Assignment for Property

2S/2B/2C/2E/2F/2I
Beadles of respective classes may message me directly for word copy of
syllabus
MEMORANDUMFor: The Law Students of II-S,B,C,E,F & ISubject:

11. i) Tuason v. Lumanlan, GR No. L-23497, April 26, 1968

12. j) Pleasantville v. CA, GR No. 79688, February 1, 1996
13. Commencing on our first meeting and so on, always be ready to be
called for recitations.

Assignments in Property
Date: 6 July 2015
From: Professor JFM Dechavez
While enrollment is on-going and room assignments are being fixed, please
study the following:
1. Articles 414- 439 , Book II New Civil Code of the Philippines, Property,
Ownership and its Modifications2.
2. RA 349, 7170 and 77193.
3.

Cases:a) Mercado v. CA, GR No. L-44001, June 10, 1988

4. b) Ballatan v. Martinez, GR No. 125683, March 2, 1999

5. c) Sarmiento v. Agana, GR No. L-57288, April 30, 1984
6. d) Technogas v. CA, GR No. 108894, February 10, 1997
7. e) Depra v. Dumlao, GR No. GR No. L-57348, May 16, 1985
8. f) Virgilio v. Patricia, GR No. 134651, September 18, 2000
9. g) Guzman et. al. v. Fuente et. al., GR 32433, December 29, 1930
10. h) Alburo v. Villanueva, GR No. 3003, January 2, 1907

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of the defendants without receiving evidence on the issue of damages allegedly suffered by
the plaintiffs, thereby denying them due process.
The private respondents, hereafter simply referred to as the Bulaong Group, had for many
years been individual lessees of stalls in the public market of Baliuag, Bulacan; from 1956 to
1972, to be more precise. The market was destroyed by fire on February 17, 1956; the
members of the Bulaong Group constructed new stalls therein at their expense; and they
thereafter paid rentals thereon to the Municipality of Baliuag.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44001 June 10, 1988
PAZ MERCADO, CAROLINA S. CHICO, LUCIANA CABRERA, JOAQUIN
IGNACIO, ELMER FLORES, AVELINA C. NUCOM, et al., petitioners,
vs.
HON. COURT OF APPEALS, HON. BENIGNO PUNO, LOLITA C. BULAONG,
FLORENTINO AGULTO, SEVERINO SALAYSAY, SUSANA BERNARDINO, et
al., respondents.
NARVASA, J.:
The question presented by this appeal is whether or not the special civil action
of certiorari may be properly resorted to by a party aggrieved by a judgment of a Regional
Trial Court (or Court of First Instance)which became final because not appealed within the
reglementary period to bring about its reversal on the ground that the Court had applied
the wrong provision of the Civil Code, and had rendered summary judgment at the instance

Sometime in 1972, the members of the group sub-leased their individual stalls to other
persons, hereafter simply referred to as the Mercado Group. After the Mercado Group had
been in possession of the market stlls for some months, as sub-lessees of the Bulaong
Group, the municipal officials of Baliuag cancelled the long standing leases of the Bulaong
Group and declared the persons comprising the Mercado Group as the rightful lessees of the
stalls in question, in substitution of the former. The municipal authorities justified the
cancellation of the leases of the Bulaong Group by invoking the provisions of Municipal
Ordinance No. 14, dated December 14, 1964, which prohibited the sub-leasing of stalls by
the lessees thereof, as well as a directive of the Office of the President (contained in a letter
of Executive Secretary R. Zamora dated May 29,1973) requiring enforcement of said
Ordinance No. 14. Recognition of the Mercado Group's rights over the stalls was
subsequently manifested in Municipal Ordinance No. 49, approved on July 5,1973.
The members of the Bulaong Group sued. They filed several individual complaints with the
Court of First Instance seeking recovery of their stalls from the Mercado Group as well as
damages. 1 Their theory was anchored on their claimed ownership of the stalls constructed
by them at their own expense, and their resulting right, as such owners, to sub-lease the
stalls, and necessarily, to recover them from any person withholding possession thereof from
them. Answers were seasonably filed in behalf of the defendants, including the Municipality
of Baliuag, 2 after which a pre-trial was held in the course of which the parties stipulated
upon practically all the facts.
The Mercado Group thereafter filed motions for summary judgment, asserting that in light of
the admissions made at the pre-trial and in the pleadings, no issue remained under genuine
controversion. The Bulaong Group filed an opposition which, while generally stating that
there were "other material allegations in the amended complaint(s)" upon which proof was
needful, actually identified only one issue of fact requiring "formal submission of evidence,"
i.e., the claim for actual damages " ... the exact amount of which shall be proven at the trial."
The Bulaong Group then filed a "Motion to Accept Affidavits and Photographs as Annexes
to the Opposition to the Motion for Summary Judgment," which affidavits and
photographs tended to establish the character and value of the improvements they had
introduced in the market stalls. As far as the records show, no objection whatever was
presented to this motion by the Mercado Group (movants for summary judgment), and the

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affidavits and photographs were admitted by the Trial Court. Specifically, the Mercado
Group never asked, either in their motion for summary judgment or at any time after having
received a copy of the motion to accept affidavits and photographs, etc., that a hearing be
scheduled for the reception of evidence on the issue of the Bulaong Group's claimed actual
damages.
On October 24,1975, respondent Judge rendered a summary judgment in all the cases. 3 It
rejected the claim of the Municipality of Baliuag that it had automatically acquired
ownership of the new stalls constructed after the old stalls had been razed by fire, declaring
the members of the Bulaong Group to be builders in good faith, entitled to retain possession
of the stalls respectively put up by them until and unless indemnified for the value thereof.
The decision also declared that the Bulaong and Mercado Groups had executed the subletting agreements with full awareness that they were thereby violating Ordinance No. 14;
they were thus in pari delicto, and hence had no cause of action one against the other and no
right to recover whatever had been given or demand performance of anything undertaken.
The judgment therefore decreed (1) the annulment of the leases between the Municipality
and the individuals comprising the Mercado Group (the defendants who had taken over the
original leases of the Bulaong Group); and (2) the payment to the individual members of the
Bulaong Group (the plaintiffs) of the stated, adjudicated value of the stalls, with interest IF

... the Municipality ... would insist in its right rescind or annul its contracts of leases with the
said plaintiffs over the lots on which the stalls in question are erected; for this purpose, since
the private defendants become immediate beneficiaries to a transfer of possession over the
stalls in question, the Municipality .. may require said private defendants .. to pay the
plaintiffs the aforesaid amounts in the event that said private defendants and the Minucipality
.. the lots on which said stalls are contracted; however, unless the plaintiffs shall have been
fully paid of the value of their stalls in the amounts mentioned above, they shall have the
right to remain in their respective stalls and in case the private defendants shall refuse to pay
for the value of the stalls in this event, the ejectment of the said private defendants from the
stalls in question shall be ordered .....
The Mercado Group and the Municipality filed on November 14, 1975, motions for
reconsideration of the summary judgment, notice of which had been served on them on
November 3, 1975. These were denied, and notice of the order of denial was received by
them on December 18, 1975. On January 7, 1976, the Mercado Group filed a notice of
appeal, an appeal bond and a motion for extension of time to file their record on appeal. But
by Order dated January 9, 1976, the Trial Court directed inter alia the execution of the
judgment, at the instance of the Bulaong Group and despite the opposition of that Mercado
Group, adjudging that its decision had become final because the appeal documents had "not
been seasonably filed." The writ was issued, and the Mercado Group's motion to quash the
same and to re-open the case was denied.

The Group went to the Court of Appeals, instituting in that court a special civil action
of certiorari and prohibition 4"to annul that portion of the summary judgment . . awarding
damages to private respondents (the Bulaong Group), and to restrain the respondent Judge
and the Provincial Sheriff of Bulacan from enforcing the same." That Court rendered
judgment on May 14, 1976, 5 holding that (1) the summary judgment was properly rendered,
respondent Judge (having) merely adhered to the procedure set forth by the . . . Rule (34);"
and if "he committed error in the appreciation of the probative values of the affidavits and
counter-affidavits submitted by the parties, such error is merely one of judgment, and not of
jurisdiction;" (2) the Mercado Group had not been denied due process "for failure of
respondent Judge to conduct a formal trial . . (to receive) evidence on the question of
damages," since the parties were afforded the right, in connection with the motion for
summary judgment, to speak and explain their side of the case by means of affidavits and
counter-affidavits; and (3) since the Mercado Group had attempted to perfect an appeal from
the summary judgment which was however futile because their appeal papers "were filed
beyond the reglementary period," the judgment had become final and certiorari or
prohibition could not be availed of as a substitute for the group's lost appeal. Once again, the
Mercado Group moved for reconsideration of an adverse judgment, and once again were
rebuffed.
The members of the Mercado Group are now before this Court on an appeal
by certiorari, this time timely taken, assailing the above rulings of the Court of Appeals.
Their appeal must fail for lack of merit. No error can be ascribed to the judgment of the
Court of Appeals which is hereby affirmed in toto.
Upon the factual findings of the Court of Appeals, by which this court is bound, and taking
account of well established precedent from which there is no perceivable reason in the
premises to depart, there is no question that the petitioners (the Mercado Group) had failed to
perfect an appeal from the summary judgement within the reglementary period fixed by the
Rules of Court. According to the Appellate CourtThe summary judgment rendered by respondent Judge, being a final
adjudication on the merits of the said cases, could have been appealed by
the petitioners. In point of fact, petitioners did attempt to perfect an appeal
from said judgment, but the attempt proved futile because their notice of
appeal, appeal bond and motion for extension of time file record on appeal
were filed beyond the reglementary period. The record discloses that they
received copy of the summary judgment on November 3, 1975; that on
November 14, 1975, or after the lapse of eleven (11) days from receipt of
said decision, they filed their motion for reconsideration of said decision;
that on December 18, 1975, they received copy of the order denying their
motion for reconsideration; and that they did not file their notice of appeal,
appeal bond and motion for extension of time until January 7, 1976, or

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twenty (20) days after receipt of the order denying their motion for
reconsideration. The notice of appeal, appeal bond and motion for
extension were, therefore, presented one (1) day after the expiration of the
30-day period to perfect an appeal. Thus, respondent Judge correctly
disallowed the appeal.
The Appellate Court's computation of the period is correct, and is in accord with Section 3,
Rule 41 of the Rules of Court providing that from the 30-day reglementary period of appeal
shall be deducted the "time during which a motion to set aside the judgment or order or for a
new trial has been pending." 6
Significantly, the petitioners have made no serious effort to explain and excuse the tardiness
of their appeal. What they have done and continue to do is to insist that the special civil
action of certiorari is in truth the proper remedy because the judgment is void. The judgment
is void, they say, because they were denied due process, as "respondent Judge granted
exorbitant damages, without reliable proof, and without giving petitioners the chance to
prove their claim that private respondents are not entitled to damages, and conceding that
they are, the damages are much lower than that awarded by the respondent
Judge." 7 According to them, since the matter of damages was clearly a controverted fact, the
Court had absolutely no jurisdiction to determine it on mere affidavits.
There can be no debate about the proposition that under the law, the Trial Court validly
acquired jurisdiction not only over the persons of the parties but also over the subject matter
of the actions at bar. The parties composing the Mercado Group cannot dispute this; they
recognized the Court's competence when they filed their answers to the complaints without
questioning the Court's jurisdiction of the subject-matter; indeed neither at that time nor at
any other time thereafter did any one of them ever raise the question.
Now, jurisdiction, once acquired, is not lost by any error in the exercise thereof that might
subsequently be committed by the court. Where there is jurisdiction over the subject matter,
the decision of all other questions arising in the case is but an exercise of that jurisdiction . 8
And when a court exercises its jurisdiction, an error committed while engaged in that
exercise does not deprive it of the jurisdiction being exercise when the error is committed. If
it did, every error committed by a court would deprive it of jurisdiction and every erroneous
judgment would be a void judgment. This, of course, can not be allowed. The administration
of justice would not survive such a rule. 9 Moreover, any error that the Court may commit in
the exercise of its jurisdiction, being merely an error of judgment, is reviewable only by
appeal, not by the special civil action of certiorari or prohibition. 10
The petitioners do not dispute the propriety of the rendition of a summary judgment by the
Court a quo, a remedy that they themselves had in fact asked for. What they challenge is the

