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[G.R. No. 144291.

April 20, 2001]

EVADEL REALTY and DEVELOPMENT CORPORATION, petitioners, vs. SPOUSES


ANTERO AND VIRGINIA SORIANO, respondents.

DECISION

KAPUNAN, J.:

This is an appeal by certiorari under Rule 45 of the Rules of Court of the decision of the Court
of Appeals dated August 3, 2000 in CA-G.R. CV No. 60292 affirming the summary judgment
rendered by the Regional Trial Court, Branch 88, Cavite City, in the case for accion
reinvidicatoria filed by herein respondents Antero and Virginia Soriano against petitioner Evadel
Realty and Development Corporation.

The pertinent facts from which the present petition proceeds are as follows:

On April 12, 1996, the spouses Antero and Virginia Soriano (respondent spouses), as sellers,
entered into a Contract to Sell with Evadel Realty and Development Corporation (petitioner), as
buyer, over a parcel of land denominated as Lot 5536-C of the Subdivision Plan of Lot 5536
covered by Transfer Certificate of Title No. 125062 which was part of a huge tract of land
known as the Imus Estate.

The pertinent portions of the Contract read:

xxx

WHEREAS : It is the desire of Party B to purchase a portion of a parcel of land owned by Party
A and which portion consist of 28,958 sq.m. and specifically described as lot 5536-C of the
Subdivision Plan of Lot 5536 of Imus Estate as surveyed for Antero Q. Soriano and covered by
TCT 125062 issued by the Register of Deeds of the Province of Cavite and which portion is
shown in Annex A hereof.

xxx

I. SUBJECT

The subject of this agreement is the intended sale of 28,958 sq.m. which is a portion of TCT No.
125062 in the name of Party A to Party B and which portion is herewith shown in Annex A
hereof.

xxx

III. Conditions to Govern Contract to Sell


1] The amount of Twenty Eight Million Nine Hundred Fifty Eight Thousand Pesos
(P28,958,000.00) representing the first installment of the purchase price of the property shall be
delivered by Party B to Party A upon the signing of this agreement.

2] The second and last installment of Twenty Eight Million Nine Hundred Fifty Eight
Thousand Pesos (P28,958,000.00) shall be delivered by Party B to Party A simultaneously with
the delivery of Party "A" to Party "B" of the Torrens Title to the lot specifically described as Lot
No. 5536-C containing an area of 28,958 sq. m. and herewith shown in Annex A hereof; still in
the name of Party A and the delivery of Party A to Party B of the Deed of Absolute Sale to the
property in favor of Party B. Responsibility of the transfer of the Torrens Title from the name of
Party A to Party B shall be the sole responsibility of Party B. Moreover, the balance in the
amount of Twenty Eight Million Nine Hundred Fifty Eight Thousand Pesos(P28,958,000.00)
shall be due and demandable immediately from the time Party B, thru its President or Vice-
President receives either verbal or written notice that the Torrens Title to the segregated property
and the Deed of Absolute Sale are already available for delivery to Party B. In the event of delay,
however, Party B shall be charged with interest and penalty in the amount of 6% per month,
compounded, for every month of delay or a fraction thereof in the event the delay does not
exceed one month.

xxxi[1]

Upon payment of the first installment, petitioner introduced improvements thereon and fenced
off the property with concrete walls. Later, respondent spouses discovered that the area fenced
off by petitioner exceeded the area subject of the contract to sell by 2,450 square meters. Upon
verification by representatives of both parties, the area encroached upon was denominated as Lot
5536-D-1 of the subdivision plan of Lot 5536-D of Psd-04-092419 and was later on segregated
from the mother title and issued a new transfer certificate of title, TCT No. 769166, in the name
of respondent spouses.

Respondent spouses successively sent demand letters to petitioner on February 14, March 7, and
April 24, 1997, to vacate the encroached area. Petitioner admitted receiving the demand letters
but refused to vacate the said area.

Thus, on May 23, 1997, a complaint for accion reinvindicatoria was filed by respondent spouses
against petitioner with the Regional Trial Court, Branch 88 of Cavite City.

In its Answer, petitioner admitted the encroachment but claimed that it was a builder in good
faith since it merely relied on the boundaries pointed out by the representatives of respondent
spouses. Petitioner also argued that there was a novation of contract because of the encroachment
made by the national road on the property subject of the contract by 1,647 square meters.

On March 19, 1998, respondents filed a Motion for Summary Judgment, alleging that there
existed no genuine issue as to the material facts of the case due to the admissions made by
petitioner in its Answer.
The trial court granted the motion on June 11, 1998 and rendered judgment in favor of
respondent spouses, the dispositive portion of which reads:

WHEREFORE, in the light of the foregoing, this court hereby orders the defendant to remove
without right of indemnity and at its expense, any or all improvements that it has introduced on
the parcel of land covered by TCT No. T-769166 issued by the Register of Deeds of the Province
of Cavite with an area of 2,450 square meters, more or less, in the name of plaintiffs spouses and
to return to the plaintiffs the physical possession of the above-described parcel of land.

Plaintiffs' and defendants claim and counter-claim for damages and attorneys fees are dismissed.
No pronouncement as to costs.

SO ORDERED.ii[2]

This prompted petitioner to appeal the matter to the Court of Appeals. On August 3, 2000, the
Court of Appeals affirmed the order for summary judgment of the trial court. Hence, this petition
ascribing the following errors:

I. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN


AFFIRMING THAT UNDER THE FACTUAL CIRCUMSTANCES, A SUMMARY
JUDGMENT COULD BE RENDERED BY THE COURT A QUO.

II. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN ITS
APPLICATION OF THE JURISPRUDENCE LAID DOWN IN THE CASE OF TERNATE
v. COURT OF APPEALS (241 SCRA 254) AND NATIONAL IRRIGATION
ADMINISTRATION v. GAMIT (215 SCRA 436) UNDER THE FACTUAL CONTENT
OF THE CASE AT BAR.

III. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN


ITS APPLICATION OF THE JURISPRUDENCE LAID DOWN IN THE CASE OF J.M.
TUASON & CO. INC. v. VDA. DE LUMANLAN (23 SCRA 230) UNDER THE
FACTUAL CONTENT OF THE CASE AT BAR.

IV. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN


ITS APPLICATION OF THE JURISPRUDENCE LAID DOWN IN THE CASES OF
MANILA BAY CLUB CORPORATION v. COURT OF APPEALS (245 SCRA 715) AND
THE MARINE CULTURE INC. v. COURT OF APPEALS (219 SCRA 148) UNDER THE
FACTUAL CONTENT OF THE CASE AT BAR.

V. XXX, THE HON. COURT OF APPEALS COMMITTED AN ERROR OF LAW IN


AFFIRMING THE DECISION OF THE COURT A QUO, THUS DEPRIVING THE
PETITIONER OF ITS DAY IN COURT AND ITS CONSTITUTIONAL RIGHT TO DUE
PROCESS OF LAW.

Summarizing the aforecited issues, the basic issue posed for resolution is whether or not the trial
court was in error in rendering summary judgment on the case.
Petitioner claims that a summary judgment cannot be rendered on the case as there are genuine
issues of fact which have to be threshed out during trial. It is alleged that in the original and
amended complaint, private respondent spouses sought recovery of two thousand four hundred
sixty two (2,462) square meters of land. This was, however, changed to 2,450 square meters in
the second amended complaint. It is also argued that when petitioner entered upon the property
in 1996, it relied on the metes and boundaries pointed out by respondents themselves and their
surveyors. Moreover, title over the said area was obtained only after the commencement of the
complaint so petitioner could not have possibly disputed such title earlier. Therefore, petitioner
maintains, the question of the exact area of the land allegedly encroached, whether 2,462 or
2,450 square meters; and the determination of whether its possession of the subject property was
in good or bad faith, are genuine triable issues.

Respondent spouses, on the other hand, maintain that there are no genuine issues of fact in the
present case in view of the admission by petitioner of (1) the existence of the title over the
subject property in the name of respondent spouses; and (2) its encroachment on the northern
side of sold Lot 5536-C which is the area in dispute. It is claimed that such admissions are
tantamount to an admission that respondents have a rightful claim of ownership to the subject
property warranting a summary judgment in their favor.

Prompt and expeditious resolution of cases have always been an underlying policy of the Court.
For this reason, certain rules under the Rules of Court are designed to shorten the procedure in
order to allow the speedy disposition of a case. Some of these are Rule 33 on Demurrer to
Evidence, Rule 34 on Judgment on the Pleadings and Rule 35 on Summary Judgments. In all
these instances, full-blown trial of a case is dispensed with and judgment is rendered on the basis
of the pleadings, supporting affidavits, depositions and admissions of the parties.

Under Rule 35 of the 1997 Rules of Civil Procedure, except as to the amount of damages, when
there is no genuine issue as to any material fact and the moving party is entitled to a judgment as
a matter of law, summary judgment may be allowed.iii[3] Summary or accelerated judgment is a
procedural technique aimed at weeding out sham claims or defenses at an early stage of the
litigation thereby avoiding the expense and loss of time involved in a trial.iv[4]

The law itself determines when a summary judgment is proper. Under the rules, summary
judgment is appropriate when there are no genuine issues of fact which call for the presentation
of evidence in a full-blown trial. Even if on their face the pleadings appear to raise issues, when
the affidavits, depositions and admissions show that such issues are not genuine, then summary
judgment as prescribed by the rules must ensue as a matter of law. What is crucial for
determination, therefore, is the presence or absence of a genuine issue as to any material fact.v[5]

A genuine issue is an issue of fact which require the presentation of evidence as distinguished
from a sham, fictitious, contrived or false claim. When the facts as pleaded appear uncontested or
undisputed, then there is no real or genuine issue or question as to the facts, and summary
judgment is called for. The party who moves for summary judgment has the burden of
demonstrating clearly the absence of any genuine issue of fact, or that the issue posed in the
complaint is patently unsubstantial so as not to constitute a genuine issue for trial.vi[6] Trial
courts have limited authority to render summary judgments and may do so only when there is
clearly no genuine issue as to any material fact. When the facts as pleaded by the parties are
disputed or contested, proceedings for summary judgment cannot take the place of trial.vii[7]

Applying these principles to the present case, we hold that the CA did not commit any reversible
error in affirming the summary judgment rendered by the trial court. Hence, the instant petition
must be denied.

The case at bar is one for accion reinvindicatoria which is an action to recover ownership over
real property. Respondent spouses (plaintiffs below) seek to recover a certain portion of land
with a total area of 2,450 square meters from petitioner which portion was allegedly in excess of
the total area of the property actually sold by them to the latter. In a reinvindicatory action, the
basic issue for resolution is that of ownership and in the present case, the determination of
ownership of the subject property is hinged on the following questions of fact - first, what was
the total area of the lot sold to petitioner by respondent spouses as agreed upon and embodied in
the contract to sell; and second, whether or not the area being occupied by the petitioner is in
excess of the land which it actually bought from respondent spouses under the said contract.

In its Answer to the Amended Complaint, petitioner admitted the existence and due execution of
the Contract to Sell which contained the specific description of the property it bought from
respondent spouses, to wit:

xxx

WHEREAS : It is the desire of Party B to purchase a portion of a parcel of land owned by


Party A and which portion consist of 28,958 sq.m. and specifically described as lot 5536-C
of the Subdivision Plan of Lot 5536 of Imus Estate as surveyed for Antero Q. Soriano and
covered by TCT 125062 issued by the Register of Deeds of the Province of Cavite and
which portion is shown in Annex A hereof.

xxx

Equally significant is the fact that in the same Answer, petitioner likewise admitted that the
relocation survey conducted by geodetic engineers of both parties disclosed that indeed there
were two encroachments, i.e.

1) encroachment at the eastern frontage of Lot 5536-C by the national road; and

2) encroachment by defendant (petitioner) EVADEL on the northern side of sold Lot 5536-C.
viii[8]

and that the second area encroached upon was denominated as Lot 5536-D-1 of the subdivision
plan of Lot 5536-D of Psd-04-092419 and later on segregated from the mother title and issued a
new transfer certificate of title, TCT No. 769166, during the pendency of the case before the trial
court.
With the foregoing admissions by petitioner, clearly, there is no genuine issue of fact as to
ownership of the subject property because the said admissions made by petitioner in its Answer
are tantamount to an admission that respondent spouses owned the property in question. The CA
thus correctly affirmed the trial court as it summarily resolved the issue of ownership of the
subject property in favor of respondent spouses.

Petitioner, however, maintains that the issue of whether or not it was a builder in good faith
should not have been peremptorily disposed of by the trial court. Petitioner decries the fact that it
was not given an opportunity to submit evidence to establish good faith as regards the
improvements it introduced on respondent spouses property.

Petitioners contention is untenable. As correctly pointed out by the trial court and the CA,
petitioner already admitted in its Amended Answer that the lot in dispute is covered by TCT No.
T-769166 of respondent spouses. With this admission, petitioner can no longer claim that it was
a builder in good faith. 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.ix[9] In this case, since petitioner, by
its own admission, had knowledge of respondent spouses title over the subject lot, it was clearly
in bad faith when it introduced improvements thereon.

Further, the contract to sellx[10] between petitioner and respondent spouses, the genuineness and
due execution thereof was admitted by petitioner, clearly delineated the metes and bounds of the
lot subject thereof. Attached to the said contract was a graphic illustration of the lot purchased by
petitioner including a technical description thereof. Petitioner, as a real estate developer, is
presumed to be experienced in its business and ought to have sufficient technical expertise to
correctly determine the metes and bounds of the lands it acquires. Despite this, petitioner still
introduced improvements on the lot not covered by the contract to sell. Petitioners bad faith had
been duly established by the pleadings and there was thus no need to further conduct any trial on
the matter. Our ruling in Congregation of the Religious of the Virgin Mary vs. Court of
Appealsxi[11]is particularly instructive:

x x x As discussed earlier, petitioner has no right whatsoever to possess and construct permanent
structures on the questioned land owned by respondents-spouses. Petitioner admits in its answer
to the complaint that it introduced improvements on the subject lot without the consent and
knowledge of respondents-spouses. It is thus a builder in bad faith. Again, we find no reversible
error in the following ruling of the respondent court:

"Which leads us to a discussion of whether or not appellant was in bad faith in introducing
improvements on the subject land. It cannot be denied that appellant never gained title to the
subject land as it admits to not having purchased the said lot (TSN, p. 81, November 9, 1992).
Neither has appellant successfully shown any right to introduce improvements on the said land
(its claim of grant of perpetual use of the same as a road lot and its right to build on a right of
way both having been rejected above). This being so, it follows that appellant was a builder in
bad faith in that, knowing that the land did not belong to it and that it had no right to build
thereon, it nevertheless caused the improvements in question to be erected."xii[12]
Finally, petitioners claim that there was a novation of contract because there was a second
agreement between the parties due to the encroachment made by the national road on the
property subject of the contract by 1,647 square meters, is unavailing. Novation, one of the
modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a
valid previous obligation; (2) the parties concerned agree to a new contract; (3) the old contract
is extinguished; and (4) there is valid new contract.xiii[13] Novation may be express or implied.
In order that an obligation may be extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms (express novation) or that the old and the
new obligations be on every point incompatible with each other (implied novation).xiv[14]

In the instant case, there was no express novation because the second agreement was not even
put in writing.xv[15] Neither was there implied novation since it was not shown that the two
agreements were materially and substantially incompatible with each other. We quote with
approval the following findings of the trial court:

Since the alleged agreement between the plaintiffs [herein respondents] and defendant [herein
petitioner] is not in writing and the alleged agreement pertains to the novation of the conditions
of the contract to sell of the parcel of land subject of the instant litigation, ipso facto, novation is
not applicable in this case since, as stated above, novation must be clearly proven by the
proponent thereof and the defendant in this case is clearly barred by the Statute of Frauds from
proving its claim.xvi[16]

In fine, the CA correctly affirmed the summary judgment rendered by the trial court. Considering
the parties allegations and admissions in their respective pleadings filed with the court a quo,
there existed no genuine issue as to any material fact so that respondent spouses as movants
therein were entitled to a judgment as a matter of law.

WHEREFORE, premises considered, the instant Petition is hereby DENIED for lack of merit.
The assailed Decision, dated August 3, 2000, of the Court of Appeals is AFFIRMED in toto.

SO ORDERED.
TECHNOGAS PHIL. v. CA

FACTS

Petitioner bought a lot together with the building and improvements including the wall which
encroached that of the defendant. Upon learning of such encroachment, petitioner offered to buy
the land but defendant refused.

After 2 years, through an agreement, petitioner agreed to demolish the wall (but the case did not
state what happened to this agreement, my assumption is that it did not happen due to conflicts
that arose after)

Defendant dug a canal along the wall which caused a portion of it to collapse. Petitioner filed a
supplemental complaint re the action and a separate criminal action of malicious mischief (which
the wife was convicted of)
RTC decided for the petitioners and the CA reversed. Note that respondent wants to have the
wall demolished.

ISSUES:

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

RULING: Petition was granted.

Good faith or Bad Faith No such doctrinal statement that supports that the knowledge of metes
and bounds of a land due to the Torrens system would amount to bad faith if there was
encroachment on the land of another.

