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-21783          November 29, 1969

PACIFIC FARMS, INC., plaintiff-appellee, vs.SIMPLICIO G. ESGUERRA, ET AL., defendants,CARRIED LUMBER COMPANY, defendant-appellant.

Primicias, Del Castillo, Macaraeg and T. P. Regino for defendant-appellant.Araneta and Araneta for plaintiff-appellee.

CASTRO, J.:

Before us for review, on appeal by the defendant Carried Lumber Company (hereinafter referred to as the Company), is the decision, dated May 30, 1962, of the Court of First Instance of Pangasinan in civil case D-1317, annulling the levy and certificate of sale covering six buildings owned by the plaintiff Pacific Farms, Inc., executed by the defendant deputy provincial sheriff Simplicio G. Esguerra in favor of the Company to satisfy a money judgment against the Insular Farms, Inc., the plaintiff's predecessor-in-interest over the said buildings.

The environmental setting is uncontroverted.

On several occasions from October 1, 1956 to March 2, 1957 the Company sold and delivered lumber and construction materials to the Insular Farms, Inc. which the latter used in the construction of the aforementioned six buildings at its compound in Bolinao, Pangasinan, of the total procurement price of P15,000, the sum of P4,710.18 has not been paid by Insular Farms, Inc. Consequently, on October 17, 1958 the Company instituted civil case D-775 with the Court of First Instance of Pangasinan to recover the said unpaid balance from the Insular Farms, Inc. On August 23, 1961 the trial court rendered judgment sustaining the Company's claim. The judgment debtor did not appeal; so on December 19, 1961 the corresponding writ of execution was issued. On January 16, 1962 the defendant sheriff levied upon the six buildings. On January 30, 1962 the Pacific Farms, Inc. filed a third-party claim, subscribed by its corporate president, asserting ownership over the levied buildings which it had acquired from the Insular Farms, Inc. by virtue of a deed of absolute sale executed on March 21, 1958, about seven months before the Company filed the above-mentioned action (civil case D-775). Shielded by an indemnity bond of P7,120 put up by the Company and the Cosmopolitan Insurance Company, Inc., the sheriff proceeded with the announced public auction on February 12, 1962 and sold the levied buildings to the Company for P6,110.78.

Asserting absolute and exclusive ownership of the buildings in question, the Pacific Farms, Inc. filed a complaint on May 14, 1962 against the Company and the sheriff with the court a quo, praying that judgment be rendered, (a) declaring null and void the levy and judicial sale of the six buildings, and (b) adjudging the defendants jointly and severally liable to the plaintiff in the sum of P2,000 by way of actual damages and for such amount as the court may deem proper and just to impose by way of exemplary damages and for costs of the suit.

After due trial, the court a quo on May 30, 1963 rendered judgment annulling the levy of January 16, 1962 and the certificate of sale of February 12, 1962. The court, however, denied the plaintiff's claim for actual and exemplary damages on the ground that it was not "prepared to find that there was gross negligence or bad faith on the part of any of the defendants."

Hence this appeal, imputing errors which, according to the appellant's formulation, are the following:

1. The lower court erred in holding that the credit of the defendant-appellant, Carried Lumber Company, against the Insular Farms, Inc., consisting of the value of lumber and construction materials used in the buildings which were later acquired by the Pacific Farms, Inc., the appellee, was not a statutory lien on those buildings; .

2. The lower court, likewise, erred in holding that the doctrine laid down in De Barretto, et al. vs. Villanueva, et al. (G.R. No. L-14938, December 29, 1962) is applicable to the facts of this case as found by said court; and .

3. The lower court erred, finally, in declaring that the sale at public auction conducted by the defendant deputy provincial sheriff of Pangasinan, covering the six buildings described in the certificate of sale dated February 12, 1962, was null and void.

1. In ruling against the appellant below, the trial court relied mainly on the resolution (on the motion for reconsideration) promulgated on December 29, 1962 by this Court in De Barretto, et al. vs. Villanueva, et al., L-14938 (6 SCRA 928). The said case, however, is inapplicable because it concerned not one but two or more preferred creditors who, pursuant to articles 2242 and 2249 of the Civil Code, must necessarily be convened and the nature and extent of their respective claims ascertained. Thus, we held that before there can be a pro rata payment of credits entitled to preference as to the same specific real property, there must first be some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent's estate under Rule 87 of the Rules of Court, or liquidation proceedings of similar import.

But the case before us does not involve a question of preference of credits, and is not one where two or more creditors have separate and distinct claims against the same debtor who has insufficient property. Indeed, it is a matter of necessity and logic that the question of preference should arise only where the debtor cannot pay his debts in full. For, if debtor A is able in full to pay all his three creditors, B, C, and D, how can the need arise for determining which of the three creditors shall be paid first or whether they shall be paid out of the proceeds of a specific property?

2. It is undenied and undeniable that the appellant furnished lumber and construction materials to the Insular Farms, Inc. (the appellee's predecessor-in-interest) which the latter used in the construction of the six buildings. Likewise unchallenged is the lower court's factual finding that out of the total procurement price of P15,000, the amount of P4,710.18 remains outstanding and unpaid by the Insular Farms, Inc. The appellant is therefore an unpaid furnisher of materials.

Whether there exists a materialman's lien over the six buildings in favor of the appellant, is a question we do not here decide. To our mind the application by analogy of the rules of accession would suffice for a just adjudication.

Article 447 of the Civil Code1 provides:

The owner of the land who makes thereon personally or through another, plantings, constructions or works with the materials of another, shall pay their value; and, if he acted in bad faith, he shall also be obliged to the reparation of damages. The owner of the materials shall have the right to remove them only in case he can do so without injury to the work constructed, or without the plantings, constructions or works being destroyed. However, if the landowner acted in bad faith, the owner of the materials may remove them in any event with a right to be indemnified for damages.

The abovequoted legal provision contemplates a principal and an accessory, the land being considered the principal, and the plantings, constructions or works, the accessory. The owner of the land who in good faith — whether personally or through another — makes constructions or works thereon, using materials belonging to somebody else, becomes the owner of the said materials with the obligation however of praying for their value.2The owner of the materials, on the other hand, is entitled to remove them, provided no substantial injury is caused to the landowner. Otherwise, he has the right to reimbursement for the value of his materials.

Although it does not appear from the records of this case that the land upon which the six buildings were built is owned by the appellee, nevertheless, that the appellee claims that it owns the six buildings constructed out of the lumber and construction materials furnished by the appellant, is indubitable. Therefore, applying article 447 by analogy, we perforce consider the buildings as the principal and the lumber and construction materials that went into their construction as the accessory. Thus the appellee, if it does own the six buildings, must bear the obligation to pay for the value of the said materials; the appellant — which apparently has no desire to remove the materials, and, even if it were minded to do so, cannot remove them without necessarily damaging the buildings — has the corresponding right to recover the value of the unpaid lumber and construction materials.

Well-established in jurisprudence is the rule that compensation should be borne by the person who has been benefited by the accession.3 No doubt, the appellee benefited from the accession, i.e., from the lumber and materials that went into the construction of the six buildings. It should therefore shoulder the compensation due to the appellant as unpaid furnisher of materials.

Of course, the character of a buyer in good faith and for value, if really possessed by the appellee, could possibly exonerate it from making compensation.

But the appellee's stance that it is an innocent purchaser for value and in good faith is open to grave doubt because of certain facts of substantial import (evident from the records) that cannot escape notice.

In the deed of absolute sale, exhibit 1, the Insular Farms, Inc. (vendor) was represented in the contract by its president, J. Antonio Araneta. The latter was a director of the appellee (Pacific Farms, Inc.) and was the counsel who signed the complaint filed by the appellee in the court below. J. Antonio Araneta was, therefore, not only the president of the Insular Farms, Inc. but also a director and counsel of the appellee.

During the trial of civil case D-775 the Insular Farms, Inc. was represented by Attorney Amado Santiago, Jr. of the law firm of J. Antonio Araneta. The latter was one of the counsels of the Pacific Farms, Inc. The appellee cannot claim ignorance of the pendency of civil case D-775 because the Insular Farms, Inc. was defended by the same lawyer from the same law firm that commenced the present action. J. Antonio Araneta, as counsel for the Pacific Farms, Inc., cannot close his eyes to facts of which he as president of the Insular Farms, Inc. had actual knowledge. Significantly, exhibit 1 (supra) itself shows that the Insular Farms, Inc. and the Pacific Farms, Inc. were housed in adjacent rooms (nos. 304 and 303, respectively), of the same building, the Insular Life Building, as early as March 21, 1958.

It is reasonable therefore to conclude that the appellee, through its director and counsel, J. Antonio Araneta, knew about the unpaid balance of the purchase price of the lumber and construction materials supplied or furnished by the appellant to the Insular Farms, Inc.

Parenthetically, it is likewise worth our attention that despite the appellee's knowledge of the suit instituted by the appellant against the Insular Farms, Inc. (the appellee's predecessor-in-interest) for the recovery of the unpaid balance of the purchase price of the lumber and materials used in the construction of its six buildings, it merely folded its arms in disinterest and waited, so to speak. Not until a decision was rendered therein in favor of the appellant, a writ of execution issued, and the six buildings levied upon by the sheriff, did it file a third-party claim over the levied buildings. In the face of the knowledge that its predecessor-in-interest had not fully paid for the lumber and construction materials used in the six buildings it had purchased, its natural and expected reaction should have been to intervene in the suit filed by the appellant against the Insular Farms, Inc. and hold the latter to account for breach of the warranties deemed included in the deed of absolute sale conveying said building to it.

Curiously enough, although the six buildings in question were supposedly sold by the Insular Farms to the appellee on March 21, 1958, as evidenced by the deed of absolute sale (exhibit 1), about seven months before the appellant filed civil case D-775, the Insular Farms, Inc. never moved to implead the appellee therein as a necessary party-defendant, and remained completely and strangely silent about the sale. It is not amiss to surmise that it is entirely possible that the Insular Farms, Inc. and the appellee chose to remain silent in the hope that the appellant's claim against the Insular Farms, Inc. in civil case D-775 would be dismissed or non-suited.

Moreover, the appellee was in a better position to protect its interest. It knew that the Insular Farms, Inc., its predecessor-in-interest, was a mere lessee of the premises on which the buildings were located. This should have placed it on guard and compelled it to ascertain the circumstances surrounding the construction of the said buildings on the premises.

On the other hand, the appellant was not as advantageously situated as the appellee. There being no separate registry of property for buildings and no procedure provided by law for registering or annotating the claim of an unpaid furnisher of materials, it was helpless to prevent the sale of the property built from lumber and construction materials it furnished. But certainly, because it has a right, pursuant to article 447, supra, to reimbursement for the value of its unpaid materials, the appellant could pursue any remedy available to it under the law in order to enforce the said right. Thus, the appellant acted correctly in bringing an action (D-775) against the Insular Farms, Inc. and enforcing its right of reimbursement through the execution of the final judgment it obtained in the said case against the six buildings in the possession of the appellee who now stands to benefit therefrom. It follows, as a necessary corollary, that the sale at public auction conducted by the defendant sheriff of the six buildings described in the certificate of sale dated February 12, 1962, exhibit 7, was valid and effective.

ACCORDINGLY, the judgment a quo is reversed, and the complaint is hereby dismissed.

In view, however, of the equities clearly attendant in this case, it is the sense of this Court that the plaintiff-appellee Pacific Farms, Inc. should be, as it is hereby, granted a period of thirty (30) days from the date this judgment becomes final, within which it may exercise the option of redeeming the six buildings, by paying to the defendant-appellant Carried Lumber Company the sum of P4,710.18, with legal interest from September 23, 1961 (the date the judgment in civil case D-775 became final), until the said amount shall have been fully paid.

No pronouncement as to costs.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and Barredo, JJ., concur.Concepcion, C.J., concurs in the result.

G.R. No. L-44606             November 28, 1938

VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant, vs.CATALINO BATACLAN, defendant-appellant. TORIBIO TEODORO, purchaser-appellee.

Pedro de Leon for plaintiff-appellant. Angel H. Mojica and Francisco Lavides for defendant appellant. Jose Y. Garde for appellee.

 

LAUREL, J.:

This is an appeal taken by both the plaintiff and the defendant from the order of September 26, 1935, hereinabove referred to, of the Court of First Instance of Cavite in Civil Case No. 2428.

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

Por las consideraciones expuestas, se declara al demandante Vicente Santo Domingo Bernardo dueño con derecho a la posesion del terreno que se describe en la demanda, y al demandado Catalino Bataclan con derecho a que del demandante le pague la suma de P1,642 por gastos utiles hechos de buena fe en el terreno, y por el cerco y ponos de coco y abaca existentes en el mismo, y con derecho, ademas a retener la posesion del terreno hasta que se le pague dicha cantidad. Al demandante puede optar, en el plazo de treinta dias, a partir de la fecha en que fuere notificado de la presente, por pagar esa suma al demandado, haciendo asi suyos el cerco y todas las plantaciones existentes en el terreno, u obligar al demandado a pagarle el precio terreno, a razon de trescientos pesos la hectarea. En el caso de que el demandante optara por que el demandado le pagara el precio del terreno, el demandado efectuara el pago en el plazo convenientes por las partes o que sera fijado por el Juzgado. Sin costas.

Both parties appealed to this court (G. R. No. 37319). 2 The decision appealed from was modified by allowing the defendant to recover compensation amounting to P2,212 and by reducing the price at which the plaintiff could require the defendant to purchase the land in question from P300 to P200 per hectare. Plaintiff was given by this court 30 days from the date when the decision became final within which to exercise his option, either to sell the land to the defendant or to buy the improvements from him. On January 9, 1934, the plaintiff manifested to the lower court his desire "to require the defendant to pay him the value of the land at the rate of P200 per hectare or a total price of P18,000 for the whole tract of land." The defendant informed the lower court that he was unable to

pay the land and, on January 24, 1934, an order was issued giving the plaintiff 30 days within which to pay the defendant the sum of P2,212 stating that, in the event of failure to make such payment, the land would be ordered sold at public auction "Para hacer pago al demandante de la suma de P2,212 y el remanente despues de deducidos los gastos legales de la venta en publica subasta sera entregado al demandante." On February 21, 1934, plaintiff moved to reconsider the foregoing order so that he would have preference over the defendant in the order of payment. The motion was denied on March 1, 1934 but on March 16 following the court below, motu proprio modified its order of January 24, "en el sentido de que el demandante tiene derecho preferente al importe del terreno no se vendiere en publica subasta, a razon de P200 por hectares y el remanente, si acaso lo hubiere se entregara al demandado en pago de la cantidad de P2,212 por la limpieza del terreno y las mejoras introducidas en el mismo por el citado demandado." On April 24, 1934, the court below, at the instance of the plaintiff and without objection on the part of the defendant, ordered the sale of the land in question at public auction. The land was sold on April 5, 1935 to Toribio Teodoro, the highest bidder, for P8,000. In the certificate of sale issued to said purchaser on the very day of sale, it was stated that the period of redemption of the land sold was to expire on April 5, 1936. Upon petition of Toribio Teodoro the court below ordered the provincial sheriff to issue another certificate not qualified by any equity of redemption. This was complied with by the sheriff on July 30, 1935. On September 18, 1935, Teodoro moved that he be placed in possession of the land purchased by him. The motion was granted by order of September 26, 1935, the dispositive part of which is as follows:

Por tanto, se ordena al Sheriff Provincial de Cavite ponga a Toribio Teodoro en posesion del terreno comprado por el en subasta publica y por el cual se le expidio certificado de venta definitiva, reservando al demandado su derecho de ejercitar una accion ordinaria para reclamar del demandante la cantidad de P2,212 a que tiene derecho por la limpieza y mejoras del terreno y cuya suma, en justicia y equidad, debe ser descontada y deducida de la suma de P8,000 que ya ha recibido el demandante.

