Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-4529 December 29, 1952

VICENTE M. COLEONGCO, petitioner,

vs.
PEDRO F. REGALADO and LEONOR MONTILLA, respondents.

Jose Ur. Carbonell for petitioner.

Jose M. Estacion and Remigio M. Peña for respondents.

JUGO, J.:

The Court of Appeals (5th Division) rendered the following decision, the facts of which cannot be
reviewed by this court:

DECISION

FELIX, J.:

Antecedents. — Prior to September of 1944, Pedro F. Regalado was the owner of lot No.
1205-A of plan Psd. 12393, G.L.R.O. cadastral record No. 55, situated at barrio Mandalagan,
Municipality of Bacolod, Province of Negros Occidental, of which lot No. 157 of the subdivision
plan Psd. 12395 was a portion. In this lot there was erected a building which in September of
1944, was being occupied by the forces of the Japanese Army. In that month of September
Pedro F. Regalado sold lot No. 157 to Vicente M. Coleongco who thus became the owner of
the lot, covered by transfer certificate of title No. 663 of the Land Records of Negros
Occidental. The total area of the lot was 1,000 square meters, and the land occupied by the
house was 245 square meters. Until the year of 1947, the assessed value of the whole lot and
the house was P1,156 and P4,500, respectively.

It appears from the records that Vicente M. Coleongco contended that the house erected on lot
157 was included in the sale to him of this property, and when the City of Bacolod was
liberated by the American Forces that succeeded the Japanese and occupied said house for
about two months, Coleongco received from the local office of the AFWESPAC as rentals for
such occupation the sum of $93.75 or P137.50. It so happened, however, that after the
American Forces vacated the house, Pedro F. Regalado occupied the same, so Vicente M.
Coleongco instituted Civil Case No. 185 of the Court of First Instance of Negros Occidental,
which on March 21, 1947, decided that the improvement of lot No. 157, consisting of a
residential house, was the property of the defendant therein Pedro F. Regalado. From that
decision Coleongco appealed to the Court of Appeals, but on August 28, 1947, this tribunal
declared the appeal abandoned.

The case. — One month before this outcome in the Court of Appeals of said case No. 185, or
on July 21, 1947, Vicente M. Coleongco filed the complaint that gave rise to the present action.
On September 20, 1947, Pedro F. Regalado, in consideration of the sum of P3,500, deeded
and sold said house to Leonor Montilla Vda. de Peña, who was duly apprised of the present
case that was pending against the vendor (Annex A). This transaction was supplemented by
contract Annex B, dated October 3, 1947, wherein the vendee Leonor Montilla expressly
admitted that she had knowledge of the existence of this civil case (docket No. 718 of the
Court of First Instance of Negros Occidental) concerning the house object of the sale,
assumed whatever rights and obligations might arise with respect to such civil case, and freed
and liberated the vendor Regalado from the result of the case. Because of these transactions
between Regalado and Mrs. Montilla, on or about October 22, 1947, the plaintiff amended his
complaint including Leonor Montilla as party defendant. In the amended complaint it is prayed
that after due hearing the defendants be condemned:

1. To pay unto the plaintiff the monthly rental of sixty pesos (P60) for his premises during the
period occupied by said defendants;

2. To order the defendants to remove or clear the house from the plaintiff's premises;

3. To pay the costs of the suit; and

4. To grant such relief or other remedies which the court may consider just and equitable.

On November 3, 1947, Atty. Vivencio T. Ibrado, signing over the title of "Attorney for
the Defendant", filed an answer to the amended complaint with counterclaim, praying the court
that:

1. The complaint of the plaintiff be dismissed, with costs against the plaintiff;lawphil.net

2. That the Honorable Court fix the rental for the occupation of the 245 square meters of the lot
in question and that said rental be made effective only from August 28, 1947;

3. That the plaintiff be ordered to pay to the defendant the sum of ninety-three dollars and
seventy-five cents ($93.75);

4. That the Honorable Court fix the value of the lot in question and order the plaintiff to sell the
lot to the defendant;

5. To grant such other remedies as this Honorable Court may deem just and equitable in the
premises;

Defendant Leonor Montilla did not file a separate answer to the amended complaint, and on
motion of the plaintiff the court by order of February 11, 1948, declared Leonor Montilla in
default over the objection of both defendants who claimed that the answer to the amended
complaint filed by Attorney Ibrado on November 3, 1947, used the words "defendants" in
various parts of the answer, and that it was intended to be the answer for both.

After proper proceedings and hearing, on January 3, 1949, the court rendered judgment, the
dispositive part of which, translated into English, is as follows:lawphil.net

"In view of the foregoing, the court renders judgment in this case, sentencing the defendants to
pay the plaintiff the monthly sum of P14.06 from September, 1945, as rentals, with legal
interest thereon from the date of the filing of the complaint in this case, and providing that the
sum of $93.75 or P187.50, its equivalent in Philippine currency, he deducted from the total
sum of said rents.

"Defendants are ordered to vacate the building from the portion of the lot on which it is erected
within the period of two months from the date this decision becomes final, and to that end they
are ordered to remove the building from the said portion of the lot within the aforementioned
period.

"The costs are taxed against the defendants."

From this decision both defendants appealed, and in this instance their counsel maintains that
the lower court erred:

1. In declaring the appellant Leonor Montilla in default;

2. In sentencing the defendants to pay the plaintiff the monthly rental of P14.06 for the portion
of lot No. 157 of subdivision plan Psd-12395 from the month of September, 1945, with legal-
interest from the date of the presentation of the complaint;

3. In ordering the appellants to remove their house from the portion of the lot occupied by the
same within the period of two months from the date its decision becomes final; and

4. In not absolving the defendants from the complaint and in sentencing them to pay the costs
of this suit.

Discussion of the controversy. — Before the presentation of evidence at the hearing, the
parties entered into the following stipulation of facts, to wit:

"1. That the parties are all of legal age and residents of the City of Bacolod, Philippines;

"2. That since the month of September, 1944, the plaintiff became the registered owner of lot
No. 157 of the subdivision plan Psd-12395, which is a portion of lot No. 1205-A of subdivision
plan Psd-12393, G.L.R.O. cadastral record No. 55, situated in the City of Bacolod and
described in the transfer certificate of title No. 663 (P.R.);

"3. That be decision rendered in civil case No. 185 by this same court and which is now final,
defendant Pedro F. Regalado was declared the owner of the building of strong materials
erected on said lot;

"4. That actual assessed value of said lot is P5,625;

"5. That said building is also assessed at P4,500;

"6. That on October 30, 1946, the lot in question was assessed at P1,312.50;

"7. That said lot has an area of 1,000 square meters;

"8. That the portion of the same occupied by the building existing thereon is of an area of 245
square meters;
"9. That in the month of September of 1947, defendant Pedro F. Regalado sold said building to
his co-defendant Leonor Montilla for the sum of P3,500, of which amount the vendee paid the
vendor, at the time of the execution of the deed of sale, the sum of P2,000, binding herself to
pay the balance of P1,500 on or before October 31, 1947. Defendants Pedro F. Regalado and
Leonor Montilla have executed a contract supplementary to the previous deed of sale, by
virtue of which said Leonor Montilla acknowledged the existence of the present case and
assumed the obligation of paying whatever rents and of complying with whatever obligations
the court would impose on the defendant Pedro F. Regalado."

Aside from this stipulation and the facts appearing in the preceding narration of the
antecedents and of the statement of the case, plaintiff-appellee declared that he desired to
take possession of the portion of the lot occupied by the questioned building because he
intended to construct his own house, as he was then paying rents for the lease of his
residence at a rate higher than the amount he is entitled to receive as rents from the portion of
the land occupied by the building of the defendants.

A perusal of the record discloses that the present action for ejectment was instituted on July
21, 1947, beforeplaintiff's appeal in Case No. 185 was finally declared abandoned in the Court
of Appeals, and the fact that in said case Coleongco unsuccessfully claimed to be the owner of
the house in litigation does not preclude his right to depart from his former contention and to
institute these ejectment proceedings to compel the defendants to vacate his lot and to remove
therefrom the building which at first he maintained to be his, and to further demand payment of
the corresponding rentals for the occupancy of the lot by said building from September, 1944,
when he bought the property, up to the time said building is actually removed, except, of
course, for the period that he might have occupied or used that building. But the record is silent
about such use and all indications are that from September of 1944, the house was first
occupied by the Japanese, then by the American Forces, after liberation, and right afterwards
in September of 1945 by defendant Regalado himself and by his successors in interest. The
lower court, however, sentenced the defendants to pay rents from September, 1945, and as
plaintiff has not appealed from that ruling, We can only consider the adequacy of the amount
fixed by the court as rentals from September, 1945.

With regard to defendant Leonor Montilla's alleged default, and despite the considerations
made by the lower court in its order of February 11, 1948, we are of the opinion that the
answer with the counterclaim filed by Attorney Ibrado on November 3, 1947, should have been
considered as submitted for both defendants: firstly, because the attorney that filed that
answer specifically so stated; and, secondly, because the grammatical errors in the use of the
verbs in connection with the word "defendants", as for example in the expression of
"defendants alleges", should not be charged against any of them who did not prepare that
pleading and, under the circumstances, should not be deprived of any right on account of the
careless preparation thereof. Notwithstanding this opinion, we hold that the ruling of the lower
court on this point is of no sequence, because both defendants had common interests and the
defenses, and the rights of appellant Leonor Montilla have been properly attended to by her
co-appellant Pedro F. Regalado.

The action which originally was instituted as an ejectment case for the main purpose of
causing the removal of defendants' building from plaintiff's lot — and was filed directly in the
Court of First Instance of Occidental Negros because the right of action had accrued since
September of 1944 — was enlarged by defendants' counterclaim to include plaintiff's right of
accession prescribed in article 361 of the old Civil Code. In passing upon the merits of the
controversy on this question at issue, we may state that it is not disputed that the building in
litigation was formerly the property of Pedro F. Regalado and presently of Leonor Montilla, that
this building was constructed in good faith, and consequently, that the enjoyment and
possession thereof must be considered to have been always in good faith. Our Civil Code
provides:

"ART. 358. What is built, planted or sown on another's land and any improvements or repair
made on it, belongs to the owner of the land, subject to the provisions of the following articles.

"ART. 361. The owner of land on which anything has been built, sown or planted, in good faith,
shall be entitled to appropriate the thing so built, sown, or planted, upon paying the
compensation mentioned in articles 453 and 456, or to compel the person who has built or
planned to pay him the value of the land, and the person who sowed thereon to pay the proper
rent therefor.

"ART. 453. Necessary expenditures shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until they are repaid to him.

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

"ART. 454. Expenditures purely for ostentation or mere pleasure shall not be repaid the
possessor in good faith; but he may remove the ornaments with which he has established the
principal thing if it does not suffer injury thereby and if the successor in the possession does no
prefer to refund the amount expended.

"In view of this legal provisions, we have to declare that the right of the owner of a lot to have
the same vacated or cleared from any construction or improvement belonging to another which
built it in good faith, is to be subordinated to and without prejudice of whatever rights the owner
and builder in good faith of the improvement may have. We, therefore, cannot now act
favorably on plaintiff's complaint for ejectment disregarding defendants' rights either to pay for
the acquisition of lot No. 157 or of being paid the value of the building erected thereon, at the
option of the plaintiff.

"As regards the amount of monthly rents that appellants were condemned to pay the plaintiff,
the following considerations must be taken into account, to wit: (a) that although the portion of
lot 157 actually occupied by the building is of an area of 245 square meters, for the purpose of
fixing the rent in this case the assessed value of the whole lot should be had in mind, as there
is no evidence that the occupied portion of said lot had been devoted to any use other than as
site of the house in question; (b) that the amount of the rent that defendants should have been
sentenced to pay for the period of from September, 1945, to the end of 1946 should have been
fixed in accordance with its former assessed value of P1,312.50; (c) that from January of 1947,
the assessed value of P5,625 should be the one determining the proper amount of the rents;
(d) that section 3 of Commonwealth Act No. 689 promulgated October 15, 1945, prescribes
that "in the case of the lease for the occupation of the lot, the rents shall be presumed unjust
and unreasonable if the amount thereofper annum likewise exceeds twenty per centum of the
annual assessment value of said lot"; (e) that although Executive Order No. 62, issued on June
21, 1947, reduced the annual rent demandable to an amount not exceeding twelve per
centum of the assessed value, said Executive Order was declared null and void for having
been issued without authority of law (Araneta vs. Dinglasan, * 45 Off. Gaz., No. 10, p. 4411);
(f) that on the strength of the provisions of law quoted, the amount of the rent that ought to
have been fixed as monthly rent in this case is P21.875 from September, 1944, up to
 December, 1946, and P93.75 from January of 1947, up to the time of actual removal of the
building form the lot, or to the time when the parties would come to an agreement as per article
361 of the old Civil Code; (g) that the aggregate sum of such rents being greater than the
amount fixed by the lower court, and even greater than the amount that plaintiff prayed for in
the complaint, and as plaintiff has not appealed from the amount fixed in this decision of the
lower court, we are not in a position to increase or modify the amount of the rents the
defendants have been sentenced to pay to the plaintiff.

Wherefore, the decision appealed from is hereby affirmed in so far as it condemns the
defendants to pay to the plaintiff as monthly rents the sum of P14.06 from September, 1945,
with legal interest thereon from the date of the filing of the complaint (July 21, 1947), from the
total of which the sum of P187.50 should be deducted. The decision is reversed as to the rest
and this case is returned to the lower court, with instructions to give the plaintiff an opportunity
to exercise his right of option granted to him by article 361 of the old Civil Code, without
pronouncement as to cost. It is so ordered.

ALFONSO FELIX
Associate Justice

We concur:

M. L. DE LA ROSA EMILIO PEÑA

Associate Justice Associate Justice

Coleongco contended that in September, 1944, he bought not only the lot above-mentioned but also
the house erected thereon. He instituted an action in civil case No. 185 of the Court of First Instance
of Occidental Negros, in order to be declared the owner of the house. However, the Court of First
Instance, on March 21, 1947, decided that said house was the property of the defendant Pedro F.
Regalado, not sold to Coleongco. Coleongco appealed to the Court of Appeals but latter on said
Court declared the appeal abandoned and the decision of the Court of First Instance became final.
This decision is to the effect that Regalado, being the owner of both the lot and the house, sold only
the lot to Coleongco, retaining ownership of the house. Consequently, Regalado or his successor
Leonor Montilla should remove said house from the lot without any compensation from Coleongco.

Article 361 of the old Civil Code is not applicable in this case, for Regalado constructed the house on
his own land before he sold said land to Coleongco. Article 361 applies only in the cases where a
person constructs a building on the land of another in good or in bad faith, as the case may be. It
does not apply to a case where a person constructs a building on his own land, for then there can be
no question as to good or bad faith on the part of the builder.

In view of the foregoing, the decision of the Court of Appeals is modified by ordering Regalado and
his successor Leonor Montilla to remove the above-mentioned house from the lot of Coleongco,
without any obligation on the part of the latter to pay any compensation to Regalado or his successor
Montilla. In all other respects, the decision of the Court of Appeals is affirmed with costs against
respondents Regalado and Montilla. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-32974 July 30, 1979

BARTOLOME ORTIZ, petitioner,

vs.
HON. UNION C. KAYANAN, in his capacity as Judge of the Court of First Instance of Quezon, Branch
IV; ELEUTERIO ZAMORA, QUIRINO COMINTAN, VICENTE FERRO, AND GREGORIO
PAMISARAN, respondents.

Salonga, Ordoñ;ez, Yap, Sicat & Associates and Salvador, Ulgado & Carbon for petitioner.

Jose A. Cusi for private respondents.

ANTONIO, J.: 1äwphï1.ñët

Petition for certiorari and Prohibition with Preliminary Injunction to nullify the Order of respondent Judge
directing the execution of the final judgment in Civil Case No. C-90, entitled "Bartolome Ortiz vs. Secretary of
Agriculture and Natural Resources, et al.," and the Writ of Execution issued to implement said Order, allegedly
for being inconsistent with the judgment sought to be enforced.

Civil Case No. C-90 was filed by Bartolome Ortiz who sought the review and/or annulment of the decision of
the Secretary of Agriculture and Natural Resources, giving preference to the sales applications of private
respondents Quirino Comintan and Eleuterio Zamora over Lot No. 5785, PLS-45, located at Barrio Cabuluan,
Calauag, Quezon.

