FIRST DIVISION

SULO SA NAYON, INC. and/or

PHILIPPINE VILLAGE HOTEL, INC. and JOSE MARCEL E. PANLILIO,
Petitioners,

- versus -

G.R. No. 170923

Present:
PUNO, C.J., Chairperson,
CARPIO,
CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.

Promulgated:
NAYONG PILIPINO FOUNDATION,
January 20, 2009
Respondent.
x----------------------------------------------------------- x
DECISION
PUNO, C.J.:
[1]
On appeal are the Court of Appeals (CAs) October 4, 2005 Decision in CA-G.R. SP No.
[2]
[3]
74631 and December 22, 2005 Resolution, reversing the November 29, 2002 Decision of
the Regional Trial Court (RTC) of Pasay City in Civil Case No. 02-0133. The RTC modified the
[4]
Decision of the Metropolitan Trial Court (MeTC) ofPasay City which ruled against
petitioners and ordered them to vacate the premises and pay their arrears. The RTC
declared petitioners as builders in good faith and upheld their right to indemnity.
The facts are as follows:
Respondent Nayong Pilipino Foundation, a government-owned and controlled corporation, is
the owner of a parcel of land in Pasay City, known as the Nayong Pilipino
Complex. Petitioner Philippine Village Hotel, Inc. (PVHI), formerly called Sulo sa Nayon, Inc.,
is a domestic corporation duly organized and existing under Philippine laws. Petitioner Jose
Marcel E. Panlilio is its Senior Executive Vice President.
On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of
36,289 square meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of
a hotel building, to be known as the Philippine Village Hotel. The lease was for an initial
period of 21 years, or until May 1996. It is renewable for a period of 25 years under the
same terms and conditions upon due notice in writing to respondent of the intention to
renew at least 6 months before its expiration. Thus, on March 7, 1995, petitioners sent
respondent a letter notifying the latter of their intention to renew the contract for another
25 years. On July 4, 1995, the parties executed a Voluntary Addendum to the Lease
Agreement. The addendum was signed by petitioner Jose Marcel E. Panlilio in his official
capacity as Senior Executive Vice President of the PVHI and by Chairman Alberto A. Lim of the
Nayong Pilipino Foundation. They agreed to the renewal of the contract for another 25
years, or until 2021. Under the new agreement, petitioner PVHI was bound to pay the
monthly rental on a per square meter basis at the rate of P20.00 per square meter, which
shall be subject to an increase of 20% at the end of every 3-year period. At the time of the
renewal of the lease contract, the monthly rental amounted to P725,780.00.
Beginning January 2001, petitioners defaulted in the payment of their monthly
rental. Respondent repeatedly demanded petitioners to pay the arrears and vacate the
premises. The last demand letter was sent on March 26, 2001.

On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC
of Pasay City. The complaint was docketed as Civil Case No. 708-01. Respondent computed
the arrears of petitioners in the amount of twenty-six million one hundred eighty-three
thousand two hundred twenty-five pesos and fourteen centavos (P26,183,225.14), as of July
31, 2001.
On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus:
. . . . The court is convinced by the evidence that indeed, defendants defaulted in the
payment of their rentals. It is basic that the lessee is obliged to pay the price of the lease
according to the terms stipulated (Art. 1657, Civil Code). Upon the failure of the lessee to
pay the stipulated rentals, the lessor may eject (sic) and treat the lease as rescinded and sue
to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao, 53 Phil. 1). For non-payment of rentals,
the lessor may rescind the lease, recover the back rentals and recover possession of the
leased premises. . .
xxx
. . . . Improvements made by a lessee such as the defendants herein on leased premises are
not valid reasons for their retention thereof. The Supreme Court has occasion to address a
similar issue in which it ruled that: The fact that petitioners allegedly made repairs on the
premises in question is not a reason for them to retain the possession of the premises. There
is no provision of law which grants the lessee a right of retention over the leased premises on
that ground. Article 448 of the Civil Code, in relation to Article 546, which provides for full
reimbursement of useful improvements and retention of the premises until reimbursement is
made, applies only to a possessor in good faith, i.e., one who builds on a land in the belief
that he is the owner thereof. This right of retention does not apply to a mere lessee, like the
petitioners, otherwise, it would always be in his power to improve his landlord out of the
latters property (Jose L. Chua and Co Sio Eng vs. Court of Appeals and Ramon Ibarra, G.R. No.
109840, January 21, 1999).
Although the Contract of Lease stipulates that the building and all the improvements in the
leased premises belong to the defendants herein, such will not defeat the right of the
plaintiff to its property as the defendants failed to pay their rentals in violation of the terms
of the contract. At most, defendants can only invoke [their] right under Article 1678 of the
New Civil Code which grants them the right to be reimbursed one-half of the value of the
building upon the termination of the lease, or, in the alternative, to remove the
improvements if the lessor refuses to make reimbursement.
The dispositive portion of the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Nayong Pilipino
Foundation, and against the defendant Philippine Village Hotel, Inc[.], and all persons
claiming rights under it, ordering the latter to:
1.
VACATE the subject premises and surrender possession thereof to plaintiff;
2.
PAY plaintiff its rental arrearages in the sum of TWENTY SIX MILLION ONE
HUNDRED EIGHTY THREE THOUSAND TWO HUNDRED TWENTY FIVE PESOS AND 14/100
(P26,183,225.14) incurred as of July 31, 2001;
3.
PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE THOUSAND SEVEN
HUNDRED EIGHTY PESOS (P725,780.00) per month starting from August 2001 and every
month thereafter by way of reasonable compensation for the use and occupation of the
premises;
4.
PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of
attorneys fees*; and+
5.
PAY the costs of suit.

The complaint against defendant Jose Marcel E. Panlilio is hereby dismissed for lack of cause
of action. The said defendants counterclaim however is likewise dismissed as the complaint
does not appear to be frivolous or maliciously instituted.
[5]
SO ORDERED.
Petitioners appealed to the RTC which modified the ruling of the MeTC. It held that:
. . . it is clear and undisputed that appellants-lessees were expressly required to construct a
first-class hotel with complete facilities. The appellants were also unequivocally declared in
the Lease Agreement as the owner of the improvements so constructed. They were even
explicitly allowed to use the improvements and building as security or collateral on loans and
credit accommodations that the Lessee may secure for the purpose of financing the
construction of the building and other improvements (Section 2; pars. A to B, Lease
Agreement). Moreover, a time frame was setforth (sic) with respect to the duration of the
lease initially for 21 years and renewable for another 25 years in order to enable the
appellants-lessees to recoup their huge money investments relative to the construction and
maintenance of the improvements.
xxx
Considering therefore, the elements of permanency of the construction and substantial value
of the improvements as well as the undispute[d] ownership over the land improvements,
these, immensely engender the application of Art. 448 of the Civil Code. The only remaining
and most crucial issue to be resolved is whether or not the appellants as builders have acted
in good faith in order for Art. 448 in relation to Art. 546 of the Civil Code may apply with
respect to their rights over improvements.
xxx
. . . it is undeniable that the improvement of the hotel building of appellants (sic) PVHI was
constructed with the written consent and knowledge of appellee. In fact, it was precisely the
primary purpose for which they entered into an agreement. Thus, it could not be denied that
appellants were builders in good faith.
Accordingly, and pursuant to Article 448 in relation to Art. 546 of the Civil Code, plaintiffappellee has the sole option or choice, either to appropriate the building, upon payment of
proper indemnity consonant to Art. 546 or compel the appellants to purchase the land
whereon the building was erected. Until such time that plaintiff-appellee has elected an
option or choice, it has no right of removal ordemolition against appellants unless after
having selected a compulsory sale, appellants fail to pay for the land (Ignacio vs. Hilario; 76
Phil. 605). This, however, is without prejudice from the parties agreeing to adjust their rights
in some other way as they may mutually deem fit and proper.
The dispositive portion of the decision of the RTC reads as follows:
WHEREFORE, and in view of the foregoing, judgment is hereby rendered modifying the
decision of [the] MTC, Branch 45 of Pasay City rendered on February 26, 2002 as follows:
1. Ordering plaintiff-appellee to submit within thirty (30) days from receipt of a copy of
this decision a written manifestation of the option or choice it selected, i.e., to appropriate
the improvements upon payment of proper indemnity or compulsory sale of the land
whereon the hotel building of PVHI and related improvements or facilities were erected;
2. Directing the plaintiff-appellee to desist and/or refrain from doing acts in the
furtherance or exercise of its rights and demolition against appellants unless and after having
selected the option of compulsory sale and appellants failed to pay [and] purchase the land
within a reasonable time or at such time as this court will direct;
3. Ordering defendants-appellants to pay plaintiff-appellee [their] arrears in rent incurred
as of July 31, 2001 in the amount of P26,183,225.14;