The Civil Code confirms certain time-honored principles of the law of property. One of these is the principle of accession whereby the owner of property acquires not only that which it produces but that which is united to it either naturally or artificially. (Art. 353.) Whatever is built, planted or sown on the land of another, and the improvements or repairs made thereon, belong to the owner of the land (art. 358). Where, however, the planter, builder, or sower has acted in good faith, a conflict of rights arises between the owners and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticability of creating what Manresa calls a state of "forced coownership" (vol. 3, 4th ed., p. 213), the law has provided a just and equitable solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity or to oblige the builder or planter to pay for the land and the sower to pay the proper rent (art. 361). It is the owner of the land who is allowed to exercise the option because his right is older and because, by the principle of accession, he is entitled to the ownership of the accessory thing (3 Manresa, 4th ed., p. 213). In the case before us, the plaintiff, as owner of the land, chose to require the defendant, as owner of the improvements, to pay for the land.

The defendant states that he is a possessor in good faith and that the amount of P2,212 to which he is entitled has not yet been paid to him. Therefore, he says, he has a right to retain the land in accordance with the provisions of article 453 of the Civil Code. We do not doubt the validity of the premises stated. "Considera la ley tan saarada y legitima la deuda, que, hasta que sea pagada, no consiente que la cosa se restituya all vencedor." (4 Manresa, 4th ed, p., 304.) We find, however, that the defendant has lost his right of retention. In obedience to the decision of this court in G.R. No. 37319, the plaintiff expressed his desire to require the defendant to pay for the value of the land. The said defendant could have become owner of both land and improvements and continued in possession thereof. But he said he could not pay and the land was sold at public auction to Toribio Teodoro. The law, as we have already said, requires no more than that the owner of the land should

choose between indemnifying the owner of the improvements or requiring the latter to pay for the land. When he failed to pay for the land, the defendant herein lost his right of retention.

The sale at public auction having been asked by the plaintiff himself (p. 22, bill of exceptions) and the purchase price of P8,000 received by him from Toribio Teodoro, we find no reason to justify a rapture of the situation thus created between them, the defendant-appellant not being entitled, after all, to recover from the plaintiff the sum of P2,212. lawphi1.net

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

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

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 REMANDEDto 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 byArticle 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,44like 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.

CONCHITA CARPIO MORALES

Associate Justice

G.R. No. L-17985             September 29, 1962

GIL SAN DIEGO and RUFINA SAN DIEGO, petitioners, vs.THE HON. AGUSTIN P. MONTESA, Judge, Court of First Instance of Bulacan, et al., respondents.

Isidro T. Almeda for petitioners.Jose P. Osorio for respondents.

REYES, J.B.L., J.:

Presented before us in this petition for mandamus is the peculiar case of party-defendants insisting on, and prevailing party-plaintiffs resisting, the execution of a final and executory decision.

To understand this peculiarity, we will state briefly facts leading to the controversy.

After trial in Civil Case No. 770 of the Court of First Instance of Bulacan, on complaint of Jose, Maria and Urbano all surnamed "de la Cruz", to recover a parcel of land and damages from Gil San Diego and Rufino San Diego, the Court (Hon. Jesus Y. 

Perez, presiding) rendered a decision, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, the Court hereby rendered considers judgment as follows:

(a) Declaring the deed of sale, Exhibit 3, null and void;

(b) Ordering the defendants and third-party plaintiffs to vacate the land in question upon payment to them by the plaintiffs and third-party defendants, within thirty (30) days after this decision has become final, of the sum of THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00);

(c) Dismissing the counterclaim of the third-party defendants; and

(d) No pronouncement as to costs.

The court found that the disputed portion of a parcel of land belonged to the plaintiffs through hereditary succession; that the defendants built a house on the land in good faith, having acquired the land from Catalina Anastacio, mother of the plaintiffs, by purchase for P1,000.00. During the proceedings, the defendants filed a third-party complaint against said vendor. The vendor (mother of plaintiffs) subsequently died; hence, herein respondent who were the plaintiffs, became at the same time third-party defendants in substitution of their deceased mother. The court voided the sale on the

ground that the vendor had no right to the land, but upheld the defense of defendants as builders in good faith.

On appeal by the plaintiffs and third-party defendants, the Court of Appeals affirmed in toto the lower court's decision, and the same, thereafter, became final and executory. Over two years later, the defendants and third party plaintiffs, who were in possession of the parcel of land in litigation, moved to execute paragraph (b) of the aforequoted dispositive portion of the decision in order to collect the sum of P3,500.00 and thereafter to vacate the premises. The motion was denied by the court (Hon. Agustin P. Montesa presiding), and a motion for reconsideration was likewise of no avail Hence, the instant petition for mandamus was filed to compel the respondent judge to issue the writ applied for. 1awphîl.nèt

Petitioners' argument is that the pertinent part of the dispositive portion of the decision ordains, first, that they vacate the land, and second, that the plaintiffs pay P3,500.00 within 30 days after this decision becomes final,

with the connecting preposition "upon" unmistakably denoting that the second (payment of indemnity) is a condition precedent to the first (vacation of the premises). (Memorandum for Petitioners, p. 5)

They hold the view that the respondents should pay them first before they vacate, and not vice-versa; and that they are entitled now to insist on the payment through a writ of execution.

Respondents, upon the other hand, contend:

(1) That petitioners have no right to the writ of execution, because as absolute owners of the land, the respondents have the right, under Article 448, to exercise the option to either pay the value of improvements or demand reasonable rent if respondents do not choose to appropriate the building;

(2) That in fact respondents have elected to demand payment of rentals on land actually occupied by petitioners' building at TEN PESOS a month, and made a demand therefor immediately after the finality of the Court of Appeals decision, because the amount of P3,500.00 is exorbitant, so that the land owners choose to allow petitioners to remain on the land;

(3) That respondents have long suggested to petition that a commissioner be appointed to assess the present fair market value of the building, taking depreciation into account; and

(4) That the denial of the motion for execution is justified because it is premature and has no legal basis.

We find the petition meritorious. The judgment affirmed by the Court of Appeals, and now final, explicitly ordains the payment by the respondents de la Cruz of the amount of P3,500.00 "within 30 days after this decision becomes final" to petitioners San Diego. If it also orders petitioners to vacate only upon the payment, it did so in recognition of the right of retention granted to possessor in good faith by Article 546 of the Civil Code of the Philippines. This provision is expressly made applicable to builders in good faith (Article 448). The right of retention thus granted is merely a security for the enforcement of the possessor's right to indemnity for the improvement comments made by him. As a result, the possessor in good faith, in retaining the land and its improvements pending reimbursement of his useful expenditures, is not bound pay any rental during the period of retention; otherwise the value of his security would be impaired (cf. Tufexis vs. Chunaco (C.A.), 36 O.G. 2455).

Normally, of course, the landowner has the option to either appropriate the improvement or to sell the land to the possessor. This option is no longer open to the respondent landowners because the decision in the former suit limits them to the first alternative by requiring t petitioner's to vacate the land (and surrender the improved comments) upon payment of P3,500.00. Evidently, the Courts of First Instance and of Appeals opined that the respondents suit to recover the property was an exercise their right to choose to appropriate the improvements and pay the indemnity fixed by law. The respondents acquiesced in this view, since they did not ask for a modification of the judgment, and allowed it to become final. Consequently, they can no longer insist on selecting another alternative; nor can they be heard now to urge that the value of the indemnity, set at P3,500.00, is exorbitant for the same reason that the judgment fixing that amount is no longer subject to alteration.

The judgment ordering payment to petitioners of P3,500.00, by way of indemnity, having become final, and the 30 days for its payment having elapsed, the court of first instance has the ministerial duty to order its execution (Zulueta vs. Paredes, 62 Phil. 5; Buenaventura vs. Garcia, 78 Phil. 759; Amor vs. Jugo, 17 Phil. 703; Viquiera vs. Baraña 78 Phil. 456). That duty is compellable by mandamus; and the execution is leviable on any property of respondents de la Cruz, including the land now in question and its improvements.

WHEREFORE, the writ prayed for is granted, and the Court of First Instance of Bulacan is ordered to issue the writ of execution in favor of petitioners. Costs against respondent de la Cruz.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Dizon and Makalintal, JJ., concur.

G.R. No. L-8220           October 29, 1955

SALVACION MIRANDA, plaintiff-appellants, vs.ESTEBAN FADULLON and spouses DIONISIO SEGARRA and CLEMENCIA N. DE SEGARRA, defendants-appellees.

Lopez, Duterte, Guillamac, Rubillos, Montecillo and Bernardo for appellees.Gaudencio R. Juezan for appellant.

MONTEMAYOR, J.:

The present appeal was first taken to the Court of Appeals. Later by resolution of the said court it was certified to us under section 17, paragraph 6 of the Judiciary Act of 1948, as amended, the said Tribunal being of the opinion that the case involved only questions of law. The facts as may be gathered from the pleadings filed by the parties may be briefly stated as follows. In the year 1939 one Lucio Tio was the owner of a parcel of land, lot 1589-J of the Banilad Estate, Cebu, under Transfer Certificate of Title No. 10548. On December 29, 1939, a power of attorney in favor of one Esteban Fadullon executed by Lucio Tio was registered in the land records of Cebu City and annotated on the same certificate of title. In the year 1946, on the strength of the said power of attorney Fadullon to make the repurchase within this period, the Segarras about ten days after the expiration of the period filed a sword petition for the consolidation of their ownership and registered said petition in the office of the Register of Deeds on May 15, 1946. Apprised of the sale of his property, Lucio Tio on June 4, 1946, filed a complaint in the Court of First Instance of Cebu, Civil Case No. 181 to annul the sale. Service of summons was made upon the Segarras on June 10, 1946. After hearing the trial court rendered judgment annulling the sale. The Segarras appealed to the Court of Appeals under CA—G. R. No.6550-R and the said Tribunal affirmed the appealed decision and further required the Segarras to pay plaintiff the reasonable rentals on the property from the filing of the action until said property shall have been returned to plaintiff. Upon the decision becoming final the corresponding writ of execution was issued directing the Sheriff to put plaintiff Tio in possession of the lot. It turned out however that during the possession of the property by the Segarras they had introduced improvements thereon consisting of a building of three rooms and a storage room, and one artesian well, with tower and water tank and a cement flooring covering about one-third of the lot which according to the Segarras cost them P5,300. They then filed a motion with the trial court claiming that they were possessors in good faith of the lot in question, and that they had introduced the improvements aforementioned in good faith and asked the court to order the plaintiff to pay for the said improvements valued at P5,300 or to allow them to buy the land should the plaintiff decide not to pay for the improvements. On August 28, 1952, the trial court issued the following order:

The attorney for the plaintiff has been accordingly served with copy of defendant's motion of July 31, 1952, filed through counsel.

As prayed for, without opposition, the plaintiff is hereby ordered to either pay the defendant spouses, Dionisio Segarra and Clemencia N. Segarra (possessors in good faith) the sum of P5,300, value of the building erected on the land in question, or otherwise allow said defendants to purchase the aforementioned lot.

The plaintiff filed a motion for reconsideration claiming that the Segarras were possessors and builders in bad faith and so were not entitled to reimbursement for the value of the improvements;

that the reason he (plaintiff) did not file an opposition to the motion of the defendants asking for reimbursement was that he thought that the trial court was sufficiently informed and impressed with the bad faith with which defendants bought the land and introduced improvements thereon and that it would consequently deny their motion; and in support of his motion for reconsideration plaintiff quoted portions of the decision of the trial court and the Court of Appeals. Upon the denial of his motion for reconsideration, he took the present appeal.

After a careful review of the record we agree with the plaintiff-appellant. The trial court in its decision declaring the sale of the land to the defendants null and void and commenting on the alleged good faith of defendants in buying the property said the following:

There are two circumstances which seem to stubbornly belie the professed good faith on the part of the Segarras in buying this property; namely. the circumstances of the power-of-attorney appearing on the back of the title as of five or six years previous and the other circumstances of the comparatively limited period of one month granted vendor Fadullon to redeem the property. Above all these, is the further circumstance that the said property had already been mortgaged in favor of the Cebu Mutual Building and Loan Association by virtue of that power-of-attorney.

While the evidence did not disclose a collusion or conspiracy between Fadullon and the Segarras, yet, considering the short period of one month within which to redeem and the surrounding circumstances, the possibility of such collusion lingers.

Obviously there was in this transaction a prevailing intention of railroading the property into a new ownership as may be proven by the fact that said purchasers filed a sworn petition for consolidating their ownership barely ten days after the expiration of thirty days, that is, on April 13, 1946, and registered with the office of Register of Deeds for Cebu twelve days thereafter, or on May 15, 1946.

The Court of Appeals in its decision affirming that of the trial court said:

The Segarra spouses maintain that they are purchasers in good faith. We will now examine the record on this point. The alleged power of attorney executed by the late Lucio Tio in favor of appellant Fadullon was registered in the land record of the Register of Deeds of Cebu Citly and annotated at the back of Transfer Certificate of Title No. 10548 on December 29, 1939. On the same date, the deed of mortgage in favor of the Cebu Mutual Building and Loan Association was annotated in the said Torrens title (Exhibits 1 and 1-B). This encumbrance alone should have been sufficient to put the Segarra spouses upon an inquiry as to the authority of Fadullon to sell to them the same property six years later. For instance, the Segarras could have asked themselves this question: Did not the mortgage of P400 serve the purpose for which the power of attorney was executed?

The Segarras did not require Fadullon to produce his power of attorney. While it is true that said power of attorney is annotated at the back of the Torrens title of Tio, it was still incumbent upon the Segarras to ascertain the scope and authority of Fadullon under said power of attorney. Fadullon executed the sale with the right to repurchase within the extraordinary short period of 30 days. This circumstance, again, should have placed the Segarras on their guards, knowing, as they did, that they were dealing with an agent under a power of attorney executed before the war. These unusual circumstances would seem to engender in our minds the possibility of collusion between the appellants, to hasten the registration of the title of the Segarras to the land in dispute . . .

. . . the transfer of dominion on the property in question to the Segarras was null and void and of no effect. The new Certificate of Torrens Title No. 392 on the property now in the name of the Segarras is hereby ordered cancelled and that a new one issued in the name of Lucio Tio and his wife Salvacion Miranda; ordering the Segarras to return the possession of said property to plaintiff;

The defendants Segarras are furthermore required to pay plaintiff the reasonable rentals on the property from the filing of this action until such time as the said property shall have been returned to plaintiff . . ."

Although neither the trial court nor the Court of Appeals did expressly say and in so many words that the defendants-appellees were possessors in bad faith, from a reading of their decisions particularly those we have just quoted, one can logically infer that that was the conclusion of the two courts, or to say it more mildly, that the defendants were not possessors in good faith. Moreover, the very fact that the Court of Appeals sentenced the defendants to pay rentals is an indication, even proof that defendants were considered possessors and builders in bad faith, or at least that they were not possessors and builders in good faith. 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. Possibly he might be required 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 buy 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 the rental then they can go to the court to fix that amount. Furthermore, plaintiff-appellant in her brief (page 7) says without denial or refutation on the part of defendants-appellees that they (defendants) applied for a building permit to construct the improvements in question on December 4, 1946, and the permit was granted on January 11, 1947, all this about seven months after they received the summons on June 10, 1946, meaning to say that the improvements were introduced long after their alleged good faith as possessors had ended.