The factual background of the case, as found by respondent Court, is as follows: têñ.£îhqwâ£

... The lot in controversy was formerly the subject of Homestead Application No. 122417 of
Martin Dolorico II, plaintiff's ward who died on August 20, 1931; that since then it was plaintiff
who continued the cultivation and possession of the property, without however filing any
application to acquire title thereon; that in the Homestead Application No. 122417, Martin
Dolorico II named his uncle, Martin Dolorico I as his heir and successor in interest, so that in
1951 Martin Dolorico I executed an affidavit relinquishing his rights over the property in favor of
defendants Quirino Comintan and Eleuterio Zamora, his grandson and son-in-law, respectively,
and requested the Director of Lands to cancel the homestead application; that on the strength of
the affidavit, Homestead Application No. 122417 was cancelled and thereafter, defendants
Comintan and Zamora filed their respective sales applications Nos. 8433 and 9258; that plaintiff
filed his protest on November 26, 1951 alleging that he should be given preference to purchase
the lot inasmuch as he is the actual occupant and has been in continuous possession of the
same since 1931; and inspite of plaintiff's opposition, "Portion A" of the property was sold at
public auction wherein defendant Comintan was the only bidder; that on June 8, 1957,
investigation was conducted on plaintiff's protest by Assistant Public Lands Inspector Serapion
Bauzon who submitted his report to the Regional Land Officer, and who in turn rendered a
decision on April 9, 1958, dismissing plaintiff's claim and giving due course to defendants' sales
applications on the ground that the relinquishment of the homestead rights of Martin Dolorico I
 in favor of Comintan and Zamora is proper, the former having been designated as successor in
interest of the original homestead applicant and that because plaintiff failed to participate in the
public auction, he is forever barred to claim the property; that plaintiff filed a motion for
reconsideration of this decision which was denied by the Director of Lands in his order dated
June 10, 1959; that, finally, on appeal to the Secretary of Agriculture and Natural Resources,
the decision rendered by the Regional Land Officer was affirmed in toto. 1

On March 22, 1966, respondent Court rendered judgment in the afore-mentioned civil case, the dispositive
portion of which reads as follows: têñ.£îhqwâ£

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered awarding

Lot No. 5785-A of PLS-45, (Calauag Public Land Subdivision) one-half portion of the property in
litigation located at Bo. Cabuluan, Calauag, Quezon, in favor of defendant QUIRINO
COMINTAN, being the successful bidder in the public auction conducted by the bureau of Lands
on April 18, 1955, and hereby giving due course to the Sales Application No. 9258 of defendant
Eleuterio Zamora over the other half, Lot No. 5785-B of PLS-45, Calauag, without prejudice to
the right of plaintiff BARTOLOME ORTIZ to participate in the public bidding of the same to be
announced by the Bureau of Lands, Manila. However, should plaintiff Bartolome Ortiz be not
declared the successful bidder thereof, defendants Quirino Comintan and Eleuterio Zamora are
ordered to reimburse jointly said plaintiff the improvements he has introduced on the whole
property in the amount of THIRTEEN THOUSAND SIX HUNDRED THIRTY-TWO (P13,632.00)
PESOS, the latter having the right to retain the property until after he has been fully paid
therefor, without interest since he enjoys the fruits of the property in question, with prejudice and
with costs again the plaintiff.2

Plaintiff appealed the decision to the Court of Appeals.

Two (2) years after the rendition of the judgment by the court a quo, while the case was pending appeal and
upon petition of private respondents Quirino Comintan and Eleuterio Zamora, respondent Court appointed
respondent Vicente Ferro, Clerk of Court, as Receiver to collect tolls on a portion of the property used as a
diversion road. On August 19, 1969, the Court of Appeals issued a Resolution annulling the Order appointing
the Receiver. Subsequently, on February 19, 1970, the Appellate Court affirmed the decision of the trial court.
A petition for review on certiorari of the decision of the Court of Appeals was denied by this Court on April 6,
1970. At this point, private respondents filed a petition for appointment of a new receiver with the court a quo.
This petition was granted and the receiver was reappointed. Petitioner sought the annulment of this Order with
the Court of Appeals, but said Court ruled that its decision had already become final and that the records of the
case were to be remanded to the trial court.

Not satisfied with such denial, petitioner filed a petitioner for certiorari, prohibition and mandamus with
preliminary injunction before this Court, 3 praying for the annulment of the Order reappointing the Receiver. On
July 13, 1970, the petition was dismissed by this Court on the ground of insufficient showing of grave abuse of
discretion.

II

The judgment having become final and executory private respondents filed a motion for the execution of the
same, praying as follows: têñ.£îhqwâ£

WHEREFORE, it is respectfully prayed of this Honorable Court to order the issuance of a writ of
execution in accordance with the judgment of this Honorable Court, confirmed by the Court of
Appeals and the Supreme Court, commanding any lawful officer to deliver to defendants
Comintan and Zamora the land subject of the decision in this case but allowing defendants to
file a bond in such amount as this Honorable Court may fix, in lieu of the P13,632.00 required to
be paid to plaintiff, conditioned that after the accounting of the tools collected by plaintiff, there is
still an amount due and payable to said plaintiff, then if such amount is not paid on demand,
including the legal interests, said bond shall be held answerable.
 Ordering further the plaintiff to render an accounting of the tolls he collected from March of 1967
to December 31, 1968 and from September 1969 to March 31, 1970, and deliver said tolls
collected to the receiver and if judgment is already executed, then to Quirino Comintan and
Eleuterio Zamora; and,

Finally, to condemn plaintiff to pay moral damages for withholding the tools which belong to your
movant in an amount this Court may deem just in the premises.4

Acting upon the foregoing motion, respondent Judge issued an Order, dated September 23, 1970, stating,
among others, the following: têñ.£îhqwâ£

The records further disclosed that from March 1967 to December 31, 1968, piaintiff Bartolome
Ortiz collected tolls on a portion of the propertv in question wherein he has not introduced anv
improvement particularlv on Lot No. 5785-A; PLS-45 awarded to defendant Quirino Comintan,
thru which vehicular traffic was detoured or diverted, and again from September 1969 to March
31, 1970, the plaintiff resumed the collection of tools on the same portion without rendering any
accounting on said tolls to the Receiver, who, was reappointed after submitting the required
bond and specifically authorized only to collect tolls leaving the harvesting of the improvements
to the plaintiff.

xxx xxx xxx

ln virtue of he findings of this Court as contained in the dispositive portion of its decision, the
defendants are jointly obligated to pay the plaintiff in the amount of P13,632.00 as reasonable
value of the improvements he introduced on the whole property in question, and that he has the
right of retention until fully paid. It can be gleaned from the motion of the defendants that if
plaintiff submits an accounting of the tolls he collected during the periods above alluded to, their
damages of about P25,000.00 can more than offset their obligation of P13,362.00 in favor of the
plaintiff, thereafter the possession of the land be delivered to the defendants since the decision
of the Supreme Court has already become final and executory, but in the interregnum pending
such accounting and recovery by the Receiver of the tolls collected by the plaintiff, the
defendants pray that they allowed to put up a bond in lieu of the said P13,632.00 to answer for
damages of the former, if any.

On the other hand, plaintiff contends in his opposition, admitting that the decision of the
Supreme Court has become final and executory; (1) the offer of a bond in lieu of payment of
P13,632.00 does not, and cannot, satisfy the condition imposed in the decision of this Court
which was affirmed in toto; (2) the public sale of Portion "B" of the land has still to take place as
ordained before the decision could be executed; and, (3) that whatever sums plaintiff may
derive from the property cannot be set off against what is due him for the improvements he
made, for which he has to be reimbursed as ordered.

xxx xxx xxx

Let it be known that plaintiff does not dispute his having collected tolls during the periods from
March 1967 to December 31, 1968 and from September 1969 to March 31, 1970. The Supreme
Court affirmed the decision of this Court its findings that said tolls belong to the defendant,
considering that the same were collected on a portion of the land question where the plaintiff
did not introduce any improvement. The reimbursement to the plaintiff pertains only to the value
of the improvements, like coconut trees and other plants which he introduced on the whole
property. The tolls collected by the plaintiff on an unimproved portion naturally belong to the
defendants, following the doctrine on accretion. Further, the reappointment of a Receiver by this
Court was upheld by the Supreme Court when it denied the petition for certiorari filed by the
plaintiff, bolstering the legal claim of defendants over said tolls. Thus, the decision of the
Supreme Court rendered the decision of this Court retroactive from March 22, 1966 although
pending accounting of the tolls collected by the plaintiff is justified and will not prejudice
 anybody, but certainly would substantially satisfy the conditions imposed in the decision.
However, insofar as the one-half portion "B" of the property, the decision may be executed only
after public sale by the Bureau of Lands shall be accomplished.

WHEREFORE, finding the Motion for Execution filed by the defendants to be meritorious, the
same is granted; provided, however, that they put up a bond equal the adjudicated amount of
P13,632.00 accruing in favor of the plaintiff, from a reputable or recognized bonding or surety
company, conditioned that after an accounting of the tolls collected by the plaintiff should there
be found out any balance due and payable to him after reckoning said obligation of P13,632.00
the bond shall be held answerable therefor.5

Accordingly, a Writ of Execution was issued after private respondent Quirino Comintan had filed the required
bond. The writ directed the Sheriff to enforce the decision of the Court, and stated, part in, the following:
têñ.£îhqwâ£

But should there be found any amount collectible after accounting and deducting the amount of
P3,632.00, you are hereby ordered that of the goods and chattels of Bartolome Ortiz of Bo.
Kabuluan, Calauag, Quezon, be caused to be made any excess in the above-metioned amount
together with your lawful fees and that you render same to defendant Quirino Comintan. If
sufficient personal property cannot be found thereof to satisfy this execution and lawful fees
thereon, then you are commanded that of the lands and buildings of the said BARTOLOME
ORTIZ you make the said excess amount in the manner required by the Rules of Court, and
make return of your proceedings within this Court within sixty (60) days from date of service.

You are also ordered to cause Bartolome Ortiz to vacate the property within fifteen (15) days
after service thereof the defendant Quirino Comintan having filed the required bond in the
amount of THIRTEEN THOUSAND SIX HUNDRED THIRTY-TWO (P13,632.00) PESOS. 6

On October 12, 1970, petitioner filed a Motion for Reconsideration of the aforesaid Order and Writ of
Execution, alleging:
têñ.£îhqwâ£

(a) That the respondent judge has no authority to place respondents in possession of the
property;

(b) That the Supreme Court has never affirmed any decision of the trial court that tolls collected
from the diversionary road on the property, which is public land, belong to said respondents;

(c) That to assess petitioner a P25,000.00 liability for damages is purely punitive imposition
without factual or legal justification.

The foregoing Motion for Reconsideration was denied by respondent Judge per Order dated November 18,
1970. Saod Order states, in part:têñ.£îhqwâ£

It goes without saying that defendant Comintan is entitled to be placed in possession of lot No.
5785-A of PLS-45 (Calauag Public Land Subdivision) and enjoyment of the tolls from March,
1967 to March, 1968 and from September, 1969 to March 31, l970 which were received by
plaintiff Bartolome Ortiz, collected from the property by reason of the diversion road where
vehicular traffic was detoured. To defendant Comintan belongs the tolls thus collected from a
portion of the land awarded to him used as a diversionary road by the doctrine of accretion and
his right over the same is ipso jure, there being no need of any action to possess said addition.
It is so because as consistently maintained by the Supreme Court, an applicant who has
complied with all the terms and conditions which entitle him to a patent for a particular tract of
publlic land, acquires a vested right therein and is to be regarded as equitable owner thereof so
that even without a patent, a perfected homestead or sales application is a property right in the
fullest sense, unaffectcd by the fact that the paramount title is still in the Government and no
subsequent law can deprive him of that vested right The question of the actual damages
 suffered by defendant Comintan by reason of the unaccounted tolls received by plaintiff had
already been fully discussed in the order of September 23, 1970 and the Court is honestly
convinced and believes it to be proper and regular under the circumstances.

Incidentally, the Court stands to correct itself when in the same order, it directed the execution
of he decision with respect to the one-half portion "B" of the property only after the public sale
by the Bureau of Lands, the same being an oversight, it appearing that the Sales Application of
defendant Eleuterio Zamora had already been recognized and full confirmed by the Supreme
Court.

In view thereof, finding the motion filed by plaintiff to be without merit, the Court hereby denies
the same and the order of September 23, 1970 shall remain in full force subject to the
amendment that the execution of the decision with respect to the one-half portion "B" shall not
be conditioned to the public sale by the Bureau of Lands.

SO ORDERED.7

III

Petitioner thus filed the instant petition, contending that in having issued the Order and Writ of Execution,
respondent Court "acted without or in excess of jurisdiction, and/or with grave abuse of discretion, because the
said order and writ in effect vary the terms of the judgment they purportedly seek to enforce." He argued that
since said judgment declared the petitioner a possessor in good faith, he is entitled to the payment of the value
of the improvements introduced by him on the whole property, with right to retain the land until he has been
fully paid such value. He likewise averred that no payment for improvements has been made and, instead, a
bond therefor had been filed by defendants (private respondents), which, according to petitioner, is not the
payment envisaged in the decision which would entitle private respondents to the possession of the property.
Furthermore, with respect to portion "B", petitioner alleges that, under the decision, he has the right to retain
the same until after he has participated and lost in the public bidding of the land to be conducted by the Bureau
of Lands. It is claimed that it is only in the event that he loses in the bidding that he can be legally
dispossessed thereof.

It is the position of petitioner that all the fruits of the property, including the tolls collected by him from the
passing vehicles, which according to the trial court amounts to P25,000.00, belongs to petitioner and not to
defendant/private respondent Quirino Comintan, in accordance with the decision itself, which decreed that the
fruits of the property shall be in lieu of interest on the amount to be paid to petitioner as reimbursement for
improvements. Any contrary opinion, in his view, would be tantamount to an amendment of a decision which
has long become final and executory and, therefore, cannot be lawfully done.

Petitioner, therefore, prayed that: (1) a Writ of Preliminary Injunction be issued enjoining the enforcement of the
Orders of September 23, 1970 and November 18, 1970, and the Writ of Execution issued thereto, or restoring
to petitioner the possession of the property if the private respondents had been placed in possession thereof;
(2) annulling said Orders as well as the Writ of Execution, dissolving the receivership established over the
property; and (3) ordering private respondents to account to petitioner all the fruits they may have gathered or
collected from the property in question from the time of petitioiier's illegal dispossession thereof.

On January 29, 1971, this Court issued the Writ of Preliminary Injunction. On January 30, 1971, private
respondents filed a Motion for Reconsideration and/or Modification of the Order dated January 29, 1971. This
was followed by a Supplemental Motion for Reconsideration and Manifestation on February 3, 1971. In the
latter motion, private respondents manifested that the amount of P14,040.96, representing the amount decreed
in the judgment as reimbursement to petitioner for the improvements, plus interest for six months, has already
been deposited by them in court, "with the understanding that said amount shall be turned over to the plaintiff
after the court a quo shall have determined the improvement on Lot 5785-A, and subsequently the remaining
balance of the deposit shall be delivered to the petitioner (plaintiff therein) in the event he loses the bid for Lot
5785-B in favor of private respondent Eleuterio Zamora."8 The deposit is evidenced by a certification made by
the Clerk of the Court a quo.9 Contending that said deposit was a faithful compliance with the judgment of the
trial court, private respondent Quirino Comintan prayed for the dissolution of the Writ of Injunction.

It appears that as a consequence of the deposit made by private respondents, the Deputy, Sheriff of Calauag,
Quezon ousted petitioner's representative from the land in question and put private respondents in possession
thereof. 10

On March 10, 1971, petitioner filed a "Comment on Respondents' 'Motion for Reconsideration' dated January
29, 1971' and 'Supplemental Motion for Reconsideration and Manifestation,'" contending that the tender of
deposit mentioned in the Suplemental Motion was not really and officially made, "inasmuch as the same
is not supported by any official receipt from the lower court, or from its clerk or cashier, as required by law;"
that said deposit does not constitute sufficient compliance with the judgment sought to be enforced, neither
was it legally and validly made because the requisites for consignation had not been complied with; that the
tender of legal interest for six months cannot substitute petitioner's enjoyment of the fruits of the property as
long as the judgment in Civil Case No. C-90 has not been implemented in the manner decreed therein; that
contrary to the allegations of private respondents, the value of the improvements on the whole property had
been determined by the lower court, and the segregation of the improvements for each lot should have been
raised by them at the opportune moment by asking for the modification of the decision before it became final
and executory; and that the tolls on the property constituted "civil fruits" to which the petitioner is entitled under
the terms of the decision.

IV

The issue decisive of the controvery is—after the rendition by the trial court of its judgment in Civil Case No. C-
90 on March 22, 1966 confirming the award of one-half of the property to Quirino Comintan—whether or not
petitioner is still entitled to retain for his own exclusive benefit all the fruits of the property, such as the tolls
collected by him from March 1967 to December 1968, and September 1969 to March 31, 1970, amounting to
about P25,000.00. In other words, petitioner contends that so long as the aforesaid amount of P13,632,00
decreed in the judgment representing the expenses for clearing the land and the value of the coconuts and fruit
trees planted by him remains unpaid, he can appropriate for his exclusive benefit all the fruits which he may
derive from the property, without any obligation to apply any portion thereof to the payment of the interest and
the principal of the debt.

