FIRST DIVISION

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

PHILIPPINE NATIONAL BANK, Petitioner, v. GENEROSO DE JESUS, represented by his

Attorney-in-Fact, CHRISTIAN DE JESUS, Respondent.

DECISION

VITUG, J.:

Petitioner Philippine National Bank disputes the decision handed down by the Court of Appeals
promulgated on 23 March 2001 in CA-G.R. CV No. 56001, entitled "Generoso De Jesus,
represented by his Attorney-in-Fact, Christian De Jesus, versus Philippine National Bank." The
assailed decision has affirmed the judgment rendered by the Regional Trial Court, Branch 44, of
Mamburao, Occidental Mindoro, declaring respondent Generoso de Jesus as being the true and
lawful owner of the 124-square-meter portion of the land covered by Transfer Certificate of Title
(TCT) No. T-17197 and ordering petitioner bank to vacate the premises, to deliver possession
thereof to respondent, and to remove the improvement thereon. chanrob1es virtua1 1aw 1ibrary

It would appear that on 10 June 1995, respondent filed a complaint against petitioner before the
Regional Trial Court of Occidental Mindoro for recovery of ownership and possession, with
damages, over the questioned property. In his complaint, respondent stated that he had acquired
a parcel of land situated in Mamburao, Occidental Mindoro, with an area of 1,144 square meters
covered by TCT No. T-17197, and that on 26 March 1993, he had caused a verification survey of
the property and discovered that the northern portion of the lot was being encroached upon by a
building of petitioner to the extent of 124 square meters. Despite two letters of demand sent by
respondent, petitioner failed and refused to vacate the area.

Petitioner, in its answer, asserted that when it acquired the lot and the building sometime in 1981
from then Mayor Bienvenido Ignacio, the encroachment already was in existence and to remedy
the situation, Mayor Ignacio offered to sell the area in question (which then also belonged to
Ignacio) to petitioner at P100.00 per square meter which offer the latter claimed to have accepted.
The sale, however, did not materialize when, without the knowledge and consent of petitioner,
Mayor Ignacio later mortgaged the lot to the Development Bank of the Philippines.

The trial court decided the case in favor of respondent declaring him to be the rightful owner of the
disputed 124-square-meter portion of the lot and ordering petitioner to surrender possession of
the property to respondent and to cause, at its expense, the removal of any improvement thereon.

The Court of Appeals, on appeal, sustained the trial court but it ordered to be deleted the award to
respondent of attorney’s fees, as well as moral and exemplary damages, and litigation expenses.

Petitioner went to this Court, via a petition for review, after the appellate court had denied the
bank’s motion for reconsideration, here now contending that —

"1. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN ADJUDGING PNB A BUILDER IN BAD
FAITH OVER THE ENCROACHED PROPERTY IN QUESTION;

"2. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN NOT APPLYING IN FAVOR OF PNB THE
PROVISION OF ARTICLE 448 OF THE CIVIL CODE AND THE RULING IN TECHNOGAS PHILIPPINES
MANUFACTURING CORP. VS. COURT OF APPEALS, G.R. No. 108894, February 10, 1997, 268 SCRA
7." 1
The Regional Trial Court and the Court of Appeals have both rejected the idea that petitioner can
be considered a builder in good faith. In the context that such term is used in particular reference
to Article 448, et seq., of the Civil Code, a builder in good faith is one who, not being the owner of
the land, builds on that land believing himself to be its owner and unaware of any defect in his title
or mode of acquisition.

The various provisions of the Civil Code, pertinent to the subject, read: jgc:chanrobles.com.ph

"Article 448. The owner of the land on which anything has been built, sown, or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment
of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to
pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter
cannot be obliged to buy the land if its value is considerably more than that of the building or
trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof." cralaw virtua1aw libra ry

"Article 449. He who builds, plants, or sows in bad faith on the land of another, loses what is built,
planted or sown without right to indemnity." cralaw virtua1aw library

"Article 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or sowed;
or he may compel the builder or planter to pay the price of the land, and the sower the proper
rent."cralaw virtua1aw library

A builder in good faith can, under the foregoing provisions, compel the landowner to make a
choice between appropriating the building by paying the proper indemnity or obliging the builder
to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with
the principle of accession, i.e., that the accessory follows the principal and not the other way
around. 2 Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive.
He must choose one. He cannot, for instance, compel the owner of the building to instead remove
it from the land. 3 In order, however, that the builder can invoke that accruing benefit and enjoy
his corresponding right to demand that a choice be made by the landowner, he should be able to
prove good faith on his part. chanrob1es virtua1 1aw 1ibrary

Good faith, here understood, is an intangible and abstract quality with no technical meaning or
statutory definition, and it encompasses, among other things, an honest belief, the absence of
malice and the absence of design to defraud or to seek an unconscionable advantage. An
individual’s personal good faith is a concept of his own mind and, therefore, may not conclusively
be determined by his protestations alone. It implies honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry. 4 The essence of good
faith lies in an honest belief in the validity of one’s right, ignorance of a superior claim, and
absence of intention to overreach another. 5 Applied to possession, one is considered in good faith
if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
6

Given the findings of both the trial court and the appellate court, it should be evident enough that
petitioner would fall much too short from its claim of good faith. Evidently, petitioner was quite
aware, and indeed advised, prior to its acquisition of the land and building from Ignacio that a part
of the building sold to it stood on the land not covered by the land conveyed to it.

Equally significant is the fact that the building, constructed on the land by Ignacio, has in actuality
been part of the property transferred to petitioner. Article 448, of the Civil Code refers to a piece
of land whose ownership is claimed by two or more parties, one of whom has built some works (or
sown or planted something) and not to a case where the owner of the land is the builder, sower,
or planter who then later loses ownership of the land by sale or otherwise for, elsewise stated,
"where the true owner himself is the builder of works on his own land, the issue of good faith or
bad faith is entirely irrelevant." 7

In fine, petitioner is not in a valid position to invoke the provisions of Article 448 of the Civil Code.
 The Court commiserates with petitioner in its present predicament; upon the other hand,
respondent, too, is entitled to his rights under the law, particularly after having long been deprived
of the enjoyment of his property. Nevertheless, the Court expresses hope that the parties will still
be able to come up with an arrangement that can be mutually suitable and acceptable to them.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56001 is AFFIRMED. No
costs.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

Davide, Jr., C.J., Ynares-Santiago and Carpio, JJ., concur.

Azcuna, J., on sick leave.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-33422 May 30, 1983

ROSENDO BALUCANAG, petitioner,

vs.
HON. JUDGE ALBERTO J. FRANCISCO and RICHARD STOHNER, respondents.

Alfredo C. Estrella for petitioner.

Pascual C. Garcia for respondents.

ESCOLIN, J.:

This petition for review of the decision of the Court of First Instance of Manila in Civil Case No.
67503 calls for a determination of the respective rights of the lessor and the lessee over the
improvements introduced by the latter in the leased premises.

Cecilia dela Cruz Charvet was the owner of a 177.50 square meter lot located in Zamora Street,
Pandacan, Manila, covered by Transfer Certificate of Title No. 25664. On August 31, 1952, Mrs.
Charvet leased said lot to respondent Richard Stohner for a period of five [5] years at the monthly
rental of 2140.00, payable in advance within the first ten [10] days of each month. The lease
contract 1 provided, among others, that:

IV. The lessee may erect such buildings upon and make such improvements to the
leased land as he shag see fit. All such buildings and improvements shall remain the
property of the lessee and he may remove them at any nine, it being agreed,
however, that should he not remove the said buildings and improvements within a
period of two months after the expiration of this Agreement, the Lessor may remove
the said buildings and improvements or cause them to be removed at the expense of
the Lessee.
During the existence of the lease, Stohner made fillings on the land and constructed a house
thereon, said improvements being allegedly valued at P35,000.00.

On March 8, 1966, Mrs. Charvet sold the said lot to petitioner Rosendo Balucanag. 2

For Stohner's failure to pay the rents, Balucanag, thru counsel, wrote Stohner a letter demanding
that he vacate the premises. 3 In reply thereto, Stohner, also thru counsel, claimed that he was a
builder in good faith of the residential house erected in the land. He offered the following proposals
for a possible compromise, to wit:

[a] Mr. Stohner will purchase the said lot from your client with the interest of 12% per
annum on the value, or

[b] Your client Mr. Rosendo Balucanag will reimburse our client in the total amount of
P35,000.00 for the improvements and construction he has made on the lot in
question.

As no agreement was reached, Balucanag instituted in the City Court of Manila an ejectment suit
against Stohner and, after due trial, the court rendered a decision, the decretal portion of which
reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered,

ordering the defendant to pay the plaintiff the sum of P360.00 as back rentals from
December, 1965 to August 1966 at the rate of P40.00 a month and to vacate the
premises. The defendant is further ordered to pay the sum of P100.00 as Attomey's
fees which is considered reasonable within the premises.

On appeal, the Court of First Instance of Manila, Branch IX, presided by respondent Judge Alberto J.
Francisco, after conducting a trial de novo, rendered a decision, setting aside the judgment of the
city court and dismissing the petitioner's complaint. Respondent judge held that Stohner was a
builder in good faith because he had constructed the residential house with the consent of the
original lessor, Mrs. Charvet, and also because the latter, after the expiration of the lease contract on
August 31, 1957, had neither sought Stohner's ejectment from the premises, nor the removal of his
house therefrom. Invoking Articles 448 and 546 of the Civil Code. 4 respondent judge concluded that
Stohner, being a builder in good faith, cannot be ejected until he is reimbursed of the value of the
improvements.

