November 6, 1913

G.R. No. 7726

MARIANO RIOSA, plaintiff-appellant,
vs.
CLARO VERZOSA and CIRIACO BULAN, defendants-appellees.
Albert E. Somersille, for appellant.
Sulpicio V. Cea, for appellees.
JOHNSON, J.:
On the 25th of January, 1910, the plaintiff commenced an action against the defendants, the purpose of which was to
secure an injunction against the defendants to prevent them from harvesting and destroying the growing hemp upon
a certain parcel of land, more particularly described in the first paragraph of the complaint, and to recover damages in
the sum of P500, for injuries already committed upon such land, and to require the defendants to deposit the hemp
already harvested with the deputy sheriff of the pueblo of Malinao.
Upon the presentation of said petition, the Honorable Vicente Nepomuceno, judge, granted a temporary injunction in
conformity with the prayer of the petition. The defendants were duly served with a summons and a copy of the
petition, as well as with a copy of the injunction granted by the court. The defendants failed to appear and answer the
complaint within the time prescribed by law and the rules of the court. By reason of the failure of the defendants to
appeal, the plaintiff, on the 21st of March, 1910, presented a motion asking that a judgment by default be rendered
against them, which motion was granted on the 2d of April, 1910.
On the 15th of April, the defendants appeared by their attorney. The cause was duly brought to trial, by notice to all of
the parties, on the 20th of April, 1910. After hearing the evidence, the Honorable Vicente Nepomuceno, judge,
granted a permanent injunction against the defendants, restraining them from cultivating or harvesting the crops upon
the said land or from doing anything thereon which would tend to injure its value, and also found that the defendants
had caused damages to the plaintiff in the sum of P300.
It appears from the record that the attorney for the defendants was present in court during the trial of the cause, but
by reason of the fact that the defendants had presented no answer, no defense whatever was made during the trial of
the cause.
On the 21st of April, 1910, the defendants, by their attorney, presented a motion, asking that the judgment by default
be set aside and that they be permitted to present their defense. It appears from the record that the present cause in
the lower court was numbered 1206 and that there was pending in the lower court at the same time cause No. 1207,
in which the present plaintiff was the plaintiff and the said Claro Verzosa was the defendant. The record does not fully
disclose what the real purpose of cause No. 1207 was. It may be gathered, however, from some things which appear
in the record, that cause No. 1207 related to a mortgage with Claro Verzosa had executed and delivered to the
present plaintiff, upon the same parcel of land described in the first paragraph of the complaint.
Upon a consideration of the motion to have the judgment by default set aside, the Honorable Percy M. Moir, judge,
after a consideration of the arguments of the respective parties, denied the same in the following language:
The court does not consider the facts set out herein sufficient to warrant the setting aside of the judgment herein
mentioned. It does seem to the court, from a study solely of the record, that the damages given are excessive, but the
court does not consider that the defendant in this case has any right to ask the setting aside of a judgment which was
rendered in his presence and in his presence and in the presence of his attorneys. If the defendant had redeemed

the land or should redeem the land in the time allowed by law, a motion then for relief from the judgment will be
considered.
At this juncture, by reason of the ruling of Judge Moir upon the motion to dismiss, it becomes important to examine
the particular facts, in order to fully understand Judge Moir's conclusions. The facts involved in the present case
seem to be as follows:
Some time prior to the 1st day of December, 1909, a judgment was rendered against the defendant, Claro Verzosa,
for the sum of P320.87. Upon said judgment an execution was issued and was levied upon the land described in the
first paragraph of the complaint. Upon the 1st day of December, 1909, said land was sold at public auction, under
said execution, and was purchased by the plaintiff also held a mortgage upon said land which was due on the 1st day
of January, 1910. It will be remembered that the present action was commenced on the 25th of January, 1910. The
record does not clearly disclose what action the plaintiff had taken to protect his interest in the land under his
mortgage. The present action was brought to protect the plaintiff's interest in the land, by virtue of his purchase of the
same under said execution on the 1st of December, 1909. It will be remembered that the law permits the owner of
land which has been sold under an execution to redeem the same within a period of twelve months. The question
then arises, in view of that right of the owner of the land, What interest has the purchaser of the land sold under
execution in the same during said twelve months? What right has he to interfere with the owner in the management
and control of such land? Is he entitled to the rents and profits during the twelve months? Can he eject the owner
from the possession of the same? We believe that the weight of authority is to the effect that the purchaser of lands
sold at public auction under a writ of execution only has an inchoate right in the property, subject to be defeated and
terminated within a period of twelve months from the date of sale, by a redemption on the part of the owner. (Sections
464, 465, 468, and 469, Act No. 190 .) We have already held, in the case of De la Rosa vs. Santos (10 Phil. Rep.,
148), that the purchaser, where the land was in possession of the owner and not a tenant, was not entitled to recover
the rents and profits of the land sold during the period within which the owner might redeem. By virtue of said section
469, where the land is in possession of a tenant, a different rule prevails. In the present case the property was in the
possession of the owner, and the inchoate right of the purchaser was subject to be defeated at any moment during
the period of redemption. The owner was entitled to remain in the possession of the land sold for the statutory term of
twelve months, and she might at any time defeat the inchoate right obtained by the purchaser by proper redemption
within that period. (Sections 463 and 464, Act No. 190; De la Rosa vs. Santos, supra; In re Ceballos, 12 Phil. Rep.,
271.) There would seem, therefore, to be much reason in the conclusion of Judge Moir that he would consider the
motion to set aside the judgment by default, if the defendant should redeem the land in question within the time
allowed by law. Under the law it would seem to be difficult to fully understand the right of the plaintiff to interfere in the
manner in which he has attempted to interfere with the owner of the land before the expiration of the twelve months
within which the owner had a right to redeem the land.
On the 11th of September, 1910, the defendants, having redeemed the land in the manner provided for by laws,
renewed their motion to have the judgment by default set aside. This motion was duly brought on for trial on the 17th
of September, 1910, and Judge Moir thereupon set aside the judgment therefore rendered by the Honorable Vicente
Nepomuceno, in which he granted a permanent injunction and allowed damages against the defendants. Later the
defendants presented an answer and the cause was duly brought to trial on its merits.
After hearing the evidence, the Honorable Percy M. Moir, judge, on the 3d of April, 1911, rendered a judgment in
which he held that the plaintiff was not entitled to the remedy prayed for in his petition, and dismissed the cause of
action with costs against the defendants. From that judgment the plaintiff appealed and in this court made the
following assignments of error:
The Court of First Instance erred:

1. In setting aside the judgment rendered in this case on September 17, 1910.
2. In assuming jurisdiction to annul said judgment.
3. In not allowing the plaintiffs damages, after assuming jurisdiction.
The first and second assignments of error we think may properly be considered together. The appellee presents no
brief.
In the first place Judge Percy M. Moir succeeded Vicente Nepomuceno as judge of the Court of First Instance of the
Province of Albay and therefore had a right to do, in relation with the sentence in the present case, whatever the
former judge might have done. It will be remembered that after Judge Nepomuceno rendered his judgment of the
20th of April, 1910, in which a permanent injunction was granted and damages allowed to the plaintiff, a motion by the
defendant was made on the 21st of April, 1910, which prevented the judgment of the 20th of April, 1910, from
becoming final until said motion had been finally disposed of. It will be noted also that the order of Judge Moir of the
9th of June, 1910, did not finally dispose of said motion. Said order gave the defendants the right to have the
question presented in their motion considered again when they redeemed the land in question. Inasmuch, therefore,
as the judge had left the motion of the defendants of the 21st of April undecided, the sentence of the 20th of April did
not become final. On the 11th of September, 1910, the defendants having presented satisfactory proof that they had
redeemed the land in question, again asked the court to consider their motion of the 21st of April.
On the 17th of September, 1910, Judge Moir, upon a reconsideration of the motion (of the 21st of April, 1910) in
relation with the proof presented on the 11th of September, 1910, by the defendants, entered an order declaring it
without effect and nullifying the sentence of the 20th of April, 1910. To this ruling the plaintiff excepted and gave
notice of his intention to appeal the cause to the Supreme Court, which notice of appeal was later withdrawn.
After certain proceedings, which we deem it unnecessary here to relate, the lower court on the 24th of September,
1910, as well as by an order of the 25th of February, 1911, modified said order of the 17th of September, 1910. The
cause was thereafter tried upon its merits and Judge Moir rendered a sentence deciding that the plaintiff was without
right in the premises against the defendants, with costs against the defendants, and final decision was rendered upon
the 10th of April, 1911.
As we said above, Judge Moir had jurisdiction to make any order in the premises which the former judge might have
made. An examination of the record shows that every order which was made after the sentence of the 20th of April,
1910, until final judgment was rendered on the 10th of April, 1911, was made at the special instance and request of
either the plaintiff or the defendant. No objection was made to the jurisdiction of the court in consideration of the
questions presented to it. From a careful examination of all the orders made by the lower court, the Honorable Percy
M. Moir, they seem to be fully justified and we find no reason for modifying or reversing them.
With reference to the third assignment of error, it may be said:
1. That the defendants were in possession of the land at the time it was sold at public sale under execution on the 1st
of December, 1909, and continued in the possession of said land.
2. The plaintiff, by virtue of the purchase under the execution sale, acquired no right, except a mere inchoate right in
the land, until after the expiration of the period within which the defendants had right to redeem.

3. The defendants redeemed the land in accordance with the provisions of law within the legal period. It must follow,
therefore, that the plaintiff was not entitled to the remedy prayed for in his petition and is, therefore, not entitled to
damages resulting from the use and occupation by the defendants.
We find no reason in the record for reversing or modifying the conclusions of the lower court. The judgment of the
lower court is, therefore, hereby affirmed with the costs of this instance.

G.R. No. 9921, Velasco v. Rosenberg's Inc., 32 Phil. 72

G.R. No. 9921
JOSE VELASCO, plaintiff-appellant,
vs.
ROSENBERGS'S, INCORPORATED, defendant-appellee.
C.W. O'Brien for appellant.
Beaumont and Tenney for appellee.
JOHNSON, J.:
The present action was commenced in the Court of First Instance of the city of Manila, on the 14th of July, 1913. Its
purpose was to recover of the defendant corporation the possession of a certain parcel of land, together with the
buildings thereon, more particularly described in the third paragraph of the complaint, together with the sum of P500,
for each and every month from the 1st of July, 1912, until the same is delivered to the plaintiff. The plaintiff further
petitioned for the appointment of a receiver to take charge of and conserve the property in litigation during the
pendency of the action.
In accordance with the prayer of the petition a receiver was appointed on the 14th of July, 1913. The receiver took
possession of the property.
The defendant set up a general and special defense. In his general defense he denied that the plaintiff is entitled to
the possession of the property in question. The defendant further alleged that the receiver not only took possession of
the property described in the third paragraph of the complaint, but other property as well. The defendant further
alleged that the plaintiff, through its receiver, fraudulently used the name of Rosenberg, and did solicit and obtain
business from the public by the use of such name, to the damage of the defendant in the sum of P20,000. The
defendant further alleged that he had been damaged by the appointment of the receiver in the sum of P5,000,
together with other damages which the defendant claims to have received from the action of the plaintiff, and prayed
for a judgment against the plaintiff in the sum of P29,350.
Upon the issue thus presented the cause was brought on for trial and after hearing the evidence, the honorable A.S.
Crossfield, judge, found that during the time the plaintiff occupied the property in question, through its receiver, and
used the trade name of the defendant, the latter was damaged in the sum of P500. The court further found that the
receiver took possession of certain personal property, including twenty garbage cans, thirty-four feed boxes, and
other property of a similar character, and retained the same to the damage of the defendant in the sum of P350, and
rendered the following judgment: (First) that the plaintiff was entitled to the possession of the parcel of land, together
with the buildings thereon, particularly described in said paragraph three; (second) that a judgment be rendered in
favor of the defendant and against the plaintiff in the sum of P850.
From that judgment the plaintiff appealed to this court and made the following assignments of error: (first) the court
erred in holding that while the plaintiff was the owner of the property from July 1, 1912, that he was not entitled to
recover for its subsequent use and occupation; (second) the court erred in holding that the defendant corporation was

lawfully occupying the premises; (third) the plaintiff being the owner of the property and entitled to its possession, the
court erred in holding that because the plaintiff, in connection with the receiver, continued the livery business
thereinbefore conducted by the defendant, that the defendant was entitled to damages therefor; (fourth) the court
erred in failing to allow the plaintiff payment for the use of the personal property and for payment for the property sold
and converted by the defendant after July 1, 1912; (fifth) the court erred in holding that the defendant was entitled to
the sum of P350 for the property mentioned in paragraph six of its cross-complaint.
In our judgment, the first, second, third, and fourth assignments of error may be discussed together. They involve but
two questions: (first) the right of the purchaser at an execution sale to the rents and profits of the property sold when
the execution debtor is in possession of the same at the time of the sale, during the period of redemption, or for a
period of one year there after; and (second) the right of the defendant to recover of the plaintiff damages resulting
from a continuance of the business sold under execution, by a receiver duly appointed by the court.
With reference to the first question, it may be said that that question has already been discussed and decided by this
court in the case of De la Rosa vs. Revita Santos (10 Phil. Rep., 148). The facts in that case are very analogous to
the facts in the present case, so far as the right of the purchaser is concerned to collect rent for the property during
the period of redemption when the execution debtor is in possession of the property. In that case the court held:
"That, inasmuch as, under the law, the rents received by the purchaser during the period allowed for redemption must
be applied on account of the redemption price, the judgment debtor in possession of such property should not be
required to pay rent, inasmuch as he would thereby simply be paying rent to himself." (Aldecoa & Co. vs. Navarro, 23
Phil. Rep., 203, 206; Riosa vs. Verzosa and Bulan, 26 Phil. Rep., 86,89; secs. 464, 465, 468, and 469 of Act No.
190.)
With reference to the damage caused to the defendant by the receiver in continuing in the business, it may be said
that inasmuch as the receiver did continue to run the business and inasmuch as he was an officer of the court,
appointed thereby for the purpose of conserving the property we have a right to assume that he was authorized so to
do. There is nothing in the record to the contrary. That being true, the question of damages arising from his running
the business should have been settled in his final accounting to the court. There is nothing in the record in the
present case which justifies that part of the judgment of the lower court. Therefore that part of the judgment of the
lower court in favor of the defendant and against the plaintiff for the sum of P500 must be revoked.
With reference to that part of the judgment of the lower court relating to the P350, it may be said that there is nothing
in the record which shows that said garbage cans and other property, horse feed, etc., was not a part of the property
turned over to the receiver. If it were, then the receiver should have rendered an account for the same in his final
report to the court. If in such final accounting the receiver had not properly reported the same or accounted therefor,
an objection might properly have then been made to the accounting of the receiver and he held responsible therefor
in case of loss through negligence or by bad administration of the property given into his care. There is nothing in the
record which shows that the property had not been properly accounted for. There is nothing in the record which
shows that said property had been negligently lost, and therefore nothing in the record which justifies a judgment
against the plaintiff and in favor of the defendant for its value. Therefore that part of the judgment of the lower court
must also be revoked.
With the above modifications the judgment of the lower court is hereby affirmed, and without any finding as to costs, it
is so ordered.
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-inlaw 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 defendants-petitioners to remove
their buildings from the land belonging to plaintiffs-respondents only because the latter chose
neither to pay for such buildings nor to sell the land, is null and void, for it amends substantially the
judgment sought to be executed and is, furthermore, offensive to articles 361 (now Article 448) and
453 (now Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608 [1946]).
WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to costs.
SO ORDERED.1wph1.t
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.

SECOND DIVISION
G.R. No. L-34199 May 30, 1983
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
HON. SANTIAGO O. TAADA, as Judge of the Court of First Instance of Cebu, Branch V, and SPOUSES
JACINTO K. RAFANAN and VICENTA L. RAFANAN, respondents.
The Solicitor General for petitioner.
Jose D. Palma for respondents.
ABAD SANTOS, J.:
By petition for review on certiorari We are asked to reverse a decision of the defunct Court of First Instance of Cebu
in Civil Case No. 10630.
In Civil Case No. 10630, the Republic of the Philippines sought the reversion of two parcels of land from the spouses
Jacinto and Vicente Rafanan. After issues had been joined for trial and judgment, the parties submitted a stipulation
of facts which reads as follows:
Come now the parties, assisted by their respective counsels, and to this Honorable Court most
respectfully submit the following stipulation of facts:
1. That the parties admit the rapacity, personality, Identity and residence of each one of them;
2. That the parties likewise admit the Identity of the two parcels of land involved in this case, the
description of which are as follows:
A parcel of land (Lot No. 2745 of the Cadastral Survey of Cebu, L.R.C. Cad. Record No. 9467),
situated in the City of Cebu, Island of Cebu, [technical description follows]; containing an area of
EIGHT THOUSAND EIGHT HUNDRED FIFTY (8,850) SQUARE METERS. ...
A parcel of land (lot 2740 of the Cad. Survey of Cebu, L.R.C. Cad. Record No. 9467), situated in
the City of Cebu, [technical description follows]; containing an area of THREE THOUSAND NINE
HUNDRED SEVENTY FIVE (3,975) SQUARE METERS ...
3. That the plaintiff was the original owner of the two (2) parcels of land above described together
with all buildings and improvements thereon, covered by Transfer Certificate of Title No. 20800 and
Transfer Certificate of Title No. 20801, respectively, both issued by the Register of Deeds of Cebu
City, free from all hens and encumbrances, having acquired the said parcels of land from the
United States Government to which these parcels of land were vested under the Philippine
Property Act of 1946, the same being former enemy (Japanese) owned lands. Certified copies of
Transfer Certificates of Titles Nos. 20800 and 20801 are hereto attached and the integral part
hereof as Annexes "A" and "A-1".
4. That on or about January 28, 1959, the plaintiff, acting through the Board of Liquidators, a
government agency created under Executive Order No. 372, series of 1950, through its Acting
Chairman and Manager Filomeno C. Kintanar, thereunto duly authorized by its Resolution No. 726,
series of 1958, sold the above described parcels of land together with au improvements existing
thereon, to DELFIN N. LOPEZ, of legal age, single, Filipino and resident of Mambaling, Cebu City,
(now deceased), for and in consideration of the sum of TWELVE THOUSAND EIGHT HUNDRED
TWENTY FIVE (P12,825.00). PESOS, Philippine Currency. A certified true copy of the deed of
absolute sale embodying the foregoing is hereto attached and made integral part hereof as Annex
"B".

5. That on December 29, 1959, Delfin N. Lopez sold the said parcels of land to MARIANO HO, SR.,
of legal age, Filipino, married to Josefina Tan Cheng and resident of Cebu City, for and in
consideration of the sum of TWENTY-ONE THOUSAND EIGHT HUNDRED TWO and FIFTY
CENTAVOS (P21,802.50) PESOS, Philippine Currency. A certified true copy of the deed of
absolute sale embodying the foregoing is hereto attached and made integral part hereof as Annex
"C". Pursuant to the said deed of absolute sale, the Register of Deeds of Cebu City issued Transfer
Certificates of Title Nos. 20984 and 20986, respectively, in the name of MARIANO HO, SR.,
Filipino, of legal age, married to Josefina Tan Cheng, with residence and postal address at Cebu
City, Philippines. Certified copies of the Transfer Certificates of 'title Nos. 20984 and 20985 are
hereto attached and made integral part hereof as Annexes "C-1 " and "C.2."
6. That on July l6, 1982, Mariano Ho and Josefina Tan Cheng sold the above described two parcels
of land, together with all improvements existing thereon, to the spouses JACINTO K. RAFANAN
and VICENTA L. RAFANAN, both of legal age, Filipinos, and residents of Cebu City, for and in
consideration of the sum of TWENTY SIX THOUSAND (P26,000.00) PESOS, Philippine currency.
A certified true copy of the deed of absolute sale embodying the foregoing is hereto attached and
made integral part hereof as Annex "D". Pursuant to such deed of absolute sale, the Register of
Deeds of Cebu City issued Transfer Certificates of Title Nos. 25490 and 26491, respectively,
certified true copies of which being hereto attached and made integral part hereof as Annexes "D-1
" and "D-2".
WHEREFORE, it is respectfully prayed that the foregoing stipulation of facts be approved and that
judgment be rendered on the basis thereof.
The parties further pray that they be granted thirty (30) days from approval hereof to file their
respective memoranda simultaneously.
Cebu City, December 7, 1970.
The parties prayed that the stipulation of facts be approved and that the case be considered submitted for decision
without further trial and presentation of evidence, oral or documentary. The court granted the prayer and rendered a
decision dismissing the complaint.
One of the grounds invoked for the reversion of the lands to the petitioner is stated in the complaint as follows:
7. Considering that the sale executed by plaintiff's Board of Liquidators of the above described
realty to DELFIN N. LOPEZ was subject to the approval of the President of the Philippines, and to
other conditions and limitations imposed by law, which the defendants are conclusively presumed
to know, and since no such approval was given, the sale was a total nullity ... (Rollo, pp. 27-28.)
The same ground is invoked in the petition in the following words:
In the case at bar, the deed of sale executed by the Republic of the Philippines, represented by the
Board of Liquidators as vendor in favor of Delfin N. Lopez, of legal age, single, Filipino with
residence at Mambaling, Cebu City, of the two (2) parcels of land owned by the government, which
it acquired from the United States Government under the Philippine Property Act of 1946, was
executed by Filomeno C. Kintanar, Acting Chairman and Manager of the Board of Liquidators,
pursuant to Resolution No. 726, series of 1958 of aforesaid Board. The said deed of sale was not
signed or even approved by the President of the Philippines as required by law, which approval
should appear in the same deed of sale. (Rollo, pp. 14-15.)
The stipulation of facts is silent as to whether or not the President of the Philippines approved the sale of the two lots
to Delfin N. Lopez. Nonetheless, the petitioner insists that there was no approval. It calls attention to the fact that the
deed of sale which is attached to the stipulation of facts and marked as Annex B "was not signed or even approved
by the President of the Philippines as required by law, which approval should appear in the same deed of sale."
(Brief, p. 9.) An examination of the copy of the deed of sale which is attached as Annex A to the petition and which
forms pages 29 and 30 of the Rollo of this case confirms the factual claim of the petitioner-that the sale of the two lots
to Delfin N. Lopez did not have the approval of the President of the Philippines.
The private respondents invoke three legal presumptions in rebuttal, namely: "(a) that official duty has been regularly
performed (Sec. 5 (M), Rule 131, new Rules of Court); (b) that the ordinary course of business has been followed
(Sec. 5, (q), Rule 131, new Rules of Court; and (c) that the law has been obeyed (Sec. 5 (ff), Rule 131, new Rules of
Court)." (Brief, p. 9.) But these presumptions are unavailing to the private respondents for as shall be shown below
the approval of the President of the Philippines to the sale is a positive requirement which cannot be presumed; it
must be shown affirmatively.
It should be recalled that the two lots were former enemy properties. They were transferred to the Republic of the
Philippines and by virtue of R.A. No. 477 their disposition was entrusted to the National Abaca and Other Fibers
Corporation (NAFCO). The corporation was abolished by Executive Order No. 372, series of 1950, and its functions,
particularly as provided in R.A. No. 477 were transferred to the Board of Liquidators which was created by the same
executive order.

Section 4 of Executive Order No. 372, series of 1950, provides: "The Board of Liquidators shall, with the approval of
the President of the Philippines, and subject to the provisions of existing law, sell, lease, transfer, assign, or otherwise
dispose of, the properties, funds, other assets, development projects, demonstration plantations, experimental
stations, and nurseries of the corporations herein abolished; ..."
The private respondents assert: "[E]ven granting that the sale of the land by the Board of Liquidators to Delfin N.
Lopez lacked the required presidential approval, the deficiency does not invalidate the sale of the land. For the
requirement of presidential approval is not contained in any law but merely by Executive Order No. 372. Failure to
follow this executive order may only subject the proper officials to disciplinary action but may not cause the nullity of
the transaction. Presidential approval of such sale is not essential to the validity of the contract." (Brief, p. 13.)
Assuming without conceding the correctness of the assertion, it is nonetheless unavailing because as pointed out by
the petitioner: "Sections 79 (F) and 567 of the Revised Administrative Code require that the deed of sale be signed
personally by the President of the Philippines or by an official duly designated by him, unless the authority therefore
be expressly vested by law in another officer. The deed of sale herein involved (Annex "A" of Annex "B") does not
show that the deed was approved or signed by the President of the Philippines or another official authorized by law.
Considering the failure to comply with the statutory requirements, the deed of sale is ineffective and thus wholly void."
(Brief, p. 9.)
Section 8 of R.A. No. 477 provides:
Sec. 8. Except in favor of the Government or any of its branches, units, or institutions, and of any
church, sect or denomination for its church and/or cemetery site, land acquired under the
provisions of this Act or any permanent improvements hereon sham not be subject to encumbrance
or aberration from the date of the award of the land or the improvements thereon and for a term of
ten years from and after the date of issuance of the certificate of title, nor shall they become liable
to the satisfaction of any debt contracted prior to the expiration of such period.
Any occupant or applicant of lands under this Act who transfer whatever rights he has acquired on
said lands and/or improvements thereon before the date of the award or signature of the contract of
sale, shall not be entitled to apply for another piece of agricultural land or urban, homesite or
residential lot, as, the case may be, from the National Abaca and Other Fibers Corporation; and
such transfer shall be considered null and void. (Emphasis words are amendments introduced by
R.A. No. 4370, Sec. 1, approved June 19, 1965.)
The petitioner also anchors its prayer for reversion on the ground that Delfin N. Lopez sold the two lots to Mariano Ho
in violation of Section 8 of R.A. No. 477. The complaint recites: "... but even if the sale were considered as valid, the
subsequent alienation of the subject realty within the prohibited ten-year period to MARIANO HO and the latter's
simulated transfer thereof to the defendants spouses are void ab initio; consequently, none of the transferees,
namely, DELFIN N. LOPEZ, MARIANO HO, and the defendants spouses JACINTO K. RAFANAN and VICENTA L.
RAFANAN acquired a valid title over the said realty. By operation of law, the violation aforesaid are sufficient to cause
the reversion of the above described realty to the State." (Rollo, p. 28.)
The private respondents seek to neutralize the petitioner's assertion by pointing to the case of Ras vs. Sua, L-23302,
September 25, 1968, 25 SCRA 153.
In Ras vs. Sua, the plaintiff leased a parcel of land which he had acquired from NAFCO unaware of but in violation of
R.A. No. 477. He filed a complaint to recover possession of the land alleging breaches of contract. Two of the
defenses interposed by Sua were that Ras had no personality to bring the action, the proper party being the Republic
of the Philippines and that the jurisdiction to order the return to the plaintiff of the land belongs, not to the courts, but
to the Board of Liquidators. On these points, this Court held:
The above contentions are without merit; they being premised on the assumption that upon the
plaintiff 's violation of Republic Act 477 he automatically loses his rights over the land and said
rights immediately revert to the State. That is not correct.
In the first place, it is worthwhile to note that, unlike in a transfer of the applicant's rights made
before the award or signing of the contract of sale, which is specifically declared nun and void and
disqualifies such applicant from further acquiring any land from the NAFCO, Republic Act 477 is
silent as to the consequence of the alienation or encumbering of the land after the execution of the
contract of sale, but within 10 years from the issuance of the corresponding certificate of title.
Considering that the aim of the government in allowing the distribution or sale of disposable public
lands to deserving applicants is to enable the landless citizens to own the land they could work on,
and the reversion of these lands to the government is penal in character, reversion cannot be
construed to be implied from the provision making certain acts prohibited. Where, as in this case,
the interest of the individual outweighs the interest of the public, strict construction of a penal
provision is justified. Article 1416 of the Civil Code of the Philippines prescribes as follows:
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and
the prohibition by the law is designed for the protection of the plaintiff, he may, if
public policy is thereby enhanced, recover what he has paid or delivered.

Secondly, under Section 9 of Republic Act No. 477, the disposition of lands by the NAFCO is to be
governed by the Public Land Act (C.A. 141); and it has been ruled, in connection with the same,
that a disregard or violation of the conditions of the land grant does not produce automatic
reversion of the property to the State, nor work to defeat the grantee's right to recover the property
he had previously disposed of or encumbered. This was made clear by this Court when it said:
... Similar contentions were made in the case of Cataluna de los Santos vs. Roman Catholic
Church of Midsayap, et al., 94 Phil 405, 50 Off. Gaz. 1588, but they were there overruled, this
Court holding that the pari delicto doctrine may not be invoked in a case of this kind since it would
turn counter to an avowed fundamental policy of the State that the forfeiture of the homestead is a
matter between the State and the grantee or his heirs, and that until the State has taken steps to
annul the grant and asserts title to the homestead, the purchaser is, as against the vendor or his
heirs, 'no more entitled to keep the land than any intruder.' (Acierto vs. De los Santos, 95 Phil. 887.)
Clearly, until and unless an appropriate proceeding for reversion is instituted by the State, and its
reacquisition of the ownership and possession of the land decreed by a competent court, the
grantee can not be said to have been divested of whatever right that he may have over the same
property. (At pp. 159-160.)
The Ras case indeed holds that violation of R.A. No. 477 does not automatically revert the land to the State but it
likewise holds that the State can institute appropriate proceeding for reversion and its reacquisition of the ownership
and possession of the land decreed by a competent court which is precisely what the petitioner has done in this case.
To summarize: The conveyance of the two lots to Lopez was void for lack of presidential approval; the conveyance of
the same lots to Ho by Lopez was likewise void not only because Lopez had nothing to convey but also because the
conveyance was made within the prohibited period; and the conveyance to the Rafanan spouses by Ho was void for
the same reasons.
WHEREFORE, the petition is hereby granted; the judgment in Civil Case No. 10630 is set aside and another one is
entered commanding the Register of Deeds of Cebu to cancel Transfer Certificate of Title Nos. 25490 and 25491
which were issued to the private respondents and in lieu thereof to issue new ones in the name of the Republic of the
Philippines. No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. L-25462 February 21, 1980
MARIANO FLOREZA, petitioner,
vs.
MARIA D. de EVANGELISTA and SERGIO EVANGELISTA, respondents.
R.D. Hipolito & B. P. Fabir for petitioner.
E.G. Tanjuatco & Associates for respondents.

MELENCIO-HERRERA, J:
This is a Petition for Review on certiorari of the Decision of the Court of Appeals (CA-G.R. No. 23516-R) promulgated
on November 4, 1965, entitled "Maria de Evangelista and Sergio Evangelists, (now the respondents) vs. Mariano
Floreza (petitioner herein)," reversing the judgment of the Court of First Instance of Rizal rendered on July 17, 1957,
and instead ordering petitioner to vacate respondents' residential lot, to remove his house at his own expenses and to
pay rental from May 5, 1956.
Plaintiffs Maria de Evangelista and Sergio Evangelista, who are mother and son, (the EVANGELISTAS, for short) are
the owners of a residential lot located at Sumilang St., Tanay, Rizal, with an area of 204.08 sq. ms., assessed at
P410.00. In May 1945, the EVANGELISTAS borrowed from FLOREZA the amount of P100.00. On or about
November 1945, with the consent of the EVANGELISTAS, FLOREZA occupied the above residential lot and built
thereon a house of light materials (barong- barong) without any agreement as to payment for the use of said
residential lot owing to the fact that the EVANGELISTAS has then a standing loan of P100.00 in favor of FLOREZA. 1
On the following dates, the EVANGELISTAS again borrowed the indicated amounts: September 16, 1946
P100.00; 2 August 17, 1947 P200,00; 3 January 30, 1949 P200.00; 4 April 1, 1949 P140.00, 5 or a total of
P740.00 including the first loan. The last three items are evidenced by private documents stating that the residential
lot stands as security therefor and that the amounts covered thereunder are payable within six years from date,
without mention of interest. The document executed on September 16, 1946 stated specifically that the loan was
without interest "walang anumang patubo."

On January 10, 1949, FLOREZA demolished this house of light materials and in its place constructed one of strong
materials assessed in his name at P1,410.00 under Tax Declaration No. 4448. FLOREZA paid no rental as before. 6
On August 1, 1949, the EVANGELISTAS, for and in consideration of P1,000.00 representing the total outstanding
loan of P740.00 plus P260.00 in cash, sold their residential lot to FLOREZA, with a right to repurchase within a period
of 6 years from date, or up to August 1, 1955, as evidenced by a notarial document, Exh. B, registered under Act
3344 on December 6, 1949, as Inscription No. 2147. 7
On January 2, 1955, or seven months before the expiry of the repurchase period, the EVANGELISTAS paid in full the
repurchase price of P1,000.00.
On April 25, 1956, the EVANGELISTAS, through their counsel, wrote FLOREZA a letter 8 asking him to vacate the
premises as they wanted to make use of their residential lot besides the fact that FLOREZA had already been given
by them more than one year within which to move his house to another site. On May 4, 1956, the EVANGELISTAS
made a formal written demand to vacate, within five days from notice, explaining that they had already fully paid the
consideration for the repurchase of the lot. 9 FLOREZA refused to vacate unless he was first reimbursed the value of
his house. Hence, the filing of this Complaint on May 18, 1956 by the EVANGELISTAS.
The EVANGELISTAS prayed that: 1) they be declared the owners of the house of strong materials built by FLOREZA
on their residential lot, without payment of indemnity; or, in the alternative to order FLOREZA to remove said house;
2) that FLOREZA pay them the sum of P10.00 per month as the reasonable value for the use and occupation of the
same from January 2, 1955 (the date the repurchase price was paid) until FLOREZA removes the house and delivers
the lot to them; and 3) to declare the transaction between them and FLOREZA as one of mortgage and not of pacto
de retro.
In his Answer, FLOREZA admitted the repurchase but controverted by stating that he would execute a deed of
repurchase and leave the premises upon payment to him of the reasonable value of the house worth P7,000.00.
In a Decision dated July 17, 1957, the Court of First Instance of Rizal opined that the question of whether the
transaction between the parties is one of mortgage or pacto de retro is no longer material as the indebtedness of
P1,000.00 of the EVANGELISTAS to FLOREZA had already been fully paid. And, applying Article 448 of the Civil
Code, 10 it rendered a decision dispositively decreeing:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment granting the
plaintiffs the right to elect, as owners of the land, to purchase the house built, on the said lot in
question by the defendant for P2,500 or to sell their said land to e defendant for P1,500. In the
event that the plaintiffs shall decide not to purchase the house in question the defendant should be
allowed to remain in plaintiffs' premises by, paying a monthly rental of P10.00 which is the
reasonable value for the use of the same per month as alleged by plaintiffs in their complaint. The
Court also orders the defendant to pay a monthly rental of P10.00 for the use of the land in
question from May 18, 1956, the date of the commencement of this action. The counterclaim of the
defendant is hereby ordered dismissed. Without pronouncement as to costs.
SO ORDERED. 11
Both parties appealed to the Court of Appeals.
On November 4, 1965, the Court of Appeals concluded that Article 448 of the Civil Code, supra, was inapplicable; that
FLOREZA was not entitled to reimbursement for his house but that he could remove the same at his expense; and
accordingly rendered judgment thus:
WHEREFORE, judgment is hereby rendered: (1) adjudging the defendant-appellant Mariano
Floreza to vacate plaintiffs' residential lot described in the complaint and to pay rental of P10.00 a
month from May 5, 1956, until he (defendant) shall have vacated the premises; (2) ordering
defendant to remove his house from the land in question within 30 days from the time this decision
becomes final and executory; (3) ordering the Register of Deeds of Rizal to cancel inscription No.
2147, Page 210, Vol. 36, in the Registration Book under Act 3344 upon payment of his lawful fees;
and (4) taxing the costs in both instances against defendant-appellant Mariano Floreza. 12
Hence, this Petition for Review on certiorari by FLOREZA, seeking a reversal of the aforestated judgment and
ascribing the following errors:
1) That the Court of Appeals erred in holding that petitioner Floreza was a builder in bad faith
without likewise holding that respondents as owners of the land in dispute, were likewise in bad
faith and therefore both parties should in accordance with Art. 453 of the New Civil Code be
considered as having acted in good faith.
2) That the Court of Appeals erred in completely ignoring the issue raised on appeal as to whether
or not respondents as owners of the questioned lot, were in bad faith in the sense that they had
knowledge of and acquiseced to the construction of the house of petitioner on their lot.

3) That the Court of Appeals erred in not applying Art. 448 of the New Civil Code in the adjudication
of the rights of petitioner and respondent.
4) That the Court of Appeals erred in declaring that petitioner is not entitled to reimbursement for
the value of his house and that he should instead remove the same at his expense.
5) That the Court of Appeals erred in adjudging petitioner to vacate respondents' lot in question and
to pay rentals commencing from May 5, 1956, until he shall have vacated the premises,
notwithstanding that petitioner is entitled under Arts. 448 and 546 of the New Civil Code, to
retention without payment of rental while the corresponding indemnity of his house had not been
paid.
6) That the Court of Appeals erred in taxing costs against petitioner.
7) That the Court of Appeals erred in not awarding petitioner's counterclaim.
During the pendency of this appeal, petitioner Maria D. de Evangelista died and was ordered substituted by her son,
petitioner Sergio, as her legal representative, in a Resolution dated May 14, 1976.
On October 20, 1978. the EVANGELISTAS filed a Motion to Dismiss stating that FLOREZA had since died and that
his heirs had voluntarily vacated the residential lot in question. The date FLOREZA passed away and the date his
heirs had voluntarily vacated the property has not been stated. Required to comment, "petitioner (represented by his
heirs)", through counsel, confirmed his death and the removal of the house and manifested that thereby the question
of reimbursement had moot and academic. He objected to the dismissal of the case, however, on the ground that the
issue of rentals still pends. On January 21, 1980, complying with a Resolution of 'his Court, the EVANGELISTAS
clarified that the dismissal they were praying for was not of the entire case but only of this Petition for Review
on Certiorari.
We are not in agreement that the question of reimbursement of the value of the improvement erected on the subject
property has become moot. Petitioner's right of retention of subject property until he is reimbursed for the value of his
house, as he had demanded, is inextricably linked with the question of rentals. For if petitioner has the right to
indemnity, he has the right of retention and no rentals need be paid. Conversely, if no right of retention exists,
damages in the form of rentals for the continued use and occupation of the property should be allowed.
We uphold the Court of Appeals in its conclusion that Article 448 of the Civil Code is inapplicable to the factual milieu
herein. Said codal provision applies only when the builder, planter, or sower believes he had the right so to build,
plant or sow because he thinks he owns the land or believes himself to have a claim of title. 13 In this case, petitioner
makes no pretensions of ownership whatsoever.
Petitioner concedes that he was a builder in bad faith but maintains that' the EVANGELISTAS should also be held in
bad faith, so that both of them being in bad faith, Article 453 of the Civil Code 14 should apply. By the same token,
however, that Article 448 of the same Code is not applicable, neither is Article 453 under the ambiance of this case.
Would petitioner, as vendee a retro, then be entitled to the rights granted iii Article 1616 of the Civil Code (Art. 1518 of
the old Code)? To quote:
Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the
vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by reason of the sale;
(2) The necessary and useful expenses made on the thing sold.
The question again calls for a negative answer. It should be noted that petitioner did not construct his house as a
vendee a retro. The house had already been constructed as far back as 1949 (1945 for the house of light materials)
even before the pacto de retro sale in 1949. Petitioner incurred no useful expense, therefore, after that sale. The
house was already there at the tolerance of the EVANGELISTAS in consideration of the several loans extended to
them. Since petitioner cannot be classified as a builder in good faith within the purview of Article 448 of the Civil
Code, nor as a vendee a retro, who made useful improvements during the lifetime of the pacto de retro, petitioner has
no right to reimbursement of the value of the house which he had erected on the residential lot of the
EVANGELISTAS, much less to retention of the premises until he is reimbursed.The rights of petitioner are more akin
to those of a usufructuary who, under Article 579 of the Civil (Art. 487 of the old Code), may make on the property
useful improvements but with no right to be indemnified therefor. He may, however, remove such improvements
should it be possible to do so without damage to the property: For if the improvements made by the usufructuary
were subject to indemnity, we would have a dangerous and unjust situation in which the usufructuary could dispose of
the owner's funds by compelling him to pay for improvements which perhaps he would not have made. 15
We come now to the issue of rentals. It is clear that from the date that the redemption price had been paid by the
EVANGELISTAS on January 2, 1955, petitioner's right to the use of the residential lot without charge had ceased.
Having retained the property although a redemption had been made, he should be held liable for damages in the
form of rentals for the continued use of the subject residential lot 16 at the rate of P10.00 monthly from January 3,

1955, and not merely from the date of demand on May 4, 1956, as held by the Court of Appeals, until the house was
removed and the property vacated by petitioner or his heirs.
WHEREFORE, the judgment appealed from is hereby affirmed, with the modification that payment of rentals by the
heir, of Mariano Floreza, who are hereby ordered substituted for him, shall commence on January 3, 1955 until the
date that the residential lot in question was vacated.
Costs against petitioner.
SO ORDERED.
EN BANC
G.R. No. L-12812

September 29, 1959

FILIPINAS COLLEGES, INC., plaintiff-appellee,

vs.
MARIA GARCIA TIMBANG, ET AL., defendants.
-----------------------------G.R. No. L-12813

September 29, 1959

MARIA GARCIA TIMBANG, ET AL., plaintiffs.

MARIA GARICA TIMBANG, plaintiff-appellant,
vs.
MARIA GERVACIO BLAS, defendant-appellee.
De Guzman and Fernandez for appellee Filipinas Colleges, Inc.
San Huan, Africa and Benedicto for appellant Maria Garcia Timbang.
Nicanor S. Sison for appellee Maria Gervacio Blas.
BARRERA, J.:
This is an appeal taken from an order of the Court of First Instance of Manila dated May 10, 1957 (a) declaring the
Sheriff's certificate of sale covering a school building sold at public auction null and void unless within 15 days from
notice of said order the successful bidders, defendants-appellants spouses Maria Garcia Timbang and Marcelino
Timbang, shall pay to, appellee Maria Gervacio Blas directly or through the Sheriff of Manila the sum of P5,750.00
that the spouses Timbang had bid for the building at the Sheriff's sale; (b) declaring the other appellee Filipinas
Colleges, Inc. owner of 24,500/3,285,934 undivided interest in Lot No. 2-a covered by certificate of tile No 45970, on
which the building sold in the auction sale is situated; and (c) ordering the sale in public auction of the said undivided
interest of the Filipinas Colleges, Inc., in lot No. 2-a aforementioned to satisfy the unpaid portion of the judgment in
favor of appellee Blas and against Filipinas Colleges, Inc. in the amount of P8,200.00 minus the sum of P5,750.00
mentioned in (a) above.
The order appealed from is the result of three motions filed in the court a quo in the course of the execution of a final
judgment of the Court of Appeals rendered in 2 cases appealed to it in which the spouses Timbang, the Filipinas
Colleges, Inc., and Maria Gervacio Blas were the parties. IN that judgment of the Court of Appeals, the respective
rights of the litigants have been adjudicated as follows:1wphl.nt
(1) Filipinas Colleges, Inc. was declared to have acquired the rights of the spouses Timbang in and to lot No.
2-a mentioned above and in consideration thereof, Filipinas Colleges, Inc., was ordered to pay the spouses
Timbang the amount of P15,807.90 plus such other amounts which said spouses might have paid or had to
pay after February, 1953, to Hoskins and Co. Inc., agent of the Urban Estates, Inc., original vendor of the lot.
Filipinas Colleges, Inc. original vendor of the total amount with the court within 90 days after the decision
shall have become final.
(2) Maria Gervacio Blas was declared to be a builder in good faith of the school building constructed on the
lot in question and entitled to be paid the amount of P19,000.00 for the same. Filipinas Colleges, Inc.,
purchaser of the said building was ordered to deliver to Blas stock certificate (Exh. C) for 108 shares of
Filipinas Colleges, Inc. with a par value of P10,800.00 and to pay Blas the sum of P8,200.00 of the house.
(3) In case Filipinas Colleges, Inc. failed to deposit the value of the land, which after liquidation was fixed at
P32,859.34, within the 90-day period set by the court, Filipinas Colleges would lose all its rights to the land
and the spouses Timbang would then become the owners thereof. In that eventuality, the Timbangs would
make known to the court their option under Art. 448 of the Civil Code whether they would appropriate the
building in question, in which even they would have to pay Filipinas Colleges, Inc. the sum of P19,000.00, or
would compel the latter to acquire the land and pay the price thereof.

Filipinas Colleges, Inc. having failed to pay or deposit the sum of P32,859.34 within the time prescribed, the spouses
Timbang, in compliance with the judgment of the Court of Appeals, on September 28, 1956, made known to the court
their decision that they had chosen not of appropriate the building but to compel Filipinas Colleges, Inc., for the
payment of the sum of P32,859,34. The motion having been granted, a writ of execution was issued on January 8,
1957.
On January 16, 1957, appellee Blas in turn filed a motion for execution of her judgment of P8,200.00 representing the
unpaid portion of the price of the house sold to Filipinas Colleges, Inc. Over the object of the Timbangs, the court
grated the motion and the corresponding writ of execution was issued on January 30, 1957, date of the granting of
the motion for execution, Blas through counsel, sent a letter to the Sheriff of Manila advising him of her preferential
claim or lien on the house to satisfy the unpaid balance of the purchase price thereof under Article 2242 of the Civil
Code, and to withhold from the proceed of the auction sale the sum of P8,200.00. Levy having been made on the
house in virtue of the writs of execution, the Sheriff of Manila on March 5, 1957, sold the building in public auction in
favor of the spouses Timbang, as the highest bidders, in the amount of P5,750.00. Personal properties of Filipinas
Colleges, Inc. were also auctioned for P245.00 in favor of the spouses Timbang.
As a result of these actuation, three motion were subsequently filed before the lower court:
(1) By appellee Blas, praying that the Sheriff of Manila and/or the Timbang spouses be ordered to pay and
deliver to her the sum of P5,750.00 representing the proceeds of the auction sale of the building of Filipinas
Colleges, Inc. over which she has a lien of P8,200.00 for the unpaid balance of the purchase price thereof;.
(2) Also by the appellee Bals, praying that there being still two unsatisfied executions, one for the sum of
P32,859.34 in favor the land involved, Lot No. 2-a, be sold at public auction; and (3) By Filipinas Colleges,
Inc. praying that because its properties, the house and some personal properties, have been auctioned for
P5,750.00 and P245.00 respectively in favor of the Timbang spouses who applied the proceeds to the partial
payment of the sum of P32,859.34 value of the land, Lot No. 2-a, it (Filipinas Colleges, Inc.) be declared part
owner of said lot to the extent of the total amount realized from the execution sale of its
properties.1wphl.nt
The Timbang spouses presented their opposition to each and all of these motion. After due hearing the lower court
rendered its resolution in the manner indicated at the beginning of this decision, from which the Timbangs alone have
appealed.
In assailing the order of the court a quo directing the appellants to pay appellee Blas the amount of their bid
(P5,750.00) made at the public auction, appellants' counsel has presented a novel, albeit ingenious, argument. It is
contended that because the builder in good faith has failed to pay the price of the land after the owners thereof
exercised their option under Article 448 of the Civil Code, the builder lost his right of retention provided in Article 546
and by operation of Article 445, the appellants as owners of the land automatically became the owners ipso facto, the
execution sale of the house in their favor was superfluous. Consequently, they are not bound to make good their bid
of P5,750.00 as that would be to make goods to pay for their own property. By the same token, Blas claim for
preference on account of the unpaid balance of the purchase price of the house does not apply because preference
applies only with respect to the property of the debtor, and the Timbangs, owners of the house, are not the debtors of
Blas.
This Court cannot accept this oversimplification of appellants' position. Article 448 and 546 of the Civil Code defining
the right of the parties in case a person in good faith builds, sows or plants on the land of another, respectively
provides:
ART. 448. The owner of the land on which anything has been built, sown or plated in good faith shall have
the right to appropriate as his own the works, sowing or planting, after payment of the indemnify provided for
in article 546 and 548, or to obligate the one who built or planted to pay the price of the land, and the one
who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner
of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith
may retain the thing until he has reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same right of retention the
person who has defeated him in the possession having to option of refunding the amount of expenses or of
paying the case in value which thing may have acquired by reason thereof.
Under the terms of these article, it is true that the owner of the land has the right to choose between appropriating the
building by reimbursing the builder of the value thereof or compelling the builder in good faith to pay for his land.
Even this second right cannot be exercised if the value of the land is considerably more than that of the building. In
addition to the right of the builder to be paid the value of his improvement, Article 546 gives him the corollary right of
retention of the property until he is indemnified by the owner of the land. There is nothing in the language of these two
article, 448 and 546, which would justify the conclusion of appellants that, upon the failure of the builder to pay the
value of the land, when such is demanded by the land-owner, the latter becomes automatically the owner of the
improvement under Article 445. The case of Bernardo vs. Bataclan, 66 Phil., 590 cited by appellants is no authority

for this conclusion. Although it is true it was declared therein that in the event of the failure of the builder to pay the
land after the owner thereof has chosen this alternative, the builder's right of retention provided in Article 546 is lost,
nevertheless there was nothing said that as a consequence thereof, the builder loses entirely all rights over his own
building. The question is; what is the recourse or remedy left to the parties in such eventuality where the builder fails
to pay the value of the land? While the Code is silent on this Court in the cases of Miranda vs. Fadullon, et al., 97
Phil., 801; 51 Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76 Phil., 605 and the cited case of Bernardo vs.
Bataclan, supra.
In the first case, this Court has said:
A builder in good faith not be required to pay rentals. he has right to retain the land on which he has built in
good faith until he is reimbursed the expenses incurred by him. Possibly he might be made to pay rental
only when the owner of the land chooses not to appropriate the improvement and requires the builder in
good faith to pay for the land but that the builder is unwilling or unable to pay the land, and then they decide
to leave things as they are and assume the relation of lessor and lessee, and should they disagree as to the
amount of rental then they can go to the court to fix that amount. (Emphasis supplied)
Should the parties not agree to leave things as they are and to assume the relation of lessor and lessee, another
remedy is suggested in the case of Ignacio vs. Hilario, supra, wherein the court has ruled that the owner of the land in
entitled to have the improvement removed when after having chosen to sell his land to the other party, i.e., the builder
in good faith fails to pay for the same.
A further remedy is indicated in the case of Bernardo vs. Bataclan, supra, where this Court approved the sale of the
land and the improvement in a public auction applying the proceeds thereof first to the payment of the value of the
land and the excess, if any, to be delivered to the owner of the house in payment thereof.
The appellants herein, owners o the land, instead of electing any of the alternative above indicated chose to seek
recovery of the value of their land by asking for a writ of execution; levying on the house of the builder; and selling the
same in public auction. Sand because they are the highest bidder in their own auction sale, they now claim they
acquired title to the building without necessity of paying in cash on account of their bid. In other words, they in effect
pretend to retain their land and acquire the house without paying a cent therefor.
This contention is without merit. This Court has already held in Matias vs. The Provincial Sheriff of Nueva Ecija (74
Phil., 326) that while it is the inveriable practice, dictated by common sense, that where the successful bidder is the
execution creditor himself, he need not pay down the amount of the bid if it does not exceed the amount of his
judgement, nevertheless, when their is a claim by a third-party, to the proceeds of the sale superior to his judgment
credit, the execution creditor, as successful bidder, must pay in cash the amount of his bid as a condition precedent to
the issuance to him of the certificate of sale. In the instant case, the Court of Appeals has already adjudged that
appellee Blas is entitled to the payment of the unpaid balance of the purchase price of the school building. Blas is
actually a lien on the school building are concerned. The order of the lower court directing the Timbang spouses, as
successful bidders, to pay in cash the amount of their bid in the sum of P5,750.00 is therefore correct.
With respect to the order of the court declaring appellee Filipinas Colleges, Inc. part owner of the land to the extent of
the value of its personal properties sold at public auction in favor of the Timbang, this Court Likewise finds the same
as justified, for such amount represents, in effect, a partial payment of the value of the land. If this resulted in the
continuation of the so-called involuntary partnership questioned by the difference between P8,200.00 the unpaid
balance of the purchase price of the building and the sum of P5,750.00 amount to be paid by the Timbangs, the
order of the court directing the sale of such undivided interest of the Filipinas Colleges, Inc. is likewise justified to
satisfy the claim of the appellee Blas.
Considering that the appellant spouses Marcelino Timbang and Maria Garcia Timbang may not voluntarily pay the
sum of P5,750.00 as ordered, thereby further delaying the final termination of this case, the first part of the dispositive
portion of the order appealed from is modified in the sense that upon failure of the Timbang spouses to pay to the
Sheriff or to Manila Gervacio Blas said sum of P5,750.00 within fifteen (15) days from notice of the final judgment, an
order of execution shall issue in favor of Maria Gervasio Blas to be levied upon all properties of the Timbang spouses
not exempt from execution for the satisfaction of the said amount.
In all other respects, the appealed order of the court a quo is hereby affirmed, with costs against the appellants.
It is so ordered.
FIRST DIVISION

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

PHILIPPINE NATIONAL BANK, petitioner, vs. GENEROSO DE JESUS, represented by his Attorney-in-Fact,
CHRISTIAN DE JESUS, respondent.

DECISION
VITUG, J.:
Petitioner Philippine National Bank disputes the decision handed down by the Court of Appeals promulgated on
23 March 2001 in CA-G.R. CV No. 56001, entitled Generoso De Jesus, represented by his Attorney-in-Fact,
Christian De Jesus, versus Philippine National Bank. The assailed decision has affirmed the judgment rendered by
the Regional Trial Court, Branch 44, of Mamburao, Occidental Mindoro, declaring respondent Generoso de Jesus as
being the true and lawful owner of the 124-square-meter portion of the land covered by Transfer Certificate of Title
(TCT) No. T-17197 and ordering petitioner bank to vacate the premises, to deliver possession thereof to respondent,
and to remove the improvement thereon.
It would appear that on 10 June 1995, respondent filed a complaint against petitioner before the Regional Trial
Court of Occidental Mindoro for recovery of ownership and possession, with damages, over the questioned
property. In his complaint, respondent stated that he had acquired a parcel of land situated in Mamburao, Occidental
Mindoro, with an area of 1,144 square meters covered by TCT No. T-17197, and that on 26 March 1993, he had
caused a verification survey of the property and discovered that the northern portion of the lot was being encroached
upon by a building of petitioner to the extent of 124 square meters. Despite two letters of demand sent by
respondent, petitioner failed and refused to vacate the area.
Petitioner, in its answer, asserted that when it acquired the lot and the building sometime in 1981 from then
Mayor Bienvenido Ignacio, the encroachment already was in existence and to remedy the situation, Mayor Ignacio
offered to sell the area in question (which then also belonged to Ignacio) to petitioner at P100.00 per square meter
which offer the latter claimed to have accepted. The sale, however, did not materialize when, without the knowledge
and consent of petitioner, Mayor Ignacio later mortgaged the lot to the Development Bank of the Philippines.
The trial court decided the case in favor of respondent declaring him to be the rightful owner of the disputed
124-square-meter portion of the lot and ordering petitioner to surrender possession of the property to respondent and
to cause, at its expense, the removal of any improvement thereon.
The Court of Appeals, on appeal, sustained the trial court but it ordered to be deleted the award to respondent
of attorneys fees, as well as moral and exemplary damages, and litigation expenses.
Petitioner went to this Court, via a petition for review, after the appellate court had denied the banks motion for
reconsideration, here now contending that 1. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN ADJUDGING PNB A BUILDER IN BAD FAITH OVER
THE ENCROACHED PROPERTY IN QUESTION;
2. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN NOT APPLYING IN FAVOR OF PNB THE PROVISION
OF ARTICLE 448 OF THE CIVIL CODE AND THE RULING IN TECNOGAS PHILIPPINES MANUFACTURING
CORP. VS. COURT OF APPEALS, G.R. No. 108894, February 10, 1997, 268 SCRA 7.[1]
The Regional Trial Court and the Court of Appeals have both rejected the idea that petitioner can be considered
a builder in good faith. In the context that such term is used in particular reference to Article 448, et seq., of the Civil
Code, a builder in good faith is one who, not being the owner of the land, builds on that land believing himself to be its
owner and unaware of any defect in his title or mode of acquisition.
The various provisions of the Civil Code, pertinent to the subject, read:
Article 448. The owner of the land on which anything has been built, sown, or planted in good faith, shall have the
right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles
546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of
the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
Article 449. He who builds, plants, or sows in bad faith on the land of another, loses what is built, planted or sown
without right to indemnity.
Article 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition
at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of
the land, and the sower the proper rent.
A builder in good faith can, under the foregoing provisions, compel the landowner to make a choice between
appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The
choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory
follows the principal and not the other way around. [2] Even as the option lies with the landowner, the grant to him,
nevertheless, is preclusive. He much choose one. He cannot, for instance, compel the owner of the building to
instead remove it from the land. [3] In order, however, that the builder can invoke that accruing benefit and enjoy his
corresponding right to demand that a choice be made by the landowner, he should be able to prove good faith on his
part.

Good faith, here understood, is an intangible and abstract quality with no technical meaning or statutory
definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of
design to defraud or to seek an unconscionable advantage. An individuals personal good faith is a concept of his
own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of
intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry.[4] The essence of
good faith lies in an honest belief in the validity of ones right, ignorance of a superior claim, and absence of intention
to overreach another.[5] Applied to possession, one is considered in good faith if he is not aware that there exists in
his title or mode of acquisition any flaw which invalidates it.[6]
Given the findings of both the trial court and the appellate court, it should be evident enough that petitioner
would fall much too short from its claim of good faith. Evidently, petitioner was quite aware, and indeed advised, prior
to its acquisition of the land and building from Ignacio that a part of the building sold to it stood on the land not
covered by the land conveyed to it.
Equally significant is the fact that the building, constructed on the land by Ignacio, has in actuality been part of
the property transferred to petitioner. Article 448, of the Civil Code refers to a piece of land whose ownership is
claimed by two or more parties, one of whom has built some works (or sown or planted something) and not to a case
where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by
sale or otherwise for, elsewise stated, where the true owner himself is the builder of works on his own land,
the issue of good faith or bad faith is entirely irrelevant. [7]
In fine, petitioner is not in a valid position to invoke the provisions of Article 448 of the Civil Code. The Court
commiserates with petitioner in its present predicament; upon the other hand, respondent, too, is entitled to his rights
under the law, particularly after having long been deprived of the enjoyment of his property. Nevertheless, the Court
expresses hope that the parties will still be able to come up with an arrangement that can be mutually suitable and
acceptable to them.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56001 is AFFIRMED. No costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 193517

January 15, 2014

THE HEIRS OF VICTORINO SARILI, NAMELY: ISABEL A. SARILI,* MELENCIA** S. MAXIMO, ALBERTO A.
SARILI, IMELDA S. HIDALGO, all herein represented by CELSO A. SARILI, Petitioners,
vs.
PEDRO F. LAGROSA, represented in this act by his Attorney-in-Fact LOURDES LABIOS MOJICA,Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on Certiorari1 are the Decision2 dated May 20, 2010 and Resolution3 dated August
26, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 76258 which: (a) set aside the Decision4 dated May 27,
2002 of the Regional Trial Court of Caloocan City, Branch 131 (RTC) in Civil Case No. C-19152; (b) cancelled
Transfer Certificate of Title (TCT) No. 2622185 in the name of Victorino Sarili (Victorino) married to Isabel Amparo
(Sps. Sarili); (c) reinstated TCT No. 559796 in the name of respondent Pedro F. Lagrosa (respondent); and (d)
awarded respondent moral damages, attorneys fees and litigation expenses.
The Facts
On February 17, 2000, respondent, represented by his attorney-in-fact Lourdes Labios Mojica (Lourdes) via a special
power of attorney dated November 25, 19997 (November 25, 1999 SPA), filed a complaint8 against Sps. Sarili and the
Register of Deeds of Caloocan City (RD) before the RTC, alleging, among others, that he is the owner of a certain
parcel of land situated in Caloocan City covered by TCT No. 55979 (subject property) and has been religiously paying
the real estate taxes therefor since its acquisition on November 29, 1974. Respondent claimed that he is a resident of
California, USA, and that during his vacation in the Philippines, he discovered that a new certificate of title to the
subject property was issued by the RD in the name of Victorino married to Isabel Amparo (Isabel), i.e., TCT No.
262218, by virtue of a falsified Deed of Absolute Sale9 dated February 16, 1978 (February 16, 1978 deed of sale)
purportedly executed by him and his wife, Amelia U. Lagrosa (Amelia). He averred that the falsification of the said
deed of sale was a result of the fraudulent, illegal, and malicious acts committed by Sps. Sarili and the RD in order to
acquire the subject property and, as such, prayed for the annulment of TCT No. 262218, and that Sps. Sarili deliver
to him the possession of the subject property, or, in the alternative, that Sps. Sarili and the RD jointly and severally
pay him the amount of P1,000,000.00, including moral damages as well as attorneys fees.10
In their answer,11 Sps. Sarili maintained that they are innocent purchasers for value, having purchased the subject
property from Ramon B. Rodriguez (Ramon), who possessed and presented a Special Power of Attorney12(subject
SPA) to sell/dispose of the same, and, in such capacity, executed a Deed of Absolute Sale13 dated November 20,
1992 (November 20, 1992 deed of sale) conveying the said property in their favor. In this relation, they denied any
participation in the preparation of the February 16, 1978 deed of sale, which may have been merely devised by the
"fixer" they hired to facilitate the issuance of the title in their names.14 Further, they interposed a counterclaim for
moral and exemplary damages, as well as attorneys fees, for the filing of the baseless suit.15

During the pendency of the proceedings, Victorino passed away16 and was substituted by his heirs, herein
petitioners.17
The RTC Ruling
On May 27, 2002, the RTC rendered a Decision18 finding respondents signature on the subject SPA as "the same
and exact replica"19 of his signature in the November 25, 1999 SPA in favor of Lourdes.20 Thus, with Ramons
authority having been established, it declared the November 20, 1992 deed of sale21 executed by the latter as "valid,
genuine, lawful and binding"22 and, as such, had validly conveyed the subject property in favor of Sps. Sarili. It further
found that respondent "acted with evident bad faith and malice" and was, therefore, held liable for moral and
exemplary damages.23 Aggrieved, respondent appealed to the CA.
The CA Ruling
In a Decision24 dated May 20, 2010, the CA granted respondents appeal and held that the RTC erred in its ruling
since the November 20, 1992 deed of sale, which the RTC found "as valid and genuine," was not the source
document for the transfer of the subject property and the issuance of TCT No. 262218 in the name of Sps. Sarili25but
rather the February 16, 1978 deed of sale, the fact of which may be gleaned from the Affidavit of Late
Registration26 executed by Isabel (affidavit of Isabel). Further, it found that respondent w as "not only able to
preponderate his claim over the subject property, but [has] likewise proved that his and his wifes signatures in the
[February 16, 1978 deed of sale] x x x were forged."27 "[A] comparison by the naked eye of the genuine signature of
[respondent] found in his [November 25, 1999 SPA] in favor of [Lourdes], and those of his falsified signatures in [the
February 16, 1978 deed of sale] and [the subject SPA] shows that they are not similar."28 It also observed that "[t]he
testimony of [respondent] denying the authenticity of his purported signature with respect to the [February 16, 1978
deed of sale] was not rebutted x x x."29 In fine, the CA declared the deeds of sale dated February 16, 1978 and
November 20, 1992, as well as the subject SPA as void, and consequently ordered the RD to cancel TCT No. 262218
in the name of Victorino married to Isabel, and consequently reinstate TCT No. 55979 in respondents name.
Respondents claims for moral damages and attorneys fees/litigation expenses were also granted by the CA.30
Dissatisfied, petitioners moved for reconsideration which was, however, denied in a Resolution31 dated August 26,
2010, hence, the instant petition.
The Issues Before the Court
The main issue in this case is whether or not there was a valid conveyance of the subject property to Sps. Sarili. The
resolution of said issue would then determine, among others, whether or not: (a) TCT No. 262218 in the name of
Victorino married to Isabel should be annulled; and (b) TCT No. 55979 in respondents name should be reinstated.
The Courts Ruling
The petition lacks merit.
Petitioners essentially argue that regardless of the fictitious February 16, 1978 deed of sale, there was still a valid
conveyance of the subject property to Sps. Sarili who relied on the authority of Ramos (as per the subject SPA) to sell
the same. They posit that the due execution of the subject SPA between respondent and Ramon and, subsequently,
the November 20, 1992 deed of sale between Victorino and Ramon were duly established facts and that from the
authenticity and genuineness of these documents, a valid conveyance of the subject land from respondent to
Victorino had leaned upon.32
The Court is not persuaded.
It is well-settled that even if the procurement of a certificate of title was tainted with fraud and misrepresentation, such
defective title may be the source of a completely legal and valid title in the hands of an innocent purchaser for value.
Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the
property, the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such
an outright cancellation would be to impair public confidence in the certificate of title, for everyone dealing with
property registered under the Torrens system would have to inquire in every instance whether the title has been
regularly or irregularly issued. This is contrary to the evident purpose of the law.33
The general rule is that every person dealing with registered land may safely rely on the correctness of the certificate
of title issued therefor and the law will in no way oblige him to go beyond the certificate to determine the condition of
the property. Where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the
property, or any encumbrance thereon, the purchaser is not required to explore further than what the Torrens Title
upon its face indicates in quest for any hidden defects or inchoate right that may subsequently defeat his right
thereto.34
However, a higher degree of prudence is required from one who buys from a person who is not the registered owner,
although the land object of the transaction is registered. In such a case, the buyer is expected to examine not only the
certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the
transferor.35 The buyer also has the duty to ascertain the identity of the person with whom he is dealing with and the
latters legal authority to convey the property.36

The strength of the buyers inquiry on the sellers capacity or legal authority to sell depends on the proof of capacity
of the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the face
of such public document already constitutes sufficient inquiry. If no such special power of attorney is provided or there
is one but there appears to be flaws in its notarial acknowledgment, mere inspection of the document will not do; the
buyer must show that his investigation went beyond the document and into the circumstances of its execution.37
In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the strength of the
latters ostensible authority to sell under the subject SPA. The said document, however, readily indicates flaws in its
notarial acknowledgment since the respondents community tax certificate (CTC) number was not indicated thereon.
Under the governing rule on notarial acknowledgments at that time,38 i.e., Section 163(a) of Republic Act No. 7160,
otherwise known as the "Local Government Code of 1991," when an individual subject to the community tax
acknowledges any document before a notary public, it shall be the duty of the administering officer to require such
individual to exhibit the community tax certificate.39 Despite this irregularity, however, Sps. Sarili failed to show that
they conducted an investigation beyond the subject SPA and into the circumstances of its execution as required by
prevailing jurisprudence. Hence, Sps. Sarili cannot be considered as innocent purchasers for value.
The defective notarization of the subject SPA also means that the said document should be treated as a private
document and thus examined under the parameters of Section 20, Rule 132 of the Rules of Court which provides that
"before any private document offered as authentic is received in evidence, its due execution and authenticity must be
proved either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of the
signature or handwriting of the maker x x x." Settled is the rule that a defective notarization will strip the document of
its public character and reduce it to a private instrument, and the evidentiary standard of its validity shall be based on
preponderance of evidence.40
The due execution and authenticity of the subject SPA are of great significance in determining the validity of the sale
entered into by Victorino and Ramon since the latter only claims to be the agent of the purported seller (i.e.,
respondent). Article 1874 of the Civil Code provides that "[w]hen a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." In other words, if the
subject SPA was not proven to be duly executed and authentic, then it cannot be said that the foregoing requirement
had been complied with; hence, the sale would be void.
After a judicious review of the case, taking into consideration the divergent findings of the RTC and the CA on the
matter,41 the Court holds that the due execution and authenticity of the subject SPA were not sufficiently established
under Section 20, Rule 132 of the Rules of Court as above-cited.
While Ramon identified the signature of respondent on the subject SPA based on his alleged familiarity with the
latters signature,42 he, however, stated no basis for his identification of the signatures of respondents wife Amelia
and the witness, Evangeline F. Murral,43 and even failed to identify the other witness,44 who were also signatories to
the said document. In other words, no evidence was presented to authenticate the signatures of the other signatories
of the subject SPA outside from respondent.45
Besides, as the CA correctly observed, respondents signature appearing on the subject SPA is not similar46 to his
genuine signature appearing in the November 25, 1999 SPA in favor of Lourdes,47 especially the signature appearing
on the left margin of the first page.48
Unrebutted too is the testimony of respondent who, during trial, attested to the fact that he and his wife, Amelia, had
immigrated to the USA since 1968 and therefore could not have signed the subject SPA due to their absence.49
Further, records show that the notary public, Atty. Ramon S. Untalan, failed to justify why he did not require the
presentation of respondents CTC or any other competent proof of the identity of the person who appeared before
him to acknowledge the subject SPA as respondents free and voluntary act and deed despite the fact that he did not
personally know the latter and that he met him for the first time during the notarization. 50 He merely relied on the
representations of the person before him51 and the bank officer who accompanied the latter to his office,52 and further
explained that the reason for the omission of the CTC was "because in [a] prior document, [respondent] has probably
given us already his residence certificate."53 This "prior document," was not, however, presented during the
proceedings below, nor the CTC number ever identified.
Thus, in light of the totality of evidence at hand, the Court agrees with the CAs conclusion that respondent was able
to preponderate his claims of forgery against the subject SPA.54 In view of its invalidity, the November 20, 1992 sale
relied on by Sps. Sarili to prove their title to the subject property is therefore void.1wphi1
At this juncture, it is well to note that it was, in fact, the February 16, 1978 deed of sale which as the CA found
was actually the source of the issuance of TCT No. 262218. Nonetheless, this document was admitted to be also a
forgery.55 Since Sps. Sarilis claim over the subject property is based on forged documents, no valid title had been
transferred to them (and, in turn, to petitioners). Verily, when the instrument presented is forged, even if accompanied
by the owners duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the
assignee in the forged deed acquire any right or title to the property.56 Accordingly, TCT No. 262218 in the name of
Victorino married to Isabel should be annulled, while TCT No. 55979 in the name of respondent should be reinstated.
Anent the award of moral damages, suffice it to say that the dispute over the subject property had caused respondent
serious anxiety, mental anguish and sleepless nights, thereby justifying the aforesaid award.57Likewise, since

respondent was constrained to engage the services of counsel to file this suit and defend his interests, the awards of
attorneys fees and litigation expenses are also sustained.58
The Court, however, finds a need to remand the case to the court a quo in order to determine the rights and
obligations of the parties with respect to the house Sps. Sarili had built59 on the subject property in bad faith in
accordance with Article 449 in relation to Articles 450, 451, 452, and the first paragraph of Article 546 of the Civil
Code which respectively read as follows:
ART. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown
without right to indemnity.
ART. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the
demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition
at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of
the land, and the sower the proper rent.
ART. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter or
sower.
ART. 452. The builder, planter or sower in bad faith is entitled to reimbursement for the necessary expenses of
preservation of the land.
xxxx
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good faith may retain
the thing until he has been reimbursed therefor. (Emphases and underscoring supplied)
xxxx
To be deemed a builder in good faith, it is essential that a person asserts title to the land on which he builds, i.e. , that
he be a possessor in concept of owner, and that he be unaware that there exists in his title or mode of acquisition any
flaw which invalidates it.60 Good faith is an intangible and abstract quality with no technical meaning or statutory
definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of
design to defraud or to seek an unconscionable advantage. It implies honesty of intention, and freedom from
knowledge of circumstances which ought to put the holder upon inquiry.61 As for Sps. Sarili, they knew or at the very
least, should have known from the very beginning that they were dealing with a person who possibly had no
authority to sell the subject property considering the palpable irregularity in the subject SPAs acknowledgment. Yet,
relying solely on said document and without any further investigation on Ramoss capacity to sell Sps. Sarili still
chose to proceed with its purchase and even built a house thereon. Based on the foregoing it cannot be seriously
doubted that Sps. Sarili were actually aware of a flaw or defect in their title or mode of acquisition and have
consequently built the house on the subject property in bad faith under legal contemplation. The case is therefore
remanded to the court a quo for the proper application of the above-cited Civil Code provisions.
WHEREFORE, the petition is DENIED. The Decision dated May 20, 2010 and Resolution dated August 26, 2010 of
the Court of Appeals in CA-G.R. CV No. 76258 are AFFIRMED. However the case is REMANDED to the court a quo
for the proper application of Article 449 in relation to Articles 450 451 452 and the first paragraph of Article 546 of the
Civil Code with respect to the house Spouses Victorino Sarili and Isabel Amparo had built on the subject property as
herein discussed.
SO ORDERED.
SECOND DIVISION

G.R. No. 125683 March 2, 1999

EDEN BALLATAN and SPS. BETTY MARTINEZ and CHONG CHY LING, petitioners,
vs.
COURT OF APPEALS, GONZALO GO, WINSTON GO, LI CHING YAO, ARANETA INSTITUTE OF AGRICULTURE
and JOSE N. QUEDDING, respondents.

PUNO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals dated March 25, 1996 in CA-G.R. CV
No. 32472 entitled "Eden Ballatan., et. al., plaintiffs-appellees v. Gonzalo Go and Winston Go, appellants and thirdparty plaintiffs-appellants v. Li Ching Yao, et. al., third-party defendants." 1

The instant case arose from a dispute over forty-two (42) square meters of residential land belonging to petitioners.
The parties herein are owners of adjacent lots located at Block No. 3, Poinsettia Street, Araneta University Village,
Malabon, Metro Manila. Lot No. 24, 414 square meters in area, is registered in the name of petitioners Eden Ballatan
and spouses Betty Martinez and Chong Chy Ling. 2 Lots Nos. 25 and 26, with an area of 415 and 313 square meters
respectively, are registered in the name of respondent Gonzalo Go, Sr. 3 On Lot No. 25, respondent Winston Go, son
of Gonzalo Go, Sr., constructed his house. Adjacent to Lot No. 26 is Lot No. 27, 417 square meters in area, and is
registered in the name of respondent Li Ching Yao. 4
In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the construction, she noticed that the
concrete fence and side pathway of the adjoining house of respondent Winston Go encroached on the entire length
of the eastern side of her property. 5 Her building contractor formed her that the area of her lot was actually less than
that described in the title. Forthwith, Ballatan informed respondent Go of this discrepancy and his encroachment on
her property. Respondent Go, however, claimed that his house, including its fence and pathway, were built within the
parameters of his father's lot; and that this lot was surveyed by Engineer Jose Quedding, the authorized surveyor of
the Araneta Institute of Agriculture (AIA), the owner-developer of the subdivision project.
Petitioner Ballatan called the attention of the IAI to the discrepancy of the land area in her title and the actual land
area received from them. The AIA authorized another survey of the land by Engineer Jose N. Quedding.
In a report dated February 28, 1985, Engineer Quedding found that the lot area of petitioner Ballatan was less by few
meters and that of respondent Li Ching Yao, which was three lots away, increased by two (2) meters. Engineer
Quedding declared that he made a verification survey of Lots Nos. 25 and 26 of respondents Go in 1983 and
allegedly found the boundaries to have been in their proper position. He, however, could not explain the reduction in
Ballatan's area since he was not present at the time respondents Go constructed their boundary walls. 6
On June 2, 1985, Engineer Quedding made a third relocation survey upon request of the parties. He found that Lot
No. 24 lost approximately 25 square meters on its eastern boundary that Lot No. 25, although found to have
encroached on Lot No. 24, did not lose nor gain any area; that Lot No. 26 lost some three (3) square meters which,
however, were gained by Lot No. 27 on its western boundary. 7 In short, Lots Nos. 25, 26 and 27 moved westward to
the eastern boundary of Lot No. 24.
On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written demand on respondents Go to
remove and dismantle their improvements on Lot No. 24. Respondents Go refused. The parties including Li Ching
Yao, however, met several times to reach an agreement one matter.
Failing to agree amicably, petitioner Ballatan brought the issue before the barangay. Respondents Go did not appear.
Thus, on April 1, 1986, petitioner Ballatan instituted against respondents Go Civil Case No. 772-MN for recovery of
possession before the Regional Trial Court, Malabon, Branch 169. The Go' s filed their "Answer with Third-Party
Complaint" impleading as third-party defendants respondents Li Ching Yao, the AIA and Engineer Quedding.
On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go's to vacate the subject portion of
Lot No. 24, demolish their improvements and pay petitioner Ballatan actual damages, attorney's fees and the costs of
the suit. It dismissed the third-party complaint against: (1) AIA after finding that the lots sold to the parties were in
accordance with the technical description a verification plan covered by their respective titles; (2) Jose N. Quedding,
there being no privity of relation between him and respondents Go and his erroneous survey having been made at
the instance of AIA, not the parties; and (3) Li Ching Yao for failure to prove that he committed any wrong in the
subject encroachment. 8 The court made the following disposition:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
ordering the latter:
1. To demolish and remove all improvements existing and encroaching on plaintiff's lot;
2. To clear, vacate and deliver possession of the encroached area to the plaintiffs;
3. To pay plaintiffs jointly and severally the following:
a) P7,800.00 for the expenses paid to the surveyors;
b) P5,000.00 for plaintiffs' transportation;
4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25% of the current market
value of the subject matter in litigation at the time of execution; and
5. To pay the costs of suit.
The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go against thirdparty defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao is hereby
DISMISSED, without pronouncement as to costs.

SO ORDERED.
Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the decision of the trial court. It
affirmed the dismissal of the third-party complaint against the AIA but reinstated the complaint against Li Ching Yao
and Jose Quedding. Instead of ordering respondents Go to demolish their improvements on the subject land, the
appellate court ordered them to pay petitioner Ballatan, and respondent Li Ching Yao to pay respondents Go, a
reasonable amount for that portion of the lot which they encroached, the value to be fixed at the time of taking. It also
ordered Jose Quedding to pay respondents Go attorney's fees of P5,000.00 for his erroneous survey. The dispositive
portion of the decision reads:
WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED insofar as
the dismissal of the third-party complaint against Araneta Institute of Agriculture is concerned but
modified in all other aspects as follows:
1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable value of the
forty-two (42) square meters of their lot at the time of its taking;
2) Third-party defendant Li Ching Yao is hereby ordered to pay defendants-appellants the
reasonable value of the thirty-seven (37) square meters of the latter's lot at the time of its taking;
and
3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-appellants the
amount of P5,000.00 as attorney's fees.
LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for further
proceedings and reception of evidence for the determination of the reasonable value of Lots Nos.
24 and 26.
SO ORDERED. 9
Hence, this petition. Petitioners allege that:
RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND GRAVELY
ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN:
1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN UTTER
DISREGARD AND IN VIOLATION OR GROSS IGNORANCE OF EXISTING LAWS AND
JURISPRUDENCE VESTING BASIC PROPERTY RIGHTS TO HEREIN PETITIONERS.
RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN THE PRESENCE OF
EXISTING LAWS TO THE CONTRARY.
2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT
PARTIALITY AND FAVOR TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE
ENCROACHED AREA AT THE VALUE AT THE TIME OF ITS TAKING AND NOT THE VALUE AT
THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S BUT DEPRIVING PETITIONERS OF
THE FRUITS OR INCREASE IN VALUE OF THEIR PROPERTY TO WHICH THEY ARE
ENTITLED UNDER THE LAW AS THE REGISTERED OWNERS WITH TORRENS TITLE IN
THEIR NAMES.
3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT DUE TO NON-PAYMENT OF
ANY FILING OR DOCKET FEE.
4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY EXPENSES IN
PROTECTING THEIR RIGHTS IN THIS CASE. 10
Petitioners question the admission by respondent Court of Appeals of the third-party complaint by respondents Go
against the AIA, Jose Quedding and Li Ching Yao. Petitioners claim that the third-party complaint should not have
been considered by the Court of Appeals for lack of jurisdiction due to third-party plaintiffs' failure to pay the docket
and filing fees before the trial court.
The third-party complaint in the instant case arose from the complaint of petitioners against respondents Go. The
complaint filed was for accion publiciana, i.e., the recovery of possession of real property which is a real action. The
rule in this jurisdiction is that when an action is filed in court, the complaint must be accompanied the payment of the
requisite docket and filing fees. 11 In real actions, the docket and filing fees are based on the value of the property and
the amount of damages claimed, if any 12 If the complaint is filed but the fees are not paid at the time of filing, the
court acquires jurisdiction upon full payment of the fees within a reasonable time as the court may grant, barring
prescription. 13Where the fees prescribed for the real action have been paid but the fees of certain related damages
are not, the court, although having jurisdiction over the real action, may not have acquired jurisdiction over the
accompnying claim for damages.14 Accordingly, the court may expunge those claims for damages, or allow, on
motion, a reasonable time for amendment of the complaint so as to allege the precise amount of damages and
accept payment of the requisite legal fee. 15 If there are unspecified claims, the determination of which may arise after

the filing of the complaint or similar pleading, the additional filing fee thereon shall constitute a lien on the judgment
award. 16 The same rule also applies to third-party claims and other similar pleadings. 17
In the case at bar, the third-party complaint filed by respondents Go was incorporated in their answer to the
complaint. The third-party complaint sought the same remedy as the principal complaint but added a prayer for
attorney's fees and costs without specifying their amounts, thus:
ON THE THIRD PARTY COMPLAINT
1. That summons be issued against Third-Party Defendants Araneta Institute of Agriculture, Jose N.
Quedding and Li Ching Yao;
2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for whatever is
adjudged against the latter in favor of the Plaintiffs;
3. That Third-Party Defendants be ordered to pay attorney's fees as may be proved during trial;
4. That Third-Party Defendants be ordered to pay the costs.
Other just and equitable reliefs are also prayed for. 18
The Answer with Third-Party Complaint was admitted by the trial court without the requisite payment of filing fees,
particularly on the Go's prayer for damages. 19 The trial court did not award the Go's any damages. It dismissed the
third-party complaint. The Court of Appeals, however, granted the third-party complaint in part by ordering third-party
defendant Jose N. Quedding to pay the Go's the sum of P5,000.00 as attorney's fees.
Contrary to petitioners' claim, the Court of Appeal did not err in awarding damages despite the Go's failure to specify
the amount prayed for and pay the corresponding additional filing fees thereon. The claim for attorney's fees refers to
damages arising after the filing of the complaint against the Go's. The additional filing fee on this claim is deemed to
constitute a lien on the judgment award. 20
The Court of Appeals found that the subject portion is actually forty-two (42) square meters in area, not forty-five (45),
as initially found by the trial court; that this forty-two (42) square meter portion is on the entire eastern side of Lot No.
24 belonging to petitioners; that this said portion is found the concrete fence and pathway that extends from
respondent Winston Go's house on adjacent Lot No. 25; that inclusive of the subject portion, respondents Go did not
gain nor lose any portion of Lots Nos. 25 and 26; that instead, Lot No. 27, on which respondent Li Ching Yao built his
house, encroached on the land of respondents Go, gaining in the process thirty-seven (37) square meters of the
latter's land. 21
We hold that the Court of Appeals correctly dismissed the third-party complaint against AIA.. The claim that the
discrepancy in the lot areas was due to AIA's fault was not proved. The appellate court, however, found that it was the
erroneous survey by Engineer Quedding that triggered these discrepancies. And it was this survey that respondent
Winston Go relied upon in constructing his house on his father's land. He built his house in the belief that it was
entirely within the parameters of his father's land. In short, respondents Go had no knowledge that they encroached
petitioners' lot. They are deemed builders in good faith 22 until the time petitioner Ballatan informed them of their
encroachment on her property. 23
Respondent Li Ching Yao built his house on his lot before any of the other parties did. 24 He constructed his house in
1982, respondents Go in 1983, and petitioners in 1985. 25 There is no evidence, much less, any allegation that
respondent Li Ching Yao was aware that when he built his house he knew that a portion thereof encroached on
respondents Go's adjoining land. Good faith is always presumed, and upon him who alleges bad faith on the part of a
possessor rests the burden of proof. 26
All the parties are presumed to have acted in good faith. Their rights must, therefore, be determined in accordance
with the appropriate provisions of the Civil Code on property.
Art. 448 of the Civil Code provides:
Art. 448. The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, 27 or to oblige the one who built or planted to pay the
price of the land, and the one who sowed the proper rent. However, the builder or planter cannot be
obliged to buy the land if its value is considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
The owner of the land on which anything has been built, sown or planted in good faith shall have the right to
appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the
necessary and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure. The

owner of the land may also oblige the builder, planter or sower to purchase and pay the price of the land. If
the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the
owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to
purchase the land if its value considerably more than the building, planting or sowing. In such case, the
builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the
conditions of the lease, the court must fix the terms thereof. The right to choose between appropriating the
improvement or selling the land on which the improvement stands to the builder, planter or sower, is given to
the owner of the land. 28
Art. 448 has been applied to improvements or portions of improvements built by mistaken belief on land belonging to
the adjoining owner. 29 The facts of the instant case are similar to those in Cabral v. Ibanez, 30 to wit:
[P]laintiffs Geronima Zabala and her husband Justino Bernardo, constructed their house in the
belief that it was entirely within the area of their own land without knowing at that time that part of
their house was occupying a 14-square meter portion of the adjoining lot belonging to the
defendants, and that the defendants Bernardo M. Cabral and Mamerta M. Cabral were likewise
unaware of the fact that a portion of plaintiff's house was extending and occupying a portion of their
lot with an area of 14 square meters. The parties came to know of the fact that part of the plaintiff's
house was occupying part of defendant's land when the construction of plaintiff's house was about
to be finished, after a relocation of the monuments of the two properties had been made by the
U.S. Army through the Bureau of Lands, according to their "Stipulation of Facts," dated August 17,
1951.
On the basis of these facts, we held that:
The court, therefore, concludes that the plaintiffs are builders in good faith and the relative rights of
the defendant Mamerta Cabral as owner of the land and of the plaintiffs as owners of the building is
governed by Article 361 of the Civil Code (Co Tao v. Joaquin Chan Chico, 46 Off. Gaz.5514). Article
361 of the old Civil Code has been reproduced with an additional provision in Article 448 of the new
Civil Code, approved June 18, 1949. 31
Similarly, in Grana and Torralba v. Court of Appeals, 32 we held that:
Although without any legal and valid claim over the land in question, petitioners, however, were
found by the Court of Appeals to have constructed a portion of their house thereon in good faith.
Under Article 361 of the old Civil Code (Article 448 of the new), the owner of the land on which
anything has been built in good faith shall have the right to appropriate as his own the building,
after payment to the builder of necessary or useful expenses, and in the proper case, expenses for
pure luxury or mere pleasure, or to oblige the builder to pay the price of the land. Respondents, as
owners of the land, have therefore the choice of either appropriating the portion of petitioners'
house which is on their land upon payment of the proper indemnity to petitioners, or selling to
petitioners that part of their land on which stands the improvement. It may here be pointed out that
it would be impractical for respondents to choose to exercise the first alternative, i.e., buy that
portion of the house standing on their land, for in that event the whole building might be rendered
useless. The more workable solution, it would seem, is for respondents to sell to petitioners that
part of their land on which was constructed a portion of the latter's house. If petitioners are unwilling
or unable to buy, then they must vacate the land and must pay rentals until they do so. Of course,
respondents cannot oblige petitioners to buy the land if its value is considerably more than that of
the aforementioned portion of the house. If such be the case, then petitioners must pay reasonable
rent. The parties must come to an agreement as to the conditions of the lease, and should they fail
to do so, then the court shall fix the same. 33
In light of these rulings, petitioners, as owners of Lot No. 24, may choose to purchase the improvement made by
respondents Go on their land, or sell to respondents Go the subject portion. If buying the improvement is impractical
as it may render the Go's house useless, then petitioners may sell to respondents Go that portion of Lot No. 24 on
which their improvement stands. If the Go's are unwilling or unable to buy the lot, then they must vacate the land and,
until they vacate, they must pay rent to petitioners. Petitioners, however, cannot compel respondents Go to buy the
land if its value is considerably more than the portion of their house constructed thereon. If the value of the land is
much more than the Go's improvement, the respondents Go must pay reasonable rent. If they do not agree on the
terms of the lease, then they may go to court to fix the same.
In the event that petitioners elect to sell to respondents Go the subject portion of their lot, the price must be fixed at
the prevailing market value at the time of payment. The Court of Appeals erred in fixing the price at the time of taking,
which is the time the improvements were built on the land. The time of taking is determinative of just compensation in
expropriation proceedings. The instant case is not for expropriation. It is not a taking by the state of private property
for a public purpose upon payment of just compensation. This is a case of an owner who has been paying real estate
taxes on his land but has been deprived of the use of a portion of this land for years. It is but fair and just to fix
compensation at the time of payment. 34
Art. 448 and the same conditions abovestated also apply to respondents Go as owners and possessors of their land
and respondent Li Ching Yao as builder of the improvement that encroached on thirty-seven (37) square meters of
respondents Go's land.

IN VIEW WHEREOF, the decision of respondent Court of Appeals is modified as follows:

(1) Petitioners are ordered to exercise within thirty (30) days from finality of this decision their option to either buy the
portion of respondents Go's improvement on their Lot No. 24, or sell to said respondents the portion of their land on
which the improvement stands. If petitioners elect to sell the land or buy the improvement, the purchase price must
be at the prevailing market price at the time of payment. If buying the improvement will render respondents Go's
house useless, then petitioners should sell the encroached portion of their land to respondents Go. If petitioners
choose to sell the land but respondents Go are unwilling or unable to buy, then the latter must vacate the subject
portion and pay reasonable rent from the time petitioners made their choice up to the time they actually vacate the
premises. But if the value of the land is considerably more than the value of the improvement, then respondents Go
may elect to lease the land, in which case the parties shall agree upon the terms, the lease. Should they fail to agree
on said terms, the court of origin is directed to fix the terms of the lease.
From the moment petitioners shall have exercised their option, respondents Go shall pay reasonable monthly rent up
to the time the parties agree on the terms of the lease or until the court fixes such terms.
(2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos. 25 and 26, vis-avisrespondent Li Ching Yao as builder of the improvement that encroached on thirty seven (37) square meters of
respondents Go 's land in accordance with paragraph one abovementioned.
(3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party defendant, to pay attorney's fees
of P5,000.00 to respondents Go is affirmed. The additional filing fee on the damages constitutes a lien on this award.
(4) The Decision of the Court of Appeals dismissing third-party complaint against Araneta Institute of Agriculture is
affirmed.
SO ORDERED.
SECOND DIVISION
G.R. No. 176791

November 14, 2012

COMMUNITIES CAGAYAN, INC., Petitioner,

vs.
SPOUSES ARSENIO (Deceased) and ANGELES NANOL AND ANYBODY CLAIMING RIGHTS UNDER
THEM,Respondents.
DECISION
DEL CASTILLO, J.:
LAWS fill the gap in a contract.
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the December 29. 2006
Decision2 and the February 12, 2007 Order3 of the Regional Trial Court (RTC), Cagayan De Oro City, Branch 18, in
Civil Case No. 2005-158.
Factual Antecedents
Sometimes in 1994, respondent-spouses Arsenio and Angeles Nanol entered into a Contract to Sell4 with petitioner
Communities Cagayan, Inc.,5 whereby the latter agreed to sell to respondent-spouses a house and Lots 17 and
196 located at Block 16, Camella Homes Subdivision, Cagayan de Oro City, 7 for the price of
P368,000.00.8 Respondent-spouses, however, did not avail of petitioners inhouse financing due to its high interest
rates.9 Instead, they obtained a loan from Capitol Development Bank, a sister company of petitioner, using the
property as collateral.10 To facilitate the loan, a simulated sale over the property was executed by petitioner in favor of
respondent-spouses.11 Accordingly, titles were transferred in the names of respondent-spouses under Transfer
Certificates of Title (TCT) Nos. 105202 and 105203, and submitted to Capitol Development Bank for loan
processing.12 Unfortunately, the bank collapsed and closed before it could release the loan.13
Thus, on November 30, 1997, respondent-spouses entered into another Contract to Sell14 with petitioner over the
same property for the same price of P368,000.00.15 This time, respondent-spouses availed of petitioners in-house
financing16thus, undertaking to pay the loan over four years, from 1997 to 2001.17
Sometime in 2000, respondent Arsenio demolished the original house and constructed a three-story house allegedly
valued at P3.5 million, more or less.18
In July 2001, respondent Arsenio died, leaving his wife, herein respondent Angeles, to pay for the monthly
amortizations.19

On September 10, 2003, petitioner sent respondent-spouses a notarizedNotice of Delinquency and Cancellation of
Contract to Sell20 due to the latters failure to pay the monthly amortizations.
In December 2003, petitioner filed before Branch 3 of the Municipal Trial Court in Cities of Cagayan de Oro City, an
action for unlawful detainer, docketed as C3-Dec-2160, against respondent-spouses.21 When the case was referred
for mediation, respondent Angeles offered to pay P220,000.00 to settle the case but petitioner refused to accept the
payment.22 The case was later withdrawn and consequently dismissed because the judge found out that the titles
were already registered under the names of respondent-spouses.23
Unfazed by the unfortunate turn of events, petitioner, on July 27, 2005, filed before Branch 18 of the RTC, Cagayan
de Oro City, a Complaint for Cancellation of Title, Recovery of Possession, Reconveyance and Damages,24 docketed
as Civil Case No. 2005-158, against respondent-spouses and all persons claiming rights under them. Petitioner
alleged that the transfer of the titles in the names of respondent-spouses was made only in compliance with the
requirements of Capitol Development Bank and that respondent-spouses failed to pay their monthly amortizations
beginning January 2000.25 Thus, petitioner prayed that TCT Nos. T-105202 and T-105203 be cancelled, and that
respondent Angeles be ordered to vacate the subject property and to pay petitioner reasonable monthly rentals from
January 2000 plus damages.26
In her Answer,27 respondent Angeles averred that the Deed of Absolute Sale is valid, and that petitioner is not the
proper party to file the complaint because petitioner is different from Masterplan Properties, Inc.28 She also prayed for
damages by way of compulsory counterclaim.29
In its Reply,30 petitioner attached a copy of its Certificate of Filing of Amended Articles of Incorporation31 showing that
Masterplan Properties, Inc. and petitioner are one and the same. As to the compulsory counterclaim for damages,
petitioner denied the same on the ground of "lack of knowledge sufficient to form a belief as to the truth or falsity of
such allegation."32
Respondent Angeles then moved for summary judgment and prayed that petitioner be ordered to return the owners
duplicate copies of the TCTs.33
Pursuant to Administrative Order No. 59-2005, the case was referred for mediation.34 But since the parties failed to
arrive at an amicable settlement, the case was set for preliminary conference on February 23, 2006.35
On July 7, 2006, the parties agreed to submit the case for decision based on the pleadings and exhibits presented
during the preliminary conference.36
Ruling of the Regional Trial Court
On December 29, 2006, the RTC rendered judgment declaring the Deed of Absolute Sale invalid for lack of
consideration.37 Thus, it disposed of the case in this wise:
WHEREFORE, the Court hereby declares the Deed of Absolute Sale VOID. Accordingly, Transfer Certificates of Title
Nos. 105202 and 105203 in the names of the [respondents], Arsenio (deceased) and Angeles Nanol, are
ordered CANCELLED. The [respondents] and any person claiming rights under them are directed to turn-over the
possession of the house and lot to [petitioner], Communities Cagayan, Inc., subject to the latters payment of their
total monthly installments and the value of the new house minus the cost of the original house.
SO ORDERED.38
Not satisfied, petitioner moved for reconsideration of the Decision but the Motion39 was denied in an Order40dated
February 12, 2007.
Issue
Instead of appealing the Decision to the Court of Appeals (CA), petitioner opted to file the instant petition directly with
this Court on a pure question of law, to wit:
WHETHER X X X THE ACTION OF THE RTC BRANCH 18 X X X IN ORDERING THE RECOVERY OF
POSSESSION BY PETITIONER subject to the latters payment of their total monthly installments and the value of
the new house minus the cost of the original house IS CONTRARY TO LAW AND JURISPRUDENCE X X X.41
Petitioners Arguments
Petitioner seeks to delete from the dispositive portion the order requiring petitioner to reimburse respondent-spouses
the total monthly installments they had paid and the value of the new house minus the cost of the original
house.42 Petitioner claims that there is no legal basis for the RTC to require petitioner to reimburse the cost of the
new house because respondent-spouses were in bad faith when they renovated and improved the house, which was
not yet their own.43 Petitioner further contends that instead of ordering mutual restitution by the parties, the RTC
should have applied Republic Act No. 6552, otherwise known as the Maceda Law,44 and that instead of awarding
respondent-spouses a refund of

all their monthly amortization payments, the RTC should have ordered them to pay petitioner monthly rentals.45
Respondent Angeles Arguments
Instead of answering the legal issue raised by petitioner, respondent Angeles asks for a review of the Decision of the
RTC by interposing additional issues.46 She maintains that the Deed of Absolute Sale is valid.47 Thus, the RTC erred
in cancelling TCT Nos. 105202 and 105203.
Our Ruling
The petition is partly meritorious.
At the outset, we must make it clear that the issues raised by respondent Angeles may not be entertained. For failing
to file an appeal, she is bound by the Decision of the RTC. Well entrenched is the rule that "a party who does not
appeal from a judgment can no longer seek modification or reversal of the same. He may oppose the appeal of the
other party only on grounds consistent with the judgment."48 For this reason, respondent Angeles may no longer
question the propriety and correctness of the annulment of the Deed of Absolute Sale, the cancellation of TCT Nos.
105202 and 105203, and the order to vacate the property.
Hence, the only issue that must be resolved in this case is whether the RTC erred in ordering petitioner to reimburse
respondent-spouses the "total monthly installments and the value of the new house minus the cost of the original
house."49 Otherwise stated, the issues for our resolution are:
1) Whether petitioner is obliged to refund to respondent-spouses all the monthly installments paid; and
2) Whether petitioner is obliged to reimburse respondent-spouses the value of the new house minus the cost
of the original house.
Respondent-spouses are entitled to the
cash surrender value of the payments
on the property equivalent to 50% of the
total payments made.
Considering that this case stemmed from a Contract to Sell executed by the petitioner and the respondent-spouses,
we agree with petitioner that the Maceda Law, which governs sales of real estate on installment, should be applied.
Sections 3, 4, and 5 of the Maceda Law provide for the rights of a defaulting buyer, to wit:
Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments,
including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants
under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by
him which is hereby fixed at the rate of one month grace period for every one year of installment payments
made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the
contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of the total payments made, and, after five years
of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the total number of
installment payments made. (Emphasis supplied.)
Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period
of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract
after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by
a notarial act.
Section 5. Under Sections 3 and 4, the buyer shall have the right to sell his rights or assign the same to another
person or to reinstate the contract by updating the account during the grace period and before actual cancellation of
the contract. The deed of sale or assignment shall be done by notarial act.

In this connection, we deem it necessary to point out that, under the Maceda Law, the actual cancellation of a
contract to sell takes place after 30 days from receipt by the buyer of the notarized notice of cancellation,50 and upon
full payment of the cash surrender value to the buyer.51 In other words, before a contract to sell can be validly and
effectively cancelled, the seller has (1) to send a notarized notice of cancellation to the buyer and (2) to refund the
cash surrender value.52 Until and unless the seller complies with these twin mandatory requirements, the contract to
sell between the parties remains valid and subsisting.53 Thus, the buyer has the right to continue occupying the
property subject of the contract to sell,54 and may "still reinstate the contract by updating the account during the grace
period and before the actual cancellation"55 of the contract.
In this case, petitioner complied only with the first condition by sending a notarized notice of cancellation to the
respondent-spouses. It failed, however, to refund the cash surrender value to the respondent-spouses. Thus, the
Contract to Sell remains valid and subsisting and supposedly, respondent-spouses have the right to continue
occupying the subject property. Unfortunately, we cannot reverse the Decision of the RTC directing respondentspouses to vacate and turnover possession of the subject property to petitioner because respondent-spouses never
appealed the order. The RTC Decision as to respondent-spouses is therefore considered final.
In addition, in view of respondent-spouses failure to appeal, they can no longer reinstate the contract by updating the
account. Allowing them to do so would be unfair to the other party and is offensive to the rules of fair play, justice, and
due process. Thus, based on the factual milieu of the instant case, the most that we can do is to order the return of
the cash surrender value. Since respondent-spouses paid at least two years of installment,56 they are entitled to
receive the cash surrender value of the payments they had made which, under Section 3(b) of the Maceda Law, is
equivalent to 50% of the total payments made.
Respondent-spouses are entitled to
reimbursement of the improvements
made on the property.
Petitioner posits that Article 448 of the Civil Code does not apply and that respondent-spouses are not entitled to
reimbursement of the value of the improvements made on the property because they were builders in bad faith. At
the outset, we emphasize that the issue of whether respondent-spouses are builders in good faith or bad faith is a
factual question, which is beyond the scope of a petition filed under Rule 45 of the Rules of Court.57 In fact, petitioner
is deemed to have waived all factual issues since it appealed the case directly to this Court,58 instead of elevating the
matter to the CA. It has likewise not escaped our attention that after their failed preliminary conference, the parties
agreed to submit the case for resolution based on the pleadings and exhibits presented. No trial was conducted.
Thus, it is too late for petitioner to raise at this stage of the proceedings the factual issue of whether respondentspouses are ilders in bad faith. Hence, in view of the special circumstances obtaining in this case, we are constrained
to rely on the presumption of good faith on the part of the respondent-spouses which the petitioner failed to rebut.
Thus, respondent-spouses being presumed builders in good faith, we now rule on the applicability of Article 448 of
the Civil Code.
As a general rule, Article 448 on builders in good faith does not apply where there is a contractual relation between
the parties,59 such as in the instant case. We went over the records of this case and we note that the parties failed to
attach a copy of the Contract to Sell. As such, we are constrained to apply Article 448 of the Civil Code, which
provides viz:
ART. 448. The owner of the land on which anything has been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546
and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of
the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
Article 448 of the Civil Code applies when the builder believes that he is the owner of the land or that by some title he
has the right to build thereon,60 or that, at least, he has a claim of title thereto.61 Concededly, this is not present in the
instant case. The subject property is covered by a Contract to Sell hence ownership still remains with petitioner being
the seller. Nevertheless, there were already instances where this Court applied Article 448 even if the builders do not
have a claim of title over the property. Thus:
This Court has ruled that this provision covers only cases in which the builders, sowers or planters believe
themselves to be owners of the land or, at least, to have a claim of title thereto. It does not apply when the interest is
merely that of a holder, such as a mere tenant, agent or usufructuary. From these pronouncements, good faith is
identified by the belief that the land is owned; or that by some title one has the right to build, plant, or sow
thereon.
However, in some special cases, this Court has used Article 448 by recognizing good faith beyond this limited
definition. Thus, in Del Campo v. Abesia, this provision was applied to one whose house despite having been built
at the time he was still co-owner overlapped with the land of another. This article was also applied to cases wherein
a builder had constructed improvements with the consent of the owner. The Court ruled that the law deemed the
builder to be in good faith. In Sarmiento v. Agana, the builders were found to be in good faith despite their reliance on
the consent of another, whom they had mistakenly believed to be the owner of the land.62

The Court likewise applied Article 448 in Spouses Macasaet v. Spouses Macasaet63 notwithstanding the fact that the
builders therein knew they were not the owners of the land. In said case, the parents who owned the land allowed
their son and his wife to build their residence and business thereon. As found by this Court, their occupation was not
by mere tolerance but "upon the invitation of and with the complete approval of (their parents), who desired that their
children would occupy the premises. It arose from familial love and a desire for family solidarity x x x."64 Soon after,
conflict between the parties arose. The parents demanded their son and his wife to vacate the premises. The Court
thus ruled that as owners of the property, the parents have the right to possession over it. However, they must
reimburse their son and his wife for the improvements they had introduced on the property because they were
considered builders in good faith even if they knew for a fact that they did not own the property, thus:
Based on the aforecited special cases, Article 448 applies to the present factual milieu. The established facts of this
case show that respondents fully consented to the improvements introduced by petitioners. In fact, because the
children occupied the lots upon their invitation, the parents certainly knew and approved of the construction of the
improvements introduced thereon. Thus, petitioners may be deemed to have been in good faith when they built the
structures on those lots.
The instant case is factually similar to Javier v. Javier. In that case, this Court deemed the son to be in good faith for
building the improvement (the house) with the knowledge and consent of his father, to whom belonged the land upon
which it was built. Thus, Article 448 was applied.65
In fine, the Court applied Article 448 by construing good faith beyond its limited definition. We find no reason not to
apply the Courts ruling in Spouses Macasaet v. Spouses Macasaet in this case. We thus hold that Article 448 is also
applicable to the instant case. First, good faith is presumed on the part of the respondent-spouses. Second, petitioner
failed to rebut this presumption. Third, no evidence was presented to show that petitioner opposed or objected to the
improvements introduced by the respondent-spouses. Consequently, we can validly presume that petitioner
consented to the improvements being constructed. This presumption is bolstered by the fact that as the subdivision
developer, petitioner must have given the respondent-spouses permits to commence and undertake the construction.
Under Article 453 of the Civil Code, "it is understood that there is bad faith on the part of the landowner whenever the
act was done with his knowledge and without opposition on his part."
In view of the foregoing, we find no error on the part of the RTC in requiring petitioner to pay respondent-spouses the
value of the new house minus the cost of the old house based on Article 448 of the Civil Code, subject to succeeding
discussions.
Petitioner has two options under Article
448 and pursuant to the ruling in
Tuatis v. Escol.66
In Tuatis, we ruled that the seller (the owner of the land) has two options under Article 448: (1) he may appropriate
the improvements for himself after reimbursing the buyer (the builder in good faith) the necessary and useful
expenses under Articles 54667 and 54868 of the Civil Code; or (2) he may sell the land to the buyer, unless its value is
considerably more than that of the improvements, in which case, the buyer shall pay reasonable rent.69Quoted below
are the pertinent portions of our ruling in that case:
Taking into consideration the provisions of the Deed of Sale by Installment and Article 448 of the Civil Code, Visminda
has the following options:
Under the first option, Visminda may appropriate for herself the building on the subject property after
indemnifying Tuatis for the necessary and useful expenses the latter incurred for said building, as provided
in Article 546 of the Civil Code.
It is worthy to mention that in Pecson v. Court of Appeals, the Court pronounced that the amount to be refunded to
the builder under Article 546 of the Civil Code should be the current market value of the improvement, thus:
xxxx
Until Visminda appropriately indemnifies Tuatis for the building constructed by the latter, Tuatis may retain possession
of the building and the subject property.
Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to
pay the present or current fair value of the land. The P10,000.00 price of the subject property, as stated in the
Deed of Sale on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis
to pay for the price of the land in the exercise of Vismindas rights under Article 448 of the Civil Code, and not under
the said Deed. Tuatis obligation will then be statutory, and not contractual, arising only when Visminda has chosen
her option under Article 448 of the Civil Code.
Still under the second option, if the present or current value of the land, the subject property herein, turns out
to be considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the
subject property, but she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree
on the terms of the lease; otherwise, the court will fix the terms.

Necessarily, the RTC should conduct additional proceedings before ordering the execution of the judgment in Civil
Case No. S-618. Initially, the RTC should determine which of the aforementioned options Visminda will choose.
Subsequently, the RTC should ascertain: (a) under the first option, the amount of indemnification Visminda must pay
Tuatis; or (b) under the second option, the value of the subject property vis--vis that of the building, and depending
thereon, the price of, or the reasonable rent for, the subject property, which Tuatis must pay Visminda.
The Court highlights that the options under Article 448 are available to Visminda, as the owner of the subject property.
There is no basis for Tuatis demand that, since the value of the building she constructed is considerably higher than
the subject property, she may choose between buying the subject property from Visminda and selling the building to
Visminda for P502,073.00. Again, the choice of options is for Visminda, not Tuatis, to make. And, depending on
Vismindas choice, Tuatis rights as a builder under Article 448 are limited to the following: (a) under the first option, a
right to retain the building and subject property until Visminda pays proper indemnity; and (b) under the second
option, a right not to be obliged to pay for the price of the subject property, if it is considerably higher than the value of
the building, in which case, she can only be obliged to pay reasonable rent for the same.
The rule that the choice under Article 448 of the Civil Code belongs to the owner of the land is in accord with the
principle of accession, i.e., that the accessory follows the principal and not the other way around. Even as the option
lies with the landowner, the grant to him, nevertheless, is preclusive. The landowner cannot refuse to exercise either
option and compel instead the owner of the building to remove it from the land.
The raison detre for this provision has been enunciated thus: Where the builder, planter or sower has acted in good
faith, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the impracticability of creating a state of
forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the
improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the
sower the proper rent. He cannot refuse to exercise either option. It is the owner of the land who is authorized to
exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the
ownership of the accessory thing.
Vismindas Motion for Issuance of Writ of Execution cannot be deemed as an expression of her choice to recover
possession of the subject property under the first option, since the options under Article 448 of the Civil Code and
their respective consequences were also not clearly presented to her by the 19 April 1999 Decision of the RTC. She
must then be given the opportunity to make a choice between the options available to her after being duly informed
herein of her rights and obligations under both.70 (Emphasis supplied.)
In conformity with the foregoing pronouncement, we hold that petitioner, as landowner, has two options. It may
appropriate the new house by reimbursing respondent Angeles the current market value thereof minus the cost of the
old house. Under this option, respondent Angeles would have "a right of retention which negates the obligation to pay
rent."71 In the alternative, petitioner may sell the lots to respondent Angeles at a price equivalent to the current fair
value thereof. However, if the value of the lots is considerably more than the value of the improvement, respondent
Angeles cannot be compelled to purchase the lots. She can only be obliged to pay petitioner reasonable rent.
In view of the foregoing disquisition and in accordance with Depra v. Dumlao72 and Technogas Philippines
Manufacturing Corporation v. Court of Appeals,73 we find it necessary to remand this case to the court of origin for the
purpose of determining matters necessary for the proper application of Article 448, in relation to Articles 546 and 548
of the Civil Code.
WHEREFORE, the petition is hereby PARTIALLY GRANTED. The assailed Decision dated December 29, 2006 and
the Order dated February 12, 2007 of the Regional Trial Court, Cagayan de Oro City, Branch 18, in Civil Case No.
2005-158 are hereby AFFIRMED with MODIFICATION that petitioner Communities Cagayan, Inc. is hereby ordered
to RETURN the cash surrender value of the payments made by respondent-spouses on the properties, which is
equivalent to 50% of the total payments made, in ccordance with Section 3(b) of Republic Act No. 6552, otherwise
known as the Maceda Law.
The case is hereby REMANDED to the Regional Trial Court, Cagayan de Oro City, Branch 18, for further proceedings
consistent with the proper application of Articles 448, 546 and 548 of the Civil Code, as follows:
1. The trial court shall determine:
a) the present or current fair value of the lots;
b) the current market value of the new house;
c) the cost of the old house; and
d) whether the value of the lots is considerably more than the current market value of the new house minus
the cost of the old house.
2. After said amounts shall have been determined by competent evidence, the trial court shall render judgment as
follows:

a) Petitioner shall be granted a period of 15 days within which to exercise its option under the law (Article
448, Civil Code), whether to appropriate the new house by paying to respondent Angeles the current market
value of the new house minus the cost of the old house, or to oblige respondent Angeles to pay the price of
the lots. The amounts to be respectively paid by the parties, in accordance with the option thus exercised by
written notice to the other party and to the court, shall be paid by the obligor within 15 days from such notice
of the option by tendering the amount to the trial court in favor of the party entitled to receive it.
b) If petitioner exercises the option to oblige respondent Angeles to pay the price of the lots but the latter
rejects such purchase because, as found by the trial court, the value of the lots is considerably more than
the value of the new house minus the cost of the old house, respondent Angeles shall give written notice of
such rejection to petitioner and to the trial court within 15 days from notice of petitioners option to sell the
land. In that event, the parties shall be given a period of 15 days from such notice of rejection within which to
agree upon the terms of the lease, and give the trial court formal written notice of the agreement and its
provisos. If no agreement is reached by the parties, the trial court, within 15 days from and after the
termination of the said period fixed for negotiation, shall then fix the period and terms of the lease, including
the monthly rental, which shall be payable within the first five days of each calendar month. Respondent
Angeles shall not make any further constructions or improvements on the building. Upon expiration of the
period, or upon default by respondent Angeles in the payment of rentals for two consecutive months,
petitioner shall be entitled to terminate the forced lease, to recover its land, and to have the new house
removed by respondent Angeles or at the latters expense.
c) In any event, respondent Angeles shall pay petitioner reasonable compensation for the occupancy of the
property for the period counted from the time the Decision dated December 29, 2006 became final as to
respondent Angeles or 15 days after she received a copy of the said Decision up to the date petitioner
serves notice of its option to appropriate the encroaching structures, otherwise up to the actual transfer of
ownership to respondent Angeles or, in case a forced lease has to be imposed, up to the commencement
date of the forced lease referred to in the preceding paragraph.1wphi1
d) The periods to be fixed by the trial court in its decision shall be nonextendible, 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.
SO ORDERED.
FIRST DIVISION
G.R. No. 182378

March 6, 2013

MERCY VDA. DE ROXAS, represented by ARLENE C. ROXAS-CRUZ, in her capacity as substitute appellantpetitioner, Petitioner,
vs.
OUR LADY'S FOUNDATION, INC., Respondent.
DECISION
SERENO, CJ.:
Before this Court is a Rule 45 Petition, seeking a review of the Court of Appeals (CA) 25 September 2007
Decision1 and 11 March 2008 Resolution2 in CA-G.R. SP No. 88622, which nullified the (1) Notices of Garnishment
directed against the bank accounts of petitioner's general manager; and (2) the 2 December 2004 Order3 in Civil
Case No. 5403 of the Regional Trial Court (RTC) of Sorsogon City, Branch 52. The Order required respondent to
reimburse petitioner Pl ,800 per square meter of the 92-square-meter property it had encroached upon.
The antecedent facts are as follows:
On 1 September 1988, Salve Dealca Latosa filed before the RTC a Complaint for the recovery of ownership of a
portion of her residential land located at Our Ladys Village, Bibincahan, Sorsogon, Sorsogon, docketed as Civil Case
No. 5403. According to her, Atty. Henry Amado Roxas (Roxas), represented by petitioner herein, encroached on a
quarter of her property by arbitrarily extending his concrete fence beyond the correct limits.
In his Answer, Roxas imputed the blame to respondent Our Ladys Village Foundation, Inc., now Our Ladys
Foundation, Inc. (OLFI). He then filed a Third-Party Complaint against respondent and claimed that he only occupied
the adjoining portion in order to get the equivalent area of what he had lost when OLFI trimmed his property for the
subdivision road. The RTC admitted the Third-Party Complaint and proceeded to trial on the merits.
After considering the evidence of all the parties, the trial court held that Latosa had established her claim of
encroachment by a preponderance of evidence. It found that Roxas occupied a total of 112 square meters of Latosas
lots, and that, in turn, OLFI trimmed his property by 92 square meters. The dispositive portion of the Decision 4 reads:
WHEREFORE, the Court hereby renders judgment as follows:

On the Complaint:
1. Ordering the defendant to return and surrender the portion of 116 sq. meters which lawfully belongs to the
plaintiff being a portion of Lot 19;
2. Ordering defendant to demolish whatever structure constructed [sic] thereon and to remove the same at
his own expense;
3. Ordering defendant to. reimburse plaintiff the amount of P1,500.00 for the expenses in the relocation
survey;
4. Ordering the dismissal of the counter claim.
On the 3rd Party Complaint:
1. Ordering the 3rd Party Defendant to reimburse 3rd Party Plaintiff the value of 92 sq. meters which is a
portion of Lot 23 of the def-3rd Party Plaintiff plus legal interest to be reckoned from the time it was paid to
the 3rd Party Defendant;
2. 3rd Party Defendant is ordered to pay the 3rd Party Plaintiff the sum of P10,000.00 as attorney's fees
and P5,000 as litigation expenses;
3. 3rd Party Defendant shall pay the cost of suit.
SO ORDERED.5
Subsequently, Roxas appealed to the CA, which later denied the appeal. Since the Decision had become final, the
RTC issued a Writ of Execution6 to implement the ruling ordering OLFI to reimburse Roxas for the value of the 92square-meter property plus legal interest to be reckoned from the time the amount was paid to the third-party
defendant. The trial court then approved the Sheriffs Bill,7 which valued the subject property at P2,500 per square
meter or a total of P230,000. Adding the legal interest of 12% per annum for 10 years, respondents judgment
obligations totaled P506,000.
Opposing the valuation of the subject property, OLFI filed a Motion to Quash the Sheriffs Bill and a Motion for
Inhibition of the RTC judge. It insisted that it should reimburse Roxas only at the rate of P40 per square meter, the
same rate that Roxas paid when the latter first purchased the property. Nevertheless, before resolving the Motions
filed by OLFI, the trial court approved an Amended Sheriffs Bill,8 which reduced the valuation to P1,800 per square
meter.
Eventually, the RTC denied both the Motion for Inhibition and the Motion to Quash the Sheriffs Bill. It cited fairness to
justify the computation of respondents judgment obligation found in the Amended Sheriffs Bill. In its 2 December
2004 Order, the trial court explained:
Although it might be true that the property was originally purchased at P40.00 per square meter, the value of the
Philippine Peso has greatly devaluated since then P40.00 may be able to purchase a square meter of land twenty
(20) or more years ago but it could only buy two (2) kilos of rice today. It would be most unfair to the defendants-third
party plaintiff if the third party defendant would only be made to reimburse the purchase price at P40.00 per square
meter. Anyway, this Court is in the best position to determine what amount should be reimbursed since it is the one
who rendered the decision which was affirmed in toto by the Appellate Court and this Court is of the opinion and so
holds that that amount should be P1,800.00 per square meter.9
To collect the aforementioned amount, Notices of Garnishment10 were then issued by the sheriff to the managers of
the Development Bank of the Philippines and the United Coconut Planters Bank for them to garnish the account of
Bishop Robert Arcilla-Maullon (Arcilla-Maullon), OLFIs general manager.
Refusing to pay P1,800 per square meter to Roxas, OLFI filed a Rule 65 Petition before the CA.11 Respondent
asserted that since the dispositive portion of the Decision ordered it to reimburse Roxas, it should only be made to
return the purchase price that he had originally paid, which was P40 per square meter for the 92-square-meter
property.
Petitioner argues otherwise. Roxas first clarified that the dispositive portion of the Decision is silent as to the value of
the subject property whether the value is to be reckoned from the date of purchase or from the date of payment
after the finality of judgment.12 Following this clarification, petitioner pointed out that the valuation of the subject
property was for the trial court to undertake, and that the reimbursement contemplated referred to the repayment of
all the expenses, damages, and losses. Roxas ultimately argued that the payment for the property encroached upon
must not be absurd and must take into consideration the devaluation of the Philippine peso.
The arguments of Roxas did not persuade the CA. It construed reimbursement as an obligation to pay back what was
previously paid and thus required OLFI to merely reimburse him at the rate of P40 per square meter, which was the
consideration respondent had received when Roxas purchased the subdivision lots. Therefore, for changing the tenor

of the RTC Decision by requiring the reimbursement of P1,800 per square meter, both the Amended Sheriffs Bill and
the 2 December 2004 Order of the RTC were considered null and void.
Further, the CA nullified the Notices of Garnishment issued against the bank accounts of Arcilla-Maullon. It noted that
since the general manager of OLFI was not impleaded in the proceedings, he could not be held personally liable for
the obligation of the corporation.
Before this Court, petitioner maintains that OLFI should be made to pay P1,800, and not P40 per square meter as
upheld in the 2 December 2004 Order of the RTC.13 For the immediate enforcement of the Order, petitioner further
argues that because OLFI is a dummy corporation, the bank accounts of its general manager can be garnished to
collect the judgment obligation of respondent.14
Hence, the pertinent issue in this case requires the determination of the correct amount to be reimbursed by OLFI to
Roxas. As a corollary matter, this Court also resolves the propriety of issuing the Notices of Garnishment against the
bank accounts of Arcilla-Maullon as OLFIs general manager.
RULING OF THE COURT
Based on the dispositive portion of the RTC Decision, OLFI was ordered to reimburse Roxas for the value of the 92square-meter property plus legal interest to be reckoned from the time it was paid to the third-party defendant.
In interpreting this directive, both the trial and the appellate courts differed in interpreting the amount of
reimbursement payable by respondent to petitioner. The RTC pegged the reimbursable amount at P1,800 per square
meter to reflect the current value of the property, while the CA maintained the original amount of the lot atP40 per
square meter.
To settle the contention, this Court resorts to the provisions of the Civil Code governing encroachment on property.
Under Article 448 pertaining to encroachments in good faith, as well as Article 450 referring to encroachments in bad
faith, the owner of the land encroached upon petitioner herein has the option to require respondent builder to pay
the price of the land.
Although these provisions of the Civil Code do not explicitly state the reckoning period for valuing the property,
Ballatan v. Court of Appeals15 already specifies that in the event that the seller elects to sell the lot, "the price must be
fixed at the prevailing market value at the time of payment." More recently, Tuatis v. Spouses Escol16illustrates that
the present or current fair value of the land is to be reckoned at the time that the landowner elected the choice, and
not at the time that the property was purchased. We quote below the relevant portion of that Decision:17
Under the second option, Visminda may choose not to appropriate the building and, instead, oblige Tuatis to pay the
present or current fair value of the land. The P10,000.00 price of the subject property, as stated in the Deed of Sale
on Installment executed in November 1989, shall no longer apply, since Visminda will be obliging Tuatis to pay for the
price of the land in the exercise of Vismindas rights under Article 448 of the Civil Code, and not under the said Deed.
Tuatis obligation will then be statutory, and not contractual, arising only when Visminda has chosen her option under
Article 448 of the Civil Code.
Still under the second option, if the present or current value of the land, the subject property herein, turns out to be
considerably more than that of the building built thereon, Tuatis cannot be obliged to pay for the subject property, but
she must pay Visminda reasonable rent for the same. Visminda and Tuatis must agree on the terms of the lease;
otherwise, the court will fix the terms. (Emphasis supplied)
In Sarmiento v. Agana,18 we reckoned the valuation of the property at the time that the real owner of the land asked
the builder to vacate the property encroached upon. Moreover, the oft-cited case Depra v. Dumlao19likewise ordered
the courts of origin to compute the current fair price of the land in cases of encroachment on real properties.
From these cases, it follows that the CA incorrectly pegged the reimbursable amount at the old market value of the
subject property P40 per square meter as reflected in the Deed of Absolute Sale20 between the parties. On the
other hand, the RTC properly considered in its 2 December 2004 Order the value of the lot at P1,800 per square
meter, the current fair price as determined in the Amended Sheriffs Bill. Thus, we reverse the ruling of the CA and
reinstate the 2 December 2004 Order of the RTC directing OLFI to reimburse petitioner at P1,800 per square meter.
Nevertheless, with regard to the issue pertaining to the Notices of Garnishment issued against the bank accounts of
Arcilla-Maullon, we affirm the ruling of the CA.
The appellate court appreciated that in the main case for the recovery of ownership before the court of origin, only
OLFI was named as respondent corporation, and that its general manager was never impleaded in the proceedings a
quo.
Given this finding, this Court holds that since OLFIs general manager was not a party to the case, the CA correctly
ruled that Arcilla-Maullon cannot be held personally liable for the obligation of the corporation. In Santos v.
NLRC,21 this Court upholds the doctrine of separate juridical personality of corporate entities. The case emphasizes
that a corporation is a juridical entity with a legal personality separate and distinct from those acting for and on its

behalf and, in general, of the people comprising it.22 Hence, the obligations incurred by the corporation, acting
through its officers such as in this case, are its sole liabilities.23
To hold the general manager of OLFI liable, petitioner claims that it is a mere business conduit of Arcilla-Maullon,
hence, the corporation does not maintain a bank account separate and distinct from the bank accounts of its
members. In support of this claim, petitioner submits that because OLFI did not rebut the attack on its legal
personality, as alleged in petitioners Opposition and Comments on the Motion to Quash Notice/Writ of Garnishment
dated 15 March 2005,24 respondent effectively admitted by its silence that it was a mere dummy corporation.
This argument does not persuade us, for any piercing of the corporate veil has to be done with caution.25 Save for its
rhetoric, petitioner fails to adduce any evidence that would prove OLFI's status as a dummy corporation. In this
regard, we recently explained in Sarona v. NLRC26 as follows:
A court should be mindful of the milieu where it is to be applied.1wphi1 It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was committed against another, in disregard of rights.
The wrongdoing must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice that
was never unintended may result from an erroneous application. (Citation omitted)
In any event, in order for us to hold Arcilla-Maullon personally liable alone for the debts of the corporation and thus
pierce the veil of corporate fiction, we have required that the bad faith of the officer must first be established clearly
and convincingly.27 Petitioner, however, has failed to include any submission pertaining to any wrongdoing of the
general manager. Necessarily, it would be unjust to hold the latter personally liable.
Therefore, we refuse to allow the execution of a corporate judgment debt against the general manager of the
corporation, since in no legal sense is he the owner of the corporate property.28 Consequently, this Court sustains the
CA in nullifying the Notices of Garnishment against his bank accounts.
IN VIEW THEREOF, the 25 September 2007 Decision and 11 March 2008 Resolution of the Court of Appeals in CAGR SP No. 88622 are AFFIRMED with MODIFICATION in that the value of the 92-square-meter property for which
respondent should reimburse petitioner, as determined by the 2 December 2004 Order of the Regional Trial Court in
Civil Case No. 5403, is hereby reinstated at P1,800 per square meter.
SO ORDERED.
THIRD DIVISION
SAMUEL PARILLA,
DEODATO PARILLA,

CHINITA PARILLA
Petitioners,

- versus -

DR. PROSPERO PILAR,

Respondent.

and

G.R. No. 167680

Present:
QUISUMBING,Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
Promulgated:
November 30, 2006

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

DECISION
CARPIO MORALES, J.:

Assailed via Petition for Review on Certiorari is the Court of Appeals Decision [1] of January 19, 2005 reversing
that of the Regional Trial Court (RTC) of Vigan City, Branch 20[2] which affirmed the Decision[3] of February 3, 2003 of
the Municipal Trial Court (MTC) of Bantay, Ilocos Sur.

Petitioner-spouses Samuel and Chinita Parilla and their co-petitioner-son Deodato Parilla, as dealers [4] of
Pilipinas Shell Petroleum Corporation (Pilipinas Shell), have been in possession of a parcel of land (the property)
located at the poblacion of Bantay, Ilocos Sur which was leased to it by respondent Dr. Prospero Pilar under a 10year Lease Agreement[5] entered into in 1990.
When the lease contract between Pilipinas Shell and respondent expired in 2000, petitioners remained in
possession of the property on which they built improvements consisting of a billiard hall and a restaurant, maintained
a sari-sari store managed by Leonardo Dagdag, Josefina Dagdag and Edwin Pugal, and allowed Flor Pelayo, Freddie
Bringas and Edwin Pugal to use a portion thereof as parking lot.[6]
Despite demands to vacate, petitioners[7] and the other occupants[8] remained in the property.
Hence, respondent who has been residing in the United States,[9] through his attorney-in-fact Marivic Paz
Padre, filed on February 4, 2002 a complaint for ejectment before the Bantay MTC with prayer for the issuance of a
writ of preliminary injunction with damages[10] against petitioners and the other occupants of the property.
After trial, the MTC, by Decision of February 3, 2003, ordered herein petitioners and their co-defendants and all
persons claiming rights under them to vacate the property and to pay the plaintiff-herein respondent the amount
of P50,000.00 as reasonable compensation for the use of the property and P10,000.00 as attorneys fees and to pay
the cost of suit. And it ordered the plaintiff-herein respondent to reimburse defendantsSamuel Parilla, Chinita Parilla
and Deodato Parilla the amount of Two Million Pesos (P2,000,000.00) representing the value of the improvements
introduced on the property.
Respondent appealed to the RTC of Vigan City that portion of the trial courts decision ordering him to
reimburse petitioners the amount of Two Million Pesos. The RTC affirmed the MTC Decision, however.[11]
On respondents petition for review, the Court of Appeals set aside the questioned order for respondent to
reimburse petitioners Two Million Pesos.[12] In setting aside the questioned order, the appellate court, applying Article
546 of the New Civil Code which provides:
ART. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the same
right of retention, the person who has defeated him in the possession having the option of
refunding the amount of the expenses or of paying the increase in value which the thing may
have acquired by reason thereof[,]

held that [herein petitioners] tolerated occupancy . . . could not be interpreted to mean . . . that they are builders or
possessors in good faith[13]and that for one to be a builder in good faith, it is assumed that he claims title to the
property which is not the case of petitioners.
Hence, the present petition which faults the appellate court to have erred
I
. . . WHEN IT SET ASIDE THE DECISIONS OF THE TRIAL COURTS WHICH ORDERED THE
RESPONDENT TO REIMBURSE PETITIONERS THE AMOUNT OF TWO MILLION
(P2,000,000.00) PESOS FOR THE SUBSTANTIAL IMPROVEMENTS INTRODUCED BY THEM
ON THE SUBJECT PREMISES.
II
. . . IN NOT HOLDING THAT PETITIONERS ARE BUILDERS IN GOOD FAITH OF THE
SUBSTANTIAL IMPROVEMENTS THEY HAD INTRODUCED ON THE PREMISES, HENCE,
THEY ARE ENTITLED TO REIMBURSEMENT OF SUCH IMPROVEMENTS.
III
. . . IN NOT HOLDING THAT THE BUILDING WHICH PETITIONERS ERECTED ON THE
PREMISES WAS WORTH, AND THAT THE PETITIONERS ACTUALLY SPENT, THE AMOUNT OF
TWO MILLION (P2,000,000.00) PESOS.
IV

. . . IN NOT HOLDING THAT PETITIONERS HAVE THE RIGHT OF RETENTION OF THE

PREMISES UNTIL THEY ARE REIMBURSED OF THE SAID AMOUNT ADJUDGED IN THEIR
FAVOR BY THE COURTS A QUO.[14]
Petitioners, proffering that neither respondent nor his agents or representatives performed any act to prevent
them from introducing the improvements, [15] contend that the appellate court should have applied Article 453 of the
New Civil Code which provides that [i]f there was bad faith not only on the part of the person who built, planted or
sowed on the land of another, but also on the part of the owner of such land, the rights of one and the other shall be
the same as though both had acted in good faith.[16]
Petitioners thus conclude that being builders in good faith, until they are reimbursed of the Two Million Pesovalue of the improvements they had introduced on the property, they have the right of retention or occupancy thereof
pursuant to Article 448, in relation to Article 546, of the New Civil Code, [17] otherwise, respondent would be unjustly
enriched at their expense.
The petition fails in light of the following discussions.
The evidence shows that in 1960, a lease contract over the property was forged between Shell Company of the
Philippines Limited and respondents predecessors-in-interest. In 1990, the lease contract was renewed by Pilipinas
Shell and respondent.
Petitioners, being dealers of Pilipinas Shells petroleum products, were allowed to occupy the
property. Petitioners are thus considered agents[18] of Pilipinas Shell. The factual milieu of the instant case calls then
for the application of the provisions on lease under the New Civil Code.
The right of the lessor upon the termination of a lease contract with respect to useful improvements introduced
on the leased property by a lessee is covered by Article 1678 which reads:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the
use for which the lease is intended, without altering the form or substance of the property
leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value
of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee
may remove the improvements, even though the principal thing may suffer damage thereby. He
shall not, however, cause any more impairment upon the property leased than is necessary.
x x x x (Emphasis supplied)

The foregoing provision is a modification of the old Code under which the lessee had no right at all to be
reimbursed for the improvements introduced on the leased property, he being entitled merely to the rights of a
usufructuary right of removal and set-off, but not of reimbursement.[19]
The modification introduced in the above-quoted paragraph of Article 1678 on partial reimbursement was
intended to prevent unjust enrichment of the lessor which now has to pay one-half of the value of the improvements
at the time the lease terminates because the lessee has already enjoyed the same, whereas the lessor could enjoy
them indefinitely thereafter.[20]
As the law on lease under the New Civil Code has specific rules concerning useful improvements introduced by
a lessee on the property leased, it is erroneous on the part of petitioners to urge this Court to apply Article 448, in
relation to Article 546, regarding their claim for reimbursement and to invoke the right of retention before
reimbursement is made. Article 448 and Article 546 read:
ART. 448. The owner of the land on which anything has been built, sown or planted
in good faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built
or planted to pay the price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is considerably more than that
of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land
does not choose to appropriate the building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of disagreement, the court shall fix the terms
thereof.
ART. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.

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

Jurisprudence is replete with cases[21] which categorically declare that Article 448 covers only cases in which
the builders, sowers or planters believe themselves to be owners of the land or, at least, have a claim of title thereto,
but not when the interest is merely

that of a holder, such as a mere tenant, agent or usufructuary. A tenant cannot be said to be a builder in good faith as
he has no pretension to be owner.[22]
In a plethora of cases,[23] this Court has held that Articles 448 of the Civil Code, in relation to
Article 546 of the same Code, which allows full reimbursement of useful improvements and
retention of the premises until reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply
where ones only interest is that of a lessee under a rental contract; otherwise, it would always be
in the power of the tenant to improve his landlord out of his property. [24] (Underscoring supplied)

Sia v. Court of Appeals,[25] which cites Cabangis v. Court of Appeals,[26] exhaustively explains the
applicability of Article 1678 on disputes relating to useful improvements introduced by a lessee on leased
premises, viz:
xxxx
Second. Petitioner stubbornly insists that he may not be ejected from private
respondent's land because he has the right, under Articles 448 and 546 of the New Civil Code, to
retain possession of the leased premises until he is paid the full fair market value of the building
constructed thereon by his parents. Petitioner is wrong, of course. The Regional Trial Court and the
Court of Appeals correctly held that it is Article 1678 of the New Civil Code that governs petitioner's
right vis-a-vis the improvements built by his parents on private respondent's land.

In the 1991 case of Cabangis v. Court of Appeals where the subject of the lease contract
was also a parcel of land and the lessee's father constructed a family residential house thereon,
and the lessee subsequently demanded indemnity for the improvements built on the lessor's land
based on Articles 448 and 546 of the New Civil Code, we pointed out that reliance on said legal
provisions was misplaced.
"The reliance by the respondent Court of Appeals on Articles 448 and 546 of the Civil Code
of the Philippines is misplaced. These provisions have no application to a contract of lease which is
the subject matter of this controversy. Instead, Article 1678 of the Civil Code applies. . . .
xx xx
On the other hand, Article 448 governs the right of accession while Article 546 pertains to
effects of possession. The very language of these two provisions clearly manifest their
inapplicability to lease contracts. . . .
xx xx
Thus, the improvements that the private respondent's father had introduced in the leased
premises were done at his own risk as lessee. The right to indemnity equivalent to one-half of the
value of the said improvements the house, the filling materials, and the hollow block fence or
wall is governed, as earlier adverted to, by the provisions of Art. 1678, first paragraph of the Civil
Code above quoted. But this right to indemnity exists only if the lessor opts to appropriate the
improvements (Alburo v. Villanueva, supra, note 10 at 279-280; Valencia v. Ayala de Roxas, supra,
note 10 at 46). The refusal of the lessor to pay the lessee one-half of the value of the useful
improvements gives rise to the right of removal. On this score, the commentary of Justice Paras is
enlightening.
'Note that under the 1st paragraph of Art. 1678, the law on the right of REMOVAL
says that 'should the lessor refuse to reimburse said amount, the lessee may remove
the improvements, even though the principal thing may suffer thereby.' While the phrase
'even though' implies that Art. 1678 always applies regardless of whether or not the
improvements can be removed without injury to the leased premises, it is believed that
application of the Article cannot always be done. The rule is evidently intended for cases
where a true accession takes place as when part of the land leased is, say, converted
into a fishpond; and certainly not where as easily removable

thing (such as a wooden fence) has been introduced. There is no doubt that in a case
involving such a detachable fence, the lessee can take the same away with him when
the lease expires (5 E. Paras, Civil Code of the Philippines Annotated 345 [11th ed.,
1986]).'
xxxx

Clearly, it is Article 1678 of the New Civil Code which applies to the present case.
Petitioners claim for reimbursement of the alleged entire value of the improvements does not thus lie under
Article 1678. Not even for one-half of such alleged value, there being no substantial evidence, e.g., receipts or
other documentary evidence detailing costs of construction. Besides, by petitioners admission, of the structures they
originally built the billiard hall, restaurant, sari-sari store and a parking lot, only the bodega-like sari-sari store and
the parking lot now exist.[27]
At all events, under Article 1678, it is the lessor who is given the option, upon termination of the lease contract,
either to appropriate the useful improvements by paying one-half of their value at that time, or to allow the lessee to
remove the improvements. This option solely belongs to the lessor as the law is explicit that [s]hould the lessor
refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may
suffer damage thereby. It appears that the lessor has opted not to reimburse.

WHEREFORE, the petition is DENIED. The Court of Appeals Decision of January 19, 2005 is AFFIRMED in
light of the foregoing discussions.
Costs against petitioners.
SO ORDERED.
THIRD DIVISION

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

Spouses ISMAEL and TERESITA

MACASAET, respondents.

MACASAET, petitioners, vs. Spouses

VICENTE

and

ROSARIO

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

The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the March 22, 2002
Decision[2] and the June 26, 2002 Resolution [3] of the Court of Appeals (CA) in CA-GR SP Nos. 56205 & 56467. The
challenged Decision disposed as follows:
WHEREFORE, the assailed Decision is AFFIRMED with the following MODIFICATIONS:
1.
Vicente and Rosario should reimburse Ismael and Teresita one-half of the value of the useful
improvements introduced in the premises prior to demand, which is equivalent to P475,000.00. In case
the former refuse to reimburse the said amount, the latter may remove the improvements, even though

the land may suffer damage thereby. They shall not, however, cause any more impairment upon the
property leased than is necessary.
2.

The award of attorneys fees is DELETED.

3.
The records of these consolidated cases are REMANDED to the Court of origin for further
proceedings to determine the option to be taken by Vicente and Rosario and to implement the same
with dispatch.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.

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

Ruling of the Court of Appeals

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

The Issues
Petitioners raise the following issues for our consideration:

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

The Courts Ruling

The Petition is partly meritorious.

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

Allegations of the Complaint

Petitioners allege that they cannot be ejected from the lots, because respondents based their Complaint
regarding the nonpayment of rentals on a verbal lease agreement, which the latter failed to prove. [29] Petitioners
contend that the lower courts erred in using another ground (tolerance of possession) to eject them.
In actions for unlawful detainer, possession that was originally lawful becomes unlawful upon the expiration or
termination of the defendants right to possess, arising from an express or implied contract. [30] In other words, the
plaintiffs cause of action comes from the expiration or termination of the defendants right to continue possession.
[31]
The case resulting therefrom must be filed within one year from the date of the last demand.
To show a cause of action in an unlawful detainer, an allegation that the defendant is illegally withholding
possession from the plaintiff is sufficient. The complaint may lie even if it does not employ the terminology of the law,
provided the said pleading is couched in a language adequately stating that the withholding of possession or the
refusal to vacate has become unlawful. [32] It is equally settled that the jurisdiction of the court, as well as the nature of
the action, is determined from the averments of the complaint.[33]
In the present case, the Complaint alleged that despite demands, petitioners refused to pay the accrued rentals
and [to] vacate the leased premises. [34]It prayed that judgment be rendered [o]rdering [petitioners] and all those
claiming rights under them to vacate the properties x x x and remove the structures x x x constructed
thereon.[35] Effectively then, respondents averred that petitioners original lawful occupation of the subject lots had
become unlawful.
The MTCC found sufficient cause to eject petitioners. While it disbelieved the existence of a verbal lease
agreement, it nevertheless concluded that petitioners occupation of the subject lots was by mere tolerance of
respondents. Basing its conclusion on the fact that the parties were close relatives, the MTCC ruled thus:

x x x [T]he parties herein are first degree relatives. Because of this relationship, this Court takes judicial notice of the
love, care, concern and protection imbued upon the parents towards their [children], i.e., in the instant case, the love,
care, concern and protection of the [respondents] to the [petitioners]. With this in mind, this Court is inclined to
believe the position of the [petitioners] that there was no such verbal lease agreement between the parties herein that
took place in 1992. x x x.
From the allegations of the [petitioners], this Court is convinced that their stay and occupancy of the subject
premises was by mere tolerance of the [respondents], and not by virtue of a verbal lease agreement between
them.[36]
Having found a cause of action for unlawful detainer, the MTCC (as well as the RTC and the CA) did not err in
ordering the ejectment of petitioners as prayed for by respondents. There was no violation of Section 17 of Rule
70[37] of the Rules of Court. As earlier explained, unlawful detainer was sufficiently alleged in the Complaint and duly
proven during the trial. Significantly, the issue of whether there was enough ground to eject petitioners was raised
during the preliminary conference.[38]

Not Merely Tolerated

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

Right to Use the Lots Terminated

That Ismael and Teresita had a right to occupy the lots is therefore clear. The issue is the duration of
possession. In the absence of a stipulation on this point, Article 1197 of the Civil Code allows the courts to fix the
duration or the period.
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a
period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case the courts shall determine such period as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

Article 1197, however, applies to a situation in which the parties intended a period. Such qualification cannot be
inferred from the facts of the present case.
To repeat, when Vicente and Rosario invited their children to use the lots, they did so out of parental love and a
desire for solidarity expected from Filipino parents. No period was intended by the parties. Their mere failure to fix
the duration of their agreement does not necessarily justify or authorize the courts to do so.[47]
Based on respondents reasons for gratuitously allowing petitioners to use the lots, it can be safely concluded
that the agreement subsisted as long as the parents and the children mutually benefited from the
arrangement. Effectively, there is a resolutory condition in such an agreement. [48] Thus, when a change in the
condition existing between the parties occurs -- like a change of ownership, necessity, death of either party or
unresolved conflict or animosity -- the agreement may be deemed terminated. Having been based on parental love,
the agreement would end upon the dissipation of the affection.
When persistent conflict and animosity overtook the love and solidarity between the parents and the children,
the purpose of the agreement ceased. [49]Thus, petitioners no longer had any cause for continued possession of the
lots. Their right to use the properties became untenable. It ceased upon their receipt of the notice to vacate. And
because they refused to heed the demand, ejectment was the proper remedy against them. Their possession, which
was originally lawful, became unlawful when the reason therefor -- love and solidarity -- ceased to exist between
them.

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

Second Issue:
Appearance at the Preliminary Conference
Section 8 of Rule 70 of the Rules of Court requires the appearance of the plaintiff and the defendant during the
preliminary conference. On the basis of this provision, petitioners claim that the MTCC should have dismissed the
case upon the failure of respondents to attend the conference. However, petitioners do not dispute that an attorneyin-fact with a written authorization from respondents appeared during the preliminary conference. [57] The issue then is
whether the rules on ejectment allow a representative to substitute for a partys personal appearance.
Unless inconsistent with Rule 70, the provisions of Rule 18 on pretrial applies to the preliminary conference.
Under Section 4 of this Rule, the nonappearance of a party may be excused by the showing of a valid cause; or by
the appearance of a representative, who has been fully authorized in writing to enter into an amicable settlement, to
submit to alternative modes of dispute resolution, and to enter into stipulations or admissions of facts and of
documents.[59]
[58]

Section 4 of Rule 18 may supplement Section 8 of Rule 70. Thus, the spirit behind the exception to personal
appearance under the rules on pretrial is applicable to the preliminary conference. If there are valid reasons or if a
representative has a special authority, a partys appearance may be waived. As petitioners are challenging only the
applicability of the rules on pretrial to the rule on preliminary conference, the written authorization from respondents
can indeed be readily considered as a special authorization.

Third Issue:
Rights of a Builder in Good Faith
As applied to the present case, accession refers to the right of the owner to everything that is incorporated or
attached to the property.[60] Accession industrial -- building, planting and sowing on an immovable -- is governed by
Articles 445 to 456 of the Civil Code.

Articles 447 and 1678 of the

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

Article 448 Applicable

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

improvements introduced thereon.[73] Thus, petitioners may be deemed to have been in good faith when they built the
structures on those lots.
The instant case is factually similar to Javier v. Javier.[74] In that case, this Court deemed the son to be in good
faith for building the improvement (the house) with the knowledge and consent of his father, to whom belonged the
land upon which it was built. Thus, Article 448[75] was applied.

Rule on Useful Expenses

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

Ruling on Improvement Justified

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

Other Issues Raised

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

b.
The value of the useful expenses incurred by Spouses Ismael and Rosita Macasaet in the construction of the
improvements on the lots
c.

The increase in value acquired by the lots by reason of the useful improvements

d.

Spouses Vicente and Rosario Macasaets choice of type of indemnity to be paid (whether b or c)

e.

Whether the value of the lots is considerably more than that of the improvements built thereon
No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION

G.R. No. 134329

January 19, 2000

VERONA PADA-KILARIO and RICARDO KILARIO, petitioners,

vs.
COURT OF APPEALS and SILVERIO PADA, respondents.
DE LEON, JR., J.:
The victory1 of petitioner spouses Ricardo and Verona Kilario in the Municipal Circuit Trial Court2 in an ejectment
suit3 filed against them by private respondent Silverio Pada, was foiled by its reversal4 by the Regional Trial Court5 on
appeal. They elevated their cause6 to respondent Court of Appeals7 which, however, promulgated a Decision8 on May
20, 1998, affirming the Decision of the Regional Trial Court.
The following facts are undisputed:
One Jacinto Pada had six (6) children, namely, Marciano, Ananias, Amador, Higino, Valentina and Ruperta. He died
intestate. His estate included a parcel of land of residential and coconut land located at Poblacion, Matalom, Leyte,
denominated as Cadastral Lot No. 5581 with an area of 1,301.92 square meters. It is the northern portion of
Cadastral Lot No. 5581 which is the subject of the instant controversy.
During the lifetime of Jacinto Pada, his half-brother, Feliciano Pada, obtained permission from him to build a house on
the northern portion of Cadastral Lot No. 5581. When Feliciano died, his son, Pastor, continued living in the house
together with his eight children. Petitioner Verona Pada-Kilario, one of Pastor's children, has been living in that house
since 1960.
Sometime in May, 1951, the heirs of Jacinto Pada entered into an extra-judicial partition of his estate. For this
purpose, they executed a private document which they, however, never registered in the Office of the Registrar of
Deeds of Leyte.
At the execution of the extra-judicial partition, Ananias was himself present while his other brothers were represented
by their children. Their sisters, Valentina and Ruperta, both died without any issue. Marciano was represented by his
daughter, Maria; Amador was represented by his daughter, Concordia; and Higina was represented by his son,
Silverio who is the private respondent in this case. It was to both Ananias and Marciano, represented by his daughter,
Maria, that Cadastral Lot No. 5581 was allocated during the said partition. When Ananias died, his daughter, Juanita,
succeeded to his right as co-owner of said property.
On June 14, 1978, Juanita Pada sold to Engr. Ernesto Paderes, the right of his father, Ananias, as co-owner of
Cadastral Lot No. 5881.
On November 17, 1993, it was the turn of Maria Pada to sell the co-ownership right of his father, Marciano. Private
respondent, who is the first cousin of Maria, was the buyer.
Thereafter, private respondent demanded that petitioner spouses vacate the northern portion of Cadastral Lot No.
5581 so his family can utilize the said area. They went through a series of meetings with the barangay officials
concerned for the purpose of amicable settlement, but all earnest efforts toward that end, failed.
On June 26, 1995, private respondent filed in the Municipal Circuit Trial Court of Matalom, Leyte, a complaint for
ejectment with prayer for damages against petitioner spouses.
On July 24, 1995, the heirs of Amador Pada, namely, Esperanza Pada-Pavo, Concordia Pada-Bartolome, and
Angelito Pada, executed a Deed of Donation9 transferring to petitioner Verona Pada-Kilario, their respective shares
as co-owners of Cadastral Lot No. 5581.

On February 12, 1996, petitioner spouses filed their Answer averring that the northern portion of Cadastral Lot No.
5581 had already been donated to them by the heirs of Amador Pada. They contended that the extra-judicial partition
of the estate of Jacinto Pada executed in 1951 was invalid and ineffectual since no special power of attorney was
executed by either Marciano, Amador or Higino in favor of their respective children who represented them in the
extra-judicial partition. Moreover, it was effectuated only through a private document that was never registered in the
office of the Registrar of Deeds of Leyte.
The Municipal Circuit Trial Court rendered judgment in favor of petitioner spouses. It made the following findings:
After a careful study of the evidence submitted by both parties, the court finds that the evidence adduced by
plaintiff failed to establish his ownership over . . . Cadastral Lot No. 5581 . . . while defendants has [sic]
successfully proved by preponderance of evidence that said property is still under a community of ownership
among the heirs of the late Jacinto Pada who died intestate. If there was some truth that Marciano Pada and
Ananias Pada has [sic] been adjudicated jointly of [sic] the above-described residential property . . . as their
share of the inheritance on the basis of the alleged extra judicial settlement, how come that since 1951, the
date of partition, the share of the late Marciano Pada was not transferred in the name of his heirs, one of
them Maria Pada-Pavo and still remain [sic] in the name of Jacinto Pada up to the present while the part
pertaining to the share of Ananias Pada was easily transferred in the name of his heirs . . ..
The alleged extra judicial settlement was made in private writing and the genuineness and due execution of
said document was assailed as doubtful and it appears that most of the heirs were not participants and
signatories of said settlement, and there was lack of special power of attorney to [sic] those who claimed to
have represented their co-heirs in the participation [sic] and signing of the said extra judicial statement.
Defendants were already occupying the northern portion of the above-described property long before the
sale of said property on November 17, 1993 was executed between Maria Pada-Pavo, as vendor and the
plaintiff, as vendee. They are in possession of said portion of the above-described property since the year
1960 with the consent of some of the heirs of Jacinto Pada and up to the [sic] present some of the heirs of
Jacinto Pada has [sic] donated . . . their share of [sic] the above-described property to them, virtually
converting defendants' standing as co-owners of the land under controversy. Thus, defendants as co-owners
became the undivided owners of the whole estate . . . . As co-owners of . . . Cadastral Lot No. 5581 . . . their
possession in the northern portion is being [sic] lawful.10
From the foregoing decision, private respondent appealed to the Regional Trial Court. On November 6, 1997, it
rendered a judgment of reversal. It held:
. . . [T]he said conveyances executed by Juanita Pada and Maria Pada Pavo were never questioned or
assailed by their co-heirs for more than 40 years, thereby lending credence on [sic] the fact that the two
vendors were indeed legal and lawful owners of properties ceded or sold. . . . At any rate, granting that the
co-heirs of Juanita Pada and Maria Pada Pavo have some interests on the very lot assigned to Marciano
and Ananias, nevertheless, said interests had long been sadly lost by prescription, if not laches or estoppel.
It is true that an action for partition does not prescribe, as a general rule, but this doctrine of imprescriptibility
cannot be invoked when one of the heirs possessed the property as an owner and for a period sufficient to
acquire it by prescription because from the moment one of the co-heirs claim [sic] that he is the absolute
owner and denies the rest their share of the community property, the question then involved is no longer one
for partition but of ownership. . . . Since [sic] 1951 up to 1993 covers a period of 42 long years. Clearly,
whatever right some of the co-heirs may have, was long extinguished by laches, estoppel or prescription.
xxx

xxx

xxx

. . . [T]he deed of donation executed by the Heirs of Amador Pada, a brother of Marciano Pada, took place
only during the inception of the case or after the lapse of more than 40 years reckoned from the time the
extrajudicial partition was made in 1951. Therefore, said donation is illegal and invalid [sic] the donors,
among others, were absolutely bereft of any right in donating the very property in question.11
The dispositive portion of the decision of the Regional Trial Court reads as follows:
WHEREFORE, a judgment is hereby rendered, reversing the judgment earlier promulgated by the Municipal
Circuit Trial Court of Matalom, Leyte, [sic] consequently, defendants-appellees are hereby ordered:
1. To vacate the premises in issue and return peaceful possession to the appellant, being the lawful
possessor in concept of owner;
2. To remove their house at their expense unless appellant exercises the option of acquiring the same, in
which case the pertinent provisions of the New Civil Code has to be applied;
3. Ordering the defendants-appellees to pay monthly rental for their occupancy and use of the portion of the
land in question in the sum of P100.00 commencing on June 26, 1995 when the case was filed and until the
termination of the present case;

4. Ordering the defendants to pay to the appellant the sum of P5,000.00 as moral damages and the further
sum of P5,000.00 as attorney's fees;
5. Taxing defendants to pay the costs of suit.12
Petitioners filed in the Court of Appeals a petition for review of the foregoing decision of the Regional Trial Court.
On May 20, 1998, respondent Court of Appeals rendered judgment dismissing said petition. It explained:
Well-settled is the rule that in an ejectment suit, the only issue is possession de facto or physical or material
possession and not de jure. Hence, even if the question of ownership is raised in the pleadings, the court
may pass upon such issue but only to determine the question of possession, specially if the former is
inseparably linked with the latter. It cannot dispose with finality the issue of ownership, such issue being
inutile in an ejectment suit except to throw light on the question of possession . . . .
Private respondent Silverio Pada anchors his claim to the portion of the land possessed by petitioners on the
Deed of Sale executed in his favor by vendor Maria Pada-Pavo, a daughter of Marciano, son of Jacinto
Pada who was the registered owner of the subject lot. The right of vendee Maria Pada to sell the property
was derived from the extra-judicial partition executed in May 1951 among the heirs of Jacinto Pada, which
was written in a Bisayan dialect signed by the heirs, wherein the subject land was adjudicated to Marciano,
Maria Pavo's father, and Ananias Pada. Although the authenticity and genuineness of the extra-judicial
partition is now being questioned by the heirs of Amador Pada, no action was ever previously filed in court to
question the validity of such partition.1wphi1.nt
Notably, petitioners in their petition admitted among the antecedent facts that Maria Pavo is one of the coowners of the property originally owned by Jacinto Pada . . . and that the disputed lot was adjudicated to
Marciano (father of Maria Pavo) and Ananias, and upon the death of Marciano and Ananias, their heirs took
possession of said lot, i.e. Maria Pavo the vendor for Marciano's share and Juanita for Ananias' share . . . .
Moreover, petitioners do not dispute the findings of the respondent court that during the cadastral survey of
Matalom, Leyte, the share of Maria Pada Pavo was denominated as Lot No. 5581, while the share of Juanita
Pada was denominated as Lot No. 6047, and that both Maria Pada Pavo and Juanita were in possession of
their respective hereditary shares. Further, petitioners in their Answer admitted that they have been
occupying a portion of Lot No. 5581, now in dispute without paying any rental owing to the liberality of the
plaintiff . . . . Petitioners cannot now impugn the aforestated extrajudicial partition executed by the heirs in
1951. As owner and possessor of the disputed property, Maria Pada, and her vendee, private respondent, is
entitled to possession. A voluntary division of the estate of the deceased by the heirs among themselves is
conclusive and confers upon said heirs exclusive ownership of the respective portions assigned to them . . ..
The equally belated donation of a portion of the property in dispute made by the heirs of Amador Pada,
namely, Concordia, Esperanza and Angelito, in favor of petitioner Verona Pada is a futile attempt to confer
upon the latter the status of co-owner, since the donors had no interest nor right to transfer. . . . This gesture
appears to be a mere afterthought to help petitioners to prolong their stay in the premises. Furthermore, the
respondent court correctly pointed out that the equitable principle of laches and estoppel come into play due
to the donors' failure to assert their claims and alleged ownership for more than forty (40) years . . . .
Accordingly, private respondent was subrogated to the rights of the vendor over Lot No. 5581 which include
[sic] the portion occupied by petitioners.13
Petitioner spouses filed a Motion for Reconsideration of the foregoing decision.
On June 16, 1998, respondent Court of Appeals issued a Resolution denying said motion.
Hence this petition raising the following issues:
I.
WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONERS, AS CO-OWNERS,
CANNOT BE EJECTED FROM THE PREMISES CONSIDERING THAT THE HEIRS OF JACINTO PADA
DONATED TO THEM THEIR UNDIVIDED INTEREST IN THE PROPERTY IN DISPUTE.
II.
WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT MARIA PADA SOLD WAS
HER UNDIVIDED SHARE IN THE PROPERTY IN DISPUTE.
III.
WHETHER OR NOT THE PETITIONERS ARE BUILDERS IN GOOD FAITH.14
There is no merit to the instant petition.

First. We hold that the extrajudicial partition of the estate of Jacinto Pada among his heirs made in 1951 is valid,
albeit executed in an unregistered private document. No law requires partition among heirs to be in writing and be
registered in order to be valid.15 The requirement in Sec. 1, Rule 74 of the Revised Rules of Court that a partition be
put in a public document and registered, has for its purpose the protection of creditors and the heirs themselves
against tardy claims.16 The object of registration is to serve as constructive notice to others. It follows then that the
intrinsic validity of partition not executed with the prescribed formalities is not undermined when no creditors are
involved.17 Without creditors to take into consideration, it is competent for the heirs of an estate to enter into an
agreement for distribution thereof in a manner and upon a plan different from those provided by the rules from which,
in the first place, nothing can be inferred that a writing or other formality is essential for the partition to be valid.18 The
partition of inherited property need not be embodied in a public document so as to be effective as regards the heirs
that participated therein.19 The requirement of Article 1358 of the Civil Code that acts which have for their object the
creation, transmission, modification or extinguishment of real rights over immovable property, must appear in a public
instrument, is only for convenience, non-compliance with which does not affect the validity or enforceability of the acts
of the parties as among themselves.20 And neither does the Statute of Frauds under Article 1403 of the New Civil
Code apply because partition among heirs is not legally deemed a conveyance of real property, considering that it
involves not a transfer of property from one to the other but rather, a confirmation or ratification of title or right of
property that an heir is renouncing in favor of another heir who accepts and receives the inheritance.21 The 1951
extrajudicial partition of Jacinto Pada's estate being legal and effective as among his heirs, Juanita and Maria Pada
validly transferred their ownership rights over Cadastral Lot No. 5581 to Engr. Paderes and private respondent,
respectively.22
Second. The extrajudicial partition which the heirs of Jacinto Pada executed voluntarily and spontaneously in 1951
has produced a legal status.23 When they discussed and agreed on the division of the estate Jacinto Pada, it is
presumed that they did so in furtherance of their mutual interests. As such, their division is conclusive, unless and
until it is shown that there were debts existing against the estate which had not been paid.24 No showing, however,
has been made of any unpaid charges against the estate of Jacinto Pada. Thus, there is no reason why the heirs
should not be bound by their voluntary acts.
The belated act of Concordia, Esperanza and Angelito, who are the heirs of Amador Pada, of donating the subject
property to petitioners after forty four (44) years of never having disputed the validity of the 1951 extrajudicial partition
that allocated the subject property to Marciano and Ananias, produced no legal effect. In the said partition, what was
allocated to Amador Pada was not the subject property which was a parcel of residential land in Sto. Nino, Matalom,
Leyte, but rather, one-half of a parcel of coconut land in the interior of Sto. Nino St., Sabang, Matalom, Leyte and
one-half of a parcel of rice land in Itum, Sta. Fe, Matalom, Leyte. The donation made by his heirs to petitioners of the
subject property, thus, is void for they were not the owners thereof. At any rate it is too late in the day for the heirs of
Amador Pada to repudiate the legal effects of the 1951 extrajudicial partition as prescription and laches have equally
set in.
Third. Petitioners are estopped from impugning the extrajudicial partition executed by the heirs of Jacinto Pada after
explicitly admitting in their Answer that they had been occupying the subject property since 1960 without ever paying
any rental as they only relied on the liberality and tolerance of the Pada family.25 Their admissions are evidence of a
high order and bind them insofar as the character of their possession of the subject property is concerned.
Considering that petitioners were in possession of the subject property by sheer tolerance of its owners, they knew
that their occupation of the premises may be terminated any time. Persons who occupy the land of another at the
latter's tolerance or permission, without any contract between them, is necessarily bound by an implied promise that
they will vacate the same upon demand, failing in which a summary action for ejectment is the proper remedy against
them.26 Thus, they cannot be considered possessors nor builders in good faith. It is well-settled that both Article
44827 and Article 54628 of the New Civil Code which allow full reimbursement of useful improvements and retention of
the premises until reimbursement is made, apply only to a possessor in good faith, i.e., one who builds on land with
the belief that he is the owner thereof.29 Verily, persons whose occupation of a realty is by sheer tolerance of its
owners are not possessors in good faith. Neither did the promise of Concordia, Esperanza and Angelito Pada that
they were going to donate the premises to petitioners convert them into builders in good faith for at the time the
improvements were built on the premises, such promise was not yet fulfilled, i.e., it was a mere expectancy of
ownership that may or may not be realized.30 More importantly, even as that promise was fulfilled, the donation is void
for Concordia, Esperanza and Angelito Pada were not the owners of Cadastral Lot No. 5581. As such, petitioners
cannot be said to be entitled to the value of the improvements that they built on the said lot.
WHEREFORE, the petition for review is HEREBY DENIED.
Costs against petitioners.
SO ORDERED.