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
LORENZOVALENTINO,respondents. G.R. No. L-57288

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 motherin-law who, having stated they could build on the property, could
reasonably be expected to later on give them the LAND.

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.

In regards to builders in good faith, Article 448 of the Code provides:t.

hqw

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.

to appropriate as his own the works, sowing or planting,

after payment of the indemnity provided for in articles 546
and 548, or

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.

ART. 448. The owner of the land on which anything has

been built, sown or planted in good faith,
shall have the right

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.t.hqw
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

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 DEFENDANTSAPPELLANTS 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.

G.R. No. 72876

January 18, 1991

FLORENCIO
IGNAO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO, substituted
by his Legal Heirs, and ISIDRO IGNAO, respondents.
Dolorfino
and
Dominguez
Law
Offices
for
petitioner.
Ambrosio Padilla, Mempin & Reyes Law Offices for private respondents.

square meters while that of Isidro occupied 59 square meters of Florencio's

land or a total of 101 square meters.
In its decision, the trial court (thru Judge Luis L. Victor) ruled that although
private respondents occupied a portion of Florencio's property, they should
be considered builders in good faith. The trial court took into account the
decision of the Court of First Instance of Cavite in the action for
partition 2 and quoted:
. . . . Hence, it is the well-considered opinion of the Court that
although it turned out that the defendants had, before partition,
been in possession of more than what rightfully belongs to
them, their possession of what is in excess of their rightful share
can at worst be possession in good faith which exempts them from
being condemned to pay damages by reason thereof. 3

FERNAN, C.J.:
In this petition for review by certiorari, petitioner seeks the reversal of the
decision of the Intermediate Appellate Court (now Court of Appeals)
affirming in toto the decision of the Court of First Instance of Cavite,
ordering petitioner Florencio Ignao to sell to private respondents Juan and
Isidro Ignao, that part of his property where private respondents had built a
portion of their houses.
The antecedent facts are as follows:
Petitioner Florencio Ignao and his uncles private respondents Juan Ignao
and Isidro Ignao were co-owners of a parcel of land with an area of 534
square meters situated in Barrio Tabon, Municipality of Kawit, Cavite.
Pursuant to an action for partition filed by petitioner docketed as Civil Case
No. N-1681, the then Court of First Instance of Cavite in a decision dated
February 6, 1975 directed the partition of the aforesaid land, alloting 133.5
square meters or 2/8 thereof to private respondents Juan and Isidro, and
giving the remaining portion with a total area of 266.5 square meters to
petitioner Florencio. However, no actual partition was ever effected. 1
On July 17, 1978, petitioner instituted a complaint for recovery of
possession of real property against private respondents Juan and Isidro
before the Court of First Instance of Cavite, docketed as Civil Case No.
2662. In his complaint petitioner alleged that the area occupied by the two
(2) houses built by private respondents exceeded the 133.5 square meters
previously alloted to them by the trial court in Civil Case No. N-1681.
Consequently, the lower court conducted an ocular inspection. It was found
that the houses of Juan and Isidro actually encroached upon a portion of
the land belonging to Florencio. Upon agreement of the parties, the trial
court ordered a licensed geodetic engineer to conduct a survey to
determine the exact area occupied by the houses of private respondents.
The survey subsequently disclosed that the house of Juan occupied 42

Furthermore, the trial court stated that pursuant to Article 448 of the Civil
Code, the owner of the land (Florencio) should have the choice to either
appropriate that part of the house standing on his land after payment of
indemnity or oblige the builders in good faith (Juan and Isidro) to pay the
price of the land. However, the trial court observed that based on the facts
of the case, it would be useless and unsuitable for Florencio to exercise the
first option since this would render the entire houses of Juan and Isidro
worthless. The trial court then applied the ruling in the similar case
of Grana vs. Court of Appeals, 4 where the Supreme Court had advanced a
more "workable solution". Thus, it ordered Florencio to sell to Juan and
Isidro those portions of his land respectively occupied by the latter. The
dispositive portion of said decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and
(a) Ordering the plaintiff Florencio Ignao to sell to the defendants
Juan and Isidro Ignao that portion of his property with an area of
101 square meters at P40.00 per square meter, on which part the
defendants had built their houses; and
(b) Ordering the said plaintiff to execute the necessary deed of
conveyance to the defendants in accordance with paragraph (a)
hereof.
Without pronouncement as to costs.

Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On

August 27, 1985, the Appellate Court, Second Civil Cases Division,
promulgated a decision, 6 affirming the decision of the trial court.

Hence the instant petition for review which attributes to the Appellate
Court the following errors:
1. That the respondent Court has considered private respondents
builders in good faith on the land on question, thus applying Art.
448 of the Civil Code, although the land in question is still owned
by the parties in co-ownership, hence, the applicable provision is
Art. 486 of the Civil Code, which was not applied.
2. That, granting for the sake of argument that Art. 448 . . . is
applicable, the respondent Court has adjudged the working
solution suggested in Grana and Torralba vs. CA. (109 Phil. 260),
which is just an opinion by way of passing, and not the judgment
rendered therein, which is in accordance with the said provision of
the Civil Code, wherein the owner of the land to buy (sic) the
portion of the building within 30 days from the judgment or sell the
land occupied by the building.
3. That, granting that private respondents could buy the portion of
the land occupied by their houses, the price fixed by the court is
unrealistic and pre-war price. 7
The records of the case reveal that the disputed land with an area of 534
square meters was originally owned by Baltazar Ignao who married twice.
In his first marriage, he had four children, namely Justo (the father of
petitioner Florencio), Leon and private respondents Juan and Isidro. In his
second marriage, Baltazar had also four children but the latter waived their
rights over the controverted land in favor of Justo. Thus, Justo owned 4/8 of
the land which was waived by his half-brothers and sisters plus his 1/8
share or a total of 5/8. Thereafter, Justo acquired the 1/8 share of Leon for
P500.00 which he later sold to his son Florencio for the same amount.
When Justo died, Florencio inherited the 5/8 share of his father Justo plus
his 1/8 share of the land which he bought or a total of 6/8 (representing
400.5 square meters). Private respondents, Juan and Isidro, on the other
hand, had 1/8 share (66.75 square meters) each of the land or a total of
133.5 square meters.
Before the decision in the partition case was promulgated, Florencio sold
134 square meters of his share to a certain Victa for P5,000.00 on January
27, 1975. When the decision was handed down on February 6,1975, the
lower court alloted 2/8 of the land to private respondents Juan and Isidro,
or a total of 133.5 square meters.
It should be noted that prior to partition, all the co-owners hold the
property in common dominion but at the same time each is an owner of a
share which is abstract and undetermined until partition is effected. As
cited in Eusebio vs. Intermediate Appellate Court, 8 "an undivided estate is
co-ownership by the heirs."

As co-owners, the parties may have unequal shares in the common

property, quantitatively speaking. But in a qualitative sense, each coowner has the same right as any one of the other co-owners. Every coowner is therefore the owner of the whole, and over the whole he exercises
the right of dominion, but he is at the same time the owner of a portion
which is truly abstract, because until division is effected such portion is not
concretely determined. 9
Petitioner Florencio, in his first assignment of error, asseverates that the
court a quo erred in applying Article 448 of the Civil Code, since this article
contemplates a situation wherein the land belongs to one person and the
thing built, sown or planted belongs to another. In the instant case, the
land in dispute used to be owned in common by the contending parties.
Article 448 provides:
Art. 448. The owner of the land on which anything has been built,
sown or planted in good faith, shall have the right to appropriate as
his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or to oblige the one
who built or planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter cannot be
obliged to buy the land if its value is considerably more than that
of the building or trees. In such case, he shall pay reasonable rent,
if the owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree upon the
terms of the lease and in case of disagreement, the court shall fix
the terms thereof.
Whether or not the provisions of Article 448 should apply to a builder in
good faith on a property held in common has been resolved in the
affirmative in the case of Spouses del Campo vs. Abesia, 10 wherein the
Court ruled that:
The court a quo correctly held that Article 448 of the Civil Code
cannot apply where a co-owner builds, plants or sows on the land
owned in common for then he did not build, plant or sow upon land
that exclusively belongs to another but of which he is a co-owner.
The co-owner is not a third person under the circumstances, and
the situation is governed by the rules of co-ownership.
However, when, as in this case, the ownership is terminated by the
partition and it appears that the home of defendants overlaps or
occupies a portion of 5 square meters of the land pertaining to
plaintiffs which the defendants obviously built in good faith, then
the provisions of Article 448 of the new Civil Code should apply.
Manresa and Navarro Amandi agree that the said provision of the
Civil Code may apply even when there is a co-ownership if good
faith has been established. 11

In other words, when the co-ownership is terminated by a partition and it

appears that the house of an erstwhile co-owner has encroached upon a
portion pertaining to another co-owner which was however made in good
faith, then the provisions of Article 448 should apply to determine the
respective rights of the parties.
Petitioner's second assigned error is however well taken. Both the trial
court and the Appellate Court erred when they peremptorily adopted the
"workable solution" in the case of Grana vs. Court of appeals, 12 and
ordered the owner of the land, petitioner Florencio, to sell to private
respondents, Juan and Isidro, the part of the land they intruded upon,
thereby depriving petitioner of his right to choose. Such ruling contravened
the explicit provisions of Article 448 to the effect that "(t)he owner of the
land . . . shall have the right to appropriate . . .or to oblige the one who
built . . . to pay the price of the land . . . ." The law is clear and
unambiguous when it confers the right of choice upon the landowner and
not upon the builder and the courts.
Thus, in Quemuel vs. Olaes, 13 the Court categorically ruled that the right to
appropriate the works or improvements or to oblige the builder to pay the
price of the land belongs to the landowner.
As to the third assignment of error, the question on the price to be paid on
the land need not be discussed as this would be premature inasmuch as
petitioner Florencio has yet to exercise his option as the owner of the land.
WHEREFORE, the decision appealed from is hereby MODIFIED as follows:
Petitioner Florencio Ignao is directed within thirty (30) days from entry of
judgment to exercise his option to either appropriate as his own the
portions of the houses of Juan and Isidro Ignao occupying his land upon
payment of indemnity in accordance with Articles 546 and 548 of the Civil
Code, or sell to private respondents the 101 square meters occupied by
them at such price as may be agreed upon. Should the value of the land
exceed the value of the portions of the houses that private respondents
have erected thereon, private respondents may choose not to buy the land
but they must pay reasonable rent for the use of the portion of petitioner's
land as may be agreed upon by the parties. In case of disagreement, the
rate of rental and other terms of the lease shall be determined by the trial
court. Otherwise, private respondents may remove or demolish at their
own expense the said portions of their houses encroaching upon
petitioner's land. 14 No costs.
SO ORDERED

[G.R. No. 108894. February 10, 1997]

TECNOGAS
PHILIPPINES
MANUFACTURING
CORPORATION, petitioner, vs. COURT OF APPEALS (FORMER
SPECIAL
SEVENTEENTH
DIVISION)
and
EDUARDO
UY, respondents.
DECISION
PANGANIBAN, J.:
The parties in this case are owners of adjoining lots in Paraaque, Metro
Manila. It was discovered in a survey that a portion of a building of
petitioner, which was presumably constructed by its predecessor-ininterest, encroached on a portion of the lot owned by private
respondent. What are the rights and obligations of the parties? Is petitioner
considered a builder in bad faith because, as held by respondent Court, he
is presumed to know the metes and bounds of his property as described in
his certificate of title? Does petitioner succeed into the good faith or bad
faith of his predecessor-in-interest which presumably constructed the
building?
These are the questions raised in the petition for review of the
Decision[1] dated August 28, 1992, in CA-G.R. CV No. 28293 of respondent
Court[2] where the disposition reads:[3]
WHEREFORE, premises considered, the Decision of the Regional Trial Court
is hereby reversed and set aside and another one entered 1. Dismissing the complaint for lack of cause of action;
2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable
rental from October 4, 1979 until appellee vacates the land;
3. To remove the structures and surrounding walls on the encroached area;
4. Ordering appellee to pay the value of the land occupied by the twostorey building;
5. Ordering appellee to pay the sum of P20,000.00 for and as attorneys
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 twostorey 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, Paraaque, Metro Manila
known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral
Survey of Paraaque, 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 Paraaque, 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 plaintiffs 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 defendants 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 defendants adjoining land;
that upon learning of the encroachment or occupation by its buildings and
wall of a portion of defendants land, plaintiff offered to buy from defendant
that particular portion of defendants 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 Malacaang, 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 plaintiffs wall; that defendant later filed a complaint before the office of
Municipal Engineer of Paraaque, Metro Manila as well as before the Office
of the Provincial Fiscal of Rizal against plaintiff in connection with the
encroachment or occupation by plaintiffs 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 plaintiffs 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 defendants 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 plaintiffs buildings and wall at
the price of P2,000.00 per square meter and to pay the former:

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 respondents 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 supple-mental complaint in the Regional
Trial Court.
In its Memorandum, petitioner poses the following issues:

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 attorneys 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)

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 courts 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]

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]

D.
Quite contrary to respondent Uys 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 quowas 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 do nothave
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 in Tuason 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 respondents purchase of the two

The Courts Ruling

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 neighbors 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 petitioners 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 respondents 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
Parizs 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 petitioners 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 petitioners 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 respondents right over the disputed property. It
held that by undertaking to demolish the fence under said settlement,
petitioner recognized private respondents 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 Osmea 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. x x x.
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 landowners 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 coownership, 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 respondents 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
petitioners 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 petitioners 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 attorneys 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 respondents 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 respondents 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 latters 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 respondents 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.

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 CAG.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"), toIssue 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).lwph1.t
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;

[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.

xxx xxx xxx

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.

No. T-1753, located at Sitio Petugo Barrio Bato, Plaridel, Misamis Occidental
and assessed at P3,433.86 (p. 29, Rollo).
That judgment became final and executory. The Serrano spouses did not
pay their mortgage debt. A writ of execution was issued. On January 13,
1975, the sheriff levied upon the mortgaged lot and advertised its sale at
public auction to satisfy the mortgage obligation which, together with the
sheriff's fees and costs, amounted to P2,223.60 on January 28, 1975.
At the auction sale held on March 3, 1975, the mortgaged lot was sold to
the bank as the only bidder. The sheriff issued a certificate of sale dated
March 4, 1975 (p. 34, Rollo).
There being no redemption within the one-year period (sec. 78, General
Banking Law), the sheriff issued a final certificate of sale dated April 19,
1976 which was registered on the following day.
On September 20, 1976, the bank sold the lot to Eufemia Mejos. TCT No.
6035 was issued to her (pp. 47-48, Rollo).

G.R. No. L-53466 November 10, 1980

RURAL BANK OF OROQUIETA (MIS. OCC.), INC., petitioner,
vs.
COURT OF APPEALS, Eighth Division; JUDGE MELECIO A. GENATO
Court of First Instance of Misamis Occidental, Oroquieta Branch I;
PROCOPIO SERRANO and MARIA CUEME respondents.

AQUINO, J.:
This case is about the mortgagor's equity of redemption in case of judicial
foreclosure of a mortgage in favor of a rural bank.
In Civil Case No. 2988 of the Court of First Instance of Misamis Occidental,
Oroquieta City Branch I, entitled "Rural Bank of Oroquieta (Mis. Occ.), Inc.
vs. Procopio Serrano and Maria Cueme a case of foreclosure of mortgage,
Judge Melecio A. Genato on July 3, 1974 rendered a decision, ordering the
defendants to pay plaintiff bank within a period of "not less than ninety
(90) days nor more than one hundred (100) days from" the receipt of the
decision the loan of P1,500 with twelve percent interest per annum from
January 16, 1972 plus ten percent of the principal as attorney's fees (p. 29,
Rollo).
In case of nonpayment within that period, the trial court, in order to satisfy
that obligation, ordered the sheriff to sell at public auction the mortgaged
lot, a parcel of coconut land with an area of 2.8 hectares, covered by TCT

On September 8, 1977, Judge Genato issued an order directing the

issuance of a writ of possession to the bank. The mortgagors or judgment
debtors filed a motion for the reconsideration of that order on the grounds
that, because there was no judicial confirmation of the action sale, they
still have an equity of redemption and could still pay the mortgage debt
(alleged to be usurious) and that the auction sale was fraudulent and
irregular. They averred that the bank rejected their offer to redeem the
mortgaged lot and that the issuance of the writ of possession was
premature.
Judge Genato granted the motion for reconsideration in his order
of October 12, 1977 which contains these inconsistent or contradictory
directives: "Let the execution of judgment in this case be ordered and
subsequently the writ of possession be accordingly issued. The Rural Bank
of Oroquieta is hereby ordered to accept payment of the loan with
interests." (p. 36, Record.)
On December 23, 1977, the bank filed a manifestation and motion wherein
it revealed that the land had already been sold to Eufemia Mejos and,
therefore, its acceptance of the redemption tion price amounting to
P2,820.60 would not produce any legal effect (pp. 47-48, Rollo).
The bank further disclosed that there is pending in the trial court a case for
the annulment of the foreclosure sale of the said lot and the release of the
mortgage, docketed as Civil Case No. 3265, which was instituted by the
Serrano spouses, as mortgagors, against the bank and the Mejos spouses.
The bank prayed that it should not be compelled to accept the proffered
redemption price.

The trial court denied the motion. The bank filed a notice of appeal,
deposited the appeal bond of P120 and submitted a record on appeal. It
specified in its notice of appeal that it was appealing to the Court of
Appeals from the trial court's order of October 12, 1977, allowing the
redemption.
The Serrano spouses filed a motion to dismiss the appeal on the ground
that they had already deposited with the clerk of court the redemption
price of P2,830.
The trial court in its order of February 27, 1978 dismissed the appeal on
the ground that the order sought to be appealed is interlocutory or not
appealable. The bank assailed that order in the Court of Appeals by means
of certiorari which was really a mandamus action to compel the trial court
to give due course to its appeal.
The Court of Appeals dismissed the petition. It sustained the trial court's
position that the order sought to be appealed is interlocutory because the
trial court had not yet confirmed the foreclosure sale (Rural Bank of
Oroquieta [Mis. Occ.], Inc. vs. Judge Genato, CA-G. R. No. SP-07756,
October 26, 1979).
The bank appealed to this Court. The issue is whether the trial court and
the Court of Appeals erred in not giving due course to the bank's appeal.
We hold that the trial court and the Court of Appeals acted correctly in
refusing to give due course to the bank's appeal not only because the
order sought to be appealed is in interlocutory but also because in the
present posture of the case it is imperative that the trial court
should consolidate the foreclosure case, Civil Case No. 2988, with the other
case, Civil Case No. 3265 filed by the Serrano spouses for the annulment of
the foreclosure sale and the subsequent sale of the mortgaged lot to the
Mejos spouses. Note that the latter case is also pending in the sala of
respondent Judge.
The trial court erred in unreservedly allowing the Serrano spouses to
redeem the mortgaged lot without taking into ac count the supervening
fact that the lot is now registered in the name of Eufemia Mejos who is not
a party in the foreclosure proceeding and who is entitled to be heard. That
complication cannot be summarily ignored.
At this stage, a decision cannot be rendered outright on the conflicting
rights of the Serrano spouses, the bank and the Mejos spouses with respect
to the mortgaged lot. The trial court should first try and resolve the issues
arising out of the lack of judicial confirmation of the foreclosure sale and
the subsequent sale of the mortgaged lot to a third person after the
expiration of the one-year period for exercising the right of redemption. We
can only state some guidelines in resolving those issues.

After the execution of a real estate mortgage, the mortgagor has an equity
of redemption exercisable within the period stipulated in the mortgage
deed. In case of judicial foreclosure, that equity of redemption subsists
after the sale and before it is confirmed by the court (Raymundo vs.
Sunico, 25 Phil. 365; Benedicto vs. Yulo, 26 Phil. 160; Grimalt vs. Velasquez
and Sy Quio 36 Phil. 936; Sun Life Assurance Co. vs. Gonzales Diez, 52 Phil.
271; La Urbana vs. Belando 54 Phil. 930; Villar vs. Javier de Paderanga 97
Phil. 604; Piano vs. Cayanong 117 Phil. 415).
However, in case of a judicial foreclosure of a mortgage in favor of a
banking institution, section 78 of the General Banking Law grants the
mortgagor a right of redemption which may be exercised within one year
from the sale.
Under section 3, Rule 68 of the Rules of Court, it is the confirmation by the
court of the auction sale that would divest the Serrano spouses of their
rights to the mortgaged lot and that would vest such rights in the bank as
purchaser at the auction sale.
The clause "subject to such rights of redemption as may be allowed by
law," found in the last part of section 3, has no application to this case
because the mortgagor did not exercise his right of redemption under
section 78 of the General BanKing Law.
What applies to this case is the settled rule that "a foreclosure sale is not
complete until it is confirmed, and before said confirmation, the court
retains control of the proceedings by exercising a sound discretion in
regard to it, either granting or withholding confirmation as the rights and
interests of the parties and the ends of justice may require." (Salazar vs.
Tor res, 108 Phil. 209, 214-5).
"In order that a foreclosure sale may be validly confirmed by the court, it is
necessary that a hearing be given the interested parties, at which they
may have an opportunity to show cause why the sale should not be
confirmed." (Raymundo vs. Sunico, 25 Phil. 365).
"The acceptance of a bid at the foreclosure sale confers no title on the
purchaser. Until the sale has been validly confirmed by the court, he is
nothing more than a preferred bidder. Title vests only when the sale has
been validly confirmed by the court." (Raymundo vs. Sunico, 25 Phil. 365).
The confirmation retroacts to the date of the sale (Villar vs. Javier de
Paderanga 97 Phil. 604, citing Binalbagan Estate, Inc. vs. Gatuslao, 74 Phil.
128).
A hearing should be held for the confirmation of the sale. The mortgagor
should be notified of that hearing. Lack of notice vitiates the confirmation
of the sale. The mortgagor may still redeem the mortgaged lot after the

rendition of the order confirming the sale which is void for lack of hearing
and notice to the mortgagor. Grimalt vs. Velasquez and Sy Quio 36 Phil.
936; Raymundo vs. Sunico, 25 Phil. 365).
Notice and hearing of a motion for confirmation of sale are essential to the
validity of the order of confirmation, not only to enable the interested
parties to resist the motion but also to inform them of the time when their
right of redemption is cut off (Tiglao vs. Botones, 90 Phil. 275, 279).
An order of confirmation, void for lack of notice and hearing, may be set
aside anytime (Tiglao vs. Botones,supra).
It is equally settled that after the foreclosure sale but before its
confirmation, the court may grant the judgment debtor or mortgagor an
opportunity to pay the proceeds of the sale and thus refrain from
confirming it (Anderson and De Mesa vs. Reyes and Gutierrez Saenz 54
Phil. 944, citing Grit vs. Velasquez and Sy Quio 36 Phil. 936 and La Urbana
vs. Belan do, 54 Phil. 930).
If after the foreclosure sale and before the confirmation thereof, the
mortgagee, as purchaser at the auction sale, sold the mortgaged property
to another person, that subsequent sale does not render the foreclosure
sale more effective. That subsequent sale does not prevent the trial court
from granting the mortgagor a period within which to redeem the
mortgaged lot by paying the judgment debt and the expenses of the sale
and costs (Anderson and De Mesa vs. Reyes and Gutierrez Saenz, 54 Phil.
944).
"Whatever may have been the old rule by all of the modern authorities, it
is the policy of the courts to assist rather than to defeat the right of
redemption" (De Castro vs. Olondriz and Escudero 50 Phil. 725, 732).
After the confirmation of the sale, made after hearing and with due notice
to the mortgagor, the latter cannot redeem anymore the mortgaged lot
(unless the mortgagee is a banking institution) (Piano vs. Cayanong 117
Phil. 415).
It is after the confirmation of the sale that the mortgagor loses all interest
in the mortgaged property (Clemente vs. H. E. Heacock Co., 106 Phil. 1163;
Clemente vs. Court of Appeals, 109 Phil. 798; Clemente vs. H.E. Heacock
Co., L-23212, May 18, 1967, 20 SCRA 115).
In the instant case, where the foreclosure sale has not yet been confirmed
but the statutory one-year period for redemption tion expired and the
mortgaged lot was sold by the mortgagee (as the only bidder at the
auction sale) to a third person, the trial court should give the purchaser a
chance to be heard before requiring the mortgagee-bank to accept the
redemption price tendered by the mortgagors.

WHEREFORE, while we affirm the decision of the Court of Appeals in not

giving due course to petitioner's appeal from the trial court's
aforementioned order of October 12, 1977, at the same time the said order
is reversed and set aside for being premature.
The trial court is directed to consolidate the foreclosure case, Civil Case No.
2988, with Civil Case No. 3265 for the annulment of the foreclosure sale
and the sale of the mortgaged lot to Eufemia Mejos and to proceed in
accordance with the guidelines laid down in this decision. No costs.
SO ORDERED

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.
DECISION
PUNO, J.:

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.

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., thirdparty defendants."[1]

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
on the matter.

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]

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.

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 informed 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 AIA 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 a 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

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 and 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;

Hence, this petition. Petitioners allege that:

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

"RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND

GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION
WHEN:

5. To pay the costs of suit.

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.

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 defendantsappellants 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]

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 NONPAYMENT 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 by 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 accompanying
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 fees. [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

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 on
petitioners' lot.They are deemed builders in good faith [22] until the time
petitioner Ballatan informed them of their encroachment on her property. [23]

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;

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]

3. That Third-Party Defendants be ordered to pay attorney's fees as may be

proved during trial;

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.

1. That summons be issued against Third-Party Defendants Araneta

Institute of Agriculture, Jose N. Quedding and Li Ching Yao;

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 Appeals 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 fortytwo (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 on 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

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, [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 is 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]
Article 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, then 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]
Article 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 of 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-vis respondent 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 the third-party
complaint against Araneta Institute of Agriculture is affirmed.
SYNOPSIS
This is a petition for review on certiorari of the decision of the Court of
Appeals affirming the dismissal of the third-party complaint against
Araneta Institute of Agriculture (AIA) but reinstated the complaint against
respondents Li Ching Yao and Jose N. Quedding. The appellate court found
that it was the erroneous survey by respondent. Quedding that triggered
the discrepancies in the lot areas and it was this survey that respondent
Winston Go relied upon in constructing his house on his fathers land. Thus,
instead of ordering respondents Go to demolish their improvements on the
subject land, the appellate court ordered them to pay petitioner Efren
Bahlatan, and respondent 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 respondent Quedding to pay
respondents Go attorneys fees for his erroneous survey.
The Supreme Court held 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 AIAs fault was not proved. The Court likewise
ruled that all the parties herein are presumed to have acted in good faith.
Their rights must therefore be determined in accordance with Article 448 of
the Civil Code. Article 448 has been applied to improvements or portions of
improvements built by mistaken belief on land belonging to the adjoining
owner. Thus, 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 Gos house useless, then petitioners may
sell to respondents Go that portion of Lot No. 24 on which their
improvement stands. If the Gos 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 Gos
improvement, then 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 likewise held that Article 448 of
the Civil Code applies 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 Gos land.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; REAL ACTIONS;
DOCKET AND FILING FEES; PAYMENT THEREOF, A REQUISITE
BEFORE THE COURT ACQUIRES JURISDICTION OVER THE
ACTION AND CLAIM FOR DAMAGES. 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 by the payment of the requisite
docket and filing fees. In real actions, the docket and filing fees are
based on the value of the property and the amount of damages
claimed, if any. 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. 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 accompanying claim for damages.
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 fees. 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. The same rule also applies to third-party
claims and other similar pleadings.
2. ID.; ID.; ID.; COMPLAINT; THIRD-PARTY COMPLAINT; DISMISSAL
THEREOF, PROPER IN CASE AT BAR. 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 on petitioners lot. They are deemed builders in good faith
until the time petitioner Ballatan informed them of their encroachment
on her property.
3. CIVIL LAW; DAMAGES; ATTORNEYS FEES; ADDITIONAL FILING
FEE ON CLAIM THEREOF DEEMED TO CONSTITUTE A LIEN ON
THE JUDGMENT AWARD. Contrary to petitioners' claim, the Court of
Appeals 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.
4. ID.; PROPERTY; OWNERSHIP; RIGHT OF ACCESSION; GOOD
FAITH IS ALWAYS PRESUMED; BURDEN OF PROOF LIES UPON
HIM WHO ALLEGES BAD FAITH. Respondent Li Ching Yao built his
house on his lot before any of the other parties did. He constructed
his house in 1982, respondents Go in 1983, and petitioners in 1985.
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. All the parties are
presumed to have acted in good faith. Their right must, therefore be
determined in accordance with the appropriate provisions of the Civil
Code on property
5. ID.; ID.; ID.; ID.; RIGHT OF THE OWNER OF THE LAND WHEN
IMPROVEMENT WAS BUILT BY A MISTAKEN BELIEF ON HIS
LAND. Article 448 of the Civil Code has been applied to improvements
or portions of improvements built by mistaken belief on land
belonging to the adjoining owner. 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, then 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.

6. ID.; ID.; ID,; ID.; WHEN THE OWNER OF THE LAND ELECTS TO
SELL THE LAND OR BUY THE IMPROVEMENT, THE PURCHASE
PRICE MUST BE FIXED AT PREVAILING MARKET VALUE AT THE
TIME OF PAYMENT. 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. .Article 448 and the same conditions above-stated
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.

[G.R. No. 151815. February 23, 2005]

SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID, petitioners,
vs.HON.
COURT
OF
APPEALS
AND
PEDRO
P.
PECSON, respondents.
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the Decision[1] dated May
21, 2001, of the Court of Appeals in CA-G.R. CV No. 64295, which modified
the Order dated July 31, 1998of the Regional Trial Court (RTC) of Quezon
City, Branch 101 in Civil Case No. Q-41470.The trial court ordered the
defendants, among them petitioner herein Juan Nuguid, to pay respondent
herein Pedro P. Pecson, the sum of P1,344,000 as reimbursement of
unrealized income for the period beginning November 22, 1993 to
December 1997. The appellate court, however, reduced the trial courts
award in favor of Pecson from the said P1,344,000 to P280,000. Equally
assailed
by
the
petitioners
is
the
appellate
courts Resolution[2] datedJanuary 10, 2002, denying the motion for
reconsideration.
It may be recalled that relatedly in our Decision dated May 26, 1995,
in G.R. No. 115814, entitled Pecson v. Court of Appeals, we set aside the
decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order
dated November 15, 1993, of the RTC of Quezon City, Branch 101 and
remanded the case to the trial court for the determination of the current
market value of the four-door two-storey apartment building on the 256square meter commercial lot.

The antecedent facts in this case are as follows:

Pedro P. Pecson owned a commercial lot located at 27 Kamias
Road, Quezon City, on which he built a four-door two-storey apartment
building. For failure to pay realty taxes, the lot was sold at public auction
by the City Treasurer of Quezon City to Mamerto Nepomuceno, who in turn
sold it for P103,000 to the spouses Juan and Erlinda Nuguid.
Pecson challenged the validity of the auction sale before the RTC of
Quezon City in Civil Case No. Q-41470. In its Decision, [3] dated February 8,
1989, the RTC upheld the spouses title but declared that the four-door twostorey apartment building was not included in the auction sale. [4] This was
affirmed in toto by the Court of Appeals and thereafter by this Court, in its
Decision[5] dated May 25, 1993, in G.R. No. 105360 entitled Pecson v. Court
of Appeals.
On June 23, 1993, by virtue of the Entry of Judgment of the aforesaid
decision in G.R. No. 105360, the Nuguids became the uncontested owners
of the 256-square meter commercial lot.
As a result, the Nuguid spouses moved for delivery of possession of
the lot and the apartment building.
In its Order[6] of November 15, 1993, the trial court, relying upon
Article 546[7] of the Civil Code, ruled that the Spouses Nuguid were to
reimburse Pecson for his construction cost ofP53,000, following which, the
spouses Nuguid were entitled to immediate issuance of a writ of
possession over the lot and improvements. In the same order the RTC also
directed Pecson to pay the same amount of monthly rentals to the Nuguids
as paid by the tenants occupying the apartment units or P21,000 per
month from June 23, 1993, and allowed the offset of the amount
of P53,000 due from the Nuguids against the amount of rents collected by
Pecson from June 23, 1993 to September 23, 1993 from the tenants of the
apartment.[8]
Pecson duly moved for reconsideration, but on November 8, 1993,
the RTC issued a Writ of Possession, [9] directing the deputy sheriff to put the
spouses Nuguid in possession of the subject property with all the
improvements thereon and to eject all the occupants therein.
Aggrieved, Pecson then filed a special civil action for certiorari and
prohibition docketed as CA-G.R. SP No. 32679 with the Court of Appeals.
In its decision of June 7, 1994, the appellate court, relying upon Article
448[10] of the Civil Code, affirmed the order of payment of construction
costs but rendered the issue of possession moot on appeal, thus:
WHEREFORE, while it appears that private respondents [spouses Nuguid]
have not yet indemnified petitioner [Pecson] 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] [Underscoring supplied.]
Frustrated by this turn of events, Pecson filed a petition for review
docketed as G.R. No. 115814 before this Court.
On May 26, 1995, the Court handed down the decision in G.R. No
115814, to wit:
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 [Spouses Juan and Erlinda
Nuguid] to the petitioner [Pedro Pecson] otherwise the petitioner shall be
restored to the possession of the apartment building until payment of the
required indemnity.
No costs.
SO ORDERED.[12] [Emphasis supplied.]
In so ruling, this Court pointed out that: (1) Article 448 of the Civil
Code is not apposite to the case at bar where the owner of the land is the
builder, sower, or planter who then later lost ownership of the land by sale,
but may, however, be applied by analogy; (2) the current market value of
the improvements should be made as the basis of reimbursement; (3)
Pecson was entitled to retain ownership of the building and, necessarily,
the income therefrom; (4) the Court of Appeals erred not only in upholding
the trial courts determination of the indemnity, but also in ordering Pecson
to account for the rentals of the apartment building from June 23, 1993 to
September 23, 1993.
On the basis of this Courts decision in G.R. No. 115814, Pecson filed a
Motion to Restore Possession and a Motion to Render Accounting, praying
respectively for restoration of his possession over the subject 256-square
meter commercial lot and for the spouses Nuguid to be directed to render
an accounting under oath, of the income derived from the subject four-door
apartment from November 22, 1993 until possession of the same was
restored to him.

In an Order[13] dated January 26, 1996, the RTC denied the Motion to
Restore Possession to the plaintiff averring that the current market value of
the building should first be determined. Pending the said determination,
the resolution of the Motion for Accounting was likewise held in abeyance.

in December 1997.Therefore, he is entitled to the income thereof

beginning on November 22, 1993, the time he was dispossessed, up to the
time of said full payment, in December 1997, or a total of 48 months.

With the submission of the parties assessment and the reports of the
subject realty, and the reports of the Quezon City Assessor, as well as the
members of the duly constituted assessment committee, the trial court
issued the following Order[14] dated October 7, 1997, to wit:

The only question left is the determination of income of the four units of
apartments per month. But as correctly pointed out by plaintiff, the
defendants have themselves submitted their affidavits attesting that the
income derived from three of the four units of the apartment building is
P21,000.00 or P7,000.00 each per month, or P28,000.00 per month for the
whole four units. Hence, at P28,000.00 per month, multiplied by 48
months, plaintiff is entitled to be paid by defendants the amount of
P1,344,000.00.[17]

On November 21, 1996, the parties manifested that they have arrived at a
compromise agreement that the value of the said improvement/building
isP400,000.00 The Court notes that the plaintiff has already
received P300,000.00.However, when defendant was ready to pay the
balance of P100,000.00, the plaintiff now insists that there should be a
rental to be paid by defendants.Whether or not this should be paid by
defendants, incident is hereby scheduled for hearing on November 12,
1997 at 8:30 a.m.