We find this contention untenable.

There is no question that a possessor in good faith is entitled to the fruits received before the possession is
legally interrupted. 11 Possession in good faith ceases or is legally interrupted from the moment defects in the
title are made known to the possessor, by extraneous evidence or by the filing of an action in court by the true
owner for the recovery of the property.12 Hence, all the fruits that the possessor may receive from the time he is
summoned in court, or when he answers the complaint, must be delivered and paid by him to the owner or
lawful possessor. 13

However, even after his good faith ceases, the possessor in fact can still retain the property, pursuant to Article
546 of the New Civil Code, until he has been fully reimbursed for all the necessary and useful expenses made
by him on the property. This right of retention has been considered as one of the conglomerate of measures
devised by the law for the protection of the possessor in good faith. Its object is to guarantee the
reimbursement of the expenses, such as those for the preservation of the property,14 or for the enhancement of
its utility or productivity.15 It permits the actual possessor to remain in possession while he has not been
reimbursed by the person who defeated him in the possession for those necessary expenses and useful
improvements made by him on the thing possessed. The principal characteristic of the right of retention is its
accessory character. It is accessory to a principal obligation. Considering that the right of the possessor to
receive the fruits terminates when his good faith ceases, it is necessary, in order that this right to retain may be
useful, to concede to the creditor the right to secure reimbursement from the fruits of the property by utilizing its
proceeds for the payment of the interest as well as the principal of the debt while he remains in possession.
This right of retention of the property by the creditor, according to Scaevola, in the light of the provisions of
Article 502 of the Spanish Civil Code,16 is considered not a coercive measure to oblige the debtor to pay,
depriving him temporarily of the enjoyment of the fruits of his property, but as a means of obtainitig
compensation for the debt. The right of retention in this case is analogous to a contract of antichresis and it cati
be considered as a means of extinguishing the obligation, inasmuch as the right to retain the thing lasts only
for the period necessary to enable the creditor to be reimbursed from the fruits for the necessary and useful
expenses. 17

According to Manresa, the right of retention is, therefore, analogous to that of a pledge, if the property retained
is a movable, and to that of antichresis, if the property held is immovable.18 This construction appears to be in
harmony with similar provisions of the civil law which employs the right of retention as a means or device by
which a creditor is able to obtain the payment of a debt. Thus, under Article 1731 of the New Civil Code, any
person who has performed work upon a movable has a right to retain it by way of pledge until he is paid.
Similarly, under Article 1914 of the same Code, the agent may retain in pledge the things which are the object
of the agency until the principal effects reimbursement of the funds advanced by the former for the execution of
the agency, or he is indemnified for all damages which he may have suffered as a consequence of the
execution of the agency, provided he is free from fault. To the same effect, the depositary, under Article 1994
of the same Code, may retain the thing in pledge until the full payment of what may be due him by reason of
the deposit. The usufructuary, pursuant to Article 612 of the same Code, may retain the property until he is
reimbursed for the amount paid for taxes levied on the capital (Article 597) and tor extraordinary repairs (Article
594).

In all of these cases, the right of retention is used as a means of extinguishing the obligation. As amply
observed by Manresa: "El derecho de retencion, lo hemos dicho, es el derecho de prenda o el de anticresis
constituido por la ley con independencia de las partes." 19 In a pledge, if the thing pledged earns or produces
fruits, income, dividends or interests, the creditor shall compensate what he receives with those which are
owing him.20 In the same manner, in a contract of antichresis, the creditor acquires the right to receive the fruits
of an immovable of his debtor with the obligation to apply them to payment of the interest, if owing, and
thereafter to the principal of his credit. 21 The debtor can not reacquire enjoyment of the immovable until he has
actually paid what he owes the creditor. 22

Applying the afore-cited principles to the case at bar, petitioner cannot appropriate for his own exclusive benefit
the tolls which he collected from the property retained by him. It was his duty under the law, after deducting the
necessary expenses for his administration, to apply such amount collected to the payment of the interest, and
the balance to the payment of the obligation.

We hold, therefore, that the disputed tolls, after deducting petitioner's expenses for administration, belong to
Quirino Comintan, owner of the land through which the toll road passed, further considering that the same was
on portions of the property on which petitioner had not introduced any improvement. The trial court itself
clarified this matter when it placed the toll road under receivership. The omission of any mention of the tolls in
the decision itself may be attributed to the fact that the tolls appear to have been collected after the rendition of
the judgment of the trial court.

The records further reveal that earnest efforts have been made by private respondents to have the judgment
executed in the most practicable manner. They deposited in court the amount of the judgment in the sum of
P13,632.00 in cash, subject only to the accounting of the tolls collected by the petitioner so that whatever is
due from him may be set off with the amount of reimbursement. This is just and proper under the
circumstances and, under the law, compensation or set off may take place, either totally or partially.
Considering that petitioner is the creditor with respect to the judgment obligation and the debtor with respect to
the tolls collected, Comintan being the owner thereof, the trial court's order for an accounting and
compensation is in accord with law. 23

With respect to the amount of reimbursement to be paid by Comintan, it appears that the dispositive portion of
the decision was lacking in specificity, as it merely provided that Comintan and Zamora are jointly liable
therefor. When two persons are liable under a contract or under a judgment, and no words appear in the
contract or judgment to make each liable for the entire obligation, the presumption is that their obligation is joint
or mancomunada, and each debtor is liable only for a proportionate part of the obligation. 24 The judgment debt
of P13,632.00 should, therefore, be pro-rated in equal shares to Comintan and Zamora.
Regarding Lot 5785-B, it appears that no public sale has yet been conducted by the Bureau of Lands and,
therefore, petitioner is entitled to remain in possession thereof. This is not disputed by respondent Eleuterio
Zamora. 25 After public sale is had and in the event that Ortiz is not declared the successful bidder, then he
should be reimbursed by respondent Zamora in the corresponding amount for the improvements on Lot 5785-
B.

WHEREFORE, in view hereof, the Order of respondent Court of November 18, 1970 is hereby modified to
conform to the foregoing judgment. The Writ of Preliminary Injunction, dated January 29, 1971, is hereby
dissolved. Without special pronouncement as to costs.

Barredo (Chairman), Concepcion, Jr. and Guerrero, JJ., concur. 1äwphï1.ñët

Aquino, J., concurs in the result.

Santos and Abad Santos, JJ., are on leave.

Guerrero, J., was designated to sit in the Second Division

 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-57348 May 16, 1985

FRANCISCO DEPRA, plaintiff-appellee,

vs.
AGUSTIN DUMLAO, defendant-appellant.

Roberto D. Dineros for plaintiff-appellee.

Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:

This is an appeal from the Order of the former Court of First Instance of Iloilo to the then Court of
Appeals, which the latter certified to this instance as involving pure questions of law

Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under Transfer
Certificate of Title No. T3087, known as Lot No. 685, situated in the municipality of Dumangas, Iloilo,
with an area of approximately 8,870 square meters. Agustin Dumlao, defendant-appellant, owns an
adjoining lot, designated as Lot No. 683, with an approximate area of 231 sq. ms.

Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen thereof had
encroached on an area of thirty four (34) square meters of DEPRA's property, After the encroachment
was discovered in a relocation survey of DEPRA's lot made on November 2,1972, his mother, Beatriz
Depra after writing a demand letter asking DUMLAO to move back from his encroachment, filed an
action for Unlawful Detainer on February 6,1973 against DUMLAO in the Municipal Court of of
Dumangas, docketed as Civil Case No 1, Said complaint was later amended to include DEPRA as a
party plain. plaintiff.

After trial, the Municipal Court found that DUMLAO was a builder in good faith, and applying Article
448 of the Civil Code, rendered judgment on September 29, 1973, the dispositive portion of which
reads:

Ordering that a forced lease is created between the parties with the plaintiffs, as
lessors, and the defendants as lessees, over the disputed portion with an area of thirty
four (34) square meters, the rent to be paid is five (P5.00) pesos a month, payable by
the lessee to the lessors within the first five (5) days of the month the rent is due; and
the lease shall commence on the day that this decision shall have become final.

From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it would have
ordinarily lapsed into finality, but even then, DEPRA did not accept payment of rentals so that
DUMLAO deposited such rentals with the Municipal Court.
On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before the then
Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same 34 square meters,
which was the bone of contention in the Municipal Court. DUMLAO, in his Answer, admitted the
encroachment but alleged, in the main, that the present suit is barred by res judicata by virtue of the
Decision of the Municipal Court, which had become final and executory.

After the case had been set for pre-trial, the parties submitted a Joint Motion for Judgment based on
the Stipulation of Facts attached thereto. Premised thereon, the Trial Court on October 31, 1974,
issued the assailed Order, decreeing:

WHEREFORE, the Court finds and so holds that the thirty four (34) square meters
subject of this litigation is part and parcel of Lot 685 of the Cadastral Survey of
Dumangas of which the plaintiff is owner as evidenced by Transfer Certificate of Title
No. 3087 and such plaintiff is entitled to possess the same.

Without pronouncement as to costs.

SO ORDERED.

Rebutting the argument of res judicata relied upon by DUMLAO, DEPRA claims that the Decision of
the Municipal Court was null and void ab initio because its jurisdiction is limited to the sole issue of
possession, whereas decisions affecting lease, which is an encumbrance on real property, may only
be rendered by Courts of First Instance.

Addressing out selves to the issue of validity of the Decision of the Municipal Court, we hold the same
to be null and void. The judgment in a detainer case is effective in respect of possession only (Sec. 7,
Rule 70, Rules of Court). 1The Municipal Court over-stepped its bounds when it imposed upon the
parties a situation of "forced lease", which like "forced co-ownership" is not favored in law.
Furthermore, a lease is an interest in real property, jurisdiction over which belongs to Courts of First
Instance (now Regional Trial Courts) (Sec. 44(b), Judiciary Act of 1948; 2 Sec. 19 (2) Batas
Pambansa Blg. 129). 3 Since the Municipal Court, acted without jurisdiction, its Decision was null and
void and cannot operate as res judicata to the subject complaint for Queting of Title. Besides, even if
the Decision were valid, the rule on res judicata would not apply due to difference in cause of action.
In the Municipal Court, the cause of action was the deprivation of possession, while in the action to
quiet title, the cause of action was based on ownership. Furthermore, Sec. 7, Rule 70 of the Rules of
Court explicitly provides that judgment in a detainer case "shall not bar an action between the same
parties respecting title to the land. " 4

Conceded in the Stipulation of Facts between the parties is that DUMLAO was a builder in good faith.
Thus,

8. That the subject matter in the unlawful detainer case, Civil Case No. 1, before the
Municipal Court of Dumangas, Iloilo involves the same subject matter in the present
case, the Thirty-four (34) square meters portion of land and built thereon in good faith is
a portion of defendant's kitchen and has been in the possession of the defendant since
1952 continuously up to the present; ... (Emphasis ours)

Consistent with the principle that our Court system, like any other, must be a dispute resolving
mechanism, we accord legal effect to the agreement of the parties, within the context of their mutual
concession and stipulation. They have, thereby, chosen a legal formula to resolve their dispute to
appeal ply to DUMLAO the rights of a "builder in good faith" and to DEPRA those of a "landowner in
good faith" as prescribed in Article 448. Hence, we shall refrain from further examining whether the
factual situations of DUMLAO and DEPRA conform to the juridical positions respectively defined by
law, for a "builder in good faith" under Article 448, a "possessor in good faith" under Article 526 and a
"landowner in good faith' under Article 448.

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

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

shall have the right

to appropriate as his own the works, sowing or planting, after payment of the indemnity
provided for in articles 546 and 548, or

to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.

However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof (Paragraphing supplied)

Pursuant to the foregoing provision, DEPRA has the option either to pay for the encroaching part of
DUMLAO's kitchen, or to sell the encroached 34 square meters of his lot to DUMLAO. He cannot
refuse to pay for the encroaching part of the building, and to sell the encroached part of his land, 5 as
he had manifested before the Municipal Court. But that manifestation is not binding because it was
made in a void proceeding.

However, the good faith of DUMLAO is part of the Stipulation of Facts in the Court of First Instance. It
was thus error for the Trial Court to have ruled that DEPRA is "entitled to possession," without more,
of the disputed portion implying thereby that he is entitled to have the kitchen removed. He is entitled
to such removal only when, after having chosen to sell his encroached land, DUMLAO fails to pay for
the same. 6 In this case, DUMLAO had expressed his willingness to pay for the land, but DEPRA
refused to sell.

The owner of the building erected in good faith on a land owned by another, is entitled
to retain the possession of the land until he is paid the value of his building, under article
453 (now Article 546). The owner of the land, upon the other hand, has the option,
under article 361 (now Article 448), either to pay for the building or to sell his land to the
owner of the building. But he cannot as respondents here did refuse both to pay for the
building and to sell the land and compel the owner of the building to remove it from the
land where it erected. He is entitled to such remotion only when, after having chosen to
sell his land. the other party fails to pay for the same (italics ours).

We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners

to remove their buildings from the land belonging to plaintiffs-respondents only because
the latter chose neither to pay for such buildings nor to sell the land, is null and void, for
it amends substantially the judgment sought to be executed and is. furthermore,
offensive to articles 361 (now Article 448) and 453 (now Article 546) of the Civil Code.
(Ignacio vs. Hilario, 76 Phil. 605, 608[1946]).

A word anent the philosophy behind Article 448 of the Civil rode.
The original provision was found in Article 361 of the Spanish Civil Code; which provided:

ART. 361. The owner of land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the work, sowing or planting, after
the payment of the indemnity stated in Articles 453 and 454, or to oblige the one who
built or planted to pay the price of the land, and the one who sowed, the proper rent.

As will be seen, the Article favors the owner of the land, by giving him one of the two options
mentioned in the Article. Some commentators have questioned the preference in favor of the owner
of the land, but Manresa's opinion is that the Article is just and fair.

. . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el caso
de edificacion o plantacion? Algunos comentaristas la conceptuan injusta, y como un
extraordinario privilegio en favor de la propiedad territorial. Entienden que impone el
Codigo una pena al poseedor de buena fe y como advierte uno de los comentaristas
aludidos 'no se ve claro el por que de tal pena . . . al obligar al que obro de buena fe a
quedarse con el edificio o plantacion, previo el pago del terreno que ocupa, porque si
bien es verdad que cuando edifico o planto demostro con este hecho, que queria para
si el edificio o plantio tambien lo es que el que edifico o planto de buena fe lo hizo en la
erronea inteligencia de creerse dueno del terreno Posible es que, de saber lo contrario,
y de tener noticia de que habia que comprar y pagar el terreno, no se hubiera decidido
a plantar ni a edificar. La ley obligandole a hacerlo fuerza su voluntad, y la fuerza por
un hecho inocente de que no debe ser responsable'. Asi podra suceder pero la realidad
es que con ese hecho voluntario, aunque sea inocente, se ha enriquecido
torticeramente con perjuicio de otro a quien es justo indemnizarle,

En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas justa y

equitativa y respetando en lo possible el principio que para la accesion se establece en
el art. 358. 7

Our own Code Commission must have taken account of the objections to Article 361 of the Spanish
Civil Code. Hence, the Commission provided a modification thereof, and Article 448 of our Code has
been made to provide:

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

Additional benefits were extended to the builder but the landowner retained his options.

The fairness of the rules in Article 448 has also been explained as follows:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just
 solution by giving the owner of the land the option to acquire the improvements after
payment of the proper indemnity, or to oblige the builder or planter to pay for the land
and the sower to pay for the proper rent. It is the owner of the land who is authorized to
exercise the option, because his right is older, and because, by the principle of
accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213;
Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167,
April 30, 1949; Article applied: see Cabral, et al vs. Ibanez [S.C.] 52 Off. Gaz. 217;
Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050). 8

WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered
remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and
546 of the Civil Code, as follows:

1. The trial Court shall determine

a) the present fair price of DEPRA's 34 square meter area of land;

b) the amount of the expenses spent by DUMLAO for the building of the kitchen;

c) the increase in value ("plus value") which the said area of 34 square meters may
have acquired by reason thereof, and

d) whether the value of said area of land is considerably more than that of the kitchen
built thereon.

