private respondent's bare claim, no
evidence was alluded to show that petitioners' possession was tolerated by (his) predecessor-in-
interest. The fact that respondent might have tolerated petitioners' possession is not decisive. What
matters for purposes of determining the proper cause of action is the nature of petitioners'
possession from its inception. And in this regard, the Court notes that the complaint itself merely
alleges that defendants-petitioners have been 'occupying a portion of the above properties of the
plaintiff for the past several years by virtue of the tolerance of the plaintiff.' Nowhere is it alleged that
his predecessor likewise tolerated petitioners' possession of the premises. x x x.
Consequently, x x x, respondent should present his claim before the Regional Trial Court in
an accion publiciana and not before the Municipal Trial Court in a summary proceeding of unlawful
 detainer.
WHEREFORE, the decision under review is hereby REVERSED and SET ASIDE. Accordingly, the
complaint for unlawful detainer is ordered DISMISSED."5
Petitioner filed a motion for reconsideration, but was denied by the Appellate Court in its Resolution dated
December 11, 1998.
Hence, the instant petition for review on certiorari ascribing to the Court of Appeals the following errors:
"I
THE HONORABLE COURT OF APPEALS MISAPPLIED THE LAW IN DISMISSING THE INSTANT
CASE ON THE GROUND THAT PETITIONER SHOULD PRESENT HIS CLAIM BEFORE THE
REGIONAL TRIAL COURT IN AN ACCION PUBLICIANA.
II
THE FINDINGS OF THE HONORABLE COURT OF APPEALS IS NOT IN CONSONANCE WITH
EXISTING LAWS AND JURISPRUDENCE."
The sole issue here is whether the Court of Appeals committed a reversible error of law in holding that
petitioner's complaint is within the competence of the RTC, not the MTCC.
Petitioner contends that it is not necessary that he has prior physical possession of the questioned property
before he could file an action for unlawful detainer. He stresses that he tolerated respondents' occupancy
of the portion in controversy until he needed it. After his demand that they vacate, their continued
possession became illegal. Hence, his action for unlawful detainer before the MTCC is proper.
Respondents, in their comment, insisted that they have been in possession of the disputed property even
before petitioner purchased the same on April 10, 1985. Hence, he cannot claim that they were occupying
the property by mere tolerance because they were ahead in time in physical possession.
We sustain the petition.
It is an elementary rule that the jurisdiction of a court over the subject matter is determined by the
allegations of the complaint and cannot be made to depend upon the defenses set up in the answer or
pleadings filed by the defendant.6 This rule is no different in an action for forcible entry or unlawful
detainer.7 All actions for forcible entry or unlawful detainer shall be filed with the proper Metropolitan Trial
Courts, the Municipal Trial Courts and the Municipal Circuit Trial Courts, which actions shall include not
only the plea for restoration of possession but also all claims for damages and costs arising
therefrom.8 The said courts are not divested of jurisdiction over such cases even if the defendants therein
raises the question of ownership over the litigated property in his pleadings and the question of possession
cannot be resolved without deciding the issue of ownership.9
Section 1, Rule 70 on forcible entry and unlawful detainer of the 1997 Rules of Civil Procedure, as
amended, reads:
"Section 1. Who may institute proceedings, and when. – Subject to the provisions of the next
succeeding section, a person deprived of the possession of any land or building by force,
intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against whom
the possession of any land or building is unlawfully withheld after the expiration or termination of the
right to hold possession, by virtue of any contract, express or implied, or the legal representatives
or assigns of any such lessor, vendor, vendee or other person may, at any time within one (1) year
after such unlawful deprivation or withholding of possession, bring an action in the proper Municipal
Trial Court against the person or persons unlawfully withholding or depriving of possession, or any
person or persons claiming under them, for the restitution of such possession, together with
damages and costs."
Under the above provision, there are two entirely distinct and different causes of action, to wit: (1) a case
for forcible entry, which is an action to recover possession of a property from the defendant whose
occupation thereof is illegal from the beginning as he acquired possession by force, intimidation, threat,
strategy or stealth; and (2) a case for unlawful detainer, which is an action for recovery of possession from
defendant whose possession of the property was inceptively lawful by virtue of a contract (express or
implied) with the plaintiff, but became illegal when he continued his possession despite the termination of
his right thereunder.10
Petitioner's complaint for unlawful detainer in Civil Case No. 3506-B-96 is properly within the competence
of the MTCC. His pertinent allegations in the complaint read:
"4. That defendants (spouses) have constructed an extension of their residential house as well as
other structures and have been occupying a portion of the above PROPERTIES of the plaintiff for
the past several years by virtue of the tolerance of the plaintiff since at the time he has no
need of the property;
5. That plaintiff needed the property in the early part of 1996 and made demands to the
defendants to vacate and turn over the premises as well as the removal (of) their structures
found inside the PROPERTIES of plaintiff; that without any justifiable reasons, defendants
refused to vacate the portion of the PROPERTIES occupied by them to the damage and
prejudice of the plaintiff.
6. Hence, plaintiff referred the matter to the Office of the Barangay Captain of Matina Crossing 74-
A, Davao City for a possible settlement sometime in the latter part of February 1996.
The barangay case reached thePangkat but no settlement was had. Thereafter, a 'Certification To
File Action' dated March 27, 1996 was issued x x x;
x x x."11 (underscoring ours)
Verily, petitioner's allegations in his complaint clearly make a case for an unlawful detainer. We find no error
in the MTCC assuming jurisdiction over petitioner's complaint. A complaint for unlawful detainer is sufficient
if it alleges that the withholding of the possession or the refusal to vacate is unlawful without necessarily
employing the terminology of the law.12 Here, there is an allegation in petitioner's complaint that
respondents occupancy on the portion of his property is by virtue of his tolerance. Petitioner's cause of
action for unlawful detainer springs from respondents' failure to vacate the questioned premises upon his
demand sometime in 1996. Within one (1) year therefrom, or on November 6, 1996, petitioner filed the
instant complaint.
It bears stressing that possession by tolerance is lawful, but such possession becomes unlawful when the
possessor by tolerance refuses to vacate upon demand made by the owner. Our ruling in Roxas vs. Court
of Appeals13 is applicable in this case: "A person who occupies the land of another at the latter's tolerance
or permission, without any contract between them, is necessarily bound by an implied promise that he will
vacate upon demand, failing which, a summary action for ejectment is the proper remedy against him."
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in
CA-G.R. SP No. 47435 are hereby REVERSED and SET ASIDE. The Decision dated February 12, 1998 of
the Regional Trial Court, Branch 11, Davao City in Civil Case No. 25, 654-97, affirming the Decision dated
July 31, 1997 of the Municipal Trial Court in Cities, Branch 2, Davao City in Civil Case No. 3506-B-96, is
hereby REINSTATED.
SO ORDERED.
Panganiban, (Chairman), Corona, Carpio-Morales, and Garcia, JJ., concur.

G.R. No. 150755 June 28, 2005

RENE GANILA,* EDUARDO DUMADA-OG, SR., RAFAEL GANILA, JOSE PASTRANA, LOURDES
GANILA, FLORENTINO GANILA, SERAFIN GANILA, LORETO ARELLANO, CONRADO GANILA,
VIVENCIO ALVIOR, EDUARDO GANTALA, AMPARO VILLANUEVA, ELEUTERIO SILVA, ADELINA
GANILA, FELIZARDO GANILA, SR., ENRIQUE GANILA, ABRAHAM TANONG, EMILIO ALFARAS, JR.,
BAPTIST CHRISTIAN LEARNING CENTER, petitioners,
vs.
HON. COURT OF APPEALS AND VIOLETA C. HERRERA, respondents.
DECISION
QUISUMBING, J.:
For review on certiorari are the D E C I S I O N1 dated March 30, 2001 of the Court of Appeals in CA-G.R.
SP No. 58191, and its Resolution2 dated October 18, 2001 denying the motion for reconsideration. The
assailed decision denied the petition to set aside the Resolution3 of the Regional Trial Court (RTC) of San
Miguel, Jordan, Guimaras, Branch 65, affirming the Order of the Municipal Circuit Trial Court (MCTC) for
the 19 petitioners to vacate the contested parcel of land.
The facts are as follows:
On March 19, 1997, private respondent Violeta Herrera filed 21 ejectment Complaints4 before the 16th
MCTC, Jordan-Buenavista-Nueva Valencia, Jordan, Guimaras. Private respondent alleged that she owns
Lot 1227 of the Cadastral Survey of Jordan, Guimaras, with an area of 43,210 square meters; that she
inherited the lot from her parents; and that she only tolerated petitioners to construct residential houses or
other improvements on certain portions of the lot without rental. Sometime in September or October 1996,
private respondent demanded that the petitioners vacate the lot and remove their houses and other
improvements thereon. Petitioners refused, despite offer of money by way of assistance to them. After
the barangay conciliation failed, private respondent filed thecomplaints.
In their Answers,5 eight6 of the petitioners claimed that Lot 1227 was formerly a shoreline which they
developed when they constructed their respective houses. Another eight7 maintained that their houses
stood on Lot 1229 of the Cadastral Survey of Jordan, Guimaras. The other three8 asserted that Lot 1227 is
a social forest area.
At the preliminary conference, the parties agreed to designate two geodetic engineers as commissioners of
the MCTC to conduct a relocation survey of Lot 1227 and to identify who among the petitioners have
houses within the lot.9
The commissioners reported that: (1) the house of Henry Gabasa, defendant in Civil Case No. 288-J, is
almost outside Lot 1227; (2) the house of Ludovico Amatorio, defendant in Civil Case No. 289-J, diagonally
traversed the boundary; and (3) the houses of the 19 petitioners are inside Lot 1227.10
Eight months after herein petitioners’ failure to comment on the manifestation of private respondent to
terminate the preliminary conference, the MCTC terminated the preliminary conference.11 Thereafter,
petitioners’ counsel Atty. Nelia Jesusa L. Gonzales failed to file her clients’ position papers and affidavits,
even after they sought a 30-day extension to file the same.12
Consequently, the MCTC decided the cases as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff whereby each of
the twenty-one (21) defendants are hereby ordered:
1. To vacate Lot 1227 of the Cadastral Survey of Jordan, Guimaras;
2. To pay Two Hundred Pesos (₱200.00) per month from October, 1996 as compensation for the
use of the property until the same is vacated; and
3. To pay Two Thousand Pesos (₱2,000.00) as attorney’s fees and litigation expenses.
SO ORDERED.13
Petitioners appealed to the RTC, Branch 65, at Jordan, Guimaras, which decided as follows:
WHEREFORE, premises considered, the decision in Civil Cases Nos. 0270-J, 0272-J, 0273-J, 0274-J,
0275-J, 0276-J, 0277-J, 0278-J, 0279-J, 0280-J, 0281-J, 0282-J, 0283-J, 0284-J, 0285-J, 0286-J, 0287-J,
0291-J and 0292-J are hereby affirmed.
The decision of the court below in Civil Cases Nos. 0288-J and 0289-J are set aside. Civil Cases Nos.
0288-J and 0289-J are hereby DISMISSED.
SO ORDERED.14
The RTC ruled that the evidence showed the better right of private respondent to possess Lot 1227. Private
respondent’s position paper, affidavit and tax declaration supported her allegations. In addition, the
commissioners’ report and sketch plan showed that indeed petitioners occupy Lot 1227. On the other hand,
according to the RTC, the petitioners failed to present evidence which would show that they are entitled to
possess the lot.
Based on the sketch plan, the RTC dismissed the cases against Gabasa and Amatorio since their houses
occupy only a small area of Lot 1227. It declared that Gabasa and Amatorio believed in good faith that the
whole area they occupied was part of the seashore.
The 19 petitioners, who were ordered to vacate the lot, filed a joint petition for review with the Court of
Appeals. The appellate court denied the petition. Petitioners moved for reconsideration and filed an
amended petition. The Court of Appeals, however, affirmed the factual findings and conclusions arrived at
by the trial courts and denied the amended petition for lack of merit.15 It also denied the motion for
reconsideration.
Petitioners are now before us, on a petition for review, alleging that:
The Honorable Court of Appeals, with due respect and deference, committed a reversible error in the
interpretation/application of the law in the instant case and in the appreciation of the facts and evidence
presented. The Court of Appeals gravely abused its discretion when it denied and dismissed the petition
filed by the petitioners.16
After considering the parties’ submissions, we find three basic issues: (1) Did the MCTC err in taking
jurisdiction over and deciding the cases? (2) Did the RTC err in sustaining the MCTC’s judgment? (3) Did
the CA err in denying the petition for review filed by the 19 petitioners ordered to be ejected?
Petitioners insist that private respondent should have filed an action to recover possession de jure, not a
mere complaint for ejectment, for two reasons. One, they possessed Lot 1227 in good faith for more than
30 years in the concept of owners. And two, there was no withholding of possession since private
respondent was not in prior possession of the lot.
Private respondent states in her Comment before us that the allegations in her Complaints make out a
clear case of unlawful detainer which is cognizable by the MCTC. We are in agreement with her stance.
There was no error in the choice of the complainant’s remedy, a matter left to her determination as the
suitor. And the complaint itself is defined by the allegations therein, not the allegations of the defendants.
At the outset, we note that petitioners question the MCTC’s jurisdiction yet they admit in their preliminary
statement that the Complaints filed are indeed for unlawful detainer, and that the only issue to be
determined is mere physical possession (possession de facto) and not juridical possession (possession de
jure), much less ownership.17
While petitioners assert that this case involves only deprivation of possession, they confuse the remedy of
an action for forcible entry with that of unlawful detainer. In unlawful detainer, prior physical possession by
the plaintiff is not necessary. It is enough that plaintiff has a better right of possession. Actual, prior physical
possession of a property by a party is indispensable only in forcible entry cases. In unlawful detainer cases,
the defendant is necessarily in prior lawful possession of the property but his possession eventually
becomes unlawful upon termination or expiration of his right to possess.18 Thus, the fact that petitioners
are in possession of the lot does not automatically entitle them to remain in possession. And the issue of
prior lawful possession by the defendants does not arise at all in a suit for unlawful detainer, simply
because prior lawful possession by virtue of contract or other reasons is given or admitted. Unlike in
forcible entry where defendants, by force, intimidation, threat, strategy or stealth, deprive the plaintiff or the
prior physical possessor of possession. Here there is no evidence to show that petitioners entered the lot
by any of these acts.
If only to stress the fundamental principles related to present controversy, jurisdiction over unlawful detainer
suits is vested in municipal trial courts.19 And in ejectment cases, the jurisdiction of the court is determined
by the allegations of the complaint.20
In this case for ejectment, private respondent’s allegations sufficiently present a case of unlawful detainer.
She alleged that (1) she owns Lot 1227; (2) she tolerated petitioners to construct their houses thereon; (3)
she withdrew her tolerance; and (4) petitioners refused to heed her demand to vacate the lot.
The Complaints were also filed within one year from the date of her demand. The cause of action for
unlawful detainer between the parties springs from the failure of petitioners to vacate the lot upon lawful
demand of the private respondent. When they refused to vacate the lot after her demand, petitioners’
continued possession became unlawful. Her complaint for ejectment against respondent, to put it simply, is
not without sufficient basis.
Petitioners’ contention that private respondent should have filed an action to recover possession de
jure with the RTC is not supported by law or jurisprudence. The distinction between a summary action of
ejectment and a plenary action for recovery of possession and/or ownership of the land is settled in our
jurisprudence.
What really distinguishes an action for unlawful detainer from a possessory action (accion publiciana) and
from a reinvindicatory action (accion reinvindicatoria) is that the first is limited to the question of possession
de facto. An unlawful detainer suit (accion interdictal) together with forcible entry are the two forms of an
ejectment suit that may be filed to recover possession of real property. Aside from the summary action of
ejectment, accion publicianaor the plenary action to recover the right of possession and accion
reinvindicatoria or the action to recover ownership which includes recovery of possession, make up the
three kinds of actions to judicially recover possession.21
It is not up to defendants, now petitioners herein, to dictate upon plaintiff, now the private respondent, what
her initial recourse should be. Her choice of an action for ejectment against so-called squatters is well
within her rights.
Petitioners cite the case of Bayubay v. Court of Appeals,22 and argue that the MCTC’s decision was
without jurisdictional or legal basis because the MCTC did not issue a preliminary conference order. They
assert that the 10-day period to file position papers and affidavits only starts after the parties had received
a preliminary conference order. They insist they were denied due process when the MCTC decided the
cases based merely on private respondent’s Complaints and affidavit, without considering their Answers.
For her part, private respondent maintains that there was substantial compliance with the rules in the
MCTC’s conduct of the preliminary conference, hence there was no violation of due process nor disregard
of its proper jurisdiction.
Petitioners’ present contention was first raised only in their appeal to the RTC. Raising it before the
appellate tribunal is barred by estoppel.23 They should have raised it in the proceedings before the MCTC.
In our view, this issue is a mere afterthought, when the MCTC decided against them. Basic rules of fair
play, justice and due process require that as a rule an issue cannot be raised by the petitioners for the first
time on appeal.24
Besides, petitioners did not question initially the MCTC’s Order dated February 19, 1999, when they moved
for an extension of time to file their position papers and affidavits. They wanted another 30 days on top of
the 30 days set by the MCTC, which strictly should have been 10 days only. In this regard, petitioners could
not claim that they were denied sufficient time to file their position papers and affidavits before the trial
court. Further, they cannot validly invoke our ruling25 in Bayubay, for in that case there was no order at all
terminating the preliminary conference and requiring the parties to submit position papers and affidavits.
We note with dismay petitioners’ insistence that we order the MCTC "to conduct the requisite preliminary
conference." The summary character of ejectment suits will be disregarded if we allow petitioners to further
delay this case by allowing a second preliminary conference. Ejectment by way of forcible entry and
unlawful detainer cases are summary proceedings, designed to provide an expeditious means of protecting
actual possession or the right to possession over the property involved. It is a timely procedure designed to
remedy the delay in the resolution of such cases.26
Lastly, petitioners aver that private respondent failed to prove her allegation of ownership of Lot 1227 as it
is only based on a tax declaration which is not an evidence of ownership. They also claim that their
possession of the lot was not and could not be by mere tolerance. However, this is a factual matter best left
to the trial courts.
What we have now is sufficient evidence showing that private respondent has a better right to possess Lot
1227. The commissioners’ report and sketch plan show that the 19 petitioners occupy the lot, which
corroborate private respondent’s allegation and disprove petitioners’ defense that Lot 1227 is a shoreline;
or that Lot 1227 is a social forest area. While not a conclusive evidence of ownership, private respondent’s
tax declaration constitutes proof that she has a claim of title over the lot. It has been held that:
Although tax declarations or realty tax payment of property are not conclusive evidence of ownership,
nevertheless, they are good indicia of possession in the concept of owner for no one in his right mind would
be paying taxes for a property that is not in his actual or at least constructive possession. They constitute at
least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of
property for taxation purposes manifests not only one’s sincere and honest desire to obtain title to the
property and announces his adverse claim against the State and all other interested parties, but also the
intention to contribute needed revenues to the Government. Such an act strengthens one’s bona fide claim
of acquisition of ownership.27
The lower courts did not err in adjudicating the issue of possession. Mere absence of title over the lot is not
a ground for the courts to withhold relief from the parties in an ejectment case. Plainly stated, the trial court
has validly exercised its jurisdiction over the ejectment cases below. The policy behind ejectment suits is to
prevent breaches of the peace and criminal disorder, and to compel the party out of possession to respect
and resort to the law alone to obtain what she claims is hers. The party deprived of possession must not
take the law into his or her own hands.28 For their part, herein petitioners could not be barred from
defending themselves before the court adequately, as a matter of law and right.
However, petitioners in their defense should show that they are entitled to possess Lot 1227. If they had
any evidence to prove their defenses, they should have presented it to the MCTC with their position papers
and affidavits. But they ignored the court’s order and missed the given opportunity to have their defenses
heard, the very essence of due process.29 Their allegations were not only unsubstantiated but were also
disproved by the plaintiff’s evidence.
In sum, we find no reversible error much less any grave abuse of discretion committed by the Court of
Appeals. A person who occupies the land of another at the latter’s tolerance or permission, without any
contract between them, is necessarily bound by an implied promise that he will vacate upon demand,
failing which a summary action for ejectment is the proper remedy against him. 30 His status is analogous to
that of a lessee or tenant whose term of lease has expired but whose occupancy continued by tolerance of
the owner. In such a case, the date of unlawful deprivation or withholding of possession is to be counted
from the date of the demand to vacate.31
WHEREFORE, the instant petition is DENIED for lack of merit. The Decision of the Court of Appeals dated
March 30, 2001 and its Resolution dated October 18, 2001 are AFFIRMED.
Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

328 U.S. 256 (66 S.Ct. 1062, 90 L.Ed. 1206)

UNITED STATES v. CAUSBY et ux.

No. 630.

Argued: May 1, 1946.

Decided: May 27, 1946.

•opinion, DOUGLAS [HTML]

•dissent, BLACK [HTML]

Military airplanes are subject to rules of Civil Aeronautics Board where there are
no army or navy regulations to the contrary.

Mr. Walter J. Cummings, Jr., of Washington, D.C., for petitioner.

Mr. William E. Comer, of Greensboro, N.C., for respondent.

Argument of Counsel from page 257 intentionally omitted

TOP

Mr. Justice DOUGLAS delivered the opinion of the Court.

This is a case of first impression. The problem presented is whether respondents'

property was taken within the meaning of the Fifth Amendment by frequent and
regular flights of army and navy aircraft over respondents' land at low altitudes.
The Court of Claims held that there was a taking and entered judgment for
respondent, one judge dissenting. 60 F.Supp. 751. The case is here on a petition
for a writ of certiorari which we granted becuase of the importance of the
question presented.

Respondents own 2.8 acres near an airport outside of Greensboro, North Carolina.
It has on it a dwelling house, and also various outbuildings which were mainly
used for raising chickens. The end of the airport's northwest-southeast runway is
2,220 feet from respondents' barn and 2,275 feet from their house. The path of
glide to this runway passes directly over the property which is 100 feet wide and
1,200 feet long. The 30 to 1 safe glide angle1 approved by the Civil Aeronautics
Authority2 passes over this property at 83 feet, which is 67 feet above the house,
63 feet above the barn and 18 feet above the highest tree.3 The use by the
United States of this airport is pursuant to a lease executed in May, 1942, for a
term commencing June 1, 1942 and ending June 30, 1942, with a provision for
renewals until June 30, 1967, or six months after the end of the national
emergency, whichever is the earlier.

Various aircraft of the United States use this airport bombers, transports and
fighters. The direction of the prevailing wind determines when a particular runway
is used. The north-west-southeast runway in question is used about four per cent
of the time in taking off and about seven per cent of the time in landing. Since
the United States began operations in May, 1942, its four-motored heavy
bombers, other planes of the heavier type, and its fighter planes have frequently
passed over respondents' land buildings in considerable numbers and rather close
together. They come close enough at times to appear barely to miss the tops of
the trees and at times so close to the tops of the trees as to blow the old leaves
off. The noise is startling. And at night the glare from the planes brightly lights up
the place. As a result of the noise, respondents had to give up their chicken
business. As many as six to ten of their chickens were killed in one day by flying
into the walls from fright. The total chickens lost in that manner was about 150.
Production also fell off. The result was the destruction of the use of the property
as a commercial chicken farm. Respondents are frequently deprived of their sleep
and the family has become nervous and frightened. Although there have been no
airplane accidents on respondents' property, there have been several accidents
near the airport and close to respondents' place. These are the essential facts
found by the Court of Claims. On the basis of these facts, it found that
respondents' property had depreciated in value. It held that the United States had
taken an easement over the property on June 1, 1942, and that the value of the
property destroyed and the easement taken was $2,000.