The Nuguid spouses filed a motion for reconsideration but this was
denied for lack of merit.[18]
The Nuguid couple then appealed the trial courts ruling to the Court of
Appeals, their action docketed as CA-G.R. CV No. 64295.

balance

In the Court of Appeals, the order appealed from in CA-G.R. CV No.

64295, was modified. The CA reduced the rentals from P1,344,000
to P280,000 in favor of the appellee. [19] The said amount represents
accrued rentals from the determination of the current market value
on January 31, 1997[20] until its full payment on December 12, 1997.

On December 1997, after paying the said P100,000 balance to Pedro

Pecson the spouses Nuguid prayed for the closure and termination of the
case, as well as the cancellation of the notice of lis pendens on the title of
the property on the ground that Pedro Pecsons claim for rentals was devoid
of factual and legal bases.[16]

Hence, petitioners state the sole assignment of error now before us as

follows:

Meantime, defendants
of P100,000.00.

are

directed

to

pay

plaintiff

the

SO ORDERED.[15]

After conducting a hearing, the lower court issued an Order dated July
31, 1998, directing the spouses to pay the sum of P1,344,000 as
reimbursement of the unrealized income of Pecson for the period
beginning November 22, 1993 up to December 1997. The sum was based
on the computation of P28,000/month rentals of the four-door apartment,
thus:
The Court finds plaintiffs motion valid and meritorious. The decision of the
Supreme Court in the aforesaid case [Pecson vs. Court of Appeals, 244
SCRA 407] which set aside the Order of this Court of November 15, 1993
has in effect upheld plaintiffs right of possession of the building for as long
as he is not fully paid the value thereof. It follows, as declared by the
Supreme Court in said decision that the plaintiff is entitled to the income
derived therefrom, thus
...
Records show that the plaintiff was dispossessed of the premises
on November 22, 1993 and that he was fully paid the value of his building

THE COURT OF APPEALS ERRED IN HOLDING PETITIONERS LIABLE TO PAY

RENT OVER AND ABOVE THE CURRENT MARKET VALUE OF THE
IMPROVEMENT WHEN SUCH WAS NOT PROVIDED FOR IN THE DISPOSITIVE
PORTION OF THE SUPREME COURTS RULING IN G.R. No. 115814.
Petitioners call our attention to the fact that after reaching an agreed
price of P400,000 for the improvements, they only made a partial payment
of P300,000. Thus, they contend that their failure to pay the full price for
the improvements will, at most, entitle respondent to be restored to
possession, but not to collect any rentals. Petitioners insist that this is the
proper interpretation of the dispositive portion of the decision in G.R. No.
115814, which states in part that [t]he value so determined shall be
forthwith paid by the private respondents [Spouses Juan and Erlinda
Nuguid] to the petitioner [Pedro Pecson] otherwisethe petitioner shall be
restored to the possession of the apartment building until payment of the
required indemnity.[21]
Now herein respondent, Pecson, disagrees with herein petitioners
contention. He argues that petitioners are wrong in claiming that inasmuch
as his claim for rentals was not determined in the dispositive portion of the
decision in G.R. No. 115814, it could not be the subject of execution. He
points out that in moving for an accounting, all he asked was that the value
of the fruits of the property during the period he was dispossessed be

accounted for, since this Court explicitly recognized in G.R. No. 115814, he
was entitled to the property. He points out that this Court ruled that [t]he
petitioner [Pecson] not having been so paid, he was entitled to retain
ownership of the building and, necessarily, the income therefrom. [22] In
other words, says respondent, accounting was necessary. For accordingly,
he was entitled to rental income from the property. This should be given
effect. The Court could have very well specifically included rent (as fruit or
income of the property), but could not have done so at the time the Court
pronounced judgment because its value had yet to be determined,
according to him. Additionally, he faults the appellate court for modifying
the order of the RTC, thus defeating his right as a builder in good faith
entitled to rental from the period of his dispossession to full payment of the
price of his improvements, which spans from November 22, 1993 to
December 1997, or a period of more than four years.
It is not disputed that the construction of the four-door two-storey
apartment, subject of this dispute, was undertaken at the time when
Pecson was still the owner of the lot. When the Nuguids became the
uncontested owner of the lot on June 23, 1993, by virtue of entry of
judgment of the Courts decision, dated May 25, 1993, in G.R. No.
105360, the apartment building was already in existence and occupied by
tenants. In its decision dated May 26, 1995 in G.R. No. 115814, the Court
declared the rights and obligations of the litigants in accordance
with Articles 448 and 546 of the Civil Code. These provisions of the Code
are directly applicable to the instant case.
Under Article 448, the landowner is given the option, either to
appropriate the improvement as his own upon payment of the proper
amount of indemnity or to sell the land to the possessor in good
faith. Relatedly, Article 546 provides that a builder in good faith is entitled
to full reimbursement for all the necessary and useful expenses incurred; it
also gives him right of retention until full reimbursement is made.
While the law aims to concentrate in one person the ownership of the
land and the improvements thereon in view of the impracticability of
creating a state of forced co-ownership, [23] it guards against unjust
enrichment insofar as the good-faith builders improvements are
concerned. The right of retention is considered as one of the measures
devised by the law for the protection of builders in good faith. Its object is
to guarantee full and prompt reimbursement as it permits the actual
possessor to remain in possession while he has not been reimbursed (by
the person who defeated him in the case for possession of the property) for
those necessary expenses and useful improvements made by him on the
thing possessed.[24] Accordingly, a builder in good faith cannot be
compelled to pay rentals during the period of retention [25] nor be disturbed
in his possession by ordering him to vacate. In addition, as in this case, the
owner of the land is prohibited from offsetting or compensating the
necessary and useful expenses with the fruits received by the builderpossessor in good faith. Otherwise, the security provided by law would be
impaired. This is so because the right to the expenses and the right to the
fruits both pertain to the possessor, making compensation juridically
impossible; and one cannot be used to reduce the other. [26]

As we earlier held, since petitioners opted to appropriate the

improvement for themselves as early as June 1993, when they applied for
a writ of execution despite knowledge that the auction sale did not include
the apartment building, they could not benefit from the lots improvement,
until they reimbursed the improver in full, based on the current market
value of the property.
Despite the Courts recognition of Pecsons right of ownership over the
apartment building, the petitioners still insisted on dispossessing Pecson
by filing for a Writ of Possession to cover both the lot and the building.
Clearly, this resulted in a violation of respondents right of retention. Worse,
petitioners took advantage of the situation to benefit from the highly
valued, income-yielding, four-unit apartment building by collecting rentals
thereon, before they paid for the cost of the apartment building. It was
only four years later that they finally paid its full value to the respondent.
Petitioners interpretation of our holding in G.R. No. 115814 has neither
factual nor legal basis. The decision of May 26, 1995, should be construed
in connection with the legal principles which form the basis of the decision,
guided by the precept that judgments are to have a reasonable intendment
to do justice and avoid wrong.[27]
The text of the decision in G.R. No. 115814 expressly exempted
Pecson from liability to pay rentals, for we found that the Court of Appeals
erred not only in upholding the trial courts determination of the indemnity,
but also in ordering him to account for the rentals of the apartment
building from June 23, 1993 to September 23, 1993, the period from entry
of judgment until Pecsons dispossession. As pointed out by Pecson,
the dispositive portion of our decision in G.R. No. 115814 need not
specifically include the income derived from the improvement in order to
entitle him, as a builder in good faith, to such income. The right of
retention, which entitles the builder in good faith to the possession as well
as the income derived therefrom, is already provided for under Article 546
of the Civil Code.
Given the circumstances of the instant case where the builder in good
faith has been clearly denied his right of retention for almost half a decade,
we find that the increased award of rentals by the RTC was reasonable and
equitable. The petitioners had reaped all the benefits from the
improvement introduced by the respondent during said period, without
paying any amount to the latter as reimbursement for his construction
costs and expenses.They should account and pay for such benefits.
We need not belabor now the appellate courts recognition of herein
respondents entitlement to rentals from the date of the determination of
the current market value until its full payment. Respondent is clearly
entitled to payment by virtue of his right of retention over the said
improvement.
WHEREFORE, the instant petition is DENIED for lack of merit. The
Decision dated May 21, 2001 of the Court of Appeals in CA-G.R. CV No.
64295 is SET ASIDE and the Order dated July 31, 1998, of the Regional Trial
Court, Branch 101, Quezon City, in Civil Case No. Q-41470 ordering the

herein petitioners, Spouses Juan and Erlinda Nuguid, to account for the
rental income of the four-door two-storey apartment building from
November 1993 until December 1997, in the amount of P1,344,000,
computed on the basis of Twenty-eight Thousand (P28,000.00) pesos
monthly, for a period of 48 months, is hereby REINSTATED.Until fully paid,
said amount of rentals should bear the legal rate of interest set at six
percent (6%) per annum computed from the date of RTC judgment. If any
portion thereof shall thereafter remain unpaid, despite notice of finality of
this Courts judgment, said remaining unpaid amount shall bear the rate of
interest set at twelve percent (12%) per annum computed from the date of
said notice. Costs against petitioners.
SO ORDERED.

G.R. No. 157044 October 5, 2005

RODOLFO V. ROSALES, (represented by his heirs, Rodolfo, Jr.,
Romeo Allan, Lillian Rhodora, Roy Victor, Roger Lyle and Alexander
Nicolai,
all
surnamed
Rosales)
and
LILY
ROSQUETAROSALES, Petitioners
vs.
MIGUEL CASTELLTORT, JUDITH CASTELLTORT, and LINA LOPEZVILLEGAS,
assisted
by
her
Attorney-in-Fact,
Rene
Villegas, Respondents.

Petitioners subsequently filed on September 1, 1995 a complaint 10 for

recovery of possession and damages with prayer for the issuance of a
restraining order and preliminary injunction against spouses-respondents
Miguel and Judith Castelltort before the RTC of Calamba, Laguna, docketed
as Civil Case No. 2229-95-C.
To the complaint, the Castelltorts claimed in
Counterclaim11 that they were builders in good faith.

their

Answer

with

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

for Intervention12 before the RTC which was granted by Order 13 of
December 19, 1995.

DECISION
CARPIO MORALES, J.:
The present petition for review on certiorari assails the October 2, 2002
Decision1 and February 6, 2003 Resolution2 of the Court of Appeals (CA) in
CA G.R. CV No. 64046 and seeks to reinstate the April 21, 1999 Decision 3 of
the Regional Trial Court (RTC) of Calamba, Laguna, Branch 34 in Civil Case
No. 2229-95-C.
Spouses-petitioners Rodolfo V. Rosales and Lily Rosqueta-Rosales
(petitioners) are the registered owners of a parcel of land with an area of
approximately 315 square meters, covered by Transfer Certificate of Title
(TCT) No. 368564 and designated as Lot 17, Block 1 of Subdivision Plan LRC
Psd-55244 situated in Los Baos, Laguna.
On August 16, 1995, petitioners discovered that a house was being
constructed on their lot, without their knowledge and consent, by
respondent Miguel Castelltort (Castelltort). 5
It turned out that respondents Castelltort and his wife Judith had purchased
a lot, Lot 16 of the same Subdivision Plan, from respondent Lina LopezVillegas (Lina) through her son-attorney-in-fact Rene Villegas (Villegas) but
that after a survey thereof by geodetic engineer Augusto Rivera, he
pointed to Lot 17 as the Lot 16 the Castelltorts purchased.
Negotiations for the settlement of the case thus began, with Villegas
offering a larger lot near petitioners lot in the same subdivision as a
replacement thereof.6 In the alternative, Villegas proposed to pay the
purchase price of petitioners lot with legal interest. 7 Both proposals were,
however, rejected by petitioners 8 whose counsel, by letter 9 of August 24,
1995, directed Castelltort to stop the construction of and demolish his
house and any other structure he may have built thereon, and desist from
entering the lot.

In her Answer to the complaint, 14 Lina alleged that the Castelltorts acted in
good faith in constructing the house on petitioners lot as they in fact
consulted her before commencing any construction thereon, they having
relied on the technical description of the lot sold to them, Lot 16, which
was verified by her officially designated geodetic engineer.
Nevertheless, Lina proposed to give petitioners a lot containing an area of
536 square meters together with the house and duplex structure built
thereon or, if petitioners choose, to encumber the 536 square meter lot as
collateral "to get immediate cash" through a financing scheme in order to
compensate them for the lot in question. 15
Ruling out good faith, the RTC, by Decision of April 21, 1999, found for
petitioners in this wise:
In the instant case, there is no well-founded belief of ownership by the
defendants of the land upon which they built their house. The title or mode
of acquisition upon which they based their belief of such ownership
stemmed from a Contract to Sell (Exhibit "P") of which they were not even
parties, the designated buyer being Elizabeth Yson Cruz and the sale even
subjected to the judicial reconstitution of the title. And by their own
actions, particularly defendant Miguel Castelltort, defendants betrayed this
very belief in their ownership when realizing the inutility of anchoring their
ownership on the basis of the Contract of Sale, defendant Miguel
Castelltort in his testimony declared Elizabeth Yson Cruz as his wife (tsn,
pp. 7-8, March 24, 1998) despite an admission in their answer that they are
the spouses named as defendants (tsn, p. 8, January 12, 1998) and which
declaration is an utter falsehood as the Contract to Sell itself indicates the
civil status of said Elizabeth Yson Cruz to be single.
Even if we are to concede that defendants built their house in good faith on
account of the representation of attorney-in-fact Rene Villegas, their failure
to comply with the requirements of the National Building Code, particularly
the procurement of a building permit, stained such good faith and belief.

xxx
From any and all indications, this deliberate breach is an unmitigated
manifestation of bad faith. And from the evidence thus adduced, we hold
that defendants and the intervenor were equally guilty of negligence which
led to the construction of the defendants house on plaintiffs property and
therefore jointly and severally liable for all the damages suffered by the
plaintiffs.16 (Underscoring supplied)
The dispositive portion of the trial courts Decision reads, quoted verbatim:
ACCORDINGLY, in view of all the foregoing, judgment is hereby rendered in
favor of plaintiffs and against the defendants, ordering the latter to
surrender the possession of the property covered by TCT No. 36856 of the
Register of Deeds of Laguna including any and all improvements built
thereon to the plaintiffs.
Defendants and intervenors are likewise jointly and severally directed to
pay to plaintiffs the following damages:
a) TWO THOUSAND (P2,000.00) PESOS per month from February 1995 by
way of reasonable compensation for the use of plaintiffs property until the
surrender of the same;
b) FIFTY THOUSAND (P50,000.00) PESOS by way of moral damages;
c) THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages;
d) TWENTY THOUSAND (P20,000.00) PESOS as attorneys fees and cost of
suit.
The counterclaim interposed by the defendants in their responsive
pleading is hereby dismissed for lack of merit.
SO ORDERED.17

WHEREFORE,
premises
considered,
the
instant
appeal
is
hereby GRANTED and the assailed decision of the court a quo REVERSED
AND SET ASIDE. In accordance with the cases of Technogas Philippines
Manufacturing Corp. vs. Court of Appeals and Depra vs. Dumlao, applying
Article 448 of the Civil Code, this case is REMANDEDto the Regional Trial
Court of Calamba, Laguna, Branch 34, for further proceedings, as follows:
1. to determine the present fair price of appellees 315 square meter area
of land and the amount of the expenses actually spent by the appellants
for building the house as of 21 August 1995, which is the time they were
notified of appellees rightful claim over Lot 17.
2. to order the appellees to exercise their option under the law (Article 448,
Civil Code), whether to appropriate the house as their own by paying to the
appellants the amount of the expenses spent for the house as determined
by the court a quo in accordance with the limitations as aforestated or to
oblige the appellants to pay the price of the land.
In case the appellees exercise the option to oblige the appellants to pay
the price of the land but the latter reject such purchase because, as found
by the court, the value of the land is considerably more than that of the
house, the court shall order the parties to agree upon the terms of a forced
lease, and give the court a quo a formal written notice of such agreement
and its provisos. If no agreement is reached by the parties, the court a quo
shall then fix the terms of the forced lease, provided that the monthly
rental to be fixed by the Court shall not be less that Two Thousand Pesos
(P2,000.00) per month, payable within the first five (5) days of each
calendar month and the period thereof shall not be more than two (2)
years, counted from the finality of the judgment.
Upon the expiration of the forced lease, or upon default by the appellants
in the payment of rentals for two (2) consecutive months, the appellees
shall be entitled to terminate the forced lease, to recover their land, and to
have the improvement removed by the appellants at the latters expense.
The rentals herein provided shall be tendered by the appellants to the
court for payment to the appellees, and such tender shall constitute
evidence of whether or not compliance was made within the period fixed
by the court.

Respondents thereupon filed their respective appeals with the CA.

Petitioner Rodolfo Rosales, in the meantime, died on December 7, 2001.
His heirs Rodolfo, Jr., Romeo Allan, Lillian Rhodora, Roy Victor, Roger Lyle
and Alexander Nicolai, all surnamed Rosales, filed their Appearance 18 as his
substitute.
By Decision of October 2, 2002, the CA granted the appeal and set aside
the April 21, 1999 RTC Decision. The dispositive portion of the Decision
reads, quoted verbatim:

In any event, the appellants shall pay the appellees the amount of Two
Thousand Pesos (P2,000.00) as reasonable compensation for their
occupancy of the encroached property from the time said appellants good
faith cease (sic) to exist until such time the possession of the property is
delivered to the appellees subject to the reimbursement of the aforesaid
expenses in favor of the appellants or until such time the payment of the
purchase price of the said lot be made by the appellants in favor of the
appellees in case the latter opt for the compulsory sale of the same.
SO ORDERED.19 (Emphasis in the original)

In reversing the trial court, the CA held:

xxx
x x x A perusal of the records readily reveals that said court instead relied
on flimsy, if not immaterial, allegations of the appellees, which have no
direct bearing in the determination of whether the appellants are builders
in bad faith.
For one, the pivotal issue to be resolved in this case, i.e. whether appellant
Miguel is a builder in good faith, was ignored by the court a quo . The
instant case does not in any way concern the personal and property
relations of spouses-appellants and Elizabeth Yson Cruz which is an
altogether different matter that can be ventilated by the concerned parties
through the institution of a proper action. xxx The court a quo should have
focused on the issue of whether appellant Miguel built, in good faith, the
subject house without notice of the adverse claim of the appellees and
under the honest belief that the lot which he used in the construction
belongs to him. xxx
xxx As it is, appellant Miguel relied on the title which the intervenor
showed to him which, significantly, has no annotation that would otherwise
show a prior adverse claim. Thus, as far as appellant Miguel is concerned,
his title over the subject lot, as well as the title of the intervenor thereto, is
clean and untainted by an adverse claim or other irregularities.
For another, the appellants failure to secure a building permit from the
Municipal Engineers Office on their construction on Lot 17 does not
impinge on the good faith of the appellants. In fact, it can be told that a
building permit was actually filed by appellant Miguel with respect to Lot
16 and it was only due to the confusion and misapprehension by the
intervenor of the exact parameters of the property which caused
appellants belief that Lot 17 [the questioned lot], is his. This fact bolsters
appellant Miguels good faith in building his house on appellees lot under
the mistaken belief that the same is his property. Otherwise, he should
have secured a building permit on Lot 17 instead or should not have
bothered to take the necessary measures to obtain a building permit on Lot
16 in the first place.
By and large, the records show that, as testified to by Engr. Rebecca T.
Lanuang, appellant Miguel had already applied for a building permit as
early as February 1994 and was in fact issued a temporary building
permitpending the completion of the requirements for said permit.
Although the building permit was belatedly issued in January 1996, this
does not in any way detract from appellant Miguels good faith.
xxx

In holding the appellants as builders in bad faith, the court a quo defied
law and settled jurisprudence considering that the factual basis of its
findings and the incontrovertible evidence in support thereof prove that the
appellant Miguel, in good faith, built the house on appellees land without
knowledge of an adverse claim or any other irregularities that might cast a
doubt as to the veracity of the assurance given to him by the intervenor.
Having been assured by the intervenor that the stone monuments were
purposely placed, albeit wrongfully, by the land surveyor in said land to
specifically identify the lot and its inclusive boundaries, the appellants
cannot be faulted for having relied on the expertise of the land surveyor
who is more equipped and experienced in the field of land surveying.
Although under the Torrens system of land registration, the appellant is
presumed to have knowledge of the metes and bounds of the property with
which he is dealing, appellant however, considering that he is a layman not
versed in the technical description of his property, cannot be faulted in his
reliance on the survey plan that was delivered to him by the intervenor and
the stone monuments that were placed in the encroached property.
xxx
Peremptorily, contrary to the flawed pronouncements made by the court a
quo that appellant Miguel is deemed as a builder in bad faith on the basis
of a mere assertion that he built his house without initially satisfying
himself that he owns the said property, this Court finds reason to maintain
good faith on the part of the appellant. Admittedly, the appellants house
erroneously encroached on the property of the appellees due to a mistake
in the placement of stone monuments as indicated in the survey plan,
which error is directly attributable to the fault of the geodetic engineer who
conducted the same. This fact alone negates bad faith on the part of
appellant Miguel.
xxx
Moreover, it is quite illogical for appellant Miguel to knowingly build his
house on a property which he knew belongs to another person. x x x
xxx
In view of the good faith of both parties in this case, their rights
and obligations are to be governed byArticle 448, which has been
applied to improvements or portions of improvements built by
mistaken belief on land belonging to the adjoining owner. x x x
x x x20 (Emphasis and underscoring supplied)
Petitioners Motion for Reconsideration21 dated October 22, 2002 having
been denied by the CA by Resolution of March 13, 2002, the present
petition was filed raising the following issues:

I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE ABUSE OF DISCRETION IN MAKING A FINDING THAT IS CONTRARY
TO THE ADMISSIONS BY THE PARTIES
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR OF LAW IN CONCLUDING THAT THE TRIAL COURT, IN
DECIDING THE CASE, RELIED ON FLIMSY, IF NOT IMMATERIAL,
ALLEGATIONS OF THE PETITIONERS, WHICH HAVE NO DIRECT BEARING IN
THE DETERMINATION OF WHETHER THE RESPONDENTS ARE BUILDERS IN
GOOD FAITH
III.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR OF LAW IN RENDERING A DECISION THAT IS
UNENFORCEABLE AGAINST BOTH RESPONDENT JUDITH CASTELLTORT AND
THIRD-PARTY ELIZABETH CRUZ22
Petitioners initially hammer against respondents proving that Castelltort
and a certain Elizabeth Cruz are the builders of the house on the subject
property, they faulting them with estoppel for alleging in their Answer
before the trial court that "they (respondents Castelltort and Judith) caused
the construction of their house which they bought from a certain Lina
Lopez-Villegas."
Petitioners rely on the following doctrine established in Elayda v. Court of
Appeals:23
"an admission made in the pleadings cannot be controverted by the party
making such admission and are conclusive as to him and that all proofs
submitted by him contrary thereto or inconsistent therewith, should be
ignored, whether objection is interposed by the party or not x x x"
Petitioners contention is hardly relevant to the case at bar. Whether it was
Castelltort and Judith or Castelltort and Elizabeth Cruz who purchased the
property from Lina is not material to the outcome of the instant
controversy. As found by the CA:
The fact remains that appellant [Castelltort] is the builder of the house on
Lot 17 xxx The court a quo should have focused on the issue of whether
appellant Miguel built, in good faith, the subject house without notice of
the adverse claim of the appellees and under the honest belief that the lot
which he used in the construction belongs to him. xxx it cannot be gainsaid

that appellant Miguel has a title over the land that was purchased from the
intervenor x x x24
At all events, as this Court held in the case of Gardner v. Court of
Appeals:25
In its Resolution reversing the original Decision, respondent Court
discredited the testimony of Ariosto SANTOS for being at variance with the
allegations in his Answer. The fact, however, that the allegations made by
Ariosto SANTOS in his pleadings and in his declarations in open Court
differed will not militate against the findings herein made nor support the
reversal by respondent Court. As a general rule, facts alleged in a partys
pleading are deemed admissions of that party and binding upon it, but this
is not an absolute and inflexible rule. An Answer is a mere statement of
fact which the party filing it expects to prove, but it is not evidence. As
Ariosto SANTOS himself, in open Court, had repudiated the defenses he
had raised in his Answer and against his own interest, his testimony is
deserving of weight and credence.26 (Underscoring supplied)
The issue determinative of the controversy in the case at bar hinges on
whether Castelltort is a builder in good faith.
A builder in good faith is one who builds with the belief that the land he is
building on is his, or that by some title one has the right to build thereon,
and is ignorant of any defect or flaw in his title. 27
Article 527 of the Civil Code provides that good faith is always presumed,
and upon him who alleges bad faith on the part of a possessor rests the
burden of proof.28
In the case at bar, Lot 16 was sold by Lina, through her attorney-in-fact
Villegas, to Castelltort and a certain Elizabeth Cruz 29 for a consideration
of P500,000.00. While prior to the sale, what Villegas showed Castelltort as
evidence of his mother Linas ownership of the property was only a
photocopy of her title TCT No. (T-42171) T-18550 30 he explaining that the
owners duplicate of the title was lost and that judicial reconstitution
thereof was ongoing, Castelltort acted in the manner of a prudent man and
went to the Registry of Deeds of Laguna to procure a certified true copy of
the TCT.31 The certified true copy bore no annotation indicating any prior
adverse claim on Lot 16.
The records indicate that at the time Castelltort began constructing his
house on petitioners lot, he believed that it was the Lot 16 he bought and
delivered to him by Villegas.
In his cross-examination, Villegas testified:
Q: You said the surveyor placed a mujon along boundary of the property?

A: Yes.

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

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

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

A: After computing the subdivision lots, they went back to the field to plant
those subdivision corners with concrete monuments.
Q: Which is (sic) also called as "mohons"?

xxx
A: Yes, sir.
Q: Is it not a fact that before Miguel Castelltort started constructing that
house he sought your advice or permission to construct the same over that
particular lot?
A: Yes.

Q: Now, can you point to this Honorable Court where exactly did your men
place these additional mohons and how many?
A: Later on we discovered that they placed the mohons in the adjoining lot,
lot 17.

Q: And you gave your consent?

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

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

xxx
A: Maybe after a year, sir.
Q: Was there any remarkable difference between lot 16 and 17 at the time
that this particular lot was sold to Miguel Castelltort and Elizabeth Cruz?

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

xxx
A: Yes, sir.
A: Both lots 16 and 17 are practically the same. The (sic) have the same
frontage. There is only a difference of 4 square meters, one is 311 square
meters and the other 315 square meters. Both sides were fenced, as drawn
they were facing the same road. They are practically the same.

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

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

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

Q: And what did you see there?

A: None.32 (Emphasis and underscoring supplied)

A: A house being constructed then I rechecked the location of the house

and it turned out to be in Lot 17.

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

the error committed by geodetic engineer Augusto Riveras employees in
placing stone monuments on petitioners property, instead of on Lot 16,
the lot sold to Castelltort, based on the survey made by the engineer in
1992.
The engineer so testified:

xxx
Q: Considering that you found out that a mistake was actually made by
your assistants Dennis Orencio, Mario Carpio and Sovejano when you
allowed them to proceed on their own to make this computation, did you
confront these men of yours afterwards?

A: Yes, sir.

Q: And how did they commit a mistake when you said they checked the lot
at the back of Lot 16?

Q: In what manner?
A: I actually reprimanded them verbally and also I dismissed Mario Carpio
from my office.

A: Because they were quite confident since we had already relocated the
property two years ago so they thought that they get (sic) the right lot
without checking the other side of the subdivision.

xxx

xxx

Q: And did you investigate how your men committed this mistake of
planting these monuments on another lot when corners 4 & 1 were clearly
planted on the ground?

Q: Now, you said that when you went to the place because you heard from
Rene Villegas that there was a mistake you no longer could find the
monuments on lines 1 and 4 and according to you the reason is that a
fence was already constructed?

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

xxx
Q: And now, you are saying that your men committed a mistake by placing
thereon monuments by planting these monuments not on Lot 16 but on Lot
17?
A: When I investigated how did they commit (sic) a mistake it came to be
like this. Before when we surveyed first this in 1992, at that time Dante
Villegas contracted my services there was a fence here then when we went
back, the road was already removed so they committed an error that this
point is Lot 19, they thought that it was Lot 19, the back portion.

A: Yes, sir.
Q: For clarification, is this line 1 & 4 on Lot 16 a common line 1 &4 on Lot
17?
A: Yes, sir a common line.
Q: In other words, this line 1 &4 devides (sic) Lot 16 & 17?
A: Yes, sir.

xxx

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

could mistake it for Lot 17 also because there were monuments now 1 &4
for lot 16 since these are common lines for

Q: In this particular case, did you find out how your men checked the
succeeding lots, how they determine (sic) the exact location of lot 16?

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

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

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

Q: By just counting the number of lots?

As correctly found by the CA, both parties having acted in good faith at
least until August 21, 1995, the applicable provision in this case is Article
448 of the Civil Code which reads:

A: Yes, sir.
Q: Without making any actual measurement?
A: They made an actual measurement but the reference point is not the
one, the correct one because they also checked it with the other corner of
the road going back.
xxx

Art. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the
works, sowing or planting, after payment of the indemnity provided for in
Articles 546 and 548, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall

agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
Under the foregoing provision, the landowner can choose between
appropriating the building by paying the proper indemnity or obliging the
builder to pay the price of the land, unless its value is considerably more
than that of the structures, in which case the builder in good faith shall pay
reasonable rent.34 If the parties cannot come to terms over the conditions
of the lease, the court must fix the terms thereof.
The choice belongs to the owner of the land, a rule that accords with the
principle of accession, i.e., that the accessory follows the principal and not
the other way around. Even as the option lies with the landowner, the
grant to him, nevertheless, is preclusive. 35 The landowner cannot refuse to
exercise either option and compel instead the owner of the building to
remove it from the land.36
The raison detre for this provision has been enunciated thus:
Where the builder, planter or sower has acted in good faith, a conflict of
rights arises between the owners, and it becomes necessary to protect the
owner of the improvements without causing injustice to the owner of the
land. In view of the impracticability of creating a state of forced coownership, the law has provided a just solution by giving the owner of the
land the option to acquire the improvements after payment of the proper
indemnity, or to oblige the builder or planter to pay for the land and the
sower the proper rent. He cannot refuse to exercise either option. It is the
owner of the land who is authorized to exercise the option, because his
right is older, and because, by the principle of accession, he is entitled to
the ownership of the accessory thing.37
Possession acquired in good faith does not lose this character except in the
case and from the moment facts exist which show that the possessor is not
unaware that he possesses the thing improperly or wrongfully. 38 The good
faith ceases or is legally interrupted from the moment defects in the title
are made known to the possessor, by extraneous evidence or by suit for
recovery of the property by the true owner. 39
In the case at bar, Castelltorts good faith ceased on August 21, 1995 when
petitioners personally apprised him of their title over the questioned lot. As
held by the CA, should petitioners then opt to appropriate the house, they
should only be made to pay for that part of
the improvement built by Castelltort on the questioned property at the
time good faith still existed on his part or until August 21, 1995.

The CA, however, failed to qualify that said part of the improvement should
be pegged at its current fair market value consistent with this Courts
pronouncement in Pecson v. Court of Appeals.40
And, as correctly found by the CA, the commencement of Castelltorts
payment of reasonable rent should start on August 21, 1995 as well, to be
paid until such time that the possession of the property is delivered to
petitioners, subject to the reimbursement of expenses, that is, if such
option is for petitioners to appropriate the house.
This Court quotes the CAs ratiocination with approval:
x x x Generally, Article 448 of the Civil Code provides that the payment of
reasonable rent should be made only up to the date appellees serve notice
of their option as provided by law upon the appellants and the court a quo;
that is, if such option is for appellees to appropriate the encroaching
structure. In such event, appellants would have a right to retain the land on
which they have built in good faith until they are reimbursed the expenses
incurred by them. This is so because the right to retain the improvements
while the corresponding indemnity is not paid implies the tenancy or
possession in fact of the land on which it is built, planted or sown.
However, considering that appellants had ceased as builders in good faith
at the time that appellant Miguel was notified of appellees lawful title over
the disputed property, the payment of reasonable rent should accordingly
commence at that time since he can no longer avail of the rights provided
under the law for builders in good faith.41
If the option chosen by petitioners is compulsory sale, however, the
payment of rent should continue up to the actual transfer of ownership. 42
Respecting petitioners argument that the appellate court erred in
rendering a decision that is "unenforceable against Judith who is not the
owner of the house and Elizabeth Cruz who was found to be a part owner
of the house built on their lot but is not a party to the case," the same does
not lie.
While one who is not a party to a proceeding shall not be affected or
bound43 by a judgment rendered therein, 44like Elizabeth Cruz, this does not
detract from the validity and enforceability of the judgment on petitioners
and respondents Castelltorts.
WHEREFORE, the petition is DENIED. The Decision dated October 2, 2002
and Resolution dated February 6, 2003 of the Court of Appeals
are AFFIRMED with MODIFICATION such that the trial court shall include
for determination the increase in value ("plus value") which petitioners
315 square meter lot may have acquired by reason of the existence of that
portion of the house built before respondents Miguel and Judith Castelltort

were notified of petitioners rightful claim on said lot, and the current fair
market value of said portion.
SO ORDERED

The assailed Resolution denied petitioners Motion for Reconsideration.

G.R. Nos. 154391-92

September 30, 2004

The Facts

Spouses
ISMAEL
and
TERESITA
MACASAET, petitioners,
vs.
Spouses VICENTE and ROSARIO MACASAET, respondents.

