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G.R. Nos.

154391-92, September 30,


2004

Teresita one-half of the


value
of
the
useful
improvements introduced in
the
premises
prior
to
demand, which is equivalent
to P475,000.00. In case the
former refuse to reimburse
the said amount, the latter
may
remove
the
improvements, even though
the land may suffer damage
thereby. They shall not,
however, cause any more
impairment
upon
the
property leased than is
necessary.

Spouses ISMAEL and TERESITA


MACASAET, petitioners,
vs.
Spouses VICENTE and ROSARIO
MACASAET, respondents.
DECISION
PANGANIBAN, J.:
The present case involves a dispute
between parents and children. The
children were invited by the parents to
occupy the latters two lots, out of
parental love and a desire to foster family
solidarity. Unfortunately, an unresolved
conflict terminated this situation. Out of
pique, the parents asked them to vacate
the premises. Thus, the children lost their
right to remain on the property. They have
the right, however, to be indemnified for
the useful improvements that they
constructed thereon in good faith and with
the consent of the parents. In short, Article
448 of the Civil Code applies.

2. The award of attorneys


fees is DELETED.
3. The records of these
consolidated
cases
are
REMANDED to the Court of
origin
for
further
proceedings to determine
the option to be taken by
Vicente and Rosario and to
implement the same with
dispatch."4

The Case
Before us is a Petition for Review1 under
Rule 45 of the Rules of Court, assailing the
March 22, 2002 Decision2and the June 26,
2002 Resolution3 of the Court of Appeals
(CA) in CA-GR SP Nos. 56205 & 56467. The
challenged Decision disposed as follows:
"WHEREFORE, the assailed Decision
is AFFIRMED with the following
MODIFICATIONS:
1. Vicente and Rosario
should reimburse Ismael and

The assailed Resolution denied petitioners


Motion for Reconsideration.
The Facts
Petitioners Ismael and Teresita5 Macasaet
and Respondents Vicente and Rosario
Macasaet are first-degree relatives. Ismael
is the son of respondents, and Teresita is
his wife.6
On December 10, 1997, the parents filed
with the Municipal Trial Court in Cities
(MTCC) of Lipa City an ejectment suit

against the children.7 Respondents alleged


that they were the owners of two (2)
parcels of land covered by Transfer
Certificate of Title (TCT) Nos. T-78521 and
T-103141, situated at Banay-banay, Lipa
City; that by way of a verbal lease
agreement, Ismael and Teresita occupied
these lots in March 1992 and used them as
their residence and the situs of their
construction business; and that despite
repeated demands, petitioners failed to
pay the agreed rental of P500 per week.8
Ismael and Teresita denied the existence of
any verbal lease agreement. They claimed
that respondents had invited them to
construct their residence and business on
the subject lots in order that they could all
live near one other, employ Marivic (the
sister of Ismael), and help in resolving the
problems of the family.9 They added that it
was the policy of respondents to allot the
land they owned as an advance grant of
inheritance in favor of their children. Thus,
they contended that the lot covered by
TCT No. T-103141 had been allotted to
Ismael as advance inheritance. On the
other hand, the lot covered by TCT No. T78521 was allegedly given to petitioners as
payment for construction materials used in
the renovation of respondents house.10
The MTCC11 ruled in favor of respondents
and ordered petitioners to vacate the
premises. It opined that Ismael and
Teresita had occupied the lots, not by
virtue of a verbal lease agreement, but by
tolerance of Vicente and Rosario.12 As their
stay was by mere tolerance, petitioners
were necessarily bound by an implied
promise to vacate the lots upon
demand.13 The MTCC dismissed their
contention that one lot had been allotted
as an advance inheritance, on the ground

that successional rights were inchoate.


Moreover, it disbelieved petitioners
allegation that the other parcel had been
given as payment for construction
materials.14
On appeal, the regional trial court15 (RTC)
upheld the findings of the MTCC. However,
the
RTC
allowed
respondents
to
appropriate the building and other
improvements introduced by petitioners,
after payment of the indemnity provided
for by Article 448 in relation to Articles 546
and 548 of the Civil Code.16 It added that
respondents could oblige petitioners to
purchase the land, unless its value was
considerably more than the building. In the
latter situation, petitioners should pay rent
if respondents would not choose to
appropriate the building.17
Upon denial of their individual Motions for
Reconsideration, the parties filed with the
CA separate Petitions for Review, which
were later consolidated.18
Ruling of the Court of Appeals
The CA sustained the finding of the two
lower courts that Ismael and Teresita had
been occupying the subject lots only by the
tolerance of Vicente and Rosario.19 Thus,
possession of the subject lots by
petitioners became illegal upon their
receipt of respondents letter to vacate
it.20
Citing Calubayan v. Pascual,21 the CA
further ruled that petitioners status was
analogous to that of a lessee or a tenant
whose term of lease had expired, but
whose occupancy continued by tolerance
of
the
owner.22Consequently,
in
ascertaining the right of petitioners to be

reimbursed for the improvements they had


introduced
on
respondents
properties,23 the appellate court applied
the Civil Codes provisions on lease. The CA
modified the RTC Decision by declaring
that Article 448 of the Civil Code was
inapplicable. The CA opined that under
Article 1678 of the same Code, Ismael and
Teresita had the right to be reimbursed for
one half of the value of the improvements
made.24
Not satisfied with the CAs ruling,
petitioners brought this recourse to this
Court.25

b) Whether or not the case


of Philippine Pryce Assurance
Corporation vs. Court of
Appeals (230 SCRA 164) is
applicable to appearance of
parties in an unlawful
detainer suit;
"3. Whether or not Article 1678 of
the Civil Code should apply to the
case
on
the
matters
of
improvements, or is it Article 447 of
the Civil Code in relation to the
Article 453 and 454 thereof that
should apply, if ever to apply the
Civil Code;

The Issues
Petitioners raise the following issues for
our consideration:
"1. a) Whether or not Section 17[,]
Rule 70 of the Rules of Court on
Judgment should apply in the
rendition of the decision in this
case;
b) Whether or not the
Complaint should have been
dismissed;
c) Whether or not damages
including attorneys fees
should have been awarded
to herein petitioners;

"4. Whether or not the [D]ecision of


the Court of Appeals is supported by
evidence, appropriate laws, rules
and jurisprudence;
"5. Whether or not Assisting Judge
Norberto Mercado of the MTCC Lipa
City should be held accountable in
rendering the MTCC [D]ecision;
"6. Whether or not Atty. Glenn
Mendoza and Atty. Andrew Linatoc
of the same [l]aw office should be
held accountable for pursuing the
[e]jectment case[.]"26
The Courts Ruling
The Petition is partly meritorious.

"2. a) Whether or not the rule on


appearance of parties during the
Pretrial should apply on appearance
of parties during Preliminary
Conference in an unlawful detainer
suit;

First Issue:
Ejectment
Who is entitled to the physical or material
possession of the premises? At the outset,
we stress that this is the main issue in

ejectment proceedings.27 In the present


case, petitioners failed to justify their
right to retain possession of the subject
lots, which respondents own. Since
possession is one of the attributes of
ownership,28 respondents
clearly
are
entitled to physical or material possession.
Allegations of the Complaint
Petitioners allege that they cannot be
ejected from the lots, because respondents
based their Complaint regarding the
nonpayment of rentals on a verbal lease
agreement, which the latter failed to
prove.29 Petitioners contend that the lower
courts erred in using another ground
(tolerance of possession) to eject them.
In actions for unlawful detainer, possession
that was originally lawful becomes
unlawful
upon
the
expiration
or
termination of the defendants right to
possess, arising from an express or implied
contract.30 In other words, the plaintiffs
cause of action comes from the expiration
or termination of the defendants right to
continue possession.31The case resulting
there from must be filed within one year
from the date of the last demand.
To show a cause of action in an unlawful
detainer, an allegation that the defendant
is illegally withholding possession from the
plaintiff is sufficient. The complaint may
lie even if it does not employ the
terminology of the law, provided the said
pleading is couched in a language
adequately stating that the withholding of
possession or the refusal to vacate has
become unlawful.32 It is equally settled
that the jurisdiction of the court, as well
as the nature of the action, is determined
from the averments of the complaint.33

In the present case, the Complaint alleged


that despite demands, petitioners "refused
to pay the accrued rentals and [to] vacate
the leased premises."34 It prayed that
judgment
be
rendered
"[o]rdering
[petitioners] and all those claiming rights
under them to vacate the properties x x x
and remove the structures x x x
constructed thereon."35Effectively then,
respondents averred that petitioners
original lawful occupation of the subject
lots had become unlawful.
The MTCC found sufficient cause to eject
petitioners. While it disbelieved the
existence of a verbal lease agreement, it
nevertheless concluded that petitioners
occupation of the subject lots was by mere
tolerance of respondents. Basing its
conclusion on the fact that the parties
were close relatives, the MTCC ruled thus:
"x x x [T]he parties herein are first
degree relatives. Because of this
relationship, this Court takes
judicial notice of the love, care,
concern and protection imbued
upon the parents towards their
[children], i.e., in the instant case,
the love, care, concern and
protection of the [respondents] to
the [petitioners]. With this in mind,
this Court is inclined to believe the
position of the [petitioners] that
there was no such verbal lease
agreement between the parties
herein that took place in 1992. x x
x.
"From the allegations of the
[petitioners],
this
Court
is
convinced that their stay and
occupancy of the subject premises
was by mere tolerance of the

[respondents], and not by virtue of


a verbal lease agreement between
them."36

wholly
approved
of."43 Sarona
v.
44
Villegas described what tolerated acts
means, in this language:

Having found a cause of action for unlawful


detainer, the MTCC (as well as the RTC and
the CA) did not err in ordering the
ejectment of petitioners as prayed for by
respondents. There was no violation of
Section 17 of Rule 7037 of the Rules of
Court. As earlier explained, unlawful
detainer was sufficiently alleged in the
Complaint and duly proven during the trial.
Significantly, the issue of whether there
was enough ground to eject petitioners was
raised during the preliminary conference.38

"Professor Arturo M. Tolentino states


that acts merely tolerated are
those
which
by
reason
of
neighborliness or familiarity, the
owner of property allows his
neighbor or another person to do on
the property; they are generally
those particular services or benefits
which ones property can give to
another without material injury or
prejudice to the owner, who
permits them out of friendship or
courtesy. x x x. And, Tolentino
continues, even though this is
continued for a long time, no right
will be acquired by prescription." x
x x. Further expounding on the
concept, Tolentino writes: There is
tacit consent of the possessor to
the acts which are merely
tolerated. Thus, not every case of
knowledge and silence on the part
of the possessor can be considered
mere tolerance. By virtue of
tolerance that is considered as an
authorization,
permission
or
license, acts of possession are
realized or performed. The question
reduces itself to the existence or
non-existence of the permission."45

Not Merely Tolerated


Possession
Petitioners dispute the lower courts
finding that they occupied the subject lots
on the basis of mere tolerance. They argue
that their occupation was not under such
condition, since respondents had invited,
offered and persuaded them to use those
properties.39
This Court has consistently held that those
who occupy the land of another at the
latters tolerance or permission, without
any
contract
between
them,
are
necessarily bound by an implied promise
that the occupants will vacate the property
upon demand.40 A summary action for
ejectment is the proper remedy to enforce
this implied obligation.41The unlawful
deprivation or withholding of possession is
to be counted from the date of the
demand to vacate.42
Toleration is defined as "the act or practice
of permitting or enduring something not

We hold that the facts of the present case


rule out the finding of possession by mere
tolerance. Petitioners were able to
establish that respondents had invited
them to occupy the subject lots in order
that they could all live near one other and
help in resolving family problems.46 By
occupying
those
lots,
petitioners
demonstrated their acceptance of the

invitation. Hence, there was a meeting of


minds, and an agreement regarding
possession of the lots impliedly arose
between the parties.
The occupancy of the subject lots by
petitioners was not merely "something not
wholly approved of" by respondents.
Neither did it arise from what Tolentino
refers to as "neighborliness or familiarity."
In point of fact, their possession was upon
the invitation of and with the complete
approval of respondents, who desired that
their children would occupy the premises.
It arose from familial love and a desire for
family solidarity, which are basic Filipino
traits.
Right to Use the Lots Terminated
That Ismael and Teresita had a right to
occupy the lots is therefore clear. The issue
is the duration of possession. In the
absence of a stipulation on this point,
Article 1197 of the Civil Code allows the
courts to fix the duration or the period.
"Article 1197. If the obligation does
not fix a period, but from its nature
and the circumstances it can be
inferred that a period was
intended, the courts may fix the
duration thereof.
"The courts shall also fix the
duration of the period when it
depends upon the will of the
debtor.
"In every case the courts shall
determine such period as may
under the circumstances have been
probably contemplated by the
parties. Once fixed by the courts,

the period cannot be changed by


them."
Article 1197, however, applies to a
situation in which the parties intended a
period. Such qualification cannot be
inferred from the facts of the present
case.
To repeat, when Vicente and Rosario
invited their children to use the lots, they
did so out of parental love and a desire for
solidarity expected from Filipino parents.
No period was intended by the parties.
Their mere failure to fix the duration of
their agreement does not necessarily
justify or authorize the courts to do so.47
Based on respondents reasons for
gratuitously allowing petitioners to use the
lots, it can be safely concluded that the
agreement subsisted as long as the parents
and the children mutually benefited from
the arrangement. Effectively, there is a
resolutory
condition
in
such
an
agreement.48 Thus, when a change in the
condition existing between the parties
occurs -- like a change of ownership,
necessity, death of either party or
unresolved conflict or animosity -- the
agreement may be deemed terminated.
Having been based on parental love, the
agreement would end upon the dissipation
of the affection.
When persistent conflict and animosity
overtook the love and solidarity between
the parents and the children, the purpose
of
the
agreement
ceased.49 Thus,
petitioners no longer had any cause for
continued possession of the lots. Their
right to use the properties became
untenable. It ceased upon their receipt of
the notice to vacate. And because they

refused to heed the demand, ejectment


was the proper remedy against them. Their
possession, which was originally lawful,
became unlawful when the reason therefor
-- love and solidarity -- ceased to exist
between them.
No Right to Retain

parents arising from the latters purported


purchases and advances.53 There was no
sufficient proof that respondents had
entered into a contract of dation to settle
the alleged debt. Petitioners even stated
that there was a disagreement in the
accounting of the purported debt,54 a fact
that disproves a meeting of the minds with
the parents.

Possession
Petitioners have not given this Court
adequate reasons to reverse the lower
courts dismissal of their contention that
Lots T-78521 and T-103141, respectively,
were allegedly allotted to them as part of
their
inheritance
and
given
in
consideration for past debts.
The right of petitioners to inherit from
their parents is merely inchoate and is
vested only upon the latters demise.
Indisputably, rights of succession are
transmitted only from the moment of
death of the decedent.50 Assuming that
there was an "allotment" of inheritance,
ownership nonetheless remained with
respondents. Moreover, an intention to
confer title to certain persons in the future
is not inconsistent with the owners taking
back possession in the meantime for any
reason deemed sufficient.51 Other than
their self-serving testimonies and their
affidavits, petitioners offered no credible
evidence to support their outlandish claim
of inheritance "allocation."
We also agree with the lower courts that
petitioners failed to prove the allegation
that, through a dation in payment, Lot T78521 had been transferred to the latter as
payment for respondents debts.52 The
evidence presented by petitioners related
only to the alleged indebtedness of the

Petitioners also admitted that a portion of


the alleged debt is the subject matter of a
collection case against respondents (Civil
Case No. 0594-96).55 Thus, the formers
allegation that the indebtedness has been
paid through a dation cannot be given
credence, inconsistent as it is with their
action to recover the same debt.
Despite their protestations, petitioners
recognized the right of the parents to
recover the premises when they admitted
in their Position Paper filed with the MTCC
that respondents had a title to the lots.
"The [respondents] want to get
their property because the title is
theirs, the [petitioners] do not
object but what is due the
[petitioners]
including
the
reparation for the tarnish of their
dignity and honor must be given the
[petitioners] for the benefits of
their children before the premises
will be turned over."56
As a rule, the right of ownership carries
with it the right of possession.
Second Issue:
Appearance
Conference

at

the

Preliminary

Section 8 of Rule 70 of the Rules of Court


requires the appearance of the plaintiff
and the defendant during the preliminary
conference. On the basis of this provision,
petitioners claim that the MTCC should
have dismissed the case upon the failure of
respondents to attend the conference.
However, petitioners do not dispute that an
attorney-in-fact
with
a
written
authorization from respondents appeared
during the preliminary conference.57 The
issue then is whether the rules on
ejectment allow a representative to
substitute
for
a
partys
personal
appearance.

Third Issue:

Unless inconsistent with Rule 70, the


provisions of Rule 18 on pretrial applies to
the preliminary conference.58Under Section
4 of this Rule, the nonappearance of a
party may be excused by the showing of a
valid cause; or by the appearance of a
representative, who has been fully
authorized in writing to enter into an
amicable settlement, to submit to
alternative modes of dispute resolution,
and to enter into stipulations or admissions
of facts and of documents.59

To buttress their claim of reimbursement


for the improvements introduced on the
property,
petitioners
cite
Article
61
447. They allege that the CA erred in
applying Article 1678, since they had no
lease agreement with respondents.

Section 4 of Rule 18 may supplement


Section 8 of Rule 70. Thus, the spirit
behind the exception to personal
appearance under the rules on pretrial is
applicable to the preliminary conference.
If there are valid reasons or if a
representative has a "special authority," a
partys appearance may be waived. As
petitioners are challenging only the
applicability of the rules on pretrial to the
rule on preliminary conference, the
written authorization from respondents can
indeed be readily considered as a "special
authorization."

