EN BANC

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

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO,  petitioners, vs.

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

DECISION

MORAN,  C.J p:

This is a petition for certiorari arising from a case in the Court of First Instance of Pangasinan between the
herein respondents Elias Hilario and his wife Dionisia Dres as plaintiffs, and the herein petitioners Damian, Francisco
and Luis surnamed Ignacio, as defendants, concerning the ownership of a parcel of land, partly rice-land and partly
residential. After the trial of the case, the lower court, presided over by Hon. Alfonso Felix, rendered judgment holding
plaintiffs as the legal owners of the whole property but conceding to defendants the ownership of the houses and
granaries built by them on the residential portion with the rights of a possessor in good faith, in accordance with article
361 of the Civil Code. The dispositive part of the decision , hub of this controversy, follows:
Subsequently, in a motion filed in the same Court of First Instance but now presided over by the herein
respondent Judge Hon. Felipe Natividad, the plaintiffs prayed for an order of execution alleging that since they chose
neither to pay defendants for the buildings nor to sell to them the residential lot, said defendants should be ordered to
remove the structure at their own expense and to restore plaintiffs in the possession of said lot. Defendants objected
to this motion which, after hearing, was granted by Judge Natividad. Hence, this petition by defendants praying for (a)
a restraint and annulment of the order of execution issued by Judge Natividad; (b) an order to compel plaintiffs to pay
them the sum of P2,000 for the buildings, or sell to them the residential lot for P45; or (c) a rehearing of the case for a
determination of the rights of the parties upon failure of extra-judicial settlement.
The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil Code which are as
follows:
"ART. 361. The owner of land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the work, sowing or planting, after the payment of the
indemnity stated in articles 453 and 454, or to oblige the one who built or planted to pay the price of the
land, and the one who sowed, the proper rent.
"ART. 453. Necessary expenses shall be refunded to every possessor; but only the possessor
in good faith may retain the thing until such expenses are made good to him.
"Useful expenses shall be refunded to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or paying the increase in value which the thing may have acquired in
consequence thereof."
The owner of the building erected in good faith on a land owned by another, is entitled to retain the
possession of the land until he is paid the value of his building, under article 453. The owner of the land, upon the
other hand, has the option, under article 361, either to pay for the building or to sell his land to the owner of the
building. But he cannot, as respondents here did, refuse both to pay for the building and to sell the land and compel
the owner of the building to remove it from the land where it is erected. He is entitled to such remotion only when,
after having chosen to sell his land, the other party fails to pay for the same. But this is not the case before us.
We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove their
buildings from the land belonging to plaintiffs-respondents only because the latter chose neither to pay for such
buildings nor to sell the land, is null and void, for it amends substantially the judgment sought to be executed and is,
furthermore, offensive to articles 361 and 453 of the Civil Code.
There is, however, in the decision of Judge Felix a question of procedure which calls for clarification, to avoid
uncertainty and delay in the disposition of cases. In that decision, the rights of both parties are well defined under
articles 361 and 453 of the Civil Code, but it fails to determine the value of the buildings and of the lot where they are
 erected as well as the periods of time within which the option may be exercised and payment should be made, these
particulars having been left for determination apparently after the judgment has become final. This procedure is
erroneous, for after the judgment has become final, no additions can be made thereto and nothing can be done
therewith except its execution. And execution cannot be had, the sheriff being ignorant as to how, for how much, and
within what time may the option be exercised, and certainty no authority is vested in him to settle these matters which
involve exercise of judicial discretion. Thus the judgment rendered by Judge Felix has never become final, it having
left matters to be settled for its completion in a subsequent proceeding, matters which remained unsettled up to the
time the petition is filed in the instant case.
For all the foregoing, the writ of execution issued by Judge Natividad is hereby set aside and the lower court
ordered to hold a hearing in the principal case wherein it must determine the prices of the buildings and of the
residential lot where they are erected, as well as the period of time within which the plaintiffs-respondents may
exercise their option either to pay for the buildings or to sell their land, and, in the last instance, the period of time
within which the defendants-petitioners may pay for the land, all these periods to be counted from the date the
judgment becomes executory or unappealable. After such hearing, the court shall render a final judgment according to
the evidence presented by the parties.
The costs shall be paid by plaintiffs-respondents.
|||  (Ignacio v. Hilario, G.R. No. L-175, [April 30, 1946], 76 PHIL 605-609)

________________________________________________________________________________________________
_

THIRD DIVISION

G.R. No. 72876             January 18, 1991

FLORENCIO IGNAO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO, substituted by his Legal Heirs, and ISIDRO
IGNAO, respondents.

FERNAN, C.J.:

The antecedent facts are as follows:

Petitioner Florencio Ignao and his uncles private respondents Juan Ignao and Isidro Ignao were co-owners of a parcel of
land with an area of 534 square meters situated in Barrio Tabon, Municipality of Kawit, Cavite. Pursuant to an action for
partition filed by petitioner docketed as Civil Case No. N-1681, the then Court of First Instance of Cavite in a decision
dated February 6, 1975 directed the partition of the aforesaid land, alloting 133.5 square meters or 2/8 thereof to private
respondents Juan and Isidro, and giving the remaining portion with a total area of 266.5 square meters to petitioner
Florencio. However, no actual partition was ever effected. 1

On July 17, 1978, petitioner instituted a complaint for recovery of possession of real property against private respondents
Juan and Isidro before the Court of First Instance of Cavite, docketed as Civil Case No. 2662. In his complaint petitioner
alleged that the area occupied by the two (2) houses built by private respondents exceeded the 133.5 square meters
previously alloted to them by the trial court in Civil Case No. N-1681.

Consequently, the lower court conducted an ocular inspection. It was found that the houses of Juan and Isidro actually
encroached upon a portion of the land belonging to Florencio. Upon agreement of the parties, the trial court ordered a
licensed geodetic engineer to conduct a survey to determine the exact area occupied by the houses of private
respondents. The survey subsequently disclosed that the house of Juan occupied 42 square meters while that of Isidro
occupied 59 square meters of Florencio's land or a total of 101 square meters.

In its decision, the trial court (thru Judge Luis L. Victor) ruled that although private respondents occupied a portion of
Florencio's property, they should be considered builders in good faith. The trial court took into account the decision of the
Court of First Instance of Cavite in the action for partition 2 and quoted:

. . . . Hence, it is the well-considered opinion of the Court that although it turned out that the defendants had,
before partition, been in possession of more than what rightfully belongs to them, their possession of what is in
 excess of their rightful share can at worst be possession in good faith which exempts them from being
condemned to pay damages by reason thereof.3

Furthermore, the trial court stated that pursuant to Article 448 of the Civil Code, the owner of the land (Florencio) should
have the choice to either appropriate that part of the house standing on his land after payment of indemnity or oblige the
builders in good faith (Juan and Isidro) to pay the price of the land. However, the trial court observed that based on the
facts of the case, it would be useless and unsuitable for Florencio to exercise the first option since this would render the
entire houses of Juan and Isidro worthless. The trial court then applied the ruling in the similar case of Grana vs. Court of
Appeals,4 where the Supreme Court had advanced a more "workable solution". Thus, it ordered Florencio to sell to Juan
and Isidro those portions of his land respectively occupied by the latter. The dispositive portion of said decision reads as
follows:

Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On August 27, 1985, the Appellate Court,
Second Civil Cases Division, promulgated a decision,6 affirming the decision of the trial court.

Hence the instant petition for review which attributes to the Appellate Court the following errors:

1. That the respondent Court has considered private respondents builders in good faith on the land on question,
thus applying Art. 448 of the Civil Code, although the land in question is still owned by the parties in co-ownership,
hence, the applicable provision is Art. 486 of the Civil Code, which was not applied.

2. That, granting for the sake of argument that Art. 448 . . . is applicable, the respondent Court has adjudged the
working solution suggested in Grana and Torralba vs. CA. (109 Phil. 260), which is just an opinion by way of
passing, and not the judgment rendered therein, which is in accordance with the said provision of the Civil Code,
wherein the owner of the land to buy (sic) the portion of the building within 30 days from the judgment or sell the
land occupied by the building.

3. That, granting that private respondents could buy the portion of the land occupied by their houses, the price
fixed by the court is unrealistic and pre-war price.7

The records of the case reveal that the disputed land with an area of 534 square meters was originally owned by Baltazar
Ignao who married twice. In his first marriage, he had four children, namely Justo (the father of petitioner Florencio), Leon
and private respondents Juan and Isidro. In his second marriage, Baltazar had also four children but the latter waived
their rights over the controverted land in favor of Justo. Thus, Justo owned 4/8 of the land which was waived by his half-
brothers and sisters plus his 1/8 share or a total of 5/8. Thereafter, Justo acquired the 1/8 share of Leon for P500.00
which he later sold to his son Florencio for the same amount. When Justo died, Florencio inherited the 5/8 share of his
father Justo plus his 1/8 share of the land which he bought or a total of 6/8 (representing 400.5 square meters). Private
respondents, Juan and Isidro, on the other hand, had 1/8 share (66.75 square meters) each of the land or a total of 133.5
square meters.

Before the decision in the partition case was promulgated, Florencio sold 134 square meters of his share to a certain Victa
for P5,000.00 on January 27, 1975. When the decision was handed down on February 6,1975, the lower court alloted 2/8
of the land to private respondents Juan and Isidro, or a total of 133.5 square meters.

It should be noted that prior to partition, all the co-owners hold the property in common dominion but at the same time
each is an owner of a share which is abstract and undetermined until partition is effected. As cited in Eusebio
vs. Intermediate Appellate Court,8 "an undivided estate is co-ownership by the heirs."

As co-owners, the parties may have unequal shares in the common property, quantitatively speaking. But in a qualitative
sense, each co-owner has the same right as any one of the other co-owners. Every co-owner is therefore the owner of the
whole, and over the whole he exercises the right of dominion, but he is at the same time the owner of a portion which is
truly abstract, because until division is effected such portion is not concretely determined. 9

Petitioner Florencio, in his first assignment of error, asseverates that the court a quo erred in applying Article 448 of the
Civil Code, since this article contemplates a situation wherein the land belongs to one person and the thing built, sown or
planted belongs to another. In the instant case, the land in dispute used to be owned in common by the contending
parties.

Article 448 provides:

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

Whether or not the provisions of Article 448 should apply to a builder in good faith on a property held in common has
been resolved in the affirmative in the case of Spouses del Campo vs. Abesia,10 wherein the Court ruled that:

The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or
sows on the land owned in common for then he did not build, plant or sow upon land that exclusively belongs to
another but of which he is a co-owner. The co-owner is not a third person under the circumstances, and the
situation is governed by the rules of co-ownership.

However, when, as in this case, the ownership is terminated by the partition and it appears that the home of
defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the
defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply.
Manresa and Navarro Amandi agree that the said provision of the Civil Code may apply even when there is a co-
ownership if good faith has been established.11

In other words, when the co-ownership is terminated by a partition and it appears that the house of an erstwhile co-owner
has encroached upon a portion pertaining to another co-owner which was however made in good faith, then the
provisions of Article 448 should apply to determine the respective rights of the parties.

Petitioner's second assigned error is however well taken. Both the trial court and the Appellate Court erred when they
peremptorily adopted the "workable solution" in the case of Grana vs. Court of appeals,12 and ordered the owner of the
land, petitioner Florencio, to sell to private respondents, Juan and Isidro, the part of the land they intruded upon, thereby
depriving petitioner of his right to choose. Such ruling contravened the explicit provisions of Article 448 to the effect that
"(t)he owner of the land . . . shall have the right to appropriate . . .or to oblige the one who built . . . to pay the price of the
land . . . ." The law is clear and unambiguous when it confers the right of choice upon the landowner and not upon the
builder and the courts.

WHEREFORE, the decision appealed from is hereby MODIFIED as follows: Petitioner Florencio Ignao is directed within
thirty (30) days from entry of judgment to exercise his option to either appropriate as his own the portions of the houses of
Juan and Isidro Ignao occupying his land upon payment of indemnity in accordance with Articles 546 and 548 of the Civil
Code, or sell to private respondents the 101 square meters occupied by them at such price as may be agreed upon.
Should the value of the land exceed the value of the portions of the houses that private respondents have erected
thereon, private respondents may choose not to buy the land but they must pay reasonable rent for the use of the portion
of petitioner's land as may be agreed upon by the parties. In case of disagreement, the rate of rental and other terms of
the lease shall be determined by the trial court. Otherwise, private respondents may remove or demolish at their own
expense the said portions of their houses encroaching upon petitioner's land. 14 No costs.

SO ORDERED.
 EN BANC

G.R. No. L-12812             September 29, 1959

FILIPINAS COLLEGES, INC., plaintiff-appellee,

vs.
MARIA GARCIA TIMBANG, ET AL., defendants.

------------------------------

BARRERA, J.:

This is an appeal taken from an order of the Court of First Instance of Manila dated May 10, 1957 (a) declaring the
Sheriff's certificate of sale covering a school building sold at public auction null and void unless within 15 days from notice
of said order the successful bidders, defendants-appellants spouses Maria Garcia Timbang and Marcelino Timbang, shall
pay to, appellee Maria Gervacio Blas directly or through the Sheriff of Manila the sum of P5,750.00 that the spouses
Timbang had bid for the building at the Sheriff's sale; (b) declaring the other appellee Filipinas Colleges, Inc. owner of
24,500/3,285,934 undivided interest in Lot No. 2-a covered by certificate of tile No 45970, on which the building sold in the
auction sale is situated; and (c) ordering the sale in public auction of the said undivided interest of the Filipinas Colleges,
Inc., in lot No. 2-a aforementioned to satisfy the unpaid portion of the judgment in favor of appellee Blas and against
Filipinas Colleges, Inc. in the amount of P8,200.00 minus the sum of P5,750.00 mentioned in (a) above.

The order appealed from is the result of three motions filed in the court a quo in the course of the execution of a final
judgment of the Court of Appeals rendered in 2 cases appealed to it in which the spouses Timbang, the Filipinas
Colleges, Inc., and Maria Gervacio Blas were the parties. IN that judgment of the Court of Appeals, the respective rights of
the litigants have been adjudicated as follows:

(1) Filipinas Colleges, Inc. was declared to have acquired the rights of the spouses Timbang in and to lot No. 2-a
mentioned above and in consideration thereof, Filipinas Colleges, Inc., was ordered to pay the spouses Timbang
the amount of P15,807.90 plus such other amounts which said spouses might have paid or had to pay after
February, 1953, to Hoskins and Co. Inc., agent of the Urban Estates, Inc., original vendor of the lot. Filipinas
Colleges, Inc. original vendor of the total amount with the court within 90 days after the decision shall have
become final.

(2) Maria Gervacio Blas was declared to be a builder in good faith of the school building constructed on the lot in
question and entitled to be paid the amount of P19,000.00 for the same. Filipinas Colleges, Inc., purchaser of the
said building was ordered to deliver to Blas stock certificate (Exh. C) for 108 shares of Filipinas Colleges, Inc. with
a par value of P10,800.00 and to pay Blas the sum of P8,200.00 of the house.

(3) In case Filipinas Colleges, Inc. failed to deposit the value of the land, which after liquidation was fixed at
P32,859.34, within the 90-day period set by the court, Filipinas Colleges would lose all its rights to the land and
the spouses Timbang would then become the owners thereof. In that eventuality, the Timbangs would make
known to the court their option under Art. 448 of the Civil Code whether they would appropriate the building in
question, in which even they would have to pay Filipinas Colleges, Inc. the sum of P19,000.00, or would compel
the latter to acquire the land and pay the price thereof.

Filipinas Colleges, Inc. having failed to pay or deposit the sum of P32,859.34 within the time prescribed, the spouses
Timbang, in compliance with the judgment of the Court of Appeals, on September 28, 1956, made known to the court their
decision that they had chosen not of appropriate the building but to compel Filipinas Colleges, Inc., for the payment of the
sum of P32,859,34. The motion having been granted, a writ of execution was issued on January 8, 1957.

On January 16, 1957, appellee Blas in turn filed a motion for execution of her judgment of P8,200.00 representing the
unpaid portion of the price of the house sold to Filipinas Colleges, Inc. Over the object of the Timbangs, the court grated
the motion and the corresponding writ of execution was issued on January 30, 1957, date of the granting of the motion for
execution, Blas through counsel, sent a letter to the Sheriff of Manila advising him of her preferential claim or lien on the
house to satisfy the unpaid balance of the purchase price thereof under Article 2242 of the Civil Code, and to withhold
from the proceed of the auction sale the sum of P8,200.00. Levy having been made on the house in virtue of the writs of
execution, the Sheriff of Manila on March 5, 1957, sold the building in public auction in favor of the spouses Timbang, as
the highest bidders, in the amount of P5,750.00. Personal properties of Filipinas Colleges, Inc. were also auctioned for
P245.00 in favor of the spouses Timbang.

As a result of these actuation, three motion were subsequently filed before the lower court:

(1) By appellee Blas, praying that the Sheriff of Manila and/or the Timbang spouses be ordered to pay and deliver
to her the sum of P5,750.00 representing the proceeds of the auction sale of the building of Filipinas Colleges,
Inc. over which she has a lien of P8,200.00 for the unpaid balance of the purchase price thereof;.

(2) Also by the appellee Bals, praying that there being still two unsatisfied executions, one for the sum of
P32,859.34 in favor the land involved, Lot No. 2-a, be sold at public auction; and (3) By Filipinas Colleges, Inc.
praying that because its properties, the house and some personal properties, have been auctioned for P5,750.00
and P245.00 respectively in favor of the Timbang spouses who applied the proceeds to the partial payment of the
sum of P32,859.34 value of the land, Lot No. 2-a, it (Filipinas Colleges, Inc.) be declared part owner of said lot to
the extent of the total amount realized from the execution sale of its properties.1âwphïl.nêt

The Timbang spouses presented their opposition to each and all of these motion. After due hearing the lower court
rendered its resolution in the manner indicated at the beginning of this decision, from which the Timbangs alone have
appealed.

In assailing the order of the court a quo directing the appellants to pay appellee Blas the amount of their bid (P5,750.00)
made at the public auction, appellants' counsel has presented a novel, albeit ingenious, argument. It is contended that
because the builder in good faith has failed to pay the price of the land after the owners thereof exercised their option
under Article 448 of the Civil Code, the builder lost his right of retention provided in Article 546 and by operation of Article
445, the appellants as owners of the land automatically became the owners ipso facto, the execution sale of the house in
their favor was superfluous. Consequently, they are not bound to make good their bid of P5,750.00 as that would be to
make goods to pay for their own property. By the same token, Blas claim for preference on account of the unpaid balance
of the purchase price of the house does not apply because preference applies only with respect to the property of the
debtor, and the Timbangs, owners of the house, are not the debtors of Blas.

This Court cannot accept this oversimplification of appellants' position. Article 448 and 546 of the Civil Code defining the
right of the parties in case a person in good faith builds, sows or plants on the land of another, respectively provides:

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

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may
retain the thing until he has 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 to option of refunding the amount of expenses or of paying the
case in value which thing may have acquired by reason thereof.

Under the terms of these article, it is true that the owner of the land has the right to choose between appropriating the
building by reimbursing the builder of the value thereof or compelling the builder in good faith to pay for his land. Even this
second right cannot be exercised if the value of the land is considerably more than that of the building. In addition to the
right of the builder to be paid the value of his improvement, Article 546 gives him the corollary right of retention of the
property until he is indemnified by the owner of the land. There is nothing in the language of these two article, 448 and
546, which would justify the conclusion of appellants that, upon the failure of the builder to pay the value of the land, when
such is demanded by the land-owner, the latter becomes automatically the owner of the improvement under Article 445.
The case of Bernardo vs. Bataclan, 66 Phil., 590 cited by appellants is no authority for this conclusion. Although it is true it
was declared therein that in the event of the failure of the builder to pay the land after the owner thereof has chosen this
alternative, the builder's right of retention provided in Article 546 is lost, nevertheless there was nothing said that as a
consequence thereof, the builder loses entirely all rights over his own building. The question is; what is the recourse or
remedy left to the parties in such eventuality where the builder fails to pay the value of the land? While the Code is silent
on this Court in the cases of Miranda vs. Fadullon, et al., 97 Phil., 801; 51 Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76
Phil., 605 and the cited case of Bernardo vs. Bataclan, supra.

In the first case, this Court has said:

A builder in good faith not be required to pay rentals. He has right to retain the land on which he has built in good
faith until he is reimbursed the expenses incurred by him. Possibly he might be made to pay rental only when the
owner of the land chooses not to appropriate the improvement and requires the builder in good faith to pay for the
land but that the builder is unwilling or unable to pay the land, and then they decide to leave things as they are
and assume the relation of lessor and lessee, and should they disagree as to the amount of rental then they can
go to the court to fix that amount. (Emphasis supplied)

Should the parties not agree to leave things as they are and to assume the relation of lessor and lessee, another remedy
is suggested in the case of Ignacio vs. Hilario, supra, wherein the court has ruled that the owner of the land in entitled to
have the improvement removed when after having chosen to sell his land to the other party, i.e., the builder in good faith
fails to pay for the same.

A further remedy is indicated in the case of Bernardo vs. Bataclan, supra, where this Court approved the sale of the land
and the improvement in a public auction applying the proceeds thereof first to the payment of the value of the land and the
excess, if any, to be delivered to the owner of the house in payment thereof.

The appellants herein, owners of the land, instead of electing any of the alternative above indicated chose to seek
recovery of the value of their land by asking for a writ of execution; levying on the house of the builder; and selling the
same in public auction. Sand because they are the highest bidder in their own auction sale, they now claim they acquired
title to the building without necessity of paying in cash on account of their bid. In other words, they in effect pretend to
retain their land and acquire the house without paying a cent therefor.

This contention is without merit. This Court has already held in Matias vs. The Provincial Sheriff of Nueva Ecija (74 Phil.,
326) that while it is the inveriable practice, dictated by common sense, that where the successful bidder is the execution
creditor himself, he need not pay down the amount of the bid if it does not exceed the amount of his judgement,
nevertheless, when there is a claim by a third-party, to the proceeds of the sale superior to his judgment credit, the
execution creditor, as successful bidder, must pay in cash the amount of his bid as a condition precedent to the issuance
to him of the certificate of sale. In the instant case, the Court of Appeals has already adjudged that appellee Blas is
entitled to the payment of the unpaid balance of the purchase price of the school building. Blas is actually a lien on the
school building are concerned. The order of the lower court directing the Timbang spouses, as successful bidders, to pay
in cash the amount of their bid in the sum of P5,750.00 is therefore correct.

With respect to the order of the court declaring appellee Filipinas Colleges, Inc. part owner of the land to the extent of the
value of its personal properties sold at public auction in favor of the Timbang, this Court Likewise finds the same as
justified, for such amount represents, in effect, a partial payment of the value of the land. If this resulted in the continuation
of the so-called involuntary partnership questioned by the difference between P8,200.00 — the unpaid balance of the
purchase price of the building and the sum of P5,750.00 — amount to be paid by the Timbangs, the order of the court
directing the sale of such undivided interest of the Filipinas Colleges, Inc. is likewise justified to satisfy the claim of the
appellee Blas.

Considering that the appellant spouses Marcelino Timbang and Maria Garcia Timbang may not voluntarily pay the sum of
P5,750.00 as ordered, thereby further delaying the final termination of this case, the first part of the dispositive portion of
the order appealed from is modified in the sense that upon failure of the Timbang spouses to pay to the Sheriff or to
Manila Gervacio Blas said sum of P5,750.00 within fifteen (15) days from notice of the final judgment, an order of
execution shall issue in favor of Maria Gervasio Blas to be levied upon all properties of the Timbang spouses not exempt
from execution for the satisfaction of the said amount.

In all other respects, the appealed order of the court a quo is hereby affirmed, with costs against the appellants.

It is so ordered.

Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.
 THIRD DIVISION

[G.R. No. L-47475. August 19, 1988.]

MANOTOK REALTY, INC., petitioner, vs. THE HONORABLE JOSE H. TECSON, Judge of the Court
of First Instance of Manila and NILO MADLANGAWA,  respondents.

DECISION
GUTIERREZ, JR., J  p:

In a complaint filed by the petitioner for recovery of possession and damages against the private respondent,
the then Court of First Instance of Manila rendered judgment, the dispositive portion of which provides inter alia:
WHEREFORE, judgment is hereby rendered:
xxx xxx xxx
"(c) In Civil Case No. 72872, declaring the defendant Nilo Madlangawa as a builder or
possessor in good faith; ordering the plaintiff to recognize the right of said defendant to remain in Lot
No. 345, Block 1, of the Clara Tambunting Subdivision until after he shall have been reimbursed by the
plaintiff the sum of P7,500.00, without pronouncement as to costs." (p. 24, Rollo)
Not satisfied with the trial court's decision, the petitioner appealed to the Court of Appeals and upon
affirmance by the latter of the decision below, the petitioner elevated its case to this Court. 
On July 13, 1977, we issued a resolution dated July 11, 1977 denying the petitioner's petition for lack of merit.
Hence, on August 5, 1977, the petitioner filed with the trial court, presided over by respondent Judge Jose H.  Tecson,
a motion for the approval of petitioner's exercise of option and for satisfaction of judgment, praying that the
court issue an order: a) approving the exercise of petitioner's option to appropriate the improvements introduced by
the private respondent on the property; b) thereafter, private respondent be ordered to deliver possession of the
property in question to the petitioner.
On October 7, 1977, the respondent judge issued the disputed order, to wit:
"WHEREFORE, and for lack of merit, the instant motion for approval of the plaintiff's exercise of
option and for satisfaction of judgment should be, as hereby it is, denied." (pp. 45-46, Rollo)
After a denial of its motion for reconsideration, the petitioner filed the present petition for mandamus alleging
that the respondent judge committed grave abuse of discretion in denying his motion to exercise option and for
execution of judgment on the grounds that under Articles 448 and 546 of the Civil Code, the exercise of option
belongs to the owner of the property, who is the petitioner herein, and that upon finality of judgment, the prevailing
party is entitled, as a matter of right, to its execution which is only a ministerial act on the part of the respondent judge.
On April 15, 1978, the private respondent filed his comment on the petition alleging that the same has already
become moot and academic for two reasons: first, fire gutted not only the house of the private respondent but the
majority of the houses in Tambunting Estate; and second, as a result of the said fire, the then First Lady and Metro
Manila Governor Imelda R. Marcos has placed the disputed area under her Zonal Improvement Project, thereby
allowing the victims of the fire to put up new structures on the premises, so that the willingness and readiness of the
petitioner to exercise the alleged option can no longer be exercised since the subject-matter thereof has been
extinguished by the fire. Furthermore, the President of the Philippines has already issued a Presidential Decree for
the expropriation of certain estates in Metro Manila including the Tambunting Estate. Therefore, the beneficient and
humanitarian purpose of the Zonal Improvement Project and the expropriation proceeding would be defeated if
petitioner is allowed to exercise an option which would result in the ejectment of the private respondent.
As stated earlier, the petitioner argues that since the judgment of the trial court has already become final, it is
entitled to the execution of the same and that moreover, since the house of the private respondent was gutted by fire,
 the execution of the decision would now involve the delivery of possession of the disputed area by the private
respondent to the petitioner. cdrep
We find merit in these arguments.
When the decision of the trial court became final and executory, it became incumbent upon the respondent
judge to issue the necessary writ for the execution of the same. There is, therefore, no basis for the respondent judge
to deny the petitioner's motion to avail of its option to appropriate the improvements made on its property.
Neither can the respondent judge deny the issuance of a writ of execution because the private respondent
was adjudged a builder in good faith or on the ground of "peculiar circumstances which supervened after the
institution of this case, like, for instance, the introduction of certain major repairs of and other substantial
improvements . . ." because the option given by law either to retain the premises and pay for the improvements
thereon or to sell the said premises to the builder in good faith belongs to the owner of the property. As we have
in Queme  v. Olaes (1 SCRA 1159, 1163):
xxx xxx xxx
Under Article 448, the right to appropriate the works or improvements or 'to oblige the one who
built or planted to pay the price of the land' belongs to the owner of the land. The only right given to the
builder in good faith is the right to reimbursement for the improvements; the builder, cannot compel the
owner of the land to sell such land to the former . . ."
Furthermore, the private respondent's good faith ceased after the filing of the complaint below by the
petitioner. In the case of Mindanao Academy, Inc.  v. Yap (13 SCRA 190, 196), we ruled:
xxx xxx xxx
". . . Although the bad faith of one party neutralizes that of the other and hence as between
themselves their rights would be as if both of them had acted in good faith at the time of the transaction,
this legal fiction of Yap's good faith ceased when the complaint against him was filed, and consequently
the court's declaration of liability for the rents thereafter is correct and proper. A possessor in good faith
is entitled to the fruits only so long as his possession is not legally interrupted, and such interruption
takes place upon service of judicial summons (Arts. 544 and 1123, Civil Code)."

Thus, the repairs and improvements introduced by the said respondents after the complaint was filed cannot be
considered to have been built in good faith, much less, justify the denial of the petitioner's exercise of option.

Since the improvements have been gutted by fire, and therefore, the basis for private respondent's right to
retain the premises has already been extinguished without the fault of the petitioner, there is no other recourse for the
private respondent but to vacate the premises and deliver the same to herein petitioner.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED and the respondent judge is
hereby ordered co immediately issue a writ of execution ordering the private respondent to vacate the disputed
premises and deliver possession of the same to the petitioner. LibLex
SO ORDERED.
Fernan, C.J., Feliciano, Bidin and Cortes, JJ., concur.

|||  (Manotok Realty, Inc. v. Tecson, G.R. No. L-47475, [August 19, 1988], 247 PHIL 553-560)

EN BANC

[G.R. No. 44606. November 28, 1938.]

VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant, vs. CATALINO  BATACLAN,  defendant-

appellant. TORIBIO TEODORO,  purchaser-appellee.
 SYLLABUS

1. OWNERSHIP; ACCESSION; LAND AND IMPROVEMENTS. — The Civil Code confirms certain time-
honored principles of the law of property. One of these is the principle of accession whereby the owner of property
acquires not only that which it produces but that which is united to it either naturally or artificially. Whatever is built,
planted or sown on the land of another, and the improvements or repairs made thereon, belong to the owner of the
land. Where, however, the planter, builder, or sewer 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.

2. ID.; ID.; ID.; OPTION GRANTED TO OWNER OF LAND. — In view of the impracticability of creating what
Manresa calls a state of "forced coownership" (vol. 3, 4th ed., p. 213), the law has provided a just and equitable
solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity
or to oblige the builder or planter to pay for the land and the sewer to pay the proper rent. It is the owner of the land
who is allowed to exercise the option because his right is older and because, by the principle of accession, he is
entitled to the ownership of the accessory thing. The plaintiff, as owner of the land, chose to require the defendant, as
owner of the improvements, to pay for the land. When the latter failed to pay for the land, he lost his right of retention.