Petitioners Ismael and Teresita 5 Macasaet and Respondents Vicente and

Rosario Macasaet are first-degree relatives. Ismael is the son of
respondents, and Teresita is his wife.6

DECISION
PANGANIBAN, J.:
The present case involves a dispute between parents and children. The
children were invited by the parents to occupy the latters two lots, out of
parental love and a desire to foster family solidarity. Unfortunately, an
unresolved conflict terminated this situation. Out of pique, the parents
asked them to vacate the premises. Thus, the children lost their right to
remain on the property. They have the right, however, to be indemnified
for the useful improvements that they constructed thereon in good faith
and with the consent of the parents. In short, Article 448 of the Civil Code
applies.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court,
assailing the March 22, 2002 Decision 2and the June 26, 2002 Resolution 3 of
the Court of Appeals (CA) in CA-GR SP Nos. 56205 & 56467. The
challenged Decision disposed as follows:
"WHEREFORE, the assailed Decision is AFFIRMED with the following
MODIFICATIONS:
1. Vicente and Rosario should reimburse Ismael and
Teresita one-half of the value of the useful improvements
introduced in the premises prior to demand, which is
equivalent to P475,000.00. In case the former refuse to
reimburse the said amount, the latter may remove the
improvements, even though the land may suffer damage
thereby. They shall not, however, cause any more
impairment upon the property leased than is necessary.
2. The award of attorneys fees is DELETED.
3. The records of these consolidated cases are REMANDED
to the Court of origin for further proceedings to determine
the option to be taken by Vicente and Rosario and to
implement the same with dispatch."4

On December 10, 1997, the parents filed with the Municipal Trial Court in
Cities (MTCC) of Lipa City an ejectment suit against the
children.7 Respondents alleged that they were the owners of two (2)
parcels of land covered by Transfer Certificate of Title (TCT) Nos. T-78521
and T-103141, situated at Banay-banay, Lipa City; that by way of a verbal
lease agreement, Ismael and Teresita occupied these lots in March 1992
and used them as their residence and the situs of their construction
business; and that despite repeated demands, petitioners failed to pay the
agreed rental of P500 per week.8
Ismael and Teresita denied the existence of any verbal lease agreement.
They claimed that respondents had invited them to construct their
residence and business on the subject lots in order that they could all live
near one other, employ Marivic (the sister of Ismael), and help in resolving
the problems of the family.9 They added that it was the policy of
respondents to allot the land they owned as an advance grant of
inheritance in favor of their children. Thus, they contended that the lot
covered by TCT No. T-103141 had been allotted to Ismael as advance
inheritance. On the other hand, the lot covered by TCT No. T-78521 was
allegedly given to petitioners as payment for construction materials used
in the renovation of respondents house.10
The MTCC11 ruled in favor of respondents and ordered petitioners to vacate
the premises. It opined that Ismael and Teresita had occupied the lots, not
by virtue of a verbal lease agreement, but by tolerance of Vicente and
Rosario.12 As their stay was by mere tolerance, petitioners were necessarily
bound by an implied promise to vacate the lots upon demand. 13 The MTCC
dismissed their contention that one lot had been allotted as an advance
inheritance, on the ground that successional rights were inchoate.
Moreover, it disbelieved petitioners allegation that the other parcel had
been given as payment for construction materials.14
On appeal, the regional trial court 15 (RTC) upheld the findings of the MTCC.
However, the RTC allowed respondents to appropriate the building and
other improvements introduced by petitioners, after payment of the
indemnity provided for by Article 448 in relation to Articles 546 and 548 of
the Civil Code.16 It added that respondents could oblige petitioners to
purchase the land, unless its value was considerably more than the
building. In the latter situation, petitioners should pay rent if respondents
would not choose to appropriate the building.17

Upon denial of their individual Motions for Reconsideration, the parties filed
with the CA separate Petitions for Review, which were later consolidated. 18
Ruling of the Court of Appeals
The CA sustained the finding of the two lower courts that Ismael and
Teresita had been occupying the subject lots only by the tolerance of
Vicente and Rosario.19 Thus, possession of the subject lots by petitioners
became illegal upon their receipt of respondents letter to vacate it. 20
Citing Calubayan v. Pascual, 21 the CA further ruled that petitioners status
was analogous to that of a lessee or a tenant whose term of lease had
expired, but whose occupancy continued by tolerance of the
owner.22Consequently, in ascertaining the right of petitioners to be
reimbursed for the improvements they had introduced on respondents
properties,23 the appellate court applied the Civil Codes provisions on
lease. The CA modified the RTC Decision by declaring that Article 448 of
the Civil Code was inapplicable. The CA opined that under Article 1678 of
the same Code, Ismael and Teresita had the right to be reimbursed for one
half of the value of the improvements made.24
Not satisfied with the CAs ruling, petitioners brought this recourse to this
Court.25

"3. Whether or not Article 1678 of the Civil Code should apply to
the case on the matters of improvements, or is it Article 447 of the
Civil Code in relation to the Article 453 and 454 thereof that should
apply, if ever to apply the Civil Code;
"4. Whether or not the [D]ecision of the Court of Appeals is
supported by evidence, appropriate laws, rules and jurisprudence;
"5. Whether or not Assisting Judge Norberto Mercado of the MTCC
Lipa City should be held accountable in rendering the MTCC
[D]ecision;
"6. Whether or not Atty. Glenn Mendoza and Atty. Andrew Linatoc of
the same [l]aw office should be held accountable for pursuing the
[e]jectment case[.]"26
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Ejectment

The Issues
Petitioners raise the following issues for our consideration:
"1. a) Whether or not Section 17[,] Rule 70 of the Rules of Court on
Judgment should apply in the rendition of the decision in this case;
b) Whether or not the Complaint should have been
dismissed;
c) Whether or not damages including attorneys fees
should have been awarded to herein petitioners;
"2. a) Whether or not the rule on appearance of parties during the
Pretrial should apply on appearance of parties during Preliminary
Conference in an unlawful detainer suit;
b) Whether or not the case of Philippine Pryce Assurance
Corporation vs. Court of Appeals (230 SCRA 164) is
applicable to appearance of parties in an unlawful detainer
suit;

Who is entitled to the physical or material possession of the premises? At

the outset, we stress that this is the main issue in ejectment
proceedings.27 In the present case, petitioners failed to justify their right to
retain possession of the subject lots, which respondents own. Since
possession is one of the attributes of ownership, 28respondents clearly are
entitled to physical or material possession.
Allegations of the Complaint
Petitioners allege that they cannot be ejected from the lots, because
respondents based their Complaint regarding the nonpayment of rentals on
a verbal lease agreement, which the latter failed to prove. 29 Petitioners
contend that the lower courts erred in using another ground (tolerance of
possession) to eject them.
In actions for unlawful detainer, possession that was originally lawful
becomes unlawful upon the expiration or termination of the defendants
right to possess, arising from an express or implied contract. 30 In other
words, the plaintiffs cause of action comes from the expiration or
termination of the defendants right to continue possession. 31 The case
resulting therefrom must be filed within one year from the date of the last
demand.

To show a cause of action in an unlawful detainer, an allegation that the

defendant is illegally withholding possession from the plaintiff is sufficient.
The complaint may lie even if it does not employ the terminology of the
law, provided the said pleading is couched in a language adequately
stating that the withholding of possession or the refusal to vacate has
become unlawful.32 It is equally settled that the jurisdiction of the court, as
well as the nature of the action, is determined from the averments of the
complaint.33
In the present case, the Complaint alleged that despite demands,
petitioners "refused to pay the accrued rentals and [to] vacate the leased
premises."34 It prayed that judgment be rendered "[o]rdering [petitioners]
and all those claiming rights under them to vacate the properties x x x and
remove the structures x x x constructed thereon." 35Effectively then,
respondents averred that petitioners original lawful occupation of the
subject lots had become unlawful.
The MTCC found sufficient cause to eject petitioners. While it disbelieved
the existence of a verbal lease agreement, it nevertheless concluded that
petitioners occupation of the subject lots was by mere tolerance of
respondents. Basing its conclusion on the fact that the parties were close
relatives, the MTCC ruled thus:
"x x x [T]he parties herein are first degree relatives. Because of
this relationship, this Court takes judicial notice of the love, care,
concern and protection imbued upon the parents towards their
[children], i.e., in the instant case, the love, care, concern and
protection of the [respondents] to the [petitioners]. With this in
mind, this Court is inclined to believe the position of the
[petitioners] that there was no such verbal lease agreement
between the parties herein that took place in 1992. x x x.
"From the allegations of the [petitioners], this Court is convinced
that their stay and occupancy of the subject premises was by mere
tolerance of the [respondents], and not by virtue of a verbal lease
agreement between them."36
Having found a cause of action for unlawful detainer, the MTCC (as well as
the RTC and the CA) did not err in ordering the ejectment of petitioners as
prayed for by respondents. There was no violation of Section 17 of Rule
7037 of the Rules of Court. As earlier explained, unlawful detainer was
sufficiently alleged in the Complaint and duly proven during the trial.
Significantly, the issue of whether there was enough ground to eject
petitioners was raised during the preliminary conference. 38
Not Merely Tolerated
Possession

Petitioners dispute the lower courts finding that they occupied the subject
lots on the basis of mere tolerance. They argue that their occupation was
not under such condition, since respondents had invited, offered and
persuaded them to use those properties. 39
This Court has consistently held that those who occupy the land of another
at the latters tolerance or permission, without any contract between them,
are necessarily bound by an implied promise that the occupants will vacate
the property upon demand.40 A summary action for ejectment is the proper
remedy to enforce this implied obligation. 41 The unlawful deprivation or
withholding of possession is to be counted from the date of the demand to
vacate.42
Toleration is defined as "the act or practice of permitting or enduring
something not wholly approved of."43Sarona v. Villegas44 described what
tolerated acts means, in this language:
"Professor Arturo M. Tolentino states that acts merely tolerated are
those which by reason of neighborliness or familiarity, the owner
of property allows his neighbor or another person to do on the
property; they are generally those particular services or benefits
which ones property can give to another without material injury or
prejudice to the owner, who permits them out of friendship or
courtesy. x x x. And, Tolentino continues, even though this is
continued for a long time, no right will be acquired by
prescription." x x x. Further expounding on the concept, Tolentino
writes: There is tacit consent of the possessor to the acts which
are merely tolerated. Thus, not every case of knowledge and
silence on the part of the possessor can be considered mere
tolerance. By virtue of tolerance that is considered as an
authorization, permission or license, acts of possession are realized
or performed. The question reduces itself to the existence or nonexistence of the permission."45
We hold that the facts of the present case rule out the finding of
possession by mere tolerance. Petitioners were able to establish that
respondents had invited them to occupy the subject lots in order that they
could all live near one other and help in resolving family problems. 46 By
occupying those lots, petitioners demonstrated their acceptance of the
invitation. Hence, there was a meeting of minds, and an agreement
regarding possession of the lots impliedly arose between the parties.
The occupancy of the subject lots by petitioners was not merely
"something not wholly approved of" by respondents. Neither did it arise
from what Tolentino refers to as "neighborliness or familiarity." In point of
fact, their possession was upon the invitation of and with the complete
approval of respondents, who desired that their children would occupy the
premises. It arose from familial love and a desire for family solidarity,
which are basic Filipino traits.

Right to Use the Lots Terminated

No Right to Retain

That Ismael and Teresita had a right to occupy the lots is therefore clear.
The issue is the duration of possession. In the absence of a stipulation on
this point, Article 1197 of the Civil Code allows the courts to fix the
duration or the period.

Possession

"Article 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
"The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
"In every case the courts shall determine such period as may
under the circumstances have been probably contemplated by the
parties. Once fixed by the courts, the period cannot be changed by
them."
Article 1197, however, applies to a situation in which the parties intended
a period. Such qualification cannot be inferred from the facts of the present
case.
To repeat, when Vicente and Rosario invited their children to use the lots,
they did so out of parental love and a desire for solidarity expected from
Filipino parents. No period was intended by the parties. Their mere failure
to fix the duration of their agreement does not necessarily justify or
authorize the courts to do so.47
Based on respondents reasons for gratuitously allowing petitioners to use
the lots, it can be safely concluded that the agreement subsisted as long
as the parents and the children mutually benefited from the arrangement.
Effectively, there is a resolutory condition in such an agreement. 48 Thus,
when a change in the condition existing between the parties occurs -- like a
change of ownership, necessity, death of either party or unresolved conflict
or animosity -- the agreement may be deemed terminated. Having been
based on parental love, the agreement would end upon the dissipation of
the affection.
When persistent conflict and animosity overtook the love and solidarity
between the parents and the children, the purpose of the agreement
ceased.49 Thus, petitioners no longer had any cause for continued
possession of the lots. Their right to use the properties became untenable.
It ceased upon their receipt of the notice to vacate. And because they
refused to heed the demand, ejectment was the proper remedy against
them. Their possession, which was originally lawful, became unlawful when
the reason therefor -- love and solidarity -- ceased to exist between them.

Petitioners have not given this Court adequate reasons to reverse the
lower courts dismissal of their contention that Lots T-78521 and T-103141,
respectively, were allegedly allotted to them as part of their inheritance
and given in consideration for past debts.
The right of petitioners to inherit from their parents is merely inchoate and
is vested only upon the latters demise. Indisputably, rights of succession
are
transmitted
only
from
the
moment
of
death
of
the
decedent.50 Assuming that there was an "allotment" of inheritance,
ownership nonetheless remained with respondents. Moreover, an intention
to confer title to certain persons in the future is not inconsistent with the
owners taking back possession in the meantime for any reason deemed
sufficient.51 Other than their self-serving testimonies and their affidavits,
petitioners offered no credible evidence to support their outlandish claim of
inheritance "allocation."
We also agree with the lower courts that petitioners failed to prove the
allegation that, through a dation in payment, Lot T-78521 had been
transferred to the latter as payment for respondents debts. 52 The evidence
presented by petitioners related only to the alleged indebtedness of the
parents
arising
from
the
latters
purported
purchases
and
advances.53 There was no sufficient proof that respondents had entered
into a contract of dation to settle the alleged debt. Petitioners even stated
that there was a disagreement in the accounting of the purported debt, 54 a
fact that disproves a meeting of the minds with the parents.
Petitioners also admitted that a portion of the alleged debt is the subject
matter of a collection case against respondents (Civil Case No. 059496).55 Thus, the formers allegation that the indebtedness has been paid
through a dation cannot be given credence, inconsistent as it is with their
action to recover the same debt.
Despite their protestations, petitioners recognized the right of the parents
to recover the premises when they admitted in their Position Paper filed
with the MTCC that respondents had a title to the lots.
"The [respondents] want to get their property because the title is
theirs, the [petitioners] do not object but what is due the
[petitioners] including the reparation for the tarnish of their dignity
and honor must be given the [petitioners] for the benefits of their
children before the premises will be turned over." 56
As a rule, the right of ownership carries with it the right of possession.

Second Issue:
Appearance at the Preliminary Conference
Section 8 of Rule 70 of the Rules of Court requires the appearance of the
plaintiff and the defendant during the preliminary conference. On the basis
of this provision, petitioners claim that the MTCC should have dismissed
the case upon the failure of respondents to attend the conference.
However, petitioners do not dispute that an attorney-in-fact with a written
authorization from respondents appeared during the preliminary
conference.57 The issue then is whether the rules on ejectment allow a
representative to substitute for a partys personal appearance.
Unless inconsistent with Rule 70, the provisions of Rule 18 on pretrial
applies to the preliminary conference. 58Under Section 4 of this Rule, the
nonappearance of a party may be excused by the showing of a valid cause;
or by the appearance of a representative, who has been fully authorized in
writing to enter into an amicable settlement, to submit to alternative
modes of dispute resolution, and to enter into stipulations or admissions of
facts and of documents.59
Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the spirit
behind the exception to personal appearance under the rules on pretrial is
applicable to the preliminary conference. If there are valid reasons or if a
representative has a "special authority," a partys appearance may be
waived. As petitioners are challenging only the applicability of the rules on
pretrial to the rule on preliminary conference, the written authorization
from respondents can indeed be readily considered as a "special
authorization."

We clarify. Article 447 is not applicable, because it relates to the rules that
apply when the owner of the property uses the materials of another. It does
not refer to the instance when a possessor builds on the property of
another, which is the factual milieu here.
In view of the unique factual setting of the instant case, the contention of
petitioners regarding the inapplicability of Article 1678 deserves attention.
The CA applied the provisions on lease, because it found their possession
by mere tolerance comparable with that of a lessee, per the
pronouncement in Calubayan v. Pascual, 62 from which we quote:
"x x x. It has been held that a person who occupies the land of
another at the latters 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 them. The status
of defendant 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 unlawful deprivation or
withholding of possession is to be counted from the date of the
demand to vacate."63 (Emphasis in the original.)
As explained earlier, Ismael and Teresitas possession of the two lots was
not by mere tolerance, a circumstance that negates the applicability of
Calubayan.
Article 448 Applicable
On the other hand, when a person builds in good faith on the land of
another, the applicable provision is Article 448, which reads: 64

Third Issue:
Rights of a Builder in Good Faith
As applied to the present case, accession refers to the right of the owner to
everything that is incorporated or attached to the property. 60 Accession
industrial -- building, planting and sowing on an immovable -- is governed
by Articles 445 to 456 of the Civil Code.
Articles 447 and 1678 of the
Civil Code Inapplicable
To buttress their claim of reimbursement for the improvements introduced
on the property, petitioners cite Article 447. 61 They allege that the CA erred
in applying Article 1678, since they had no lease agreement with
respondents.

"Article 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."
This Court has ruled that this provision covers only cases in which the
builders, sowers or planters believe themselves to be owners of the land
or, at least, to have a claim of title thereto. 65 It does not apply when the
interest is merely that of a holder, such as a mere tenant, agent or
usufructuary.66 From these pronouncements, good faith is identified by the

belief that the land is owned; or that -- by some title -- one has the right to
build, plant, or sow thereon.67
However, in some special cases, this Court has used Article 448 by
recognizing good faith beyond this limited definition. Thus, in Del Campo v.
Abesia,68 this provision was applied to one whose house -- despite having
been built at the time he was still co-owner -- overlapped with the land of
another.69 This article was also applied to cases wherein a builder had
constructed improvements with the consent of the owner. The Court ruled
that the law deemed the builder to be in good faith. 70 In Sarmiento v.
Agana,71 the builders were found to be in good faith despite their reliance
on the consent of another, whom they had mistakenly believed to be the
owner of the land.72
Based on the aforecited special cases, Article 448 applies to the present
factual milieu. The established facts of this case show that respondents
fully consented to the improvements introduced by petitioners. In fact,
because the children occupied the lots upon their invitation, the parents
certainly knew and approved of the construction of the improvements
introduced thereon.73 Thus, petitioners may be deemed to have been in
good faith when they built the structures on those lots.
The instant case is factually similar to Javier v. Javier. 74 In that case, this
Court deemed the son to be in good faith for building the improvement
(the house) with the knowledge and consent of his father, to whom
belonged the land upon which it was built. Thus, Article 448 75 was applied.
Rule on Useful Expenses
The structures built by petitioners were "useful" improvements, because
they augmented the value or income of the bare lots. 76 Thus, the indemnity
to be paid by respondents under Article 448 is provided for by Article 546,
which we quote:
"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."
Consequently, respondents have the right to appropriate -- as their own -the building and other improvements on the subject lots, but only after (1)
refunding the expenses of petitioners or (2) paying the increase in value
acquired by the properties by reason thereof. They have the option to

oblige petitioners to pay the price of the land, unless its value is
considerably more than that of the structures -- in which case, petitioners
shall pay reasonable rent.
In accordance with Depra v. Dumlao,77 this case must be remanded to the
trial court to determine matters necessary for the proper application of
Article 448 in relation to Article 546. Such matters include the option that
respondents would take and the amount of indemnity that they would pay,
should they decide to appropriate the improvements on the lots. We
disagree with the CAs computation of useful expenses, which were based
only on petitioners bare allegations in their Answer. 78
Ruling on Improvement Justified
While, ordinarily, the jurisdiction of the MTCC on ejectment proceedings is
limited to the issue of physical or material possession of the property in
question, this Court finds it necessary to abbreviate the issue on the
improvements in relation to Article 448. First, the determination of the
parties right to those improvements is intimately connected with the MTCC
proceedings in the light of the ejectment of petitioners. Second, there is no
dispute that while they constructed the improvements, respondents owned
the land. Third, both parties raised no objection when the RTC and the CA
ruled accordingly on this matter.
Equitable considerations compel us to settle this point immediately, pro
hoc vice, to avoid needless delay. Both parties have already been heard on
this issue; to dillydally or equivocate would not serve the cause of
substantial justice.
Other Issues Raised
Given the foregoing rulings, it is no longer necessary to address
petitioners allegation that the MTCC judge and respondents lawyers
should be respectively held personally accountable for the Decision and for
filing the case.79 The insinuation of petitioners that the lawyers
manipulated the issuance of a false barangay certification is
unavailing.80 Their contention that respondents did not attend the
barangay conciliation proceedings was based solely on hearsay, which has
little or no probative value.81
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals
are AFFIRMED with the followingMODIFICATIONS:
1. The portion requiring Spouses Vicente and Rosario Macasaet to
reimburse one half of the value of the useful improvements,
amounting to P475,000, and the right of Spouses Ismael and Rosita
Macasaet to remove those improvements (if the former refuses to
reimburse) is DELETED.

2. The case is REMANDED to the court of origin for further

proceedings to determine the facts essential to the proper
application of Articles 448 and 546 of the Civil Code, specifically to
the following matters:
a. Spouses Vicente and Rosario Macasaets option to
appropriate -- as their own -- the improvements on the lots,
after paying the indemnity, as provided under Article 546
in relation to Article 448 of the Civil Code; or in requiring
Spouses Ismael and Rosita Macasaet to pay for the value of
the lots, unless it is considerably more than that of the
improvements, in which case petitioners shall pay
reasonable rent based upon the terms provided under the
Civil Code
b. The value of the useful expenses incurred by Spouses
Ismael and Rosita Macasaet in the construction of the
improvements on the lots
c. The increase in value acquired by the lots by reason of
the useful improvements
d. Spouses Vicente and Rosario Macasaets choice of type
of indemnity to be paid (whether b or c)
e. Whether the value of the lots is considerably more than
that of the improvements built thereon
No pronouncement as to costs.
SO ORDERED.

G.R. No. 108222 May 5, 1997

HENRY
L.
SIA, petitioner,
vs.
THE HON. COURT OF APPEALS, and TORRE DE ORO DEVELOPMENT
CORPORATION, respondents.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision 1 of the Court of

Appeals 2 in an ejectment case. 3 Respondent appellate court affirmed the
decision on appeal 4 rendered by the Regional Trial Court of Misamis
Oriental 5 which ordered the ejectment of petitioner on the ground of
expiration of lease contract. The Court of Appeals and the Regional Trial
Court in effect reversed the Municipal Trial Court 6 which decided in favor of
petitioner and dismissed private respondent's complaint for ejectment. 7
Petitioner, in setting forth his summary statement of facts, quoted the
narration thereof rendered by the Court of Appeals in the herein assailed
decision. Said narration runs in this wise:
The facts are as follows: Atty. Rodolfo N. Pelaez was the
owner of a parcel of land at the corner of Tiano Bros. Street
and Cruz Taal Street, Cagayan de Oro, City. He leased the
land to Henry L. Sia's parents, the spouses Lim Siok Oan
and Sia Bon Suan, who in 1970, constructed a building with
the consent of lessor. When Rodolfo Pelaez died, the land
was inherited by his son, Atty. Pacifico Pelaez, who sold it
to the private respondent Torre de Oro Development Corp.
On the other hand, petitioner succeeded to the rights of his
parents as lessees of property, upon the latter's death.
On March 22, 1988, private respondent Torre de Oro
Development Corp., represented by Atty. Pacifico Pelaez,
and petitioner Henry L. Sia entered into a lease contract
(Exh. H) of the land in question under the following terms
and conditions:
That the LESSOR hereby leases unto the
LESSEE, his property located at Corner
Tiano Bros.-St., and Cruz Taal St., known as
Cad. Lot No. 401 (bigger portion) for a
period of One (1) year counting from this
date, particularly bounded as follows:
A parcel of commercial land, without the
improvements, bounded on the North by
Cruz Taal St., on the East by Matilda
Menciano; on the South by Rodolfo N.
Pelaez and on the West by Tiano Bros. St.,
having an approximate area of 391.62 sq.
meters, per Tax Decla. No. 0907 assessed
at P153,440.00 covered by TCT No. 36954
in the name of TORRE DE ORO
DEVELOPMENT CORPORATION subject to
the following conditions, to wit:

1. That the LESSEE agrees to pay the sum

of TWO THOUSAND PESOS (P2,000.00) as
monthly rental effective January 1987;
2. That the LESSEE cannot sublease the
property without the written consent of the
LESSOR during the life of this contract;
3. That the LESSOR shall pay all the taxes
of the property, except the improvements;
4. That the LESSEE shall pay all the bills for
the electric light and telephone bills
including (telephone) installations;
5. That all installations of any appliances
such as air-conditioning unit, TV sets or
other electrical appliances shall be for the
account of the LESSEE;
6 That the period of this lease is for One (1)
year counted from January 1988 and
renewable for another year [after] every
expiration of the contract upon agreement
of both parties;
7. That a sketch of the property occupied is
herein attached marked as Annex "A" and
made an integral part of this contract;
8. That the LESSEE agrees to pay increase
of the rental for 1987-1988 should there be
an increase in the assessed value (Taxable)
value of real property subject matter of this
contract resulting from the general revision
of property assessment conducted by our
National Government pursuant to the
provision of existing law.
On December 22, 1988, private respondent sent a letter
(Exh. I) to petitioner, informing him that it was not
renewing their least contract after its expiration, on the
ground that petitioner had subleased the property without
the written consent of private respondent, in violation of
condition par. 2 of the lease contract. In letters dated
December 26, 1988 (Annexes B-l to B-5) the sublessees
were similarly notified of the expiration of petitioner's lease
and were advised that in case they wished to continue with

their lease, arrangements should be made directly with

private respondent.
Petitioner, through counsel, wrote a letter to private
respondent dated January 20, 1989 (Exh. J), stating that
the increase in rent from P2,000.00 to P8,500.00, which
private respondent demanded, was excessive. He
intimated that he was willing to pay an increase of P500.00
only.
Private respondent ignored the offer, but petitioner insisted
on remaining in the premises. Private respondent Torre de
Oro Development Corp., therefore, brought this suit in the
court below for his ejectment.
On June 26, 1990, the Municipal Trial Court rendered
judgment in favor of petitioner. However, on appeal, the
Regional Trial Court reversed its decision. 8
The Regional Trial Court, on appeal, ascribed error to the Municipal Trial
Court for having dismissed private respondent's complaint for ejectment
on the ground of prematurity, for at the time said complaint was filed on
February 8, 1989, the lease contract had in fact already expired. The
Regional Trial Court pointed out:
. . . Exhibit H, the lease contract appears to be a common
evidence of the parties. Exhibit H was signed by the parties
on March 22, 1988 and notarized on April 5, 1988. These
different dates are normal occurrences in notarial practice
due to the peculiar circumstances of the parties and the
notary. . . [B]ecause the contract must have an end or "cut
off" date to govern the relationship of the signatories
thereto the parties agree to fix the start and the end of the
contract by declaring a date clearly expressed in the
contract. In this particular contract, the parties signed and
agreed to the expressed terms, to wit:
That the LESSOR hereby leases unto the
LESSEE, his property located at Corner
Tiano Bros. St. and Cruz Taal St. known as
Cad. Lot No. 401 (bigger portion) for a
period of One (1) year counting from this
date. . .
1. That the Lessee agrees to pay the sum
of Two Thousand Pesos (P2,000.00) as
monthly rental effective January 1987.

That the period of this lease is for one (1)

year counted from January, 1988 and
renewable for another year [after] every
expiration of the contract upon agreement
of both parties. . .
The foregoing terms are voluntarily agreed by the parties
as there was no allegation of force, undue influence or
intimidation that attended the signing thereof. All the three
paragraphs must perforce be read and understood in its
[sic] entire context as we are not allowed to emasculate
any part thereof or add anything which is not found in the
agreement. In short, the parties agreed that the Lessee
shall pay a monthly rent to plaintiff in the sum of P2,000.00
. . .; that the lifetime of the contract is for one year; and
that the one year period of the lease shall start or be
"counted from January, 1988 and renewable [sic] for
another year [after] every expiration of the contract upon
agreement of both the parties."
It is the strong conviction of this court that in the
interpretation of contracts the entire document must be
fully read, evaluated and considered, taking into
consideration the intention of the parties and giving effect
and force to all its provisions. . . . Every paragraph leads to
one intention if taken as a whole and that is, that the rental
every month is P2,000.00; that the contract is on a yearly
basis renewable only if agreed by both parties, that the
one year period shall be counted from January, 1988. To
give the said provisions and covenants another
interpretation would result in an absurd situation as the
one year period was never meant to start on March 22,
1988 or April 5, 1988; otherwise the parties should have
included or expressed the same within the enumeration of
the terms, conditions or lifetime of the lease contract.
Besides, the date of signing is not material or decisive to
the present discussion because the parties had already
agreed in writing as to a specific date, which is January
1988 and to end December, 1988. In view of the foregoing
observation, this court finds that the contract started in
January, 1988 and ended one year after, ergo, the
complaint has stated a sufficient cause of action and must
perforce be reinstated and given legal effect. 9
Consequently, the Regional Trial Court upheld the right of private
respondent as lessor to terminate the contract of lease upon
expiration thereof, regardless of the tenability of petitioner's
violation of the prohibition against the sub-leasing of the leased
premises which was private respondent's original ground for
ejecting petitioner.

At the time of the filing of this case and during the

execution of the Lease Contract, Exhibit H, the parties
cannot deny that there was already a commercial building
standing on the land in dispute since the early part of 1971
because there was a big fire in 1969 that razed down the
Divisoria area including the building that used to stand on
the land. After the construction of the building it cannot be
denied that the purpose of the building which cost the
defendant's predecessors the sum of P35,000.00
was to have it subleased to several tenants subject to the
terms of their contract which expressly prohibited any sublease. This court finds the situation incongruous but cannot
fault the defendant on this because the violation or nonviolation of this prohibition is not very relevant to this
resolution. Whether there was a violation or not on the
sublease, the fact remains that it is the legal and
contractual right of plaintiff to terminate the contract as he
pleases after the expiration of the same. It is therefore the
submission of this court that this issue simply has by its
own nature and weight paled into insignificance and
limbo. 10
The Municipal Trial Court, in the course of dismissing private respondent's
complaint for ejectment, also ruled that petitioner is a builder in good faith
in contemplation of Article 448 in relation to Article 546 of the New Civil
Code and that as such, he cannot be ejected without being paid the fair
market value of the commercial building erected on the leased premises by
his parents. Again, the Regional Trial Court found this ruling by the court a
quoto be erroneous. The Regional Trial Court ratiocinated, thus:
It must always be remembered that Art. 448 of the New
Civil Code comes in only when the possessor builds on the
land of another believing that he is the owner of the land of
another. The facts in this proceeding are very much
different. Defendant Henry Sia is a tenant of plaintiff and
no amount of denial or legal forensic can add or alter that
status of the defendant. This being so, it must perforce be
safe to uphold that the provisions of Article 1678 of the
New Civil Code shall govern the respective rights of the
parties herein. The Supreme Court said a mouthful in the
following cases affirming the applicability of Art. 1678, as it
ruled as follows:
In
connection
with
the
petitioner's
contention that she be considered a builder
in good faith and, therefore, entitled to
reimbursement in addition to reasonable
expenses that may be incurred in
transferring the house to another place,
the same cannot stand legal scrutiny. The

rule is well-settled that lessees, like

petitioner, are not possessors in good faith,
the premises continues only during the life
of the lease, and they cannot as a matter
of right, recover the value of their
improvements from the lessor, much less
retain the premises until they are
reimbursed. Their rights are governed by
Article 1678 of the Civil Code which allows
reimbursement of lessees up to one-half of
the value of their improvements if the
lessor so elects. (p. 250, emphasis
supplied) (Bocaling vs. Laguna, et al. 54
SCRA 243).
Moreover, as correctly found by the trial
court, the plaintiffs-appellants, as lessees,
are neither builders in good faith nor in bad
faith. Their rights are governed not by
Article 448 but by Art. 1678 of the New
Civil Code. . . As lessees, they may remove
the improvements should the lessor refuse
to reimburse them, but the lessee does not
have the right to buy the land. (pp. 368369, citing Southwestern University vs.
Salvador, 90 SCRA 318, 329-330)
xxx xxx xxx
In this connection, this court finds that the court a
quo erred in applying the provisions of Arts. 448 and 527 of
the New Civil Code to the case at bar because said ruling is
against the principles set by the New Civil Code and of our
established jurisprudence. 11
The Regional Trial Court therefore rendered its decision on appeal setting
aside the judgment of the court a quoand ordering petitioner to vacate the
leased premises and to pay private respondent a monthly rental of
P5,000.00 from December, 1988 until he actually vacates said premises.
Petitioner was also adjudged liable for P5,000.00 as litigation expenses and
P10,000.00 as attorney's fees.
Aggrieved by the foregoing decision, petitioner appealed to the Court of
Appeals. Respondent appellate court, however, also found the court a
quo's decision in favor of petitioner, to be starkingly lacking factual and
legal basis, if not contrary to prevailing legal jurisprudence. In agreeing
with the Regional Trial Court's, critique of the court a quo's decision, the
Court of Appeals made its ruling in the following manner:

First. The contract of lease between private respondent

Torre de Oro Development Corp., as lessor, and petitioner,
as lessee, was for one year. This period was to be counted
from January 1988, so that the lease expired on December
31, 1988. Private respondent gave notice in December
1988 of its intent not to renew the contract, by sending
letters to petitioner and his sub-lessees. Private
respondent, therefore, had the right to eject the lessee, in
accordance with art. 1673(1) of the Civil Code, after the
expiration of the contract.
Petitioner contends, however, that under art. 448, in
relation to art. 546 of the Civil Code, he is entitled to
remain in the building until he is paid its value because he
is a builder in good faith, and that art. 1678 does not apply
because this provision refers to a case where the lessor is
the owner of both the land and the building until the lessee
makes improvements on the building. Petitioner contends
that in that case, the lessee cannot be considered to be a
builder in good faith because he knows he is not the owner
of either the land or the building.
This contention is without merit. Art. 546 applies only to a
case where a party builds or sows or plants in a land in
which he believes himself to have a title and not to lands
wherein his interest is merely that of tenant under a lease
contract. [5 Tolentino, Civil Code of the Philippines 222
(1959); Salonga v. Farrales, 105 SCRA 359 (1981);
Balacunag v. Francisco, 122 SCRA 498 (1983); Gabrito v.
Court of Appeals, 167 SCRA 771 (1988); Maceda v. Court of
Appeals, 176 SCRA 440 (1989)]
Petitioner, then, as a lessee, is not a builder (whether in
good faith or in bad faith). His rights are governed entirely
by art. 1678 of the Civil Code, which provides:
If the lessee makes on 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.

