Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 190106 January 15, 2014

MAGDALENA T. VILLASI, Petitioner,

vs.
FILOMENO GARCIA, substituted by his heirs, namely, ERMELINDA H. GARCIA, LIZA GARCIA-
GONZALEZ, THERESA GARCIA-TIANGSON, MARIVIC H. GARCIA, MARLENE GARCIA-MOMIN,
GERARDO H. GARCIA, GIDEON H. GARCIA and GENEROSO H. GARCIA, and ERMELINDA H.
GARCIA, Respondents.

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari filed pursuant to Rule 45 of the Revised Rules of Court, assailing
1

the 19 May 2009 Decision rendered by the Sixth Division of the Court of Appeals in CA-G.R. SP No. 92587.
2

The appellate court affirmed the Order of the Regional Trial Court R TC) of Quezon City, Branch 77,
3

directing the Deputy Sheriff to suspend the conduct of the execution sale of the buildings levied upon by
him.

The Facts

Sometime in 1990, petitioner Magdalena T Villasi (Villasi) engaged the services of respondent Fil-Garcia
Construction, Inc. (FGCI) to construct a seven-storey condominium building located at Aurora Boulevard
corner N. Domingo Street, Cubao, Quezon City. For failure of Villasi to fully pay the contract price despite
several demands, FGCI initiated a suit for collection of sum of money before the RTC of Quezon City,
Branch 77. In its action docketed as Civil Case No. Q-91-8187, FGCI prayed, among others, for the payment
of the amount of P2,865,000.00, representing the unpaid accomplishment billings. Served with summons,
Villasi filed an answer specifically denying the material allegations of the complaint. Contending that FGCI
has no cause of action against her, Villasi averred that she delivered the total amount of P7,490,325.10 to
FGCI but the latter accomplished only 28% of the project. After the pre-trial conference was terminated
without the parties having reached an amicable settlement, trial on the merits ensued.

Finding that FGCI was able to preponderantly establish by evidence its right to the unpaid accomplishment
billings, the RTC rendered a Decision dated 26 June 1996 in FGCIs favor. While the trial court brushed
4

aside the allegation of Villasi that an excess payment was made, it upheld the claim of FGCI to the unpaid
amount of the contract price and, thus, disposed:

WHEREFORE, judgment is hereby rendered:

1. Ordering [Villasi] to pay [FGCI] the sum of P2,865,000.00 as actual damages and unpaid
accomplishment billings;

2. Ordering [Villasi] to pay [FGCI] the amount of P500,000.00 representing the value of unused
building materials;

3. Ordering [Villasi] to pay [FGCI] the amount of P100,000.00, as moral damages and P100,000.00
as attorneys fees. 5

Elevated on appeal and docketed as CA-GR CV No. 54750, the Court of Appeals reversed the disquisition
of the RTC in its Decision dated 20 November 2000. The appellate court ruled that an overpayment was
6

made by Villasi and thereby directed FGCI to return the amount that was paid in excess, viz:

WHEREFORE, premises considered, the present appeal is hereby GRANTED and the appealed decision in
Civil Case No. Q-91-8187 is hereby REVERSED and SET ASIDE and judgment is hereby rendered ordering
the [FGCI] to return to [Villasi] the sum of P1,244,543.33 as overpayment under their contract, and the
further sum of P425,004.00 representing unpaid construction materials obtained by it from [Villasi]. [FGCI] is
likewise hereby declared liable for the payment of liquidated damages in the sum equivalent to 1/10 of 1% of
the contract price for each day of delay computed from March 6, 1991.

No pronouncement as to costs. 7

Unrelenting, FGCI filed a Petition for Review on Certiorari before this Court, docketed as G.R. No. 147960,
asseverating that the appellate court erred in rendering the 20 November 2000 Decision. This Court,
however, in a Resolution dated 1 October 2001, denied the appeal for being filed out of time. The said
resolution became final and executory on 27 November 2001, as evidenced by the Entry of Judgment made 8

herein.

To enforce her right as prevailing party, Villasi filed a Motion for Execution of the 20 November 2000 Court of
Appeals Decision, which was favorably acted upon by the RTC. A Writ of Execution was issued on 28 April
9

2004, commanding the Sheriff to execute and make effective the 20 November 2000 Decision of the Court
of Appeals.

To satisfy the judgment, the sheriff levied on a building located at No. 140 Kalayaan Avenue, Quezon City,
covered by Tax Declaration No. D-021-01458, and built in the lots registered under Transfer Certificates of
Title (TCT) Nos. 379193 and 379194. While the building was declared for taxation purposes in the name of
FGCI, the lots in which it was erected were registered in the names of the Spouses Filomeno Garcia and
Ermelinda Halili-Garcia (Spouses Garcia). After the mandatory posting and publication of notice of sale on
execution of real property were complied with, a public auction was scheduled on 25 January 2006.

To forestall the sale on execution, the Spouses Garcia filed an Affidavit of Third Party Claim and a Motion to
10

Set Aside Notice of Sale on Execution, claiming that they are the lawful owners of the property which was
11

erroneously levied upon by the sheriff. To persuade the court a quo to grant their motion, the Spouses
Garcia argued that the building covered by the levy was mistakenly assessed by the City Assessor in the
name of FGCI. The motion was opposed by Villasi who insisted that its ownership belongs to FGCI and not
to the Spouses Garcia as shown by the tax declaration.

After weighing the arguments of the opposing parties, the RTC issued on 24 February 2005 an
Order directing the Sheriff to hold in abeyance the conduct of the sale on execution, to wit:
12

WHEREFORE, premises considered, the Court hereby orders Deputy Sheriff Angel Doroni to suspend or
hold in abeyance the conduct of the sale on execution of the buildings levied upon by him, until further
orders from the Court. 13

The motion for reconsideration of Villasi was denied by the trial court in its 11 October 2005 Order. 14

Arguing that the RTC gravely abused its discretion in ordering the suspension of the sale on execution,
Villasi timely filed a Petition for Certiorari before the Court of Appeals. In a Decision dated 19 May 2009, the
15

appellate court dismissed the petition. In a Resolution dated 28 October 2009, the Court of Appeals refused
16

to reconsider its decision.

Villasi is now before this Court via this instant Petition for Review on Certiorariassailing the adverse Court of
Appeals Decision and Resolution and raising the following issues:

The Issues

I.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN UPHOLDING

THE DECISION OF THE TRIAL COURT TO SUSPEND AND HOLD IN ABEYANCE THE SALE ON
EXECUTION OF THE BUILDINGS LEVIED UPON ON THE BASIS OF RESPONDENTS AFFIDAVIT OF
THIRD-PARTY CLAIM;

II.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT HELD
THAT THERE IS NO REASON TO PIERCE THE VEIL OF [FGCIS] CORPORATE FICTION IN THE CASE
AT BAR; [AND]
 III.

WHETHER OR NOT THE BRANCH SHERIFF OF THE REGIONAL TRIAL COURT OF QUEZON CITY,
BRANCH 77 SHOULD BE DIRECTED TO FILE THE APPROPRIATE NOTICE OF LEVY WITH THE
REGISTER OF DEEDS OF QUEZON CITY. 17

The Courts Ruling

It is a basic principle of law that money judgments are enforceable only against the property incontrovertibly
belonging to the judgment debtor, and if the property belonging to any third person is mistakenly levied upon
to answer for another mans indebtedness, such person has all the right to challenge the levy through any of
the remedies provided for under the Rules of Court. Section 16, Rule 39 specifically provides that a third
18

person may avail himself of the remedies of either terceria, to determine whether the sheriff has rightly or
wrongly taken hold of the property not belonging to the judgment debtor or obligor, or an independent
"separate action" to vindicate his claim of ownership and/or possession over the foreclosed property.
However, the person other than the judgment debtor who claims ownership or right over levied properties is
not precluded from taking other legal remedies to prosecute his claim. 19

Indeed, the power of the court in executing judgments extends only to properties unquestionably belonging
to the judgment debtor alone. An execution can be issued only against a party and not against one who did
not have his day in court. The duty of the sheriff is to levy the property of the judgment debtor not that of a
third person. For, as the saying goes, one man's goods shall not be sold for another man's debts. 20

Claiming that the sheriff mistakenly levied the building that lawfully belongs to them, the Spouses Garcia
availed themselves of the remedy of terceria under Section 16, Rule 39 of the Revised Rules of Court. To
fortify their position, the Spouses Garcia asserted that as the owners of the land, they would be deemed
under the law as owners of the building standing thereon. The Spouses Garcia also asserted that the
construction of the building was financed thru a loan obtained from Metrobank in their personal capacities,
and they merely contracted FGCI to construct the building. Finally, the Spouses Garcia argued that the tax
declaration, based on an erroneous assessment by the City Assessor, cannot be made as basis of
ownership.

For her part, Villasi insists that the levy effected by the sheriff was proper since the subject property belongs
to the judgment debtor and not to third persons. To dispute the ownership of the Spouses Garcia, Villasi
pointed out that the levied property was declared for tax purposes in the name of FGCI. A Certification
issued by the Office of the City Engineering of Quezon City likewise showed that the building permit of the
subject property was likewise issued in the name of FGCI. We grant the petition.

The right of a third-party claimant to file a terceria is founded on his title or right of possession. Corollary
1avvphi1

thereto, before the court can exercise its supervisory power to direct the release of the property mistakenly
levied and the restoration thereof to its rightful owner, the claimant must first unmistakably establish his
ownership or right of possession thereon. In Spouses Sy v. Hon. Discaya, we declared that for a third-party
21

claim or a terceria to prosper, the claimant must first sufficiently establish his right on the property:

[A] third person whose property was seized by a sheriff to answer for the obligation of the judgment debtor
may invoke the supervisory power of the court which authorized such execution. Upon due application by
the third person and after summary hearing, the court may command that the property be released from the
mistaken levy and restored to the rightful owner or possessor. What said court can do in these instances,
however, is limited to a determination of whether the sheriff has acted rightly or wrongly in the performance
of his duties in the execution of judgment, more specifically, if he has indeed taken hold of property not
belonging to the judgment debtor. The court does not and cannot pass upon the question of title to the
property, with any character of finality. It can treat of the matter only insofar as may be necessary to decide if
the sheriff has acted correctly or not. It can require the sheriff to restore the property to the claimant's
possession if warranted by the evidence. However, if the claimant's proofs do not persuade the court of the
validity of his title or right of possession thereto, the claim will be denied. (Emphasis and underscoring
22

supplied).

Our perusal of the record shows that, as the party asserting their title, the Spouses Garcia failed to prove
that they have a bona fide title to the building in question. Aside from their postulation that as title holders of
the land, the law presumes them to be owners of the improvements built thereon, the Spouses Garcia were
unable to adduce credible evidence to prove their ownership of the property. In contrast, Villasi was able to
satisfactorily establish the ownership of FGCI thru the pieces of evidence she appended to her opposition.
Worthy to note is the fact that the building in litigation was declared for taxation purposes in the name of
FGCI and not in the Spouses Garcias. While it is true that tax receipts and tax declarations are not
incontrovertible evidence of ownership, they constitute credible proof of claim of title over the property. In 23

Buduhan v. Pakurao, we underscored the significance of a tax declaration as proof that a holder has claim
24

of title, and, we gave weight to the demonstrable interest of the claimant holding a tax receipt:

Although tax declarations or realty tax payment of property are not conclusive evidence of ownership,
nevertheless, they are good indicia of possession in the concept of owner for no one in his right mind would
be paying taxes for a property that is not in his actual or at least constructive possession. They constitute at
least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of
property for taxation purposes manifests not only ones sincere and honest desire to obtain title to the
property and announces his adverse claim against the State and all other interested parties, but also the
intention to contribute needed revenues to the Government. Such an act strengthens ones bona fide claim
of acquisition of ownership. 25

It likewise failed to escape our attention that FGCI is in actual possession of the building and as the payment
of taxes coupled with actual possession of the land covered by tax declaration strongly supports a claim of
ownership. Quite significantly, all the court processes in an earlier collection suit between FGCI and Villasi
26

were served, thru the formers representative Filomeno Garcia, at No. 140 Kalayaan Avenue, Quezon City,
where the subject property is located. This circumstance is consistent with the tax declaration in the name of
FGCI.

The explanation proffered by the Spouses Garcia, that the City Assessor merely committed an error when it
declared the property for taxation purposes in the name of FGCI, appears to be suspect in the absence of
any prompt and serious effort on their part to have it rectified before the onset of the instant controversy. The
correction of entry belatedly sought by the Spouses Garcia is indicative of its intention to put the property
beyond the reach of the judgment creditor. Every prevailing party to a suit enjoys the corollary right to the
fruits of the judgment and, thus, court rules provide a procedure to ensure that every favorable judgment is
fully satisfied. It is almost trite to say that execution is the fruit and end of the suit. Hailing it as the "life of
27

the law,"

ratio legis est anima, this Court has zealously guarded against any attempt to thwart the rigid rule and deny
28

the prevailing litigant his right to savour the fruit of his victory. A judgment, if left unexecuted, would be
29

nothing but an empty triumph for the prevailing party. 30

While it is a hornbook doctrine that the accessory follows the principal, that is, the ownership of the property
31

gives the right by accession to everything which is produced thereby, or which is incorporated or attached
thereto, either naturally or artificially, such rule is not without exception. In cases where there is a clear and
32

convincing evidence to prove that the principal and the accessory are not owned by one and the same
person or entity, the presumption shall not be applied and the actual ownership shall be upheld. In a number
of cases, we recognized the separate ownership of the land from the building and brushed aside the rule
that accessory follows the principal.

In Carbonilla v. Abiera, we denied the claim of petitioner that, as the owner of the land, he is likewise the
33

owner of the building erected thereon, for his failure to present evidence to buttress his position:

To set the record straight, while petitioner may have proven his ownership of the land, as there can be no
other piece of evidence more worthy of credence than a Torrens certificate of title, he failed to present any
evidence to substantiate his claim of ownership or right to the possession of the building. Like the CA, we
cannot accept the Deed of Extrajudicial Settlement of Estate (Residential Building) with Waiver and
Quitclaim of Ownership executed by the Garcianos as proof that petitioner acquired ownership of the
building. There is no showing that the Garcianos were the owners of the building or that they had any
proprietary right over it. Ranged against respondents proof of possession of the building since 1977,
petitioners evidence pales in comparison and leaves us totally unconvinced. 34

In Caltex (Phil.) Inc. v. Felias, we ruled that while the building is a conjugal property and therefore liable for
35

the debts of the conjugal partnership, the lot on which the building was constructed is a paraphernal property
and could not be the subject of levy and sale:

x x x. In other words, when the lot was donated to Felisa by her parents, as owners of the land on which the
building was constructed, the lot became her paraphernal property. The donation transmitted to her the
rights of a landowner over a building constructed on it. Therefore, at the time of the levy and sale of the
sheriff, Lot No. 107 did not belong to the conjugal partnership, but it was paraphernal property of Felisa. As
such, it was not answerable for the obligations of her husband which resulted in the judgment against him in
favor of Caltex. 36
The rule on accession is not an iron-clad dictum. On instances where this Court was confronted with cases
requiring judicial determination of the ownership of the building separate from the lot, it never hesitated to
disregard such rule. The case at bar is of similar import. When there are factual and evidentiary evidence to
prove that the building and the lot on which it stands are owned by different persons, they shall be treated
separately. As such, the building or the lot, as the case may be, can be made liable to answer for the
obligation of its respective owner.

Finally, the issue regarding the piercing of the veil of corporate fiction is irrelevant in this case. The Spouses
Garcia are trying to protect FGCI from liability by asserting that they, not FGCI, own the levied property. The
Spouses Garcia are asserting their separation from FGCI. FGCI, the judgment debtor, is the proven owner
of the building. Piercing FGCIs corporate veil will not protect FGCI from its judgment debt. Piercing will
result in the identification of the Spouses Garcia as FGCI itself and will make them liable for FGCIs
judgment debt.

WHEREFORE, premises considered, the petition is GRANTED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 92587 are hereby REVERSED and SET ASIDE. The Deputy Sheriff is
hereby directed to proceed with the conduct of the sale on execution of the levied building.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 176791 November 14, 2012

COMMUNITIES CAGAYAN, INC., Petitioner,

vs.
SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY CLAIMING RIGHTS UNDER
THEM,Respondents.

DECISION

DEL CASTILLO, J.:

LAWS fill the gap in a contract.

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the December 29. 2006
Decision2and the February 12, 2007 Order3 of the Regional Trial Court (RTC), Cagayan De Oro City, Branch
18, in Civil Case No. 2005-158.

Factual Antecedents

Sometimes in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell 4 with
petitioner Communities Cagayan, Inc.,5 whereby the latter agreed to sell to respondent-spouses a house and
Lots 17 and 196located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, 7 for the price of
P368,000.00.8Respondent-spouses, however, did not avail of petitioners inhouse financing due to its high
interest rates.9 Instead, they obtained a loan from Capitol Development Bank, a sister company of petitioner,
using the property as collateral.10 To facilitate the loan, a simulated sale over the property was executed by
petitioner in favor of respondent-spouses.11 Accordingly, titles were transferred in the names of respondent-
spouses under Transfer Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to Capitol
Development Bank for loan processing.12 Unfortunately, the bank collapsed and closed before it could
release the loan.13

Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell 14 with petitioner
over the same property for the same price of P368,000.00. 15 This time, respondent-spouses availed of
petitioners in-house financing16thus, undertaking to pay the loan over four years, from 1997 to 2001. 17

Sometime in 2000, respondent Arsenio demolished the original house and constructed a three-story house
allegedly valued at P3.5 million, more or less.18

In July 2001, respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for the monthly
amortizations.19

On September 10, 2003, petitioner sent respondent-spouses a notarizedNotice of Delinquency and

Cancellation of Contract to Sell20 due to the latters failure to pay the monthly amortizations.

In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court in Cities of Cagayan de Oro
City, an action for unlawful detainer, docketed as C3-Dec-2160, against respondent-spouses. 21 When the
case was referred for mediation, respondent Angeles offered to pay P220,000.00 to settle the case but
petitioner refused to accept the payment.22 The case was later withdrawn and consequently dismissed
because the judge found out that the titles were already registered under the names of respondent-
spouses.23

Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed before Branch 18 of the RTC,
Cagayan de Oro City, a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance and
Damages,24docketed as Civil Case No. 2005-158, against respondent-spouses and all persons claiming
rights under them. Petitioner alleged that the transfer of the titles in the names of respondent-spouses was
made only in compliance with the requirements of Capitol Development Bank and that respondent-spouses
failed to pay their monthly amortizations beginning January 2000.25 Thus, petitioner prayed that TCT Nos. T-
105202 and T-105203 be cancelled, and that respondent Angeles be ordered to vacate the subject property
and to pay petitioner reasonable monthly rentals from January 2000 plus damages. 26

In her Answer,27 respondent Angeles averred that the Deed of Absolute Sale is valid, and that petitioner is
not the proper party to file the complaint because petitioner is different from Masterplan Properties,
Inc.28 She also prayed for damages by way of compulsory counterclaim.29

In its Reply,30 petitioner attached a copy of its Certificate of Filing of Amended Articles of
Incorporation31 showing that Masterplan Properties, Inc. and petitioner are one and the same. As to the
compulsory counterclaim for damages, petitioner denied the same on the ground of "lack of knowledge
sufficient to form a belief as to the truth or falsity of such allegation."32

Respondent Angeles then moved for summary judgment and prayed that petitioner be ordered to return the
owners duplicate copies of the TCTs.33

Pursuant to Administrative Order No. 59-2005, the case was referred for mediation. 34 But since the parties
failed to arrive at an amicable settlement, the case was set for preliminary conference on February 23,
2006.35

On July 7, 2006, the parties agreed to submit the case for decision based on the pleadings and exhibits
presented during the preliminary conference.36

Ruling of the Regional Trial Court

On December 29, 2006, the RTC rendered judgment declaring the Deed of Absolute Sale invalid for lack of
consideration.37 Thus, it disposed of the case in this wise:

WHEREFORE, the Court hereby declares the Deed of Absolute Sale VOID. Accordingly, Transfer
Certificates of Title Nos. 105202 and 105203 in the names of the [respondents], Arsenio (deceased) and
Angeles Nanol, are ordered CANCELLED. The [respondents] and any person claiming rights under them
are directed to turn-over the possession of the house and lot to [petitioner], Communities Cagayan, Inc.,
subject to the latters payment of their total monthly installments and the value of the new house minus the
cost of the original house.

SO ORDERED.38

Not satisfied, petitioner moved for reconsideration of the Decision but the Motion 39 was denied in an
Order40 dated February 12, 2007.