DECISION

LAUREL, J  p:

There is no controversy as to the facts. By a contract of sale executed on July 17, 1920, the plaintiff herein
acquired from Pastor Samonte and others ownership of the parcel of land of about 90 hectares situated in sitio
Balayunan, Silang Cavite. To secure possession of the land from the vendors the said plaintiff, on July 20, 1929,
instituted Civil Case No. 1935 in the Court of First Instance of Cavite. The trial court found for the plaintiff in a decision
which was affirmed by this Supreme Court on appeal (G. R. No. 33017). 1 When plaintiff entered upon the premises,
however, he found the defendant herein, Catalino Bataclan, who appears to have been authorized by former owners,
as far back as 1922, to clear the land and make improvements thereon. As Bataclan was not a party in Case No.
1935, plaintiff, on June 11, 1931, instituted against him, in the Court of First Instance of Cavite, Civil Case No. 2428.
In this case, plaintiff was declared owner but the defendant was held to be possessor in good faith, entitled to
reimbursement in the total sum of P1,642, for work done and improvements made.

xxx

Both parties appealed to this court (G. R. No. 37319). 1 The decision appealed from was modified by allowing
the defendant to recover compensation amount to P2,212 and by reducing the price at which the plaintiff could require
the defendant to purchase the land in question from P300 to P200 per hectare. Plaintiff was given by this court 30
days from the date when the decision became final within which to exercise his option, either to sell the land to the
defendant or to buy the improvements from him.

On January 9, 1934, the plaintiff manifested to the lower court his desire "to require the defendant to pay him
the value of the land at the rate of P200 per hectare or a total price of P18,000 for the whole tract of land." The
defendant informed the lower court that he was unable to pay for the land and, on January 24, 1934, an order was
issued giving the plaintiff 30 days within which to pay the defendant the sum of P2,212 stating that, in the event of
failure to make such payment, the land would be ordered sold at public auction.

On April 24, 1934, the court below, at the instance of the plaintiff and without objection on the part of the
defendant, ordered the sale of the land in question at public auction. The land was sold on April 5, 1935 to Toribio
Teodoro, the highest bidder, for P8,000. In the certificate of sale issued to said purchaser on the very day of sale, it
was stated that the period of redemption of the land sold was to expire on April 5, 1936. Upon petition of Toribio
Teodoro the court below ordered the provincial sheriff to issue another certificate not qualified by any equity of
redemption. This was complied with by the sheriff on July 30, 1935. On September 18, 1935, Teodoro moved that he
be placed in possession of the land purchased by him. The motion was granted by order of September 26, 1935, the
dispositive part of which is as follows:
 The Civil Code confirms certain time-honored principles of the law of property. One of these is the principle of
accession whereby the owner of property acquires not only that which it produces but that which is united to it either
naturally or artificially. (Art. 353.) Whatever is built, planted or sown on the land of another, and the improvements or
repairs made thereon, belong to the owner of the land (art. 358).

Where, however, the planter, builder, or sower has acted in good faith, a conflict of rights arises between the
owners and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of
the land. In view of the impracticability of creating what Manresa calls a state of "forced coownership" (vol. 3, 4th ed.,
p. 213), the law has provided a just and equitable solution by giving the owner of the land the option to acquire the
improvements after payment of the proper indemnity or to oblige the builder or planter to pay for the land and the
sower to pay the proper rent (art. 361). It is the owner of the land who is allowed to exercise the option because his
right is older and because, by the principle of accession, he is entitled to the ownership of the accessory thing (3
Manresa, 4th ed., p. 213). In the case before us, the plaintiff, as owner of the land, chose to require the defendant, as
owner of the improvements, to pay for the land.

The defendant states that he is a possessor in good faith and that the amount of P2,212 to which he is
entitled has not yet been paid to him. Therefore, he says, he has a right to retain the land in accordance with the
provisions of article 453 of the Civil Code. We do not doubt the validity of the premises stated. We find, however, that
the defendant has lost his right to retention. In obedience to the decision of his right to retention. In obedience to the
decision of this court in G. R. No. 37319, the plaintiff expressed his desire to require the defendant to pay for the value
of the land. The said defendant could have become owner of both land and improvements and continued in
possession thereof. But he said he could not pay and the land was sold at public auction to Toribio Teodoro. The law,
as we have already said, requires no more than that the owner of the land should choose between indemnifying the
owner of the improvements or requiring the latter to pay for the land. When he failed to pay for the land, the defendant
herein lost his right of retention.

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

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

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

|||  (Bernardo v. Bataclan, G.R. No. 44606, [November 28, 1938], 66 PHIL 598-603)

THIRD DIVISION

[G.R. No. 136456. October 24, 2000.]

HEIRS OF RAMON DURANO, SR., RAMON DURANO III, AND ELIZABETH

HOTCHKISS DURANO,  petitioners, vs. SPOUSES ANGELES SEPULVEDA  UY AND EMIGDIO
BING SING  UY, SPOUSES FAUSTINO ALATAN AND VALERIANA GARRO, AURELIA MATA,
SILVESTRE RAMOS, HERMOGENES TITO, TEOTIMO GONZALES, PRIMITIVA GARRO, JULIAN
GARRO, ISMAEL GARRO, BIENVENIDO CASTRO, GLICERIO BARRIGA, BEATRIZ CALZADA,
ANDREA MATA DE BATULAN, TEOFISTA ALCALA, FILEMON LAVADOR, CANDELARIO
LUMANTAO, GAVINO QUIMBO, JUSTINO TITO, MARCELINO GONZALES, SALVADOR DAYDAY,
VENANCIA REPASO, LEODEGARIO GONZALES, and RESTITUTA GONZALES, respondents.

5. CIVIL LAW; PROPERTY; ORDINARY ACQUISITIVE PRESCRIPTION; POSSESSION OF THING IN GOOD

FAITH AND WITH JUST TITLE FOR TEN YEARS, REQUIRED; IN COMPUTING TEN YEAR PERIOD, CLAIMANT MAY
TACK HIS POSSESSION TO THAT OF HIS PREDECESSOR-IN-INTEREST. — Ordinary acquisitive prescription, in the
case of immovable property, requires possession of the thing in good faith and with just title, for a period of ten years. A
possessor is deemed to be "in good faith" when he is not aware of any flaw in his title or mode of acquisition of the
property. On the other hand, there is "just title" when the adverse claimant came into possession  of the property through
one of the modes for acquiring ownership recognized by law, but the grantor was not the owner or could not transmit any
right. The claimant by prescription may compute the ten-year period by tacking his possession to that of his
grantor of predecessor-in-interest.

DECISION

GONZAGA-REYES, J  p:

The antecedents of this case may be traced as far back as August 1970; it involves a 128-hectare parcel of land
located in the barrios of Dunga and Cahumayhumayan, Danao City. On December 27, 1973, the late
Congressman Ramon Durano, Sr., together with his son Ramon Durano III, and the latter's wife, Elizabeth
Hotchkiss Durano (petitioners in the herein case), instituted an action for damages against spouses Angeles
Supelveda Uy and Emigdio Bing Sing Uy, et al.
In that case, docketed as Civil Case No. DC-56, petitioners accused respondents of officiating a "hate campaign"
against them by lodging complaints in the Police Department of Danao City in August 1970, over petitioners' so-called
"invasion" of respondents' alleged properties in Cahumayhumayan, Danao City. This was followed by another complaint
sent by respondents to the President of the Philippines in February 1971, which depicted petitioners as "oppressors,"
"landgrabbers" and "usurpers" of respondents' alleged rights. Upon the direction of the President, the
Department of Justice through City Fiscal Jesus Navarro and the Philippine Constabulary of Cebu simultaneously
conducted investigations on the matter. Respondents' complaints were dismissed as "baseless," and they appealed the
same to the Secretary of Justice, who called for another investigation to be jointly conducted by the Special Prosecutor
and the Office of the City Fiscal of Danao City. During the course of said joint investigation, respondents Hermogenes Tito
and Salvador Dayday again lodged a complaint with the Office of the President, airing the same
charges of "landgrabbing." The investigations on this new complaint, jointly conducted by the 3rd Philippine Constabulary
Zone and the Citizens Legal Assistance Office resulted in the finding that "(petitioners) should not be held answerable
therefor." 2
Petitioners further alleged in their complaint before the CFI that during the course  of the above investigations,
respondents kept spreading false rumors and damaging tales which put petitioners into public contempt and ridicule. 3
In their Answer, respondents lodged their affirmative defenses, demanded the return of their respective
properties, and made counterclaims for actual, moral and exemplary damages. Respondents stated that sometime in the
early part of August 1970 and months thereafter they received mimeographed notices dated August 2, 1970 and signed
by the late Ramon Durano, Sr., informing them that the lands which they are tilling and residing in, formerly owned by the
Cebu Portland Cement Company (hereafter, "Cepoc"), had been purchased by Durano & Co., Inc. The notices also
declared that the lands were needed by Durano & Co. for planting to sugar and for roads or residences, and directed
respondents to immediately turn over the said lands to the representatives of the company. Simultaneously, tall bamboo
poles with pennants at the tops thereof were planted in some areas  of the lands and metal sheets bearing the initials
"RMD" were nailed to posts.
As early as the first week of August 1970, and even before many of the respondents received notices to vacate,
men who identified themselves as employees of Durano & Co. proceeded to bulldoze the lands occupied by various
respondents, destroying in their wake the plantings and improvements made by the respondents therein. On some
occasions, respondents alleged, these men fired shots in the air, purportedly acting upon the
instructions of petitioner Ramon Durano III and/or Ramon Durano, Jr. On at least one instance,
petitioners Ramon Durano III and Elizabeth Hotchkiss Durano were seen on the site of the bulldozing operations.
On September 15, 1970, Durano & Co. sold the disputed property to petitioner Ramon Durano III, who procured
the registration of these lands in his name under TCT No. T-103 and TCT No. T-104.
Respondents contended that the display of force and the known power and prestige of petitioners and their family
restrained them from directly resisting this wanton depredation upon their property. During that time, the mayor of Danao
City was Mrs. Beatriz Durano, wife of Ramon Durano, Sr. and mother of petitioner Ramon Durano III. Finding no relief
from the local police, who respondents said merely laughed at them for daring to complain against the Duranos, they
organized themselves and sent a letter to then President Ferdinand Marcos reporting dispossession of their properties
and seeking a determination of the ownership of the land. This notwithstanding, the bulldozing operations continued until
the City Fiscal was requested by the Department of Justice to conduct an investigation on the matter. When, on July 27,
1971, the City Fiscal announced that he would be unable to conduct a preliminary investigation, respondents urged the
Department of Justice to conduct the preliminary investigation. This was granted, and the investigations which spanned
the period March 1972 to April 1973 led to the conclusion that respondents' complaint was untenable. 4
In their counterclaim, respondents alleged that petitioners' acts deprived most of them of their independent
source of income and have made destitutes of some of them. Also, petitioners have done serious violence to respondents'
spirit, as citizens and human beings, to the extent that one of them had been widowed by the emotional shock that the
damage and dispossession has caused. 5 Thus, in addition to the dismissal of the complaint, respondents demanded
actual damages for the cost of the improvements they made on the land, together with the damage arising from the
dispossession itself; moral damages for the anguish they underwent as a result of the high-handed display of power by
petitioners in depriving them of their possession and property; as well as exemplary damages, attorney's fees and
expenses of litigation. ETISAc
Respondents' respective counterclaims — referring to the improvements destroyed, their values, and the
approximate areas of the properties they owned and occupied — are as follows:
xxx
On April 22, 1975, petitioners moved to dismiss their complaint with the trial court. The trial court granted the
motion to dismiss, without prejudice to respondents' right to proceed with their counterclaim.
Hence, the trial proceeded only on the counterclaim.
On September 23, 1980, this Court issued a resolution in Administrative Matter No. 6290 changing the
venue of trial in Civil Case No. DC-56 to the Regional Trial Court of Cebu City. The change was mainly in line with the
transfer of Judge Bernardo Ll. Salas, who presided over the case in Danao City, to Cebu City.
The parties agreed to dispense with pre-trial, and for the evidence-in-chief to be submitted by way of affidavits
together with a schedule of documentary exhibits, subject to additional direct examination, cross examination and
presentation of rebuttal evidence by the parties.
The trial court and later, the Court of Appeals, took note of the following portions of affidavits submitted by
petitioners:
xxx
Petitioners also presented Court Commissioner, Engineer Leonidas Gicain, who was directed by the trial court to
conduct a field survey of the disputed property. Gicain conducted surveys on the areas subjected to bulldozing, including
those outside the Cepoc properties. The survey — which was based on TCT No. T-103 and TCT No. T-104, titled in the
name of Ramon Durano III, and TCT No. 35, in the name of respondent Emigdio Bing Sing Uy — was paid for by
petitioners. 8
Respondents, for their part, also presented their affidavits and supporting documentary evidence, including tax
declarations covering such portions of the property as they formerly inhabited and cultivated.
On March 8, 1990, the RTC issued a decision upholding respondents' counterclaim. The dispositive
portion of said decision reads:
"THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the counter
claimants and against the plaintiffs directing the latter to pay the former:
xxx
P120,000.00 should be the figure in terms of litigation expenses and a separate amount of P100,000.00 as attorney's
fees.
Return of the properties to Venancia Repaso, Hermogenes Tito and Marcelino Gonzales is
hereby directed.
With respect to counter claimant Angeles Sepulveda Uy, return of the property to her should be
with respect to the areas outside of the Cepoc property, as mentioned in the sketch, Exhibit 56-A.
Finally with costs against the plaintiffs.
SO ORDERED. 9 EHCcIT
The RTC found that the case preponderated in favor of respondents, who all possessed their respective
portions of the property covered by TCT Nos. T-103 and T-104 thinking that they were the absolute owners thereof. A
number of these respondents alleged that they inherited these properties from their parents, who in turn inherited them
from their own parents. Some others came into the properties by purchase from the former occupants thereof. They and
their predecessors were responsible for the plantings and improvements on the property. They were the ones who sought
for the properties to be tax-declared in their respective names, and they continually paid the taxes thereto. Respondents
maintained that they were unaware of anyone claiming adverse possession or ownership of these lands until the
bulldozing operations in 1970.
As for Venancia Repaso, Hermogenes Tito and Marcelino Gonzales, the Court found that the properties they laid
claim to were not part of the land that was purchased by Durano & Co. from Cepoc. Thus, it found the bulldozing of these
lands by petitioners totally unjustified and ordered not only the total reimbursement of useful and necessary expenses on
the properties but also the return of these properties to Repaso, Tito and Gonzales, respectively. As for all the other
respondents, the RTC found their possession of the properties to be in the concept of owner and adjudged them to be
builders in good faith. Considering that petitioners in the instant case appropriated the improvements on the areas overran
by the bulldozers, the RTC ruled that "(t)he right of retention to the improvements necessarily should be secured (in
favor of respondents) until reimbursed not only of the necessary but also useful expenses." 10
On the matter of litigation expenses and attorney's fees, the RTC observed that the trial period alone
consisted of forty (40) trial dates spread over a period of sixteen (16) years. At the time, respondents were represented by
counsel based in Manila, and the trial court took into consideration the travel, accommodation and miscellaneous
expenses of their lawyer that respondents must have shouldered during the trial of the case.
Dissatisfied, petitioners appealed the RTC decision to the Court of Appeals, which, in turn, affirmed the said
decision and ordered the return of the property to all the respondents-claimants, in effect modifying the RTC decision
which allowed return only in favor of respondents Repaso, Tito and Gonzales.
In its decision, the Court of Appeals upheld the factual findings and conclusions of the RTC, including the awards
for actual damages, attorney's fees and litigation expenses, and found additionally that the issuance of TCT Nos. T-103
and T-104 in the name of Ramon Durano III was attended by fraud. Evaluating the evidence before it, the
Court of Appeals observed that the alleged reconstituted titles of Cepoc over the property, namely, TCT No. (RT-38) (T-
14457)-4 and TCT No. (RT-39) (T-14456)-3 (Exhibits "19" and "20" of this case), which were claimed to be the derivative
titles of TCT Nos. T-103 and T-104, were not submitted in evidence before the RTC. Thus, in an Order dated June 15,
1988, the RTC ordered Exhibits "19" and "20" deleted from petitioners' Offer  of Exhibits. The Court of Appeals further
noted that even among the exhibits subsequently produced by petitioners before the RTC, said Exhibits "19" and "20"
were still not submitted. 11 Moreover, Cepoc had no registered title over the disputed property as indicated in TCT Nos.
T-103 and T-104. Thus:
xxx
From the foregoing, the Court of Appeals concluded that the issuance of the TCT Nos. T-103 and T-104 in
favor of petitioner Ramon Durano III was attended by fraud; hence, petitioners could not invoke the
principle of indefeasibility of title. Additionally, the Court of Appeals found that the alleged Deed of Absolute Sale, undated,
between Cepoc Industries, Inc. and Durano & Co. was not notarized and thus, unregistrable.
The Court of Appeals went on to state that while, on the one hand, no valid issuance of title may be imputed in
favor of petitioners from the private Deed of Sale and the alleged reconstituted titles of Cepoc that were not presented in
evidence, respondents, in contrast — who although admittedly had no registered titles in their names — were able to
demonstrate possession that was public, continuous and adverse — or possession in the concept  of owner, and which
was much prior (one or two generations back for many of respondents) to the claim of ownership of petitioners.
Thus, the Court of Appeals ordered the return of the properties covered by TCT Nos. T-103 and T-104 to all
respondents who made respective claims thereto. Corollarily, it declared that petitioners were possessors in bad faith, and
were not entitled to reimbursement for useful expenses incurred in the conversion of the property into sugarcane lands. It
also gave no merit to petitioners' allegation that the actual damages awarded by the trial court were excessive, or to
petitioners' argument that they should not have been held personally liable for any damages imputable to Durano & Co.
Following is the dispositive portion of the decision of the Court of Appeals:
WHEREFORE, the appealed decision of the lower court in Civil Case No. DC-56 is hereby
AFFIRMED with MODIFICATION ordering the return of the respective subject properties to all the
defendants-appellees, without indemnity to the plaintiffs-appellants as regards whatever improvements
made therein by the latter. In all other respects, said decision in affirmed.
Costs against plaintiffs-appellants.
SO ORDERED. 13
On October 29, 1998, the Court of Appeals denied petitioners' motion for reconsideration for lack of merit. Hence,
this petition. ASaTHc
 Petitioners assign the following errors from the CA decision:
xxx
8. The petitioners are not possessors in bad faith.
Xxx
Moving now to the other errors assigned in the petition, the return of the properties to respondents Repaso, Tito
and Gonzales was premised upon the factual finding that these lands were outside the properties claimed by petitioners
under TCT Nos. T-103 and T-104. Such factual finding of the RTC, sustained by the Court of Appeals, is now final and
binding upon this Court.
In respect of the properties supposedly covered by TCT Nos. T-103 and T-104, the Court of Appeals basically
affirmed the findings of the RTC that respondents have shown prior and actual possession thereof in the
concept of owner, whereas petitioners failed to substantiate a valid and legitimate acquisition of the property —
considering that the alleged titles of Cepoc from which TCT Nos. T-103 and T-104 were supposed to have derived title
were not produced, and the deed of sale between Cepoc and Durano & Co. was unregistrable.
The records clearly bear out respondents' prior and actual possession; more exactly, the records indicate that
respondents' possession has ripened into ownership by acquisitive prescription.
Ordinary acquisitive prescription, in the case of immovable property, requires possession of the thing in good
faith and  with just title, 18 for a period of ten years. 19 A possessor is deemed to be "in good faith" when he is not
aware of any flaw in his title or mode of acquisition of the property. 20 On the other hand, there is "just title" when the
adverse claimant came into possession of the property through one of the modes for acquiring ownership recognized by
law, but the grantor was not the owner or could not transmit any right.  21 The claimant by prescription may compute the
ten-year period by tacking his possession to that of his grantor or predecessor-in-interest. 
The evidence shows that respondents successfully complied with all the requirements for acquisitive prescription
to set in. The properties were conveyed to respondents by purchase or inheritance, and in each case the respondents
were in actual, continuous, open and adverse possession of the properties. They exercised rights of ownership over the
lands, including the regular payment of taxes and introduction of plantings and improvements. They were
unaware of anyone claiming to be the owner of these lands other than themselves until the notices of demolition in 1970
— and at the time each of them had already completed the ten-year prescriptive period either by their own possession or
by obtaining from the possession of their predecessors-in-interest. Contrary to the allegation of petitioners that the
claims of all twenty-two (22) respondents were lumped together and indiscriminately sustained, the lower courts
(especially the RTC) took careful consideration of the claims individually, taking note of the respective modes and
dates of acquisition. Whether respondents' predecessors-in-interest in fact had title to convey is irrelevant under the
concept of just title and for purposes of prescription.
Thus, respondents' counterclaim for reconveyance and damages before the RTC was premised upon a
claim of ownership as indicated by the following allegations:
(Y)our defendants are owners and occupants of different parcels of land located in Barrio
Cahumayhumayan, your defendants having occupied these parcels of land for various periods by
themselves or through their predecessors-in-interest, some for over fifty years, and some with titles
issued under the Land Registration Act; . . . . 23
Respondents' claim of ownership by acquisitive prescription (in respect of the properties covered by TCT Nos. T-
103 and T-104) having been duly alleged and proven, the Court deems it only proper that such claim be categorically
upheld. Thus, the decision of the Court of Appeals insofar as it merely declares those respondents possessors in the
concept of owner is modified to reflect the evidence on record which indicates that such possession had been converted
to ownership by ordinary prescription.
Turning now to petitioners' claim to ownership and title, it is uncontested that their claim hinges largely on TCT
Nos. T-103 and T-104, issued in the name of petitioner Ramon Durano III. However, the validity of these
certificates of title was put to serious doubt by the following: (1) the certificates reveal the lack  of registered title of Cepoc
to the properties; 24 (2) the alleged reconstituted titles of Cepoc were not produced in evidence; and (3) the deed of sale
between Cepoc and Durano & Co. was unnotarized and thus, unregistrable.
It is true that fraud in the issuance of a certificate of title may be raised only in an action expressly instituted for
that purpose, 25 and not collaterally as in the instant case which is an action for reconveyance and damages. While we
cannot sustain the Court of Appeals' finding of fraud because of this jurisdictional impediment, we observe that the above-
enumerated circumstances indicate none too clearly the weakness of petitioners' evidence on their claim of ownership.
For instance, the non-production of the alleged reconstituted titles of Cepoc despite demand therefor gives rise to a
presumption (unrebutted by petitioners) that such evidence, if produced, would be adverse to petitioners.  26 Also, the
unregistrability of the deed of sale is a serious defect that should affect the validity of the certificates of title.
Notarization of the deed of sale is essential to its registrability, 27 and the action of the Register of Deeds in allowing the
registration of the unacknowledged deed of sale was unauthorized and did not render validity to the registration of the
document. 28
In the same manner, the purchase of the property by petitioner Ramon Durano III from Durano & Co. could not be
said to have been in good faith. It is not disputed that Durano III acquired the property with full knowledge of respondents'
occupancy thereon. There even appears to be undue haste in the conveyance of the property to Durano III, as the
bulldozing operations by Durano & Co. were still underway when the deed of sale to Durano III was executed on
September 15, 1970. There is not even an indication that Durano & Co. attempted to transfer registration of the property
in its name before it conveyed the same to Durano III.
In the light of these circumstances, petitioners could not justifiably invoke the defense of indefeasibility of title to
defeat respondents' claim of ownership by prescription. The rule on indefeasibility of title, i.e., that Torrens titles can be
attacked for fraud only within one year from the date of issuance of the decree of registration, does not altogether deprive
an aggrieved party of a remedy at law. As clarified by the Court in Javier vs. Court  of  Appeals 31 —
The decree (of registration) becomes incontrovertible and can no longer be reviewed after one (1) year from the
date of the decree so that the only remedy of the landowner whose property has been wrongfully or erroneously
registered in another's name is to bring an ordinary action in court for reconveyance, which is an action  in personam and
is always available as long as the property has not passed to an innocent third party for value. If the property has passed
into the hands of an innocent purchaser for value, the remedy is an action for damages.
In the instant case, respondents' action for reconveyance will prosper, it being clear that the property, wrongfully
registered in the name of petitioner Durano III, has not passed to an innocent purchaser for value.
Since petitioners knew fully well the defect in their titles, they were correctly held by the Court of Appeals to be
builders in bad faith.
The Civil Code provides:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown
without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the
expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land,
and the sower the proper rent.
Art. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter
or sower.
Based on these provisions, the owner of the land has three alternative rights: (1) to appropriate what has been
built without any obligation to pay indemnity therefor, or (2) to demand that the builder remove what he had built, or (3) to
compel the builder to pay the value of the land. 32 In any case, the landowner is entitled to damages under Article 451,
abovecited.
We sustain the return of the properties to respondents and the payment of indemnity as being in accord with the
reliefs under the Civil Code.
On petitioners' fifth assignment of error that respondents had not proved the existence of improvements on the
property by preponderance of evidence, and that the damages awarded by the lower courts were excessive and not
actually proved, the Court notes that the issue is essentially factual. Petitioners, however, invoke Article 2199 of the Civil
Code which requires actual damages to be duly proved. Passing upon this matter, the Court of Appeals cited with
approval the decision of the RTC which stated:
xxx
The right of the owner of the land to recover damages from a builder in bad faith is clearly provided for in Article
451 of the Civil Code. Although said Article 451 does not elaborate on the basis for damages, the Court perceives that it
should reasonably correspond with the value of the properties lost or destroyed as a result of the occupation in bad faith,
as well as the fruits (natural, industrial or civil) from those properties that the owner  of the land- reasonably expected to
obtain. We sustain the view of the lower courts that the disparity between respondents' affidavits and their tax declarations
on the amount of damages claimed should not preclude or defeat respondents' right to damages, which is guaranteed by
Article 451. Moreover, under Article 2224 of the Civil Code:
 Temperate or moderate damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, be proved with certainty.
WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is MODIFIED to declare
respondents with claims to the properties covered by Transfer Certificate of Title Nos. T-103 and T-104 owners by
acquisitive prescription to the extent of their respective claims. In all other respects, the decision of the Court of Appeals is
AFFIRMED Costs against petitioners.
SO ORDERED.

|||  (Heirs of Durano, Sr. v. Spouses Uy, G.R. No. 136456, [October 24, 2000], 398 PHIL 125-157)

SECOND DIVISION

[G.R. No. 125683. March 2, 1999.]

EDEN BALLATAN and SPS. BETTY MARTINEZ and CHONG CHY

LING,  petitioners, vs.  COURT  OF APPEALS, GONZALO GO, WINSTON GO, LI CHING YAO,
ARANETA INSTITUTE OF AGRICULTURE and JOSE N. QUEDDING,  respondents.

