G.R. No. 172410             April 14, 2008

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE TOLL REGULATORY BOARD (TRB), petitione, vs.HOLY TRINITY REALTY DEVELOPMENT CORP., respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to set aside the Decision1 dated 21 April 2006 of the Court of Appeals in CA-G.R. SP No. 90981 which, in turn, set aside two Orders2 dated 7 February 20053 and 16 May 20054 of the Regional Trial Court (RTC) of Malolos, Bulacan, in Civil Case No. 869-M-2000.

The undisputed factual and procedural antecedents of this case are as follows:

On 29 December 2000, petitioner Republic of the Philippines, represented by the Toll Regulatory Board (TRB), filed with the RTC a Consolidated Complaint for Expropriation against landowners whose properties would be affected by the construction, rehabilitation and expansion of the North Luzon Expressway. The suit was docketed as Civil Case No. 869-M-2000 and raffled to Branch 85, Malolos, Bulacan. Respondent Holy Trinity Realty and Development Corporation (HTRDC) was one of the affected landowners.

On 18 March 2002, TRB filed an Urgent Ex-Parte Motion for the issuance of a Writ of Possession, manifesting that it deposited a sufficient amount to cover the payment of 100% of the zonal value of the affected properties, in the total amount of P28,406,700.00, with the Land Bank of the Philippines, South Harbor Branch (LBP-South Harbor), an authorized government depository. TRB maintained that since it had already complied with the provisions of Section 4 of Republic Act No. 89745 in relation to Section 2 of Rule 67 of the Rules of Court, the issuance of the writ of possession becomes ministerial on the part of the RTC.

The RTC issued, on 19 March 2002, an Order for the Issuance of a Writ of Possession, as well as the Writ of Possession itself. HTRDC thereafter moved for the reconsideration of the 19 March 2002 Order of the RTC.

On 7 October 2002, the Sheriff filed with the RTC a Report on Writ of Possession stating, among other things, that since none of the landowners voluntarily vacated the properties subject of the expropriation proceedings, the assistance of the Philippine National Police (PNP) would be necessary in implementing the Writ of Possession. Accordingly, TRB, through the Office of the Solicitor General (OSG), filed with the RTC an Omnibus Motion praying for an Order directing the PNP to assist the Sheriff in the implementation of the Writ of Possession. On 15 November 2002, the RTC issued an Order directing the landowners to file their comment on TRB’s Omnibus Motion.

On 3 March 2003, HTRDC filed with the RTC a Motion to Withdraw Deposit, praying that the respondent or its duly authorized representative be allowed to withdraw the amount of P22,968,000.00, out of TRB’s advance deposit of P28,406,700.00 with LBP-South Harbor, including the interest which accrued thereon. Acting on said motion, the RTC issued an Order dated 21 April 2003, directing the manager of LBP-South Harbor to release in favor of HTRDC the amount of P22,968,000.00 since the latter already proved its absolute ownership over the subject properties and paid the taxes due thereon to the government. According to the RTC, "(t)he issue however on the interest earned by the amount deposited in the bank, if there is any, should still be threshed out."6

On 7 May 2003, the RTC conducted a hearing on the accrued interest, after which, it directed the issuance of an order of expropriation, and granted TRB a period of 30 days to inquire from LBP-South Harbor "whether the deposit made by DPWH with said bank relative to these expropriation proceedings is earning interest or not."7

The RTC issued an Order, on 6 August 2003, directing the appearance of LBP Assistant Vice-President Atty. Rosemarie M. Osoteo and Department Manager Elizabeth Cruz to testify on whether the Department of Public Works and Highways’ (DPWH’s) expropriation account with the bank was earning interest. On 9 October 2003, TRB instead submitted a Manifestation to which was attached a letter dated 19 August 2003 by Atty. Osoteo stating that the DPWH Expropriation Account was an interest bearing current account.

On 11 March 2004, the RTC issued an Order resolving as follows the issue of ownership of the interest that had accrued on the amount deposited by DPWH in its expropriation current account with LBP-South Harbor:

WHEREFORE, the interest earnings from the deposit of P22,968,000.00 respecting one hundred (100%) percent of the zonal value of the affected properties in this expropriation proceedings under the principle of accession are considered as fruits and should properly pertain to the herein defendant/property owner [HTRDC]. Accordingly, the Land Bank as the depositary bank in this expropriation proceedings is (1) directed to make the necessary computation of the accrued interest of the amount of P22,968,000.00 from the time it was deposited up to the time it was released to Holy Trinity Realty and Development Corp. and thereafter (2) to release the same to the defendant Holy Trinity Development Corporation through its authorized representative.8

TRB filed a Motion for Reconsideration of the afore-quoted RTC Order, contending that the payment of interest on money deposited and/or consigned for the purpose of securing a writ of possession was sanctioned neither by law nor by jurisprudence.

TRB filed a Motion to Implement Order dated 7 May 2003, which directed the issuance of an order of expropriation. On 5 November 2004, the RTC issued an Order of Expropriation.

On 7 February 2005, the RTC likewise granted TRB’s Motion for Reconsideration. The RTC ruled that the issue as to whether or not HTRDC is entitled to payment of interest should be ventilated before the Board of Commissioners which will be created later for the determination of just compensation.

Now it was HTRDC’s turn to file a Motion for Reconsideration of the latest Order of the RTC. The RTC, however, denied HTRDC’s Motion for Reconsideration in an Order dated 16 May 2005.

HTRDC sought recourse with the Court of Appeals by filing a Petition for Certiorari, docketed as CA-G.R. SP No. 90981. In its Decision, promulgated on 21 April 2006, the Court of Appeals vacated the Orders dated 7 February 2005 and 16 May 2005 of the RTC, and reinstated the Order dated 11 March 2004 of the said trial court wherein it ruled that the interest which accrued on the amount deposited in the expropriation account belongs to HTRDC by virtue of accession. The Court of Appeals thus declared:

WHEREFORE, the foregoing premises considered, the assailed Orders dated 07 February and 16 May 2005 respectively of the Regional Trial Court of Malolos, Bulacan (Branch 85) are hereby VACATED and SET ASIDE. Accordingly, the Order dated 11 March 2004 is hereby reinstated.9

From the foregoing, the Republic, represented by the TRB, filed the present Petition for Review on Certiorari, steadfast in its stance that HTRDC is "entitled only to an amount equivalent to the zonal value of the expropriated property, nothing more and nothing less."10 According to the TRB, the owner of the subject properties is entitled to an exact amount as clearly defined in both Section 4 of Republic Act No. 8974, which reads:

Section 4. Guidelines for Expropriation Proceedings. – Whenever it is necessary to acquire real property for the right-of-way, site or location for any national government infrastructure project through expropriation, the appropriate implementing agency shall initiate the expropriation proceedings before the proper court under the following guidelines:

(a) Upon the filing of the complaint, and after due notice to the defendant, the implementing agency shall immediately pay the owner of the property the amount equivalent to the sum of (1) one hundred (100%) percent of the value of the property based on the current relevant zonal valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the improvements and/or structures as determined under Section 7 hereof.

and Section 2, Rule 67 of the Rules of Court, which provides:

Sec. 2. Entry of plaintiff upon depositing value with authorized government depositary. – Upon the filing of the complaint or at anytime thereafter and after due notice to the defendant, the plaintiff shall have the right to take or enter upon the possession of the real property involved if he deposits with the authorized government depositary an amount equivalent to the assessed value of the property for purposes of taxation to be held by such bank subject to the orders of the court. Such deposit shall be in money, unless in lieu thereof the court authorizes the deposit of a certificate of deposit of a government bank of the Republic of the Philippines payable on demand to the authorized government depositary.

The TRB reminds us that there are two stages11 in expropriation proceedings, the determination of the authority to exercise eminent domain and the determination of just compensation. The TRB argues that it is only during the second stage when the court will appoint commissioners and determine claims for entitlement to interest, citing Land Bank of the Philippines v. Wycoco12 and National Power Corporation v. Angas.13

The TRB further points out that the expropriation account with LBP-South Harbor is not in the name of HTRDC, but of DPWH. Thus, the said expropriation account includes the compensation for the other landowners named defendants in Civil Case No. 869-M-2000, and does not exclusively belong to respondent.

At the outset, we call attention to a significant oversight in the TRB’s line of reasoning. It failed to distinguish between the expropriation procedures under Republic Act No. 8974 and Rule 67 of the Rules of Court. Republic Act No. 8974 and Rule 67 of the Rules of Court speak of different procedures, with the former specifically governing expropriation proceedings for national government infrastructure projects. Thus, in Republic v. Gingoyon,14 we held:

There are at least two crucial differences between the respective procedures under Rep. Act No. 8974 and Rule 67. Under the statute, the Government is required to make immediate payment to the property owner upon the filing of the complaint to be entitled to a writ of possession, whereas in Rule 67, the Government is required only to make an initial deposit with an authorized government depositary. Moreover, Rule 67 prescribes that the initial deposit be equivalent to the assessed value of the property for purposes of taxation, unlike Rep. Act No. 8974 which provides, as the relevant standard for initial compensation, the market value of the property as stated in the tax declaration or the current relevant zonal valuation of the Bureau of Internal Revenue (BIR), whichever is higher, and the value of the improvements and/or structures using the replacement cost method.

x x x x

Rule 67 outlines the procedure under which eminent domain may be exercised by the Government. Yet by no means does it serve at present as the solitary guideline through which the State may expropriate private property. For example, Section 19 of the Local Government Code governs as to the exercise by local government units of the power of eminent domain through an enabling ordinance. And then there is Rep. Act No. 8974, which covers expropriation proceedings intended for national government infrastructure projects.

Rep. Act No. 8974, which provides for a procedure eminently more favorable to the property owner than Rule 67, inescapably applies in instances when the national government expropriates property "for national government infrastructure projects." Thus, if expropriation is engaged in by the national government for purposes other than national infrastructure projects, the assessed value standard and the deposit mode prescribed in Rule 67 continues to apply.

There is no question that the proceedings in this case deal with the expropriation of properties intended for a national government infrastructure project. Therefore, the RTC correctly applied the procedure laid out in Republic Act No. 8974, by requiring the deposit of the amount equivalent to 100% of the zonal value of the properties sought to be expropriated before the issuance of a writ of possession in favor of the Republic.

The controversy, though, arises not from the amount of the deposit, but as to the ownership of the interest that had since accrued on the deposited amount.

Whether the Court of Appeals was correct in holding that the interest earned by the deposited amount in the expropriation account would accrue to HRTDC by virtue of accession, hinges on the determination of who actually owns the deposited amount, since, under Article 440 of the Civil Code, the right of accession is conferred by ownership of the principal property:

Art. 440. The 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.

The principal property in the case at bar is part of the deposited amount in the expropriation account of DPWH which pertains particularly to HTRDC . Such amount, determined to be P 22,968,000.00 of the P 28,406,700.00 total deposit, was already ordered by the RTC to be released to HTRDC or its authorized representative. The Court of Appeals further recognized that the deposit of the amount was already deemed a constructive delivery thereof to HTRDC:

When the [herein petitioner] TRB deposited the money as advance payment for the expropriated property with an authorized government depositary bank for purposes of obtaining a writ of possession, it is deemed to be a "constructive delivery" of the amount corresponding to the 100% zonal valuation of the expropriated property. Since [HTRDC] is entitled thereto and undisputably the owner of the principal amount deposited by [herein petitioner] TRB, conversely, the interest yield, as accession, in a bank deposit should likewise pertain to the owner of the money deposited.15

Since the Court of Appeals found that the HTRDC is the owner of the deposited amount, then the latter should also be entitled to the interest which accrued thereon.

We agree with the Court of Appeals, and find no merit in the instant Petition.

The deposit was made in order to comply with Section 4 of Republic Act No. 8974, which requires nothing less than the immediate payment of 100% of the value of the property, based on the current zonal valuation of the BIR, to the property owne r . Thus, going back to our ruling in Republic v. Gingoyon16:

It is the plain intent of Rep. Act No. 8974 to supersede the system of deposit under Rule 67 with the scheme of " immediate payment " in cases involving national government infrastructure projects . The following portion of the Senate deliberations, cited by PIATCO in its Memorandum, is worth quoting to cogitate on the purpose behind the plain meaning of the law:

THE CHAIRMAN (SEN. CAYETANO). "x x x Because the Senate believes that, you know, we have to pay the landowners immediately not by treasury bills but by cash.

Since we are depriving them, you know, upon payment, ‘no, of possession, we might as well pay them as much, ‘no, hindi lang 50 percent.

x x x x

THE CHAIRMAN (REP. VERGARA). Accepted.

x x x x

THE CHAIRMAN (SEN. CAYETANO). Oo. Because this is really in favor of the landowners, e.

THE CHAIRMAN (REP. VERGARA). That’s why we need to really secure the availability of funds.

x x x x

THE CHAIRMAN (SEN. CAYETANO). No, no. It’s the same. It says here: iyong first paragraph, diba? Iyong zonal – talagang magbabayad muna. In other words, you know, there must be a payment kaagad. (TSN, Bicameral Conference on the Disagreeing Provisions of House Bill 1422 and Senate Bill 2117, August 29, 2000, pp. 14-20)

x x x x

THE CHAIRMAN (SEN. CAYETANO). Okay, okay, ‘no. Unang-una, it is not deposit, ‘no. It’s payment ."

REP. BATERINA. It’s payment, ho, payment."

The critical factor in the different modes of effecting delivery which gives legal effect to the act is the actual intention to deliver on the part of the party making such delivery.17 The intention of the TRB in depositing such amount through DPWH was clearly to comply with the requirement of immediate payment in Republic Act No. 8974, so that it could already secure a writ of possession over the properties subject of the expropriation and commence implementation of the project. In fact, TRB did not object to HTRDC’s Motion to Withdraw Deposit with the RTC, for as long as HTRDC shows (1) that the property is free from any lien or encumbrance and (2) that respondent is the absolute owner thereof.18

A close scrutiny of TRB’s arguments would further reveal that it does not directly challenge the Court of Appeals’ determinative pronouncement that the interest earned by the amount deposited in the expropriation account accrues to HTRDC by virtue of accession. TRB only asserts that HTRDC is "entitled only to an amount equivalent to the zonal value of the expropriated property, nothing more and nothing less."

We agree in TRB’s statement since it is exactly how the amount of the immediate payment shall be determined in accordance with Section 4 of Republic Act No. 8974, i.e., an amount equivalent to 100% of the zonal value of the expropriated properties. However, TRB already complied therewith by depositing the required amount in the expropriation account of DPWH with LBP-South Harbor. By depositing the said amount, TRB is already considered to have paid the same to HTRDC, and HTRDC became the owner thereof. The amount earned interest after the deposit; hence, the interest should pertain to the owner of the principal who is already determined as HTRDC. The interest is paid by LBP-South Harbor on the deposit, and the TRB cannot claim that it paid an amount more than what it is required to do so by law.

Nonetheless, we find it necessary to emphasize that HTRDC is determined to be the owner of only a part of the amount deposited in the expropriation account, in the sum of P22,968,000.00. Hence, it is entitled by right of accession to the interest that had accrued to the said amount only.

We are not persuaded by TRB’s citation of National Power Corporation v. Angas and Land Bank of the Philippines v. Wycoco, in support of its argument that the issue on interest is merely part and parcel of the determination of just compensation which should be determined in the second stage of the proceedings only. We find that neither case is applicable herein.

The issue in Angas is whether or not, in the computation of the legal rate of interest on just compensation for expropriated lands, the applicable law is Article 2209 of the Civil Code which prescribes a 6% legal interest rate, or Central Bank Circular No. 416 which fixed the legal rate at 12% per annum. We ruled in Angas that since the kind of interest involved therein is interest by way of damages for delay in the payment thereof, and not as earnings from loans or forbearances of money, Article 2209 of the Civil Code prescribing the 6% interest shall apply.

In Wycoco, on the other hand, we clarified that interests in the form of damages cannot be applied where there is prompt and valid payment of just compensation.

The case at bar, however, does not involve interest as damages for delay in payment of just compensation. It concerns interest earned by the amount deposited in the expropriation account.

Under Section 4 of Republic Act No. 8974, the implementing agency of the government pays just compensation twice: (1) immediately upon the filing of the complaint, where the amount to be paid is 100% of the value of the property based on the current relevant zonal valuation of the BIR (initial payment); and (2) when the decision of the court in the determination of just compensation becomes final and executory, where the implementing agency shall pay the owner the difference between the amount already paid and the just compensation as determined by the court (final payment).19

HTRDC never alleged that it was seeking interest because of delay in either of the two payments enumerated above. In fact, HTRDC’s cause of action is based on the prompt initial payment of just compensation, which effectively transferred the ownership of the amount paid to HTRDC. Being the owner of the amount paid, HTRDC is claiming, by the right of accession, the interest earned by the same while on deposit with the bank.

That the expropriation account was in the name of DPWH, and not of HTRDC, is of no moment. We quote with approval the following reasoning of the Court of Appeals:

Notwithstanding that the amount was deposited under the DPWH account, ownership over the deposit transferred by operation of law to the [HTRDC] and whatever interest, considered as civil fruits, accruing to the amount of Php22,968,000.00 should properly pertain to [HTRDC] as the lawful owner of the principal amount deposited following the principle of accession. Bank interest partake the nature of civil fruits under Art. 442 of the New Civil Code. And since these are considered fruits, ownership thereof should be due to the owner of the principal. Undoubtedly, being an attribute of ownership, the [HTRDC’s] right over the fruits (jus fruendi), that is the bank interests, must be respected.20

Considering that the expropriation account is in the name of DPWH, then, DPWH should at most be deemed as the trustee of the amounts deposited in the said account s irrefragably intended as initial payment for the landowners of the properties subject of the expropriation, until said landowners are allowed by the RTC to withdraw the same.

As a final note, TRB does not object to HTRDC’s withdrawal of the amount of P22,968,000.00 from the expropriation account, provided that it is able to show (1) that the property is free from any lien or encumbrance and (2) that it is the absolute owner thereof.21 The said conditions do not put in abeyance the constructive delivery of the said amount to HTRDC pending the latter’s compliance therewith. Article 1187 22 of the Civil Code provides that the "effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation ." Hence, when HTRDC complied with the given conditions, as determined by the RTC in its Order 23 dated 21 April 2003, the effects of the constructive delivery retroacted to the actual date of the deposit of the amount in the expropriation account of DPWH.

WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated 21 April 2006 in CA-G.R. SP No. 90981, which set aside the 7 February 2005 and 16 May 2005 Orders of the Regional Trial Court of Malolos, Bulacan, is AFFIRMED. No costs.

SO ORDERED.

Ynares-Santiago, Chairperson, Austria-Martinez, Reyes, Leonardo-de Castro*, JJ., concur.

[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.

D E C I S I O N

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, t o 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 b oth 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 library

"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.

G.R. No. 35223           September 17, 1931

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs.TALISAY-SILAY MILLING CO., ET AL., defendants-appellees. THE PHILIPPINE NATIONAL BANK, intervenor-appellant.

Roman J. Lacson for intervenor-appellant.Mariano Ezpeleta for plaintiff-appellee.Nolan and Hernaez for defendants-appellees Talisay-Silay Milling Co. and Cesar Ledesma.

ROMUALDEZ, J.:

This proceeding originated in a complaint filed by the Bachrach Motor Co., Inc., against the Talisay-Silay Milling Co., Inc., for the delivery of the amount P13,850 or promissory notes or other instruments or credit for that sum payable on June 30, 1930, as bonus in favor of Mariano Lacson Ledesma; the complaint further prays that the sugar central be ordered to render an accounting of the amounts it owes Mariano Lacson Ledesma by way of bonus, dividends, or otherwise, and to pay the plaintiff a sum sufficient to satisfy the judgment mentioned in the complaint, and that the sale made by said Mariano Lacson Ledesma be declared null and void.

The Philippine National Bank filed a third party claim alleging a preferential right to receive any amount which Mariano Lacson Ledesma might be entitled to from the Talisay-Silay Milling Co. as bonus, because that would be civil fruits of the land mortgaged to said bank by said debtor for the benefit of the central referred to, and by virtue of a deed of assignment, and praying that said central be ordered to delivered directly to the intervening bank said sum on account of the latter's credit against the aforesaid Mariano Lacson Ledesma.

The corporation Talisay-Silay Milling Co., Inc., answered the complaint stating that of Mariano Lacson Ledesma's credit, P7,500 belonged to Cesar Ledesma because he had purchased it, and praying that it be absolved from the complaint and that the proper party be named so that the remainder might be delivered.

Cesar Ledesma, in turn, claiming to be the owner by purchase in good faith an for a reconsideration of the P7,500 which is a part of the credit referred to above, answered praying that he be absolved from the complaint.

The plaintiff Bachrach Motor Co., Inc., answered the third party claim alleging that its credit against Mariano Lacson Ledesma was prior and preferential to that of the intervening bank, and praying that the latter's complaint be dismissed.

At the trial all the parties agreed to recognize and respect the sale made in favor of Cesar Ledesma of the P7,500 part of the credit in question, for which reason the trial court dismissed the complaint and cross-complaint against Cesar Ledesma authorizing the defendant central to deliver to him the aforementioned sum of P7,500. And upon conclusion of the hearing, the court held that the Bachrach Motor Co., Inc., had a preferred right to receive the amount of P11,076.02 which was Mariano Lacson Ledesma's bonus, and it ordered the defendant central to deliver said sum to the plaintiff.

The Philippine National Bank appeals, assigning the following alleged errors as committed by the trial court:

1. In holding that the bonus which the Talisay-Silay Milling Co., Inc., bound itself to pay the planters who had mortgaged their land to the Philippine National Bank to secure the payment of the debt of said central to said bank is not civil fruits of said land.

2. In not holding that said bonus became subject to the mortgage executed by the defendant Mariano Lacson Ledesma to the Philippine National Bank to secure the payment of his personal debt to said bank when it fell due.

3. In holding that the assignment (Exhibit 9, P.N.B.) of said bonus made on March 7, 1930, by Mariano Lacson Ledesma to the Philippine National Bank to be applied to the payment of his debt to said Philippine National Bank is fraudulent.

4. In holding that the Bachrach Motor Co. Inc., in civil case No. 31597 of the Court of First Instance of Manila levied a valid attachment upon the bonus in question.

5. In admitting and considering the supplementary complaint filed by the Bachrach Motor Co., Inc., alleging as a cause of action the attachment of the bonus in question which said Bachrach Motor Co., Inc., in civil case No. 31821 of the Court of First Instance of Manila levied after the filing of the original complaint in this case, and after Mariano Lacson Ledesma in this case had been declared in default.

6. In holding that the Bachrach Motor Co., Inc., has a preferential right to receive from the Talisay-Silay Milling Co., Inc., the amount of P11,076.02 which is in the possession of said corporation as the bonus to be paid to Mariano Lacson Ledesma, and in ordering the Talisay-Silay Milling Co., Inc., to deliver said amount to the Bachrach Motor Co., Inc.

7. In not holding that the Philippine National Bank has a preferential right to receive from the Talisay-Silay Milling Co., Inc., the amount of P11,076.02 held by said corporation as Mariano Lacson Ledesma's bonus, and in not ordering said Talisay-Silay Milling Co., Inc., to deliver said amount to the Philippine National Bank.

8. In not holding that the amended complaint and the supplementary complaint of the Bachrach Motor Co., Inc., do not state facts sufficient to constitute a cause of action in favor of the Bachrach Motor Co., Inc., and against the Talisay-Silay Milling Co., Inc., or against the Philippine National Bank.

The appellant bank bases its preferential right upon the contention that the bonus in question is civil fruits of the lands which the owners had mortgaged for the benefit of the central giving the bonus, and that, as civil fruits of said land, said bonus was assigned by Mariano Lacson Ledesma on March 7, 1930, by virtue of the document Exhibit 9 of said intervening institution, which admitted in its brief that "if the bonus in question is not civil fruits or rent which became subject to the mortgage in favor of the Philippine National Bank when Mariano Lacson Ledesma's personal obligation fell due, the assignment of March 7, 1930 (Exhibit 9, P.N.B.), is null and void, not because it is fraudulent, for there was no intent of fraud in executing the deed, but that the cause or consideration of the assignment was erroneous, for it was based upon the proposition that the bonus was civil fruits of the land mortgaged to the Philippine National Bank." (P. 31.)

The fundamental question, then, submitted to our consideration is whether or not the bonus in question is civil fruits.

This is how the bonus came to be granted: On December 22, 1923, the Talisay-Silay Milling Co., Inc., was indebted to the Philippine National Bank. To secure the payment of its debt, it succeeded in inducing its planters, among whom was Mariano Lacson Ledesma, to mortgage their land to the creditor bank. And in order to compensate those planters for the risk they were running with their property under the mortgage, the aforesaid central, by a resolution passed on that same date, i.e., December 22, 1923, undertook to credit the owners of the plantation thus mortgaged every year with a sum equal to two per centum of the debt secured according to yearly balance, the payment of the bonus being made at once, or in part from time to time, as soon as the central became free of its obligations to the aforesaid bank, and of those contracted by virtue of the contract of supervision, and had funds which might be so used, or as soon as it obtained from said bank authority to make such payment. (Exhibits 5, 6; P.N.B.)

Article 355 of the Civil Code considers three things as civil fruits: First, the rents of buildings; second, the proceeds from leases of lands; and, third, the income from perpetual or life annuities, or other similar sources of revenue. It may be noted that according to the context of the law, the phrase "u otras analogas" refers only to rent or income, for the adjectives "otras" and "analogas" agree with the noun "rentas," as do also the other adjectives "perpetuas" and "vitalicias." That is why we say that by "civil fruits" the Civil Code understands one of three and only three things, to wit: the rent of a building, the rent of land, and certain kinds of income.

As the bonus in question is not rent of a building or of land, the only meaning of "civil fruits" left to be examined is that of "income."

Assuming that in broad juridical sense of the word "income" it might be said that the bonus in question is "income" under article 355 of the Civil Code, it is obvious to inquire whether it is derived from the land mortgaged by Mariano Lacson Ledesma to the appellant bank for the benefit of the central; for it is not obtained from that land but from something else, it is not civil fruits of that land, and the bank's contention is untenable.

It is to be noted that the said bonus bears no immediate, but only a remote accidental relation to the land mentioned, having been granted as compensation for the risk of having subjected one's land to a lien in favor of the bank, for the benefit of the entity granting said bonus. If this bonus be income or civil fruits of anything, it is income arising from said risk, or, if one chooses, from Mariano Lacson Ledesma's generosity in facing the danger for the protection of the central, but certainly it is not civil fruits or income from the mortgaged property, which, as far as this case is concerned, has nothing to do with it. Hence, the amount of the bonus, according to the resolution of the central granting it, is not based upon the value, importance or any other circumstance of the mortgaged property, but upon the total value of the debt thereby secured, according to the annual balance, which is something quite distinct from and independent of the property referred to.

Finding no merit in this appeal, the judgment appealed from is affirmed, without express finding as to costs. So ordered.

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

FILIPINAS COLLEGES, INC., plaintiff-appellee, vs.MARIA GARCIA TIMBANG, ET AL., defendants.

G.R. No. L-12813             September 29, 1959

MARIA GARCIA TIMBANG, ET AL., plaintiffs. MARIA GARICA TIMBANG, plaintiff-appellant, vs.MARIA GERVACIO BLAS, defendant-appellee.

De Guzman and Fernandez for appellee Filipinas Colleges, Inc.San Huan, Africa and Benedicto for appellant Maria Garcia Timbang.Nicanor S. Sison for appellee Maria Gervacio Blas.

BARRERA, J.:

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

The order appealed from is the result of three motions filed in the court a quo in the course of the execution of a final judgment of the Court of Appeals rendered in 2 cases appealed to it in which the spouses Timbang, the Filipinas Colleges, Inc., and Maria Gervacio Blas were the parties. IN that judgment of the Court of Appeals, the respective rights of the litigants have been adjudicated as follows:1âwphïl.nêt

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

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

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

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

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

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

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

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

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

In assailing the order of the court a quo directing the appellants to pay appellee Blas the amount of their bid (P5,750.00) made at the public auction, appellants' counsel has presented a novel, albeit ingenious, argument. It is contended that because the builder in good faith has failed to pay the price of the land after the owners thereof exercised their option under Article 448 of the Civil Code, the builder lost his right of retention provided in Article 546 and by operation of Article 445, the appellants as owners of the land automatically became the owners ipso facto, the execution sale of the house in their favor

was superfluous. Consequently, they are not bound to make good their bid of P5,750.00 as that would be to make goods to pay for their own property. By the same token, Blas claim for preference on account of the unpaid balance of the purchase price of the house does not apply because preference applies only with respect to the property of the debtor, and the Timbangs, owners of the house, are not the debtors of Blas.

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

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

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

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

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

in the cases of Miranda vs. Fadullon, et al., 97 Phil., 801; 51 Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76 Phil., 605 and the cited case of Bernardo vs. Bataclan, supra.

In the Miranda vs. Fadullon this Court has said:

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

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

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

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

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

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

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

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

It is so ordered.

G.R. No. L-16351             June 30, 1964

CALAPAN LUMBER COMPANY, INC., plaintiff-appellee, vs.COMMUNITY SAWMILL COMPANY, ET AL., defendants-appellants.

Ferdinand E. Marcos for plaintiff-appellee.Salvador H. Laurel and Exequiel S. Consulta for defendants-appellants.

PADILLA, J.:

This is an action for injunction, prohibition against defendant public officers, compensatory, exemplary and nominal damages, attorney's fees and costs.

All the defendants prayed in their respective answers for the dismissal of the second amended complaint, in addition to their counterclaim.