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

a) The trial Court shall grant DEPRA a period of fifteen (15) days within which to
exercise his option under the law (Article 448, Civil Code), whether to appropriate the
kitchen as his own by paying to DUMLAO either the amount of tile expenses spent by
DUMLAO f or the building of the kitchen, or the increase in value ("plus value") which
the said area of 34 square meters may have acquired by reason thereof, or to oblige
DUMLAO to pay the price of said area. The amounts to be respectively paid by
DUMLAO and DEPRA, in accordance with the option thus exercised by written notice of
the other party and to the Court, shall be paid by the obligor within fifteen (15) days from
such notice of the option by tendering the amount to the Court in favor of the party
entitled to receive it;

b) The trial Court shall further order that if DEPRA exercises the option to oblige
DUMLAO to pay the price of the land but the latter rejects such purchase because, as
found by the trial Court, the value of the land is considerably more than that of the
kitchen, DUMLAO shall give written notice of such rejection to DEPRA and to the Court
within fifteen (15) days from notice of DEPRA's option to sell the land. In that event, the
parties shall be given a period of fifteen (15) days from such notice of rejection within
which to agree upon the terms of the lease, and give the Court formal written notice of
such agreement and its provisos. If no agreement is reached by the parties, the trial
Court, within fifteen (15) days from and after the termination of the said period fixed for
negotiation, shall then fix the terms of the lease, provided that the monthly rental to be
fixed by the Court shall not be less than Ten Pesos (P10.00) per month, payable within
the first five (5) days of each calendar month. The period for the forced lease shall not
be more than two (2) years, counted from the finality of the judgment, considering the
 long period of time since 1952 that DUMLAO has occupied the subject area. The rental
thus fixed shall be increased by ten percent (10%) for the second year of the forced
lease. DUMLAO shall not make any further constructions or improvements on the
kitchen. Upon expiration of the two-year period, or upon default by DUMLAO in the
payment of rentals for two (2) consecutive months, DEPRA shall be entitled to terminate
the forced lease, to recover his land, and to have the kitchen removed by DUMLAO or
at the latter's expense. The rentals herein provided shall be tendered by DUMLAO to
the Court for payment to DEPRA, and such tender shall constitute evidence of whether
or not compliance was made within the period fixed by the Court.

c) In any event, DUMLAO shall pay DEPRA an amount computed at Ten Pesos
(P10.00) per month as reasonable compensation for the occupancy of DEPRA's land for
the period counted from 1952, the year DUMLAO occupied the subject area, up to the
commencement date of the forced lease referred to in the preceding paragraph;

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

No costs,

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-175 April 30, 1946

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners,

vs.
ELIAS HILARIO and his wife DIONISIA DRES, and FELIPE NATIVIDAD, Judge of First Instance of
Pangasinan, respondents.

Leoncio R. Esliza for petitioners.

Mauricio M. Monta for respondents.

MORAN, C.J.:

This is a petition for certiorari arising from a case in the Court of First Instance of Pangasinan between the herein
respondents Elias Hilario and his wife Dionisia Dres as plaintiffs, and the herein petitioners Damian, Francisco and
Luis, surnamed Ignacio, as defendants, concerning the ownership of a parcel of land, partly rice-land and partly
residential. After the trial of the case, the lower court, presided over by Hon. Alfonso Felix, rendered judgment
holding plaintiffs as the legal owners of the whole property but conceding to defendants the ownership of the houses
and granaries built by them on the residential portion with the rights of a possessor in good faith, in accordance with
article 361 of the Civil Code. The dispositive part of the decision, hub of this controversy, follows:

Wherefore, judgment is hereby rendered declaring:

(1) That the plaintiffs are the owners of the whole property described in transfer certificate of title No. 12872
(Exhibit A) issued in their name, and entitled to the possession of the same;

(2) That the defendants are entitled to hold the position of the residential lot until after they are paid the
actual market value of their houses and granaries erected thereon, unless the plaintiffs prefer to sell them
said residential lot, in which case defendants shall pay the plaintiffs the proportionate value of said
residential lot taking as a basis the price paid for the whole land according to Exhibit B; and

(3) That upon defendant's failure to purchase the residential lot in question, said defendants shall remove
their houses and granaries after this decision becomes final and within the period of sixty (60) days from the
date that the court is informed in writing of the attitude of the parties in this respect.

No pronouncement is made as to damages and costs.

Once this decision becomes final, the plaintiffs and defendants may appear again before this court for the
purpose of determining their respective rights under article 361 of the Civil Code, if they cannot come to an
extra-judicial settlement with regard to said rights.

Subsequently, in a motion filed in the same Court of First Instance but now presided over by the herein respondent
Judge Hon. Felipe Natividad, the plaintiffs prayed for an order of execution alleging that since they chose neither to
pay defendants for the buildings nor to sell to them the residential lot, said defendants should be ordered to remove
the structure at their own expense and to restore plaintiffs in the possession of said lot. Defendants objected to this
motion which, after hearing, was granted by Judge Natividad. Hence, this petition by defendants praying for (a) a
restraint and annulment of the order of execution issued by Judge Natividad; (b) an order to compel plaintiffs to pay
them the sum of P2,000 for the buildings, or sell to them the residential lot for P45; or (c), a rehearing of the case for
a determination of the rights of the parties upon failure of extra-judicial settlement.

The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil Code which are as follows:
 ART. 361. The owner of land on which anything has been built, sown or planted in good faith, shall have the
right to appropriate as his own the work, sowing or planting, after the payment of the indemnity stated in
articles 453 and 454, or to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.

ART. 453. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
may retain the thing until such expenses are made good to him.

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

The owner of the building erected in good faith on a land owned by another, is entitled to retain the possession of
the land until he is paid the value of his building, under article 453. The owner of the land, upon the other hand, has
the option, under article 361, either to pay for the building or to sell his land to the owner of the building. But he
cannot, as respondents here did, refuse both to pay for the building and to sell the land and compel the owner of the
building to remove it from the land where it is erected. He is entitled to such remotion only when, after having
chosen to sell his land, the other party fails to pay for the same. But this is not the case before us.

We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove their buildings
from the land belonging to plaintiffs-respondents only because the latter chose neither to pay for such buildings not
to sell the land, is null and void, for it amends substantially the judgment sought to be executed and is, furthermore,
offensive to articles 361 and 453 of the Civil Code.

There is, however, in the decision of Judge Felix a question of procedure which calls for the clarification, to avoid
uncertainty and delay in the disposition of cases. In that decision, the rights of both parties are well defined under
articles 361 and 453 of the Civil Code, but it fails to determine the value of the buildings and of the lot where they
are erected as well as the periods of time within which the option may be exercised and payment should be made,
these particulars having been left for determination apparently after the judgment has become final. This procedure
is erroneous, for after the judgment has become final, no additions can be made thereto and nothing can be done
therewith except its execution. And execution cannot be had, the sheriff being ignorant as to how, for how much,
and within what time may the option be exercised, and certainly no authority is vested in him to settle these matters
which involve exercise of judicial discretion. Thus the judgment rendered by Judge Felix has never become final, it
having left matters to be settled for its completion in a subsequent proceeding, matters which remained unsettled up
to the time the petition is filed in the instant case.

For all the foregoing, the writ of execution issued by Judge Natividad is hereby set aside and the lower court ordered
to hold a hearing in the principal case wherein it must determine the prices of the buildings and of the residential lot
where they are erected, as well as the period of time within which the plaintiffs-respondents may exercise their
option either to pay for the buildings or to sell their land, and, in the last instance, the period of time within which the
defendants-petitioners may pay for the land, all these periods to be counted from the date the judgment becomes
executory or unappealable. After such hearing, the court shall render a final judgment according to the evidence
presented by the parties.

The costs shall be paid by plaintiffs-respondents.

 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant,

vs.
CATALINO BATACLAN, defendant-appellant.
TORIBIO TEODORO, purchaser-appellee.

Pedro de Leon for plaintiff-appellant.

Angel H. Mojica and Francisco Lavides for defendant appellant.
Jose Y. Garde for appellee.

LAUREL, J.:

This is an appeal taken by both the plaintiff and the defendant from the order of September 26, 1935, hereinabove
referred to, of the Court of First Instance of Cavite in Civil Case No. 2428.

There is no controversy as to the facts. By a contract of sale executed from Pastor Samonte and others ownership
of a parcel of land of about 90 hectares situated in sitio Balayunan, Silang, Cavite. To secure possession of the land
from the vendors the said plaintiff, on July 20, 1929, instituted Civil Case No. 1935 in the Court of First Instance of
Cavite. The trial court found for the plaintiff in a decision which was affirmed by this Supreme Court on appeal (G.R.
No. 33017). 1 When plaintiff entered upon the premises, however, he found the defendant herein, Catalino Bataclan,
who appears to have been authorized by former owners, as far back as 1922, to clear the land and make
improvements thereon. As Bataclan was not a party in Case No. 1935, plaintiff, on June 11, 1931, instituted against
him, in the Court of First Instance of Cavite, Civil Case No. 2428. In this case, plaintiff was declared owner but the
defendant was held to be a possessor in good faith, entitled to reimbursement in the total sum of P1,642, for work
done and improvements made. The dispositive part of the decision reads:

Por las consideraciones expuestas, se declara al demandante Vicente Santo Domingo Bernardo dueño con
derecho a la posesion del terreno que se describe en la demanda, y al demandado Catalino Bataclan con
derecho a que del demandante le pague la suma de P1,642 por gastos utiles hechos de buena fe en el
terreno, y por el cerco y ponos de coco y abaca existentes en el mismo, y con derecho, ademas a retener la
posesion del terreno hasta que se le pague dicha cantidad. Al demandante puede optar, en el plazo de
treinta dias, a partir de la fecha en que fuere notificado de la presente, por pagar esa suma al demandado,
haciendo asi suyos el cerco y todas las plantaciones existentes en el terreno, u obligar al demandado a
pagarle el precio terreno, a razon de trescientos pesos la hectarea. En el caso de que el demandante optara
por que el demandado le pagara el precio del terreno, el demandado efectuara el pago en el plazo
convenientes por las partes o que sera fijado por el Juzgado. Sin costas.

Both parties appealed to this court (G. R. No. 37319). 2 The decision appealed from was modified by allowing the
defendant to recover compensation amounting to P2,212 and by reducing the price at which the plaintiff could
require the defendant to purchase the land in question from P300 to P200 per hectare. Plaintiff was given by this
court 30 days from the date when the decision became final within which to exercise his option, either to sell the
land to the defendant or to buy the improvements from him. On January 9, 1934, the plaintiff manifested to the lower
court his desire "to require the defendant to pay him the value of the land at the rate of P200 per hectare or a total
price of P18,000 for the whole tract of land." The defendant informed the lower court that he was unable to pay the
land and, on January 24, 1934, an order was issued giving the plaintiff 30 days within which to pay the defendant
the sum of P2,212 stating that, in the event of failure to make such payment, the land would be ordered sold at
public auction "Para hacer pago al demandante de la suma de P2,212 y el remanente despues de deducidos los
gastos legales de la venta en publica subasta sera entregado al demandante." On February 21, 1934, plaintiff
moved to reconsider the foregoing order so that he would have preference over the defendant in the order of
payment. The motion was denied on March 1, 1934 but on March 16 following the court below, motu
proprio modified its order of January 24, "en el sentido de que el demandante tiene derecho preferente al importe
del terreno no se vendiere en publica subasta, a razon de P200 por hectares y el remanente, si acaso lo hubiere se
entregara al demandado en pago de la cantidad de P2,212 por la limpieza del terreno y las mejoras introducidas en
el mismo por el citado demandado." On April 24, 1934, the court below, at the instance of the plaintiff and without
objection on the part of the defendant, ordered the sale of the land in question at public auction. The land was sold
on April 5, 1935 to Toribio Teodoro, the highest bidder, for P8,000. In the certificate of sale issued to said purchaser
on the very day of sale, it was stated that the period of redemption of the land sold was to expire on April 5, 1936.
Upon petition of Toribio Teodoro the court below ordered the provincial sheriff to issue another certificate not
qualified by any equity of redemption. This was complied with by the sheriff on July 30, 1935. On September 18,
1935, Teodoro moved that he be placed in possession of the land purchased by him. The motion was granted by
order of September 26, 1935, the dispositive part of which is as follows:

Por tanto, se ordena al Sheriff Provincial de Cavite ponga a Toribio Teodoro en posesion del terreno
comprado por el en subasta publica y por el cual se le expidio certificado de venta definitiva, reservando al
demandado su derecho de ejercitar una accion ordinaria para reclamar del demandante la cantidad de
P2,212 a que tiene derecho por la limpieza y mejoras del terreno y cuya suma, en justicia y equidad, debe
ser descontada y deducida de la suma de P8,000 que ya ha recibido el demandante.

The Civil Code confirms certain time-honored principles of the law of property. One of these is the principle of
accession whereby the owner of property acquires not only that which it produces but that which is united to it either
naturally or artificially. (Art. 353.) Whatever is built, planted or sown on the land of another, and the improvements or
repairs made thereon, belong to the owner of the land (art. 358). Where, however, the planter, builder, or sower has
acted in good faith, a conflict of rights arises between the owners and it becomes necessary to protect the owner of
the improvements without causing injustice to the owner of the land. In view of the impracticability of creating what
Manresa calls a state of "forced coownership" (vol. 3, 4th ed., p. 213), the law has provided a just and equitable
solution by giving the owner of the land the option to acquire the improvements after payment of the proper
indemnity or to oblige the builder or planter to pay for the land and the sower to pay the proper rent (art. 361). It is
the owner of the land who is allowed to exercise the option because his right is older and because, by the principle
of accession, he is entitled to the ownership of the accessory thing (3 Manresa, 4th ed., p. 213). In the case before
us, the plaintiff, as owner of the land, chose to require the defendant, as owner of the improvements, to pay for the
land.

The defendant states that he is a possessor in good faith and that the amount of P2,212 to which he is entitled has
not yet been paid to him. Therefore, he says, he has a right to retain the land in accordance with the provisions of
article 453 of the Civil Code. We do not doubt the validity of the premises stated. "Considera la ley tan saarada y
legitima la deuda, que, hasta que sea pagada, no consiente que la cosa se restituya all vencedor." (4 Manresa, 4th
ed, p., 304.) We find, however, that the defendant has lost his right of retention. In obedience to the decision of this
court in G.R. No. 37319, the plaintiff expressed his desire to require the defendant to pay for the value of the land.
The said defendant could have become owner of both land and improvements and continued in possession thereof.
But he said he could not pay and the land was sold at public auction to Toribio Teodoro. The law, as we have
already said, requires no more than that the owner of the land should choose between indemnifying the owner of the
improvements or requiring the latter to pay for the land. When he failed to pay for the land, the defendant herein lost
his right of retention.

The sale at public auction having been asked by the plaintiff himself (p. 22, bill of exceptions) and the purchase
price of P8,000 received by him from Toribio Teodoro, we find no reason to justify a rapture of the situation thus
created between them, the defendant-appellant not being entitled, after all, to recover from the plaintiff the sum of
P2,212. lawphi1.net

The judgment of the lower court is accordingly modified by eliminating therefrom the reservation made in favor of the
defendant-appellant to recover from the plaintiff the sum of P2,212. In all the respects, the same is affirmed, without
pronouncement regarding costs. So ordered.

Avanceña, C.J., Villa-Real, Imperial and Diaz, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 108894 February 10, 1997

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner,

vs.
COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY, respondents.

PANGANIBAN, J.:

The parties in this case are owners of adjoining lots in Parañaque, Metro Manila. It was discovered in a survey, that
a portion of a building of petitioner, which was presumably constructed by its predecessor-in-interest, encroached on
a portion of the lot owned by private respondent. What are the rights and obligations of the parties? Is petitioner
considered a builder in bad faith because, as held by respondent Court, he is "presumed to know the metes and
bounds of his property as described in his certificate of title"? Does petitioner succeed into the good faith or bad faith
of his predecessor-in-interest which presumably constructed the building?

These are the questions raised in the petition for review of the Decision1 dated August 28, 1992, in CA-G.R. CV No.
28293 of respondent Court2 where the disposition reads:3

WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed
and set aside and another one entered —

1. Dismissing the complaint for lack of cause of action;

2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental from October 4,
1979 until appellee vacates the land;

3. To remove the structures and surrounding walls on the encroached area;

4. Ordering appellee to pay the value of the land occupied by the two-storey building;

5. Ordering appellee to pay the sum of P20,000.00 for and as attorney's fees;

6. Costs against appellee.

Acting on the motions for reconsideration of both petitioner and private respondent, respondent Court ordered the
deletion of paragraph 4 of
the dispositive portion in an Amended Decision dated February 9, 1993, as follows: 4

WHEREFORE, premises considered, our decision of August 28, 1992 is hereby modified deleting
paragraph 4 of the dispositive portion of our decision which reads:

4. Ordering appellee to pay the value of the land occupied by the two-storey building.

The motion for reconsideration of appellee is hereby DENIED for lack of merit.
The foregoing Amended Decision is also challenged in the instant petition.