Issue

Instead of appealing the Decision to the Court of Appeals (CA), petitioner opted to file the instant petition
directly with this Court on a pure question of law, to wit:

WHETHER X X X THE ACTION OF THE RTC BRANCH 18 X X X IN ORDERING THE RECOVERY OF

POSSESSION BY PETITIONER subject to the latters payment of their total monthly installments and the
value of the new house minus the cost of the original house IS CONTRARY TO LAW AND
JURISPRUDENCE X X X.41

Petitioners Arguments

Petitioner seeks to delete from the dispositive portion the order requiring petitioner to reimburse respondent-
spouses the total monthly installments they had paid and the value of the new house minus the cost of the
original house.42 Petitioner claims that there is no legal basis for the RTC to require petitioner to reimburse
the cost of the new house because respondent-spouses were in bad faith when they renovated and
improved the house, which was not yet their own.43 Petitioner further contends that instead of ordering
mutual restitution by the parties, the RTC should have applied Republic Act No. 6552, otherwise known as
the Maceda Law,44 and that instead of awarding respondent-spouses a refund of

all their monthly amortization payments, the RTC should have ordered them to pay petitioner monthly
rentals.45
Respondent Angeles Arguments

Instead of answering the legal issue raised by petitioner, respondent Angeles asks for a review of the
Decision of the RTC by interposing additional issues.46 She maintains that the Deed of Absolute Sale is
valid.47 Thus, the RTC erred in cancelling TCT Nos. 105202 and 105203.

Our Ruling

The petition is partly meritorious.

At the outset, we must make it clear that the issues raised by respondent Angeles may not be entertained.
For failing to file an appeal, she is bound by the Decision of the RTC. Well entrenched is the rule that "a
party who does not appeal from a judgment can no longer seek modification or reversal of the same. He
may oppose the appeal of the other party only on grounds consistent with the judgment." 48 For this reason,
respondent Angeles may no longer question the propriety and correctness of the annulment of the Deed of
Absolute Sale, the cancellation of TCT Nos. 105202 and 105203, and the order to vacate the property.

Hence, the only issue that must be resolved in this case is whether the RTC erred in ordering petitioner to
reimburse respondent-spouses the "total monthly installments and the value of the new house minus the
cost of the original house."49 Otherwise stated, the issues for our resolution are:

1) Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid;
and

2) Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus
the cost of the original house.

Respondent-spouses are entitled to the

cash surrender value of the payments
on the property equivalent to 50% of the
total payments made.

Considering that this case stemmed from a Contract to Sell executed by the petitioner and the respondent-
spouses, we agree with petitioner that the Maceda Law, which governs sales of real estate on installment,
should be applied.

Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting buyer, to wit:

Section 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial buildings
and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic
Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments,
the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period
earned by him which is hereby fixed at the rate of one month grace period for every one year of
installment payments made: Provided, That this right shall be exercised by the buyer only once in
every five years of the life of the contract and its extensions, if any.

(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty percent of the total payments made, and, after
five years of installments, an additional five per cent every year but not to exceed ninety per cent of
the total payments made: Provided, That the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number
of installment payments made. (Emphasis supplied.)

Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act.

Section 5. Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign the same to
another person or to reinstate the contract by updating the account during the grace period and before
actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

In this connection, we deem it necessary to point out that, under the Maceda Law, the actual cancellation of
a contract to sell takes place after 30 days from receipt by the buyer of the notarized notice of
cancellation,50 and upon full payment of the cash surrender value to the buyer. 51 In other words, before a
contract to sell can be validly and effectively cancelled, the seller has (1) to send a notarized notice of
cancellation to the buyer and (2) to refund the cash surrender value. 52 Until and unless the seller complies
with these twin mandatory requirements, the contract to sell between the parties remains valid and
subsisting.53 Thus, the buyer has the right to continue occupying the property subject of the contract to
sell,54 and may "still reinstate the contract by updating the account during the grace period and before the
actual cancellation"55 of the contract.

In this case, petitioner complied only with the first condition by sending a notarized notice of cancellation to
the respondent-spouses. It failed, however, to refund the cash surrender value to the respondent-spouses.
Thus, the Contract to Sell remains valid and subsisting and supposedly, respondent-spouses have the right
to continue occupying the subject property. Unfortunately, we cannot reverse the Decision of the RTC
directing respondent-spouses to vacate and turnover possession of the subject property to petitioner
because respondent-spouses never appealed the order. The RTC Decision as to respondent-spouses is
therefore considered final.

In addition, in view of respondent-spouses failure to appeal, they can no longer reinstate the contract by
updating the account. Allowing them to do so would be unfair to the other party and is offensive to the rules
of fair play, justice, and due process. Thus, based on the factual milieu of the instant case, the most that we
can do is to order the return of the cash surrender value. Since respondent-spouses paid at least two years
of installment,56 they are entitled to receive the cash surrender value of the payments they had made which,
under Section 3(b) of the Maceda Law, is equivalent to 50% of the total payments made.

Respondent-spouses are entitled to

reimbursement of the improvements
made on the property.

Petitioner posits that Article 448 of the Civil Code does not apply and that respondent-spouses are not
entitled to reimbursement of the value of the improvements made on the property because they were
builders in bad faith. At the outset, we emphasize that the issue of whether respondent-spouses are builders
in good faith or bad faith is a factual question, which is beyond the scope of a petition filed under Rule 45 of
the Rules of Court.57 In fact, petitioner is deemed to have waived all factual issues since it appealed the case
directly to this Court,58 instead of elevating the matter to the CA. It has likewise not escaped our attention
that after their failed preliminary conference, the parties agreed to submit the case for resolution based on
the pleadings and exhibits presented. No trial was conducted. Thus, it is too late for petitioner to raise at this
stage of the proceedings the factual issue of whether respondent-spouses are ilders in bad faith. Hence, in
view of the special circumstances obtaining in this case, we are constrained to rely on the presumption of
good faith on the part of the respondent-spouses which the petitioner failed to rebut. Thus, respondent-
spouses being presumed builders in good faith, we now rule on the applicability of Article 448 of the Civil
Code.

As a general rule, Article 448 on builders in good faith does not apply where there is a contractual relation
between the parties,59 such as in the instant case. We went over the records of this case and we note that
the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to apply Article 448 of
the Civil Code, which provides viz:

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.
Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by
some title he has the right to build thereon,60 or that, at least, he has a claim of title thereto.61 Concededly,
this is not present in the instant case. The subject property is covered by a Contract to Sell hence ownership
still remains with petitioner being the seller. Nevertheless, there were already instances where this Court
applied Article 448 even if the builders do not have a claim of title over the property. Thus:

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. It does not apply when the
interest is merely that of a holder, such as a mere tenant, agent or usufructuary. 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.

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, 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. 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. In Sarmiento v. Agana, 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.62

The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet 63 notwithstanding the fact
that the builders therein knew they were not the owners of the land. In said case, the parents who owned the
land allowed their son and his wife to build their residence and business thereon. As found by this Court,
their occupation was not by mere tolerance but "upon the invitation of and with the complete approval of
(their parents), who desired that their children would occupy the premises. It arose from familial love and a
desire for family solidarity x x x."64Soon after, conflict between the parties arose. The parents demanded their
son and his wife to vacate the premises. The Court thus ruled that as owners of the property, the parents
have the right to possession over it. However, they must reimburse their son and his wife for the
improvements they had introduced on the property because they were considered builders in good faith
even if they knew for a fact that they did not own the property, thus:

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. 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. 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 was applied. 65

In fine, the Court applied Article 448 by construing good faith beyond its limited definition. We find no reason
not to apply the Courts ruling in Spouses Macasaet v. Spouses Macasaet in this case. We thus hold that
Article 448 is also applicable to the instant case. First, good faith is presumed on the part of the respondent-
spouses. Second, petitioner failed to rebut this presumption. Third, no evidence was presented to show that
petitioner opposed or objected to the improvements introduced by the respondent-spouses. Consequently,
we can validly presume that petitioner consented to the improvements being constructed. This presumption
is bolstered by the fact that as the subdivision developer, petitioner must have given the respondent-
spouses permits to commence and undertake the construction. Under Article 453 of the Civil Code, "it is
understood that there is bad faith on the part of the landowner whenever the act was done with his
knowledge and without opposition on his part."

In view of the foregoing, we find no error on the part of the RTC in requiring petitioner to pay respondent-
spouses the value of the new house minus the cost of the old house based on Article 448 of the Civil Code,
subject to succeeding discussions.

Petitioner has two options under Article

448 and pursuant to the ruling in
Tuatis v. Escol.66

In Tuatis, we ruled that the seller (the owner of the land) has two options under Article 448: (1) he may
appropriate the improvements for himself after reimbursing the buyer (the builder in good faith) the
necessary and useful expenses under Articles 54667 and 54868 of the Civil Code; or (2) he may sell the land
to the buyer, unless its value is considerably more than that of the improvements, in which case, the buyer
shall pay reasonable rent.69 Quoted below are the pertinent portions of our ruling in that case:

Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code,
Visminda has the following options:

Under the first option, Visminda may appropriate for herself the building on the subject property after
indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as
provided in Article 546 of the Civil Code.

It is worthy to mention that in Pecson v. Court of Appeals, the Court pronounced that the amount to be
refunded to the builder under Article 546 of the Civil Code should be the current market value of the
improvement, thus:

xxxx

Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain
possession of the building and the subject property.

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige
Tuatis to pay the present or current fair value of the land. The P10,000.00 price of the subject property,
as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since
Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Vismindas rights under
Article 448 of the Civil Code, and not under the said Deed. Tuatis obligation will then be statutory, and not
contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code.

Still under the second option, if the present or current value of the land, the subject property herein,
turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to
pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and
Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment
in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda
will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of
indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property
vis--vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject
property, which Tuatis must pay Visminda.

The Court highlights that the options under Article 448 are available to Visminda, as the owner of the subject
property. There is no basis for Tuatis demand that, since the value of the building she constructed is
considerably higher than the subject property, she may choose between buying the subject property from
Visminda and selling the building to Visminda for P502,073.00. Again, the choice of options is for Visminda,
not Tuatis, to make. And, depending on Vismindas choice, Tuatis rights as a builder under Article 448 are
limited to the following: (a) under the first option, a right to retain the building and subject property until
Visminda pays proper indemnity; and (b) under the second option, a right not to be obliged to pay for the
price of the subject property, if it is considerably higher than the value of the building, in which case, she can
only be obliged to pay reasonable rent for the same.

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord 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. The landowner cannot
refuse to exercise either option and compel instead the owner of the building to remove it from the land.

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 co-ownership, the law has provided a just solution by giving the owner of the land
the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or
planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the
owner of the land who is authorized to exercise the option, because his right is older, and because, by the
principle of accession, he is entitled to the ownership of the accessory thing.
Vismindas Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to
recover possession of the subject property under the first option, since the options under Article 448 of the
Civil Code and their respective consequences were also not clearly presented to her by the 19 April 1999
Decision of the RTC. She must then be given the opportunity to make a choice between the options
available to her after being duly informed herein of her rights and obligations under both. 70 (Emphasis
supplied.)

In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options. It
may appropriate the new house by reimbursing respondent Angeles the current market value thereof minus
the cost of the old house. Under this option, respondent Angeles would have "a right of retention which
negates the obligation to pay rent."71 In the alternative, petitioner may sell the lots to respondent Angeles at a
price equivalent to the current fair value thereof. However, if the value of the lots is considerably more than
the value of the improvement, respondent Angeles cannot be compelled to purchase the lots. She can only
be obliged to pay petitioner reasonable rent.

In view of the foregoing disquisition and in accordance with Depra v. Dumlao 72 and Technogas Philippines
Manufacturing Corporation v. Court of Appeals,73 we find it necessary to remand this case to the court of
origin for the purpose of determining matters necessary for the proper application of Article 448, in relation to
Articles 546 and 548 of the Civil Code.

WHEREFORE, the petition is hereby PARTIALLY GRANTED. The assailed Decision dated December 29,
2006 and the Order dated February 12, 2007 of the Regional Trial Court, Cagayan de Oro City, Branch 18,
in Civil Case No. 2005-158 are hereby AFFIRMED with MODIFICATION that petitioner Communities
Cagayan, Inc. is hereby ordered to RETURN the cash surrender value of the payments made by
respondent-spouses on the properties, which is equivalent to 50% of the total payments made, in ccordance
with Section 3(b) of Republic Act No. 6552, otherwise known as the Maceda Law.

The case is hereby REMANDED to the Regional Trial Court, Cagayan de Oro City, Branch 18, for further
proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows:

1. The trial court shall determine:

a) the present or current fair value of the lots;

b) the current market value of the new house;

c) the cost of the old house; and

d) whether the value of the lots is considerably more than the current market value of the new house
minus the cost of the old house.

2. After said amounts shall have been determined by competent evidence, the trial court shall render
judgment as follows:

a) Petitioner shall be granted a period of 15 days within which to exercise its option under the law
(Article 448, Civil Code), whether to appropriate the new house by paying to respondent Angeles the
current market value of the new house minus the cost of the old house, or to oblige respondent
Angeles to pay the price of the lots. The amounts to be respectively paid by the parties, in
accordance with the option thus exercised by written notice to the other party and to the court, shall
be paid by the obligor within 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 petitioner exercises the option to oblige respondent Angeles to pay the price of the lots but the
latter rejects such purchase because, as found by the trial court, the value of the lots is considerably
more than the value of the new house minus the cost of the old house, respondent Angeles shall
give written notice of such rejection to petitioner and to the trial court within 15 days from notice of
petitioners option to sell the land. In that event, the parties shall be given a period of 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 15 days from and after the termination of the said period fixed for negotiation,
shall then fix the period and terms of the lease, including the monthly rental, which shall be payable
within the first five days of each calendar month. Respondent Angeles shall not make any further
constructions or improvements on the building. Upon expiration of the period, or upon default by
 respondent Angeles in the payment of rentals for two consecutive months, petitioner shall be entitled
to terminate the forced lease, to recover its land, and to have the new house removed by respondent
Angeles or at the latters expense.

c) In any event, respondent Angeles shall pay petitioner reasonable compensation for the occupancy
of the property for the period counted from the time the Decision dated December 29, 2006 became
final as to respondent Angeles or 15 days after she received a copy of the said Decision up to the
date petitioner serves notice of its option to appropriate the encroaching structures, otherwise up to
the actual transfer of ownership to respondent Angeles 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. 1wphi1

d) The periods to be fixed by the trial court in its decision shall be nonextendible, 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.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 150666 August 3, 2010

LUCIANO BRIONES and NELLY BRIONES, Petitioners,

vs.
JOSE MACABAGDAL, FE D. MACABAGDAL and VERGON REALTY INVESTMENTS
CORPORATION,Respondents.

DECISION

VILLARAMA, JR., J.:

On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision1 dated
December 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 48109 which affirmed the September
29, 1993 Decision2 of the Regional Trial Court (RTC) of Makati City, Branch 135, ordering petitioners Luciano
and Nelly Briones to remove the improvements they have made on the disputed property or to pay
respondent-spouses Jose and Fe Macabagdal the prevailing price of the land as compensation.

The undisputed factual antecedents of the case are as follows:

Respondent-spouses purchased from Vergon Realty Investments Corporation (Vergon) Lot No. 2-R, a 325-
square-meter land located in Vergonville Subdivision No. 10 at Las Pias City, Metro Manila and covered by
Transfer Certificate of Title No. 62181 of the Registry of Deeds of Pasay City. On the other hand, petitioners
are the owners of Lot No. 2-S, which is adjacent to Lot No. 2-R.

Sometime in 1984, after obtaining the necessary building permit and the approval of Vergon, petitioners
constructed a house on Lot No. 2-R which they thought was Lot No. 2-S. After being informed of the mix up
by Vergons manager, respondent-spouses immediately demanded petitioners to demolish the house and
vacate the property. Petitioners, however, refused to heed their demand. Thus, respondent-spouses filed an
action to recover ownership and possession of the said parcel of land with the RTC of Makati City. 3

Petitioners insisted that the lot on which they constructed their house was the lot which was consistently
pointed to them as theirs by Vergons agents over the seven (7)-year period they were paying for the lot.
They interposed the defense of being buyers in good faith and impleaded Vergon as third-party defendant
claiming that because of the warranty against eviction, they were entitled to indemnity from Vergon in case
the suit is decided against them.4

The RTC ruled in favor of respondent-spouses and found that petitioners house was undoubtedly built on
Lot No. 2-R. The dispositive portion of the trial courts decision reads as follows:

PREMISES CONSIDERED, let judgment be rendered declaring, to wit:

1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan (LRC) Psd-147392 at Vergonville
Subdivision, No. 10, Las Pias, Metro Manila covered by TCT No. 62181 of the Registry of Deeds of
Pasay City on which defendants have constructed their house;

2. Defendants, jointly and severally, are ordered to demolish their house and vacate the premises
and return the possession of the portion of Lot No. 2-R as above-described to plaintiffs within thirty
(30) days from receipt of this decision, or in the alternative, plaintiffs should be compensated by
defendants, jointly and severally, by the payment of the prevailing price of the lot involved as Lot No.
2-R with an area of 325 square meters which should not be less than P1,500.00 per square meter, in
consideration of the fact that prices of real estate properties in the area concerned have increased
rapidly;
 3. Defendants, jointly and severally, pay to plaintiffs for moral damages with plaintiffs plans and
dreams of building their own house on their own lot being severely shattered and frustrated due to
defendants incursion as interlopers of Lot No. 2-R in the sum of P50,000.00;

4. Defendants, jointly and severally, to pay plaintiffs in the amount of P30,000.00 as attorneys fees;
and,

5. to pay the costs of the proceedings.

Defendants counterclaim against plaintiffs is dismissed for lack of merit and with no cause of action.

Defendants third-party complaint against third-party defendant Vergonville Realty and Investments
Corporation is likewise ordered dismissed for lack of cause of action and evidently without merit.

On the other hand, defendants, jointly and severally, are liable for the litigation expenses incurred by
Vergonville Realty by way of counterclaim, which is also proven by the latter with a mere preponderance of
evidence, and are hereby ordered to pay the sum of P20,000.00 as compensatory damage; and attorneys
fees in the sum of P10,000.00

SO ORDERED.5

On appeal, the CA affirmed the RTCs finding that the lot upon which petitioners built their house was not the
one (1) which Vergon sold to them. Based on the documentary evidence, such as the titles of the two (2)
lots, the contracts to sell, and the survey report made by the geodetic engineer, petitioners house was built
on the lot of the respondent-spouses.6 There was no basis to presume that the error was Vergons fault. Also
the warranty against eviction under Article 1548 of the Civil Code was not applicable as there was no
deprivation of property: the lot on which petitioners built their house was not the lot sold to them by Vergon,
which remained vacant and ready for occupation. 7 The CA further ruled that petitioners cannot use the
defense of allegedly being a purchaser in good faith for wrongful occupation of land. 8

Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the appellate court. 9 Hence,
this petition for review on certiorari.

Petitioners raise the following assignment of errors:

I.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE CONTRARY TO LAW AND

APPLICABLE DECISIONS OF THE SUPREME COURT IN AFFIRMING THE DECISION OF THE TRIAL
COURT ORDERING PETITIONERS TO DEMOLISH THEIR ONLY HOUSE AND VACATE THE LOT AND
TO PAY MORAL AND COMPENSATORY DAMAGES AS WELL AS ATTORNEYS FEE IN THE TOTAL
AMOUNT OF PS[P] 110,000; AND

II.

THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE LOWER COURT FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION.10

In the main, it is petitioners position that they must not bear the damage alone. Petitioners insist that they
relied with full faith and confidence in the reputation of Vergons agents when they pointed the wrong
property to them. Even the President of Vergon, Felix Gonzales, consented to the construction of the house
when he signed the building permit.11 Also, petitioners are builders in good faith.12

The petition is partly meritorious.

At the outset, we note that petitioners raise factual issues, which are beyond the scope of a petition for
review on certiorari under Rule 45 of the Rules. Well settled is the rule that the jurisdiction of this Court in
cases brought to it from the CA via a petition for review on certiorari under Rule 45 is limited to the review of
errors of law. The Court is not bound to weigh all over again the evidence adduced by the parties,
particularly where the findings of both the trial court and the appellate court coincide. The resolution of
factual issues is a function of the trial court whose findings on these matters are, as a general rule, binding
on this Court, more so where these have been affirmed by the CA. 13 We note that the CA and RTC did not
overlook or fail to appreciate any material circumstance which, when properly considered, would have
altered the result of the case. Indeed, it is beyond cavil that petitioners mistakenly constructed their house
on Lot No. 2-R which they thought was Lot No. 2-S.