4. Ordering defendants-appellants to pay to plaintiff-appellee the unpaid monthly rentals

for the use and occupation of the premises pending this appeal from July to November 2002
only at P725,780.00 per month;
5. The fourth and fifth directives in the dispositive portion of the trial courts decision
including that the last paragraph thereof JME Panlilios complaint is hereby affirmed;
6. The parties are directed to adjust their respective rights in the interest of justice as they
may deem fit and proper if necessary.
[6]
SO ORDERED.
Respondent appealed to the CA which held that the RTC erroneously applied the rules on
accession, as found in Articles 448 and 546 of the Civil Code when it held that petitioners
were builders in good faith and, thus, have the right to indemnity. The CA held:
By and large, respondents are admittedly mere lessees of the subject premises and as such,
cannot validly claim that they are builders in good faith in order to solicit the application of
Articles 448 and 546 of the Civil Code in their favor. As it is, it is glaring error on the part of
the RTC to apply the aforesaid legal provisions on the supposition that the improvements,
which are of substantial value, had been introduced on the leased premises with the
permission of the petitioner. To grant the respondents the right of retention and
reimbursement as builders in good faith merely because of the valuable and substantial
improvements that they introduced to the leased premises plainly contravenes the law and
settled jurisprudential doctrines and would, as stated, allow the lessee to easily improve
the lessor out of its property.
. . . . Introduction of valuable improvements on the leased premises does not strip the
petitioner of its right to avail of recourses under the law and the lease contract itself in case
of breach thereof. Neither does it deprive the petitioner of its right under Article 1678 to
exercise its option to acquire the improvements or to let the respondents remove the same.
Petitioners Motion for Reconsideration was denied.
[7]
Hence, this appeal.
Petitioners assign the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT
HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE SUBSTANTIAL AND
VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON THE SUBJECT PROPERTY,
THUS COMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO
ARTICLE 546 OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE.
II
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR WHEN IT
DISREGARDED THE FACT THAT THE LEASE CONTRACT GOVERNS THE RELATIONSHIP OF THE
PARTIES AND CONSEQUENTLY THE PARTIES MAY BE CONSIDERED TO HAVE IMPLIEDLY
WAIVED THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE TO THE INSTANT CASE.
III
ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT BUILDERS IN GOOD FAITH, THE
HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT
OVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN BAD FAITH WHEN IT DID NOT
HONOR AND INSTEAD BREACHED THE LEASE CONTRACT BETWEEN THE PARTIES, THUS BOTH
PARTIES ACTED AS IF THEY ARE IN GOOD FAITH.
IV
TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD OF ARTICLE
448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE WOULD NOT ONLY
WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS AND INTERESTS OF

PETITIONER PHILIPPINE VILLAGE HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINO

FOUNDATION, IN COMPARISON THERETO, WOULD SUFFER ONLY SLIGHT OR
INCONSEQUENTIAL INJURY OR LOSS, BUT ALSO WOULD CONSTITUTE UNJUST ENRICHMENT
ON THE PART OF RESPONDENT AT GREAT EXPENSE AND GRAVE PREJUDICE OF PETITIONERS.
V
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT
HOLDING THAT THE COURTS A QUO DID NOT ACQUIRE JURISDICTION OVER THE UNLAWFUL
DETAINER CASE FOR NON-COMPLIANCE WITH JURISDICTIONAL REQUIREMENTS DUE TO THE
[8]
ABSENCE OF A NOTICE TO VACATE UPON PETITIONERS.
First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did not acquire
jurisdiction to hear and decide the ejectment case because they never received any demand
from respondent to pay rentals and vacate the premises, since such demand is a
jurisdictional requisite. We reiterate the ruling of the MeTC, RTC and CA. Contrary to the
claim of petitioners, documentary evidence proved that a demand letter dated March 26,
2001 was sent by respondent through registered mail to petitioners, requesting them to pay
the rental arrears or else it will be constrained to file the appropriate legal action and possess
the leased premises.
Further, petitioners argument that the demand letter is inadequate because it contained
no demand to vacate the leased premises does not persuade. We have ruled that:
. . . . The word vacate is not a talismanic word that must be employed in all notices. The
alternatives in this case are clear cut. The tenants must pay rentals which are fixed and
which became payable in the past, failing which they must move out. There can be no other
interpretation of the notice given to them. Hence, when the petitioners demanded that
either he pays P18,000 in five days or a case of ejectment would be filed against him, he was
placed on notice to move out if he does not pay. There was, in effect, a notice or demand to
[9]
vacate.
In the case at bar, the language of the demand letter is plain and simple: respondent
demanded payment of the rental arrears amounting to P26,183,225.14 within ten days from
receipt by petitioners, or respondent will be constrained to file an appropriate legal action
against petitioners to recover the said amount. The demand letter further stated that
respondent will possess the leased premises in case of petitioners failure to pay the rental
arrears within ten days. Thus, it is clear that the demand letter is intended as a notice to
petitioners to pay the rental arrears, and a notice to vacate the premises in case of failure of
petitioners to perform their obligation to pay.
Second, we resolve the main issue of whether the rules on accession, as found in Articles 448
and 546 of the Civil Code, apply to the instant case.
Article 448 and Article 546 provide:
Art. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built
or planted to pay the price of the land, and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the land if its value is considerably more than
that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the building or trees after proper indemnity. The parties
shall agree upon the terms of the lease and in case of disagreement, the court shall fix the
terms thereof.
Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have
acquired by reason thereof.
We uphold the ruling of the CA.
The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:
This article [Article 448] is manifestly intended to apply only to a case where one builds,
[10]
plants, or sows on land in which he believes himself to have a claim of title, and not to
lands where the only interest of the builder, planter or sower is that of a holder, such as a
[11]
tenant.
In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees,
they recognize that the respondent is the owner of the land. What petitioners insist is that
because of the improvements, which are of substantial value, that they have introduced on
the leased premises with the permission of respondent, they should be considered builders
in good faith who have the right to retain possession of the property until reimbursement by
respondent.
We affirm the ruling of the CA that introduction of valuable improvements on the leased
premises does not give the petitioners the right of retention and reimbursement which
rightfully belongs to a builder in good faith. Otherwise, such a situation would allow the
lessee to easily improve the lessor out of its property. We reiterate the doctrine that a
[12]
lessee is neither a builder in good faith nor in bad faith that would call for the application
of Articles 448 and 546 of the Civil Code. His rights are governed by Article 1678 of the Civil
Code, which reads:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the
use for which the lease is intended, without altering the form or substance of the property
leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value
of the improvements at that time. Should the lessor refuse to reimburse said amount, the
lessee may remove the improvements, even though the principal thing may suffer damage
thereby. He shall not, however, cause any more impairment upon the property leased than is
necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement,
but he may remove the ornamental objects, provided no damage is caused to the principal
thing, and the lessor does not choose to retain them by paying their value at the time the
lease is extinguished.
Under Article 1678, the lessor has the option of paying one-half of the value of the
improvements which the lessee made in good faith, which are suitable for the use for which
the lease is intended, and which have not altered the form and substance of the land. On the
other hand, the lessee may remove the improvements should the lessor refuse to reimburse.
Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it
would amount to giving away the hotel and its other structures at virtually bargain
prices. They allege that the value of the hotel and its appurtenant facilities amounts to more
than two billion pesos, while the monetary claim of respondent against them only amounts
to a little more than twenty six-million pesos. Thus, they contend that it is the lease contract
that governs the relationship of the parties, and consequently, the parties may be considered
to have impliedly waived the application of Article 1678.
We cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are
deemed incorporated in each and every contract. Existing laws always form part of any
contract. Further, the lease contract in

the case at bar shows no special kind of agreement between the parties as to how to
proceed in cases of default or breach of the contract. Petitioners maintain that the lease
contract contains a default provision which does not give respondent the right to appropriate
the improvements nor evict petitioners in cases of cancellation or termination of the contract
due to default or breach of its terms. They cite paragraph 10 of the lease contract, which
provides that:
10. DEFAULT. - . . . Default shall automatically take place upon the failure of the LESSEE to
pay or perform its obligation during the time fixed herein for such obligations without
necessity of demand, or, if no time is fixed, after 90 days from the receipt of notice or
demand from the LESSOR. . .
In case of cancellation or termination of this contract due to the default or breach of its
terms, the LESSEE will pay all reasonable attorneys fees, costs and expenses of litigation that
may be incurred by the LESSOR in enforcing its rights under this contract or any of its
provisions, as well as all unpaid rents, fees, charges, taxes, assessment and others which the
LESSOR may be entitled to.
Petitioners assert that respondent committed a breach of the lease contract when it filed the
ejectment suit against them. However, we find nothing in the above quoted provision that
prohibits respondent to proceed the way it did in enforcing its rights as lessor. It can
rightfully file for ejectment to evict petitioners, as it did before the court a quo.
IN VIEW WHEREOF, petitioners appeal is DENIED. The October 4, 2005 Decision of the Court
of Appeals in CA-G.R. SP No. 74631 and its December 22, 2005 Resolution are AFFIRMED.
Costs against petitioners.
SO ORDERED.

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997
[1]
Revised Rules of Civil Procedure seeking to reverse and set aside the Decision dated27
[2]
October 2006 and Resolution dated 29 June 2007 of the Court of Appeals in CA-G.R. SP No.
[3]
64970. In its assailed Decision, the appellate court affirmed the Decision dated 12
th
September 2000 of the Regional Trial Court (RTC), 6 Judicial Region, Branch 1, Kalibo, Aklan,
[4]
th
in Civil Case No. 5511, which reversed the Decision dated 6 April 1998 of the 7 Municipal
Circuit Trial Court (MCTC) of Ibajay-Nabas, Ibajay, Aklan, in Civil Case No. 156; and
[5]
declared the herein respondent-Spouses Martin and Lourdes Maglunob (Spouses
Maglunob) and respondent Romeo Salido (Romeo) as the lawful owners and possessors of
Lot 12897 with an area of 982 square meters, more or less, located in Maloco, Ibajay, Aklan
(subject property). In its assailed Resolution, the appellate court denied herein petitioner
Elvira T. Arangotes Motion for Reconsideration.