A. When the petitioner purchased the lot, the wall was already built. Even the respondent did not
knew about the encroachment until he has hired a surveyor.

B. Where one derives title to the property from another, the act, declaration, or omission of the
latter, while holding the title, in relation to the property, is evidence against the former. And
possession in good faith does not lose this character except when the possessor is aware of this
impropriety.

C. The encroachment was very narrow which can be considered as a mere error. Remedy
the petitioner, despite being a purchaser of the original builder, can compel the landowner to
either buy the property or sell the piece of land because:

1. He was really unaware of the encroachment basing on the fact presented by both sides.
2. When the petitioner bought the land, he has stepped into the rights of the original owner
(hence, the right to compel the LO to buy or sell is also transferred)

Estoppel Petitioner is not considered in estoppel only because it has previously agreed to
demolish a part of the wall. Rather, it was to be negotiated by the parties concern. In the
meantime, petitioner has to pay the rent for the property occupied by its building only up to the
date when respondent serves notice of their option. Case remanded back to the trial court for
determination of the value of the land and the number of days to allot for the respondent to
choose an option.
[G.R. No. 108894. February 10, 1997]

TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner, vs. COURT


OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY,
respondents.

DECISION

PANGANIBAN, J.:

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

These are the questions raised in the petition for review of the Decisionxii[1] dated August 28,
1992, in CA-G.R. CV No. 28293 of respondent Courtxii[2] where the disposition reads:xii[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.

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:xii[4]

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

4. Ordering appellee to pay the value of the land occupied by the two-storey building.
The motion for reconsideration of appellee is hereby DENIED for lack of merit.

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

The Facts

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

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 no
evidence was presented nor introduced as to the good faith or bad faith of the builder at that time,
as in this case, he must be presumed to be a builder in good faith, since bad faith cannot be
presumed.xii[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.xii[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.xii[11]

D.

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.xii[12]

D. (E.)

The amicable settlement between the parties should be interpreted as a contract and enforced
only in accordance with its explicit terms, and not over and beyond that agreed upon; because the
courts do not have the power to create a contract nor expand its scope.xii[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.xii[14]

Private respondent, on the other hand, argues that the petition is suffering from the following
flaws:xii[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.xii[16]

The Courts Ruling

The petition should be granted.

Good Faith or Bad Faith

Respondent Court, citing the cases of J. M. Tuason & Co., Inc. vs. Vda. de Lumanlanxii[17] and J.
M. Tuason & Co., Inc. vs. Macalindong,xii[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.xii[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,xii[20] where we held that unless one is versed in the science of
surveying, no one can determine the precise extent or location of his property by merely
examining his paper title.

There is no question that when petitioner purchased the land from Pariz Industries, the buildings
and other structures were already in existence. The record is not clear as to who actually built
those structures, but it may well be assumed that petitioners predecessor-in-interest, Pariz
Industries, did so. Article 527 of the Civil Code presumes good faith, and since no proof exists to
show that the encroachment over a narrow, needle-shaped portion of private respondents land
was done in bad faith by the builder of the encroaching structures, the latter should be presumed
to have built them in good faith.xii[21] It is presumed that possession continues to be enjoyed in
the same character in which it was acquired, until the contrary is proved.xii[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.xii[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.xii[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.xii[25] The good faith ceases from the moment defects in the title
are made known to the possessor, by extraneous evidence or by suit for recovery of the property
by the true owner.xii[26]

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

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.xii[27]

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

We answer such question in the affirmative.

In the first place, there is no sufficient showing that petitioner was aware of the encroachment at
the time it acquired the property from Pariz Industries. We agree with the trial court that various
factors in evidence adequately show petitioners lack of awareness thereof. In any case, contrary
proof has not overthrown the presumption of good faith under Article 527 of the Civil Code, as
already stated, taken together with the disputable presumptions of the law on evidence. These
presumptions state, under Section 3 (a) of Rule 131 of the Rules of Court, that the person is
innocent of a crime or wrong; and under Section 3 (ff) of Rule 131, that the law has been obeyed.
In fact, private respondent Eduardo Uy himself was unaware of such intrusion into his property
until after 1971 when he hired a surveyor, following his purchase of another adjoining lot, to
survey all his newly acquired lots. Upon being apprised of the encroachment, petitioner
immediately offered to buy the area occupied by its building -- a species of conduct consistent
with good faith.

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

Estoppel

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

We do not agree. Petitioner cannot be held in estoppel for entering into the amicable settlement,
the pertinent portions of which read:xii[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,xii[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 450xii[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,xii[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 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.xii[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 landxii[34] the proper
remedy. While that was dubbed as the more workable solution in Grana and Torralba vs. The
Court of Appeals, et al.,xii[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.xii[36] Moreover, in Grana and Torralba, the area involved was only 87 square meters while
this case involves 520 square metersxii[37]. In line with the case of Depra vs. Dumlao,xii[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.xii[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.xii[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.xii[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,xii[42] this case is REMANDED to the Regional Trial Court of Pasay
City, Branch 117, for further proceedings consistent with Articles 448 and 546 xii[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 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.
PROGRAMME INCORPORATED, G.R. No. 144635

Petitioner,

Present:

PUNO, J., Chairperson,

-versus- SANDOVAL-GUTIERREZ,

CORONA,

AZCUNA and

GARCIA, JJ.

PROVINCE OF BATAAN,xii[1]

Respondent. Promulgated:

June 26, 2006

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

DECISION
CORONA, J.:

In this petition filed under Rule 45 of the Rules of Court,

petitioner Programme Incorporated contests the Court of Appeals

(CA) decisionxii[2] and resolutionxii[3] upholding respondent

Province of Bataans ownership of Piazza Hotel and the land on which

it stands. The assailed decision in CA-G.R. CV No. 49135 affirmed

the decision of the Regional Trial Court (RTC), Branch 4, Balanga,

Bataan in a suit for preliminary injunction and sum of money filed

by petitioner against Bataan Shipyard and Engineering Co., Inc.

(BASECO). The case was docketed as Civil Case No. 129-ML. The

dispositive portion of the trial court decision read:

WHEREFORE, in view of all the foregoing considerations, judgment


is hereby rendered dismissing the complaint, without pronouncement as to
costs.

Similarly, [BASECOs] counterclaim is dismissed.

On the complaint in intervention, judgment is hereby rendered


ordering [petitioner] to pay [respondent] the rentals for the leased premises
in question, namely, the Piazza Hotel and the Mariveles Lodge, situated at
the Bataan Export Processing Zone (BEPZ) Compound in Mariveles,
Bataan, at the rate of six thousand five hundred pesos (P6,500.00) per
month for both establishments, starting in August 1989 with legal interest at
6% per annum, up to and until the legal arrearages shall have been fully
paid, and to pay the succeeding rentals therefor at the same rate.
SO ORDERED.xii[4]

The controversy arose from the following facts.

BASECO was the owner of Piazza Hotel and Mariveles Lodge,

both located in Mariveles, Bataan.

On May 14, 1986, BASECO granted petitioner a contract of

lease over Piazza Hotel at a monthly rental of P6,500 for three years,

i.e., from January 1, 1986 to January 1, 1989, subject to renewal by

mutual agreement of the parties. After the expiration of the three-

year lease period, petitioner was allowed to continue operating the

hotel on monthly extensions of the lease.

In April 1989, however, the Presidential Commission on Good

Government (PCGG) issued a sequestration order against BASECO

pursuant to Executive Order No. 1 of former President Corazon C.


Aquino.xii[5] Among the properties provisionally seized and taken

over was the lot on which Piazza Hotel stood.

On July 19, 1989, however, Piazza Hotel was sold at a public

auction for non-payment of taxes to respondent Province of Bataan.

The title of the property was transferred to respondent. BASECOs

Transfer Certificate of Title (TCT) No. T-59631 was cancelled and a

new one, TCT No. T-128456, was issued to the Province of Bataan.

On July 21, 1989, petitioner filed a complaint for preliminary

injunction and collection of sum of money against BASECO (Civil

Case No. 129-ML).xii[6] Respondent, as the new owner of the

property, filed a motion for leave to intervene on November 22, 1990.

After its motion was granted, respondent filed a complaint-in-

intervention praying, inter alia, that petitioner be ordered to vacate

Piazza Hotel and Mariveles Lodge for lack of legal interest.

During the pre-trial of the complaint-in-intervention, the parties

agreed that the casexii[7] be tried on the sole issue of whether


respondent province, as complainant-intervenor, was the legitimate

owner of the Piazza Hotel and Mariveles Lodge.

On February 3, 1995, after trial on the merits, the trial court

rendered judgment in favor of respondent.

On appeal, the CA addressed the issue of ownership of Piazza

Hotel and Mariveles Lodge as follows:

[W]e affirm the trial courts ruling that [respondent] Province of Bataan
has established by preponderance of evidence its claim of ownership
of Piazza Hotel and Mariveles Lodge. In fact, [petitioner] has not
presented evidence proving its ownership of the said buildings[,
whereas respondent presented] a tax declaration and certificate of title
over the same properties, over which it now exercises full control and
dominion. The fact that the subject properties were placed under
sequestration is of no moment for the PCGG is not an owner but a
conservator who can exercise only powers of administration over property
sequestered, frozen or provisionally taken over. As the owner of said
properties, [respondent-intervenor] is entitled to the payment of the monthly
rental in the sum of P6,500.00 as ruled by the trial court.xii[8] (emphasis
ours)

We agree with the appellate court.


Time and again, we have ruled that factual matters are best

evaluated by trial courts which can scrutinize evidence and hear

testimony presented and offered by the parties (in this case, on the

issue of ownership of the subject property). All the more does this

principle ring true in this petition since such factual determination

by the RTC was upheld by the CA.xii[9] Only questions of law are the

proper subject of a petition for review on certiorari in this Court,

unless any of the known exceptions is extant in this case.xii[10]

There is none.

The evidence clearly established respondents ownership of

Piazza Hotel.xii[11] First, the title of the land on which Piazza Hotel

stands was in the name of respondent.xii[12] Second, Tax

Declaration No. 12782 was in the name of respondent as owner of

Piazza Hotel.xii[13] A note at the back of the tax declaration read:

Transferred by virtue of a final bill of sale executed by the


Provincial [Treasurer] of Bataan in favor of the Provincial Government
on Feb. 13, 1989[, a] year after the expiration of the redemption period from
date of auction sale held on Feb. 12, 1988 of all real property declared in
the name of [BASECO].xii[14] (emphasis ours)
Third, petitioner was doubtlessly just a lessee. In the lease

contract annexed to the complaint, petitioner in fact admitted

BASECOs (respondents predecessor-in-interest) ownership then of

the subject property. A stipulation in the contract read:

WHEREAS, the lessor (BASECO) is the owner of the building PIAZZA


HOTEL and its outlet MARIVELES LODGE located at BASECO, Mariveles,
Bataan xxxxii[15] (emphasis ours)

The Rules of Court states that [a]n admission, verbal or written,

made by a party in the course of the proceedings in the same case,

does not require proof. The admission may be contradicted only by

showing that it was made through palpable mistake or that no such

admission was made.xii[16]

[Such admissions] may be made in (a) the pleadings filed by the


parties, (b) in the course of the trial either by verbal or written
manifestations or stipulations, or (c) in other stages of the judicial
proceeding, as in the pre-trial of the case. Admissions obtained through
depositions, written interrogatories or requests for admission are also
considered judicial admissions.xii[17] (emphasis ours)
To be considered as a judicial admission, the same must be

made in the same case in which it is offered.xii[18]

In its own complaintxii[19] for preliminary injunction and sum of money, petitioner
acknowledged that it was not the owner of the property when it stated that [BASECO] lease[d] to
[petitioner] the building Piazza Hotel and its outlet Mariveles Lodge xxx for monthly rentals of
P6,500.00.xii[20] Petitioner could not possibly be the owner of a building merely leased to
it.xii[21]

Furthermore, petitioners reference to Article 448xii[22] of the

Civil Code to justify its supposed rights as possessor in good faith

was erroneous.

The benefits granted to a possessor in good faith cannot be


maintained by the lessee against the lessor because, such benefits are
intended to apply only to a case where one builds or sows or plants on land
which he believes himself to have a claim of title and not to lands wherein
ones only interest is that of a tenant under a rental contract, otherwise, it
would always be in the power of a tenant to improve his landlord out of his
property. Besides, as between lessor and lessee, the Code applies specific
provisions designed to cover their rights.

Hence, the lessee cannot claim reimbursement, as a matter of right,


for useful improvements he has made on the property, nor can he assert a
right of retention until reimbursed. His only remedy is to remove the
improvement if the lessor does not choose to pay its value; but the court
cannot give him the right to buy the land.xii[23]

Petitioners assertion that Piazza Hotel was constructed at (its)

expense found no support in the records. Neither did any document

or testimony prove this claim. At best, what was confirmed was that

petitioner managed and operated the hotel. There was no evidence

that petitioner was the one which spent for the construction or

renovation of the property. And since petitioners alleged expenditures

were never proven, it could not even seek reimbursement of one-half

of the value of the improvements upon termination of the lease under

Article 1678xii[24] of the Civil Code.

Finally, both the trial and appellate courts declared that the

land as well as the improvement thereon (Piazza Hotel) belonged to

respondent. We find no reason to overturn this factual conclusion.


Since this petition for review on certiorari was clearly without

legal and factual basis, petitioners counsel should not have even filed

this appeal. It is obvious that the intention was merely to delay the

disposition of the case.

WHEREFORE, the petition is hereby DENIED. The decision and

resolution of the Court of Appeals in CA-G.R. CV No. 49135 are

AFFIRMED.

Costs against petitioner. Same costs against Atty. Benito R. Cuesta I, petitioners counsel, for
filing this flimsy appeal, payable within ten (10) days from finality of this decision.

SO ORDERED.

[G.R. No. 120303. July 24, 1996]

FEDERICO GEMINIANO, MARIA GEMINIANO, ERNESTO GEMINIANO, ASUNCION


GEMINIANO, LARRY GEMINIANO, and MARLYN GEMINIANO, petitioners, vs. COURT
OF APPEALS, DOMINADOR NICOLAS, and MARY A. NICOLAS, respondents.

DECISION

DAVIDE, JR., J.:

This petition for review on certiorari has its origins in Civil Case No. 9214 of Branch 3 of the
Municipal Trial Court in Cities (MTCC) in Dagupan City for unlawful detainer and damages.
The petitioners ask the Court to set aside the decision of the Court of Appeals affirming the
decision of Branch 40 of the Regional Trial Court (RTC) of Dagupan City, which, in turn,
reversed the MTCC; ordered the petitioners to reimburse the private respondents the value of the
house in question and other improvements; and allowed the latter to retain the premises until
reimbursement was made.
It appears that Lot No. 3765-B-1 containing an area of 314 square meters was originally owned
by the petitioners' mother, Paulina Amado vda. de Geminiano. On a 12-square-meter portion of
that lot stood the petitioners' unfinished bungalow, which the petitioners sold in November 1978
to the private respondents for the sum of P6,000.00, with an alleged promise to sell to the latter
that portion of the lot occupied by the house. Subsequently, the petitioners' mother executed a
contract of lease over a 126 square-meter portion of the lot, including that portion on which the
house stood, in favor of the private respondents for P40.00 per month for a period of seven years
commencing on 15 November 1978.xii[1] The private respondents then introduced additional
improvements and registered the house in their names. After the expiration of the lease contract
in November 1985, however, the petitioners' mother refused to accept the monthly rentals.

It turned out that the lot in question was the subject of a suit, which resulted in its acquisition by
one Maria Lee in 1972. In 1982, Lee sold the lot to Lily Salcedo, who in turn sold it in 1984 to
the spouses Agustin and Ester Dionisio.

On 14 February 1992, the Dionisio spouses executed a Deed of Quitclaim over the said property
in favor of the petitioners.xii[2] As such, the lot was registered in the latter's names.xii[3]

On 9 February 1993, the petitioners sent, via registered mail, a letter addressed to private
respondent Mary Nicolas demanding that she vacate the premises and pay the rentals in arrears
within twenty days from notice.xii[4]

Upon failure of the private respondents to heed the demand, the petitioners filed with the MTCC
of Dagupan City a complaint for unlawful detainer and damages.

During the pre-trial conference, the parties agreed to confine the issues to: (1) whether there was
an implied renewal of the lease which expired in November 1985; (2) whether the lessees were
builders in good faith and entitled to reimbursement of the value of the house and improvements;
and (3) the value of the house.

The parties then submitted their respective position papers and the case was heard under the Rule
on Summary Procedure.

On the first issue, the court held that since the petitioners' mother was no longer the owner of the
lot in question at the time the lease contract was executed in 1978, in view of its acquisition by
Maria Lee as early as 1972, there was no lease to speak of, much less, a renewal thereof. And
even if the lease legally existed, its implied renewal was not for the period stipulated in the
original contract, but only on a month-to-month basis pursuant to Article 1687 of the Civil Code.
The refusal of the petitioners' mother to accept the rentals starting January 1986 was then a clear
indication of her desire to terminate the monthly lease. As regards the petitioners' alleged failed
promise to sell to the private respondents the lot occupied by the house, the court held that such
should be litigated in a proper case before the proper forum, not an ejectment case where the
only issue was physical possession of the property.