However, the conclusiveness of the factual findings notwithstanding, we find that the trial court nonetheless
erred in outrightly ordering petitioners to vacate the subject property or to pay respondent spouses the
prevailing price of the land as compensation. Article 52714 of the Civil Code presumes good faith, and since
no proof exists to show that the mistake was done by petitioners in bad faith, the latter should be presumed
to have built the house in good faith.

When a person builds in good faith on the land of another, Article 448 of the Civil Code governs. Said article
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.
(Emphasis ours.)

The above-cited article covers 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. 15 The builder in good faith can compel the
landowner to make a choice between appropriating the building by paying the proper indemnity or obliging
the builder to pay the price of the land. 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.
However, even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He must
choose one.16 He cannot, for instance, compel the owner of the building to remove the building from the land
without first exercising either option. It is only if the owner chooses to sell his land, and the builder or planter
fails to purchase it where its value is not more than the value of the improvements, that the owner may
remove the improvements from the land. The owner is entitled to such remotion only when, after having
chosen to sell his land, the other party fails to pay for the same.17

Moreover, petitioners have the right to be indemnified for the necessary and useful expenses they may have
made on the subject property. Articles 546 and 548 of the Civil Code provide,

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the option of refunding the amount of the expenses
or of paying the increase in value which the thing may have acquired by reason thereof.

ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good faith;
but he may remove the ornaments with which he has embellished the principal thing if it suffers no injury
thereby, and if his successor in the possession does not prefer to refund the amount expended.

Consequently, the respondent-spouses have the option to appropriate the house on the subject land after
payment to petitioners of the appropriate indemnity or to oblige petitioners to pay the price of the land,
unless its value is considerably more than the value of the structures, in which case petitioners shall pay
reasonable rent.

In accordance with Depra v. Dumlao,18 this case must be remanded to the RTC which shall conduct the
appropriate proceedings to assess the respective values of the improvement and of the land, as well as the
amounts of reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to
determine other matters necessary for the proper application of Article 448, in relation to Articles 546 and
548, of the Civil Code.

As to the liability of Vergon, petitioners failed to present sufficient evidence to show negligence on Vergons
part. Petitioners claim is obviously one (1) for tort, governed by Article 2176 of the Civil Code, which
provides:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation
between the parties, is called a quasi-delict and is governed by the provisions of this Chapter. (Emphasis
ours.)

Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1) the damages
suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he
must respond; and (3) the connection of cause and effect between the fault or negligence and the damages
incurred.19 This the petitioners failed to do. The President of Vergon signed the building permit as a
precondition for its approval by the local government, but it did not guarantee that petitioners were
constructing the structure within the metes and bounds of petitioners lot. The signature of the President of
Vergon on the building permit merely proved that petitioners were authorized to make constructions within
the subdivision project of Vergon. And while petitioners acted in good faith in building their house on Lot No.
2-R, petitioners did not show by what authority the agents or employees of Vergon were acting when they
pointed to the lot where the construction was made nor was petitioners claim on this matter corroborated by
sufficient evidence.

One (1) last note on the award of damages. Considering that petitioners acted in good faith in building their
house on the subject property of the respondent-spouses, there is no basis for the award of moral damages
to respondent-spouses. Likewise, the Court deletes the award to Vergon of compensatory damages and
attorneys fees for the litigation expenses Vergon had incurred as such amounts were not specifically prayed
for in its Answer to petitioners third-party complaint. Under Article 220820 of the Civil Code, attorneys fees
and expenses of litigation are recoverable only in the concept of actual damages, not as moral damages nor
judicial costs. Hence, such must be specifically prayed foras was not done in this caseand may not be
deemed incorporated within a general prayer for "such other relief and remedy as this court may deem just
and equitable."21 It must also be noted that aside from the following, the body of the trial courts decision was
devoid of any statement regarding attorneys fees. In Scott Consultants & Resource Development
Corporation, Inc. v. Court of Appeals,22 we reiterated that attorneys fees are not to be awarded every time a
party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil
Code demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture.
Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive
portion thereof, the legal reason for the award of attorneys fees.1avvphi1

WHEREFORE, the Decision dated December 11, 2000 of the Court of Appeals in CA-G.R. CV No. 48109 is
AFFIRMED WITH MODIFICATION. The award of moral damages in favor of respondent-spouses Jose and
Fe Macabagdal and the award of compensatory damages and attorneys fees to respondent Vergon Realty
Investments Corporation are DELETED. The case is REMANDED to the Regional Trial Court of Makati City,
Branch 135, for further proceedings consistent with the proper application of Articles 448, 546 and 548 of
the Civil Code, as follows:

1. The trial court shall determine:

a. the present fair price of the respondent-spouses lot;

b. the amount of the expenses spent by petitioners for the building of their house;

c. the increase in value ("plus value") which the said lot may have acquired by reason
thereof; and

d. whether the value of said land is considerably more than that of the house built thereon.

2. After said amounts shall have been determined by competent evidence, the Regional Trial Court
shall render judgment, as follows:

a. The trial court shall grant the respondent-spouses a period of fifteen (15) days within
which to exercise their option under Article 448 of the Civil Code, whether to appropriate the
house as their own by paying to petitioners either the amount of the expenses spent by
petitioners for the building of the house, or the increase in value ("plus value") which the said
lot may have acquired by reason thereof, or to oblige petitioners to pay the price of said land.
The amounts to be respectively paid by the respondent-spouses and petitioners, in
accordance with the option thus exercised by written notice of the other party and to the
Court, shall be paid by the obligor within fifteen (15) days from such notice of the option by
tendering the amount to the Court in favor of the party entitled to receive it;
 b. The trial court shall further order that if the respondent-spouses exercises the option to
oblige petitioners 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 house,
petitioners shall give written notice of such rejection to the respondent-spouses and to the
Court within fifteen (15) days from notice of the respondent-spouses option to sell the land.
In that event, the parties shall be given a period of fifteen (15) days from such notice of
rejection within which to agree upon the terms of the lease, and give the Court formal written
notice of such agreement and its provisos. If no agreement is reached by the parties, the trial
court, within fifteen (15) days from and after the termination of the said period fixed for
negotiation, shall then fix the terms of the lease, 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
petitioners have occupied the subject area. The rental thus fixed shall be increased by ten
percent (10%) for the second year of the forced lease. Petitioners shall not make any further
constructions or improvements on the house. Upon expiration of the two (2)-year period, or
upon default by petitioners in the payment of rentals for two (2) consecutive months, the
respondent-spouses shall be entitled to terminate the forced lease, to recover their land, and
to have the house removed by petitioners or at the latters expense. The rentals herein
provided shall be tendered by petitioners to the Court for payment to the respondent-
spouses, and such tender shall constitute evidence of whether or not compliance was made
within the period fixed by the Court.

c. In any event, petitioners shall pay the respondent-spouses reasonable compensation for
the occupancy of the respondent-spouses land for the period counted from the year
petitioners occupied the subject area, up to the commencement date of the forced lease
referred to in the preceding paragraph;

d. The periods to be fixed by the trial court in its Decision shall be inextendible, and upon
failure of the party obliged to tender to the trial court the amount due to the obligee, the party
entitled to such payment shall be entitled to an order of execution for the enforcement of
payment of the amount due and for compliance with such other acts as may be required by
the prestation due the obligee.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 152319 October 28, 2009

HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE, Surviving Spouse; and
DANILO and JOSELITO, both surnamed Limense, children, Petitioners,
vs.
RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS, BENJAMIN RAMOS,
WALDYTRUDES RAMOS-BASILIO, TRINIDAD RAMOS-BRAVO, PAZ RAMOS-PASCUA, FELICISIMA
RAMOS-REYES, and JACINTA RAMOS, Respondents.

DECISION

PERALTA, J.,

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside
the Decision1 of the Court of Appeals dated December 20, 2001 in CA-G.R. CV No. 33589 affirming in toto
the Decision2 of the Regional Trial Court of Manila, Branch 15, dated September 21, 1990 in Civil Case No.
83-16128.

The antecedent facts are as follows:

Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No. 12, Block No. 1074 of
the cadastral survey of the City of Manila covered by Original Certificate of Title (OCT) No. 7036 issued at
the City of Manila on June 14, 1927,3 containing an area of 873.80 square meters, more or less, located in
Beata Street, Pandacan, Manila.

Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A, 12-B, 12-C, 12-D and 12-
E. Through a Deed of Donation dated March 9, 1932, 4 he donated the subdivided lots to his daughters,
namely: Isabel, Salud, Catalina, and Felicidad, all surnamed Lozada. The Deed of Donation was registered
with the office of the Register of Deeds of Manila on March 15, 1932.

Under the said Deed of Donation, the lots were adjudicated to Dalmacio's daughters in the following
manner:

a. Lot No. 12-A in favor of Isabel Lozada, married to Isaac Limense;

b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad;

c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to
Isaac Limense; and Salud Lozada, married to Francisco Ramos, in equal parts;

d. Lot No. 12-D in favor of Salud Lozada, married to Francisco Ramos; and

e. Lot No. 12-E in favor of Isabel Lozada, married to Isaac Limense, and Felicidad Lozada, married
to Galicano Centeno.

By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036, which was registered in his
name, was cancelled and, in lieu thereof, Transfer Certificates of Title (TCTs) bearing Nos. 40041, 40042,
40043, 40044, and 40045 were issued in favor of the donees, except TCT No. 40044, which remained in his
name. These new TCTs were annotated at the back of OCT No. 7036. 5

TCT No. 40043, which covered Lot No. 12-C, was issued in the name of its co-owners Catalina Lozada,
married to Sotero Natividad; Isabel Lozada, married to Isaac Limense; and Salud Lozada, married to
Francisco Ramos. It covered an area of 68.60 square meters, more or less, was bounded on the northeast
by Lot No. 12-A, on the southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision
plan. In 1932, respondents' predecessor-in-interest constructed their residential building on Lot No. 12-D,
adjacent to Lot No. 12-C.

On May 16, 1969, TCT No. 968866 was issued in the name of Joaquin Limense covering the very same area
of Lot No. 12-C.

On October 1, 1981, Joaquin Limense secured a building permit for the construction of a hollow block fence
on the boundary line between his aforesaid property and the adjacent parcel of land located at 2759 Beata
Street, Pandacan, Manila, designated as Lot No. 12-D, which was being occupied by respondents. The
fence, however, could not be constructed because a substantial portion of respondents' residential building
in Lot No. 12-D encroached upon portions of Joaquin Limense's property in Lot No. 12-C.

Joaquin Limense demanded the removal of the encroached area; however, respondent ignored both oral
and written demands. The parties failed to amicably settle the differences between them despite referral to
the barangay. Thus, on March 9, 1983, Joaquin Limense, duly represented by his Attorney-in-Fact, Teofista
L. Reyes, instituted a Complaint7 against respondents before the Regional Trial Court (RTC) of Manila,
Branch 15, for removal of obstruction and damages.

Joaquin Limense prayed that the RTC issue an order directing respondents, jointly and severally, to remove
the portion which illegally encroached upon his property on Lot No. 12-C and, likewise, prayed for the
payment of damages, attorneys fees and costs of suit.

Respondents, on the other hand, averred in their Answer8 that they were the surviving heirs of Francisco
Ramos,9who, during his lifetime, was married to Salud Lozada, one of the daughters of Dalmacio Lozada,
the original owner of Lot No. 12. After subdividing the said lot, Dalmacio Lozada donated Lot No. 12-C in
favor of his daughters Catalina, married to Sotero Natividad; Isabel, married to Isaac Limense; and Salud,
married to Francisco Ramos. Being the surviving heirs of Francisco Ramos, respondents later became co-
owners of Lot No. 12-C. Lot No. 12-C has served as right of way or common alley of all the heirs of
Dalmacio Lozada since 1932 up to the present. As a common alley, it could not be closed or fenced by
Joaquin Limense without causing damage and prejudice to respondents.

After trial on the merits, the RTC rendered a Decision10 dated September 21, 1990 dismissing the complaint
of Joaquin Limense. It ruled that an apparent easement of right of way existed in favor of respondents.
Pertinent portions of the decision read as follows:

The Court finds that an apparent easement of right of way exists in favor of the defendants under Article 624
of the Civil Code. It cannot be denied that there is an alley which shows its existence. It is admitted that this
alley was established by the original owner of Lot 12 and that in dividing his property, the alley established
by him continued to be used actively and passively as such. Even when the division of the property
occurred, the non-existence of the easement was not expressed in the corresponding titles nor were the
apparent sign of the alley made to disappear before the issuance of said titles.

The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot
could serve no other purpose than as an alley. That is why even after he acquired it in 1969, the lot
continued to be used by defendants and occupants of the other adjoining lots as an alley. The existence of
the easement of right of way was therefore known to plaintiff who must respect the same in spite of the fact
that his transfer certificate of title does not mention the lot of defendants as among those listed therein as
entitled to such right of way. It is an established principle that actual notice or knowledge is as binding as
registration.11

Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of the case were
transmitted to the Court of Appeals (CA). During the pendency of the appeal with the CA, Joaquin Limense
died in 1999.12

The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision 13 dated December 20, 2001 dismissed
the appeal and affirmed in toto the decision of the RTC.

Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense, elevated the case to this
Court via a Petition for Review on Certiorari14 raising the following issues:

1. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OF JURISDICTION, IN HOLDING, LIKE THE TRIAL COURT DID, THAT
 RESPONDENTS' LOT 12-D HAS AN EASEMENT OF RIGHT OF WAY OVER JOAQUIN
LIMENSE'S LOT 12-C?

2. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OF JURISDICTION, IN FAILING TO HOLD, LIKE THE TRIAL COURT DID,
THAT THE PROTRUDING PORTIONS OF RESPONDENTS' HOUSE ON LOT 12-D EXTENDING
INTO JOAQUIN LIMENSE'S LOT 12-C CONSTITUTE A NUISANCE AND, AS SUCH, SHOULD BE
REMOVED?

Petitioners aver that the CA erred in ruling that since Lot No. 12-C was covered by two TCT's, i.e., TCT Nos.
40043 and 96886, and there was no evidence on record to show how Joaquin Limense was able to secure
another title over an already titled property, then one of these titles must be of dubious origin. According to
the CA, TCT No. 96886, issued in the name of Joaquin Limense, was spurious because the Lozada sisters
never disposed of the said property covered by TCT No. 40043. The CA further ruled that a co-ownership
existed over Lot No. 12-C between petitioners and respondents. Petitioners countered that TCT No. 96886,
being the only and best legitimate proof of ownership over Lot No. 12-C, must prevail over TCT No. 40043.

Respondents allege that it was possible that TCT No. 96886, in the name of Joaquin Limense, was obtained
thru fraud, misrepresentation or falsification of documents because the donees of said property could not
possibly execute any valid transfer of title to Joaquin Limense, as they were already dead prior to the
issuance of TCT No. 96886 in 1969. Respondents further allege that petitioners failed to produce proof
substantiating the issuance of TCT No. 96886 in the name of Joaquin Limense.

Apparently, respondents are questioning the legality of TCT No. 96886, an issue that this Court cannot pass
upon in the present case. It is a rule that the validity of a torrens title cannot be assailed collaterally. 15 Section
48 of Presidential Decree (PD) No. 1529 provides that:

[a] certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled
except in a direct proceeding in accordance with law.

In the case at bar, the action filed before the RTC against respondents was an action for removal of
obstruction and damages. Respondents raised the defense that Joaquin Limense's title could have been
obtained through fraud and misrepresentation in the trial proceedings before the RTC. Such defense is in
the nature of a collateral attack, which is not allowed by law.

Further, it has been held that a certificate of title, once registered, should not thereafter be impugned,
altered, changed, modified, enlarged or diminished, except in a direct proceeding permitted by law.
Otherwise, the reliance on registered titles would be lost. The title became indefeasible and incontrovertible
after the lapse of one year from the time of its registration and issuance. Section 32 of PD 1529 provides
that "upon the expiration of said period of one year, the decree of registration and the certificate of title shall
become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his
remedy by action for damages against the applicant or other persons responsible for the fraud." 16 It has,
therefore, become an ancient rule that the issue on the validity of title, i.e., whether or not it was fraudulently
issued, can only be raised in an action expressly instituted for that purpose. 17In the present case, TCT No.
96886 was registered in 1969 and respondents never instituted any direct proceeding or action to assail
Joaquin Limense's title.

Additionally, an examination of TCT No. 40043 would readily show that there is an annotation that it has
been "CANCELLED."18 A reading of TCT No. 96886 would also reveal that said title is a transfer from TCT
No. 4886619and not TCT 40043. Thus, it is possible that there was a series of transfers effected from TCT
No. 40043 prior to the issuance of TCT No. 96886. Hence, respondents' position that the issuance of TCT
No. 96886 in the name of Joaquin Limense is impossible, because the registered owners of TCT No. 40043
were already dead prior to 1969 and could not have transferred the property to Joaquin Limense, cannot be
taken as proof that TCT No. 96886 was obtained through fraud, misrepresentation or falsification of
documents.

Findings of fact of the CA, although generally deemed conclusive, may admit review by this Court if the CA
failed to notice certain relevant facts that, if properly considered, would justify a different conclusion, and if
the judgment of the CA is premised on a misapprehension of facts.20 As with the present case, the CA's
observation that TCT No. 96886 is of dubious origin, as TCT No. 40043 does not appear to have been
disposed of by Catalina, Isabel and Salud Lozada, is improper and constitutes an indirect attack on TCT No.
96886. As we see it, TCT No. 96886, at present, is the best proof of Joaquin Limenses ownership over Lot
No. 12-C. Thus, the CA erred in ruling that respondents and petitioners co-owned Lot No. 12-C, as said lot is
now registered exclusively in the name of Joaquin Limense.
Due to the foregoing, Joaquin Limense, as the registered owner of Lot 12-C, and his successors-in-interest,
may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other
means without detriment to servitudes constituted thereon. 21

However, although the owner of the property has the right to enclose or fence his property, he must respect
servitudes constituted thereon. The question now is whether respondents are entitled to an easement of
right of way.

Petitioners contend that respondents are not entitled to an easement of right of way over Lot No. 12-C,
because their Lot No. 12-D is not duly annotated at the back of TCT No. 96886 which would entitle them to
enjoy the easement, unlike Lot Nos. 12-A-1, 12-A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on
the other hand, allege that they are entitled to an easement of right of way over Lot No. 12-C, which has
been continuously used as an alley by the heirs of Dalmacio Lozada, the residents in the area and the public
in general from 1932 up to the present. Since petitioners are fully aware of the long existence of the said
alley or easement of right of way, they are bound to respect the same.

As defined, an easement is a real right on another's property, corporeal and immovable, whereby the owner
of the latter must refrain from doing or allowing somebody else to do or something to be done on his
property, for the benefit of another person or tenement. 22

Easements may be continuous or discontinuous, apparent or non-apparent.

Continuous easements are those the use of which is or may be incessant, without the intervention of any act
of man. Discontinuous easements are those which are used at intervals and depend upon the acts of man.
Apparent easements are those which are made known and are continually kept in view by external signs
that reveal the use and enjoyment of the same. Non-apparent easements are those which show no external
indication of their existence.23

In the present case, the easement of right of way is discontinuous and apparent. It is discontinuous, as the
use depends upon the acts of respondents and other persons passing through the property. Being an alley
that shows a permanent path going to and from Beata Street, the same is apparent.

Being a discontinuous and apparent easement, the same can be acquired only by virtue of a title. 24

In the case at bar, TCT No. 96886, issued in the name of Joaquin Limense, does not contain any annotation
that Lot No. 12-D was given an easement of right of way over Lot No. 12-C. However, Joaquin Limense and
his successors-in-interests are fully aware that Lot No. 12-C has been continuously used and utilized as an
alley by respondents and residents in the area for a long period of time.

Joaquin Limense's Attorney-in-Fact, Teofista L. Reyes, testified that respondents and several other residents
in the area have been using the alley to reach Beata Street since 1932. Thus:

Atty. Manuel B. Tomacruz:

Q: Mrs. Witness, by virtue of that Deed of Donation you claim that titles were issued to the children
of Dalmacio Lozada namely Salud Lozada, Catalina Lozada and Isabel Lozada, is that right?

A: Yes, sir.

Q: And after the said property was adjudicated to his said children the latter constructed their houses
on their lots.

A: Yes, sir.

Q: As a matter of fact, the herein defendants have constructed their houses on the premises alloted
to them since the year 1932?