DECISION

PUNO,  J p:

This is a petition for review on certiorari of the decision of the Court of Appeals dated March 25, 1996 in CA-G.R.
CV No. 32472 entitled "Eden Ballatan, et al., plaintiffs-appellees v. Gonzalo Go and Winston Go, appellants and third-
party plaintiffs-appellants  v. Li Ching Yao, et al., third-party defendants." 1
The instant case arose from a dispute over forty-two (42) square meters of residential land belonging to
petitioners. The parties herein are owners of adjacent lots located at Block No. 3, Poinsettia Street, Araneta University
Village, Malabon, Metro Manila. Lot No. 24, 414 square meters in area, is registered in the name of petitioners
Eden Ballatan and spouses Betty Martinez and Chong Chy Ling. 2 Lots Nos. 25 and 26, with an area of 415 and 313
square meters respectively, are registered in the name of respondent Gonzalo Go, Sr. 3 On Lot No. 25, respondent
Winston Go, son of Gonzalo Go, Sr., constructed his house. Adjacent to Lot No. 26 is Lot No. 27, 417 square meters in
area, and is registered in the name of respondent Li Ching Yao. 4
 
In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the construction, she noticed that the
concrete fence and side pathway of the adjoining house of respondent Winston Go encroached on the entire length of the
eastern side of her property. 5 Her building contractor informed her that the area of her lot was actually less than that
described in the title. Forthwith, Ballatan informed respondent Go of this discrepancy and his encroachment on her
property. Respondent Go, however, claimed that his house, including its fence and pathway, were built within the
parameters of his father's lot; and that this lot was surveyed by Engineer Jose Quedding, the authorized surveyor of the
Araneta Institute of Agriculture (AIA), the owner-developer of the subdivision project.
Petitioner Ballatan called the attention of the AIA to the discrepancy of the land area in her title and the actual
land area received from them. The AIA authorized another survey of the land by Engineer Jose N. Quedding. cdasia
In a report dated February 28, 1985, Engineer Quedding found that the lot area of petitioner Ballatan was less by
a few meters and that of respondent Li Ching Yao, which was three lots away, increased by two (2) meters. Engineer
Quedding declared that he made a verification survey of Lots Nos. 25 and 26 of respondents Go in 1983 and allegedly
found the boundaries to have been in their proper position. He, however, could not explain the reduction in Ballatan's area
since he was not present at the time respondents Go constructed their boundary walls. 6
On June 2, 1985, Engineer Quedding made a third relocation survey upon request of the parties. He found that
Lot No. 24 lost approximately 25 square meters on its eastern boundary, that Lot No. 25, although found to have
encroached on Lot No. 24, did not lose nor gain any area; that Lot No. 26 lost some three (3) square meters which,
however, were gained by Lot No. 27 on its western boundary. 7 In short, Lots Nos. 25, 26 and 27 moved westward to the
eastern boundary of Lot No. 24.
On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written demand on respondents Go to
remove and dismantle their improvements on Lot No. 24. Respondents Go refused. The parties, including Li Ching Yao,
however, met several times to reach an agreement on the matter.
Failing to agree amicably, petitioner Ballatan brought the issue before the barangay. Respondents Go did not
appear. Thus, on April 1, 1986, petitioner Ballatan instituted against respondents Go Civil Case No. 772-MN for recovery
of possession before the Regional Trial Court, Malabon, Branch 169. The Go's filed their "Answer with Third-Party
Complaint" impleading as third-party defendants respondents Li Ching Yao, the AIA and Engineer Quedding.
On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go's to vacate the subject portion
of Lot No. 24, demolish their improvements and pay petitioner Ballatan actual damages, attorney's fees and the costs of
the suit. It dismissed the third-party complaint against: (1) AIA after finding that the lots sold to the parties were in
accordance with the technical description and verification plan covered by their respective titles; (2) Jose N. Quedding,
there being no privity of relation between him and respondents Go and his erroneous survey having been made at the
instance of AIA, not the parties; and (3) Li Ching Yao for failure to prove that he committed any wrong in the subject
encroachment. 8 The court made the following disposition:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the latter:
1. To demolish and remove all improvements existing and encroaching on plaintiff's lot;
2. To clear, vacate and deliver possession of the encroached area to the plaintiffs;
3. To pay plaintiffs jointly and severally the following:
a) P7,800.00 for the expenses paid to the surveyors;
b) P5,000.00 for plaintiffs' transportation;
4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25% of the current market
value of the subject matter in litigation at the time of execution; and
5. To pay the costs of suit.
The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go against third-
party defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao is hereby
DISMISSED, without pronouncement as to costs.
SO ORDERED."
Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the decision of the trial court. It
affirmed the dismissal of the third-party complaint against the AIA but reinstated the complaint against Li Ching Yao and
Jose Quedding. Instead of ordering respondents Go to demolish their improvements on the subject land, the
appellate court ordered them to pay petitioner Ballatan, and respondent Li Ching Yao to pay respondents Go, a
reasonable amount for that portion of the lot which they encroached, the value to be fixed at the time of taking. It also
ordered Jose Quedding to pay respondents Go attorney's fees of P5,000.00 for his erroneous survey. The dispositive
portion of the decision reads: cdt
 "WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED insofar
as the dismissal of the third-party complaint against Araneta Institute of Agriculture is concerned but
modified in all other aspects as follows:
1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable value of
the forty-two (42) square meters of their lot at the time of its taking;
2) Third-party defendant Li Ching Yao is hereby ordered to pay defendants-appellants the
reasonable value of the thirty-seven (37) square meters of the latter's lot at the time of its taking; and
3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-appellants
the amount of P5,000.00. as attorney's fees.
LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for further
proceedings and reception of evidence for the determination of the reasonable value of Lots Nos. 24
and 26.
SO ORDERED." 9
Hence, this petition. Petitioners allege that:
"RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND GRAVELY
ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN:
1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN UTTER
DISREGARD AND IN VIOLATION OR GROSS IGNORANCE OF EXISTING LAWS AND
JURISPRUDENCE VESTING BASIC PROPERTY RIGHTS TO HEREIN PETITIONERS.
RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN THE PRESENCE OF
EXISTING LAWS TO THE CONTRARY.
2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT
PARTIALITY AND FAVOR TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE
ENCROACHED AREA AT THE VALUE AT THE TIME OF ITS TAKING AND NOT THE VALUE AT
THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S BUT DEPRIVING PETITIONERS OF
THE FRUITS OR INCREASE IN VALUE OF THEIR PROPERTY TO WHICH THEY ARE ENTITLED
UNDER THE LAW AS THE REGISTERED OWNERS WITH TORRENS TITLE IN THEIR NAMES.
3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT DUE TO NON-PAYMENT
OF ANY FILING OR DOCKET FEE.
4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY EXPENSES IN
PROTECTING THEIR RIGHTS IN THIS CASE." 10
Petitioners question the admission by respondent Court of Appeals of the third-party complaint by respondents
Go against the AIA, Jose Quedding and Li Ching Yao. Petitioners claim that the third-party complaint should not have
been considered by the Court of Appeals for lack of jurisdiction due to third-party plaintiffs' failure to pay the docket and
filing fees before the trial court. cda
The third-party complaint in the instant case arose from the complaint of petitioners against respondents Go. The
complaint filed was for accion publiciana, i.e., the recovery of possession of real property which is a real action. The rule
in this jurisdiction is that when an action is filed in court, the complaint must be accompanied by the payment of the
requisite docket and filing fees. 11 In real actions, the docket and filing fees are based on the value of the property and
the amount of damages claimed, if any. 12 If the complaint is filed but the fees are not paid at the time of filing,
the court acquires jurisdiction upon full payment of the fees within a reasonable time as the court may grant, barring
prescription. 13 Where the fees prescribed for the real action have been paid but the fees of certain related damages are
not, the court, although having jurisdiction over the real action, may not have acquired jurisdiction over the accompanying
claim for damages. 14 Accordingly, the court may expunge those claims for damages, or allow, on motion, a reasonable
time for amendment of the complaint so as to allege the precise amount of damages and accept payment of the requisite
legal fees. 15 If there are unspecified claims, the determination of which may arise after the filing of the complaint or
similar pleading, the additional filing fee thereon shall constitute a lien on the judgment award.  16 The same rule also
applies to third-party claims and other similar pleadings. 17
In the case at bar, the third-party complaint filed by respondents Go was incorporated in their answer to the
complaint. The third-party complaint sought the same remedy as the principal complaint but added a prayer for attorney's
fees and costs without specifying their amounts, thus:
"ON THE THIRD PARTY COMPLAINT
 1. That summons be issued against Third-Party Defendants Araneta Institute of Agriculture,
Jose N. Quedding and Li Ching Yao;
2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for whatever is
adjudged against the latter in favor of the Plaintiffs;
3. That Third-Party Defendants be ordered to pay attorney's fees as may be proved during trial;
4. That Third-Party Defendants be ordered to pay the costs.
Other just and equitable reliefs are also prayed for." 18
The Answer with Third-Party Complaint was admitted by the trial court without the requisite payment of filing fees,
particularly on the Go's prayer for damages. 19 The trial court did not award the Go's any damages. It dismissed the third-
party complaint. The Court of Appeals, however, granted the third-party complaint in part by ordering third-party defendant
Jose N. Quedding to pay the Go's the sum of P5,000.00 as attorney's fees.
Contrary to petitioners' claim, the Court of Appeals did not err in awarding damages despite the Go's failure to
specify the amount prayed for and pay the corresponding additional filing fees thereon. The claim for attorney's fees refers
to damages arising after the filing of the complaint against the Go's. The additional filing fee on this claim is deemed to
constitute a lien on the judgment award. 20
The Court of Appeals found that the subject portion is actually forty-two (42) square meters in area, not forty-five
(45), as initially found by the trial court; that this forty-two (42) square meter portion is on the entire eastern side of Lot No.
24 belonging to petitioners; that on this said portion is found the concrete fence and pathway that extends from
respondent Winston Go's house on adjacent Lot No. 25; that inclusive of the subject portion, respondents Go did not gain
nor lose any portion of Lots Nos. 25 and 26; that instead, Lot No. 27, on which respondent Li Ching Yao built his house,
encroached on the land of respondents Go, gaining in the process thirty-seven (37) square meters of the latter's land. 21
We hold that the Court of Appeals correctly dismissed the third-party complaint against AIA. The claim that the
discrepancy in the lot areas was due to AIA's fault was not proved. The appellate court, however, found that it was the
erroneous survey by Engineer Quedding that triggered these discrepancies. And it was this survey that respondent
Winston Go relied upon in constructing his house on his father's land. He built his house in the belief that it was entirely
within the parameters of his father's land. In short, respondents Go had no knowledge that they encroached on petitioners'
lot. They are deemed builders in good faith 22 until the time petitioner Ballatan informed them of their encroachment on
her property. 23
Respondent Li Ching Yao built his house on his lot before any of the other parties did. 24 He constructed his
house in 1982, respondents Go in 1983, and petitioners in 1985. 25 There is no evidence, much less, any allegation that
respondent Li Ching Yao was aware that when he built his house he knew that a portion thereof encroached on
respondents Go's adjoining land. Good faith is always presumed, and upon him who alleges bad faith on the part of a
possessor rests the burden of proof. 26
All the parties are presumed to have acted in good faith. Their rights must, therefore, be determined in
accordance with the appropriate provisions of the Civil Code on property. LLphil
Article 448 of the Civil Code provides:
"Art. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, 27 or to oblige the one who built or planted to pay the
price of the land, and the one who sowed the proper rent. However, the builder or planter cannot be
obliged to buy the land if its value is considerably more than that of the building or trees. In such case,
he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof."

The 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 building, planting or sowing, after payment to the builder, planter or sower of the necessary
and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure. The owner of the land may
also oblige the builder, planter or sower to purchase and pay the price of the land. If the owner chooses to sell his
land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements
thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more
than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the
land. If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof. The
 right to choose between appropriating the improvement or selling the land on which the improvement stands to the
builder, planter or sower, is given to the owner of the land. 28

Article 448 has been applied to improvements or portions of improvements built by mistaken belief on land
belonging to the adjoining owner. 29 The facts of the instant case are similar to those in Cabral v.  Ibanez, 30 to wit:
"[P]laintiffs Geronima Zabala and her husband Justino Bernardo, constructed their house in the
belief that it was entirely within the area of their own land without knowing at that time that part of their
house was occupying a 14-square meter portion of the adjoining lot belonging to the defendants, and
that the defendants Bernardo M. Cabral and Mamerta M. Cabral were likewise unaware of the fact that
a portion of plaintiff's house was extending and occupying a portion of their lot with an area of 14
square meters. The parties came to know of the fact that part of the plaintiff's house was occupying part
of defendant's land when the construction of plaintiff's house was about to be finished, after a relocation
of the monuments of the two properties had been made by the U.S. Army through the Bureau of Lands,
according to their 'Stipulation of Facts,' dated August 17, 1951."

On the basis of these facts, we held that:

"The Court, therefore, concludes that the plaintiffs are builders in good faith and the relative
rights of the defendant Mamerta Cabral as owner of the land and of the plaintiffs as owners of the
building is governed by Article 361 of the Civil Code (Co Tao  v. Joaquin Chan Chico, 46 Off. Gaz.
5514). Article 361 of the old Civil Code has been reproduced with an additional provision in Article 448
of the new Civil Code, approved June 18, 1949." 31
Similarly, in Grana and Torralba  v. Court of Appeals, 32 we held that:
"Although without any legal and valid claim over the land in question, petitioners, however,
were found by the Court of Appeals to have constructed a portion of their house thereon in good faith.
Under Article 361 of the old Civil Code (Article 448 of the new), the owner of the land on which anything
has been built in good faith shall have the right to appropriate as his own the building, after payment to
the builder of necessary or useful expenses, and in the proper case, expenses for pure luxury or mere
pleasure, or to oblige the builder to pay the price of the land. Respondents, as owners of the land, have
therefore the choice of either appropriating the portion of petitioners' house which is on their land upon
payment of the proper indemnity to petitioners, or selling to petitioners that part of their land on which
stands the improvement. It may here be pointed out that it would be impractical for respondents to
choose to exercise the first alternative, i.e., buy that portion of the house standing on their land, for in
that event the whole building might be rendered useless. The more workable solution, it would seem, is
for respondents to sell to petitioners that part of their land on which was constructed a portion of the
latter's house. If petitioners are unwilling or unable to buy, then they must vacate the land and must pay
rentals until they do so. Of course, respondents cannot oblige petitioners to buy the land if its value is
considerably more than that of the aforementioned portion of the house. If such be the case, then
petitioners must pay reasonable rent. The parties must come to an agreement as to the conditions of
the lease, and should they fail to do so, then the court shall fix the same." 33
In light of these rulings, petitioners, as owners of Lot No. 24, may choose to purchase the improvement made by
respondents Go on their land, or sell to respondents Go the subject portion. If buying the improvement is impractical as it
may render the Go's house useless, then petitioners may sell to respondents Go that portion of Lot No. 24 on which their
improvement stands. If the Go's are unwilling or unable to buy the lot, then they must vacate the land and, until they
vacate, they must pay rent to petitioners. Petitioners, however, cannot compel respondents Go to buy the land if its value
is considerably more than the portion of their house constructed thereon. If the value of the land is much more than the
Go's improvement, then respondents Go must pay reasonable rent. If they do not agree on the terms of the lease, then
they may go to court to fix the same.
In the event that petitioners elect to sell to respondents Go the subject portion of their lot, the price must be fixed
at the prevailing market value at the time of payment. The Court of Appeals erred in fixing the price at the time of taking,
which is the time the improvements were built on the land. The time of taking is determinative of just compensation in
expropriation proceedings. The instant case is not for expropriation. It is not a taking by the state of private property for a
public purpose upon payment of just compensation. This is a case of an owner who has been paying real estate taxes on
his land but has been deprived of the use of a portion of this land for years. It is but fair and just to fix compensation at the
time of payment. 34
Article 448 and the same conditions abovestated also apply to respondents Go as owners and possessors of their
land and respondent Li Ching Yao as builder of the improvement that encroached on thirty-seven (37) square meters of
respondents Go's land. cdll
 IN VIEW WHEREOF, the decision of respondent Court of Appeals is modified as follows:
(1) Petitioners are ordered to exercise within thirty (30) days from finality of this decision their option to either buy
the portion of respondents Go's improvement on their Lot No. 24, or sell to said respondents the portion of their land on
which the improvement stands. If petitioners elect to sell the land or buy the improvement, the purchase price must be at
the prevailing market price at the time of payment. If buying the improvement will render respondents Go's house useless,
then petitioners should sell the encroached portion of their land to respondents Go. If petitioners choose to sell the land
but respondents Go are unwilling or unable to buy, then the latter must vacate the subject portion and pay reasonable rent
from the time petitioners made their choice up to the time they actually vacate the premises. But if the value of the land is
considerably more than the value of the improvement, then respondents Go may elect to lease the land, in which case the
parties shall agree upon the terms of the lease. Should they fail to agree on said terms, the  court of origin is directed to fix
the terms of the lease.
From the moment petitioners shall have exercised their option, respondents Go shall pay reasonable monthly rent
up to the time the parties agree on the terms of the lease or until the court fixes such terms.
(2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos. 25 and 26,  vis-a-
vis respondent Li Ching Yao as builder of the improvement that encroached on thirty seven (37) square meters of
respondents Go's land in accordance with paragraph one abovementioned.
(3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party defendant, to pay attorney's
fees of P5,000.00 to respondents Go is affirmed. The additional filing fee on the damages constitutes a lien on this award.
(4) The Decision of the Court of Appeals dismissing the third-party complaint against Araneta Institute of
Agriculture is affirmed.
SO ORDERED.

|||  (Ballatan v. Court of Appeals, G.R. No. 125683, [March 2, 1999], 363 PHIL 408-424)

EN BANC

[G.R. No. 178902. April 21, 2010.]

MANUEL O. FUENTES and LETICIA L. FUENTES,  petitioners, vs. CONRADO G. ROCA,

ANNABELLE R. JOSON, ROSE MARIE R. CRISTOBAL and PILAR MALCAMPO,  respondents.

DECISION

ABAD,  J p:

This case is about a husband's sale of conjugal real property, employing a challenged affidavit of consent
from an estranged wife. The buyers claim valid consent, loss of right to declare nullity of sale, and prescription.

The Facts and the Case

Sabina Tarroza owned a titled 358-square meter lot in Canelar, Zamboanga City. On October 11, 1982 she
sold it to her son, Tarciano T. Roca (Tarciano) under a deed of absolute sale. 1 But Tarciano did not for the meantime
have the registered title transferred to his name.
Six years later in 1988, Tarciano offered to sell the lot to petitioners Manuel and
Leticia Fuentes (the Fuentes spouses). They arranged to meet at the office of Atty. Romulo D. Plagata whom they
asked to prepare the documents of sale. They later signed an agreement to sell that Atty. Plagata prepared  2 dated
April 29, 1988, which agreement expressly stated that it was to take effect in six months.
 The agreement required the Fuentes spouses to pay Tarciano a down payment of P60,000.00 for the transfer
of the lot's title to him. And, within six months, Tarciano was to clear the lot of structures and occupants and secure
the consent of his estranged wife, Rosario Gabriel Roca (Rosario), to the sale. Upon Tarciano's compliance with
these conditions, the Fuentes spouses were to take possession of the lot and pay him an additional P140,000.00 or
P160,000.00, depending on whether or not he succeeded in demolishing the house standing on it. If Tarciano was
unable to comply with these conditions, the Fuentes spouses would become owners of the lot without any further
formality and payment.
The parties left their signed agreement with Atty. Plagata who then worked on the other requirements of the
sale. According to the lawyer, he went to see Rosario in one of his trips to Manila and had her sign an affidavit of
consent. 3 As soon as Tarciano met the other conditions, Atty. Plagata notarized Rosario's affidavit in Zamboanga
City. On January 11, 1989 Tarciano executed a deed of absolute sale 4 in favor of the Fuentes spouses. They then
paid him the additional P140,000.00 mentioned in their agreement. A new title was issued in the name of the
spouses 5 who immediately constructed a building on the lot. On January 28, 1990 Tarciano passed away, followed
by his wife Rosario who died nine months afterwards. SacTCA
Eight years later in 1997, the children of Tarciano and Rosario, namely, respondents Conrado G.  Roca,
Annabelle R. Joson, and Rose Marie R. Cristobal, together with Tarciano's sister, Pilar R. Malcampo, represented by
her son, John Paul M. Trinidad (collectively, the Rocas), filed an action for annulment of sale and reconveyance of the
land against the Fuentes spouses before the Regional Trial Court (RTC) of Zamboanga City in Civil Case 4707. The
Rocas claimed that the sale to the spouses was void since Tarciano's wife, Rosario, did not give her consent to it. Her
signature on the affidavit of consent had been forged. They thus prayed that the property be reconveyed to them upon
reimbursement of the price that the Fuentes spouses paid Tarciano. 6
The spouses denied the Rocas' allegations. They presented Atty. Plagata who testified that he personally saw
Rosario sign the affidavit at her residence in Paco, Manila, on September 15, 1988. He admitted, however, that he
notarized the document in Zamboanga City four months later on January 11, 1989. 7 All the same,
the Fuentes spouses pointed out that the claim of forgery was personal to Rosario and she alone could invoke it.
Besides, the four-year prescriptive period for nullifying the sale on ground of fraud had already lapsed.
Both the Rocas and the Fuentes spouses presented handwriting experts at the trial. Comparing Rosario's
standard signature on the affidavit with those on various documents she signed, the Rocas' expert testified that the
signatures were not written by the same person. Making the same comparison, the spouses' expert concluded that
they were. 8
On February 1, 2005 the RTC rendered judgment, dismissing the case. It ruled that the action had already
prescribed since the ground cited by the Rocas for annulling the sale, forgery or fraud, already prescribed under
Article 1391 of the Civil Code four years after its discovery. In this case, the Rocas may be deemed to have notice of
the fraud from the date the deed of sale was registered with the Registry of Deeds and the new title was issued. Here,
the Rocas filed their action in 1997, almost nine years after the title was issued to the  Fuentes spouses on January
18, 1989. 9
Moreover, the Rocas failed to present clear and convincing evidence of the fraud. Mere variance in the
signatures of Rosario was not conclusive proof of forgery. 10 The RTC ruled that, although the Rocas presented a
handwriting expert, the trial court could not be bound by his opinion since the opposing expert witness contradicted
the same. Atty. Plagata's testimony remained technically unrebutted. 11
Finally, the RTC noted that Atty. Plagata's defective notarization of the affidavit of consent did not invalidate
the sale. The law does not require spousal consent to be on the deed of sale to be valid. Neither does the irregularity
vitiate Rosario's consent. She personally signed the affidavit in the presence of Atty. Plagata. 12
On appeal, the Court of Appeals (CA) reversed the RTC decision. The CA found sufficient evidence of forgery
and did not give credence to Atty. Plagata's testimony that he saw Rosario sign the document in Quezon City. Its jurat
said differently. Also, upon comparing the questioned signature with the specimen signatures, the CA noted significant
variance between them. That Tarciano and Rosario had been living separately for 30 years since 1958 also reinforced
the conclusion that her signature had been forged.
Since Tarciano and Rosario were married in 1950, the CA concluded that their property relations were
governed by the Civil Code under which an action for annulment of sale on the ground of lack of spousal consent may
be brought by the wife during the marriage within 10 years from the transaction. Consequently, the action that the
Rocas, her heirs, brought in 1997 fell within 10 years of the January 11, 1989 sale.
Considering, however, that the sale between the Fuentes spouses and Tarciano was merely voidable, the CA
held that its annulment entitled the spouses to reimbursement of what they paid him plus legal interest computed from
the filing of the complaint until actual payment. Since the Fuentes spouses were also builders in good faith, they were
entitled under Article 448 of the Civil Code to payment of the value of the improvements they introduced on the lot.
The CA did not award damages in favor of the Rocas and deleted the award of attorney's fees to
the Fuentes spouses. 13
Unsatisfied with the CA decision, the Fuentes spouses came to this court by petition for review. 14

The Issues Presented

The case presents the following issues:

1. Whether or not Rosario's signature on the document of consent to her husband Tarciano's sale of
their conjugal land to the Fuentes spouses was forged;
2. Whether or not the Rocas' action for the declaration of nullity of that sale to the spouses already
prescribed; and
3. Whether or not only Rosario, the wife whose consent was not had, could bring the action to annul
that sale. HCTAEc

The Court's Rulings

Third. The Fuentes spouses point out that it was to Rosario, whose consent was not obtained, that the law
gave the right to bring an action to declare void her husband's sale of conjugal land. But here, Rosario died in 1990,
the year after the sale. Does this mean that the right to have the sale declared void is forever lost?
The answer is no. As stated above, that sale was void from the beginning. Consequently, the land remained
the property of Tarciano and Rosario despite that sale. When the two died, they passed on the ownership of the
property to their heirs, namely, the Rocas. 23 As lawful owners, the Rocas had the right, under Article 429 of the  Civil
Code, to exclude any person from its enjoyment and disposal.
In fairness to the Fuentes spouses, however, they should be entitled, among other things, to recover from
Tarciano's heirs, the Rocas, the P200,000.00 that they paid him, with legal interest until fully paid, chargeable against
his estate.
Further, the Fuentes spouses appear to have acted in good faith in entering the land and building
improvements on it. Atty. Plagata, whom the parties mutually entrusted with closing and documenting the transaction,
represented that he got Rosario's signature on the affidavit of consent. The  Fuentes spouses had no reason to
believe that the lawyer had violated his commission and his oath. They had no way of knowing that Rosario did not
come to Zamboanga to give her consent. There is no evidence that they had a premonition that the requirement of
consent presented some difficulty. Indeed, they willingly made a 30 percent down payment on the selling price months
earlier on the assurance that it was forthcoming. DHAcET
Further, the notarized document appears to have comforted the Fuentes spouses that everything was already
in order when Tarciano executed a deed of absolute sale in their favor on January 11, 1989. In fact, they paid the
balance due him. And, acting on the documents submitted to it, the Register of Deeds of Zamboanga City issued a
new title in the names of the Fuentes spouses. It was only after all these had passed that the spouses entered the
property and built on it. He is deemed a possessor in good faith, said Article 526 of the Civil Code, who is not aware
that there exists in his title or mode of acquisition any flaw which invalidates it.
As possessor in good faith, the Fuentes spouses were under no obligation to pay for their stay on the property
prior to its legal interruption by a final judgment against them. 24 What is more, they are entitled under Article 448 to
indemnity for the improvements they introduced into the property with a right of retention until the reimbursement is
made. Thus:
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)
The Rocas shall of course have the option, pursuant to Article 546 of the Civil Code, 25 of indemnifying
the Fuentes spouses for the costs of the improvements or paying the increase in value which the property may have
acquired by reason of such improvements. 
 WHEREFORE, the Court DENIES the petition and AFFIRMS WITH MODIFICATION the decision of the Court
of Appeals in CA-G.R. CV 00531 dated February 27, 2007 as follows:
1. The deed of sale dated January 11, 1989 that Tarciano T. Roca executed in favor of Manuel
O. Fuentes, married to Leticia L. Fuentes, as well as the Transfer Certificate of Title T-90,981
that the Register of Deeds of Zamboanga City issued in the names of the latter spouses
pursuant to that deed of sale are DECLARED void;
2. The Register of Deeds of Zamboanga City is DIRECTED to reinstate Transfer Certificate of Title
3533 in the name of Tarciano T. Roca, married to Rosario Gabriel;
3. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose Marie R. Cristobal, and Pilar Malcampo
are ORDERED to pay petitioner spouses Manuel and Leticia Fuentes the P200,000.00 that the
latter paid Tarciano T. Roca, with legal interest from January 11, 1989 until fully paid,
chargeable against his estate;
4. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose Marie R. Cristobal, and Pilar Malcampo
are further ORDERED, at their option, to indemnify petitioner spouses Manuel and
Leticia Fuentes with their expenses for introducing useful improvements on the subject land or
pay the increase in value which it may have acquired by reason of those improvements, with
the spouses entitled to the right of retention of the land until the indemnity is made; and
5. The RTC of Zamboanga City from which this case originated is DIRECTED to receive evidence and
determine the amount of indemnity to which petitioner spouses Manuel and Leticia Fuentes are
entitled.
SO ORDERED.

|||  (Spouses Fuentes v. Roca, G.R. No. 178902, [April 21, 2010], 633 PHIL 9-24)

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  p:

Laws fill the gap in a contract.

 This Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court assails the December 29, 2006
Decision 2 and the February 12, 2007 Order 3 of the Regional Trial Court (RTC), Cagayan de Oro City, Branch 18, in Civil
Case No. 2005-158. HSDaTC
Factual Antecedents
Sometime in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell 4 with
petitioner Communities Cagayan, Inc., 5 whereby the latter agreed to sell to respondent-spouses a house and Lots 17
and 19 6 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, 7 for the price of
P368,000.00. 8 Respondent-spouses, however, did not avail of petitioner's in-house financing due to its high interest
rates. 9 Instead, they obtained a loan from Capitol Development Bank, a sister company of petitioner, using the property
as collateral. 10 To facilitate the loan, a simulated sale over the property was executed by petitioner in favor of
respondent-spouses. 11 Accordingly, titles were transferred in the names of respondent-spouses under Transfer
Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to Capitol Development Bank for loan
processing. 12 Unfortunately, the bank collapsed and closed before it could release the loan. 13
Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell 14 with petitioner over
the same property for the same price of P368,000.00. 15 This time, respondent-spouses availed of petitioner's in-house
financing 16 thus, undertaking to pay the loan over four years, from 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 notarized Notice of Delinquency and Cancellation
of Contract to Sell 20 due to the latter's failure to pay the monthly amortizations.
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. 21 When the case was referred
for mediation, respondent Angeles offered to pay P220,000.00 to settle the case but petitioner refused to accept the
payment. 22 The case was later 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, 24 docketed as Civil Case No. 2005-158, against respondent-spouses 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. 25 Thus, petitioner prayed that TCT Nos. T-105202 and T-105203 be cancelled, and 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, 27 respondent Angeles averred that the Deed of Absolute Sale is valid, and that petitioner is not
the proper party to file the complaint because petitioner is different from Masterplan Properties, Inc. 28 She also prayed
for damages by way of compulsory counterclaim. 29
In its Reply, 30 petitioner attached a copy of its Certificate of Filing of Amended Articles of
Incorporation 31 showing that Masterplan Properties, Inc. and petitioner are one and the same. As to 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. 34 But since the 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. 37 Thus, it disposed of the case in this wise: SITCcE
 WHEREFORE, the Court hereby declares the Deed of Absolute Sale VOID. Accordingly,
Transfer Certificate[s] 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 39 was denied in an
Order 40 dated February 12, 2007.

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 . . . THE ACTION [OF] THE [RTC] BRANCH 18 . . . 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 . . . . 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. 42 Petitioner claims that there is no legal basis for the RTC to 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. 43 Petitioner further 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, 44 and that instead of awarding 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. 46 She maintains that the Deed of Absolute Sale is valid. 47 Thus, the RTC
erred in cancelling TCT Nos. 105202 and 105203.

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." 48 For this reason, respondent Angeles may no longer question the
propriety and 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." 49 Otherwise stated, the issues for our resolution are:
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. AHCaED
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,  50 and upon full
payment of the cash surrender value to the buyer. 51 In other 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. 52 Until and unless the seller complies with these twin mandatory requirements, the contract to sell
between the parties remains valid and subsisting. 53 Thus, the buyer has the right to continue occupying the property
subject of the contract to sell, 54 and may "still reinstate the contract by updating the account during the grace period and
before the actual cancellation" 55 of the contract.
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 turn-over
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. ESCTaA
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, 56 they are entitled to receive the
cash 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. 57 In fact, petitioner is deemed
to have waived all factual issues since it appealed the case directly to this Court, 58 instead of elevating the matter to the
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 builders 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, 59 such as in the instant case. We went over the records of this case and 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, 60 or that, at least, he has a claim of title thereto. 61 Concededly, this is not present in
the instant case. The subject property is covered by a 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 63 notwithstanding 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 . . . ." 64 Soon after, conflict
between the 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: CSaITD
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, "[i]t 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 67 and 548 68 of the Civil Code; or (2) he may sell 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.  69 Quoted below
are the pertinent portions of our ruling in 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:
xxx xxx xxx
Until Visminda appropriately indemnities 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. TcCDIS
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. 70 (Emphasis supplied.)
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." 71 In the alternative, petitioner may sell the 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 72 and Technogas Philippines
Manufacturing Corporation  v. Court of Appeals, 73 we find it necessary to remand this case 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. DHTCaI
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 accordance 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.
d) The periods to be fixed by the trial court in its decision shall be non-extendible, and upon failure of
the party obliged to tender to the trial court the amount due to the obligee, the party entitled to
such payment shall be entitled to an order of execution for the enforcement of payment of the
amount due and for compliance with such other acts as may be required by the prestation due
the obligee. ETHSAI
SO ORDERED.

|||  (Communities Cagayan, Inc. v. Spouses Nanol, G.R. No. 176791, [November 14, 2012], 698 PHIL 648-669)

FIRST DIVISION

[G.R. No. 157150. September 21, 2011.]

 PEDRO ANGELES, Represented by ADELINA T. ANGELES, Attorney-in Fact,  petitioner, vs.
ESTELITA B.  PASCUAL, MARIA THERESA  PASCUAL, NERISSA  PASCUAL, IMELDA  PASCUAL,
MA. LAARNI  PASCUAL  and EDWIN PASCUAL, respondents.

RESOLUTION

BERSAMIN, J  p:

Antecedents

Neighbors Regidor Pascual (Pascual) and Pedro Angeles (Angeles) were registered owners of adjacent

parcels of land located in Cabanatuan City. Pascual owned Lot 4, Block 2 (Lot 4) of the consolidation-subdivision plan
(LRC) Psd-951, a portion of the consolidation of Lots 1419-B-2B-3, 1419-B-2-B-4 and 1419-B-2-B-5, Psd- 9016, LGC
(GLRO). Angeles owned Lot 5, Block 2 (Lot 5) of the same consolidation-subdivision plan covered by TCT No. T-9459
of the Registry of Deeds of Nueva Ecija. 3 Each of them built a house on his respective lot, believing all the while that
his respective lot was properly delineated. It was not until Metropolitan Bank and Trust Company (Metrobank), as the
highest bidder in the foreclosure sale of the adjacent Lot 3, Block 2 (Lot 3), caused the relocation survey of Lot 3 that
the geodetic engineer discovered that Pascual's house had encroached on Lot 3. As a consequence, Metrobank
successfully ejected Pascual.
In turn, Pascual caused the relocation survey of his own Lot 4 and discovered that Angeles' house also
encroached on his lot. Of the 318 square meters comprising Lot 4, Angeles occupied 252 square meters,
leaving Pascual with only about 66 square meters. Pascual demanded rentals for the use of the encroached area of
Lot 4 from Angeles, or the removal of Angeles' house. Angeles refused the demand.
Accordingly, Pascual sued Angeles for recovery of possession and damages in the Regional Trial Court (RTC) in
Cabanatuan City.
xxx
In its decision of November 3, 1998, 7 the RTC held that there was no dispute that Pascual and Angeles were
the respective registered owners of Lot 4 and Lot 5; that what was disputed between them was the location of their
respective lots; that Pascual proved Angeles' encroachment on Lot 4 by preponderant evidence; and
that Pascual was entitled to relief. The RTC thus disposed:
Angeles appealed to the CA.
On January 31, 2002, the CA affirmed the RTC, 9 and held that as between the findings of the geodetic
engineer (Fajardo) who had actually gone to the site and those of the other (Fernandez) who had based his findings
on the TCTs of the owners of the three lots, those of the former should prevail. However, the CA, modifying the RTC's
ruling, applied Article 448 of the Civil Code  (which defined the rights of a builder, sower and planter in good faith).
The decision decreed thus: 10
Angeles expectedly sought reconsideration, but the CA denied his motion on February 13, 2003.