Thus, his only right is to reimbursement for his useful

improvements but he has no right of retention. [Mantruste
System, Inc. v. Court of Appeals, 179 SCRA 137 (1989);
Vda. de Bacaling v. Laguna, 54 SCRA 243 (1973); Racaza v.
Susana Realty, Inc. 18 SCRA 1172 [1966]; Lopez, Inc. vs.
Phil. & Eastern Trading Co., 98 Phil. 348 [1956]. 12
The respondent appellate court, however, modified the decision of the
Regional Trial Court; it computed the monthly rental of P5,000.00 from
January, 1989 and not from December, 1988, and deleted the award of
attorney's fees. The Court of Appeals explained the modification in this
wise:
Petitioner also contends that the RTC had no power to fix
the monthly rental at P5,000.00 since the original monthly
rental of P2,000.00 as stated in the lease contract was the
law between the parties.
The monthly rental of P2,000.00 was fixed in the contract
of lease, which expired on December 31, 1988. After that,
there was no longer any agreement concerning the
monthly rental. As petitioner remained in the premises
over private respondent's objection, he is liable to private
respondent for such reasonable compensation for the use
and enjoyment of the land as may [be] fixed by the courts.
[Shoemart, Inc. v. Court of Appeals, 190 SCRA 189 (1990);
Felisilda v. Villanueva, 139 431 (1985)]
In this case the amount of P5,000.00 was fixed by the RTC
taking into account the following factors, to wit: the realty
assessment of the land, which the commissioner found to
be a prime lot, the increase in realty taxes; and the
prevailing rate of rentals in the vicinity. We find the amount
fixed to be fair and reasonable. However, the rentals
should be computed from January 1989, after the
expiration of the lease contract, and not from December
1988, since it has been established that petitioner had
already paid the rental for the month of December, on
December 27, 1988. (Exh. J)
The award of attorney's fees should also be deleted since
the RTC in its decision did not justify such award. As an
award of attorney's fees is the exception rather than the
rule, it should be justified in the decision of the trial court;
otherwise it must be deleted on appeal. [Abrograr v. IAC,
157 SCRA 57 (1988); Buan v. Camaganacan, 16 SCRA 321
(1966). 13

Despite the categorical pronouncement of respondent Court of Appeals

and of the Regional Trial Court as to private respondent's right to terminate
its lease contract with petitioner upon the undisputed expiration and nonrenewal thereof as well as private respondent's right under Article 1678 of
the Civil Code to choose between (1) paying petitioner 50% of his
building's fair market value at the time of the termination of the lease
contract and (2) refusing to so pay, in which case petitioner may remove
his building from private respondent's land, petitioner has persisted to
draw from Article 448 in relation to Article 546 of the New Civil Code, the
right to retain possession of the leased premises until petitioner has been
reimbursed an amount equivalent to 100% of his building's fair market
value. This is mainly his around for seeking from us the reversal of the
herein assailed decision of the Court of Appeals, although he also decries
what he perceives as the lack of jurisdiction on the part of the court a
quo to adjudicate the issues of (1) the applicability in the instant case of
Article 448 of the New Civil Code and (2) the determination of the
reasonable value of the improvements built on the leased premises. 14
Petitioner's contentions are utterly bereft of merit.
First. Petitioner, after obtaining a favorable decision from the court a quo,
now renounces the jurisdiction of that same court simply because its
decision has been struck down twice on appeal and appears doomed to a
final reversal by this court. To buttress its contentions, petitioner asserts
that the jurisdiction of the court a quo in any ejectment case is only limited
to the issue of possession de facto and may not be expanded as to make it
legally permissible for the court a quo to determine the retention right of a
lessee-builder and to fix the reasonable value of the improvements that
the lessor is to reimburse and pay the lessee-builder.
Petitioner asserts this obviously in utter desperation if only to salvage his
case. He cannot renounce the jurisdiction of the court a quo considering
that he had earlier submitted to such jurisdiction and, in fact took
advantage of it, in order to obtain a declaration of his rights, as builder in
good faith, to retain the leased premises until he is paid the full amount of
the fair market value of the building constructed by his parents on private
respondent's land. Now that not only one but two appellate courts have
more than amply exposed the substantial errors in the decision of the
court a quo, petitioner vents his attack against the court a quo itself which
if allowed by this court could result in the nullification of the decision of the
court a qua and the remand thereto of the case for further proceedings,
thereby buying petitioner some more time to hold on to the possession of
both his building and private respondent's land where his building stands.
Not only will we not allow this, but more importantly, we may not and
should not, allow petitioner's measure of desperation.
Petitioner during the pre-trial, agreed with private respondent as to what
issues shall be passed upon by the courta quo. Stated said court in its
decision:

As embodied in the order of this court dated March 21,

1989 and January 18, 1990, the issues to be resolved are:
1. Whether the contract of lease has not yet expired when
the instant complaint was filed; 2. Whether defendant
subleased the area or not; 3. Whether plaintiff owns the
building upon the expiration of the contract; and 4.
Whether plaintiff can legally eject defendant from the
leased premises. 15
In resolving issues 3 and 4, the court a quo found it necessary to
determine the good faith or bad faith of petitioner's parents in
constructing the building on private respondent's land. Having
agreed to the foregoing stipulation of issues and their
determination having in fact been favorable to petitioner,
petitioner is now estopped to assail the act of the court a quo of
resolving such issues. Petitioner is bound thereby, and we cannot
sanction petitioner's belated jurisdictional attack which we
perceive to be motivated not by a genuine belief in the correctness
of his legal posturings but by his mounting fear that the decision
on appeal adverse to him, will be ultimately affirmed by this court
and attain finality. As we have held in the case ofCloma v. Court of
Appeals: 16
. . . (I)t is too late in the day for petitioners to question the
jurisdiction of the trial court. . . . Voluntarily submitting to
the jurisdiction of the trial court, petitioners freely
participated in all the hearings of the case and adduced
their own evidence. It was only after an adverse judgment
that petitioners raised the trial court's alleged lack of
jurisdiction. Our Law and policy do not sanction such a
somersault. The polestar of Tijam v. Sibonghanoy (23 SCRA
29, 35-36) still provides good guidance on the issue, viz:
It has been held that a party can not invoke
the jurisdiction of a court to secure
affirmative relief against his opponent and,
after obtaining or failing to obtain such
relief, repudiate or question that same
jurisdiction (Dean v. Dean, 136 Or. 694, 86
A.L.R 79). In the cave just cited, by way of
explaining the rule, it was further said that
the question whether the court had
jurisdiction either of the subject-matter of
the action or of the parties alas not
important in such cases because the party
is barred from such conduct not because
the judgment or order of the court is valid
and conclusive as an adjudication, but for
the reason that such a practice can not be

tolerated obviously for reasons of public

policy.
Furthermore, it has also been held that
after voluntarily submitting a cause and
encountering an adverse decision on the
merits it is too late for the loser to question
the jurisdiction or power of the court
(Pease v. Rathbun-Jones etc., 243 U.S. 273,
61 L. Ed. 715, 37 S. Ct. 283; St. Louis etc. v.
McBridge, 141 U.S. 127, 35 L. Ed. 659). And
in Littleton v. Burgessm 16 Wyo. 58, the
Court said that it is not right for a party
who has affirmed and invoked the
jurisdiction of a court in a particular matter
to secure an affirmative relief, to
afterwards deny that same jurisdiction to
escape a penalty.
Upon this same principle is what We said in
the three cases mentioned in the resolution
of the Court of Appeals of May 20, 1963
(supra) to the effect that we frown upon
the "undesirable practice" of a party
submitting his case for decision and then
accepting the judgment, only if favorable,
and attacking it for lack of jurisdiction,
when
adverse
as
well
as Pindagan
etc. v., Dans,
et
al.,
G.R.
L-14591,
September 26, 1962; Montelibano, et al. v.
Bacolod-Murcia Milling Co., Inc., G.R. L15092; Young Men Labor Union, etc. v. The
Court of Industrial Relations, et al. G.R. L20307, Feb. 26, 1965, and Mejia v. Lucas,
100 Phil. p. 277. 17 (Emphasis Supplied)
Second. Petitioner stubbornly insists that he may not be ejected from
private respondent's land because he has the right, under Articles 448 and
546 of the New Civil Code, to retain possession of the leased premises until
he is paid the full fair market value of the building constructed thereon by
his parents. Petitioner is wrong, of course. The Regional Trial Court and the
Court of Appeals correctly held that it is Article 1678 of the New Civil Code
that governs petitioner's right vis-a-vis the improvements built by his
parents on private respondent's land.
In the 1991 case of Cabangis v. Court of Appeals 18 where the subject of
the lease contract was also a parcel of land and the lessee's father
constructed a family residential house thereon, and the lessee
subsequently demanded indemnity for the improvements built on the

lessor's land based on Articles 448 and 546 of the New Civil Code, we
pointed out that reliance on said legal provisions was misplaced.
The reliance by the respondent Court of Appeals on Articles
448 and 546 of the Civil Code of the Philippines is
misplaced. These provisions have no application to a
contract of lease which is the subject matter of this
controversy. Instead, Article 1678 of the Civil Code applies.
We quote:
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 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.
xxx xxx xxx
On the other hand, Article 448 governs the right of
accession while Article 546 pertains to effects of
possession. The very language of these two provisions
clearly manifest their inapplicability to lease contracts.
They 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
obligate the one who built or planted to
pay the price of the land, and the one who
sowed, the proper rent. However, the
builder or planter cannot be obliged to buy
the land if its value is considerably more
than that of the building or trees. In such
case, he shall pay reasonable rent, if the
owner of the land does not choose to
appropriate the building or trees after
proper indemnity. The parties shall agree

upon the terms of the lease and in case of

disagreement, the court shall fix the terms
thereof.
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 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.
The petitioners do not dispute the contention of the private
respondent that her father Gaspar Devis, filled the leased
parcel of land with truck loads of big stones or rocks
(escumbro), and enclosed or walled the same with hollow
blocks before constructing a residential house thereon. All
these, being in the nature of expenses which augmented
the value of the land, (Manresa, 270 cited in 2, A. Tolentino
Civil Code 110 [2nd ed., 1972]) or increased the income
from it, or improved its productivity, are useful
improvements within the purview of the law (Alburo v.
Villanueva, 7 Phil. 277 [1907]; Valencia V. Roxas, 13 Phil. 45
(1909).
But, it must he remembered, as in fact it is not
controverted, that Gaspar Devis was a lessee by virtue of a
lease contract between him and the City of Manila. As a
mere lessee, he knew that the parcel of land in question
was not his but belonged to the latter. Even the respondent
court conceded this fact when it stated that the private
respondent was "not claiming prior possession much less
ownership of the land as heir of her father." (Rollo, p. 16).
Thus, the improvements that the private respondent's
father had introduced in the leased premises were done at
his own risk as lessee. The right to indemnity equivalent to
one-half of the value of the said improvements the
house, the filling materials, and the hollow block fence or
wall is governed, as earlier adverted to, by the

provisions of Art. 1678, first paragraph of the Civil Code

above quoted. But this right to indemnity exists only if the
lessor opts to appropriate the improvements (Alburo v.
Villanueva, supra, note 10 at 279-280; Valencia v. Ayala de
Roxas, supra, note 10 at 46). The refusal of the lessor to
pay the lessee one-half of the value of the useful
improvements gives rise to the right of removal. On this
score, the commentary of Justice Paras is enlightening.
Note that under the 1st paragraph of Art.
1678, the law on the right of REMOVAL
says that "should the lessor refuse to
reimburse said amount, the lessee may
remove the improvements, even though
the principal thing may suffer thereby."
While the phrase "even though" implies
that Art. 1678 always applies regardless of
whether or not the improvements can be
removed without injury to the leased
premises, it is believed that application of
the Article cannot always be done. The rule
is evidently intended for cases where a
true accession takes place as when part of
the land leased is, say, converted into a
fishpond; and certainly not where as easily
removable thing (such as a wooden fence)
has been introduced. There is no doubt
that in a case involving such a detachable
fence, the lessee can take the same away
with him when the lease expires (5 E.
Paras, Civil Code of the Philippines
Annotated 345 [11th ed., 1986]).
Now then, indeed the private respondent would have a
cause of action against the petitioners for indemnity under
Article 1678 of the Civil Code if the latter had chosen to
appropriate the said improvements. However, there is
nothing in the records to indicate that such choice was
made. On the other hand, there is no showing either that
the private respondent manifested her desire to remove
these improvements absent any payment of the required
indemnity. She, or her deceased father, should have
removed the improvements at the time when the lease
expired on July 26, 1968 . . . or at the time of the filing of
the unlawful detainer case which was on October 19,
1968. 19
Petitioner grumbles that Article 1678 does not apply when what is
leased is only the land and not also the building standing thereon.
The reason for this, petitioner submits, is that Article 1678 speaks

of "improvements" and that a building is not an "improvement"

that is within contemplation of Article 1678. But we categorically
ruled in the aforecited case of Cabangis that a building, such as a
family residential house, is deemed an "improvement" for purposes
of Article 1678 of the Civil Code. Moreover, petitioner's postulations
are disjoined from the well-settled interrelated principles that (1)
Articles 448 and 546 of the New Civil Code vest the right of
retention and the right to reimbursement in a possessor of a parcel
of land who believed himself to be the owner of said land and as
such, built thereon and incurred expenses in so doing; (2) a lessee,
being conclusively presumed to know that he is not the owner of
the land that he is leasing, is not such a possessor-builder
contemplated of by Articles 448 and 546 of the New Civil Code;
and (3) a lessee who constructs a house or building or any other
improvement or structure on the leased land, only has the right
granted to him by Article 1678 of the New Civil Code to remove the
same in case the lessor elects not to appropriate the building and
pay 50% of its value. All these are already settled doctrines and
uniformly applied in such recent cases as Guzman v. Court of
Appeals, 20 Guiang
v.Samano, 21 Heirs
of
the
late
Jaime
Binuya v. Court of Appeals, 22 and Chua v. Court of Appeals. 23
Finally, petitioner submits that the award of monthly rental of P5,000.00 as
fixed by the Regional Trial Court and affirmed by respondent Court of
Appeals, is excessive, exorbitant and unreasonable. We disagree. On the
contrary, the records bear out that the P5,000.00 monthly rental is a
reasonable amount, considering that the subject lot is prime commercial
real property whose value has significantly increased and that P5,000.00 is
within the range of prevailing rental rates in that vicinity. Moreover,
petitioner has not proffered controverting evidence to support what he
believes to be the fair rental value of the leased building since the burden
of proof to show that the rental demanded is unconscionable or exorbitant
rests upon the lessee. Thus, here and now we rule, as we did in the case
of Manila Bay Club v. Court of Appeals, 24 that petitioner having failed to
prove its claim of excessive rentals, the valuation made by the Regional
Trial Court, as affirmed by the respondent Court of Appeals, stands.
It is worth stressing at this juncture that the trial court had
the authority to fix the reasonable value for the continued
use and occupancy of the leased premises after the
termination of the lease of the lease contract, and that it
was not bound by the stipulated rental in the contract of
lease since it is equally settled that upon termination or
expiration of the contract of lease, the rental stipulated
therein may no longer he the reasonable value for the use
and occupation of the premises as a result or by reason of
the change or rise in values. Moreover, the trial court can
take judicial notice of the general increase in rentals of real
estate specially of business establishments . . . 25

WHEREFORE, premises considered,

DISMISSED for lack of merit.
Costs against petitioner.
SO ORDERED

the

instant

petition

is

hereby

G.R. No. L-62943 July 14, 1986

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,
vs.
COURT OF APPEALS (Now INTERMEDIATE APPELLATE COURT) and
THE PHILIPPINE NATIONAL BANK,respondents.

PNB and debited by PNB against NWSA Account No. 6, to

wit:
Check No. Date Payee Amount Date Paid
By PNB
1. 59546 8-21-69 Deogracias P 3,187.79 4-2-69

Juan J. Diaz and Cesar T. Basa for respondent PNB.

Estrella
San Juan, Africa, Gonzales & San Agustin Law Offices for respondent PCIB.
2. 59548 3-31-69 Natividad 2,848.86 4-23 69
Rosario
GUTIERREZ, JR., J.:
3. 59547 3-31-69 Pangilinan 195.00 Unreleased
This petition for review asks us to set aside the October 29, 1982 decision
of the respondent Court of Appeals, now Intermediate Appellate Court
which reversed the decision of the Court of First Instance of Manila, Branch
XL, and dismissed the plaintiff's complaint, the third party complaint, as
well as the defendant's counterclaim.
The background facts which led to the filing of the instant petition are
summarized in the decision of the respondent Court of Appeals:

Enterprises
4. 59549 3-31-69 Natividad 3,239.88 4-23-69
Rosario
5. 59552 4-1-69 Villarama 987.59 5-6-69

Metropolitan
Waterworks
and
Sewerage
System
(hereinafter referred to as MWSS) is a government owned
and controlled corporation created under Republic Act No.
6234 as the successor-in- interest of the defunct NWSA.
The Philippine National Bank (PNB for short), on the other
hand, is the depository bank of MWSS and its predecessorin-interest NWSA. Among the several accounts of NWSA
with PNB is NWSA Account No. 6, otherwise known as
Account No. 381-777 and which is presently allocated No.
010-500281. The authorized signature for said Account No.
6 were those of MWSS treasurer Jose Sanchez, its auditor
Pedro Aguilar, and its acting General Manager Victor L.
Recio. Their respective specimen signatures were
submitted by the MWSS to and on file with the PNB. By
special arrangement with the PNB, the MWSS used
personalized checks in drawing from this account. These
checks were printed for MWSS by its printer, F. Mesina
Enterprises, located at 1775 Rizal Extension, Caloocan City.
During the months of March, April and May 1969, twentythree (23) checks were prepared, processed, issued and
released by NWSA, all of which were paid and cleared by

& Sons
6. 59554 4-1-69 Gascom 6,057.60 4-16 69
Engineering
7. 59558 4-2-69 The Evening 112.00 Unreleased
News
8. 59544 3-27-69 Progressive 18,391.20 4-18 69
Const.
9. 59564 4-2-69 Ind. Insp. 594.06 4-18 69
Int. Inc.
10. 59568 4-7-69 Roberto 800.00 4-22-69

Marsan

23. 59595 4-14-69 Neris Phil. 4,274.00 5-20-69

11. 59570 4-7-69 Paz Andres 200.00 4-22-69

Inc. --------------------

12. 59574 4-8-69 Florentino 100,000.00 4-11-69

P 320,636.26

Santos

During the same months of March, April and May 1969,

twenty-three (23) checks bearing the same numbers as the
aforementioned NWSA checks were likewise paid and
cleared by PNB and debited against NWSA Account No. 6,
to wit:

13. 59578 4-8-69 Mla. Daily 95.00 Unreleased

Bulletin
14. 59580 4-8-69 Phil. Herald 100.00 5-9-69
15. 59582 4-8-69 Galauran 7,729.09 5-6-69
& Pilar
16. 59581 4-8-69 Manila 110.00 5-12 69
Chronicle
17. 59588 4-8-69 Treago 21,583.00 4-11 69
Tunnel
18. 59587 4-8-69 Delfin 120,000.00 4-11-69
Santiago
19. 59589 4-10-69 Deogracias 1,257.49 4-16 69
Estrella
20. 59594 4-14-69 Philam Ac- 33.03 4-29 69
cident Inc.
21. 59577 4-8-69 Esla 9,429.78 4-29 69

Check Date Payee Amount Date Paid

No. Issued By PNB
1. 59546 3-6-69 Raul Dizon P 84,401.00 3-16-69
2. 59548 3-11-69 Raul Dizon 104,790.00 4-1-69
3. 59547 3-14-69 Arturo Sison 56,903.00 4-11-69
4. 59549 3-20-69 Arturo Sison 48,903.00 4-15-69
5. 59552 3-24-69 Arturo Sison 63,845.00 4-16-69
6. 59544 3-26-69 Arturo Sison 98,450.00 4-17-69
7. 59558 3-28-69 Arturo Sison 114,840.00 4-21-69
8. 59544 3-16-69 Antonio 38,490.00 4-22-69 Mendoza
9. 59564 3-31-69 Arturo Sison 180,900.00 4-23-69
10.59568 4-2-69 Arturo Sison 134,940.00 4- 5-69
11.59570 4-1-69 Arturo Sison 64,550.00 4-28-69
12.59574 4-2-69 Arturo Sison 148,610.00 4-29-69

22. 59601 4-16-69 Justino 20,000.00 4-18-69

13.59578
Mendoza

4-10-69

Antonio

93,950.00

Torres

14.59580 4-8-69 Arturo Sison 160,000.00 5-2-69

4-29-69

15.59582 4-10-69 Arturo Sison 155,400.00 5-5-69

16.59581 4-8-69 Antonio 176,580.00 5-6-69
Mendoza
17.59588 4-16-69 Arturo Sison 176,000.00 5-8-69

On June 11, 1969, NWSA addressed a letter to PNB

requesting the immediate restoration to its Account No. 6,
of the total sum of P3,457,903.00 corresponding to the
total amount of these twenty-three (23) checks claimed by
NWSA to be forged and/or spurious checks. "In view of the
refusal of PNB to credit back to Account No. 6 the said total
sum of P3,457,903.00 MWSS filed the instant complaint on
November 10, 1972 before the Court of First Instance of
Manila and docketed thereat as Civil Case No. 88950.

18.59587 4-16-69 Arturo Sison 300,000.00 5-12-69

19.59589 4-18-69 Arturo Sison 122,000.00 5-14-69
20.59594 4-18-69 Arturo Sison 280,000.00 5-15-69
21.59577 4-14-69 Antonio 260,000.00 5-16-69
Mendoza
22.59601 4-18-69 Arturo Sison 400,000.00 5-19-69
23.59595 4-28-69 Arturo Sison 190,800.00 5-21-69
--------------P3,457,903.00
The foregoing checks were deposited by the payees Raul
Dizon, Arturo Sison and Antonio Mendoza in their
respective current accounts with the Philippine Commercial
and Industrial Bank (PCIB) and Philippine Bank of
Commerce (PBC) in the months of March, April and May
1969. Thru the Central Bank Clearing, these checks were
presented for payment by PBC and PCIB to the defendant
PNB, and paid, also in the months of March, April and May
1969. At the time of their presentation to PNB these checks
bear the standard indorsement which reads 'all prior
indorsement and/or lack of endorsement guaranteed.'
Subsequent investigation however, conducted by the NBI
showed that Raul Dizon, Arturo Sison and Antonio Mendoza
were all fictitious persons. The respective balances in their
current account with the PBC and/or PCIB stood as follows:
Raul Dizon P3,455.00 as of April 30, 1969; Antonio
Mendoza P18,182.00 as of May 23, 1969; and Arturo Sison
Pl,398.92 as of June 30, 1969.

In its answer, PNB contended among others, that the

checks in question were regular on its face in all respects,
including the genuineness of the signatures of authorized
NWSA signing officers and there was nothing on its face
that could have aroused any suspicion as to its
genuineness and due execution and; that NWSA was guilty
of negligence which was the proximate cause of the loss.
PNB also filed a third party complaint against the
negotiating banks PBC and PCIB on the ground that they
failed to ascertain the Identity of the payees and their title
to the checks which were deposited in the respective new
accounts of the payees with them.
xxx xxx xxx
On February 6, 1976, the Court of First Instance of Manila rendered
judgment in favor of the MWSS. The dispositive portion of the decision
reads:
WHEREFORE, on the COMPLAINT by a clear preponderance
of evidence and in accordance with Section 23 of the
Negotiable Instruments Law, the Court hereby renders
judgment in favor of the plaintiff Metropolitan Waterworks
and Sewerage System (MWSS) by ordering the defendant
Philippine National Bank (PNB) to restore the total sum of
THREE MILLION FOUR HUNDRED FIFTY SEVEN THOUSAND
NINE HUNDRED THREE PESOS (P3,457,903.00) to plaintiff's
Account No. 6, otherwise known as Account No. 01050030-3, with legal interest thereon computed from the
date of the filing of the complaint and until as restored in
the said Account No. 6.
On the THIRD PARTY COMPLAINT, the Court, for lack of
evidence, hereby renders judgment in favor of the third
party defendants Philippine Bank of Commerce (PBC) and
Philippine Commercial and Industrial Bank (PCIB) by
dismissing the Third Party Complaint.

The counterclaims of the third party defendants are

likewise dismissed for lack of evidence.
No pronouncement as to costs.
As earlier stated, the respondent court reversed the decision of the Court
of First Instance of Manila and rendered judgment in favor of the
respondent Philippine National Bank.
A motion for reconsideration filed by the petitioner MWSS was denied by
the respondent court in a resolution dated January 3, 1983.
The petitioner now raises the following assignments of errors for the grant
of this petition:

addressed to the Chief Auditor of the petitioner; (5) the admission of the
respondent bank's counsel in open court that the National Bureau of
Investigation found the signature on the twenty-three (23) checks in
question to be forgeries; and (6) the admission of the respondent bank's
witness, Mr. Faustino Mesina, Jr. that the checks in question were not
printed by his printing press. The petitioner contends that since the
signatures of the checks were forgeries, the respondent drawee bank must
bear the loss under the rulings of this Court.
A bank is bound to know the signatures of its customers;
and if it pays a forged check it must be considered as
making the payment out of its obligation funds, and cannot
ordinarily charge the amount so paid to the account of the
depositor whose name was forged.
xxx xxx xxx

I. IN NOT HOLDING THAT AS THE SIGNATURES ON THE

CHECKS WERE FORGED, THE DRAWEE BANK WAS LIABLE
FOR THE LOSS UNDER SECTION 23 OF THE NEGOTIABLE
INSTRUMENTS LAW.
II. IN FAILING TO CONSIDER THE PROXIMATE NEGLIGENCE
OF PNB IN ACCEPTING THE SPURIOUS CHECKS DESPITE
THE OBVIOUS IRREGULARITY OF TWO SETS OF CHECKS
BEARING IdENTICAL NUMBER BEING ENCASHED WITHIN
DAYS OF EACH OTHER.
III. IN NOT HOLDING THAT THE SIGNATURES OF THE
DRAWEE MWSS BEING CLEARLY FORGED, AND THE CHECKS
SPURIOUS, SAME ARE INOPERATIVE AS AGAINST THE
ALLEGED DRAWEE.

The signatures to the checks being forged, under Section

23 of the Negotiable Instruments Law they are not a
charge against plaintiff nor are the checks of any value to
the defendant.
It must therefore be held that the proximate cause of loss
was due to the negligence of the Bank of the Philippine
Islands in honoring and cashing the two forged checks.
(San Carlos Milling Co. v. Bank of the P. I., 59 Phil. 59)

Every negotiable instrument is deemed prima facie to have

been issued for valuable consideration and every person
whose signature appears thereon to have become a party
thereto for value.

It is admitted that the Philippine National Bank cashed the

check upon a forged signature, and placed the money to
the credit of Maasim, who was the forger. That the
Philippine National Bank then endorsed the chock and
forwarded it to the Shanghai Bank by whom it was paid.
The Philippine National Bank had no license or authority to
pay the money to Maasim or anyone else upon a forged
signature. It was its legal duty to know that Malicor's
endorsement was genuine before cashing the check. Its
remedy is against Maasim to whom it paid the money.
(Great Eastern Life Ins. Co. v. Hongkong & Shanghai Bank,
43 Phil. 678).

The petitioner submits that the above provision does not apply to the facts
of the instant case because the questioned checks were not those of the
MWSS and neither were they drawn by its authorized signatories. The
petitioner states that granting that Section 24 of the Negotiable
Instruments Law is applicable, the same creates only a prima facie
presumption which was overcome by the following documents, to wit: (1)
the NBI Report of November 2, 1970; (2) the NBI Report of November 21,
1974; (3) the NBI Chemistry Report No. C-74891; (4) the Memorandum of
Mr. Juan Dino, 3rd Assistant Auditor of the respondent drawee bank

We have carefully reviewed the documents cited by the petitioner. There is

no express and categorical finding in these documents that the twentythree (23) questioned checks were indeed signed by persons other than
the authorized MWSS signatories. On the contrary, the findings of the
National Bureau of Investigation in its Report dated November 2, 1970
show that the MWSS fraud was an "inside job" and that the petitioner's
delay in the reconciliation of bank statements and the laxity and loose
records control in the printing of its personalized checks facilitated the
fraud. Likewise, the questioned Documents Report No. 159-1074 dated

The appellate court applied Section 24 of the Negotiable Instruments Law

which provides:

November 21, 1974 of the National Bureau of Investigation does not

declare or prove that the signatures appearing on the questioned checks
are forgeries. The report merely mentions the alleged differences in the
type face, checkwriting, and printing characteristics appearing in the
standard or submitted models and the questioned typewritings. The NBI
Chemistry Report No. C-74-891 merely describes the inks and pens used in
writing the alleged forged signatures.
It is clear that these three (3) NBI Reports relied upon by the petitioner are
inadequate to sustain its allegations of forgery. These reports did not touch
on the inherent qualities of the signatures which are indispensable in the
determination of the existence of forgery. There must be conclusive
findings that there is a variance in the inherent characteristics of the
signatures and that they were written by two or more different persons.

For verification purposes, therefore, the checks were taken

from our file. To everybody there present namely VIP
Maramag, the two abovementioned NAWASA officials, AVP,
Buhain, Asst. Cashier Castelo, Asst. Cashier Tejada and
Messrs. A. Lopez and L. Lechuga, both C/A bookkeepers, no
one was able to point out any difference on the signatures
of the NAWASA officials appearing on the checks compared
to their official signatures on file. In fact 3 checks, one of
those under question, were presented to the NAWASA
treasurer for verification but he could not point out which
was his genuine signature. After intent comparison, he
pointed on the questioned check as bearing his correct
signature.
xxx xxx xxx

Forgery cannot be presumed (Siasat, et al. v. Intermediate Appellate Court,

et al, 139 SCRA 238). It must be established by clear, positive, and
convincing evidence. This was not done in the present case.
The cases of San Carlos Milling Co. Ltd. v. Bank of the Philippine Islands, et
al. (59 Phil. 59) and Great Eastern Life Ins., Co. v. Hongkong and Shanghai
Bank (43 Phil. 678) relied upon by the petitioner are inapplicable in this
case because the forgeries in those cases were either clearly established
or admitted while in the instant case, the allegations of forgery were not
clearly established during trial.
Considering the absence of sufficient security in the printing of the checks
coupled with the very close similarities between the genuine signatures
and the alleged forgeries, the twenty-three (23) checks in question could
have been presented to the petitioner's signatories without their knowing
that they were bogus checks. Indeed, the cashier of the petitioner whose
signatures were allegedly forged was unable to ten the difference between
the allegedly forged signature and his own genuine signature. On the other
hand, the MWSS officials admitted that these checks could easily be
passed on as genuine.
The memorandum of Mr. A. T. Tolentino, no, Assistant Chief Accountant of
the drawee Philippine National Bank to Mr. E. Villatuya, Executive VicePresident of the petitioner dated June 9, 1969 cites an instance where even
the concerned NWSA officials could not ten the differences between the
genuine checks and the alleged forged checks.
At about 12:00 o'clock on June 6, 1969, VP Maramag
requested me to see him in his office at the Cashier's Dept.
where Messrs. Jose M. Sanchez, treasurer of NAWASA and
Romeo Oliva of the same office were present. Upon my
arrival I observed the NAWASA officials questioning the
issue of the NAWASA checks appearing in their own list,
xerox copy attached.

Moreover, the petitioner is barred from setting up the defense of forgery

under Section 23 of the Negotiable Instruments Law which provides that:
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When the
signature is forged or made without authority of the person
whose signature it purports to be, it is wholly inoperative,
and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party
thereto can be acquired through or under such signature
unless the party against whom it is sought to enforce such
right is precluded from setting up the forgery or want of
authority.
because it was guilty of negligence not only before the questioned checks
were negotiated but even after the same had already been negotiated.
(See Republic v. Equitable Banking Corporation, 10 SCRA 8) The records
show that at the time the twenty-three (23) checks were prepared,
negotiated, and encashed, the petitioner was using its own personalized
checks, instead of the official PNB Commercial blank checks. In the
exercise of this special privilege, however, the petitioner failed to provide
the needed security measures. That there was gross negligence in the
printing of its personalized checks is shown by the following
uncontroverted facts, to wit:
(1) The petitioner failed to give its printer, Mesina Enterprises, specific
instructions relative to the safekeeping and disposition of excess forms,
check vouchers, and safety papers;
(2) The petitioner failed to retrieve from its printer all spoiled check forms;
(3) The petitioner failed to provide any control regarding the paper used in
the printing of said checks;

(4) The petitioner failed to furnish the respondent drawee bank with
samples of typewriting, cheek writing, and print used by its printer in the
printing of its checks and of the inks and pens used in signing the same;
and

xxx xxx xxx

(5) The petitioner failed to send a representative to the printing office

during the printing of said checks.

A: Not all, sir. Because we have to make

reservations or allowances for spoilage.

This gross negligence of the petitioner is very evident from the sworn
statement dated June 19, 1969 of Faustino Mesina, Jr., the owner of the
printing press which printed the petitioner's personalized checks:

25. Q: Out of these vouchers printed by

you, how many were spoiled and how
many were the excess printed check
vouchers?

24. Q: Were all these check vouchers

printed by you submitted to NAWASA?

xxx xxx xxx

7. Q: Do you have any business transaction
with
the
National
Waterworks
and
Sewerage Authority (NAWASA)?
A: Yes, sir. I have a contract with the
NAWASA in printing NAWASA Forms such as
NAWASA Check

A: Approximately four hundred (400)

sheets, sir. I cannot determine the
proportion of the excess and spoiled
because the final act of perforating these
check vouchers has not yet been done and
spoilage can only be determined after this
final act of printing.
26. Q: What did you do with these excess
check vouchers?

xxx xxx xxx

15. Q: Were you given any ingtruction by
the NAWASA in connection with the printing
of these check vouchers?

A: I keep it under lock and key in my firing

cabinet.
xxx xxx xxx

A: There is none, sir. No

whatsoever was given to me.

instruction

16. Q: Were you not advised as to what

kind of paper would be used in the check
vouchers?
A: Only as per sample, sir.

28. Q: Were you not instructed by the

NAWASA authorities to bum these excess
check vouchers?
A: No, sir. I was not instructed.
29. Q: What do you intend to do with these
excess printed check vouchers?

xxx xxx xxx

20. Q: Where did you buy this Hammermill
Safety check paper?

A: I intend to use them for future orders

from the
xxx xxx xxx

A: From Tan Chiong, a paper dealer with

store located at Juan Luna, Binondo,
Manila. (In front of the Metropolitan Bank).

32. Q: In the process of printing the check

vouchers ordered by the NAWASA, how
many sheets were actually spoiled?

A: I cannot approximate, sir. But there are

spoilage in the process of printing and
perforating.
33. Q: What
spoilages?

did

you

do

with

these

A: Spoiled printed materials are usually

thrown out, in the garbage can.
34. Q: Was there any representative of the
NAWASA to supervise the printing or watch
the printing of these check vouchers?
A: None, sir.
xxx xxx xxx
39. Q: During the period of printing after
the days work, what measures do you
undertake to safeguard the mold and other
paraphernalia used in the printing of these
particular orders of NAWASA?
A: Inasmuch as I have an employee who
sleeps in the printing shop and at the same
time do the guarding, we just leave the
mold attached to the machine and the
other finished or unfinished work check
vouchers are left in the rack so that the
work could be continued the following day.
The National Bureau of Investigation Report dated November 2, 1970 is
even more explicit. Thus
xxx xxx xxx
60. We observed also that there is some
laxity and loose control in the printing of
NAWASA cheeks. We gathered from
MESINA ENTERPRISES, the printing firm
that undertook the printing of the check
vouchers of NAWASA that NAWASA had no
representative at the printing press during
the process of the printing and no
particular security measure instructions
adopted to safeguard the interest of the

government in connection with printing of

this accountable form.
Another factor which facilitated the fraudulent encashment of the twentythree (23) checks in question was the failure of the petitioner to reconcile
the bank statements with its own records.
It is accepted banking procedure for the depository bank to furnish its
depositors bank statements and debt and credit memos through the mail.
The records show that the petitioner requested the respondent drawee
bank to discontinue the practice of mailing the bank statements, but
instead to deliver the same to a certain Mr. Emiliano Zaporteza. For
reasons known only to Mr. Zaporteza however, he was unreasonably
delayed in taking prompt deliveries of the said bank statements and credit
and debit memos. As a consequence, Mr. Zaporteza failed to reconcile the
bank statements with the petitioner's records. If Mr. Zaporteza had not
been remiss in his duty of taking the bank statements and reconciling
them with the petitioner's records, the fraudulent encashments of the first
checks should have been discovered, and further frauds prevented. This
negligence was, therefore, the proximate cause of the failure to discover
the fraud. Thus,
When a person opens a checking account with a bank, he
is given blank checks which he may fill out and use
whenever he wishes. Each time he issues a check, he
should also fill out the check stub to which the check is
usually attached. This stub, if properly kept, will contain
the number of the check, the date of its issue, the name of
the payee and the amount thereof. The drawer would
therefore have a complete record of the checks he issues.
It is the custom of banks to send to its depositors a
monthly statement of the status of their accounts, together
with all the cancelled checks which have been cashed by
their respective holders. If the depositor has filled out his
check stubs properly, a comparison between them and the
cancelled checks will reveal any forged check not taken
from his checkbook. It is the duty of a depositor to carefully
examine the bank's statement, his cancelled checks, his
check stubs and other pertinent records within a
reasonable time, and to report any errors without
unreasonable delay. If his negligence should cause the
bank to honor a forged check or prevent it from recovering
the amount it may have already paid on such check, he
cannot later complain should the bank refuse to recredit
his account with the amount of such check. (First Nat. Bank
of Richmond v. Richmond Electric Co., 106 Va. 347, 56 SE
152, 7 LRA, NS 744 [1907]. See also Leather
Manufacturers' Bank v. Morgan, 117 US 96, 6 S. Ct. 657
[1886]; Deer Island Fish and Oyster Co. v. First Nat. Bank of
Biloxi, 166 Miss. 162, 146 So. 116 [1933]). Campos and

Campos, Notes and Selected Cases

Instruments Law, 1971, pp. 267-268).

on

Negotiable

Q. Why are you tolerating Mr. Pantig

admitting unauthorized persons in your
office?

This failure of the petitioner to reconcile the bank statements with its
cancelled checks was noted by the National Bureau of Investigation in its
report dated November 2, 1970:

A. I do not want to embarrass Mr. Pantig.

Most of the people following up checks are
employees of the NAWASA.

58. One factor which facilitate this fraud was the delay in
the reconciliation of bank (PNB) statements with the
NAWASA bank accounts. x x x. Had the NAWASA
representative come to the PNB early for the statements
and had the bank been advised promptly of the reported
bogus check, the negotiation of practically all of the
remaining checks on May, 1969, totalling P2,224,736.00
could have been prevented.
The records likewise show that the petitioner failed to provide appropriate
security measures over its own records thereby laying confidential records
open to unauthorized persons. The petitioner's own Fact Finding
Committee, in its report submitted to their General manager underscored
this laxity of records control. It observed that the "office of Mr. Ongtengco
(Cashier No. VI of the Treasury Department at the NAWASA) is quite open
to any person known to him or his staff members and that the check writer
is merely on top of his table."

Q. Was the authority given by the Board of

Directors and the approval by the Treasurer
for employees, and other persons to
encash their checks carry with it their
authority to enter your office?
A. No, sir.
xxx xxx xxx
Q. From the answers that you have given to
us we observed that actually there is laxity
and poor control on your part with regards
to the preparations of check payments
inasmuch as you allow unauthorized
persons to follow up their vouchers inside
your office which may leakout confidential
informations or your books of account.
After being apprised of all the shortcomings
in your office, as head of the Cashiers'
Office of the Treasury Department what
remedial measures do you intend to
undertake?

When confronted with this report at the Anti-Fraud Action Section of the
National Bureau of Investigation. Mr. Ongtengco could only state that:
A. Generally my order is not to allow
anybody to enter my office. Only
authorized persons are allowed to enter my
office. There are some cases, however,
where some persons enter my office
because they are following up their checks.
Maybe, these persons may have been
authorized by Mr. Pantig. Most of the
people entering my office are changing
checks as allowed by the Resolution of the
Board of Directors of the NAWASA and the
Treasurer. The check writer was never
placed on my table. There is a place for the
check write which is also under lock and
key.

A. Time and again the Treasurer has been

calling our attention not to allow interested
persons to hand carry their voucher checks
and we are trying our best and if I can do it
to follow the instructions to the letter, I will
do it but unfortunately the persons who are
allowed to enter my office are my coemployees
and
persons
who
have
connections with our higher ups and I can
not possibly antagonize them. Rest assured
that even though that everybody will get
hurt, I win do my best not to allow
unauthorized persons to enter my office.

Q. Is Mr. Pantig authorized to allow

unauthorized persons to enter your office?
xxx xxx xxx
A. No, sir.

Q. Is it not possible inasmuch as your office

is in charge of the posting of check
payments in your books that leakage of
payments to the banks came from your
office?
A. I am not aware of it but it only takes us a
couple of minutes to process the checks.
And there are cases wherein every
information about the checks may be
obtained from the Accounting Department,
Auditing Department, or the Office of the
General Manager.
Relying on the foregoing statement of Mr. Ongtengco, the National Bureau
of Investigation concluded in its Report dated November 2, 1970 that the
fraudulent encashment of the twenty-three (23)cheeks in question was an
"inside job". ThusWe have all the reasons to believe that this fraudulent act
was an inside job or one pulled with inside connivance at
NAWASA. As pointed earlier in this report, the serial
numbers of these checks in question conform with the
numbers in current use of NAWASA, aside from the fact
that these fraudulent checks were found to be of the same
kind and design as that of NAWASA's own checks. While
knowledge as to such facts may be obtained through the
possession of a NAWASA check of current issue, an outsider
without information from the inside can not possibly
pinpoint which of NAWASA's various accounts has sufficient
balance to cover all these fraudulent checks. None of these
checks, it should be noted, was dishonored for insufficiency
of funds. . .
Even if the twenty-three (23) checks in question are considered forgeries,
considering the petitioner's gross negligence, it is barred from setting up
the defense of forgery under Section 23 of the Negotiable Instruments Law.
Nonetheless, the petitioner claims that it was the negligence of the
respondent Philippine National Bank that was the proximate cause of the
loss. The petitioner relies on our ruling in Philippine National Bank v. Court
of Appeals(25 SCRA 693) that.
Thus, by not returning the cheek to the PCIB, by thereby
indicating that the PNB had found nothing wrong with the
check and would honor the same, and by actually paying
its amount to the PCIB, the PNB induced the latter, not only
to believe that the check was genuine and good in every
respect, but, also, to pay its amount to Augusto Lim. In

other words, the PNB was the primary or proximate cause

of the loss, and, hence, may not recover from the PCIB.
The argument has no merit. The records show that the respondent drawee
bank, had taken the necessary measures in the detection of forged checks
and the prevention of their fraudulent encashment. In fact, long before the
encashment of the twenty-three (23) checks in question, the respondent
Bank had issued constant reminders to all Current Account Bookkeepers
informing them of the activities of forgery syndicates. The Memorandum of
the Assistant Vice-President and Chief Accountant of the Philippine National
Bank dated February 17, 1966 reads in part:
SUBJECT: ACTIVITIES OF FORGERY SYNDICATE
From reliable information we have gathered that
personalized checks of current account depositors are now
the target of the forgery syndicate. To protect the interest
of the bank, you are hereby enjoined to be more careful in
examining said checks especially those coming from the
clearing, mails and window transactions. As a reminder
please be guided with the following:
1. Signatures of drawers should be properly scrutinized and
compared with those we have on file.
2. The serial numbers of the checks should be compared
with the serial numbers registered with the Cashier's Dept.
3. The texture of the paper used and the printing of the
checks should be compared with the sample we have on
file with the Cashier's Dept.
4. Checks bearing several indorsements should be given a
special attention.
5. Alteration in amount both in figures and words should be
carefully examined even if signed by the drawer.
6. Checks issued in substantial amounts particularly by
depositors who do not usually issue checks in big amounts
should be brought to the attention of the drawer by
telephone or any fastest means of communication for
purposes of confirmation.
and your attention is also invited to keep abreast of
previous circulars and memo instructions issued to
bookkeepers.

We cannot fault the respondent drawee Bank for not having detected the
fraudulent encashment of the checks because the printing of the
petitioner's personalized checks was not done under the supervision and
control of the Bank. There is no evidence on record indicating that because
of this private printing the petitioner furnished the respondent Bank with
samples of checks, pens, and inks or took other precautionary measures
with the PNB to safeguard its interests.
Under the circumstances, therefore, the petitioner was in a better position
to detect and prevent the fraudulent encashment of its checks.
WHEREFORE, the petition for review on certiorari is hereby DISMISSED for
lack of merit. The decision of the respondent Court of Appeals dated
October 29, 1982 is AFFIRMED. No pronouncement as to costs.
SO ORDERED

G.R. No. 73418 September 20, 1988

PELICULA
SABIDO
and
MAXIMO
RANCES, petitioners,
vs.
THE
HONORABLE
INTERMEDIATE
APPELLATE
COURT
and
DOMINADOR STA. ANA, respondents.

GUTIERREZ, JR., J.:

This petition for review on certiorari seeks to set aside the decision of the
then Intermediate Appellate Court which nullified the orders of the trial
court for the issuance of the writs of execution and demolition in favor of
the petitioners and which ordered the trial court to assess the value of the
demolished properties of the private respondent for the purposes of set-off
against respondent's liability to the petitioners.
This case originated from an action for quieting of title which was filed by
the spouses Victor Dasal and Maria Pecunio against herein petitioners,
Maximo Rances and Pelicula Sabido on the question of ownership over two
parcels of land otherwise known as Lots "B" and "D".
On October 7, 1969, the trial court presided by Judge Delfin Sunga
declared the petitioners as owners of Lots "B" and "D". The decision
became final. However, when the decision was being carried out to put the
petitioners in possession of Lot "B", the Provincial Sheriff found three (3)
persons occupying portions of Lot "B". One of them was private respondent
Dominador Sta. Ana.
The petitioners filed a motion to require the private respondent to show
cause why he should not be ejected from the portion of Lot "B". In his
answer, Sta. Ana claimed ownership by purchase from one Prudencio
Lagarto, of a bigger area of which Lot "B" is a part. He stated that the two
other persons occupying the disputed portion are his tenants.
Subsequently, an order of demolition was issued by the trial court against
the private respondent. This order was challenged by the private
respondent and upon his filing of certiorari proceedings, this Court on
November 26, 1973, set aside the order of the trial court and remanded
the case to the latter for further reception of evidence to determine: 1)
Whether or not the private respondent is privy to the spouses Victor Dasal
and Maria Pecunio as the losing parties in the action below; and 2)
Whether or not the petitioners and the private respondent are litigating
over the same parcel of land or whether there is overlapping of boundaries
of their respective lands.

On December 12, 1974, after conducting an ocular inspection and hearing,

Judge Sunga issued an order for the private respondent to vacate Lot "B"
upon finding that there is no proof that what the respondent allegedly
purchased from Lagarto covers a portion of Lot "B" but on the contrary, the
deed of sale and tax declaration show that what was sold to the
respondent was bounded on the south by Tigman river and therefore, the
respondent's ownership could not have extended to Lot "B" which was
separated by the Tigman river and mangrove swamps from the portion he
purchased.
Before the order of December 12, 1974, could be executed, however, Judge
Sunga inhibited himself from the case so the same was transferred to the
then Court of First Instance (now Branch M, Regional Trial Court) of Naga
City presided by Judge Mericia B. Palma.
The execution of the order met with some further delay when the records
were reconstituted. Judge Palma, feeling the need for a clearer
understanding of the facts and issues involved in the case, proceeded to
hear and received evidence.
On May 16, 1983, Judge Palma issued a resolution finding that there was
privity between the private respondent and the spouses Victor Dasal and
Maria Pecunio as to the ownership of Lot "C" and as to the possession over
the western portion of the private road and the disputed Lot "B"; and that
Lot "B" and the private road are not included in the land purchased by the
respondent from Lagarto.
According to the trial court, the private respondent was in the company of
Dasal (from whom he was renting Lot "C' and who was also the brother-inlaw of Lagarto) and was present when Commissioner Tubianosa inspected
the land in question in 1953 supporting the claim that the respondent
knew that the land was already in dispute between Dasal and the
petitioners; and if the respondent really believed that he owns the entire
Lot "B" and the private road, he should have raised his claim of ownership
when Tubianosa inspected the land. The respondent also failed to include
the land in dispute in the survey of his purchased lot with the flimsy excuse
that the surveyor failed to return to finish the survey and include the
disputed land.
Before arriving at the above findings, however, the trial court clarified the
issues involved in the case. It said:
WE NOW come to the RESOLUTION OF THE TWO ISSUES:
(1) Was there privity between Petitioner Sta. Ana and
Plaintiffs Dasal? and (2) Is the disputed area Identified in
paragraph 1 of the foregoing enumeration, part of the land
purchased by Petitioner from Prudencio Lagarto?

If there is a privity between the Petitioner and Dasal, then

the Petitioner is bound by the final decision in this CC No.
R-396 (2040) against Dasal and therefore Petitioner is
subject to the order of execution and is bound to vacate
the land in question or subject a portion of his house and
the surrounding walls to demolition. If there is no privity
then he is not bound by said final decision. (Rollo, pp. 4849).
In the dispositive portion, however, the trial court held:
WHEREFORE, premises considered, the Court finds:
1.) That there is privity between the petitioner and the
plaintiffs spouses Victor Dasal and Maria Pecunio as to
ownership of Lot C and as to the possession over the
western portion of the private road and the disputed Lot B
as so Identified in Exhibit 5;
2.) That the private road Identified as within points 1, 2, 3,
4, 5, 6 and 1 in Exh. 5 is owned by the respondents as
already decided in CC No. 1103, and the same private road
and the Lot B in Exhibit 5 are both owned by the
respondents as already decided in this CC No. R-396
(2040);
3.) That the balcony of the present house of the petitioner
is located in the disputed Lot B and its southern (or
southeastern) part of the western portion of the 'private
road';
xxx xxx xxx
6.) That therefore, this Court recommends to the Honorable
Supreme Court, that the petitioner be ordered to remove
the entire balcony and the northern portion of the main
house to the extent of about one meter found to be
standing on the private road, as well as the northern
extension of the hollow block walls on the eastern
boundary of Lot C that stand on the private road and to the
northern end of Lot B which wall measures to a total length
of about 15 meters from the northern boundary of Lot B to
the southern edge of the private road; or in the alternative
to require the petitioner to pay the respondents the value
of the western portion of the disputed area which is now
enclosed in the wall constructed by the petitioner;

7.) And to hold the petitioner liable to the respondents for

reasonable attorney's fees and damages. (Rollo, p. 52)
On June 7, 1983, the private respondent filed with this Court a pleading
captioned "Notice of Appeal for Review." Said petition was denied in this
Court's resolution on October 26,1983, to wit:
L-32642 (Dominador Sta. Ana v. Hon. Delfin Vir, Sunga,
etc., et al.). Considering the petition of petitioner for review
of trial court resolution dated May 16, 1983, the Court
Resolved to DENY the petition, said resolution of May 16,
1983, being in accord with the decision of November 26,
1973 (Rec., p. 438) and the resolution of May 16, 1975
(idem, p. 595) as well as the order of December 12,1974
(idem, p. 500) which ordered the petitioner to vacate the
premises (which is presumably final). As stated in the
aforesaid resolution of May 16, 1975, any review has to be
sought by timely appeal to the appellate court and cannot
be sought in this case. (Rollo, p. 65).
A series of resolutions were subsequently issued by this Court denying the
private respondent's motion to reconsider the above-quoted resolution.
Finally, on February 27, 1984, this Court issued a resolution ordering "the
Chief of the Judgment Division of this Court to RETURN the records thereof
to the respondent court for execution of judgment."
On August 9, 1984, the petitioners filed motion for execution of judgment,
accompanied by a bill of costs, as follows: 1) Attorney's fees P
25,000.00; 2) Cost of litigation P7,000.00; 3) Expenses for transcript of
record P600.00; 4) Expenses for xeroxing of important papers and
documents-P 500.00; 5) Accrued rentals for the lot in question P11,800.00
and 6) Legal interest of accrued rentals at 12% a year P1,436.00 for a
total of P46,336.00.
On October 5, 1984, the trial court issued an order granting the petitioners'
motion for execution and application for a writ of attachment and
approving the bill of costs. In said order, the trial court ordered the
demolition of any part of the private respondent's building and all other
construction within Lot "B" and the private road. The demolition was
effected.
The private respondent appealed to the then Intermediate Appellate Court,
contending that the order of the trial court departed from the intention of
the Supreme Court's resolution ordering execution of the judgment, for it
thereby deprived him of the alternative choice of paying the value of the
disputed area which was allowed in the trial court's resolution of May 16,
1983, which the Supreme Court found to be in accord with, among others,
its decision in G.R. No. L-32642 (Sta. Ana v. Sunga, 54 SCRA 36).

On September 20, 1985, the appellate court rendered the assailed

decision, the dispositive portion of which provided;
WHEREFORE, the writs of certiorari and prohibition applied
for are granted. The Order of October 5, 1984 approving
the bill of courts and granting execution of 'previous
orders', as well as the order/writ of demolition are hereby
set aside, Respondent Court is ordered to forthwith
determine the value of the demolished portion of petition
of petitioner's residential building and other structures
affected by the demolition and also, to assess the value of
the disputed area for purposes of set off and whatever is
the excess in value should be paid to the party entitled
thereto. (Rollo, pp. 40-41)
In its decision, the appellate court explained the rationale behind the
dispositive portion. It said:
xxx xxx xxx
The unqualified affirmance of said resolution of May 16,
1983, to Our Mind, carried with it the approval of the above
recommendation. The fact that the Supreme Court was
silent on the recommended alternative choice of demolition
and payment of the disputed area and merely returned the
records for execution of judgment, did not indicate that the
recommended demolition was preferred. The sufficiency
and efficacy of the resolution of May 16, 1983, as the
judgment to be enforced or executed, cannot be doubted
considering its substance rather than its form. The
aforequoted recommendation, itself the dispositive portion,
can be ascertained as to its meaning and operation.
Thereby, the petitioner is given the option to pay the value
of the western portion of the disputed area which is
enclosed in the wall constructed by said petitioner. It is
petitioner who is given the alternative choice since if he
does not pay, then he can be ordered to remove whatever
structure he had introduced in the questioned premises.
Notably, petitioner indicated his willingness to pay the
price of the disputed area or otherwise exercised that
option.
Respondent Court therefore acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in
abandoning the alternative choice of payment of the value
of the area in dispute, which it authorized in its final
resolution of May 16, 1983, when it ordered execution of its
'previous orders' for the petitioner to vacate the land in
question and for demolition, which was set aside when the

case was remanded for hearing pursuant to the Supreme

Court decision of November 26, 1973. The previous orders
referred to have not been specified by the respondent
Court in its Order of October 6, 1984. If it is the Order of
December 12, 1974 which is being referred to by
respondent Court, it should have so specified; however, it
did not presumably because it was reconsidered as can be
deduced from the fact that thereafter, respondent Court
further heard the parties and received their respective
evidence in compliance with the decision of November 26,
1973, or which proceedings, the respondent Court issued
its resolution of May 16, 1983. (Rollo, p. 38)
In the petition before us, the petitioners maintain that the appellate court
committed grave abuse of discretion when it granted the private
respondent the option of exercising the alternative choice of staying in the
disputed land when it has been established that the private respondent
was in privy with the spouses Victor Dasal and Maria Pecunio and,
therefore, he could not be considered a builder in good faith as to entitle
him to the alternative choice of retention; and that the demolition of the
private respondent's construction on Lot "B" and on the private road is a
logical consequence of the finding that he was privy to the losing parties
who were also the adversaries of the petitioners in the original case.
We agree.
When this Court ordered the remand of the case between the petitioners
and the private respondent in our decision of November 26, 1973 (see Sta.
Ana v. Sunga, supra), it was precisely to determine whether herein
respondent was privy to the spouses Dasals as to make the decision
against the latter and in favor of the petitioners over Lot "B" binding upon
him. And this fact was clearly pointed out by Judge Palma in her resolution
of May 16, 1983 stating that if there is privity between the private
respondent and the spouses Dasals, then the former is bound by the final
decision in CC No. R-396 (2040) which is the case between the Dasals and
the petitioners. However, an apparent confusion was brought about by the
dispositive portion of the aforementioned resolution when it recommended
to this Court either to order the respondent to remove all his constructions
over Lot "B" or to require said respondent to pay the petitioners the value
of the disputed area which was already enclosed by a wall constructed by
the respondent. This, nevertheless, was rectified when we issued the series
of resolutions denying the respondent's petition and motions for
reconsideration before this Court wherein we stated that the resolution of
May 16, 1983 was in accord, among others, with the order of December
12, 1974 "which ordered the petitioner (private respondent) to vacate the
premises (which is presumably final)."
Hence, it is clear that the private respondent has to remove all his
constructions over Lot "B" and vacate the premises. This is his only option.
Being adjudged in privy with the spouses Dasals, he cannot avail himself of

the rights granted to a builder in good faith. He, therefore, must remove all
his useful improvements over Lot "B" at his own expense and if the same
have already been removed, he cannot be entitled to the right of retention
or to any reimbursement. Thus, in the case of Metropolitan Waterworks
and Sewarage System v. Court of Appeals, (143 SCRA 623, 629), we ruled:
Article 449 of the Civil Code of the Philippines provides that
"he who builds, plants or sows in bad faith on the land of
another, loses what is built, planted or sown without right
to indemnity." As a builder in bad faith, NAWASA lost
whatever useful improvements it had made without right to
indemnity (Santos v. Mojica, Jan. 31, 1969, 26 SCRA 703)
Moreover, under Article 546 of said code, only a possessor
in good faith shall be refunded for useful expenses with the
right of retention until reimbursed; and under Article 547
thereof, only a possessor in good faith may remove useful
improvements if this can be done without damage to the
principal thing and if the person who recovers the
possession does not exercise the option of reimbursing the
useful expenses. The right given a possessor in bad faith to
remove improvements applies only to improvements for
pure luxury or mere pleasure, provided the thing suffers no
injury thereby and the lawful possessor does not prefer to
retain them by paying the value they have at the time he
enters into possession (Article 549, Id.).
We, therefore, find that the appellate court committed reversible error in
holding that the private respondent is entitled to exercise the option to pay
the value of the disputed area of Lot "B" and to reimbursement for the
value of the demolished portion of his building. We, however, affirm its
ruling that the petitioner's bill of costs must be set aside and that while the
resolution of May 16, 1983 included attorney's fees and damages, the
necessity of proof cannot be dispensed with. Since no proof was presented
before the trial regarding any of these claims, they cannot be awarded.
WHEREFORE, the petition is GRANTED and the decision of the court of
Appeals dated September 20, 1985 is ANNULED and SET ASIDE. The writ of
attachment issued by the trial court for the purpose of satisfying the award
for damages and the bill of costs is, however, permanently SET ASIDE.
SO ORDERED.

not fall in any of the exceptions enumerated in Article 285 of the Civil
Code.[6]
[G.R. No. 117642. April 24, 1998]

EDITHA
ALVIOLA and PORFERIO
ALVIOLA, petitioners, vs. HONORABLE COURT OF APPEALS,
FLORENCIA BULING VDA DE TINAGAN, DEMOSTHENES
TINAGAN, JESUS TINAGAN, ZENAIDA T. JOSEP AND
JOSEPHINE TINAGAN, respondents.
DECISION
MARTINEZ, J.:
In this petition for review on certiorari, petitioners assail the
decision[1] of the Court of Appeals dated April 8, 1994 which affirmed the
decision of the lower court ordering petitioners to peacefully vacate and
surrender the possession of the disputed properties to the private
respondents.
Culled from the record are the following antecedent facts of this case
to wit:
On April 1, 1950, Victoria Sonjaconda Tinagan purchased from Mauro
Tinagan two (2) parcels of land situated at Barangay Bongbong, Valencia,
Negros Oriental.[2] One parcel of land contains an area of 5,704 square
meters, more or less;[3] while the other contains 10,860 square meters.
[4]
Thereafter, Victoria and her son Agustin Tinagan, took possession of said
parcels of land.
Sometime in 1960, petitioners occupied portions thereof whereat they
built a copra dryer and put up a store wherein they engaged in the
business of buying and selling copra.
On June 23, 1975, Victoria died. On October 26, 1975, Agustin died,
survived by herein private respondents, namely his wife, Florencia
Buling Vda. de Tinagan and their children Demosthenes, Jesus, Zenaida
and Josephine, all surnamed Tinagan.
On December 24, 1976, petitioner Editha assisted by her husband
filed a complaint for partition and damages before the then Court of First
Instance of Negros Oriental, Branch 1, Dumaguete City, docketed as Civil
Case No. 6634, claiming to be an acknowledged natural child of deceased
Agustin
Tinagan and demanding the delivery of her shares in the
properties left by the deceased.[5]
On October 4, 1979, the aforesaid case was dismissed by the trial
court on the ground that recognition of natural children may be brought
only during the lifetime of the presumed parent and petitioner Editha did

Petitioners assailed the order of dismissal by filing a petition for

certiorari and mandamus before this Court.[7] On August 9, 1982, this Court
dismissed the petition for lack of merit. [8] Petitioners filed a motion for
reconsideration but the same was denied on October 19, 1982. [9]
On March 29, 1988, private respondents filed a complaint for recovery
of possession against Editha and her husband Porferio Alviola before the
Regional Trial Court of Negros Oriental, Branch 35, Dumaguete City,
docketed as Civil Case No. 9148, praying, among others, that they be
declared absolute owners of the said parcels of land, and that petitioners
be ordered to vacate the same, to remove their copra dryer and store, to
pay actual damages (in the form of rentals), moral and punitive damages,
litigation expenses and attorneys fees.[10]
In their answer, petitioners contend that they own the improvements
in the disputed properties which are still public land; that they are qualified
to be beneficiaries of the comprehensive agrarian reform program and that
they are rightful possessors by occupation of the said properties for more
than twenty years.[11]
After trial, the lower court rendered judgment in favor of the private
respondents, the dispositive portion of which reads:
WHEREFORE, premises considered, in Civil Case No. 9148, for
Recovery of Property, the court hereby renders judgment:
a) Declaring plaintiffs as the absolute owners of the land in
question including the portion claimed and occupied by
defendants;
b) Ordering defendants Editha Alviola and her husband Porfirio
Alviola to peacefully vacate and to surrender the possession of the
premises in question to plaintiffs; Defendants may remove their
store and dryer on the premises without injury and prejudice to
the plaintiffs;
c) Ordering defendants to pay the following amounts to the
plaintiffs:
1. P150.00 monthly rentals from April 1988 up to the time the
improvements in the questioned portions are removed;
2. P5,000.00 for attorneys fees;
3. P3,000.00 for litigation expenses and to pay the costs.
SO ORDERED.[12]

Petitioners appealed to the Court of Appeals. On April 8, 1994, the

respondent court rendered its decision,[13] affirming the judgment of the
lower court. Petitioners filed a motion for reconsideration [14] but the same
was denied by the respondent court in an order dated October 6, 1994. [15]
Hence, this petition.
Petitioners aver that respondent court erred in declaring private
respondents the owners of the disputed properties. They contend that
ownership of a public land cannot be declared by the courts but by the
Executive Department of the Government, citing the case ofBusante vs.
Hon. Court of Appeals, Oct. 20, 1992, 214 SCRA 774; and that the
respondent court erred in not considering that private respondents
predecessor-in-interest, Victoria Sonjaco Tinagan, during her lifetime,
ceded her right to the disputed properties in favor of petitioners.
Moreover, petitioners maintain that the respondent court erred in
holding that they were in bad faith in possessing the disputed properties
and in ruling that the improvements thereon are transferable. They claim
that the copra dryer and the store are permanent structures, the walls
thereof being made of hollow-blocks and the floors made of cement.
Private respondents counter that the question of whether or not the
disputed properties are public land has been resolved by overwhelming
evidence showing ownership and possession by the Tinagans and their
predecessors-in-interest prior to 1949. They further aver that they merely
tolerated petitioners possession of the disputed properties for a period
which was less than that required for extraordinary prescription.
The petition must fail.
Petitioners claim that the disputed properties are public lands. This is
a factual issue.The private respondents adduced overwhelming evidence
to prove their ownership and possession of the two (2) parcels of land on
portions of which petitioners built the copra dryer and a store. Private
respondents tax declarations and receipts of payment of real estate taxes,
as well as other related documents, prove their ownership of the disputed
properties. As stated previously in the narration of facts, these two (2)
parcels of land were originally owned by Mauro Tinagan, who sold the
same to Victoria S. Tinagan on April 1, 1950, as evidenced by a Deed of
Sale,[16] wherein the two (2) lots, Parcels 1 and 2, are described. [17] Anent
Parcel 1, tax declarations indicate that the property has always been
declared in the name of the Tinagans. The first, Tax Declaration No.
3335[18] is in the name of Mauro Tinagan. It was thereafter cancelled by Tax
Declaration No. 19534 effective 1968, [19] still in the name of Mauro. This
declaration was cancelled by Tax Declaration No. 016740 now in the name
of Agustin Tinagan,[20] effective 1974, followed by Tax Declaration No. 08421 in the name of Jesus Tinagan, effective 1980; [21] and finally by Tax
Declaration No. 08-816 in the name of Jesus Tinagan, effective 1985. [22]
With regard to Parcel 2, private respondents presented Tax Declaration
No. 20973 in the name of Mauro Tinagan, effective 1959, [23] Tax Declaration
No. 016757, effective 1974;[24] Tax Declaration No. 08-405-C in the name of

Agustin Tinagan, effective 1980[25] and Tax Declaration No. 08-794 in the
name of Agustin Tinagan, effective 1985. [26] Moreover, the realty taxes on
the two lots have always been paid by the private respondents. [27] There
can be no doubt, therefore, that the two parcels of land are owned by the
private respondents.
The record further discloses that Victoria S. Tinagan and her son,
Agustin Tinagan, took possession of the said properties in 1950, introduced
improvements thereon, and for more than 40 years, have been in open,
continuous, exclusive and notorious occupation thereof in the concept of
owners.
Petitioners own evidence recognized the ownership of the land in
favor of Victoria Tinagan. In their tax declarations, [28] petitioners stated that
the house and copra dryer are located on the land of Victoria S.
Tinagan/Agustin Tinagan. By acknowledging that the disputed portions
belong to Victoria/Agustin Tinagan in their tax declarations, petitioners
claim as owners thereof must fail.
The assailed decision of the respondent court states that Appellants
do not dispute that the two parcels of land subject matter of the present
complaint for recovery of possession belonged to Victoria S. Tinagan, the
grandmother of herein plaintiffs-appellees; that Agustin Tinagan inherited
the parcels of land from his mother Victoria; and that plaintiffs-appellees,
in turn, inherited the same from Agustin.[29]
Taking exception to the aforequoted finding, petitioners contend that
while the 2 parcels of land are owned by private respondents, the portions
wherein the copra dryers and store stand were ceded to them by Victoria
S. Tinagan in exchange for an alleged indebtedness of Agustin Tinagan in
the sum of P7,602.04.[30]
This claim of the petitioners was brushed aside by the respondent
court as merely an afterthought, thus Appellants claim that they have acquired ownership over the floor areas of
the store and dryer 'in consideration of the account of Agustin Tinagan in
the sum ofP7,602.04' is not plausible. It is more of an 'after-thought'
defense which was not alleged in their answer. Although the evidence
presented by them in support of this particular claim was not duly objected
to by counsel for appellees at the proper time and therefore deemed
admissible in evidence, an examination of the oral and documentary
evidence submitted in support thereof, reveals the weakness of their claim.
Appellant testified that the areas on which their store and dryer were
located were exchanged for the amount of P7,602.04 owed to them by
Agustin in 1967 (TSN, Hearing of April 14, 1989, p. 9); that he did not
bother to execute a document reflecting such agreement `because they
were our parents and we had used the land for quite sometime already
they had also sold their copra to us for a long time. (Id.) Yet, as earlier
discussed, the tax declarations in appellants answer show that even after
1967, they expressly declared that the parcels of land on which their store

and dryer were constructed, belonged to Victoria and Agustin (Exhs. 2-A, 2B, 2-C, 3-A, 3-B). If appellants really believed that they were in possession
of the said particular areas in the concept of owners, they could have
easily declared it in said tax declarations. [31]
Concededly, petitioners have been on the disputed portions since
1961. However, their stay thereon was merely by tolerance on the part of
the private respondents and their predecessor-in-interest. The evidence
shows that the petitioners were permitted by Victoria Sanjoco Tinagan to
build a copra dryer on the land when they got married. Subsequently,
petitioner Editha Alviola, claiming to be the illegitimate daughter of Agustin
Tinagan, filed a petition for partition demanding her share in the estate of
the deceased Agustin Tinagan on December 6, 1976. However, the petition
was dismissed since it was brought only after the death of Agustin Tinagan.
This Court dismissed the petition for certiorari and mandamusfiled by
petitioner Editha Alviola on August 9, 1982. It was on March 29, 1988,
when private respondents filed this complaint for recovery of possession
against petitioners. Considering that the petitioners occupation of the
properties in dispute was merely tolerated by private respondents, their
posture that they have acquired the property by occupation for 20 years
does not have any factual or legal foundation.
As correctly ruled by the respondent court, there was bad faith on the
part of the petitioners when they constructed the copra dryer and store on
the disputed portions since they were fully aware that the parcels of land
belonged to Victoria Tinagan. And, there was likewise bad faith on the part
of the private respondents, having knowledge of the arrangement between
petitioners and Victoria Tinagan relative to the construction of the copra
dryer and store. Thus, for purposes of indemnity, Article 448 of the New
Civil Code should be applied. [32] However, the copra dryer and the store, as
determined by the trial court and respondent court, are transferable in
nature. Thus, it would not fall within the coverage of Article 448. As the
noted civil law authority, Senator Arturo Tolentino, aptly explains: To fall
within the provision of this Article, the construction must be of permanent
character, attached to the soil with an idea of perpetuity; but if it is of a
transitory character or is transferable, there is no accession, and the
builder must remove the construction. The proper remedy of the landowner
is an action to eject the builder from the land.[33]
The private respondents action for recovery of possession was the
suitable solution to eject petitioners from the premises.
WHEREFORE, this petition should be, as it is hereby, DISMISSED. The
assailed decision is hereby AFFIRMED.
SO ORDERED

met with the Spouses Firme on 23 January 1995 and he presented them
with a draft deed of sale [4] (First Draft) dated February 1995. The First Draft
of the deed of sale provides:
[G.R. No. 146608. October 23, 2003]

DEED OF ABSOLUTE SALE

KNOW ALL MEN BY THESE PRESENTS:

SPOUSES CONSTANTE FIRME AND AZUCENA E. FIRME, petitioners,

vs.
BUKAL
ENTERPRISES
AND
DEVELOPMENT
CORPORATION,respondent.
DECISION
CARPIO, J.:

The Case
This is a petition for review on certiorari of the Decision[1] dated 3
January 2001 of the Court of Appeals in CA-G.R. CV No. 60747. The Court of
Appeals reversed the Decision [2]of the Regional Trial Court, Branch
223, Quezon City (trial court), which held that there was no perfected
contract of sale since there was no consent on the part of the seller.

The Facts
Petitioner Spouses Constante and Azucena Firme (Spouses Firme) are
the registered owners of a parcel of land [3] (Property) located on Dahlia
Avenue, Fairview Park, Quezon City. Renato de Castro (De Castro), the vice
president of Bukal Enterprises and Development Corporation (Bukal
Enterprises) authorized his friend, Teodoro Aviles (Aviles), a broker, to
negotiate with the Spouses Firme for the purchase of the Property.
On 28 March 1995, Bukal Enterprises filed a complaint for specific
performance and damages with the trial court, alleging that the Spouses
Firme reneged on their agreement to sell the Property. The complaint asked
the trial court to order the Spouses Firme to execute the deed of sale and
to deliver the title to the Property to Bukal Enterprises upon payment of
the agreed purchase price.
During
trial,
Bukal
Enterprises
presented
five
witnesses,
namely, Aviles, De Castro, Antonio Moreno, Jocelyn Napa and
Antonio Ancheta.
Aviles testified that De Castro authorized him to negotiate on behalf of
Bukal Enterprises for the purchase of the Property. According to Aviles, he

This DEED OF ABSOLUTE SALE made and executed by and between the
Spouses CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age,
Filipino citizens and with postal address at No. 1450 Union, Paco, City of
Manila, hereinafter called the VENDOR, and
BUKAL ENTERPRISES and DEVELOPMENT CORPORATION, a corporation duly
organized and registered in accordance with Philippine Laws, with business
address at Dahlia Avenue, Fairview Park, Quezon City, herein represented
by its PRESIDENT, MRS. ZENAIDA A. DE CASTRO, hereinafter called the
VENDEE.
WITNESSETH:
That the VENDOR is the absolute and registered owner of a certain parcel
of land located at Fairview Park, Quezon City, and more particularly
described as follows:
A parcel of land (Lot 4, Block 33 of the consolidation-subdivision plan (LRC)
Pcs-8124, Sheet No. I, being a portion of the consolidation of Lots 41-B-2-A
and 41-B-2-C, Psd-1136 and Lot (LRC) Pcs-2665, (LRC) GLRO) Record. No.
1037), situated in Quezon City, Island of Luzon. Bounded on the NE., points
2 to 5 by Road Lot 24, of the consolidation-subdivision plan. Beginning at a
point marked 1 on plan, being S. 67 deg. 23W., 9288.80 m. from BLLM I, Mp
of Montalban, Rizal; thence N. 85 deg. 35E., 17.39 m. to point 2; thence S.
54 deg. 22E., 4.00 m. to point 3; thence S. 14 deg. 21E., 17.87 m. to point
4; thence 3 deg. 56E., 17.92 m. to point 5; thence N. 85 deg. 12 W., 23.38
m. to point 6; thence N. 4 deg. 55 W., 34.35 m. to the point of beginning;
containing an area of EIGHT HUNDRED AND SIX (806) SQUARE METERS,
more or less.
VENDORS title thereto being evidenced by Transfer Certificate of Title No.
264243 issued by the Register of Deeds of Quezon City;
That the VENDOR, for and in consideration of the sum of THREE MILLION
TWO HUNDRED TWENTY FOUR THOUSAND PESOS (P3,224,000.00)
Philippine Currency, to them in hand paid and receipt whereof is hereby
acknowledged, do hereby SELL, TRANSFER and CONVEY unto the said
VENDEE, its assigns, transferees and successors in interest the above
described property, free from all liens and encumbrances whatsoever;

It is hereby mutually agreed that the VENDEE shall bear all the expenses
for the capital gains tax, documentary stamps, documentation,
notarization, removal and relocation of the squatters, registration, transfer
tax and other fees as may be required by law;
That the VENDOR shall pay the real estate tax for the current year and
back real estate taxes, charges and penalties if there are any.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____
day of February, 1995, at Quezon City, Philippines.
CONSTANTE FIRME BUKAL ENTERPRISES AND
DEVELOPMENT
CORP.
BY:
AZUCENA E. FIRME ZENAIDA A. DE CASTRO
VENDOR President
xxx
The Spouses Firme rejected this First Draft because of several
objectionable conditions, including the payment of capital gains and other
government taxes by the seller and the relocation of the squatters at the
sellers expense. During their second meeting, Avilespresented to the
Spouses Firme another draft deed of sale [5] (Second Draft) dated March
1995. The Spouses Firme allegedly accepted the Second Draft in view of
the deletion of the objectionable conditions contained in the First
Draft. According to Aviles, the Spouses Firme were willing to sell the
Property at P4,000 per square meter. They then agreed that payment
would be made at the Far East Bank and Trust Company (FEBTC), Padre
Faura Branch,Manila. However, the scheduled payment had to be
postponed due to problems in the transfer of funds. The Spouses Firme
later informed Aviles that they were no longer interested in selling the
Property.[6]
De Castro testified that he authorized Aviles to negotiate for Bukal
Enterprises the purchase of the Property owned by the Spouses Firme. The
Property was located beside the Dahlia Commercial Complex owned by
Bukal Enterprises. Aviles informed him that the Spouses Firme agreed to
sell the Property at P4,000 per square meter, payable in cash for a lump
sum of P3,224,000. Furthermore, Bukal Enterprises agreed to pay the taxes
due and to undertake the relocation of the squatters on the Property. For
this purpose, Bukal Enterprises applied for a loan of P4,500,000 which
FEBTC granted. Bukal Enterprises then relocated the four families squatting
on the Property at a cost of P60,000 per family. After the squatters vacated
the Property, Bukal Enterprises fenced the area, covered it with filling
materials, and constructed posts and riprap. Bukal Enterprises spent

approximatelyP300,000 for these improvements. In a letter[7] dated 7

March 1995, Bukal Enterprises offered to pay the purchase price
of P3,224,000 to the Spouses Firme upon execution of the transfer
documents and delivery of the owners duplicate copy of TCT No. 264243.
The Spouses Firme did not accept this offer but instead sent Bukal
Enterprises a letter demanding that its workers vacate the Property. Bukal
Enterprises then filed a complaint forspecific performance and damages. [8]
Antonio Moreno, one of the alleged squatters on the Property, testified
that he constructed his house on the Property sometime in 1982. On 26
February 1995, he was summoned together with the other squatters to a
meeting with Aviles regarding their relocation. They agreed to relocate
provided they would be given financial assistance ofP60,000 per
family. Thus, on 6 March 1995, the squatter families were each
paid P60,000 in the presence of De Castro and Aviles. Thereafter, they
voluntarily demolished their houses and vacated the Property.[9]
Jocelyn Mapa, the manager of FEBTC, Padre Faura Branch, testified
that Bukal Enterprises has been their client since 1994. According to her,
Bukal Enterprises applied for a loan of P4,500,000 on the third week of
February 1995 allegedly to buy a lot in Fairview.FEBTC approved the loan
on the last week of February and released the proceeds on the first week of
March.[10]
Antonio Ancheta (Ancheta), barangay captain of Barangay Fairview,
testified that he was present when one of the officers of Bukal Enterprises,
a certain Renato, paid each of the four squatter families around P60,000
to P100,000. Ancheta informed Dr. Constante Firme that he told the
squatters to leave considering that they already received payment for their
relocation. According to Ancheta, Dr. Constante Firme must have
misunderstood him and thought that the squatters left through Anchetas
own efforts.[11]
On the other hand, Dr. Constante Firme (Dr. Firme) was the sole
witness for the defendant spouses.
Dr. Firme testified that on 30 January 1995, he and his wife met
with Aviles at the Aristocrat Restaurant in Quezon City. Aviles arranged the
meeting
with
the
Spouses
Firme
involving
their
Property
in Fairview. Aviles offered to buy the Property at P2,500 per square
meter. The Spouses Firme did not accept the offer because they were
reserving the Property for their children. On 6 February 1995, the Spouses
Firme met again with Avilesupon the latters insistence. Aviles showed the
Spouses Firme a copy of a draft deed of sale [12] (Third Draft)
which Aviles prepared. The Third Draft of the deed of sale provides:
CONRACT OF SALE
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, executed this ___ day of February, 1995, by and between
the Spouses CONSTANTE FIRME and AZUCENA E. FIRME, both of legal age,

Filipino citizen and with postal address at __________, Quezon City,

hereinafter referred to as the VENDORS, and BUKAL ENTERPRISES and
DEVELOPMENT CORPORATION, a corporation duly organized and
registered in accordance with Philippine Laws, with postal address at
Fairview Park, Quezon City, herein represented by its President and Chief
Executive Officer, hereinafter referred to as the VENDEE.

4. The payment of the balance of P2,224,000.00 by the VENDEE

to the VENDORS shall be within a period of sixty (60) days
effective from the date of this Contract. After the lapse of 60
days and the loan has not yet been released due to fortuitous
events the VENDEE shall pay an interest of the balance a
monthly interest based on existing bank rate untilsaid
fortuitous event is no longer present;

WITNESSETH:

5. The VENDEE shall remove and relocate the Squatters,

however, such actual, reasonable and necessary expenses
shall be charged to the VENDORS upon presentation of
receipts and documents to support the act;

That for and in consideration of the sum of THREE MILLION TWO HUNDRED
TWENTY FOUR THOUSAND PESOS (P3,224,000.00), Philippine Currency,
payable in the form hereinafter expressed, agreed to sell to the VENDEE
and the VENDEE has agreed to buy from the VENDORS, a parcel of land
situated at Dahlia Avenue corner Rolex Street, Fairview Park, Quezon City,
containing an area of 806 Square Meters more or less, of which the
VENDORS are the absolute registered owners in accordance with the Land
Registration Act, as evidenced by Transfer Certificate of Title No.
264243 issued by the Register of Deeds of Quezon City, more particularly
described and bounded as follows:

6. The VENDEE shall be allowed for all legal purposes to take

possession of the parcel of land after the execution of this
Contract and payment of the downpayment;
7. The VENDEE shall shoulder all expenses like the
documentation, registration, transfer tax and relocation of the
property.

(DESCRIPTION AND BOUNDARIES OF PROPERTY)

IN WITNESS WHEREOF, we have hereunto affixed our signatures this ____

day of February, 1995, at Quezon City, Philippines.

THE FURTHER TERMS AND CONDITIONS OF THE CONTRACT ARE AS

FOLLOWS:

CONSTANTE E. FIRME BUKAL ENTERPRISES DEV. CORP.

VENDOR VENDEE

1. The VENDEE agrees to pay the VENDORS upon execution of

this Contract the sum of ONE MILLION PESOS (P1,000,000.00),
Philippine Currency, as downpayment and agrees to pay the
balance of TWO MILLION TWO HUNDRED TWENTY FOUR
THOUSAND PESOS (P2,224,000.00) at the post office address
of the VENDORS in Quezon City, or such other place
or Office as the VENDORS may designate within a period of
sixty (60) days counted from the date of this Contract;
2. The VENDORS have hereunto authorized the VENDEE to
mortgage the property and submit this Contract, together with
a certified true copy of the TCT, Tax Declaration, Tax Clearance
and Vicinity/Lot Plan, with their Lending Bank. The proceeds of
the VENDEES Loan shall directly be paid and remitted by the
Bank to the VENDORS;
3. The said parcel of land shall remain in the name of the
VENDORS until the Lending Bank of the VENDEE shall have
issued a Letter Guaranty Payment in favor of the VENDORS, at
which time the VENDORS agree to execute a Deed of Absolute
Sale in favor of the VENDEE and cause the issuance of the
Certificate of Title in the name of the latter. The Capital Gains
Tax and Documentary Stamps shall be charged from the
VENDORS in accordance with law;

AZUCENA E. FIRME BY:

VENDOR ________________________
President & Chief Executive Officer
xxx
The Spouses Firme did not accept the Third Draft because they found
its provisions one-sided. The Spouses Firme particularly opposed the
provision on the delivery of the Propertys title to Bukal Enterprises for the
latter to obtain a loan from the bank and use the proceeds to pay for the
Property. The Spouses Firme repeatedly told Aviles that the Property was
not for sale when Aviles called on 2 and 4 March 1995 regarding the
Property. On 6 March 1995, the Spouses Firme visited their Property and
discovered that there was ahollow block fence on one side, concrete posts
on another side and bunkers occupied by workers of a certain Florante de
Castro. On 11 March 1995, Spouses Firme visited the Property again with a
surveyor. Dr. Firme talked with Ancheta who told him that the squatters
had voluntarily demolished their shanties. The Spouses Firme sent a
letter[13]dated 20 March 1995 to Bukal Enterprises demanding removal of
the bunkers and vacationby the occupants of the Property. On 22 March
1995, the Spouses Firme received a letter[14]dated 7 March 1995 from Bukal
Enterprises demanding that they sell the Property. [15]
On 7 August 1998, the trial court rendered judgment against Bukal
Enterprises as follows:

WHEREFORE, in the light of the foregoing premises, the above-entitled

case [is] hereby DISMISSED and plaintiff BUKAL ENTERPRISES
DEVELOPMENT CORPORATION is hereby ordered to pay the defendants
Spouses Constante and Azucena Firme:
1. the sum of Three Hundred Thirty Five Thousand Nine Hundred
Sixty Four and 90/100 (P335,964.90) as and by way of
actual and compensatory damages;
2. the sum of Five Hundred Thousand Pesos (P500,000.00) as and
by way of moral damages;
3. the sum of One Hundred Thousand Pesos (P100,000.00) as and
by way of attorneys fees; and
4. the costs of the suit.
SO ORDERED.[16]
Bukal Enterprises appealed to the Court of Appeals, which reversed
and set aside the decision of the trial court. The dispositive portion of the
decision reads:
WHEREFORE, premises considered, the Decision, dated August 7, 1998, is
hereby REVERSED and SET ASIDE. The complaint is granted and the
appellees are directed to henceforth execute the Deed of Absolute Sale
transferring the ownership of the subject property to the appellant
immediately upon receipt of the purchase price of P3,224,000.00 and to
perform all such acts necessary and proper to effect the transfer of the
property covered by TCT No. 264243 to appellant. Appellant is directed to
deliver the payment of the purchase price of the property within sixty days
from the finality of this judgment. Costs against appellees.
SO ORDERED.[17]
Hence, the instant petition.

The Ruling of the Trial Court

The trial court held there was no perfected contract of sale. Bukal
Enterprises failed to establish that the Spouses Firme gave their consent to
the sale of the Property. The parties did not go beyond the negotiation
stage and there was no evidence of meeting of the minds between the
parties. Furthermore, Aviles had no valid authority to bind Bukal
Enterprises in the sale transaction. Under Sections 23 and 36 (No. 7) of the

Corporation Code, the corporate power to purchase a specific property is

exercised by the Board of Directors of the corporation. Without an
authorization from the Board of Directors, Aviles could not validly finalize
the purchase of the Property on behalf of Bukal Enterprises. There is no
basis to apply the Statute of Frauds since there was no perfected contract
of sale.

The Ruling of the Court of Appeals

The Court of Appeals held that the lack of a board resolution
authorizing Aviles to act on behalf of Bukal Enterprises in the purchase of
the Property was cured by ratification. Bukal Enterprises ratified the
purchase when it filed the complaint for the enforcement of the sale.
The Court of Appeals also held there was a perfected contract of sale.
The appellate court ruled that the Spouses Firme revealed their intent to
sell the Property when they met with Aviles twice. The Spouses Firme
rejected the First Draft because they considered the terms unacceptable.
When Aviles presented the Second Draft without the objectionable
provisions, the Spouses Firme no longer had any cause for refusing to sell
the Property. On the other hand, the acts of Bukal Enterprises in fencing
the Property, constructing posts, relocating the squatters and obtaining a
loan to purchase the Property are circumstances supporting their claim
that there was a perfected contract of sale.
The Spouses Firme allowed Bukal Enterprises to exercise acts of
ownership over the Property when the latter introduced improvements on
the Property and evicted the squatters. These acts constitute partial
performance of the contract of sale that takes the oral contract out of the
scope of the Statute of Frauds.

The Issues
The Spouses Firme raise the following issues:
1. WHETHER THE COURT OF APPEALS ERRED IN FINDING THAT
THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN
PETITIONERS AND RESPONDENT DESPITE THE ADDUCED
EVIDENCE PATENTLY TO THE CONTRARY;
2. WHETHER THE COURT OF APPEALS ERRED IN NOT FINDING
THAT THE ALLEGED CONTRACT OF SALE IS ENFORCEABLE
DESPITE THE FACT THAT THE SAME IS COVERED BY THE
STATUTE OF FRAUDS;
3. WHETHER THE COURT OF APPEALS ERRED IN DISREGARDING
THE FACT THAT IT WAS NOT LEGALLY AND FACTUALLY

POSSIBLE FOR RESPONDENT TO PERFECT A CONTRACT

OF SALE; AND
4. THE COURT OF APPEALS ERRED IN RULING THAT THE AWARD
BY THE TRIAL COURT OF MORAL AND COMPENSATORY
DAMAGES TO PETITIONERS IS IMPROPER.[18]

The Ruling of the Court

The petition is meritorious.
The fundamental question for resolution is whether there was a
perfected contract of sale between the Spouses Firme and Bukal
Enterprises. This requires a review of the factual and legal issues of this
case. As a rule, only questions of law are appealable to this Court under
Rule 45[19] of the Rules of Civil Procedure. The findings of fact by the Court
of Appeals are generally conclusive and binding on the parties and are not
reviewable by this Court.[20] However, when the factual findings of the
Court of Appeals are contrary to those of the trial court or when the
inference made is manifestly mistaken, this Court has the authority to
review the findings of fact.[21] Likewise, this Court may review findings of
fact when the judgment of the Court of Appeals is premised on a
misapprehension of facts.[22]This is the situation in this case.

Whether there was a perfected contract of sale

We agree with the finding of the trial court that there was no
perfected contract of sale.Clearly, the Court of Appeals misapprehended
the facts of the case in ruling otherwise.
First, the records indubitably show that there was no consent on the
part of the Spouses Firme. Aviles did not present any draft deed of sale
during his first meeting with the SpousesFirme on 30 January 1995.
[23]
Dr. Firme was consistent in his testimony that he and his wife rejected
the provisions of the Third Draft presented by Aviles during their second
meeting on6 February 1995. The Spouses Firme found the terms and
conditions unacceptable and toldAviles that they would not sell the
property.[24] Aviles showed them only one draft deed of sale (Third Draft)
during their second and last meeting on 6 February 1995.[25] When shown a
copy of the First Draft, Dr. Firme testified that it was not the deed of sale
shown to them by Aviles during their second meeting [26] and that the Third
Draft was completely different from the First Draft. [27]
On the other hand, Aviles gave conflicting testimony as to what
transpired during the two meetings with the Spouses Firme. In his direct
examination, Aviles testified that during his first meeting with the
Spouses Firme on 23 January 1995, he showed them the First Draft which

the Spouses Firme rejected. [28] On their second meeting, Aviles showed the
Spouses Firme the Second Draft, which the Spouses Firme allegedly
approved because the objectionable conditions contained in the First Draft
were already deleted. However, a perusal of the First Draft and the Second
Draft would show that both deeds of sale contain exactly the same
provisions. The only difference is that the date of the First Draft is February
1995 while that of the Second Draft is March 1995.
When Aviles testified again as rebuttal witness, his testimony became
more confusing.Aviles testified that during his first meeting with the
Spouses Firme on 30 January 1995, he showed them the Third Draft, which
was not acceptable to the latter. [29] However, upon further questioning by
his counsel, Aviles concurred with Dr. Firmes testimony that he presented
the Third Draft (Exh. 5; Exh. L) to the Spouses Firme only during their
second meeting. He also stated that he prepared and presented to the
Spouses Firme the First Draft (Exh. C) and the Second Draft (Exh. C-1)
during their first or second meeting. He testified:
ATTY. MARQUEDA:
Q: On page 11 of the tsn dated August 5, 1997 a question was
posed How did you find this draft the Contract of Sale which
was presented to you by Mr. Aviles on the second
meeting? The answer is On the first meeting(sic), we find it
totally unacceptable, sir.[30]What can you say on this? Before
that, Mr. Witness, what is this Contract of Sale that you
presented to Mr. Aviles on the second meeting? Is this
different from the Contract of Sale that was marked as
Exhibit 5-L?
Q: May I see the document Exhibit 5 L?[31]
INTERPRETER:
Witness going over the record.
ATTY. MARQUEDA:
Q: Is that the same document that was presented by you
to Mr. Firme on the second meeting or there is a
different contract?
A: This is the same document draft of the document that I
submitted to them during our second meeting. That
was February. This was the draft.
Q: What about Exhibit C and C-1 [which] were identified by
you. When was this presented to Dr. Firme?
A: This is the same.
Q: Exhibit C and C-1?
A: Yes because I prepared two documents during our
meeting. One already with notarial, the one without notarial

page and the other one with notarial page already, so I

prepared two documents but with the same contents both
were dated February of 1995.[32]
Q: So, you are referring now to Exhibit C and C-1 for the plaintiff?
A: C-1 is already in the final form because we agreed already as
to the date of the payment, so I prepared already another
document which is dated March 1995. [33] (Emphasis supplied)
In
his
cross-examination, Aviles again
changed
his
testimony. According to him, he presented the Third Draft to the Spouses
Firme during their first meeting. [34] However, when he went over the
records, he again changed his answer and stated that he presented the
Third Draft during their second meeting.[35]
In his re-direct examination, Aviles gave another version of what he
presented to the Spouses Firme during the two meetings. According to him,
he presented the Third Draft during the first meeting. On their second
meeting, he presented the First and the Second Drafts to the Spouses
Firme.[36]
Furthermore, Aviles admitted that the first proposal of Bukal
Enterprises was at P2,500 per square meter for the Property. [37] But the
First, Second and Third Drafts of the deed of sale prepared by Aviles all
indicated a purchase price of P4,000 per square meter or a lump sum
of P3,224,000 (P4,000 per sq.m. x 806 sq.m. = P3,224,000) for the
Property. Hence,Aviles could not have presented any of these draft deeds
of sale to the Spouses Firmeduring their first meeting.
Considering the glaring inconsistencies in Aviles testimony, it was
proper for the trial court to give more credence to the testimony of Dr.
Firme.
Even after the two meetings with Aviles, the Spouses Firme were firm
in
their
decision
not
to
sell
the
Property. Aviles called
the
Spouses Firme twice after their last meeting. The Spouses Firme
informed Aviles that they were not selling the Property. [38] Aviles himself
admitted this during his testimony, thus:
Q. Now, the next question which states: But did you not have any
occasion to talk to him after that second meeting? and the
answer of Dr. Firme is He called up a month after, thatsMarch
2, 1995. What can you say on this?
A. I called him to inform him that the loan was already transferred
from Makati to Padre Faura Branch of the Far East Bank, so I
scheduled already the payment of their property.
Q. When?
A. On March 4, 1995.
Q. And then the next question which also states: What did you
talked (sic) about over the telephone? The answer of Dr.

Firme was When I found out that he was calling, I told him
that the property is not for sale. What can you say on this?
A. He mentioned that they are no longer interested to sell
their property, perhaps they would like a higher price of
the property. They did not mention to me. I do not know
what was their reason.
Q. The next question So, what happened next? The answer is He
called up two days later, March 4 and my wife answered the
telephone and told him that the property is not for sale,
sir. What can you say on this?
A. That is true. That is what Mrs. Firme told me during our
conversation on the telephone that they are no
longer interested to sell the property for obvious
reason.
Q. When was that?
A. March 4, 1995, your honor.[39] (Emphasis supplied)
Significantly, De Castro also admitted that he was aware of the
Spouses Firmes refusal to sell the Property. [40]
The confusing testimony of Aviles taken together with De Castros
admission that he was aware of the Spouses Firmes refusal to sell the
Property reinforces Dr. Firmes testimony that he and his wife never
consented to sell the Property.
Consent is one of the essential elements of a valid contract. The Civil
Code provides:
Art. 1318. There is no contract unless the following requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.
The absence of any of these essential elements will negate the
existence of a perfected contract of sale.[41] Thus, where there is want of
consent, the contract is non-existent. [42] As held in Salonga, et al. v.
Farrales, et al.:[43]
It is elementary that consent is an essential element for the existence of a
contract, and where it is wanting, the contract is non-existent. The
essence of consent is the conformity of the parties on the terms of
the contract, the acceptance by one of the offer made by the
other. The contract to sell is a bilateral contract. Where there is merely an
offer by one party, without the acceptance of the other, there is no
consent. (Emphasis supplied)

In this case, the Spouses Firme flatly rejected the offer of Aviles to buy
the Property on behalf of Bukal Enterprises. There was therefore no
concurrence of the offer and the acceptance on the subject matter,
consideration and terms of payment as would result in a perfected contract
of sale.[44] Under Article 1475 of the Civil Code, the contract of sale is
perfected at the moment there is a meeting of minds on the thing which is
the object of the contract and on the price.
Another piece of evidence which supports the contention of the
Spouses Firme that they did not consent to the contract of sale is the fact
they never signed any deed of sale. If the Spouses Firme were already
agreeable to the offer of Bukal Enterprises as embodied in the Second
Draft, then the Spouses Firme could have simply affixed their signatures on
the deed of sale, but they did not.
Even the existence of a signed document purporting to be a contract
of sale does not preclude a finding that the contract is invalid when the
evidence shows that there was no meeting of the minds between the seller
and buyer.[45] In this case, what were offered in evidence were mere
unsigned deeds of sale which have no probative value. [46] Bukal Enterprises
failed to show the existence of a perfected contract of sale by competent
proof.
Second, there was no approval from the Board of Directors of Bukal
Enterprises as would finalize any transaction with the Spouses
Firme. Aviles did not have the proper authority to negotiate for Bukal
Enterprises. Aviles testified that his friend, De Castro, had asked him to
negotiate with the Spouses Firme to buy the Property. [47] De Castro, as
Bukal Enterprises vice president, testified that he authorized Aviles to buy
the Property.[48]However, there is no Board Resolution authorizing Aviles to
negotiate and purchase the Property on behalf of Bukal Enterprises. [49]
It is the board of directors or trustees which exercises almost all the
corporate powers in a corporation. Thus, the Corporation Code provides:
SEC. 23. The board of directors or trustees. Unless otherwise provided in
this Code, the corporate powers of all corporations formed under this Code
shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be
elected from among the holders of stock, or where there is no stock, from
among the members of the corporation, who shall hold office for one (1)
year and until their successors are elected and qualified. x x x
SEC. 36. Corporate powers and capacity. Every corporation incorporated
under this Code has the power and capacity:
xxx
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of a lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.

xxx
Under these provisions, the power to purchase real property is vested
in the board of directors or trustees. While a corporation may appoint
agents to negotiate for the purchase of real property needed by the
corporation, the final say will have to be with the board, whose approval
will finalize the transaction. [50] A corporation can only exercise its powers
and transact its business through its board of directors and through its
officers and agents when authorized by a board resolution or its by-laws.
[51]
As held in AF Realty & Development, Inc. v. Dieselman Freight
Services, Co.:[52]
Section 23 of the Corporation Code expressly provides that the corporate
powers of all corporations shall be exercised by the board of directors. Just
as a natural person may authorize another to do certain acts in his behalf,
so may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it. Thus, contracts
or acts of a corporation must be made either by the board of
directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the
declarations of an individual director relating to the affairs of the
corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not
binding on the corporation.(Emphasis supplied)
In this case, Aviles, who negotiated the purchase of the Property, is
neither an officer of Bukal Enterprises nor a member of the Board of
Directors of Bukal Enterprises. There is no Board Resolution
authorizing Aviles to negotiate and purchase the Property for Bukal
Enterprises. There is also no evidence to prove that Bukal Enterprises
approved whatever transaction Aviles made with the Spouses Firme. In
fact, the president of Bukal Enterprises did not sign any of the deeds of
sale presented to the Spouses Firme. Even De Castro admitted that he had
never met the Spouses Firme.[53] Considering all these circumstances, it is
highly improbable for Aviles to finalize any contract of sale with the
Spouses Firme.
Furthermore, the Court notes that in the Complaint filed by Bukal
Enterprises with the trial court, Aviles signed[54] the verification and
certification of non-forum shopping. [55] The verification and certification of
non-forum shopping was not accompanied by proof that Bukal Enterprises
authorized Aviles to file the complaint on behalf of Bukal Enterprises.
The power of a corporation to sue and be sued is exercised by the
board of directors. The physical acts of the corporation, like the signing of
documents, can be performed only by natural persons duly authorized for
the purpose by corporate by-laws or by a specific act of the board of
directors.[56]
The purpose of verification is to secure an assurance that the
allegations in the pleading are true and correct and that it is filed in good

faith.[57] True,
this
requirement
is
procedural
and
not
jurisdictional. However, the trial court should have ordered the correction
of the complaint since Aviles was neither an officer of Bukal Enterprises nor
authorized by its Board of Directors to act on behalf of Bukal Enterprises.

proceeded in relocating the squatters and constructing improvements on

the Property. De Castro testified:
ATTY. EJERCITO:
Q: The truth of the matter, Mr. Witness, is that the post was
constructed sometime late 1994.Is that not correct?

Whether the Statute of Frauds is applicable

A: No, sir. It is not true.

Q: When was it constructed?

The Court of Appeals held that partial performance of the contract of

sale takes the oral contract out of the scope of the Statute of Frauds. This
conclusion arose from the appellate courts erroneous finding that there
was a perfected contract of sale. The records show that there was no
perfected contract of sale. There is therefore no basis for the application of
the Statute of Frauds. The application of the Statute of Frauds presupposes
the existence of a perfected contract. [58] Article 1403 of the Civil Code
provides:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
(1) Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing and subscribed by the party charged or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxx
(e) An agreement for the leasing for a longer period than one year, or for
the sale of real property or of an interest therein;
xxx

Whether Bukal Enterprises is a builder in good faith

Bukal Enterprises is not a builder in good faith. The Spouses Firme did
not acceptAviles offer to purchase the Property. Aviles testified that when
he called the Spouses Firmeon 2 March 1995, Dr. Firme informed him that
they were no longer interested in selling the Property. On 4 March
1995, Aviles called again and this time Mrs. Firme told him that they were
not selling the Property. Aviles informed De Castro of the refusal of the
Spouses Firmeto sell the Property. However, Bukal Enterprises still

A: That March.
Q: When in March?
A: 1995.
Q: When in March 1995?
A: From the period of March 2, 1995 or two (2) weeks after
the removal of the squatters.
Q: When were the squatters removed?
WITNESS:
A: March 6 and 7 because there were four (4) squatters.
ATTY. EJERCITO:
Q: When did you find out that the Spouses Firme did not want to
sell the same?
A: First week of March 1995.
Q: In your Complaint you said you find out on March 3, 1995. Is
that not correct?
A: I cannot exactly remember, sir.
ATTY. MARQUEDA:
In the Complaint it does not state March 3. Maybe counsel was
thinking of this Paragraph 6 which states, When the property
was rid of the squatters on March 2, 1995 for the
documentation and payment of the sale, xxx.
ATTY. EJERCITO:
Q: So, you found out on March 2, 1995 that the
defendants were no longer interested in selling to
you the property. Is that correct?
A: Yes, sir, because Mr. Aviles relayed it to me.

Q: Mr. Aviles relayed to you that the Spouses Firme

were no longer interested in selling to you the
property in March 2, 1995. Is that correct?

constructions made by Bukal Enterprises on the Property, they advised the

latter to desist from further acts of trespass on their Property. [60]
The Civil Code provides:

A: Yes, sir. Mr. Aviles told me.

Q: In so many words, Mr. Witness, you learned that the
Spouses Firme were no longer interested in selling
the property before you spent allegedly all the sum of
money for the relocation of squatters for all this
construction that you are telling this Court now?
WITNESS:
A: The refusal to sell is not yet formal and the lawyer sent
a letter tendering full payment of the purchase price.
ATTY. EJERCITO:
Q: You mean to say that you did not believe Mr. Aviles when he
told you that the Spouses Firme were no longer selling the
property?
A: No, sir.
Q: Was there anything formal when you say the Spouses
Firme agreed to sell the property?
A: None, sir.
Q: And yet that time you believe Mr. Aviles when he
verbally told you that the Sps. Firme agreed to sell
the property? At what point of the transaction with
the Spouses Firme were you advised by your lawyer?
WITNESS:

Art. 449. He who builds, plants or sows in bad faith on the land of another,
loses what is built, planted or sown without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted
or sown in bad faith may demand the demolition of the work, or that the
planting or sowing be removed, in order to replace things in their former
condition at the expense of the person who built, planted or sowed; or he
may compel the builder or planter to pay the price of the land, and the
owner the proper rent.
Under these provisions the Spouses Firme have the following options:
(1) to appropriate what Bukal Enterprises has built without any obligation
to pay indemnity; (2) to ask Bukal Enterprises to remove what it has built;
or (3) to compel Bukal Enterprises to pay the value of the land. [61] Since the
Spouses Firme are undoubtedly not selling the Property to Bukal
Enterprises, they may exercise any of the first two options. They may
appropriate what has been built without paying indemnity or they may ask
Bukal Enterprises to remove what it has built at Bukal Enterprises own
expense.
Bukal Enterprises is not entitled to reimbursement for the expenses
incurred in relocating the squatters. Bukal Enterprises spent for the
relocation of the squatters even after learning that the Spouses Firme were
no longer interested in selling the Property. De Castro testified that even
though the Spouses Firme did not require them to remove the squatters,
they chose to spend for the relocation of the squatters since they were
interested in purchasing the Property. [62]

A: At the time when they refused to sell the lot.

ATTY. EJERCITO:
Q: Was that before the squatters were relocated allegedly
by Bukal Enterprises?
A: Yes, sir.
Q: In fact, it was the lawyer who advised you to relocate the
squatters. Is it not true?
A: No, sir.[59] (Emphasis supplied)
Bukal Enterprises is obviously a builder in bad faith. No deed of sale
has been executed in this case. Despite the refusal of the Spouses Firme to
sell the Property, Bukal Enterprises still proceeded to introduce
improvements on the Property. Bukal Enterprises introduced improvements
on the Property without the knowledge and consent of the Spouses
Firme.When
the
Spouses Firme learned
about
the
unauthorized

Whether the Spouses Firme are entitled to

compensatory and moral damages
The Court agrees with the Court of Appeals to delete the award for
compensatory and moral damages. In awarding actual damages, the trial
court took into account the traveling expenses incurred by the
Spouses Firme who are already residing in the United States.However, the
trial court failed to consider the testimony of Dr. Firme that they normally
travel to the Philippines more than once a year to visit their children.
[63]
Thus, the expenses for the roundtrip tickets dated 1996-1997 could not
be attributed solely for the attendance of hearings in the case.
Nevertheless, an award of nominal damages of P30,000 is warranted
since Bukal Enterprises violated the property rights of the Spouses Firme.
[64]
The Civil Code provides:

Art. 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation
arising from any source enumerated in article 1157, or in every case where
any property right has been invaded.
The award of damages is also in accordance with Article 451 of the
Civil Code which states that the landowner is entitled to damages from the
builder in bad faith.[65]
WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and
RENDER a new one:
1. Declaring that there was no perfected contract of sale;
2. Ordering Bukal Enterprises to pay the Spouses Firme P30,000
as nominal damages.
SO ORDERED

G.R. No. 77294 December 12, 1988

ANGELICA
VIAJAR
and
CELSO
VIAJAR, plaintiffs-appellants,
vs.
COURT OF APPEALS, LEONOR P. LADRIDO, LOURDES LADRIDO
IGNACIO, EUGENIO P. LADRIDO and L P. LADRIDO, defendantsappellees.
Ramon A. Gonzales for petitioner.
Miraflores Law Offices for respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals dated December 29, 1986, in CA-G.R. CV No. 69942
entitled, "ANGELICA VIAJAR, et. al., Plaintiffs-Appellants, versus LEONOR
LADRIDO, et. al., Defendants-Appellees," affirming the decision of the Court
of First Instance (now Regional Trial Court) of Iloilo dated December 10,
1981.
The antecedent facts in the instant case are as follows: The spouses
Ricardo Y. Ladrido and Leonor P. Ladrido were the owners of Lot No. 7511 of
the Cadastral Survey of Pototan situated in barangay Cawayan, Pototan,
Iloilo. This lot contained an area of 154,267 square meters and was
registered in the names of the spouses under Transfer Certificate of Title
No. T-21940 of the Register of Deeds of Iloilo.
Spouses Rosendo H. Te and Ana Te were also the registered owners of a
parcel of land described in their title as Lot No. 7340 of the Cadastral
Survey of Pototan.
On September 6, 1973, Rosendo H. Te, with the conformity of Ana Te, sold
this lot to Angelica F. Viajar and Celso F. Viajar for P5,000. A Torrens title
was later issued in the names of Angelica F. Viajar and Celso F. Viajar.
Later, Angelica F. Viajar had Lot No. 7340 relocated and found out that the
property was in the possession of Ricardo Y. Ladrido. Consequently, she
demanded its return but Ladrido refused.
On February 15, 1974, Angelica F. Viajar and Celso F. Viajar instituted a civil
action for recovery of possession and damages against Ricardo Y. Ladrido.
This case was docketed as Civil Case No. 9660 of the Court of First Instance
of Iloilo. Summoned to plead, defendant Ladrido filed his answer with a
counterclaim. Plaintiffs filed their reply to the answer.