THIRD DIVISION

The Complaint alleged that Esperanza inherited the subject property from her uncle
[8]
Victorino Sorrosa by virtue of a notarized Partition Agreement dated 29 April 1985,
executed by the latters heirs. Thereafter, Esperanza declared the subject property in her
[9]
name for real property tax purposes, as evidenced by Tax Declaration No. 16218 (1985).

ELVIRA T. ARANGOTE,
Petitioner,

G.R. No. 178906

Elvira T. Arangote, herein petitioner married to Ray Mars E. Arangote, is the registered
owner of the subject property, as evidenced by Original Certificate of Title (OCT) No. CLOA[6]
1748. Respondents Martin (Martin II) and Romeo are first cousins and the grandnephews
of Esperanza Maglunob-Dailisan (Esperanza), from whom petitioner acquired the subject
property.
[7]

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

Present:
*

- versus -

SPS. MARTIN MAGLUNOBand LOURDES S.

MAGLUNOB, and ROMEO SALIDO,
Respondents.

QUISUMBING, J.,
AUSTRIA-MARTINEZ,
Acting Chairperson,
CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.
Promulgated:

February 18, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

The Complaint further stated that on 24 June 1985, Esperanza executed a Last Will and
[10]
Testament bequeathing the subject property to petitioner and her husband, but it was
[11]
never probated. On 9 June 1986, Esperanza executed another document, an Affidavit, in
which she renounced, relinquished, waived and quitclaimed all her rights, share, interest and
participation whatsoever in the subject property in favor of petitioner and her husband. On
the basis thereof, Tax Declaration No. 16218 in the name of Esperanza was cancelled and Tax
[12]
Declaration No. 16666 (1987) was issued in the name of the petitioner and her husband.
In 1989, petitioner and her husband constructed a house on the subject
property. On 26 March 1993, OCT No. CLOA-1748 was issued by the Secretary of the
Department of Agrarian Reform (DAR) in the name of petitioner, married to Ray Mars E.
Arangote. However, respondents, together with some hired persons, entered the subject
property on3 June 1994 and built a hollow block wall behind and in front of petitioners
house, which effectively blocked the entrance to its main door.

DECISION
As a consequence thereof, petitioner and her husband were compelled to institute Civil
Case No. 156.
CHICO-NAZARIO, J.:
In their Answer with Counterclaim in Civil Case No. 156, respondents averred that they
co-owned the subject property with Esperanza. Esperanza and her siblings, Tomas and

Inocencia, inherited the subject property, in equal shares, from their father Martin Maglunob
(Martin I). When Tomas and Inocencia passed away, their shares passed on by inheritance to
respondents Martin II and Romeo, respectively. Hence, the subject property was co-owned
by Esperanza, respondent Martin II (together with his wife Lourdes), and respondent Romeo,
each holding a one-third pro-indiviso share therein. Thus, Esperanza could not validly waive
her rights and interest over the entire subject property in favor of the petitioner.
Respondents also asserted in their Counterclaim that petitioner and her husband, by means
of fraud, undue influence and deceit were able to make Esperanza, who was already old and
illiterate, affix her thumbmark to the Affidavit dated 9 June 1986, wherein she renounced all
her rights and interest over the subject property in favor of petitioner and her
husband. Respondents thus prayed that the OCT issued in petitioners name be declared null
and void insofar as their two-thirds shares are concerned.
After trial, the MCTC rendered its Decision dated 6 April 1998 in Civil Case No. 156,
declaring petitioner and her husband as the true and lawful owners of the subject
property. The decretal portion of the MCTC Decision reads:
WHEREFORE, judgment is hereby rendered:
A.
Declaring the [herein petitioner and her husband] the true,
lawful
and exclusive owners and entitled to the possession of the [subject property] described
and referred to under paragraph 2 of the [C]omplaint and covered by Tax Declaration No.
16666 in the names of the [petitioner
and her husband];
B.
Ordering the [herein respondents] and anyone hired by, acting or
working for them, to cease and desist from asserting or claiming any right or interest in, or
exercising any act of ownership or possession over the [subject property];
C.
Ordering the [respondents] to pay the [petitioner and her husband] the
[13]
amount of P10,000.00 as attorneys fee. With cost against the [respondents].

1) The appealed [D]ecision is REVERSED;

2) [Herein respondents] and the other heirs of Martin Maglunob are declared
the lawful owners and possessors of the whole [subject property] as described in Paragraph 2
of the [C]omplaint, as against the [herein petitioner and her husband].
3) [Petitioner and her husband] are ordered to immediately turn over
possession of the [subject property] to the [respondents] and the other heirs of Martin
Maglunob; and
4) *Petitioner and her husband+ are ordered to pay *respondents+ attorneys
fees of P5,000.00, other litigation expenses of P5,000.00, moral damages of P10,000.00 and
[14]
exemplary damages of P5,000.00.
Petitioner and her husband filed before the RTC, on 26 September 2000, a Motion for
[15]
New Trial or Reconsideration on the ground of newly discovered evidence consisting of a
[16]
[17]
Deed of Acceptance dated 23 September 2000, and notice of the same, which were
[18]
both made by the petitioner, for herself and in behalf of her husband, during the lifetime
[19]
of Esperanza. In the RTC Order dated 2 May 2001, however, the RTC denied the aforesaid
Motion for New Trial or Reconsideration.
The petitioner and her husband then filed a Petition for Review, under Rule 42 of the
1997 Revised Rules of Civil Procedure, before the Court of Appeals, where the Petition was
docketed as CA-G.R. SP No. 64970.
In their Petition before the appellate court, petitioner and her husband raised the following
errors committed by the RTC in its 12 September 2000 Decision:
I.

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

II. It erred in declaring the [herein respondents] and the other heirs of
Martin Maglunob as the lawful owners and possessors of the whole [subject property];
The respondents appealed the aforesaid MCTC Decision to the RTC. Their appeal was
docketed as Civil Case No. 5511.
Respondents argued in their appeal that the MCTC erred in not dismissing the Complaint
filed by the petitioner and her husband for failure to identify the subject property
therein. Respondents further faulted the MCTC for not declaring Esperanzas Affidavit
dated 9 June 1986 -- relinquishing all her rights and interest over the subject property in
favor of petitioner and her husband -- as null and void insofar as respondents two-thirds
share in the subject property is concerned.
On 12 September 2000, the RTC rendered its Decision reversing the MCTC Decision
dated 6 April 1998. The RTC adjudged respondents, as well as the other heirs of Martin
Maglunob, as the lawful owners and possessors of the entire subject property. The RTC
decreed:
WHEREFORE, judgment is hereby rendered as follows:

III. It erred in declaring [OCT] No. CLOA-1748 in the name of [herein

petitioner] Elvie T. Arangote as null and void;
IV. It erred in denying *petitioner and her husbands+ *M+otion for *N+ew
[T]rial or [R]econsideration dated [26 September 2000; and
V.
It erred in not declaring the [petitioner and her husband] as
[20]
possessors in good faith.

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

Hence, petitioner
issues:

[21]

now comes before this Court raising in her Petition the following

I.
Whether the [RTC] acted with grave abuse of discretion amounting
to lack or excess of jurisdiction when it declared the *petitioner and her husbands title to the
subject property] null and void;
II.
Whether the [RTC] acted with grave abuse of discretion amounting
to lack of jurisdiction when it declared the Affidavit of Quitclaim null and void; and
III.
Whether the [RTC] and the Honorable Court of Appeals acted with
grave abuse of discretion amounting to lack or excess of jurisdiction when it rejected
petitioners claim as possessors (sic) in good faith, hence, entitled to the rights provided in
[22]
[Article] 448 and [Article] 546 of the Civil Code.

Petitioner contends that the aforesaid OCT No. CLOA-1748 was issued in her name on 26
March 1993 and was registered in the Registry of Deeds of Aklan on 20 April 1993. From 20
April 1993 until the institution of Civil Case No. 156 on 10 June 1994 before the MCTC, more
than one year had already elapsed. Considering that a Torrens title can only be attacked
within one year after the date of the issuance of the decree of registration on the ground of
fraud and that such attack must be through a direct proceeding, it was an error on the part of
the RTC and the Court of Appeals to declare OCT No. CLOA-1748 null and void.
Petitioner additionally posits that both the RTC and the Court of Appeals committed a
mistake in declaring null and void the Affidavit dated 9 June 1986 executed by Esperanza,
waiving all her rights and interest over the subject property in favor of petitioner and her
husband. Esperanzas Affidavit is a valid and binding proof of the transfer of ownership of
the subject property in petitioners name, as it was also coupled with actual delivery of
possession of the subject property to petitioner and her husband. The Affidavit is also proof
of good faith on the part of petitioner and her husband.
Finally, petitioner argues that, assuming for the sake of argument, that Esperanzas
Affidavit is null and void, petitioner and her husband had no knowledge of any flaw in
Esperanzas title when the latter relinquished her rights to and interest in the subject
property in their favor. Hence, petitioner and her husband can be considered as possessors
in good faith and entitled to the rights provided under Articles 448 and 546 of the Civil
Code.
This present Petition is devoid of merit.
It is a hornbook doctrine that the findings of fact of the trial court are entitled to great
weight on appeal and should not be disturbed except for strong and valid reasons, because
the trial court is in a better position to examine the demeanor of the witnesses while
testifying. It is not a function of this Court to analyze and weigh evidence by the parties all
over again. This Courts jurisdiction is, in principle, limited to reviewing errors of law that
[23]
might have been committed by the Court of Appeals.
This rule, however, is subject to
[24]
several exceptions, one of which is present in this case, i.e., when the factual findings of
the Court of Appeals and the trial court are contradictory.