Issues

Hence, Angeles appeals, assailing: (a) the credence the CA accorded to the testimony and relocation plan of
Fajardo as opposed to the survey plan prepared by Fernandez; and (b) the options laid down by the CA,  i.e.,
for Pascual either to buy the portion of Angeles' house or to sell to Angeles the portion of his land occupied
by Angeles were contrary to its finding of good faith.

Ruling

The petition lacks merit.

II

Angeles was a builder in good faith

 To be next determined is whether the CA's application of Article 448 of the Civil Code  was correct and proper.
Article 448 of the  Civil Code provides thusly:
Article 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged
to buy the land if its value is considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the
court shall fix the terms thereof.
The provision contemplates a person building, or sowing, or planting in good faith on land owned by another.
The law presupposes that the land and the building or plants are owned by different persons, like here. The RTC and
CA found and declared Angeles to be a builder in good faith. We cannot veer away from their unanimous conclusion,
which can easily be drawn from the fact that Angeles insists until now that he built his house entirely on his own
lot. Good faith consists in the belief of the builder that the land he is building on is his and in his ignorance of a defect
or flaw in his title. 15
With the unassailable finding that Angeles' house straddled the lot of Pascual, and that Angeles had built his
house in good faith, Article 448 of the Civil Code, which spells out the rights and obligations of the owner of the land
as well as of the builder, is unquestionably applicable. Consequently, the land being the principal and the building the
accessory, preference is given to Pascual as the owner of the land to make the choice as between appropriating the
building or obliging Angeles as the builder to pay the value of the land. Contrary to the insistence of  Angeles,
therefore, no inconsistency exists between the finding of good faith in his favor and the grant of the reliefs set forth in
Article 448 of the  Civil Code.
WHEREFORE, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision
promulgated on January 31, 2002 by the Court of Appeals in C.A.-G.R. CV No. 61600. No pronouncement on costs of
suit. ADcEST
SO ORDERED.

|||  (Angeles v. Pascual, G.R. No. 157150 (Resolution), [September 21, 2011], 673 PHIL 499-508)

FIRST DIVISION

[G.R. No. 170923. January 20, 2009.]

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

DECISION

PUNO,  C.J p:

The facts are as follows:

Respondent Nayong Pilipino Foundation, a government-owned and controlled corporation, is the owner of a
parcel of land in Pasay City, known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel, Inc. (PVHI),
formerly called Sulo sa Nayon, Inc., is a domestic corporation duly organized and existing under Philippine laws.
Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice President. SEcADa
 On June 1, 1975, respondent leased a portion of the Nayong Pilipino Complex, consisting of 36,289 square
meters, to petitioner Sulo sa Nayon, Inc. for the construction and operation of a hotel building, to be known as the
Philippine Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It is renewable for a period
of 25 years under the same terms and conditions upon due notice in writing to respondent of the intention to renew at
least 6 months before its expiration. Thus, on March 7, 1995, petitioners sent respondent a letter notifying the latter of
their intention to renew the contract for another 25 years. On July 4, 1995, the parties executed a Voluntary
Addendum to the Lease Agreement. The addendum was signed by petitioner Jose Marcel E. Panlilio in his official
capacity as Senior Executive Vice President of the PVHI and by Chairman Alberto A. Lim of the Nayong Pilipino
Foundation. They agreed to the renewal of the contract for another 25 years, or until 2021. Under the new agreement,
petitioner PVHI was bound to pay the monthly rental on a per square meter basis at the rate of P20.00 per square
meter, which shall be subject to an increase of 20% at the end of every 3-year period. At the time of the renewal of the
lease contract, the monthly rental amounted to P725,780.00.
Beginning January 2001, petitioners defaulted in the payment of their monthly rental. Respondent repeatedly
demanded petitioners to pay the arrears and vacate the premises. The last demand letter was sent on March 26,
2001.
On September 5, 2001, respondent filed a complaint for unlawful detainer before the MeTC of Pasay City.
The complaint was docketed as Civil Case No. 708-01. Respondent computed the arrears of petitioners in the amount
of twenty-six million one hundred eighty-three thousand two hundred twenty-five pesos and fourteen centavos
(P26,183,225.14), as of July 31, 2001.
On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus:
. . . . The court is convinced by the evidence that indeed, defendants defaulted in the payment
of their rentals. It is basic that the lessee is obliged to pay the price of the lease according to the terms
stipulated (Art. 1657, Civil Code). Upon the failure of the lessee to pay the stipulated rentals, the lessor
may eject (sic) and treat the lease as rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v.
Tiglao, 53 Phil. 1). For non-payment of rentals, the lessor may rescind the lease, recover the back
rentals and recover possession of the leased premises. . . ACEIac
xxx xxx xxx
. . . . Improvements made by a lessee such as the defendants herein on leased premises are
not valid reasons for their retention thereof. The Supreme Court has occasion to address a similar issue
in which it ruled that: "The fact that petitioners allegedly made repairs on the premises in question is not
a reason for them to retain the possession of the premises. There is no provision of law which grants
the lessee a right of retention over the leased premises on that ground. Article 448 of the  Civil Code, in
relation to Article 546, which provides for full reimbursement of useful improvements and retention of
the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who
builds on a land in the belief that he is the owner thereof. This right of retention does not apply to a
mere lessee, like the petitioners, otherwise, it would always be in his power to "improve" his landlord
out of the latter's property (Jose L. Chua and Co Sio Eng  vs. Court of Appeals and Ramon Ibarra, G.R.
No. 109840, January 21, 1999)."
Although the Contract of Lease stipulates that the building and all the improvements in the
leased premises belong to the defendants herein, such will not defeat the right of the plaintiff to its
property as the defendants failed to pay their rentals in violation of the terms of the contract. At most,
defendants can only invoke [their] right under Article 1678 of the New Civil Code which grants them the
right to be reimbursed one-half of the value of the building upon the termination of the lease, or, in the
alternative, to remove the improvements if the lessor refuses to make reimbursement. TEDaAc
The dispositive portion of the decision reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Nayong Pilipino
Foundation, and against the defendant Philippine Village Hotel, Inc[.], and all persons claiming rights
under it, ordering the latter to:
1. VACATE the subject premises and surrender possession thereof to plaintiff;
The complaint against defendant Jose Marcel E. Panlilio is hereby dismissed for lack of cause
of action. The said defendant's counterclaim however is likewise dismissed as the complaint does not
appear to be frivolous or maliciously instituted.
SO ORDERED. 5
Petitioners appealed to the RTC which modified the ruling of the MeTC. It held that:
 . . . it is clear and undisputed that appellants-lessees were expressly required to construct a
first-class hotel with complete facilities. The appellants were also unequivocally declared in the Lease
Agreement as the owner of the improvements so constructed. They were even explicitly allowed to use
the improvements and building as security or collateral on loans and credit accommodations that the
Lessee may secure for the purpose of financing the construction of the building and other
improvements (Section 2; pars. "A" to "B", Lease Agreement). Moreover, a time frame was
setforth (sic) with respect to the duration of the lease initially for 21 years and renewable for another 25
years in order to enable the appellants-lessees to recoup their huge money investments relative to the
construction and maintenance of the improvements.
xxx xxx xxx
Considering therefore, the elements of permanency of the construction and substantial value of
the improvements as well as the undispute[d] ownership over the land improvements, these, immensely
engender the application of Art. 448 of the Civil Code.The only remaining and most crucial issue to be
resolved is whether or not the appellants as builders have acted in good faith in order for Art. 448 in
relation to Art. 546 of the Civil Code may apply with respect to their rights over improvements. ADHaTC
xxx xxx xxx
. . . it is undeniable that the improvement of the hotel building of appellants (sic) PVHI was
constructed with the written consent and knowledge of appellee. In fact, it was precisely the primary
purpose for which they entered into an agreement. Thus, it could not be denied that appellants
were  builders in good faith.
Accordingly, and pursuant to Article 448 in relation to Art. 546 of the Civil Code, plaintiff-
appellee has the sole option or choice, either to appropriate the building, upon payment of proper
indemnity consonant to Art. 546 or compel the appellants to purchase the land whereon the building
was erected. Until such time that plaintiff-appellee has elected an option or choice, it has no right of
removal or demolition against appellants unless after having selected a compulsory sale, appellants fail
to pay for the land (Ignacio vs. Hilario; 76 Phil. 605). This, however, is without prejudice from the parties
agreeing to adjust their rights in some other way as they may mutually deem fit and proper.
The dispositive portion of the decision of the RTC reads as follows:
WHEREFORE, and in view of the foregoing, judgment is hereby rendered modifying the
decision of [the] MTC, Branch 45 of Pasay City rendered on February 26, 2002 as follows:
SO ORDERED. 6
Respondent appealed to the CA which held that the RTC erroneously applied the rules on accession, as found in
Articles 448 and 546 of the Civil Code when it held that petitioners were builders in good faith and, thus, have the right to
indemnity. The CA held:
By and large, respondents are admittedly mere lessees of the subject premises and as such,
cannot validly claim that they are builders in good faith in order to solicit the application of Articles 448
and 546 of the Civil Code in their favor. As it is, it is glaring error on the part of the RTC to apply the
aforesaid legal provisions on the supposition that the improvements, which are of substantial value, had
been introduced on the leased premises with the permission of the petitioner. To grant the respondents
the right of retention and reimbursement as builders in good faith merely because of the valuable and
substantial improvements that they introduced to the leased premises plainly contravenes the law and
settled jurisprudential doctrines and would, as stated, allow the lessee to easily "improve" the lessor out
of its property. IAEcCa
. . . . Introduction of valuable improvements on the leased premises does not strip the petitioner
of its right to avail of recourses under the law and the lease contract itself in case of breach thereof.
Neither does it deprive the petitioner of its right under Article 1678 to exercise its option to acquire the
improvements or to let the respondents remove the same.
Petitioners' Motion for Reconsideration was denied.
Hence, this appeal. 7
Petitioners assign the following errors:
I
 THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT
HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE SUBSTANTIAL AND
VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON THE SUBJECT PROPERTY,
THUS COMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO
ARTICLE 546 OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE. DAaHET
II
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR WHEN IT
DISREGARDED THE FACT THAT THE LEASE CONTRACT GOVERNS THE RELATIONSHIP OF
THE PARTIES AND CONSEQUENTLY THE PARTIES MAY BE CONSIDERED TO HAVE IMPLIEDLY
WAIVED THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE TO THE INSTANT CASE.
III
ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT BUILDERS IN GOOD FAITH, THE
HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT
OVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN BAD FAITH WHEN IT DID NOT
HONOR AND INSTEAD BREACHED THE LEASE CONTRACT BETWEEN THE PARTIES, THUS
BOTH PARTIES ACTED AS IF THEY ARE IN GOOD FAITH.
IV
TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD OF ARTICLE
448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE WOULD NOT ONLY
WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS AND INTERESTS OF
PETITIONER PHILIPPINE VILLAGE HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINO
FOUNDATION, IN COMPARISON THERETO, WOULD SUFFER ONLY SLIGHT OR
INCONSEQUENTIAL INJURY OR LOSS, BUT ALSO WOULD CONSTITUTE UNJUST ENRICHMENT
ON THE PART OF RESPONDENT AT GREAT EXPENSE AND GRAVE PREJUDICE OF
PETITIONERS. ATSIED
xxx
Second, we resolve the main issue of whether the rules on accession, as found in Articles 448 and 546 of
the Civil Code, apply to the instant case.
Article 448 and Article 546 provide:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged
to buy the land if its value is considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the
court shall fix the terms thereof.
Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor. cSCADE
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof.
We uphold the ruling of the CA.
The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:
This article [Article 448] is manifestly intended to apply only to a case where one builds, plants,
or sows on land in which he believes himself to have a claim of title, 10 and not to lands where the only
interest of the builder, planter or sower is that of a holder, such as a tenant. 11
In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees, they recognize
that the respondent is the owner of the land. What petitioners insist is that because of the improvements, which are of
substantial value, that they have introduced on the leased premises with the permission of respondent, they should be
 considered builders in good faith who have the right to retain possession of the property until reimbursement by
respondent.
We affirm the ruling of the CA that introduction of valuable improvements on the leased premises does not
give the petitioners the right of retention and reimbursement which rightfully belongs to a builder in good faith.
Otherwise, such a situation would allow the lessee to easily "improve" the lessor out of its property. We reiterate the
doctrine that a lessee is neither a builder in good faith nor in bad faith 12 that would call for the application of Articles
448 and 546 of the Civil Code.His rights are governed by Article 1678 of the Civil Code, which reads: AaEDcS
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use
for which the lease is intended, without altering the form or substance of the property leased, the lessor
upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that
time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements,
even though the principal thing may suffer damage thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but
he may remove the ornamental objects, provided no damage is caused to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.

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

Petitioners argue that to apply Article 1678 to their case would result to sheer injustice, as it would amount to
giving away the hotel and its other structures at virtually bargain prices. They allege that the value of the hotel and its
appurtenant facilities amounts to more than two billion pesos, while the monetary claim of respondent against them
only amounts to a little more than twenty six-million pesos. Thus, they contend that it is the lease contract that
governs the relationship of the parties, and consequently, the parties may be considered to have impliedly waived the
application of Article 1678.
We cannot sustain this line of argument by petitioners. Basic is the doctrine that laws are deemed
incorporated in each and every contract. Existing laws always form part of any contract. Further, the lease contract in
the case at bar shows no special kind of agreement between the parties as to how to proceed in cases of default or
breach of the contract. Petitioners maintain that the lease contract contains a default provision which does not give
respondent the right to appropriate the improvements nor evict petitioners in cases of cancellation or termination of
the contract due to default or breach of its terms. They cite paragraph 10 of the lease contract, which provides that:
10. DEFAULT. — . . . Default shall automatically take place upon the failure of the LESSEE to
pay or perform its obligation during the time fixed herein for such obligations without necessity of
demand, or, if no time is fixed, after 90 days from the receipt of notice or demand from the
LESSOR. . . CIHAED
In case of cancellation or termination of this contract due to the default or breach of its terms,
the LESSEE will pay all reasonable attorney's fees, costs and expenses of litigation that may be
incurred by the LESSOR in enforcing its rights under this contract or any of its provisions, as well as all
unpaid rents, fees, charges, taxes, assessment and others which the LESSOR may be entitled to.
Petitioners assert that respondent committed a breach of the lease contract when it filed the ejectment suit
against them. However, we find nothing in the above quoted provision that prohibits respondent to proceed the way it
did in enforcing its rights as lessor. It can rightfully file for ejectment to evict petitioners, as it did before the court a
quo.
IN VIEW WHEREOF, petitioners' appeal is DENIED. The October 4, 2005 Decision of the Court of Appeals in
CA-G.R. SP No. 74631 and its December 22, 2005 Resolution are AFFIRMED. Costs against petitioners.
SO ORDERED.
Carpio, Corona, Azcuna and  Leonardo-de Castro, JJ., concur.

|||  (Sulo sa Nayon, Inc. v. Nayong Pilipino Foundation, G.R. No. 170923, [January 20, 2009], 596 PHIL 715-728)
 FIRST DIVISION

[G.R. No. 165907. July 27, 2009.]

SPS. DOMINADOR R. NARVAEZ and LILIA W. NARVAEZ, petitioners, vs. SPS. ROSE

OGAS ALCISO  and ANTONIO  ALCISO, respondents.

DECISION

CARPIO,  J p:

The Facts

Larry A. Ogas (Ogas) owned a 1,329-square meter parcel of land situated in Pico, La Trinidad, Benguet. The
property was covered by Transfer Certificate of Title (TCT) No. T-1068, and a portion was subject to a 30-year lease
agreement 4 with Esso Standard Eastern, Inc. Ogas sold the property to his daughter Rose O. Alciso (Alciso). TCT
No T-1068 was cancelled and TCT No. T-12422 5 was issued in the name of Alciso.
On 25 August 1979, Alciso entered into a Deed of Sale with Right to Repurchase, 6 selling the property to
Jaime Sansano (Sansano) for P10,000. Alciso later repurchased the property from Sansano and, on 28 March 1980,
she entered into another Deed of Absolute Sale, 7 this time selling the property to Celso S. Bate (Bate) for P50,000.
The Deed stated that:
The SELLER warrants that her title to and ownership of the property herein conveyed are free
from all liens and encumbrances except those as appear on the face of the title, specifically, that lease
over the said property in favor of ESSO STANDARD EASTERN, INC., the rights over which as a lessor
the SELLER likewise hereby transfers in full to the buyer. 8 cHECAS
TCT No. T-12422 was cancelled and TCT No. T-16066 9 was issued in the name of Bate. On 14 August
1981, Bate entered into a Deed of Sale of Realty, 10 selling the property to the spouses Dominador R. Narvaez and
Lilia W. Narvaez (Spouses Narvaez) for P80,000. TCT No. T-16066 was cancelled and TCT No. T-16528 11 was
issued in the name of the Spouses Narvaez. In 1982, the Spouses Narvaez built a commercial building on the
property amounting to P300,000.
Alciso demanded that a stipulation be included in the 14 August 1981 Deed of Sale of Realty allowing her to
repurchase the property from the Spouses Narvaez. In compliance with Alciso's demand, the Deed stated that, "The
SELLER (Bate) carries over the manifested intent of the original SELLER of the property (Alciso) to buy back the
same at a price under such conditions as the present BUYERS (Spouses Narvaez) may impose." The
Spouses Narvaez furnished Alciso with a copy of the Deed.
Alciso alleged that she informed the Spouses Narvaez that she wanted to repurchase the property. The
Spouses Narvaez demanded P300,000, but Alciso was willing to pay only P150,000. Alciso and the
Spouses Narvaez failed to reach an agreement on the repurchase price.
In a Complaint 12 dated 15 June 1984 and filed with the RTC, Alciso prayed that (1) the 25 August 1979
Deed of Sale with Right to Repurchase, the 28 March 1980 Deed of Absolute Sale, and the 14 August 1981 Deed of
Sale of Realty be annulled; (2) the Register of Deeds be ordered to cancel TCT Nos. T-16066 and T-16528; (3) the
Spouses Narvaez be ordered to reconvey the property; and (4) Sansano, Bate, and the Spouses Narvaez be ordered
to pay damages, attorney's fees and expenses of litigation. Alciso claimed that the intention of the parties was to enter
into a contract of real estate mortgage and not a contract of sale with right of repurchase. She stated that:

The RTC's Ruling

 In its 6 April 1998 Decision, the RTC held that (1) the 25 August 1979 Deed of Sale with Right to Repurchase
became functus officio  when Alciso repurchased the property; (2) the action to annul the 28 March 1980 Deed of
Absolute Sale had prescribed; (3) Alciso had no legal personality to annul the 14 August 1981 Deed of Sale of Realty;
(4) the 14 August 1981 Deed of Sale of Realty contained a stipulation  pour autrui  in favor of Alciso — Alciso could
repurchase the property; (5) Alciso communicated to the Spouses Narvaez her acceptance of the favor contained in
the stipulation  pour autrui; (6) the repurchase price was P80,000; (7) Alciso could either appropriate the commercial
building after payment of the indemnity equivalent to one-half of its market value when constructed or sell the land to
the Spouses Narvaez; and (8) Alciso was entitled to P100,000 attorney's fees and P20,000 nominal damages.

The Spouses Narvaez appealed to the Court of Appeals. In their Appellants Brief 14 dated 21 November

2000, the Spouses Narvaez claimed that (1) the 14 August 1981 Deed of Sale of Realty did not contain a
stipulation pour autrui — not all requisites were present; (2) the RTC erred in setting the repurchase price at P80,000;
(3) they were purchasers for value and in good faith; and (4) they were builders in good faith.

The Court of Appeals' Ruling

In its 29 October 2004 Decision, the Court of Appeals held that (1) the 14 August 1981 Deed of Sale of Realty
contained a stipulation pour autrui; (2) Alciso accepted the favor contained in the stipulation  pour autrui; (3) the RTC
erred in setting the repurchase price at P80,000; (4) the 14 August 1981 Deed of Sale of Realty involved a contract of
sale with right of repurchase and not real estate mortgage; (5) the Spouses Narvaez were builders in good faith; and
(6) Alciso could either appropriate the commercial building after payment of the indemnity or oblige the
Spouses Narvaez to pay the price of the land, unless the price was considerably more than that of the building. The
Court of Appeals remanded the case to the RTC for determination of the property's reasonable repurchase price.

The Issue

The Spouses Narvaez elevated the case to the Court. In their Petition dated 15 December 2004, the
Spouses Narvaez claimed that Alciso did not communicate her acceptance of the favor contained in the
stipulation  pour autrui; thus, she could not repurchase the property. CDaSAE

The Court's Ruling

The petition is unmeritorious.

xxx
In its 29 October 2004 Decision, the Court of Appeals held that Bate and the Spouses Narvaez entered into a
sale with right of repurchase and that, applying Article 448 of the Civil Code, Alciso could either appropriate the
commercial building after payment of the indemnity or oblige the Spouses Narvaez to pay the price of the land, unless
the price was considerably more than that of the building. Article 448 states:
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 the trees. In such case, he
shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees
after proper indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.

The Court of Appeals stated that:

[T]he contract between defendants-appellants Bate and Narvaez spouses is a contract of sale

with a stipulation granting plaintiffs-appellees the right to repurchase the property at a reasonable price.
Being the absolute owners of the property in question, defendants-appellants Narvaez spouses have
the undisputed right to use, enjoy and build thereon.
Having built the improvement on the land they own and registered in their names, they are
likened to builders in good faith and their rights over the improvement shall be governed by Article 448
of the Civil Code which provides:
 ART. 448. The owner of the land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is considerably more than that of
the building or tress. * 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. HDcaAI
Applying said Article, plaintiffs-appellees, after repurchasing the land, will have the following
options:
(1) to appropriate for themselves the building upon payment of its value to defendants-
appellants Narvaez spouses; OR
(2) to compel the defendants-appellants Narvaez spouses to buy the land, unless the
value of thereof [sic] be considerably more than that of the building, in which case, said
spouses may lease the land instead. The parties shall agree upon the terms of the lease and in
case of disagreement, the courts shall fix the terms thereof. 23
The Court disagrees.
The rule is that only errors specifically assigned and properly argued in the appellant's brief will be
considered, except jurisdictional and clerical errors. 24 However, the Court is clothed with ample authority to review
matters not assigned as errors if their consideration is necessary in arriving at a just decision. 25
Article 448 is inapplicable in cases involving contracts of sale with right of repurchase — it is inapplicable
when the owner of the land is the builder, sower, or planter. In  Pecson  v. Court of Appeals, 26 the Court held that:
Article 448 does not apply to a case where the owner of the land is the builder, sower, or
planter who then later loses ownership of the land by sale or donation. This Court said so
in  Coleongco v. Regalado:
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 the works on his own land,
the issue of good faith or bad faith is entirely irrelevant. 
Article 448 is inapplicable in the present case because the Spouses Narvaez built the commercial building on
the land that they own. Besides, to compel them to buy the land, which they own, would be absurd.
As the Court of Appeals correctly observed, the terms of the 14 August 1981 Deed of Sale of Realty show
that Bate and the Spouses Narvaez entered into a sale with right of repurchase, where Bate transferred his right of
repurchase to Alciso. The Deed states that, "The SELLER (Bate) carries over the manifested intent of the original
SELLER of the property (Alciso) to buy back the same at a price under such conditions as the present BUYERS
(Spouses Narvaez) may impose." Article 1601 of the Civil Code states that, "Conventional redemption shall take place
when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of
Article 1616 and other stipulations which may have been agreed upon." In Gallar  v. Husain, 27 the Court held that
"the right of repurchase may be exercised only by the vendor in whom the right is recognized by contract or by any
person to whom the right may have been transferred."
In a sale with right of repurchase, the applicable provisions are Articles 1606 and 1616 of the  Civil Code, not
Article 448. Articles 1606 and 1616 state:
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall
last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the basis that the contract was a true sale with right to
repurchase. 
 Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the
vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by reason
of the sale;
(2) The necessary and useful expenses made on the thing sold. aCcEHS
Under Article 1616, Alciso may exercise her right of redemption by paying the Spouses Narvaez (1) the price
of the sale, (2) the expenses of the contract, (3) legitimate payments made by reason of the sale, and (4) the
necessary and useful expenses made on the thing sold. In the present case, the cost of the building constitutes a
useful expense. Useful expenses include improvements which augment the value of the land. 28
Under the first paragraph of Article 1606, Alciso had four years from 14 August 1981 to repurchase the
property since there was no express agreement as to the period when the right can be exercised. Tender of payment
of the repurchase price is necessary in the exercise of the right of redemption. Tender of payment is the seller's
manifestation of his or her desire to repurchase the property with the offer of immediate performance. 29
Alciso's intimation to the Spouses Narvaez that she wanted to repurchase the property was insufficient. To
have effectively exercised her right of repurchase, Alciso should have tendered payment. In Lee  v. Court of
Appeals, 30 the Court held that:
The rule that tender of payment of the repurchase price is necessary to exercise the right of
redemption finds support in civil law. Article 1616 of the Civil Code of the Philippines . . . furnishes the
guide, to wit: "The vendor cannot avail himself of the right of repurchase without returning to the vendee
the price of the sale . . ."
Thus, in the case of Angao  vs. Clavano, 17 Phil. 152, it was held that "it is not sufficient for the
vendor to intimate or to state to the vendee that the former desires to redeem the thing sold, but he
must immediately thereupon offer to repay the price . . ." Likewise, in several other cases decided by
the Supreme Court (Fructo vs. Fuentes, 15 Phil. 362; Retes  vs. Suelto, 20 Phil. 394;  Rosales  vs.
Reyes, et al., 25 Phil. 495;  Canuto  vs. Mariano, 37 Phil. 840;  De la Cruz, et al.  vs. Resurreccion, et
al., 98 Phil. 975; and other cases) where the right to repurchase was held to have been properly
exercised, there was a definite finding of tender of payment having been made by the vendor.
(Emphasis supplied.)
Nevertheless, under the third paragraph of Article 1606, Alciso has 30 days from the finality of this Decision to
exercise her right of repurchase. In Laserna  v. Javier, 31 the Court held that:
The new Civil Code in Article 1606, thereof gives the vendors  a retro "the right to repurchase
within thirty days from the time final judgment was rendered in a civil action, on the basis that the
contract was a true sale with the right to repurchase." This provision has been construed to mean that
"after the courts have decided by a final or executory judgment that the contract was a  pacto de
retro and not a mortgage, the vendor (whose claim as mortgagor had definitely been rejected) may still
have the privilege of repurchasing within 30 days." (Perez, et al. vs. Zulueta, 106 Phil., 264.) ECSHAD
The third paragraph of Article 1606 allows sellers, who considered the transaction they entered into as
mortgage, to repurchase the property within 30 days from the time they are bound by the judgment finding the
transaction to be one of sale with right of repurchase.
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 29 October 2004 Decision of the
Court of Appeals in CA-G.R. CV No. 63757 with MODIFICATION. Respondent Rose O. Alciso may exercise her right
of redemption by paying the petitioners Spouses Dominador R. Narvaez and Lilia W. Narvaez (1) the price of the sale,
(2) the expenses of the contract, (3) legitimate payments made by reason of the sale, and (4) the necessary and
useful expenses made on the subject property. The Court DIRECTS the Regional Trial Court, Judicial Region 1,
Branch 8, La Trinidad, Benguet, to determine the amounts of the expenses of the contract, the legitimate expenses
made by reason of the sale, and the necessary and useful expenses made on the subject property. After such
determination, respondent Rose O. Alciso shall have 30 days to pay the amounts to petitioners Spouses Dominador
R. Narvaez and Lilia W. Narvaez.
SO ORDERED.

|||  (Spouses Narvaez v. Spouses Alciso, G.R. No. 165907, [July 27, 2009], 611 PHIL 452-469)
 THIRD DIVISION

[G.R. No. 205664. June 9, 2014.]

DEPARTMENT OF EDUCATION, represented by its REGIONAL DIRECTOR TERESITA

DOMALANTA, petitioner, vs. MARIANO  TULIAO, respondent.

DECISION

MENDOZA, J  p:

This petition for review on certiorari under Rule 45 of the Rules of Court filed by

the Department of Education (DepEd) assails the January 31, 2013 Decision 1 of the Court of Appeals (CA) in G.R. SP
No. 123450 which dismissed DepEd's petition for review.