I. The United States relies on the Air Commerce Act of 1926, 44 Stat. 568, 49
U.S.C. 171 et seq., 49 U.S.C.A. § 171 et seq., as amended by the Civil
Aeronautics Act of 1938, 52 Stat. 973, 49 U.S.C. 401et seq., 49 U.S.C.A. § 401 et
seq. Under those statutes the United States has 'complete and exclusive national
sovereignty in the air space' over this country. 49 U.S.C. 176(a), 49 U.S.C.A. §
176(a). They grant any citizen of the United States 'a public right of freedom of
transit in air commerce4 through the navigable air space of the United States.' 49
U.S.C. 403, 49 U.S.C.A. § 403. And 'navigable air space' is defined as 'airspace
above the minimum safe altitudes of flight prescribed by the Civil Aeronautics
Authority.' 49 U.S.C. 180, 49 U.S.C.A. § 180. And it is provided that 'such
navigable airspace shall be subject to a public right of freedom of interstate and
foreign air navigation.' Id. It is, therefore, argued that since these flights were
within the minimum safe altitudes of flight which had been prescribed, they were
an exercise of the declared right of travel through the airspace. The United States
concludes that when flights are made within the navigable airspace without any
physical invasion of the property of the landowners, there has been no taking of
property. It says that at most there was merely incidental damage occurring as a
consequence of authorized air navigation. It also argues that the landowner does
not own superadjacent airspace which he has not subjected to possession by the
erection of structures or other occupancy. Moreover, it is argued that even if the
United States took airspace owned by respondents, no compensable damage was
shown. Any damages are said to be merely consequential for which no
compensation may be obtained under the Fifth Amendment.

It is ancient doctrine that at common law ownership of the land extended to the
periphery of the universe—Cujus est solum ejus est usque ad coelum.5 But that
doctrine has no place in the modern world. The ai is a public highway, as
Congress has declared. Were that not true, every transcontinental flight would
subject the operator to countless trespass suits. Common sense revolts at the
idea. To recognize such private claims to the airspace would clog these highways,
seriously interfere with their control and development in the public interest, and
transfer into private ownership that to which only the public has a just claim.

But that general principle does not control the present case. For the United States
conceded on oral argument that if the flights over respondents' property rendered
it uninhabitable, there would be a taking compensable under the Fifth
Amendment. It is the owner's loss, not the taker's gain, which is the measure of
the value of the property taken. United States v. Miller, 317 U.S. 369, 63 S.Ct.
276, 87 L.Ed. 336, 147 A.L.R. 55. Market value fairly determined is the normal
measure of the recovery. Id. And that value may reflect the use to which the land
could readily be converted, as well as the existing use. United States v.
Powelson, 319 U.S. 266, 275, 63 S.Ct. 1047, 1053, 87 L.Ed. 1390, and cases
cited. If, by reason of the frequency and altitude of the flights, respondents could
not use this land for any purpose, their loss would be complete.6 It would be as
complete as if the United States had entered upon the surface of the land and
taken exclusive possession of it.

We agree that in those circumstances there would be a taking. Though it would

be only an easement of flight which was taken, that easement, if permanent and
not merely temporary, normally would be the equivalent of a fee interest. It
would be a definite exercise of complete dominion and control over the surface of
the land. The fact that the planes never touched the surface would be as
irrelevant as the absence in this day of the feudal livery of seisin on the transfer
of real estate. The owner's right to possess and exploit the land—that is to say,
his beneficial ownership of it—would be destroyed. It would not be a case of
incidental damages arising from a legalized nuisance such as was involved in
Richards v. Washington Terminal Co., 233 U.S. 546, 34 S.Ct. 654, 58 L.Ed. 1088,
L.R.A.1915A, 887. In that case property owners whose lands adjoined a railroad
line were denied recovery for damages resulting from the noise, vibrations,
smoke and the like, incidental to the operations of the trains. In the supposed
case the line of flight is over the land. And the land is appropriated as directly and
completely as if it were used for the runways themselves.

There is no material difference between the supposed case and the present one,
except that here enjoyment and use of the land are not completely destroyed.
But that does not seem to us to be controlling. The path of glide for airplanes
might reduce a valuable factory site to grazing land, an orchard to a vegetable
patch, a residential section to a wheat field. Some value would remain. But the
use of the airspace immediately above the land would limit the utility of the land
and cause a diminution in its value.7 That was the philosophy of Portsmouth
Harbor Land & Hotel Co. v. United States, 260 U.S. 327, 43 S.Ct. 135, 67 L.Ed.
287. In that case the petition alleged that the United States erected a fort on
nearby land, established a battery and a fire control station there, and fired guns
over petitioner's land. The Court, speaking through Mr. Justice Holmes, reversed
the Court of Claims which dismissed the petition on a demurrer, olding that 'the
specific facts set forth would warrant a finding that a servitude has been
imposed.'8 260 U.S. at page 330, 43 S.Ct. at page 137, 67 L.Ed. 287. And see
Delta Air Corp. v. Kersey, 193 Ga. 862, 20 S.E.2d 245, 140 A.L.R. 1352. Cf.
United States v. 357.25 Acres of Land, D.C., 55 F.Supp. 461.

The fact that the path of glide taken by the planes was that approved by the Civil
Aeronautics Authority does not change the result. The navigable airspace which
Congress has placed in the public domain is 'airspace above the minimum safe
altitudes of flight prescribed by the Civil Aeronautics Authority.' 49 U.S.C.
180, 49 U.S.C.A. § 180. If that agency prescribed 83 feet as the minimum safe
altitude, then we would have presented the question of the validity of the
regulation. But nothing of the sort has been done. The path of glide governs the
method of operating—of landing or taking off. The altitude required for that
operation is not the minimum safe altitude of flight which is the downward reach
of the navigable airspace. The minimum prescribed by the authority is 500 feet
during the day and 1000 feet at night for air carriers (Civil Air Regulations, Pt. 61,
§§ 61.7400, 61.7401, Code Fed.Reg.Cum.Supp., Tit. 14, ch. 1) and from 300 to
1000 feet for other aircraft depending on the type of plane and the character of
the terrain. Id., Pt. 60, §§ 60.350-60.3505, Fed.Reg.Cum.Supp., supra. Hence,
the flights in question were not within the navigable airspace which Congress
placed within the public domain. If any airspace needed for landing or taking off
were included, flights which were so close to the land as to render it
uninhabitable would be immune. But the United States concedes, as we have
said, that in that event there would be a taking. Thus, it is apparent that the path
of glide is not the minimum safe altitude of flight within the meaning of the
statute. The Civil Aeronautics Authority has, of course, the power to prescribe air
traffic rules. But Congress has defined navigable airspace only in terms of one of
them—the minimum safe altitudes of flight.

We have said that the airspace is a public highway. Yet it is obvious that if the
landowner is to have full enjoyment of the land, he must have exclusive control of
the immediate reaches of the enveloping atmosphere. Otherwise buildings could
not be erected, trees could not be planted, and even fences could not be run. The
principle is recognized when the law gives a remedy in case overhanging
structures are erected on adjoining land.9 The landowner owns at least as much
of the space above the ground as the can occupy or use in connection with the
land. See Hinman v. Pacific Air Transport, 9 Cir., 84 F.2d 755. The fact that he
does not occupy it in a physical sense—by the erection of buildings and the like—
is not material. As we have said, the flight of airplanes, which skim the surface
but do not touch it, is as much an appropriation of the use of the land as a more
conventional entry upon it. We would not doub that if the United States erected
an elevated railway over respondents' land at the precise altitude where its planes
now fly, there would be a partial taking, even though none of the supports of the
structure rested on the land.10 The reason is that there would be an intrusion so
immediate and direct as to subtract from the owner's full enjoyment of the
property and to limit his exploitation of it. While the owner does not in any
physical manner occupy that stratum of airspace or make use of it in the
conventional sense, he does use it in somewhat the same sense that space left
between buildings for the purpose of light and air is used. The superadjacent
airspace at this low altitude is so close to the land that continuous invasions of it
affect the use of the surface of the land itself. We think that the landowner, as an
incident to his ownership, has a claim to it and that invasions of it are in the same
category as invasions of the surface.11

In this case, as in Portsmouth Harbor Land & Hotel Co. v. United States, supra,
the damages were not merely consequential. They were the product of a direct
invasion of respondents' domain. As stated in United States v. Cress, 243 U.S.
316, 328, 37 S.Ct. 380, 385, 61 L.Ed. 746, '* * * it is the character of the
invasion, not the amount of damage resulting from it, so long as the damage is
substantial, that determines the question whether it is a taking.'

We said in United States v. Powelson, supra, 319 U.S. at page 279, 63 S.Ct. at
page 1054, 87 L.Ed. 1390, that while the meaning of 'property' as used in the
Fifth Amendment was a federal question, 'it will normally obtain its content by
reference to local law.' If we look to North Carolina law, we reach the same result.
Sovereignty in the airspace rests in the State 'except where granted to and
assumed by the United States.' Gen.Stats. 1943, § 63-11. The flight of aircraft is
lawful 'unless at such a low altitude as to interfere with the then existing use to
which the land or water, or the space over the land or water, is put by the owner,
or unless so conducted as to be imminently dangerous to persons or property
lawfully on the land or water beneath.' Id., § 63-13. Subject to that right of flight,
'ownership of the space above the lands and waters of this State is declared to be
vested in the several owners of the surface beneath.' Id. § 63-12. Our holding
that there was an invasion of respondents' property is thus not inconsistent with
the local law governing a landowner's claim to the immediate reaches of the
superadjacent airspace.

The airplane is part of the modern environment of life, and the inconveniences
which it causes are normally not compensable under the Fifth Amendment. The
airspace, apart from the immediate reaches above the land, is part of the public
domain. We need not determine at this time what those precise limits are. Flights
over private land are not a taking, unless they are so low and so frequent as to
be a direct and immediate interference with the enjoyment and use of the land.
We need not speculate on that phase of the present case. For the findings of the
Court of Claims plainly establish that there was a diminution in value of the
property and that the frequent, low-level flights were the direct and immediate
cause. We agree with the Court of Claims that a servitude has been imposed upon
the land.

II. By § 145(1) of the Judicial Code, 28 U.S.C. 250(1), 28 U.S.C.A. § 250(1), the
Court of Claims has jurisdiction to hear and determine 'All claims (except for
pensions) founded upon the Constitution of the United States or * * * upon any
contract, express or implied, with the Government of the United States.'

We need not decide whether repeated trespasses might give rise to an implied
contract. Cf. Portsmouth Harbor Land & Hotel Co. v. United States, supra. If there
is a taking, the claim is 'founded upon the Constitution' and within the jurisdiction
of the Court of Claims to hear and determine. See Hollister v. Benedict &
Burnham Mfg. Co., 113 U.S. 59, 67, 5 S.Ct. 717, 721, 28 L.Ed. 901; Hurley v.
Kincaid, 285 U.S. 95, 104, 52 S.Ct. 267, 269, 76 L.Ed. 637; Yearsley v. W. A.
Ross Construction Co., 309 U.S. 18, 21, 60 S.Ct. 413, 415, 84 L.Ed. 554. Thus,
the jurisdiction of the Court of Claims in this case is clear.

III. The Court of Claims held, as we have noted, that an easement was taken. But
the findings of fact contain no precise description as to its nature. It is not
described in terms of frequency of flight, permissible altitude, or type of airplane.
Nor is there a finding as to whether the easement taken was temporary or
permanent. Yet an accurate description of the property taken is essential, since
that interest vests in the United States. United States v. Cress, supra, 243 U.S.
328, 329, 37 S.Ct. 385, 386, 61 L.Ed. 746, and cases cited. It is true that the
Court of Claims stated in its opinion that the easement taken was permanent. But
the deficiency in findings cannot be rectified by statements in the opinion. United
States v. Esnault-Pelterie, 299 U.S. 201, 205, 206, 57 S.Ct. 159, 161, 162, 81
L.Ed. 123; United States v. Seminole Nation, 299 U.S. 417, 422, 57 S.Ct. 283,
287, 81 L.Ed. 316. Findings of fact on every 'material issue' are a statutory
requirement. 53 Stat. 752, 28 U.S.C. 288,28 U.S.C.A. § 288. The importance of
findings of fact based on evidence is emphasized here by the Court of Claims'
treatment of the nature of the easement. It stated in its opinion that the
easement was permanent because the United States 'no doubt intended to make
some sort of arrangement whereby it could use the airport for its military planes
whenever it had occasion to do so.' (60 F.Supp. 758.) That sounds more like
conjecture rather than a conclusion from evidence; and if so, it would not be a
proper foundation for liability of the United States. We do not stop to examine the
evidence to determine whether it would support such a finding, if made. For that
is not our function. United States v. Esnault-Pelterie, supra, 299 U.S. at page 206,
57 S.Ct. at page 162, 81 L.Ed. 123.

Since on this record it is not clear whether the easement taken is a permanent or
a temporary one, it would be premature for us to consider whether the amount of
the award made by the Court of Claims was proper.

The judgment is reversed and the cause is remanded to the Court of Claims so
that it may make the necessary findings in conformity with this opin on.

Reversed.

Mr. Justice JACKSON took no part in the consideration or decision of this case.
TOP

Mr. Justice BLACK, dissenting.

The Fifth Amendment provides that 'private property' shall not 'be taken for public
use, without just compensation.' The Court holds today that the Government has
'taken' respondents' property by repeatedly flying Army bombers directly above
respondents' land at a height of eighty-three feet where the light and noise from
these planes caused respondents to lose sleep and their chickens to be killed.
Since the effect of the Court's decision is to limit, by the imposition of relatively
absolute Constitutional barriers, possible future adjustments through legislation
and regulation which might become necessary with the growth of air
transportation, and since in my view the Constitution does not contain such
barriers, I dissent.

The following is a brief statement of the background and of the events that the
Court's opinion terms a 'taking' within the meaning of the Fifth Amendment:
Since 1928 there has been an airfield some eight miles from Greensboro, North
Carolina. In April, 1942, this airport was taken over by the Greensboro-High Point
Municipal Airport Authority and it has since then operated as a municipal airport.
In 1942 the Government, by contract, obtained the right to use the field
'concurrently, jointly, and in common' with other users. Years before, in 1934,
respondents had bought their property, located more than one-third of a mile
from the airport. Private planes from the airport flew over their land and farm
buildings from 1934 to 1942 and are still doing so. But though these planes
disturbed respondents to some extent, Army bombers, which started to fly over
the land in 1942 at a height of eighty-three feet, disturbed them more because
they were larger, came over more frequently, made a louder noise, and at night a
greater glare was caused by their lights. This noise and glare disturbed
respondents' sleep, frightened them, and made them nervous. The noise and light
also frightened respondents' chickens so much that many of them flew against
buildings and were killed.

The Court's opinion seems to indicate that the mere flying of planes through the
column of air directly above respondents' land does not constitute a 'taking'.
Consequently, it appears to be noise and glare, to the extent and under the
circumstances shown here, which make the government a seizer of private
property. But the allegation of noise and glare resulting in damages, constitutes
at best an action in tort where there might be recovery if the noise and light
constituted a nuisance, a violation of a statute,1 or were the result of
negligence.2 But the Government has not consented to be sued in the Court of
Claims except in actions based on express or implied contract. And there is no
implied contract here, unless by reason of the noise and glare caused by the
bombers the Government can be said to have 'taken' respondents' property in a
Constitutional sense. The concept of taking property as used in the Constitution
has heretofore never been given so sweeping a meaning. The Court's opinion
presents no case where a man who makes noise or shines light onto his
neighbor's property has been ejected from that property for wrongfully taking
possession of it. Nor would anyone take seriously a claim that noisy automobiles
passing on a highway are taking wrongful possession of the homes located
thereon, or that a city elevated train which greatly interferes with the sleep of
those who live next to it wrongfully takes their property. Even the one case in this
Court which in considering the sufficiency of a complaint gave the most elastic
meaning to the phrase 'private property be taken' as used in the Fifth
Amendment, did not go so far. Portsmouth Harbor Land & Hotel Co. v. United
States, 260 U.S. 327, 43 S.Ct. 135, 67 L.Ed. 287. I am not willing, nor do I think
the Constitution and the decisions authorize me to extend that phrase so as to
guarantee an absolute Constitutional right to relief not subject to legislative
change, which is based on averments that at best show mere torts committed by
Government agents while flying over land. The future adjustment of the rights
and remedies of property owners, which might be found necessary because of the
flight of planes at safe altitudes, should, especially in view of the imminent
expansion of air navigation, be left where I think the Constitution left it, with
Congress.

Nor do I reach a different conclusion because of the fact that the particular
circumstance which under the Court's opinion makes the tort here absolutely
actionable, is the passing of planes through a column of air at an elevation of
eighty-three feet directly over respondents' property. It is inconceivable to me
that the Constitution guarantees that the airspace of this Nation needed for air
navigation, is owned by the particular persons who happen to own the land
beneath to the same degree as they own the surface below.3 No rigid
Constitutional rule, in my judgment, commands that the air must be considered
as marked off into separate compartments by imaginary metes and bounds in
order to synchronize air ownership with land ownership. I think that the
Constitution entrusts Congress with full power to control all navigable airspace.
Congress has already acted under that power. It has by statute, 44 Stat. 568, 52
Stat. 973, provided that 'the United States of America is * * * to possess and
exercise complete and exclusive national sovereignty in the air space (over) the
United States.' This was done under the assumption that the Commerce Clause of
the Constitution gave Congress the same plenary power to control navigable
airspace as its plenary power over navigable waters. H. Rep. No. 572, 69th Cong.,
1st Sess., p. 10; H. Rep. No. 1162, 69th Cong., 1st Sess., p. 14; United States v.
Commodore Park, Inc., 324 U.S. 386, 65 S.Ct. 803, 89 L.Ed. 1017. To make sure
that the airspace used for air navigation would remain free, Congress further
declared that 'navigable airspace shall be subject to a public right of freedom of
interstate and foreign air navigation,' and finally stated emphatically that there
exists 'a public right of freedom of transit * * * through the navigable airspace of
the United States.' Congress thus declared that the air is free, not subject to
private ownership, and not subject to delimitation by the courts. Congress and
those acting under its authority were the only ones who had power to control and
regulate the flight of planes. 'Navigable air-space' was defined as 'airspace above
the minimum safe altitudes of flight prescribed by the Civil Aeronautics
Authority.' 49 U.S.C. 180, 49 U.S.C.A. § 180. Thus, Congress has given the Civil
Aeronautics Authority exclusive power to determine what is navigable airspace
subject to its exclusive control. This power derives specifically from the Section
which authorizes the Authority to prescribe 'air traffic rules governing the flight of,
and for the navigation, protection, and identification of, aircraft, including rules as
to safe altitudes of flight and rules for the prevention of collisions between
aircraft, and between aircraft and land or water vehicles.' 49 U.S.C.A. § 551. Here
there was no showing that the bombers flying over respondents' land violated any
rule or regulation of the Civil Aeronautics Authority. Yet, unless we hold the Act
unconstitutional, at least such a showing would be necessary before the courts
could act without interfering with the exclusive authority which Congress gave to
the administrative agency. Not even a showing that the Authority has not acted at
all would be sufficient. For in that event, were the courts to have any authority to
act in this case at all, they should stay their hand till the Authority has acted.

The broad provisions of the Congressional statute cannot properly be

circumscribed by making a distinction as the Court's opinion does between rules
of safe altitude of flight while on the level of cross-country flight and rules of safe
altitude during landing and taking off. First, such a distinction can not be
maintained from the practical standpoint. It is unlikely that Congress intended
that the Authority prescribe safe altitudes for planes making cross-country flights,
while at the same time it left the more hazardous landing and take-off operations
unregulated. The legislative history, moreover, clearly shows that the Authority's
power to prescribe air traffic rules includes the power to make rules governing
landing and take-off. Nor is the Court justified in ignoring that history by labeling
rules of safe altitude while on the level of cross-country flight as rules prescribing
the safe altitude proper and rules governing take-off and landing as rules of
operation. For the Conference Report explicitly states that such distinctions were
purposely eliminated from the original House Bill in order that the Section on air
traffic rules 'might be given the broadest construction by the * * * (Civil
Aeronautics Authority) * * * and the courts.'4 In construing the statute narrowly
the Court thwarts the intent of Congress. A proper broad construction, such as
Congress commanded, would not permit the Court to decide what it has today
without declaring the Act of Congress unconstitutional. I think the Act given the
broad construction intended is constitutional.

No greater confusion could be brought about in the coming age of air

transportation than that which would result were courts by Constitutional
interpretation to hamper Congress in its efforts to keep the air free. Old concepts
of private ownership of land should not be introduced into the field of air
regulation. I have no doubt that Congress will, if not handicapped by judicial
interpretations of the Constitution, preserve the freedom of the air, and at the
same time, satisfy the just claims of aggrieved persons. The noise of newer,
larger, and more powerful planes may grow louder and louder and disturb people
more and more. But the solution of the problems precipitated by these
technological advances and new ways of living cannot come about through the
application of rigid Constitutional restraints formulated and enforced by the
courts. What adjustments may have to be made, only the future can reveal. It
seems certain, however, the courts do not possess the techniques or the
personnel to consider and act upon the complex combinations of factors entering
into the problems. The contribution of courts must be made through the awarding
of damages for injuries suffered from the flying of planes, or by the granting of
injunctions to prohibit their flying. When these two simple remedial devices are
elevated to a Constitutional level under the Fifth Amendment, as the Court today
seems to have done, they can stand as obstacles to better adapted techniques
that might be offered by experienced experts and accepted by Congress. Today's
opinion is, I fear, an opening wedge for an unwarranted judicial interference with
the power of Congress to develop solutions for new and vital and national
problems. In my opinion this case should be reversed on the ground that there
has been no 'taking' in the Constitutional sense.

Mr. Justice BURTON joins in this dissent.