In this case, the findings of fact of the MCTC as regards the origin of the subject
property are in conflict with the findings of fact of both the RTC and the Court of
Appeals. Hence, this Court will have to examine the records to determine first the true origin
of the subject property and to settle whether the respondents have the right over the same
for being co-heirs and co-owners, together with their grand aunt, Esperanza, before this
Court can resolve the issues raised by the petitioner in her Petition.
After a careful scrutiny of the records, this Court affirms the findings of both the RTC and the
Court of Appeals as regards the origin of the subject property and the fact that respondents,
with their grand aunt Esperanza, were co-heirs and co-owners of the subject property.
[25]

The records disclosed that the subject property was part of a parcel of land situated in
Maloco, Ibajay, Aklan, consisting of 7,176 square meters and commonly owned in equal
shares by the siblings Pantaleon Maglunob (Pantaleon) and Placida Maglunob-Sorrosa
(Placida). Upon the death of Pantaleon and Placida, their surviving and legal heirs executed a
[26]
Deed of Extrajudicial Settlement and Partition of Estate in July 1981, however, the Deed
was not notarized. Considering that Pantaleon died without issue, his one-half share in the
parcel of land he co-owned with Placida passed on to his four siblings (or their respective
heirs, if already deceased), namely: Placida, Luis, Martin I, and Victoria, in equal shares.
According to the aforementioned Deed of Extrajudicial Settlement and Partition of Estate,
the surviving and legal heirs of Pantaleon and Placida agreed to have the parcel of land
commonly owned by the siblings declared for real property tax purposes in the name of
Victorino Sorrosa (Victorino), Placidas husband. Thus, Tax Declarations No. 5988
[27]
[28]
[29]
(1942), No. 6200 (1945) and No. 7233 (1953) were all issued in the name of
Victorino.
Since Martin I already passed away when the Deed of Extrajudicial Settlement and Partition
[30]
of Estate was executed, his heirs were represented therein by Esperanza. By virtue of the
said Deed, Martin I received as inheritance a portion of the parcel of land measuring 897
square meters.
[31]

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

of land originally co-owned by Pantaleon Maglunob and his sister Placida Maglunob and
[32]
subsequently declared in the name of [Victorino] under Tax Declaration No. 5988 of 1949.

It is clear from the records that the subject property was not Esperanzas exclusive share, but
also that of the other heirs of her father, Martin I. Esperanza expressly affixed her
thumbmark to the Deed of Extrajudicial Settlement of July 1981 not only for herself, but also
on behalf of the other heirs of Martin I. Though in the Partition Agreement dated29 April
1985 Esperanza affixed her thumbmark without stating that she was doing so not only for
herself, but also on behalf of the other heirs of Martin I, this does not mean that Esperanza
was already the exclusive owner thereof. The evidence shows that the subject property is
[33]
the share of the heirs of Martin I. This is clear from the sketch attached to the Partition
Agreement dated 29 April 1985, which reveals the proportionate areas given to the heirs of
the two siblings, Pantaleon and Placida, who were the original owners of the whole parcel of
[34]
land from which the subject property was taken.
Further, it bears emphasis that the Partition Agreement was executed by and among the son,
grandsons, granddaughters and cousins of Victorino. Esperanza was neither the
granddaughter nor the cousin of Victorino, as she was only Victorinos grandniece. The
cousin of Victorino is Martin I, Esperanzas father. In effect, therefore, the subject property
allotted to Esperanza in the Partition Agreement was not her exclusive share, as she holds
the same for and on behalf of the other heirs of Martin I, who was already deceased at the
time the Partition Agreement was made.
To further bolster the truth that the subject property was not exclusively owned by
Esperanza, the Affidavit she executed in favor of petitioner and her husband on 6 June
1985 was worded as follows:
That I hereby renounce, relinquish, waive and quitclaim all my rights, share, interest
and participation whatsoever in the [subject property] unto the said Sps. Ray Mars Arangote
and Elvira T. Arangote, their heirs, successors, and assigns including the improvement found
[35]
thereon;
Logically, if Esperanza fully owned the subject property, she would have simply waived her
rights to and interest in the subject property, without mentioning her share and
participation in the same. By including such words in her Affidavit, Esperanza was aware of
and was limiting her waiver, renunciation, and quitclaim to her one-third share and
participation in the subject property.
Going to the issues raised by the petitioner in this Petition, this Court will resolve the same
concurrently as they are interrelated.
In this case, the petitioner derived her title to the subject property from the notarized
Affidavit executed by Esperanza, wherein the latter relinquished her rights, share, interest
and participation over the same in favor of the petitioner and her husband.
A careful perusal of the said Affidavit reveals that it is not what it purports to be. Esperanzas
Affidavit is, in fact, a Donation. Esperanzas real intent in executing the said Affidavit was to
donate her share in the subject property to petitioner and her husband.

As no onerous undertaking is required of petitioner and her husband under the said Affidavit,
the donation is regarded as a pure donation of an interest in a real property covered by
[36]
Article 749 of the Civil Code.
Article 749 of the Civil Code provides:
Art. 749. In order that the donation of an immovable may be valid, it must be made in a
public document, specifying therein the property donated and the value of the charges which
the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public
document, but it shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an
authentic form, and this step shall be noted in both instruments.
From the aforesaid provision, there are three requisites for the validity of a simple donation
of a real property, to wit: (1) it must be made in a public instrument; (2) it must be accepted,
which acceptance may be made either in the same Deed of Donation or in a separate public
instrument; and (3) if the acceptance is made in a separate instrument, the donor must be
notified in an authentic form, and the same must be noted in both instruments.
This Court agrees with the RTC and the Court of Appeals that the Affidavit executed by
Esperanza relinquishing her rights, share, interest and participation over the subject property
in favor of the petitioner and her husband suffered from legal infirmities, as it failed to
comply with the aforesaid requisites of the law.
[37]

In Sumipat v. Banga, this Court declared that title to immovable property does not pass
from the donor to the donee by virtue of a Deed of Donation until and unless it has been
accepted in a public instrument and the donor duly notified thereof. The acceptance may be
made in the very same instrument of donation. If the acceptance does not appear in the
same document, it must be made in another. Where the Deed of Donation fails to show the
acceptance, or where the formal notice of the acceptance, made in a separate instrument, is
either not given to the donor or else not noted in the Deed of Donation and in the separate
[38]
acceptance, the donation is null and void.
In the present case, the said Affidavit, which is tantamount to a Deed of Donation, met
the first requisite, as it was notarized; thus, it became a public instrument. Nevertheless, it
failed to meet the aforesaid second and third requisites. The acceptance of the said
donation was not made by the petitioner and her husband either in the same Affidavit or in a
separate public instrument. As there was no acceptance made of the said donation, there
was also no notice of the said acceptance given to the donor, Esperanza. Therefore, the
Affidavit executed by Esperanza in favor of petitioner and her husband is null and void.
[39]

The subsequent notarized Deed of Acceptance dated 23 September 2000, as well as the
[40]
notice of such acceptance, executed by the petitioner did not cure the defect. Moreover,
it was only made by the petitioner several years after the Complaint was filed in court, or
when the RTC had already rendered its Decision dated 12 September 2000, although it was
still during Esperanzas lifetime. Evidently, its execution was a mere afterthought, a belated
attempt to cure what was a defective donation.

It is true that the acceptance of a donation may be made at any time during the lifetime of
the donor. And granting arguendo that such acceptance may still be admitted in evidence on
appeal, there is still need for proof that a formal notice of such acceptance was received by
the donor and noted in both the Deed of Donation and the separate instrument embodying
[41]
the acceptance.
At the very least, this last legal requisite of annotation in both
instruments of donation and acceptance was not fulfilled by the petitioner. Neither the
Affidavit nor the Deed of Acceptance bears the fact that Esperanza received notice of the
acceptance of the donation by petitioner. For this reason, even Esperanzas one-third share
in the subject property cannot be adjudicated to the petitioner.
With the foregoing, this Court holds that the RTC and the Court of Appeals did not err in
declaring null and void Esperanzas Affidavit.
The next issue to be resolved then is whether the RTC, as well as the Court of Appeals, erred
in declaring OCT No. CLOA-1748 in the name of petitioner and her husband null and void.
Again, this Court answers the said issue in the negative.
Section 48 of Presidential decree No. 1529 states:
SEC. 48. Certificate not subject to collateral attack. - A certificate of title shall not be
subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct
proceeding in accordance with law.