Subsequently, the complaint was amended to implead Rosendo H. Te as

another defendant. Plaintiffs sought the annulment of the deed of sale and
the restitution of the purchase price with interest in the event the
possession of defendant Ladrido is sustained. Defendant Te filed his answer
to the amended complaint and he counter claimed for damages. Plaintiffs
answered the counterclaim.
During the pendency of the case, plaintiff Celso F. Viajar sold his rights over
Lot No. 7340 to his mother and co-plaintiff, Angelica F. Viajar. For this
reason, plaintiff Angelica F. Viajar now appears to be the sole registered
owner of this lot.
On May 25, 1978, defendant Ladrido died. He was substituted in the civil
action by his wife, Leonor P. Ladrido, and children, namely: Lourdes
Ladrido-Ignacio, Eugenio P. Ladrido and Manuel P. Ladrido, as parties
defendants.
The facts admitted by the parties during the pre-trial show that the piece
of real property which used to be Lot No. 7340 of the Cadastral Survey of
Pototan was located in barangay Guibuanogan Pototan, Iloilo; that it
consisted of 20,089 square meters; that at the time of the cadastral survey
in 1926, Lot No. 7511 and Lot No. 7340 were separated by the Suague
River; that the area of 11,819 square meters of what was Lot No. 7340 has
been in the possession of the defendants; that the area of 14,036 square
meters, which was formerly the river bed of the Suague River per cadastral
survey of 1926, has also been in the possession of the defendants; and
that the plaintiffs have never been in actual physical possession of Lot No.
7340.
After trial on the merits, a second amended complaint which included
damages was admitted.
The plaintiffs raised the following issues to be resolved:
1. Whether the change in the course of the
Suague River was sudden as claimed by
the plaintiffs or gradual as contended by
the defendants;
2. Assuming arguendo it was gradual,
whether or not the plaintiffs are still
entitled to Lot "B' appearing in Exhibit "4"
and to one-half () of Lot "A," also
indicated in Exhibit "4;" and
3. Damages (pp. 12-13, Rollo).

On December 10, 1981, the trial court rendered its decision, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs:
1. Dismissing the complaint of plaintiffs
Angelica F. Viajar and Celso F. Viajar with
costs against them;
2. Declaring defendants Leonor P. Ladrido,
Lourdes Ladrido-Ignacio, Eugenio P. Ladrido
and Manuel P. Ladrido as owner of the
parcel of land indicated as Lots A and B in
the sketch plan (Exhs. 'C' as well as '4,' '4B' and '4-C') situated in barangays
Cawayan and Guibuanogan Pototan, Iloilo,
and containing an area of 25,855 square
meters, more or less; and
3. Pronouncing that as owners of the land
described in the preceding paragraph, the
defendants are entitled to the possession
thereof.
Defendants' claim for moral damages and attorney's fees
are dismissed.
SO ORDERED (p. 36, Rollo).
Not satisfied with the decision, the plaintiffs appealed to the Court of
Appeals and assigned the following errors:
I.
THE LOWER COURT ERRED IN NOT HOLDING THAT
PLAINTIFFS ARE ENTITLED TO LOT B APPEARING IN EXHIBIT
"4" AND TO ONE-HALF () OF LOT A IN THE SAID EXHIBIT
"4."
II
THE LOWER COURT ERRED IN NOT AWARDING DAMAGES
TO PLAINTIFFS (p. 42, Rollo).
As earlier stated, the Court of Appeals affirmed the decision of the court a
quo. Plaintiffs (the petitioners herein) now come to Us claiming that the

Court of Appeals palpably erred in affirming the decision of the trial court
on the ground that the change in the course of the Suague River was
gradual and not sudden.
In the decision appealed from, the Court of Appeals held:
This appeal is not impressed with merit.
Article 457 of the New Civil Code provides that:
Art. 457. To the owners of lands adjoining
the banks of rivers belong the accretion
which they gradually receive from the
effects of the current of the waters.
The presumption is that the change in the course of the
river was gradual and caused by accretion and erosion
(Martinez Canas vs. Tuason, 5 Phil. 668; Payatas Estate
Improvement Co. vs. Tuason, 53 Phil. 55; C.H. Hodges vs.
Garcia, 109 Phil. 133). In the case at bar, the lower court
correctly found that the evidence introduced by the
plaintiff to show that the change in the course of the
Suague River was sudden or that it occurred through
avulsion is not clear and convincing.
Contrariwise, the lower court found that:
... the defendants have sufficiently established that for
many years after 1926 a gradual accretion on the eastern
side of Lot No. 7511 took place by action of the current of
the Suague River so that in 1979 an alluvial deposit of
29,912 square meters (2.9912 hectares), more or less, had
been added to Lot No. 7511. (Exhs. '1' as well as Exhs. 'C'
and '4'). Apropos it should be observed that the accretion
consisted of Lot A with an area of 14,036 square meters;
Lot B, 11,819 square meters; and Lot C, 4,057 square
meters. (Exhs. '4-B,' '4-C' and '4-D'). Only Lot C is not
involved in this litigation. (See Pre-trial Order, supra)
The established facts indicate that the eastern boundary of
Lot No. 7511 was the Suague River based on the cadastral
plan. For a period of more than 40 years (before 1940 to
1980) the Suague River overflowed its banks yearly and
the property of the defendant gradually received deposits
of soil from the effects of the current of the river. The
consequent increase in the area of Lot No. 7511 due to
alluvion or accretion was possessed by the defendants

whose tenants plowed and planted the same with coin and
tobacco.
The quondam river bed had been filled by accretion
through the years. The land is already plain and there is no
indication on the ground of any abandoned river bed. The
river bed is definitely no longer discernible now.
What used to be the old river bed (Lot A) is in level with Lot
No. 7511. So are the two other areas to the East. (Lots B
and C) Lots A, B and C are still being cultivated.
Under the law, accretion which the banks or rivers may
gradually receive from the effects of the current of the
waters becomes the property of the owners of the lands
adjoining the banks. (Art. 366, Old Civil Code; Art. 457,
New Civil Code which took effect on August 30, 1950 [Lara
v. Del Rosario, 94 Phil. 778]. Therefore, the accretion to Lot
No. 7511 which consists of Lots A and B (see Exhs. 'C' and
'4') belongs to the defendants (pp. 34-35, Record on
Appeal).
We find no cogent reason to disturb the foregoing finding
and conclusion of the lower court.
The second assignment of error is a mere offshoot of the
first assignment of error and does not warrant further
discussion (pp. 4244, Rollo).
The petition is without merit.

heard, is not merely irregular, but extra-judicial and invalid

( Salvante vs. Cruz, 88 Phil. 236-244; Lazo vs. Republic
Surety & Insurance Co., Inc., 31 SCRA 329, 334).
The pivotal issue in the petitioners' appeal was whether the change in the
course of the Suague River was gradual or sudden because the trial court
below resolved the same in its decision thus subjecting the same to review
by respondent appellate court. By simply abandoning this issue, the
petitioners cannot hope that the affirmance of the decision wherein this
issue was resolved makes the decision of the Court of Appeals void. In
effect, the petitioners are expounding a new procedural theory that to
render a questioned decision void, all that has to be done is to simply
abandon on appeal the pivotal issue as resolved by the lower court and
when its decision is affirmed on appeal, attack the decision of the appellate
court as void on the principle that a court of justice has no jurisdiction or
power to decide the question not in issue. This is not correct. Even the
authorities cited by the petitioners, more specifically the Salvante and Lazo
cases, supra, do not support their contention. They were heard in the trial
court and they cannot complain that the proceeding below was irregular
and hence, invalid.
The trial court found that the change in the course of the Suague River was
gradual and this finding was affirmed by the respondent Court of Appeals.
We do not find any valid reason to disturb this finding of fact.
Article 457 of the New Civil Code (reproduced from Article 366 of the Old),
the law applied by the courts a quoprovides:
Art. 457. To the owners of the lands adjoining the banks of
rivers belong the accretion which they gradually receive
from the effects of the current of the waters.

The petitioners contend that the first issue raised during the trial of the
case on the merits in the Court of First Instance, that is, "whether the
change in the course of the Suague River was sudden as claimed by the
plaintiffs or gradual as contended by the defendants," was abandoned and
never raised by them in their appeal to the Court of Appeals. Hence, the
Court of Appeals, in holding that the appeal is without merit, because of
the change of the Suague River was gradual and not sudden, disposed of
the appeal on an issue that was never raised and, accordingly, its decision
is void. In support of its contention, petitioners cite the following
authorities:

Petitioners contend that this article must be read together with Sections 45
an 46 of Act No. 496 which provides:

It is a well-known principle in procedure that courts of

justice have no jurisdiction or power to decide a question
not in issue (Lim Toco vs. Go Fay, 80 Phil. 166).

SEC. 46. 2 No title to registered land in derogation to that of

the registered owner shall be acquired by prescription or
adverse possession.

A judgment going outside the issues and purporting to

adjudicate something upon which the parties were not

As a result, petitioners contend, Article 457 of the New Civil Code must be
construed to limit the accretion mentioned therein as accretion of

SEC. 45. 1 The obtaining of a decree of registration and the

entry of a certificate of title shall be regarded as an
agreement running with the land, and binding upon the
applicant and all successors in title that the land shall be
and always remain registered land, and subject to the
provisions of this Act and all Acts amendatory thereof.

unregistered land to the riparian owner, and should not extend to

registered land. Thus, the lot in question having remained the registered
land of the petitioners, then the private respondents cannot acquire title
there in derogation to that of the petitioners, by accretion, for that will
defeat the indefeasibility of a Torrens Title.
The rule that registration under the Torrens System does not protect the
riparian owner against the diminution of the area of his registered land
through gradual changes in the course of an adjoining stream is well
settled. InPayatas Estate Improvement Co. vs. Tuason, 53 Phil. 55, We
ruled:
The controversy in the present cases seems to be due to
the erroneous conception that Art. 366 of the Civil Code
does not apply to Torrens registered land. That article
provides that "any accretions which the banks of rivers
may gradually receive from the effects of the current
belong to the owners of the estates bordering thereon."
Accretions of that character are natural incidents to land
bordering on running streams and are not affected by the
registration laws. It follows that registration does not
protect the riparian owner against diminution of the area of
his land through gradual changes in the course of the
adjoining stream.
In C.N. Hodges vs. Garcia, 109 Phil. 133, We also ruled:
It clearly appearing that the land in question has become
part of defendant's estate as a result of accretion, it follows
that said land now belongs to him. The fact that the
accretion to his land used to pertain to plaintiffs estate,
which is covered by a Torrens Certificate of Title, cannot
preclude him (defendant) from being the owner thereof.
Registration does not protect the riparian owner against
the diminution of the area of his land through gradual
changes in the course of the adjoining stream. Accretions
which the banks of rivers may gradually receive from the
effect of the current become the property of the owners of
the banks (Art. 366 of the Old Civil Code; Art. 457 of the
New). Such accretions are natural incidents to land
bordering on running streams and the provisions of the
Civil Code in that respect are not affected by the
Registration Act.
We find no valid reason to review and abandon the aforecited rulings.
As the private respondents are the owners of the premises in question, no
damages are recoverable from them.

ACCORDINGLY, the petition is DISMISSED for lack of merit without

pronouncement as to costs.
SO ORDERED.

G.R. No. L-43346

March 20, 1991

MARIO
C.
RONQUILLO, petitioner
vs.
THE COURT OF APPEALS, DIRECTOR OF LANDS, DEVELOPMENT
BANK OF THE PHILIPPINES, ROSENDO DEL ROSARIO, AMPARO DEL
ROSARIO and FLORENCIA DEL ROSARIO, respondents.*
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
REGALADO, J.:
This petition seeks the review of the decision 1 rendered by respondent
Court of Appeals on September 25, 1975 in CA-G.R. No. 32479-R, entitled
"Rosendo del Rosario, et al., Plaintiffs-Appellees, versus Mario Ronquillo,
Defendant-Appellant," affirming in toto the judgment of the trial court, and
its amendatory resolution 2 dated January 28, 1976 the dispositive portion
of which reads:
IN VIEW OF THE FOREGOING, the decision of this Court dated
September 25, 1975 is hereby amended in the sense that the first
part of the appealed decision is set aside, except the last portion
"declaring the plaintiffs to be the rightful owners of the dried-up
portion of Estero Calubcub which is abutting plaintiffs' property,"
which we affirm, without pronouncement as to costs.
SO ORDERED.
The following facts are culled from the decision of the Court of Appeals:
It appears that plaintiff Rosendo del Rosario was a registered owner
of a parcel of land known as Lot 34, Block 9, Sulucan Subdivision,
situated at Sampaloc, Manila and covered by Transfer Certificate of
Title No. 34797 of the Registry of Deeds of Manila (Exhibit "A"). The
other plaintiffs Florencia and Amparo del Rosario were daughters of
said Rosendo del Rosario. Adjoining said lot is a dried-up portion of
the old Estero Calubcub occupied by the defendant since 1945
which is the subject matter of the present action.
Plaintiffs claim that long before the year 1930, when T.C.T. No.
34797 over Lot No. 34 was issued in the name of Rosendo del
Rosario, the latter had been in possession of said lot including the
adjoining dried-up portion of the old Estero Calubcub having
bought the same from Arsenio Arzaga. Sometime in 1935, said
titled lot was occupied by Isabel Roldan with the tolerance and
consent of the plaintiff on condition that the former will make
improvements on the adjoining dried-up portion of the Estero

Calubcub. In the early part of 1945 defendant occupied the eastern

portion of said titled lot as well as the dried-up portion of the old
Estero Calubcub which abuts plaintiffs' titled lot. After a relocation
survey of the land in question sometime in 1960, plaintiffs learned
that defendant was occupying a portion of their land and thus
demanded defendant to vacate said land when the latter refused
to pay the reasonable rent for its occupancy. However, despite said
demand defendant refused to vacate.
Defendant on the other hand claims that sometime before 1945 he
was living with his sister who was then residing or renting plaintiffs'
titled lot. In 1945 he built his house on the disputed dried-up
portion of the Estero Calubcub with a small portion thereof on the
titled lot of plaintiffs. Later in 1961, said house was destroyed by a
fire which prompted him to rebuild the same. However, this time it
was built only on the called up portion of the old Estero Calubcub
without touching any part of plaintiffs titled land. He further claims
that said dried-up portion is a land of public domain. 3
Private respondents Rosendo, Amparo and Florencia, all surnamed del
Rosario (Del Rosarios), lodged a complaint with the Court of First Instance
of Manila praying, among others, that they be declared the rightful owners
of the dried-up portion of Estero Calubcub. Petitioner Mario Ronquillo
(Ronquillo) filed a motion to dismiss the complaint on the ground that the
trial court had no jurisdiction over the case since the dried-up portion of
Estero Calubcub is public land and, thus, subject to the disposition of the
Director of Lands. The Del Rosarios opposed the motion arguing that since
they are claiming title to the dried-up portion of Estero Calubcub as
riparian owners, the trial court has jurisdiction. The resolution of the
motion to dismiss was deferred until after trial on the merits.
Before trial, the parties submitted the following stipulation of facts:
1. That the plaintiffs are the registered owners of Lot 34, Block 9,
Sulucan Subdivision covered by Transfer Certificate of Title No.
34797;
2. That said property of the plaintiffs abuts and is adjacent to the
dried-up river bed of Estero Calubcub Sampaloc, Manila;
3. That defendant Mario
premises in question and
the old Estero Calubcub,
larger portion of his house

Ronquillo has no property around the

is only claiming the dried-up portion of
whereon before October 23, 1961, the
was constructed;

4. That before October 23, 1961, a portion of defendant's house

stands (sic) on the above-mentioned lot belonging to the plaintiffs;

5. That the plaintiffs and defendant have both filed with the Bureau
of Lands miscellaneous sales application for the purchase of the
abandoned river bed known as Estero Calubcub and their sales
applications, dated August 5, 1958 and October 13, 1959,
respectively, are still pending action before the Bureau of Lands;
6. That the parties hereby reserve their right to prove such facts as
are necessary to support their case but not covered by this
stipulation of facts. 4
On December 26, 1962, the trial court rendered judgment the decretal
portion of which provides:
WHEREFORE, judgment is hereby rendered ordering the defendant
to deliver to the plaintiffs the portion of the land covered by
Transfer Certificate of title No. 34797 which is occupied by him and
to pay for the use and occupation of said portion of land at the rate
of P 5.00 a month from the date of the filing of the complaint until
such time as he surrenders the same to the plaintiffs and declaring
plaintiffs to be the owners of the dried-up portion of estero
Calubcub which is abutting plaintiffs' property.
With costs to the defendant.
SO ORDERED.

On appeal, respondent court, in affirming the aforequoted decision of the

trial court, declared that since Estero Calubcub had already dried-up way
back in 1930 due to the natural change in the course of the waters, under
Article 370 of the old Civil Code which it considers applicable to the present
case, the abandoned river bed belongs to the Del Rosarios as riparian
owners. Consequently, respondent court opines, the dried-up river bed is
private land and does not form part of the land of the public domain. It
stated further that "(e)ven assuming for the sake of argument that said
estero did not change its course but merely dried up or disappeared, said
dried-up estero would still belong to the riparian owner," citing its ruling in
the case of Pinzon vs. Rama. 6
Upon motion of Ronquillo, respondent court modified its decision by setting
aside the first portion of the trial court's decision ordering Ronquillo to
surrender to the Del Rosarios that portion of land covered by Transfer
Certificate of Title No. 34797 occupied by the former, based on the
former's representation that he had already vacated the same prior to the
commencement of this case. However, respondent court upheld its
declaration that the Del Rosarios are the rightful owners of the dried-up
river bed. Hence, this petition.

On May 17, 1976, this Court issued a resolution 7 requiring the Solicitor
General to comment on the petition in behalf of the Director of Lands as an
indispensable party in representation of the Republic of the Philippines,
and who, not having been impleaded, was subsequently considered
impleaded as such in our resolution of September 10, 1976. 8 In his Motion
to Admit Comment, 9 the Solicitor General manifested that pursuant to a
request made by this office with the Bureau of Lands to conduct an
investigation, the Chief of the Legal Division of the Bureau sent a
communication informing him that the records of his office "do not show
that Mario Ronquillo, Rosendo del Rosario, Amparo del Rosario or Florencia
del Rosario has filed any public land application covering parcels of land
situated at Estero Calubcub Manila as verified by our Records Division.
The position taken by the Director of Lands in his Comment 10 filed on
September 3, 1978, which was reiterated in the Reply dated May 4, 1989
and again in the Comment dated August 17, 1989, explicates:
5. We do not see our way clear to subscribe to the ruling of the
Honorable Court of Appeals on this point for Article 370 of the Old
Civil Code, insofar as ownership of abandoned river beds by the
owners of riparian lands are concerned, speaks only of a situation
where such river beds were abandoned because of a natural
change in the course of the waters. Conversely, we submit that if
the abandonment was for some cause other than the natural
change in the course of the waters, Article 370 is not applicable
and the abandoned bed does not lose its character as a property of
public dominion not susceptible to private ownership in accordance
with Article 502 (No. 1) of the New Civil Code. In the present case,
the drying up of the bed, as contended by the petitioner, is clearly
caused by human activity and undeniably not because of the
natural change of the course of the waters (Emphasis in the
original text).
In his Comment
adds:

11

dated August 17, 1989, the Director of Lands further

8. Petitioner herein and the private respondents, the del Rosarios,

claim to have pending sales application(s) over the portion of the
dried up Estero Calubcub, as stated in pages 4-5, of the Amended
Petition.
9. However, as stated in the Reply dated May 4, 1989 of the
Director of Lands, all sales application(s) have been rejected by
that office because of the objection interposed by the Manila City
Engineer's Office that they need the dried portion of the estero for
drainage purposes.
10. Furthermore, petitioner and private respondents, the del
Rosarios having filed said sales application(s) are now estopped

from claiming title to the Estero Calubcub (by possession for

petitioner and by accretion for respondents del Rosarios) because
for (sic) they have acknowledged that they do not own the land
and that the same is a public land under the administration of the
Bureau of Lands (Director of Lands vs. Santiago, 160 SCRA 186,
194).

Rosarios the rightful owners of the dried-up portion of Estero Calubcub by

unduly relying upon decisional law in the case of Pinzon vs. Rama, ante,
which case was decided entirely on a set of facts different from that
obtaining in this case; and (b) when it ignored the undisputed facts in the
present case and declared the dried-up portion of Estero Calubcub as a
private property.

In a letter dated June 29, 1979 12 Florencia del Rosario manifested to this
Court that Rosendo, Amparo and Casiano del Rosario have all died, and
that she is the only one still alive among the private respondents in this
case.

The main issue posed for resolution in this petition is whether the dried-up
portion of Estero Calubcub being claimed by herein petitioner was caused
by a natural change in the course of the waters; and, corollary thereto, is
the issue of the applicability of Article 370 of the old Civil Code.

In a resolution dated January 20, 1988, 13 the Court required petitioner

Ronquillo to implead one Benjamin Diaz pursuant to the former's
manifestation 14 that the land adjacent to the dried up river bed has
already been sold to the latter, and the Solicitor General was also required
to inquire into the status of the investigation being conducted by the
Bureau of Lands. In compliance therewith, the Solicitor General presented
a letter from the Director of Lands to the effect that neither of the parties
involved in the present case has filed any public land application. 15

Respondent court, in affirming the findings of the trial court that there was
a natural change in the course of Estero Calubcub declared that:

On April 3, 1989, petitioner filed an Amended Petition for Certiorari, 16 this

time impleading the Development Bank of the Philippines (DBP) which
subsequently bought the property adjacent to the dried-up river bed from
Benjamin Diaz. In its resolution dated January 10, 1990, 17 the Court
ordered that DBP be impleaded as a party respondent.
In a Comment 18 filed on May 9, 1990, DBP averred that "[c]onsidering the
fact that the petitioner in this case claims/asserts no right over the
property sold to Diaz/DBP by the del Rosarios; and considering, on the
contrary, that Diaz and DBP claims/asserts (sic) no right (direct or indirect)
over the property being claimed by Ronquillo (the dried-up portion of
Estero Calubcub), it follows, therefore, that the petitioner Ronquillo has no
cause of action against Diaz or DBP. A fortiori from the viewpoint of the
classical definition of a cause of action, there is no legal justification to
implead DBP as one of the respondents in this petition." DBP thereafter
prayed that it be dropped in the case as party respondent.

The defendant claims that Article 370 of the old Civil Code is not
applicable to the instant case because said Estero Calubcub did not
actually change its course but simply dried up, hence, the land in
dispute is a land of public domain and subject to the disposition of
the Director of Land(s). The contention of defendant is without
merit. As mentioned earlier, said estero as shown by the relocation
plan (Exhibit "D") did not disappear but merely changed its course
by a more southeasternly (sic) direction. As such, "the abandoned
river bed belongs to the plaintiffs-appellees and said land is private
and not public in nature. Hence, further, it is not subject to a
Homestead Application by the appellant." (Fabian vs. Paculan CAG.R. Nos. 21062-63-64-R, Jan. 25 1962). Even assuming for the
sake of argument that said estero did not change its course but
merely dried up or disappeared, said dried-up estero would still
belong to the riparian owner as held by this Court in the case
of Pinzon vs. Rama (CA-G.R. No. 8389, Jan. 8, 1943; 2 O.G. 307). 20

On
September
13,
1990,
respondent
DBP
filed
a
Manifestation/Compliance 19 stating that DBP's interest over Transfer
Certificate of Title No. 139215 issued in its name (formerly Transfer
Certificate of Title No. 34797 of the Del Rosarios and Transfer Certificate of
Title No. 135170 of Benjamin Diaz) has been transferred to Spouses
Victoriano and Pacita A. Tolentino pursuant to a Deed of Sale dated
September 11, 1990.

Elementary is the rule that the jurisdiction of the Supreme Court in cases
brought to it from the Court of Appeals in a petition for certiorari under
Rule 45 of the Rules of Court is limited to the review of errors of law, and
that said appellate court's finding of fact is conclusive upon this Court.
However, there are certain exceptions, such as (1) when the conclusion is a
finding grounded entirely on speculation, surmises or conjectures; (2) when
the inference made is manifestly absurd, mistaken or impossible; (3) when
there is grave abuse of discretion in the appreciation of facts; (4) when the
judgment is premised on a misapprehension of facts; (5) when the findings
of fact are conflicting; and (6) when the Court of Appeals in making its
findings went beyond the issues of the case and the same is contrary to
the
admissions
of
both
appellant
and
appellee. 21

Petitioner Ronquillo avers that respondent Court of Appeals committed an

error of law and gross abuse of discretion, acted arbitrarily and denied
petitioner due process of law (a) when it declared private respondents Del

A careful perusal of the evidence presented by both parties in the case at

bar will reveal that the change in the course of Estero Calubcub was
caused, not by natural forces, but due to the dumping of garbage therein

by the people of the surrounding neighborhood. Under the circumstances,

a review of the findings of fact of respondent court thus becomes
imperative.
Private respondent Florencia del Rosario, in her testimony, made a
categorical statement which in effect admitted that Estero Calubcub
changed its course because of the garbage dumped therein, by the
inhabitants of the locality, thus:
Q When more or less what (sic) the estero fully dried up?
A By 1960 it is (sic) already dried up except for a little rain that
accumulates on the lot when it rains.
Q How or why did the Estero Calubcub dried (sic) up?
A It has been the dumping place of the whole neighborhood. There
is no street, they dumped all the garbage there. It is the dumping
place of the whole community, sir. 22
In addition, the relocation plan (Exhibit "D") which also formed the basis of
respondent court's ruling, merely reflects the change in the course of
Estero Calubcub but it is not clear therefrom as to what actually brought
about such change. There is nothing in the testimony of lone witness
Florencia del Rosario nor in said relocation plan which would indicate that
the change in the course of the estero was due to the ebb and flow of the
waters. On the contrary, the aforequoted testimony of the witness belies
such fact, while the relocation plan is absolutely silent on the matter. The
inescapable conclusion is that the dried-up portion of Estero Calubcub was
occasioned, not by a natural change in the course of the waters, but
through the active intervention of man.
The foregoing facts and circumstances remove the instant case from the
applicability of Article 370 of the old Civil Code which provides:
Art. 370. The beds of rivers, which are abandoned because of a
natural change in the course of the waters, belong to the owners of
the riparian lands throughout the respective length of each. If the
abandoned bed divided tenements belonging to different owners
the new dividing line shall be equidistant from one and the other.
The law is clear and unambiguous. It leaves no room for
interpretation.1wphi1 Article 370 applies only if there is a natural change
in the course of the waters. The rules on alluvion do not apply to manmade or artificial accretions 23 nor to accretions to lands that adjoin canals
or esteros or artificial drainage systems. 24 Considering our earlier finding
that the dried-up portion of Estero Calubcub was actually caused by the
active intervention of man, it follows that Article 370 does not apply to the

case at bar and, hence, the Del Rosarios cannot be entitled thereto
supposedly as riparian owners.
The dried-up portion of Estero Calubcub should thus be considered as
forming part of the land of the public domain which cannot be subject to
acquisition by private ownership. That such is the case is made more
evident in the letter, dated April 28, 1989, of the Chief, Legal Division of
the Bureau of Lands 25 as reported in the Reply of respondent Director of
Lands stating that "the alleged application filed by Ronquillo no longer
exists in its records as it must have already been disposed of as a rejected
application for the reason that other applications "covering Estero
Calubcub Sampaloc, Manila for areas other than that contested in the
instant case, were all rejected by our office because of the objection
interposed by the City Engineer's office that they need the same land for
drainage purposes". Consequently, since the land is to be used for
drainage purposes the same cannot be the subject of a miscellaneous
sales application.
Lastly, the fact that petitioner and herein private respondents filed their
sales applications with the Bureau of Lands covering the subject dried-up
portion of Estero Calubcub cannot but be deemed as outright admissions
by them that the same is public land. They are now estopped from
claiming otherwise.
WHEREFORE, the decision appealed from, the remaining effective portion
of which declares private respondents Del Rosarios as riparian owners of
the dried-up portion of Estero Calubcub is hereby REVERSED and SET
ASIDE.
SO ORDERED.

G.R. No. 95907 April 8, 1992

JOSE
REYNANTE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HON. VALENTIN CRUZ,
as Presiding Judge, Regional Trial Court of Bulacan, Branch VIII,
and the HEIRS OF LEONCIO CARLOS and DOLORES A. CARLOS, and
HEIRS
OF
GORGONIO
CARLOS
and
CONCEPCION
CARLOS, respondents.

PARAS, J.:
This is a petition for review on certiorari which seeks the reversal of: a)
decision 1 of the Court of Appeals dated February 28, 1990 in CA-G.R. No.
1917 entitled "JOSE REYNANTE versus HON. VALENTIN CRUZ, Judge, RTC of
Malolos, Bulacan, and HEIRS OF LEONCIO AND DOLORES CARLOS, et al.",
affirming
the
decision 2 of
the
Regional
Trial
Court
of Malolos, Bulacan, Branch 8, Third Judicial Region which reversed the
decision 3 of the Municipal Trial Court of Meycauayan, Bulacan, Branch 1,
Third Judicial Region in Civil Case No. 1526 entitled "HEIRS OF LEONCIO
CARLOS & DOLORES A. CARLOS and HEIRS OF GORGONIO A. CARLOS &
CONCEPCION CARLOS versus JOSE REYNANTE: and b) the resolution
denying the motion for reconsideration.
The facts as culled from the records of the case are as follows:
More than 50 years ago, petitioner Jose Reynante was taken as tenant by
the late Don Cosme Carlos, owner and father-in-law of herein private
respondents, over a fishpond located at Barrio Liputan, Meycauayan,
Bulacan with an area of 188.711 square meters, more or less and covered
by Transfer Certificate of Title No. 25618, Land Registry of Bulacan.
During the tenancy, petitioner Jose Reynante constructed a nipa hut where
he and his family lived and took care of the nipa palms (sasahan) he had
planted on lots 1 and 2 covering an area of 5,096 square meters and 6,011
square meters respectively. These lots are located between the fishpond
covered by TCT No. 25618 and the Liputan (formerly Meycauayan) River.
Petitioner harvested and sold said nipa palms without interference and
prohibition from anybody. Neither did the late Don Cosme Carlos question
his right to plant the nipa palms near the fishpond or to harvest and
appropriate them as his own.
After the death of Don Cosme Carlos, his heirs (private respondents'
predecessors-in-interest) entered into a written agreement denominated as
"SINUMPAANG SALAYSAY NG PAGSASAULI NG KARAPATAN" dated

November 29, 1984 with petitioner Jose Reynante whereby the latter for
and in consideration of the sum of P200,000.00 turned over the fishpond
he was tenanting to the heirs of Don Cosme Carlos and surrendered all his
rights therein as caretaker or "bantay-kasama at tagapamahala" (Rollo, p.
77).
Pursuant to the said written agreement, petitioner surrendered the
fishpond and the two huts located therein to private respondents. Private
respondents thereafter leased the said fishpond to one Carlos de la Cruz.
Petitioner continued to live in the nipa hut constructed by him on lots 1 and
2 and to take care of the nipa palms he had planted therein.
On February 17, 1988, private respondents formally demanded that the
petitioner vacate said portion since according to them petitioner had
already been indemnified for the surrender of his rights as a tenant.
Despite receipt thereof, petitioner refused and failed to relinquish
possession of lots 1 and 2.
Hence, on April 22, 1988, private respondents filed a complaint for forcible
entry with preliminary mandatory injunction against petitioner alleging that
the latter by means of strategy and stealth, took over the physical, actual
and material possession of lots 1 and 2 by residing in one of the kubos or
huts bordering the Liputan River and cutting off and/or disposing of
the sasa or nipa palms adjacent thereto.
On January 10, 1989, the trial court rendered its decision dismissing the
complaint and finding that petitioner had been in prior possession of lots 1
and 2.
Private respondents appealed to the Regional Trial Court and on August 8,
1989 it rendered its decision, the dispositive portion of which reads as
follows:
WHEREFORE, this Court renders judgment in favor of the
plaintiffs and against defendant and hereby reverses the
decision of the Court a quo. Accordingly, the defendant is
ordered to restore possession of that piece of land
particularly described and defined as Lots 1 & 2 of the land
survey conducted by Geodetic Engineer Restituto Buan on
March 2, 1983, together with the sasa or nipa palms
planted thereon. No pronouncement as to attorney's fees.
Each party shall bear their respective costs of the suit.
SO ORDERED. (Rollo, p. 55; Decision, p. 4).
From said decision, petitioner filed with the Court of Appeals a petition for
review (Rollo, p. 30; Annex "A"). On February 28, 1990, the Court of

Appeals rendered its decision, the dispositive portion of which reads as

follows:

disinterested parties with no motive to falsify that can be attributed to

them, except their desire to tell the truth.

WHEREFORE, the decision of the court a quo, being

consistent with law and jurisprudence, is hereby
AFFIRMED in toto. The instant petition seeking to issue a
restraining order is hereby denied.

Moreover, an ocular inspection was conducted by the trial court dated

December 2, 1988 which was attended by the parties and their respective
counsels and the court observed the following:

SO ORDERED. (Rollo, p. 30; Decision, p. 3).