The Factual Antecedents:

On October 8, 2002, Mariano Tuliao (Tuliao) filed an action for recovery of possession and removal of structure

with damages against the Department of Education (DepEd) with the Municipal Trial Court in Cities of Tuguegarao
City (MTCC). He alleged that he was the registered owner of the subject parcel of land and that a portion of the said
property was allowed by his predecessors-in-interest to be used by the Atulayan Elementary School  (AES) as an access
road for the schoolchildren in going to and from the school. In March 2000, upon discovering that a structure was being
constructed on the land, he demanded that the DepED cease and desist and vacate the property. The respondent,
however, refused. Tuliao likewise demanded payment for reasonable rent, but his demand was also ignored.
In its defense, the DepEd denied the material allegations of the complaint and averred that it did not state a
cause of action. Even if there was, the same was already barred by prescription and/or laches. Its occupation of the
subject land was adverse, peaceful, continuous, and in the concept of an owner for more than fifty (50) years. It also
alleged that it did not receive a notice to cease and desist or notice to vacate. As owner of the school site, it could not be
compelled to pay rent or its reasonable value.
On January 26, 2010, the MTCC rendered its decision, ruling that Tuliao was the registered owner of the subject
property and, thus, had a right of action against the holder and possessor of the said property. Further, it found that
respondent's possession of the subject property was merely tolerated by Tuliao. For said reason, his right to recover it
was never barred by laches.
 As to the structures, the MTCC stated that it could not allow the immediate removal thereof in view of the
provisions of Article 448 2 of the New Civil Code and directed Tuliao to exercise his options under said article. Pertinent
portions of the MTCC decision, including the fallo reads:
Plaintiff's prayer that the structures built on his lot be removed immediately cannot be allowed
in view of the provision of Article 448.
WHEREFORE, premises considered, judgment is hereby rendered by:
1. Declaring the plaintiff to be the lawful possessor of the lot in suit;
2. Directing the plaintiff to exercise his option under the law (Article 448, Civil Code)
whether to appropriate the structures built on the lot in suit as his own by paying to the
defendant the amount of the expenses spent for the structures or to oblige the defendant to pay
the price of the land, and said option must be exercised and relayed to this court formally within
30 days from receipt of this decision and a copy of such notice must be furnished to the
defendant.
a. If in case the plaintiff exercises the option to appropriate the structures built on the lot in suit,
the defendant is hereby directed to submit to this court the amount of the expenses
spent for the structures within 15 days from receipt of the notice of the plaintiff of his
desired option.
b. If the plaintiff decides to oblige the defendant to pay the price of the land, the current market
value of the land including its improvements as determined by the City Assessor's
Office shall be the basis for the price thereof.
c. In case the plaintiff exercises the option to oblige the defendant to pay the price of the land
but the latter rejects such purchase because the value of the land is considerably more
than that of the structures, the parties shall agree upon the terms of a forced lease, and
give the court a formal written notice of such agreement and its provisos.
d. If no formal agreement shall be entered into within a reasonable period, the court shall fix the
terms of the forced lease.
xxx
So Ordered. 3
On appeal to the RTC, aside from the issue of inaction, the DepEd argued that Tuliao failed to sufficiently and
competently prove the identity of the property — the exact location, area and boundaries. The DepEd further claimed that
the material allegations of the complaint established one of accion reivindicatoria, and not accion publiciana,
because Tuliao raised the issue of ownership and made it the anchor of his claim for juridical possession.
Acting thereon, the RTC dismissed the appeal and affirmed the MTCC decision. It stated that "[i]f a party in accion
publiciana alleges that he owns the property in question, it is not ex sequitur that the action is a reinvindicatory one," and
that a claimant could assert ownership as basis of his claim of possession. 4 The RTC also wrote that Tuliao was able to
present evidence establishing a definite and unmistakable identification of the land and its ownership over the subject
property. Moreover, the DepEd's possession was with the acquiescence of Tuliao's predecessors-in-interest, thus, the
defense of laches was found weak. 5
Interestingly, despite having affirmed the MTCC decision, the RTC opined that the case was impressed with
public interest 6 and it was the paramount interest of the pupils who would be prejudiced by the finality and
execution of the appealed decision. 7 The RTC strongly suggested that the DepEd, or if unable, the City
Government of Tuguegarao City, be requested to pay Tuliao the just compensation of the land in question the
amount of which to be determined by a panel of three commissioners appointed by the court and whose determination
was to be approved by the said court. 8
Aggrieved, the DepEd elevated the case to the CA via a petition for review under Rule 42. Finding no merit, the
CA affirmed the RTC decision. It stated that the DepEd's reliance on the case of Bote  vs. San Pedro Cineplex Properties
Corporation 9 in arguing that Tuliao's certificate of title alone was inadequate to hand over possession of an unidentified
parcel of land was misplaced. In Bote, both parties asserted ownership and possession of the land and presented their
respective titles as evidence thereof. Hence, it was ruled therein that geodetic survey was necessary to determine whose
title actually covered the disputed property. 10
 In this case, however, only Tuliao presented a certificate of title as well as tax declaration and real property tax
receipts for the years 2003-2005. 11 The pieces of evidence Tuliao presented resolved the issue of who had the better
right of possession and dispensed with the need for the testimony of an expert witness. 12
Hence, the present petition.

ISSUES:

I.
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE REGIONAL TRIAL COURT
AND HOLDING THAT THERE IS A SUFFICIENT DESCRIPTION OF THE LAND IN DISPUTE.
II.
WHETHER THE COURT OF APPEALS ERRED IN AFFIRMING THE REGIONAL TRIAL COURT
AND HOLDING THAT PETITIONER'S POSSESSION WAS ONLY DUE TO THE ACQUIESCENCE
OR TOLERANCE OF HEREIN RESPONDENT.
Firstly, the DepEd has argued that Tuliao failed to discharge the burden of proving ownership over the disputed
property. It asserts that presentation of a certificate of title does not automatically entitle the claimant to possession; that
he has to first prove, by competent and reliable evidence, that the land he is claiming falls within his title; that the
allegations and declarations of a party with a certificate of title are inadequate; and that where a claimant asserts
ownership over a disputed property, it is essential that the boundaries of his title be correlated with the area claimed as
this might be a case of an owner mistaking another's property as one's own.
Secondly, the DepEd avers that its witness, Caridad Soriano, who was a retired teacher of AES and who had
taught at the said school for more than 30 years, testified that its possession of the subject land was open, continuous,
exclusive, notorious, and in the concept of an owner since 1970. AES has delineated its possession by fencing its
campus. Thus, whatever is within this fence is part of AES. 14
Thirdly, the DepEd declares that Tuliao has lost his right to recover by his inaction for thirty two (32) years. 15
After a scrutiny of the records, the Court is not swayed by DepEd's arguments.
xxx
Here, Tuliao, as the registered owner, filed a complaint for recovery of possession and removal of structure. To
support his claim, he presented not only tax declarations and tax receipts, but also a certificate  of title. The Court agrees
with the CA that the said pieces of evidence were sufficient to resolve the issue of who had the better right of possession.
That being the case, the burden was shifted to the DepEd to prove otherwise. Unfortunately, the DepEd only presented
testimonial evidence and nothing more to prove its defense and refute Tuliao's claim. Its lone witness was all that the
DepEd had to prove its right of possession. As between a certificate of title, which is an incontrovertible
proof of ownership, 19 accompanied with a tax declaration and a tax receipt on one hand, and a testimony  of a lone
witness who is a retired teacher on the other, the former prevails in establishing who has a better right  of possession over
the property, following the rule that testimonial evidence cannot prevail over documentary evidence. 20
As regards the DepEd's defense of laches, it has no merit either. It avers that its possession of the subject land
was open, continuous, exclusive, adverse, notorious and in the concept of an owner for at least thirty-two (32) years
already at the time Tuliao filed the complaint. It must be noted, however, that Tuliao's claim that the DepEd's
possession of a portion of his land to be used as a passageway for the students was mere tolerance was not refuted.
Thus, the same is deemed admitted. This means that the DepEd's possession was not truly adverse.
The Court once ruled that mere material possession of the land was not adverse as against the owner and was
insufficient to vest title, unless such possession was accompanied by the intent to possess as an owner.  21 Accordingly,
the DepEd's possession can only be considered as adverse from the time the gymnasium was being constructed in 1999
on the subject portion of Tuliao's property. In March 2000, Tuliao discovered the construction and demanded that the
DepEd cease and desist from continuing the same. When DepEd refused, Tuliao filed a complaint for
recovery of possession of the subject lot in 2002. Thus, only two (2) years had elapsed from the time the DepEd
resisted Tuliao's claims. Clearly, he did not sleep on his rights. There was no prolonged inaction that barred him from
prosecuting his claims. CHIScD
At any rate, the MTCC was fair when it stated that it could not order the immediately removal of the structures and
directed Tuliao to exercise his option under Article 448.
If that would not be feasible or practical for DepEd, its remedy is to file an action for expropriation.
 WHEREFORE, the petition is DENIED.
SO ORDERED.

|||  (Department of Education v. Tuliao, G.R. No. 205664, [June 9, 2014], 735 PHIL 703-713)

THIRD DIVISION

[G.R. No. 192268. January 27, 2016.]

DEPARTMENT OF EDUCATION, represented by its Regional Director,  petitioner,  vs. DELFINA

C. CASIBANG, ANGELINA C. CANAPI, ERLINDA C. BAJAN, LORNA G. GUMABAY, DIONISIA C.
ALONZO, MARIA C. BANGAYAN and DIGNA C. BINAYUG,  respondents.

DECISION

PERALTA, J  p:
For resolution of this Court is the Petition for Review on Certiorari, dated June 18,
2010, of petitioner Department of Education (DepEd), represented by its Regional Director seeking to reverse and set
aside the Decision 1 dated April 29, 2010 of the Court of Appeals (CA) affirming the Decision 2 dated January 10,
2008 of the Regional Trial Court  (RTC)  of Tuguegarao City, Cagayan, Branch 5, declaring the respondents the
owners of property in controversy and ordering the DepEd to pay the value of the property. ETHIDa
The antecedents follow:
The property in controversy is a seven thousand five hundred thirty-two (7,532) square meter portion of Lot
115 covered by Original Certificate of Title  (OCT) No. O-627 registered under the name of Juan Cepeda, the
respondents' late father. 3
Sometime in 1965, upon the request of the then Mayor Justo Cesar Caronan, Cepeda allowed the
construction and operation of a school on the western portion of his property. The school is now known as Solana
North Central School, operating under the control and supervision of the petitioner  DepEd. 4
 Despite Cepeda's death in 1983, the herein respondents and other descendants of Cepeda continued to
tolerate the use and possession of the property by the school. 5
Sometime between October 31, 2000 and November 2, 2000, the respondents entered and occupied a
portion of the property. Upon discovery of the said occupation, the teachers of the school brought the matter to the
attention of the barangay captain. The school officials demanded the respondents to vacate the property. 6 However,
the respondents refused to vacate the property, and asserted Cepeda's ownership of the lot. 7
On June 21, 2001, the DepEd filed a Complaint for Forcible Entry and Damages against respondents before
the Municipal Circuit Trial Court  (MCTC)  of Solana-Enrile. The MCTC ruled in favor of the petitioner and directed
respondents to vacate the premises. 8 On appeal, the RTC affirmed the decision of the MCTC. 9
Thereafter, respondents demanded the petitioner to either pay rent, purchase the area occupied, or vacate
the premises. DepEd did not heed the demand and refused to recognize the ownership of the respondents over the
property. 10
On March 16, 2004, the respondents filed an action for Recovery of Possession and/or Sum of Money against
the DepEd. 11 Respondents averred that since their late father did not have any immediate need of the land in 1965,
he consented to the building of the temporary structure and allowed the conduct of classes in the premises. They
claimed that they have been deprived of the use and the enjoyment of the portion of the land occupied by the school,
thus, they are entitled to just compensation and reasonable rent for the use of property. 12
In its Answer, the DepEd alleged that it owned the subject property because it was purchased by civic-minded
residents of Solana, Cagayan from Cepeda. It further alleged that contrary to respondents' claim that the occupation
is by mere tolerance, the property has always been occupied and used adversely, peacefully, continuously and in the
concept of owner for almost forty (40) years. 13 It insisted that the respondents had lost whatever right they had over
the property through laches. 14
During the trial, respondents presented,  inter alia, the OCT No. O-627 registered in the name of Juan
Cepeda; Tax Declarations also in his name and the tax receipts showing that they had been paying real property
taxes on the property since 1965. 15 They also presented the Technical Description of the lot by
the Department of Environment and Natural Resources Land Management Services showing that the subject property
was surveyed in the name of Cepeda and a certification from the Municipal Trial Court of Solana, Cagayan declaring
that Lot 115 was the subject of Cad Case No. N-13 in LRC Cad. Record No. N-200 which was adjudicated to
Cepeda. 16
On the other hand, despite notice and reset of hearing, the DepEd failed to present its evidence or witness to
substantiate its defense. 17
Consequently, the RTC considered the case submitted for decision and rendered a Decision dated January
10, 2008, finding that the respondents are the owners of the subject property, thus: TIADCc
WHEREFORE, judgment is hereby rendered.
1. Declaring plaintiffs as the owner of Lot 115 covered by Original Certificate of Title No. O-627.
2. Ordering the reconveyance of the portion of the subject property occupied by the Solana North
Central School, Solana, Cagayan. However, since restoration of possession of said portion by
the defendant Department of Education is no longer feasible or convenient because it is now
used for the school premises, the only relief available is for the government to pay due
compensation which should have [been] done years ago.
2.1 To determine due compensation for the Solana North Central School the basis should be
the price or value of the property at the time of taking.
3. No pronouncement as to cost.
SO ORDERED. 18
The DepEd, through the Office of the Solicitor General (OSG), appealed the case before the CA. In its appeal,
the DepEd insisted that the respondents have lost their right over the subject property for their failure to assert the
same for more than thirty (30) years, starting in 1965, when the Mayor placed the school in possession thereof. 19
The CA then affirmed the decision of the RTC. The dispositive portion of the said decision reads:
WHEREFORE, the appeal is DISMISSED, and the Decision dated 10 January 2008, of the
Regional Trial Court, Branch 5, Tuguegarao, Cagayan in Civil Case No. 6336 for
Recovery of Possession and/or Sum of Money, declaring plaintiffs as the owners of the property in
controversy, and ordering the Department of Education to pay them the value of the property taken is
AFFIRMED  in toto.
 SO ORDERED. 20
Aggrieved, the DepEd, through the OSG, filed before this Court the present petition based on the sole ground
that:
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S DECISION THAT
THE RESPONDENTS' RIGHT TO RECOVER THE POSSESSION OF THE SUBJECT PROPERTY
IS NOT BARRED BY PRESCRIPTION AND/OR LACHES. 21
This Court finds the petition without merit.
Laches, in a general sense, is the failure or neglect for an unreasonable and unexplained length of time, to do
that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert
a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it. 22
There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be
determined according to its particular circumstances. The question of laches is addressed to the sound
discretion of the court, and since laches is an equitable doctrine, its application is controlled by equitable
considerations. It cannot work to defeat justice or to perpetrate fraud and injustice. 23
Laches is evidentiary in nature, a fact that cannot be established by mere allegations in the pleadings. 24 The
following elements, as prescribed in the case of Go Chi Gun, et al. v. Co Cho, et al., 25 must be present to constitute
laches:
. . . (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation of which complaint is made for which the complaint seeks a remedy; (2) delay in asserting
the complainant's rights, the complainant having had knowledge or notice, of the defendant's conduct
and having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the
part of the defendant that the complainant would assert the right on which he bases his suit; and (4)
injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not
held to be barred. 26
To refute the respondents' claim that its possession of the subject lot was merely tolerated, the DepEd
averred that it owned the subject property because the land was purchased by the civic-minded
residents of Solana. 27 It further alleged that since it was the then Mayor who convinced Cepeda to allow the school
to occupy the property and use the same, it believed in good faith that the ownership of the property was already
transferred to it. 28
However, the DepEd did not present, in addition to the deed of sale, a duly-registered certificate of title in
proving the alleged transfer or sale of the property. Aside from its allegation, the DepEd did not adduce any evidence
to the transfer of ownership of the lot, or that Cepeda received any consideration for the purported sale.
On the other hand, to support their claim of ownership of the subject lot, respondents presented the following:
(1) the OCT No. O-627 registered in the name of Juan Cepeda; 29 (2) Tax Declarations in the name of Cepeda and
the tax receipts showing the payment of the real property taxes on the property since 1965; 30 (3) Technical
Description of the lot by the Department of Environment and Natural Resources Land Management Services,
surveyed in the name of Cepeda; 31 and (4) Certification from the Municipal Trial Court of Solana, Cagayan declaring
that Lot 115 was adjudicated to Cepeda. 32
After a scrutiny of the records, this Court finds that the above were sufficient to resolve the issue on who had
better right of possession. That being the case, it is the burden of the DepEd to prove otherwise. Unfortunately, the
DepEd failed to present any evidence to support its claim that the disputed land was indeed purchased by the
residents. By the DepEd's admission, it was the fact that the then Mayor of Solana, Cagayan convinced Cepeda to
allow the school to occupy the property for its school site that made it believe that the ownership  of the property was
already transferred to it. We are not swayed by the DepEd's arguments. As against the DepEd's unsubstantiated self-
serving claim that it acquired the property by virtue of a sale, the Torrens title of respondents must prevail. AIDSTE
It is undisputed that the subject property is covered by OCT No. O-627, registered in the name of the Juan
Cepeda. 33 A fundamental principle in land registration under the Torrens system is that a certificate  of title serves as
evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears
therein. 34 Thus, the certificate of title becomes the best proof of ownership of a parcel of land. 35
As registered owners of the lots in question, the respondents have a right to eject any person illegally
occupying their property. This right is imprescriptible. Even if it be supposed that they were aware  of the petitioner's
occupation of the property, and regardless of the length of that possession, the lawful owners have a right to demand
the return of their property at any time as long as the possession was unauthorized or merely tolerated, if at all. This
right is never barred by laches. 36
 Case law teaches that those who occupy the land of another at the latter's tolerance or permission, without
any contract between them, are necessarily bound by an implied promise that the occupants will vacate the property
upon demand. 37
In the case of Sarona, et al.  v. Villegas, et al., 38 this Court described what tolerated acts mean, in this
language:
Professor Arturo M. Tolentino states that acts merely tolerated are "those which by
reason of neighborliness or familiarity, the owner of property allows his neighbor or another
person to do on the property; they are generally those particular services or benefits which one's
property can give to another without material injury or prejudice to the owner, who permits them
out of friendship or courtesy." . . . . and, Tolentino continues, even though "this is continued for
a long time, no right will be acquired by prescription." . . . 39
It was out of respect and courtesy to the then Mayor who was a distant relative that Cepeda consented to the
building of the school. 40 The occupancy of the subject property by the DepEd to conduct classes therein arose from
what Professor Arturo Tolentino refers to as the sense of "neighborliness or familiarity" of Cepeda to the then Mayor
that he allowed the said occupation and use of his property.
Professor Tolentino, as cited in the Sarona  case, adds that tolerated acts are acts of little disturbances which
a person, in the interest  of  neighborliness or friendly relations,  permits others to do on his property, such as passing
over the land, tying a horse therein, or getting some water from a well.  41 In tolerated acts, the said permission of the
owner for the acts done in his property arises from an "impulse of sense of neighborliness or good familiarity with
persons" 42 or out of "friendship or courtesy," 43 and not out of duty or obligation. By virtue of tolerance that is
considered as an authorization, permission, or license, acts of possession are realized or performed. 44
Thus, in light of the DepEd's admission that it was the then Mayor who convinced Cepeda to allow its
use of his property and in the absence of evidence that the same was indeed sold to it, the occupation and use as
school site of the subject lot by the DepEd upon Cepeda's permission is considered a tolerated act. Cepeda allowed
the use of his property out of his respect, courtesy and familiarity with the then Mayor who convinced him to allow the
use of his property as a school site.
Considering that the occupation of the subject lot is by mere tolerance or permission of the respondents, the
DepEd, without any contract between them, is bound by an implied promise that it will vacate the same upon demand.
Hence, until such demand to vacate was communicated by the respondents to the DepEd, respondents are not
required to do any act to recover the subject land, precisely because they knew  of the nature of the DepEd's
possession which is by mere tolerance. SDAaTC
Therefore, respondents are not guilty of failure or neglect to assert a right within a reasonable time. The
nature of that possession by the DepEd has never changed from 1965 until the filing of the complaint for forcible entry
against the respondents on June 21, 2001. It was only then that the respondents had knowledge  of the adverse
claim of the DepEd over the property. The respondents filed the action for recovery of possession on March 16, 2004
after they lost their appeal in the forcible entry case and upon the continued refusal of the DepEd to pay rent,
purchase the lot or vacate the premises. 45
Lastly, the DepEd maintains that the respondents' inaction for more than 30 years reduced their right to
recover the subject property into a stale demand. It cited the case of Eduarte  v. CA, 46 Catholic Bishop of Balanga  v.
CA, 47 Mactan-Cebu International Airport Authority (MCIAA)  v. Heirs  of  Marcelina L. Sero, et al. 48 and DepEd
Division  of  Albay v. Oñate 49 to bolster its claim that a registered owner may lose his right to recover the
possession of his registered property by reason of laches. It alleged that the fact that the respondents possess the
certificate of title of the property is of no moment since a registered landowner, like the respondents, lost their right to
recover the possession of the registered property by reason of laches.
In the Eduarte case, the respondents therein knew of Eduarte's adverse possession of the subject lot as
evidenced by their Joint Affidavit dated March 18, 1959. In the case of Catholic Bishop  of  Balanga v. CA,  the
petitioner, by its own admission, was aware of private respondent's occupation in the concept of owner of the lot
donated in its behalf to private respondent's predecessor-in-interest in 1936. The subject lot in the case  of Mactan-
Cebu International Airport Authority was obtained through expropriation proceedings and registered in the name of the
petitioner. In the Oñate case, no evidence was presented to show that the respondent or his predecessor-in-interest
protested against the adverse possession of the disputed lot by the Municipality of Daraga and, subsequently, by the
petitioner.
Unlike the cases cited by the DepEd, there was no solid evidentiary basis to establish that laches existed in
the instant case. The DepEd failed to substantiate its claim of possession in the concept of an owner from the time it
occupied the lot after Cepeda allowed it to use the same for a school site in 1965. The possession by the
DepEd of the subject lot was clearly by mere tolerance, since it was not proven that it laid an adverse claim over the
property by virtue of the purported sale.
 Moreover, the trial court ruled that the DepEd is a builder in good faith. To be deemed a builder in good faith,
it is essential that a person asserts title to the land on which he builds, i.e.,  that he be a possessor in the
concept of owner, and that he be unaware that there exists in his title or mode of acquisition any flaw which
invalidates it. 50 However, there are cases where Article 448 of the Civil Code was applied beyond the recognized
and limited definition of good faith,  e.g.,  cases wherein the builder has constructed improvements on the
land of another with the consent of the owner. 51 The Court ruled therein that the structures were built in good faith in
those cases that the owners knew and approved of the construction of improvements on the property. 52
Despite being a possessor by mere tolerance, the DepEd is considered a builder in good faith, since Cepeda
permitted the construction of building and improvements to conduct classes on his property. Hence, Article 448 may
be applied in the case at bar.
Article 448, in relation to Article 546 of the Civil Code,provides for the rights of respondents as landowners as
against the DepEd, a builder in good faith. The provisions respectively read:
Article 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing, or planting, after
payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the building or
trees. In such case, he shall pay reasonable rent, if the owner of the land dues 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 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.
In the case of Bernardo  v. Bataclan, 53 the Court explicated that Article 448 provides a just and equitable
solution to the impracticability of creating "forced co-ownership" by giving the owner of the land the option to acquire
the improvements after payment of the proper indemnity or to oblige the builder or planter to pay for the land and the
sower to pay the proper rent. 54 The owner of the land is allowed to exercise the said options because his right is
older and because, by the principle of accession, he is entitled to the ownership of the accessory thing. 55
Thus, the two options available to the respondents as landowners are: (a) they may appropriate the
improvements, after payment of indemnity representing the value of the improvements introduced and the necessary
and useful expenses defrayed on the subject lots; or (b) they may oblige the DepEd to pay the price of the land.
However, it is also provided under Article 448 that the builder cannot be obliged to buy the land if its value is
considerably more than that of the improvements and buildings. If that is the case, the DepEd is not duty-bound to pay
the price of the land should the value of the same be considerably higher than the value of the improvement
introduced by the DepEd on the subject property. In which case, the law provides that the parties shall agree on the
terms of the lease and, in case of disagreement, the court shall fix the terms thereof.
The RTC, as affirmed by the CA, ruled that the option of the landowner to appropriate after payment of the
indemnity representing the value of the improvements introduced and the necessary and useful expenses defrayed on
the subject lots is no longer feasible or convenient because it is now being used as school premises. Considering that
the appropriation of improvements upon payment of indemnity pursuant to Article 546 by the respondents of the
buildings being used by the school is no longer practicable and feasible, the respondents are thus left with the second
option of obliging the DepEd to pay the price of the land or to require the DepEd to pay reasonable rent if the
value of the land is considerably more than the value of the buildings and improvements. acEHCD
Since the determination of the value of the subject property is factual in nature, this Court finds a need to
remand the case to the trial court to determine its value. In case the trial court determines that the value of the land is
considerably more than that of the buildings and improvements introduced, the DepEd may not be compelled to pay
the value of the land, instead it shall pay reasonable rent upon agreement by the parties of the terms of the lease. In
the event of a disagreement between the parties, the trial court shall fix the terms of lease.
Lastly, the RTC ruled that the basis of due compensation for the respondents should he the price or
value of the property at the time of the taking. In the case of Ballatan v. CA, 56 the Court has settled that the
time of taking is determinative of just compensation in expropriation proceedings but not in a case where a landowner
has been deprived of the use of a portion of this land for years due to the encroachment of another. 57
 In such instances, the case of Vda. de Roxas  v. Our Lady's Foundation, Inc. 58 is instructive. The Court
elucidated therein that the computation of the value of the property should be fixed at the prevailing market
value. 59 The reckoning period for valuing the property in case the landowner exercised his rights in accordance with
Article 448 shall be at the time the landowner elected his choice. 60 Therefore, the basis for the computation of the
value of the subject property in the instant case should be its present or current fair market value.
WHEREFORE, the Petition for Review on  Certiorari, dated June 18,
2010, of petitioner Department of Education, represented by its Regional Director, is hereby DENIED. Accordingly, the
Decision dated April 29, 2010 of the Court of Appeals in CA-G.R. CV No. 90633, affirming the Decision dated January
10, 2008 of the Regional Trial Court of Tuguegarao City, Cagayan, Branch 5, which declared the respondents the
owners of property in controversy, is hereby AFFIRMED.
Accordingly, this case is REMANDED to the court of origin to determine the value of the subject property. If
the value of the property is less than the value of the buildings and improvements, the Department of Education is
ordered to pay such amount. If the value of the property is greater than the value of the buildings and improvements,
the DepEd is ordered to pay reasonable rent in accordance with the agreement of the parties. In
case of disagreement, the trial court shall fix the amount of reasonable rent.
SO ORDERED.

|||  (Department of Education v. Casibang, G.R. No. 192268, [January 27, 2016], 779 PHIL 472-491)

THIRD DIVISION

[G.R. No. 150666. August 3, 2010.]

LUCIANO BRIONES and NELLY BRIONES, petitioners, vs. JOSE MACABAGDAL, FE D.

MACABAGDAL and VERGON REALTY INVESTMENTS CORPORATION,  respondents.

DECISION

VILLARAMA, JR.,  J p:

On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the Decision 1 dated
December 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 48109 which affirmed the September 29, 1993
Decision 2 of the Regional Trial Court (RTC) of Makati City, Branch 135, ordering petitioners Luciano and Nelly
Briones to remove the improvements they have made on the disputed property or to pay respondent-spouses Jose
and Fe Macabagdal the prevailing price of the land as compensation.
The undisputed factual antecedents of the case are as follows:
Respondent-spouses purchased from Vergon Realty Investments Corporation (Vergon) Lot No. 2-R, a 325-
square-meter land located in Vergonville Subdivision No. 10 at Las Piñas City, Metro Manila and covered by Transfer
Certificate of Title No. 62181 of the Registry of Deeds of Pasay City. On the other hand, petitioners are the owners of
Lot No. 2-S, which is adjacent to Lot No. 2-R.
Sometime in 1984, after obtaining the necessary building permit and the approval of Vergon, petitioners
constructed a house on Lot No. 2-R which they thought was Lot No. 2-S. After being informed of the mix up by
Vergon's manager, respondent-spouses immediately demanded petitioners to demolish the house and vacate the
property. Petitioners, however, refused to heed their demand. Thus, respondent-spouses filed an action to recover
ownership and possession of the said parcel of land with the RTC of Makati City. 3
Petitioners insisted that the lot on which they constructed their house was the lot which was consistently
pointed to them as theirs by Vergon's agents over the seven (7)-year period they were paying for the lot. They
interposed the defense of being buyers in good faith and impleaded Vergon as third-party defendant claiming that
because of the warranty against eviction, they were entitled to indemnity from Vergon in case the suit is decided
against them. 4 HTCAED
The RTC ruled in favor of respondent-spouses and found that petitioners' house was undoubtedly built on Lot
No. 2-R. The dispositive portion of the trial court's decision reads as follows:
PREMISES CONSIDERED, let judgment be rendered declaring, to wit:
1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan (LRC) Psd-147392 at
Vergonville Subdivision, No. 10, Las Piñas, Metro Manila covered by TCT No. 62181 of the Registry of
Deeds of Pasay City on which defendants have constructed their house;
2. Defendants, jointly and severally, are ordered to demolish their house and vacate the
premises and return the possession of the portion of Lot No. 2-R as above-described to plaintiffs within
thirty (30) days from receipt of this decision, or in the alternative, plaintiffs should be compensated by
defendants, jointly and severally, by the payment of the prevailing price of the lot involved as Lot No. 2-
R with an area of 325 square meters which should not be less than P1,500.00 per square meter, in
consideration of the fact that prices of real estate properties in the area concerned have increased
rapidly;
3. Defendants, jointly and severally, pay to plaintiffs for moral damages with plaintiffs' plans and
dreams of building their own house on their own lot being severely shattered and frustrated due to
defendants' incursion as interlopers of Lot No. 2-R in the sum of P50,000.00;
4. Defendants, jointly and severally, to pay plaintiffs in the amount of P30,000.00 as attorney's
fees; and,
5. to pay the costs of the proceedings.
Defendants' counterclaim against plaintiffs is dismissed for lack of merit and with no cause of
action.
Defendants' third-party complaint against third-party defendant Vergonville Realty and
Investments Corporation is likewise ordered dismissed for lack of cause of action and evidently without
merit.
On the other hand, defendants, jointly and severally, are liable for the litigation expenses
incurred by Vergonville Realty by way of counterclaim, which is also proven by the latter with a mere
preponderance of evidence, and are hereby ordered to pay the sum of P20,000.00 as compensatory
damage; and attorney's fees in the sum of P10,000.00
SO ORDERED. 5
On appeal, the CA affirmed the RTC's finding that the lot upon which petitioners built their house was not the
one (1) which Vergon sold to them. Based on the documentary evidence, such as the titles of the two (2) lots, the
contracts to sell, and the survey report made by the geodetic engineer, petitioners' house was built on the lot of the
respondent-spouses. 6 There was no basis to presume that the error was Vergon's fault. Also the warranty against
eviction under Article 1548 of the Civil Code was not applicable as there was no deprivation of property: the lot on
which petitioners built their house was not the lot sold to them by Vergon, which remained vacant and ready for
occupation. 7 The CA further ruled that petitioners cannot use the defense of allegedly being a purchaser in good faith
for wrongful occupation of land. 8 IAaCST
Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the appellate court. 9 Hence,
this petition for review on  certiorari.
Petitioners raise the following assignment of errors:
I.
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE CONTRARY TO LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT IN AFFIRMING THE DECISION OF THE
TRIAL COURT ORDERING PETITIONERS TO DEMOLISH THEIR ONLY HOUSE AND VACATE THE
LOT AND TO PAY MORAL AND COMPENSATORY DAMAGES AS WELL AS ATTORNEY'S FEE IN
THE TOTAL AMOUNT OF PS[P]110,000; AND
II.
 THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE LOWER COURT FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE
OF THE POWER OF SUPERVISION. 10
In the main, it is petitioners' position that they must not bear the damage alone. Petitioners insist that they
relied with full faith and confidence in the reputation of Vergon's agents when they pointed the wrong property to them.
Even the President of Vergon, Felix Gonzales, consented to the construction of the house when he signed the
building permit. 11 Also, petitioners are builders in good faith. 12
The petition is partly meritorious.
At the outset, we note that petitioners raise factual issues, which are beyond the scope of a petition for review
on  certiorari under Rule 45 of the Rules. Well settled is the rule that the jurisdiction of this Court in cases brought to it
from the CA  via a petition for review on certiorari under Rule 45 is limited to the review of errors of law. The Court is
not bound to weigh all over again the evidence adduced by the parties, particularly where the findings of both the trial
court and the appellate court coincide. The resolution of factual issues is a function of the trial court whose findings on
these matters are, as a general rule, binding on this Court, more so where these have been affirmed by the
CA. 13 We note that the CA and RTC did not overlook or fail to appreciate any material circumstance which, when
properly considered, would have altered the result of the case. Indeed, it is beyond cavil that petitioners mistakenly
constructed their house on Lot No. 2-R which they thought was Lot No. 2-S.
However, the conclusiveness of the factual findings notwithstanding, we find that the trial court nonetheless
erred in outrightly ordering petitioners to vacate the subject property or to pay respondent spouses the prevailing price
of the land as compensation. Article 527 14 of the Civil Code presumes good faith, and since no proof exists to show
that the mistake was done by petitioners in bad faith, the latter should be presumed to have built the house in good
faith. TcDaSI
When a person builds in good faith on the land of another, Article 448 of the  Civil Code governs. Said article
provides,
ART. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of
the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay
the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot
be obliged to buy the land if its value is considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof. (Emphasis ours.)
The above-cited article covers cases in which the builders, sowers or planters believe themselves to be
owners of the land or, at least, to have a claim of title thereto. 15 The builder in good faith can compel the landowner
to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the
price of the land. The choice belongs to the owner of the land, a rule that accords with the principle of accession,  i.e.,
that the accessory follows the principal and not the other way around. However, even as the option lies with the
landowner, the grant to him, nevertheless, is preclusive. He must choose one. 16 He cannot, for instance, compel the
owner of the building to remove the building from the land without first exercising either option. It is only if the owner
chooses to sell his land, and the builder or planter fails to purchase it where its value is not more than the value of the
improvements, that the owner may remove the improvements from the land. The owner is entitled to such remotion
only when, after having chosen to sell his land, the other party fails to pay for the same. 17  
Moreover, petitioners have the right to be indemnified for the necessary and useful expenses they may have
made on the subject property. Articles 546 and 548 of the Civil Code provide,
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof.
ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in
good faith; but he may remove the ornaments with which he has embellished the principal thing if it
suffers no injury thereby, and if his successor in the possession does not prefer to refund the amount
expended.
 Consequently, the respondent-spouses have the option to appropriate the house on the subject land after
payment to petitioners of the appropriate indemnity or to oblige petitioners to pay the price of the land, unless its value
is considerably more than the value of the structures, in which case petitioners shall pay reasonable rent. TcADCI
In accordance with  Depra v. Dumlao, 18 this case must be remanded to the RTC which shall conduct the
appropriate proceedings to assess the respective values of the improvement and of the land, as well as the amounts
of reasonable rentals and indemnity, fix the terms of the lease if the parties so agree, and to determine other matters
necessary for the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.
As to the liability of Vergon, petitioners failed to present sufficient evidence to show negligence on Vergon's
part. Petitioners' claim is obviously one (1) for tort, governed by Article 2176 of the Civil Code, which provides:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting
contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (Emphasis ours.)
Under this provision, it is the plaintiff who has to prove by a preponderance of evidence: (1) the damages
suffered by the plaintiff; (2) the fault or negligence of the defendant or some other person for whose act he must
respond; and (3) the connection of cause and effect between the fault or negligence and the damages
incurred. 19 This the petitioners failed to do. The President of Vergon signed the building permit as a precondition for
its approval by the local government, but it did not guarantee that petitioners were constructing the structure within the
metes and bounds of petitioners' lot. The signature of the President of Vergon on the building permit merely proved
that petitioners were authorized to make constructions within the subdivision project of Vergon. And while petitioners
acted in good faith in building their house on Lot No. 2-R, petitioners did not show by what authority the agents or
employees of Vergon were acting when they pointed to the lot where the construction was made nor was petitioners'
claim on this matter corroborated by sufficient evidence.
One (1) last note on the award of damages. Considering that petitioners acted in good faith in building their
house on the subject property of the respondent-spouses, there is no basis for the award of moral damages to
respondent-spouses. Likewise, the Court deletes the award to Vergon of compensatory damages and attorney's fees
for the litigation expenses Vergon had incurred as such amounts were not specifically prayed for in its Answer to
petitioners' third-party complaint. Under Article 2208 20 of the Civil Code, attorney's fees and expenses of litigation
are recoverable only in the concept of actual damages, not as moral damages nor judicial costs. Hence, such must be
specifically prayed for — as was not done in this case — and may not be deemed incorporated within a general
prayer for "such other relief and remedy as this court may deem just and equitable."  21 It must also be noted that
aside from the following, the body of the trial court's decision was devoid of any statement regarding attorney's fees.
In Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, 22 we reiterated that attorney's
fees are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under
Article 2208 of the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to speculation
or conjecture. Where granted, the court must explicitly state in the body of the decision, and not only in the dispositive
portion thereof, the legal reason for the award of attorney's fees.
WHEREFORE, the Decision dated December 11, 2000 of the Court of Appeals in CA-G.R. CV No. 48109
is AFFIRMED WITH MODIFICATION. The award of moral damages in favor of respondent-spouses Jose and Fe
Macabagdal and the award of compensatory damages and attorney's fees to respondent Vergon Realty Investments
Corporation are DELETED. The case is REMANDED to the Regional Trial Court of Makati City, Branch 135, for
further proceedings consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as
follows: CaDSHE

1. The trial court shall determine:

a. the present fair price of the respondent-spouses' lot;

b. the amount of the expenses spent by petitioners for the building of their house;
c. the increase in value ("plus value") which the said lot may have acquired by reason thereof; and
d. whether the value of said land is considerably more than that of the house built thereon.

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

a. The trial court shall grant the respondent-spouses a period of fifteen (15) days within which to
exercise their option under Article 448 of the Civil Code, whether to appropriate the house as
 their own by paying to petitioners either the amount of the expenses spent by petitioners for the
building of the house, or the increase in value ("plus value") which the said lot may have
acquired by reason thereof, or to oblige petitioners to pay the price of said land. The amounts to
be respectively paid by the respondent-spouses and petitioners, in accordance with the option
thus exercised by written notice of the other party and to the Court, shall be paid by the obligor
within fifteen (15) days from such notice of the option by tendering the amount to the Court in
favor of the party entitled to receive it;
b. The trial court shall further order that if the respondent-spouses exercises the option to oblige
petitioners to pay the price of the land but the latter rejects such purchase because, as found by
the trial court, the value of the land is considerably more than that of the house, petitioners shall
give written notice of such rejection to the respondent-spouses and to the Court within fifteen
(15) days from notice of the respondent-spouses' option to sell the land. In that event, the
parties shall be given a period of fifteen (15) days from such notice of rejection within which to
agree upon the terms of the lease, and give the Court formal written notice of such agreement
and its provisos. If no agreement is reached by the parties, the trial court, within fifteen (15)
days from and after the termination of the said period fixed for negotiation, shall then fix the
terms of the lease, payable within the first five (5) days of each calendar month. The period for
the forced lease shall not be more than two (2) years, counted from the finality of the judgment,
considering the long period of time since petitioners have occupied the subject area. The rental
thus fixed shall be increased by ten percent (10%) for the second year of the forced lease.
Petitioners shall not make any further constructions or improvements on the house. Upon
expiration of the two (2)-year period, or upon default by petitioners in the payment of rentals for
two (2) consecutive months, the respondent-spouses shall be entitled to terminate the forced
lease, to recover their land, and to have the house removed by petitioners or at the latter's
expense. The rentals herein provided shall be tendered by petitioners to the Court for payment
to the respondent-spouses, and such tender shall constitute evidence of whether or not
compliance was made within the period fixed by the Court. DHSCTI
c. In any event, petitioners shall pay the respondent-spouses reasonable compensation for the
occupancy of the respondent-spouses' land for the period counted from the year petitioners
occupied the subject area, up to the commencement date of the forced lease referred to in the
preceding paragraph;
d. The periods to be fixed by the trial court in its Decision shall be inextendible, and upon failure of the
party obliged to tender to the trial court the amount due to the obligee, the party entitled to such
payment shall be entitled to an order of execution for the enforcement of payment of the
amount due and for compliance with such other acts as may be required by the prestation due
the obligee.
No costs.
SO ORDERED.

|||  (Briones v. Macabagdal, G.R. No. 150666, [August 3, 2010], 640 PHIL 343-358)

THIRD DIVISION

[G.R. Nos. 154391-92. September 30, 2004.]

Spouses ISMAEL and TERESITA MACASAET, petitioners, vs. Spouses VICENTE and ROSARIO

MACASAET,  respondents.

DECISION
PANGANIBAN,  J p:

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

The Case

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the March 22, 2002
Decision 2 and the June 26, 2002 Resolution 3 of the Court of Appeals (CA) in CA-GR SP Nos. 56205 & 56467. The
challenged Decision disposed as follows:
"WHEREFORE, the assailed Decision is AFFIRMED with the following MODIFICATIONS:
'1. Vicente and Rosario should reimburse Ismael and Teresita one-half of the value of
the useful improvements introduced in the premises prior to demand, which is equivalent to
P475,000.00. In case the former refuse to reimburse the said amount, the latter may remove
the improvements, even though the land may suffer damage thereby. They shall not, however,
cause any more impairment upon the property leased than is necessary.
'2. The award of attorney's fees is DELETED.
'3. The records of these consolidated cases are REMANDED to the Court of origin for
further proceedings to determine the option to be taken by Vicente and Rosario and to
implement the same with dispatch." 4
The assailed Resolution denied petitioners' Motion for Reconsideration. aAIcEH

The Facts

Petitioners Ismael and Teresita 5 Macasaet and Respondents Vicente and Rosario Macasaet are first-degree
relatives. Ismael is the son of respondents, and Teresita is his wife. 6
On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of Lipa City an ejectment
suit against the children. 7 Respondents alleged that they were the owners of two (2) parcels of land covered by Transfer
Certificate of Title (TCT) Nos. T-78521 and T-103141, situated at Banay-banay, Lipa City; that by way of a verbal lease
agreement, Ismael and Teresita occupied these lots in March 1992 and used them as their residence and the situs of their
construction business; and that despite repeated demands, petitioners failed to pay the agreed rental of P500 per week. 8
Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that respondents had
invited them to construct their residence and business on the subject lots in order that they could all live near one other,
employ Marivic (the sister of Ismael), and help in resolving the problems of the family. 9 They added that it was the policy
of respondents to allot the land they owned as an advance grant of inheritance in favor of their children. Thus, they
contended that the lot covered by TCT No. T-103141 had been allotted to Ismael as advance inheritance. On the other
hand, the lot covered by TCT No. T-78521 was allegedly given to petitioners as payment for construction materials used
in the renovation of respondents' house. 10
The MTCC 11 ruled in favor of respondents and ordered petitioners to vacate the premises. It opined that Ismael
and Teresita had occupied the lots, not by virtue of a verbal lease agreement, but by tolerance of Vicente and
Rosario. 12 As their stay was by mere tolerance, petitioners were necessarily bound by an implied promise to vacate the
lots upon demand. 13 The MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on
the ground that successional rights were inchoate. Moreover, it disbelieved petitioners' allegation that the other parcel had
been given as payment for construction materials. 14
On appeal, the regional trial court 15 (RTC) upheld the findings of the MTCC. However, the RTC allowed
respondents to appropriate the building and other improvements introduced by petitioners, after payment of the indemnity
provided for by Article 448 in relation to Articles 546 and 548 of the Civil Code. 16 It added that respondents could oblige
petitioners to purchase the land, unless its value was considerably more than the building. In the latter situation,
petitioners should pay rent if respondents would not choose to appropriate the building. 17
Upon denial of their individual Motions for Reconsideration, the parties filed with the CA separate Petitions for
Review, which were later consolidated. 18
 Ruling of the Court of Appeals

The CA sustained the finding of the two lower courts that Ismael and Teresita had been occupying the subject lots
only by the tolerance of Vicente and Rosario. 19 Thus, possession of the subject lots by petitioners became illegal upon
their receipt of respondents' letter to vacate it. 20
Citing Calubayan v. Pascual, 21 the CA further ruled that petitioners' status was analogous to that of a lessee or a
tenant whose term of lease had expired, but whose occupancy continued by tolerance of the owner. 22 Consequently, in
ascertaining the right of petitioners to be reimbursed for the improvements they had introduced on respondents'
properties, 23 the appellate court applied the Civil Code's provisions on lease. The CA modified the RTC Decision by
declaring that Article 448 of the Civil Code was inapplicable. The CA opined that under Article 1678 of the same Code,
Ismael and Teresita had the right to be reimbursed for one half of the value of the improvements made. 24
Not satisfied with the CA's ruling, petitioners brought this recourse to this Court. 25

The Issues

Petitioners raise the following issues for our consideration:

"1.a) Whether or not Section 17[,] Rule 70 of the Rules of Court on Judgment should apply in
the rendition of the decision in this case;
b) Whether or not the Complaint should have been dismissed;
c) Whether or not damages including attorney's fees should have been awarded to herein
petitioners;
"2.a) Whether or not the rule on appearance of parties during the Pretrial should apply on
appearance of parties during Preliminary Conference in an unlawful detainer suit;
b) Whether or not the case of Philippine Pryce Assurance Corporation vs. Court of
Appeals (230 SCRA 164) is applicable to appearance of parties in an unlawful detainer suit;
"3. Whether or not Article 1678 of the Civil Code should apply to the case on the matters of
improvements, or is it Article 447 of the Civil Code in relation to the Article 453 and 454 thereof that
should apply, if ever to apply the Civil Code;
"4. Whether or not the [D]ecision of the Court of Appeals is supported by evidence, appropriate
laws, rules and jurisprudence;
"5. Whether or not Assisting Judge Norberto Mercado of the MTCC Lipa City should be held
accountable in rendering the MTCC [D]ecision;
"6. Whether or not Atty. Glenn Mendoza and Atty. Andrew Linatoc of the same [l]aw office
should be held accountable for pursuing the [e]jectment case[.]" 26

The Court's Ruling

The Petition is partly meritorious.

First Issue:

Ejectment

Who is entitled to the physical or material possession of the premises? At the outset, we stress that this is the
main issue in ejectment proceedings. 27 In the present case, petitioners failed to justify their right to retain possession of
the subject lots, which respondents own. Since possession is one of the attributes of ownership,  28 respondents clearly
are entitled to physical or material possession.

Allegations of the Complaint

Petitioners allege that they cannot be ejected from the lots, because respondents based their Complaint regarding
the nonpayment of rentals on a verbal lease agreement, which the latter failed to prove. 29 Petitioners contend that the
lower courts erred in using another ground (tolerance of possession) to eject them.
 In actions for unlawful detainer, possession that was originally lawful becomes unlawful upon the expiration or
termination of the defendant's right to possess, arising from an express or implied contract. 30 In other words, the
plaintiff's cause of action comes from the expiration or termination of the defendant's right to continue possession.  31 The
case resulting therefrom must be filed within one year from the date of the last demand.
To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally withholding
possession from the plaintiff is sufficient. The complaint may lie even if it does not employ the terminology of the law,
provided the said pleading is couched in a language adequately stating that the withholding of possession or the refusal to
vacate has become unlawful. 32 It is equally settled that the jurisdiction of the court, as well as the nature of the action, is
determined from the averments of the complaint. 33
In the present case, the Complaint alleged that despite demands, petitioners "refused to pay the accrued rentals
and [to] vacate the leased premises." 34 It prayed that judgment be rendered "[o]rdering [petitioners] and all those
claiming rights under them to vacate the properties . . . and remove the structures . . . constructed thereon."  35 Effectively
then, respondents averred that petitioners' original lawful occupation of the subject lots had become unlawful. CSDcTH
The MTCC found sufficient cause to eject petitioners. While it disbelieved the existence of a verbal lease
agreement, it nevertheless concluded that petitioners' occupation of the subject lots was by mere tolerance of
respondents. Basing its conclusion on the fact that the parties were close relatives, the MTCC ruled thus:
 
". . . [T]he parties herein are first degree relatives. Because of this relationship, this Court takes
judicial notice of the love, care, concern and protection imbued upon the parents towards their
[children], i.e., in the instant case, the love, care, concern and protection of the [respondents] to the
[petitioners]. With this in mind, this Court is inclined to believe the position of the [petitioners] that there
was no such verbal lease agreement between the parties herein that took place in 1992. . . .
"From the allegations of the [petitioners], this Court is convinced that their stay and occupancy
of the subject premises was by mere tolerance of the [respondents], and not by virtue of a verbal lease
agreement between them." 36
Having found a cause of action for unlawful detainer, the MTCC (as well as the RTC and the CA) did not err in
ordering the ejectment of petitioners as prayed for by respondents. There was no violation of Section 17 of Rule 70  37 of
the Rules of Court. As earlier explained, unlawful detainer was sufficiently alleged in the Complaint and duly proven during
the trial. Significantly, the issue of whether there was enough ground to eject petitioners was raised during the preliminary
conference. 38

Not Merely Tolerated Possession

Petitioners dispute the lower courts' finding that they occupied the subject lots on the basis of mere tolerance.
They argue that their occupation was not under such condition, since respondents had invited, offered and persuaded
them to use those properties. 39
This Court has consistently held that those who occupy the land of another at the latter's tolerance or permission,
without any contract between them, are necessarily bound by an implied promise that the occupants will vacate the
property upon demand. 40 A summary action for ejectment is the proper remedy to enforce this implied obligation. 41 The
unlawful deprivation or withholding of possession is to be counted from the date of the demand to vacate. 42
Toleration is defined as "the act or practice of permitting or enduring something not wholly approved
of." 43 Sarona v. Villegas 44 described what tolerated acts means, in this language:
"Professor Arturo M. Tolentino states that acts merely tolerated are 'those which by reason of
neighborliness or familiarity, the owner of property allows his neighbor or another person to do on the
property; they are generally those particular services or benefits which one's property can give to
another without material injury or prejudice to the owner, who permits  them out of friendship or
courtesy.' . . . And, Tolentino continues, even though 'this is continued for a long time, no right will be
acquired by prescription." . . . Further expounding on the concept, Tolentino writes: 'There is tacit
consent of the possessor to the acts which are merely tolerated. Thus, not every case of knowledge
and silence on the part of the possessor can be considered mere tolerance. By virtue of tolerance that
is considered as an authorization, permission or license, acts of possession are realized or performed.
The question reduces itself to the existence or non-existence of the permission." 45
We hold that the facts of the present case rule out the finding of possession by mere tolerance. Petitioners were
able to establish that respondents had invited them to occupy the subject lots in order that they could all live near one
other and help in resolving family problems. 46 By occupying those lots, petitioners demonstrated their acceptance of the
invitation. Hence, there was a meeting of minds, and an agreement regarding possession of the lots impliedly arose
between the parties.
The occupancy of the subject lots by petitioners was not merely "something not wholly approved of" by
respondents. Neither did it arise from what Tolentino refers to as "neighborliness or familiarity." In point of fact, their
possession was upon the invitation of and with the complete approval of respondents, who desired that their children
would occupy the premises. It arose from familial love and a desire for family solidarity, which are basic Filipino traits.

Right to Use the Lots Terminated

That Ismael and Teresita had a right to occupy the lots is therefore clear. The issue is the duration of possession.
In the absence of a stipulation on this point, Article 1197 of the Civil Code allows the courts to fix the duration or the
period.
"Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof.
"The courts shall also fix the duration of the period when it depends upon the will of the debtor.
"In every case the courts shall determine such period as may under the circumstances have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by
them."
Article 1197, however, applies to a situation in which the parties intended a period. Such qualification cannot be
inferred from the facts of the present case.
To repeat, when Vicente and Rosario invited their children to use the lots, they did so out of parental love and a
desire for solidarity expected from Filipino parents. No period was intended by the parties. Their mere failure to fix the
duration of their agreement does not necessarily justify or authorize the courts to do so. 47
Based on respondents' reasons for gratuitously allowing petitioners to use the lots, it can be safely concluded that
the agreement subsisted as long as the parents and the children mutually benefited from the arrangement. Effectively,
there is a resolutory condition in such an agreement. 48 Thus, when a change in the condition existing between the
parties occurs — like a change of ownership, necessity, death of either party or unresolved conflict or animosity — the
agreement may be deemed terminated. Having been based on parental love, the agreement would end upon the
dissipation of the affection. ICTacD
When persistent conflict and animosity overtook the love and solidarity between the parents and the children, the
purpose of the agreement ceased. 49 Thus, petitioners no longer had any cause for continued possession of the lots.
Their right to use the properties became untenable. It ceased upon their receipt of the notice to vacate. And because they
refused to heed the demand, ejectment was the proper remedy against them. Their possession, which was originally
lawful, became unlawful when the reason therefor — love and solidarity — ceased to exist between them.

No Right to Retain Possession

Petitioners have not given this Court adequate reasons to reverse the lower courts' dismissal of their contention
that Lots T-78521 and T-103141, respectively, were allegedly allotted to them as part of their inheritance and given in
consideration for past debts.
The right of petitioners to inherit from their parents is merely inchoate and is vested only upon the latters' demise.
Indisputably, rights of succession are transmitted only from the moment of death of the decedent.  50 Assuming that there
was an "allotment" of inheritance, ownership nonetheless remained with respondents. Moreover, an intention to confer
title to certain persons in the future is not inconsistent with the owners' taking back possession in the meantime for any
reason deemed sufficient. 51 Other than their self-serving testimonies and their affidavits, petitioners offered no credible
evidence to support their outlandish claim of inheritance "allocation."
We also agree with the lower courts that petitioners failed to prove the allegation that, through a dation in
payment, Lot T-78521 had been transferred to the latter as payment for respondents' debts. 52 The evidence presented
by petitioners related only to the alleged indebtedness of the parents arising from the latter's purported purchases and
advances. 53 There was no sufficient proof that respondents had entered into a contract of dation to settle the alleged
debt. Petitioners even stated that there was a disagreement in the accounting of the purported debt,  54 a fact that
disproves a meeting of the minds with the parents.
 Petitioners also admitted that a portion of the alleged debt is the subject matter of a collection case against
respondents (Civil Case No. 0594-96). 55 Thus, the former's allegation that the indebtedness has been paid through a
dation cannot be given credence, inconsistent as it is with their action to recover the same debt.
Despite their protestations, petitioners recognized the right of the parents to recover the premises when they
admitted in their Position Paper filed with the MTCC that respondents had a title to the lots.
"The [respondents] want to get their property because the title is theirs, the [petitioners] do not
object but what is due the [petitioners] including the reparation for the tarnish of their dignity and honor
must be given the [petitioners] for the benefits of their children before the premises will be turned
over." 56
As a rule, the right of ownership carries with it the right of possession.

Second Issue:

Appearance at the Preliminary Conference

Section 8 of Rule 70 of the Rules of Court requires the appearance of the plaintiff and the defendant during the
preliminary conference. On the basis of this provision, petitioners claim that the MTCC should have dismissed the case
upon the failure of respondents to attend the conference. However, petitioners do not dispute that an attorney-in-fact with
a written authorization from respondents appeared during the preliminary conference. 57 The issue then is whether
the rules on ejectment allow a representative to substitute for a party's personal appearance.
Unless inconsistent with Rule 70, the provisions of Rule 18 on pretrial applies to the preliminary
conference. 58 Under Section 4 of this Rule, the nonappearance of a party may be excused by the showing of a valid
cause; or by the appearance of a representative, who has been fully authorized in writing to enter into an amicable
settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of
documents. 59
 
Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the spirit behind the exception to personal
appearance under the rules on pretrial is applicable to the preliminary conference. If there are valid reasons or if a
representative has a "special authority," a party's appearance may be waived. As petitioners are challenging only the
applicability of the rules on pretrial to the rule on preliminary conference, the written authorization from respondents can
indeed be readily considered as a "special authorization."

Third Issue:

Rights of a Builder in Good Faith

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

Articles 447 and 1678 of the

Civil Code Inapplicable

To buttress their claim of reimbursement for the improvements introduced on the property, petitioners cite Article
447. 61 They allege that the CA erred in applying Article 1678, since they had no lease agreement with respondents.
We clarify. Article 447 is not applicable, because it relates to the rules that apply when the owner of the property
uses the materials of another. It does not refer to the instance when a possessor builds on the property of another, which
is the factual milieu here.
In view of the unique factual setting of the instant case, the contention of petitioners regarding the inapplicability of
Article 1678 deserves attention. The CA applied the provisions on lease, because it found their possession by mere
tolerance comparable with that of a lessee, per the pronouncement in Calubayan v. Pascual, 62 from which we quote:
". . . It has been held that a person who occupies the land of another at the latter's tolerance or
permission, without any contract between them, is necessarily bound by an implied promise that he will
vacate upon demand, failing which a summary action for ejectment is the proper remedy against them.
The status of defendant is analogous to that of a lessee or tenant whose term of lease has expired but
 whose occupancy continued by tolerance of the owner. In such a case, the unlawful deprivation or
withholding of possession is to be counted from the date of the demand to vacate." 63 (Emphasis in the
original.)

As explained earlier, Ismael and Teresita's possession of the two lots was not by mere tolerance, a circumstance that
negates the applicability of Calubayan.

Article 448 Applicable

On the other hand, when a person builds in good faith on the land of another, the applicable provision is Article
448, which reads: 64
"Article 448.  The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged
to buy the land if its value is considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the
court shall fix the terms thereof."
This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe
themselves to be owners of the land or, at least, to have a claim of title thereto. 65 It does not apply when the interest is
merely that of a holder, such as a mere tenant, agent or usufructuary. 66 From these pronouncements, good faith is
identified by the belief that the land is owned; or that — by some title — one has the right to build, plant, or sow
thereon. 67
However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this limited
definition. Thus, in Del Campo v. Abesia, 68 this provision was applied to one whose house — despite having been built
at the time he was still co-owner — overlapped with the land of another. 69 This article was also applied to cases wherein
a builder had constructed improvements with the consent of the owner. The Court ruled that the law deemed the builder to
be in good faith. 70 In Sarmiento v. Agana, 71 the builders were found to be in good faith despite their reliance on the
consent of another, whom they had mistakenly believed to be the owner of the land. 72
Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of
this case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the
children occupied the lots upon their invitation, the parents certainly knew and approved of the construction of the
improvements introduced thereon. 73 Thus, petitioners may be deemed to have been in good faith when they built the
structures on those lots. DcICEa
The instant case is factually similar to Javier v. Javier. 74 In that case, this Court deemed the son to be in good
faith for building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land
upon which it was built. Thus, Article 448 75 was applied.

Rule on Useful Expenses

The structures built by petitioners were "useful" improvements, because they augmented the value or income of
the bare lots. 76 Thus, the indemnity to be paid by respondents under Article 448 is provided for by  Article 546, which we
quote:
"Art. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.
"Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof."
Consequently, respondents have the right to appropriate — as their own — the building and other improvements
on the subject lots, but only after (1) refunding the expenses of petitioners or (2) paying the increase in value acquired by
the properties by reason thereof. They have the option to oblige petitioners to pay the price of the land, unless its value is
considerably more than that of the structures — in which case, petitioners shall pay reasonable rent.
 In accordance with Depra v. Dumlao, 77 this case must be remanded to the trial court to determine matters
necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that
respondents would take and the amount of indemnity that they would pay, should they decide to appropriate the
improvements on the lots. We disagree with the CA's computation of useful expenses, which were based only on
petitioners' bare allegations in their Answer. 78

Ruling on Improvement Justified

While, ordinarily, the jurisdiction of the MTCC on ejectment proceedings is limited to the issue of physical or
material possession of the property in question, this Court finds it necessary to abbreviate the issue on the improvements
in relation to Article 448. First, the determination of the parties' right to those improvements is intimately connected with
the MTCC proceedings in the light of the ejectment of petitioners. Second, there is no dispute that while they constructed
the improvements, respondents owned the land. Third, both parties raised no objection when the RTC and the CA ruled
accordingly on this matter.
Equitable considerations compel us to settle this point immediately, pro hoc vice, to avoid needless delay. Both
parties have already been heard on this issue; to dillydally or equivocate would not serve the cause of substantial justice.

Other Issues Raised

Given the foregoing rulings, it is no longer necessary to address petitioners' allegation that the MTCC judge and
respondents' lawyers should be respectively held personally accountable for the Decision and for filing the case. 79 The
insinuation of petitioners that the lawyers manipulated the issuance of a false barangay certification is unavailing. 80 Their
contention that respondents did not attend the barangay conciliation proceedings was based solely on hearsay, which has
little or no probative value. 81
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with the following
MODIFICATIONS:
1. The portion requiring Spouses Vicente and Rosario Macasaet to reimburse one half of the value of the useful
improvements, amounting to P475,000, and the right of Spouses Ismael and Rosita Macasaet to remove those
improvements (if the former refuses to reimburse) is DELETED.
2. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the
proper application of Articles 448 and 546 of the Civil Code, specifically to the following matters:
a. Spouses Vicente and Rosario Macasaet's option to appropriate — as their own — the improvements
on the lots, after paying the indemnity, as provided under Article 546 in relation to Article 448 of
the Civil Code; or in requiring Spouses Ismael and Rosita Macasaet to pay for the value of the
lots, unless it is considerably more than that of the improvements, in which case petitioners
shall pay reasonable rent based upon the terms provided under the Civil Code
b. The value of the useful expenses incurred by Spouses Ismael and Rosita Macasaet in the
construction of the improvements on the lots
c. The increase in value acquired by the lots by reason of the useful improvements
d. Spouses Vicente and Rosario Macasaet's choice of type of indemnity to be paid (whether b or c)
 
e. Whether the value of the lots is considerably more than that of the improvements built thereon
No pronouncement as to costs. aTEACS
SO ORDERED.

|||  (Spouses Macasaet v. Spouses Macasaet, G.R. Nos. 154391-92, [September 30, 2004], 482 PHIL 853-876)

FIRST DIVISION
 [G.R. No. 182754. June 29, 2015.]

SPOUSES CRISPIN AQUINO and TERESA V. AQUINO, herein represented by their Attorney-in-
Fact, AMADOR D. LEDESMA, petitioners,  vs. SPOUSES EUSEBIO AGUILAR and JOSEFINA V.
AGUILAR, respondents.

DECISION

SERENO, C.J  p:
In this Petition for Review on Certiorari 1 filed under Rule 45 of the Rules of Court, Petitioner spouses Crispin
and Teresa Aquino (petitioners) assail the Court of Appeals (CA) Decision dated 25 April 2008  2 in CA-GR SP No.
92778. The CA modified the Decisions of both the Metropolitan Trial Court (MeTC) and the Regional Trial Court
(RTC). The CA ruled that although respondent spouses Eusebio and Josefina Aguilar (respondents) cannot be
considered builders in good faith, they should still be reimbursed for the improvements they have introduced on
petitioners' property. 3 aScITE
THE FACTS
Teresa Vela Aquino (Teresa) and her husband, Crispin Aquino, are the owners of a house and lot located at
No. 6948, Rosal Street, Guadalupe Viejo, Makati City as evidenced by Transfer of Certificate Title No. 148338. 4
Since 1981, this property has been occupied by Teresa's sister, Josefina Vela Aguilar; Josefina's spouse
Eusebio; and their family. 5 It appears from the record that respondents stayed on the property with the consent and
approval of petitioners, who were then residing in the United States. 6
While respondents were in possession of the property, the house previously constructed therein was
demolished, and a three-storey building built in its place. 7 Respondents occupied half of the third floor of this new
building for the next 20 years without payment of rental. 8
On 22 September 2003, petitioners sent a letter to respondents informing them that an immediate family
member needed to use the premises and demanding the surrender of the property within 10 days from
notice. 9 Respondents failed to heed this demand, prompting petitioners to file a Complaint for ejectment against them
before the office of the barangay captain of Guadalupe Viejo. 10 The parties attempted to reach an amicable
settlement in accordance with Section 412 of the Local Government Code, but these efforts proved unsuccessful. 11
On 19 November 2003, petitioner spouses Aquino filed a Complaint 12 with the MeTC of Makati City praying
that respondents be ordered to (a) vacate the portion of the building they were then occupying; and (b) pay petitioner
a reasonable amount for the use and enjoyment of the premises from the time the formal demand to vacate was
made. 13
In their Answer with Counterclaim, 14 respondents claimed that they had contributed to the improvement of
the property and the construction of the building, both in terms of money and management/supervision services.
Petitioners purportedly agreed to let them contribute to the costs of construction in exchange for the exclusive use of a
portion of the building. Respondents averred:
2.3 That the construction of the three (3) storey building was also at the uncompensated
supervision of defendant Eusebio Aguilar, of which only P2 Million was spent by plaintiffs while
defendants spent around P1 Million as contribution to the construction cost. It was defendants who
introduced improvements on subject lot because at the time plaintiffs bought the property it was
marshy which was filled up by defendants (sic) truck load with builders, adobe and scumbro that
elevated the ground; HEITAD
2.4 The original agreement was for my client to contribute his share so that they will have the
portion of the subject building for their own exclusive use. It turned out later that the agreement they
had was disowned by plaintiffs when they saw the totality of the building constructed thereon coupled
by the fact, that the value of the lot has tremendously appreciated due to the commercialization of the
vicinity which will command higher price and windfall profits should plaintiffs sell the property which
they are now contemplating on (sic);
2.5 The portion which plaintiffs want defendants to vacate is a portion which the latter built
with their own money upon your clients agreement and consent whom they built in good faith knowing
and hoping that later on the same will be theirs exclusively. It was never an act of generosity, liberality
 and tolerance. Conversely, it was one of the implied co-ownership or partnership, because aside from
the fact that defendants, who were then peacefully residing in Laguna, made unquantifiable
contributions in terms of money and services arising from his uncompensated management and
supervision over the entire subject property while plaintiffs are abroad. By legal implications he is an
industrial partner responsible for the development and improvements of the subject property. His
contribution was never without the consent of plaintiffs. Whatever contribution defendants introduced
over the said property was made and built in good faith; 15
Since they were allegedly co-owners of the building and builders in good faith, respondents claimed that they
had the right to be compensated for the current value of their contribution.  16 Accordingly, they prayed for the
dismissal of the Complaint and the award of P5 million as compensation for their contributions to the construction of
the building, as well as moral damages, attorney's fees and costs of litigation. 17
THE RULING OF THE METC
In a Decision 18 dated 12 November 2004, the MeTC ruled in favor of petitioners, stating that they had the
right to enjoy possession of the property as the registered owners thereof. 19 Since the case was merely one for
ejectment, the court held that it was no longer proper to resolve respondents' claim of co-ownership over the
building. 20 ATICcS
The MeTC also declared that respondents were builders in bad faith who were not entitled to recover their
purported expenses for the construction of the building. 21 It emphasized that their occupation of the property was by
mere tolerance of petitioners and, as such, could be terminated at any time. 22 The court further noted that in a letter
dated 15 July 1983, petitioners had already asked respondents to refrain from constructing improvements on the
property because it was intended to be sold. 23
The dispositive portion of the MeTC Decision, which ordered respondents to vacate the property, reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendants
Eusebio & Josefina Aguilar and all persons claiming rights under them to immediately vacate the
subject property, and deliver peaceful possession thereof to the plaintiffs. Defendants are likewise
ordered to pay plaintiffs P7,000.00 monthly rental commencing 22 October 2003 until such time that
defendant finally vacate the premises, P10,000.00 as and by way of attorney's fees, and the cost of
suit. 24
On 14 September 2005, respondents appealed the MeTC's Decision to the RTC. 25
THE RULING OF THE RTC
In their Memorandum on Appeal 26 before the RTC, respondents assailed the MeTC's finding that petitioners,
as the registered owners of the land, were also the owners of the improvement constructed thereon. 27 Respondents
asserted that they were co-owners of the building since they built a portion thereof using their own funds, as
evidenced by various receipts they presented before the MeTC. 28
Respondents also maintained that they were builders in good faith. They pointed out that petitioners never
objected to the construction of the improvement on their property. 29 According to respondents, petitioners' letter
dated 15 July 1983 was written at a time when an old dilapidated house was still standing on the
property. 30 Subsequently however, the house was demolished and the new building was constructed thereon by
respondents, with petitioners' knowledge and consent. 31
In a Decision 32 dated 3 January 2006, the RTC denied the appeal and affirmed the MeTC's Decision.
According to the court, respondents did not become co-owners of the property although they may have contributed to
the construction of the building thereon. 33 Hence, their stay in the premises remained to be by mere tolerance of the
petitioners. 34 TIADCc
The RTC also ruled that respondents cannot be considered builders in good faith. 35 The court found that as
early as 1983, petitioners had informed respondents of the intention to eventually dispose of the property.  36 The
RTC concluded that petitioners never consented to the construction of any form of structure on the property.  37 Since
respondents participated in the construction of the building even after they had been notified that their occupation may
be terminated anytime, the RTC ruled that they did not build the structures in good faith.  38 The RTC likewise noted
that "the improvements in question as well as other personal belongings of the appellants were removed from the
premises through a writ of demolition, and these properties are now in their possession." 39
THE RULING OF THE CA
Aggrieved by the RTC Decision, respondents elevated the matter to the CA. They reiterated that they owned
one-half of the third floor of the building on the property, having spent their own funds for the construction thereof.
Respondents also asserted that because they built that portion in good faith, with no objection from petitioners, they
were entitled to reimbursement of all necessary and useful expenses incurred in the construction.
 On 25 April 2008, the CA affirmed the conclusion of the lower courts that respondents could not be
considered co-owners of the property or builders in good faith. 40 According to the appellate court, respondents were
aware that their right to possess the property had a limitation, because they were not the owners thereof. They knew
that their occupation of the building was by mere tolerance or permission of petitioners, who were the registered
owners of the property.
The CA likewise noted that respondents failed to prove the alleged agreement between the parties with
respect to the ownership of one-half of the third floor of the improvement. There being no contract between them,
respondents are necessarily bound to vacate the property upon demand. 41 The CA ruled:
 
The Supreme Court has consistently held that those who occupy the land of another at the
latter's tolerance or permission, without any contract between them, are necessarily bound by an
implied promise that the occupants will vacate the property upon demand. Based on the principles
enunciated in Calubayan v. Pascual, the status of petitioners is analogous to that of a lessee or a
tenant whose term of lease has expired but whose occupancy continued by tolerance of the owner. In
such a case, the unlawful deprivation or withholding of possession is to be reckoned from the date of
the demand to vacate. 42 (Citations omitted) AIDSTE
Nevertheless, the CA declared that respondents should be reimbursed for the necessary and useful expenses
they had introduced on petitioners' property, pursuant to Articles 1678 and 548 of the Civil Code.43 The dispositive
portion of the CA Decision dated 25 April 2008 44 reads:
WHEREFORE, the assailed Decision is AFFIRMED with the following MODIFICATIONS:
1. The case is REMANDED to the court of origin for further proceedings to determine the
facts essential to the application of Article 1678 and Article 546 of the Civil Code, specifically on the
following matters:

a) To determine the cost of necessary expenses incurred by petitioners during their period of
possession.

b) To determine the cost of useful improvements introduced by petitioners in the construction of
the building.

2. After said amounts shall have been determined by competent evidence:

a) Respondents Aquino are ordered to pay petitioners the costs of necessary improvements
incurred during the period of their occupation.

b) Petitioners Aguilar are to be reimbursed one half (1/2) of the amount they expended on the
construction of the building should respondents decided to appropriate the same.
Should respondents refuse to reimburse the costs of the improvements, petitioners
may remove the improvements even though the principal thing may suffer damage
thereby.

c) In both instances, petitioners shall have no right of retention over the subject premises.

d) In any event, petitioners shall pay respondents the amount of Php7,000.00 as monthly rental
commencing 22 October 2003 until such time that petitioners finally vacate the
premises. No pronouncement as to costs.

SO ORDERED. 45
Respondents no longer appealed the Decision of the CA. This time, petitioners elevated the matter to this
Court through the instant Petition for Review 46 under Rule 45 of the Rules of Court.
PROCEEDINGS BEFORE THIS COURT
In their Petition, petitioners allege that the CA seriously erred in remanding the case to the court of origin for
the purpose of ascertaining the right of respondents to be reimbursed for the improvements introduced on the
property. 47 They emphasize that respondents were builders in bad faith, and, as such, are not entitled to
reimbursement under Articles 449, 450 and 451 of the Civil Code.
 In their Comment, 48 respondents assert that the CA correctly ruled that their status is akin to that of a lessee
or tenant whose term of lease has expired, but whose occupancy continues by virtue of the tolerance of the owner.
They aver that the CA properly upheld their entitlement to reimbursement pursuant to Articles 1678  49 and 546 50 of
the Civil Code.51
In their Reply, 52 petitioners argue against supposed improvements constructed by respondents from 1999 to
2003 amounting to P995,995.94. Petitioners say this claim is highly ridiculous and unbelievable. 53 acEHCD
OUR RULING
Since respondents no longer appealed the Decision of the CA, 54 they are considered bound by its findings
and conclusions. These include its affirmation of the earlier findings of the MeTC and the RTC that respondents
cannot be considered builders in good faith:
Both the MeTC and the RTC have rejected the idea that petitioners are builders in good faith.
We agree. The resolution of the issues at bar calls for the application of the rules on accession under
the Civil Code. The term "builder in good faith" as used in reference to Article 448 of the Civil Code,
refers to one who, not being the owner of the land, builds on that land believing himself to be its
owner and unaware of the land, builds on that land, believing himself to be its owner and unaware of
the defect in his title or mode of acquisition. The essence of good faith lies in an honest belief in the
validity of one's right, ignorance of a superior claim, and absence of intention to overreach another.
In the instant case, the Spouses Aguilar cannot be considered as builders in good faith on
account of their admission that the subject lot belonged to the Spouses Aquino when they
constructed the building. At the onset, petitioners were aware of a flaw in their title and a limit to their
right to possess the property. By law, one is considered in good faith if he is not aware that there
exists in his title or mode of acquisition any flaw which invalidates it. 55
Respondents are deemed to have acquiesced to the foregoing findings when they failed to appeal the CA
Decision. A party who does not appeal from a judgment can no longer seek the modification or reversal
thereof. 56 Accordingly, the only issue left for this Court to determine is that which is now raised by petitioners —
whether the CA erred in remanding this case to the court of origin for the determination of the necessary and useful
expenses to be reimbursed to respondents pursuant to Articles 1678 and 546 of the Civil Code. SDHTEC
We resolve to PARTLY GRANT the Petition and modify the ruling of the CA.
Article 1678 is not applicable to this case.
In its Decision, the CA found that respondents were occupants of the property by mere tolerance or
generosity of petitioners and were bound by an implied promise to vacate the premises upon demand. 57
Based on this finding, the CA held that "the status of petitioners is analogous to that of a lessee or a tenant
whose term of lease has expired but whose occupancy continued by tolerance of owner" 58 pursuant to this Court's
ruling in Calubayan v. Pascual. 59 As a result, the CA concluded that Articles 1678 and 546 of the Civil Code must be
applied to allow respondents to be reimbursed for their necessary and useful expenses.
We disagree. By its express provision, Article 1678 of the Civil Code applies only to lessees who build useful
improvements on the leased property. It does not apply to those who possess property by mere tolerance of the
owners, without a contractual right.
A careful reading of the statement made by this Court in Calubayan would show that it did not, as it could not,
modify the express provision in Article 1678, but only noted an "analogous" situation. According to the Court, the
analogy between a tenant whose term of lease has expired and a person who occupies the land of another at the
latter's tolerance lies in their implied obligation to vacate the premises upon demand of the owner. The Court
stated: AScHCD
To begin with, it would appear that although the defendant is regarded by the plaintiffs as a
"squatter" his occupancy of the questioned premises had been permitted or tolerated even before the
Philippine Realty Corporation sold the lots to the plaintiffs. Otherwise, the latter would not have found
him on the premises. It may be true that upon their acquisition of the parcels of land in 1957, plaintiffs
notified and requested defendant to see them, but despite defendant's failure to heed these requests,
plaintiffs did not choose to bring an action in court but suffered the defendant instead to remain in the
premises for almost six years. Only on February 2, 1963, did the plaintiffs for the first time notify the
defendant that "they now need the two parcels of land in question" and requested him to vacate the
same. In allowing several years to pass without requiring the occupant to vacate the premises nor
filing an action to eject him, plaintiffs have acquiesced to defendant's possession and use of the
premises. It has been held that a person who occupies the land of another at the latter's tolerance or
permission, without any contract between them, is necessarily bound by an implied promise that he
 will vacate upon demand, failing which a summary action for ejectment is the proper remedy against
them. The status of defendant is analogous to that of a lessee or tenant whose term of lease has
expired but whose occupancy continued by tolerance of the owner. In such a case, the unlawful
deprivation or withholding of possession is to be counted from the date of the demand to
vacate. 60 (Emphasis in the original)
It is clear from the above that Calubayan is not sufficient basis to confer the status and rights of a lessee on
those who occupy property by mere tolerance of the owner.
In this case, there is absolutely no evidence of any lease contract between the parties. In fact, respondents
themselves never alleged that they were lessees of the lot or the building in question. Quite the opposite, they insisted
that they were co-owners of the building and builders in good faith under Article 448 of the Civil Code.For that reason,
respondents argue that it was erroneous for the CA to consider them as lessees and to determine their rights in
accordance with Article 1678.
As builders in bad faith, respondents are
not entitled to reimbursement of useful
expenses.
Furthermore, even if we were to subscribe to the CA's theory that the situation of respondents is "analogous
to that of a lessee or tenant whose term of lease has expired but whose occupancy continued by tolerance," the
absence of good faith on their part prevents them from invoking the provisions of Article 1678. AcICHD
As discussed above, the MeTC, the RTC and the CA all rejected the claims of respondents that they were
builders in good faith. This pronouncement is considered conclusive upon this Court, in view of respondents' failure to
appeal from the CA decision. This rule bars the application of Article 1678 as well as Articles 448 and 576 of the Civil
Code and all other provisions requiring good faith on the part of the builder.
 
We are aware that in some instances, this Court has allowed the application of Article 448 to a builder who
has constructed improvements on the land of another with the consent of the owner. 61 In those cases, the Court
found that the owners knew and approved of the construction of improvements on the property. Hence, we ruled
therein that the structures were built in good faith, even though the builders knew that they were constructing the
improvement on land owned by another.
Although the factual circumstances in the instant case are somewhat similar, there is one crucial factor that
warrants a departure from the above-described rulings: the presence of evidence that
petitioners prohibited respondents from building their own structure on a portion of the property.
Based on the findings of fact of the MeTC and the RTC, petitioners had already warned respondents not to
build a structure on the property as early as 1983. The MeTC explained:
Likewise, in a letter dated 15 July 1983 sent by plaintiffs to the defendants marked as Exhibit
"2" of defendants' Position Paper, Teresa Aquino made known to the defendants not to construct on
the premises as she planned to sell the same when the value of the property shall increase (sic).
Defendants are undoubtedly builders in bad faith for despite the prohibition made upon them, they
continued their construction activities upon respondents' property. 62
This ruling was affirmed by the RTC in its Decision dated 3 January 2006, which reads: TAIaHE
An examination of appellants' Exhibit "2" which is a letter dated July 15, 1983, sent to
appellant Josefina Aguilar, the sister of appellee Teresa Aquino, abundantly shows that their
occupancy of the premises in question is by tolerance of the appellees. Thus, the letter expressly
states that the appellants are advised not to put up a shop, as the appellees had plan (sic) then of
disposing the property (the land) in question for a reasonable profit after a period of three or four
years, thereby placing on notice them (appellants) that their possession of the said property is
temporary in nature and by mere generosity of the appellees, they being sisters.
The letter likewise advised them to apply for a housing project so that by the time the property
in question is sold, they have a place to transfer to. All these undisputed antecedents which can be
considered as judicially admitted by the appellants being their own evidence marked as Exhibit "2",
coupled with the fact that since the time they occupied the premises in 1983 up to the time when the
complaint was filed, they were not asked to pay any monthly rental for the use, enjoyment and
occupancy of the said property, ineluctably established the fact that their possession of the said
property is by mere tolerance of the appellees. 63
xxx xxx xxx
 Their contention that pursuant to Article 453 of the Civil Code, they should be considered
builders in good faith even if they have acted in bad faith, since their act of introducing improvements
to one-half of the third floor of the three storey building was with knowledge and without opposition on
the part of the appellants, cannot be sustained, principally on the ground that as stated earlier, their
Exhibit "2" is very limpid on the act that they were already forewarned as early as 1983 not to
introduce any improvements thereon as the property is slated to be sold as it was only bought for
investment purposes. The fact that the appellees did not thereafter remind them of this, is of no
moment, as this letter was not likewise withdrawn by a subsequent one or modified by the
appellees. 64
We find no reason to depart from the conclusions of the trial courts. Respondents were evidently prohibited by
petitioners from building improvements on the land because the latter had every intention of selling it. That this sale
did not materialize is irrelevant. What is crucial is that petitioners left respondents clear instructions not to build on the
land. cDHAES
We also agree with the RTC's ruling that the lack of constant reminders from petitioners about the
"prohibition" expressed in the 1983 letter was immaterial. The prohibition is considered extant and continuing since
there is no evidence that this letter was ever withdrawn or modified. Moreover, no evidence was presented to show
that petitioners were aware of what was happening: that respondents were constructing a portion of the building with
their own funds and for their exclusive use and ownership. Neither were respondents able to present evidence that
petitioners had agreed to share the expenses with them, or that the former had given consent to the latter's
contribution, if any.
In view of the foregoing, this Court's previous rulings on Article 448 cannot be applied to this case. Hence, we
hold that petitioners, as the owners of the land, have the right to appropriate what has been built on the property,
without any obligation to pay indemnity therefor; 65 and that respondents have no right to a refund of any
improvement built therein, 66 pursuant to Articles 449 and 450 of the Civil Code:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or sowed; or
he may compel the builder or planter to pay the price of the land, and the sower the proper rent.
Art. 451. In the cases of the two preceding articles, the landowner is entitled to damages from
the builder, planter or sower.
Respondents may recover the
necessary expenses incurred for the
preservation of the property but
without the right of retention. ASEcHI
Pursuant to Article 452 of the Civil Code, a builder in bad faith is entitled to recoup the necessary expenses
incurred for the preservation of the land. 67 The CA correctly ruled that respondents in this case are similarly entitled
to this reimbursement. However, being builders in bad faith, they do not have the right of retention over the
premises. 68
While the evidence before this Court does not establish the amount of necessary expenses incurred by
respondents during their stay in the property, we note that even petitioners do not deny that such expenses were
incurred. In fact, in a letter dated 15 July 1983, petitioners acknowledged that respondents had spent personal money
for the maintenance of the property. Petitioners even promised to reimburse them for those expenses.  69 In this light,
we find it proper to order the remand of this case to the court a quo for the purpose of determining the amount of
necessary expenses to be reimbursed to respondents.
With respect to the award of actual damages to petitioners, we find no reason to reverse or modify the ruling
of the CA. This Court has consistently held that those who occupy the land of another at the latter's tolerance or
permission, even without any contract between them, are necessarily bound by an implied promise that the occupants
would vacate the property upon demand. 70 Failure to comply with this demand renders the possession unlawful and
actual damages may be awarded to the owner from the date of the demand to vacate  71 until the actual surrender of
the property.
Accordingly, we affirm the CA's award of actual damages to petitioners in the amount of P7,000 per month
from the date of demand (22 October 2003) until the subject properties are vacated. This amount represents a
reasonable compensation for the use and occupation of respondents' property 72 as determined by the RTC and the
MeTC.
 As to petitioners' prayer for attorney's fees, we find no cogent basis for the award.
WHEREFORE, the Petition is PARTLY GRANTED.
The Court of Appeals Decision dated 25 April 2008 is REVERSED insofar as it ordered: (a) the
reimbursement of the useful expenses incurred by respondents while in possession of the property; and (b) the
determination of the cost of these useful improvements by the court of origin. The rest of the Decision of the Court of
Appeals is hereby AFFIRMED. ITAaHc
Accordingly, this case is REMANDED to the court of origin for the determination of the necessary expenses of
preservation of the land, if any, incurred by respondent spouses Eusebio and Josefina Aguilar while they were in
possession of the property, which expenses shall be reimbursed to them by petitioner spouses Crispin and Teresa
Aquino.
On the other hand, respondents and all persons claiming rights under them are ordered, upon finality of this
Decision without awaiting the resolution of the matter of necessary expenses by the trial court, to
immediately VACATE the subject property and DELIVER its peaceful possession to petitioners. Respondents are
likewise ordered to PAY petitioners P7,000 as monthly rental plus interest thereon at the rate of 6% per annum, to be
computed from 22 October 2003 until the finality of this Decision.
No pronouncement as to costs.
SO ORDERED.

|||  (Spouses Aquino v. Spouses Aguilar, G.R. No. 182754, [June 29, 2015], 762 PHIL 52-72)

SECOND DIVISION

[G.R. No. 152423. December 15, 2010.]

SPOUSES MARCOS R. ESMAQUEL and VICTORIA SORDEVILLA,  petitioners, vs. MARIA

COPRADA, respondent.

DECISION

PERALTA, J  p:

Before this Court is a petition for review on certiorari  under Rule 45 of the Rules of Court seeking to set aside
the Decision 1 and the Resolution 2 of the Court of Appeals, dated April 6, 2001 and February 15, 2002, respectively,
(CA) in CA-G.R. SP No. 49994.
The antecedents are as follows:
On February 24, 1997, petitioners, spouses Marcos Esmaquel and Victoria Sordevilla (Victoria) filed an
ejectment case 3 against respondent Maria V. Coprada before the 2nd Municipal Circuit Trial Court (MCTC) of
Magdalena, Liliw and Majayjay Laguna. Petitioners claimed that they are the registered owners of a parcel of land
situated in M.H. Del Pilar St., Barangay  San Miguel, Majayjay, Laguna, containing an area of Two Hundred Fifty-
Three (253) square meters and covered by Transfer Certificate of Title (TCT) No. T-93542. In 1945, respondent was
able to persuade the petitioners to allow her and her family to use and occupy the land for their residence, under the
condition that they will vacate the premises should petitioners need to use the same. Respondent and her family were
allowed to construct their residential house. Since then, the petitioners never made an attempt to drive them away out
of pity, knowing that respondent and her eight children have no other place to live in. Also, respondent and her family
have been occupying the subject premises free of rent, including payment of realty taxes. Respondent's present
circumstances have completely improved,  i.e., some of her children are already working; they are regularly sending
her financial assistance; and she has acquired her own residential house at  Barangay Panglan, Majayjay, Laguna.
Because of this, petitioners verbally demanded that respondent vacate the subject land, but the latter refused. Thus,
petitioners were forced to send a demand letter dated August 22, 1996, giving respondent until November 30, 1996 to
vacate the subject premises. However, respondent still ignored said demand, which prompted petitioners to bring a
complaint before the  barangay authorities. No settlement was reached, hence, a certification to file action in Court
was issued. Petitioners were, therefore, constrained to lodge an ejectment case against the respondent before the
MCTC. CHTcSE
Respondent admitted that petitioners are the registered owners of the subject land. However, she averred
that in 1945, it was Emiliana Coprada (petitioner Victoria Sordevilla's mother and original owner of the subject land)
and not the petitioners who gave permission to her late husband Brigido Coprada to use the subject lot. Emiliana
allowed her nephew Brigido and his family to occupy the lot as their permanent abode, because of her love and
affection for her nephew, and also, due to the fact that the said lot is virtually a wasteland. Thereafter, Brigido and his
family cleared the area and built therein a nipa hut to dwell in. When Emiliana died, the ownership of the property was
inherited by her only child, petitioner Victoria Sordevilla. Respondent alleged that sometime in the early 1960's,
petitioner Victoria offered the said lot for sale for P2,000.00 to respondent, who readily agreed. The purchase price
was paid in installments and was fully paid in 1962. Due to their close relationship, the agreement was never reduced
to writing. Respondent further maintained that since the execution of the oral sale of the subject lot, she has been the
one paying the realty taxes due on the property. After the sale, respondent built on the subject land a semi-concrete
structure. Respondent stated that petitioners' claim is barred by laches. Even granting, without admitting, that
respondent's claim of ownership over the property is improper because petitioners are the registered owners thereof,
respondent argued that she is a builder in good faith, because she was able to build the structure on the subject lot
with the prior permission of the owner.
In its Decision 4 dated September 11, 1997, the MCTC rendered judgment dismissing the complaint. It held
that laches had already set in which prevented petitioners from questioning the validity of the purported sale between
Victoria and Maria.
On appeal, the Regional Trial Court (RTC) reversed the MCTC's judgment. The RTC ruled that respondent's
occupation of the subject property was by virtue of petitioners' tolerance and permission. Hence, respondent is bound
by an implied promise that she will vacate the property upon demand. Thus, her possession over the subject property
became unlawful after the petitioners demanded her to vacate the property. The RTC found that respondent failed to
prove the alleged oral sale and that petitioners have adequately proven that they are entitled to the possession of the
subject land as registered owners thereof. The RTC ordered the respondent and all other persons claiming rights
under her to vacate and surrender the possession of the subject land to the petitioners and to remove any and all
improvements she introduced on the parcel of land. 5
Respondent filed a Motion for Reconsideration, which was denied by the RTC in an Order 6 dated November
24, 1998. Obviously dissatisfied by the Decision, respondent filed with the CA a petition for review with prayer for
temporary restraining order and preliminary injunction. 7
In its Decision dated April 6, 2001, the CA granted respondent's petition, reversed the Decision of the RTC
and affirmed in toto the Decision of the MCTC. Petitioners filed a Motion for Reconsideration, which was denied by
the CA in a Resolution 8 dated February 15, 2002. Hence, the instant petition raising the following grounds: TCacIA
I
THE RIGHT OF THE REGISTERED OWNERS TO RECOVER POSSESSION IS NEVER BARRED BY
LACHES AND/OR THE PERSON WHO HAS A TORRENS TITLE OVER A PARCEL OF LAND IS
ENTITLED TO THE POSSESSION THEREOF.
II
THE OWNERSHIP AND RIGHT OF PETITIONERS TO RECOVER POSSESSION OF THE SUBJECT
PROPERTY CANNOT BE DEFEATED BY UNPROVEN ORAL SALE.
III
LACHES HAD SET IN AGAINST [RESPONDENT].
IV
THE CERTIFICATE OF TITLE IS NOT SUBJECT TO COLLATERAL ATTACK. 9
The petition is meritorious.
The pertinent point of inquiry in this case is whether or not petitioners have a valid ground to evict respondent
from the subject property.
An action for forcible entry or unlawful detainer is governed by Section 1, Rule 70 of the Rules of Court, which
provides:
 SECTION 1. Who may institute proceedings, and when. — Subject to the provisions of the next
succeeding section, a person deprived of the possession of any land or building by force, intimidation,
threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against whom the possession of
any land or building is unlawfully withheld after the expiration or termination of the right to hold
possession by virtue of any contract, express or implied, or the legal representatives or assigns of any
such lessor, vendor, vendee, or other person, may, at any time within one (1) year after such unlawful
deprivation or withholding of possession, bring an action in the proper Municipal Trial Court against the
person or persons unlawfully withholding or depriving of possession, or any person or persons claiming
under them, for the restitution of such possession, together with damages and costs.
In unlawful detainer cases, the possession of the defendant was originally legal, as his possession was
permitted by the plaintiff on account of an express or implied contract between them. However, defendant's
possession became illegal when the plaintiff demanded that defendant vacate the subject property due to the
expiration or termination of the right to possess under their contract, and defendant refused to heed such
demand. 10 ETDAaC
The sole issue for resolution in an unlawful detainer case is physical or material possession of the property
involved, independent of any claim of ownership by any of the parties. Where the issue of ownership is raised by any
of the parties, the courts may pass upon the same in order to determine who has the right to possess the property.
The adjudication is, however, merely provisional and would not bar or prejudice an action between the same parties
involving title to the property. 11 Since the issue of ownership was raised in the unlawful detainer case, its resolution
boils down to which of the parties' respective evidence deserves more weight.
In the case at bar, petitioners' cause of action for unlawful detainer is based on their ownership of the land
covered by TCT No. T-93542 and on their claim that they merely tolerated respondent's stay thereat. Respondent's
possession, as well as those persons claiming right under her, became unlawful upon her refusal to vacate the
premises. Petitioners contend that since they are the registered owners of the subject land, they are entitled to the
possession thereof and their right to recover possession over it is never barred by laches. They maintain that
respondent's claim of ownership is based on an unproven oral sale, which does not exist. Further, respondent cannot
rely on the Tax Declarations as she was paying taxes in the petitioners' name, as the declared owners of the property.
Moreover, she started paying the taxes only in 1984 despite her claim that the property was sold to her in 1962. Even
assuming that the sale took place in 1962, respondent is guilty of laches as she failed to take any positive action for
the delivery and conveyance to her of the portion of the property she is occupying. Finally, respondent cannot
collaterally attack the title of the petitioners to the subject land.
On her part, respondent, although admitting that the property is registered in petitioners' name, claimed that
the 100-square-meters portion of the property, where her house was erected, was already sold to her by petitioner
Victoria. Thus, by virtue of the sale, she and her family have the right to possess the said property. The non-
presentation of receipt and deed of sale, non-delivery of the owner's certificate of title, and her payment of the real
property taxes in the name of the petitioners were due to the close relationship between the parties and the existing
practice of palabra de honor in their day to day transactions. Respondent further alleged that she is not guilty of
laches; rather, it is the registered owners' right to recover possession of their property which is barred by laches. 
In the present case, respondent failed to present evidence to substantiate her allegation that a portion of the
land was sold to her in 1962. In fact, when petitioners sent a letter 12 to the respondent, demanding her to vacate the
subject property, the respondent, in reply 13 to the said letter, never mentioned that she purchased the subject land in
1962. If the sale really took place, the respondent should have immediately and categorically claimed that in her letter
response. Clearly therefore, respondent's submission that there was an oral sale is a mere afterthought.
On the other hand, it is undisputed that the subject property is covered by Transfer Certificate of Title No. T-
93542, registered in the name of the petitioners. As against the respondent's unproven claim that she acquired a
portion of the property from the petitioners by virtue of an oral sale, the Torrens title of petitioners must prevail.
Petitioners' title over the subject property is evidence of their ownership thereof. It is a fundamental principle in land
registration that the certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in
favor of the person whose name appears therein. Moreover, the age-old rule is that the person who has a Torrens title
over a land is entitled to possession thereof. 14 AcEIHC
Further, respondent's argument that petitioners are no longer the owners of a portion of the subject land
because of the sale in her favor is a collateral attack on the title of the petitioners, which is not allowed. The validity of
petitioners' certificate of title cannot be attacked by respondent in this case for ejectment. Under Section 48
of Presidential Decree No. 1529, a certificate of title shall not be subject to collateral attack. It cannot be altered,
modified or canceled, except in a direct proceeding for that purpose in accordance with law. The issue of the validity
of the title of the petitioners can only be assailed in an action expressly instituted for that purpose. Whether or not the
respondent has the right to claim ownership over the property is beyond the power of the trial court to determine in an
action for unlawful detainer. 15
 In Rodriguez v. Rodriguez, 16 citing the case of Co v. Militar, 17 the Court held that:
[T]he Torrens System was adopted in this country because it was believed to be the most
effective measure to guarantee the integrity of land titles and to protect their indefeasibility once the
claim of ownership is established and recognized.
It is settled that a Torrens Certificate of title is indefeasible and binding upon the whole world
unless and until it has been nullified by a court of competent jurisdiction. Under existing statutory and
decisional law, the power to pass upon the validity of such certificate of title at the first instance properly
belongs to the Regional Trial Courts in a direct proceeding for cancellation of title.
As the registered owner, petitioner had a right to the possession of the property, which is one of
the attributes of ownership. . . .
Anent the issue on laches, the CA's ruling that petitioners' long inaction to assert their rights over the subject
land bars them from recovering the same is without basis. Also, the doctrine invoked by the appellate court that a
registered owner may loose his right to recover its possession by reason of laches is not applicable here.
Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by
exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a
reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to
assert it. 18 There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be
determined according to its particular circumstances, with the question of laches addressed to the sound discretion of
the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and should
not be used to defeat justice or to perpetuate fraud or injustice. 19 TcSHaD
Respondent first acquired possession of the subject lot by mere tolerance. From 1945 until the filing of the
complaint for ejectment in 1997, the nature of that possession has never changed. Petitioners allowed the respondent
to possess the property with the knowledge that the respondent will vacate the same upon demand. Hence, until such
demand to vacate was communicated by the petitioners to the respondent, petitioners are not required to do any act
to recover the subject land, precisely because they knew of the nature of the respondent's possession,  i.e.,
possession by mere tolerance. Thus, it cannot be said that petitioners are guilty of failure or neglect to assert a right
within a reasonable time. Further, after the petitioners gave a demand letter to the respondent giving the latter until
November 30, 1996 to vacate the subject premises, which respondent failed to heed, they immediately filed a
complaint before the barangay  authorities and, thereafter, lodged an ejectment case before the MCTC on February
24, 1997. In sum, We find that petitioners are not guilty of laches as would bar their claim to the property in question.
In contrast, respondent, who is claiming that a portion of the property was sold to her in 1962, has herself
failed within a long period of time to have that portion transferred in her name. Respondent had to wait for almost 35
years since 1962, and were it not for the filing of the ejectment suit in 1997, she would not have bothered to assert her
rights under the alleged sale. Respondent's failure to assert that right only goes to prove that no sale ever transpired
between the parties.
Moreover, as the registered owners, petitioners' right to eject any person illegally occupying their property is
not barred by laches. In Gaudencio Labrador, represented by  Lulu Labrador Uson, as Attorney-in-Fact v. Spouses
Ildefonso Perlas and Pacencia Perlas and Spouse Rogelio Pobre  and Melinda Fogata Pobre, 20 the Court held that:
. . . As a registered owner, petitioner has a right to eject any person illegally occupying
his property. This right is imprescriptible and can never be barred by laches. In Bishop v. Court
of Appeals, we held, thus:
As registered owners of the lots in question, the private respondents have a right to
eject any person illegally occupying their property. This right is imprescriptible. Even if it be
supposed that they were aware of the petitioners' occupation of the property, and regardless of
the length of that possession, the lawful owners have a right to demand the return of their
property at any time as long as the possession was unauthorized or merely tolerated, if at all.
This right is never barred by laches.
Since respondent's occupation of the subject lot is by mere tolerance or permission of the petitioners, without
any contract between them, respondent is bound by an implied promise that she will vacate the same upon demand,
failing which a summary action for ejectment is the proper remedy against her. 21 AaIDHS
In respondent's Answer filed before the MCTC, she claimed that since she was able to build a structure on the
subject lot with the prior permission from the owner, she is a builder in good faith and thus entitled to be reimbursed
the necessary and useful expenses under Articles 546 and 548 of the Civil Code of the Philippines. Without such
reimbursement, she has the right of retention over the property and she cannot just be ejected from the premises.
 Respondent's argument does not hold water. Since respondent's occupation of the subject property was by
mere tolerance, she has no right to retain its possession under Article 448 of the Civil Code.She is aware that her
tolerated possession may be terminated any time and she cannot be considered as builder in good faith. 22 It is well
settled that both Article 448 23 and Article 546 24 of the New Civil Code, which allow full reimbursement of useful
improvements and retention of the premises until reimbursement is made, apply only to a possessor in good faith,  i.e.,
one who builds on land with the belief that he is the owner thereof. Verily, persons whose occupation of a realty is by
sheer tolerance of its owners are not possessors in good faith. 25 At the time respondent built the improvements on
the premises in 1945, she knew that her possession was by mere permission and tolerance of the petitioners; hence,
she cannot be said to be a person who builds on land with the belief that she is the owner thereof.
Respondent's reliance on her payment of realty taxes on the property is unavailing. She started paying taxes
only in 1984 despite her claim that she bought the property in 1962. Further, aside from the rule that tax declarations
and corresponding tax receipts cannot be used to prove title to or ownership of a real property inasmuch as they are
not conclusive evidence of the same, 26 the RTC found that although the payment for said taxes were received from
respondent, the declared owner was petitioner Victoria.
It must be stressed, however, that the court's adjudication of ownership in an ejectment case is merely
provisional, and affirmance of the RTC's decision would not bar or prejudice an action between the same parties
involving title to the property, if and when such action is brought seasonably before the proper forum. 27
WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals, dated
April 6, 2001 and February 15, 2002, respectively, in CA-G.R. SP No. 49994, affirming the Decision of the 2nd
Municipal Circuit Trial Court in Civil Case No. 1875, are REVERSED and SET ASIDE. The Decision of the Regional
Trial Court of Santa Cruz, Laguna, Branch 26, in Civil Case No. SC-3580, is REINSTATED. cIETHa 
SO ORDERED.