Frustrated in his effort to have the decision reconsidered, Balucanag filed the instant petition for
review.

We find the petition impressed with merit. Paragraph IV of the lease contract entered into by Stohner
with Mrs. Charvet specifically provides that "... such buildings and improvements shan remain the
property of the lessee and he may remove them at any time, it being agreed, however, that should
he not remove the said buildings and improvements within a period of two months after the
expiration of this Agreement, the Lessor may remove the said buildings and improvements or cause
them to be removed at the expense of the Lessee." Respondent Stohner does not assail the validity
of this stipulation, Neither has he advanced any reason why he should not be bound by it.

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

The law applicable to the case at bar is Article 1678 of the Civil Code, which We quote:

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

This article gives the lessor the option to appropriate the useful improvements by paying one-half of
their value, 6And the lessee cannot compel the lessor to appropriate the improvements and make
reimbursement, for the lessee's right under the law is to remove the improvements even if the leased
premises may suffer damage thereby. But he shall not cause any more damage upon the property
than is necessary.

One last point. It appears that while the lease contract entered into by Stohner and Mrs. Charvet had
expired on August 31, 1957, he nevertheless continued in possession of the premises with the
acquiescence of Mrs. Charvet and later, of Balucanag. An implied new lease or tacita
reconduccion was thus created between the parties, the period of which is established by Article
1687 of the Civil Code thus:

Art. 1687. If the period for the lease has not been fixed, it is understood to be from
year to year, if the rent agreed upon is annual; from month to month, if it is monthly:
from week to week, if the rent is weekly: and from day to day, if the rent is to be paid
daily. ...

Under the above article, the duration of the new lease must be deemed from month to month, the
agreed rental in the instant case being payable on a monthly basis. The lessor may thus terminate
the lease after each month with due notice upon the lessee. After such notice, the lessee's right to
continue in possession ceases and his possession becomes one of detainer. Furthermore, Stohner's
failure to pay the stipulated rentals entities petitioner to recover possession of the premises.

WHEREFORE, the decision in Civil Case No. 67503 is hereby set aside, with costs against
respondent Stohner. The latter is ordered to vacate the premises in question and to pay Rogelio
Balucanag the rentals due from March 1969 up to the time he surrenders the premises, at the rate of
P40.00 a month.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 115814 May 26, 1995

PEDRO P. PECSON, petitioner,

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

DAVIDE, JR., J.:

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

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

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

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

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

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

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

On November 1993, the private respondents filed with the trial court a motion for delivery of
possession of the lot and the apartment building, citing article 546 of the Civil Code. 7 Acting thereon,
the trial court issued on 15 November 1993 the challenged 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 plaintiff amounting to more than P53,000.00 from tenants should be
offset from the rents due to the lot which according to movant's affidavit is more than
P21,000.00 a month.

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

1. The movant shall reimburse plaintiff the construction cost of

P53,000.00.
 2. The payment of P53,000.00 as reimbursement for the construction
cost, movant Juan Nuguid is hereby entitled to immediate issuance of
a writ of possession over the Lot and improvements thereon.

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

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

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

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

SO ORDERED.

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

The petitioner then filed with the Court of Appeals a special civil action for certiorari and prohibition
assailing the order of 15 November 1993, which was docketed as CA-G.R. SP No. 32679. 10 In its
decision of 7 June 1994, the Court of Appeals affirmed in part the order of the trial court citing Article
448 of the Civil Code. In disposing of the issues, it stated:

As earlier pointed out, private respondent opted to appropriate the improvement

introduced by petitioner on the subject lot, giving rise to the right of petitioner to be
reimbursed of the cost of constructing said apartment building, in accordance with
Article 546 of the . . . Civil Code, and of the right to retain the improvements until he
is reimbursed of the cost of the improvements, because, basically, the right to retain
the improvement while the corresponding indemnity is not paid implies the tenancy or
possession in fact of the land on which they are built . . . [2 TOLENTINO, CIVIL
CODE OF THE PHILIPPINES (1992) p. 112]. With the facts extant and the settled
principle as guides, we agree with petitioner that respondent judge erred in ordering
that "the movant having been declared as the uncontested owner of the lot in
question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the
plaintiff should pay rent to the movant of no less than P21,000 per month from said
date as this is the very same amount paid monthly by the tenants occupying the lot.

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

The Court of Appeals then ruled as follows:

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

IT IS SO ORDERED.11

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

The parties agree that the petitioner was a builder in good faith of the apartment building on the
theory that he constructed it at the time when he was still the owner of the lot, and that the key issue
in this case is the application of Articles 448 and 456 of the Civil Code.

The trial court and the Court of Appeals, as well as the parties, concerned themselves with the
application of Articles 448 and 546 of the Civil Code. These articles read as follows:

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

xxx xxx xxx

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

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

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

Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter who
then later loses ownership of the land by sale or donation. This Court said so in Coleongco
vs. Regalado: 13
 Article 361 of the old Civil Code is not applicable in this case, for Regalado
constructed the house on his own land before he sold said land to Coleongco. Article
361 applies only in cases where a person constructs a building on the land of
another in good or in bad faith, as the case may be. It does not apply to a case
where a person constructs a building on his own land, for then there can be no
question as to good or bad faith on the part of the builder.

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

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

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

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

The trial court also erred in ordering the petitioner to pay monthly rentals equal to the aggregate
rentals paid by the lessees of the apartment building. Since the private respondents have opted to
appropriate the apartment building, the petitioner is thus entitled to the possession and enjoyment of
the apartment building, until he is paid the proper indemnity, as well as of the portion of the lot where
the building has been constructed. This is so because the right to retain the improvements while the
corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which it
is built, planted or sown. 18 The petitioner not having been so paid, he was entitled to retain
ownership of the building and, necessarily, the income therefrom.
It follows, too, that the Court of Appeals erred not only in upholding the trial court's determination of
the indemnity, but also in ordering the petitioner to account for the rentals of the apartment building
from 23 June 1993 to 23 September 1993.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order of 15
November 1993 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-41470 are
hereby SET ASIDE.

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

No costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

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

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners,

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

Leoncio R. Esliza for petitioners.

Mauricio M. Monta for respondents.

MORAN, C.J.:

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

Wherefore, judgment is hereby rendered declaring:

(1) That the plaintiffs are the owners of the whole property described in transfer certificate of
title No. 12872 (Exhibit A) issued in their name, and entitled to the possession of the same;
 (2) That the defendants are entitled to hold the position of the residential lot until after they
are paid the actual market value of their houses and granaries erected thereon, unless the
plaintiffs prefer to sell them said residential lot, in which case defendants shall pay the
plaintiffs the proportionate value of said residential lot taking as a basis the price paid for the
whole land according to Exhibit B; and

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

No pronouncement is made as to damages and costs.

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

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

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

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

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

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

The owner of the building erected in good faith on a land owned by another, is entitled to retain the
possession of the land until he is paid the value of his building, under article 453. The owner of the
land, upon the other hand, has the option, under article 361, either to pay for the building or to sell
his land to the owner of the building. But he cannot, as respondents here did, refuse both to pay for
the building and to sell the land and compel the owner of the building to remove it from the land
where it is erected. He is entitled to such remotion only when, after having chosen to sell his land,
the other party fails to pay for the same. But this is not the case before us.
We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove
their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither
to pay for such buildings not to sell the land, is null and void, for it amends substantially the judgment
sought to be executed and is, furthermore, offensive to articles 361 and 453 of the Civil Code.

There is, however, in the decision of Judge Felix a question of procedure which calls for the
clarification, to avoid uncertainty and delay in the disposition of cases. In that decision, the rights of
both parties are well defined under articles 361 and 453 of the Civil Code, but it fails to determine the
value of the buildings and of the lot where they are erected as well as the periods of time within
which the option may be exercised and payment should be made, these particulars having been left
for determination apparently after the judgment has become final. This procedure is erroneous, for
after the judgment has become final, no additions can be made thereto and nothing can be done
therewith except its execution. And execution cannot be had, the sheriff being ignorant as to how, for
how much, and within what time may the option be exercised, and certainly no authority is vested in
him to settle these matters which involve exercise of judicial discretion. Thus the judgment rendered
by Judge Felix has never become final, it having left matters to be settled for its completion in a
subsequent proceeding, matters which remained unsettled up to the time the petition is filed in the
instant case.

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

The costs shall be paid by plaintiffs-respondents.

epublic of the Philippines

SUPREME COURT
Manila

EN BANC

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

ALEJANDRO QUEMUEL and RUPERTA SOLIS, plaintiffs- appellants,

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

Baldomero S. Luque for plaintiffs-appellants.

Jose P. Santillan for defendants-appellees.

PAREDES, J.:

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

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

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

An appeal was taken by plaintiffs to the Court of Appeals (Case No. CA-G.R. No. 14837-R) which,
by the agreement of the parties certified the case to this Court. The ex parte petition filed by the
plaintiffs-appellants in this Court on August 9, 1956, asking that a writ of prohibition and injunction be
issued to the Provincial Sheriff of Cavite and the defendants-appellees, enjoining them from
demolishing the house of plaintiffs-appellants until there is a final decision in said case No. 14837,
by the Supreme Court, was denied on August 14, 1956 by the latter court.