Such proscription has long been enshrined in Philippine jurisprudence. The judicial
[42]
action required to challenge the validity of title is a direct attack, not a collateral attack.
The attack is considered direct when the object of an action is to annul or set aside such
proceeding, or enjoin its enforcement. Conversely, an attack is indirect or collateral when, in
an action to obtain a different relief, an attack on the proceeding is nevertheless made as an
incident thereof. Such action to attack a certificate of title may be an original action or a
[43]
counterclaim, in which a certificate of title is assailed as void.
A counterclaim is considered a new suit in which the defendant is the plaintiff and the
plaintiff in the complaint becomes the defendant. It stands on the same footing as, and is to
[44]
be tested by the same rules as if it were, an independent action.

counterclaim in Civil Case No. 156 before the MCTC, that OCT No. CLOA-1748 issued in the
name of petitioner, married to Ray Mars E. Arangote, be declared null and void, insofar as
their two-thirds shares in the subject property are concerned.
It is clear, thus, that respondents Answer with Counterclaim was a direct attack on
petitioners certificate of title. Furthermore, since all the essential facts of the case for the
determination of the validity of the title are now before this Court, to require respondents to
institute a separate cancellation proceeding would be pointlessly circuitous and against the
best interest of justice.
Esperanzas Affidavit, which was the sole basis of petitioners claim to the subject property,
has been declared null and void. Moreover, petitioner and her husband were not tenants of
the subject property. In fact, petitioner herself admitted in her Complaint filed before the
MCTC that her husband is out of the country, rendering it impossible for him to work on the
subject property as a tenant. Instead of cultivating the subject property, petitioner and her
husband possessed the same by constructing a house thereon. Thus, it is highly suspicious
how the petitioner was able to secure from the DAR a Certificate of Land Ownership Award
(CLOA) over the subject property. The DAR awards such certificates to the grantees only if
they fulfill the requirements of Republic Act No. 6657, otherwise known as the
[45]
Comprehensive Agrarian Reform Program (CARP). Hence, the RTC and the Court of
Appeals did not err in declaring null and void OCT No. CLOA-1748 in the name of the
petitioner, married to Ray Mars E. Arangote.
Considering that Esperanza died without any compulsory heirs and that the supposed
donation of her one-third share in the subject property per her Affidavit dated 9 June 1985
was already declared null and void, Esperanzas one-third share in the subject property
passed on to her legal heirs, the respondents.
As petitioners last-ditch effort, she claims that she is a possessor in good faith and,
thus, entitled to the rights provided for under Articles 448 and 546 of the Civil Code.
This claim is untenable.
The Civil Code describes a possessor in good faith as follows:
Art. 526. He is deemed a possessor in good faith who is not aware that there exists in his
title or mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

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

Mistake upon a doubtful or difficult question of law may be the basis of good faith.
Art. 1127. The good faith of the possessor consists in the reasonable belief that the person
from whom he received the thing was the owner thereof, and could transmit his ownership.
Possession in good faith ceases from the moment defects in the title are made known
to the possessor by extraneous evidence or by a suit for recovery of the property by the true
owner. Every possessor in good faith becomes a possessor in bad faith from the moment he
[46]
becomes aware that what he believed to be true is not so.

In the present case, when respondents came to know that an OCT over the subject
property was issued and registered in petitioners name on 26 March 1993, respondents
brought a Complaint on 7 August 1993 before the Lupon of Barangay Maloco, Ibajay, Aklan,
challenging the title of petitioner to the subject property on the basis that said property
constitutes the inheritance of respondent, together with their grandaunt Esperanza, so
Esperanza had no authority to relinquish the entire subject property to petitioner. From that
moment, the good faith of the petitioner had ceased.
Petitioner cannot be entitled to the rights under Articles 448 and 546 of the Civil Code,
because the rights mentioned therein are applicable only to builders in good faith and not to
possessors in good faith.
Moreover, the petitioner cannot be considered a builder in good faith of the house on the
subject property. In the context that such term is used in particular reference to Article 448
of the Civil Code, a builder in good faith is one who, not being the owner of the land, builds
on that land, believing himself to be its owner and unaware of any defect in his title or mode
[47]
of acquisition.
The various provisions of the Civil Code, pertinent to the subject, read:
Article 448. The owner of the land on which anything has been built, sown, or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built
or planted to pay the price of the land, and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the land if its value is considerably more than
that of the building or trees. In such a case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the building or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case of disagreement, the court shall
fix the terms thereof.
Article 449. He who builds, plants, or sows in bad faith on the land of another, loses what is
built, planted or sown without right to indemnity.
Article 450. The owner of the land on which anything has been built, planted or sown in bad
faith may demand the demolition of the work, or that the planting or sowing be removed, in
order to replace things in their former condition at the expense of the person who built,
planted or sowed; or he may compel the builder or planter to pay the price of the land, and
the sower the proper rent.

Under the foregoing provisions, the builder in good faith can compel the landowner to make
a choice between appropriating the building by paying the proper indemnity or obliging the
builder to pay the price of the land. The choice belongs to the owner of the land, a rule that
accords with the principle of accession, i.e., that the accessory follows the principal and not
the other way around. Even as the option lies with the landowner, the grant to him,
nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the owner
of the building to instead remove it from the land. In order, however, that the builder can

invoke that accruing benefit and enjoy his corresponding right to demand that a choice be
[48]
made by the landowner, he should be able to prove good faith on his part.
Good faith, here understood, is an intangible and abstract quality with no technical meaning
or statutory definition, and it encompasses, among other things, an honest belief, the
absence of malice and the absence of design to defraud or to seek an unconscionable
advantage. An individuals personal good faith is a concept of his own mind and, therefore,
may not conclusively be determined by his protestations alone. It implies honesty of
intention, and freedom from knowledge of circumstances which ought to put the holder
upon inquiry. The essence of good faith lies in an honest belief in the validity of ones right,
ignorance of a superior claim, and absence of intention to overreach another. Applied to
possession, one is considered in good faith if he is not aware that there exists in his title or
[49]
mode of acquisition any flaw which invalidates it.
In this case, the subject property waived and quitclaimed by Esperanza to the petitioner and
her husband in the Affidavit was only covered by a tax declaration in the name of
Esperanza. Petitioner did not even bother to look into the origin of the subject property and
to probe into the right of Esperanza to relinquish the same. Thus, when petitioner and her
husband built a house thereon in 1989 they cannot be considered to have acted in good faith
as they were fully aware that when Esperanza executed an Affidavit relinquishing in their
favor the subject property the only proof of Esperanzas ownership over the same was a
mere tax declaration. This fact or circumstance alone was enough to put the petitioner and
her husband under inquiry. Settled is the rule that a tax declaration does not prove
ownership. It is merely an indicium of a claim of ownership. Payment of taxes is not proof
of ownership; it is, at best, an indicium of possession in the concept of ownership. Neither
tax receipts nor a declaration of ownership for taxation purposes is evidence of ownership or
[50]
of a right to possess realty when not supported by other effective proofs.
With the foregoing, the petitioner is not entitled to the rights under Article 448 and 546 as
the petitioner is not a builder and possessor in good faith.
WHEREFORE, premises considered, the instant Petition is hereby DENIED. The Decision
and Resolution of the Court of Appeals in CA-G.R. SP No. 64970, dated 27 October
2006 and 29 June 2007, respectively, affirming the RTC Decision dated 12 September 2000 in
Civil Case No. 5511 and declaring the respondents the lawful owners and possessors of the
subject property are hereby AFFIRMED. No costs.

THIRD DIVISION
LUCIANO BRIONES and NELLY BRIONES,
Petitioners,

G.R. No. 150666

Present:

- versus -

CARPIO MORALES, J.,

Chairperson,
BRION,
BERSAMIN,
*
ABAD, and

JOSE MACABAGDAL, FE D. MACABAGDAL and

VILLARAMA, JR., JJ.
VERGON REALTY INVESTMENTS
CORPORATION,
Promulgated:
Respondents.
August 3, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the
[1]
Decision dated December 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 48109
[2]
which affirmed the September 29, 1993 Decision of the Regional Trial Court (RTC) of Makati
City, Branch 135, ordering petitioners Luciano and Nelly Briones to remove the
improvements they have made on the disputed property or to pay respondent-spouses Jose
and Fe Macabagdal the prevailing price of the land as compensation.
The undisputed factual antecedents of the case are as follows:
Respondent-spouses purchased from Vergon Realty Investments Corporation (Vergon) Lot
No. 2-R, a 325-square-meter land located in Vergonville Subdivision No. 10 at Las Pias City,
Metro Manila and covered by Transfer Certificate of Title No. 62181 of the Registry of Deeds
of Pasay City. On the other hand, petitioners are the owners of Lot No. 2-S, which is adjacent
to Lot No. 2-R.
Sometime in 1984, after obtaining the necessary building permit and the approval of Vergon,
petitioners constructed a house on Lot No. 2-R which they thought was Lot No. 2-S. After
being informed of the mix up by Vergons manager, respondent-spouses immediately
demanded petitioners to demolish the house and vacate the property. Petitioners, however,
refused to heed their demand. Thus, respondent-spouses filed an action to recover
[3]
ownership and possession of the said parcel of land with the RTC of Makati City.
Petitioners insisted that the lot on which they constructed their house was the lot which was
consistently pointed to them as theirs by Vergons agents over the seven (7)-year period they
were paying for the lot. They interposed the defense of being buyers in good faith and
impleaded Vergon as third-party defendant claiming that because of the warranty against
eviction, they were entitled to indemnity from Vergon in case the suit is decided against
[4]
them.
The RTC ruled in favor of respondent-spouses and found that petitioners house was
undoubtedly built on Lot No. 2-R. The dispositive portion of the trial courts decision reads as
follows:
PREMISES CONSIDERED, let judgment be rendered declaring, to wit:
1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan (LRC) Psd-147392 at
Vergonville Subdivision, No. 10, Las Pias, Metro Manila covered by TCT No. 62181 of the
Registry of Deeds of Pasay City on which defendants have constructed their house;
2. Defendants, jointly and severally, are ordered to demolish their house and vacate the
premises and return the possession of the portion of Lot No. 2-R as above-described to
plaintiffs within thirty (30) days from receipt of this decision, or in the alternative, plaintiffs
should be compensated by defendants, jointly and severally, by the payment of the
prevailing price of the lot involved as Lot No. 2-R with an area of 325 square meters which
should not be less than P1,500.00 per square meter, in consideration of the fact that prices
of real estate properties in the area concerned have increased rapidly;
3. Defendants, jointly and severally, pay to plaintiffs for moral damages with plaintiffs
plans and dreams of building their own house on their own lot being severely shattered and