inclusion in that judgment of an award of damages on the basis merely of affidavits, without
actual reception of evidence thereon at a hearing set for the purpose.
The challenge is not however justified by the peculiar circumstances of the case at bar. The
petitioners, to repeat, were the parties who, as defendants, had moved for summary judgment
. They knew or were supposed to know that, as stated by the Rules, their motion would be
granted if "the pleadings, depositions, and admissions on file, together with the affidavits
show that, except as to the amount of damages, there is no genuine issue as to any material
fact and that ... (they are) entitled to a judgment as a matter of law." 11 They knew that the
private respondents, as plaintiffs, had in fact opposed their motion and had pointed out
precisely the need for a hearing on the controverted matter of damages. That they did not
join in the move to have a hearing on the issue of damages is an indication that they
considered it unnecessary, When the respondents (plaintiffs)apparently in view of the
Court's and the defendants' indifference to the notion of having a hearing on the matter of
damages, implicitly indicating the belief of the superfluity of a hearingpresented affidavits
and depositions to prove the value of the improvements, for which they were seeking
reimbursement, the petitioners (defendants) did not ask that the matter be ventilated at a
hearing, or submit counter-affidavits, as was their right. They made no response whatever.
They were evidently quite confident of obtaining a favorable judgment, and that such an
eventuality would preclude the claimed reimbursement or recovery of damages. As it turned
out, they were wrong in their prognostication.
In any event, even assuming error on the Court's part in relying on the unopposed affidavits
and photographs as basis for an award of damages, it was, as the Appellate Court has opined,
not an error of jurisdiction under the circumstances, but one in the exercise of jurisdiction, to
correct which the prescribed remedy is appeal. This is not to say that where a Court
determines the propriety of a summary judgment which it may do on the basis of the
pleadings, depositions, admissions and affidavits submitted by the partiesand discovers
that there are genuine issues of fact, these genuine issues may nonetheless be adjudicated on
the basis of depositions, admissions or affidavits and not of evidence adduced at a formal
hearing or trial. This is not the rule. 12 The rule is that it is only the ascertainment of the
character of the issues raised in the pleadingsas genuine, or sham or fictitiouswhich can
be done by depositions, admissions, or affidavits; the resolution of such issues as are found
to be genuine should be made upon proof proferred at a formal hearing. The peculiar
circumstances of the case at bar, already pointed out, operate to exclude it from the scope of
the rule. It is an exception that should however be taken, as affirming and not eroding the
rule.
The petitioners' other theory is more tenable, but will not appreciably advance their cause.
They suggest that it was a mistake for the Trial Court to have accorded to the individuals of
the Bulaong Group the stalls and builders in good faith in accordance with Article 526 of the
Civil Code. They are correct. It was indeed error for the Court to have so ruled. The

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members of this group were admittedly lessees of space in the public market; they therefore
could not, and in truth never did make the claim, that they were owners of any part of the
land occupied by the market so that in respect of any new structure put up by them thereon,
they could be deemed builders in good faith. To be deemed a builder in good faith, it is
essential that a person assert title to the land on which he builds; i.e., that he be a possessor
in concept of owner, 13 and that he be unaware "that there exists in his title or mode of
acquisition any flaw which invalidates it. 14 It is such a builder in good faith who is given the
right to retain the thing, even as against the real owner, until he has been reimbursed in full
not only for the necessary expenses but also for useful expenses. 15 On the other hand, unlike
the builder in good faith, a lessee who "makes in good faith useful improvements which are
suitable to the use for which the lease is intended, without altering the form or substance of
the property leased," can only claim payment of "one-half of the value of the improvements"
or, "should the lessor refuse to reimburse said amount, ... remove the improvements, even
though the principal thing may suffer damage thereby." 16
But this error does not go to the Trial Court's jurisdiction. It is an error in the exercise of
jurisdiction, which may be corrected by the ordinary recourse of appeal, not by the
extraordinary remedy of certiorari. It is an error that in the premises can no longer be set
aright
The summary judgment rendered by respondent Judge on October 24, 1975 was not an
interlocutory disposition or order but a final judgment within the meaning of Section 2, Rule
41 of the Rules of Court. By that summary judgment the Court finally disposed of the
pending action, leaving nothing more to be done by it with respect to the merits, thus putting
an end to the litigation as its level . 17
The remedy available to the petitioners against such a final judgment, as repeatedly stated,
was an appeal in accordance with the aforementioned Rule 41 of the Rules of Court 18 But as
observed in an analogous case recently resolved by this Court. 19

effects whatever, which could never become final, and execution of which could be resisted
at any time and in any court it was attempted. 20 It was a judgment which might and probably
did suffer from some substantial error in procedure or in findings of fact or of law, and could
on that account have been reversed or modified on appeal. But since it was not appealed, it
became final and has thus gone beyond the reach of any court to modify in any substantive
aspect. The remedy to obtain a reversal or modification of the judgment on the merits is
appeal. This is true even if the error, or one of the errors, ascribed to the Court rendering the
judgment is its lack of jurisdiction of the subject matter, or the exercise of power
in excess thereof, or grave abuse of discretion in the findings of fact or of law set out in its
decision. The existence and availability of the right of appeal prescribes a resort
to certiorari, one of the requisites for availment of the latter remedy being precisely
that "there should be no appeal. 21 There may to be sure, be instances when certiorari may
exceptionally be permitted in lieu of appeal, as when their appeal would be inadequate, slow,
insufficient, and will not promptly relieve a party from the injurious effect of the judgment
complained of, or to avoid future litigations, 22 none of which situations obtains in the case at
bar. And certain it is that the special civil action of certioraricannot be a substitute for
appeal, specially where the right to appeal has been lost through a party's fault or excusable
negligence. 23
That the judgment of the Trial Court applied the wrong provision of the law in the resolution
of the controversy has ceased to be of any consequence. As already discussed, instead of the
legal provision governing lessees' rights over improvements on leased realty, the judgment
invoked that relative to the rights of builders in good faith . 24But the error did not render the
judgment void. A judgment contrary to the express provisions of a statute is of course
erroneous, but it is not void; and if it becomes final and executory, it becomes as binding and
effective as any valid judgment; and though erroneous, will henceforth be treated as valid,
and will be enforced in accordance with its terms and dispositions. 25
WHEREFORE, the petition is dismissed, with costs against the petitioners.

. . instead of resorting to ordinary remedy of appeal, ... (the petitioners) availed of

the extraordinary remedy of a special civil action of certiorari in the ... (Court of Appeals),
under Rule 65 of the Rules of Court. The choice was clearly wrong. The availability of the
right of appeal obviously precluded recourse to the special civil action of certiorari. This is
axiomatic. It is a proposition made plain by Section 1 of Rule 65 which lays down as a
condition for the filing of a certiorari petition that there be 'no appeal, nor any plain, speedy
and adequate remedy in the ordinary course of law.
In the case at bar, the petitioners lost their right to appeal by failing to avail of it seasonably.
To remedy that loss, they have resorted to the extraordinary remedy of certiorari, as a mode
of obtaining reversal of the judgment from which they failed to appeal. This cannot be done.
The judgment was not in any sense null and void ab initio, incapable of producing any legal

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SECOND DIVISION
[G.R. No. 125683. March 2, 1999]
EDEN

BALLATAN and SPS. BETTY MARTINEZ and CHONG CHY

LING, petitioners, vs. COURT OF APPEALS, GONZALO GO, WINSTON
GO, LI CHING YAO, ARANETA INSTITUTE OF AGRICULTURE and
JOSE N. QUEDDING, respondents.
DECISION

PUNO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals dated
March 25, 1996 in CA-G.R. CV No. 32472 entitled "Eden Ballatan, et. al., plaintiffsappellees v. Gonzalo Go and Winston Go, appellants and third-party plaintiffs-appellants v.
Li Ching Yao, et.al., third-party defendants."[1]
The instant case arose from a dispute over forty-two (42) square meters of residential
land belonging to petitioners. The parties herein are owners of adjacent lots located at Block
No. 3, Poinsettia Street, Araneta University Village, Malabon, Metro Manila. Lot No. 24,
414 square meters in area, is registered in the name of petitioners Eden Ballatan and spouses
Betty Martinez and Chong Chy Ling.[2] Lots Nos. 25 and 26, with an area of 415 and 313
square meters respectively, are registered in the name of respondent Gonzalo Go, Sr. [3] On
Lot No. 25, respondent Winston Go, son of Gonzalo Go, Sr., constructed his house. Adjacent
to Lot No. 26 is Lot No. 27, 417 square meters in area, and is registered in the name of
respondent Li Ching Yao.[4]

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In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the
construction, she noticed that the concrete fence and side pathway of the adjoining house of
respondent Winston Go encroached on the entire length of the eastern side of her property.
[5]
Her building contractor informed her that the area of her lot was actually less than that
described in the title. Forthwith, Ballatan informed respondent Go of this discrepancy and
his encroachment on her property. Respondent Go, however, claimed that his house,
including its fence and pathway, were built within the parameters of his father's lot; and that
this lot was surveyed by Engineer Jose Quedding, the authorized surveyor of the Araneta
Institute of Agriculture (AIA), the owner-developer of the subdivision project.

On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go's
to vacate the subject portion of Lot No. 24, demolish their improvements and pay petitioner
Ballatan actual damages, attorney's fees and the costs of the suit. It dismissed the third-party
complaint against: (1) AIA after finding that the lots sold to the parties were in accordance
with the technical description and verification plan covered by their respective titles; (2) Jose
N. Quedding, there being no privity of relation between him and respondents Go and his
erroneous survey having been made at the instance of AIA, not the parties; and (3) Li Ching
Yao for failure to prove that he committed any wrong in the subject encroachment. [8] The
court made the following disposition:

Petitioner Ballatan called the attention of the AIA to the discrepancy of the land area in
her title and the actual land area received from them. The AIA authorized another survey of
the land by Engineer Jose N. Quedding.

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, ordering the latter:
1. To demolish and remove all improvements existing and encroaching on plaintiff's lot;

In a report dated February 28, 1985, Engineer Quedding found that the lot area of
petitioner Ballatan was less by a few meters and that of respondent Li Ching Yao, which was
three lots away, increased by two (2) meters. Engineer Quedding declared that he made a
verification survey of Lots Nos. 25 and 26 of respondents Go in 1983 and allegedly found
the boundaries to have been in their proper position. He, however, could not explain the
reduction in Ballatan's area since he was not present at the time respondents Go constructed
their boundary walls.[6]
On June 2, 1985, Engineer Quedding made a third relocation survey upon request of
the parties. He found that Lot No. 24 lost approximately 25 square meters on its eastern
boundary, that Lot No. 25, although found to have encroached on Lot No. 24, did not lose
nor gain any area; that Lot No. 26 lost some three (3) square meters which, however, were
gained by Lot No. 27 on its western boundary. [7] In short, Lots Nos. 25, 26 and 27 moved
westward to the eastern boundary of Lot No. 24.
On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written
demand on respondents Go to remove and dismantle their improvements on Lot No.
24. Respondents Go refused. The parties, including Li Ching Yao, however, met several
times to reach an agreement on the matter.
Failing to agree amicably, petitioner Ballatan brought the issue before the
barangay. Respondents Go did not appear. Thus, on April 1, 1986, petitioner Ballatan
instituted against respondents Go Civil Case No. 772-MN for recovery of possession before
the Regional Trial Court, Malabon, Branch 169. The Go's filed their "Answer with ThirdParty Complaint" impleading as third-party defendants respondents Li Ching Yao, the AIA
and Engineer Quedding.

2. To clear, vacate and deliver possession of the encroached area to the plaintiffs;
3. To pay plaintiffs jointly and severally the following:
a) P7,800.00 for the expenses paid to the surveyors;
b) P5,000.00 for plaintiffs' transportation;
4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25% of the
current market value of the subject matter in litigation at the time of execution; and
5. To pay the costs of suit.
The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go against
third-party defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao
is hereby DISMISSED, without pronouncement as to costs.
SO ORDERED."
Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the
decision of the trial court. It affirmed the dismissal of the third-party complaint against the
AIA but reinstated the complaint against Li Ching Yao and Jose Quedding. Instead of
ordering respondents Go to demolish their improvements on the subject land, the appellate
court ordered them to pay petitioner Ballatan, and respondent Li Ching Yao to pay
respondents Go, a reasonable amount for that portion of the lot which they encroached, the
value to be fixed at the time of taking. It also ordered Jose Quedding to pay respondents Go

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attorney's fees of P5,000.00 for his erroneous survey. The dispositive portion of the decision
reads:

3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT DUE TO NONPAYMENT OF ANY FILING OR DOCKET FEE.

"WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED

insofar as the dismissal of the third-party complaint against Araneta Institute of Agriculture
is concerned but modified in all other aspects as follows:

4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY

EXPENSES IN PROTECTING THEIR RIGHTS IN THIS CASE."[10]

1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable value

of the forty-two (42) square meters of their lot at the time of its taking;
2) Third-party defendant Li Ching Yao is hereby ordered to pay defendants-appellants the
reasonable value of the thirty-seven (37) square meters of the latter's lot at the time of its
taking; and
3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-appellants
the amount of P5,000.00. as attorney's fees.
LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for
further proceedings and reception of evidence for the determination of the reasonable value
of Lots Nos. 24 and 26.
SO ORDERED."[9]
Hence, this petition. Petitioners allege that:
"RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND
GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION
WHEN:
1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN
UTTER DISREGARD AND IN VIOLATION OR GROSS IGNORANCE OF EXISTING
LAWS AND JURISPRUDENCE VESTING BASIC PROPERTY RIGHTS TO HEREIN
PETITIONERS. RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN
THE PRESENCE OF EXISTING LAWS TO THE CONTRARY.
2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT
PARTIALITY AND FAVOR TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE
ENCROACHED AREA AT THE VALUE AT THE TIME OF ITS TAKING AND NOT THE
VALUE AT THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S BUT
DEPRIVING PETITIONERS OF THE FRUITS OR INCREASE IN VALUE OF THEIR
PROPERTY TO WHICH THEY ARE ENTITLED UNDER THE LAW AS THE
REGISTERED OWNERS WITH TORRENS TITLE IN THEIR NAMES.

Petitioners question the admission by respondent Court of Appeals of the third-party

complaint by respondents Go against the AIA, Jose Quedding and Li Ching Yao. Petitioners
claim that the third-party complaint should not have been considered by the Court of Appeals
for lack of jurisdiction due to third-party plaintiffs' failure to pay the docket and filing fees
before the trial court.
The third-party complaint in the instant case arose from the complaint of petitioners
against respondents Go. The complaint filed was for accion publiciana, i.e., the recovery of
possession of real property which is a real action. The rule in this jurisdiction is that when an
action is filed in court, the complaint must be accompanied by the payment of the requisite
docket and filing fees.[11] In real actions, the docket and filing fees are based on the value of
the property and the amount of damages claimed, if any. [12] If the complaint is filed but the
fees are not paid at the time of filing, the court acquires jurisdiction upon full payment of the
fees within a reasonable time as the court may grant, barring prescription. [13] Where the fees
prescribed for the real action have been paid but the fees of certain related damages are not,
the court, although having jurisdiction over the real action, may not have acquired
jurisdiction over the accompanying claim for damages. [14] Accordingly, the court may
expunge those claims for damages, or allow, on motion, a reasonable time for amendment of
the complaint so as to allege the precise amount of damages and accept payment of the
requisite legal fees.[15] If there are unspecified claims, the determination of which may arise
after the filing of the complaint or similar pleading, the additional filing fee thereon shall
constitute a lien on the judgment award. [16] The same rule also applies to third-party claims
and other similar pleadings.[17]
In the case at bar, the third-party complaint filed by respondents Go was incorporated
in their answer to the complaint. The third-party complaint sought the same remedy as the
principal complaint but added a prayer for attorney's fees and costs without specifying their
amounts, thus:
"ON THE THIRD PARTY COMPLAINT
1. That summons be issued against Third-Party Defendants Araneta Institute of Agriculture,
Jose N. Quedding and Li Ching Yao;
2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for whatever
is adjudged against the latter in favor of the Plaintiffs;

Page 8 of 36

3. That Third-Party Defendants be ordered to pay attorney's fees as may be proved during
trial;

adjoining land. Good faith is always presumed, and upon him who alleges bad faith on the
part of a possessor rests the burden of proof.[26]

4. That Third-Party Defendants be ordered to pay the costs.

All the parties are presumed to have acted in good faith. Their rights must, therefore, be
determined in accordance with the appropriate provisions of the Civil Code on property.

Other just and equitable reliefs are also prayed for."[18]

Article 448 of the Civil Code provides:
The Answer with Third-Party Complaint was admitted by the trial court without the
requisite payment of filing fees, particularly on the Go's prayer for damages. [19] The trial
court did not award the Go's any damages. It dismissed the third-party complaint. The Court
of Appeals, however, granted the third-party complaint in part by ordering third-party
defendant Jose N. Quedding to pay the Go's the sum of P5,000.00 as attorney's fees.
Contrary to petitioners' claim, the Court of Appeals did not err in awarding damages
despite the Go's failure to specify the amount prayed for and pay the corresponding
additional filing fees thereon. The claim for attorney's fees refers to damages
arising after the filing of the complaint against the Go's. The additional filing fee on this
claim is deemed to constitute a lien on the judgment award.[20]
The Court of Appeals found that the subject portion is actually forty-two (42) square
meters in area, not forty-five (45), as initially found by the trial court; that this forty-two (42)
square meter portion is on the entire eastern side of Lot No. 24 belonging to petitioners; that
on this said portion is found the concrete fence and pathway that extends from respondent
Winston Go's house on adjacent Lot No. 25; that inclusive of the subject portion,
respondents Go did not gain nor lose any portion of Lots Nos. 25 and 26; that instead, Lot
No. 27, on which respondent Li Ching Yao built his house, encroached on the land of
respondents Go, gaining in the process thirty-seven (37) square meters of the latter's land.[21]
We hold that the Court of Appeals correctly dismissed the third-party complaint against
AIA. The claim that the discrepancy in the lot areas was due to AIA's fault was not
proved. The appellate court, however, found that it was the erroneous survey by Engineer
Quedding that triggered these discrepancies. And it was this survey that respondent Winston
Go relied upon in constructing his house on his father's land. He built his house in the belief
that it was entirely within the parameters of his father's land. In short, respondents Go had no
knowledge that they encroached on petitioners' lot. They are deemed builders in good
faith[22] until the time petitioner Ballatan informed them of their encroachment on her
property.[23]
Respondent Li Ching Yao built his house on his lot before any of the other parties did.
He constructed his house in 1982, respondents Go in 1983, and petitioners in 1985.
[25]
There is no evidence, much less, any allegation that respondent Li Ching Yao was aware
that when he built his house he knew that a portion thereof encroached on respondents Go's
[24]

"Art. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 and 548,[27] or to oblige the one who
built or planted to pay the price of the land, and the one who sowed the proper
rent. However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay reasonable
rent, if the owner of the land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of disagreement,
the court shall fix the terms thereof."
The owner of the land on which anything has been built, sown or planted in good faith
shall have the right to appropriate as his own the building, planting or sowing, after payment
to the builder, planter or sower of the necessary and useful expenses, and in the proper case,
expenses for pure luxury or mere pleasure. The owner of the land may also oblige the
builder, planter or sower to purchase and pay the price of the land. If the owner chooses to
sell his land, the builder, planter or sower must purchase the land, otherwise the owner may
remove the improvements thereon. The builder, planter or sower, however, is not obliged to
purchase the land if its value is considerably more than the building, planting or sowing. In
such case, the builder, planter or sower must pay rent to the owner of the land. If the parties
cannot come to terms over the conditions of the lease, the court must fix the terms
thereof. The right to choose between appropriating the improvement or selling the land on
which the improvement stands to the builder, planter or sower, is given to the owner of the
land.[28]
Article 448 has been applied to improvements or portions of improvements built by
mistaken belief on land belonging to the adjoining owner.[29] The facts of the instant case are
similar to those in Cabral v. Ibanez,[30] to wit:
"[P]laintiffs Geronima Zabala and her husband Justino Bernardo, constructed their house in
the belief that it was entirely within the area of their own land without knowing at that time
that part of their house was occupying a 14-square meter portion of the adjoining lot
belonging to the defendants, and that the defendants Bernardo M. Cabral and Mamerta M.
Cabral were likewise unaware of the fact that a portion of plaintiff's house was extending and
occupying a portion of their lot with an area of 14 square meters. The parties came to know

Page 9 of 36

of the fact that part of the plaintiff's house was occupying part of defendant's land when the
construction of plaintiff's house was about to be finished, after a relocation of the monuments
of the two properties had been made by the U.S. Army through the Bureau of Lands,
according to their 'Stipulation of Facts,' dated August 17, 1951.

compel respondents Go to buy the land if its value is considerably more than the portion of
their house constructed thereon. If the value of the land is much more than the Go's
improvement, then respondents Go must pay reasonable rent. If they do not agree on the
terms of the lease, then they may go to court to fix the same.

On the basis of these facts, we held that:

In the event that petitioners elect to sell to respondents Go the subject portion of their
lot, the price must be fixed at the prevailing market value at the time of payment. The Court
of Appeals erred in fixing the price at the time of taking, which is the time the improvements
were built on the land. The time of taking is determinative of just compensation in
expropriation proceedings.The instant case is not for expropriation. It is not a taking by the
state of private property for a public purpose upon payment of just compensation. This is a
case of an owner who has been paying real estate taxes on his land but has been deprived of
the use of a portion of this land for years. It is but fair and just to fix compensation at the
time of payment.[34]

"The Court, therefore, concludes that the plaintiffs are builders in good faith and the relative
rights of the defendant Mamerta Cabral as owner of the land and of the plaintiffs as owners
of the building is governed by Article 361 of the Civil Code (Co Tao v. Joaquin Chan Chico,
46 Off. Gaz.5514). Article 361 of the old Civil Code has been reproduced with an additional
provision in Article 448 of the new Civil Code, approved June 18, 1949."[31]
Similarly, in Grana and Torralba v. Court of Appeals,[32] we held that:
"Although without any legal and valid claim over the land in question, petitioners, however,
were found by the Court of Appeals to have constructed a portion of their house thereon in
good faith. Under Article 361 of the old Civil Code (Article 448 of the new), the owner of
the land on which anything has been built in good faith shall have the right to appropriate as
his own the building, after payment to the builder of necessary or useful expenses, and in the
proper case, expenses for pure luxury or mere pleasure, or to oblige the builder to pay the
price of the land.Respondents, as owners of the land, have therefore the choice of either
appropriating the portion of petitioners' house which is on their land upon payment of
the proper indemnity to petitioners, or selling to petitioners that part of their land on
which stands the improvement. It may here be pointed out that it would be impractical
for respondents to choose to exercise the first alternative, i.e., buy that portion of the
house standing on their land, for in that event the whole building might be rendered
useless. The more workable solution, it would seem, is for respondents to sell to
petitioners that part of their land on which was constructed a portion of the latter's
house. If petitioners are unwilling or unable to buy, then they must vacate the land and
must pay rentals until they do so. Of course, respondents cannot oblige petitioners to
buy the land if its value is considerably more than that of the aforementioned portion of
the house. If such be the case, then petitioners must pay reasonable rent. The parties
must come to an agreement as to the conditions of the lease, and should they fail to do
so, then the court shall fix the same."[33]

Article 448 and the same conditions abovestated also apply to respondents Go as
owners and possessors of their land and respondent Li Ching Yao as builder of the
improvement that encroached on thirty-seven (37) square meters of respondents Go's land.

In light of these rulings, petitioners, as owners of Lot No. 24, may choose to purchase
the improvement made by respondents Go on their land, or sell to respondents Go the subject
portion.If buying the improvement is impractical as it may render the Go's house useless,
then petitioners may sell to respondents Go that portion of Lot No. 24 on which their
improvement stands. If the Go's are unwilling or unable to buy the lot, then they must vacate
the land and, until they vacate, they must pay rent to petitioners. Petitioners, however, cannot

From the moment petitioners shall have exercised their option, respondents Go shall
pay reasonable monthly rent up to the time the parties agree on the terms of the lease or until
the court fixes such terms.

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

follows:
(1) Petitioners are ordered to exercise within thirty (30) days from finality of this
decision their option to either buy the portion of respondents Go's improvement on their Lot
No. 24, or sell to said respondents the portion of their land on which the improvement
stands. If petitioners elect to sell the land or buy the improvement, the purchase price must
be at the prevailing market price at the time of payment. If buying the improvement will
render respondents Go's house useless, then petitioners should sell the encroached portion of
their land to respondents Go. If petitioners choose to sell the land but respondents Go are
unwilling or unable to buy, then the latter must vacate the subject portion and pay reasonable
rent from the time petitioners made their choice up to the time they actually vacate the
premises. But if the value of the land is considerably more than the value of the
improvement, then respondents Go may elect to lease the land, in which case the parties
shall agree upon the terms of the lease. Should they fail to agree on said terms, the court of
origin is directed to fix the terms of the lease.