The lone assignment alleges that the trial court erred in dismissing the complaint without trial on the
merits and in not granting the reliefs prayed for by the plaintiffs-appellants. Appellants stated in their
brief that if there will be trial on the merits, they would be entitled to a decision in their favor, because
they will establish by competent evidence the allegations in their complaint. And on the claim that
they were builders in good faith, they based the right to buy the lot on which their house is built, upon
the decision of Belen Uy Tayao v. Rosario Yuseco, et al., G.R. No. T,8139, Oct. 24, 1955. It should
be recalled at the outstart, that the trial court ordered the dismissal of the complaint, which must
have been granted in all or any of the grounds therein alleged, to wit:

I. The Complaint states no cause of action. —

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

Assuming the truth of the above allegations, the same do not constitute a cause of action. A cause
of action presupposes a right of the plaintiff and a violation of such right by the defendant. According
to the complaint itself, the rental of P20.00 monthly and the order to vacate, were provided in a prior
judgment (Civil Case No. 5442), which is final and its validity is not assailed. There being no law that
fixes the rental of the same land at 7½ of the allowed market value, the plaintiffs have no right
thereto or aright which could be violated. The defendants are not compelling the plaintiffs to rent the
property but wanted them to vacate the premises (Civil Case No. 5442). If the rental determined by
the trial court were excessive, the plaintiffs are free to vacate the property. For plaintiffs to insist on
possessing the property and fixing the rentals themselves, would have no legal sanction at all.
In the second cause of action of the present complaint, the plaintiffs allege: That they actually
occupy about 384 square meters or one-half of lot 1095; of the said area they thought they own 256
square meters by inheritance from Romualdo Solis, father of plaintiff, Ruperta Solis, who became
the owner thereof pursuant to a verbal extrajudicial partition made in 1924; Agapita Solis who sold
the entire lot 1095 to defendants, is a sister of Romualdo Solis, and there was an error in the
inclusion of the 256 square meters in the Torrens Title and the sale; they acquired from Valentin
Solis, brother of both Romualdo and Agapita, a part of the portion occupied by plaintiff's house and
warehouse; their house has been there for almost 34 years and is worth P4,000; the defendants are
rich, have a house and a lot of their own, and will not suffer any material or sentimental damage if
they sell to the plaintiffs one-half of lot No. 1095; plaintiff offered to pay P960 for the portion they are
occupying or P1,920.00 for the whole lot.

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

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

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

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

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

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

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

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

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

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

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

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

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

Republic of the Philippines

SUPREME COURT
Manila
 FIRST DIVISION

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

FRANCISCO DEPRA, plaintiff-appellee,

vs.
AGUSTIN DUMLAO, defendant-appellant.

Roberto D. Dineros for plaintiff-appellee.

Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:

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

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

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

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

Ordering that a forced lease is created between the parties with the plaintiffs, as
lessors, and the defendants as lessees, over the disputed portion with an area of
thirty four (34) square meters, the rent to be paid is five (P5.00) pesos a month,
payable by the lessee to the lessors within the first five (5) days of the month the rent
is due; and the lease shall commence on the day that this decision shall have
become final.

From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it would have
ordinarily lapsed into finality, but even then, DEPRA did not accept payment of rentals so that
DUMLAO deposited such rentals with the Municipal Court.

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

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

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

Without pronouncement as to costs.

SO ORDERED.

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

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

Conceded in the Stipulation of Facts between the parties is that DUMLAO was a builder in good
faith. Thus,

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

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

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

shall have the right

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

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

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

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

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

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

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

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

A word anent the philosophy behind Article 448 of the Civil rode.
The original provision was found in Article 361 of the Spanish Civil Code; which provided:

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

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

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

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

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

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

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

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

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

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

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

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

1. The trial Court shall determine

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

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

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

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

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

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

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

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

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

No costs,

SO ORDERED.

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

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

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 95907 April 8, 1992

JOSE REYNANTE, petitioner,

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

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

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

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

During the tenancy, petitioner Jose Reynante constructed a nipa hut where he and his family lived
and took care of the nipa palms (sasahan) he had planted on lots 1 and 2 covering an area of 5,096
square meters and 6,011 square meters respectively. These lots are located between the fishpond
covered by TCT No. 25618 and the Liputan (formerly Meycauayan) River. Petitioner harvested and
sold said nipa palms without interference and prohibition from anybody. Neither did the late Don
Cosme Carlos question his right to plant the nipa palms near the fishpond or to harvest and
appropriate them as his own.

After the death of Don Cosme Carlos, his heirs (private respondents' predecessors-in-interest)
entered into a written agreement denominated as "SINUMPAANG SALAYSAY NG PAGSASAULI
NG KARAPATAN" dated November 29, 1984 with petitioner Jose Reynante whereby the latter for
and in consideration of the sum of P200,000.00 turned over the fishpond he was tenanting to the
heirs of Don Cosme Carlos and surrendered all his rights therein as caretaker or "bantay-kasama at
tagapamahala" (Rollo, p. 77).

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

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

Hence, on April 22, 1988, private respondents filed a complaint for forcible entry with preliminary
mandatory injunction against petitioner alleging that the latter by means of strategy and stealth, took
over the physical, actual and material possession of lots 1 and 2 by residing in one of the kubos or
huts bordering the Liputan River and cutting off and/or disposing of the sasa or nipa palms adjacent
thereto.
On January 10, 1989, the trial court rendered its decision dismissing the complaint and finding that
petitioner had been in prior possession of lots 1
and 2.

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

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

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

From said decision, petitioner filed with the Court of Appeals a petition for review (Rollo, p. 30;
Annex "A"). On February 28, 1990, the Court of Appeals rendered its decision, the dispositive portion
of which reads as follows:

WHEREFORE, the decision of the court a quo, being consistent with law and
jurisprudence, is hereby AFFIRMED in toto. The instant petition seeking to issue a
restraining order is hereby denied.

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

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

Hence, this petition.

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

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

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

Hence, the Court of Appeals could not legally restore private respondents' possession over lots 1
and 2 simply because petitioner has clearly proven that he had prior possession over lots 1 and 2.
The evidence on record shows that petitioner was in possession of the questioned lots for more than
50 years. It is undisputed that he was the caretaker of the fishpond owned by the late Don Cosme
Carlos for more than 50 years and that he constructed a nipa hut adjacent to the fishpond and
planted nipa palms therein. This fact is bolstered by the "SINUMPAANG SALAYSAY" executed by
Epifanio Lucero (Records, p. 66), Apolonio D. Morte (Records, p. 101) and Carling Dumalay
(Records, p. 103), all of whom are disinterested parties with no motive to falsify that can be
attributed to them, except their desire to tell the truth.

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

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

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

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

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

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

The respondent Court of Appeals ruled that lots 1 and 2 were created by alluvial formation and
hence the property of private respondents pursuant to Article 457 of the New Civil Code, to wit:
 Art. 457. To the owners of lands adjoining the banks of rivers belong the accretion
which they gradually receive from the effects of the current of the waters.

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

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

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

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

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

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

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

SO ORDERED.

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

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 170923 January 20, 2009

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

DECISION

PUNO, C.J.:

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

The facts are as follows:

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

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

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

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

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

On February 26, 2002, the MeTC rendered its decision in favor of respondent. It ruled, thus:
. . . . The court is convinced by the evidence that indeed, defendants defaulted in the payment of
their rentals. It is basic that the lessee is obliged to pay the price of the lease according to the terms
stipulated (Art. 1657, Civil Code). Upon the failure of the lessee to pay the stipulated rentals, the
lessor may eject (sic) and treat the lease as rescinded and sue to eject the lessee (C. Vda[.] De
Pamintuan v. Tiglao, 53 Phil. 1). For non-payment of rentals, the lessor may rescind the lease,
recover the back rentals and recover possession of the leased premises. . .

xxx

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

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

The dispositive portion of the decision reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Nayong Pilipino

Foundation, and against the defendant Philippine Village Hotel, Inc[.], and all persons claiming rights
under it, ordering the latter to:

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

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

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

4. PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of attorney’s
fees[; and]

5. PAY the costs of suit.

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

SO ORDERED.5

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

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

xxx

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

xxx

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

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

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

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

1. Ordering plaintiff-appellee to submit within thirty (30) days from receipt of a copy of this
decision a written manifestation of the option or choice it selected, i.e., to appropriate the
improvements upon payment of proper indemnity or compulsory sale of the land whereon the
hotel building of PVHI and related improvements or facilities were erected;
 2. Directing the plaintiff-appellee to desist and/or refrain from doing acts in the furtherance or
exercise of its rights and demolition against appellants unless and after having selected the
option of compulsory sale and appellants failed to pay [and] purchase the land within a
reasonable time or at such time as this court will direct;

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

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

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

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

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

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

SO ORDERED.6

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

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

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

Petitioners’ Motion for Reconsideration was denied.

Hence, this appeal.7

Petitioners assign the following errors:

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT

HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE SUBSTANTIAL
AND VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON THE SUBJECT
PROPERTY, THUS COMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL CODE IN
RELATION TO ARTICLE 546 OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF THE CIVIL
CODE.

II

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE ERROR

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

III

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

IV

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

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

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR IN NOT

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

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

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

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

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

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

Article 448 and Article 546 provide:

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

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

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

We uphold the ruling of the CA.

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

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

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

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

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

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

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

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

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

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

In case of cancellation or termination of this contract due to the default or breach of its terms, the
LESSEE will pay all reasonable attorney’s fees, costs and expenses of litigation that may be
incurred by the LESSOR in enforcing its rights under this contract or any of its provisions, as well as
all unpaid rents, fees, charges, taxes, assessment and others which the LESSOR may be entitled to.

Petitioners assert that respondent committed a breach of the lease contract when it filed the
ejectment suit against them. However, we find nothing in the above quoted provision that prohibits
respondent to proceed the way it did in enforcing its rights as lessor. It can rightfully file for ejectment
to evict petitioners, as it did before the court a quo.
IN VIEW WHEREOF, petitioners’ appeal is DENIED. The October 4, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 74631 and its December 22, 2005 Resolution are AFFIRMED. Costs
against petitioners.