After trial, the Court of First Instance of Oriental Mindoro rendered judgment, the dispositive part of which reads:

WHEREFORE, this Court renders judgment:

1. Finding:

(a) That the road and bridge in question, known as the Biga-Communal-Goob (from Km. 12.38 to 15.88) was constructed during the period from 1950 to 1952 by the plaintiff at its exclusive expense with the knowledge and consent of the Provincial Board of Oriental Mindoro;

(b) That before actual construction of said road and bridge the personnel of the Office of the District Engineer surveyed the lay-out of the road to be constructed, also at the expense of the plaintiff;

(c) That before the actual construction of the road in question the plaintiff secured and used road-right-of-way agreements (Exhs. Y, Y-1 to Y-7 and Z-AA), executed in favor of the plaintiff by the owners of the several portions of land traversed by said road;

(d) That from the completion of the road up to the present the plaintiff has been contributing to the repair and maintenance of the said road such as stones, gravel, sand and lumber at its own expense;

(e) That since the completion of the road in question (to) the same has been used by the public without any restriction with the written consent of the plaintiff as embodied in Resolutions Nos. 222 (Exh. A) and 119 (Exh. B), with the exception of logging and lumber concerns who might use the road with the permission of the plaintiff;

(f) That Lao Kee (alias Lu Pong), Lee Cok Tan Hong, Tan Kian, Co Giac, Tan Hong Chian Hian, Tan Tak Tiao, Kick Chia and the Community Sawmill Company had used the road and bridge in question sometime before April 6, 1953, until the issuance of the writ of preliminary injunction of June 25, 1953, manifest bad faith;

2. Declaring:

(a) That Resolution No. 186, series of 1953, marked Exh. C, is valid insofar as it repealed Resolution No. 222, series of 1953; marked Exh. "A", and Resolution No. 119, series of 1953, marked Exh. B;

(b) That Resolution No. 186, series of 1953, marked Exh. C. insofar as it declared that the road and bridge in question, public is null and void the same being in violation of Sec. 2131 of the Revised Administrative Code;

(c) That the road and bridge in question are of private ownership belonging to the plaintiff;

(d) That the said defendant Lao Kee (alias Lu Pong), Lee Cok, Tan Hong, Tan Kian, Co Giac, Tan Hong, Chia Hian, Tan Tak Tiao, Kiok Chia and Community Sawmill did not have the right to use the road and bridge in question;

3. Ordering:

(a) That the writ of preliminary injunction issued against the Community Sawmill Company be made permanent, perpetually restraining the said defendants Lao Kee (alias Lu Pong), Lee Cok, Tan Hong, Tan Kian, Co Giac, Tan Hong Chia Hian, Tan Tak Tiao, Kiok Chia and Community Sawmill Company, their agents, attorneys, or other persons or entities from acting on their behalf;

(b) The same defendants named in the immediately preceding paragraph to pay jointly and severally to the plaintiff the sum of P10,000.00 as attorney's fees and to pay the costs;

4. Absolving from the third amended complaint the defendants Marciano Roque, Pablo Lorenzo, Isaias Fernando, Francisco Infantado, Bernabe Jamilla and Cenon C. Laurena;

5. Dismissing all the counterclaims filed by the defendants for lack of sufficient merits. (Civil Case No. R-542)

From the judgment thus rendered, the defendants Lao Kee (alias Lu Pong), Lee Cok Tan Hong, Tan Kian, Co Giac, Chia Hian, Tan Tak Tiao, Kiok Chia, all acting under the name and style of Community Sawmill Company, appealed to this Court. They claim that the trial court committed the following errors:

1. The lower court erred in holding that the road in question is a private road and that, therefore, plaintiff could legally deny its use to herein appellants.

2. The lower court erred in ordering herein appellants to pay plaintiff attorney's fees.

3. The lower court erred in holding that plaintiff can recover expenses of litigation under article 2208 of the Civil Code.

4. The lower court erred in not dismissing the complaint and finding for herein appellants on their counterclaim.

At the trial, the parties submitted to the Court a stipulation of facts which reads:

1. That the parties agree to the existence and authenticity of the following resolutions which were passed by the Provincial Board of Oriental Mindoro, as follows:

(a) Resolution No. 222, Series of 1950 (Annex "A" of the Third Amended Complaint), but not its regularity and validity, which must be proven;

(b) Resolution No. 119, Series of 1953 (Annex "B" of the Third Amended Complaint);

(c) Resolution No. 186, Series of 1955, revoking Resolutions Nos. 222, Series of 1950 and 119, Series of 1953, of the Provincial Board, granting the Calapan Lumber Company the exclusive right under certain conditions to use the Biga-Communal-Goob road for a period of twenty (20) years, and declaring said road as a toll road.

2. That the parties agree as to the existence and authenticity of the following official communications, indorsements and letters re the Biga-Communal-Goob road:

(a) letter dated March 20, 1953 addressed to the Hon. Executive Secretary, signed by Rodolfo Naguit and Joe Ong, both representatives of the Community Sawmill Company:

(b) 1st Indorsement of Assistant Executive Secretary Lucas Madamba, dated March 21, 1953 (Annex "C", Third Amended Complaint);

(c) 2nd Indorsement of Governor Infantado dated March 23, 1953;

(d) 3rd Indorsement of District Engineer C. C. Laurena dated March 26, 1953;

(e) 4th Indorsement of Governor Infantado dated March 28, 1953;

(f) Letter of Rodolfo G. Naguit, representative of the Community Sawmill Company, dated May 4, 1953 and addressed to the Assistant Executive Secretary, Office of the President;

(g) Letter of Atty. Ferdinand E. Marcos, counsel for the plaintiff company addressed to Executive Secretary Marciano Roque, dated May 21, 1953 (Annex "F", Third Amended Complaint);

(h) 7th Indorsement of Director of Public Works, Isaias Fernando, dated April 20, 1953 (Annex "D", Third Amended Complaint);

(i) 8th Indorsement of Undersecretary Vicente Orosa, dated April 25, 1953;

(j) 9th Indorsement of Executive Secretary Marciano Roque dated May 11, 1953 (Annex "E", Third Amended Complaint);

(k) 3rd Indorsement of Acting Executive Secretary Marciano Roque, dated July 8, 1953 and the 4th Indorsement of Undersecretary Vicente Orosa, dated July 16, 1953;

(l) 1st Indorsement of Acting Executive Secretary Marciano Roque, dated July 17, 1953.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët

x x x           x x x           x x x

Resolution No. 222, adopted 4 December 1950, reads:

Whereas, there is at present an unfinished provincial road in the barrio of Viga, of the municipality of Calapan, known as the Viga-Communal-Goob Road, the construction of which could not be undertaken by the province due to insufficiency of funds;

Whereas, the Calapan Lumber Co., Inc., through its President, Mr. D. M. Gotauco, in a letter addressed to the Governor of this province has made representations to undertake the construction of said road under certain conditions; and

Whereas, the province is willing to accede to the request of the Calapan Lumber Co., Inc. and to give it the sole right for its use, provided that after a period of twenty (20) years, said company shall donate to the province the road it had constructed, provided further that during the said period of 20 years other concerns dealing in logs and/or lumber may use the same road upon permission granted to them by the said Calapan Lumber Co., Inc.; and provided finally that said road is open to all non-logging concerns or individuals during the said period of 20 years. Now, therefore, be it

RESOLVED, That the Provincial Board of Oriental Mindoro grants, as hereby is granting, the Calapan Lumber Co., Inc. to undertake the construction of the unfinished provincial road in the barrio of Viga, municipality of Calapan, known as the Viga-Communal-Goob Road, subject to the stipulations stated above; and

RESOLVED FURTHER, That copies of this resolution be furnished the District Engineer and the Calapan Lumber Co., Inc., through its President, Mr. D. M. Gotauco, for their information.

x x x           x x x           x x x

Resolution No. 119, adopted 6 April 1953, reads:

Whereas, under Resolution No. 222, series of 1950, the Provincial Board of Oriental Mindoro under the former administration, granted the Calapan Lumber Co., Inc. the right to undertake the construction of the unfinished Viga-Communal-Goob provincial road the sole right for its use, under the following conditions:

(1) That after a period of twenty (20) years, said company shall donate to the province the road it had constructed;

(2) That during the said period of 20 years other concerns dealing in logs and/or lumber may use the same road upon permission granted to them by the Calapan Lumber Co.; and

(3) That said road is open to all non-logging concerns or individuals during the said period of 20 years.

Whereas, according to the records of the Provincial Board the said resolution has not been amended or modified up to the present, and, therefore, the same is still in force and binding as per agreement stipulated therein;

Whereas, this Board has received reliable information to the effect that another certain lumber company is attempting to use, or has actually used the same road, by allowing to pass thru it its heavy trucks and tractors without securing any permission from the Calapan Lumber Co., Inc., to the detriment and prejudice of the interests of the latter lumber company which shouldered the cost of its completion in accordance with the rights granted to it by the province; and

Whereas, after a careful consideration of the matter this Board is of the opinion that the right of the Calapan Lumber Co., Inc. over the said road as stipulated in the condition set forth in the resolution must be upheld for obvious reasons; Now, therefore, be it

RESOLVED by the Provincial Board of Oriental Mindoro to authorize, as it hereby authorizes, the Calapan Lumber Company, Inc., to prohibit the use of the Viga-Communal-Goob provincial road, from point Km. 12.38 up to Km. 15.88 of said road, by any other concern or company dealing in logs and/or lumber, without the permission or consent of the said Calapan Lumber Co., Inc. in accordance with one of the stipulations or conditions agreed upon in Resolution No. 222, series of 1950, of the Provincial Board; and

RESOLVED, FURTHER, That the District Engineer and the Calapan Lumber Co., Inc. be furnished with copies of this resolution, for their information.

x x x           x x x           x x x

Resolution No. 186, adopted 19 June 1953, reads:

REVOKING RESOLUTIONS NOS. 222, SERIES OF 1950, AND 119, SERIES OF 1953, OF THE PROVINCIAL BOARD, GRANTING THE CALAPAN LUMBER COMPANY THE EXCLUSIVE RIGHT UNDER CERTAIN CONDITIONS TO USE THE VIGA-COMMUNAL-GOOB PROVINCIAL ROAD FOR A PERIOD OF TWENTY (20) YEARS.

Whereas, under Resolution No. 222, series of 1950, the Provincial Board of Oriental Mindoro, under the former provincial administration, granted the Calapan Lumber Co., Inc. an authority to undertake the construction of the

unfinished Viga-Goob provincial road from Point Km. 12.38 to Km. 15.88, and the exclusive right for its use, under certain conditions;

Whereas, on April 6, 1953, this Board passed another resolution (119) maintaining the right of the Calapan Lumber Co., Inc. over the said road under the conditions stipulated in the above-cited resolution No. 222, and forthwith authorized the said company to prohibit the use of the portion of said road constructed at its expense by any other concern or company dealing in logs or lumber without its permission;

Whereas, in a 9th Indorsement dated May 11, 1953, the pertinent parts of which are quoted hereunder, the Honorable, the Executive Secretary to whom the case regarding this matter was appealed for decision, and upon the recommendation of the Director of Public Works and with the concurrence of the Undersecretary of Public Works and Communications, ruled that provincial roads are considered as properties for public use and the Provincial Board may not therefore grant the exclusive use thereof to any private individual or entity which would discriminate against or exclude the general public from a reasonable use thereof, and therefore, the resolution in question should be revoked.

In this connection, it should be stated that Provincial roads are properties for public use and the provincial board may not grant the exclusive use thereof to any private individual or entitle or enter into a contract or agreement which would tend to discriminate against or exclude the general public from a reasonable use thereof. Resolutions Nos. 222, series of 1950, and 119, series of 1953, of the Provincial Board, granting the Calapan Lumber Company an exclusive right to use the said road for a period of twenty (20) year and to prohibit lumber or logging concerns from using the road in question without the company's permission, should therefore be revoked. In consonance with the policy of the law, and as correctly the suggested by the Director of Public Works and the Undersecretary of Public Works and Communications the portion of the Viga-Communal Road from Km. 12.38 to 15.89, having a length of 3.5 kilometers, should be declared a toll road in order to raise funds for its maintenance and with which to reimburse the Calapan Lumber Company for the expenses the latter had incurred in the construction of this portion of the road.

Whereas, in view of the said ruling, this Board has been requested to take immediate action on the matter to declare the above-said portion of the Viga-Communal-Goob provincial road as a toll road; and,

Whereas, according to an estimate made by the office of the District Engineer the Calapan Lumber Company has spent for the construction of the portion of the road in question having a length of 3.5 kilometers, the amount of P25,000.00 more or less; Now, therefore, be it —

RESOLVED, That Resolutions Nos. 222, series of 1950, and 119, series of 1953, of the Provincial Board, which grant the Calapan Lumber Co., Inc., the exclusive right to use the Viga-Communal-Goob provincial road for a period of 20 years, under certain conditions, be, and hereby are, revoked;

RESOLVED, FURTHER, That the portion of said Viga-Communal-Goob provincial road, from Point Km. 12.38 up to Km. 15.88 thereof, be and hereby is, declared PROVINCIAL TOLL ROAD, under the provisions of section 2131 of the Revised Administrative Code;

RESOLVED, FURTHERMORE, That the following toll rates to be paid by any motor vehicle for the use of the provincial road be, and hereby are, fixed, effective today, June 19, 1953, the proceeds from which shall be used for the maintenance of the said road and the balance thereof for the reimbursement to the said company for the expenses it had incurred in the construction for said portion of the road:

For every truck, one way P1.00 For every weapon carrier, one way .60 For every jeepney .30

PROVIDED, however, that the portion of the road declared herein as provincial toll road shall continue to be so up to and until the amount spent by the Calapan Lumber Company for its construction shall have been covered by reimbursement to said company; and

RESOLVED, FINALLY, That copies of this resolution be forwarded to His Excellency, the President of the Philippines, thru the Director of Public Works and the Honorable, the Secretary of Public Works and Communications, Manila.

x x x           x x x           x x x

Resolution No. 169, adopted 21 April 1956, revoked Resolution No. 186 in so far as it declared Provincial Toll Road that part of the road invoked in this case.

There seems to be no doubt that Resolutions Nos. 222 and 119, adopted by the Provincial Board of Oriental Mindoro quoted above, mere ultra vires, because sections 2067 (f) and (g) on powers of the provinces as political bodies corporate; 2102 (g) on powers of the provincial boards; 2106 (f) on powers of the provincial boards to be exercised with the approval of the Department Head; and 2113 (a) on road and bridge fund, of the Revised Administrative Code, do not authorize the Provincial Board of Oriental Mindoro to pass and adopt said resolutions. The contention that the Provincial Board of Oriental Mindoro under section 2106 (g) invoked by the appellee is authorized to pass those resolutions Nos. 222 and 199 quoted above, is untenable because said paragraph of the section authorizes the Provincial Board "to permit, upon favorable recommendation by the Secretary of Public Works and Communications, and subject to such conditions as may properly protect the public interests, the construction and maintenance, for private use of railways, conduits, and telephone lines across public thoroughfares, streets, roads, or other public property and in the province: Provided, That such construction and private use shall not prevent or obstruct the public use of such thoroughfares, streets, roads or other public property and that the permit granted shall at all times be subject to revocation by the Secretary of the Interior, if, in the judgment of that official, the public interest requires it." Consequently, Resolution No. 186 revoking the two previous resolutions was in order.

The road known as the Viga-Communal-Goob connecting two finished or completed parts of the provincial road, from kilometer 12.38 to 15.88, as laid out by the personnel of the office of the District Engineer was planned or intended to be laid out and constructed by the Provincial Government of Oriental Mindoro to complete said road. The fact that the survey, lay-out and actual construction of the unfinished part of the road were done at the appellee's expense, does not convert said road after construction into a private road, for it does not appear that the parts of the land where the road was laid out and constructed belong to or are owned by the appellee. The evidence shows that the owners of such parts of land ceded their parts of the land owned by them without any consideration because of their desire to have the road completed or to connect the ends of two completed parts of the road. It may be conceded that the appellee built the road in question in good faith; and such being the case, it may be argued that the appellee is entitled to keep or have possession of the road until after it shall have been reimbursed of the expenses it had incurred in constructing and maintaining the road in good condition. The provisions of the Civil Code on the right of a builder in good faith on a private land 1 cannot be invoked and applied to the road in question, because public interest is involved and the people living in that part of the province are entitled to use the road.

It is true that that part of the Resolution No. 186 above quoted converting the road in question into toll road contravenes section 2131 of the Revised Administrative Code, because in the case of road the recommendation of the Secretary of Public Works and Communications and the authorization of the president of the Philippines had to be secured and such recommendation and authorization had not been obtained .

Upon the foregoing considerations, this Court is of the opinion, and so holds, that the road involved in this case cannot be declared private property, and for that reason the Provincial Board of Oriental Mindoro may elect between paying the appellee the total cost of the construction of the road together with lawful interest from the date of actual disbursement by the appellee to the date of payment by the Province of Oriental Mindoro within a reasonable period not to exceed one year from the date this judgment shall become final; or upon securing the recommendation of the Secretary of Public Works and Communications and authorization of the President of the Philippines to designate such road an toll road, to raise the necessary fund to reimburse the appellee of the total cost of construction of the road, together with lawful interest from the date of actual disbursement by the appellee to the date of payment by the Province of Oriental Mindoro, and the latter is ordered to refund the amount paid for tolls by, the appellee during the enforcement of Resolution No. 186 which, as above stated, was unauthorized. The judgment appealed from making final the preliminary writ of injunction and ordering the appellants to pay the appellee the sum of P10,000 as attorney's fees, are reversed and set aside. The rest of the judgment appealed from not inconsistent with this opinion is affirmed, without pronouncement as to costs.

G.R. No. 172384               September 12, 2007

ERMINDA F. FLORENTINO, Petitioner, vs.SUPERVALUE, INC., Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioner Erminda F. Florentino, seeking to reverse and set aside the Decision,1 dated 10 October 2003 and the Resolution,2 dated 19 April 2006 of the Court of Appeals in CA-G.R. CV No. 73853. The appellate court, in its assailed Decision and Resolution, modified the Decision dated 30 April 2001 of the Regional Trial Court (RTC) of Makati, Branch 57, in Civil Case No. 00-1015, finding the respondent Supervalue, Inc., liable for the sum of P192,000.00, representing the security deposits made by the petitioner upon the commencement of their Contract of Lease. The dispositive portion of the assailed appellate court’s Decision thus reads:

WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The April 30, 2001 Decision of the Regional Trial Court of Makati, Branch 57 is therefore MODIFIED to wit: (a) the portion ordering the [herein respondent] to pay the amount of P192,000.00 representing the security deposits and P50,000.00 as attorney’s fees in favor of the [herein petitioner] as well as giving [respondent] the option to reimburse [petitioner] ½ of the value of the improvements introduced by the [petitioner] on the leased [premises] should [respondent] choose to appropriate itself or require the [petitioner] to remove the improvements, is hereby REVERSED and SET ASIDE; and (b) the portion ordering the return to [petitioner] the properties seized by [respondent] after the former settled her obligation with the latter is however MAINTAINED.3

The factual and procedural antecedents of the instant petition are as follows:

Petitioner is doing business under the business name "Empanada Royale," a sole proprietorship engaged in the retail of empanada with outlets in different malls and business establishments within Metro Manila.4

Respondent, on the other hand, is a domestic corporation engaged in the business of leasing stalls and commercial store spaces located inside SM Malls found all throughout the country.5

On 8 March 1999, petitioner and respondent executed three Contracts of Lease containing similar terms and conditions over the cart-type stalls at SM North Edsa and SM Southmall and a store space at SM Megamall. The term of each contract is for a period of four months and may be renewed upon agreement of the parties.6

Upon the expiration of the original Contracts of Lease, the parties agreed to renew the same by extending their terms until 31 March 2000.7

Before the expiration of said Contracts of Lease, or on 4 February 2000, petitioner received two letters from the respondent, both dated 14 January 2000, transmitted through facsimile transmissions.8

In the first letter, petitioner was charged with violating Section 8 of the Contracts of Lease by not opening on 16 December 1999 and 26 December 1999.9

Respondent also charged petitioner with selling a new variety of empanada called "mini-embutido" and of increasing the price of her merchandise from P20.00 to P22.00, without the prior approval of the respondent.10

Respondent observed that petitioner was frequently closing earlier than the usual mall hours, either because of non-delivery or delay in the delivery of stocks to her outlets, again in violation of the terms of the contract. A stern warning was thus given to petitioner to refrain from committing similar infractions in the future in order to avoid the termination of the lease contract.11

In the second letter, respondent informed the petitioner that it will no longer renew the Contracts of Lease for the three outlets, upon their expiration on 31 March 2000.12

In a letter-reply dated 11 February 2000, petitioner explained that the "mini-embutido" is not a new variety of empanada but had similar fillings, taste and ingredients as those of pork empanada; only, its size was reduced in order to make it more affordable to the buyers.13

Such explanation notwithstanding, respondent still refused to renew its Contracts of Lease with the petitioner. To the contrary, respondent took possession of the store space in SM Megamall and confiscated the equipment and personal belongings of the petitioner found therein after the expiration of the lease contract.14

In a letter dated 8 May 2000, petitioner demanded that the respondent release the equipment and personal belongings it seized from the SM Megamall store space and return the security deposits, in the sum of P192,000.00, turned over by the petitioner upon signing of the Contracts of Lease. On 15 June 2000, petitioner sent respondent another letter reiterating her previous demands, but the latter failed or refused to comply therewith. 15

On 17 August 2000, an action for Specific Performance, Sum of Money and Damages was filed by the petitioner against the respondent before the RTC of Makati, Branch 57.16

In her Complaint docketed as Civil Case No. 00-1015, petitioner alleged that the respondent made verbal representations that the Contracts of Lease will be renewed from time to time and, through the said representations, the petitioner was induced to introduce improvements upon the store space at SM Megamall in the sum of P200,000.00, only to find out a year later that the respondent will no longer renew her lease contracts for all three outlets.17

In addition, petitioner alleged that the respondent, without justifiable cause and without previous demand, refused to return the security deposits in the amount of P192,000.00.18

Further, petitioner claimed that the respondent seized her equipment and personal belongings found inside the store space in SM Megamall after the lease contract for the said outlet expired and despite repeated written demands from the petitioner, respondent continuously refused to return the seized items.19

Petitioner thus prayed for the award of actual damages in the sum of P472,000.00, representing the sum of security deposits, cost of improvements and the value of the personal properties seized. Petitioner also asked for the award of P300,000.00 as moral damages; P50,000.00 as exemplary damages; and P80,000.00 as attorney’s fees and expenses of litigation.20

For its part, respondent countered that petitioner committed several violations of the terms of their Contracts of Lease by not opening from 16 December 1999 to 26 December 1999, and by introducing a new variety of empanada without the prior consent of the respondent, as mandated by the provision of Section 2 of the Contract of Lease. Respondent also alleged that petitioner infringed the lease contract by frequently closing earlier than the agreed closing hours. Respondent finally averred that petitioner is liable for the amount P106,474.09, representing the penalty for selling a new variety of empanada, electricity and water bills, and rental adjustment, among other charges incidental to the lease agreements. Respondent claimed that the seizure of petitioner’s personal belongings and equipment was in the exercise of its retaining lien, considering that the petitioner failed to settle the said obligations up to the time the complaint was filed.21

Considering that petitioner already committed several breaches of contract, the respondent thus opted not to renew its Contracts of Lease with her anymore. The security deposits were made in order to ensure faithful compliance with the terms of their lease agreements; and since petitioner committed several infractions thereof, respondent was justified in forfeiting the security deposits in the latter’s favor.

On 30 April 2001, the RTC rendered a Judgment22 in favor of the petitioner and found that the physical takeover by the respondent of the leased premises and the seizure of petitioner’s equipment and personal belongings without prior notice were illegal. The decretal part of the RTC Judgment reads:

WHEREFORE, premises duly considered, judgment is hereby rendered ordering the [herein respondent] to pay [herein petitioner] the amount of P192,000.00 representing the security deposits made by the [petitioner] and P50,000.00 as and for attorney’s fees.

The [respondent] is likewise ordered to return to the [petitioner] the various properties seized by the former after settling her account with the [respondent].

Lastly, the [respondent] may choose either to reimburse the [petitioner] one half (1/2) of the value of the improvements introduced by the plaintiff at SM Megamall should [respondent] choose to appropriate the improvements to itself or require the [petitioner] to remove the improvements, even though the principal thing may suffer damage thereby. [Petitioner] shall not, however, cause anymore impairment upon the said leased premises than is necessary.

The other damages claimed by the plaintiff are denied for lack of merit.

Aggrieved, the respondent appealed the adverse RTC Judgment to the Court of Appeals.

In a Decision23 dated 10 October 2003, the Court of Appeals modified the RTC Judgment and found that the respondent was justified in forfeiting the security deposits and was not liable to reimburse the petitioner for the value of the

improvements introduced in the leased premises and to pay for attorney’s fees. In modifying the findings of the lower court, the appellate court declared that in view of the breaches of contract committed by the petitioner, the respondent is justified in forfeiting the security deposits. Moreover, since the petitioner did not obtain the consent of the respondent before she introduced improvements on the SM Megamall store space, the respondent has therefore no obligation to reimburse the petitioner for the amount expended in connection with the said improvements.24 The Court of Appeals, however, maintained the order of the trial court for respondent to return to petitioner her properties after she has settled her obligations to the respondent. The appellate court denied petitioner’s Motion for Reconsideration in a Resolution25 dated 19 April 2006.

Hence, this instant Petition for Review on Certiorari26 filed by the petitioner assailing the Court of Appeals Decision. For the resolution of this Court are the following issues:

I. Whether or not the respondent is liable to return the security deposits to the petitions.

II. Whether or not the respondent is liable to reimburse the petitioner for the sum of the improvements she introduced in the leased premises.

III. Whether or not the respondent is liable for attorney’s fees.27

The appellate court, in finding that the respondent is authorized to forfeit the security deposits, relied on the provisions of Sections 5 and 18 of the Contract of Lease, to wit:

Section 5. DEPOSIT. The LESSEE shall make a cash deposit in the sum of SIXTY THOUSAND PESOS (P60,000.00) equivalent to three (3) months rent as security for the full and faithful performance to each and every term, provision, covenant and condition of this lease and not as a pre-payment of rent. If at any time during the term of this lease the rent is increased[,] the LESSEE on demand shall make an additional deposit equal to the increase in rent. The LESSOR shall not be required to keep the deposit separate from its general funds and the deposit shall not be entitled to interest. The deposit shall remain intact during the entire term and shall not be applied as payment for any monetary obligations of the LESSEE under this contract. If the LESSEE shall faithfully perform every provision of this lease[,] the deposit shall be refunded to the LESSEE upon the expiration of this Lease and upon satisfaction of all monetary obligation to the LESSOR.

x x x x

Section 18. TERMINATION. Any breach, non-performance or non-observance of the terms and conditions herein provided shall constitute default which shall be sufficient ground to terminate this lease, its extension or renewal. In which event, the LESSOR shall demand that LESSEE immediately vacate the premises, and LESSOR shall forfeit in its favor the deposit tendered without prejudice to any such other appropriate action as may be legally authorized. 28

Since it was already established by the trial court that the petitioner was guilty of committing several breaches of contract, the Court of Appeals decreed that she cannot therefore rightfully demand the return of the security deposits for the same are deemed forfeited by reason of evident contractual violations.

It is undisputed that the above-quoted provision found in all Contracts of Lease is in the nature of a penal clause to ensure petitioner’s faithful compliance with the terms and conditions of the said contracts.

A penal clause is an accessory undertaking to assume greater liability in case of breach. It is attached to an obligation in order to insure performance and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach.29 The obligor would then be bound to pay the stipulated indemnity without the necessity of proof of the existence and the measure of damages caused by the breach.30 Article 1226 of the Civil Code states:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

As a general rule, courts are not at liberty to ignore the freedoms of the parties to agree on such terms and conditions as they see fit as long as they are not contrary to law, morals, good customs, public order or public policy. Nevertheless, courts may equitably reduce a stipulated penalty in the contracts in two instances: (1) if the principal obligation has been partly or irregularly complied with; and (2) even if there has been no compliance if the penalty is iniquitous or unconscionable in accordance with Article 1229 of the Civil Code which clearly provides:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.31

In ascertaining whether the penalty is unconscionable or not, this court set out the following standard in Ligutan v. Court of Appeals,32 to wit:

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly objective. Its resolution would depend on such factor as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the supervening realities, the standing and relationship of the parties, and the like, the application of which, by and large, is addressed to the sound discretion of the court. xxx.

In the instant case, the forfeiture of the entire amount of the security deposits in the sum of P192,000.00 was excessive and unconscionable considering that the gravity of the breaches committed by the petitioner is not of such degree that the respondent was unduly prejudiced thereby. It is but equitable therefore to reduce the penalty of the petitioner to 50% of the total amount of security deposits.

It is in the exercise of its sound discretion that this court tempered the penalty for the breaches committed by the petitioner to 50% of the amount of the security deposits. The forfeiture of the entire sum of P192,000.00 is clearly a usurious and iniquitous penalty for the transgressions committed by the petitioner. The respondent is therefore under the obligation to return the 50% of P192,000.00 to the petitioner.

Turning now to the liability of the respondent to reimburse the petitioner for one-half of the expenses incurred for the improvements on the leased store space at SM Megamall, the following provision in the Contracts of Lease will enlighten us in resolving this issue:

Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS, ETC. The LESSEE shall not make any alterations, additions, or improvements without the prior written consent of LESSOR; and all alterations, additions or improvements made on the leased premises, except movable or fixtures put in at LESSEE’s expense and which are removable, without defacing the buildings or damaging its floorings, shall become LESSOR’s property without compensation/reimbursement but the LESSOR reserves the right to require the removal of the said alterations, additions or improvements upon expiration of the lease.

The foregoing provision in the Contract of Lease mandates that before the petitioner can introduce any improvement on the leased premises, she should first obtain respondent’s consent. In the case at bar, it was not shown that petitioner previously secured the consent of the respondent before she made the improvements on the leased space in SM Megamall. It was not even alleged by the petitioner that she obtained such consent or she at least attempted to secure the same. On the other hand, the petitioner asserted that respondent allegedly misrepresented to her that it would renew the terms of the contracts from time to time after their expirations, and that the petitioner was so induced thereby that she expended the sum of P200,000.00 for the improvement of the store space leased.

This argument was squarely addressed by this court in Fernandez v. Court of Appeals,33 thus:

The Court ruled that the stipulation of the parties in their lease contract "to be renewable" at the option of both parties stresses that the faculty to renew was given not to the lessee alone nor to the lessor by himself but to the two simultaneously; hence, both must agree to renew if a new contract is to come about.

Petitioner’s contention that respondents had verbally agreed to extend the lease indefinitely is inadmissible to qualify the terms of the written contract under the parole evidence rule, and unenforceable under the statute of frauds.34

Moreover, it is consonant with human experience that lessees, before occupying the leased premises, especially store spaces located inside malls and big commercial establishments, would renovate the place and introduce improvements thereon according to the needs and nature of their business and in harmony with their trademark designs as part of their marketing ploy to attract customers. Certainly, no inducement or misrepresentation from the lessor is necessary for this purpose, for it is not only a matter of necessity that a lessee should re-design its place of business but a business strategy as well.

In ruling that the respondent is liable to reimburse petitioner one half of the amount of improvements made on the leased store space should it choose to appropriate the same, the RTC relied on the provision of Article 1678 of the Civil Code which provides:

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.

While it is true that under the above-quoted provision of the Civil Code, the lessor is under the obligation to pay the lessee one-half of the value of the improvements made should the lessor choose to appropriate the improvements, Article 1678 however should be read together with Article 448 and Article 546 of the same statute, which 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.

x x x x

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

Thus, to be entitled to reimbursement for improvements introduced on the property, the petitioner must be considered a builder in good faith. Further, Articles 448 and 546 of the Civil Code, which allow full reimbursement of useful improvements and retention of the premises until reimbursement is made, apply only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. A builder in good faith is one who is unaware of any flaw in his title to the land at the time he builds on it.35 In this case, the petitioner cannot claim that she was not aware of any flaw in her title or was under the belief that she is the owner of the subject premises for it is a settled fact that she is merely a lessee thereof.1âwphi1

In Geminiano v. Court of Appeals,36 this Court was emphatic in declaring that lessees are not possessors or builders in good faith, thus:

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

In a plethora of cases, this Court has held that Article 448 of the Civil Code, in relation to Article 546 of the same Code, which allows full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where one's only interest is that of a lessee under a rental contract ; otherwise, it would always be in the power of the tenant to "improve" his landlord out of his property.