CC∅ | Transformed by Public.Resource.Org

1
A 30 to 1 glide angle means one foot of elevation or descent for every 30 feet of
horizontal distance.
2
Military planes are subject to the rules of the Civil Aeronautics Board where, as in
the present case, there are no Army or Navy regulations to the contrary. Cameron
v. Civil Aeronautics Board, 7 Cir., 140 F.2d 482.
3
The house is approximately 16 feet high, the barn 20 feet, and the tallest tree 65
eet.
4
'Air commerce' is defined as including 'any operation or navigation of aircraft
which directly affects, or which may endanger safety in, interstate, overseas, or
foreign air commerce.' 49 U.S.C. 401(3), 49 U.S.C.A. § 401(3).
5
1 Coke, Institutes, 19th Ed. 1832, ch. 1, § 1(4a); 2 Blackstone, Commentaries,
Lewis Ed. 1902, p. 18; 3 Kent, Commentaries, Gould Ed. 1896, p. 621.
6
The destruction of all uses of the property by flooding has been held to constitute
a taking. Pumpelly v. Green Bay Co., 13 Wall. 166, 20 L.Ed. 557; United States v.
Lynah, 188 U.S. 445, 23 S.Ct. 349, 47 L.Ed. 539; United States v. Welch, 217
U.S. 333, 30 S.Ct. 527, 54 L.Ed. 787, 28 L.R.A.,N.S., 385, 19 Ann.Cas. 680.
7
It was stated in United States v. General Motors Corp., 323 U.S. 373, 378, 65
S.Ct. 357, 359, 89 L.Ed. 311, 156A.L.R. 390, 'The courts have held that the
deprivation of the former owner rather than the accretion of a right or interest to
the sovereign constitutes the taking. Governmental action short of acquisition of
title or occupancy has been held, if its effects are so complete as to deprive the
owner of all or most of his interest in the subject matter, to amount to a taking.'
The present case falls short of the General Motors case. This is not a case where
the United States has merely destroyed property. It is using a part of it for the
flight of its planes.
Cf. Warren Township School Dist. v. Detroit, 308 Mich. 460, 14 N.W.2d 134; Smith
v. New England Aircraft Co., 270 Mass. 511, 170 N.E. 385, 69 A.L.R. 300;
Burnham v. Beverly Airways, Inc., 311 Mass. 628, 42 N.E.2d 575.
8
On remand the allegations in the petition were found not to be supported by the
facts. 64 Ct.Cl. 572.
9
Baten's Case, 9 Coke R. 53b; Meyer v. Metzler, 51 Cal. 142; Codman v. Evans, 7
Allen 431, 89 Mass. 431; Harrington v. McCarthy, 169 Mass. 492, 48 N.E. 278, 61
Am.St.Rep. 298. See Ball, The Vertical Extent of Ownership in Land, 76
U.Pa.L.Rev. 631, 658 671.
10
It was held in Butler v. Frontier Telephone Co., 186 N.Y. 486, 79 N.E. 716, 11
L.R.A.,N.S., 920, 116 Am.St.Rep. 563, 9 Ann.Cas. 858, that ejectment would lie
where a telephone wire was strung across the plaintiff's property, even though it
did not touch the soil. The court stated pages 491, 492 of 186 N.Y., page 718 of
79 N.E.: '* * * an owner is entitled to the absolute and undisturbed possession of
every part of his premises, including the space above, as much as a mine
beneath. If the wire had been a huge cable, several inches thick and but a foot
above the ground, there would have been a difference in degree, but not in
principle. Expand the wire into a beam supported by posts standing upon abutting
lots without touching the surface of plaintiff's land, and the difference would still
be one of degree only. Enlarge the beam into a bridge, and yet space only would
be occupied. Erect a house upon the bridge, and the air above the surface of the
land would alone be disturbed.'
11
See Bouve, Private Ownership of Navigable Airspace Under the Commerce Clause,
21 Amer.Bar Assoc.Journ. 416, 421—422; Hise, Ownership and Sovereignty of the
Air, 16 Ia.L.Rev. 169; Eubank, The Doctrine of the Airspace Zone of Effective
Possession, 12 Boston Univ.L.Rev. 414.
1
Neiswonger v. Goodyear Tire & Rubber Co., D.C., 35 F.2d 761.
2
As to the damage to chickens, Judge Madden, dissenting from this judgment
against the Government said, 'When railroads were new, cattle in fields in sight
and hearing of the trains were alarmed, thinking that the great moving objects
would turn aside and harm them. Horses ran away at the sight and sound of a
train or a threshing machine engine. The farmer's chickens have to get over being
alarmed at the incredible racket of the tractor starting up suddenly in the shed
adjoining the chicken house. These sights and noises are a part of our world, and
airplanes are now and will be to a greater degree, likewise a part of it. These
disturbances should not be treated as torts, in the case of the airplane, any more
than they are so treated in the case of the railroad or public highway.'
3
The House in its report on the Air Commerce Act of 1926 stated: 'The public right
of flight in the navigable air space owes its source to the same constitutional
basis which, under decisions of the Supreme Court, has given rise to a public
easement of navigation in the navigable waters of the United States, regardless of
the ownership of adjacent or subjacent soil'. House Report No. 572, 69th
Congress, First Session, page 10.
4
The full statement read: 'The substitute provides that the Secretary shall by
regulation establish air traffic rules for the navigation, protection, and
identification of all aircraft, including rules for the safe altitudes of flight and rules
for the prevention of collisions between vessels and aircraft. The provision as to
rules for taking off and alighting, for instance, was eliminated as unnecessary
specification, for the reason that such rules are but one class of air traffic rules for
the navigation and protection of aircraft. Rules as to marking were eliminated for
the reason that such rules were fairly included within the scope of air rules for the
identification of aircraft. No attempt is made by either the Senate bill or the
House amendment to fully define the various classes of rules that would fall
within the scope of air traffic traffic rules, as, for instance, lights and signals along
airways and at air-ports and upon emergency landing fields. In general, these
rules would relate to the same subjects as those covered by navigation laws and
regulations and by the various State motor vehicle traffic codes. As noted above,
surplusage was eliminated in specifying particular air traffic rules in order that the
term might be given the broadest possible construc ion by the Department of
Commerce and the courts.' House Report No. 1162, 69th Congress, 1st Session,
p. 12.

G.R. No. 4223 August 19, 1908

NICOLAS LUNOD, ET AL., plaintiffs-appellees,
vs.
HIGINO MENESES, defendant-appellant.
T. Icasiano, for appellant.
R. Salinas, for appellee.
TORRES, J.:
On the 14th of March, 1904, Nicolas Lunod, Juan de la Vega, Evaristo Rodriguez, Fernando Marcelo,
Esteban Villena, Benito Litao, Ventura Hernandez, and Casimiro Pantanilla, residents of the town of
Bulacan, province of the same name, filed a written complaint against Higino Meneses, alleging that they
each owned and possessed farm lands, situated in the places known as Maytunas and Balot, near a small
lake named Calalaran; that the defendant is the owner of a fish-pond and a strip of land situated in
Paraanan, adjoining the said lake on one side, and the River Taliptip on the other; that from time
immemorial, and consequently for more than twenty years before 1901, there existed and still exists in
favor of the rice fields of the plaintiffs a statutory easement permitting the flow of water over the said land in
Paraanan, which easement the said plaintiffs enjoyed until the year 1901 and consisted in that the water
collected upon their lands and in the Calalaran Lake flow through Paraanan into the Taliptip River. From
that year however, the defendant, without any right or reason, converted the land in Paraanan into a
fishpond and by means of a dam and a bamboo net, prevented the free passage of the water through said
place into the Taliptip River, that in consequence the lands of the plaintiff became flooded and damaged by
the stagnant waters, there being no outlet except through the land in Paraanan; that their plantation were
destroyed, causing the loss and damages to the extent of about P1,000, which loss and damage will
continue if the obstructions to the flow of the water are allowed to remain, preventing its passage through
said land and injuring the rice plantations of the plaintiffs. They therefore asked that judgment be entered
against the defendant, declaring that the said tract of land in Paraanan is subject to a statutory easement
permitting the flow of water from the property of the plaintiffs, and that, without prejudice to the issuing of a
preliminary injunction, the defendant be ordered to remove and destroy the obstructions that impede the
passage of the waters through Paraanan, and that in future, and forever, he abstain from closing in any
manner the aforesaid tract of land; that, upon judgment being entered, the said injunction be declared to be
final and that the defendant be sentenced to pay to the plaintiffs an indemnity of P1,000, and the costs in
the proceedings; that they be granted any other and further equitable or proper remedy in accordance with
the facts alleged and proven.
In view of the demurrer interposed by the plaintiffs to the answer of the defendant, the latter, on the 29th of
August, 1904, filed an amended answer, denying each and everyone of the allegations of the complaint,
and alleged that no statutory easement existed nor could exist in favor of the lands described in the
complaint, permitting the waters to flow over the fish pond that he, together with his brothers, owned in the
sitio of Bambang, the area and boundaries of which were stated by him, and which he and his brothers had
inherited from their deceased mother.
Apolinara de Leon; that the same had been surveyed by a land surveyor in September, 1881, he also
denied that he had occupied or converted any land in the barrio of Bambang into a fishpond; therefore, and
to sentence the plaintiffs to pay the costs and corresponding damages.
Upon the evidence adduced by both parties to the suit, the court, on the 13th of March, 1907, entered
judgment declaring that the plaintiffs were entitled to a decision in their favor, and sentenced the defendant
to remove the dam placed on the east of the Paraanan passage on the side of the Taliptip River opposite
the old dam in the barrio of Bambang, as well as to remove and destroy the obstacles to the free passage
of the waters through the strip of land in Paraanan; to abstain in future, and forever, from obstructing or
closing in any manner the course of the waters through the said strip of land. The request that the
defendant be sentenced to pay an indemnity was denied, and no ruling was made as to costs.
The defendant excepted to the above judgment and furthermore asked for a new trial which was denied
and also excepted to, and, upon approval of the bill of exceptions, the question was submitted to this court.
Notwithstanding the defendant's denial in his amended answer, it appears to have been clearly proven in
this case that the lands owned by the plaintiffs in the aforesaid barrio, as well as the small adjoining lake,
named Calalaran, are located in places relatively higher than the sitio called Paraanan where the land and
fish pond of the defendant are situated, and which border on the Taliptip River; that during the rainy season
the rain water which falls on he land of the plaintiffs, and which flows toward the small Calalaran Lake at
flood time, has no outlet to the Taliptip River other than through the low land of Paraanan: that the border
line between Calalaran and Paraanan there has existed from time immemorial a dam, constructed by the
community for the purpose of preventing the salt waters from the Taliptip River, at high tide, from flooding
the land in Calalaran, passing through the lowlands of Paraanan; but when rainfall was abundant, one of
the residents was designated in his turn by the lieutenant or justice of the barrio to open the sluice gate in
order to let out the water that flooded the rice fields, through the land of Paraanan to the above-mentioned
river, that since 1901, the defendant constructed another dam along the boundary of this fishpond in
Paraanan, thereby impeding the outlet of the waters that flood the fields of Calalaran, to the serious
detriment of the growing crops.
According to article 530 of the Civil Code, an easement is charge imposed upon one estate for the benefit
of another estate belonging to a different owner, and the realty in favor of which the easement is
established is called the dominant estate, and the one charged with it the servient estate.
The lands of Paraanan being the lower are subject to the easement of receiving and giving passage to the
waters proceeding from the higher lands and the lake of Calalaran; this easement was not constituted by
agreement between the interested parties; it is of a statutory nature, and the law had imposed it for the
common public utility in view of the difference in the altitude of the lands in the barrio Bambang.
Article 552 of the Civil code provides:
Lower estates must receive the waters which naturally and without the intervention of man descend
from the higher estates, as well as the stone or earth which they carry with them.
Neither may the owner of the lower estates construct works preventing this easement, nor the one
of the higher estate works increasing the burden.
Article 563 of the said code reads also:
The establishment, extent, form, and conditions of the easements of waters to which this section
refers shall be governed by the special law relating thereto in everything not provided for in this
code.
The special law cited in the Law of Waters of August 3, 1866, article 111 of which, treating of natural
easements relating to waters, provides:
Lands situated at a lower level are subject to receive the waters that flow naturally, without the work
of man, from the higher lands together with the stone or earth which they carry with them.
Hence, the owner of the lower lands can not erect works that will impede or prevent such an easement or
charge, constituted and imposed by the law upon his estate for the benefit of the higher lands belonging to
different owners; neither can the latter do anything to increase or extend the easement.
According to the provisions of law above referred to, the defendant, Meneses, had no right to construct the
works, nor the dam which blocks the passage, through his lands and the outlet to the Taliptip River, of the
waters which flood the higher lands of the plaintiffs; and having done so, to the detriment of the easement
charged on his estate, he has violated the law which protects and guarantees the respective rights and
regulates the duties of the owners of the fields in Calalaran and Paraanan.
It is true that article 388 of said code authorizes every owner to enclose his estate by means of walls,
ditches fences or any other device, but his right is limited by the easement imposed upon his estate.
The defendant Meneses might have constructed the works necessary to make and maintain a fish pond
within his own land, but he was always under the strict and necessary obligation to respect the statutory
easement of waters charged upon his property, and had no right to close the passage and outlet of the
waters flowing from the lands of the plaintiffs and the lake of Calalaran into the Taliptip River. He could not
lawfully injure the owners of the dominant estates by obstructing the outlet to the Taliptip River of the
waters flooding the upper lands belonging to the plaintiffs.
It is perhaps useful and advantageous to the plaintiffs and other owners of high lands in Calalaran, in
addition to the old dike between the lake of said place and the low lands in Paraanan, to have another
made by the defendant at the border of Paraanan adjoining the said river, for the purpose of preventing the
salt waters of the Taliptip River flooding, at high tide, not only the lowlands in Paraanan but also the higher
ones of Calalaran and its lake, since the plaintiffs can not prevent the defendant from protecting his lands
against the influx of salt water; but the defendant could never be permitted to obstruct the flow of the waters
through his lands to the Taliptip River during the heavy rains, when the high lands in Calalaran and the lake
in said place are flooded, thereby impairing the right of the owners of the dominant estates.
For the above reasons, and accepting the findings of the court below in the judgment appealed from in so
far as they agree with the terms of this decision, we must and do hereby declare that the defendant, Higino
Meneses, as the owner of the servient estate, is obliged to give passage to and allow the flow of the waters
descending from the Calalaran Lake and from the land of the plaintiffs through his lands in Paraanan for
their discharge into the Taliptip River; and he is hereby ordered to remove any obstacle that may obstruct
the free passage of the waters whenever there may be either a small or large volume of running water
through his lands in the sitio of Paraanan for their discharge into the Taliptip River; and in future to abstain
from impeding, in any manner, the flow of the waters coming from the higher lands. The judgment appealed
from is affirmed, in so far as it agrees with decision, and reversed in other respects, with the costs of this
instance against the appellants. So ordered.
Carson, Willard and Tracey, JJ., concur.

G.R. No. L-2659 October 12, 1950

In the matter of the testate estate of Emil Maurice Bachrach, deceased. MARY McDONALD
BACHRACH,petitioner-appellee,
vs.
SOPHIE SEIFERT and ELISA ELIANOFF, oppositors-appellants.
Ross, Selph, Carrascoso and Janda for appellants.
Delgado and Flores for appellee.

OZAETA, J.:
Is a stock dividend fruit or income, which belongs to the usufructuary, or is it capital or part of the corpus of
the estate, which pertains to the remainderman? That is the question raised in the appeal.
The deceased E. M. Bachrach, who left no forced heir except his widow Mary McDonald Bachrach, in his
last will and testament made various legacies in cash and willed the remainder of his estate as follows:
Sixth: It is my will and do herewith bequeath and devise to my beloved wife Mary McDonald
Bachrach for life all the fruits and usufruct of the remainder of all my estate after payment of the
legacies, bequests, and gifts provided for above; and she may enjoy said usufruct and use or spend
such fruits as she may in any manner wish.
The will further provided that upon the death of Mary McDonald Bachrach, one-half of the all his estate
"shall be divided share and share alike by and between my legal heirs, to the exclusion of my brothers."
The estate of E. M. Bachrach, as owner of 108,000 shares of stock of the Atok-Big Wedge Mining Co., Inc.,
received from the latter 54,000 shares representing 50 per cent stock dividend on the said 108,000 shares.
On June 10, 1948, Mary McDonald Bachrach, as usufructuary or life tenant of the estate, petitioned the
lower court to authorize the Peoples Bank and Trust Company as administrator of the estate of E. M.
Bachrach, to her the said 54,000 share of stock dividend by endorsing and delivering to her the
corresponding certificate of stock, claiming that said dividend, although paid out in the form of stock, is fruit
or income and therefore belonged to her as usufructuary or life tenant. Sophie Siefert and Elisa Elianoff,
legal heirs of the deceased, opposed said petition on the ground that the stock dividend in question was
not income but formed part of the capital and therefore belonged not to the usufructuary but to the
remainderman. And they have appealed from the order granting the petition and overruling their objection.
While appellants admits that a cash dividend is an income, they contend that a stock dividend is not, but
merely represents an addition to the invested capital. The so-called Massachusetts rule, which prevails in
certain jurisdictions in the United States, supports appellants' contention . It regards cash dividends,
however large, as income, and stock dividends, however made, as capital. (Minot vs. Paine, 99 Mass., 101;
96 Am. Dec., 705.) It holds that a stock dividend is not in any true sense any true sense any dividend at all
since it involves no division or severance from the corporate assets of the dividend; that it does not
distribute property but simply dilutes the shares as they existed before; and that it takes nothing from the
property of the corporation, and nothing to the interests of the shareholders.
On the other hand, so called Pennsylvania rule, which prevails in various other jurisdictions in the United
States, supports appellee's contention. This rule declares that all earnings of the corporation made prior to
the death of the testator stockholder belong to the corpus of the estate, and that all earnings, when
declared as dividends in whatever form, made during the lifetime of the usufructuary or life tenant. (Earp's
Appeal, 28 Pa., 368.)
. . . It is clear that testator intent the remaindermen should have only the corpus of the estate he left
in trust, and that all dividends should go the life tenants. It is true that profits realized are not
dividends until declared by the proper officials of the corporation, but distribution of profits, however
made, in dividends, and the form of the distribution is immaterial. (In re Thompson's Estate, 262
Pa., 278; 105 Atl. 273, 274.)
In Hite vs. Hite (93 Ky., 257; 20 S. W., 778, 780), the Court of Appeals of Kentucky, speaking thru its Chief
Justice, said:
. . . Where a dividend, although declared in stock, is based upon the earnings of the company, it is
in reality, whether called by one name or another, the income of the capital invested in it. It is but a
mode of distributing the profit. If it be not income, what is it? If it is, then it is rightfully and equitably
the property of the life tenant. If it be really profit, then he should have it, whether paid in stock or
money. A stock dividend proper is the issue of new shares paid for by the transfer of a sum equal to
their par value from the profits and loss account to that representing capital stock; and really a
corporation has no right to a dividend, either in cash or stock, except from its earnings; and a
singular state of case — it seems to us, an unreasonable one — is presented if the company,
although it rests with it whether it will declare a dividend, can bind the courts as to the proper
ownership of it, and by the mode of payment substitute its will for that of that of the testator, and
favor the life tenants or the remainder-men, as it may desire. It cannot, in reason, be considered
that the testator contemplated such a result. The law regards substance, and not form, and such a
rule might result not only in a violation of the testator's intention, but it would give the power to the
corporation to beggar the life tenants, who, in this case, are the wife and children of the testator, for
the benefit of the remainder-men, who may perhaps be unknown to the testator, being unborn when
the will was executed. We are unwilling to adopt a rule which to us seems so arbitrary, and devoid
of reason and justice. If the dividend be in fact a profit, although declared in stock, it should be held
to be income. It has been so held in Pennsylvania and many other states, and we think it the
correct rule. Earp's Appeal, 28 Pa. St. 368; Cook, Stocks & S. sec. 554. . . .
We think the Pennsylvania rule is more in accord with our statutory laws than the Massachusetts rule.
Under section 16 of our Corporation Law, no corporation may make or declare any dividend except from
the surplus profits arising from its business. Any dividend, therefore, whether cash or stock, represents
surplus profits. Article 471 of the Civil Code provides that the usufructuary shall be entitled to receive all the
natural, industrial, and civil fruits of the property in usufruct. And articles 474 and 475 provide as follows:
ART. 474. Civil fruits are deemed to accrue day by day, and belong to the usufructuary in proportion
to the time the usufruct may last.
ART. 475. When a usufruct is created on the right to receive an income or periodical revenue, either
in money or fruits, or the interest on bonds or securities payable to bearer, each matured payment
shall be considered as the proceeds or fruits such right.
When it consists of the enjoyment of the benefits arising from an interest in an industrial or
commercial enterprise, the profits of which are not distributed at fixed periods, such profits shall
have the same consideration. lawphil.net

In either case they shall be distributed as civil fruits, and shall be applied in accordance with the
rules prescribed by the next preceding article.
The 108,000 shares of stock are part of the property in usufruct. The 54,000 shares of stock dividend are
civil fruits of the original investment. They represent profits, and the delivery of the certificate of stock
covering said dividend is equivalent to the payment of said profits. Said shares may be sold independently
of the original shares, just as the offspring of a domestic animal may be sold independently of its mother.
The order appealed from, being in accordance with the above-quoted provisions of the Civil Code, his
hereby affirmed, with costs against the appellants.
Moran, C. J., Paras, Feria, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur.
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.
Roman J. Lacson for intervenor-appellant.
Mariano Ezpeleta for plaintiff-appellee.
Nolan and Hernaez for defendants-appellees Talisay-Silay Milling Co. and Cesar Ledesma.
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.
Johnson, Street, Malcolm, Villamor, Ostrand, Villa-Real, and Imperial, JJ., concur.