SO ORDERED.

REYNATO S. PUNO
Chief Justice

WE CONCUR:

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

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

MARIANO FLOREZA, petitioner,

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

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

E.G. Tanjuatco & Associates for respondents.

MELENCIO-HERRERA, J:

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

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

On the following dates, the EVANGELISTAS again borrowed the indicated amounts: September 16,
1946 — P100.00; 2 August 17, 1947 — P200,00; 3 January 30, 1949 — P200.00; 4 April 1, 1949 —
P140.00, 5 or a total of P740.00 including the first loan. The last three items are evidenced by private
documents stating that the residential lot stands as security therefor and that the amounts covered
thereunder are payable within six years from date, without mention of interest. The document
executed on September 16, 1946 stated specifically that the loan was without interest "walang
anumang patubo."

On January 10, 1949, FLOREZA demolished this house of light materials and in its place
constructed one of strong materials assessed in his name at P1,410.00 under Tax Declaration No.
4448. FLOREZA paid no rental as before. 6

On August 1, 1949, the EVANGELISTAS, for and in consideration of P1,000.00 representing the
total outstanding loan of P740.00 plus P260.00 in cash, sold their residential lot to FLOREZA, with a
right to repurchase within a period of 6 years from date, or up to August 1, 1955, as evidenced by a
notarial document, Exh. B, registered under Act 3344 on December 6, 1949, as Inscription No.
2147. 7

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

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

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

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

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

FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby renders

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

SO ORDERED. 11

Both parties appealed to the Court of Appeals.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Art. 1616. The vendor cannot avail himself of the right of repurchase without
returning to the vendee the price of the sale, and in addition:

(1) The expenses of the contract, and any other legitimate payments made by reason
of the sale;

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

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

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

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

Costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-35648 February 27, 1987

PERSHING TAN QUETO, petitioner,

vs.
COURT OF APPEALS, JUAN POMBUENA and RESTITUTA TACALINAR GUANGCO DE
POMBUENA, respondents.

RESOLUTION

PARAS, J.:

This is a Motion for Reconsideration of the decision dated May 16,1983 of this Court * in the above-entitled
case, asking for the reversal of said decision on the following grounds:

1. Decison erred in disregarding the fact that Lot No. 304-B was registered in the
name of the husband, Juan Pombuena, as per OCT. No. 0-1160 issued pursuant to
the November 22, 1938 Decision (Exhibit 3) of the Cadastral Court in Cadastral Case
No. 12, G.L.R.O. Cad. Rec. No. 1638, and that petitioner had the right to rely on said
OCT;
 2. The Decision erred in misinterpreting the admission in the Answer of petitioner to
the complaint in the unlawful detainer Case No. 448 (City Court of Ozamiz City) as
his admission that Lot 304-B is the paraphernal property of the wife, Restituta
Tacalinar;

3. The Decision erred in reforming the Contract of Sale (Exh. B) of Lot 304-B from
Basilides Tacalinar (mother) to the respondent, Restituta Tacalinar Guangco de
Pombuena, from a sale to a conveyance of the share of the wife Restituta Tacalinar
(daughter) in the future hereditary estate of her parents;

4. The Decision erred in over-looking that the barter agreement is an onerous

contract of exchange, whereby private respondents-spouses received valuable
consideration, concessions and other benefits therefor and in concluding that 'the
barter agreement has no effect;

5. The Decision erred in disregarding the fact that petitioner constructed his concrete
building on Lot No. 304-B in good faith relying OCT No. 0-1160, after the dismissal of
the ejectment case and only after the execution of said barter agreement;

6. The Decision erred in confusing the conclusion of law that petitioner is a builder in
bad faith with a finding of fact. The rule is that questions of law are reviewable on
appeal or by certiorari. Moreover, the rule on finding of fact is subject to well-
settled exceptions. (pp. 257-258, Rollo)

It wig be recalled that the undisputed relevant facts indicate:

(1) that Restituta Tacalinar Guanaco de Pombuena (RESTITUTA, for short) received
the questioned lot (no. 304-B), of the Cadastre Survey of the Municipality of Centro,
Mizamis Occidental, either as a purported donation or by way of purchase on
(February 11, 1927) (with P50.00) as the alleged consideration thereof;

(2) that the transaction took place during her mother's lifetime, her father having
predeceased the mother;

(3) that the donation or sale was consummated while RESTITUTA was already
married to her husband Juan Pombuena (JUAN, for short);

(4) that on January 22, 1935, JUAN filed for himself and his supposed co-owner
RESTITUTA an application for a Torrens Title over the land;

(5) that under date of November 22, 1938 a decision was promulgated in GLRC No.
1638 (Cadastral Case No. 12) pronouncing JUAN ('married to RESTITUTA') as the
owner of the land;

(6) that on September 22, 1949 a contract of lease over the lot was entered into
between Pershing Tan Queto (TAN QUETO, for short, the herein petitioner) and
RESTITUTA (with the consent of her husband JUAN) for a period of ten (10) years;

(7) that on December 27, 1960 RESTITUTA sued TAN QUETO for unlawful detainer
(the lease contract having expired) before the Municipal Court of Ozamis City;
 (8) that as a consequence of the cadastral case, an Original Certificate of Title (Exh.
10) was issued in JUAN's name ("married to RESTITUTA") on April 22, 1962;

(9) that the unlawful detainer case was won by the spouses in the Municipal Court;
but on appeal in the Court of First Instance, the entire case was DISMISSED
because of an understanding (barter) whereby TAN QUETO became the owner of
the disputed lot, and the spouses RESTITUTA and JUAN in turn became the owners
of a parcel of land (with the house constructed thereon) previously owned (that is,
before the barter) by TAN QUETO;

(10) that after the barter agreement dated October 10, 1962 between JUAN and TAN
QUETO, the latter constructed (See p. 257, Rollo, Vol. II) on the disputed land a
concrete building, without any objection on the part of RESTITUTA;

(11) that later, RESTITUTA sued both JUAN and TAN QUETO for reconveyance of
the title over the registered but disputed lot, for annulment of the barter, and for
recovery of the land with damages.

The two principal issues are clearly the following:

(1) Is the questioned lot paraphernal or conjugal?

(2) In having constructed the building on the lot, should TAN QUETO be regarded as a builder
in good faith (and hence entitled to reimbursement) or a builder in bad faith (with no right to
reimbursement)?

The finding by both the Court of First Instance and the Court of Appeals that the disputed lot is
paraphernal and that TAN QUETO is a builder in bad faith were regarded by Us in Our assailed
decision as findings of facts and thus ordinarily conclusive on Us. Assuming they are factual
findings, still if they are erroneous inferences from certain facts, they cannot bind this Court.

A second hard look at the circumstances of the case has constrained Us to rule as follows:

(1) The land is conjugal, not paraphernal. How was ownership transferred, if at all, from her mother
to RESTITUTA? The oral donation of the lot cannot be a valid donation interviews because it was
not executed in a public instrument (Art. 749, Civil Code), nor as a valid donation mortis causa for
the formalities of a will were not complied with. The allegation that the transfer was a conveyance to
RESTITUTA of her hereditary share in the estate of her mother (or parents) cannot be sustained for
the contractual transmission of future inheritance is generally prohibited.

The fact is ownership was acquired by both JUAN and RESTITUTA by tradition (delivery) as a
consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable
amount) as the cause or consideration of the transaction. The lot is therefore conjugal, having been
acquired by the spouses thru onerous title (the money used being presumably conjugal there being
no proof that RESTITUTA had paraphernal funds of her own). The contention that the sale was
fictitious or simulated (and therefore void) is bankrupt. Firstly, there was a valid consideration
therefor. Secondly, assuming that there had indeed been a simulation, the parties thereto cannot
use said simulation to prejudice a stranger to said stratagem (like petitioner herein).

One nagging question has been posed. But did not TAN QUETO admit in his Answer that
RESTITUTA was the owner of the lot. This is not so. He admitted RESTITUTA was an owner"
(not the owner) of the lot, and this is true, for she was a co-owner (with JUAN, and therefore
"an owner. " Surely, there is no admission of RESTITUTA's exclusive ownership. And yet this is the
basis of the trial court's conclusion that the lot was indeed paraphernal.

(2) Was Tan Queto a possessor and builder in good faith or in bad faith?

Even assuming that despite registration of the lot as conjugal, Tan Queto nursed the belief that the
lot was actually RESTITUTA's (making him in bad faith), still RESTITUTA's failure to prohibit him
from building despite her knowledge that construction was actually being done, makes her also in
bad faith. The net resultant of mutual bad faith would entitle TAN QUETO to the rights of a builder in
good faith (Art. 448, Civil Code), ergo, reimbursement should be given him if RESTITUTA decides to
appropriate the building for herself (Art. 448, Civil Code).

However, as already previously intimated, TAN QUETO having bartered his own lot and small house
with the questioned lot with JUAN (who has been adverted to by a court decision and by the OCT
a conjugal owner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not merely
a possessor or builder in good faith (this phrase presupposes ownership in another); much less is he
a builder in bad faith. He is a builder-possessor jus possidendi because he is the OWNER himself.
Please note that the Chapter on Possession (jus possesionis, not jus possidendi) in the Civil Code
refers to a possessor other than the owner. Please note further that the difference between a builder
(or possessor) in good faith and one in bad faith is that the former is NOT AWARE of the defect or
flaw in his title or mode of acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil
Code). But in either case there is a flaw or defect. In the case of TAN QUETO there is no such flaw
or defect because it is he himself (not somebody else) who is the owner of the property.

