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FIRST DIVISION

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

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


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

DECISION
VITUG, J.:

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

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


BUILDER IN BAD FAITH OVER THE ENCROACHED PROPERTY IN QUESTION;

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


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

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

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

Article 449. He who builds, plants, or sows in bad faith on the land of another, loses what is
built, planted or sown without right to indemnity.

Article 450. The owner of the land on which anything has been built, planted or sown in bad
faith may demand the demolition of the work, or that the planting or sowing be removed, in
order to replace things in their former condition at the expense of the person who built, planted
or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the
proper rent.

A builder in good faith can, under the foregoing provisions, compel the landowner to make a
choice between appropriating the building by paying the proper indemnity or obliging the builder
to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with
the principle of accession, i.e., that the accessory follows the principal and not the other way
around.[2] Even as the option lies with the landowner, the grant to him, nevertheless, is
preclusive. He much choose one. He cannot, for instance, compel the owner of the building to
instead remove it from the land.[3] In order, however, that the builder can invoke that accruing
benefit and enjoy his corresponding right to demand that a choice be made by the landowner, he
should be able to prove good faith on his part.
Good faith, here understood, is an intangible and abstract quality with no technical meaning
or statutory definition, and it encompasses, among other things, an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage. An
individuals personal good faith is a concept of his own mind and, therefore, may not
conclusively be determined by his protestations alone. It implies honesty of intention, and
freedom from knowledge of circumstances which ought to put the holder upon inquiry.[4]The
essence of good faith lies in an honest belief in the validity of ones right, ignorance of a superior
claim, and absence of intention to overreach another.[5] Applied to possession, one is considered
in good faith if he is not aware that there exists in his title or mode of acquisition any flaw which
invalidates it.[6]
Given the findings of both the trial court and the appellate court, it should be evident enough
that petitioner would fall much too short from its claim of good faith. Evidently, petitioner was
quite aware, and indeed advised, prior to its acquisition of the land and building from Ignacio
that a part of the building sold to it stood on the land not covered by the land conveyed to it.
Equally significant is the fact that the building, constructed on the land by Ignacio, has in
actuality been part of the property transferred to petitioner. Article 448, of the Civil Code refers
to a piece of land whose ownership is claimed by two or more parties, one of whom has built
some works (or sown or planted something) and not to a case where the owner of the land is
the builder, sower, or planter who then later loses ownership of the land by sale or
otherwise for, elsewise stated, where the true owner himself is the builder of works on his
own land, the issue of good faith or bad faith is entirely irrelevant. [7]
In fine, petitioner is not in a valid position to invoke the provisions of Article 448 of the
Civil Code. The Court commiserates with petitioner in its present predicament; upon the other
hand, respondent, too, is entitled to his rights under the law, particularly after having long been
deprived of the enjoyment of his property. Nevertheless, the Court expresses hope that the parties
will still be able to come up with an arrangement that can be mutually suitable and acceptable to
them.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56001 is
AFFIRMED. No costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

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 and dissenting:

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.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115814 May 26, 1995

PEDRO P. PECSON, petitioner,


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

DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision1 of the Court of Appeals in
CA-G.R. SP No. 32679 affirming in part the order 2 of the Regional Trial Court (RTC) of
Quezon City, Branch 101, in Civil Case No. Q-41470.

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

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

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

Both parties then appealed the decision to the Court of Appeals. The case was docketed as CA-
G.R. CV No. 2931. In its decision of 30 April 1992,4 the Court of Appeals affirmed in toto the
assailed decision. It also agreed with the trial court that the apartment building was not included
in the auction sale of the commercial lot. Thus:

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

The petition to review the said decision was subsequently denied by this Court.5 Entry of
judgment was made on 23 June 1993.6

On November 1993, the private respondents filed with the trial court a motion for delivery of
possession of the lot and the apartment building, citing article 546 of the Civil Code. 7 Acting
thereon, the trial court issued on 15 November 1993 the challenged order8 which reads as
follows:

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

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

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

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

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

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

1. The movant shall reimburse plaintiff the construction cost of


P53,000.00.

2. The payment of P53,000.00 as reimbursement for the


construction cost, movant Juan Nuguid is hereby entitled to
immediate issuance of a writ of possession over the Lot and
improvements thereon.

3. The movant having been declared as the uncontested owner of


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

4. The amount of P53,000.00 due from the movant is hereby offset


against the amount of rents collected by the plaintiff from June 23,
1993, to September 23, 1993.

SO ORDERED.

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

The petitioner then filed with the Court of Appeals a special civil action for certiorari and
prohibition assailing the order of 15 November 1993, which was docketed as CA-G.R. SP No.
32679. 10 In its decision of 7 June 1994, the Court of Appeals affirmed in part the order of the
trial court citing Article 448 of the Civil Code. In disposing of the issues, it stated:
As earlier pointed out, private respondent opted to appropriate the improvement
introduced by petitioner on the subject lot, giving rise to the right of petitioner to
be reimbursed of the cost of constructing said apartment building, in accordance
with Article 546 of the . . . Civil Code, and of the right to retain the improvements
until he is reimbursed of the cost of the improvements, because, basically, the
right to retain the improvement while the corresponding indemnity is not paid
implies the tenancy or possession in fact of the land on which they are built . . . [2
TOLENTINO, CIVIL CODE OF THE PHILIPPINES (1992) p. 112]. With the
facts extant and the settled principle as guides, we agree with petitioner that
respondent judge erred in ordering that "the movant having been declared as the
uncontested owner of the lot in question as per Entry of Judgment of the Supreme
Court dated June 23, 1993, the plaintiff should pay rent to the movant of no less
than P21,000 per month from said date as this is the very same amount paid
monthly by the tenants occupying the lot.

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

The Court of Appeals then ruled as follows:

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

IT IS SO ORDERED.11

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

The parties agree that the petitioner was a builder in good faith of the apartment building on the
theory that he constructed it at the time when he was still the owner of the lot, and that the key
issue in this case is the application of Articles 448 and 456 of the Civil Code.
The trial court and the Court of Appeals, as well as the parties, concerned themselves with the
application of Articles 448 and 546 of the Civil Code. These articles read as follows:

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

xxx xxx xxx

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

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

By its clear language, Article 448 refers to a land whose ownership is claimed by two or more
parties, one of whom has built some works, or sown or planted something. The building, sowing
or planting may have been made in good faith or in bad faith. The rule on good faith laid down in
Article 526 of the Civil Code shall be applied in determining whether a builder, sower or planter
had acted in good faith. 12

Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter
who then later loses ownership of the land by sale or donation. This Court said so in Coleongco
vs. Regalado: 13

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

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

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

Article 546 does not specifically state how the value of the useful improvements should be
determined. The respondent court and the private respondents espouse the belief that the cost of
construction of the apartment building in 1965, and not its current market value, is sufficient
reimbursement for necessary and useful improvements made by the petitioner. This position is,
however, not in consonance with previous rulings of this Court in similar cases. In Javier
vs. Concepcion, Jr., 14 this Court pegged the value of the useful improvements consisting of
various fruits, bamboos, a house and camarin made of strong material based on the market value
of the said improvements. In Sarmiento vs. Agana, 15 despite the finding that the useful
improvement, a residential house, was built in 1967 at a cost of between eight thousand pesos
(P8,000.00) to ten thousand pesos(P10,000.00), the landowner was ordered to reimburse the
builder in the amount of forty thousand pesos (P40,000.00), the value of the house at the time of
the trial. In the same way, the landowner was required to pay the "present value" of the house, a
useful improvement, in the case of De Guzman vs. De la Fuente, 16 cited by the petitioner.

The objective of Article 546 of the Civil Code is to administer justice between the parties
involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop
of Manila 17 that the said provision was formulated in trying to adjust the rights of the owner and
possessor in good faith of a piece of land, to administer complete justice to both of them in such
a way as neither one nor the other may enrich himself of that which does not belong to him.
Guided by this precept, it is therefore the current market value of the improvements which
should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private
respondents who would otherwise be allowed to acquire a highly valued income-yielding four-
unit apartment building for a measly amount. Consequently, the parties should therefore be
allowed to adduce evidence on the present market value of the apartment building upon which
the trial court should base its finding as to the amount of reimbursement to be paid by the
landowner.

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

It follows, too, that the Court of Appeals erred not only in upholding the trial court's
determination of the indemnity, but also in ordering the petitioner to account for the rentals of
the apartment building from 23 June 1993 to 23 September 1993.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order of
15 November 1993 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-
41470 are hereby SET ASIDE.

The case is hereby remanded to the trial court for it to determine the current market value of the
apartment building on the lot. For this purpose, the parties shall be allowed to adduce evidence
on the current market value of the apartment building. The value so determined shall be
forthwith paid by the private respondents to the petitioner otherwise the petitioner shall be
restored to the possession of the apartment building until payment of the required indemnity.

No costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners,


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

Leoncio R. Esliza for petitioners.


Mauricio M. Monta for respondents.

MORAN, C.J.:

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

Wherefore, judgment is hereby rendered declaring:

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

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

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

No pronouncement is made as to damages and costs.


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

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

The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil Code
which are as follows:

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

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

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

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

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


remove their buildings from the land belonging to plaintiffs-respondents only because the latter
chose neither to pay for such buildings not to sell the land, is null and void, for it amends
substantially the judgment sought to be executed and is, furthermore, offensive to articles 361
and 453 of the Civil Code.
There is, however, in the decision of Judge Felix a question of procedure which calls for the
clarification, to avoid uncertainty and delay in the disposition of cases. In that decision, the rights
of both parties are well defined under articles 361 and 453 of the Civil Code, but it fails to
determine the value of the buildings and of the lot where they are erected as well as the periods
of time within which the option may be exercised and payment should be made, these particulars
having been left for determination apparently after the judgment has become final. This
procedure is erroneous, for after the judgment has become final, no additions can be made
thereto and nothing can be done therewith except its execution. And execution cannot be had, the
sheriff being ignorant as to how, for how much, and within what time may the option be
exercised, and certainly no authority is vested in him to settle these matters which involve
exercise of judicial discretion. Thus the judgment rendered by Judge Felix has never become
final, it having left matters to be settled for its completion in a subsequent proceeding, matters
which remained unsettled up to the time the petition is filed in the instant case.

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

The costs shall be paid by plaintiffs-respondents.


Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11084 April 29, 1961

ALEJANDRO QUEMUEL and RUPERTA SOLIS, plaintiffs- appellants,


vs.
ANGEL S. OLAES and JULIANA PRUDENTE, defendants-appellees.

Baldomero S. Luque for plaintiffs-appellants.


Jose P. Santillan for defendants-appellees.

PAREDES, J.:

Angel S. Olaes and his wife, Juliana Prudente, defendants-appellees herein, were plaintiffs in
another case (No 5442 of the CFI of Cavite), wherein Alejandro Quemuel and his wife Ruperta
Solis, plaintiffs-appellants herein were defendants. In that case No. 5442, the Olaes spouses
registered owners of lot 1095 of the San Francisco de Malabon Estate, located in Rosario, Cavite,
sought the recover of the possession of the said lot and rentals therefor, from the Quemuel
spouses, who in their verified answer admitted plaintiffs' ownership, but contended that their
occupation was gratuitous. On March 16, 1954, the trial court ordered Quemuel and his wife to
return the possession of lot 1095 to the Olaes spouses and to pay the latter P20.00 a month from
January, 1954, until they shall have vacated the premises. Quemuel and his wife did not appeal
from said decision which became final on April 22, 1954. Thereafter, the Olaes spouses sought
the execution of the decision and to forestall ejectment, the Quemuel spouses, filed on July 1,
1954, the present complaint, docketed as Civil Case No. 5518, CFI of Cavite.

In the present complaint, the Quemuel spouses seek to reduce the monthly rental of P20.00 fixed
in Civil Case No. 5442, and to compel the Olaes spouses to sell to them (Quemuels) the portion
of the lot 1095 where their house is erected. Respondents, the Olaes spouses, filed a motion to
dismiss dated July 9, 1954, alleging lack of cause of action, res adjudicata; prescription, and the
cause of action, if any, is barred by plaintiffs' failure to set it up as a counter-claim in civil case
No. 5442.

On September 17, 1954, the trial court dismissed the complaint, without pronouncement as to
costs.

An appeal was taken by plaintiffs to the Court of Appeals (Case No. CA-G.R. No. 14837-R)
which, by the agreement of the parties certified the case to this Court. The ex parte petition filed
by the plaintiffs-appellants in this Court on August 9, 1956, asking that a writ of prohibition and
injunction be issued to the Provincial Sheriff of Cavite and the defendants-appellees, enjoining
them from demolishing the house of plaintiffs-appellants until there is a final decision in said
case No. 14837, by the Supreme Court, was denied on August 14, 1956 by the latter court.
The lone assignment alleges that the trial court erred in dismissing the complaint without trial on
the merits and in not granting the reliefs prayed for by the plaintiffs-appellants. Appellants stated
in their brief that if there will be trial on the merits, they would be entitled to a decision in their
favor, because they will establish by competent evidence the allegations in their complaint. And
on the claim that they were builders in good faith, they based the right to buy the lot on which
their house is built, upon the decision of Belen Uy Tayao v. Rosario Yuseco, et al., G.R. No.
T,8139, Oct. 24, 1955. It should be recalled at the outstart, that the trial court ordered the
dismissal of the complaint, which must have been granted in all or any of the grounds therein
alleged, to wit:

I. The Complaint states no cause of action. —

The first cause of action on the present complaint al alleges that in Civil Case No. 5442, the trial
court rendered the decision of March 16, 1954, ordering the latter to vacate lot No. 1095
belonging to Olaes and his wife and to pay them a monthly rental of P20.00 from January, 1954
until they shall have vacated the premises; that plaintiff believe that the portion they are
occupying belonged to them; that they occupy only about one-half of the lot; that considering the
purchase price of the land, its assessed value and the interest the price would have earned, the
rental should not be more than 7-½% or P5.60 monthly. Plaintiffs prayed that the rental be
reduced to P5.60 a month.

Assuming the truth of the above allegations, the same do not constitute a cause of action. A
cause of action presupposes a right of the plaintiff and a violation of such right by the defendant.
According to the complaint itself, the rental of P20.00 monthly and the order to vacate, were
provided in a prior judgment (Civil Case No. 5442), which is final and its validity is not assailed.
There being no law that fixes the rental of the same land at 7½ of the allowed market value, the
plaintiffs have no right thereto or aright which could be violated. The defendants are not
compelling the plaintiffs to rent the property but wanted them to vacate the premises (Civil Case
No. 5442). If the rental determined by the trial court were excessive, the plaintiffs are free to
vacate the property. For plaintiffs to insist on possessing the property and fixing the rentals
themselves, would have no legal sanction at all.

In the second cause of action of the present complaint, the plaintiffs allege: That they actually
occupy about 384 square meters or one-half of lot 1095; of the said area they thought they own
256 square meters by inheritance from Romualdo Solis, father of plaintiff, Ruperta Solis, who
became the owner thereof pursuant to a verbal extrajudicial partition made in 1924; Agapita
Solis who sold the entire lot 1095 to defendants, is a sister of Romualdo Solis, and there was an
error in the inclusion of the 256 square meters in the Torrens Title and the sale; they acquired
from Valentin Solis, brother of both Romualdo and Agapita, a part of the portion occupied by
plaintiff's house and warehouse; their house has been there for almost 34 years and is worth
P4,000; the defendants are rich, have a house and a lot of their own, and will not suffer any
material or sentimental damage if they sell to the plaintiffs one-half of lot No. 1095; plaintiff
offered to pay P960 for the portion they are occupying or P1,920.00 for the whole lot.

On the assumption that the allegations of the second cause of action are true, what would be the
rights of the parties? The plaintiffs claim that their second cause of action is based on Article 448
in connection with Art. 546, of the new Civil Code. A cursory reading of these provisions,
however, will show that they are not applicable to plaintiffs' case. Under Article 448, the right to
appropriate the works or improvements or "to oblige the one who built or planted to pay the price
of the land belongs to the owner of the land. The only right given to the builder in good faith is
the right to reimbursement for the improvements; the builder, cannot compel the owner of the
land to sell such land to the former. This is assuming that the plaintiffs are builders in good faith.
But the plaintiffs are not builders in good faith. From the pleadings and the documentary
evidence submitted, it is indisputable that the land in question originally belonged to the
government as part of the Friar Lands Estate and the title thereto was in the name of the
government, until it was purchased by Agapita Solis who applied, thru the Bureau of Lands, to
purchase the land by installments. The corresponding Sale Certificate No. 531, effective July 1,
1909 Exhibit 2) was executed. In defendants' complaint (as plaintiffs in Civil Case No. 5442),
they alleged that they are the owners of lot 109'a and that defendants (plaintiffs herein), "have
been occupying southeastern half portion thereof, without any right thereto, except the tolerance
of plaintiffs" (defendants herein), which were admitted expressly and under oath, in the answer
of plaintiffs herein. It would, therefore, appear that plaintiffs herein were not Unaware of the
flaw in their title, if any, and that their true relation with the herein defendants was that of tenant
and landlord, and that their rights are governed by Article 1573 in relation to article 487 of the
old Civil Code, which reads as follows: —

Art. 1573. A lessee shall have with respect to useful a voluntary improvements, the same
right which are granted the usufructuaries.

Art. 487. The usufructuary may make on the property in usufruct any improvements,
useful or recreative, which may deem proper, provided he does not change its form or
substance, but he shall have no right to be indemnified thereof. He may, however, remove
such improvements, should it possible to do so without injury to the property.

From the above provisions, it can clearly be inferred that plaintiffs can not compel the defendants
to pay for the improvements the former made on the property or to sell the latter's land. Plaintiffs'
only right, is to remove improvements, if it is possible to do so, without damage to the land.

It should be noted that article 448 of the new Civil Code, (equivalent to Art. 361 of the old Civil
Code), relied upon by plaintiffs, is intended to apply only to a case where one builds, or sows, or
plants on land in which believes himself to have a claim of title and not to land wherein one's
interest is that of tenant, under a rental co tract, which is the present case (Alburo v. Villanueva,
Phil. 277). The tenant cannot be said to be a builder in good faith as he has no pretension to be
owner (Rivera v. Trinidad, 48 Phil. 396; see also 3 Manresa 4th Ed. pp. 215-216).

The trial court, therefore, did not commit any error in dismissing the two causes of action.

II. The first cause of action, if any, is barred by prior judgment.

As plaintiffs in Civil Case No. 5442, the defendants al alleged in their complaint that the
reasonable rental value of the premises in question was P20.00 a month (par. 5). In said case No.
5442, the matter of the rental was in issue and the same was considered and decided by the trial
court, which ordered the defendants therein "to pay reasonable compensation of P20.00 a month
beginning with January, 1954, until they shall have left the premises". In the instant case, the
parties are the identical parties in Civil Case No. 5442; the same lot 1095 is the subject matter of
both cases; the same issue, namely, the amount of the rental is involved. Even assuming that
appellants have a cause of action, the doctrine of res judicata already operates against them.

III. The second cause of action, if any, is barred by the statute of limitations.

As shown by the documentary evidence submitted with the defendant's motion to dismiss, lot
No. 1095 was purchased by Agapita Solis from the Government on July 1, 1909. After full
payment of the purchase price, T.C.T. No. 10771 covering said lot was issued to said Agapita
Solis on June 8, 1933,(Exhibits 1 and 2). Assuming that plaintiffs or their alleged predecessor-in-
interest, had a cause of action for claiming the ownership of potion of said lot, such cause of
action accrued at the latest, on June 8, 1933. The plaintiffs or their predecessors had ten (10)
years from said date, within which to file the corresponding action. They, however, filed the
instant complaint only on July 1, 1954, or more than 21 years, after the accrual of the cause of
action.

IV. The cause of action, if any, is barred by plaintiffs' failure to set it up as a counterclaim in
Civil Case No. 5442.

Whether the cause of action is for recovery of ownership or for an alleged right to purchase the
property, or for reimbursement for some improvements, the herein plaintiffs as defendants in
Civil Case No. 5442, should have set it up as a counterclaim in said case, because same was
necessarily connected with, or arose out of the transactions involved in said case No. 5442(Sec.
6, Rule 10, Rules of Court).

It is alleged that plaintiffs-appellants' complaint should not have been dismissed without trial on
the merits, because in the case of De Jesus, et al. v. Belarmino, et al. G.R. No. L-6665, June 30,
1954; Off. Gaz. July 1954, p. 3064, it was held that "where the complaint was dismissed not
because of any evidence presented by the parties, or merits, but merely on a motion as a result of
a trial on the to dismiss filed by the defendants, the sufficiency of the motion should be tested on
the strength of the allegation of facts contained in the complaint and no other", which has been
interpreted to apply to cases where the motion to dismiss is based solely on the ground of lack of
cause of action. Considering the fact that (1) In the case a bar, documentary evidence and the
records of the Civil Case No. 5442 were presented and considered by the trial court; and (2) in
the De Jesus case, the only ground for dismissal was the lack of cause of action, while in the
present case, aside from said ground, plaintiffs allegation other grounds, the said ruling finds no
application.

IN VIEW HEREOF, we hereby affirm the order appealed from, with costs against the plaintiffs-
appellants.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Co Concepcion, Reyes, J.B.L., Barrera and
Dizon, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

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

FRANCISCO DEPRA, plaintiff-appellee,


vs.
AGUSTIN DUMLAO, defendant-appellant.

Roberto D. Dineros for plaintiff-appellee.

Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:

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

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

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

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

Ordering that a forced lease is created between the parties with the plaintiffs, as
lessors, and the defendants as lessees, over the disputed portion with an area of
thirty four (34) square meters, the rent to be paid is five (P5.00) pesos a month,
payable by the lessee to the lessors within the first five (5) days of the month the
rent is due; and the lease shall commence on the day that this decision shall have
become final.
From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it would
have ordinarily lapsed into finality, but even then, DEPRA did not accept payment of rentals so
that DUMLAO deposited such rentals with the Municipal Court.

On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before the
then Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same 34 square
meters, which was the bone of contention in the Municipal Court. DUMLAO, in his Answer,
admitted the encroachment but alleged, in the main, that the present suit is barred by res
judicata by virtue of the Decision of the Municipal Court, which had become final and
executory.

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

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

Without pronouncement as to costs.

SO ORDERED.

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

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

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

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

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

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

shall have the right

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

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

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

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

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

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

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


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

A word anent the philosophy behind Article 448 of the Civil rode.

The original provision was found in Article 361 of the Spanish Civil Code; which provided:

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

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

. . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el


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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No costs,

SO ORDERED.

Teehankee, Actg. C.J., Plana, Relova, De la Fuente and Alampay, JJ., concur.

Gutierrez, Jr., * J., took no part.


Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 95907 April 8, 1992

JOSE REYNANTE, petitioner,


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

PARAS, J.:

This is a petition for review on certiorari which seeks the reversal of: a) decision 1 of the Court
of Appeals dated February 28, 1990 in CA-G.R. No. 1917 entitled "JOSE REYNANTE versus
HON. VALENTIN CRUZ, Judge, RTC of Malolos, Bulacan, and HEIRS OF LEONCIO AND
DOLORES CARLOS, et al.", affirming the decision 2 of the Regional Trial Court
of Malolos, Bulacan, Branch 8, Third Judicial Region which reversed the decision 3 of the
Municipal Trial Court of Meycauayan, Bulacan, Branch 1, Third Judicial Region in Civil Case
No. 1526 entitled "HEIRS OF LEONCIO CARLOS & DOLORES A. CARLOS and HEIRS OF
GORGONIO A. CARLOS & CONCEPCION CARLOS versus JOSE REYNANTE: and b) the
resolution denying the motion for reconsideration.

The facts as culled from the records of the case are as follows:

More than 50 years ago, petitioner Jose Reynante was taken as tenant by the late Don Cosme
Carlos, owner and father-in-law of herein private respondents, over a fishpond located at Barrio
Liputan, Meycauayan, Bulacan with an area of 188.711 square meters, more or less and covered
by Transfer Certificate of Title No. 25618, Land Registry of Bulacan.

During the tenancy, petitioner Jose Reynante constructed a nipa hut where he and his family
lived and took care of the nipa palms (sasahan) he had planted on lots 1 and 2 covering an area of
5,096 square meters and 6,011 square meters respectively. These lots are located between the
fishpond covered by TCT No. 25618 and the Liputan (formerly Meycauayan) River. Petitioner
harvested and sold said nipa palms without interference and prohibition from anybody. Neither
did the late Don Cosme Carlos question his right to plant the nipa palms near the fishpond or to
harvest and appropriate them as his own.
After the death of Don Cosme Carlos, his heirs (private respondents' predecessors-in-interest)
entered into a written agreement denominated as "SINUMPAANG SALAYSAY NG
PAGSASAULI NG KARAPATAN" dated November 29, 1984 with petitioner Jose Reynante
whereby the latter for and in consideration of the sum of P200,000.00 turned over the fishpond
he was tenanting to the heirs of Don Cosme Carlos and surrendered all his rights therein as
caretaker or "bantay-kasama at tagapamahala" (Rollo, p. 77).

Pursuant to the said written agreement, petitioner surrendered the fishpond and the two huts
located therein to private respondents. Private respondents thereafter leased the said fishpond to
one Carlos de la Cruz. Petitioner continued to live in the nipa hut constructed by him on lots 1
and 2 and to take care of the nipa palms he had planted therein.

On February 17, 1988, private respondents formally demanded that the petitioner vacate said
portion since according to them petitioner had already been indemnified for the surrender of his
rights as a tenant. Despite receipt thereof, petitioner refused and failed to relinquish possession of
lots 1 and 2.

Hence, on April 22, 1988, private respondents filed a complaint for forcible entry with
preliminary mandatory injunction against petitioner alleging that the latter by means of strategy
and stealth, took over the physical, actual and material possession of lots 1 and 2 by residing in
one of the kubos or huts bordering the Liputan River and cutting off and/or disposing of
the sasa or nipa palms adjacent thereto.

On January 10, 1989, the trial court rendered its decision dismissing the complaint and finding
that petitioner had been in prior possession of lots 1
and 2.

Private respondents appealed to the Regional Trial Court and on August 8, 1989 it rendered its
decision, the dispositive portion of which reads as follows:

WHEREFORE, this Court renders judgment in favor of the plaintiffs and against
defendant and hereby reverses the decision of the Court a quo. Accordingly, the
defendant is ordered to restore possession of that piece of land particularly
described and defined as Lots 1 & 2 of the land survey conducted by Geodetic
Engineer Restituto Buan on March 2, 1983, together with the sasa or nipa palms
planted thereon. No pronouncement as to attorney's fees. Each party shall bear
their respective costs of the suit.

SO ORDERED. (Rollo, p. 55; Decision, p. 4).

From said decision, petitioner filed with the Court of Appeals a petition for review (Rollo, p. 30;
Annex "A"). On February 28, 1990, the Court of Appeals rendered its decision, the dispositive
portion of which reads as follows:
WHEREFORE, the decision of the court a quo, being consistent with law and
jurisprudence, is hereby AFFIRMED in toto. The instant petition seeking to issue
a restraining order is hereby denied.

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

On November 5, 1990, the Court of Appeals denied the motion for reconsideration filed by
petitioner (Rollo, p. 35; Annex "B").

Hence, this petition.

In its resolution dated May 6, 1991, the Second Division of this court gave due course to the
petition and required both parties to file their respective memoranda (Rollo, p. 93).

The main issues to be resolved in this case are: a) who between the petitioner and private
respondents has prior physical possession of lots 1 and 2; and b) whether or not the disputed lots
belong to private respondents as a result of accretion.

An action for forcible entry is merely a quieting process and actual title to the property is never
determined. A party who can prove prior possession can recover such possession even against
the owner himself. Whatever may be the character of his prior possession, if he has in his favor
priority in time, he has the security that entitles him to remain on the property until he is lawfully
ejected by a person having a better right by accion publiciana or accion reivindicatoria (German
Management & Services, Inc. v. Court of Appeals, G.R. No. 76216, September 14, 1989, 177
SCRA 495, 498, 499). On the other hand, if a plaintiff cannot prove prior physical possession, he
has no right of action for forcible entry and detainer even if he should be the owner of the
property (Lizo v. Carandang, 73 Phil. 469 [1942]).

Hence, the Court of Appeals could not legally restore private respondents' possession over lots 1
and 2 simply because petitioner has clearly proven that he had prior possession over lots 1 and 2.

The evidence on record shows that petitioner was in possession of the questioned lots for more
than 50 years. It is undisputed that he was the caretaker of the fishpond owned by the late Don
Cosme Carlos for more than 50 years and that he constructed a nipa hut adjacent to the fishpond
and planted nipa palms therein. This fact is bolstered by the "SINUMPAANG SALAYSAY"
executed by Epifanio Lucero (Records, p. 66), Apolonio D. Morte (Records, p. 101) and Carling
Dumalay (Records, p. 103), all of whom are disinterested parties with no motive to falsify that
can be attributed to them, except their desire to tell the truth.

Moreover, an ocular inspection was conducted by the trial court dated December 2, 1988 which
was attended by the parties and their respective counsels and the court observed the following:

The Court viewed the location and the distance of the constructed nipa hut and the
subject "sasahan" which appears exists (sic) long ago, planted and stands (sic)
adjacent to the fishpond and the dikes which serves (sic) as passage way of water
river of lot 1 and lot 2. During the course of the hearing, both counsel observed
muniment of title embedded on the ground which is located at the inner side of
the "pilapil" separating the fishpond from the subject "sasa" plant with a height of
20 to 25 feet from water level and during the ocular inspection it was judicially
observed that the controversial premises is beyond the titled property of the
plaintiffs but situated along the Liputan, Meycauayan River it being a part of the
public domain. (Rollo, p. 51; Decision, p. 12).

On the other hand, private respondents based their claim of possession over lots 1 and 2 simply
on the written agreement signed by petitioner whereby the latter surrendered his rights over the
fishpond.

Evidently, the trial court did not err when it ruled that:

An examination of the document signed by the defendant (Exhibit "B"), shows


that what was surrendered to the plaintiffs was the fishpond and not the "sasahan"
or the land on which he constructed his hut where he now lives. That is a
completely different agreement in which a tenant would return a farm or a
fishpond to his landlord in return for the amount that the landlord would pay to
him as a disturbance compensation. There is nothing that indicates that the tenant
was giving other matters not mentioned in a document like Exhibit "B".
Moreover, when the plaintiffs leased the fishpond to Mr. Carlos de La Cruz there
was no mention that the lease included the hut constructed by the defendant and
the nipa palms planted by him (Exhibit "1"), a circumstance that gives the
impression that the nipa hut and the nipa palms were not included in the lease to
Mr. de la Cruz, which may not belong to the plaintiffs. (Rollo, p. 49; Decision, p.
9).

With regard to the second issue, it must be noted that the disputed lots involved in this case
are not included in Transfer Certificate of Title No. 25618 as per verification made by the Forest
Management Bureau, Department of Environment and Natural Resources. That tract of land
situated at Barrio Liputan, Meycauayan, Bulacan containing an area of 1.1107 hectares as
described in the plan prepared and surveyed by Geodetic Engineer Restituto Buan for Jose
Reynante falls within Alienable and Disposable Land (for fishpond development) under Project
No. 15 per B.F.L.C. Map No. 3122 dated May 8, 1987 (Rollo, p. 31; Decision, p. 2).

The respondent Court of Appeals ruled that lots 1 and 2 were created by alluvial formation and
hence the property of private respondents pursuant to Article 457 of the New Civil Code, to wit:

Art. 457. To the owners of lands adjoining the banks of rivers belong the
accretion which they gradually receive from the effects of the current of the
waters.

Accretion benefits a riparian owner when the following requisites are present: (1) that the deposit
be gradual and imperceptible; (2) that it resulted from the effects of the current of the water; and
(c) that the land where accretion takes place is adjacent to the bank of a river (Republic v. Court
of Appeals, G.R. No. L-61647, October 12, 1984, 132 SCRA 514, cited in Agustin v.
Intermediate Appellate Court, G.R. Nos. 66075-76, July 5, 1990, 187 SCRA 218).

Granting without conceding that lots 1 and 2 were created by alluvial formation and while it is
true that accretions which the banks of rivers may gradually receive from the effect of the current
become the property of the owner of the banks, such accretion to registered land does not
preclude acquisition of the additional area by another person through prescription.

This Court ruled in the case of Ignacio Grande, et al. v. Hon. Court of Appeals, et al., G.R. No.
L-17652, June 30, 1962, 115 Phil. 521 that:

An accretion does not automatically become registered land just because the lot
which receives such accretion is covered by a Torrens Title. Ownership of a piece
of land is one thing; registration under the Torrens system of that ownership is
another. Ownership over the accretion received by the land adjoining a river is
governed by the Civil Code. Imprescriptibility of registered land is provided in
the registration law. Registration under the Land Registration and Cadastral Act
does not vest or give title to the land, but merely confirms and, thereafter, protects
the title already possessed by the owner, making it imprescriptible by occupation
of third parties. But to obtain this protection, the land must be placed under the
operation of the registration laws, wherein certain judicial procedures have
beenprovided.

Assuming private respondents had acquired the alluvial deposit (the lot in question), by
accretion, still their failure to register said accretion for a period of fifty (50) years subjected said
accretion to acquisition through prescription by third persons.

It is undisputed that petitioner has been in possession of the subject lots for more than fifty (50)
years and unless private respondents can show a better title over the subject lots, petitioner's
possession over the property must be respected.

PREMISES CONSIDERED, the decision of the respondent Court of Appeals dated February 28,
1990 is REVERSED and SET ASIDE and the decision of the Municipal Trial Court of
Meycauayan, Bulacan, Branch I, is hereby REINSTATED.

SO ORDERED.

Melencio-Herrera, Padilla, Regalado and Nocon, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 170923 January 20, 2009

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

DECISION

PUNO, C.J.:

On appeal are the Court of Appeals’ (CA’s) October 4, 2005 Decision1 in CA-G.R. SP No.
74631 and December 22, 2005 Resolution,2 reversing the November 29, 2002 Decision3 of the
Regional Trial Court (RTC) of Pasay City in Civil Case No. 02-0133. The RTC modified the
Decision4 of the Metropolitan Trial Court (MeTC) of Pasay City which ruled against petitioners
and ordered them to vacate the premises and pay their arrears. The RTC declared petitioners as
builders in good faith and upheld their right to indemnity.

The facts are as follows:

Respondent Nayong Pilipino Foundation, a government-owned and controlled corporation, is the


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

On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of
36,289 square meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of a
hotel building, to be known as the Philippine Village Hotel. The lease was for an initial period of
21 years, or until May 1996. It is renewable for a period of 25 years under the same terms and
conditions upon due notice in writing to respondent of the intention to renew at least 6 months
before its expiration. Thus, on March 7, 1995, petitioners sent respondent a letter notifying the
latter of their intention to renew the contract for another 25 years. On July 4, 1995, the parties
executed a Voluntary Addendum to the Lease Agreement. The addendum was signed by
petitioner Jose Marcel E. Panlilio in his official capacity as Senior Executive Vice President of
the PVHI and by Chairman Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to
the renewal of the contract for another 25 years, or until 2021. Under the new agreement,
petitioner PVHI was bound to pay the monthly rental on a per square meter basis at the rate of
₱20.00 per square meter, which shall be subject to an increase of 20% at the end of every 3-year
period. At the time of the renewal of the lease contract, the monthly rental amounted to
₱725,780.00.

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

On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC of
Pasay City. The complaint was docketed as Civil Case No. 708-01. Respondent computed the
arrears of petitioners in the amount of twenty-six million one hundred eighty-three thousand two
hundred twenty-five pesos and fourteen centavos (₱26,183,225.14), as of July 31, 2001.

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

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

xxx

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

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

The dispositive portion of the decision reads as follows:


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

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

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

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

4. PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of


attorney’s fees[; and]

5. PAY the costs of suit.

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

SO ORDERED.5

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

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

xxx

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

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

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

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

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

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

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

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


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

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


for the use and occupation of the premises pending this appeal from July to November
2002 only at P725,780.00 per month;

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

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

SO ORDERED.6
Respondent appealed to the CA which held that the RTC erroneously applied the rules on
accession, as found in Articles 448 and 546 of the Civil Code when it held that petitioners were
builders in good faith and, thus, have the right to indemnity. The CA held:

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

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

Petitioners’ Motion for Reconsideration was denied.

Hence, this appeal.7

Petitioners assign the following errors:

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR


IN NOT HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE
SUBSTANTIAL AND VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED
ON THE SUBJECT PROPERTY, THUS COMPELLING THE APPLICATION OF ARTICLE
448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE,
INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE.

II

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE


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

III

ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT BUILDERS IN GOOD


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

IV

TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD


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

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR


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

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

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

. . . . The word "vacate" is not a talismanic word that must be employed in all notices. The
alternatives in this case are clear cut. The tenants must pay rentals which are fixed and which
became payable in the past, failing which they must move out. There can be no other
interpretation of the notice given to them. Hence, when the petitioners demanded that either he
pays ₱18,000 in five days or a case of ejectment would be filed against him, he was placed on
notice to move out if he does not pay. There was, in effect, a notice or demand to vacate.9

In the case at bar, the language of the demand letter is plain and simple: respondent demanded
payment of the rental arrears amounting to ₱26,183,225.14 within ten days from receipt by
petitioners, or respondent will be constrained to file an appropriate legal action against
petitioners to recover the said amount. The demand letter further stated that respondent will
possess the leased premises in case of petitioners’ failure to pay the rental arrears within ten
days. Thus, it is clear that the demand letter is intended as a notice to petitioners to pay the rental
arrears, and a notice to vacate the premises in case of failure of petitioners to perform their
obligation to pay.

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

Article 448 and Article 546 provide:

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

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

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

We uphold the ruling of the CA.

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

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

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

We affirm the ruling of the CA that introduction of valuable improvements on the leased
premises does not give the petitioners the right of retention and reimbursement which rightfully
belongs to a builder in good faith. Otherwise, such a situation would allow the lessee to easily
"improve" the lessor out of its property. We reiterate the doctrine that a lessee is neither a builder
in good faith nor in bad faith12 that would call for the application of Articles 448 and 546 of the
Civil Code. His rights are governed by Article 1678 of the Civil Code, which reads:

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use
for which the lease is intended, without altering the form or substance of the property leased, the
lessor upon the termination of the lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may suffer damage thereby. He shall
not, however, cause any more impairment upon the property leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he
may remove the ornamental objects, provided no damage is caused to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.

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

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

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

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

In case of cancellation or termination of this contract due to the default or breach of its terms, the
LESSEE will pay all reasonable attorney’s fees, costs and expenses of litigation that may be
incurred by the LESSOR in enforcing its rights under this contract or any of its provisions, as
well as all unpaid rents, fees, charges, taxes, assessment and others which the LESSOR may be
entitled to.
Petitioners assert that respondent committed a breach of the lease contract when it filed the
ejectment suit against them. However, we find nothing in the above quoted provision that
prohibits respondent to proceed the way it did in enforcing its rights as lessor. It can rightfully
file for ejectment to evict petitioners, as it did before the court a quo.

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

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-25462 February 21, 1980

MARIANO FLOREZA, petitioner,


vs.
MARIA D. de EVANGELISTA and SERGIO EVANGELISTA, respondents.

R.D. Hipolito & B. P. Fabir for petitioner.

E.G. Tanjuatco & Associates for respondents.

MELENCIO-HERRERA, J:

This is a Petition for Review on certiorari of the Decision of the Court of Appeals (CA-G.R. No.
23516-R) promulgated on November 4, 1965, entitled "Maria de Evangelista and Sergio
Evangelists, (now the respondents) vs. Mariano Floreza (petitioner herein)," reversing the
judgment of the Court of First Instance of Rizal rendered on July 17, 1957, and instead ordering
petitioner to vacate respondents' residential lot, to remove his house at his own expenses and to
pay rental from May 5, 1956.

Plaintiffs Maria de Evangelista and Sergio Evangelista, who are mother and son, (the
EVANGELISTAS, for short) are the owners of a residential lot located at Sumilang St., Tanay,
Rizal, with an area of 204.08 sq. ms., assessed at P410.00. In May 1945, the EVANGELISTAS
borrowed from FLOREZA the amount of P100.00. On or about November 1945, with the
consent of the EVANGELISTAS, FLOREZA occupied the above residential lot and built
thereon a house of light materials (barong- barong) without any agreement as to payment for the
use of said residential lot owing to the fact that the EVANGELISTAS has then a standing loan of
P100.00 in favor of FLOREZA. 1

On the following dates, the EVANGELISTAS again borrowed the indicated amounts: September
16, 1946 — P100.00; 2 August 17, 1947 — P200,00; 3 January 30, 1949 — P200.00; 4 April 1,
1949 — P140.00, 5 or a total of P740.00 including the first loan. The last three items are
evidenced by private documents stating that the residential lot stands as security therefor and that
the amounts covered thereunder are payable within six years from date, without mention of
interest. The document executed on September 16, 1946 stated specifically that the loan was
without interest "walang anumang patubo."
On January 10, 1949, FLOREZA demolished this house of light materials and in its place
constructed one of strong materials assessed in his name at P1,410.00 under Tax Declaration No.
4448. FLOREZA paid no rental as before. 6

On August 1, 1949, the EVANGELISTAS, for and in consideration of P1,000.00 representing


the total outstanding loan of P740.00 plus P260.00 in cash, sold their residential lot to
FLOREZA, with a right to repurchase within a period of 6 years from date, or up to August 1,
1955, as evidenced by a notarial document, Exh. B, registered under Act 3344 on December 6,
1949, as Inscription No. 2147. 7

On January 2, 1955, or seven months before the expiry of the repurchase period, the
EVANGELISTAS paid in full the repurchase price of P1,000.00.

On April 25, 1956, the EVANGELISTAS, through their counsel, wrote FLOREZA a
letter 8 asking him to vacate the premises as they wanted to make use of their residential lot
besides the fact that FLOREZA had already been given by them more than one year within
which to move his house to another site. On May 4, 1956, the EVANGELISTAS made a formal
written demand to vacate, within five days from notice, explaining that they had already fully
paid the consideration for the repurchase of the lot. 9 FLOREZA refused to vacate unless he was
first reimbursed the value of his house. Hence, the filing of this Complaint on May 18, 1956 by
the EVANGELISTAS.

The EVANGELISTAS prayed that: 1) they be declared the owners of the house of strong
materials built by FLOREZA on their residential lot, without payment of indemnity; or, in the
alternative to order FLOREZA to remove said house; 2) that FLOREZA pay them the sum of
P10.00 per month as the reasonable value for the use and occupation of the same from January 2,
1955 (the date the repurchase price was paid) until FLOREZA removes the house and delivers
the lot to them; and 3) to declare the transaction between them and FLOREZA as one of
mortgage and not of pacto de retro.

In his Answer, FLOREZA admitted the repurchase but controverted by stating that he would
execute a deed of repurchase and leave the premises upon payment to him of the reasonable
value of the house worth P7,000.00.

In a Decision dated July 17, 1957, the Court of First Instance of Rizal opined that the question of
whether the transaction between the parties is one of mortgage or pacto de retro is no longer
material as the indebtedness of P1,000.00 of the EVANGELISTAS to FLOREZA had already
been fully paid. And, applying Article 448 of the Civil Code, 10 it rendered a decision
dispositively decreeing:

FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby renders


judgment granting the plaintiffs the right to elect, as owners of the land, to
purchase the house built, on the said lot in question by the defendant for P2,500 or
to sell their said land to e defendant for P1,500. In the event that the plaintiffs
shall decide not to purchase the house in question the defendant should be
allowed to remain in plaintiffs' premises by, paying a monthly rental of P10.00
which is the reasonable value for the use of the same per month as alleged by
plaintiffs in their complaint. The Court also orders the defendant to pay a monthly
rental of P10.00 for the use of the land in question from May 18, 1956, the date of
the commencement of this action. The counterclaim of the defendant is hereby
ordered dismissed. Without pronouncement as to costs.

SO ORDERED. 11

Both parties appealed to the Court of Appeals.

On November 4, 1965, the Court of Appeals concluded that Article 448 of the Civil Code, supra,
was inapplicable; that FLOREZA was not entitled to reimbursement for his house but that he
could remove the same at his expense; and accordingly rendered judgment thus:

WHEREFORE, judgment is hereby rendered: (1) adjudging the defendant-


appellant Mariano Floreza to vacate plaintiffs' residential lot described in the
complaint and to pay rental of P10.00 a month from May 5, 1956, until he
(defendant) shall have vacated the premises; (2) ordering defendant to remove his
house from the land in question within 30 days from the time this decision
becomes final and executory; (3) ordering the Register of Deeds of Rizal to cancel
inscription No. 2147, Page 210, Vol. 36, in the Registration Book under Act 3344
upon payment of his lawful fees; and (4) taxing the costs in both instances against
defendant-appellant Mariano Floreza. 12

Hence, this Petition for Review on certiorari by FLOREZA, seeking a reversal of the aforestated
judgment and ascribing the following errors:

1) That the Court of Appeals erred in holding that petitioner Floreza was a builder
in bad faith without likewise holding that respondents as owners of the land in
dispute, were likewise in bad faith and therefore both parties should in accordance
with Art. 453 of the New Civil Code be considered as having acted in good faith.

2) That the Court of Appeals erred in completely ignoring the issue raised on
appeal as to whether or not respondents as owners of the questioned lot, were in
bad faith in the sense that they had knowledge of and acquiseced to the
construction of the house of petitioner on their lot.

3) That the Court of Appeals erred in not applying Art. 448 of the New Civil
Code in the adjudication of the rights of petitioner and respondent.

4) That the Court of Appeals erred in declaring that petitioner is not entitled to
reimbursement for the value of his house and that he should instead remove the
same at his expense.

5) That the Court of Appeals erred in adjudging petitioner to vacate respondents'


lot in question and to pay rentals commencing from May 5, 1956, until he shall
have vacated the premises, notwithstanding that petitioner is entitled under Arts.
448 and 546 of the New Civil Code, to retention without payment of rental while
the corresponding indemnity of his house had not been paid.

6) That the Court of Appeals erred in taxing costs against petitioner.

7) That the Court of Appeals erred in not awarding petitioner's counterclaim.

During the pendency of this appeal, petitioner Maria D. de Evangelista died and was ordered
substituted by her son, petitioner Sergio, as her legal representative, in a Resolution dated May
14, 1976.

On October 20, 1978. the EVANGELISTAS filed a Motion to Dismiss stating that FLOREZA
had since died and that his heirs had voluntarily vacated the residential lot in question. The date
FLOREZA passed away and the date his heirs had voluntarily vacated the property has not been
stated. Required to comment, "petitioner (represented by his heirs)", through counsel, confirmed
his death and the removal of the house and manifested that thereby the question of
reimbursement had moot and academic. He objected to the dismissal of the case, however, on the
ground that the issue of rentals still pends. On January 21, 1980, complying with a Resolution of
'his Court, the EVANGELISTAS clarified that the dismissal they were praying for was not of the
entire case but only of this Petition for Review on Certiorari.

We are not in agreement that the question of reimbursement of the value of the improvement
erected on the subject property has become moot. Petitioner's right of retention of subject
property until he is reimbursed for the value of his house, as he had demanded, is inextricably
linked with the question of rentals. For if petitioner has the right to indemnity, he has the right of
retention and no rentals need be paid. Conversely, if no right of retention exists, damages in the
form of rentals for the continued use and occupation of the property should be allowed.

We uphold the Court of Appeals in its conclusion that Article 448 of the Civil Code is
inapplicable to the factual milieu herein. Said codal provision applies only when the builder,
planter, or sower believes he had the right so to build, plant or sow because he thinks he owns
the land or believes himself to have a claim of title. 13 In this case, petitioner makes no
pretensions of ownership whatsoever.

Petitioner concedes that he was a builder in bad faith but maintains that' the EVANGELISTAS
should also be held in bad faith, so that both of them being in bad faith, Article 453 of the Civil
Code 14 should apply. By the same token, however, that Article 448 of the same Code is not
applicable, neither is Article 453 under the ambiance of this case.

Would petitioner, as vendee a retro, then be entitled to the rights granted iii Article 1616 of the
Civil Code (Art. 1518 of the old Code)? To quote:

Art. 1616. The vendor cannot avail himself of the right of repurchase without
returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by
reason of the sale;

(2) The necessary and useful expenses made on the thing sold.

The question again calls for a negative answer. It should be noted that petitioner did not
construct his house as a vendee a retro. The house had already been constructed as far back as
1949 (1945 for the house of light materials) even before the pacto de retro sale in 1949.
Petitioner incurred no useful expense, therefore, after that sale. The house was already there at
the tolerance of the EVANGELISTAS in consideration of the several loans extended to them.
Since petitioner cannot be classified as a builder in good faith within the purview of Article 448
of the Civil Code, nor as a vendee a retro, who made useful improvements during the lifetime of
the pacto de retro, petitioner has no right to reimbursement of the value of the house which he
had erected on the residential lot of the EVANGELISTAS, much less to retention of the premises
until he is reimbursed.The rights of petitioner are more akin to those of a usufructuary who,
under Article 579 of the Civil (Art. 487 of the old Code), may make on the property useful
improvements but with no right to be indemnified therefor. He may, however, remove such
improvements should it be possible to do so without damage to the property: For if the
improvements made by the usufructuary were subject to indemnity, we would have a dangerous
and unjust situation in which the usufructuary could dispose of the owner's funds by compelling
him to pay for improvements which perhaps he would not have made. 15

We come now to the issue of rentals. It is clear that from the date that the redemption price had
been paid by the EVANGELISTAS on January 2, 1955, petitioner's right to the use of the
residential lot without charge had ceased. Having retained the property although a redemption
had been made, he should be held liable for damages in the form of rentals for the continued use
of the subject residential lot16 at the rate of P10.00 monthly from January 3, 1955, and not merely
from the date of demand on May 4, 1956, as held by the Court of Appeals, until the house was
removed and the property vacated by petitioner or his heirs.

WHEREFORE, the judgment appealed from is hereby affirmed, with the modification that
payment of rentals by the heir, of Mariano Floreza, who are hereby ordered substituted for him,
shall commence on January 3, 1955 until the date that the residential lot in question was vacated.

Costs against petitioner.

SO ORDERED.
Republic of the Philippines
Supreme Court
Manila

FIRST DIVISION

MARIA TORBELA, represented by her G.R. No. 140528


heirs, namely: EULOGIO TOSINO,
husband and children: CLARO,
MAXIMINO, CORNELIO, OLIVIA
and CALIXTA, all surnamed TOSINO,
APOLONIA TOSINO VDA. DE
RAMIREZ and JULITA TOSINO
DEAN; PEDRO TORBELA,
represented by his heirs, namely: JOSE
and DIONISIO, both surnamed
TORBELA; EUFROSINA TORBELA
ROSARIO, represented by her heirs,
namely: ESTEBAN T. ROSARIO,
MANUEL T. ROSARIO, ROMULO T.
ROSARIO and ANDREA ROSARIO-
HADUCA; LEONILA TORBELA
TAMIN; FERNANDO TORBELA,
represented by his heirs, namely:
SERGIO T. TORBELA, EUTROPIA T.
VELASCO, PILAR T. ZULUETA,
CANDIDO T. TORBELA,
FLORENTINA T. TORBELA and
PANTALEON T. TORBELA;
DOLORES TORBELA TABLADA;
LEONORA TORBELA AGUSTIN,
represented by her heirs, namely:
PATRICIO, SEGUNDO, CONSUELO
and FELIX, all surnamed AGUSTIN;
and SEVERINA TORBELA
ILDEFONSO,
Petitioners,

- versus -

SPOUSES ANDRES
T. ROSARIOand LENA DUQUE-
ROSARIO and BANCO FILIPINO
SAVINGS AND MORTGAGE BANK,
Respondents.
x-----------------------x
LENA DUQUE-ROSARIO,
Petitioner,

- versus - G.R. No. 140553

Present:

CORONA, C.J.,
BANCO FILIPINO SAVINGS AND Chairperson,
MORTGAGE BANK, LEONARDO-DE CASTRO,
Respondent. BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

Promulgated:

December 7, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO-DE CASTRO, J.:

Presently before the Court are two consolidated Petitions for Review on Certiorari under Rule
45 of the Rules of Court, both assailing the Decision[1] dated June 29, 1999 and
Resolution[2] dated October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.

The petitioners in G.R. No. 140528 are siblings Maria Torbela,[3] Pedro Torbela,[4] Eufrosina
Torbela Rosario,[5] Leonila Torbela Tamin, Fernando Torbela,[6] Dolores Torbela Tablada,
Leonora Torbela Agustin,[7] and Severina Torbela Ildefonso (Torbela siblings).

The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was married to,
but now legally separated from, Dr. Andres T. Rosario (Dr. Rosario). Dr. Rosario is the son of
Eufrosina Torbela Rosario and the nephew of the other Torbela siblings.
The controversy began with a parcel of land, with an area of 374 square meters, located
in Urdaneta City, Pangasinan (Lot No. 356-A). It was originally part of a larger parcel of land,
known as Lot No. 356 of the Cadastral Survey of Urdaneta, measuring 749 square meters, and
covered by Original Certificate of Title (OCT) No. 16676,[8] in the name of Valeriano Semilla
(Valeriano), married to Potenciana Acosta. Under unexplained circumstances, Valeriano
gave Lot No. 356-A to his sister Marta Semilla, married to Eugenio Torbela (spouses
Torbela). Upon the deaths of the spouses Torbela, Lot No. 356-A was adjudicated in equal shares
among their children, the Torbela siblings, by virtue of a Deed of Extrajudicial
Partition[9]dated December 3, 1962.

On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim [10] over Lot
No. 356-A in favor of Dr. Rosario. According to the said Deed, the Torbela siblings for and in
consideration of the sum of NINE PESOS (P9.00) x x x transfer[red] and convey[ed] x x x unto
the said Andres T. Rosario, that undivided portion of THREE HUNDRED SEVENTY-FOUR
square meters of that parcel of land embraced in Original Certificate of Title No. 16676 of the
land records of Pangasinan x x x.[11] Four days later, on December 16, 1964, OCT No. 16676 in
Valerianos name was partially cancelled as to Lot No. 356-A and TCT No. 52751[12] was issued
in Dr. Rosarios name covering the said property.

Another Deed of Absolute Quitclaim[13] was subsequently executed on December 28, 1964, this
time by Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela
siblings and was already returning the same to the latter for P1.00. The Deed stated:

That for and in consideration of the sum of one peso (P1.00), Philippine
Currency and the fact that I only borrowed the above described parcel of
land from MARIA TORBELA, married to Eulogio Tosino, EUFROSINA
TORBELA, married to Pedro Rosario, PEDRO TORBELA, married to Petra
Pagador, LEONILA TORBELA, married to Fortunato Tamen, FERNANDO
TORBELA, married to Victoriana Tablada, DOLORES TORBELA, widow,
LEONORA TORBELA, married to Matias Agustin and SEVERINA TORBELA,
married to Jorge Ildefonso, x x x by these presents do hereby cede, transfer and
convey by way of this ABSOLUTE QUITCLAIM unto the said Maria, Eufrosina,
Pedro, Leonila, Fernando, Dolores, Leonora and Severina, all surnamed Torbela
the parcel of land described above.[14] (Emphasis ours.)

The aforequoted Deed was notarized, but was not immediately annotated on TCT No. 52751.
Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development
Bank of the Philippines (DBP) on February 21, 1965 in the sum of P70,200.00, secured by a
mortgage constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751
on September 21, 1965 as Entry No. 243537.[15] Dr. Rosario used the proceeds of the loan for
the construction of improvements on Lot No. 356-A.

On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of Adverse Claim,[16] on
behalf of the Torbela siblings. Cornelio deposed in said Affidavit:

3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the


former owners by virtue of a Deed of Absolute Quitclaim which he executed
before Notary Public Banaga, and entered in his Notarial Registry as Dec. No. 43;
Page No. 9; Book No. I; Series of 1964;

4. That it is the desire of the parties, my aforestated kins, to register


ownership over the above-described property or to perfect their title over the same
but their Deed could not be registered because the registered owner now,
ANDRES T. ROSARIO mortgaged the property with the DEVELOPMENT
BANK OF THE PHILIPPINES, on September 21, 1965, and for which reason,
the Title is still impounded and held by the said bank;

5. That pending payment of the obligation with the DEVELOPMENT BANK OF


THE PHILIPPINES or redemption of the Title from said bank, I, CORNELIO T.
TOSINO, in behalf of my mother MARIA TORBELA-TOSINO, and my Aunts
EUFROSINA TORBELA, LEONILA TORBELA-TAMEN, DOLORES
TORBELA, LEONORA TORBELA-AGUSTIN, SEVERINA TORBELA-
ILDEFONSO, and my Uncles PEDRO TORBELA and FERNANDO, also
surnamed TORBELA, I request the Register of Deeds of Pangasinan to annotate
their adverse claim at the back of Transfer Certificate of Title No. 52751, based
on the annexed document, Deed of Absolute Quitclaim by ANDRES T.
ROSARIO, dated December 28, 1964, marked as Annex A and made a part of
this Affidavit, and it is also requested that the DEVELOPMENT BANK OF THE
PHILIPPINES be informed accordingly.[17]

The very next day, on May 17, 1967, the Torbela siblings had Cornelios Affidavit of
Adverse Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 annotated on TCT No. 52751 as Entry Nos.
[18] [19]
274471 and 274472, respectively.

The construction of a four-storey building on Lot No. 356-A was eventually completed. The
building was initially used as a hospital, but was later converted to a commercial building. Part
of the building was leased to PT&T; and the rest to Mrs. Andrea Rosario-Haduca, Dr. Rosarios
sister, who operated the Rose Inn Hotel and Restaurant.

Dr. Rosario was able to fully pay his loan from DBP. Under Entry No. 520197 on TCT No.
52751[20] dated March 6, 1981, the mortgage appearing under Entry No. 243537 was cancelled
per the Cancellation and Discharge of Mortgage executed by DBP in favor of Dr. Rosario and
ratified before a notary public on July 11, 1980.

In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank
(PNB) sometime in 1979-1981.Records do not reveal though the original amount of the loan
from PNB, but the loan agreement was amended on March 5, 1981 and the loan amount was
increased to P450,000.00. The loan was secured by mortgages constituted on the following
properties: (1) Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosarios name; (2) Lot No.
4489, with an area of 1,862 square meters, located in Dagupan City, Pangasinan, covered by
TCT No. 24832; and (3) Lot No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters, located
in Nancayasan, Urdaneta, Pangasinan, covered by TCT No. 104189.[21] The amended loan
agreement and mortgage on Lot No. 356-A was annotated on TCT No. 52751 on March 6,
1981 as Entry No. 520099.[22]

Five days later, on March 11, 1981, another annotation, Entry No. 520469,[23] was made
on TCT No. 52751, canceling the adverse claim on Lot No. 356-A under Entry Nos. 274471-
274472, on the basis of the Cancellation and Discharge of Mortgage executed by Dr. Rosario on
March 5, 1981. Entry No. 520469 consisted of both stamped and handwritten portions, and
exactly reads:

Entry No. 520469. Cancellation of Adverse Claim executed by Andres Rosario in


favor of same. The incumbrance/mortgage appearing under Entry No. 274471-
72 is now cancelled as per Cancellation and Discharge of Mortgage Ratified
before Notary Public Mauro G. Meris on March 5, 1981: Doc. No. 215; Page
No. 44; Book No. 1; Series Of 1981.
Lingayen, Pangasinan, 3-11, 19981

[Signed: Pedro dela Cruz]


Register of Deeds [24]
On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario),
acquired a third loan in the amount of P1,200,000.00 from Banco Filipino Savings and Mortgage
Bank (Banco Filipino). To secure said loan, the spouses Rosario again constituted mortgages on
Lot No. 356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. The mortgage on Lot No. 356-A
was annotated on TCT No. 52751 as Entry No. 533283[25] on December 18, 1981. Since the
construction of a two-storey commercial building on Lot No. 5-F-8-C-2-B-2-A was still
incomplete, the loan value thereof as collateral was deducted from the approved loan
amount. Thus, the spouses Rosario could only avail of the maximum loan amount
of P830,064.00 from Banco Filipino.

Because Banco Filipino paid the balance of Dr. Rosarios loan from PNB, the mortgage
on Lot No. 356-A in favor of PNB was cancelled per Entry No. 533478[26] on TCT No. 52751
dated December 23, 1981.

On February 13, 1986, the Torbela siblings filed before the Regional Trial Court (RTC) of
Urdaneta, Pangasinan, a Complaint for recovery of ownership and possession of Lot No. 356-A,
plus damages, against the spouses Rosario, which was docketed as Civil Case No. U-4359. On
the same day, Entry Nos. 593493 and 593494 were made on TCT No. 52751 that read as
follows:

Entry No. 593494 Complaint Civil Case No. U-4359 (For: Recovery of
Ownership and Possession and Damages. (Sup. Paper).
Entry No. 593493 Notice of Lis Pendens The parcel of land described in this title
is subject to Lis Pendens executed by Liliosa B. Rosario, CLAO, Trial Attorney
dated February 13, 1986. Filed to TCT No. 52751
February 13, 1986-1986 February 13 3:30 p.m.

(SGD.) PACIFICO M. BRAGANZA


Register of Deeds[27]

The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of April 2,
1987, the spouses Rosarios outstanding principal obligation and penalty charges amounted
to P743,296.82 and P151,524.00, respectively.[28]

Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489,
and Lot No. 5-F-8-C-2-B-2-A. During the public auction on April 2, 1987, Banco Filipino was
the lone bidder for the three foreclosed properties for the price of P1,372,387.04. The Certificate
of Sale[29] dated April 2, 1987, in favor of Banco Filipino, was annotated on TCT No. 52751 on
April 14, 1987 as Entry No. 610623.[30]

On December 9, 1987, the Torbela siblings filed before the RTC their Amended
Complaint,[31] impleading Banco Filipino as additional defendant in Civil Case No. U-4359 and
praying that the spouses Rosario be ordered to redeem Lot No. 356-A from Banco Filipino.

The spouses Rosario instituted before the RTC on March 4, 1988 a case for annulment of
extrajudicial foreclosure and damages, with prayer for a writ of preliminary injunction and
temporary restraining order, against Banco Filipino, the Provincial Ex Officio Sheriff and his
Deputy, and the Register of Deeds of Pangasinan. The case was docketed as Civil Case No. U-
4667. Another notice of lis pendens was annotated on TCT No. 52751 on March 10,
1988 as Entry No. 627059, viz:

Entry No. 627059 Lis Pendens Dr. Andres T. Rosario and Lena Duque Rosario,
Plaintiff versus Banco Filipino, et. al. Civil Case No. U-4667 or Annulment of
ExtraJudicial Foreclosure of Real Estate Mortgage The parcel of land described in
this title is subject to Notice of Lis Pendens subscribed and sworn to before
Notary Public Mauro G. Meris, as Doc. No. 21; Page No. 5; Book 111; S-
1988. March 7, 1988-1988 March 10, 1:00 p.m.

(SGD.) RUFINO M. MORENO, SR.


Register of Deeds[32]

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990, the
RTC issued an Order[33]dismissing without prejudice Civil Case No. U-4667 due to the spouses
Rosarios failure to prosecute.

Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but
their efforts were unsuccessful. Upon the expiration of the one-year redemption period in April
1988, the Certificate of Final Sale[34] and Affidavit of Consolidation[35] covering all three
foreclosed properties were executed on May 24, 1988 and May 25, 1988, respectively.

On June 7, 1988, new certificates of title were issued in the name of Banco Filipino,
particularly, TCT No. 165812 for Lot No. 5-F-8-C-2-B-2-A and TCT No. 165813 for Lot No.
356-A .[36]
The Torbela siblings thereafter filed before the RTC on August 29, 1988 a
Complaint[37] for annulment of the Certificate of Final Sale dated May 24, 1988, judicial
cancelation of TCT No. 165813, and damages, against Banco Filipino, the Ex Officio Provincial
Sheriff, and the Register of Deeds of Pangasinan, which was docketed as Civil Case No. U-
4733.

On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta City a Petition for the
issuance of a writ of possession. In said Petition, docketed as Pet. Case No. U-822, Banco
Filipino prayed that a writ of possession be issued in its favor over Lot No. 5-F-8-C-2-B-2-A and
Lot No. 356-A, plus the improvements thereon, and the spouses Rosario and other persons
presently in possession of said properties be directed to abide by said writ.

The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-
822. The Decision[38] on these three cases was promulgated on January 15, 1992, the dispositive
portion of which reads:

WHEREFORE, judgment is rendered:

1. Declaring the real estate mortgage over Lot 356-A covered


by TCT 52751 executed by Spouses Andres Rosario in favor of Banco Filipino,
legal and valid;

2. Declaring the sheriffs sale dated April 2, 1987 over Lot 356-
A covered by TCT 52751 and subsequent final Deed of Sale dated May 14, 1988
over Lot 356-A covered by TCT No. 52751 legal and valid;

3. Declaring Banco Filipino the owner of Lot 356-A covered by


TCT No. 52751 (now TCT 165813);

4. Banco Filipino is entitled to a Writ of Possession


over Lot 356-A together with the improvements thereon (Rose InnBuilding). The
Branch Clerk of Court is hereby ordered to issue a writ of possession in favor of
Banco Filipino;

5. [The Torbela siblings] are hereby ordered to render


accounting to Banco Filipino the rental they received from tenants
of Rose Inn Building from May 14, 1988;

6. [The Torbela siblings] are hereby ordered to pay Banco


Filipino the sum of P20,000.00 as attorneys fees;
7. Banco Filipino is hereby ordered to give [the Torbela
siblings] the right of first refusal over Lot 356-A. The Register of Deeds is hereby
ordered to annotate the right of [the Torbela siblings] at the back of TCT No.
165813 after payment of the required fees;

8. Dr. Rosario and Lena Rosario are hereby ordered to


reimburse [the Torbela siblings] the market value of Lot 356-A as of December,
1964 minus payments made by the former;

9. Dismissing the complaint of [the Torbela siblings] against


Banco Filipino, Pedro Habon and Rufino Moreno in Civil Case No. U-4733; and
against Banco Filipino in Civil Case No. U-4359.[39]

The RTC released an Amended Decision[40] dated January 29, 1992, adding the following
paragraph to the dispositive:

Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-


2-A of the subdivision plan (LRC) Psd-122471, covered by Transfer Certificate of
Title 104189 of the Registry of Deeds of Pangasinan[.][41]

The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the
Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.

In its Decision[42] dated June 29, 1999, the Court of Appeals decreed:

WHEREFORE, foregoing considered, the appealed decision is


hereby AFFIRMED with modification. Items No. 6 and 7 of the appealed
decision are DELETED. Item No. 8 is modified requiring [Dr. Rosario] to pay
[the Torbela siblings] actual damages, in the amount of P1,200,000.00 with 6%
per annum interest from finality of this decision until fully paid. [Dr. Rosario] is
further ORDERED to pay [the Torbela siblings] the amount of P300,000.00 as
moral damages; P200,000.00 as exemplary damages and P100,000.00 as attorneys
fees.

Costs against [Dr. Rosario].[43]

The Court of Appeals, in a Resolution[44] dated October 22, 1999, denied the separate
Motions for Reconsideration of the Torbela siblings and Dr. Rosario.
The Torbela siblings come before this Court via the Petition for Review in G.R. No.
140528, with the following assignment of errors:

First Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


NOT FINDING THAT THE REGISTRATION OF THE DEED OF
ABSOLUTE QUITCLAIM EXECUTED BY [DR. ANDRES T.
ROSARIO] IN FAVOR OF THE [TORBELA SIBLINGS] DATED
DECEMBER 28, 1964 AND THE REGISTRATION OF THE NOTICE
OF ADVERSE CLAIM EXECUTED BY THE [TORBELA SIBLINGS],
SERVE AS THE OPERATIVE ACT TO CONVEY OR AFFECT THE
LAND AND IMPROVEMENTS THEREOF IN SO FAR AS THIRD
PERSONS ARE CONCERNED.

Second Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


FINDING THAT THE SUBJECT PROPERTY COVERED BY T.C.T.
NO. 52751 IS CLEAN AND FREE, DESPITE OF THE ANNOTATION
OF ENCUMBRANCES OF THE NOTICE OF ADVERSE CLAIM AND
THE DEED OF ABSOLUTE QUITCLAIM APPEARING AT THE
BACK THEREOF AS ENTRY NOS. 274471 AND 274472,
RESPECTIVELY.

Third Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


FINDING THAT THE NOTICE OF ADVERSE CLAIM OF THE
[TORBELA SIBLINGS] UNDER ENTRY NO. 274471 WAS VALIDLY
CANCELLED BY THE REGISTER OF DEEDS, IN THE ABSENCE OF
A PETITION DULY FILED IN COURT FOR ITS CANCELLATION.

Fourth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


FINDING THAT RESPONDENT BANCO FILIPINO SAVINGS AND
MORTGAGE BANK IS A MORTGAGEE IN GOOD FAITH.

Fifth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


NOT FINDING THAT THE FILING OF A CIVIL CASE NO. U-4359
ON DECEMBER 9, 1987, IMPLEADING RESPONDENT BANCO
FILIPINO AS ADDITIONAL PARTY DEFENDANT, TOLL OR
SUSPEND THE RUNNING OF THE ONE YEAR PERIOD OF
REDEMPTION.

Sixth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


NOT FINDING THAT THE OWNERSHIP OVER THE SUBJECT
PROPERTY WAS PREMATURELY CONSOLIDATED IN FAVOR OF
RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE
BANK.

Seventh Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN


FINDING THAT THE SUBJECT PROPERTY IS AT LEAST
WORTH P1,200,000.00.[45]

The Torbela siblings ask of this Court:

WHEREFORE, in the light of the foregoing considerations, the [Torbela


siblings] most respectfully pray that the questioned DECISION promulgated on
June 29, 1999 (Annex A, Petition) and the RESOLUTION dated October 22,
1999 (Annex B, Petition) be REVERSED and SET ASIDE, and/or further
MODIFIED in favor of the [Torbela siblings], and another DECISION issue
ordering, among other reliefs, the respondent Banco Filipino to reconvey back Lot
No. 356-A, covered by T.C.T. No. 52751, in favor of the [Torbela siblings] who
are the actual owners of the same.

The [Torbela siblings] likewise pray for such other reliefs and further
remedies as may be deemed just and equitable under the premises.[46]

Duque-Rosario, now legally separated from Dr. Rosario, avers in her Petition for Review
in G.R. No. 140553 that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A were registered in her
name, and she was unlawfully deprived of ownership of said properties because of the following
errors of the Court of Appeals:

A
THE HON. COURT OF APPEALS PATENTLY ERRED IN NOT FINDING
THAT THE PERIOD TO REDEEM THE PROPERTY HAS NOT
COMMENCED, HENCE, THE CERTIFICATE OF SALE, THE
CONSOLIDATION OF OWNERSHIP BY [BANCO FILIPINO], ARE NULL
AND VOID.

THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO RULE


THAT THE FILING OF THE COMPLAINT BEFORE THE COURT A QUO
BY THE [TORBELA SIBLINGS] HAD ALREADY BEEN PRESCRIBED.[47]

Duque-Rosario prays that the appealed decision of the Court of Appeals be reversed and
set aside, and that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A be freed from all obligations and
encumbrances and returned to her.

Review of findings of fact by the RTC and the


Court of Appeals warranted.

A disquisition of the issues raised and/or errors assigned in the Petitions at bar
unavoidably requires a re-evaluation of the facts and evidence presented by the parties in the
court a quo.

In Republic v. Heirs of Julia Ramos,[48] the Court summed up the rules governing the
power of review of the Court:

Ordinarily, this Court will not review, much less reverse, the factual findings of
the Court of Appeals, especially where such findings coincide with those of the trial
court. The findings of facts of the Court of Appeals are, as a general rule, conclusive and
binding upon this Court, since this Court is not a trier of facts and does not routinely
undertake the re-examination of the evidence presented by the contending parties during
the trial of the case.

The above rule, however, is subject to a number of exceptions, such as (1) when
the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave
abuse of discretion; (3) when the finding is grounded entirely on speculations, surmises,
or conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same
is contrary to the admissions of both parties; (7) when the findings of the Court of
Appeals are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties
and which, if properly considered, would justify a different conclusion; and (10) when
the findings of fact of the Court of Appeals are premised on the absence of evidence and
are contradicted by the evidence on record.[49]

As the succeeding discussion will bear out, the first, fourth, and ninth exceptions are extant in
these case.

Barangay conciliation was not a pre-requisite to


the institution of Civil Case No. U-4359.

Dr. Rosario contends that Civil Case No. U-4359, the Complaint of the Torbela siblings for
recovery of ownership and possession of Lot No. 356-A, plus damages, should have been
dismissed by the RTC because of the failure of the Torbela siblings to comply with the prior
requirement of submitting the dispute to barangay conciliation.

The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986, when Presidential
Decree No. 1508, Establishing a System of Amicably Settling Disputes at the Barangay Level,
was still in effect.[50] Pertinent provisions of said issuance read:
Section 2. Subject matters for amicable settlement. The Lupon of each
barangay shall have authority to bring together the parties actually residing in
the same city or municipality for amicable settlement of all disputes except:
1. Where one party is the government, or any subdivision or
instrumentality thereof;
2. Where one party is a public officer or employee, and the dispute relates
to the performance of his official functions;
3. Offenses punishable by imprisonment exceeding 30 days, or a fine
exceeding P200.00;
4. Offenses where there is no private offended party;
5. Such other classes of disputes which the Prime Minister may in the
interest of justice determine upon recommendation of the Minister
of Justice and the Minister of Local Government.
Section 3. Venue. Disputes between or among persons actually residing in
the same barangay shall be brought for amicable settlement before the Lupon of
said barangay. Those involving actual residents of different barangays within the
same city or municipality shall be brought in the barangay where the respondent
or any of the respondents actually resides, at the election of the complainant.
However, all disputes which involved real property or any interest therein
shall be brought in the barangay where the real property or any part thereof
is situated.
The Lupon shall have no authority over disputes:
1. involving parties who actually reside in barangays of different cities
or municipalities, except where such barangays adjoin each
other; and
2. involving real property located in different municipalities.
xxxx

Section 6. Conciliation, pre-condition to filing of complaint. No


complaint, petition, action or proceeding involving any matter within the authority
of the Lupon as provided in Section 2 hereof shall be filed or instituted in court or
any other government office for adjudication unless there has been a
confrontation of the parties before the Lupon Chairman or the Pangkat and no
conciliation or settlement has been reached as certified by the Lupon Secretary or
the Pangkat Secretary, attested by the Lupon or Pangkat Chairman, or unless the
settlement has been repudiated. x x x. (Emphases supplied.)

The Court gave the following elucidation on the jurisdiction of the Lupong Tagapayapa
in Tavora v. Hon. Veloso[51]:

The foregoing provisions are quite clear. Section 2 specifies the conditions
under which the Lupon of a barangay shall have authority to bring together the
disputants for amicable settlement of their dispute: The parties must be actually
residing in the samecity or municipality. At the same time, Section 3 while
reiterating that the disputants must be actually residing in the same barangay or in
different barangays within the same city or municipality unequivocably declares
that the Lupon shall have no authority over disputes involving parties who
actually reside in barangays of different cities or municipalities, except where
such barangays adjoin each other.

Thus, by express statutory inclusion and exclusion, the Lupon shall


have no jurisdiction over disputes where the parties are not actual residents
of the same city or municipality, except where the barangays in which they
actually reside adjoin each other.
It is true that immediately after specifying the barangay whose Lupon
shall take cognizance of a given dispute, Sec. 3 of PD 1508 adds:

"However, all disputes which involve real property or any


interest therein shall be brought in the barangay where the real
property or any part thereof is situated."

Actually, however, this added sentence is just an ordinary proviso and


should operate as such.

The operation of a proviso, as a rule, should be limited to its normal


function, which is to restrict or vary the operation of the principal clause, rather
than expand its scope, in the absence of a clear indication to the contrary.
The natural and appropriate office of a proviso is . . . to
except something from the enacting clause; to limit, restrict, or
qualify the statute in whole or in part; or to exclude from the scope
of the statute that which otherwise would be within its terms. (73
Am Jur 2d 467.)

Therefore, the quoted proviso should simply be deemed to restrict or vary


the rule on venue prescribed in the principal clauses of the first paragraph of
Section 3, thus: Although venue is generally determined by the residence of
the parties, disputes involving real property shall be brought in the barangay
where the real property or any part thereof is situated, notwithstanding that
the parties reside elsewhere within the same city/municipality.[52] (Emphases
supplied.)

The original parties in Civil Case No. U-4359 (the Torbela siblings and the spouses Rosario) do
not reside in the same barangay, or in different barangays within the same city or municipality,
or in different barangays of different cities or municipalities but are adjoining each other. Some
of them reside outside Pangasinan and even outside of the country altogether. The Torbela
siblings reside separately in Barangay Macalong, Urdaneta, Pangasinan; Barangay Consolacion,
Urdaneta, Pangasinan; Pangil, Laguna; Chicago, United States of America; and Canada. The
spouses Rosario are residents of Calle Garcia, Poblacion, Urdaneta, Pangasinan. Resultantly, the
Lupon had no jurisdiction over the dispute and barangayconciliation was not a pre-condition for
the filing of Civil Case No. U-4359.

The Court now looks into the merits of Civil Case No. U-4359.

There was an express trust between the Torbela


siblings and Dr. Rosario.

There is no dispute that the Torbela sibling inherited the title to Lot No. 356-A from their
parents, the Torbela spouses, who, in turn, acquired the same from the first registered owner of
Lot No. 356-A, Valeriano.

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12,
1964 in which they transferred and conveyed Lot No. 356-A to Dr. Rosario for the consideration
of P9.00. However, the Torbela siblings explained that they only executed the Deed as an
accommodation so that Dr. Rosario could have Lot No. 356-A registered in his name and use
said property to secure a loan from DBP, the proceeds of which would be used for building a
hospital on Lot No. 356-A a claim supported by testimonial and documentary evidence, and
borne out by the sequence of events immediately following the execution by the Torbela siblings
of said Deed. On December 16, 1964, TCT No. 52751, covering Lot No. 356-A, was already
issued in Dr. Rosarios name. On December 28, 1964, Dr. Rosario executed his own Deed of
Absolute Quitclaim, in which he expressly acknowledged that he only borrowed Lot No. 356-A
and was transferring and conveying the same back to the Torbela siblings for the consideration
of P1.00. On February 21, 1965, Dr. Rosarios loan in the amount of P70,200.00, secured by a
mortgage on Lot No. 356-A, was approved by DBP. Soon thereafter, construction of a hospital
building started on Lot No. 356-A.

Among the notable evidence presented by the Torbela siblings is the testimony of Atty.
Lorenza Alcantara (Atty. Alcantara), who had no apparent personal interest in the present
case. Atty. Alcantara, when she was still a boarder at the house of Eufrosina Torbela Rosario
(Dr. Rosarios mother), was consulted by the Torbela siblings as regards the extrajudicial
partition of Lot No. 356-A. She also witnessed the execution of the two Deeds of Absolute
Quitclaim by the Torbela siblings and Dr. Rosario.

In contrast, Dr. Rosario presented TCT No. 52751, issued in his name, to prove his
purported title to Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals,[53] the Court made a clear
distinction between title and the certificate of title:

The certificate referred to is that document issued by the Register of Deeds known
as the Transfer Certificate of Title (TCT). By title, the law refers to ownership
which is represented by that document. Petitioner apparently confuses certificate
with title. Placing a parcel of land under the mantle of the Torrens system does
not mean that ownership thereof can no longer be disputed. Ownership is different
from a certificate of title. The TCT is only the best proof of ownership of a piece
of land. Besides, the certificate cannot always be considered as conclusive
evidence of ownership. Mere issuance of the certificate of title in the name of
any person does not foreclose the possibility that the real property may be
under co-ownership with persons not named in the certificate or that the
registrant may only be a trustee or that other parties may have acquired
interest subsequent to the issuance of the certificate of title. To repeat,
registration is not the equivalent of title, but is only the best evidence
thereof. Title as a concept of ownership should not be confused with the
certificate of title as evidence of such ownership although both are
interchangeably used. x x x.[54] (Emphases supplied.)
Registration does not vest title; it is merely the evidence of such title. Land registration
laws do not give the holder any better title than what he actually has.[55] Consequently, Dr.
Rosario must still prove herein his acquisition of title to Lot No. 356-A, apart from his
submission of TCT No. 52751 in his name.

Dr. Rosario testified that he obtained Lot No. 356-A after paying the Torbela
siblings P25,000.00, pursuant to a verbal agreement with the latter. The Court though observes
that Dr. Rosarios testimony on the execution and existence of the verbal agreement with the
Torbela siblings lacks significant details (such as the names of the parties present, dates,
places, etc.) and is not corroborated by independent evidence.

In addition, Dr. Rosario acknowledged the execution of the two Deeds of Absolute
Quitclaim dated December 12, 1964and December 28, 1964, even affirming his own signature
on the latter Deed. The Parol Evidence Rule provides that when the terms of the agreement have
been reduced into writing, it is considered as containing all the terms agreed upon and there can
be, between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.[56] Dr. Rosario may not modify, explain, or add to the terms in
the two written Deeds of Absolute Quitclaim since he did not put in issue in his pleadings (1) an
intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of the Deeds to express the
true intent and the agreement of the parties thereto; (3) the validity of the Deeds; or (4) the
existence of other terms agreed to by the Torbela siblings and Dr. Rosario after the execution of
the Deeds.[57]
Even if the Court considers Dr. Rosarios testimony on his alleged verbal agreement with
the Torbela siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two
Deeds were executed only because he was planning to secure loan from the Development Bank
of the Philippines and Philippine National Bank and the bank needed absolute
quitclaim[.][58] While Dr. Rosarios explanation makes sense for the first Deed of Absolute
Quitclaim dated December 12, 1964 executed by the Torbela siblings (which transferred Lot No.
356-A to Dr. Rosario for P9.00.00), the same could not be said for the second Deed of Absolute
Quitclaim dated December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosarios Deed of
Absolute Quitclaim (in which he admitted that he only borrowed Lot No. 356-A and was
transferring the same to the Torbela siblings for P1.00.00) would actually work against the
approval of Dr. Rosarios loan by the banks. Since Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 is a declaration against his self-interest, it must be taken as favoring
the truthfulness of the contents of said Deed.[59]
It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over
Lot No. 356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's
admission in the said Deed that he merely borrowed LotNo. 356-A is deemed conclusive upon
him. Under Article 1431 of the Civil Code, [t]hrough estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as against the
person relying thereon.[60] That admission cannot now be denied by Dr. Rosario as against the
Torbela siblings, the latter having relied upon his representation.

Considering the foregoing, the Court agrees with the RTC and the Court of Appeals that
Dr. Rosario only holds Lot No. 356-A in trust for the Torbela siblings.

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested
in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied. An
express trust is created by the intention of the trustor or of the parties, while an implied trust
comes into being by operation of law.[61]

Express trusts are created by direct and positive acts of the parties, by some writing or
deed, or will, or by words either expressly or impliedly evincing an intention to create a
trust. Under Article 1444 of the Civil Code, [n]o particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly intended.[62] It is possible to create a trust
without using the word trust or trustee. Conversely, the mere fact that these words are used does
not necessarily indicate an intention to create a trust. The question in each case is whether the
trustor manifested an intention to create the kind of relationship which to lawyers is known as
trust. It is immaterial whether or not he knows that the relationship which he intends to create is
called a trust, and whether or not he knows the precise characteristics of the relationship which is
called a trust.[63]

In Tamayo v. Callejo,[64] the Court recognized that a trust may have a constructive or
implied nature in the beginning, but the registered owners subsequent express acknowledgement
in a public document of a previous sale of the property to another party, had the effect of
imparting to the aforementioned trust the nature of an express trust. The same situation exists in
this case. When Dr. Rosario was able to register Lot No. 356-A in his name under TCT No.
52751 on December 16, 1964, an implied trust was initially established between him and the
Torbela siblings under Article 1451 of the Civil Code, which provides:
ART. 1451. When land passes by succession to any person and he causes
the legal title to be put in the name of another, a trust is established by implication
of law for the benefit of the true owner.

Dr. Rosarios execution of the Deed of Absolute Quitclaim on December 28, 1964,
containing his express admission that he only borrowed Lot No. 356-A from the Torbela
siblings, eventually transformed the nature of the trust to an express one. The express trust
continued despite Dr. Rosario stating in his Deed of Absolute Quitclaim that he was already
returning Lot No. 356-A to the Torbela siblings as Lot No. 356-A remained registered in Dr.
Rosarios name under TCT No. 52751 and Dr. Rosario kept possession of said property, together
with the improvements thereon.

The right of the Torbela siblings to recover Lot


No. 356-A has not yet prescribed.
The Court extensively discussed the prescriptive period for express trusts in the Heirs of
Maximo Labanon v. Heirs of Constancio Labanon,[65] to wit:

On the issue of prescription, we had the opportunity to rule in Bueno v.


Reyes that unrepudiated written express trusts are imprescriptible:

While there are some decisions which hold that an action


upon a trust is imprescriptible, without distinguishing between
express and implied trusts, the better rule, as laid down by this
Court in other decisions, is that prescription does supervene where
the trust is merely an implied one. The reason has been expressed
by Justice J.B.L. Reyes in J.M. Tuason and Co., Inc. vs.
Magdangal, 4 SCRA 84, 88, as follows:

Under Section 40 of the old Code of Civil


Procedure, all actions for recovery of real property
prescribed in 10 years, excepting only actions based
on continuing or subsisting trusts that were
considered by section 38 as imprescriptible. As held
in the case of Diaz v. Gorricho, L-11229, March 29,
1958, however, the continuing or subsisting trusts
contemplated in section 38 of the Code of Civil
Procedure referred only to express unrepudiated
trusts, and did not include constructive trusts (that
are imposed by law) where no fiduciary relation
exists and the trustee does not recognize the trust at
all.

This principle was amplified in Escay v. Court of Appeals this way:


Express trusts prescribe 10 years from the repudiation of the trust (Manuel Diaz,
et al. vs. Carmen Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil
Procedure).

In the more recent case of Secuya v. De Selma, we again ruled that the
prescriptive period for the enforcement of an express trust of ten (10) years starts
upon the repudiation of the trust by the trustee.[66]

To apply the 10-year prescriptive period, which would bar a beneficiarys action to
recover in an express trust, the repudiation of the trust must be proven by clear and convincing
evidence and made known to the beneficiary.[67] The express trust disables the trustee from
acquiring for his own benefit the property committed to his management or custody, at least
while he does not openly repudiate the trust, and makes such repudiation known to the
beneficiary or cestui que trust. For this reason, the old Code of Civil Procedure (Act 190)
declared that the rules on adverse possession do not apply to continuing and subsisting (i.e.,
unrepudiated) trusts. In an express trust, the delay of the beneficiary is directly attributable to the
trustee who undertakes to hold the property for the former, or who is linked to the beneficiary by
confidential or fiduciary relations. The trustee's possession is, therefore, not adverse to the
beneficiary, until and unless the latter is made aware that the trust has been repudiated.[68]

Dr. Rosario argues that he is deemed to have repudiated the trust on December 16, 1964, when
he registered Lot No. 356-A in his name under TCT No. 52751, so when on February 13, 1986,
the Torbela siblings instituted before the RTC Civil Case No. U-4359, for the recovery of
ownership and possession of Lot No. 356-A from the spouses Rosario, over 21 years had
passed.Civil Case No. U-4359 was already barred by prescription, as well as laches.

The Court already rejected a similar argument in Ringor v. Ringor[69] for the following reasons:

A trustee who obtains a Torrens title over a property held in trust for him by
another cannot repudiate the trust by relying on the registration. A Torrens
Certificate of Title in Joses name did not vest ownership of the land upon him.
The Torrens system does not create or vest title. It only confirms and records title
already existing and vested. It does not protect a usurper from the true
owner. The Torrens system was not intended to foment betrayal in the
performance of a trust. It does not permit one to enrich himself at the expense of
another. Where one does not have a rightful claim to the property,
the Torrens system of registration can confirm or record nothing. Petitioners
cannot rely on the registration of the lands in Joses name nor in the name of the
Heirs of Jose M. Ringor, Inc., for the wrong result they seek. For Jose could not
repudiate a trust by relying on a Torrens title he held in trust for his co-heirs. The
beneficiaries are entitled to enforce the trust, notwithstanding the irrevocability of
the Torrens title. The intended trust must be sustained.[70] (Emphasis supplied.)

In the more recent case of Heirs of Tranquilino Labiste v. Heirs of Jose Labiste,[71] the Court
refused to apply prescription and laches and reiterated that:

[P]rescription and laches will run only from the time the express trust is
repudiated. The Court has held that for acquisitive prescription to bar the action of
the beneficiary against the trustee in an express trust for the recovery of the
property held in trust it must be shown that: (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b)
such positive acts of repudiation have been made known to the cestui que trust,
and (c) the evidence thereon is clear and conclusive. Respondents cannot rely on
the fact that the Torrens title was issued in the name of Epifanio and the
other heirs of Jose. It has been held that a trustee who obtains a Torrens title
over property held in trust by him for another cannot repudiate the trust by
relying on the registration. The rule requires a clear repudiation of the trust duly
communicated to the beneficiary. The only act that can be construed as
repudiation was when respondents filed the petition for reconstitution in October
1993. And since petitioners filed their complaint in January 1995, their cause of
action has not yet prescribed, laches cannot be attributed to them.[72] (Emphasis
supplied.)

It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A by Dr.
Rosario in his name under TCT No. 52751 on December 16, 1964 is not the repudiation that
would have caused the 10-year prescriptive period for the enforcement of an express trust to run.
The Court of Appeals held that Dr. Rosario repudiated the express trust when he acquired
another loan from PNB and constituted a second mortgage on Lot No. 356-A sometime in 1979,
which, unlike the first mortgage to DBP in 1965, was without the knowledge and/or consent of
the Torbela siblings.

The Court only concurs in part with the Court of Appeals on this matter.
For repudiation of an express trust to be effective, the unequivocal act of repudiation had
to be made known to the Torbela siblings as the cestuis que trust and must be proven by clear
and conclusive evidence. A scrutiny of TCT No. 52751 reveals the following inscription:

Entry No. 520099

Amendment of the mortgage in favor of PNB inscribed under Entry


No. 490658 in the sense that the consideration thereof has been increased to
PHILIPPINE PESOS Four Hundred Fifty Thousand Pesos only (P450,000.00)
and to secure any and all negotiations with PNB, whether contracted before,
during or after the date of this instrument, acknowledged before Notary Public
of Pangasinan Alejo M. Dato as Doc. No. 198, Page No. 41, Book No. 11, Series
of 1985.

Date of Instrument March 5, 1981


Date of Inscription March 6, 1981[73]

Although according to Entry No. 520099, the original loan and mortgage agreement of
Lot No. 356-A between Dr. Rosario and PNB was previously inscribed as Entry No. 490658,
Entry No. 490658 does not actually appear on TCT No. 52751 and, thus, it cannot be used as the
reckoning date for the start of the prescriptive period.

The Torbela siblings can only be charged with knowledge of the mortgage of Lot No.
356-A to PNB on March 6, 1981when the amended loan and mortgage agreement was registered
on TCT No. 52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole
world[74] that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the
amount of which was increased to P450,000.00. Hence, Dr. Rosario is deemed to have
effectively repudiated the express trust between him and the Torbela siblings on March 6, 1981,
on which day, the prescriptive period for the enforcement of the express trust by the Torbela
siblings began to run.

From March 6, 1981, when the amended loan and mortgage agreement was registered on
TCT No. 52751, to February 13, 1986, when the Torbela siblings instituted before the RTC
Civil Case No. U-4359 against the spouses Rosario, only about five years had passed. The
Torbela siblings were able to institute Civil Case No. U-4359 well before the lapse of the 10-year
prescriptive period for the enforcement of their express trust with Dr. Rosario.
Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or
neglect, for an unreasonable and unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier. It is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it. As the Court explained in the preceding paragraphs, the
Torbela siblings instituted Civil Case No. U-4359 five years after Dr. Rosarios repudiation of the
express trust, still within the 10-year prescriptive period for enforcement of such trusts. This does
not constitute an unreasonable delay in asserting one's right. A delay within the prescriptive
period is sanctioned by law and is not considered to be a delay that would bar relief. Laches
apply only in the absence of a statutory prescriptive period.[75]

Banco Filipino is not a mortgagee and buyer in


good faith.

Having determined that the Torbela siblings are the true owners and Dr. Rosario merely
the trustee of Lot No. 356-A, the Court is next faced with the issue of whether or not the Torbela
siblings may still recover Lot No. 356-A considering that Dr. Rosario had already mortgaged Lot
No. 356-A to Banco Filipino, and upon Dr. Rosarios default on his loan obligations, Banco
Filipino foreclosed the mortgage, acquired Lot No. 356-A as the highest bidder at the foreclosure
sale, and consolidated title in its name under TCT No. 165813. The resolution of this issue
depends on the answer to the question of whether or not Banco Filipino was a mortgagee in good
faith.

Under Article 2085 of the Civil Code, one of the essential requisites of the contract of
mortgage is that the mortgagor should be the absolute owner of the property to be mortgaged;
otherwise, the mortgage is considered null and void. However, an exception to this rule is the
doctrine of mortgagee in good faith. Under this doctrine, even if the mortgagor is not the owner
of the mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are
given effect by reason of public policy. This principle is based on the rule that all persons dealing
with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required
to go beyond what appears on the face of the title. This is the same rule that underlies the
principle of innocent purchasers for value. The prevailing jurisprudence is that a mortgagee has a
right to rely in good faith on the certificate of title of the mortgagor to the property given as
security and in the absence of any sign that might arouse suspicion, has no obligation to
undertake further investigation. Hence, even if the mortgagor is not the rightful owner of, or does
not have a valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless,
entitled to protection.[76]

On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in good
faith because as early as May 17, 1967, they had already annotated Cornelios Adverse Claim
dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim dated December 28, 1964 on
TCT No. 52751 as Entry Nos. 274471-274472, respectively.

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because
per Section 70 of Presidential Decree No. 1529, otherwise known as the Property Registration
Decree, the notice of adverse claim, registered on May 17, 1967 by the Torbela siblings under
Entry Nos. 274471-274472 on TCT No. 52751, already lapsed after 30 days or on June 16,
1967. Additionally, there was an express cancellation of Entry Nos. 274471-274472 by Entry
No. 520469 dated March 11, 1981. So when Banco Filipino approved Dr. Rosarios loan
for P1,200,000.00 and constituted a mortgage on Lot No. 356-A (together with two other
properties) on December 8, 1981, the only other encumbrance on TCT No. 52751 was Entry No.
520099 dated March 6, 1981, i.e., the amended loan and mortgage agreement between Dr.
Rosario and PNB (which was eventually cancelled after it was paid off with part of the proceeds
from Dr. Rosarios loan from Banco Filipino). Hence, Banco Filipino was not aware that the
Torbela siblings adverse claim on Lot No. 356-A still subsisted.

The Court finds that Banco Filipino is not a mortgagee in good faith. Entry Nos. 274471-
274472 were not validly cancelled, and the improper cancellation should have been apparent to
Banco Filipino and aroused suspicion in said bank of some defect in Dr. Rosarios title.

The purpose of annotating the adverse claim on the title of the disputed land is to apprise
third persons that there is a controversy over the ownership of the land and to preserve and
protect the right of the adverse claimant during the pendency of the controversy. It is a notice to
third persons that any transaction regarding the disputed land is subject to the outcome of the
dispute.[77]

Adverse claims were previously governed by Section 110 of Act No. 496, otherwise
known as the Land Registration Act, quoted in full below:

ADVERSE CLAIM
SEC. 110. Whoever claims any part or interest in registered land adverse to the
registered owner, arising subsequent to the date of the original registration, may,
if no other provision is made in this Act for registering the same, make a
statement in writing setting forth fully his alleged right or interest, and how or
under whom acquired, and a reference to the volume and page of the certificate of
title of the registered owner, and a description of the land in which the right or
interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimants
residence, and designate a place at which all notices may be served upon
him. This statement shall be entitled to registration as an adverse claim, and the
court, upon a petition of any party in interest, shall grant a speedy hearing upon
the question of the validity of such adverse claim and shall enter such decree
therein as justice and equity may require. If the claim is adjudged to be invalid,
the registration shall be cancelled. If in any case the court after notice and hearing
shall find that a claim thus registered was frivolous or vexatious, it may tax the
adverse claimant double or treble costs in its discretion.

Construing the aforequoted provision, the Court stressed in Ty Sin Tei v. Lee Dy
[78]
Piao that [t]he validity or efficaciousness of the [adverse] claim x x x may only be determined
by the Court upon petition by an interested party, in which event, the Court shall order the
immediate hearing thereof and make the proper adjudication as justice and equity may
warrant. And it is ONLY when such claim is found unmeritorious that the registration thereof
may be cancelled. The Court likewise pointed out in the same case that while a notice of lis
pendens may be cancelled in a number of ways, the same is not true in a registered adverse
claim, for it may be cancelled only in one instance, i.e., after the claim is adjudged invalid or
unmeritorious by the Court x x x; and if any of the registrations should be considered
unnecessary or superfluous, it would be the notice of lis pendens and not the annotation of the
adverse claim which is more permanent and cannot be cancelled without adequate hearing and
proper disposition of the claim.

With the enactment of the Property Registration Decree on June 11, 1978, Section 70
thereof now applies to adverse claims:

SEC. 70. Adverse claim. Whoever claims any part or interest in registered
land adverse to the registered owner, arising subsequent to the date of the original
registrations, may, if no other provision is made in this Decree for registering the
same, make a statement in writing setting forth fully his alleged right, or interest,
and how or under whom acquired, a reference to the number of the certificate of
title of the registered owner, the name of the registered owner, and a description
of the land in which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse
claimants residence, and a place at which all notices may be served upon
him. This statement shall be entitled to registration as an adverse claim on the
certificate of title. The adverse claim shall be effective for a period of thirty
days from the date of registration. After the lapse of said period, the
annotation of adverse claim may be cancelled upon filing of a verified
petition therefor by the party in interest: Provided, however, that after
cancellation, no second adverse claim based on the same ground shall be
registered by the same claimant.

Before the lapse of thirty days aforesaid, any party in interest may file
a petition in the Court of First Instance where the land is situated for the
cancellation of the adverse claim, and the court shall grant a speedy hearing
upon the question of the validity of such adverse claim, and shall render
judgment as may be just and equitable. If the adverse claim is adjudged to be
invalid, the registration thereof shall be ordered cancelled. If, in any case, the
court, after notice and hearing, shall find that the adverse claim thus registered
was frivolous, it may fine the claimant in an amount not less than one thousand
pesos nor more than five thousand pesos, in its discretion. Before the lapse of
thirty days, the claimant may withdraw his adverse claim by filing with the
Register of Deeds a sworn petition to that effect. (Emphases supplied.)

In Sajonas v. Court of Appeals,[79]the Court squarely interpreted Section 70 of the


Property Registration Decree, particularly, the new 30-day period not previously found in
Section 110 of the Land Registration Act, thus:

In construing the law aforesaid, care should be taken that every part
thereof be given effect and a construction that could render a provision
inoperative should be avoided, and inconsistent provisions should be reconciled
whenever possible as parts of a harmonious whole. For taken in solitude, a word
or phrase might easily convey a meaning quite different from the one actually
intended and evident when a word or phrase is considered with those with which
it is associated. In ascertaining the period of effectivity of an inscription of
adverse claim, we must read the law in its entirety. Sentence three, paragraph two
of Section 70 of P.D. 1529 provides:

The adverse claim shall be effective for a period of thirty


days from the date of registration.

At first blush, the provision in question would seem to restrict the


effectivity of the adverse claim to thirty days. But the above provision cannot and
should not be treated separately, but should be read in relation to the sentence
following, which reads:
After the lapse of said period, the annotation of adverse
claim may be cancelled upon filing of a verified petition therefor
by the party in interest.

If the rationale of the law was for the adverse claim to ipso facto lose force
and effect after the lapse of thirty days, then it would not have been necessary to
include the foregoing caveat to clarify and complete the rule. For then, no adverse
claim need be cancelled. If it has been automatically terminated by mere lapse of
time, the law would not have required the party in interest to do a useless act.

A statute's clauses and phrases must not be taken separately, but in its
relation to the statute's totality. Each statute must, in fact, be construed as to
harmonize it with the pre-existing body of laws. Unless clearly repugnant,
provisions of statutes must be reconciled. The printed pages of the published Act,
its history, origin, and its purposes may be examined by the courts in their
construction. x x x.

xxxx

Construing the provision as a whole would reconcile the apparent


inconsistency between the portions of the law such that the provision on
cancellation of adverse claim by verified petition would serve to qualify the
provision on the effectivity period. The law, taken together, simply means that
the cancellation of the adverse claim is still necessary to render it ineffective,
otherwise, the inscription will remain annotated and shall continue as a lien
upon the property. For if the adverse claim has already ceased to be effective
upon the lapse of said period, its cancellation is no longer necessary and the
process of cancellation would be a useless ceremony.

It should be noted that the law employs the phrase "may be cancelled,"
which obviously indicates, as inherent in its decision making power, that the court
may or may not order the cancellation of an adverse claim, notwithstanding such
provision limiting the effectivity of an adverse claim for thirty days from the date
of registration. The court cannot be bound by such period as it would be
inconsistent with the very authority vested in it. A fortiori, the limitation on the
period of effectivity is immaterial in determining the validity or invalidity of an
adverse claim which is the principal issue to be decided in the court hearing. It
will therefore depend upon the evidence at a proper hearing for the court to
determine whether it will order the cancellation of the adverse claim or not.

To interpret the effectivity period of the adverse claim as absolute and


without qualification limited to thirty days defeats the very purpose for which the
statute provides for the remedy of an inscription of adverse claim, as the
annotation of an adverse claim is a measure designed to protect the interest of a
person over a piece of real property where the registration of such interest or right
is not otherwise provided for by the Land Registration Act or Act 496 (now P.D.
1529 or the Property Registration Decree), and serves as a warning to third parties
dealing with said property that someone is claiming an interest or the same or a
better right than the registered owner thereof.

The reason why the law provides for a hearing where the validity of
the adverse claim is to be threshed out is to afford the adverse claimant an
opportunity to be heard, providing a venue where the propriety of his
claimed interest can be established or revoked, all for the purpose of
determining at last the existence of any encumbrance on the title arising from
such adverse claim. This is in line with the provision immediately following:

Provided, however, that after cancellation, no second


adverse claim shall be registered by the same claimant.

Should the adverse claimant fail to sustain his interest in the property, the
adverse claimant will be precluded from registering a second adverse claim based
on the same ground.

It was held that validity or efficaciousness of the claim may only be


determined by the Court upon petition by an interested party, in which event, the
Court shall order the immediate hearing thereof and make the proper adjudication
as justice and equity may warrant. And it is only when such claim is found
unmeritorious that the registration of the adverse claim may be cancelled, thereby
protecting the interest of the adverse claimant and giving notice and warning to
third parties.[80] (Emphases supplied.)

Whether under Section 110 of the Land Registration Act or Section 70 of the Property
Registration Decree, notice of adverse claim can only be cancelled after a party in interest files a
petition for cancellation before the RTC wherein the property is located, and the RTC conducts a
hearing and determines the said claim to be invalid or unmeritorious.

No petition for cancellation has been filed and no hearing has been conducted herein to
determine the validity or merit of the adverse claim of the Torbela siblings. Entry No. 520469
cancelled the adverse claim of the Torbela siblings, annotated as Entry Nos. 274471-774472,
upon the presentation by Dr. Rosario of a mere Cancellation and Discharge of Mortgage.

Regardless of whether or not the Register of Deeds should have inscribed Entry No.
520469 on TCT No. 52751, Banco Filipino could not invoke said inscription in support of its
claim of good faith. There were several things amiss in Entry No. 520469 which should have
already aroused suspicions in Banco Filipino, and compelled the bank to look beyond TCT No.
52751 and inquire into Dr. Rosarios title. First, Entry No. 520469 does not mention any court
order as basis for the cancellation of the adverse claim. Second, the adverse claim was not a
mortgage which could be cancelled with Dr. Rosarios Cancellation and Discharge of
Mortgage. And third, the adverse claim was against Dr. Rosario, yet it was cancelled based on a
document also executed by Dr. Rosario.

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or mortgagor. His mere refusal to believe
that such defect exists, or his willful closing of his eyes to the possibility of the existence of a
defect in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee
for value, if it afterwards develops that the title was in fact defective, and it appears that he had
such notice of the defects as would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.[81]

While the defective cancellation of Entry Nos. 274471-274472 by Entry No. 520469
might not be evident to a private individual, the same should have been apparent to Banco
Filipino. Banco Filipino is not an ordinary mortgagee, but is a mortgagee-bank, whose business
is impressed with public interest. In fact, in one case, [82] the Court explicitly declared that the
rule that persons dealing with registered lands can rely solely on the certificate of title does not
apply to banks. In another case,[83] the Court adjudged that unlike private individuals, a bank is
expected to exercise greater care and prudence in its dealings, including those involving
registered lands. A banking institution is expected to exercise due diligence before entering into
a mortgage contract. The ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its operations.

Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in
good faith at the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela siblings over
Lot No. 356-A is superior over that of Banco Filipino; and as the true owners of Lot No. 356-A,
the Torbela siblings are entitled to a reconveyance of said property even from Banco Filipino.

Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement
was not the result of a dishonest purpose, some moral obliquity, or breach of a known duty for
some interest or ill will that partakes of fraud that would justify damages.[84]
Given the reconveyance of Lot No. 356-A to the Torbela siblings, there is no more need
to address issues concerning redemption, annulment of the foreclosure sale and certificate of sale
(subject matter of Civil Case No. U-4733), or issuance of a writ of possession in favor of Banco
Filipino (subject matter of Pet. Case No. U-822) insofar as Lot No. 356-A is concerned. Such
would only be superfluous. Banco Filipino, however, is not left without any recourse should the
foreclosure and sale of the two other mortgaged properties be insufficient to cover Dr. Rosarios
loan, for the bank may still bring a proper suit against Dr. Rosario to collect the unpaid balance.

The rules on accession shall govern the


improvements on Lot No. 356-A and the rents
thereof.

The accessory follows the principal. The right of accession is recognized under Article 440 of the
Civil Code which states that [t]he ownership of property gives the right by accession to
everything which is produced thereby, or which is incorporated or attached thereto, either
naturally or artificially.

There is no question that Dr. Rosario is the builder of the improvements on Lot No. 356-
A. The Torbela siblings themselves alleged that they allowed Dr. Rosario to register Lot No.
356-A in his name so he could obtain a loan from DBP, using said parcel of land as security; and
with the proceeds of the loan, Dr. Rosario had a building constructed on Lot No. 356-A, initially
used as a hospital, and then later for other commercial purposes. Dr. Rosario supervised the
construction of the building, which began in 1965; fully liquidated the loan from DBP; and
maintained and administered the building, as well as collected the rental income therefrom, until
the Torbela siblings instituted Civil Case No. U-4359 before the RTC on February 13, 1986.

When it comes to the improvements on Lot No. 356-A, both the Torbela siblings (as
landowners) and Dr. Rosario (as builder) are deemed in bad faith. The Torbela siblings were
aware of the construction of a building by Dr. Rosario on Lot No. 356-A, while Dr. Rosario
proceeded with the said construction despite his knowledge that Lot No. 356-A belonged to the
Torbela siblings. This is the case contemplated under Article 453 of the Civil Code, which reads:

ART. 453. If there was bad faith, not only on the part of the person who
built, planted or sowed on the land of another, but also on the part of the owner of
such land, the rights of one and the other shall be the same as though both
had acted in good faith.
It is understood that there is bad faith on the part of the landowner
whenever the act was done with his knowledge and without opposition on his
part. (Emphasis supplied.)

When both the landowner and the builder are in good faith, the following rules govern:

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

ART. 546. Necessary expenses shall be refunded to every possessor; but


only the possessor in good faith may retain the thing until he has been reimbursed
therefor.

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

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

Whatever is built, planted, or sown on the land of another, and the improvements or
repairs made thereon, belong to the owner of the land. Where, however, the planter, builder, or
sower has acted in good faith, a conflict of rights arises between the owners and it becomes
necessary to protect the owner of the improvements without causing injustice to the owner of the
land. In view of the impracticability of creating what Manresa calls a state of "forced co-
ownership," the law has provided a just and equitable solution by giving the owner of the land
the option to acquire the improvements after payment of the proper indemnity or to oblige the
builder or planter to pay for the land and the sower to pay the proper rent. It is the owner of the
land who is allowed to exercise the option because his right is older and because, by the principle
of accession, he is entitled to the ownership of the accessory thing.[85]
The landowner has to make a choice between appropriating the building by paying the proper
indemnity or obliging the builder to pay the price of the land. But even as the option lies with the
landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for
instance, compel the owner of the building to remove the building from the land without first
exercising either option. It is only if the owner chooses to sell his land, and the builder or planter
fails to purchase it where its value is not more than the value of the improvements, that the
owner may remove the improvements from the land. The owner is entitled to such remotion only
when, after having chosen to sell his land, the other party fails to pay for the same.[86]

This case then must be remanded to the RTC for the determination of matters necessary
for the proper application of Article 448, in relation to Article 546, of the Civil Code. Such
matters include the option that the Torbela siblings will choose; the amount of indemnity that
they will pay if they decide to appropriate the improvements on Lot No. 356-A; the value of Lot
No. 356-A if they prefer to sell it to Dr. Rosario; or the reasonable rent if they opt to sell Lot No.
356-A to Dr. Rosario but the value of the land is considerably more than the improvements. The
determination made by the Court of Appeals in its Decision dated June 29, 1999 that the current
value of Lot No. 356-A is P1,200,000.00 is not supported by any evidence on record.

Should the Torbela siblings choose to appropriate the improvements on Lot No. 356-A, the
following ruling of the Court in Pecson v. Court of Appeals[87] is relevant in the determination of
the amount of indemnity under Article 546 of the Civil Code:

Article 546 does not specifically state how the value of the useful
improvements should be determined. The respondent court and the private
respondents espouse the belief that the cost of construction of the apartment
building in 1965, and not its current market value, is sufficient reimbursement for
necessary and useful improvements made by the petitioner. This position is,
however, not in consonance with previous rulings of this Court in similar cases.
In Javier vs. Concepcion, Jr., this Court pegged the value of the useful
improvements consisting of various fruits, bamboos, a house and camarin made of
strong material based on the market value of the said
improvements. In Sarmiento vs. Agana, despite the finding that the useful
improvement, a residential house, was built in 1967 at a cost of between eight
thousand pesos (P8,000.00) to ten thousand pesos (P10,000.00), the landowner
was ordered to reimburse the builder in the amount of forty thousand pesos
(P40,000.00), the value of the house at the time of the trial. In the same way,
the landowner was required to pay the "present value" of the house, a useful
improvement, in the case of De Guzman vs. De la Fuente, cited by the petitioner.
The objective of Article 546 of the Civil Code is to administer justice
between the parties involved. In this regard, this Court had long ago stated
in Rivera vs. Roman Catholic Archbishop of Manila that the said provision was
formulated in trying to adjust the rights of the owner and possessor in good faith
of a piece of land, to administer complete justice to both of them in such a way as
neither one nor the other may enrich himself of that which does not belong to
him. Guided by this precept, it is therefore the current market value of the
improvements which should be made the basis of reimbursement. A contrary
ruling would unjustly enrich the private respondents who would otherwise be
allowed to acquire a highly valued income-yielding four-unit apartment building
for a measly amount. Consequently, the parties should therefore be allowed to
adduce evidence on the present market value of the apartment building upon
which the trial court should base its finding as to the amount of reimbursement to
be paid by the landowner.[88] (Emphases supplied.)

Still following the rules of accession, civil fruits, such as rents, belong to the owner of the
building.[89] Thus, Dr. Rosario has a right to the rents of the improvements on Lot No. 356-A and
is under no obligation to render an accounting of the same to anyone. In fact, it is the Torbela
siblings who are required to account for the rents they had collected from the lessees of the
commercial building and turn over any balance to Dr. Rosario. Dr. Rosarios right to the rents of
the improvements on Lot No. 356-A shall continue until the Torbela siblings have chosen their
option under Article 448 of the Civil Code. And in case the Torbela siblings decide to
appropriate the improvements, Dr. Rosario shall have the right to retain said improvements, as
well as the rents thereof, until the indemnity for the same has been paid.[90]

Dr. Rosario is liable for damages to the Torbela


siblings.

The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings P300,000.00 as moral
damages; P200,000.00 as exemplary damages; and P100,000.00 as attorneys fees.
Indeed, Dr. Rosarios deceit and bad faith is evident when, being fully aware that he only held Lot
No. 356-A in trust for the Torbela siblings, he mortgaged said property to PNB and Banco
Filipino absent the consent of the Torbela siblings, and caused the irregular cancellation of the
Torbela siblings adverse claim on TCT No. 52751. Irrefragably, Dr. Rosarios betrayal had
caused the Torbela siblings (which included Dr. Rosarios own mother, Eufrosina Torbela
Rosario) mental anguish, serious anxiety, and wounded feelings. Resultantly, the award of moral
damages is justified, but the amount thereof is reduced to P200,000.00.
In addition to the moral damages, exemplary damages may also be imposed given that Dr.
Rosarios wrongful acts were accompanied by bad faith. However, judicial discretion granted to
the courts in the assessment of damages must always be exercised with balanced restraint and
measured objectivity. The circumstances of the case call for a reduction of the award of
exemplary damages to P100,000.00.

As regards attorney's fees, they may be awarded when the defendant's act or omission has
compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interest. Because of Dr. Rosarios acts, the Torbela siblings were constrained to institute several
cases against Dr. Rosario and his spouse, Duque-Rosario, as well as Banco Filipino, which had
lasted for more than 25 years. Consequently, the Torbela siblings are entitled to an award of
attorney's fees and the amount of P100,000.00 may be considered rational, fair, and reasonable.

Banco Filipino is entitled to a writ of possession


for Lot No. 5-F-8-C-2-B-2-A.

The Court emphasizes that Pet. Case No. U-822, instituted by Banco Filipino for the
issuance of a writ of possession before the RTC of Urdaneta, included only Lot No. 5-F-8-C-2-
B-2-A and Lot No. 356-A (Lot No. 4489, the third property mortgaged to secure Dr. Rosarios
loan from Banco Filipino, is located in Dagupan City, Pangasinan, and the petition for issuance
of a writ of possession for the same should be separately filed with the RTC of Dagupan
City). Since the Court has already granted herein the reconveyance of Lot No. 356-A from
Banco Filipino to the Torbela siblings, the writ of possession now pertains only to Lot No. 5-F-8-
C-2-B-2-A.

To recall, the Court of Appeals affirmed the issuance by the RTC of a writ of possession
in favor of Banco Filipino. Dr. Rosario no longer appealed from said judgment of the appellate
court. Already legally separated from Dr. Rosario, Duque-Rosario alone challenges the writ of
possession before this Court through her Petition in G.R. No. 140553.

Duque-Rosario alleges in her Petition that Lot No. 5-F-8-C-2-B-2-A had been registered
in her name under TCT No. 104189. Yet, without a copy of TCT No. 104189 on record, the
Court cannot give much credence to Duque-Rosarios claim of sole ownership of Lot No. 5-F-8-
C-2-B-2-A. Also, the question of whether Lot No. 5-F-8-C-2-B-2-A was the paraphernal
property of Duque-Rosario or the conjugal property of the spouses Rosario would not alter the
outcome of Duque-Rosarios Petition.
The following facts are undisputed: Banco Filipino extrajudicially foreclosed the mortgage
constituted on Lot No. 5-F-8-C-2-B-2-A and the two other properties after Dr. Rosario defaulted
on the payment of his loan; Banco Filipino was the highest bidder for all three properties at the
foreclosure sale on April 2, 1987; the Certificate of Sale dated April 2, 1987 was registered in
April 1987; and based on the Certificate of Final Sale dated May 24, 1988 and Affidavit of
Consolidation dated May 25, 1988, the Register of Deeds cancelled TCT No. 104189 and issued
TCT No. 165812 in the name of Banco Filipino for Lot No. 5-F-8-C-2-B-2-A on June 7, 1988.

The Court has consistently ruled that the one-year redemption period should be counted not from
the date of foreclosure sale, but from the time the certificate of sale is registered with the
Registry of Deeds.[91] No copy of TCT No. 104189 can be found in the records of this case, but
the fact of annotation of the Certificate of Sale thereon was admitted by the parties, only
differing on the date it was made: April 14, 1987 according to Banco Filipino and April 15, 1987
as maintained by Duque-Rosario. Even if the Court concedes that the Certificate of Sale was
annotated on TCT No. 104189 on the later date, April 15, 1987, the one-year redemption period
already expired on April 14, 1988.[92] The Certificate of Final Sale and Affidavit of
Consolidation were executed more than a month thereafter, on May 24, 1988 and May 25, 1988,
respectively, and were clearly not premature.
It is true that the rule on redemption is liberally construed in favor of the original owner
of the property. The policy of the law is to aid rather than to defeat him in the exercise of his
right of redemption.[93] However, the liberal interpretation of the rule on redemption is
inapplicable herein as neither Duque-Rosario nor Dr. Rosario had made any attempt to redeem
Lot No. 5-F-8-C-2-B-2-A. Duque-Rosario could only rely on the efforts of the Torbela siblings
at redemption, which were unsuccessful. While the Torbela siblings made several offers to
redeem Lot No. 356-A, as well as the two other properties mortgaged by Dr. Rosario, they did
not make any valid tender of the redemption price to effect a valid redemption. The general rule
in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do
so. The statement of intention must be accompanied by an actual and simultaneous tender of
payment. The redemption price should either be fully offered in legal tender or else validly
consigned in court. Only by such means can the auction winner be assured that the offer to
redeem is being made in good faith.[94] In case of disagreement over the redemption price, the
redemptioner may preserve his right of redemption through judicial action, which in every case,
must be filed within the one-year period of redemption. The filing of the court action to enforce
redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his
redemptive rights and freezing the expiration of the one-year period.[95] But no such action was
instituted by the Torbela siblings or either of the spouses Rosario.
Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-
C-2-B-2-A in favor of Banco Filipino by invoking the pendency of Civil Case No. U-4359, the
Torbela siblings action for recovery of ownership and possession and damages, which
supposedly tolled the period for redemption of the foreclosed properties. Without belaboring the
issue of Civil Case No. U-4359 suspending the redemption period, the Court simply points out to
Duque-Rosario that Civil Case No. U-4359 involved Lot No. 356-A only, and the legal
consequences of the institution, pendency, and resolution of Civil Case No. U-4359 apply to Lot
No. 356-A alone.

Equally unpersuasive is Duque-Rosarios argument that the writ of possession over Lot
No. 5-F-8-C-2-B-2-A should not be issued given the defects in the conduct of the foreclosure
sale (i.e., lack of personal notice to Duque-Rosario) and consolidation of title (i.e., failure to
provide Duque-Rosario with copies of the Certificate of Final Sale).

The right of the purchaser to the possession of the foreclosed property becomes absolute
upon the expiration of the redemption period. The basis of this right to possession is the
purchaser's ownership of the property. After the consolidation of title in the buyer's name for
failure of the mortgagor to redeem, the writ of possession becomes a matter of right and its
issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function.[96]

The judge with whom an application for a writ of possession is filed need not look into
the validity of the mortgage or the manner of its foreclosure. Any question regarding the validity
of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of
possession. Regardless of whether or not there is a pending suit for the annulment of the
mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without
prejudice, of course, to the eventual outcome of the pending annulment case. The issuance of a
writ of possession in favor of the purchaser in a foreclosure sale is a ministerial act and does not
entail the exercise of discretion.[97]

WHEREFORE, in view of the foregoing, the Petition of the Torbela siblings in G.R. No.
140528 is GRANTED, while the Petition of Lena Duque-Rosario in G.R. No. 140553
is DENIED for lack of merit. The Decision dated June 29, 1999 of the Court of Appeals in CA-
G.R. CV No. 39770, which affirmed with modification the Amended Decision dated January 29,
1992 of the RTC in Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822,
is AFFIRMED WITH MODIFICATIONS, to now read as follows:
(1) Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela siblings;

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in the
name of Banco Filipino and to issue a new certificate of title in the name of the Torbela siblings
for Lot No. 356-A;

(3) The case is REMANDED to the RTC for further proceedings to determine the facts
essential to the proper application of Articles 448 and 546 of the Civil Code, particularly: (a) the
present fair market value of Lot No. 356-A; (b) the present fair market value of the
improvements thereon; (c) the option of the Torbela siblings to appropriate the improvements on
Lot No. 356-A or require Dr. Rosario to purchase Lot No. 356-A; and (d) in the event that the
Torbela siblings choose to require Dr. Rosario to purchase Lot No. 356-A but the value thereof is
considerably more than the improvements, then the reasonable rent of Lot No. 356-A to be paid
by Dr. Rosario to the Torbela siblings;

(4) The Torbela siblings are DIRECTED to submit an accounting of the rents of the
improvements on Lot No. 356-A which they had received and to turn over any balance thereof to
Dr. Rosario;

(5) Dr. Rosario is ORDERED to pay the Torbela siblings P200,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees; and
(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered
by TCT No. 165812. The RTC Branch Clerk of Court is ORDERED to issue a writ of
possession for the said property in favor of Banco Filipino.

SO ORDERED.