(2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos.
25 and 26, vis-a-vis respondent Li Ching Yao as builder of the improvement that encroached

Page 10 of 36

on thirty seven (37) square meters of respondents Go's land in accordance with paragraph
one abovementioned.
(3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party
defendant, to pay attorney's fees of P5,000.00 to respondents Go is affirmed. The additional
filing fee on the damages constitutes a lien on this award.
(4) The Decision of the Court of Appeals dismissing the third-party complaint against
Araneta Institute of Agriculture is affirmed.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-57288 April 30, 1984
LEONILA SARMINETO, petitioner,
vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh
Judicial District, Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO
and REBECCA LORENZO-VALENTINO,respondents.
Mercedes M. Respicio for petitioner.
Romulo R. Bobadilla for private respondents.
MELENCIO-HERRERA, J.:+.wph!1

This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court
of First Instance of Pasay City. The Decision was one made on memoranda, pursuant to the
provisions of RA 6031, and it modified, on October 17, 1977, a judgment of the then
Municipal Court of Paranaque, Rizal, in an Ejectment suit instituted by herein petitioner
Leonila SARMIENTO against private respondents, the spouses ERNESTO Valentino and
Rebecca Lorenzo. For the facts, therefore, we have to look to the evidence presented by the
parties at the original level.
It appears that while ERNESTO was still courting his wife, the latter's mother had told him
the couple could build a RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a
subdivision in Paranaque (the LAND, for short). In 1967, ERNESTO did construct a
RESIDENTIAL HOUSE on the LAND at a cost of P8,000.00 to P10,000.00. It was probably
assumed that the wife's mother was the owner of the LAND and that, eventually, it would
somehow be transferred to the spouses.
It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C.
Santo, Jr. who, on September 7 , 1974, sold the same to petitioner SARMIENTO. The
following January 6, 1975, SARMIENTO asked ERNESTO and wife to vacate and, on April
21, 1975, filed an Ejectment suit against them. In the evidentiary hearings before the
Municipal Court, SARMIENTO submitted the deed of sale of the LAND in her favor, which
showed the price to be P15,000.00. On the other hand, ERNESTO testified that the then cost
of the RESIDENTIAL HOUSE would be from P30,000.00 to P40,000.00. The figures were
not questioned by SARMIENTO.
The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE
in good faith, and, disregarding the testimony of ERNESTO, that it had a value of
P20,000.00. It then ordered ERNESTO and wife to vacate the LAND after SARMIENTO
has paid them the mentioned sum of P20,000.00.
The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the
submission of memoranda, said Court rendered a modifying Decision under Article 448 of
the Civil Code. SARMIENTO was required, within 60 days, to exercise the option to
reimburse ERNESTO and wife the sum of 40,000.00 as the value of the RESIDENTIAL
HOUSE, or the option to allow them to purchase the LAND for P25,000.00. SARMIENTO
did not exercise any of the two options within the indicated period, and ERNESTO was then
allowed to deposit the sum of P25,000.00 with the Court as the purchase price for the
LAND. This is the hub of the controversy. SARMIENTO then instituted the instant certiorari
proceedings.
We agree that ERNESTO and wife were builders in good faith in view of the peculiar
circumstances under which they had constructed the RESIDENTIAL HOUSE. As far as they

Page 11 of 36

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 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

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

Page 12 of 36

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, premises considered, the Decision of the Regional Trial Court is hereby
reversed and set aside and another one entered 1. Dismissing the complaint for lack of cause of action;
2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental from
October 4, 1979 until appellee vacates the land;
3. To remove the structures and surrounding walls on the encroached area;
4. Ordering appellee to pay the value of the land occupied by the two-storey building;
5. Ordering appellee to pay the sum of P20,000.00 for and as attorneys fees;
6. Costs against appellee.

THIRD DIVISION
[G.R. No. 108894. February 10, 1997]
TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner,
vs. COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH
DIVISION) and EDUARDO UY, respondents.

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, premises considered, our decision of August 28, 1992 is hereby modified
deleting paragraph 4 of the dispositive portion of our decision which reads:
4. Ordering appellee to pay the value of the land occupied by the two-storey building.

Page 13 of 36

The motion for reconsideration of appellee is hereby DENIED for lack of merit.
The foregoing Amended Decision is also challenged in the instant petition.
The Facts
The facts are not disputed. Respondent Court merely reproduced the factual findings of
the trial court, as follows:[5]
That plaintiff (herein petitioner) which is a corporation duly organized and existing under
and by virtue of Philippine laws is the registered owner of a parcel of land situated in Barrio
San Dionisio, Paraaque, Metro Manila known as Lot 4331-A (should be 4531-A) of Lot
4531 of the Cadastral Survey of Paraaque, Metro Manila, covered by Transfer Certificate of
Title No. 409316 of the Registry of Deeds of the Province of Rizal; that said land was
purchased by plaintiff from Pariz Industries, Inc. in 1970, together with all the buildings and
improvements including the wall existing thereon; that the defendant (herein private
respondent) is the registered owner of a parcel of land known as Lot No. 4531-B of Lot 4531
of the Cadastral Survey of Paraaque, LRC (GLRO) Rec. No. 19645 covered by Transfer
Certificate of Title No. 279838, of the Registry of Deeds for the Province of Rizal; that said
land which adjoins plaintiffs land was purchased by defendant from a certain Enrile Antonio
also in 1970; that in 1971, defendant purchased another lot also adjoining plaintiffs land
from a certain Miguel Rodriguez and the same was registered in defendants name under
Transfer Certificate of Title No. 31390, of the Registry of Deeds for the Province of Rizal;
that portions of the buildings and wall bought by plaintiff together with the land from Pariz
Industries are occupying a portion of defendants adjoining land; that upon learning of the
encroachment or occupation by its buildings and wall of a portion of defendants land,
plaintiff offered to buy from defendant that particular portion of defendants land occupied by
portions of its buildings and wall with an area of 770 square meters, more or less, but
defendant, however, refused the offer. In 1973, the parties entered into a private agreement
before a certain Col. Rosales in Malacaang, wherein plaintiff agreed to demolish the wall at
the back portion of its land thus giving to defendant possession of a portion of his land
previously enclosed by plaintiffs wall; that defendant later filed a complaint before the office
of Municipal Engineer of Paraaque, Metro Manila as well as before the Office of the
Provincial Fiscal of Rizal against plaintiff in connection with the encroachment or
occupation by plaintiffs buildings and walls of a portion of its land but said complaint did
not prosper; that defendant dug or caused to be dug a canal along plaintiffs wall, a portion of
which collapsed in June, 1980, and led to the filing by plaintiff of the supplemental
complaint in the above-entitled case and a separate criminal complaint for malicious
mischief against defendant and his wife which ultimately resulted into the conviction in
court of defendants wife for the crime of malicious mischief; that while trial of the case was
in progress, plaintiff filed in Court a formal proposal for settlement of the case but said
proposal, however, was ignored by defendant.

After trial on the merits, the Regional Trial Court [6] of Pasay City, Branch 117, in Civil
Case No. PQ-7631-P, rendered a decision dated December 4, 1989 in favor of petitioner who
was the plaintiff therein. The dispositive portion reads:[7]
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and
ordering the latter to sell to plaintiff that portion of land owned by him and occupied by
portions of plaintiffs buildings and wall at the price of P2,000.00 per square meter and to pay
the former:
1. The sum of P44,000.00 to compensate for the losses in materials and properties incurred
by plaintiff through thievery as a result of the destruction of its wall;
2. The sum of P7,500.00 as and by way of attorneys fees; and
3. The costs of this suit.
Appeal was duly interposed with respondent Court, which as previously stated,
reversed and set aside the decision of the Regional Trial Court and rendered the assailed
Decision and Amended Decision. Hence, this recourse under Rule 45 of the Rules of Court.
The Issues
The petition raises the following issues:[8]
(A)
Whether or not the respondent Court of Appeals erred in holding the petitioner a
builder in bad faith because it is presumed to know the metes and bounds of his
property.
(B)
Whether or not the respondent Court of Appeals erred when it used the amicable
settlement between the petitioner and the private respondent, where both parties agreed
to the demolition of the rear portion of the fence, as estoppel amounting to recognition
by petitioner of respondents right over his property including the portions of the land
where the other structures and the building stand, which were not included in the
settlement.
(C)

Page 14 of 36

Whether or not the respondent Court of Appeals erred in ordering the removal of the
structures and surrounding walls on the encroached area and in withdrawing its earlier ruling
in its August 28, 1992 decision for the petitioner to pay for the value of the land occupied by
the building, only because the private respondent has manifested its choice to demolish it
despite the absence of compulsory sale where the builder fails to pay for the land, and which
choice private respondent deliberately deleted from its September 1, 1980 answer to the
supple-mental complaint in the Regional Trial Court.
In its Memorandum, petitioner poses the following issues:
A
The time when to determine the good faith of the builder under Article 448 of the New Civil
Code, is reckoned during the period when it was actually being built; and in a case
where noevidence was presented nor introduced as to the good faith or bad faith of the
builder at that time, as in this case, he must be presumed to be a builder in good faith, since
bad faith cannot be presumed.[9]
B.
In a specific boundary overlap situation which involves a builder in good faith, as in this
case, it is now well settled that the lot owner, who builds on the adjacent lot is not charged
with constructive notice of the technical metes and bounds contained in their torrens titles to
determine the exact and precise extent of his boundary perimeter.[10]
C.
The respondent courts citation of the twin cases of Tuason & Co. v. Lumanlan and Tuason &
Co. v. Macalindong is not the judicial authority for a boundary dispute situation between
adjacent torrens titled lot owners, as the facts of the present case do not fall within nor square
with the involved principle of a dissimilar case.[11]
D.

The amicable settlement between the parties should be interpreted as a contract and enforced
only in accordance with its explicit terms, and not over and beyond that agreed upon;
because the courts do not have the power to create a contract nor expand its scope.[13]
E. (F.)
As a general rule, although the landowner has the option to choose between: (1) buying the
building built in good faith, or (2) selling the portion of his land on which stands the building
under Article 448 of the Civil Code; the first option is not absolute, because
an exception thereto, once it would be impractical for the landowner to choose to exercise
the first alternative, i.e. buy that portion of the house standing on his land, for the whole
building might be rendered useless. The workable solution is for him to select the second
alternative, namely, to sell to the builder that part of his land on which was constructed a
portion of the house.[14]
Private respondent, on the other hand, argues that the petition is suffering from the
following flaws:[15]
1. It did not give the exact citations of cases decided by the Honorable Supreme Court
that allegedly contradicts the ruling of the Hon. Court of Appeals based on the
doctrine laid down in Tuason vs. Lumanlan case citing also Tuason vs.
Macalindong case (Supra).
2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is contradictory to
the doctrine in Tuason vs. Lumanlan and Tuason vs. Macalindong, the two cases
being more current, the same should prevail.
Further, private respondent contends that the following unmistakably point to the bad faith of
petitioner: (1) private respondents purchase of the two lots, was ahead of the purchase by
petitioner of the building and lot from Pariz Industries; (2) the declaration of the General
Manager of Tecnogas that the sale between petitioner and Pariz Industries was not registered
because of some problems with China Banking Corporation; and (3) the Deed of Sale in
favor of petitioner was registered in its name only in the month of May 1973.[16]

Quite contrary to respondent Uys reasoning, petitioner Tecnogas continues to be a builder in

good faith, even if it subsequently built/repaired the walls/other permanent structures thereon
while the case a quo was pending and even while respondent sent the petitioner many
letters/filed cases thereon.[12]

The Courts Ruling

D. (E.)

Page 15 of 36

The petition should be granted.

the possessor, by extraneous evidence or by suit for recovery of the property by the true
owner.[26]

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-ininterest, 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

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:
The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to
pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The parties shall agree
upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof.
The obvious benefit to the builder under this article is that, instead of being outrightly
ejected from the land, he can compel the landowner to make a choice between the two
options: (1) to appropriate the building by paying the indemnity required by law, or (2) sell
the land to the builder. The landowner cannot refuse to exercise either option and compel
instead the owner of the building to remove it from the land.[27]
The question, however, is whether the same benefit can be invoked by petitioner who,
as earlier stated, is not the builder of the offending structures but possesses them as buyer.
We answer such question in the affirmative.
In the first place, there is no sufficient showing that petitioner was aware of the
encroachment at the time it acquired the property from Pariz Industries. We agree with the
trial court that various factors in evidence adequately show 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.