WHEREFORE, Our decision promulgated on May 16,1983 is hereby SET ASIDE, and a new one is
hereby rendered declaring the questioned lot together with the building thereone, as TAN QUETO's
exclusive property. No costs..

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 140528 December 7, 2011

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

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

G.R. No. 140553

LENA DUQUE-ROSARIO, Petitioner,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Presently before the Court are two consolidated Petitions for Review on Certiorari under Rule 45 of
the Rules of Court, both assailing the Decision1 dated June 29, 1999 and Resolution2 dated October
22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.

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

The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was married to, but
now legally separated from, Dr. Andres T. Rosario (Dr. Rosario). Dr. Rosario is the son of Eufrosina
Torbela Rosario and the nephew of the other Torbela siblings.

The controversy began with a parcel of land, with an area of 374 square meters, located in Urdaneta
City, Pangasinan (Lot No. 356-A). It was originally part of a larger parcel of land, known as Lot No.
356 of the Cadastral Survey of Urdaneta, measuring 749 square meters, and covered by Original
Certificate of Title (OCT) No. 16676,8 in the name of Valeriano Semilla (Valeriano), married to
Potenciana Acosta. Under unexplained circumstances, Valeriano gave Lot No. 356-A to his sister
Marta Semilla, married to Eugenio Torbela (spouses Torbela). Upon the deaths of the spouses
Torbela, Lot No. 356-A was adjudicated in equal shares among their children, the Torbela siblings,
by virtue of a Deed of Extrajudicial Partition9 dated December 3, 1962.

On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim 10 over Lot No.
356-A in favor of Dr. Rosario. According to the said Deed, the Torbela siblings "for and in
consideration of the sum of NINE PESOS (₱9.00) x x x transfer[red] and convey[ed] x x x unto the
said Andres T. Rosario, that undivided portion of THREE HUNDRED SEVENTY-FOUR square
meters of that parcel of land embraced in Original Certificate of Title No. 16676 of the land records of
Pangasinan x x x."11 Four days later, on December 16, 1964, OCT No. 16676 in Valeriano’s name
was partially cancelled as to Lot No. 356-A and TCT No. 5275112 was issued in Dr. Rosario’s name
covering the said property.

Another Deed of Absolute Quitclaim 13 was subsequently executed on December 28, 1964, this time
by Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela siblings and
was already returning the same to the latter for ₱1.00. The Deed stated:

That for and in consideration of the sum of one peso (₱1.00), Philippine Currency and the fact that I
only borrowed the above described parcel of land from MARIA TORBELA, married to Eulogio
Tosino, EUFROSINA TORBELA, married to Pedro Rosario, PEDRO TORBELA, married to Petra
Pagador, LEONILA TORBELA, married to Fortunato Tamen, FERNANDO TORBELA, married to
Victoriana Tablada, DOLORES TORBELA, widow, LEONORA TORBELA, married to Matias Agustin
and SEVERINA TORBELA, married to Jorge Ildefonso, x x x by these presents do hereby cede,
transfer and convey by way of this ABSOLUTE QUITCLAIM unto the said Maria, Eufrosina, Pedro,
Leonila, Fernando, Dolores, Leonora and Severina, all surnamed Torbela the parcel of land
described above.14 (Emphasis ours.)

The aforequoted Deed was notarized, but was not immediately annotated on TCT No. 52751.

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development Bank
of the Philippines (DBP) on February 21, 1965 in the sum of ₱70,200.00, secured by a mortgage
constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751 on September 21,
1965 as Entry No. 243537.15 Dr. Rosario used the proceeds of the loan for the construction of
improvements on Lot No. 356-A.

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

3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the former owners by
virtue of a Deed of Absolute Quitclaim which he executed before Notary Public Banaga, and
entered in his Notarial Registry as Dec. No. 43; Page No. 9; Book No. I; Series of 1964;

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

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

The very next day, on May 17, 1967, the Torbela siblings had Cornelio’s Affidavit of Adverse Claim
dated May 16, 1967 and Dr. Rosario’s Deed of Absolute Quitclaim dated December 28, 1964
annotated on TCT No. 52751 as Entry Nos. 27447118 and 274472,19 respectively.

The construction of a four-storey building on Lot No. 356-A was eventually completed. The building
was initially used as a hospital, but was later converted to a commercial building. Part of the building
was leased to PT&T; and the rest to Mrs. Andrea Rosario-Haduca, Dr. Rosario’s sister, who
operated the Rose Inn Hotel and Restaurant.

Dr. Rosario was able to fully pay his loan from DBP. Under Entry No. 520197 on TCT No.
5275120 dated March 6, 1981, the mortgage appearing under Entry No. 243537 was cancelled per
the Cancellation and Discharge of Mortgage executed by DBP in favor of Dr. Rosario and ratified
before a notary public on July 11, 1980.

In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank (PNB)
sometime in 1979-1981. Records do not reveal though the original amount of the loan from PNB, but
the loan agreement was amended on March 5, 1981 and the loan amount was increased to
₱450,000.00. The loan was secured by mortgages constituted on the following properties: (1) Lot
No. 356-A, covered by TCT No. 52751 in Dr. Rosario’s name; (2) Lot No. 4489, with an area of
1,862 square meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832; and (3) Lot
No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters, located in Nancayasan, Urdaneta,
Pangasinan, covered by TCT No. 104189.21 The amended loan agreement and mortgage on Lot No.
356-A was annotated on TCT No. 52751 on March 6, 1981 as Entry No. 520099. 22

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

Entry No. 520469. Cancellation of Adverse Claim executed by Andres Rosario in favor of same. The
incumbrance/mortgage appearing under Entry No. 274471-72 is now cancelled as per Cancellation
and Discharge of Mortgage Ratified before Notary Public Mauro G. Meris on March 5, 1981: Doc.
No. 215; Page No. 44; Book No. 1; Series Of 1981.

Lingayen, Pangasinan, 3-11, 19981

[Signed: Pedro dela Cruz]

Register of Deeds 24

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario), acquired a third
loan in the amount of ₱1,200,000.00 from Banco Filipino Savings and Mortgage Bank (Banco
Filipino). To secure said loan, the spouses Rosario again constituted mortgages on Lot No. 356-A,
Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. The mortgage on Lot No. 356-A was annotated on TCT
No. 52751 as Entry No. 53328325 on December 18, 1981. Since the construction of a two-storey
commercial building on Lot No. 5-F-8-C-2-B-2-A was still incomplete, the loan value thereof as
collateral was deducted from the approved loan amount. Thus, the spouses Rosario could only avail
of the maximum loan amount of ₱830,064.00 from Banco Filipino.

Because Banco Filipino paid the balance of Dr. Rosario’s loan from PNB, the mortgage on Lot No.
356-A in favor of PNB was cancelled per Entry No. 53347826 on TCT No. 52751 dated December 23,
1981.

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

Entry No. 593494 – Complaint – Civil Case No. U-4359 (For: Recovery of Ownership and
Possession and Damages. (Sup. Paper).

Entry No. 593493 – Notice of Lis Pendens – The parcel of land described in this title is subject to Lis
Pendens executed by Liliosa B. Rosario, CLAO, Trial Attorney dated February 13, 1986. Filed to
TCT No. 52751
February 13, 1986-1986 February 13 – 3:30 p.m.

(SGD.) PACIFICO M. BRAGANZA

Register of Deeds27

The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of April 2, 1987, the
spouses Rosario’s outstanding principal obligation and penalty charges amounted to ₱743,296.82
and ₱151,524.00, respectively.28

Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489, and Lot No.
5-F-8-C-2-B-2-A. During the public auction on April 2, 1987, Banco Filipino was the lone bidder for
the three foreclosed properties for the price of ₱1,372,387.04. The Certificate of Sale29 dated April 2,
1987, in favor of Banco Filipino, was annotated on TCT No. 52751 on April 14, 1987 as Entry No.
610623.30

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

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

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

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds32

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990, the RTC
issued an Order33 dismissing without prejudice Civil Case No. U-4667 due to the spouses Rosario’s
failure to prosecute.

Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but their efforts
were unsuccessful. Upon the expiration of the one-year redemption period in April 1988, the
Certificate of Final Sale34and Affidavit of Consolidation35 covering all three foreclosed properties were
executed on May 24, 1988 and May 25, 1988, respectively.

On June 7, 1988, new certificates of title were issued in the name of Banco Filipino, particularly, TCT
No. 165812 for Lot No. 5-F-8-C-2-B-2-A and TCT No. 165813 for Lot No. 356-A .36

The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint 37 for annulment
of the Certificate of Final Sale dated May 24, 1988, judicial cancelation of TCT No. 165813, and
damages, against Banco Filipino, the Ex Officio Provincial Sheriff, and the Register of Deeds of
Pangasinan, which was docketed as Civil Case No. U-4733.
On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta City a Petition for the issuance of
a writ of possession. In said Petition, docketed as Pet. Case No. U-822, Banco Filipino prayed that a
writ of possession be issued in its favor over Lot No. 5-F-8-C-2-B-2-A and Lot No. 356-A, plus the
improvements thereon, and the spouses Rosario and other persons presently in possession of said
properties be directed to abide by said writ.