A: Yes, sir, they were able to construct their house fronting Beata Street.

Q: And that house they have constructed on their lot in 1932 is still existing today?
 A: Yes, sir and they still used the alley in question and they are supposed to use Beata Street but
they are not using Beata Street.

Q: They are using the alley?

A: Yes, sir, they are using the alley and they do not pass through Beata Street.

Q: And they have been using the alley since 1932 up to the present?

A: Yes, sir they have been using the alley since that time. That was their mistake and they should be
using Beata Street because they are fronting Beata Strret.

Q: As a matter of fact, it is not only herein defendants who have been using that alley since 1932 up
to the present?

A: Yes, sir they are using the alley up to now.

Q: As a matter of fact, in this picture marked as Exh. "C-1" the alley is very apparent. This is the
alley?

A: Yes, sir.

Q: And there are houses on either side of this alley?

A: Yes, sir.

Q: As a matter of fact, all the residents on either side of the alley are passing through this alley?

A: Yes, sir, because the others have permit to use this alley and they are now allowed to use the
alley but the Ramos's family are now [not] allowed to use this alley.25

In Mendoza v. Rosel,26 this Court held that:

Petitioners claim that inasmuch as their transfer certificates of title do not mention any lien or encumbrance
on their lots, they are purchasers in good faith and for value, and as such have a right to demand from
respondents some payment for the use of the alley. However, the Court of Appeals found, as a fact, that
when respondents acquired the two lots which form the alley, they knew that said lots could serve no other
purpose than as an alley. The existence of the easement of right of way was therefore known to
petitioners who must respect the same, in spite of the fact that their transfer certificates of title do
not mention any burden or easement. It is an established principle that actual notice or knowledge is
as binding as registration.

Every buyer of a registered land who takes a certificate of title for value and in good faith shall hold the same
free of all encumbrances except those noted on said certificate. It has been held, however, that "where the
party has knowledge of a prior existing interest that was unregistered at the time he acquired a right to the
same land, his knowledge of that prior unregistered interest has the effect of registration as to him." 27

In the case at bar, Lot No. 12-C has been used as an alley ever since it was donated by Dalmacio Lozada to
his heirs. It is undisputed that prior to and after the registration of TCT No. 96886, Lot No. 12-C has served
as a right of way in favor of respondents and the public in general. We quote from the RTC's decision:

x x x It cannot be denied that there is an alley which shows its existence. It is admitted that this alley was
established by the original owner of Lot 12 and that in dividing his property the alley established by him
continued to be used actively and passively as such. Even when the division of the property occurred, the
non-existence of the easement was not expressed in the corresponding titles nor were the apparent sign of
the alley made to disappear before the issuance of said titles.

The Court also finds that when plaintiff acquired the lot (12-C) which forms the alley, he knew that said lot
could serve no other purpose than as an alley. That is why even after he acquired it in 1969 the lot continued
to be used by defendants and occupants of the other adjoining lots as an alley. x x x 28
Thus, petitioners are bound by the easement of right of way over Lot No. 12-C, even though no registration
of the servitude has been made on TCT No. 96886.

However, respondents right to have access to the property of petitioners does not include the right to
continually encroach upon the latters property. It is not disputed that portions of respondents' house on Lot
No. 12-D encroach upon Lot No. 12-C. Geodetic Engineer Jose Agres, Jr. testified on the encroachment of
respondents' house on Lot No. 12-C, which he surveyed. 29 In order to settle the rights of the parties relative
to the encroachment, We should determine whether respondents were builders in good faith.

Good faith is an intangible and abstract quality with no technical meaning or statutory definition; and it
encompasses, among other things, an honest belief, the absence of malice and the absence of a design to
defraud or to seek an unconscionable advantage. An individuals personal good faith is a concept of his own
mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of
intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. The
essence of good faith lies in an honest belief in the validity of ones right, ignorance of a superior claim, and
absence of intention to overreach another. Applied to possession, one is considered in good faith if he is not
aware that there exists in his title or mode of acquisition any flaw which invalidates it. 30

Good faith is always presumed, and upon him who alleges bad faith on the part of the possessor rests the
burden of proof.31 It is a matter of record that respondents' predecessor-in-interest constructed their
residential building on Lot No. 12-D, adjacent to Lot No. 12-C, in 1932. 32 Respondents' predecessor-in-
interest owned the 1/3 portion of Lot No. 12-C at the time the property was donated to them by Dalmacio
Lozada in 1932. The Deed of Donation executed by the late Dalmacio Lozada, dated March 9, 1932,
specifically provides that:

I hereby grant, cede and donate in favor of Catalina Lozada married to Sotero Natividad, Isabel Lozada
married to Isaac Simense and Salud Lozada married to Francisco Ramos, all Filipinos, of legal age, the
parcel of land known as Lot No. 12-C, in equal parts.33

The portions of Lot No. 12-D, particularly the overhang, covering 1 meter in width and 17 meters in length;
the stairs; and the concrete structures are all within the 1/3 share alloted to them by their donor Dalmacio
Lozada and, hence, there was absence of a showing that respondents acted in bad faith when they built
portions of their house on Lot No. 12-C.

Using the above parameters, we are convinced that respondents' predecessors-in-interest acted in good
faith when they built portions of their house on Lot 12-C. Respondents being builders in good faith, we shall
now discuss the respective rights of the parties relative to the portions encroaching upon respondents'
house.

Articles 448 and 546 of the New Civil Code provide:

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

Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the option of refunding the amount of the expenses
or of paying the increase in value which the thing may have acquired by reason thereof.

In Spouses Del Campo v. Abesia,34 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. In that case, this Court ruled:

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 the 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 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. x x x35

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, but the encroachment
was in good faith, then the provisions of Article 448 should apply to determine the respective rights of the
parties. In this case, the co-ownership was terminated due to the transfer of the title of the whole property in
favor of Joaquin Limense.

Under the foregoing provision, petitioners have the right to appropriate said portion of the house of
respondents upon payment of indemnity to respondents, as provided for in Article 546 of the Civil Code.
Otherwise, petitioners may oblige respondents 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
respondents built thereon, then the latter cannot be obliged to buy the land. Respondents shall then pay the
reasonable rent to petitioners upon such terms and conditions that they may agree. In case of disagreement,
the trial court shall fix the terms thereof. Of course, respondents may demolish or remove the said portion of
their house, at their own expense, if they so decide. 36

The choice belongs to the owner of the land, a rule that accords with the principle of accession that the
accessory follows the principal and not the other way around.37 Even as the option lies with the landowner,
the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the
owner of the building to instead remove it from the land. 38

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 two options: (1) to appropriate the building by
paying the indemnity required by law, or (2) to sell the land to the builder. 39

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 co-ownership, the law has provided a
just solution by giving the owner of the land the option to acquire the improvements after payment of the
proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He
cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option,
because his right is older, and because, by the principle of accession, he is entitled to the ownership of the
accessory thing.40]

In accordance with Depra v. Dumlao,41 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 petitioners would take and the amount of indemnity that they would pay, should they decide to
appropriate the improvements on the lots.

Anent the second issue, although it may seem that the portions encroaching upon respondents' house can
be considered a nuisance, because it hinders petitioners' use of their property, it cannot simply be removed
at respondents' expense, as prayed for by petitioner. This is because respondents built the subject
encroachment in good faith, and the law affords them certain rights as discussed above.

WHEREFORE, the petition is DENIED, the Decision of the Court of Appeals dated December 20, 2001 in
CA-G.R. CV No. 33589 is AFFIRMED with the following MODIFICATIONS:

1. No co-ownership exists over Lot No. 12-C, covered by TCT No. 96886, between petitioners and
respondents.

2. The case is REMANDED to the Regional Trial Court, Branch 15, Manila, for further proceedings
without further delay to determine the facts essential to the proper application of Articles 448 and
546 of the Civil Code.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 178906 February 18, 2009

ELVIRA T. ARANGOTE, petitioner,

vs.
SPS. MARTIN MAGLUNOB and LOURDES S. MAGLUNOB, and ROMEO SALIDO, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure seeking to reverse and set aside the Decision1 dated 27 October 2006 and Resolution2 dated 29
June 2007 of the Court of Appeals in CA-G.R. SP No. 64970. In its assailed Decision, the appellate court
affirmed the Decision3dated 12 September 2000 of the Regional Trial Court (RTC), 6th Judicial Region,
Branch 1, Kalibo, Aklan, in Civil Case No. 5511, which reversed the Decision 4 dated 6 April 1998 of the 7th
Municipal Circuit Trial Court (MCTC) of Ibajay-Nabas, Ibajay, Aklan, in Civil Case No. 156; and declared 5 the
herein respondent-Spouses Martin and Lourdes Maglunob (Spouses Maglunob) and respondent Romeo
Salido (Romeo) as the lawful owners and possessors of Lot 12897 with an area of 982 square meters, more
or less, located in Maloco, Ibajay, Aklan (subject property). In its assailed Resolution, the appellate court
denied herein petitioner Elvira T. Arangotes Motion for Reconsideration.

Elvira T. Arangote, herein petitioner married to Ray Mars E. Arangote, is the registered owner of the subject
property, as evidenced by Original Certificate of Title (OCT) No. CLOA-1748. 6 Respondents Martin (Martin II)
and Romeo are first cousins and the grandnephews of Esperanza Maglunob-Dailisan (Esperanza), from
whom petitioner acquired the subject property.

The Petition stems from a Complaint7 filed by petitioner and her husband against the respondents for
Quieting of Title, Declaration of Ownership and Possession, Damages with Preliminary Injunction, and
Issuance of Temporary Restraining Order before the MCTC, docketed as Civil Case No. 156.

The Complaint alleged that Esperanza inherited the subject property from her uncle Victorino Sorrosa by
virtue of a notarized Partition Agreement8 dated 29 April 1985, executed by the latters heirs. Thereafter,
Esperanza declared the subject property in her name for real property tax purposes, as evidenced by Tax
Declaration No. 16218 (1985).9

The Complaint further stated that on 24 June 1985, Esperanza executed a Last Will and
Testament10 bequeathing the subject property to petitioner and her husband, but it was never probated. On 9
June 1986, Esperanza executed another document, an Affidavit, 11 in which she renounced, relinquished,
waived and quitclaimed all her rights, share, interest and participation whatsoever in the subject property in
favor of petitioner and her husband. On the basis thereof, Tax Declaration No. 16218 in the name of
Esperanza was cancelled and Tax Declaration No. 16666 12(1987) was issued in the name of the petitioner
and her husband.

In 1989, petitioner and her husband constructed a house on the subject property. On 26 March 1993, OCT
No. CLOA-1748 was issued by the Secretary of the Department of Agrarian Reform (DAR) in the name of
petitioner, married to Ray Mars E. Arangote. However, respondents, together with some hired persons,
entered the subject property on 3 June 1994 and built a hollow block wall behind and in front of petitioners
house, which effectively blocked the entrance to its main door.

As a consequence thereof, petitioner and her husband were compelled to institute Civil Case No. 156.

In their Answer with Counterclaim in Civil Case No. 156, respondents averred that they co-owned the
subject property with Esperanza. Esperanza and her siblings, Tomas and Inocencia, inherited the subject
property, in equal shares, from their father Martin Maglunob (Martin I). When Tomas and Inocencia passed
away, their shares passed on by inheritance to respondents Martin II and Romeo, respectively. Hence, the
subject property was co-owned by Esperanza, respondent Martin II (together with his wife Lourdes), and
respondent Romeo, each holding a one-third pro-indiviso share therein. Thus, Esperanza could not validly
waive her rights and interest over the entire subject property in favor of the petitioner.

Respondents also asserted in their Counterclaim that petitioner and her husband, by means of fraud, undue
influence and deceit were able to make Esperanza, who was already old and illiterate, affix her thumbmark
to the Affidavit dated 9 June 1986, wherein she renounced all her rights and interest over the subject
property in favor of petitioner and her husband. Respondents thus prayed that the OCT issued in petitioners
name be declared null and void insofar as their two-thirds shares are concerned.

After trial, the MCTC rendered its Decision dated 6 April 1998 in Civil Case No. 156, declaring petitioner and
her husband as the true and lawful owners of the subject property. The decretal portion of the MCTC
Decision reads:

WHEREFORE, judgment is hereby rendered:

A. Declaring the [herein petitioner and her husband] the true, lawful and exclusive owners and
entitled to the possession of the [subject property] described and referred to under paragraph 2 of
the [C]omplaint and covered by Tax Declaration No. 16666 in the names of the [petitioner and her
husband];

B. Ordering the [herein respondents] and anyone hired by, acting or working for them, to cease and
desist from asserting or claiming any right or interest in, or exercising any act of ownership or
possession over the [subject property];

C. Ordering the [respondents] to pay the [petitioner and her husband] the amount of P10,000.00 as
attorneys fee. With cost against the [respondents]. 13

The respondents appealed the aforesaid MCTC Decision to the RTC. Their appeal was docketed as Civil
Case No. 5511.

Respondents argued in their appeal that the MCTC erred in not dismissing the Complaint filed by the
petitioner and her husband for failure to identify the subject property therein. Respondents further faulted the
MCTC for not declaring Esperanzas Affidavit dated 9 June 1986 -- relinquishing all her rights and interest
over the subject property in favor of petitioner and her husband -- as null and void insofar as respondents
two-thirds share in the subject property is concerned.

On 12 September 2000, the RTC rendered its Decision reversing the MCTC Decision dated 6 April 1998.
The RTC adjudged respondents, as well as the other heirs of Martin Maglunob, as the lawful owners and
possessors of the entire subject property. The RTC decreed:

WHEREFORE, judgment is hereby rendered as follows:

1) The appealed [D]ecision is REVERSED;

2) [Herein respondents] and the other heirs of Martin Maglunob are declared the lawful owners and
possessors of the whole [subject property] as described in Paragraph 2 of the [C]omplaint, as
against the [herein petitioner and her husband].

3) [Petitioner and her husband] are ordered to immediately turn over possession of the [subject
property] to the [respondents] and the other heirs of Martin Maglunob; and

4) [Petitioner and her husband] are ordered to pay [respondents] attorneys fees of P5,000.00, other
litigation expenses of P5,000.00, moral damages of P10,000.00 and exemplary damages of
P5,000.00.14

Petitioner and her husband filed before the RTC, on 26 September 2000, a Motion for New Trial or
Reconsideration15 on the ground of newly discovered evidence consisting of a Deed of Acceptance 16 dated
23 September 2000, and notice17 of the same, which were both made by the petitioner, for herself and in
behalf of her husband,18 during the lifetime of Esperanza. In the RTC Order19 dated 2 May 2001, however,
the RTC denied the aforesaid Motion for New Trial or Reconsideration.
The petitioner and her husband then filed a Petition for Review, under Rule 42 of the 1997 Revised Rules of
Civil Procedure, before the Court of Appeals, where the Petition was docketed as CA-G.R. SP No. 64970.

In their Petition before the appellate court, petitioner and her husband raised the following errors committed
by the RTC in its 12 September 2000 Decision:

I. It erred in reversing the [D]ecision of the [MCTC];

II. It erred in declaring the [herein respondents] and the other heirs of Martin Maglunob as the lawful
owners and possessors of the whole [subject property];

III. It erred in declaring [OCT] No. CLOA-1748 in the name of [herein petitioner] Elvie T. Arangote as
null and void;

IV. It erred in denying [petitioner and her husbands] [M]otion for [N]ew [T]rial or [R]econsideration
dated [26 September 2000; and

V. It erred in not declaring the [petitioner and her husband] as possessors in good faith. 20

On 27 October 2006, the Court of Appeals rendered a Decision denying the Petition for Review of petitioner
and her husband and affirming the RTC Decision dated 12 September 2000. Petitioner and her husbands
subsequent Motion for Reconsideration was similarly denied by the Court of Appeals in its Resolution dated
29 June 2007.

Hence, petitioner21 now comes before this Court raising in her Petition the following issues:

I. Whether the [RTC] acted with grave abuse of discretion amounting to lack or excess of jurisdiction
when it declared the [petitioner and her husbands title to the subject property] null and void;

II. Whether the [RTC] acted with grave abuse of discretion amounting to lack of jurisdiction when it
declared the Affidavit of Quitclaim null and void; and

III. Whether the [RTC] and the Honorable Court of Appeals acted with grave abuse of discretion
amounting to lack or excess of jurisdiction when it rejected petitioners claim as possessors (sic) in
good faith, hence, entitled to the rights provided in [Article] 448 and [Article] 546 of the Civil Code. 22

Petitioner contends that the aforesaid OCT No. CLOA-1748 was issued in her name on 26 March 1993 and
was registered in the Registry of Deeds of Aklan on 20 April 1993. From 20 April 1993 until the institution of
Civil Case No. 156 on 10 June 1994 before the MCTC, more than one year had already elapsed.
Considering that a Torrens title can only be attacked within one year after the date of the issuance of the
decree of registration on the ground of fraud and that such attack must be through a direct proceeding, it
was an error on the part of the RTC and the Court of Appeals to declare OCT No. CLOA-1748 null and void.

Petitioner additionally posits that both the RTC and the Court of Appeals committed a mistake in declaring
null and void the Affidavit dated 9 June 1986 executed by Esperanza, waiving all her rights and interest over
the subject property in favor of petitioner and her husband. Esperanzas Affidavit is a valid and binding proof
of the transfer of ownership of the subject property in petitioners name, as it was also coupled with actual
delivery of possession of the subject property to petitioner and her husband. The Affidavit is also proof of
good faith on the part of petitioner and her husband.

Finally, petitioner argues that, assuming for the sake of argument, that Esperanzas Affidavit is null and void,
petitioner and her husband had no knowledge of any flaw in Esperanzas title when the latter relinquished
her rights to and interest in the subject property in their favor. Hence, petitioner and her husband can be
considered as possessors in good faith and entitled to the rights provided under Articles 448 and 546 of the
Civil Code.

This present Petition is devoid of merit.

It is a hornbook doctrine that the findings of fact of the trial court are entitled to great weight on appeal and
should not be disturbed except for strong and valid reasons, because the trial court is in a better position to
examine the demeanor of the witnesses while testifying. It is not a function of this Court to analyze and
weigh evidence by the parties all over again. This Courts jurisdiction is, in principle, limited to reviewing
errors of law that might have been committed by the Court of Appeals.23 This rule, however, is subject to
several exceptions,24 one of which is present in this case, i.e., when the factual findings of the Court of
Appeals and the trial court are contradictory.

In this case, the findings of fact of the MCTC as regards the origin of the subject property are in conflict with
the findings of fact of both the RTC and the Court of Appeals. Hence, this Court will have to examine the
records to determine first the true origin of the subject property and to settle whether the respondents have
the right over the same for being co-heirs and co-owners, together with their grand aunt, Esperanza, before
this Court can resolve the issues raised by the petitioner in her Petition.

After a careful scrutiny of the records, this Court affirms the findings of both the RTC and the Court of
Appeals as regards the origin of the subject property and the fact that respondents, with their grand aunt
Esperanza, were co-heirs and co-owners of the subject property.

The records disclosed that the subject property was part of a parcel of land 25 situated in Maloco, Ibajay,
Aklan, consisting of 7,176 square meters and commonly owned in equal shares by the siblings Pantaleon
Maglunob (Pantaleon) and Placida Maglunob-Sorrosa (Placida). Upon the death of Pantaleon and Placida,
their surviving and legal heirs executed a Deed of Extrajudicial Settlement and Partition of Estate in July
1981,26 however, the Deed was not notarized. Considering that Pantaleon died without issue, his one-half
share in the parcel of land he co-owned with Placida passed on to his four siblings (or their respective heirs,
if already deceased), namely: Placida, Luis, Martin I, and Victoria, in equal shares.

According to the aforementioned Deed of Extrajudicial Settlement and Partition of Estate, the surviving and
legal heirs of Pantaleon and Placida agreed to have the parcel of land commonly owned by the siblings
declared for real property tax purposes in the name of Victorino Sorrosa (Victorino), Placidas husband.
Thus, Tax Declarations No. 5988 (1942),27 No. 6200 (1945)28 and No. 7233 (1953)29 were all issued in the
name of Victorino.

Since Martin I already passed away when the Deed of Extrajudicial Settlement and Partition of Estate was
executed, his heirs30 were represented therein by Esperanza. By virtue of the said Deed, Martin I received as
inheritance a portion of the parcel of land measuring 897 square meters.

After the death of Victorino, his heirs31 executed another Partition Agreement on 29 April 1985, which was
notarized on the same date. The Partition Agreement mentioned four parcels of land. The subject property,
consisting of a portion of the consolidated parcels 1, 2, and 3, and measuring around 982 square meters,
was allocated to Esperanza. In comparison, the property given to Esperanza under the Partition Agreement
is bigger than the one originally allocated to her earlier under the Deed of Extrajudicial Settlement and
Partition of Estate dated July 1981, which had an area of only 897 square meters. It may be reasonably
assumed, however, that the subject property, measuring 982 square meters, allocated to Esperanza under
the Partition Agreement dated 29 April 1985, is already inclusive of the smaller parcel of 897 square meters
assigned to her under the Deed of Extrajudicial Settlement and Partition of Estate dated July 1981. As
explained by the RTC in its 12 September 2000 Decision:

The [subject property] which is claimed by the [herein petitioner and her husband] and that which is claimed
by the [herein respondents] are one and the same, the difference in area and technical description being
due to the repartition and re-allocation of the parcel of land originally co-owned by Pantaleon Maglunob and
his sister Placida Maglunob and subsequently declared in the name of [Victorino] under Tax Declaration No.
5988 of 1949.32

It is clear from the records that the subject property was not Esperanzas exclusive share, but also that of
the other heirs of her father, Martin I. Esperanza expressly affixed her thumbmark to the Deed of
Extrajudicial Settlement of July 1981 not only for herself, but also on behalf of the other heirs of Martin I.
Though in the Partition Agreement dated 29 April 1985 Esperanza affixed her thumbmark without stating that
she was doing so not only for herself, but also on behalf of the other heirs of Martin I, this does not mean
that Esperanza was already the exclusive owner thereof. The evidence shows that the subject property is
the share of the heirs of Martin I. This is clear from the sketch 33 attached to the Partition Agreement dated 29
April 1985, which reveals the proportionate areas given to the heirs of the two siblings, Pantaleon and
Placida, who were the original owners of the whole parcel of land 34 from which the subject property was
taken.

Further, it bears emphasis that the Partition Agreement was executed by and among the son, grandsons,
granddaughters and cousins of Victorino. Esperanza was neither the granddaughter nor the cousin of
Victorino, as she was only Victorinos grandniece. The cousin of Victorino is Martin I, Esperanzas father. In
effect, therefore, the subject property allotted to Esperanza in the Partition Agreement was not her exclusive
share, as she holds the same for and on behalf of the other heirs of Martin I, who was already deceased at
the time the Partition Agreement was made.

To further bolster the truth that the subject property was not exclusively owned by Esperanza, the Affidavit
she executed in favor of petitioner and her husband on 6 June 1985 was worded as follows:

That I hereby renounce, relinquish, waive and quitclaim all my rights, share, interest and participation
whatsoever in the [subject property] unto the said Sps. Ray Mars Arangote and Elvira T. Arangote, their
heirs, successors, and assigns including the improvement found thereon; 35

Logically, if Esperanza fully owned the subject property, she would have simply waived her rights to and
interest in the subject property, without mentioning her "share" and "participation" in the same. By including
such words in her Affidavit, Esperanza was aware of and was limiting her waiver, renunciation, and quitclaim
to her one-third share and participation in the subject property.

Going to the issues raised by the petitioner in this Petition, this Court will resolve the same concurrently as
they are interrelated.

In this case, the petitioner derived her title to the subject property from the notarized Affidavit executed by
Esperanza, wherein the latter relinquished her rights, share, interest and participation over the same in favor
of the petitioner and her husband.

A careful perusal of the said Affidavit reveals that it is not what it purports to be. Esperanzas Affidavit is, in
fact, a Donation. Esperanzas real intent in executing the said Affidavit was to donate her share in the
subject property to petitioner and her husband.

As no onerous undertaking is required of petitioner and her husband under the said Affidavit, the donation is
regarded as a pure donation of an interest in a real property covered by Article 749 of the Civil
Code.36 Article 749 of the Civil Code provides:

Art. 749. In order that the donation of an immovable may be valid, it must be made in a public document,
specifying therein the property donated and the value of the charges which the donee must satisfy.

The acceptance may be made in the same deed of donation or in a separate public document, but it shall
not take effect unless it is done during the lifetime of the donor.

If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form,
and this step shall be noted in both instruments.

From the aforesaid provision, there are three requisites for the validity of a simple donation of a real
property, to wit: (1) it must be made in a public instrument; (2) it must be accepted, which acceptance may
be made either in the same Deed of Donation or in a separate public instrument; and (3) if the acceptance is
made in a separate instrument, the donor must be notified in an authentic form, and the same must be noted
in both instruments.

This Court agrees with the RTC and the Court of Appeals that the Affidavit executed by Esperanza
relinquishing her rights, share, interest and participation over the subject property in favor of the petitioner
and her husband suffered from legal infirmities, as it failed to comply with the aforesaid requisites of the law.

In Sumipat v. Banga,37 this Court declared that title to immovable property does not pass from the donor to
the donee by virtue of a Deed of Donation until and unless it has been accepted in a public instrument and
the donor duly notified thereof. The acceptance may be made in the very same instrument of donation. If the
acceptance does not appear in the same document, it must be made in another. Where the Deed of
Donation fails to show the acceptance, or where the formal notice of the acceptance, made in a separate
instrument, is either not given to the donor or else not noted in the Deed of Donation and in the separate
acceptance, the donation is null and void.38

In the present case, the said Affidavit, which is tantamount to a Deed of Donation, met the first requisite, as it
was notarized; thus, it became a public instrument. Nevertheless, it failed to meet the aforesaid second and
third requisites. The acceptance of the said donation was not made by the petitioner and her husband either
in the same Affidavit or in a separate public instrument. As there was no acceptance made of the said
donation, there was also no notice of the said acceptance given to the donor, Esperanza. Therefore, the
Affidavit executed by Esperanza in favor of petitioner and her husband is null and void.
The subsequent notarized Deed of Acceptance39 dated 23 September 2000, as well as the notice40 of such
acceptance, executed by the petitioner did not cure the defect. Moreover, it was only made by the petitioner
several years after the Complaint was filed in court, or when the RTC had already rendered its Decision
dated 12 September 2000, although it was still during Esperanzas lifetime. Evidently, its execution was a
mere afterthought, a belated attempt to cure what was a defective donation.

It is true that the acceptance of a donation may be made at any time during the lifetime of the donor. And
granting arguendo that such acceptance may still be admitted in evidence on appeal, there is still need for
proof that a formal notice of such acceptance was received by the donor and noted in both the Deed of
Donation and the separate instrument embodying the acceptance.41 At the very least, this last legal requisite
of annotation in both instruments of donation and acceptance was not fulfilled by the petitioner. Neither the
Affidavit nor the Deed of Acceptance bears the fact that Esperanza received notice of the acceptance of the
donation by petitioner. For this reason, even Esperanzas one-third share in the subject property cannot be
adjudicated to the petitioner.

With the foregoing, this Court holds that the RTC and the Court of Appeals did not err in declaring null and
void Esperanzas Affidavit.

The next issue to be resolved then is whether the RTC, as well as the Court of Appeals, erred in declaring
OCT No. CLOA-1748 in the name of petitioner and her husband null and void.

Again, this Court answers the said issue in the negative.

Section 48 of Presidential decree No. 1529 states:

SEC. 48. Certificate not subject to collateral attack. - A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.

Such proscription has long been enshrined in Philippine jurisprudence. The judicial action required to
challenge the validity of title is a direct attack, not a collateral attack. 42

The attack is considered direct when the object of an action is to annul or set aside such proceeding, or
enjoin its enforcement. Conversely, an attack is indirect or collateral when, in an action to obtain a different
relief, an attack on the proceeding is nevertheless made as an incident thereof. Such action to attack a
certificate of title may be an original action or a counterclaim, in which a certificate of title is assailed as
void.43

A counterclaim is considered a new suit in which the defendant is the plaintiff and the plaintiff in the
complaint becomes the defendant. It stands on the same footing as, and is to be tested by the same rules as
if it were, an independent action.44

In their Answer to the Complaint for Quieting of Title filed by the petitioner and her husband before the
MCTC, respondents included therein a Counterclaim wherein they repleaded all the material allegations in
their affirmative defenses, the most essential of which was their claim that petitioner and her husband -- by
means of fraud, undue influence and deceit -- were able to make their grand aunt, Esperanza, who was
already old and illiterate, affix her thumbmark to the Affidavit, wherein she renounced, waived, and
quitclaimed all her rights and interest over the subject property in favor of petitioner and her husband. In
addition, respondents maintained in their Answer that as petitioner and her husband were not tenants either
of Esperanza or of the respondents, the DAR could not have validly issued in favor of petitioner and her
husband OCT No. CLOA-1748. Thus, the respondents prayed, in their counterclaim in Civil Case No. 156
before the MCTC, that OCT No. CLOA-1748 issued in the name of petitioner, married to Ray Mars E.
Arangote, be declared null and void, insofar as their two-thirds shares in the subject property are concerned.

It is clear, thus, that respondents Answer with Counterclaim was a direct attack on petitioners certificate of
title. Furthermore, since all the essential facts of the case for the determination of the validity of the title are
now before this Court, to require respondents to institute a separate cancellation proceeding would be
pointlessly circuitous and against the best interest of justice.

Esperanzas Affidavit, which was the sole basis of petitioners claim to the subject property, has been
declared null and void. Moreover, petitioner and her husband were not tenants of the subject property. In
fact, petitioner herself admitted in her Complaint filed before the MCTC that her husband is out of the
country, rendering it impossible for him to work on the subject property as a tenant. Instead of cultivating the
subject property, petitioner and her husband possessed the same by constructing a house thereon. Thus, it
is highly suspicious how the petitioner was able to secure from the DAR a Certificate of Land Ownership
Award (CLOA) over the subject property. The DAR awards such certificates to the grantees only if they fulfill
the requirements of Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform
Program (CARP).45 Hence, the RTC and the Court of Appeals did not err in declaring null and void OCT No.
CLOA-1748 in the name of the petitioner, married to Ray Mars E. Arangote.

Considering that Esperanza died without any compulsory heirs and that the supposed donation of her one-
third share in the subject property per her Affidavit dated 9 June 1985 was already declared null and void,
Esperanzas one-third share in the subject property passed on to her legal heirs, the respondents.

As petitioners last-ditch effort, she claims that she is a possessor in good faith and, thus, entitled to the
rights provided for under Articles 448 and 546 of the Civil Code.

This claim is untenable.

The Civil Code describes a possessor in good faith as follows:

Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it.

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of good faith.

Art. 1127. The good faith of the possessor consists in the reasonable belief that the person from whom he
received the thing was the owner thereof, and could transmit his ownership.

Possession in good faith ceases from the moment defects in the title are made known to the possessor by
extraneous evidence or by a suit for recovery of the property by the true owner. Every possessor in good
faith becomes a possessor in bad faith from the moment he becomes aware that what he believed to be true
is not so.46

In the present case, when respondents came to know that an OCT over the subject property was issued and
registered in petitioners name on 26 March 1993, respondents brought a Complaint on 7 August 1993
before the Lupon of Barangay Maloco, Ibajay, Aklan, challenging the title of petitioner to the subject property
on the basis that said property constitutes the inheritance of respondent, together with their grandaunt
Esperanza, so Esperanza had no authority to relinquish the entire subject property to petitioner. From that
moment, the good faith of the petitioner had ceased.

Petitioner cannot be entitled to the rights under Articles 448 and 546 of the Civil Code, because the rights
mentioned therein are applicable only to builders in good faith and not to possessors in good faith.

Moreover, the petitioner cannot be considered a builder in good faith of the house on the subject property. In
the context that such term is used in particular reference to Article 448 of the Civil Code, a builder in good
faith is one who, not being the owner of the land, builds on that land, believing himself to be its owner and
unaware of any defect in his title or mode of acquisition.47

The various provisions of the Civil Code, pertinent to the subject, read:

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 a 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.1avvphi1

Article 449. 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.
Article 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 sower the proper rent.

Under the foregoing provisions, the builder in good faith can compel the landowner to make a choice
between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of
the land. 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. He must choose one. He cannot, for instance,
compel the owner of the building to instead remove it from the land. In order, however, that the builder can
invoke that accruing benefit and enjoy his corresponding right to demand that a choice be made by the
landowner, he should be able to prove good faith on his part. 48

Good faith, here understood, is an intangible and abstract quality with no technical meaning or statutory
definition, and it encompasses, among other things, an honest belief, the absence of malice and the
absence of design to defraud or to seek an unconscionable advantage. An individuals personal good faith is
a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It
implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder
upon inquiry. The essence of good faith lies in an honest belief in the validity of ones right, ignorance of a
superior claim, and absence of intention to overreach another. Applied to possession, one is considered in
good faith if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. 49

In this case, the subject property waived and quitclaimed by Esperanza to the petitioner and her husband in
the Affidavit was only covered by a tax declaration in the name of Esperanza. Petitioner did not even bother
to look into the origin of the subject property and to probe into the right of Esperanza to relinquish the same.
Thus, when petitioner and her husband built a house thereon in 1989 they cannot be considered to have
acted in good faith as they were fully aware that when Esperanza executed an Affidavit relinquishing in their
favor the subject property the only proof of Esperanzas ownership over the same was a mere tax
declaration. This fact or circumstance alone was enough to put the petitioner and her husband under inquiry.
Settled is the rule that a tax declaration does not prove ownership. It is merely an indicium of a claim of
ownership. Payment of taxes is not proof of ownership; it is, at best, an indicium of possession in the
concept of ownership. Neither tax receipts nor a declaration of ownership for taxation purposes is evidence
of ownership or of a right to possess realty when not supported by other effective proofs. 50

With the foregoing, the petitioner is not entitled to the rights under Article 448 and 546 as the petitioner is not
a builder and possessor in good faith.

WHEREFORE, premises considered, the instant Petition is hereby DENIED. The Decision and Resolution of
the Court of Appeals in CA-G.R. SP No. 64970, dated 27 October 2006 and 29 June 2007, respectively,
affirming the RTC Decision dated 12 September 2000 in Civil Case No. 5511 and declaring the respondents
the lawful owners and possessors of the subject property are hereby AFFIRMED. No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 170923 January 20, 2009

SULO SA NAYON, INC. and/or PHILIPPINE VILLAGE HOTEL, INC. and JOSE MARCEL E.
PANLILIO,Petitioners,
vs.
NAYONG PILIPINO FOUNDATION, Respondent.

DECISION

PUNO, C.J.:

On appeal are the Court of Appeals (CAs) October 4, 2005 Decision1 in CA-G.R. SP No. 74631 and
December 22, 2005 Resolution,2 reversing the November 29, 2002 Decision3 of the Regional Trial Court
(RTC) of Pasay City in Civil Case No. 02-0133. The RTC modified the Decision 4 of the Metropolitan Trial
Court (MeTC) of Pasay City which ruled against petitioners and ordered them to vacate the premises and
pay their arrears. The RTC declared petitioners as builders in good faith and upheld their right to indemnity.

The facts are as follows:

Respondent Nayong Pilipino Foundation, a government-owned and controlled corporation, is the owner of a
parcel of land in Pasay City, known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel, Inc.
(PVHI), formerly called Sulo sa Nayon, Inc., is a domestic corporation duly organized and existing under
Philippine laws. Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice President.

On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of 36,289 square
meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of a hotel building, to be known
as the Philippine Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It is
renewable for a period of 25 years under the same terms and conditions upon due notice in writing to
respondent of the intention to renew at least 6 months before its expiration. Thus, on March 7, 1995,
petitioners sent respondent a letter notifying the latter of their intention to renew the contract for another 25
years. On July 4, 1995, the parties executed a Voluntary Addendum to the Lease Agreement. The
addendum was signed by petitioner Jose Marcel E. Panlilio in his official capacity as Senior Executive Vice
President of the PVHI and by Chairman Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to
the renewal of the contract for another 25 years, or until 2021. Under the new agreement, petitioner PVHI
was bound to pay the monthly rental on a per square meter basis at the rate of P20.00 per square meter,
which shall be subject to an increase of 20% at the end of every 3-year period. At the time of the renewal of
the lease contract, the monthly rental amounted to P725,780.00.

Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent repeatedly
demanded petitioners to pay the arrears and vacate the premises. The last demand letter was sent on
March 26, 2001.

On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC of Pasay City.
The complaint was docketed as Civil Case No. 708-01. Respondent computed the arrears of petitioners in
the amount of twenty-six million one hundred eighty-three thousand two hundred twenty-five pesos and
fourteen centavos (P26,183,225.14), as of July 31, 2001.

On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus:

. . . . The court is convinced by the evidence that indeed, defendants defaulted in the payment of their
rentals. It is basic that the lessee is obliged to pay the price of the lease according to the terms stipulated
(Art. 1657, Civil Code). Upon the failure of the lessee to pay the stipulated rentals, the lessor may eject (sic)
and treat the lease as rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao, 53 Phil. 1).
For non-payment of rentals, the lessor may rescind the lease, recover the back rentals and recover
possession of the leased premises. . .
xxx

. . . . Improvements made by a lessee such as the defendants herein on leased premises are not valid
reasons for their retention thereof. The Supreme Court has occasion to address a similar issue in which it
ruled that: "The fact that petitioners allegedly made repairs on the premises in question is not a reason for
them to retain the possession of the premises. There is no provision of law which grants the lessee a right of
retention over the leased premises on that ground. Article 448 of the Civil Code, in relation to Article 546,
which provides for full reimbursement of useful improvements and retention of the premises until
reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on a land in the belief
that he is the owner thereof. This right of retention does not apply to a mere lessee, like the petitioners,
otherwise, it would always be in his power to "improve" his landlord out of the latters property (Jose L. Chua
and Co Sio Eng vs. Court of Appeals and Ramon Ibarra, G.R. No. 109840, January 21, 1999)."

Although the Contract of Lease stipulates that the building and all the improvements in the leased premises
belong to the defendants herein, such will not defeat the right of the plaintiff to its property as the defendants
failed to pay their rentals in violation of the terms of the contract. At most, defendants can only invoke [their]
right under Article 1678 of the New Civil Code which grants them the right to be reimbursed one-half of the
value of the building upon the termination of the lease, or, in the alternative, to remove the improvements if
the lessor refuses to make reimbursement.

The dispositive portion of the decision reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Nayong Pilipino Foundation,
and against the defendant Philippine Village Hotel, Inc[.], and all persons claiming rights under it, ordering
the latter to:

1. VACATE the subject premises and surrender possession thereof to plaintiff;

2. PAY plaintiff its rental arrearages in the sum of TWENTY SIX MILLION ONE HUNDRED EIGHTY
THREE THOUSAND TWO HUNDRED TWENTY FIVE PESOS AND 14/100 (P26,183,225.14)
incurred as of July 31, 2001;

3. PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE THOUSAND SEVEN HUNDRED
EIGHTY PESOS (P725,780.00) per month starting from August 2001 and every month thereafter by
way of reasonable compensation for the use and occupation of the premises;

4. PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of attorneys fees[; and]

5. PAY the costs of suit.

The complaint against defendant Jose Marcel E. Panlilio is hereby dismissed for lack of cause of action. The
said defendants counterclaim however is likewise dismissed as the complaint does not appear to be
frivolous or maliciously instituted.

SO ORDERED.5

Petitioners appealed to the RTC which modified the ruling of the MeTC. It held that:

. . . it is clear and undisputed that appellants-lessees were expressly required to construct a first-class hotel
with complete facilities. The appellants were also unequivocally declared in the Lease Agreement as the
owner of the improvements so constructed. They were even explicitly allowed to use the improvements and
building as security or collateral on loans and credit accommodations that the Lessee may secure for the
purpose of financing the construction of the building and other improvements (Section 2; pars. "A" to "B,"
Lease Agreement). Moreover, a time frame was setforth (sic) with respect to the duration of the lease initially
for 21 years and renewable for another 25 years in order to enable the appellants-lessees to recoup their
huge money investments relative to the construction and maintenance of the improvements.

xxx

Considering therefore, the elements of permanency of the construction and substantial value of the
improvements as well as the undispute[d] ownership over the land improvements, these, immensely
engender the application of Art. 448 of the Civil Code. The only remaining and most crucial issue to be
resolved is whether or not the appellants as builders have acted in good faith in order for Art. 448 in relation
to Art. 546 of the Civil Code may apply with respect to their rights over improvements.

xxx

. . . it is undeniable that the improvement of the hotel building of appellants (sic) PVHI was constructed with
the written consent and knowledge of appellee. In fact, it was precisely the primary purpose for which they
entered into an agreement. Thus, it could not be denied that appellants were builders in good faith.

Accordingly, and pursuant to Article 448 in relation to Art. 546 of the Civil Code, plaintiff-appellee has the
sole option or choice, either to appropriate the building, upon payment of proper indemnity consonant to Art.
546 or compel the appellants to purchase the land whereon the building was erected. Until such time that
plaintiff-appellee has elected an option or choice, it has no right of removal or demolition against appellants
unless after having selected a compulsory sale, appellants fail to pay for the land (Ignacio vs. Hilario; 76
Phil. 605). This, however, is without prejudice from the parties agreeing to adjust their rights in some other
way as they may mutually deem fit and proper.

The dispositive portion of the decision of the RTC reads as follows:

WHEREFORE, and in view of the foregoing, judgment is hereby rendered modifying the decision of [the]
MTC, Branch 45 of Pasay City rendered on February 26, 2002 as follows:

1. Ordering plaintiff-appellee to submit within thirty (30) days from receipt of a copy of this decision a
written manifestation of the option or choice it selected, i.e., to appropriate the improvements upon
payment of proper indemnity or compulsory sale of the land whereon the hotel building of PVHI and
related improvements or facilities were erected;

2. Directing the plaintiff-appellee to desist and/or refrain from doing acts in the furtherance or
exercise of its rights and demolition against appellants unless and after having selected the option of
compulsory sale and appellants failed to pay [and] purchase the land within a reasonable time or at
such time as this court will direct;

3. Ordering defendants-appellants to pay plaintiff-appellee [their] arrears in rent incurred as of July

31, 2001 in the amount of P26,183,225.14;

4. Ordering defendants-appellants to pay to plaintiff-appellee the unpaid monthly rentals for the use
and occupation of the premises pending this appeal from July to November 2002 only at
P725,780.00 per month;

5. The fourth and fifth directives in the dispositive portion of the trial courts decision including that
the last paragraph thereof JME Panlilios complaint is hereby affirmed;

6. The parties are directed to adjust their respective rights in the interest of justice as they may deem
fit and proper if necessary.

SO ORDERED.6

Respondent appealed to the CA which held that the RTC erroneously applied the rules on accession, as
found in Articles 448 and 546 of the Civil Code when it held that petitioners were builders in good faith and,
thus, have the right to indemnity. The CA held:

By and large, respondents are admittedly mere lessees of the subject premises and as such, cannot validly
claim that they are builders in good faith in order to solicit the application of Articles 448 and 546 of the Civil
Code in their favor. As it is, it is glaring error on the part of the RTC to apply the aforesaid legal provisions on
the supposition that the improvements, which are of substantial value, had been introduced on the leased
premises with the permission of the petitioner. To grant the respondents the right of retention and
reimbursement as builders in good faith merely because of the valuable and substantial improvements that
they introduced to the leased premises plainly contravenes the law and settled jurisprudential doctrines and
would, as stated, allow the lessee to easily "improve" the lessor out of its property.

. . . . Introduction of valuable improvements on the leased premises does not strip the petitioner of its right to
avail of recourses under the law and the lease contract itself in case of breach thereof. Neither does it
deprive the petitioner of its right under Article 1678 to exercise its option to acquire the improvements or to
let the respondents remove the same.

Petitioners Motion for Reconsideration was denied.

Hence, this appeal.7

Petitioners assign the following errors:

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT

HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE SUBSTANTIAL AND
VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON THE SUBJECT PROPERTY, THUS
COMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546
OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE.

II

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR WHEN IT

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

III

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

IV

TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD OF ARTICLE 448
OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE WOULD NOT ONLY WREAK
HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS AND INTERESTS OF PETITIONER
PHILIPPINE VILLAGE HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINO FOUNDATION, IN
COMPARISON THERETO, WOULD SUFFER ONLY SLIGHT OR INCONSEQUENTIAL INJURY OR LOSS,
BUT ALSO WOULD CONSTITUTE UNJUST ENRICHMENT ON THE PART OF RESPONDENT AT GREAT
EXPENSE AND GRAVE PREJUDICE OF PETITIONERS.

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT

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

First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did not acquire jurisdiction to hear
and decide the ejectment case because they never received any demand from respondent to pay rentals
and vacate the premises, since such demand is a jurisdictional requisite. We reiterate the ruling of the
MeTC, RTC and CA. Contrary to the claim of petitioners, documentary evidence proved that a demand letter
dated March 26, 2001 was sent by respondent through registered mail to petitioners, requesting them "to
pay the rental arrears or else it will be constrained to file the appropriate legal action and possess the leased
premises."

Further, petitioners argument that the demand letter is "inadequate" because it contained no demand to
vacate the leased premises does not persuade. We have ruled that:

. . . . The word "vacate" is not a talismanic word that must be employed in all notices. The alternatives in this
case are clear cut. The tenants must pay rentals which are fixed and which became payable in the past,
failing which they must move out. There can be no other interpretation of the notice given to them. Hence,
when the petitioners demanded that either he pays P18,000 in five days or a case of ejectment would be
filed against him, he was placed on notice to move out if he does not pay. There was, in effect, a notice or
demand to vacate.9

In the case at bar, the language of the demand letter is plain and simple: respondent demanded payment of
the rental arrears amounting to P26,183,225.14 within ten days from receipt by petitioners, or respondent
will be constrained to file an appropriate legal action against petitioners to recover the said amount. The
demand letter further stated that respondent will possess the leased premises in case of petitioners failure
to pay the rental arrears within ten days. Thus, it is clear that the demand letter is intended as a notice to
petitioners to pay the rental arrears, and a notice to vacate the premises in case of failure of petitioners to
perform their obligation to pay.

Second, we resolve the main issue of whether the rules on accession, as found in Articles 448 and 546 of
the Civil Code, apply to the instant case.

Article 448 and Article 546 provide:

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

Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the option of refunding the amount of the expenses
or of paying the increase in value which the thing may have acquired by reason thereof.

We uphold the ruling of the CA.

The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:

This article [Article 448] is manifestly intended to apply only to a case where one builds, plants, or sows on
land in which he believes himself to have a claim of title, 10 and not to lands where the only interest of the
builder, planter or sower is that of a holder, such as a tenant.11

In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees, they recognize
that the respondent is the owner of the land. What petitioners insist is that because of the improvements,
which are of substantial value, that they have introduced on the leased premises with the permission of
respondent, they should be considered builders in good faith who have the right to retain possession of the
property until reimbursement by respondent.

We affirm the ruling of the CA that introduction of valuable improvements on the leased premises does not
give the petitioners the right of retention and reimbursement which rightfully belongs to a builder in good
faith. Otherwise, such a situation would allow the lessee to easily "improve" the lessor out of its property. We
reiterate the doctrine that a lessee is neither a builder in good faith nor in bad faith 12 that would call for the
application of Articles 448 and 546 of the Civil Code. His rights are governed by Article 1678 of the Civil
Code, which reads:

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the
lease is intended, without altering the form or substance of the property leased, the lessor upon the
termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should
the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the
principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the
property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may
remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does
not choose to retain them by paying their value at the time the lease is extinguished.

Under Article 1678, the lessor has the option of paying one-half of the value of the improvements which the
lessee made in good faith, which are suitable for the use for which the lease is intended, and which have not
altered the form and substance of the land. On the other hand, the lessee may remove the improvements
should the lessor refuse to reimburse.

Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it would amount to
giving away the hotel and its other structures at virtually bargain prices. They allege that the value of the
hotel and its appurtenant facilities amounts to more than two billion pesos, while the monetary claim of
respondent against them only amounts to a little more than twenty six-million pesos. Thus, they contend that
it is the lease contract that governs the relationship of the parties, and consequently, the parties may be
considered to have impliedly waived the application of Article 1678.

We cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are deemed
incorporated in each and every contract. Existing laws always form part of any contract. Further, the lease
contract in the case at bar shows no special kind of agreement between the parties as to how to proceed in
cases of default or breach of the contract. Petitioners maintain that the lease contract contains a default
provision which does not give respondent the right to appropriate the improvements nor evict petitioners in
cases of cancellation or termination of the contract due to default or breach of its terms. They cite paragraph
10 of the lease contract, which provides that:

10. DEFAULT. - . . . Default shall automatically take place upon the failure of the LESSEE to pay or perform
its obligation during the time fixed herein for such obligations without necessity of demand, or, if no time is
fixed, after 90 days from the receipt of notice or demand from the LESSOR. . .

In case of cancellation or termination of this contract due to the default or breach of its terms, the LESSEE
will pay all reasonable attorneys fees, costs and expenses of litigation that may be incurred by the LESSOR
in enforcing its rights under this contract or any of its provisions, as well as all unpaid rents, fees, charges,
taxes, assessment and others which the LESSOR may be entitled to.

Petitioners assert that respondent committed a breach of the lease contract when it filed the ejectment suit
against them. However, we find nothing in the above quoted provision that prohibits respondent to proceed
the way it did in enforcing its rights as lessor. It can rightfully file for ejectment to evict petitioners, as it did
before the court a quo.

IN VIEW WHEREOF, petitioners appeal is DENIED. The October 4, 2005 Decision of the Court of Appeals
in CA-G.R. SP No. 74631 and its December 22, 2005 Resolution are AFFIRMED. Costs against petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 154391-92 September 30, 2004

Spouses ISMAEL and TERESITA MACASAET, petitioners,

vs.
Spouses VICENTE and ROSARIO MACASAET, respondents.

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 Review1 under Rule 45 of the Rules of Court, assailing the March 22, 2002
Decision2 and the June 26, 2002 Resolution3 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

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

Petitioners Ismael and Teresita5 Macasaet and Respondents Vicente and Rosario Macasaet are first-degree
relatives. Ismael is the son of respondents, and Teresita is his wife. 6

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.12As 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 court15 (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

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;

"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

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,28 respondents 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.31The 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.41The 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."43 Sarona 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 non-existence 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

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.

"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.

No Right to Retain

Possession

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. 0594-96).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."

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.

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

"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.79The 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
following MODIFICATIONS:

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.
 FIRST DIVISION

[G.R. No. 149295. September 23, 2003]

PHILIPPINE NATIONAL BANK, petitioner, vs. GENEROSO DE JESUS,

represented by his Attorney-in-Fact, CHRISTIAN DE
JESUS, respondent.

DECISION
VITUG, J.:

Petitioner Philippine National Bank disputes the decision handed down by the
Court of Appeals promulgated on 23 March 2001 in CA-G.R. CV No. 56001, entitled
Generoso De Jesus, represented by his Attorney-in-Fact, Christian De Jesus,
versus Philippine National Bank. The assailed decision has affirmed the judgment
rendered by the Regional Trial Court, Branch 44, of Mamburao, Occidental Mindoro,
declaring respondent Generoso de Jesus as being the true and lawful owner of the
124-square-meter portion of the land covered by Transfer Certificate of Title (TCT)
No. T-17197 and ordering petitioner bank to vacate the premises, to deliver
possession thereof to respondent, and to remove the improvement thereon.
It would appear that on 10 June 1995, respondent filed a complaint against
petitioner before the Regional Trial Court of Occidental Mindoro for recovery of
ownership and possession, with damages, over the questioned property. In his
complaint, respondent stated that he had acquired a parcel of land situated in
Mamburao, Occidental Mindoro, with an area of 1,144 square meters covered by
TCT No. T-17197, and that on 26 March 1993, he had caused a verification survey
of the property and discovered that the northern portion of the lot was being
encroached upon by a building of petitioner to the extent of 124 square
meters. Despite two letters of demand sent by respondent, petitioner failed and
refused to vacate the area.
Petitioner, in its answer, asserted that when it acquired the lot and the building
sometime in 1981 from then Mayor Bienvenido Ignacio, the encroachment already
was in existence and to remedy the situation, Mayor Ignacio offered to sell the area
in question (which then also belonged to Ignacio) to petitioner at P100.00 per
square meter which offer the latter claimed to have accepted. The sale, however, did
not materialize when, without the knowledge and consent of petitioner, Mayor
Ignacio later mortgaged the lot to the Development Bank of the Philippines.
The trial court decided the case in favor of respondent declaring him to be the
rightful owner of the disputed 124-square-meter portion of the lot and ordering
petitioner to surrender possession of the property to respondent and to cause, at its
expense, the removal of any improvement thereon.
The Court of Appeals, on appeal, sustained the trial court but it ordered to be
deleted the award to respondent of attorneys fees, as well as moral and exemplary
damages, and litigation expenses.
 Petitioner went to this Court, via a petition for review, after the appellate court
had denied the banks motion for reconsideration, here now contending that -

1. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN ADJUDGING PNB A

BUILDER IN BAD FAITH OVER THE ENCROACHED PROPERTY IN QUESTION;

2. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN NOT APPLYING IN

FAVOR OF PNB THE PROVISION OF ARTICLE 448 OF THE CIVIL CODE AND THE
RULING IN TECNOGAS PHILIPPINES MANUFACTURING CORP. VS. COURT OF
APPEALS, G.R. No. 108894, February 10, 1997, 268 SCRA 7. [1]

The Regional Trial Court and the Court of Appeals have both rejected the idea
that petitioner can be considered a builder in good faith. In the context that such
term is used in particular reference to Article 448, et seq., of the Civil Code, a builder
in good faith is one who, not being the owner of the land, builds on that land
believing himself to be its owner and unaware of any defect in his title or mode of
acquisition.
The various provisions of the Civil Code, pertinent to the subject, read:

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 a 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.

Article 449. 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.

Article 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 sower the proper rent.

A builder in good faith can, under the foregoing provisions, compel the
landowner to make a choice between appropriating the building by paying the
proper indemnity or obliging the builder to pay the price of the land. 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 [2]

the option lies with the landowner, the grant to him, nevertheless, is preclusive. He
much choose one. He cannot, for instance, compel the owner of the building to
instead remove it from the land. In order, however, that the builder can invoke that
[3]

accruing benefit and enjoy his corresponding right to demand that a choice be made
by the landowner, he should be able to prove good faith on his part.
Good faith, here understood, is an intangible and abstract quality with no
technical meaning or statutory definition, and it encompasses, among other things,
an honest belief, the absence of malice and the absence of design to defraud or to
seek an unconscionable advantage. An individuals personal good faith is a concept
of his own mind and, therefore, may not conclusively be determined by his
protestations alone. It implies honesty of intention, and freedom from knowledge of
circumstances which ought to put the holder upon inquiry. The essence of good
[4]

faith lies in an honest belief in the validity of ones right, ignorance of a superior
claim, and absence of intention to overreach another. Applied to possession, one is
[5]

considered in good faith if he is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it.[6]

Given the findings of both the trial court and the appellate court, it should be
evident enough that petitioner would fall much too short from its claim of good
faith. Evidently, petitioner was quite aware, and indeed advised, prior to its
acquisition of the land and building from Ignacio that a part of the building sold to it
stood on the land not covered by the land conveyed to it.
Equally significant is the fact that the building, constructed on the land by
Ignacio, has in actuality been part of the property transferred to petitioner. Article
448, of the Civil Code refers to a piece of land whose ownership is claimed by two
or more parties, one of whom has built some works (or sown or planted something)
and not to a case where the owner of the land is the builder, sower, or planter
who then later loses ownership of the land by sale or otherwise for, elsewise
stated, where the true owner himself is the builder of works on his own land,
the issue of good faith or bad faith is entirely irrelevant. [7]

In fine, petitioner is not in a valid position to invoke the provisions of Article 448
of the Civil Code. The Court commiserates with petitioner in its present predicament;
upon the other hand, respondent, too, is entitled to his rights under the law,
particularly after having long been deprived of the enjoyment of his
property. Nevertheless, the Court expresses hope that the parties will still be able to
come up with an arrangement that can be mutually suitable and acceptable to them.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56001 is
AFFIRMED. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Carpio, JJ., concur.
Azcuna, J., on sick leave.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 193517 January 15, 2014

THE HEIRS OF VICTORINO SARILI, NAMELY: ISABEL A. SARILI,* MELENCIA** S. MAXIMO, ALBERTO
A. SARILI, IMELDA S. HIDALGO, all herein represented by CELSO A. SARILI, Petitioners,
vs.
PEDRO F. LAGROSA, represented in this act by his Attorney-in-Fact LOURDES LABIOS
MOJICA,Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on Certiorari are the Decision dated May 20, 2010 and Resolution dated
1 2 3

August 26, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 76258 which: (a) set aside the
Decision dated May 27, 2002 of the Regional Trial Court of Caloocan City, Branch 131 (RTC) in Civil Case
4

No. C-19152; (b) cancelled Transfer Certificate of Title (TCT) No. 262218 in the name of Victorino Sarili
5

(Victorino) married to Isabel Amparo (Sps. Sarili); (c) reinstated TCT No. 55979 in the name of respondent
6

Pedro F. Lagrosa (respondent); and (d) awarded respondent moral damages, attorneys fees and litigation
expenses.

The Facts

On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios Mojica (Lourdes) via
a special power of attorney dated November 25, 1999 (November 25, 1999 SPA), filed a complaint against
7 8

Sps. Sarili and the Register of Deeds of Caloocan City (RD) before the RTC, alleging, among others, that he
is the owner of a certain parcel of land situated in Caloocan City covered by TCT No. 55979 (subject
property) and has been religiously paying the real estate taxes therefor since its acquisition on November
29, 1974. Respondent claimed that he is a resident of California, USA, and that during his vacation in the
Philippines, he discovered that a new certificate of title to the subject property was issued by the RD in the
name of Victorino married to Isabel Amparo (Isabel), i.e., TCT No. 262218, by virtue of a falsified Deed of
Absolute Sale dated February 16, 1978 (February 16, 1978 deed of sale) purportedly executed by him and
9

his wife, Amelia U. Lagrosa (Amelia). He averred that the falsification of the said deed of sale was a result of
the fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD in order to acquire the subject
property and, as such, prayed for the annulment of TCT No. 262218, and that Sps. Sarili deliver to him the
possession of the subject property, or, in the alternative, that Sps. Sarili and the RD jointly and severally pay
him the amount of P1,000,000.00, including moral damages as well as attorneys fees. 10

In their answer, Sps. Sarili maintained that they are innocent purchasers for value, having purchased the
11

subject property from Ramon B. Rodriguez (Ramon), who possessed and presented a Special Power of
Attorney (subject SPA) to sell/dispose of the same, and, in such capacity, executed a Deed of Absolute
12

Sale dated November 20, 1992 (November 20, 1992 deed of sale) conveying the said property in their
13

favor. In this relation, they denied any participation in the preparation of the February 16, 1978 deed of sale,
which may have been merely devised by the "fixer" they hired to facilitate the issuance of the title in their
names. Further, they interposed a counterclaim for moral and exemplary damages, as well as attorneys
14

fees, for the filing of the baseless suit. 15

During the pendency of the proceedings, Victorino passed away and was substituted by his heirs, herein
16

petitioners. 17

The RTC Ruling

On May 27, 2002, the RTC rendered a Decision finding respondents signature on the subject SPA as "the
18

same and exact replica" of his signature in the November 25, 1999 SPA in favor of Lourdes. Thus, with
19 20

Ramons authority having been established, it declared the November 20, 1992 deed of sale executed by
21

the latter as "valid, genuine, lawful and binding" and, as such, had validly conveyed the subject property in
22
favor of Sps. Sarili. It further found that respondent "acted with evident bad faith and malice" and was,
therefore, held liable for moral and exemplary damages. Aggrieved, respondent appealed to the CA.
23

The CA Ruling

In a Decision dated May 20, 2010, the CA granted respondents appeal and held that the RTC erred in its
24

ruling since the November 20, 1992 deed of sale, which the RTC found "as valid and genuine," was not the
source document for the transfer of the subject property and the issuance of TCT No. 262218 in the name of
Sps. Sarili but rather the February 16, 1978 deed of sale, the fact of which may be gleaned from the Affidavit
25

of Late Registration executed by Isabel (affidavit of Isabel). Further, it found that respondent w as "not only
26

able to preponderate his claim over the subject property, but [has] likewise proved that his and his wifes
signatures in the [February 16, 1978 deed of sale] x x x were forged." "[A] comparison by the naked eye of
27

the genuine signature of [respondent] found in his [November 25, 1999 SPA] in favor of [Lourdes], and those
of his falsified signatures in [the February 16, 1978 deed of sale] and [the subject SPA] shows that they are
not similar." It also observed that "[t]he testimony of [respondent] denying the authenticity of his purported
28

signature with respect to the [February 16, 1978 deed of sale] was not rebutted x x x." In fine, the CA
29

declared the deeds of sale dated February 16, 1978 and November 20, 1992, as well as the subject SPA as
void, and consequently ordered the RD to cancel TCT No. 262218 in the name of Victorino married to
Isabel, and consequently reinstate TCT No. 55979 in respondents name. Respondents claims for moral
damages and attorneys fees/litigation expenses were also granted by the CA. 30

Dissatisfied, petitioners moved for reconsideration which was, however, denied in a Resolution dated
31

August 26, 2010, hence, the instant petition.

The Issues Before the Court

The main issue in this case is whether or not there was a valid conveyance of the subject property to Sps.
Sarili. The resolution of said issue would then determine, among others, whether or not: (a) TCT No. 262218
in the name of Victorino married to Isabel should be annulled; and (b) TCT No. 55979 in respondents name
should be reinstated.

The Courts Ruling

The petition lacks merit.

Petitioners essentially argue that regardless of the fictitious February 16, 1978 deed of sale, there was still a
valid conveyance of the subject property to Sps. Sarili who relied on the authority of Ramos (as per the
subject SPA) to sell the same. They posit that the due execution of the subject SPA between respondent and
Ramon and, subsequently, the November 20, 1992 deed of sale between Victorino and Ramon were duly
established facts and that from the authenticity and genuineness of these documents, a valid conveyance of
the subject land from respondent to Victorino had leaned upon. 32

The Court is not persuaded.

It is well-settled that even if the procurement of a certificate of title was tainted with fraud and
misrepresentation, such defective title may be the source of a completely legal and valid title in the hands of
an innocent purchaser for value. Where innocent third persons, relying on the correctness of the certificate
of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the
total cancellation of the certificate. The effect of such an outright cancellation would be to impair public
confidence in the certificate of title, for everyone dealing with property registered under the Torrens system
would have to inquire in every instance whether the title has been regularly or irregularly issued. This is
contrary to the evident purpose of the law.33

The general rule is that every person dealing with registered land may safely rely on the correctness of the
certificate of title issued therefor and the law will in no way oblige him to go beyond the certificate to
determine the condition of the property. Where there is nothing in the certificate of title to indicate any cloud
or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to
explore further than what the Torrens Title upon its face indicates in quest for any hidden defects or inchoate
right that may subsequently defeat his right thereto. 34

However, a higher degree of prudence is required from one who buys from a person who is not the
registered owner, although the land object of the transaction is registered. In such a case, the buyer is
expected to examine not only the certificate of title but all factual circumstances necessary for him to
determine if there are any flaws in the title of the transferor. The buyer also has the duty to ascertain the
35

identity of the person with whom he is dealing with and the latters legal authority to convey the property. 36

The strength of the buyers inquiry on the sellers capacity or legal authority to sell depends on the proof of
capacity of the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere
inspection of the face of such public document already constitutes sufficient inquiry. If no such special power
of attorney is provided or there is one but there appears to be flaws in its notarial acknowledgment, mere
inspection of the document will not do; the buyer must show that his investigation went beyond the
document and into the circumstances of its execution. 37

In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the
strength of the latters ostensible authority to sell under the subject SPA. The said document, however,
readily indicates flaws in its notarial acknowledgment since the respondents community tax certificate (CTC)
number was not indicated thereon. Under the governing rule on notarial acknowledgments at that time, i.e., 38

Section 163(a) of Republic Act No. 7160, otherwise known as the "Local Government Code of 1991," when
an individual subject to the community tax acknowledges any document before a notary public, it shall be
the duty of the administering officer to require such individual to exhibit the community tax
certificate. Despite this irregularity, however, Sps. Sarili failed to show that they conducted an investigation
39

beyond the subject SPA and into the circumstances of its execution as required by prevailing jurisprudence.
Hence, Sps. Sarili cannot be considered as innocent purchasers for value.

The defective notarization of the subject SPA also means that the said document should be treated as a
private document and thus examined under the parameters of Section 20, Rule 132 of the Rules of Court
which provides that "before any private document offered as authentic is received in evidence, its due
execution and authenticity must be proved either: (a) by anyone who saw the document executed or written;
or (b) by evidence of the genuineness of the signature or handwriting of the maker x x x." Settled is the rule
that a defective notarization will strip the document of its public character and reduce it to a private
instrument, and the evidentiary standard of its validity shall be based on preponderance of evidence. 40

The due execution and authenticity of the subject SPA are of great significance in determining the validity of
the sale entered into by Victorino and Ramon since the latter only claims to be the agent of the purported
seller (i.e., respondent). Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or any
interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be
void." In other words, if the subject SPA was not proven to be duly executed and authentic, then it cannot be
said that the foregoing requirement had been complied with; hence, the sale would be void.

After a judicious review of the case, taking into consideration the divergent findings of the RTC and the CA
on the matter, the Court holds that the due execution and authenticity of the subject SPA were not
41

sufficiently established under Section 20, Rule 132 of the Rules of Court as above-cited.

While Ramon identified the signature of respondent on the subject SPA based on his alleged familiarity with
the latters signature, he, however, stated no basis for his identification of the signatures of respondents
42

wife Amelia and the witness, Evangeline F. Murral, and even failed to identify the other witness, who were
43 44

also signatories to the said document. In other words, no evidence was presented to authenticate the
signatures of the other signatories of the subject SPA outside from respondent. 45

Besides, as the CA correctly observed, respondents signature appearing on the subject SPA is not
similar to his genuine signature appearing in the November 25, 1999 SPA in favor of Lourdes, especially
46 47

the signature appearing on the left margin of the first page. 48

Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he and his wife,
Amelia, had immigrated to the USA since 1968 and therefore could not have signed the subject SPA due to
their absence. 49

Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he did not require
the presentation of respondents CTC or any other competent proof of the identity of the person who
appeared before him to acknowledge the subject SPA as respondents free and voluntary act and deed
despite the fact that he did not personally know the latter and that he met him for the first time during the
notarization. He merely relied on the representations of the person before him and the bank officer who
50 51

accompanied the latter to his office, and further explained that the reason for the omission of the CTC was
52

"because in [a] prior document, [respondent] has probably given us already his residence certificate." This 53

"prior document," was not, however, presented during the proceedings below, nor the CTC number ever
identified.
Thus, in light of the totality of evidence at hand, the Court agrees with the CAs conclusion that respondent
was able to preponderate his claims of forgery against the subject SPA. In view of its invalidity, the
54

November 20, 1992 sale relied on by Sps. Sarili to prove their title to the subject property is therefore void. 1wphi1

At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which as the CA
found was actually the source of the issuance of TCT No. 262218. Nonetheless, this document was
admitted to be also a forgery. Since Sps. Sarilis claim over the subject property is based on forged
55

documents, no valid title had been transferred to them (and, in turn, to petitioners). Verily, when the
instrument presented is forged, even if accompanied by the owners duplicate certificate of title, the
registered owner does not thereby lose his title, and neither does the assignee in the forged deed acquire
any right or title to the property. Accordingly, TCT No. 262218 in the name of Victorino married to Isabel
56

should be annulled, while TCT No. 55979 in the name of respondent should be reinstated.

Anent the award of moral damages, suffice it to say that the dispute over the subject property had caused
respondent serious anxiety, mental anguish and sleepless nights, thereby justifying the aforesaid
award. Likewise, since respondent was constrained to engage the services of counsel to file this suit and
57

defend his interests, the awards of attorneys fees and litigation expenses are also sustained. 58

The Court, however, finds a need to remand the case to the court a quo in order to determine the rights and
obligations of the parties with respect to the house Sps. Sarili had built on the subject property in bad faith
59

in accordance with Article 449 in relation to Articles 450, 451, 452, and the first paragraph of Article 546 of
the Civil Code which respectively read as follows:

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 to 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 sower the proper rent.

ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder,
planter or sower.

ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary expenses
of preservation of the land.

xxxx

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. (Emphases and underscoring supplied)

xxxx

To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds,
i.e. , that he be a possessor in concept of owner, and that he be unaware that there exists in his title or mode
of acquisition any flaw which invalidates it. Good faith is an intangible and abstract quality with no technical
60

meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage. It implies honesty of
intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. As for61

Sps. Sarili, they knew or at the very least, should have known from the very beginning that they were
dealing with a person who possibly had no authority to sell the subject property considering the palpable
irregularity in the subject SPAs acknowledgment. Yet, relying solely on said document and without any
further investigation on Ramoss capacity to sell Sps. Sarili still chose to proceed with its purchase and even
built a house thereon. Based on the foregoing it cannot be seriously doubted that Sps. Sarili were actually
aware of a flaw or defect in their title or mode of acquisition and have consequently built the house on the
subject property in bad faith under legal contemplation. The case is therefore remanded to the court a quo
for the proper application of the above-cited Civil Code provisions.

WHEREFORE, the petition is DENIED. The Decision dated May 20, 2010 and Resolution dated August 26,
2010 of the Court of Appeals in CA-G.R. CV No. 76258 are AFFIRMED. However the case is REMANDED
to the court a quo for the proper application of Article 449 in relation to Articles 450 451 452 and the first
paragraph of Article 546 of the Civil Code with respect to the house Spouses Victorino Sarili and Isabel
Amparo had built on the subject property as herein discussed.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-5426 May 29, 1953

RAMON JOAQUIN, petitioner,

vs.
ANTONIO C. NAVARRO, respondent.

Agrava, Peralta & Agrava for petitioner.

Leonardo Abola for respondent.

TUASON, J.:

This three proceedings was instituted in the Court of First Instance of Manila in the summary settlement of
states of Joaquin Navarro, Sr., his wife Angela Joaquin de Navarro, Joaquin Navarro, Jr., and Pilar Navarro,
deceased. All of them having been heard jointly, Judge Rafael Amparo handed down a single decision which
was appealed to the Court of Appeals, whose decision, modifying that the Court of First Instance, in turn was
elevated to the Supreme Court for review.

The main question represented in the first two courts related to the sequence of the deaths of Joaquin
Navarro, Sr., his wife, and their children, all of whom were killed in the massacre of civilians by Japanese
troops in Manila in February 1945. The trial court found the deaths of this persons to have accurred in this
order: 1st. The Navarro girls, named Pilar, Concepcion and Natividad; 2nd. Joaquin Navarro, Jr.; 3rd. Angela
Joaquin de Navarro, and 4th, Joaquin Navarro, Sr. The Court of Appeals concurred with the trial court
except that, with regard to Angela Joaquin de Navarro and Joaquin Navarro, Jr., the latter was declared to
have survived his mother.

It is this modification of the lower court's finding which is now being contested by the petitioner. The
importance of the question whether Angela Joaquin de Navarro died before Joaquin Navarro, Jr., or vice
versa, lies in the fact that it radically affects the rights of succession of Ramon Joaquin, the present
petitioner who was an acknowledged natural child of Angela Joaquin and adopted child of the deceased
spouses, and Antonio C. Navarro, respondent, son of Joaquin Navarro, Sr. by first marriage.

The facts, which is not disputed, are outlined in the statement in the decision of the Court of Appeals as
follows:

"On February 6, 1945, while the battle for the liberation of Manila was raging, the spouses Joaquin Navarro,
Sr. and Angela Joaquin, together with their three daughters, Pilar, Concepcion, and Natividad, and their son
Joaquin Navarro, Jr., and the latter's wife, Adela Conde, sought refuge in the ground floor of the building
known as the German Club, at the corner of San Marcelino and San Luis Streets of this City. During their
stay, the building was packed with refugees, shells were exploding around, and the Club was set on fire.
Simultaneously, the Japanese started shooting at the people inside the building, especially those who were
trying to escape. The three daughters were hit and fell of the ground near the entrance; and Joaquin
Navarro, Sr., and his son decided to abandon the premises to seek a safer heaven. They could not convince
Angela Joaquin who refused to join them; and son Joaquin Navarro, Sr., his son, Joaquin Navarro, Jr., and
the latter's wife, Angela Conde, and a friend and former neighbor, Francisco Lopez, dashed out of the
burning edifice. As they came out, Joaquin Navarro, Jr. was shot in the head by a Japanese soldier and
immediately dropped. The others lay flat on the ground in front of the Club premises to avoid the bullets.
Minutes later, the German Club, already on fire, collapsed, trapping many people inside, presumably
including Angela Joaquin.

"Joaquin Navarro, Sr., Mrs. Joaquin Navarro, Jr., and Francisco Lopez managed to reach an air raid shelter
nearby, the stayed there about three days, until February 10, 1915, when they were forced to leave the
shelter be- cause the shelling tore it open. They flied toward the St. Theresa Academy in San Marcelino
Street, but unfortunately met Japanese Patrols, who fired at the refugees, killing Joaquin Navarro, Sr., and
his daughter-in-law.

"At the time of the masaccre, Joaquin Navarro, Sr. was aged 70; his wife Angela Joaquin was about 67
years old; Joaquin Navarro, Jr., about 30; Pilar Navarro was two or three years older than her brother; while
the other sisters, Concepcion and Natividad Navarro y Joaquin, were between 23 and 25."

The Court of Appeals' finding were all taken from the testimony of Francisco Lopez, who miraculously
survived the holocaust, and upon them the Court of Appeals opined that, "as between the mother Angela
Joaquin and the son Joaquin Navarro, Jr., the evidence of the survivorship is uncertain and insufficient" and
the statutory presumption must be applied. The appellate Court's reasoning for its conclusion is thus stated:

"It does not require argument to show that survivorship cannot be established by proof of the death of only
one of the parties; but that there must be adequate proof that one was alive when the other had already
died. Now in this case before us, the testimony of the sole witness Lopez is to the effect that Joaquin
Navarro, Jr. was shot and died shortly after the living the German Club in the company of his father and the
witness, and that the burning edified entirely collapsed minutes after the shooting of the son; but there is not
a scintilla of evidence, direct or circumstantial, from which we may infer the condition of the mother, Angela
Joaquin, during the appreciable interval from the instant his son turned his back to her, to dash out to the
Club, until he died. All we can glean from the evidence is that Angela Joaquin was unhurt when her son left
her to escape from the German Club; but she could have died almost immediately after, from a variety of
causes. She might have been shot by the Japanese, like her daughters, killed by falling beams from the
burning edifice, overcome by the fumes, or fatally struck by splinters from the exploding shells. We cannot
say for certain. No evidence is available on the point. All we can decide is that no one saw her alive after her
son left her aside, and that there is no proof when she died. Clearly, this circumstance alone cannot support
a finding that she died latter than her son, and we are thus compelled to fall back upon the statutory
presumption. In deed, it could be said that the purpose of the presumption of survivorship would be precisely
to afford a solution to uncertainties like these. Hence the son Joaquin Navarro, Jr. aged 30, must be deemed
to have survived his mother, Angela Joaquin, who was admittedly above 60 years of age (Rule 123, sec. 69,
subsec. (ii), Rules of Court).

"The total lack of evidence on how Angela Joaquin died likewise disposes of the question whether she and
her deceased children perished in the same calamity. There being no evidence to the contrary, the only
guide is the occasion of the deaths, which is identical for all of them; that battle for the liberation of Manila. A
second reason is that the law, in declaring that those fallen in the same battle are to be regarded as
perishing in the same calamity, could not overlooked that a variety of cause of death can ( and usually do)
operate in the source of combats. During the same battle, some may die from wounds, other from gages,
fire, or drowning. It is clear that the law disregards episodic details, and treats the battle as an overall cause
of death in applying the presumption of survivorship.

"We are thus led the conclusion that the order in which the members of the Navarro-Joaquin family met their
end is as follows: first, the three daughters Pilar, Concepcion, and Natividad; then the mother Angela
Joaquin; then the son Joaquin Navarro, Jr., and days later (of which there is no doubt), the father Joaquin
Navarro, Sr."

Much space in the briefs is taken in a discussion of whether section 334(37) of Act No. 129, now section 69
(ii) of Rule 123 of the Rules of Court, has repealed article 33 of the civil code of 1889, now article 43 of the
New Civil Code. It is the contention of the petitioner that it did not, and that on the assumption that there is
total lack of evidence, as the Court of Appeals said, then Angela Joaquin and Joaquin Navarro, Jr. should,
under article 33, be held to have died at the same time.

The point is not of much if any relevancy and will be left open for the consideration when obsolute necessity
there for arises. We say irrelevant because our opinion is that neither of the two provisions is applicable for
the reasons to be presently set forth.

Rule 123, section 69 (ii) of the Revised Rules of Court, reads:

When two person perish in the same calamity, such as wreck, battle or conflagration, and it is not (1)
shown who died first, and there are no (2) particular circumstances from when it can be inferred, the
survivorship is presumed from the probabilities resulting from the strength and ages of the sexes,
according to the following rules:

xxx xxx xxx

Article 33 of the Civil Code of 1889 of the following tenor:

Whenever a doubt arises as to which was the first to die to the two or more persons who would
inherent one from the other, the persons who alleges the prior death of either must prove the
allegation; in the absence of proof the presumption shall be that they died at the same time, and no
transmission of rights from one to the other shall take place.

Most provisions, as their language plainly implies, are intended as a substitute for lacks and so are not to be
available when there are facts. With particular reference to section 69 (ii) of Rule 123, "the situation which it
present is one in which the facts are not only unknown but unknowable. By hypothesis, there is no specific
evidence as to the time of death . . . ." . . . it is assumed that no evidence can be produced. . . . Since the
facts are unknown and unknowable, the law may apply the law of fairness appropriate to the different legal
situation that arises." (IX Wigmore on Evidence, 1940 ed., 483.)

In In re Wallace's Estate, 220 Pac. 683, which the Court of Appeals cited the applied with the respect to the
deaths of the Navarro girls, pointing out that "our rule is taken from the Fourth Division of sec. 1936 of the
California Code of Civil Procedure," the Supreme Court of California said:

When the statue speaks of "particular circumstances from which it can be inferred" that one died
before the other it means that there are circumstances from which the fact of death by one before
the other may be inferred as a relation conclusion from the facts proven. The statue does not mean
circumstances which would shown, or which would tend to show, probably that one died before the
other. Grand Lodge A.O.W.W. vs. Miller, 8 Cal. App. 28, 96 Pac. 22. When by circumstantial
evidence alone, a party seeks to prove a survivorship contrary to the statutory presumption, the
circumstances by which it is sought to prove the survivorship must be such as are competent and
sufficient when tested by the general rules of evidence in civil cases. The inference of survivorship
cannot rest upon mere surmise, speculation, or conjecture. As was said in Grand
Lodge vs. Miller, supra, "if the matter is left to probably, then the statue of the presumption."

It is manifest from the language of section 69 (ii) of Rule 123 and of that of the foregoing decision that the
evidence of the survivorship need not be direct; it may be indirect, circumstantial, or inferential. Where there
are facts, known or knowable, from which a rational conclusion can be made, the presumption does not step
in, and the rule of preponderance of evidence controls.

Are there particular circumstances on record from which reasonable inference of survivorship between
Angela Joaquin and her son can be drawn? Is Francisco Lopez' testimony competent and sufficient for this
purpose? For a better appreciation of this issue, it is convenient and necessary to detail the testimony, which
was described by the trial court as "disinterested and trustworthy" and by the Court of Appeals as "entitled to
credence."

Lopez testified:

Q. You said you were also heat at that time as you leave the German Club with Joaquin Navarro, Sr.,
Joaquin Navarro, Jr. and the latter's wife?- A. Yes, sir.

Q. Did you fall? A. I fell down.

Q. And you said you fell down close to Joaquin Navarro, Jr.? A. Yes, sir.

Q. When the German Club collapsed where were you? A. We were out 15 meters away from the
building but I could see what was going on.

xxx xxx xxx

Q. Could there have been an interval of fifteen minutes between the two events, that is the shooting
of Joaquin Navarro, Jr. and the collapse of the German Club? A. Yes, sir, I could not say exactly,
Occasions like that, you know, you are confused.

Q. Could there (have) been an interval of an hour instead of fifteen minutes? A. Possible, but not
probable.

Q. Could it have been 40 minutes? A. Yes, sir, about 40 minutes.

 xxx xxx xxx

Q. You also know that Angela Joaquin is already dead? A. Yes, sir.

Q. Can you tell the Honorable Court when did Angela Joaquin die? A. Well, a few minutes after
we have dashed out, the German Club, which was burning, collapsed over them, including Mrs.
Joaquin Navarro, Sr.

xxx xxx xxx

Q. From your testimony it would appear that while you can give positive evidence to the fact that
Pilar, Concepcion and Natividad Navarro, and Joaquin Navarro, Jr. died, you can not give the same
positive evidence to the fact that Angela Joaquin also died? A. Yes, sir, in the sense that I did not
see her actually die, but when the building collapsed over her I saw and I am positive and I did not
see her come out of that building so I presumed she died there.

xxx xxx xxx

Q. Why did you have to dash out of the German Club, you, Mr. Joaquin Navarro, Sr. and Mr. Joaquin
Navarro Jr. and the latter's wife? A. Because the Japanese had set fire to the Club and they were
shooting people outside, so we thought of running away rather than be roasted.

xxx xxx xxx

Q. You mean to say that before you jumped out of the German Club all the Navarro girls, Pilar,
Concepcion, and Natividad, were already wounded? A. to my knowledge, yes.

Q. They were wounded? A. Yes, sir.

Q. Were they lying on the ground or not? A. On the ground near the entrance, because most of
the people who were shot by the Japanese were those who were trying to escape, and as far as I
can remember they were among those killed.

xxx xxx xxx

Q. So you noticed that they were killed or shot by the Japanese a few minutes before you left the
place? A. That is what I think, because those Japanese soldiers were shooting the people inside
especially those trying to escape.

xxx xxx xxx

Q. And none of them was not except the girls, is that what you mean? A . There were many
people shot because they were trying to escape.

xxx xxx xxx

Q. How come that these girls were shot when they were inside the building, can you explain that?
A. They were trying to escape probably.

It is our opinion that the preceding testimony contains facts quite adequate to solve the problem of
survivorship between Angela Joaquin and Joaquin Navarro, Jr. and keep the statutory presumption out of
the case. It is believed that in the light of the conditions painted by Lopez, a fair and reasonable inference
can be arrived at, namely: that Joaquin Navarro, Jr. died before his mother.

While the possibility that the mother died before the son can not be ruled out, it must be noted that this
possibility is entirely speculative and must yield to the more rational deduction from proven facts that it was
the other way around. Joaquin Navarro, Jr., it will be recalled, was killed, while running, in front of, and 15
meters from, the German Club. Still in the prime of life, 30, he must have negotiated that distance in five
seconds or less, and so died within that interval from the time he dashed out of the building. Now, when
Joaquin Navarro, Jr. with his father and wife started to flee from the clubhouse, the old lady was alive and
unhurt, so much so that the Navarro father and son tried hard to have her come along. She could have
perished within those five or fewer seconds, as stated, but the probabilities that she did seem very remote.
True, people in the building were also killed but these, according to Lopez, were mostly refugees who had
tried to slip away from it and were shot by Japanese troops. It was not very likely that Mrs. Joaquin Navarro,
Sr. made an attempt to escape. She even made frantic efforts to dissuade her husband and son from
leaving the place and exposing themselves to gun fire.

This determination of Mrs. Angela Joaquin to stay where she was may well give an idea, at the same time,
of a condition of relative safety in the clubhouse at the moment her husband, son, and daughter-in-law left
her. It strongly tends to prove that, as the situation looked to her, the perils of death from staying were not so
imminent. And it lends credence to Mr. Lopez' statement that the collapse of the clubhouse occurred about
40 minutes after Joaquin Navarro the son was shot in the head and dropped dead, and that it was the
collapse that killed Mrs. Angela Navarro. The Court of Appeals said the interval between Joaquin Navarro's
death and the breaking down of the edifice was "minutes". Even so, it was much longer than five seconds,
long enough to warrant the inference that Mrs. Angela Joaquin was sill alive when her son expired

The Court of Appeals mentioned several causes, besides the collapse of the building, by which Mrs. Navarro
could have been killed. All these are speculative , and the probabilities, in the light of the known facts, are
against them. Dreading Japanese sharpshooters outside as evidenced by her refusal to follow the only
remaining living members of her family, she could not have kept away form protective walls. Besides, the
building had been set on fire trap the refugees inside, and there was no necessity for the Japanese to was
their ammunition except upon those who tried to leave the premises. Nor was Angela Joaquin likely to have
been killed by falling beams because the building was made of concrete and its collapse, more likely than
not, was sudden. As to fumes, these do not cause instantaneous death; certainly not within the brief space
of five seconds between her son's departure and his death.

It will be said that all this is indulging in inferences that are not conclusive. Section 69(ii) of Rule 123 does
not require that the inference necessary to exclude the presumption therein provided be certain. It is the
"particular circumstances from which it (survivorship) can be inferred" that are required to be certain as
tested by the rules of evidence. In speaking of inference the rule can not mean beyond doubt, for "inference
is never certainty, but if may be plain enough to justify a finding of fact." (In re Bohenko's Estate, 4 N.Y.S.
2nd. 427, citing Tortora vs. State of New York, 269 N.Y. 199 N.E. 44; Hart vs. Hudson River Bridge Co., 80
N.Y.). 622.) As the California courts have said, it is enough that "the circumstances by which it is sought to
prove the survivorship must be such as are competent and sufficient when tested by the general rules of
evidence in civil cases." (In re Wallace's Estate, supra.) "Juries must often reason," says one author,
"according to probabilities, drawing an inference that the main fact in issue existed from collateral facts not
directly proving, but strongly tending to prove, its existence. The vital question in such cases is the cogency
of the proof afforded by the secondary facts. How likely, according to experience, is the existence of the
primary fact if certain secondary facts exist?" (1 Moore on Facts, Sec. 596.) The same author tells us of a
case where "a jury was justified in drawing the inference that the person who was caught firing a shot at an
animal trespassing on his land was the person who fired a shot about an hour before at the same animal
also trespassing." That conclusion was not airtight, but rational. In fact, the circumstances in the illustration
leave greater room for another possibility than do the facts of the case at hand.

In conclusion the presumption that Angela Joaquin de Navarro died before her son is based purely on
surmises, speculations, or conjectures without any sure foundation in the evidence. the opposite theory
that the mother outlived her son is deduced from established facts which, weighed by common
experience, engender the inference as a very strong probability. Gauged by the doctrine of preponderance
of evidence by, which civil cases are decided, this inference ought to prevail. It can not be defeated as in an
instance, cited by Lord Chief Justice Kenyon, "bordering on the ridiculous, where in an action on the game
laws it was suggested that the gun with which the defendant fired was not charged with shot, but that the
bird might have died in consequence of the fright." (1 Moore on Facts, 63, citing Wilkinson vs. Payne, 4 T. R.
468.)

It is said that part of the decision of the Court of Appeals which the appellant impugns, and which has been
discussed, involves findings of fact which can not be disturbed. The point is not, in our judgment, well
considered. The particular circumstances from which the parties and the Court of Appeals drew conclusions
are, as above seen, undisputed, and this being the case, the correctness or incorrectness of those
conclusions raises a question of law, not of fact, which the Supreme Court has jurisdiction to look into. As
was said in 1 Moran Commentaries on the Rules of ?Court, 3rd Ed. 856, 857, "Undisputed evidence is one
thing, and contradicted evidence is another. An incredible witness does not cease to be such because he is
not impeached or contradicted. But when the evidence is purely documentary, the authenticity of which is
not questioned and the only issue is the construction to be placed thereon, or where a case is submitted
upon an agreement of facts, or where all the facts are stated in the judgment and the issue is the
correctness of the conclusions drawn therefrom, the question is one of law which may be reviewed by the
Supreme Court."
The question of whether upon given facts the operation of the statutory presumption is to be invoked is a
question of law.

The prohibition against intermeddling with decisions on questions of evidence refers to decisions supported
by substantial evidence. By substantial evidence is meant real evidence or at least evidence about which
reasonable men may disagree. Findings grounded entirely on speculations, surmises, or conjectures come
within the exception to the general rule.

We are constrained to reverse the decision under review, and hold that the distribution of the decedents'
estates should be made in accordance with the decision of the trial court. This result precludes the necessity
of passing upon the question of "reserva troncal" which was put forward on the hypothetical theory that Mrs.
Joaquin Navarro's death preceded that of her son. Without costs.

Feria, Pablo, Bengzon, Montemayor, Reyes, Jugo, Bautista Angelo and Labrador, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18452 May 31, 1965

AUGUSTO COSIO and BEATRIZ COSIO DE RAMA, petitioners,

vs.
CHERIE PALILEO, respondent.

Recto Law Office for petitioners.

Bengzon, Villegas, Bengzon and Zarraga for respondent.

REGALA, J.:

This is an action to recover the possession of a house. It was filed following our decision in Palileo v. Cosio,
51 O.G. 6181, in which We ruled that the house in question had not been sold out but had merely been
given as security for a debt, the pacto de retro sale between the parties being in reality a loan with an
equitable mortgage. In a sense, therefore, this case is a sequel to Palileo v. Cosio. The parties are here this
time to litigate on the issue of possession and its effects.

The house in this case, a two-story building, was formerly owned by Felicisima Vda. de Barza. It is located
at 25 (formerly 6) Antipolo Street, Pasay City, on a lot belonging to the Hospicio de San Juan de Dios. On
October 4, 1950, this house and the leasehold right to the lot were bought by respondent Cherie Palileo who
paid part of the purchase price and mortgaged the house to secure the payment of the balance.

It appears that respondent Palileo defaulted in her obligation, because of which the mortgage was
foreclosed and the house was advertised for sale. Fortunately for her, however, respondent Palileo was able
to raise money on December 18, 1951 before the house could be sold at public auction. On this date,
respondent Palileo received from petitioner Beatriz Cosio de Rama the sum of P12,000 in consideration of
which she signed a document entitled "Conditional Sale of Residential Building," purporting to convey to
petitioner Cosio de Rama the house in question. Under this document, the right to repurchase the house
within one year was reserved to respondent Palileo. On the same day, the parties entered into an agreement
whereby respondent Palileo remained in possession of the house as tenant, paying petitioner Cosio de
Rama a monthly rental of P250.

Petitioner Cosio de Rama subsequently insured the house against fire with the Associated Insurance &
Surety Co., Inc. On October 25, 1952, fire broke out in the house and partly destroyed the same. For the
loss, petitioner Cosio de Rama was paid P13,107 by the insurance company.

At the instance of his sister, petitioner Cosio de Rama, the other petitioner Augusto Cosio entered the
premises and began the repair of the house. Soon after an action was filed by respondent Palileo against
Cosio de Rama for the reformation of the deed of pacto de retro sale into a loan with an equitable mortgage.
This case was filed in the Court of First Instance of Rizal on December 4, 1952. One week after (December
11), respondent Palileo filed another action in the Municipal Court of Pasay City, this time seeking the
ejectment of petitioner Cosio who, it was alleged, had entered and occupied the house without the
knowledge and consent of respondent Palileo. Just the same, however, repair work went on and although at
times interrupted it was finally completed in 1953 at a cost of P12,000.

Meanwhile the ejectment suit was dismissed by the Municipal Court. Respondent Palileo appealed to the
Court of First Instance of Pasig, but the case was again dismissed, this time for failure of respondent Palileo
to prosecute. The dismissal of the case was subsequently made "without prejudice."

In the other case, respondent Palileo was successful. Both the lower court and this Court declared the
transaction of the parties to be a loan with an equitable mortgage and not a conditional sale. It was found
that the amount of P12,000, which purported to be the price, was in fact a loan; that the amount of P250
paid every month as rent was in reality interest; and that the house allegedly sold was intended to be a
security for the loan. Accordingly, this Court directed petitioner Cosio de Rama to return to respondent
Palileo the sum of P810 which she had collected as interest in excess of that allowed by law. This Court
likewise ruled that petitioner Cosio de Rama could keep the proceeds of the fire insurance but that her claim
against respondent Palileo under the loan was to be deemed assigned to the insurance company.

As earlier stated, this suit was instituted to recover the possession of the house as a consequence of our
decision that it had not really been sold but had merely been given as security for a loan. It was originally
brought against petitioner Cosio who asked that the action be dismissed on the ground that it was barred by
the judgment of the Municipal Court which dismissed the ejectment case against him. The court denied the
motion to dismiss. And so petitioner Cosio filed his answer. He was later joined by petitioner Cosio de Rama
who was allowed to intervene in the action.

Thereafter, the lower court rendered judgment finding petitioner Cosio de Rama to be a possessor in good
faith with a right to retain possession until reimbursed for her expenses in repairing the house. The
dispositive portion of its decision reads:

IN VIEW OF THE FOREGOING, the Court hereby renders judgment declaring plaintiff Palileo as the
lawful owner of the house No. 25 Antipolo Street, Pasay City and entitled to the possession thereof
upon her paying to intervenor defendant Beatriz Cosio de Rama the sum of TWELVE THOUSAND
(P12,000.00) PESOS with interest at the legal rate from December 22, 1946 which is the date of the
filing of intervenor-defendant's counterclaim until paid. There is no judgment for costs.

Not satisfied, respondent Palileo appealed to the Court of Appeals and succeeded in having the lower court
decision modified. The appellate court ruled that

by virtue of the pacto de retro sale intervenor-appellee (Beatriz Cosio de Rama) became the
temporary owner of the house and as such she was entitled to the possession thereof from the date
of such conditional sale although appellant (Cherie Palileo) was its actually occupant as intervenor
appellee's tenant. ... However, when appellant instituted the ejectment case against appellee
(Augusto Cosio) and intervenor-appellee (Cosio de Rama) as early as December 1952, when the
latter had just started to reconstruct the house, and she likewise commenced the action against
intervenor-appellee in the same month of December, 1952, to have the deed of pacto de retro sale
declared as one of loan with equitable mortgage, said appellee and intervenor-appellee's title to the
house suffered from a flaw. From that time both appellee and intervenor-appellee ceased to be
considered possessors in good faith. (Art. 528, new Civil Code; Tacas v. Tobon 53 Phil. 356; Lopez,
Inc. v. Phil. Eastern Trading Co., Inc., 52 Off. Gaz. 1452) And if they chose to continue reconstructing
the house even after they were appraised of a flaw on their title they did so as builders in bad faith.

Accordingly, it rendered judgment as follows:

WHEREFORE, with the modification that appellant (Cherie Palileo) is hereby declared the lawful
owner of the house known as No. 25 Antipolo Street, Pasay City, and entitled to the possession
thereof, without reimbursing intervenor-appellee (Beatriz Cosio de Rama) the sum of P12,000
allegedly spent for the reconstruction of the same, and appellee (Augusto Cosio) and intervenor-
appellee (Cosio de Rama) are hereby ordered to pay appellant a monthly rental of P300 during the
time they actually occupied the house just mentioned as possessors in bad faith, the decision
appealed from is hereby affirmed in all other respects. Without any pronouncement as to costs. 1wph1.t

Petitioners Cosio and Cosio de Rama have appealed to this Court by certiorari, citing Article 526 of the Civil
Code which states as follows:

He is deemed a possessor in good faith who is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it.

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of good faith.

They contend that they were not only possessors in good faith from the beginning but that they continue to
be such even after this Court's declaration that their transaction was a loan with a mortgage and not a sale
with a right of repurchase, because, as a matter of fact, this Court did not invalidate, but merely reformed,
the supposed deed of sale. Petitioners likewise aver that neither can the ejectment suit be considered to be
notice of any defect or flaw in their mode of acquisition because that case after all was dismissed.
We believe that both the petitioners and the Court of Appeals are in error in saying that the former had a
right to the possession of the house under the deed of pacto de retro sale. Petitioners did not have such a
right at any time and they knew this.

In reforming instruments, courts do not make another contract for the parties (See Civil Code, Arts. 1359-
1369 and the Report of the Code Commission, p. 56). They merely inquire into the intention of the parties
and, having found it, reform the written instrument (not the contract) in order that it may express the real
intention of the parties (See Id., Arts. 1365 and 1602). This is what was done in the earlier case between the
parties. In holding that the document entitled "Conditional Sale of Residential Building" was in fact a
mortgage, this Court said: "This document did not express the true intention of the parties which was merely
to place said property (the house) as security for the payment of the loan." (Palileo v. Cosio, 51 O.G. 6181 at
6184)

If that was the intention of the parties (to conform to which their written instrument was reformed) then
petitioner Cosio de Rama knew from the beginning that she was not entitled to the possession of the house
because she was a mere mortgagee. For the same reason, she could not have been mistaken as to the true
nature of their agreement. Hence, in bidding her brother, petitioner Cosio, to enter the premises and make
repairs and in later occupying the house herself, petitioner Cosio de Rama did so with this knowledge.

As possessors in bad faith, petitioners are jointly liable for the payment of rental, the reasonable value of
which, as found by the appellate court is P300 a month. (Art. 549. See Lerma v. De la Cruz, 7 Phil. 581) This
finding is supported by the evidence and we find no reason to disturb it.

But even as we hold petitioner Cosio de Rama to be a possessor in bad faith we nevertheless believe that
she is entitled to be reimbursed for her expenses in restoring the house to its original condition after it had
been partly damaged by fire, because such expenses are necessary (Angeles v. Lozada, 54 Phil. 184) and,
under Article 546, are to be refunded even to possessors in bad faith. As already stated, petitioner Cosio de
Rama spent P12,000 for the repair work.

The error of the appellate court lies in its failure to appreciate the distinction that while petitioner Cosio de
Rama is a possessor in bad faith, she is not a builder in bad faith. Thus in describing petitioners as "builders
in bad faith" and, consequently, in holding that they have no right to be reimbursed, the court obviously
applied Article 449 which states 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." But article 449 is a rule of accession and we are not
here concerned with accession. There is here no reason for the application of the principle accesio cedit
principali, such as is contemplated in cases of accession continua of which article 449 is a rule. For what
petitioners did in this case was not to build a new house on the land of another. Rather, what they did was
merely to make repairs on a house that had been partly destroyed by fire and we are asked whether they
have a right to be refunded for what they spent in repairs. The land on which the house is built is not even
owned by respondent Palileo, that land being the property of the Hospicio de San Juan de Dios. This case
comes under article 546 which, as we have already indicated, provides for the refund of necessary
expenses "to every possessor."

And now we come to the last point in petitioners' assignment of errors. It is contended that the present
action is barred by the judgment of the Municipal Court which dismissed the ejectment case filed by
respondent Palileo against petitioner Cosio. It is said that although that ejectment was vacated when it was
appealed to the Court of First Instance, the subsequent dismissal of the case was equivalent to the
withdrawal of the appeal and therefore to a revival of the judgment of the Municipal Court. That judgment, to
repeat, dismissed the ejectment case against petitioner Cosio.

We note that this point, though raised in the Court of First Instance, was not properly assigned as error in
the Court of Appeals. It was there taken up only in the "preliminary remarks" in the brief. Although petitioners
were appellees in the Court of Appeals, they should have assigned this alleged error if only to maintain the
decision of the lower court.

Apart from this consideration, we believe that this action is not barred by the prior judgment in the ejectment
case. The pertinent provisions of the Rules of Court state:

Effect of appeals. A perfected appeal shall operate to vacate the judgment of the justice of the
peace or the municipal court, and the action when duly docketed in the Court of First Instance, shall
stand for trial de novo upon its merits in accordance with the regular procedure in that court, as
though the same had never been tried before and had been originally there commenced. If the
appeal is withdrawn, or dismissed for failure to prosecute, the judgment shall be deemed revived
 and shall forthwith be remanded to the justice of the peace or municipal court for execution. (Rule
40, see. 9, Rules of Court.)

The following comment answers squarely petitioners' arguments:

The case shall stand in the Court of First Instance as though the same "had been originally there
commenced." Thus, if an action is filed in an inferior court, and the plaintiff fails to appear and the
case is dismissed, may the plaintiff file another complaint for the same cause? The Supreme Court
held that, since the appeal had the effect of vacating the judgment of the inferior court and,
therefore, the case, when dismissed, was in the Court of First Instance as if the same "had been
originally there commenced" and since dismissals, on the ground aforementioned, of cases coming
within the original jurisdiction of the Court of First Instance, are without prejudice, the conclusion is
that plaintiff may file a new complaint for the same cause. (Marco v. Hashim 40 Phil. 592) This ruling,
however, is affected to a certain extent by Rule 17, section 3, which provides that the dismissal of a
case on the ground of plaintiff's failure to appear at the trial, is a final adjudication upon the merits
unless the court otherwise provides." (2 Moran, Comments on the Rules of Court, 344-345 [1963
ed.])

Here the dismissal of the ejectment case for failure of respondent Palileo to prosecute was expressly made
to be without prejudice. That judgment, therefore, cannot be a bar to the filing of another action like the
present.

WHEREFORE, with the modification that petitioner Cosio de Rama should be reimbursed her necessary
expenses in the amount of P12,000 by respondent Palileo, the judgment of the Court of Appeals is affirmed
in all other respects, without pronouncements as to, cost.

Bengzon, C.J., Bautista Angelo and Zaldivar, JJ., concur.

Reyes, J.B.L., Paredes and Makalintal, JJ., concur in the result.
Barrera and Bengzon, J.P., JJ., took no part.