Page 16 of 36

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]
That the parties hereto have agreed that the rear portion of the fence that separates the
property of the complainant and respondent shall be demolished up to the back of the
building housing the machineries which demolision (sic) shall be undertaken by the
complainant at anytime.
That the fence which serve(s) as a wall housing the electroplating machineries shall not be
demolished in the mean time which portion shall be subject to negotiation by herein parties.
From the foregoing, it is clear that petitioner agreed only to the demolition of a portion
of the wall separating the adjoining properties of the parties -- i.e. up to the back of the
building housing the machineries. But that portion of the fence which served as the wall
housing the electroplating machineries was not to be demolished. Rather, it was to be subject
to negotiation by herein parties. The settlement may have recognized the ownership of
private respondent but such admission cannot be equated with bad faith.Petitioner was only
trying to avoid a litigation, one reason for entering into an amicable settlement.
As was ruled in Osmea vs. Commission on Audit,[30]
A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical
agreement by the Civil Code and is therein dealt with in some detail. `A compromise,
declares Article 2208 of said Code, `is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.

xxx xxx xxx

The Civil Code not only defines and authorizes compromises, it in fact encourages them in
civil actions. Art. 2029 states that `The Court shall endeavor to persuade the litigants in a
civil case to agree upon some fair compromise. x x x.
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 Melencio-Herrera, citing Manresa and
applicable precedents, in the case of Depra vs. Dumlao,[32] to wit:
Where the builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of the improvements
without causing injustice to the owner of the land. In view of the impracticality of creating a
state of forced co-ownership, the law has provided a just solution by giving the owner of the
land the option to acquire the improvements after payment of the proper indemnity, or to
oblige the builder or planter to pay for the land and the sower to pay the proper rent. It is the
owner of the land who is authorized to exercise the option, because his right is older, and
because, by the principle of accession, he is entitled to the ownership of the accessory thing.
(3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G. R.
No. 49167, April 30, 1949; Article applied; see Cabral, et al. vs. Ibanez [S.C.] 52 Off. Gaz.
217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050).
The private 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

Page 17 of 36

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:
The trial court shall determine:
a) the present fair price of private respondents 520 square-meter area of land;

b) the increase in value (plus value) which the said area of 520 square meters may
have acquired by reason of the existence of the portion of the building on
the area;
c) the fair market value of the encroaching portion of the building; and
d) whether the value of said area of land is considerably more than the fair market
value of the portion of the building thereon.
2. After said amounts shall have been determined by competent evidence, the regional trial
court shall render judgment as follows:
a) The private respondent shall be granted a period of fifteen (15) days within
which to exercise his option under the law (Article 448, Civil
Code), whether to appropriate the portion of the building as his own by paying
to petitioner its fair market value, or to oblige petitioner to pay the price of
said area. The amounts to be respectively paid by petitioner and private
respondent, in accordance with the option thus exercised by written notice of
the other party and to the court, shall be paid by the obligor within fifteen (15)
days from such notice of the option by tendering the amount to the trial court
in favor of the party entitled to receive it;
b) If private respondent exercises the option to oblige petitioner to pay the price of
the land but the latter rejects such purchase because, as found by the trial
court, the value of the land is considerably more than that of the portion of the
building, petitioner shall give written notice of such rejection to private
respondent and to the trial court within fifteen (15) days from notice of private
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

Page 18 of 36

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.

Republic of the Philippines

SUPREME COURT
Manila

Page 19 of 36

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

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.

Veil D. Hechanova for defendant-appellant.

MELENCIO-HERRERA, J.:
This is an appeal from the Order of the former Court of First Instance of Iloilo to the then
Court of Appeals, which the latter certified to this instance as involving pure questions of
law
Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under Transfer
Certificate of Title No. T3087, known as Lot No. 685, situated in the municipality of
Dumangas, Iloilo, with an area of approximately 8,870 square meters. Agustin Dumlao,
defendant-appellant, owns an adjoining lot, designated as Lot No. 683, with an approximate
area of 231 sq. ms.

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.

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.

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 coownership" 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

Page 20 of 36

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,

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.

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)

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.

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.

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).

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)

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.

Page 21 of 36

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

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 coownership, 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;

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.

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

Page 22 of 36

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;

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.

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;

Page 23 of 36

the decision of the Regional Trial Court and reinstating that of the Metropolitan Trial Court,
is assailed in the instant petition.
Petitioners Virgilio and Josie Jimenez, spouses, are sublessees of a lot and
building located at 2853 Juan Luna Street, Tondo, Manila, owned by respondent Patricia Inc.
(PATRICIA for brevity), a domestic corporation duly organized and existing under
Philippine laws. The Jimenez spouses subleased the property in 1980 from a certain Purisima
Salazar who had been leasing the property from PATRICIA since 1970.
Sometime in 1995 Purisima Salazar abandoned the property thus incurring back rentals
dating back to January 1992. Hence, by reason of her non-payment of the monthly rentals,
her contract of lease with PATRICIA was terminated.
On 29 March 1995 PATRICIA sent a letter to the Jimenez spouses informing them of
the termination of the lease and demanding that they vacate the premises within fifteen (15)
days from notice since they had no existing lease contract with it. [2] But the spouses refused
to leave.
Thus, on 5 May 1995 PATRICIA filed a complaint [3] for unlawful detainer against the
Jimenez spouses alleging, among others, that the lessee Purisima Salazar subleased the
premises to the Jimenezes; that Purisima Salazar no longer occupied the premises; that this
notwithstanding, the Jimenez spouses continued to occupy the premises without any contract
with PATRICIA, its owner, hence, their stay was merely being tolerated by the latter; and,
that despite demands made upon them, they refused to vacate the premises thereby
unlawfully and illegally withholding the property to the damage and prejudice of PATRICIA.
SECOND DIVISION
[G.R. No. 134651. September 18, 2000]
SPOUSES
VIRGILIO
INC., respondent.

and

JOSIE

JIMENEZ, petitioners,

vs. PATRICIA,

DECISION
BELLOSILLO, J.:
The Joint Decision of the Court of Appeals [1] (dismissing the petition for review filed
by spouses Virgilio and Josie Jimenez in CA-G.R. SP No. 43185 and giving due course to
the petition for review filed by Patricia, Inc., in CA-G.R. SP No. 43179), in effect reversing

In their Answer, the Jimenez spouses claimed that they occupied the premises as
sublessees of Purisima Salazar with the knowledge of PATRICIA; that the building originally
found on the lot was owned by Purisima Salazar which she sold to them in 1984 with notice
and without any objection from PATRICIA; that, when the building was gutted by fire in
1987 they constructed a new house on the lot worth P1,500,000.00 with the knowledge and
without any objection from PATRICIA; and, that PATRICIA never collected any rental for
the land but they nevertheless voluntarily paid the amount of P23,537.25 as rent
corresponding to the period of September 1979 to 31 December 1991.[4]
The MeTC ruled in favor of PATRICIA and ordered the Jimenez spouses to vacate the
premises, to pay PATRICIA the sum of P3,000.00 a month as reasonable rental and/or
compensation for the use of the premises beginning April 1995 until they finally vacated
the premises, and to pay PATRICIA the sum of P5,000.00 as reasonable attorney's fees, plus
costs of suit.[5]

Page 24 of 36

The Jimenez spouses appealed the MeTC decision to the RTC. [6] On 2 January 1997 the
RTC modified the decision in favor of the spouses holding that an implied new lease contract
existed between the Jimenez spouses and PATRICIA in view of the latter's acceptance of
rentals from the former. Thus the RTC extended the term of the lease between the parties for
a period of one (1) year from date of decision, and ordered PATRICIA to reimburse the
Jimenez spouses the expenses incurred in the construction of the house built on the property
and/or for the Jimenez spouses to remove the improvements thereon.[7]
On 20 January 1997 PATRICIA filed a Motion for Clarificatory Judgment and later
added a Supplement to the Motion for Clarificatory Judgment.
On 27 January 1997 PATRICIA, without waiting for the resolution of its Motion for
Clarificatory Judgment as well as its supplement thereto, filed a Petition for Review of the
RTC decision with the Court of Appeals, docketed as CA-G.R. SP No. 43179.
On 13 February 1997 the Jimenez spouses filed their own Petition for Review, docketed
as CA-G.R. SP No. 43185. Subsequently, this petition was consolidated with
PATRICIA's Petition for Review since it involved the same parties, facts, and issues.
The Court of Appeals in due course rendered a Joint Decision dismissing the Petition
for Review filed by the Jimenez spouses while giving due course to the petition of
PATRICIA. The Court of Appeals held that there was no implied renewal of the lease
contract between the parties since, to begin with, there was no lease contract between them;
hence, the Jimenez spouses could not have tendered payment of rentals to
PATRICIA. Instead, it declared the status of the Jimenez spouses as being analogous to that
of a lessee or tenant whose lease has expired but whose occupancy has been continued by
mere tolerance of the owner, and hence, bound by an implied promise that he would vacate
the premises upon demand. Thus, the appellate court reversed and set aside the decision of
the RTC and reinstated the decision of the MeTC which, among others, ordered the Jimenez
spouses to vacate the premises.
Petitioners now assail the jurisdiction of the MeTC contending that the failure of the
complaint to allege the character of the sublease or entry of the Jimenez spouses into the
property, whether legal or illegal, automatically classified it into an accion publiciana or
reinvindicatoria cognizable by the RTC and not by the MeTC;[8] thus, the action should have
been dismissed.
The rule is settled that a question of jurisdiction may be raised at any time, even on
appeal, provided that its application does not result in a mockery of the tenets of fair play. In
the instant case, the jurisdictional issue was raised by petitioners for the first time only in the
instant Petition for Review. However, it should be noted that they did so only after an
adverse decision was rendered by the Court of Appeals. Despite several opportunities in the

RTC, which ruled in their favor, and in the Court of Appeals, petitioners never advanced the
question of jurisdiction of the MeTC. Additionally, petitioners participated actively in the
proceedings before the MeTC[9] and invoked its jurisdiction with the filing of their answer, in
seeking affirmative relief from it, in subsequently filing a notice of appeal before the RTC,
and later, a Petition for Review with the Court of Appeals. Upon these premises, petitioners
cannot now be allowed belatedly to adopt an inconsistent posture by attacking the
jurisdiction of the court to which they had submitted themselves voluntarily. Laches now
bars them from doing so.
Be that as it may, we find no error in the MeTC assuming jurisdiction over the subject
matter. A complaint for unlawful detainer is sufficient if it alleges that the withholding of
possession or the refusal to vacate is unlawful without necessarily employing the
terminology of the law.[10] As correctly found by the appellate court, to which we agree, the
allegations in the complaint sufficiently established a cause of action for unlawful
detainer. The complaint clearly stated how entry was effected and how and when
dispossession started - petitioners were able to enter the subject premises as sublessees of
Purisima Salazar who, despite the termination of her lease with respondent, continued to
occupy the subject premises without any contract with it; thus, their stay was by tolerance of
respondent.
The fact that the complaint failed to state that respondent was in prior possession of the
property before it was unlawfully withheld by petitioner spouses is of no moment.Prior
physical possession is indispensable only in actions for forcible entry but not in unlawful
detainer.[11]
Petitioner spouses, as mere sublessees of Purisima Salazar, derive their right from the
sublessor whose termination of contract with the lessor necessarily also ends the sublease
contract. Thus, when the contract of lease of Purisima Salazar with respondent was
terminated the contract of sublease of petitioners with the former also necessarily ended and
petitioners cannot insist on staying on the premises. Petitioners can invoke no right superior
to that of their sublessor.[12]
It is not correct to say that petitioners could not have occupied the property by tolerance
of respondent as their entry into the premises was inceptively illegal, the sublease being
entered into without the consent of the owner.[13] Petitioners argue that tolerance is only
available in cases where entry was lawful from the start and cannot be asserted where entry
was illegal from the start. It appears however that respondent did not expressly and
equivocally prohibit the subleasing of the property. Although the attached contracts of lease
state that the lessee cannot sublease the property, none of those contracts pertain to the
contract of lease between Purisima Salazar and respondent PATRICIA. [14] In any event, the
fact that PATRICIA sent a letter to the Jimenez spouses informing them of the termination of
the lease of Purisima Salazar shows that they recognize and acknowledge their stay in the