Since petitioner’s interest in the store space is merely that of the lessee under the lease contract, she cannot therefore be considered a builder in good faith. Consequently, respondent may appropriate the improvements introduced on the leased premises without any obligation to reimburse the petitioner for the sum expended.

Anent the claim for attorney’s fees, we resolve to likewise deny the award of the same. Attorney’s fees may be awarded when a party is compelled to litigate or to incur expenses to protect its interest by reason of unjustified act of the other.37

In the instant petition, it was not shown that the respondent unjustifiably refused to grant the demands of the petitioner so as to compel the latter to initiate legal action to enforce her right. As we have found herein, there is basis for respondent’s refusal to return to petitioner the security deposits and to reimburse the costs of the improvements in the leased premises. The award of attorney’s fees is therefore not proper in the instant case.

WHEREFORE, premises considered, the instant Petition is PARTLY GRANTED. The Court of Appeals Decision dated 10 October 2003 in CA-G.R. CV No. 73853 is hereby AFFIRMED with the MODIFICATION that the respondent may forfeit only 50% of the total amount of the security deposits in the sum of P192,000.00, and must return the remaining 50% to the petitioner. No costs.

SO ORDERED.

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 buildin g, 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.

G.R. No. L-8139      October 24, 1955

BELEN UY TAYAG and JESUS B. TAYAG, petitioners, vs.ROSARIO YUSECO, JOAQUIN C. YUSECO and THE COURT OF APPEALS, respondents.

Pelaez and Jalandoni for petitioners.Yuseco, Abdon, Yuseco and Narvasa for respondents.

MONTEMAYOR, J.:

This is an appeal by certiorari by petitioners Belen Uy Tayag and her husband Jesus B. Tayag from the decision of the Court of Appeals of April 23, 1954, affirming the decision of the Court of First Instance of Manila. The facts in this case as may be gathered from the records and as found by the Court of Appeals may be briefly stated as follows. In and prior to the year 1930 Atty. Joaquin C. Yuseco had been rendering professional services to Maria Lim, owner of lots 11-A and 11-B, block 2251 of the Government Subdivision known as Hacienda de San Lazaro covered by transfer certificates of title Nos. 36400 and 36401 of the Register of Deeds of Manila. To show her appreciation of the service rendered to her Maria offered the two lots to Atty. Yuseco and his wife Rosario Yuseco for them to build on, and accepting the offer, the Yusecos built a house and an annex for servants quarters on the two lots which improvements at present may be reasonably valued at P50,000. Although Atty. Yuseco claims that the two lots were donated to him, he could exhibit no evidence of said donation and the certificates of title already mentioned remained in the name of Maria. There is reason to believe that at least during her lifetime and while she remained owner of the two lots, it was her desire to have the Yusecos occupy the land free.

But to go through the formalities and to legalize the possession of the two lots, after the house and the annex were built, there was executed a lease contract to the effect that the lease was to run for a period of five years, with a rental of P120 a year; that the owner of the lots was to pay all land taxes, and that failure to pay the rent when due would be sufficient cause for the recission of the contract. This agreement was noted on the certificates of title.

On November 29, 1945, a few days before her death, Maria sold the two lots to her daughter Belen Uy married to Jesus B. Tayag for and in consideration of the sum of P4,000. The new owners in 1946 asked the Yusecos to remove their houses from the land because Belen and her husband planned to build their own house on the two lots, or else pay a monthly rent of P120. Because of the failure of the Yusecos to comply with the demand, Belen assisted by her husband filed an action of ejectment in the Municipal Court of Manila which later rendered judgment for the plaintiffs and against the defendants "for the restitution of the premises described in the complaint and for the recovery of a monthly rental of P100 from November

30, 1945, up to the date of restitution, and for cost." On appeal by the defendants to the Court of First Instance of Manila, the latter rendered judgment, the dispositive part of which reads as follows:

Wherefore judgment is hereby rendered declaring the plaintiff, Belen Uy Tayag, to be entitled to the possession of the two parcels of land described in the complaint upon payment by her to the defendants of the sum of P50,000, which is the value of the two houses they had built thereon; but in the event said plaintiff shall not be in a position to pay said amount within 90 days from the date this decision shall become final, the defendants are hereby declared to be entitled to purchase the two parcels of land in question for the sum P10,000, within 90 days from the date the defendants shall have failed to buy the house. In the meantime, the two parcels of land without any obligation thereof. No pronouncement is hereby made as to costs.

On appeal by the plaintiffs to the Court of Appeals said court found that the Yusecos were builders in good faith under article 448 of the new Civil Code; and that as such builders in good faith, they cannot be required to remove their house and the annex unless they were paid the value thereof. The Court of Appeals further approved P50,000 and P10,000 as the reasonable values of the house and the two lots, respectively, as found by the Court of First Instance and that the Yusecos as builders in good faith will begin to pay rent only when the plaintiffs as owners of the land are unable or choose not to exercise their right to purchase the land, but in the present case, neither partly has expressed his willingness or inability to exercise the right corresponding to him under article 448 of the new Civil Code, hence the payment of rent is not in order. The Court of Appeals affirmed the decision of the Court of First Instance.

Appellants Belen and her husband Jesus Tayag filed the present petition for review of the decision of the Court of Appeals, and in their brief assign the following errors:

I

The Court of Appeals committed a grave error of law when it decided an issue foreign to that raised in an ejectment case, for in so doing it acted without jurisdiction over the subject matter.

II

Granting, arguendo, that there was jurisdiction to determine an issue other than that raised in an ejectment case, the Court of Appeals committed a grave error of law in holding that the rights of Belen Uy Tayag and Jesus B. Tayag, owners of the land, and those of Rosario Yuseco and Joaquin C. Yuseco, owner of the building, should be resolved in accordance with the provisions of Article 448 (formerly Article 361) of the Civil Code of the Philippines.

III

Granting, further, for the sake of argument only, that Article 448 of the Civil Code of the Philippines should govern the rights of the parties herein, the Court of Appeals gravely abused its discretion and committed a serious error of law when it affirmed the judgment of the trial court which, in effect, compels the owner of the land to sell it to the owner of the building.

IV

The Court of Appeals gravely erred in holding that the petitioners Belen Uy Tayag and Jesus B. Tayag shall be entitled to the possession of the land described in the complaint upon payment of the sum of P50,000 but in the event that they are not in a position to pay said amount within 90 days from the date the decision shall have become final, the respondents Rosario Yuseco and Joaquin C. Yuseco shall be entitled to purchase the land in question for the sum of P10,000.

Petitioners claim that the Court of First Instance and the Court of Appeals lacked jurisdiction to decide the case as they did for the reason that the only issue involved in an ejectment case is actual possession and that under Rule 72, section 6, the only judgment that may be rendered in such a case is for the defendant to recover costs in the event that the court find that the complaint is not true, or if it finds the complaint to be true to render judgment for the plaintiff for the restitution of the premises, for the sum justly due as arrears of rent or as reasonable compensation for the use and occupation of the premises, and for costs. But according to petitioners, in spite of this legal provision both courts went further and applied the provision of article 448 of the new Civil Code.

In theory, and speaking of ordinary ejectment cases, petitioners may be right; that is to say, if the lessee or occupant has not built anything on the premises, payment of rent would be a valid and satisfactory solution of the problem; but where the occupant has built on the land, especially where said building is substantial and valuable, the courts even in ejectment cases are bound to take cognizance of said fact and when they find that the construction or planting had been effected in good faith, instead of dismissing the complaint and suggesting to the parties to observe and follow the provisions of article 361 or article 448 of the old and the new Civil Code of the Philippines, respectively, and if they cannot agree, to file a new action, not only to enforce or defend the respective rights of the parties but to assess the value of the land and of the improvement as well, the courts in order to avoid multiplicity of actions and to administer practical and speedy justice may, as was done in this case, apply the provisions of the Civil Code relative to builders specially since there is no question as to the ownership of the land as shown by the certificates of title, and the ownership of the buildings.

Petitioners insist that the relation between them and the respondents is that of lessor and lessee and in support of their contention they point to the contract of lease between Maria Lim and the Yusecos executed in 1930. As already stated, the Court of Appeals found respondents to be builders in good faith and that finding is conclusive. In connection with said finding, we are of the opinion that the Yusecos in the mistaken belief that the two lots were being given to them free constructed the improvements in question, and that as already stated, the execution and registration of the contract of lease was a mere formality to legalize the occupation of the lots. Despite the belief of the Yusecos about the lots being donated to them, there is every reason to believe that what Maria Lim intended was to keep the title to the land but allow the Yusecos to occupy the same free, at least as long as she kept said title. This arrangement would appear to have been known to Belen, Maria's daughter, when the two lots were transferred to her a few days before Maria died, because as observed by the Court of Appeals although the Yusecos had paid no rent since the year 1930 when they constructed the two buildings, Belen in 1946, one year after the land was transferred to her, demanded rents not for the period of 15 or 16 years but only

from 1946. This action of hers neither supports nor strengthens her theory that the Yusecos since 1930 were mere lessees and continued to be such after Belen acquired the lots in question.

It will be remembered that the construction in good faith was effected in 1930 and that good faith of the builders may be considered as ended in 1946 when the demand for rent was made. It is, therefore, clear that Art. 361 of the old Civil Code instead of article 448 of the new Civil Code is applicable for the reason that the new Civil Code did not go into effect until 1950. Article 361 of the old Civil Code reads as follows:

Art. 361. The owner of land on which anything has been built, sown, or planted in good faith, shall be entitled to appropriate the things so built, sown or planted, upon paying the compensation mentioned in Article 453 and 454, or to compel the person who has built or planted to pay him the value of the land, and the person who sowed thereon to pay the proper rent therefor.

The above-quoted legal provision is clear and it is now up to the parties, particularly the petitioners to act and make their choice. Since the Court of Appeals has found that neither party has expressed its desire or willingness to do the thing or things which by law they are authorized or compelled to perform, the courts cannot disturb their present status and naturally, payment of rent by respondent for the present, is not in order.

Petitioners question the correctness of the amount of P50,000 fixed by the trial court and approved by the Court of Appeals, as the value of the improvements, claiming that under article 546 of the new Civil Code (taken from article 453 of the old Civil Code) they (petitioners) as owners of the land have the option of either refunding the amount spent for the construction of the two buildings, said to be only P18,000 or "paying him the increase in value which the thing has acquired by reason thereof." The contention of petitioners is well taken.

Affirming the decision of the Court of Appeals in so far as it finds and declares respondents to be possessors in good faith, let this case be remanded to the trial court for further proceedings, particularly to give an opportunity to plaintiffs-petitioners to exercise their choice and option; and for purposes of said choice and option the trial court will admit evidence and make a finding as to the amount of the useful expenditures or "the increase in value which the thing has acquired by reason thereof", under article 453 of the old Civil Code, to be refunded or paid by the petitioners should they choose to appropriate the buildings; "the value of the land" under article 361 of the same Code, to be paid by the defendants-respondents in case plaintiffs-petitioner elect to compel them to buy the land. No costs.

G.R. No. L-12486             August 31, 1960

LEONOR GRANA and JULIETA TORRALBA, petitioners, vs.THE COURT OF APPEALS, AURORA BONGATO and JARDENIO SANCHEZ, respondents.

Tranquilino O. Calo, Jr. for petitioners.E.D. Mercado, J.V. Ong and J.T. Gonzales for respondents.

GUTIERREZ DAVID, J.:

This is a petition to review on certiorari a decision of the Court of Appeals.

Leonor Grana and Julieta Torralba, defendants below and herein petitioners, were on April 13, 1951 sued by Aurora Bongato and Jardenio Sanchez, respondents herein, before the Court of First Instance of Agusan, for the recovery of 87 square meters of residential land. After trial, the court rendered judgment declaring the plaintiffs, herein respondents, owners of the land in controversy and ordering petitioners to vacate and deliver it to said respondents and to pay a monthly rental of P10.00 from the filing of the complaint until they actually vacate the same, plus attorney's fees and costs. The decision, on appeal, having been affirmed by the Court of Appeals with the only modification of disallowing the award for attorney's fees, petitioners brought the case to this Court through the present petition for review.

The record discloses that sometime in 1909 a cadastral survey of Butuan, Agusan, was made by the Bureau of Lands. In that survey, the parcel of land here in question was included as part of the lot belonging to Gregorio Bongato and Clara Botcon for which Original Certificate of Title No. RO-72 (138) was issued in their favor on February 12, 1923. On November 25, 1933, this lot was purchased by the spouses Marcos Bongato and Eusebia More, and upon their death, the land was inherited by the respondents Aurora Bongato and Jardenio Sanchez, the former being the daughter of Marcos Bongato by his first marriage while the latter is the son of Eusebia More also by her first marriage.

Petitioners claim that the lands in Butuan were subsequently resurveyed due to conflicts and overlapping of boundaries. In that resurvey (TS-65 Butuan Cadastre), Gregorio Bongato's lot, according to petitioners, was identified as Lot No. 311 and that of Isidaria Trillo, their predecessor in interest, as Lot No. 310. Citing the fact that Original Certificate of Title No. RO-72 (138) covers 295 square meters of land, while the sketch plan of the second cadastral survey of Butuan shows that Lot No. 311 has only 230 square meters, petitioners maintain that it is the latter area properly belongs to respondents and that the land in question is part of the adjoining land, Lot No. 310, which belonged to their predecessor in interest.

Petitioners' stand is untenable. No proof was presented to show that the first survey was erroneous or that it included part of the contigous land of petitioners' predecessor in interest as part of the lot now covered by Original Certificate of Title No. RO-72 (138). Note that the difference in area between the land covered by said title and Lot No. 311 of the resurvey plan is 65 square meters while the area of the land in dispute if 87 square meters. And what is more, the alleged sketch plan of the resurvey was not presented in evidence.

Upon the other hand, it is not disputed that the land in question is part of the lot covered by the Torrens title issued way back in 1923 in the name of respondents' predecessor in interest. Said title has not been contested up to the present, and, therefore, has become inconvertible evidence of the ownership of the land covered by it. Well settled is the rule that a Torrens certificate of title becomes conclusive and indefeasible after the lapse of the period within which it may be impugned (Reyes, et al. vs. Borbon, et al., 50 Phil., 791; Yumul vs. Rivera, et al., 64 Phil., 13).

Petitioners' contention that the Court of Appeals erred in not granting their motion for new trial on the ground of newly discovered evidence, likewise, cannot be sustained. The new evidence sought to be introduced was the sketch plan of the second survey, which, with the employment of reasonable diligence would have easily been discovered and produced at the trial. Anyway, even if presented at the result of the case. If a subsequent certificate of title cannot be permitted to prevail over a previous Torrens title (Reyes, et al, vs. Borbon, et al., supra) with more reason should a resurvey plan not to be allowed to alter or modify such title so as to make the area of the land therein described agree with that given in the plan. (See Government of the Philippines vs. Arias, 36 Phil., 195).

Although without any legal and valid claim over the land in question, petitioners, however, were found by the Court of Appeals to have constructed a portion of their house thereon in good faith. Under Article 361 of the old Civil Code (Article 448 of the new), the owner of the land on which anything has been built in good faith shall have the right to appropriate as his own faith shall have the right to appropriate as his own the building, after payment to the builder of necessary and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure, or to oblige the builder to pay the price of the land. Respondents, as owners of the land, have therefore the choice of either appropriating the portion of petitioners' house which is on their land upon payment of the proper indemnity to petitioners, or selling to petitioners that part of their land on which stands the improvement. It may here be pointed out that it would be impractical for respondents to choose to exercise the first alternative, i.e., buy that portion of the house standing on their land, for in that event the whole building might be rendered useless. The more workable solution, it would seem, is for respondents to sell to petitioners that part of their land on which was constructed a portion of the latter's house. If petitioners are unwilling or unable to buy, then they must vacate the land and must pay rentals until they do so . Of course, respondents cannot oblige petitioners to buy the land if its value is considerably more than that of the aforementioned portion of the house. If such be the case, then petitioners must pay reasonable rent. The parties must come to an agreement as to the conditions of the lease, and should they fail to do so, then the court shall fix the same. (Article 361, old Civil Code; Article 448 of the new).

In this connection, the appellate court erred in ordering petitioners to pay monthly rentals of P10.00 from the date of filing of the complaint until they actually vacate said land. A builder in good faith may not be required to pay rentals. He has a right to retain the land on which he has built in good faith until he is reimbursed the expenses incurred by him. (Miranda vs. Fadullon, et al., 97 Phil., 801; 51 Off. Gaz., 6226, see also Martinez vs. Baganus, 28 Phil., 500; De Guzman vs. De la Fuente, 55 Phil., 501; Kasilag vs. Rodriguez, Off. Gaz., Supp., August 16, 1941, p. 247).

Petitioners further contend that he complaint should have been dismissed for nonjoinder of an indispensable party, it being alleged that their mother Maria Cupin, who owns the land in question as part of her Lot No. 310, has not been made a party defendant in the case. This contention, which was not raised in the trial court, deserves scant consideration. Petitioners clearly asserted ownership over the land in dispute as well as over Lot No. 310 in their answer to the complaint. They are consequently estopped from alleging otherwise.

As to petitioners' assertion that they should have been awarded damages alleged to have been suffered by them in their counterclaim, suffice it to say that petitioners failed to prove that they suffered any damage at all by reason of the filing of the complaint. Indeed, in the light of the view we have taken of the case, they could not have substantiated their claim for damages.

In view of the foregoing, the appealed decision is modified in the sense that respondents are hereby directed to exercise within 30 days from this decision their option to either buy the portion of the petitioners' house on their land or sell to said petitioners the portion of their land and petitioners are unwilling or unable to buy, then they must vacate the same and must pay reasonable rent of P10.00 monthly from the time respondents made their choice up to the time they actually vacate the premises. But if the value of the eland is considerably more than the value of the improvement, then petitioners may elect to rent the land, in which case the parties shall agree upon the terms of a lease. Should they disagree, the court of origin is hereby instructed to intervene and fix the terms thereof. Petitioners shall pay reasonable rent of P10.00 monthly up to the time the parties agree on the terms of the lease or until the curt fixes such terms.

So ordered without pronouncement as to costs.

G.R. No. L-11269             February 28, 1958

SILVERIO FELICES, plaintiff-appellee, vs.MAMERTO IRIOLA, defendant-appellant.

Ezekiel S. Grageda for appellant.Reyes & Dy-Liaco for appellee.

REYES, J.B.L., J.:

Originally brought to the Court of Appeals, this appeal was certified to us by that Court on the ground that it does not raise any genuine issue of fact.

It appears that plaintiff and appellee Silverio Fences was the grantee of a homestead of over eight hectares located in barrio Curry, Municipality of Pili, Province of Camarines Sur, under Homestead Patent No. V-2117 dated January 26, 1949, and by virtue of which he was issued Original Certificate of Title No. 104 over said property. The month following the issuance of his patent, on February 24, 1949, appellee conveyed in conditional sale to defendant and appellant Mamerto Iriola a portion of his homestead of more than four hectares, for the consideration of P1,700. The conveyance (Exh. 1) expressly stipulates that the sale was subject to the provisions of Sec. 119 of Act 141, as amended, and to the prohibitions spread on the vendor's patent; and that after the lapse of five years or as soon as may be allowed by law, the vendor or his successors would execute in vendee's favor a deed of absolute sale over the land in question.

Two years after the sale, on April 19, 1951, appellee tried to recover the land in question from appellant, but the latter refused to allow it unless he was paid the amount of P2,000 as the alleged value of improvements he had introduced on the property. In view of appellant's persistent refusal, plaintiff deposited the received price in court and filed this action on October 4, 1951.

In the court below, appellant, while recognizing appellee's right to "redeem", insisted that he must first be reimbursed, the value of his improvements. Whereupon, the court appointed a commissioner to ascertain the nature and value of the alleged improvements, and thereafter found that said improvements were made by defendant either after plaintiff had informed him of his intention to recover the land, or after the complaint had been filed; some of the improvements were even introduced after a commissioner had already been appointed to appraise their value. Wherefore, the lower court held defendant in bad faith and not entitled to reimbursement for his improvements. Defendant was, likewise, ordered to accept the amount of P1,700 deposited by plaintiff in court, to execute in favor of the latter the corresponding deed of reconveyance, and to restore him in possession of the land in question.

At the outset, it must be made clear that as the sale in question was executed by the parties within the five-year prohibitive period under section 118 of the Public Land Law, the same is absolutely null and void and ineffective from its inception. Consequently, appellee never lost his title or ownership over the land in question, and there was no need either for him to repurchase the same from appellant, or for the latter to execute a deed of reconveyance in his favor. The case is actually for mutual restitution, incident to the nullity ab initio of the conveyance. .

The question now is: May appellant recover or be reimbursed the value of his improvements on the land in question, on the theory that as both he and appellee knew that their sale was illegal and void, they were both in bad faith and consequently, Art. 453 of the Civil Code applies in that "the rights of one and the other shall be the same as though both had acted in good faith"?

The rule of Art. 453 of the Civil Code invoked by appellant1 can not be applied to the instant case for the reason that the lower court found, and appellant admits, that the improvements in question were made on the premises only after appellee had tried to recover the land in question from appellant, and even during the pendency of this action in the court below. After appellant had refused to restore the land to the appellee, to the extent that the latter even had to resort to the present action to recover his property, appellee could no longer be regarded as having impliedly assented or conformed to the improvements thereafter made by appellant on the premises. Upon the other hand, appellant, recognizing as he does appellee's right to get back his property, continued to act in bad faith when he made improvements on the land in question after he had already been asked extra-judicially and judicially, to surrender and return its possession to appellee; and as a penalty for such bad faith, he must forfeit his improvements without any right to reimbursement therefor. "He who builds, plants or sows in bad faith on the land of another, loses that is built, planted, or sown without right to indemnity" (Art. 449, New Civil Code).

Wherefore, the judgment appealed from is affirmed, with the sole modification that appellant need not execute a deed of reconveyance in appellee's favor, the original conveyance being hereby declared void ab initio. Costs against appellant Mamerto Iriola. So ordered.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Endencia and Felix, JJ., concur.

Footnotes

1 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.

G.R. No. L-57288 April 30, 1984

LEONILA SARMINETO, petitioner, vs.HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh Judicial District, Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO and REBECCA LORENZO-VALENTINO, respondents.

Mercedes M. Respicio for petitioner.

Romulo R. Bobadilla for private respondents.

 

MELENCIO-HERRERA, J.:ñé+.£ªwph!1

This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court of First Instance of Pasay City. The Decision was one made on memoranda, pursuant to the provisions of RA 6031, and it modified, on October 17, 1977, a judgment of the then Municipal Court of Paranaque, Rizal, in an Ejectment suit instituted by herein petitioner Leonila SARMIENTO against private respondents, the spouses ERNESTO Valentino and Rebecca Lorenzo. For the facts, therefore, we have to look to the evidence presented by the parties at the original level.

It appears that while ERNESTO was still courting his wife, the latter's mother had told him the couple could build a RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision in Paranaque (the LAND, for short). In 1967, ERNESTO did construct a RESIDENTIAL HOUSE on the LAND at a cost of P8,000.00 to P10,000.00. It was probably assumed that the wife's mother was the owner of the LAND and that, eventually, it would somehow be transferred to the spouses.

It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C. Santo, Jr. who, on September 7 , 1974, sold the same to petitioner SARMIENTO. The following January 6, 1975, SARMIENTO asked ERNESTO and wife to vacate and, on April 21, 1975, filed an Ejectment suit against them. In the evidentiary hearings before the Municipal Court, SARMIENTO submitted the deed of sale of the LAND in her favor, which showed the price to be P15,000.00. On the other hand, ERNESTO testified that the then cost of the RESIDENTIAL HOUSE would be from P30,000.00 to P40,000.00. The figures were not questioned by SARMIENTO.

The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in good faith, and, disregarding the testimony of ERNESTO, that it had a value of P20,000.00. It then ordered ERNESTO and wife to vacate the LAND after SARMIENTO has paid them the mentioned sum of P20,000.00.

The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the submission of memoranda, said Court rendered a modifying Decision under Article 448 of the Civil Code. SARMIENTO was required, within 60 days, to exercise the option to reimburse ERNESTO and wife the sum of 40,000.00 as the value of the RESIDENTIAL HOUSE, or the option to allow them to purchase the LAND for P25,000.00. SARMIENTO did not exercise any of the two options within the indicated period, and ERNESTO was then allowed to deposit the sum of P25,000.00 with the Court as the purchase price for the LAND. This is the hub of the controversy. SARMIENTO then instituted the instant certiorari proceedings.

We agree that ERNESTO and wife were builders in good faith in view of the peculiar circumstances under which they had constructed the RESIDENTIAL HOUSE. As far as they knew, the LAND was owned by ERNESTO's mother-in-law who, having stated they could build on the property, could reasonably be expected to later on give them the LAND.

In regards to builders in good faith, Article 448 of the Code provides:têñ.£îhqwâ£

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)

The value of the LAND, purchased for P15,000.00 on September 7, 1974, could not have been very much more than that amount during the following January when ERNESTO and wife were asked to vacate. However, ERNESTO and wife have not questioned the P25,000.00 valuation determined by the Court of First Instance.

In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence presented was the testimony of ERNESTO that its worth at the time of the trial should be from P30,000.00 to P40,000.00. The Municipal Court chose to assess its value at P20,000.00, or below the minimum testified by ERNESTO, while the Court of First Instance chose the maximum of P40,000.00. In the latter case, it cannot be said that the Court of First Instance had abused its discretion.

The challenged decision of respondent Court, based on valuations of P25,000.00 for the LAND and P40,000.00 for the RESIDENTIAL HOUSE, cannot be viewed as not supported by the evidence. The provision for the exercise by petitioner SARMIENTO of either the option to indemnify private respondents in the amount of P40,000.00, or the option to allow private respondents to purchase the LAND at P25,000.00, in our opinion, was a correct decision.têñ.£îhqwâ£

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 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. (Emphasis 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]).

WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to costs.

SO ORDERED.1äwphï1.ñët

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

FRANCISCO DEPRA, Plaintiff-Appellee, v. AGUSTIN DUMLAO, Defendant-Appellant.

Roberto D. Dineros for Plaintiff-Appellee.

Neil D. Hechanova, for Defendant-Appellant.

D E C I S I O N

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. T-3087, 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 Derla, 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 Dumangas, docketed as Civil Case No. I. Said complaint was later amended to include DEPRA as a party 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:chanrobles virtual lawlibrary

"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 that day that this decision shall have become final."cralaw virtua1aw library

From the foregoing judgment, neither party appealed so that, if 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:jgc:chanrobles.com.ph

"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."cralaw virtua1aw library

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 ourselves 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). 1) The Municipal Court overstepped its bounds when it imposed upon the parties a situation of "forced lease", which like "forced co-ownership" is not favored in law.

2) 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.

3)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,chanrobles law library : red

"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; . . ." (Italics ours)

Consistent with the principles 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 apply 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 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:jgc:chanrobles.com.ph

"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 v. Hilario, 76 Phil. 605, 608 [1946])."cralaw virtua1aw library

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

The original provision was found in Article 361 of the Spanish Civil Code, which provided:jgc:chanrobles.com.ph

"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."cralaw virtua1aw library

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.chanrobles law library : red

". . . es justa la facultad que el codigo da al dueño 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 dueño 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 eddficar. 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 eniquecido 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 posible 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:jgc:chanrobles.com.ph

"ART. 448. The owner of the land on which 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."cralaw virtua1aw library

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:jgc:chanrobles.com.ph

"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 o blige the builder or planter to pay for the land and the sower to pay for the proper rent.

I t 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 v. Bataclan, 37 Off. Gaz. 1382; Co Tao v. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied: see Cabral, et al v. Ibañez [S.C.] 52 Off. Gaz. 217; Marfori v. 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:chanrob1es virtual 1aw library

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:chanrob1es virtual 1aw library

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 a his own by paying to DUMLAO either the amount of the expenses spent by DUMLAO for 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.chanrobles law library

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

No costs.

SO ORDERED.

G.R. No. L-32974 July 30, 1979

BARTOLOME ORTIZ, petitioner, vs.HON. UNION C. KAYANAN, in his capacity as Judge of the Court of First Instance of Quezon, Branch IV; ELEUTERIO ZAMORA, QUIRINO COMINTAN, VICENTE FERRO, AND GREGORIO PAMISARAN, respondents.

Salonga, Ordoñ;ez, Yap, Sicat & Associates and Salvador, Ulgado & Carbon for petitioner.

Jose A. Cusi for private respondents.

 

ANTONIO, J.:1äwphï1.ñët

Petition for certiorari and Prohibition with Preliminary Injunction to nullify the Order of respondent Judge directing the execution of the final judgment in Civil Case No. C-90, entitled "Bartolome Ortiz vs. Secretary of Agriculture and Natural

Resources, et al.," and the Writ of Execution issued to implement said Order, allegedly for being inconsistent with the judgment sought to be enforced.

Civil Case No. C-90 was filed by Bartolome Ortiz who sought the review and/or annulment of the decision of the Secretary of Agriculture and Natural Resources, giving preference to the sales applications of private respondents Quirino Comintan and Eleuterio Zamora over Lot No. 5785, PLS-45, located at Barrio Cabuluan, Calauag, Quezon.

I

The factual background of the case, as found by respondent Court, is as follows:têñ.£îhqwâ£

... The lot in controversy was formerly the subject of Homestead Application No. 122417 of Martin Dolorico II, plaintiff's ward who died on August 20, 1931; that since then it was plaintiff who continued the cultivation and possession of the property, without however filing any application to acquire title thereon; that in the Homestead Application No. 122417, Martin Dolorico II named his uncle, Martin Dolorico I as his heir and successor in interest, so that in 1951 Martin Dolorico I executed an affidavit relinquishing his rights over the property in favor of defendants Quirino Comintan and Eleuterio Zamora, his grandson and son-in-law, respectively, and requested the Director of Lands to cancel the homestead application; that on the strength of the affidavit, Homestead Application No. 122417 was cancelled and thereafter, defendants Comintan and Zamora filed their respective sales applications Nos. 8433 and 9258; that plaintiff filed his protest on November 26, 1951 alleging that he should be given preference to purchase the lot inasmuch as he is the actual occupant and has been in continuous possession of the same since 1931; and inspite of plaintiff's opposition, "Portion A" of the property was sold at public auction wherein defendant Comintan was the only bidder; that on June 8, 1957, investigation was conducted on plaintiff's protest by Assistant Public Lands Inspector Serapion Bauzon who submitted his report to the Regional Land Officer, and who in turn rendered a decision on April 9, 1958, dismissing plaintiff's claim and giving due course to defendants' sales applications on the ground that the relinquishment of the homestead rights of Martin Dolorico I in favor of Comintan and Zamora is proper, the former having been designated as successor in interest of the original homestead applicant and that because plaintiff failed to participate in the public auction, he is forever barred to claim the property; that plaintiff filed a motion for reconsideration of this decision which was denied by the Director of Lands in his order dated June 10, 1959; that, finally, on appeal to the Secretary of Agriculture and Natural Resources, the decision rendered by the Regional Land Officer was affirmed in toto. 1

On March 22, 1966, respondent Court rendered judgment in the afore-mentioned civil case, the dispositive portion of which reads as follows:têñ.£îhqwâ£

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered awarding Lot No. 5785-A of PLS-45, (Calauag Public Land Subdivision) one-half portion of the property in litigation located at Bo. Cabuluan, Calauag, Quezon, in favor of defendant QUIRINO COMINTAN, being the successful bidder in the public auction conducted by the bureau of Lands on April 18, 1955, and hereby giving due course to the Sales Application No. 9258 of defendant Eleuterio Zamora over the other half, Lot No. 5785-B of PLS-45, Calauag, without prejudice to the right of plaintiff BARTOLOME ORTIZ to participate in the public bidding of the same to be announced by the Bureau of Lands, Manila. However, should plaintiff Bartolome Ortiz be not declared the successful bidder thereof, defendants Quirino Comintan and Eleuterio Zamora are ordered to reimburse jointly said plaintiff the improvements he has introduced on the whole property in the amount of THIRTEEN THOUSAND SIX HUNDRED THIRTY-TWO (P13,632.00) PESOS, the latter having the right to retain the property until after he has been fully paid therefor, without interest since he enjoys the fruits of the property in question, with prejudice and with costs again the plaintiff. 2

Plaintiff appealed the decision to the Court of Appeals.