The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822. The
Decision38 on these three cases was promulgated on January 15, 1992, the dispositive portion of
which reads:

WHEREFORE, judgment is rendered:

1. Declaring the real estate mortgage over Lot 356-A covered by TCT 52751 executed by
Spouses Andres Rosario in favor of Banco Filipino, legal and valid;

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

3. Declaring Banco Filipino the owner of Lot 356-A covered by TCT No. 52751 (now TCT
165813);

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

5. [The Torbela siblings] are hereby ordered to render accounting to Banco Filipino the rental
they received from tenants of Rose Inn Building from May 14, 1988;

6. [The Torbela siblings] are hereby ordered to pay Banco Filipino the sum of ₱20,000.00 as
attorney’s fees;

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

8. Dr. Rosario and Lena Rosario are hereby ordered to reimburse [the Torbela siblings] the
market value of Lot 356-A as of December, 1964 minus payments made by the former;

9. Dismissing the complaint of [the Torbela siblings] against Banco Filipino, Pedro Habon
and Rufino Moreno in Civil Case No. U-4733; and against Banco Filipino in Civil Case No. U-
4359.39

The RTC released an Amended Decision40 dated January 29, 1992, adding the following paragraph
to the dispositive:

Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-2-A of the subdivision plan
(LRC) Psd-122471, covered by Transfer Certificate of Title 104189 of the Registry of Deeds of
Pangasinan[.]41
The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the Court of
Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.

In its Decision42 dated June 29, 1999, the Court of Appeals decreed:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification.
Items No. 6 and 7 of the appealed decision are DELETED. Item No. 8 is modified requiring [Dr.
Rosario] to pay [the Torbela siblings] actual damages, in the amount of ₱1,200,000.00 with 6% per
annum interest from finality of this decision until fully paid. [Dr. Rosario] is further ORDERED to pay
[the Torbela siblings] the amount of ₱300,000.00 as moral damages; ₱200,000.00 as exemplary
damages and ₱100,000.00 as attorney’s fees.

Costs against [Dr. Rosario].43

The Court of Appeals, in a Resolution44 dated October 22, 1999, denied the separate Motions for
Reconsideration of the Torbela siblings and Dr. Rosario.

The Torbela siblings come before this Court via the Petition for Review in G.R. No. 140528, with the
following assignment of errors:

First Issue and Assignment of Error:

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

Second Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

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

Third Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

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

Fourth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK IS A MORTGAGEE
IN GOOD FAITH.
 Fifth Issue and Assignment of Error:

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

Sixth Issue and Assignment of Error:

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

Seventh Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

SUBJECT PROPERTY IS AT LEAST WORTH ₱1,200,000.00.45

The Torbela siblings ask of this Court:

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

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

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

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

THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO RULE THAT THE

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

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

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

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

Ordinarily, this Court will not review, much less reverse, the factual findings of the Court of Appeals,
especially where such findings coincide with those of the trial
court.http://sc.judiciary.gov.ph/jurisprudence/2010/february2010/169481.htm - _ftn The findings of
facts of the Court of Appeals are, as a general rule, conclusive and binding upon this Court, since
this Court is not a trier of facts and does not routinely undertake the re-examination of the evidence
presented by the contending parties during the trial of the case.

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

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

Barangay conciliation was not a pre-requisite to the institution of Civil Case No. U-4359.

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

The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986, when Presidential
Decree No. 1508, Establishing a System of Amicably Settling Disputes at the Barangay Level, was
still in effect.50 Pertinent provisions of said issuance read:

Section 2. Subject matters for amicable settlement. The Lupon of each barangay shall have
authority to bring together the parties actually residing in the same city or municipality for amicable
settlement of all disputes except:

1. Where one party is the government, or any subdivision or instrumentality thereof;

2. Where one party is a public officer or employee, and the dispute relates to the
performance of his official functions;

3. Offenses punishable by imprisonment exceeding 30 days, or a fine exceeding ₱200.00;

 4. Offenses where there is no private offended party;

5. Such other classes of disputes which the Prime Minister may in the interest of justice
determine upon recommendation of the Minister of Justice and the Minister of Local
Government.

Section 3. Venue. Disputes between or among persons actually residing in the same barangay shall
be brought for amicable settlement before the Lupon of said barangay. Those involving actual
residents of different barangays within the same city or municipality shall be brought in the barangay
where the respondent or any of the respondents actually resides, at the election of the complainant.
However, all disputes which involved real property or any interest therein shall be brought in the
barangay where the real property or any part thereof is situated.

The Lupon shall have no authority over disputes:

1. involving parties who actually reside in barangays of different cities or municipalities,

except where such barangays adjoin each other; and

2. involving real property located in different municipalities.

xxxx

Section 6. Conciliation, pre-condition to filing of complaint. – No complaint, petition, action or

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

The Court gave the following elucidation on the jurisdiction of the Lupong Tagapayapa in Tavora v.
Hon. Veloso51 :

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

Thus, by express statutory inclusion and exclusion, the Lupon shall have no jurisdiction over
disputes where the parties are not actual residents of the same city or municipality, except where the
barangays in which they actually reside adjoin each other.

It is true that immediately after specifying the barangay whose Lupon shall take cognizance of a
given dispute, Sec. 3 of PD 1508 adds:

"However, all disputes which involve real property or any interest therein shall be brought in the
barangay where the real property or any part thereof is situated."
Actually, however, this added sentence is just an ordinary proviso and should operate as such.

The operation of a proviso, as a rule, should be limited to its normal function, which is to restrict or
vary the operation of the principal clause, rather than expand its scope, in the absence of a clear
indication to the contrary.

"The natural and appropriate office of a proviso is . . . to except something from the enacting clause;
to limit, restrict, or qualify the statute in whole or in part; or to exclude from the scope of the statute
that which otherwise would be within its terms." (73 Am Jur 2d 467.)

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

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

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

There was an express trust between the Torbela siblings and Dr. Rosario.

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

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12, 1964 in which
they transferred and conveyed Lot No. 356-A to Dr. Rosario for the consideration of ₱9.00. However,
the Torbela siblings explained that they only executed the Deed as an accommodation so that Dr.
Rosario could have Lot No. 356-A registered in his name and use said property to secure a loan
from DBP, the proceeds of which would be used for building a hospital on Lot No. 356-A – a claim
supported by testimonial and documentary evidence, and borne out by the sequence of events
immediately following the execution by the Torbela siblings of said Deed. On December 16, 1964,
TCT No. 52751, covering Lot No. 356-A, was already issued in Dr. Rosario’s name. On December
28, 1964, Dr. Rosario executed his own Deed of Absolute Quitclaim, in which he expressly
acknowledged that he "only borrowed" Lot No. 356-A and was transferring and conveying the same
back to the Torbela siblings for the consideration of ₱1.00. On February 21, 1965, Dr. Rosario’s loan
in the amount of ₱70,200.00, secured by a mortgage on Lot No. 356-A, was approved by DBP. Soon
thereafter, construction of a hospital building started on Lot No. 356-A.

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

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

The certificate referred to is that document issued by the Register of Deeds known as the Transfer
Certificate of Title (TCT). By title, the law refers to ownership which is represented by that document.
Petitioner apparently confuses certificate with title. Placing a parcel of land under the mantle of the
Torrens system does not mean that ownership thereof can no longer be disputed. Ownership is
different from a certificate of title. The TCT is only the best proof of ownership of a piece of land.
Besides, the certificate cannot always be considered as conclusive evidence of ownership. Mere
issuance of the certificate of title in the name of any person does not foreclose the possibility that the
real property may be under co-ownership with persons not named in the certificate or that the
registrant may only be a trustee or that other parties may have acquired interest subsequent to the
issuance of the certificate of title. To repeat, registration is not the equivalent of title, but is only the
best evidence thereof. Title as a concept of ownership should not be confused with the certificate of
title as evidence of such ownership although both are interchangeably used. x x x. 54 (Emphases
supplied.)

Registration does not vest title; it is merely the evidence of such title. Land registration laws do not
give the holder any better title than what he actually has. 55 Consequently, Dr. Rosario must still prove
herein his acquisition of title to Lot No. 356-A, apart from his submission of TCT No. 52751 in his
name.

Dr. Rosario testified that he obtained Lot No. 356-A after paying the Torbela siblings ₱25,000.00,
pursuant to a verbal agreement with the latter. The Court though observes that Dr. Rosario’s
testimony on the execution and existence of the verbal agreement with the Torbela siblings lacks
significant details (such as the names of the parties present, dates, places, etc.) and is not
corroborated by independent evidence.

In addition, Dr. Rosario acknowledged the execution of the two Deeds of Absolute Quitclaim dated
December 12, 1964 and December 28, 1964, even affirming his own signature on the latter Deed.
The Parol Evidence Rule provides that when the terms of the agreement have been reduced into
writing, it is considered as containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the contents of the
written agreement.56 Dr. Rosario may not modify, explain, or add to the terms in the two written
Deeds of Absolute Quitclaim since he did not put in issue in his pleadings (1) an intrinsic ambiguity,
mistake, or imperfection in the Deeds; (2) failure of the Deeds to express the true intent and the
agreement of the parties thereto; (3) the validity of the Deeds; or (4) the existence of other terms
agreed to by the Torbela siblings and Dr. Rosario after the execution of the Deeds. 57

Even if the Court considers Dr. Rosario’s testimony on his alleged verbal agreement with the Torbela
siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two Deeds were
executed only because he was "planning to secure loan from the Development Bank of the
Philippines and Philippine National Bank and the bank needed absolute quitclaim[.]"58 While Dr.
Rosario’s explanation makes sense for the first Deed of Absolute Quitclaim dated December 12,
1964 executed by the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario for ₱9.00.00),
the same could not be said for the second Deed of Absolute Quitclaim dated December 28, 1964
executed by Dr. Rosario. In fact, Dr. Rosario’s Deed of Absolute Quitclaim (in which he admitted that
he only borrowed Lot No. 356-A and was transferring the same to the Torbela siblings for ₱1.00.00)
would actually work against the approval of Dr. Rosario’s loan by the banks. Since Dr. Rosario’s
Deed of Absolute Quitclaim dated December 28, 1964 is a declaration against his self-interest, it
must be taken as favoring the truthfulness of the contents of said Deed. 59

It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over Lot No.
356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's admission
in the said Deed that he merely borrowed Lot No. 356-A is deemed conclusive upon him. Under
Article 1431 of the Civil Code, "[t]hrough estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon."60 That admission cannot now be denied by Dr. Rosario as against the Torbela
siblings, the latter having relied upon his representation.

