Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 121597

June 29, 2001

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HON. COURT OF APPEALS, ALLAN M. CHUA as Special Administrator of the Intestate Estate
of the late ANTONIO M. CHUA and Mrs. ASUNCION M. CHUA, respondents.
QUISUMBING, J.:
This petition assails the decision1 of the Court of Appeals dated July 25, 1995 in CA-G.R. CV No.
36546, affirming the decision dated September 4, 1991 of the Regional Trial Court of Balayan,
Batangas, Branch 10 in Civil Case No. 1988.
The facts, as found by the trial court and by the Court of Appeals, are not disputed.
The spouses Antonio M. Chua and Asuncion M. Chua were the owners of a parcel of land covered
by Transfer Certificate of Title No. P-142 and registered in their names. Upon Antonios death, the
probate court appointed his son, private respondent Allan M. Chua, special administrator of
Antonios intestate estate. The court also authorized Allan to obtain a loan accommodation of five
hundred fifty thousand (P550,000.00) pesos from petitioner Philippine National Bank to be secured
by a real estate mortgage over the above-mentioned parcel of land.
On June 29, 1989, Allan obtained a loan of P450,000.00 from petitioner PNB evidenced by a
promissory note, payable on June 29, 1990, with interest at 18.8 percent per annum. To secure the
loan, Allan executed a deed of real estate mortgage on the aforesaid parcel of land.
On December 27, 1990, for failure to pay the loan in full, the bank extrajudicially foreclosed the real
estate mortgage, through the Ex-Officio Sheriff, who conducted a public auction of the mortgaged
property pursuant to the authority provided for in the deed of real estate mortgage. During the
auction, PNB was the highest bidder with a bid price P306,360.00. Since PNBs total claim as of the
date of the auction sale was P679,185.63, the loan had a payable balance of P372,825.63. To claim
this deficiency, PNB instituted an action with the RTC, Balayan, Batangas, Branch 10, docketed as
Civil Case No. 1988, against both Mrs. Asuncion M. Chua and Allan Chua in his capacity as special
administrator of his fathers intestate estate.
Despite summons duly served, private respondents did not answer the complaint. The trial court
declared them in default and received evidence ex parte.
On September 4, 1991, the RTC rendered its decision, ordering the dismissal of PNBs complaint.2
On appeal, the Court of Appeals affirmed the RTC decision by dismissing PNBs appeal for lack of
merit.3
Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court. Petitioner
cites two grounds:

I
THE CA ERRED IN HOLDING THAT PNB CAN NO LONGER PURSUE ITS DEFICIENCY
CLAIM AGAINST THE ESTATE OF DECEASED ANTONIO M. CHUA, HAVING ELECTED
ONE OF ITS ALTERNATIVE RIGHT PURSUANT TO SECTION 7 RULE 86 OF THE RULES
OF COURT DESPITE A SPECIAL ENACTMENT (ACT. NO. 3135) COVERING
EXTRAJUDICIAL FORECLOSURE SALE ALLOWING RECOURSE FOR A DEFICIENCY
CLAIM AS SUPPORTED BY CONTEMPORARY JURISPRUDENCE.
II
THE CA ERRED IN HOLDING THAT ALLAN M. CHUA, AS SPECIAL ADMINISTRATOR OF
THE INTESTATE ESTATE OF HIS DECEASED FATHER ANTONIO M. CHUA ON ONE
HAND, AND HIM AND HIS MOTHER ASUNCION CHUA AS HEIRS ON THE OTHER HAND
ARE NO LONGER LIABLE FOR THE DEBTS OF THE ESTATE.4
The primary issue posed before us is whether or not it was error for the Court of Appeals to rule that
petitioner may no longer pursue by civil action the recovery of the balance of indebtedness after
having foreclosed the property securing the same. A resolution of this issue will also resolve the
secondary issue concerning any further liability of respondents and of the decedents estate.
Petitioner contends that under prevailing jurisprudence, when the proceeds of the sale are
insufficient to pay the debt, the mortgagee has the right to recover the deficiency from the debtor.5 It
also contends that Act 3135, otherwise known as "An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate Mortgages," is the law applicable to this case
of foreclosure sale and not Section 7 of Rule 86 of the Revised Rules of Court6 as held by the Court
of Appeals.7
Private respondents argue that having chosen the remedy of extrajudicial foreclosure of the
mortgaged property of the deceased, petitioner is precluded from pursuing its deficiency claim
against the estate of Antonio M. Chua. This they say is pursuant to Section 7, Rule 86 of the Rules
of Court, which states that:
Sec. 7. Rule 86. Mortgage debt due from estate. A creditor holding a claim against the
deceased secured by mortgage or other collateral security, may abandon the security and
prosecute his claim in the manner provided in this rule, and share in the general distribution
of the assets of the estate; or he may foreclose his mortgage or realize upon his security, by
action in court, making the executor or administrator a party defendant, and if there is a
judgment for a deficiency, after the sale of the mortgaged premises, or the property pledged,
in the foreclosure or other proceeding to realize upon the security, he may claim his
deficiency judgment in the manner provided in the preceding section; or he may rely upon his
mortgage or other security alone and foreclose the same at any time within the period of the
statute of limitations, and in that event he shall not be admitted as a creditor, and shall
receive no share in the distribution of the other assets of the estate; but nothing herein
contained shall prohibit the executor or administrator from redeeming the property
mortgaged or pledged by paying the debt for which it is hold as security, under the direction
of the court if the court shall adjudge it to be for the interest of the estate that such
redemption shall be made.
Pertinent to the issue at bar, according to petitioner, are our decisions he cited.8 Prudential Bank v.
Martinez, 189 SCRA 612, 615 (1990), is particularly cited by petitioner as precedent for holding that

in extrajudicial foreclosure of mortgage, when the proceeds of the sale are insufficient to pay the
debt, the mortgagee has the right to recover the deficiency from the mortgagor.
However, it must be pointed out that petitioners cited cases involve ordinary debts secured by a
mortgage. The case at bar, we must stress, involves a foreclosure of mortgage arising out of a
settlement of estate, wherein the administrator mortgaged a property belonging to the estate of the
decedent, pursuant to an authority given by the probate court. As the Court of Appeals correctly
stated, the Rules of Court on Special Proceedings comes into play decisively.
To begin with, it is clear from the text of Section 7, Rule 89, that once the deed of real estate
mortgage is recorded in the proper Registry of Deeds, together with the corresponding court order
authorizing the administrator to mortgage the property, said deed shall be valid as if it has been
executed by the deceased himself. Section 7 provides in part:
Sec. 7. Rule 89. Regulations for granting authority to sell, mortgage, or otherwise encumber
estate The court having jurisdiction of the estate of the deceased may authorize the
executor or administrator to sell personal estate, or to sell, mortgage, or otherwise encumber
real estate, in cases provided by these rules when it appears necessary or beneficial under
the following regulations:
xxx
(f) There shall be recorded in the registry of deeds of the province in which the real estate
thus sold, mortgaged, or otherwise encumbered is situated, a certified copy of the order of
the court, together with the deed of the executor or administrator for such real estate, which
shall be valid as if the deed had been executed by the deceased in his lifetime.
In the present case, it is undisputed that the conditions under the aforecited rule have been complied
with. It follows that we must consider Sec. 7 of Rule 86, appropriately applicable to the controversy
at hand.
Case law now holds that this rule grants to the mortgagee three distinct, independent and mutually
exclusive remedies that can be alternatively pursued by the mortgage creditor for the satisfaction of
his credit in case the mortgagor dies, among them:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and
(3) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred
by prescriptionwithout right to file a claim for any deficiency.9
In Perez v. Philippine National Bank,10 reversing Pasno vs. Ravina,11 we held:
The ruling in Pasno vs. Ravina not having been reiterated in any other case, we have
carefully reexamined the same, and after mature deliberation have reached the conclusion
that the dissenting opinion is more in conformity with reason and law. Of the three alternative
courses that section 7, Rule 87 (now Rule 86), offers the mortgage creditor, to wit, (1) to
waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary
claim; (2) foreclose the mortgage judicially and prove any deficiency as an ordinary claim;

and (3) to rely on the mortgage exclusively, foreclosing the same at any time before it is
barred by prescription, without right to file a claim for any deficiency, the majority opinion
in Pasno vs. Ravina, in requiring a judicial foreclosure, virtually wipes out the third alternative
conceded by the Rules to the mortgage creditor, and which would precisely include extrajudicial foreclosures by contrast with the second alternative.
The plain result of adopting the last mode of foreclosure is that the creditor waives his right to
recover any deficiency from the estate.12 Following the Perez ruling that the third mode includes
extrajudicial foreclosure sales, the result of extrajudicial foreclosure is that the creditor waives any
further deficiency claim. The dissent inPasno, as adopted in Perez, supports this conclusion, thus:
When account is further taken of the fact that a creditor who elects to foreclose by
extrajudicial sale waives all right to recover against the estate of the deceased debtor for any
deficiency remaining unpaid after the sale it will be readily seen that the decision in this case
(referring to the majority opinion) will impose a burden upon the estates of deceased persons
who have mortgaged real property for the security of debts, without any compensatory
advantage.
Clearly, in our view, petitioner herein has chosen the mortgage-creditors option of extrajudicially
foreclosing the mortgaged property of the Chuas. This choice now bars any subsequent deficiency
claim against the estate of the deceased, Antonio M. Chua. Petitioner may no longer avail of the
complaint for the recovery of the balance of indebtedness against said estate, after petitioner
foreclosed the property securing the mortgage in its favor. It follows that in this case no further
liability remains on the part of respondents and the late Antonio M. Chuas estate.
WHEREFORE, finding no reversible error committed by respondent Court of Appeals, the instant
petition is hereby DENIED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 36546
is AFFIRMED. Costs against petitioner.
1wphi1.nt

SO ORDERED.
Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-40771 January 29, 1986
ANGELINA SAMSON, petitioner,
vs.
COURT OF APPEALS and HEIRS OF PRESBITERO VELASCO, respondents.
Fidel Manalo for petitioner.
Presbiterio J. Velasco, Jr. for respondents.

GUTIERREZ, JR., J:
This is a petition to review the decision of the Court of Appeals, now the Intermediate Appellate
Court, which reversed and set aside the decision of the Court of First Instance of Cavite in Land
Registration Case No. TM-35.
Petitioner Angelina M. Samson filed an application for registration of title in the Court of First
Instance of Cavite of three parcels of land all located in Ternate, Cavite. These were (l) a parcel of
land with an area of 605,936 square meters more or less located in Sitio Caynipa covered by Plan
PSU-199064 (Exhibit "K"); (2) a parcel of land with an area of 199,120 square meters more or less
located in Barrio Cayugno-Paniman covered by Plan PSU-202594 (Exhibit "G") and (3) a parcel of
land with an area of 313,675 square meters more or less located in Barrio Cayladme covered by
Plan PSU 200554 (Exhibit "A").
The application for registration was premised on Section 48 of the Public Land Law, Commonwealth
Act No. 141 as amended by Republic Act 1942, which entities a person to obtain a certificate of title
if he and his predecessors-in- interest had been in open, continuous, exclusive and notorious
possession and occupation of agricultural lands of the public domain under a bona fide claim of
acquisition or ownership for at least thirty (30) years immediately preceding the filing of the
application for confirmation of title, except when prevented by war or force majeure.
The applicant alleged that she and her predecessors-in-interest had occupied and possessed the
properties openly, continuously, and in the concept of the owner for more than 60 years prior to the
filing of the application for registration.
With regard to the parcel of land covered by Plan PSU-200554 (Exhibit "A"), the petitioner stated that
she bought the northern portion from Melanio Martinez through a deed of sale executed on February
12, 1963 (Exhibit "P-1"). She claimed to have purchased the southern portion from Hilarion
Villacarlos and the latter's children as shown by a document entitled extra-judicial partition and sale
executed on August 20,1963 (Exhibit "P").
With regard to the parcel of land covered by Plan PSU-202594 (Exhibit "G"), the petitioner alleged
that she bought the northern portion from Generoso Distor by virtue of a deed of absolute sale

executed on February 25, 1963 (Exhibit "Q"), and the southern portion from Bonifacio Tampis by
virtue of a deed of absolute sale executed on October 1, 1963 (Exhibit "R").
No opposition was filed against the application for registration of the parcel of land covered by Plan
PSU-199064 (Exhibit "K"). Hence, in a partial decision dated July 9, 1964, the trial court, ordered the
registration of this parcel of land in favor of the applicant.
The application for the registration of the two parcels covered by Plan PSU-200554 (Exhibit "A") and
Plan PSU-202594 (Exhibit "G") was opposed by the Director of Lands, Felicisima Rielo and Jaime T.
Alberto. Of the three, only Rielo pursued her opposition. The Director of Lands withdrew his
opposition while Alberto did not present evidence in his favor.
Rielo died during the pendency of the proceedings. She was substituted by her sons, oppositors
Presbitero R. Velasco and Pedro R. Velasco, to whom the aforementioned parcels of land were
adjudicated pursuant to an extra-judicial partition dated May 2, 1967 of the estate of their decease
parents Eustaquio Velasco and Felicisima Rielo.
The Velasco's claimed ownership over the two parcels of land on the basis of their alleged open and
continuous possession in the concept of owner for more than thirty (30) years. The two parcels are
alleged to form part of a large parcel of land covered by Plan PSU-217187 (Exhibit "I") consisting of
six (6) lots with a combined area of 2,964,206 square meters located in the sitios of Paniman and
Cayugno barrio of Sapang Ternate, Cavite owned by the heirs of Eustaquio Velasco. They alleged
that Lots 2 and 4 of Plan PSU-217187 correspond to the parcels of land covered by Plan PSU202594 (Exhibit "G") and Plan PSU-200554 (Exhibit "A") respectively.
After trial on the merits, the lower court ruled in favor of the applicant and the subject parcels of
lands were ordered registered in her name.
The oppositors appealed the decision to the Court of Appeals. As earlier stated, the appellate court
reversed and set aside the decision. The dispositive portion of the decision reads:
WHEREFORE, the judgment appealed from is hereby reversed. In its place, another
one is hereby rendered dismissing the application for registration filed by applicantappellee, and ordering the registration of the parcel of land known as Lot No. 4 in
PSU-217187 in the name of Pedro R. Velasco, married, of legal age, a resident of
Ternate, Cavite; and the parcel of land known as Lot No. 2 in the same Plan PSU217187 in the name of Presbitero R. Velasco, married, of legal age, a resident of
Ternate, Cavite, in accordance with the provisions of Section 48 of Commonwealth
Act No. 141 as amended by Republic Act No. 1942. The applicant-appellee shall pay
the costs.
A motion for reconsideration filed by the applicant-appellee was denied by the appellate court. After
her second motion for reconsideration was denied, the applicant-appellee filed a motion for new trial
based on newly discovered evidence. The motion was also denied for lack of merit.
Hence, this petition.
The issues raised by the petitioner are two-fold. The first issue is anchored on the appellate court's
factual findings which the petitioner contends are not supported by the evidence on record. This
issue is anchored on the appellate court's having allegedly erred when it denied the motion for new
trial.

Considering that the factual findings of the appellate court are diametrically opposed to those of the
trial court, we have scrutinized the bases of the respondent court's factual findings and given extra
careful review to the parties' allegations on appeal to determine if there is any merit in the petitioner's
contentions (Cruz v. Court of Appeals, 129 SCRA 222; Legaspi v. Court of Appeals, 69 SCRA 360;
Tolentino v. De Jesus, 56 SCRA 167).
It is to be noted that the petitioner's alleged possession of the two subject parcels of land
commenced only in 1963 and that she filed her application for registration of title over the same in
1964. Under these circumstances, her right to register the subject parcels of land depends on
whether or not her predecessors-in-interest had occupied and possessed The same openly,
continuously, and in the concept of owner within the required thirty-year period prior to the time she
filed the application for registration pursuant to Section 48 of the Public Land Act.
We find the petitioner's contention as regards the factual findings of the appellate court unfounded.
We agree with the appellate court's factual findings to the effect that not one of the petitioner's
predecessors-in-interest was able to submit convincing proof of actual, peaceful, and adverse
possession in the concept of owner over the subject parcels of land sought to be registered within
the period contemplated by law. As the appellate court said:
Melanio Martinez declared that he possessed the land sold by him to the applicant
only since 1936. When asked who was in possession prior to 1936, he answered 'I
do not know' (T.S.N., p. 8 August 11, 1970). Even if his possession since 1936 were
tacked to that of the applicant, it did not amount to thirty (30) years prior to the filing
of the application for registration on May 7, 1964. Martinez even admitted that his
possession was not continuous, he having left the property during the Japanese time
and returned to the same only in 1946 after the war. Moreover, he only visited the
land about three times a week in 1961 to 1964 to visit his cows, inasmuch as he was
then the chief of police of Ternate, Cavite. ... Melanio Martinez stated that he used
the land merely as a pasturage of his cows which numbered four at that time. He did
not fence the land or construct an enclosure so as to indicate ownership of the
portion claimed to be his own. He further admitted that aside from himself, there were
several other people who had their huts in the same area which he was using as a
grazing land for his cows (Tsn., p. 18, September 17, 1970). Although he claimed to
be possessing the property since 1936, the earliest tax declaration that could be
presented to show that it was declared for tax purposes in his name was only for the
year 1961 (Exhibit P-2).
The testimony of Hilarion Villacarlos is similarly sketchy and unreliable. lie claimed
that the property he sold to the applicant was inherited by him from his mother, but
later declared that he bought the same (Tsn., p. 78, May 26, 1970). He admitted that
he started possessing the property only since 1945 (Ibid, p. 3) which is only about 19
years prior to the filing of this application for registration. Although he claimed that he
paid taxes on the land, he could not present any tax declaration in his name nor any
receipt of his payment of taxes. He stated that he had tenants but did not know their
names. . . .
xxx xxx xxx
The testimony of Generoso Distor as to his possession and ownership of the
northern portion of the lot covered by PSU-202594 sold by him to the applicant also
fails to inspire belief. He claim to have possessed the land from the time he bought it

from a certain Rufino Tibayan in 1956 or 1957. He cannot remember the exact date
of the sale nor produce the alleged document of sale. He could not remember the
notary public who notarized the same, nor the price he paid. He does not know his
immediate neighbors, except Tecla Tampis. He had not introduced any improvement
on the land nor paid the taxes on the same. The first time he declared it for tax
purposes in his name was on February 5, 1963 or 20 days before he sold the
property to the applicant on February 25, 1963 pursuant to the deed of sale (Exhibit
Q) While the property he supposedly bought from Tibayan was only 4 hectares in
area, the parcel of land he sold to the applicant pursuant to Exhibit Q had an area of
14 hectares. . . .
The fourth predecessor-in-interest of the applicant, a certain Bonifacio Tampis, was
not made to testify. According to the Court a quo, the failure of Bonifacio Tampis to
testify in his stead was because ho was insane at that time. . . .
xxx xxx xxx
. . . It is to be noted that the tax receipt, Exhibit S-4, in the name of Bonifacio Tampis
shows that the tax was paid on June 25, 1962 not only for that particular year but for
all the years starting 1953 to 1961. At the time the said taxes were paid, the applicant
had already been laying cassava over the property subject matter of the instant
application for registration. It had been testified to by oppositors' witness Gorgonio
Velasco that the applicant manifested a claim of ownership over the land in question
since 1959. This assertion was not denied by the applicant, and is in fact sustained
by the contents of Tax Declaration No. 369 which the applicant secured in her name
on July 6, 1964, but which she made to retroact starting with the year 1961 exhibit S1). On the face of the said tax declaration, it appears that the applicant declared in
her name the area of the lot shown in PSU-202594 consisting of 199,120 square
meters. If the applicant wanted to make it appear that she was already possessing
the land shown in PSU-202594 since 1961, it is not understood why she had to
purchase the same property from Generoso Distor and Bonifacio Tampis in 1963. By
said act, applicant showed not only lack of sincerity of her claim of ownership over
the property in question manifested since 1959, so much so she had to acknowledge
her own lack of basis to acquire said land on the ground of possession by purchasing
the lands from the supposed possessors of the same.
On the other hand, the factual findings of the appellate court that the respondents were able to
submit competent evidence to show acts of possession over the subject parcels of land since 1910
are convincing. The court stated:
Gorgonio Velasco, Benjamin Velasco and oppositor Pedro Velasco testified as to the possession by
the Velascos of the parcel of land in question by their deceased father Eustaquio Velasco and, after
the latter's death in 1922, by their mother Felicisima Rielo. They declared that since the time they
came to the age of reason, they knew that the lands shown in PSU-217187 had been occupied by
Eustaquio Velasco who planted the same with mango trees and bamboos; that they had a Titulo de
Possession Informatoria dated 1895 but said papers were burned during the war; that although the
land was declared as part of the military reservation by the Americans for military practices, their
mother continued cultivating and gathering fruits from the land with the consent of the military
authorities; that nobody disturbed them in the possession of the land up to the year 1959, when they
learned that an adverse claim over the land was being manifested by a certain Samson; that they
have been paying the land taxes of the land in question; that the tax declarations corresponding to
the period before the war were burned during the war; that Generoso Distor and Hilarion Villacarlos

had no properties in the vicinity; that Rufino Tibayan from whom Generoso Distor allegedly
purchased the land that he sold to the applicant did not own any property in that area and was
merely a tenant of Gorgonio Velasco in Paniman; and that the overseer of the land was a certain
Miguel Macaraig who was succeeded in said position by his nephew, oppositors' witness Emiliano
Macaraig.
xxx xxx xxx
. . . Even disregarding the testimonial evidence coming from the mouths of oppositor Pedro R.
Velasco, his brothers Gorgonio and Benjamin and their overseer Emiliano Macaraig, the
documentary proofs presented by the oppositor show adequately the veracity of their claim of
possession. They presented tax receipts showing that, as early as 1910, their father Eustaquio
Velasco had been paying taxes for lands located in Sapang, Ternate (Exhibits 3, 3-A to 3-1). While
the said tax receipts refer to lands located in Barrio Sapang, Ternate, it was explained that the
properties in question are actually located in Barrio Sapang, and that Cayladme and CayugnoPaniman where the lands shown in PSU-200554 and PSU-202594 are located according to the
plans submitted by the applicant, are merely sitios of Barrio Sapang, as indicated in the oppositors'
Plan' PSU-217187, Exhibit 1. Applicant was not able to show that the said tax receipts refer to other
parcels of land belonging to Eustaquio Velasco in Ternate, Cavite.
The testimonies of the witnesses for the oppositor may not be disbelieved on the ground that they
are more biased and interested, as compared with the witnesses of the applicant. While Gorgonio
and Benjamin Velasco are brothers of oppositors Presbiterio and Pedro Velasco and are expected to
testify favorably for the latter, the same thing may be said of applicant's witnesses Melanio Martinez,
Hilarion Villacarlos and Generoso Distor whose interest may be said to be more direct and personal,
inasmuch as they were the ones who sold the lands which the applicant is seeking to register in her
name. The failure of the oppositors to reconstitute the tax declarations in their names until 1961 is
similarly true with the applicant and her predecessors-in-interest none of whose tax declarations and
tax receipts covering the lands in question date earlier than 1961. While Gorgonio Velasco might be
unfamiliar with the land, he is not the oppositor herein, and the possession of the Velascos over the
property was not claimed to be by Gorgonio Velasco alone. With respect to the relative credibility of
the witnesses for the oppositors and the applicant based on their social standing and official
positions, the witnesses of the oppositors do not suffer by the comparison. While it is true that
Melanio Martinez was at one time chief of police of Ternate, Gorgonio Velasco is the internal auditor
of UP-Los Banos, while Benjamin Velasco is a physician who was formerly the district health officer
of Palawan. oppositor Pedro R. Velasco himself is the chief of the Bureau of Internal Revenue office
for the province of Cavite. Appellant's witness Generoso Distor, contrary to the finding of the trial
Judge, was not the municipal treasurer of Ternate, Cavite but only a son of Municipal Treasurer
Alejandro Distor (Tsn., p. 13, July 7, 1970).
It is not true that the testimony of respondent Pedro Velasco concerning the tax receipts is hearsay,
hazy vague and not worthy of evidence. It was clearly shown that the questioned tax receipts
beginning the year 1910 were actually issued for the payment of taxes on the lands in question.
Hence, on direct examination, Velasco stated.
xxx xxx xxx
Q Do you know if the said properties has been declared for taxation
purposes?

A Well on my personal knowledge because my mother entrusted the

bundles of document to me, there were land taxes paid sometimes in
1903 up to 1923.
Q About the tax declaration, do you know if there is a tax declaration
over the property in question?
A Yes sir, there are.
Q I am showing to you this declaration of Real Property No. 1608, will
you please go over the same and tell us what relation has this with
the tax declaration you have mentioned a while ago?
A Yes, sir this is the Tax Declaration I was saying a while ago.
Q Do you have any tax declaration over the said lot before the war?
A Well I could not remember well because I was still a minor at that
time, (Tsn., July 30, 1971, pp. 12-13)
xxx xxx xxx
Q You made mention of the giving by your mother of the tax receipts
regarding the payment of taxes over the lot in question. I am showing
to you a bunch of tax receipts, will you please tell us what relation
have these tax receipts over the property in question?
A This Tax Receipt No. 4109383 is one of those given to me by my
mother.
Q As well as these tax receipts Nos. 170413, 403389, 9406649,
7441543, 5047068, 3871908, 3133061, 1497755, 1436347,
3132598?
A These are the receipts which my mother gave me.
Q I observed in this receipt that there is mentioned of properties in
Sapang Ternate, Cavite. Win you please tell us what barrio covers
this property which you said was owned by your father?
A All the properties are beyond the river except Barrio Bocana and
Barrio Sapang up to the boundary line of Batuhan, Margondon,
Cavite. (Tsn., July 30, 1971, pp. 17-18)
xxx xxx xxx
Q I have observed Mr. Velasco in this Tax Receipt which you have
Identified payment for the properties located in Sapang, Ternate
Cavite. Win you please ten that relation has this payment for the
Sabang in relation to this property which you said is also in the
jurisdiction of Sapang, Ternate, Cavite?

A According to my mother those are the payments made on this

property located at Cayugno, Ternate, Cavite.
Q Aside from this property in Cayugno, and Paniman which you said
is in the jurisdiction of Barrio Sapang, there are no other properties or
do you know if your parents have another property in Barrio Sapang?
A There no other property. (Tsn., July 30, 1971, pp. 24-26)
On cross-examination, Velasco reiterated his earlier testimony that the tax payment receipts pertain
to the two subject parcels of land.
The appellate court's findings that the oppositors had a better right to the registration of the two
subject parcels of land are based on substantial evidence. It is obvious that the appellate court's
findings are based not only on the tax receipts submitted by the oppositors but the oral testimonies
of the oppositors and their witnesses who testified on the open and continuous possession of the
oppositors and their predecessor-in-interest beginning the year 1910 to the present. We see no
compelling reason to deviate from the nile that factual findings of the Court of Appeals based on
substantial evidence cannot be reviewed in a petition for review on certiorari (Montesa v. Court of
Appeals 117 SCRA 700) and that the Court of Appeals, as a rule, is the final arbiter on questions of
facts. (Enriquez v. Court of Appeals, 104 SCRA 658). The contention of the petitioner that the case
at bar fails within the known and recognized exceptions to the general rule is not meritorious.
The tax receipts accompanied by actual and continuous possession of the subject parcels of land by
the respondents and their parents before them for more than thirty years qualify them to register title
to the said subject parcels of land. We ruled in the case of Republic v. Court of Appeals, (131 SCRA
533) that.
While it is true that by themselves tax receipts and declarations of ownership for
taxation purposes are not incontrovertible evidence of ownership they become strong
evidence of ownership acquired by prescription when accompanied by proof of actual
possession. of the property.
With regard to the petitioner's contention that the oppositors did not present documentary proof of
ownership sufficient to warrant registration of the subject parcels of land in their favor, we restate our
ruling in the case ofZuniga v. Court of Appeals (95 SCRA 740) to wit:
The purpose of the applicant is to prove that he has an absolute or simple title over
the property sought to be registered, otherwise his application will be denied. An
absolute oppositor claims a dominical right totally adverse to that of the applicant. If
successful, registration will be decreed in favor of the oppositor. As to whether or not
private respondents have absolute or fee simple title over the property sought to be
registered necessarily requires a resolution of the question as to whether or not the
oppositors had a dominical right totally adverse to that of the applicants.
The respondents' documents were not only deemed sufficient by the appellate court for registration
of title in their names but they are more convincing proof than the exhibits adduced for the petitioner.
We also find no error in the appellate court's denying the petitioner's motion for new trial based on
newly discovered evidence.