On November 5, 1990, the Court of Appeals denied the motion for
reconsideration filed by petitioner (Rollo, p. 35; Annex "B").
Hence, this petition.
In its resolution dated May 6, 1991, the Second Division of this court gave
due course to the petition and required both parties to file their respective
memoranda (Rollo, p. 93).
The main issues to be resolved in this case are: a) who between the
petitioner and private respondents has prior physical possession of lots 1
and 2; and b) whether or not the disputed lots belong to private
respondents as a result of accretion.
An action for forcible entry is merely a quieting process and actual title to
the property is never determined. A party who can prove prior possession
can recover such possession even against the owner himself. Whatever
may be the character of his prior possession, if he has in his favor priority
in time, he has the security that entitles him to remain on the property
until he is lawfully ejected by a person having a better right by accion
publiciana oraccion reivindicatoria (German Management & Services, Inc.
v. Court of Appeals, G.R. No. 76216, September 14, 1989, 177 SCRA 495,
498, 499). On the other hand, if a plaintiff cannot prove prior physical
possession, he has no right of action for forcible entry and detainer even if
he should be the owner of the property (Lizo v. Carandang, 73 Phil. 469
[1942]).
Hence, the Court of Appeals could not legally restore private respondents'
possession over lots 1 and 2 simply because petitioner has clearly proven
that he had prior possession over lots 1 and 2.
The evidence on record shows that petitioner was in possession of the
questioned lots for more than 50 years. It is undisputed that he was the
caretaker of the fishpond owned by the late Don Cosme Carlos for more
than 50 years and that he constructed a nipa hut adjacent to the fishpond
and planted nipa palms therein. This fact is bolstered by the "SINUMPAANG
SALAYSAY" executed by Epifanio Lucero (Records, p. 66), Apolonio D. Morte
(Records, p. 101) and Carling Dumalay (Records, p. 103), all of whom are

The Court viewed the location and the distance of the

constructed nipa hut and the subject "sasahan" which
appears exists (sic) long ago, planted and stands (sic)
adjacent to the fishpond and the dikes which serves (sic)
as passage way of water river of lot 1 and lot 2. During the
course of the hearing, both counsel observed muniment of
title embedded on the ground which is located at the inner
side of the "pilapil" separating the fishpond from the
subject "sasa" plant with a height of 20 to 25 feet from
water level and during the ocular inspection it was
judicially observed that the controversial premises is
beyond the titled property of the plaintiffs but situated
along the Liputan, Meycauayan River it being a part of the
public domain. (Rollo, p. 51; Decision, p. 12).
On the other hand, private respondents based their claim of possession
over lots 1 and 2 simply on the written agreement signed by petitioner
whereby the latter surrendered his rights over the fishpond.
Evidently, the trial court did not err when it ruled that:
An examination of the document signed by the defendant
(Exhibit "B"), shows that what was surrendered to the
plaintiffs was the fishpond and not the "sasahan" or the
land on which he constructed his hut where he now lives.
That is a completely different agreement in which a tenant
would return a farm or a fishpond to his landlord in return
for the amount that the landlord would pay to him as a
disturbance compensation. There is nothing that indicates
that the tenant was giving other matters not mentioned in
a document like Exhibit "B". Moreover, when the plaintiffs
leased the fishpond to Mr. Carlos de La Cruz there was no
mention that the lease included the hut constructed by the
defendant and the nipa palms planted by him (Exhibit "1"),
a circumstance that gives the impression that the nipa hut
and the nipa palms were not included in the lease to Mr. de
la Cruz, which may not belong to the plaintiffs. (Rollo, p.
49; Decision, p. 9).
With regard to the second issue, it must be noted that the disputed lots
involved in this case are not included in Transfer Certificate of Title No.
25618 as per verification made by the Forest Management Bureau,

Department of Environment and Natural Resources. That tract of land

situated at Barrio Liputan, Meycauayan, Bulacan containing an area of
1.1107 hectares as described in the plan prepared and surveyed by
Geodetic Engineer Restituto Buan for Jose Reynante falls within Alienable
and Disposable Land (for fishpond development) under Project No. 15 per
B.F.L.C. Map No. 3122 dated May 8, 1987 (Rollo, p. 31; Decision, p. 2).
The respondent Court of Appeals ruled that lots 1 and 2 were created by
alluvial formation and hence the property of private respondents pursuant
to Article 457 of the New Civil Code, to wit:
Art. 457. To the owners of lands adjoining the banks of
rivers belong the accretion which they gradually receive
from the effects of the current of the waters.
Accretion benefits a riparian owner when the following requisites are
present: (1) that the deposit be gradual and imperceptible; (2) that it
resulted from the effects of the current of the water; and (c) that the land
where accretion takes place is adjacent to the bank of a river (Republic v.
Court of Appeals, G.R. No. L-61647, October 12, 1984, 132 SCRA 514, cited
in Agustin v. Intermediate Appellate Court, G.R. Nos. 66075-76, July 5,
1990, 187 SCRA 218).
Granting without conceding that lots 1 and 2 were created by alluvial
formation and while it is true that accretions which the banks of rivers may
gradually receive from the effect of the current become the property of the
owner of the banks, such accretion to registered land does not preclude
acquisition of the additional area by another person through prescription.
This Court ruled in the case of Ignacio Grande, et al. v. Hon. Court of
Appeals, et al., G.R. No. L-17652, June 30, 1962, 115 Phil. 521 that:
An accretion does not automatically become registered
land just because the lot which receives such accretion is
covered by a Torrens Title. Ownership of a piece of land is
one thing; registration under the Torrens system of that
ownership is another. Ownership over the accretion
received by the land adjoining a river is governed by the
Civil
Code.
Imprescriptibility
of
registered
land
is provided in the registration law. Registration under the
Land Registration and Cadastral Act does not vest or give
title to the land, but merely confirms and, thereafter,
protects the title already possessed by the owner, making
it imprescriptible by occupation of third parties. But to
obtain this protection, the land must be placed under the
operation of the registration laws, wherein certain judicial
procedures have beenprovided.

Assuming private respondents had acquired the alluvial deposit (the lot in
question), by accretion, still their failure to register said accretion for a
period of fifty (50) years subjected said accretion to acquisition through
prescription by third persons.
It is undisputed that petitioner has been in possession of the subject lots
for more than fifty (50) years and unless private respondents can show a
better title over the subject lots, petitioner's possession over the property
must be respected.
PREMISES CONSIDERED, the decision of the respondent Court of Appeals
dated February 28, 1990 is REVERSED and SET ASIDE and the decision of
the Municipal Trial Court of Meycauayan, Bulacan, Branch I, is hereby
REINSTATED.
SO ORDERED.

such, part of the public domain. In the case at bar, the subject land
was the direct result of the dumping of sawdust by the Sun Valley
Lumber Co. consequent to its sawmill operations.
[G.R. No. 98045. June 26, 1996]

DESAMPARADO VDA. DE NAZARENO and LETICIA NAZARENO

TAPIA,petitioners, vs. THE COURT OF APPEALS, MR. & MRS.
JOSE SALASALAN, MR. & MRS. LEO RABAYA, AVELINO LABIS,
HON. ROBERTO G. HILARIO, ROLLEO I. IGNACIO, ALBERTO M.
GILLERA and HON. ABELARDO G. PALAD, JR., in their official
and/or private capacities, respondents.
SYLLABUS
1. CIVIL LAW; OWNERSHIP; RIGHTS OF ACCESSION WITH RESPECT
TO IMMOVABLE PROPERTY; ARTICLE 457; REQUISITES.- In the
case of Meneses vs. CA, this Court held that accretion, as a mode of
acquiring property under Art. 457 of the Civil Code, requires the
concurrence of these requisites: (1) that the deposition of soil or
sediment be gradual and imperceptible; (2) that it be the result of the
action of the waters of the river (or sea); and (3) that the land where
accretion takes place is adjacent to the banks of rivers (or the sea
coast). These are called the rules on alluvion which if present in a
case, give to the owners of lands adjoining the banks of rivers or
streams any accretion gradually received from the effects of the
current of waters.
2. ID.; ID.; ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR.- Where the
accretion was formed by the dumping of boulders, soil and other filling
materials on portions of the Balacanas Creek and the Cagayan River
bounding petitioner's land, it cannot be claimed that the accumulation
was gradual and imperceptible, resulting from the action of the waters
or the current of the creek and the river. In Hilario vs. City of
Manila, this Court held that the word current indicates the
participation of the body of water in the ebb and flow of waters due to
high and low tide. Not having met the first and second requirements
of the rules of alluvion, petitioners cannot claim the rights of a riparian
owner.
3. ID.; ID.; ID.; ID.; ID.; THAT DEPOSIT IS DUE TO THE CURRENT OF
THE RIVER, MANDATORY.- In Republic vs. CA, this Court ruled that
the requirement that the deposit should be due to the effect of the
current of the river is indispensable. This excludes from Art. 457 of
the Civil Code all deposits caused by human intervention.Putting it
differently, alluvion must be the exclusive work of nature. Thus,
in Tiongco vs. Director of Lands, et al., where the land was not formed
solely by the natural effect of the water current of the river bordering
said land but is also the consequence of the direct and deliberate
intervention of man, it was deemed a man-made accretion and, as

4. ID.; PUBLIC LANDS; FINDINGS AS SUCH BY THE BUREAU OF

LANDS, RESPECTED.- The mere filing of the Miscellaneous Sales
Application constituted an admission that the land being applied for
was public land, having been the subject of a Survey Plan wherein
said land was described as an orchard. Furthermore, the Bureau of
Lands classified the subject land as an accretion area which was
formed by deposits of sawdust in the Balacanas Creek and the
Cagayan river, in accordance with the ocular inspection conducted by
the Bureau of Lands. This Court has often enough held that findings of
administrative agencies which have acquired expertise because their
jurisdiction is confined to specific matters are generally accorded not
only respect but even finality. Again, when said factual findings are
affirmed by the Court of Appeals, the same are conclusive on the
parties and not reviewable by this Court.
5.

ID.; PUBLIC LAND LAW; JURISDICTION OVER PUBLIC

LANDS.- Having determined that the subject land is public land, a
fortiori, the Bureau of Lands, as well as the Office of the Secretary of
Agriculture and Natural Resources have jurisdiction over the same in
accordance with the Public Land Law. Under Sections 3 and 4 thereof,
the Director of Lands has jurisdiction, authority and control over public
lands. Here respondent Palad as Director of Lands, is authorized to
exercise executive control over any form of concession, disposition
and management of the lands of the public domain. He may issue
decisions and orders as he may see fit under the circumstances as
long as they are based on the findings of fact. In the case of Calibo vs.
Ballesteros, this Court held that where, in the disposition of public
lands, the Director of Lands bases his decision on the evidence thus
presented, he clearly acts within his jurisdiction, and if he errs in
appraising the evidence, the error is one of judgment, but not an act
of grave abuse of discretion annullable by certiorari.

6. ADMINISTRATIVE LAW; ADMINISTRATIVE REMEDIES; EXHAUSTED

IN CASE AT BAR.- The administrative remedies have been
exhausted. Petitioners could not have intended to appeal to
respondent Ignacio as an Officer-In-Charge of the Bureau of
Lands. The decision being appealed from was the decision of
respondent Hilario who was the Regional Director of the Bureau of
Lands. Said decision was made "for and by authority of the Director of
Lands." It would be incongruous to appeal the decision of the Regional
Director of the Bureau of Lands acting for the Director of the Bureau of
Lands to an Officer-In-Charge of the Bureau of Lands. In any case,
respondent Ignacio's official designation was "Undersecretary of the
Department of Agriculture and Natural Resources." He was only an
"Officer-In-Charge" of the Bureau of Lands. When he acted on the late
Antonio Nazareno's motion for reconsideration by affirming or
adopting respondent Hilario's decision, he was acting on said motion
as an Undersecretary on behalf of the Secretary of the Department. In

the case of Hamoy vs. Secretary of Agriculture and Natural

Resources, this Court held that the Undersecretary of Agriculture and
Natural Resources may modify, adopt, or set aside the orders or
decisions of the Director of Lands with respect to questions involving
public lands under the administration and control of the Bureau of
Lands and the Department of Agriculture and Natural Resources. He
cannot, therefore, be said to have acted beyond the bounds of his
jurisdiction under Sections 3, 4 and 5 of Commonwealth Act No. 141.
APPEARANCES OF COUNSEL
Manolo L. Tagarda, Sr. for petitioners.
Arturo R. Legaspi for private respondents.
DECISION
ROMERO, J.:
Petitioners Desamparado Vda. de Nazareno and Leticia Nazareno Tapia
challenge the decision of the Court of Appeals which affirmed the dismissal
of petitioners' complaint by the Regional Trial Court of Misamis Oriental,
Branch 22. The complaint was for annulment of the verification, report and
recommendation, decision and order of the Bureau of Lands regarding a
parcel of public land.
The only issue involved in this petition is whether or not petitioners
exhausted administrative remedies before having recourse to the courts.
The subject of this controversy is a parcel of land situated in
Telegrapo, Puntod, Cagayan de Oro City. Said land was formed as a result
of sawdust dumped into the dried-up Balacanas Creek and along the banks
of the Cagayan river.
Sometime in 1979, private respondents Jose Salasalan and Leo
Rabaya leased the subject lots on which their houses stood from one
Antonio Nazareno, petitioners' predecessor-in-interest. In the latter part of
1982, private respondents allegedly stopped paying rentals. As a result,
Antonio Nazareno and petitioners filed a case for ejectment with the
Municipal Trial Court of Cagayan de Oro City, Branch 4. A decision was
rendered against private respondents, which decision was affirmed by the
Regional Trial Court of Misamis Oriental, Branch 20.
The case was remanded to the municipal trial court for execution of
judgment after the same became final and executory. Private respondents
filed a case for annulment of judgment before the Regional Trial Court of
Misamis Oriental, Branch 24 which dismissed the same. Antonio Nazareno
and petitioners again moved for execution of judgment but private
respondents filed another case for certiorari with prayer for restraining
order and/or writ of preliminary injunction with the Regional Trial Court of
Misamis Oriental, Branch 25 which was likewise dismissed. The decision of
the lower court was finally enforced with the private respondents being
ejected from portions of the subject lots they occupied.

Before he died, Antonio Nazareno caused the approval by the Bureau

of Lands of the survey plan designated as Plan Csd-106-00571 with a view
to perfecting his title over the accretion area being claimed by him. Before
the approved survey plan could be released to the applicant, however, it
was protested by private respondents before the Bureau of Lands.
In compliance with the order of respondent District Land Officer
Alberto M. Gillera, respondent Land Investigator Avelino G. Labis conducted
an investigation and rendered a report to the Regional Director
recommending that Survey Plan No. MSI-10-06-000571-D (equivalent to Lot
No. 36302, Cad. 237) in the name of Antonio Nazareno, be cancelled and
that private respondents be directed to file appropriate public land
applications.
Based on said report, respondent Regional Director of the Bureau of
Lands Roberto Hilario rendered a decision ordering the amendment of the
survey plan in the name of Antonio Nazareno by segregating therefrom the
areas occupied by the private respondents who, if qualified, may file public
land applications covering their respective portions.
Antonio Nazareno filed a motion for reconsideration with respondent
Rolleo Ignacio, Undersecretary of the Department of Natural Resources and
Officer-in-Charge
of
the
Bureau
of
Lands
who
denied
the
motion. Respondent Director of Lands Abelardo Palad then ordered him to
vacate the portions adjudicated to private respondents and remove
whatever improvements they have introduced thereon. He also ordered
that private respondents be placed in possession thereof.
Upon the denial of the late Antonio Nazareno's motion for
reconsideration, petitioners Desamparado Vda. de Nazareno and Leticia
Tapia Nazareno, filed a case before the RTC, Branch 22 for annulment of
the following: order of investigation by respondent Gillera, report and
recommendation by respondent Labis, decision by respondent Hilario,
order by respondent Ignacio affirming the decision of respondent Hilario
and order of execution by respondent Palad. The RTC dismissed the
complaint for failure to exhaust administrative remedies which resulted in
the finality of the administrative decision of the Bureau of Lands.
On appeal, the Court of Appeals affirmed the decision of the RTC
dismissing the complaint. Applying Section 4 of C.A. No. 141, as amended,
it contended that the approval of the survey plan belongs exclusively to
the Director of Lands. Hence, factual findings made by the Metropolitan
Trial Court respecting the subject land cannot be held to be controlling as
the preparation and approval of said survey plans belong to the Director of
Lands and the same shall be conclusive when approved by the Secretary of
Agriculture and Natural Resources. [1]
Furthermore, the appellate court contended that the motion for
reconsideration filed by Antonio Nazareno cannot be considered as an
appeal to the Office of the Secretary of Agriculture and Natural Resources,
as mandated by C.A. No. 141 inasmuch as the same had been acted upon
by respondent Undersecretary Ignacio in his capacity as Officer-in-Charge
of the Bureau of Lands and not as Undersecretary acting for the Secretary

of Agriculture and Natural Resources. For the failure of Antonio Nazareno to

appeal to the Secretary of Agriculture and Natural Resources, the present
case does not fall within the exception to the doctrine of exhaustion of
administrative remedies. It also held that there was no showing of
oppressiveness in the manner in which the orders were issued and
executed.
Hence, this petition.
Petitioners assign the following errors:
I. PUBLIC RESPONDENT COURT OF
ARBITRARY AND CAPRICIOUS
DECISION OF THE LOWER COURT
PREVAILING FACTS AND THE LAW

APPEALS IN A WHIMSICAL,
MANNER AFFIRMED THE
WHICH IS CONTRARY TO THE
ON THE MATTER;

II. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL,

ARBITRARY AND CAPRICIOUS MANNER AFFIRMED THE
DECISION OF THE LOWER COURT DISMISSING THE ORIGINAL
CASE WHICH FAILED TO CONSIDER THAT THE EXECUTION
ORDER OF PUBLIC RESPONDENT ABELARDO G. PALAD, JR.,
DIRECTOR OF LANDS, MANILA, PRACTICALLY CHANGED THE
DECISION OF PUBLIC RESPONDENT ROBERTO HILARIO,
REGIONAL DIRECTOR, BUREAU OF LANDS, REGION 10, THUS
MAKING THE CASE PROPER SUBJECT FOR ANNULMENT WELL
WITHIN THE JURISDICTION OF THE LOWER COURT.
The resolution of the above issues, however, hinges on the question of
whether or not the subject land is public land. Petitioners claim that the
subject land is private land being an accretion to his titled property,
applying Article 457 of the Civil Code which provides:
"To the owners of lands adjoining the banks of rivers belong the accretion
which they gradually receive from the effects of the current of the waters."
In the case of Meneses v. CA,[2] this Court held that accretion, as a
mode of acquiring property under Art. 457 of the Civil Code, requires the
concurrence of these requisites: (1) that the deposition of soil or sediment
be gradual and imperceptible; (2) that it be the result of the action of the
waters of the river (or sea); and (3) that the land where accretion takes
place is adjacent to the banks or rivers (or the sea coast). These are called
the rules on alluvion which if present in a case, give to the owners of lands
adjoining the banks of rivers or streams any accretion gradually received
from the effects of the current of waters.
For petitioners to insist on the application of these rules on alluvion to
their case, the above-mentioned requisites must be present. However, they
admit that the accretion was formed by the dumping of boulders, soil and
other filling materials on portions of the Balacanas Creek and the Cagayan
River bounding their land. [3] It cannot be claimed, therefore, that the
accumulation of such boulders, soil and other filling materials was gradual
and imperceptible, resulting from the action of the waters or the current of

the Balacanas Creek and the Cagayan River. In Hilario v. City of Manila,
[4]
this Court held that the word "current" indicates the participation of the
body of water in the ebb and flow of waters due to high and low
tide. Petitioners' submission not having met the first and second
requirements of the rules on alluvion, they cannot claim the rights of a
riparian owner.
In any case, this court agrees with private respondents that
petitioners are estopped from denying the public character of the subject
land, as well as the jurisdiction of the Bureau of Lands when the late
Antonio Nazareno filed his Miscellaneous Sales Application MSA (G-6) 571.
[5]
The mere filing of said Application constituted an admission that the land
being applied for was public land, having been the subject of Survey Plan
No. MSI-10-06-000571-D (Equivalent to Lot No. 36302, Cad-237) which was
conducted as a consequence of Antonio Nazareno's Miscellaneous Sales
Application wherein said land was described as an orchard. Said
description by Antonio Nazareno was, however, controverted by
respondent Labis in his investigation report to respondent Hilario based on
the findings of his ocular inspection that said land actually covers a dry
portion of Balacanas Creek and a swampy portion of Cagayan River. The
investigation report also states that except for the swampy portion which is
fully planted to nipa palms, the whole area is fully occupied by a part of a
big concrete bodega of petitioners and several residential houses made of
light materials, including those of private respondents which were erected
by themselves sometime in the early part of 1978.[6]
Furthermore, the Bureau of Lands classified the subject land as an
accretion area which was formed by deposits of sawdust in the Balacanas
Creek and the Cagayan river, in accordance with the ocular inspection
conducted by the Bureau of Lands. [7] This Court has often enough held that
findings of administrative agencies which have acquired expertise because
their jurisdiction is confined to specific matters are generally accorded not
only respect but even finality. [8] Again, when said factual findings are
affirmed by the Court of Appeals, the same are conclusive on the parties
and not reviewable by this Court.[9]
It is this Court's irresistible conclusion, therefore, that the accretion
was man-made or artificial. In Republic v. CA,[10] this Court ruled that the
requirement that the deposit should be due to the effect of the current of
the river is indispensable. This excludes from Art. 457 of the Civil Code all
deposits caused by human intervention. Putting it differently, alluvion must
be the exclusive work of nature. Thus, in Tiongco v. Director of Lands, et
al.,[11] where the land was not formed solely by the natural effect of the
water current of the river bordering said land but is also the consequence
of the direct and deliberate intervention of man, it was deemed a manmade accretion and, as such, part of the public domain.
In the case at bar, the subject land was the direct result of the
dumping of sawdust by the Sun Valley Lumber Co. consequent to its
sawmill operations.[12] Even if this Court were to take into consideration
petitioners' submission that the accretion site was the result of the late
Antonio Nazareno's labor consisting in the dumping of boulders, soil and

other filling materials into the Balacanas Creek and Cagayan River
bounding his land,[13] the same would still be part of the public domain.
Having determined that the subject land is public land, a fortiori, the
Bureau of Lands, as well as the Office of the Secretary of Agriculture and
Natural Resources have Jurisdiction over the same in accordance with the
Public Land Law. Accordingly, the court a quodismissed petitioners'
complaint for non-exhaustion of administrative remedies which ruling the
Court of Appeals affirmed.
However, this Court agrees with petitioners that administrative
remedies have been exhausted. Petitioners could not have intended to
appeal to respondent Ignacio as an Officer-in-Charge of the Bureau of
Lands. The decision being appealed from was the decision of respondent
Hilario who was the Regional Director of The Bureau of Lands. Said decision
was made "for and by authority of the Director of Lands." [14] It would be
incongruous to appeal the decision of the Regional Director of the Bureau
of Lands acting for the Director of the Bureau of Lands to an Officer-InCharge of the Bureau of Lands.
In any case, respondent Rolleo Ignacio's official designation was
"Undersecretary of the Department of Agriculture and Natural Resources."
He was only an "Officer-In-Charge" of the Bureau of Lands. When he acted
on the late Antonio Nazareno's motion for reconsideration by affirming or
adopting respondent's Hilario's decision, he was acting on said motion as
an Undersecretary on behalf of the Secretary of the Department. In the
case of Hamoy v. Secretary of Agriculture and Natural Resources, [15] This
Court held that the Undersecretary of Agriculture and Natural Resources
may modify, adopt, or set aside the orders or decisions of the Director of
Lands with respect to questions involving public lands under the
administration and control of the Bureau of Lands and the Department of
Agriculture and Natural Resources. He cannot therefore, be said to have
acted beyond the bounds of his jurisdiction under Sections 3, 4 and 5 of
Commonwealth Act No. 141.[16]
As borne out by the administrative findings, the controverted land is
public land, being an artificial accretion of sawdust. As such, the Director of
Lands has jurisdiction, authority and control over the same, as mandated
under Sections 3 and 4 of the Public Land Law (C.A. No. 141) which states,
thus:
"Sec. 3. The Secretary of Agriculture and Natural Resources shall be the
exclusive officer charged with carrying out the provisions of this Act
through the Director of Lands who shall act under his immediate control.
Sec. 4. Subject to said control, the Director of Lands shall have direct
executive control of the survey, classification, lease, sale or any other form
of concession or disposition and management of the lands of the public
domain, and his decisions as to questions of fact shall be conclusive when
approved by the Secretary of Agriculture and Natural Resources."

In connection with the second issue, petitioners ascribe whim,

arbitrariness or capriciousness in the execution order of public respondent
Abelardo G. Palad, the Director of Lands. This Court finds otherwise since
said decision was based on the conclusive finding that the subject land was
public land. Thus, this Court agrees with the Court of Appeals that the
Director of Lands acted within his rights when he issued the assailed
execution order, as mandated by the aforecited provisions.
Petitioners' allegation that respondent Palad's execution order
directing them to vacate the subject land practically changed respondent
Hilario's decision is baseless. It is incorrect for petitioners to assume that
respondent Palad awarded portions of the subject land to private
respondents Salasalans and Rayabas as they had not yet been issued
patents or titles over the subject land. The execution order merely directed
the segregation of petitioners' titled lot from the subject land which was
actually being occupied by private respondents before they were ejected
from it. Based on the finding that private respondents were actually in
possession or were actually occupying the subject land instead of
petitioners, respondent Palad, being the Director of Lands and in the
exercise of this administrative discretion, directed petitioners to vacate the
subject land on the ground that private respondents have a preferential
right, being the occupants thereof.
While private respondents may not have filed their application over
the land occupied by them, they nevertheless filed their protest or
opposition to petitioners' Miscellaneous Sales Application, the same being
preparatory to the filing of an application as they were in fact directed to
do so. In any case, respondent Palad's execution order merely implements
respondent Hilario's order. It should be noted that petitioners' own
application still has to be given due course.[17]
As Director of lands, respondent Palad is authorized to exercise
executive control over any form of concession, disposition and
management of the lands of the public domain.[18]He may issue decisions
and orders as he may see fit under the circumstances as long as they are
based on the findings of fact.
In the case of Calibo v. Ballesteros,[19] this Court held that where, in
the disposition of public lands, the Director of Lands bases his decision on
the evidence thus presented, he clearly acts within his jurisdiction, and if
he errs in appraising the evidence, the error is one of judgment, but not an
act or grave abuse of discretion annullable by certiorari. Thus, except for
the issue of non-exhaustion of administrative remedies, this Court finds no
reversible error nor grave abuse of discretion in the decision of the Court of
Appeals.
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.

[G.R. No. 116290. December 8, 2000]

DIONISIA P. BAGAIPO, petitioner, vs. THE HON. COURT OF APPEALS

and LEONOR LOZANO, respondents.
QUISUMBING, J.:
This petition assails the decision dated June 30, 1994 of the Court of
Appeals affirming the dismissal by the Regional Trial Court of Davao City,
Branch 8, in Civil Case No. 555-89, of petitioners complaint for recovery of
possession with prayer for preliminary mandatory injunction and damages.
The undisputed facts of the case are as follows:
Petitioner Dionisia P. Bagaipo is the registered owner of Lot No. 415, a
146,900 square meter agricultural land situated in Ma-a, Davao City under
Transfer Certificate of Title No. T-15757 particularly described as follows:
Bounded on the NE., by Lots Nos. 419 and 416; on the SE by the Davao
River; on the SE., (sic) by Lots Nos. 1092 and 1091; and on the NW., by
Lots Nos. 413 and 418[1]
Respondent Leonor Lozano is the owner of a registered parcel of land
located across and opposite the southeast portion of petitioners lot facing
the Davao River. Lozano acquired and occupied her property in 1962 when
his wife inherited the land from her father who died that year.
On May 26, 1989, Bagaipo filed a complaint [2] for Recovery of
Possession with Mandatory Writ of Preliminary Injunction and Damages
against Lozano for: (1) the surrender of possession by Lozano of a certain
portion of land measuring 29,162 square meters which is supposedly
included in the area belonging to Bagaipo under TCT No. T-15757; and (2)
the recovery of a land area measuring 37,901 square meters which
Bagaipo allegedly lost when the Davao River traversed her
property. Bagaipo contended that as a result of a change in course of the
said river, her property became divided into three lots, namely: Lots 415-A,
415-B and 415-C.
In January 1988, Bagaipo commissioned a resurvey of Lot 415 and
presented before the trial court a survey plan [3] prepared by Geodetic
Engineer Gersacio A. Magno. The survey plan allegedly showed that: a) the
area presently occupied by Bagaipo, identified as Lot 415-A, now had an
area of only 79,843 square meters; b) Lot 415-B, with an area measuring
37,901 square meters, which cut across Bagaipos land was taken up by the
new course of the Davao River; and c) an area of 29,162 square meters
designated as Lot 415-C was illegally occupied by respondent Lozano. The

combined area of the lots described by Engineer Magno in the survey plan
tallied with the technical description of Bagaipos land under TCT No. T15757. Magno concluded that the land presently located across the river
and parallel to Bagaipos property still belonged to the latter and not to
Lozano, who planted some 350 fruit-bearing trees on Lot 415-C and the old
abandoned river bed.
Bagaipo also presented Godofredo Corias, a former barangay captain
and long-time resident of Ma-a to prove her claim that the Davao River had
indeed changed its course.Corias testified that the occurrence was caused
by a big flood in 1968 and a bamboo grove which used to indicate the
position of the river was washed away. The river which flowed previously in
front of a chapel located 15 meters away from the riverbank within
Bagaipos property now flowed behind it. Corias was also present when
Magno conducted the relocation survey in 1988.
For his part, Lozano insisted that the land claimed by Bagaipo is
actually an accretion to their titled property. He asserted that the Davao
River did not change its course and that the reduction in Bagaipos domain
was caused by gradual erosion due to the current of the Davao
River. Lozano added that it is also because of the rivers natural action that
silt slowly deposited and added to his land over a long period of time. He
further averred that this accretion continues up to the present and that
registration proceedings instituted by him over the alluvial formation could
not be concluded precisely because it continued to increase in size.
Lozano presented three witnesses: Atty. Pedro Castillo, his brother-inlaw; Cabitunga Pasanday, a tenant of Atty. Castillo; and Alamin Catucag, a
tenant of the Lozanos.
Atty. Castillo testified that the land occupied by the Lozanos was
transferred to his sister, Ramona when they extra-judicially partitioned
their parents property upon his fathers death. On September 9, 1973, Atty.
Castillo filed a land registration case involving the accretion which formed
on the property and submitted for this purpose, a survey plan [4]approved
by the Bureau of Lands as well as tax declarations [5] covering the said
accretion.An Order of General Default [6] was already issued in the land
registration case on November 5, 1975, but the case itself remained
pending since the petition had to be amended to include the continuing
addition to the land area.
Mr. Cabitunga Pasanday testified that he has continuously worked on
the land as tenant of the Castillos since 1925, tilling an area of about 3
hectares. However, the land he tilled located opposite the land of the
Lozanos and adjacent to the Davao River has decreased over the years to
its present size of about 1 hectare. He said the soil on the bank of the river,
as well as coconut trees he planted would be carried away each time there
was a flood. This similar erosion occurs on the properties of Bagaipo and a
certain Dr. Rodriguez, since the elevation of the riverbank on their
properties is higher than the elevation on Lozanos side.
Alamin Catucag testified that he has been a tenant of the Castillos
since 1939 and that the portion he occupies was given to Ramona, Lozanos

wife. It was only 1 hectare in 1939 but has increased to 3 hectares due to
soil deposits from the mountains and river. Catucag said that Bagaipos
property was reduced to half since it is in the curve of the river and its soil
erodes and gets carried away by river water.
On April 5, 1991, the trial court conducted an ocular inspection. It
concluded that the applicable law is Article 457 [7]. To the owners of lands
adjoining the banks of rivers belong the accretion which they gradually
receive from the effects of the current of the waters.7 of the New Civil
Code and not Art. 461[8] The reduction in the land area of plaintiff was
caused by erosion and not by a change in course of the Davao
River. Conformably then, the trial court dismissed the complaint.
On appeal, the Court of Appeals affirmed the decision of the trial court
and decreed as follows:
WHEREFORE, the decision appealed from is hereby affirmed, with costs
against the plaintiff-appellant. [9]
Hence, this appeal.
Petitioner asserts that the Court of Appeals erred in:
....NOT GIVING PROBATIVE VALUE TO THE RELOCATION SURVEY
(EXHIBIT B) PREPARED BY LICENSED GEODETIC ENGINEER GERSACIO
MAGNO. THE CASE OF DIRECTOR OF LANDS VS. HEIRS OF JUANA
CAROLINA 140 SCRA 396 CITED BY THE RESPONDENT COURT IN
DISREGARDING EXHIBIT B IS NOT APPLICABLE TO THE CASE AT BAR.

that petitioner owns the abandoned river bed pursuant to Article 461 of the
Civil Code? Did private respondent own Lot 415-C in accordance with the
principle of accretion under Article 457? Should the relocation survey
prepared by a licensed geodetic engineer be disregarded since it was not
approved by the Director of Lands? Is petitioners claim barred by laches?
On the first issue. The trial court and the appellate court both found
that the decrease in land area was brought about by erosion and not a
change in the rivers course. This conclusion was reached after the trial
judge observed during ocular inspection that the banks located on
petitioners land are sharp, craggy and very much higher than the land on
the other side of the river. Additionally, the riverbank on respondents side
is lower and gently sloping. The lower land therefore naturally received the
alluvial soil carried by the river current. [11] These findings are factual, thus
conclusive on this Court, unless there are strong and exceptional reasons,
or they are unsupported by the evidence on record, or the judgment itself
is based on a misapprehension of facts. [12] These factual findings are based
on an ocular inspection of the judge and convincing testimonies, and we
find no convincing reason to disregard or disbelieve them.
The decrease in petitioners land area and the corresponding
expansion of respondents property were the combined effect of erosion
and
accretion
respectively. Art.
461
of
the
Civil
Code
is
inapplicable. Petitioner cannot claim ownership over the old abandoned
riverbed because the same is inexistent. The riverbeds former location
cannot even be pinpointed with particularity since the movement of the
Davao River took place gradually over an unspecified period of time, up to
the present.

....NOT FINDING THAT ASSUMING WITHOUT ADMITTING THAT THE

QUESTIONED LOT 415-C (EXHIBIT B-1) OCCUPIED BY RESPONDENT
LEONOR LOZANO WAS THE RESULT OF AN ACCRETION, THE PRINCIPLE
OF ACCRETION CANNOT AND DOES NOT APPLY IN THE INSTANT CASE
TO FAVOR SAID RESPONDENT BECAUSE SAID LOT 415-C IS WITHIN
AND FORM PART OF PETITIONERS LAND DESCRIBED IN TCT NO. 15757
(EXHIBIT A)

The rule is well-settled that accretion benefits a riparian owner when

the following requisites are present: 1) That the deposit be gradual and
imperceptible; 2) That it resulted from the effects of the current of the
water; and 3) That the land where accretion takes place is adjacent to the
bank of the river.[13] These requisites were sufficiently proven in favor of
respondents. In the absence of evidence that the change in the course of
the river was sudden or that it occurred through avulsion, the presumption
is that the change was gradual and was caused by alluvium and erosion. [14]

....FINDING PETITIONER GUILTY OF LACHES WHEN SHE INSTITUTED

THE SUIT.

As to Lot 415-C, which petitioner insists forms part of her property

under TCT No. T-15757, it is well to recall our holding in C.N. Hodges vs.
Garcia, 109 Phil. 133, 135:

....NOT ORDERING RESPONDENT LEONOR LOZANO TO VACATE AND

SURRENDER LOT 415-C IN FAVOR OF PETITIONER AND FOR HIM TO PAY
PETITIONER DAMAGES FOR ITS UNLAWFUL OCCUPATION THEREOF.
....NOT HOLDING PETITIONER ENTITLED TO THE ABANDONED RIVER
BED.[10]
For this Courts resolution are the following issues: Did the trial court
err in holding that there was no change in course of the Davao River such

The fact that the accretion to his land used to pertain to plaintiffs estate,
which is covered by a Torrens certificate of title, cannot preclude him
(defendant) from being the owner thereof. Registration does not protect
the riparian owner against the diminution of the area of his land through
gradual changes in the course of the adjoining stream. Accretions which
the banks of rivers may gradually receive from the effect of the current
become the property of the owners of the banks (Art. 366 of the old Civil
Code; Art. 457 of the new). Such accretions are natural incidents to land
bordering on running streams and the provisions of the Civil Code in that
respect are not affected by the Land Registration Act.[15]

Petitioner did not demonstrate that Lot 415-C allegedly comprising

29,162 square meters was within the boundaries of her titled property. The
survey plan commissioned by petitioner which was not approved by the
Director of Lands was properly discounted by the appellate court. In Titong
vs. Court of Appeals [16] we affirmed the trial courts refusal to give probative
value to a private survey plan and held thus:
the plan was not verified and approved by the Bureau of Lands in
accordance with Sec. 28, paragraph 5 of Act No. 2259, the Cadastral Act,
as amended by Sec. 1862 of Act No. 2711. Said law ordains that private
surveyors send their original field notes, computations, reports, surveys,
maps and plots regarding a piece of property to the Bureau of Lands for
verification and approval. A survey plan not verified and approved by said
Bureau is nothing more than a private writing, the due execution and
authenticity of which must be proven in accordance with Sec. 20 of Rule
132 of the Rules of Court. The circumstance that the plan was admitted in
evidence without any objection as to its due execution and authenticity
does not signify that the courts shall give probative value therefor. To
admit evidence and not to believe it subsequently are not contradictory to
each other
In view of the foregoing, it is no longer necessary now to discuss the
defense of laches.It is mooted by the disquisition on the foregoing issues.
WHEREFORE, the assailed decision dated June 30, 1994, of the Court
of Appeals in C.A.-G. R. CV No. 37615, sustaining the judgment of the
court a quo, is AFFIRMED. Costs against petitioner.
SO ORDERED.