The Facts

The facts are not disputed. Respondent Court merely reproduced the factual findings of the trial court, as follows: 5

That plaintiff (herein petitioner) which is a corporation duly organized and existing under and by
virtue of Philippine laws is the registered owner of a parcel of land situated in Barrio San Dionisio,
Parañaque, Metro Manila known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral
Survey of Parañaque, Metro Manila, covered by Transfer Certificate of Title No. 409316 of the
Registry of Deeds of the Province of Rizal; that said land was purchased by plaintiff from Pariz
Industries, Inc. in 1970, together with all the buildings and improvements including the wall existing
thereon; that the defendant (herein private respondent) is the registered owner of a parcel of land
known as Lot No. 4531-B of Lot 4531 of the Cadastral Survey of Parañaque, LRC (GLRO) Rec. No.
19645 covered by Transfer Certificate of Title No. 279838, of the Registry of Deeds for the Province
of Rizal; that said land which adjoins plaintiff's land was purchased by defendant from a certain
Enrile Antonio also in 1970; that in 1971, defendant purchased another lot also adjoining plaintiffs
land from a certain Miguel Rodriguez and the same was registered in defendant's name under
Transfer Certificate of Title No. 31390, of the Registry of Deeds for the Province of Rizal; that
portions of the buildings and wall bought by plaintiff together with the land from Pariz Industries are
occupying a portion of defendant's adjoining land; that upon learning of the encroachment or
occupation by its buildings and wall of a portion of defendant's land, plaintiff offered to buy from
defendant that particular portion of defendant's land occupied by portions of its buildings and wall
with an area of 770 square meters, more or less, but defendant, however, refused the offer. In 1973,
the parties entered into a private agreement before a certain Col. Rosales in Malacañang, wherein
plaintiff agreed to demolish the wall at the back portion of its land thus giving to defendant
possession of a portion of his land previously enclosed by plaintiff's wall; that defendant later filed a
complaint before the office of Municipal Engineer of Parañaque, Metro Manila as well as before the
Office of the Provincial Fiscal of Rizal against plaintiff in connection with the encroachment or
occupation by plaintiff's buildings and walls of a portion of its land but said complaint did not prosper;
that defendant dug or caused to be dug a canal along plaintiff's wall, a portion of which collapsed in
June, 1980, and led to the filing by plaintiff of the supplemental complaint in the above-entitled case
and a separate criminal complaint for malicious mischief against defendant and his wife which
ultimately resulted into the conviction in court of defendant's wife for the crime of malicious mischief;
that while trial of the case was in progress, plaintiff filed in Court a formal proposal for settlement of
the case but said proposal, however, was ignored by defendant.

After trial on the merits, the Regional Trial Court6 of Pasay City, Branch 117, in Civil Case No. PQ-7631-P, rendered
a decision dated December 4, 1989 in favor of petitioner who was the plaintiff therein. The dispositive portion
reads: 7

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and ordering
the latter to sell to plaintiff that portion of land owned by him and occupied by portions of plaintiff's
buildings and wall at the price of P2,000.00 per square meter and to pay the former:

1. The sum of P44,000.00 to compensate for the losses in materials and properties
incurred by plaintiff through thievery as a result of the destruction of its wall;

2. The sum of P7,500.00 as and by way of attorney's fees; and

3. The costs of this suit.

Appeal was duly interposed with respondent Court, which as previously stated, reversed and set aside the decision
of the Regional Trial Court and rendered the assailed Decision and Amended Decision. Hence, this recourse under
Rule 45 of the Rules of Court.

The Issues
The petition raises the following issues:8

(A)

Whether or not the respondent Court of Appeals erred in holding the petitioner a builder in bad faith
because it is "presumed to know the metes and bounds of his property."

(B)

Whether or not the respondent Court of Appeals erred when it used the amicable settlement
between the petitioner and the private respondent, where both parties agreed to the demolition of
the rear portion of the fence, as estoppel amounting to recognition by petitioner of respondent's right
over his property including the portions of the land where the other structures and the building stand,
which were not included in the settlement.

(C)

Whether or not the respondent Court of Appeals erred in ordering the removal of the "structures and
surrounding walls on the encroached area" and in withdrawing its earlier ruling in its August 28, 1992
decision for the petitioner "to pay for the value of the land occupied" by the building, only
because the private respondent has "manifested its choice to demolish" it despite the absence of
compulsory sale where the builder fails to pay for the land, and which "choice" private respondent
deliberately deleted from its September 1, 1980 answer to the supplemental complaint in the
Regional Trial Court.

In its Memorandum, petitioner poses the following issues:

A.

The time when to determine the good faith of the builder under Article 448 of the New Civil Code, is
reckoned during the period when it was actually being built; and in a case where no evidence was
presented nor introduced as to the good faith or bad faith of the builder at that time, as in this case,
he must be presumed to be a "builder in good faith," since "bad faith cannot be presumed."9

B.

In a specific "boundary overlap situation" which involves a builder in good faith, as in this case, it is
now well settled that the lot owner, who builds on the adjacent lot is not charged with "constructive
notice" of the technical metes and bounds contained in their torrens titles to determine the exact and
precise extent of his boundary perimeter. 10

C.

The respondent court's citation of the twin cases of Tuason & Co. v. Lumanlan and Tuason &
Co. v. Macalindong is not the "judicial authority" for a boundary dispute situation between adjacent
torrens titled lot owners, as the facts of the present case do not fall within nor square with the
involved principle of a dissimilar case. 11

D.

Quite contrary to respondent Uy's reasoning, petitioner Tecnogas continues to be a builder in good
faith, even if it subsequently built/repaired the walls/other permanent structures thereon while the
case a quo was pending and even while respondent sent the petitioner many letters/filed cases
thereon. 12

D.(E.)
 The amicable settlement between the parties should be interpreted as a contract and enforced only
in accordance with its explicit terms, and not over and beyond that agreed upon; because the courts
do not have the power to create a contract nor expand its scope. 13

E.(F.)

As a general rule, although the landowner has the option to choose between: (1) "buying the building
built in good faith", or (2) "selling the portion of his land on which stands the building" under Article
448 of the Civil Code; the first option is not absolute, because an exception thereto, once it would be
impractical for the landowner to choose to exercise the first alternative, i.e. buy that portion of the
house standing on his land, for the whole building might be rendered useless. The workable solution
is for him to select the second alternative, namely, to sell to the builder that part of his land on which
was constructed a portion of the house. 14

Private respondent, on the other hand, argues that the petition is "suffering from the following flaws: 15

1. It did not give the exact citations of cases decided by the Honorable Supreme Court that allegedly
contradicts the ruling of the Hon. Court of Appeals based on the doctrine laid down in Tuason
vs. Lumanlan case citing also Tuason vs. Macalindong case (Supra).

2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is contradictory to the doctrine
in Tuason vs. Lumanlan and Tuason vs. Macalindong, the two cases being more current, the same
should prevail.

Further, private respondent contends that the following "unmistakably" point to the bad faith of petitioner: (1) private
respondent's purchase of the two lots, "was ahead of the purchase by petitioner of the building and lot from Pariz
Industries"; (2) the declaration of the General Manager of Tecnogas that the sale between petitioner and Pariz
Industries "was not registered" because of some problems with China Banking Corporation; and (3) the Deed of
Sale in favor of petitioner was registered in its name only in "the month of May 1973." 16

The Court's Ru1ing

The petition should be granted.

Good Faith or Bad Faith

Respondent Court, citing the cases of J.M. Tuason & Co., Inc. vs. Vda. de Lumanlan 17 and J.M. Tuason &
Co., Inc. vs. Macalindong, 18 ruled that petitioner "cannot be considered in good faith" because as a land owner, it is
"presumed to know the metes and bounds of his own property, specially if the same are reflected in a properly
issued certificate of title. One who erroneously builds on the adjoining lot should be considered a builder in (b)ad
(f)aith, there being presumptive knowledge of the Torrens title, the area, and the extent of the boundaries." 19

We disagree with respondent Court. The two cases it relied upon do not support its main pronouncement that a
registered owner of land has presumptive knowledge of the metes and bounds of its own land, and is therefore in
bad faith if he mistakenly builds on an adjoining land. Aside from the fact that those cases had factual moorings
radically different from those obtaining here, there is nothing in those cases which would suggest, however
remotely, that bad faith is imputable to a registered owner of land when a part of his building encroaches upon a
neighbor's land, simply because he is supposedly presumed to know the boundaries of his land as described in his
certificate of title. No such doctrinal statement could have been made in those cases because such issue was not
before the Supreme Court. Quite the contrary, we have rejected such a theory in Co Tao vs. Chico, 20 where we held
that unless one is versed in the science of surveying, "no one can determine the precise extent or location of his
property by merely examining his paper title."

There is no question that when petitioner purchased the land from Pariz Industries, the buildings and other
structures were already in existence. The record is not clear as to who actually built those structures, but it may well
be assumed that petitioner's predecessor-in-interest, Pariz Industries, did so. Article 527 of the Civil Code presumes
good faith, and since no proof exists to show that the encroachment over a narrow, needle-shaped portion of private
respondent's land was done in bad faith by the builder of the encroaching structures, the latter should be presumed
to have built them in good faith. 21 It is presumed that possession continues to be enjoyed in the same character in
which it was acquired, until the contrary is proved. 22 Good faith consists in the belief of the builder that the land he is
building on is his, and his ignorance of any defect or flaw in his title. 23 Hence, such good faith, by law, passed on to
Pariz's successor, petitioner in this case. Further, "(w)here one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the property, is evidence against the
former." 24 And possession acquired in good faith does not lose this character except in case and from the moment
facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. 25The
good faith ceases from the moment defects in the title are made known to the possessor, by extraneous evidence or
by suit for recovery of the property by the true owner. 26

Recall that the encroachment in the present case was caused by a very slight deviation of the erected wall (as
fence) which was supposed to run in a straight line from point 9 to point 1 of petitioner's lot. It was an error which, in
the context of the attendant facts, was consistent with good faith. Consequently, the builder, if sued by the aggrieved
landowner for recovery of possession, could have invoked the provisions of Art. 448 of the Civil Code, which reads:

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

The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land,
he can compel the landowner to make a choice between the two options: (1) to appropriate the building by
paying the indemnity required by law, or (2) sell the land to the builder. The landowner cannot refuse to
exercise either option and compel instead the owner of the building to remove it from the land. 27

The question, however, is whether the same benefit can be invoked by petitioner who, as earlier stated, is not the
builder of the offending structures but possesses them as buyer.

We answer such question in the affirmative.

In the first place, there is no sufficient showing that petitioner was aware of the encroachment at the time it acquired
the property from Pariz Industries. We agree with the trial court that various factors in evidence adequately show
petitioner's lack of awareness thereof. In any case, contrary proof has not overthrown the presumption of good faith
under Article 527 of the Civil Code, as already stated, taken together with the disputable presumptions of the law on
evidence. These presumptions state, under Section 3 (a) of Rule 131 of the Rules of Court, that the person is
innocent of a crime or wrong; and under Section 3 (ff) of Rule 131, that the law has been obeyed. In fact, private
respondent Eduardo Uy himself was unaware of such intrusion into his property until after 1971 when he hired a
surveyor, following his purchase of another adjoining lot, to survey all his newly acquired lots. Upon being apprised
of the encroachment, petitioner immediately offered to buy the area occupied by its building — a species of conduct
consistent with good faith.

In the second place, upon delivery of the property by Pariz Industries, as seller, to the petitioner, as buyer, the latter
acquired ownership of the property. Consequently and as earlier discussed, petitioner is deemed to have stepped
into the shoes of the seller in regard to all rights of ownership over the immovable sold, including the right to compel
the private respondent to exercise either of the two options provided under Article 448 of the Civil Code.

Estoppel

Respondent Court ruled that the amicable settlement entered into between petitioner and private respondent estops
the former from questioning the private respondent's "right" over the disputed property. It held that by undertaking to
demolish the fence under said settlement, petitioner recognized private respondent's right over the property, and
"cannot later on compel" private respondent "to sell to it the land since" private respondent "is under no obligation to
sell." 28
We do not agree. Petitioner cannot be held in estoppel for entering into the amicable settlement, the pertinent
portions of which read: 29

That the parties hereto have agreed that the rear portion of the fence that separates the property of
the complainant and respondent shall be demolished up to the back of the building housing the
machineries which demolision (sic) shall be undertaken by the complainant at anytime.

That the fence which serve(s) as a wall housing the electroplating machineries shall not be
demolished in the mean time which portion shall be subject to negotiation by herein parties.

From the foregoing, it is clear that petitioner agreed only to the demolition of a portion of the wall separating the
adjoining properties of the parties — i.e. "up to the back of the building housing the machineries." But that portion of
the fence which served as the wall housing the electroplating machineries was not to be demolished. Rather, it was
to "be subject to negotiation by herein parties." The settlement may have recognized the ownership of private
respondent but such admission cannot be equated with bad faith. Petitioner was only trying to avoid a litigation, one
reason for entering into an amicable settlement.

As was ruled in Osmeña vs. Commission on Audit, 30

A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical

agreement by the Civil Code and is therein dealt with in some detail. "A compromise," declares
Article 2208 of said Code, "is a contract whereby the parties, by making reciprocal concessions,
avoid a litigation or put an end to one already commenced."

xxx xxx xxx

The Civil Code not only defines and authorizes compromises, it in fact encourages them in civil
actions. Art. 2029 states that "The Court shall endeavor to persuade the litigants in a civil case to
agree upon some fair compromise." . . .

In the context of the established facts, we hold that petitioner did not lose its rights under Article 448 of the Civil
Code on the basis merely of the fact that some years after acquiring the property in good faith, it learned about —
and aptly recognized — the right of private respondent to a portion of the land occupied by its building. The
supervening awareness of the encroachment by petitioner does not militate against its right to claim the status of a
builder in good faith. In fact, a judicious reading of said Article 448 will readily show that the landowner's exercise of
his option can only take place after the builder shall have come to know of the intrusion — in short, when both
parties shall have become aware of it. Only then will the occasion for exercising the option arise, for it is only then
that both parties will have been aware that a problem exists in regard to their property rights.

Options of Private Respondent

What then is the applicable provision in this case which private respondent may invoke as his remedy: Article 448 or
Article 450 31 of the Civil Code?

In view of the good faith of both petitioner and private respondent, their rights and obligations are to be governed by
Art. 448. The essential fairness of this codal provision has been pointed out by Mme. Justice Ameurfina Melencio-
Herrera, citing Manresa and applicable precedents, in the case of Depra vs. Dumlao, 32 to wit:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the
owners, and it becomes necessary to protect the owner of the improvements without causing
injustice to the owner of the land. In view of the impracticality of creating a state of forced co-
ownership, the law has provided a just solution by giving the owner of the land the option to acquire
the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for
the land and the sower to pay the proper rent. It is the owner of the land who is authorized to
exercise the option, because his right is older, and because, by the principle of accession, he is
entitled to the ownership of the accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off.
 Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied; see Cabral, et
al. vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050).

The private respondent's insistence on the removal of the encroaching structures as the proper remedy, which
respondent Court sustained in its assailed Decisions, is thus legally flawed. This is not one of the remedies
bestowed upon him by law. It would be available only if and when he chooses to compel the petitioner to buy the
land at a reasonable price but the latter fails to pay such price. 33 This has not taken place. Hence, his options are
limited to: (1) appropriating the encroaching portion of petitioner's building after payment of proper indemnity, or (2)
obliging the latter to buy the lot occupied by the structure. He cannot exercise a remedy of his own liking.

Neither is petitioner's prayer that private respondent be ordered to sell the land 34 the proper remedy. While that was
dubbed as the "more workable solution" in Grana and Torralba vs. The Court of Appeals, et al., 35 it was not the relief
granted in that case as the landowners were directed to exercise "within 30 days from this decision their option to
either buy the portion of the petitioners' house on their land or sell to said petitioners the portion of their land on
which it stands." 36 Moreover, in Grana and Torralba, the area involved was only 87 square meters while this case
involves 520 square meters 37. In line with the case of Depra vs. Dumlao, 38 this case will have to be remanded to the
trial court for further proceedings to fully implement the mandate of Art. 448. It is a rule of procedure for the
Supreme Court to strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the
seeds of future
litigation. 39

Petitioner, however, must also pay the rent for the property occupied by its building as prescribed by respondent
Court from October 4, 1979, but only up to the date private respondent serves notice of its option upon petitioner
and the trial court; that is, if such option is for private respondent to appropriate the encroaching structure. In such
event, petitioner would have a right of retention which negates the obligation to pay rent. 40 The rent should however
continue if the option chosen is compulsory sale, but only up to the actual transfer of ownership.

The award of attorney's fees by respondent Court against petitioner is unwarranted since the action appears to have
been filed in good faith. Besides, there should be no penalty on the right to litigate. 41

WHEREFORE, premises considered, the petition is hereby GRANTED and the assailed Decision and the Amended
Decision are REVERSED and SET ASIDE. In accordance with the case of Depra vs. Dumlao, 42 this case is
REMANDED to the Regional Trial Court of Pasay City, Branch 117, for further proceedings consistent with Articles
448 and 546 43 of the Civil Code, as follows:

The trial court shall determine:

a) the present fair price of private respondent's 520 square-meter area of land;

b) the increase in value ("plus value") which the said area of 520 square meters may have acquired
by reason of the existence of the portion of the building on the area;

c) the fair market value of the encroaching portion of the building; and

d) whether the value of said area of land is considerably more than the fair market value of the
portion of the building thereon.