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

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

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

In Tamayo v. Callejo,64 the Court recognized that a trust may have a constructive or implied nature in
the beginning, but the registered owner’s subsequent express acknowledgement in a public
document of a previous sale of the property to another party, had the effect of imparting to the
aforementioned trust the nature of an express trust. The same situation exists in this case. When Dr.
Rosario was able to register Lot No. 356-A in his name under TCT No. 52751 on December 16,
1964, an implied trust was initially established between him and the Torbela siblings under Article
1451 of the Civil Code, which provides:

ART. 1451. When land passes by succession to any person and he causes the legal title to be put in
the name of another, a trust is established by implication of law for the benefit of the true owner.

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

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

On the issue of prescription, we had the opportunity to rule in Bueno v. Reyes that unrepudiated
written express trusts are imprescriptible:

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

Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real property
prescribed in 10 years, excepting only actions based on continuing or subsisting trusts that were
considered by section 38 as imprescriptible. As held in the case of Diaz v. Gorricho, L-11229, March
29, 1958, however, the continuing or subsisting trusts contemplated in section 38 of the Code of Civil
Procedure referred only to express unrepudiated trusts, and did not include constructive trusts (that
are imposed by law) where no fiduciary relation exists and the trustee does not recognize the trust at
all."

This principle was amplified in Escay v. Court of Appeals this way: "Express trusts prescribe 10
years from the repudiation of the trust (Manuel Diaz, et al. vs. Carmen Gorricho et al., 54 O.G. p.
8429, Sec. 40, Code of Civil Procedure)."

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

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

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

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

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

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

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

It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A by Dr. Rosario in
his name under TCT No. 52751 on December 16, 1964 is not the repudiation that would have
caused the 10-year prescriptive period for the enforcement of an express trust to run.

The Court of Appeals held that Dr. Rosario repudiated the express trust when he acquired another
loan from PNB and constituted a second mortgage on Lot No. 356-A sometime in 1979, which,
unlike the first mortgage to DBP in 1965, was without the knowledge and/or consent of the Torbela
siblings.

The Court only concurs in part with the Court of Appeals on this matter.

For repudiation of an express trust to be effective, the unequivocal act of repudiation had to be made
known to the Torbela siblings as the cestuis que trust and must be proven by clear and conclusive
evidence. A scrutiny of TCT No. 52751 reveals the following inscription:

Entry No. 520099

Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in the sense that the
consideration thereof has been increased to PHILIPPINE PESOS Four Hundred Fifty Thousand
Pesos only (₱450,000.00) and to secure any and all negotiations with PNB, whether contracted
before, during or after the date of this instrument, acknowledged before Notary Public of Pangasinan
Alejo M. Dato as Doc. No. 198, Page No. 41, Book No. 11, Series of 1985.

Date of Instrument March 5, 1981

Date of Inscription March 6, 198173

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

The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-A to PNB
on March 6, 1981 when the amended loan and mortgage agreement was registered on TCT No.
52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole world 74 that Lot No.
356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the amount of which was
increased to ₱450,000.00. Hence, Dr. Rosario is deemed to have effectively repudiated the express
trust between him and the Torbela siblings on March 6, 1981, on which day, the prescriptive period
for the enforcement of the express trust by the Torbela siblings began to run.

From March 6, 1981, when the amended loan and mortgage agreement was registered on TCT No.
52751, to February 13, 1986, when the Torbela siblings instituted before the RTC Civil Case No. U-
4359 against the spouses Rosario, only about five years had passed. The Torbela siblings were able
to institute Civil Case No. U-4359 well before the lapse of the 10-year prescriptive period for the
enforcement of their express trust with Dr. Rosario.

Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or neglect, for an
unreasonable and unexplained length of time, to do that which by exercising due diligence could or
should have been done earlier. It is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned it or declined
to assert it. As the Court explained in the preceding paragraphs, the Torbela siblings instituted Civil
Case No. U-4359 five years after Dr. Rosario’s repudiation of the express trust, still within the 10-
year prescriptive period for enforcement of such trusts. This does not constitute an unreasonable
delay in asserting one's right. A delay within the prescriptive period is sanctioned by law and is not
considered to be a delay that would bar relief. Laches apply only in the absence of a statutory
prescriptive period.75

Banco Filipino is not a mortgagee and buyer in good faith.

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

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

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

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because per
Section 70 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree,
the notice of adverse claim, registered on May 17, 1967 by the Torbela siblings under Entry Nos.
274471-274472 on TCT No. 52751, already lapsed after 30 days or on June 16, 1967. Additionally,
there was an express cancellation of Entry Nos. 274471-274472 by Entry No. 520469 dated March
11, 1981. So when Banco Filipino approved Dr. Rosario’s loan for ₱1,200,000.00 and constituted a
mortgage on Lot No. 356-A (together with two other properties) on December 8, 1981, the only other
encumbrance on TCT No. 52751 was Entry No. 520099 dated March 6, 1981, i.e., the amended
loan and mortgage agreement between Dr. Rosario and PNB (which was eventually cancelled after
it was paid off with part of the proceeds from Dr. Rosario’s loan from Banco Filipino). Hence, Banco
Filipino was not aware that the Torbela siblings’ adverse claim on Lot No. 356-A still subsisted.

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

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

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

ADVERSE CLAIM

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

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

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

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

SEC. 70. Adverse claim. – Whoever claims any part or interest in registered land adverse to the
registered owner, arising subsequent to the date of the original registrations, may, if no other
provision is made in this Decree for registering the same, make a statement in writing setting forth
fully his alleged right, or interest, and how or under whom acquired, a reference to the number of the
certificate of title of the registered owner, the name of the registered owner, and a description of the
land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant’s residence, and a
place at which all notices may be served upon him. This statement shall be entitled to registration as
an adverse claim on the certificate of title. The adverse claim shall be effective for a period of thirty
days from the date of registration. After the lapse of said period, the annotation of adverse claim may
be cancelled upon filing of a verified petition therefor by the party in interest: Provided, however, that
after cancellation, no second adverse claim based on the same ground shall be registered by the
same claimant.

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

In Sajonas v. Court of Appeals,79 the Court squarely interpreted Section 70 of the Property
Registration Decree, particularly, the new 30-day period not previously found in Section 110 of the
Land Registration Act, thus:

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

"The adverse claim shall be effective for a period of thirty days from the date of registration."
At first blush, the provision in question would seem to restrict the effectivity of the adverse claim to
thirty days. But the above provision cannot and should not be treated separately, but should be read
in relation to the sentence following, which reads:

"After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a
verified petition therefor by the party in interest."

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

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

xxxx

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

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

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

The reason why the law provides for a hearing where the validity of the adverse claim is to be
threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue where
the propriety of his claimed interest can be established or revoked, all for the purpose of determining
at last the existence of any encumbrance on the title arising from such adverse claim. This is in line
with the provision immediately following:
"Provided, however, that after cancellation, no second adverse claim shall be registered by the same
claimant."

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

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

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

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

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

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

While the defective cancellation of Entry Nos. 274471-274472 by Entry No. 520469 might not be
evident to a private individual, the same should have been apparent to Banco Filipino. Banco Filipino
is not an ordinary mortgagee, but is a mortgagee-bank, whose business is impressed with public
interest. In fact, in one case, 82 the Court explicitly declared that the rule that persons dealing with
registered lands can rely solely on the certificate of title does not apply to banks. In another
case,83 the Court adjudged that unlike private individuals, a bank is expected to exercise greater care
and prudence in its dealings, including those involving registered lands. A banking institution is
expected to exercise due diligence before entering into a mortgage contract. The ascertainment of
the status or condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations.
Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in good faith at
the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela siblings over Lot No. 356-A is
superior over that of Banco Filipino; and as the true owners of Lot No. 356-A, the Torbela siblings
are entitled to a reconveyance of said property even from Banco Filipino.

Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement was not the
result of a dishonest purpose, some moral obliquity, or breach of a known duty for some interest or ill
will that partakes of fraud that would justify damages.84

Given the reconveyance of Lot No. 356-A to the Torbela siblings, there is no more need to address
issues concerning redemption, annulment of the foreclosure sale and certificate of sale (subject
matter of Civil Case No. U-4733), or issuance of a writ of possession in favor of Banco Filipino
(subject matter of Pet. Case No. U-822) insofar as Lot No. 356-A is concerned. Such would only be
superfluous. Banco Filipino, however, is not left without any recourse should the foreclosure and
sale of the two other mortgaged properties be insufficient to cover Dr. Rosario’s loan, for the bank
may still bring a proper suit against Dr. Rosario to collect the unpaid balance.

The rules on accession shall govern the improvements on Lot No. 356-A and the rents thereof.

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

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

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

ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed on
the land of another, but also on the part of the owner of such land, the rights of one and the other
shall be the same as though both had acted in good faith.

It is understood that there is bad faith on the part of the landowner whenever the act was done with
his knowledge and without opposition on his part. (Emphasis supplied.)