Two (2) years after the rendition of the judgment by the court a quo, while the case was pending appeal and upon petition of private respondents Quirino Comintan and Eleuterio Zamora, respondent Court appointed respondent Vicente Ferro, Clerk of Court, as Receiver to collect tolls on a portion of the property used as a diversion road. On August 19, 1969, the Court of Appeals issued a Resolution annulling the Order appointing the Receiver. Subsequently, on February 19, 1970, the Appellate Court affirmed the decision of the trial court. A petition for review on certiorari of the decision of the Court of Appeals was denied by this Court on April 6, 1970. At this point, private respondents filed a petition for appointment of a new receiver with the court a quo. This petition was granted and the receiver was reappointed. Petitioner sought the annulment of this Order with the Court of Appeals, but said Court ruled that its decision had already become final and that the records of the case were to be remanded to the trial court.

Not satisfied with such denial, petitioner filed a petitioner for certiorari, prohibition and mandamus with preliminary injunction before this Court, 3 praying for the annulment of the Order reappointing the Receiver. On July 13, 1970, the petition was dismissed by this Court on the ground of insufficient showing of grave abuse of discretion.

II

The judgment having become final and executory private respondents filed a motion for the execution of the same, praying as follows:têñ.£îhqwâ£

WHEREFORE, it is respectfully prayed of this Honorable Court to order the issuance of a writ of execution in accordance with the judgment of this Honorable Court, confirmed by the Court of Appeals and the Supreme Court, commanding any lawful officer to deliver to defendants Comintan and Zamora the land subject of the decision in this case but allowing defendants to file a bond in such amount as this Honorable Court may fix, in lieu of the P13,632.00 required to be paid to plaintiff, conditioned that after the accounting of the tools collected by plaintiff, there is still an amount due and payable to said plaintiff, then if such amount is not paid on demand, including the legal interests, said bond shall be held answerable.

Ordering further the plaintiff to render an accounting of the tolls he collected from March of 1967 to December 31, 1968 and from September 1969 to March 31, 1970, and deliver said tolls collected to the receiver and if judgment is already executed, then to Quirino Comintan and Eleuterio Zamora; and,

Finally, to condemn plaintiff to pay moral damages for withholding the tools which belong to your movant in an amount this Court may deem just in the premises. 4

Acting upon the foregoing motion, respondent Judge issued an Order, dated September 23, 1970, stating, among others, the following: têñ.£îhqwâ£

The records further disclosed that from March 1967 to December 31, 1968, piaintiff Bartolome Ortiz collected tolls on a portion of the propertv in question wherein he has not introduced anv improvement particularlv on Lot No. 5785-A; PLS-45 awarded to defendant Quirino Comintan, thru which vehicular traffic was detoured or diverted, and again from September 1969 to March 31, 1970, the plaintiff resumed the collection of tools on the same portion without rendering any accounting on said tolls to the Receiver, who, was reappointed after submitting the required bond and specifically authorized only to collect tolls leaving the harvesting of the improvements to the plaintiff.

xxx xxx xxx

ln virtue of he findings of this Court as contained in the dispositive portion of its decision, the defendants are jointly obligated to pay the plaintiff in the amount of P13,632.00 as reasonable value of the improvements he introduced on the whole property in question, and that he has the right of retention until fully paid. It can be gleaned from the motion of the defendants that if plaintiff submits an accounting of the tolls he collected during the periods above alluded to, their damages of about P25,000.00 can more than offset their obligation of P13,362.00 in favor of the plaintiff, thereafter the possession of the land be delivered to the defendants since the decision of the Supreme Court has already become final and executory, but in the interregnum pending such accounting and recovery by the Receiver of the tolls collected by the plaintiff, the defendants pray that they allowed to put up a bond in lieu of the said P13,632.00 to answer for damages of the former, if any.

On the other hand, plaintiff contends in his opposition, admitting that the decision of the Supreme Court has become final and executory; (1) the offer of a bond in lieu of payment of P13,632.00 does not, and cannot, satisfy the condition imposed in the decision of this Court which was affirmed in toto; (2) the public sale of Portion "B" of the land has still to take place as ordained before the decision could be executed; and, (3) that whatever sums plaintiff may derive from the property cannot be set off against what is due him for the improvements he made, for which he has to be reimbursed as ordered.

xxx xxx xxx

Let it be known that plaintiff does not dispute his having collected tolls during the periods from March 1967 to December 31, 1968 and from September 1969 to March 31, 1970. The Supreme Court affirmed the decision of this Court its findings that said tolls belong to the defendant, considering that the same were collected on a portion of the land question where the plaintiff did not introduce any improvement. The reimbursement to the plaintiff pertains only to the value of the improvements, like coconut trees and other plants which he introduced on the whole property. The tolls collected by the plaintiff on an unimproved portion naturally belong to the defendants, following the doctrine on accretion. Further, the reappointment of a Receiver by this Court was upheld by the Supreme Court when it denied the petition for certiorari filed by the plaintiff, bolstering the legal claim of defendants over said tolls. Thus, the decision of the Supreme Court rendered the decision of this Court retroactive from March 22, 1966 although pending accounting of the tolls collected by the plaintiff is justified and will not prejudice anybody, but certainly would substantially satisfy the conditions imposed in the decision. However, insofar as the one-half portion "B" of the property, the decision may be executed only after public sale by the Bureau of Lands shall be accomplished.

WHEREFORE, finding the Motion for Execution filed by the defendants to be meritorious, the same is granted; provided, however, that they put up a bond equal the adjudicated amount of P13,632.00 accruing in favor of the plaintiff, from a reputable or recognized bonding or surety company, conditioned that after an accounting of the tolls collected by the plaintiff should there be found out any balance due and payable to him after reckoning said obligation of P13,632.00 the bond shall be held answerable therefor. 5

Accordingly, a Writ of Execution was issued after private respondent Quirino Comintan had filed the required bond. The writ directed the Sheriff to enforce the decision of the Court, and stated, part in, the following:têñ.£îhqwâ£

But should there be found any amount collectible after accounting and deducting the amount of P3,632.00, you are hereby ordered that of the goods and chattels of Bartolome Ortiz of Bo. Kabuluan, Calauag, Quezon, be caused to be made any excess in the above-metioned amount together with your lawful fees and that you render same to defendant Quirino Comintan. If sufficient personal property cannot be found thereof to satisfy this execution and lawful fees thereon, then you are commanded that of the lands and buildings of the said BARTOLOME ORTIZ you make the said excess amount in the manner required by the Rules of Court, and make return of your proceedings within this Court within sixty (60) days from date of service.

You are also ordered to cause Bartolome Ortiz to vacate the property within fifteen (15) days after service thereof the defendant Quirino Comintan having filed the required bond in the amount of THIRTEEN THOUSAND SIX HUNDRED THIRTY-TWO (P13,632.00) PESOS. 6

On October 12, 1970, petitioner filed a Motion for Reconsideration of the aforesaid Order and Writ of Execution, alleging:têñ.£îhqwâ£

(a) That the respondent judge has no authority to place respondents in possession of the property;

(b) That the Supreme Court has never affirmed any decision of the trial court that tolls collected from the diversionary road on the property, which is public land, belong to said respondents;

(c) That to assess petitioner a P25,000.00 liability for damages is purely punitive imposition without factual or legal justification.

The foregoing Motion for Reconsideration was denied by respondent Judge per Order dated November 18, 1970. Saod Order states, in part:têñ.£îhqwâ£

It goes without saying that defendant Comintan is entitled to be placed in possession of lot No. 5785-A of PLS-45 (Calauag Public Land Subdivision) and enjoyment of the tolls from March, 1967 to March, 1968 and from September, 1969 to March 31, l970 which were received by plaintiff Bartolome Ortiz, collected from the property by reason of the diversion road where vehicular traffic was detoured. To defendant Comintan belongs the tolls thus collected from a portion of the land awarded to him used as a diversionary road by the doctrine of accretion and his right over the same is ipso jure, there being no need of any action to possess said addition. It is so because as consistently maintained by the Supreme Court, an applicant who has complied with all the terms and conditions which entitle him to a patent for a particular tract of publlic land, acquires a vested right therein and is to be regarded as equitable owner thereof so that even without a patent, a perfected homestead or sales application is a property right in the fullest sense, unaffectcd by the fact that the paramount title is still in the Government and no subsequent law can deprive him of that vested right The question of the actual damages suffered by defendant Comintan by reason of the unaccounted tolls received by plaintiff had already been fully discussed in the order of September 23, 1970 and the Court is honestly convinced and believes it to be proper and regular under the circumstances.

Incidentally, the Court stands to correct itself when in the same order, it directed the execution of he decision with respect to the one-half portion "B" of the property only after the public sale by the Bureau of Lands, the same being an oversight, it appearing that the Sales Application of defendant Eleuterio Zamora had already been recognized and full confirmed by the Supreme Court.

In view thereof, finding the motion filed by plaintiff to be without merit, the Court hereby denies the same and the order of September 23, 1970 shall remain in full force subject to the amendment that the execution of the decision with respect to the one-half portion "B" shall not be conditioned to the public sale by the Bureau of Lands.

SO ORDERED. 7

III

Petitioner thus filed the instant petition, contending that in having issued the Order and Writ of Execution, respondent Court "acted without or in excess of jurisdiction, and/or with grave abuse of discretion, because the said order and writ in effect vary the terms of the judgment they purportedly seek to enforce." He argued that since said judgment declared the petitioner a possessor in good faith, he is entitled to the payment of the value of the improvements introduced by him on the whole property, with right to retain the land until he has been fully paid such value. He likewise averred that no payment for improvements has been made and, instead, a bond therefor had been filed by defendants (private respondents), which, according to petitioner, is not the payment envisaged in the decision which would entitle private respondents to the possession of the property. Furthermore, with respect to portion "B", petitioner alleges that, under the decision, he has the right to retain the same until after he has participated and lost in the public bidding of the land to be conducted by the Bureau of Lands. It is claimed that it is only in the event that he loses in the bidding that he can be legally dispossessed thereof.

It is the position of petitioner that all the fruits of the property, including the tolls collected by him from the passing vehicles, which according to the trial court amounts to P25,000.00, belongs to petitioner and not to defendant/private respondent Quirino Comintan, in accordance with the decision itself, which decreed that the fruits of the property shall be in lieu of interest on the amount to be paid to petitioner as reimbursement for improvements. Any contrary opinion, in his view, would be tantamount to an amendment of a decision which has long become final and executory and, therefore, cannot be lawfully done.

Petitioner, therefore, prayed that: (1) a Writ of Preliminary Injunction be issued enjoining the enforcement of the Orders of September 23, 1970 and November 18, 1970, and the Writ of Execution issued thereto, or restoring to petitioner the possession of the property if the private respondents had been placed in possession thereof; (2) annulling said Orders as well as the Writ of Execution, dissolving the receivership established over the property; and (3) ordering private respondents to account to petitioner all the fruits they may have gathered or collected from the property in question from the time of petitioiier's illegal dispossession thereof.

On January 29, 1971, this Court issued the Writ of Preliminary Injunction. On January 30, 1971, private respondents filed a Motion for Reconsideration and/or Modification of the Order dated January 29, 1971. This was followed by a Supplemental Motion for Reconsideration and Manifestation on February 3, 1971. In the latter motion, private respondents manifested that the amount of P14,040.96, representing the amount decreed in the judgment as reimbursement to petitioner for the improvements, plus interest for six months, has already been deposited by them in court, "with the understanding that said amount shall be turned over to the plaintiff after the court a quo shall have determined the improvement on Lot 5785-A, and subsequently the remaining balance of the deposit shall be delivered to the petitioner (plaintiff therein) in the event he loses the bid for Lot 5785-B in favor of private respondent Eleuterio Zamora." 8 The deposit is evidenced by a certification made by the Clerk of the Court a quo. 9 Contending that said deposit was a faithful compliance with the judgment of the trial court, private respondent Quirino Comintan prayed for the dissolution of the Writ of Injunction.

It appears that as a consequence of the deposit made by private respondents, the Deputy, Sheriff of Calauag, Quezon ousted petitioner's representative from the land in question and put private respondents in possession thereof. 10

On March 10, 1971, petitioner filed a "Comment on Respondents' 'Motion for Reconsideration' dated January 29, 1971' and 'Supplemental Motion for Reconsideration and Manifestation,'" contending that the tender of deposit mentioned in the Suplemental Motion was not really and officially made, "inasmuch as the same is not supported by any official receipt from the lower court, or from its clerk or cashier, as required by law;" that said deposit does not constitute sufficient compliance with the judgment sought to be enforced, neither was it legally and validly made because the requisites for consignation had not been complied with; that the tender of legal interest for six months cannot substitute petitioner's enjoyment of the fruits

of the property as long as the judgment in Civil Case No. C-90 has not been implemented in the manner decreed therein; that contrary to the allegations of private respondents, the value of the improvements on the whole property had been determined by the lower court, and the segregation of the improvements for each lot should have been raised by them at the opportune moment by asking for the modification of the decision before it became final and executory; and that the tolls on the property constituted "civil fruits" to which the petitioner is entitled under the terms of the decision.

IV

The issue decisive of the controvery is—after the rendition by the trial court of its judgment in Civil Case No. C-90 on March 22, 1966 confirming the award of one-half of the property to Quirino Comintan—whether or not petitioner is still entitled to retain for his own exclusive benefit all the fruits of the property, such as the tolls collected by him from March 1967 to December 1968, and September 1969 to March 31, 1970, amounting to about P25,000.00. In other words, petitioner contends that so long as the aforesaid amount of P13,632,00 decreed in the judgment representing the expenses for clearing the land and the value of the coconuts and fruit trees planted by him remains unpaid, he can appropriate for his exclusive benefit all the fruits which he may derive from the property, without any obligation to apply any portion thereof to the payment of the interest and the principal of the debt.

We find this contention untenable.

There is no question that a possessor in good faith is entitled to the fruits received before the possession is legally interrupted. 11 Possession in good faith ceases or is legally interrupted from the moment defects in the title are made known to the possessor, by extraneous evidence or by the filing of an action in court by the true owner for the recovery of the property. 12 Hence, all the fruits that the possessor may receive from the time he is summoned in court, or when he answers the complaint, must be delivered and paid by him to the owner or lawful possessor. 13

However, even after his good faith ceases, the possessor in fact can still retain the property, pursuant to Article 546 of the New Civil Code, until he has been fully reimbursed for all the necessary and useful expenses made by him on the property. This right of retention has been considered as one of the conglomerate of measures devised by the law for the protection of the possessor in good faith. Its object is to guarantee the reimbursement of the expenses, such as those for the preservation of the property, 14 or for the enhancement of its utility or productivity. 15 It permits the actual possessor to remain in possession while he has not been reimbursed by the person who defeated him in the possession for those necessary expenses and useful improvements made by him on the thing possessed. The principal characteristic of the right of retention is its accessory character. It is accessory to a principal obligation. Considering that the right of the possessor to receive the fruits terminates when his good faith ceases, it is necessary, in order that this right to retain may be useful, to concede to the creditor the right to secure reimbursement from the fruits of the property by utilizing its proceeds for the payment of the interest as well as the principal of the debt while he remains in possession. This right of retention of the property by the creditor, according to Scaevola, in the light of the provisions of Article 502 of the Spanish Civil Code, 16 is considered not a coercive measure to oblige the debtor to pay, depriving him temporarily of the enjoyment of the fruits of his property, but as a means of obtainitig compensation for the debt. The right of retention in this case is analogous to a contract of antichresis and it cati be considered as a means of extinguishing the obligation, inasmuch as the right to retain the thing lasts only for the period necessary to enable the creditor to be reimbursed from the fruits for the necessary and useful expenses. 17

According to Manresa, the right of retention is, therefore, analogous to that of a pledge, if the property retained is a movable, and to that of antichresis, if the property held is immovable. 18 This construction appears to be in harmony with similar provisions of the civil law which employs the right of retention as a means or device by which a creditor is able to obtain the payment of a debt. Thus, under Article 1731 of the New Civil Code, any person who has performed work upon a movable has a right to retain it by way of pledge until he is paid. Similarly, under Article 1914 of the same Code, the agent may retain in pledge the things which are the object of the agency until the principal effects reimbursement of the funds advanced by the former for the execution of the agency, or he is indemnified for all damages which he may have suffered as a consequence of the execution of the agency, provided he is free from fault. To the same effect, the depositary, under Article 1994 of the same Code, may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. The usufructuary, pursuant to Article 612 of the same Code, may retain the property until he is reimbursed for the amount paid for taxes levied on the capital (Article 597) and tor extraordinary repairs (Article 594).

In all of these cases, the right of retention is used as a means of extinguishing the obligation. As amply observed by Manresa: "El derecho de retencion, lo hemos dicho, es el derecho de prenda o el de anticresis constituido por la ley con independencia de las partes." 19 In a pledge, if the thing pledged earns or produces fruits, income, dividends or interests, the creditor shall compensate what he receives with those which are owing him. 20 In the same manner, in a contract of antichresis, the creditor acquires the right to receive the fruits of an immovable of his debtor with the obligation to apply them to payment of the interest, if owing, and thereafter to the principal of his credit. 21 The debtor can not reacquire enjoyment of the immovable until he has actually paid what he owes the creditor. 22

Applying the afore-cited principles to the case at bar, petitioner cannot appropriate for his own exclusive benefit the tolls which he collected from the property retained by him. It was his duty under the law, after deducting the necessary expenses for his administration, to apply such amount collected to the payment of the interest, and the balance to the payment of the obligation.

We hold, therefore, that the disputed tolls, after deducting petitioner's expenses for administration, belong to Quirino Comintan, owner of the land through which the toll road passed, further considering that the same was on portions of the property on which petitioner had not introduced any improvement. The trial court itself clarified this matter when it placed the toll road under receivership. The omission of any mention of the tolls in the decision itself may be attributed to the fact that the tolls appear to have been collected after the rendition of the judgment of the trial court.

The records further reveal that earnest efforts have been made by private respondents to have the judgment executed in the most practicable manner. They deposited in court the amount of the judgment in the sum of P13,632.00 in cash, subject only to the accounting of the tolls collected by the petitioner so that whatever is due from him may be set off with the amount of reimbursement. This is just and proper under the circumstances and, under the law, compensation or set off may take place, either totally or partially. Considering that petitioner is the creditor with respect to the judgment obligation and the debtor with respect to the tolls collected, Comintan being the owner thereof, the trial court's order for an accounting and compensation is in accord with law. 23

With respect to the amount of reimbursement to be paid by Comintan, it appears that the dispositive portion of the decision was lacking in specificity, as it merely provided that Comintan and Zamora are jointly liable therefor. When two persons are liable under a contract or under a judgment, and no words appear in the contract or judgment to make each liable for the entire obligation, the presumption is that their obligation is joint or mancomunada, and each debtor is liable only for a proportionate part of the obligation. 24 The judgment debt of P13,632.00 should, therefore, be pro-rated in equal shares to Comintan and Zamora.

Regarding Lot 5785-B, it appears that no public sale has yet been conducted by the Bureau of Lands and, therefore, petitioner is entitled to remain in possession thereof. This is not disputed by respondent Eleuterio Zamora. 25 After public sale is had and in the event that Ortiz is not declared the successful bidder, then he should be reimbursed by respondent Zamora in the corresponding amount for the improvements on Lot 5785-B.

WHEREFORE, in view hereof, the Order of respondent Court of November 18, 1970 is hereby modified to conform to the foregoing judgment. The Writ of Preliminary Injunction, dated January 29, 1971, is hereby dissolved. Without special pronouncement as to costs.

G.R. No. 175399               October 27, 2009

OPHELIA L. TUATIS, Petitioner, vs.SPOUSES ELISEO ESCOL and VISMINDA ESCOL; HONORABLE COURT OF APPEALS, 22nd DIVISION, CAGAYAN DE ORO CITY; REGIONAL TRIAL COURT, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE; and THE SHERIFF OF RTC, BRANCH 11, SINDANGAN, ZAMBOANGA DEL NORTE, Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

This Petition for Certiorari and Mandamus1 under Rule 65 of the Rules of Court seeks the annulment of the following Resolutions of the Court of Appeals in CA-G.R. SP No. 00737-MIN: (a) Resolution2 dated 10 February 2006 dismissing the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction of herein petitioner Ophelia L. Tuatis (Tuatis); (b) Resolution3 dated 25 July 2006 denying Tuatis’ Motion for Reconsideration of the Resolution dated 10 February 2006; and (c) Resolution4 dated 9 October 2006 denying Tuatis’ Motion for Leave to File a Second Motion for Reconsideration. The instant Petition further prays for the annulment of the Order5 dated 26 September 2005 of the Regional Trial Court (RTC) of Sindangan, Zamboanga del Norte, Branch 11, in Civil Case No. S-618, ordering the Sheriff to immediately serve the Writ of Execution issued on 7 March 2002.

The dispute arose from the following factual and procedural antecedents:

On 18 June 1996, Tuatis filed a Complaint for Specific Performance with Damages6 against herein respondent Visminda Escol (Visminda) before the RTC, docketed as Civil Case No. S-618.

Tuatis alleged in her Complaint that sometime in November 1989, Visminda, as seller, and Tuatis, as buyer, entered into a Deed of Sale of a Part of a Registered Land by Installment7 (Deed of Sale by Installment). The subject matter of said Deed was a piece of real property situated in Poblacion, Sindangan, Zamboanga del Norte and more particularly described as "[a] part of a registered land being known as Lot No. 251, Pls-66 covered under OCT [Original Certificate of Title] No. P-5421; x x x with an area of THREE HUNDRED (300) square meters, more or less" (subject property).

The significant portions of the Deed of Sale by Installment stated:

That for and in consideration of the sum of TEN THOUSAND PESOS (P10,000.00), Philippine currency, the SELLER [Visminda8] hereby SELLS to the BUYER [Tuatis], the above-described parcel of land under the following terms and conditions:

1. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of THREE THOUSAND PESOS (P3,000.00), as downpayment;

2. That the BUYER [Tuatis] shall pay to the SELLER [Visminda] the amount of FOUR THOUSAND PESOS (P4,000.00), on or before December 31, 1989;

3. That the remaining balance of THREE THOUSAND PESOS (P3,000.00) shall be paid by the BUYER [Tuatis] to the SELLER [Visminda] on or before January 31, 1990;

4. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].9

Tuatis claimed that of the entire purchase price of P10,000.00, she had paid Visminda P3,000.00 as downpayment. The exact date of said payment was not, however, specified. Subsequently, Tuatis paid P3,000.00 as installment on 19 December 1989, and another P1,000.00 installment on 17 February 1990. Tuatis averred that she paid Visminda the remaining P3,000.00 on 27 February 1990 in the presence of Eric Selda (Eric), a clerk in the law office of one Atty. Alanixon Selda. In support of this averment, Tuatis attached to her Complaint a certification10 executed by Eric on 27 May 1996.

In the meantime, Tuatis already took possession of the subject property and constructed a residential building thereon.

In 1996, Tuatis requested Visminda to sign a prepared absolute deed of sale covering the subject property, but the latter refused, contending that the purchase price had not yet been fully paid. The parties tried to amicably settle the case before the Lupon Barangay, to no avail.11

Tuatis contended that Visminda failed and refused to sign the absolute deed of sale without any valid reason. Thus, Tuatis prayed that the RTC order Visminda to do all acts for the consummation of the contract sale, sign the absolute deed of sale and pay damages, as well as attorney’s fees.

In her Answer,12 Visminda countered that, except for the P3,000.00 downpayment and P1,000.00 installment paid by Tuatis on 19 December 1989 and 17 February 1990,13 respectively, Tuatis made no other payment to Visminda. Despite repeated verbal demands, Tuatis failed to comply with the conditions that she and Visminda agreed upon in the Deed of Sale by Installment for the payment of the balance of the purchase price for the subject property. Visminda asked that the RTC dismiss Tuatis’ Complaint, or in the alternative, order Tuatis to return the subject property to Visminda after Visminda’s reimbursement of the P4,000.00 she had received from Tuatis.

After trial, the RTC rendered a Decision14 on 29 April 1999 in Civil Case No. S-618 in Visminda’s favor. The RTC concluded:

Under the facts and circumstances, the evidence for [Tuatis] has not established by satisfactory proof as to (sic) her compliance with the terms and conditions setforth (sic) in [the Deed of Sale by Installment] x x x.

x x x x

In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force x x x.

x x x x

As the contract x x x is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties, and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, [the] same should be given its full force and effect.

EVIDENCE (sic) at hand points of no full payment of the price, hence No. 4 of the stipulation applies[,] which provides:

"That failure (sic) of the Buyer [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the Buyer [Tuatis] shall return the land subject of this Contract to the Seller [Visminda] and the Seller [Visminda] [shall] likewise return all the (sic) amount paid by the Buyer [Tuatis]."

This stipulation is the law between the [Buyer] and [Seller], and should be complied with in good faith x x x.

[Tuatis] constructed the building x x x in bad faith for, (sic) she had knowledge of the fact that the Seller [Visminda] is still the absolute owner of the subject land. There was bad faith also on the part of [Visminda] in accordance with the express provisions of Article 454 [of the New Civil Code]15 since [she] allowed [Tuatis] to construct the building x x x without any opposition on [her] part and so occupy it. The rights of the parties must, therefore, be determined as if they both had acted in bad faith. Their rights in such cases are governed by Article 448 of the New Civil Code of the Philippines.16

The RTC decreed the dismissal of Tuatis’ Complaint for lack of merit, the return by Tuatis of physical possession of the subject property to Visminda, and the return by Visminda of the P4,000.00 she received from Tuatis.

Tuatis filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 65037. In a Resolution17 dated 29 August 2000, however, the appellate court dismissed the appeal for failure of Tuatis to serve and file her appellant’s brief within the second extended period for the same. An Entry of Judgment18 was made in CA-G.R. CV No. 65037 on 29 September 2000, as a result of which, the appealed RTC Decision dated 29 April 1999 in Civil Case No. S-618 became final and executory.

Visminda filed a Motion for Issuance of a Writ of Execution19 before the RTC on 14 January 2002. The RTC granted Visminda’s Motion in a Resolution dated 21 February 2002, and issued the Writ of Execution20 on 7 March 2002.

Tuatis thereafter filed before the RTC on 22 April 2002 a Motion to Exercise Right under Article 448 of the Civil Code of the Philippines.21 Tuatis moved that the RTC issue an order allowing her to buy the subject property from Visminda. While Tuatis indeed had the obligation to pay the price of the subject property, she opined that such should not be imposed if the value of the said property was considerably more than the value of the building constructed thereon by Tuatis. Tuatis alleged that the building she constructed was valued at P502,073.00,22 but the market value of the entire piece of land measuring 4.0144 hectares, of which the subject property measuring 300 square meters formed a part, was only about P27,000.00.23 Tuatis maintained that she then had the right to choose between being indemnified for the value of her residential building or buying from Visminda the parcel of land subject of the case. Tuatis stated that she was opting to exercise the second option.

On 20 December 2004, Visminda deposited the amount of P4,000.00 to the office of the Clerk of Court of the RTC, pursuant to the Decision of the trial court dated 29 April 1999.24

In the intervening time, the Writ of Execution issued on 7 March 2002 was yet to be served or implemented by the Sheriff. This prompted Visminda to write a letter to the Office of the Court Administrator (OCA) to complain about the said delay. The OCA endorsed the letter to the RTC.

On 26 September 2005, the RTC issued an Order25 directing the Sheriff to immediately serve or enforce the Writ of Execution previously issued in Civil Case No. S-618, and to make a report and/or return on the action taken thereon within a period of fifteen (15) days from receipt of the order.

On 10 October 2005, Tuatis filed before the RTC a Motion for Reconsideration26 of the Order dated 26 September 2005, praying that the same be set aside in view of the pendency of her previous Motion to Exercise Right under Article 448 of the Civil Code of the Philippines. However, before the RTC could rule upon Tuatis’ Motion for Reconsideration, the Sheriff enforced the Writ of Execution on 27 October 2005 and submitted his Return to the RTC on 2 November 2005, reporting that the subject writ was fully satisfied.

Tuatis immediately filed with the Court of Appeals a Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction,27 which was docketed as CA-G.R. No. 00737-MIN. Tuatis sought in said Petition the annulment of the RTC Order dated 26 September 2005, as well as the issuance of an order commanding the RTC and the Sheriff to desist from undertaking any further proceedings in Civil Case No. S-618, and an order directing the RTC to determine the rights of the parties under Article 448 of the Civil Code.

In a Resolution28 dated 10 February 2006, the Court of Appeals dismissed outright Tuatis’ Petition for failure to completely pay the required docket fees, to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and to indicate the place of issue of her counsel’s IBP and PTR Official Receipts.

Tuatis filed a Motion for Reconsideration29 of the Resolution dated 10 February 2006, but said Motion was denied by the appellate court in another Resolution dated 25 July 2006 on the ground that Tuatis had not taken any action to rectify the infirmities of her Petition.

Tuatis subsequently filed a Motion for Leave to File a Second Motion for Reconsideration,30 but it was similarly denied by the Court of Appeals in a Resolution dated 9 October 2006, as Section 2, Rule 5231 of the Rules of Court proscribes the filing of a second motion for reconsideration.

Hence, Tuatis filed the instant Petition, principally arguing that Article 448 of the Civil Code must be applied to the situation between her and Visminda.