frustrated due to defendants incursion as interlopers of Lot No. 2-R in the sum
of P50,000.00;
4. Defendants, jointly and severally, to pay plaintiffs in the amount of P30,000.00 as
attorneys fees; and,
5. to pay the costs of the proceedings.
Defendants counterclaim against plaintiffs is dismissed for lack of merit and with no cause of
action.
Defendants third-party complaint against third-party defendant Vergonville Realty and
Investments Corporation is likewise ordered dismissed for lack of cause of action and
evidently without merit.
On the other hand, defendants, jointly and severally, are liable for the litigation expenses
incurred by Vergonville Realty by way of counterclaim, which is also proven by the latter with
a mere preponderance of evidence, and are hereby ordered to pay the sum of P20,000.00 as
compensatory damage; and attorneys fees in the sum of P10,000.00
[5]
SO ORDERED.
On appeal, the CA affirmed the RTCs finding that the lot upon which petitioners built their
house was not the one (1) which Vergon sold to them. Based on the documentary evidence,
such as the titles of the two (2) lots, the contracts to sell, and the survey report made by the
[6]
geodetic engineer, petitioners house was built on the lot of the respondent-spouses. There
was no basis to presume that the error was Vergons fault. Also the warranty against
eviction under Article 1548 of the Civil Code was not applicable as there was no deprivation
of property: the lot on which petitioners built their house was not the lot sold to them by
[7]
Vergon, which remained vacant and ready for occupation. The CA further ruled that
petitioners cannot use the defense of allegedly being a purchaser in good faith for wrongful
[8]
occupation of land.
Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the appellate
[9]
court. Hence, this petition for review on certiorari.
Petitioners raise the following assignment of errors:
I.
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE CONTRARY TO LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT IN AFFIRMING THE DECISION OF THE TRIAL
COURT ORDERING PETITIONERS TO DEMOLISH THEIR ONLY HOUSE AND VACATE THE LOT
AND TO PAY MORAL AND COMPENSATORY DAMAGES AS WELL AS ATTORNEYS FEE IN THE
TOTAL AMOUNT OF PS[P] 110,000; AND
II.
THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE LOWER COURT FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF
[10]
THE POWER OF SUPERVISION.
In the main, it is petitioners position that they must not bear the damage alone. Petitioners
insist that they relied with full faith and confidence in the reputation of Vergons agents
when they pointed the wrong property to them. Even the President of Vergon, Felix
Gonzales, consented to the construction of the house when he signed the building
[11]
[12]
permit. Also, petitioners are builders in good faith.
The petition is partly meritorious.
At the outset, we note that petitioners raise factual issues, which are beyond the scope of a
petition for review on certiorari under Rule 45 of the Rules. Well settled is the rule that the
jurisdiction of this Court in cases brought to it from the CA via a petition for review
on certiorari under Rule 45 is limited to the review of errors of law. The Court is not bound

to weigh all over again the evidence adduced by the parties, particularly where the findings
of both the trial court and the appellate court coincide. The resolution of factual issues is a
function of the trial court whose findings on these matters are, as a general rule, binding on
[13]
this Court, more so where these have been affirmed by the CA. We note that the CA and
RTC did not overlook or fail to appreciate any material circumstance which, when properly
considered, would have altered the result of the case. Indeed, it is beyond cavil
that petitioners mistakenly constructed their house on Lot No. 2-R which they thought was
Lot No. 2-S.
However, the conclusiveness of the factual findings notwithstanding, we find that the trial
court nonetheless erred in outrightly ordering petitioners to vacate the subject property or
[14]
to pay respondent spouses the prevailing price of the land as compensation. Article 527 of
the Civil Code presumes good faith, and since no proof exists to show that the mistake was
done by petitioners in bad faith, the latter should be presumed to have built the house in
good faith.
When a person builds in good faith on the land of another, Article 448 of the Civil
Code governs. Said article provides,
ART. 448. The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built
or planted to pay the price of the land, and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the land if its value is considerably more than
that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the building or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case of disagreement, the court shall
fix the terms thereof. (Emphasis ours.)
The above-cited article covers cases in which the builders, sowers or planters believe
[15]
themselves to be owners of the land or, at least, to have a claim of title thereto. The
builder in good faith can compel the landowner to make a choice between appropriating the
building by paying the proper indemnity or obliging the builder to pay the price of the land.
The choice belongs to the owner of the land, a rule that accords with the principle of
accession, i.e., that the accessory follows the principal and not the other way
around. However, even as the option lies with the landowner, the grant to him,
[16]
nevertheless, is preclusive. He must choose one.
He cannot, for instance, compel the
owner of the building to remove the building from the land without first exercising either
option. It is only if the owner chooses to sell his land, and the builder or planter fails to
purchase it where its value is not more than the value of the improvements, that the owner
may remove the improvements from the land. The owner is entitled to such remotion only
[17]
when, after having chosen to sell his land, the other party fails to pay for the same.
Moreover, petitioners have the right to be indemnified for the necessary and useful expenses
they may have made on the subject property. Articles 546 and 548 of the Civil Code provide,
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding
the amount of the expenses or of paying the increase in value which the thing may have
acquired by reason thereof.
ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor
in good faith; but he may remove the ornaments with which he has embellished the principal

thing if it suffers no injury thereby, and if his successor in the possession does not prefer to
refund the amount expended.
Consequently, the respondent-spouses have the option to appropriate the house on the
subject land after payment to petitioners of the appropriate indemnity or to oblige
petitioners to pay the price of the land, unless its value is considerably more than the value
of the structures, in which case petitioners shall pay reasonable rent.
[18]
In accordance with Depra v. Dumlao, this case must be remanded to the RTC which shall
conduct the appropriate proceedings to assess the respective values of the improvement and
of the land, as well as the amounts of reasonable rentals and indemnity, fix the terms of the
lease if the parties so agree, and to determine other matters necessary for the proper
application of Article 448, in relation to Articles 546 and 548, of the Civil Code.
As to the liability of Vergon, petitioners failed to present sufficient evidence to show
negligence on Vergons part. Petitioners claim is obviously one (1) for tort, governed by
Article 2176 of the Civil Code, which provides:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
preexisting contractual relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter. (Emphasis ours.)
Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1)
the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some
other person for whose act he must respond; and (3) the connection of cause and effect
[19]
between the fault or negligence and the damages incurred.
This the petitioners failed to
do. The President of Vergon signed the building permit as a precondition for its approval by
the local government, but it did not guarantee that petitioners were constructing the
structure within the metes and bounds of petitioners lot. The signature of the President of
Vergon on the building permit merely proved that petitioners were authorized to make
constructions within the subdivision project of Vergon. And while petitioners acted in good
faith in building their house on Lot No. 2-R, petitioners did not show by what authority the
agents or employees of Vergon were acting when they pointed to the lot where the
construction was made nor was petitioners claim on this matter corroborated by sufficient
evidence.
One (1) last note on the award of damages. Considering that petitioners acted in good faith
in building their house on the subject property of the respondent-spouses, there is no basis
for the award of moral damages to respondent-spouses. Likewise, the Court deletes the
award to Vergon of compensatory damages and attorneys fees for the litigation expenses
Vergon had incurred as such amounts were not specifically prayed for in its Answer to
[20]
petitioners third-party complaint. Under Article 2208 of the Civil Code, attorneys fees
and expenses of litigation are recoverable only in the concept of actual damages, not as
moral damages nor judicial costs. Hence, such must be specifically prayed foras was not
done in this caseand may not be deemed incorporated within a general prayer for such
[21]
other relief and remedy as this court may deem just and equitable.
It must also be noted
that aside from the following, the body of the trial courts decision was devoid of any
statement regarding attorneys fees. In Scott Consultants & Resource Development
[22]
Corporation, Inc. v. Court of Appeals, we reiterated that attorneys fees are not to be
awarded every time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 of the Civil Code demands factual, legal, and equitable justification; its
basis cannot be left to speculation or conjecture. Where granted, the court must explicitly
state in the body of the decision, and not only in the dispositive portion thereof, the legal
reason for the award of attorneys fees.