The court resolved the second issue in the negative, holding that Articles 448 and 546 of the
Civil Code, which allow possessors in good faith to recover the value of improvements and
retain the premises until reimbursed, did not apply to lessees like the private respondents,
because the latter knew that their occupation of the premises would continue only during the life
of the lease. Besides, the rights of the private respondents were specifically governed by Article
1678, which allows reimbursement of up to one-half of the value of the useful improvements, or
removal of the improvements should the lessor refuse to reimburse.

On the third issue, the court deemed as conclusive the private respondents' allegation that the
value of the house and improvements was P180,000.00, there being no controverting evidence
presented.

The trial court thus ordered the private respondents to vacate the premises, pay the petitioners
P40.00 a month as reasonable compensation for their stay thereon from the filing of the
complaint on 14 April 1993 until they vacated, and to pay the sum of P1,000.00 as attorney's
fees, plus costs.xii[5]

On appeal by the private respondents, the RTC of Dagupan City reversed the trial court's
decision and rendered a new judgment: (1) ordering the petitioners to reimburse the private
respondents for the value of the house and improvements in the amount of P180,000.00 and to
pay the latter P10,000.00 as attorney's fees and P2,000.00 as litigation expenses; and (2)
allowing the private respondents to remain in possession of the premises until they were fully
reimbursed for the value of the house.xii[6] It ruled that since the private respondents were
assured by the petitioners that the lot they leased would eventually be sold to them, they could be
considered builders in good faith, and as such, were entitled to reimbursement of the value of the
house and improvements with the right of retention until reimbursement had been made.

On appeal, this time by the petitioners, the Court of Appeals affirmed the decision of the
RTCxii[7] and deniedxii[8] the petitioners' motion for reconsideration. Hence, the present
petition.

The Court is confronted with the issue of which provision of law governs the case at bench:
Article 448 or Article 1678 of the Civil Code? The said articles read as follows:

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

xxx xxx xxx

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.

With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he
may remove the ornamental objects, provided no damage is caused to the principal thing, and the
lessor does not choose to retain them by paying their value at the time the lease is extinguished.

The crux of the said issue then is whether the private respondents are builders in good faith or
mere lessees.

The private respondents claim they are builders in good faith, hence, Article 448 of the Civil
Code should apply. They rely on the lack of title of the petitioners' mother at the time of the
execution of the contract of lease, as well as the alleged assurance made by the petitioners that
the lot on which the house stood would be sold to them.

It has been said that while the right to let property is an incident of title and possession, a person
may be a lessor and occupy the position of a landlord to the tenant although he is not the owner
of the premises let.xii[9] After all, ownership of the property is not being transferred,xii[10] only
the temporary use and enjoyment thereof.xii[11]

In this case, both parties admit that the land in question was originally owned by the petitioners'
mother. The land was allegedly acquired later by one Maria Lee by virtue of an extrajudicial
foreclosure of mortgage. Lee, however, never sought a writ of possession in order that she gain
possession of the property in question.xii[12] The petitioners' mother therefore remained in
possession of the lot.

It is undisputed that the private respondents came into possession of a 126 square-meter portion
of the said lot by virtue of a contract of lease executed by the petitioners' mother in their favor.
The juridical relation between the petitioners' mother as lessor, and the private respondents as
lessees, is therefore well-established, and carries with it a recognition of the lessor's title.xii[13]
The private respondents, as lessees who had undisturbed possession for the entire term under the
lease, are then estopped to deny their landlord's title, or to assert a better title not only in
themselves, but also in some third person while they remain in possession of the leased premises
and until they surrender possession to the landlord.xii[14] This estoppel applies even though the
lessor had no title at the time the relation of lessor and lessee was created,xii[15] and may be
asserted not only by the original lessor, but also by those who succeed to his title.xii[16]

Being mere lessees, the private respondents knew that their occupation of the premises would
continue only for the life of the lease. Plainly, they cannot be considered as possessors nor
builders in good faith.xii[17]

In a plethora of cases,xii[18] this Court has held that Article 448 of the Civil Code, in relation to
Article 546 of the same Code, which allows full reimbursement of useful improvements and
retention of the premises until reimbursement is made, applies only to a possessor in good faith,
i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where
one's only interest is that of a lessee under a rental contract; otherwise, it would always be in the
power of the tenant to "improve" his landlord out of his property.

Anent the alleged promise of the petitioners to sell the lot occupied by the private respondents'
house, the same was not substantiated by convincing evidence. Neither the deed of sale over the
house nor the contract of lease contained an option in favor of the respondent spouses to
purchase the said lot. And even if the petitioners indeed promised to sell, it would not make the
private respondents possessors or builders in good faith so as to be covered by the provisions of
Article 448 of the Civil Code. The latter cannot raise the mere expectancy of ownership of the
aforementioned lot because the alleged promise to sell was not fulfilled nor its existence even
proven. The first thing that the private respondents should have done was to reduce the alleged
promise into writing, because under Article 1403 of the Civil Code, an agreement for the sale of
real property or an interest therein is unenforceable, unless some note or memorandum thereof be
produced. Not having taken any steps in order that the alleged promise to sell may be enforced,
the private respondents cannot bank on that promise and profess any claim nor color of title over
the lot in question.

There is no need to apply by analogy the provisions of Article 448 on indemnity as was done in
Pecson vs. Court of Appeals,xii[19] because the situation sought to be avoided and which would
justify the application of that provision, is not present in this case. Suffice it to say, "a state of
forced co-ownership" would not be created between the petitioners and the private respondents.
For, as correctly pointed out by the petitioners, the rights of the private respondents as lessees are
governed by Article 1678 of the Civil Code which allows reimbursement to the extent of one-
half of the value of the useful improvements.

It must be stressed, however, that the right to indemnity under Article 1678 of the Civil Code
arises only if the lessor opts to appropriate the improvements. Since the petitioners refused to
exercise that option,xii[20] the private respondents cannot compel them to reimburse the one-
half value of the house and improvements. Neither can they retain the premises until
reimbursement is made. The private respondents' sole right then is to remove the improvements
without causing any more impairment upon the property leased than is necessary.xii[21]

WHEREFORE, judgment is hereby rendered GRANTING the instant petition; REVERSING


and SETTING ASIDE the decision of the Court of Appeals of 27 January 1995 in CA-G.R. SP
No. 34337; and REINSTATING the decision of Branch 3 of the Municipal Trial Court in Cities
of Dagupan City in Civil Case No. 9214 entitled "Federico Geminiano, et al. vs. Dominador
Nicolas, et al."

Costs against the private respondents.

SO ORDERED.

GEMINIANO v. CA
Lessor in good faith and Builders in Good faith are not synonymous. Article 1678 may apply to
the formers case and Art 448 may apply to the latters case. If a person knew that his stay would
likely end or that he knew somehow that he is not the owner of the land then he is not a BPS in
good faith.

FACTS:

The lot in question was originally owned by the mother of the petitioner. Petitioner sold their
unfinished bungalow to the respondents for P6,000, with a promise to sell the lot to the latter.
The property was later leased to the respondents for 7 years starting November 1978 for P40 a
month as evidenced by their written lease contract. The respondents built their house and
introduced some improvements in the lot. In 1985 petitioners mother refused receiving monthly
rentals. It turned out that the lot in question was subject to litigation which resulted to its
acquisition by Maria Lee which was sold to Salcedo, who further sold to Dionisio spouses. The
property eventually came back to the petitioner when the Dinisio spouses executed a Deed of
Quitclaim over the said property in favor of the petitioners. As such, the lot was registered in the
latters names. (petitioners never lost possession of the land because Lee and company never
issued a writ of possession against them).

In 1993, petitioners wrote a letter to respondents demanding them to vacate the premises and
when the latter refused, petitioners filed in court. Respondents claim that they should be entitled
to buy the land because of the promise of the petitioners to sell them the land and because they
were builders in Good faith. The courts now are deciding which one to use: Art. 448 regarding
builders and land owners in good faith or Art. 1678 regarding lessee in good faith who can be
reimbursed half of the expenses of the improvements if the LO chooses to appropriate them and
that such lessee have the right to retain in the premises until fully reimbursed.

ISSUES:

1) Whether or not the respondents were builders in Good faith?


2) Whether Art 448 or 1678 should be applied?

RULING:

1) No, they were not builders in good faith. The respondents knew that their stay would end after
the lease contract expires. They cant bank on the promise, which was not in writing, of the
petitioners that the latter will sell the land to them. According to 1403, an agreement for the sale
of real property or an interest therein is unenforceable, unless some note or memorandum thereof
be produced. Other than the alleged promise by petitioner, respondents had no other evidence to
prove their claim.
2) They are mere lessees in good faith; therefore Art 1678 may apply if the lessor chooses to
appropriate the improvements. But since the petitioners refused to exercise that option, the
private respondents cant compel them to reimburse the one-half value of the house and
improvements. Neither can they retain the premises until reimbursement is made. The private
respondents sole right then is to remove the improvements without causing any more
impairment upon the property leased than is necessary.

Frederico Geminiano vs Court of Appeals

Gr 120303

July 24, 1996

Facts:

On a 12 square meter portion of a lot originally owned by petitioners mother, Paulina Amando
vda. de Geminiano, stood an unfinished bungalow sold by the petitioner to Dominador and Mary
Nicolas(private respondents) with a verbal promise that the petitioner would sell to the
respondents the portion of the land. Later on, a lease agreement was entered into by Vda. De
Geminano and the respondents over a portion of the lot including the portion on which the
bungalow was built.

The respondents introduced improvements therein and registered the same. Upon the expiration
of their lease, vda. de Geminiano refused to accept any more rentals. In a separate suit, the lot
was acquired by Maria Lee, who later on sold the same to Lily Salcedo, who in turn sold it to
Spouses Agustin and Ester Dionisio.

On February 14, 1992, the Dionisio Spouses executed a Deed of Quitclaim over the property in
favor of the petitioners. On February 9, 1993, petitioners demanded that the respondent vacate
the property and pay the monthly rentals unpaid.

Due to the respondents failure to comply, a complaint for unlawful detainer was filed with the
MTCC. The MTCC ruled that Artcile 448 and 546 of the Civil Code does not apply to the case at
bar where the builder is a lessee because the latter fully knows that his possession of the
property would only continue during the life of the lease. In sum, the MTCC ordered the
respondent to vacate the premises.

On appeal, the RTC reversed the decision holding that the respondents are entitled to the
reimbursement of the value of the house and improvements and that they are allowed to retain
possession until the reimbursement is fully made. The RTCs ruling was based on the assurance
made by the petitioner to the respondent that the lot will eventually be sold to them. The CA
affirmed.

Issue:
Whether or not the respondents are builders in good faith.

Decision:

The Court ruled the the respondents are not builders in bad faith. Being mere lessees, the private
respondents well knew that their occupation was temporary. Article 448 of the Civil Code, in
relation to Article 546, allows the retention of the premises until reimbursement is made applies
only to possessors in good faith.

The alleged promise of the petitioners to sell the lot was not supported by sufficient evidence.
Such promise nor any option to buy or buy, was not provided in the lease agreement between the
parties. Even if there was in fact a promise to sell, the respondents still could not be held as
possessors or builders in good faith. The mere expectancy of ownership of the lot cannot be
raised the respondents as the promise was not actually fulfilled nor was it sufficiently proven.
SULO SA NAYON, INC. and/or G.R. No. 170923

PHILIPPINE VILLAGE HOTEL, INC. and JOSE


MARCEL E. PANLILIO,
Present:
Petitioners, PUNO, C.J., Chairperson,

CARPIO,

CORONA,

AZCUNA, and

- versus - LEONARDO-DE CASTRO, JJ.

Promulgated:

January 20, 2009

NAYONG PILIPINO FOUNDATION,

Respondent.

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

DECISION

PUNO, C.J.:

On appeal are the Court of Appeals (CAs) October 4, 2005 Decisionxii[1] in


CA-G.R. SP No. 74631 and December 22, 2005 Resolution,xii[2] reversing the
November 29, 2002 Decisionxii[3] of the Regional Trial Court (RTC) of Pasay City in
Civil Case No. 02-0133. The RTC modified the Decisionxii[4] of the Metropolitan
Trial Court (MeTC) of Pasay City which ruled against petitioners and ordered them
to vacate the premises and pay their arrears. The RTC declared petitioners as
builders in good faith and upheld their right to indemnity.

The facts are as follows:

Respondent Nayong Pilipino Foundation, a government-owned and


controlled corporation, is the owner of a parcel of land in Pasay City, known as the
Nayong Pilipino Complex. Petitioner Philippine Village Hotel, Inc. (PVHI), formerly
called Sulo sa Nayon, Inc., is a domestic corporation duly organized and existing
under Philippine laws. Petitioner Jose Marcel E. Panlilio is its Senior Executive Vice
President.

On June 1, 1975, respondent leased a portion of the Nayong Pilipino


Complex, consisting of 36,289 square meters, to petitioner Sulo sa Nayon, Inc. for
the construction and operation of a hotel building, to be known as the Philippine
Village Hotel. The lease was for an initial period of 21 years, or until May 1996. It is
renewable for a period of 25 years under the same terms and conditions upon due
notice in writing to respondent of the intention to renew at least 6 months before
its expiration. Thus, on March 7, 1995, petitioners sent respondent a letter
notifying the latter of their intention to renew the contract for another 25 years.
On July 4, 1995, the parties executed a Voluntary Addendum to the Lease
Agreement. The addendum was signed by petitioner Jose Marcel E. Panlilio in his
official capacity as Senior Executive Vice President of the PVHI and by Chairman
Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to the renewal of
the contract for another 25 years, or until 2021. Under the new agreement,
petitioner PVHI was bound to pay the monthly rental on a per square meter basis
at the rate of P20.00 per square meter, which shall be subject to an increase of 20%
at the end of every 3-year period. At the time of the renewal of the lease contract,
the monthly rental amounted to P725,780.00.

Beginning January 2001, petitioners defaulted in the payment of their


monthly rental. Respondent repeatedly demanded petitioners to pay the arrears
and vacate the premises. The last demand letter was sent on March 26, 2001.

On September 5, 2001, respondent filed a complaint for unlawful detainer


before the MeTC of Pasay City. The complaint was docketed as Civil Case No. 708-
01. Respondent computed the arrears of petitioners in the amount of twenty-six
million one hundred eighty-three thousand two hundred twenty-five pesos and
fourteen centavos (P26,183,225.14), as of July 31, 2001.

On February 26, 2002, the MeTC rendered its decision in favor of respondent.
It ruled, thus:

. . . . The court is convinced by the evidence that indeed, defendants defaulted in


the payment of their rentals. It is basic that the lessee is obliged to pay the price of the
lease according to the terms stipulated (Art. 1657, Civil Code). Upon the failure of the
lessee to pay the stipulated rentals, the lessor may eject (sic) and treat the lease as
rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan v. Tiglao, 53 Phil. 1). For
non-payment of rentals, the lessor may rescind the lease, recover the back rentals and
recover possession of the leased premises. . .

xxx

. . . . Improvements made by a lessee such as the defendants herein on leased


premises are not valid reasons for their retention thereof. The Supreme Court has
occasion to address a similar issue in which it ruled that: The fact that petitioners allegedly
made repairs on the premises in question is not a reason for them to retain the possession
of the premises. There is no provision of law which grants the lessee a right of retention
over the leased premises on that ground. Article 448 of the Civil Code, in relation to Article
546, which provides for full reimbursement of useful improvements and retention of the
premises until reimbursement is made, applies only to a possessor in good faith, i.e., one
who builds on a land in the belief that he is the owner thereof. This right of retention does
not apply to a mere lessee, like the petitioners, otherwise, it would always be in his power
to improve his landlord out of the latters property (Jose L. Chua and Co Sio Eng vs. Court
of Appeals and Ramon Ibarra, G.R. No. 109840, January 21, 1999).

Although the Contract of Lease stipulates that the building and all the
improvements in the leased premises belong to the defendants herein, such will not
defeat the right of the plaintiff to its property as the defendants failed to pay their rentals
in violation of the terms of the contract. At most, defendants can only invoke [their] right
under Article 1678 of the New Civil Code which grants them the right to be reimbursed
one-half of the value of the building upon the termination of the lease, or, in the
alternative, to remove the improvements if the lessor refuses to make reimbursement.

The dispositive portion of the decision reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of


Nayong Pilipino Foundation, and against the defendant Philippine Village Hotel, Inc[.], and
all persons claiming rights under it, ordering the latter to:

1. VACATE the subject premises and surrender possession thereof to


plaintiff;

2. PAY plaintiff its rental arrearages in the sum of TWENTY SIX MILLION ONE
HUNDRED EIGHTY THREE THOUSAND TWO HUNDRED TWENTY FIVE
PESOS AND 14/100 (P26,183,225.14) incurred as of July 31, 2001;

3. PAY plaintiff the sum of SEVEN HUNDRED TWENTY FIVE THOUSAND


SEVEN HUNDRED EIGHTY PESOS (P725,780.00) per month starting from
August 2001 and every month thereafter by way of reasonable
compensation for the use and occupation of the premises;

4. PAY plaintiff the sum of FIFTY THOUSAND PESOS (P50,000.00) by way of


attorneys fees[; and]

5. PAY the costs of suit.

The complaint against defendant Jose Marcel E. Panlilio is hereby dismissed for
lack of cause of action. The said defendants counterclaim however is likewise dismissed
as the complaint does not appear to be frivolous or maliciously instituted.
SO ORDERED.xii[5]

Petitioners appealed to the RTC which modified the ruling of the MeTC. It
held that:

. . . it is clear and undisputed that appellants-lessees were expressly required to


construct a first-class hotel with complete facilities. The appellants were also
unequivocally declared in the Lease Agreement as the owner of the improvements so
constructed. They were even explicitly allowed to use the improvements and building as
security or collateral on loans and credit accommodations that the Lessee may secure for
the purpose of financing the construction of the building and other improvements
(Section 2; pars. A to B, Lease Agreement). Moreover, a time frame was setforth (sic) with
respect to the duration of the lease initially for 21 years and renewable for another 25
years in order to enable the appellants-lessees to recoup their huge money investments
relative to the construction and maintenance of the improvements.

xxx

Considering therefore, the elements of permanency of the construction and


substantial value of the improvements as well as the undispute[d] ownership over the
land improvements, these, immensely engender the application of Art. 448 of the Civil
Code. The only remaining and most crucial issue to be resolved is whether or not the
appellants as builders have acted in good faith in order for Art. 448 in relation to Art. 546
of the Civil Code may apply with respect to their rights over improvements.

xxx

. . . it is undeniable that the improvement of the hotel building of appellants (sic)


PVHI was constructed with the written consent and knowledge of appellee. In fact, it was
precisely the primary purpose for which they entered into an agreement. Thus, it could
not be denied that appellants were builders in good faith.

Accordingly, and pursuant to Article 448 in relation to Art. 546 of the Civil Code,
plaintiff-appellee has the sole option or choice, either to appropriate the building, upon
payment of proper indemnity consonant to Art. 546 or compel the appellants to purchase
the land whereon the building was erected. Until such time that plaintiff-appellee has
elected an option or choice, it has no right of removal or demolition against appellants
unless after having selected a compulsory sale, appellants fail to pay for the land (Ignacio
vs. Hilario; 76 Phil. 605). This, however, is without prejudice from the parties agreeing to
adjust their rights in some other way as they may mutually deem fit and proper.

The dispositive portion of the decision of the RTC reads as follows:


WHEREFORE, and in view of the foregoing, judgment is hereby rendered
modifying the decision of [the] MTC, Branch 45 of Pasay City rendered on February 26,
2002 as follows:

1. Ordering plaintiff-appellee to submit within thirty (30) days from receipt of a


copy of this decision a written manifestation of the option or choice it
selected, i.e., to appropriate the improvements upon payment of proper
indemnity or compulsory sale of the land whereon the hotel building of PVHI
and related improvements or facilities were erected;

2. Directing the plaintiff-appellee to desist and/or refrain from doing acts in the
furtherance or exercise of its rights and demolition against appellants unless
and after having selected the option of compulsory sale and appellants failed
to pay [and] purchase the land within a reasonable time or at such time as
this court will direct;

3. Ordering defendants-appellants to pay plaintiff-appellee [their] arrears in


rent incurred as of July 31, 2001 in the amount of P26,183,225.14;

4. Ordering defendants-appellants to pay to plaintiff-appellee the unpaid


monthly rentals for the use and occupation of the premises pending this
appeal from July to November 2002 only at P725,780.00 per month;

5. The fourth and fifth directives in the dispositive portion of the trial courts
decision including that the last paragraph thereof JME Panlilios complaint is
hereby affirmed;

6. The parties are directed to adjust their respective rights in the interest of
justice as they may deem fit and proper if necessary.

SO ORDERED.xii[6]

Respondent appealed to the CA which held that the RTC erroneously applied
the rules on accession, as found in Articles 448 and 546 of the Civil Code when it
held that petitioners were builders in good faith and, thus, have the right to
indemnity. The CA held:

By and large, respondents are admittedly mere lessees of the subject premises
and as such, cannot validly claim that they are builders in good faith in order to solicit the
application of Articles 448 and 546 of the Civil Code in their favor. As it is, it is glaring error
on the part of the RTC to apply the aforesaid legal provisions on the supposition that the
improvements, which are of substantial value, had been introduced on the leased
premises with the permission of the petitioner. To grant the respondents the right of
retention and reimbursement as builders in good faith merely because of the valuable
and substantial improvements that they introduced to the leased premises plainly
contravenes the law and settled jurisprudential doctrines and would, as stated, allow the
lessee to easily improve the lessor out of its property.

. . . . Introduction of valuable improvements on the leased premises does not strip


the petitioner of its right to avail of recourses under the law and the lease contract itself
in case of breach thereof. Neither does it deprive the petitioner of its right under Article
1678 to exercise its option to acquire the improvements or to let the respondents remove
the same.

Petitioners Motion for Reconsideration was denied.

Hence, this appeal.xii[7]

Petitioners assign the following errors:

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR


IN NOT HOLDING THAT PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE
SUBSTANTIAL AND VALUABLE IMPROVEMENTS WHICH THEY HAD INTRODUCED ON THE
SUBJECT PROPERTY, THUS COMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL
CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE, INSTEAD OF ARTICLE 1678 OF
THE CIVIL CODE.

II

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS REVERSIBLE


ERROR WHEN IT DISREGARDED THE FACT THAT THE LEASE CONTRACT GOVERNS THE
RELATIONSHIP OF THE PARTIES AND CONSEQUENTLY THE PARTIES MAY BE CONSIDERED
TO HAVE IMPLIEDLY WAIVED THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE TO
THE INSTANT CASE.

III

ASSUMING ARGUENDO THAT THE PETITIONERS ARE NOT BUILDERS IN GOOD


FAITH, THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR
WHEN IT OVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN BAD FAITH WHEN
IT DID NOT HONOR AND INSTEAD BREACHED THE LEASE CONTRACT BETWEEN THE
PARTIES, THUS BOTH PARTIES ACTED AS IF THEY ARE IN GOOD FAITH.
IV

TO SANCTION THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE INSTEAD


OF ARTICLE 448 OF THE CIVIL CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE
WOULD NOT ONLY WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY TO THE RIGHTS AND
INTERESTS OF PETITIONER PHILIPPINE VILLAGE HOTEL, INC. WHILE RESPONDENT
NAYONG PILIPINO FOUNDATION, IN COMPARISON THERETO, WOULD SUFFER ONLY
SLIGHT OR INCONSEQUENTIAL INJURY OR LOSS, BUT ALSO WOULD CONSTITUTE UNJUST
ENRICHMENT ON THE PART OF RESPONDENT AT GREAT EXPENSE AND GRAVE PREJUDICE
OF PETITIONERS.

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE REVERSIBLE ERROR


IN NOT HOLDING THAT THE COURTS A QUO DID NOT ACQUIRE JURISDICTION OVER THE
UNLAWFUL DETAINER CASE FOR NON-COMPLIANCE WITH JURISDICTIONAL
REQUIREMENTS DUE TO THE ABSENCE OF A NOTICE TO VACATE UPON PETITIONERS.xii[8]

First, we settle the issue of jurisdiction. Petitioners argue that the MeTC did
not acquire jurisdiction to hear and decide the ejectment case because they never
received any demand from respondent to pay rentals and vacate the premises,
since such demand is a jurisdictional requisite. We reiterate the ruling of the MeTC,
RTC and CA. Contrary to the claim of petitioners, documentary evidence proved
that a demand letter dated March 26, 2001 was sent by respondent through
registered mail to petitioners, requesting them to pay the rental arrears or else it
will be constrained to file the appropriate legal action and possess the leased
premises.

Further, petitioners argument that the demand letter is inadequate because


it contained no demand to vacate the leased premises does not persuade. We have
ruled that:

. . . . The word vacate is not a talismanic word that must be employed in all
notices. The alternatives in this case are clear cut. The tenants must pay rentals which are
fixed and which became payable in the past, failing which they must move out. There can
be no other interpretation of the notice given to them. Hence, when the petitioners
demanded that either he pays P18,000 in five days or a case of ejectment would be filed
against him, he was placed on notice to move out if he does not pay. There was, in effect,
a notice or demand to vacate.xii[9]

In the case at bar, the language of the demand letter is plain and simple:
respondent demanded payment of the rental arrears amounting to P26,183,225.14
within ten days from receipt by petitioners, or respondent will be constrained to
file an appropriate legal action against petitioners to recover the said amount. The
demand letter further stated that respondent will possess the leased premises in
case of petitioners failure to pay the rental arrears within ten days. Thus, it is clear
that the demand letter is intended as a notice to petitioners to pay the rental
arrears, and a notice to vacate the premises in case of failure of petitioners to
perform their obligation to pay.

Second, we resolve the main issue of whether the rules on accession, as


found in Articles 448 and 546 of the Civil Code, apply to the instant case.

Article 448 and Article 546 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.
Art. 546. Necessary expenses shall be refunded to every possessor; but only
the possessor in good faith may retain the thing until he has been reimbursed
therefor.
Useful expenses shall be refunded only to the possessor in good faith with the
same right of retention, the person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying the increase in value which
the thing may have acquired by reason thereof.

We uphold the ruling of the CA.

The late Senator Arturo M. Tolentino, a leading expert in Civil Law, explains:

This article [Article 448] is manifestly intended to apply only to a case where one
builds, plants, or sows on land in which he believes himself to have a claim of title,xii[10]
and not to lands where the only interest of the builder, planter or sower is that of a holder,
such as a tenant.xii[11]

In the case at bar, petitioners have no adverse claim or title to the land. In
fact, as lessees, they recognize that the respondent is the owner of the land. What
petitioners insist is that because of the improvements, which are of substantial
value, that they have introduced on the leased premises with the permission of
respondent, they should be considered builders in good faith who have the right to
retain possession of the property until reimbursement by respondent.

We affirm the ruling of the CA that introduction of valuable improvements


on the leased premises does not give the petitioners the right of retention and
reimbursement which rightfully belongs to a builder in good faith. Otherwise, such
a situation would allow the lessee to easily improve the lessor out of its property.
We reiterate the doctrine that a lessee is neither a builder in good faith nor in bad
faithxii[12] that would call for the application of Articles 448 and 546 of the Civil
Code. His rights are governed by Article 1678 of the Civil Code, which reads:
Art. 1678. If the lessee makes, in good faith, useful improvements which
are suitable to the use for which the lease is intended, without altering the form or
substance of the property leased, the lessor upon the termination of the lease shall
pay the lessee one-half of the value of the improvements at that time. Should the
lessor refuse to reimburse said amount, the lessee may remove the improvements,
even though the principal thing may suffer damage thereby. He shall not, however,
cause any more impairment upon the property leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no damage is
caused to the principal thing, and the lessor does not choose to retain them by paying
their value at the time the lease is extinguished.

Under Article 1678, the lessor has the option of paying one-half of the value of the
improvements which the lessee made in good faith, which are suitable for the use
for which the lease is intended, and which have not altered the form and substance
of the land. On the other hand, the lessee may remove the improvements should
the lessor refuse to reimburse.

Petitioners argue that to apply Article 1678 to their case would result to
sheer injustice, as it would amount to giving away the hotel and its other structures
at virtually bargain prices. They allege that the value of the hotel and its
appurtenant facilities amounts to more than two billion pesos, while the monetary
claim of respondent against them only amounts to a little more than twenty six-
million pesos. Thus, they contend that it is the lease contract that governs the
relationship of the parties, and consequently, the parties may be considered to
have impliedly waived the application of Article 1678.

We cannot sustain this line of argument by petitioners. Basic is the doctrine


that laws are deemed incorporated in each and every contract. Existing laws always
form part of any contract. Further, the lease contract in
the case at bar shows no special kind of agreement between the parties as to how
to proceed in cases of default or breach of the contract. Petitioners maintain that
the lease contract contains a default provision which does not give respondent the
right to appropriate the improvements nor evict petitioners in cases of cancellation
or termination of the contract due to default or breach of its terms. They cite
paragraph 10 of the lease contract, which provides that:

10. DEFAULT. - . . . Default shall automatically take place upon the failure of the
LESSEE to pay or perform its obligation during the time fixed herein for such obligations
without necessity of demand, or, if no time is fixed, after 90 days from the receipt of
notice or demand from the LESSOR. . .

In case of cancellation or termination of this contract due to the default or breach


of its terms, the LESSEE will pay all reasonable attorneys fees, costs and expenses of
litigation that may be incurred by the LESSOR in enforcing its rights under this contract or
any of its provisions, as well as all unpaid rents, fees, charges, taxes, assessment and
others which the LESSOR may be entitled to.

Petitioners assert that respondent committed a breach of the lease contract when it
filed the ejectment suit against them. However, we find nothing in the above quoted
provision that prohibits respondent to proceed the way it did in enforcing its rights
as lessor. It can rightfully file for ejectment to evict petitioners, as it did before the
court a quo.

IN VIEW WHEREOF, petitioners appeal is DENIED. The October 4, 2005


Decision of the Court of Appeals in CA-G.R. SP No. 74631 and its December 22,
2005 Resolution are AFFIRMED. Costs against petitioners.

SO ORDERED.
Sulo sa Nayon Inc vs Nayong Pilipino Foundation

Facts: On 1975, Respondent leased to petitioner Sulo sa Nayon a portion of land for the construction
and operation of a hotel building for an initial period of 21 years until May 1996 and renewable for 25
years upon due notice in writing to respondent at least 6 months prior of the expiration of the lease. On
March 1995, petitioners sent respondent a letter notifying the latters intention to renew the
contract fro another 25 years and that they executed a Voluntary Addendum to the lease agreement.
Beginning 2001, petitioners defaulted in the payment of their monthly rental so respondent demanded
petitioner to pay. On September 2001, respondent filed a complaint for unlawful detainer. Petitioners
insist that they should be considered builders in good faith who have the right of retention until
reimbursement by respondent is made and they also argue that to apply Art 1678 to their case would
result to sheer injustice, as it would amount to giving away the hotel and its other structures at virtually
bargain prices.

Issue: Is petitioners a builder in good faith?

Ruling: No. In the case at bar, petitioners have no adverse claim or title to the land. In fact, as lessees,
they recognize that the respondent is the owner of the land. What petitioners insist is that because of
the improvements, which are of substantial value, that they have introduced on the leased premises
with the permission of respondent, they should be considered builders in good faith who have the right
to retain possession of the property until reimbursement by respondent. We affirm the ruling of the CA
that introduction of valuable improvements on the leased premises does not give the petitioners the
right of retention and reimbursement which rightfully belongs to a builder in good faith. Otherwise, such
a situation would allow the lessee to easily improve the lessor out of its property. His right are
governed by Art 1678 of the Civil Code.

SERAFIN CHENG, G.R. No. 167017

Petitioner,

Present:

PUNO, C.J., Chairperson,

CARPIO,

-versus- CORONA,
LEONARDO-DE CASTRO and

BERSAMIN, JJ.

SPOUSES VITTORIO and

MA. HELEN DONINI,

Respondents. Promulgated:

June 22, 2009

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

DECISION

CORONA, J.:

The subject of this petition is an oral lease agreement that went sour. Petitioner Serafin
Cheng agreed to lease his property located at 479 Shaw Blvd., Mandaluyong City to respondents,
Spouses Vittorio and Ma. Helen Donini, who intended to put up a restaurant thereon. They
agreed to a monthly rental of P17,000, to commence in December 1990.

Bearing an Interim Grant of Authority executed by petitioner, respondents proceeded to


introduce improvements in the premises. The authority read:

I, Serafin Cheng, of legal age and with office address at Room 310 Federation Center
Building Muelle de Binondo, Manila, owner of the building/structure located at 479 Shaw
Boulevard, Mandaluyong, Metro Manila, pursuant to a lease agreement now being finalized and
to take effect December 1, 1990, hereby grants VITTORIO DONINI (Prospective Lessee) and all
those acting under his orders to make all the necessary improvements on the prospective leased
premises located at 479 Shaw Blvd., Mandaluyong, Metro Manila, and for this purpose, to enter
said premises and perform, all such works and activities to make the leased premises operational
as a restaurant or similar purpose.

Manila, 31 October 1990.xvi[1]

However, before respondents business could take off and before any final lease
agreement could be drafted and signed, the parties began to have serious disagreements
regarding its terms and conditions. Petitioner thus wrote respondents on January 28, 1991,
demanding payment of the deposit and rentals, and signifying that he had no intention to
continue with the agreement should respondents fail to pay. Respondents, however, ignoring
petitioners demand, continued to occupy the premises until April 17, 1991 when their caretaker
voluntarily surrendered the property to petitioner.

Respondents then filed an action for specific performance and damages with a prayer for
the issuance of a writ of preliminary injunction in the Regional Trial Court (RTC) of Pasig City,
Branch 67, docketed as Civil Case No. 60769. Respondents prayed that petitioner be ordered to
execute a written lease contract for five years, deducting from the deposit and rent the cost of
repairs in the amount of P445,000, or to order petitioner to return their investment in the amount
of P964,000 and compensate for their unearned net income of P200,000 with interest, plus
attorneys fees.xvi[2]

Petitioner, in his answer, denied respondents claims and sought the award of moral and
exemplary damages, and attorneys fees.xvi[3]

After trial, the RTC rendered its decision in favor of petitioner, the dispositive portion of
which provided:

WHEREFORE, in view of all the foregoing, this Court finds the preponderance of
evidence in favor of the [petitioner] and hereby renders judgment as follows:
1. The Complaint is dismissed.

2. On the counterclaim, [respondents] are ordered, jointly and severally, to pay the
[petitioner] P500,000.00 as moral damages; P100,000.00 as exemplary damages; and P50,000.00
as attorneys fees.
3. [Respondents] are likewise ordered to pay the costs.
SO ORDERED.xvi[4]
Respondents appealed to the Court of Appeals (CA) which, in its decisionxvi[5] dated
March 31, 2004, recalled and set aside the RTC decision, and entered a new one ordering
petitioner to pay respondents the amount of P964,000 representing the latters expenses incurred
for the repairs and improvements of the premises.xvi[6]

Petitioner filed a motion for reconsideration on the ground that the award of
reimbursement had no factual and legal bases,xvi[7] but this was denied by the CA in its
resolution dated February 21, 2005.xvi[8]

Hence, this petition for certiorari under Rule 45 of the Rules of Court, with petitioner
arguing that:

THE COURT OF APPEALS DECIDED THIS CASE NOT IN ACCORD WITH LAW AND
WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT. PUT OTHERWISE:
A. BY ORDERING PETITIONER TO REIMBURSE RESPONDENTS
THE FULL VALUE OF EXPENSES FOR THEIR ALLEGED REPAIRS
AND IMPROVEMENTS OF THE LEASED PREMISES, THE COURT
OF APPEALS ERRONEOUSLY CONSIDERED RESPONDENTS NOT
AS MERE LESSEES BUT POSSESSORS IN GOOD FAITH UNDER
ARTICLES 448 AND 546 OF THE CIVIL CODE.
B. THE COURT OF APPEALS DECIDED THIS CASE NOT IN
ACCORD WITH ARTICLE 1678 OF THE CIVIL CODE WHICH
GIVES THE LESSOR THE OPTION TO REIMBURSE THE LESSEE
ONE-HALF OF THE VALUE OF USEFUL IMPROVEMENTS OR, IF
HE DOES NOT WANT TO, ALLOW THE LESSEE TO REMOVE THE
IMPROVEMENTS.
C. LIKEWISE, BY ORDERING PETITIONER TO REIMBURSE THE
VALUE OF ORNAMENTAL EXPENSES, THE COURT OF APPEALS
CONTRAVENED THE SECOND PARAGRAPH OF ARTICLE 1678.
D. THE COURT OF APPEALS ERRED IN APPLYING THE
PRINCIPLE OF EQUITY IN FAVOR OF THE RESPONDENTS.
E. THE COURT OF APPEALS ERRED IN NOT AFFIRMING THE
DECISION OF THE TRIAL COURT AWARDING DAMAGES TO
PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY ERRED AND/OR
GRAVELY ABUSED ITS DISCRETION IN FIXING THE AMOUNT
OF P961,000.00xvi[9] CONTRARY TO RESPONDENTS OWN
REPRESENTATION AND EVIDENCE.xvi[10]
Respondents were required to file their comment on the petition but their counsel
manifested that he could not file one since his clients whereabouts were unknown to him.xvi[11]
Counsel also urged the Court to render a decision on the basis of the available records and
documents.xvi[12] Per resolution dated August 30, 2006, copies of the resolutions requiring
respondents to file their comment were sent to their last known address and were deemed served.
The order requiring respondents counsel to file a comment in their behalf was reiterated.xvi[13]

In their comment, respondents argued that they were possessors in good faith, hence,
Articles 448 and 546 of the Civil Code applied and they should be indemnified for the
improvements introduced on the leased premises. Respondents bewailed the fact that petitioner
was going to benefit from these improvements, the cost of which amounted to P1.409 million, in
contrast to respondents rental/deposit obligation amounting to only P34,000. Respondents also
contended that petitioners rescission of the agreement was in bad faith and they were thus
entitled to a refund.xvi[14]

In settling the appeal before it, the CA made the following findings and conclusions:

1. there was no agreement that the deposit and rentals accruing to petitioner would be
deducted from the costs of repairs and renovation incurred by respondents;
2. respondents committed a breach in the terms and conditions of the agreement when
they failed to pay the rentals;
3. there was no valid rescission on the part of petitioner;
4. respondents were entitled to reimbursement for the cost of improvements under the
principle of equity and unjust enrichment; and
5. the award of damages in favor of petitioner had no basis in fact and law.xvi[15]

As the correctness of the CAs ruling regarding (1) the lack of agreement on the deposit
and rentals; (2) respondents breach of the terms of the verbal agreement and (3) the lack of valid
rescission by petitioner was never put in issue, this decision will be confined only to the issues
raised by petitioner, that is, the award of reimbursement and the deletion of the award of
damages. It need not be stressed that an appellate court will not review errors that are not
assigned before it, save in certain exceptional circumstances and those affecting jurisdiction over
the subject matter as well as plain and clerical errors, none of which is present in this
case.xvi[16]

Remarkably, in ruling that respondents were entitled to reimbursement, the CA did not
provide any statutory basis therefor and instead applied the principles of equity and unjust
enrichment, stating:
It would be inequitable to allow the defendant-appellee, as owner of the
property to enjoy perpetually the improvements introduced by the plaintiffs-
appellants without reimbursing them for the value of the said improvements.
Well-settled is the rule that no one shall be unjustly enriched or benefitted at the
expense of another.xvi[17]

Petitioner, however, correctly argued that the principle of equity did not apply in this
case. Equity, which has been aptly described as "justice outside legality," is applied only in the
absence of, and never against, statutory law or judicial rules of procedure.xvi[18] Positive rules
prevail over all abstract arguments based on equity contra legem.xvi[19] Neither is the principle
of unjust enrichment applicable since petitioner (who was to benefit from it) had a valid
claim.xvi[20]

The relationship between petitioner and respondents was explicitly governed by the Civil
Code provisions on lease, which clearly provide for the rule on reimbursement of useful
improvements and ornamental expenses after termination of a lease agreement. Article 1678
states:

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.

With regard to ornamental expenses, the lessee shall not be entitled to any
reimbursement, but he may remove the ornamental objects, provided no damage is caused to the
principal thing, and the lessor does not choose to retain them by paying their value at the time the
lease is extinguished.

Article 1678 modified the (old) Civil Code provision on reimbursement where the lessee
had no right at all to be reimbursed for the improvements introduced on the leased property, he
being entitled merely to the rights of a usufructuary the right of removal and set-off but not to
reimbursement.xvi[21]

Contrary to respondents position, Articles 448 and 546 of the Civil Code did not apply.
Under these provisions, to be entitled to reimbursement for useful improvements introduced on
the property, respondents must be considered builders in good faith. Articles 448 and 546, which
allow full reimbursement of useful improvements and retention of the premises until
reimbursement is made, apply only to a possessor in good faith or one who builds on land in the
belief that he is the owner thereof. A builder in good faith is one who is unaware of any flaw in
his title to the land at the time he builds on it. xvi[22]

But respondents cannot be considered possessors or builders in good faith. As early as


1956, in Lopez v. Philippine & Eastern Trading Co., Inc.,xvi[23] the Court clarified that a lessee
is neither a builder nor a possessor in good faith

x x x This principle of possessor in good faith naturally cannot apply to a lessee because
as such lessee he knows that he is not the owner of the leased property. Neither can he deny the
ownership or title of his lessor. Knowing that his occupation of the premises continues only
during the life of the lease contract and that he must vacate the property upon termination of the
lease or upon the violation by him of any of its terms, he introduces improvements on said
property at his own risk in the sense that he cannot recover their value from the lessor,
much less retain the premises until such reimbursement. (Emphasis supplied)

Being mere lessees, respondents knew that their right to occupy the premises existed only
for the duration of the lease.xvi[24] Cortez v. Manimboxvi[25] went further to state that:

If the rule were otherwise, it would always be in the power of the tenant to
improve his landlord out of his property.

These principles have been consistently adhered to and applied by the Court in many
cases.xvi[26]

Under Article 1678 of the Civil Code, the lessor has the primary right (or the first move)
to reimburse the lessee for 50% of the value of the improvements at the end of the lease. If the
lessor refuses to make the reimbursement, the subsidiary right of the lessee to remove the
improvements, even though the principal thing suffers damage, arises. Consequently, on
petitioner rests the primary option to pay for one-half of the value of the useful improvements. It
is only when petitioner as lessor refuses to make the reimbursement that respondents, as lessees,
may remove the improvements. Should petitioner refuse to exercise the option of paying for one-
half of the value of the improvements, he cannot be compelled to do so. It then lies on
respondents to insist on their subsidiary right to remove the improvements even though the
principal thing suffers damage but without causing any more impairment on the property leased
than is necessary.

As regards the ornamental expenses, respondents are not entitled to reimbursement.


Article 1678 gives respondents the right to remove the ornaments without damage to the
principal thing. But if petitioner appropriates and retains said ornaments, he shall pay for their
value upon the termination of the lease.

The fact that petitioner will benefit from the improvements introduced by respondents is
beside the point. In the first place, respondents introduced these improvements at their own risk
as lessees. Respondents were not forced or obliged to splurge on the leased premises as it was a
matter of necessity as well as a business strategy.xvi[27] In fact, had respondents only complied
with their obligation to pay the deposit/rent, there would have been no dispute to begin with. If
they were able to shell out more than a million pesos to improve the property, the measly
P34,000 deposit demanded by petitioner was a mere drop in the bucket, so to speak. More
importantly, the unequivocal terms of Article 1678 of the Civil Code should be the foremost
consideration.

The Court notes that the CA pegged the total value of the improvements made on the
leased premises at P964,000, which was apparently based on the allegation in respondents
complaint that it was their total investment cost.xvi[28] The CA lumped together all of
respondents expenses, which was a blatant error. A qualification should have been made as to
how much was spent for useful improvements (or those which were suitable to the use for which
the lease was intended) and how much was for ornamental expenses. Respondent Vittorio Donini
testified that he spent P450,000 for necessary repairs, while P500,000 was spent for
adornments.xvi[29] The evidence on record, however, showed respondents expenses for useful
improvements to be as follows:

EXPENSE AMOUNT
Electrical P31,893.65 Exh. F, et seq. xvi[30]
Roofing P14,856.00 Exhibit Oxvi[31]
Labor P19,909.75 Exh. P, et seq.xvi[32]
Ceiling P65,712.00 Exh. Q, et seq.xvi[33]
Labor P38,689.20 Exh. R, et seq.xvi[34]
Electrical (phase 2) P76,539.10 Exh. S, et seq.xvi[35]
Door P41,371.75 Exh. T, et seq.xvi[36]
Labor P25,126.00 Exh. U, et seq.xvi[37]
Water P 8,031.00 Exhs. W & W-1xvi[38]
Gutters P 35,550.05 Exhs. X & X-1xvi[39]
Outside Wall P 24,744.00 Exh. X-2xvi[40]
Inside Wall P 22,186.10 Exh. X-3xvi[41]
Electrical (phase 3) P 88,698.30 Exhs. X-8 to X-11xvi[42]
Labor P 19,995.00 Exhibit Yxvi[43]
Total P513,301.90

Accordingly, the 50% value of the useful improvements to be reimbursed by petitioner, if


he chose to do so, should be based on P513,301.90. Since petitioner did not exercise his option to
retain these useful improvements, then respondents could have removed the same. This was the
legal consequence of the application of Article 1678 under ordinary circumstances.

The reality on the ground ought to be recognized. For one, as disclosed by respondents
counsel, he no longer knows the exact whereabouts of his clients, only that they are now in
Europe and he has no communication with them at all.xvi[44] For another, it appears that as
soon as respondents vacated the premises, petitioner immediately reclaimed the property and
barred respondents from entering it. Respondents also alleged, and petitioner did not deny, that
the property subject of this case had already been leased to another entity since 1991.xvi[45]
This is where considerations of equity should come into play. It is obviously no longer feasible
for respondents to remove the improvements from the property, if they still exist. The only
equitable alternative then, given the circumstances, is to order petitioner to pay respondents one-
half of the value of the useful improvements (50% of P513,301.90) introduced on the property,
or P256,650.95. To be off-set against this amount are respondents unpaid P17,000 monthly
rentals for the period of December 1990 to April 1991,xvi[46] or P85,000. Petitioner should,
therefore, indemnify respondents the amount of P171,650.95. This is in accord with the laws
intent of preventing unjust enrichment of a lessor who now has to pay one-half of the value of
the useful improvements at the end of the lease because the lessee has already enjoyed the same,
whereas the lessor can enjoy them indefinitely thereafter.xvi[47]

Respondents are not entitled to reimbursement for the ornamental expenses under the
express provision of Article 1678. Moreover, since they failed to remove these ornaments despite
the opportunity to do so when they vacated the property, then they were deemed to have waived
or abandoned their right of removal.

The CA also erred when it deleted the awards of moral and exemplary damages and
attorneys fees.

Petitioner is entitled to moral damages but not in the amount of P500,000 awarded by the
RTC, which the Court finds to be excessive. While trial courts are given discretion to determine`
the amount of moral damages, it should not be palpably and scandalously excessive.xvi[48]
Moral damages are not meant to enrich a person at the expense of the other but are awarded only
to allow the former to obtain means, diversion or amusements that will serve to alleviate the
moral suffering he has undergone due to the other persons culpable action.xvi[49] It must
always reasonably approximate the extent of injury and be proportional to the wrong
committed.xvi[50] The award of P100,000 as moral damages is sufficient and reasonable under
the circumstances.
The award of P100,000 as exemplary damages is likewise excessive. Exemplary damages
are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as
a negative incentive to curb socially deleterious actions.xvi[51] We think P50,000 is reasonable
in this case.

Finally, Article 2208 of the Civil Code allows recovery of attorney's fees when
exemplary damages are awarded or when the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his interest.xvi[52]
Petitioner is entitled to it since exemplary damages were awarded in this case and respondents
act in filing Civil Case No. 60769 compelled him to litigate. The amount of P25,000 is in accord
with prevailing jurisprudence.xvi[53]

WHEREFORE, the petition is PARTIALLY GRANTED. The decision dated March


31, 2004 rendered by the Court of Appeals in CA-G.R. CV No. 54430 is hereby MODIFIED in
that

(1) petitioner Serafin Cheng is ORDERED to pay respondents, spouses Vittorio and
Ma. Helen Donini, the amount of P171,650.95 as indemnity for the useful
improvements; and

(2) respondents, spouses Vittorio and Ma. Helen Donini, are ORDERED to pay
petitioner Serafin Cheng the following sums:

a) P100,000.00 moral damages;


b) P50,000.00 exemplary damages and
c) P25,000.00 attorneys fees.

Let copies of this decision be furnished respondents, spouses Vittorio and Ma. Helen
Donini, at their last known address, and their counsel of record.

SO ORDERED.

G.R. No. 167017 Case Digest

G.R. No. 167017, June 22, 2009


Serafin Cheng
vs Spouses Vittorio and Ma. Helen Donini
Ponente: Corona

Facts:
Cheng agreed to lease his property located in Mandaluyong City to
the spouses who intended to put a restaurant thereon, they agreed
to a monthly rental of 17k to commence in December 1990. Bearing
an interim grant of authority executed by Cheng, spouses proceeded
to introduce improvements in the premises.

But before the business could take off and before final lease
agreement could be drafted and signed, the parties began to have
serious disagreements regarding the terms and conditions. Cheng
then demanded for the deposits and rentals with the intention of
not continuing with the lease. The spouses ignored the demand and
continued to occupy the premises until their caretaker voluntarily
surrendered the property to Cheng.

Spouses then filed an action for specific performance and damages


with a prayer for the issues of writ of preliminary injunction in
RTC Pasig. Respondents prayed that petitioner be ordered to execute
a written lease contract for five years, deducting from the deposit
and rent the cost of repairs in the amount of P445,000, or to order
petitioner to return their investment in the amount of P964,000
and compensate for their unearned net income of P200,000 with
interest, plus attorneys fees.

Petitioner denied the claims and sought for moral and exemplary
damages, and attorney's fees. RTC favored the Cheng.

Respondents appealed to the Court of Appeals (CA) which, in its


decision[5] dated March 31, 2004, recalled and set aside the RTC
decision, and entered a new one ordering petitioner to pay
respondents the amount of P964,000 representing the latters
expenses incurred for the repairs and improvements of the premises.

Issue: spouses possessors in good faith?

Held:
The relationship between petitioner and respondents was explicitly
governed by the Civil Code provisions on lease, which clearly
provide for the rule on reimbursement of useful improvements and
ornamental expenses after termination of a lease agreement.
Article 1678 states:

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.

With regard to ornamental expenses, the lessee shall not be


entitled to any reimbursement, but he may remove the ornamental
objects, provided no damage is caused to the principal thing, and
the lessor does not choose to retain them by paying their value at
the time the lease is extinguished.

Contrary to respondents position, Articles 448 and 546 of the


Civil Code did not apply. Under these provisions, to be entitled
to reimbursement for useful improvements introduced on the
property, respondents must be considered builders in good
faith. Articles 448 and 546, which allow full reimbursement of
useful improvements and retention of the premises until
reimbursement is made, apply only to a possessor in good faith or
one who builds on land in the belief that he is the owner
thereof. A builder in good faith is one who is unaware of any
flaw in his title to the land at the time he builds on it.

Respondents are not entitled to reimbursement for the ornamental


expenses under the express provision of Article 1678. Moreover,
since they failed to remove these ornaments despite the opportunity
to do so when they vacated the property, then they were deemed to
have waived or abandoned their right of removal.

(1) petitioner Serafin Cheng is ORDERED to pay respondents,


spouses Vittorio and Ma. Helen Donini, the amount of P171,650.95
as indemnity for the useful improvements; and

(2) respondents, spouses Vittorio and Ma. Helen Donini, are ORDERED
to pay petitioner Serafin Cheng the following sums: (a) P100,000.00
moral damages; (b) P50,000.00 exemplary damages and (c) P25,000.00
attorneys fees.

[G.R. No. 134651. September 18, 2000]

SPOUSES VIRGILIO and JOSIE JIMENEZ, petitioners, vs. PATRICIA, INC., respondent.
DECISION

BELLOSILLO, J.:

The Joint Decision of the Court of Appealsxvi[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 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.xvi[2] But the spouses refused to
leave.

Thus, on 5 May 1995 PATRICIA filed a complaintxvi[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.

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.xvi[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.xvi[5]
The Jimenez spouses appealed the MeTC decision to the RTC.xvi[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.xvi[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;xvi[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
MeTCxvi[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.xvi[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.xvi[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.xvi[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.xvi[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.xvi[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 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.xvi[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 Review was 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 faithxvi[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.xvi[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 the Metropolitan 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.

G.R. No. 156437 March 1, 2004

NATIONAL HOUSING AUTHORITY, petitioner,


vs.
GRACE BAPTIST CHURCH and the COURT OF APPEALS, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court, seeking to reverse the Decision
of the Court of Appeals dated February 26, 2001,1 and its Resolution dated November 8, 2002,2
which modified the decision of the Regional Trial Court of Quezon City, Branch 90, dated
February 25, 1997.3

On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a letter to
petitioner National Housing Authority (NHA), manifesting its interest in acquiring Lots 4 and 17
of the General Mariano Alvarez Resettlement Project in Cavite.4 In its letter-reply dated July 9,
1986, petitioner informed respondent:

In reference to your request letter dated 13 June 1986, regarding your application for Lots
4 and 17, Block C-3-CL, we are glad to inform you that your request was granted and
you may now visit our Project Office at General Mariano Alvarez for processing of your
application to purchase said lots.
We hereby advise you also that prior to approval of such application and in accordance with our
existing policies and guidelines, your other accounts with us shall be maintained in good
standing.5

Respondent entered into possession of the lots and introduced improvements thereon.6

On February 22, 1991, the NHAs Board of Directors passed Resolution No. 2126, approving the
sale of the subject lots to respondent Church at the price of P700.00 per square meter, or a total
price of P430,500.00.7 The Church was duly informed of this Resolution through a letter sent by
the NHA.8

On April 8, 1991, the Church tendered to the NHA a managers check in the amount of
P55,350.00, purportedly in full payment of the subject properties.9 The Church insisted that this
was the price quoted to them by the NHA Field Office, as shown by an unsigned piece of paper
with a handwritten computation scribbled thereon.10 Petitioner NHA returned the check, stating
that the amount was insufficient considering that the price of the properties have changed. The
Church made several demands on the NHA to accept their tender of payment, but the latter
refused. Thus, the Church instituted a complaint for specific performance and damages against
the NHA with the Regional Trial Court of Quezon City,11 where it was docketed as Civil Case
No. Q-91-9148.

On February 25, 1997, the trial court rendered its decision, the dispositive portion of which
reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to reimburse to the plaintiff the amount of P4,290.00


representing the overpayment made for Lots 1, 2, 3, 18, 19 and 20;

2. Declaring that there was no perfected contract of sale with respect to Lots 4 and
17 and ordering the plaintiff to return possession of the property to the defendant
and to pay the latter reasonable rental for the use of the property at P200.00 per
month computed from the time it took possession thereof until finally vacated.
Costs against defendant.

SO ORDERED.12

On appeal, the Court of Appeals, affirmed the trial courts finding that there was indeed no
contract of sale between the parties. However, petitioner was ordered to execute the sale of the
lots to Grace Baptist Church at the price of P700.00 per square meter, with 6% interest per
annum from March 1991. The dispositive portion of the Court of Appeals decision, dated
February 26, 2001, reads:

WHEREFORE, the appealed Decision is hereby AFFIRMED with the MODIFICATION


that defendant-appellee NHA is hereby ordered to sell to plaintiff-appellant Grace Baptist
Church Lots 4 and 17 at the price of P700.00 per square meter, or a total cost
P430,000.00 with 6% interest per annum from March, 1991 until full payment in cash.

SO ORDERED.13

The appellate court ruled that the NHAs Resolution No. 2126, which earlier approved the sale
of the subject lots to Grace Baptist Church at the price of P700.00 per square meter, has not been
revoked at any time and was therefore still in effect. As a result, the NHA was estopped from
fixing a different price for the subject properties. Considering further that the Church had been
occupying the subject lots and even introduced improvements thereon, the Court of Appeals
ruled that, in the interest of equity, it should be allowed to purchase the subject properties.14

Petitioner NHA filed a Motion for Reconsideration which was denied in a Resolution dated
November 8, 2002. Hence, the instant petition for review on the sole issue of: Can the NHA be
compelled to sell the subject lots to Grace Baptist Church in the absence of any perfected
contract of sale between the parties?

Petitioner submits that the Court cannot compel it to sell the subject property to Grace Baptist
Church without violating its freedom to contract.15 Moreover, it contends that equity should be
applied only in the absence of any law governing the relationship between the parties, and that
the law on sales and the law on contracts in general apply to the present case.16

We find merit in petitioners submission.

Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair market
value, even if it failed to expressly revoke Resolution No. 2126. It is, after all, hornbook law that
the principle of estoppel does not operate against the Government for the act of its agents,17 or,
as in this case, their inaction.

On the application of equity, it appears that the crux of the controversy involves the
characterization of equity in the context of contract law. Preliminarily, we reiterate that this
Court, while aware of its equity jurisdiction, is first and foremost, a court of law. While equity
might tilt on the side of one party, the same cannot be enforced so as to overrule positive
provisions of law in favor of the other.18 Thus, before we can pass upon the propriety of an
application of equitable principles in the case at bar, we must first determine whether or not
positive provisions of law govern.

It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be complied
with in good faith.19 However, it must be understood that contracts are not the only source of law
that govern the rights and obligations between the parties. More specifically, no contractual
stipulation may contradict law, morals, good customs, public order or public policy.20 Verily, the
mere inexistence of a contract, which would ordinarily serve as the law between the parties, does
not automatically authorize disposing of a controversy based on equitable principles alone.
Notwithstanding the absence of a perfected contract between the parties, their relationship may
be governed by other existing laws which provide for their reciprocal rights and obligations.
It must be remembered that contracts in which the Government is a party are subject to the same
rules of contract law which govern the validity and sufficiency of contract between individuals.
All the essential elements and characteristics of a contract in general must be present in order to
create a binding and enforceable Government contract.21

It appearing that there is no dispute that this case involves an unperfected contract, the Civil Law
principles governing contracts should apply. In Vda. de Urbano v. Government Service
Insurance System,22 it was ruled that a qualified acceptance constitutes a counter-offer as
expressly stated by Article 1319 of the Civil Code. In said case, petitioners offered to redeem
mortgaged property and requested for an extension of the period of redemption. However, the
offer was not accepted by the GSIS. Instead, it made a counter-offer, which petitioners did not
accept. Petitioners again offer to pay the redemption price on staggered basis. In deciding said
case, it was held that when there is absolutely no acceptance of an offer or if the offer is
expressly rejected, there is no meeting of the minds. Since petitioners offer was denied twice by
GSIS, it was held that there was clearly no meeting of the minds and, thus, no perfected contract.
All that is established was a counter-offer.23

In the case at bar, the offer of the NHA to sell the subject property, as embodied in Resolution
No. 2126, was similarly not accepted by the respondent.24 Thus, the alleged contract involved in
this case should be more accurately denominated as inexistent. There being no concurrence of
the offer and acceptance, it did not pass the stage of generation to the point of perfection.25 As
such, it is without force and effect from the very beginning or from its incipiency, as if it had
never been entered into, and hence, cannot be validated either by lapse of time or ratification.26
Equity can not give validity to a void contract,27 and this rule should apply with equal force to
inexistent contracts.

We note from the records, however, that the Church, despite knowledge that its intended contract
of sale with the NHA had not been perfected, proceeded to introduce improvements on the
disputed land. On the other hand, the NHA knowingly granted the Church temporary use of the
subject properties and did not prevent the Church from making improvements thereon. Thus, the
Church and the NHA, who both acted in bad faith, shall be treated as if they were both in good
faith.28 In this connection, Article 448 of the Civil Code provides:

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 and 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.

Pursuant to our ruling in Depra v. Dumlao,29 there is a need to remand this case to the trial court,
which shall conduct the appropriate proceedings to assess the respective values of the
improvements and of the land, as well as the amounts of reasonable rentals and indemnity, fix
the terms of the lease if the parties so agree, and to determine other matters necessary for the
proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Court of Appeals
Decision dated February 26, 2001 and Resolution dated November 8, 2002 are REVERSED and
SET ASIDE. The Decision of the Regional Trial Court of Quezon City-Branch 90, dated
February 25, 1997, is REINSTATED. This case is REMANDED to the Regional Trial Court of
Quezon City, Branch 90, for further proceedings consistent with Articles 448 and 546 of the
Civil Code.

No costs.

SO ORDERED.

[G.R. No. 116290. December 8, 2000]

DIONISIA P. BAGAIPO, petitioner, vs. THE HON. COURT OF APPEALS and LEONOR
LOZANO, respondents.

QUISUMBING, J.:

This petition assails the decision dated June 30, 1994 of the Court of Appeals affirming
the dismissal by the Regional Trial Court of Davao City, Branch 8, in Civil Case No.
555-89, of petitioners complaint for recovery of possession with prayer for preliminary
mandatory injunction and damages.

The undisputed facts of the case are as follows:

Petitioner Dionisia P. Bagaipo is the registered owner of Lot No. 415, a 146,900 square
meter agricultural land situated in Ma-a, Davao City under Transfer Certificate of Title
No. T-15757 particularly described as follows:

Bounded on the NE., by Lots Nos. 419 and 416; on the SE by the Davao River; on the
SE., (sic) by Lots Nos. 1092 and 1091; and on the NW., by Lots Nos. 413 and 418 xvi[1]

Respondent Leonor Lozano is the owner of a registered parcel of land located across
and opposite the southeast portion of petitioners lot facing the Davao River. Lozano
acquired and occupied her property in 1962 when his wife inherited the land from her
father who died that year.

On May 26, 1989, Bagaipo filed a complaintxvi[2] for Recovery of Possession with
Mandatory Writ of Preliminary Injunction and Damages against Lozano for: (1) the
surrender of possession by Lozano of a certain portion of land measuring 29,162
square meters which is supposedly included in the area belonging to Bagaipo under
TCT No. T-15757; and (2) the recovery of a land area measuring 37,901 square meters
which Bagaipo allegedly lost when the Davao River traversed her property. Bagaipo
contended that as a result of a change in course of the said river, her property became
divided into three lots, namely: Lots 415-A, 415-B and 415-C.

In January 1988, Bagaipo commissioned a resurvey of Lot 415 and presented before
the trial court a survey planxvi[3] prepared by Geodetic Engineer Gersacio A. Magno. The
survey plan allegedly showed that: a) the area presently occupied by Bagaipo, identified
as Lot 415-A, now had an area of only 79,843 square meters; b) Lot 415-B, with an area
measuring 37,901 square meters, which cut across Bagaipos land was taken up by the
new course of the Davao River; and c) an area of 29,162 square meters designated as
Lot 415-C was illegally occupied by respondent Lozano. The combined area of the lots
described by Engineer Magno in the survey plan tallied with the technical description of
Bagaipos land under TCT No. T-15757. Magno concluded that the land presently
located across the river and parallel to Bagaipos property still belonged to the latter and
not to Lozano, who planted some 350 fruit-bearing trees on Lot 415-C and the old
abandoned river bed.

Bagaipo also presented Godofredo Corias, a former barangay captain and long-time
resident of Ma-a to prove her claim that the Davao River had indeed changed its
course. Corias testified that the occurrence was caused by a big flood in 1968 and a
bamboo grove which used to indicate the position of the river was washed away. The
river which flowed previously in front of a chapel located 15 meters away from the
riverbank within Bagaipos property now flowed behind it. Corias was also present when
Magno conducted the relocation survey in 1988.

For his part, Lozano insisted that the land claimed by Bagaipo is actually an accretion to
their titled property. He asserted that the Davao River did not change its course and that
the reduction in Bagaipos domain was caused by gradual erosion due to the current of
the Davao River. Lozano added that it is also because of the rivers natural action that
silt slowly deposited and added to his land over a long period of time. He further averred
that this accretion continues up to the present and that registration proceedings
instituted by him over the alluvial formation could not be concluded precisely because it
continued to increase in size.

Lozano presented three witnesses: Atty. Pedro Castillo, his brother-in-law; Cabitunga
Pasanday, a tenant of Atty. Castillo; and Alamin Catucag, a tenant of the Lozanos.

Atty. Castillo testified that the land occupied by the Lozanos was transferred to his
sister, Ramona when they extra-judicially partitioned their parents property upon his
fathers death. On September 9, 1973, Atty. Castillo filed a land registration case
involving the accretion which formed on the property and submitted for this purpose, a
survey planxvi[4] approved by the Bureau of Lands as well as tax declarationsxvi[5]
covering the said accretion. An Order of General Defaultxvi[6] was already issued in the
land registration case on November 5, 1975, but the case itself remained pending since
the petition had to be amended to include the continuing addition to the land area.
Mr. Cabitunga Pasanday testified that he has continuously worked on the land as tenant
of the Castillos since 1925, tilling an area of about 3 hectares. However, the land he
tilled located opposite the land of the Lozanos and adjacent to the Davao River has
decreased over the years to its present size of about 1 hectare. He said the soil on the
bank of the river, as well as coconut trees he planted would be carried away each time
there was a flood. This similar erosion occurs on the properties of Bagaipo and a certain
Dr. Rodriguez, since the elevation of the riverbank on their properties is higher than the
elevation on Lozanos side.

Alamin Catucag testified that he has been a tenant of the Castillos since 1939 and that
the portion he occupies was given to Ramona, Lozanos wife. It was only 1 hectare in
1939 but has increased to 3 hectares due to soil deposits from the mountains and river.
Catucag said that Bagaipos property was reduced to half since it is in the curve of the
river and its soil erodes and gets carried away by river water.

On April 5, 1991, the trial court conducted an ocular inspection. It concluded that the
applicable law is Article 457xvi[7]. To the owners of lands adjoining the banks of rivers
belong the accretion which they gradually receive from the effects of the current of the
waters.7 of the New Civil Code and not Art. 461xvi[8] The reduction in the land area of
plaintiff was caused by erosion and not by a change in course of the Davao River.
Conformably then, the trial court dismissed the complaint.

On appeal, the Court of Appeals affirmed the decision of the trial court and decreed as
follows:

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the
plaintiff-appellant.xvi[9]

Hence, this appeal.

Petitioner asserts that the Court of Appeals erred in:

....NOT GIVING PROBATIVE VALUE TO THE RELOCATION SURVEY (EXHIBIT


B) PREPARED BY LICENSED GEODETIC ENGINEER GERSACIO MAGNO. THE
CASE OF DIRECTOR OF LANDS VS. HEIRS OF JUANA CAROLINA 140 SCRA
396 CITED BY THE RESPONDENT COURT IN DISREGARDING EXHIBIT B IS
NOT APPLICABLE TO THE CASE AT BAR.

....NOT FINDING THAT ASSUMING WITHOUT ADMITTING THAT THE


QUESTIONED LOT 415-C (EXHIBIT B-1) OCCUPIED BY RESPONDENT
LEONOR LOZANO WAS THE RESULT OF AN ACCRETION, THE PRINCIPLE OF
ACCRETION CANNOT AND DOES NOT APPLY IN THE INSTANT CASE TO
FAVOR SAID RESPONDENT BECAUSE SAID LOT 415-C IS WITHIN AND FORM
PART OF PETITIONERS LAND DESCRIBED IN TCT NO. 15757 (EXHIBIT A)
....FINDING PETITIONER GUILTY OF LACHES WHEN SHE INSTITUTED THE
SUIT.

....NOT ORDERING RESPONDENT LEONOR LOZANO TO VACATE AND


SURRENDER LOT 415-C IN FAVOR OF PETITIONER AND FOR HIM TO PAY
PETITIONER DAMAGES FOR ITS UNLAWFUL OCCUPATION THEREOF.

....NOT HOLDING PETITIONER ENTITLED TO THE ABANDONED RIVER


BED.xvi[10]

For this Courts resolution are the following issues: Did the trial court err in holding that
there was no change in course of the Davao River such that petitioner owns the
abandoned river bed pursuant to Article 461 of the Civil Code? Did private respondent
own Lot 415-C in accordance with the principle of accretion under Article 457? Should
the relocation survey prepared by a licensed geodetic engineer be disregarded since it
was not approved by the Director of Lands? Is petitioners claim barred by laches?

On the first issue. The trial court and the appellate court both found that the decrease in
land area was brought about by erosion and not a change in the rivers course. This
conclusion was reached after the trial judge observed during ocular inspection that the
banks located on petitioners land are sharp, craggy and very much higher than the land
on the other side of the river. Additionally, the riverbank on respondents side is lower
and gently sloping. The lower land therefore naturally received the alluvial soil carried
by the river current.xvi[11] These findings are factual, thus conclusive on this Court,
unless there are strong and exceptional reasons, or they are unsupported by the
evidence on record, or the judgment itself is based on a misapprehension of facts. xvi[12]
These factual findings are based on an ocular inspection of the judge and convincing
testimonies, and we find no convincing reason to disregard or disbelieve them.

The decrease in petitioners land area and the corresponding expansion of respondents
property were the combined effect of erosion and accretion respectively. Art. 461 of the
Civil Code is inapplicable. Petitioner cannot claim ownership over the old abandoned
riverbed because the same is inexistent. The riverbeds former location cannot even be
pinpointed with particularity since the movement of the Davao River took place
gradually over an unspecified period of time, up to the present.

The rule is well-settled that accretion benefits a riparian owner when the following
requisites are present: 1) That the deposit be gradual and imperceptible; 2) That it
resulted from the effects of the current of the water; and 3) That the land where
accretion takes place is adjacent to the bank of the river.xvi[13] These requisites were
sufficiently proven in favor of respondents. In the absence of evidence that the change
in the course of the river was sudden or that it occurred through avulsion, the
presumption is that the change was gradual and was caused by alluvium and
erosion.xvi[14]
As to Lot 415-C, which petitioner insists forms part of her property under TCT No. T-
15757, it is well to recall our holding in C.N. Hodges vs. Garcia, 109 Phil. 133, 135:

The fact that the accretion to his land used to pertain to plaintiffs estate, which is
covered by a Torrens certificate of title, cannot preclude him (defendant) from being the
owner thereof. Registration does not protect the riparian owner against the diminution of
the area of his land through gradual changes in the course of the adjoining stream.
Accretions which the banks of rivers may gradually receive from the effect of the current
become the property of the owners of the banks (Art. 366 of the old Civil Code; Art. 457
of the new). Such accretions are natural incidents to land bordering on running streams
and the provisions of the Civil Code in that respect are not affected by the Land
Registration Act.xvi[15]

Petitioner did not demonstrate that Lot 415-C allegedly comprising 29,162 square
meters was within the boundaries of her titled property. The survey plan commissioned
by petitioner which was not approved by the Director of Lands was properly discounted
by the appellate court. In Titong vs. Court of Appealsxvi[16] we affirmed the trial courts
refusal to give probative value to a private survey plan and held thus:

the plan was not verified and approved by the Bureau of Lands in accordance with Sec.
28, paragraph 5 of Act No. 2259, the Cadastral Act, as amended by Sec. 1862 of Act
No. 2711. Said law ordains that private surveyors send their original field notes,
computations, reports, surveys, maps and plots regarding a piece of property to the
Bureau of Lands for verification and approval. A survey plan not verified and approved
by said Bureau is nothing more than a private writing, the due execution and
authenticity of which must be proven in accordance with Sec. 20 of Rule 132 of the
Rules of Court. The circumstance that the plan was admitted in evidence without any
objection as to its due execution and authenticity does not signify that the courts shall
give probative value therefor. To admit evidence and not to believe it subsequently are
not contradictory to each other

In view of the foregoing, it is no longer necessary now to discuss the defense of laches.
It is mooted by the disquisition on the foregoing issues.

WHEREFORE, the assailed decision dated June 30, 1994, of the Court of Appeals in
C.A.-G. R. CV No. 37615, sustaining the judgment of the court a quo, is AFFIRMED.
Costs against petitioner.

SO ORDERED.

[G.R. No. 68166. February 12, 1997]

HEIRS OF EMILIANO NAVARRO, petitioner, vs. INTERMEDIATE APPELLATE COURT


AND HEIRS OF SINFOROSO PASCUAL, respondents.
DECISION

HERMOSISIMA, JR., J.:

Unique is the legal question visited upon the claim of an applicant in a Land Registration case by
oppositors thereto, the Government and a Government lessee, involving as it does ownership of
land formed by alluvium.

The applicant owns the property immediately adjoining the land sought to be registered. His
registered property is bounded on the east by the Talisay River, on the west by the Bulacan
River, and on the north by the Manila Bay. The Talisay River and the Bulacan River flow down
towards the Manila Bay and act as boundaries of the applicant's registered land on the east and
on the west.

The land sought to be registered was formed at the northern tip of the applicant's land.
Applicant's registered property is bounded on the north by the Manila Bay.

The issue: May the land sought to be registered be deemed an accretion in the sense that it
naturally accrues in favor of the riparian owner or should the land be considered as foreshore
land?

Before us is a petition for review of: (1) the decisionxvi[1] and (2) two subsequent resolutionsxvi[2]
of the Intermediate Appellate Courtxvi[3] (now the Court of Appeals) in Land Registration Case
No. N-84,xvi[4] the application over which was filed by private respondents' predecessor-in-
interest, Sinforoso Pascual, now deceased, before the Court of First Instancexvi[5] (now the
Regional Trial Court) of Balanga, Bataan.

There is no dispute as to the following facts:

On October 3, 1946, Sinforoso Pascual, now deceased, filed an application for foreshore lease
covering a tract of foreshore land in Sibocon, Balanga, Bataan, having an area of approximately
seventeen (17) hectares. This application was denied on January 15, 1953. So was his motion for
reconsideration.

Subsequently, petitioners' predecessor-in-interest, also now deceased, Emiliano Navarro, filed a


fishpond application with the Bureau of Fisheries covering twenty five (25) hectares of foreshore
land also in Sibocon, Balanga, Bataan. Initially, such application was denied by the Director of
Fisheries on the ground that the property formed part of the public domain. Upon motion for
reconsideration, the Director of Fisheries, on May 27, 1988, gave due course to his application
but only to the extent of seven (7) hectares of the property as may be certified by the Bureau of
Forestry as suitable for fishpond purposes.

The Municipal Council of Balanga, Bataan, had opposed Emiliano Navarro's application.
Aggrieved by the decision of the Director of Fisheries, it appealed to the Secretary of Natural
Resources who, however, affirmed the grant. The then Executive Secretary, acting in behalf of
the President of the Philippines, similarly affirmed the grant.
On the other hand, sometime in the early part of 1960, Sinforoso Pascual filed an application to
register and confirm his title to a parcel of land, situated in Sibocon, Balanga, Bataan, described
in Plan Psu-175181 and said to have an area of 146,611 square meters. Pascual claimed that this
land is an accretion to his property, situated in Barrio Puerto Rivas, Balanga, Bataan, and
covered by Original Certificate of Title No. 6830. It is bounded on the eastern side by the Talisay
River, on the western side by the Bulacan River, and on the northern side by the Manila Bay.
The Talisay River as well as the Bulacan River flow downstream and meet at the Manila Bay
thereby depositing sand and silt on Pascual's property resulting in an accretion thereon. Sinforoso
Pascual claimed the accretion as the riparian owner.

On March 25, 1960, the Director of Lands, represented by the Assistant Solicitor General, filed
an opposition thereto stating that neither Pascual nor his predecessors-in-interest possessed
sufficient title to the subject property, the same being a portion of the public domain and,
therefore, it belongs to the Republic of the Philippines. The Director of Forestry, through the
Provincial Fiscal, similarly opposed Pascual's application for the same reason as that advanced
by the Director of Lands. Later on, however, the Director of Lands withdrew his opposition. The
Director of Forestry become the sole oppositor.

On June 2, 1960, the court a quo issued an order of general default excepting the Director of
Lands and the Director of Forestry.

Upon motion of Emiliano Navarro, however, the order of general default was lifted and, on
February 13, 1961, Navarro thereupon filed an opposition to Pascual's application. Navarro
claimed that the land sought to be registered has always been part of the public domain, it being
a part of the foreshore of Manila Bay; that he was a lessee and in possession of a part of the
subject property by virtue of a fishpond permit issued by the Bureau of Fisheries and confirmed
by the Office of the President; and that he had already converted the area covered by the lease
into a fishpond.

During the pendency of the land registration case, that is, on November 6, 1960, Sinforoso
Pascual filed a complaint for ejectment against Emiliano Navarro, one Marcelo Lopez and their
privies, alleged by Pascual to have unlawfully claimed and possessed, through stealth, force and
strategy, a portion of the subject property covered by Plan Psu-175181. The defendants in the
case were alleged to have built a provisional dike thereon: thus they have thereby deprived
Pascual of the premises sought to be registered. This, notwithstanding repeated demands for
defendants to vacate the property.

The case was decided adversely against Pascual. Thus, Pascual appealed to the Court of First
Instance (now Regional Trial Court) of Balanga, Bataan, the appeal having been docketed as
Civil Case No. 2873. Because of the similarity of the parties and the subject matter, the appealed
case for ejectment was consolidated with the land registration case and was jointly tried by the
court a quo.

During the pendency of the trial of the consolidated cases, Emiliano Navarro died on November
1, 1961 and was substituted by his heirs, the herein petitioners.
Subsequently, on August 26, 1962, Pascual died and was substituted by his heirs, the herein
private respondents.

On November 10, 1975, the court a quo rendered judgment finding the subject property to be
foreshore land and, being a part of the public domain, it cannot be the subject of land registration
proceedings.

The decision's dispositive portion reads:

"WHEREFORE, judgment is rendered:

(1) Dismissing plaintiff [private respondent] Sinforoso Pascual's complaint for ejectment in Civil
Case No. 2873;

(2) Denying the application of Sinforoso Pascual for land registration over the land in question;
and

(3) Directing said Sinforoso Pascual, through his heirs, as plaintiff in Civil Case No. 2873 and as
applicant in Land Registration Case No. N-84 to pay costs in both instances."xvi[6]

The heirs of Pascual appealed and, before the respondent appellate court, assigned the following
errors:

"1. The lower court erred in not finding the land in question as an accretion by the action of the
Talisay and Bulacan Rivers to the land admittedly owned by applicants-appellants [private
respondents].

2. The lower court erred in holding that the land in question is foreshore land.

3. The lower court erred in not ordering the registration of the and is controversy in favor of
applicants-appellants [private respondents].

4. The lower court erred in not finding that the applicants-appellants [private respondents] are
entitled to eject the oppositor-appellee [petitioners]."xvi[7]

On appeal, the respondent court reversed the findings of the court a quo and granted the petition
for registration of the subject property but excluding therefrom fifty (50) meters from corner 2
towards corner 1; and fifty meters (50) meters from corner 5 towards corner 6 of the Psu-175181.

The respondent appellate court explained the reversal in this wise:

"The paramount issue to be resolved in this appeal as set forth by the parties in their respective
briefs is whether or not the land sought to be registered is accretion or foreshore land, or,
whether or not said land was formed by the action of the two rivers of Talisay and Bulacan or by
the action of the Manila Bay. If formed by the action of the Talisay and Bulacan rivers, the
subject land is accretion but if formed by the action of the Manila Bay then it is foreshore land.
xxx

It is undisputed that applicants-appellants [private respondents] owned the land immediately


adjoining the land sought to be registered. Their property which is covered by OCT No. 6830 is
bounded on the east by the Talisay River, on the west by the Bulacan River, and on the north by
the Manila Bay. The Talisay and Bulacan rivers come from inland flowing downstream towards
the Manila Bay. In other words, between the Talisay River and the Bulacan River is the property
of applicants with both rivers acting as the boundary to said land and the flow of both rivers
meeting and emptying into the Manila Bay. The subject land was formed at the tip or apex of
appellants' [private respondents'] land adding thereto the land now sought to be registered.

This makes this case quite unique because while it is undisputed that the subject land is
immediately attached to appellants' [private respondents'] land and forms the tip thereof, at the
same time, said land immediately faces the Manila Bay which is part of the sea. We can
understand therefore the confusion this case might have caused the lower court, faced as it was
with the uneasy problem of deciding whether or not the subject land was formed by the action of
the two rivers or by the action of the sea. Since the subject land is found at the shore of the
Manila Bay facing appellants' [private respondents'] land, it would be quite easy to conclude that
it is foreshore and therefore part of the patrimonial property of the State as the lower court did in
fact rule x x x .

xxx

It is however undisputed that appellants' [private respondents'] land lies between these two rivers
and it is precisely appellants' [private respondents'] land which acts as a barricade preventing
these two rivers to meet. Thus, since the flow of the two rivers is downwards to the Manila Bay
the sediments of sand and silt are deposited at their mouths.

It is, therefore, difficult to see how the Manila Bay could have been the cause of the deposit
thereat for in the natural course of things, the waves of the sea eat the land on the shore, as they
suge [sic] inland. It would not therefore add anything to the land but instead subtract from it due
to the action of the waves and the wind. It is then more logical to believe that the two rivers
flowing towards the bay emptied their cargo of sand, silt and clay at their mouths, thus causing
appellants' [private respondents'] land to accumulate therein.

However, our distinguished colleage [sic], Mr. Justice Serrano, do [sic] not seem to accept this
theory and stated that the subject land arose only when x x x Pascual planted 'palapat' and
'bakawan' trees thereat to serve as a boundary or strainer. But we do not see how this act of
planting trees by Pascual would explain how the land mass came into being. Much less will it
prove that the same came from the sea. Following Mr. Justice Serrano's argument that it were the
few trees that acted as strainers or blocks, then the land that grew would have stopped at the
place where the said trees were planted. But this is not so because the land mass went far beyond
the boundary, or where the trees were planted.

On the other hand, the picture-exhibits of appellants' [private respondents'] clearly show that the
land that accumulated beyond the so-called boundary, as well as the entire area being applied for
is dry land, above sea level, and bearing innumerable trees x x x. The existence of vegetation on
the land could only confirm that the soil thereat came from inland rather than from the sea, for
what could the sea bring to the shore but sand, pebbles, stones, rocks and corrals? On the other
hand, the two rivers would be bringing soil on their downward flow which they brought along
from the eroded mountains, the lands along their path, and dumped them all on the northern
portion of appellants' [private respondents'] land.

In view of the foregoing, we have to deviate from the lower court's finding. While it is true that
the subject land is found at the shore of the Manila Bay fronting appellants' [private respondents']
land, said land is not foreshore but an accretion from the action of the Talisay and Bulacan
rivers. In fact, this is exactly what the Bureau of Lands found out, as shown in the following
report of the Acting Provincial Officer, Jesus M. Orozco, to wit:

'Upon ocular inspection of the land subject of this registration made on June 11, 1960, it was
found out that the said land is x x x sandwitched [sic] by two big rivers x x x These two rivers
bring down considerable amount of soil and sediments during floods every year thus raising the
soil of the land adjoining the private property of the applicant [private respondents]. About four-
fifth [sic] of the area applied for is now dry land whereon are planted palapat trees thickly
growing thereon. It is the natural action of these two rivers that has caused the formation of said
land x x x subject of this registration case. It has been formed, therefore, by accretion. And
having been formed by accretion, the said land may be considered the private property of the
riparian owner who is the applicant herein [private respondents'] x x x .

In view of the above, the opposition hereto filed by the government should be withdrawn, except
for the portion recommended by the land investigator in his report dated May 2, 1960, to be
excluded and considered foreshore. x x x'

Because of this report, no less than the Solicitor General representing the Bureau of Lands
withdrew his opposition dated March 25, 1960, and limited 'the same to the northern portion of
the land applied for, compromising a strip 50 meters wide along the Manila Bay, which should
be declared public land as part of the foreshore' x x x.xvi[8]

Pursuant to the aforecited decision, the respondent appellate court ordered the issuance of the
corresponding decree of registration in the name of private respondents and the reversion to
private respondents of the possession of the portion of the subject property included in Navarro's
fishpond permit.

On December 20, 1978, petitioners filed a motion for reconsideration of the aforecited decision.
The Director of Forestry also moved for the reconsideration of the same decision. Both motions
were opposed by private respondents on January 27, 1979.

On November 21, 1980, respondent appellate court promulgated a resolution denying the motion
for reconsideration filed by the Director of Forestry. It, however, modified its decision, to read,
viz:
"(3). Ordering private oppositors Heirs of Emiliano Navarro to vacate that portion included in
their fishpond permit covered by Plan Psu-175181 and hand over possession of said portion to
applicants-appellants, if the said portion is not within the strip of land fifty (50) meters wide
along Manila Bay on the northern portion of the land subject of the registration proceedings and
which area is more particularly referred to as fifty (50) meters from corner 2 towards corner 1;
and fifty (50) meters from corner 5 towards corner 6 of Plan Psu-175181. x x xxvi[9]

On December 15, 1980, we granted the Solicitor General, acting as counsel for the Director of
Forestry, an extension of time within which to file in this court, a petition for review of the
decision dated November 29, 1978 of the respondent appellate court and of the aforecited
resolution dated November 21, 1980.

Thereafter, the Solicitor General, in behalf of the Director of Forestry, filed a petition for review
entitled, "The Director of Forestry vs. the Court of Appeals."xvi[10] We, however, denied the same
in a minute resolution dated July 20, 1981, such petition having been prematurely filed at a time
when the Court of Appeals was yet to resolve petitioners' pending motion to set aside the
resolution dated November 21, 1980.

On October 9, 1981, respondent appellate court denied petitioners' motion for reconsideration of
the decision dated November 29, 1978.

On October 17, 1981, respondent appellate court made an entry of judgment stating that the
decision dated November 29, 1978 had become final and executory as against herein petitioners
as oppositors in L.R.C. Case No. N-84 and Civil Case No. 2873 of the Court of First Instance
(now the Regional Trial Court) of Balanga, Bataan.

On October 26, 1981, a second motion for reconsideration of the decision dated November 29,
1978 was filed by petitioners' new counsel.

On March 26, 1982, respondent appellate court issued a resolution granting petitioners' request
for leave to file a second motion for reconsideration.

On July 13, 1984, after hearing, respondent appellate court denied petitioners' second motion for
reconsideration on the ground that the same was filed out of time, citing Rule 52, Section 1 of the
Rules of Court which provides that a motion for reconsideration shall be made ex-parte and filed
within fifteen (15) days from the notice of the final order or judgment.

Hence this petition where the respondent appellate court is imputed to have palpably erred in
appreciating the facts of the case and to have gravely misapplied statutory and case law relating
to accretion, specifically, Article 457 of the Civil Code.

We find merit in the petition.

The disputed property was brought forth by both the withdrawal of the waters of Manila Bay and
the accretion formed on the exposed foreshore land by the action of the sea which brought soil
and sand sediments in turn trapped by the palapat and bakawan trees planted thereon by
petitioner Sulpicio Pascual in 1948.

Anchoring their claim of ownership on Article 457 of the Civil Code, private respondents
vigorously argue that the disputed 14-hectare land is an accretion caused by the joint action of
the Talisay and Bulacan Rivers which run their course on the eastern and western boundaries,
respectively, of private respondents' own tract of land.

Accretion as a mode of acquiring property under said Article 457, requires the concurrence of the
following requisites: (1) that the accumulation of soil or sediment be gradual and imperceptible;
(2) that it be the result of the action of the waters of the river; and (3) that the land where the
accretion takes place is adjacent to the bank of the river.xvi[11] Accretion is the process whereby
the soil is deposited, while alluvium is the soil deposited on the estate fronting the river
bank;xvi[12] the owner of such estate is called the riparian owner. Riparian owners are, strictly
speaking, distinct from littoral owners, the latter being owners of lands bordering the shore of the
sea or lake or other tidal waters.xvi[13] The alluvium, by mandate of Article 457 of the Civil Code,
is automatically owned by the riparian owner from the moment the soil deposit can be seenxvi[14]
but is not automatically registered property, hence, subject to acquisition through prescription by
third persons.xvi[15]

Private respondents' claim of ownership over the disputed property under the principle of
accretion, is misplaced.

First, the title of private respondents' own tract of land reveals its northeastern boundary to be
Manila Bay. Private respondents' land, therefore, used to adjoin, border or front the Manila Bay
and not any of the two rivers whose torrential action, private respondents insist, is to account for
the accretion on their land. In fact, one of the private respondents, Sulpicio Pascual, testified in
open court that the waves of Manila Bay used to hit the disputed land being part of the bay's
foreshore but, after he had planted palapat and bakawan trees thereon in 1948, the land began to
rise.xvi[16]

Moreover, there is no dispute as to the location of: (a) the disputed land; (b) private respondents'
own tract of land; (c) the Manila Bay; and, (d) the Talisay and Bulacan Rivers. Private
respondents' own land lies between the Talisay and Bulacan Rivers; in front of their land on the
northern side lies now the disputed land where before 1948, there lay the Manila Bay. If the
accretion were to be attributed to the action of either or both of the Talisay and Bulacan Rivers,
the alluvium should have been deposited on either or both of the eastern and western boundaries
of private respondents' own tract of land, not on the northern portion thereof which is adjacent to
the Manila Bay. Clearly lacking, thus, is the third requisite of accretion, which is, that the
alluvium is deposited on the portion of claimant's land which is adjacent to the river bank.

Second, there is no dispute as to the fact that private respondents' own tract of land adjoins the
Manila Bay. Manila Bay is obviously not a river, and jurisprudence is already settled as to what
kind of body of water the Manila Bay is. It is to be remembered that we held that:
"Appellant next contends that x x x Manila Bay cannot be considered as a sea. We find said
contention untenable. A bay is part of the sea, being a mere indentation of the same:

'Bay. An opening into the land where the water is shut in on all sides except at the entrance; an
inlet of the sea; an arm of the sea, distinct from a river, a bending or curbing of the shore of the
sea or of a lake.' 7 C.J. 1013-1014."xvi[17]

The disputed land, thus, is an accretion not on a river bank but on a sea bank, or on what used to
be the foreshore of Manila Bay which adjoined private respindents' own tract of land on the
northern side. As such, the applicable law is not Article 457 of the Civil Code but Article 4 of the
Spanish Law of Waters of 1866.

The process by which the disputed land was formed, is not difficult to discern from the facts of
the case. As the trial court correctly observed:

"A perusal of the survey plan x x x of the land subject matter of these cases shows that on the
eastern side, the property is bounded by Talisay River, on the western side by Bulacan River, on
the southern side by Lot 1436 and on the northern side by Manila Bay. It is not correct to state
that the Talisay and Bulacan Rivers meet a certain portion because the two rivers both flow
towards Manila Bay. The Talisay River is straight while the Bulacan River is a little bit
meandering and there is no portion where the two rivers meet before they end up at Manila Bay.
The land which is adjacent to the property belonging to Pascual cannot be considered an
accretion [caused by the action of the two rivers].

Applicant Pascual x x x has not presented proofs to convince the Court that the land he has
applied for registration is the result of the settling down on his registered land of soil, earth or
other deposits so as to be rightfully be considered as an accretion [caused by the action of the
two rivers]. Said Art. 457 finds no applicability where the accretion must have been caused by
action of the bay."xvi[18]

The conclusion formed by the trial court on the basis of the foregoing observation is that the
disputed land is part of the foreshore of Manila Bay and therefore, part of the public domain. The
respondent appellate court, however, perceived the fact that petitioners' own land lies between
the Talisay and Bulacan Rivers, to be basis to conclude that the disputed land must be an
accretion formed by the action of the two rivers because private respondents' own land acted as a
barricade preventing the two rivers to meet and that the current of the two rivers carried
sediments of sand and silt downwards to the Manila Bay which accumulated somehow to a 14-
hectare land. These conclusions, however, are fatally incongruous in the light of the one
undisputed critical fact: the accretion was deposited, not on either the eastern or western portion
of private respondents' land where a river each runs, but on the northern portion of petitioners'
land which adjoins the Manila Bay. Worse, such conclusions are further eroded of their practical
logic and consonance with natural experience in the light of Sulpicio Pascual's admission as to
having planted palapat and bakawan trees on the northern boundary of their own land. In
amplification of this, plainly more reasonable and valid are Justice Mariano Serrano's
observations in his dissenting opinion when he stated that:
"As appellants' (titled) land x x x acts as a barricade that prevents the two rivers to meet, and
considering the wide expanse of the boundary between said land and the Manila Bay, measuring
some 593.00 meters x x x it is believed rather farfetched for the land in question to have been
formed through 'sediments of sand and salt [sic] . . . deposited at their [rivers'] mouths.'
Moreover, if 'since the flow of the two rivers is downwards to the Manila Bay the sediments of
sand and silt are deposited at their mouths,' why then would the alleged cargo of sand, silt and
clay accumulate at the northern portion of appellants' titled land facing Manila Bay instead of
merely at the mouths and banks of these two rivers? That being the case, the accretion formed at
said portion of appellants' titled [land] was not caused by the current of the two rivers but by the
action of the sea (Manila Bay) into which the rivers empty.

The conclusion x x x is not supported by any reference to the evidence which, on the contrary,
shows that the disputed land was formed by the action of the sea. Thus, no less than Sulpicio
Pascual, one of the heirs of the original applicant, testified on cross-examination that the land in
dispute was part of the shore and it was only in 1948 that he noticed that the land was beginning
to get higher after he had planted trees thereon in 1948. x x x

x x x it is established that before 1948 sea water from the Manila Bay at high tide could reach as
far as the dike of appellants' fishpond within their titled property, which dike now separates this
titled property from the land in question. Even in 1948 when appellants had already planted
palapat and bakawan trees in the land involved, inasmuch as these trees were yet small, the
waves of the sea could still reach the dike. This must be so because in x x x the survey plan of
the titled property approved in 1918, said titled land was bounded on the north by Manila Bay.
So Manila Bay was adjacent to it on the north. It was only after the planting of the aforesaid trees
in 1948 that the land in question began to rise or to get higher in elevation.

The trees planted by appellants in 1948 became a sort of strainer of the sea water and at the same
time a kind of block to the strained sediments from being carried back to the sea by the very
waves that brought them to the former shore at the end of the dike, which must have caused the
shoreline to recede and dry up eventually raising the former shore leading to the formation of the
land in question."xvi[19]

In other words, the combined and interactive effect of the planting of palapat and bakawan trees,
the withdrawal of the waters of Manila Bay eventually resulting in the drying up of its former
foreshore, and the regular torrential action of the waters of Manila Bay, is the formation of the
disputed land on the northern boundary of private respondents' own tract of land.

The disputed property is an accretion on a sea bank, Manila Bay being an inlet or an arm of the
sea; as such, the disputed property is, under Article 4 of the Spanish Law of Waters of 1866, part
of the public domain.

At the outset, there is a need to distinguish between Manila Bay and Laguna de Bay.

While we held in the case of Ignacio v. Director of Lands and Valerianoxvi[20] that Manila Bay is
considered a sea for purposes of determining which law on accretion is to be applied in
multifarious situations, we have ruled differently insofar as accretions on lands adjoining the
Laguna de Bay are concerned.

In the cases of Government of the P.I v. Colegio de San Jose,xvi[21] Republic v. Court of
Appeals,xvi[22] Republic v. Alagadxvi[23], and Meneses v. Court of Appeals,xvi[24] we categorically
ruled that Laguna de Bay is a lake the accretion on which, by the mandate of Article 84 of the
Spanish Law of Waters of 1866, belongs to the owner of the land contiguous thereto.

The instant controversy, however, brings a situation calling for the application of Article 4 of the
Spanish Law of Waters of 1866, the disputed land being an accretion on the foreshore of Manila
Bay which is, for all legal purposes, considered a sea.

Article 4 of the Spanish Law of Waters of August 3, 1866 provides as follows:

"Lands added to the shores by accretions and alluvial deposits caused by the action of the sea,
form part of the public domain. When they are no longer washed by the waters of the sea and are
not necessary for purposes of public utility, or for the establishment of special industries, or for
the coast-guard service, the Government shall declare them to be the property of the owners of
the estates adjacent thereto and as increment thereof."

In the light of the aforecited vintage but still valid law, unequivocal is the public nature of the
disputed land in this controversy, the same being an accretion on a sea bank which, for all legal
purposes, the foreshore of Manila Bay is. As part of the public domain, the herein disputed land
is intended for public uses, and "so long as the land in litigation belongs to the national domain
and is reserved for public uses, it is not capable of being appropriated by any private person,
except through express authorization granted in due form by a competent authority."xvi[25] Only
the executive and possibly the legislative departments have the right and the power to make the
declaration that the lands so gained by action of the sea is no longer necessary for purposes of
public utility or for the cause of establishment of special industries or for coast guard
services.xvi[26] Petitioners utterly fail to show that either the executive or legislative department
has already declared the disputed land as qualified, under Article 4 of the Spanish Law of Waters
of 1866, to be the property of private respondents as owners of the estates adjacent thereto.

WHEREFORE, the instant Petition for Review is hereby GRANTED.

The decision of the Intermediate Appellate Court (now Court of Appeals) in CA G.R. No.
59044-R dated November 29, 1978 is hereby REVERSED and SET ASIDE. The resolution
dated November 21, 1980 and March 28, 1982, respectively, promulgated by the Intermediate
Appellate Court are likewise REVERSED and SET ASIDE.

The decision of the Court of First Instance (now the Regional Trial Court), Branch 1, Balanga,
Bataan, is hereby ORDERED REINSTATED.

Costs against private respondents.

SO ORDERED.
HEIRS OF NAVARRO V. IAC
Accretion along an area adjacent to the sea is public domain, even if the accretion results from
rivers emptying into the sea. It cannot be registered.

FACTS:

Sinforoso Pascual sits in the midst of a land registration case. The story begins on 1946 upon his
desire to register land on the northern section of his existing property. His current registered
property is bounded on the east by Talisay River, on the West by Bulacan River and on the North
by the Manila bay. Both rivers flow towards the Manila Bay. Because of constantly flowing
water, extra land of about 17hectares (thats about the size of Disney Park!) formed in the
northern most section of the property. It is this property he sought to register.

The RTC denied the registration claiming this to be foreshore land and part of public domain
(remember, accretion formedby the sea is public dominion). His Motion for Reconsideration
likewise burned. In 1960, he attempted registry again, claiming that the Talisay and Bulacan
rivers deposited more silt resulting on accretion. He claimed this land as riprarian owner. The
Director of Lands, Director of Forestry and the Fiscal opposed.

Then a new party surfaced. Mr Emiliano Navarro jumped into the fray opposing the same
application, stating the he leased part of the property sought to be registered. He sought to protect
his fishpond that rested on the same property. Sinforoso was not amused and filed ejectment
against Mr. Navarro, claiming that Navarro used stealth force and strategy to occupy a portion of
his land. Pascual lost the case against Navarro so he appealed. During the appeal, his original
land registration case was consolidated and tried jointly. (alas Pascual died) The heirs of Pascual
took over the case.

On 1975, the court decided that the property was foreshore land and therefore part of public
domain. The RTC dismissed the complaint of Pascual for ejectment against Navarro and also
denied his land registration request. Pascuals heirs appealed and the RTC was reversed by the
IAC. The Apellate court granted petition for registration! The reason? The accretion was caused
by the two rivers, not manila bay. Hence it wasnt foreshore land. (BUT the confusion lies in the
fact that the accretion formed adjacent to Manila Bay which is sea!) Aggrieved, the Director of
Forestry moved for reconsideration (Government insists it is foreshore and hence, public
domain). The Apellate court denied all motions of the Director and the Government.
The matter went to the SC.

ISSUE:

Whether or not the accretion taking place on property adjacent to the sea can be registered under
the Torrens system.

HELD:

It cannot be registered. This is land of Public domain. Pascual claimed ownership under Article
457 of the Civil Code saying that the disputed 14-hectare land is an accretion caused by the joint
action of the Talisay and Bulacan Rivers Art 457: Accretion as a mode of acquiring property and
requires the concurrence of the following requisites: (1) that the accumulation of soil or sediment
be gradual and imperceptible; (2) that it be the result of the action of the waters of the river; and
(3) that the land where the accretion takes place is adjacent to the bank of the river.

Unfortunately, Pasucal and Heirs claim of ownership based on Art 457 is misplaced. If theres
any land to be claimed, it should be land ADJACENT to the rivers Talisay and Bulacan. The law
is clear on this. Accretion of land along the river bank may be registered. This is not the case of
accretion of land on the property adjacent to Manila Bay.

Furthermore, Manila Bay is a sea. Accretion on a sea bank is foreshore land and the applicable
law is not Art 457 but Art 4 of the Spanish Law of Waters of 1866. This law, while old, holds
that accretion along sea shore cannot be registered as it remains public domain unless abandoned
by government for public use and declared as private property capable of alienation.

Article 4 of the Spanish Law of Waters of August 3, 1866 provides as follows:

Lands added to the shores by accretions and alluvial deposits caused by the action of the sea,
form part of the public domain. When they are no longer washed by the waters of the sea and are
not necessary for purposes of public utility, or for the establishment of special industries, or for
the coast-guard service, the Government shall declare them to be the property of the owners of
the estates adjacent thereto and as increment thereof.

The IAC decision granting registration was reversed and set aside. Registration cannot be
allowed