CASE 1

EN BANC G.R. No. L-21783 November 29, 1969

PACIFIC FARMS, INC., Plaintiff-Appellee, vs. SIMPLICIO G. ESGUERRA, ET AL., defendants, CARRIED LUMBER COMPANY, Defendant-Appellant. CASTRO, J.: Before us for review, on appeal by the defendant Carried Lumber Company (hereinafter referred to as the Company), is the decision, dated May 30, 1962, of the Court of First Instance of Pangasinan in civil case D1317, annulling the levy and certificate of sale covering six buildings owned by the plaintiff Pacific Farms, Inc., executed by the defendant deputy provincial sheriff Simplicio G. Esguerra in favor of the Company to satisfy a money judgment against the Insular Farms, Inc., the plaintiff's predecessor-in-interest over the said buildings. The environmental setting is uncontroverted. On several occasions from October 1, 1956 to March 2, 1957 the Company sold and delivered lumber and construction materials to the Insular Farms, Inc. which the latter used in the construction of the aforementioned six buildings at its compound in Bolinao, Pangasinan, of the total procurement price of P15,000, the sum of P4,710.18 has not been paid by Insular Farms, Inc. Consequently, on October 17, 1958 the Company instituted civil case D-775 with the Court of First Instance of Pangasinan to recover the said unpaid balance from the Insular Farms, Inc. On August 23, 1961 the trial court rendered judgment sustaining the Company's claim. The judgment debtor did not appeal; so on December 19, 1961 the corresponding writ of execution was issued. On January 16, 1962 the defendant sheriff levied upon the six buildings. On January 30, 1962 the Pacific Farms, Inc. filed a third-party claim, subscribed by its corporate president, asserting ownership over the levied buildings which it had acquired from the Insular Farms, Inc. by virtue of a deed of absolute sale executed on March 21, 1958, about seven months before the Company filed the above-mentioned action (civil case D-775). Shielded by an indemnity bond of P7,120 put up by the Company and the Cosmopolitan Insurance Company, Inc., the sheriff proceeded with the announced public auction on February 12, 1962 and sold the levied buildings to the Company for P6,110.78. Asserting absolute and exclusive ownership of the buildings in question, the Pacific Farms, Inc. filed a complaint on May 14, 1962 against the Company and the sheriff with the court a quo, praying that judgment be rendered, (a) declaring null and void the levy and judicial sale of the six buildings, and (b) adjudging the defendants jointly and severally liable to the plaintiff in the sum of P2,000 by way of actual damages and for such amount as the court may deem proper and just to impose by way of exemplary damages and for costs of the suit. After due trial, the court a quo on May 30, 1963 rendered judgment annulling the levy of January 16, 1962 and the certificate of sale of February 12, 1962. The court, however, denied the plaintiff's claim for actual and exemplary damages on the ground that it was not "prepared to find that there was gross negligence or BAD FAITH on the part of any of the defendants." Hence this appeal, imputing errors which, according to the appellant's formulation, are the following: 1. The lower court erred in holding that the credit of the defendant-appellant, Carried Lumber Company, against the Insular Farms, Inc., consisting of the value of lumber and construction materials used in the buildings which were later acquired by the Pacific Farms, Inc., the appellee, was not a statutory lien on those buildings; . 2. The lower court, likewise, erred in holding that the doctrine laid down in De Barretto, et al. vs. Villanueva, et al. (G.R. No. L-14938, December 29, 1962) is applicable to the facts of this case as found by said court; and .
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3. The lower court erred, finally, in declaring that the sale at public auction conducted by the defendant deputy provincial sheriff of Pangasinan, covering the six buildings described in the certificate of sale dated February 12, 1962, was null and void. 1. In ruling against the appellant below, the trial court relied mainly on the resolution (on the motion for reconsideration) promulgated on December 29, 1962 by this Court in De Barretto, et al. vs. Villanueva, et al., L-14938 (6 SCRA 928). The said case, however, is inapplicable because it concerned not one but two or more preferred creditors who, pursuant to articles 2242 and 2249 of the Civil Code, must necessarily be convened and the nature and extent of their respective claims ascertained. Thus, we held that before there can be a pro rata payment of credits entitled to preference as to the same specific real property, there must first be some proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency, the settlement of a decedent's estate under Rule 87 of the Rules of Court, or liquidation proceedings of similar import. But the case before us does not involve a question of preference of credits, and is not one where two or more creditors have separate and distinct claims against the same debtor who has insufficient property. Indeed, it is a matter of necessity and logic that the question of preference should arise only where the debtor cannot pay his debts in full. For, if debtor A is able in full to pay all his three creditors, B, C, and D, how can the need arise for determining which of the three creditors shall be paid first or whether they shall be paid out of the proceeds of a specific property? 2. It is undenied and undeniable that the appellant furnished lumber and construction materials to the Insular Farms, Inc. (the appellee's predecessor-in-interest) which the latter used in the construction of the six buildings. Likewise unchallenged is the lower court's factual finding that out of the total procurement price of P15,000, the amount of P4,710.18 remains outstanding and unpaid by the Insular Farms, Inc. The appellant is therefore an unpaid furnisher of materials. Whether there exists a materialman's lien over the six buildings in favor of the appellant, is a question we do not here decide. To our mind the application by analogy of the rules of accession would suffice for a just adjudication. Article 447 of the Civil Code1 provides: The owner of the land who makes thereon personally or through another, plantings, constructions or works with the materials of another, shall pay their value; and, if he acted in BAD FAITH, he shall also be obliged to the reparation of damages. The owner of the materials shall have the right to remove them only in case he can do so without injury to the work constructed, or without the plantings, constructions or works being destroyed. However, if the landowner acted in BAD FAITH, the owner of the materials may remove them in any event with a right to be indemnified for damages. The abovequoted legal provision contemplates a principal and an accessory, the land being considered the principal, and the plantings, constructions or works, the accessory. The owner of the land who in GOOD FAITH - whether personally or through another - makes constructions or works thereon, using materials belonging to somebody else, becomes the owner of the said materials with the obligation however of praying for their value.2 The owner of the materials, on the other hand, is entitled to remove them, provided no substantial injury is caused to the landowner. Otherwise, he has the right to reimbursement for the value of his materials. Although it does not appear from the records of this case that the land upon which the six buildings were built is owned by the appellee, nevertheless, that the appellee claims that it owns the six buildings constructed out of the lumber and construction materials furnished by the appellant, is indubitable. Therefore, applying article 447 by analogy, we perforce consider the buildings as the principal and the lumber and construction materials that went into their construction as the accessory. Thus the appellee, if it does own the six buildings, must bear the obligation to pay for the value of the said materials; the appellant - which apparently has no desire to remove the materials, and, even if it were minded to do so, cannot remove them without necessarily damaging the buildings - has the corresponding right to recover the value of the unpaid lumber and construction materials.
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Well-established in jurisprudence is the rule that compensation should be borne by the person who has been benefited by the accession.3 No doubt, the appellee benefited from the accession, i.e., from the lumber and materials that went into the construction of the six buildings. It should therefore shoulder the compensation due to the appellant as unpaid furnisher of materials. Of course, the character of a buyer in GOOD FAITH and for value, if really possessed by the appellee, could possibly exonerate it from making compensation. But the appellee's stance that it is an innocent purchaser for value and in GOOD FAITH is open to grave doubt because of certain facts of substantial import (evident from the records) that cannot escape notice. In the deed of absolute sale, exhibit 1, the Insular Farms, Inc. (vendor) was represented in the contract by its president, J. Antonio Araneta. The latter was a director of the appellee (Pacific Farms, Inc.) and was the counsel who signed the complaint filed by the appellee in the court below. J. Antonio Araneta was, therefore, not only the president of the Insular Farms, Inc. but also a director and counsel of the appellee. During the trial of civil case D-775 the Insular Farms, Inc. was represented by Attorney Amado Santiago, Jr. of the law firm of J. Antonio Araneta. The latter was one of the counsels of the Pacific Farms, Inc. The appellee cannot claim ignorance of the pendency of civil case D-775 because the Insular Farms, Inc. was defended by the same lawyer from the same law firm that commenced the present action. J. Antonio Araneta, as counsel for the Pacific Farms, Inc., cannot close his eyes to facts of which he as president of the Insular Farms, Inc. had actual knowledge. Significantly, exhibit 1 (supra) itself shows that the Insular Farms, Inc. and the Pacific Farms, Inc. were housed in adjacent rooms (nos. 304 and 303, respectively), of the same building, the Insular Life Building, as early as March 21, 1958. It is reasonable therefore to conclude that the appellee, through its director and counsel, J. Antonio Araneta, knew about the unpaid balance of the purchase price of the lumber and construction materials supplied or furnished by the appellant to the Insular Farms, Inc. Parenthetically, it is likewise worth our attention that despite the appellee's knowledge of the suit instituted by the appellant against the Insular Farms, Inc. (the appellee's predecessor-in-interest) for the recovery of the unpaid balance of the purchase price of the lumber and materials used in the construction of its six buildings, it merely folded its arms in disinterest and waited, so to speak. Not until a decision was rendered therein in favor of the appellant, a writ of execution issued, and the six buildings levied upon by the sheriff, did it file a third-party claim over the levied buildings. In the face of the knowledge that its predecessor-in-interest had not fully paid for the lumber and construction materials used in the six buildings it had purchased, its natural and expected reaction should have been to intervene in the suit filed by the appellant against the Insular Farms, Inc. and hold the latter to account for breach of the warranties deemed included in the deed of absolute sale conveying said building to it. Curiously enough, although the six buildings in question were supposedly sold by the Insular Farms to the appellee on March 21, 1958, as evidenced by the deed of absolute sale (exhibit 1), about seven months before the appellant filed civil case D-775, the Insular Farms, Inc. never moved to implead the appellee therein as a necessary party-defendant, and remained completely and strangely silent about the sale. It is not amiss to surmise that it is entirely possible that the Insular Farms, Inc. and the appellee chose to remain silent in the hope that the appellant's claim against the Insular Farms, Inc. in civil case D-775 would be dismissed or non-suited. Moreover, the appellee was in a better position to protect its interest. It knew that the Insular Farms, Inc., its predecessor-in-interest, was a mere lessee of the premises on which the buildings were located. This should have placed it on guard and compelled it to ascertain the circumstances surrounding the construction of the said buildings on the premises. On the other hand, the appellant was not as advantageously situated as the appellee. There being no separate registry of property for buildings and no procedure provided by law for registering or annotating the claim of an unpaid furnisher of materials, it was helpless to prevent the sale of the property built from lumber and construction materials it furnished. But certainly, because it has a right, pursuant to article 447, supra, to reimbursement for the value of its unpaid materials, the appellant could pursue any remedy
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available to it under the law in order to enforce the said right. Thus, the appellant acted correctly in bringing an action (D-775) against the Insular Farms, Inc. and enforcing its right of reimbursement through the execution of the final judgment it obtained in the said case against the six buildings in the possession of the appellee who now stands to benefit therefrom. It follows, as a necessary corollary, that the sale at public auction conducted by the defendant sheriff of the six buildings described in the certificate of sale dated February 12, 1962, exhibit 7, was valid and effective. ACCORDINGLY, the judgment a quo is reversed, and the complaint is hereby dismissed. In view, however, of the equities clearly attendant in this case, it is the sense of this Court that the plaintiff-appellee Pacific Farms, Inc. should be, as it is hereby, granted a period of thirty (30) days from the date this judgment becomes final, within which it may exercise the option of redeeming the six buildings, by paying to the defendant-appellant Carried Lumber Company the sum of P4,710.18, with legal interest from September 23, 1961 (the date the judgment in civil case D-775 became final), until the said amount shall have been fully paid. No pronouncement as to costs.

CASE 2
Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-35648 February 27, 1987 PERSHING TAN QUETO, Petitioner, vs. COURT OF APPEALS, JUAN POMBUENA and RESTITUTA TACALINAR GUANGCO DE POMBUENA, Respondents. RESOLUTION

PARAS, J.: This is a Motion for Reconsideration of the decision dated May 16,1983 of this Court * in the above-entitled case, asking for the reversal of said decision on the following grounds: 1. Decison erred in disregarding the fact that Lot No. 304-B was registered in the name of the husband, Juan Pombuena, as per OCT. No. 0-1160 issued pursuant to the November 22, 1938 Decision (Exhibit 3) of the Cadastral Court in Cadastral Case No. 12, G.L.R.O. Cad. Rec. No. 1638, and that petitioner had the right to relyon said OCT; 2. The Decision erred in misinterpreting the admission in the Answer of petitioner to the complaint in the unlawful detainer Case No. 448 (City Court of Ozamiz City) as his admission that Lot 304-B is the paraphernal property of the wife, Restituta Tacalinar; 3. The Decision erred in reforming the Contract of Sale (Exh. B) of Lot 304-B from Basilides Tacalinar (mother) to the respondent, Restituta Tacalinar Guangco de Pombuena, from a sale to a conveyance of the share of the wifeRestituta Tacalinar (daughter) in the future hereditary estate of her parents; 4. The Decision erred in over-looking that the barter agreement is an onerous contract of exchange, whereby private respondents-spouses received valuable consideration, concessions and other benefits therefor and in concluding that 'the barter agreement has no effect;
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5. The Decision erred in disregarding the fact that petitioner constructed his concrete building on Lot No. 304-B inGOOD FAITH relying OCT No. 0-1160, after the dismissal of the ejectment case and only after the execution of said barter agreement; 6. The Decision erred in confusing the conclusion of law that petitioner is a builder in BAD FAITH with a finding of fact. The rule is that questions of law are reviewable on appeal or by certiorari. Moreover, the rule on finding of fact is subject to well-settled exceptions. (pp. 257-258, Rollo) It wig be recalled that the undisputed relevant facts indicate: (1) that Restituta Tacalinar Guanaco de Pombuena (RESTITUTA, for short) received the questioned lot (no. 304-B), of the Cadastre Survey of the Municipality of Centro, Mizamis Occidental, either as a purported donation or by way of purchase on (February 11, 1927) (with P50.00) as the alleged consideration thereof; (2) that the transaction took place during her mother's lifetime, her father having predeceased the mother; (3) that the donation or sale was consummated while RESTITUTA was already married to her husband Juan Pombuena (JUAN, for short); (4) that on January 22, 1935, JUAN filed for himself and his supposed co-owner RESTITUTA an application for a Torrens Title over the land; (5) that under date of November 22, 1938 a decision was promulgated in GLRC No. 1638 (Cadastral Case No. 12) pronouncing JUAN ('married to RESTITUTA') as the owner of the land; (6) that on September 22, 1949 a contract of lease over the lot was entered into between Pershing Tan Queto (TAN QUETO, for short, the herein petitioner) and RESTITUTA (with the consent of her husband JUAN) for a period of ten (10) years; (7) that on December 27, 1960 RESTITUTA sued TAN QUETO for unlawful detainer (the lease contract having expired) before the Municipal Court of Ozamis City; (8) that as a consequence of the cadastral case, an Original Certificate of Title (Exh. 10) was issued in JUAN's name ("married to RESTITUTA") on April 22, 1962; (9) that the unlawful detainer case was won by the spouses in the Municipal Court; but on appeal in the Court of First Instance, the entire case was DISMISSED because of an understanding (barter) whereby TAN QUETO became the owner of the disputed lot, and the spouses RESTITUTA and JUAN in turn became the owners of a parcel of land (with the house constructed thereon) previously owned (that is, before the barter) by TAN QUETO; (10) that after the barter agreement dated October 10, 1962 between JUAN and TAN QUETO, the latter constructed (See p. 257, Rollo, Vol. II) on the disputed land a concrete building, without any objection on the part of RESTITUTA; (11) that later, RESTITUTA sued both JUAN and TAN QUETO for reconveyance of the title over the registered but disputed lot, for annulment of the barter, and for recovery of the land with damages. The two principal issues are clearly the following: (1) Is the questioned lot paraphernal or conjugal? (2) In having constructed the building on the lot, should TAN QUETO be regarded as a builder in GOOD FAITH (and hence entitled to reimbursement) or a builder in BAD FAITH (with no right to reimbursement)?
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The finding by both the Court of First Instance and the Court of Appeals that the disputed lot is paraphernal and that TAN QUETO is a builder in BAD FAITH were regarded by Us in Our assailed decision as findings of facts and thus ordinarily conclusive on Us. Assuming they are factual findings, still if they are erroneous inferences from certain facts, they cannot bind this Court. A second hard look at the circumstances of the case has constrained Us to rule as follows: (1) The land is conjugal, not paraphernal. How was ownership transferred, if at all, from her mother to RESTITUTA? The oral donation of the lot cannot be a valid donation interviews because it was not executed in a public instrument (Art. 749, Civil Code), nor as a valid donation mortis causa for the formalities of a will were not complied with. The allegation that the transfer was a conveyance to RESTITUTA of her hereditary share in the estate of her mother (or parents) cannot be sustained for the contractual transmission of future inheritance is generally prohibited. The fact is ownership was acquired by both JUAN and RESTITUTA by tradition (delivery) as a consequence of the contract of sale (See Art. 712, Civil Code) with P50.00 (then a considerable amount) as the cause or consideration of the transaction. The lot is therefore conjugal, having been acquired by the spouses thru onerous title (the money used being presumably conjugal there being no proof that RESTITUTA had paraphernal funds of her own). The contention that the sale was fictitious or simulated (and therefore void) is bankrupt. Firstly, there was a valid consideration therefor. Secondly, assuming that there had indeed been a simulation, the parties thereto cannot use said simulation to prejudice a stranger to said stratagem (like petitioner herein). One nagging question has been posed. But did not TAN QUETO admit in his Answer that RESTITUTA was the owner of the lot. This is not so. He admitted RESTITUTA was an owner" (not the owner) of the lot, and this is true, for she was a co-owner (with JUAN, and therefore "an owner. " Surely, there is no admission of RESTITUTA's exclusive ownership. And yet this is the basis of the trial court's conclusion that the lot was indeed paraphernal. (2) Was Tan Queto a possessor and builder in GOOD FAITH or in BAD FAITH? Even assuming that despite registration of the lot as conjugal, Tan Queto nursed the belief that the lot was actually RESTITUTA's (making him in BAD FAITH), still RESTITUTA's failure to prohibit him from building despite her knowledge that construction was actually being done, makes her also in BAD FAITH. The net resultant of mutual BAD FAITH would entitle TAN QUETO to the rights of a builder in GOOD FAITH (Art. 448, Civil Code), ergo, reimbursement should be given him if RESTITUTA decides to appropriate the building for herself (Art. 448, Civil Code). However, as already previously intimated, TAN QUETO having bartered his own lot and small house with the questioned lot with JUAN (who has been adverted to by a court decision and by the OCT a conjugal owner) may be said to be the OWNER-POSSESSOR of the lot. Certainly he is not merely a possessor or builder in GOOD FAITH (this phrase presupposes ownership in another); much less is he a builder inBAD FAITH. He is a builder-possessor jus possidendi because he is the OWNER himself. Please note that the Chapter on Possession (jus possesionis, not jus possidendi) in the Civil Code refers to a possessor other than the owner. Please note further that the difference between a builder (or possessor) in GOOD FAITH and one in BAD FAITH is that the former is NOT AWARE of the defect or flaw in his title or mode of acquisition while the latter is AWARE of such defect or flaw (Art. 526, Civil Code). But in either case there is a flaw or defect. In the case of TAN QUETO there is no such flaw or defect because it is he himself (not somebody else) who is the owner of the property. WHEREFORE, Our decision promulgated on May 16,1983 is hereby SET ASIDE, and a new one is hereby rendered declaring the questioned lot together with the building thereone, as TAN QUETO's exclusive property. No costs.. SO ORDERED.

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CASE 3
THIRD DIVISION G.R. No. 79688. February 1, 1996 PLEASANTVILLE DEVELOPMENT CORPORATION, Petitioner, vs. COURT OF APPEALS, WILSON KEE, C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO, Respondent. DECISION PANGANIBAN, J.: Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the owners agent, a builder in GOOD FAITH? This is the main issue resolved in this petition for review on certiorari to reverse the Decision 1 of the Court of Appeals 2 in CA-G.R. SP No. 11040, promulgated on August 20, 1987. By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this case (along with several others) to the Third Division. After due deliberation and consultation, the Court assigned the writing of this Decision to the undersigned ponente. The Facts The facts, as found by respondent Court, are as follows: Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II and located at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought the rights to the lot from Robillo. At that time, Lot 9 was vacant.
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Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City on December 19, 1978 Transfer Certificate of Title No. 106367 in his name. It was then that he discovered that improvements had been introduced on Lot 9 by respondent Wilson Kee, who had taken possession thereof. It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same subdivision from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the Contract to Sell on Installment, Kee could possess the lot even before the completion of all installment payments. On January 20, 1975, Kee paid CTTEI the relocation fee of P50.00 and another P50.00 on January 27, 1975, for the preparation of the lot plan. These amounts were paid prior to Kees taking actual possession of Lot 8. After the preparation of the lot plan and a copy thereof given to Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kees wife, Donabelle Kee, to inspect Lot 8. Unfortunately, the parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee proceeded to construct his residence, a store, an auto repair shop and other improvements on the lot. After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to reach an amicable settlement, but failed. On January 30, 1981, Jardinicos lawyer wrote Kee, demanding that the latter remove all improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against Kee. Kee, in turn, filed a third-party complaint against petitioner and CTTEI. The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further ruled that petitioner and CTTEI could not successfully invoke as a defense the failure of Kee to give notice of his intention to begin construction required under paragraph 22 of the Contract to Sell on Installment and his having built a sari-sari store without. the prior approval of petitioner required under paragraph 26 of said contract, saying that the purpose of these requirements was merely to regulate the type of improvements to be constructed on the lot 3 . However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8 for the latters failure to pay the installments due, and that Kee had not contested the rescission. The rescission was effected in 1979, before the complaint was instituted. The MTCC concluded that Kee no longer had any right over the lot subject of the contract between him and petitioner. Consequently, Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he cannot claim reimbursement for the improvements he introduced on said lot. The MTCC thus disposed: "IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows: 1. Defendant Wilson Kee is ordered to vacate tithe premises of Lot 9, covered by TCT No. 106367 and to remove all structures and improvements he introduced thereon; 2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P 15.00 a day computed from the time this suit was filed on March 12, 1981 until he actually vacates the premises. This amount shall bear interests (sic) at the rate of 12 per cent (sic) per annum. 3. Third-Party Defendant CT. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay the plaintiff jointly and severally the sum of P3,000.00 as attorneys fees and P700.00 as cost and litigation expenses." 4 On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and CTTEI were not at fault or were not negligent, there being no preponderant evidence to show that they directly participated in the delivery of Lot 9 to Kee. 5 It found Kee a builder in BAD FAITH. It further ruled that even assuming arguendo that Kee was acting in GOOD FAITH, he was, nonetheless, guilty of unlawfully
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usurping the possessory right of Jardinico over Lot 9 from the time he was served with notice to vacate said lot, and thus was liable for rental. The RTC thus disposed: "WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant to vacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land records of Bacolod City; the removal of all structures and improvements introduced thereon at his expense and the payment to plaintiff (sic) the sum of Fifteen (P 15.00) Pesos a day as reasonable rental to be computed from January 30, 1981, the date of the demand, and not from the date of the filing of the complaint, until he had vacated (sic) the premises, with interest thereon at 12% per annum. This Court further renders judgment against the defendant to pay the plaintiff the sum of Three Thousand (P3,000.00) Pesos as attorneys fees, plus costs of litigation. "The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and C.T. Torres Enterprises, Inc. is dismissed. The order against Third-Party Defendants to pay attorneys fees to plaintiff and costs of litigation is reversed." 6 Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed directly to the Supreme Court, which referred the matter to the Court of Appeals. The appellate court ruled that Kee was a builder in GOOD FAITH, as he was unaware of the "mix-up" when he began construction of the improvements on Lot 8. It further ruled that the erroneous delivery was due to the negligence of CTTEI, and that such wrong delivery was likewise imputable to its principal, petitioner herein. The appellate court also ruled that the award of rentals was without basis. Thus, the Court of Appeals disposed: "WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and judgment is rendered as follows: 1. Wilson Kee is declared a builder in GOOD FAITH with respect to the improvements he introduced on Lot 9, and is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code. 2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances: a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless; b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico. 3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorneys fees, as well as litigation expenses. 4. The award of rentals to Jardinico is dispensed with. "Furthermore, the case is REMANDED to the court of origin for the determination of the actual value of the improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code." 7 Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.

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The Issues The petition submitted the following grounds to justify a review of the respondent Courts Decision, as follows: "1. The Court of Appeals has decided the case in a way probably not in accord with law or the the (sic) applicable decisions of the Supreme Court on third-party complaints, by ordering third-party defendants to pay the demolition expenses and/or price of the land; "2. The Court of Appeals has so far departed from the accepted course of judicial proceedings, by granting to private respondent-Kee the rights of a builder in GOOD FAITH in excess of what the law provides, thus enriching private respondent Kee at the expense of the petitioner; "3. In the light of the subsequent events or circumstances which changed the rights of the parties, it becomes imperative to set aside or at least modify the judgment of the Court of Appeals to harmonize with justice and the facts; "4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly a builder in BAD FAITH, having violated several provisions of the contract to sell on installments; "5. The decision of the Court of Appeals, holding the principal, Pleasantville Development Corporation (liable) for the acts made by the agent in excess of its authority is clearly in violation of the provision of the law; "6. The award of attorneys fees is clearly without basis and is equivalent to putting a premium in (sic) court litigation." From these grounds, the issues could be re-stated as follows: (1) Was Kee a builder in GOOD FAITH? (2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and (3) Is the award of attorneys fees proper? The First Issue: GOOD FAITH Petitioner contends that the Court of Appeals erred in reversing the RTCs ruling that Kee was a builder in BAD FAITH. Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of Appeals that Kee was a builder in GOOD FAITH. We agree with the following observation of the Court of Appeals: "The roots of the controversy can be traced directly to the errors committed by CTTEI, when it pointed the wrong property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot would knowingly and willingly build his residence on a lot owned by another, deliberately exposing himself and his family to the risk of being ejected from the land and losing all improvements thereon, not to mention the social humiliation that would follow. "Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity of his property. Lot 8 is covered by Transfer Certificate of Title No. T-69561, while Lot 9 is identified in Transfer Certificate of Title No. T-106367. Hence, under the Torrens system of land registration, Kee is presumed to have knowledge of the metes and bounds of the property with which he is dealing. x x x xxx xxx xxx
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"But as Kee is a layman not versed in the technical description of his property, he had to find a way to ascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivision developers agent and applied and paid for the relocation of the lot, as well as for the production of a lot plan by CTTEIs geodetic engineer. Upon Kees receipt of the map, his wife went to the subdivision site accompanied by CTTEIs employee, Octaviano, who authoritatively declared that the land she was pointing to was indeed Lot 8. Having full faith and confidence in the reputation of CTTEI, and because of the companys positive identification of the property, Kee saw no reason to suspect that there had been a misdelivery. The steps Kee had taken to protect his interests were reasonable. There was no need for him to have acted ex-abundantia cautela, such as being present during the geodetic engineers relocation survey or hiring an independent geodetic engineer to countercheck for errors, for the final delivery of subdivision lots to their owners is part of the regular course of everyday business of CTTEI. Because of CTTEIs blunder, what Kee had hoped to forestall did in fact transpire. Kees efforts all went to naught." 8 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. 9And as GOOD FAITH is presumed, petitioner has the burden of proving BAD FAITH on the part of Kee. 10 At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kees GOOD FAITH. Petitioner failed to prove otherwise. To demonstrate Kees BAD FAITH, petitioner points to Kees violation of paragraphs 22 and 26 of the Contract of Sale on Installment. We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in GOOD FAITH, that is, on his state of mind at the time he built the improvements on Lot 9. These alleged violations may give rise to petitioners cause of action against Kee under the said contract (contractual breach), but may not be bases to negate the presumption that Kee was a builder in GOOD FAITH. Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment covering Lot 8 between it and Kee was rescinded long before the present action was instituted. This has no relevance on the liability of petitioner, as such fact does not negate the negligence of its agent in pointing out the wrong lot to Kee. Such circumstance is relevant only as it gives Jardinico a cause of action for unlawful detainer against Kee. Petitioner next contends that Kee cannot "claim that another lot was erroneously pointed out to him" because the latter agreed to the following provision in the Contract of Sale on Installment, to wit: "13. The Vendee hereby declares that prior to the execution of his contract he/she has personally examined or inspected the property made subject-matter hereof, as to its location, contours, as well as the natural condition of the lots and from the date hereof whatever consequential change therein made due to erosion, the said Vendee shall bear the expenses of the necessary fillings, when the same is so desired by him/her." 11 The subject matter of this provision of the contract is the change of the location, contour and condition of the lot due to erosion. It merely provides that the vendee, having examined the property prior to the execution of the contract, agrees to shoulder the expenses resulting from such change. We do not agree with the interpretation of petitioner that Kee contracted away his right to recover damages resulting from petitioners negligence. Such waiver would be contrary to public policy and cannot be allowed. "Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law." 12 The Second Issue: Petitioners Liability Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC after ruling that there was no evidence from which fault or negligence on the part of petitioner and CTTEI can be
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inferred. The Court of Appeals disagreed and found CTTEI negligent for the erroneous delivery of the lot by Octaviano, its employee. Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous delivery of Lot 9 to Kee was an act which was clearly outside the scope of its authority, and consequently, CTTEI alone should be liable. It asserts that "while [CTTEI] was authorized to sell the lot belonging to the herein petitioner, it was never authorized to deliver the wrong lot to Kee." 13 Petitioners contention is without merit. The rule is that the principal is responsible for the acts of the agent, done within the scope of his authority, and should bear the damage caused to third persons. 14 On the other hand, the agent who exceeds his authority is personally liable for the damage. 15 CTTEI was acting within its authority as the sole real estate representative of petitioner when it made the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this negligence that is the basis of petitioners liability, as principal of CTTEI, per Articles 1909 and 1910 of the Civil Code. Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24, 1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not inform the Court of Appeals of such deal. The deed of sale contained the following provision: "1. That Civil Case No. 3815 entitled "Jardinico vs. Kee" which is now pending appeal with the Court of Appeals, regardless of the outcome of the decision shall be mutually disregarded and shall not be pursued by the parties herein and shall be considered dismissed and without effect whatsoever; 16 Kee asserts though that the "terms and conditions in said deed of sale are strictly for the parties thereto" and that "(t)here is no waiver made by either of the parties in said deed of whatever favorable judgment or award the honorable respondent Court of Appeals may make in their favor against herein petitioner Pleasantville Development Corporation and/or private respondent C.T. Torres Enterprises, Inc." 17 Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier stated, petitioners liability is grounded on the negligence of its agent. On the other hand, what the deed of sale regulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached an agreement independent of the outcome of the case. Petitioner further assails the following holding of the Court of Appeals: "2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are solidarily liable under the following circumstances: "a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove these structures, the third-party defendants shall answer for all demolition expenses and the value of the improvements thus destroyed or rendered useless; "b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the amount representing the value of Lot 9 that Kee should pay to Jardinico." 18 Petitioner contends that if the above holding would be carried out, Kee would be unjustly enriched at its expense. In other words, Kee would be -able to own the lot, as buyer, without having to pay anything on it, because the aforequoted portion of respondent Courts Decision would require petitioner and CTTEI jointly and solidarily to "answer" or reimburse Kee there for. We agree with petitioner.
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Petitioners liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner should be held liable for damages. Now, the extent and/or amount of damages to be awarded is a factual issue which should be determined after evidence is adduced. However, there is no showing that such evidence was actually presented in the trial court; hence no damages could now be awarded. The rights of Kee and Jardinico vis-a-vis each other, as builder in GOOD FAITH and owner in GOOD FAITH, respectively, are regulated by law(i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for the Court of Appeals to make a "slight modification" in the application of such law, on the ground of "equity". At any rate, as it stands now, Kee and Jardinico have amicably settled through their deed of sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the dispositive portion of the Court of Appeals Decision [as reproduced above] holding petitioner and CTTEI solidarily liable. The Third Issue: Attorneys Fees The MTCC awarded Jardinico attorneys fees and costs in the amount of P3,000.00 and P700.00, respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling that petitioner was without fault or negligence. The Court of Appeals, however, reinstated the award of attorneys fees after ruling that petitioner was liable for its agents negligence. The award of attorneys fees lies within the discretion of the court and depends upon the circumstances of each case. 19 We shall not interfere with the discretion of the Court of Appeals. Jardinico was compelled to litigate for the protection of his interests and for the recovery of damages sustained as a result of the negligence of petitioners agent. 20 In sum, we rule that Kee is a builder in GOOD FAITH. The disposition of the Court of Appeals that Kee "is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code" is deleted, in view of the deed of sale entered into by Kee and Jardinico, which deed now governs the rights of Jardinico and Kee as to each other. There is also no further need, as ruled by the appellate Court, to remand the case to the court of origin "for determination of the actual value of the improvements and the property (Lot 9), as well as for further proceedings in conformity with Article 448 of the New Civil Code." WHEREFORE, the petition is partially GRANTED. The Decision of the Court of Appeals is hereby MODIFIED as follows: (1) Wilson Kee is declared a builder in GOOD FAITH; (2) Petitioner Pleasantville Development Corporation and respondent C.T. Tones Enterprises, Inc. are declared solidarily liable for damages due to negligence; however, since the amount and/or extent of such damages was not proven during the trial, the same cannot now be quantified and awarded; (3) Petitioner Pleasantville Develpment Corporation and respondent C.T. Torres Enterprises, Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico as attorneys fees, as well as litigation expenses; and (4) The award of rentals to Jardinico is dispensed with. SO ORDERED.

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CASE 4
EN BANC G.R. No. L-23509 June 23, 1966

NATY BALTAZAR, ET AL., plaintiffs and appellees, vs. SILVINA CARIDAD, ET AL., defendants and appellants. REYES, J.B.L., J.: Appeal against an order, issued by the Court of First Instance of Ilocos Norte, in its Cadastral Case No. 54, CLRO Cad. Case No. 1222, compelling respondents Silvina Caridad and Eduarda Caridad to remove their respective houses built on the southern portion of Lot No. 8864 within thirty days from receipt of said order. Respondents originally interposed the present appeal to the Court of Appeals, where it was docketed as its CA-G.R. No. 31289-R. The appellate court, however, certified the appeal to this Court for raising only questions of law. The facts are not in dispute, and are as follows: In the cadastral proceeding above stated, the trial court rendered decision, dated January 23, 1941, awarding said Lot No. 8864 of the Laoag (Ilocos Norte) cadastre to the spouses Julio Baltazar and Constancia Valencia as their conjugal partnership property. Said decision having become final, the corresponding decree was issued on July 12, 1941, and pursuant thereto, said lot was registered in the names of applicant spouses under Original Certificate of Title No. O-1445, which was later transcribed, on November 5, 1959, in the off ice of the Register of Deeds of Ilocos Norte. In the meanwhile, Julio Baltazar, the registered owner of said Lot No. 8854, died. On December 6, 1961, his surviving wife and children, as petitioners, filed a motion, in the cadastral case, praying for writ of possession against respondents Silvina Caridad and her daughter, Eduarda Caridad, who had been in possession of the southern portion of said Lot No. 8864 since 1939, while the cadastral case involving said lot was pending before the trial court, and before the decision was rendered and the corresponding decree issued in 1941. No writ having theretofore been issued in petitioners' favor, the trial court issued an order, on December 11, 1961, granting petitioners' motion, and overruled respondents' opposition but directed the sheriff not to remove or destroy the permanent improvements on the lot without an express command. On January 2, 1962, the order having become final, the sheriff enforced the writ and placed petitioners in possession of the southern portion of the lot. On January 23, 1962, petitioners presented a motion to compel respondents Eduarda Caridad and her mother, Silvina Caridad, to remove their respective houses which they built in 1958 and 1959, respectively, in the southern portion of the disputed lot, and, in the event of their failure to do so, to order the sheriff to demolish the same. Respondents again opposed said motion. On March 20, 1962, the trial court, after due hearing, granted petitioners' motion, ordering respondents to remove their respective houses from the southern portion of said lot No. 8864 within thirty days from receipt of said order. Not satisfied, respondents appealed. Respondents-appellants question the power or jurisdiction of the trial court, sitting as a cadastral court, to order the removal of their respective houses which were built in the disputed lot long after the issuance of the final decree of registration. They insist that they are builders in GOOD FAITH of the houses in question, and, as such, they are accorded rights under Article 448 of the new Civil Code, which rights cause a conflict to arise between petitioners, as registered owners, on the one hand, and respondents, as builders in GOOD FAITH, on the other; that this conflict is a new matter which the cadastral court could not have possibly passed upon in 1941 when it rendered its decision awarding the disputed lot to Julio Baltazar, to predecessor-in-interest of petitioners. Respondents also insist that the determination or
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settlement of this controversy is cognizable only by a court exercising general jurisdiction, and that the only remedy available to petitioners is to file an ordinary action for ejectment or recovery of possession against them. Respondents further urged that this remedy is rendered unnecessary in view of the pendency of an action for reconveyance over the disputed portion of said Lot No. 8864, which respondents filed against petitioners in the same court and docketed (but after the writ of possession had been asked) as its Civil Case No. 3451, and wherein the respective rights, interests and title of the parties will ultimately be ventilated. The above contentions of respondents are without merit. It is to be noted that respondents do not dispute that during the pendency of the cadastral proceeding, rendition of the judgment awarding said Lot No. 8864, and consequent issuance of the final decree of registration of the same in favor of Julio Baltazar, the late Andres Caridad, his surviving spouse, respondent Silvina Caridad, and their children, one of whom is respondent Eduarda Caridad, were in possession of the southern portion of undisputed lot; and that respondent Eduarda Caridad claims right and title thereto as a mere heir and successor-in-interest of said Andres Caridad. Neither do respondents dispute the propriety and validity of the order of the cadastral court, granting the writ of possession in favor of petitioners as well as its enforcement. Under these circumstances, we hold that the order, dated March 20, 1962, of the cadastral court, granting petitioners' motion to compel respondents to remove their respective houses from the disputed lot, is valid and enforceable against respondents. In the case of Marcelo vs. Mencias, etc., et al., L-15609, April 29, 1960, 58 O.G. 3349, this Court had already upheld the jurisdiction or authority of the court of first instance, sitting as a land registration court, to order, as a consequence of the writ of possession issued by it, the demolition of improvements introduced by the successor-in-interest of a defeated oppositor in the land registration case. Thus, in the foregoing cited case, Mr. Justice Jesus G. Barrera, speaking for the Court, opined: It is contended that respondent Judge erred in denying the petition for demolition. To this we agree. Section 13, Rule 39 of the old Rules of Court, provides: "SEC. 13. How execution for the delivery or restitution of property enforced - the officer must enforce an execution for the delivery or restitution of property by placing the plaintiff in possession of such property, and by levying as hereinafter provided upon so much of the property of the judgment debtor as will satisfy the amount of the costs, damages, rents, and profits included in the execution. However, the officer shall not destroy, demolish or remove the improvements made by the defendant or his agent on the property, except by special order of the court, which order may only issue upon petition of the plaintiff after due hearing and upon the defendant's failure to remove the improvements within a reasonable time to be fixed by the court." Respondent Judge is of the view that the above-quoted provision of the Rules of Court applies only to ordinary actions involving the delivery or restitution of property, and not to proceedings under the land registration law which, according to him, is silent on the point. The view is not correct, for the reason that the provisions of the Rules of Court are applicable to land registration cases in a suppletory character (Rule 132). Put differently, if the writ of possession issued in a land registration proceeding implies the delivery of possession of the land to the successful litigant therein (Demorar vs. Ibaez, 51 O.G.) 2872; Pasay Estates Company vs. Del Rosario, et al., 11 Phil. 391; Manlapas vs. Llorente, 48 Phil. 298), a writ of demolition must, likewise, issue, especially considering that the latter writ is but a complement of the former which without said writ of demolition would be ineffective. Apparently, respondent Judge, in refusing to issue the writ of demolition to petitioner, was of the belief that the latter has another remedy, namely, by resorting to ordinary civil actions in the regular courts, such as that of forcible entry and detainer, or the recovery of possession, in which instances, said courts would then be competent to issue said writ. Such a situation, in our opinion, could not have been intended by the law. To require a successful litigant in a land registration case to institute another action for the purpose of obtaining possession of the land adjudged to him, would be a cumbersome process. It would foster unnecessary and expensive litigations and result in multiplicity of suits, which our judicial system abhors. In this connection, this Court on one occasion, said: "But this construction of the law entirely defeats its purpose. It would compel a successful litigant in the Court of Land Registration to commence other actions in other courts for the purpose of securing fruits of
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his victory. The evident purpose of the law was to prevent that very thing; ... (Pasay Estates Co. vs. Del Rosario, et al., supra). Furthermore, Section 6, Rule 124, of the Rules of Court states that "When by law jurisdiction is conferred on a court or judicial officer, all auxiliary writs, processes and other means necessary to carry it into effect may be employed by such court or officer and if the procedure to be followed in the exercise of such jurisdiction is not specifically pointed out by these rules, any suitable process or mode of proceeding may be adopted which appears most conformable to the spirit of said rules." As already stated, provisions of the Rules of Court are applicable to land registration cases in a suppletory character. Pursuant to the provision just quoted, respondent Judge has the power to issue all auxiliary writs, including the writ of demolition sought by petitioner, processes and other means necessary to carry into effect the jurisdiction conferred upon it by law in land registration cases to issue a writ of possession to the successful litigant, the petitioner herein. Lastly, in the case of Shoiji vs. Harvey, 43 Phil. 333, we pointed out that "Independent of any statutory provision, ... every court has inherent power to do all things reasonably necessary for the administration of justice within the scope of its jurisdiction." In line with this doctrine, it may be stated that respondent Judge, in the instant case, has the inherent power to issue the writ of demolition demanded by petitioner. Needless to say, its issuance is reasonably necessary to do justice to petitioner who is being deprived of the possession of the lots in question, by reason of the continued refusal of respondent Clemente Pagsisihan to remove his house thereon and restore possession of the premises to petitioner. We believe the above-quoted ruling aptly answers the arguments of respondents-appellants, the same having practically identical sets of facts obtaining in the case at bar. Appellants can not be regarded as builders in GOOD FAITH because they are bound by the 1941 decree of registration that obligated their parents and predecessors-in-interest. GOOD FAITH must rest on a colorable right in the builder, beyond a mere stubborn belief in one's title despite judicial adjudication. The fact that in 1959 appellants demolished and replaced their old house with new and bigger ones can not enervate the rights of the registered owners. Otherwise, the rights of the latter to enjoy full possession of their registered property could be indefinitely defeated by an unsuccessful opponent through the simple subterfuge of replacing his old house with a new one from time to time. Wherefore, the appealed order should be, as it is hereby affirmed. With costs against respondentsappellants.

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CASE 5
THIRD DIVISION [ 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. 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. 2 As such, the lot was registered in the latter's names. 3
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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. 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 monthto-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 onehalf 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. 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. 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 RTC denied 8 the petitioners' motion for reconsideration. Hence, the present petition.
7

and

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:

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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. 9 After all, ownership of the property is not being transferred, 10 only the temporary use and enjoyment thereof. 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. 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. 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. 14 This estoppel applies even though the lessor had no title at the time the relation of lessor and lessee was created, 15 and may be asserted not only by the original lessor, but also by those who succeed to his title. 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. 17 In a plethora of cases, 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
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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, 19because 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, 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. 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.

CASE 6
THIRD DIVISION G.R. No. 142131. December 11, 2002] SPOUSES DARIO LACAP and MATILDE LACAP, Petitioners, vs. JOUVET ONG LEE, represented by Reynaldo de los Santos, respondent. DECISION CORONA, J.: Before us is a petition for review of the decision[1 dated February 28, 2000 of the Court of Appeals[2 affirming the decision[3 of the Regional Trial Court (RTC, for brevity) of Davao City, Branch 11.
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The said courts affirmed on appeal the decision dated April 30, 1997 of the Municipal Trial Court in Cities (MTCC, for brevity) of Davao City in a case[4 for unlawful detainer filed by respondent Jouvet Ong Lee against the petitioner spouses Dario and Matilde Lacap. The facts, as found by the Court of Appeals and the Regional Trial Court, are as follows: Before 1981, a certain Victor Facundo mortgaged two parcels of land and the improvements thereon to Monte de Piedad Savings Bank (the bank, for brevity). In 1981, herein petitioner spouses Dario and Matilde Lacap assumed to pay Facundos mortgage obligation to the bank. Due to their failure to pay their obligation to the bank, however, the latter foreclosed on the mortgage. During the auction sale, the bank emerged as the highest bidder and title passed on to it. The bank allowed the petitioner spouses to stay in the premises as lessees paying a monthly rental of P800. The petitioner spouses introduced improvements thereon allegedly amounting to some P500,000 after relying on the banks assurance that the property would be sold back to them. On May 1, 1996[5, the petitioner spouses representative went to the bank to pay the monthly rental. However, the bank refused to accept the rentals inasmuch as, according to the bank, the property had already been sold to another person. When the petitioner spouses called the banks head office, the Vice-President of the Assets Division of the bank advised them to submit a written offer to the bank for P1,100,000. The petitioner spouses complied that same day. But, on May 22, 1996, the bank turned down the petitioner spouses offer. On June 20, 1996, the petitioner spouses received a letter demanding that they vacate the premises because it was already owned by herein respondent, Jouvet Ong Lee. The petitioner spouses instituted a civil case against the respondent for cancellation of sale and damages with an application for preliminary injunction. This case is now pending before Branch 13 of the Regional Trial Court (RTC, for brevity) of Davao City.[6 Meanwhile, on October 30, 1996, the respondent filed a complaint for unlawful detainer against the petitioners. After trial, the Municipal Trial Court of Davao City, Branch 4, rendered judgment as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants ordering the latter to: a) vacate the subject premises; b) pay P1,500.00 as reasonable compensation for the use of the said premises commencing the date of this decision until defendants vacate the same; c) pay P10,000.00 as and by way of attorneys fees; and d) cost of suit. SO ORDERED.[7 On appeal, the RTC of Davao City, Branch 11, affirmed the assailed decision of the municipal trial court, with the modification that respondent should reimburse the petitioner spouses for the improvements the latter introduced to the premises. The dispositive portion of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered affirming the decision of the court a quo with the modification that plaintiff should reimburse the defendant for the improvements the latter introduced on the premises.[8 The respondent filed a motion for reconsideration praying for the deletion of the order to reimburse petitioner spouses for the improvements introduced on the subject premises. On August 25, 1998, the RTC issued an order granting respondents motion, to wit:

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WHEREFORE, the Motion for Reconsideration of Plaintiff-Appellee is hereby granted to leave the premises therein even if the property may suffer damage. But they shall not cause more damage than what is necessary. They shall likewise remove the ornamental improvements introduced therein. SO ORDERED.[9 On August 23, 1999, the said court denied the petitioner spouses motion for reconsideration. Petitioner spouses appealed the decision of the RTC to the Court of Appeals. According to them, the courts a quo committed serious errors of fact and law in entertaining the complaint for unlawful detainer despite the lack of jurisdiction considering that the issue recovery of the right to possess was the subject matter of an accion publiciana which was properly cognizable by the Regional Trial Courts.[10 On February 28, 2000, the appellate court rendered a decision, the dispositive portion of which reads: WHEREFORE, for lack of merit, the instant petition is DISMISSED and the assailed Decision dated February 20, 1998 and Order dated August 25, 1998 are AFFIRMED. SO ORDERED.[11 The appellate court held that the municipal trial court had jurisdiction over the case inasmuch as the complaint itself sufficiently alleged that possession was unlawfully withheld from the respondent who was the registered owner thereof, and that the petitioner spouses refused to vacate the subject premises despite demands to vacate the same. In brushing aside the petitioner spouses argument that respondents ownership was assailable due to the banks violation of its promise to first offer the subject property to them, the appellate court ruled that it could not touch upon said issue as it was the subject matter of a separate case filed by the spouses before the RTC of Davao City, Branch 13. Reiterating the rulings of the courts a quo, the appellate court held that the petitioner spouses could not be builders in GOOD FAITH inasmuch as their payment of rentals to the bank was an indication that they were lessees. Thus, in the indemnification for improvements made, Article 1678, not Article 448, of the Civil Code should govern. Hence, this petition seeking a resolution on the following assigned issues: I WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED ON THE JURISDICTIONAL QUESTION, THAT IS THE JURISDICTION OF THE DAVAO CITY MUNICIPAL COURT OVER THE UNLAWFUL DETAINER CASE FILED BY THE RESPONDENT; AND AS AN ALTERNATIVE TO, BUT ASSOCIATED WITH, THE ABOVE ISSUE, AND ASSUMING THAT THE DAVAO CITY MUNICIPAL COURT HAD JURISDICTION, II WHETHER OR NOT THE COURT OF APPEALS CORRECTLY APPLIED ARTICLE 1678 INSTEAD OF ARTICLE 448 OF THE CIVIL CODE WITH REGARD TO INDEMNITY FOR THE IMPROVEMENTS INTRODUCED BY THE PETITIONERS ON THE SUBJECT PROPERTY.[12 Abandoning their previous position of lack of jurisdiction on the part of MTC, the petitioner spouses now claim that the courts a quo erred in oversimplifying the issue in the case at bar. Since they were questioning the title of the respondent over the subject property, the case for unlawful detainer was no longer limited to the question of possession but also involved the question of ownership. Thus, the courts a quo should not have evaded ruling on the issue of ownership as a pre-requisite to the determination and resolution of the issue of physical possession. Section 16 of the 1997 Rules of Civil Procedure provides that: Sec. 16. Resolving defense of ownership.- When the defendant raises the defense of ownership in his pleadings and the question of possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved only to determine the issue of possession.
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The petitioner spouses are questioning the respondents ownership by raising as an issue the alleged failure of the bank to first offer to them the subject property, thereby making respondents title defective. This, according to the petitioner spouses, is a defense of ownership that should have been resolved by the courts a quo. This Court takes exception to this argument. The defense of ownership contemplated by the said rule refers to a situation where the defendants either claim ownership of the subject property or attributes said ownership to another person other than the plaintiff. It does not apply where the defendants merely question the validity of the title of the plaintiff. Thus, the petitioner spouses must anchor the legality of their material possession of the property on a claim of title in order for the court to be able to touch, at least provisionally and only for purposes of determining possession, on the legality of the issue of ownership. In their Reply[13, they do not claim ownership over the subject premises to support their right to possess the property. They do not claim having a better right to the said property by way of transfer of title through one of the modes of transferring ownership. The alleged violation of their right of priority or first option to buy the premises is not the defense of ownership contemplated in Sec. 16 because said violation, even if true, would only give a cause of action for damages on the ground of breach of contract but not an action for recovery of title. The cases cited by petitioners cannot support their position as said cases refer to different factual situations. In Oronce v. Court of Appeals,[14] the defendants maintained ownership over the property by claiming that the contract of sale with assumption of mortgage was actually an equitable mortgage. We ruled therein that the defendant as mortgagor, and not as vendor, of the property can raise as a defense his claim of ownership over the subject property. In Refugia v. Court of Appeals,[15] the defendants claimed title over the subject property by contending that they, and not the plaintiffs, paid for the purchase of the said property. In the instant case, however, the petitioners admit that they do not own the subject parcels of land. As third persons to the contract of sale between the bank and the respondent, they are only questioning the validity of the transfer of title to respondent. The same cannot qualify as a defense of ownership as they will not derive title as a consequence but will, at best, only be given their disputed priority option to buy the subject premises. Another reason why the supposed issue of ownership cannot be ruled upon by the courts a quo is due to the fact that the same issue is also the subject of a separate pending case for cancellation of sale filed by the petitioners themselves against the respondent before the Regional Trial Court Davao City. In effect, by questioning the ownership of respondent, the petitioners are raising a defense that serves as the main cause of action in the complaint for the cancellation of sale pending before another court. This legal strategy is prohibited by the rule on the alleged litis pendencia. To ask the courts a quo to rule on the alleged defense of ownership is to pre-empt the ruling of the RTC, Branch 13, hearing the case for cancellation of sale. A party is prohibited from splitting his cause of action for the reason that it will unnecessarily clog the court dockets, waste the time and money of the parties, and perpetrate an abuse of the legal system by filing cases of the same nature in the hope of insuring a favorable judgment. Thus, the ruling of the MTCC that petitioner spouses defense does not qualify as a defense of ownership is correct. In the event that their first assigned error is not resolved in their favor, the petitioner spouses assert that their right to be indemnified for the improvements they introduced should be based on Article 448 of the Civil Code which provides that: 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.
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The parties shall agree upon the terms of the lease and in case of disagreements the courts shall fix the terms thereof. Article 546 of the Civil Code provides that builders in GOOD FAITH are entitled to reimbursement for necessary and useful expenses, with right of retention in both cases. The petitioners insist that they should be treated as builders in GOOD FAITH inasmuch as they stepped into the shoes of Victor Facundo, the former owner-mortgagor, when the latter assigned to them the obligation to pay the bank the balance due on the mortgage. Since then, they occupied the subject property and introduced improvements thereon. They contend that they were not lessees and paid no rentals thereon. We do not think so. Article 528 of the Civil Code provides that possession in GOOD FAITH continues to subsist until facts exist which show that the possessor is already aware that he wrongfully possesses the thing. Although, in the beginning, the petitioners were made to believe that they had a claim of title over the said property by assuming the mortgage and possessing the subject property, all this changed when they started paying monthly rentals to the mortgagee bank after the foreclosure of the said property. We find this finding of the courts a quoconclusive on us in this petition for review.[16 A conclusive presumption arises from the fact that, during the tenancy relationship, the petitioner spouses admitted the validity of the title of their landlord. This negated their previous claim of title.[17 If, indeed, they believed in GOOD FAITH they had at least an imperfect title of dominion over the subject premises, they should have tried to prevent the foreclosure and objected to the acquisition of title by the bank. In other words, their supposed belief in GOOD FAITH of their right of dominion ended when the bank foreclosed and acquired title over the subject premises. Hence, the applicable provision in the instant case is Article 1678 of the Civil Code which provides that: 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 cause 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 petitioner spouses are therefore entitled to be paid only one-half of the value of the useful improvements at the time of the termination of the lease or to have the said improvements removed if the respondent refuses to reimburse them. WHEREFORE, the petition for review is hereby DENIED. The decision dated February 28, 2000 of the Court of Appeals is hereby AFFIRMED. Costs against the petitioners. SO ORDERED.

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CASE 7
FIRST DIVISION G.R. No. L-49219 April 15, 1988 SPOUSES CONCEPCION FERNANDEZ DEL CAMPO and ESTANISLAO DEL CANTO, plaintiffsappellees, -versusBERNARDA FERNANDEZ ABESIA, defendant-appellant. GANCAYCO, J.: In this appeal from the decision of the Court of First Instance (CFI) of Cebu, certified to this Court by the Court of Appeals on account of the question of law involved, the sole issue is the applicability of the provisions of Article 448 of the Civil Code relating to a builder in GOOD FAITH when the property involved is owned in common. This case involves a parcel of land, Lot No. 1161 of the Cadastral Survey of Cebu, with an area of only about 45 square meters, situated at the corner of F. Flores and Cavan Streets, Cebu City covered by TCT No. 61850. An action for partition was filed by plaintiffs in the CFI of Cebu. Plaintiffs and defendants are coowners pro indiviso of this lot in the proportion of and 1/3 share each, respectively. The trial court appointed a commissioner in accordance with the agreement of the parties. ,the Id commissioner conducted a survey, prepared a sketch plan and submitted a report to the trial court on May 29, 1976, recommending that the property be divided into two lots: Lot 1161-A with an area of 30 square meters for plaintiffs and Lot No. 1161-B with an area of 15 square meters for the defendants. The houses of plaintiffs and defendants were surveyed and shown on the sketch plan. The house of defendants occupied the portion with an area of 5 square meters of Lot 1161-A of plaintiffs. The parties manifested their conformity to the report and asked the trial court to finally settle and adjudicate who among the parties should take possession of the 5 square meters of the land in question. In solving the issue the trial court held as follows: The Court believed that the plaintiffs cannot be obliged to pay for the value of the portion of the defendants' house which has encroached an area of five (5) sq. meters of the land alloted to them. The defendants cannot also be obliged to pay for the price of the said five (5) square meters. The rights of a builder in GOOD FAITH under Article 448 of the New Civil Code does (sic) not apply to a case where one co-owner has built, planted or sown on the land owned in common. "Manresa agreeing with Sanchez Roman, says that as a general rule this article is not applicable because the matter should be governed more by the provisions on co-ownership than on accession. Planiol and Ripert are also of the opinion that this article is not applicable to a co-owner who constructs, plants or sows on the community property, even if the land where the construction, planting or sowing is made is a third person under the circumstances, and the situation is governed by the rules of co-ownership. Our Court of Appeals has held that this article cannot be invoked by one co-owner against another who builds, plants or sows upon their land, since the latter does not do so on land not belonging to him. (C.A.), O.G. Supp., Aug. 30, 194, p. 126). In the light of the foregoing authorities and considering that the defendants have expressed their conformity to the partition that was made by the commissioner as shown in the sketch plan attached to the commissioner's report, said defendants have no other alternative except to remove and demolish part of their house that has encroached an area of five (5) sq. meters of the land allotted to the plaintiffs. WHEREFORE, judgment is hereby rendered assigning Lot 1161-A with an area of thirty (30) sq. meters to the plaintiffs spouses Concepcion Fernandez Abesia, Lourdes Fernandez Rodil,
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Genaro Fernandez and Dominga A. Fernandez, in the respective metes and bounds as shown in the subdivision sketch plan attached to the Commissioner's Report dated may 29, 1976 prepared by the Commissioner, Geodetic Engineer Espiritu Bunagan. Further, the defendants are hereby ordered at their expense to remove and demolish part of their house which has encroached an area of five (5) square meters from Lot 1161-A of the plaintiffs; within sixty (60) days from date hereof and to deliver the possession of the same to the plaintiffs. For the Commissioner's fee of P400.00, the defendants are ordered to pay, jointly and severally, the sum of P133.33 and the balance thereof to be paid by the plaintiffs. The costs of suit shall be paid by the plaintiffs and the defendants in the proportion of two-thirds (2/3) and one-third (1/3) shares respectively. A certified copy of this judgment shall be recorded in the office of the Register of Deeds of the City of Cebu and the expense of such recording shall be taxed as a part of the costs of the action. Hence, this appeal interposed by the defendants with the following assignments of errors: I THE TRIAL COURT ERRED IN NOT APPLYING THE RIGHTS OF A BUILDER IN GOOD FAITH UNDER ART. 448 OF THE NEW CIVIL CODE TO DEFENDANTS-APPELLANTS WITH RESPECT TO THAT PART OF THEIR HOUSE OCCUPYING A PROTION OF THE LOT ASSIGNED TO PLAINTIFFSAPPELLEES. II THE TRIAL COURT ERRED IN ORDERING DEFENDANTS-APPELLANTS TO REMOVE AND DEMOLISH AT THEIR EXPENSE, THAT PART OF THEIR HOUSE WHICH HAS ENCROACHED ON AN AREA OF FIVE SQUARE METERS OF LOT 1161-A OF PLAINTIFFS-APPELLEES. Article 448 of the New Civil Code provides as follows: Art. 448. The owner of the land on which anything has been built, sown, or planted in GOOD FAITH, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in common for then he did not build, plant or sow upon land that exclusively belongs to another but of which he is a co-owner. The co-owner is not a third person under the circumstances, and the situation is governed by the rules of co-ownership. 1 However, when, as in this case, the co-ownership is terminated by the partition and it appears that the house of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in GOOD FAITH, then the provisions of Article 448 of the new Civil Code should apply. Manresa and Navarro Amandi agree that the said provision of the Civil Code may apply even when there was co-ownership if GOOD FAITH has been established. 2 Applying the aforesaid provision of the Civil Code, the plaintiffs have the right to appropriate said portion of the house of defendants upon payment of indemnity to defendants as provided for in Article 546 of the Civil Code. Otherwise, the plaintiffs may oblige the defendants to pay the price of the land occupied by their house. However, if the price asked for is considerably much more than the value of the portion of the house of defendants built thereon, then the latter cannot be obliged to buy the land. The defendants shall then pay the reasonable rent to the plaintiff upon such terms and conditions that they may agree. In case
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of disagreement, the trial court shall fix the terms thereof. Of course, defendants may demolish or remove the said portion of their house, at their own expense, if they so decide. WHEREFORE, the decision appealed from is hereby MODIFIED by ordering plaintiff to indemnify defendants for the value of the Id portion of the house of defendants in accordance with Article 546 of the Civil Code, if plaintiffs elect to appropriate the same. Otherwise, the defendants shall pay the value of the 5 square meters of land occupied by their house at such price as may be agreed upon with plaintiffs and if its value exceeds the portion of the house that defendants built thereon, the defendants may choose not to buy the land but defendants must pay a reasonable rental for the use of the portion of the land of plaintiffs As may be agreed upon between the parties. In case of disagreement, the rate of rental shall be determined by the trial court. Otherwise, defendants may remove or demolish at their own expense the said portion of their house. No costs. SO ORDERED.

CASE 8
Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 72876 January 18, 1991 FLORENCIO IGNAO, Petitioner, vs. HON. INTERMEDIATE APPELLATE substituted by his Legal Heirs, and ISIDRO IGNAO, Respondents. FERNAN, C.J.: In this petition for review by certiorari, petitioner seeks the reversal of the decision of the Intermediate Appellate Court (now Court of Appeals) affirming in toto the decision of the Court of First Instance of Cavite, ordering petitioner Florencio Ignao to sell to private respondents Juan and Isidro Ignao, that part of his property where private respondents had built a portion of their houses. The antecedent facts are as follows: Petitioner Florencio Ignao and his uncles private respondents Juan Ignao and Isidro Ignao were co-owners of a parcel of land with an area of 534 square meters situated in Barrio Tabon, Municipality of Kawit, Cavite. Pursuant to an action for partition filed by petitioner docketed as Civil Case No. N-1681, the then Court of First Instance of Cavite in a decision dated February 6, 1975 directed the partition of the aforesaid land, alloting 133.5 square meters or 2/8 thereof to private respondents Juan and Isidro, and giving the remaining portion with a total area of 266.5 square meters to petitioner Florencio. However, no actual partition was ever effected. 1 On July 17, 1978, petitioner instituted a complaint for recovery of possession of real property against private respondents Juan and Isidro before the Court of First Instance of Cavite, docketed as Civil Case No. 2662. In his complaint petitioner alleged that the area occupied by the two (2) houses built by private respondents exceeded the 133.5 square meters previously alloted to them by the trial court in Civil Case No. N-1681. Consequently, the lower court conducted an ocular inspection. It was found that the houses of Juan and Isidro actually encroached upon a portion of the land belonging to Florencio. Upon agreement of the parties, the trial court ordered a licensed geodetic engineer to conduct a survey to determine the exact area occupied by the houses of private respondents. The survey subsequently disclosed that the house of
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COURT,

JUAN

IGNAO,

Juan occupied 42 square meters while that of Isidro occupied 59 square meters of Florencio's land or a total of 101 square meters. In its decision, the trial court (thru Judge Luis L. Victor) ruled that although private respondents occupied a portion of Florencio's property, they should be considered builders in GOOD FAITH. The trial court took into account the decision of the Court of First Instance of Cavite in the action for partition 2 and quoted: . . . . Hence, it is the well-considered opinion of the Court that although it turned out that the defendants had, before partition, been in possession of more than what rightfully belongs to them, their possession of what is in excess of their rightful share can at worst be possession in GOOD FAITH which exempts them from being condemned to pay damages by reason thereof. 3 Furthermore, the trial court stated that pursuant to Article 448 of the Civil Code, the owner of the land (Florencio) should have the choice to either appropriate that part of the house standing on his land after payment of indemnity or oblige the builders in GOOD FAITH (Juan and Isidro) to pay the price of the land. However, the trial court observed that based on the facts of the case, it would be useless and unsuitable for Florencio to exercise the first option since this would render the entire houses of Juan and Isidro worthless. The trial court then applied the ruling in the similar case of Grana vs. Court of Appeals, 4 where the Supreme Court had advanced a more "workable solution". Thus, it ordered Florencio to sell to Juan and Isidro those portions of his land respectively occupied by the latter. The dispositive portion of said decision reads as follows: WHEREFORE, judgment is hereby rendered in favor of the defendants and(a) Ordering the plaintiff Florencio Ignao to sell to the defendants Juan and Isidro Ignao that portion of his property with an area of 101 square meters at P40.00 per square meter, on which part the defendants had built their houses; and (b) Ordering the said plaintiff to execute the necessary deed of conveyance to the defendants in accordance with paragraph (a) hereof. Without pronouncement as to costs.
5

Petitioner Florencio Ignao appealed to the Intermediate Appellate Court. On August 27, 1985, the Appellate Court, Second Civil Cases Division, promulgated a decision, 6affirming the decision of the trial court. Hence the instant petition for review which attributes to the Appellate Court the following errors: 1. That the respondent Court has considered private respondents builders in GOOD FAITH on the land on question, thus applying Art. 448 of the Civil Code, although the land in question is still owned by the parties in co-ownership, hence, the applicable provision is Art. 486 of the Civil Code, which was not applied. 2. That, granting for the sake of argument that Art. 448 . . . is applicable, the respondent Court has adjudged the working solution suggested in Grana and Torralba vs. CA. (109 Phil. 260), which is just an opinion by way of passing, and not the judgment rendered therein, which is in accordance with the said provision of the Civil Code, wherein the owner of the land to buy (sic) the portion of the building within 30 days from the judgment or sell the land occupied by the building. 3. That, granting that private respondents could buy the portion of the land occupied by their houses, the price fixed by the court is unrealistic and pre-war price. 7 The records of the case reveal that the disputed land with an area of 534 square meters was originally owned by Baltazar Ignao who married twice. In his first marriage, he had four children, namely Justo (the father of petitioner Florencio), Leon and private respondents Juan and Isidro. In his second marriage, Baltazar had also four children but the latter waived their rights over the controverted land in favor of Justo. Thus, Justo owned 4/8 of the land which was waived by his half-brothers and sisters plus his 1/8
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share or a total of 5/8. Thereafter, Justo acquired the 1/8 share of Leon for P500.00 which he later sold to his son Florencio for the same amount. When Justo died, Florencio inherited the 5/8 share of his father Justo plus his 1/8 share of the land which he bought or a total of 6/8 (representing 400.5 square meters). Private respondents, Juan and Isidro, on the other hand, had 1/8 share (66.75 square meters) each of the land or a total of 133.5 square meters. Before the decision in the partition case was promulgated, Florencio sold 134 square meters of his share to a certain Victa for P5,000.00 on January 27, 1975. When the decision was handed down on February 6,1975, the lower court alloted 2/8 of the land to private respondents Juan and Isidro, or a total of 133.5 square meters. It should be noted that prior to partition, all the co-owners hold the property in common dominion but at the same time each is an owner of a share which is abstract and undetermined until partition is effected. As cited in Eusebio vs. Intermediate Appellate Court, 8 "an undivided estate is co-ownership by the heirs." As co-owners, the parties may have unequal shares in the common property, quantitatively speaking. But in a qualitative sense, each co-owner has the same right as any one of the other co-owners. Every coowner is therefore the owner of the whole, and over the whole he exercises the right of dominion, but he is at the same time the owner of a portion which is truly abstract, because until division is effected such portion is not concretely determined. 9 Petitioner Florencio, in his first assignment of error, asseverates that the court a quo erred in applying Article 448 of the Civil Code, since this article contemplates a situation wherein the land belongs to one person and the thing built, sown or planted belongs to another. In the instant case, the land in dispute used to be owned in common by the contending parties. Article 448 provides: Art. 448. The owner of the land on which anything has been built, sown or planted in GOOD FAITH, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. Whether or not the provisions of Article 448 should apply to a builder in GOOD FAITH on a property held in common has been resolved in the affirmative in the case of Spouses del Campo vs. Abesia, 10 wherein the Court ruled that: The court a quo correctly held that Article 448 of the Civil Code cannot apply where a co-owner builds, plants or sows on the land owned in common for then he did not build, plant or sow upon land that exclusively belongs to another but of which he is a co-owner. The co-owner is not a third person under the circumstances, and the situation is governed by the rules of co-ownership. However, when, as in this case, the ownership is terminated by the partition and it appears that the home of defendants overlaps or occupies a portion of 5 square meters of the land pertaining to plaintiffs which the defendants obviously built in GOOD FAITH, then the provisions of Article 448 of the new Civil Code should apply. Manresa and Navarro Amandi agree that the said provision of the Civil Code may apply even when there is a co-ownership if GOOD FAITH has been established. 11 In other words, when the co-ownership is terminated by a partition and it appears that the house of an erstwhile co-owner has encroached upon a portion pertaining to another co-owner which was however made in GOOD FAITH, then the provisions of Article 448 should apply to determine the respective rights of the parties.

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Petitioner's second assigned error is however well taken. Both the trial court and the Appellate Court erred when they peremptorily adopted the "workable solution" in the case of Grana vs. Court of appeals, 12 and ordered the owner of the land, petitioner Florencio, to sell to private respondents, Juan and Isidro, the part of the land they intruded upon, thereby depriving petitioner of his right to choose. Such ruling contravened the explicit provisions of Article 448 to the effect that "(t)he owner of the land . . . shall have the right to appropriate . . .or to oblige the one who built . . . to pay the price of the land . . . ." The law is clear and unambiguous when it confers the right of choice upon the landowner and not upon the builder and the courts. Thus, in Quemuel vs. Olaes, 13 the Court categorically ruled that the right to appropriate the works or improvements or to oblige the builder to pay the price of the land belongs to the landowner. As to the third assignment of error, the question on the price to be paid on the land need not be discussed as this would be premature inasmuch as petitioner Florencio has yet to exercise his option as the owner of the land. WHEREFORE, the decision appealed from is hereby MODIFIED as follows: Petitioner Florencio Ignao is directed within thirty (30) days from entry of judgment to exercise his option to either appropriate as his own the portions of the houses of Juan and Isidro Ignao occupying his land upon payment of indemnity in accordance with Articles 546 and 548 of the Civil Code, or sell to private respondents the 101 square meters occupied by them at such price as may be agreed upon. Should the value of the land exceed the value of the portions of the houses that private respondents have erected thereon, private respondents may choose not to buy the land but they must pay reasonable rent for the use of the portion of petitioner's land as may be agreed upon by the parties. In case of disagreement, the rate of rental and other terms of the lease shall be determined by the trial court. Otherwise, private respondents may remove or demolish at their own expense the said portions of their houses encroaching upon petitioner's land. 14 No costs. SO ORDERED.

CASE 9
EN BANC G.R. No. 2209 January 2, 1907

SEGUNDO JAVIER, plaintiff-appellant, vs. LONGINOS JAVIER, administrator of the estate of Manuel Javier and Perfecta Tagle, defendantappelle. W. J. Rohde for appellant. Chicote, Miranda & Sierra for appelle. MAPA, J.:

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This action involves the ownership of a house and lot. This property was included in the inventory of the property of the estate of Manuel Javier and Perfecta Tagle, under which the parties to this action claim, and the plaintiff seeks to have the property in controversy excluded from the said inventory, alleging that is belongs exclusively to him. The defendant contends that the property belongs to the said estate, and that it has been, therefore, properly included in the inventory. The defendant filed a counter- complaint praying that judgment be entered against the plaintiff, who is now in possession of the property, for the return of the same, and the payment of the rent received by the said plaintiff from the property, to the administrator of the estate. The case was decided in the court below in favor of the defendant, the plaintiff excepted to the judgment, made a motion for a new trial on the ground that the judgment was not justified by the weight of the evidence, and has brought the case this court, by means of a bill of exceptions, for review. As suggested by the appellant in his brief, the description of the property in controversy is not very clear and definite. This, however, is of no practical importance in this case. No question has been raised upon this point. The parties in discussing their respective rights have assumed that the description was correct. The evidence introduced as to each of the pieces of property in question being different, we shall now proceed to examine the same separately. (a) Lot. It is beyond dispute that this lot formerly belonged to Manuel Javier, under whom both parties claim. Manuel Javier sold this lot, with another lot, to Ceferino Joven, for the sum of 350 pesos on the 11th of September, 1862, as appears from a public document executed on the same date, and which is a part of the record in this case. The terms of this instrument are conclusive against the assertion of some of the witnesses for the defendant to the effect that the contract between Manuel Javier and Ceferino Joven related to a mortgage only, or perhaps to a sale on condition of redemption. "Having agreed upon the sale," reads the text of the document, "with Ceferino Joven . . . (Manuel Javier) declares that he actually sells and transfers the said two lots to the said Ceferino Joven for the aforesaid sum of three hundred and fifty pesos. . . . In consideration thereof he transfers to the purchaser the title and ownership which he has to the property so that the said purchaser may dispose of and alienate the same, as he may see fit, as his own properly acquired property ." According to this, it was a transfer and not a mortgage an absolute and irrevocable transfer, and not subject to redemption, for there is nothing said in the deed as to such redemption. Such was the contract entered into between Javier and Joven with regard to the lot in question. This fact is of capital importance in this action, because, it not appearing in any way that Manuel Javier or his wife, Perfecta Tagle, had repurchased, or in any other manner reacquired the ownership of the said lot, it can not be considered as a part of the estate of the said spouses, as contended by the defendant in this case. Such a conclusion could not be arrived at even if we admitted for the sake of argument everything that the witnesses for the defendant said upon this point. These witnesses were Gavina Javier and Romualda Javier, the sisters and coheirs of the parties to this action. They testified that they and their brother, Martin, with their father's consent, repurchased the lot in question, paying therefor the sum of 350 pesos, from their own funds, such being the price formerly paid by Ceferino Joven. If this were true, they and not the estate would be the owners of the lot, since the repurchase was made, as they say, by themselves, on their own account, and with their own funds. In such a case, they, and not the administrator of the estate, would have the right to contest the ownership of the property. But the fact is that the testimony of these two witnesses was completely contradicted by other evidence in the case, which in our opinion was more conclusive, introduced by the plaintiff. Their testimony is in open conflict with the real facts, for they proceed upon the theory that the property had not been absolutely sold to Ceferino Joven, but simply mortgaged to him, or at most, sold to him on condition of redemption. This theory is plainly and manifestly contrary to the express terms of the deed executed and delivered on the 11th of September, 1862, to which prior reference had been made. Moreover, there is nothing other than the testimony of the said witnesses, to show that they had reacquired the property in question from the original purchaser, Ceferino Joven. There is, however, on the other hand, sufficient proof to show that the plaintiff and his brother, Luis, bought from the heirs of the
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said Joven the property in question, and that Luis subsequently sold to the plaintiff his share in the property, the plaintiff having thus become the sole owner of the land. Aside from the testimony of the latter, who testified as to these facts, we have the sworn statement of the said Luis, which corroborates in its entirety the testimony of the plaintiff. Luis was one of the heirs of Manuel Javier and Perfecta Tagle, and his testimony, in so far as it favors the plaintiff to the prejudice of the estate in which he was interested as such heir is, and should be, above suspicion, unless it is shown that he acted in collusion with the plaintiff, something that the defendant has no even attempted to prove. The testimony of this witness upon this point is as impartial as the testimony of the witnesses, Gavina Javier and Romualda Javier, is improbable, for were it true that they and their brother, Martin, repurchased the property with their own funds, as they claim, it would be exceedingly to strange that instead of contending that the property belongs to them exclusively they should consent to its being considered as a part of the estate, thus giving various other heirs, including the plaintiff, an interest in the said property. But above all this there stands the instrument executed on the 12th of March, 1884, before the gobernadorcillo of the district of Malate and attesting witnesses, which was introduced in evidence by the plaintiff. This instrument purports to have been executed by Ceferino Joven, jr., himself and as attorney in fact of his mother, and it appears therein that the said Joven in his dual capacities aforesaid sold and transferred to the plaintiff and his brother Luis, the lot in question, together with another building lot, for the sum of 350 pesos. Whatever probatory force the said document may have itself, the fact remains that its authenticity was admitted at the trial by the vendor, Ceferino Joven. This, taken together with the fact that the plaintiff was then in the physical possession of the property, and that such possession was recorded in the Register of Property in the plaintiffs own name, which was admitted by the defendant at the trial, is conclusive evidence of the fact that the plaintiff, and not the estate of Manuel Javier and Perfecta Tagle is the legitimate owner of the property. The conclusion reached by the court below to the contrary upon this point is manifestly erroneous. (b) House. This house, according to the complaint, is built upon land belonging to the estate. The question therefore relates only to the ownership of the building, exclusive of the land upon which it stands. This house was apparently built in 1880, and it having been almost entirely destroyed by a typhoon in 1882, it was rebuilt while Manuel Javier, the father of the plaintiff, and the owner of the land upon which the said house, stands, was still living. It seems that Manuel Javier died in 1885. In 1884 the house was already habitable, although it was not completely finished and painted until the year 1895, the work having proceeded slowly. The plaintiff alleged in his complaint, and insisted upon it in his testimony, that he built the said house with the knowledge and consent of his father and at his own expense. This statement of the plaintiff is supported by five documents, three of which purport to be signed by Felix Javier on June 1, 1887, November 11, 1900 and January 15, 1903, respectively; and the other two by Martin Javier on April 1 and July 4, 1901, respectively. Felix and Martin Javier are, like the plaintiff in this case, the children and heirs of Manuel Javier, and therefore interested in the latter's estate. The document above referred to represent receipts for certain sums borrowed by them from the plaintiff as advances upon the lots left by their deceased father, Manuel Javier, "one of which lots," reads each and all the said documents, "being the lot upon which the house of strong materials, No. 520 Calle Real or Cabanas, the exclusive property of my brother, Segundo Javier is built." The authenticity of the documents signed by Felix Javier was admitted by him at the trial; and the signatures of Martin Javier appearing thereon, he having died, were identified by his son, Santos Javier, who also had an interest in the estate in question. Those documents constitute an acknowledgment of the fact that the house in controversy belonged exclusively to the plaintiff, and such acknowledgment on their parts is proof all the more appreciable in favor of the plaintiff since it comes from persons who, as heirs of Manuel Javier, had an entirely adverse interest to that of the plaintiff in this case. This proof is further strengthened by the fact that the plaintiff had been continuously in possession of the said house since it was built. Not only the plaintiff, but Romualda Javier, a witness for the defendant as well, testified as to such uninterrupted possession by the plaintiff. Romualda, while testifying upon this point, stated that certain actions had been brought against the plaintiff, but that they never succeeded in taking away from him the possession of the house, the rents for which were always received by him. An attempt was made by Felix Javier to overcome the probatory force of the documents signed by him, he alleging that he signed the same without first informing himself as to their contents, except that part thereof relating to the sums of money mentioned in the same. We can not give credit to this explanation. The natural presumption is the one does not sign a document without first informing himself of its
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contents, and that presumption acquires greater force where not only, but several documents, executed at different times and at different places, as is here the case, were signed. There is nothing in the record that can in any way overcome this presumption. The testimony of Romualda Javier and Gavina Javier to the effect that the house in question belonged to the estate of their deceased parents can not prevail against the evidence introduced by the plaintiff. Their testimony is obviously interested, and is absolutely devoid of any corroboration, this aside from the fact that both witnesses have made conflicting statements. Romualda testified that the house was constructed at the expense of herself, her father, and of Gavina, while according to the latter, Romualda, her brother Martin, and herself paid for the construction. Of course, the latter and not the estate would be the owners of the house if Gavina's statement is true, for under such an hypothesis it would appear that her parents did not contribute at all to the expenses of the construction. The house was built, according to the plaintiff, with the knowledge and consent of his father, to whom the land upon which it was built belonged. This testimony has not been contradicted, but on the contrary is strengthened by the further testimony of the plaintiff to the effect that his father lived with him at that time in the house in question. This fact conclusively shows that he, the father, consented to the construction of the house. Consequently the house was built by the plaintiff in GOOD FAITH, and article 361 of the Civil Code is perfectly applicable to this case. That articles provides that the owner of the land on which building, sowing, or planting is done in GOOD FAITH shall have a right to appropriate as his own the work, sowing, or planting, after having paid the indemnity therefor as required by articles 453 and 454, or to compel the person who has built or planted to pay to him the value of the land, and to force the person who sowed to pay the proper rent. Article 453 of the same code provides: Useful expenses are paid the possessor in GOOD FAITH with the same right of retention, the person who has defeated him in his possession having the option of refunding the amount of the expenses or paying him the increase in value the thing has acquired by reason thereof. The property in controversy, belonging to the plaintiff as it does, the cross-complaint of the defendant must fail. The judgment appealed from is hereby reversed and we hold (1) that the house and the lot in question should be excluded from the inventory of the property of the estate of the deceased, Manuel Javier and Perfecta Tagle, and (2) that the latter's heirs have a right to retain the said house after indemnifying the plaintiff in the value thereof, or to compel the latter to pay to them the value of the land occupied by the said house, the plaintiff having the right to retain the same in the meantime until the value of the said land is paid. In view of the fact that there is not sufficient evidence in the case to determine the actual value of the house and lot, the right is reserved to the parties to so determine the value in the manner which they deem best. We make no special provisions as to costs. After the expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter the case be remanded to the court below for execution. So ordered.

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CASE 10
Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 115814 May 26, 1995 PEDRO P. PECSON, Petitioner, vs. COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA NUGUID, Respondents. DAVIDE, JR., J.: This petition for review on certiorari seeks to set aside the decision 1 of the Court of Appeals in CA-G.R. SP No. 32679 affirming in part the order 2 of the Regional Trial Court (RTC) of Quezon City, Branch 101, in Civil Case No. Q-41470. The factual and procedural antecedents of this case as gathered from the record are as follows: Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias Street, Quezon City, on which he built a four-door two-storey apartment building. For his failure to pay realty taxes amounting to twelve thousand pesos (P12,000.00), the lot was sold at public auction by the city Treasurer of Quezon City to Mamerto Nepomuceno who in turn sold it on 12 October 1983 to the private respondents, the spouses Juan Nuguid and Erlinda Tan-Nuguid, for one hundred three thousand pesos (P103,000.00). The petitioner challenged the validity of the auction sale in Civil Case No. Q-41470 before the RTC of Quezon City. In its decision of 8 February 1989, the RTC dismissed the complaint, but as to the private respondents' claim that the sale included the apartment building, it held that the issue concerning it was "not a subject of the . . . litigation." In resolving the private respondents' motion to reconsider this issue, the trial court held that there was no legal basis for the contention that the apartment building was included in the sale. 3 Both parties then appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No. 2931. In its decision of 30 April 1992, 4 the Court of Appeals affirmed in toto the assailed decision. It also agreed with the trial court that the apartment building was not included in the auction sale of the commercial lot. Thus: Indeed, examining the record we are fully convinced that it was only the land - without the apartment building - which was sold at the auction sale, for plaintiff's failure to pay the taxes due thereon. Thus, in the Certificate of Sale of Delinquent Property To Purchaser (Exh. K, p. 352, Record) the property subject of the auction sale at which Mamerto Nepomuceno was the purchaser is referred to as Lot No. 21-A, Block No. K-34, at Kamias, Barangay Piahan, with an area of 256.3 sq. m., with no mention whatsoever, of the building thereon. The same description of the subject property appears in the Final Notice To Exercise The Right of Redemption (over subject property) dated September 14, 1981 (Exh. L, p. 353, Record) and in the Final Bill of Sale over the same property dated April 19, 1982 (Exh. P, p. 357, Record). Needless to say, as it was only the land without any building which Nepomuceno had acquired at the auction sale, it was also only that land without any building which he could have legally sold to the Nuguids. Verily, in the Deed of Absolute Sale of Registered Land executed by Mamerto Nepomuceno in favor of the Nuguids on October 25, 1983 (Exh. U, p. 366, Record) it clearly appears that the property subject of the sale for P103,000.00 was only the parcel of land, Lot 21-A, Blk. K-34 containing an area of 256.3 sq. meters, without any mention of any improvement, much less any building thereon. (emphases supplied)

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The petition to review the said decision was subsequently denied by this Court. 5 Entry of judgment was made on 23 June 1993. 6 On November 1993, the private respondents filed with the trial court a motion for delivery of possession of the lot and the apartment building, citing article 546 of the Civil Code. 7 Acting thereon, the trial court issued on 15 November 1993 the challenged order 8 which reads as follows: Submitted for resolution before this Court is an uncontroverted [sic] for the Delivery of Possession filed by defendants Erlinda Tan, Juan Nuguid, et al. considering that despite personal service of the Order for plaintiff to file within five (5) days his opposition to said motion, he did not file any. In support of defendant's motion, movant cites the law in point as Article 546 of the Civil Code . . . Movant agrees to comply with the provisions of the law considering that plaintiff is a builder in GOOD FAITH and he has in fact, opted to pay the cost of the construction spent by plaintiff. From the complaint itself the plaintiff stated that the construction cost of the apartment is much more than the lot, which apartment he constructed at a cost of P53,000.00 in 1965 (par. 8 complaint). This amount of P53,000.00 is what the movant is supposed to pay under the law before a writ of possession placing him in possession of both the lot and apartment would be issued. However, the complaint alleges in paragraph 9 that three doors of the apartment are being leased. This is further confirmed by the affidavit of the movant presented in support of the motion that said three doors are being leased at a rental of P7,000.00 a month each. The movant further alleges in his said affidavit that the present commercial value of the lot is P10,000.00 per square meter or P2,500,000.00 and the reasonable rental value of said lot is no less than P21,000.00 per month. The decision having become final as per Entry of Judgment dated June 23, 1993 and from this date on, being the uncontested owner of the property, the rents should be paid to him instead of the plaintiff collecting them. From June 23, 1993, the rents collected by plaintiff amounting to more than P53,000.00 from tenants should be offset from the rents due to the lot which according to movant's affidavit is more than P21,000.00 a month. WHEREFORE, finding merit in the Motion, the Court hereby grants the following prayer that: 1. The movant shall reimburse plaintiff the construction cost of P53,000.00. 2. The payment of P53,000.00 as reimbursement for the construction cost, movant Juan Nuguid is hereby entitled to immediate issuance of a writ of possession over the Lot and improvements thereon. 3. The movant having been declared as the uncontested owner of the Lot in question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the plaintiff should pay rent to the movant of no less than P21,000.00 per month from said date as this is the very same amount paid monthly by the tenants occupying the lot. 4. The amount of P53,000.00 due from the movant is hereby offset against the amount of rents collected by the plaintiff from June 23, 1993, to September 23, 1993. SO ORDERED. The petitioner moved for the reconsideration of the order but it was not acted upon by the trial court. Instead, on 18 November 1993, it issued a writ of possession directing the deputy sheriff "to place said movant Juan Nuguid in possession of subject property located at No. 79 Kamias Road, Quezon City, with all the improvements thereon and to eject therefrom all occupants therein, their agents, assignees, heirs and representatives." 9 The petitioner then filed with the Court of Appeals a special civil action for certiorari and prohibition assailing the order of 15 November 1993, which was docketed as CA-G.R. SP No. 32679. 10 In its decision of
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7 June 1994, the Court of Appeals affirmed in part the order of the trial court citing Article 448 of the Civil Code. In disposing of the issues, it stated: As earlier pointed out, private respondent opted to appropriate the improvement introduced by petitioner on the subject lot, giving rise to the right of petitioner to be reimbursed of the cost of constructing said apartment building, in accordance with Article 546 of the . . . Civil Code, and of the right to retain the improvements until he is reimbursed of the cost of the improvements, because, basically, the right to retain the improvement while the corresponding indemnity is not paid implies the tenancy or possession in fact of the land on which they are built . . . [2 TOLENTINO, CIVIL CODE OF THE PHILIPPINES (1992) p. 112]. With the facts extant and the settled principle as guides, we agree with petitioner that respondent judge erred in ordering that "the movant having been declared as the uncontested owner of the lot in question as per Entry of Judgment of the Supreme Court dated June 23, 1993, the plaintiff should pay rent to the movant of no less than P21,000 per month from said date as this is the very same amount paid monthly by the tenants occupying the lot. We, however, agree with the finding of respondent judge that the amount of P53,000.00 earlier admitted as the cost of constructing the apartment building can be offset from the amount of rents collected by petitioner from June 23, 1993 up to September 23, 1993 which was fixed at P7,000.00 per month for each of the three doors. Our underlying reason is that during the period of retention, petitioner as such possessor and receiving the fruits from the property, is obliged to account for such fruits, so that the amount thereof may be deducted from the amount of indemnity to be paid to him by the owner of the land, in line with Mendoza vs. De Guzman, 52 Phil. 164 . . . . The Court of Appeals then ruled as follows: WHEREFORE, while it appears that private respondents have not yet indemnified petitioner with the cost of the improvements, since Annex I shows that the Deputy Sheriff has enforced the Writ of Possession and the premises have been turned over to the possession of private respondents, the quest of petitioner that he be restored in possession of the premises is rendered moot and academic, although it is but fair and just that private respondents pay petitioner the construction cost of P53,000.00; and that petitioner be ordered to account for any and all fruits of the improvements received by him starting on June 23, 1993, with the amount of P53,000.00 to be offset therefrom. IT IS SO ORDERED. 11 Aggrieved by the Court of Appeals' decision, the petitioner filed the instant petition. The parties agree that the petitioner was a builder in GOOD FAITH of the apartment building on the theory that he constructed it at the time when he was still the owner of the lot, and that the key issue in this case is the application of Articles 448 and 456 of the Civil Code. The trial court and the Court of Appeals, as well as the parties, concerned themselves with the application of Articles 448 and 546 of the Civil Code. These 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. (361a) xxx xxx xxx 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.
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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. (453a) By its clear language, Article 448 refers to a land whose ownership is claimed by two or more parties, one of whom has built some works, or sown or planted something. The building, sowing or planting may have been made in GOOD FAITH or in BAD FAITH. The rule on GOOD FAITH laid down in Article 526 of the Civil Code shall be applied in determining whether a builder, sower or planter had acted in GOOD FAITH. 12 Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or donation. This Court said so in Coleongco vs. Regalado: 13 Article 361 of the old Civil Code is not applicable in this case, for Regalado constructed the house on his own land before he sold said land to Coleongco. Article 361 applies only in cases where a person constructs a building on the land of another in good or in BAD FAITH, as the case may be. It does not apply to a case where a person constructs a building on his own land, for then there can be no question as to good or BAD FAITH on the part of the builder. Elsewise stated, where the true owner himself is the builder of works on his own land, the issue of GOOD FAITH or BAD FAITH is entirely irrelevant. Thus in strict point of law, Article 448 is not apposite to the case at bar. Nevertheless, we believe that the provision therein on indemnity may be applied by analogy considering that the primary intent of Article 448 is to avoid a state of forced co-ownership and that the parties, including the two courts below, in the main agree that Articles 448 and 546 of the Civil Code are applicable and indemnity for the improvements may be paid although they differ as to the basis of the indemnity. Article 546 does not specifically state how the value of the useful improvements should be determined. The respondent court and the private respondents espouse the belief that the cost of construction of the apartment building in 1965, and not its current market value, is sufficient reimbursement for necessary and useful improvements made by the petitioner. This position is, however, not in consonance with previous rulings of this Court in similar cases. In Javier vs. Concepcion, Jr., 14 this Court pegged the value of the useful improvements consisting of various fruits, bamboos, a house and camarin made of strong material based on the market value of the said improvements. In Sarmiento vs. Agana, 15 despite the finding that the useful improvement, a residential house, was built in 1967 at a cost of between eight thousand pesos (P8,000.00) to ten thousand pesos(P10,000.00), the landowner was ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00), the value of the house at the time of the trial. In the same way, the landowner was required to pay the "present value" of the house, a useful improvement, in the case of De Guzman vs. De la Fuente, 16 cited by the petitioner. The objective of Article 546 of the Civil Code is to administer justice between the parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop of Manila 17 that the said provision was formulated in trying to adjust the rights of the owner and possessor in GOOD FAITH of a piece of land, to administer complete justice to both of them in such a way as neither one nor the other may enrich himself of that which does not belong to him. Guided by this precept, it is therefore the current market value of the improvements which should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private respondents who would otherwise be allowed to acquire a highly valued income-yielding four-unit apartment building for a measly amount. Consequently, the parties should therefore be allowed to adduce evidence on the present market value of the apartment building upon which the trial court should base its finding as to the amount of reimbursement to be paid by the landowner. The trial court also erred in ordering the petitioner to pay monthly rentals equal to the aggregate rentals paid by the lessees of the apartment building. Since the private respondents have opted to appropriate the apartment building, the petitioner is thus entitled to the possession and enjoyment of the apartment building, until he is paid the proper indemnity, as well as of the portion of the lot where the building has been constructed. This is so because the right to retain the improvements while the corresponding
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indemnity is not paid implies the tenancy or possession in fact of the land on which it is built, planted or sown. 18 The petitioner not having been so paid, he was entitled to retain ownership of the building and, necessarily, the income therefrom. It follows, too, that the Court of Appeals erred not only in upholding the trial court's determination of the indemnity, but also in ordering the petitioner to account for the rentals of the apartment building from 23 June 1993 to 23 September 1993. WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order of 15 November 1993 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-41470 are hereby SET ASIDE.

The case is hereby remanded to the trial court for it to determine the current market value of apartment building on the lot. For this purpose, the parties shall be allowed to adduce evidence on current market value of the apartment building. The value so determined shall be forthwith paid by private respondents to the petitioner otherwise the petitioner shall be restored to the possession of apartment building until payment of the required indemnity. No costs. SO ORDERED.

the the the the

CASE 11
Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 108894 February 10, 1997 TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, Petitioner, vs. COURT OF APPEALS (FORMER SPECIAL SEVENTEENTH DIVISION) and EDUARDO UY, Respondents.

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-ininterest, encroached on a portion of the lot owned by private respondent. What are the rights and obligations of the parties? Is petitioner considered a builder in BAD FAITH because, as held by respondent Court, he is "presumed to know the metes and bounds of his property as described in his certificate of title"? Does petitioner succeed into the GOOD FAITH or BAD FAITH of his predecessor-in-interest which presumably constructed the building? These are the questions raised in the petition for review of the Decision 1 dated August 28, 1992, in CAG.R. CV No. 28293 of respondent Court 2 where the disposition reads: 3 WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed and set aside and another one entered 1. Dismissing the complaint for lack of cause of action;

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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 attorney's 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: 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: 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 plaintiff's 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 defendant's 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 defendant's adjoining land; that upon learning of the encroachment or occupation by its buildings and wall of a portion of defendant's land, plaintiff offered to buy from defendant that particular portion of defendant's 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 plaintiff's 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 plaintiff's 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 plaintiff's 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 defendant's 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.
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After trial on the merits, the Regional Trial Court 6 of Pasay City, Branch 117, in Civil Case No. PQ-7631-P, rendered a decision dated December 4, 1989 in favor of petitioner who was the plaintiff therein. The dispositive portion reads: 7 WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and ordering the latter to sell to plaintiff that portion of land owned by him and occupied by portions of plaintiff's 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 attorney's fees; and 3. The costs of this suit. Appeal was duly interposed with respondent Court, which as previously stated, reversed and set aside the decision of the Regional Trial Court and rendered the assailed Decision and Amended Decision. Hence, this recourse under Rule 45 of the Rules of Court. The Issues The petition raises the following issues: 8 (A) Whether or not the respondent Court of Appeals erred in holding the petitioner a builder in BAD FAITH because it is "presumed to know the metes and bounds of his property." (B) Whether or not the respondent Court of Appeals erred when it used the amicable settlement between the petitioner and the private respondent, where both parties agreed to the demolition of the rear portion of the fence, as estoppel amounting to recognition by petitioner of respondent's 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 supplemental 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 reckonedduring the period when it was actually being built; and in a case where no evidence was presented norintroduced as to the GOOD FAITH or BAD FAITH of the builder at that time, as in this case, he must be presumed to be a "builder in GOOD FAITH," since "BAD FAITH cannot be presumed." 9 B. In a specific "boundary overlap situation" which involves a builder in GOOD FAITH, as in this case, it is now well settled that the lot owner, who builds on the adjacent lot is not charged with "constructive notice"
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of the technical metes and bounds contained in their torrens titles to determine the exact and precise extent of his boundary perimeter. 10 C. The respondent court's citation of the twin cases of Tuason & Co. v. Lumanlan and Tuason & Co. v. Macalindong isnot the "judicial authority" for a boundary dispute situation between adjacent torrens titled lot owners, as the facts of the present case do not fall within nor square with the involved principle of a dissimilar case. 11 D. Quite contrary to respondent Uy's reasoning, petitioner Tecnogas continues to be a builder in GOOD FAITH, even if it subsequently built/repaired the walls/other permanent structures thereon while the case a quo was pending and even while respondent sent the petitioner many letters/filed cases thereon. 12 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. 13 E.(F.) As a general rule, although the landowner has the option to choose between: (1) "buying the building built in GOOD FAITH", or (2) "selling the portion of his land on which stands the building" under Article 448 of the Civil Code; the first option is not absolute, because an exception thereto, once it would be impractical for the landowner to choose to exercise the first alternative, i.e. buy that portion of the house standing on his land, for the whole building might be rendered useless. The workable solution is for him to select the second alternative, namely, to sell to the builder that part of his land on which was constructed a portion of the house. 14 Private respondent, on the other hand, argues that the petition is "suffering from the following flaws:
15

1. It did not give the exact citations of cases decided by the Honorable Supreme Court that allegedly contradicts the ruling of the Hon. Court of Appeals based on the doctrine laid down in Tuason vs. Lumanlan case citing alsoTuason 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 respondent's purchase of the two lots, "was ahead of the purchase by petitioner of the building and lot from Pariz Industries"; (2) the declaration of the General Manager of Tecnogas that the sale between petitioner and Pariz Industries "was not registered" because of some problems with China Banking Corporation; and (3) the Deed of Sale in favor of petitioner was registered in its name only in "the month of May 1973." 16 The Court's Ru1ing The petition should be granted. GOOD FAITH or BAD FAITH Respondent Court, citing the cases of J.M. Tuason & Co., Inc. v. Vda. de Lumanlan 17 and J.M. Tuason & Co., Inc. v. Macalindong, 18 ruled that petitioner "cannot be considered in GOOD FAITH" because as a land owner, it is "presumed to know the metes and bounds of his own property, specially if the same are reflected in a properly issued certificate of title. One who erroneously builds on the adjoining lot should be considered a builder in (b)ad (f)aith, there being presumptive knowledge of the Torrens title, the area, and the extent of the boundaries." 19
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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 neighbor's land, simply because he is supposedly presumed to know the boundaries of his land as described in his certificate of title. No such doctrinal statement could have been made in those cases because such issue was not before the Supreme Court. Quite the contrary, we have rejected such a theory in Co Tao vs. Chico, 20 where we held that unless one is versed in the science of surveying, "no one can determine the precise extent or location of his property by merely examining his paper title." There is no question that when petitioner purchased the land from Pariz Industries, the buildings and other structures were already in existence. The record is not clear as to who actually built those structures, but it may well be assumed that petitioner's 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 respondent's land was done in BAD FAITH by the builder of the encroaching structures, the latter should be presumed to have built them in GOOD FAITH. 21 It is presumed that possession continues to be enjoyed in the same character in which it was acquired, until the contrary is proved. 22 GOOD FAITH consists in the belief of the builder that the land he is building on is his, and his ignorance of any defect or flaw in his title. 23 Hence, such GOOD FAITH, by law, passed on to Pariz's successor, petitioner in this case. Further, "(w)here one derives title to property from another, the act, declaration, or omission of the latter, while holding the title, in relation to the property, is evidence against the former." 24 And possession acquired in GOOD FAITH does not lose this character except in case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. 25 The GOOD FAITH ceases from the moment defects in the title are made known to the possessor, by extraneous evidence or by suit for recovery of the property by the true owner. 26 Recall that the encroachment in the present case was caused by a very slight deviation of the erected wall (as fence) which was supposed to run in a straight line from point 9 to point 1 of petitioner's lot. It was an error which, in the context of the attendant facts, was consistent with GOOD FAITH. Consequently, the builder, if sued by the aggrieved landowner for recovery of possession, could have invoked the provisions of Art. 448 of the Civil Code, which reads: The owner of the land on which anything has been built, sown or planted in GOOD FAITH, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. The obvious benefit to the builder under this article is that, instead of being outrightly ejected from the land, he can compel the landowner to make a choice between the two options: (1) to appropriate the building by paying the indemnity required by law, or (2) sell the land to the builder. The landowner cannot refuse to exercise either option and compel instead the owner of the building to remove it from the land. 27 The question, however, is whether the same benefit can be invoked by petitioner who, as earlier stated, is not the builder of the offending structures but possesses them as buyer. We answer such question in the affirmative. In the first place, there is no sufficient showing that petitioner was aware of the encroachment at the time it acquired the property from Pariz Industries. We agree with the trial court that various factors in evidence adequately show petitioner's 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
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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 respondent's "right" over the disputed property. It held that by undertaking to demolish the fence under said settlement, petitioner recognized private respondent's right over the property, and "cannot later on compel" private respondent "to sell to it the land since" private respondent "is under no obligation to sell." 28 We do not agree. Petitioner cannot be held in estoppel for entering into the amicable settlement, the pertinent portions of which read: 29 That the parties hereto have agreed that the rear portion of the fence that separates the property of the complainant and respondent shall be demolished up to the back of the building housing the machineries which demolision (sic) shall be undertaken by the complainant at anytime. That the fence which serve(s) as a wall housing the electroplating machineries shall not be demolished in the mean time which portion shall be subject to negotiation by herein parties. From the foregoing, it is clear that petitioner agreed only to the demolition of a portion of the wall separating the adjoining properties of the parties - i.e. "up to the back of the building housing the machineries." But that portion of the fence which served as the wall housing the electroplating machineries was not to be demolished. Rather, it was to "be subject to negotiation by herein parties." The settlement may have recognized the ownership of private respondent but such admission cannot be equated with BAD FAITH. Petitioner was only trying to avoid a litigation, one reason for entering into an amicable settlement. As was ruled in Osmea vs. Commission on Audit,
30

A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical agreement by the Civil Code and is therein dealt with in some detail. "A compromise," declares Article 2208 of said Code, "is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced." xxx xxx xxx The Civil Code not only defines and authorizes compromises, it in fact encourages them in civil actions. Art. 2029 states that "The Court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise." . . . 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
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448 will readily show that the landowner's exercise of his option can only take place after the builder shall have come to know of the intrusion - in short, when both parties shall have become aware of it. Only then will the occasion for exercising the option arise, for it is only then that both parties will have been aware that a problem exists in regard to their property rights. Options of Private Respondent What then is the applicable provision in this case which private respondent may invoke as his remedy: Article 448 or Article 450 31 of the Civil Code? In view of the GOOD FAITH of both petitioner and private respondent, their rights and obligations are to be governed by Art. 448. The essential fairness of this codal provision has been pointed out by Mme. Justice Ameurfina Melencio-Herrera, citing Manresa and applicable precedents, in the case of Depra vs. Dumlao, 32 to wit: Where the builder, planter or sower has acted in GOOD FAITH, a conflict of rights arises between the owners, and it becomes necessary to protect the owner of the improvements without causing injustice to the owner of the land. In view of the impracticality of creating a state of forced co-ownership, the law has provided a just solution by giving the owner of the land the option to acquire the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay for the land and the sower to pay the proper rent. It is the owner of the land who is authorized to exercise the option, because his right is older, and because, by the principle of accession, he is entitled to the ownership of the accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No. 49167, April 30, 1949; Article applied; see Cabral, et al. vs. Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050). The private respondent's insistence on the removal of the encroaching structures as the proper remedy, which respondent Court sustained in its assailed Decisions, is thus legally flawed. This is not one of the remedies bestowed upon him by law. It would be available only if and when he chooses to compel the petitioner to buy the land at a reasonable price but the latter fails to pay such price. 33 This has not taken place. Hence, his options are limited to: (1) appropriating the encroaching portion of petitioner's 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 petitioner's prayer that private respondent be ordered to sell the land 34 the proper remedy. While that was dubbed as the "more workable solution" in Grana and Torralba vs. The Court of Appeals, et al., 35 it was not the relief granted in that case as the landowners were directed to exercise "within 30 days from this decision their option to either buy the portion of the petitioners' house on their land or sell to said petitioners the portion of their land on which it stands." 36 Moreover, in Grana and Torralba, the area involved was only 87 square meters while this case involves 520 square meters 37. In line with the case of Depra vs. Dumlao, 38 this case will have to be remanded to the trial court for further proceedings to fully implement the mandate of Art. 448. It is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation. 39 Petitioner, however, must also pay the rent for the property occupied by its building as prescribed by respondent Court from October 4, 1979, but only up to the date private respondent serves notice of its option upon petitioner and the trial court; that is, if such option is for private respondent to appropriate the encroaching structure. In such event, petitioner would have a right of retention which negates the obligation to pay rent. 40 The rent should however continue if the option chosen is compulsory sale, but only up to the actual transfer of ownership. The award of attorney's fees by respondent Court against petitioner is unwarranted since the action appears to have been filed in GOOD FAITH. Besides, there should be no penalty on the right to litigate. 41 WHEREFORE, premises considered, the petition is hereby GRANTED and the assailed Decision and the Amended Decision are REVERSED and SET ASIDE. In accordance with the case of Depra vs. Dumlao, 42 this
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case is REMANDED to the Regional Trial Court of Pasay City, Branch 117, for further proceedings consistent with Articles 448 and 546 43 of the Civil Code, as follows: The trial court shall determine: a) the present fair price of private respondent's 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 respondent's option to sell the land. In that event, the parties shall be given a period of fifteen (15) days from such notice of rejection within which to agree upon the terms of the lease, and give the 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 latter's 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 respondent's 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.

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CASE 12
FIRST DIVISION G.R. No. 149295. September 23, 2003] PHILIPPINE NATIONAL BANK,, Petitioner, v. GENEROSO DE JESUS, represented by his Attorney-in-Fact, CHRISTIAN DE JESUS,respondent. DECISION VITUG, J.: Petitioner Philippine National Bank disputes the decision handed down by the Court of Appeals promulgated on 23 March 2001 in CA-G.R. CV No. 56001, entitled Generoso De Jesus, represented by his Attorney-in-Fact, Christian De Jesus, versus Philippine National Bank. The assailed decision has affirmed the judgment rendered by the Regional Trial Court, Branch 44, of Mamburao, Occidental Mindoro, declaring respondent Generoso de Jesus as being the true and lawful owner of the 124-square-meter portion of the land covered by Transfer Certificate of Title (TCT) No. T-17197 and ordering petitioner bank to vacate the premises, to deliver possession thereof to respondent, and to remove the improvement thereon. It would appear that on 10 June 1995, respondent filed a complaint against petitioner before the Regional Trial Court of Occidental Mindoro for recovery of ownership and possession, with damages, over the questioned property. In his complaint, respondent stated that he had acquired a parcel of land situated in Mamburao, Occidental Mindoro, with an area of 1,144 square meters covered by TCT No. T-17197, and that on 26 March 1993, he had caused a verification survey of the property and discovered that the northern portion of the lot was being encroached upon by a building of petitioner to the extent of 124 square meters. Despite two letters of demand sent by respondent, petitioner failed and refused to vacate the area. Petitioner, in its answer, asserted that when it acquired the lot and the building sometime in 1981 from then Mayor Bienvenido Ignacio, the encroachment already was in existence and to remedy the situation, Mayor Ignacio offered to sell the area in question (which then also belonged to Ignacio) to petitioner at P100.00 per square meter which offer the latter claimed to have accepted. The sale, however, did not materialize when, without the knowledge and consent of petitioner, Mayor Ignacio later mortgaged the lot to the Development Bank of the Philippines. The trial court decided the case in favor of respondent declaring him to be the rightful owner of the disputed 124-square-meter portion of the lot and ordering petitioner to surrender possession of the property to respondent and to cause, at its expense, the removal of any improvement thereon. The Court of Appeals, on appeal, sustained the trial court but it ordered to be deleted the award to respondent of attorneys fees, as well as moral and exemplary damages, and litigation expenses. Petitioner went to this Court, via a petition for review, after the appellate court had denied the banks motion for reconsideration, here now contending that 1. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN ADJUDGING PNB A BUILDER IN BAD FAITH OVER THE ENCROACHED PROPERTY IN QUESTION; 2. THE COURT OF APPEALS GRAVELY ERRED IN LAW IN NOT APPLYING IN FAVOR OF PNB THE PROVISION OF ARTICLE 448 OF THE CIVIL CODE AND THE RULING IN TECNOGAS PHILIPPINES MANUFACTURING CORP. VS. COURT OF APPEALS, G.R. No. 108894, February 10, 1997, 268 SCRA 7.[1 The Regional Trial Court and the Court of Appeals have both rejected the idea that petitioner can be considered a builder in GOOD FAITH. In the context that such term is used in particular reference to
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Article 448, et seq., of the Civil Code, a builder in GOOD FAITH is one who, not being the owner of the land, builds on that land believing himself to be its owner and unaware of any defect in his title or mode of acquisition. The various provisions of the Civil Code, pertinent to the subject, read: Article 448. The owner of the land on which anything has been built, sown, or planted in GOOD FAITH, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. Article 449. He who builds, plants, or sows in BAD FAITH on the land of another, loses what is built, planted or sown without right to indemnity. Article 450. The owner of the land on which anything has been built, planted or sown in BAD FAITH may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed; or he may compel the builder or planter to pay the price of the land, and the sower the proper rent. A builder in GOOD FAITH can, under the foregoing provisions, compel the landowner to make a choice between appropriating the building by paying the proper indemnity or obliging the builder to pay the price of the land. The choice belongs to the owner of the land, a rule that accords with the principle of accession, i.e., that the accessory follows the principal and not the other way around.2 Even as the option lies with the landowner, the grant to him, nevertheless, is preclusive. He much choose one. He cannot, for instance, compel the owner of the building to instead remove it from the land.[3 In order, however, that the builder can invoke that accruing benefit and enjoy his corresponding right to demand that a choice be made by the landowner, he should be able to prove GOOD FAITH on his part. GOOD FAITH, here understood, is an intangible and abstract quality with no technical meaning or statutory definition, and it encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage. An individuals personal GOOD FAITH is a concept of his own mind and, therefore, may not conclusively be determined by his protestations alone. It implies honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry.[4 The essence of GOOD FAITH lies in an honest belief in the validity of ones right, ignorance of a superior claim, and absence of intention to overreach another. 5 Applied to possession, one is considered in GOOD FAITH if he is not aware that there exists in his title or mode of acquisition any flaw which invalidates it.6 Given the findings of both the trial court and the appellate court, it should be evident enough that petitioner would fall much too short from its claim of GOOD FAITH. Evidently, petitioner was quite aware, and indeed advised, prior to its acquisition of the land and building from Ignacio that a part of the building sold to it stood on the land not covered by the land conveyed to it. Equally significant is the fact that the building, constructed on the land by Ignacio, has in actuality been part of the property transferred to petitioner. Article 448, of the Civil Code refers to a piece of land whose ownership is claimed by two or more parties, one of whom has built some works (or sown or planted something) and not to a case where the owner of the land is the builder, sower, or planter who then later loses ownership of the land by sale or otherwise for, elsewise stated, where the true owner himself is the builder of works on his own land, the issue of GOOD FAITH or BAD FAITH is entirely irrelevant.[7 In fine, petitioner is not in a valid position to invoke the provisions of Article 448 of the Civil Code. The Court commiserates with petitioner in its present predicament; upon the other hand, respondent, too, is entitled to his rights under the law, particularly after having long been deprived of the enjoyment of his
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property. Nevertheless, the Court expresses hope that the parties will still be able to come up with an arrangement that can be mutually suitable and acceptable to them. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 56001 is AFFIRMED. No costs. SO ORDERED.

CASE 13
EN BANC G.R. No. L-12812 September 29, 1959

FILIPINAS COLLEGES, INC., plaintiff-appellee, -versusMARIA GARCIA TIMBANG, ET AL., defendants. -----------------------------G.R. No. L-12813 September 29, 1959

MARIA GARCIA TIMBANG, ET AL., plaintiffs. MARIA GARICA TIMBANG, plaintiff-appellant, -versusMARIA GERVACIO BLAS, defendant-appellee. De Guzman and Fernandez for appellee Filipinas Colleges, Inc. San Huan, Africa and Benedicto for appellant Maria Garcia Timbang. Nicanor S. Sison for appellee Maria Gervacio Blas. BARRERA, J.: This is an appeal taken from an order of the Court of First Instance of Manila dated May 10, 1957 (a) declaring the Sheriff's certificate of sale covering a school building sold at public auction null and void unless within 15 days from notice of said order the successful bidders, defendants-appellants spouses Maria Garcia Timbang and Marcelino Timbang, shall pay to, appellee Maria Gervacio Blas directly or through the Sheriff of Manila the sum of P5,750.00 that the spouses Timbang had bid for the building at the Sheriff's sale; (b) declaring the other appellee Filipinas Colleges, Inc. owner of 24,500/3,285,934 undivided interest in Lot No. 2-a covered by certificate of tile No 45970, on which the building sold in the auction sale is situated; and (c) ordering the sale in public auction of the said undivided interest of the Filipinas Colleges, Inc., in lot No. 2-a aforementioned to satisfy the unpaid portion of the judgment in favor of appellee Blas and against Filipinas Colleges, Inc. in the amount of P8,200.00 minus the sum of P5,750.00 mentioned in (a) above. The order appealed from is the result of three motions filed in the court a quo in the course of the execution of a final judgment of the Court of Appeals rendered in 2 cases appealed to it in which the spouses Timbang, the Filipinas Colleges, Inc., and Maria Gervacio Blas were the parties. IN that judgment of the Court of Appeals, the respective rights of the litigants have been adjudicated as follows: (1) Filipinas Colleges, Inc. was declared to have acquired the rights of the spouses Timbang in and to lot No. 2-a mentioned above and in consideration thereof, Filipinas Colleges, Inc., was ordered to pay the spouses Timbang the amount of P15,807.90 plus such other amounts which said spouses
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might have paid or had to pay after February, 1953, to Hoskins and Co. Inc., agent of the Urban Estates, Inc., original vendor of the lot. Filipinas Colleges, Inc. original vendor of the total amount with the court within 90 days after the decision shall have become final. (2) Maria Gervacio Blas was declared to be a builder in GOOD FAITH of the school building constructed on the lot in question and entitled to be paid the amount of P19,000.00 for the same. Filipinas Colleges, Inc., purchaser of the said building was ordered to deliver to Blas stock certificate (Exh. C) for 108 shares of Filipinas Colleges, Inc. with a par value of P10,800.00 and to pay Blas the sum of P8,200.00 of the house. (3) In case Filipinas Colleges, Inc. failed to deposit the value of the land, which after liquidation was fixed at P32,859.34, within the 90-day period set by the court, Filipinas Colleges would lose all its rights to the land and the spouses Timbang would then become the owners thereof. In that eventuality, the Timbangs would make known to the court their option under Art. 448 of the Civil Code whether they would appropriate the building in question, in which even they would have to pay Filipinas Colleges, Inc. the sum of P19,000.00, or would compel the latter to acquire the land and pay the price thereof. Filipinas Colleges, Inc. having failed to pay or deposit the sum of P32,859.34 within the time prescribed, the spouses Timbang, in compliance with the judgment of the Court of Appeals, on September 28, 1956, made known to the court their decision that they had chosen not of appropriate the building but to compel Filipinas Colleges, Inc., for the payment of the sum of P32,859,34. The motion having been granted, a writ of execution was issued on January 8, 1957. On January 16, 1957, appellee Blas in turn filed a motion for execution of her judgment of P8,200.00 representing the unpaid portion of the price of the house sold to Filipinas Colleges, Inc. Over the object of the Timbangs, the court grated the motion and the corresponding writ of execution was issued on January 30, 1957, date of the granting of the motion for execution, Blas through counsel, sent a letter to the Sheriff of Manila advising him of her preferential claim or lien on the house to satisfy the unpaid balance of the purchase price thereof under Article 2242 of the Civil Code, and to withhold from the proceed of the auction sale the sum of P8,200.00. Levy having been made on the house in virtue of the writs of execution, the Sheriff of Manila on March 5, 1957, sold the building in public auction in favor of the spouses Timbang, as the highest bidders, in the amount of P5,750.00. Personal properties of Filipinas Colleges, Inc. were also auctioned for P245.00 in favor of the spouses Timbang. As a result of these actuation, three motion were subsequently filed before the lower court: (1) By appellee Blas, praying that the Sheriff of Manila and/or the Timbang spouses be ordered to pay and deliver to her the sum of P5,750.00 representing the proceeds of the auction sale of the building of Filipinas Colleges, Inc. over which she has a lien of P8,200.00 for the unpaid balance of the purchase price thereof;. (2) Also by the appellee Bals, praying that there being still two unsatisfied executions, one for the sum of P32,859.34 in favor the land involved, Lot No. 2-a, be sold at public auction; and (3) By Filipinas Colleges, Inc. praying that because its properties, the house and some personal properties, have been auctioned for P5,750.00 and P245.00 respectively in favor of the Timbang spouses who applied the proceeds to the partial payment of the sum of P32,859.34 value of the land, Lot No. 2-a, it (Filipinas Colleges, Inc.) be declared part owner of said lot to the extent of the total amount realized from the execution sale of its properties. The Timbang spouses presented their opposition to each and all of these motion. After due hearing the lower court rendered its resolution in the manner indicated at the beginning of this decision, from which the Timbangs alone have appealed. In assailing the order of the court a quo directing the appellants to pay appellee Blas the amount of their bid (P5,750.00) made at the public auction, appellants' counsel has presented a novel, albeit ingenious, argument. It is contended that because the builder in GOOD FAITH has failed to pay the price of the land after the owners thereof exercised their option under Article 448 of the Civil Code, the builder
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lost his right of retention provided in Article 546 and by operation of Article 445, the appellants as owners of the land automatically became the owners ipso facto, the execution sale of the house in their favor was superfluous. Consequently, they are not bound to make good their bid of P5,750.00 as that would be to make goods to pay for their own property. By the same token, Blas claim for preference on account of the unpaid balance of the purchase price of the house does not apply because preference applies only with respect to the property of the debtor, and the Timbangs, owners of the house, are not the debtors of Blas. This Court cannot accept this oversimplification of appellants' position. Article 448 and 546 of the Civil Code defining the right of the parties in case a person in GOOD FAITH builds, sows or plants on the land of another, respectively provides: ART. 448. The owner of the land on which anything has been built, sown or plated in GOOD FAITH shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnify provided for in article 546 and 548, or to obligate the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof. ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in GOOD FAITH may retain the thing until he has reimbursed therefor. Useful expenses shall be refunded only to the possessor in GOOD FAITH with the same right of retention the person who has defeated him in the possession having to option of refunding the amount of expenses or of paying the case in value which thing may have acquired by reason thereof. Under the terms of these article, it is true that the owner of the land has the right to choose between appropriating the building by reimbursing the builder of the value thereof or compelling the builder in GOOD FAITH to pay for his land. Even this second right cannot be exercised if the value of the land is considerably more than that of the building. In addition to the right of the builder to be paid the value of his improvement, Article 546 gives him the corollary right of retention of the property until he is indemnified by the owner of the land. There is nothing in the language of these two article, 448 and 546, which would justify the conclusion of appellants that, upon the failure of the builder to pay the value of the land, when such is demanded by the land-owner, the latter becomes automatically the owner of the improvement under Article 445. The case of Bernardo vs. Bataclan, 66 Phil., 590 cited by appellants is no authority for this conclusion. Although it is true it was declared therein that in the event of the failure of the builder to pay the land after the owner thereof has chosen this alternative, the builder's right of retention provided in Article 546 is lost, nevertheless there was nothing said that as a consequence thereof, the builder loses entirely all rights over his own building. The question is; what is the recourse or remedy left to the parties in such eventuality where the builder fails to pay the value of the land? While the Code is silent on this Court in the cases ofMiranda vs. Fadullon, et al., 97 Phil., 801; 51 Off. Gaz., [12] 6226; Ignacio vs. Hilario, 76 Phil., 605 and the cited case of Bernardo vs. Bataclan, supra. In the first case, this Court has said: A builder in GOOD FAITH not be required to pay rentals. he has right to retain the land on which he has built in GOOD FAITH until he is reimbursed the expenses incurred by him. Possibly he might be made to pay rental only when the owner of the land chooses not to appropriate the improvement and requires the builder in GOOD FAITH to pay for the land but that the builder is unwilling or unable to pay the land, and then they decide to leave things as they are and assume the relation of lessor and lessee, and should they disagree as to the amount of rental then they can go to the court to fix that amount. (Emphasis supplied) Should the parties not agree to leave things as they are and to assume the relation of lessor and lessee, another remedy is suggested in the case of Ignacio vs. Hilario, supra, wherein the court has ruled
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that the owner of the land in entitled to have the improvement removed when after having chosen to sell his land to the other party, i.e., the builder in GOOD FAITH fails to pay for the same. A further remedy is indicated in the case of Bernardo vs. Bataclan, supra, where this Court approved the sale of the land and the improvement in a public auction applying the proceeds thereof first to the payment of the value of the land and the excess, if any, to be delivered to the owner of the house in payment thereof. The appellants herein, owners o the land, instead of electing any of the alternative above indicated chose to seek recovery of the value of their land by asking for a writ of execution; levying on the house of the builder; and selling the same in public auction. Sand because they are the highest bidder in their own auction sale, they now claim they acquired title to the building without necessity of paying in cash on account of their bid. In other words, they in effect pretend to retain their land and acquire the house without paying a cent therefor. This contention is without merit. This Court has already held in Matias vs. The Provincial Sheriff of Nueva Ecija (74 Phil., 326) that while it is the inveriable practice, dictated by common sense, that where the successful bidder is the execution creditor himself, he need not pay down the amount of the bid if it does not exceed the amount of his judgement, nevertheless, when their is a claim by a third-party, to the proceeds of the sale superior to his judgment credit, the execution creditor, as successful bidder, must pay in cash the amount of his bid as a condition precedent to the issuance to him of the certificate of sale. In the instant case, the Court of Appeals has already adjudged that appellee Blas is entitled to the payment of the unpaid balance of the purchase price of the school building. Blas is actually a lien on the school building are concerned. The order of the lower court directing the Timbang spouses, as successful bidders, to pay in cash the amount of their bid in the sum of P5,750.00 is therefore correct. With respect to the order of the court declaring appellee Filipinas Colleges, Inc. part owner of the land to the extent of the value of its personal properties sold at public auction in favor of the Timbang, this Court Likewise finds the same as justified, for such amount represents, in effect, a partial payment of the value of the land. If this resulted in the continuation of the so-called involuntary partnership questioned by the difference between P8,200.00 the unpaid balance of the purchase price of the building and the sum of P5,750.00 amount to be paid by the Timbangs, the order of the court directing the sale of such undivided interest of the Filipinas Colleges, Inc. is likewise justified to satisfy the claim of the appellee Blas. Considering that the appellant spouses Marcelino Timbang and Maria Garcia Timbang may not voluntarily pay the sum of P5,750.00 as ordered, thereby further delaying the final termination of this case, the first part of the dispositive portion of the order appealed from is modified in the sense that upon failure of the Timbang spouses to pay to the Sheriff or to Manila Gervacio Blas said sum of P5,750.00 within fifteen (15) days from notice of the final judgment, an order of execution shall issue in favor of Maria Gervasio Blas to be levied upon all properties of the Timbang spouses not exempt from execution for the satisfaction of the said amount. In all other respects, the appealed order of the court a quo is hereby affirmed, with costs against the appellants. It is so ordered.

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CASE 14
EN BANC G.R. No. L-8220 October 29, 1955

SALVACION MIRANDA, plaintiff-appellants, -versusESTEBAN FADULLON and spouses DIONISIO SEGARRA and CLEMENCIA N. DE SEGARRA, defendants-appellees. MONTEMAYOR, J.: The present appeal was first taken to the Court of Appeals. Later by resolution of the said court it was certified to us under section 17, paragraph 6 of the Judiciary Act of 1948, as amended, the said Tribunal being of the opinion that the case involved only questions of law. The facts as may be gathered from the pleadings filed by the parties may be briefly stated as follows. In the year 1939 one Lucio Tio was the owner of a parcel of land, lot 1589-J of the Banilad Estate, Cebu, under Transfer Certificate of Title No. 10548. On December 29, 1939, a power of attorney in favor of one Esteban Fadullon executed by Lucio Tio was registered in the land records of Cebu City and annotated on the same certificate of title. In the year 1946, on the strength of the said power of attorney Fadullon to make the repurchase within this period, the Segarras about ten days after the expiration of the period filed a sword petition for the consolidation of their ownership and registered said petition in the office of the Register of Deeds on May 15, 1946. Apprised of the sale of his property, Lucio Tio on June 4, 1946, filed a complaint in the Court of First Instance of Cebu, Civil Case No. 181 to annul the sale. Service of summons was made upon the Segarras on June 10, 1946. After hearing the trial court rendered judgment annulling the sale. The Segarras appealed to the Court of Appeals under CAG. R. No.6550-R and the said Tribunal affirmed the appealed decision and further required the Segarras to pay plaintiff the reasonable rentals on the property from the
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filing of the action until said property shall have been returned to plaintiff. Upon the decision becoming final the corresponding writ of execution was issued directing the Sheriff to put plaintiff Tio in possession of the lot. It turned out however that during the possession of the property by the Segarras they had introduced improvements thereon consisting of a building of three rooms and a storage room, and one artesian well, with tower and water tank and a cement flooring covering about one-third of the lot which according to the Segarras cost them P5,300. They then filed a motion with the trial court claiming that they were possessors in GOOD FAITH of the lot in question, and that they had introduced the improvements aforementioned in GOOD FAITH and asked the court to order the plaintiff to pay for the said improvements valued at P5,300 or to allow them to buy the land should the plaintiff decide not to pay for the improvements. On August 28, 1952, the trial court issued the following order: The attorney for the plaintiff has been accordingly served with copy of defendant's motion of July 31, 1952, filed through counsel. As prayed for, without opposition, the plaintiff is hereby ordered to either pay the defendant spouses, Dionisio Segarra and Clemencia N. Segarra (possessors in GOOD FAITH) the sum of P5,300, value of the building erected on the land in question, or otherwise allow said defendants to purchase the aforementioned lot. The plaintiff filed a motion for reconsideration claiming that the Segarras were possessors and builders in BAD FAITH and so were not entitled to reimbursement for the value of the improvements; that the reason he (plaintiff) did not file an opposition to the motion of the defendants asking for reimbursement was that he thought that the trial court was sufficiently informed and impressed with the BAD FAITH with which defendants bought the land and introduced improvements thereon and that it would consequently deny their motion; and in support of his motion for reconsideration plaintiff quoted portions of the decision of the trial court and the Court of Appeals. Upon the denial of his motion for reconsideration, he took the present appeal. After a careful review of the record we agree with the plaintiff-appellant. The trial court in its decision declaring the sale of the land to the defendants null and void and commenting on the alleged GOOD FAITH of defendants in buying the property said the following: There are two circumstances which seem to stubbornly belie the professed GOOD FAITH on the part of the Segarras in buying this property; namely. the circumstances of the power-of-attorney appearing on the back of the title as of five or six years previous and the other circumstances of the comparatively limited period of one month granted vendor Fadullon to redeem the property. Above all these, is the further circumstance that the said property had already been mortgaged in favor of the Cebu Mutual Building and Loan Association by virtue of that power-of-attorney. While the evidence did not disclose a collusion or conspiracy between Fadullon and the Segarras, yet, considering the short period of one month within which to redeem and the surrounding circumstances, the possibility of such collusion lingers. Obviously there was in this transaction a prevailing intention of railroading the property into a new ownership as may be proven by the fact that said purchasers filed a sworn petition for consolidating their ownership barely ten days after the expiration of thirty days, that is, on April 13, 1946, and registered with the office of Register of Deeds for Cebu twelve days thereafter, or on May 15, 1946. The Court of Appeals in its decision affirming that of the trial court said: The Segarra spouses maintain that they are purchasers in GOOD FAITH. We will now examine the record on this point. The alleged power of attorney executed by the late Lucio Tio in favor of appellant Fadullon was registered in the land record of the Register of Deeds of Cebu Citly and annotated at the back of Transfer Certificate of Title No. 10548 on December 29, 1939. On the same date, the deed of mortgage in favor of the Cebu Mutual Building and Loan Association was annotated in the said Torrens title (Exhibits 1 and 1-B). This encumbrance alone should have been sufficient to put the Segarra spouses upon an inquiry as to the authority of Fadullon to sell to them the same property six years later. For instance, the Segarras could have asked themselves this
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question: Did not the mortgage of P400 serve the purpose for which the power of attorney was executed? The Segarras did not require Fadullon to produce his power of attorney. While it is true that said power of attorney is annotated at the back of the Torrens title of Tio, it was still incumbent upon the Segarras to ascertain the scope and authority of Fadullon under said power of attorney. Fadullon executed the sale with the right to repurchase within the extraordinary short period of 30 days. This circumstance, again, should have placed the Segarras on their guards, knowing, as they did, that they were dealing with an agent under a power of attorney executed before the war. These unusual circumstances would seem to engender in our minds the possibility of collusion between the appellants, to hasten the registration of the title of the Segarras to the land in dispute . . . . . . the transfer of dominion on the property in question to the Segarras was null and void and of no effect. The new Certificate of Torrens Title No. 392 on the property now in the name of the Segarras is hereby ordered cancelled and that a new one issued in the name of Lucio Tio and his wife Salvacion Miranda; ordering the Segarras to return the possession of said property to plaintiff; The defendants Segarras are furthermore required to pay plaintiff the reasonable rentals on the property from the filing of this action until such time as the said property shall have been returned to plaintiff . . ." Although neither the trial court nor the Court of Appeals did expressly say and in so many words that the defendants-appellees were possessors in BAD FAITH, from a reading of their decisions particularly those we have just quoted, one can logically infer that that was the conclusion of the two courts, or to say it more mildly, that the defendants were not possessors in GOOD FAITH. Moreover, the very fact that the Court of Appeals sentenced the defendants to pay rentals is an indication, even proof that defendants were considered possessors and builders in BAD FAITH, or at least that they were not possessors and builders in GOOD FAITH. A builder in GOOD FAITH may not be required to pay rentals. He has a right to retain the land on which he has built in GOOD FAITH until he is reimbursed the expenses incurred by him. Possibly he might be required to pay rental only when the owner of the land chooses not to appropriate the improvement and requires the builder in GOOD FAITH to pay for the land, but that the builder is unwilling or unable to buy the land, and then they decide to leave things as they are and assume the relation of lessor and lessee, and should they disagree as to the amount of the rental then they can go to the court to fix that amount. Furthermore, plaintiff-appellant in her brief (page 7) says without denial or refutation on the part of defendants-appellees that they (defendants) applied for a building permit to construct the improvements in question on December 4, 1946, and the permit was granted on January 11, 1947, all this about seven months after they received the summons on June 10, 1946, meaning to say that the improvements were introduced long after their alleged GOOD FAITH as possessors had ended. In view of the foregoing, the appealed order of August 28, 1952 and the order of October 15, 1952, denying plaintiff's motion for reconsideration are set aside. With costs against appellees.

CASE 15
EN BANC G.R. No. L-175 April 30, 1946

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS IGNACIO, petitioners, vs. ELIAS HILARIO and his wife DIONISIA DRES, and FELIPE NATIVIDAD, Judge of First Instance of Pangasinan, respondents. Leoncio R. Esliza for petitioners. Mauricio M. Monta for respondents. MORAN, C.J.:
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This is a petition for certiorari arising from a case in the Court of First Instance of Pangasinan between the herein respondents Elias Hilario and his wife Dionisia Dres as plaintiffs, and the herein petitioners Damian, Francisco and Luis, surnamed Ignacio, as defendants, concerning the ownership of a parcel of land, partly rice-land and partly residential. After the trial of the case, the lower court, presided over by Hon. Alfonso Felix, rendered judgment holding plaintiffs as the legal owners of the whole property but conceding to defendants the ownership of the houses and granaries built by them on the residential portion with the rights of a possessor in GOOD FAITH, in accordance with article 361 of the Civil Code. The dispositive part of the decision, hub of this controversy, follows: Wherefore, judgment is hereby rendered declaring: (1) That the plaintiffs are the owners of the whole property described in transfer certificate of title No. 12872 (Exhibit A) issued in their name, and entitled to the possession of the same; (2) That the defendants are entitled to hold the position of the residential lot until after they are paid the actual market value of their houses and granaries erected thereon, unless the plaintiffs prefer to sell them said residential lot, in which case defendants shall pay the plaintiffs the proportionate value of said residential lot taking as a basis the price paid for the whole land according to Exhibit B; and (3) That upon defendant's failure to purchase the residential lot in question, said defendants shall remove their houses and granaries after this decision becomes final and within the period of sixty (60) days from the date that the court is informed in writing of the attitude of the parties in this respect. No pronouncement is made as to damages and costs. Once this decision becomes final, the plaintiffs and defendants may appear again before this court for the purpose of determining their respective rights under article 361 of the Civil Code, if they cannot come to an extra-judicial settlement with regard to said rights. Subsequently, in a motion filed in the same Court of First Instance but now presided over by the herein respondent Judge Hon. Felipe Natividad, the plaintiffs prayed for an order of execution alleging that since they chose neither to pay defendants for the buildings nor to sell to them the residential lot, said defendants should be ordered to remove the structure at their own expense and to restore plaintiffs in the possession of said lot. Defendants objected to this motion which, after hearing, was granted by Judge Natividad. Hence, this petition by defendants praying for (a) a restraint and annulment of the order of execution issued by Judge Natividad; (b) an order to compel plaintiffs to pay them the sum of P2,000 for the buildings, or sell to them the residential lot for P45; or (c), a rehearing of the case for a determination of the rights of the parties upon failure of extra-judicial settlement. The judgment rendered by Judge Felix is founded on articles 361 and 453 of the Civil Code which are as follows: ART. 361. The owner of land on which anything has been built, sown or planted in GOOD FAITH, shall have the right to appropriate as his own the work, sowing or planting, after the payment of the indemnity stated in articles 453 and 454, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent. ART. 453. Necessary expenses shall be refunded to every possessor; but only the possessor in GOOD FAITH may retain the thing until such expenses are made good to him. Useful expenses shall be refunded to the possessor in GOOD FAITH with the same right of retention, the person who has defeated him in the possession having the option of refunding the amount of the expenses or paying the increase in value which the thing may have acquired in consequence thereof.
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The owner of the building erected in GOOD FAITH on a land owned by another, is entitled to retain the possession of the land until he is paid the value of his building, under article 453. The owner of the land, upon the other hand, has the option, under article 361, either to pay for the building or to sell his land to the owner of the building. But he cannot, as respondents here did, refuse both to pay for the building and to sell the land and compel the owner of the building to remove it from the land where it is erected. He is entitled to such remotion only when, after having chosen to sell his land, the other party fails to pay for the same. But this is not the case before us. We hold, therefore, that the order of Judge Natividad compelling defendants-petitioners to remove their buildings from the land belonging to plaintiffs-respondents only because the latter chose neither to pay for such buildings not to sell the land, is null and void, for it amends substantially the judgment sought to be executed and is, furthermore, offensive to articles 361 and 453 of the Civil Code. There is, however, in the decision of Judge Felix a question of procedure which calls for the clarification, to avoid uncertainty and delay in the disposition of cases. In that decision, the rights of both parties are well defined under articles 361 and 453 of the Civil Code, but it fails to determine the value of the buildings and of the lot where they are erected as well as the periods of time within which the option may be exercised and payment should be made, these particulars having been left for determination apparently after the judgment has become final. This procedure is erroneous, for after the judgment has become final, no additions can be made thereto and nothing can be done therewith except its execution. And execution cannot be had, the sheriff being ignorant as to how, for how much, and within what time may the option be exercised, and certainly no authority is vested in him to settle these matters which involve exercise of judicial discretion. Thus the judgment rendered by Judge Felix has never become final, it having left matters to be settled for its completion in a subsequent proceeding, matters which remained unsettled up to the time the petition is filed in the instant case. For all the foregoing, the writ of execution issued by Judge Natividad is hereby set aside and the lower court ordered to hold a hearing in the principal case wherein it must determine the prices of the buildings and of the residential lot where they are erected, as well as the period of time within which the plaintiffsrespondents may exercise their option either to pay for the buildings or to sell their land, and, in the last instance, the period of time within which the defendants-petitioners may pay for the land, all these periods to be counted from the date the judgment becomes executory or unappealable. After such hearing, the court shall render a final judgment according to the evidence presented by the parties. The costs shall be paid by plaintiffs-respondents.

CASE 16
SECOND DIVISION [G.R. No. 125683. March 2, 1999]

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EDEN BALLATAN and SPS. BETTY MARTINEZ and CHONG CHY LING, Petitioners, vs. COURT OF APPEALS, GONZALO GO, WINSTON GO, LI CHING YAO, ARANETA INSTITUTE OF AGRICULTURE and JOSE N. QUEDDING, Respondents. DECISION PUNO, J.: This is a petition for review on certiorari of the decision of the Court of Appeals dated March 25, 1996 in CA-G.R. CV No. 32472 entitled "Eden Ballatan, et. al., plaintiffs-appellees v. Gonzalo Go and Winston Go, appellants and third-party plaintiffs-appellants v. Li Ching Yao,et.al., third-party defendants."[1 The instant case arose from a dispute over forty-two (42) square meters of residential land belonging to petitioners. The parties herein are owners of adjacent lots located at Block No. 3, Poinsettia Street, Araneta University Village, Malabon, Metro Manila. Lot No. 24, 414square meters in area, is registered in the name of petitioners Eden Ballatan and spouses Betty Martinez and Chong Chy Ling.[2 Lots Nos. 25 and 26, with an area of 415 and 313 square meters respectively, are registered in the name of respondent Gonzalo Go, Sr.[3 On Lot No. 25, respondent Winston Go, son of Gonzalo Go, Sr., constructed his house. Adjacent to Lot No. 26 is Lot No. 27, 417 square meters in area, and is registered in the name of respondent Li Ching Yao.[4 In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the construction, she noticed that the concrete fence and side pathway of the adjoining house of respondent Winston Go encroached on the entire length of the eastern side of her property.[5 Her building contractor informed her that the area of her lot was actually less than that described in the title. Forthwith, Ballatan informed respondent Go of this discrepancy and his encroachment on her property. Respondent Go, however, claimed that his house, including its fence and pathway, were built within the parameters of his father's lot; and that this lot was surveyed by Engineer Jose Quedding, the authorized surveyor of the Araneta Institute of Agriculture (AIA), the owner-developer of the subdivision project. Petitioner Ballatan called the attention of the AIA to the discrepancy of the land area in her title and the actual land area received from them. The AIA authorized another survey of the land by Engineer Jose N. Quedding. In a report dated February 28, 1985, Engineer Quedding found that the lot area of petitioner Ballatan was less by a few meters and that of respondent Li Ching Yao, which was three lots away, increased by two (2) meters. Engineer Quedding declared that he made a verification survey of Lots Nos. 25 and 26 of respondents Go in 1983 and allegedly found the boundaries to have been in their proper position. He, however, could not explain the reduction in Ballatan's area since he was not present at the time respondents Go constructed their boundary walls.[6 On June 2, 1985, Engineer Quedding made a third relocation survey upon request of the parties. He found that Lot No. 24 lost approximately 25 square meters on its eastern boundary, that Lot No. 25, although found to have encroached on Lot No. 24, did not lose nor gain any area; that Lot No. 26 lost some three (3) square meters which, however, were gained by Lot No. 27 on its western boundary.[7 In short, Lots Nos. 25, 26 and 27 moved westward to the eastern boundary of Lot No. 24. On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written demand on respondents Go to remove and dismantle their improvements on Lot No. 24. Respondents Go refused. The parties, including Li Ching Yao, however, met several times to reach an agreement on the matter. Failing to agree amicably, petitioner Ballatan brought the issue before the barangay. Respondents Go did not appear. Thus, on April 1, 1986, petitioner Ballatan instituted against respondents Go Civil Case No. 772-MN for recovery of possession before the Regional Trial Court, Malabon, Branch 169. The Go's filed their "Answer with Third-Party Complaint" impleading as third-party defendants respondents Li Ching Yao, the AIA and Engineer Quedding.

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On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go's to vacate the subject portion of Lot No. 24, demolish their improvements and pay petitioner Ballatan actual damages, attorney's fees and the costs of the suit. It dismissed the third-party complaint against: (1) AIA after finding that the lots sold to the parties were in accordance with the technical description and verification plan covered by their respective titles; (2) Jose N. Quedding, there being no privity of relation between him and respondents Go and his erroneous survey having been made at the instance of AIA, not the parties; and (3) Li Ching Yao for failure to prove that he committed any wrong in the subject encroachment.[8 The court made the following disposition: "WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, ordering the latter: 1. To demolish and remove all improvements existing and encroaching on plaintiff's lot; 2. To clear, vacate and deliver possession of the encroached area to the plaintiffs; 3. To pay plaintiffs jointly and severally the following: a) P7,800.00 for the expenses paid to the surveyors; b) P5,000.00 for plaintiffs' transportation; 4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25% of the current market value of the subject matter in litigation at the time of execution; and 5. To pay the costs of suit. The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go against third-party defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao is hereby DISMISSED, without pronouncement as to costs. SO ORDERED." Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the decision of the trial court. It affirmed the dismissal of the third-party complaint against the AIA but reinstated the complaint against Li Ching Yao and Jose Quedding. Instead of ordering respondents Go to demolish their improvements on the subject land, the appellate court ordered them to pay petitioner Ballatan, and respondent Li Ching Yao to pay respondents Go, a reasonable amount for that portion of the lot which they encroached, the value to be fixed at the time of taking. It also ordered Jose Quedding to pay respondents Go attorney's fees of P5,000.00 for his erroneous survey. The dispositive portion of the decision reads: "WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED insofar as the dismissal of the third-party complaint against Araneta Institute of Agriculture is concerned but modified in all other aspects as follows: 1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable value of the fortytwo (42) square meters of their lot at the time of its taking; 2) Third-party defendant Li Ching Yao is hereby ordered to pay defendants-appellants the reasonable value of the thirty-seven (37) square meters of the latter's lot at the time of its taking; and 3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-appellants the amount of P5,000.00. as attorney's fees. LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for further proceedings and reception of evidence for the determination of the reasonable value of Lots Nos. 24 and 26.
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SO ORDERED."[9 Hence, this petition. Petitioners allege that: "RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN: 1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN UTTER DISREGARD AND IN VIOLATION OR GROSS IGNORANCE OF EXISTING LAWS AND JURISPRUDENCE VESTING BASIC PROPERTY RIGHTS TO HEREIN PETITIONERS. RESPONDENT COURT HAS NO POWER TO APPLY/USE EQUITY IN THE PRESENCE OF EXISTING LAWS TO THE CONTRARY. 2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT PARTIALITY AND FAVOR TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE ENCROACHED AREA AT THE VALUE AT THE TIME OF ITS TAKING AND NOT THE VALUE AT THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S BUT DEPRIVING PETITIONERS OF THE FRUITS OR INCREASE IN VALUE OF THEIR PROPERTY TO WHICH THEY ARE ENTITLED UNDER THE LAW AS THE REGISTERED OWNERS WITH TORRENS TITLE IN THEIR NAMES. 3. WHEN IT DID NOT DISMISS THE THIRD-PARTY COMPLAINT DUE TO NON-PAYMENT OF ANY FILING OR DOCKET FEE. 4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY EXPENSES IN PROTECTING THEIR RIGHTS IN THIS CASE."[10 Petitioners question the admission by respondent Court of Appeals of the third-party complaint by respondents Go against the AIA, Jose Quedding and Li Ching Yao. Petitioners claim that the third-party complaint should not have been considered by the Court of Appeals for lack of jurisdiction due to thirdparty plaintiffs' failure to pay the docket and filing fees before the trial court. The third-party complaint in the instant case arose from the complaint of petitioners against respondents Go. The complaint filed was foraccion publiciana, i.e., the recovery of possession of real property which is a real action. The rule in this jurisdiction is that when an action is filed in court, the complaint must be accompanied by the payment of the requisite docket and filing fees.[11 In real actions, the docket and filing fees are based on the value of the property and the amount of damages claimed, if any.[12 If the complaint is filed but the fees are not paid at the time of filing, the court acquires jurisdiction upon full payment of the fees within a reasonable time as the court may grant, barring prescription.[13 Where the fees prescribed for the real action have been paid but the fees of certain related damages are not, the court, although having jurisdiction over the real action, may not have acquired jurisdiction over the accompanying claim for damages.[14 Accordingly, the court may expunge those claims for damages, or allow, on motion, a reasonable time for amendment of the complaint so as to allege the precise amount of damages and accept payment of the requisite legal fees.[15 If there are unspecified claims, the determination of which may arise after the filing of the complaint or similar pleading, the additional filing fee thereon shall constitute a lien on the judgment award.[16 The same rule also applies to third-party claims and other similar pleadings.[17 In the case at bar, the third-party complaint filed by respondents Go was incorporated in their answer to the complaint. The third-party complaint sought the same remedy as the principal complaint but added a prayer for attorney's fees and costs without specifying their amounts, thus: "ON THE THIRD PARTY COMPLAINT 1. That summons be issued against Third-Party Defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao; 2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for whatever is adjudged against the latter in favor of the Plaintiffs;
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3. That Third-Party Defendants be ordered to pay attorney's fees as may be proved during trial; 4. That Third-Party Defendants be ordered to pay the costs. Other just and equitable reliefs are also prayed for."[18 The Answer with Third-Party Complaint was admitted by the trial court without the requisite payment of filing fees, particularly on the Go's prayer for damages.[19 The trial court did not award the Go's any damages. It dismissed the third-party complaint. The Court of Appeals, however, granted the third-party complaint in part by ordering third-party defendant Jose N. Quedding to pay the Go's the sum of P5,000.00 as attorney's fees. Contrary to petitioners' claim, the Court of Appeals did not err in awarding damages despite the Go's failure to specify the amount prayed for and pay the corresponding additional filing fees thereon. The claim for attorney's fees refers to damages arising after the filing of the complaint against the Go's. The additional filing fee on this claim is deemed to constitute a lien on the judgment award.[20 The Court of Appeals found that the subject portion is actually forty-two (42) square meters in area, not forty-five (45), as initially found by the trial court; that this forty-two (42) square meter portion is on the entire eastern side of Lot No. 24 belonging to petitioners; that on this said portion is found the concrete fence and pathway that extends from respondent Winston Go's house on adjacent Lot No. 25; that inclusive of the subject portion, respondents Go did not gain nor lose any portion of Lots Nos. 25 and 26; that instead, Lot No. 27, on which respondent Li Ching Yao built his house, encroached on the land of respondents Go, gaining in the process thirty-seven (37) square meters of the latter's land.[21 We hold that the Court of Appeals correctly dismissed the third-party complaint against AIA. The claim that the discrepancy in the lot areas was due to AIA's fault was not proved. The appellate court, however, found that it was the erroneous survey by Engineer Quedding that triggered these discrepancies. And it was this survey that respondent Winston Go relied upon in constructing his house on his father's land. He built his house in the belief that it was entirely within the parameters of his father's land. In short, respondents Go had no knowledge that they encroached on petitioners' lot. They are deemed builders in GOOD FAITH[22 until the time petitioner Ballatan informed them of their encroachment on her property.[23 Respondent Li Ching Yao built his house on his lot before any of the other parties did.[24 He constructed his house in 1982, respondents Go in 1983, and petitioners in 1985.[25 There is no evidence, much less, any allegation that respondent Li Ching Yao was aware that when he built his house he knew that a portion thereof encroached on respondents Go's adjoining land. GOOD FAITH is always presumed, and upon him who alleges BAD FAITH on the part of a possessor rests the burden of proof.[26 All the parties are presumed to have acted in GOOD FAITH. Their rights must, therefore, be determined in accordance with the appropriate provisions of the Civil Code on property. Article 448 of the Civil Code provides: "Art. 448. The owner of the land on which anything has been built, sown or planted in GOOD FAITH, shall have the right to appropriate as his own the works, sowing or planting, after payment of the indemnity provided for in Articles 546 and 548,[27 or to oblige the one who built or planted to pay the price of the land, and the one who sowed the proper rent. However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms thereof." The owner of the land on which anything has been built, sown or planted in GOOD FAITH shall have the right to appropriate as his own the building, planting or sowing, after payment to the builder, planter or sower of the necessary and useful expenses, and in the proper case, expenses for pure luxury or mere pleasure. The owner of the land may also oblige the builder, planter or sower to purchase and pay the
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price of the land. If the owner chooses to sell his land, the builder, planter or sower must purchase the land, otherwise the owner may remove the improvements thereon. The builder, planter or sower, however, is not obliged to purchase the land if its value is considerably more than the building, planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of the land. If the parties cannot come to terms over the conditions of the lease, the court must fix the terms thereof. The right to choose between appropriating the improvement or selling the land on which the improvement stands to the builder, planter or sower, is given to the owner of the land.[28 Article 448 has been applied to improvements or portions of improvements built by mistaken belief on land belonging to the adjoining owner.[29 The facts of the instant case are similar to those in Cabral v. Ibanez, [30 to wit: "[P]laintiffs Geronima Zabala and her husband Justino Bernardo, constructed their house in the belief that it was entirely within the area of their own land without knowing at that time that part of their house was occupying a 14-square meter portion of the adjoining lot belonging to the defendants, and that the defendants Bernardo M. Cabral and Mamerta M. Cabral were likewise unaware of the fact that a portion of plaintiff's house was extending and occupying a portion of their lot with an area of 14 square meters. The parties came to know of the fact that part of the plaintiff's house was occupying part of defendant's land when the construction of plaintiff's house was about to be finished, after a relocation of the monuments of the two properties had been made by the U.S. Army through the Bureau of Lands, according to their 'Stipulation of Facts,' dated August 17, 1951. On the basis of these facts, we held that: "The Court, therefore, concludes that the plaintiffs are builders in GOOD FAITH and the relative rights of the defendant Mamerta Cabral as owner of the land and of the plaintiffs as owners of the building is governed by Article 361 of the Civil Code (Co Tao v. Joaquin Chan Chico, 46 Off. Gaz.5514). Article 361 of the old Civil Code has been reproduced with an additional provision in Article 448 of the new Civil Code, approved June 18, 1949."[31 Similarly, in Grana and Torralba v. Court of Appeals,[32 we held that: "Although without any legal and valid claim over the land in question, petitioners, however, were found by the Court of Appeals to have constructed a portion of their house thereon in GOOD FAITH. Under Article 361 of the old Civil Code (Article 448 of the new), the owner of the land on which anything has been built in GOOD FAITH shall have the right to appropriate as his own the building, after payment to the builder of necessary or useful expenses, and in the proper case, expenses for pure luxury or mere pleasure, or to oblige the builder to pay the price of the land. Respondents, as owners of the land, have therefore the choice of either appropriating the portion of petitioners' house which is on their land upon payment of the proper indemnity to petitioners, or selling to petitioners that part of their land on which stands the improvement. It may here be pointed out that it would be impractical for respondents to choose to exercise the first alternative, i.e., buy that portion of the house standing on their land, for in that event the whole building might be rendered useless. The more workable solution, it would seem, is for respondents to sell to petitioners that part of their land on which was constructed a portion of the latter's house. If petitioners are unwilling or unable to buy, then they must vacate the land and must pay rentals until they do so. Of course, respondents cannot oblige petitioners to buy the land if its value is considerably more than that of the aforementioned portion of the house. If such be the case, then petitioners must pay reasonable rent. The parties must come to an agreement as to the conditions of the lease, and should they fail to do so, then the court shall fix the same."[33 In light of these rulings, petitioners, as owners of Lot No. 24, may choose to purchase the improvement made by respondents Go on their land, or sell to respondents Go the subject portion. If buying the improvement is impractical as it may render the Go's house useless, then petitioners may sell to respondents Go that portion of Lot No. 24 on which their improvement stands. If the Go's are unwilling or unable to buy the lot, then they must vacate the land and, until they vacate, they must pay rent to petitioners. Petitioners, however, cannot compel respondents Go to buy the land if its value is considerably more than the portion of their house constructed thereon. If the value of the land is much more than the
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Go's improvement, then respondents Go must pay reasonable rent. If they do not agree on the terms of the lease, then they may go to court to fix the same. In the event that petitioners elect to sell to respondents Go the subject portion of their lot, the price must be fixed at the prevailing market value at the time of payment. The Court of Appeals erred in fixing the price at the time of taking, which is the time the improvements were built on the land. The time of taking is determinative of just compensation in expropriation proceedings. The instant case is not for expropriation. It is not a taking by the state of private property for a public purpose upon payment of just compensation. This is a case of an owner who has been paying real estate taxes on his land but has been deprived of the use of a portion of this land for years. It is but fair and just to fix compensation at the time of payment.[34 Article 448 and the same conditions abovestated also apply to respondents Go as owners and possessors of their land and respondent Li Ching Yao as builder of the improvement that encroached on thirty-seven (37) square meters of respondents Go's land. IN VIEW WHEREOF, the decision of respondent Court of Appeals is modified as follows: (1) Petitioners are ordered to exercise within thirty (30) days from finality of this decision their option to either buy the portion of respondents Go's improvement on their Lot No. 24, or sell to said respondents the portion of their land on which the improvement stands. If petitioners elect to sell the land or buy the improvement, the purchase price must be at the prevailing market price at the time of payment. If buying the improvement will render respondents Go's house useless, then petitioners should sell the encroached portion of their land to respondents Go. If petitioners choose to sell the land but respondents Go are unwilling or unable to buy, then the latter must vacate the subject portion and pay reasonable rent from the time petitioners made their choice up to the time they actually vacate the premises. But if the value of the land is considerably more than the value of the improvement, then respondents Go may elect to lease the land, in which case the parties shall agree upon the terms of the lease. Should they fail to agree on said terms, the court of origin is directed to fix the terms of the lease. From the moment petitioners shall have exercised their option, respondents Go shall pay reasonable monthly rent up to the time the parties agree on the terms of the lease or until the court fixes such terms. (2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos. 25 and 26, vis-avis respondent Li Ching Yao as builder of the improvement that encroached on thirty seven (37) square meters of respondents Go's land in accordance with paragraph one abovementioned. (3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party defendant, to pay attorney's fees of P5,000.00 to respondents Go is affirmed. The additional filing fee on the damages constitutes a lien on this award. (4) The Decision of the Court of Appeals dismissing the third-party complaint against Araneta Institute of Agriculture is affirmed. SO ORDERED.

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