The newly discovered evidence sought to be presented by petitioner consist of two "ancient"
documents and the testimonies of Rufino Tibayan, Petronilo Gulpo, Segunda Fabis and Demetrio
Zapanta. The "ancient" documents are: (1) Receipt No. 01436276 dated August 9, 1910 in the name
of Emiliana Villacarlos which shows that taxes were paid for 3 parcels of land in the amounts of
P1.75, P4.00 and P l.66; and (2) Escritura de Particion de Fincas Rusticas executed on April 20,
1920 by descendants of Luis Villacarlos. By themselves, the supposed newly discovered evidence
would not show that they refer to the land in question.
Section 1, Rule 53 of the Revised Rules of Court provides:
Section 1. Petition. Before a final order or judgment rendered by the Court of
Appeals becomes executory, a motion for new trial may be filed on the ground of
newly discovered evidence which could not have been discovered prior to the trial in
the court below by the exercise of due diligence and which is of such a character as
would probably change the result. The motion shall be accompanied by affidavits
showing the facts constituting the gounds therefore and the newly discovered
evidence.
In the instant case, there is no showing that Rufino Tibayan, Petronilo Gulpo, Segunda Fabis and
Demetrio Zapanta could not have been discovered and produced during the trial. Hence their
testimonies would not constitute newly discovered evidence.
The sincerity of the petitioner in producing the two documents after so long a time is doubtful, The
case was filed on May 7, 1964 and had been pending in court for 11 years before the petitioner
discovered the said documents and filed the motion for new trial. In fact, it was only after the denial
of her second motion for reconsideration and the oral arguments held in the appellate court that she
filed the said motion. The records do not show that the petitioner could not have discovered the two
documents prior to the trial by use of due diligence. Moreover, granting that the two documents can
be considered as newly discovered evidence, a new trial would only be useless and ineffective.
There is no showing that these documents would be sufficient proof to overthrow the appellate
court's findings that Hilarion Villacarlos and his predecessors-in-interest did not possess the disputed
parcel of land for the required number of years to qualify the petitioner for a certificate of title
pursuant to Section 48 of the Public Land Law as amended. Mere tax declarations do not vest
ownership of the property in the declarant (Province of Camarines Sur v. Director of Lands, 64 Phil.
600, citing the earlier cases of Evangelista v. Tabayuyong, 7 Phil. 607; Casimiro v. Fernandez, 9
Phil. 567; Elumbaring v. Elumbaring, 12 Phil. 384).
WHEREFORE, the instant petition is hereby DISMISSED for lack of merit. The appellate court's
questioned decision is AFFIRMED.
SO ORDERED.
Teehankee, Melencio-Herrera, Plana and Patajo, JJ., concur.
De la Fuente, J., took no part.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-43938 April 15, 1988
REPUBLIC OF THE PHILIPPINES (DIRECTOR OF FOREST DEVELOPMENT), petitioner,
vs.
HON. COURT OF APPEALS (THIRD DIVISION) and JOSE Y. DE LA ROSA, respondents.
G.R. No. L-44081 April 15, 1988
BENGUET CONSOLIDATED, INC., petitioner,
vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORIA, BENJAMIN and EDUARDO, all
surnamed DE LA ROSA, represented by their father JOSE Y. DE LA ROSA, respondents.
G.R. No. L-44092 April 15, 1988
ATOK-BIG WEDGE MINING COMPANY, petitioner,
vs.
HON. COURT OF APPEALS, JOSE Y. DE LA ROSA, VICTORlA, BENJAMIN and EDUARDO, all
surnamed DE LA ROSA, represented by their father, JOSE Y. DE LA ROSA, respondents.

CRUZ, J.:
The Regalian doctrine reserves to the State all natural wealth that may be found in the bowels of the
earth even if the land where the discovery is made be private. 1 In the cases at bar, which have been
consolidated because they pose a common issue, this doctrine was not correctly applied.

These cases arose from the application for registration of a parcel of land filed on February 11,
1965, by Jose de la Rosa on his own behalf and on behalf of his three children, Victoria, Benjamin
and Eduardo. The land, situated in Tuding, Itogon, Benguet Province, was divided into 9 lots and
covered by plan Psu-225009. According to the application, Lots 1-5 were sold to Jose de la Rosa
and Lots 6-9 to his children by Mamaya Balbalio and Jaime Alberto, respectively, in 1964. 2
The application was separately opposed by Benguet Consolidated, Inc. as to Lots 1-5, Atok Big
Wedge Corporation, as to Portions of Lots 1-5 and all of Lots 6-9, and by the Republic of the
Philippines, through the Bureau of Forestry Development, as to lots 1-9. 3
In support of the application, both Balbalio and Alberto testified that they had acquired the subject
land by virtue of prescription Balbalio claimed to have received Lots 1-5 from her father shortly after
the Liberation. She testified she was born in the land, which was possessed by her parents under
claim of ownership. 4 Alberto said he received Lots 6-9 in 1961 from his mother, Bella Alberto, who
declared that the land was planted by Jaime and his predecessors-in-interest to bananas, avocado,
nangka and camote, and was enclosed with a barbed-wire fence. She was corroborated by Felix Marcos,
67 years old at the time, who recalled the earlier possession of the land by Alberto's father. 5 Balbalio

presented her tax declaration in 1956 and the realty tax receipts from that year to 1964, 6 Alberto his tax
declaration in 1961 and the realty tax receipts from that year to 1964. 7

Benguet opposed on the ground that the June Bug mineral claim covering Lots 1-5 was sold to it on
September 22, 1934, by the successors-in-interest of James Kelly, who located the claim in
September 1909 and recorded it on October 14, 1909. From the date of its purchase, Benguet had
been in actual, continuous and exclusive possession of the land in concept of owner, as evidenced
by its construction of adits, its affidavits of annual assessment, its geological mappings, geological
samplings and trench side cuts, and its payment of taxes on the land. 8
For its part, Atok alleged that a portion of Lots 1-5 and all of Lots 6-9 were covered by the Emma
and Fredia mineral claims located by Harrison and Reynolds on December 25, 1930, and recorded
on January 2, 1931, in the office of the mining recorder of Baguio. These claims were purchased
from these locators on November 2, 1931, by Atok, which has since then been in open, continuous
and exclusive possession of the said lots as evidenced by its annual assessment work on the
claims, such as the boring of tunnels, and its payment of annual taxes thereon. 9
The location of the mineral claims was made in accordance with Section 21 of the Philippine Bill of
1902 which provided that:
SEC. 21. All valuable mineral deposits in public lands in the philippine Islands both
surveyed and unsurveyed are hereby declared to be free and open to exploration,
occupation and purchase and the land in which they are found to occupation and
purchase by the citizens of the United States, or of said islands.
The Bureau of Forestry Development also interposed its objection, arguing that the land sought to be
registered was covered by the Central Cordillera Forest Reserve under Proclamation No. 217 dated
February 16, 1929. Moreover, by reason of its nature, it was not subject to alienation under the
Constitutions of 1935 and 1973. 10
The trial court * denied the application, holding that the applicants had failed to prove their claim of possession and ownership of the
land sought to be registered.

11

The applicants appealed to the respondent court,

* which reversed the trial court and

12

In other words,
the Court of Appeals affirmed the surface rights of the de la Rosas over the land while at the same time
reserving the sub-surface rights of Benguet and Atok by virtue of their mining claims.
recognized the claims of the applicant, but subject to the rights of Benguet and Atok respecting their mining claims.

Both Benguet and Atok have appealed to this Court, invoking their superior right of ownership. The
Republic has filed its own petition for review and reiterates its argument that neither the private
respondents nor the two mining companies have any valid claim to the land because it is not
alienable and registerable.
It is true that the subject property was considered forest land and included in the Central Cordillera
Forest Reserve, but this did not impair the rights already vested in Benguet and Atok at that time.
The Court of Appeals correctly declared that:
There is no question that the 9 lots applied for are within the June Bug mineral claims
of Benguet and the "Fredia and Emma" mineral claims of Atok. The June Bug
mineral claim of plaintiff Benguet was one of the 16 mining claims of James E. Kelly,
American and mining locator. He filed his declaration of the location of the June Bug
mineral and the same was recorded in the Mining Recorder's Office on October 14,
1909. All of the Kelly claims ha subsequently been acquired by Benguet
Consolidated, Inc. Benguet's evidence is that it had made improvements on the June

Bug mineral claim consisting of mine tunnels prior to 1935. It had submitted the
required affidavit of annual assessment. After World War II, Benguet introduced
improvements on mineral claim June Bug, and also conducted geological mappings,
geological sampling and trench side cuts. In 1948, Benguet redeclared the "June
Bug" for taxation and had religiously paid the taxes.
The Emma and Fredia claims were two of the several claims of Harrison registered in
1931, and which Atok representatives acquired. Portions of Lots 1 to 5 and all of Lots
6 to 9 are within the Emma and Fredia mineral claims of Atok Big Wedge Mining
Company.
The June Bug mineral claim of Benguet and the Fredia and Emma mineral claims of
Atok having been perfected prior to the approval of the Constitution of the Philippines
of 1935, they were removed from the public domain and had become private
properties of Benguet and Atok.
It is not disputed that the location of the mining claim under
consideration was perfected prior to November 15, 1935, when the
Government of the Commonwealth was inaugurated; and according
to the laws existing at that time, as construed and applied by this
court in McDaniel v. Apacible and Cuisia (42 Phil. 749), a valid
location of a mining claim segregated the area from the public
domain. Said the court in that case: The moment the locator
discovered a valuable mineral deposit on the lands located, and
perfected his location in accordance with law, the power of the United
States Government to deprive him of the exclusive right to the
possession and enjoyment of the located claim was gone, the lands
had become mineral lands and they were exempted from lands that
could be granted to any other person. The reservations of public
lands cannot be made so as to include prior mineral perfected
locations; and, of course, if a valid mining location is made upon
public lands afterwards included in a reservation, such inclusion or
reservation does not affect the validity of the former location. By such
location and perfection, the land located is segregated from the public
domain even as against the Government. (Union Oil Co. v. Smith,
249 U.S. 337; Van Mess v. Roonet, 160 Cal. 131; 27 Cyc. 546).
"The legal effect of a valid location of a mining claim is not only to
segregate the area from the public domain, but to grant to the locator
the beneficial ownership of the claim and the right to a patent therefor
upon compliance with the terms and conditions prescribed by law.
Where there is a valid location of a mining claim, the area becomes
segregated from the public domain and the property of the locator."
(St. Louis Mining & Milling Co. v. Montana Mining Co., 171 U.S. 650;
655; 43 Law ed., 320, 322.) "When a location of a mining claim is
perfected it has the effect of a grant by the United States of the right
of present and exclusive possession, with the right to the exclusive
enjoyment of all the surface ground as well as of all the minerals
within the lines of the claim, except as limited by the extralateral right
of adjoining locators; and this is the locator's right before as well as
after the issuance of the patent. While a lode locator acquires a
vested property right by virtue of his location made in compliance with
the mining laws, the fee remains in the government until patent

issues."(18 R.C.L. 1152) (Gold Creek Mining Corporation v. Hon.

Eulogio Rodriguez, Sec. of Agriculture and Commerce, and Quirico
Abadilla, Director of the Bureau of Mines, 66 Phil. 259, 265-266)
It is of no importance whether Benguet and Atok had secured a patent for as held in
the Gold Creek Mining Corp. Case, for all physical purposes of ownership, the owner
is not required to secure a patent as long as he complies with the provisions of the
mining laws; his possessory right, for all practical purposes of ownership, is as good
as though secured by patent.
We agree likewise with the oppositors that having complied with all the requirements
of the mining laws, the claims were removed from the public domain, and not even
the government of the Philippines can take away this right from them. The reason is
obvious. Having become the private properties of the oppositors, they cannot be
deprived thereof without due process of law. 13
Such rights were not affected either by the stricture in the Commonwealth Constitution against the
alienation of all lands of the public domain except those agricultural in nature for this was made
subject to existing rights. Thus, in its Article XIII, Section 1, it was categorically provided that:
SEC. 1. All agricultural, timber and mineral lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils, all forces of potential energy and
other natural resources of the Philipppines belong to the State, and their disposition,
exploitation, development, or utilization shall be limited to citizens of the Philippines
or to corporations or associations at least 60% of the capital of which is owned by
such citizens, subject to any existing right, grant, lease or concession at the time of
the inauguration of the government established under this Constitution. Natural
resources with the exception of public agricultural lands, shall not be alienated, and
no license, concession, or lease for the exploitation, development or utilization of any
of the natural resources shall be granted for a period exceeding 25 years, except as
to water rights for irrigation, water supply, fisheries, or industrial uses other than the
development of water power, in which case beneficial use may be the measure and
the limit of the grant.
Implementing this provision, Act No. 4268, approved on November 8, 1935, declared:
Any provision of existing laws, executive order, proclamation to the contrary
notwithstanding, all locations of mining claim made prior to February 8, 1935 within
lands set apart as forest reserve under Sec. 1826 of the Revised Administrative
Code which would be valid and subsisting location except to the existence of said
reserve are hereby declared to be valid and subsisting locations as of the date of
their respective locations.
The perfection of the mining claim converted the property to mineral land and under the laws then in
force removed it from the public domain. 14 By such act, the locators acquired exclusive rights over the
land, against even the government, without need of any further act such as the purchase of the land or
the obtention of a patent over it. 15 As the land had become the private property of the locators, they had
the right to transfer the same, as they did, to Benguet and Atok.

It is true, as the Court of Appeals observed, that such private property was subject to the
"vicissitudes of ownership," or even to forfeiture by non-user or abandonment or, as the private

respondents aver, by acquisitive prescription. However, the method invoked by the de la Rosas is
not available in the case at bar, for two reasons.
First, the trial court found that the evidence of open, continuous, adverse and exclusive possession
submitted by the applicants was insufficient to support their claim of ownership. They themselves
had acquired the land only in 1964 and applied for its registration in 1965, relying on the earlier
alleged possession of their predecessors-in-interest. 16 The trial judge, who had the opportunity to
consider the evidence first-hand and observe the demeanor of the witnesses and test their credibility was
not convinced. We defer to his judgment in the absence of a showing that it was reached with grave
abuse of discretion or without sufficient basis. 17

Second, even if it be assumed that the predecessors-in-interest of the de la Rosas had really been in
possession of the subject property, their possession was not in the concept of owner of the mining
claim but of the property as agricultural land, which it was not. The property was mineral land, and
they were claiming it as agricultural land. They were not disputing the lights of the mining locators
nor were they seeking to oust them as such and to replace them in the mining of the land. In fact,
Balbalio testified that she was aware of the diggings being undertaken "down below" 18 but she did
not mind, much less protest, the same although she claimed to be the owner of the said land.

The Court of Appeals justified this by saying there is "no conflict of interest" between the owners of
the surface rights and the owners of the sub-surface rights. This is rather doctrine, for it is a wellknown principle that the owner of piece of land has rights not only to its surface but also to
everything underneath and the airspace above it up to a reasonable height. 19 Under the aforesaid
ruling, the land is classified as mineral underneath and agricultural on the surface, subject to separate
claims of title. This is also difficult to understand, especially in its practical application.

Under the theory of the respondent court, the surface owner will be planting on the land while the
mining locator will be boring tunnels underneath. The farmer cannot dig a well because he may
interfere with the operations below and the miner cannot blast a tunnel lest he destroy the crops
above. How deep can the farmer, and how high can the miner, go without encroaching on each
other's rights? Where is the dividing line between the surface and the sub-surface rights?
The Court feels that the rights over the land are indivisible and that the land itself cannot be half
agricultural and half mineral. The classification must be categorical; the land must be either
completely mineral or completely agricultural. In the instant case, as already observed, the land
which was originally classified as forest land ceased to be so and became mineral and completely
mineral once the mining claims were perfected. 20 As long as mining operations were being
undertaken thereon, or underneath, it did not cease to be so and become agricultural, even if only partly
so, because it was enclosed with a fence and was cultivated by those who were unlawfully occupying the
surface.

What must have misled the respondent court is Commonwealth Act No. 137, providing as follows:
Sec. 3. All mineral lands of the public domain and minerals belong to the State, and
their disposition, exploitation, development or utilization, shall be limited to citizens of
the Philippines, or to corporations, or associations, at least 60% of the capital of
which is owned by such citizens, subject to any existing right, grant, lease or
concession at the time of the inauguration of government established under the
Constitution.
SEC. 4. The ownership of, and the right to the use of land for agricultural, industrial,
commercial, residential, or for any purpose other than mining does not include the

ownership of, nor the right to extract or utilize, the minerals which may be found on or
under the surface.
SEC. 5. The ownership of, and the right to extract and utilize, the minerals included
within all areas for which public agricultural land patents are granted are excluded
and excepted from all such patents.
SEC. 6. The ownership of, and the right to extract and utilize, the minerals included
within all areas for which Torrens titles are granted are excluded and excepted from
all such titles.
This is an application of the Regalian doctrine which, as its name implies, is intended for the benefit
of the State, not of private persons. The rule simply reserves to the State all minerals that may be
found in public and even private land devoted to "agricultural, industrial, commercial, residential or
(for) any purpose other than mining." Thus, if a person is the owner of agricultural land in which
minerals are discovered, his ownership of such land does not give him the right to extract or utilize
the said minerals without the permission of the State to which such minerals belong.
The flaw in the reasoning of the respondent court is in supposing that the rights over the land could
be used for both mining and non-mining purposes simultaneously. The correct interpretation is that
once minerals are discovered in the land, whatever the use to which it is being devoted at the time,
such use may be discontinued by the State to enable it to extract the minerals therein in the exercise
of its sovereign prerogative. The land is thus converted to mineral land and may not be used by any
private party, including the registered owner thereof, for any other purpose that will impede the
mining operations to be undertaken therein, For the loss sustained by such owner, he is of course
entitled to just compensation under the Mining Laws or in appropriate expropriation proceedings. 21
Our holding is that Benguet and Atok have exclusive rights to the property in question by virtue of
their respective mining claims which they validly acquired before the Constitution of 1935 prohibited
the alienation of all lands of the public domain except agricultural lands, subject to vested rights
existing at the time of its adoption. The land was not and could not have been transferred to the
private respondents by virtue of acquisitive prescription, nor could its use be shared simultaneously
by them and the mining companies for agricultural and mineral purposes.
WHEREFORE, the decision of the respondent court dated April 30, 1976, is SET ASIDE and that of
the trial court dated March 11, 1969, is REINSTATED, without any pronouncement as to costs.
SO ORDERED.
Teehankee, C.J., Narvasa, Gancayco and Grio-Aquino, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6610

August 24, 1912

ELEUTERIA VILLANUEVA, ET AL., plaintiffs-appellees,

vs.
VALERIANO CLAUSTRO, defendant-appellant.
ARELLANO, C.J.:
The subject matter in this suit is a piece of land formerly covered by the water of the river that runs
between Vigan and Bantay, pueblos of the Province of Ilocos Sur, and now dry, for the river has
changed its course toward the north of the town of Vigan. The plaintiffs, as successors in interest of
Mariano Villanueva, now deceased, claim that the said land, which comprises approximately 13 ares
and is occupied by Valeriano Claustro, belongs to them and demand ownership or possession
thereof. At first, suit was also brought against Victoriana de la Cruz, but as she recognized the
plaintiffs' ownership, the action was maintained only against Valeriano Claustro.
Valeriano Claustro, in his written answer under date of March 21, 1940, alleged as a special defense
that he and his wife, Isabel Rivera, had been in possession of the said land publicly and peaceably
for twenty years, without interruption.
Mariano Aete, a man 62 years old, a witness for the defendant, testified that the lot in question had
formerly been covered with water, but was gradually converted into dry land as the result of floods,
then shrubs and castor-oil plants grew on it and as soon as it could be occupied, the defendant took
it and built his house on it. Witness did not know why the latter occupied the lands, nor under what
conditions he went there, and further stated that the lot of the Villanuevas, plaintiffs, lay south of it.
Two other witnesses of the defendant, as well as his wife, Isabel Rivera, testified that the land in
question was the bed of the river that ran behind the masonry wall of the house of the Villanuevas
and that about thirty years ago (they testified on April 28, 1910) it had become dry, because the river
had taken a more northerly course. Isabel Rivera herself, wife of the defendant, testified that as she
and her husband had no lot they occupied the land mentioned and built there house, which was
several times washed away by the water during the freshets of the river, and that at the time the
house of the other defendant, Victorina de La Cruz (excluded from the complaint, as aforestated)
was next to hers. All these witnesses testified to a possession of some twenty-three years on the
part of the defendant, and his wife specifically stated that they considered themselves owners of the
lot, merely because they had cleared it.
The defendant, however, in a complaint filed before the justice of the peace court against Agustin
Teao for recovery of possession, averred on May 11, 1905, that he had been in possession of the
land for ten years; so that, in March, 1910, he could only establish a possession of fifteen years.
The following facts are admitted and well proved: (1) That the plaintiffs are the legitimate successors
in interest of Mariano Villanueva; and (2) that Mariano Villanueva is the recognized owner of the real
property which was bounded on the north by the river that runs between Vigan and Bantay, and now
by the land in question, which was abandoned by the river on account channel has now been for
more than thirty years.
It is superfluous to consider which the plaintiffs have presented by means of three witnesses, relative
to the possession, claimed by them to be precarious, of the defendant, through mere tolerance on

the part of Mariano Villanueva, it being sufficient that the plaintiffs presented the ownership title of
their land adjoining the river, acquired on December 2,, 1968, which states "that the said land is
bounded on the north by the river which runs through this part of the town."
The Court of First Instance of Ilocos Sur decided the suit by finding the plaintiffs to be the legitimate
owners of the tract of land claimed and described in the complaint, and by sentencing the defendant,
Valeriano Claustro, to quit the land and deliver it to the plaintiffs, without special finding as to costs.
Having heard the appeal raised by the defendant with a statement of the errors assigned to the
judgment appealed from, the following considerations arise:
First. The law provides that the beds of rivers which remain abandoned because the course of the
water has naturally changed belong to the owners of the riparian lands throughout their respective
lengths (Civ. Cod., art. 370). If, according to the defendant's witnesses, the land disputed was the
old bed of the river, which remained abandoned because the course of water had naturally changed,
it belongs to the owner of the riparian land that bordered on the river, who, according to these same
witnesses, was Mariano Villanueva, and whose lot, inclosed by a wall, was bounded on the north by
the said river on the date the land was acquired, December 2, 1868.
Second. The right in re to the principal is likewise a right in re to the accessory, as it is a mode of
acquisition, provided by law, as the result of the right of accretion, since the accessory follows the
nature of the principal, and there need not be any tendency to the thing or manifestation of the
purpose to subject it to our ownership, as it is subject thereto ipso jure from the moment the mode of
acquisition becomes evident. If, according to the defendant's witnesses, more than thirty years had
elapsed since the river had abandoned river bed had fallen to the private ownership of Mariano
Villanueva, even without any formal act of his will; no one else since then could occupy it except as a
trespasser.
Third. The occupation of a thing belonging to another may lead to another mode of acquisition,
which is the prescription of ownership, whenever the possession of such thing under ordinary
prescription, which is that alleged of twenty years, is accompanied by the other requisites prescribed
by law, such as good faith, proper title and legal period of time (Civ. Cod., art. 1940). But in the
present case a proper title for possession is entirely lacking, inasmuch as the only one alleged by
the defendant's wife, to wit that the had no other lot than they cleared the land in questions, is not a
proper title, nor any title at all. Mere occupation is not a title of acquisition except when it concerns
"things which can be appropriated by reason of their nature, which have no owners, such as animals
which are the object of hunting and fishing, hidden treasure and abandoned property." (Civ. Cod.,
art. 610.)
Fourth. If, pursuant to section 41 of Act No. 190, Code of Civil Procedure, occupation of real property
may constitute a title of procedure, occupation of real property may constitute a title of ownership by
prescription after the lapse of ten years, yet these ten years must be "after this Act comes into effect"
(Id., sec., 38) ; and for the purposes of the enforcement of the Act, it is not understood to have come
into effect until October 1, 1901, though it really appears to have been passed on August 31, 1901,
and from then, 1901, to August 20, 1909, when this suit was commenced, the said ten years did not
elapse.
By no mode or title of acquisition whatever has the defendant been able to acquire ownership of the
land in question, which, by express provision of the law, belonged to the plaintiffs as the legitimate
successors in interest of Mariano Villanueva.
The judgment appealed from is affirmed, with costs of this instance upon the appellant. So ordered.
Torres, Mapa, Johnson, Carson and Trent, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

November 27, 1929

G.R. No. 31339

THOS. N. POWELL, plaintiff-appellant,
vs.
THE PHILIPPINE NATIONAL BANK, defendant-appellant.

Roman J. Lacson for appellant.

Alva J. Hill for appellee.

VILLA-REAL, J.:

The present appeal was taken by the Philippine National Bank from a judgment of the Court of First
Instance of Iloilo ordering it to pay the sum of P7,926.18 to the plaintiff, Thomas N. Powell, together
with the legal interest thereon from October 9, 1928 until fully paid, with the costs of the trial.

In support of its appeal, the bank assigns the following alleged errors as committed by the lower court in
its decision, to wit:

The lower court erred:

1. In not holding that the fact that the fertilizer purchased by Severino Aldeguer of Felipe Gomez was
used on the sugar cane planted on the land in question, has created a lien upon said sugar cane to
secure the payment of the promissory notes issued for the fertilizers.

2. In holding that there is no legal provision in force in these Islands applicable to said lien.

3. In not holding that the provisions of articles 356 and 1922 of the Civil Code are applicable to the
instant case.

4. In not absolving the Philippine National Bank from the complaint with costs against plaintiff.

The following facts, agreed upon by the parties, are pertinent and necessary to the solution of the
questions raised in this appeal:

On December 17, 1920, in order to secure the payment of the sum of P17,000 with 12 per cent interest
per annum, Severino P. Aldeguer executed a mortgage deed in favor of the Philippine national Bank on
lots Nos. 1318 and 470 of the cadastral survey of Pontevedra, Occidental Negros, appearing upon the
original certificates of title Nos. 10977 and 10978, issued by the register of deeds of said Province of
Occidental Negros (Exhibit E).

On July 5, 1923, after a liquidation of accounts between Severino P. Aldeguer and the Philippine
National Bank, from which it appeared that the former owed the latter the sum of P33,348.75, the
former mortgage deed (Exhibit E) was amended making the mortgage property liable for the new
amount with 8 per cent interest per annum, and retaining the other conditions of the contract (Exhibit
F).

On July 6, 1923, in order to secure the payment to the Philippine National Bank of the additional sum of
P12,000 with interest, Severino P. Aldeguer executed a second mortgage in favor of said bank on the
said lots, Nos. 1318 and 470 of the Pontevedra cadastre, and a first mortgage on the sugar-cane harvest
of 1923-1924 on said land, as well as on twenty-two head of labor cattle (Exhibit G).

On February 23, 1925, in pursuance of a writ of execution issued by the Court of First Instance of Manila,
dated October 31, 1924, in civil case No. 25663 of said court, wherein the Asia Banking Corporation was
the plaintiff, and Severino P. Aldeguer and others were the defendants, the sheriff of the Province of
Occidental Negros levied execution on the aforementioned lots, Nos. 1318 and 470, mortgaged to the
Philippine National Bank (Exhibit B).

Following the procedure prescribed by law, the provincial sheriff of Occidental Negros on March 30,
1925 sold at public auction, all Severino P. Adeguer's rights, title and interest in said lots Nos. 1318 and

470 to the Asia Banking Corporation, as the highest bidder for the sum of P4,000. The writ of execution
was for the sum of P4,625 with interest at 9 per centum per annum from September 20, 1920, plus the
costs, which amounted to P58.52 (Exhibits C and D). The sheriff a deed of sale of said lands, which were
described in certificates of title Nos. 10977 and 10978, in favor of the Asia Banking Corporation and sent
it to the register of deeds of Occidental Negros by registered mail on May 29, 1925, having been
recorded upon receipt thereof in Bacolod.

On March 28, 1925, Severino P. Aldeguer bought 40 tons of fertilizer from Felipe Gomez for use in the
cultivation of the two parcels of land mortgaged by him to the Philippine National Bank, executing a
promissory note for P5,200 payable on February 28, 1926.

On February 15, 1926, Severino P. Aldeguer again bought 3 tons of fertilizer from Felipe Gomez for use
upon the said land, executing a promissory note for P390, payable on January 15, 1927.

These promissory notes were endorsed by Felipe Gomez to the Philippine National Bank.

For some reason or other Severino P. Aldeguer failed to exercise his right of repurchase, and on April 23,
1928, the provincial sheriff of Occidental Negros executed the final deed of sale of Severino P.
Aldeguer's land mortgaged to the Philippine National Bank, in favor of the Asia Banking Corporation
(Exhibit 1).

On April 25, 1928, the Asia Banking Corporation sold said lots Nos. 1318 and 470 to Urquijo Hermanos
for P45,000, after undertaking to liberate them from all liens (Exhibit J).

On April 25, 1928, the Philippine National Bank furnished the Asia Banking Corporation the following
statement of Severino P. Aldeguer's account up to April 25, 1928:

To remaining balance of P/Note signed by

Mr. Severino P. Aldeguer on July 5, 1923
for P32,373.64 P29,500.00
To interest unpaid up to August 31, 1924 756.18
To interest due on P29,500 from September 1,
1924 to April 25, 1928, at 8% per annum
(3 yrs. 7 months and 25 days) 8,636.24


9,392.42
Less: Payment made on April 4, 1928 2,074.06
7,318.36

Total 36,818.35

On April 26, 1928, the Asia Banking Corporation, through its attorneys tendered the Philippine National
Bank a check for P29,307 in payment of Severino P. Aldeguer's debt to the latter, secured by the
mortgage of the lands above-mentioned.

On April 27, 1928, the Philippine National Bank returned the check to the Asia Banking Corporation with
the following statement of Severino Corporation with the it:

To remaining balance of P/Note signed by

Mr. Severino P. Aldeguer on July 5, 1923
for P32,373.64 P29,500.00
To interest unpaid up to August 31, 1924 P756.18
To interest on P29,500 from September 1,
1924 to February 28, 1926 at 8% per annum (1 yr. and 6 months) 3,540.00
To interest on P29,500 from March 1, 1926 to
April 27, 1928, at 9% per annum (2 yrs. 1
month and 27 days) 5,737.75

10,033.93
Less: Payment made on April 4, 1926 2,074.06

7,959.87

Total 37,459.87

Upon receipt of said statement, and on the same day, April 27, 1928, the attorneys of the Asia Banking
Corporation addressed a letter to the Philippine National Bank requesting the reconsideration thereof.

The Philippine national Bank declined to make the reconsideration but expressed its willingness to
accept an additional sum of P7,511.36 in full payment.

In order to comply with its obligation to Urquijo Hermanos, the Asia Banking Corporation was forced to
pay the Philippine National Bank the amount of P7,511.36 under protest, made in a letter dated April 28,
1928.

On receipt of said amount, the Philippine National Bank, on May 3, 1928, executed in favor of the Asia
Banking Corporation a release of the mortgages on the lands in question (Exhibit H).

The real and exact state of accounts of Severino P. Aldeguer with the Philippine National Bank from
September 4, 1924 to April 25, 1928, is as follows:

1. Unpaid balance, as of April 11, 1924, of his B/Note, of July 5, 1923, for P32,373.64 P29,500.00
Unpaid interest due thereon at 8 % to April 25, 1928 9,392.42 P38,892.42
2. His promissory note, dated March 28, 1925, signed in favor of Felipe Gomez, payable on February 28,
1926, negotiated with us on September 8, 1925 5,200.00 Unpaid interest due thereon at 10 % from
February 28, 1926 to April 25, 1928 1,122.33 6,322.33
3. His promissory note, dated February 15, 1926, signed in favor of Felipe Gomez, payable on January
15, 1927, negotiated with us on June 30, 1926 300.00 Unpaid interest due thereon at 10 % from
February 15, 1927 to April 25, 1928 49.93 439.93

Total 45,654.68

LESS PAYMENTS MADE:

September 4, 1924 from his 1923/24
C/Loan 239.37
August 5, 1925 from his 1924/25 C/Loan 756.18
August 5, 1925 from his 1924/25 C/Loan 1,010.68

September 5, 1925 from his 1924/25

C/Loan 27.18
October 24, 1925 from his 1924/25 C/Loan 129.96
November 25, 1925 from his 1924/25
C/Loan 1,209.07
April 22, 1927 from Ynchausti & Co.
surplus of his 1926/27 C/Loan a/c
with said Company 2,166.75
May 24, 1927 do 1,193.50
June 24, 1927 do 1,193.49
April 4, 1928 from Ynchausti & Co 2,074.06 10,000.24

Balance, April 25, 1928 35,654.44

With respect to the first assignment of error, the pertinent part of article 1922 of the Civil code states:
ART. 1922. With respect to determinate personal property of the debtor, the following are preferred:
xxx

xxx

xxx

6. Credits for seed and expenses of cultivation and harvesting, advanced to the debtor, with respect to
the fruits of the crops which they were used to produce;
xxx

xxx

xxx

If the personal property, with respect to which the preference is allowed, has been removed, the
creditor may claim it from the person who has the same, within the term of thirty days counted from
the time it was so removed.
According to this legal provision, the Philippine National Bank, having acquired the promissory notes
executed by Severino P. Aldeguer in payment of the fertilizer used in the cultivation of the two parcels
of land mortgaged to said Bank, had a preferred right to the crops harvested on said lands from
February 28, 1926 and January 15, 1927, on which dates the promissory notes fell due, and also the
dates in which the crops produced by the fertilizer were presumably harvested. According to the agreed
statement of facts, Ynchausti & Co. delivered to the Philippine National Bank sugar milled in its central
from the cane grown upon Severino P. Aldeguer's land mortgaged to said bank. Instead of applying that
sugar to the payment of the promissory notes acquired by it from Felipe Gomez, applied it to the
payment of its credit against Severino P. Aldeguer secured by the two parcels of land that produced said
crops. In doing so, it waived its preferred right to said sugar for the payment of said promissory notes,
because that preferred right subsisted in so far as the sugar continued to belong to the debtor. From the

time the Philippine National Bank applied it to the payment of its credit against Severino P. Aldeguer,
with the latter's consent, said sugar ceased to belong to said Severino P. Aldeguer, and became the
property of the aforesaid Philippine National Bank. (12 Manresa, 685.)
With regard to the defendant-appellant's contention that Severino P. Aldeguer had a right to compel the
Philippine National Bank to apply said sugar to the payment of the promissory notes for the fertilizer,
such debts being the most burdensome to him, in accordance with the provisions of articles 1172 and
1174 of the Civil Code, suffice it to say that such application should have been made at the time of
payment, and not afterwards, when his account with the bank had already been credited.

The second question to be decided in this appeal is whether the Asia Banking Corporation had any right
to the fruits and rents of the lands purchased at public auction, up to the 25th of April, 1928, when the
sheriff of Occidental Negros issued the final deed of sale of said lands in its favor.

The pertinent part of the English text of section 463 of the Code of Civil Procedure, says:

SEC. 463. Sale of real property and certificate thereof. Upon a sale of real property, the purchaser
shall be substituted, to, and acquire all the right, interest, title, and claim of the judgment debtor
thereto, subject to the right of redemption as hereinafter provided. . . . .

In the case of Riosa vs. Verzosa and Bulan (26 Phil., 86), this court laid down the following doctrine:

SALE OR REALTY UNDER EXECUTION: RIGHT OF OWNER TO RETAIN POSSESSION DURING PERIOD OF
EQUITY OF REDEMPTION; EJECTMENT OF OWNER BY PURCHASER. When real estate is sold under an
execution and the owner is in possession thereof, he is entitled to remain in possession of the property
sold and to collect the rents and profits of the same during the period of the equity of redemption.
(Sections 464, 465, 468, and 469 of Act No. 190; De la Rosa vs. Santos, 10 Phil., 148.) By virtue of the
provisions of section 469 (Act No. 190) where the land is in possession of a tenant at the time of the sale
under execution, a different rule prevails.

In the case of Velasco vs. Rosenberg's Incorporated (32 Phil., 72), this court likewise laid down the
following doctrine:

EXECUTION SALE; RIGHT OF PURCHASE TO COLLECT RENT DURING PERIOD OF REDEMPTION. The
judgment debtor who is in possession of property sold under execution cannot be required to pay the
purchaser rent for such property, during the period of redemption.

And in the case of Pabico vs. Ong Pauco (43 Phil., 572), this court also laid down the following doctrine:

1. SHERIFFS; EXECUTION SALES, PLACING PURCHASER IN POSSESSION. The doctrine of coveat emptor
applies to execution sales and the sheriff has no authority to place a purchaser of land under such a sale
in possession. In attempting to do so he becomes a trespasser and an action for forcible entry and
detainer may be maintained against the person so placed in possession.

2. TRANSLATION. Correction of the Spanish translation of section 463 of the code of Civil Procedure.

Section 465 of the Code of Civil Procedure, provides as follows:

SEC. 465. Time and manner of redemption. The judgment debtor, or redemptioner, may redeem the
property from the purchaser, at any time within twelve months after the sale, on paying the purchaser
the amount of his purchase, with one per cent per month interest thereon in addition, up to the time of
redemption, together with the amount of any assessments or taxes which the purchaser may have paid
thereon after purchase, and interest on such last-named amount at the same rate. . . .

According to the doctrines quoted above, the purchaser of a debtor's property at public auction by
virtue of a writ of execution of a judgment, has no right to collect the rents or receive the products
thereof during the period of legal redemption when said debtor is in possession of them. Nothing could
be more just or equitable; for, if by section 465 of the Code of Civil Procedure quoted above, the debtor
must pay 1 per centum monthly interest on the purchase price, at the time of the redemption, the
purchaser would profit twice, if in addition to said interest he were entitled to the rents and fruits of the
land sold which remained in the possession of the debtor. If the debtor is unable to make the
repurchaser, the interest on the purchaser's capital during the period of redemption, is compensated by
the difference between the true value of the land sold and the purchase price; for, it is well-known that
the price obtained at judicial sales for land subject to execution is usually less than the market value.

Now then, from time is the purchaser entitled to the fruits and rents of the real property purchased
remaining in possession of the debtor in case the debtor failed to take advantage of his right to
repurchase?

Section 465 of the Code of Civil Procedure, quoted above, provides that the judgment debtor may
redeem the thing sold from the purchaser within twelve months following the day of the sale, by paying
the selling price plus interest at the rate of one per centum per month; and section 466 of the same law

provides that if within the twelve months following the sale no redemption is made, the purchaser of his
successor in interest is entitled to the proper deed of conveyance, or, what amounts to the same thing,
the purchaser becomes the owner of the property purchased, otherwise he would not be entitled to the
proper deed of conveyance. As absolute owner of the land, the purchaser is entitled to its possession
and to receive the rents and fruits thereof, and the judgment debtor is obliged to deliver said land,
together with the fruits and rents collected since the ownership was consolidated by reason of failure of
redemption, except that he is entitled to reimbursement for expenses of cultivation, harvesting, and
preservation, according to article 356 of the Civil Code.

In the instant case, while it is true that the judgment debtor Severino P. Aldeguer was entitled to retain
possession of the parcels of land acquired by the Asia Banking Corporation at public auction by virtue of
execution, and to collect the fruits and rents pending the expiration of the period of redemption,
inasmuch as he failed to exercise his right of redemption within the twelve months following the day of
sale, which took place on March 30, 1925, the ownership of the same became consolidated in the
purchaser, the Asia Banking Corporation, and from March 30, 1926, said bank was entitled to collect the
fruits and rents of said lands, until the final delivery of the latter to it on April 23, 1928, when the final
deed of sale of the lands was executed in favor of said Asia Banking Corporation.

According to the statement of Severino P. Aldeguer's account with the Philippine National Bank,
submitted by the latter to the Asia Banking Corporation, all the products of said lands up to April 4,
19928 were delivered by Ynchausti & Co. to said Philippine National Bank, and credited to said Severino
P. Aldeguer's account with the latter. When said Philippine National Bank, then, applied the products of
the lands mortgaged to it to secure the payment of Severino P. Aldeguer's mortgage debt, from 1927 to
1928, said products already belonged to the Asia Banking Corporation.

Summarizing, then: (1) When the Philippine National Bank, as mortgage creditor of Severino P. Aldeguer
and assignee of Felipe Gomez's rights to the promissory notes for the fertilizer used by Severino P.
Aldeguer in the cultivation of the lands mortgaged to said bank, applied the products of said lands to the
payment of its mortgage credit, it waived its preferential right over said products for the amount of the
aforesaid promissory notes; (2) from March 30, 1925 when Severino P. Aldeguer's right of redemption of
the two parcels of land in question was sold at public auction to the Asia Banking Corporation by virtue
of execution, until March 30, 1926, when the period redemption expired, the fruits and rents collected
from sad lands belonged to said Severino P. Aldeguer as judgment debtor in possession thereof; and (3)
that from March 30, 1926, when the ownership of the Asia Banking Corporation was consolidated, the
latter being the purchaser at public auction of Severino P. Aldeguer's right of redemption, until April 23,
1928, when the final deed of sale of the fruits and rents was issued in favor of said Asia Banking
Corporation, the said fruits and rents from said lands, belonged to the last mentioned banking
corporation.

Wherefore, we are of opinion and so hold: (1) That a mortgage who, at the same time, is a holder or
promissory notes for the value of fertilizer used in the cultivation of the mortgaged lands, and who
collects said products and applies them to his mortgage credit, waives the preferential right granted to
him by article 1922, case 6, of the Civil Code, upon said products, the amount of said promissory notes
becoming an ordinary credit; (2) that the judgment debtor in possession of land by virtue of execution is
entitled to collect its fruits and rents during the year fixed by the law for the redemption (Riosa vs.
Verzosa and Bulan, 26 Phil., 86; Velasco vs. Rosenberg's Incorporated, 32 Phil., 72); and (3) that if the
period for redemption expires without the judgment debtor having made use of his right, the ownership
of the land sold becomes consolidated in the purchaser, who thereupon becomes entitled to collect its
fruits and rents, paying the judgment debtor the expenses of cultivation, harvesting and preservation
(article 356, Civil Code).

As to the question of procedure raised by the defendant-appellant, who contends that to affirm the
judgment appealed from would amount to ordering Severino P. Aldeguer, who is not a party in this case,
to pay the amount of said judgment, we hold that there is no merit in such contention, because, as he is
not a party to this case, the decision cannot affect him; and, furthermore, as he is not a necessary party
for the final solution of the questions raised by the parties herein between themselves, he need not
impleaded.

For the considerations, and finding no error in the judgment appealed from, the same is affirmed in its
dispositive part, with costs against the appellant. So ordered.

Johnson, Street, Villamor and Romualdez, JJ., concur.

Johns, J., concurs in the result.

Separate Opinions

AVANCEA, C.J., dissenting:

Certain realty was sold at public auction by virtue of a writ of execution of a judgment rendered against
the debtor. One year elapsed after this sale during which the debtor failed to exercise the right of
redemption granted to him by section 463 of the Code of Civil Procedure. The majority holds that
notwithstanding such failure to exercise the right of redemption, the purchaser is not entitled to the
fruits of the property purchased by him from the time the sale is made, but only after the lapse of the
one year fixed by the law for redemption.

I differ with the majority upon this point.

Section 463 of the Code of Civil Procedure, the Spanish translation of which has been corrected in the
case of Pabico vs. Ong Pauco (43 Phil., 572), reads:

Upon a sale of real property, the purchaser shall be substituted to, and acquire, all the right, interest,
title, and claim of the judgment debtor thereto, subject to the right of redemption as hereinafter
provided. The officer must give to the purchaser a certificate of sale containing: . . .

In spite of the fact that this section expressly provides that upon the sale being made, the purchaser
shall be substituted to, and acquire all the rights of the judgment debtor thereto, subject solely to the
right of redemption, the majority opines that in no case does the purchaser acquire all the rights of the
judgment debtor after the sale, but only after the lapse of the one-year period for redemption. If the
debtor exercises the right of redemption, the sale is resolved and this resolution is retroactive to the
very date of the sale, the purchaser being under obligation to return the fruits and rents of the property
purchased, if he collected them, receiving in exchange the interest upon the price paid by the debtor. If
the right of redemption is not exercised, the purchaser, according to the majority opinion is only entitled
to collect the fruits of the property he purchased, after the lapse of the year prescribed for the
redemption. It is obvious, then, that according to the doctrine laid down by the majority, the purchaser
does not in any case acquire the rights of the vendor after the sale, contrary to the provision of section
463 of the Code of Civil Procedure.

One of the arguments advanced in the majority decision is the following: If the right of redemption is
exercised, it is both just and equitable that the judgment debtor should receive the fruits of the property
sold, inasmuch as the law requires him, by way of compensation, to pay the purchaser the interest upon
the price paid by the latter. Following the same reasoning, we might say that if the purchaser is not paid
the interest upon the price which he paid, it would be just and equitable that he should receive the
fruits of the property he purchased, for the same reason of compensation. When the right of
redemption is not exercised, the law does not require the judgment debtor to pay the purchaser the
interest upon the price he paid, and, as a matter of fact, the majority does not in the instant case require
the judgment debtor to make such payment. Consequently, it would be both just and equitable that in
the present case the purchaser receive the fruits of the property purchased, from the date of the
purchase. Otherwise, we should have the anomaly of a purchaser who paid the price, and yet he is
denied the right to receive the fruits of the property purchased, and a vendor, a judgment debtor, who
receives the price immediately after the sale and makes use of the same to settle his debt, thus
exempting himself from paying interest upon the same, and who, furthermore, has the right during one
year after the sale and his receipt of the price, to receive the fruits of the property thus sold. Such an
anomaly is not justified by the statement that the compensation in this case in favor of the purchaser is

in the difference between the price he paid and the market value, because the price usually obtained at
an execution sale is less than the market value. It is not justified, because in cases where the price paid
is the market values, there is no such compensation. The law must be so construed as not to be unjust in
any case. On the other hand, the price obtained at public auction sales is exactly the market value, for,
as the public is given a chance to bid, it is presumed that the price obtained is the best obtainable on the
date and at the place where the auction is held.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-11028

April 17, 1959

LAO CHIT, plaintiff-appellee,

vs.
SECURITY BANK and TRUST CO. and CONSOLIDATED INVESTMENT, INC., defendantsappellants.
Nicetas A. Suanes for appellee.
Augusto S. Francisco for appellant Security Bank and Trust Co.
Jesus S. Nava for appellant Consolidated Investments, Inc.
CONCEPCION, J.:
In May, 1949, the consolidated Investments, Inc., hereafter referred to as the lessor, leased to
Domingo T. Dikit part of the lobby, on the ground floor of the Consolidated Building, at Plaza Goiti,
Manila, to be used as offices of the proposed Bank of Manila, then being organized by said Dikit and
Jose Silva. Pursuant to the lease contract between the parties (Exhibits 2, 2-A and 2-B), the lessee
undertook to construct, at the expense thereof, such walls, partitions and other improvements as
may be necessary to make the leased premises suitable for banking purposes, and such partitions
and improvements "shall become the property" of the lessor "upon the termination and/or rescission"
of said contract. It appears that, pursuant to another contract. It appears that, pursuant to another
entered into June, 1949, between Dikit and Silva on the one hand, and plaintiff Lao Chit, on the other
(Exhibit A-1, and A-2 and A-3), the latter furnished the materials and the work for said walls,
partitions and improvements, at a total cost of P59,365, payable "as soon as the Bank of Manila
opens for business, and is given a permit by the Central Bank." This permit however, was never
issued. The proposed Bank of Manila did not open for business, and rentals due under said lease
contract, at the rate of P5,000 a month, beginning from October, 1949, were not paid. On December
3, 1949, the lessor instituted Civil Case No. 9708 of the Municipal Court of Manila against Dikit, for
unlawful detainer. After appropriate proceedings, said court rendered judgement on March 27, 1950,
sentencing Dikit.
. . . to vacate the premises described in the complaint, and to pay the plaintiff the sum of
P10,000.00, under the first cause of action, corresponding rentals due from October to
November, 1949, plus the sum of P227.80, under the second cause of action, for electric
consumption up to November 30, 1949; plus the rents that will become due from December
1, 1949, at the rate P5,000.00 per month until the date said defendant finally vacates and
surrenders possession to the plaintiff and costs of this suit. (Exhibit 3.)
Dikit appealed from this decision to the Court of First Instance of Manila, where the case was
docketed as Civil Case No. 11214 of said court. He likewise, applied, in the Supreme Court in
Case G.R. No. L-3621, entitled "Domingo Dikit vs. Hon Ramon Icasiano" for a writ of certiorari
against the municipal judge who had rendered the aforementioned decision in the ejectment case.
Said cases No. 11214 and L-3621 were soon dismissed, however, upon agreement of the parties,
dated May 22, 1951, whereby Dikit, among other things, relinquished whatever rights have to the
possession of the leased premises and disclaimed all rights to and over any and all improvements
introduced therein while he was in possession thereof.

Prior to said decision, but after the commencement of the said Case No. 9708 Lao Chit had filed
Civil Case No. 10178 of the Court of First Instance of Manila, against Dikit and Silva, for the recovery
of what was due from them by reason of the aforementioned improvements introduced by Lao Chit.
On June 30, 1953, judgement was rendered in said Case No. 10178 the dispositive part of which
reads as follows:
WHEREFORE, judgement is hereby rendered in favor of the plaintiff and against the
defendants, sentencing the latter to pay the former, jointly and severally, the sum of
P59,365.00, which is the total of the claim under the second, third and fourth causes of
action, the same to be paid within 15 days from notice, with legal interest from the date of the
filing of the complaint until its full payment; and in the event the defendants fail to pay within
the period of grace herein fixed, the fixtures herein referred to (which by express agreement
of the parties shall remain the plaintiff's property until they are fully paid for) shall be returned
to the plaintiff. The defendants shall also pay jointly and severally the plaintiff by way of
damages an amount equivalent to 12% of the aforementioned sum of P59,365.00. The
defendants shall likewise pay the plaintiff, jointly and severally, another sum equivalent to
25% of the amounts claimed in the first and sixth causes of action, besides amount claimed
in the first and sixth causes of action, besides an amount equivalent to six (6%) of the sums
due and payable under the second and third causes of action as attorney's fees, with costs
against them. (Exhibit A.)
In due course, the corresponding writ of execution (Exhibits D-1 and D-3) of this judgment was
subsequently issued. Later on it was returned by the sheriff unsatisfied, with the statement that
neither Dikit nor Silva had any property registered in their respective names, and that the
whereabouts of Silva was unknown (Exhibits D-2 and D-4). Meanwhile, or on September 10, 1953,
Lao Chit brought the present action against the Security Bank and Trust Company (Hereafter
referred to as the Bank), to which the lessor had, since July 1, 1951, leased the premises in question
(after it had been vacated by Silva), together with the fixtures and improvements introduced therein
by Lao Chit. In its complaint, Lao Chit demanded payment of P1,000 a month, by way of rental for
the use of said fixtures and improvements by the Bank, in addition to expenses of litigation,
attorney's fees and costs. In its answer, the Bank alleged that it held and used said improvements
pursuant to its contract of lease with the lessor and that it had paid the rentals due and complied with
its other obligations under said contract, and set up a counterclaim for damages. Soon thereafter, or
on November 5, 1953, Lao Chit demanded payment of the aforementioned sum of P59,365, plus
P1,000 a month from June, 1951, from the lessor, which did not heed the demand, whereupon the
complaint herein was, on December 18, 1953, amended to include said lessor as one of the
defendants. The latter alleged, in its answer, that the improvements in question were introduced at
the initiative and expense of Dikit and Silva, as lessees of the premises above referred to, and that,
as permanent fixtures, said improvements form an integral part of the Consolidated Investments
Building, and belong to the lessor and owner thereof, not to plaintiff herein, who has no contractual
or juridical relation with the lessor. The lessor, likewise, sought to recover, by way of counterclaim,
the sum of P50,000, as damages for its inclusion as defendant herein, aside from attorney's fees
and costs. In due course, the Court of First Instance of Manila rendered judgment on December 28,
1955, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered, sentencing the defendant, Consolidated
Investments, Inc., to pay to the plaintiff the value of the permanent improvements in the sum
of P59,365.00, and, together with the defendant, Security Bank and Trust Company, to pay,
jointly and severally, for the use of the permanent improvements, at the rate of P1,000.00
monthly from June, 1951 to July 31, 1954, and thereafter, until January, 1955, by the
defendant, Consolidated Investments, Inc., alone, at the same rate, and in both instances,
plus legal interest until full payment thereof; in addition, the defendant, Consolidated
Investments, Inc., is further ordered to pay to the plaintiff the amount equivalent to 80% of

whatever amount is due from it, as reimbursement for plaintiff's litigation expenses, including
attorney's contingent fees, aside from moral, nominal, moderate and exemplary damages in
the amount of P2,000.00, and the costs of suit.
Defendants' counterclaim are hereby both dismissed for lack of merits and in view of the
above conclusion of the Court.
Their respective motions for reconsideration and new trial having been denied, the defendants have
appealed from this decision.
It is apparent to us that the lower court erred in rendering judgment against the Bank. This defendant
had occupied and used the premises in question, including the partitions, fixtures and other
improvements made therein by Lao Chit, pursuant to a contract of lease entered into with lessor, the
right of which to enter into said contract is not disputed. Moreover, the Bank had paid the rentals and
fulfilled its other obligations under said contract. Again, it cannot be denied that the improvements
introduced by Lao Chit became property of the lessor, not only because such improvements are
permanent in nature and cannot be removed without impairing the building to which they were
attached, but, also, because the contract of lease between Dikit and Silva on the hand, and the
lessor, on the other hand, provided explicitly that the latter shall own those improvements "upon the
expiration and/or rescission" of said contract, and the same has already been resolved. Although
Lao Chit was not a party to said contract, this stipulation is binding upon him, he having introduced
said improvements pursuant to his contract with Dikit, from whom he derived, therefore, his right to
enter the building and make the improvements. In short, insofar as the construction thereof, Lao Chit
was, vis-a-vis the lessor, a mere agent or representative of Dikit and, as such, was privy to the
undertakings of Dikit under his contract of lease with the lessor.
The lower court held the latter liable to Lao Chit upon the ground that Lao Chit was a builder in good
faith, under the provisions of the Old Civil Code, and under the theory of undue enrichment.
As regards the first ground, Article 361 of the Civil Code of Spain, on which the lower court relied,
provides:
The owner of land on which anything has been built, sown, or planted, in good faith, shall be
entitled to appropriate the thing so built, sown, or planted, upon paying the compensation
mentioned in Articles 453 and 454, or to compel the person who has built or planted to pay
him the value of the land, and the person who sowed thereon to pay the proper rent thereof.
It is well settled, however, that this provisions refers to one who builds upon a land which he believes
to be hisproperty (Alburo vs. Villanueva, 7 Phil., 277; Cortes vs. Ramon, 46 Phil., 184; Rivera vs.
Trinidad, 48 Phil., 396; Fojas vs. Velasco, 51 Phil., 520; Montinola vs. Bantug, 71 Phil., 449-450;
Lopez Inc. vs. Philippines & Eastern Trading Co., Inc., 98 Phil., 348; 52 Off. Gaz., 1452). Neither Lao
Chit, nor Dikit, claimed the Consolidated Investments Building as his own. Dikit was a mere lessee
and Lao Chit was his agent, as such, in the construction of the improvements under consideration. In
any event, the Spanish text of said Article 361, which is the original, reads:
El dueo del terreno en que se edificare, sembrare o plantare de buena fe, tendra derecho a
hacer suya la obra, siembra o plantacion, previa la indemnizacion establecida en los
articulos 453 y 454, o a obligar al que edifico o planto a pagar el precio del terreno, y al que
sembro, la renta correspondiente. (Emphasis supplied.)
Clearly this provision is limited in its application to "buildings" constructed on another's land or
"terreno", not to partitions, railings, counters, shelves and other fixtures made in a building belonging

to the owner of the land. Although the verb "edificar" in Spanish is roughly synonymous with "build"
in English, the latter is broader in its connotation than the former. Literally, "edificar" is to undertake
the construction of an edifice, such as a fort, castle, house, church, market, tower, stadium, barrack,
stable or other similar structure. Upon the other hand, one may build a house, as well as a fence,
partition, window, door, or even a desk or chair. It is apparent, therefore, that Lao Chit is not entitled
to the benefit of said Article 361.
The lower court, moreover, said:
. . . convincing evidence abounds, to wit: that the improvements were made in the presence
of, and with the knowledge and consent, and even under the personal supervision, on the
part of the duly authorized representative of the defendant, Consolidated Investments, Inc.,
which owns the building. Thus, it may even be said that it was the defendant, Consolidated
Investments Inc., which had acted in bad faith. (Record on Appeal of Consolidated
Investments, Inc., p. 56.)
and quoted, in support thereof, the second paragraph of Article 364 of the Spanish Civil Code,
reading:
Bad faith on the part of the owner is deemed to exist whenever the act has been done in his
presence, with his knowledge and tolerance, and without opposition on his part.
The foregoing view is, likewise, untenable. To begin with, this Article 364, involves a person who
builds, plants or sows upon a land not knowing that it belongs to another. Inasmuch as, there is no
contractual relation between them, their rights are governed by law, not by contract.
Secondly, under his contract of lease with the lessor, Dikit had a legal right to make the
improvements in question and the lessor was legally bound to permit Dikit and his agent Lao Chit to
enter the leased premises and construct said improvements. Surely, compliance with this valid
contractual obligation does not, and cannot, constitute bad faith on the part of the lessor. Upon the
other hand, the lessor could not legally object to, or obstruct, the work done by Lao Chit, without
being chargeable with bad faith in the performance of said contractual obligation with Dikit.
In order to justify the application of the principle that no one should be permitted to unjustly enrich
himself at the expense of another, His Honor the Trial Judge cited Article 356 of the Civil Code of
Spain, which provides:
He who receives fruits is obliged to pay any expenses which may have been incurred by
another in the production, gathering, and preservation thereof.
We agree with the lessor that this Article is not in point, for:
(a) Said provision is part of Section I, Chapter II, Title II, Book II, of the Spanish Civil Code, which
section regulates the "right of accession with respect to the products of property," and the work done
and the improvements introduced by Lao Chit are not "products" of the lessor's property.
(b) Said Article 356 refers to "expenses" of production, gathering and preservation" of fruits received
by the owner of the property, not to improvements, whereas the claim of Lao Chit is based upon
"improvements" introduced, not "expenses" incurred by him for the "production, gathering and
preservation" of fruits. In the language of Manresa:

. . . el Codigo exige el propietario pague al tercer poseedor que fue de la cosa los gastos de
produccion, y en su caso los de recoleccion y conservacion. El propietario no puede
excusarse alegando la mala fe del tercero, porque sea de buena o de mala fe, lo cierto es
que este ha hecho un gasto, no solo util para el propietario, sino necesario, y sin el cual el
propietario no hubiera obtenido frutos de su fundo, resultando ademas que, de no mediar
indemnizacion, se consagraria el injusto principio de que uno puede enriquecerse a costa y
con dao de otro. Para afirmarse por completo en esta opinion debe concordarse el articulo
que comentamos con los 452 a 456, relativos a los efectos de la posesion de buena y mala
fe, y que no examinamos ahora porque el asunto se trata luego con mas detalles.
Los gastos de produccion y demas, para que puedan conceptuarse reembolsables por el
propietario en el caso que suponemos, deben tener dos caracteres: primero, que esten
dedicados a la produccion anual; es decir, que no se trata en este supuesto de las
bonificaciones generales del fundo. Semejantes bonificaciones entran en la categoria de las
mejoras, que se regulan en otro lugar del Codigo (al tratar de la posesion), y segundo, que
no sean superfluos, excesivos o de puro lujo, sino que deben ser hechos en aquella medida
natural que la condicion del cultivo o trabajo de que se trata exige. (3 Manresa [6th ed.], 196;
Emphasis supplied.)
(c) The right to recover under the principle of undue enrichment is justifiable under Article 1887 of
the Spanish Civil Code, reading:
Quasi contracts are licit and purely voluntary acts which create an obligation on the part of
the actor in favor of a third person, and, at times, a reciprocal obligation between the parties
concerned.
Its counterpart in the Civil Code of the Philippines is Article 2142, which we quote:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract
to the end that no one shall be unjustly enriched or benefited at the expense of another.
The former is part of Title XVI, Book IV of the Spanish Civil Code, entitled "obligations
incurred without contract", whereas the latter is included in Title XVII, Book IV of the Civil Code of
the Philippines, regulating "extra-contractual obligations" or obligations beyond, outside of, or outside
the scope of, a contract. The construction of the improvements in question was not a "purely
voluntary act" or "unilateral act" of Lao Chit. He introduced them in a compliance with a bilateral
"obligation" he undertook under his contract with Dikit. The right of Dikit to enter into such contract, in
turn, sprang from his lease contract with the lessor. As a privy to Dikit's rights under this contract,
insofar as said improvements are concerned, Lao Chit's title thereto, as against the lessor, is
governed, therefore, by such contract of lease, not by any quasi-contract, or by the principles of
equity, as distinguished from law, contracts or quasi-contracts.
(d) For the principle of undue enrichment to apply, there must be "enrichment" and the same must
be "undue" or "unjust".
In the case at bar, Dikit failed to pay the agreed monthly rental of P5,000 from October, 1949. Up to
July 1, 1951, when the premises in question were leased to the Bank, the rentals due from Dikit
aggregated, therefore, P105,000. Thus, despite the fact that the lessor had become the owner of the
improvements in question, worth P59,365.00, is still suffered a loss of over P45,000.00. Such "loss"
negates the idea of "enrichment". Neither may the latter be deemed to have taken place in the sense
that said improvements had increased the productive capacity of the leased premises, for, despite

said improvements, the Bank agreed to pay, beginning from July 1, 1951, only P4,000 a month, or
P1,000 a month less than the rental stipulated with Dikit.
Regardless of the foregoing, Lao Chit had no reason to believe and he does not claim to have
acted under the belief that Dikit owned the leased premises. In fact, the circumstances
surrounding the case are such as to leave the room for doubt that Lao Chit knew that Dikit was not
the owner of said property and that the same belonged to the lessor. Besides, Lao Chit should have
known that, as Dikit's agent, in the construction of the improvements, he (Lao Chit) was subject to
the limitations imposed upon Dikit by his contract with the lessor and that the improvements in
question became property of the owner of the building, not only by operation of law, as accessions to
said building, but, also, for specific stipulation in the contract of lease between Dikit and the lessor.
Inasmuch as the acquisition of said improvements by the owner of the building and lessor is
ordained by law and provided for by said contract, which is admittedly valid, the resulting enrichment
if any by said owner and lessor, is neither "undue" nor "unjustly".
Upon the other hand, he had been reasonably vigilant, Lao Chit could have demanded from Dikit a
mortgage, or a bond, or some other security, for the protection of his rights, yet he (Lao Chit) did not
do so. Should the lessor be required to pay Lao Chit what he is entitled to recover from Dikit, but
which he (Lao Chit) cannot due to his oversight, carelessness or negligence collect from Dikit,
the effect would be to relieve Lao Chit of the consequences of his own inadvertence or negligence,
and hold the lessor responsible therefor. This would be neither fair, nor just, nor equitable.
Lastly, the lower court declared that the improvements in question belong to Lao Chit, because it
had been so held in Case No. 10718 instituted by him against Dikit and Silva. Obviously, however,
the proceedings in that case and the decision therein rendered are not binding upon the lessor, the
same being neither a party in said case, nor a successor to the interest of the defendants therein.
Besides, the aforementioned finding is not borne out by Lao Chit's contract with Dikit and Silva
(Exhibits A-1, A-2, A-2-a and A-3). Indeed, even if Dikit and Silva had agreed with Lao Chit and
they had no such agreement that he would own the improvements until payment of the price
thereof, the stipulation would be, neither valid, nor binding upon the lessor, for Dikit and Silva had no
authority whatsoever to waive the statutory right of accession of the lessor to and over said
improvements (Arts. 353 and 358, Civil Code of Spain; Arts. 440 and 445, Civil Code of the
Philippines).
Wherefore, the decision appealed from is hereby reversed and another one shall be entered
dismissing the complaint, with costs against plaintiff-appellee Lao Chit. It is so ordered.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador and Endencia,
JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-57348 May 16, 1985
FRANCISCO DEPRA, plaintiff-appellee,
vs.
AGUSTIN DUMLAO, defendant-appellant.
Roberto D. Dineros for plaintiff-appellee.
Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:
This is an appeal from the Order of the former Court of First Instance of Iloilo to the then Court of
Appeals, which the latter certified to this instance as involving pure questions of law
Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under Transfer
Certificate of Title No. T3087, known as Lot No. 685, situated in the municipality of Dumangas, Iloilo,
with an area of approximately 8,870 square meters. Agustin Dumlao, defendant-appellant, owns an
adjoining lot, designated as Lot No. 683, with an approximate area of 231 sq. ms.
Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen thereof had
encroached on an area of thirty four (34) square meters of DEPRA's property, After the
encroachment was discovered in a relocation survey of DEPRA's lot made on November 2,1972, his
mother, Beatriz Depra after writing a demand letter asking DUMLAO to move back from his
encroachment, filed an action for Unlawful Detainer on February 6,1973 against DUMLAO in the
Municipal Court of of Dumangas, docketed as Civil Case No 1, Said complaint was later amended to
include DEPRA as a party plain. plaintiff.
After trial, the Municipal Court found that DUMLAO was a builder in good faith, and applying Article
448 of the Civil Code, rendered judgment on September 29, 1973, the dispositive portion of which
reads:
Ordering that a forced lease is created between the parties with the plaintiffs, as
lessors, and the defendants as lessees, over the disputed portion with an area of
thirty four (34) square meters, the rent to be paid is five (P5.00) pesos a month,
payable by the lessee to the lessors within the first five (5) days of the month the rent
is due; and the lease shall commence on the day that this decision shall have
become final.
From the foregoing judgment, neither party appeal so that, ff it were a valid judgment, it would have
ordinarily lapsed into finality, but even then, DEPRA did not accept payment of rentals so that
DUMLAO deposited such rentals with the Municipal Court.

On July 15,1974, DEPRA filed a Complaint for Quieting of Title against DUMLAO before the then
Court of First Instance of Iloilo, Branch IV (Trial Court), involving the very same 34 square meters,
which was the bone of contention in the Municipal Court. DUMLAO, in his Answer, admitted the
encroachment but alleged, in the main, that the present suit is barred by res judicata by virtue of the
Decision of the Municipal Court, which had become final and executory.
After the case had been set for pre-trial, the parties submitted a Joint Motion for Judgment based on
the Stipulation of Facts attached thereto. Premised thereon, the Trial Court on October 31, 1974,
issued the assailed Order, decreeing:
WHEREFORE, the Court finds and so holds that the thirty four (34) square meters
subject of this litigation is part and parcel of Lot 685 of the Cadastral Survey of
Dumangas of which the plaintiff is owner as evidenced by Transfer Certificate of Title
No. 3087 and such plaintiff is entitled to possess the same.
Without pronouncement as to costs.
SO ORDERED.
Rebutting the argument of res judicata relied upon by DUMLAO, DEPRA claims that the Decision of
the Municipal Court was null and void ab initio because its jurisdiction is limited to the sole issue of
possession, whereas decisions affecting lease, which is an encumbrance on real property, may only
be rendered by Courts of First Instance.
Addressing out selves to the issue of validity of the Decision of the Municipal Court, we hold the
same to be null and void. The judgment in a detainer case is effective in respect of possession only
(Sec. 7, Rule 70, Rules of Court). 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 defendantspetitioners to remove their buildings from the land belonging to plaintiffs-respondents
only because the latter chose neither to pay for such buildings nor to sell the land, is
null and void, for it amends substantially the judgment sought to be executed and is.
furthermore, offensive to articles 361 (now Article 448) and 453 (now Article 546) of
the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608[1946]).

A word anent the philosophy behind Article 448 of the Civil rode.
The original provision was found in Article 361 of the Spanish Civil Code; which provided:
ART. 361. The owner of land on which anything has been built, sown or planted in
good faith, shall have the right to appropriate as his own the work, sowing or
planting, after the payment of the indemnity stated in Articles 453 and 454, or to
oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.
As will be seen, the Article favors the owner of the land, by giving him one of the two options
mentioned in the Article. Some commentators have questioned the preference in favor of the owner
of the land, but Manresa's opinion is that the Article is just and fair.
. . . es justa la facultad que el codigo da al dueno del suelo en el articulo 361, en el
caso de edificacion o plantacion? Algunos comentaristas la conceptuan injusta, y
como un extraordinario privilegio en favor de la propiedad territorial. Entienden que
impone el Codigo una pena al poseedor de buena fe y como advierte uno de los
comentaristas aludidos 'no se ve claro el por que de tal pena . . . al obligar al que
obro de buena fe a quedarse con el edificio o plantacion, previo el pago del terreno
que ocupa, porque si bien es verdad que cuando edifico o planto demostro con este
hecho, que queria para si el edificio o plantio tambien lo es que el que edifico o
planto de buena fe lo hizo en la erronea inteligencia de creerse dueno del terreno
Posible es que, de saber lo contrario, y de tener noticia de que habia que comprar y
pagar el terreno, no se hubiera decidido a plantar ni a edificar. La ley obligandole a
hacerlo fuerza su voluntad, y la fuerza por un hecho inocente de que no debe ser
responsable'. Asi podra suceder pero la realidad es que con ese hecho voluntario,
aunque sea inocente, se ha enriquecido torticeramente con perjuicio de otro a quien
es justo indemnizarle,
En nuestra opinion, el Codigo ha resuelto el conflicto de la manera mas justa y
equitativa y respetando en lo possible el principio que para la accesion se establece
en el art. 358. 7
Our own Code Commission must have taken account of the objections to Article 361 of the Spanish
Civil Code. Hence, the Commission provided a modification thereof, and Article 448 of our Code has
been made to provide:
ART. 448. The owner of the land on which anything has been built, sown or planted
in good faith, shall have the right to appropriate as his own the works, sowing or
planting, after payment of the indemnity provided for in articles 546 and 548, or to
oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case,
he shall pay reasonable rent, if the owner of the land does not choose to appropriate
the building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof.
Additional benefits were extended to the builder but the landowner retained his options.
The fairness of the rules in Article 448 has also been explained as follows:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a just
solution by giving the owner of the land the option to acquire the improvements after
payment of the proper indemnity, or to oblige the builder or planter to pay for the land
and the sower to pay for the proper rent. It is the owner of the land who is authorized
to exercise the option, because his right is older, and because, by the principle of
accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213;
Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167,
April 30, 1949; Article applied: see Cabral, et al vs. Ibanez [S.C.] 52 Off. Gaz. 217;
Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050). 8
WHEREFORE, the judgment of the trial Court is hereby set aside, and this case is hereby ordered
remanded to the Regional Trial Court of Iloilo for further proceedings consistent with Articles 448 and
546 of the Civil Code, as follows:
1. The trial Court shall determine
a) the present fair price of DEPRA's 34 square meter area of land;
b) the amount of the expenses spent by DUMLAO for the building of the kitchen;
c) the increase in value ("plus value") which the said area of 34 square meters may
have acquired by reason thereof, and
d) whether the value of said area of land is considerably more than that of the kitchen
built thereon.
2. After said amounts shall have been determined by competent evidence, the Regional, Trial Court
shall render judgment, as follows:
a) The trial Court shall grant DEPRA a period of fifteen (15) days within which to
exercise his option under the law (Article 448, Civil Code), whether to appropriate the
kitchen as his own by paying to DUMLAO either the amount of tile expenses spent
by DUMLAO f or the building of the kitchen, or the increase in value ("plus value")
which the said area of 34 square meters may have acquired by reason thereof, or to
oblige DUMLAO to pay the price of said area. The amounts to be respectively paid
by DUMLAO and DEPRA, in accordance with the option thus exercised by written
notice of the other party and to the Court, shall be paid by the obligor within fifteen
(15) days from such notice of the option by tendering the amount to the Court in favor
of the party entitled to receive it;
b) The trial Court shall further order that if DEPRA exercises the option to oblige
DUMLAO to pay the price of the land but the latter rejects such purchase because,
as found by the trial Court, the value of the land is considerably more than that of the
kitchen, DUMLAO shall give written notice of such rejection to DEPRA and to the
Court within fifteen (15) days from notice of DEPRA's option to sell the land. In that
event, the parties shall be given a period of fifteen (15) days from such notice of
rejection within which to agree upon the terms of the lease, and give the Court formal
written notice of such agreement and its provisos. If no agreement is reached by the
parties, the trial Court, within fifteen (15) days from and after the termination of the

said period fixed for negotiation, shall then fix the terms of the lease, provided that
the monthly rental to be fixed by the Court shall not be less than Ten Pesos (P10.00)
per month, payable within the first five (5) days of each calendar month. The period
for the forced lease shall not be more than two (2) years, counted from the finality of
the judgment, considering the long period of time since 1952 that DUMLAO has
occupied the subject area. The rental thus fixed shall be increased by ten percent
(10%) for the second year of the forced lease. DUMLAO shall not make any further
constructions or improvements on the kitchen. Upon expiration of the two-year
period, or upon default by DUMLAO in the payment of rentals for two (2) consecutive
months, DEPRA shall be entitled to terminate the forced lease, to recover his land,
and to have the kitchen removed by DUMLAO or at the latter's expense. The rentals
herein provided shall be tendered by DUMLAO to the Court for payment to DEPRA,
and such tender shall constitute evidence of whether or not compliance was made
within the period fixed by the Court.
c) In any event, DUMLAO shall pay DEPRA an amount computed at Ten Pesos
(P10.00) per month as reasonable compensation for the occupancy of DEPRA's land
for the period counted from 1952, the year DUMLAO occupied the subject area, up to
the commencement date of the forced lease referred to in the preceding paragraph;
d) The periods to be fixed by the trial Court in its Precision shall be inextendible, and
upon failure of the party obliged to tender to the trial Court the amount due to the
obligee, the party entitled to such payment shall be entitled to an order of execution
for the enforcement of payment of the amount due and for compliance with such
other acts as may be required by the prestation due the obligee.
No costs,
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-57288 April 30, 1984
LEONILA SARMINETO, petitioner,
vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh Judicial
District, Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO and REBECCA
LORENZO-VALENTINO,respondents.
Mercedes M. Respicio for petitioner.
Romulo R. Bobadilla for private respondents.

MELENCIO-HERRERA, J.:

+. wph!1

This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court of First
Instance of Pasay City. The Decision was one made on memoranda, pursuant to the provisions of
RA 6031, and it modified, on October 17, 1977, a judgment of the then Municipal Court of
Paranaque, Rizal, in an Ejectment suit instituted by herein petitioner Leonila SARMIENTO against
private respondents, the spouses ERNESTO Valentino and Rebecca Lorenzo. For the facts,
therefore, we have to look to the evidence presented by the parties at the original level.
It appears that while ERNESTO was still courting his wife, the latter's mother had told him the couple
could build a RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision in
Paranaque (the LAND, for short). In 1967, ERNESTO did construct a RESIDENTIAL HOUSE on the
LAND at a cost of P8,000.00 to P10,000.00. It was probably assumed that the wife's mother was the
owner of the LAND and that, eventually, it would somehow be transferred to the spouses.
It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C. Santo,
Jr. who, on September 7 , 1974, sold the same to petitioner SARMIENTO. The following January 6,
1975, SARMIENTO asked ERNESTO and wife to vacate and, on April 21, 1975, filed an Ejectment
suit against them. In the evidentiary hearings before the Municipal Court, SARMIENTO submitted
the deed of sale of the LAND in her favor, which showed the price to be P15,000.00. On the other
hand, ERNESTO testified that the then cost of the RESIDENTIAL HOUSE would be from
P30,000.00 to P40,000.00. The figures were not questioned by SARMIENTO.
The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in good
faith, and, disregarding the testimony of ERNESTO, that it had a value of P20,000.00. It then
ordered ERNESTO and wife to vacate the LAND after SARMIENTO has paid them the mentioned
sum of P20,000.00.
The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the submission
of memoranda, said Court rendered a modifying Decision under Article 448 of the Civil Code.
SARMIENTO was required, within 60 days, to exercise the option to reimburse ERNESTO and wife

the sum of 40,000.00 as the value of the RESIDENTIAL HOUSE, or the option to allow them to
purchase the LAND for P25,000.00. SARMIENTO did not exercise any of the two options within the
indicated period, and ERNESTO was then allowed to deposit the sum of P25,000.00 with the Court
as the purchase price for the LAND. This is the hub of the controversy. SARMIENTO then instituted
the instant certiorari proceedings.
We agree that ERNESTO and wife were builders in good faith in view of the peculiar circumstances
under which they had constructed the RESIDENTIAL HOUSE. As far as they knew, the LAND was
owned by ERNESTO's mother-in-law who, having stated they could build on the property, could
reasonably be expected to later on give them the LAND.
In regards to builders in good faith, Article 448 of the Code provides:

t.hqw

ART. 448. The owner of the land on which anything has been built, sown or planted
in good faith,
shall have the right
to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or
to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree upon the terms of the lease
and in case of disagreement, the court shall fix the terms thereof. (Paragraphing
supplied)
The value of the LAND, purchased for P15,000.00 on September 7, 1974, could not have been very
much more than that amount during the following January when ERNESTO and wife were asked to
vacate. However, ERNESTO and wife have not questioned the P25,000.00 valuation determined by
the Court of First Instance.
In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence presented was the
testimony of ERNESTO that its worth at the time of the trial should be from P30,000.00 to
P40,000.00. The Municipal Court chose to assess its value at P20,000.00, or below the minimum
testified by ERNESTO, while the Court of First Instance chose the maximum of P40,000.00. In the
latter case, it cannot be said that the Court of First Instance had abused its discretion.
The challenged decision of respondent Court, based on valuations of P25,000.00 for the LAND and
P40,000.00 for the RESIDENTIAL HOUSE, cannot be viewed as not supported by the evidence. The
provision for the exercise by petitioner SARMIENTO of either the option to indemnify private
respondents in the amount of P40,000.00, or the option to allow private respondents to purchase the
LAND at P25,000.00, in our opinion, was a correct decision.
t.hqw

The owner of the building erected in good faith on a land owned by another, is
entitled to retain the possession of the land until he is paid the value of his building,
under article 453 (now Article 546). The owner, of the land. upon, the other hand, has

the option, under article 361 (now Article 448), either to pay for the building or to sell
his land to the owner of the building. But he cannot, as respondents here did, refuse
both to pay for the building and to sell the land and compel the owner of the building
to remove it from the land where it is erected. He is entitled to such remotion only
when, after having chosen to sell his land, the other party fails to pay for the same.
(Emphasis ours)
We hold, therefore, that the order of Judge Natividad compelling defendantspetitioners to remove their buildings from the land belonging to plaintiffs-respondents
only because the latter chose neither to pay for such buildings nor to sell the land, is
null and void, for it amends substantially the judgment sought to be executed and is,
furthermore, offensive to articles 361 (now Article 448) and 453 (now Article 546) of
the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608 [1946]).
WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to
costs.
SO ORDERED.

1w ph1.t

Teehankee (Chairman), Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.

Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 117642 April 24, 1998
EDITHA ALVIOLA and PORFERIO ALVIOLA, petitioners,
vs.
HONORABLE COURT OF APPEALS, FORENCIA BULING Vda de TINAGAN, DEMOSTHENES
TINAGAN, JESUS TINAGAN, ZENAIDA T., JOSEP and JOSEPHINE TINAGAN, respondents.
MARTINEZ, J.:
1

of the Court of Appeals dated April 8, 1994 which

affirmed the decision of the lower court ordering petitioners to peacefully vacate and surrender the
possession of the disputed properties to the private respondents.
In this petition for review on certiorari, petitioners assail the decision

Culled from the record are the following antecedent facts of this case to wit:
On April 1, 1950, Victoria Sonjaconda Tinagan purchased from Mauro Tinagan two (2) parcels of
land situated at Barangay Bongbong, Valencia, Negros Oriental. 2 One parcel of land contains an area
of 5,704 square meters, more or less; 3 while the other contains 10,860 square meters. 4 Thereafter,
Victoria and her son Agustin Tinagan, took possession of said parcels of land.

Sometime in 1960, petitioners occupied portions thereof whereat they built a copra dryer and put up
a store wherein they engaged in the business of buying and selling copra.
On June 23, 1975, Victoria died. On October 26, 1975, Agustin died, survived by herein private
respondents, namely his wife, Florencia Buling Vda. de Tinagan and their children Demosthenes,
Jesus, Zenaida and Josephine, all surnamed Tinagan.
On December 24, 1976, petitioner Editha assisted by her husband filed a complaint for partition and
damages before the then Court of First Instance of Negros Oriental, Branch 1, Dumaguete City,
docketed as Civil Case No. 6634, claiming to be an acknowledged natural child of deceased Agustin
Tinagan and demanding the delivery of her shares in the properties left by the deceased. 5
On October 4, 1979, the aforesaid case was dismissed by the trial court on the ground that recognition of
natural children may be brought only during the lifetime of the presumed parent and petitioner Editha did
not fall in any of the exceptions enumerated in Article 285 of the Civil Code. 6
Petitioners assailed the order of dismissal by filing a petition for certiorari and mandamus before this
Court. 7 On August 9, 1982, this Court dismissed the petition for lack of merit. 8 Petitioners filed a motion
for reconsideration but the same was denied on October 19, 1982. 9
On March 29, 1988, private respondents filed a complaint for recovery of possession against Editha and
her husband Porferio Alviola before the Regional Trial Court of Negros Oriental, Branch 35, Dumaguete
City, docketed as Civil Case No. 9148, praying, among others, that they be declared absolute owners of
the said parcels of land, and that petitioners be ordered to vacate the same, to remove their copra dryer
and store, to pay actual damages (in the form of rentals), moral and punitive damages, litigation expenses
and attorney's fees. 10

In their answer, petitioners contend that they own the improvements in the disputed properties which are
still public land; that they are qualified to be beneficiaries of the comprehensive agrarian reform program
and that they are rightful possessors by occupation of the said properties for more than twenty years. 11
After trial, the lower court rendered judgment in favor of the private respondents, the dispositive portion of
which reads:

WHEREFORE, premises considered, in Civil Case No. 9148, for Recovery of

Property, the court hereby renders judgment:
a) Declaring plaintiffs as the absolute owners of the land in question including the
portion claimed and occupied by defendants;
b) Ordering defendants Editha Alviola and her husband Porfirio Alviola to peacefully
vacate and to surrender the possession of the premises in question to plaintiffs;
Defendants may remove their store and dryer on the premises without injury and
prejudice to the plaintiffs;
c) Ordering defendants to pay the following amounts to the plaintiffs:
1. P150.00 monthly rentals from April 1988 up to the time the improvements in the
questioned portions are removed;
2. P5,000.00 for attorney's fees;
3. P3,000.00 for litigation expenses and to pay the costs.
SO ORDERED. 12
Petitioners appealed to the Court of Appeals. On April 8, 1994, the respondent court rendered its
decision, 13 affirming the judgment of the lower court. Petitioners filed a motion for reconsideration
the same was denied by the respondent court in an order dated October 6, 1994. 15

14

but

Hence, this petition.

Petitioners aver that respondent court erred in declaring private respondents the owners of the
disputed properties. They contend that ownership of a public land cannot be declared by the courts
but by the Executive Department of the Government, citing the case of Busante vs. Hon. Court of
Appeals, Oct. 20, 1992, 214 SCRA 774; and that the respondent court erred in not considering that
private respondents' predecessor-in-interest, Victoria Sonjaco Tinagan, during her lifetime, ceded
her right to the disputed properties in favor of petitioners.
Moreover, petitioners maintain that the respondent court erred in holding that they were in bad faith
in possessing the disputed properties and in ruling that the improvements thereon are transferable.
They claim that the copra dryer and the store are permanent structures, the walls thereof being
made of hollow-blocks and the floors made of cement.
Private respondents counter that the question of whether or not the disputed properties are public
land has been resolved by overwhelming evidence showing ownership and possession by the
Tinagans and their predecessors-in-interest prior to 1949. They further aver that they merely

tolerated petitioners' possession of the disputed properties for a period which was less than that
required for extraordinary prescription.
The petition must fail.
Petitioners claim that the disputed properties are public lands. This is a factual issue. The private
respondents adduced overwhelming evidence to prove their ownership and possession of the two
(2) parcels of land on portions of which petitioners built the copra dryer and a store. Private
respondents' tax declarations and receipts of payment of real estate taxes, as well as other related
documents, prove their ownership of the disputed properties. As stated previously in the narration of
facts, these two (2) parcels of land were originally owned by Mauro Tinagan, who sold the same to
Victoria S. Tinagan on April 1, 1950, as evidenced by a Deed of Sale, 16wherein the two (2) lots,
Parcels 1 and 2, are described. 17 Anent Parcel 1, tax declarations indicate that the property has always
been declared in the name of the Tinagans. The first, Tax Declaration No. 3335 18 is in the name of Mauro
Tinagan. It was thereafter cancelled by Tax Declaration No. 19534 effective 1968, 19 still in the name of
Mauro. This declaration was cancelled by Tax Declaration No. 016740 now in the name of Agustin
Tinagan, 20 effective 1974, followed by Tax Declaration No. 08-421 in the name of Jesus Tinagan,
effective 1980; 21 and finally by Tax Declaration No. 08-816 in the name of Jesus Tinagan, effective
1985. 22
With regard to Parcel 2, private respondents presented Tax Declaration No. 20973 in the name of Mauro
Tinagan, effective 1959, 23 Tax Declaration No. 016757, effective 1974; 24 Tax Declaration No. 08-405-C
in the name of Agustin Tinagan, effective 1980 25 and Tax Declaration No. 08-794 in the name of Agustin
Tinagan, effective 1985. 26 Moreover, the realty taxes on the two lots have always been paid by the
private respondents. 27 There can be no doubt, therefore, that the two parcels of land are owned by the
private respondents.

The record further discloses that Victoria S. Tinagan and her son, Agustin Tinagan, took possession
of the said properties in 1950, introduced improvements thereon, and for more than 40 years, have
been in open, continuous, exclusive and notorious occupation thereof in the concept of owners.
Petitioners' own evidence recognized the ownership of the land in favor of Victoria Tinagan. In their
tax declarations, 28 petitioners stated that the house and copra dryer are located on the land of Victoria S.
Tinagan/Agustin Tinagan. By acknowledging that the disputed portions belong to Victoria/Agustin Tinagan
in their tax declarations, petitioners' claim as owners thereof must fail.

The assailed decision of the respondent court states that "Appellants do not dispute that the two
parcels of land subject matter of the present complaint for recovery of possession belonged to
Victoria S. Tinagan, the grandmother of herein plaintiffs-appellees; that Agustin Tinagan inherited
the parcels of land from his mother Victoria; and that plaintiffs-appellees, in turn, inherited the same
from Agustin." 29
Taking exception to the aforequoted finding, petitioners contend that while the 2 parcels of land are
owned by private respondents, the portions wherein the copra dryers and store stand were ceded to them
by Victoria S. Tinagan in exchange for an alleged indebtedness of Agustin Tinagan in the sum of
P7,602.04. 30
This claim of the petitioners was brushed aside by the respondent court as merely an afterthought, thus

Appellants' claim that they have acquired ownership over the floor areas of the store
and dryer "in consideration of the account of Agustin Tinagan in the sum of
P7,602.04" is not plausible. It is more of an "after-thought" defense which was not

alleged in their answer. Although the evidence presented by them in support of this
particular claim was not duly objected to by counsel for appellees at the proper time
and therefore deemed admissible in evidence, an examination of the oral and
documentary evidence submitted in support thereof, reveals the weakness of their
claim.
Appellant testified that the areas on which their store and dryer were located were
exchanged for the amount of P7,602.04 owed to them by Agustin in 1967 (TSN,
Hearing of April 14, 1989, p. 9); that he did not bother to execute a document
reflecting such agreement "because they were our parents and we had used the land
for quite sometime already they had also sold their copra to us for a long time." (id.)
Yet, as earlier discussed, the tax declarations in appellants' answer show that even
after 1967, they expressly declared that the parcels of land on which their store and
dryer were constructed, belonged to Victoria and Agustin (Exhs. 2-A, 2-B, 2-C, 3-A,
3-B). If appellants really believed that they were in possession of the said particular
areas in the concept of owners, they could have easily declared it in said tax
declarations. 31
Concededly, petitioners have been on the disputed portions since 1961. However, their stay thereon was
merely by tolerance on the part of the private respondents and their predecessor-in-interest. The
evidence shows that the petitioners were permitted by Victoria Sanjoco Tinagan to build a copra dryer on
the land when they got married. Subsequently, petitioner Editha Alviola, claiming to be the illegitimate
daughter of Agustin Tinagan, filed a petition for partition demanding her share in the estate of the
deceased Agustin Tinagan on December 6, 1976. However, the petition was dismissed since it was
brought only after the death of Agustin Tinagan. This Court dismissed the petition
for certiorari and mandamus filed by petitioner Editha Alviola on August 9, 1982. It was on March 29,
1988, when private respondents filed this complaint for recovery of possession against petitioners.
Considering that the petitioners' occupation of the properties in dispute was merely tolerated by private
respondents, their posture that they have acquired the property by "occupation" for 20 years does not
have any factual or legal foundation.

As correctly ruled by the respondent court, there was bad faith on the part of the petitioners when
they constructed the copra dryer and store on the disputed portions since they were fully aware that
the parcels of land belonged to Victoria Tinagan. And, there was likewise bad faith on the part of the
private respondents, having knowledge of the arrangement between petitioners and Victoria Tinagan
relative to the construction of the copra dryer and store. Thus, for purposes of indemnity, Article 448
of the New Civil Code should be applied. 32 However, the copra dryer and the store, as determined by
the trial court and respondent court, are transferable in nature. Thus, it would not fall within the coverage
of Article 448. As the noted civil law authority, Senator Arturo Tolentino, aptly explains: "To fall within the
provision of this Article, the construction must be of permanent character, attached to the soil with an idea
of perpetuity; but if it is of a transitory character or is transferable, there is no accession, and the builder
must remove the construction. The proper remedy of the landowner is an action to eject the builder from
the land." 33
The private respondents' action for recovery of possession was the suitable solution to eject petitioners
from the premises.

WHEREFORE, this petition should be, as it is hereby, DISMISSED.

The assailed decision is hereby AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-33422 May 30, 1983
ROSENDO BALUCANAG, petitioner,
vs.
HON. JUDGE ALBERTO J. FRANCISCO and RICHARD STOHNER, respondents.
Alfredo C. Estrella for petitioner.
Pascual C. Garcia for respondents.

ESCOLIN, J.:
This petition for review of the decision of the Court of First Instance of Manila in Civil Case No.
67503 calls for a determination of the respective rights of the lessor and the lessee over the
improvements introduced by the latter in the leased premises.
Cecilia dela Cruz Charvet was the owner of a 177.50 square meter lot located in Zamora Street,
Pandacan, Manila, covered by Transfer Certificate of Title No. 25664. On August 31, 1952, Mrs.
Charvet leased said lot to respondent Richard Stohner for a period of five [5] years at the monthly
rental of 2140.00, payable in advance within the first ten [10] days of each month. The lease
contract 1 provided, among others, that:
IV. The lessee may erect such buildings upon and make such improvements to the
leased land as he shag see fit. All such buildings and improvements shall remain the
property of the lessee and he may remove them at any nine, it being agreed,
however, that should he not remove the said buildings and improvements within a
period of two months after the expiration of this Agreement, the Lessor may remove
the said buildings and improvements or cause them to be removed at the expense of
the Lessee.
During the existence of the lease, Stohner made fillings on the land and constructed a house
thereon, said improvements being allegedly valued at P35,000.00.
On March 8, 1966, Mrs. Charvet sold the said lot to petitioner Rosendo Balucanag. 2
For Stohner's failure to pay the rents, Balucanag, thru counsel, wrote Stohner a letter demanding
that he vacate the premises. 3 In reply thereto, Stohner, also thru counsel, claimed that he was a builder
in good faith of the residential house erected in the land. He offered the following proposals for a possible
compromise, to wit:

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

[b] Your client Mr. Rosendo Balucanag will reimburse our client in the total amount of
P35,000.00 for the improvements and construction he has made on the lot in
question.
As no agreement was reached, Balucanag instituted in the City Court of Manila an ejectment suit
against Stohner and, after due trial, the court rendered a decision, the decretal portion of which
reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered,
ordering the defendant to pay the plaintiff the sum of P360.00 as back rentals from
December, 1965 to August 1966 at the rate of P40.00 a month and to vacate the
premises. The defendant is further ordered to pay the sum of P100.00 as Attomey's
fees which is considered reasonable within the premises.
On appeal, the Court of First Instance of Manila, Branch IX, presided by respondent Judge Alberto J.
Francisco, after conducting a trial de novo, rendered a decision, setting aside the judgment of the
city court and dismissing the petitioner's complaint. Respondent judge held that Stohner was a
builder in good faith because he had constructed the residential house with the consent of the
original lessor, Mrs. Charvet, and also because the latter, after the expiration of the lease contract on
August 31, 1957, had neither sought Stohner's ejectment from the premises, nor the removal of his
house therefrom. Invoking Articles 448 and 546 of the Civil Code. 4respondent judge concluded that
Stohner, being a builder in good faith, cannot be ejected until he is reimbursed of the value of the
improvements.

Frustrated in his effort to have the decision reconsidered, Balucanag filed the instant petition for
review.
We find the petition impressed with merit. Paragraph IV of the lease contract entered into by Stohner
with Mrs. Charvet specifically provides that "... such buildings and improvements shan remain the
property of the lessee and he may remove them at any time, it being agreed, however, that should
he not remove the said buildings and improvements within a period of two months after the
expiration of this Agreement, the Lessor may remove the said buildings and improvements or cause
them to be removed at the expense of the Lessee." Respondent Stohner does not assail the validity
of this stipulation, Neither has he advanced any reason why he should not be bound by it.
But even in the absence of said stipulation, respondent Stohner cannot be considered a builder in
good faith. Article 448 of the Civil Code, relied upon by respondent judge, applies only to a case
where one builds on land in the belief that he is the owner thereof and it does not apply where one's
only interest in the land is that of a lessee under a rental contract. In the case at bar, there is no
dispute that the relation between Balucanag and Stohner is that of lessor and lessee, the former
being the successor in interest of the original owner of the lot. As we ruled inLopez, Inc. vs. Phil. and
Eastern Trading Co., Inc., 5 "... the principle of possessor in good faith refers only to a party who
occupies or possess property in the belief that he is the owner thereof and said good faith ends only when
he discovers a flaw in his title so as to reasonably advise or inform him that after all he may not be the
legal owner of said property. It cannot apply to a lessee because as such lessee he knows that he is not
the owner of he leased premises. Neither can he deny the ownership or title of his lessor. ... A lessee who
introduces improvements in the leased premises, does so at his own risk in the sense that he cannot
recover their value from the lessor, much less retain the premises until such reimbursement. ..."

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

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable
to the use for which the lease is intended, without altering the form or substance of
the property leased, the lessor upon the termination of the lease shall pay the lessee
one-half of the value of the improvements at the time. Should the lessor refuse to
reimburse said amount, the lessee may remove the improvements, even though the
principal thing may suffer damage thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary. ...
This article gives the lessor the option to appropriate the useful improvements by paying one-half of
their value, 6And the lessee cannot compel the lessor to appropriate the improvements and make
reimbursement, for the lessee's right under the law is to remove the improvements even if the leased
premises may suffer damage thereby. But he shall not cause any more damage upon the property than is
necessary.

One last point. It appears that while the lease contract entered into by Stohner and Mrs. Charvet had
expired on August 31, 1957, he nevertheless continued in possession of the premises with the
acquiescence of Mrs. Charvet and later, of Balucanag. An implied new lease or tacita
reconduccion was thus created between the parties, the period of which is established by Article
1687 of the Civil Code thus:
Art. 1687. If the period for the lease has not been fixed, it is understood to be from
year to year, if the rent agreed upon is annual; from month to month, if it is monthly:
from week to week, if the rent is weekly: and from day to day, if the rent is to be paid
daily. ...
Under the above article, the duration of the new lease must be deemed from month to month, the
agreed rental in the instant case being payable on a monthly basis. The lessor may thus terminate
the lease after each month with due notice upon the lessee. After such notice, the lessee's right to
continue in possession ceases and his possession becomes one of detainer. Furthermore, Stohner's
failure to pay the stipulated rentals entities petitioner to recover possession of the premises.
WHEREFORE, the decision in Civil Case No. 67503 is hereby set aside, with costs against
respondent Stohner. The latter is ordered to vacate the premises in question and to pay Rogelio
Balucanag the rentals due from March 1969 up to the time he surrenders the premises, at the rate of
P40.00 a month.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., and Guerrero, JJ., concur.
De Castro, J., took no part.
Separate Opinions
ABAD SANTOS, J., concurring and dissenting:
I concur in setting aside the decision in Civil Case No. 67503 of the defunct Court of First Instance of
Manila; and in ordering the respondent Stohner to pay the costs, to vacate the premises in question,
and to pav the petitioner the rentals due from March 1969 to the time he surrenders the premises at
the rate of P40.00 monthly. However, I cannot give my assent to that portion of the judgment with
respect to the house constructed by Stohner.

Stohner as a lessee is not a builder in good faith. This is elementary in property law.
Article 1678 of the Civil Code concerning improvements made by the lessee on the leased premises
applies only in the absence of stipulation on the matter between the lessor and the lessee. In the
instant case theres such a stipulation. A copy of the Lease Agreement which is found on page 13 of
the Rollo reads:
IV. The lessee may erect such buildings upor and make such improvements to the
leased land as he shall see fit. AR such buildings and improvements shall remain the
property of the lessee and he may remove them at any nine, it being agreed,
however, that should he not remove the 96d buildings and improvements within a
period of two months after the expiration of this Agreement, the Lessor may remove
the said buildings and improvements or cause them to be removed at the expense of
the Lessee.
The above-quoted stipulation has the force of law between the parties (Art. 1159, Civil Code) and
supersedes Art. 1678 of the Civil Code. Accordingly, the judgment with respect to the house which
was constructed by Stohner should be in line with the contract of lease.
Separate Opinions
ABAD SANTOS, J., concurring and dissenting:
I concur in setting aside the decision in Civil Case No. 67503 of the defunct Court of First Instance of
Manila; and in ordering the respondent Stohner to pay the costs, to vacate the premises in question,
and to pav the petitioner the rentals due from March 1969 to the time he surrenders the premises at
the rate of P40.00 monthly. However, I cannot give my assent to that portion of the judgment with
respect to the house constructed by Stohner.
Stohner as a lessee is not a builder in good faith. This is elementary in property law.
Article 1678 of the Civil Code concerning improvements made by the lessee on the leased premises
applies only in the absence of stipulation on the matter between the lessor and the lessee. In the
instant case theres such a stipulation. A copy of the Lease Agreement which is found on page 13 of
the Rollo reads:
IV. The lessee may erect such buildings upor and make such improvements to the
leased land as he shall see fit. AR such buildings and improvements shall remain the
property of the lessee and he may remove them at any nine, it being agreed,
however, that should he not remove the 96d buildings and improvements within a
period of two months after the expiration of this Agreement, the Lessor may remove
the said buildings and improvements or cause them to be removed at the expense of
the Lessee.
The above-quoted stipulation has the force of law between the parties (Art. 1159, Civil Code) and
supersedes Art. 1678 of the Civil Code. Accordingly, the judgment with respect to the house which
was constructed by Stohner should be in line with the contract of lease.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-49219 April 15, 1988
SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO DEL CANTO, plaintiffsappellees,
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 DEFENDANTSAPPELLANTS 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 Grio-Aquino, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 72876 January 18, 1991

FLORENCIO IGNAO, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, JUAN IGNAO, substituted by his Legal Heirs, and
ISIDRO IGNAO, respondents.
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 coowners 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. N1681, 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 halfbrothers 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 coowners. 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.

FIRST DIVISION
[G.R. No. 132709. September 4, 2001]
SPOUSES CAMILO L. SABIO, and MA. MARLENE A. LEDONIO-SABIO, petitioners, vs. THE INTERNATIONAL
CORPORATE BANK, INC. (now UNION BANK OF THE PHILIPPINES), GOLDENROD, INC., PAL EMPLOYEES
SAVINGS AND LOAN ASSOCIATION, INC., AYALA CORPORATION, LAS PIAS VENTURES, INC., FILIPINAS
LIFE ASSURANCE COMPANY (now AYALA LIFE ASSURANCE, INC.), AYALA PROPERTY VENTURES
CORPORATION, and AYALA LAND, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari assailing the decision of the Court of Appeals in CA-G.R.
CV No. 48870 which affirmed and modified the judgment of the Regional Trial Court of Makati, Branch
65, in Civil Case No. 18540, an action for specific performance and damages.
The object of the controversy is a portion of a vast tract of land measuring approximately 152,454
square meters, located at Tindig na Manga, Almanza, Las Pias City. Designated as Lots 2 and 3, and 6
(formerly covered by two Certificates of Title, namely: TCT Nos. 65161 and 65162), this vast estate was
registered in the name of Las Pias Ventures, Incorporated (or LPVI).*1+ In the early 1970s, the said
property was the subject of several land registration, as well as civil, cases.
On May 25, 1973, the spouses Gerardo and Emma Ledonio, one of the parties in LRC Case No. PN-107
affecting the land, assigned to the spouses Camilo and Ma. Marlene Sabio (herein petitioners) all their
rights, interests, title and participation over a contiguous portion of the subject property measuring
119,429 square meters, particularly that which was covered by TCT No. 65162.[2] For this purpose, a
deed of assignment with assumption of mortgage was later executed by the Ledonio spouses in favor of
the Sabio couple on November 23, 1981.[3]
Similarly, while the subject property was still the object of several pending cases, the International
Corporate Bank, Inc. (or Interbank) acquired from the Trans-Resource Management and Development
Corporation all of the latters rights to the subject property by virtue of a deed of assignment executed
between them on July 12, 1984.[4]
Sometime thereafter, or on March 6, 1985, the Sabios and Interbank settled their opposing claims by
entering into a Memorandum of Agreement (or MOA) whereby the Sabios assigned, conveyed and
transferred all their rights over the parcel covered by TCT No. 65162 to Interbank, with the express
exception of a 58,000 square meter contiguous portion of said lot. The MOA also provided, to wit:
xxx
xxx
xxx
2. That for and in consideration of the aforementioned assignment, conveyance and transfer by the
FIRST PARTY (i.e., the Sabios), the latter (SECOND PARTY, i.e., Interbank) shall:
a.
PAY to the FIRST PARTY the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00),
Philippine Currency, receipt of which in full is hereby acknowledged by the FIRST PARTY from the
SECOND PARTY;
b.
Subject to the rights of the SECOND PARTY under the provisions of No. 4 hereunder, COMPLETE
and PERFECT its ownership and title to the afore-described three (3) parcels of land with all the
improvements thereon, situated at Tindig Na Manga (Almanza), Las Pias, Rizal (now Metro Manila),

covered by Transfer Certificate of Title No. S-65161-Metro Manila, Book T-328, Page 161 (formerly No.
190713-Rizal, Book T-1227, Page 113) and Transfer Certificate of Title No. S-65162-Metro Manila, Book
T-328, Page 162 (formerly No. 190714-Rizal, Book T-1227, Page 114), AND, ASSIGN, CONVEY and
TRANSFER unto and in favor of the FIRST PARTY a CONTIGUOUS PORTION of the afore-described parcel
of land, with all the improvements thereon, covered by the aforementioned Transfer Certificate of Title
No. S-65162-Metro Manila, Book T-328, Page 162 (formerly No. 190714-Rizal, Book T-1227, Page 114).
The aforementioned CONTIGUOUS PORTION referred to in paragraph 1 hereof with an area of FIFTY
EIGHT THOUSAND (58,000) SQUARE METERS, the exact location of which is, as far as practicable, as
indicated in the sketch plan, which is hereto attached as Annex D and made an integral part hereof,
LOT 6-B;
c.
Bear and defray all costs, fees and expenses incidental to and/or connected with the segregation,
survey, registration and delivery to the FIRST PARTY of a new transfer certificate of title in the name of
the FIRST PARTY, free from all liens and encumbrances, over the afore-described parcel of land herein
assigned, conveyed and transferred by the SECOND PARTY;
d.
Constitute and grant and by these presents has CONSTITUTED and GRANTED without indemnity
whatsoever in favor of the FIRST PARTY and of said parcel of land to be covered by a new transfer
certificate of title in the name of the FIRST PARTY with an area of FIFTY EIGHT THOUSAND (58,000)
SQUARE METERS, a permanent and perpetual RIGHT OF WAY sufficient for all the needs of said parcel of
land through out the properties already owned and/or to be acquired by the SECOND PARTY,
particularly the parcels of land covered by Transfer Certificate of Title No. 85717, Transfer Certificate of
Title No. S-65161-Metro Manila, Book T-328, Page 161 (formerly No. 190703-Rizal, Book T-127, Page
113) and Transfer Certificate of Title No. S-65162-Metro Manila, Book T-328, Page 162 (formerly No.
190714-Rizal, Book T-1227, Page 114), it being understood that the right of way herein contemplated
shall not be less than TEN (10) meters in WIDTH.[5]
The said MOA was annotated on TCT Nos. 65161 and 65162 on March 8, 1985 pursuant to paragraph 4
thereof. The same paragraph also granted Interbank the right to assign all its rights and interests
outlined in the MOA, provided that all the obligations of Interbank specified in the aforequoted
paragraphs 2.b, 2.c and 2.d shall also bind all of its assigns, heirs and successors. Subsequently,
Interbank transferred all its rights and interests to the Las Pias Ventures, Incorporated (or LPVI). In
turn, the portion covered by TCT No. 65161 designated as Lot Nos. 2 and 3 were acquired from LPVI by
the Ayala Group of Companies (herein respondents) through a merger between LPVI and Ayala Land,
Incorporated (or ALI), in whose favor TCT Nos. T-41263 and T-41262 were issued on April 25, 1994.
Lot No. 6, then covered by TCT No. S-65162, was also subsequently transferred first to LPVI, then to ALI,
and a new title, TCT No. T-41261, was issued also on April 25, 1994. Another contiguous parcel, then
covered by TCT No. 85717, was acquired by the Ayala Group sometime in 1993, which was eventually
subdivided and retitled in favor of ALI. This entire property became the site of what was known then as
Ayala Las Pias Subdivision. Years later, this first class residential subdivision was renamed Ayala
Southvale.
Thereafter, a dispute arose concerning the 58,000 square meter contiguous portion subject of the MOA
that was to be conveyed and transferred back to the Sabios by Interbank. Also in controversy was the
permanent and perpetual right of way that Interbank was obligated to constitute in favor of the Sabios
58,000 square meter portion. The Sabios were thereby constrained to institute an action for Specific
Performance and Damages against Interbank, Goldenrod Incorporated, PAL Employees Savings and Loan

Association, Incorporated or (PESALA) and the Ayala Group of Companies comprised of the Ayala
Corporation, LPVI, Insular Life Assurance Company, Ltd., Filipinas Life Assurance Company, ALI, Ayala
Property Ventures, Incorporated (or APVI), and the Bank of the Philippine Islands (or BPI). BPI was later
dropped as a party-defendant.
The Regional Trial Court of Makati, Branch 64, in Civil Case No. 1854, summarized the Sabios claims in
their complaint, thus:
Plaintiffs claimed that defendant Interbank was obligated to complete and perfect its ownership and
title to the parcels of land so that Interbank could transfer to plaintiffs the absolute ownership and title
over the contiguous portion.
They also claimed that one of the commitments of defendant Interbank which induced plaintiffs to
execute the agreement without which plaintiffs would not have executed was that defendant Interbank
would clear the contiguous portion of all occupants and wall-in the same, together with the parcels of
land belonging to defendants. Allegedly, the property had already been cleared, by defendant Ayala
Group, of occupants except for the contiguous portion thereof.
Plaintiffs alleged that defendants, particularly Ayala Group, failed to comply with their commitments
and obligations in the MOA specifically those arising from the abovementioned provisions thereof.
Hence, plaintiffs have been prevented from utilizing for productive purposes the land.
They further alleged that they were constrained to obtain a loan from Interbank (Exhs. E, E-1, F, F-1, G
and G-1) where the contiguous portion of the property was used as collateral (Exhs. H, H-1, I, I-1, J and
J-1) and this loan is now deemed paid (Exhs. K, L, M-2, N, O, P to P-2) and plaintiffs are now considered
released. Plaintiffs claimed Actual and Compensatory damages in the amount of P500,000.00 and
Exemplary Damages in the amount of P250,000.00.[6]
The defendants answer was summed up by the trial court as follows:
Defendants disclaimed liability. Defendants Ayala Corp., Ayala Life, ALI, APVI (collectively referred to as
Ayala Group), PESALA, and LPVI, claimed that they were not privy to the MOA, the contract from which
the alleged obligations arose. In the transactions they were each involved in, subsequent to the MOA,
pursuant to which they each acquired the property which was originally transferred by the plaintiffs to
defendant Interbank, said property acquired did not include the contiguous portion which plaintiffs
claimed was the subject of non-compliance of the obligations agreed upon. On the contrary, in each
transaction, the contiguous portion was expressly excluded in the corresponding contracts (Exhs. C-1, D2, 2-Ayala, 5-6, 2-A-PESALA), hence, plaintiffs have no cause of action against them and even assuming
that defendants were privy to the MOA, they would still have no obligation to clear the contiguous
portion of the property as there was no express or implied provision in the MOA that the party to whom
the property was transferred would clear the same.[7]
Sometime thereafter, the defendants submitted a Notice of Confession of Judgment and Motion for
Partial Decision Against Answering Defendant for the alleged purpose of securing an entry of judgment
against them while avoiding the formality, time and expense of ordinary proceedings. In particular, the
defendants confessed judgment with regard to the plaintiff spouses prayer emanating from the MOA,
and asked that judgment be rendered directing the defendants to comply with their obligations as
defined in the pertinent provisions of the MOA. Moreover, the defendants signified willingness to abide

by the MOA, and complete and perfect title to the parcel of land, including that portion which was to be
assigned to the plaintiff spouses. With regard to that 58,000 square meter parcel, the defendants also
acknowledged the obligation to segregate that contiguous portion and deliver title thereto to the
plaintiff spouses free from liens and encumbrances.
However, the defendants also averred that fulfillment of its obligation under the MOA became
impossible due to the plaintiff spouses own acts. First, defendants posited that they were ready to
deliver the title to the 58,000 square meter parcel and had, in fact, prepared the Deed of Conveyance[8]
required by the Register of Deeds, but the plaintiffs themselves refused to sign the said deed unless the
subject property was cleared of all squatters and other illegal occupants. The defendants nevertheless
repudiated plaintiffs claim that they (defendants) were obligated to clear the said property of all
squatters and occupants, much less to fence the said property, arguing that no such obligation was
imposed in the MOA. Secondly, the defendants noted that the property in question became the subject
of an action for recovery of ownership filed by the Ledonio spouses against the Sabios. Consequently,
the annotation of the notice of lis pendens caused to be registered by the Ledonios on the titles
hampered the delivery of the title covering the 58,000 square meter portion to the Sabios.
The defendants further admitted the obligation to grant an easement of right of way under the MOA,
manifesting that not only did the defendants constitute and grant such right of way, but that they were
also willing and prepared to provide an alternative choice at the pleasure of the plaintiff spouses.[9]
Moreover, the mortgage obligations of the plaintiff spouses annotated on the titles covering the 58,000
square meter portion had already been paid off by the defendants,[10] prompting the latter to seek a
court order cancelling the Notice of Lis Pendens and annotation of the MOA on the titles covering the
subject parcel of land.
The issues having been joined, the trial court focused on the primordial matter of contention, that is:
Whether or not the defendants had the obligation to clear the subject 58,000 square meter portion of
all occupants and to fence the said premises, before conveyance of the property can be considered as
full compliance with the obligation imposed upon the defendants under the MOA. The trial court also
sought to address the preliminary issue of whether or not an order directing the cancellation of the
annotation of the MOA and notices of lis pendens on the titles covering the subject property was
warranted.
The trial court ruled in favor of the defendants, finding that the MOA did not impose, whether expressly
or impliedly, on Interbank and its transferees the obligation to clear the subject 58,000 square meter
portion of squatters and other illegal occupants. Be that as it may, the trial court awarded actual and
exemplary damages to the plaintiff spouses for losses they incurred due to the defendants delay in
complying with the MOA, considering that the defendants filed their confession of judgment only after
the lapse of six (6) years from the filing of the action. More particularly, the trial court disposed as
follows:
In view of the foregoing, Defendant Ayala Group is ordered to pay plaintiffs Camilo and Marlene Sabio
P500,000.00 in actual damages and P250,000.00 in exemplary damages. Plaintiffs, however, are
directed to specifically comply with the obligations under the MOA by executing a Deed of Conveyance
upon payment by the defendant of the foregoing amount. The Register of Deeds is directed to cancel
the notice of lis pendens as regards this case, and the annotation of the subject Memorandum of
Agreement, both of which are annotated on TCTs Nos. T-5331 to T-5334, the TCTs covering the
contiguous portion of the property.

Costs against defendant Ayala Group.[11]

The opposing parties filed their respective motions for reconsideration, but both were denied by the
trial court. Consequently, all the parties filed separate appeals before the Court of Appeals.
Nevertheless, the trial court issued an order granting the defendants motion for partial immediate
execution pending appeal by directing the Register of Deeds to immediately cancel and/or cause the
cancellation of the notice of lis pendens and other annotations as regards this case and the annotation
of the Memorandum of Agreement on TCT Nos. T-5331 to T-5334 and titles derived therefrom.*12+
Meanwhile, in their appeal before the Court of Appeals, the Sabios (plaintiffs-appellants) ascribed the
following errors to the trial court:
I. The trial court erroneously disregarded the other provisions and parts of the MOA which could have
evinced the reasons for, and the circumstances attendant to, the execution of the said MOA.
II. The trial court erred in not finding that the defendants-appellants (Ayala Group of Companies) are
obligated to perfect and complete ownership and title to the entire property covered by TCT No. T-5331,
including that portion which the defendant-appellants must assign, convey and transfer to the plaintiffsappellants (Sabio spouses).
III. The trial court erred in failing to appreciate the testimony of plaintiff-appellant Camilo L. Sabio to the
effect that Interbank and Ayala Investment and Development Corporation would enter into a joint
venture to develop the entire parcel, including the surrounding real estate, into a first class residential
subdivision, necessitating the removal of all illegal occupants and enclosing the perimeters of the said
property with a wall that would include the 58,000 square meter portion pertaining to the Sabio
spouses.
IV. The trial court erred in its interpretation of the phrase free from all liens and encumbrances as
appearing in the MOA, by invoking inapplicable jurisprudence when it is the intention of the parties to
the MOA, in using said phrase, that should prevail.
V. The trial court erred in not finding that all eighteen (18) parcels of land, comprising what was then
known as the Ayala Las Pias Subdivision, covered by eighteen (18) titles in the name of LPVI, are all
servient estates referred to in paragraph 2.d of the MOA.
VI. The trial court erred in not ordering the defendants-appellants to cause the annotation of the
easement of right of way on all eighteen (18) titles.
VII. The trial court erred in ordering the cancellation of the annotation of the MOA and Notices of Lis
Pendens on LPVIs TCT Nos. T-5331 to 5334.
VIII. The trial court erred in compelling the plaintiffs-appellants Sabios to sign the draft deed of
conveyance when said document was a gross violation of paragraphs 2.b, 2.c, and 2.d of the MOA.
IX. While the trial court was right in concluding that the Sabio spouses suffered damages, their losses
could not be compensated as actual damages, the same being incapable of accurate pecuniary
estimation.

X. The trial court committed grave abuse of discretion amounting to lack or excess of jurisdiction in
issuing the order dated September 21, 1994 directing the cancellation of the annotation of the MOA and
the Notices of Lis Pendens on LPVIs titles.*13+
In contrast, the defendants-appellants merely impugned the trial courts judgment for having awarded
actual and exemplary damages to the plaintiffs-appellants Sabio spouses, while failing to award
damages in their (defendants-appellants) favor.
On April 30, 1997, the Court of Appeals rendered the decision subject of the instant petition for review,
affirming with modification the trial courts ruling. The Court of Appeals affirmed the trial courts
conclusion that under the MOA, the Interbank and the defendants-appellants did not assume the
obligation to clear the subject contiguous portion of the land of occupants and to wall in the same.*14+
The Court of Appeals further agreed with the trial courts ruling that since the intentions of the parties
to the MOA were clearly worded in the provisions they expressly stipulated on, there was no reason to
interpret the MOA differently.[15]
The Court of Appeals also rejected the Sabios position that the purpose and spirit of the establishment
of a right of way in their favor under paragraph 2.d was to grant them the same rights as any
homeowner would have to freely pass through all the roads in the proposed subdivision. The Court of
Appeals ruled that the phrase permanent and perpetual right of way must be construed in its ordinary
and accepted signification, that is, to provide ingress to, and egress from, the dominant estate, as well
as to provide adequate and convenient passage to and from the nearest highway. The defendantsappellants having complied with the obligation to establish the right of way, the Court of Appeals
determined that there was no need to annotate the easement on the titles not affected by said road
right of way. In fact, while the MOA mentioned only TCT Nos. 65161 and 65162, which were later
replaced by TCT Nos. 5333 and 5331, no other titles were mentioned.
Finally, while the Court of Appeals ruled that the defendants-appellants are not entitled to damages, the
said court reversed the trial courts award of damages to the Sabios, concluding that their claim for
damages, whether actual or exemplary, was unsubstantiated and devoid of legal basis.
Hence, the Court of Appeals rendered judgment decreeing:
WHEREFORE, the judgment appealed from is AFFIRMED with the MODIFICATION that the awards for
actual and exemplary damages in favor of the plaintiffs are hereby SET ASIDE.
SO ORDERED.[16]
After a careful and thorough disquisition of the facts of this case and the arguments raised in this
petition, we find no reversible error on the part of the Court of Appeals. In this petition for review
before us, petitioner attributed to the Court of Appeals ten (10) alleged errors:
I. The Court of Appeals acted contrary to law and jurisprudence in affirming the decision of the trial
court directing the petitioners to affix their signatures to the draft deed of conveyance (Exhibits CC
thru CC-4, EEEE thru EEEE-4 and 4-Ayala), and in releasing respondents from their obligations
under paragraphs 2.b, 2.c, and 2.d of the MOA. Petitioners are justified in refusing to affix their
signatures to said draft.

II. The Court of Appeals acted contrary to law and jurisprudence in affirming the ruling of the trial court
that the mere execution of the draft deed of conveyance (Exhibits CC thru CC-4, EEEE thru EEEE4 and 4-Ayala) prepared sometime in January 1990 by respondents Ayala Group of Companies,
successors-in-interest of respondent The International Corporate Bank, Inc. (now Union Bank of the
Philippines), pursuant to paragraph 4 of the MOA, as second party, for the signature of the petitioners
as first party, constitutes sufficient and valid compliance with the commitment and obligation of the
second party to assign, convey and transfer unto and in favor of the first party the aforementioned
contiguous portion --- Lot 6-B, Psu-80886 (Exhibits A-34, II-1, 1-A-Ayala and 6-A-Ayala) --- with
all the improvements thereon as mandated by the provisions of paragraph 2.b of the MOA, despite the
fact that, admittedly, said Lot 6-B, Psu 80886 (Exhibits A-34, II-1, 1-A-Ayala and 6-A-Ayala) is still
in the hostile and adverse actual occupation and possession of third parties. More so, because
paragraph 2.b of the MOA mandates that respondents Ayala Group of Companies shall assign, convey
and transfer unto and in favor of the petitioners not only the aforementioned Lot 6-B, Psu 80886
(Exhibits A-34, II-1, 1-A-Ayala and 6-A-Ayala) but also all the improvements thereon.
III. The Court of Appeals acted contrary to law and jurisprudence in utterly disregarding the import and
significance of the premises or Whereases of the MOA and the various annexes thereto forming
integral parts thereof (Exhibits A-6 thru A-9, A-10 thru A-15, A-16 thru A-22, A-23 thru A26, A-27 thru A-30, A-31 thru A-33, and, A-35 thru A-46), evidencing the reasons behind
and the circumstances surrounding the execution thereof, so that the court may be placed in the
position/situation of the parties thereto at the time the agreement was executed.
IV. The Court of Appeals acted contrary to law and jurisprudence in not holding that --- as expressly
agreed and stipulated in paragraph 2.b of the MOA (Exhibits A thru A-5 and 1-Ayala) Psu-80886
(Exhibits A-34, II-1, 1-A-Ayala and 6-A-Ayala) with all the improvements thereon, respondents
Ayala Group of Companies are mandated to first complete and perfect their ownership and title to
the entirety to the afore-described Lot 6, Psu 80886 with all the improvements thereon, earlier covered
by T.C.T. No. S-65162-Metro Manila, Book T-328, Page 162, in the name of CPJ Corporation, later by
T.C.T. No. T-5331-Las Pias, Metro Manila, Book 27, Page 131 in the name of respondent Las Pias
Ventures, Inc. (Exhibits KK thru KK-3 and 3-Ayala) and now covered by T.C.T. No. T-41261-Las
Pias, Metro Manila, Book 207, Page 61 in the name of respondent Ayala Land, Inc., including the
aforementioned Lot 6-B, Psu-80886 (Exhibits A-34, II-1, 1-A-Ayala and 6-A-Ayala) which
respondents Ayala Group of Companies are committed and obligated to assign, convey and transfer
unto and in favor of petitioners.
V. The Court of Appeals acted contrary to law and jurisprudence in disregarding the legal effect upon
paragraph IV of the second amended and supplemental complaint dated 23 April 1990 of the confession
of judgment made on 18 June 1993 and the statement made by respondents Ayala Group of Companies
on 05 November 1993 --- the first day of the hearing of the above-entitled case --- both of which
constitute judicial admissions contemplated by Section 4, Rule 129, Part IV (New Rules of Evidence) of
the Rules of Court.
VI. The Court of Appeals acted contrary to law and jurisprudence in disregarding the following intention
of the parties to the MOA as evidenced by the annexes thereto (Exhibits A-6 thru A-9; A-10 thru
A-15; A-16 thru A-22; A-23 thru A-26; and A-35 thru A-46) in the use of the phrase free
from all liens and encumbrances in paragraph 2.c thereof: --- free from any and all liens/encumbrances
and/or problems of whatever kind and nature, including adverse claims, notices of lis pendens, and/or

claims of occupants/possessors who were not parties to any of the cases mentioned in the
aforementioned documents referred to in the aforementioned annexes.
VII. The Court of Appeals acted contrary to law and jurisprudence in holding that the two roads right of
way (Exhibits 6-B and 6-C) --- confined and limited to Lot 10, Psu-80886 --- then covered by T.C.T.
No. 85717 and later by T.C.T. No. T-5332-Las Pias, Metro Manila, Book 27, Page 132 (Exhibits LL thru
LL-2 and 3-Ayala) in the name of respondent Las Pias Ventures, Inc., --- proposed by respondents
Ayala Group of Companies constitute sufficient and valid compliance with the mandate of paragraph 2.d
of the MOA, and, in releasing respondents Ayala Group of Companies from their commitment and
obligation of complying therewith.
VIII. The Court of Appeals acted contrary to law and jurisprudence in affirming the decision of the trial
court directing the cancellation of the annotation of the MOA and of the notices of lis pendens on the
following Transfer Certificates of Title: T.C.T. No. T-5331-Las Pias, Metro Manila, Book 27, Page 131
(Exhibits KK thru KK-3 and 3-Ayala); T.C.T. No. T-5332-Las Pias, Metro Manila, Book 27, Page 132
(Exhibits LL thru LL-2 and 3-A-Ayala); T.C.T. No. T-5333 (Exhibits MM thru MM-2 and 3-BAyala); and T.C.T. No. T-5334-Las Pias, Metro Manila, Book 27, Page 134 (Exhibits NN thru NN-2
and 3-C-Ayala); and, in not directing that the judgment in the above-entitled case be annotated on all
the eighteen (18) Transfer Certificates of Title covering a total of eighteen (18) parcels of land earlier
known as the Ayala Las Pias Subdivision and now as Ayala Southvale.
IX. The Court of Appeals acted contrary to law and jurisprudence in disregarding the legal effect upon
paragraphs IV, XII, XIII and XIV of the second amended and supplemental complaint dated 23 April 1990
of the confession of judgment made on 18 June 1993 by respondents Ayala Group of Companies and
their statement made on 05 November 1993 --- the first hearing of the above-entitled case --- both of
which constitute judicial admissions contemplated by Section 4, Rule 129, Part IV (New Rules of
Evidence) of the Rules of Court.
X. In affirming the order issued by the trial court on 21 September 1994, acting with grave abuse of
discretion amounting to lack or excess of jurisdiction, the Court of Appeals likewise acted with grave
abuse of discretion amounting to lack or excess of jurisdiction.
We shall deal with these alleged errors, not in numerical order, but by subject matter, for clarity and
better articulation of the issues involved.
The first matter of contention is the Memorandum of Agreement (MOA) between the petitioners
(spouses Sabio) and Interbank.[17] The petitioners posit that while the MOA is explicit in requiring
Interbank, and the respondents as its transferees, to complete and perfect ownership and title to the
entire estate, including improvements thereon, the court a quo and the Court of Appeals failed to
compel the respondents to abide by their commitment to assign, convey and transfer the subject 58,000
square meter portion to the petitioners free from all liens and encumbrances.
It is their contention that the presence of illegal occupants and the existence of unauthorized
improvements on the subject parcel negates the respondents claim that they have completed and
perfected their ownership and title over said property. The fact that the subject parcel is possessed and
occupied by squatters is a clear indication that the respondents were never in possession. Before the
respondents can assign, convey and transfer title to the subject parcel, they must also be able to place
the petitioners in possession thereof since possession is a necessary attribute of ownership.[18] Thus,

for the petitioners, there must first be removal of the illegal occupants and unauthorized structures, and
the subject parcel should be walled-in before said property is transferred by the respondents to them.
Otherwise, such transfer and conveyance would be meaningless, illusory and impracticable.
The petitioners also contend that under the circumstances, any conveyance of the subject parcel by the
respondents would not be free from all liens and encumbrances as stipulated in paragraph 2.c of said
MOA. Their premise is that the presence of squatters and unauthorized improvements should be
considered a lien or encumbrance on the subject parcel, even including such other problems as adverse
claims, notices of lis pendens, and claims of other occupants and possessors who were not parties to the
cases involving the subject parcel.
Consequently, the petitioners assail the alleged failure of the court a quo and the Court of Appeals to:
(1) consider the intention of the parties as manifested in the annexes to the MOA; and (2) to give
significance to the premises and whereas clauses of the MOA in the interpretation of the phrase free
from all liens and encumbrances in paragraph 2.c of the MOA.*19+ These related matters concerning
the intention of the parties to the MOA, the stipulations in the annexed documents, and the
interpretation of the phrase free from all liens and encumbrances were earlier raised by the
petitioners in their appeal before the Court of Appeals,[20] advancing the same arguments and premises
already discussed in the case below.
The trial court dealt exhaustively on these issues, finding that:
However, defendant Interbank has no obligation to clear the contiguous portion of the land of
occupants and to wall-in the same for nothing in the MOA obligates Interbank to do so. Plaintiffs
alleged that the clearing and walling-in of occupants was a principal commitment and inducement
without which plaintiffs would not have executed the MOA. If such were the case, a provision to that
effect should have been expressly stipulated in the MOA or at least implied therein. Plaintiff Camilo
Sabio is a member of the bar who engaged in the practice of law for over twenty years and is currently
holding public office. In drafting the MOA and/or agreeing to the stipulations in the same, a person of
his stature could have been more circumspect. The occupants were already in the contiguous portion of
the property when the MOA was executed and if plaintiffs had wanted to ensure that defendant
Interbank would take responsibility for clearing the property of occupants, they could have specifically
provided for it.

Plaintiffs claimed that the obligation to clear and wall-in the occupants was implied in the provisions of
the MOA, to complete and perfect ownership and title to the land and to (transfer) to plaintiffs the
contiguous portion with all improvements and to deliver the new TCT free from all liens and
encumbrances. This court finds that there is no implication of that sort. If the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the literal meaning of the
stipulations shall control. If the words appear contrary to the evident intention of the parties, the latter
shall prevail over the former. (Art. 1370, Civil Code of the Philippines). The evidence does not show
that the parties had intentions other than those commonly understood from the aforementioned terms
in the MOA. The plaintiffs have failed to prove that the intention of the parties was other than that
expressed by the literal meaning of the terms of the MOA.
Plaintiffs further alleged that the obligations to clear and wall-in occupants and to secure the
cancellation of the Notice of Lis Pendens regarding the case of Ledonio v. Sabio annotated on the TCTs

of the contiguous portion of the property are included in the obligation to deliver the new TCT free
from all liens and encumbrances, and that the obligation to clear the occupants shanties is deemed
included in the obligation to complete and perfect ownership and title to the land and to transfer to
plaintiffs the contiguous portion with all improvements, the shanties being deemed included in the
term improvements. This allegation is untenable. Words which may have different significations
shall be understood in that which is most in keeping with the nature and object of the contract (Art.
1375, Civil Code of the Philippines), otherwise, it is presumed the words were used in their primary and
general acceptation.
Occupation by the occupants of the contiguous portion of the property is not an encumbrance which
defendant Interbank is obligated to clear the property from. The meaning of the words, free from all
encumbrance does not include adverse possession of a third person. (Yuson and De Guzman v. Diaz, 42
Phil. 22 [1921]). An adverse possession by another is not an encumbrance in law and does not
contradict the condition that the property be free from encumbrances; nor is it a lien which connotes
security for a claim. Likewise, a Notice of Lis Pendens is not a lien or encumbrance. It is a mere
cautional notice to a prospective buyer or mortgagee of a parcel of land under litigation, and cannot
conceivably be the lien or encumbrance contemplated by law. (Underscoring ours)[21]
On appeal, the Court of Appeals affirmed and quoted with approval the above-stated findings and
conclusion of the trial court, while adding that:
Indeed, an assiduous examination of the MOA and its WHEREAS clauses yields no basis for a necessary
inference that the Interbank undertook to clear the 58,000 sq. m. portion to be assigned to plaintiffs of
occupants/squatters, and to wall-in the same before turning over the title thereto. The MOA was
negotiated for more than one year (see TSN, December 3, 1993, pp. 17-19), and during the negotiations
one hundred (100) to two hundred (200) squatter families were already occupying the 58,000 sq. m.
portion (TSN, December 10, 1993, p. 15). Plaintiffs assert that unless the squatters are removed from
the contiguous portion and the area is properly walled in to make their removal effective, the
predominant purpose of paragraph 2-b to transfer ownership and title without plaintiffs having to spend
a single cent would be illusory and meaningless; thus the complaint alleges that the removal of the
occupants and the walling in of the 58,000 sq. m. portion was one of the principal commitments made
by Interbank which induced plaintiffs to execute the MOA.
In light of the above circumstances, it is highly inconceivable and illogical that the plaintiffs did not insist
on expressly providing the necessary stipulations and in words that leave nothing to further
interpretation. Plaintiff Sabio, a lawyer, took part personally and with the assistance of another lawyer,
in the drafting of the MOA, and the negotiations took about a year, and no reason is suggested why he
refrained from including therein specific language containing what he considers the principal
commitment of the second party to remove the squatters and wall-in the 58,000 portion to be conveyed
to him. That the commitment must be implied, or inferred by interpretation or be shown by evidence
outside of the document convinces us that the plaintiffs expectations were an afterthought.
(Underscoring ours)[22]
It is a long-held cardinal rule that when the terms of an agreement are reduced to writing, it is deemed
to contain all the terms agreed upon and no evidence of such terms can be admitted other than the
contents of the agreement itself.[23] Accordingly, the trial court and the Court of Appeals referred to no
other document but the MOA itself, the stipulations of which are deemed the law between the
contracting parties. The lower courts found that nowhere in the MOA did Interbank commit to clear the

subject parcel of squatters or illegal occupants. Neither was Interbank obliged to remove whatever
unauthorized improvements were introduced in the said property. Nor is there any stipulation that
would constrain the respondents to fence or wall-in the subject parcel along its perimeters. There being
no such obligation on the part of the respondents, they cannot be compelled by the courts, even on the
petitioners adamant insistence, to first rid the subject parcel of squatters, remove all improvements
and fence the perimeter thereof, before conveyance or transfer can be effected.
Indeed, it is not the province of the courts to amend a contract by construction, or to make a new
contract for the parties by interjecting material stipulations, or even to read into the contract words
which it does not contain.[24] Since the MOA of the parties was reduced to writing, such agreement is
deemed to contain all its terms and there cannot be, between the parties and their successors-ininterest, any evidence of the terms of the written agreement other than the contents of the agreement
itself.[25]
Nevertheless, petitioners invoke the whereas clauses of the MOA, as well as the other documents that
preceded the execution of the MOA, arguing that these will provide proof of the real intention of the
parties when they executed the MOA. They strongly contend that these documents reflect their true
intentions that Interbank, and its successors-in-interest, are obligated to clear the subject parcel of
illegal occupants and structures, then fence its boundaries. At the outset, however, we note that
petitioners, in their pleadings, never put in issue the allegation that the MOA failed to express the true
intent of the parties thereto. Instead, they adopt inconsistent positions in regard to the MOA, that by
itself, it is valid and binding on the parties and their successors-in-interest on the one hand, while they
also seek the courts cognizance of extraneous documents to radically modify or add to the terms of the
written agreement on the other hand.
We have uniformly held that it is only where a party puts in issue in the pleadings the failure of the
written agreement to express the true intent of the parties thereto that said party may present evidence
to modify, explain or add to the terms of the written agreement.[26] The fact that the terms of the MOA
are explicit and leave no doubt as to the intention of the parties, coupled with petitioners failure to
contest the contract for failing to express the true intention of the parties, behooves the courts not to
read into the MOA any other intention that would contradict its apparent import,[27] such that the
literal meaning of its stipulations must control.[28]
Be that as it may, we shall, for the sake of discussion, peruse the documents referred to by petitioners
as allegedly containing the factual and legal bases for their claim that respondents are obligated to first
clear the subject parcel of all illegal occupants and structures, and then wall-in said property before
there can be fulfillment of the stipulation to assign, transfer and convey the same to petitioners.
Going by chronological order, the first document is a Deed of Assignment[29] dated May 25, 1973
between the Ledonio spouses and petitioners, whereby the Ledonios absolutely assigned and
transferred to the Sabios three (3) parcels of land for and in consideration of services rendered. There
is no reference therein to illegal occupants, structures, and other obligations such as fencing in these
properties.
The second document dated April 14, 1980 is an Agreement[30] between the CPJ Corporation, the
spouses Epifanio and Cecilia Alano, and Trans-Resource Management and Development Corporation (or
TRMDC), whereby CPJ Corporation sold to the Alanos and TRMDC, as financier of the Alanos, three (3)
parcels of property, one of which later became the subject of the MOA between Interbank and

petitioners. In the said document, the Alanos and TRMDC agreed to buy the property on an As Is
basis, without warranty of any kind as to title and possession on the part of the seller, CPJ Corporation.
The Alanos and TRMDC thereby admitted:
full knowledge of all the legal incidents and adverse claims affecting the said properties which have been
and are being asserted by opposing parties in the pending cases/litigations involving the subject
properties, i.e., LRC Cases Nos. PN-107 (LRC Rec. No. N-30603) and N-6336 (LRC Rec. No. N-34761), and
Civil Case No. 187222, of the Court of First Instance of Rizal, as well as by other third persons not parties
in the said pending cases/litigations, in respect of which the SECOND PARTY hereby agree(s) to and will
assume full and sole responsibility for the settlement or removal thereof and save free and harmless the
FIRST PARTY from any and all liability resulting and arising therefrom; x x x.*31+
A related document was the Contract to Buy and Sell[32] between the Alano spouses and TRMDC arising
from the agreement between CPJ Corporation, the Alanos and TRMDC. Therein, the Alanos committed
to free the titles from all liens and encumbrances on or before a certain date, but with particular
reference to the litigation of any and all cases affecting the properties, x x x especially those cases
mentioned under the Deed of Cession and Assignment dated April 14, 1980 executed by the same
parties. Contrary to petitioners suppositions, there is no mention of the presence and clearing of
squatters from the premises as a condition. In both documents, instead, there are definite references to
the pending cases/litigations as the source of the liens and encumbrances on the subject property, not
including therein any other extrajudicial claims of ownership or possession.
The fourth contract is a Deed of Assignment with Assumption of Mortgage[33] between Gerardo and
Emma Ledonio as assignors, and the Sabio couple as assignees, executed by said parties on November
23, 1981. By the very nature of the contract, the only obligation that the Sabios assumed from the
Ledonios were those under the mortgage in favor of the Philippine National Bank. Again, there was no
mention of illegal occupants and structures, and therefore, no imposition to rid the property subject of
the said mortgage of such persons and structures.
Then, there were executed on June 28, 1984, by and between TRMDC and Interbank, the Memorandum
of Agreement[34] and the Addendum thereto.[35] In the former, the property subject of this petition
was among those assigned, transferred and conveyed to Interbank (covered by TCT Nos. S-65161 and
65162), on the condition that there be settlement within one (1) year of all the attending liens and
problems enumerated as follows:
LIENS
Entry No. 67527/L.P. No. 1753: NOTICE OF LIS PENDENS: By virtue of the notice of lis pendens presented
and filed by Camilo L. Sabio, counsel for the plaintiffs, notice is hereby given that an action/petition for
review has been commenced and is now pending in the Court of First Instance of Rizal in Civil/LRC Rec.
No. 19722, entitled Gerardo G. Ledonio, et al. versus Eduardo C. Guico, involving the property
described herein.
Entry No. 69433/L.P. No. 1763: NOTICE OF LIS PENDENS: By virtue of the notice of lis pendens
presented and filed by Camilo L. Sabio, counsel for the intervenor, notice is hereby given that an
action/petition for intervention has been commenced and is now pending in the Court of First Instance
of Rizal in Civil/LRC Rec. No. 657, 758, 976 entitled E. Mayuga, F. Baltazar, et al. vs. F. Baltazar, S.
Ledonio, et al., involving the property described herein.

Entry No. 69434/L.P. No. 1762: NOTICE OF LIS PENDENS: By virtue of the notice of lis pendens
presented and filed by Camilo L. Sabio, counsel for the plaintiff/defendants, notice is hereby given that
an action/petition for review has been commenced and is now pending in the Court of First Instance of
Rizal in Civil/LRC Rec. No. 657, 758, 976 entitled E. Mayuga, F. Baltazar, et al. versus F. Baltazar, G.
Ledonio, et al., involving the property described herein.
Entry No. 25081/T-190713: ADVERSE CLAIM - In an affidavit duly subscribed and sworn to, the spouses
EPIFANIO J. ALANO and CECILIA P. ALANO, claim among other things, that the property described in this
certificate of title is the subject of a Letter-Agreement executed by the herein owner and the adverse
claimants.
Entry No. 65120/L.P. No. 1140: LIS PENDENS: By virtue of a notice of lis pendens, presented and filed by
Camilo L. Sabio, counsel for the Respondent-Counter-Petitioners, notice is hereby given that an action
has been commenced and is now pending in the Court of First Instance of Rizal in LRC Case No. P-107,
LRC Rec. No. N-30603, entitled GERARDO G. LEDONIO, et al. versus CPJ CORPORATION, et al., involving
the land described in this certificate of title.
Entry No. 38000/S-65161: AGREEMENT - In favor of SPS. EPIFANIO J. ALANO, SR. and CECILIA P. ALANO
and TRANS-RESOURCE MANAGEMENT & DEVELOPMENT CORPORATION, in an instrument duly executed
by the herein registered owner agrees to sell, transfer and convey unto SPS. EPIFANIO J. ALANO, SR. and
CECILIA P. ALANO and TRANS-RESOURCE MANAGEMENT & DEVELOPMENT CORPORATION for the sum
of P5,250,000.00 subject to the terms and conditions set forth in Doc. No. 133, Page No. 28, Book No. II;
Series of 1980 of Notary Public for Makati, Metro Manila, Ma. Cynthia Q. Halaquea.
Entry No. 40608/S-65161: CONTRACT TO BUY AND SELL - By virtue of an instrument duly executed by
and between EPIFANIO J. ALANO and CECILIA P. ALANO and TRANS-RESOURCE MANAGEMENT &
DEVELOPMENT CORPORATION, the former have agreed to sell unto the latter the property described
herein for a total consideration of FOURTEEN MILLION FOUR HUNDRED SIXTY SEVEN THOUSAND SEVEN
HUNDRED TEN PESOS (P14,467,710.00) subject to the terms and conditions set forth in Doc. No. 148,
Page 31, Book II; Series of 1980 of Notary Public for Makati, Metro Manila, Ma. Cynthia Q.
Halaquea.[36]
In paragraph 2.c of the MOA, the parties stipulated that Interbank shall render full and free assistance to
TRMDC in exploring, negotiating and consummating appropriate settlement agreements with the
parties/claimants concerned, including defraying the required cost of such settlements with view to
cleaning/settling all of said liens/problems within the prescribed period, but with specific reference to
the liens and problems enumerated in the preceding paragraph. Clearly, the claims of third parties such
as squatters were not among those enumerated as liens or problems affecting the subject property.
Neither was Interbank obligated under the terms of said agreement to clear the subject property of
illegal occupants, there being no specific mention of their presence therein. On the other hand, the
Addendum to the MOA between TRMDC and Interbank is a mere amendment to the computations of
the principal debt and interests of TRMDC loan with Interbank. There is nothing in said document that
even touches on the subject of claims, liens and problems affecting the property.
In furtherance of their stipulations in the MOA and Addendum thereto, TRMDC executed a Deed of
Assignment[37] on July 12, 1984 in favor of Interbank involving, among others, the parcel subject of this
petition. Said documents cited the MOA entered into by the same parties, reiterating TRMDCs

undertaking to assign, transfer and convey absolute ownership and title in fee simple over the
properties described therein free from any and all liens/encumbrances and/or problems of whatever
kind and nature within a specified period of time. While the phrase, problems of whatever kind and
nature may be broadly construed, the succeeding paragraph stressed that TRMDC is obligated to
execute a Deed of Assignment pending its accomplishment and/or compliance with its obligations under
the MOA and Addendum to the MOA. Thus, the obligations of TRMDC were effectively limited to those
specifically enumerated in the two preceding documents which, as mentioned earlier, did not include
clearing the property of squatters and unauthorized structures.
Finally, the MOA between petitioners and Interbank, as previously discussed, did not make mention of
squatters and illegal structures. Neither did they stipulate that Interbank was obligated to clear the
subject property of such occupants and structures, and neither did the said MOA impose on Interbank
the obligation to wall-in the subject property.
In fine, there is no factual or legal basis for petitioners claim that the respondents are obligated to rid
the subject property of squatters and unauthorized structures. Neither is there any provision in the
cited documents that sustains petitioners contention. Consequently, the court a quo and the Court of
Appeals did not err in finding that respondents were not under compulsion to clear the subject property
of squatters and unauthorized structures under the MOA, inasmuch as there was no obligation to fence
the perimeter of the subject property. The terms of the MOA and the preceding contracts are clear and
leave no doubt as to their meaning; hence, they cannot be interpreted in a way that would please the
petitioners, but should rather be fulfilled according to the literal sense of their stipulations.[38]
However, petitioners would argue that there was no necessity to make specific provisions with respect
to the removal of the occupants and structures from, and walling-in of, the subject property. To them, it
was sufficient that both parties knew the actual condition of the property. Petitioner Camilo Sabio
testified to that effect, stating that the real intention or agreement of the parties was that the obligation
to complete and perfect ownership and title included the removal of all squatters and unauthorized
structures, and to fence the perimeter of the subject property.
However, the Court of Appeals correctly concluded that petitioner Camilo Sabios testimony in this
regard cannot be taken advantage of to inject into the agreement any understanding which is
contradictory to or at variance with the terms thereof without violating the parol evidence rule x x x.
The rule is that when the terms of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be between the parties and their successors-ininterest, no evidence of such terms other than the contents of the written agreement.*39+
There are exceptions to said rule, however, such as when:
1. There is an intrinsic ambiguity, mistake or imperfection in the writing;
2. The written agreement fails to express the true agreement and intent of the parties thereto;
3. The validity of the written agreement is in question; and
4. There exists other terms agreed by the parties or their successors-in-interest after the execution of
the written agreement.[40]

In the instant case, the MOA between the Sabios and Interbank was never assailed for any intrinsic
ambiguity, mistake or imperfection in the writing by any of the parties. More importantly, petitioners
never alleged in any of their pleadings that the MOA failed to express the true agreement and intent of
the parties thereto. In fact, petitioner Camilo Sabio would be hard put to question the very contents of
the MOA since he admittedly participated in the drafting of the MOA with the assistance of legal
counsel.[41] Even if he would belatedly complain that the MOA did not state the true intentions of the
parties, he is estopped from doing so. Indeed, the Court of Appeals noted, it is highly inconceivable and
illogical that petitioner Camilo Sabio, an experienced lawyer who personally took part in the preparation
of the MOA with the assistance of another lawyer, in the course of negotiations that lasted about a year,
did not insist on expressly providing the necessary stipulations and in words that leave nothing to
further interpretation.*42+
He cannot now insist that the court should accept his bare testimony that there was a verbal
understanding between the parties to the MOA, such that there was no necessity to make specific
provisions concerning the removal of illegal occupants and structures, nor even to fence the subject
parcel of land. His testimony may have been unrebutted, but unsubstantiated testimony offered as
proof of verbal agreements which tend to vary the terms of a written agreement is inadmissible under
the parol evidence rule.[43]
Furthermore, the validity of the MOA was never questioned. In fact, the petitioners are vigorously
pursuing its execution, albeit in a manner that departs from the stipulations contained therein. Since no
fraud or mistake that would vitiate the validity of the MOA has been alleged, parol evidence cannot be
admitted to incorporate additional contemporaneous conditions which are not mentioned at all in the
written agreement.[44] Neither have petitioners shown that after the execution of the MOA, the parties
and their successors-in-interest agreed to terms other than those appearing in the MOA.
In sum, there is no justification in the instant case to admit parol evidence to support the petitioners
claims. It is a cardinal rule of evidence, not just one of technicality but of substance, that the written
document is the best evidence of its own contents. It is also a matter of both principle and policy that
when the written contract, by agreement of the parties, is established as the repository of their
stipulations, any other evidence is excluded and the same cannot be used as a substitute for such
contract, nor even to alter or contradict them. Although the parol evidence rule is inflexible, it admits of
four (4) exceptions, as earlier discussed. Since none of these exceptions was ever put in issue in the
pleadings, in accordance with Rule 130, Section 9 of the Rules of Court, the parol evidence rule must be
strictly adhered to in this instant case. Therefore, the stipulations of the contract being the law between
the parties, the courts have no recourse but to enforce them as they were agreed upon and written.[45]
With more reason do we agree with the findings of the Court of Appeals that the existence of squatters
and unauthorized structures in the subject property is not covered by the phrase liens and
encumbrances. The word lien, by common acceptation, refers to a legal claim or charge on property
to secure the payment of a debt or obligation, and which may often be used interchangeably with the
word encumbrance. We adopt this Courts definition of the words lien and encumbrance as set
forth in People v. RTC,[46] and quoted in the impugned decision of the Court of Appeals, viz:[47]
In People v. RTC (178 SCRA 299), the Supreme Court held that not all claims against a property can be
considered a lien within the contemplation of law; it was held:

x x x. A lien is a qualified right or a propriety interest, which may be exercised over the property of
another. It is a right which the law gives to have a debt satisfied out of a particular thing. It signifies a
legal claim or charge on property, either real or personal, as a collateral or security for the payment of
some debt or obligation.
Similarly, an encumbrance is a burden upon land, depreciative of its value, such as lien, easement, or
servitude, which, though adverse to (the) interest of (the) landowner, does not conflict with his
conveyance of (the) land in fee.
The following are considered encumbrances: A claim, lien, charge, or liability attached to and binding
real property; e.g., a mortgage, judgment lien, lease, security interest, easement or right of way, accrued
and unpaid taxes. A lien is already an existing burden or charge on the property while a notice of lis
pendens, as the very term connotes, is only a notice or warning that a claim or possible charge on the
property is pending determination by the court.[48]
Petitioners have failed to show how squatters and unauthorized structures can fall under the definition
of liens and encumbrances. The documents relied upon by petitioners themselves enumerate the
liens and encumbrances and other claims on the subject property. However, no such burdens on the
property concerning the squatters appear in said documents. The courts cannot supply or read into
these documents words which they clearly do not contain. All things considered, the Court of Appeals
did not err in concluding that the possession of squatters or any other persons occupying the subject
property without any legal right whatsoever, cannot and should not be considered a lien or
encumbrance as commonly defined and accepted.
The second object of contention is the Deed of Conveyance proposed by respondents, but rejected by
petitioners.[49] In said document, respondents Ayala Corporation, in accordance with the pertinent
provisions of the MOA between Interbank and the Sabios, stipulated that:
WHEREAS, the FIRST PARTY had already completed the segregation of the said 58,000-square meter
portion of Lot 6 (Psd80888) in accordance with the Bureau of Lands approved survey plan, a copy of
which is hereto attached as Annex C. As such, the FIRST PARTY is now in a position to comply with its
obligation under Section 5 of the said Deed of Sale (Annex B) to convey the property to the SECOND
PARTY, now described as follows:
Lot 6-B, Psd-13-008573, TCT No. T-5331
of Las Pias Registry of Deeds
A PARCEL OF LAND (Lot 6-B of the subdivision plan Psd-13-008573, being a portion of Lot 6, Psu-80886,
(Swo-20609), LRC Record No. 43516), situated in Barrio Almanza Dos, Las Pias, Metro Manila. Bounded
on the NW., & NE., along lines 1 to 6 by Lot 8; on the SE., along line 6-7 by Lot 10 both of plan Psu80886); and on the S., & W., along lines 7-8-1 by Lot 6-A of the subdivision plan. x x x containing an area
of FIFTY EIGHT THOUSAND (58,000) SQ. METERS.
NOW, THEREFORE, for and in consideration of the foregoing, the FIRST PARTY Transfers, Assigns, Cedes
and Conveys unto the SECOND PARTY the said 58,000-square-meter portion of Lot 6-B, Psd-13-008573,
covered by TCT No. T-5331 of Las Pias Registry of Deeds and described in the above fourth WHEREAS
clause.

That as part of the consideration of this Conveyance, the SECOND PARTY binds himself to file a Notice of
Withdrawal of the case entitled Sps. Camilo and Ma. Marlene A. Ledonio vs. The International
Corporate Bank, et al., docketed as Civil Case No. 18540 of the Regional Trial Court of Makati, Branch
145.[50]
The Sabios, however, refused to sign said deed of conveyance on the ground that it was grossly violative
of the law and the MOA,[51] more particularly arguing that:
I. Mere execution of the deed of conveyance does not constitute sufficient and valid compliance with
par. 2.b of the MOA;
II. Ayala Corporation failed to complete and perfect ownership and title to the subject property since
it was never in actual occupation, possession, control and enjoyment of said property;
III.
Under the law, symbolic delivery by mere execution of the deed of conveyance is not
sufficient since actual possession, control and enjoyment is a main attribute to ownership.
We do not agree, for the law is clear on this matter. Under Article 1498 of the Civil Code, when the sale
is made through a public instrument, the execution thereof shall be equivalent to the delivery of the
object of the contract, if from the deed the contrary does not appear or cannot be inferred. Possession
is also transferred, along with ownership thereof, to the petitioners by virtue of the deed of
conveyance.[52]
Parallel to our ruling in Dulay Enterprises, Inc. v. Court of Appeals,*53+ we find that petitioners
contention that respondents never acquired ownership over the subject property since the latter was
never in possession of the subject property nor was the property ever delivered is totally without
merit. Under the aforementioned Article 1498, the mere execution of the deed of conveyance in a
public document is equivalent to the delivery of the property. Since the execution of the deed of
conveyance is deemed equivalent to delivery, prior physical delivery or possession is not legally
required.
It is well-established that ownership and possession are two entirely different legal concepts.[54] Just as
possession is not a definite proof of ownership, neither is non-possession inconsistent with
ownership.[55] Thus, it is of no legal consequence that respondents were never in actual possession or
occupation of the subject property. They, nevertheless, perfected and completed ownership and title to
the subject property.
Notwithstanding the presence of illegal occupants on the subject property, transfer of ownership by
symbolic delivery under Article 1498 can still be effected through the execution of the deed of
conveyance. As we held in Power Commercial and Industrial Corp. v. Court of Appeals,[56] the key word
is control, not possession, of the subject property. Considering that the deed of conveyance proposed
by respondents did not stipulate or infer that petitioners could not exercise control over said property,
delivery can be effected through the mere execution of said deed.
Petitioners, as owners, have several options. Among these, they could file ejectment suits against the
occupants, or to amicably secure the latters evacuation of the premises. Whatever mode petitioners
choose, it signifies their control and their intention as owners to obtain for themselves and to
terminate said occupants actual possession thereof.*57+ It is sufficient that there are no legal

impediments to prevent petitioners from gaining physical possession of the subject property. As stated
above, prior physical delivery or possession is not legally required and the execution of the deed of sale
or conveyance is deemed equivalent to delivery. This deed operates as a formal or symbolic delivery of
the property sold and authorizes the buyer or transferee to use the document as proof of ownership.
Nothing more is required.
Petitioners cannot deny that the deed of conveyance can effectively transfer ownership as it constitutes
symbolic or constructive delivery of the subject property. Neither can they negate the fact that as
owners, they can exercise control over the said property. Respondents are not obligated to remove the
occupants before conveying the subject property to petitioners.
Petitioners argue that for them to have to spend to clear the subject property of illegal occupants and
structures would violate par. 2.c of the MOA, which imposed on Interbank and its successors-in-interest
the burden to bear all costs, fees and expenses incidental to segregation, survey, registration and
delivery of a new title to the petitioners. It is patently clear that expenses for removal of illegal
occupants and structures are not among those listed in said paragraph 2.c. The Court of Appeals noted
that the obligation to defray all the costs and fees was connected with the delivery to petitioners of a
new certificate of title, free from all liens and encumbrances. Had the parties to the MOA intended for
Interbank and its successors-in-interest to be obligated to shoulder the expense of clearing the subject
property of squatters and illegal structures, language to that effect could have easily and logically have
been employed. As it happened, petitioners omitted to include this as a condition when they drafted
the MOA. If the parties thereto really intended to impose on Interbank and its successors-in-interest the
obligation to eject the squatters from the subject property and defray the cost therefor, it should have
been stated in the MOA. The terms of the MOA are so clear as to leave no room for any other
interpretation.[58]
There is also no truth to petitioners allegation that the deed of conveyance merely transferred to the
Sabios all the rights and participation of respondents over the subject property. The Deed of
Conveyance clearly states that the FIRST PARTY (respondent Ayala Corporation) Transfers, Assigns,
Cedes and Conveys unto the SECOND PARTY (Sabios) the said 58,000 square-meter portion of Lot 6-B,
Psd-13-008573, covered by TCT No. T-5331 of Las Pias Registry of Deeds and described in the above
fourth WHEREAS clause. Thus, the deed of conveyance complied with par. 2.b of the MOA, which
provided that the said property shall be assigned and conveyed after Interbank and its successors-ininterest shall complete and perfect ownership and title to said property.
Another object of contention is the stipulated permanent and perpetual right-of-way, which under par.
2.d of the MOA shall be sufficient for all the needs of said parcel of land throughout the properties
already owned and/or to be acquired by the SECOND PARTY (Interbank) particularly the parcels of land
covered by TCT No. 85717, TCT No. S-65161, and TCT No. S-65162, which right-of-way shall not be less
than ten (10) meters wide. Petitioners contend that it is the purpose and spirit of the MOA that (they)
shall have the same right to pass through the Ayala Corporations proposed subdivision like any other
homeowner therein.*59+
Respondents counter that the right-of-way it has proposed is one with a definite lane and width and
which is the most convenient route to the main access road that connects Ayala-Las Pias to the AyalaAlabang Road. Moreover, at petitioners option, respondents were willing to provide another access
road to service the subject property.[60] The proposed right-of-way is particularly described in TCT No.
T-5332, containing an area of approximately 370,868 square meters.[61]

We agree with the Court of Appeals that the phrase permanent and perpetual right of way should be
construed in its ordinary and accepted signification, i.e., to provide ingress to and egress from the
dominant estate, or to provide passage in going to the highway from the dominant estate and back. The
MOA itself does not provide that petitioners shall have free access to all the roads within the proposed
subdivision that respondents would establish on the estate. Had the parties intended that petitioners
be given such access, the same should have been incorporated in the MOA. Once again, the courts
cannot read into the MOA any other intention that would contradict the apparent agreement. The
courts cannot embellish the precise stipulations of the MOA just for the convenience of petitioners.
An easement is an abnormal restriction on respondents property rights, and the imposition thereof
must be tempered and limited to the ordinary needs of petitioners property, not to satisfy their
caprices. The law requires that the right-of-way must be at the point least prejudicial to the servient
estate, and when applicable, where the distance from the dominant estate to a public highway may be
the shortest.[62]
While the proposed right-of-way traversed respondents properties, the same should not encroach into
the latters proposed subdivision roads. Petitioners access to all the subdivision roads like any
homeowner therein is not a necessity and goes beyond mere convenience on their part. Otherwise,
that would be stretching the purpose and meaning of a right-of-way beyond its legal and general
acceptation. The fact is that respondents did not lack in satisfying the requirements in par. 2.d of the
MOA. Instead of the minimum width of 10 meters, the proposed right-of-way is twenty-five (25) meters
wide,[63] more than double the stipulated minimum width. There is really no reason for petitioners to
complain and want for more.
While this may already be moot and academic, petitioners raise the issue that respondents confession
of judgment[64] did not deny certain allegations contained in paragraphs IV, XII, XIII, and XIV of the
formers second amended and supplemental complaint;[65] hence, they constitute express judicial
admissions which the courts should have considered.[66]
While respondents denominated their pleading as a confession of judgment, it is more in the nature of a
motion for partial judgment on the pleadings or a summary judgment. Indeed, respondents asked the
court a quo to render partial judgment based on their admission of the genuineness and contents of
certain documentary evidence offered by both parties. It is clear that respondents made no admission
that would support any of petitioners contentions that deviate from the very stipulations in the MOA.
There can be no implied admission of allegations which are extraneous to the contents of the
documents expressly admitted by respondents. Their specific denials of certain allegations in
petitioners complaint still stand in their answer. In fact, respondents did not state anything that would
contradict their earlier defenses and arguments already on record. It was a mere reiteration of their
stand that the MOA, as worded, be implemented literally and without further delay.
It cannot also be said that respondents are deemed to have admitted the allegations in Camilo Sabios
testimony as to the circumstances surrounding the execution of the MOA. As petitioners themselves
noted, respondents counsel declared in open court that: (a) they were ready to agree and admit all the
documentary evidence that the counsel (Atty. Sabio) has anyway enumerated in his pre-trial brief x x x;
(b) its very clear that this case could be decided based on the pleadings and documentary evidence x
x x; and (c) it is admitted by the defendants and we are ready to admit the documentary evidence that

theyll be presenting.*67+ Clearly, respondents only admitted all the documentary evidence, not the
testimonial evidence offered by petitioners.
We stated earlier that this issue is already moot and academic for the supposed judicial admissions
referred to by petitioners, had they been considered by the lower court, would not alter the outcome of
this case. The lower courts conclusions, insofar as the implementation of the MOA is concerned, are
more than amply supported by documentary evidence. Apart from those matters expressly admitted by
respondents, there can be no implied admissions which the lower court could properly recognize.
Besides, as earlier discussed, the documents themselves are the best evidence of the agreements
between the parties in the absence of compelling evidence to the contrary.
Related to the issue of the confession of judgment is petitioners claim for damages. The trial court
found that petitioners are entitled to P500,000.00 in actual damages and P250,000.00 in exemplary
damages. On appeal, however, the Court of Appeals reversed the trial courts ruling, finding the awards
for actual and exemplary damages in favor of petitioners unwarranted, and setting the same aside.
Petitioners have failed, in this petition, to present any persuasive proof that they are entitled to the
damages awarded by the trial court. As found by the Court of Appeals, the claim for actual damages
remained unsubstantiated and unproven. It is well-settled that actual or compensatory damages must
be duly proved and proved with reasonable degree of certainty.[68] It is the fundamental principle of
the law on damages that while one injured by a breach of contract shall be awarded fair and just
compensation commensurate with the loss sustained as a consequence of the defendants acts or
omission, a party is entitled only to such compensation for the pecuniary loss that he has duly proven.
Actual damages cannot be presumed and cannot be based on just flimsy, remote, speculative and
nonsubstantial proof.[69]
Petitioners also failed to establish that the delay in the implementation of the MOA was the sole
responsibility of respondents. In fact, no factual basis was presented to support the claim for not only
actual or compensatory damages, but also for exemplary damages. Petitioners failed to show that
respondents acted in a wanton, fraudulent, reckless or malevolent manner that would warrant the
award of exemplary damages.[70]
Anent the directive to cancel the annotation of the MOA and the Notices of Lis Pendens on TCT Nos. T5331, T-5332, T-5333 and T-5334,[71]petitioners argue that the maintenance of the annotation of the
MOA and the notices of lis pendens is necessary to protect their rights should the property be sold to
third persons for value. They also stress that the MOA expressly mandates the annotation of the MOA
on TCT Nos. S-65161 and S-65162.[72]
The Court of Appeals found that:
With respect to the annotation of the MOA, paragraph 4 of the MOA itself expressly provides that the
obligations assumed under paragraphs 2.b, 2.c and 2.d thereof (par. 2.d contains the right of way
provision) shall be binding upon all the assigns, heirs and successors of the parties, and that the MOA
shall be annotated on TCT No. 65161 and TCT No. 65162, which became eventually TCT No. 5333 and
TCT No. 5331. No mention is made of the other titles to be owned and/or acquired by defendantappellant, and the omission cannot be supplied by construction.[73]

We agree. Indeed, the MOA only require that it be annotated on TCT Nos. 65161 (now 5333) and 65162
(now 5331). Thus, there should be no reason to extend this requirement to other titles not mentioned
in the MOA.
Petitioners also take exception to the refusal of the lower court to annotate the judgment in the case
below on all eighteen (18) titles covering the parcels of land comprising Ayala Southvale Subdivision.
The underlying intention of petitioners is to have the easement of right-of-way annotated on all of the
titles. Respondents counter that there is no such need because the right-of-way has been delineated
and segregated and, hence, there is no reason to annotate the same on the titles that are not affected
thereby.
Again, we find no merit in petitioners contention, especially since the easement of right-of-way as
offered by respondent is more than adequate for the needs of the subject property, and that it was
properly constituted without imposing unnecessary burden on the other properties of respondents.
There can really be no justification for annotation on the titles that are not subject to the easement.
Finally, we come to the tenth and last error assigned by petitioners, i.e., that the trial court erred in
ordering the cancellation of the notice of lis pendens on TCT Nos. T-5331 to T-5334 and all titles derived
therefrom. In its Resolution,[74] the Court of Appeals held that:
Nevertheless, the appellants argument that the trial court committed grave abuse of discretion in
ordering the cancellation of the notices of lis pendens before finality of the assailed judgment in the
absence of good reasons to justify execution pending appeal is untenable. The order of cancellation of
the notices of lis pendens was not issued by the trial court under Section 2, Rule 38 of the Rules of Court
regarding execution pending appeal which requires the existence of good reasons, but under Section
24 of Rule 14 and Section 77 of PD 1529 which allow the trial court to cancel notice of lis pendens even
before final resolution of the case on the merits upon finding that the notice is for the purpose of
molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to
be registered. (Underscoring ours)
We find no cogent reason to disturb the ruling of the Court of Appeals in this regard. In light of the
foregoing discussion, the trial court did not abuse, gravely or otherwise, its discretion when it allowed
the cancellation of the annotations. Accordingly, neither did the Court of Appeals err when it affirmed
the order of the trial court on the finding that there was no longer any necessity to protect the rights of
petitioners over the titles that were either not affected by the easement or not mentioned in the MOA.
WHEREFORE, in view of all the foregoing, the instant petition for review is DENIED and the Decision of
the Court of Appeals dated April 30, 1997 in CA-G.R. CV No. 48870 is AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Puno, and Pardo, JJ., concur.
Kapunan, J., took no part being related to one of the parties.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-2017

November 24, 1906

THE MUNICIPALITY OF OAS, plaintiff-appellee,

vs.
BARTOLOME ROA, defendant-appellant.
Del-Pan, Ortigas and Fisher, for appellant.
Enrique Llopiz for appellee.

WILLARD, J.:
The plaintiff brought this action for the recovery of a tract of land in the pueblo of Oas, claiming that it
was a part of the public square of said town. The defendant in his answer alleged that he was the
owner of the property. Judgment was rendered in favor of the plaintiff and the defendant has brought
the case here by bill of exceptions.
As we look at the case, the only question involved is one of fact. Was the property in question a part
of the public square of the town of Oas? The testimony upon this point in favor of the plaintiff
consisted of statements made by witnesses to the effect that this land had always been a part of the
public square, and of certain resolutions adopted by the principalia of the pueblo reciting the same
fact, the most important of these being the minutes of the meeting of the 27th of February, 1892. In
that document it is expressly stated that this land was bought in 1832 by the then parish priest for
the benefit of the pueblo. It recites various proceedings taken thereafter in connection with this
ownership, including among them an order of the corregidor of Nueva Caceres prohibiting the
erection of houses upon the land by reason of the fact above recited namely, that the land
belonged to the pueblo. This resolution terminated with an order to the occupant of the building then
standing upon the property that he should not repair it. The defendant signed this resolution.
It further appears that the same building was almost entirely destroyed by a baguio on the 13th and
14th of May, 1893, and that the authorities of the puebo ordered the complete demolition thereof.
The resolution of the 31st of May, 1893, declared that the then owner of the building, Jose Castillo,
had no right to reconstruct it because it was situated upon land which did not belong to him. This
resolution was also signed by the defendant.
The evidence on the part of the defendant tends to show that in 1876 Juana Ricarte and Juana
Riquiza sold the land in question to Juan Roco, and that on the 17th day of December, 1894, Jose
Castillo sold it to the defendant. No deed of conveyance from Juan Roco to Jose Castillo was
presented in evidence, but Castillo, testifying as a witness, said that he had bought the property by
verbal contract from Roco, his father-in-law. The defendant, after his purchase in 1894, procured a
possessory of information which was allowed by an order of the justice of the peace of Oas on the
19th day of January, 1895, and recorded in the Registry of Property on the 28th of March of the
same year.

In this state of the evidence, we can not say that the proof is plainly and manifestly against the
decision of the court below. Unless it is so, the finding of fact made by that court can not be
reversed. (De la Rama vs. De la Rama, 201 U. S., 303.)
The two statements signed by Roa, one in 1892 and the other in 1893, are competent evidence
against him. They are admissions by him to the effect that at that time the pueblo was the owner of
the property in question. They are, of course, not conclusive against him. He was entitled to, and did
present evidence to overcome the effect of these admissions. The evidence does not make out a
case of estoppel against him. (sec. 333, par. 1, Code of Civil Procedure.)
The admissibility of these statements made by Roa do not rest upon section 278 of the Code of Civil
Procedure, which relates to declarations or admissions made by persons not a party to the suit, but it
rests upon the principle that when the defendant in a suit has himself made an admission of any fact
pertinent to issue involved, it can be received against him.
This action was commenced on the 17th of December, 1902. There is no evidence of any adverse
occupation of this land for thirty years, consequently the extraordinary period of prescription does not
apply. The defendant can not rely upon the ordinary period of prescription of ten years because he
was not a holder in good faith. He knew at that time of his purchase in 1894, and had so stated in
writing, that the pueblo was the owner of the property. So that, even if the statute of limitations ran
against a municipality in reference to a public square, it could not avail the defendant in this case.
It appears that Roa has constructed upon the property, and that there now stands thereon, a
substantial building. As early as 1852 this land had been used by the municipality constructed
thereon buildings for the storage of property of the State, quarters for the cuadrilleros, and others of
a like character. It therefore had ceased to be property used by the public and had become a part of
the bienes patrimoniales of the pueblo. (Civil Code, arts. 341, 344.) To the case are applicable those
provisions of the Civil Code which relate to the construction by one person of a building upon land
belonging to another. Article 364 of the Civil Code is as follows:
Where there has been bad faith, not only on the part of the person who built, sowed, or
planted on another's land, but also on the part of the owner of the latter, the rights of both
shall be the same as if they had acted in good faith.
Bad faith on the part of the owner is understood whenever the act has been executed in his
presence with his knowledge and tolerance and without objection.
The defendant constructed the building in bad faith for, as we have said, he had knowledge of the
fact that his grantor was not the owner thereof. There was a bad faith also on the part of the plaintiff
in accordance with the express provisions of article 364 since it allowed Roa to construct the building
without any opposition on its part and to so occupy it for eight years. The rights of the parties must,
therefore, be determined as if they both had acted in good faith. Their rights in such cases are
governed by article 361 of the Civil Code, which is as follows:
The owner of the land on which the building, sowing, or planting is done in good faith shall
have a right to appropriate as his own the work, sowing, or planting after the indemnity
mentioned in articles 453 and 454, or, to oblige the person who has built or planted, to pay
him the value of the land and to force the person who sowed to pay the proper rent.
The judgment of the court below is so modified as to declare that the plaintiff is the owner of the land
and that it has the option of buying the building thereon, which is the property of the defendant, or of

selling to him the land on which it stands. The plaintiff is entitled to recover the costs of both
instances.
1wphil.net

After the expiration of twenty days let judgment be entered in accordance herewith and at the proper
time thereafter let the record be remanded to the court below for proper action. So ordered.
Johnson, Carson and Tracey, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-25359

September 28, 1968

ARADA LUMUNGO, JUHURI DAWA, ET AL., petitioners,

vs.
ASAAD USMAN, JOSE ANGELES and DOMINGA USMAN, ET AL., respondents.
Dominador Sobrevias for petitioners.
Marciano Almario for respondents.

CONCEPCION, C.J.:
Review on certiorari of a decision of the Court of Appeals, on appeal from a decision of the Court of
First Instance of Sulu in Civil Cases Nos. 155 and 156 of said court, both instituted by plaintiffs
herein, Arada Lumungo (deceased), substituted by her heirs, Juhuri Dawa, Kayajuja, Sadatul,
Sarapatul, Jaramatul, Alma, Kalukasa and Vicente, all surnamed Juhuri to recover the possession of
lot No. 871 of the Siasi Cadastre, in the first case, and in the second, of lots Nos. 892, 893, 894 and
1121 of the same cadastre. The defendants in case No. 155 are Asaad Usman, Akmadul and Hada,
whereas those in case No. 156 are Asaad Usman, Fatima Angeles, Hadjaratul Julkanain, Inkiran
and Sitti Haridja, who were subsequently joined by Dominga Usman and Jose Angeles, as
defendants-intervenors.
After a joint trial of the two (2) cases, the Court of First Instance of Sulu rendered a decision, the
dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered declaring plaintiffs to have a better right to the
possession of Lots Nos. 892, 893, 894, 1121 and 871, Siasi and Lapak Cadastral Survey,
located at Lapak, Siasi, Sulu and described in Transfer Certificates of Title Nos. T-419, T422, T-420 and T-421 and Original Certificate of Title No. 8023. The defendants are ordered
to vacate said lots in favor of the plaintiffs if they have not already done so.
On the other hand, the plaintiffs are ordered to reimburse to the defendant-intervenor, JOSE
ANGELES, the sum of P4,500.00 representing the value of the 3,000 coconut trees
introduced by him and his predecessors in interest on Lots 892, 893 and 894. Should
plaintiffs fail to do so within ninety (90) days from the date this decision becomes final, the
three lots shall be ordered sold at public auction, the proceeds of which shall be applied to
the P4,500.00 herein adjudged to Jose Angeles, and the balance to be delivered to the
plaintiffs.
Both parties appealed from this decision to the Court of Appeals, but, later, the defendants withdrew
their appeal, which, accordingly, was dismissed. Thus the only question left for determination by the
Court of Appeals was plaintiffs' appeal from the trial court's decision, insofar as it sentenced them to
pay P4,500.00 to intervenor Jose Angeles. After appropriate proceedings, the Court of Appeals
reduced this amount to P2,500.00 and affirmed the decision of the Court of First Instance in all other

respects, with costs against defendants-intervenors. The case is now before us upon petition for
review on certiorari filed by the plaintiffs.
The pertinent facts are set forth in the decision of the trial court, which were adopted in that of the
Court of Appeals, from which we quote:
It ... appears that, having allegedly collaborated with the enemy during the Japanese
Occupation of Sulu, Datu Idiris Amilhussin was arrested and detained when the American
Liberation Forces came to Sulu in the year 1945. On March 1, 1946, Datu Idiris was
prosecuted for Treason before the People's Court, docketed as Criminal Case No. 1334 in
said Court. Justice of the Peace Asaad Usman of Siasi and his wife Dominga Usman,
became interested in Lots Nos. 892, 893, 894, 1121 and 871. Jamasali Usman, brother of
Atty. Asaad Usman, also became interested in Lot No. 1226(?). Datu Idiris was desperately
in need of money to pay his attorney's fees and the premium on his bailbond. He sent his
wife to Jamasali for money. Jamasali proposed to buy Lot No. 1227(?). Upon the execution
of a Pacto de Retro sale (Exhibit "DDD"), Jamasali gave Datu Idiris partial payments of the
P3,000.00 mentioned in the document. Sometime in the year 1946, Atty. Usman visited Datu
Idiris in the Provincial jail and promised to help him in his case and to secure his bailbond for
his temporary liberty. But Atty. Usman asked Datu Idiris to sell to his wife, Dominga Miranda
Usman, the five lots in question. Datu Idiris agreed.
Through the help of Atty. Usman, the bailbond of Datu Idiris was perfected. Consequently, on
January 11, 1947, he was released from the Provincial Jail. True to his word, on March 14,
1947, Datu Idiris executed an agreement with Dominga Usman (Exhibit "33"). He also
caused Datu Amirul Amilhussin, brother of Datu Idiris, to sign a similar document, being one
of the co-owners of said lots (Exh. "34"). Upon execution of the agreement, Dominga Usman
paid Datu Idiris P300.00; subsequently, Atty. Usman paid him P500.00 and P10.00. Thus,
Datu Idiris received all in all from the spouses, P810.00 in consideration of the tenor stated in
the document, Exhibit "33". In the meantime, Atty. Usman took possession of the five lots in
question and cultivated the same.
As the whole amount of P3,000.00 mentioned in the sale of Pacto de Retro executed by
Datu Idiris in favor of Jamasali Usman was not fully paid, Datu Idiris upon his being released
from confinement, demanded from Jamasali to complete payment. He also demanded from
Atty. Usman the payment of the balance of the purchase price of the lots described in Exhibit
"33". After Datu Idiris had been repeatedly refused said payments by both Jamasali and Atty.
Usman, he became exasperated. He wrote two complaints, one to the Secretary of Justice,
dated June 15, 1946, and the other, to the President of the Philippines, dated March 8, 1948,
complaining against Justice of the Peace Asaad Usman and Jamasali Usman. After filing
these complaints, Justice of the Peace Usman immediately caused the revocation of the
bailbond of Datu Idiris before the People's Court. On March 31, 1948, he was rearrested and
committed to the Provincial Jail again. A serious misunderstanding developed between Datu
Idiris on one hand and Atty. Usman and Jamasali Usman on the other. Several complaints
for murder were caused to be filed before the Court of Justice of the Peace Usman against
Datu Idiris. In the meantime, Atty. Usman wrote letters of demand upon Datu Idiris asking
him to produce the titles to the above five lots to enable him to have a sufficient deed of sale
conveying the said five lots in favor of his wife. Datu Idiris on the other hand, had been
demanding from Atty. Usman to pay the balance of the purchase price of the land. Despite
those mutual demands, no one complied therewith. On December 10, 1951, Datu Idiris
proposed, thru Atty. Flor, to call off the deal, stated in documents, Exhibits "33" and "34",
promising to return the P810.00 which he received from the spouses. Dominga Usman and
Atty. Usman agreed to call off the deal. Datu Idiris however, never paid the P810.00. Despite
this. Dominga Usman and Atty. Usman never went to Court to file an action to compel Datu

Idiris either to comply with his obligation to execute and deliver a good and sufficient deed
conveying titles to the five lots in question, or to pay back the P810.00. What Dominga
Usman did when Datu Idiris failed to pay her the P810.00 was to sell lots 892, 893 and 894
to Jose Angeles for P1,000.00. Jose Angeles, upon taking possession of the land, planted
same with coconuts, which, together with those already planted by Dominga Usman,
numbered about 3,000, most of which are now fruit-bearing.
On Feb. 2, 1962, Datu Idiris filed a civil complaint against Atty. Asaad Usman for recovery of
possession of the five lots in question which was docketed as Civil Case No. 87 of this Court. Atty.
Usman, instead of informing the Court that he and his wife had the legal right to possess those lots
by virtue of the agreement had between Datu Idiris and his wife embodied in Exhibit "33", manifested
in open Court on September 26, 1952, that he was not interested in the posession or ownership of
the land, and that he did not buy the land from Datu Idiris. So, on said date, this Court dictated an
order as follows:
"In Open Court, when this case was called for hearing, the defendant Attorney Asaad Usman
manifested that he does not claim ownership nor possession to the two parcels of land
described in paragraph 2 of the complaint of the plaintiff. Thereupon, the plaintiff (moved) the
Court to enter judgment, to which motion the defendant interposed no objection. Such being
the case, the Court has no alternative but to enter judgment as it is hereby entered in favor of
the plaintiff Datu Idiris Amilhussin, and against the defendant declaring the plaintiff the
owner and possessor of the two parcels of land above mentioned, and inasmuch as the
defendant is not in possession of the land, the Court finds it unnecessary to enter an order
ejecting the said defendant from the two parcels of land, without prejudice to any claim of
any other third party, without pronouncement as to costs.
On the other hand, the defendant moved for the dismissal of his counterclaim. The Court
orders the dismissal of the same, also without pronouncement as to cost."
1awphl .nt

Upon the promulgation of the above-quoted judgment, Datu Idiris, who was badly in need of money,
went around, offering to sell the land to another. Spouses Juhuri Dawa and Arada Lumungo being
interested in acquiring those lots, asked Atty. Dominador Sobrevias to verify if they could buy the
same. Atty. Sobrevias went to the Office of the Register of Deeds and found no annotation of
encumbrances on the Original Certificates of Title of the five lots. Besides, since the Court had
already adjudged in the above-quoted order that Atty. Usman did not have any claim of possession
or ownership over the land, and that he did not buy the land from Datu Idiris, Atty. Sobrevias
advised his clients that they may buy the lots. Accordingly, a deed of sale, Exhibits "L" to "L-2", was
executed. Upon presentation of this deed of sale to the Register of Deeds, Original Certificates of
Title Nos. 8986, 8123, 8087 and 8122 were cancelled and in lieu thereof, Transfer Certificates of
Title Nos. T-419, T-420, T-422, and T-421 were issued in the names of the plaintiffs. Plaintiffs took
possession of the property, but they were allegedly driven from the land. About three years ago, the
defendants left Lots Nos. 892, 893, 894 and 1121. Plaintiffs took possession thereof. The
defendants are still in possession of Lot No. 871.1
Defendants maintained in the Court of Appeals that the sale made by Datu Idiris Amilhussin to
plaintiffs Arada Lumungo and Juhuri Dawa, on September 30, 1952, is null and void because the
lots thus sold had previously been conveyed by Datu Idiris and Datu Amirul Amilhussin to intervenor
Dominga Usman, wife of defendant Asaad Usman, and because the sale to said plaintiffs was not
approved by the provincial governor of Sulu, as required by the Administrative Code of Mindanao
and Sulu. The Court of Appeals overruled these objections upon the ground that the sale to
Dominga Usman "did not materialize" and was "called off" by mutual agreement of the vendors and
the vendee, and that said lack of approval by the provincial governor is a defense available to the

contracting parties only, not to the defendants herein who are not parties to said transaction. Then
the Court of Appeals went on to say:
Upon the other hand, it is to be noted that when intervenor Dominga Usman who claimed to
have purchased the lots in question from one of the original owners, sold and transferred her
alleged ownership over the same to her co-intervenor Jose Angeles, the latter made the
purchase with the knowledge that the property subject matter of the sale was already in
dispute by and between herein defendants, one of whom is the husband of intervener
Dominga Usman, on the one hand, and herein plaintiffs on the other. Nevertheless, as well
stated by the court a quo, equity should come in to protect the rights of intervenor Jose
Angeles who introduced some improvements on three of the lots subject-matter of the
litigation, namely, lots Nos. 892, 893 and 894.
The Court found for a fact that around 3,000 coconut trees were planted on those lots
aforementioned, some of them already fruit-bearing. It appears from the records that not all,
but a portion, of the 3,000 were planted by intervenor Jose Angeles. The value placed by the
lower court of P1.50 per fruit-bearing coconut tree is reasonable enough, inasmuch as the
lower court was in a better position to make the assessment, it being more closely in contact
with the conditions and circumstances of the locality. We are not prepared to disturb such
finding for lack of evidence to warrant such an action on our part.
IN VIEW OF THE FOREGOING CONSIDERATIONS, with the only modification that the
amount of indemnity should be reduced from P4,500.00 to P2,500.00, the rest of the
judgment appealed from is hereby affirmed with costs against defendants-intervenors.2
The only issue posed by plaintiffs' petition for review is whether or not Jose Angeles is entitled to
reimbursement for the coconut trees planted by him on the property in litigation. In this connection, it
should be noted that said trees are improvements, not "necessary expenses of preservation," which
a builder, planter or sower in bad faith may recover under Arts. 452 and 546, first paragraph, of the
Civil Code.
Upon the other hand, the Court of Appeals found as a fact that when Dominga Usman sold and
transferred her rights in and to the property in question to Jose Angeles "the latter made the
purchase with the knowledge that the property subject matter of the sale was already in dispute by
and between herein defendants, one of whom is the husband of intervenor Dominga Usman, on the
one hand, and herein plaintiffs on the other." Angeles was, therefore, aware of sufficient facts to
induce a reasonably prudent man to inquire into the status of the title to the property in question,
which was an easy matter for him to ascertain, said property being registered under the Torrens
System. 3
Indeed, Jose Angeles is a nephew of defendant Asaad Usman, and the controversy between the
latter and Datu Idiris was a matter of public knowledge, for Usman was a justice of the peace, and
Datu Idiris had filed charges against him, as such, with the Department of Justice and the Office of
the President, to which Usman countered by causing the bail bond of Datu Idiris to be cancelled and
his corresponding reincarceration, as well as the filing of complaints for murder against him.
Besides, on February 2, 1952, or several months prior to the sale to Angeles on September 30,
1952, Datu Idiris had filed Civil Case No. 87 of the Court of First Instance of Sulu against Asaad
Usman to recover the lots in question, and the latter stated in that case, on September 26, 1952, or
four (4) days before the aforementioned sale, that he was not interested in either the possession or
the ownership of said lots and that he had not bought the same from the former. It may not be amiss
to note, also, that at the time of the alleged sale in his favor, Jose Angeles was a law student; that, in
fact, on August 9, 1957, he entered his appearance as counsel for the defendants, in collaboration

with Asaad Usman; and that the consideration for said sale, involving a land of 46 hectares, was
only P1,000.
In short, the foregoing facts, and the above-quoted findings of both the trial court and the Court of
Appeals, leave no room for doubt that Jose Angeles was a purchaser and a builder in bad faith. 4 The
provision applicable to this case is, accordingly, Article 449 of the Civil Code, which provides that,
"(h)e who builds, plants or sows in bad faith on the land of another, loses what is built, planted or
sown without right to indemnity."
Obviously, the alleged equity in favor of Jose Angeles, on which the lower courts have relied, cannot
prevail over the aforementioned express statutory provision to the contrary, 5 apart from the fact that
he who seeks equity must come with clean hands. 6
WHEREFORE, the decision of the Court of Appeals should be as it is hereby modified by eliminating
therefrom the contested award of P2,500.00 in favor of Jose Angeles, and, thus modified, said
decision is hereby affirmed in all other respects, with the costs. It is so ordered.
Reyes, J.B.L., Makalintal, Sanchez, Castro, Angeles, Fernando and Capistrano, JJ., concur.
Dizon and Zaldivar, JJ., took no part.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-54526 August 25, 1986
METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, petitioner,
vs.
THE COURT OF APPEALS and THE CITY OF DAGUPAN, respondents.
Miguel T. Caguioa, Ireneo B. Orlino and Manuel D. Victorio for respondent City of Dagupan.

FERIA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed the
decision of the then Court of First Instance of Pangasinan. The lower court had declared respondent
City of Dagupan the lawful owner of the Dagupan Waterworks System and held that the National
Waterworks and Sewerage Authority, now petitioner Metropolitan Waterworks and Sewerage
System, was a possessor in bad faith and hence not entitled to indemnity for the useful
improvements it had introduced.
Before proceeding further, it may be necessary to invite attention to the common error of joining the
court (be it a Regional Trial Court, the Intermediate Appellate Court, or the Sandiganbayan) as a
party respondent in an appeal by certiorari to this Court under Rule 45 of the Rules of Court. The
only parties in an appeal by certiorari are the appellant as petitioner and the appellee as respondent.
(Cf. Elks Club vs. Rovira, 80 Phil. 272) The court which rendered the judgment appealed from is not
a party in said appeal. It is in the special civil action of certiorari under Section 5 of Rule 65 of the
Rules of Court where the court or judge is required to be joined as party defendant or respondent.
The joinder of the Intermediate Appellate Court or the Sandiganbayan as party respondent in an
appeal by certiorari is necessary in cases where the petitioner-appellant claims that said court acted
without or in excess of its jurisdiction or with grave abuse of discretion. An example of this is a case
where the petitioner-appellant claims that the Intermediate Appellate Court or the Sandiganbayan
acted with grave abuse of discretion in making its findings of fact, thus justifying the review by this
court of said findings of fact. (See the exceptions to the rule of conclusiveness of the findings of fact
of the Intermediate Appellate Court or the Sandiganbayan in the case of Sacay vs. Sandiganbayan,
G.R. Nos. 66497-98, July 10, 1986.) In such a case, the petition for review on certiorari under Rule
45 of the Rules of Court is at the same time a petition for certiorari under Rule 65, and the joinder of
the Intermediate Appellate Court or the Sandiganbayan becomes necessary. (Cf. Lianga Lumber
Company vs. Lianga Timber Co., Inc., March 31, 1977, 76 SCRA 197).
The City of Dagupan (hereinafter referred to as the CITY) filed a complaint against the former
National Waterworks and Sewerage Authority (hereinafter referred to as the NAWASA), now the
Metropolitan Waterworks and Sewerage System (hereinafter referred to as MWSS), for recovery of
the ownership and possession of the Dagupan Waterworks System. NAWASA interposed as one of
its special defenses R.A. 1383 which vested upon it the ownership, possession and control of all
waterworks systems throughout the Philippines and as one of its counterclaims the reimbursement
of the expenses it had incurred for necessary and useful improvements amounting to P255,000.00.
Judgment was rendered by the trial court in favor of the CITY on the basis of a stipulation of facts.

The trial court found NAWASA to be a possessor in bad faith and hence not entitled to the
reimbursement claimed by it. NAWASA appealed to the then Court of Appeals and argued in its lone
assignment of error that the CITY should have been held liable for the amortization of the balance of
the loan secured by NAWASA for the improvement of the Dagupan Waterworks System. The
appellate court affirmed the judgment of the trial court and ruled as follows:
However, as already found above, these useful expenses were made in utter bad
faith for they were instituted after the complaint was filed and after numerous
Supreme Court decisions were promulgated declaring unconstitutional the taking by
NAWASA of the patrimonial waterworks systems of cities, municipalities and
provinces without just compensation.
Under Article 546 of the New Civil Code cited by the appellant, it is clear that a
builder or a possessor in bad faith is not entitled to indemnity for any useful
improvement on the premises. (Santos vs. Mojica, L-25450, Jan. 31, 1969). In fact,
he is not entitled to any right regarding the useful expenses (II Paras (1971) 387). He
shall not have any right whatsoever. Consequently, the owner shall be entitled to all
of the useful improvements without any obligation on his part (Jurado, Civil Law
Reviewer (1974) 223).
Petitioner-Appellant MWSS, successor-in-interest of the NAWASA, appealed to this Court raising the
sole issue of whether or not it has the right to remove all the useful improvements introduced by
NAWASA to the Dagupan Waterworks System, notwithstanding the fact that NAWASA was found to
be a possessor in bad faith. In support of its claim for removal of said useful improvements, MWSS
argues that the pertinent laws on the subject, particularly Articles 546, 547 and 549 of the Civil Code
of the Philippines, do not definitely settle the question of whether a possessor in bad faith has the
right to remove useful improvements. To bolster its claim MWSS further cites the decisions in the
cases of Mindanao Academy, Inc. vs. Yap (13 SCRA 190) and Carbonell vs. Court of Appeals (69
SCRA 99).
The CITY in its brief questions the raising of the issue of the removal of useful improvements for the
first time in this Court, inasmuch as it was not raised in the trial court, much less assigned as an
error before the then Court of Appeals. The CITY further argues that petitioner, as a possessor in
bad faith, has absolutely no right to the useful improvements; that the rulings in the cases cited by
petitioner are not applicable to the case at bar; that even assuming that petitioner has the right to
remove the useful improvements, such improvements were not actually identified, and hence a
rehearing would be required which is improper at this stage of the proceedings; and finally, that such
improvements, even if they could be identified, could not be separated without causing substantial
injury or damage to the Dagupan Waterworks System.
The procedural objection of the CITY is technically correct. NAWASA should have alleged its
additional counterclaim in the alternative-for the reimbursement of the expenses it had incurred for
necessary and useful improvements or for the removal of all the useful improvements it had
introduced.
Petitioner, however, argues that although such issue of removal was never pleaded as a
counterclaim nevertheless it was joined with the implied consent of the CITY, because the latter
never filed a counter-manifestation or objection to petitioner's manifestation wherein it stated that the
improvements were separable from the system, and quotes the first part of Sec. 5 of Rule 10 of the
Rules of Court to support its contention. Said provision reads as follows:

SEC. 5. Amendment to conform to or authorize presentation of evidence.-When

issues not raised by the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects, as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure so to amend does not affect the
result of the trial of these issues. ...
This argument is untenable because the above-quoted provision is premised on the fact that
evidence had been introduced on an issue not raised by the pleadings without any objection thereto
being raised by the adverse party. In the case at bar, no evidence whatsoever had been introduced
by petitioner on the issue of removability of the improvements and the case was decided on a
stipulation of facts. Consequently, the pleadings could not be deemed amended to conform to the
evidence.
However, We shall overlook this procedural defect and rule on the main issue raised in this appeal,
to wit: Does a possessor in bad faith have the right to remove useful improvements? The answer is
clearly in the negative. Recognized authorities on the subject are agreed on this point. *
Article 449 of the Civil Code of the Philippines provides that "he who builds, plants or sows in bad
faith on the land of another, loses what is built, planted or sown without right to indemnity." As a
builder in bad faith, NAWASA lost whatever useful improvements it had made without right to
indemnity (Santos vs. Mojica, Jan. 31, 1969, 26 SCRA 703).
Moreover, under Article 546 of said code, only a possessor in good faith shall be refunded for useful
expenses with the right of retention until reimbursed; and under Article 547 thereof, only a possessor
in good faith may remove useful improvements if this can be done without damage to the principal
thing and if the person who recovers the possession does not exercise the option of reimbursing the
useful expenses. The right given a possessor in bad faith is to remove improvements applies only to
improvements for pure luxury or mere pleasure, provided the thing suffers no injury thereby and the
lawful possessor does not prefer to retain them by paying the value they have at the time he enters
into possession (Article 549, Id.).
The decision in the case of Mindanao Academy, Inc. vs. Yap (13 SCRA 190) cited by petitioner does
not support its stand. On the contrary, this Court ruled in said case that "if the defendant constructed
a new building, as he alleges, he cannot recover its value because the construction was done after
the filing of the action for annulment, thus rendering him a builder in bad faith who is denied by law
any right of reimbursement." What this Court allowed appellant Yap to remove were the equipment,
books, furniture and fixtures brought in by him, because they were outside of the scope of the
judgment and may be retained by him.
Neither may the decision in the case of Carbonell vs. Court of Appeals (69 SCRA 99), also cited by
petitioner, be invoked to modify the clear provisions of the Civil Code of the Philippines that a
possessor in bad faith is not entitled to reimbursement of useful expenses or to removal of useful
improvements.
In said case, both the trial court and the Court of Appeals found that respondents Infantes were
possessors in good faith. On appeal, the First Division of this Court reversed the decision of the
Court of Appeals and declared petitioner Carbonell to have the superior right to the land in question.
On the question of whether or not respondents Infantes were possessors in good faith four Members
ruled that they were not, but as a matter of equity allowed them to remove the useful improvements
they had introduced on the land. Justice Teehankee (now Chief Justice) concurred on the same

premise as the dissenting opinion of Justice Munoz Palma that both the conflicting buyers of the real
property in question, namely petitioner Carbonell as the first buyer and respondents Infantes as the
second buyer, may be deemed purchasers in good faith at the respective dates of their purchase.
Justice Munoz Palma dissented on the ground that since both purchasers were undoubtedly in good
faith, respondents Infantes' prior registration of the sale in good faith entitled them to the ownership
of the land. Inasmuch as only four Members concurred in ruling that respondents Infantes were
possessors in bad faith and two Members ruled that they were possessors in good faith said
decision does not establish a precedent. Moreover, the equitable consideration present in said case
are not present in the case at bar.
WHEREFORE, the decision of the appellate court is affirmed with costs against petitioner.
SO ORDERED.
Fernan, Gutierrez, Jr., Paras and Cruz, JJ., concur.