WHEREFORE, the Decision dated December 11, 2000 of the Court of Appeals in CA-G.R. CV
No. 48109 is AFFIRMED WITH MODIFICATION. The award of moral damages in favor of
respondent-spouses Jose and Fe Macabagdal and the award of compensatory damages and
attorneys fees to respondent Vergon Realty Investments Corporation are DELETED. The case
is REMANDED to the Regional Trial Court of Makati City, Branch 135, for further proceedings
consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as
follows:
1.
The trial court shall determine:
a. the present fair price of the respondent-spouses lot;
b. the amount of the expenses spent by petitioners for the building of their house;
c. the increase in value (plus value) which the said lot may have acquired by reason
thereof; and
d. whether the value of said land is considerably more than that of the house built thereon.
2.
After said amounts shall have been determined by competent evidence, the Regional
Trial Court shall render judgment, as follows:
a. The trial court shall grant the respondent-spouses a period of fifteen (15) days within
which to exercise their option under Article 448 of the Civil Code, whether to appropriate the
house as their own by paying to petitioners either the amount of the expenses spent by
petitioners for the building of the house, or the increase in value (plus value) which the
said lot may have acquired by reason thereof, or to oblige petitioners to pay the price of said
land. The amounts to be respectively paid by the respondent-spouses and petitioners, in
accordance with the option thus exercised by written notice of the other party and to the
Court, shall be paid by the obligor within fifteen (15) days from such notice of the option by
tendering the amount to the Court in favor of the party entitled to receive it;
b. The trial court shall further order that if the respondent-spouses exercises the option to
oblige petitioners to pay the price of the land but the latter rejects such purchase because, as
found by the trial court, the value of the land is considerably more than that of the house,
petitioners shall give written notice of such rejection to the respondent-spouses and to the
Court within fifteen (15) days from notice of the respondent-spouses option to sell the land.
In that event, the parties shall be given a period of fifteen (15) days from such notice of
rejection within which to agree upon the terms of the lease, and give the Court formal
written notice of such agreement and its provisos. If no agreement is reached by the parties,
the trial court, within fifteen (15) days from and after the termination of the said period fixed
for negotiation, shall then fix the terms of the lease, payable within the first five (5) days of
each calendar month. The period for the forced lease shall not be more than two (2) years,
counted from the finality of the judgment, considering the long period of time since
petitioners have occupied the subject area. The rental thus fixed shall be increased by ten
percent (10%) for the second year of the forced lease. Petitioners shall not make any further
constructions or improvements on the house. Upon expiration of the two (2)-year period, or
upon default by petitioners in the payment of rentals for two (2) consecutive months, the
respondent-spouses shall be entitled to terminate the forced lease, to recover their land, and
to have the house removed by petitioners or at the latters expense. The rentals herein
provided shall be tendered by petitioners to the Court for payment to the respondentspouses, and such tender shall constitute evidence of whether or not compliance was made
within the period fixed by the Court.
c. In any event, petitioners shall pay the respondent-spouses reasonable compensation for
the occupancy of the respondent-spouses land for the period counted from the year
petitioners occupied the subject area, up to the commencement date of the forced lease
referred to in the preceding paragraph;

d. The periods to be fixed by the trial court in its Decision shall be inextendible, and upon
failure of the party obliged to tender to the trial court the amount due to the obligee, the
party entitled to such payment shall be entitled to an order of execution for the enforcement
of payment of the amount due and for compliance with such other acts as may be required
by the prestation due the obligee.
No costs.
SO ORDERED.
Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION
G.R. No. 152423
SPOUSES MARCOS R. ESMAQUEL and VICTORIA
SORDEVILLA,
Petitioners,

Present:
CARPIO, J., Chairperson,
NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

- versus -

Promulgated:
MARIA COPRADA,

December 15, 2010

Respondent.

x --------------------------------------------------x

DECISION

PERALTA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of
[1]
[2]
Court seeking to set aside the Decision and the Resolution of the Court of Appeals, dated
April 6, 2001 and February 15, 2002, respectively, (CA) in CA-G.R. SP No. 49994.
The antecedents are as follows:

On February 24, 1997, petitioners, spouses Marcos Esmaquel and Victoria Sordevilla
[3]
(Victoria) filed an ejectment case against respondent Maria V. Coprada before the
nd
2 Municipal Circuit Trial Court (MCTC) of Magdalena, Liliw and Majayjay Laguna. Petitioners
claimed that they are the registered owners of a parcel of land situated in M.H. Del Pilar
St., Barangay San Miguel, Majayjay, Laguna, containing an area of Two Hundred Fifty-Three
(253) square meters and covered by Transfer Certificate of Title (TCT) No. T-93542. In 1945,
respondent was able to persuade the petitioners to allow her and her family to use and
occupy the land for their residence, under the condition that they will vacate the premises
should petitioners need to use the same. Respondent and her family were allowed to
construct their residential house. Since then, the petitioners never made an attempt to drive
them away out of pity, knowing that respondent and her eight children have no other place
to live in. Also, respondent and her family have been occupying the subject premises free of
rent, including payment of realty taxes. Respondent's present circumstances have
completely improved, i.e., some of her children are already working; they are regularly
sending her financial assistance; and she has acquired her own residential house
at Barangay Panglan, Majayjay, Laguna. Because of this, petitioners verbally demanded that
respondent vacate the subject land, but the latter refused. Thus, petitioners were forced to
send a demand letter dated August 22, 1996, giving respondent until November 30, 1996 to
vacate the subject premises. However, respondent still ignored said demand, which
prompted petitioners to bring a complaint before the barangayauthorities. No settlement
was reached, hence, a certification to file action in Court was issued. Petitioners were,
therefore, constrained to lodge an ejectment case against the respondent before the MCTC.
Respondent admitted that petitioners are the registered owners of the subject land.
However, she averred that in 1945, it was Emiliana Coprada (petitioner Victoria Sordevilla's
mother and original owner of the subject land) and not the petitioners who gave permission
to her late husband Brigido Coprada to use the subject lot. Emiliana allowed her nephew
Brigido and his family to occupy the lot as their permanent abode, because of her love and
affection for her nephew, and also, due to the fact that the said lot is virtually a wasteland.
Thereafter, Brigido and his family cleared the area and built therein a nipa hut to dwell in.
When Emiliana died, the ownership of the property was inherited by her only child,
petitioner Victoria Sordevilla. Respondent alleged that sometime in the early 1960's,
petitioner Victoria offered the said lot for sale for P2,000.00 to respondent, who readily
agreed. The purchase price was paid in installments and was fully paid in 1962. Due to their
close relationship, the agreement was never reduced to writing. Respondent further
maintained that since the execution of the oral sale of the subject lot, she has been the one
paying the realty taxes due on the property. After the sale, respondent built on the subject
land a semi-concrete structure. Respondent stated that petitioners' claim is barred by
laches. Even granting, without admitting, that respondent's claim of ownership over the
property is improper because petitioners are the registered owners thereof, respondent
argued that she is a builder in good faith, because she was able to build the structure on the
subject lot with the prior permission of the owner.

and permission. Hence, respondent is bound by an implied promise that she will vacate the
property upon demand. Thus, her possession over the subject property became unlawful
after the petitioners demanded her to vacate the property. The RTC found that respondent
failed to prove the alleged oral sale and that petitioners have adequately proven that they
are entitled to the possession of the subject land as registered owners thereof. The RTC
ordered the respondent and all other persons claiming rights under her to vacate and
surrender the possession of the subject land to the petitioners and to remove any and all
[5]
improvements she introduced on the parcel of land.
Respondent filed a Motion for Reconsideration, which was denied by the RTC in an
[6]
Order dated November 24, 1998. Obviously dissatisfied by the Decision, respondent filed
with the CA a petition for review with prayer for temporary restraining order and preliminary
[7]
injunction.
In its Decision dated April 6, 2001, the CA granted respondent's petition, reversed the
Decision of the RTC and affirmed in toto the Decision of the MCTC. Petitioners filed a Motion
[8]
for Reconsideration, which was denied by the CA in a Resolution dated February 15, 2002.
Hence, the instant petition raising the following grounds:
I
THE RIGHT OF THE REGISTERED OWNERS TO RECOVER POSSESSION IS NEVER BARRED BY
LACHES AND/OR THE PERSON WHO HAS A TORRENS TITLE OVER A PARCEL OF LAND IS
ENTITLED TO THE POSSESSION THEREOF.
II
THE OWNERSHIP AND RIGHT OF PETITIONERS TO RECOVER POSSESSION OF THE SUBJECT
PROPERTY CANNOT BE DEFEATED BY UNPROVEN ORAL SALE.
III
LACHES HAD SET IN AGAINST [RESPONDENT].

IV
[9]
THE CERTIFICATE OF TITLE IS NOT SUBJECT TO COLLATERAL ATTACK.
The petition is meritorious.
The pertinent point of inquiry in this case is whether or not petitioners have a valid
ground to evict respondent from the subject property.
An action for forcible entry or unlawful detainer is governed by Section 1, Rule 70 of the
Rules of Court, which provides:

[4]

In its Decision dated September 11, 1997, the MCTC rendered judgment dismissing
the complaint. It held that laches had already set in which prevented petitioners from
questioning the validity of the purported sale between Victoria and Maria.
On appeal, the Regional Trial Court (RTC) reversed the MCTCs judgment. The RTC ruled
that respondent's occupation of the subject property was by virtue of petitioners' tolerance