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

a) The private respondent shall be granted a period of fifteen (15) days within which to exercise his
option under the law (Article 448, Civil Code), whether to appropriate the portion of the building as
his own by paying to petitioner its fair market value, or to oblige petitioner to pay the price of said
area. The amounts to be respectively paid by petitioner and private respondent, in accordance with
the option thus exercised by written notice of the other party and to the court, shall be paid by the
obligor within fifteen (15) days from such notice of the option by tendering the amount to the trial
court in favor of the party entitled to receive it;
 b) If private respondent exercises the option to oblige petitioner to pay the price of the land but the
latter rejects such purchase because, as found by the trial court, the value of the land is considerably
more than that of the portion of the building, petitioner shall give written notice of such rejection to
private respondent and to the trial court within fifteen (15) days from notice of private respondent's
option to sell the land. In that event, the parties shall be given a period of fifteen (15) days from such
notice of rejection within which to agree upon the terms of the lease, and give the trial court formal
written notice of the agreement and its provisos. If no agreement is reached by the parties, the trial
court, within fifteen (15) days from and after the termination of the said period fixed for negotiation,
shall then fix the terms of the lease provided that the monthly rental to be fixed by the Court shall not
be less than two thousand pesos (P2,000.00) per month, payable within the first five (5) days of
each calendar month. The period for the forced lease shall not be more than two (2) years, counted
from the finality of the judgment, considering the long period of time since 1970 that petitioner has
occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the
second year of the forced lease. Petitioner shall not make any further constructions or improvements
on the building. Upon expiration of the two-year period, or upon default by petitioner in the payment
of rentals for two (2) consecutive months, private respondent shall be entitled to terminate the forced
lease, to recover his land, and to have the portion of the building removed by petitioner or at latter's
expense. The rentals herein provided shall be tendered by petitioner to the trial court for payment to
private respondent, and such tender shall constitute evidence of whether or not compliance was
made within the period fixed by the said court.

c) In any event, petitioner shall pay private respondent an amount computed at two thousand pesos
(P2,000.00) per month as reasonable compensation for the occupancy of private respondent's land
for the period counted from October 4, 1979, up to the date private respondent serves notice of its
option to appropriate the encroaching structures, otherwise up to the actual transfer of ownership to
petitioner or, in case a forced lease has to be imposed, up to the commencement date of the forced
lease referred to in the preceding paragraph;

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

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115814 May 26, 1995

PEDRO P. PECSON, petitioner,

vs.
COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA NUGUID, respondents.

DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision of the Court of Appeals in CA-G.R. SP No. 32679
1

affirming in part the order of the Regional Trial Court (RTC) of Quezon City, Branch 101, in Civil Case No. Q-41470.
2

The factual and procedural antecedents of this case as gathered from the record are as follows:

Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias Street, Quezon City, on which he built a
four-door two-storey apartment building. For his failure to pay realty taxes amounting to twelve thousand pesos
(P12,000.00), the lot was sold at public auction by the city Treasurer of Quezon City to Mamerto Nepomuceno who in turn
sold it on 12 October 1983 to the private respondents, the spouses Juan Nuguid and Erlinda Tan-Nuguid, for one hundred
three thousand pesos (P103,000.00).

The petitioner challenged the validity of the auction sale in Civil Case No. Q-41470 before the RTC of Quezon City. In its
decision of 8 February 1989, the RTC dismissed the complaint, but as to the private respondents' claim that the sale
included the apartment building, it held that the issue concerning it was "not a subject of the . . . litigation." In resolving the
private respondents' motion to reconsider this issue, the trial court held that there was no legal basis for the contention
that the apartment building was included in the sale. 3

Both parties then appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No. 2931. In its
decision of 30 April 1992, the Court of Appeals affirmed in toto the assailed decision. It also agreed with the trial court that
4

the apartment building was not included in the auction sale of the commercial lot. Thus:

Indeed, examining the record we are fully convinced that it was only the land — without the apartment
building — which was sold at the auction sale, for plaintiff's failure to pay the taxes due thereon. Thus, in
the Certificate of Sale of Delinquent Property To Purchaser (Exh. K, p. 352, Record) the property subject
of the auction sale at which Mamerto Nepomuceno was the purchaser is referred to as Lot No. 21-A,
Block No. K-34, at Kamias, Barangay Piñahan, with an area of 256.3 sq. m., with no mention whatsoever,
of the building thereon. The same description of the subject property appears in the Final Notice To
Exercise The Right of Redemption (over subject property) dated September 14, 1981 (Exh. L, p. 353,
Record) and in the Final Bill of Sale over the same property dated April 19, 1982 (Exh. P, p. 357, Record).
Needless to say, as it was only the land without any building which Nepomuceno had acquired at the
auction sale, it was also only that land without any building which he could have legally sold to the
Nuguids. Verily, in the Deed of Absolute Sale of Registered Land executed by Mamerto Nepomuceno in
favor of the Nuguids on October 25, 1983 (Exh. U, p. 366, Record) it clearly appears that the property
subject of the sale for P103,000.00 was only the parcel of land, Lot 21-A, Blk. K-34 containing an area of
256.3 sq. meters, without any mention of any improvement, much less any building thereon. (emphases
supplied)

The petition to review the said decision was subsequently denied by this Court. Entry of judgment was made on 23 June
5

1993. 6
On November 1993, the private respondents filed with the trial court a motion for delivery of possession of the lot and the
apartment building, citing article 546 of the Civil Code. Acting thereon, the trial court issued on 15 November 1993 the
7

challenged order which reads as follows:

8

Submitted for resolution before this Court is an uncontroverted [sic] for the Delivery of Possession filed by
defendants Erlinda Tan, Juan Nuguid, et al. considering that despite personal service of the Order for
plaintiff to file within five (5) days his opposition to said motion, he did not file any.

In support of defendant's motion, movant cites the law in point as Article 546 of the Civil Code . . .

Movant agrees to comply with the provisions of the law considering that plaintiff is a builder in good faith
and he has in fact, opted to pay the cost of the construction spent by plaintiff. From the complaint itself
the plaintiff stated that the construction cost of the apartment is much more than the lot, which apartment
he constructed at a cost of P53,000.00 in 1965 (par. 8 complaint). This amount of P53,000.00 is what the
movant is supposed to pay under the law before a writ of possession placing him in possession of both
the lot and apartment would be issued.

However, the complaint alleges in paragraph 9 that three doors of the apartment are being leased. This is
further confirmed by the affidavit of the movant presented in support of the motion that said three doors
are being leased at a rental of P7,000.00 a month each. The movant further alleges in his said affidavit
that the present commercial value of the lot is P10,000.00 per square meter or P2,500,000.00 and the
reasonable rental value of said lot is no less than P21,000.00 per month.

The decision having become final as per Entry of Judgment dated June 23, 1993 and from this date on,
being the uncontested owner of the property, the rents should be paid to him instead of the plaintiff
collecting them. From June 23, 1993, the rents collected by plaintiff amounting to more than P53,000.00
from tenants should be offset from the rents due to the lot which according to movant's affidavit is more
than P21,000.00 a month.

WHEREFORE, finding merit in the Motion, the Court hereby grants the following prayer that:

1. The movant shall reimburse plaintiff the construction cost of P53,000.00.

2. The payment of P53,000.00 as reimbursement for the construction cost, movant Juan
Nuguid is hereby entitled to immediate issuance of a writ of possession over the Lot and
improvements thereon.

3. The movant having been declared as the uncontested owner of the Lot in question as
per Entry of Judgment of the Supreme Court dated June 23, 1993, the plaintiff should pay
rent to the movant of no less than P21,000.00 per month from said date as this is the
very same amount paid monthly by the tenants occupying the lot.

4. The amount of P53,000.00 due from the movant is hereby offset against the amount of
rents collected by the plaintiff from June 23, 1993, to September 23, 1993.

SO ORDERED.

The petitioner moved for the reconsideration of the order but it was not acted upon by the trial court. Instead, on 18
November 1993, it issued a writ of possession directing the deputy sheriff "to place said movant Juan Nuguid in
possession of subject property located at No. 79 Kamias Road, Quezon City, with all the improvements thereon and to
eject therefrom all occupants therein, their agents, assignees, heirs and representatives." 9

The petitioner then filed with the Court of Appeals a special civil action for certiorari and prohibition assailing the order of
15 November 1993, which was docketed as CA-G.R. SP No. 32679. In its decision of 7 June 1994, the Court of Appeals
10

affirmed in part the order of the trial court citing Article 448 of the Civil Code. In disposing of the issues, it stated:

As earlier pointed out, private respondent opted to appropriate the improvement introduced by petitioner
on the subject lot, giving rise to the right of petitioner to be reimbursed of the cost of constructing said
apartment building, in accordance with Article 546 of the . . . Civil Code, and of the right to retain the
 improvements until he is reimbursed of the cost of the improvements, because, basically, the right to
retain the improvement while the corresponding indemnity is not paid implies the tenancy or possession
in fact of the land on which they are built . . . [2 TOLENTINO, CIVIL CODE OF THE PHILIPPINES (1992)
p. 112]. With the facts extant and the settled principle as guides, we agree with petitioner that respondent
judge erred in ordering that "the movant having been declared as the uncontested owner of the lot in
question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the plaintiff should pay
rent to the movant of no less than P21,000 per month from said date as this is the very same amount paid
monthly by the tenants occupying the lot.

We, however, agree with the finding of respondent judge that the amount of P53,000.00 earlier admitted
as the cost of constructing the apartment building can be offset from the amount of rents collected by
petitioner from June 23, 1993 up to September 23, 1993 which was fixed at P7,000.00 per month for each
of the three doors. Our underlying reason is that during the period of retention, petitioner as such
possessor and receiving the fruits from the property, is obliged to account for such fruits, so that the
amount thereof may be deducted from the amount of indemnity to be paid to him by the owner of the
land, in line with Mendoza vs. De Guzman, 52 Phil. 164 . . . .

The Court of Appeals then ruled as follows:

WHEREFORE, while it appears that private respondents have not yet indemnified petitioner with the cost
of the improvements, since Annex I shows that the Deputy Sheriff has enforced the Writ of Possession
and the premises have been turned over to the possession of private respondents, the quest of petitioner
that he be restored in possession of the premises is rendered moot and academic, although it is but fair
and just that private respondents pay petitioner the construction cost of P53,000.00; and that petitioner be
ordered to account for any and all fruits of the improvements received by him starting on June 23, 1993,
with the amount of P53,000.00 to be offset therefrom.

IT IS SO ORDERED. 11

Aggrieved by the Court of Appeals' decision, the petitioner filed the instant petition.

The parties agree that the petitioner was a builder in good faith of the apartment building on the theory that he constructed
it at the time when he was still the owner of the lot, and that the key issue in this case is the application of Articles 448 and
456 of the Civil Code.

The trial court and the Court of Appeals, as well as the parties, concerned themselves with the application of Articles 448
and 546 of the Civil Code. These articles read as follows:

Art. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity
provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof. (361a)

xxx xxx xxx

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

Useful expenses shall be refunded only to the possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have acquired by reason thereof. (453a)

By its clear language, Article 448 refers to a land whose ownership is claimed by two or more parties, one of whom has
built some works, or sown or planted something. The building, sowing or planting may have been made in good faith or in
bad faith. The rule on good faith laid down in Article 526 of the Civil Code shall be applied in determining whether a
builder, sower or planter had acted in good faith. 12
Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses
ownership of the land by sale or donation. This Court said so in Coleongco vs. Regalado: 13

Article 361 of the old Civil Code is not applicable in this case, for Regalado constructed the house on his
own land before he sold said land to Coleongco. Article 361 applies only in cases where a person
constructs a building on the land of another in good or in bad faith, as the case may be. It does not apply
to a case where a person constructs a building on his own land, for then there can be no question as to
good or bad faith on the part of the builder.

Elsewise stated, where the true owner himself is the builder of works on his own land, the issue of good faith or bad faith
is entirely irrelevant.

Thus in strict point of law, Article 448 is not apposite to the case at bar. Nevertheless, we believe that the provision therein
on indemnity may be applied by analogy considering that the primary intent of Article 448 is to avoid a state of forced co-
ownership and that the parties, including the two courts below, in the main agree that Articles 448 and 546 of the Civil
Code are applicable and indemnity for the improvements may be paid although they differ as to the basis of the indemnity.

Article 546 does not specifically state how the value of the useful improvements should be determined. The respondent
court and the private respondents espouse the belief that the cost of construction of the apartment building in 1965, and
not its current market value, is sufficient reimbursement for necessary and useful improvements made by the petitioner.
This position is, however, not in consonance with previous rulings of this Court in similar cases. In Javier vs. Concepcion,
Jr., this Court pegged the value of the useful improvements consisting of various fruits, bamboos, a house and camarin
14

made of strong material based on the market value of the said improvements. In Sarmiento vs. Agana, despite the
15

finding that the useful improvement, a residential house, was built in 1967 at a cost of between eight thousand pesos
(P8,000.00) to ten thousand pesos(P10,000.00), the landowner was ordered to reimburse the builder in the amount of
forty thousand pesos (P40,000.00), the value of the house at the time of the trial. In the same way, the landowner was
required to pay the "present value" of the house, a useful improvement, in the case of De Guzman vs. De la
Fuente, cited by the petitioner.
16

The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court
had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila that the said provision was formulated in trying
17

to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of
them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this
precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A
contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued
income-yielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed
to adduce evidence on the present market value of the apartment building upon which the trial court should base its
finding as to the amount of reimbursement to be paid by the landowner.

The trial court also erred in ordering the petitioner to pay monthly rentals equal to the aggregate rentals paid by the
lessees of the apartment building. Since the private respondents have opted to appropriate the apartment building, the
petitioner is thus entitled to the possession and enjoyment of the apartment building, until he is paid the proper indemnity,
as well as of the portion of the lot where the building has been constructed. This is so because the right to retain the
improvements while the corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which
it is built, planted or sown. The petitioner not having been so paid, he was entitled to retain ownership of the building
18

and, necessarily, the income therefrom.

It follows, too, that the Court of Appeals erred not only in upholding the trial court's determination of the indemnity, but also
in ordering the petitioner to account for the rentals of the apartment building from 23 June 1993 to 23 September 1993.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order of 15 November 1993 of the
Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-41470 are hereby SET ASIDE.The case is hereby
remanded to the trial court for it to determine the current market value of the apartment building on the lot. For this
purpose, the parties shall be allowed to adduce evidence on the current market value of the apartment building. The value
so determined shall be forthwith paid by the private respondents to the petitioner otherwise the petitioner shall be restored
to the possession of the apartment building until payment of the required indemnity.

No costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

LEONILA SARMINETO, petitioner,

vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh Judicial District, Branch
XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO and REBECCA LORENZO-
VALENTINO, respondents.

Mercedes M. Respicio for petitioner.

Romulo R. Bobadilla for private respondents.

MELENCIO-HERRERA, J.: ñé+.£ª wph!1

This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court of First Instance of
Pasay City. The Decision was one made on memoranda, pursuant to the provisions of RA 6031, and it modified, on
October 17, 1977, a judgment of the then Municipal Court of Paranaque, Rizal, in an Ejectment suit instituted by
herein petitioner Leonila SARMIENTO against private respondents, the spouses ERNESTO Valentino and Rebecca
Lorenzo. For the facts, therefore, we have to look to the evidence presented by the parties at the original level.

It appears that while ERNESTO was still courting his wife, the latter's mother had told him the couple could build a
RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision in Paranaque (the LAND, for short). In
1967, ERNESTO did construct a RESIDENTIAL HOUSE on the LAND at a cost of P8,000.00 to P10,000.00. It was
probably assumed that the wife's mother was the owner of the LAND and that, eventually, it would somehow be
transferred to the spouses.

It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C. Santo, Jr. who, on
September 7 , 1974, sold the same to petitioner SARMIENTO. The following January 6, 1975, SARMIENTO asked
ERNESTO and wife to vacate and, on April 21, 1975, filed an Ejectment suit against them. In the evidentiary
hearings before the Municipal Court, SARMIENTO submitted the deed of sale of the LAND in her favor, which
showed the price to be P15,000.00. On the other hand, ERNESTO testified that the then cost of the RESIDENTIAL
HOUSE would be from P30,000.00 to P40,000.00. The figures were not questioned by SARMIENTO.

The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in good faith, and,
disregarding the testimony of ERNESTO, that it had a value of P20,000.00. It then ordered ERNESTO and wife to
vacate the LAND after SARMIENTO has paid them the mentioned sum of P20,000.00.

The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the submission of memoranda,
said Court rendered a modifying Decision under Article 448 of the Civil Code. SARMIENTO was required, within 60
days, to exercise the option to reimburse ERNESTO and wife the sum of 40,000.00 as the value of the
RESIDENTIAL HOUSE, or the option to allow them to purchase the LAND for P25,000.00. SARMIENTO did not
exercise any of the two options within the indicated period, and ERNESTO was then allowed to deposit the sum of
P25,000.00 with the Court as the purchase price for the LAND. This is the hub of the controversy. SARMIENTO
then instituted the instant certiorari proceedings.