In view of the foregoing, the appealed order of August 28, 1952 and the order of October 15, 1952, denying plaintiff's motion for reconsideration are set aside. With costs against appellees.

Paras, C. J., Bengzon, Padilla, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L., JJ.,concur.

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

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners, vs.ELIAS HILARIO and his wife DIONISIA DRES, and FELIPE NATIVIDAD, Judge of First Instance of Pangasinan, respondents.

Leoncio R. Esliza for petitioners.Mauricio M. Monta for respondents.

MORAN, C.J.:

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

Wherefore, judgment is hereby rendered declaring:

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

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

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

No pronouncement is made as to damages and costs.

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

Subsequently, in a motion filed in the same Court of First Instance but now presided over by the herein respondent Judge Hon. Felipe Natividad, the plaintiffs prayed for an order of execution alleging that since they chose neither to pay defendants for the buildings nor to sell to them the residential lot, said defendants should be ordered to remove the structure at their own expense and to restore plaintiffs in the possession of said lot. Defendants objected to this motion which, after

hearing, was granted by Judge Natividad. Hence, this petition by defendants praying for (a) a restraint and annulment of the order of execution issued by Judge Natividad; (b) an order to compel plaintiffs to pay them the sum of P2,000 for the buildings, or sell to them the residential lot for P45; or (c), a rehearing of the case for a determination of the rights of the parties upon failure of extra-judicial settlement.

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

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

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

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

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

We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither to pay for such buildings not to sell the land, is null and void, for it amends substantially the judgment sought to be executed and is, furthermore, offensive to articles 361 and 453 of the Civil Code.

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

For all the foregoing, the writ of execution issued by Judge Natividad is hereby set aside and the lower court ordered to hold a hearing in the principal case wherein it must determine the prices of the buildings and of the residential lot where they are erected, as well as the period of time within

which the plaintiffs-respondents may exercise their option either to pay for the buildings or to sell their land, and, in the last instance, the period of time within which the defendants-petitioners may pay for the land, all these periods to be counted from the date the judgment becomes executory or unappealable. After such hearing, the court shall render a final judgment according to the evidence presented by the parties.

The costs shall be paid by plaintiffs-respondents.

Ozaeta, Paras, Jaranilla, Feria, De Joya, Pablo, Perfecto, Hilado, Bengzon and Briones, JJ., concur.

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

FRANCISCO DEPRA, plaintiff-appellee, vs.AGUSTIN DUMLAO, defendant-appellant.

Roberto D. Dineros for plaintiff-appellee.

Veil D. Hechanova for defendant-appellant.

 

MELENCIO-HERRERA, J.:

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

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

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

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

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

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

On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before the then Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same 34 square meters, which was the bone of contention in the Municipal Court. DUMLAO, in his Answer, admitted the

encroachment but alleged, in the main, that the present suit is barred by res judicata by virtue of the Decision of the Municipal Court, which had become final and executory.

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

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

Without pronouncement as to costs.

SO ORDERED.

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

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

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

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

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

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

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

shall have the right

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

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

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

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

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

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

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

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

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

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

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

. . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el caso de edificacion o plantacion? Algunos comentaristas la conceptuan injusta, y como un extraordinario privilegio en favor de la propiedad territorial. Entienden que impone el Codigo una pena al poseedor de buena fe y como advierte uno de los comentaristas aludidos 'no se ve claro el por que de tal pena . . . al obligar al que obro de buena fe a quedarse con el edificio o plantacion, previo el pago del terreno que ocupa, porque si bien es verdad que cuando edifico o planto demostro con este hecho, que queria para si el edificio o plantio tambien lo es que el que edifico o planto de buena fe lo hizo en la erronea inteligencia de creerse dueno del terreno Posible es que, de saber lo contrario, y de tener noticia de que habia que comprar y pagar el terreno, no se hubiera decidido a plantar ni a edificar. La ley obligandole a hacerlo fuerza su voluntad, y la fuerza por un hecho inocente de que no debe ser responsable'. Asi podra suceder pero la realidad es que con ese hecho voluntario, aunque sea inocente, se ha enriquecido torticeramente con perjuicio de otro a quien es justo indemnizarle,

En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas justa y equitativa y respetando en lo possible el principio que para la accesion se establece en el art. 358. 7

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

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

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

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

Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the

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

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

1. The trial Court shall determine

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

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

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

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

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

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

b) The trial Court shall further order that if DEPRA exercises the option to oblige DUMLAO to pay the price of the land but the latter rejects such purchase because, as found by the trial Court, the value of the land is considerably more than that of the kitchen, DUMLAO shall give written notice of such rejection to DEPRA and to the Court within fifteen (15) days from notice of DEPRA's option to sell the land. In that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which to agree upon the terms of the lease, and give the Court formal written notice of such agreement and its provisos. If no agreement is reached by the parties, the trial Court, within fifteen (15) days from and after the termination of the said period fixed for negotiation, shall then fix the terms of the lease, provided that the monthly rental to be fixed by the Court shall not be less than Ten Pesos (P10.00)

per month, payable within the first five (5) days of each calendar month. The period for the forced lease shall not be more than two (2) years, counted from the finality of the judgment, considering the long period of time since 1952 that DUMLAO has occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the second year of the forced lease. DUMLAO shall not make any further constructions or improvements on the kitchen. Upon expiration of the two-year period, or upon default by DUMLAO in the payment of rentals for two (2) consecutive months, DEPRA shall be entitled to terminate the forced lease, to recover his land, and to have the kitchen removed by DUMLAO or at the latter's expense. The rentals herein provided shall be tendered by DUMLAO to the Court for payment to DEPRA, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the Court.

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

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

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. 15It 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.

G.R. No. 72876 January 18, 1991

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

Dolorfino and Dominguez Law Offices for petitioner.

Ambrosio Padilla, Mempin & Reyes Law Offices for private respondents.

 

FERNAN, C.J.:p

In this petition for review by certiorari, petitioner seeks the reversal of the decision of the Intermediate Appellate Court (now Court of Appeals) affirming in toto the decision of the Court of First Instance of Cavite, ordering petitioner Florencio Ignao to sell to private respondents Juan and Isidro Ignao, that part of his property where private respondents had built a portion of their houses.

The antecedent facts are as follows:

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

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

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

In its decision, the trial court (thru Judge Luis L. Victor) ruled that although private respondents occupied a portion of Florencio's property, they should be considered builders in good faith. The trial

court took into account the decision of the Court of First Instance of Cavite in the action for partition 2 and quoted:

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

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

WHEREFORE, judgment is hereby rendered in favor of the defendants and—

(a) Ordering the plaintiff Florencio Ignao to sell to the defendants Juan and Isidro Ignao that portion of his property with an area of 101 square meters at P40.00 per square meter, on which part the defendants had built their houses; and

(b) Ordering the said plaintiff to execute the necessary deed of conveyance to the defendants in accordance with paragraph (a) hereof.

Without pronouncement as to costs. 5

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

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

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

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

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

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

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

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

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

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

Article 448 provides:

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

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

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

co-owner. The co-owner is not a third person under the circumstances, and the situation is governed by the rules of co-ownership.

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

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

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

Thus, in Quemuel vs. Olaes, 13 the Court categorically ruled that the right to appropriate the works or improvements or to oblige the builder to pay the price of the land belongs to the landowner.

As to the third assignment of error, the question on the price to be paid on the land need not be discussed as this would be premature inasmuch as petitioner Florencio has yet to exercise his option as the owner of the land.

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

SO ORDERED.

Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

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 parties in such eventuality where the builder fails to pay

the value of the land? While the Code is silent on this Court in the cases of Miranda vs. Fadullon, et al., 97 Phil., 801; 51 Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76 Phil., 605 and the cited case of Bernardo vs. Bataclan, supra.

In the first case, this Court has said:

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

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

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

The appellants herein, owners 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.

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

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

Ceferino V. Argueza for petitioner.

Magtanggol C. Gunigundo for respondents.

 

GUTIERREZ, JR., J.:

In a complaint filed by the petitioner for recovery of possession and damages against the private respondent, the then Court of First Instance of Manila rendered judgment, the dispositive portion of which provides inter alia:

WHEREFORE, judgment is hereby rendered:

xxx xxx xxx

xxx xxx xxx

(c) In Civil Case No. 72872, declaring the defendant Nilo Madlangawa as a builder or possessor in good faith; ordering the plaintiff to recognize the right of said defendant to remain in Lot No. 345, Block 1, of the Clara Tambunting Subdivision until after he shall have been reimbursed by the plaintiff the sum of P7,500.00, without pronouncement as to costs. (p. 24, Rollo)

Not satisfied with the trial court's decision, the petitioner appealed to the Court of Appeals and upon affirmance by the latter of the decision below, the petitioner elevated its case to this Court.

On July 13, 1977, we issued a resolution dated July 11, 1977 denying the petitioner's petition for lack of merit. Hence, on August 5, 1977, the petitioner filed with the trial court, presided over by respondent Judge Jose H. Tecson, a motion for the approval of petitioner's exercise of option and for satisfaction of judgment, praying that the court issue an order: a) approving the exercise of petitioner's option to appropriate the improvements introduced by the private respondent on the

property; b) thereafter, private respondent be ordered to deliver possession of the property in question to the petitioner.

On October 7, 1977, the respondent judge issued the disputed order, to wit:

Acting on the motion for approval of plaintiffs exercise of option and for satisfaction of judgment filed by the plaintiff, and the opposition thereto interposed by the defendant, both through counsels, and after a judicious review of all the facts and circumstances obtaining in this case, in the light of statutory provisions (Art. 6, New Civil Code) and jurisprudential doctrines (Vide, Benares v. Capitol Subdivision, Inc., L-7330 (Nov. 29, 1960), and considering further the definitive ruling of our Supreme Tribunal in the case of Jose C. Cristobal v. Alejandro Melchor, G.R. No. L-43203 promulgated on July 29, 1977, wherein the Court says:

"This Court, applying the principle of equity, need not be bound to a rigid application of the law but rather its action should conform to the conditions or exigencies of a given problem or situation in order to grant relief that it will serve the ends of justice."

xxx xxx xxx

the Court is of the considered view that under the peculiar circumstances which supervened after the institution of this case, like, for instance, the introduction of certain major repairs of and other substantial improvements on the controverted property, the instant motion of the plaintiff is not well-taken and therefore not legally proper and tenable.

WHEREFORE, and for lack of merit, the instant motion for approval of the plaintiff's fai-rn of option and for satisfaction of judgment should be, as hereby it is, denied. (pp. 45-46, Rollo)

After a denial of its motion for reconsideration, the petitioner filed the present petition for mandamus alleging that the respondent judge committed grave abuse of discretion in denying his motion to exercise option and for execution of judgment on the grounds that under Articles 448 and 546 of the Civil Code, the exercise of option belongs to the owner of the property, who is the petitioner herein, and that upon finality of judgment, the prevailing party is entitled, as a matter of right, to its execution which is only a ministerial act on the part of the respondent judge.

On April 15, 1978, the private respondent filed his comment on the petition alleging that the same has already become moot and academic for two reasons: first, fire gutted not only the house of the private respondent but the majority of the houses in Tambunting Estate; and second, as a result of the said fire, the then First Lady and Metro Manila Governor Imelda R. Marcos has placed the disputed area under her Zonal Improvement Project, thereby allowing the victims of the fire to put up new structures on the premises, so that the willingness and readiness of the petitioner to exercise the alleged option can no longer be exercised since the subject-matter thereof has been extinguished by the fire. Furthermore, the President of the Philippines has already issued a Presidential Decree for the expropriation of certain estates in Metro Manila including the Tambunting Estate. Therefore, the beneficient and humanitarian purpose of the Zonal Improvement Project and the expropriation proceeding would be defeated if petitioner is allowed to exercise an option which would result in the ejectment of the private respondent.

On December 28, 1980, Presidential Decree (P.D.) No. 1669 was issued providing for the expropriation of the Tambunting Estate. However, this decree was challenged before this Court in

G.R. No, 55166 entitled The "Elisa R. Manotok, et al. v. National Housing Authority, et al." Hence, we decided to hold the decision on this petition pending the resolution of the above entitled case.

On May 21, 1987, the Court rendered a decision in the Elisa Manotok case (Manotok v. National Housing Authority, 150 SCRA 89) ruling that P.D. 1669 is unconstitutional for being violative of the due process clause. Thus, since the present petition has not been rendered moot and academic by the decision in said case, we will now decide on its merits.

As stated earlier, the petitioner argues that since the judgment of the trial court has already become final, it is entitled to the execution of the same and that moreover, since the house of the private respondent was gutted by fire, the execution of the decision would now involve the delivery of possession of the disputed area by the private respondent to the petitioner.

We find merit in these arguments.

When the decision of the trial court became final and executory, it became incumbent upon the respondent judge to issue the necessary writ for the execution of the same. There is, therefore, no basis for the respondent judge to deny the petitioner's motion to avail of its option to approriate the improvements made on its property.

In the case of Duenas v. Mandi (151 SCRA 530, 545), we said:

xxx xxx xxx

...Likewise settled is the rule that after a judgment has become final, no additions can be made thereto, and nothing can be done therewith except its execution, otherwise there would be no end to legal processes. (Fabular v. Court of Appeals, 11 9 SCRA 329)

Neither can the respondent judge deny the issuance of a writ of execution because the private respondent was adjudged a builder in good faith or on the ground of "peculiar circumstances which supervened after the institution of this case, like, for instance, the introduction of certain major repairs of and other substantial improvements..." because the option given by law either to retain the premises and pay for the improvements thereon or to sell the said premises to the builder in good faith belongs to the owner of the property. As we have in Quemel v. Olaes (1 SCRA 1159,1163):

xxx xxx xxx

...The plaintiffs claim that their second cause of action is based on Article 448 in connection with Art. 546, of the new Civil Code. A cursory reading of these provisions, however, will show that they are not applicable to plaintiff's case. Under Article 448, the right to appropriate the works or improvements or to oblige the one who built or planted to pay the price of the land' belongs to the owner of the land. The only right given to the builder in good faith is the right to reimbursement for the improvements; the builder, cannot compel the owner of the land to sell such land to the former. ...

Again, in the recent case of Paz Mercado, et al. v. Hon. Court of Appeals, et al., (G.R. No. L- 44001, June 10, 1988), we said:

... To be deemed a builder in good faith, it is essential that a person assert title to the land on which he builds; i.e., that he be a possessor in concept of owner (Art. 525, Civil Code; Lopez, Inc. v. Phil. Eastern Trading Co., Inc., 98 Phil. 348) and that he be unaware 'that there exists in his title or mode of acquisition any flaw which invalidates it.' (Art. 526, Civil Code; Granados v. Monton, 86 Phil. 42; Arriola v. Gomez de la Serna, 14 Phil. 627; See also Manotok Realty, Inc. v. C.A., 134 SCRA 329, citing Caram v. Laureta, 103 SCRA 7) It is such a builder in good faith who is given the 1ight to retain the thing, even as against the real owner, until he has been reimbursed in full not only for the necessary expenses but also for useful expenses. (Art. 546, Civil Code; Policarpio v. CA., 129 SCRA 51; Sarmiento v. Agana, 129 SCRA 1221; cf, Queto v. C.A., 122 SCRA 206) ...

Furthermore, the private respondent's good faith ceased after the filing of the complaint below by the petitioner. In the case of Mindanao Academy, Inc. v. Yap (13 SCRA 190,196), we ruled:

xxx xxx xxx

...Although the bad faith of one party neutralizes that of the other and hence as between themselves their rights would be as if both of them had acted in good faith at the time of the transaction, this legal fiction of Yap's good faith ceased when the complaint against him was filed, and consequently the court's declaration of liability for the rents thereafter is correct and proper . A possessor in good faith is entitled to the fruits only so long as his possession is not legally interrupted, and such interruption takes place upon service of judicial summons (Arts. 544 and 1123, Civil Code).

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

Since the improvements have been gutted by fire, and therefore, the basis for private respondent's right to retain the premises has already been extinguished without the fault of the petitioner, there is no other recourse for the private respondent but to vacate the premises and deliver the same to herein petitioner.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED and the respondent judge is hereby ordered to immediately issue a writ of execution ordering the private respondent to vacate the disputed premises and deliver possession of the same to the petitioner.

SO ORDERED.

Fernan, C.J., Feliciano, Bidin and Cortos, JJ., concur.

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.

SO ORDERED.

Teehankee, C.J., Narvasa, Cruz and Griño-Aquino, JJ., concur.

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.

G.R. No. 151815             February 23, 2005

SPOUSES JUAN NUGUID AND ERLINDA T. NUGUID, petitioners, vs.HON. COURT OF APPEALS AND PEDRO P. PECSON, respondents.

D E C I S I O N

QUISUMBING, J.:

This is a petition for review on certiorari of the Decision1 dated May 21, 2001, of the Court of Appeals in CA-G.R. CV No. 64295, which modified the Order dated July 31, 1998 of the Regional Trial Court (RTC) of Quezon City, Branch 101 in Civil Case No. Q-41470. The trial court ordered the defendants, among them petitioner herein Juan Nuguid, to pay respondent herein Pedro P. Pecson, the sum of P1,344,000 as reimbursement of unrealized income for the period beginning November 22, 1993 to December 1997. The appellate court, however, reduced the trial court’s award in favor of Pecson from the said P1,344,000 to P280,000. Equally assailed by the petitioners is the appellate court’s Resolution2 dated January 10, 2002, denying the motion for reconsideration.

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

The antecedent facts in this case are as follows:

Pedro P. Pecson owned a commercial lot located at 27 Kamias Road, Quezon City, on which he built a four-door two-storey apartment building. For failure to pay realty taxes, the lot was sold at public auction by the City Treasurer of Quezon City to Mamerto Nepomuceno, who in turn sold it for P103,000 to the spouses Juan and Erlinda Nuguid.

Pecson challenged the validity of the auction sale before the RTC of Quezon City in Civil Case No. Q-41470. In its Decision,3 dated February 8, 1989, the RTC upheld the spouses’ title but declared that the four-door two-storey apartment building was not included in the auction sale.4 This was affirmed in toto by the Court of Appeals and thereafter by this Court, in its Decision5 dated May 25, 1993, in G.R. No. 105360 entitled Pecson v. Court of Appeals.

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

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

In its Order6 of November 15, 1993, the trial court, relying upon Article 5467 of the Civil Code, ruled that the Spouses Nuguid were to reimburse Pecson for his construction cost of P53,000, following which, the spouses Nuguid were entitled to immediate issuance of a writ of possession over the lot and improvements. In the same order the RTC also directed Pecson to pay the same amount of monthly rentals to the Nuguids as paid by the tenants occupying the apartment units or P21,000 per month from June 23, 1993, and allowed the offset of the amount of P53,000 due from the Nuguids against the amount of rents collected by Pecson from June 23, 1993 to September 23, 1993 from the tenants of the apartment.8

Pecson duly moved for reconsideration, but on November 8, 1993, the RTC issued a Writ of Possession,9directing the deputy sheriff to put the spouses Nuguid in possession of the subject property with all the improvements thereon and to eject all the occupants therein.

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

In its decision of June 7, 1994, the appellate court, relying upon Article 44810 of the Civil Code, affirmed the order of payment of construction costs but rendered the issue of possession moot on appeal, thus:

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

IT IS SO ORDERED.11 [Underscoring supplied.]

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

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

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

The case is hereby remanded to the trial court for it to determine the current market value of the apartment building on the lot. For this purpose, the parties shall be allowed to adduce evidence on the current market value of the apartment building. The value so determined shall be forthwith paid by the private respondents [Spouses Juan and Erlinda Nuguid] to the petitioner [Pedro Pecson]

otherwise the petitioner shall be restored to the possession of the apartment building until payment of the required indemnity.

No costs.

SO ORDERED.12 [Emphasis supplied.]

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

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

In an Order13 dated January 26, 1996, the RTC denied the Motion to Restore Possession to the plaintiff averring that the current market value of the building should first be determined. Pending the said determination, the resolution of the Motion for Accounting was likewise held in abeyance.

With the submission of the parties’ assessment and the reports of the subject realty, and the reports of the Quezon City Assessor, as well as the members of the duly constituted assessment committee, the trial court issued the following Order14 dated October 7, 1997, to wit:

On November 21, 1996, the parties manifested that they have arrived at a compromise agreement that the value of the said improvement/building is P400,000.00 The Court notes that the plaintiff has already receivedP300,000.00. However, when defendant was ready to pay the balance of P100,000.00, the plaintiff now insists that there should be a rental to be paid by defendants. Whether or not this should be paid by defendants, incident is hereby scheduled for hearing on November 12, 1997 at 8:30 a.m.

Meantime, defendants are directed to pay plaintiff the balance of P100,000.00.

SO ORDERED.15

On December 1997, after paying the said P100,000 balance to Pedro Pecson the spouses Nuguid prayed for the closure and termination of the case, as well as the cancellation of the notice of lis pendens on the title of the property on the ground that Pedro Pecson’s claim for rentals was devoid of factual and legal bases.16

After conducting a hearing, the lower court issued an Order dated July 31, 1998, directing the spouses to pay the sum of P1,344,000 as reimbursement of the unrealized income of Pecson for the period beginning November 22, 1993 up to December 1997. The sum was based on the computation of P28,000/month rentals of the four-door apartment, thus:

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

. . .

Records show that the plaintiff was dispossessed of the premises on November 22, 1993 and that he was fully paid the value of his building in December 1997. Therefore, he is entitled to the income thereof beginning on November 22, 1993, the time he was dispossessed, up to the time of said full payment, in December 1997, or a total of 48 months.

The only question left is the determination of income of the four units of apartments per month. But as correctly pointed out by plaintiff, the defendants have themselves submitted their affidavits attesting that the income derived from three of the four units of the apartment building is P21,000.00 or P7,000.00 each per month, or P28,000.00 per month for the whole four units. Hence, at P28,000.00 per month, multiplied by 48 months, plaintiff is entitled to be paid by defendants the amount of P1,344,000.00.17

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

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

In the Court of Appeals, the order appealed from in CA-G.R. CV No. 64295, was modified. The CA reduced the rentals from P1,344,000 to P280,000 in favor of the appellee.19 The said amount represents accrued rentals from the determination of the current market value on January 31, 199720 until its full payment on December 12, 1997.

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

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

Petitioners call our attention to the fact that after reaching an agreed price of P400,000 for the improvements, they only made a partial payment of P300,000. Thus, they contend that their failure to pay the full price for the improvements will, at most, entitle respondent to be restored to possession, but not to collect any rentals. Petitioners insist that this is the proper interpretation of the dispositive portion of the decision in G.R. No. 115814, which states in part that "[t]he value so determined shall be forthwith paid by the private respondents [Spouses Juan and Erlinda Nuguid] to the petitioner [Pedro Pecson] otherwise the petitioner shall be restored to the possession of the apartment building until payment of the required indemnity."21

Now herein respondent, Pecson, disagrees with herein petitioners’ contention. He argues that petitioners are wrong in claiming that inasmuch as his claim for rentals was not determined in the dispositive portion of the decision in G.R. No. 115814, it could not be the subject of execution. He points out that in moving for an accounting, all he asked was that the value of the fruits of the property during the period he was dispossessed be accounted for, since this Court explicitly

recognized in G.R. No. 115814, he was entitled to the property. He points out that this Court ruled that "[t]he petitioner [Pecson] not having been so paid, he was entitled to retain ownership of the building and, necessarily, the income therefrom."22 In other words, says respondent, accounting was necessary. For accordingly, he was entitled to rental income from the property. This should be given effect. The Court could have very well specifically included rent (as fruit or income of the property), but could not have done so at the time the Court pronounced judgment because its value had yet to be determined, according to him. Additionally, he faults the appellate court for modifying the order of the RTC, thus defeating his right as a builder in good faith entitled to rental from the period of his dispossession to full payment of the price of his improvements, which spans from November 22, 1993 to December 1997, or a period of more than four years.

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

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

While the law aims to concentrate in one person the ownership of the land and the improvements thereon in view of the impracticability of creating a state of forced co-ownership,23 it guards against unjust enrichment insofar as the good-faith builder’s improvements are concerned. The right of retention is considered as one of the measures devised by the law for the protection of builders in good faith. Its object is to guarantee full and prompt reimbursement as it permits the actual possessor to remain in possession while he has not been reimbursed (by the person who defeated him in the case for possession of the property) for those necessary expenses and useful improvements made by him on the thing possessed.24 Accordingly, a builder in good faith cannot be compelled to pay rentals during the period of retention25 nor be disturbed in his possession by ordering him to vacate. In addition, as in this case, the owner of the land is prohibited from offsetting or compensating the necessary and useful expenses with the fruits received by the builder-possessor in good faith. Otherwise, the security provided by law would be impaired. This is so because the right to the expenses and the right to the fruits both pertain to the possessor, making compensation juridically impossible; and one cannot be used to reduce the other.26

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

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

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

The text of the decision in G.R. No. 115814 expressly exempted Pecson from liability to pay rentals, for we found that the Court of Appeals erred not only in upholding the trial court’s determination of the indemnity, but also in ordering him to account for the rentals of the apartment building from June 23, 1993 to September 23, 1993, the period from entry of judgment until Pecson’s dispossession. As pointed out by Pecson, the dispositive portion of our decision in G.R. No. 115814 need not specifically include the income derived from the improvement in order to entitle him, as a builder in good faith, to such income. The right of retention, which entitles the builder in good faith to the possession as well as the income derived therefrom, is already provided for under Article 546 of the Civil Code.

Given the circumstances of the instant case where the builder in good faith has been clearly denied his right of retention for almost half a decade, we find that the increased award of rentals by the RTC was reasonable and equitable. The petitioners had reaped all the benefits from the improvement introduced by the respondent during said period, without paying any amount to the latter as reimbursement for his construction costs and expenses. They should account and pay for such benefits.

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

WHEREFORE, the instant petition is DENIED for lack of merit. The Decision dated May 21, 2001 of the Court of Appeals in CA-G.R. CV No. 64295 is SET ASIDE and the Order dated July 31, 1998, of the Regional Trial Court, Branch 101, Quezon City, in Civil Case No. Q-41470 ordering the herein petitioners, Spouses Juan and Erlinda Nuguid, to account for the rental income of the four-door two-storey apartment building from November 1993 until December 1997, in the amount of P1,344,000, computed on the basis of Twenty-eight Thousand (P28,000.00) pesos monthly, for a period of 48 months, is hereby REINSTATED. Until fully paid, said amount of rentals should bear the legal rate of interest set at six percent (6%) per annum computed from the date of RTC judgment. If any portion thereof shall thereafter remain unpaid, despite notice of finality of this Court’s judgment, said remaining unpaid amount shall bear the rate of interest set at twelve percent (12%) per annum computed from the date of said notice. Costs against petitioners.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

G.R. No. L-23497             April 26, 1968

J.M. TUASON and CO., INC., petitioner, vs.ESTRELLA VDA. DE LUMANLAN and the COURT OF APPEALS (FIFTH DIVISION), respondents.

Tuason and Sison for petitioner.Jose Chuico and Wilfredo E. Dizon for respondents.

REYES, J.B.L., Actg. C.J.:

J. M. Tuason & Co., Inc. petitioned for a review by certiorari of the decision issued by the Court of Appeals (Fifth Division) in its case CA-G.R. No. 27259-R, reversing the judgment rendered by the Court of First Instance of Rizal (Civil Case No. Q-4243) that ordered defendant (now respondent) Estrella Vda. de Lumanlan to vacate the lot occupied by her in Sta. Mesa Heights Subdivision, barrio Tatalon, Quezon City, and to remove therefrom the house and other structures constructed thereon, paying P240.00 a month until restoration of the premises to plaintiff.

The facts are stated in the decision of the Court of Appeals (accepted by both parties) in this wise: 1äwphï1.ñët

. . . That in the complaint filed in this case by plaintiff, J. M. Tuason & Co., Inc., hereinafter called Tuason, on 30 April, 1969, the basis is that it being the registered owner of the property known as Santa Mesa Heights Subdivision, situated at Barrio North Tatalon, Quezon City, herein defendant sometime in April, 1949 unlawfully entered into possession of 800 square meters, and therein constructed his house so that plaintiff prayed for ejectment and damages for the occupancy; and defendant in her answer set forthaffirmative defense that on 12 March, 1949, she had bought the property she was occupying from one Pedro Deudor, and that in a compromise agreement between Pedro and Tuason on 16 March 1953, approved by the Court of First Instance of Quezon City, she was one of the buyers therein recognized, so that she asked that her rights be recognized and the complaint dismissed; but on the basis of the evidence presented by both parties in the trial, Lower Court sustained plaintiff, holding that Tuason being the registered owner, and the question being purely one of possession, therefore, defendant's said evidence was "completely immaterial". . . . (Page 2 of Decision, Annex "A" of Petition.)

Upon the facts thus stated, the Fifth Division of the Court of Appeals held that, pursuant to this Supreme Court's ruling in Evangelista vs. Deudor, L-12826, September 10, 1959, the Compromise Agreement (Exh. 2) between the petitioner Tuason & Co. and the Deudors constituted a valid defense against the possessory action filed by Tuason & Co.; that under paragraph 7 of said Compromise Agreement, petitioner bound and committed itself to sell to respondent Lumanlan the lot occupied by her at a reasonable price; that said respondent had a right to compel petitioner to accept payment for the lot in question; and that the compromise agreement legalized the possession of respondent.

These pronouncements are assailed by the petitioner in this appeal as legally incorrect and contrary to the decisions of this Court.

The terms of the compromise agreement between the heirs of Telesforo Deudor and J. M. Tuason & Co. have been taken cognizance of in many decisions of this Court (Evangelista vs. Deudor, jam. cit; Deudor vs. J. M. Tuason & Co., L-18768, May 30, 1961, and L-20105, Oct. 31, 1963; J. M. Tuason vs. Jaramillo, et al., L-18932-34, Sept. 30, 1963; J. M. Tuason vs. Macalindong, L-15398, Dec. 29, 1962 and others). The Deudors had therein recognized the registered title of Tuason & Co. over the lands claimed by them, and received payment of certain sums of money; but as the Deudors had, prior to the compromise, sold their possessory rights to various persons, paragraph seventh of the compromise agreement (case Q-135 of the court of origin) provided:

That the sales of the possessory rights claimed by the DEUDORS, are described in the lists submitted by them to the OWNERS which are attached hereto marked Annexes "B" and "C" and made part hereof. Whatever amounts may have been collected by the DEUDORS on account thereof, shall be deducted from the total sum of P1,201,063.00 to be paid to them. It shall be the joint and solidary obligation of the DEUDORS to make the buyer of the lots purportedly sold by them to recognize the title of the OWNERS over the property purportedly bought by them, and to make them sign, whenever possible, new contracts of purchase for said property at the current paces and terms specified by the OWNERS in their sales of lots in their subdivision known at "Sta. Mesa Heights Subdivision." The DEUDORS HEREBY advised the OWNERS that the buyer listed in Annex "B" herein with the annotation "continue" shall buy the lots respectively occupied by them and shall sign contracts, but the sums already paid by them to the DEUDORS amounting to P134,922.84 (subject to verification by the Court) shall be credited to the buyers and shall be deducted from the sums to be paid to the DEUDORS by the OWNERS. The DEUDORS also advise the OWNERS that, the buyers listed in Annex "C" herein with the annotation "Refund" have decided not to continue with their former contracts or purchases with the DEUDORS and the sums already paid by them to the DEUDORS TOTALLING P101,182.42 (subject to verification by the Court) shall be refunded to them by the OWNERS and deducted from the sums that may be due to the DEUDORS from the OWNERS (J.M. Tuason & Co., Inc. vs. Jaramillo, L-18932, Sept. 30, 1963);

Careful analysis of this paragraph of the compromise agreement will show that while the same created "a sort of contractual relation" between the J. M. Tuason & Co., Inc., and the Deudor vendees (as ruled by this Court in Evangelista vs. Deudor, ante), the same in no way obligated Tuason & Co. to sell to those buyers the lots occupied by them at the price stipulated with the Deudors, but at "the current prices and terms specified by the OWNERS (Tuason) in their sales of lots in their subdivision known as 'Sta. Mesa Heights Subdivision'". This is what is expressly provided. Further, the paragraph plainly imports that these buyers of the Deudors must "recognize the title of the OWNERS (Tuason) over the property purportedly bought by them" from the Deudors, and "sign, whenever possible, new contracts of purchase for said property"; and, if and when they do so, "the sums paid by them to the Deudors . . . shall be credited to the buyers." All that Tuason & Co.

agreed to, therefore, was to grant the Deudor buyers preferential right to purchase "at current prices and terms" the lots occupied by them, upon their recognizing the title of Tuason & Co., Inc., and signing new contracts therefor; and to credit them for the amounts they had paid to the Deudors.

Nowhere in her answer did the respondent Estrella Vda. de Lumanlan claim that she had signed a new contract with J. M. Tuason & Co., Inc. for the purchase of the lot occupied. What is worse, instead of recognizing the title of the owners (Tuason & Co.) as required by the aforementioned compromise agreement, she charged in paragraph 6 of her special defense (Rec. on Appeal, p. 10) that "Pedro Deudor and his co-owners and the plaintiff herein . . .conspired together and helped each other . . . by entering into a supposed Compromise" whereby "Pedro Deudor and his co-owners renounced, ceded, waived and quitclaimed all their rights, title and interest in the property including the land sold to herein defendant, in favor of the plaintiff J. M. Tuason & Co., Inc., in consideration of the sum of P1,201,063.00, without the knowledge and consent, and much less the intervention of the herein defendant." In other words, the respondent Lumanlan in her answer repudiated and assailed the compromise between the Deudors and J. M. Tuason & Co. How then can she now claim to take advantage and derive rights from that compromise?

Without the compromise agreement, Lumanlan must justify her possession on the basis of a pretended superiority of the Deudors' old Spanish informacion posesoria over Tuason's Certificate of Title No. 1267, traceable back to the original Certificate of Title No. 735 of Rizal, issued under the Registration Act No. 496. But, as ruled by this Court in previous cases, Lumanlan is by now barred from assailing the decree of registration in favor of Tuason & Co., Inc.'s predecessors twenty years after its issuance (Tiburcio vs. PHHC, L-13429, Oct. 31, 1959; Tuason & Co. vs. Bolaños, 95 Phil. 107; Tuason & Co. vs. Santiago, 99 Phil. 622-623; Tuason & Co. vs. Macalindong, supra; Tuason & Co. vs. Jaramillo, L-16827, Jan. 31, 1963).

It is thus apparent that no legal basis exists for the pronouncement in the appealed decision that Tuason & Co. had committed itself to sell to Lumanlan the lot occupied by her at a reasonable price, or that the compromise agreement legalized the possession of the respondent, since the latter does not rely on the compromise but, on the contrary, she assails it.

The Court of Appeals ruled that the price to be paid by Lumanlan to Tuason & Co., Inc., is governed by Article 1474 of the new Civil Code of the Philippines, which provides that:

Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer, he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case.

Since there has been no contract between petitioner Tuason & Co. and respondent Lumanlan for the sale of the lot occupied by the latter, and by paragraph 7 of the Compromise Agreement (assuming that respondent-appellee still has the right to invoke the same, and seek refuge thereunder), Tuason & Co. did not consider itself bound by the sales made by the Deudors, but demanded that the Deudor buyers should sign new contracts with it at current prices specified for the sales of lots in "Sta. Mesa Heights Subdivision" (ante) the aforequoted Article 1474 can have no bearing on the case, Lumanlan not being a buyer from Tuason & Co.

As to Lumanlan's allegation in her counterclaim that she should be deemed a builder in good faith, a similar contention has been rejected in Tuason & Co. vs. Macalindong, L-15398, December 29, 1962, where we ruled that there being a presumptive knowledge of the Torrens titles issued to Tuason & Co. and its predecessors-in-interest since 1914, the buyer from the Deudors (or from their

transferees) can not, in good conscience, say now that she believed her vendor had rights of ownership over the lot purchased. The reason given by the Court is that —

Had he investigated before buying and before building his house on the questioned lot, he would have been informed that the land is registered under the Torrens system in the name of J. M. Tuason & Co., Inc., If he failed to make the necessary inquiry, appellant is now bound conclusively by appellee's Torrens title (Sec. 51, Act 496; Emas vs. Zuzuarregui, 35 Phil. 144) (Tuason & Co., Inc. vs. Macalindong, ante).

Lumanlan had chosen to ignore the Torrens title of Tuason & Co., Inc. and relied instead upon the Deudors' claim of ownership, perhaps because such course appeared to her as more advantageous; hence, she has only herself to blame for the consequences now that the Deudors' claim has been abandoned by the Deudors themselves, and can not pretend good faith. The Court of First Instance, therefore, did not err in holding that she was not a rightful possessor and sentencing her to vacate.

Respondent could have asked that she recover or be credited with the amounts paid by her to the Deudors, but as no claim to such credit was ever advanced by her in the trial Court, no pronouncement can be made thereon in this appeal. Equity demands, however, that her right to claim such return, or to have the amount offset against the sums she was sentenced to pay, should be, as it is, reserved.

WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First Instance reinstated. Costs against respondent, Estrella Vda. de Lumanlan.

Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Fernando, JJ., concur.Angeles, J., took no part.Concepcion, C.J., is on leave.

G.R. No. 108894 February 10, 1997

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner, vs.COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY, respondents.

 

 

PANGANIBAN, J.:

The parties in this case are owners of adjoining lots in Parañaque, Metro Manila. It was discovered in a survey, that a portion of a building of petitioner, which was presumably constructed by its predecessor-in-interest, encroached on a portion of the lot owned by private respondent. What are the rights and obligations of the parties? Is petitioner considered a builder in bad faith because, as held by respondent Court, he is "presumed to know the metes and bounds of his property as described in his certificate of title"? Does petitioner succeed into the good faith or bad faith of his predecessor-in-interest which presumably constructed the building?

These are the questions raised in the petition for review of the Decision 1 dated August 28, 1992, in CA-G.R. CV No. 28293 of respondent Court 2 where the disposition reads: 3

WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed and set aside and another one entered —

1. Dismissing the complaint for lack of cause of action;

2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental from October 4, 1979 until appellee vacates the land;

3. To remove the structures and surrounding walls on the encroached area;

4. Ordering appellee to pay the value of the land occupied by the two-storey building;

5. Ordering appellee to pay the sum of P20,000.00 for and as attorney's fees;

6. Costs against appellee.

Acting on the motions for reconsideration of both petitioner and private respondent, respondent Court ordered the deletion of paragraph 4 ofthe dispositive portion in an Amended Decision dated February 9, 1993, as follows: 4

WHEREFORE, premises considered, our decision of August 28, 1992 is hereby modified deleting paragraph 4 of the dispositive portion of our decision which reads:

4. Ordering appellee to pay the value of the land occupied by the two-storey building.

The motion for reconsideration of appellee is hereby DENIED for lack of merit.

The foregoing Amended Decision is also challenged in the instant petition.

The Facts

The facts are not disputed. Respondent Court merely reproduced the factual findings of the trial court, as follows:5

That plaintiff (herein petitioner) which is a corporation duly organized and existing under and by virtue of Philippine laws is the registered owner of a parcel of land situated in Barrio San Dionisio, Parañaque, Metro Manila known as Lot 4331-A (should be 4531-A) of Lot 4531 of the Cadastral Survey of Parañaque, Metro Manila, covered by Transfer Certificate of Title No. 409316 of the Registry of Deeds of the Province of Rizal; that said land was purchased by plaintiff from Pariz Industries, Inc. in 1970, together with all the buildings and improvements including the wall existing thereon; that the defendant (herein private respondent) is the registered owner of a parcel of land known as Lot No. 4531-B of Lot 4531 of the Cadastral Survey of Parañaque, LRC (GLRO) Rec. No. 19645 covered by Transfer Certificate of Title No. 279838, of the Registry of Deeds for the Province of Rizal; that said land which adjoins plaintiff's land was purchased by defendant from a certain Enrile Antonio also in 1970; that in 1971, defendant purchased another lot also adjoining plaintiffs land from a certain Miguel Rodriguez and the same was registered in defendant's name under Transfer Certificate of Title No. 31390, of the Registry of Deeds for the Province of Rizal; that portions of the buildings and wall bought by plaintiff together with the land from Pariz Industries are occupying a portion of defendant's adjoining land; that upon learning of the encroachment or occupation by its buildings and wall of a portion of defendant's land, plaintiff offered to buy from defendant that particular portion of defendant's land occupied by portions of its buildings and wall with an area of 770 square meters, more or less, but defendant, however, refused the offer. In 1973, the parties entered into a private agreement before a certain Col. Rosales in Malacañang, wherein plaintiff agreed to demolish the wall at the back portion of its land thus giving to defendant possession of a portion of his land previously enclosed by plaintiff's wall; that defendant later filed a complaint before the office of Municipal Engineer of Parañaque, Metro Manila as well as before the Office of the Provincial

Fiscal of Rizal against plaintiff in connection with the encroachment or occupation by plaintiff's buildings and walls of a portion of its land but said complaint did not prosper; that defendant dug or caused to be dug a canal along plaintiff's wall, a portion of which collapsed in June, 1980, and led to the filing by plaintiff of the supplemental complaint in the above-entitled case and a separate criminal complaint for malicious mischief against defendant and his wife which ultimately resulted into the conviction in court of defendant's wife for the crime of malicious mischief; that while trial of the case was in progress, plaintiff filed in Court a formal proposal for settlement of the case but said proposal, however, was ignored by defendant.

After trial on the merits, the Regional Trial Court 6 of Pasay City, Branch 117, in Civil Case No. PQ-7631-P, rendered a decision dated December 4, 1989 in favor of petitioner who was the plaintiff therein. The dispositive portionreads: 7

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and ordering the latter to sell to plaintiff that portion of land owned by him and occupied by portions of plaintiff's buildings and wall at the price of P2,000.00 per square meter and to pay the former:

1. The sum of P44,000.00 to compensate for the losses in materials and properties incurred by plaintiff through thievery as a result of the destruction of its wall;

2. The sum of P7,500.00 as and by way of attorney's fees; and

3. The costs of this suit.

Appeal was duly interposed with respondent Court, which as previously stated, reversed and set aside the decision of the Regional Trial Court and rendered the assailed Decision and Amended Decision. Hence, this recourse under Rule 45 of the Rules of Court.

The Issues

The petition raises the following issues: 8

(A)

Whether or not the respondent Court of Appeals erred in holding the petitioner a builder in bad faith because it is "presumed to know the metes and bounds of his property."

(B)

Whether or not the respondent Court of Appeals erred when it used the amicable settlement between the petitioner and the private respondent, where both parties agreed to the demolition of the rear portion of the fence, as estoppel amounting to recognition by petitioner of respondent's right over his property including the portions of the land where the other structures and the building stand, which were not included in the settlement.

(C)

Whether or not the respondent Court of Appeals erred in ordering the removal of the "structures and surrounding walls on the encroached area" and in withdrawing its earlier ruling in its August 28, 1992 decision for the petitioner "to pay for the value of the land occupied" by the building, only because the private respondent has "manifested its choice to demolish" it despite the absence of compulsory sale where the builder fails to pay for the land, and which "choice" private respondent deliberately deleted from its September 1, 1980 answer to the supplemental complaint in the Regional Trial Court.

In its Memorandum, petitioner poses the following issues:

A.

The time when to determine the good faith of the builder under Article 448 of the New Civil Code, is reckoned during the period when it was actually being built; and in a case where no evidence was presented nor introduced as to the good faith or bad faith of the builder at that time, as in this case, he must be presumed to be a "builder in good faith," since "bad faith cannot be presumed." 9

B.

In a specific "boundary overlap situation" which involves a builder in good faith, as in this case, it is now well settled that the lot owner, who builds on the adjacent lot is not charged with "constructive notice" of the technical metes and bounds contained in their torrens titles to determine the exact and precise extent of his boundary perimeter. 10

C.

The respondent court's citation of the twin cases of Tuason & Co. v. Lumanlan and Tuason & Co. v.Macalindong is not the "judicial authority" for a boundary dispute situation between adjacent torrens titled lot owners, as the facts of the present case do not fall within nor square with the involved principle of a dissimilar case. 11

D.

Quite contrary to respondent Uy's reasoning, petitioner Tecnogas continues to be a builder in good faith, even if it subsequently built/repaired the walls/other permanent structures thereon while the case a quo was pending and even while respondent sent the petitioner many letters/filed cases thereon. 12

D.(E.)

The amicable settlement between the parties should be interpreted as a contract and enforced only in accordance with its explicit terms, and not over and beyond that agreed upon; because the courts donot have the power to create a contract nor expand its scope. 13

E.(F.)

As a general rule, although the landowner has the option to choose between: (1) "buying the building built in good faith", or (2) "selling the portion of his land on which stands the building" under Article 448 of the Civil Code; the first option is not absolute, because an exception thereto, once it would be impractical for the landowner to choose to exercise the first alternative, i.e. buy that portion of the house standing on his land, for the whole building might be rendered useless. The workable solution is for him to select the second alternative, namely, to sell to the builder that part of his land on which was constructed a portion of the house. 14

Private respondent, on the other hand, argues that the petition is "suffering from the following flaws: 15

1. It did not give the exact citations of cases decided by the Honorable Supreme Court that allegedly contradicts the ruling of the Hon. Court of Appeals based on the doctrine laid down in Tuason vs.Lumanlan case citing also Tuason vs. Macalindong case (Supra).

2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is contradictory to the doctrine inTuason vs. Lumanlan and Tuason vs. Macalindong, the two cases being more current, the same should prevail.

Further, private respondent contends that the following "unmistakably" point to the bad faith of petitioner: (1) private respondent's purchase of the two lots, "was ahead of the purchase by petitioner of the building and lot from Pariz Industries"; (2) the declaration of the General Manager of Tecnogas that the sale between petitioner and Pariz Industries "was not registered" because of some problems with China Banking Corporation; and (3) the Deed of Sale in favor of petitioner was registered in its name only in "the month of May 1973." 16

The Court's Ru1ing

The petition should be granted.

Good Faith or Bad Faith

Respondent Court, citing the cases of J.M. Tuason & Co., Inc. vs. Vda. de Lumanlan 17 and J.M. Tuason & Co., Inc.vs. Macalindong, 18 ruled that petitioner "cannot be considered in good faith" because as a land owner, it is "presumed to know the metes and bounds of his own property, specially if the same are reflected in a properly issued certificate of title. One who erroneously builds on the adjoining lot should be considered a builder in (b)ad (f)aith, there being presumptive knowledge of the Torrens title, the area, and the extent of the boundaries." 19

We disagree with respondent Court. The two cases it relied upon do not support its main pronouncement that a registered owner of land has presumptive knowledge of the metes and bounds of its own land, and is therefore in bad faith if he mistakenly builds on an adjoining land. Aside from the fact that those cases had factual moorings radically different from those obtaining here, there is nothing in those cases which would suggest, however remotely, that bad faith is imputable to a registered owner of land when a part of his building encroaches upon a neighbor's land, simply because he is supposedly presumed to know the boundaries of his land as described in his certificate of title. No such doctrinal statement could have been made in those cases because such issue was not before the Supreme Court. Quite the contrary, we have rejected such a theory

in Co Tao vs. Chico, 20 where we held that unless one is versed in the science of surveying, "no one can determine the precise extent or location of his property by merely examining his paper title."

There is no question that when petitioner purchased the land from Pariz Industries, the buildings and other structures were already in existence. The record is not clear as to who actually built those structures, but it may well be assumed that petitioner's predecessor-in-interest, Pariz Industries, did so. Article 527 of the Civil Code presumes good faith, and since no proof exists to show that the encroachment over a narrow, needle-shaped portion of private respondent's land was done in bad faith by the builder of the encroaching structures, the latter should be presumed to have built them in good faith. 21 It is presumed that possession continues to be enjoyed in the same character in which it was acquired, until the contrary is proved. 22 Good faith consists in the belief of the builder that the land he is building on is his, and his ignorance of any defect or flaw in his title. 23 Hence, such good faith, by law, passed on to Pariz's successor, petitioner in this case. Further, "(w)here one derives title to property from another, the act, declaration, or omission of the latter, while holding the title, in relation to the property, is evidence against the former." 24And possession acquired in good faith does not lose this character except in case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. 25 The good faith ceases 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. 26

Recall that the encroachment in the present case was caused by a very slight deviation of the erected wall (as fence) which was supposed to run in a straight line from point 9 to point 1 of petitioner's lot. It was an error which, in the context of the attendant facts, was consistent with good faith. Consequently, the builder, if sued by the aggrieved landowner for recovery of possession, could have invoked the provisions of Art. 448 of the Civil Code, which reads:

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 obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land, he can compel the landowner to make a choice between the two options: (1) to appropriate the building by paying the indemnity required by law, or (2) sell the land to the builder. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land. 27

The question, however, is whether the same benefit can be invoked by petitioner who, as earlier stated, is not the builder of the offending structures but possesses them as buyer.

We answer such question in the affirmative.

In the first place, there is no sufficient showing that petitioner was aware of the encroachment at the time it acquired the property from Pariz Industries. We agree with the trial court that various factors in evidence adequately show petitioner's lack of awareness thereof. In any case, contrary proof has not overthrown the presumption of good faith under Article 527 of the Civil Code, as already stated, taken together with the disputable presumptions of the law on evidence. These presumptions state,

under Section 3 (a) of Rule 131 of the Rules of Court, that the person is innocent of a crime or wrong; and under Section 3 (ff) of Rule 131, that the law has been obeyed. In fact, private respondent Eduardo Uy himself was unaware of such intrusion into his property until after 1971 when he hired a surveyor, following his purchase of another adjoining lot, to survey all his newly acquired lots. Upon being apprised of the encroachment, petitioner immediately offered to buy the area occupied by its building — a species of conduct consistent with good faith.

In the second place, upon delivery of the property by Pariz Industries, as seller, to the petitioner, as buyer, the latter acquired ownership of the property. Consequently and as earlier discussed, petitioner is deemed to have stepped into the shoes of the seller in regard to all rights of ownership over the immovable sold, including the right to compel the private respondent to exercise either of the two options provided under Article 448 of the Civil Code.

Estoppel

Respondent Court ruled that the amicable settlement entered into between petitioner and private respondent estops the former from questioning the private respondent's "right" over the disputed property. It held that by undertaking to demolish the fence under said settlement, petitioner recognized private respondent's right over the property, and "cannot later on compel" private respondent "to sell to it the land since" private respondent "is under no obligation to sell." 28

We do not agree. Petitioner cannot be held in estoppel for entering into the amicable settlement, the pertinent portions of which read: 29

That the parties hereto have agreed that the rear portion of the fence that separates the property of the complainant and respondent shall be demolished up to the back of the building housing the machineries which demolision (sic) shall be undertaken by the complainant at anytime.

That the fence which serve(s) as a wall housing the electroplating machineries shall not be demolished in the mean time which portion shall be subject to negotiation by herein parties.

From the foregoing, it is clear that petitioner agreed only to the demolition of a portion of the wall separating the adjoining properties of the parties — i.e. "up to the back of the building housing the machineries." But that portion of the fence which served as the wall housing the electroplating machineries was not to be demolished. Rather, it was to "be subject to negotiation by herein parties." The settlement may have recognized the ownership of private respondent but such admission cannot be equated with bad faith. Petitioner was only trying to avoid a litigation, one reason for entering into an amicable settlement.

As was ruled in Osmeña vs. Commission on Audit, 30

A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical agreement by the Civil Code and is therein dealt with in some detail. "A compromise," declares Article 2208 of said Code, "is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced."

xxx xxx xxx

The Civil Code not only defines and authorizes compromises, it in fact encourages them in civil actions. Art. 2029 states that "The Court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise." . . .

In the context of the established facts, we hold that petitioner did not lose its rights under Article 448 of the Civil Code on the basis merely of the fact that some years after acquiring the property in good faith, it learned about — and aptly recognized — the right of private respondent to a portion of the land occupied by its building. The supervening awareness of the encroachment by petitioner does not militate against its right to claim the status of a builder in good faith. In fact, a judicious reading of said Article 448 will readily show that the landowner's exercise of his option can only take place after the builder shall have come to know of the intrusion — in short, when both parties shall have become aware of it. Only then will the occasion for exercising the option arise, for it is only then that both parties will have been aware that a problem exists in regard to their property rights.

Options of Private Respondent

What then is the applicable provision in this case which private respondent may invoke as his remedy: Article 448 or Article 450 31 of the Civil Code?

In view of the good faith of both petitioner and private respondent, their rights and obligations are to be governed by Art. 448. The essential fairness of this codal provision has been pointed out by Mme. Justice Ameurfina Melencio-Herrera, citing Manresa and applicable precedents, in the case of Depra vs. Dumlao, 32 to wit:

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 impracticality of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower to pay the proper rent. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied; see Cabral, et al. vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050).

The private respondent's insistence on the removal of the encroaching structures as the proper remedy, which respondent Court sustained in its assailed Decisions, is thus legally flawed. This is not one of the remedies bestowed upon him by law. It would be available only if and when he chooses to compel the petitioner to buy the land at a reasonable price but the latter fails to pay such price. 33 This has not taken place. Hence, his options are limited to: (1) appropriating the encroaching portion of petitioner's building after payment of proper indemnity, or (2) obliging the latter to buy the lot occupied by the structure. He cannot exercise a remedy of his own liking.

Neither is petitioner's prayer that private respondent be ordered to sell the land 34 the proper remedy. While that was dubbed as the "more workable solution" in Grana and Torralba vs. The Court of Appeals, et al., 35 it was not the relief granted in that case as the landowners were 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 on which it stands." 36Moreover, in Grana and Torralba, the area involved was only 87 square meters while this case involves 520 square meters37. In line with the case of Depra vs. Dumlao, 38 this case will have to be remanded to the trial court for further

proceedings to fully implement the mandate of Art. 448. It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of futurelitigation. 39

Petitioner, however, must also pay the rent for the property occupied by its building as prescribed by respondent Court from October 4, 1979, but only up to the date private respondent serves notice of its option upon petitioner and the trial court; that is, if such option is for private respondent to appropriate the encroaching structure. In such event, petitioner would have a right of retention which negates the obligation to pay rent. 40 The rent should however continue if the option chosen is compulsory sale, but only up to the actual transfer of ownership.

The award of attorney's fees by respondent Court against petitioner is unwarranted since the action appears to have been filed in good faith. Besides, there should be no penalty on the right to litigate. 41

WHEREFORE, premises considered, the petition is hereby GRANTED and the assailed Decision and the Amended Decision are REVERSED and SET ASIDE. In accordance with the case of Depra vs. Dumlao, 42 this case is REMANDED to the Regional Trial Court of Pasay City, Branch 117, for further proceedings consistent with Articles 448 and 546 43 of the Civil Code, as follows:

The trial court shall determine:

a) the present fair price of private respondent's 520 square-meter area of land;

b) the increase in value ("plus value") which the said area of 520 square meters may have acquired by reason of the existence of the portion of the building on the area;

c) the fair market value of the encroaching portion of the building; and

d) whether the value of said area of land is considerably more than the fair market value of the portion of the building thereon.

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

a) The private respondent shall be granted a period of fifteen (15) days within which to exercise his option under the law (Article 448, Civil Code), whether to appropriate the portion of the building as his own by paying to petitioner its fair market value, or to oblige petitioner to pay the price of said area. The amounts to be respectively paid by petitioner and private respondent, 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 trial court in favor of the party entitled to receive it;

b) If private respondent exercises the option to oblige petitioner 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 portion of the building, petitioner shall give written notice of such rejection to private respondent and to the trial court within fifteen (15) days from notice of private respondent'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

trial court formal written notice of the 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 two thousand pesos (P2,000.00) 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 1970 that petitioner has occupied the subject area. The rental thus fixed shall be increased by ten percent (10%) for the second year of the forced lease. Petitioner shall not make any further constructions or improvements on the building. Upon expiration of the two-year period, or upon default by petitioner in the payment of rentals for two (2) consecutive months, private respondent shall be entitled to terminate the forced lease, to recover his land, and to have the portion of the building removed by petitioner or at latter's expense. The rentals herein provided shall be tendered by petitioner to the trial court for payment to private respondent, and such tender shall constitute evidence of whether or not compliance was made within the period fixed by the said court.

c) In any event, petitioner shall pay private respondent an amount computed at two thousand pesos (P2,000.00) per month as reasonable compensation for the occupancy of private respondent's land for the period counted from October 4, 1979, up to the date private respondent serves notice of its option to appropriate the encroaching structures, otherwise up to the actual transfer of ownership to petitioner or, in case a forced lease has to be imposed, up to the commencement date of the forced lease referred to in the preceding paragraph;

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

No costs.

G.R. No. 79688             February 1, 1996

PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner, vs.COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO,respondents.

D E C I S I O N

PANGANIBAN, J.:

Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the owner's agent, a builder in good faith? This is the main issue resolved in this petition for review on certiorari to reverse the Decision1 of the Court of Appeals2 in CA-G.R. No. 11040, promulgated on August 20, 1987.

By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this case (along with several others) to the Third Division. After due deliberation and consultation, the Court assigned the writing of this Decision to the undersigned ponente.

The Facts

The facts, as found by respondent Court, are as follows:

Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II and located at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought the rights to the lot from Robillo. At that time, Lot 9 was vacant.

Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his name. It was then that he discovered that improvements had been introduced on Lot 9 by respondent Wilson Kee, who had taken possession thereof.

It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same subdivision from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the Contract to Sell on Installment, Kee could possess the lot even before the completion of all installment payments. On January 20, 1975, Kee paid CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for the preparation of the lot plan. These amounts were paid prior to Kee's taking actual possession of Lot 8. After the preparation of the lot plan and a copy thereof given to Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kee's wife, Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an auto repair shop and other improvements on the lot.

After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach an amicable settlement, but failed.

On January 30, 1981, Jardinico's lawyer wrote Kee, demanding that the latter remove all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against Kee.

Kee, in turn, filed a third-party complaint against petitioner and CTTEI.

The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further ruled that petitioner and CTTEI could not successfully invoke as a defense the failure of Kee to give notice of his intention to begin construction required under paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari store without the prior approval of petitioner required under paragraph 26 of said contract, saying that the purpose of these requirements was merely to regulate the type of improvements to be constructed on the Lot.3

However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for the latter's failure to pay the installments due, and that Kee had not contested the rescission. The rescission was effected in 1979, before the complaint was instituted. The MTCC concluded that Kee no longer had any right over the lot subject of the contract between him and petitioner. Consequently, Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim reimbursement for the improvements he introduced on said lot.

The MTCC thus disposed:

IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows:

1. Defendant Wilson Kee is ordered to vacate the premises of Lot 9, covered by TCT No. 106367 and to remove all structures and improvements he introduced thereon;

2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P15.00 a day computed from the time this suit was filed on March 12, 1981 until he actually vacates the premises. This amount shall bear interests (sic) at the rate of 12 per cent (sic) per annum.

3. Third-Party Defendant C.T. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as attorney's fees and P700.00 as cost and litigation expenses.4

On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and CTTEI were not at fault or were not negligent, there being no preponderant evidence to show that they directly participated in the delivery of Lot 9 to Kee5. It found Kee a builder in bad faith. It further ruled that even assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was served with notice to vacate said lot, and thus was liable for rental.

The RTC thus disposed:

WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant to vacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land records of Bacolod City; the removal of all structures and improvements introduced thereon at his expense and the payment to plaintiff (sic) the sum of Fifteen (P15.00) Pesos a day as reasonable rental to be computed from January 30, 1981, the date of the demand, and not from the date of the filing of the complaint, until he had vacated (sic) the premises, with interest thereon at 12% per annum. This Court further renders judgment against the defendant to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorney's fees, plus costs of litigation.

The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and C.T. Torres Enterprises, Inc. is dismissed. The order against Third-Party Defendants to pay attorney's fees to plaintiff and costs of litigation is reversed.6

Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed directly to the Supreme Court, which referred the matter to the Court of Appeals.

The appellate court ruled that Kee was a builder in good faith, as he was unaware of the "mix-up" when he began construction of the improvements on Lot 8. It further ruled that the erroneous delivery was due to the negligence of CTTEI, and that such wrong delivery was likewise imputable to its principal, petitioner herein. The appellate court also ruled that the award of rentals was without basis.

Thus, the Court of Appeals disposed:

WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and judgment is rendered as follows:

1. Wilson Kee is declared a builder in good faith with respect to the improvements he introduced on Lot 9, and is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code.

2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances:

A.       If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico.

3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses.

4. The award of rentals to Jardinico is dispensed with.

Furthermore, the case is REMANDED to the court of origin for the determination of the actual value of the improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code.7

Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.

The Issues

The petition submitted the following grounds to justify a review of the respondent Court's Decision, as follows:

1. The Court of Appeals has decided the case in a way probably not in accord with law or the the (sic) applicable decisions of the Supreme Court on third-party complaints, by ordering third-party defendants to pay the demolition expenses and/or price of the land;

2. The Court of Appeals has so far departed from the accepted course of judicial proceedings, by granting to private respondent-Kee the rights of a builder in good faith in excess of what the law provides, thus enriching private respondent Kee at the expense of the petitioner;

3. In the light of the subsequent events or circumstances which changed the rights of the parties, it becomes imperative to set aside or at least modify the judgment of the Court of Appeals to harmonize with justice and the facts;

4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly a builder in bad faith, having violated several provisions of the contract to sell on installments;

5. The decision of the Court of Appeals, holding the principal, Pleasantville Development Corporation (liable) for the acts made by the agent in excess of its authority is clearly in violation of the provision of the law;

6. The award of attorney's fees is clearly without basis and is equivalent to putting a premium in (sic) court litigation.

From these grounds, the issues could be re-stated as follows:

(1) Was Kee a builder in good faith?

(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and

(3) Is the award of attorney's fees proper?

The First Issue: Good Faith

Petitioner contends that the Court of Appeals erred in reversing the RTC's ruling that Kee was a builder in bad faith.

Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals that Kee was a builder in good faith. We agree with the following observation of the Court of Appeals:

The roots of the controversy can be traced directly to the errors committed by CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot would knowingly and willingly build his residence on a lot owned by another, deliberately exposing himself and his family to the risk of being ejected from the land and losing all improvements thereon, not to mention the social humiliation that would follow.

Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity of his property. Lot 8 is covered by Transfer Certificate of Title No. T-69561, while Lot 9 is identified in Transfer Certificate of Title No. T-106367. Hence, under the Torrens system of land registration, Kee is presumed to have knowledge of the metes and bounds of the property with which he is dealing. . . .

xxx       xxx       xxx

But as Kee is a layman not versed in the technical description of his property, he had to find a way to ascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivision developer's agent and applied and paid for the relocation of the lot, as well as for the production of a lot plan by CTTEI's geodetic engineer. Upon Kee's receipt of the map, his wife went to the subdivision site accompanied by CTTEI's employee, Octaviano, who authoritatively declared that the land she was pointing to was indeed Lot 8. Having full faith and confidence in the reputation of CTTEI, and because of the company's positive identification of the property, Kee saw no reason to suspect that there had been a misdelivery. The steps Kee had taken to protect his interests were reasonable. There was no need for him to have acted ex-abundantia cautela, such as being present during the geodetic engineer's relocation survey or hiring an independent geodetic engineer to countercheck for errors, for the final delivery of subdivision lots to their owners is part of the regular course of everyday business of CTTEI. Because of CTTEI's blunder, what Kee had hoped to forestall did in fact transpire. Kee's efforts all went to naught.8

Good faith consists in the belief of the builder that the land he is building on is his and his ignorance of any defect or flaw in his title 9. And as good faith is presumed, petitioner has the burden of proving bad faith on the part of Kee 10.

At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kee's good faith. Petitioner failed to prove otherwise.

To demonstrate Kee's bad faith, petitioner points to Kee's violation of paragraphs 22 and 26 of the Contract of Sale on Installment.

We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in good faith, that is, on his state of mind at the time he built the improvements on Lot 9. These alleged violations may give rise to petitioner's cause of action against Kee under the said contract (contractual breach), but may not be bases to negate the presumption that Kee was a builder in good faith.

Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment covering Lot 8 between it and Kee was rescinded long before the present action was instituted. This has no relevance on the liability of petitioner, as such fact does not negate the negligence of its agent in pointing out the wrong lot. to Kee. Such circumstance is relevant only as it gives Jardinico a cause of action for unlawful detainer against Kee.

Petitioner next contends that Kee cannot "claim that another lot was erroneously pointed out to him" because the latter agreed to the following provision in the Contract of Sale on installment, to wit:

13. The Vendee hereby declares that prior to the execution of his contract he/she has personally examined or inspected the property made subject-matter hereof, as to its location, contours, as well as the natural condition of the lots and from the date hereof whatever consequential change therein made due to erosion, the said Vendee shall bear the expenses of the necessary fillings, when the same is so desired by him/her.11

The subject matter of this provision of the contract is the change of the location, contour and condition of the lot due to erosion. It merely provides that the vendee, having examined the property prior to the execution of the contract, agrees to shoulder the expenses resulting from such change.

We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from petitioner's negligence. Such waiver would be contrary to public policy and cannot be allowed. "Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law." 12

The Second Issue: Petitioner's Liability

Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after ruling that there was no evidence from which fault or negligence on the part of petitioner and CTTEI can be inferred. The Court of Appeals disagreed and found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee.

Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous delivery of Lot 9 to Kee was an act which was clearly outside the scope of its authority, and consequently, CTTEI I alone should be liable. It asserts that "while [CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was never authorized to deliver the wrong lot to Kee" 13.

Petitioner's contention is without merit.

The rule is that the principal is responsible for the acts of the agent, done within the scope of his authority, and should bear the damage caused to third persons 14. On the other hand, the agent who exceeds his authority is personally liable for the damage 15

CTTEI was acting within its authority as the sole real estate representative of petitioner when it made the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this

negligence that is the basis of petitioner's liability, as principal of CTTEI, per Articles 1909 and 1910 of the Civil Code.

Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the Court of Appeals of such deal.

The deed of sale contained the following provision:

1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now pending appeal with the Court of Appeals, regardless of the outcome of the decision shall be mutually disregarded and shall not be pursued by the parties herein and shall be considered dismissed and without effect whatso-ever; 16

Kee asserts though that the "terms and conditions in said deed of sale are strictly for the parties thereto" and that "(t)here is no waiver made by either of the parties in said deed of whatever favorable judgment or award the honorable respondent Court of Appeals may make in their favor against herein petitioner Pleasantville Development Corporation and/or private respondent C.T. Torres Enterprises; Inc." 17

Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated, petitioner's liability is grounded on the negligence of its agent. On the other hand, what the deed of sale regulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached an agreement independent of the outcome of the case.

Petitioner further assails the following holding of the Court of Appeals:

2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances:

a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless;

b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico. 18

Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at its expense. In other words, Kee would be able to own the lot, as buyer, without having to pay anything on it, because the aforequoted portion of respondent Court's Decision would require petitioner and CTTEI jointly and solidarily to "answer" or reimburse Kee therefor.

We agree with petitioner.

Petitioner' s liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner should be held liable for damages. Now, the extent and/or amount of damages to be awarded is a factual issue which should be determined after evidence is adduced. However, there is no showing that such evidence was actually presented in the trial court; hence no damages could flow be awarded.

The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight modification" in the application of such law, on the ground of "equity". At any rate, as it stands now, Kee and Jardinico have amicably settled through their deed of sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the dispositive portion of the Court of Appeals' Decision [as reproduced above] holding petitioner and CTTEI solidarily liable.

The Third Issue: Attorney's Fees

The MTCC awarded Jardinico attorney's fees and costs in the amount of P3,000.00 and P700.00, respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling that petitioner was without fault or negligence. The Court of Appeals, however, reinstated the award of attorney's fees after ruling that petitioner was liable for its agent's negligence.

The award of attorney's fees lies within the discretion of the court and depends upon the circumstances of each case 19. We shall not interfere with the discretion of the Court of Appeals. Jardinico was compelled to litigate for the protection of his interests and for the recovery of damages sustained as a result of the negligence of petitioner's agent 20.

In sum, we rule that Kee is a builder in good faith. The disposition of the Court of Appeals that Kee "is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code" is deleted, in view of the deed of sale entered into by Kee and Jardinico, which deed now governs the rights of Jardinico and Kee as to each other. There is also no further need, as ruled by the appellate Court, to remand the case to the court of origin "for determination of the actual value of the improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code."

WHEREFORE , the petition is partially GRANTED. The Decision of the Court of Appeals is hereby MODIFIED as follows:

(1) Wilson Kee is declared a builder in good faith;

(2) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are declared solidarily liable for damages due to negligence; however, since the amount and/or extent of such damages was not proven during the trial, the same cannot now be quantified and awarded;

(3) Petitioner Pleasantville Development Corporation and respondent C.T. Torres Enterprises, Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorney's fees, as well as litigation expenses; and

(4) The award of rentals to Jardinico is dispensed with.

SO ORDERED.

Navasa, C.J., Davide, Jr. and Melo, JJ., concur.Francisco, J., took no part.

G.R. No. L-17652             June 30, 1962

IGNACIO GRANDE, ET AL., petitioners, vs.HON. COURT OF APPEALS, DOMINGO CALALUNG, and ESTEBAN CALALUNG, respondents.

Bartolome Guirao and Antonio M. Orara for petitioners.Gonzales and Fernandez for respondents.

BARRERA, J.:

This is an appeal taken by petitioners Ignacio, Eulogia, Alfonso, Eulalia, and Sofia Grande, from the decision of the Court of Appeals (CA-G.R. No. 25169-R) reversing that of the Court of First Instance of Isabela (Civil Case No. 1171), and dismissing petitioners' action against respondents Domingo and Esteban Calalung, to quiet title to and recover possession of a parcel of land allegedly occupied by the latter without petitioners' consent.

The facts of the case, which are undisputed, briefly are: Petitioners are the owners of a parcel of land, with an area of 3.5032 hectares, located at barrio Ragan, municipality of Magsaysay (formerly Tumauini), province of Isabela, by inheritance from their deceased mother Patricia Angui (who inherited it from her parents Isidro Angui and Ana Lopez, in whose name said land appears registered, as shown by Original Certificate of Title No. 2982, issued on June 9, 1934). Said property is identified as Lot No. 1, Plan PSU-83342. When it was surveyed for purposes of registration sometime in 1930, its northeastern boundary was the Cagayan River (the same boundary stated in the title). Since then, and for many years thereafter, a gradual accretion on the northeastern side took place, by action of the current of the Cagayan River, so much so, that by 1958, the bank thereof had receded to a distance of about 105 meters from its original site, and an alluvial deposit of 19,964 square meters (1.9964 hectares), more or less, had been added to the registered area (Exh. C-1).

On January 25, 1958, petitioners instituted the present action in the Court of First Instance of Isabela against respondents, to quiet title to said portion (19,964 square meters) formed by accretion, alleging in their complaint (docketed as Civil Case No. 1171) that they and their predecessors-in-interest, were formerly in peaceful and continuous possession thereof, until September, 1948, when respondents entered upon the land under claim of ownership. Petitioners also asked for damages corresponding to the value of the fruits of the land as well as attorney's fees and costs. In their answer (dated February 18, 1958), respondents claim ownership in themselves, asserting that they have been in continuous, open, and undisturbed possession of said portion, since prior to the year 1933 to the present.

After trial, the Court of First Instance of Isabela, on May 4, 1959, rendered a decision adjudging the ownership of the portion in question to petitioners, and ordering respondents to vacate the premises and deliver possession thereof to petitioners, and to pay to the latter P250.00 as damages and costs. Said decision, in part, reads:

It is admitted by the parties that the land involved in this action was formed by the gradual deposit of alluvium brought about by the action of the Cagayan River, a navigable river. We are inclined to believe that the accretion was formed on the northeastern side of the land covered by Original Certificate of Title No. 2982 after the survey of the registered land in 1931, because the surveyors found out that the northeastern boundary of the land surveyed by them was the Cagayan River, and not the land in question. Which is indicative of the fact that the accretion has not yet started or begun in 1931. And, as declared by Pedro Laman, defendant witness and the boundary owner on the northwest of the registered land of the plaintiffs, the accretion was a little more than one hectare, including the stony portion, in 1940 or 1941. Therefore, the declarations of the defendant Domingo Calalung and his witness, Vicente C. Bacani, to the effect that the land in question was formed by accretion since 1933 do not only contradict the testimony of defendants' witness Pedro Laman, but could not overthrow the incontestable fact that the accretion with an area of 4 hectare more or less, was formed in 1948, reason for which, it was only declared in that same year for taxation purposes by the defendants under Tax Dec. No. 257 (Exh. "2") when they entered upon the land. We could not give credence to defendants' assertion that Tax Dec. No. 257 (Exh. "2") cancelled Tax Dee. No. 28226 (Exh. "1"), because Exh. "2" says that "tax under this declaration begins with the year 1948. But, the fact that defendants declared the land for taxation purposes since 1948, does not mean that they become the owner of the land by mere occupancy, for it is a new provision of the New Civil Code that ownership of a piece of land cannot be acquired by occupation (Art. 714, New Civil Code). The land in question being an accretion to the mother or registered land of the plaintiffs, the accretion belongs to the plaintiffs (Art. 457, New Civil Code; Art. 366, Old Civil Code). Assuming arguendo, that the accretion has been occupied by the defendants since 1948, or earlier, is of no moment, because the law does not require any act of possession on the part of the owner of the riparian owner, from the moment the deposit becomes manifest (Roxas v. Tuason, 9 Phil. 408; Cortez v. City of Manila, 10 Phil. 567). Further, no act of appropriation on the part of the reparian owner is necessary, in order to acquire ownership of the alluvial formation, as the law does not require the same (3 Manresa, C.C., pp. 321-326).

This brings us now to the determination of whether the defendants, granting that they have been in possession of the alluvium since 1948, could have acquired the property by prescription. Assuming that they occupied the land in September, 1948, but considering that the action was commenced on January 25, 1958, they have not been in possession of the land for ten (10) years; hence, they could not have acquired the land by ordinary prescription (Arts. 1134 and 1138, New Civil Code). Moreover, as the alluvium is, by law, part and parcel of the registered property, the same may be considered as registered property, within the

meaning of Section 46 of Act No. 496: and, therefore, it could not be acquired by prescription or adverse possession by another person.

Unsatisfied, respondents appealed to the Court of Appeals, which rendered, on September 14, 1960, the decision adverted to at the beginning of this opinion, partly stating:

That the area in controversy has been formed through a gradual process of alluvium, which started in the early thirties, is a fact conclusively established by the evidence for both parties. By law, therefore, unless some superior title has supervened, it should properly belong to the riparian owners, specifically in accordance with the rule of natural accession in Article 366 of the old Civil Code (now Article 457), which provides that "to the owner of lands adjoining the banks of rivers, belongs the accretion which they gradually receive from the effects of the current of the waters." The defendants, however, contend that they have acquired ownership through prescription. This contention poses the real issue in this case. The Courta quo, has resolved it in favor of the plaintiffs, on two grounds: First, since by accession, the land in question pertains to the original estate, and since in this instance the original estate is registered, the accretion, consequently, falls within the purview of Section 46 of Act No. 496, which states that "no title to registered land in derogation to that of the registered owner shall be acquired by prescription or adverse possession"; and, second, the adverse possession of the defendant began only in the month of September, 1948, or less than the 10-year period required for prescription before the present action was instituted.

As a legal proposition, the first ground relied upon by the trial court, is not quite correct. An accretion to registered land, while declared by specific provision of the Civil Code to belong to the owner of the land as a natural accession thereof, does not ipso jure become entitled to the protection of the rule of imprescriptibility of title established by the Land Registration Act. Such protection does not extend beyond the area given and described in the certificate. To hold otherwise, would be productive of confusion. It would virtually deprive the title, and the technical description of the land given therein, of their character of conclusiveness as to the identity and area of the land that is registered. Just as the Supreme Court, albeit in a negative manner, has stated that registration does not protect the riparian owner against the erosion of the area of his land through gradual changes in the course of the adjoining stream (Payatas Estate Development Co. v. Tuason, 53 Phil. 55), so registration does not entitle him to all the rights conferred by Land Registration Act, in so far as the area added by accretion is concerned. What rights he has, are declared not by said Act, but by the provisions of the Civil Code on accession: and these provisions do not preclude acquisition of the addition area by another person through prescription. This Court has held as much in the case of Galindez, et al. v. Baguisa, et al., CA-G.R. No. 19249-R, July 17, 1959.

We now proposed to review the second ground relied upon by the trial court, regarding the length of time that the defendants have been in possession. Domingo Calalung testified that he occupied the land in question for the first time in 1934, not in 1948 as claimed by the plaintiffs. The area under occupancy gradually increased as the years went by. In 1946, he declared the land for purposes of taxation (Exhibit 1). This tax declaration was superseded in 1948 by another (Exhibit 2), after the name of the municipality wherein it is located was changed from Tumauini to Magsaysay. Calalung's testimony is corroborated by two witnesses, both owners of properties nearby. Pedro Laman, 72 years of age, who was Municipal president of Tumauini for three terms, said that the land in question adjoins his own on the south, and that since 1940 or 1951, he has always known it to be in the peaceful possession of the defendants. Vicente C. Bacani testified to the same effect, although, he said that the defendants' possession started sometime in 1933 or 1934. The area thereof, he said, was then less than one hectare.

We find the testimony of the said witnesses entitled to much greater weight and credence than that of the plaintiff Pedro Grande and his lone witness, Laureana Rodriguez. The first stated that the defendants occupied the land in question only in 1948; that he called the latter's attention to the fact that the land was his, but the defendants, in turn, claimed that they were the owners, that the plaintiffs did not file an action until 1958, because it was only then that they were able to obtain the certificate of title from the surveyor, Domingo Parlan; and that they never declared the land in question for taxation purposes or paid the taxes thereon. Pedro Grande admitted that the defendants had the said land surveyed in April, 1958, and that he tried to stop it, not because he claimed the accretion for himself and his co-plaintiffs, but because the survey included a portion of the property covered by their title. This last fact is conceded by the defendants who, accordingly, relinquished their possession to the part thus included, containing an area of some 458 square meters. 1äwphï1.ñët

The oral evidence for the defendants concerning the period of their possession — from 1933 to 1958 — is not only preponderant in itself, but is, moreover, supported by the fact that it is they and not the plaintiffs who declared the disputed property for taxation, and by the additional circumstance that if the plaintiff had really been in prior possession and were deprived thereof in 1948, they would have immediately taken steps to recover the same. The excuse they gave for not doing so, namely, that they did not receive their copy of the certificate of title to their property until 1958 for lack of funds to pay the fees of the surveyor Domingo Parlan, is too flimsy to merit any serious consideration. The payment of the surveyor's fees had nothing to do with their right to obtain a copy of the certificate. Besides, it was not necessary for them to have it in their hands, in order to file an action to recover the land which was legally theirs by accession and of which, as they allege, they had been illegally deprived by the defendants. We are convinced, upon consideration of the evidence, that the latter, were really in possession since 1934, immediately after the process of alluvion started, and that the plaintiffs woke up to their rights only when they received their copy of the title in 1958. By then, however, prescription had already supervened in favor of the defendants.

It is this decision of the Court of Appeals which petitioners seek to be reviewed by us.

The sole issue for resolution in this case is whether respondents have acquired the alluvial property in question through prescription.

There can be no dispute that both under Article 457 of the New Civil Code and Article 366 of the old, petitioners are the lawful owners of said alluvial property, as they are the registered owners of the land which it adjoins. The question is whether the accretion becomes automatically registered land just because the lot which receives it is covered by a Torrens title thereby making the alluvial property imprescriptible. We agree with the Court of Appeals that it does not, just as an unregistered land purchased by the registered owner of the adjoining land does not, by extension, become ipso facto registered land. Ownership of a piece of land is one thing, and registration under the Torrens system of that ownership is quite another. Ownership over the accretion received by the land adjoining a river is governed by the Civil Code. Imprescriptibility of registered land is provided in the registration law. Registration under the Land Registration and Cadastral Acts does not vest or give title to the land, but merely confirms and thereafter protects the title already possessed by the owner, making it imprescriptible by occupation of third parties. But to obtain this protection, the land must be placed under the operation of the registration laws wherein certain judicial procedures have been provided. The fact remain, however, that petitioners never sought registration of said alluvial property (which was formed sometime after petitioners' property covered by Original Certificate of Title No. 2982 was registered on June 9, 1934) up to the time they instituted the present action in the Court of First Instance of Isabela in 1958. The increment, therefore, never became registered

property, and hence is not entitled or subject to the protection of imprescriptibility enjoyed by registered property under the Torrens system. Consequently, it was subject to acquisition through prescription by third persons.

The next issue is, did respondents acquire said alluvial property through acquisitive prescription? This is a question which requires determination of facts: physical possession and dates or duration of such possession. The Court of Appeals, after analyzing the evidence, found that respondents-appellees were in possession of the alluvial lot since 1933 or 1934, openly, continuously and adversely, under a claim of ownership up to the filing of the action in 1958. This finding of the existence of these facts, arrived at by the Court of Appeals after an examination of the evidence presented by the parties, is conclusive as to them and can not be reviewed by us.

The law on prescription applicable to the case is that provided in Act 190 and not the provisions of the Civil Code, since the possession started in 1933 or 1934 when the pertinent articles of the old Civil Code were not in force and before the effectivity of the new Civil Code in 1950. Hence, the conclusion of the Court of Appeals that the respondents acquired alluvial lot in question by acquisitive prescription is in accordance with law.

The decision of the Court of Appeals under review is hereby affirmed, with costs against the petitioners. So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes and Dizon, JJ., concur.Reyes, J.B.L., Regala and Makalintal, JJ., took no part.

G.R. Nos. L-66075-76 July 5, 1990

EULOGIO AGUSTIN, HEIRS OF BALDOMERO LANGCAY, ARTURO BALISI & JUAN LANGCAY, petitioners, vs.INTERMEDIATE APPELLATE COURT, MARIA MELAD, TIMOTEO MELAD, PABLO BINAYUG & GERONIMA UBINA, respondents.

Antonio N. Laggui for petitioners.

Pedro R. 

Perez, Jr. for private respondents.

 

GRIÑO-AQUINO, J.:

The Cagayan River separates the towns of Solana on the west and Tuguegarao on the east in the province of Cagayan. According to the unrebutted testimony of Romeo Rigor, Geodetic Engineer of the Bureau of Lands, in 1919 the lands east of the river were covered by the Tuguegarao Cadastre. In 1925, Original Certificate of Title No. 5472 was issued for land east of the Cagayan River owned by defendant-petitioner Eulogio Agustin (Exh. 2-Agustin).

As the years went by, the Cagayan River moved gradually eastward, depositing silt on the western bank. The shifting of the river and the siltation continued until 1968.

In 1950, all lands west of the river were included in the Solana Cadastre. Among these occupying lands covered by the Solana Cadastre were plaintiffs-private respondents, namely, Pablo Binayug, who has been in possession of Lots 3349, 7876, 7877, 7878, 7879, 7875, 7881, 7882, 7883, 7884, 7885, 7891 and 7892, and Maria Melad, who owns Lot 3351 (Exh. 3-Binayug; Exh. B-Melad). Pablo Binayug began his possession in 1947. An area of eight (8) hectares was planted to tobacco and corn while 12 hectares were overgrown with talahib (Exh. C-1 Binayug.) Binayug's Homestead Application No. W-79055 over this land was approved in 1959 (Exh. B-Binayug). Binayug's possession was recognized in the decision in Civil Case No. 101 (Exh. F-Binayug). On the other hand, as a result of Civil Case No. 343-T, Macario Melad, the predecessor-in-interest of Maria Melad and Timoteo Melad, was issued Original Certificate of Title No. P-5026 for Lot 3351 of Cad. 293 on June 1, 1956.

Through the years, the Cagayan River eroded lands of the Tuguegarao Cadastre on its eastern bank among which was defendant-petitioner Eulogio Agustin's Lot 8457 (Exh. E-Melad), depositing the alluvium as accretion on the land possessed by Pablo Binayug on the western bank.

However, in 1968, after a big flood, the Cagayan River changed its course, returned to its 1919 bed, and, in the process, cut across the lands of Maria Melad, Timoteo Melad, and the spouses Pablo Binayug and Geronima Ubina whose lands were transferred on the eastern, or Tuguegarao, side of the river. To cultivate those lots they had to cross the river.

In April, 1969, while the private respondents and their tenants were planting corn on their lots located on the eastern side of the Cagayan River, the petitioners, accompanied by the mayor and some policemen of Tuguegarao, claimed the same lands as their own and drove away the private respondents from the premises.

On April 21, 1970, private respondents Maria Melad and Timoteo Melad filed a complaint (Civil Case No. 343-T) to recover Lot No. 3351 with an area of 5 hectares and its 6.6-hectare accretion. On April 24, 1970, private respondent Pablo Binayug filed a separate complaint (Civil Case No. 344-T) to recover his lots and their accretions.

On June 16, 1975, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby made:

In Civil Case No. 343-T, commanding Eulogio Agustin, Gregorio Tuliao, Jacinto Buquel and Octavio Bancud, or anybody acting as their representative[s] or agents to vacate Lot No. 3351 of Solana Cadastre together with its accretion consisting of portions of Lots 9463, 9462 and 9461 of Tuguegarao Cadastre and for these defendants to restore ownership in favor of Maria Melad and Timoteo Melad who are the only interested heirs of Macario Melad.

In Civil Case No. 344-T, commanding defendants Justo Adduru, Andres Pastor, Teofilo Tagacay, Vicente Camilan, Nicanor Mora, Baldomero Cagurangan, Domingo Quilang, Cesar Cabalza, Elias Macababbad, Titong Macababbad, Arturo Balisi, Jose Allabun, Eulogio Agustin, Banong Aquino, Junior Cambri and Juan Langoay, or any of their agents or representatives to vacate the Lots 3349, 7876, 7877, 7878, 7879, 7875, 7881, 7882, 7883, 7884, 7885, 7891 and 7892, together with its accretion and to restore possession to plaintiffs Pablo Binayug and Geronima Ubina. Without pronouncement as to damages which were not properly proven and to costs.

SO ORDERED. (As amended by the order dated August 15, 1975.) (pp. 24-25, Rollo.)

Only defendant-petitioner Eulogio Agustin appealed in Civil Case No. 343-T, while in Civil Case No. 344-T, only defendants-petitioners Eulogio Agustin, Baldomero Cagurangan (substituted by his heir), Arturo Balisi and Juan Langcay appealed. But upon motion of plaintiffs-private respondents, the trial court ordered the execution pending appeal of the judgment in Civil Case No. 344-T against Cagurangan, Balisi and Langcay on the ground that their appeal was dilatory as they had not presented evidence at the trial (Order dated August 15, 1975).

On November 29, 1983, the Intermediate Appellate Court rendered a decision affirming in toto the judgment of the trial court, with costs against the defendants-appellants.

In their petition for review of that decision, the petitioners allege that the Court of Appeals erred:

1. in declaring that the land in question had become part of private respondents' estate as a result of accretion;

2. in declaring that the accretion to private respondents' estate which used to pertain to petitioners' estate cannot preclude the private respondents from being the owners thereof; and

3. in declaring that the ownership of private respondents over the accretion is not affected by the sudden and abrupt change in the course of the Cagayan River when it reverted to its old bed

The petition is unmeritorious and must be denied.

The finding of the Court of Appeals that there had been accretions to the lots of the private respondents who did not lose the ownership of such accretions even after they were separated from the principal lots by the sudden change of course of the river, is a finding of fact which is conclusive on this Court. That finding is supported by Art. 457 of the New Civil Code which provides:

Art. 457. To the owners of lands adjoining the banks of rivers belong the accretion which they gradually receive from the effects of the current of the waters. (366)

Accretion benefits a riparian owner when the following requisites are present: (1) that the deposit be gradual and imperceptible; (2) that it resulted from the effects of the current of the water; and (3) that the land where accretion takes place is adjacent to the bank of a river (Republic vs. CA, 132 SCRA 514).

All these requisites of accretion are present in this case for, as the trial court found:

. . . Cagayan River did move year by year from 1919 to 1968 or for a period of 49 years. Within this period, the alluvium (sic) deposited on the other side has become greater in area than the original lands of the plaintiffs in both cases. Still the addition in every year is imperceptible in nature, one could not discern it but can be measured after the lapse of a certain time. The testimonial evidence in these cases that said Cagayan River moved eastward year by year is overwhelming as against the denial of defendant Eulogio Agustin alone. Cesar Caronan, one time mayor of Solana, Cagayan, said so. Arturo Taguian said so. Timoteo Melad said so. Francisco Ubina

said so. Geodetic Engineer Rigor impliedly said so when he testified that when Solana Cadastre was executed in 1950 it overlapped portions of Tuguegarao Cadastre executed in 1919. This could not have happened if that part of Tuguegarao Cadastre was not eroded by the overflow of the Cagayan River. These testimonies cannot be destroyed by the denials of Vicente Cauilan, Marcelo Agustin and Eulogio Agustin alone . . . . (p. 27, Rollo.)

The appellate court confirmed that the accretion on the western bank of the Cagayan River had been going on from 1919 up to 1968 or for a period of 49 years. It was gradual and imperceptible. Only when Lot No. 3351, with an original area of 5 hectares described in the free patent that was issued to Macario Melad in June 1956, was resurveyed in 1968 did it become known that 6.6 hectares had been added to it. Lot No. 3351, covered by a homestead patent issued in June, 1950 to Pablo Binayug, grew from its original area of 18 hectares, by an additional 50 hectares through alluvium as the Cagayan River gradually moved to the east. These accretions belong to riparian owners upon whose lands the alluvial deposits were made (Roxas vs. Tuason, 9 Phil. 408; Director of Lands vs. Rizal, 87 Phil. 806). The reason for this principle is because, if lands bordering on streams are exposed to floods and other damage due to the destructive force of the waters, and if by virtue of law they are subject to encumbrances and various kinds of easements, it is only just that such risks or dangers as may prejudice the owners thereof should in some way be compensated by the right of accretion (Cortes vs. City of Manila, 10 Phil. 567). i•t•c-aüsl

The private respondents' ownership of the accretion to their lands was not lost upon the sudden and abrupt change of the course of the Cagayan River in 1968 or 1969 when it reverted to its old 1919 bed, and separated or transferred said accretions to the other side (or eastern bank) of the river. Articles 459 and 463 of the New Civil Code apply to this situation.

Art. 459. Whenever the current of a river, creek or torrent segregates from an estate on its bank a known portion of land and transfers it to another estate, the owner of the land to which the segregated portion belonged retains the ownership of it, provided that he removes the same within two years.

Art. 463. Whenever the current of a river divides itself into branches, leaving a piece of land or part thereof isolated, the owner of the land retains his ownership. He also retains it if a portion of land is separated from the estate by the current. (Emphasis supplied).

In the case at bar, the sudden change of course of the Cagayan River as a result of a strong typhoon in 1968 caused a portion of the lands of the private respondents to be "separated from the estate by the current." The private respondents have retained the ownership of the portion that was transferred by avulsion to the other side of the river.

WHEREFORE, the petition is denied for lack of merit. The decision of the Intermediate Appellate Court, now Court of Appeals, is hereby affirmed. Costs against the petitioners.

SO ORDERED.

Narvasa, C.J., Cruz, Gancayco and Medialdea, JJ., concur.