SECTION 1. Who may institute proceedings, and when. - Subject to the provisions of the next
succeeding section, a person deprived of the possession of any land or building by force,
intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against
whom the possession of any land or building is unlawfully withheld after the expiration or
termination of the right to hold possession by virtue of any contract, express or implied, or

the legal representatives or assigns of any such lessor, vendor, vendee, or other person, may,
at any time within one (1) year after suchunlawful deprivation or withholding of possession,
bring an action in the proper Municipal Trial Court against the person or persons unlawfully
withholding or depriving of possession, or any person or persons claiming under them, for
the restitution of such possession, together with damages and costs.
In unlawful detainer cases, the possession of the defendant was originally legal, as his
possession was permitted by the plaintiff on account of an express or implied contract
between them. However, defendant's possession became illegal when the plaintiff
demanded that defendant vacate the subject property due to the expiration or termination
[10]
of the right to possess under their contract, and defendant refused to heed such demand.
The sole issue for resolution in an unlawful detainer case is physical or material
possession of the property involved, independent of any claim of ownership by any of the
parties. Where the issue of ownership is raised by any of the parties, the courts may pass
upon the same in order to determine who has the right to possess the property. The
adjudication is, however, merely provisional and would not bar or prejudice an action
[11]
between the same parties involving title to the property. Since the issue of ownership was
raised in the unlawful detainer case, its resolution boils down to which of the parties'
respective evidence deserves more weight.
In the case at bar, petitioners' cause of action for unlawful detainer is based on their
ownership of the land covered by TCT No. T-93542 and on their claim that they merely
tolerated respondent's stay thereat. Respondent's possession, as well as those persons
claiming right under her, became unlawful upon her refusal to vacate the premises.
Petitioners contend that since they are the registered owners of the subject land, they are
entitled to the possession thereof and their right to recover possession over it is never
barred by laches. They maintain that respondent's claim of ownership is based on an
unproven oral sale, which does not exist. Further, respondent cannot rely on the Tax
Declarations as she was paying taxes in the petitioners' name, as the declared owners of the
property. Moreover, she started paying the taxes only in 1984 despite her claim that the
property was sold to her in 1962. Even assuming that the sale took place in 1962, respondent
is guilty of laches as she failed to take any positive action for the delivery and conveyance to
her of the portion of the property she is occupying. Finally, respondent cannot collaterally
attack the title of the petitioners to the subject land.
On her part, respondent, although admitting that the property is registered in
petitioners' name, claimed that the 100-square-meters portion of the property, where her
house was erected, was already sold to her by petitioner Victoria. Thus, by virtue of the sale,
she and her family have the right to possess the said property. The non-presentation of
receipt and deed of sale, non-delivery of the owner's certificate of title, and her payment of
the real property taxes in the name of the petitioners were due to the close relationship
between the parties and the existing practice of palabra de honor in their day to day
transactions. Respondent further alleged that she is not guilty of laches; rather, it is the
registered owners' right to recover possession of their property which is barred by laches.
In the present case, respondent failed to present evidence to substantiate her
allegation that a portion of the land was sold to her in 1962. In fact, when petitioners sent a
[12]
letter to the respondent, demanding her to vacate the subject property, the respondent,

[13]

in reply to the said letter, never mentioned that she purchased the subject land in 1962. If
the sale really took place, the respondent should have immediately and categorically claimed
that in her letter response. Clearly therefore, respondent's submission that there was an oral
sale is a mere afterthought.
On the other hand, it is undisputed that the subject property is covered by Transfer
Certificate of Title No. T-93542, registered in the name of the petitioners. As against the
respondent's unproven claim that she acquired a portion of the property from the
petitioners by virtue of an oral sale, the Torrens title of petitioners must prevail. Petitioners'
title over the subject property is evidence of their ownership thereof. It is a fundamental
principle in land registration that the certificate of title serves as evidence of an indefeasible
and incontrovertible title to the property in favor of the person whose name appears
therein. Moreover, the age-old rule is that the person who has a Torrens title over a land is
[14]
entitled to possession thereof.
Further, respondent's argument that petitioners are no longer the owners of a portion
of the subject land because of the sale in her favor is a collateral attack on the title of the
petitioners, which is not allowed. The validity of petitioners' certificate of title cannot be
attacked by respondent in this case for ejectment. Under Section 48 of Presidential Decree
No. 1529, a certificate of title shall not be subject to collateral attack. It cannot be altered,
modified or canceled, except in a direct proceeding for that purpose in accordance with law.
The issue of the validity of the title of the petitioners can only be assailed in an action
expressly instituted for that purpose. Whether or not the respondent has the right to claim
ownership over the property is beyond the power of the trial court to determine in an action
[15]
for unlawful detainer.
In Rodriguez v. Rodriguez,

[16]

citing the case of Co v. Militar,

[17]

the Court held that:

[T]he Torrens System was adopted in this country because it was believed to be the most
effective measure to guarantee the integrity of land titles and to protect their indefeasibility
once the claim ofownership is established and recognized.
It is settled that a Torrens Certificate of title is indefeasible and binding upon the
whole world unless and until it has been nullified by a court of competent jurisdiction. Under
existing statutory and decisional law, the power to pass upon the validity of such certificate
of title at the first instance properly belongs to the Regional Trial Courts in a direct
proceeding for cancellation of title.
As the registered owner, petitioner had a right to the possession of the property,
which is one of the attributes of ownership. x x x

Anent the issue on laches, the CA's ruling that petitioners' long inaction to assert their
rights over the subject land bars them from recovering the same is without basis. Also, the
doctrine invoked by the appellate court that a registered owner may loose his right to
recover its possession by reason of laches is not applicable here.
Laches is the failure or neglect, for an unreasonable and unexplained length of time, to
do that which, by exercising due diligence, could or should have been done earlier; it is

negligence or omission to assert a right within a reasonable time, warranting the

presumption that the party entitled to assert it either has abandoned or declined to assert
[18]
it. There is no absolute rule as to what constitutes laches or staleness of demand; each
case is to be determined according to its particular circumstances, with the question of
laches addressed to the sound discretion of the court. Because laches is an equitable
doctrine, its application is controlled by equitable considerations and should not be used to
[19]
defeat justice or to perpetuate fraud or injustice.
Respondent first acquired possession of the subject lot by mere tolerance. From 1945
until the filing of the complaint for ejectment in 1997, the nature of that possession has
never changed. Petitioners allowed the respondent to possess the property with the
knowledge that the respondent will vacate the same upon demand. Hence, until such
demand to vacate was communicated by the petitioners to the respondent, petitioners are
not required to do any act to recover the subject land, precisely because they knew of the
nature of the respondent's possession, i.e., possession by mere tolerance. Thus, it cannot be
said that petitioners are guilty of failure or neglect to assert a right within a reasonable
time. Further, after the petitioners gave a demand letter to the respondent giving the latter
until November 30, 1996 to vacate the subject premises, which respondent failed to heed,
they immediately filed a complaint before the barangay authorities and, thereafter, lodged
an ejectment case before the MCTC on February 24, 1997. In sum, We find that petitioners
are not guilty of laches as would bar their claim to the property in question.
In contrast, respondent, who is claiming that a portion of the property was sold to her
in 1962, has herself failed within a long period of time to have that portion transferred in her
name. Respondent had to wait for almost 35 years since 1962, and were it not for the filing
of the ejectment suit in 1997, she would not have bothered to assert her rights under the
alleged sale. Respondent's failure to assert that right only goes to prove that no sale ever
transpired between the parties.
Moreover, as the registered owners, petitioners' right to eject any person illegally
occupying their property is not barred by laches. In Gaudencio Labrador, represented by Lulu
Labrador Uson, as Attorney-in-Fact v. Spouses Ildefonso Perlas and Pacencia Perlas and
[20]
Spouse Rogelio Pobre and Melinda Fogata Pobre, the Court held that:
x x x As a registered owner, petitioner has a right to eject any person illegally occupying his
property. This right is imprescriptible and can never be barred by laches. In Bishop v. Court
of Appeals, we held, thus:
As registered owners of the lots in question, the private respondents have a right to eject any
person illegally occupying their property. This right is imprescriptible. Even if it be supposed
that they were aware of the petitioners' occupation of the property, and regardless of the
length of that possession, the lawful owners have a right to demand the return of their
property at any time as long as the possession was unauthorized or merely tolerated, if at all.
This right is never barred by laches.
Since respondent's occupation of the subject lot is by mere tolerance or permission of
the petitioners, without any contract between them, respondent is bound by an implied
promise that she will vacate the same upon demand, failing which a summary action for
[21]
ejectment is the proper remedy against her.

In respondent's Answer filed before the MCTC, she claimed that since she was able to
build a structure on the subject lot with the prior permission from the owner, she is a builder
in good faith and thus entitled to be reimbursed the necessary and useful expenses under
Articles 546 and 548 of the Civil Code of the Philippines. Without such reimbursement, she
has the right of retention over the property and she cannot just be ejected from the
premises.
Respondent's argument does not hold water. Since respondent's occupation of the
subject property was by mere tolerance, she has no right to retain its possession
underArticle 448 of the Civil Code. She is aware that her tolerated possession may be
[22]
terminated any time and she cannot be considered as builder in good faith.
It is well
[23]
[24]
settled that both Article 448 and Article 546 of the New Civil Code, which allow full
reimbursement of useful improvements and retention of the premises until reimbursement
is made, apply only to a possessor in good faith, i.e., one who builds on land with the belief
that he is the owner thereof. Verily, persons whose occupation of a realty is by sheer
[25]
tolerance of its owners are not possessors in good faith. At the time respondent built the
improvements on the premises in 1945, she knew that her possession was by mere
permission and tolerance of the petitioners; hence, she cannot be said to be a person who
builds on land with the belief that she is the owner thereof.
Respondent's reliance on her payment of realty taxes on the property is unavailing. She
started paying taxes only in 1984 despite her claim that she bought the property in 1962.
Further, aside from the rule that tax declarations and corresponding tax receipts cannot be
used to prove title to or ownership of a real property inasmuch as they are not conclusive
[26]
evidence of the same, the RTC found that although the payment for said taxes were
received from respondent, the declared owner was petitioner Victoria.
It must be stressed, however, that the court's adjudication of ownership in an
ejectment case is merely provisional, and affirmance of the RTC's decision would not bar or
prejudice an action between the same parties involving title to the property, if and when
[27]
such action is brought seasonably before the proper forum.
WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of
Appeals, dated April 6, 2001 and February 15, 2002, respectively, in CA-G.R. SP No. 49994,
nd
affirming the Decision of the 2 Municipal Circuit Trial Court in Civil Case No. 1875,
are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Santa Cruz, Laguna,
Branch 26, in Civil Case No. SC-3580, is REINSTATED.