We agree that ERNESTO and wife were builders in good faith in view of the peculiar circumstances under which
they had constructed the RESIDENTIAL HOUSE. As far as they knew, the LAND was owned by ERNESTO's
mother-in-law who, having stated they could build on the property, could reasonably be expected to later on give
them the LAND.
In regards to builders in good faith, Article 448 of the Code provides: têñ.£îhqwâ£

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

shall have the right

to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for
in articles 546 and 548, or

to oblige the one who built or planted to pay the price of the land, and the one who sowed, the
proper rent.

However, the builder or planter cannot be obliged to buy the land if its value is considerably more
than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land
does not choose to appropriate the building or trees after proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
(Paragraphing supplied)

The value of the LAND, purchased for P15,000.00 on September 7, 1974, could not have been very much more
than that amount during the following January when ERNESTO and wife were asked to vacate. However,
ERNESTO and wife have not questioned the P25,000.00 valuation determined by the Court of First Instance.

In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence presented was the testimony of
ERNESTO that its worth at the time of the trial should be from P30,000.00 to P40,000.00. The Municipal Court
chose to assess its value at P20,000.00, or below the minimum testified by ERNESTO, while the Court of First
Instance chose the maximum of P40,000.00. In the latter case, it cannot be said that the Court of First Instance had
abused its discretion.

The challenged decision of respondent Court, based on valuations of P25,000.00 for the LAND and P40,000.00 for
the RESIDENTIAL HOUSE, cannot be viewed as not supported by the evidence. The provision for the exercise by
petitioner SARMIENTO of either the option to indemnify private respondents in the amount of P40,000.00, or the
option to allow private respondents to purchase the LAND at P25,000.00, in our opinion, was a correct decision. têñ.£îhqwâ£

The owner of the building erected in good faith on a land owned by another, is entitled to retain the
possession of the land until he is paid the value of his building, under article 453 (now Article 546).
The owner, of the land. upon, the other hand, has the option, under article 361 (now Article 448),
either to pay for the building or to sell his land to the owner of the building. But he cannot, as
respondents here did, refuse both to pay for the building and to sell the land and compel the owner
of the building to remove it from the land where it is erected. He is entitled to such remotion only
when, after having chosen to sell his land, the other party fails to pay for the same. (Emphasis ours)

We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove
their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither
to pay for such buildings nor to sell the land, is null and void, for it amends substantially the
judgment sought to be executed and is, furthermore, offensive to articles 361 (now Article 448) and
453 (now Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608 [1946]).

WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to costs.

SO ORDERED. 1äw phï1.ñët

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 120303 July 24, 1996

FEDERICO GEMINIANO, MARIA GEMINIANO, ERNESTO GEMINIANO, ASUNCION GEMINIANO, LARRY

GEMINIANO and MARLYN GEMINIANO, petitioners,
vs.
COURT OF APPEALS, DOMINADOR NICOLAS, and MARY A. NICOLAS, respondents.

DAVIDE, JR. J.:p

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

It appears that Lot No. 3765-B-1 containing an area of 314 square meters was originally owned by the
petitioners' mother, Paulina Amado vda. de Geminiano. On a 12-square-meter portion of that lot stood
the petitioners' unfinished bungalow, which the petitioners sold in November 1978 to the private
respondents for the sum of P6,000.00, with an alleged promise to sell to the latter that portion of the lot
occupied by the house. Subsequently, the petitioners' mother executed a contract of lease over a 126
square-meter portion of the lot, including that portion on which the house stood, in favor of the private
respondents for P40.00 per month for a period of seven years commencing on 15 November
1978.1 The private respondents then introduced additional improvements and registered the house in
their names. After the expiration of the lease contract in November 1985, however, the petitioners'
mother refused to accept the monthly rentals.

It turned out that the lot in question was the subject of a suit, which resulted in its acquisition by one
Maria Lee in 1972. In 1982, Lee sold the lot to Lily Salcedo, who in turn sold it in 1984 to the spouses
Agustin and Ester Dionisio.

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

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

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

During the pre-trial conference, the parties agreed to confine the issues to: (1) whether there was an
implied renewal of the lease which expired in November 1985; (2) whether the lessees were builders in
good faith and entitled to reimbursement of the value of the house and improvements; and (3) the value
of the house.
The parties then submitted their respective position papers and the case was heard under the Rule on
Summary Procedure.

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

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

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

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

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

On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of the RTC7 and
denied8the petitioners' motion for reconsideration. Hence, the present petition.

The Court is confronted with the issue of which provision of law governs the case at bench: Article 448
or Article 1678 of the Civil Code? The said articles read as follows:

Art 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay
the price of the land, and the one who sowed, the proper rent. However, the builder or
plantercannot 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 if disagreement, the court shall fix the terms thereof.

xxx xxx xxx

 Art 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use
for which the lease is intended, without altering the form or substance of the property leased,
the lessor upon the termination of the lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may
remover 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 reimbursed, but he
may remove the ornamental objects, provided no damage is caused to the principal thing, and
the lessor does not choose to retain them by paying their value at the time the lease is
extinguished.

The crux of the said issue then is whether the private respondents are builder in good faith or mere
lessees.

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

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

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

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

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

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

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

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

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

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

Cost against the private respondents.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 79688 February 1, 1996

PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO, respondents.

DECISION

PANGANIBAN, J.:

Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the owner's agent, a builder in
good faith? This is the main issue resolved in this petition for review on certiorari to reverse the Decision of the Court of
1

Appeals in CA-G.R. No. 11040, promulgated on August 20, 1987.

2

By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this case (along with several
others) to the Third Division. After due deliberation and consultation, the Court assigned the writing of this Decision to the
undersigned ponente.

The Facts

The facts, as found by respondent Court, are as follows:

Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II and located at Taculing Road,
Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought the rights to the lot from Robillo. At
that time, Lot 9 was vacant.

Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City on December 19, 1978
Transfer Certificate of Title No. 106367 in his name. It was then that he discovered that improvements had been
introduced on Lot 9 by respondent Wilson Kee, who had taken possession thereof.

It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same subdivision from C.T. Torres Enterprises,
Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the Contract to Sell on Installment, Kee could possess
the lot even before the completion of all installment payments. On January 20, 1975, Kee paid CTTEI the relocation fee of
P50.00 and another P50.00 on January 27, 1975, for the preparation of the lot plan. These amounts were paid prior to
Kee's taking actual possession of Lot 8. After the preparation of the lot plan and a copy thereof given to Kee, CTTEI
through its employee, Zenaida Octaviano, accompanied Kee's wife, Donabelle Kee, to inspect Lot 8. Unfortunately, the
parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an auto
repair shop and other improvements on the lot.

After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach an amicable
settlement, but failed.

On January 30, 1981, Jardinico's lawyer wrote Kee, demanding that the latter remove all improvements and vacate Lot 9.
When Kee refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC),
a complaint for ejectment with damages against Kee.

Kee, in turn, filed a third-party complaint against petitioner and CTTEI.

The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further ruled that petitioner and
CTTEI could not successfully invoke as a defense the failure of Kee to give notice of his intention to begin construction
required under paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari store without the prior
approval of petitioner required under paragraph 26 of said contract, saying that the purpose of these requirements was
merely to regulate the type of improvements to be constructed on the Lot. 3

However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for the latter's failure to
pay the installments due, and that Kee had not contested the rescission. The rescission was effected in 1979, before the
complaint was instituted. The MTCC concluded that Kee no longer had any right over the lot subject of the contract
between him and petitioner. Consequently, Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he
cannot claim reimbursement for the improvements he introduced on said lot.

The MTCC thus disposed:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows:

1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered by TCT No. 106367 and to remove
all structures and improvements he introduced thereon;

2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P15.00 a day computed from the
time this suit was filed on March 12, 1981 until he actually vacates the premises. This amount shall bear interests
(sic) at the rate of 12 per cent (sic) per annum.

3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay the
plaintiff jointly and severally the sum of P3,000.00 as attorney's fees and P700.00 as cost and litigation
expenses. 4

On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and CTTEI were not at fault or
were not negligent, there being no preponderant evidence to show that they directly participated in the delivery of Lot 9 to
Kee . It found Kee a builder in bad faith. It further ruled that even assuming arguendo that Kee was acting in good faith, he
5

was, nonetheless, guilty of unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was served
with notice to vacate said lot, and thus was liable for rental.

The RTC thus disposed:

WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant to vacate
the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land records of Bacolod
City; the removal of all structures and improvements introduced thereon at his expense and the payment to
plaintiff (sic) the sum of Fifteen (P15.00) Pesos a day as reasonable rental to be computed from January 30,
1981, the date of the demand, and not from the date of the filing of the complaint, until he had vacated (sic) the
premises, with interest thereon at 12% per annum. This Court further renders judgment against the defendant to
pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorney's fees, plus costs of litigation.

The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and C.T. Torres
Enterprises, Inc. is dismissed. The order against Third-Party Defendants to pay attorney's fees to plaintiff and
costs of litigation is reversed.
6

Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed directly to the Supreme Court,
which referred the matter to the Court of Appeals.

The appellate court ruled that Kee was a builder in good faith, as he was unaware of the "mix-up" when he began
construction of the improvements on Lot 8. It further ruled that the erroneous delivery was due to the negligence of CTTEI,
and that such wrong delivery was likewise imputable to its principal, petitioner herein. The appellate court also ruled that
the award of rentals was without basis.

Thus, the Court of Appeals disposed:

WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and judgment is rendered as
follows:

1. Wilson Kee is declared a builder in good faith with respect to the improvements he introduced on Lot 9, and is
entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code.
 2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily
liable under the following circumstances:

A. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these
structures, the third-party defendants shall answer for all demolition expenses and the value of the
improvements thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount
representing the value of Lot 9 that Kee should pay to Jardinico.

3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are ordered to
pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses.

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

Furthermore, the case is REMANDED to the court of origin for the determination of the actual value of the
improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New
Civil Code.7

Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.

The Issues

The petition submitted the following grounds to justify a review of the respondent Court's Decision, as follows:

1. The Court of Appeals has decided the case in a way probably not in accord with law or the the (sic) applicable
decisions of the Supreme Court on third-party complaints, by ordering third-party defendants to pay the demolition
expenses and/or price of the land;

2. The Court of Appeals has so far departed from the accepted course of judicial proceedings, by granting to
private respondent-Kee the rights of a builder in good faith in excess of what the law provides, thus enriching
private respondent Kee at the expense of the petitioner;

3. In the light of the subsequent events or circumstances which changed the rights of the parties, it becomes
imperative to set aside or at least modify the judgment of the Court of Appeals to harmonize with justice and the
facts;

4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly a builder in bad
faith, having violated several provisions of the contract to sell on installments;

5. The decision of the Court of Appeals, holding the principal, Pleasantville Development Corporation (liable) for
the acts made by the agent in excess of its authority is clearly in violation of the provision of the law;

6. The award of attorney's fees is clearly without basis and is equivalent to putting a premium in (sic) court
litigation.

From these grounds, the issues could be re-stated as follows:

(1) Was Kee a builder in good faith?

(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and

(3) Is the award of attorney's fees proper?

The First Issue: Good Faith

Petitioner contends that the Court of Appeals erred in reversing the RTC's ruling that Kee was a builder in bad faith.
Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals that Kee was a
builder in good faith. We agree with the following observation of the Court of Appeals:

The roots of the controversy can be traced directly to the errors committed by CTTEI, when it pointed the wrong
property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot would knowingly and willingly
build his residence on a lot owned by another, deliberately exposing himself and his family to the risk of being
ejected from the land and losing all improvements thereon, not to mention the social humiliation that would follow.

Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity of his
property. Lot 8 is covered by Transfer Certificate of Title No. T-69561, while Lot 9 is identified in Transfer
Certificate of Title No. T-106367. Hence, under the Torrens system of land registration, Kee is presumed to have
knowledge of the metes and bounds of the property with which he is dealing. . . .

xxx xxx xxx

But as Kee is a layman not versed in the technical description of his property, he had to find a way to ascertain
that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivision developer's agent
and applied and paid for the relocation of the lot, as well as for the production of a lot plan by CTTEI's geodetic
engineer. Upon Kee's receipt of the map, his wife went to the subdivision site accompanied by CTTEI's employee,
Octaviano, who authoritatively declared that the land she was pointing to was indeed Lot 8. Having full faith and
confidence in the reputation of CTTEI, and because of the company's positive identification of the property, Kee
saw no reason to suspect that there had been a misdelivery. The steps Kee had taken to protect his interests
were reasonable. There was no need for him to have acted ex-abundantia cautela, such as being present during
the geodetic engineer's relocation survey or hiring an independent geodetic engineer to countercheck for errors,
for the final delivery of subdivision lots to their owners is part of the regular course of everyday business of CTTEI.
Because of CTTEI's blunder, what Kee had hoped to forestall did in fact transpire. Kee's efforts all went to
naught. 8

Good faith consists in the belief of the builder that the land he is building on is his and his ignorance of any defect or flaw
in his title . And as good faith is presumed, petitioner has the burden of proving bad faith on the part of Kee .
9 10

At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitioner. He was not
aware that the lot delivered to him was not Lot 8. Thus, Kee's good faith. Petitioner failed to prove otherwise.

To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22 and 26 of the Contract of Sale on
Installment.

We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in good faith, that is, on his state
of mind at the time he built the improvements on Lot 9. These alleged violations may give rise to petitioner's cause of
action against Kee under the said contract (contractual breach), but may not be bases to negate the presumption that Kee
was a builder in good faith.

Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment covering Lot 8 between it and
Kee was rescinded long before the present action was instituted. This has no relevance on the liability of petitioner, as
such fact does not negate the negligence of its agent in pointing out the wrong lot. to Kee. Such circumstance is relevant
only as it gives Jardinico a cause of action for unlawful detainer against Kee.

Petitioner next contends that Kee cannot "claim that another lot was erroneously pointed out to him" because the latter
agreed to the following provision in the Contract of Sale on installment, to wit:

13. The Vendee hereby declares that prior to the execution of his contract he/she has personally examined or
inspected the property made subject-matter hereof, as to its location, contours, as well as the natural condition of
the lots and from the date hereof whatever consequential change therein made due to erosion, the said Vendee
shall bear the expenses of the necessary fillings, when the same is so desired by him/her. 11

The subject matter of this provision of the contract is the change of the location, contour and condition of the lot due to
erosion. It merely provides that the vendee, having examined the property prior to the execution of the contract, agrees to
shoulder the expenses resulting from such change.
We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from
petitioner's negligence. Such waiver would be contrary to public policy and cannot be allowed. "Rights may be waived,
unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person
with a right recognized by law." 12

The Second Issue: Petitioner's Liability

Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after ruling that there was
no evidence from which fault or negligence on the part of petitioner and CTTEI can be inferred. The Court of Appeals
disagreed and found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee.

Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous delivery of Lot 9 to Kee
was an act which was clearly outside the scope of its authority, and consequently, CTTEI I alone should be liable. It
asserts that "while [CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was never authorized to
deliver the wrong lot to Kee" .13

Petitioner's contention is without merit.

The rule is that the principal is responsible for the acts of the agent, done within the scope of his authority, and should
bear the damage caused to third persons . On the other hand, the agent who exceeds his authority is personally liable
14

for the damage 15

CTTEI was acting within its authority as the sole real estate representative of petitioner when it made the delivery to Kee.
In acting within its scope of authority, it was, however, negligent. It is this negligence that is the basis of petitioner's
liability, as principal of CTTEI, per Articles 1909 and 1910 of the Civil Code.

Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24, 1987 entered into a deed of
sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the Court of Appeals of such deal.

The deed of sale contained the following provision:

1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now pending appeal with the Court of Appeals,
regardless of the outcome of the decision shall be mutually disregarded and shall not be pursued by the parties
herein and shall be considered dismissed and without effect whatso-ever; 16

Kee asserts though that the "terms and conditions in said deed of sale are strictly for the parties thereto" and that "(t)here
is no waiver made by either of the parties in said deed of whatever favorable judgment or award the honorable respondent
Court of Appeals may make in their favor against herein petitioner Pleasantville Development Corporation and/or private
respondent C.T. Torres Enterprises; Inc." 17

Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated, petitioner's liability is
grounded on the negligence of its agent. On the other hand, what the deed of sale regulates are the reciprocal rights of
Kee and Jardinico; it stressed that they had reached an agreement independent of the outcome of the case.

Petitioner further assails the following holding of the Court of Appeals:

2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily
liable under the following circumstances:

a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures,
the third-party defendants shall answer for all demolition expenses and the value of the improvements
thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount
representing the value of Lot 9 that Kee should pay to Jardinico. 18
Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at its expense. In other
words, Kee would be able to own the lot, as buyer, without having to pay anything on it, because the aforequoted portion
of respondent Court's Decision would require petitioner and CTTEI jointly and solidarily to "answer" or reimburse Kee
therefor.