According to Tuatis, grave abuse of discretion, amounting to lack or excess of their jurisdiction, was committed by the RTC in issuing the Order dated 26 September 2005, and by the Sheriff in enforcing the Writ of Execution on 27 October 2005. Tuatis insists that the Motion for Reconsideration of the Order dated 26 September 2005 that she filed on 10 October 2005 legally prevented the execution of the RTC Decision dated 29 April 1999, since the rights of the parties to the case had yet to be determined pursuant to Article 448 of the Civil Code.32 Tuatis reiterates that the building she constructed is valued at P502,073.00, per assessment of the Municipal Assessor of Sindangan, Zamboanga del Norte; while the entire piece of land, which includes the subject property, has a market value of only about P27,000.00, based on Tax Declaration No. 12464 issued in the year 2000.33 Such being the case, Tuatis posits that she is entitled to buy the land at a price to be determined by the Court or, alternatively, she is willing to sell her house to Visminda in the amount of P502,073.00.

In addition, Tuatis attributes grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the Court of Appeals for dismissing outright her Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction, and subsequently denying her Motion for Reconsideration and Motion for Leave to File a Second Motion for Reconsideration.

The Court grants the present Petition but for reasons other than those proffered by Tuatis.

Procedural deficiencies of Tuatis’ Petition before the Court of Appeals

It is true that Tuatis committed several procedural faux pas that would have, ordinarily, warranted the dismissal of her Petition in CA-G.R. No. 00737-MIN before the Court of Appeals.

In its Resolution dated 10 February 2006, the Court of Appeals dismissed outright the Petition for Certiorari, Prohibition and Mandamus with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction filed by Tuatis for failure to comply with the following requirements for such a petition: (a) to completely pay the required docket fees, (b) to attach a certified true or authenticated copy of the assailed RTC Order dated 26 September 2005, and (c) to indicate the place of issue of her counsel’s IBP and PTR Official Receipts.

Section 3, Rule 46 of the Rules of Court lays down the requirements for original cases filed before the Court of Appeals and the effect of non-compliance therewith, relevant portions of which are reproduced below:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. – x x x.

x x x x

It shall be filed in seven (7) clearly legible copies together with proof of service thereof on the respondent with the original copy intended for the court indicated as such by the petitioner, and shall be accompanied by a clearly legible duplicate original or certified true copy of the judgment, order, resolution, or ruling subject thereof, such material portions of the record as are referred to therein, and other documents relevant or pertinent thereto. The certification shall be accomplished by the proper clerk of court or by his duly authorized representative, or by the proper officer of the court, tribunal, agency or office involved or by his duly authorized representative. The other requisite number of copies of the petition shall be accompanied by clearly legible plain copies of all documents attached to the original.

x x x x

The petitioner shall pay the corresponding docket and other lawful fees to the clerk of court and deposit the amount of P500.00 for costs at the time of the filing of the petition.

The failure of the petitioner to comply with any of the foregoing requirements shall be sufficient ground for the dismissal of the petition. (Emphases ours.)

The sound reason behind the policy of the Court in requiring the attachment to the petition for certiorari, prohibition, mandamus, or quo warranto of a clearly legible duplicate original or certified true copy of the assailed judgment or order, is to ensure that the said copy submitted for review is a faithful reproduction of the original, so that the reviewing court would have a definitive basis in its determination of whether the court, body, or tribunal which rendered the assailed judgment or order committed grave abuse of discretion.34 Also, the Court has consistently held that payment of docket fees within the prescribed period is jurisdictional and is necessary for the perfection of an appeal.35

Indeed, the last paragraph of Section 3, Rule 46 states that non-compliance with any of the requirements stated therein shall constitute sufficient ground for the dismissal of the petition. However, the Court, in several cases,36 also declared that said provision must not be taken to mean that the petition shall be automatically dismissed in every instance of non-compliance. The power conferred upon the Court of Appeals to dismiss an appeal, or even an original action, as in this case, is discretionary and not merely ministerial. With that affirmation comes the caution that such discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the circumstances obtaining in each case.37

It must be borne in mind that the rules of procedure are intended to promote, rather than frustrate, the ends of justice, and while the swift unclogging of court dockets is a laudable objective, it, nevertheless, must not be met at the expense of substantial justice. Technical and procedural rules are intended to help secure, not suppress, the cause of justice; and a deviation from the rigid enforcement of the rules may be allowed to attain that prime objective for, after all, the dispensation of justice is the core reason for the existence of courts.38

Hence, technicalities must be avoided. The law abhors technicalities that impede the cause of justice. The court's primary duty is to render or dispense justice. A litigation is not a game of technicalities. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from courts. Litigations must be decided on their merits and not on technicality. Every party-litigant must be afforded the amplest opportunity for the proper and just determination of his cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override, substantial justice. It is a far better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage, of justice.39

In this case, the Court finds that the Court of Appeals committed grave abuse of discretion in focusing on the procedural deficiencies of Tuatis’ Petition and completely turning a blind eye to the merits of the same. The peculiar circumstances of the present case and the interest of substantial justice justify the setting aside, pro hac vice, of the procedural defects of Tuatis’ Petition in CA-G.R. No. 00737-MIN.

Perusal of the RTC Decision dated 29 April 1999

The RTC, in the body of its Decision dated 29 April 1999 in Civil Case No. S-618, found that Tuatis breached the conditions stipulated in the Deed of Sale by Installment between her and Visminda; but since both Tuatis and Visminda were guilty of bad faith, "[t]heir rights in such cases are governed by Article 448 of the New Civil Code of the Philippines."40

Article 448 of the Civil Code, referred to by the RTC, 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. (Emphases supplied.)

According to the aforequoted provision, the landowner can choose between appropriating the building by paying the proper indemnity for the same, as provided for in Articles 54641 and 54842 of the Civil Code; or obliging the builder to pay the price of the land, unless its value is considerably more than that of the structures, in which case the builder in good faith shall pay reasonable rent.43

The Court notes, however, that the RTC, in the dispositive portion of its 29 April 1999 Decision, which exactly reads –

WHEREFORE, premises studiedly considered, judgment is hereby rendered as follows:

(1) DISMISSING the Complaint for lack of merit;

(2) ORDERING [Tuatis] to return the physical possession of the land in question to [Visminda]; and,

(3) ORDERING [Visminda] to return the P4,000.00 she received as evidenced by Exhibit "B" and Exhibit "C" 44 to [Tuatis].45

utterly failed to make an adjudication on the rights of Tuatis and Visminda under Article 448 of the Civil Code. It would seem that the decretal part of said RTC judgment was limited to implementing the following paragraph in the Deed of Sale by Installment:

4. That failure of the BUYER [Tuatis] to pay the remaining balance within the period of three months from the period stipulated above, then the BUYER [Tuatis] shall return the land subject of this contract to the SELLER [Visminda] and the SELLER [Visminda] [shall] likewise return all the amount paid by the BUYER [Tuatis].46

without considering the effects of Article 448 of the Civil Code.

It was this apparent incompleteness of the fallo of the RTC Decision dated 29 April 1999 that resulted in the present controversy, and that this Court is compelled to address for a just and complete settlement of the rights of the parties herein.

Finality of the RTC Decision dated 19 April 1999

The Court has not lost sight of the fact that the RTC Decision dated 29 April 1999 in Civil Case No. S-618 already became final and executory in view of the dismissal by the appellate court of Tuatis’ appeal in CA-G.R. CV No. 650307 and the entry of judgment made on 29 September 2000.

Nothing is more settled in law than that when a final judgment is executory, it thereby becomes immutable and unalterable. The judgment may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modification is attempted to be made by the court rendering it or by the highest Court of the land. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time. The only recognized exceptions are the corrections of clerical errors or the making of the so-called nunc pro tunc entries, in which case there is no prejudice to any party, and, of course, where the judgment is void.47

Equally well-settled is the rule that the operative part in every decision is the dispositive portion or the fallo, and where there is conflict between the fallo and the body of the decision, the fallo controls. This rule rests on the theory that the fallo is the final order, while the opinion in the body is merely a statement, ordering nothing.48

Jurisprudence also provides, however, that where there is an ambiguity caused by an omission or a mistake in the dispositive portion of the decision, the Court may clarify such an ambiguity by an amendment even after the judgment has become final. In doing so, the Court may resort to the pleadings filed by the parties and the findings of fact and the conclusions of law expressed in the text or body of the decision.49 Therefore, even after the RTC Decision dated 29 April 1999 had already become final and executory, this Court cannot be precluded from making the necessary amendment thereof, so that the fallo will conform to the body of the said decision.

If the Court does not act upon the instant Petition, Tuatis loses ownership over the building she constructed, and in which she has been residing, allegedly worth P502,073.00, without any recompense therefor whatsoever; while Visminda, by returning Tuatis’ previous payments totaling P4,000.00, not just recovers the subject property, but gains the entire building without paying indemnity for the same. Hence, the decision of the Court to give due course to the Petition at bar, despite the finality of the RTC Decision dated 29 April 1999, should not be viewed as a denigration of the doctrine of immutability of final judgments, but a recognition of the equally sacrosanct doctrine that a person should not be allowed to profit or enrich himself inequitably at another's expense.

Furthermore, the Court emphasizes that it is not even changing or reversing any of the findings of fact and law of the RTC in its Decision dated 29 April 1999. This Court is still bound by said RTC judgment insofar as it found that Tuatis failed to fully pay for the price of the subject property; but since both Tuatis and Visminda were in bad faith, Article 448 of the Civil Code would govern their rights. The Court herein is simply clarifying or completing the obviously deficient decretal portion of the decision, so that said portion could effectively order the implementation of the actual ruling of the RTC, as clearly laid down in the rationale of the same decision.

Applying Article 448 and other related provisions of the Civil Code

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

Under the first option, Visminda may appropriate for herself the building on the subject property after indemnifying Tuatis for the necessary50 and useful expenses51 the latter incurred for said building, as provided in Article 546 of the Civil Code.

It is worthy to mention that in Pecson v. Court of Appeals,52 the Court pronounced that the amount to be refunded to the builder under Article 546 of the Civil Code should be the current market value of the improvement, thus:

The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila [40 Phil. 717 (1920)] that the said provision was formulated in trying to adjust the rights of the owner and possessor in good faith of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly 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. (Emphasis ours.)

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

Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the present or current fair value of the land.53 The P10,000.00 price of the subject property, as stated in the Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the price of the land in the exercise of Visminda’s rights under Article 448 of the Civil Code, and not under the said Deed. Tuatis’ obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under Article 448 of the Civil Code.1avvphi1

Still under the second option, if the present or current value of the land, the subject property herein, turns out to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment in Civil Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda will choose. Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay Tuatis; or (b) under the second option, the value of the subject property vis-à-vis that of the building, and depending thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda.

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

The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive.54 The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.55

The raison d’etre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.56

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

As a final note, the directives given by the Court to the trial court in Depra v. Dumlao57 may prove useful as guidelines to the RTC herein in ensuring that the additional proceedings for the final settlement of the rights of the parties under Article 448 of the Civil Code shall be conducted as thoroughly and promptly as possible.

WHEREFORE, premises considered, the Court:

(1) GRANTS the instant Petition;

(2) ANNULS AND SETS ASIDE (a) the Resolution dated 21 February 2002 of the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, ordering the issuance of a writ for the execution of the Decision dated 19 April 1999 of the said trial court in Civil Case No. S-618; (b) the Writ of Execution issued on 7 March 2002; and (c) the actions undertaken by the Sheriff to enforce the said Writ of Execution;

(3) DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to conduct further proceedings to determine with deliberate dispatch: (a) the facts essential to the proper application of Article 448 of the Civil Code, and (b) respondent Visminda Escol’s choice of option under the same provision; and

(4) Further DIRECTS the Regional Trial Court of Sindangan, Zamboanga del Norte, Branch 11, to undertake the implementation of respondent Visminda Escol’s choice of option under Article 448 of the Civil Code, as soon as possible.

No costs.

SO ORDERED.

G.R. No. 157044 October 5, 2005

RODOLFO V. ROSALES, (represented by his heirs, Rodolfo, Jr., Romeo Allan, Lillian Rhodora, Roy Victor, Roger Lyle and Alexander Nicolai, all surnamed Rosales) and LILY ROSQUETA-ROSALES, Petitioners vs.MIGUEL CASTELLTORT, JUDITH CASTELLTORT, and LINA LOPEZ-VILLEGAS, assisted by her Attorney-in-Fact, Rene Villegas, Respondents.

D E C I S I O N

CARPIO MORALES, J.:

The present petition for review on certiorari assails the October 2, 2002 Decision1 and February 6, 2003 Resolution2 of the Court of Appeals (CA) in CA G.R. CV No. 64046 and seeks to reinstate the April 21, 1999 Decision3 of the Regional Trial Court (RTC) of Calamba, Laguna, Branch 34 in Civil Case No. 2229-95-C.

Spouses-petitioners Rodolfo V. Rosales and Lily Rosqueta-Rosales (petitioners) are the registered owners of a parcel of land with an area of approximately 315 square meters, covered by Transfer Certificate of Title (TCT) No. 368564 and designated as Lot 17, Block 1 of Subdivision Plan LRC Psd-55244 situated in Los Baños, Laguna.

On August 16, 1995, petitioners discovered that a house was being constructed on their lot, without their knowledge and consent, by respondent Miguel Castelltort (Castelltort).5

It turned out that respondents Castelltort and his wife Judith had purchased a lot, Lot 16 of the same Subdivision Plan, from respondent Lina Lopez-Villegas (Lina) through her son-attorney-in-fact Rene Villegas (Villegas) but that after a survey thereof by geodetic engineer Augusto Rivera, he pointed to Lot 17 as the Lot 16 the Castelltorts purchased.

Negotiations for the settlement of the case thus began, with Villegas offering a larger lot near petitioners’ lot in the same subdivision as a replacement thereof.6 In the alternative, Villegas proposed to pay the purchase price of petitioners’ lot with legal interest.7 Both proposals were, however, rejected by petitioners8 whose counsel, by letter9 of August 24, 1995, directed Castelltort to stop the construction of and demolish his house and any other structure he may have built thereon, and desist from entering the lot.

Petitioners subsequently filed on September 1, 1995 a complaint10 for recovery of possession and damages with prayer for the issuance of a restraining order and preliminary injunction against spouses-respondents Miguel and Judith Castelltort before the RTC of Calamba, Laguna, docketed as Civil Case No. 2229-95-C.

To the complaint, the Castelltorts claimed in their Answer with Counterclaim11 that they were builders in good faith.

Lina, represented by her son-attorney-in-fact Villegas, soon filed a Motion for Intervention12 before the RTC which was granted by Order13 of December 19, 1995.

In her Answer to the complaint,14 Lina alleged that the Castelltorts acted in good faith in constructing the house on petitioners’ lot as they in fact consulted her before commencing any construction thereon, they having relied on the technical description of the lot sold to them, Lot 16, which was verified by her officially designated geodetic engineer.

Nevertheless, Lina proposed to give petitioners a lot containing an area of 536 square meters together with the house and duplex structure built thereon or, if petitioners choose, to encumber the 536 square meter lot as collateral "to get immediate cash" through a financing scheme in order to compensate them for the lot in question.15

Ruling out good faith, the RTC, by Decision of April 21, 1999, found for petitioners in this wise:

In the instant case, there is no well-founded belief of ownership by the defendants of the land upon which they built their house. The title or mode of acquisition upon which they based their belief of such ownership stemmed from a Contract to Sell (Exhibit "P") of which they were not even parties, the designated buyer being Elizabeth Yson Cruz and the sale even subjected to the judicial reconstitution of the title. And by their own actions, particularly defendant Miguel Castelltort, defendants betrayed this very belief in their ownership when realizing the inutility of anchoring their ownership on the basis of the Contract of Sale, defendant Miguel Castelltort in his testimony declared Elizabeth Yson Cruz as his wife (tsn, pp. 7-8, March 24, 1998) despite an admission in their answer that they are the spouses named as defendants (tsn, p. 8, January 12, 1998) and which declaration is an utter falsehood as the Contract to Sell itself indicates the civil status of said Elizabeth Yson Cruz to be single.

Even if we are to concede that defendants built their house in good faith on account of the representation of attorney-in-fact Rene Villegas, their failure to comply with the requirements of the National Building Code, particularly the procurement of a building permit, stained such good faith and belief.

x x x

From any and all indications, this deliberate breach is an unmitigated manifestation of bad faith. And from the evidence thus adduced, we hold that defendants and the intervenor were equally guilty of negligence which led to the construction of the defendants’ house on plaintiffs’ property and therefore jointly and severally liable for all the damages suffered by the plaintiffs.16 (Underscoring supplied)

The dispositive portion of the trial court’s Decision reads, quoted verbatim:

ACCORDINGLY, in view of all the foregoing, judgment is hereby rendered in favor of plaintiffs and against the defendants, ordering the latter to surrender the possession of the property covered by TCT No. 36856 of the Register of Deeds of Laguna including any and all improvements built thereon to the plaintiffs.

Defendants and intervenors are likewise jointly and severally directed to pay to plaintiffs the following damages:

a) TWO THOUSAND (P2,000.00) PESOS per month from February 1995 by way of reasonable compensation for the use of plaintiffs’ property until the surrender of the same;

b) FIFTY THOUSAND (P50,000.00) PESOS by way of moral damages;

c) THIRTY THOUSAND (P30,000.00) PESOS as exemplary damages;

d) TWENTY THOUSAND (P20,000.00) PESOS as attorney’s fees and cost of suit.

The counterclaim interposed by the defendants in their responsive pleading is hereby dismissed for lack of merit.

SO ORDERED.17

Respondents thereupon filed their respective appeals with the CA.

Petitioner Rodolfo Rosales, in the meantime, died on December 7, 2001. His heirs Rodolfo, Jr., Romeo Allan, Lillian Rhodora, Roy Victor, Roger Lyle and Alexander Nicolai, all surnamed Rosales, filed their Appearance18 as his substitute.

By Decision of October 2, 2002, the CA granted the appeal and set aside the April 21, 1999 RTC Decision. The dispositive portion of the Decision reads, quoted verbatim:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED and the assailed decision of the court a quo REVERSED AND SET ASIDE. In accordance with the cases of Technogas Philippines Manufacturing Corp. vs. Court of Appeals and Depra vs. Dumlao, applying Article 448 of the Civil Code, this case is REMANDED to the Regional Trial Court of Calamba, Laguna, Branch 34, for further proceedings, as follows:

1. to determine the present fair price of appellees’ 315 square meter area of land and the amount of the expenses actually spent by the appellants for building the house as of 21 August 1995, which is the time they were notified of appellees’ rightful claim over Lot 17.

2. to order the appellees to exercise their option under the law (Article 448, Civil Code), whether to appropriate the house as their own by paying to the appellants the amount of the expenses spent for the house as determined by the court a quo in accordance with the limitations as aforestated or to oblige the appellants to pay the price of the land.

In case the appellees exercise the option to oblige the appellants to pay the price of the land but the latter reject such purchase because, as found by the court, the value of the land is considerably more than that of the house, the court shall order the parties to agree upon the terms of a forced lease, and give the court a quo a formal written notice of such agreement and its provisos. If no agreement is reached by the parties, the court a quo shall then fix the terms of the forced lease, provided that the monthly rental to be fixed by the Court shall not be less that Two Thousand Pesos (P2,000.00) per month, payable within the first five (5) days of each calendar month and the period thereof shall not be more than two (2) years, counted from the finality of the judgment.

Upon the expiration of the forced lease, or upon default by the appellants in the payment of rentals for two (2) consecutive months, the appellees shall be entitled to terminate the forced lease, to recover their land, and to have the improvement removed by the appellants at the latter’s expense. The rentals herein provided shall be tendered by the appellants to the court for payment to the appellees, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the court.

In any event, the appellants shall pay the appellees the amount of Two Thousand Pesos (P2,000.00) as reasonable compensation for their occupancy of the encroached property from the time said appellants’ good faith cease (sic) to exist until such time the possession of the property is delivered to the appellees subject to the reimbursement of the aforesaid expenses in favor of the appellants or until such time the payment of the purchase price of the said lot be made by the appellants in favor of the appellees in case the latter opt for the compulsory sale of the same.

SO ORDERED.19 (Emphasis in the original)

In reversing the trial court, the CA held:

x x x

x x x A perusal of the records readily reveals that said court instead relied on flimsy, if not immaterial, allegations of the appellees, which have no direct bearing in the determination of whether the appellants are builders in bad faith.

For one, the pivotal issue to be resolved in this case, i.e. whether appellant Miguel is a builder in good faith, was ignored by the court a quo. The instant case does not in any way concern the personal and property relations of spouses-appellants and Elizabeth Yson Cruz which is an altogether different matter that can be ventilated by the concerned parties through the institution of a proper action. xxx The court a quo should have focused on the issue of whether appellant Miguel built, in good faith, the subject house without notice of the adverse claim of the appellees and under the honest belief that the lot which he used in the construction belongs to him. xxx

xxx As it is, appellant Miguel relied on the title which the intervenor showed to him which, significantly, has no annotation that would otherwise show a prior adverse claim. Thus, as far as appellant Miguel is concerned, his title over the subject lot, as well as the title of the intervenor thereto, is clean and untainted by an adverse claim or other irregularities.

For another, the appellants’ failure to secure a building permit from the Municipal Engineer’s Office on their construction on Lot 17 does not impinge on the good faith of the appellants. In fact, it can be told that a building permit was actually filed by appellant Miguel with respect to Lot 16 and it was only due to the confusion and misapprehension by the intervenor of the exact parameters of the property which caused appellant’s belief that Lot 17 [the questioned lot], is his. This fact bolsters appellant Miguel’s good faith in building his house on appellees’ lot under the mistaken belief that the same is his property. Otherwise, he should have secured a building permit on Lot 17 instead or should not have bothered to take the necessary measures to obtain a building permit on Lot 16 in the first place.

By and large, the records show that, as testified to by Engr. Rebecca T. Lanuang, appellant Miguel had already applied for a building permit as early as February 1994 and was in fact issued a temporary building permit pending the completion of the requirements for said permit. Although the building permit was belatedly issued in January 1996, this does not in any way detract from appellant Miguel’s good faith.

x x x

In holding the appellants as builders in bad faith, the court a quo defied law and settled jurisprudence considering that the factual basis of its findings and the incontrovertible evidence in support thereof prove that the appellant Miguel, in good faith, built the house on appellees’ land without knowledge of an adverse claim or any other irregularities that might cast a doubt as to the veracity of the assurance given to him by the intervenor. Having been assured by the intervenor that the stone monuments were purposely placed, albeit wrongfully, by the land surveyor in said land to specifically identify the lot and its inclusive boundaries, the appellants cannot be faulted for having relied on the expertise of the land surveyor who is more equipped and experienced in the field of land surveying. Although under the Torrens system of land registration, the appellant is presumed to have knowledge of the metes and bounds of the property with which he is dealing, appellant however, considering that he is a layman not versed in the technical description of his property, cannot be faulted in his reliance on the survey plan that was delivered to him by the intervenor and the stone monuments that were placed in the encroached property.

x x x

Peremptorily, contrary to the flawed pronouncements made by the court a quo that appellant Miguel is deemed as a builder in bad faith on the basis of a mere assertion that he built his house without initially satisfying himself that he owns the said property, this Court finds reason to maintain good faith on the part of the appellant. Admittedly, the appellants’ house

erroneously encroached on the property of the appellees due to a mistake in the placement of stone monuments as indicated in the survey plan, which error is directly attributable to the fault of the geodetic engineer who conducted the same. This fact alone negates bad faith on the part of appellant Miguel.

x x x

Moreover, it is quite illogical for appellant Miguel to knowingly build his house on a property which he knew belongs to another person. x x x

x x x

In view of the good faith of both parties in this case, their rights and obligations are to be governed by Article 448, which has been applied to improvements or portions of improvements built by mistaken belief on land belonging to the adjoining owner. x x x

x x x20 (Emphasis and underscoring supplied)

Petitioners’ Motion for Reconsideration21 dated October 22, 2002 having been denied by the CA by Resolution of March 13, 2002, the present petition was filed raising the following issues:

I.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION IN MAKING A FINDING THAT IS CONTRARY TO THE ADMISSIONS BY THE PARTIES

II.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR OF LAW IN CONCLUDING THAT THE TRIAL COURT, IN DECIDING THE CASE, RELIED ON FLIMSY, IF NOT IMMATERIAL, ALLEGATIONS OF THE PETITIONERS, WHICH HAVE NO DIRECT BEARING IN THE DETERMINATION OF WHETHER THE RESPONDENTS ARE BUILDERS IN GOOD FAITH

III.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR OF LAW IN RENDERING A DECISION THAT IS UNENFORCEABLE AGAINST BOTH RESPONDENT JUDITH CASTELLTORT AND THIRD-PARTY ELIZABETH CRUZ22

Petitioners initially hammer against respondents’ proving that Castelltort and a certain Elizabeth Cruz are the builders of the house on the subject property, they faulting them with estoppel for alleging in their Answer before the trial court that "they (respondents Castelltort and Judith) caused the construction of their house which they bought from a certain Lina Lopez-Villegas."

Petitioners rely on the following doctrine established in Elayda v. Court of Appeals:23

"an admission made in the pleadings cannot be controverted by the party making such admission and are conclusive as to him and that all proofs submitted by him contrary thereto or inconsistent therewith, should be ignored, whether objection is interposed by the party or not x x x"

Petitioners’ contention is hardly relevant to the case at bar. Whether it was Castelltort and Judith or Castelltort and Elizabeth Cruz who purchased the property from Lina is not material to the outcome of the instant controversy. As found by the CA:

The fact remains that appellant [Castelltort] is the builder of the house on Lot 17 xxx The court a quo should have focused on the issue of whether appellant Miguel built, in good faith, the subject house without notice of the adverse claim of the appellees and under the honest belief that the lot which he used in the construction belongs to him. xxx it cannot be gainsaid that appellant Miguel has a title over the land that was purchased from the intervenor x x x24

At all events, as this Court held in the case of Gardner v. Court of Appeals:25

In its Resolution reversing the original Decision, respondent Court discredited the testimony of Ariosto SANTOS for being at variance with the allegations in his Answer. The fact, however, that the allegations made by Ariosto SANTOS in his pleadings and in his declarations in open Court differed will not militate against the findings herein made nor support the reversal by respondent Court. As a general rule, facts alleged in a party’s pleading are deemed admissions of that party and binding upon it, but this is not an absolute and inflexible rule. An Answer is a mere statement of fact which the party filing it expects to prove, but it is not evidence. As Ariosto SANTOS himself, in open Court, had repudiated the defenses he had raised in his Answer and against his own interest, his testimony is deserving of weight and credence.26 (Underscoring supplied)

The issue determinative of the controversy in the case at bar hinges on whether Castelltort is a builder in good faith.

A builder in good faith is one who builds with the belief that the land he is building on is his, or that by some title one has the right to build thereon, and is ignorant of any defect or flaw in his title.27

Article 527 of the Civil Code provides that good faith is always presumed, and upon him who alleges bad faith on the part of a possessor rests the burden of proof.28

In the case at bar, Lot 16 was sold by Lina, through her attorney-in-fact Villegas, to Castelltort and a certain Elizabeth Cruz29

for a consideration of P500,000.00. While prior to the sale, what Villegas showed Castelltort as evidence of his mother Lina’s ownership of the property was only a photocopy of her title TCT No. (T-42171) T-1855030 he explaining that the

owner’s duplicate of the title was lost and that judicial reconstitution thereof was ongoing, Castelltort acted in the manner of a prudent man and went to the Registry of Deeds of Laguna to procure a certified true copy of the TCT.31 The certified true copy bore no annotation indicating any prior adverse claim on Lot 16.

The records indicate that at the time Castelltort began constructing his house on petitioners’ lot, he believed that it was the Lot 16 he bought and delivered to him by Villegas.

In his cross-examination, Villegas testified:

Q: You said the surveyor placed a mujon along boundary of the property?

A: Yes.

Q: When were the mujons placed in the boundary of the property?

A: These mujons were the basis for my locating the property in pointing to Mr. Castelltort.

x x x

Q: Is it not a fact that before Miguel Castelltort started constructing that house he sought your advice or permission to construct the same over that particular lot?

A: Yes.

Q: And you gave your consent?

A: Yes, because based on my knowledge also that that was the lot as pointed by Engr. Rivera .

x x x

Q: Was there any remarkable difference between lot 16 and 17 at the time that this particular lot was sold to Miguel Castelltort and Elizabeth Cruz?

x x x

A: Both lots 16 and 17 are practically the same. The (sic) have the same frontage. There is only a difference of 4 square meters, one is 311 square meters and the other 315 square meters. Both sides were fenced, as drawn they were facing the

same road. They are practically the same.

Q: But at the time or immediately before Mr. Castelltort started the construction of the house, was there any remarkable distinction between these two properties?

A: None.32 (Emphasis and underscoring supplied)

The confusion in the identification of Lot 16 was eventually traced to the error committed by geodetic engineer Augusto Rivera’s employees in placing stone monuments on petitioners’ property, instead of on Lot 16, the lot sold to Castelltort, based on the survey made by the engineer in 1992.

The engineer so testified:

Q: Now, aside from inspecting personally the site, what else did your men or assistants do?

A: After computing the subdivision lots, they went back to the field to plant those subdivision corners with concrete monuments.

Q: Which is (sic) also called as "mohons"?

A: Yes, sir.

Q: Now, can you point to this Honorable Court where exactly did your men place these additional mohons and how many?

A: Later on we discovered that they placed the mohons in the adjoining lot, lot 17.

x x x

Q: x x x when again did you meet Mr. Rene Villegas or after how many months or year?

A: Maybe after a year, sir.

Q: And you met him again because he had a problem regarding the property of one Engr. Rosales?

A: Yes, sir.

Q: And when he confided to you this matter, did you go to the site of Lot 16 or 17?

A: Yes, sir.

Q: And what did you see there?

A: A house being constructed then I rechecked the location of the house and it turned out to be in Lot 17.

x x x

Q: Considering that you found out that a mistake was actually made by your assistants Dennis Orencio, Mario Carpio and Sovejano when you allowed them to proceed on their own to make this computation, did you confront these men of yours

afterwards?

A: Yes, sir.

Q: In what manner?

A: I actually reprimanded them verbally and also I dismissed Mario Carpio from my office.

x x x

Q: And did you investigate how your men committed this mistake of planting these monuments on another lot when corners 4 & 1 were clearly planted on the ground?

A: I myself rechecked it and found out that they committed an error.

x x x

Q: And now, you are saying that your men committed a mistake by placing thereon monuments by planting these monuments not on Lot 16 but on Lot 17?

A: When I investigated how did they commit (sic) a mistake it came to be like this. Before when we surveyed first this in 1992, at that time Dante Villegas contracted my services there was a fence here then when we went back, the road was already removed so they committed an error that this point is Lot 19, they thought that it was Lot 19, the back portion.

x x x

Q: In this particular case, did you find out how your men checked the succeeding lots, how they determine (sic) the exact location of lot 16?

A: They just relied on one side of the subdivision.

Q: By just counting the number of lots?

A: Yes, sir.

Q: Without making any actual measurement?

A: They made an actual measurement but the reference point is not the one, the correct one because they also checked it with the other corner of the road going back.

x x x

Q: And how did they commit a mistake when you said they checked the lot at the back of Lot 16?