G.R. No. L-42462 August 31, 1937

THE BACHRACH MOTOR CO., INC., plaintiff-appellant,
vs.
MARIANO LACSON LEDESMA, TALISAY-SILAY MILLING CO., INC., and THE PHILIPPINE NATIONAL
BANK,defendant-appellees.
William E. Greenbaum and Ohnick and Opisso for appellant.
Nolan and Hernaez for appellee Talisay-Silay Milling Co., Inc.
Roman J. Lacson and Francisco Fuentes for appellee Philippine National Bank.
IMPERIAL, J.:
This is an action brought by the plaintiff to recover the amount of the judgments obtained by it in civil cases
Nos. 31597 and 31821 of the Court of First Instance of Manila, praying in its complaint: (a) That the transfer
of certificate of stock dividends No. 772 of the Talisay-Silay Milling of the Philippine National Bank, be
declared null and void, as against the plaintiff: (b) that the Talisay-Silay Milling Co., Inc., ordered to cancel
the entry of the transfer of the 6,300 stock dividends covered by certificate No. 772, made by it on its books
in favor of the Philippine National Bank; (c) that said stock dividends be sold to satisfy the judgment
obtained by it in civil cases Nos. 31597 of the Court of First Instance of Manila; (d) that the Talisay-Silay
Milling Co., Inc., be ordered to pay to it amount of P21,379.39, with interest on the sums and from the dates
set forth in paragraph XV of the complain, or any part thereof necessary to complete payment of said sums
and interest thereon , in case the 6,300 stock dividends can not be sold or the proceeds of the sale thereof
should be insufficient to cover the sums in question, and (e) that the defendants pay the costs of the suit.
The plaintiff appealed from the judgment declaring the right of the Philippine National Bank to the 6,300
stock dividends a preferred one, and absolving the defendants from the complaint, with costs.
The parties submitted the case upon the following stipulation of facts, to wit:
STIPULATION OF FACTS. — That the plaintiff, the Bachrach Motor Co., Inc., on June 30, 1927, obtained
judgment in civil case No. 31597 of the Court of First Instance of Manila against the defendant Mariano
Lacson Ledesma, in the sum of P3,442.75, with interest thereon from March 30, 1927, with costs. That a
writ of execution of said judgment was issued on August 20, 1927, and Jose Y. Orosa was appointed
Special sheriff to execute it. That on October 4, 1927, said Jose Y. Orosa, as special sheriff, in compliance
with the writ of execution in question, attached all right, title to and interest which the defendant Mariano
Lacson Ledesma may have in "Any bonus, dividend, share of stock, money, or other property which that
defendant is entitle to receive from the Talisay-Silay Milling Co., Inc., by virtue of the fact that such
defendant has mortgage his land in favor of the Philippine National Bank to guarantee the indebtedness of
the Talisay-Silay Milling Co., Inc., or which such defendant is entitled to receive from the Talisay-Silay
Milling Co., Inc., on account of being a stockholder in the corporation or which he is entitled to receive from
that corporation for any other cause or pretext whatsoever." That notice of said attachment was served not
only upon the defendant Mariano Lacson Ledesma but also upon the herein defendant the Talisay-Silay
Milling Co., Inc., which received a copy of the notice of attachment, as evidenced by the Annex A attached
to this stipulation of facts. That on October 3, 1927, the herein plaintiff, the Bachrach Motor Co., Inc.,
obtained judgment in case No. 31821 of the Court of First Instance of Manila against the defendant
Mariano Lacson Ledesma, in the sum of four thousand four hundred pesos and seventy-eight centavos
with interest at 10 per cent per annum on the sum of P3,523.82 from April 30, 1927; in the sum of P14,171,
52 with interest at 10 per cent per annum on the sum of P13,290.89 from April 30, 1927; and in the sum of
P1,150.72 with the legal interest of 6 per cent per annum thereon from May 25, 1927, and the costs. A copy
of said judgment is attached to this stipulation of facts and marked Annex B. That a writ of execution of said
judgment was issue, thereby causing the attachment, sale and adjudication to the plaintiff the Bachrach
Motor Co., Inc., for the sum of P100, Philippine currency, of the defendant Mariano Lacson Ledesma's right
of redemption over the following properties to wit: "Original certificate of title No. 1929 (Lot No. 1473 of the
Cadastral Survey of Bacolod) containing an area of 2,647 square meters, more or less.
Original certificate of title No. 2978 (Lot No. 1475 of the Cadastral Survey of Bacolod) containing an area of
8.501 square meters, more or less.
Original certificate of title No. 2624 (Lot No. 1474 of the Cadastral Survey of Bacolod) containing an area of
8,714 square meter, more or less.
Original certificate of title No. 9443 (Lot No. 426 of the Cadastral Survey of Talisay) containing an
area of 150,301 square meters more or less. Original certificate of title No. 1928 (Lot No. 1472 of
the Cadastral Survey of Bacolod) containing an area of 36,818 square meters, more or less.
Original certificate of title No. 2923 (Lot No. 1489 of the Cadastral Survey of Bacolod) containing an
area of 286,879 square meters, more or less. Original certificate of title No. 356 (Lot No. 4-A of the
Cadastral Survey of Bacolod) containing an area of 641,448 square meters, more or less. Original
certificate of title No. 356 (Lot No. 4-B of the Cadastral Survey of Bacolod) containing an area of
280,556 square meters, more or less. Original certificate of title No. 356 (Lot No. 4-C of the
cadastral Survey of Bacolod) containing an area of 2,842,946 square meters, more or less." The
certificate of sale issued by the provincial sheriff of Occidental Negros in favor of the Bachrach
Motor Co., Inc., on March 29, 1928, is attached to this stipulation of facts, and marked Annex C.
That on the date of the issuance of the execution in case No. 31597 of the Court of First Instance of
Manila as well as on that of the issuance of the execution and sale of the properties described in
Exhibit C, in case No. 31821 of the same court, said real properties were mortgaged to the
Philippine National Bank to secure the payment to said bank by Mariano Lacson Ledesma of the
sum of P624,000, Philippine currency, by virtue of an instrument executed by the debtor Mariano
Lacson Ledesma in favor of said bank on August 9, 1923. said instrument of mortgage is copied on
pages 18 to 32, both inclusive, of the bill of exceptions in case No. 8136 of the Court of First
Instance of Iloilo (G. R. No. 35223), which is attached to this stipulation of facts and marked Annex
D. That in the same instrument of mortgage (pages 18 to 32 of Annex D) said debtor Mariano
Lacson Ledesma mortgaged in favor the bank, as part of the securities to ensure compliance with
his obligation, the following shares owned by him in the Talisay-Silay Milling Co., Inc., to wit: 1,540
share covered by Certificate No. 147; 520 shares covered by Certificate No. 146; 40 share covered
by Certificate in the preceeding two paragraph, there was another mortgage constituted on the
above-described real properties in favor of the Philippine National Bank, to answer for the debts
contracted by the Central Talisay-Silay Milling Co., with said bank. That on December 22, 1923, the
defendant, Central Talisay-Silay Milling Co. resolved to grant a bonus or compensation to the
owners of the real properties mortgaged to answer for the debts contracted by said central with the
Philippine National Bank, for the risk incurred by said properties upon being subjected to said
mortgage lien, and the resolution in question the defendant Mariano Lacson Ledesma was allotted
the sum of P19,911.11, Philippine currency, which sum, however, would not be payable until the
month of January, 1930. That on September 29, 1928, the Philippine National Bank brought an
action against the defendant Mariano Lacson Ledesma and his wife Concepcion Diaz for the
recovery of a mortgage credit which, together with interest thereon amounted to P853,729.49 on
said date. Sometime later that is, on January 2, 1929, the Philippine National Bank amended its
complaint by including the Bachrach Motor Co., Inc., as party defendant, among other, because
they claim to have some right to certain properties which are the subject matter of this complaint."
Said case bears No. 4706 of the Court of First Instance of Occidental Negros. That on January 30,
1929, the defendant Bachrach Motor Co., Inc., file a general denial. That after due hearing the
Court of First Instance of Bacolod on September 3, 1930, rendered judgment in case No. 4706 of
said court in favor of the Philippine National Bank and against the defendant Mariano Lacson
Ledesma, sentencing the latter to pay the amount claimed by said bank and ordering, upon failure
to satisfy said amount, the sale at public auction of the real properties mortgaged under the
instrument of mortgage appearing on pages 18 to 32 of Annex D. That the real estate and chattel
mortgage deed in question (pages 18 to 32 of Annex D), marked as Exhibit G, was among the
exhibits presented in said case No. 4706 of the Court of First Instance of Occidental Negros. That
likewise, among the exhibit presented in said case No. 4706 of the Court of First Instance of
Occidental Negros, was Exhibit H which was a deed of mortgage of certain carabaos belonging to
the debtor Mariano Lacson Ledesma, executed by the latter in favor of the Philippine National Bank
on January 21, 1925. That in the decision rendered by the Court of First Instance of Occidental
Negros in case No. 4706 thereof, said court, referring to stock certificates Nos. 145 and 147 of the
Talisay-Silay Milling Co., Inc., which were pledged or mortgaged by virtue of Exhibit G of said No.
4706, rendered the following ruling: "(e) With respect to the chattel mortgaged bank, which are
described in Exhibit G and H, the Philippine National Bank, as soon as this judgment becomes final,
shall have authority to sell them in accordance with the provisions of section 23 of Act No. 2938,
immediately informing this court of whatever action it may take in the premises." That during the
pendency of case No. 4706 of the Court of First Instance of Bacolod referred to in the foregoing
paragraphs, the plaintiff Bachrach Motor Co., Inc., on December 20, 1929, brought an action in the
Court of First Instance of Iloilo against the Talisay-Silay Milling Co., Inc., recover from it the sum of
P13,850 against the bonus or dividend which, by virtue of the resolution of December 22, 1923,
said Central Talisay-Silay Milling Co., Inc., had declared in favor of the defendant Mariano Lacson
Ledesma as one of the owners of the hacienda which had been mortgaged to the Philippine
National Bank to secure the obligation of the Talisay-Silay Milling Co., Inc. in favor of said bank.
Copy of said complaint appears on pages 2 to 5 of the bill of exceptions in case No. 8136 of the
Court of First Instance of Iloilo (G. R. No. 35223), Annex D of this stipulation of facts. That on
January 30, 1930, the Philippine National Bank sought permission to intervene in said case No.
8136 of the Court of First Instance of Iloilo and after the permission had been granted, said bank,
on February 13, 1930, filed a complaint in intervention alleging that it had a preferred right to said
bonus granted by the central to the defendant Mariano Lacson Ledesma as one of the owners of
the haciendas which had been mortgaged to said bank to answer for the obligations of the Central
Talisay-Silay Milling Co., Inc., basing such allegation on the fact that, as said properties were
mortgaged to it by the debtor Mariano Lacson Ledesma, not Talisay Milling Co., Inc., but also by
virtue of the deed of August 9, 1923 (pages 18 to 32 of Annex D) and said bonus being a civil fruit
of the mortgaged lands, said bank was entitled to it on the ground that the mortgage of August 9,
1923, had become due. That after the trial of civil case No. 8136 of the Court of First Instance of
Iloilo, said court, on December 8, 1930, rendered judgment in favor of the plaintiff Bachrach Motor
Co., Inc., Upon appeal, the Supreme Court, on September 17, 1931, 1 affirmed the judgment of the lower court,
holding that the bonus had no immediate relation to the lands in question but merely a remote and accidental one and, therefore, it was not a civil fruit
of the real properties mortgaged to the Philippine National Bank to secure the obligation of the Talisay-Silay Milling Co., Inc., being a mere personal
right of Mariano Lacson Ledesma. The decision of the Supreme Court published in Volume 30, No. 104, of the Official Gazette, on August 29, 1932, is
attached to this stipulation of facts and marked Annex E. That on January 24, 1930, that Talisay-Silay Milling Co., Inc., issued stock certificate No. 772
for 3,600 shares, as stock dividend to Mariano Lacson Ledesma, which certificate was ordered by Mariano Lacson Ledesma to be delivered to
Roman Lacson, attorney for the Philippine National Bank, by virtue of the letter of February 27, 1930, Annex G of this stipulation of facts, and of the
letter of the Philippine National Bank dated January 18, 1930, Annex G-1. Said 6,300 shares constituted the stock dividend allotted to Mariano
 Lacson Ledesma for his 2,100 original shares in the Talisay-Silay Milling Co., Inc., which were given as pledge to the Philippine National Bank under
the deed of mortgage appearing on pages 18 to 32 of Annex D prior to the issuance of stock certificate No. 772, an were covered by Stock
Certificates Nos. 145, 146 and 147 of the Talisay-Silay Milling Co., Inc. That stock certificate No. 772 was issued by virtue of resolution No. 4 of the
general meeting of stockholders of the Talisay-Silay Milling Co., Inc., which resolution is quote in paragraph 8 of the complaint in this case. That in a
letter of March 25, 1930, addressed by the Philippine National Bank to the Talisay-Silay Milling Co., said bank informed the letter that the 6,300
shares represented by stock certificate No. 772 had been given by Mariano Lacson Ledesma as pledge to the Philippine National Bank. Said letter is
attached to this stipulation of facts as Annex H. That said stock certificate No. 772 has continuously been in the possession of the Philippine National
Bank from February 27, 1930, to February 25, 1931, but like stock certificates Nos. 145, 146 and 147, it was registered in the books of the Talisay-
Silay Milling Co. in the name of Mariano Lacson Ledesma. That on August 11, 1930, the plaintiff Bachrach Motor Co., by virtue of an alias execution
issued in case No. 31821 of the Court of First Instance of Manila, attached all right, title to an interest which the defendant Mariano Lacson Ledesma
might have in Any bonus, dividend, shares of stock, money or other property specially on the sum of P19,911.11 which the defendant is entitled to
receive from the Talisay-Silay Milling Co., Inc., by virtue of the fact that such defendant has mortgage his lands in favor of the Philippine National
Bank to guarantee the indebtedness of the Talisay-Silay Milling Co., Inc., or which such defendant is entitled to receive from the Talisay-Silay Milling
Co., Inc., on account of being stockholder in that corporation, or which he is entitle to receive from that corporation for any other cause or pretext
whatsoever." In connection with the proceedings and attachment made notice of garnishment was served on the Talisay-Silay Milling Co., Inc., as
evidence by Annexes I and J of this stipulation of facts. That on February 5, 1931, the provincial the is positive part of the decision rendered in civil
case NO. 4706 of the Court of First Instance of Occidental Negros, copy of which is attached to this stipulation of facts as Annex I, sold at public
auction not only the 2,100 share specified in the deed of August 9, 1923, but also the 6,300 shares covered by stock certificate No. 772, the sale of
said shares having been made by order and under the direction of the attachment creditor Philippine National Bank. A copy of the certificate of sale
marked Exhibit K is attached hereto. That on February 25, 1931, the Talisay-Silay Milling Co., Inc., upon petition of the Philippine National Bank, as
shown by the letter dated February 19,1931, marked and attached to this stipulation as Annex L, which letter was accompanied by the certificate of
sale Exhibit K, issued stock certificate No. 1155 representing 8,968 shares, which include the 6,300 shares formerly represented by stock certificate
No. 772 and the 2,100 shares formerly represented by stock certificates Nos. 145, 146 and 147, the bank having acknowledged receipt of certificate
No. 1155 in a letter of March 4, 1931, marked as Exhibit M. Attention is invited to the fact that of the 8,969 shares represented by stock certificate No.
1155, 568 shares formerly belonged to Concepcion Diaz e Lacson wife of the defendant Mariano Lacson Ledesma, and of the 568 shares, 142 were
mortgaged under the deed of August 9, 1923, and 426 were the stock dividend that had corresponded to said 142 shares. That on the same date,
February 25,1931, Marino Lacson Ledesma endorsed the back of stock certificate No. 772 in favor of the Philippine National Bank. Said stock
certificate with the endorsement in question is attached to this stipulation of facts and marked Annex N. That both on the date on which the
garnishment was carried out by the Bachrach Motor Co., that is, on August 11, 1930, and on the date on which the 6,300 shares, covered by stock
certificate No. 772, were sold, case No. 8136 of the Court of First Instance of Iloilo (G. R. No. 35223) was still pending. That the amount of the actual
indebtedness of the defendant Mariano Lacson Ledesma to the plaintiff the Bachrach Motor Co. is P21,377.34 with the interest and other sums
specified in paragraph XV of the complaint. That the real properties mortgaged to the Philippine National Bank were sold for P300,000 Philippine
currency; the mortgaged carabaos for P2,000 Philippine currency, and all the shares, that is, the 8,968 share for the sum of P90,000 Philippine
currency, the bank having been the highest bidder herein all these sales, there still remaining unpaid in civil case No. 4796 of the Court of First
Instance of Occidental Negros the sum of P695,421.74, as stated in Annex 9. That the notices of garnishment issue by virtue of the execution in
cases Nos. 31597 and 31821 of the Court of First Instance of Manila are the same notices of attachment and garnishment mentioned in the complaint
in the case No. 8136 of the Court of First Instance of Iloilo and presented as evidence in said case, and are the same notices mentioned in this case
now submitted to the court for decision. That on March 20,1925, the Philippine National Bank served notice on the Talisay-Silay Milling Co., Inc, of the
pledge made by Mariano Lacson Ledesma to said bank of the shares represented by stock certificates Nos. 145, 146 and 147, and on March 25th
the Talisay-Silay Milling Co., Inc., acknowledged receipt thereof and considered itself notified of said pledge, as evidenced by Annexes P and Q of this
stipulation of facts, That prior to the declaration of stock divided by virtue of resolution No. 4 of the regular meeting of stockholders of the Talisay-Silay
Milling Co., Inc., the shares of this corporation were quote in private sales at P32 a share; and immediately after the declaration of stock dividend, the
quotation of said shares dropped by P7 or P8 a share, the same having been P11.25 a share on the date of their sale at public auction. Upon this
stipulation of facts, the parties submit the case to the court for decision.

I. The plaintiff bases the preferred right invoked by it over the 6,300 stock dividends, certificate No. 772, on
the garnishment made thereon by reason of the issuance of the alias execution in civil case No. 31821 of
the Court of First Instance of Manila, which garnishment was carried out on August 11, 1930. The plaintiff
contends in its first assignment of error that these stock dividends were certificate No. 772 thereof was
delivered to the Philippine National Bank and when the Talisay-Silay Milling Co., Inc., entered them in its
books in the name of said bank and issued certificate No. 1166 in favor of the latter. The contention is
unfounded because it appears that the stock dividends in question were pledged to the bank prior to the
garnishment and because certificate No. 772 was in the possession of said bank from February 27, 1930.
The reasons upon which this court base its opinion in declaring that the stock dividends were pledge
beforehand to the Philippine National Bank will be stated in the discussion of the following assignment of
error.
II. In the stipulation of facts, it appears stipulated by the parties that, by virtue of the letters of the Philippine
National Bank and having been so asked by Mariano Lacson Ledesma, certificate No. 772 covering the
6,300 stock dividends was delivered as security to Attorney Roman Lacson as representative of the bank,
on February 27, 1930, in view of the fact that the original shares covered by certificate Nos. 145, 146 and
147 had been previously mortgaged to the same bank. On February 25, 1931, the Talisay-Silay Milling Co.,
Inc., in conformity with the letter of the Philippines National Bank of the 19th of said month, cancelled
certificate No. 772 and in lieu thereof issued certificate No. 1155 in favor of said bank, which certificate
includes the 6,300 stock dividends, among other shares. On the other hand, the garnishment obtained by
the plaintiff, upon which it bases all its alleged preferred right was notified to the parties and became
effective on August 11, 1930, more than five months after the delivery of certificate No. 772. The plaintiff, in
its second assignment of error, maintains that the pledge is ineffective as against it because evidence of its
date was not made to appear in a public instrument and concludes that its right to the 6,300 stock
dividends is superior and preferred. It is admitted that the delivery of the certificate in question and the
pledge thereof were not made to appear in a public instrument.
It is true, according to article 1865 of the Civil Code, that in order that a pledge may be effective as against
third person, evidence of its date must appear in a public instrument in addition to the delivery of the thing
pledged to the creditor. This provision has been interpreted in the sense that for the contract to affect third
person, it must appear in a public instrument in addition to delivery of the thing pledged (Ocejo, Perez and
Co., vs. International Banking Corporation, 37 Phil., 631: Tec Bi & Co. vs. Chartered Bank of India,
Australia and China, 41 Phil., 596; Te Pate vs. Ingersoll, 43 Phil., 394). It cannot be denied, however, that
section 4 of Act No. 1508, otherwise known as the Chattel Mortgage Law, implicitly modified article 1865 of
the Civil Code in the sense that a contract of pledge and that of chattel mortgage, to be effective as against
third persons, need not appear in public instruments provided the thing pledged or mortgaged be delivered
or placed in the possession of the creditor. In the case of Mahoney vs. Tuason (39 Phil., 952, 958), where
this doctrine was laid down, it was stated; "From the foregoing provisions of the abovecited Act, it is
inferred that the same does not entirely repeal the provisions of the Civil Code, but only modify them in part
and amplify them in another, as may be seen from an examination of, and comparison between, the
provisions of the Civil Code regarding pledge and the abovequoted provisions of Act No. 1508. Article 1865
of the Civil Code provides that no pledge shall be effective against a third person unless evidence of its
date appears in a public instrument. The provision of this article has, undoubtedly, been modified by section
4 of the Chattel Mortgage Law, in so far as it provides that a chattel mortgage shall not be valid against any
person except the mortgagor, his executors or administrators, unless the possession of the property is
delivered to and retained by the mortgagee or unless the mortgage is recorded in the office of the register
of deeds of the province in which the mortgagor resides. From the date the said Act No. 1508 was in force,
a contract of pledge or chattel mortgage should be deemed legally entered into and should produce all its
effects and consequences, provided it appears to have been in some manner perfected and that the things
pledged have been delivered, and in a contrary case, and even if the creditor has not received them or has
not retained them in his custody, provided that the contract of pledge or chattel mortgage appears in a
notarial document and is inscribed in the registry of deeds of the province." Therefore, this court holds that
the pledge of the 6,300 stock dividends is valid against the plaintiff for the reason that the certificate was
delivered to the creditor bank, notwithstanding the fact that the contract does not appear in a public
instrument.
The plaintiff further contends that the pledge could not legally exist because the certificate was not the
shares themselves, making it understood that a certificate of stock or of stock dividends can not be the
subject matter of the contract of pledge or of chattel mortgage. Neither is this contention tenable.
Certificates of stock or of stock dividends, under the Corporation Law, are quasi negotiable instruments in
the sense that they may be given in pledge or mortgage to secure an obligation. The question is settled in
this wise by the weight of American authorities and it is the modern doctrine of general acceptance by the
courts.
In view, however, of the fact that certificates of stock, while not negotiable in the sense of the law
merchant, like bills and notes, are so framed and dealt with as to be transferable, when property
endorsed, by mere delivery, and as they frequently convey, by estoppel against the corporation or
against prior holders, as good a title to the transferee as if they were negotiable, and inasmuch as a
large commercial use is made of such certificates as collateral security, and it is to the public
interest that such use should be simplify and facilitated by placing them as nearly as possible on
the plane of commercial paper, they are often spoken of and treated as quasi negotiable, that is as
having some of the attributes and partaking of the character of negotiable instruments, in passing
from hand to hand, especially where they are accompanied by an assignment and power of
attorney, executed in blank, to transfer them to anyone who may obtain possession as holders,
even though such assignment and power are under seal. (14 C. J., 665, sec 1034; South Bend First
Nat. Bank vs. Lanier, 20 Law. ed., 172; Weniger vs. Success Min. Co., 227 Fedd., 548; Scott vs.
Pequonnock Nat. Bank, 15 Fed., 494.)
III. In the third assignment of error, the plaintiff maintains that the court erred in holding that the stock
dividends are civil fruits or an extension of the original shares. This court deems it unnecessary to
determine whether or not the stock devidends are civil fruits or an extension of the original shares. This
point becomes immaterial after the case has been decided in the manner stated in the discussion of the
second assignment of error .
IV. In the forth assignment of error, the plaintiff contends that court erred in not declaring null and void the
sale of the 6,300 stock dividends in execution of the judgment rendered in favor of the Philippine National
Bank in civil case No. 4706 of the Court of First Instance of Occidental Negros. Inasmuch as this court has
declared that the stock dividends in question were pledged to the bank, it follows that the sale thereof in
execution of said judgment is legal and valid.
V. In the fifth assignment of error, the plaintiff argues that the court erred in declaring the Philippine National
Bank's right to the stock dividends a preferred one. After it has been held that these stock dividends had
been pledged to the Philippine National Bank and that this contract was prior to the garnishment of the
plaintiff, it appear clear that the court violated no law in holding the right of the Philippine National Bank, as
pledgee, a superior one.
VI. The plaintiff assigns as sixth and last error committed by the court the fact of its having absolved all the
defendants. The case having been decided in favor of the Philippine National Bank, on the grounds stated
in passing upon the second assignment of error, the absolution of the defendants is unavoidable, thereby
making this last assignment of error likewise untenable.
For the foregoing consideration the appealed judgment is affirmed, with the costs of this instance to the
plaintiff-appellant. So ordered.
Avanceña, C.J., Villa-Real, Abad Santos, Diaz, Laurel and Concepcion, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L-44606 November 28, 1938

VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant,
vs.
CATALINO BATACLAN, defendant-appellant.
TORIBIO TEODORO, purchaser-appellee.
Pedro de Leon for plaintiff-appellant.
Angel H. Mojica and Francisco Lavides for defendant appellant.
Jose Y. Garde for 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.
Avanceña, C.J., Villa-Real, Imperial and Diaz, JJ., concur.

Footnotes
1 Promulgated December 6, 1930, not reported.

2 Promulgated December 2, 1933 (59 Phil., 903).

The Lawphil Project - Arellano Law Foundation

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.
Leoncio R. Esliza for petitioners.
Mauricio M. Monta for 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.
Ozaeta, Paras, Jaranilla, Feria, De Joya, Pablo, Perfecto, Hilado, Bengzon and Briones, JJ., concur.

The Lawphil Project - Arellano Law Foundation

G.R. No. L-57288 April 30, 1984

LEONILA SARMINETO, petitioner,
vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh Judicial District,
Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO and REBECCA LORENZO-
VALENTINO,respondents.
Mercedes M. Respicio for petitioner.
Romulo R. Bobadilla for private respondents.

MELENCIO-HERRERA, J.: ñé+.£ªwph!1

This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court of First Instance
of Pasay City. The Decision was one made on memoranda, pursuant to the provisions of RA 6031, and it
modified, on October 17, 1977, a judgment of the then Municipal Court of Paranaque, Rizal, in an
Ejectment suit instituted by herein petitioner Leonila SARMIENTO against private respondents, the
spouses ERNESTO Valentino and Rebecca Lorenzo. For the facts, therefore, we have to look to the
evidence presented by the parties at the original level.
It appears that while ERNESTO was still courting his wife, the latter's mother had told him the couple could
build a RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision in Paranaque (the
LAND, for short). In 1967, ERNESTO did construct a RESIDENTIAL HOUSE on the LAND at a cost of
P8,000.00 to P10,000.00. It was probably assumed that the wife's mother was the owner of the LAND and
that, eventually, it would somehow be transferred to the spouses.
It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C. Santo, Jr. who,
on September 7 , 1974, sold the same to petitioner SARMIENTO. The following January 6, 1975,
SARMIENTO asked ERNESTO and wife to vacate and, on April 21, 1975, filed an Ejectment suit against
them. In the evidentiary hearings before the Municipal Court, SARMIENTO submitted the deed of sale of
the LAND in her favor, which showed the price to be P15,000.00. On the other hand, ERNESTO testified
that the then cost of the RESIDENTIAL HOUSE would be from P30,000.00 to P40,000.00. The figures
were not questioned by SARMIENTO.
The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in good faith, and,
disregarding the testimony of ERNESTO, that it had a value of P20,000.00. It then ordered ERNESTO and
wife to vacate the LAND after SARMIENTO has paid them the mentioned sum of P20,000.00.
The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the submission of
memoranda, said Court rendered a modifying Decision under Article 448 of the Civil Code. SARMIENTO
was required, within 60 days, to exercise the option to reimburse ERNESTO and wife the sum of 40,000.00
as the value of the RESIDENTIAL HOUSE, or the option to allow them to purchase the LAND for
P25,000.00. SARMIENTO did not exercise any of the two options within the indicated period, and
ERNESTO was then allowed to deposit the sum of P25,000.00 with the Court as the purchase price for the
LAND. This is the hub of the controversy. SARMIENTO then instituted the instant certiorari proceedings.
We agree that ERNESTO and wife were builders in good faith in view of the peculiar circumstances under
which they had constructed the RESIDENTIAL HOUSE. As far as they knew, the LAND was owned by
ERNESTO's mother-in-law who, having stated they could build on the property, could reasonably be
expected to later on give them the LAND.
In regards to builders in good faith, Article 448 of the Code provides: têñ.£îhqwâ£

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)
The value of the LAND, purchased for P15,000.00 on September 7, 1974, could not have been very much
more than that amount during the following January when ERNESTO and wife were asked to vacate.
However, ERNESTO and wife have not questioned the P25,000.00 valuation determined by the Court of
First Instance.
In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence presented was the testimony of
ERNESTO that its worth at the time of the trial should be from P30,000.00 to P40,000.00. The Municipal
Court chose to assess its value at P20,000.00, or below the minimum testified by ERNESTO, while the
Court of First Instance chose the maximum of P40,000.00. In the latter case, it cannot be said that the
Court of First Instance had abused its discretion.
The challenged decision of respondent Court, based on valuations of P25,000.00 for the LAND and
P40,000.00 for the RESIDENTIAL HOUSE, cannot be viewed as not supported by the evidence. The
provision for the exercise by petitioner SARMIENTO of either the option to indemnify private respondents in
the amount of P40,000.00, or the option to allow private respondents to purchase the LAND at P25,000.00,
in our opinion, was a correct decision. têñ.£îhqwâ£

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 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. (Emphasis 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]).
WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to costs.
SO ORDERED. 1äwphï1.ñët

Teehankee (Chairman), Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.