|||  (Spouses Esmaquel v. Coprada, G.R. No. 152423, [December 15, 2010], 653 PHIL 96-110)

FIRST DIVISION

[G.R. No. L-49219. April 15, 1988.]

SPOUSES CONCEPCION FERNANDEZ DEL OCAMPO and ESTANISLAO DEL CAMPO, plaintiffs-

appellees, vs. BERNARDA FERNANDEZ ABESIA,  defendant-appellant.

Geronimo Creer, Jr. for plaintiffs-appellees.

Benedicto G. Cobarde for defendant-appellant.

SYLLABUS

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

DECISION

GANCAYCO, J p:

In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified to this Court by the Court
of Appeals on account of the question of law involved, the sole issue is the applicability of the provisions of Article 448
of the Civil Code relating to a builder in good faith when the property involved is owned in common.
This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu, with an area of only about
45 square meters, situated at the corner of F. Flores and Cavan Streets, Cebu City covered by TCT No. 61850. An
action for partition was filed by plaintiffs in the CFI of Cebu. Plaintiffs and defendants are co-owners   pro indiviso of
this lot in the proportion of 2/3 and 1/3 share each, respectively. The trial court appointed a commissioner in
accordance with the agreement of the parties. The said commissioner conducted a survey, prepared a sketch plan
and submitted a report to the trial court on May 29, 1976, recommending that the property be divided into two lots: Lot
1161-A with an area of 30 square meters for plaintiffs and Lot No. 1161-B with an area of 15 square meters for the
defendants. The houses of plaintiffs and defendants were surveyed and shown on the sketch plan. The house of
defendants occupied the portion with an area of 5 square meters of Lot 1161-A of plaintiffs. The parties manifested
their conformity to the report and asked the trial court to finally settle and adjudicate who among the parties should
take possession of the 5 square meters of the land in question.
In solving the issue the trial court held as follows:
"The Court believed that the plaintiffs cannot be obliged to pay for the value of the portion of the
defendant's house which has encroached an area of five (5) sq. meters of the land allotted to them. The
defendants cannot also be obliged to pay for the price of the said five (5) square meters. The rights of a
builder in good faith under Article 448 of the New Civil Code does (sic) not apply to a case where one
co-owner has built, planted or sown on the land owned in common. 'Manresa agreeing with Sanchez
Roman, says that as a general rule this article is not applicable because the matter should be governed
more by the provisions on co-ownership than on accession. Planiol and Ripert are also of the opinion
that this article is not applicable to a co-owner who constructs, plants or sows on the community
property, even if the land where the construction, planting or sowing is made is later allotted to another
co-owner in the partition. The co-owner is not a third person under the circumstances, and the situation
is governed by the rules of co-ownership. Our Court of Appeals has held that this article cannot be
invoked by one co-owner against another who builds, plants or sows upon their land, since the latter
does not do so on land not belonging to him.' (Tolentino, Civil Code of the Philippines, Vol. II, p. 102,
citing 3 Manresa 215, 3 Planiol and Ripert 245, and Viuda de Arias vs. Aguilar, (C A.), O.G. Supp., Aug.
30, 1941, p. 126). In the light of the foregoing authorities and considering that the defendants have
expressed their conformity to the partition that was made by the commissioner as shown in the sketch
plan attached to the commissioner's report, said defendants have no other alternative except to remove
and demolish part of their house that has encroached an area of five (5) sq. meters of the land allotted
to the plaintiffs. LLphil
"WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an area of thirty (30)
sq. meters to the plaintiffs spouses Concepcion Fernandez del Campo and Estanislao del Campo and
Lot 1161-B with an area of fifteen (15) sq. meters to the defendants Bernarda Fernandez Abesia,
Lourdes Fernandez Rodil, Genaro Fernandez and Dominga A. Fernandez, in the respective metes and
bounds as shown in the subdivision sketch plan attached to the Commissioner's Report dated May 29,
1976 prepared by the Commissioner, Geodetic Engineer Espiritu Bunagan. Further, the defendants are
hereby ordered at their expense to remove and demolish part of their house which has encroached an
area of five (5) square meters from Lot 1161-A of the plaintiffs; within sixty (60) days from date hereof
and to deliver the possession of the same to the plaintiffs. For the Commissioner's fee of P400.00, the
defendants are ordered to pay, jointly and severally, the sum of P133.33 and the balance thereof to be
paid by the plaintiffs. The costs of suit shall be paid by the plaintiffs and the defendants in the proportion
 of two-thirds (2/3) and one-third (1/3) shares respectively. A certified copy of this judgment shall be
recorded in the office of the Register of Deeds of the City of Cebu and the expense of such recording
shall be taxed as a part of the costs of the action."
Hence, this appeal interposed by the defendants with the following assignments of errors:

"I

THE TRIAL COURT ERRED IN NOT APPLYING THE RIGHTS OF A BUILDER IN GOOD
FAITH UNDER ART. 448 OF THE NEW CIVIL CODE TO DEFENDANTS-APPELLANTS WITH
RESPECT TO THAT PART OF THEIR HOUSE OCCUPYING A PORTION OF THE LOT ASSIGNED
TO PLAINTIFFS-APPELLEES.

II

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS-APPELLANTS TO REMOVE AND

DEMOLISH AT THEIR EXPENSE, THAT PART OF THEIR HOUSE WHICH HAS ENCROACHED ON
AN AREA OF FIVE SQUARE METERS OF LOT 1161-A OF PLAINTIFFS-APPELLEES."
Article 448 of the New Civil Code provides as follows:
"Art. 448. The owner of the land on which anything has been built, sown, or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged
to buy the land if its value is considerably more than that of the building or trees. In such case, he shall
pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after
proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the
court shall fix the terms thereof." LexLib
The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants
or sows on the land owned in common for then he did not build, plant or sow upon land that exclusively belongs to
another but of which he is a co-owner. The co-owner is not a third person under the circumstances, and the situation
is governed by the rules of co-ownership. 1
However, when, as in this case, the co-ownership is terminated by the partition and it appears that the house
of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the
defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply.
Manresa and Navarro Amandi agree that the said provision of the Civil Code may apply even when there was co-
ownership if good faith has been established. 2
Applying the afore-said provision of the Civil Code, the plaintiffs have the right to appropriate said portion of
the house of defendants upon payment of indemnity to defendants as provided for in Article 546 of the Civil Code.
Otherwise, the plaintiffs may oblige the defendants to pay the price of the land occupied by their house. However, if
the price asked for is considerably much more than the value of the portion of the house of defendants built thereon,
then the latter cannot be obliged to buy the land. The defendants shall then pay the reasonable rent to the plaintiffs
upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms
thereof. Of course, defendants may demolish or remove the said portion of their house, at their own expense, if they
so decide.
WHEREFORE, the decision appealed from is hereby MODIFIED by ordering plaintiffs to indemnify
defendants for the value of the said portion of the house of defendants in accordance with  Article 546 of the Civil
Code, if plaintiffs elect to appropriate the same. Otherwise, the defendants shall pay the value of the 5 square meters
of land occupied by their house at such price as may be agreed upon with plaintiffs and if its value exceeds the
portion of the house that defendants built thereon, the defendants may choose not to buy the land but defendants
must pay a reasonable rental for the use of the portion of the land of plaintiffs as may be agreed upon between the
parties. In case of disagreement, the rate of rental shall be determined by the trial court. Otherwise, defendants may
remove or demolish at their own expense the said portion of their house. No costs. cdrep
SO ORDERED.

|||  (Spouses Del Campo v. Abesia, G.R. No. L-49219, [April 15, 1988], 243 PHIL 532-537)
 EN BANC

[G.R. No. L-21783. March 25, 1970.]

PACIFIC FARMS, INC.,  plaintiff-appellee, vs. SIMPLICIO G. ESGUERRA, ET AL., defendants,

CARRIED LUMBER COMPANY,  defendant-appellant.

SYLLABUS

1. REMEDIAL LAW; DISMISSAL OF COMPLAINT; NO IDENTITY OF ISSUE WITH EJECTMENT, INSTANT

CASE.— The theory that the issues in this case for ownership of building are identical to those litigated in the
ejectment case, which has been appealed to the same court and may have been assigned to another branch thereof
cannot justify the order of dismissal appealed from. The issue in the ejectment case, insofar as plaintiff herein is
concerned, is a procedural one-whether the City Court could decide it without passing upon the question whether
plaintiff had ceased to be the owner of its Market Building, which is beyond the jurisdiction of said court — whereas
the case at bar involves the merits of that question, namely, whether plaintiff is still the owner of such building.
Similarly, the issue in the land registration case is, likewise, one of procedure or jurisdiction — whether the court may,
under the provisions of Section 112 of Act No. 496, pass upon the question of ownership over the building, which is
claimed on the one hand, by Ocampo and, on the other, by plaintiff herein.
2. CIVIL LAW; LEASE; LEASE CONTRACT ALLEGEDLY SIMULATED; ISSUES NOT SUSCEPTIBLE OF
DETERMINATION IN EJECTMENT CASE OR LAND REGISTRATION CASE.— The alleged simulation of the lease
contract between Ocampo and Mrs. Yap, the question whether there had been a direct contract of lease between
Ocampo and plaintiff herein, whether Ocampo and Mrs. Yap had illegally and fraudulently conspired to deprive the
plaintiff of his title to the Market Building, and, for this purpose, made it appear falsely that Mrs. Yap had not turned
over to Ocampo the rentals paid to her by the plaintiff, in order to clear the way for the inscription, in TCT No. 36387 of
Manila, of Ocampo's alleged title to said building, and for plaintiff's ejectment therefrom, are obviously not susceptible
of determination, either in the ejectment case or in the land registration case, pursuant to Section 112 of Act 496.
3. REMEDIAL LAW; PROVISIONAL REMEDIES; INJUNCTIONS; BONDS; INADEQUACY OF BOND;
REMEDY.— As regards the alleged great damage caused to Ocampo by the issuance of the writ of preliminary
injunction and the alleged inadequacy of plaintiff's bond therefore, it is obvious that the lower court should have
merely required the plaintiff to increase the amount of said bond to such sum as may be deemed proper to protect
sufficiently the rights of Ocampo.
4. ID.; PROCEDURE; INDISPENSABLE PARTIES; STOCKHOLDERS OF CORPORATION NOT
INDISPENSABLE PARTIES.— The stockholders of plaintiff corporation are not indispensable parties in the instant
case for ownership of a building owned by the corporation, their interest being amply represented by plaintiff.
5. ID.; CIVIL ACTIONS; DISMISSAL NOT PROPER; PROPER PROCEDURE IN INSTANT CASE.— If
Branch XI of the Court cannot annul an order of Branch IV or other branches of the same court, what the trial court
should have done was, not to dismiss this case, but to order that the same be assigned to the branch handling the
land registration and/or the appeal in the ejectment case. After all, plaintiff herein had nothing to do with the
assignment thereof, made by somebody else, to a branch other than that handling the land registration case or the
appeal in the ejectment case.
6. ID.; ID.; PLEADING AND PRACTICE; FAILURE TO ATTACH TO COMPLAINT CERTIFIED COPIES OF
JUDGMENT OR ORDERS ASSAILED, NOT FATAL.— Plaintiff's failure to attach to the complaint in this case certified
copies of the judgment and orders assailed therein constituted, at most, an insubstantial defect of form, insofar as the
motion to dismiss is concerned, the same having hypothetically admitted the truth of the allegations of said complaint.
Considering that the Rules of Court should be construed liberally in order to promote the ends of justice, the lower
court should have merely ordered the plaintiff to submit the requisite copies, instead of dismissing the case.

RESOLUTION
CASTRO, J p:

Subject of this resolution is a motion filed by the plaintiff-appellee Pacific Farms, Inc. for reconsideration of our
decision of November 29, 1969.
Briefly stated, the plaintiff-appellee's first argument is that it should not have been found liable for the payment
of the unpaid portion of the procurement price of the lumber and construction materials furnished by the appellant to
its predecessor-in-interest, the Insular Farms, Inc., because it was a purchaser for value and in good faith of the six
buildings in question. The flaw in this argument lies in its assumption that the reason we held the appellee liable is
that it was not a buyer in good faith and for value, which is incorrect. When we applied article 447 of the Civil Code by
analogy to this case, we did so on the assumption that the plaintiff-appellee was in good faith. Thus, after quoting said
article, we stated:
"Although it does not appear from the records of this case that the land upon which the six
buildings were built is owned by the appellee, nevertheless, that the appellee claims that it owns the six
buildings constructed out of the lumber and construction materials furnished by the appellant, is
indubitable. Therefore, applying article 44 by analogy, we perforce consider the buildings as the
principal and the lumber and construction materials that went into their construction as the accessory.
Thus the appellee, if it does own the six buildings, must bear the obligation to pay for the value of the
said materials; the appellant — which apparently has no desire to remove the materials, and, even if it
were minded to do so, cannot remove them without necessarily damaging the buildings — has the
corresponding right to recover the value of the unpaid lumber and construction materials." (Decision,
pp. 4-5; italics supplied)
Indeed, because we assumed that the appellee was in good faith, we did not pronounce it liable for the
reparation of damages but only for the payment of the unpaid price of the lumber and construction materials due to
the appellant as unpaid furnisher thereof. Based on this same assumption, we likewise held that the appellant has no
right to remove the materials but only to recover the value of the unpaid lumber and construction materials. Thus,
since the appellee benefited from the accession, i.e., from the lumber and materials that went into the construction of
the six buildings, it should shoulder the compensation due to the appellant as unpaid furnisher of materials, pursuant
to the rule we cited in our decision that compensation should be borne by the person who has been benefited by the
accession.
Under the overall environmental circumstances of the case, considering that although the appellee was in a
better position to protect its own interest it took no action to intervene in the suit filed by the appellant against the
Insular Farms, Inc. or to hold the latter to account therefor, notwithstanding that it concededly acquired knowledge,
after its purchase from the Insular Farms, Inc., on March 21, 1958 of the six buildings in question; of the filing and
pendency of the appellant's suit for payment of the unpaid balance of the price of the lumber and construction
materials delivered to the Insular Farms, Inc. and used in the construction of the said buildings, the Court believes that
its decision upholding the sheriff's sale of the six buildings but granting the appellee the option of redeeming the same
by paying to the appellant the unpaid balance with interest owing to it as supplier of the construction materials, is
completely in consonance with justice and equity.
ACCORDINGLY, the plaintiff-appellee's motion for reconsideration dated December 12, 1969 is hereby
denied.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Villamor,
JJ., concur.

|||  (Pacific Farms, Inc. v. Esguerra, G.R. No. L-21783 (Resolution), [March 25, 1970], 143 PHIL 65-68)

FIRST DIVISION

[G.R. No. 115814. May 26, 1995.]

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

NUGUID, respondents.

Barbers Molina & Tamargo for petitioner.

 Benjamin C.  Reyes  for private respondents.

SYLLABUS

1. CIVIL LAW; PROPERTY; RIGHT OF ACCESSION; RULE ON BUILDER, SOWER PLANTER DOES NOT
APPLY IN CASE THE OWNERSHIP OF THE LAND IS LOST BY SALE OR DONATION. — 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. 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, 92 Phil. 387
[1952], (See EDGARDO L. PARAS, Civil Code of the Philippines Annotated, vol. Two, Eleventh ed. [1984], 192) 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.
2. ID.; ID.; POSSESSION, REIMBURSEMENT OF NECESSARY AND USEFUL EXPENSES; WHEN
APPLICABLE. — 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, (40 Phil. 717 [1920]) that the
said provision was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to
administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which
does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should
be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise
be allowed to acquire a highly value 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 had opted to appropriate the apartment building, the petitioner is thus entitled to
the possession and enjoyment of the apartment building, until he is paid the proper indemnity, as well as of the portion of
the lot where the building has been constructed. This is so because the right to retain the improvements while the
corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which it is built, planted or
sown. The petitioner not having been so paid, he was entitled to retain ownership of the building and, necessarily, the
income therefrom.

DECISION

DAVIDE, JR., J  p:

This petition for review on certiorari  seeks to set aside the decision 1 of the Court of Appeals in CA-G.R. SP
No. 32679 affirming in part the order 2 of the Regional Trial Court (RTC) of Quezon City, Branch 101, in Civil Case
No. Q-41470.
The factual and procedural antecedents of this case as gathered from the record are as follows:
Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias Street, Quezon City, on
which he built a four-door two-storey apartment building. For his failure to pay realty taxes amounting to twelve
thousand pesos (P12,000.00), the lot was sold at public auction by the City Treasurer of Quezon City to Mamerto
Nepomuceno who in turn sold it on 12 October 1983 to the private respondents, the spouses Juan Nuguid and Erlinda
Tan-Nuguid, for one hundred three thousand pesos (P103,000.00). LLphil
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 respondent's 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 respondent's motion to reconsider this issue, the trial court held that there was no legal basis for
the contention that the apartment building was included in the sale. 3
 Both parties then appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No.
2931. In its decision of 30 April 1992,4 the Court of Appeals affirmed in toto  the assailed decision. It also agreed with
the trial court that the apartment building was not included in the auction sale of the commercial lot. Thus:
Indeed, examining the record we are fully convinced that it was only the land — without the
apartment building — which was sold at the auction sale, for plaintiff's failure to pay the taxes due
thereon. Thus, in the Certificate of Sale of Delinquent Property To Purchaser (Exh. K, p. 352, Record)
the property subject of the auction sale at which Mamerto Nepomuceno was the purchaser is referred to
as Lot No. 21-A, Block No. K-34, at Kamias, Barangay Piñahan, with an area of 256.3 s.q.m., with no
mention whatsoever, of the building thereon. The same description of the subject property appears in
the Final Notice To Exercise The Right of Redemption (over subject property) dated September 14,
1981 (Exh. L, p. 353, Record) and in the Final Bill of Sale over the same property dated April 19, 1982
(Exh. P, p. 357, Record). Needless to say, as it was only the land without any building which
Nepomuceno had acquired at the auction sale, it was also only that land without any building which he
could have legally sold to the Nuguids. Verily, in the Deed of Absolute Sale of Registered Land
executed by Mamerto Nepomuceno in favor of the Nuguids on October 25, 1983 (Exh. U, p. 366,
Record) it clearly appears that the property subject of the sale for P103,000.00 was only the parcel of
land, Lot 21-A, Blk. K-34 containing an area of 256.3 sq. meters, without any mention of any
improvement, much less any building thereon. (Emphases supplied)
The petition to review the said decision was subsequently denied by this Court. 5 Entry of judgment was made
on 23 June 1993. 6
On November 1993, the private respondents filed with the trial court a motion for delivery of possession of the
lot and the apartment building, citing Article 546 of the Civil Code.  7 Acting thereon, the trial court issued on 15
November 1993 the challenged order 8 which reads as follows:
Submitted for resolution before this Court is an uncontroverted [sic] for the Delivery of
Possession filed by defendants Erlinda Tan, Juan Nuguid, et al. considering that despite personal
service of the Order for plaintiff to file within five (5) days his opposition to said motion, he did not file
any.
In support of defendant's motion, movant cites the law in point as Article 546 of the Civil
Code . . .
Movant agrees to comply with the provisions of the law considering that plaintiff is a builder in
good faith and he has in fact, opted to pay the cost of the construction spent by plaintiff. From the
complaint itself the plaintiff stated that the construction cost of the apartment is much more than the lot,
which apartment he constructed at a cost of P53,000.00 in 1965 (par. 8 complaint). This amount of
P53,000.00 is what the movant is supposed to pay under the law before a writ of possession placing
him in possession of both the lot and apartment would be issued.
However, the complaint alleges in paragraph 9 that three doors of the apartment are being
leased. This is further confirmed by the affidavit of the movant presented in support of the motion that
said three doors are being leased at a rental of P7,000.00 a month each. The movant further alleges in
his said affidavit that the present commercial value of the lot is P10,000.00 per square meter or
P2,500,000.00 and the reasonable rental value of said lot is no less than P21,000.00 per month.
The decision having become final as per Entry of Judgment dated June 23, 1993 and from this
date on, being the uncontested owner of the property, the rents should be paid to him instead of the
plaintiff collecting them. From June 23, 1993, the rents collected by the plaintiff amounting to more than
P53,000.00 from tenants should be offset from the rents due to the lot which according to movant's
affidavit is more than P21,000.00 a month.
WHEREFORE, finding merit in the Motion, the Court hereby grants the following prayer that:
1. The movant shall reimburse plaintiff the construction cost of P53,000.00.
2. The payment of P53,000.00 as reimbursement for the construction cost, movant Juan
Nuguid is hereby entitled to immediate issuance of a writ of possession over the lot and
improvements thereon.
3. The movant having been declared as the uncontested owner of the lot in question as per
Entry of Judgment of the Supreme Court dated June 23, 1993, the plaintiff should pay
rent to the movant of no less than P21,000.00 per month from said date as this is the
very same amount paid monthly by the tenants occupying the lot.
 4. The amount of P53,000.00 due from the movant is hereby offset against the amount of rents
collected by the plaintiff from June 23, 1993, to September 23, 1993."
SO ORDERED.
The petitioner moved for the reconsideration of the order but it was not acted upon by the trial court. Instead,
on 18 November 1993, it issued a writ of possession directing the deputy sheriff "to place said movant Juan Nuguid in
possession of subject property located at No. 79 Kamias Road, Quezon City, with all the improvements thereon and
to eject therefrom all occupants therein, their agents, assignees, heirs and representatives." 9
The petitioner then filed with the Court of Appeals a special civil action for certiorari and prohibition assailing
the order of 15 November 1993, which was docketed as CA-G.R. SP No. 32679. 10 In its decision of 7 June 1994,
the Court of Appeals affirmed in part the order of the trial court citing Articles 448 of the Civil Code. In disposing of the
issues, it stated: prLL
As earlier pointed out, private respondents 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 P21,000.00 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
questions 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. cdll
Thus in strict point of law, Article 448 is not opposite to the case at bar. Nevertheless, we believe that the
provision therein on indemnity may be applied by analogy considering that the primary intent of Article 448 is to avoid
a state of forced co-ownership and that the parties, including the two courts below, in the main agree that Articles 448
and 546 of the Civil Code are applicable and indemnity for the improvements may be paid although they differ as to
the basis of the indemnity.
Article 546 does not specifically state how the value of the useful improvements should be determined. The
respondent court and the private respondents espouse the belief that the cost of construction of the apartment
building in 1965, and not its current market value, is sufficient reimbursement for necessary and useful improvements
made by the petitioner. This position is, however, not in consonance with previous rulings of this Court in similar
cases. In Javier  vs. Concepcion, Jr., 14 this Court pegged the value of the useful improvements consisting of various
fruits, bamboos, a house and camarin made of strong material based on the market value of the said improvements.
In Sarmiento  vs. Agana, 15 despite the finding that the useful improvement, a residential house, was built in 1967 at a
cost of between eight thousand pesos (P8,000.00) to ten thousand pesos (P10,000.00), the landowner was ordered to
reimburse the builder in the amount of forty thousand pesos (P40,000.00), the value of the house at the time of the
trial. In the same way, the landowner was required to pay the "present value" of the house, a useful improvement, in
the case of De Guzman vs. De la Fuente, 16 cited by the petitioner. LLjur
The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this
regard, this Court had long ago stated in Rivera  vs. Roman Catholic Archbishop of Manila 17 that the said provision
was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to administer
complete justice to both of them is 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 in which it is built, planted or sown. 18 The petitioner not having been so paid, he was entitled to retain
ownership of the building and, necessarily, the income therefrom.
It follows, too, that the Court of Appeals erred not only in upholding the trial court's determination of the
indemnity, but also in ordering the petitioner to account for the rentals of the apartment building from 23 June 1993 to
23 September 1993. LLpr
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.
|||  (Pecson v. Court of Appeals, G.R. No. 115814, [May 26, 1995], 314 PHIL 313-326)