A: Because they were quite confident since we had already relocated the property two years ago so they thought that they get (sic) the right lot without checking the other side of the subdivision.

x x x

Q: Now, you said that when you went to the place because you heard from Rene Villegas that there was a mistake you no longer could find the monuments on lines 1 and 4 and according to you the reason is that a fence was already constructed?

A: Yes, sir.

Q: For clarification, is this line 1 & 4 on Lot 16 a common line 1 &4 on Lot 17?

A: Yes, sir a common line.

Q: In other words, this line 1 &4 devides (sic) Lot 16 & 17?

A: Yes, sir.

Q: So that when these monuments were placed on lines 1 & 4 somebody could mistake it for Lot 17 also because there were monuments now 1 &4 for lot 16 since these are common lines for

Lot 17 also with Lot 16, it could also be construed that these are monuments for Lot 17?

A: Yes, sir possible.33 (Underscoring supplied)

As correctly found by the CA, both parties having acted in good faith at least until August 21, 1995, the applicable provision in this case is Article 448 of the Civil Code which reads:

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.

Under the foregoing provision, the landowner can choose between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land, unless its value is considerably more than that of the structures, in which case the builder in good faith shall pay reasonable rent.34 If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof.

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. Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive.35 The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land.36

The raison d’etre for this provision has been enunciated thus:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing.37

Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully.38 The good faith ceases or is legally interrupted from the moment defects in the title are made known to the possessor, by extraneous evidence or by suit for recovery of the property by the true owner.39

In the case at bar, Castelltort’s good faith ceased on August 21, 1995 when petitioners personally apprised him of their title over the questioned lot. As held by the CA, should petitioners then opt to appropriate the house, they should only be made to pay for that part of

the improvement built by Castelltort on the questioned property at the time good faith still existed on his part or until August 21, 1995.

The CA, however, failed to qualify that said part of the improvement should be pegged at its current fair market value consistent with this Court’s pronouncement in Pecson v. Court of Appeals.40

And, as correctly found by the CA, the commencement of Castelltort’s payment of reasonable rent should start on August 21, 1995 as well, to be paid until such time that the possession of the property is delivered to petitioners, subject to the reimbursement of expenses, that is, if such option is for petitioners to appropriate the house.

This Court quotes the CA’s ratiocination with approval:

x x x Generally, Article 448 of the Civil Code provides that the payment of reasonable rent should be made only up to the date appellees serve notice of their option as provided by law upon the appellants and the court a quo; that is, if such option is for appellees to appropriate the encroaching structure. In such event, appellants would have a right to retain the land on which they have built in good faith until they are reimbursed the expenses incurred by them. 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.

However, considering that appellants had ceased as builders in good faith at the time that appellant Miguel was notified of appellees’ lawful title over the disputed property, the payment of reasonable rent should accordingly commence at that time since he can no longer avail of the rights provided under the law for builders in good faith.41

If the option chosen by petitioners is compulsory sale, however, the payment of rent should continue up to the actual transfer of ownership.42

Respecting petitioners’ argument that the appellate court erred in rendering a decision that is "unenforceable against Judith who is not the owner of the house and Elizabeth Cruz who was found to be a part owner of the house built on their lot but is not a party to the case," the same does not lie.

While one who is not a party to a proceeding shall not be affected or bound43 by a judgment rendered therein,44 like Elizabeth Cruz, this does not detract from the validity and enforceability of the judgment on petitioners and respondents Castelltorts.

WHEREFORE, the petition is DENIED. The Decision dated October 2, 2002 and Resolution dated February 6, 2003 of the Court of Appeals are AFFIRMED with MODIFICATION such that the trial court shall include for determination the increase in value ("plus value") which petitioners’ 315 square meter lot may have acquired by reason of the existence of that portion of the house built before respondents Miguel and Judith Castelltort were notified of petitioners’ rightful claim on said lot, and the current fair market value of said portion.

SO ORDERED.

G.R. No. 134329           January 19, 2000

VERONA PADA-KILARIO and RICARDO KILARIO, petitioners, vs.COURT OF APPEALS and SILVERIO PADA, respondents.

DE LEON, JR., J.:

The victory1 of petitioner spouses Ricardo and Verona Kilario in the Municipal Circuit Trial Court2 in an ejectment suit3 filed against them by private respondent Silverio Pada, was foiled by its reversal4 by the Regional Trial Court5 on appeal. They elevated their cause6 to respondent Court of Appeals7 which, however, promulgated a Decision8 on May 20, 1998, affirming the Decision of the Regional Trial Court.

The following facts are undisputed:

One Jacinto Pada had six (6) children, namely, Marciano, Ananias, Amador, Higino, Valentina and Ruperta. He died intestate. His estate included a parcel of land of residential and coconut land located at Poblacion, Matalom, Leyte, denominated as Cadastral Lot No. 5581 with an area of 1,301.92 square meters. It is the northern portion of Cadastral Lot No. 5581 which is the subject of the instant controversy.

During the lifetime of Jacinto Pada, his half-brother, Feliciano Pada, obtained permission from him to build a house on the northern portion of Cadastral Lot No. 5581. When Feliciano died, his son, Pastor, continued living in the house together with his eight children. Petitioner Verona Pada-Kilario, one of Pastor's children, has been living in that house since 1960.

Sometime in May, 1951, the heirs of Jacinto Pada entered into an extra-judicial partition of his estate. For this purpose, they executed a private document which they, however, never registered in the Office of the Registrar of Deeds of Leyte.

At the execution of the extra-judicial partition, Ananias was himself present while his other brothers were represented by their children. Their sisters, Valentina and Ruperta, both died without any issue. Marciano was represented by his daughter, Maria; Amador was represented by his daughter, Concordia; and Higina was represented by his son, Silverio who is the private respondent in this case. It was to both Ananias and Marciano, represented by his daughter, Maria, that Cadastral Lot No. 5581 was allocated during the said partition. When Ananias died, his daughter, Juanita, succeeded to his right as co-owner of said property.

On June 14, 1978, Juanita Pada sold to Engr. Ernesto Paderes, the right of his father, Ananias, as co-owner of Cadastral Lot No. 5881.

On November 17, 1993, it was the turn of Maria Pada to sell the co-ownership right of his father, Marciano. Private respondent, who is the first cousin of Maria, was the buyer.

Thereafter, private respondent demanded that petitioner spouses vacate the northern portion of Cadastral Lot No. 5581 so his family can utilize the said area. They went through a series of meetings with the barangay officials concerned for the purpose of amicable settlement, but all earnest efforts toward that end, failed.

On June 26, 1995, private respondent filed in the Municipal Circuit Trial Court of Matalom, Leyte, a complaint for ejectment with prayer for damages against petitioner spouses.

On July 24, 1995, the heirs of Amador Pada, namely, Esperanza Pada-Pavo, Concordia Pada-Bartolome, and Angelito Pada, executed a Deed of Donation9 transferring to petitioner Verona Pada-Kilario, their respective shares as co-owners of Cadastral Lot No. 5581.

On February 12, 1996, petitioner spouses filed their Answer averring that the northern portion of Cadastral Lot No. 5581 had already been donated to them by the heirs of Amador Pada. They contended that the extra-judicial partition of the estate of Jacinto Pada executed in 1951 was invalid and ineffectual since no special power of attorney was executed by either Marciano, Amador or Higino in favor of their respective children who represented them in the extra-judicial partition. Moreover, it was effectuated only through a private document that was never registered in the office of the Registrar of Deeds of Leyte.

The Municipal Circuit Trial Court rendered judgment in favor of petitioner spouses. It made the following findings:

After a careful study of the evidence submitted by both parties, the court finds that the evidence adduced by plaintiff failed to establish his ownership over . . . Cadastral Lot No. 5581 . . . while defendants has [sic] successfully proved by preponderance of evidence that said property is still under a community of ownership among the heirs of the late Jacinto Pada who died intestate. If there was some truth that Marciano Pada and Ananias Pada has [sic] been adjudicated jointly of [sic] the above-described residential property . . . as their share of the inheritance on the basis of the alleged extra judicial settlement, how come that since 1951, the date of partition, the share of the late Marciano Pada was not transferred in the name of his heirs, one of them Maria Pada-Pavo and still remain [sic] in the name of Jacinto Pada up to the present while the part pertaining to the share of Ananias Pada was easily transferred in the name of his heirs . . ..

The alleged extra judicial settlement was made in private writing and the genuineness and due execution of said document was assailed as doubtful and it appears that most of the heirs were not participants and signatories of said settlement, and there was lack of special power of attorney to [sic] those who claimed to have represented their co-heirs in the participation [sic] and signing of the said extra judicial statement.

Defendants were already occupying the northern portion of the above-described property long before the sale of said property on November 17, 1993 was executed between Maria Pada-Pavo, as vendor and the plaintiff, as

vendee. They are in possession of said portion of the above-described property since the year 1960 with the consent of some of the heirs of Jacinto Pada and up to the [sic] present some of the heirs of Jacinto Pada has [sic] donated . . . their share of [sic] the above-described property to them, virtually converting defendants' standing as co-owners of the land under controversy. Thus, defendants as co-owners became the undivided owners of the whole estate . . . . As co-owners of . . . Cadastral Lot No. 5581 . . . their possession in the northern portion is being [sic] lawful.10

From the foregoing decision, private respondent appealed to the Regional Trial Court. On November 6, 1997, it rendered a judgment of reversal. It held:

. . . [T]he said conveyances executed by Juanita Pada and Maria Pada Pavo were never questioned or assailed by their co-heirs for more than 40 years, thereby lending credence on [sic] the fact that the two vendors were indeed legal and lawful owners of properties ceded or sold. . . . At any rate, granting that the co-heirs of Juanita Pada and Maria Pada Pavo have some interests on the very lot assigned to Marciano and Ananias, nevertheless, said interests had long been sadly lost by prescription, if not laches or estoppel.

It is true that an action for partition does not prescribe, as a general rule, but this doctrine of imprescriptibility cannot be invoked when one of the heirs possessed the property as an owner and for a period sufficient to acquire it by prescription because from the moment one of the co-heirs claim [sic] that he is the absolute owner and denies the rest their share of the community property, the question then involved is no longer one for partition but of ownership. . . . Since [sic] 1951 up to 1993 covers a period of 42 long years. Clearly, whatever right some of the co-heirs may have, was long extinguished by laches, estoppel or prescription.

x x x           x x x           x x x

. . . [T]he deed of donation executed by the Heirs of Amador Pada, a brother of Marciano Pada, took place only during the inception of the case or after the lapse of more than 40 years reckoned from the time the extrajudicial partition was made in 1951. Therefore, said donation is illegal and invalid [sic] the donors, among others, were absolutely bereft of any right in donating the very property in question.11

The dispositive portion of the decision of the Regional Trial Court reads as follows:

WHEREFORE, a judgment is hereby rendered, reversing the judgment earlier promulgated by the Municipal Circuit Trial Court of Matalom, Leyte, [sic] consequently, defendants-appellees are hereby ordered:

1. To vacate the premises in issue and return peaceful possession to the appellant, being the lawful possessor in concept of owner;

2. To remove their house at their expense unless appellant exercises the option of acquiring the same, in which case the pertinent provisions of the New Civil Code has to be applied;

3. Ordering the defendants-appellees to pay monthly rental for their occupancy and use of the portion of the land in question in the sum of P100.00 commencing on June 26, 1995 when the case was filed and until the termination of the present case;

4. Ordering the defendants to pay to the appellant the sum of P5,000.00 as moral damages and the further sum of P5,000.00 as attorney's fees;

5. Taxing defendants to pay the costs of suit.12

Petitioners filed in the Court of Appeals a petition for review of the foregoing decision of the Regional Trial Court.

On May 20, 1998, respondent Court of Appeals rendered judgment dismissing said petition. It explained:

Well-settled is the rule that in an ejectment suit, the only issue is possession de facto or physical or material possession and not de jure. Hence, even if the question of ownership is raised in the pleadings, the court may pass upon such issue but only to determine the question of possession, specially if the former is inseparably linked with the latter. It cannot dispose with finality the issue of ownership, such issue being inutile in an ejectment suit except to throw light on the question of possession . . . .

Private respondent Silverio Pada anchors his claim to the portion of the land possessed by petitioners on the Deed of Sale executed in his favor by vendor Maria Pada-Pavo, a daughter of Marciano, son of Jacinto Pada who was the registered owner of the subject lot. The right of vendee Maria Pada to sell the property was derived from the extra-judicial partition executed in May 1951 among the heirs of Jacinto Pada, which was written in a Bisayan dialect signed by the heirs, wherein the subject land was adjudicated to Marciano, Maria Pavo's father, and Ananias Pada. Although the authenticity and genuineness of the extra-judicial partition is now being questioned by the heirs of Amador Pada, no action was ever previously filed in court to question the validity of such partition.1âwphi1.nêt

Notably, petitioners in their petition admitted among the antecedent facts that Maria Pavo is one of the co-owners of the property originally owned by Jacinto Pada . . . and that the disputed lot was adjudicated to Marciano (father of Maria Pavo) and Ananias, and upon the death of Marciano and Ananias, their heirs took possession of said lot, i.e. Maria Pavo the vendor for Marciano's share and Juanita for Ananias' share . . . . Moreover, petitioners do not dispute the findings of the respondent court that during the cadastral survey of Matalom, Leyte, the share of Maria Pada Pavo was denominated as Lot No. 5581, while the share of Juanita Pada was denominated as Lot No. 6047, and that both Maria Pada Pavo and Juanita were in possession of their respective hereditary shares. Further, petitioners in their Answer admitted that they have been occupying a portion of Lot No. 5581, now in dispute without paying any rental owing to the liberality of the plaintiff . . . . Petitioners cannot now impugn the aforestated extrajudicial partition executed by the heirs in 1951. As owner and possessor of the disputed property, Maria Pada, and her vendee, private respondent, is entitled to possession. A voluntary division of the estate of the deceased by

the heirs among themselves is conclusive and confers upon said heirs exclusive ownership of the respective portions assigned to them . . ..

The equally belated donation of a portion of the property in dispute made by the heirs of Amador Pada, namely, Concordia, Esperanza and Angelito, in favor of petitioner Verona Pada is a futile attempt to confer upon the latter the status of co-owner, since the donors had no interest nor right to transfer. . . . This gesture appears to be a mere afterthought to help petitioners to prolong their stay in the premises. Furthermore, the respondent court correctly pointed out that the equitable principle of laches and estoppel come into play due to the donors' failure to assert their claims and alleged ownership for more than forty (40) years . . . . Accordingly, private respondent was subrogated to the rights of the vendor over Lot No. 5581 which include [sic] the portion occupied by petitioners.13

Petitioner spouses filed a Motion for Reconsideration of the foregoing decision.

On June 16, 1998, respondent Court of Appeals issued a Resolution denying said motion.

Hence this petition raising the following issues:

I.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONERS, AS CO-OWNERS, CANNOT BE EJECTED FROM THE PREMISES CONSIDERING THAT THE HEIRS OF JACINTO PADA DONATED TO THEM THEIR UNDIVIDED INTEREST IN THE PROPERTY IN DISPUTE.

II.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT MARIA PADA SOLD WAS HER UNDIVIDED SHARE IN THE PROPERTY IN DISPUTE.

III.

WHETHER OR NOT THE PETITIONERS ARE BUILDERS IN GOOD FAITH.14

There is no merit to the instant petition.

First. We hold that the extrajudicial partition of the estate of Jacinto Pada among his heirs made in 1951 is valid, albeit executed in an unregistered private document. No law requires partition among heirs to be in writing and be registered in order to be valid.15 The requirement in Sec. 1, Rule 74 of the Revised Rules of Court that a partition be put in a public document and registered, has for its purpose the protection of creditors and the heirs themselves against tardy claims.16 The object of registration is to serve as constructive notice to others. It follows then that the intrinsic validity of partition not executed with the prescribed formalities is not undermined when no creditors are involved.17 Without creditors to take into consideration, it is competent for the heirs of an estate to enter into an agreement for distribution thereof in a manner and upon a plan different from those provided by the rules from which, in the first place, nothing can be inferred that a writing or other formality is essential for the partition to be valid.18 The partition of inherited property need not be embodied in a public document so as to be effective as regards the heirs that participated therein.19 The requirement of Article 1358 of the Civil Code that acts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property, must appear in a public instrument, is only for convenience, non-compliance with which does not affect the validity or enforceability of the acts of the parties as among themselves.20 And neither does the Statute of Frauds under Article 1403 of the New Civil Code apply because partition among heirs is not legally deemed a conveyance of real property, considering that it involves not a transfer of property from one to the other but rather, a confirmation or ratification of title or right of property that an heir is renouncing in favor of another heir who accepts and receives the inheritance.21 The 1951 extrajudicial partition of Jacinto Pada's estate being legal and effective as among his heirs, Juanita and Maria Pada validly transferred their ownership rights over Cadastral Lot No. 5581 to Engr. Paderes and private respondent, respectively.22

Second. The extrajudicial partition which the heirs of Jacinto Pada executed voluntarily and spontaneously in 1951 has produced a legal status.23 When they discussed and agreed on the division of the estate Jacinto Pada, it is presumed that they did so in furtherance of their mutual interests. As such, their division is conclusive, unless and until it is shown that there were debts existing against the estate which had not been paid.24 No showing, however, has been made of any unpaid charges against the estate of Jacinto Pada. Thus, there is no reason why the heirs should not be bound by their voluntary acts.

The belated act of Concordia, Esperanza and Angelito, who are the heirs of Amador Pada, of donating the subject property to petitioners after forty four (44) years of never having disputed the validity of the 1951 extrajudicial partition that allocated the subject property to Marciano and Ananias, produced no legal effect. In the said partition, what was allocated to Amador Pada was not the subject property which was a parcel of residential land in Sto. Nino, Matalom, Leyte, but rather, one-half of a parcel of coconut land in the interior of Sto. Nino St., Sabang, Matalom, Leyte and one-half of a parcel of rice land in Itum, Sta. Fe, Matalom, Leyte. The donation made by his heirs to petitioners of the subject property, thus, is void for they were not the owners thereof. At any rate it is too late in the day for the heirs of Amador Pada to repudiate the legal effects of the 1951 extrajudicial partition as prescription and laches have equally set in.

Third. Petitioners are estopped from impugning the extrajudicial partition executed by the heirs of Jacinto Pada after explicitly admitting in their Answer that they had been occupying the subject property since 1960 without ever paying any rental as they only relied on the liberality and tolerance of the Pada family.25 Their admissions are evidence of a high order and bind them insofar as the character of their possession of the subject property is concerned.

Considering that petitioners were in possession of the subject property by sheer tolerance of its owners, they knew that their occupation of the premises may be terminated any time. Persons who occupy the land of another at the latter's tolerance or permission, without any contract between them, is necessarily bound by an implied promise that they will vacate the same upon demand, failing in which a summary action for ejectment is the proper remedy against them.26 Thus, they cannot be considered possessors nor builders in good faith. It is well-settled that both Article 44827 and Article 54628 of the New Civil

Code which allow full reimbursement of useful improvements and retention of the premises until reimbursement is made, apply only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof.29 Verily, persons whose occupation of a realty is by sheer tolerance of its owners are not possessors in good faith. Neither did the promise of Concordia, Esperanza and Angelito Pada that they were going to donate the premises to petitioners convert them into builders in good faith for at the time the improvements were built on the premises, such promise was not yet fulfilled, i.e., it was a mere expectancy of ownership that may or may not be realized.30 More importantly, even as that promise was fulfilled, the donation is void for Concordia, Esperanza and Angelito Pada were not the owners of Cadastral Lot No. 5581. As such, petitioners cannot be said to be entitled to the value of the improvements that they built on the said lot.

WHEREFORE, the petition for review is HEREBY DENIED.

Costs against petitioners.

SO ORDERED.

G.R. No. 109840 January 21, 1999

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

 

MENDOZA, J.:

This is a petition for review on certiorari of the decision, 1 dated October 8, 1992 of the Court of Appeals affirming the decision of the Regional Trial Court, Branch 59 of Makati, Metro Manila, ordering the ejectment of petitioners from the premises owned by private respondent.

Petitioners were lessees of a commercial unit at No. 3086 Redemptorist Street in Baclaran, Parañque, Metro Manila. The lease was for a period of five (5) years, from January 1, 1985 to December 31, 1989. The contract expressly provided for the renewal of the lease at the option of the lessees "in accordance with the terms of agreement and conditions set by the lessor." Prior to the expiration of the lease, the parties discussed the possibility of renewing it. They exchanged proposal and counterproposal, but they failed to reach agreement. The dispute was referred to the barangay captain for conciliation but still no settlement was reached by the parties.

On July 24, 1990, private respondent filed a complaint for unlawful detainer against petitioner's in the Metropolitan Trial Court of Parañaque, Metro Manila, which on February 4, 1992 rendered a decision, the dispositive portion of which reads: 2

WHEREFORE, premises considered, judgment is hereby, rendered as follows:

1. The defendants (herein petitioners) are hereby given a period of two (2) years extension of occupancy of the subject premises starting the date of the filling of the instant complaint;

2. The defendants are hereby ordered to pay the plaintiff (herein private respondent) the sum of P188,806.00 representing back rentals as of the year 1991 and a monthly rental of P10,000.00 thereafter until the expiration of the aforesaid extension of their occupancy or until the subject premises is actually vacated.

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

4. Defendants are hereby ordered to pay the cost of suit.

SO ORDERED.

On appeal by both parties, the Regional Trial Court, Branch 59 of Makati ruled that the lease was for a fixed period of five (5) years and that, upon its expiration on January 1, 1990, petitioners' continued stay in the premises became illegal. As provided in Art. 1687 of the Civil Code, the power of the courts to fix the period of lease is limited only to cases where the period has not been fixed by the parties themselves. The dispositive portion of the decision 3 states:

Premises considered, judgment is hereby rendered modifying the appealed decision, as follows:

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

2. Ordering the defendants to pay the plaintiff the following:

a) the amount of P42,306.00 representing accrued or back rentals from January 1, 1987 to December 31, 1989;

b) a monthly rental of P7,320.50 for the use or occupancy of the premises starting January 1, 1990 until July 24, 1990 and at Ten Thousand (P10,000.00) Pesos from July 24, 1990 until the defendants shall have vacated the same;

c) the amount of P10,000.00 representing reasonable attorney's fees:

3. Dismissing defendants' counterclaim for lack of merit; and

4. With costs against the defendants.

Petitioners appealed to the Court of Appeals which affirmed the decision. In its decision, dated October 8, 1992, the Court of Appeals ordered:

WHEREFORE, except for the modification that the monthly rental that petitioners should pay private respondent from July 24, 1990 until the latter finally vacate the premises in question is reduced to P7,320.00, the decision of the respondent court in this case is AFFIRMED in all other respects, with costs against petitioners Jose L. Chua and Ko Sio Eng.

Petitioners' motion for reconsideration was likewise denied. Hence, this petition for review for certiorari. Petitioners assign several errors as having been allegedly committed by the Court of Appeals.

First. Petitioners allege that the Court of Appeals erred in affirming the lower court's finding that they owe private respondent the amount of P42,306.00 as unpaid rentals from January 1, 1987 to December 31, 1989 because neither the letter of demand nor the complaint for unlawful detainer alleged a claim for unpaid rentals. As the Court of Appeals pointed out, however, the issue of arrearages was raised at the pre-trial by private respondent and evidence on this question was presented without objection from petitioners: 5

First of all, while it is true that there was no express demand in private respondent's complaint for unlawful detainer against petitioners for the latters payment of rental arrearages, private respondent in a pleading dated December 17, 1990 filed with the MTC (by way of comment to petitioners' motion to admit amended answer) stated:

That moreover the unpaid rentals from January 1987 to December 31, 1989 amounts to FORTY TWO THOUSAND THREE HUNDRED SIX PESOS (P42,306,00), exclusive of rentals from January 1 to December 31, 1990 which would be one hundred eighty thousand pesos (P180,000.00) or a total of TWO HUNDRED TWENTY TWO THOUSAND THREE HUNDRED SIX PESOS (222,306,00)

(p. 75 Orig. Rec).

Then, at the pre-trial of December 17, 1990, among the issues proposed by counsel for plaintiff (now private respondent) was whether:

3. defendants are in arrears for the rentals from Dec. 31, 1987 to January 1989, in accordance with the contract:

(p. 8, tsn Dec. 17, 1990:

p. 87, id.)

Counsel for defendants (herein petitioners) did not object to the statement of issues made by plaintiffs counsel and instead simply stated as their own main issue whether plaintiff had a valid cause of action for ejectment against them as he is not the sole owner of the leased premises, and then averred that "based on this premise, the other issues raised by plaintiff could be dependent on the resolution of the stated issues" (id., p. 88. Orig. Rec.). Later, at the hearing of February 12, 1990. plaintiff Ramon Ibarra testified that although his lease contract (Exh. "A") with petitioners stipulated an annual ten percent (10%) additional rental starting in 1986 (i.e., the monthly rental in 1986 was P5,500, in 1987, it was P6,050; in 1988, it was P6,655.00; and in 1989, it was P7,320.50), petitioners continued to pay only the original monthly rental of P5,000 stipulated in their contract (Exh. "A"), so that petitioners had incurred total rental arrearages at the end of 1989 of P42,306.00 (pp. 6-8,. tsn, op cit.: pp. 113-115. Orig. Rec.). . . .

Obviously, then, petitioners' rental arrearages from 1986 to 1989 as an issue raised at the pre-trial and on which issue private respondent presented evidence without any objection from petitioners. And considering that the petitioners incurred said rental arrearages because they did not pay private respondent the automatic 10% increase in their monthly rental every year for the years 1986 to 1989 as agreed upon and stipulated in their lease contract (Exh. "A".) which contract is the law between the parties, justice and good faith demand that petitioners should pay said rental arrearages. As correctly ruled by the respondent court, "to absolve the defendants from paying rentals in arrears while they continue occupying and enjoying the premises would be allowing the defendants to enrich themselves at the expense of the plaintiff. (p, 55, Rollo).

Indeed, any objection to the admissibility of evidence should be made at the time such evidence is offered or as soon thereafter as the objection to its admissibility becomes apparent, 6 otherwise the objection will be considered waived and such evidence will form part of the records of the case as competent and admissible evidence. 7 Rule 10, §5 8 of the Rules of Civil Procedure allows the amendment of the pleadings in order to make them conform to the evidence in the record.

Second. Petitioners claim that they are entitled to an estension of time to occupy the premises in question. This, too, is without merit. After the lease terminated on January 1, 1990 and without the parties thereafter reaching any agreement for its renewal, petitioners became deforciants subject to ejectment from the premises. 9

Neither did the Court of Appeals err in ruling that petitioners are not entitled to a reasonable extension of time to occupy the premises on account of the fact that the lease contract between the parties has already expired. As there was no longer any lease to speak of which could be extended, the Metropolitan Trial Court was in effect making a contract for the parties which it obviously did not have the power to do. 10 The potestative authority of the courts to fix a longer term for a lease under Art. 1687 of the Civil Code 11 applies only to cases where there is no period fixed by the parties. To the contrary, in this case, the

contract of lease provided for a fixed period of five (5) years from January 1, 1985 to December 31, 1989. As the Court held in Bacolod-Murcia Milling Co., Inc. v. Banco Nacional Filipino: 12

It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words which it does not contain.

Indeed, Art. 1675 of the Civil Code excludes cases falling under Art. 1673 (which provides among others, that the lessor may judicially eject the lessee when the period agreed upon or that which is fixed has expired) from the cases wherein, pursuant to Art. 1687, courts may fix a longer period of lease. For these reasons, we hold that the Court of Appeals did not err in ruling that petitioners were not entitled to an extension of the lease upon its expiration.

Third. The appellate court found petitioners guilty of bad faith in refusing to leave the premises. But petitioners contend that they acted in good faith under the belief that they were entitled to an extension of the lease because they had made repairs and improvements on the premises.

This contention is devoid of merit. The fact that petitioners allegedly made repairs on the premises in question is not a reason for them to retain the possession of the premises. There is no provision of law which grants the lessee a right of retention over the leased premises on that ground. Art. 448 of the Civil Code, in relation to Art. 546, which provides for full reimbursement of useful improvements and retention of the premises until reimbursement is made, applies only to a possessor in good faith, i.e., one who builds on a land in the belief that he is the owner thereof. In a number of cases, the Court has held that this right does not apply to a mere lessee, like the petitioners, otherwise, it would always be in his power to "improve" his landlord out of the latter's property. 13 Art. 1678 merely grants to such a lessee making in good faith useful improvements the right to be reimbursed one-half of the value of the improvements upon the termination of the lease, or, in the alternative, to remove the improvements if the lessor refuses to make reimbursement.

Petitioners were thus correctly ordered to pay attorney's fees considering that private respondent had to go to court to protect his interest. 14 The award of P10,000.00 is reasonable in view of the time it has taken this rather simple case for ejectment to be decided.

Fourth. Petitioners contend that the Court of Appeals erred in affirming the denial of their counterclaim for damages for their failure to enjoy the peaceful possession of the premises because private respondent allowed vendors to ply their trade at the front portion of the leased premises. Petitioners claim that, as a result, they suffered business losses and moral injuries. As both the Metropolitan Trial Court and Regional Trial Court held, however, there is no evidence to support this claim. As the Court of Appeals said, petitioners never complained before about the sidewalk vendors occupying a portion of the leased property. It was only after negotiations for renewal of the lease had failed and private respondent had filed a complaint for unlawful detainer against them did they complain about the vendors.

WHEREFORE, the decision of the Court of Appeals, dated October 8, 1992, is AFFIRMED.1âwphi1.nêt

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 lot 16 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.

G.R. No. 3003            January 2, 1907

LORENZA ALBURO, plaintiff-appellee, vs.CATALINA VILLANUEVA, defendant-appellant.

Ledesma, Sumulong & Quintos for appellant. Hipolito Magsalin for appellee.

CARSON, J.:

In this case no motion for a new trial was filed on the ground that the findings of fact of the trial judge were manifestly contrary to the weight of the evidence, and the facts found must be accepted as set out in the opinion of the lower court.

It appears that the plaintiff is the owner, by inheritance from her grandfather, of a certain lot of land in the city of Manila, which, by written contract, was rented on the 23d of January, 1892, to one Antonio Susano Goenco, for a term of six years, with the privilege of renewal for a second term of six years; that the defendant, who is the wife of the said Goenco, came into possession by virtue of this rental contract; that the defendant had her husband expended a considerable sum of money filling in and leveling the lot and that they built a house of hard materials thereon; and that the rental contract, while it

expressly permitted the tenant to build upon the lot, is silent as to the disposition of the house at the expiration of the rental term and makes no express provision as to improvements to be made upon the land by way of leveling or otherwise.

The defendant having refused to surrender the lot in question of the expiration of the rental term, this action was brought to recover possession thereof and judgment was rendered for the plaintiff, reserving to the defendant the right to remove the house from the lot.

Counsel for the defendant contends that she is entitled to a renewal of the rental contract for a third term of six years; or if this be denied, to be reimbursed for expenditures in filling in and leveling the lot, and to have the benefits of the provisions of article 361 of the Civil Code, wherein it is provided that —

The owner of the land on which building, sowing, or planting is done in good faith shall have a right to appropriate as his own work, sowing, or planting, having previously paid the indemnity mentioned in articles four hundred and fifty-three and four hundred and fifty-four, or to oblige the person who has built or planted to pay him the value of the land.

It is said that this rental contract should be construed in accordance with the provisions of articles 1281, 1282, 1288, and 1289 of the Civil Code so as to give the defendant the right to renew the contract for a third term of six years, and so on indefinitely so long as she faithfully paid the rent, but we are of the opinion that there is no room for interpretation in accordance with the provisions of these articles since the contract expressly provides for a term of a definite number of years, with a privilege of renewal for a second term of definite number of years. This is a very usual form of rental contract and its terms are so clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties other than that which appears upon its face.

In support of her claim for reimbursement for expenses in filling in and leveling the lot, defendant relies on the provisions of paragraph 2 of article 1554 of the Civil Code, wherein it is provided that the landlord is obliged "during the lease to make all necessary repairs in order to preserve the thing rented in condition to serve for the purpose to which it was destined." But, as Manresa points out, this article is strictly limited in its effect to repairs necessary to preserve the thing rented in a condition suitable to the use agreed upon ( para el uso pactado). A repair implies the putting of something back into the condition in which it was originally and not an improvement in the condition thereof by adding something new thereto, unless the new thing be in substitution of something formerly in existence and is added to preserve the original status of the subject-matter of the repairs; the filling in of a vacant lot can not be regarded as a repair as the word is used in this article; and even though it could be so considered, the remedy of the tenant under the provisions of article 1556, when the landlord fails to make necessary repairs, is by demand for the annulment of the contract and indemnity by way of damages or without demanding annulment of the contract by demand for damages for negligence on the part of the landlord; and the tenant is not authorized to make such repairs at the expense of the landlord, except when it is a matter of the most urgent necessity (reparacion urgentisima) "where the slightest delay would involve grave damages," when the tenant may take the absolutely necessary means to avoid the loss, at the cost of the owner, doing only that which is required by the force of circumstances and no more, but this on the ground that "he had acted by virtue of the social duty of mutual aid and assistance." (Manresa, vol. 10, p. 473.)

It has been suggested that the claim of the defendant for compensation for the filling in and leveling of the lot may be based upon article 453 of the Civil Code which provides that "necessary expenditures will be repaid to all persons in possession (los gastos necesarios se abonan a todo poseedor)." It may be doubted, however, whether the "possessor" referred to in this provision can be said to include one who stands in relation of tenant to his landlord, for the above-cited article 1554 of the Civil Code, and the chapter wherein it occurs, seem to provide for such cases; and in any event we do not think that the filling in and improvement of a lot can be brought under the head of necessary expenses (gastos necesarios) as used in this connection. Manresa in his commentaries upon this article says that gastos necesarios are no others than those made for the preservation of the thing upon which they have been expended.

The contention that the defendant is entitled to the benefits of the provisions of article 361 of the Civil Code can not be maintained because the right to indemnification secured in that article is manifestly intended to apply only to a case where one builds or sows or plants an land in which he believes himself to have a claim of title and not to lands wherein one's only interest is that of tenant under a rental contract; otherwise it would always be in the power of the tenant to improve his landlord out of his property. The right of a tenant in regard to improvements (mejoras) is expressly provided for in article 1573 read in connection with article 487, wherein it is provided that the tenant may make such improvements, either useful or convenient, as he considers advantageous, provided he does not alter the form and substance of the thing rented, but that he will have no right for indemnification therefor, though he can take away such improvements if it is possible to do so without injury or damage to the thing rented.

The trial court authorized the removal of the house, apparently relying on the provisions of this article, but since no objection was made by the plaintiff in the court below, we are not authorized to review his action in this connection.

The judgment appealed from is affirmed, with the costs of this instance against the appellant. After the expiration of twenty days let judgment be entered in accordance herewith and ten days thereafter let the record in this case be remanded to the court of its origin for execution.

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

SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO DEL CANTO, plaintiffs-appellees, vs.BERNARDA FERNANDEZ ABESIA, defendant-appellant.

Geronimo Creer, Jr. for plaintiffs-appellees.

Benedicto G. Cobarde for defendant, defendant-appellant

 

GANCAYCO, J.:

In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified to this Court by the Court of Appeals on account of the question of law involved, the sole issue is the applicability of the provisions of Article 448 of the Civil Code relating to a builder in good faith when the property involved is owned in common.

This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu, with an area of only about 45 square meters, situated at the corner of F. Flores and Cavan Streets, Cebu City covered by TCT No. 61850. An action for partition was filed by plaintiffs in the CFI of Cebu. Plaintiffs and defendants are co-owners pro indiviso of this lot in the proportion of and 1/3 share each, respectively. The trial court appointed a commissioner in accordance with the agreement of the parties. ,the Id commissioner conducted a survey, prepared a sketch plan and submitted a report to the trial court on May 29, 1976, recommending that the property be divided into two lots: Lot 1161-A with an area of 30 square meters for plaintiffs and Lot No. 1161-B with an area of 15 square meters for the defendants. The houses of plaintiffs and defendants were surveyed and shown on the sketch plan. The house of defendants occupied the portion with an area of 5 square meters of Lot 1161-A of plaintiffs. The parties manifested their conformity to the report and asked the trial court to finally settle and adjudicate who among the parties should take possession of the 5 square meters of the land in question.

In solving the issue the trial court held as follows:

The Court believed that the plaintiffs cannot be obliged to pay for the value of the portion of the defendants' house which has encroached an area of five (5) sq. meters of the land alloted to them. The defendants cannot also be obliged to pay for the price of the said five (5) square meters. The rights of a builder in good faith under Article 448 of the New Civil Code does (sic) not apply to a case where one co-owner has built, planted or sown on the land owned in common. "Manresa agreeing with Sanchez Roman, says that as a general rule this article is not applicable because the matter should be governed more by the provisions on co-ownership than on accession. Planiol and Ripert are also of the opinion that this article is not applicable to a co-owner who constructs, plants or sows on the community property, even if the land where the construction, planting or sowing is made is a third person under the circumstances, and the situation is governed by the rules of co-ownership. Our Court of Appeals has held that this article cannot be invoked by one co-owner against another who builds, plants or sows upon their land, since the latter does not do so on land not belonging to him. (C.A.), O.G. Supp., Aug. 30, 194, p. 126). In the light of the foregoing authorities and considering that the defendants have expressed their conformity to the partition that was made by the commissioner as shown in the sketch plan attached to the commissioner's report, said defendants have no other alternative except to remove and demolish part of their house that has encroached an area of five (5) sq. meters of the land allotted to the plaintiffs.

WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an area of thirty (30) sq. meters to the plaintiffs spouses Concepcion Fernandez Abesia, Lourdes Fernandez Rodil, Genaro Fernandez and Dominga A. Fernandez, in the respective metes and bounds as shown in the subdivision sketch plan attached to the Commissioner's Report dated may 29, 1976 prepared by the Commissioner, Geodetic Engineer Espiritu Bunagan. Further, the defendants are hereby ordered at their expense to remove and demolish part of their house which has encroached an area of five (5) square meters from Lot 1161-A of the plaintiffs; within sixty (60) days from date hereof and to deliver the possession of the same to the plaintiffs. For the Commissioner's fee of P400.00, the defendants are ordered to pay, jointly and severally, the sum of P133.33 and the balance thereof to be paid by the plaintiffs. The costs of suit shall be paid by the plaintiffs and the defendants in the proportion of two-thirds (2/3) and one-third (1/3) shares respectively. A certified copy of this judgment shall be recorded in the office of the Register of Deeds of the City of Cebu and the expense of such recording shall be taxed as a part of the costs of the action.

Hence, this appeal interposed by the defendants with the following assignments of errors:

I

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

II

THE TRIAL COURT ERRED IN ORDERING DEFENDANTS-APPELLANTS TO REMOVE AND DEMOLISH AT THEIR EXPENSE, THAT PART OF THEIR HOUSE WHICH HAS ENCROACHED ON AN AREA OF FIVE SQUARE METERS OF LOT 1161-A OF PLAINTIFFS-APPELLEES.

Article 448 of the New Civil Code provides as follows:

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

The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in common for then he did not build, plant or sow upon land that exclusively belongs to another but of which he is a co-owner. The co-owner is not a third person under the circumstances, and the situation is governed by the rules of co-ownership. 1

However, when, as in this case, the co-ownership is terminated by the partition and it appears that the house of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in good faith, then the provisions of Article 448 of the new Civil Code should apply. Manresa and Navarro Amandi agree that the said provision of the Civil Code may apply even when there was co-ownership if good faith has been established. 2

Applying the aforesaid provision of the Civil Code, the plaintiffs have the right to appropriate said portion of the house of defendants upon payment of indemnity to defendants as provided for in Article 546 of the Civil Code. Otherwise, the plaintiffs may oblige the defendants to pay the price of the land occupied by their house. However, if the price asked for is considerably much more than the value of the portion of the house of defendants built thereon, then the latter cannot be obliged to buy the land. The defendants shall then pay the reasonable rent to the plaintiff upon such terms and conditions that they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of course, defendants may demolish or remove the said portion of their house, at their own expense, if they so decide.

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

G.R. No. L-32433             December 29, 1930

FRANCISCO DE GUZMAN, ET. AL., plaintiffs-appellants, vs.CRISANTO DE LA FUENTE, ET AL., defendants-appellants.

Mariano Sta. Romana for plaintiffs-appellants.Hermogenes Concepcion for defendants-appellants.

 

ROMUALDEZ, J.:

The dispositive part of the lower court's judgment reads as follows:

Wherefore, the court hereby orders the defendants to vacate the premises set forth in the complaint, restoring them to the plaintiffs herein. For lack of evidence, no judgment can be rendered against the defendants Crisanto de la Fuente and Agapita Payumo to pay the plaintiffs the sum of P697.50 claimed by the latter as damages, from October 1, 1926, to January 15, 1928, nor against the aforementioned defendants and Taw Pe Chan to pay the plaintiffs jointly and severally damages in the amount of P120 per month from January 15, 1928, until they vacate the premises. The counterclaim and the cross-complaint filed by the defendants are hereby dismissed as against the plaintiffs. Without costs.

Both plaintiffs and defendants appealed from this judgment, and the former made the following assignments of error:

1. In not ordering and compelling the defendants to pay damages for their illegal occupation of the land now in question to the plaintiffs.

2. In denying our motion for new trial.

The following assignments of error were made by the defendants:

1. In ordering the defendant to vacate the premises.

2. In absolving plaintiff Francisco de Guzman from the counterclaim and the cross-complaint.

3. In not holding the defendants to be the owners of the land in question.

4. In not sentencing plaintiff Francisco de Guzman to .convey the land in question to the defendants, plaintiffs in the cross-complaint.

5. In not cancelling the original certificate of title No. 1921 (Exhibit A) with respect to the land in question, and in not ordering the issuance of another certificate of title in the name of the defendants.

6. In not sentencing the plaintiff to indemnify the defendants for the value of said land, that is, P4 a square meter.

7. in holding that the defendants' possession in good faith became a possession in bad faith upon receipt of the letter of notification (Exhibit C) from the plaintiff's lawyer, Mr. Mariano Santa Romana.

8. In not sentencing the plaintiff, defendant in the cross-complaint, to indemnify the defendants, plaintiffs in the cross-complaint, for the improvements made by the latter in good faith, worth P15,000.

Plaintiff Francisco de Guzman and defendant De la Fuente, being close friends and compadres, the former having been the recipient of considerable attention and favors from the latter, agreed verbally that the said defendant should occupy, in addition to a house he intended to build, the land here in question, belonging to the plaintiffs.

In 1912 said defendant De la Fuente built his house upon said land, which house was repaired in 1928. The court below has appraised the house, after the repairs, at P7,504, which finding is supported by the record.

The plaintiffs contend in this instance that said defendant occupies their land by mere tolerance, having been required to pay rent at the rate of P45 a month from October 1,.1926, to December 31, 1927, and at P120 a month from January 1,

1928, when the house was repaired, and from which date the house, besides being occupied by said defendant, yielded him a monthly rented of P40. But the defendant claims that the land belongs to him.

The evidence does not support this claim of the defendant De La Fuente. The record shows that the owners of the land were Francisco de Guzman and his deceased wife, and it now belongs to said Francisco de Guzman and his children, the plaintiffs herein.

Defendant De la Fuente's possession of the land commenced and continues in good faith, inasmuch as, on the one hand, the extra-judicial notice given by the defendant about November, 1927 did not by itself destroy said good faith, and will continue to exist as long as there is no final judgment to the contrary, which to date has not been redered; and, on the other hand, the necessity for the repairs of the house has been sufficiently proved.lawphi1>net

We find not merits in the assignments of error made by either party, incompatible with the conclusions just stated.

This is therefore a case where on party is the owner of the land, and the other is the owner, in good faith, of the building thereon, provided for in article 361 of the Civil Code; and the present value of the house, as stated, is P7,504.

The evidence does not justify the award of damages claimed by either the defendants or the plaintiffs.

Wherefore, the judgment appealed from is modified, and it is held that the land in question belongs not to the defendant De la Fuente, but to the plaintiffs, who are entitled to acquire said defendant's house built thereon, by paying its owner the sum of P7,504, or to compel him to pay them the price of the land agreed upon by the interested parties; and in default thereof, the price as fixed by the competent court; and should the plaintiff choose to acquire the house, the defendant shall have be the right to retain the same until the above-mentioned amount is satisfied.

The remainder of the judgment appealed from is hereby affirmed in so far as it is not incompatible with this decision. Without express pronouncement of costs. So ordered.

G.R. No. L-6768             July 31, 1954

SALUD R. ARCA and ALFREDO JAVIER JR., plaintiffs-appellees, vs.ALFREDO JAVIER, defendant-appellant.

David F. Barrera for appellant.Jose P. Santillan for appellees.

BAUTISTA ANGELO, J.:

Dissatisfied with the decision of the Court of First Instance of Cavite ordering him to give a monthly allowance of P60 to plaintiffs beginning March 31, 1953, and to pay them attorney's fees in the amount of P150 defendant took the case directly to this Court attributing five errors to the court below. This implies that the facts are not disputed.

The important facts which need to be considered in relation to the errors assigned appear well narrated in the decision of the court below which, for purposes of this appeal, are quoted hereunder:

On November 19, 1937, plaintiff Salud R. Arca and defendant Alfredo Javier had their marriage solemnized by Judge Mariano Nable of the Municipal Court of Manila. At the time of their marriage, they had already begotten a son named Alfredo Javier, Junior who was born on December 2, 1931. Sometime in 1938, defendant Alfredo Javier left for the United States on board a ship of the United States Navy, for it appears that he had joined the United States Navy since 1927, such that at time of his marriage with plaintiff Salud R. Arca, defendant Alfredo Javier was already an enlisted man in the United States Navy. Because of defendant Alfredo Javier's departure for the United States in 1938, his wife, Salud R. Arca, who is from (Maragondon), Cavite, chose to live with defendant's parents at Naic, Cavite. But for certain incompatibility of character (frictions having occurred between plaintiff Salud R. Arca's and defendant's folks) plaintiff Salud R. Arca had found it necessary to leave defendant's parents' abode and transfer her residence to (Maragondon), Cavite — her native place Since then the relation between plaintiff Salud R. Arca and defendant Alfredo Javier became strained such that on August 13, 1940 defendant Alfredo Javier brought an action for divorce against Salud R. Arca before the Circuit Court of Mobile County, State of Alabama, USA, docketed as civil case No. 14313 of that court and marked as Exhibit 2(c) in this case. Having received a copy of the complaint for divorce on September 23, 1940, plaintiff Salud R. Arca — answering the complaint — alleged in her answer that she received copy of the complaint on September 23, 1940 although she was directed to file her answer thereto on or before September 13, 1940. In that answer she filed, plaintiff Salud R. Arca averred among other things that defendant Alfredo Javier was not a resident of Mobile County, State of Alabama, for the period of twelve months preceding the institution of the complaint, but that he was a resident of Naic, Cavite, Philippines. Another averment of interest, which is essential to relate here, is that under paragraph 5 of her answer to the complaint for divorce, Salud R. Arca alleged that it was not true that the cause of their separation was desertion on her part but that if defendant Alfredo Javier was in the United States at that time and she was not with him then it was because he was in active duty as an enlisted man of the United States Navy, as a consequence of which he had to leave for the United States without her. She further alleged that since his departure from the Philippines for the United States, he had always supported her and her co-plaintiff Alfredo Javier Junior through allotments made by the Navy Department of the United States Government. She denied, furthermore, the allegation that she had abandoned defendant's home at Naic, Cavite, and their separation was due to physical impossibility for they were separated by about 10,000 miles from each other. At this juncture, under the old Civil Code the wife is not bound to live with her husband if the latter has gone to ultra-marine colonies. Plaintiff Salud R. Arca, in her answer to the complaint for divorce by defendant Alfredo Javier, prayed that the complaint for divorce be dismissed. However, notwithstanding Salud R. Arca's averments in her answer, contesting the jurisdiction of the Circuit Court of Mobile County, State of Alabama, to take cognizance of the divorce proceeding filed by defendant Alfredo Javier, as shown by her answer marked Exhibit 2(d), nevertheless the Circuit Court of Mobile County rendered judgment decreeing dissolution of the marriage of Salud R. Arca and Alfredo Javier, and granting the latter a decree of divorce dated

April 9, 1941, a certified copy of which is marked Exhibit 2(f). Thereupon, the evidence discloses that some time in 1946 defendant Alfredo Javier returned to the Philippines but went back to the United States.

In July, 1941 — that is after securing a divorce from plaintiff Salud R. Arca on April 9, 1941 — defendant Alfredo Javier married Thelma Francis, an American citizen, and bought a house and lot at 248 Brooklyn, New York City. In 1949, Thelma Francis, defendant's American wife, obtained a divorce from him for reasons not disclosed by the evidence, and, later on, having retired from the United States Navy, defendant Alfredo Javier returned to the Philippines, arriving here on February 13, 1950. After his arrival in the Philippines, armed with two decrees of divorce — one against his first wife Salud R. Arca and the other against him by his second wife Thelma Francis — issued by the Circuit Court of Mobile County, State of Alabama, USA, defendant Alfredo Javier married Maria Odvina before Judge Natividad Almeda-Lopez of the Municipal Court of Manila on April 19, 1950, marked Exhibit 2(b).

At the instance of plaintiff Salud R. Arca an information for bigamy was filed by the City Fiscal of Manila on July 25, 1950 against defendant Alfredo Javier with the Court of First Instance of Manila, docketed as Criminal Case No. 13310 and marked Exhibit 2(a). However, defendant Alfredo Javier was acquitted of the charge of Bigamy in a decision rendered by the Court of First Instance of Manila through Judge Alejandro J. Panlilio, dated August 10, 1951, predicated on the proposition that the marriage of defendant Alfredo Javier with Maria Odvina was made in all good faith and in the honest belief that his marriage with plaintiff Salud R. Arca had been legally dissolved by the decree of divorce obtained by him from the Circuit Court of Mobile County, State of Alabama, USA which had the legal effect of dissolving the marital ties between defendant Alfredo Javier and plaintiff Salud R. Arca. At this juncture, again, it is this court's opinion that defendant Alfredo Javier's acquittal in that Criminal Case No. 13310 of the Court of First Instance of Manila by Judge Panlilio was due to the fact that the accused had no criminal intent in contracting a second or subsequent marriage while his first marriage was still subsisting.

Appellant was a native born citizen of the Philippines who, in 1937, married Salud R. Arca, another Filipino citizen. Before their marriage they had already a child, Alfredo Javier, Jr., who thereby became legitimated. In 1927 appellant enlisted in the U.S. Navy and in 1938 sailed for the United States aboard a navy ship in connection with his service leaving behind his wife and child, and on August 13, 1940, he filed an action for divorce in the Circuit Court of Mobile County, Alabama, U.S.A., alleging as ground abandonment by his wife. Having received a copy of the complaint, Salud R. Arca filed an answer alleging, among other things, that appellant was not a resident of Mobile County, but of Naic, Cavite, Philippines, and that it was not true that the cause of their separation was abandonment on her part but that appellant was in the United States, without her, because he was then enlisted in the U.S. Navy. Nevertheless, the Circuit Court of Mobile County rendered judgment granting appellant a decree of divorce on April 9, 1941.

The issue now to be determined is: Does this decree have a valid effect in this jurisdiction?

The issue is not new. This court has had already occasion to pass upon questions of similar nature in a number of cases and its ruling has invariably been to deny validity to the decree. In essence, it was held that one of the essential conditions for the validity of a decree of divorce is that the court must have jurisdiction over the subject matter and in order that this may be acquired, plaintiff must be domiciled in good faith in the State in which it is granted (Cousins Hix vs. Fluemer, 55 Phil., 851, 856). Most recent of such cases is Sikat vs. Canson, 67 Phil., 207, which involves a case of divorce also based on the ground of desertion. In that case, John Canson claimed not only that he had legal residence in the State of Nevada, where the action was brought, but he was an American citizen, although it was proven that his wife never accompanied him there but has always remained in the Philippines, and so it has been held that "it is not ... the citizenship of the plaintiff for divorce which confers jurisdiction upon a court, but his legal residence within the State." The court further said: "And assuming that John Canson acquired legal residence in the State of Nevada through the approval of his citizenship papers, this would not confer jurisdiction on the Nevada court to grant divorce that would be valid in this jurisdiction, nor jurisdiction that could determine their matrimonial status, because the wife was still domiciled in the Philippines. The Nevada court never acquired jurisdiction over her person."

It is true that Salud R. Arca filed an answer in the divorce case instituted at the Mobile County in view of the summons served upon her in this jurisdiction, but this action cannot be interpreted as placing her under the jurisdiction of the court because its only purpose was to impugn the claim of appellant that his domicile or legal residence at that time was Mobile County, and to show that the ground of desertion imputed to her was baseless and false. Such answer should be considered as a special appearance the purpose of which is to impugn the jurisdiction of the court over the case.

In deciding the Canson case, this court did not overlook the other cases previously decided on the matter, but precisely took good note of them. Among the cases invoked are Ramirez vs. Gmur, 42 Phil. 855; Cousins Hix vs. Fluemer, 55 Phil., 851, and Barretto Gonzales vs. Gonzales, 58 Phil., 67. In the cases just mentioned, this court laid down the following doctrines:

It is established by the great weight of authority that the court of a country in which neither of the spouses is domiciled and to which one or both of them may resort merely for the purpose of obtaining a divorce has no jurisdiction to determine their matrimonial status; and a divorce granted by such a court is not entitled to recognition elsewhere. (See Note to Succession of Benton, 59 L. R. A., 143) The voluntary appearance of the defendant before such a tribunal does not invest the court with jurisdiction. (Andrews vs. Andrews, 188 U. S., 14; 47 L. ed., 366.)

It follows that, to give a court jurisdiction on the ground of the plaintiff's residence in the State or country of the judicial forum, his residence must be bona fide. If a spouse leaves the family domicile and goes to another State for the sole purpose of obtaining a divorce, and with no intention of remaining, his residence there is not sufficient to confer jurisdiction on the courts of the State. This is especially true where the cause of divorce is one not recognized by the laws of the State of his own domicile. (14 Cyc. 817, 181.)" (Ramirez vs. Gmur, 82 Phil., 855.)

But even if his residence had been taken up is good faith, and the court had acquired jurisdiction to take cognizance of the divorce suit, the decree issued in his favor is not binding upon the appellant; for the matrimonial domicile of the spouses being the City of Manila, and no new domicile having been acquired in West Virginia, the summons made by publication, she not having entered an appearance in the case, either personally or by counsel, did not confer jurisdiction upon said court over her person. (Cousins Hix vs. Fluemer, 55 Phil., 851.)

At all times the matrimonial domicile of this couple has been within the Philippine Islands and the residence acquired in the State of Nevada by the husband for the purpose of securing a divorce was not a bona fide residence

and did not confer jurisdiction upon the court of the State to dissolve the bonds of matrimony in which he had entered in 1919. (Barretto Gonzales vs. Gonzales, 58 Phil., 67.)

In the light of the foregoing authorities, it cannot therefore be said that the Mobile County Court of Alabama had acquired jurisdiction over the case for the simple reason that at the time it was filed appellant's legal residence was then in the Philippines. He could not have acquired legal residence or domicile at Mobile County when he moved to that place in 1938 because at that time he was still in the service of the U.S. Navy and merely rented a room where he used to stay during his occasional shore leave for shift duty. That he never intended to live there permanently is shown by the fact that after his marriage to Thelma Francis in 1941, he moved to New York where he bought a house and a lot, and after his divorce from Thelma in 1949 and his retirement from the U.S. Navy, he returned to the Philippines and married Maria Odvina of Naic, Cavite, where he lived ever since. It may therefore be said that appellant went to Mobile County, not with the intention of permanently residing there, or of considering that place as his permanent abode, but for the sole purpose of obtaining divorce from his wife. Such residence is not sufficient to confer jurisdiction on the court.

It is claimed that the Canson case cannot be invoked as authority or precedent in the present case for the reason that the Haddeck case which was cited by the court in the course of the decision was reversed by the Supreme Court of the United States in the case of Williams vs. North Carolina, 317 U.S. 287. This claim is not quite correct, for the Haddeck case was merely cited as authority for the statement that a divorce case is not a proceeding in rem, and the reversal did not necessarily overrule the ruling laid down therein that before a court may acquire jurisdiction over a divorce case, it is necessary that plaintiff be domiciled in the State in which it is filed. (Cousins Hix vs. Fluemer, supra.) At any rate, the applicability of the ruling in the Canson case may be justified on another ground: The courts in the Philippines can grant divorce only on the ground of adultery on the part of the wife or concubinage on the part of the husband, and if the decree is predicated on another ground, that decree cannot be enforced in this jurisdiction. Said the Court in the Canson case:

. . . In Barretto Gonzales vs. Gonzales (55 Phil., 67), we observed:

. . . While the decisions of this court heretofore in refusing to recognize the validity of foreign divorce has usually been expressed in the negative and have been based upon lack of matrimonial domicile or fraud or collusion, we have not overlooked the provisions of the Civil Code now enforced in these Islands. Article 9 thereof reads as follows:

"The laws relating to family rights and duties, or to the status, condition, and legal capacity of persons, are binding upon Spaniards even though they reside in a foreign country."

"And Article 11, the last part of which reads

". . . prohibitive laws concerning persons, their acts and their property, and those intended to promote public order and good morals shall not be rendered without effect by any foreign laws or judgments or by anything done or any agreements entered into a foreign country."

"It is therefore a serious question whether any foreign divorce, relating to citizens of the Philippine Islands, will be recognized in this jurisdiction, except it be for a cause, and under conditions for which the courts of the Philippine Islands would grant a divorce."

The courts in the Philippines can grant a divorce only on the ground of "adultery on the part of the wife or concubinage on the part of the husband" as provided for under section 1 of Act No. 2710. The divorce decree in question was granted on the ground of desertion, clearly not a cause for divorce under our laws. That our divorce law, Act No. 2710, is too strict or too liberal is not for this court decide. (Barretto Gonzales vs. Gonzales, supra). The allotment of powers between the different governmental agencies restricts the judiciary within the confines of interpretation, not of legislation. The legislative policy on the matter of divorce in this jurisdiction is clearly set forth in Act No. 2710 and has been upheld by this court (Goitia vs. Campos Rueda, 35 Phil., 252; Garcia Valdez vs. Soterana Tuazon, 40 Phil., 943-952; Ramirez vs. Gmur, 42 Phil., 855; Chereau vs. Fuentebella, 43 Phil., 216; Fernandez vs. De Castro, 48 Phil., 123; Gorayeb vs. Hashim, supra; Francisco vs. Tayao, 50 Phil., 42; Alkuino Lim Pang vs. Uy Pian Ng Shun and Lim Tingco, 52 Phil., 571; Cousins Hix vs. Fluemer, supra; and Barretto Gonzales vs. Gonzales, supra).

The above pronouncement is sound as it is in keeping with the well known principle of Private International Law which prohibits the extension of a foreign judgment, or the law affecting the same, if it is contrary to the law or fundamental policy of the State of the forum. (Minor, Conflict of Laws, pp. 8-14). It is also in keeping with our concept or moral values which has always looked upon marriage as an institution. And such concept has actually crystallized in a more tangible manner when in the new Civil Code our people, through Congress, decided to eliminate altogether our law relative to divorce. Because of such concept we cannot but react adversely to any attempt to extend here the effect of a decree which is not in consonance with our customs, morals, and traditions. (Article 11, old Civil Code; Articles 15 and 17, new Civil Code; Gonzales vs. Gonzales, 58 Phil., 67.)

With regard to the plea of appellant that Salud R. Arca had accused him of the crime of bigamy and consequently she forfeited her right to support, and that her child Alfredo Javier, Jr. is not also entitled to support because he has already reached his age of majority, we do not need to consider it here, it appearing that these questions have already been passed upon in G. R. No. L-6706.1 These questions were resolved against the pretense of appellant.

Wherefore, the decision appealed from is affirmed, with costs.

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

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

D E C I S I O N

PANGANIBAN, J.:

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

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the March 22, 2002 Decision2 and the June 26, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR SP Nos. 56205 & 56467. The challenged Decision disposed as follows:

"WHEREFORE, the assailed Decision is AFFIRMED with the following MODIFICATIONS:

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

‘2. The award of attorney’s fees is DELETED.

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

The assailed Resolution denied petitioners’ Motion for Reconsideration.

The Facts

Petitioners Ismael and Teresita5 Macasaet and Respondents Vicente and Rosario Macasaet are first-degree relatives. Ismael is the son of respondents, and Teresita is his wife.6

On December 10, 1997, the parents filed with the Municipal Trial Court in Cities (MTCC) of Lipa City an ejectment suit against the children.7 Respondents alleged that they were the owners of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. T-78521 and T-103141, situated at Banay-banay, Lipa City; that by way of a verbal lease agreement, Ismael and Teresita occupied these lots in March 1992 and used them as their residence and the situs of their construction business; and that despite repeated demands, petitioners failed to pay the agreed rental of P500 per week.8

Ismael and Teresita denied the existence of any verbal lease agreement. They claimed that respondents had invited them to construct their residence and business on the subject lots in order that they could all live near one other, employ Marivic (the sister of Ismael), and help in resolving the problems of the family.9 They added that it was the policy of respondents to allot the land they owned as an advance grant of inheritance in favor of their children. Thus, they contended that the lot covered by TCT No. T-103141 had been allotted to Ismael as advance inheritance. On the other hand, the lot covered by TCT No. T-78521 was allegedly given to petitioners as payment for construction materials used in the renovation of respondents’ house.10

The MTCC11 ruled in favor of respondents and ordered petitioners to vacate the premises. It opined that Ismael and Teresita had occupied the lots, not by virtue of a verbal lease agreement, but by tolerance of Vicente and Rosario.12 As their stay was by mere tolerance, petitioners were necessarily bound by an implied promise to vacate the lots upon demand.13 The MTCC dismissed their contention that one lot had been allotted as an advance inheritance, on the ground that successional rights were inchoate. Moreover, it disbelieved petitioners’ allegation that the other parcel had been given as payment for construction materials.14

On appeal, the regional trial court15 (RTC) upheld the findings of the MTCC. However, the RTC allowed respondents to appropriate the building and other improvements introduced by petitioners, after payment of the indemnity provided for by Article 448 in relation to Articles 546 and 548 of the Civil Code.16 It added that respondents could oblige petitioners to purchase the land, unless its value was considerably more than the building. In the latter situation, petitioners should pay rent if respondents would not choose to appropriate the building.17

Upon denial of their individual Motions for Reconsideration, the parties filed with the CA separate Petitions for Review, which were later consolidated.18

Ruling of the Court of Appeals

The CA sustained the finding of the two lower courts that Ismael and Teresita had been occupying the subject lots only by the tolerance of Vicente and Rosario.19 Thus, possession of the subject lots by petitioners became illegal upon their receipt of respondents’ letter to vacate it.20

Citing Calubayan v. Pascual,21 the CA further ruled that petitioners’ status was analogous to that of a lessee or a tenant whose term of lease had expired, but whose occupancy continued by tolerance of the owner.22 Consequently, in ascertaining the right of petitioners to be reimbursed for the improvements they had introduced on respondents’ properties,23

the appellate court applied the Civil Code’s provisions on lease. The CA modified the RTC Decision by declaring that Article 448 of the Civil Code was inapplicable. The CA opined that under Article 1678 of the same Code, Ismael and Teresita had the right to be reimbursed for one half of the value of the improvements made.24

Not satisfied with the CA’s ruling, petitioners brought this recourse to this Court.25

The Issues

Petitioners raise the following issues for our consideration:

"1. a) Whether or not Section 17[,] Rule 70 of the Rules of Court on Judgment should apply in the rendition of the decision in this case;

b) Whether or not the Complaint should have been dismissed;

c) Whether or not damages including attorney’s fees should have been awarded to herein petitioners;

"2. a) Whether or not the rule on appearance of parties during the Pretrial should apply on appearance of parties during Preliminary Conference in an unlawful detainer suit;

b) Whether or not the case of Philippine Pryce Assurance Corporation vs. Court of Appeals (230 SCRA 164) is applicable to appearance of parties in an unlawful detainer suit;

"3. Whether or not Article 1678 of the Civil Code should apply to the case on the matters of improvements, or is it Article 447 of the Civil Code in relation to the Article 453 and 454 thereof that should apply, if ever to apply the Civil Code;

"4. Whether or not the [D]ecision of the Court of Appeals is supported by evidence, appropriate laws, rules and jurisprudence;

"5. Whether or not Assisting Judge Norberto Mercado of the MTCC Lipa City should be held accountable in rendering the MTCC [D]ecision;

"6. Whether or not Atty. Glenn Mendoza and Atty. Andrew Linatoc of the same [l]aw office should be held accountable for pursuing the [e]jectment case[.]"26

The Court’s Ruling

The Petition is partly meritorious.

First Issue:

Ejectment

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

Allegations of the Complaint

Petitioners allege that they cannot be ejected from the lots, because respondents based their Complaint regarding the nonpayment of rentals on a verbal lease agreement, which the latter failed to prove.29 Petitioners contend that the lower courts erred in using another ground (tolerance of possession) to eject them.

In actions for unlawful detainer, possession that was originally lawful becomes unlawful upon the expiration or termination of the defendant’s right to possess, arising from an express or implied contract.30 In other words, the plaintiff’s cause of action comes from the expiration or termination of the defendant’s right to continue possession.31 The case resulting therefrom must be filed within one year from the date of the last demand.

To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally withholding possession from the plaintiff is sufficient. The complaint may lie even if it does not employ the terminology of the law, provided the said pleading is couched in a language adequately stating that the withholding of possession or the refusal to vacate has become unlawful.32 It is equally settled that the jurisdiction of the court, as well as the nature of the action, is determined from the averments of the complaint.33

In the present case, the Complaint alleged that despite demands, petitioners "refused to pay the accrued rentals and [to] vacate the leased premises."34 It prayed that judgment be rendered "[o]rdering [petitioners] and all those claiming rights under them to vacate the properties x x x and remove the structures x x x constructed thereon."35 Effectively then, respondents averred that petitioners’ original lawful occupation of the subject lots had become unlawful.

The MTCC found sufficient cause to eject petitioners. While it disbelieved the existence of a verbal lease agreement, it nevertheless concluded that petitioners’ occupation of the subject lots was by mere tolerance of respondents. Basing its conclusion on the fact that the parties were close relatives, the MTCC ruled thus:

"x x x [T]he parties herein are first degree relatives. Because of this relationship, this Court takes judicial notice of the love, care, concern and protection imbued upon the parents towards their [children], i.e., in the instant case, the love, care, concern and protection of the [respondents] to the [petitioners]. With this in mind, this Court is inclined to believe the position of the [petitioners] that there was no such verbal lease agreement between the parties herein that took place in 1992. x x x.

"From the allegations of the [petitioners], this Court is convinced that their stay and occupancy of the subject premises was by mere tolerance of the [respondents], and not by virtue of a verbal lease agreement between them."36

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

Not Merely Tolerated

Possession

Petitioners dispute the lower courts’ finding that they occupied the subject lots on the basis of mere tolerance. They argue that their occupation was not under such condition, since respondents had invited, offered and persuaded them to use those properties.39

This Court has consistently held that those who occupy the land of another at the latter’s tolerance or permission, without any contract between them, are necessarily bound by an implied promise that the occupants will vacate the property upon demand.40 A summary action for ejectment is the proper remedy to enforce this implied obligation.41 The unlawful deprivation or withholding of possession is to be counted from the date of the demand to vacate.42

Toleration is defined as "the act or practice of permitting or enduring something not wholly approved of."43 Sarona v. Villegas44 described what tolerated acts means, in this language:

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

We hold that the facts of the present case rule out the finding of possession by mere tolerance. Petitioners were able to establish that respondents had invited them to occupy the subject lots in order that they could all live near one other and help in resolving family problems.46 By occupying those lots, petitioners demonstrated their acceptance of the invitation. Hence, there was a meeting of minds, and an agreement regarding possession of the lots impliedly arose between the parties.

The occupancy of the subject lots by petitioners was not merely "something not wholly approved of" by respondents. Neither did it arise from what Tolentino refers to as "neighborliness or familiarity." In point of fact, their possession was upon the invitation of and with the complete approval of respondents, who desired that their children would occupy the premises. It arose from familial love and a desire for family solidarity, which are basic Filipino traits.

Right to Use the Lots Terminated

That Ismael and Teresita had a right to occupy the lots is therefore clear. The issue is the duration of possession. In the absence of a stipulation on this point, Article 1197 of the Civil Code allows the courts to fix the duration or the period.

"Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

"The courts shall also fix the duration of the period when it depends upon the will of the debtor.

"In every case the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them."

Article 1197, however, applies to a situation in which the parties intended a period. Such qualification cannot be inferred from the facts of the present case.

To repeat, when Vicente and Rosario invited their children to use the lots, they did so out of parental love and a desire for solidarity expected from Filipino parents. No period was intended by the parties. Their mere failure to fix the duration of their agreement does not necessarily justify or authorize the courts to do so.47

Based on respondents’ reasons for gratuitously allowing petitioners to use the lots, it can be safely concluded that the agreement subsisted as long as the parents and the children mutually benefited from the arrangement. Effectively, there is a resolutory condition in such an agreement.48 Thus, when a change in the condition existing between the parties occurs -- like a change of ownership, necessity, death of either party or unresolved conflict or animosity -- the agreement may be deemed terminated. Having been based on parental love, the agreement would end upon the dissipation of the affection.

When persistent conflict and animosity overtook the love and solidarity between the parents and the children, the purpose of the agreement ceased.49 Thus, petitioners no longer had any cause for continued possession of the lots. Their right to use the properties became untenable. It ceased upon their receipt of the notice to vacate. And because they refused to heed the demand, ejectment was the proper remedy against them. Their possession, which was originally lawful, became unlawful when the reason therefor -- love and solidarity -- ceased to exist between them.

No Right to Retain

Possession

Petitioners have not given this Court adequate reasons to reverse the lower courts’ dismissal of their contention that Lots T-78521 and T-103141, respectively, were allegedly allotted to them as part of their inheritance and given in consideration for past debts.

The right of petitioners to inherit from their parents is merely inchoate and is vested only upon the latters’ demise. Indisputably, rights of succession are transmitted only from the moment of death of the decedent.50 Assuming that there was an "allotment" of inheritance, ownership nonetheless remained with respondents. Moreover, an intention to confer title to certain persons in the future is not inconsistent with the owners’ taking back possession in the meantime for any reason deemed sufficient.51 Other than their self-serving testimonies and their affidavits, petitioners offered no credible evidence to support their outlandish claim of inheritance "allocation."

We also agree with the lower courts that petitioners failed to prove the allegation that, through a dation in payment, Lot T-78521 had been transferred to the latter as payment for respondents’ debts.52 The evidence presented by petitioners related only to the alleged indebtedness of the parents arising from the latter’s purported purchases and advances.53 There was no sufficient proof that respondents had entered into a contract of dation to settle the alleged debt. Petitioners even stated that there was a disagreement in the accounting of the purported debt,54 a fact that disproves a meeting of the minds with the parents.

Petitioners also admitted that a portion of the alleged debt is the subject matter of a collection case against respondents (Civil Case No. 0594-96).55 Thus, the former’s allegation that the indebtedness has been paid through a dation cannot be given credence, inconsistent as it is with their action to recover the same debt.

Despite their protestations, petitioners recognized the right of the parents to recover the premises when they admitted in their Position Paper filed with the MTCC that respondents had a title to the lots.

"The [respondents] want to get their property because the title is theirs, the [petitioners] do not object but what is due the [petitioners] including the reparation for the tarnish of their dignity and honor must be given the [petitioners] for the benefits of their children before the premises will be turned over."56

As a rule, the right of ownership carries with it the right of possession.

Second Issue:

Appearance at the Preliminary Conference

Section 8 of Rule 70 of the Rules of Court requires the appearance of the plaintiff and the defendant during the preliminary conference. On the basis of this provision, petitioners claim that the MTCC should have dismissed the case upon the failure of respondents to attend the conference. However, petitioners do not dispute that an attorney-in-fact with a written authorization from respondents appeared during the preliminary conference.57 The issue then is whether the rules on ejectment allow a representative to substitute for a party’s personal appearance.

Unless inconsistent with Rule 70, the provisions of Rule 18 on pretrial applies to the preliminary conference.58 Under Section 4 of this Rule, the nonappearance of a party may be excused by the showing of a valid cause; or by the appearance of a representative, who has been fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of documents.59

Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the spirit behind the exception to personal appearance under the rules on pretrial is applicable to the preliminary conference. If there are valid reasons or if a representative has a "special authority," a party’s appearance may be waived. As petitioners are challenging only the applicability of the rules on pretrial to the rule on preliminary conference, the written authorization from respondents can indeed be readily considered as a "special authorization."

Third Issue:

Rights of a Builder in Good Faith

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

Articles 447 and 1678 of the

Civil Code Inapplicable

To buttress their claim of reimbursement for the improvements introduced on the property, petitioners cite Article 447.61 They allege that the CA erred in applying Article 1678, since they had no lease agreement with respondents.

We clarify. Article 447 is not applicable, because it relates to the rules that apply when the owner of the property uses the materials of another. It does not refer to the instance when a possessor builds on the property of another, which is the factual milieu here.

In view of the unique factual setting of the instant case, the contention of petitioners regarding the inapplicability of Article 1678 deserves attention. The CA applied the provisions on lease, because it found their possession by mere tolerance comparable with that of a lessee, per the pronouncement in Calubayan v. Pascual,62 from which we quote:

"x x x. It has been held that a person who occupies the land of another at the latter’s tolerance or permission, without any contract between them, is necessarily bound by an implied promise that he will vacate upon demand, failing which a summary action for ejectment is the proper remedy against them. The status of defendant is analogous to that of a lessee or tenant whose term of lease has expired but whose occupancy continued by

tolerance of the owner. In such a case, the unlawful deprivation or withholding of possession is to be counted from the date of the demand to vacate."63 (Emphasis in the original.)

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

Article 448 Applicable

On the other hand, when a person builds in good faith on the land of another, the applicable provision is Article 448, which reads:64

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

This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe themselves to be owners of the land or, at least, to have a claim of title thereto.65 It does not apply when the interest is merely that of a holder, such as a mere tenant, agent or usufructuary.66 From these pronouncements, good faith is identified by the belief that the land is owned; or that -- by some title -- one has the right to build, plant, or sow thereon.67

However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this limited definition. Thus, in Del Campo v. Abesia,68 this provision was applied to one whose house -- despite having been built at the time he was still co-owner -- overlapped with the land of another.69 This article was also applied to cases wherein a builder had constructed improvements with the consent of the owner. The Court ruled that the law deemed the builder to be in good faith.70 In Sarmiento v. Agana,71 the builders were found to be in good faith despite their reliance on the consent of another, whom they had mistakenly believed to be the owner of the land.72

Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of this case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the children occupied the lots upon their invitation, the parents certainly knew and approved of the construction of the improvements introduced thereon.73 Thus, petitioners may be deemed to have been in good faith when they built the structures on those lots.

The instant case is factually similar to Javier v. Javier.74 In that case, this Court deemed the son to be in good faith for building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land upon which it was built. Thus, Article 44875 was applied.

Rule on Useful Expenses

The structures built by petitioners were "useful" improvements, because they augmented the value or income of the bare lots.76 Thus, the indemnity to be paid by respondents under Article 448 is provided for by Article 546, which we quote:

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

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

Consequently, respondents have the right to appropriate -- as their own -- the building and other improvements on the subject lots, but only after (1) refunding the expenses of petitioners or (2) paying the increase in value acquired by the properties by reason thereof. They have the option to oblige petitioners to pay the price of the land, unless its value is considerably more than that of the structures -- in which case, petitioners shall pay reasonable rent.

In accordance with Depra v. Dumlao,77 this case must be remanded to the trial court to determine matters necessary for the proper application of Article 448 in relation to Article 546. Such matters include the option that respondents would take and the amount of indemnity that they would pay, should they decide to appropriate the improvements on the lots. We disagree with the CA’s computation of useful expenses, which were based only on petitioners’ bare allegations in their Answer.78

Ruling on Improvement Justified

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

Equitable considerations compel us to settle this point immediately, pro hoc vice, to avoid needless delay. Both parties have already been heard on this issue; to dillydally or equivocate would not serve the cause of substantial justice.

Other Issues Raised

Given the foregoing rulings, it is no longer necessary to address petitioners’ allegation that the MTCC judge and respondents’ lawyers should be respectively held personally accountable for the Decision and for filing the case.79 The insinuation of petitioners that the lawyers manipulated the issuance of a false barangay certification is unavailing.80 Their

contention that respondents did not attend the barangay conciliation proceedings was based solely on hearsay, which has little or no probative value.81

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with the following MODIFICATIONS:

1. The portion requiring Spouses Vicente and Rosario Macasaet to reimburse one half of the value of the useful improvements, amounting to P475,000, and the right of Spouses Ismael and Rosita Macasaet to remove those improvements (if the former refuses to reimburse) is DELETED.

2. The case is REMANDED to the court of origin for further proceedings to determine the facts essential to the proper application of Articles 448 and 546 of the Civil Code, specifically to the following matters:

a. Spouses Vicente and Rosario Macasaet’s option to appropriate -- as their own -- the improvements on the lots, after paying the indemnity, as provided under Article 546 in relation to Article 448 of the Civil Code; or in requiring Spouses Ismael and Rosita Macasaet to pay for the value of the lots, unless it is considerably more than that of the improvements, in which case petitioners shall pay reasonable rent based upon the terms provided under the Civil Code

b. The value of the useful expenses incurred by Spouses Ismael and Rosita Macasaet in the construction of the improvements on the lots

c. The increase in value acquired by the lots by reason of the useful improvements

d. Spouses Vicente and Rosario Macasaet’s choice of type of indemnity to be paid (whether b or c)

e. Whether the value of the lots is considerably more than that of the improvements built thereon

No pronouncement as to costs.

SO ORDERED.

G.R. No. L-4529 December 29, 1952

VICENTE M. COLEONGCO, petitioner, vs.PEDRO F. REGALADO and LEONOR MONTILLA, respondents.

Jose Ur. Carbonell for petitioner.Jose M. Estacion and Remigio M. Peña for respondents.

 

JUGO, J.:

The Court of Appeals (5th Division) rendered the following decision, the facts of which cannot be reviewed by this court:

D E C I S I O N

FELIX, J.:

Antecedents. — Prior to September of 1944, Pedro F. Regalado was the owner of lot No. 1205-A of plan Psd. 12393, G.L.R.O. cadastral record No. 55, situated at barrio Mandalagan, Municipality of Bacolod, Province of Negros Occidental, of which lot No. 157 of the subdivision plan Psd. 12395 was a portion. In this lot there was erected a building which in September of 1944, was being occupied by the forces of the Japanese Army. In that month of September Pedro F. Regalado sold lot No. 157 to Vicente M. Coleongco who thus became the owner of the lot, covered by transfer certificate of title No. 663 of the Land Records of Negros Occidental. The total area of the lot was 1,000 square meters, and the land occupied by the house was 245 square meters. Until the year of 1947, the assessed value of the whole lot and the house was P1,156 and P4,500, respectively.

It appears from the records that Vicente M. Coleongco contended that the house erected on lot 157 was included in the sale to him of this property, and when the City of Bacolod was liberated by the American Forces that succeeded the Japanese and occupied said house for about two months, Coleongco received from the local office of the AFWESPAC as rentals for such occupation the sum of $93.75 or P137.50. It so happened, however, that after the American Forces vacated the house, Pedro F. Regalado occupied the same, so Vicente M. Coleongco instituted Civil Case No. 185 of the Court of First Instance of Negros Occidental, which on March 21, 1947, decided that the improvement of lot No. 157, consisting of a residential house, was the property of the defendant therein Pedro F. Regalado. From that decision Coleongco appealed to the Court of Appeals, but on August 28, 1947, this tribunal declared the appeal abandoned.

The case. — One month before this outcome in the Court of Appeals of said case No. 185, or on July 21, 1947, Vicente M. Coleongco filed the complaint that gave rise to the present action. On September 20, 1947, Pedro F. Regalado, in consideration of the sum of P3,500, deeded and sold said house to Leonor Montilla Vda. de Peña, who was duly apprised of the present case that was pending against the vendor (Annex A). This transaction was supplemented by contract Annex B, dated October 3, 1947, wherein the vendee Leonor Montilla expressly admitted that she had knowledge of the existence of this civil case (docket No. 718 of the Court of First Instance of Negros Occidental) concerning the house object of the sale, assumed whatever rights and obligations might arise with respect to such civil case, and freed and liberated the vendor Regalado from the result of the case. Because of these transactions between Regalado and Mrs. Montilla, on or about October 22, 1947, the plaintiff amended his

complaint including Leonor Montilla as party defendant. In the amended complaint it is prayed that after due hearing the defendants be condemned:

1. To pay unto the plaintiff the monthly rental of sixty pesos (P60) for his premises during the period occupied by said defendants;

2. To order the defendants to remove or clear the house from the plaintiff's premises;

3. To pay the costs of the suit; and

4. To grant such relief or other remedies which the court may consider just and equitable.

On November 3, 1947, Atty. Vivencio T. Ibrado, signing over the title of "Attorney for the Defendant", filed an answer to the amended complaint with counterclaim, praying the court that:

1. The complaint of the plaintiff be dismissed, with costs against the plaintiff;lawphil.net

2. That the Honorable Court fix the rental for the occupation of the 245 square meters of the lot in question and that said rental be made effective only from August 28, 1947;

3. That the plaintiff be ordered to pay to the defendant the sum of ninety-three dollars and seventy-five cents ($93.75);

4. That the Honorable Court fix the value of the lot in question and order the plaintiff to sell the lot to the defendant;

5. To grant such other remedies as this Honorable Court may deem just and equitable in the premises;

Defendant Leonor Montilla did not file a separate answer to the amended complaint, and on motion of the plaintiff the court by order of February 11, 1948, declared Leonor Montilla in default over the objection of both defendants who claimed that the answer to the amended complaint filed by Attorney Ibrado on November 3, 1947, used the words "defendants" in various parts of the answer, and that it was intended to be the answer for both.

After proper proceedings and hearing, on January 3, 1949, the court rendered judgment, the dispositive part of which, translated into English, is as follows:lawphil.net

"In view of the foregoing, the court renders judgment in this case, sentencing the defendants to pay the plaintiff the monthly sum of P14.06 from September, 1945, as rentals, with legal interest thereon from the date of the filing of the complaint in this case, and providing that the sum of $93.75 or P187.50, its equivalent in Philippine currency, he deducted from the total sum of said rents.

"Defendants are ordered to vacate the building from the portion of the lot on which it is erected within the period of two months from the date this decision becomes final, and to that end they are ordered to remove the building from the said portion of the lot within the aforementioned period.

"The costs are taxed against the defendants."

From this decision both defendants appealed, and in this instance their counsel maintains that the lower court erred:

1. In declaring the appellant Leonor Montilla in default;

2. In sentencing the defendants to pay the plaintiff the monthly rental of P14.06 for the portion of lot No. 157 of subdivision plan Psd-12395 from the month of September, 1945, with legal-interest from the date of the presentation of the complaint;

3. In ordering the appellants to remove their house from the portion of the lot occupied by the same within the period of two months from the date its decision becomes final; and

4. In not absolving the defendants from the complaint and in sentencing them to pay the costs of this suit.

Discussion of the controversy. — Before the presentation of evidence at the hearing, the parties entered into the following stipulation of facts, to wit:

"1. That the parties are all of legal age and residents of the City of Bacolod, Philippines;

"2. That since the month of September, 1944, the plaintiff became the registered owner of lot No. 157 of the subdivision plan Psd-12395, which is a portion of lot No. 1205-A of subdivision plan Psd-12393, G.L.R.O. cadastral record No. 55, situated in the City of Bacolod and described in the transfer certificate of title No. 663 (P.R.);

"3. That be decision rendered in civil case No. 185 by this same court and which is now final, defendant Pedro F. Regalado was declared the owner of the building of strong materials erected on said lot;

"4. That actual assessed value of said lot is P5,625;

"5. That said building is also assessed at P4,500;

"6. That on October 30, 1946, the lot in question was assessed at P1,312.50;

"7. That said lot has an area of 1,000 square meters;

"8. That the portion of the same occupied by the building existing thereon is of an area of 245 square meters;

"9. That in the month of September of 1947, defendant Pedro F. Regalado sold said building to his co-defendant Leonor Montilla for the sum of P3,500, of which amount the vendee paid the vendor, at the time of the execution of the deed of sale, the sum of P2,000, binding herself to pay the balance of P1,500 on or before October 31, 1947. Defendants Pedro F. Regalado and Leonor Montilla have executed a contract supplementary to the previous deed of sale, by virtue of which said Leonor Montilla acknowledged the existence of the present case and assumed the obligation of paying whatever rents and of complying with whatever obligations the court would impose on the defendant Pedro F. Regalado."

Aside from this stipulation and the facts appearing in the preceding narration of the antecedents and of the statement of the case, plaintiff-appellee declared that he desired to take possession of the portion of the lot occupied by the questioned building because he intended to construct his own house, as he was then paying rents for the lease of his residence at a rate higher than the amount he is entitled to receive as rents from the portion of the land occupied by the building of the defendants.

A perusal of the record discloses that the present action for ejectment was instituted on July 21, 1947, before plaintiff's appeal in Case No. 185 was finally declared abandoned in the Court of Appeals, and the fact that in said case Coleongco unsuccessfully claimed to be the owner of the house in litigation does not preclude his right to depart from his former contention and to institute these ejectment proceedings to compel the defendants to vacate his lot and to remove therefrom the building which at first he maintained to be his, and to further demand payment of the corresponding rentals for the occupancy of the lot by said building from September, 1944, when he bought the property, up to the time said building is actually removed, except, of course, for the period that he might have occupied or used that building. But the record is silent about such use and all indications are that from September of 1944, the house was first occupied by the Japanese, then by the American Forces, after liberation, and right afterwards in September of 1945 by defendant Regalado himself and by his successors in interest. The lower court, however, sentenced the defendants to pay rents from September, 1945, and as plaintiff has not appealed from that ruling, We can only consider the adequacy of the amount fixed by the court as rentals from September, 1945.

With regard to defendant Leonor Montilla's alleged default, and despite the considerations made by the lower court in its order of February 11, 1948, we are of the opinion that the answer with the counterclaim filed by Attorney Ibrado on November 3, 1947, should have been considered as submitted for both defendants: firstly, because the attorney that filed that answer specifically so stated; and, secondly, because the grammatical errors in the use of the verbs in connection with the word "defendants", as for example in the expression of "defendants alleges", should not be charged against any of them who did not prepare that pleading and, under the circumstances, should not be deprived of any right on account of the careless preparation thereof. Notwithstanding this opinion, we hold that the ruling of the lower court on this point is of no sequence, because both defendants had common interests and the defenses, and the rights of appellant Leonor Montilla have been properly attended to by her co-appellant Pedro F. Regalado.

The action which originally was instituted as an ejectment case for the main purpose of causing the removal of defendants' building from plaintiff's lot — and was filed directly in the Court of First Instance of Occidental Negros because the right of action had accrued since September of 1944 — was enlarged by defendants' counterclaim to include plaintiff's right of accession prescribed in article 361 of the old Civil Code. In passing upon the merits of the controversy on this question at issue, we may state that it is not disputed that the building in litigation was formerly the property of Pedro F. Regalado and presently of Leonor Montilla, that this building was constructed in good faith, and consequently, that the enjoyment and possession thereof must be considered to have been always in good faith. Our Civil Code provides:

"ART. 358. What is built, planted or sown on another's land and any improvements or repair made on it, belongs to the owner of the land, subject to the provisions of the following articles.

"ART. 361. The owner of land on which anything has been built, sown or planted, in good faith, shall be entitled to appropriate the thing so built, sown, or planted, upon paying the compensation mentioned in articles 453 and 456, or to compel the person who has built or planned to pay him the value of the land, and the person who sowed thereon to pay the proper rent therefor.

"ART. 453. Necessary expenditures shall be refunded to every possessor; but only the possessor in good faith may retain the thing until they are repaid to him.

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

"ART. 454. Expenditures purely for ostentation or mere pleasure shall not be repaid the possessor in good faith; but he may remove the ornaments with which he has established the principal thing if it does not suffer injury thereby and if the successor in the possession does no prefer to refund the amount expended.

"In view of this legal provisions, we have to declare that the right of the owner of a lot to have the same vacated or cleared from any construction or improvement belonging to another which built it in good faith, is to be subordinated to and without prejudice of whatever rights the owner and builder in good faith of the improvement may have. We, therefore, cannot now act favorably on plaintiff's complaint for ejectment disregarding defendants' rights either to pay for the acquisition of lot No. 157 or of being paid the value of the building erected thereon, at the option of the plaintiff.

"As regards the amount of monthly rents that appellants were condemned to pay the plaintiff, the following considerations must be taken into account, to wit: (a) that although the portion of lot 157 actually occupied by the building is of an area of 245 square meters, for the purpose of fixing the rent in this case the assessed value of the whole lot should be had in mind, as there is no evidence that the occupied portion of said lot had been devoted to any use other than as site of the house in question; (b) that the amount of the rent that defendants should have been sentenced to pay for the period of from September, 1945, to the end of 1946 should have been fixed in

accordance with its former assessed value of P1,312.50; (c) that from January of 1947, the assessed value of P5,625 should be the one determining the proper amount of the rents; (d) that section 3 of Commonwealth Act No. 689 promulgated October 15, 1945, prescribes that "in the case of the lease for the occupation of the lot, the rents shall be presumed unjust and unreasonable if the amount thereof per annum likewise exceeds twenty per centum of the annual assessment value of said lot"; (e) that although Executive Order No. 62, issued on June 21, 1947, reduced the annual rent demandable to an amount not exceeding twelve per centum of the assessed value, said Executive Order was declared null and void for having been issued without authority of law (Araneta vs. Dinglasan, * 45 Off. Gaz., No. 10, p. 4411); (f) that on the strength of the provisions of law quoted, the amount of the rent that ought to have been fixed as monthly rent in this case is P21.875 from September, 1944, up to December, 1946, and P93.75 from January of 1947, up to the time of actual removal of the building form the lot, or to the time when the parties would come to an agreement as per article 361 of the old Civil Code; (g) that the aggregate sum of such rents being greater than the amount fixed by the lower court, and even greater than the amount that plaintiff prayed for in the complaint, and as plaintiff has not appealed from the amount fixed in this decision of the lower court, we are not in a position to increase or modify the amount of the rents the defendants have been sentenced to pay to the plaintiff.

Wherefore, the decision appealed from is hereby affirmed in so far as it condemns the defendants to pay to the plaintiff as monthly rents the sum of P14.06 from September, 1945, with legal interest thereon from the date of the filing of the complaint (July 21, 1947), from the total of which the sum of P187.50 should be deducted. The decision is reversed as to the rest and this case is returned to the lower court, with instructions to give the plaintiff an opportunity to exercise his right of option granted to him by article 361 of the old Civil Code, without pronouncement as to cost. It is so ordered.

ALFONSO FELIXAssociate Justice

We concur:

M. L. DE LA ROSAAssociate Justice

EMILIO PEÑAAssociate Justice

Coleongco contended that in September, 1944, he bought not only the lot above-mentioned but also the house erected thereon. He instituted an action in civil case No. 185 of the Court of First Instance of Occidental Negros, in order to be declared the owner of the house. However, the Court of First Instance, on March 21, 1947, decided that said house was the property of the defendant Pedro F. Regalado, not sold to Coleongco. Coleongco appealed to the Court of Appeals but latter on said Court declared the appeal abandoned and the decision of the Court of First Instance became final. This decision is to the effect that Regalado, being the owner of both the lot and the house, sold only the lot to Coleongco, retaining ownership of the house. Consequently, Regalado or his successor Leonor Montilla should remove said house from the lot without any compensation from Coleongco.

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 the 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.

In view of the foregoing, the decision of the Court of Appeals is modified by ordering Regalado and his successor Leonor Montilla to remove the above-mentioned house from the lot of Coleongco, without any obligation on the part of the latter to pay any compensation to Regalado or his successor Montilla. In all other respects, the decision of the Court of Appeals is affirmed with costs against respondents Regalado and Montilla. So ordered.

G.R. No. 115814 May 26, 1995

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

 

DAVIDE, JR., J.:

This petition for review on certiorari seeks to set aside the decision 1 of the Court of Appeals in CA-G.R. SP No. 32679 affirming in part the order 2 of the Regional Trial Court (RTC) of Quezon City, Branch 101, in Civil Case No. Q-41470.

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

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

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.