The Lawphil Project - Arellano Law Foundation

EN BANC
G.R. No. L-35648 February 27, 1987
PERSHING TAN QUETO, petitioner,
vs.
COURT OF APPEALS, JUAN POMBUENA and RESTITUTA TACALINAR GUANGCO DE
POMBUENA,respondents.
RESOLUTION

PARAS, J.:
This is a Motion for Reconsideration of the decision dated May 16,1983 of this Court * in the above-entitled case,
asking for the reversal of said decision on the following grounds:

1. Decison erred in disregarding the fact that Lot No. 304-B was registered in the name of
the husband, Juan Pombuena, as per OCT. No. 0-1160 issued pursuant to the November
22, 1938 Decision (Exhibit 3) of the Cadastral Court in Cadastral Case No. 12, G.L.R.O.
Cad. Rec. No. 1638, and that petitioner had the right to rely on said OCT;
2. The Decision erred in misinterpreting the admission in the Answer of petitioner to the
complaint in the unlawful detainer Case No. 448 (City Court of Ozamiz City) as his
admission that Lot 304-B is the paraphernal property of the wife, Restituta Tacalinar;
 3. The Decision erred in reforming the Contract of Sale (Exh. B) of Lot 304-B from Basilides
Tacalinar (mother) to the respondent, Restituta Tacalinar Guangco de Pombuena, from a
sale to a conveyance of the share of the wife Restituta Tacalinar (daughter) in
the future hereditary estate of her parents;
4. The Decision erred in over-looking that the barter agreement is an onerous contract of
exchange, whereby private respondents-spouses received valuable consideration,
concessions and other benefits therefor and in concluding that 'the barter agreement has no
effect;
5. The Decision erred in disregarding the fact that petitioner constructed his concrete
building on Lot No. 304-B in good faith relying OCT No. 0-1160, after the dismissal of the
ejectment case and onlyafter the execution of said barter agreement;
6. The Decision erred in confusing the conclusion of law that petitioner is a builder in bad
faith with afinding of fact. The rule is that questions of law are reviewable on appeal or by
certiorari. Moreover, the rule on finding of fact is subject to well-settled exceptions. (pp. 257-
258, Rollo)
It wig be recalled that the undisputed relevant facts indicate:
(1) that Restituta Tacalinar Guanaco de Pombuena (RESTITUTA, for short) received the
questioned lot (no. 304-B), of the Cadastre Survey of the Municipality of Centro, Mizamis
Occidental, either as a purported donation or by way of purchase on (February 11, 1927)
(with P50.00) as the alleged consideration thereof;
(2) that the transaction took place during her mother's lifetime, her father having
predeceased the mother;
(3) that the donation or sale was consummated while RESTITUTA was already married to
her husband Juan Pombuena (JUAN, for short);
(4) that on January 22, 1935, JUAN filed for himself and his supposed co-owner
RESTITUTA an application for a Torrens Title over the land;
(5) that under date of November 22, 1938 a decision was promulgated in GLRC No. 1638
(Cadastral Case No. 12) pronouncing JUAN ('married to RESTITUTA') as the owner of the
land;
(6) that on September 22, 1949 a contract of lease over the lot was entered into between
Pershing Tan Queto (TAN QUETO, for short, the herein petitioner) and RESTITUTA (with
the consent of her husband JUAN) for a period of ten (10) years;
(7) that on December 27, 1960 RESTITUTA sued TAN QUETO for unlawful detainer (the
lease contract having expired) before the Municipal Court of Ozamis City;
(8) that as a consequence of the cadastral case, an Original Certificate of Title (Exh. 10)
was issued in JUAN's name ("married to RESTITUTA") on April 22, 1962;
(9) that the unlawful detainer case was won by the spouses in the Municipal Court; but on
appeal in the Court of First Instance, the entire case was DISMISSED because of an
understanding (barter) whereby TAN QUETO became the owner of the disputed lot, and the
spouses RESTITUTA and JUAN in turn became the owners of a parcel of land (with the
house constructed thereon) previously owned (that is, before the barter) by TAN QUETO;
(10) that after the barter agreement dated October 10, 1962 between JUAN and TAN
QUETO, the latter constructed (See p. 257, Rollo, Vol. II) on the disputed land a concrete
building, without any objection on the part of RESTITUTA;
(11) that later, RESTITUTA sued both JUAN and TAN QUETO for reconveyance of the title
over the registered but disputed lot, for annulment of the barter, and for recovery of the land
with damages.
The two principal issues are clearly the following:
(1) Is the questioned lot paraphernal or conjugal?
(2) In having constructed the building on the lot, should TAN QUETO be regarded as a builder in good
faith (and hence entitled to reimbursement) or a builder in bad faith (with no right to reimbursement)?
The finding by both the Court of First Instance and the Court of Appeals that the disputed lot is paraphernal
and that TAN QUETO is a builder in bad faith were regarded by Us in Our assailed decision as findings of
facts and thus ordinarily conclusive on Us. Assuming they are factual findings, still if they are erroneous
inferences from certain facts, they cannot bind this Court.
A second hard look at the circumstances of the case has constrained Us to rule as follows:
(1) The land is conjugal, not paraphernal. How was ownership transferred, if at all, from her mother to
RESTITUTA? The oral donation of the lot cannot be a valid donation interviews because it was not
executed in a public instrument (Art. 749, Civil Code), nor as a valid donation mortis causa for the
formalities of a will were not complied with. The allegation that the transfer was a conveyance to
RESTITUTA of her hereditary share in the estate of her mother (or parents) cannot be sustained for the
contractual transmission of future inheritance is generally prohibited.
The fact is ownership was acquired by both JUAN and RESTITUTA by tradition (delivery) as a
consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as
the cause or consideration of the transaction. The lot is therefore conjugal, having been acquired by the
spouses thru onerous title (the money used being presumably conjugal there being no proof that
RESTITUTA had paraphernal funds of her own). The contention that the sale was fictitious or simulated
(and therefore void) is bankrupt. Firstly, there was a valid consideration therefor. Secondly, assuming that
there had indeed been a simulation, the parties thereto cannot use said simulation to prejudice a stranger
to said stratagem (like petitioner herein).
One nagging question has been posed. But did not TAN QUETO admit in his Answer that RESTITUTA was
the owner of the lot. This is not so. He admitted RESTITUTA was an owner" (not the owner) of the lot, and
this is true, for she was a co-owner (with JUAN, and therefore "an owner. " Surely, there is no admission of
RESTITUTA's exclusive ownership. And yet this is the basis of the trial court's conclusion that the lot was
indeed paraphernal.
(2) Was Tan Queto a possessor and builder in good faith or in bad faith?
Even assuming that despite registration of the lot as conjugal, Tan Queto nursed the belief that the lot was
actually RESTITUTA's (making him in bad faith), still RESTITUTA's failure to prohibit him from building
despite her knowledge that construction was actually being done, makes her also in bad faith. The net
resultant of mutual bad faith would entitle TAN QUETO to the rights of a builder in good faith (Art. 448, Civil
Code), ergo, reimbursement should be given him if RESTITUTA decides to appropriate the building for
herself (Art. 448, Civil Code).
However, as already previously intimated, TAN QUETO having bartered his own lot and small house with
the questioned lot with JUAN (who has been adverted to by a court decision and by the OCT a conjugal
owner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not merely a possessor
or builder in good faith(this phrase presupposes ownership in another); much less is he a builder in bad
faith. He is a builder-possessor jus possidendi because he is the OWNER himself. Please note that the
Chapter on Possession (jus possesionis, not jus possidendi) in the Civil Code refers to a
possessor other than the owner. Please note further that the difference between a builder (or possessor) in
good faith and one in bad faith is that the former is NOT AWARE of the defect or flaw in his title or mode of
acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil Code). But in either case there
is a flaw or defect. In the case of TAN QUETO there is no such flaw or defect because it is he himself (not
somebody else) who is the owner of the property.
WHEREFORE, Our decision promulgated on May 16,1983 is hereby SET ASIDE, and a new one is hereby
rendered declaring the questioned lot together with the building thereone, as TAN QUETO's exclusive
property. No costs..
SO ORDERED.
Teehankee, C.J., Yap, Fernan, Narvasa, Alampay, Cruz, Feliciano, Gancayco, Bidin and Sarmiento, JJ.,
concur.
Padilla, J., took no part.
Cortes, J., took no part.

Separate Opinions

MELENCIO-HERRERA, J., concurring:

I vote to uphold the Decision of May 16, 1983 and to deny reconsideration.
GUTIERREZ, JR., J., concurring:
I reiterate my vote in the decision sought to be reconsidered & dissent herein.

Separate Opinions
MELENCIO-HERRERA, J., concurring:
I vote to uphold the Decision of May 16, 1983 and to deny reconsideration.
GUTIERREZ, JR., J., concurring:
I reiterate my vote in the decision sought to be reconsidered & dissent herein.
Footnotes
* Affirming the Decision of the Court of Appeals in G.R. No. 39492-R penned by Justice
Ramon C. Fernandez concurred in by Justices Hermogenes Concepcion, Jr. and Cecilia
Munoz Palma which affirmed the Decision of the Trial Judge Geronimo R. Marave.

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 decision1 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 order8 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.
Padilla, Bellosillo and Kapunan, JJ., concur.
Quiason, J., is on leave.

FIRST DIVISION
G.R. No. L-57348 May 16, 1985
FRANCISCO DEPRA, plaintiff-appellee,
vs.
AGUSTIN DUMLAO, defendant-appellant.
Roberto D. Dineros for plaintiff-appellee.
Veil D. Hechanova for 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.
Teehankee, Actg. C.J., Plana, Relova, De la Fuente and Alampay, JJ., concur.
Gutierrez, Jr., * J., took no part.

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 Decision1 dated August 28, 1992, in CA-
G.R. CV No. 28293 of respondent Court2 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." 24 And 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." 36 Moreover, in Grana and Torralba,
the area involved was only 87 square meters while this case involves 520 square meters 37. 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.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

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.
Salonga, Ordoñ;ez, Yap, Sicat & Associates and Salvador, Ulgado & Carbon for petitioner.
Jose A. Cusi for private 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. 15 It 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.
Barredo (Chairman), Concepcion, Jr. and Guerrero, JJ., concur. 1äwphï1.ñët

Aquino, J., concurs in the result.

Santos and Abad Santos, JJ., are on leave.
Guerrero, J., was designated to sit in the Second Division

[G.R. No. 120303. July 24, 1996]

FEDERICO GEMINIANO, MARIA GEMINIANO, ERNESTO GEMINIANO,
ASUNCION GEMINIANO, LARRY GEMINIANO, and MARLYN
GEMINIANO, petitioners, vs. COURT OF APPEALS, DOMINADOR
NICOLAS, and MARY A. NICOLAS, respondents.

DECISION

DAVIDE, JR., J.:

This petition for review on certiorari has its origins in Civil Case No. 9214 of Branch 3 of
the Municipal Trial Court in Cities (MTCC) in Dagupan City for unlawful detainer and
damages. The petitioners ask the Court to set aside the decision of the Court of Appeals
affirming the decision of Branch 40 of the Regional Trial Court (RTC) of Dagupan City, which,
in turn, reversed the MTCC; ordered the petitioners to reimburse the private respondents the
value of the house in question and other improvements; and allowed the latter to retain the
premises until reimbursement was made.

It appears that Lot No. 3765-B-1 containing an area of 314 square meters was originally
owned by the petitioners' mother, Paulina Amado vda. de Geminiano. On a 12-square-meter
portion of that lot stood the petitioners' unfinished bungalow, which the petitioners sold in
November 1978 to the private respondents for the sum of P6,000.00, with an alleged promise
to sell to the latter that portion of the lot occupied by the house. Subsequently, the petitioners'
mother executed a contract of lease over a 126 square-meter portion of the lot, including that
portion on which the house stood, in favor of the private respondents for P40.00 per month for
a period of seven years commencing on 15 November 1978.[1] The private respondents then
introduced additional improvements and registered the house in their names. After the
expiration of the lease contract in November 1985, however, the petitioners' mother refused to
accept the monthly rentals.
 It turned out that the lot in question was the subject of a suit, which resulted in its
acquisition by one Maria Lee in 1972. In 1982, Lee sold the lot to Lily Salcedo, who in turn
sold it in 1984 to the spouses Agustin and Ester Dionisio.

On 14 February 1992, the Dionisio spouses executed a Deed of Quitclaim over the said
property in favor of the petitioners.[2] As such, the lot was registered in the latter's names.[3]

On 9 February 1993, the petitioners sent, via registered mail, a letter addressed to private
respondent Mary Nicolas demanding that she vacate the premises and pay the rentals in
arrears within twenty days from notice.[4]

Upon failure of the private respondents to heed the demand, the petitioners filed with the
MTCC of Dagupan City a complaint for unlawful detainer and damages.

During the pre-trial conference, the parties agreed to confine the issues to: (1) whether
there was an implied renewal of the lease which expired in November 1985; (2) whether the
lessees were builders in good faith and entitled to reimbursement of the value of the house
and improvements; and (3) the value of the house.

The parties then submitted their respective position papers and the case was heard under
the Rule on Summary Procedure.

On the first issue, the court held that since the petitioners' mother was no longer the
owner of the lot in question at the time the lease contract was executed in 1978, in view of its
acquisition by Maria Lee as early as 1972, there was no lease to speak of, much less, a
renewal thereof. And even if the lease legally existed, its implied renewal was not for the
period stipulated in the original contract, but only on a month-to-month basis pursuant to
Article 1687 of the Civil Code. The refusal of the petitioners' mother to accept the rentals
starting January 1986 was then a clear indication of her desire to terminate the monthly
lease. As regards the petitioners' alleged failed promise to sell to the private respondents the
lot occupied by the house, the court held that such should be litigated in a proper case before
the proper forum, not an ejectment case where the only issue was physical possession of the
property.

The court resolved the second issue in the negative, holding that Articles 448 and 546 of
the Civil Code, which allow possessors in good faith to recover the value of improvements
and retain the premises until reimbursed, did not apply to lessees like the private
respondents, because the latter knew that their occupation of the premises would continue
only during the life of the lease. Besides, the rights of the private respondents were
specifically governed by Article 1678, which allows reimbursement of up to one-half of the
value of the useful improvements, or removal of the improvements should the lessor refuse to
reimburse.

On the third issue, the court deemed as conclusive the private respondents' allegation
that the value of the house and improvements was P180,000.00, there being no controverting
evidence presented.

The trial court thus ordered the private respondents to vacate the premises, pay the
petitioners P40.00 a month as reasonable compensation for their stay thereon from the filing
of the complaint on 14 April 1993 until they vacated, and to pay the sum of P1,000.00 as
attorney's fees, plus costs.[5]

On appeal by the private respondents, the RTC of Dagupan City reversed the trial court's
decision and rendered a new judgment: (1) ordering the petitioners to reimburse the private
respondents for the value of the house and improvements in the amount of P180,000.00 and
to pay the latter P10,000.00 as attorney's fees and P2,000.00 as litigation expenses; and (2)
allowing the private respondents to remain in possession of the premises until they were fully
reimbursed for the value of the house.[6] It ruled that since the private respondents were
assured by the petitioners that the lot they leased would eventually be sold to them, they
could be considered builders in good faith, and as such, were entitled to reimbursement of the
value of the house and improvements with the right of retention until reimbursement had been
made.

On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of the
RTC[7] and denied[8] the petitioners' motion for reconsideration. Hence, the present petition.

The Court is confronted with the issue of which provision of law governs the case at
bench: Article 448 or Article 1678 of the Civil Code? The said 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.
xxx xxx xxx
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to
the use for which the lease is intended, without altering the form or substance of the
property leased, the lessor upon the termination of the lease shall pay the lessee one-half
of the value of the improvements at that time. Should the lessor refuse to reimburse said
amount, the lessee may remove the improvements, even though the principal thing may
suffer damage thereby. He shall not, however, cause any more impairment upon the
property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no damage is
caused to the principal thing, and the lessor does not choose to retain them by paying
their value at the time the lease is extinguished.
The crux of the said issue then is whether the private respondents are builders in good
faith or mere lessees.

The private respondents claim they are builders in good faith, hence, Article 448 of the
Civil Code should apply. They rely on the lack of title of the petitioners' mother at the time of
the execution of the contract of lease, as well as the alleged assurance made by the
petitioners that the lot on which the house stood would be sold to them.

It has been said that while the right to let property is an incident of title and possession, a
person may be a lessor and occupy the position of a landlord to the tenant although he is not
the owner of the premises let.[9] After all, ownership of the property is not being transferred,
[10] only the temporary use and enjoyment thereof.[11]

In this case, both parties admit that the land in question was originally owned by the
petitioners' mother. The land was allegedly acquired later by one Maria Lee by virtue of an
extrajudicial foreclosure of mortgage. Lee, however, never sought a writ of possession in
order that she gain possession of the property in question.[12] The petitioners' mother
therefore remained in possession of the lot.

It is undisputed that the private respondents came into possession of a 126 square-meter
portion of the said lot by virtue of a contract of lease executed by the petitioners' mother in
their favor. The juridical relation between the petitioners' mother as lessor, and the private
respondents as lessees, is therefore well-established, and carries with it a recognition of the
lessor's title.[13] The private respondents, as lessees who had undisturbed possession for the
entire term under the lease, are then estopped to deny their landlord's title, or to assert a
better title not only in themselves, but also in some third person while they remain in
possession of the leased premises and until they surrender possession to the landlord.
[14] This estoppel applies even though the lessor had no title at the time the relation of lessor
and lessee was created,[15] and may be asserted not only by the original lessor, but also by
those who succeed to his title.[16]

Being mere lessees, the private respondents knew that their occupation of the premises
would continue only for the life of the lease. Plainly, they cannot be considered as possessors
nor builders in good faith.[17]

In a plethora of cases,[18] this Court has held that Article 448 of the Civil Code, in relation
to Article 546 of the same Code, which allows full reimbursement of useful improvements and
retention of the premises until reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply
where one's only interest is that of a lessee under a rental contract; otherwise, it would always
be in the power of the tenant to "improve" his landlord out of his property.

Anent the alleged promise of the petitioners to sell the lot occupied by the private
respondents' house, the same was not substantiated by convincing evidence. Neither the
deed of sale over the house nor the contract of lease contained an option in favor of the
respondent spouses to purchase the said lot. And even if the petitioners indeed promised to
sell, it would not make the private respondents possessors or builders in good faith so as to
be covered by the provisions of Article 448 of the Civil Code. The latter cannot raise the mere
expectancy of ownership of the aforementioned lot because the alleged promise to sell was
not fulfilled nor its existence even proven. The first thing that the private respondents should
have done was to reduce the alleged promise into writing, because under Article 1403 of the
Civil Code, an agreement for the sale of real property or an interest therein is unenforceable,
unless some note or memorandum thereof be produced. Not having taken any steps in order
that the alleged promise to sell may be enforced, the private respondents cannot bank on that
promise and profess any claim nor color of title over the lot in question.

There is no need to apply by analogy the provisions of Article 448 on indemnity as was
done in Pecson vs. Court of Appeals,[19] because the situation sought to be avoided and
which would justify the application of that provision, is not present in this case. Suffice it to
say, "a state of forced co-ownership" would not be created between the petitioners and the
private respondents. For, as correctly pointed out by the petitioners, the rights of the private
respondents as lessees are governed by Article 1678 of the Civil Code which allows
reimbursement to the extent of one-half of the value of the useful improvements.

It must be stressed, however, that the right to indemnity under Article 1678 of the Civil
Code arises only if the lessor opts to appropriate the improvements. Since the petitioners
refused to exercise that option,[20] the private respondents cannot compel them to reimburse
the one-half value of the house and improvements. Neither can they retain the premises until
reimbursement is made. The private respondents' sole right then is to remove the
improvements without causing any more impairment upon the property leased than is
necessary.[21]

WHEREFORE, judgment is hereby rendered GRANTING the instant petition;

REVERSING and SETTING ASIDE the decision of the Court of Appeals of 27 January 1995
in CA-G.R. SP No. 34337; and REINSTATING the decision of Branch 3 of the Municipal Trial
Court in Cities of Dagupan City in Civil Case No. 9214 entitled "Federico Geminiano, et al. vs.
Dominador Nicolas, et al."

Costs against the private respondents.

SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

[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.

DECISION
PANGANIBAN, J.:

Is a lot buyer who constructs improvements on the wrong property

erroneously delivered by the owners agent, a builder in good faith? This is the
main issue resolved in this petition for review on certiorari to reverse the
Decision[1] of the Court of Appeals[2] in CA-G.R. SP 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 Kees 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 Kees 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, Jardinicos 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 latters 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 tithe 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 P 15.00 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 CT. Torres Enterprises, Inc. and Pleasantville Subdivision are
ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as attorneys 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 Kee.[5] 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 (P 15.00) 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 attorneys 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 attorneys 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
attorneys 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 Courts 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 attorneys 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 attorneys fees proper?

The First Issue: Good Faith

Petitioner contends that the Court of Appeals erred in reversing the RTCs
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. x x x
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 developers agent and applied and paid for the relocation of
the lot, as well as for the production of a lot plan by CTTEIs geodetic engineer. Upon
Kees receipt of the map, his wife went to the subdivision site accompanied by CTTEIs
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 companys 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 engineers 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
CTTEIs blunder, what Kee had hoped to forestall did in fact transpire. Kees 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, Kees good faith. Petitioner failed to prove otherwise.

To demonstrate Kees bad faith, petitioner points to Kees 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 petitioners
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 petitioners 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: Petitioners 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 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]

Petitioners 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
petitioners 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 whatsoever;[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, petitioners 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 Courts Decision would require petitioner and CTTEI jointly
and solidarily to answer or reimburse Kee there for.

We agree with petitioner.

Petitioners 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 now
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: Attorneys Fees

The MTCC awarded Jardinico attorneys 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 attorneys
fees after ruling that petitioner was liable for its agents negligence.

The award of attorneys 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 petitioners 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. Tones 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 Develpment Corporation and respondent C.T. Torres Enterprises,
Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorneys
fees, as well as litigation expenses; and

(4) The award of rentals to Jardinico is dispensed with.

SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Melo, JJ., concur.
Francisco, J., took no part. Member of the division in the CA which rendered
the assailed decision.

G.R. No. 78447 August 17, 1989

RESTITUTO CALMA, petitioner,
vs.
THE HON. COURT OF APPEALS (FIFTH DIVISION) and PLEASANTVILLE DEVELOPMENT
CORPORATION,respondents.
Restituto S. Calma and Carlos S. Ayeng for petitioner.
William N. Mirano & Associates for respondents.

CORTES, J.:
Petitioner Restituto Calma, through this Petition for Review on certiorari, seeks to set aside the decision of
the Court of Appeals in CA-G.R. SP. No. 10684 dated 26 February 1987 declaring null and void an order of
the Human Settlements Regulatory Commission (hereinafter referred to as the COMMISSION) dated 30
September 1986 calling for the issuance of a writ of execution to enforce its decision of 22 May 1985.
The antecedents of this case are as follows:
Sometime in August 1975, the spouses Restituto and Pilar Calma purchased a lot in respondent
Pleasantville Development Corporation's (hereinafter referred to as PLEASANTVILLE) subdivision in
Bacolod City, known as City Heights Phase II. In 1976, they built a house on said lot and established
residence therein. Fabian and Nenita Ong also purchased from PLEASANTVILLE a lot fronting that of the
Calma spouses sometime in the years 1979-1980, and constructed their own buildings where they resided
and conducted their business. On 25 April 1981, petitioner Calma wrote the president of the Association of
Residents of City Heights, Inc. (ARCHI) complaining that the compound of the Ongs was being utilized as a
lumber yard and that a "loathsome noise and nervous developing sound" emanating therefrom disturbed
him and his family and caused them and their son to suffer nervous tension and illness [Rollo, p. 58]. The
president of the association, in his reply, stated that the association's board had referred the matter to
Fabian Ong who had already taken immediate action on petitioner's complaint, i.e., by ordering the transfer
of the lumber cutting machine and by instructing his laborers not to do any carpentry or foundry works in
the early morning or afternoon and in the evening. Finding the measures taken by the association and
Fabian Ong unsatisfactory, petitioner on 17 June 1981 wrote and asked PLEASANTVILLE, as its duty and
obligation, to abate the nuisance emanating from the compound of the Ong family. Failing to get an answer,
the Calma spouses filed a complaint for damages against the Ong spouses and PLEASANTVILLE on 28
July 1981 before the Court of First Instance of Negros Occidental docketed as Civil Case No. 16113,
alleging inter alia that were it not for PLEASANTVILLE's act of selling the lot to the Ongs and its failure to
exercise its right to cause the demolition of the alleged illegal constructions, the nuisance could not have
existed and petitioner and his family would not have sustained damage. Thus, the complaint prayed for
actual, moral and exemplary damages and attomey's fees and expenses of litigation.
Petitioner also filed with the National Housing Authority (NHA), on 31 August 1981, a complaint for
"Violation of the Provisions, Rules and Regulations of the Subdivision and Condominium Buyers Protective
Decree under Presidential Decree No. 957," claiming inter alia that were it not for the negligent acts of
PLEASANTVILLE in selling the parcel of land to the spouses Fabian and Nenita Ong and its refusal to
exercise its right to cause the demolition of the structures built by the Ongs in violation of the contractual
provision that the land shall be used only for residential purposes, the illness of petitioner and as soon
would not have happened. Petitioner prayed that PLEASANTVILLE be ordered to abate the nuisance and/
or demolish the offending structures; to refund the amortization payments made on petitioner's lot; and to
provide petitioner and his son with medication until their recovery. He also prayed that PLEASANTVILLE be
penalized under Sec. 39 of P.D. No. 957 and that its license be revoked.
After the answer to the complaint was filed, the issues joined and the respective position papers submitted,
the COMMISSION (which had in the meantime taken over the powers of the NHA,)*rendered its decision in HSRC No.
REM-92181-0547 on 22 May 1985 dismissing the complaint of the petitioner for lack of merit, finding that PLEASANTVILLE did not violate Sections 9(b), 19 and
23 of P.D. No. 957, but included a portion holding PLEASANTVILLE responsible for the abatement of the alleged nuisance on the ground that it was part of its
implied warranty that its subdivision lots would be used solely and primarily for residential purpose.

Thus, the dispositive portion of the COMMISSION's decision read:

In view of the foregoing, the complaint for violation of Sections 9(f) and 23 of P.D. 957 is
hereby DISMISSED. Respondent, however is hereby ordered to take appropriate measures
for the prevention and abatement of the activities/nuisance complained of so as to ensure
complainant's peaceful and pleasant living in the residential subdivision of respondent. In
this regard, respondent within 15 days from finality of this decision, shall submit a timetable
of the action to be taken in compliance with this directive and thereafter, a periodic status
report of the progress of compliance. [Rollo, p. 35; Emphasis supplied.]
On 27 August 1986, respondent COMMISSION issued the order granting the issuance of a writ of
execution of its decision. Aggrieved, PLEASANTVILLE filed a petition for prohibition with preliminary
injunction with this Court assailing the portion of the COMMISSION's decision ordering it to "take
appropriate measures for the prevention and abatement of the nuisance complained of," and its directive
requiring PLEASANTVILLE to submit a timetable of the action to be taken and a periodic status report of
the progress of its compliance. PLEASANTVILLE asserted that since the COMMISSION had found that it
did not violate any provision of P.D. No. 957, the COMMISSION exceeded its jurisdiction when it ordered
PLEASANTVILLE to prevent/abate the alleged nuisance complained of.
The Court referred the petition to the Court of Appeals which rendered judgment holding that the
COMMISSION "acted capriciously and in excess of its jurisdiction in imposing an obligation upon the
petitioner after absolving it of the complaint filed against it" [Rollo, p. 38], the relevant portion of which
decision is quoted below:
We find the petition impressed with merit. Presidential Decree No. 957 is a regulatory
decree with penal sanctions. While it absolved the petitioner of any penal liability by
dismissing the complaint against it because it has not violated the pertinent provisions of
Sections 9(f), 19 and 23, P.D. 957, yet it imposed an obligation to perform something that
was not proven in the complaint—-that is to abate the occurrence of nuisance and to submit
a timetable of action and a periodic report of the progress of compliance. The order does
not only appear overbearing and/or arbitrary, but it is without any basis in fact. . . .
Thus, the Court of Appeals ruled:
WHEREFORE, in view of the foregoing, We find merit in the petition and the same is hereby
GRANTED, It is hereby ORDERED:
1) That order of respondent Commission dated 27 August 1986 for the issuance of a writ of
 execution is SET ASIDE as null and void;
2) That should any writ relative thereto been (sic) issued, the same is DISSOLVED or
CANCELLED;
3) That portion of the dispositive portion of the decision of respondent Commission of May
22, 1985, ordering petitioner respondent to take appropriate measure for the prevention and
abatement of activities/nuisance complained of in said case and the submission of timetable
of action and periodic report is SET ASIDE as null and void.
No pronouncement as to costs.
SO ORDERED. [Rollo, pp. 38-39.]
Petitioner moved for reconsideration of the decision but the Court of Appeals denied his motion. Hence,
petitioner brought the instant petition for review on certiorari seeking the reversal of the decision of the
Court of Appeals and the reinstatement of the COMMISSION'S decision.
1. The power to abate a nuisance, is not one of those enumerated under P.D. No. 957, the
Subdivision and Condominium Buyers Protective Decree. However, as pointed out by the
Solicitor General before the Court of Appeals, the COMMISSION has been specifically
authorized by Executive Order No. 648 dated February 7, 1981 (otherwise known as the
"Charter of the Human Settlements Regulatory Commission"), to-
Issue orders after conducting the appropriate investigation for the cessation or closure of
any use or activity and to issue orders to vacate or demolish any building or structure that it
determines to have violated or failed to comply with any of the laws, presidential decrees,
letter of instructions, executive orders and other presidential issuances and directives being
implemented by it, either on its own motion or upon complaint of any interested party. [Sec,
5 (p).] **
At this point the Court finds it unnecessary to go into whether or not the COMMISSION's order to PLEASANTVILLE to take measures for the prevention and
abatement of the nuisance complained of finds solid support in this provision because, as found by the Court of Appeals, the COMMISSION's conclusion that the
activities being conducted and the structures in the property of the Ongs constituted a nuisance was not supported by any evidence. The Solicitor General
himself, in his comment filed in the Court of Appeals, admits that the decision of the COMMISSION did not make any finding of a nuisance [CA Rollo, p. 93].
Apparently, on the basis of position papers, the COMMISSION assumed the existence of the nuisance, without receiving evidence on the matter, to support its
order for the prevention or abatement of the alleged nuisance.

Moreover, the spouses Ong, were not even party to the proceedings before the COMMISSION which
culminated in the order for the prevention or abatement of the alleged nuisance. The parties before the
COMMISSION were petitioner and PLEASANTVILLE only, although the persons who would be directly
affected by a decision favorable to petitioner would be the Ong spouses. Certainly, to declare their property
or the activities being conducted therein a nuisance, and to order prevention and abatement, without giving
them an opportunity to be heard would be in violation of their basic right to due process.
Thus, we find in this case a complete disregard of the cardinal primary rights in administrative proceedings,
which had been hornbook law since the leading case of Ang Tibay v. Court of Industrial Relations, 69 Phil.
635 (1940). lâwphî1.ñèt

Consequently, the COMMISSION gravely abused its discretion amounting to lack or excess of jurisdiction
when it ordered PLEASANTVILLE to "take appropriate measure for the prevention/abatement of the
nuisance complained of."
2. Petitioner insists that the Ong spouses were not indispensable parties in the case before
the COMMISSION, hence no violation of due process was committed, because the action
was primarily based on PLEASANTVILLE's violation of its contractual and statutory
obligations to petitioner. He advances the view that PLEASANTVILLE breached its warranty
that the subdivision shall be exclusively residential.
In testing the validity of this contention, the following provisions of the printed Contract to Sell on
Installment [Annex "E" of the Petition] between PLEASANTVILLE and petitioner, which petitioner claims to
be uniform for all lot-buyers in the subdivision (but which was not established by evidence in the
proceedings before the COMMISSION), are to be considered:
xxx xxx xxx
 12. The Vendee agrees to constitute as permanent lien on the property subject-matter of
this agreement the following conditions and regulations:
a) That the land shall be used exclusively for commercial residential
purposes;
xxx xxx xxx
22. That the lot or lots subject-matter of this contract shall be used exclusively for residential
purposes and only one single family residential building will be constructed on each lot
provided that the VENDEE may construct a separate servant's quarter;
xxx xxx xxx
[Rollo, p. 55; Emphasis supplied.]
These provisions of the contract do not unequivocally express a warranty that the subdivision lots shall be
used exclusively for residential purpose. On the contrary, the contract also explicitiy authorizes the use of
the lots forcommercial or residential purposes.
Because of the confusing language of items 12 and 22 of the printed contract to sell, it is not possible to
read from the text alone a warranty that the subdivision shall be purely residential. Other evidence of such
warranty, including representations, if any, made by PLEASANTVILLE to petitioner, would be needed to
establish its enforceability.
Petitioner also made reference to a "statutory" implied warranty, but failed to cite the provision of law
imposing the warranty. It could not be the Civil Code, as the title on sales provides for only two classes of
implied warranties: in case of eviction and against hidden defects of or encumbrances upon the thing sold
[Arts. 1547; 1548-1560; 1561-1581]. Neither is any warranty imposed by P.D. No. 957.
As the party suing on the basis of breach of warranty, petitioner would have to come up with something
better than a bare assertion that there was a breach. He would have to prove first and foremost that there
is indeed a warranty that had been breached, then establish how the breach was committed.
3. A final word. There is no denying that in instituting the complaint for damages before the
trial court and the complaint for violation of P.D. 957 before the COMMISSION petitioner
was motivated by the twin purposes of seeking the abatement of the alleged nuisance and
recovering damages for the medical problems purportedly caused by the nuisance. He
certainly cannot be faulted for seeking redress in all available venues for the alleged
violation of his family home's tranquility, for the defense of one's home and family is a
natural instinct. However, redress for petitioner's grievances will have to be tempered by the
guiding hand of due process. Thus, the nullification of the assailed portion of the
COMMISSION's judgment becomes inevitable if we are to adhere to the basic tenets of law.
A wrong cannot be corrected by another wrong.
Hence, no reversible error was committed by the Court of Appeals when it nullified the assailed portion of
the COMMISSION's decision, the order granting the writ of execution, and any writ of execution issued
pursuant thereto.
But all is not lost for petitioner and his family. As mentioned earlier, there is a pending civil case (Civil Case
No. 16113, Regional Trial Court of Negros Occidental), instituted by petitioner, where the alleged breach of
warranty, coupled with PLEASANTVILLE's inaction, is the primary basis for the complaint for abatement
and damages. Here he can prove the existence of the warranty and show how it was breached. It is also in
this case where the determination of whether or not the activities conducted in the property of the Ong
spouses or the structures thereat constitute a nuisance will have to be made. Also herein is the proper
forum where, following another theory, it could be determined whether the Contract to Sell (assuming that
the contract between PLEASANTVILLE and the Ongs is similar) establishes an enforceable obligation in
favor of third parties, i.e., other lot-buyers in the subdivision. In said proceeding the factual issues can be
fully threshed out and the Ong spouses, the parties who shall be directly affected by any adverse judgment,
shall be afforded the opportunity to be heard as they had been impleaded as defendants therein together
with PLEASANTVILLE.
WHEREFORE, there being no cogent reasons to reverse the decision of the Court of Appeals, the same is
hereby AFFIRMED and the petition DENIED for lack of merit.
SO ORDERED.
Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
Fernan, C.J., is on leave.

Footnotes
* Exec. Order No. 648 dated February 7, 1981 (Charter of the Human Settlements
Regulatory Commission) transferred the functions of the National Housing Authority to the
Human Settlements Regolatory Commission (HSRC) [79 O.G. 4335]. Subsequently, Exec.
Order No. 90, dated December 17, 1986, renamed the HSRC as the Housing and Land Use
Regulatory Board [83 O.G. 88].
** It must be pointed out, however, that the powers of the COMMISSION under E.O. No.
648 revolve around zoning and other forms of land use control, urban renewal, and human
settlements. Thus, reference is made to P.D. Nos. 399, 815, 933, 957, 1216, 1344, 1396,
1517 and LOT Nos. 713, 729, 833, 935, the Urban Land Reform Act and decrees relating to
regulation of the value of land and improvements and their rental [See Sec. 5(a) to (c)].

G.R. No. L-23509 June 23, 1966

NATY BALTAZAR, ET AL., plaintiffs and appellees,
vs.
SILVINA CARIDAD, ET AL., defendants and appellants.
Guillermo M. Pasion for plaintiffs and appellees.
Castro Raval for defendants and appellants.
REYES, J.B.L., J.:
Appeal against an order, issued by the Court of First Instance of Ilocos Norte, in its Cadastral Case No. 54,
CLRO Cad. Case No. 1222, compelling respondents Silvina Caridad and Eduarda Caridad to remove their
respective houses built on the southern portion of Lot No. 8864 within thirty days from receipt of said order.
Respondents originally interposed the present appeal to the Court of Appeals, where it was docketed as its
CA-G.R. No. 31289-R. The appellate court, however, certified the appeal to this Court for raising only
questions of law.
The facts are not in dispute, and are as follows:
In the cadastral proceeding above stated, the trial court rendered decision, dated January 23, 1941,
awarding said Lot No. 8864 of the Laoag (Ilocos Norte) cadastre to the spouses Julio Baltazar and
Constancia Valencia as their conjugal partnership property. Said decision having become final, the
corresponding decree was issued on July 12, 1941, and pursuant thereto, said lot was registered in the
names of applicant spouses under Original Certificate of Title No. O-1445, which was later transcribed, on
November 5, 1959, in the off ice of the Register of Deeds of Ilocos Norte.
In the meanwhile, Julio Baltazar, the registered owner of said Lot No. 8854, died. On December 6, 1961,
his surviving wife and children, as petitioners, filed a motion, in the cadastral case, praying for writ of
possession against respondents Silvina Caridad and her daughter, Eduarda Caridad, who had been in
possession of the southern portion of said Lot No. 8864 since 1939, while the cadastral case involving said
lot was pending before the trial court, and before the decision was rendered and the corresponding decree
issued in 1941.
No writ having theretofore been issued in petitioners' favor, the trial court issued an order, on December 11,
1961, granting petitioners' motion, and overruled respondents' opposition but directed the sheriff not to
remove or destroy the permanent improvements on the lot without an express command. On January 2,
1962, the order having become final, the sheriff enforced the writ and placed petitioners in possession of
the southern portion of the lot.
1äwphï1.ñët

On January 23, 1962, petitioners presented a motion to compel respondents Eduarda Caridad and her
mother, Silvina Caridad, to remove their respective houses which they built in 1958 and 1959, respectively,
in the southern portion of the disputed lot, and, in the event of their failure to do so, to order the sheriff to
demolish the same. Respondents again opposed said motion.
On March 20, 1962, the trial court, after due hearing, granted petitioners' motion, ordering respondents to
remove their respective houses from the southern portion of said lot No. 8864 within thirty days from receipt
of said order. Not satisfied, respondents appealed.
Respondents-appellants question the power or jurisdiction of the trial court, sitting as a cadastral court, to
order the removal of their respective houses which were built in the disputed lot long after the issuance of
the final decree of registration. They insist that they are builders in good faith of the houses in question,
and, as such, they are accorded rights under Article 448 of the new Civil Code, which rights cause a conflict
to arise between petitioners, as registered owners, on the one hand, and respondents, as builders in good
faith, on the other; that this conflict is a new matter which the cadastral court could not have possibly
passed upon in 1941 when it rendered its decision awarding the disputed lot to Julio Baltazar, to
predecessor-in-interest of petitioners. Respondents also insist that the determination or settlement of this
controversy is cognizable only by a court exercising general jurisdiction, and that the only remedy available
to petitioners is to file an ordinary action for ejectment or recovery of possession against them.
Respondents further urged that this remedy is rendered unnecessary in view of the pendency of an action
for reconveyance over the disputed portion of said Lot No. 8864, which respondents filed against
petitioners in the same court and docketed (but after the writ of possession had been asked) as its Civil
Case No. 3451, and wherein the respective rights, interests and title of the parties will ultimately be
ventilated.
The above contentions of respondents are without merit. It is to be noted that respondents do not dispute
that during the pendency of the cadastral proceeding, rendition of the judgment awarding said Lot No.
8864, and consequent issuance of the final decree of registration of the same in favor of Julio Baltazar, the
late Andres Caridad, his surviving spouse, respondent Silvina Caridad, and their children, one of whom is
respondent Eduarda Caridad, were in possession of the southern portion of undisputed lot; and that
respondent Eduarda Caridad claims right and title thereto as a mere heir and successor-in-interest of said
Andres Caridad. Neither do respondents dispute the propriety and validity of the order of the cadastral
court, granting the writ of possession in favor of petitioners as well as its enforcement. Under these
circumstances, we hold that the order, dated March 20, 1962, of the cadastral court, granting petitioners'
motion to compel respondents to remove their respective houses from the disputed lot, is valid and
enforceable against respondents. In the case of Marcelo vs. Mencias, etc., et al., L-15609, April 29, 1960,
58 O.G. 3349, this Court had already upheld the jurisdiction or authority of the court of first instance, sitting
as a land registration court, to order, as a consequence of the writ of possession issued by it, the demolition
of improvements introduced by the successor-in-interest of a defeated oppositor in the land registration
case. Thus, in the foregoing cited case, Mr. Justice Jesus G. Barrera, speaking for the Court, opined:
It is contended that respondent Judge erred in denying the petition for demolition. To this we agree.
Section 13, Rule 39 of the old Rules of Court, provides:
"SEC. 13. How execution for the delivery or restitution of property enforced — the officer
must enforce an execution for the delivery or restitution of property by placing the plaintiff in
possession of such property, and by levying as hereinafter provided upon so much of the
 property of the judgment debtor as will satisfy the amount of the costs, damages, rents, and
profits included in the execution. However, the officer shall not destroy, demolish or remove
the improvements made by the defendant or his agent on the property, except by special
order of the court, which order may only issue upon petition of the plaintiff after due hearing
and upon the defendant's failure to remove the improvements within a reasonable time to
be fixed by the court."
Respondent Judge is of the view that the above-quoted provision of the Rules of Court applies only
to ordinary actions involving the delivery or restitution of property, and not to proceedings under the
land registration law which, according to him, is silent on the point. The view is not correct, for the
reason that the provisions of the Rules of Court are applicable to land registration cases in a
suppletory character (Rule 132). Put differently, if the writ of possession issued in a land registration
proceeding implies the delivery of possession of the land to the successful litigant therein (Demorar
vs. Ibañez, 51 O.G.) 2872; Pasay Estates Company vs. Del Rosario, et al., 11 Phil. 391; Manlapas
vs. Llorente, 48 Phil. 298), a writ of demolition must, likewise, issue, especially considering that the
latter writ is but a complement of the former which without said writ of demolition would be
ineffective.
Apparently, respondent Judge, in refusing to issue the writ of demolition to petitioner, was of the
belief that the latter has another remedy, namely, by resorting to ordinary civil actions in the regular
courts, such as that of forcible entry and detainer, or the recovery of possession, in which
instances, said courts would then be competent to issue said writ. Such a situation, in our opinion,
could not have been intended by the law. To require a successful litigant in a land registration case
to institute another action for the purpose of obtaining possession of the land adjudged to him,
would be a cumbersome process. It would foster unnecessary and expensive litigations and result
in multiplicity of suits, which our judicial system abhors. In this connection, this Court on one
occasion, said:
"But this construction of the law entirely defeats its purpose. It would compel a successful
litigant in the Court of Land Registration to commence other actions in other courts for the
purpose of securing fruits of his victory. The evident purpose of the law was to prevent that
very thing; ... (Pasay Estates Co. vs. Del Rosario, et al., supra).
Furthermore, Section 6, Rule 124, of the Rules of Court states that —
"When by law jurisdiction is conferred on a court or judicial officer, all auxiliary writs,
processes and other means necessary to carry it into effect may be employed by such court
or officer and if the procedure to be followed in the exercise of such jurisdiction is not
specifically pointed out by these rules, any suitable process or mode of proceeding may be
adopted which appears most conformable to the spirit of said rules."
As already stated, provisions of the Rules of Court are applicable to land registration cases in a
suppletory character. Pursuant to the provision just quoted, respondent Judge has the power to
issue all auxiliary writs, including the writ of demolition sought by petitioner, processes and other
means necessary to carry into effect the jurisdiction conferred upon it by law in land registration
cases to issue a writ of possession to the successful litigant, the petitioner herein.
Lastly, in the case of Shoiji vs. Harvey, 43 Phil. 333, we pointed out that "Independent of any
statutory provision, ... every court has inherent power to do all things reasonably necessary for the
administration of justice within the scope of its jurisdiction." In line with this doctrine, it may be
stated that respondent Judge, in the instant case, has the inherent power to issue the writ of
demolition demanded by petitioner. Needless to say, its issuance is reasonably necessary to do
justice to petitioner who is being deprived of the possession of the lots in question, by reason of the
continued refusal of respondent Clemente Pagsisihan to remove his house thereon and restore
possession of the premises to petitioner.
We believe the above-quoted ruling aptly answers the arguments of respondents-appellants, the same
having practically identical sets of facts obtaining in the case at bar.
Appellants can not be regarded as builders in good faith because they are bound by the 1941 decree of
registration that obligated their parents and predecessors-in-interest. Good faith must rest on a colorable
right in the builder, beyond a mere stubborn belief in one's title despite judicial adjudication. The fact that in
1959 appellants demolished and replaced their old house with new and bigger ones can not enervate the
rights of the registered owners. Otherwise, the rights of the latter to enjoy full possession of their registered
property could be indefinitely defeated by an unsuccessful opponent through the simple subterfuge of
replacing his old house with a new one from time to time.
Wherefore, the appealed order should be, as it is hereby affirmed. With costs against respondents-
appellants.
Concepcion, C.J., Barrera, Dizon. Regala, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

The Lawphil Project - Arellano Law Foundation

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.
Geronimo Creer, Jr. for plaintiffs-appellees.
Benedicto G. Cobarde for defendant, 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.
Teehankee, C.J., Narvasa, Cruz and Griño-Aquino, JJ., concur.

Footnotes
1 3 Planiol & Ripert 245; page 108, Civil Code by Tolentino, Vol. II; See also Viuda de Arias
vs. Aguilar, (C.A.) O.G. Supp., Aug. 30, 1941, Page 126, 40 O.G. 15th series, Page 126.
2 Page 108, Civil Code, Tolentino, 3 Manresa 215.

The Lawphil Project - Arellano Law Foundation

G.R. No. 144635 June 26, 2006

PROGRAMME INCORPORATED, Petitioner,
vs.
PROVINCE OF BATAAN,1 Respondent.
DECISION
CORONA, J.:
In this petition filed under Rule 45 of the Rules of Court, petitioner Programme Incorporated contests the
Court of Appeals (CA) decision2 and resolution3 upholding respondent Province of Bataan’s ownership of
Piazza Hotel and the land on which it stands. The assailed decision in CA-G.R. CV No. 49135 affirmed the
decision of the Regional Trial Court (RTC), Branch 4, Balanga, Bataan in a suit for preliminary injunction
and sum of money filed by petitioner against Bataan Shipyard and Engineering Co., Inc. (BASECO). The
case was docketed as Civil Case No. 129-ML. The dispositive portion of the trial court decision read:
WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered dismissing the
complaint, without pronouncement as to costs.
Similarly, [BASECO’s] counterclaim is dismissed.
On the complaint in intervention, judgment is hereby rendered ordering [petitioner] to pay [respondent] the
rentals for the leased premises in question, namely, the Piazza Hotel and the Mariveles Lodge, situated at
the Bataan Export Processing Zone (BEPZ) Compound in Mariveles, Bataan, at the rate of six thousand
five hundred pesos (P6,500.00) per month for both establishments, starting in August 1989 with legal
interest at 6% per annum, up to and until the legal arrearages shall have been fully paid, and to pay the
succeeding rentals therefor at the same rate.
SO ORDERED.4
The controversy arose from the following facts.
BASECO was the owner of Piazza Hotel and Mariveles Lodge, both located in Mariveles, Bataan.
On May 14, 1986, BASECO granted petitioner a contract of lease over Piazza Hotel at a monthly rental
of P6,500 for three years, i.e., from January 1, 1986 to January 1, 1989, subject to renewal by mutual
agreement of the parties. After the expiration of the three-year lease period, petitioner was allowed to
continue operating the hotel on monthly extensions of the lease.
In April 1989, however, the Presidential Commission on Good Government (PCGG) issued a sequestration
order against BASECO pursuant to Executive Order No. 1 of former President Corazon C. Aquino.5 Among
the properties provisionally seized and taken over was the lot on which Piazza Hotel stood.
On July 19, 1989, however, Piazza Hotel was sold at a public auction for non-payment of taxes to
respondent Province of Bataan. The title of the property was transferred to respondent. BASECO’s
Transfer Certificate of Title (TCT) No. T-59631 was cancelled and a new one, TCT No. T-128456, was
issued to the Province of Bataan.
On July 21, 1989, petitioner filed a complaint for preliminary injunction and collection of sum of money
against BASECO (Civil Case No. 129-ML).6 Respondent, as the new owner of the property, filed a motion
for leave to intervene on November 22, 1990. After its motion was granted, respondent filed a complaint-in-
intervention praying, inter alia, that petitioner be ordered to vacate Piazza Hotel and Mariveles Lodge for
lack of legal interest.
During the pre-trial of the complaint-in-intervention, the parties agreed that the case7 be tried on the sole
issue of whether respondent province, as complainant-intervenor, was the legitimate owner of the Piazza
Hotel and Mariveles Lodge.
On February 3, 1995, after trial on the merits, the trial court rendered judgment in favor of respondent. 1avvphil.net

On appeal, the CA addressed the issue of ownership of Piazza Hotel and Mariveles Lodge as follows:
[W]e affirm the trial court’s ruling that [respondent] Province of Bataan has established by
preponderance of evidence its claim of ownership of Piazza Hotel and Mariveles Lodge. In fact,
[petitioner] has not presented evidence proving its ownership of the said buildings[, whereas
respondent presented] a tax declaration and certificate of title over the same properties, over which
it now exercises full control and dominion. The fact that the subject properties were placed under
sequestration is of no moment for the PCGG is not an owner but a conservator who can exercise only
powers of administration over property sequestered, frozen or provisionally taken over. As the owner of
said properties, [respondent-intervenor] is entitled to the payment of the monthly rental in the sum
of P6,500.00 as ruled by the trial court.8 (emphasis ours)
We agree with the appellate court.
Time and again, we have ruled that factual matters are best evaluated by trial courts which can scrutinize
evidence and hear testimony presented and offered by the parties (in this case, on the issue of ownership
of the subject property). All the more does this principle ring true in this petition since such factual
determination by the RTC was upheld by the CA.9 Only questions of law are the proper subject of a petition
for review on certiorari in this Court, unless any of the known exceptions is extant in this case. 10 There is
none.
The evidence clearly established respondent’s ownership of Piazza Hotel. 11 First, the title of the land on
which Piazza Hotel stands was in the name of respondent.12 Second, Tax Declaration No. 12782 was in
the name of respondent as owner of Piazza Hotel.13 A note at the back of the tax declaration read:
Transferred by virtue of a final bill of sale executed by the Provincial [Treasurer] of Bataan in favor
of the Provincial Government on Feb. 13, 1989[, a] year after the expiration of the redemption period
from date of auction sale held on Feb. 12, 1988 of all real property declared in the name of
[BASECO].14 (emphasis ours)
Third, petitioner was doubtlessly just a lessee. In the lease contract annexed to the complaint, petitioner in
fact admitted BASECO’s (respondent’s predecessor-in-interest) ownership then of the subject property. A
stipulation in the contract read:
WHEREAS, the lessor (BASECO) is the owner of the building PIAZZA HOTEL and its outlet
MARIVELES LODGE located at BASECO, Mariveles, Bataan xxx15 (emphasis ours)
The Rules of Court states that "[a]n admission, verbal or written, made by a party in the course of the
proceedings in the same case, does not require proof. The admission may be contradicted only by showing
that it was made through palpable mistake or that no such admission was made."16
[Such admissions] may be made in (a) the pleadings filed by the parties, (b) in the course of the trial
either by verbal or written manifestations or stipulations, or (c) in other stages of the judicial
proceeding, as in the pre-trial of the case. Admissions obtained through depositions, written
interrogatories or requests for admission are also considered judicial admissions.17 (emphasis ours)
"To be considered as a judicial admission, the same must be made in the same case in which it is
offered."18
In its own complaint19 for preliminary injunction and sum of money, petitioner acknowledged that it was not
the owner of the property when it stated that "[BASECO] lease[d] to [petitioner] the building Piazza Hotel
and its outlet Mariveles Lodge xxx for monthly rentals of P6,500.00."20 Petitioner could not possibly be the
owner of a building merely leased to it.21
Furthermore, petitioner’s reference to Article 44822 of the
Civil Code to justify its supposed rights as "possessor in good faith" was erroneous.
The benefits granted to a possessor in good faith cannot be maintained by the lessee against the lessor
because, such benefits are intended to apply only to a case where one builds or sows or plants on land
which he believes himself to have a claim of title and not to lands wherein one’s only interest is that of a
tenant under a rental contract, otherwise, it would always be in the power of a tenant to improve his
landlord out of his property. Besides, as between lessor and lessee, the Code applies specific provisions
designed to cover their rights.
Hence, the lessee cannot claim reimbursement, as a matter of right, for useful improvements he has made
on the property, nor can he assert a right of retention until reimbursed. His only remedy is to remove the
improvement if the lessor does not choose to pay its value; but the court cannot give him the right to buy
the land.23
Petitioner’s assertion that Piazza Hotel was constructed "at (its) expense" found no support in the records.
Neither did any document or testimony prove this claim. At best, what was confirmed was that
petitioner managed and operated the hotel. There was no evidence that petitioner was the one which spent
for the construction or renovation of the property. And since petitioner’s alleged expenditures were never
proven, it could not even seek reimbursement of one-half of the value of the improvements upon
termination of the lease under Article 167824 of the Civil Code.
Finally, both the trial and appellate courts declared that the land as well as the improvement thereon
(Piazza Hotel) belonged to respondent. We find no reason to overturn this factual conclusion.
Since this petition for review on certiorari was clearly without legal and factual basis, petitioner’s counsel
should not have even filed this appeal. It is obvious that the intention was merely to delay the disposition of
the case.
WHEREFORE, the petition is hereby DENIED. The decision and resolution of the Court of Appeals in CA-
G.R. CV No. 49135 are AFFIRMED.
Costs against petitioner. Same costs against Atty. Benito R. Cuesta I, petitioner’s counsel, for filing this
flimsy appeal, payable within ten (10) days from finality of this decision.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA
Associate Justice Asscociate Justice
CANCIO C. GARCIA
Associate Justice
ATTE S TATI O N
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Associate Justice
Chairperson, Second Division
C E RTI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I certify
that the conclusions in the above decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice
G.R. No. 170923 January 20, 2009
SULO SA NAYON, INC. and/or PHILIPPINE VILLAGE HOTEL, INC. and JOSE MARCEL E.
PANLILIO,Petitioners,
vs.
NAYONG PILIPINO FOUNDATION, Respondent.
DECISION
PUNO, C.J.:
On appeal are the Court of Appeals’ (CA’s) October 4, 2005 Decision 1 in CA-G.R. SP No. 74631 and
December 22, 2005 Resolution,2 reversing the November 29, 2002 Decision3 of the Regional Trial Court
(RTC) of Pasay City in Civil Case No. 02-0133. The RTC modified the Decision4 of the Metropolitan Trial
Court (MeTC) of Pasay City which ruled against petitioners and ordered them to vacate the premises and
pay their arrears. The RTC declared petitioners as builders in good faith and upheld their right to indemnity.
The facts are as follows:
Respondent Nayong Pilipino Foundation, a government-owned and controlled corporation, is the owner of
a parcel of land in Pasay City, known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel,
Inc. (PVHI), formerly called Sulo sa Nayon, Inc., is a domestic corporation duly organized and existing
under Philippine laws. Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice President.
On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of 36,289 square
meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of a hotel building, to be known
as the Philippine Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It is
renewable for a period of 25 years under the same terms and conditions upon due notice in writing to
respondent of the intention to renew at least 6 months before its expiration. Thus, on March 7, 1995,
petitioners sent respondent a letter notifying the latter of their intention to renew the contract for another 25
years. On July 4, 1995, the parties executed a Voluntary Addendum to the Lease Agreement. The
addendum was signed by petitioner Jose Marcel E. Panlilio in his official capacity as Senior Executive Vice
President of the PVHI and by Chairman Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to
the renewal of the contract for another 25 years, or until 2021. Under the new agreement, petitioner PVHI
was bound to pay the monthly rental on a per square meter basis at the rate of ₱20.00 per square meter,
which shall be subject to an increase of 20% at the end of every 3-year period. At the time of the renewal of
the lease contract, the monthly rental amounted to ₱725,780.00.
Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent
repeatedly demanded petitioners to pay the arrears and vacate the premises. The last demand letter was
sent on March 26, 2001.
On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC of Pasay City.
The complaint was docketed as Civil Case No. 708-01. Respondent computed the arrears of petitioners in
the amount of twenty-six million one hundred eighty-three thousand two hundred twenty-five pesos and
fourteen centavos (₱26,183,225.14), as of July 31, 2001.
On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus:
. . . . The court is convinced by the evidence that indeed, defendants defaulted in the payment of their
rentals. It is basic that the lessee is obliged to pay the price of the lease according to the terms stipulated
(Art. 1657, Civil Code). Upon the failure of the lessee to pay the stipulated rentals, the lessor may eject
(sic) and treat the lease as rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao, 53
Phil. 1). For non-payment of rentals, the lessor may rescind the lease, recover the back rentals and recover
possession of the leased premises. . .
xxx
. . . . Improvements made by a lessee such as the defendants herein on leased premises are not valid
reasons for their retention thereof. The Supreme Court has occasion to address a similar issue in which it
ruled that: "The fact that petitioners allegedly made repairs on the premises in question is not a reason for
them to retain the possession of the premises. There is no provision of law which grants the lessee a right
of retention over the leased premises on that ground. Article 448 of the Civil Code, in relation to Article 546,
which provides for full reimbursement of useful improvements and retention of the premises until
reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on a land in the
belief that he is the owner thereof. This right of retention does not apply to a mere lessee, like the
petitioners, otherwise, it would always be in his power to "improve" his landlord out of the latter’s property
(Jose L. Chua and Co Sio Eng vs. Court of Appeals and Ramon Ibarra, G.R. No. 109840, January 21,
1999)."
Although the Contract of Lease stipulates that the building and all the improvements in the leased premises
belong to the defendants herein, such will not defeat the right of the plaintiff to its property as the
defendants failed to pay their rentals in violation of the terms of the contract. At most, defendants can only
invoke [their] right under Article 1678 of the New Civil Code which grants them the right to be reimbursed
one-half of the value of the building upon the termination of the lease, or, in the alternative, to remove the
improvements if the lessor refuses to make reimbursement.
The dispositive portion of the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Nayong Pilipino Foundation,
and against the defendant Philippine Village Hotel, Inc[.], and all persons claiming rights under it, ordering
the latter to:
1. VACATE the subject premises and surrender possession thereof to plaintiff;
2. PAY plaintiff its rental arrearages in the sum of TWENTY SIX MILLION ONE HUNDRED EIGHTY
THREE THOUSAND TWO HUNDRED TWENTY FIVE PESOS AND 14/100 (P26,183,225.14)
incurred as of July 31, 2001;
3. PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE THOUSAND SEVEN HUNDRED
EIGHTY PESOS (P725,780.00) per month starting from August 2001 and every month thereafter
by way of reasonable compensation for the use and occupation of the premises;
4. PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of attorney’s fees[; and]
5. PAY the costs of suit.
The complaint against defendant Jose Marcel E. Panlilio is hereby dismissed for lack of cause of action.
The said defendant’s counterclaim however is likewise dismissed as the complaint does not appear to be
frivolous or maliciously instituted.
SO ORDERED.5
Petitioners appealed to the RTC which modified the ruling of the MeTC. It held that:
. . . it is clear and undisputed that appellants-lessees were expressly required to construct a first-class hotel
with complete facilities. The appellants were also unequivocally declared in the Lease Agreement as the
owner of the improvements so constructed. They were even explicitly allowed to use the improvements and
building as security or collateral on loans and credit accommodations that the Lessee may secure for the
purpose of financing the construction of the building and other improvements (Section 2; pars. "A" to "B,"
Lease Agreement). Moreover, a time frame was setforth (sic) with respect to the duration of the lease
initially for 21 years and renewable for another 25 years in order to enable the appellants-lessees to recoup
their huge money investments relative to the construction and maintenance of the improvements.
xxx
Considering therefore, the elements of permanency of the construction and substantial value of the
improvements as well as the undispute[d] ownership over the land improvements, these, immensely
engender the application of Art. 448 of the Civil Code. The only remaining and most crucial issue to be
resolved is whether or not the appellants as builders have acted in good faith in order for Art. 448 in relation
to Art. 546 of the Civil Code may apply with respect to their rights over improvements.
xxx
. . . it is undeniable that the improvement of the hotel building of appellants (sic) PVHI was constructed with
the written consent and knowledge of appellee. In fact, it was precisely the primary purpose for which they
entered into an agreement. Thus, it could not be denied that appellants were builders in good faith.
Accordingly, and pursuant to Article 448 in relation to Art. 546 of the Civil Code, plaintiff-appellee has the
sole option or choice, either to appropriate the building, upon payment of proper indemnity consonant to
Art. 546 or compel the appellants to purchase the land whereon the building was erected. Until such time
that plaintiff-appellee has elected an option or choice, it has no right of removal or demolition against
appellants unless after having selected a compulsory sale, appellants fail to pay for the land (Ignacio vs.
Hilario; 76 Phil. 605). This, however, is without prejudice from the parties agreeing to adjust their rights in
some other way as they may mutually deem fit and proper.
The dispositive portion of the decision of the RTC reads as follows:
WHEREFORE, and in view of the foregoing, judgment is hereby rendered modifying the decision of [the]
MTC, Branch 45 of Pasay City rendered on February 26, 2002 as follows:
1. Ordering plaintiff-appellee to submit within thirty (30) days from receipt of a copy of this decision
a written manifestation of the option or choice it selected, i.e., to appropriate the improvements
upon payment of proper indemnity or compulsory sale of the land whereon the hotel building of
PVHI and related improvements or facilities were erected;
2. Directing the plaintiff-appellee to desist and/or refrain from doing acts in the furtherance or
exercise of its rights and demolition against appellants unless and after having selected the option
of compulsory sale and appellants failed to pay [and] purchase the land within a reasonable time or
at such time as this court will direct;
3. Ordering defendants-appellants to pay plaintiff-appellee [their] arrears in rent incurred as of July
31, 2001 in the amount of P26,183,225.14;
4. Ordering defendants-appellants to pay to plaintiff-appellee the unpaid monthly rentals for the use
and occupation of the premises pending this appeal from July to November 2002 only at
P725,780.00 per month;
5. The fourth and fifth directives in the dispositive portion of the trial court’s decision including that
the last paragraph thereof JME Panlilio’s complaint is hereby affirmed;
6. The parties are directed to adjust their respective rights in the interest of justice as they may
deem fit and proper if necessary.
SO ORDERED.6
Respondent appealed to the CA which held that the RTC erroneously applied the rules on accession, as
found in Articles 448 and 546 of the Civil Code when it held that petitioners were builders in good faith and,
thus, have the right to indemnity. The CA held:
By and large, respondents are admittedly mere lessees of the subject premises and as such, cannot validly
claim that they are builders in good faith in order to solicit the application of Articles 448 and 546 of the Civil
Code in their favor. As it is, it is glaring error on the part of the RTC to apply the aforesaid legal provisions
on the supposition that the improvements, which are of substantial value, had been introduced on the
leased premises with the permission of the petitioner. To grant the respondents the right of retention and
reimbursement as builders in good faith merely because of the valuable and substantial improvements that
they introduced to the leased premises plainly contravenes the law and settled jurisprudential doctrines and
would, as stated, allow the lessee to easily "improve" the lessor out of its property.
. . . . Introduction of valuable improvements on the leased premises does not strip the petitioner of its right
to avail of recourses under the law and the lease contract itself in case of breach thereof. Neither does it
deprive the petitioner of its right under Article 1678 to exercise its option to acquire the improvements or to
let the respondents remove the same.
Petitioners’ Motion for Reconsideration was denied.
Hence, this appeal.7
Petitioners assign the following errors:
 I

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN

NOT HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE
SUBSTANTIAL AND VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON
THE SUBJECT PROPERTY, THUS COMPELLING THE APPLICATION OF ARTICLE 448 OF
THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE, INSTEAD OF
ARTICLE 1678 OF THE CIVIL CODE.

II

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR

WHEN IT DISREGARDED THE FACT THAT THE LEASE CONTRACT GOVERNS THE
RELATIONSHIP OF THE PARTIES AND CONSEQUENTLY THE PARTIES MAY BE
CONSIDERED TO HAVE IMPLIEDLY WAIVED THE APPLICATION OF ARTICLE 1678 OF
THE CIVIL CODE TO THE INSTANT CASE.

III

ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT BUILDERS IN GOOD FAITH,
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR
WHEN IT OVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN BAD FAITH
WHEN IT DID NOT HONOR AND INSTEAD BREACHED THE LEASE CONTRACT
BETWEEN THE PARTIES, THUS BOTH PARTIES ACTED AS IF THEY ARE IN GOOD FAITH.

IV

TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD OF

ARTICLE 448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE
WOULD NOT ONLY WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS
AND INTERESTS OF PETITIONER PHILIPPINE VILLAGE HOTEL, INC. WHILE
RESPONDENT NAYONG PILIPINO FOUNDATION, IN COMPARISON THERETO, WOULD
SUFFER ONLY SLIGHT OR INCONSEQUENTIAL INJURY OR LOSS, BUT ALSO WOULD
CONSTITUTE UNJUST ENRICHMENT ON THE PART OF RESPONDENT AT GREAT
EXPENSE AND GRAVE PREJUDICE OF PETITIONERS.

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN

NOT HOLDING THAT THE COURTS A QUO DID NOT ACQUIRE JURISDICTION OVER THE
UNLAWFUL DETAINER CASE FOR NON-COMPLIANCE WITH JURISDICTIONAL
REQUIREMENTS DUE TO THE ABSENCE OF A NOTICE TO VACATE UPON
PETITIONERS.8

First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did not acquire jurisdiction to hear
and decide the ejectment case because they never received any demand from respondent to pay rentals
and vacate the premises, since such demand is a jurisdictional requisite. We reiterate the ruling of the
MeTC, RTC and CA. Contrary to the claim of petitioners, documentary evidence proved that a demand
letter dated March 26, 2001 was sent by respondent through registered mail to petitioners, requesting them
"to pay the rental arrears or else it will be constrained to file the appropriate legal action and possess the
leased premises."
Further, petitioners’ argument that the demand letter is "inadequate" because it contained no demand to
vacate the leased premises does not persuade. We have ruled that:
. . . . The word "vacate" is not a talismanic word that must be employed in all notices. The alternatives in
this case are clear cut. The tenants must pay rentals which are fixed and which became payable in the
past, failing which they must move out. There can be no other interpretation of the notice given to them.
Hence, when the petitioners demanded that either he pays ₱18,000 in five days or a case of ejectment
would be filed against him, he was placed on notice to move out if he does not pay. There was, in effect, a
notice or demand to vacate.9
In the case at bar, the language of the demand letter is plain and simple: respondent demanded payment
of the rental arrears amounting to ₱26,183,225.14 within ten days from receipt by petitioners, or respondent
will be constrained to file an appropriate legal action against petitioners to recover the said amount. The
demand letter further stated that respondent will possess the leased premises in case of petitioners’ failure
to pay the rental arrears within ten days. Thus, it is clear that the demand letter is intended as a notice to
petitioners to pay the rental arrears, and a notice to vacate the premises in case of failure of petitioners to
perform their obligation to pay.
Second, we resolve the main issue of whether the rules on accession, as found in Articles 448 and 546 of
the Civil Code, apply to the instant case.
Article 448 and Article 546 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.
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.
We uphold the ruling of the CA.
The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:
This article [Article 448] is manifestly intended to apply only to a case where one builds, plants, or sows on
land in which he believes himself to have a claim of title, 10 and not to lands where the only interest of the
builder, planter or sower is that of a holder, such as a tenant.11
In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees, they recognize
that the respondent is the owner of the land. What petitioners insist is that because of the improvements,
which are of substantial value, that they have introduced on the leased premises with the permission of
respondent, they should be considered builders in good faith who have the right to retain possession of the
property until reimbursement by respondent.
We affirm the ruling of the CA that introduction of valuable improvements on the leased premises does not
give the petitioners the right of retention and reimbursement which rightfully belongs to a builder in good
faith. Otherwise, such a situation would allow the lessee to easily "improve" the lessor out of its property.
We reiterate the doctrine that a lessee is neither a builder in good faith nor in bad faith 12 that would call for
the application of Articles 448 and 546 of the Civil Code. His rights are governed by Article 1678 of the Civil
Code, which reads:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which
the lease is intended, without altering the form or substance of the property leased, the lessor upon the
termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should
the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the
principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the
property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may
remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does
not choose to retain them by paying their value at the time the lease is extinguished.
Under Article 1678, the lessor has the option of paying one-half of the value of the improvements which the
lessee made in good faith, which are suitable for the use for which the lease is intended, and which have
not altered the form and substance of the land. On the other hand, the lessee may remove the
improvements should the lessor refuse to reimburse.
Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it would amount
to giving away the hotel and its other structures at virtually bargain prices. They allege that the value of the
hotel and its appurtenant facilities amounts to more than two billion pesos, while the monetary claim of
respondent against them only amounts to a little more than twenty six-million pesos. Thus, they contend
that it is the lease contract that governs the relationship of the parties, and consequently, the parties may
be considered to have impliedly waived the application of Article 1678.
We cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are deemed
incorporated in each and every contract. Existing laws always form part of any contract. Further, the lease
contract in the case at bar shows no special kind of agreement between the parties as to how to proceed in
cases of default or breach of the contract. Petitioners maintain that the lease contract contains a default
provision which does not give respondent the right to appropriate the improvements nor evict petitioners in
cases of cancellation or termination of the contract due to default or breach of its terms. They cite
paragraph 10 of the lease contract, which provides that:
10. DEFAULT. - . . . Default shall automatically take place upon the failure of the LESSEE to pay or perform
its obligation during the time fixed herein for such obligations without necessity of demand, or, if no time is
fixed, after 90 days from the receipt of notice or demand from the LESSOR. . .
In case of cancellation or termination of this contract due to the default or breach of its terms, the LESSEE
will pay all reasonable attorney’s fees, costs and expenses of litigation that may be incurred by the
LESSOR in enforcing its rights under this contract or any of its provisions, as well as all unpaid rents, fees,
charges, taxes, assessment and others which the LESSOR may be entitled to.
Petitioners assert that respondent committed a breach of the lease contract when it filed the ejectment suit
against them. However, we find nothing in the above quoted provision that prohibits respondent to proceed
the way it did in enforcing its rights as lessor. It can rightfully file for ejectment to evict petitioners, as it did
before the court a quo.
IN VIEW WHEREOF, petitioners’ appeal is DENIED. The October 4, 2005 Decision of the Court of Appeals
in CA-G.R. SP No. 74631 and its December 22, 2005 Resolution are AFFIRMED. Costs against petitioners.
SO ORDERED.
REYNATO S. PUNO
Chief Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
RENATO C. CORONA ADOLFO S. AZCUNA
Associate Justice Associate Justice
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
C E RTI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice

G.R. No. 125683 March 2, 1999

EDEN BALLATAN and SPS. BETTY MARTINEZ and CHONG CHY LING, petitioners,
vs.
COURT OF APPEALS, GONZALO GO, WINSTON GO, LI CHING YAO, ARANETA INSTITUTE OF
AGRICULTURE and JOSE N. QUEDDING, respondents.

PUNO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals dated March 25, 1996 in
CA-G.R. CV No. 32472 entitled "Eden Ballatan., et. al., plaintiffs-appellees v. Gonzalo Go and Winston Go,
appellants and third-party plaintiffs-appellants v. Li Ching Yao, et. al., third-party defendants."1
The instant case arose from a dispute over forty-two (42) square meters of residential land belonging to
petitioners. The parties herein are owners of adjacent lots located at Block No. 3, Poinsettia Street, Araneta
University Village, Malabon, Metro Manila. Lot No. 24, 414 square meters in area, is registered in the name
of petitioners Eden Ballatan and spouses Betty Martinez and Chong Chy Ling. 2 Lots Nos. 25 and 26, with
an area of 415 and 313 square meters respectively, are registered in the name of respondent Gonzalo Go,
Sr. 3 On Lot No. 25, respondent Winston Go, son of Gonzalo Go, Sr., constructed his house. Adjacent to
Lot No. 26 is Lot No. 27, 417 square meters in area, and is registered in the name of respondent Li Ching
Yao. 4
In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the construction, she noticed that
the concrete fence and side pathway of the adjoining house of respondent Winston Go encroached on the
entire length of the eastern side of her property. 5 Her building contractor formed her that the area of her lot
was actually less than that described in the title. Forthwith, Ballatan informed respondent Go of this
discrepancy and his encroachment on her property. Respondent Go, however, claimed that his house,
including its fence and pathway, were built within the parameters of his father's lot; and that this lot was
surveyed by Engineer Jose Quedding, the authorized surveyor of the Araneta Institute of Agriculture (AIA),
the owner-developer of the subdivision project.
Petitioner Ballatan called the attention of the IAI to the discrepancy of the land area in her title and the
actual land area received from them. The AIA authorized another survey of the land by Engineer Jose N.
Quedding.
In a report dated February 28, 1985, Engineer Quedding found that the lot area of petitioner Ballatan was
less by few meters and that of respondent Li Ching Yao, which was three lots away, increased by two (2)
meters. Engineer Quedding declared that he made a verification survey of Lots Nos. 25 and 26 of
respondents Go in 1983 and allegedly found the boundaries to have been in their proper position. He,
however, could not explain the reduction in Ballatan's area since he was not present at the time
respondents Go constructed their boundary walls. 6
On June 2, 1985, Engineer Quedding made a third relocation survey upon request of the parties. He found
that Lot No. 24 lost approximately 25 square meters on its eastern boundary that Lot No. 25, although
found to have encroached on Lot No. 24, did not lose nor gain any area; that Lot No. 26 lost some three (3)
square meters which, however, were gained by Lot No. 27 on its western boundary. 7 In short, Lots Nos.
25, 26 and 27 moved westward to the eastern boundary of Lot No. 24.
On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written demand on respondents
Go to remove and dismantle their improvements on Lot No. 24. Respondents Go refused. The parties
including Li Ching Yao, however, met several times to reach an agreement one matter.
Failing to agree amicably, petitioner Ballatan brought the issue before the barangay. Respondents Go did
not appear. Thus, on April 1, 1986, petitioner Ballatan instituted against respondents Go Civil Case No.
772-MN for recovery of possession before the Regional Trial Court, Malabon, Branch 169. The Go' s filed
their "Answer with Third-Party Complaint" impleading as third-party defendants respondents Li Ching Yao,
the AIA and Engineer Quedding.
On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go's to vacate the subject
portion of Lot No. 24, demolish their improvements and pay petitioner Ballatan actual damages, attorney's
fees and the costs of the suit. It dismissed the third-party complaint against: (1) AIA after finding that the
lots sold to the parties were in accordance with the technical description a verification plan covered by their
respective titles; (2) Jose N. Quedding, there being no privity of relation between him and respondents Go
and his erroneous survey having been made at the instance of AIA, not the parties; and (3) Li Ching Yao for
failure to prove that he committed any wrong in the subject encroachment. 8 The court made the following
disposition:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the latter:
1. To demolish and remove all improvements existing and encroaching on plaintiff's lot;
2. To clear, vacate and deliver possession of the encroached area to the plaintiffs;
3. To pay plaintiffs jointly and severally the following:
a) P7,800.00 for the expenses paid to the surveyors;
b) P5,000.00 for plaintiffs' transportation;
4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25% of the current
market value of the subject matter in litigation at the time of execution; and
5. To pay the costs of suit.
The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go against
third-party defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao
is hereby DISMISSED, without pronouncement as to costs.
SO ORDERED.
Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the decision of the trial
court. It affirmed the dismissal of the third-party complaint against the AIA but reinstated the complaint
against Li Ching Yao and Jose Quedding. Instead of ordering respondents Go to demolish their
improvements on the subject land, the appellate court ordered them to pay petitioner Ballatan, and
respondent Li Ching Yao to pay respondents Go, a reasonable amount for that portion of the lot which they
encroached, the value to be fixed at the time of taking. It also ordered Jose Quedding to pay respondents
Go attorney's fees of P5,000.00 for his erroneous survey. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED
insofar as the dismissal of the third-party complaint against Araneta Institute of Agriculture is
concerned but modified in all other aspects as follows:
1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable
value of the forty-two (42) square meters of their lot at the time of its taking;
2) Third-party defendant Li Ching Yao is hereby ordered to pay defendants-appellants the
reasonable value of the thirty-seven (37) square meters of the latter's lot at the time of its
 taking; and
3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-
appellants the amount of P5,000.00 as attorney's fees.
LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for
further proceedings and reception of evidence for the determination of the reasonable value
of Lots Nos. 24 and 26.
SO ORDERED.9
Hence, this petition. Petitioners allege that:
RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND GRAVELY
ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN:
1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN UTTER
DISREGARD AND IN VIOLATION OR GROSS IGNORANCE OF EXISTING LAWS AND
JURISPRUDENCE VESTING BASIC PROPERTY RIGHTS TO HEREIN PETITIONERS.
RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN THE PRESENCE
OF EXISTING LAWS TO THE CONTRARY.
2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT
PARTIALITY AND FAVOR TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE
ENCROACHED AREA AT THE VALUE AT THE TIME OF ITS TAKING AND NOT THE
VALUE AT THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S BUT DEPRIVING
PETITIONERS OF THE FRUITS OR INCREASE IN VALUE OF THEIR PROPERTY TO
WHICH THEY ARE ENTITLED UNDER THE LAW AS THE REGISTERED OWNERS WITH
TORRENS TITLE IN THEIR NAMES.
3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT DUE TO NON-
PAYMENT OF ANY FILING OR DOCKET FEE.
4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY EXPENSES
IN PROTECTING THEIR RIGHTS IN THIS CASE. 10
Petitioners question the admission by respondent Court of Appeals of the third-party complaint by
respondents Go against the AIA, Jose Quedding and Li Ching Yao. Petitioners claim that the third-party
complaint should not have been considered by the Court of Appeals for lack of jurisdiction due to third-party
plaintiffs' failure to pay the docket and filing fees before the trial court.
The third-party complaint in the instant case arose from the complaint of petitioners against respondents
Go. The complaint filed was for accion publiciana, i.e., the recovery of possession of real property which is
a real action. The rule in this jurisdiction is that when an action is filed in court, the complaint must be
accompanied the payment of the requisite docket and filing fees. 11 In real actions, the docket and filing
fees are based on the value of the property and the amount of damages claimed, if any 12 If the complaint
is filed but the fees are not paid at the time of filing, the court acquires jurisdiction upon full payment of the
fees within a reasonable time as the court may grant, barring prescription. 13 Where the fees prescribed for
the real action have been paid but the fees of certain related damages are not, the court, although having
jurisdiction over the real action, may not have acquired jurisdiction over the accompnying claim for
damages. 14 Accordingly, the court may expunge those claims for damages, or allow, on motion, a
reasonable time for amendment of the complaint so as to allege the precise amount of damages and
accept payment of the requisite legal fee. 15 If there are unspecified claims, the determination of which may
arise after the filing of the complaint or similar pleading, the additional filing fee thereon shall constitute a
lien on the judgment award. 16 The same rule also applies to third-party claims and other similar
pleadings. 17
In the case at bar, the third-party complaint filed by respondents Go was incorporated in their answer to the
complaint. The third-party complaint sought the same remedy as the principal complaint but added a prayer
for attorney's fees and costs without specifying their amounts, thus:
ON THE THIRD PARTY COMPLAINT
 1. That summons be issued against Third-Party Defendants Araneta Institute of Agriculture,
Jose N. Quedding and Li Ching Yao;
2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for whatever
is adjudged against the latter in favor of the Plaintiffs;
3. That Third-Party Defendants be ordered to pay attorney's fees as may be proved during
trial;
4. That Third-Party Defendants be ordered to pay the costs.
Other just and equitable reliefs are also prayed for. 18
The Answer with Third-Party Complaint was admitted by the trial court without the requisite payment of
filing fees, particularly on the Go's prayer for damages. 19 The trial court did not award the Go's any
damages. It dismissed the third-party complaint. The Court of Appeals, however, granted the third-party
complaint in part by ordering third-party defendant Jose N. Quedding to pay the Go's the sum of P5,000.00
as attorney's fees.
Contrary to petitioners' claim, the Court of Appeal did not err in awarding damages despite the Go's failure
to specify the amount prayed for and pay the corresponding additional filing fees thereon. The claim for
attorney's fees refers to damages arising after the filing of the complaint against the Go's. The additional
filing fee on this claim is deemed to constitute a lien on the judgment award. 20
The Court of Appeals found that the subject portion is actually forty-two (42) square meters in area, not
forty-five (45), as initially found by the trial court; that this forty-two (42) square meter portion is on the
entire eastern side of Lot No. 24 belonging to petitioners; that this said portion is found the concrete fence
and pathway that extends from respondent Winston Go's house on adjacent Lot No. 25; that inclusive of
the subject portion, respondents Go did not gain nor lose any portion of Lots Nos. 25 and 26; that instead,
Lot No. 27, on which respondent Li Ching Yao built his house, encroached on the land of respondents Go,
gaining in the process thirty-seven (37) square meters of the latter's land.21
We hold that the Court of Appeals correctly dismissed the third-party complaint against AIA.. The claim that
the discrepancy in the lot areas was due to AIA's fault was not proved. The appellate court, however, found
that it was the erroneous survey by Engineer Quedding that triggered these discrepancies. And it was this
survey that respondent Winston Go relied upon in constructing his house on his father's land. He built his
house in the belief that it was entirely within the parameters of his father's land. In short, respondents Go
had no knowledge that they encroached petitioners' lot. They are deemed builders in good faith 22 until the
time petitioner Ballatan informed them of their encroachment on her property.23
Respondent Li Ching Yao built his house on his lot before any of the other parties did. 24 He constructed his
house in 1982, respondents Go in 1983, and petitioners in 1985. 25 There is no evidence, much less, any
allegation that respondent Li Ching Yao was aware that when he built his house he knew that a portion
thereof encroached on respondents Go's adjoining land. Good faith is always presumed, and upon him
who alleges bad faith on the part of a possessor rests the burden of proof. 26
All the parties are presumed to have acted in good faith. Their rights must, therefore, be determined in
accordance with the appropriate provisions of the Civil Code on property.
Art. 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, 27 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 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 building, planting or sowing, after payment to the builder,
planter or sower of the necessary and useful expenses, and in the proper case, expenses for pure
luxury or mere pleasure. The owner of the land may also oblige the builder, planter or sower to
purchase and pay the price of the land. If the owner chooses to sell his land, the builder, planter or
sower must purchase the land, otherwise the owner may remove the improvements thereon. The
builder, planter or sower, however, is not obliged to purchase the land if its value considerably more
than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to
the owner of the land. If the parties cannot come to terms over the conditions of the lease, the court
must fix the terms thereof. The right to choose between appropriating the improvement or selling
the land on which the improvement stands to the builder, planter or sower, is given to the owner of
the land. 28
Art. 448 has been applied to improvements or portions of improvements built by mistaken belief on land
belonging to the adjoining owner. 29 The facts of the instant case are similar to those in Cabral
v. Ibanez, 30 to wit:
[P]laintiffs Geronima Zabala and her husband Justino Bernardo, constructed their house in
the belief that it was entirely within the area of their own land without knowing at that time
that part of their house was occupying a 14-square meter portion of the adjoining lot
belonging to the defendants, and that the defendants Bernardo M. Cabral and Mamerta M.
Cabral were likewise unaware of the fact that a portion of plaintiff's house was extending
and occupying a portion of their lot with an area of 14 square meters. The parties came to
know of the fact that part of the plaintiff's house was occupying part of defendant's land
when the construction of plaintiff's house was about to be finished, after a relocation of the
monuments of the two properties had been made by the U.S. Army through the Bureau of
Lands, according to their "Stipulation of Facts," dated August 17, 1951.
On the basis of these facts, we held that:
The court, therefore, concludes that the plaintiffs are builders in good faith and the relative
rights of the defendant Mamerta Cabral as owner of the land and of the plaintiffs as owners
of the building is governed by Article 361 of the Civil Code (Co Tao v. Joaquin Chan Chico,
46 Off. Gaz.5514). Article 361 of the old Civil Code has been reproduced with an additional
provision in Article 448 of the new Civil Code, approved June 18, 1949. 31
Similarly, in Grana and Torralba v. Court of Appeals,32 we held that:
Although without any legal and valid claim over the land in question, petitioners, however,
were found by the Court of Appeals to have constructed a portion of their house thereon in
good faith. Under Article 361 of the old Civil Code (Article 448 of the new), the owner of the
land on which anything has been built in good faith shall have the right to appropriate as his
own the building, after payment to the builder of necessary or useful expenses, and in the
proper case, expenses for pure luxury or mere pleasure, or to oblige the builder to pay the
price of the land. Respondents, as owners of the land, have therefore the choice of either
appropriating the portion of petitioners' house which is on their land upon payment of the
proper indemnity to petitioners, or selling to petitioners that part of their land on which
stands the improvement. It may here be pointed out that it would be impractical for
respondents to choose to exercise the first alternative, i.e., buy that portion of the house
standing on their land, for in that event the whole building might be rendered useless. The
more workable solution, it would seem, is for respondents to sell to petitioners that part of
their land on which was constructed a portion of the latter's house. If petitioners are
unwilling or unable to buy, then they must vacate the land and must pay rentals until they do
so. Of course, respondents cannot oblige petitioners to buy the land if its value is
considerably more than that of the aforementioned portion of the house. If such be the case,
then petitioners must pay reasonable rent. The parties must come to an agreement as to
the conditions of the lease, and should they fail to do so, then the court shall fix the same. 33
In light of these rulings, petitioners, as owners of Lot No. 24, may choose to purchase the improvement
made by respondents Go on their land, or sell to respondents Go the subject portion. If buying the
improvement is impractical as it may render the Go's house useless, then petitioners may sell to
respondents Go that portion of Lot No. 24 on which their improvement stands. If the Go's are unwilling or
unable to buy the lot, then they must vacate the land and, until they vacate, they must pay rent to
petitioners. Petitioners, however, cannot compel respondents Go to buy the land if its value is considerably
more than the portion of their house constructed thereon. If the value of the land is much more than the
Go's improvement, the respondents Go must pay reasonable rent. If they do not agree on the terms of the
lease, then they may go to court to fix the same.
In the event that petitioners elect to sell to respondents Go the subject portion of their lot, the price must be
fixed at the prevailing market value at the time of payment. The Court of Appeals erred in fixing the price at
the time of taking, which is the time the improvements were built on the land. The time of taking is
determinative of just compensation in expropriation proceedings. The instant case is not for expropriation. It
is not a taking by the state of private property for a public purpose upon payment of just compensation.
This is a case of an owner who has been paying real estate taxes on his land but has been deprived of the
use of a portion of this land for years. It is but fair and just to fix compensation at the time of payment.34
Art. 448 and the same conditions abovestated also apply to respondents Go as owners and possessors of
their land and respondent Li Ching Yao as builder of the improvement that encroached on thirty-seven (37)
square meters of respondents Go's land.
IN VIEW WHEREOF, the decision of respondent Court of Appeals is modified as follows:
(1) Petitioners are ordered to exercise within thirty (30) days from finality of this decision their option to
either buy the portion of respondents Go's improvement on their Lot No. 24, or sell to said respondents the
portion of their land on which the improvement stands. If petitioners elect to sell the land or buy the
improvement, the purchase price must be at the prevailing market price at the time of payment. If buying
the improvement will render respondents Go's house useless, then petitioners should sell the encroached
portion of their land to respondents Go. If petitioners choose to sell the land but respondents Go are
unwilling or unable to buy, then the latter must vacate the subject portion and pay reasonable rent from the
time petitioners made their choice up to the time they actually vacate the premises. But if the value of the
land is considerably more than the value of the improvement, then respondents Go may elect to lease the
land, in which case the parties shall agree upon the terms, the lease. Should they fail to agree on said
terms, the court of origin is directed to fix the terms of the lease.
From the moment petitioners shall have exercised their option, respondents Go shall pay reasonable
monthly rent up to the time the parties agree on the terms of the lease or until the court fixes such terms.
(2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos. 25 and 26, vis-a-
visrespondent Li Ching Yao as builder of the improvement that encroached on thirty seven (37) square
meters of respondents Go 's land in accordance with paragraph one abovementioned.
(3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party defendant, to pay
attorney's fees of P5,000.00 to respondents Go is affirmed. The additional filing fee on the damages
constitutes a lien on this award.
(4) The Decision of the Court of Appeals dismissing third-party complaint against Araneta Institute of
Agriculture is affirmed.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.
Footnotes
1 Penned by Justice Celia Lipana-Reyes and concurred in by Justices Alfredo L. Benipayo and
Corona Ibay-Somera.
2 Exhibit "A," Folder of Plaintiffs' Exhibits.
3 Exhibits "1" and "2," Folder of Defendants Go's Exhibits.
4 Exhibit "1," Folder of Defendant Li Ching Yao's Exhibits; Exhibit "4-a" Folder Of Exhibits of
Araneta Institute of Agriculture.
5 Exhibit "D," Folder of Plaintiffs' Exhibits.
6 Exhibit "1," Folder of Exhibits — Quedding.
7 Exhibit "5," Folder of Defendants Go's Exhibits; Decision of the Court of Appeals, p. 3, Rollo, p.
25.
8 Decision of the trial court, p. 11, Court of Appeals Rollo, p. 86.
9 Rollo, p. 44.
10 Petition, p. 4, Rollo, p. 6.
11 Tacay v. RTC of Tagum, Davao del Norte, 180 SCRA 433, 444 [1989]; Sun Insurance Office, Ltd.
(SIOL) v. Asuncion 170 SCRA 274, 285 [1989]; see also Manchester Development Corporation v.
Court Appeals, 149 SCRA 562, 568-569 [1987].
12 Tacay v. RTC of Tagum, Davao del Norte, supra, at 440, 444 — a real action may be
commenced or prosecuted without an accompanying claim for damages.
13 Id.
14 Original Dev' t. and Construction Corp. v. Court of Appeals, 202 SCRA 753, 760 [1991].
15 Tacay, supra, at 444; Original Dev't. and Construction Corp. v. Court of Appeals, supra; at 760.
16 Original Development Corporation v. Court of Appeals, supra, at 761.
17 Tacay, supra, at 441-442; Sun Insurance Office Ltd. v. Asuncion, 170 SCRA 274, 285 [1989].
18 Answer with Third Party Complaint, p. 7, Records 37.
19 Order dated May 30, 1986, Records, p. 49.
20 In Sun Insurance Office, Ltd. (SIOL) v. Asuncion, supra, at 279, it was held that the Manchester
rule and its clarifications are procedural rules and may be applied retroactively to actions pending
and undetermined at the time of their passage. the instant case was pending at the time
Manchester was promulgated in 1987.
21 Decision of the Court of Appeals, pp. 15-16, Rollo, pp. 37-38.
22 Art. 526, Civil Code provides:
Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or
mode of acquisition any flaw that invalidates it.
23 Art. 5281 Civil Code provides:
Art. 528. 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.
24 Decision of the Court of Appeals, p. 16, Rollo, p. 38.
25 Id., at pp. 16-17, Rollo, pp. 38-39.
26 Art. 527, Civil Code.
27 Art. 546 and 548 provide:
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 value which the thing may have acquired by
reason thereof.
Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good
 faith; but he may remove the ornaments with which he has embellished the principal thing if it
suffers no injury thereby, and if his successor in the possession does not prefer to refund the
amount expended.
28 Grana & Torralba v. Court of Appeals, 109 Phil. 260, 263 [1960]; Acuna v. Furukawa
Plantation Co., 93 Phil. 957, 961 [1953]; Aringo v. Arena, 14 Phil. 263, 269 [1909].
29 Grana and Torralba v. Court of Appeals 109 Phil. 260, 263 [1960]; Miranda v. Fadullon,
97 Phil. 801 [1955]; Cabral v. Ibanez, 98 Phil. 140 [1955].
30 98 Phil. 140 [1955].
31 Id., at 142.
32 109 Phil. 260 [1960].
33 Id., at 263-264.
34 See Cabral v. Ibanez, supra, at 143, where this Court gave the owner of the land thirty days to
elect either to purchase the improvement or sell the land; and once having elected, the case was
reset for admission of evidence on the value of the improvement, or the value of the land. This
implies that the price of the land or improvement was fixed definitely not at the time
taking; see also Aringo v. Arena, supra, at 270.

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