Rights of a Builder in Good Faith


As applied to the present case, accession
refers to the right of the owner to
everything that is incorporated or attached
to the property.60 Accession industrial -building, planting and sowing on an
immovable -- is governed by Articles 445 to
456 of the Civil Code.
Articles 447 and 1678 of the
Civil Code Inapplicable

We clarify. Article 447 is not applicable,


because it relates to the rules that apply
when the owner of the property uses the
materials of another. It does not refer to
the instance when a possessor builds on
the property of another, which is the
factual milieu here.
In view of the unique factual setting of the
instant case, the contention of petitioners
regarding the inapplicability of Article 1678
deserves attention. The CA applied the
provisions on lease, because it found their
possession by mere tolerance comparable
with that of a lessee, per the
pronouncement
in
Calubayan
v.
Pascual,62 from which we quote:
"x x x. It has been held that a
person who occupies the land of
another at the latters tolerance or

permission, without any contract


between them, is necessarily bound
by an implied promise that he will
vacate upon demand, failing which
a summary action for ejectment is
the proper remedy against them.
The status of defendant is
analogous to that of a lessee or
tenant whose term of lease has
expired but whose occupancy
continued by tolerance of the
owner. In such a case, the unlawful
deprivation or withholding of
possession is to be counted from
the date of the demand to
vacate."63 (Emphasis in the original.)
As explained earlier, Ismael and Teresitas
possession of the two lots was not by mere
tolerance, a circumstance that negates the
applicability of Calubayan.
Article 448 Applicable
On the other hand, when a person builds in
good faith on the land of another, the
applicable provision is Article 448, which
reads:64
"Article 448. The owner of the land
on which anything has been built,
sown or planted in good faith, shall
have the right to appropriate as his
own the works, sowing or planting,
after payment of the indemnity
provided for in Articles 546 and 548,
or to oblige the one who built or
planted to pay the price of the
land, and the one who sowed, the
proper rent. However, the builder
or planter cannot be obliged to buy
the land if its value is considerably
more than that of the building or
trees. In such case, he shall pay

reasonable rent, if the owner of the


land does not choose to appropriate
the building or trees after proper
indemnity. The parties shall agree
upon the terms of the lease and in
case of disagreement, the court
shall fix the terms thereof."
This Court has ruled that this provision
covers only cases in which the builders,
sowers or planters believe themselves to
be owners of the land or, at least, to have
a claim of title thereto.65 It does not apply
when the interest is merely that of a
holder, such as a mere tenant, agent or
usufructuary.66 From
these
pronouncements, good faith is identified
by the belief that the land is owned; or
that -- by some title -- one has the right to
build, plant, or sow thereon.67
However, in some special cases, this Court
has used Article 448 by recognizing good
faith beyond this limited definition. Thus,
in Del Campo v. Abesia,68 this provision was
applied to one whose house -- despite
having been built at the time he was still
co-owner -- overlapped with the land of
another.69 This article was also applied to
cases wherein a builder had constructed
improvements with the consent of the
owner. The Court ruled that the law
deemed the builder to be in good faith.70 In
Sarmiento v. Agana,71 the builders were
found to be in good faith despite their
reliance on the consent of another, whom
they had mistakenly believed to be the
owner of the land.72
Based on the aforecited special cases,
Article 448 applies to the present factual
milieu. The established facts of this case
show that respondents fully consented to
the
improvements
introduced
by

petitioners. In fact, because the children


occupied the lots upon their invitation, the
parents certainly knew and approved of
the construction of the improvements
introduced thereon.73 Thus, petitioners
may be deemed to have been in good faith
when they built the structures on those
lots.
The instant case is factually similar to
Javier v. Javier.74 In that case, this Court
deemed the son to be in good faith for
building the improvement (the house) with
the knowledge and consent of his father, to
whom belonged the land upon which it was
built. Thus, Article 44875 was applied.
Rule on Useful Expenses
The structures built by petitioners were
"useful" improvements, because they
augmented the value or income of the bare
lots.76 Thus, the indemnity to be paid by
respondents under Article 448 is provided
for by Article 546, which we quote:

building and other improvements on the


subject lots, but only after (1) refunding
the expenses of petitioners or (2) paying
the increase in value acquired by the
properties by reason thereof. They have
the option to oblige petitioners to pay the
price of the land, unless its value is
considerably more than that of the
structures -- in which case, petitioners
shall pay reasonable rent.
In accordance with Depra v. Dumlao, 77 this
case must be remanded to the trial court
to determine matters necessary for the
proper application of Article 448 in relation
to Article 546. Such matters include the
option that respondents would take and
the amount of indemnity that they would
pay, should they decide to appropriate the
improvements on the lots. We disagree
with the CAs computation of useful
expenses, which were based only on
petitioners bare allegations in their
Answer.78
Ruling on Improvement Justified

"Art. 546. Necessary expenses shall


be refunded to every possessor; but
only the possessor in good faith may
retain the thing until he has been
reimbursed therefor.
"Useful expenses shall be refunded
only to the possessor in good faith
with the same right of retention,
the person who has defeated him in
the possession having the option of
refunding the amount of the
expenses or of paying the increase
in value which the thing may have
acquired by reason thereof."
Consequently, respondents have the right
to appropriate -- as their own -- the

While, ordinarily, the jurisdiction of the


MTCC on ejectment proceedings is limited
to the issue of physical or material
possession of the property in question, this
Court finds it necessary to abbreviate the
issue on the improvements in relation to
Article 448. First, the determination of the
parties right to those improvements is
intimately connected with the MTCC
proceedings in the light of the ejectment
of petitioners. Second, there is no dispute
that
while
they
constructed
the
improvements, respondents owned the
land. Third, both parties raised no
objection when the RTC and the CA ruled
accordingly on this matter.

Equitable considerations compel us to


settle this point immediately, pro hoc vice,
to avoid needless delay. Both parties have
already been heard on this issue; to
dillydally or equivocate would not serve
the cause of substantial justice.
Other Issues Raised
Given the foregoing rulings, it is no longer
necessary to address petitioners allegation
that the MTCC judge and respondents
lawyers should be respectively held
personally accountable for the Decision
and for filing the case.79The insinuation of
petitioners that the lawyers manipulated
the issuance of a false barangay
certification
is
unavailing.80 Their
contention that respondents did not attend
the barangay conciliation proceedings was
based solely on hearsay, which has little or
no probative value.81
WHEREFORE, the assailed Decision and
Resolution of the Court of Appeals
are AFFIRMED with
the
followingMODIFICATIONS:
1. The portion requiring Spouses
Vicente and Rosario Macasaet to
reimburse one half of the value of
the
useful
improvements,
amounting to P475,000, and the
right of Spouses Ismael and Rosita
Macasaet
to
remove
those
improvements (if the former refuses
to reimburse) is DELETED.
2. The case is REMANDED to the
court
of
origin
for
further
proceedings to determine the facts
essential to the proper application
of Articles 448 and 546 of the Civil

Code, specifically to the following


matters:
a. Spouses Vicente and
Rosario Macasaets option to
appropriate -- as their own
-- the improvements on the
lots, after paying the
indemnity, as provided under
Article 546 in relation to
Article 448 of the Civil Code;
or in requiring Spouses
Ismael and Rosita Macasaet
to pay for the value of the
lots, unless it is considerably
more than that of the
improvements, in which case
petitioners
shall
pay
reasonable rent based upon
the terms provided under
the Civil Code
b. The value of the useful
expenses
incurred
by
Spouses Ismael and Rosita
Macasaet in the construction
of the improvements on the
lots
c. The increase in value
acquired by the lots by
reason
of
the
useful
improvements
d. Spouses Vicente and
Rosario Macasaets choice of
type of indemnity to be paid
(whether b or c)
e. Whether the value of the
lots is considerably more
than
that
of
the
improvements built thereon

No pronouncement as to costs.

Assailed Decision, pp. 5-6; rollo,


pp. 213-214. MTCC Decision dated
August 27, 1998, pp. 3-4; rollo, pp.
167-168.
12

SO ORDERED.
Sandoval-Gutierrez,
Morales, JJ., concur.

Corona, and Carpio

Footnotes
1

Rollo, pp. 35-76.

13

Ibid.

14

Ibid.

Presided by Judge Jane Aurora C.


Lantion.
15

Id., pp. 209-229. Ninth Division.


Penned by Justice Mariano C. del
Castillo, with the concurrence of
Justices Ruben T. Reyes (Division
chairman) and Renato C. Dacudao
(member).
2

RTC Decision dated July 15, 1999,


pp. 4-5; rollo, pp. 173-174.
16

17

Ibid.

Assailed Decision, p. 9; rollo, p.


217.
18

Id., pp. 264-265.

Assailed Decision, p. 20; rollo, p.


228.
4

Also referred to as "Rosita" in some


parts of the records.

19

Id., pp. 10 & 218.

20

Id., pp. 11 & 219.

128 Phil. 160, September 18,


1967.
21

Id., pp. 2 & 210.


22

Respondents Complaint; rollo, pp.


85-88.

Ibid.

Assailed Decision, pp. 2-3; rollo,


pp.
210-211.
Respondents
Complaint, pp. 1-2; rollo, pp. 8586.

Assailed Decision, p. 13; rollo, p.


221.
23

Id., pp. 3-4 & 211-212. Petitioners


Answer
with
Compulsory
Counterclaim, p. 4; rollo, p. 94.
9

10

Ibid.

Presided by Assisting
Norberto P. Mercado.
11

Judge

The CA computed the total value


of the improvements at P950,000,
which represented the cost of
constructing a one-storey structure
(P700,000),
the
equipment
necessary for the construction
business (P130,000), and the cost of
filling materials (P120,000). See
Assailed Decision, p. 15; rollo, p.
223.
24

25

This case was deemed submitted


for resolution on May 13, 2003,
upon this Courts receipt of
respondents Memorandum signed
by Atty. Glenn P. Mendoza.
Petitioners Memorandum, signed by
Atty. Ismael H. Macasaet, was filed
on April 14, 2003.

33

26

Petitioners Memorandum, p. 15;


rollo, p. 432.

34

Rivera v. Rivera, 405 SCRA 466,


471, July 8, 2003; Balanon-Anicete
v. Balanon, 402 SCRA 514, 518, April
30, 2003; De Luna v. Court of
Appeals, 212 SCRA 276, 278, August
6, 1992.

35

27

Co v. Militar, GR No. 149912,


January 29, 2004.
28

Petitioners Memorandum, p. 16;


rollo, p. 433.
29

Varona v. Court of Appeals, GR


No.
124148,
May
20,
2004; Sarmiento
v.
Court
of
Appeals, 320
Phil.
146,
153,
November 16, 1995; Sumulong v.
Court of Appeals, 232 SCRA 372,
May 10, 1994.
30

Sarmiento v. Court of Appeals,


supra; Sumulong
v. Court
of
Appeals, supra.
31

Lopez v. David, GR No. 152145,


March 30, 2004; Arcal v. Court of
Appeals, 348 Phil. 813, 823, January
26, 1998; Hilario v. Court of
Appeals, 329 Phil. 202, 210, August
7, 1996; Sarmiento v. Court of
Appeals, supra; Sumulong v. Court
of Appeals, supra, p. 385.
Respondents Complaint, p. 2;
rollo, p. 86.
Id., pp. 3 & 87.

MTCC Decision dated August 27,


1998, pp. 3-4; rollo, pp. 167-168.
36

"Section 17. Judgment. If after


the trial the court finds that the
allegations of the complaint are
true, it shall render judgment in
favor of the plaintiff for the
restitution of the premises, the sum
justly due as arrears of rent or as
reasonable compensation for the
use and occupation of the premises,
attorneys fees and costs. If it finds
that said allegations are not true, it
shall render judgment for the
defendant to recover his costs. If a
counterclaim is established, the
court shall render judgment for the
sum found in arrears from either
party and award costs as justice
requires."
37

MTCC Order on the Preliminary


Conference dated July 30, 1998;
rollo, p. 108.
38

Varona v. Court of Appeals, supra;


Caiza v. Court of Appeals, 335 Phil.
1107,
1115,
February
24,
1997;Sumulong v. Court of Appeals,
supra, p. 386.
32

Petitioners Memorandum, p. 22;


rollo, p. 439.
39

Rivera v. Rivera, 405 SCRA 466,


471, July 8, 2003; Pengson v.
Ocampo Jr., 412 Phil. 860, 866,
June 29, 2001; Arcal v. Court of
Appeals, supra, p. 825; Refugia v.
Court of Appeals, 327 Phil. 982,
1010, July 5, 1996; Dakudao v.
Consolacion, 207 Phil. 750, 756,
June 24, 1983.
40

41

Ibid.

Lopez v. David, supra; Arcal v.


Court of Appeals, supra, p.
825; Villaluz v. Court of Appeals,
344 Phil. 77, 89, September 5,
1997.
42

between
petitioners
and
respondents arose. It can be readily
assumed to have transpired not
later than June 6, 1996, the date of
petitioners demand letter, which
became the subject of Civil Case
No. 0594-96 (Demand Letter; rollo,
p. 145). At any rate, an animosity
between the parties was confirmed
by respondents demand letter
dated August 13, 1997, asking
petitioners to vacate the subject
lots (rollo, p. 89), and the
subsequent filing of this case.
50

Art.777 of the Civil Code.

Caiza v. Court of Appeals, supra,


p. 1118.
51

Blacks Law Dictionary (8th ed.,


1999), p. 1525.
43

Petitioners Memorandum, pp. 4344; rollo, pp. 460-461. In a dation in


payment, property is alienated to
the creditor in satisfaction of a
debt. Such contract is governed by
the law on sales. Art. 1245 of the
Civil Code.
52

44

131 Phil. 365, March 27, 1968.

45

Id., pp. 372-373, per Sanchez, J.

MTCC Decision, dated August 27,


1998, p. 3 (rollo, p. 167); RTC
Decision, dated July 15, 1999, p. 2
(rollo, p. 171).
46

Id., p. 198. The term "may" in


Article 1197 connotes discretion on
the part of the courts to exercise
this power.
47

In an obligation with a resolutory


condition, the extinguishment of
the right acquired depends upon
the occurrence of the event that
constitutes the condition (Article
1181 of the Civil Code).
48

The records do not disclose the


exact date when the conflict
49

53

Ibid.

In the Affidavits submitted with


their Position Paper, petitioners
alleged that the execution of the
Deed of Assignment did not occur,
because their father had refused to
agree to the accounting of the
materials supplied. Petitioners
Memorandum, pp. 45-46; rollo, pp.
462-463.
54

Petitioners Memorandum, p. 44;


rollo, p. 461. The recovery
of P235,908,
which
forms
a
significant part of respondents
55

alleged P391,338 debt, is the


subject matter of Civil Case No.
0594-96.

substantive
agreements
that,
otherwise, only the client has
capacity to make.

56

Petitioners Position Paper, p. 3;


rollo, p. 111.

60

Petitioners Memorandum, p. 31;


rollo, p. 448. Petitioner challenges
the applicability of Philippine Pryce
Assurance Corp. v. Court of Appeals
(230 SCRA 164, 170, February 21,
1994 per Nocon, J.), in which this
Court reiterated the rule that
"where a party may not himself be
present at the pre-trial, and
another person substitutes for him,
or his lawyer undertakes to appear
not only as an attorney but in
substitution of the clients person,
it
is
imperative
for
that
representative or the lawyer to
have special authority to enter
into agreements which otherwise
only the client has the capacity to
make."

61

57

8 of Rule 70 of the Rules of


Court.
58

This rule on substitution of a


party through a "special authority"
can be traced to jurisprudential
pronouncements.
See
Home
Insurance Co. v. United States Lines
Co., 129 Phil. 106, 109, November
15, 1967, in which this Court held
that attorneys needed a "special
authority" to compromise litigation.
See also Development Bank of the
Phils. v. Court of Appeals, 169 SCRA
409, 413, January 26, 1989, in
which we noted that a special
authority is imperative to make

Jose C. Vitug, Civil Law Annotated


(2003), Vol. II, p. 23.
Petitioners Memorandum, pp. 3337; rollo, pp. 450-454.
62

Supra.

63

Id., p. 163, per Angeles, J.

See Depra v. Dumlao, 136 SCRA


475, 481, May 16, 1985, in which
this Court explained the philosophy
behind this provision.
64

Pada-Kilario v. Court of Appeals,


379 Phil. 515, 530, January 19,
2000; Chua v. Court of Appeals, 361
Phil. 308, 318, January 21,
1999; Balucanag v. Francisco, 207
Phil.
433,
438; Floreza
v.
Evangelista, 96 SCRA 130, 136,
February 21, 1980; Quemuel v.
Olaes, 111 Phil. 797, April 29,
1961; Alburo v. Villanueva, 7 Phil.
277, 280, January 2, 1907.
65

59

Chua v. Court of Appeals, supra;


Balucanag v. Francisco, supra;
Quemuel v. Olaes, supra; Alburo v.
Villanueva, supra. See also Edgardo
L. Paras, Civil Code of the
Philippines Annotated (14th ed.,
1999), Vol. 2, p. 212. In Pecson v.
Court of Appeals (314 Phil. 313, 322
per Davide, J.), this Court also
ruled that "Article 448 does not
apply to a case where the owner of
the land is the builder, sower, or
planter who then later loses
66

ownership of the land by sale or


donation."
Arturo
M.
Tolentino,
Commentaries and Jurisprudence on
the Civil Code of the Philippines
(1992), Vol. 2, p. 111.

opposed their construction. RTC


Decision dated July 15, 1999, p. 4;
rollo, p. 173.

67

68

160 SCRA 379, 383, April 15, 1988.

Id., pp. 382-383. Article 448 does


not apply where a co-owner builds,
plants, or sows on land owned in
common, since such co-owner does
not do so on land that he or she
does not own. See also Arturo M.
Tolentino,
Commentaries
and
Jurisprudence on the Civil Code of
the Philippines (1992), Vol. 2, p.
117.

74

Supra, note 70.

75

Then Art. 361 of the Civil Code.

Cabangis v. Court of Appeals, 200


SCRA 414, 420, August 9, 1991.
76

69

De Guzman v. Fuente, 55 Phil.


501,
503,
December
29,
1930; Aringo v. Arena, 14 Phil. 263,
268-269; Javier v. Javier, 7 Phil.
261, 267, January 2, 1907. [Cited in
Edgardo L. Paras, Civil Code of the
Philippines Annotated (14th ed.,
1999), Vol. 2, p. 211]; See also
Boyer-Roxas v. Court of Appeals,
211 SCRA 470, 488, July 15, 1992.
70

71

Supra. Also cited in National


Housing Authority v. Grace Baptist
Church, GR No. 156437, March 1,
2004; and Technogas Philippines
Manufacturing v. Court of Appeals,
335 Phil. 471, 485, February 10,
1997.
77

Assailed Decision, p. 15; rollo, p.


223. This Court also notes that
petitioners merely submitted a list
of
expenses
with
their
corresponding
costs,
without
showing any proof (e.g., actual
receipts) that these costs had been
incurred.
Petitioners
Position
Paper, p. 15, rollo, p. 123; Itemized
List of Materials, rollo, p. 588.
78

Petitioners Memorandum, pp. 4951; rollo, pp. 466-468.


79

129 SCRA 122, April 30, 1984.


80

72

Id., p. 125.
This contention was based on
information
from
an
alleged
barangay councilor of Banay-banay
that no conciliation had transpired
on October 14, 1997, the scheduled
date. Petitioner Teresita Macasaets
Affidavit; rollo, p. 77. In a letter
dated October 14, 1997, addressed
to the barangay captain, it appears
81

The RTC observed that petitioners


had merely been invited by the
parents (respondents) to transfer to
the premises. Considering that the
parties were living near one other,
it was readily assumed that
respondents had known of the
structures built and had not
73

Id., pp. 51 & 468.

that petitioners waived their


presence
at
the
conciliation
proceedings. Rollo, p. 103.

GANCAYCO, J.:p
Between the one who has actual possession
of an island that forms in a non-navigable
and non-flotable river and the owner of the
land along the margin nearest the island,
who has the better right thereto? This is
the issue to be resolved in this petition.
The parties to this case dispute the
ownership of a certain parcel of land
located in Sta. Cruz, Tagoloan, Misamis
Oriental with an area of 16,452 square
meters, more or less, forming part of an
island in a non-navigable river, and more
particularly described by its boundaries as
follows:

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION

G.R. No. 94283 March 4, 1991


MAXIMO
JAGUALING,
ANUNCITA
JAGUALING and MISAMIS ORIENTAL
CONCRETE PRODUCTS, INC.,petitioners,
vs.
COURT
OF
APPEALS
(FIFTEENTH
DIVISION), JANITA F. EDUAVE and
RUDYGONDO EDUAVE, respondents.
Cabanlas, Resma & Cabanlas Law Offices
for petitioners.
Jaime Y Sindiong for private respondents.

North by
the Tagoloan
River,
South by
the Tagoloan
River,
East by the
Tagoloan River
and
West by the
portion
belonging to
Vicente Neri.
Private respondents filed with the Regional
Trial Court of Misamis Oriental 1 an action
to quiet title and/or remove a cloud over
the
property
in
question
against
petitioners.
Respondent Court of Appeals 2 summarized
the evidence for the parties as follows:

The
appellant
[private
respondent Janita Eduave]
claims that she inherited the
land from his [sic] father,
Felomino Factura, together
with his co-heirs, Reneiro
Factura
and
Aldenora
Factura, and acquired sole
ownership of the property by
virtue of a Deed of Extra
Judicial Partition with sale
(Exh. D). The land is
declared for tax purposes
under Tax Decl. No. 26137
(Exh. E) with an area of
16,452 square meters more
or less (Exh. D). Since the
death of her father on May
5, 1949, the appellant had
been in possession of the
property although the tax
declaration remains in the
name of the deceased
father.

was not eroded increased


the area to almost half a
hectare and in 1970 the
appellant started to plant
bananas [sic].

The appellants further state


that the entire land had an
area of 16,452 square
meters appearing in the
deed
of
extrajudicial
partition, while in [the] tax
declaration (Exh. E) the area
is only 4,937 square meters,
and she reasoned out that
she included the land that
was under water. The land
was eroded sometime in
November 1964 due to
typhoon Ineng, destroying
the bigger portion and the
improvements leaving only a
coconut tree. In 1966 due to
the movement of the river
deposits on the land that

The land was the subject of


a reconveyance case, in the
Court of First Instance of
Misamis Oriental, Branch V,
at Cagayan de Oro City, Civil
Case No. 5892, between the
appellant Janita Eduave vs.
Heirs
of
Antonio
Factura which
was
the
subject of judgment by
compromise in view of the
amicable settlement of the
parties, dated May 31, 1979.
(Exh. R);

In 1973 the defendantsappellees


[petitioners
herein] asked her permission
to plant corn and bananas
provided that they prevent
squatters to come to the
area.
The appellant engaged the
services of a surveyor who
conducted a survey and
placed concrete monuments
over the land. The appellant
also paid taxes on the land
in litigation, and mortgaged
the land to the Luzon Surety
and Co., for a consideration
of P6,000.00.

That the heirs of Antonio


Factura, who are presently
the defendants-appellees in
this case had ceded a

portion of the land with an


area of 1,289 square meters
more or less, to the
appellant, Janita Eduave, in
a notarial document of
conveyance, pursuant to the
decision of the Court of First
Instance, after a subdivision
of the lot No. 62 Pls-799,
and containing 1,289 square
meters more or less was
designated as Lot No. 62-A
[sic], and the subdivision
plan was approved as Pls799-Psd-10-001782. (Exh. R;
R-1 and R-2);

001782;
on
the E by line
1-2 by Lot 64;
Pls-799;
on
the S, along
line 2-3-4 by
Saluksok
Creek,
containing an
area of one
thousand two
hundred
eighty
nine
(1,289) square
meters more
or less.

The portion Lot No. 62-A, is


described as follows:

Appellant also applied for


concession with the Bureau
of Mines to extract 200 cubic
meters of gravel (Exh. G &
G-1); and after an ocular
inspection the permit was
granted (Exh. K, and K-1 and
K-2). That the appellant
after permit was granted
entered into an agreement
with Tagoloan Aggregates to
extract sand and gravel
(Exh. L; L-1; and L-2), which
agreement was registered in
the office of the Register of
Deeds (Exh. M; M-1; and M2);

A parcel of
land (Lot No.
62-A, Psd-10001782 being
a portion of
Lot 62, Pls799, Tagoloan
Public
Land
Subdivision)
situated
in
Bo. Sta. Cruz,
Municipality
of Tagoloan,
Province
of
Misamis
Oriental.
Bounded
on
the W, and on
the N along
lines 4-5-1 by
Lot 62-B of
the
subdivision
plan
10-

The
defendants-appellees
[petitioners herein] denied
the claim of ownership of
the appellant, and asserted
that they are the real
owners of the land in
litigation containing an area
of 18,000 square meters
more or less. During the

typhoon Ineng in 1964 the


river control was washed
away causing the formation
of an island, which is now
the land in litigation. The
defendants
started
occupying the land in 1969,
paid land taxes as evidenced
by tax declaration No. 26380
(Exh. 4) and tax receipts
(Exhs. 7 to 7-G), and tax
clearances (Exhs. 8 & 9).
Photographs showing the
actual occupation of the
land by the defendants
including improvements and
the house were presented as
evidence (Exh. 11 to 11-E).
The
report
of
the
Commissioner
who
conducted
the
ocular
inspection was offered as
evidence of the defendants
(Exh. G).
The sketch plan prepared by
Eng. Romeo Escalderon (Exh.
12) shows that the plaintiffs'
[private respondents'] land
was across the land in
litigation (Exh. 12-A), and in
going to the land of the
plaintiff, one has to cross a
distance of about 68 meters
of the Tagoloan river to
reach the land in litigation. 3
On 17 July 1987 the trial court dismissed
the complaint for failure of private
respondents as plaintiffs therein to
establish by preponderance of evidence
their claim of ownership over the land in
litigation. The court found that the island
is a delta forming part of the river bed

which the government may use to reroute,


redirect or control the course of the
Tagoloan River. Accordingly, it held that it
was outside the commerce of man and part
of the public domain, citing Article 420 of
the Civil Code. 4 As such it cannot be
registered under the land registration law
or be acquired by prescription. The trial
court, however, recognized the validity of
petitioners' possession and gave them
preferential rights to use and enjoy the
property. The trial court added that should
the State allow the island to be the subject
of private ownership, the petitioners have
rights better than that of private
respondents. 5
On appeal to the Court of Appeals,
respondent court found that the island was
formed by the branching off of the
Tagoloan River and subsequent thereto the
accumulation of alluvial deposits. Basing
its ruling on Articles 463 and 465 of the
Civil Code 6 the Court of Appeals reversed
the decision of the trial court, declared
private respondents as the lawful and true
owners of the land subject of this case and
ordered petitioners to vacate the premises
and deliver possession of the land to
private respondents. 7
In the present petition, petitioners raise
the following as errors of respondent
court, to wit:
1.
Whether
[or
not]
respondent court correctly
applied the provisions of
Articles 463 and 465 of the
new Civil Code to the facts
of the case at bar; and
2.
Whether
[or
not]
respondent court gravely

abused its discretion in the


exercise of its judicial
authority in reversing the
decision appealed from. 8
Petitioners point out as merely speculative
the finding of respondent court that the
property of private respondents was split
by the branching off or division of the
river. They argue that because, as held by
the trial court, private respondents failed
to prove by preponderance of evidence the
identity of their property before the same
was divided by the action of the river,
respondent court erred in applying Article
463 of the Civil Code to the facts of this
case.
It must be kept in mind that the sole issue
decided by respondent court is whether or
not the trial court erred in dismissing the
complaint
for
failure
of
private
respondents (plaintiffs below] to establish
by preponderance of evidence their claim
of ownership over the island in question.
Respondent court reversed the decision of
the trial court because it did not take into
account the other pieces of evidence in
favor of the private respondents. The
complaint was dismissed by the trial court
because it did not accept the explanation
of private respondents regarding the initial
discrepancy as to the area they
claimed: i.e., the prior tax declarations of
private respondents refer to an area with
4,937 square meters, white the Extrajudicial Partition with Sale, by virtue of
which private respondents
acquired
ownership of the property, pertains to land
of about 16,452 square meters.
The trial court favored the theory of
petitioners that private respondents
became interested in the land only in 1979

not for agricultural purposes but in order


to extract gravel and sand. This, however,
is
belied
by
other
circumstances
tantamount to acts of ownership exercised
by private respondents over the property
prior to said year as borne out by the
evidence, which apparently the trial court
did not consider at all in favor of private
respondents. These include, among others,
the payment of land taxes thereon, the
monuments placed by the surveyor whose
services were engaged by the private
respondent, as evidenced by the pictures
submitted as exhibits, and the agreement
entered into by private respondents and
Tagoloan Aggregates to extract gravel and
sand, which agreement was duly registered
with the Register of Deeds.
Private respondents also presented in
evidence
the
testimony
of
two
disinterested witnesses: Gregorio Neri who
confirmed the metes and bounds of the
property of private respondents and the
effects of the typhoon on the same, and
Candida Ehem who related on the
agreement between private respondents
and petitioners for the latter to act as
caretakers of the former. 9 The trial court
disregarded their testimony without
explaining why it doubted their credibility
and instead merely relied on the selfserving denial of petitioners. 10
From the evidence thus submitted,
respondent court had sufficient basis for
the finding that the property of private
respondents actually existed and was
Identified prior to the branching off or
division of the river. The Court of Appeals,
therefore, properly applied Article 463 of
the Civil Code which allows the ownership
over a portion of land separated or isolated
by river movement to be retained by the

owner thereof prior to such separation or


isolation. 11
Notwithstanding
the
foregoing
and
assuming arguendo as
claimed
by
petitioners that private respondents were
not able to establish the existence and
identity of the property prior to the
branching off or division of the Tagoloan
River, and hence, their right over the
same, private respondents are nevertheless
entitled under the law to their respective
portion of the island.
It is clear petitioners do not dispute that
the land in litigation is an island that
appears in a non-flotable and nonnavigable river; they instead anchor their
claim on adverse possession for about
fifteen years. It is not even controverted
that private respondents are the owners of
a parcel of land along the margin of the
river and opposite the island. On the other
hand, private respondents do not dispute
that the island in question has been in the
actual physical possession of petitioners;
private respondents insist only that such
possession by petitioners is in the concept
of caretakers thereof with the permission
of private respondents.
This brings Us, as phrased earlier in this
opinion, to the underlying nature of the
controversy in this case: between the one
who has actual possession of an island that
forms in a non-navigable and non-flotable
river and the owner of the land along the
margin nearest the island, who has the
better light thereto?
The parcel of land in question is part of an
island that formed in a non-navigable and
non-flotable river; from a small mass of
eroded or segregated outcrop of land, it

increased to its present size due to the


gradual and successive accumulation of
alluvial deposits. In this regard the Court
of Appeals also did not err in applying
Article 465 of the Civil Code. 12 Under this
provision, the island belongs to the owner
of the land along the nearer margin as sole
owner thereof; or more accurately,
because the island is longer than the
property of private respondents, they are
deemed ipso jure to be the owners of that
portion which corresponds to the length of
their property along the margin of the
river.
What then, about the adverse possession
established by petitioners? Are their rights
as such not going to be recognized? It is
well-settled that lands formed by accretion
belong to the riparian owner. 13 This
preferential right is, under Article 465, also
granted the owners of the land located in
the margin nearest the formed island for
the reason that they are in the best
position to cultivate and attend to the
exploitation of the same. 14 In fact, no
specific act of possession over the
accretion is required. 15 If, however, the
riparian owner fails to assert his claim
thereof, the same may yield to the adverse
possession of third parties, as indeed even
accretion to land titled under the torrens
system must itself still be registered. 16
Petitioners may therefore, acquire said
property by adverse possession for the
required plumber of years under the
doctrine of acquisitive prescription. Their
possession cannot be considered in good
faith, however, because they are presumed
to have notice of the status of private
respondents as riparian owners who have
the preferential right to the island as
recognized and accorded by law; they may

claim ignorance of the law, specifically


Article 465 of the Civil Code, but such is
not, under Articles 3 and 526 of the same
code, an adequate and valid defense to
support their claim of good faith. 17 Hence,
not qualifying as possessors in good faith,
they may acquire ownership over the island
only
through
uninterrupted
adverse
possession for a period of thirty years. 18 By
their own admission, petitioners have been
in possession of the property for only about
fifteen years. Thus, by this token and
under the theory adopted by petitioners,
the island cannot be adjudicated in their
favor.

pertains to the State.20 However, We are


also well aware that this petition is an
upshot of the action to quiet title brought
by the private respondents against
petitioners. As such it is not technically an
action in
rem or
an
action in
personam, but characterized as quasi in
rem which
is
an
action in
personam concerning
real
property. 22 Thus,
the
judgment
in
proceedings of this nature is conclusive
only between the parties 23 and does not
bind the State or the other riparian owners
who may have an interest over the island
involved herein.

This case is not between parties as


opposing riparian owners contesting
ownership over an accession but rather
between a riparian owner and the one in
possession of the island. Hence, there is no
need to make a final determination
regarding
the
origins
of
the
island, i.e., whether the island was initially
formed by the branching off or division of
the river and covered by Article 463 of the
Civil Code, in which case there is strictly
no accession because the original owner
retains ownership, or whether it was due
to the action of the river under Article 465,
or, as claimed by petitioners, whether it
was caused by the abrupt segregation and
washing away of the stockpile of the river
control, which makes it a case of avulsion
under Article 459. 19

WHEREFORE, We find no error committed


by respondent court and DENY the petition
for lack of sufficient merit. The decision of
respondent Court of Appeals is hereby
AFFIRMED, without pronouncement as to
costs.

We are not prepared, unlike the trial


court, to concede that the island is a delta
which should be outside the commerce of
man and that it belongs to the State as
property of the public domain in the
absence of any showing that the legal
requirements to establish such a status
have been satisfied, which duty properly

SO ORDERED.
Narvasa,
Cruz,
Grio-Aquino
Medialdea, JJ., concur.

and

Footnotes
1 Civil Case No. 5890, 10th
Judicial Region, Branch 22,
Cagayan de Oro City, the
Hon. Alfredo J. Lagamon,
Presiding Judge.
2
Fifteenth
Division,
composed of Justices Gloria
C. Paras as Chairperson,
Bonifacio A. Cacdac, Jr.,
as ponente, and Serafin V. C.

Guingona, CA-G.R. CV No.


17419, 15 June 1990.
3 Rollo, pp. 16-18.
4 Art, 420. The following
things are property of public
dominion
(1) Those intended for public
use, such as roads, canals,
rivers, torrents, ports and
bridges constructed by the
State,
banks,
shores,
roadsteads, and others of
similar character;

of the margins or banks


nearest to each of them, or
to the owners of both
margins if the island is in the
middle of the river, in which
case it shall be divided
longitudinally in halves. If a
single island thus formed be
more distant from one
margin than from the other,
the owner of the nearer
margin shall be the sole
owner thereof.
7 Rollo, p. 19.
8 Rollo, p. 8.

(2) Those which belong to


the State, without being for
public use, and are intended
for some public service or
for the development of the
national wealth.
5 RTC Decision, Rollo, p.
32, et seq.
6 Art. 463. Whenever the
current of a river divides
itself into branches, leaving
a piece of land or part
thereof isolated, the owner
of the land retains his
ownership. He also retains it
if a portion of land is
separated from the estate
by the current.
Art. 465. Islands which
through
successive
accumulation of alluvial
deposits are formed in nonnavigable and non-flotable
rivers, belong to the owners

9 Rollo, pages 25-26.


10 Rollo, page 32.
11 See note 6, supra.
12 See note 6, supra.
13
For
the
rationale
thereof, see 2 A. Tolentino,
Commentaries
and
Jurisprudence on the Civil
Code of the Philippines, pp.
116-117
(1983); see
also Tuason v. CA, 147 SCRA
37 [1987].
14 Id., at
Manresa 263.

129, citing 3

15 Roxas v. Tuazon, 9 Phil.


408 [1907] and Cortes v. City
of Manila, 10 Phil. 567
[1908], as cited in 2 A.
Tolentino, Id., at 118-119.

16 Ignacio Grande, et al., v.


CA, G.R. No. 1 7652, 115
Phil. 521, 5 SCRA 524 [1962].

ownership of it, provided


that he removes the same
within two years.

17 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.

20 Under Article 175 of the


Spanish Law of Waters [3
August 1866], the State has
the duty to declare which
rivers are navigable and
which are not. The present
law, Presidential Decree No.
1067
entitled A
Decree
Instituting a Water Code,
Thereby
Revising
and
Consolidating
the
Laws
Governing the Ownership,
Appropriation, Utilization,
Exploitation, Development,
Conservation and Protection
of Water Resources [73
O.G. 3554,
1976], under
Article 59 thereof, provides
that rivers, lakes and
lagoons may, upon the
recommendation
of
the
Philippines Coast Guard, be
declared navigable either in
whole or in part.

He is deemed a possessor in
bad faith who possesses in
any case contrary to the
foregoing.
Mistake upon a doubtful or
difficult question of law may
be the basis of good faith.
Art. 3. Ignorance of the law
excuses
no
one
from
compliance therewith.
18 The Civil Code provides:
Art. 1137. Ownership and
other real rights over
immovables also prescribe
through
uninterrupted
adverse possession thereof
for thirty years, without
need of title or of good
faith.
19 Art. 459. Whenever the
current of a river, creek or
torrent segregates from an
estate on its bank a known
portion of land and transfers
it to another estate, the
owner of the land to which
the
segregated
portion
belonged
retains
the

21 Realty Sales Enterprise,


Inc.
v.
Intermediate
Appellate Court, 154 SCRA
328 [1987], citingMcDaniel v.
McElvy 108 So. 820 [1926].
22 2 E. Paras, Civil Code of
the Philippines Annotated, p.
255 (12th ed., 1989).
23 Realty Sales Enterprise v.
Intermediate
Appellate
Court, supra., citing Sandeja
s v. Robles, 81 Phil. 421
[1948].

The Case
Before us is a Petition for Review1 under
Rule 45 of the Rules of Court, seeking to
set aside the June 27, 2000 Decision 2 and
the January 22, 2001 Resolution3 of the
Court of Appeals4 (CA) in CA-GR SP No.
54667. The dispositive part of the Decision
reads:
"WHEREFORE, the [P]etition is
GRANTED and the RTC [D]ecision
dated 06 May 1999 and the RTC
[O]rder dated 03 August 1999 are
hereby REVERSED and SET ASIDE,
and corollarily, the MCTC [D]ecision
is AFFIRMED." 5
The assailed Resolution denied petitoners
Motion for Reconsideration.
The Facts
The factual antecedents are summarized
by the CA as follows:
Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION
G.R. No. 146815

April 9, 2003

HEIRS OF PEDRO LAURORA and LEONORA


LAURORA, petitioners,
vs.
STERLING TECHNOPARK III and S.P.
PROPERTIES, INC., respondents.
PANGANIBAN, J.:
The owners of a property have no authority
to use force and violence to eject alleged
usurpers who were in prior physical
possession of it. They must file the
appropriate action in court and should not
take the law into their own hands.

"In a [C]omplaint for Forcible Entry


with
Damages
filed
on
27
September 1997 before the Fifth
Municipal Circuit Trial Court of
Carmona and Gen. Mariano Alvarez,
plaintiffs therein, x x x Pedro
Laurora and Leonora Laurora
[herein petitioners] alleged that
they [were] the owners of Lot 1315G, SWD-40763 of the Yaptinchay
Estate with an area of 39,771 sq.
meters and located in Carmona,
Cavite. Pedro Laurora planted trees
and has possessed the land up to
the present. On 15 September 1997,
[respondents] Sterling Technopark
III and S.P. Properties, Inc. x x x
through
their
Engr.
Bernie
Gatchalian bulldozed and uprooted
the trees and plants, and with the
use of armed men and by means of
threats and intimidation, succeeded
in forcibly ejecting [petitioners]. As
a result of their dispossession,

[petitioners]
suffered
actual
damages in the amount of
P3,000,000.00 and P10,000.00 as
attorneys fees.
"In
their
[A]nswer
to
the
[C]omplaint, [respondents] averred
that [petitioners were] not the
owners of the land because they
disposed of it sometime in 1976 as
shown by legal documents. On 02
April 1969, the Land Authority
issued an order of award in favor of
[petitioners],
approving
the
application of Pedro Laurora to buy
the subject Lot 1315-G from the
government. On 01 March 1974,
[petitioners]
requested
the
Department of Agrarian Reform for
the transfer of the lot to Juan
Manaig. Favorably acted upon, the
DAR issued a permit to transfer
dated 03 June 1975 through its
Regional Director Benjamin R.
Estrellado. On 03 July 1975, Juan
Manaig, as transferee and buyer,
paid the required amount of
P10,643.65 under Official Receipt
No. 8304707 to the government as
full payment for the transfer of said
lot to him. On 26 March 1976, the
[petitioners]
as
sellers
and
witnessed by their sons, Efren
Laurora and Dominador Laurora,
executed
a
Kasulatan
ng
Paglilipatan ng Lupa transferring
the land to Juan Manaig as buyer.
On 11 June 1976, the [petitioners]
again witnessed by their sons, Efren
and
Dominador,
executed
a
Kasulatan ng Bilihang Tuluyan or
Deed of Sale wherein they sold Lot
1315-G including all improvements
therein, in favor of Juan Manaig.
The Deed of Absolute Sale was
approved by the Department of
Agrarian Reform on 14 June 1976 in
DAR Approval of Transfer of Rights
signed by DAR Regional Director,
Benjamin R. Estrellado. After the

approval of the sale from the


[petitioners] to Juan Manaig, the
latter paid its real estate taxes. The
tax declarations of the land in the
name of its previous owners,
Yaptinchays, were cancelled and
transferred in the name of
[petitioner] Pedro Laurora as
owner-transferee. Thereupon, the
heirs of the late JUAN MANAIG
sold the land to Golden Mile
Resources Development Corporation
which
likewise
sold
it
to
[respondent] S. P. Properties, Inc.
"After summary proceedings in the
MCTC, x x x, a judgment was
rendered dismissing the complaint.
The case was elevated to the
Regional Trial Court. In due course,
the said court rendered a decision
reversing the MCTC judgment. x x
x"6
Ruling of the Court of Appeals
The CA reversed the Regional Trial Court
(RTC) and reinstated the Order of dismissal
issued by the Municipal Circuit Trial Court
(MCTC). It held that there was no evidence
to support the claim of petitioners to the
prior physical possession of the property.
The evidence allegedly showed that they
had already sold the land with the approval
of the Department of Agrarian Reform
(DAR). Accordingly, their subsequent entry
into and possession of the land constituted
plain usurpation, which could not be the
source of any right to occupy it. Being
planters in bad faith, they had no right to
be reimbursed for improvements on the
land, in accordance with Article 449 of the
New Civil Code.
Hence, this Petition.7
The Issue
In their Memorandum,8 petitioners raise
this sole issue for our consideration:

"x
x
x
[W]hether
[p]rivate
[r]espondent[s] ha[ve] a valid and
legal right to forcibly eject
petitioners from the premises
despite
their
resistance
and
objection, through the use of
arm[ed] men and by bulldozing,
cutting, and destroying trees and
plants planted by petitioners,
without court order, to the damage
and prejudice of the latter."9
The Courts Ruling
The Petition is meritorious.
Main
Physical Possession of the Land

Issue:

The only issue in forcible entry cases is the


physical or material possession of real
property -- possession de facto, not
possession de jure.10 Only prior physical
possession, not title, is the issue.11 If
ownership is raised in the pleadings, the
court may pass upon such question, but
only to determine the question of
possession.12
The ownership claim of respondents upon
the land is based on the evidence they
presented. Their evidence, however, did
not squarely address the issue of prior
possession. Even if they succeed in proving
that they are the owners of the land, 13 the
fact remains that they have not alleged or
proved that they physically possess it by
virtue of such ownership. On the other
hand, petitioners prior possession of the
land was not disputed by the CA, which
merely described it as usurpation.14
We stress that the issue of ownership in
ejectment cases is to be resolved only
when it is intimately intertwined with the
issue of possession,15 to such an extent that
the question of who had prior possession
cannot be determined without ruling on
the question of who the owner of the land
is.16 No such intertwinement has been

shown in the case before us. Since


respondents claim of ownership is not
being made in order to prove prior
possession, the ejectment court cannot
intrude or dwell upon the issue of
ownership.17
Notwithstanding the actual condition of
the title to the property, a person in
possession cannot be ejected by force,
violence or terror -- not even by the
owners.18 If such illegal manner of
ejectment is employed, as it was in the
present case, the party who proves prior
possession -- in this case, petitioners -- can
recover possession even from the owners
themselves. 19
Granting arguendo that petitioners illegally
entered into and occupied the property in
question, respondents had no right to take
the law into their own hands and
summarily or forcibly eject the occupants
therefrom.
Verily, even if petitioners were mere
usurpers
of
the
land
owned
by
respondents, still they are entitled to
remain on it until they are lawfully ejected
therefrom.
Under
appropriate
circumstances, respondents may file, other
than an ejectment suit, an accion
publiciana -- a plenary action intended to
recover the better right to possess;20 or
anaccion reivindicatoria -- an action to
recover ownership of real property.21
The availment of the aforementioned
remedies is the legal alternative to prevent
breaches of peace and criminal disorder
resulting from the use of force by
claimants out to gain possession.22 The rule
of law does not allow the mighty and the
privileged to take the law into their own
hands to enforce their alleged rights. They
should go to court and seek judicial
vindication.

WHEREFORE, the Petition is GRANTED and


the assailed Decision REVERSED and SET
ASIDE. No costs.
SO ORDERED.
Puno, Sandoval-Gutierrez, Corona, and
Carpio-Morales, JJ., concur.

28, 2000; Diu v. Ibajan, 322 SCRA


452, January 19, 2000; Carreon v.
Court of Appeals, 353 Phil. 271,
June 22, 1998; Dizon v. Court of
Appeals, 332 Phil. 429, November
19, 1996; Hilario v. Court of
Appeals, 329 Phil. 202, August 7,
1996.
German
Management
and
Services, Inc. v. Court of Appeals,
177 SCRA 495, September 14,
1989;Ganadin v. Ramos, 99 SCRA
613, September 11, 1980; Baptista
v. Carillo, 72 SCRA 214, July 30,
1976.
11

Footnotes
1

Rollo, pp. 10-22.

Id., pp. 24-29.

Rollo, p. 31.

Special Seventh Division. Written


by
Justice
Buenaventura
J.
Guerrero
(Division
chairman),
concurred in by Justice Martin S.
Villarama Jr. and Justice Mercedes
Gozo-Dadole.
4

Assailed CA Decision, p. 6; rollo,


p. 29.
5

Id., pp. 2-3 & 25-26.

This case was deemed submitted


for decision on November 13, 2001,
upon the Courts receipt of
petitioners Memorandum signed by
Atty.
Franco
L.
Loyola.
Respondents Memorandum, filed on
November 12, 2001, was signed by
Atty. Benjamin E. Mendoza.
7

Rollo, pp. 123-142.

Petitioners Memorandum, p. 5;
rollo, p. 127.
9

Go Jr. v. Court of Appeals, 362


SCRA 755, August 14, 2001; Amagan
v. Marayag, 326 SCRA 581, February
10

16 of Rule 70 of the 1997 Rules


of Court; Diu v. Ibajan, supra; Dizon
v. Court of Appeals, supra.
12

In their Memorandum, petitioners


claim that the issue of ownership
over the property "is still with the
DARAB of Cavite."
13

Assailed CA Decision, p. 5; rollo,


p. 28.
14

Paz v. Reyes, 327 SCRA 605, March


9, 2000; Vda. de Cruz v. Court of
Appeals, 363 Phil. 539, March 4,
1999.
15

Refugia v. Court of Appeals, 327


Phil. 982, July 5, 1996.
16

17

Id., p. 1006.

Muoz v. Court of Appeals, 214


SCRA
216,
September
23,
1992; Joven v. Court of Appeals,
212
SCRA
700,
August
20,
1992; German Management and
Services, Inc. v. Court of Appeals,
supra.; Supia
and
Batioco
v.
Quintero and Ayala, 59 Phil. 312,
December 23, 1933.
18

Gener v. de Leon, 367 SCRA 631,


October 19, 2001; Ceremonia v.
Court of Appeals, 314 SCRA 731,
September 21, 1999; Gachon v.
Devera, 274 SCRA 540, June 20,
1997.
19

Arcal v. Court of Appeals, 348


Phil. 813, January 26, 1998; Chico
v. Court of Appeals, 348 Phil. 37,
January
5,
1998; Ybaez
v.
Intermediate Appellate Court, 194
SCRA
743,
March
6,
1991; Concepcion v. Presiding Judge
et al., 204 Phil. 564, December 15,
1982.

ESCRITOR, ALFREDO ESCRITOR, SUSANA


ESCRITOR
and
CARMEN
ESCRITOR, petitioners,
vs.
INTERMEDIATE APPELLATE COURT and
SIMEON ACUNA, respondents.

20

Evadel Realty and Development


Corporation v. Soriano, 357 SCRA
395, April 20, 2001; Vda. de
Villanueva v. Court of Appeals, 351
SCRA 12, February 1, 2001; Bishop
of Cebu v. Mangaron, 6 Phil. 286,
June 1, 1906.
21

Villaflor v. Reyes, 22 SCRA 392,


January 30, 1968; Pitargue v.
Sorilla, 92 Phil. 5, September 17,
1952.
22

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 71283 November 12, 1987
MIGUEL ESCRITOR, JR., ANGEL ESCRITOR,
RAMON ESCRITOR, JUANA ESCRITOR,
CONCORDIA ESCRITOR, IRENE ESCRITOR,
MATILDE ESCRITOR, MERCEDES ESCRITOR,
HEIRS OF LUIS ESCRITOR, represented by
RUPERTO ESCRITOR, HEIRS OF PEDO
ESCRITOR, represented by SUSANA
VILLAMENA, LINA ESCRITOR, WENDELINA

GANCAYCO, J.:
This is a petition for review on certiorari
seeking the reversal of the decision of the
Intermediate Appellate Court in AC-G.R.
No. CV-01264-R entitled "Simeon Acuna vs.
Miguel Escritor, Jr., et al," a case which
originated from the Court of First Instance
of Quezon.
The record of the case discloses the
following facts:
Lot No. 2749, located at Atimonan,
Quezon, was the subject of cadastral
proceedings in the Court of First Instance
of Quezon, Gumaca Branch, Miguel
Escritor, as claimant, filed an answer
thereto declaring his ownership over the
lot alleging that he acquired it by
inheritance from his deceased father. 1 As
required, a notice of hearing was duly
published, after which an order of general
default was entered. 2 The lot having
become uncontested, only Miguel Escritor
appeared in order to adduce his evidence
of ownership.
On May 15, 1958, the Court rendered a
decision in the abovementioned case,
Cadastral Case No. 72, adjudicating the lot
with its improvements in favor of claimant
Escritor
and
confirming
his
title
thereto. 3 Immediately thereafter, Escritor
took possession of the property. On July

15, 1958, the Court, in an Order, directed


the Chief of the General Land Registration
Office to issue the corresponding decree of
registration in favor of Escritor, the
decision in Cadastral Case No. 72 having
become final. 4
On August 2, 1958, Simeon S. Acuna, the
herein respondent, filed a petition for
review of the above-mentioned decision
contending that it was obtained by
claimant Escritor through fraud and
misrepresentation. 5 The
petition
was
granted on July 18, 1960 and a new hearing
was set for September 13, 1960. 6 While
the proceedings were going on, claimant
Escritor died. His heirs, the petitioners in
this case, took possession of the property.
On February 16, 1971 or thirteen years
after the disputed decision was rendered,
the Court adjudicated Lot No. 2749 in
favor of respondent Acuna, ordering
petitioners to vacate the land. 7 A writ of
possession was later issued and petitioners
voluntarily gave up their possession. 8
More than four years later, or on October
13, 1975 respondent Acuna filed with the
same Court in Civil Case No. 1138-G, a
complaint for recovery of damages against
petitioners for the fruits of lot No. 2749
which was allegedly possessed by the latter
unlawfully for thirteen years. According to
respondent Acua, the registration of the
said lot was effectuated by the deceased
claimant Escritor through fraud, malice,
and misrepresentation. The lower court,
however, rendered a decision dismissing
Acua's complaint for damages, finding
that though petitioners enjoyed the fruits
of the property, they were in good faith
possessing under a just title, and the cause

of action, if there was any, has already


prescribed. 9
On Appeal to the Intermediate Appellate
Court, the judgment of the lower court
was reversed in a decision promulgated on
October 31, 1984, the dispositive portion
of which reads:
WHEREFORE, in view of the
foregoing
considerations,
the decision appealed from
is hereby REVERSED and set
aside and another one
entered herein, ordering the
defendants-appellees jointly
and severally (a) to pay the
plaintiff- appellant the sum
of P10,725.00 representing
the value of the fruits
appellees received for the
13 years they have been in
unlawful possession of the
land subject-matter; (b) to
pay plaintiff-appellant the
sum
of
P3,000.00
for
attorney's fees and expenses
of litigation, and (c) to pay
the costs.
Hence this petition.
The main issue that has to be resolved in
this case is whether or not petitioners
should be held liable for damages.
Contrary to the finding of the trial court,
the Intermediate Appellate Court made the
pronouncement that petitioners were
possessors in bad faith from 1958 up to
1971 and should be held accountable for
damages. This conclusion was based on the
statement of the cadastral court in its
August 21, 1971 decision, readjudicating

Lot No. 2749 to respondent Simeon Acuna,


that "Miguel Escritor forcibly took
possession of the land in May, 1958, and
benefited from the coconut trees
thereon. 10 The Intermediate Appellate
Court observed that on the basis of the
unimpeached conclusion of the cadastral
court, it must be that the petitioners have
wrongfully entered possession of the
land. 11 The Intermediate Appellate Court
further explains that as such possessors in
bad faith, petitioners must reimburse
respondent Acuna for the fruits of the land
they
had
received
during
their
possession. 12
We cannot affirm the position of the
Intermediate Appellate Court. It should be
remembered that in the first decision of
the cadastral court dated May 15, 1958,
Lot No. 2749 was adjudicated in favor of
claimant Escritor, petitioners' predecessorin-interest. In this decision, the said court
found to its satisfaction that claimant
Escritor acquired the land by inheritance
from his father who in turn acquired it by
purchase, and that his open, public,
continuous,
adverse,
exclusive
and
notorious possession dated back to the
Filipino-Spanish Revolution. 13 It must also
be recalled that in its Order for the
issuance of decrees dated July 15, 1958,
the same Court declared that the abovementioned decision had become final.
Significantly, nowhere during the entire
cadastral proceeding did anything come up
to suggest that the land belonged to any
person other than Escritor.
On the basis of the aforementioned
favorable judgment which was rendered by
a court of competent jurisdiction, Escritor
honestly believed that he is the legal
owner of the land. With this well-grounded

belief of ownership, he continued in his


possession of Lot No. 2749. This cannot be
categorized as possession in bad faith.
As defined in the law, a possessor in bad
faith is one in possession of property
knowing that his title thereto is
defective. 14 Here, there is no showing
that Escritor knew of any flaw in his title.
Nor was it proved that petitioners were
aware that the title of their predecessor
had any defect.
Nevertheless, assuming that claimant
Escritor was a possessor in bad faith, this
should not prejudice his successors-ininterest, petitioners herein, as the rule is
that only personal knowledge of the flaw in
one's title or mode of acquisition can make
him a possessor in bad faith, for bad faith
is not transmissible from one person to
another, not even to an heir. 15 As Article
534 of the Civil Code explicitly provides,
"one who succeeds by hereditary title shall
not suffer the consequences of the
wrongful possession of the decedent, if it
is not shown that he was aware of the
flaws affecting it; ..." The reason for this
article is that bad faith is personal and
intransmissible.
Its
effects
must,
therefore, be suffered only by the person
who acted in bad faith; his heir should not
be saddled with such consequences. 16
Under Article 527 of the Civil Code, good
faith is always presumed, and upon him
who alleges bad faith on the part of a
possessor rests the burden of proof. If no
evidence is presented proving bad faith,
like in this case, the presumption of good
faith remains.
Respondent Acuna, on the other hand,
bases his complaint for damages on the

alleged fraud on the part of the


petitioners' predecessor in having the land
registered under his (the predecessor's)
name. A review of the record, however,
does not indicate the existence of any such
fraud. It was not proven in the cadastral
court nor was it shown in the trial court.
Lot No. 2749 was not awarded to Escritor
on the basis of his machinations. What is
clear is that in the hearing of January 22,
1958, the Court permitted Escritor to
adduce his evidence of ownership without
opposing evidence as the lot had become
uncontested. 17 Respondent Acuna himself
failed to appear in this hearing because of
a
misunderstanding
with
a
lawyer. 18 There is no finding that such
failure to appear was caused by petitioners
in this case. On the contrary, all the
requirements of publication were followed.
Notice of hearing was duly published.
Clearly then, the allegation of fraud is
without basis.
Respondent having failed to prove fraud
and bad faith on the part of petitioners,
We sustain the trial court's finding that
petitioners were possessors in good faith
and should, therefore, not be held liable
for damages.
With the above pronouncement, the issue
of prescription of cause of action which
was also presented need not be passed
upon.
WHEREFORE, the petition is GRANTED and
the decision appealed from is hereby
REVERSED and SET ASIDE and another
decision is rendered dismissing the
complaint. No pronouncement as to costs.
SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Paras,


JJ., concur.

Footnotes
1 Exhibit
Answer.

"A".

Cadastral

2 Exhibit "B". decision in


Cadastral Case. No. 72 dated
May 15, 1958.
3 Ibid.
4 Exhibit "C", Order for the
Issuance of Decrees in
cadastral cases.
5 Exhibit "D", Petition.
6 Exhibit "E", Order
Cadastral Case No. 72.

in

7 Exhibit "F", Decision in


Cadastral Case No. 72.
8 Exhibit
Possession.

"H",

Writ

of

9 Page 11, Record on Appeal.


l0 Page 26, Rollo.
11 Pages 26-27, Rollo.
12 Page 27, Rollo.
13 Exhibit "B", Decision in
Cadastral Case No. 72 dated
May 15, 1958.
14 Art. 526, New Civil Code.

15 Tolentino, Civil Code of


the Philippines, Vol. II, 1983
Ed., p. 223; Sotto vs. Enage,
(CA), 43 Off. Gaz. 5057.
16 Tolentino, Civil Code of
the Philippines, Vol. 11,
1983 Ed., p. 234.
17 Exhibit "B", Decision in
Cadastral Case No. 72 dated
May 15,1958.
18 Exhibit "E", Order dated
July 18, 1960, Cadastral
Case No. 72.

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. L-49219 April 15, 1988
SPOUSES CONCEPCION FERNANDEZ DEL
CAMPO
and
ESTANISLAO
DEL
CANTO, plaintiffs-appellees,
vs.
BERNARDA
FERNANDEZ
ABESIA, defendant-appellant.
Geronimo
appellees.

Creer,

Jr.

for

plaintiffs-

Benedicto G. Cobarde for defendant,


defendant-appellant

GANCAYCO, J.:

In this appeal from the decision of the


Court of First Instance (CFI) of Cebu,
certified to this Court by the Court of
Appeals on account of the question of law
involved, the sole issue is the applicability
of the provisions of Article 448 of the Civil
Code relating to a builder in good faith
when the property involved is owned in
common.
This case involves a parcel of land, Lot No.
1161 of the Cadastral Survey of Cebu, with
an area of only about 45 square meters,
situated at the corner of F. Flores and
Cavan Streets, Cebu City covered by TCT
No. 61850. An action for partition was filed
by plaintiffs in the CFI of Cebu. Plaintiffs
and
defendants
are
co-owners pro
indiviso of this lot in the proportion of and
1/3 share each, respectively. The trial
court appointed a commissioner in
accordance with the agreement of the
parties. ,the Id commissioner conducted a
survey, prepared a sketch plan and
submitted a report to the trial court on
May 29, 1976, recommending that the
property be divided into two lots: Lot
1161-A with an area of 30 square meters
for plaintiffs and Lot No. 1161-B with an
area of 15 square meters for the
defendants. The houses of plaintiffs and
defendants were surveyed and shown on
the sketch plan. The house of defendants
occupied the portion with an area of 5
square meters of Lot 1161-A of plaintiffs.
The parties manifested their conformity to
the report and asked the trial court to
finally settle and adjudicate who among
the parties should take possession of the 5
square meters of the land in question.
In solving the issue the trial court held as
follows:

The Court believed that the


plaintiffs cannot be obliged
to pay for the value of the
portion of the defendants'
house which has encroached
an area of five (5) sq.
meters of the land alloted to
them.
The
defendants
cannot also be obliged to
pay for the price of the said
five (5) square meters. The
rights of a builder in good
faith under Article 448 of
the New Civil Code does (sic)
not apply to a case where
one co-owner has built,
planted or sown on the land
owned in common. "Manresa
agreeing
with
Sanchez
Roman, says that as a
general rule this article is
not applicable because the
matter should be governed
more by the provisions on
co-ownership
than
on
accession. Planiol and Ripert
are also of the opinion that
this article is not applicable
to
a
co-owner
who
constructs, plants or sows on
the community property,
even if the land where the
construction, planting or
sowing is made is a third
person
under
the
circumstances,
and
the
situation is governed by the
rules of co-ownership. Our
Court of Appeals has held
that this article cannot be
invoked by one co-owner
against another who builds,
plants or sows upon their
land, since the latter does

not do so on land not


belonging to him. (C.A.),
O.G. Supp., Aug. 30, 194, p.
126). In the light of the
foregoing authorities and
considering
that
the
defendants have expressed
their conformity to the
partition that was made by
the commissioner as shown
in the sketch plan attached
to
the
commissioner's
report, said defendants have
no other alternative except
to remove and demolish part
of their house that has
encroached an area of five
(5) sq. meters of the land
allotted to the plaintiffs.
WHEREFORE, judgment is
hereby rendered assigning
Lot 1161-A with an area of
thirty (30) sq. meters to the
plaintiffs
spouses
Concepcion
Fernandez
Abesia, Lourdes Fernandez
Rodil, Genaro Fernandez and
Dominga A. Fernandez, in
the respective metes and
bounds as shown in the
subdivision
sketch
plan
attached
to
the
Commissioner's Report dated
may 29, 1976 prepared by
the Commissioner, Geodetic
Engineer Espiritu Bunagan.
Further, the defendants are
hereby ordered at their
expense to remove and
demolish part of their house
which has encroached an
area of five (5) square
meters from Lot 1161-A of

the plaintiffs; within sixty


(60) days from date hereof
and to deliver the possession
of the same to the plaintiffs.
For the Commissioner's fee
of P400.00, the defendants
are ordered to pay, jointly
and severally, the sum of
P133.33 and the balance
thereof to be paid by the
plaintiffs. The costs of suit
shall be paid by the
plaintiffs and the defendants
in the proportion of twothirds (2/3) and one-third
(1/3) shares respectively. A
certified
copy
of
this
judgment shall be recorded
in the office of the Register
of Deeds of the City of Cebu
and the expense of such
recording shall be taxed as a
part of the costs of the
action.
Hence, this appeal interposed by the
defendants with the following assignments
of errors:
I
THE TRIAL COURT ERRED IN
NOT APPLYING THE RIGHTS
OF A BUILDER IN GOOD FAITH
UNDER ART. 448 OF THE NEW
CIVIL CODE TO DEFENDANTSAPPELLANTS WITH RESPECT
TO THAT PART OF THEIR
HOUSE
OCCUPYING
A
PROTION OF THE LOT
ASSIGNED TO PLAINTIFFSAPPELLEES.
II

THE TRIAL COURT ERRED IN


ORDERING
DEFENDANTSAPPELLANTS TO REMOVE AND
DEMOLISH
AT
THEIR
EXPENSE, THAT PART OF
THEIR HOUSE WHICH HAS
ENCROACHED ON AN AREA
OF FIVE SQUARE METERS OF
LOT 1161-A OF PLAINTIFFSAPPELLEES.
Article 448 of the New Civil Code provides
as follows:
Art. 448. The owner of the
land on which anything has
been built, sown, or planted
in good faith, shall have the
right to appropriate as his
own the works, sowing or
planting, after payment of
the indemnity provided for
in articles 546 and 548, or to
oblige the one who built or
planted to pay the price of
the land, and the one who
sowed, the proper rent.
However, the builder or
planter cannot be obliged to
buy the land if its value is
considerably more than that
of the building or trees. In
such case, he shall pay
reasonable rent, if the
owner of the land does not
choose to appropriate the
building or trees after
proper
indemnity.
The
parties shall agree upon the
terms of the lease and in
case of disagreement, the
court shall fix the terms
thereof.

The court a quo correctly held that Article


448 of the Civil Code cannot apply where a
co-owner builds, plants or sows on the land
owned in common for then he did not
build, plant or sow upon land that
exclusively belongs to another but of which
he is a co-owner. The co-owner is not a
third person under the circumstances, and
the situation is governed by the rules of
co-ownership. 1
However, when, as in this case, the coownership is terminated by the partition
and it appears that the house of
defendants overlaps or occupies a portion
of 5 square meters of the land pertaining
to plaintiffs which the defendants
obviously built in good faith, then the
provisions of Article 448 of the new Civil
Code should apply. Manresa and Navarro
Amandi agree that the said provision of the
Civil Code may apply even when there was
co-ownership if good faith has been
established. 2
Applying the aforesaid provision of the Civil
Code, the plaintiffs have the right to
appropriate said portion of the house of
defendants upon payment of indemnity to
defendants as provided for in Article 546 of
the Civil Code. Otherwise, the plaintiffs
may oblige the defendants to pay the price
of the land occupied by their house.
However, if the price asked for is
considerably much more than the value of
the portion of the house of defendants
built thereon, then the latter cannot be
obliged to buy the land. The defendants
shall then pay the reasonable rent to the
plaintiff upon such terms and conditions
that they may agree. In case of
disagreement, the trial court shall fix the
terms thereof. Of course, defendants may
demolish or remove the said portion of

their house, at their own expense, if they


so decide.
WHEREFORE, the decision appealed from is
hereby MODIFIED by ordering plaintiff to
indemnify defendants for the value of the
Id portion of the house of defendants in
accordance with Article 546 of the Civil
Code, if plaintiffs elect to appropriate the
same. Otherwise, the defendants shall pay
the value of the 5 square meters of land
occupied by their house at such price as
may be agreed upon with plaintiffs and if
its value exceeds the portion of the house
that defendants built thereon, the
defendants may choose not to buy the land
but defendants must pay a reasonable
rental for the use of the portion of the
land of plaintiffs As may be agreed upon
between the parties. In case of
disagreement, the rate of rental shall be
determined by the trial court. Otherwise,
defendants may remove or demolish at
their own expense the said portion of their
house. No costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Cruz and GrioAquino, JJ., concur.

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

Republic
SUPREME
Manila

2 Page 108, Civil Code,


Tolentino, 3 Manresa 215.

still no settlement was reached by the


parties.

of

On July 24, 1990, private respondent filed


a complaint for unlawful detainer against
petitioner's in the Metropolitan Trial Court
of Paraaque, Metro Manila, which on
February 4, 1992 rendered a decision, the
dispositive portion of which reads: 2

the

Philippines
COURT

SECOND DIVISION

G.R. No. 109840 January 21, 1999


JOSE
L.
CHUA
and
CO
SIO
ENG, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and
RAMON IBARRA, respondents.

MENDOZA, J.:
This is a petition for review on certiorari of
the decision, 1 dated October 8, 1992 of
the Court of Appeals affirming the decision
of the Regional Trial Court, Branch 59 of
Makati, Metro Manila, ordering the
ejectment of petitioners from the premises
owned by private respondent.
Petitioners were lessees of a commercial
unit at No. 3086 Redemptorist Street in
Baclaran, Paraque, Metro Manila. The
lease was for a period of five (5) years,
from January 1, 1985 to December 31,
1989. The contract expressly provided for
the renewal of the lease at the option of
the lessees "in accordance with the terms
of agreement and conditions set by the
lessor." Prior to the expiration of the lease,
the parties discussed the possibility of
renewing it. They exchanged proposal and
counterproposal, but they failed to reach
agreement. The dispute was referred to
the barangay captain for conciliation but

WHEREFORE,
premises
considered, judgment is
hereby, rendered as follows:
1.
The
defendants
(herein
petitioners)
are
hereby
given a period
of two (2)
years
extension of
occupancy of
the
subject
premises
starting
the
date of the
filling of the
instant
complaint;
2.
The
defendants
are
hereby
ordered
to
pay
the
plaintiff
(herein
private
respondent)
the sum of
P188,806.00
representing
back rentals
as of the year
1991 and a
monthly
rental
of
P10,000.00

thereafter
until
the
expiration of
the aforesaid
extension of
their
occupancy or
until
the
subject
premises
is
actually
vacated.

1. Ordering the defendants


(herein petitioners) and all
persons claiming and/or
acting for and in their behalf
to vacate the premises
known as door No. 3086
Redemptorist, corner G.C.
Cruz
Streets,
Baclaran,
Paraaque, Metro Manila and
turn over possession thereof
to the plaintiff (herein
private respondent);

3. Defendants
are
hereby
ordered
to
pay
the
plaintiff the
amount
of
P15,000.00 as
attorney's
fees; and

2. Ordering the defendants


to pay the plaintiff the
following:

4. Defendants
are
hereby
ordered
to
pay the cost
of suit.
SO ORDERED.
On appeal by both parties, the Regional
Trial Court, Branch 59 of Makati ruled that
the lease was for a fixed period of five (5)
years and that, upon its expiration on
January 1, 1990, petitioners' continued
stay in the premises became illegal. As
provided in Art. 1687 of the Civil Code, the
power of the courts to fix the period of
lease is limited only to cases where the
period has not been fixed by the parties
themselves. The dispositive portion of the
decision3 states:
Premises
considered,
judgment is hereby rendered
modifying
the
appealed
decision, as follows:

a
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'
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s
:
3. Dismissing defendants'
counterclaim for lack of
merit; and
4. With costs against the
defendants.
Petitioners appealed to the Court of
Appeals which affirmed the decision. In its
decision, dated October 8, 1992, the Court
of Appeals ordered:
WHEREFORE, except for the
modification
that
the
monthly
rental
that
petitioners
should
pay
private respondent from July
24, 1990 until the latter
finally vacate the premises
in question is reduced to
P7,320.00, the decision of
the respondent court in this
case is AFFIRMED in all other
respects, with costs against
petitioners Jose L. Chua and
Ko Sio Eng.

Petitioners' motion for reconsideration was


likewise denied. Hence, this petition for
review for certiorari. Petitioners assign
several errors as having been allegedly
committed by the Court of Appeals.
First. Petitioners allege that the Court of
Appeals erred in affirming the lower court's
finding that they owe private respondent
the amount of P42,306.00 as unpaid rentals
from January 1, 1987 to December 31,
1989 because neither the letter of demand
nor the complaint for unlawful detainer
alleged a claim for unpaid rentals. As the
Court of Appeals pointed out, however, the
issue of arrearages was raised at the pretrial by private respondent and evidence
on this question was presented without
objection from petitioners: 5
First of all, while it is true
that there was no express
demand
in
private
respondent's complaint for
unlawful detainer against
petitioners for the latters
payment
of
rental
arrearages,
private
respondent in a pleading
dated December 17, 1990
filed with the MTC (by way
of comment to petitioners'
motion to admit amended
answer) stated:
That
moreover the
unpaid rentals
from January
1987
to
December 31,
1989 amounts
to FORTY TWO
THOUSAND
THREE
HUNDRED SIX
PESOS
(P42,306,00),
exclusive
of
rentals from

January 1 to
December 31,
1990
which
would be one
hundred
eighty
thousand
pesos
(P180,000.00)
or a total of
TWO
HUNDRED
TWENTY TWO
THOUSAND
THREE
HUNDRED SIX
PESOS
(222,306,00)
(p. 75 Orig.
Rec).
Then, at the pre-trial of
December 17, 1990, among
the issues proposed by
counsel for plaintiff (now
private respondent) was
whether:
3. defendants
are in arrears
for the rentals
from Dec. 31,
1987
to
January 1989,
in accordance
with
the
contract:
(p. 8, tsn Dec.
17, 1990:
p. 87, id.)
Counsel
for
defendants
(herein petitioners) did not
object to the statement of
issues made by plaintiffs
counsel and instead simply
stated as their own main

issue whether plaintiff had a


valid cause of action for
ejectment against them as
he is not the sole owner of
the leased premises, and
then averred that "based on
this premise, the other
issues raised by plaintiff
could be dependent on the
resolution of the stated
issues" (id., p. 88. Orig.
Rec.). Later, at the hearing
of February 12, 1990.
plaintiff
Ramon
Ibarra
testified that although his
lease contract (Exh. "A")
with petitioners stipulated
an annual ten percent (10%)
additional rental starting in
1986 (i.e., the monthly
rental in 1986 was P5,500, in
1987, it was P6,050; in 1988,
it was P6,655.00; and in
1989, it was P7,320.50),
petitioners continued to pay
only the original monthly
rental of P5,000 stipulated
in their contract (Exh. "A"),
so that petitioners had
incurred
total
rental
arrearages at the end of
1989 of P42,306.00 (pp. 68,. tsn, op cit.: pp. 113-115.
Orig. Rec.). . . .
Obviously, then, petitioners'
rental arrearages from 1986
to 1989 as an issue raised at
the pre-trial and on which
issue private respondent
presented evidence without
any
objection
from
petitioners. And considering
that the petitioners incurred
said
rental
arrearages
because they did not pay
private
respondent
the
automatic 10% increase in
their monthly rental every
year for the years 1986 to

1989 as agreed upon and


stipulated in their lease
contract (Exh. "A".) which
contract is the law between
the parties, justice and good
faith
demand
that
petitioners should pay said
rental
arrearages.
As
correctly ruled by the
respondent
court,
"to
absolve the defendants from
paying rentals in arrears
while
they
continue
occupying and enjoying the
premises would be allowing
the defendants to enrich
themselves at the expense
of
the
plaintiff.
(p,
55, Rollo).
Indeed, any objection to the admissibility
of evidence should be made at the time
such evidence is offered or as soon
thereafter as the objection to its
admissibility
becomes
apparent, 6 otherwise the objection will be
considered waived and such evidence will
form part of the records of the case as
competent and admissible evidence. 7 Rule
10, 5 8of the Rules of Civil Procedure
allows the amendment of the pleadings in
order to make them conform to the
evidence in the record.
Second. Petitioners claim that they are
entitled to an estension of time to occupy
the premises in question. This, too, is
without merit. After the lease terminated
on January 1, 1990 and without the parties
thereafter reaching any agreement for its
renewal, petitioners became deforciants
subject to ejectment from the premises. 9
Neither did the Court of Appeals err in
ruling that petitioners are not entitled to a
reasonable extension of time to occupy the
premises on account of the fact that the
lease contract between the parties has
already expired. As there was no longer
any lease to speak of which could be

extended, the Metropolitan Trial Court was


in effect making a contract for the parties
which it obviously did not have the power
to do. 10 The potestative authority of the
courts to fix a longer term for a lease
under Art. 1687 of the Civil Code 11 applies
only to cases where there is no period
fixed by the parties. To the contrary, in this
case, the contract of lease provided for a
fixed period of five (5) years from January
1, 1985 to December 31, 1989. As the Court
held in Bacolod-Murcia Milling Co., Inc. v.
Banco Nacional Filipino:12
It is not the province of the
court to alter a contract by
construction or to make a
new contract for the parties;
its duty is confined to the
interpretation of the one
which they have made for
themselves, without regard
to its wisdom or folly, as the
court cannot supply material
stipulations or read into
contract words which it does
not contain.
Indeed, Art. 1675 of the Civil Code
excludes cases falling under Art. 1673
(which provides among others, that the
lessor may judicially eject the lessee when
the period agreed upon or that which is
fixed has expired) from the cases wherein,
pursuant to Art. 1687, courts may fix a
longer period of lease. For these reasons,
we hold that the Court of Appeals did not
err in ruling that petitioners were not
entitled to an extension of the lease upon
its expiration.
Third.
The
appellate
court
found
petitioners guilty of bad faith in refusing to
leave the premises. But petitioners
contend that they acted in good faith
under the belief that they were entitled to
an extension of the lease because they had
made repairs and improvements on the
premises.

This contention is devoid of merit. 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.
Art. 448 of the Civil Code, in relation to
Art. 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. In a number of cases, the
Court has held that this right does not
apply to a mere lessee, like the
petitioners, otherwise, it would always be
in his power to "improve" his landlord out
of the latter's property. 13 Art. 1678 merely
grants to such a lessee making in good
faith useful improvements the right to be
reimbursed one-half of the value of the
improvements upon the termination of the
lease, or, in the alternative, to remove the
improvements if the lessor refuses to make
reimbursement.
Petitioners were thus correctly ordered to
pay attorney's fees considering that private
respondent had to go to court to protect
his interest. 14 The award of P10,000.00 is
reasonable in view of the time it has taken
this rather simple case for ejectment to be
decided.
Fourth. Petitioners contend that the Court
of Appeals erred in affirming the denial of
their counterclaim for damages for their
failure to enjoy the peaceful possession of
the premises because private respondent
allowed vendors to ply their trade at the
front portion of the leased premises.
Petitioners claim that, as a result, they
suffered business losses and moral injuries.
As both the Metropolitan Trial Court and
Regional Trial Court held, however, there is
no evidence to support this claim. As the
Court of Appeals said, petitioners never
complained before about the sidewalk

vendors occupying a portion of the leased


property. It was only after negotiations for
renewal of the lease had failed and private
respondent had filed a complaint for
unlawful detainer against them did they
complain about the vendors.
WHEREFORE, the decision of the Court of
Appeals, dated October 8, 1992, is
AFFIRMED.1wphi1.nt
Costs against petitioners.
SO ORDERED.
Bellosillo, Puno, Quisumbing and Buena,
JJ., concur.
Footnotes
1 Per Justice Alicia
Sempio-Diy and cocurred
by Justices Ricardo
Francisco and Ricardo
Galvez.

V.
in
J.
P.

2 Petition, Annex E; Rollo. p.


83.
3 Id., Annex I: id pp. 111112.
4 Id., Annex A; id., p. 39.
5 Decision, dated Oct 8,
1992, pp. 9-11.
6
REVISED
RULES
OF
EVIDENCE, Rule 132, 36.
7 Abrenica v. Gonda, 4 Phil.
739 (1916); Catuira v. Court
of Appeals, 236 SCRA 398
( 1994); Son v. Son, 251 SCRA
556 (1995); Quebral v. Court
of Appeals, 252 SCRA 353
( 1996).

8 Rule 10, 5 of the 1997


RULES OF CIVIL PROCEDURE
provides:
Sec. 5. Amendment to
conform to or authorize
presentation of evidence.
When issues not raised by
the pleadings are tried with
the express or implied
consent of the parties, they
shall be treated in all
respects as if they had been
raised in the pleadings. Such
amendment of the pleadings
as may be necessary to
cause them to conform to
the evidence and to raise
these issues may be made
upon motion of any parry at
any
time,
even
after
judgment: but failure to
amend does not affect the
result of the trial of these
issues.
If
evidence
is
objected to at the trial on
the ground that it is not
within the issues made by
the pleadings, the court may
allow the pleadings to be
amended and shall do so
with
liberality
if
the
presentation of the merits of
the action and the ends of
substantial justice will be
subserved thereby. The court
may grant a continuance to
enable the amendment to be
made.
9 CIVIL CODE, Arts. 1669 and
1673(1);
Heirs
of
Dimaculangan
v.
Intermediate
Appellate
Court, 170 SCRA 393 (1989);
Uy Hoo and Sons Dev. Corp.
v. Court of Appeals, 174
SCRA 100 (1989); Palanca v.
Intermediate
Appellate
Court, 180 SCRA 119 (1989).

10 Alcuaz v. PSBA, 161 SCRA


7 (1988) Henson v. IAC, 148
SCRA 11 (1987); Roxas v.
Alcantara, 113 SCRA 21
(1982): Escao v. CA, 100
SCRA 197 (1980); Gindoy v.
Tapucar, 75 SCRA 31 (1977).

of Appeals, 259 SCRA 344


( 1996).
14 Art. 2208 (2) of the Civil
Code provides:
In
the
absence
of
stipulation, attorney's fees
and expenses of litigation,
other than judicial costs,
cannot
be
recovered,
except:

11 This article provides:


If the period for the lease
has not been fixed, it is
understood to be from year
to year, if the rent agreed
upon is annual: from month
to month, if it is monhly;
from week to week, if the
rent is weekly; and from day
to day, if the rent is to be
paid daily. However, even
though a monthly rent is
paid, and no period for the
lease has been set, the
courts may fix a longer term
for the lease after the lessee
has occupied the premises
for over one year. If the rent
is weekly, the courts may
likewise determine a longer
period after the lessee has
been in possession for over
six months. In case of daily
rent, the courts may also fix
a longer period after the
lessee has stayed in the
place for over one month.
12 74 Phil. 675, 680 (1944).
13 Racaza v. Susana Realty,
Inc., 18 SCRA 1172 (1966);
Bulacanag v. Francisco, 122
SCRA 498 (1983); Gabrito v.
Court of Appeals, 167 SCRA
771 (1988); Cabangis v.
Court of Appeals, 200 SCRA
414 (1991); Heirs of the late
Jaime Binuya v. Court of
Appeals, 211 SCRA 761
(1992); Germiniano v. Court

xxx xxx xxx


(2) when the defendant's act
or omission has compelled
the plaintiff to litigate with
third persons or to incur
expenses to protect his
interest:

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. L-33422 May 30, 1983
ROSENDO
BALUCANAG, petitioner,
vs.
HON. JUDGE ALBERTO J. FRANCISCO and
RICHARD STOHNER, respondents.
Alfredo C. Estrella for petitioner.
Pascual C. Garcia for respondents.

ESCOLIN, J.:
This petition for review of the decision of
the Court of First Instance of Manila in Civil

Case No. 67503 calls for a determination of


the respective rights of the lessor and the
lessee over the improvements introduced
by the latter in the leased premises.
Cecilia dela Cruz Charvet was the owner of
a 177.50 square meter lot located in
Zamora Street, Pandacan, Manila, covered
by Transfer Certificate of Title No. 25664.
On August 31, 1952, Mrs. Charvet leased
said lot to respondent Richard Stohner for
a period of five [5] years at the monthly
rental of 2140.00, payable in advance
within the first ten [10] days of each
month. The lease contract 1 provided,
among others, that:
IV. The lessee may erect
such buildings upon and
make such improvements to
the leased land as he shag
see fit. All such buildings
and
improvements
shall
remain the property of the
lessee and he may remove
them at any nine, it being
agreed,
however,
that
should he not remove the
said
buildings
and
improvements
within
a
period of two months after
the expiration
of
this
Agreement, the Lessor may
remove the said buildings
and improvements or cause
them to be removed at the
expense of the Lessee.
During the existence of the lease, Stohner
made fillings on the land and constructed a
house thereon, said improvements being
allegedly valued at P35,000.00.

On March 8, 1966, Mrs. Charvet sold the


said lot to petitioner Rosendo Balucanag. 2
For Stohner's failure to pay the rents,
Balucanag, thru counsel, wrote Stohner a
letter demanding that he vacate the
premises. 3 In reply thereto, Stohner, also
thru counsel, claimed that he was a builder
in good faith of the residential house
erected in the land. He offered the
following proposals for a possible
compromise, to wit:
[a] Mr. Stohner will purchase
the said lot from your client
with the interest of 12% per
annum on the value, or
[b] Your client Mr. Rosendo
Balucanag will reimburse our
client in the total amount of
P35,000.00
for
the
improvements
and
construction he has made on
the lot in question.
As no agreement was reached, Balucanag
instituted in the City Court of Manila an
ejectment suit against Stohner and, after
due trial, the court rendered a decision,
the decretal portion of which reads as
follows:
IN VIEW OF THE FOREGOING
CONSIDERATIONS, judgment
is hereby rendered, ordering
the defendant to pay the
plaintiff the sum of P360.00
as
back
rentals
from
December, 1965 to August
1966 at the rate of P40.00 a
month and to vacate the
premises. The defendant is
further ordered to pay the

sum of P100.00 as Attomey's


fees which is considered
reasonable
within
the
premises.
On appeal, the Court of First Instance of
Manila, Branch IX, presided by respondent
Judge Alberto
J.
Francisco,
after
conducting a trial de novo, rendered a
decision, setting aside the judgment of the
city court and dismissing the petitioner's
complaint. Respondent judge held that
Stohner was a builder in good faith because
he had constructed the residential house
with the consent of the original lessor, Mrs.
Charvet, and also because the latter, after
the expiration of the lease contract on
August 31, 1957, had neither sought
Stohner's ejectment from the premises, nor
the removal of his house therefrom.
Invoking Articles 448 and 546 of the Civil
Code. 4 respondent judge concluded that
Stohner, being a builder in good faith,
cannot be ejected until he is reimbursed of
the value of the improvements.
Frustrated in his effort to have the
decision reconsidered, Balucanag filed the
instant petition for review.
We find the petition impressed with merit.
Paragraph IV of the lease contract entered
into by Stohner with Mrs. Charvet
specifically provides that "... such buildings
and improvements shan remain the
property of the lessee and he may remove
them at any time, it being agreed,
however, that should he not remove the
said buildings and improvements within a
period of two months after the expiration
of this Agreement, the Lessor may remove
the said buildings and improvements or
cause them to be removed at the expense
of the Lessee." Respondent Stohner does

not assail the validity of this stipulation,


Neither has he advanced any reason why
he should not be bound by it.
But even in the absence of said stipulation,
respondent Stohner cannot be considered a
builder in good faith. Article 448 of the
Civil Code, relied upon by respondent
judge, applies only to a case where one
builds on land in the belief that he is the
owner thereof and it does not apply where
one's only interest in the land is that of a
lessee under a rental contract. In the case
at bar, there is no dispute that the relation
between Balucanag and Stohner is that of
lessor and lessee, the former being the
successor in interest of the original owner
of the lot. As we ruled in Lopez, Inc. vs.
Phil. and Eastern Trading Co., Inc., 5 "...
the principle of possessor in good faith
refers only to a party who occupies or
possess property in the belief that he is the
owner thereof and said good faith ends
only when he discovers a flaw in his title so
as to reasonably advise or inform him that
after all he may not be the legal owner of
said property. It cannot apply to a lessee
because as such lessee he knows that he is
not the owner of he leased premises.
Neither can he deny the ownership or title
of his lessor. ... A lessee who introduces
improvements in the leased premises, does
so at his own risk in the sense that he
cannot recover their value from the lessor,
much less retain the premises until such
reimbursement. ..."
The law applicable to the case at bar is
Article 1678 of the Civil Code, which We
quote:
Art. 1678. If the lessee
makes, in good faith, useful
improvements which are

suitable to the use for which


the lease is intended,
without altering the form or
substance of the property
leased, the lessor upon the
termination of the lease
shall pay the lessee one-half
of the value of the
improvements at the 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. ...
This article gives the lessor the option to
appropriate the useful improvements by
paying one-half of their value, 6And the
lessee cannot compel the lessor to
appropriate the improvements and make
reimbursement, for the lessee's right under
the law is to remove the improvements
even if the leased premises may suffer
damage thereby. But he shall not cause any
more damage upon the property than is
necessary.
One last point. It appears that while the
lease contract entered into by Stohner and
Mrs. Charvet had expired on August 31,
1957, he nevertheless continued in
possession of the premises with the
acquiescence of Mrs. Charvet and later, of
Balucanag. An implied new lease or tacita
reconduccion was thus created between
the parties, the period of which is
established by Article 1687 of the Civil
Code thus:

Art. 1687. If the period for


the lease has not been fixed,
it is understood to be from
year to year, if the rent
agreed upon is annual; from
month to month, if it is
monthly: from week to
week, if the rent is weekly:
and from day to day, if the
rent is to be paid daily. ...
Under the above article, the duration of
the new lease must be deemed from month
to month, the agreed rental in the instant
case being payable on a monthly basis. The
lessor may thus terminate the lease after
each month with due notice upon the
lessee. After such notice, the lessee's right
to continue in possession ceases and his
possession becomes one of detainer.
Furthermore, Stohner's failure to pay the
stipulated rentals entities petitioner to
recover possession of the premises.
WHEREFORE, the decision in Civil Case No.
67503 is hereby set aside, with costs
against respondent Stohner. The latter is
ordered to vacate the premises in question
and to pay Rogelio Balucanag the rentals
due from March 1969 up to the time he
surrenders the premises, at the rate of
P40.00 a month.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion,
Jr., and Guerrero, JJ., concur.
De Castro, J., took no part.

Separate Opinions

ABAD
SANTOS, J., concurring
dissenting:

and

I concur in setting aside the decision in


Civil Case No. 67503 of the defunct Court
of First Instance of Manila; and in ordering
the respondent Stohner to pay the costs, to
vacate the premises in question, and to
pav the petitioner the rentals due from
March 1969 to the time he surrenders the
premises at the rate of P40.00 monthly.
However, I cannot give my assent to that
portion of the judgment with respect to
the house constructed by Stohner.
Stohner as a lessee is not a builder in good
faith. This is elementary in property law.
Article 1678 of the Civil Code concerning
improvements made by the lessee on the
leased premises applies only in the absence
of stipulation on the matter between the
lessor and the lessee. In the instant case
theres such a stipulation. A copy of the
Lease Agreement which is found on page 13
of the Rollo reads:
IV. The lessee may erect
such buildings upor and
make such improvements to
the leased land as he shall
see fit. AR such buildings
and
improvements
shall
remain the property of the
lessee and he may remove
them at any nine, it being
agreed,
however,
that
should he not remove the
96d
buildings
and
improvements
within
a

period of two months after


the expiration
of
this
Agreement, the Lessor may
remove the said buildings
and improvements or cause
them to be removed at the
expense of the Lessee.
The above-quoted stipulation has the force
of law between the parties (Art. 1159, Civil
Code) and supersedes Art. 1678 of the Civil
Code. Accordingly, the judgment with
respect to the house which was
constructed by Stohner should be in line
with the contract of lease.

Separate Opinions
ABAD
SANTOS, J., concurring
dissenting:

and

I concur in setting aside the decision in


Civil Case No. 67503 of the defunct Court
of First Instance of Manila; and in ordering
the respondent Stohner to pay the costs, to
vacate the premises in question, and to
pav the petitioner the rentals due from
March 1969 to the time he surrenders the
premises at the rate of P40.00 monthly.
However, I cannot give my assent to that
portion of the judgment with respect to
the house constructed by Stohner.
Stohner as a lessee is not a builder in good
faith. This is elementary in property law.
Article 1678 of the Civil Code concerning
improvements made by the lessee on the
leased premises applies only in the absence
of stipulation on the matter between the

lessor and the lessee. In the instant case


theres such a stipulation. A copy of the
Lease Agreement which is found on page 13
of the Rollo reads:
IV. The lessee may erect
such buildings upor and
make such improvements to
the leased land as he shall
see fit. AR such buildings
and
improvements
shall
remain the property of the
lessee and he may remove
them at any nine, it being
agreed,
however,
that
should he not remove the
96d
buildings
and
improvements
within
a
period of two months after
the expiration
of
this
Agreement, the Lessor may
remove the said buildings
and improvements or cause
them to be removed at the
expense of the Lessee.
The above-quoted stipulation has the force
of law between the parties (Art. 1159, Civil
Code) and supersedes Art. 1678 of the Civil
Code. Accordingly, the judgment with
respect to the house which was
constructed by Stohner should be in line
with the contract of lease.
Footnotes
1 Annex B, p. 13, Rollo.
2 p. 68, Rollo.
3 p. 72, Rollo.
4 "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 everv pnssessor: but only
the possessor in good faith
mav retain the thing until he
has
been
reimbursed
thereof. ...
5 98 Phil. 348.
6 Lapea vs. Judge Morfe, et
al., 101 Phil. 997.

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION

G.R. No. 108065 July 6, 1993


SPOUSES FELIX BAES AND RAFAELA
BAES, petitioners,
vs.
THE COURT OF APPEALS AND REPUBLIC
OF THE PHILIPPINES, respondents.
Lorenzo F. Miravite for petitioners.
The Solicitor General for respondents.

CRUZ, J.:
This is an appeal by way of certiorari from
the decision of the respondent Court of
Appeals which affirmed in toto the ruling
of the trial court in Civil Case No. 0460-P,
the dispositive portion of which read thus:
WHEREFORE, judgment is
hereby rendered declaring
null and void TCT Nos.
14405, 29592, 29593, 29594,
29595, and TCT No. 29593's
derivative titles TCT Nos.
124725, 124726, 124727 and
124729, and ordering the
Register of Deeds for Pasay
City to cancel them and
issue new ones in their stead
in the name of the plaintiff
after segregating from TCT
No. 29593 452 sq. m., the

actual area of Lot 2958-C


(covered by cancelled TCT
No. 11043) belonging to
defendant Felix Baes. The
counterclaim
is
hereby
dismissed.
Let a copy of this Decision
be furnished the Register of
Deeds for Pasay City.
SO ORDERED.
The controversy began in 1962, when the
government dug a canal on a private parcel
of land, identified as Lot 2958 and covering
an area of P33,902 sq.m., to streamline
the Tripa de Gallina creek.
This lot was later acquired by Felix Baes,
who registered it in his name under TCT
No. 10990 and then had it subdivided into
three lots, namely: (a) Lot 2958-A, with an
area of 28,889 sq.m.; (b) Lot 2958-B, with
an area of 3,588 sq.m.; and (c) Lot 2958-C,
with an area of 452 sq.m., covered by TCT
Nos. 11041, 11042 and 11043, respectively.
In exchange for Lot 2958-B, which was
totally occupied by the canal, the
government gave Baes a lot with exactly
the same area as Lot 2958-B through a
Deed of Exchange of Real Property dated
June 20, 1970. 1 The property, which was
near but not contiguous to Lot 2956-C, was
denominated as Lot 3271-A and later
registered in the name of Felix Baes under
TCT No. 24300. The soil displaced by the
canal was used to fill up the old bed of the
creek.
Meanwhile, Baes had Lot 2958-C and a
portion of Lot 2958-A designated as Lot 1,
Blk., 4, resurveyed and subdivided. On

January 12, 1968, he submitted a petition


for the approval of his resurvey and
subdivision plans, claiming that after the
said lots were plotted by a competent
surveyor, it was found that there were
errors in respect of their bearings and
distances.
The
resurvey-subdivision
plan
was
approved by the Court of First Instance of
Pasay City in an order dated January 15,
1968. 2
As a result, the old TCTs covering the said
lots were canceled and new ones were
issued, to wit: (a) Lot 1-A, Blk. 4, with 672
sq.m.,
under
TCT
No.
T-14404; (b) Lot 1-B, with 826 sq.m.,
representing the increase in area after the
resurvey, under TCT No. T-14405; (c) Lot
2958-C-1, with 452 sq.m., under TCT No. T14406; and (d) Lot 2958-C-2, with 2,770
sq.m. representing the increase after
resurvey, under TCT No. T-14407.
Lots 2958-C-1 and 2958-C-2 were later
consolidated and this time further
subdivided into four (4) lots, namely, Lot 1,
with an area of 147 sq.m.; Lot 2, with an
area of 950 sq.m.; Lot 3, with an area of
257 sq.m.; and Lot 4, with an area of 1,868
sq.m., which were respectively issued TCT
Nos. 29592, 29593, 29594, and 29595.
In 1978, the Republic of the Philippines
discovered that Lot 1-B (with TCT No.
14405 and an area of 826 sq.m.), on which
the petitioners had erected an apartment
building, covered Lot 3611 of the Pasay
Cadastre, which is a filled-up portion of
the Tripa de Gallina creek. Moreover, Lot
2958-C (covered by TCT Nos. 29592 to
29595, with an increased area of 2,770

after resurvey and subdivision) had been


unlawfully enlarged.
On November 17, 1982, it filed a petition
for cancellation of TCT Nos. 14405 and
29592 to 29595. 3
Baes did not object in his answer to the
cancellation of TCT Nos. 29592, 29594 and
29595 and was notable to prove during the
trial that the government utilized a portion
of Lot 2 under, TCT No. 29593. The trial
court therefore decreed (correctly) that
the original Lot 2958-C (with an area of
452 sq.m.) be reverted to its status before
the resurvey-subdivision of Lot 2958-C.
The only remaining dispute relates to Lot
1-B (TCT No. 14405), which the petitioners,
relying on Article 461 of the Civil Code, are
claiming as their own. The government
rejects this claim and avers that the
petitioners had already been fully
compensated for it on June 20, 1970 when
they agreed to exchange their Lot 2958-B
with Lot 3271-A belonging to the
government.
Article 461 of the Civil Code states:
River
beds
which
are
abandoned
through
the natural change in the
course of the waters ipso
factobelong to the owners
whose lands are occupied by
the new course in proportion
to the area lost. However,
the owners of the land
adjoining the old bed shall
have the right to acquire the
same by paying the value
thereof, which value shall
not exceed the value of the

area occupied by the new


bed. (Emphasis supplied)
A portion of the Tripa de Gallina creek was
diverted to a man-made canal which
totally occupied Lot 2958-B (with an area
of 3,588 sq.m.) belonging to Felix Baes.
Thus, the petitioners claim that they
became the owners of the old bed (which
was eventually filled up by soil excavated
from Lot 2958-B) by virtue of Article 461.
The petitioners rely heavily on Dr. Arturo
M. Tolentino's interpretation of this Article,
to wit:
This article (461) refers to a
natural change in the course
of a stream. If the change of
the course is due to works
constructed
by
concessioners authorized by
the
government,
the
concession may grant the
abandoned river bed to the
concessioners. If there is no
such grant, then, by analogy,
the abandoned river bed will
belong to the owners of the
land covered by the waters,
as provided in this article,
without prejudice to a
superior right of third
persons with sufficient title.
(Citing 3 Manresa 251-252; 2
Navarro Amandi, 100-101; 3
Sanchez Roman 148)

when the change in the course of the river


is effected through artificial means. The
loss to the petitioners of the land covered
by the canal was the result of a deliberate
act on the part of the government when it
sought to improve the flow of the Tripa de
Gallina creek. It was therefore obligated to
compensate the Baeses for their loss.
We find, however, that the petitioners
have already been so compensated. Felix
Baes was given Lot 3271-A in exchange for
the affected Lot 2958-B through the Deed
of Exchange of Real Property dated June
20, 1970. This was a fair exchange because
the two lots were of the same area and
value and the agreement was freely
entered into by the parties. The
petitioners cannot now claim additional
compensation because, as correctly
observed by the Solicitor General,
. . . to allow petitioners to
acquire ownership of the
dried-up portion of the
creek would be a clear case
of double compensation and
unjust enrichment at the
expense of the state.
The exchange of lots between the
petitioners and the Republic was the result
of voluntary negotiations. If these had
failed, the government could still have
taken Lot 2958-B under the power of
eminent domain, upon payment of just
compensation, as the land was needed for
a public purpose.

We agree.
If the riparian owner is entitled to
compensation for the damage to or loss of
his property due to natural causes, there is
all the more reason to compensate him

WHEREFORE, the petition is DENIED, with


costs against the petitioners. It is so
ordered.

Grio-Aquino, Bellosillo and Quiason, JJ.,


concur.

dismissed the plaintiff's complaint, the


third party complaint, as well as the
defendant's counterclaim.

# Footnotes
1 Exhibit "4," Records, p.
293.

The background
filing of the
summarized in
respondent Court

facts which led to the


instant petition are
the decision of the
of Appeals:

2 Records, p. 398.
3 Ibid., pp. 2-10.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. L-62943 July 14, 1986
METROPOLITAN
WATERWORKS
AND
SEWERAGE
SYSTEM, petitioner,
vs.
COURT OF APPEALS (Now INTERMEDIATE
APPELLATE COURT) and THE PHILIPPINE
NATIONAL BANK,respondents.
Juan J. Diaz and Cesar T. Basa for
respondent PNB.
San Juan, Africa, Gonzales & San Agustin
Law Offices for respondent PCIB.

GUTIERREZ, JR., J.:


This petition for review asks us to set aside
the October 29, 1982 decision of the
respondent Court of Appeals, now
Intermediate Appellate Court which
reversed the decision of the Court of First
Instance of Manila, Branch XL, and

Metropolitan
Waterworks
and
Sewerage
System
(hereinafter referred to as
MWSS) is a government
owned
and
controlled
corporation created under
Republic Act No. 6234 as the
successor-in- interest of the
defunct
NWSA.
The
Philippine National Bank
(PNB for short), on the other
hand, is the depository bank
of MWSS and its predecessorin-interest NWSA. Among the
several accounts of NWSA
with PNB is NWSA Account
No. 6, otherwise known as
Account No. 381-777 and
which is presently allocated
No.
010-500281.
The
authorized signature for said
Account No. 6 were those of
MWSS
treasurer
Jose
Sanchez, its auditor Pedro
Aguilar, and its acting
General Manager Victor L.
Recio.
Their
respective
specimen signatures were
submitted by the MWSS to
and on file with the PNB. By
special arrangement with
the PNB, the MWSS used
personalized
checks
in
drawing from this account.
These checks were printed

for MWSS by its printer, F.


Mesina Enterprises, located
at 1775 Rizal Extension,
Caloocan City.

6. 59554 4-1-69
6,057.60 4-16 69

During the months of March,


April and May 1969, twentythree (23) checks were
prepared, processed, issued
and released by NWSA, all of
which were paid and cleared
by PNB and debited by PNB
against NWSA Account No. 6,
to wit:

7. 59558 4-2-69 The Evening


112.00 Unreleased

Check No. Date


Amount Date Paid

9. 59564 4-2-69 Ind. Insp.


594.06 4-18 69

Payee

Gascom

Engineering

News
8. 59544 3-27-69 Progressive
18,391.20 4-18 69
Const.

By PNB

Int. Inc.

1. 59546 8-21-69 Deogracias


P 3,187.79 4-2-69

10. 59568 4-7-69 Roberto


800.00 4-22-69

Estrella

Marsan

2. 59548 3-31-69 Natividad


2,848.86 4-23 69

11. 59570 4-7-69 Paz Andres


200.00 4-22-69

Rosario

12. 59574 4-8-69 Florentino


100,000.00 4-11-69

3. 59547 3-31-69 Pangilinan


195.00 Unreleased

Santos

Enterprises

13. 59578 4-8-69 Mla. Daily


95.00 Unreleased

4. 59549 3-31-69 Natividad


3,239.88 4-23-69

Bulletin

Rosario

14. 59580 4-8-69 Phil. Herald


100.00 5-9-69

5. 59552 4-1-69 Villarama


987.59 5-6-69
& Sons

15. 59582 4-8-69 Galauran


7,729.09 5-6-69
& Pilar

16. 59581 4-8-69


110.00 5-12 69

Manila

Chronicle
17. 59588 4-8-69
21,583.00 4-11 69

as the aforementioned NWSA


checks were likewise paid
and cleared by PNB and
debited
against
NWSA
Account No. 6, to wit:

Treago
Check Date Payee Amount
Date Paid

Tunnel
No. Issued By PNB
18. 59587 4-8-69
120,000.00 4-11-69

Delfin
1. 59546 3-6-69 Raul Dizon P
84,401.00 3-16-69

Santiago
19.
59589
4-10-69
Deogracias 1,257.49 4-16 69

2. 59548 3-11-69 Raul Dizon


104,790.00 4-1-69

Estrella

3. 59547 3-14-69 Arturo


Sison 56,903.00 4-11-69

20. 59594 4-14-69 Philam Ac33.03 4-29 69

4. 59549 3-20-69 Arturo


Sison 48,903.00 4-15-69

cident Inc.

5. 59552 3-24-69 Arturo


Sison 63,845.00 4-16-69

21. 59577 4-8-69


9,429.78 4-29 69

Esla

22. 59601 4-16-69 Justino


20,000.00 4-18-69
Torres
23. 59595 4-14-69 Neris Phil.
4,274.00 5-20-69
Inc. -------------------P 320,636.26
During the same months of
March, April and May 1969,
twenty-three (23) checks
bearing the same numbers

6. 59544 3-26-69 Arturo


Sison 98,450.00 4-17-69
7. 59558 3-28-69 Arturo
Sison 114,840.00 4-21-69
8. 59544 3-16-69 Antonio
38,490.00 4-22-69 Mendoza
9. 59564 3-31-69 Arturo
Sison 180,900.00 4-23-69
10.59568 4-2-69 Arturo Sison
134,940.00 4- 5-69
11.59570 4-1-69 Arturo Sison
64,550.00 4-28-69

12.59574 4-2-69 Arturo Sison


148,610.00 4-29-69
13.59578 4-10-69
93,950.00
Mendoza

Antonio
4-29-69

14.59580 4-8-69 Arturo Sison


160,000.00 5-2-69
15.59582 4-10-69 Arturo
Sison 155,400.00 5-5-69
16.59581 4-8-69
176,580.00 5-6-69

Antonio

Mendoza
17.59588 4-16-69 Arturo
Sison 176,000.00 5-8-69
18.59587 4-16-69 Arturo
Sison 300,000.00 5-12-69
19.59589 4-18-69 Arturo
Sison 122,000.00 5-14-69
20.59594 4-18-69 Arturo
Sison 280,000.00 5-15-69
21.59577 4-14-69
260,000.00 5-16-69

Antonio

Mendoza
22.59601 4-18-69 Arturo
Sison 400,000.00 5-19-69
23.59595 4-28-69 Arturo
Sison 190,800.00 5-21-69
--------------P3,457,903.00

The foregoing checks were


deposited by the payees
Raul Dizon, Arturo Sison and
Antonio Mendoza in their
respective current accounts
with
the
Philippine
Commercial and Industrial
Bank (PCIB) and Philippine
Bank of Commerce (PBC) in
the months of March, April
and May 1969. Thru the
Central Bank Clearing, these
checks were presented for
payment by PBC and PCIB to
the defendant PNB, and
paid, also in the months of
March, April and May 1969.
At the time of their
presentation to PNB these
checks bear the standard
indorsement which reads 'all
prior indorsement and/or
lack
of
endorsement
guaranteed.'
Subsequent
investigation
however, conducted by the
NBI showed that Raul Dizon,
Arturo Sison and Antonio
Mendoza were all fictitious
persons.
The
respective
balances in their current
account with the PBC and/or
PCIB stood as follows: Raul
Dizon P3,455.00 as of April
30, 1969; Antonio Mendoza
P18,182.00 as of May 23,
1969; and Arturo Sison
Pl,398.92 as of June 30,
1969.
On June 11, 1969, NWSA
addressed a letter to PNB
requesting the immediate

restoration to its Account


No. 6, of the total sum of
P3,457,903.00 corresponding
to the total amount of these
twenty-three (23) checks
claimed by NWSA to be
forged
and/or
spurious
checks. "In view of the
refusal of PNB to credit back
to Account No. 6 the said
total sum of P3,457,903.00
MWSS filed the instant
complaint on November 10,
1972 before the Court of
First Instance of Manila and
docketed thereat as Civil
Case No. 88950.
In its answer, PNB contended
among others, that the
checks in question were
regular on its face in all
respects,
including
the
genuineness
of
the
signatures of authorized
NWSA signing officers and
there was nothing on its face
that could have aroused any
suspicion
as
to
its
genuineness
and
due
execution and; that NWSA
was guilty of negligence
which was the proximate
cause of the loss.
PNB also filed a third party
complaint
against
the
negotiating banks PBC and
PCIB on the ground that they
failed to ascertain the
Identity of the payees and
their title to the checks
which were deposited in the

respective new accounts of


the payees with them.
xxx xxx xxx
On February 6, 1976, the Court of First
Instance of Manila rendered judgment in
favor of the MWSS. The dispositive portion
of the decision reads:
WHEREFORE,
on
the
COMPLAINT by a clear
preponderance of evidence
and in accordance with
Section 23 of the Negotiable
Instruments Law, the Court
hereby renders judgment in
favor
of
the
plaintiff
Metropolitan
Waterworks
and
Sewerage
System
(MWSS) by ordering the
defendant
Philippine
National Bank (PNB) to
restore the total sum of
THREE
MILLION
FOUR
HUNDRED
FIFTY
SEVEN
THOUSAND NINE HUNDRED
THREE
PESOS
(P3,457,903.00) to plaintiff's
Account No. 6, otherwise
known as Account No. 01050030-3, with legal interest
thereon computed from the
date of the filing of the
complaint and until as
restored in the said Account
No. 6.
On
the
THIRD
PARTY
COMPLAINT, the Court, for
lack of evidence, hereby
renders judgment in favor of
the third party defendants
Philippine
Bank
of

Commerce
(PBC)
and
Philippine Commercial and
Industrial Bank (PCIB) by
dismissing the Third Party
Complaint.
The counterclaims of the
third party defendants are
likewise dismissed for lack
of evidence.
No pronouncement
costs.

as

BEARING IdENTICAL NUMBER


BEING ENCASHED WITHIN
DAYS OF EACH OTHER.
III. IN NOT HOLDING THAT
THE SIGNATURES OF THE
DRAWEE
MWSS
BEING
CLEARLY FORGED, AND THE
CHECKS SPURIOUS, SAME ARE
INOPERATIVE AS AGAINST
THE ALLEGED DRAWEE.

to

As earlier stated, the respondent court


reversed the decision of the Court of First
Instance of Manila and rendered judgment
in favor of the respondent Philippine
National Bank.
A motion for reconsideration filed by the
petitioner MWSS was denied by the
respondent court in a resolution dated
January 3, 1983.
The petitioner now raises the following
assignments of errors for the grant of this
petition:
I. IN NOT HOLDING THAT AS
THE SIGNATURES ON THE
CHECKS WERE FORGED, THE
DRAWEE BANK WAS LIABLE
FOR THE LOSS UNDER
SECTION
23
OF
THE
NEGOTIABLE INSTRUMENTS
LAW.
II. IN FAILING TO CONSIDER
THE PROXIMATE NEGLIGENCE
OF PNB IN ACCEPTING THE
SPURIOUS CHECKS DESPITE
THE OBVIOUS IRREGULARITY
OF TWO SETS OF CHECKS

The appellate court applied Section 24 of


the Negotiable Instruments Law which
provides:
Every negotiable instrument
is deemed prima facie to
have
been
issued
for
valuable consideration and
every
person
whose
signature appears thereon to
have become a party thereto
for value.
The petitioner submits that the above
provision does not apply to the facts of the
instant case because the questioned checks
were not those of the MWSS and neither
were they drawn by its authorized
signatories. The petitioner states that
granting that Section 24 of the Negotiable
Instruments Law is applicable, the same
creates only a prima facie presumption
which was overcome by the following
documents, to wit: (1) the NBI Report of
November 2, 1970; (2) the NBI Report of
November 21, 1974; (3) the NBI Chemistry
Report No. C-74891; (4) the Memorandum
of Mr. Juan Dino, 3rd Assistant Auditor of
the respondent drawee bank addressed to
the Chief Auditor of the petitioner; (5) the
admission of the respondent bank's counsel
in open court that the National Bureau of

Investigation found the signature on the


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

cashed the check upon a


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

xxx xxx xxx


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

We have carefully reviewed the documents


cited by the petitioner. There is no express
and categorical finding in these documents
that the twenty-three (23) questioned
checks were indeed signed by persons
other
than
the
authorized
MWSS
signatories. On the contrary, the findings of
the National Bureau of Investigation in its
Report dated November 2, 1970 show that
the MWSS fraud was an "inside job" and
that the petitioner's delay in the
reconciliation of bank statements and the
laxity and loose records control in the
printing of its personalized checks
facilitated the fraud. Likewise, the
questioned Documents Report No. 159-1074
dated November 21, 1974 of the National
Bureau of Investigation does not declare or
prove that the signatures appearing on the
questioned checks are forgeries. The
report merely mentions the alleged

differences in the type face, checkwriting,


and printing characteristics appearing in
the standard or submitted models and the
questioned
typewritings.
The
NBI
Chemistry Report No. C-74-891 merely
describes the inks and pens used in writing
the alleged forged signatures.
It is clear that these three (3) NBI Reports
relied upon by the petitioner are
inadequate to sustain its allegations of
forgery. These reports did not touch on the
inherent qualities of the signatures which
are indispensable in the determination of
the existence of forgery. There must be
conclusive findings that there is a variance
in the inherent characteristics of the
signatures and that they were written by
two or more different persons.
Forgery cannot be presumed (Siasat, et al.
v. Intermediate Appellate Court, et al, 139
SCRA 238). It must be established by clear,
positive, and convincing evidence. This was
not done in the present case.
The cases of San Carlos Milling Co. Ltd. v.
Bank of the Philippine Islands, et al. (59
Phil. 59) and Great Eastern Life Ins., Co. v.
Hongkong and Shanghai Bank (43 Phil. 678)
relied upon by the petitioner are
inapplicable in this case because the
forgeries in those cases were either clearly
established or admitted while in the
instant case, the allegations of forgery
were not clearly established during trial.
Considering the absence of sufficient
security in the printing of the checks
coupled with the very close similarities
between the genuine signatures and the
alleged forgeries, the twenty-three (23)
checks in question could have been
presented to the petitioner's signatories

without their knowing that they were


bogus checks. Indeed, the cashier of the
petitioner whose signatures were allegedly
forged was unable to ten the difference
between the allegedly forged signature and
his own genuine signature. On the other
hand, the MWSS officials admitted that
these checks could easily be passed on as
genuine.
The memorandum of Mr. A. T. Tolentino,
no, Assistant Chief Accountant of the
drawee Philippine National Bank to Mr. E.
Villatuya, Executive Vice-President of the
petitioner dated June 9, 1969 cites an
instance where even the concerned NWSA
officials could not ten the differences
between the genuine checks and the
alleged forged checks.
At about 12:00 o'clock on
June 6, 1969, VP Maramag
requested me to see him in
his office at the Cashier's
Dept. where Messrs. Jose M.
Sanchez,
treasurer
of
NAWASA and Romeo Oliva of
the same office were
present. Upon my arrival I
observed
the
NAWASA
officials questioning the
issue of the NAWASA checks
appearing in their own list,
xerox copy attached.
For verification purposes,
therefore, the checks were
taken from our file. To
everybody there present
namely VIP Maramag, the
two
abovementioned
NAWASA
officials,
AVP,
Buhain,
Asst.
Cashier
Castelo, Asst. Cashier Tejada

and Messrs. A. Lopez and L.


Lechuga,
both
C/A
bookkeepers, no one was
able to point out any
difference on the signatures
of the NAWASA officials
appearing on the checks
compared to their official
signatures on file. In fact 3
checks, one of those under
question, were presented to
the NAWASA treasurer for
verification but he could not
point out which was his
genuine signature. After
intent
comparison,
he
pointed on the questioned
check as bearing his correct
signature.

the forgery
authority.

or

want

of

because it was guilty of negligence not


only before the questioned checks were
negotiated but even after the same had
already been negotiated. (See Republic v.
Equitable Banking Corporation, 10 SCRA 8)
The records show that at the time the
twenty-three (23) checks were prepared,
negotiated, and encashed, the petitioner
was using its own personalized checks,
instead of the official PNB Commercial
blank checks. In the exercise of this special
privilege, however, the petitioner failed to
provide the needed security measures.
That there was gross negligence in the
printing of its personalized checks is shown
by the following uncontroverted facts, to
wit:

xxx xxx xxx


Moreover, the petitioner is barred from
setting up the defense of forgery under
Section 23 of the Negotiable Instruments
Law which provides that:
SEC.
23.
FORGED
SIGNATURE;
EFFECT
OF.- When the signature is
forged or made without
authority of the person
whose signature it purports
to
be,
it
is
wholly
inoperative, and no right to
retain the instrument, or to
give a discharge therefor, or
to enforce payment thereof
against any party thereto
can be acquired through or
under such signature unless
the party against whom it is
sought to enforce such right
is precluded from setting up

(1) The petitioner failed to give its printer,


Mesina Enterprises, specific instructions
relative to the safekeeping and disposition
of excess forms, check vouchers, and
safety papers;
(2) The petitioner failed to retrieve from
its printer all spoiled check forms;
(3) The petitioner failed to provide any
control regarding the paper used in the
printing of said checks;
(4) The petitioner failed to furnish the
respondent drawee bank with samples of
typewriting, cheek writing, and print used
by its printer in the printing of its checks
and of the inks and pens used in signing the
same; and
(5) The petitioner failed to send a
representative to the printing office during
the printing of said checks.

This gross negligence of the petitioner is


very evident from the sworn statement
dated June 19, 1969 of Faustino Mesina,
Jr., the owner of the printing press which
printed the petitioner's personalized
checks:
xxx xxx xxx
7. Q: Do you
have
any
business
transaction
with
the
National
Waterworks
and Sewerage
Authority
(NAWASA)?
A: Yes, sir. I
have
a
contract with
the NAWASA in
printing
NAWASA Forms
such
as
NAWASA Check
xxx xxx xxx
15. Q: Were
you given any
ingtruction by
the NAWASA in
connection
with
the
printing
of
these
check
vouchers?
A: There is
none, sir. No
instruction

whatsoever
was given to
me.
16. Q: Were
you
not
advised as to
what kind of
paper would
be used in the
check
vouchers?
A: Only as per
sample, sir.
xxx xxx xxx
20. Q: Where
did you buy
this
Hammermill
Safety check
paper?
A: From Tan
Chiong,
a
paper dealer
with
store
located
at
Juan
Luna,
Binondo,
Manila.
(In
front of the
Metropolitan
Bank).
xxx xxx xxx
24. Q: Were
all
these
check
vouchers
printed by you

submitted
NAWASA?

to

A: Not all, sir.


Because
we
have to make
reservations
or allowances
for spoilage.
25. Q: Out of
these
vouchers
printed
by
you,
how
many
were
spoiled
and
how
many
were
the
excess printed
check
vouchers?
A:
Approximately
four hundred
(400) sheets,
sir. I cannot
determine the
proportion of
the
excess
and
spoiled
because the
final act of
perforating
these
check
vouchers has
not yet been
done
and
spoilage can
only
be
determined
after this final

act
printing.

of

26. Q: What
did you do
with
these
excess check
vouchers?
A: I keep it
under
lock
and key in my
firing cabinet.
xxx xxx xxx
28. Q: Were
you
not
instructed by
the NAWASA
authorities to
bum
these
excess check
vouchers?
A: No, sir. I
was
not
instructed.
29. Q: What
do you intend
to do with
these excess
printed check
vouchers?
A: I intend to
use them for
future orders
from the
xxx xxx xxx

32. Q: In the
process
of
printing
the
check
vouchers
ordered
by
the NAWASA,
how
many
sheets were
actually
spoiled?
A: I cannot
approximate,
sir. But there
are spoilage in
the process of
printing and
perforating.
33. Q: What
did you do
with
these
spoilages?
A:
Spoiled
printed
materials are
usually
thrown out, in
the
garbage
can.
34. Q: Was
there
any
representativ
e
of
the
NAWASA
to
supervise the
printing
or
watch
the
printing
of
these
check
vouchers?

A: None, sir.
xxx xxx xxx
39. Q: During
the period of
printing after
the
days
work,
what
measures do
you undertake
to safeguard
the mold and
other
paraphernalia
used in the
printing
of
these
particular
orders
of
NAWASA?
A: Inasmuch
as I have an
employee who
sleeps in the
printing shop
and at the
same time do
the guarding,
we just leave
the
mold
attached
to
the machine
and the other
finished
or
unfinished
work
check
vouchers are
left in the
rack so that
the
work
could
be

continued the
following day.
The National Bureau of Investigation
Report dated November 2, 1970 is even
more explicit. Thus
xxx xxx xxx
60.
We
observed also
that there is
some
laxity
and
loose
control in the
printing
of
NAWASA
cheeks.
We
gathered from
MESINA
ENTERPRISES,
the
printing
firm
that
undertook the
printing of the
check
vouchers
of
NAWASA that
NAWASA had
no
representativ
e
at
the
printing press
during
the
process of the
printing and
no particular
security
measure
instructions
adopted
to
safeguard the
interest of the
government in

connection
with printing
of
this
accountable
form.
Another factor which facilitated the
fraudulent encashment of the twenty-three
(23) checks in question was the failure of
the petitioner to reconcile the bank
statements with its own records.
It is accepted banking procedure for the
depository bank to furnish its depositors
bank statements and debt and credit
memos through the mail. The records show
that the petitioner requested the
respondent drawee bank to discontinue the
practice of mailing the bank statements,
but instead to deliver the same to a
certain Mr. Emiliano Zaporteza. For reasons
known only to Mr. Zaporteza however, he
was unreasonably delayed in taking prompt
deliveries of the said bank statements and
credit and debit memos. As a consequence,
Mr. Zaporteza failed to reconcile the bank
statements with the petitioner's records. If
Mr. Zaporteza had not been remiss in his
duty of taking the bank statements and
reconciling them with the petitioner's
records, the fraudulent encashments of the
first checks should have been discovered,
and further frauds prevented. This
negligence was, therefore, the proximate
cause of the failure to discover the fraud.
Thus,
When a person opens a
checking account with a
bank, he is given blank
checks which he may fill out
and use whenever he wishes.
Each time he issues a check,
he should also fill out the

check stub to which the


check is usually attached.
This stub, if properly kept,
will contain the number of
the check, the date of its
issue, the name of the payee
and the amount thereof. The
drawer
would
therefore
have a complete record of
the checks he issues. It is
the custom of banks to send
to its depositors a monthly
statement of the status of
their accounts, together
with all the cancelled checks
which have been cashed by
their respective holders. If
the depositor has filled out
his check stubs properly, a
comparison between them
and the cancelled checks
will reveal any forged check
not
taken
from
his
checkbook. It is the duty of
a depositor to carefully
examine
the
bank's
statement, his cancelled
checks, his check stubs and
other
pertinent
records
within a reasonable time,
and to report any errors
without unreasonable delay.
If his negligence should
cause the bank to honor a
forged check or prevent it
from recovering the amount
it may have already paid on
such check, he cannot later
complain should the bank
refuse
to recredit
his
account with the amount of
such check. (First Nat. Bank
of Richmond v. Richmond
Electric Co., 106 Va. 347, 56

SE 152, 7 LRA, NS 744


[1907]. See also Leather
Manufacturers'
Bank
v.
Morgan, 117 US 96, 6 S. Ct.
657 [1886]; Deer Island Fish
and Oyster Co. v. First Nat.
Bank of Biloxi, 166 Miss. 162,
146 So. 116 [1933]). Campos
and Campos, Notes and
Selected
Cases
on
Negotiable Instruments Law,
1971, pp. 267-268).
This failure of the petitioner to reconcile
the bank statements with its cancelled
checks was noted by the National Bureau
of Investigation in its report dated
November 2, 1970:
58.
One
factor
which
facilitate this fraud was the
delay in the reconciliation of
bank (PNB) statements with
the NAWASA bank accounts.
x x x. Had the NAWASA
representative come to the
PNB early for the statements
and had the bank been
advised promptly of the
reported bogus check, the
negotiation of practically all
of the remaining checks on
May,
1969,
totalling
P2,224,736.00 could have
been prevented.
The records likewise show that the
petitioner failed to provide appropriate
security measures over its own records
thereby laying confidential records open to
unauthorized persons. The petitioner's own
Fact Finding Committee, in its report
submitted to their General manager
underscored this laxity of records control.

It observed that the "office of Mr.


Ongtengco (Cashier No. VI of the Treasury
Department at the NAWASA) is quite open
to any person known to him or his staff
members and that the check writer is
merely on top of his table."
When confronted with this report at the
Anti-Fraud Action Section of the National
Bureau of Investigation. Mr. Ongtengco
could only state that:
A. Generally
my order is
not to allow
anybody
to
enter
my
office.
Only
authorized
persons
are
allowed
to
enter
my
office. There
are
some
cases,
however,
where some
persons enter
my
office
because they
are following
up
their
checks.
Maybe, these
persons may
have
been
authorized by
Mr.
Pantig.
Most of the
people
entering my
office
are
changing
checks
as

allowed
by
the Resolution
of the Board
of Directors of
the NAWASA
and
the
Treasurer. The
check writer
was
never
placed on my
table. There
is a place for
the
check
write which is
also
under
lock and key.
Q.
Is
Mr.
Pantig
authorized to
allow
unauthorized
persons
to
enter
your
office?
A. No, sir.
Q. Why are
you tolerating
Mr.
Pantig
admitting
unauthorized
persons
in
your office?
A. I do not
want
to
embarrass Mr.
Pantig. Most
of the people
following up
checks
are

employees of
the NAWASA.

A. No, sir.

their vouchers
inside
your
office which
may leakout
confidential
informations
or your books
of
account.
After
being
apprised of all
the
shortcomings
in your office,
as head of the
Cashiers'
Office of the
Treasury
Department
what remedial
measures do
you intend to
undertake?

Q. From the
answers that
you
have
given to us we
observed that
actually there
is laxity and
poor control
on your part
with regards
to
the
preparations
of
check
payments
inasmuch as
you
allow
unauthorized
persons
to
follow
up

A. Time and
again
the
Treasurer has
been calling
our attention
not to allow
interested
persons
to
hand
carry
their voucher
checks and we
are trying our
best and if I
can do it to
follow
the
instructions to
the letter, I
will do it but
unfortunately
the
persons
who
are

Q. Was the
authority
given by the
Board
of
Directors and
the approval
by
the
Treasurer for
employees,
and
other
persons
to
encash their
checks carry
with it their
authority to
enter
your
office?

xxx xxx xxx

allowed
to
enter
my
office are my
co-employees
and
persons
who
have
connections
with
our
higher
ups
and I can not
possibly
antagonize
them.
Rest
assured that
even though
that
everybody will
get hurt, I win
do my best
not to allow
unauthorized
persons
to
enter
my
office.
xxx xxx xxx
Q. Is it not
possible
inasmuch as
your office is
in charge of
the posting of
check
payments in
your
books
that leakage
of payments
to the banks
came
from
your office?
A. I am not
aware of it

but it only
takes us a
couple
of
minutes
to
process
the
checks.
And
there
are
cases wherein
every
information
about
the
checks
may
be obtained
from
the
Accounting
Department,
Auditing
Department,
or the Office
of the General
Manager.
Relying on the foregoing statement of Mr.
Ongtengco, the National Bureau of
Investigation concluded in its Report dated
November 2, 1970 that the fraudulent
encashment
of
the
twenty-three
(23)cheeks in question was an "inside job".
ThusWe have all the reasons to
believe that this fraudulent
act was an inside job or one
pulled
with
inside
connivance at NAWASA. As
pointed earlier in this
report, the serial numbers of
these checks in question
conform with the numbers in
current use of NAWASA,
aside from the fact that
these fraudulent checks
were found to be of the
same kind and design as that

of NAWASA's own checks.


While knowledge as to such
facts may be obtained
through the possession of a
NAWASA check of current
issue, an outsider without
information from the inside
can not possibly pinpoint
which of NAWASA's various
accounts
has
sufficient
balance to cover all these
fraudulent checks. None of
these checks, it should be
noted, was dishonored for
insufficiency of funds. . .
Even if the twenty-three (23) checks in
question
are
considered
forgeries,
considering
the
petitioner's
gross
negligence, it is barred from setting up the
defense of forgery under Section 23 of the
Negotiable Instruments Law.
Nonetheless, the petitioner claims that it
was the negligence of the respondent
Philippine National Bank that was the
proximate cause of the loss. The petitioner
relies on our ruling in Philippine National
Bank v. Court of Appeals (25 SCRA 693)
that.
Thus, by not returning the
cheek to the PCIB, by
thereby indicating that the
PNB had found nothing
wrong with the check and
would honor the same, and
by actually paying its
amount to the PCIB, the PNB
induced the latter, not only
to believe that the check
was genuine and good in
every respect, but, also, to
pay its amount to Augusto

Lim. In other words, the PNB


was
the
primary
or
proximate cause of the loss,
and, hence, may not recover
from the PCIB.
The argument has no merit. The records
show that the respondent drawee bank,
had taken the necessary measures in the
detection of forged checks and the
prevention of their fraudulent encashment.
In fact, long before the encashment of the
twenty-three (23) checks in question, the
respondent Bank had issued constant
reminders
to
all
Current
Account
Bookkeepers informing them of the
activities of forgery syndicates. The
Memorandum of the Assistant VicePresident and Chief Accountant of the
Philippine National Bank dated February
17, 1966 reads in part:
SUBJECT: ACTIVITIES
FORGERY SYNDICATE

OF

From reliable information


we have gathered that
personalized
checks
of
current account depositors
are now the target of the
forgery syndicate. To protect
the interest of the bank, you
are hereby enjoined to be
more careful in examining
said checks especially those
coming from the clearing,
mails
and
window
transactions. As a reminder
please be guided with the
following:
1. Signatures of drawers
should
be
properly

scrutinized and compared


with those we have on file.
2. The serial numbers of the
checks should be compared
with the serial numbers
registered with the Cashier's
Dept.
3. The texture of the paper
used and the printing of the
checks should be compared
with the sample we have on
file with the Cashier's Dept.
4. Checks bearing several
indorsements
should
be
given a special attention.
5. Alteration in amount both
in figures and words should
be carefully examined even
if signed by the drawer.
6.
Checks
issued
in
substantial
amounts
particularly by depositors
who do not usually issue
checks in big amounts should
be brought to the attention
of the drawer by telephone
or any fastest means of
communication for purposes
of confirmation.
and your attention is also
invited to keep abreast of
previous circulars and memo
instructions
issued
to
bookkeepers.
We cannot fault the respondent drawee
Bank for not having detected the

fraudulent encashment of the checks


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

Footnotes
* Justice Paras took no part.
Justice Cruz was designated
to sit in the Second Division.