We agree with petitioner.

Petitioner' s liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner should be held liable for
damages. Now, the extent and/or amount of damages to be awarded is a factual issue which should be determined after
evidence is adduced. However, there is no showing that such evidence was actually presented in the trial court; hence no
damages could flow be awarded.

The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good faith, respectively, are
regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight
modification" in the application of such law, on the ground of "equity". At any rate, as it stands now, Kee and Jardinico
have amicably settled through their deed of sale their rights and obligations with regards to Lot 9. Thus, we delete items 2
(a) and (b) of the dispositive portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and CTTEI
solidarily liable.

The Third Issue: Attorney's Fees

The MTCC awarded Jardinico attorney's fees and costs in the amount of P3,000.00 and P700.00, respectively, as prayed
for in his complaint. The RTC deleted the award, consistent with its ruling that petitioner was without fault or negligence.
The Court of Appeals, however, reinstated the award of attorney's fees after ruling that petitioner was liable for its agent's
negligence.

The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case . 19

We shall not interfere with the discretion of the Court of Appeals. Jardinico was compelled to litigate for the protection of
his interests and for the recovery of damages sustained as a result of the negligence of petitioner's agent . 20

In sum, we rule that Kee is a builder in good faith. The disposition of the Court of Appeals that Kee "is entitled to the rights
granted him under Articles 448, 546 and 548 of the New Civil Code" is deleted, in view of the deed of sale entered into by
Kee and Jardinico, which deed now governs the rights of Jardinico and Kee as to each other. There is also no further
need, as ruled by the appellate Court, to remand the case to the court of origin "for determination of the actual value of the
improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil
Code."

WHEREFORE , the petition is partially GRANTED. The Decision of the Court of Appeals is hereby MODIFIED as follows:

(1) Wilson Kee is declared a builder in good faith;

(2) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are declared
solidarily liable for damages due to negligence; however, since the amount and/or extent of such damages was
not proven during the trial, the same cannot now be quantified and awarded;

(3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are ordered to
pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses; and

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 98045 June 26, 1996

DESAMPARADO VDA. DE NAZARENO and LETICIA NAZARENO TAPIA, petitioners,

vs.
THE COURT OF APPEALS, MR. & MRS. JOSE SALASALAN, MR. & MRS. LEO RABAYA, AVELINO LABIS,
HON. ROBERTO G. HILARIO, ROLLEO I. IGNACIO, ALBERTO M. GILLERA and HON. ABELARDO G. PALAD,
JR., in their official and/or private capacities, respondents.

ROMERO, J.:p

Petitioners Desamparado Vda. de Nazareno and Leticia Nazareno Tapia challenge the decision of the Court of Appeals which affirmed the dismissal of petitioners'
complaint by the Regional Trial Court of Misamis Oriental, Branch 22. The complaint was for annulment of the verification, report and recommendation, decision
and order of the Bureau of Lands regarding a parcel of public land.

The only issue involved in this petition is whether or not petitioners exhausted administrative remedies before having
recourse to the courts.

The subject of this controversy is a parcel of land situated in Telegrapo, Puntod, Cagayan de Oro City. Said land
was formed as a result of sawdust dumped into the dried-up Balacanas Creek and along the banks of the Cagayan
river.

Sometime in 1979, private respondents Jose Salasalan and Leo Rabaya leased the subject lots on which their
houses stood from one Antonio Nazareno, petitioners' predecessor-in-interest. In the latter part of 1982, private
respondents allegedly stopped paying rentals. As a result, Antonio Nazareno and petitioners filed a case for
ejectment with the Municipal Trial Court of Cagayan de Oro City, Branch 4. A decision was rendered against private
respondents, which decision was affirmed by the Regional Trial Court of Misamis Oriental, Branch 20.

The case was remanded to the municipal trial court for execution of judgment after the same became final and
executory. Private respondents filed a case for annulment of judgment before the Regional Trial Court of Misamis
Oriental, Branch 24 which dismissed the same. Antonio Nazareno and petitioners again moved for execution of
judgment but private respondents filed another case for certiorari with prayer for restraining order and/or writ of
preliminary injunction with the Regional Trial Court of Misamis Oriental, Branch 25 which was likewise dismissed.
The decision of the lower court was finally enforced with the private respondents being ejected from portions of the
subject lots they occupied..

Before he died, Antonio Nazareno caused the approval by the Bureau of Lands of the survey plan designated as
Plan Csd-106-00571 with a view to perfecting his title over the accretion area being claimed by him. Before the
approved survey plan could be released to the applicant, however, it was protested by private respondents before
the Bureau of Lands.

In compliance with the order of respondent District Land Officer Alberto M. Gillera, respondent Land Investigator
Avelino G. Labis conducted an investigation and rendered a report to the Regional Director recommending that
Survey Plan No. MSI-10-06-000571-D (equivalent to Lot No. 36302, Cad. 237) in the name of Antonio Nazareno, be
cancelled and that private respondents be directed to file appropriate public land applications.

Based on said report, respondent Regional Director of the Bureau of Lands Roberto Hilario rendered a decision
ordering the amendment of the survey plan in the name of Antonio Nazareno by segregating therefrom the areas
occupied by the private respondents who, if qualified, may file public land applications covering their respective
portions.

Antonio Nazareno filed a motion for reconsideration with respondent Rolleo Ignacio, Undersecretary of the
Department of Natural Resources and Officer-in-Charge of the Bureau of Lands who denied the motion.
Respondent Director of Lands Abelardo Palad then ordered him to vacate the portions adjudicated to private
respondents and remove whatever improvements they have introduced thereon. He also ordered that private
respondents be placed in possession thereof.

Upon the denial of the late Antonio Nazareno's motion for reconsideration, petitioners Desamparado Vda. de
Nazareno and Leticia Tapia Nazareno, filed a case before the RTC, Branch 22 for annulment of the following: order
of investigation by respondent Gillera, report and recommendation by respondent Labis, decision by respondent
Hilario, order by respondent Ignacio affirming the decision of respondent Hilario and order of execution by
respondent Palad. The RTC dismissed the complaint for failure to exhaust administrative remedies which resulted in
the finality of the administrative decision of the Bureau of Lands.

On appeal, the Court of Appeals affirmed the decision of the RTC dismissing the complaint. Applying Section 4 of
C.A. No. 141, as amended, it contended that the approval of the survey plan belongs exclusively to the Director of
Lands. Hence, factual findings made by the Metropolitan Trial Court respecting the subject land cannot be held to be
controlling as the preparation and approval of said survey plans belong to the Director of Lands and the same shall
be conclusive when approved by the Secretary of Agriculture and Natural resources. 1

Furthermore, the appellate court contended that the motion for reconsideration filed by Antonio Nazareno cannot be
considered as an appeal to the Office of the Secretary of Agriculture and Natural Resources, as mandated by C.A.
No. 141 inasmuch as the same had been acted upon by respondent Undersecretary Ignacio in his capacity as
Officer-in-charge of the Bureau of Lands and not as Undersecretary acting for the Secretary of Agriculture and
Natural Resources. For the failure of Antonio Nazareno to appeal to the Secretary of Agriculture and Natural
Resources, the present case does not fall within the exception to the doctrine of exhaustion of administrative
remedies. It also held that there was no showing of oppressiveness in the manner in which the orders were issued
and executed..

Hence, this petition.

Petitioners assign the following errors:

I. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL, ARBITRARY AND

CAPRICIOUS MANNER AFFIRMED THE DECISION OF THE LOWER COURT WHICH IS
CONTRARY TO THE PREVAILING FACTS AND THE LAW ON THE MATTER;

II. PUBLIC RESPONDENT COURT OF APPEALS IN A WHIMSICAL, ARBITRARY AND

CAPRICIOUS MANNER AFFIRMED THE DECISION OF THE LOWER COURT DISMISSING THE
ORIGINAL CASE WHICH FAILED TO CONSIDER THAT THE EXECUTION ORDER OF PUBLIC
RESPONDENT ABELARDO G. PALAD, JR., DIRECTOR OF LANDS, MANILA, PRACTICALLY
CHANGED THE DECISION OF PUBLIC RESPONDENT ROBERTO HILARIO, REGIONAL
DIRECTOR, BUREAU OF LANDS, REGION 10, THUS MAKING THE CASE PROPER SUBJECT
FOR ANNULMENT WELL WITHIN THE JURISDICTION OF THE LOWER COURT.

The resolution of the above issues, however, hinges on the question of whether or not the subject land is public
land. Petitioners claim that the subject land is private land being an accretion to his titled property, applying Article
457 of the Civil Code which provides:

To the owners of lands adjoining the banks of rivers belong the accretion which they gradually
receive from the effects of the current of the waters.

In the case of Meneses v. CA, 2 this Court held that accretion, as a mode of acquiring property under Art. 457 of the
Civil Code, requires the concurrence of these requisites : (1) that the deposition of soil or sediment be gradual and
imperceptible; (2) that it be the result of the action of the waters of the river (or sea); and (3) that the land where
accretion takes place is adjacent to the banks of rivers (or the sea coast). These are called the rules on alluvion
which if present in a case, give to the owners of lands adjoining the banks of rivers or streams any accretion
gradually received from the effects of the current of waters.

For petitioners to insist on the application of these rules on alluvion to their case, the above-mentioned requisites
must be present. However, they admit that the accretion was formed by the dumping of boulders, soil and other
filling materials on portions of the Balacanas Creek and the Cagayan River bounding their land. 3 It cannot be
claimed, therefore, that the accumulation of such boulders, soil and other filling materials was gradual and
imperceptible, resulting from the action of the waters or the current of the Balacanas Creek and the Cagayan
River. In Hilario v. City of Manila, 4 this Court held that the word "current" indicates the participation of the body of
water in the ebb and flow of waters due to high and low tide. Petitioners' submission not having met the first and
second requirements of the rules on alluvion, they cannot claim the rights of a riparian owner.

In any case, this court agrees with private respondents that petitioners are estopped from denying the public
character of the subject land, as well as the jurisdiction of the Bureau of Lands when the late Antonio Nazareno filed
his Miscellaneous Sales Application MSA (G-6) 571. 5 The mere filing of said Application constituted an admission
that the land being applied for was public land, having been the subject of Survey Plan No. MSi-10-06-000571-D
(Equivalent to Lot No. 36302, Cad-237) which was conducted as a consequence of Antonio Nazareno's
Miscellaneous Sales Application wherein said land was described as an orchard. Said description by Antonio
Nazareno was, however, controverted by respondent Labis in his investigation report to respondent Hilario based on
the findings of his ocular inspection that said land actually covers a dry portion of Balacanas Creek and a swampy
portion of Cagayan River. The investigation report also states that, except for the swampy portion which is fully
planted to nipa palms, the whole area is fully occupied by a part of a big concrete bodega of petitioners and several
residential houses made of light materials, including those of private respondents which were erected by themselves
sometime in the early part of 1978. 6

Furthermore, the Bureau of Lands classified the subject land as an accretion area which was formed by deposits of
sawdust in the Balacanas Creek and the Cagayan river, in accordance with the ocular inspection conducted by the
Bureau of Lands. 7 This Court has often enough held that findings of administrative agencies which have acquired
expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but even
finality. 8 Again, when said factual findings are affirmed by the Court of Appeals, the same are conclusive on the
parties and not reviewable by this Court. 9

It is this Court's irresistible conclusion, therefore, that the accretion was man-made or artificial. In Republic
v. CA, 10this Court ruled that the requirement that the deposit should be due to the effect of the current of the river is
indispensable. This excludes from Art. 457 of the Civil Code all deposits caused by human intervention. Putting it
differently, alluvion must be the exclusive work of nature. Thus, in Tiongco v. Director of Lands, et al., 11 where the
land was not formed solely by the natural effect of the water current of the river bordering said land but is also the
consequence of the direct and deliberate intervention of man, it was deemed a man-made accretion and, as such,
part of the public domain.

In the case at bar, the subject land was the direct result of the dumping of sawdust by the Sun Valley Lumber Co.
consequent to its sawmill
operations. 12 Even if this Court were to take into consideration petitioners' submission that the accretion site was the
result of the late Antonio Nazareno's labor consisting in the dumping of boulders, soil and other filling materials into
the Balacanas Creek and Cagayan River bounding his land, 13 the same would still be part of the public domain.

Having determined that the subject land is public land, a fortiori, the Bureau of Lands, as well as the Office of the
Secretary of Agriculture and Natural Resources have jurisdiction over the same in accordance with the Public Land
Law. Accordingly, the court a quo dismissed petitioners' complaint for non-exhaustion of administrative remedies
which ruling the Court of Appeals affirmed.

However, this Court agrees with petitioners that administrative remedies have been exhausted. Petitioners could not
have intended to appeal to respondent Ignacio as an Officer-In-Charge of the Bureau of Lands. The decision being
appealed from was the decision of respondent Hilario who was the Regional Director of the Bureau of Lands. Said
decision was made "for and by authority of the Director of Lands". 14 It would be incongruous to appeal the decision
of the Regional Director of the Bureau of Lands acting for the Director of the Bureau of Lands to an Officer-In-
Charge of the Bureau of Lands.
In any case, respondent Rolleo Ignacio's official designation was "Undersecretary of the Department of Agriculture
and Natural Resources." He was only an "Officer-In-Charge" of the Bureau of Lands. When he acted on the late
Antonio Nazareno's motion for reconsideration by affirming or adopting respondent Hilario's decision, he was acting
on said motion as an Undersecretary on behalf of the Secretary of the Department. In the case of Hamoy
v. Secretary of Agriculture and Natural Resources, 15 this Court held that the Undersecretary of Agriculture and
Natural Resources may modify, adopt, or set aside the orders or decisions of the Director of Lands with respect to
questions involving public lands under the administration and control of the Bureau of Lands and the Department of
Agriculture and Natural Resources. He cannot, therefore, be said to have acted beyond the bounds of his
jurisdiction under Sections 3, 4 and 5 of Commonwealth Act No. 141 16

As borne out by the administrative findings, the controverted land is public land, being an artificial accretion of
sawdust. As such, the Director of Lands has jurisdiction, authority and control over the same, as mandated under
Sections 3 and 4 of the Public Land Law (C.A. No. 141) which states, thus:

Sec. 3. The Secretary of Agriculture and Natural Resources shall be the exclusive officer charged
with carrying out the provisions of this Act through the Director of Lands who shall act under his
immediate control.

Sec. 4. Subject to said control, the Director of Lands shall have direct executive control of the
survey, classification, lease, sale or any other form of concession or disposition and management of
the lands of the public domain, and his decisions as to questions of fact shall be conclusive when
approved by the Secretary of Agriculture and Natural Resources.

In connection with the second issue, petitioners ascribe whim, arbitrariness or capriciousness in the execution order
of public respondent Abelardo G. Palad, the Director of Lands. This Court finds otherwise since said decision was
based on the conclusive finding that the subject land was public land. Thus, this Court agrees with the Court of
Appeals that the Director of Lands acted within his rights when he issued the assailed execution order, as mandated
by the aforecited provisions.

Petitioners' allegation that respondent Palad's execution order directing them to vacate the subject land practically
changed respondent Hilario's decision is baseless. It is incorrect for petitioners to assume that respondent Palad
awarded portions of the subject land to private respondents Salasalans and Rabayas as they had not yet been
issued patents or titles over the subject land. The execution order merely directed the segregation of petitioners'
titled lot from the subject land which was actually being occupied by private respondents before they were ejected
from it. Based on the finding that private respondents were actually in possession or were actually occupying the
subject land instead of petitioners, respondent Palad, being the Director of Lands and in the exercise of his
administrative discretion, directed petitioners to vacate the subject land on the ground that private respondents have
a preferential right, being the occupants thereof.

While private respondents may not have filed their application over the land occupied by them, they nevertheless
filed their protest or opposition to petitioners' Miscellaneous Sales Application, the same being preparatory to the
filing of an application as they were in fact directed to do so. In any case, respondent Palad's execution order merely
implements respondent Hilario's order. It should be noted that petitioners' own application still has to be given due
course. 17

As Director of Lands, respondent Palad is authorized to exercise executive control over any form of concession,
disposition and management of the lands of the public domain. 18 He may issue decisions and orders as he may see
fit under the circumstances as long as they are based on the findings of fact.

In the case of Calibo v. Ballesteros, 19 this Court held that where, in the disposition of public lands, the Director of
Lands bases his decision on the evidence thus presented, he clearly acts within his jurisdiction, and if he errs in
appraising the evidence, the error is one of judgment, but not an act of grave abuse of discretion annullable
by certiorari. Thus, except for the issue of non-exhaustion of administrative remedies, this Court finds no reversible
error nor grave abuse of discretion in the decision of the Court of Appeals.

WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED.