Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-61311 September 2l, 1987

FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG, FELINA MIRANDA,

RICARDO PUNO, FLORENCIO LAXA, and RENE OCAMPO, petitioners,
vs.
HON. MARIANO CASTAÑEDA, JR., Presiding Judge of the Court of First Instance of
Pampanga, Branch III, VICENTE A. MACALINO, Officer-in-Charge, Office of the Mayor, San
Fernando, Pampanga, respondents.

CRUZ, J.:

There is in the vicinity of the public market of San Fernando, Pampanga, along Mercado Street, a
strip of land measuring 12 by 77 meters on which stands a conglomeration of vendors stalls together
forming what is commonly known as a talipapa. This is the subject of the herein petition. The
petitioners claim they have a right to remain in and conduct business in this area by virtue of a
previous authorization granted to them by the municipal government. The respondents deny this and
justify the demolition of their stalls as illegal constructions on public property. At the petitioners'
behest, we have issued a temporary restraining order to preserve the status quo between the
parties pending our decision. 1 Now we shall rule on the merits.

This dispute goes back to November 7, 1961, when the municipal council of San Fernando adopted
Resolution No. 218 authorizing some 24 members of the Fernandino United Merchants and Traders
Association to construct permanent stags and sell in the above-mentioned place.   The action was
2

protested on November 10, 1961, in Civil Case No. 2040, where the Court of First Instance of
Pampanga, Branch 2, issued a writ of preliminary injunction that prevented the defendants from
constructing the said stalls until final resolution of the controversy.   On January 18, 1964, while this
3

case was pending, the municipal council of San Fernando adopted Resolution G.R. No. 29, which
declared the subject area as "the parking place and as the public plaza of the municipality,   thereby
4

impliedly revoking Resolution No. 218, series of 1961. Four years later, on November 2, 1968,
Judge Andres C. Aguilar decided the aforesaid case and held that the land occupied by the
petitioners, being public in nature, was beyond the commerce of man and therefore could not be the
subject of private occupancy.   The writ of preliminary injunction was made permanent. 
5 6

The decision was apparently not enforced, for the petitioners were not evicted from the place; in fact,
according to then they and the 128 other persons were in 1971 assigned specific areas or space
allotments therein for which they paid daily fees to the municipal government.   The problem appears
7

to have festered for some more years under a presumably uneasy truce among the protagonists,
none of whom made any move, for some reason that does not appear in the record. Then, on
January 12, 1982, the Association of Concerned Citizens and Consumers of San Fernando filed a
petition for the immediate implementation of Resolution No. 29, to restore the subject property "to its
original and customary use as a public plaza.  8
Acting thereon after an investigation conducted by the municipal attorney,   respondent Vicente A. 9

Macalino, as officer-in-charge of the office of the mayor of San Fernando, issued on June 14, 1982,
a resolution requiring the municipal treasurer and the municipal engineer to demolish the stalls in the
subject place beginning July 1, 1982. 10 The reaction of the petitioners was to file a petition for prohibition with the Court of
First Instance of Pampanga, docketed as Civil Case No. 6470, on June 26, 1982. The respondent judge denied the petition on July 19,
1982, 11 and the motion for reconsideration on August 5, 1982, 12 prompting the petitioners to come to this Court on certiorari to challenge
his decision. 13

As required, respondent Macalino filed his comment 14 on the petition, and the petitioners countered with their reply. 15 In compliance with
our resolution of February 2, 1983, the petitioners submitted their memorandum 16 and respondent Macalino, for his part, asked that his
comment be considered his memorandum. 17 On July 28, 1986, the new officer-in-charge of the office of the mayor of San Fernando,
Paterno S. Guevarra, was impleaded in lieu of Virgilio Sanchez, who had himself earlier replaced the original respondent Macalino. 18

After considering the issues and the arguments raised by the parties in their respective pleadings,
we rule for the respondents. The petition must be dismissed.

There is no question that the place occupied by the petitioners and from which they are sought to be
evicted is a public plaza, as found by the trial court in Civil Case No. 2040. This finding was made
after consideration of the antecedent facts as especially established by the testimony of former San
Fernando Mayor Rodolfo Hizon, who later became governor of Pampanga, that the National
Planning Commission had reserved the area for a public plaza as early as 1951. This intention was
reiterated in 1964 through the adoption of Resolution No. 29. 19

It does not appear that the decision in this case was appealed or has been reversed. In Civil Case G.R. No. 6740, which is the subject of this
petition, the respondent judge saw no reason to disturb the finding in Civil Case No. 2040 and indeed used it as a basis for his own decision
sustaining the questioned order. 20

The basic contention of the petitioners is that the disputed area is under lease to them by virtue of
contracts they had entered into with the municipal government, first in 1961 insofar as the original
occupants were concerned, and later with them and the other petitioners by virtue of the space
allocations made in their favor in 1971 for which they saw they are paying daily fees.   The municipal 21

government has denied making such agreements. In any case, they argue, since the fees were
collected daily, the leases, assuming their validity, could be terminated at will, or any day, as the
claimed rentals indicated that the period of the leases was from day to day.  22

The parties belabor this argument needlessly.

A public plaza is beyond the commerce of man and so cannot be the subject of lease or any other
contractual undertaking. This is elementary. Indeed, this point was settled as early as in Municipality
of Cavite vs. Rojas,   decided in 1915, where the Court declared as null and void the lease of a
23

public plaza of the said municipality in favor of a private person.

Justice Torres said in that case:

According to article 344 of the Civil Code: "Property for public use in provinces and in
towns comprises the provincial and town roads, the squares, streets, fountains, and
public waters, the promenades, and public works of general service supported by
said towns or provinces.

The said Plaza Soledad being a promenade for public use, the municipal council of
Cavite could not in 1907 withdraw or exclude from public use a portion thereof in
order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a
portion of said plaza or public place to the defendant for private use the plaintiff
 municipality exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, and plazas and streets are
outside of this commerce, as was decided by the supreme court of Spain in its
decision of February 12, 1895, which says: "communal things that cannot be sold
because they are by their very nature outside of commerce are those for public use,
such as the plazas, streets, common lands, rivers, fountains, etc."

Therefore, it must be concluded that the contract, Exhibit C, whereby the municipality
of Cavite leased to Hilaria Rojas a portion of the Plaza Soledad is null and void and
of no force or effect, because it is contrary to the law and the thing leased cannot be
the object of a was held that the City of contract.

In Muyot vs. de la Fuente,   it was held that the City of Manila could not lease a portion of a public
24

sidewalk on Plaza Sta. Cruz, being likewise beyond the commerce of man.

Echoing Rojas, the decision said:

Appellants claim that they had obtained permit from the present of the City of Manila,
to connect booths Nos. 1 and 2, along the premises in question, and for the use of
spaces where the booths were constructed, they had paid and continued paying the
corresponding rentals. Granting this claim to be true, one should not entertain any
doubt that such permit was not legal, because the City of Manila does not have any
power or authority at all to lease a portion of a public sidewalk. The sidewalk in
question, forming part of the public plaza of Sta. Cruz, could not be a proper subject
matter of the contract, as it was not within the commerce of man (Article 1347, new
Civil Code, and article 1271, old Civil Code). Any contract entered into by the City of
Manila in connection with the sidewalk, is ipso facto null and ultra vires. (Municipality
of Cavite vs. Roxas, et a1, 30 Phil. 603.) The sidewalk in question was intended for
and was used by the public, in going from one place to another. "The streets and
public places of the city shall be kept free and clear for the use of the public, and the
sidewalks and crossings for the pedestrians, and the same shall only be used or
occupied for other purpose as provided by ordinance or regulation; ..." (Sec. 1119,
Revised Ordinances of the City of Manila.) The booths in question served as fruit
stands for their owners and often, if not always, blocked the fire passage of
pedestrians who had to take the plaza itself which used to be clogged with vehicular
traffic.

Exactly in point is Espiritu vs. Municipal Council of Pozorrubio,   where the Supreme Court declared:
25

There is absolutely no question that the town plaza cannot be used for the
construction of market stalls, specially of residences, and that such structures
constitute a nuisance subject to abatement according to law. Town plazas are
properties of public dominion, to be devoted to public use and to be made available
to the public in general They are outside the common of man and cannot be
disposed of or even leased by the municipality to private parties.

Applying this well-settled doctrine, we rule that the petitioners had no right in the first place to occupy
the disputed premises and cannot insist in remaining there now on the strength of their alleged lease
contracts. They should have realized and accepted this earlier, considering that even before Civil
Case No. 2040 was decided, the municipalcouncil of San Fernando had already adopted Resolution
No. 29, series of 1964, declaring the area as the parking place and public plaza of the municipality.

It is the decision in Civil Case No. 2040 and the said resolution of the municipal council of San
Fernando that respondent Macalino was seeking to enforce when he ordered the demolition of the
stags constructed in the disputed area. As officer-in-charge of the office of the mayor, he had the
duty to clear the area and restore it to its intended use as a parking place and public plaza of the
municipality of San Fernando, conformably to the aforementioned orders from the court and the
council. It is, therefore, not correct to say that he had acted without authority or taken the law into his
hands in issuing his order.

Neither can it be said that he acted whimsically in exercising his authority for it has been established
that he directed the demolition of the stalls only after, upon his instructions, the municipal attorney
had conducted an investigation, to look into the complaint filed by the Association of Concerned
Citizens and Consumers of San Fernando.   There is evidence that the petitioners were notified of
26

this hearing,  which they chose to disregard. Photographs of the disputed area,   which does look
27 28

congested and ugly, show that the complaint was valid and that the area really needed to be
cleared, as recommended by the municipal attorney.

The Court observes that even without such investigation and recommendation, the respondent
mayor was justified in ordering the area cleared on the strength alone of its status as a public plaza
as declared by the judicial and legislative authorities. In calling first for the investigation (which the
petitioner saw fit to boycott), he was just scrupulously paying deference to the requirements of due
process, to remove an taint of arbitrariness in the action he was caged upon to take.

Since the occupation of the place in question in 1961 by the original 24 stallholders (whose number
later ballooned to almost 200), it has deteriorated increasingly to the great prejudice of the
community in general. The proliferation of stags therein, most of them makeshift and of flammable
materials, has converted it into a veritable fire trap, which, added to the fact that it obstructs access
to and from the public market itself, has seriously endangered public safety. The filthy condition of
the talipapa, where fish and other wet items are sold, has aggravated health and sanitation
problems, besides pervading the place with a foul odor that has spread into the surrounding areas.
The entire place is unsightly, to the dismay and embarrassment of the inhabitants, who want it
converted into a showcase of the town of which they can all be proud. The vendors in
the talipapa have also spilled into the street and obstruct the flow of traffic, thereby impairing the
convenience of motorists and pedestrians alike. The regular stallholders in the public market, who
pay substantial rentals to the municipality, are deprived of a sizable volume of business from
prospective customers who are intercepted by the talipapa vendors before they can reach the
market proper. On top of all these, the people are denied the proper use of the place as a public
plaza, where they may spend their leisure in a relaxed and even beautiful environment and civic and
other communal activities of the town can be held.

The problems caused by the usurpation of the place by the petitioners are covered by the police
power as delegated to the municipality under the general welfare clause.   This authorizes the
29

municipal council "to enact such ordinances and make such regulations, not repugnant to law, as
may be necessary to carry into effect and discharge the powers and duties conferred upon it by law
and such as shall seem necessary and proper to provide for the health and safety, promote the
prosperity, improve the morals, peace, good order, comfort, and convenience of the municipality and
the inhabitants thereof, and for the protection of property therein." This authority was validly
exercised in this casethrough the adoption of Resolution No. 29, series of 1964, by the municipal
council of San Fernando.
Even assuming a valid lease of the property in dispute, the resolution could have effectively
terminated the agreement for it is settled that the police power cannot be surrendered or bargained
away through the medium of a contract.   In fact, every contract affecting the public interest suffers a
30

congenital infirmity in that it contains an implied reservation of the police power as a postulate of the
existing legal order.   This power can be activated at any time to change the provisions of the
31

contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such an
act will not militate against the impairment clause, which is subject to and limited by the paramount
police power. 32

We hold that the respondent judge did not commit grave abuse of discretion in denying the petition
for prohibition. On the contrary, he acted correctly in sustaining the right and responsibility of the
mayor to evict the petitioners from the disputed area and clear it of an the structures illegally
constructed therein.

The Court feels that it would have been far more amiable if the petitioners themselves, recognizing
their own civic duty, had at the outset desisted from their original stance and withdrawn in good
grace from the disputed area to permit its peaceful restoration as a public plaza and parking place
for the benefit of the whole municipality. They owned this little sacrifice to the community in general
which has suffered all these many years because of their intransigence. Regrettably, they have
refused to recognize that in the truly democratic society, the interests of the few should yield to those
of the greater number in deference to the principles that the welfare of the people is the supreme law
and overriding purpose. We do not see any altruism here. The traditional ties of sharing are absent
here. What we find, sad to say, is a cynical disdaining of the spirit of "bayanihan," a selfish rejection
of the cordial virtues of "pakikisama " and "pagbibigayan" which are the hallmarks of our people.

WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the order-dated
August 5, 1982, are AFFIRMED. The temporary restraining order dated August 9, 1982, is LIFTED.
This decision is immediately executory. Costs against the petitioners.

SO ORDERED.

Teehankee, C.J., Narvasa and Paras, JJ., concur.

 
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-61311 September 2l, 1987

FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG, FELINA MIRANDA,

RICARDO PUNO, FLORENCIO LAXA, and RENE OCAMPO, petitioners,
vs.
HON. MARIANO CASTAÑEDA, JR., Presiding Judge of the Court of First Instance of
Pampanga, Branch III, VICENTE A. MACALINO, Officer-in-Charge, Office of the Mayor, San
Fernando, Pampanga, respondents.

CRUZ, J.:

There is in the vicinity of the public market of San Fernando, Pampanga, along Mercado Street, a
strip of land measuring 12 by 77 meters on which stands a conglomeration of vendors stalls together
forming what is commonly known as a talipapa. This is the subject of the herein petition. The
petitioners claim they have a right to remain in and conduct business in this area by virtue of a
previous authorization granted to them by the municipal government. The respondents deny this and
justify the demolition of their stalls as illegal constructions on public property. At the petitioners'
behest, we have issued a temporary restraining order to preserve the status quo between the
parties pending our decision. 1 Now we shall rule on the merits.

This dispute goes back to November 7, 1961, when the municipal council of San Fernando adopted
Resolution No. 218 authorizing some 24 members of the Fernandino United Merchants and Traders
Association to construct permanent stags and sell in the above-mentioned place.   The action was
2

protested on November 10, 1961, in Civil Case No. 2040, where the Court of First Instance of
Pampanga, Branch 2, issued a writ of preliminary injunction that prevented the defendants from
constructing the said stalls until final resolution of the controversy.   On January 18, 1964, while this
3

case was pending, the municipal council of San Fernando adopted Resolution G.R. No. 29, which
declared the subject area as "the parking place and as the public plaza of the municipality,   thereby
4

impliedly revoking Resolution No. 218, series of 1961. Four years later, on November 2, 1968,
Judge Andres C. Aguilar decided the aforesaid case and held that the land occupied by the
petitioners, being public in nature, was beyond the commerce of man and therefore could not be the
subject of private occupancy.   The writ of preliminary injunction was made permanent. 
5 6

The decision was apparently not enforced, for the petitioners were not evicted from the place; in fact,
according to then they and the 128 other persons were in 1971 assigned specific areas or space
allotments therein for which they paid daily fees to the municipal government.   The problem appears
7

to have festered for some more years under a presumably uneasy truce among the protagonists,
none of whom made any move, for some reason that does not appear in the record. Then, on
January 12, 1982, the Association of Concerned Citizens and Consumers of San Fernando filed a
petition for the immediate implementation of Resolution No. 29, to restore the subject property "to its
original and customary use as a public plaza.  8
Acting thereon after an investigation conducted by the municipal attorney,   respondent Vicente A. 9

Macalino, as officer-in-charge of the office of the mayor of San Fernando, issued on June 14, 1982,
a resolution requiring the municipal treasurer and the municipal engineer to demolish the stalls in the
subject place beginning July 1, 1982. 10 The reaction of the petitioners was to file a petition for prohibition with the Court of
First Instance of Pampanga, docketed as Civil Case No. 6470, on June 26, 1982. The respondent judge denied the petition on July 19,
1982, 11 and the motion for reconsideration on August 5, 1982, 12 prompting the petitioners to come to this Court on certiorari to challenge
his decision. 13

As required, respondent Macalino filed his comment 14 on the petition, and the petitioners countered with their reply. 15 In compliance with
our resolution of February 2, 1983, the petitioners submitted their memorandum 16 and respondent Macalino, for his part, asked that his
comment be considered his memorandum. 17 On July 28, 1986, the new officer-in-charge of the office of the mayor of San Fernando,
Paterno S. Guevarra, was impleaded in lieu of Virgilio Sanchez, who had himself earlier replaced the original respondent Macalino. 18

After considering the issues and the arguments raised by the parties in their respective pleadings,
we rule for the respondents. The petition must be dismissed.

There is no question that the place occupied by the petitioners and from which they are sought to be
evicted is a public plaza, as found by the trial court in Civil Case No. 2040. This finding was made
after consideration of the antecedent facts as especially established by the testimony of former San
Fernando Mayor Rodolfo Hizon, who later became governor of Pampanga, that the National
Planning Commission had reserved the area for a public plaza as early as 1951. This intention was
reiterated in 1964 through the adoption of Resolution No. 29. 19

It does not appear that the decision in this case was appealed or has been reversed. In Civil Case G.R. No. 6740, which is the subject of this
petition, the respondent judge saw no reason to disturb the finding in Civil Case No. 2040 and indeed used it as a basis for his own decision
sustaining the questioned order. 20

The basic contention of the petitioners is that the disputed area is under lease to them by virtue of
contracts they had entered into with the municipal government, first in 1961 insofar as the original
occupants were concerned, and later with them and the other petitioners by virtue of the space
allocations made in their favor in 1971 for which they saw they are paying daily fees.   The municipal 21

government has denied making such agreements. In any case, they argue, since the fees were
collected daily, the leases, assuming their validity, could be terminated at will, or any day, as the
claimed rentals indicated that the period of the leases was from day to day.  22

The parties belabor this argument needlessly.

A public plaza is beyond the commerce of man and so cannot be the subject of lease or any other
contractual undertaking. This is elementary. Indeed, this point was settled as early as in Municipality
of Cavite vs. Rojas,   decided in 1915, where the Court declared as null and void the lease of a
23

public plaza of the said municipality in favor of a private person.

Justice Torres said in that case:

According to article 344 of the Civil Code: "Property for public use in provinces and in
towns comprises the provincial and town roads, the squares, streets, fountains, and
public waters, the promenades, and public works of general service supported by
said towns or provinces.

The said Plaza Soledad being a promenade for public use, the municipal council of
Cavite could not in 1907 withdraw or exclude from public use a portion thereof in
order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a
portion of said plaza or public place to the defendant for private use the plaintiff
 municipality exceeded its authority in the exercise of its powers by executing a
contract over a thing of which it could not dispose, nor is it empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the
commerce of man may be the object of a contract, and plazas and streets are
outside of this commerce, as was decided by the supreme court of Spain in its
decision of February 12, 1895, which says: "communal things that cannot be sold
because they are by their very nature outside of commerce are those for public use,
such as the plazas, streets, common lands, rivers, fountains, etc."

Therefore, it must be concluded that the contract, Exhibit C, whereby the municipality
of Cavite leased to Hilaria Rojas a portion of the Plaza Soledad is null and void and
of no force or effect, because it is contrary to the law and the thing leased cannot be
the object of a was held that the City of contract.

In Muyot vs. de la Fuente,   it was held that the City of Manila could not lease a portion of a public
24

sidewalk on Plaza Sta. Cruz, being likewise beyond the commerce of man.

Echoing Rojas, the decision said:

Appellants claim that they had obtained permit from the present of the City of Manila,
to connect booths Nos. 1 and 2, along the premises in question, and for the use of
spaces where the booths were constructed, they had paid and continued paying the
corresponding rentals. Granting this claim to be true, one should not entertain any
doubt that such permit was not legal, because the City of Manila does not have any
power or authority at all to lease a portion of a public sidewalk. The sidewalk in
question, forming part of the public plaza of Sta. Cruz, could not be a proper subject
matter of the contract, as it was not within the commerce of man (Article 1347, new
Civil Code, and article 1271, old Civil Code). Any contract entered into by the City of
Manila in connection with the sidewalk, is ipso facto null and ultra vires. (Municipality
of Cavite vs. Roxas, et a1, 30 Phil. 603.) The sidewalk in question was intended for
and was used by the public, in going from one place to another. "The streets and
public places of the city shall be kept free and clear for the use of the public, and the
sidewalks and crossings for the pedestrians, and the same shall only be used or
occupied for other purpose as provided by ordinance or regulation; ..." (Sec. 1119,
Revised Ordinances of the City of Manila.) The booths in question served as fruit
stands for their owners and often, if not always, blocked the fire passage of
pedestrians who had to take the plaza itself which used to be clogged with vehicular
traffic.

Exactly in point is Espiritu vs. Municipal Council of Pozorrubio,   where the Supreme Court declared:
25

There is absolutely no question that the town plaza cannot be used for the
construction of market stalls, specially of residences, and that such structures
constitute a nuisance subject to abatement according to law. Town plazas are
properties of public dominion, to be devoted to public use and to be made available
to the public in general They are outside the common of man and cannot be
disposed of or even leased by the municipality to private parties.

Applying this well-settled doctrine, we rule that the petitioners had no right in the first place to occupy
the disputed premises and cannot insist in remaining there now on the strength of their alleged lease
contracts. They should have realized and accepted this earlier, considering that even before Civil
Case No. 2040 was decided, the municipalcouncil of San Fernando had already adopted Resolution
No. 29, series of 1964, declaring the area as the parking place and public plaza of the municipality.

It is the decision in Civil Case No. 2040 and the said resolution of the municipal council of San
Fernando that respondent Macalino was seeking to enforce when he ordered the demolition of the
stags constructed in the disputed area. As officer-in-charge of the office of the mayor, he had the
duty to clear the area and restore it to its intended use as a parking place and public plaza of the
municipality of San Fernando, conformably to the aforementioned orders from the court and the
council. It is, therefore, not correct to say that he had acted without authority or taken the law into his
hands in issuing his order.

Neither can it be said that he acted whimsically in exercising his authority for it has been established
that he directed the demolition of the stalls only after, upon his instructions, the municipal attorney
had conducted an investigation, to look into the complaint filed by the Association of Concerned
Citizens and Consumers of San Fernando.   There is evidence that the petitioners were notified of
26

this hearing,  which they chose to disregard. Photographs of the disputed area,   which does look
27 28

congested and ugly, show that the complaint was valid and that the area really needed to be
cleared, as recommended by the municipal attorney.

The Court observes that even without such investigation and recommendation, the respondent
mayor was justified in ordering the area cleared on the strength alone of its status as a public plaza
as declared by the judicial and legislative authorities. In calling first for the investigation (which the
petitioner saw fit to boycott), he was just scrupulously paying deference to the requirements of due
process, to remove an taint of arbitrariness in the action he was caged upon to take.

Since the occupation of the place in question in 1961 by the original 24 stallholders (whose number
later ballooned to almost 200), it has deteriorated increasingly to the great prejudice of the
community in general. The proliferation of stags therein, most of them makeshift and of flammable
materials, has converted it into a veritable fire trap, which, added to the fact that it obstructs access
to and from the public market itself, has seriously endangered public safety. The filthy condition of
the talipapa, where fish and other wet items are sold, has aggravated health and sanitation
problems, besides pervading the place with a foul odor that has spread into the surrounding areas.
The entire place is unsightly, to the dismay and embarrassment of the inhabitants, who want it
converted into a showcase of the town of which they can all be proud. The vendors in
the talipapa have also spilled into the street and obstruct the flow of traffic, thereby impairing the
convenience of motorists and pedestrians alike. The regular stallholders in the public market, who
pay substantial rentals to the municipality, are deprived of a sizable volume of business from
prospective customers who are intercepted by the talipapa vendors before they can reach the
market proper. On top of all these, the people are denied the proper use of the place as a public
plaza, where they may spend their leisure in a relaxed and even beautiful environment and civic and
other communal activities of the town can be held.

The problems caused by the usurpation of the place by the petitioners are covered by the police
power as delegated to the municipality under the general welfare clause.   This authorizes the
29

municipal council "to enact such ordinances and make such regulations, not repugnant to law, as
may be necessary to carry into effect and discharge the powers and duties conferred upon it by law
and such as shall seem necessary and proper to provide for the health and safety, promote the
prosperity, improve the morals, peace, good order, comfort, and convenience of the municipality and
the inhabitants thereof, and for the protection of property therein." This authority was validly
exercised in this casethrough the adoption of Resolution No. 29, series of 1964, by the municipal
council of San Fernando.
Even assuming a valid lease of the property in dispute, the resolution could have effectively
terminated the agreement for it is settled that the police power cannot be surrendered or bargained
away through the medium of a contract.   In fact, every contract affecting the public interest suffers a
30

congenital infirmity in that it contains an implied reservation of the police power as a postulate of the
existing legal order.   This power can be activated at any time to change the provisions of the
31

contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such an
act will not militate against the impairment clause, which is subject to and limited by the paramount
police power. 32

We hold that the respondent judge did not commit grave abuse of discretion in denying the petition
for prohibition. On the contrary, he acted correctly in sustaining the right and responsibility of the
mayor to evict the petitioners from the disputed area and clear it of an the structures illegally
constructed therein.

The Court feels that it would have been far more amiable if the petitioners themselves, recognizing
their own civic duty, had at the outset desisted from their original stance and withdrawn in good
grace from the disputed area to permit its peaceful restoration as a public plaza and parking place
for the benefit of the whole municipality. They owned this little sacrifice to the community in general
which has suffered all these many years because of their intransigence. Regrettably, they have
refused to recognize that in the truly democratic society, the interests of the few should yield to those
of the greater number in deference to the principles that the welfare of the people is the supreme law
and overriding purpose. We do not see any altruism here. The traditional ties of sharing are absent
here. What we find, sad to say, is a cynical disdaining of the spirit of "bayanihan," a selfish rejection
of the cordial virtues of "pakikisama " and "pagbibigayan" which are the hallmarks of our people.

WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the order-dated
August 5, 1982, are AFFIRMED. The temporary restraining order dated August 9, 1982, is LIFTED.
This decision is immediately executory. Costs against the petitioners.

SO ORDERED.

Teehankee, C.J., Narvasa and Paras, JJ., concur.

 
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 76217 September 14, 1989

GERMAN MANAGEMENT & SERVICES, INC., petitioner,

vs.
HON. COURT OF APPEALS and ERNESTO VILLEZA, respondents.

G.R. No. L-76216 September 14, 1989

GERMAN MANAGEMENT & SERVICES, INC., petitioner,

vs.
HON. COURT OF APPEALS and ORLANDO GERNALE, respondents.

Alam, Verano & Associates for petitioner.

Francisco D. Lozano for private respondents.

FERNAN, C.J.:

Spouses Cynthia Cuyegkeng Jose and Manuel Rene Jose, residents of Pennsylvania, Philadelphia,
USA are the owners of a parcel of land situated in Sitio Inarawan, San Isidro, Antipolo, Rizal, with an
area of 232,942 square meters and covered by TCT No. 50023 of the Register of Deeds of the
province of Rizal issued on September 11, 1980 which canceled TCT No. 56762/ T-560. The land
was originally registered on August 5, 1948 in the Office of the Register of Deeds of Rizal as OCT
No. 19, pursuant to a Homestead Patent granted by the President of the Philippines on July 27,
1948, under Act No. 141.

On February 26, 1982, the spouses Jose executed a special power of attorney authorizing petitioner
German Management Services to develop their property covered by TCT No. 50023 into a
residential subdivision. Consequently, petitioner on February 9,1983 obtained Development Permit
No. 00424 from the Human Settlements Regulatory Commission for said development. Finding that
part of the property was occupied by private respondents and twenty other persons, petitioner
advised the occupants to vacate the premises but the latter refused. Nevertheless, petitioner
proceeded with the development of the subject property which included the portions occupied and
cultivated by private respondents.

Private respondents filed an action for forcible entry against petitioner before the Municipal Trial
Court of Antipolo, Rizal, alleging that they are mountainside farmers of Sitio Inarawan, San Isidro,
Antipolo, Rizal and members of the Concerned Citizens of Farmer's Association; that they have
occupied and tilled their farmholdings some twelve to fifteen years prior to the promulgation of P.D.
No. 27; that during the first week of August 1983, petitioner, under a permit from the Office of the
Provincial Governor of Rizal, was allowed to improve the Barangay Road at Sitio Inarawan, San
Isidro, Antipolo, Rizal at its expense, subject to the condition that it shag secure the needed right of
way from the owners of the lot to be affected; that on August 15, 1983 and thereafter, petitioner
deprived private respondents of their property without due process of law by: (1) forcibly removing
and destroying the barbed wire fence enclosing their farmholdings without notice; (2) bulldozing the
rice, corn fruit bearing trees and other crops of private respondents by means of force, violence and
intimidation, in violation of P.D. 1038 and (3) trespassing, coercing and threatening to harass,
remove and eject private respondents from their respective farmholdings in violation of P.D. Nos.
316, 583, 815, and 1028.  1

On January 7,1985, the Municipal Trial Court dismissed private respondents' complaint for forcible
entry.   On appeal, the Regional Trial Court of Antipolo, Rizal, Branch LXXI sustained the dismissal
2

by the Municipal Trial Court.  3

Private respondents then filed a petition for review with the Court of Appeals. On July 24,1986, said
court gave due course to their petition and reversed the decisions of the Municipal Trial Court and
the Regional Trial Court. 4

The Appellate Court held that since private respondents were in actual possession of the property at
the time they were forcibly ejected by petitioner, private respondents have a right to commence an
action for forcible entry regardless of the legality or illegality of possession.   Petitioner moved to
5

reconsider but the same was denied by the Appellate Court in its resolution dated September 26,
1986. 6

Hence, this recourse.

The issue in this case is whether or not the Court of Appeals denied due process to petitioner when
it reversed the decision of the court a quo without giving petitioner the opportunity to file its answer
and whether or not private respondents are entitled to file a forcible entry case against petitioner. 7

We affirm. The Court of Appeals need not require petitioner to file an answer for due process to
exist. The comment filed by petitioner on February 26, 1986 has sufficiently addressed the issues
presented in the petition for review filed by private respondents before the Court of Appeals. Having
heard both parties, the Appellate Court need not await or require any other additional pleading.
Moreover, the fact that petitioner was heard by the Court of Appeals on its motion for reconsideration
negates any violation of due process.

Notwithstanding petitioner's claim that it was duly authorized by the owners to develop the subject
property, private respondents, as actual possessors, can commence a forcible entry case against
petitioner because ownership is not in issue. Forcible entry is merely a quieting process and never
determines the actual title to an estate. Title is not involved. 
8

In the case at bar, it is undisputed that at the time petitioner entered the property, private
respondents were already in possession thereof . There is no evidence that the spouses Jose were
ever in possession of the subject property. On the contrary, private respondents' peaceable
possession was manifested by the fact that they even planted rice, corn and fruit bearing trees
twelve to fifteen years prior to petitioner's act of destroying their crops.

Although admittedly petitioner may validly claim ownership based on the muniments of title it
presented, such evidence does not responsively address the issue of prior actual possession raised
in a forcible entry case. It must be stated that regardless of the actual condition of the title to the
property, the party in peaceable quiet possession shall not be turned out by a strong hand, violence
or terror.   Thus, a party who can prove prior possession can recover such possession even against
9

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.  10

Both the Municipal Trial Court and the Regional Trial Court have rationalized petitioner's drastic
action of bulldozing and destroying the crops of private respondents on the basis of the doctrine of
self-help enunciated in Article 429 of the New Civil Code.   Such justification is unavailing because
11

the doctrine of self-help can only be exercised at the time of actual or threatened dispossession
which is absent in the case at bar. When possession has already been lost, the owner must resort to
judicial process for the recovery of property. This is clear from Article 536 of the Civil Code which
states, "(I)n no case may possession be acquired through force or intimidation as long as there is a
possessor who objects thereto. He who believes that he has an action or right to deprive another of
the holding of a thing, must invoke the aid of the competent court, if the holder should refuse to
deliver the thing."

WHEREFORE, the Court resolved to DENY the instant petition. The decision of the Court of Appeals
dated July 24,1986 is hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

Bidin and Cortes, JJ., concur.

Gutierrez, Jr., J., concurs in the result.

Feliciano, J., is on leave.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 88883             January 18, 1991

ATOK-BIG WEDGE MINING COMPANY, INC., petitioner,

vs.
COURT OF APPEALS, and LIWAN CONSI, respondents.

Mario C.V. Jalandoni for petitioner.

Joy B. Labiaga for private respondent.

PARAS, J.:

This is a petition for review on certiorari which seeks to annul and set aside; (a) the decision* of the
Court of Appeals dated March 13, 1989 in CA-G.R. No. SP No. 13528 entitled "Liwan Consi vs. Hon.
Judge Ruben C. Ayson, et al." declaring that both the petitioner and private respondent hold
possessory titles to the land in question, and (b) the resolution denying the motion for
reconsideration.

The facts of the case are as follows:

Fredia Mineral claim of about nine (9) hectares situated in Tuding, Itogon, Benguet, was located
sometime between December 25, 1930 and December 31, 1930, a period of six (6) days, by A.I.
Reynolds in accordance with the provisions of the Act of Congress of July 1, 1902, better known as
the Philippine Bill of 1902, in a so-called Declaration of Location. The said Declaration of Location of
mineral claim was duly recorded in the Office of the Mining Recorder sometime on January 2, 1931.
Fredia mineral claim, together with other mineral claims, was sold by A.I. Reynolds to Big Wedge
Mining Company, the earlier corporate name of Atok Big Wedge Mining Company, Inc. (Atok for
short; herein petitioner) in a Deed of Sale executed on November 2, 1931. Since then petitioner Atok
has been in continuous and exclusive ownership and possession of said claim up to the present
(Rollo, Annex "B", p. 21).

Atok has paid the realty taxes and occupation fees for the Fredia mineral claim. The Fredia mineral
claim together with other mineral claims owned by Atok has been declared under Tax Declaration
No. 9535 and that in view of Presidential Decree No. 1214 an application for lease was filed by Atok
covering the Fredia mineral claim (Rollo, Ibid., p. 22).

On the other hand, private respondent Liwan Consi has a lot below the land of a certain Mr. Acay at
Tuding Slide, Itogon, Benguet. He constructed a house thereon sometime in 1964. The lot is
covered by Tax Declaration No. 9462. When he first constructed his house below the lot of Mr. Acay
he was told that it was not necessary for him to obtain a building permit as it was only a nipa hut.
And no one prohibited him from entering the land so he was constructing a house thereon. It was
only in January 1984 when private respondent Consi repaired the said house that people came to
take pictures and told him that the lot belongs to Atok. Private respondent Consi has been paying
taxes on said land which his father before him had occupied (Rollo, Ibid., p. 22).

On January 1984, the security guards of Atok informed Feliciano Reyes, Security Officer of Atok,
that a construction was being undertaken at the area of the Fredia mineral claim by private
respondent Liwan Consi. Feliciano Reyes instructed the cashier to go and take pictures of the
construction. Feliciano Reyes himself and other security guards went to the place of the construction
to verify and then to the police to report the matter (Rollo, Ibid.).

On March 1, 1984, Atok filed a complaint for forcible entry and detainer against Liwan Consi (Rollo,
Annex "C", p. 32).

On January 29, 1987, after due hearing, the Municipal Trial Court of Itogon, presided over by Judge
Irving rendered a decision, the dispositive portion of which reads:

WHEREFORE, this case against Liwan Consi is hereby ordered dismissed. (Rollo, Annex
"A", p. 20).

Petitioner ATOK appealed the decision to the Regional Trial Court (RTC) of Baguio and Benguet,
Branch VI, presided over by Judge Ruben Ayson (Rollo, Petition, p. 3). On December 5, 1987, the
RTC rendered its decision, the dispositive portion of which reads:

WHEREFORE, in view of all the foregoing the decision of the Municipal Trial Court of Itogon
dated January 29, 1987 appealed from is hereby reversed and set aside and a new one
entered in its place ordering the defendant Liwan Consi and all those claiming under him to
vacate the premises of the Fredia Mineral claim at Tuding, Itogon, Benguet immediately, and
to restore possession thereof to the plaintiff Atok Big Wedge Mining Company.

The defendant, Liwan Consi, is further ordered to remove and demolish his house
constructed in the premises of the land of Fredia mineral claim at Tuding, Benguet, and to
pay the costs.

SO ORDERED. (Rollo, p. 30).

From said decision, Liwan Consi filed with the Court of Appeals a petition for review (Rollo, Petition,
p. 4). On March 13, 1989, the Court of Appeals rendered its decision, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered dismissing the subject forcible entry action.
Costs against private respondent.

SO ORDERED. (Rollo, Annex "C" p. 48).

The Court of Appeals further ruled in part to wit:

The determination of whether the subject lot is mineral land or agricultural awaits the
decision of the Secretary of Natural Resources in a proceeding called for that purpose. Thus,
there is a chance that the subject property may be classified as alienable agricultural land. At
any rate, the mining company may not so readily describe Liwan Consi as a "squatter" he
also has possessory rights over the property. Such rights may mature into ownership on the
basis of long-term possession under the Public Land Law,
 Thus it is Our holding, that both Consi and ATOK are of equal legal footing with regards the
subject lot. Both hold possessory titles to the land in question — the petitioner through his
long term occupancy of the same; the respondent mining firm by virtue of its being the claim
locator and applicant for a lease on the mineral claim within which the subject lot is found.
But it was established that the petitioner has been in actual and beneficial possession of the
subject lot since before the Second World War in the concept of owner and in good faith.
(Rollo, Annex "C", pp. 47-48).

On June 16, 1989, the Court of Appeals denied the motion for reconsideration filed by petitioner
ATOK (Rollo, Annex "D", p. 50).

Hence, the petition.

The main issue in this case is whether or not an individual's long term occupation of land of the
public domain vests him with such rights over the same as to defeat the rights of the owner of that
claim.

The petition is impressed with merit.

It is of no importance whether Benguet and Atok had secured a patent for as held in the Gold Creek
Mining Corporation case, for all physical purposes of ownership, the owner is not required to secure
a patent as long as he complies with the provisions of the mining laws; his possessory right, for all
practical purposes of ownership, is as good as though secured by patent (Republic v. Court of
Appeals, 160 SCRA 228 [1988]).

In the case at bar, the evidence on record pointed that the petitioner Atok has faithfully complied with
all the requirements of the law regarding the maintenance of the said Fredia Mineral Claim.

The perfection of the mining claim converted the property to mineral land and under the laws then in
force removed it from the public domain. By such act, the locators acquired exclusive rights over the
land, against even the government, without need of any further act such as the purchase of the land
or the obtention of a patent over it. As the land had become the private property of the locators, they
had the right to transfer the same, as they did, to Benguet and Atok (Ibid.).

As in the instant petition, the record shows that the lot in question was acquired through a Deed of
Sale executed between Atok and Fredia Mineral Claim.

The legal effect of a valid location of a mining claim is not only to segregate the area from the
public domain, but to grant to the locator the beneficial ownership of the claim and the right
to a patent therefor upon compliance with the terms and conditions prescribed by law. Where
there is a valid location of mining claim, the area becomes segregated from the public and
the property of the locator. When a location of a mining claim is perfected it has the effect of
a grant by the United States of the right of present and exclusive possession, with the right to
the exclusive enjoyment of all the surface ground as well as of all the minerals within the
lines of the claim, except as limited by the extralateral right of adjoining locators; and this is
the locator's right before as well as after the issuance of the patent. While a lode locator
acquires a vested right by virtue of his location made in compliance with the mining laws, the
fee remains in the government until patent issues. (St. Louis Mining & Mineral Co. v.
Montana Mining Co., 171 U.S. 605, 655; 43 Law ed., 320, 322)
It is, therefore, evident that Benguet and Atok have exclusive rights to the property in question by
virtue of their respective mining claims which they validly acquired before the Constitution of 1935
prohibited the alienation of all lands of the public domain except agricultural lands, subject to vested
rights existing at the time of its adoption. The land was not and could not have been transferred to
the private respondents by virtue of acquisitive prescription, nor could its use be shared
simultaneously by them and the mining companies for agricultural and mineral purposes (Ibid).

On the matter of possession, private respondent contends that his predecessor-in-interest has been
in possession of said lot even before the war and has in fact cultivated the same.

In the case of Republic v. Court of Appeals, 160 SCRA 288 1988, this Court held:

. . . even if it be assumed that the predecessor-in-interest of the de la Rosas had already

been in possession of the subject property, their possession was not in the concept of owner
of the mining claim but of the property as agricultural land, which it was not. The property
was mineral land, and they are claiming it as agricultural land. They were not disputing the
rights of the mining locators nor where they seeking to oust them as such and to replace
them in the mining of the land. . . .

Since the subject lot is mineral land, private respondent's possession of the subject lot no matter
how long did not confer upon him possessory rights over the same.

Furthermore, Article 538 of the New Civil Code provides:

Art. 538. Possession as a fact cannot be recognized at the same time in two different
personalities except in the cases of co-possession. Should a question arise regarding the
fact of possession, the present possessor shall be preferred; if there are two possessors, the
one longer in possession; if the dates of the possession are the same, the one who presents
a title; and if all these conditions are equal, the thing shall be placed in judicial deposit
pending determination of its possession or ownership through proper proceedings.

Since 1931 up to the present, petitioner ATOK has been in continuous and exclusive possession of
the Fredia mineral claim while private respondent's possession started only sometime in 1964 when
he constructed a house thereon. Clearly, ATOK has superior possessory rights than private
respondent, Liwan Consi, the former being "the one longer in possession."

It is therefore clear that from the legal viewpoint it was really petitioner who was in actual physical
possession of the property. Having been deprived of this possession by the private respondent,
petitioner has every right to sue for ejFectment.

With this ruling enunciated by the Court, it can further be declared and held that petitioner Atok has
the exclusive right to the property in question.

PREMISES CONSIDERED, the petition is GRANTED and the questioned decision of the Court of
Appeals dated March 13, 1989 is REVERSED and SET ASIDE and the decision of the Regional
Trial Court of Baguio and Benguet dated June 16, 1989 is REINSTATED.

SO ORDERED.

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

Sarmiento, J., took no part
G.R. No. 196470, April 20, 2016 - ROSARIO VICTORIA AND ELMA PIDLAOAN,
Petitioners, v. NORMITA JACOB PIDLAOAN, HERMINIGILDA PIDLAOAN AND EUFEMIA
PIDLAOAN, Respondents.

SECOND DIVISION

G.R. No. 196470, April 20, 2016

ROSARIO VICTORIA AND ELMA PIDLAOAN, Petitioners, v. NORMITA

JACOB PIDLAOAN, HERMINIGILDA PIDLAOAN AND EUFEMIA
PIDLAOAN, Respondents.

DECISION

BRION, J.:

We resolve the petition for review on certiorari filed by petitioners to challenge

the March 26, 2010 decision1 and March 15, 2011 resolution of the Court of Appeals
(CA) in CA-G.R. CV No. 89235. The Regional Trial Court's (RTC) ruled that Elma
Pidlaoan (Elma) donated only half of the property to Normita Jacob Pidlaoan (Normita).
The CA reversed the RTC's decision and ruled that Elma donated her entire property to
Normita. The Court is called upon to ascertain the true nature of the agreement
between Elma and Normita.

THE ANTECEDENTS

The petitioners Rosario Victoria (Rosario) and Elma lived together since 1978 until
Rosario left for Saudi Arabia.

In 1984, Elma bought a parcel of land with an area of 201 square meters in Lucena City
and was issued Transfer Certificate of Title (TCT) No. T-50282.2 When Rosario came
home, she caused the construction of a house on the lot but she left again after the
house was built.3

Elma allegedly mortgaged the house and lot to a certain Thi Hong Villanueva in
1989.4 When the properties were about to be foreclosed, Elma allegedly asked for help
from her sister-in-law, Eufemia Pidlaoan (Eufemia), to redeem the property. 5 On her
part, Eufemia called her daughter abroad, Normita, to lend money to Elma. Normita
agreed to provide the funds.6
Elma allegedly sought to sell the land. 7 When she failed to find a buyer, she offered to
sell it to Eufemia or her daughter.8

On March 21, 1993, Elma executed a deed of sale entitled "Panananto ng

Pagkatanggap ng Kahustuhang Bayad" transferring the ownership of the lot to
Normita.9 The last provision in the deed of sale provides that Elma shall eject the
person who erected the house and deliver the lot to Normita. 10 The document was
signed by Elma, Normita, and two witnesses but it was not notarized.

When Elma and Normita were about to have the document notarized, the notary public
advised them to donate the lot instead to avoid capital gains tax. 11 On the next day,
Elma executed a deed of donation in Normita's favor and had it notarized. TCT No. T-
50282 was cancelled and TCT No. T-70990 was issued in Normita's name. 12 Since then,
Normita had been paying the real property taxes over the lot but Elma continued to
occupy the house.

Rosario found out about the donation when she returned to the country a year or two
after the transaction.13

In 1997, the petitioners filed a complaint for reformation of contract, cancellation of

TCT No. T-70990, and damages with prayer for preliminary injunction against Eufemia,
Normita, and Herminigilda Pidlaoan (respondents).

The petitioners argued that: first, they co-owned the lot because both of them
contributed the money used to purchase it; second, Elma and Normita entered into an
equitable mortgage because they intended to constitute a mortgage over the lot to
secure Elma's loan but they executed a deed of sale instead; and third, the deed of
donation was simulated because Elma executed it upon the notary public's advice to
avoid capital gains tax.14

In their answer, the respondents admitted that the deed of donation was simulated
and that the original transaction was a sale. 15 They argued, however, that there was no
agreement to constitute a real estate mortgage on the lot. 16

The RTC ruled that Rosario and Elma co-owned the lot and the house. 17 Thus, Elma
could only donate her one-half share in the lot.18

Hence, the respondents appealed to the CA.

THE CA RULING

The CA reversed the RTC's decision and dismissed the petitioners' complaint.

The CA held that Elma and Normita initially entered into two agreements: a loan and a
sale. They entered into a loan agreement when Elma had to pay Thi Hong Villanueva to
redeem the property. Thereafter, Elma sold the property to Normita. They subsequently
superseded the contract of sale with the assailed deed of donation.
The CA also held that the deed of donation was not simulated. It was voluntarily
executed by Elma out of gratitude to Normita who rescued her by preventing the
foreclosure of the lot. Moreover, the deed of donation, being a public document, enjoys
the presumption of regularity. Considering that no conclusive proof was presented to
rebut this presumption, the deed of donation is presumed valid.

The CA denied the petitioners' motion for reconsideration; hence, this petition.

THE PETITIONERS' ARGUMENTS

In their petition, the petitioners argue that: (1) Rosario is a co-owner because she
caused the construction of the house, which has a higher market value than the lot; (2)
the deed of donation is simulated; (3) the transaction was a mere equitable mortgage;
and (4) the CA unduly disturbed the RTC's factual findings. The petitioners emphasize
that the respondents have consistently admitted in their answer that the deed of
donation was simulated; therefore, the CA should not have reversed the RTC's decision
on that point.

In their three-page comment, the respondents insist that the CA correctly dismissed the
complaint. They stressed that the petitioners were the ones who argued that the deed
of donation was simulated but the CA ruled otherwise. Furthermore, the petition
involves questions of facts and law outside the province of the Supreme Court. Hence,
the petition must be dismissed.

THE COURT'S RULING

We PARTIALLY GRANT the petition.

The issues before the Court are: (1) whether Rosario is a co-owner; (2) whether the
deed of donation was simulated; and (3) whether the transaction between Elma and
Normita was a sale, a donation, or an equitable mortgage. Considering that these
issues are inter-related, we shall jointly discuss and resolve them.

At the outset, we note that the issues raised by the petitioners in the present case
require a review of the factual circumstances. As a rule, only questions of law may be
raised in a petition for review on certiorari under Rule 45 of the Rules of Court.

The Court distinguished between a question of law and a question of fact in a number of
cases. A question of law arises when there is doubt on what the law is on a certain set
of fact, while a question of fact exists when there is doubt as to the truth or falsity of
the alleged facts.19 For a question to be one of law, it must not involve an examination
of the probative value of the evidence presented by the litigants. 20 If the issue invites a
review of the evidence on record, the question posed is one of fact. 21

The factual findings of the CA are conclusive and binding and are not reviewable by the
Court, unless the case falls under any of the recognized exceptions. 22 One of these
exceptions is when the findings of the RTC and the CA are contradictory, as in the
present case.

By granting the appeal and dismissing the petitioners' complaint, the CA effectively
ruled that the transfer of ownership involved the entire lot rather than only half of it as
the RTC held. The lower courts' differing findings provide us sufficient reason to proceed
with the review of the evidence on record.23

First, we rule that Elma transferred ownership of the entire lot to Normita.

One who deals with property registered under the Torrens system has a right to rely on
what appears on the face of the certificate of title and need not inquire further as to the
property's ownership.24 A buyer is charged with notice only of the claims annotated on
the title.25 The Torrens system was adopted to best guarantee the integrity of land titles
and to protect their indefeasibility once the claim of ownership is established and
recognized.26

In the present case, the records of the case show that Elma alone purchased the lot in
1984 from its previous owners.27 Accordingly, TCT No. T-50282 was issued solely in her
name. Thus, Normita bought the lot relying on the face of the TCT that Elma and no
other person owned it.

We acknowledge that registration under the Torrens system does not create or vest
title. A certificate of title merely serves as an evidence of ownership in the property.
Therefore, the issuance of a certificate of title does not preclude the possibility that
persons not named in the certificate may be co-owners of the real property, or that the
registered owner is only holding the property in trust for another person. 28

In the present case, however, the petitioners failed to present proof of Rosario's
contributions in purchasing the lot from its previous owners. The execution of the
transfer documents solely in Elma's name alone militate against their claim of co-
ownership. Thus, we find no merit in the petitioners' claim of co-ownership over the lot.

At this point, we address the petitioners' claim that Rosario co-owned the lot with Elma
because the value of the house constructed by Rosario on it is higher than the lot's
value. We find this argument to be erroneous.

We hold that mere construction of a house on another's land does not create a co-
ownership. Article 484 of the Civil Code provides that co-ownership exists when the
ownership of an undivided thing or right belongs to different persons. Verily, a house
and a lot are separately identifiable properties and can pertain to different owners, as in
this case: the house belongs to Rosario and the lot to Elma.

Article 448 of the Civil Code provides that if a person builds on another's land in good
faith, the land owner may either: (a) appropriate the works as his own after paying
indemnity; or (b) oblige the builder to pay the price of the land. The law does not force
the parties into a co-ownership.29 A builder is in good faith if he builds on a land
believing himself to be its owner and is unaware of the defect in his title or mode of
acquisition.30

As applied in the present case, Rosario's construction of a house on the lot did not
create a co-ownership, regardless of the value of the house. Rosario, however, is not
without recourse in retrieving the house or its value. The remedies available to her are
set forth in Article 448 of the Civil Code.

Second, on the nature of the transaction between Elma and Normita, we find
that the deed of donation was simulated and the parties' real intent was to enter into a
sale.

The petitioners argue that the deed of donation was simulated and that the parties
entered into an equitable mortgage.31 On the other hand, the respondents deny the
claim of equitable mortgage32 and argue that they validly acquired the
property via sale.33 The RTC ruled that there was donation but only as to half of the
property. The CA agreed with the respondents that the deed of donation was not
simulated, relying on the presumption of regularity of public documents.

We first dwell on the genuineness of the deed of donation. There are two types of
simulated documents - absolute and relative. A document is absolutely simulated when
the parties have no intent to bind themselves at all, while it is relatively simulated when
the parties concealed their true agreement. 34 The true nature of a contract is
determined by the parties' intention, which can be ascertained from their
contemporaneous and subsequent acts.35

In the present case, Elma and Normita's contemporaneous and subsequent acts show
that they were about to have the contract of sale notarized but the notary public ill-
advised them to execute a deed of donation instead. Following this advice, they
returned the next day to have a deed of donation notarized. Clearly, Elma and Normita
intended to enter into a sale that would transfer the ownership of the subject matter of
their contract but disguised it as a donation. Thus, the deed of donation subsequently
executed by them was only relatively simulated.

The CA upheld the deed of donation's validity based on the principle that a notarized
document enjoys the presumption of regularity. This presumption, however, is
overthrown in this case by the respondents' own admission in their answer that the
deed of donation was simulated.

Judicial admissions made by a party in the course of the proceedings are conclusive and
do not require proof.36 Notably, the respondents explicitly recognized in their answer
that the deed of donation was simulated upon the notary public's advice and that both
parties intended a sale.37

In paragraphs 5 and 6 of the answer,38 the respondents stated thus:

chanRoblesvirtualLawlibrary
5. That defendants admit the allegations in paragraph 9 which readily acknowledges
that there was indeed an agreement to sell the property of plaintiff, Elma Pidlaoan to
defendant, Normita Pidlaoan (Normita, for brevity) for which a Deed of Absolute Sale
was drafted and executed;

6. That defendants admit the simulation of the Deed of Donation in paragraph 10

of the Complaint, but deny the remainder, the truth being that Elma Pidlaoan herself
offered her property for sale in payment of her loans from Normita. (Emphasis
supplied)

Having admitted the simulation, the respondents can no longer deny it at this stage.
The CA erred in disregarding this admission and upholding the validity of the deed of
donation.

Considering that the deed of donation was relatively simulated, the parties are bound to
their real agreement.39 The records show that the parties intended to transfer the
ownership of the property to Normita by absolute sale. This intention is reflected in the
unnotarized document entitled "Panananto ng Pagkatanggap ng Kahustuhang
Bayad."40cralawred

We have discussed that the transaction was definitely not one of donation. Next, we
determine whether the parties' real transaction was a sale or an equitable mortgage.

The petitioners insist that the deed of sale is an equitable mortgage because: (i) the
consideration for the sale was grossly inadequate; (ii) they remained in possession of
the property; (iii) they continuously paid the water and electric bills; (iv) the
respondents allowed Victoria to repay the "loan" within three months; 41 (v) the
respondents admitted that the deed of donation was simulated; and (vi) the petitioners
paid the taxes even after the sale.

Notably, neither the CA nor the RTC found merit in the petitioners' claim of equitable
mortgage. We find no reason to disagree with these conclusions.

An equitable mortgage is one which, although lacking in some formality or other

requisites demanded by statute, nevertheless reveals the intention of the parties to
charge real property as security for a debt, and contains nothing impossible or contrary
to law.42 Articles 1602 and 1604 of the Civil Code provide that a contract of absolute
sale shall be presumed an equitable mortgage if any of the circumstances listed in
Article 1602 is attendant.

Two requisites must concur for Articles 1602 and 1604 of the Civil Code to apply: one,
the parties entered into a contract denominated as a contract of sale; and two, their
intention was to secure an existing debt by way of mortgage. 43

In the present case, the unnotarized contract of sale between Elma and Normita is
denominated as "Panananto ng Pagkatanggap ng Kahustuhang Bayad."44 Its contents
show an unconditional sale of property between Elma and Normita. The document
shows no intention to secure a debt or to grant a right to repurchase. Thus, there is no
evidence that the parties agreed to mortgage the property as contemplated in Article
1602 of the Civil Code. Clearly, the contract is not one of equitable mortgage.

Even assuming that Article 1602 of the Civil Code applies in this case, none of the
circumstances are present to give rise to the presumption of equitable mortgage. One,
the petitioners failed to substantiate their claim that the sale price was unusually
inadequate.45 In fact, the sale price of P30,000.00 is not unusually inadequate
compared with the lot's market value of P32,160 as stated in the 1994 tax
declaration. Two, the petitioners continued occupation on the property was coupled with
the respondents' continuous demand for them to vacate it. Third, no other document
was executed for the petitioners to repurchase the lot after the sale contract was
executed. Finally, the respondents paid the real property taxes on the lot. 46 These
circumstances contradict the petitioners' claim of equitable mortgage.

A review of the sale contract or the "Panananto ng Pagkatanggap ng Kahustuhang

Bayad" shows that the parties intended no equitable mortgage. The contract even
contains Elma's undertaking to remove Rosario's house on the property. 47 This
undertaking supports the conclusion that the parties executed the contract with the end
view of transferring full ownership over the lot to Normita.

In sum, we rule that based on the records of the case, Elma and Normita entered in a
sale contract, not a donation. Elma sold the entire property to Normita. Accordingly,
TCT No. T-70990 was validly issued in Normita's name. chanrobleslaw

WHEREFORE, we hereby PARTIALLY GRANT the petition. The March 26, 2010

decision and March 15, 2011 resolution of the Court of Appeals in CA-G.R. CV No.
89235 are hereby AFFIRMED with the MODIFICATION that the parties entered into a
contract of sale, not a donation, and that petitioner Elma Pidlaoan sold the whole
disputed property to respondent Normita Jacob Pidlaoan. Costs against the petitioners.

SO ORDERED. cralawlawlibrary

Carpio, (Chairperson), Del Castillo, Mendoza, and Leonen, JJ., concur. chanroblesvirtuallawlibrary

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 176791               November 14, 2012

COMMUNITIES CAGAYAN, INC., Petitioner,

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

DECISION

DEL CASTILLO, J.:

LAWS fill the gap in a contract.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the December 29.
1 

2006 Decision and the February 12, 2007 Order of the Regional Trial Court (RTC), Cagayan De Oro
2  3 

City, Branch 18, in Civil Case No. 2005-158.

Factual Antecedents

Sometimes in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to
Sell with petitioner Communities Cagayan, Inc., whereby the latter agreed to sell to respondent-
4  5 

spouses a house and Lots 17 and 19 located at Block 16, Camella Homes Subdivision, Cagayan de
6 

Oro City,  for the price of P368,000.00. Respondent-spouses, however, did not avail of petitioner’s
7  8 

inhouse financing due to its high interest rates. Instead, they obtained a loan from Capitol
9 

Development Bank, a sister company of petitioner, using the property as collateral. To facilitate the
10 

loan, a simulated sale over the property was executed by petitioner in favor of respondent-
spouses. Accordingly, titles were transferred in the names of respondent-spouses under Transfer
11 

Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to Capitol Development Bank for
loan processing. Unfortunately, the bank collapsed and closed before it could release the loan.
12  13

Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell with14 

petitioner over the same property for the same price of P368,000.00. This time, respondent-spouses
15 

availed of petitioner’s in-house financing thus, undertaking to pay the loan over four years, from
16 

1997 to 2001. 17

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

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

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

Cancellation of Contract to Sell due to the latter’s failure to pay the monthly amortizations.
20 
In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court in Cities of Cagayan
de Oro City, an action for unlawful detainer, docketed as C3-Dec-2160, against respondent-
spouses. When the case was referred for mediation, respondent Angeles offered to pay
21 

P220,000.00 to settle the case but petitioner refused to accept the payment. The case was later
22 

withdrawn and consequently dismissed because the judge found out that the titles were already
registered under the names of respondent-spouses. 23

Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed before Branch 18 of the
RTC, Cagayan de Oro City, a Complaint for Cancellation of Title, Recovery of Possession,
Reconveyance and Damages, docketed as Civil Case No. 2005-158, against respondent-spouses
24 

and all persons claiming rights under them. Petitioner alleged that the transfer of the titles in the
names of respondent-spouses was made only in compliance with the requirements of Capitol
Development Bank and that respondent-spouses failed to pay their monthly amortizations beginning
January 2000. Thus, petitioner prayed that TCT Nos. T-105202 and T-105203 be cancelled, and
25 

that respondent Angeles be ordered to vacate the subject property and to pay petitioner reasonable
monthly rentals from January 2000 plus damages. 26

In her Answer, respondent Angeles averred that the Deed of Absolute Sale is valid, and that
27 

petitioner is not the proper party to file the complaint because petitioner is different from Masterplan
Properties, Inc. She also prayed for damages by way of compulsory counterclaim.
28  29

In its Reply, petitioner attached a copy of its Certificate of Filing of Amended Articles of
30 

Incorporation showing that Masterplan Properties, Inc. and petitioner are one and the same. As to
31 

the compulsory counterclaim for damages, petitioner denied the same on the ground of "lack of
knowledge sufficient to form a belief as to the truth or falsity of such allegation."32

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

Pursuant to Administrative Order No. 59-2005, the case was referred for mediation. But since the
34 

parties failed to arrive at an amicable settlement, the case was set for preliminary conference on
February 23, 2006. 35

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

Ruling of the Regional Trial Court

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

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

SO ORDERED. 38
Not satisfied, petitioner moved for reconsideration of the Decision but the Motion was denied in an
39 

Order dated February 12, 2007.

40 

Issue

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

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

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

Petitioner’s Arguments

Petitioner seeks to delete from the dispositive portion the order requiring petitioner to reimburse
respondent-spouses the total monthly installments they had paid and the value of the new house
minus the cost of the original house. Petitioner claims that there is no legal basis for the RTC to
42 

require petitioner to reimburse the cost of the new house because respondent-spouses were in bad
faith when they renovated and improved the house, which was not yet their own. Petitioner further
43 

contends that instead of ordering mutual restitution by the parties, the RTC should have applied
Republic Act No. 6552, otherwise known as the Maceda Law, and that instead of awarding
44 

respondent-spouses a refund of

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

Respondent Angeles’ Arguments

Instead of answering the legal issue raised by petitioner, respondent Angeles asks for a review of
the Decision of the RTC by interposing additional issues. She maintains that the Deed of Absolute
46 

Sale is valid. Thus, the RTC erred in cancelling TCT Nos. 105202 and 105203.
47 

Our Ruling

The petition is partly meritorious.

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

correctness of the annulment of the Deed of Absolute Sale, the cancellation of TCT Nos. 105202
and 105203, and the order to vacate the property.

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

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

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

Respondent-spouses are entitled to the

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

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

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

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

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

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

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

Section 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act.

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

In this connection, we deem it necessary to point out that, under the Maceda Law, the actual
cancellation of a contract to sell takes place after 30 days from receipt by the buyer of the notarized
notice of cancellation, and upon full payment of the cash surrender value to the buyer. In other
50  51 

words, before a contract to sell can be validly and effectively cancelled, the seller has (1) to send a
notarized notice of cancellation to the buyer and (2) to refund the cash surrender value. Until and
52 

unless the seller complies with these twin mandatory requirements, the contract to sell between the
parties remains valid and subsisting. Thus, the buyer has the right to continue occupying the
53 

property subject of the contract to sell, and may "still reinstate the contract by updating the account
54 

during the grace period and before the actual cancellation" of the contract.
55 

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

In addition, in view of respondent-spouses’ failure to appeal, they can no longer reinstate the
contract by updating the account. Allowing them to do so would be unfair to the other party and is
offensive to the rules of fair play, justice, and due process. Thus, based on the factual milieu of the
instant case, the most that we can do is to order the return of the cash surrender value. Since
respondent-spouses paid at least two years of installment, they are entitled to receive the cash
56 

surrender value of the payments they had made which, under Section 3(b) of the Maceda Law, is
equivalent to 50% of the total payments made.

Respondent-spouses are entitled to

reimbursement of the improvements
made on the property.

Petitioner posits that Article 448 of the Civil Code does not apply and that respondent-spouses are
not entitled to reimbursement of the value of the improvements made on the property because they
were builders in bad faith. At the outset, we emphasize that the issue of whether respondent-
spouses are builders in good faith or bad faith is a factual question, which is beyond the scope of a
petition filed under Rule 45 of the Rules of Court. In fact, petitioner is deemed to have waived all
57 

factual issues since it appealed the case directly to this Court, instead of elevating the matter to the
58 

CA. It has likewise not escaped our attention that after their failed preliminary conference, the parties
agreed to submit the case for resolution based on the pleadings and exhibits presented. No trial was
conducted. Thus, it is too late for petitioner to raise at this stage of the proceedings the factual issue
of whether respondent-spouses are ilders in bad faith. Hence, in view of the special circumstances
obtaining in this case, we are constrained to rely on the presumption of good faith on the part of the
respondent-spouses which the petitioner failed to rebut. Thus, respondent-spouses being presumed
builders in good faith, we now rule on the applicability of Article 448 of the Civil Code.

As a general rule, Article 448 on builders in good faith does not apply where there is a contractual
relation between the parties, such as in the instant case. We went over the records of this case and
59 

we note that the parties failed to attach a copy of the Contract to Sell. As such, we are constrained to
apply Article 448 of the Civil Code, which provides viz:

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

Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that
by some title he has the right to build thereon, or that, at least, he has a claim of title
60 

thereto. Concededly, this is not present in the instant case. The subject property is covered by a
61 

Contract to Sell hence ownership still remains with petitioner being the seller. Nevertheless, there
were already instances where this Court applied Article 448 even if the builders do not have a claim
of title over the property. Thus:

This Court has ruled that this provision covers only cases in which the builders, sowers or planters
believe themselves to be owners of the land or, at least, to have a claim of title thereto. It does not
apply when the interest is merely that of a holder, such as a mere tenant, agent or usufructuary.
From these pronouncements, good faith is identified by the belief that the land is owned; or that – by
some title – one has the right to build, plant, or sow thereon.

However, in some special cases, this Court has used Article 448 by recognizing good faith beyond
this limited definition. Thus, in Del Campo v. Abesia, this provision was applied to one whose house
– despite having been built at the time he was still co-owner – overlapped with the land of another.
This article was also applied to cases wherein a builder had constructed improvements with the
consent of the owner. The Court ruled that the law deemed the builder to be in good faith. In
Sarmiento v. Agana, the builders were found to be in good faith despite their reliance on the consent
of another, whom they had mistakenly believed to be the owner of the land. 62

The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet notwithstanding
63 

the fact that the builders therein knew they were not the owners of the land. In said case, the parents
who owned the land allowed their son and his wife to build their residence and business thereon. As
found by this Court, their occupation was not by mere tolerance but "upon the invitation of and with
the complete approval of (their parents), who desired that their children would occupy the premises.
It arose from familial love and a desire for family solidarity x x x." Soon after, conflict between the
64 

parties arose. The parents demanded their son and his wife to vacate the premises. The Court thus
ruled that as owners of the property, the parents have the right to possession over it. However, they
must reimburse their son and his wife for the improvements they had introduced on the property
because they were considered builders in good faith even if they knew for a fact that they did not
own the property, thus:

Based on the aforecited special cases, Article 448 applies to the present factual milieu. The
established facts of this case show that respondents fully consented to the improvements introduced
by petitioners. In fact, because the children occupied the lots upon their invitation, the parents
certainly knew and approved of the construction of the improvements introduced thereon. Thus,
petitioners may be deemed to have been in good faith when they built the structures on those lots.

The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be
in good faith for building the improvement (the house) with the knowledge and consent of his father,
to whom belonged the land upon which it was built. Thus, Article 448 was applied. 65

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

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

Petitioner has two options under Article

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

In Tuatis, we ruled that the seller (the owner of the land) has two options under Article 448: (1) he
may appropriate the improvements for himself after reimbursing the buyer (the builder in good faith)
the necessary and useful expenses under Articles 546 and 548 of the Civil Code; or (2) he may sell
67  68 

the land to the buyer, unless its value is considerably more than that of the improvements, in which
case, the buyer shall pay reasonable rent. Quoted below are the pertinent portions of our ruling in
69 

that case:

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

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

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

xxxx

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

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

Still under the second option, if the present or current value of the land, the subject property
herein, turns out to be considerably more than that of the building built thereon, Tuatis
cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent
for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court
will fix the terms.
Necessarily, the RTC should conduct additional proceedings before ordering the execution of the
judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned
options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the
amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the
subject property vis-à-vis that of the building, and depending thereon, the price of, or the reasonable
rent for, the subject property, which Tuatis must pay Visminda.

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

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in
accord with the principle of accession, i.e., that the accessory follows the principal and not the other
way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive.
The landowner cannot refuse to exercise either option and compel instead the owner of the building
to remove it from the land.

The raison d’etre for this provision has been enunciated thus: Where the builder, planter or sower
has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to
protect the owner of the improvements without causing injustice to the owner of the land. In view of
the impracticability of creating a state of forced co-ownership, the law has provided a just solution by
giving the owner of the land the option to acquire the improvements after payment of the proper
indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He
cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the
option, because his right is older, and because, by the principle of accession, he is entitled to the
ownership of the accessory thing.

Visminda’s Motion for Issuance of Writ of Execution cannot be deemed as an expression of her
choice to recover possession of the subject property under the first option, since the options under
Article 448 of the Civil Code and their respective consequences were also not clearly presented to
her by the 19 April 1999 Decision of the RTC. She must then be given the opportunity to make a
choice between the options available to her after being duly informed herein of her rights and
obligations under both. (Emphasis supplied.)
70 

In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two
options. It may appropriate the new house by reimbursing respondent Angeles the current market
value thereof minus the cost of the old house. Under this option, respondent Angeles would have "a
right of retention which negates the obligation to pay rent." In the alternative, petitioner may sell the
71 

lots to respondent Angeles at a price equivalent to the current fair value thereof. However, if the
value of the lots is considerably more than the value of the improvement, respondent Angeles
cannot be compelled to purchase the lots. She can only be obliged to pay petitioner reasonable rent.

In view of the foregoing disquisition and in accordance with Depra v. Dumlao and Technogas
72 

Philippines Manufacturing Corporation v. Court of Appeals, we find it necessary to remand this case
73 
to the court of origin for the purpose of determining matters necessary for the proper application of
Article 448, in relation to Articles 546 and 548 of the Civil Code.

WHEREFORE, the petition is hereby PARTIALLY GRANTED. The assailed Decision dated

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

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

1. The trial court shall determine:

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

b) the current market value of the new house;

c) the cost of the old house; and

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

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

a) Petitioner shall be granted a period of 15 days within which to exercise its option under
the law (Article 448, Civil Code), whether to appropriate the new house by paying to
respondent Angeles the current market value of the new house minus the cost of the old
house, or to oblige respondent Angeles to pay the price of the lots. The amounts to be
respectively paid by the parties, in accordance with the option thus exercised by written
notice to the other party and to the court, shall be paid by the obligor within 15 days from
such notice of the option by tendering the amount to the trial court in favor of the party
entitled to receive it.

b) If petitioner exercises the option to oblige respondent Angeles to pay the price of the lots
but the latter rejects such purchase because, as found by the trial court, the value of the lots
is considerably more than the value of the new house minus the cost of the old house,
respondent Angeles shall give written notice of such rejection to petitioner and to the trial
court within 15 days from notice of petitioner’s option to sell the land. In that event, the
parties shall be given a period of 15 days from such notice of rejection within which to agree
upon the terms of the lease, and give the trial court formal written notice of the agreement
and its provisos. If no agreement is reached by the parties, the trial court, within 15 days
from and after the termination of the said period fixed for negotiation, shall then fix the period
and terms of the lease, including the monthly rental, which shall be payable within the first
five days of each calendar month. Respondent Angeles shall not make any further
constructions or improvements on the building. Upon expiration of the period, or upon default
by respondent Angeles in the payment of rentals for two consecutive months, petitioner shall
 be entitled to terminate the forced lease, to recover its land, and to have the new house
removed by respondent Angeles or at the latter’s expense.

c) In any event, respondent Angeles shall pay petitioner reasonable compensation for the
occupancy of the property for the period counted from the time the Decision dated December
29, 2006 became final as to respondent Angeles or 15 days after she received a copy of the
said Decision up to the date petitioner serves notice of its option to appropriate the
encroaching structures, otherwise up to the actual transfer of ownership to respondent
Angeles or, in case a forced lease has to be imposed, up to the commencement date of the
forced lease referred to in the preceding paragraph. 1âwphi1

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

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

ARTURO D. BRION JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief justice
 THIRD DIVISION

[G.R. No. 104828. January 16, 1997]

SPOUSES RAFAEL BENITEZ AND AVELINA

BENITEZ, Petitioners, v. COURT OF APPEALS, SPOUSES
RENATO MACAPAGAL and ELIZABETH
MACAPAGAL, Respondents.

DECISION

PANGANIBAN, J.:

May possession of a lot encroached upon by a part of another's

house be recovered in an action for ejectment?

This is the main question raised by the petition for review

on certiorari assailing the Resolution1 of the Court of Appeals, Sixth
Division,2 dated March 24, 1992, in CA-G.R. SP No. 26853 denying
due course to petitioner's appeal and affirming the decision of the
Regional Trial Court of Pasig in Civil Case No. 61004, which in turn
affirmed the decision of the Metropolitan Trial Court of San Juan,
Metro Manila, Branch 58.

The Facts

On January 22, 1986, petitioners Rafael and Avelina Benitez

purchased a 303-square-meter parcel of land with improvement
from the Cavite Development Bank, covered by Transfer Certificate
of Title No. 41961 (now, TCT No. 55864).

Subsequently, private respondents Renato and Elizabeth Macapagal

bought a 361-square-meter lot covered by TCT No. 40155. On
September 18, 1986, they filed Civil Case No. 53835 with the
Regional Trial Court of Pasig, Branch 157 against petitioners for the
recovery of possession of an encroached portion of the lot they
purchased. The parties were able to reach a compromise in which
private respondents sold the encroached portion to petitioners at
the acquisition cost of One Thousand Pesos (P1,000.00) per square
meter.

On July 17, 1989, private respondents purchased still another

property, a 285.70 square-meter-lot covered by TCT No. 3249-R,
adjacent to that of petitioners. After a relocation survey was
conducted, private respondents discovered that some 46.50 square
meters of their property was occupied by petitioners' house. Despite
verbal and written demands, petitioners refused to vacate. A last
notice to vacate was sent to petitioners on October 26, 1989.

On January 18, 1990, private respondents filed with the

Metropolitan Trial Court of San Juan, Branch 58, Civil Case No.
61004 for ejectment against petitioners. The MeTC of San Juan
decided in favor of the former, with the following disposition:3

"WHEREFORE, in view of all the foregoing, judgment is hereby

rendered for the plaintiffs and against the defendants ordering them
and all persons claiming rights under them to vacate and surrender
possession of the subject premises to the plaintiffs as well as to pay
the following:

1. The amount of P930.00 a month starting July 17, 1989 until they
finally vacate the subject premises;

2. The amount of P5,000.00 for and as attorney's fees; and

3. Cost of suit."

On appeal, the Regional Trial Court of Pasig, Branch 167, affirmed

said decision.4 The RTC said:5chanroblesvirtuallawlibrary

"The controversy in this case is not an encroachment or overlapping

of two (2) adjacent properties owned by the parties. It is a case
where a part of the house of the defendants is constructed on a
portion of the property of the plaintiffs. So that as new owner of the
real property, who has a right to the full enjoyment and possession
of the entire parcel covered by Transfer Certificate of Title No.
41961, plaintiffs have the right to demand that defendants remove
the portion of the house standing on plaintiff's realty...."
The dispositive portion thereof reads:6 chanroblesvirtuallawlibrary

"WHEREFORE, finding no reversible error in the decision appealed

from, it being more consistent with the facts and the law applicable,
the same is hereby AFFIRMED in toto. Costs against the defendant-
appellants.

SO ORDERED."

On further appeal, the respondent Court found no merit in

petitioners' plea. In a Resolution dated March 24, 1992, the Sixth
Division of said Court found the petition to be a mere rehash of the
issues and arguments presented before the lower courts. It ruled in
part that:7
chanroblesvirtuallawlibrary

"3) Petitioners were fully aware that part of their house encroached
on their neighbor's property, while respondents became aware of it
only after purchasing said property. Petitioners cannot claim good
faith as against the respondents.

"4) Since petitioners are not builders in good faith, they cannot
demand that respondents sell the disputed portion; what the law
provides is that the builders in bad faith can be ordered to dismantle
said structure at their own expense. In the interim period that
petitioners' structure remains, they should pay reasonable rent until
they remove the structure."

The dispositive portion thereof reads:8 chanroblesvirtuallawlibrary

"For reasons indicated, We find the appeal without merit and deny it
due course, with costs against the petitioners.

SO ORDERED."

Hence, this petition.

The Issues

The main issue is whether the possession of the portion of the

private respondents' land encroached by petitioners' house can be
recovered through an action of ejectment, not accion publiciana.
Corollarily, petitioners question (a) the validity of the imposition of
"rental" for the occupancy of the encroached portion, (b) the denial
of their claimed pre-emptive right to purchase the encroached
portion of the private respondents' land, and (c) the propriety of a
factual review of the CA's finding of bad faith on the part of
petitioners.

In a nutshell, petitioners insist that the MeTC had no jurisdiction

over the case at bar because its real nature is accion publiciana or
recovery of possession, not unlawful detainer. It is not forcible entry
because private respondents did not have prior possession of the
contested property as petitioners possessed it ahead of private
respondents. It is not unlawful detainer because petitioners were
not the private respondents' tenants nor vendee unlawfully
withholding possession thereof. Said court also has no jurisdiction to
impose payment of "rentals" as there is no lessor-lessee relationship
between the parties. They pray for a review of the factual finding of
bad faith, insisting that the facts uphold their position. Due to their
alleged good faith, they claim the pre-emptive right to purchase the
litigated portion as a matter of course. Finally, they insist that the
award of attorney's fees is unwarranted as private respondents
allegedly had knowledge of the encroachment prior to their
acquisition of said land.

Private respondents counter that petitioners are estopped from

questioning the jurisdiction of the MeTC after they voluntarily
participated in the trial on the merits and lost; that there is no law
giving petitioners the option to buy the encroached property; and
that petitioners acted in bad faith because they waived in their deed
of sale the usual seller's warranty as to the absence of any and all
liens and encumbrances on the property, thereby implying they had
knowledge of the encroachment at the time of purchase.

The Court's Ruling

The petition lacks merit and should be denied.

First Issue: MeTC Has Jurisdiction

The jurisdictional requirements for ejectment, as borne out by the
facts, are: after conducting a relocation survey, private respondents
discovered that a portion of their land was encroached by
petitioners' house; notices to vacate were sent to petitioners, the
last one being dated October 26, 1989; and private respondents
filed the ejectment suit against petitioners on January 18, 1990 or
within one (1) year from the last demand.

Private respondents' cause of action springs from Sec. 1, Rule 70 of

the Revised Rules of Court, which provides:

"Section 1. Who may institute proceedings, and when -- Subject to

the provisions of the next succeeding section, a person deprived of
the possession of any land or building by force, intimidation, threat,
strategy, or stealth, or a landlord, vendor, vendee, or other person
against whom the possession of any land or building is unlawfully
withheld after the expiration or termination of the right to hold
possession, by virtue of any contract, express or implied, or the
legal representatives or assigns of any such landlord, vendor,
vendee, or other person, may, at any time within one (1) year after
such unlawful deprivation or withholding of possession, bring an
action in the proper inferior court against the person or persons
unlawfully withholding or depriving of possession, or any person or
persons claiming under them, for the restitution of such possession,
together with damages and costs...."

That petitioners occupied the land prior to private respondents'

purchase thereof does not negate the latter's case for ejectment.
Prior possession is not always a condition sine qua non in
ejectment.9 This is one of the distinctions between forcible entry and
unlawful detainer. In forcible entry, the plaintiff is deprived of
physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth; thus, he must allege and
prove prior possession. But in unlawful detainer, the defendant
unlawfully withholds possession after the expiration or termination
of his right thereto under any contract, express or implied. In such
a case, prior physical possession is not required. 10

Possession can also be acquired, not only by material occupation,

but also by the fact that a thing is subject to the action of one's will
or by the proper acts and legal formalities established for acquiring
such right.11 Possession of land can be acquired upon the execution
of the deed of sale thereof by its vendor. Actual or physical
occupation is not always necessary.

In the case before us, considering that private respondents are

unlawfully deprived of possession of the encroached land and that
the action for the recovery of possession thereof was made within
the one- year reglementary period, ejectment is the proper
remedy.12 The MeTC of San Juan had jurisdiction.

In addition, after voluntarily submitting themselves to its

proceedings, petitioners are estopped from assailing the jurisdiction
of the MeTC.13 This Court will not allow petitioners to attack the
jurisdiction of the trial court after receiving a decision adverse to
their position.

Second Issue: Compensation For Occupancy

Petitioners erroneously construed the order of the MeTC to pay

private respondents Nine Hundred Thirty Pesos (P930.00) a month
starting July 17, 1989 until they (petitioners) finally vacate the
subject premises as "rentals". Technically, such award is not rental,
but damages. Damages are recoverable in ejectment cases under
Section 8, Rule 70 of the Revised Rules of Court.14 These damages
arise from the loss of the use and occupation of the property, and
not the damages which private respondents may have suffered but
which have no direct relation to their loss of material
possession.15 Damages in the context of Section 8, Rule 70 is
limited to "rent" or "fair rental value" for the use and occupation of
the property.16chanroblesvirtuallawlibrary

There is no question that petitioners benefited from their occupation

of a portion of private respondents' property. Such benefit justifies
the award of the damages of this kind. Nemo cum
alterius, detrimenti locupletari potest. No one shall enrich himself at
the expense of another.

Third Issue: Option To Sell Belongs To Owner

Article 448 of the Civil Code17 is unequivocal that the option to sell
the land on which another in good faith builds, plants or sows on,
belongs to the landowner.

The option is to sell, not to buy, and it is the landowner's choice.

Not even a declaration of the builder, planter, or sower's bad faith
shifts this option to him per Article 450 of the Civil Code.18 This
advantage in Article 448 is accorded the landowner because "his
right is older, and because, by the principle of accession, he is
entitled to the ownership of the accessory thing."19 There can be no
pre-emptive right to buy even as a compromise, as this prerogative
belongs solely to the landowner. No compulsion can be legally
forced on him, contrary to what petitioners asks from this Court.
Such an order would certainly be invalid and illegal. Thus, the lower
courts were correct in rejecting the petitioners' offer to buy the
encroached land.

Fourth Issue: A Review of Factual Findings Is Unwarranted

Petitioners ask this Court to review the alleged error of the

respondent Court in appreciating bad faith on their part. According
to them, this is contradictory to the fact that private respondents
acquired their lot and discovered the encroachment after petitioners
bought their house. After careful deliberation on this issue, this
Court finds this petition for review inadequate as it failed to show
convincingly a reversible error on the part of the respondent Court
in this regard. Thus, for very good reasons, this Court has
consistently and emphatically declared that review of the factual
findings of the Court of Appeals is not a function that is normally
undertaken in petitions for review under Rule 45 of the Rules of
Court. Such findings, as a general rule, are binding and
conclusive.20 The jurisdiction of this Court is limited to reviewing
errors of law unless there is a showing that the findings complained
of are totally devoid of support in the records or that they are so
glaringly erroneous as to constitute reversible error.21chanroblesvirtuallawlibrary

Even respondent Court has taken note of the inadequacy of the

petition before it, as it wryly said:22
"The Petition for Review is not certainly a manifestation of clarity
nor an example of a well-organized summation of petitioners' cause
of action......

xxx xxx xxx

A careful scrutiny of the above issues discloses that they are mere
repetitions in a rehashed form of the same issues with the same
supporting arguments raised by petitioners when they appealed
from the decision of the (MeTC) to the RTC. x x x."

This petition is no different. We share the foregoing sentiments of

the respondent Court. In essence, respondent Court merely
affirmed the decision of the MeTC. The Court of Appeal's finding of
petitioners' bad faith did not alter nor affect the MeTC's disposition.
Petitioners want this Court to declare them in good faith and to
determine their rights under Article 448, Civil Code. However, the
mere fact that they bought their property ahead of the private
respondents does not establish this point. Nor does it prove that
petitioners had no knowledge of the encroachment when they
purchased their property. Reliance on the presumption in Article 526
of the Code is misplaced in view of the declaration of the
respondent Court that petitioners are not builders in good faith.

What petitioners presented are mere allegations and arguments,

without sufficient evidence to support them. As such, we have no
ground to depart from the general rule against factual review.

In sum, the petition has not shown cogent reasons and sufficient
grounds to reverse the unanimous ruling of the three lower courts.
The MeTC, RTC and the Court of Appeals were all in agreement in
sustaining private respondents' rights. And we uphold them.

WHEREFORE, the petition is DENIED. The assailed Resolution is

hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., (Chairman), Davide, Jr., Melo, and

Francisco, JJ., concur.
Endnotes:

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115814 May 26, 1995

PEDRO P. PECSON, petitioner,
vs.
COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA NUGUID, respondents.

DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision  of the Court of Appeals in CA-
1

G.R. SP No. 32679 affirming in part the order   of the Regional Trial Court (RTC) of Quezon City,
2

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,  the Court of Appeals affirmed in toto the assailed
4

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.  Entry of judgment
5

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.  Acting thereon,
7

the trial court issued on 15 November 1993 the challenged order  which reads as follows:
8

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

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

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

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

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

1. The movant shall reimburse plaintiff the construction cost of

P53,000.00.

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

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

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

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

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

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

SO ORDERED.

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

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

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.,   this Court pegged the value of the useful improvements consisting of various
14

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
15

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

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

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.   The petitioner not having been so paid, he was entitled to retain
18

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.

 
G.R. No. 151815             February 23, 2005

SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID, petitioners,

vs.
HON. COURT OF APPEALS AND PEDRO P. PECSON, respondents.

DECISION

QUISUMBING, J.:

This is a petition for review on certiorari of the Decision dated May 21, 2001, of the Court of Appeals
1 

in CA-G.R. CV No. 64295, which modified the Order dated July 31, 1998 of the Regional Trial Court
(RTC) of Quezon City, Branch 101 in Civil Case No. Q-41470. The trial court ordered the
defendants, among them petitioner herein Juan Nuguid, to pay respondent herein Pedro P. Pecson,
the sum of ₱1,344,000 as reimbursement of unrealized income for the period beginning November
22, 1993 to December 1997. The appellate court, however, reduced the trial court’s award in favor of
Pecson from the said ₱1,344,000 to ₱280,000. Equally assailed by the petitioners is the appellate
court’s Resolution dated January 10, 2002, denying the motion for reconsideration.
2 

It may be recalled that relatedly in our Decision dated May 26, 1995, in G.R. No. 115814, entitled
Pecson v. Court of Appeals, we set aside the decision of the Court of Appeals in CA-G.R. SP No.
32679 and the Order dated November 15, 1993, of the RTC of Quezon City, Branch 101 and
remanded the case to the trial court for the determination of the current market value of the four-door
two-storey apartment building on the 256-square meter commercial lot.

The antecedent facts in this case are as follows:

Pedro P. Pecson owned a commercial lot located at 27 Kamias Road, Quezon City, on which he
built a four-door two-storey apartment building. For failure to pay realty taxes, the lot was sold at
public auction by the City Treasurer of Quezon City to Mamerto Nepomuceno, who in turn sold it for
₱103,000 to the spouses Juan and Erlinda Nuguid.

Pecson challenged the validity of the auction sale before the RTC of Quezon City in Civil Case No.
Q-41470. In its Decision, dated February 8, 1989, the RTC upheld the spouses’ title but declared
3 

that the four-door two-storey apartment building was not included in the auction sale. This was
4 

affirmed in toto by the Court of Appeals and thereafter by this Court, in its Decision dated May 25,
5 

1993, in G.R. No. 105360 entitled Pecson v. Court of Appeals.

On June 23, 1993, by virtue of the Entry of Judgment of the aforesaid decision in G.R. No. 105360,
the Nuguids became the uncontested owners of the 256-square meter commercial lot.

As a result, the Nuguid spouses moved for delivery of possession of the lot and the apartment
building.

In its Order of November 15, 1993, the trial court, relying upon Article 546 of the Civil Code, ruled
6  7 

that the Spouses Nuguid were to reimburse Pecson for his construction cost of ₱53,000, following
which, the spouses Nuguid were entitled to immediate issuance of a writ of possession over the lot
and improvements. In the same order the RTC also directed Pecson to pay the same amount of
monthly rentals to the Nuguids as paid by the tenants occupying the apartment units or ₱21,000 per
month from June 23, 1993, and allowed the offset of the amount of ₱53,000 due from the Nuguids
against the amount of rents collected by Pecson from June 23, 1993 to September 23, 1993 from
the tenants of the apartment. 8

Pecson duly moved for reconsideration, but on November 8, 1993, the RTC issued a Writ of
Possession, directing the deputy sheriff to put the spouses Nuguid in possession of the subject
9 

property with all the improvements thereon and to eject all the occupants therein.

Aggrieved, Pecson then filed a special civil action for certiorari and prohibition docketed as CA-G.R.
SP No. 32679 with the Court of Appeals.

In its decision of June 7, 1994, the appellate court, relying upon Article 448 of the Civil Code,
10 

affirmed the order of payment of construction costs but rendered the issue of possession moot on
appeal, thus:

WHEREFORE, while it appears that private respondents [spouses Nuguid] have not yet indemnified
petitioner [Pecson] 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. [Underscoring supplied.]

11 

Frustrated by this turn of events, Pecson filed a petition for review docketed as G.R. No. 115814
before this Court.

On May 26, 1995, the Court handed down the decision in G.R. No 115814, to wit:

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 [Spouses Juan and Erlinda Nuguid] to the petitioner [Pedro Pecson]
otherwise the petitioner shall be restored to the possession of the apartment building until payment
of the required indemnity.

No costs.

SO ORDERED. [Emphasis supplied.]

12 

In so ruling, this Court pointed out that: (1) Article 448 of the Civil Code is not apposite to the case at
bar where the owner of the land is the builder, sower, or planter who then later lost ownership of the
land by sale, but may, however, be applied by analogy; (2) the current market value of the
improvements should be made as the basis of reimbursement; (3) Pecson was entitled to retain
ownership of the building and, necessarily, the income therefrom; (4) the Court of Appeals erred not
only in upholding the trial court’s determination of the indemnity, but also in ordering Pecson to
account for the rentals of the apartment building from June 23, 1993 to September 23, 1993.

On the basis of this Court’s decision in G.R. No. 115814, Pecson filed a Motion to Restore
Possession and a Motion to Render Accounting, praying respectively for restoration of his
possession over the subject 256-square meter commercial lot and for the spouses Nuguid to be
directed to render an accounting under oath, of the income derived from the subject four-door
apartment from November 22, 1993 until possession of the same was restored to him.

In an Order dated January 26, 1996, the RTC denied the Motion to Restore Possession to the
13 

plaintiff averring that the current market value of the building should first be determined. Pending the
said determination, the resolution of the Motion for Accounting was likewise held in abeyance.

With the submission of the parties’ assessment and the reports of the subject realty, and the reports
of the Quezon City Assessor, as well as the members of the duly constituted assessment committee,
the trial court issued the following Order dated October 7, 1997, to wit:
14 

On November 21, 1996, the parties manifested that they have arrived at a compromise agreement
that the value of the said improvement/building is ₱400,000.00 The Court notes that the plaintiff has
already received ₱300,000.00. However, when defendant was ready to pay the balance of
₱100,000.00, the plaintiff now insists that there should be a rental to be paid by defendants. Whether
or not this should be paid by defendants, incident is hereby scheduled for hearing on November 12,
1997 at 8:30 a.m.

Meantime, defendants are directed to pay plaintiff the balance of ₱100,000.00.

SO ORDERED. 15

On December 1997, after paying the said ₱100,000 balance to Pedro Pecson the spouses Nuguid
prayed for the closure and termination of the case, as well as the cancellation of the notice of lis
pendens on the title of the property on the ground that Pedro Pecson’s claim for rentals was devoid
of factual and legal bases.16

After conducting a hearing, the lower court issued an Order dated July 31, 1998, directing the
spouses to pay the sum of ₱1,344,000 as reimbursement of the unrealized income of Pecson for the
period beginning November 22, 1993 up to December 1997. The sum was based on the
computation of ₱28,000/month rentals of the four-door apartment, thus:

The Court finds plaintiff’s motion valid and meritorious. The decision of the Supreme Court in the
aforesaid case [Pecson vs. Court of Appeals, 244 SCRA 407] which set aside the Order of this Court
of November 15, 1993 has in effect upheld plaintiff’s right of possession of the building for as long as
he is not fully paid the value thereof. It follows, as declared by the Supreme Court in said decision
that the plaintiff is entitled to the income derived therefrom, thus –

...

Records show that the plaintiff was dispossessed of the premises on November 22, 1993 and that
he was fully paid the value of his building in December 1997. Therefore, he is entitled to the income
thereof beginning on November 22, 1993, the time he was dispossessed, up to the time of said full
payment, in December 1997, or a total of 48 months.
The only question left is the determination of income of the four units of apartments per month. But
as correctly pointed out by plaintiff, the defendants have themselves submitted their affidavits
attesting that the income derived from three of the four units of the apartment building is P21,000.00
or P7,000.00 each per month, or P28,000.00 per month for the whole four units. Hence, at
P28,000.00 per month, multiplied by 48 months, plaintiff is entitled to be paid by defendants the
amount of P1,344,000.00. 17

The Nuguid spouses filed a motion for reconsideration but this was denied for lack of merit. 18

The Nuguid couple then appealed the trial court’s ruling to the Court of Appeals, their action
docketed as CA-G.R. CV No. 64295.

In the Court of Appeals, the order appealed from in CA-G.R. CV No. 64295, was modified. The CA
reduced the rentals from ₱1,344,000 to ₱280,000 in favor of the appellee. The said amount
19 

represents accrued rentals from the determination of the current market value on January 31,
1997 until its full payment on December 12, 1997.
20 

Hence, petitioners state the sole assignment of error now before us as follows:

THE COURT OF APPEALS ERRED IN HOLDING PETITIONERS LIABLE TO PAY RENT OVER
AND ABOVE THE CURRENT MARKET VALUE OF THE IMPROVEMENT WHEN SUCH WAS NOT
PROVIDED FOR IN THE DISPOSITIVE PORTION OF THE SUPREME COURT’S RULING IN G.R.
No. 115814.

Petitioners call our attention to the fact that after reaching an agreed price of ₱400,000 for the
improvements, they only made a partial payment of ₱300,000. Thus, they contend that their failure
to pay the full price for the improvements will, at most, entitle respondent to be restored to
possession, but not to collect any rentals. Petitioners insist that this is the proper interpretation of the
dispositive portion of the decision in G.R. No. 115814, which states in part that "[t]he value so
determined shall be forthwith paid by the private respondents [Spouses Juan and Erlinda Nuguid] to
the petitioner [Pedro Pecson] otherwise the petitioner shall be restored to the possession of the
apartment building until payment of the required indemnity." 21

Now herein respondent, Pecson, disagrees with herein petitioners’ contention. He argues that
petitioners are wrong in claiming that inasmuch as his claim for rentals was not determined in the
dispositive portion of the decision in G.R. No. 115814, it could not be the subject of execution. He
points out that in moving for an accounting, all he asked was that the value of the fruits of the
property during the period he was dispossessed be accounted for, since this Court explicitly
recognized in G.R. No. 115814, he was entitled to the property. He points out that this Court ruled
that "[t]he petitioner [Pecson] not having been so paid, he was entitled to retain ownership of the
building and, necessarily, the income therefrom." In other words, says respondent, accounting was
22 

necessary. For accordingly, he was entitled to rental income from the property. This should be given
effect. The Court could have very well specifically included rent (as fruit or income of the property),
but could not have done so at the time the Court pronounced judgment because its value had yet to
be determined, according to him. Additionally, he faults the appellate court for modifying the order of
the RTC, thus defeating his right as a builder in good faith entitled to rental from the period of his
dispossession to full payment of the price of his improvements, which spans from November 22,
1993 to December 1997, or a period of more than four years.

It is not disputed that the construction of the four-door two-storey apartment, subject of this dispute,
was undertaken at the time when Pecson was still the owner of the lot. When the Nuguids became
the uncontested owner of the lot on June 23, 1993, by virtue of entry of judgment of the Court’s
decision, dated May 25, 1993, in G.R. No. 105360, the apartment building was already in existence
and occupied by tenants. In its decision dated May 26, 1995 in G.R. No. 115814, the Court declared
the rights and obligations of the litigants in accordance with Articles 448 and 546 of the Civil Code.
These provisions of the Code are directly applicable to the instant case.

Under Article 448, the landowner is given the option, either to appropriate the improvement as his
own upon payment of the proper amount of indemnity or to sell the land to the possessor in good
faith. Relatedly, Article 546 provides that a builder in good faith is entitled to full reimbursement for
all the necessary and useful expenses incurred; it also gives him right of retention until full
reimbursement is made.

While the law aims to concentrate in one person the ownership of the land and the improvements
thereon in view of the impracticability of creating a state of forced co-ownership, it guards against
23 

unjust enrichment insofar as the good-faith builder’s improvements are concerned. The right of
retention is considered as one of the measures devised by the law for the protection of builders in
good faith. Its object is to guarantee full and prompt reimbursement as it permits the actual
possessor to remain in possession while he has not been reimbursed (by the person who defeated
him in the case for possession of the property) for those necessary expenses and useful
improvements made by him on the thing possessed. Accordingly, a builder in good faith cannot be
24 

compelled to pay rentals during the period of retention nor be disturbed in his possession by
25 

ordering him to vacate. In addition, as in this case, the owner of the land is prohibited from offsetting
or compensating the necessary and useful expenses with the fruits received by the builder-
possessor in good faith. Otherwise, the security provided by law would be impaired. This is so
because the right to the expenses and the right to the fruits both pertain to the possessor, making
compensation juridically impossible; and one cannot be used to reduce the other. 26

As we earlier held, since petitioners opted to appropriate the improvement for themselves as early
as June 1993, when they applied for a writ of execution despite knowledge that the auction sale did
not include the apartment building, they could not benefit from the lot’s improvement, until they
reimbursed the improver in full, based on the current market value of the property.

Despite the Court’s recognition of Pecson’s right of ownership over the apartment building, the
petitioners still insisted on dispossessing Pecson by filing for a Writ of Possession to cover both the
lot and the building. Clearly, this resulted in a violation of respondent’s right of retention. Worse,
petitioners took advantage of the situation to benefit from the highly valued, income-yielding, four-
unit apartment building by collecting rentals thereon, before they paid for the cost of the apartment
building. It was only four years later that they finally paid its full value to the respondent.

Petitioners’ interpretation of our holding in G.R. No. 115814 has neither factual nor legal basis. The
decision of May 26, 1995, should be construed in connection with the legal principles which form the
basis of the decision, guided by the precept that judgments are to have a reasonable intendment to
do justice and avoid wrong. 27

The text of the decision in G.R. No. 115814 expressly exempted Pecson from liability to pay rentals,
for we found that the Court of Appeals erred not only in upholding the trial court’s determination of
the indemnity, but also in ordering him to account for the rentals of the apartment building from June
23, 1993 to September 23, 1993, the period from entry of judgment until Pecson’s dispossession. As
pointed out by Pecson, the dispositive portion of our decision in G.R. No. 115814 need not
specifically include the income derived from the improvement in order to entitle him, as a builder in
good faith, to such income. The right of retention, which entitles the builder in good faith to the
possession as well as the income derived therefrom, is already provided for under Article 546 of the
Civil Code.
Given the circumstances of the instant case where the builder in good faith has been clearly denied
his right of retention for almost half a decade, we find that the increased award of rentals by the RTC
was reasonable and equitable. The petitioners had reaped all the benefits from the improvement
introduced by the respondent during said period, without paying any amount to the latter as
reimbursement for his construction costs and expenses. They should account and pay for such
benefits.

We need not belabor now the appellate court’s recognition of herein respondent’s entitlement to
rentals from the date of the determination of the current market value until its full payment.
Respondent is clearly entitled to payment by virtue of his right of retention over the said
improvement.

WHEREFORE, the instant petition is DENIED for lack of merit. The Decision dated May 21, 2001 of
the Court of Appeals in CA-G.R. CV No. 64295 is SET ASIDE and the Order dated July 31, 1998, of
the Regional Trial Court, Branch 101, Quezon City, in Civil Case No. Q-41470 ordering the herein
petitioners, Spouses Juan and Erlinda Nuguid, to account for the rental income of the four-door two-
storey apartment building from November 1993 until December 1997, in the amount of ₱1,344,000,
computed on the basis of Twenty-eight Thousand (₱28,000.00) pesos monthly, for a period of 48
months, is hereby REINSTATED. Until fully paid, said amount of rentals should bear the legal rate of
interest set at six percent (6%) per annum computed from the date of RTC judgment. If any portion
thereof shall thereafter remain unpaid, despite notice of finality of this Court’s judgment, said
remaining unpaid amount shall bear the rate of interest set at twelve percent (12%) per annum
computed from the date of said notice. Costs against petitioners.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
G.R. No. 120303 July 24, 1996

FEDERICO GEMINIANO, MARIA GEMINIANO, ERNESTO GEMINIANO, ASUNCION

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

DAVIDE, JR. J.:p

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

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

private respondents then introduced additional improvements and registered the house in
their names. After the expiration of the lease contract in November 1985, however, the
petitioners' mother refused to accept the monthly rentals.

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

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

On 9 February 1993, the petitioners sent, via registered mail, a letters addressed to private

respondent Mary Nicolas demanding that she vacate the premises and pay the rentals in
arrears within twenty days from notice. 4

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

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

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

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

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

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

On appeal by the private respondents, the RTC of Dagupan City reversed the trial court's
decision and rendered a new judgment: (1) ordering the petitioners to reimburse the private
respondents for the value of the house and improvements in the amount of P180,000.00 and
to pay the latter P10,000.00 as attorney's fees and P2,000.00 as litigation expenses; and (2)
allowing the private respondents to remain in possession of the premises until they were fully
reimbursed for the value of the house.  It ruled that since the private respondents were
6

assured by the petitioners that the lot they leased would eventually be sold to them, they
could be considered builders in good faith, and as such, were entitled to reimbursed of the
value of the house and improvements with the right of retention until reimbursement and had
been made.

On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of the
RTC  and denied  the petitioners' motion for reconsideration. Hence, the present petition.
7 8

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

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

xxx xxx xxx

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

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

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

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

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

transferred,   only the temporary use and enjoyment thereof.

10 11

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

remained in possession of the lot.

It is undisputed that the private respondents came into possession of 126 square-meter
portion of the said lot by virtue of contract of lease executed by the petitioners' mother as
lessor, and the private respondents as lessees, is therefore well-established, and carries with
it a recognition of the lessor's title.  The private respondents, as lessees who had
13

undisturbed possession for the entire term under the lease, are then estopped to deny their
landlord's title, or to assert a better title not only in themselves, but also in some third person
while they remain in possession of the leased premises and until they surrender possession
to the landlord.  This estoppel applies even though the lessor had no title at the time the
14

relation of lessor and lessee was created,  and may be asserted not only by the original
15

lessor, but also by those who succeed to his title. 16

 Being mere lessees, the private respondents knew that their occupation of the premises
would continue only for the life of the lease. Plainly, they cannot be considered as
possessors nor builders in good faith. 71

In a plethora of cases,  this Court has held that Article 448 of the Civil Code, in relation to
18

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

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

There is no need to apply by analogy the provisions of Article 448 on indemnity as was done
in Pecson vs. Court of Appeals,  because the situation sought to be avoided and which
19

would justify the application of that provision, is not present in this case. Suffice it to say, "a
state of forced coownership" would not be created between the petitioners and the private
respondents. For, as correctly pointed out by the petitioners, the right of the private
respondents as lessees are governed by Article 1678 of the Civil Code which allows
reimbursement to the extent of one-half of the value of the useful improvements.

It must be stressed, however, that the right to indemnity under Article 1678 of the Civil Code
arises only if the lessor opts to appropriate the improvements. Since the petitioners refused
to exercise that option,  the private respondents cannot compel them to reimburse the one-
20

half value of the house and improvements. Neither can they retain the premises until
reimbursement is made. The private respondents' sole right then is to remove the
improvements without causing any more impairment upon the property leased than is
necessary. 21

WHEREFORE, judgment is hereby rendered GRANTING the instant petition, REVERSING

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

Cost against the private respondents.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.