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

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

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

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

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

Whatever is built, planted, or sown on the land of another, and the improvements or repairs made
thereon, belong to the owner of the land. Where, however, the planter, builder, or sower has acted in
good faith, a conflict of rights arises between the owners and it becomes necessary to protect the
owner of the improvements without causing injustice to the owner of the land. In view of the
impracticability of creating what Manresa calls a state of "forced co-ownership," the law has provided
a just and equitable solution by giving the owner of the land the option to acquire the improvements
after payment of the proper indemnity or to oblige the builder or planter to pay for the land and the
sower to pay the proper rent. It is the owner of the land who is allowed to exercise the option
because his right is older and because, by the principle of accession, he is entitled to the ownership
of the accessory thing.85

The landowner has to make a choice between appropriating the building by paying the proper
indemnity or obliging the builder to pay the price of the land. But even as the option lies with the
landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for
instance, compel the owner of the building to remove the building from the land without first
exercising either option. It is only if the owner chooses to sell his land, and the builder or planter fails
to purchase it where its value is not more than the value of the improvements, that the owner may
remove the improvements from the land. The owner is entitled to such remotion only when, after
having chosen to sell his land, the other party fails to pay for the same. 86

This case then must be remanded to the RTC for the determination of matters necessary for the
proper application of Article 448, in relation to Article 546, of the Civil Code. Such matters include the
option that the Torbela siblings will choose; the amount of indemnity that they will pay if they decide
to appropriate the improvements on Lot No. 356-A; the value of Lot No. 356-A if they prefer to sell it
to Dr. Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to Dr. Rosario but the value of
the land is considerably more than the improvements. The determination made by the Court of
Appeals in its Decision dated June 29, 1999 that the current value of Lot No. 356-A is ₱1,200,000.00
is not supported by any evidence on record.

Should the Torbela siblings choose to appropriate the improvements on Lot No. 356-A, the following
ruling of the Court in Pecson v. Court of Appeals 87 is relevant in the determination of the amount of
indemnity under Article 546 of the Civil Code:
Article 546 does not specifically state how the value of the useful improvements should be
determined. The respondent court and the private respondents espouse the belief that the cost of
construction of the apartment building in 1965, and not its current market value, is sufficient
reimbursement for necessary and useful improvements made by the petitioner. This position is,
however, not in consonance with previous rulings of this Court in similar cases. In Javier vs.
Concepcion, Jr., this Court pegged the value of the useful improvements consisting of various fruits,
bamboos, a house and camarin made of strong material based on the market value of the said
improvements. In Sarmiento vs. Agana, despite the finding that the useful improvement, a residential
house, was built in 1967 at a cost of between eight thousand pesos (₱8,000.00) to ten thousand
pesos (₱10,000.00), the landowner was ordered to reimburse the builder in the amount of forty
thousand pesos (₱40,000.00), the value of the house at the time of the trial. In the same way, the
landowner was required to pay the "present value" of the house, a useful improvement, in the case
of De Guzman vs. De la Fuente, cited by the petitioner.

The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In
this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila that
the said provision was formulated in trying to adjust the rights of the owner and possessor in good
faith of a piece of land, to administer complete justice to both of them in such a way as neither one
nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is
therefore the current market value of the improvements which should be made the basis of
reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise
be allowed to acquire a highly valued income-yielding four-unit apartment building for a measly
amount. Consequently, the parties should therefore be allowed to adduce evidence on the present
market value of the apartment building upon which the trial court should base its finding as to the
amount of reimbursement to be paid by the landowner. 88(Emphases supplied.)

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

Dr. Rosario is liable for damages to the Torbela siblings.

The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings ₱300,000.00 as moral
damages; ₱200,000.00 as exemplary damages; and ₱100,000.00 as attorney’s fees.

Indeed, Dr. Rosario’s deceit and bad faith is evident when, being fully aware that he only held Lot
No. 356-A in trust for the Torbela siblings, he mortgaged said property to PNB and Banco Filipino
absent the consent of the Torbela siblings, and caused the irregular cancellation of the Torbela
siblings’ adverse claim on TCT No. 52751. Irrefragably, Dr. Rosario’s betrayal had caused the
Torbela siblings (which included Dr. Rosario’s own mother, Eufrosina Torbela Rosario) mental
anguish, serious anxiety, and wounded feelings. Resultantly, the award of moral damages is
justified, but the amount thereof is reduced to ₱200,000.00.

In addition to the moral damages, exemplary damages may also be imposed given that Dr. Rosario’s
wrongful acts were accompanied by bad faith. However, judicial discretion granted to the courts in
the assessment of damages must always be exercised with balanced restraint and measured
objectivity. The circumstances of the case call for a reduction of the award of exemplary damages to
₱100,000.00.

As regards attorney's fees, they may be awarded when the defendant's act or omission has
compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest.
Because of Dr. Rosario’s acts, the Torbela siblings were constrained to institute several cases
against Dr. Rosario and his spouse, Duque-Rosario, as well as Banco Filipino, which had lasted for
more than 25 years. Consequently, the Torbela siblings are entitled to an award of attorney's fees
and the amount of ₱100,000.00 may be considered rational, fair, and reasonable.

Banco Filipino is entitled to a writ of possession for Lot No. 5-F-8-C-2-B-2-A.

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

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

Duque-Rosario alleges in her Petition that Lot No. 5-F-8-C-2-B-2-A had been registered in her name
under TCT No. 104189. Yet, without a copy of TCT No. 104189 on record, the Court cannot give
much credence to Duque-Rosario’s claim of sole ownership of Lot No. 5-F-8-C-2-B-2-A. Also, the
question of whether Lot No. 5-F-8-C-2-B-2-A was the paraphernal property of Duque-Rosario or the
conjugal property of the spouses Rosario would not alter the outcome of Duque-Rosario’s Petition.

The following facts are undisputed: Banco Filipino extrajudicially foreclosed the mortgage constituted
on Lot No. 5-F-8-C-2-B-2-A and the two other properties after Dr. Rosario defaulted on the payment
of his loan; Banco Filipino was the highest bidder for all three properties at the foreclosure sale on
April 2, 1987; the Certificate of Sale dated April 2, 1987 was registered in April 1987; and based on
the Certificate of Final Sale dated May 24, 1988 and Affidavit of Consolidation dated May 25, 1988,
the Register of Deeds cancelled TCT No. 104189 and issued TCT No. 165812 in the name of Banco
Filipino for Lot No. 5-F-8-C-2-B-2-A on June 7, 1988.

The Court has consistently ruled that the one-year redemption period should be counted not from
the date of foreclosure sale, but from the time the certificate of sale is registered with the Registry of
Deeds.91 No copy of TCT No. 104189 can be found in the records of this case, but the fact of
annotation of the Certificate of Sale thereon was admitted by the parties, only differing on the date it
was made: April 14, 1987 according to Banco Filipino and April 15, 1987 as maintained by Duque-
Rosario. Even if the Court concedes that the Certificate of Sale was annotated on TCT No. 104189
on the later date, April 15, 1987, the one-year redemption period already expired on April 14,
1988.92 The Certificate of Final Sale and Affidavit of Consolidation were executed more than a month
thereafter, on May 24, 1988 and May 25, 1988, respectively, and were clearly not premature.

It is true that the rule on redemption is liberally construed in favor of the original owner of the
property. The policy of the law is to aid rather than to defeat him in the exercise of his right of
redemption.93 However, the liberal interpretation of the rule on redemption is inapplicable herein as
neither Duque-Rosario nor Dr. Rosario had made any attempt to redeem Lot No. 5-F-8-C-2-B-2-A.
Duque-Rosario could only rely on the efforts of the Torbela siblings at redemption, which were
unsuccessful. While the Torbela siblings made several offers to redeem Lot No. 356-A, as well as
the two other properties mortgaged by Dr. Rosario, they did not make any valid tender of the
redemption price to effect a valid redemption. The general rule in redemption is that it is not sufficient
that a person offering to redeem manifests his desire to do so. The statement of intention must be
accompanied by an actual and simultaneous tender of payment. The redemption price should either
be fully offered in legal tender or else validly consigned in court. Only by such means can the auction
winner be assured that the offer to redeem is being made in good faith. 94 In case of disagreement
over the redemption price, the redemptioner may preserve his right of redemption through judicial
action, which in every case, must be filed within the one-year period of redemption. The filing of the
court action to enforce redemption, being equivalent to a formal offer to redeem, would have the
effect of preserving his redemptive rights and "freezing" the expiration of the one-year period.95 But
no such action was instituted by the Torbela siblings or either of the spouses Rosario.

Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-C-2-B-2-A
in favor of Banco Filipino by invoking the pendency of Civil Case No. U-4359, the Torbela siblings’
action for recovery of ownership and possession and damages, which supposedly tolled the period
for redemption of the foreclosed properties. Without belaboring the issue of Civil Case No. U-4359
suspending the redemption period, the Court simply points out to Duque-Rosario that Civil Case No.
U-4359 involved Lot No. 356-A only, and the legal consequences of the institution, pendency, and
resolution of Civil Case No. U-4359 apply to Lot No. 356-A alone.

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

The right of the purchaser to the possession of the foreclosed property becomes absolute upon the
expiration of the redemption period. The basis of this right to possession is the purchaser's
ownership of the property. After the consolidation of title in the buyer's name for failure of the
mortgagor to redeem, the writ of possession becomes a matter of right and its issuance to a
purchaser in an extrajudicial foreclosure is merely a ministerial function. 96
1avvphi1

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

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

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

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

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

(5) Dr. Rosario is ORDERED to pay the Torbela siblings ₱200,000.00 as moral damages,
₱100,000.00 as exemplary damages, and ₱100,000.00 as attorney’s fees; and

(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered by

TCT No. 165812. The RTC Branch Clerk of Court is ORDERED to issue a writ of possession
for the said property in favor of Banco Filipino.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR: