G.R. No.

L-2659

October 12, 1950

In the matter of the testate estate of Emil Maurice Bachrach,

deceased. MARY McDONALD BACHRACH, petitioner-appellee, vs.
SOPHIE SEIFERT and ELISA ELIANOFF, oppositors-appellants.
Ross, Selph, Carrascoso and Janda for appellants.Delgado and
Flores for appellee.

OZAETA, J.:
Is a stock dividend fruit or income, which belongs to the usufructuary,
or is it capital or part of the corpus of the estate, which pertains to the
remainderman? That is the question raised in the appeal.
The deceased E. M. Bachrach, who left no forced heir except his
widow Mary McDonald Bachrach, in his last will and testament made
various legacies in cash and willed the remainder of his estate as
follows:
Sixth: It is my will and do herewith bequeath and devise to my
beloved wife Mary McDonald Bachrach for life all the fruits and
usufruct of the remainder of all my estate after payment of the
legacies, bequests, and gifts provided for above; and she may enjoy
said usufruct and use or spend such fruits as she may in any manner
wish.
The will further provided that upon the death of Mary McDonald
Bachrach, one-half of the all his estate "shall be divided share and
share alike by and between my legal heirs, to the exclusion of my
brothers."
The estate of E. M. Bachrach, as owner of 108,000 shares of stock of
the Atok-Big Wedge Mining Co., Inc., received from the latter 54,000
shares representing 50 per cent stock dividend on the said 108,000
shares. On June 10, 1948, Mary McDonald Bachrach, as
usufructuary or life tenant of the estate, petitioned the lower court to
authorize the Peoples Bank and Trust Company as administrator of
the estate of E. M. Bachrach, to her the said 54,000 share of stock

dividend by endorsing and delivering to her the corresponding

certificate of stock, claiming that said dividend, although paid out in
the form of stock, is fruit or income and therefore belonged to her as
usufructuary or life tenant. Sophie Siefert and Elisa Elianoff, legal
heirs of the deceased, opposed said petition on the ground that the
stock dividend in question was not income but formed part of the
capital and therefore belonged not to the usufructuary but to the
remainderman. And they have appealed from the order granting the
petition and overruling their objection.
While appellants admits that a cash dividend is an income, they
contend that a stock dividend is not, but merely represents an
addition to the invested capital. The so-called Massachusetts rule,
which prevails in certain jurisdictions in the United States, supports
appellants' contention . It regards cash dividends, however large, as
income, and stock dividends, however made, as capital. (Minot vs.
Paine, 99 Mass., 101; 96 Am. Dec., 705.) It holds that a stock
dividend is not in any true sense any true sense any dividend at all
since it involves no division or severance from the corporate assets of
the dividend; that it does not distribute property but simply dilutes the
shares as they existed before; and that it takes nothing from the
property of the corporation, and nothing to the interests of the
shareholders.
On the other hand, so called Pennsylvania rule, which prevails in
various other jurisdictions in the United States, supports appellee's
contention. This rule declares that all earnings of the corporation
made prior to the death of the testator stockholder belong to the
corpus of the estate, and that all earnings, when declared as
dividends in whatever form, made during the lifetime of the
usufructuary or life tenant. (Earp's Appeal, 28 Pa., 368.)
. . . It is clear that testator intent the remaindermen should have only
the corpus of the estate he left in trust, and that all dividends should
go the life tenants. It is true that profits realized are not dividends until
declared by the proper officials of the corporation, but distribution of
profits, however made, in dividends, and the form of the distribution is
immaterial. (In re Thompson's Estate, 262 Pa., 278; 105 Atl. 273,
274.)

In Hite vs. Hite (93 Ky., 257; 20 S. W., 778, 780), the Court of Appeals
of Kentucky, speaking thru its Chief Justice, said:
. . . Where a dividend, although declared in stock, is based upon the
earnings of the company, it is in reality, whether called by one name
or another, the income of the capital invested in it. It is but a mode of
distributing the profit. If it be not income, what is it? If it is, then it is
rightfully and equitably the property of the life tenant. If it be really
profit, then he should have it, whether paid in stock or money. A stock
dividend proper is the issue of new shares paid for by the transfer of
a sum equal to their par value from the profits and loss account to
that representing capital stock; and really a corporation has no right
to a dividend, either in cash or stock, except from its earnings; and a
singular state of case it seems to us, an unreasonable one is
presented if the company, although it rests with it whether it will
declare a dividend, can bind the courts as to the proper ownership of
it, and by the mode of payment substitute its will for that of that of the
testator, and favor the life tenants or the remainder-men, as it may
desire. It cannot, in reason, be considered that the testator
contemplated such a result. The law regards substance, and not
form, and such a rule might result not only in a violation of the
testator's intention, but it would give the power to the corporation to
beggar the life tenants, who, in this case, are the wife and children of
the testator, for the benefit of the remainder-men, who may perhaps
be unknown to the testator, being unborn when the will was executed.
We are unwilling to adopt a rule which to us seems so arbitrary, and
devoid of reason and justice. If the dividend be in fact a profit,
although declared in stock, it should be held to be income. It has
been so held in Pennsylvania and many other states, and we think it
the correct rule. Earp's Appeal, 28 Pa. St. 368; Cook, Stocks & S.
sec. 554. . . .
We think the Pennsylvania rule is more in accord with our statutory
laws than the Massachusetts rule. Under section 16 of our
Corporation Law, no corporation may make or declare any dividend
except from the surplus profits arising from its business. Any
dividend, therefore, whether cash or stock, represents surplus profits.
Article 471 of the Civil Code provides that the usufructuary shall be
entitled to receive all the natural, industrial, and civil fruits of the
property in usufruct. And articles 474 and 475 provide as follows:

ART. 474. Civil fruits are deemed to accrue day by day, and belong to
the usufructuary in proportion to the time the usufruct may last.
ART. 475. When a usufruct is created on the right to receive an
income or periodical revenue, either in money or fruits, or the interest
on bonds or securities payable to bearer, each matured payment
shall be considered as the proceeds or fruits such right.
When it consists of the enjoyment of the benefits arising from an
interest in an industrial or commercial enterprise, the profits of which
are not distributed at fixed periods, such profits shall have the same
consideration.
lawphil.net

In either case they shall be distributed as civil fruits, and shall be

applied in accordance with the rules prescribed by the next preceding
article.
The 108,000 shares of stock are part of the property in usufruct. The
54,000 shares of stock dividend are civil fruits of the original
investment. They represent profits, and the delivery of the certificate
of stock covering said dividend is equivalent to the payment of said
profits. Said shares may be sold independently of the original shares,
just as the offspring of a domestic animal may be sold independently
of its mother.
The order appealed from, being in accordance with the above-quoted
provisions of the Civil Code, his hereby affirmed, with costs against
the appellants.
DIGEST
Facts:
The deceased E. M. Bachrach, who left no forced heir except his
widow Mary McDonald Bachrach, in his last will and testament
made various legacies in cash and willed the remainder of his
estate. The estate of E. M. Bachrach, as owner of 108,000 shares
of stock of the Atok-Big Wedge Mining Co., Inc., received from
the latter 54,000 shares representing 50 per cent stock dividend
on the said 108,000 shares. On June 10, 1948, Mary McDonald

Bachrach, as usufructuary or life tenant of the estate, petitioned

the lower court to authorize the Peoples Bank and Trust
Company, as administrator of the estate of E. M. Bachrach, to
transfer to her the said 54,000 shares of stock dividend by
indorsing and delivering to her the corresponding certificate of
stock, claiming that said dividend, although paid out in the form
of stock, is fruit or income and therefore belonged to her as
usufructuary or life tenant. Sophie Siefert and Elisa Elianoff, legal
heirs of the deceased, opposed said petition on the ground that
the stock dividend in question was not income but formed part of
the capital and therefore belonged not to the usufructuary but to
the remainderman. While appellants admit that a cash dividend is
an income, they contend that a stock dividend is not, but merely
represents an addition to the invested capital.
Issue:
Whether or not a dividend is an income and whether it should go
to the usufructuary.
Held:
The usufructuary shall be entitled to receive all the natural,
industrial, and civil fruits of the property in usufruct. The 108,000
shares of stock are part of the property in usufruct. The 54,000
shares of stock dividend are civil fruits of the original investment.
They represent profits, and the delivery of the certificate of stock
covering said dividend is equivalent to the payment of said
profits. Said shares may be sold independently of the original
shares, just as the offspring of a domestic animal may be sold
independently of its mother. If the dividend be in fact a profit,
although declared in stock, it should be held to be income. A
dividend, whether in the form of cash or stock, is income and,
consequently, should go to the usufructuary, taking into
consideration that a stock dividend as well as a cash dividend can
be declared only out of profits of the corporation, for if it were
declared out of the capital it would be a serious violation of the
law.
Under the Massachusetts rule, a stock dividend is considered part
of the capital and belongs to the remainderman; while under the

Pennsylvania rule, all earnings of a corporation, when declared as

dividends in whatever form, made during the lifetime of the
usufructuary, belong to the latter. The Pennsylvania rule is more
in accord with our statutory laws than the Massachusetts rule.

G.R. No. 35223

September 17, 1931

THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs.TALISAYSILAY MILLING CO., ET AL., defendants-appellees. THE
PHILIPPINE NATIONAL BANK, intervenor-appellant.
Roman J. Lacson for intervenor-appellant.Mariano Ezpeleta for
plaintiff-appellee.Nolan and Hernaez for defendants-appellees
Talisay-Silay Milling Co. and Cesar Ledesma.
ROMUALDEZ, J.:
This proceeding originated in a complaint filed by the Bachrach Motor
Co., Inc., against the Talisay-Silay Milling Co., Inc., for the delivery of
the amount P13,850 or promissory notes or other instruments or
credit for that sum payable on June 30, 1930, as bonus in favor of
Mariano Lacson Ledesma; the complaint further prays that the sugar
central be ordered to render an accounting of the amounts it owes
Mariano Lacson Ledesma by way of bonus, dividends, or otherwise,
and to pay the plaintiff a sum sufficient to satisfy the judgment
mentioned in the complaint, and that the sale made by said Mariano
Lacson Ledesma be declared null and void.

The Philippine National Bank filed a third party claim alleging a

preferential right to receive any amount which Mariano Lacson
Ledesma might be entitled to from the Talisay-Silay Milling Co. as
bonus, because that would be civil fruits of the land mortgaged to
said bank by said debtor for the benefit of the central referred to, and
by virtue of a deed of assignment, and praying that said central be
ordered to delivered directly to the intervening bank said sum on
account of the latter's credit against the aforesaid Mariano Lacson
Ledesma.
The corporation Talisay-Silay Milling Co., Inc., answered the
complaint stating that of Mariano Lacson Ledesma's credit, P7,500
belonged to Cesar Ledesma because he had purchased it, and
praying that it be absolved from the complaint and that the proper
party be named so that the remainder might be delivered.
Cesar Ledesma, in turn, claiming to be the owner by purchase in
good faith an for a reconsideration of the P7,500 which is a part of the
credit referred to above, answered praying that he be absolved from
the complaint.
The plaintiff Bachrach Motor Co., Inc., answered the third party claim
alleging that its credit against Mariano Lacson Ledesma was prior
and preferential to that of the intervening bank, and praying that the
latter's complaint be dismissed.
At the trial all the parties agreed to recognize and respect the sale
made in favor of Cesar Ledesma of the P7,500 part of the credit in
question, for which reason the trial court dismissed the complaint and
cross-complaint against Cesar Ledesma authorizing the defendant
central to deliver to him the aforementioned sum of P7,500. And upon
conclusion of the hearing, the court held that the Bachrach Motor Co.,
Inc., had a preferred right to receive the amount of P11,076.02 which
was Mariano Lacson Ledesma's bonus, and it ordered the defendant
central to deliver said sum to the plaintiff.
The Philippine National Bank appeals, assigning the following alleged
errors as committed by the trial court:
1. In holding that the bonus which the Talisay-Silay Milling Co., Inc.,
bound itself to pay the planters who had mortgaged their land to the

Philippine National Bank to secure the payment of the debt of said

central to said bank is not civil fruits of said land.
2. In not holding that said bonus became subject to the mortgage
executed by the defendant Mariano Lacson Ledesma to the
Philippine National Bank to secure the payment of his personal debt
to said bank when it fell due.
3. In holding that the assignment (Exhibit 9, P.N.B.) of said bonus
made on March 7, 1930, by Mariano Lacson Ledesma to the
Philippine National Bank to be applied to the payment of his debt to
said Philippine National Bank is fraudulent.
4. In holding that the Bachrach Motor Co. Inc., in civil case No. 31597
of the Court of First Instance of Manila levied a valid attachment upon
the bonus in question.
5. In admitting and considering the supplementary complaint filed by
the Bachrach Motor Co., Inc., alleging as a cause of action the
attachment of the bonus in question which said Bachrach Motor Co.,
Inc., in civil case No. 31821 of the Court of First Instance of Manila
levied after the filing of the original complaint in this case, and after
Mariano Lacson Ledesma in this case had been declared in default.
6. In holding that the Bachrach Motor Co., Inc., has a preferential
right to receive from the Talisay-Silay Milling Co., Inc., the amount of
P11,076.02 which is in the possession of said corporation as the
bonus to be paid to Mariano Lacson Ledesma, and in ordering the
Talisay-Silay Milling Co., Inc., to deliver said amount to the Bachrach
Motor Co., Inc.
7. In not holding that the Philippine National Bank has a preferential
right to receive from the Talisay-Silay Milling Co., Inc., the amount of
P11,076.02 held by said corporation as Mariano Lacson Ledesma's
bonus, and in not ordering said Talisay-Silay Milling Co., Inc., to
deliver said amount to the Philippine National Bank.
8. In not holding that the amended complaint and the supplementary
complaint of the Bachrach Motor Co., Inc., do not state facts sufficient
to constitute a cause of action in favor of the Bachrach Motor Co.,
Inc., and against the Talisay-Silay Milling Co., Inc., or against the

Philippine National Bank.

The appellant bank bases its preferential right upon the contention
that the bonus in question is civil fruits of the lands which the owners
had mortgaged for the benefit of the central giving the bonus, and
that, as civil fruits of said land, said bonus was assigned by Mariano
Lacson Ledesma on March 7, 1930, by virtue of the document Exhibit
9 of said intervening institution, which admitted in its brief that "if the
bonus in question is not civil fruits or rent which became subject to
the mortgage in favor of the Philippine National Bank when Mariano
Lacson Ledesma's personal obligation fell due, the assignment of
March 7, 1930 (Exhibit 9, P.N.B.), is null and void, not because it is
fraudulent, for there was no intent of fraud in executing the deed, but
that the cause or consideration of the assignment was erroneous, for
it was based upon the proposition that the bonus was civil fruits of the
land mortgaged to the Philippine National Bank." (P. 31.)
The fundamental question, then, submitted to our consideration is
whether or not the bonus in question is civil fruits.
This is how the bonus came to be granted: On December 22, 1923,
the Talisay-Silay Milling Co., Inc., was indebted to the Philippine
National Bank. To secure the payment of its debt, it succeeded in
inducing its planters, among whom was Mariano Lacson Ledesma, to
mortgage their land to the creditor bank. And in order to compensate
those planters for the risk they were running with their property under
the mortgage, the aforesaid central, by a resolution passed on that
same date, i.e., December 22, 1923, undertook to credit the owners
of the plantation thus mortgaged every year with a sum equal to two
per centum of the debt secured according to yearly balance, the
payment of the bonus being made at once, or in part from time to
time, as soon as the central became free of its obligations to the
aforesaid bank, and of those contracted by virtue of the contract of
supervision, and had funds which might be so used, or as soon as it
obtained from said bank authority to make such payment. (Exhibits 5,
6; P.N.B.)
Article 355 of the Civil Code considers three things as civil fruits:
First, the rents of buildings; second, the proceeds from leases of
lands; and, third, the income from perpetual or life annuities, or other

similar sources of revenue. It may be noted that according to the

context of the law, the phrase "u otras analogas" refers only to rent or
income, for the adjectives "otras" and "analogas" agree with the noun
"rentas," as do also the other adjectives "perpetuas" and "vitalicias."
That is why we say that by "civil fruits" the Civil Code understands
one of three and only three things, to wit: the rent of a building, the
rent of land, and certain kinds of income.
As the bonus in question is not rent of a building or of land, the only
meaning of "civil fruits" left to be examined is that of "income."
Assuming that in broad juridical sense of the word "income" it might
be said that the bonus in question is "income" under article 355 of the
Civil Code, it is obvious to inquire whether it is derived from the land
mortgaged by Mariano Lacson Ledesma to the appellant bank for the
benefit of the central; for it is not obtained from that land but from
something else, it is not civil fruits of that land, and the bank's
contention is untenable.
It is to be noted that the said bonus bears no immediate, but only a
remote accidental relation to the land mentioned, having been
granted as compensation for the risk of having subjected one's land
to a lien in favor of the bank, for the benefit of the entity granting said
bonus. If this bonus be income or civil fruits of anything, it is income
arising from said risk, or, if one chooses, from Mariano Lacson
Ledesma's generosity in facing the danger for the protection of the
central, but certainly it is not civil fruits or income from the mortgaged
property, which, as far as this case is concerned, has nothing to do
with it. Hence, the amount of the bonus, according to the resolution of
the central granting it, is not based upon the value, importance or any
other circumstance of the mortgaged property, but upon the total
value of the debt thereby secured, according to the annual balance,
which is something quite distinct from and independent of the
property referred to.
Finding no merit in this appeal, the judgment appealed from is
affirmed, without express finding as to costs. So ordered.
DIGEST

Facts: On 22 December 1923, the Talisay-Silay Milling Co., Inc.,

was indebted to the PNB. To secure the payment of its debt, it
succeeded in inducing its planters, among whom was Mariano
Lacson Ledesma, to mortgage their land to the bank. And in
order to compensate those planters for the risk they were
running with their property under that mortgage, the aforesaid
central, by a resolution passed on the same date, and amended
on 23 March 1928, undertook to credit the owners of the
plantation thus mortgaged every year with a sum equal to 2% of
the debt secured according to the yearly balance, the payment of
the bonus being made at once, or in part from time to time, as
soon as the central became free of its obligations to the bank,
and of those contracted by virtue of the contract of supervision,
and had funds which might be so used, or as soon as it obtained
from said bank authority to make such payment.
<It seems Mariano Lacson Ledesma is indebted from Bachrach
Motor; the circumstance of which is not found in the case facts.>
Bachrach Motor Co., Inc. filed a complaint against the TalisaySilay Milling Co., Inc., for the delivery of the amount of P13,850
or promissory notes or other instruments of credit for that sum
payable on 30 June 1930, as bonus in favor of Mariano Lacson
Ledesma. The complaint further prays that the sugar central be
ordered to render an accounting of the amounts it owes Mariano
Lacson Ledesma by way of bonus, dividends, or otherwise, and to
pay Bachrach Motors a sum sufficient to satisfy the judgment
mentioned in the complaint, and that the sale made by said
Mariano Lacson Ledesma be declared null and void. The PNB filed
a third
party claim alleging a preferential right to receive any amount
which Mariano Lacson Ledesma might be entitled from TalisaySilay Milling as bonus. Talisay-Silay answered the complaint that
Mariano Lacson Ledesmas credit (P7,500) belonged to Cesar
Ledesma because he had purchase it. Cesar Ledesma claimed to
be an owner by purchase in good faith. At the trial all the parties
agreed to recognize and respect the sale made in favor of Cesar
Ledesma of the P7,500 part of the credit in question, for which
reason the trial court dismissed the complaint and crosscomplaint against Cesar Ledesma authorizing the central to

deliver to him the sum of P7,500. And upon conclusion of the

hearing, the court held that the Bachrach Motor Co., Inc., had a
preferred right to receive the amount of P11,076.02 which was
Mariano Lacson Ledesmas bonus, and it ordered the central to
deliver said sum to Bachrach Motors. PNB appealed.
The Supreme Court affirmed the judgment appealed from, as it
found no merit in the appeal;, without express finding as to
costs.
1. Civil Fruits under Article 355 of the Civil Code
Article 355 of the Civil Code considers three things as civil fruits:
First, the rents of buildings;
second, the proceeds from leases of lands; and, third, the income
from perpetual or life annuities, or other similar sources of
revenue. According to the context of the law, the phrase u otras
analogas refers only to rents or income, for the adjectives
otras and analogas agree with the noun rentas, as do also
the other adjectives perpetuas and vitalicias. The civil fruits
the Civil Code understands one of three and only three things, to
wit: the rent of a building, the rent of land, and certain kinds of
income.
2. Bonus not a civil fruit; not an income of the land
The amount of the bonus, according to the resolution of the
central granting it, is not based upon the value, importance or
any other circumstance of the mortgaged property, but upon the
total value of the debt thereby secured, according to the annual
balance, which is something quite distinct from and independent
of the property referred to. As the bonus is not obtained from the
land, it is not civil fruits of that land. It is neither rent of
buildings, proceeds from lease of lands, or income under Article
355 of the Civil Code.

G.R. No. 133879

November 21, 2001

EQUATORIAL REALTY DEVELOPMENT, INC., petitioner, vs.

MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be
ruled upon on the basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale is
valid until rescinded, it is equally true that ownership of the thing sold
is not acquired by mere agreement, but by tradition or delivery. The
peculiar facts of the present controversy as found by this Court in an
earlier relevant Decision show that delivery was not actually effected;
in fact, it was prevented by a legally effective impediment. Not having
been the owner, petitioner cannot be entitled to the civil fruits of
ownership like rentals of the thing sold. Furthermore, petitioner's bad
faith, as again demonstrated by the specific factual milieu of said
Decision, bars the grant of such benefits. Otherwise, bad faith would
be rewarded instead of punished.
The Case
Filed before this Court is a Petition for Review 1 under Rule 45 of the
Rules of Court, challenging the March 11, 1998 Order 2 of the
Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 9785141. The dispositive portion of the assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant Mayfair is
hereby GRANTED, and the complaint filed by plaintiff Equatorial is
hereby DISMISSED."3
Also questioned is the May 29, 1998 RTC Order 4 denying petitioner's

Motion for Reconsideration.

The Facts
The main factual antecedents of the present Petition are matters of
record, because it arose out of an earlier case decided by this Court
on November 21, 1996, entitled Equatorial Realty Development, Inc.
v. Mayfair Theater, Inc.5 (henceforth referred to as the "mother case"),
docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land,
together with two 2-storey buildings constructed thereon, located at
Claro M. Recto Avenue, Manila, and covered by TCT No. 18529
issued in its name by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with
Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The lease
covered a portion of the second floor and mezzanine of a two-storey
building with about 1,610 square meters of floor area, which
respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second
Contract of Lease with Carmelo for the lease of another portion of the
latter's property namely, a part of the second floor of the two-storey
building, with a floor area of about 1,064 square meters; and two
store spaces on the ground floor and the mezzanine, with a combined
floor area of about 300 square meters. In that space, Mayfair put up
another movie house known as Miramar Theater. The Contract of
Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first
refusal to purchase the subject properties. However, on July 30, 1978
within the 20-year-lease term the subject properties were sold
by Carmelo to Equatorial Realty Development, Inc. ("Equatorial") for
the total sum of P11,300,000, without their first being offered to
Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair
filed a Complaint before the Regional Trial Court of Manila (Branch 7)
for (a) the annulment of the Deed of Absolute Sale between Carmelo
and Equatorial, (b) specific performance, and (c) damages. After trial

on the merits, the lower court rendered a Decision in favor of Carmelo

and Equatorial. This case, entitled "Mayfair" Theater, Inc. v. Carmelo
and Bauermann, Inc., et al.," was docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals
(CA) completely reversed and set aside the judgment of the lower
court.
The controversy reached this Court via G.R No. 106063. In this
mother case, it denied the Petition for Review in this wise:
"WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is
HEREBY DENIED. The Deed of Absolute Sale between petitioners
Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc.
is hereby deemed rescinded; Carmelo & Bauermann is ordered to
return to petitioner Equatorial Realty Development the purchase
price. The latter is directed to execute the deeds and documents
necessary to return ownership to Carmelo & Bauermann of the
disputed lots. Carmelo & Bauermann is ordered to allow Mayfair
Theater, Inc. to buy the aforesaid lots for P11,300,000.00." 6
The foregoing Decision of this Court became final and executory on
March 17, 1997. On April 25, 1997, Mayfair filed a Motion for
Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the
order of execution of the trial court, Mayfair deposited with the clerk of
court a quo its payment to Carmelo in the sum of P11,300,000 less;
P847,000 as withholding tax. The lower court issued a Deed of
Reconveyance in favor of Carmelo and a Deed of Sale in favor of
Mayfair. On the basis of these documents, the Registry of Deeds of
Manila canceled Equatorial's titles and issued new Certificates of
Title7 in the name of Mayfair.
Ruling on Equatorial's Petition for Certiorari and Petition contesting
the foregoing manner of execution, the CA in its Resolution of
November 20, 1998, explained that Mayfair had no right to deduct the
P847,000 as withholding tax. Since Carmelo could no longer be
located, the appellate court ordered Mayfair to deposit the said sum
with the Office of the Clerk of Court, Manila, to complete the full

amount of P11,300,000 to be turned over to Equatorial.

Equatorial questioned the legality of the above CA ruling before this
Court in G.R No. 136221 entitled "Equatorial Realty Development,
Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May 12,
2000,8 this Court directed the trial court to follow strictly the Decision
in GR. No. 106063, the mother case. It explained its ruling in these
words:
"We agree that Carmelo and Bauermann is obliged to return the
entire amount of eleven million three hundred thousand pesos
(P11,300,000.00) to Equatorial. On the other hand, Mayfair may not
deduct from the purchase price the amount of eight hundred fortyseven thousand pesos (P847,000.00) as withholding tax. The duty to
withhold taxes due, if any, is imposed on the seller Carmelo and
Bauermann, Inc."9
Meanwhile, on September 18, 1997 barely five months after
Mayfair had submitted its Motion for Execution before the RTC of
Manila, Branch 7 Equatorial filed with the Regional Trial Court of
Manila, Branch 8, an action for the collection of a sum of money
against Mayfair, claiming payment of rentals or reasonable
compensation for the defendant's use of the subject premises after its
lease contracts had expired. This action was the progenitor of the
present case.
In its Complaint, Equatorial alleged among other things that the
Lease Contract covering the premises occupied by Maxim Theater
expired on May 31, 1987, while the Lease Contract covering the
premises occupied by Miramar Theater lapsed on March 31, 1989. 10
Representing itself as the owner of the subject premises by reason of
the Contract of Sale on July 30, 1978, it claimed rentals arising from
Mayfair's occupation thereof.
Ruling of the RTC Manila, Branch 8
As earlier stated, the trial court dismissed the Complaint via the
herein assailed Order and denied the Motion for Reconsideration filed
by Equatorial.11
The lower court debunked the claim of petitioner for unpaid back

rentals, holding that the rescission of the Deed of Absolute Sale in the
mother case did not confer on Equatorial any vested or residual
proprietary rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical
issue was whether Equatorial was the owner of the subject property
and could thus enjoy the fruits or rentals therefrom. It declared the
rescinded Deed of Absolute Sale as avoid at its inception as though it
did not happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set aside.
In the case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30,
1994, the Supreme Court held that, 'to rescind is to declare a contract
void in its inception and to put an end as though it never were. It is
not merely to terminate it and release parties from further obligations
to each other but to abrogate it from the beginning and restore parties
to relative positions which they would have occupied had no contract
ever been made.'
"Relative to the foregoing definition, the Deed of Absolute Sale
between Equatorial and Carmelo dated July 31, 1978 is void at its
inception as though it did not happen.
"The argument of Equatorial that this complaint for back rentals as
'reasonable compensation for use of the subject property after
expiration of the lease contracts presumes that the Deed of Absolute
Sale dated July 30, 1978 from whence the fountain of Equatorial's all
rights flows is still valid and existing.
xxx

xxx

xxx

"The subject Deed of Absolute Sale having been rescinded by the

Supreme Court, Equatorial is not the owner and does not have any
right to demand backrentals from the subject property. . . 12
The trial court added: "The Supreme Court in the Equatorial case,
G.R No. 106063, has categorically stated that the Deed of Absolute
Sale dated July 31, 1978 has been rescinded subjecting the present
complaint to res judicata."13

Hence, the present recourse.14

Issues
Petitioner submits, for the consideration of this Court, the following
issues:15
"A
The basis of the dismissal of the Complaint by the Regional Trial
Court not only disregards basic concepts and principles in the law on
contracts and in civil law, especially those on rescission and its
corresponding legal effects, but also ignores the dispositive portion of
the Decision of the Supreme Court in G.R. No. 106063 entitled
'Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc.
vs. Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of Absolute
Sale in favor of petitioner by Carmelo & Bauermann, Inc., dated July
31, 1978, over the premises used and occupied by respondent,
having been 'deemed rescinded' by the Supreme Court in G.R. No.
106063, is 'void at its inception as though it did not happen.'
"C.
The Regional Trial Court likewise erred in holding that the aforesaid
Deed of Absolute Sale, dated July 31, 1978, having been 'deemed
rescinded' by the Supreme Court in G.R. No. 106063, petitioner 'is
not the owner and does not have any right to demand backrentals
from the subject property,' and that the rescission of the Deed of
Absolute Sale by the Supreme Court does not confer to petitioner
'any vested right nor any residual proprietary rights even in
expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the civil
case, as stated in its Order of March 11, 1998, was not raised by
respondent in its Motion to Dismiss.

"E.
The sole ground upon which the Regional Trial Court dismissed Civil
Case No. 97-85141 is not one of the grounds of a Motion to Dismiss
under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure."
Basically, the issues can be summarized into two: (1) the substantive
issue of whether Equatorial is entitled to back rentals; and (2) the
procedural issue of whether the court a quo's dismissal of Civil Case
No. 97-85141 was based on one of the grounds raised by respondent
in its Motion to Dismiss and covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue:Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case
at bar, as found by this Court en banc in its Decision promulgated in
1996 in the mother case, no right of ownership was transferred from
Carmelo to Equatorial in view of a patent failure to deliver the
property to the buyer.
Rental a CivilFruit of Ownership
To better understand the peculiarity of the instant case, let us begin
with some basic parameters. Rent is a civil fruit 16 that belongs to the
owner of the property producing it 17 by right of accession.18
Consequently and ordinarily, the rentals that fell due from the time of
the perfection of the sale to petitioner until its rescission by final
judgment should belong to the owner of the property during that
period.
By a contract of sale, "one of the contracting parties obligates himself
to transfer ownership of and to deliver a determinate thing and the
other to pay therefor a price certain in money or its equivalent." 19
Ownership of the thing sold is a real right, 20 which the buyer acquires
only upon delivery of the thing to him "in any of the ways specified in
articles 1497 to 1501, or in any other manner signifying an agreement

that the possession is transferred from the vendor to the vendee." 21

This right is transferred, not merely by contract, but also by tradition
or delivery.22 Non nudis pactis sed traditione dominia rerum
transferantur. And there is said to be delivery if and when the thing
sold "is placed in the control and possession of the vendee." 23 Thus, it
has been held that while the execution of a public instrument of sale
is recognized by law as equivalent to the delivery of the thing sold, 24
such constructive or symbolic delivery, being merely presumptive, is
deemed negated by the failure of the vendee to take actual
possession of the land sold.25
Delivery has been described as a composite act, a thing in which
both parties must join and the minds of both parties concur. It is an
act by which one party parts with the title to and the possession of the
property, and the other acquires the right to and the possession of the
same. In its natural sense, delivery means something in addition to
the delivery of property or title; it means transfer of possession. 26 In
the Law on Sales, delivery may be either actual or constructive, but
both forms of delivery contemplate "the absolute giving up of the
control and custody of the property on the part of the vendor, and the
assumption of the same by the vendee."27
Possession NeverAcquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From
the peculiar facts of this case, it is clear that petitioner never took
actual control and possession of the property sold, in view of
respondent's timely objection to the sale and the continued actual
possession of the property. The objection took the form of a court
action impugning the sale which, as we know, was rescinded by a
judgment rendered by this Court in the mother case. It has been held
that the execution of a contract of sale as a form of constructive
delivery is a legal fiction. It holds true only when there is no
impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee. 28 When there is such
impediment, "fiction yields to reality the delivery has not been
effected."29
Hence, respondent's opposition to the transfer of the property by way
of sale to Equatorial was a legally sufficient impediment that

effectively prevented the passing of the property into the latter's

hands.
This was the same impediment contemplated in Vda. de Sarmiento v.
Lesaca,30 in which the Court held as follows:
"The question that now arises is: Is there any stipulation in the sale in
question from which we can infer that the vendor did not intend to
deliver outright the possession of the lands to the vendee? We find
none. On the contrary, it can be clearly seen therein that the vendor
intended to place the vendee in actual possession of the lands
immediately as can be inferred from the stipulation that the vendee
'takes actual possession thereof . . . with full rights to dispose, enjoy
and make use thereof in such manner and form as would be most
advantageous to herself.' The possession referred to in the contract
evidently refers to actual possession and not merely symbolical
inferable from the mere execution of the document.
"Has the vendor complied with this express commitment? she did not.
As provided in Article 1462, the thing sold shall be deemed delivered
when the vendee is placed in the control and possession thereof,
which situation does not here obtain because from the execution of
the sale up to the present the vendee was never able to take
possession of the lands due to the insistent refusal of Martin Deloso
to surrender them claiming ownership thereof. And although it is
postulated in the same article that the execution of a public document
is equivalent to delivery, this legal fiction only holds true when there is
no impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee. x x x." 31
The execution of a public instrument gives rise, therefore, only to a
prima facie presumption of delivery. Such presumption is destroyed
when the instrument itself expresses or implies that delivery was not
intended; or when by other means it is shown that such delivery was
not effected, because a third person was actually in possession of
the thing. In the latter case, the sale cannot be considered
consummated.
However, the point may be raised that under Article 1164 of the Civil
Code, Equatorial as buyer acquired a right to the fruits of the thing

sold from the time the obligation to deliver the property to petitioner
arose.32 That time arose upon the perfection of the Contract of Sale
on July 30, 1978, from which moment the laws provide that the
parties to a sale may reciprocally demand performance. 33 Does this
mean that despite the judgment rescinding the sale, the right to the
fruits34 belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative,
because "[r]escission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; x x x" Not only the land and building sold, but also
the rental payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that
"Equatorial x x x has received rents" from Mayfair "during all the
years that this controversy has been litigated." The Separate Opinion
of Justice Teodoro Padilla in the mother case also said that Equatorial
was "deriving rental income" from the disputed property. Even herein
ponente's Separate Concurring Opinion in the mother case
recognized these rentals. The question now is: Do all these
statements concede actual delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial
during the litigation should not be interpreted to mean either actual
delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial as
alleged buyer of the disputed properties and as alleged successor-ininterest of Carmelo's rights as lessor submitted two ejectment suits
against Mayfair. Filed in the Metropolitan Trial Court of Manila, the
first was docketed as Civil Case No. 121570 on July 9, 1987; and the
second, as Civil Case No. 131944 on May 28, 1990. Mayfair
eventually won them both. However, to be able to maintain physical
possession of the premises while awaiting the outcome of the mother
case, it had no choice but to pay the rentals.
The rental payments made by Mayfair should not be construed as a
recognition of Equatorial as the new owner. They were made merely
to avoid imminent eviction. It is in this context that one should
understand the aforequoted factual statements in the ponencia in the

mother case, as well as the Separate Opinion of Mr. Justice Padilla

and the Separate Concurring Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible
contract is valid until rescinded. However, this general principle is not
decisive to the issue of whether Equatorial ever acquired the right to
collect rentals. What is decisive is the civil law rule that ownership is
acquired, not by mere agreement, but by tradition or delivery. Under
the factual environment of this controversy as found by this Court in
the mother case, Equatorial was never put in actual and effective
control or possession of the property because of Mayfair's timely
objection.
As pointed out by Justice Holmes, general propositions do not decide
specific cases. Rather, "laws are interpreted in the context of the
peculiar factual situation of each case. Each case has its own flesh
and blood and cannot be decided on the basis of isolated clinical
classroom principles."36
In short, the sale to Equatorial may have been valid from inception,
but it was judicially rescinded before it could be consummated.
Petitioner never acquired ownership, not because the sale was void,
as erroneously claimed by the trial court, but because the sale was
not consummated by a legally effective delivery of the property sold.
Benefits Precluded byPetitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid
delivery, petitioner is not entitled to any benefits from the "rescinded"
Deed of Absolute Sale because of its bad faith. This being the law of
the mother case decided in 1996, it may no longer be changed
because it has long become final and executory. Petitioner's bad faith
is set forth in the following pertinent portions of the mother case:
"First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 'inutile.'
xxx

xxx

xxx

"Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. We agree with respondent

Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the
sale, studied the said contracts. As such, Equatorial cannot tenably
claim to be a purchaser in good faith, and, therefore, rescission lies.
xxx

xxx

xxx

"As also earlier emphasized, the contract of sale between Equatorial

and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of Mayfair.
In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract of lease prior to the
sale. Equatorial's knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it
involved stipulations that would prejudice its own interests.
xxx

xxx

xxx

"On the part of Equatorial, it cannot be a buyer in good faith because

it bought the property with notice and full knowledge that Mayfair had
a right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair." 37 (Italics
supplied)
Thus, petitioner was and still is entitled solely to he return of the
purchase price it paid to Carmelo; no more, no less. This Court has
firmly ruled in the mother case that neither of them is entitled to any
consideration of equity, as both "took unconscientious advantage of
Mayfair."38
In the mother case, this Court categorically denied the payment of
interest, a fruit of ownership. By the same token, rentals, another fruit
of ownership, cannot be granted without mocking this Court's en
banc Decision, which has long become final.
Petitioner's claim of reasonable compensation for respondent's use
and occupation of the subject property from the time the lease
expired cannot be countenanced. If it suffered any loss, petitioner
must bear it in silence, since it had wrought that loss upon itself.
Otherwise, bad faith would be rewarded instead of punished.
@lawphil.n et

We uphold the trial court's disposition, not for the reason it gave, but
for (a) the patent failure to deliver the property and (b) petitioner's bad
faith, as above discussed.
Second Issue: Ground in Motion to Dismiss
itc-alf

Procedurally, petitioner claims that the trial court deviated from the
accepted and usual course of judicial proceedings when it dismissed
Civil Case No. 97-85141 on a ground not raised in respondent's
Motion to Dismiss. Worse, it allegedly based its dismissal on a
ground not provided for in a motion to dismiss as enunciated in the
Rules of Court.
@lawphil.n et

We are not convinced A review of respondent's Motion to Dismiss

Civil Case No. 97-85141 shows that there were two grounds invoked,
as follows:
"(A)
Plaintiff is guilty of forum-shopping.

itc-alf

"(B)
Plaintiff's cause of action, if any, is barred by prior judgment." 39
The court a quo ruled, inter alia, that the cause of action of petitioner
plaintiff in the case below) had been barred by a prior judgment of
this Court in G.R No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it
argued that the rescinded Deed of Absolute Sale was avoid," we
hold, nonetheless, that petitioner's cause of action is indeed barred
by a prior judgment of this Court. As already discussed, our Decision
in G.R No. 106063 shows that petitioner is not entitled to back
rentals, because it never became the owner of the disputed
properties due to a failure of delivery. And even assuming arguendo
that there was a valid delivery, petitioner's bad faith negates its
entitlement to the civil fruits of ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter
that has been adjudicated by a court of competent jurisdiction must

be deemed to have been finally and conclusively settled if it arises in

any subsequent litigation between the same parties and for the same
cause.40 Thus, "[a] final judgment on the merits rendered by a court of
competent jurisdiction is conclusive as to the rights of the parties and
their privies and constitutes an absolute bar to subsequent actions
involving the same claim, demand, or cause of action." 41 Res judicata
is based on the ground that the "party to be affected, or some other
with whom he is in privity, has litigated the same matter in a former
action in a court of competent jurisdiction, and should not be
permitted to litigate it again.42
It frees the parties from undergoing all over again the rigors of
unnecessary suits and repetitive trials. At the same time, it prevents
the clogging of court dockets. Equally important, it stabilizes rights
and promotes the rule of law.
@lawphil.n et

We find no need to repeat the foregoing disquisitions on the first

issue to show satisfaction of the elements of res judicata. Suffice it to
say that, clearly, our ruling in the mother case bars petitioner from
claiming back rentals from respondent. Although the court a quo
erred when it declared "void from inception" the Deed of Absolute
Sale between Carmelo and petitioner, our foregoing discussion
supports the grant of the Motion to Dismiss on the ground that our
prior judgment in G.R No. 106063 has already resolved the issue of
back rentals.
On the basis of the evidence presented during the hearing of
Mayfair's Motion to Dismiss, the trial court found that the issue of
ownership of the subject property has been decided by this Court in
favor of Mayfair. We quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063 has
categorically stated that the Deed of Absolute Sale dated July 31,
1978 has been rescinded subjecting the present complaint to res
judicata."43 (Emphasis in the original)
Hence, the trial court decided the Motion to Dismiss on the basis of
res judicata, even if it erred in interpreting the meaning of "rescinded"
as equivalent to "void" In short, it ruled on the ground raised; namely,
bar by prior judgment. By granting the Motion, it disposed correctly,

even if its legal reason for nullifying the sale was wrong. The correct
reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against
petitioner.
itc-alf

SO ORDERED.
Davide Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago and
Carpio, JJ., concur.Bellosillo, J., I join the dissent of J. Gutierrez.
Melo, J., concurring opinion.Puno, J., concur and also join the
concurring opinion of J. Melo. Vitug, J., see dissenting opinion.
Kapunan, J., join the dissenting opinions of Justices Vitug and
Sandoval-Gutierrez.Mendoza, J., concur in this and Melo, J.'s
concurring opinion.De Leon, Jr., J., join the dissenting opinion of
Justice J.C. Vitug.
Concurring Opinion
MELO, J., concurring:
While I express my conformity to the ponencia of our distinguished
colleague, Mr. Justice Artemio V. Panganiban, I would just like to
make the following observations:
1. The issue in this case was squarely resolved in our 1996 En Banc
decision in the main case. What petitioner is asking us to do now is to
reverse or modify a judgment which is accurate in every respect,
conformable to law and jurisprudence, and faithful to principles of
fairness and justice.
2. Petitioner's submissions are deceiving. It is trying to collect
unjustified and unbelievably increased rentals by provoking a purely
academic discussion, as far as respondent is concerned, of a nonapplicable provision of the Civil Code on contracts.
3. To grant the petition is to reward bad faith, for petitioner has
deprived respondent of the latter's property rights for twenty-three
(23) years and has forced it to defend its interests in case after case
during that lengthy period. Petitioner now tries to inflict further injury

in the fantastic and groundless amount of P115,947,867.00. To

remand this case to the lower court in order to determine the back
rentals allegedly due to petitioner Equatorial Realty Development
Corporation, Inc. is to encourage continuation of crafty tactics and to
allow the further dissipation of scarce judicial time and resources.
The instant petition arose from a complaint for back rentals,
increased rentals and interests filed by petitioner Equatorial Realty
Development, Inc. (Equatorial) against respondent Mayfair Theater,
Inc. (Mayfair). It has to be adjudicated in the context of three earlier
petitions decided by this Court.
A dispute between the two parties over the ownership of a
commercial lot and building along Claro M. Recto Avenue in Manila
has led to 23 years of protracted litigation, including the filing of 4
petitions with the Court, namely, G.R. No. L-106063, decided on
November 21, 1996 (264 SCRA 483); G.R. No. 103311 decided on
March 4, 1992; G.R. No. 136221, decided on May 12, 2000; and the
present petition, G.R. No. 133879.
The case at bar is a classic illustration of how a dubious interpretation
of the dispositive portion of the 1996 decision for petitioner could lead
to 5 more years of bitter litigation after the initial 18 years of legal
proceedings over the first case.
Lease contracts over the subject property were executed on June 1,
1967 and March 31, 1969 by original owner Carmelo and
Bauermann, Inc. (Carmelo) in favor of herein respondent Mayfair. The
leases expired on May 31, 1987 and March 31, 1989, respectively.
The lease contracts embodied provisions giving Mayfair a right-offirst-refusal should Carmelo sell the property.
In an act characterized as bad faith by this Court, the property, in
violation of the right of first refusal, was sold by Carmelo to herein
petitioner Equatorial, on July 31, 1978 for P11,300,000.00. On
September 13, 1978, Mayfair filed the first case for annulment of the
contract of sale, specific performance of the right-of-first-refusal
provision, and damages. The Regional Trial Court (RTC) of Manila
decided the case in favor of Equatorial on February 7, 1991.
Counterclaims for compensation arising from the use of the premises

were awarded to Equatorial by the 1991 RTC decision.

On June 23, 1992, the Court of Appeals reversed the RTC decision,
thus leading to the first petition, G.R. No. 106063, filed against
Mayfair by both Equatorial and Carmelo.
On November 21, 1996, this Court En Banc rendered its decision
(264 SCRA 483 [1996]), disposing:
WHEREFORE, the petition for review of the decision of the Court of
Appeals dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial
Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
rescinded; petitioner Carmelo & Bauermann is ordered to return to
petitioner Equatorial Realty Development the purchase price. The
latter is directed to execute the deeds and documents necessary to
return ownership to Carmelo & Bauermann of the disputed lots.
Carmelo and Bauermann is ordered to allow Mayfair Theater, Inc. to
buy the aforesaid lots for P11,300,000.00.
In the Court of Appeals decision (CA-G.R. CV No. 32918, June 23,
1992) in the main case, raised to this Court, Mayfair was ordered to
directly pay P11,300,000.00 to Equatorial whereupon Equatorial
would execute the deeds and documents necessary for the transfer
of ownership to Mayfair and the registration of the property in its
name. The execution of documents and the transfer of the property
were directly between Equatorial and Mayfair. Our decision in 1996
(G.R. No. 106063) affirmed the appellate decision. However, while
the 1978 deed of sale questioned by Mayfair was rescinded, we
ordered Carmelo to first return to Equatorial the purchase price of the
property, whereupon Equatorial would return ownership to Carmelo,
after which Mayfair would buy the lot for P11,300,000.00 from
Carmelo.
When the case was remanded to the RTC for execution of the
decision, it was ascertained that Carmelo and Bauermann, Inc. was
no longer in existence. The Sheriff could not enforce the portions of
the judgment calling for acts to be performed by Carmelo. Mayfair,
therefore, deposited the amount of P11,300,000.00 with the RTC for
payment to Equatorial, hoping that the latter would faithfully comply

with this Court's decision. In this regard, it may be mentioned that

buyer Mayfair also paid P847,000.00 in taxes which the vendors
should have paid. The RTC ordered the execution of deeds of
transfer, the cancellation of Equatorial's titles to the property, and the
issuance of new titles in favor of Mayfair. Accordingly, the property
was registered in the name of Mayfair and titles issued in its favor.
Equatorial, however, saw an opening for further litigation. It
questioned the method employed by the RTC to execute the Court's
judgment, arguing that the directives involving Carmelo's participation
were ignored by the trial court. The litigation over the alleged
incorrectness of the execution eventually led to the second petition
earlier mentioned G.R. No. 136221.
It may be mentioned at this point that on July 9, 1987, while the rightof-first-refusal and cancellation case was pending, Equatorial filed an
action for ejectment against Mayfair. Because the issue of ownership
was still pending in the case for rescission of deed of sale including
the enforcement of the right-of-first-refusal provision, the ejectment
case was dismissed. Appeals to the RTC and the Court of Appeals
were denied.
On March 26, 1990, still another ejectment case was filed by
Equatorial. In decisions which reached all the way to this Court in
G.R. No. 103311, the cases for ejectment did not prosper. Mayfair
won the cases on March 4, 1992.
The three cases decided by the Court in these litigations between
Equatorial and Mayfair, all of them in favor of Mayfair, are
antecedents of the present and fourth petition. Equatorial has been
adjudged as having unlawfully and in bad faith acquired property that
should have belonged to Mayfair since 1978. Ownership and title
have been unquestionably transferred to Mayfair.
Seemingly, Equatorial now seeks to profit from its bad faith. While the
case involving the allegedly incorrect execution of the 1996 decision
on cancellation of the deed of sale in G.R. No. 106063 was being
litigated, Equatorial filed on September 18, 1997 with the RTC of
Manila two complaints for payment of back and increased rentals
arising from the use by Mayfair of the lot, building, and other fixed

improvements. From the time the property was sold by Carmelo to

Equatorial, lessee Mayfair had been paying to Equatorial the rentals
fixed in the 1967 and 1969 lease contracts with the original owner.
This was during the pendency of the complaint for annulment of the
contract of sale, specific performance of the right-of-first-refusal
provision, and damages.
As found in our 1998 decision in G.R. No. 106063, the disputed
property should have actually belonged to Mayfair at the time.
However, to avoid the ejectment cases, which Equatorial nonetheless
later filed, Mayfair was forced to pay rentals to Equatorial. It paid the
rentals based on the rates fixed by Carmelo in the lease contracts.
Equatorial, claiming the 1967 and 1969 rentals to be inadequate,
claimed increased amounts as reasonable compensation. Because
the amounts fixed by the lease contract with Carmelo but paid to
Equatorial were only at the rate of P17,966.21 monthly while
Equatorial wanted P210,000.00 every month plus legal interests, the
suit was for the payment of P115,947,867.68 as of June 19, 1997.
Citing the 1996 decision in G.R. No. 106063, Mayfair contended that
it owned the property under the decision. It stated that the sale by
Carmelo to Equatorial had been cancelled, and, as owner, Mayfair
owed no increased rentals to Equatorial based on said decision.
The present case on back rentals could not be conclusively decided
because the execution and finality of the issue of ownership were
being contested for 5 years in the petition on the proper execution
filed in G.R. No. 136221. This petition had to wait for the resolution of
G.R. No. 136221.
In its decision dated May 12, 2000, in G.R. No. 136221 (First
Division, per Mr. Justice Pardo; Davide, Jr., C.J., Kapunan, and
Ynares-Santiago, JJ., concurring), this Court reiterated the judgment
in G.R. No. 106063. It emphasized that the 1996 decision awarding
the property to Mayfair was clear. It stated that the decision having
attained finality, there was nothing left for the parties to do but to
adhere to the mandates of the decision.
In the dispositive portion, however, the Court ordered the trial court
"to carry out the execution following strictly the terms" of the 1996

decision. However, as earlier stated, this could not be done because

Carmelo had ceased to exist. There was no longer any Carmelo
which could return the P11,300,000.00 consideration of the 1978 sale
to Equatorial as ordered in the dispositive portion of the 1996
decision. Equatorial could not and would not also execute the deeds
returning the property to Carmelo, as directed in the decision. Neither
could the defunct Carmelo sell the property to Mayfair at the sale
price in 1978 when the right of first refusal was violated.
Mayfair had to file a motion for partial reconsideration, emphasizing
that it was impossible for a corporation which has gone out of
existence to obey the specific orders of this Court. A resolution was,
therefore, rendered on June 25, 2001 putting an end to the
controversy over the proper implementation of the 1996 judgment.
This June 25, 2001 Resolution in G.R. No. 136221 validated the
issuance of new titles in the name of the adjudicated owner, Mayfair.
The Court ordered the direct release to Equatorial of the
P11,300,000.00 deposited in court for the account of the defunct
Carmelo.
In the follow-up Resolution of the First Division in G.R. No. 136221
dated June 25, 2001, the Court, after describing the case as a
Promethean one involving the execution of a decision which has
been long final, and after calling the efforts to stave off execution as a
travesty of justice, instructed the trial court:
1. To execute the Court's Decision strictly in accordance with the
ruling in G.R. No. 106063 by validating the acts of the sheriff of
Manila and the titles in the name of Mayfair Theater, Inc. issued by
the Register of Deeds of Manila consistent therewith;
2. In case of failure of Carmelo and Bauermann to accept the amount
of P11,300,000.00 deposited by Mayfair Theater, Inc. with the Clerk
of Court, Regional Trial Court, Manila, to authorize the Clerk of Court
to RELEASE the amount of P11,300,000.00 deposited with the court
for the account of Carmelo and Bauermann, Inc. to petitioner;
3. To devolve upon the trial court the determination of other issues
that may remain unresolved among the parties, relating to the
execution of this Court's final decision in G.R. No. 106063.

In light of the Court's judgments in G.R. No. 106063 and G.R. No.
136221, the present petition in G.R. No. 133879 for back rentals
should now be finally resolved, applying the rulings in those earlier
decisions.
Indubitably, the 1978 deed of sale executed by Carmelo in favor of
Equatorial over the disputed property has been set aside by this
Court. Equatorial was declared a buyer in bad faith. The contract was
characterized as a fraudulent sale and the entirety of the indivisible
property sold to Equatorial was the property we ordered to be
conveyed to Mayfair for the same price paid by Equatorial to
Carmelo.
It is also beyond question that the method of execution of the 1996
decision by the RTC, the direct payment by Mayfair to Equatorial,
bypassing and detouring the defunct Carmelo corporation, has been
validated by this Court. There are no longer any procedural obstacles
to the full implementation of the decision.
And finally, the property sold to Equatorial in violation of Mayfair's
right of first refusal is now indisputably possessed by, and owned and
titled in the name of, respondent Mayfair.
Parenthetically, the issue on the payment of back and increased
rentals, plus interests, was actually settled in the 1996 decision in
G.R. No. 106063. It could not be enforced at the time only because of
the controversy unfortunately raised by Equatorial over the proper
execution of the 1996 decision.
It is now time to reiterate the 1996 decision on interests and settle the
dispute between Mayfair and Equatorial once and for all.
Thus, we reiterate that:
On the question of interest payments on the principal amount of
P11,300.000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately
broke a contract entered into with Mayfair. It sold the property to
Equatorial with purpose and intent to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non-

compliance with the agreement of first refusal.

On the part of Equatorial, it cannot be a buyer in good faith because it
bought the property with notice and full knowledge the Mayfair had a
right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of consideration based on
equity which might warrant the grant of interests. The vendor
received as payment from the vendee what, at the time, was a full
and fair price for the property. It has used the P11,300,000.00 all
these years earning income or interest from the amount. Equatorial,
on the other hand, has received rents and otherwise profited from the
use of the property turned over to it by Carmelo. In fact, during all the
years that this controversy was being litigated. Mayfair paid rentals
regularly to the buyer who had an inferior right to purchase the
property. Mayfair is under no obligation to pay any interests arising
from this judgment to either Carmelo or Equatorial (264 SCRA 483,
pp. 511-512).
Worthy quoting too is the concurring opinion in our 1996 decision of
Mr. Justice Teodoro R. Padilla as follows:
The equities of the case support the foregoing legal disposition.
During the intervening years between 1 August 1978 and this date,
Equatorial (after acquiring the C.M. Recto property for the price of
P11,300,000.00) had been leasing the property and deriving rental
income therefrom. In fact, one of the lessees in the property was
Mayfair. Carmelo had, in turn, been using the proceeds of the sale,
investment-wise and/or operation wise in its own business.
It may appear, at first blush, that Mayfair is unduly favored by the
solution submitted by this opinion, because the price of
P11,300,000.00 which it has to pay Carmelo in the exercise of its
right of first refusal, has been subjected to the inroads of inflation so
that its purchasing power today is less than when the same amount
was paid by Equatorial to Carmelo. But then it cannot be overlooked
that it was Carmelo's breach of Mayfair's right of first refusal that
prevented Mayfair from paying the price of P11,300,000.00 to
Carmelo at about the same time the amount was paid by Equatorial

to Carmelo. Moreover, it cannot be ignored that Mayfair had also

incurred consequential or "opportunity" losses by reason of its failure
to acquire and use the property under its right of first refusal. In fine,
any loss in purchasing power of the price of P11,300,000.00 is for
Carmelo to incur or absorb on account of its bad faith in breaching
Mayfair's contractual right of first refusal to the subject property. (ibid.,
pp. 511-512).
It can be seen from the above ruling that the issue of rentals and
interests was fully discussed and passed upon in 1996. Equatorial
profited from the use of the building for all the years when it had no
right or, as stated in our decision, had an inferior right over the
property. Mayfair, which had the superior right, continued to pay rent
but it was the rate fixed in the lease contract with Carmelo. We see
no reason for us to now deviate from the reasoning given in our main
decision. The decision has been final and executory for five (5) years
and petitioner has failed to present any valid and reasonable ground
to reconsider, modify or reverse it. Let that which has been fairly
adjudicated remain final.
My second observation relates to the clever but, to my mind,
deceptive argument foisted by Equatorial on the Court.
Equatorial relies on the Civil Code provision on rescissible contracts
to bolster its claim. Its argument is that a rescissible contract remains
valid and binding upon the parties thereto until the same is rescinded
in an appropriate judicial proceeding.
Equatorial conveniently fails to state that the July 31, 1978 Deed of
Absolute Sale was between Equatorial and Carmelo only.
Respondent Mayfair was not a party to the contract. The deed of sale
was surreptitiously entered into between Carmelo and Equatorial
behind the back and in violation of the rights of Mayfair. Why should
the innocent and wronged party now be made to bear the
consequences of an unlawful contract to which it was not privy?
Insofar as Equatorial and Carmelo are concerned, their 1978 contract
may have validly transferred ownership from one to the other. But not
as far as Mayfair is concerned.
Mayfair starts its arguments with a discussion of Article 1381 of the

Civil Code that contracts entered into in fraud of creditors are

rescissible. There is merit in Mayfair's contention that the legal effects
are not restricted to the contracting parties only. On the contrary, the
rescission is for the benefit of a third party, a stranger to the contract.
Mayfair correctly states that as far as the injured third party is
concerned, the fraudulent contract, once rescinded, is non-existent or
void from its inception. Hence, from Mayfair's standpoint, the deed of
absolute sale which should not have been executed in the first place
by reason of Mayfair's superior right to purchase the property and
which deed was cancelled for that reason by this Court, is legally
non-existent. There must be a restoration of things to the condition
prior to the celebration of the contract (Respondent relies on Almeda
vs. J. M. & Company, 43072-R, December 16, 1975, as cited in the
Philippine Law Dictionary; IV Arturo M. Tolentino, Civil Code of the
Philippines, 570, 1990 Ed., citing Manresa; IV Edgardo L. Paras, Civil
Code of the Philippines, 717-718, 1994 Ed.).
It is hard not to agree with the explanations of Mayfair, to wit:
4.22. As a consequence of the rescission of the Deed of Absolute
Sale, it was as if Equatorial never bought and became the lessor of
the subject properties. Thus, the court a quo did not err in ruling that
Equatorial is not the owner and does not have any right to demand
back rentals from [the] subject property.
4.23. Tolentino, supra, at 577-578 further explains that the effects of
rescission in an accion pauliana retroact to the date when the credit
or right being enforced was acquired.
"While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory, with retroactive
effect to the date when the credit was constituted . . ." (emphasis
supplied)
4.24. The clear rationale behind this is to prevent conniving parties,
such as Equatorial and Carmelo, from benefiting in any manner from
their unlawful act of entering into a contract in fraud of innocent
parties with superior rights like Mayfair. Thus, to allow Equatorial to

further collect rentals from Mayfair is to allow the former to profit from
its own act of bad faith. Ex dolo malo non oritur actio. (Respondent's
Comment, pp. 338-339, Rollo).
This brings me to my third and final observation in this case. This
Court emphasized in the main case that the contract of sale between
Equatorial and Carmelo was characterized by bad faith. The Court
described the sale as "fraudulent" in its 1996 decision. It stated that
the damages which Mayfair suffered are in terms of actual injury and
lost opportunities, emphasizing that Mayfair should not be given an
empty or vacuous victory. Moreover, altogether too many suits have
been filed in this case. Four separate petitions have come before us,
necessitating full length decisions in at least 3 of them. The 1996
decision stressed that the Court has always been against multiplicity
of suits.
There was bad faith from the execution of the deed of sale because
Equatorial and Carmelo affirmatively operated with furtive design or
with some motive of self-interest or ill-will or for ulterior purposes (Air
France vs. Carrascoso, 18 SCRA 166 [1966]). There was breach of a
known duty by the two parties to the unlawful contract arising from
motives of interests or ill-will calculated to cause damage to another
(Lopez vs. Pan American World Airways, 123 Phil. 264 [1966]).
The presence of bad faith is clear from the records. Our resolution of
this issue in 1996 (G.R. 106063) is res judicata.
We stated:
First and foremost is that the petitioners (referring to Equatorial and
Carmelo) acted in bad faith to render Paragraph 8 "inutile".
xxx

xxx

xxx

Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the
sale, studied the said contracts. As such Equatorial cannot tenably
claim to be a purchaser in good faith and, therefore, rescission lies.

xxx

xxx

xxx

As also earlier emphasized, the contract of sale between Equatorial

and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of Mayfair.
In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract of lease prior to the
sale. Equatorial's knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it
involved stipulations that would prejudice its own interests.
xxx

xxx

xxx

On the part of Equatorial, it cannot be a buyer in good faith because it

bought the property with notice and full knowledge that Mayfair had a
right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair (264 SCRA
506, 507-511).
We ruled that because of bad faith, neither may Carmelo and
Equatorial avail themselves of considerations based on equity which
might warrant the grant of interests and, in this case, unconscionably
increased rentals.
Verily, if Mayfair were a natural person it could very well have asked
for moral damages instead of facing a lengthy and expensive suit to
pay rentals many times higher than those stipulated in the contract of
lease. Under the Civil Code, Mayfair is the victim in a breach of
contract where Carmelo and Equatorial acted fraudulently and in bad
faith.
Considering the judgments in our 3 earlier decisions, Mayfair is under
no obligation to pay any interests, whether based on law or equity, to
Carmelo or Equatorial. Mayfair is the wronged entity, the one which
has suffered injury since 1978 or for the 23 years it was deprived of
the property.
Equatorial has received rentals and other benefits from the use of the
property during these 23 years, rents and benefits which would have
accrued to Mayfair if its rights had not been violated.

There is no obligation on the part of respondent Mayfair to pay any

increased, additional, back or future rentals or interests of any kind to
petitioner Equatorial under the circumstances of this case.
I, therefore, concur with the majority opinion in denying due course
and dismissing the petition.
Puno and Mendoza, JJ., concur.
DIGEST
FACTS:
Petitioner Carmelo and Bauermann Inc. leased its parcel of land with 2storey building to respondent Mayfair Theater Inc.
They entered a contract which provides that if the LESSOR should desire
to sell the leased premises, the LESSEE shall be given 30-days exclusive
option to purchase the same.
Carmelo informed Mayfair that it will sell the property to Equatorial. Mayfair
made known its interest to buy the property but only to the extent of the
leased premises.
Notwithstanding Mayfairs intention, Carmelo sold the property to
Equatorial.
ISSUE:
WON the sale of the property to Equatorial is valid.
HELD:
The sale of the property should be rescinded because Mayfair has the right
of first refusal. Both Equatorial and Carmelo are in bad faith because they
knew of the stipulation in the contract regarding the right of first refusal.
The stipulation is a not an option contract but a right of first refusal and as
such the requirement of a separate consideration for the option, has no
applicability in the instant case. The consideration is built in the reciprocal
obligation of the parties.
In reciprocal contract, the obligation or promise of each party is the
consideration for that of the other. (Promise to lease in return of the right to
first refusal)

With regard to the impossibility of performance, only Carmelo can be

blamed for not including the entire property in the right of first refusal.
Court held that Mayfair may not have the option to buy the property. Not
only the leased area but the entire property.

G.R. No. L-44606

November 28, 1938

VICENTE STO. DOMINGO BERNARDO, plaintiff-appellant, vs.

CATALINO BATACLAN, defendant-appellant. TORIBIO TEODORO,
purchaser-appellee.
Pedro de Leon for plaintiff-appellant. Angel H. Mojica and Francisco
Lavides for defendant appellant. Jose Y. Garde for appellee.

LAUREL, J.:
This is an appeal taken by both the plaintiff and the defendant from
the order of September 26, 1935, hereinabove referred to, of the
Court of First Instance of Cavite in Civil Case No. 2428.
There is no controversy as to the facts. By a contract of sale
executed from Pastor Samonte and others ownership of a parcel of
land of about 90 hectares situated in sitio Balayunan, Silang, Cavite.
To secure possession of the land from the vendors the said plaintiff,
on July 20, 1929, instituted Civil Case No. 1935 in the Court of First
Instance of Cavite. The trial court found for the plaintiff in a decision
which was affirmed by this Supreme Court on appeal (G.R. No.
33017). 1 When plaintiff entered upon the premises, however, he
found the defendant herein, Catalino Bataclan, who appears to have

been authorized by former owners, as far back as 1922, to clear the

land and make improvements thereon. As Bataclan was not a party in
Case No. 1935, plaintiff, on June 11, 1931, instituted against him, in
the Court of First Instance of Cavite, Civil Case No. 2428. In this
case, plaintiff was declared owner but the defendant was held to be a
possessor in good faith, entitled to reimbursement in the total sum of
P1,642, for work done and improvements made. The dispositive part
of the decision reads:
Por las consideraciones expuestas, se declara al demandante
Vicente Santo Domingo Bernardo dueo con derecho a la posesion
del terreno que se describe en la demanda, y al demandado Catalino
Bataclan con derecho a que del demandante le pague la suma de
P1,642 por gastos utiles hechos de buena fe en el terreno, y por el
cerco y ponos de coco y abaca existentes en el mismo, y con
derecho, ademas a retener la posesion del terreno hasta que se le
pague dicha cantidad. Al demandante puede optar, en el plazo de
treinta dias, a partir de la fecha en que fuere notificado de la
presente, por pagar esa suma al demandado, haciendo asi suyos el
cerco y todas las plantaciones existentes en el terreno, u obligar al
demandado a pagarle el precio terreno, a razon de trescientos pesos
la hectarea. En el caso de que el demandante optara por que el
demandado le pagara el precio del terreno, el demandado efectuara
el pago en el plazo convenientes por las partes o que sera fijado por
el Juzgado. Sin costas.
Both parties appealed to this court (G. R. No. 37319). 2 The decision
appealed from was modified by allowing the defendant to recover
compensation amounting to P2,212 and by reducing the price at
which the plaintiff could require the defendant to purchase the land in
question from P300 to P200 per hectare. Plaintiff was given by this
court 30 days from the date when the decision became final within
which to exercise his option, either to sell the land to the defendant or
to buy the improvements from him. On January 9, 1934, the plaintiff
manifested to the lower court his desire "to require the defendant to
pay him the value of the land at the rate of P200 per hectare or a total
price of P18,000 for the whole tract of land." The defendant informed
the lower court that he was unable to pay the land and, on January
24, 1934, an order was issued giving the plaintiff 30 days within which
to pay the defendant the sum of P2,212 stating that, in the event of

failure to make such payment, the land would be ordered sold at

public auction "Para hacer pago al demandante de la suma de
P2,212 y el remanente despues de deducidos los gastos legales de
la venta en publica subasta sera entregado al demandante." On
February 21, 1934, plaintiff moved to reconsider the foregoing order
so that he would have preference over the defendant in the order of
payment. The motion was denied on March 1, 1934 but on March 16
following the court below, motu proprio modified its order of January
24, "en el sentido de que el demandante tiene derecho preferente al
importe del terreno no se vendiere en publica subasta, a razon de
P200 por hectares y el remanente, si acaso lo hubiere se entregara
al demandado en pago de la cantidad de P2,212 por la limpieza del
terreno y las mejoras introducidas en el mismo por el citado
demandado." On April 24, 1934, the court below, at the instance of
the plaintiff and without objection on the part of the defendant,
ordered the sale of the land in question at public auction. The land
was sold on April 5, 1935 to Toribio Teodoro, the highest bidder, for
P8,000. In the certificate of sale issued to said purchaser on the very
day of sale, it was stated that the period of redemption of the land
sold was to expire on April 5, 1936. Upon petition of Toribio Teodoro
the court below ordered the provincial sheriff to issue another
certificate not qualified by any equity of redemption. This was
complied with by the sheriff on July 30, 1935. On September 18,
1935, Teodoro moved that he be placed in possession of the land
purchased by him. The motion was granted by order of September
26, 1935, the dispositive part of which is as follows:
Por tanto, se ordena al Sheriff Provincial de Cavite ponga a Toribio
Teodoro en posesion del terreno comprado por el en subasta publica
y por el cual se le expidio certificado de venta definitiva, reservando
al demandado su derecho de ejercitar una accion ordinaria para
reclamar del demandante la cantidad de P2,212 a que tiene derecho
por la limpieza y mejoras del terreno y cuya suma, en justicia y
equidad, debe ser descontada y deducida de la suma de P8,000 que
ya ha recibido el demandante.
The Civil Code confirms certain time-honored principles of the law of
property. One of these is the principle of accession whereby the
owner of property acquires not only that which it produces but that
which is united to it either naturally or artificially. (Art. 353.) Whatever

is built, planted or sown on the land of another, and the improvements

or repairs made thereon, belong to the owner of the land (art. 358).
Where, however, the planter, builder, or sower has acted in good
faith, a conflict of rights arises between the owners and it becomes
necessary to protect the owner of the improvements without causing
injustice to the owner of the land. In view of the impracticability of
creating what Manresa calls a state of "forced coownership" (vol. 3,
4th ed., p. 213), the law has provided a just and equitable solution by
giving the owner of the land the option to acquire the improvements
after payment of the proper indemnity or to oblige the builder or
planter to pay for the land and the sower to pay the proper rent (art.
361). It is the owner of the land who is allowed to exercise the option
because his right is older and because, by the principle of accession,
he is entitled to the ownership of the accessory thing (3 Manresa, 4th
ed., p. 213). In the case before us, the plaintiff, as owner of the land,
chose to require the defendant, as owner of the improvements, to pay
for the land.
The defendant states that he is a possessor in good faith and that the
amount of P2,212 to which he is entitled has not yet been paid to him.
Therefore, he says, he has a right to retain the land in accordance
with the provisions of article 453 of the Civil Code. We do not doubt
the validity of the premises stated. "Considera la ley tan saarada y
legitima la deuda, que, hasta que sea pagada, no consiente que la
cosa se restituya all vencedor." (4 Manresa, 4th ed, p., 304.) We find,
however, that the defendant has lost his right of retention. In
obedience to the decision of this court in G.R. No. 37319, the plaintiff
expressed his desire to require the defendant to pay for the value of
the land. The said defendant could have become owner of both land
and improvements and continued in possession thereof. But he said
he could not pay and the land was sold at public auction to Toribio
Teodoro. The law, as we have already said, requires no more than
that the owner of the land should choose between indemnifying the
owner of the improvements or requiring the latter to pay for the land.
When he failed to pay for the land, the defendant herein lost his right
of retention.
The sale at public auction having been asked by the plaintiff himself
(p. 22, bill of exceptions) and the purchase price of P8,000 received
by him from Toribio Teodoro, we find no reason to justify a rapture of

the situation thus created between them, the defendant-appellant not

being entitled, after all, to recover from the plaintiff the sum of P2,212.
lawphi1.n et

The judgment of the lower court is accordingly modified by eliminating

therefrom the reservation made in favor of the defendant-appellant to
recover from the plaintiff the sum of P2,212. In all the respects, the
same is affirmed, without pronouncement regarding costs. So
ordered.
Avancea, C.J., Villa-Real, Imperial and Diaz, JJ., concur.
DIGEST
Facts:
By a contract of sale executed from Pastor Samonte and others
ownership of a parcel of land of about 90 hectares. To secure
possession of the land from the vendors the said plaintiff, on July
20, 1929, instituted a civil case. The trial court found for the
plaintiff in a decision which was affirmed by this Supreme Court
on appeal (G.R. No. 33017). When plaintiff entered upon the
premises, however, he found the defendant herein, Catalino
Bataclan, who appears to have been authorized by former
owners, as far back as 1922, to clear the land and make
improvements thereon. As Bataclan was not a party in the civil
case, plaintiff, on June 11, 1931, instituted against him a civil
case. In this case, plaintiff was declared owner but the defendant
was held to be a possessor in good faith, entitled for
reimbursement in the total sum of P1,642, for work done and
improvements made.
The defendant states that he is a possessor in good faith and
that the amount of P2,212 to which he is entitled has not yet
been paid to him. Therefore, he says, he has a right to retain the
land in accordance with the provisions of article 453 of the Civil
Code. In obedience to the decision of this court in G.R. No.
37319, the plaintiff expressed his desire to require the defendant
to pay for the value of the land. The said defendant could have
become owner of both land and improvements and continued in
possession thereof. But he said he could not pay and the land

was sold at public auction to Toribio Teodoro. When he failed to

pay for the land, the defendant herein lost his right of retention.
Issue:
Whether or not there is good faith.
Held:
The judgment of the lower court is accordingly modified by
eliminating therefrom the reservation made in favor of the
defendant-appellant to recover from the plaintiff the sum of
P2,212. In all the respects, the same is affirmed, without
pronouncement regarding costs. So ordered
The sale at public auction having been asked by the plaintiff
himself (p. 22, bill of exceptions) and the purchase price of
P8,000 received by him from Toribio Teodoro, we find no reason
to justify a rapture of the situation thus created between them,
the defendant-appellant not being entitled, after all, to recover
from the plaintiff the sum of P2,212.

G.R. No. L-175

April 30, 1946

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO,

petitioners, vs.ELIAS HILARIO and his wife DIONISIA DRES, and
FELIPE NATIVIDAD, Judge of First Instance of Pangasinan,
respondents.
Leoncio R. Esliza for petitioners.Mauricio M. Monta for respondents.

MORAN, C.J.:
This is a petition for certiorari arising from a case in the Court of First
Instance of Pangasinan between the herein respondents Elias Hilario
and his wife Dionisia Dres as plaintiffs, and the herein petitioners
Damian, Francisco and Luis, surnamed Ignacio, as defendants,
concerning the ownership of a parcel of land, partly rice-land and
partly residential. After the trial of the case, the lower court, presided
over by Hon. Alfonso Felix, rendered judgment holding plaintiffs as
the legal owners of the whole property but conceding to defendants
the ownership of the houses and granaries built by them on the
residential portion with the rights of a possessor in good faith, in
accordance with article 361 of the Civil Code. The dispositive part of
the decision, hub of this controversy, follows:
Wherefore, judgment is hereby rendered declaring:
(1) That the plaintiffs are the owners of the whole property described
in transfer certificate of title No. 12872 (Exhibit A) issued in their
name, and entitled to the possession of the same;
(2) That the defendants are entitled to hold the position of the
residential lot until after they are paid the actual market value of their
houses and granaries erected thereon, unless the plaintiffs prefer to
sell them said residential lot, in which case defendants shall pay the
plaintiffs the proportionate value of said residential lot taking as a
basis the price paid for the whole land according to Exhibit B; and
(3) That upon defendant's failure to purchase the residential lot in
question, said defendants shall remove their houses and granaries
after this decision becomes final and within the period of sixty (60)
days from the date that the court is informed in writing of the attitude
of the parties in this respect.
No pronouncement is made as to damages and costs.
Once this decision becomes final, the plaintiffs and defendants may
appear again before this court for the purpose of determining their
respective rights under article 361 of the Civil Code, if they cannot
come to an extra-judicial settlement with regard to said rights.

Subsequently, in a motion filed in the same Court of First Instance but

now presided over by the herein respondent Judge Hon. Felipe
Natividad, the plaintiffs prayed for an order of execution alleging that
since they chose neither to pay defendants for the buildings nor to
sell to them the residential lot, said defendants should be ordered to
remove the structure at their own expense and to restore plaintiffs in
the possession of said lot. Defendants objected to this motion which,
after hearing, was granted by Judge Natividad. Hence, this petition by
defendants praying for (a) a restraint and annulment of the order of
execution issued by Judge Natividad; (b) an order to compel plaintiffs
to pay them the sum of P2,000 for the buildings, or sell to them the
residential lot for P45; or (c), a rehearing of the case for a
determination of the rights of the parties upon failure of extra-judicial
settlement.
The judgment rendered by Judge Felix is founded on articles 361 and
453 of the Civil Code which are as follows:
ART. 361. The owner of land on which anything has been built, sown
or planted in good faith, shall have the right to appropriate as his own
the work, sowing or planting, after the payment of the indemnity
stated in articles 453 and 454, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the
proper rent.
ART. 453. Necessary expenses shall be refunded to every possessor;
but only the possessor in good faith may retain the thing until such
expenses are made good to him.
Useful expenses shall be refunded to the possessor in good faith with
the same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the
expenses or paying the increase in value which the thing may have
acquired in consequence thereof.
The owner of the building erected in good faith on a land owned by
another, is entitled to retain the possession of the land until he is paid
the value of his building, under article 453. The owner of the land,
upon the other hand, has the option, under article 361, either to pay
for the building or to sell his land to the owner of the building. But he

cannot, as respondents here did, refuse both to pay for the building
and to sell the land and compel the owner of the building to remove it
from the land where it is erected. He is entitled to such remotion only
when, after having chosen to sell his land, the other party fails to pay
for the same. But this is not the case before us.
We hold, therefore, that the order of Judge Natividad compelling
defendants-petitioners to remove their buildings from the land
belonging to plaintiffs-respondents only because the latter chose
neither to pay for such buildings not to sell the land, is null and void,
for it amends substantially the judgment sought to be executed and
is, furthermore, offensive to articles 361 and 453 of the Civil Code.
There is, however, in the decision of Judge Felix a question of
procedure which calls for the clarification, to avoid uncertainty and
delay in the disposition of cases. In that decision, the rights of both
parties are well defined under articles 361 and 453 of the Civil Code,
but it fails to determine the value of the buildings and of the lot where
they are erected as well as the periods of time within which the option
may be exercised and payment should be made, these particulars
having been left for determination apparently after the judgment has
become final. This procedure is erroneous, for after the judgment has
become final, no additions can be made thereto and nothing can be
done therewith except its execution. And execution cannot be had,
the sheriff being ignorant as to how, for how much, and within what
time may the option be exercised, and certainly no authority is vested
in him to settle these matters which involve exercise of judicial
discretion. Thus the judgment rendered by Judge Felix has never
become final, it having left matters to be settled for its completion in a
subsequent proceeding, matters which remained unsettled up to the
time the petition is filed in the instant case.
For all the foregoing, the writ of execution issued by Judge Natividad
is hereby set aside and the lower court ordered to hold a hearing in
the principal case wherein it must determine the prices of the
buildings and of the residential lot where they are erected, as well as
the period of time within which the plaintiffs-respondents may
exercise their option either to pay for the buildings or to sell their land,
and, in the last instance, the period of time within which the
defendants-petitioners may pay for the land, all these periods to be

counted from the date the judgment becomes executory or

unappealable. After such hearing, the court shall render a final
judgment according to the evidence presented by the parties.
The costs shall be paid by plaintiffs-respondents.

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

LEONILA SARMINETO, petitioner, vs.HON. ENRIQUE A. AGANA,
District Judge, Court of First Instance of Rizal, Seventh Judicial
District, Branch XXVIII, Pasay City, and SPOUSES ERNESTO
VALENTINO and REBECCA LORENZO-VALENTINO, respondents.
Mercedes M. Respicio for petitioner.
Romulo R. Bobadilla for private respondents.

MELENCIO-HERRERA, J.:

+.wph!1

This Petition for certiorari questions a March 29, 1979 Decision

rendered by the then Court of First Instance of Pasay City. The
Decision was one made on memoranda, pursuant to the provisions of
RA 6031, and it modified, on October 17, 1977, a judgment of the
then Municipal Court of Paranaque, Rizal, in an Ejectment suit
instituted by herein petitioner Leonila SARMIENTO against private
respondents, the spouses ERNESTO Valentino and Rebecca

Lorenzo. For the facts, therefore, we have to look to the evidence

presented by the parties at the original level.
It appears that while ERNESTO was still courting his wife, the latter's
mother had told him the couple could build a RESIDENTIAL HOUSE
on a lot of 145 sq. ms., being Lot D of a subdivision in Paranaque
(the LAND, for short). In 1967, ERNESTO did construct a
RESIDENTIAL HOUSE on the LAND at a cost of P8,000.00 to
P10,000.00. It was probably assumed that the wife's mother was the
owner of the LAND and that, eventually, it would somehow be
transferred to the spouses.
It subsequently turned out that the LAND had been titled in the name
of Mr. & Mrs. Jose C. Santo, Jr. who, on September 7 , 1974, sold the
same to petitioner SARMIENTO. The following January 6, 1975,
SARMIENTO asked ERNESTO and wife to vacate and, on April 21,
1975, filed an Ejectment suit against them. In the evidentiary hearings
before the Municipal Court, SARMIENTO submitted the deed of sale
of the LAND in her favor, which showed the price to be P15,000.00.
On the other hand, ERNESTO testified that the then cost of the
RESIDENTIAL HOUSE would be from P30,000.00 to P40,000.00.
The figures were not questioned by SARMIENTO.
The Municipal Court found that private respondents had built the
RESIDENTIAL HOUSE in good faith, and, disregarding the testimony
of ERNESTO, that it had a value of P20,000.00. It then ordered
ERNESTO and wife to vacate the LAND after SARMIENTO has paid
them the mentioned sum of P20,000.00.
The Ejectment suit was elevated to the Court of First Instance of
Pasay where, after the submission of memoranda, said Court
rendered a modifying Decision under Article 448 of the Civil Code.
SARMIENTO was required, within 60 days, to exercise the option to
reimburse ERNESTO and wife the sum of 40,000.00 as the value of
the RESIDENTIAL HOUSE, or the option to allow them to purchase
the LAND for P25,000.00. SARMIENTO did not exercise any of the
two options within the indicated period, and ERNESTO was then
allowed to deposit the sum of P25,000.00 with the Court as the
purchase price for the LAND. This is the hub of the controversy.
SARMIENTO then instituted the instant certiorari proceedings.

We agree that ERNESTO and wife were builders in good faith in view
of the peculiar circumstances under which they had constructed the
RESIDENTIAL HOUSE. As far as they knew, the LAND was owned
by ERNESTO's mother-in-law who, having stated they could build on
the property, could reasonably be expected to later on give them the
LAND.
In regards to builders in good faith, Article 448 of the Code provides:

t.hqw

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

The challenged decision of respondent Court, based on valuations of

P25,000.00 for the LAND and P40,000.00 for the RESIDENTIAL
HOUSE, cannot be viewed as not supported by the evidence. The
provision for the exercise by petitioner SARMIENTO of either the
option to indemnify private respondents in the amount of P40,000.00,
or the option to allow private respondents to purchase the LAND at
P25,000.00, in our opinion, was a correct decision.
t.hqw

The owner of the building erected in good faith on a land owned by

another, is entitled to retain the possession of the land until he is paid
the value of his building, under article 453 (now Article 546). The
owner, of the land. upon, the other hand, has the option, under article
361 (now Article 448), either to pay for the building or to sell his land
to the owner of the building. But he cannot, as respondents here did,
refuse both to pay for the building and to sell the land and compel the
owner of the building to remove it from the land where it is erected.
He is entitled to such remotion only when, after having chosen to sell
his land, the other party fails to pay for the same. (Emphasis ours)
We hold, therefore, that the order of Judge Natividad compelling
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

DIGEST

FACTS:
Before Ernesto Valentino and Rebecca Lorenzo wed,
Rebeccas mother offered a lot in Paranaque that they could

build their house on. In 1967, they finally built their home
which cost about PhP8,000-10,000, thinking that someday,
the lot would be transferred to them in their name. It turns
out, though, that the lot was owned by the Spouses Santos
who , in turn, sold the same to Leonila Sarmiento in 1974. A
year later, Sarmiento ordered the Valentinos to vacate their
lot, then eventually filed and Ejection Suit against them.
The lower court ruled in Sarmientos favor and ordered her
to pay 20,000 as the value of the house. But the case was
then elevated to the CFI of Pasay (w/ Agana as Judge), and
pursuant to Art.448 of the CC (March 1979), the Court
ordered Sarmiento to exercise the option in 60 days to pay
Ernesto 40,000 as the value of the house or to let them
purchase the land for 25,000. Sarmiento was not able to
exercise this option, and the CFI allowed Ernesto to deposit
the 25,000 purchase price with the Court.

ISSUE:
Whether or not the land owner is compelled to exercise
either option: to buy the building or to sell the land?

HELD:
Ernesto and his wife (BPS) were clearly in good faith as they
believed that Rebeccas mother has the capacity to
eventually transfer the title of the land to them. In line with
this, Sarmiento (LO) was required to exercise only 2 options:
To purchase the house or to sell the land to them, in this
case, based on the value decided by the courts. Since
Sarmiento failed to exercise the option within the allotted
period, and based on Art. 448, the LO is compelled by law to
exercise either option. Not choosing either is a violation of
the law.

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

FRANCISCO DEPRA, plaintiff-appellee, vs.AGUSTIN DUMLAO,
defendant-appellant.
Roberto D. Dineros for plaintiff-appellee.
Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:
This is an appeal from the Order of the former Court of First Instance
of Iloilo to the then Court of Appeals, which the latter certified to this
instance as involving pure questions of law
Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land
registered under Transfer Certificate of Title No. T3087, known as Lot
No. 685, situated in the municipality of Dumangas, Iloilo, with an area
of approximately 8,870 square meters. Agustin Dumlao, defendantappellant, owns an adjoining lot, designated as Lot No. 683, with an
approximate area of 231 sq. ms.
Sometime in 1972, when DUMLAO constructed his house on his lot,
the kitchen thereof had encroached on an area of thirty four (34)
square meters of DEPRA's property, After the encroachment was
discovered in a relocation survey of DEPRA's lot made on November
2,1972, his mother, Beatriz Depra after writing a demand letter asking
DUMLAO to move back from his encroachment, filed an action for
Unlawful Detainer on February 6,1973 against DUMLAO in the
Municipal Court of of Dumangas, docketed as Civil Case No 1, Said

complaint was later amended to include DEPRA as a party plain.

plaintiff.
After trial, the Municipal Court found that DUMLAO was a builder in
good faith, and applying Article 448 of the Civil Code, rendered
judgment on September 29, 1973, the dispositive portion of which
reads:
Ordering that a forced lease is created between the parties with the
plaintiffs, as lessors, and the defendants as lessees, over the
disputed portion with an area of thirty four (34) square meters, the
rent to be paid is five (P5.00) pesos a month, payable by the lessee
to the lessors within the first five (5) days of the month the rent is due;
and the lease shall commence on the day that this decision shall
have become final.
From the foregoing judgment, neither party appeal so that, ff it were a
valid judgment, it would have ordinarily lapsed into finality, but even
then, DEPRA did not accept payment of rentals so that DUMLAO
deposited such rentals with the Municipal Court.
On July 15,1974, DEPRA filed a Complaint for Quieting of Title
against DUMLAO before the then Court of First Instance of Iloilo,
Branch IV (Trial Court), involving the very same 34 square meters,
which was the bone of contention in the Municipal Court. DUMLAO,
in his Answer, admitted the encroachment but alleged, in the main,
that the present suit is barred by res judicata by virtue of the Decision
of the Municipal Court, which had become final and executory.
After the case had been set for pre-trial, the parties submitted a Joint
Motion for Judgment based on the Stipulation of Facts attached
thereto. Premised thereon, the Trial Court on October 31, 1974,
issued the assailed Order, decreeing:
WHEREFORE, the Court finds and so holds that the thirty four (34)
square meters subject of this litigation is part and parcel of Lot 685 of
the Cadastral Survey of Dumangas of which the plaintiff is owner as
evidenced by Transfer Certificate of Title No. 3087 and such plaintiff
is entitled to possess the same.
Without pronouncement as to costs.

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

Conceded in the Stipulation of Facts between the parties is that

DUMLAO was a builder in good faith. Thus,
8. That the subject matter in the unlawful detainer case, Civil Case
No. 1, before the Municipal Court of Dumangas, Iloilo involves the
same subject matter in the present case, the Thirty-four (34) square
meters portion of land and built thereon in good faith is a portion of
defendant's kitchen and has been in the possession of the defendant
since 1952 continuously up to the present; ... (Emphasis ours)
Consistent with the principle that our Court system, like any other,
must be a dispute resolving mechanism, we accord legal effect to the
agreement of the parties, within the context of their mutual

concession and stipulation. They have, thereby, chosen a legal

formula to resolve their dispute to appeal ply to DUMLAO the rights of
a "builder in good faith" and to DEPRA those of a "landowner in good
faith" as prescribed in Article 448. Hence, we shall refrain from further
examining whether the factual situations of DUMLAO and DEPRA
conform to the juridical positions respectively defined by law, for a
"builder in good faith" under Article 448, a "possessor in good faith"
under Article 526 and a "landowner in good faith' under Article 448.
In regards to builders in good faith, Article 448 of the Civil Code
provides:
ART. 448. The owner of the land on which anything has been built
sown or planted in good faith,
shall have the right
to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and 548, or
to oblige the one who built or planted to pay the price of the land, and
the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its
value is considerably more than that of the building or trees. In such
case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity.
The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof (Paragraphing
supplied)
Pursuant to the foregoing provision, DEPRA has the option either to
pay for the encroaching part of DUMLAO's kitchen, or to sell the
encroached 34 square meters of his lot to DUMLAO. He cannot
refuse to pay for the encroaching part of the building, and to sell the
encroached part of his land, 5 as he had manifested before the Municipal
Court. But that manifestation is not binding because it was made in a void
proceeding.

However, the good faith of DUMLAO is part of the Stipulation of Facts

in the Court of First Instance. It was thus error for the Trial Court to

have ruled that DEPRA is "entitled to possession," without more, of

the disputed portion implying thereby that he is entitled to have the
kitchen removed. He is entitled to such removal only when, after
having chosen to sell his encroached land, DUMLAO fails to pay for
the same. 6 In this case, DUMLAO had expressed his willingness to pay
for the land, but DEPRA refused to sell.

The owner of the building erected in good faith on a land owned by

another, is entitled to retain the possession of the land until he is paid
the value of his building, under article 453 (now Article 546). The
owner of the land, upon the other hand, has the option, under article
361 (now Article 448), either to pay for the building or to sell his land
to the owner of the building. But he cannot as respondents here did
refuse both to pay for the building and to sell the land and compel the
owner of the building to remove it from the land where it erected. He
is entitled to such remotion only when, after having chosen to sell his
land. the other party fails to pay for the same (italics ours).
We hold, therefore, that the order of Judge Natividad compelling
defendants-petitioners to remove their buildings from the land
belonging to plaintiffs-respondents only because the latter chose
neither to pay for such buildings nor to sell the land, is null and void,
for it amends substantially the judgment sought to be executed and
is. furthermore, offensive to articles 361 (now Article 448) and 453
(now Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605,
608[1946]).
A word anent the philosophy behind Article 448 of the Civil rode.
The original provision was found in Article 361 of the Spanish Civil
Code; which provided:
ART. 361. The owner of land on which anything has been built, sown
or planted in good faith, shall have the right to appropriate as his own
the work, sowing or planting, after the payment of the indemnity
stated in Articles 453 and 454, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the
proper rent.
As will be seen, the Article favors the owner of the land, by giving him
one of the two options mentioned in the Article. Some commentators

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

indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
Additional benefits were extended to the builder but the landowner
retained his options.
The fairness of the rules in Article 448 has also been explained as
follows:
Where the builder, planter or sower has acted in good faith, a conflict
of rights arises between the owners, and it becomes necessary to
protect the owner of the improvements without causing injustice to
the owner of the land. In view of the impracticability of creating a state
of forced co-ownership, the law has provided a just solution by giving
the owner of the land the option to acquire the improvements after
payment of the proper indemnity, or to oblige the builder or planter to
pay for the land and the sower to pay for the proper rent. It is the
owner of the land who is authorized to exercise the option, because
his right is older, and because, by the principle of accession, he is
entitled to the ownership of the accessory thing. (3 Manresa 213;
Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico,
G.R. No. 49167, April 30, 1949; Article applied: see Cabral, et al vs.
Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off.
Gaz. 2050). 8
WHEREFORE, the judgment of the trial Court is hereby set aside,
and this case is hereby ordered remanded to the Regional Trial Court
of Iloilo for further proceedings consistent with Articles 448 and 546 of
the Civil Code, as follows:
1. The trial Court shall determine
a) the present fair price of DEPRA's 34 square meter area of land;
b) the amount of the expenses spent by DUMLAO for the building of
the kitchen;
c) the increase in value ("plus value") which the said area of 34
square meters may have acquired by reason thereof, and
d) whether the value of said area of land is considerably more than

that of the kitchen built thereon.

2. After said amounts shall have been determined by competent
evidence, the Regional, Trial Court shall render judgment, as follows:
a) The trial Court shall grant DEPRA a period of fifteen (15) days
within which to exercise his option under the law (Article 448, Civil
Code), whether to appropriate the kitchen as his own by paying to
DUMLAO either the amount of tile expenses spent by DUMLAO f or
the building of the kitchen, or the increase in value ("plus value")
which the said area of 34 square meters may have acquired by
reason thereof, or to oblige DUMLAO to pay the price of said area.
The amounts to be respectively paid by DUMLAO and DEPRA, in
accordance with the option thus exercised by written notice of the
other party and to the Court, shall be paid by the obligor within fifteen
(15) days from such notice of the option by tendering the amount to
the Court in favor of the party entitled to receive it;
b) The trial Court shall further order that if DEPRA exercises the
option to oblige DUMLAO to pay the price of the land but the latter
rejects such purchase because, as found by the trial Court, the value
of the land is considerably more than that of the kitchen, DUMLAO
shall give written notice of such rejection to DEPRA and to the Court
within fifteen (15) days from notice of DEPRA's option to sell the land.
In that event, the parties shall be given a period of fifteen (15) days
from such notice of rejection within which to agree upon the terms of
the lease, and give the Court formal written notice of such agreement
and its provisos. If no agreement is reached by the parties, the trial
Court, within fifteen (15) days from and after the termination of the
said period fixed for negotiation, shall then fix the terms of the lease,
provided that the monthly rental to be fixed by the Court shall not be
less than Ten Pesos (P10.00) per month, payable within the first five
(5) days of each calendar month. The period for the forced lease shall
not be more than two (2) years, counted from the finality of the
judgment, considering the long period of time since 1952 that
DUMLAO has occupied the subject area. The rental thus fixed shall
be increased by ten percent (10%) for the second year of the forced
lease. DUMLAO shall not make any further constructions or
improvements on the kitchen. Upon expiration of the two-year period,
or upon default by DUMLAO in the payment of rentals for two (2)

consecutive months, DEPRA shall be entitled to terminate the forced

lease, to recover his land, and to have the kitchen removed by
DUMLAO or at the latter's expense. The rentals herein provided shall
be tendered by DUMLAO to the Court for payment to DEPRA, and
such tender shall constitute evidence of whether or not compliance
was made within the period fixed by the Court.
c) In any event, DUMLAO shall pay DEPRA an amount computed at
Ten Pesos (P10.00) per month as reasonable compensation for the
occupancy of DEPRA's land for the period counted from 1952, the
year DUMLAO occupied the subject area, up to the commencement
date of the forced lease referred to in the preceding paragraph;
d) The periods to be fixed by the trial Court in its Precision shall be
inextendible, and upon failure of the party obliged to tender to the trial
Court the amount due to the obligee, the party entitled to such
payment shall be entitled to an order of execution for the enforcement
of payment of the amount due and for compliance with such other
acts as may be required by the prestation due the obligee.
No costs,
SO ORDERED.
DIGEST

The properties of Francisco Depra and Agustin Dumlao

were adjoining each other. In 1972, Dumlao built his
house however, he unwittingly built the kitchen portion
of his house on Depras land. Depra then sued Dumlao
for unlawful detainer. During pre-trial, the parties agreed
that Dumlao was a builder in good faith.
Eventually, the trial court ruled that both parties were in
good faith but then a forced lease was ordered whereby
Dumlao retains the kitchen but he shall pay a rental to
Depra at P5.00 per month. But Depra refused to receive
the rental payments from Dumlao, instead, Depra filed
an action for quieting of title against Dumlao. In his

defense, Dumlao raised the defense of res judicata

considering that the nature and purpose of the initial
unlawful detainer case and that of the subsequent
quieting of title case is ejectment.
ISSUES:
1. Whether or not the order of forced lease decreed in
the unlawful detainer case is valid.
2. Whether or not the subsequent case of res judicata is
barred by prescription due to the prior case of unlawful
detainer.
HELD:
1. No. The judgment of forced lease is improper. A forced
lease, just like co-ownership is not favored. It should be
considered that the parties themselves stipulated that
Dumlao, the builder, was in good faith and it was later
found that Depra, the owner, was also in good faith.
Hence, what applies is the provisions of Article 448 of
the Civil Code, which provides in sum that:
a. Builder in good faith entitled to retain the possession
of the land on which he built in good faith until he is paid
the value of the building he built in good faith;
b. Owner in good faith has the option to either (i) pay
for the building OR (ii) sell his land to the builder in good
faith but builder cannot be forced to buy said land if the
same is considerably more than the value of the
building.
Forced rent only comes in if the owner exercises his right
to sell the land but the builder rejects it by reason of the
price thereof being considerably more than the value of
the building in such case, the parties shall agree to the
terms of the lease, if they cant agree then they may
bring the issue to court.

2. No. The action for quieting of title is not barred by

reason of res judicata. The cause of action in the
unlawful detainer case involves possession while the
cause of action in the quieting of title case involves
ownership. Furthermore, the Rules of Court explicitly
provides that judgment in a detainer case shall not bar
an action between the same parties respecting title to
the land.

[G.R. No. 108894. February 10, 1997]

TECNOGAS PHILIPPINES MANUFACTURING

CORPORATION, petitioner, vs. COURT OF
APPEALS
(FORMER
SPECIAL
SEVENTEENTH DIVISION) and EDUARDO
UY, respondents.
DECISION
PANGANIBAN, J.:

The parties in this case are owners of adjoining lots in

Paraaque, Metro Manila. It was discovered in a survey that a

portion of a building of petitioner, which was presumably

constructed by its predecessor-in-interest, encroached on a
portion of the lot owned by private respondent. What are the
rights and obligations of the parties? Is petitioner considered
a builder in bad faith because, as held by respondent Court,
he is presumed to know the metes and bounds of his
property as described in his certificate of title? Does
petitioner succeed into the good faith or bad faith of his
predecessor-in-interest which presumably constructed the
building?
These are the questions raised in the petition for review
of the Decision[1] dated August 28, 1992, in CA-G.R. CV No.
28293 of respondent Court[2] where the disposition reads:[3]
WHEREFORE,premisesconsidered,theDecisionoftheRegional
TrialCourtisherebyreversedandsetasideandanotherone
entered
1.Dismissingthecomplaintforlackofcauseofaction;
2.OrderingTecnogastopaythesumofP2,000.00permonthas
reasonablerentalfromOctober4,1979untilappelleevacatesthe
land;
3.Toremovethestructuresandsurroundingwallsonthe
encroachedarea;
4.Orderingappelleetopaythevalueofthelandoccupiedbythe
twostoreybuilding;
5.OrderingappelleetopaythesumofP20,000.00forandas
attorneysfees;
6.Costsagainstappellee.

Acting on the motions for reconsideration of both

petitioner and private respondent, respondent Court ordered
the deletion of paragraph 4 of the dispositive portion in an
Amended Decision dated February 9, 1993, as follows:[4]
WHEREFORE,premisesconsidered,ourdecisionofAugust28,
1992isherebymodifieddeletingparagraph4ofthedispositive
portionofourdecisionwhichreads:
4.Orderingappelleetopaythevalueofthelandoccupiedbythe
twostoreybuilding.
ThemotionforreconsiderationofappelleeisherebyDENIEDfor
lackofmerit.
The foregoing Amended Decision is also challenged in
the instant petition.
The Facts
The facts are not disputed. Respondent Court merely
reproduced the factual findings of the trial court, as follows:[5]
Thatplaintiff(hereinpetitioner)whichisacorporationduly
organizedandexistingunderandbyvirtueofPhilippinelawsis
theregisteredownerofaparceloflandsituatedinBarrioSan
Dionisio,Paraaque,MetroManilaknownasLot4331A(should
be4531A)ofLot4531oftheCadastralSurveyofParaaque,
MetroManila,coveredbyTransferCertificateofTitleNo.409316
oftheRegistryofDeedsoftheProvinceofRizal;thatsaidland
waspurchasedbyplaintifffromParizIndustries,Inc.in1970,
togetherwithallthebuildingsandimprovementsincludingthe
wallexistingthereon;thatthedefendant(hereinprivate
respondent)istheregisteredownerofaparceloflandknownas
LotNo.4531BofLot4531oftheCadastralSurveyofParaaque,

LRC(GLRO)Rec.No.19645coveredbyTransferCertificateof
TitleNo.279838,oftheRegistryofDeedsfortheProvinceof
Rizal;thatsaidlandwhichadjoinsplaintiffslandwaspurchasedby
defendantfromacertainEnrileAntonioalsoin1970;thatin1971,
defendantpurchasedanotherlotalsoadjoiningplaintiffslandfrom
acertainMiguelRodriguezandthesamewasregisteredin
defendantsnameunderTransferCertificateofTitleNo.31390,of
theRegistryofDeedsfortheProvinceofRizal;thatportionsofthe
buildingsandwallboughtbyplaintifftogetherwiththelandfrom
ParizIndustriesareoccupyingaportionofdefendantsadjoining
land;thatuponlearningoftheencroachmentoroccupationbyits
buildingsandwallofaportionofdefendantsland,plaintiffoffered
tobuyfromdefendantthatparticularportionofdefendantsland
occupiedbyportionsofitsbuildingsandwallwithanareaof770
squaremeters,moreorless,butdefendant,however,refusedthe
offer.In1973,thepartiesenteredintoaprivateagreementbeforea
certainCol.RosalesinMalacaang,whereinplaintiffagreedto
demolishthewallatthebackportionofitslandthusgivingto
defendantpossessionofaportionofhislandpreviouslyenclosed
byplaintiffswall;thatdefendantlaterfiledacomplaintbeforethe
officeofMunicipalEngineerofParaaque,MetroManilaaswellas
beforetheOfficeoftheProvincialFiscalofRizalagainstplaintiff
inconnectionwiththeencroachmentoroccupationbyplaintiffs
buildingsandwallsofaportionofitslandbutsaidcomplaintdid
notprosper;thatdefendantdugorcausedtobedugacanalalong
plaintiffswall,aportionofwhichcollapsedinJune,1980,andled
tothefilingbyplaintiffofthesupplementalcomplaintinthe
aboveentitledcaseandaseparatecriminalcomplaintformalicious
mischiefagainstdefendantandhiswifewhichultimatelyresulted
intotheconvictionincourtofdefendantswifeforthecrimeof
maliciousmischief;thatwhiletrialofthecasewasinprogress,
plaintifffiledinCourtaformalproposalforsettlementofthecase
butsaidproposal,however,wasignoredbydefendant.

After trial on the merits, the Regional Trial Court [6] of

Pasay City, Branch 117, in Civil Case No. PQ-7631-P,
rendered a decision dated December 4, 1989 in favor of
petitioner who was the plaintiff therein. The dispositive
portion reads:[7]
WHEREFORE,judgmentisherebyrenderedinfavorofplaintiff
andagainstdefendantandorderingthelattertoselltoplaintiffthat
portionoflandownedbyhimandoccupiedbyportionsof
plaintiffsbuildingsandwallatthepriceofP2,000.00persquare
meterandtopaytheformer:
1.ThesumofP44,000.00tocompensateforthelossesinmaterials
andpropertiesincurredbyplaintiffthroughthieveryasaresultof
thedestructionofitswall;
2.ThesumofP7,500.00asandbywayofattorneysfees;and
3.Thecostsofthissuit.
Appeal was duly interposed with respondent Court,
which as previously stated, reversed and set aside the
decision of the Regional Trial Court and rendered the
assailed Decision and Amended Decision. Hence, this
recourse under Rule 45 of the Rules of Court.
The Issues
The petition raises the following issues:[8]
(A)

WhetherornottherespondentCourtofAppealserredin
holdingthepetitionerabuilderinbadfaithbecauseitis
presumedtoknowthemetesandboundsofhisproperty.

(B)

WhetherornottherespondentCourtofAppealserredwhenit
usedtheamicablesettlementbetweenthepetitionerandthe
privaterespondent,wherebothpartiesagreedtothe
demolitionoftherearportionofthefence,asestoppel
amountingtorecognitionbypetitionerofrespondentsright
overhispropertyincludingtheportionsofthelandwherethe
otherstructuresandthebuildingstand,whichwerenot
includedinthesettlement.
(C)

WhetherornottherespondentCourtofAppealserredinordering
theremovalofthestructuresandsurroundingwallsonthe
encroachedareaandinwithdrawingitsearlierrulinginitsAugust
28,1992decisionforthepetitionertopayforthevalueoftheland
occupiedbythebuilding,onlybecausetheprivaterespondenthas
manifesteditschoicetodemolishitdespitetheabsenceof
compulsorysalewherethebuilderfailstopayfortheland,and
whichchoiceprivaterespondentdeliberatelydeletedfromits
September1,1980answertothesupplementalcomplaintinthe
RegionalTrialCourt.
In its Memorandum, petitioner poses the following
issues:
A

Thetimewhentodeterminethegoodfaithofthebuilderunder
Article448oftheNewCivilCode,isreckonedduringtheperiod
whenitwasactuallybeingbuilt;andinacasewherenoevidence
waspresentednorintroducedastothegoodfaithorbadfaithof
thebuilderatthattime,asinthiscase,hemustbepresumedtobea
builderingoodfaith,sincebadfaithcannotbepresumed.[9]

B.

Inaspecificboundaryoverlapsituationwhichinvolvesabuilderin
goodfaith,asinthiscase,itisnowwellsettledthatthelotowner,
whobuildsontheadjacentlotisnotchargedwithconstructive
noticeofthetechnicalmetesandboundscontainedintheirtorrens
titlestodeterminetheexactandpreciseextentofhisboundary
perimeter.[10]
C.

TherespondentcourtscitationofthetwincasesofTuason&Co.
v.LumanlanandTuason&Co.v.Macalindongisnotthejudicial
authorityforaboundarydisputesituationbetweenadjacenttorrens
titledlotowners,asthefactsofthepresentcasedonotfallwithin
norsquarewiththeinvolvedprincipleofadissimilarcase.[11]
D.

QuitecontrarytorespondentUysreasoning,petitionerTecnogas
continuestobeabuilderingoodfaith,evenifitsubsequently
built/repairedthewalls/otherpermanentstructuresthereonwhile
thecaseaquowaspendingandevenwhilerespondentsentthe
petitionermanyletters/filedcasesthereon.[12]
D. (E.)

Theamicablesettlementbetweenthepartiesshouldbeinterpreted
asacontractandenforcedonlyinaccordancewithitsexplicit
terms,andnotoverandbeyondthatagreedupon;becausethe
courtsdonothavethepowertocreateacontractnorexpandits
scope.[13]
E. (F.)

Asageneralrule,althoughthelandownerhastheoptiontochoose
between:(1)buyingthebuildingbuiltingoodfaith,or(2)selling

theportionofhislandonwhichstandsthebuildingunderArticle
448oftheCivilCode;thefirstoptionisnotabsolute,becausean
exceptionthereto,onceitwouldbeimpracticalforthelandowner
tochoosetoexercisethefirstalternative,i.e.buythatportionof
thehousestandingonhisland,forthewholebuildingmightbe
rendereduseless.Theworkablesolutionisforhimtoselectthe
secondalternative,namely,toselltothebuilderthatpartofhis
landonwhichwasconstructedaportionofthehouse.[14]
Private respondent, on the other hand, argues that the
petition is suffering from the following flaws:[15]
1.Itdidnotgivetheexactcitationsofcasesdecidedbythe
HonorableSupremeCourtthatallegedlycontradictsthe
rulingoftheHon.CourtofAppealsbasedonthedoctrine
laiddowninTuasonvs.LumanlancasecitingalsoTuason
vs.Macalindongcase(Supra).
2.AssumingthatthedoctrineintheallegedCoTaovs.Chico
caseiscontradictorytothedoctrineinTuasonvs.
LumanlanandTuasonvs.Macalindong,thetwocases
beingmorecurrent,thesameshouldprevail.
Further,privaterespondentcontendsthatthefollowing
unmistakablypointtothebadfaithofpetitioner:(1)private
respondentspurchaseofthetwolots,wasaheadofthepurchaseby
petitionerofthebuildingandlotfromParizIndustries;(2)the
declarationoftheGeneralManagerofTecnogasthatthesale
betweenpetitionerandParizIndustrieswasnotregisteredbecause
ofsomeproblemswithChinaBankingCorporation;and(3)the
DeedofSaleinfavorofpetitionerwasregisteredinitsnameonly
inthemonthofMay1973.[16]
The Courts Ruling

The petition should be granted.

Good Faith or Bad Faith
Respondent Court, citing the cases of J. M. Tuason &
Co., Inc. vs. Vda. de Lumanlan[17] and J. M. Tuason & Co.,
Inc. vs. Macalindong,[18] ruled that petitioner cannot be
considered in good faith because as a land owner, it is
presumed to know the metes and bounds of his own
property, specially if the same are reflected in a properly
issued certificate of title. One who erroneously builds on the
adjoining lot should be considered a builder in (b)ad (f)aith,
there being presumptive knowledge of the Torrens title, the
area, and the extent of the boundaries.[19]
We disagree with respondent Court. The two cases it
relied upon do not support its main pronouncement that a
registered owner of land has presumptive knowledge of the
metes and bounds of its own land, and is therefore in bad
faith if he mistakenly builds on an adjoining land. Aside from
the fact that those cases had factual moorings radically
different from those obtaining here, there is nothing in those
cases which would suggest, however remotely, that bad faith
is imputable to a registered owner of land when a part of his
building encroaches upon a neighbors land, simply because
he is supposedly presumed to know the boundaries of his
land as described in his certificate of title. No such doctrinal
statement could have been made in those cases because
such issue was not before the Supreme Court. Quite the
contrary, we have rejected such a theory in Co Tao vs.
Chico,[20] where we held that unless one is versed in the
science of surveying, no one can determine the precise
extent or location of his property by merely examining his
paper title.
There is no question that when petitioner purchased the

land from Pariz Industries, the buildings and other structures

were already in existence. The record is not clear as to who
actually built those structures, but it may well be assumed
that petitioners predecessor-in-interest, Pariz Industries, did
so. Article 527 of the Civil Code presumes good faith, and
since no proof exists to show that the encroachment over a
narrow, needle-shaped portion of private respondents land
was done in bad faith by the builder of the encroaching
structures, the latter should be presumed to have built them
in good faith.[21] It is presumed that possession continues to
be enjoyed in the same character in which it was acquired,
until the contrary is proved.[22] Good faith consists in the
belief of the builder that the land he is building on is his, and
his ignorance of any defect or flaw in his title. [23] Hence, such
good faith, by law, passed on to Parizs successor, petitioner
in this case. Further, (w)here one derives title to property
from another, the act, declaration, or omission of the latter,
while holding the title, in relation to the property, is evidence
against the former.[24] And possession acquired in good faith
does not lose this character except in case and from the
moment facts exist which show that the possessor is not
unaware that he possesses the thing improperly or
wrongfully.[25] The good faith ceases from the moment
defects in the title are made known to the possessor, by
extraneous evidence or by suit for recovery of the property
by the true owner.[26]
Recall that the encroachment in the present case was
caused by a very slight deviation of the erected wall (as
fence) which was supposed to run in a straight line from
point 9 to point 1 of petitioners lot. It was an error which, in
the context of the attendant facts, was consistent with good
faith. Consequently, the builder, if sued by the aggrieved
landowner for recovery of possession, could have invoked
the provisions of Art. 448 of the Civil Code, which reads:

Theownerofthelandonwhichanythinghasbeenbuilt,sownor
plantedingoodfaith,shallhavetherighttoappropriateashisown
theworks,sowingorplanting,afterpaymentoftheindemnity
providedforinarticles546and548,ortoobligetheonewhobuilt
orplantedtopaythepriceoftheland,andtheonewhosowed,the
properrent.However,thebuilderorplantercannotbeobligedto
buythelandifitsvalueisconsiderablymorethanthatofthe
buildingortrees.Insuchcase,heshallpayreasonablerent,ifthe
ownerofthelanddoesnotchoosetoappropriatethebuildingor
treesafterproperindemnity.Thepartiesshallagreeupontheterms
oftheleaseandincaseofdisagreement,thecourtshallfixthe
termsthereof.
The obvious benefit to the builder under this article is that,
instead of being outrightly ejected from the land, he can
compel the landowner to make a choice between the two
options: (1) to appropriate the building by paying the
indemnity required by law, or (2) sell the land to the builder.
The landowner cannot refuse to exercise either option and
compel instead the owner of the building to remove it from
the land.[27]
The question, however, is whether the same benefit can
be invoked by petitioner who, as earlier stated, is not the
builder of the offending structures but possesses them as
buyer.
We answer such question in the affirmative.
In the first place, there is no sufficient showing that
petitioner was aware of the encroachment at the time it
acquired the property from Pariz Industries. We agree with
the trial court that various factors in evidence adequately
show petitioners lack of awareness thereof. In any case,
contrary proof has not overthrown the presumption of good
faith under Article 527 of the Civil Code, as already stated,

taken together with the disputable presumptions of the law

on evidence. These presumptions state, under Section 3 (a)
of Rule 131 of the Rules of Court, that the person is innocent
of a crime or wrong; and under Section 3 (ff) of Rule 131,
that the law has been obeyed. In fact, private respondent
Eduardo Uy himself was unaware of such intrusion into his
property until after 1971 when he hired a surveyor, following
his purchase of another adjoining lot, to survey all his newly
acquired lots. Upon being apprised of the encroachment,
petitioner immediately offered to buy the area occupied by its
building -- a species of conduct consistent with good faith.
In the second place, upon delivery of the property by
Pariz Industries, as seller, to the petitioner, as buyer, the
latter acquired ownership of the property. Consequently and
as earlier discussed, petitioner is deemed to have stepped
into the shoes of the seller in regard to all rights of ownership
over the immovable sold, including the right to compel the
private respondent to exercise either of the two options
provided under Article 448 of the Civil Code.
Estoppel
Respondent Court ruled that the amicable settlement
entered into between petitioner and private respondent
estops the former from questioning the private respondents
right over the disputed property. It held that by undertaking to
demolish the fence under said settlement, petitioner
recognized private respondents right over the property, and
cannot later on compel private respondent to sell to it the
land since private respondent is under no obligation to sell.
[28]

We do not agree. Petitioner cannot be held in estoppel

for entering into the amicable settlement, the pertinent
portions of which read:[29]

Thatthepartiesheretohaveagreedthattherearportionofthe
fencethatseparatesthepropertyofthecomplainantand
respondentshallbedemolisheduptothebackofthebuilding
housingthemachinerieswhichdemolision(sic)shallbe
undertakenbythecomplainantatanytime.
Thatthefencewhichserve(s)asawallhousingtheelectroplating
machineriesshallnotbedemolishedinthemeantimewhich
portionshallbesubjecttonegotiationbyhereinparties.
From the foregoing, it is clear that petitioner agreed only
to the demolition of a portion of the wall separating the
adjoining properties of the parties -- i.e. up to the back of the
building housing the machineries. But that portion of the
fence which served as the wall housing the electroplating
machineries was not to be demolished. Rather, it was to be
subject to negotiation by herein parties. The settlement may
have recognized the ownership of private respondent but
such admission cannot be equated with bad faith. Petitioner
was only trying to avoid a litigation, one reason for entering
into an amicable settlement.
As was ruled in Osmea vs. Commission on Audit,[30]
Acompromiseisabilateralactortransactionthatisexpressly
acknowledgedasajuridicalagreementbytheCivilCodeandis
thereindealtwithinsomedetail.`Acompromise,declaresArticle
2208ofsaidCode,`isacontractwherebytheparties,bymaking
reciprocalconcessions,avoidalitigationorputanendtoone
alreadycommenced.
xxxxxxxxx
TheCivilCodenotonlydefinesandauthorizescompromises,itin
factencouragesthemincivilactions.Art.2029statesthat`The

Courtshallendeavortopersuadethelitigantsinacivilcaseto
agreeuponsomefaircompromise.xxx.
In the context of the established facts, we hold that
petitioner did not lose its rights under Article 448 of the Civil
Code on the basis merely of the fact that some years after
acquiring the property in good faith, it learned about -- and
aptly recognized -- the right of private respondent to a
portion of the land occupied by its building. The supervening
awareness of the encroachment by petitioner does not
militate against its right to claim the status of a builder in
good faith. In fact, a judicious reading of said Article 448 will
readily show that the landowners exercise of his option can
only take place after the builder shall have come to know of
the intrusion -- in short, when both parties shall have
become aware of it. Only then will the occasion for
exercising the option arise, for it is only then that both parties
will have been aware that a problem exists in regard to their
property rights.
Options of Private Respondent
What then is the applicable provision in this case which
private respondent may invoke as his remedy: Article 448 or
Article 450[31] of the Civil Code?
In view of the good faith of both petitioner and private
respondent, their rights and obligations are to be governed
by Art. 448. The essential fairness of this codal provision has
been pointed out by Mme. Justice Ameurfina MelencioHerrera, citing Manresa and applicable precedents, in the
case of Depra vs. Dumlao,[32] to wit:
Wherethebuilder,planterorsowerhasactedingoodfaith,a
conflictofrightsarisesbetweentheowners,anditbecomes

necessarytoprotecttheowneroftheimprovementswithout
causinginjusticetotheowneroftheland.Inviewofthe
impracticalityofcreatingastateofforcedcoownership,thelaw
hasprovidedajustsolutionbygivingtheownerofthelandthe
optiontoacquiretheimprovementsafterpaymentoftheproper
indemnity,ortoobligethebuilderorplantertopayfortheland
andthesowertopaytheproperrent.Itistheowneroftheland
whoisauthorizedtoexercisetheoption,becausehisrightisolder,
andbecause,bytheprincipleofaccession,heisentitledtothe
ownershipoftheaccessorything.(3Manresa213;Bernardovs.
Bataclan,37Off.Gaz.1382;CoTaovs.ChanChico,G.R.No.
49167,April30,1949;Articleapplied;seeCabral,etal.vs.Ibanez
[S.C.]52Off.Gaz.217;Marforivs.Velasco,[C.A.]52Off.Gaz.
2050).
The private respondents insistence on the removal of the
encroaching structures as the proper remedy, which
respondent Court sustained in its assailed Decisions, is thus
legally flawed. This is not one of the remedies bestowed
upon him by law. It would be available only if and when he
chooses to compel the petitioner to buy the land at a
reasonable price but the latter fails to pay such price. [33] This
has not taken place. Hence, his options are limited to: (1)
appropriating the encroaching portion of petitioners building
after payment of proper indemnity, or (2) obliging the latter to
buy the lot occupied by the structure. He cannot exercise a
remedy of his own liking.
Neither is petitioners prayer that private respondent be
ordered to sell the land[34] the proper remedy. While that was
dubbed as the more workable solution in Grana and Torralba
vs. The Court of Appeals, et al.,[35] it was not the relief
granted in that case as the landowners were directed to
exercise within 30 days from this decision their option to
either buy the portion of the petitioners house on their land

or sell to said petitioners the portion of their land on which it

stands.[36] Moreover, in Grana and Torralba, the area
involved was only 87 square meters while this case involves
520 square meters[37]. In line with the case of Depra vs.
Dumlao,[38] this case will have to be remanded to the trial
court for further proceedings to fully implement the mandate
of Art. 448. It is a rule of procedure for the Supreme Court to
strive to settle the entire controversy in a single proceeding
leaving no root or branch to bear the seeds of future
litigation.[39]
Petitioner, however, must also pay the rent for the
property occupied by its building as prescribed by
respondent Court from October 4, 1979, but only up to the
date private respondent serves notice of its option upon
petitioner and the trial court; that is, if such option is for
private respondent to appropriate the encroaching structure.
In such event, petitioner would have a right of retention
which negates the obligation to pay rent. [40] The rent should
however continue if the option chosen is compulsory sale,
but only up to the actual transfer of ownership.
The award of attorneys fees by respondent Court
against petitioner is unwarranted since the action appears to
have been filed in good faith. Besides, there should be no
penalty on the right to litigate.[41]
WHEREFORE, premises considered, the petition is
hereby GRANTED and the assailed Decision and the
Amended Decision are REVERSED and SET ASIDE. In
accordance with the case of Depra vs. Dumlao,[42] this case
is REMANDED to the Regional Trial Court of Pasay City,
Branch 117, for further proceedings consistent with Articles
448 and 546 [43] of the Civil Code, as follows:
Thetrialcourtshalldetermine:

a)thepresentfairpriceofprivaterespondents520squaremeter
areaofland;
b)theincreaseinvalue(plusvalue)whichthesaidareaof
520squaremetersmayhaveacquiredbyreasonof
theexistenceoftheportionofthebuildingonthe
area;
c)thefairmarketvalueoftheencroachingportionofthebuilding;
and
d)whetherthevalueofsaidareaoflandisconsiderably
morethanthefairmarketvalueoftheportionofthe
buildingthereon.
2.Aftersaidamountsshallhavebeendeterminedbycompetent
evidence,theregionaltrialcourtshallrenderjudgmentasfollows:
a) The private respondent shall be granted a period of
fifteen (15) days within which to exercise his option
under the law (Article 448, Civil Code), whether to
appropriate the portion of the building as his own by
paying to petitioner its fair market value, or to oblige
petitioner to pay the price of said area. The amounts
to be respectively paid by petitioner and private
respondent, in accordance with the option thus
exercised by written notice of the other party and to
the court, shall be paid by the obligor within fifteen
(15) days from such notice of the option by tendering
the amount to the trial court in favor of the party
entitled to receive it;
b) If private respondent exercises the option to oblige
petitioner to pay the price of the land but the latter
rejects such purchase because, as found by the trial
court, the value of the land is considerably more than

that of the portion of the building, petitioner shall give

written notice of such rejection to private respondent
and to the trial court within fifteen (15) days from
notice of private respondents option to sell the land.
In that event, the parties shall be given a period of
fifteen (15) days from such notice of rejection within
which to agree upon the terms of the lease, and give
the trial court formal written notice of the agreement
and its provisos. If no agreement is reached by the
parties, the trial court, within fifteen (15) days from
and after the termination of the said period fixed for
negotiation, shall then fix the terms of the lease
provided that the monthly rental to be fixed by the
Court shall not be less than two thousand pesos
(P2,000.00) per month, payable within the first five
(5) days of each calendar month. The period for the
forced lease shall not be more than two (2) years,
counted from the finality of the judgment, considering
the long period of time since 1970 that petitioner has
occupied the subject area. The rental thus fixed shall
be increased by ten percent (10%) for the second
year of the forced lease. Petitioner shall not make
any further constructions or improvements on the
building. Upon expiration of the two-year period, or
upon default by petitioner in the payment of rentals
for two (2) consecutive months, private respondent
shall be entitled to terminate the forced lease, to
recover his land, and to have the portion of the
building removed by petitioner or at latters expense.
The rentals herein provided shall be tendered by
petitioner to the trial court for payment to private
respondent, and such tender shall constitute
evidence of whether or not compliance was made
within the period fixed by the said court.
c) In any event, petitioner shall pay private respondent
an amount computed at two thousand pesos
(P2,000.00) per month as reasonable compensation

for the occupancy of private respondents land for the

period counted from October 4, 1979, up to the date
private respondent serves notice of its option to
appropriate the encroaching structures, otherwise up
to the actual transfer of ownership to petitioner or, in
case a forced lease has to be imposed, up to the
commencement date of the forced lease referred to
in the preceding paragraph;
d) The periods to be fixed by the trial court in its
decision shall be non-extendible, and upon failure of
the party obliged to tender to the trial court the
amount due to the obligee, the party entitled to such
payment shall be entitled to an order of execution for
the enforcement of payment of the amount due and
for compliance with such other acts as may be
required by the prestation due the obligee.

No costs.
SO ORDERED.
DIGEST

FACTS
Petitioner bought a lot together with the building and
improvements including the wall which encroached that of
the defendant. Upon learning of such encroachment,
petitioner offered to buy the land but defendant refused.
After 2 years, through an agreement, petitioner agreed to
demolish the wall (but the case did not state what happened
to this agreement, my assumption is that it did not happen
due to conflicts that arose after)
Defendant dug a canal along the wall which caused a portion
of it to collapse. Petitioner filed a supplemental complaint re
the action and a separate criminal action of malicious
mischief (which the wife was convicted of)

RTC decided for the petitioners and the CA reversed. Note

that respondent wants to have the wall demolished.

ISSUES:
A. Whether or not petitioner is a builder in bad faith because
it is 'presumed to know the metes and bounds of his
property.'B. Whether or not amicable settlement was a
proper remedyC. Whether or not respondent can opt to
demolish the structure without exercising the option to sell
the land to the petitioner and the latter cannot do buy the
same

RULING: Petition was granted.

Good faith or Bad Faith No such doctrinal statement that
supports that the knowledge of metes and bounds of a land
due to the Torrens system would amount to bad faith if there
was encroachment on the land of another.
A. When the petitioner purchased the lot, the wall was
already built. Even the respondent did not knew about the
encroachment until he has hired a surveyor.
B. Where one derives title to the property from another, the
act, declaration, or omission of the latter, while holding the
title, in relation to the property, is evidence against the
former. And possession in good faith does not lose this
character except when the possessor is aware of this
impropriety.
C. The encroachment was very narrow which can be
considered as a mere error. Remedy the petitioner, despite
being a purchaser of the original builder, can compel the
landowner to either buy the property or sell the piece of land
because:

1.

He was really unaware of the encroachment basing on

the fact presented by both sides.

2.

When the petitioner bought the land, he has stepped

into the rights of the original owner (hence, the right to
compel the LO to buy or sell is also transferred)
Estoppel Petitioner is not considered in estoppel only
because it has previously agreed to demolish a part of the
wall. Rather, it was to be negotiated by the parties concern.
In the meantime, petitioner has to pay the rent for the
property occupied by its building only up to the date when
respondent serves notice of their option. Case remanded
back to the trial court for determination of the value of the
land and the number of days to allot for the respondent to
choose an option.

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

BARTOLOME ORTIZ, petitioner, vs.HON. UNION C. KAYANAN, in
his capacity as Judge of the Court of First Instance of Quezon,
Branch IV; ELEUTERIO ZAMORA, QUIRINO COMINTAN,
VICENTE FERRO, AND GREGORIO PAMISARAN, respondents.
Salonga, Ordo;ez, Yap, Sicat & Associates and Salvador, Ulgado &
Carbon for petitioner.
Jose A. Cusi for private respondents.

ANTONIO, J.:

1wph1.t

Petition for certiorari and Prohibition with Preliminary Injunction to

nullify the Order of respondent Judge directing the execution of the
final judgment in Civil Case No. C-90, entitled "Bartolome Ortiz vs.

Secretary of Agriculture and Natural Resources, et al.," and the Writ

of Execution issued to implement said Order, allegedly for being
inconsistent with the judgment sought to be enforced.
Civil Case No. C-90 was filed by Bartolome Ortiz who sought the
review and/or annulment of the decision of the Secretary of
Agriculture and Natural Resources, giving preference to the sales
applications of private respondents Quirino Comintan and Eleuterio
Zamora over Lot No. 5785, PLS-45, located at Barrio Cabuluan,
Calauag, Quezon.
I
The factual background of the case, as found by respondent Court, is
as follows:
t.hqw

... The lot in controversy was formerly the subject of Homestead

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

relinquishment of the homestead rights of Martin Dolorico I in favor of

Comintan and Zamora is proper, the former having been designated
as successor in interest of the original homestead applicant and that
because plaintiff failed to participate in the public auction, he is
forever barred to claim the property; that plaintiff filed a motion for
reconsideration of this decision which was denied by the Director of
Lands in his order dated June 10, 1959; that, finally, on appeal to the
Secretary of Agriculture and Natural Resources, the decision
rendered by the Regional Land Officer was affirmed in toto. 1
On March 22, 1966, respondent Court rendered judgment in the
afore-mentioned civil case, the dispositive portion of which reads as
follows:
t.hqw

IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is

hereby rendered awarding Lot No. 5785-A of PLS-45, (Calauag
Public Land Subdivision) one-half portion of the property in litigation
located at Bo. Cabuluan, Calauag, Quezon, in favor of defendant
QUIRINO COMINTAN, being the successful bidder in the public
auction conducted by the bureau of Lands on April 18, 1955, and
hereby giving due course to the Sales Application No. 9258 of
defendant Eleuterio Zamora over the other half, Lot No. 5785-B of
PLS-45, Calauag, without prejudice to the right of plaintiff
BARTOLOME ORTIZ to participate in the public bidding of the same
to be announced by the Bureau of Lands, Manila. However, should
plaintiff Bartolome Ortiz be not declared the successful bidder
thereof, defendants Quirino Comintan and Eleuterio Zamora are
ordered to reimburse jointly said plaintiff the improvements he has
introduced on the whole property in the amount of THIRTEEN
THOUSAND SIX HUNDRED THIRTY-TWO (P13,632.00) PESOS,
the latter having the right to retain the property until after he has been
fully paid therefor, without interest since he enjoys the fruits of the
property in question, with prejudice and with costs again the plaintiff. 2
Plaintiff appealed the decision to the Court of Appeals.
Two (2) years after the rendition of the judgment by the court a quo,
while the case was pending appeal and upon petition of private
respondents Quirino Comintan and Eleuterio Zamora, respondent
Court appointed respondent Vicente Ferro, Clerk of Court, as

Receiver to collect tolls on a portion of the property used as a

diversion road. On August 19, 1969, the Court of Appeals issued a
Resolution annulling the Order appointing the Receiver.
Subsequently, on February 19, 1970, the Appellate Court affirmed the
decision of the trial court. A petition for review on certiorari of the
decision of the Court of Appeals was denied by this Court on April 6,
1970. At this point, private respondents filed a petition for
appointment of a new receiver with the court a quo. This petition was
granted and the receiver was reappointed. Petitioner sought the
annulment of this Order with the Court of Appeals, but said Court
ruled that its decision had already become final and that the records
of the case were to be remanded to the trial court.
Not satisfied with such denial, petitioner filed a petitioner for certiorari,
prohibition and mandamus with preliminary injunction before this
Court, 3 praying for the annulment of the Order reappointing the Receiver.
On July 13, 1970, the petition was dismissed by this Court on the ground
of insufficient showing of grave abuse of discretion.

II
The judgment having become final and executory private
respondents filed a motion for the execution of the same, praying as
follows:
t.hqw

WHEREFORE, it is respectfully prayed of this Honorable Court to

order the issuance of a writ of execution in accordance with the
judgment of this Honorable Court, confirmed by the Court of Appeals
and the Supreme Court, commanding any lawful officer to deliver to
defendants Comintan and Zamora the land subject of the decision in
this case but allowing defendants to file a bond in such amount as
this Honorable Court may fix, in lieu of the P13,632.00 required to be
paid to plaintiff, conditioned that after the accounting of the tools
collected by plaintiff, there is still an amount due and payable to said
plaintiff, then if such amount is not paid on demand, including the
legal interests, said bond shall be held answerable.
Ordering further the plaintiff to render an accounting of the tolls he
collected from March of 1967 to December 31, 1968 and from
September 1969 to March 31, 1970, and deliver said tolls collected to
the receiver and if judgment is already executed, then to Quirino

Comintan and Eleuterio Zamora; and,

Finally, to condemn plaintiff to pay moral damages for withholding the
tools which belong to your movant in an amount this Court may deem
just in the premises. 4
Acting upon the foregoing motion, respondent Judge issued an Order,
dated September 23, 1970, stating, among others, the following:
t.hqw

The records further disclosed that from March 1967 to December 31,
1968, piaintiff Bartolome Ortiz collected tolls on a portion of the
propertv in question wherein he has not introduced anv improvement
particularlv on Lot No. 5785-A; PLS-45 awarded to defendant Quirino
Comintan, thru which vehicular traffic was detoured or diverted, and
again from September 1969 to March 31, 1970, the plaintiff resumed
the collection of tools on the same portion without rendering any
accounting on said tolls to the Receiver, who, was reappointed after
submitting the required bond and specifically authorized only to
collect tolls leaving the harvesting of the improvements to the plaintiff.
xxx xxx xxx
ln virtue of he findings of this Court as contained in the dispositive
portion of its decision, the defendants are jointly obligated to pay the
plaintiff in the amount of P13,632.00 as reasonable value of the
improvements he introduced on the whole property in question, and
that he has the right of retention until fully paid. It can be gleaned
from the motion of the defendants that if plaintiff submits an
accounting of the tolls he collected during the periods above alluded
to, their damages of about P25,000.00 can more than offset their
obligation of P13,362.00 in favor of the plaintiff, thereafter the
possession of the land be delivered to the defendants since the
decision of the Supreme Court has already become final and
executory, but in the interregnum pending such accounting and
recovery by the Receiver of the tolls collected by the plaintiff, the
defendants pray that they allowed to put up a bond in lieu of the said
P13,632.00 to answer for damages of the former, if any.
On the other hand, plaintiff contends in his opposition, admitting that
the decision of the Supreme Court has become final and executory;
(1) the offer of a bond in lieu of payment of P13,632.00 does not, and

cannot, satisfy the condition imposed in the decision of this Court

which was affirmed in toto; (2) the public sale of Portion "B" of the
land has still to take place as ordained before the decision could be
executed; and, (3) that whatever sums plaintiff may derive from the
property cannot be set off against what is due him for the
improvements he made, for which he has to be reimbursed as
ordered.
xxx xxx xxx
Let it be known that plaintiff does not dispute his having collected tolls
during the periods from March 1967 to December 31, 1968 and from
September 1969 to March 31, 1970. The Supreme Court affirmed the
decision of this Court its findings that said tolls belong to the
defendant, considering that the same were collected on a portion of
the land question where the plaintiff did not introduce any
improvement. The reimbursement to the plaintiff pertains only to the
value of the improvements, like coconut trees and other plants which
he introduced on the whole property. The tolls collected by the plaintiff
on an unimproved portion naturally belong to the defendants,
following the doctrine on accretion. Further, the reappointment of a
Receiver by this Court was upheld by the Supreme Court when it
denied the petition for certiorari filed by the plaintiff, bolstering the
legal claim of defendants over said tolls. Thus, the decision of the
Supreme Court rendered the decision of this Court retroactive from
March 22, 1966 although pending accounting of the tolls collected by
the plaintiff is justified and will not prejudice anybody, but certainly
would substantially satisfy the conditions imposed in the decision.
However, insofar as the one-half portion "B" of the property, the
decision may be executed only after public sale by the Bureau of
Lands shall be accomplished.
WHEREFORE, finding the Motion for Execution filed by the
defendants to be meritorious, the same is granted; provided,
however, that they put up a bond equal the adjudicated amount of
P13,632.00 accruing in favor of the plaintiff, from a reputable or
recognized bonding or surety company, conditioned that after an
accounting of the tolls collected by the plaintiff should there be found
out any balance due and payable to him after reckoning said
obligation of P13,632.00 the bond shall be held answerable therefor. 5

Accordingly, a Writ of Execution was issued after private respondent

Quirino Comintan had filed the required bond. The writ directed the
Sheriff to enforce the decision of the Court, and stated, part in, the
following:
t.hqw

But should there be found any amount collectible after accounting

and deducting the amount of P3,632.00, you are hereby ordered that
of the goods and chattels of Bartolome Ortiz of Bo. Kabuluan,
Calauag, Quezon, be caused to be made any excess in the abovemetioned amount together with your lawful fees and that you render
same to defendant Quirino Comintan. If sufficient personal property
cannot be found thereof to satisfy this execution and lawful fees
thereon, then you are commanded that of the lands and buildings of
the said BARTOLOME ORTIZ you make the said excess amount in
the manner required by the Rules of Court, and make return of your
proceedings within this Court within sixty (60) days from date of
service.
You are also ordered to cause Bartolome Ortiz to vacate the property
within fifteen (15) days after service thereof the defendant Quirino
Comintan having filed the required bond in the amount of THIRTEEN
THOUSAND SIX HUNDRED THIRTY-TWO (P13,632.00) PESOS. 6
On October 12, 1970, petitioner filed a Motion for Reconsideration of
the aforesaid Order and Writ of Execution, alleging:
t.hqw

(a) That the respondent judge has no authority to place respondents

in possession of the property;
(b) That the Supreme Court has never affirmed any decision of the
trial court that tolls collected from the diversionary road on the
property, which is public land, belong to said respondents;
(c) That to assess petitioner a P25,000.00 liability for damages is
purely punitive imposition without factual or legal justification.
The foregoing Motion for Reconsideration was denied by respondent
Judge per Order dated November 18, 1970. Saod Order states, in
part:
t.hqw

It goes without saying that defendant Comintan is entitled to be

placed in possession of lot No. 5785-A of PLS-45 (Calauag Public

Land Subdivision) and enjoyment of the tolls from March, 1967 to
March, 1968 and from September, 1969 to March 31, l970 which
were received by plaintiff Bartolome Ortiz, collected from the property
by reason of the diversion road where vehicular traffic was detoured.
To defendant Comintan belongs the tolls thus collected from a portion
of the land awarded to him used as a diversionary road by the
doctrine of accretion and his right over the same is ipso jure, there
being no need of any action to possess said addition. It is so because
as consistently maintained by the Supreme Court, an applicant who
has complied with all the terms and conditions which entitle him to a
patent for a particular tract of publlic land, acquires a vested right
therein and is to be regarded as equitable owner thereof so that even
without a patent, a perfected homestead or sales application is a
property right in the fullest sense, unaffectcd by the fact that the
paramount title is still in the Government and no subsequent law can
deprive him of that vested right The question of the actual damages
suffered by defendant Comintan by reason of the unaccounted tolls
received by plaintiff had already been fully discussed in the order of
September 23, 1970 and the Court is honestly convinced and
believes it to be proper and regular under the circumstances.
Incidentally, the Court stands to correct itself when in the same order,
it directed the execution of he decision with respect to the one-half
portion "B" of the property only after the public sale by the Bureau of
Lands, the same being an oversight, it appearing that the Sales
Application of defendant Eleuterio Zamora had already been
recognized and full confirmed by the Supreme Court.
In view thereof, finding the motion filed by plaintiff to be without merit,
the Court hereby denies the same and the order of September 23,
1970 shall remain in full force subject to the amendment that the
execution of the decision with respect to the one-half portion "B" shall
not be conditioned to the public sale by the Bureau of Lands.
SO ORDERED. 7
III
Petitioner thus filed the instant petition, contending that in having

issued the Order and Writ of Execution, respondent Court "acted

without or in excess of jurisdiction, and/or with grave abuse of
discretion, because the said order and writ in effect vary the terms of
the judgment they purportedly seek to enforce." He argued that since
said judgment declared the petitioner a possessor in good faith, he is
entitled to the payment of the value of the improvements introduced
by him on the whole property, with right to retain the land until he has
been fully paid such value. He likewise averred that no payment for
improvements has been made and, instead, a bond therefor had
been filed by defendants (private respondents), which, according to
petitioner, is not the payment envisaged in the decision which would
entitle private respondents to the possession of the property.
Furthermore, with respect to portion "B", petitioner alleges that, under
the decision, he has the right to retain the same until after he has
participated and lost in the public bidding of the land to be conducted
by the Bureau of Lands. It is claimed that it is only in the event that he
loses in the bidding that he can be legally dispossessed thereof.
It is the position of petitioner that all the fruits of the property,
including the tolls collected by him from the passing vehicles, which
according to the trial court amounts to P25,000.00, belongs to
petitioner and not to defendant/private respondent Quirino Comintan,
in accordance with the decision itself, which decreed that the fruits of
the property shall be in lieu of interest on the amount to be paid to
petitioner as reimbursement for improvements. Any contrary opinion,
in his view, would be tantamount to an amendment of a decision
which has long become final and executory and, therefore, cannot be
lawfully done.
Petitioner, therefore, prayed that: (1) a Writ of Preliminary Injunction
be issued enjoining the enforcement of the Orders of September 23,
1970 and November 18, 1970, and the Writ of Execution issued
thereto, or restoring to petitioner the possession of the property if the
private respondents had been placed in possession thereof; (2)
annulling said Orders as well as the Writ of Execution, dissolving the
receivership established over the property; and (3) ordering private
respondents to account to petitioner all the fruits they may have
gathered or collected from the property in question from the time of
petitioiier's illegal dispossession thereof.

On January 29, 1971, this Court issued the Writ of Preliminary

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

It appears that as a consequence of the deposit made by private

respondents, the Deputy, Sheriff of Calauag, Quezon ousted
petitioner's representative from the land in question and put private
respondents in possession thereof. 10
On March 10, 1971, petitioner filed a "Comment on Respondents'
'Motion for Reconsideration' dated January 29, 1971' and
'Supplemental Motion for Reconsideration and Manifestation,'"
contending that the tender of deposit mentioned in the Suplemental
Motion was not really and officially made, "inasmuch as the same is
not supported by any official receipt from the lower court, or from its
clerk or cashier, as required by law;" that said deposit does not
constitute sufficient compliance with the judgment sought to be
enforced, neither was it legally and validly made because the
requisites for consignation had not been complied with; that the
tender of legal interest for six months cannot substitute petitioner's
enjoyment of the fruits of the property as long as the judgment in Civil
Case No. C-90 has not been implemented in the manner decreed
therein; that contrary to the allegations of private respondents, the
value of the improvements on the whole property had been
determined by the lower court, and the segregation of the

improvements for each lot should have been raised by them at the
opportune moment by asking for the modification of the decision
before it became final and executory; and that the tolls on the
property constituted "civil fruits" to which the petitioner is entitled
under the terms of the decision.
IV
The issue decisive of the controvery isafter the rendition by the trial
court of its judgment in Civil Case No. C-90 on March 22, 1966
confirming the award of one-half of the property to Quirino Comintan
whether or not petitioner is still entitled to retain for his own
exclusive benefit all the fruits of the property, such as the tolls
collected by him from March 1967 to December 1968, and
September 1969 to March 31, 1970, amounting to about P25,000.00.
In other words, petitioner contends that so long as the aforesaid
amount of P13,632,00 decreed in the judgment representing the
expenses for clearing the land and the value of the coconuts and fruit
trees planted by him remains unpaid, he can appropriate for his
exclusive benefit all the fruits which he may derive from the property,
without any obligation to apply any portion thereof to the payment of
the interest and the principal of the debt.
We find this contention untenable.
There is no question that a possessor in good faith is entitled to the
fruits received before the possession is legally interrupted. 11
Possession in good faith ceases or is legally interrupted from the moment
defects in the title are made known to the possessor, by extraneous
evidence or by the filing of an action in court by the true owner for the
recovery of the property. 12 Hence, all the fruits that the possessor may
receive from the time he is summoned in court, or when he answers the
complaint, must be delivered and paid by him to the owner or lawful
possessor. 13

However, even after his good faith ceases, the possessor in fact can
still retain the property, pursuant to Article 546 of the New Civil Code,
until he has been fully reimbursed for all the necessary and useful
expenses made by him on the property. This right of retention has
been considered as one of the conglomerate of measures devised by
the law for the protection of the possessor in good faith. Its object is

to guarantee the reimbursement of the expenses, such as those for

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

According to Manresa, the right of retention is, therefore, analogous

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

In all of these cases, the right of retention is used as a means of

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

Applying the afore-cited principles to the case at bar, petitioner

cannot appropriate for his own exclusive benefit the tolls which he
collected from the property retained by him. It was his duty under the
law, after deducting the necessary expenses for his administration, to
apply such amount collected to the payment of the interest, and the
balance to the payment of the obligation.
We hold, therefore, that the disputed tolls, after deducting petitioner's
expenses for administration, belong to Quirino Comintan, owner of
the land through which the toll road passed, further considering that
the same was on portions of the property on which petitioner had not
introduced any improvement. The trial court itself clarified this matter
when it placed the toll road under receivership. The omission of any
mention of the tolls in the decision itself may be attributed to the fact
that the tolls appear to have been collected after the rendition of the
judgment of the trial court.
The records further reveal that earnest efforts have been made by
private respondents to have the judgment executed in the most
practicable manner. They deposited in court the amount of the
judgment in the sum of P13,632.00 in cash, subject only to the
accounting of the tolls collected by the petitioner so that whatever is
due from him may be set off with the amount of reimbursement. This
is just and proper under the circumstances and, under the law,
compensation or set off may take place, either totally or partially.
Considering that petitioner is the creditor with respect to the judgment
obligation and the debtor with respect to the tolls collected, Comintan
being the owner thereof, the trial court's order for an accounting and

compensation is in accord with law. 23

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

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

WHEREFORE, in view hereof, the Order of respondent Court of

November 18, 1970 is hereby modified to conform to the foregoing
judgment. The Writ of Preliminary Injunction, dated January 29, 1971,
is hereby dissolved. Without special pronouncement as to costs.
Barredo (Chairman), Concepcion, Jr. and Guerrero, JJ., concur.

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