Page 25 of 36

premises as sublessees of Salazar. However, after the termination of the

contract of lease of Purisima Salazar with PATRICIA, any right of the Jimenez spouses to
stay in the premises, although previously recognized, then and there ended. After the
termination of the contract of lease of Salazar the continued stay of the Jimenez spouses
thereat was merely by tolerance of PATRICIA and it became unlawful after they ignored the
lessor's demand to leave.
The status of petitioner spouses is akin to that of a lessee or a tenant whose term of
lease has expired but whose occupancy has continued by tolerance of the owner. A person
who occupies the land of another at the latter's forbearance or permission without any
contract between them is necessarily bound by an implied promise that he will vacate upon
demand failing which a summary action for ejectment is the proper remedy against him.
[15]
The present action being for unlawful detainer, it is well within the exclusive original
jurisdiction of the metropolitan trial courts.
Petitioners contend that respondent has no cause of action against them since, as proved
by Transfer Certificate of Title No. T-44247, the property is in the name of the City of
Manila and not of respondent PATRICIA.
Records however show that this issue has not been raised in the proceedings below,
hence, will not be ruled upon by this Court. Any issue raised for the first time on appeal and
not timely raised in the proceedings in the lower court is barred by estoppel. Moreover, being
mere sublessees of the property in question, petitioners cannot in an action involving
possession of the leased premises controvert the title of PATRICIA, or assert any right
adverse to its title. It is the Manila City Government, not the Jimenez spouses, that is the
proper party to dispute the ownership of PATRICIA.
Petitioners argue that the Petition for Review of respondent should have been dismissed
for being premature in view of the pendency of its Motion for Clarificatory
Judgment and Supplement to the Motion for Clarificatory Judgment which remained
unresolved by the RTC. They assert that because of the pendency of its motion, there was no
final judgment or decision that could properly be the subject of a petition for review before
the Court of Appeals.
We do not agree. The Petition for Review filed by respondent with the Court of Appeals
was not prematurely filed. It should be borne in mind that a Motion for Clarificatory
Judgment not being in the character of a motion for reconsideration does not toll the
reglementary period for filing a petition for review with the Court of Appeals. Its filing will
not bar the judgment from attaining finality, nor will its resolution amend the decision to be
reviewed. Thus, when respondent filed a Petition for Review before the Court of Appeals,
there was already a final judgment that could properly be the subject of a petition for review.

Moreover, under the Rules on Summary Procedure, the decision of the RTC in civil
cases governed by this Rule, including forcible entry and unlawful detainer, is immediately
executory without prejudice to a further appeal that may be taken therefrom. The judgment
of the RTC being final and executory the filing of the Petition for Reviewwas proper.
As to the house built by petitioners on the property, this Court has previously ruled that
lessees, much less, sublessees, are not possessors or builders in good faith [16] over rented land
because they know that their occupancy of the premises continues only during the life of the
lease, or sublease as the case may be; and, they cannot as a matter of right recover the value
of their improvements from the lessor, much less retain the premises until they are
reimbursed.[17] Instead, their rights are governed by Art. 1678 of the Civil Code which allows
reimbursement of lessees up to one-half ( 1/2) of the value of their improvements if the lessor
so elects:
Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the
use for which the lease is intended, without altering the form or substance of the property
leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value
of the improvements at that time. Should the lessor refuse to reimburse said amount, the
lessee may remove the improvements, even though the principal thing may suffer damage
thereby. He shall not, however, cause any more impairment upon the property leased than is
necessary xxx (New Civil Code).
Thus, applying the above rule, petitioners cannot recover full reimbursement of the
value spent for the construction of the house, but is limited only to one-half ( 1/2) of its value
at the election of the lessor. However, as PATRICIA has manifested its lack of intention to do
so, the Jimenez spouses have no recourse but to remove the house at their own expense.
WHEREFORE, the assailed Joint Decision of the Court of Appeals reversing and
setting
aside
the
decision
of
the
Regional
Trial Court and reinstating the decision of theMetropolitan Trial Court is AFFIRMED, with
the MODIFICATION that petitioner spouses Virgilio and Josie Jimenez should also remove
the house they have constructed on the lot at their own expense. Thus, petitioner spouses and
all persons claiming title under them are ordered: (a) to vacate the premises described in the
complaint located at 2853 Juan Luna Street, Tondo, Manila; (b) to remove at their own
expense within sixty (60) days from finality of this Decision the house they have constructed
thereon; (c) to pay respondent Patricia, Inc., the sum of P3,000.00 a month as reasonable
rental/compensation for the use of the premises beginning April 1995 until they finally
vacate the premises; and, (d) to pay respondent Patricia, Inc., the sum of P5,000.00 as
attorney's fees, plus costs of suit.
SO ORDERED.

Page 26 of 36

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-32433

December 29, 1930

FRANCISCO DE GUZMAN, ET. AL., plaintiffs-appellants,

vs.
CRISANTO DE LA FUENTE, ET AL., defendants-appellants.
Mariano Sta. Romana for plaintiffs-appellants.
Hermogenes Concepcion for defendants-appellants.

ROMUALDEZ, J.:
The dispositive part of the lower court's judgment reads as follows:

Page 27 of 36

Wherefore, the court hereby orders the defendants to vacate the premises set forth
in the complaint, restoring them to the plaintiffs herein. For lack of evidence, no
judgment can be rendered against the defendants Crisanto de la Fuente and Agapita
Payumo to pay the plaintiffs the sum of P697.50 claimed by the latter as damages,
from October 1, 1926, to January 15, 1928, nor against the aforementioned
defendants and Taw Pe Chan to pay the plaintiffs jointly and severally damages in
the amount of P120 per month from January 15, 1928, until they vacate the
premises. The counterclaim and the cross-complaint filed by the defendants are
hereby dismissed as against the plaintiffs. Without costs.
Both plaintiffs and defendants appealed from this judgment, and the former made the
following assignments of error:
1. In not ordering and compelling the defendants to pay damages for their illegal
occupation of the land now in question to the plaintiffs.
2. In denying our motion for new trial.

8. In not sentencing the plaintiff, defendant in the cross-complaint, to indemnify the

defendants, plaintiffs in the cross-complaint, for the improvements made by the
latter in good faith, worth P15,000.
Plaintiff Francisco de Guzman and defendant De la Fuente, being close friends and
compadres, the former having been the recipient of considerable attention and favors from
the latter, agreed verbally that the said defendant should occupy, in addition to a house he
intended to build, the land here in question, belonging to the plaintiffs.
In 1912 said defendant De la Fuente built his house upon said land, which house was
repaired in 1928. The court below has appraised the house, after the repairs, at P7,504, which
finding is supported by the record.
The plaintiffs contend in this instance that said defendant occupies their land by mere
tolerance, having been required to pay rent at the rate of P45 a month from October 1,.1926,
to December 31, 1927, and at P120 a month from January 1, 1928, when the house was
repaired, and from which date the house, besides being occupied by said defendant, yielded
him a monthly rented of P40. But the defendant claims that the land belongs to him.

The following assignments of error were made by the defendants:

1. In ordering the defendant to vacate the premises.
2. In absolving plaintiff Francisco de Guzman from the counterclaim and the crosscomplaint.
3. In not holding the defendants to be the owners of the land in question.
4. In not sentencing plaintiff Francisco de Guzman to .convey the land in question
to the defendants, plaintiffs in the cross-complaint.
5. In not cancelling the original certificate of title No. 1921 (Exhibit A) with respect
to the land in question, and in not ordering the issuance of another certificate of title
in the name of the defendants.
6. In not sentencing the plaintiff to indemnify the defendants for the value of said
land, that is, P4 a square meter.
7. in holding that the defendants' possession in good faith became a possession in
bad faith upon receipt of the letter of notification (Exhibit C) from the plaintiff's
lawyer, Mr. Mariano Santa Romana.

The evidence does not support this claim of the defendant De La Fuente. The record shows
that the owners of the land were Francisco de Guzman and his deceased wife, and it now
belongs to said Francisco de Guzman and his children, the plaintiffs herein.
Defendant De la Fuente's possession of the land commenced and continues in good faith,
inasmuch as, on the one hand, the extra-judicial notice given by the defendant about
November, 1927 did not by itself destroy said good faith, and will continue to exist as long
as there is no final judgment to the contrary, which to date has not been redered; and, on the
other hand, the necessity for the repairs of the house has been sufficiently
proved.lawphi1>net
We find not merits in the assignments of error made by either party, incompatible with the
conclusions just stated.
This is therefore a case where on party is the owner of the land, and the other is the owner, in
good faith, of the building thereon, provided for in article 361 of the Civil Code; and the
present value of the house, as stated, is P7,504.
The evidence does not justify the award of damages claimed by either the defendants or the
plaintiffs.
Wherefore, the judgment appealed from is modified, and it is held that the land in question
belongs not to the defendant De la Fuente, but to the plaintiffs, who are entitled to acquire

Page 28 of 36

said defendant's house built thereon, by paying its owner the sum of P7,504, or to compel
him to pay them the price of the land agreed upon by the interested parties; and in default
thereof, the price as fixed by the competent court; and should the plaintiff choose to acquire
the house, the defendant shall have be the right to retain the same until the above-mentioned
amount is satisfied.
The remainder of the judgment appealed from is hereby affirmed in so far as it is not
incompatible with this decision. Without express pronouncement of costs. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 3003

January 2, 1907

Page 29 of 36

LORENZA ALBURO, plaintiff-appellee,

vs.
CATALINA VILLANUEVA, defendant-appellant.
Ledesma, Sumulong & Quintos for appellant.
Hipolito Magsalin for appellee.
CARSON, J.:
In this case no motion for a new trial was filed on the ground that the findings of fact of the
trial judge were manifestly contrary to the weight of the evidence, and the facts found must
be accepted as set out in the opinion of the lower court.
It appears that the plaintiff is the owner, by inheritance from her grandfather, of a certain lot
of land in the city of Manila, which, by written contract, was rented on the 23d of January,
1892, to one Antonio Susano Goenco, for a term of six years, with the privilege of renewal
for a second term of six years; that the defendant, who is the wife of the said Goenco, came
into possession by virtue of this rental contract; that the defendant had her husband expended
a considerable sum of money filling in and leveling the lot and that they built a house of hard
materials thereon; and that the rental contract, while it expressly permitted the tenant to build
upon the lot, is silent as to the disposition of the house at the expiration of the rental term and
makes no express provision as to improvements to be made upon the land by way of leveling
or otherwise.
The defendant having refused to surrender the lot in question of the expiration of the rental
term, this action was brought to recover possession thereof and judgment was rendered for
the plaintiff, reserving to the defendant the right to remove the house from the lot.
Counsel for the defendant contends that she is entitled to a renewal of the rental contract for
a third term of six years; or if this be denied, to be reimbursed for expenditures in filling in
and leveling the lot, and to have the benefits of the provisions of article 361 of the Civil
Code, wherein it is provided that
The owner of the land on which building, sowing, or planting is done in good faith
shall have a right to appropriate as his own work, sowing, or planting, having
previously paid the indemnity mentioned in articles four hundred and fifty-three and
four hundred and fifty-four, or to oblige the person who has built or planted to pay
him the value of the land.
It is said that this rental contract should be construed in accordance with the provisions of
articles 1281, 1282, 1288, and 1289 of the Civil Code so as to give the defendant the right to
renew the contract for a third term of six years, and so on indefinitely so long as she

faithfully paid the rent, but we are of the opinion that there is no room for interpretation in
accordance with the provisions of these articles since the contract expressly provides for a
term of a definite number of years, with a privilege of renewal for a second term of definite
number of years. This is a very usual form of rental contract and its terms are so clear and
explicit that they do not justify an attempt to read into it any alleged intention of the parties
other than that which appears upon its face.
In support of her claim for reimbursement for expenses in filling in and leveling the lot,
defendant relies on the provisions of paragraph 2 of article 1554 of the Civil Code, wherein
it is provided that the landlord is obliged "during the lease to make all necessary repairs in
order to preserve the thing rented in condition to serve for the purpose to which it was
destined." But, as Manresa points out, this article is strictly limited in its effect to repairs
necessary to preserve the thing rented in a condition suitable to the use agreed upon ( para el
uso pactado). A repair implies the putting of something back into the condition in which it
was originally and not an improvement in the condition thereof by adding something new
thereto, unless the new thing be in substitution of something formerly in existence and is
added to preserve the original status of the subject-matter of the repairs; the filling in of a
vacant lot can not be regarded as a repair as the word is used in this article; and even though
it could be so considered, the remedy of the tenant under the provisions of article 1556, when
the landlord fails to make necessary repairs, is by demand for the annulment of the contract
and indemnity by way of damages or without demanding annulment of the contract by
demand for damages for negligence on the part of the landlord; and the tenant is not
authorized to make such repairs at the expense of the landlord, except when it is a matter of
the most urgent necessity (reparacion urgentisima) "where the slightest delay would involve
grave damages," when the tenant may take the absolutely necessary means to avoid the loss,
at the cost of the owner, doing only that which is required by the force of circumstances and
no more, but this on the ground that "he had acted by virtue of the social duty of mutual aid
and assistance." (Manresa, vol. 10, p. 473.)
It has been suggested that the claim of the defendant for compensation for the filling in and
leveling of the lot may be based upon article 453 of the Civil Code which provides that
"necessary expenditures will be repaid to all persons in possession (los gastos necesarios se
abonan a todo poseedor)." It may be doubted, however, whether the "possessor" referred to
in this provision can be said to include one who stands in relation of tenant to his landlord,
for the above-cited article 1554 of the Civil Code, and the chapter wherein it occurs, seem to
provide for such cases; and in any event we do not think that the filling in and improvement
of a lot can be brought under the head of necessary expenses (gastos necesarios) as used in
this connection. Manresa in his commentaries upon this article says that gastos necesarios
are no others than those made for the preservation of the thing upon which they have been
expended.

Page 30 of 36

The contention that the defendant is entitled to the benefits of the provisions of article 361 of
the Civil Code can not be maintained because the right to indemnification secured in that
article is manifestly intended to apply only to a case where one builds or sows or plants an
land in which he believes himself to have a claim of title and not to lands wherein one's only
interest is that of tenant under a rental contract; otherwise it would always be in the power of
the tenant to improve his landlord out of his property. The right of a tenant in regard to
improvements (mejoras) is expressly provided for in article 1573 read in connection with
article 487, wherein it is provided that the tenant may make such improvements, either useful
or convenient, as he considers advantageous, provided he does not alter the form and
substance of the thing rented, but that he will have no right for indemnification therefor,
though he can take away such improvements if it is possible to do so without injury or
damage to the thing rented.
The trial court authorized the removal of the house, apparently relying on the provisions of
this article, but since no objection was made by the plaintiff in the court below, we are not
authorized to review his action in this connection.
The judgment appealed from is affirmed, with the costs of this instance against the appellant.
After the expiration of twenty days let judgment be entered in accordance herewith and ten
days thereafter let the record in this case be remanded to the court of its origin for execution.

Page 31 of 36

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23497

April 26, 1968

J.M. TUASON and CO., INC., petitioner,

vs.
ESTRELLA VDA. DE LUMANLAN and the COURT OF APPEALS (FIFTH
DIVISION), respondents.
Tuason and Sison for petitioner.
Jose Chuico and Wilfredo E. Dizon for respondents.
REYES, J.B.L., Actg. C.J.:
J. M. Tuason & Co., Inc. petitioned for a review by certiorari of the decision issued by the
Court of Appeals (Fifth Division) in its case CA-G.R. No. 27259-R, reversing the judgment
rendered by the Court of First Instance of Rizal (Civil Case No. Q-4243) that ordered
defendant (now respondent) Estrella Vda. de Lumanlan to vacate the lot occupied by her in
Sta. Mesa Heights Subdivision, barrio Tatalon, Quezon City, and to remove therefrom the
house and other structures constructed thereon, paying P240.00 a month until restoration of
the premises to plaintiff.
The facts are stated in the decision of the Court of Appeals (accepted by both parties) in this
wise:1wph1.t
. . . That in the complaint filed in this case by plaintiff, J. M. Tuason & Co., Inc.,
hereinafter called Tuason, on 30 April, 1969, the basis is that it being the registered
owner of the property known as Santa Mesa Heights Subdivision, situated at Barrio
North Tatalon, Quezon City, herein defendant sometime in April, 1949 unlawfully
entered into possession of 800 square meters, and therein constructed his house so
that plaintiff prayed for ejectment and damages for the occupancy; and defendant in
her answer set forthaffirmative defense that on 12 March, 1949, she had bought the
property she was occupying from one Pedro Deudor, and that in a compromise

agreement between Pedro and Tuason on 16 March 1953, approved by the Court of
First Instance of Quezon City, she was one of the buyers therein recognized, so that
she asked that her rights be recognized and the complaint dismissed; but on the
basis of the evidence presented by both parties in the trial, Lower Court sustained
plaintiff, holding that Tuason being the registered owner, and the question being
purely one of possession, therefore, defendant's said evidence was "completely
immaterial". . . . (Page 2 of Decision, Annex "A" of Petition.)
Upon the facts thus stated, the Fifth Division of the Court of Appeals held that, pursuant to
this Supreme Court's ruling in Evangelista vs. Deudor, L-12826, September 10, 1959, the
Compromise Agreement (Exh. 2) between the petitioner Tuason & Co. and the Deudors
constituted a valid defense against the possessory action filed by Tuason & Co.; that under
paragraph 7 of said Compromise Agreement, petitioner bound and committed itself to sell to
respondent Lumanlan the lot occupied by her at a reasonable price; that said respondent had
a right to compel petitioner to accept payment for the lot in question; and that the
compromise agreement legalized the possession of respondent.
These pronouncements are assailed by the petitioner in this appeal as legally incorrect and
contrary to the decisions of this Court.
The terms of the compromise agreement between the heirs of Telesforo Deudor and J. M.
Tuason & Co. have been taken cognizance of in many decisions of this Court (Evangelista
vs. Deudor, jam. cit; Deudor vs. J. M. Tuason & Co., L-18768, May 30, 1961, and L-20105,
Oct. 31, 1963; J. M. Tuason vs. Jaramillo, et al., L-18932-34, Sept. 30, 1963; J. M. Tuason
vs. Macalindong, L-15398, Dec. 29, 1962 and others). The Deudors had therein recognized
the registered title of Tuason & Co. over the lands claimed by them, and received payment of
certain sums of money; but as the Deudors had, prior to the compromise, sold their
possessory rights to various persons, paragraph seventh of the compromise agreement (case
Q-135 of the court of origin) provided:
That the sales of the possessory rights claimed by the DEUDORS, are described in
the lists submitted by them to the OWNERS which are attached hereto marked
Annexes "B" and "C" and made part hereof. Whatever amounts may have been
collected by the DEUDORS on account thereof, shall be deducted from the total
sum of P1,201,063.00 to be paid to them. It shall be the joint and solidary obligation
of the DEUDORS to make the buyer of the lots purportedly sold by them to
recognize the title of the OWNERS over the property purportedly bought by them,
and to make them sign, whenever possible, new contracts of purchase for said
property at the current paces and terms specified by the OWNERS in their sales of
lots in their subdivision known at "Sta. Mesa Heights Subdivision." The
DEUDORS HEREBY advised the OWNERS that the buyer listed in Annex "B"
herein with the annotation "continue" shall buy the lots respectively occupied by

Page 32 of 36

them and shall sign contracts, but the sums already paid by them to the DEUDORS
amounting to P134,922.84 (subject to verification by the Court) shall be credited to
the buyers and shall be deducted from the sums to be paid to the DEUDORS by the
OWNERS. The DEUDORS also advise the OWNERS that, the buyers listed in
Annex "C" herein with the annotation "Refund" have decided not to continue with
their former contracts or purchases with the DEUDORS and the sums already paid
by them to the DEUDORS TOTALLING P101,182.42 (subject to verification by
the Court) shall be refunded to them by the OWNERS and deducted from the sums
that may be due to the DEUDORS from the OWNERS (J.M. Tuason & Co., Inc. vs.
Jaramillo, L-18932, Sept. 30, 1963);
Careful analysis of this paragraph of the compromise agreement will show that while the
same created "a sort of contractual relation" between the J. M. Tuason & Co., Inc., and the
Deudor vendees (as ruled by this Court in Evangelista vs. Deudor, ante), the same in no way
obligated Tuason & Co. to sell to those buyers the lots occupied by them at the price
stipulated with the Deudors, but at "the current prices and terms specified by the OWNERS
(Tuason) in their sales of lots in their subdivision known as 'Sta. Mesa Heights Subdivision'".
This is what is expressly provided. Further, the paragraph plainly imports that these buyers
of the Deudors must "recognize the title of the OWNERS (Tuason) over the
property purportedly bought by them" from the Deudors, and "sign, whenever possible, new
contracts of purchase for said property"; and, if and when they do so, "the sums paid by them
to the Deudors . . . shall be credited to the buyers." All that Tuason & Co. agreed to,
therefore, was to grant the Deudor buyers preferential right to purchase "at current prices and
terms" the lots occupied by them, upon their recognizing the title of Tuason & Co., Inc., and
signing new contracts therefor; and to credit them for the amounts they had paid to the
Deudors.
Nowhere in her answer did the respondent Estrella Vda. de Lumanlan claim that she had
signed a new contract with J. M. Tuason & Co., Inc. for the purchase of the lot occupied.
What is worse, instead of recognizing the title of the owners (Tuason & Co.) as required by
the aforementioned compromise agreement, she charged in paragraph 6 of her special
defense (Rec. on Appeal, p. 10) that "Pedro Deudor and his co-owners and the plaintiff
herein . . . conspired together and helped each other . . . by entering into a supposed
Compromise" whereby "Pedro Deudor and his co-owners renounced, ceded, waived and
quitclaimed all their rights, title and interest in the property including the land sold to herein
defendant, in favor of the plaintiff J. M. Tuason & Co., Inc., in consideration of the sum of
P1,201,063.00, without the knowledge and consent, and much less the intervention of the
herein defendant." In other words, the respondent Lumanlan in her answer repudiated and
assailed the compromise between the Deudors and J. M. Tuason & Co. How then can she
now claim to take advantage and derive rights from that compromise?

Without the compromise agreement, Lumanlan must justify her possession on the basis of a
pretended superiority of the Deudors' old Spanish informacion posesoria over Tuason's
Certificate of Title No. 1267, traceable back to the original Certificate of Title No. 735 of
Rizal, issued under the Registration Act No. 496. But, as ruled by this Court in previous
cases, Lumanlan is by now barred from assailing the decree of registration in favor of
Tuason & Co., Inc.'s predecessors twenty years after its issuance (Tiburcio vs. PHHC, L13429, Oct. 31, 1959; Tuason & Co. vs. Bolaos, 95 Phil. 107; Tuason & Co. vs. Santiago,
99 Phil. 622-623; Tuason & Co. vs. Macalindong, supra; Tuason & Co. vs. Jaramillo, L16827, Jan. 31, 1963).
It is thus apparent that no legal basis exists for the pronouncement in the appealed decision
that Tuason & Co. had committed itself to sell to Lumanlan the lot occupied by her at a
reasonable price, or that the compromise agreement legalized the possession of the
respondent, since the latter does not rely on the compromise but, on the contrary, she assails
it.
The Court of Appeals ruled that the price to be paid by Lumanlan to Tuason & Co., Inc., is
governed by Article 1474 of the new Civil Code of the Philippines, which provides that:
Where the price cannot be determined in accordance with the preceding articles, or
in any other manner, the contract is inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated by the buyer, he must pay a
reasonable price therefor. What is a reasonable price is a question of fact dependent
on the circumstances of each particular case.
Since there has been no contract between petitioner Tuason & Co. and respondent Lumanlan
for the sale of the lot occupied by the latter, and by paragraph 7 of the Compromise
Agreement (assuming that respondent-appellee still has the right to invoke the same, and
seek refuge thereunder), Tuason & Co. did not consider itself bound by the sales made by the
Deudors, but demanded that the Deudor buyers should sign new contracts with it at current
prices specified for the sales of lots in "Sta. Mesa Heights Subdivision" (ante) the
aforequoted Article 1474 can have no bearing on the case, Lumanlan not being a buyer from
Tuason & Co.
As to Lumanlan's allegation in her counterclaim that she should be deemed a builder in good
faith, a similar contention has been rejected in Tuason & Co. vs. Macalindong, L-15398,
December 29, 1962, where we ruled that there being a presumptive knowledge of the Torrens
titles issued to Tuason & Co. and its predecessors-in-interest since 1914, the buyer from the
Deudors (or from their transferees) can not, in good conscience, say now that she believed
her vendor had rights of ownership over the lot purchased. The reason given by the Court is
that

Page 33 of 36

Had he investigated before buying and before building his house on the questioned
lot, he would have been informed that the land is registered under the Torrens
system in the name of J. M. Tuason & Co., Inc., If he failed to make the necessary
inquiry, appellant is now bound conclusively by appellee's Torrens title (Sec. 51,
Act 496; Emas vs. Zuzuarregui, 35 Phil. 144) (Tuason & Co., Inc. vs.
Macalindong, ante).
Lumanlan had chosen to ignore the Torrens title of Tuason & Co., Inc. and relied instead
upon the Deudors' claim of ownership, perhaps because such course appeared to her as more
advantageous; hence, she has only herself to blame for the consequences now that the
Deudors' claim has been abandoned by the Deudors themselves, and can not pretend good
faith. The Court of First Instance, therefore, did not err in holding that she was not a rightful
possessor and sentencing her to vacate.
Respondent could have asked that she recover or be credited with the amounts paid by her to
the Deudors, but as no claim to such credit was ever advanced by her in the trial Court, no
pronouncement can be made thereon in this appeal. Equity demands, however, that her right
to claim such return, or to have the amount offset against the sums she was sentenced to pay,
should be, as it is, reserved.
WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First
Instance reinstated. Costs against respondent, Estrella Vda. de Lumanlan.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-23497

April 26, 1968

J.M. TUASON and CO., INC., petitioner,

vs.
ESTRELLA VDA. DE LUMANLAN and the COURT OF APPEALS (FIFTH
DIVISION), respondents.
Tuason and Sison for petitioner.
Jose Chuico and Wilfredo E. Dizon for respondents.
REYES, J.B.L., Actg. C.J.:

J. M. Tuason & Co., Inc. petitioned for a review by certiorari of the decision issued by the
Court of Appeals (Fifth Division) in its case CA-G.R. No. 27259-R, reversing the judgment
rendered by the Court of First Instance of Rizal (Civil Case No. Q-4243) that ordered
defendant (now respondent) Estrella Vda. de Lumanlan to vacate the lot occupied by her in
Sta. Mesa Heights Subdivision, barrio Tatalon, Quezon City, and to remove therefrom the
house and other structures constructed thereon, paying P240.00 a month until restoration of
the premises to plaintiff.
The facts are stated in the decision of the Court of Appeals (accepted by both parties) in this
wise:1wph1.t
. . . That in the complaint filed in this case by plaintiff, J. M. Tuason & Co., Inc.,
hereinafter called Tuason, on 30 April, 1969, the basis is that it being the registered
owner of the property known as Santa Mesa Heights Subdivision, situated at Barrio
North Tatalon, Quezon City, herein defendant sometime in April, 1949 unlawfully
entered into possession of 800 square meters, and therein constructed his house so
that plaintiff prayed for ejectment and damages for the occupancy; and defendant in
her answer set forthaffirmative defense that on 12 March, 1949, she had bought the
property she was occupying from one Pedro Deudor, and that in a compromise
agreement between Pedro and Tuason on 16 March 1953, approved by the Court of
First Instance of Quezon City, she was one of the buyers therein recognized, so that
she asked that her rights be recognized and the complaint dismissed; but on the
basis of the evidence presented by both parties in the trial, Lower Court sustained
plaintiff, holding that Tuason being the registered owner, and the question being
purely one of possession, therefore, defendant's said evidence was "completely
immaterial". . . . (Page 2 of Decision, Annex "A" of Petition.)
Upon the facts thus stated, the Fifth Division of the Court of Appeals held that, pursuant to
this Supreme Court's ruling in Evangelista vs. Deudor, L-12826, September 10, 1959, the
Compromise Agreement (Exh. 2) between the petitioner Tuason & Co. and the Deudors
constituted a valid defense against the possessory action filed by Tuason & Co.; that under
paragraph 7 of said Compromise Agreement, petitioner bound and committed itself to sell to
respondent Lumanlan the lot occupied by her at a reasonable price; that said respondent had
a right to compel petitioner to accept payment for the lot in question; and that the
compromise agreement legalized the possession of respondent.
These pronouncements are assailed by the petitioner in this appeal as legally incorrect and
contrary to the decisions of this Court.
The terms of the compromise agreement between the heirs of Telesforo Deudor and J. M.
Tuason & Co. have been taken cognizance of in many decisions of this Court (Evangelista
vs. Deudor, jam. cit; Deudor vs. J. M. Tuason & Co., L-18768, May 30, 1961, and L-20105,

Page 34 of 36

Oct. 31, 1963; J. M. Tuason vs. Jaramillo, et al., L-18932-34, Sept. 30, 1963; J. M. Tuason
vs. Macalindong, L-15398, Dec. 29, 1962 and others). The Deudors had therein recognized
the registered title of Tuason & Co. over the lands claimed by them, and received payment of
certain sums of money; but as the Deudors had, prior to the compromise, sold their
possessory rights to various persons, paragraph seventh of the compromise agreement (case
Q-135 of the court of origin) provided:
That the sales of the possessory rights claimed by the DEUDORS, are described in
the lists submitted by them to the OWNERS which are attached hereto marked
Annexes "B" and "C" and made part hereof. Whatever amounts may have been
collected by the DEUDORS on account thereof, shall be deducted from the total
sum of P1,201,063.00 to be paid to them. It shall be the joint and solidary obligation
of the DEUDORS to make the buyer of the lots purportedly sold by them to
recognize the title of the OWNERS over the property purportedly bought by them,
and to make them sign, whenever possible, new contracts of purchase for said
property at the current paces and terms specified by the OWNERS in their sales of
lots in their subdivision known at "Sta. Mesa Heights Subdivision." The
DEUDORS HEREBY advised the OWNERS that the buyer listed in Annex "B"
herein with the annotation "continue" shall buy the lots respectively occupied by
them and shall sign contracts, but the sums already paid by them to the DEUDORS
amounting to P134,922.84 (subject to verification by the Court) shall be credited to
the buyers and shall be deducted from the sums to be paid to the DEUDORS by the
OWNERS. The DEUDORS also advise the OWNERS that, the buyers listed in
Annex "C" herein with the annotation "Refund" have decided not to continue with
their former contracts or purchases with the DEUDORS and the sums already paid
by them to the DEUDORS TOTALLING P101,182.42 (subject to verification by
the Court) shall be refunded to them by the OWNERS and deducted from the sums
that may be due to the DEUDORS from the OWNERS (J.M. Tuason & Co., Inc. vs.
Jaramillo, L-18932, Sept. 30, 1963);
Careful analysis of this paragraph of the compromise agreement will show that while the
same created "a sort of contractual relation" between the J. M. Tuason & Co., Inc., and the
Deudor vendees (as ruled by this Court in Evangelista vs. Deudor, ante), the same in no way
obligated Tuason & Co. to sell to those buyers the lots occupied by them at the price
stipulated with the Deudors, but at "the current prices and terms specified by the OWNERS
(Tuason) in their sales of lots in their subdivision known as 'Sta. Mesa Heights Subdivision'".
This is what is expressly provided. Further, the paragraph plainly imports that these buyers
of the Deudors must "recognize the title of the OWNERS (Tuason) over the
property purportedly bought by them" from the Deudors, and "sign, whenever possible, new
contracts of purchase for said property"; and, if and when they do so, "the sums paid by them
to the Deudors . . . shall be credited to the buyers." All that Tuason & Co. agreed to,
therefore, was to grant the Deudor buyers preferential right to purchase "at current prices and

terms" the lots occupied by them, upon their recognizing the title of Tuason & Co., Inc., and
signing new contracts therefor; and to credit them for the amounts they had paid to the
Deudors.
Nowhere in her answer did the respondent Estrella Vda. de Lumanlan claim that she had
signed a new contract with J. M. Tuason & Co., Inc. for the purchase of the lot occupied.
What is worse, instead of recognizing the title of the owners (Tuason & Co.) as required by
the aforementioned compromise agreement, she charged in paragraph 6 of her special
defense (Rec. on Appeal, p. 10) that "Pedro Deudor and his co-owners and the plaintiff
herein . . . conspired together and helped each other . . . by entering into a supposed
Compromise" whereby "Pedro Deudor and his co-owners renounced, ceded, waived and
quitclaimed all their rights, title and interest in the property including the land sold to herein
defendant, in favor of the plaintiff J. M. Tuason & Co., Inc., in consideration of the sum of
P1,201,063.00, without the knowledge and consent, and much less the intervention of the
herein defendant." In other words, the respondent Lumanlan in her answer repudiated and
assailed the compromise between the Deudors and J. M. Tuason & Co. How then can she
now claim to take advantage and derive rights from that compromise?
Without the compromise agreement, Lumanlan must justify her possession on the basis of a
pretended superiority of the Deudors' old Spanish informacion posesoria over Tuason's
Certificate of Title No. 1267, traceable back to the original Certificate of Title No. 735 of
Rizal, issued under the Registration Act No. 496. But, as ruled by this Court in previous
cases, Lumanlan is by now barred from assailing the decree of registration in favor of
Tuason & Co., Inc.'s predecessors twenty years after its issuance (Tiburcio vs. PHHC, L13429, Oct. 31, 1959; Tuason & Co. vs. Bolaos, 95 Phil. 107; Tuason & Co. vs. Santiago,
99 Phil. 622-623; Tuason & Co. vs. Macalindong, supra; Tuason & Co. vs. Jaramillo, L16827, Jan. 31, 1963).
It is thus apparent that no legal basis exists for the pronouncement in the appealed decision
that Tuason & Co. had committed itself to sell to Lumanlan the lot occupied by her at a
reasonable price, or that the compromise agreement legalized the possession of the
respondent, since the latter does not rely on the compromise but, on the contrary, she assails
it.
The Court of Appeals ruled that the price to be paid by Lumanlan to Tuason & Co., Inc., is
governed by Article 1474 of the new Civil Code of the Philippines, which provides that:
Where the price cannot be determined in accordance with the preceding articles, or
in any other manner, the contract is inefficacious. However, if the thing or any part
thereof has been delivered to and appropriated by the buyer, he must pay a
reasonable price therefor. What is a reasonable price is a question of fact dependent
on the circumstances of each particular case.

Page 35 of 36

Since there has been no contract between petitioner Tuason & Co. and respondent Lumanlan
for the sale of the lot occupied by the latter, and by paragraph 7 of the Compromise
Agreement (assuming that respondent-appellee still has the right to invoke the same, and
seek refuge thereunder), Tuason & Co. did not consider itself bound by the sales made by the
Deudors, but demanded that the Deudor buyers should sign new contracts with it at current
prices specified for the sales of lots in "Sta. Mesa Heights Subdivision" (ante) the
aforequoted Article 1474 can have no bearing on the case, Lumanlan not being a buyer from
Tuason & Co.
As to Lumanlan's allegation in her counterclaim that she should be deemed a builder in good
faith, a similar contention has been rejected in Tuason & Co. vs. Macalindong, L-15398,
December 29, 1962, where we ruled that there being a presumptive knowledge of the Torrens
titles issued to Tuason & Co. and its predecessors-in-interest since 1914, the buyer from the
Deudors (or from their transferees) can not, in good conscience, say now that she believed
her vendor had rights of ownership over the lot purchased. The reason given by the Court is
that
Had he investigated before buying and before building his house on the questioned
lot, he would have been informed that the land is registered under the Torrens
system in the name of J. M. Tuason & Co., Inc., If he failed to make the necessary
inquiry, appellant is now bound conclusively by appellee's Torrens title (Sec. 51,

Act 496; Emas vs. Zuzuarregui, 35 Phil. 144) (Tuason & Co., Inc. vs.
Macalindong, ante).
Lumanlan had chosen to ignore the Torrens title of Tuason & Co., Inc. and relied instead
upon the Deudors' claim of ownership, perhaps because such course appeared to her as more
advantageous; hence, she has only herself to blame for the consequences now that the
Deudors' claim has been abandoned by the Deudors themselves, and can not pretend good
faith. The Court of First Instance, therefore, did not err in holding that she was not a rightful
possessor and sentencing her to vacate.
Respondent could have asked that she recover or be credited with the amounts paid by her to
the Deudors, but as no claim to such credit was ever advanced by her in the trial Court, no
pronouncement can be made thereon in this appeal. Equity demands, however, that her right
to claim such return, or to have the amount offset against the sums she was sentenced to pay,
should be, as it is, reserved.
WHEREFORE, the decision of the Court of Appeals is reversed and that of the Court of First
Instance reinstated. Costs against respondent, Estrella Vda. de Lumanlan.

Page 36 of 36