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G.R. No. L-4529 December 29, 1952

VICENTE M. COLEONGCO, petitioner,vs.PEDRO F. REGALADO and LEONORMONTILLA, respondents.

Jose Ur. Carbonell for petitioner.Jose M. Estacion and Remigio M. Peña forrespondents.

JUGO, J. :

The Court of Appeals (5th Division) rendered thefollowing decision, the facts of which cannot bereviewed by this court:

D E C I S I O N

FELIX, J.:

Antecedents. — Prior to September of1944, Pedro F. Regalado was the owner oflot No. 1205-A of plan Psd. 12393,G.L.R.O. cadastral record No. 55, situatedat barrio Mandalagan, Municipality ofBacolod, Province of Negros Occidental, ofwhich lot No. 157 of the subdivision planPsd. 12395 was a portion. In this lot therewas erected a building which in September

of 1944, was being occupied by the forcesof the Japanese Army. In that month ofSeptember Pedro F. Regalado sold lot No.157 to Vicente M. Coleongco who thusbecame the owner of the lot, covered bytransfer certificate of title No. 663 of theLand Records of Negros Occidental. Thetotal area of the lot was 1,000 squaremeters, and the land occupied by the housewas 245 square meters. Until the year of1947, the assessed value of the whole lotand the house was P1,156 and P4,500,respectively.

It appears from the records that Vicente M.Coleongco contended that the houseerected on lot 157 was included in the saleto him of this property, and when the City ofBacolod was liberated by the AmericanForces that succeeded the Japanese andoccupied said house for about two months,

Coleongco received from the local office ofthe AFWESPAC as rentals for suchoccupation the sum of $93.75 or P137.50. Itso happened, however, that after the

American Forces vacated the house, PedroF. Regalado occupied the same, so VicenteM. Coleongco instituted Civil Case No. 185of the Court of First Instance of NegrosOccidental, which on March 21, 1947,decided that the improvement of lot No.157, consisting of a residential house, wasthe property of the defendant therein PedroF. Regalado. From that decision Coleongcoappealed to the Court of Appeals, but on

August 28, 1947, this tribunal declared the

appeal abandoned.

The case. — One month before thisoutcome in the Court of Appeals of saidcase No. 185, or on July 21, 1947 , VicenteM. Coleongco filed the complaint that gaverise to the present action. On September20, 1947 , Pedro F. Regalado, inconsideration of the sum of P3,500, deededand sold said house to Leonor Montilla Vda.de Peña, who was duly apprised of thepresent case that was pending against thevendor (Annex A). This transaction wassupplemented by contract Annex B,

dated October 3, 1947 , wherein the vendeeLeonor Montilla expressly admitted that shehad knowledge of the existence of this civilcase (docket No. 718 of the Court of FirstInstance of Negros Occidental) concerningthe house object of the sale, assumedwhatever rights and obligations might arisewith respect to such civil case, and freedand liberated the vendor Regalado from theresult of the case. Because of thesetransactions between Regalado and Mrs.Montilla, on or about October 22, 1947 , theplaintiff amended his complaint includingLeonor Montilla as party defendant. In the

amended complaint it is prayed that afterdue hearing thedefendants be condemned:

1. To pay unto the plaintiff the monthlyrental of sixty pesos (P60) for his premisesduring the period occupied by said

defendants;

2. To order the defendants to remove orclear the house from the plaintiff'spremises;

3. To pay the costs of the suit; and

4. To grant such relief or other remedieswhich the court may consider just andequitable.

On November 3, 1947 , Atty. Vivencio T.

Ibrado, signing over the title of "Attorney forthe Defendant ", filed an answer to theamended complaint with counterclaim,praying the court that:

1. The complaint of the plaintiff bedismissed, with costs against the plaintiff;lawphil.net

2. That the Honorable Court fix the rentalfor the occupation of the 245 square metersof the lot in question and that said rental bemade effective only from August 28, 1947;

3. That the plaintiff be ordered to pay to the

defendant the sum of ninety-three dollarsand seventy-five cents ($93.75);

4. That the Honorable Court fix the value ofthe lot in question and order the plaintiff tosell the lot to the defendant;

5. To grant such other remedies as thisHonorable Court may deem just andequitable in the premises;



Defendant Leonor Montilla did not file aseparate answer to the amended complaint,and on motion of the plaintiff the court byorder of February 11, 1948, declaredLeonor Montilla in default over the objectionof both defendants who claimed that theanswer to the amended complaint filed by

Attorney Ibrado on November 3, 1947, usedthe words "defendants" in various parts ofthe answer, and that it was intended to bethe answer for both.

After proper proceedings and hearing, onJanuary 3, 1949, the court rendered

judgment, the dispositive part of which,translated into English, is as follows: lawphil.net

"In view of the foregoing , the court renders judgment in this case, sentencing thedefendants to pay the plaintiff the monthlysum of P14.06 from September, 1945, as

rentals, with legal interest thereon from thedate of the filing of the complaint in thiscase, and providing that the sum of $93.75or P187.50, its equivalent in Philippinecurrency, he deducted from the total sum ofsaid rents.

"Defendants are ordered to vacate thebuilding from the portion of the lot on whichit is erected within the period of two monthsfrom the date this decision becomes final,and to that end they are ordered to removethe building from the said portion of the lotwithin the aforementioned period.

"The costs are taxed against thedefendants."

From this decision both defendantsappealed, and in this instance their counselmaintains that the lower court erred:

1. In declaring the appellant Leonor Montillain default;

2. In sentencing the defendants to pay theplaintiff the monthly rental of P14.06 for theportion of lot No. 157 of subdivision planPsd-12395 from the month of September,1945, with legal-interest from the date ofthe presentation of the complaint;

3. In ordering the appellants to remove theirhouse from the portion of the lot occupiedby the same within the period of twomonths from the date its decision becomesfinal; and

4. In not absolving the defendants from thecomplaint and in sentencing them to paythe costs of this suit.

Discussion of the controversy . — Beforethe presentation of evidence at the hearing,the parties entered into the following

stipulation of facts, to wit:

"1. That the parties are all of legal age andresidents of the City of Bacolod,Philippines;

"2. That since the month of September,1944, the plaintiff became the registeredowner of lot No. 157 of the subdivision planPsd-12395, which is a portion of lot No.1205-A of subdivision plan Psd-12393,G.L.R.O. cadastral record No. 55, situatedin the City of Bacolod and described in thetransfer certificate of title No. 663 (P.R.);

"3. That be decision rendered in civil caseNo. 185 by this same court and which isnow final, defendant Pedro F. Regaladowas declared the owner of the building ofstrong materials erected on said lot;

"4. That actual assessed value of said lot isP5,625;

"5. That said building is also assessed atP4,500;

"6. That on October 30, 1946, the lot inquestion was assessed at P1,312.50;

"7. That said lot has an area of 1,000square meters;

"8. That the portion of the same occupiedby the building existing thereon is of anarea of 245 square meters;

"9. That in the month of September of 1947,defendant Pedro F. Regalado sold saidbuilding to his co-defendant Leonor Montillafor the sum of P3,500, of which amount thevendee paid the vendor, at the time of theexecution of the deed of sale, the sum ofP2,000, binding herself to pay the balanceof P1,500 on or before October 31, 1947.Defendants Pedro F. Regalado and LeonorMontilla have executed a contract

supplementary to the previous deed of sale,by virtue of which said Leonor Montillaacknowledged the existence of the presentcase and assumed the obligation of payingwhatever rents and of complying withwhatever obligations the court wouldimpose on the defendant Pedro F.Regalado."

Aside from this stipulation and the factsappearing in the preceding narration of theantecedents and of the statement of thecase, plaintiff-appellee declared that hedesired to take possession of the portion ofthe lot occupied by the questioned building

because he intended to construct his ownhouse, as he was then paying rents for thelease of his residence at a rate higher thanthe amount he is entitled to receive as rentsfrom the portion of the land occupied by thebuilding of the defendants.

A perusal of the record discloses that thepresent action for ejectment was institutedon July 21, 1947,before plaintiff's appeal inCase No. 185 was finally declaredabandoned in the Court of Appeals, and thefact that in said case Coleongco



unsuccessfully claimed to be the owner ofthe house in litigation does not preclude hisright to depart from his former contentionand to institute these ejectmentproceedings to compel the defendants tovacate his lot and to remove therefrom thebuilding which at first he maintained to be

his, and to further demand payment of thecorresponding rentals for the occupancy ofthe lot by said building from September,1944, when he bought the property, up tothe time said building is actually removed,except, of course, for the period that hemight have occupied or used that building.But the record is silent about such use andall indications are that from September of1944, the house was first occupied by theJapanese, then by the American Forces,after liberation, and right afterwards inSeptember of 1945 by defendant Regaladohimself and by his successors in interest.The lower court, however, sentenced the

defendants to pay rents from September,1945, and as plaintiff has not appealed fromthat ruling, We can only consider theadequacy of the amount fixed by the courtas rentals from September, 1945.

With regard to defendant Leonor Montilla'salleged default, and despite theconsiderations made by the lower court inits order of February 11, 1948, we are ofthe opinion that the answer with thecounterclaim filed by Attorney Ibrado onNovember 3, 1947, should have beenconsidered as submitted for bothdefendants: firstly , because the attorneythat filed that answer specifically so stated;and, secondly , because the grammaticalerrors in the use of the verbs in connectionwith the word "defendants", as for examplein the expression of "defendants alleges",should not be charged against any of themwho did not prepare that pleading and,under the circumstances, should not bedeprived of any right on account of thecareless preparation thereof.Notwithstanding this opinion, we hold thatthe ruling of the lower court on this point isof no sequence, because both defendants

had common interests and the defenses,and the rights of appellant Leonor Montillahave been properly attended to by her co-appellant Pedro F. Regalado.

The action which originally was instituted as

an ejectment case for the main purpose ofcausing the removal of defendants' buildingfrom plaintiff's lot — and was filed directly inthe Court of First Instance of OccidentalNegros because the right of action hadaccrued since September of 1944 — wasenlarged by defendants' counterclaim toinclude plaintiff's right of accessionprescribed in article 361 of the old CivilCode. In passing upon the merits of thecontroversy on this question at issue, wemay state that it is not disputed that thebuilding in litigation was formerly theproperty of Pedro F. Regalado andpresently of Leonor Montilla, that this

building was constructed in good faith, andconsequently, that the enjoyment andpossession thereof must be considered tohave been always in good faith. Our CivilCode provides:

"ART. 358. What is built, planted or sownon another's land and any improvements orrepair made on it, belongs to the owner ofthe land, subject to the provisions of thefollowing articles.

"ART. 361. The owner of land on whichanything has been built, sown or planted, in

good faith, shall be entitled to appropriatethe thing so built, sown, or planted, upon paying the compensation mentioned inarticles 453 and 456, or to compel the

person who has built o r planned to pay himthe value of the land , and the person whosowed thereon to pay the proper renttherefor.

"ART. 453. Necessary expenditures shallbe refunded to every possessor; but onlythe possessor in good faith may retain thething until they are repaid to him.

Useful expenditures shall be paid to thepossessor in good faith with the same rightof retention, the person who has defeatedhim in his possession having the option ofrefunding the amount of such expendituresor paying him the increase in value whichthe thing has acquired by reason thereof.

"ART. 454. Expenditures purely forostentation or mere pleasure shall not berepaid the possessor in good faith; but hemay remove the ornaments with which hehas established the principal thing if it doesnot suffer injury thereby and if thesuccessor in the possession does no preferto refund the amount expended.

"In view of this legal provisions, we have todeclare that the right of the owner of a lot tohave the same vacated or cleared from anyconstruction or improvement belonging to

another which built it in good faith, is to besubordinated to and without prejudice ofwhatever rights the owner and builder ingood faith of the improvement may have.We, therefore, cannot now act favorably onplaintiff's complaint for ejectmentdisregarding defendants' rights either to payfor the acquisition of lot No. 157 or of beingpaid the value of the building erectedthereon, at the option of the plaintiff.

"As regards the amount of monthly rentsthat appellants were condemned to pay theplaintiff, the following considerations must

be taken into account, to wit: (a) thatalthough the portion of lot 157 actuallyoccupied by the building is of an area of245 square meters, for the purpose of fixingthe rent in this case the assessed value ofthe whole lot should be had in mind, asthere is no evidence that the occupiedportion of said lot had been devoted to anyuse other than as site of the house inquestion; (b) that the amount of the rentthat defendants should have beensentenced to pay for the period of fromSeptember, 1945, to the end of 1946should have been fixed in accordance with



its former assessed value of P1,312.50; (c)that from January of 1947, the assessedvalue of P5,625 should be the onedetermining the proper amount of the rents;(d) that section 3 of Commonwealth Act No.689 promulgated October 15, 1945,prescribes that "in the case of the lease for

the occupation of the lot, the rents shall bepresumed unjust and unreasonable if theamount thereof per annum likewiseexceeds twenty per centum of the annualassessment value of said lot"; (e) thatalthough Executive Order No. 62, issued onJune 21, 1947, reduced the annual rentdemandable to an amount notexceeding twelve per centum of theassessed value, said Executive Order wasdeclared null and void for having beenissued without authority of law (Araneta vs.Dinglasan, * 45 Off. Gaz., No. 10, p. 4411);(f) that on the strength of the provisions oflaw quoted, the amount of the rent that

ought to have been fixed as monthly rent inthis case is P21.875 from September, 1944,up to December, 1946, and P93.75 fromJanuary of 1947, up to the time of actualremoval of the building form the lot, or tothe time when the parties would come to anagreement as per article 361 of the old CivilCode; (g) that the aggregate sum of suchrents being greater than the amount fixedby the lower court, and even greater thanthe amount that plaintiff prayed for in thecomplaint, and as plaintiff has not appealedfrom the amount fixed in this decision of thelower court, we are not in a position toincrease or modify the amount of the rents

the defendants have been sentenced to payto the plaintiff.

Wherefore, the decision appealed from ishereby affirmed in so far as it condemns thedefendants to pay to the plaintiff as monthlyrents the sum of P14.06 from September,1945, with legal interest thereon from thedate of the filing of the complaint (July 21,1947), from the total of which the sum ofP187.50 should be deducted. The decisionis reversed as to the rest and this case isreturned to the lower court, with

instructions to give the plaintiff anopportunity to exercise his right of optiongranted to him by article 361 of the old CivilCode, without pronouncement as to cost. Itis so ordered.



G.R. No. L-175 April 30, 1946

DAMIAN IGNACIO, FRANCISCO IGNACIO andLUIS IGNACIO, petitioners,vs.ELIAS HILARIO and his wife DIONISIA DRES,

and FELIPE NATIVIDAD, Judge of FirstInstance of Pangasinan, respondents.

Leoncio R. Esliza for petitioners.Mauricio M. Monta for respondents.

MORAN, C.J.:

This is a petition for certiorari arising from a casein the Court of First Instance of Pangasinanbetween the herein respondents Elias Hilario andhis wife Dionisia Dres as plaintiffs, and the hereinpetitioners Damian, Francisco and Luis, surnamed

Ignacio, as defendants, concerning the ownershipof a parcel of land, partly rice-land and partlyresidential. After the trial of the case, the lowercourt, presided over by Hon. Alfonso Felix,rendered judgment holding plaintiffs as the legalowners of the whole property but conceding todefendants the ownership of the houses andgranaries built by them on the residential portionwith the rights of a possessor in good faith, inaccordance with article 361 of the Civil Code. Thedispositive part of the decision, hub of thiscontroversy, follows:

Wherefore, judgment is hereby rendered

declaring:

(1) That the plaintiffs are the owners of thewhole property described in transfercertificate of title No. 12872 (Exhibit A)issued in their name, and entitled to thepossession of the same;

(2) That the defendants are entitled to holdthe position of the residential lot until afterthey are paid the actual market value oftheir houses and granaries erected thereon,

unless the plaintiffs prefer to sell them saidresidential lot, in which case defendantsshall pay the plaintiffs the proportionatevalue of said residential lot taking as abasis the price paid for the whole landaccording to Exhibit B; and

(3) That upon defendant's failure topurchase the residential lot in question, saiddefendants shall remove their houses andgranaries after this decision becomes finaland within the period of sixty (60) days fromthe date that the court is informed in writingof the attitude of the parties in this respect.

No pronouncement is made as to damagesand costs.

Once this decision becomes final, theplaintiffs and defendants may appear again

before this court for the purpose ofdetermining their respective rights underarticle 361 of the Civil Code, if they cannotcome to an extra-judicial settlement withregard to said rights.

Subsequently, in a motion filed in the same Courtof First Instance but now presided over by theherein respondent Judge Hon. Felipe Natividad,the plaintiffs prayed for an order of executionalleging that since they chose neither to paydefendants for the buildings nor to sell to them theresidential lot, said defendants should be orderedto remove the structure at their own expense and

to restore plaintiffs in the possession of said lot.Defendants objected to this motion which, afterhearing, was granted by Judge Natividad. Hence,this petition by defendants praying for (a) arestraint and annulment of the order of executionissued by Judge Natividad; (b) an order to compelplaintiffs to pay them the sum of P2,000 for thebuildings, or sell to them the residential lot for P45;or (c), a rehearing of the case for a determinationof the rights of the parties upon failure of extra-

judicial settlement.

The judgment rendered by Judge Felix is foundedon articles 361 and 453 of the Civil Code which areas follows:

ART. 361. The owner of land on whichanything has been built, sown or planted in

good faith, shall have the right toappropriate as his own the work, sowing orplanting, after the payment of the indemnitystated in articles 453 and 454, or to obligethe one who built or planted to pay the priceof the land, and the one who sowed, theproper rent.

ART. 453. Necessary expenses shall berefunded to every possessor; but only thepossessor in good faith may retain the thinguntil such expenses are made good to him.

Useful expenses shall be refunded to the

possessor in good faith with the same rightof retention, the person who has defeatedhim in the possession having the option ofrefunding the amount of the expenses orpaying the increase in value which the thingmay have acquired in consequence thereof.

The owner of the building erected in good faith ona land owned by another, is entitled to retain thepossession of the land until he is paid the value ofhis building, under article 453. The owner of theland, upon the other hand, has the option, underarticle 361, either to pay for the building or to sellhis land to the owner of the building. But he

cannot, as respondents here did, refuse both topay for the building and to sell the land and compelthe owner of the building to remove it from the landwhere it is erected. He is entitled to such remotiononly when, after having chosen to sell his land, theother party fails to pay for the same. But this is notthe case before us.

We hold, therefore, that the order of JudgeNatividad compelling defendants-petitioners toremove their buildings from the land belonging toplaintiffs-respondents only because the latter



chose neither to pay for such buildings not to sellthe land, is null and void, for it amendssubstantially the judgment sought to be executedand is, furthermore, offensive to articles 361 and453 of the Civil Code.

There is, however, in the decision of Judge Felix aquestion of procedure which calls for theclarification, to avoid uncertainty and delay in thedisposition of cases. In that decision, the rights ofboth parties are well defined under articles 361and 453 of the Civil Code, but it fails to determinethe value of the buildings and of the lot where theyare erected as well as the periods of time withinwhich the option may be exercised and paymentshould be made, these particulars having been leftfor determination apparently after the judgmenthas become final. This procedure is erroneous, forafter the judgment has become final, no additionscan be made thereto and nothing can be done

therewith except its execution. And executioncannot be had, the sheriff being ignorant as tohow, for how much, and within what time may theoption be exercised, and certainly no authority isvested in him to settle these matters which involveexercise of judicial discretion. Thus the judgmentrendered by Judge Felix has never become final, ithaving left matters to be settled for its completionin a subsequent proceeding, matters whichremained unsettled up to the time the petition isfiled in the instant case.

For all the foregoing, the writ of execution issuedby Judge Natividad is hereby set aside and the

lower court ordered to hold a hearing in theprincipal case wherein it must determine the pricesof the buildings and of the residential lot wherethey are erected, as well as the period of timewithin which the plaintiffs-respondents mayexercise their option either to pay for the buildingsor to sell their land, and, in the last instance, theperiod of time within which the defendants-petitioners may pay for the land, all these periodsto be counted from the date the judgmentbecomes executory or unappealable. After suchhearing, the court shall render a final judgment

according to the evidence presented by theparties.

The costs shall be paid by plaintiffs-respondents.



G.R. No. 115814 May 26, 1995

PEDRO P. PECSON, petitioner,vs.COURT OF APPEALS, SPOUSES JUAN NUGUIDand ERLINDA NUGUID, respondents.

DAVIDE, JR., J. :

This petition for review on certiorari seeks to setaside the decision 1 of the Court of Appeals in CA-G.R. SP No. 32679 affirming in part the order 2 ofthe Regional Trial Court (RTC) of Quezon City,Branch 101, in Civil Case No. Q-41470.

The factual and procedural antecedents of this caseas gathered from the record are as follows:

Petitioner Pedro P. Pecson was the owner of acommercial lot located in Kamias Street, Quezon City,on which he built a four-door two-storey apartmentbuilding. For his failure to pay realty taxes amountingto twelve thousand pesos (P12,000.00), the lot wassold at public auction by the city Treasurer of QuezonCity to Mamerto Nepomuceno who in turn sold it on12 October 1983 to the private respondents, thespouses Juan Nuguid and Erlinda Tan-Nuguid, forone hundred three thousand pesos (P103,000.00).

The petitioner challenged the validity of the auctionsale 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 theprivate respondents' claim that the sale includedthe apartment building, it held that the issueconcerning it was "not a subject of the . . .litigation." In resolving the private respondents'motion to reconsider this issue, the trial court heldthat there was no legal basis for the contentionthat the apartment building was included in thesale. 3

Both parties then appealed the decision to theCourt 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 theassailed decision. It also agreed with the trial courtthat the apartment building was not included in the

auction sale of the commercial lot. Thus:

Indeed, examining the record weare fully convinced that it wasonly the land — without theapartment building — which wassold at the auction sale, for

plaintiff's failure to pay the taxesdue thereon. Thus, in theCertificate of Sale of DelinquentProperty To Purchaser (Exh. K,p. 352, Record) the propertysubject of the auction sale atwhich Mamerto Nepomucenowas the purchaser is referred to

as Lot No. 21-A, Block No. K-34,at Kamias, Barangay Piñahan,with an area of 256.3 sq. m., withno mention whatsoever, of thebuilding thereon. The samedescription of the subjectproperty appears in the FinalNotice To Exercise The Right ofRedemption (over subjectproperty) dated September 14,1981 (Exh. L, p. 353, Record)and in the Final Bill of Sale overthe same property dated April 19,1982 (Exh. P, p. 357, Record).Needless to say, as it was only

the land without any buildingwhich Nepomuceno had acquiredat the auction sale, it was alsoonly that land without anybuilding which he could havelegally sold to theNuguids. Verily, in the Deed of

Absolute Sale of Registered Landexecuted by MamertoNepomuceno in favor of theNuguids on October 25, 1983(Exh. U, p. 366, Record) it clearlyappears that the property subject

of the sale for P103,000.00 wasonly the parcel of land, Lot 21-A,Blk. K-34 containing an area of256.3 sq. meters, without anymention of any improvement,much less any building thereon.(emphases supplied)

The petition to review the said decision wassubsequently denied by this Court. 5 Entry of

judgment was made on 23 June 1993. 6

On November 1993, the private respondents filedwith the trial court a motion for delivery ofpossession 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 thechallenged order 8 which reads as follows:

Submitted for resolution before

this Court is an uncontroverted[sic ] for the Delivery ofPossession filed by defendantsErlinda Tan, Juan Nuguid, et al.considering that despite personalservice of the Order for plaintiff tofile within five (5) days hisopposition to said motion, he didnot 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 theprovisions of the law consideringthat plaintiff is a builder in goodfaith and he has in fact, opted topay the cost of the constructionspent by plaintiff. From thecomplaint itself the plaintiff statedthat the construction cost of theapartment is much more than thelot, which apartment heconstructed at a cost ofP53,000.00 in 1965 (par. 8complaint). This amount of



P53,000.00 is what the movant issupposed to pay under the lawbefore a writ of possessionplacing him in possession of boththe lot and apartment would beissued.

However, the complaint alleges inparagraph 9 that three doors ofthe apartment are being leased.This is further confirmed by theaffidavit of the movant presentedin support of the motion that saidthree doors are being leased at arental of P7,000.00 a montheach. The movant further allegesin his said affidavit that thepresent commercial value of thelot is P10,000.00 per squaremeter or P2,500,000.00 and thereasonable rental value of said lotis no less than P21,000.00 permonth.

The decision having become finalas per Entry of Judgment datedJune 23, 1993 and from this dateon, being the uncontested ownerof the property, the rents shouldbe paid to him instead of theplaintiff collecting them. FromJune 23, 1993, the rentscollected by plaintiff amounting tomore than P53,000.00 fromtenants should be offset from therents due to the lot which

according to movant's affidavit ismore than P21,000.00 a month.

WHEREFORE, finding merit inthe Motion, the Court herebygrants the following prayer that:

1. Themovant shallreimburseplaintiff theconstruction

cost ofP53,000.00.

2. Thepayment ofP53,000.00

asreimbursement for theconstructioncost, movantJuan Nuguidis herebyentitled toimmediateissuance of awrit ofpossessionover the Lotandimprovements thereon.

3. Themovanthaving beendeclared astheuncontestedowner of theLot inquestion asper Entry ofJudgment ofthe SupremeCourt dated

June 23,1993, theplaintiffshould payrent to themovant of noless thanP21,000.00per monthfrom saiddate as thisis the verysame

amount paidmonthly bythe tenantsoccupyingthe lot.

4. Theamount ofP53,000.00due from themovant ishereby offsetagainst theamount ofrentscollected bythe plaintifffrom June23, 1993, toSeptember23, 1993.

SO ORDERED.

The petitioner moved for the reconsideration of theorder but it was not acted upon by the trial court.Instead, on 18 November 1993, it issued a writ ofpossession directing the deputy sheriff "to placesaid movant Juan Nuguid in possession of subjectproperty located at No. 79 Kamias Road, QuezonCity, with all the improvements thereon and toeject therefrom all occupants therein, their agents,assignees, heirs and representatives." 9

The petitioner then filed with the Court of Appealsa special civil action for certiorari and prohibitionassailing the order of 15 November 1993, whichwas docketed as CA-G.R. SP No. 32679. 10 In itsdecision of 7 June 1994, the Court of Appealsaffirmed in part the order of the trial court citing

Article 448 of the Civil Code. In disposing of theissues, it stated:

As earlier pointed out, privaterespondent opted to appropriatethe improvement introduced bypetitioner on the subject lot,



giving rise to the right ofpetitioner to be reimbursed of thecost of constructing saidapartment building, inaccordance with Article 546 ofthe . . . Civil Code, and of theright to retain the improvements

until he is reimbursed of the costof the improvements, because,basically, the right to retain theimprovement while thecorresponding indemnity is notpaid implies the tenancy orpossession in fact of the land onwhich they are built . . . [2TOLENTINO, CIVIL CODE OFTHE PHILIPPINES (1992) p.112]. With the facts extant andthe settled principle as guides,we agree with petitioner thatrespondent judge erred inordering that "the movant having

been declared as theuncontested owner of the lot inquestion as per Entry ofJudgment of the Supreme Courtdated June 23, 1993, the plaintiffshould pay rent to the movant ofno less than P21,000 per monthfrom said date as this is the verysame amount paid monthly bythe tenants occupying the lot.

We, however, agree with thefinding of respondent judge thatthe amount of P53,000.00 earlieradmitted as the cost ofconstructing the apartmentbuilding can be offset from theamount of rents collected bypetitioner from June 23, 1993 upto September 23, 1993 whichwas fixed at P7,000.00 per monthfor each of the three doors. Ourunderlying reason is that duringthe period of retention, petitioneras such possessor and receivingthe fruits from the property, isobliged to account for such fruits,so that the amount thereof may

be deducted from the amount ofindemnity to be paid to him by theowner of the land, in line withMendoza vs. De Guzman, 52Phil. 164 . . . .

The Court of Appeals then ruled as follows:

WHEREFORE, while it appearsthat private respondents have notyet indemnified petitioner with thecost of the improvements, since

Annex I shows that the DeputySheriff has enforced the Writ ofPossession and the premiseshave been turned over to thepossession of privaterespondents, the quest ofpetitioner that he be restored inpossession of the premises isrendered moot and academic,

although it is but fair and just thatprivate respondents paypetitioner the construction cost ofP53,000.00; and that petitionerbe ordered to account for anyand all fruits of the improvementsreceived by him starting on June23, 1993, with the amount ofP53,000.00 to be offsettherefrom.

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 ingood faith of the apartment building on the theory thathe constructed it at the time when he was still theowner of the lot, and that the key issue in this case isthe application of Articles 448 and 456 of the CivilCode.

The trial court and the Court of Appeals, as well asthe 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 landon which anything has been built,sown or planted in good faith,

shall have the right to appropriateas his own the works, sowing orplanting, after payment of theindemnity provided for in articles546 and 548, or to oblige the onewho built or planted to pay theprice of the land, and the onewho sowed, the proper rent.However, the builder or plantercannot be obliged to buy the landif its value is considerably morethan that of the building or trees.In such case, he shall payreasonable rent, if the owner ofthe land does not choose toappropriate the building or treesafter proper indemnity. Theparties shall agree upon theterms of the lease and in case ofdisagreement, the court shall fixthe terms thereof. (361a)

xxx xxx xxx

Art. 546. Necessary expensesshall be refunded to everypossessor; but only thepossessor in good faith mayretain the thing until he has beenreimbursed therefor.

Useful expenses shall berefunded only to the possessor ingood faith with the same right ofretention, the person who hasdefeated him in the possessionhaving the option of refunding theamount of the expenses or ofpaying the increase in valuewhich the thing may haveacquired by reason thereof.(453a)



By its clear language, Article 448 refers to a landwhose ownership is claimed by two or moreparties, one of whom has built some works, orsown or planted something. The building, sowingor planting may have been made in good faith or inbad faith. The rule on good faith laid down in

Article 526 of the Civil Code shall be applied indetermining whether a builder, sower or planterhad acted in good faith. 12

Article 448 does not apply to a case where theowner of the land is the builder, sower, or planterwho then later loses ownership of the land by saleor donation. This Court said so in Coleongcovs. Regalado: 13

Article 361 of the old Civil Code isnot applicable in this case, forRegalado constructed the houseon his own land before he sold

said land to Coleongco. Article361 applies only in cases wherea person constructs a building onthe land of another in good or inbad faith, as the case may be. Itdoes not apply to a case where aperson constructs a building onhis own land, for then there canbe no question as to good or badfaith on the part of the builder.

Elsewise stated, where the true owner himself is thebuilder of works on his own land, the issue of goodfaith or bad faith is entirely irrelevant.

Thus in strict point of law, Article 448 is not appositeto the case at bar. Nevertheless, we believe that theprovision therein on indemnity may be applied byanalogy considering that the primary intent of Article448 is to avoid a state of forced co-ownership andthat the parties, including the two courts below, in themain agree that Articles 448 and 546 of the Civil Codeare applicable and indemnity for the improvementsmay be paid although they differ as to the basis of theindemnity.

Article 546 does not specifically state how thevalue of the useful improvements should bedetermined. The respondent court and the privaterespondents espouse the belief that the cost ofconstruction of the apartment building in 1965, andnot its current market value, is sufficientreimbursement for necessary and usefulimprovements made by the petitioner. Thisposition is, however, not in consonance withprevious rulings of this Court in similar cases.In Javier vs. Concepcion, Jr ., 14 this Court peggedthe value of the useful improvements consisting ofvarious fruits, bamboos, a house and camarinmade of strong material based on the market valueof the said improvements. In Sarmientovs. Agana, 15 despite the finding that the usefulimprovement, a residential house, was built in1967 at a cost of between eight thousand pesos(P8,000.00) to ten thousand pesos(P10,000.00),the landowner was ordered to reimburse thebuilder in the amount of forty thousand pesos

(P40,000.00), the value of the house at the time ofthe trial. In the same way, the landowner wasrequired to pay the "present value" of the house, auseful improvement, in the case of De Guzmanvs. De la Fuente, 16 cited by the petitioner.

The objective of Article 546 of the Civil Code is toadminister justice between the parties involved. Inthis regard, this Court had long ago statedin Rivera vs. Roman Catholic Archbishop ofManila 17 that the said provision was formulated intrying to adjust the rights of the owner andpossessor in good faith of a piece of land, toadminister complete justice to both of them in sucha way as neither one nor the other may enrichhimself of that which does not belong to him.Guided by this precept, it is therefore the currentmarket value of the improvements which should bemade the basis of reimbursement. A contraryruling would unjustly enrich the privaterespondents who would otherwise be allowed toacquire a highly valued income-yielding four-unitapartment building for a measly amount.Consequently, the parties should therefore beallowed to adduce evidence on the present marketvalue of the apartment building upon which the trial

court should base its finding as to the amount ofreimbursement to be paid by the landowner.

The trial court also erred in ordering the petitionerto pay monthly rentals equal to the aggregaterentals paid by the lessees of the apartment

building. Since the private respondents have optedto appropriate the apartment building, thepetitioner is thus entitled to the possession andenjoyment of the apartment building, until he ispaid the proper indemnity, as well as of the portionof the lot where the building has been constructed.This is so because the right to retain theimprovements while the corresponding indemnityis not paid implies the tenancy or possession infact of the land on which it is built, planted orsown. 18 The petitioner not having been so paid, hewas entitled to retain ownership of the buildingand, necessarily, the income therefrom.

It follows, too, that the Court of Appeals erred not onlyin upholding the trial court's determination of theindemnity, but also in ordering the petitioner toaccount for the rentals of the apartment building from23 June 1993 to 23 September 1993.

WHEREFORE, the decision of the Court of Appeals inCA-G.R. SP No. 32679 and the Order of 15November 1993 of the Regional Trial Court, Branch101, Quezon City in Civil Case No. Q-41470 arehereby SET ASIDE.

The case is hereby remanded to the trial court for it todetermine the current market value of the apartment

building on the lot. For this purpose, the parties shallbe allowed to adduce evidence on the current marketvalue of the apartment building. The value sodetermined shall be forthwith paid by the privaterespondents to the petitioner otherwise the petitionershall be restored to the possession of the apartmentbuilding until payment of the required indemnity.

No costs.

SO ORDERED.



TECNOGAS PHILIPPINESMANUFACTURINGCORPORATION, petit io ner, vs. COURT OF

APPEALS (FORMERSPECIALSEVENTEENTHDIVISION) andEDUARDOUY, respondents .

D E C I S I O N

PANGANIBAN, J .:

The parties in this case areowners of adjoining lots inParañaque, Metro Manila. Itwas discovered in a survey thata portion of a building ofpetitioner, which waspresumably constructed by its

predecessor-in-interest,encroached on a portion of thelot owned by privaterespondent. What are therights and obligations of theparties? Is petitionerconsidered a builder in bad faithbecause, as held by respondent

Court, he is “presumed to knowthe metes and bounds of hisproperty as described in hiscertificate of title”? Does

petitioner succeed into the goodfaith or bad faith of hispredecessor-in-interest whichpresumably constructed thebuilding?

These are the questionsraised in the petition for reviewof the Decision[1] dated August

28, 1992, in CA-G.R. CV No.28293 of respondentCour t[2] where the dispositionreads:[3]

“WHEREFORE, premises

considered, the Decision of theRegional Trial Court is hereby

reversed and set aside and another

one entered -

1. Dismissing the complaint forlack of cause of action;

2. Ordering Tecnogas to pay the

sum of P2,000.00 per month asreasonable rental from October 4,

1979 until appellee vacates theland;

3. To remove the structures and

surrounding walls on theencroached area;

4. Ordering appellee to pay the

value of the land occupied by thetwo-storey building;

5. Ordering appellee to pay thesum of P20,000.00 for and as

attorney‟s fees;

6. Costs against appellee.”

Acting on the motions forreconsideration of bothpetitioner and privaterespondent, respondent Courtordered the deletion of

paragraph 4 of the dispositiveportion in an Amended Decisiondated February 9, 1993, asfollows:[4]

“WHEREFORE, premisesconsidered, our decision of August28, 1992 is hereby modified

http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/108894.htm#_edn1

















deleting paragraph 4 of thedispositive portion of our decision

which reads:

„4. Ordering appellee to paythe value of the land occupied bythe two-storey building.‟

The motion for reconsideration ofappellee is hereby DENIED forlack of merit.”

The foregoing Amended

Decision is also challenged inthe instant petition.

The Facts

The facts are notdisputed. Respondent Courtmerely reproduced the factual

findings of the trial court, asfollows:[5]

“That plaintiff (herein petitioner)which is a corporation dulyorganized and existing under and by virtue of Philippine laws is the

registered owner of a parcel of land

situated in Barrio San Dionisio,Parañaque, Metro Manila known

as Lot 4331-A (should be 4531-A)of Lot 4531 of the Cadastral

Survey of Parañaque, MetroManila, covered by TransferCertificate of Title No. 409316 of

the Registry of Deeds of theProvince of Rizal; that said landwas purchased by plaintiff from

Pariz Industries, Inc. in 1970,together with all the buildings andimprovements including the wall

existing thereon; that the defendant(herein private respondent) is theregistered owner of a parcel of land

known as Lot No. 4531-B of Lot

4531 of the Cadastral Survey ofParañaque, LRC (GLRO) Rec. No.

19645 covered by TransferCertificate of Title No. 279838, of

the Registry of Deeds for the

Province of Rizal; that said landwhich adjoins plaintiff‟s land was

purchased by defendant from acertain Enrile Antonio also in1970; that in 1971, defendant

purchased another lot alsoadjoining plaintif f‟s land from a

certain Miguel Rodriguez and the

same was registered in defendant‟sname under Transfer Certificate of

Title No. 31390, of the Registry ofDeeds for the Province of Rizal;

that portions of the buildings andwall bought by plaintiff togetherwith the land from Pariz Industries

are occupying a portion ofdefendant‟s adjoining land; thatupon learning of the encroachment

or occupation by its buildings andwall of a portion of defendant‟sland, plaintiff offered to buy from

defendant that particular portion ofdefendant‟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 Malacañang,

wherein plaintiff agreed todemolish the wall at the back

portion of its land thus giving todefendant possession of a portionof his land previously enclosed by

plaintiff‟s wall; that defendant laterfiled a complaint before the office

of Municipal Engineer of







Parañaque, Metro Manila as wellas 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; thatdefendant dug or caused to be duga 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-entitledcase and a separate criminalcomplaint for malicious mischief

against defendant and his wife

which ultimately resulted into theconviction in court of defendant‟s

wife for the crime of maliciousmischief; that while trial of the

case was in progress, plaintiff filed

in Court a formal proposal forsettlement of the case but said

proposal, however, was ignored bydefendant.”

After trial on the merits, theRegional Trial Cour t[6] of PasayCity, Branch 117, in Civil Case

No. PQ-7631-P, rendered adecision dated December 4,1989 in favor of petitioner whowas the plaintiff therein. The

dispositive portion reads:[7]

”WHEREFORE, judgment ishereby 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 squaremeter and to pay the former:

1. The sum of P44,000.00 to

compensate for the losses inmaterials 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 byway of attorney‟s fees; and

3. The costs of this suit.”

Appeal was duly interposedwith respondent Court, whichas previously stated, reversed

and set aside the decision ofthe Regional Trial Court andrendered the assailed Decisionand Amended

Decision. Hence, this recourseunder Rule 45 of the Rules ofCourt.

The Issues

The petition raises thefollowing issues:[8]

“(A)

Whether or not the respondentCourt of Appeals erred inholding 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 respondentCourt of Appeals erred when itused the amicable settlement

between the petitioner and the private respondent, where both parties agreed to the















demolition of the rear portionof the fence, as estoppel

amounting to recognition by petitioner of respondent‟s right

over his property including the portions of the land where theother structures and the

building stand, which were notincluded in the settlement.

(C)

Whether or not the respondent

Court of Appeals erred in orderingthe removal of the „structures andsurrounding walls on theencroached area‟ and in

withdrawing its earlier ruling in itsAugust 28, 1992 decision for the

petitioner „to pay for the value ofthe land occupied‟ by the building, only because the private

respondent has „manifested itschoice to demolish‟ it despite the

absence of compulsory sale where

the builder fails to pay for the land,and which „choice‟ privaterespondent deliberately deleted

from its September 1, 1980 answer

to the supple-mental complaint inthe Regional Trial Court.”

In its Memorandum,

petitioner poses the followingissues:

“A

The time when to determine the goodfaith of the builder under Article 448 of

the New Civil Code, isreckoned during the period when it was

actually being built; and in a casewhere no evidence was

presented norintroduced as to the goodfaith 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 overlapsituation‟ which involves a builder in

good faith, as in this case, it is now

well settled that the lot owner, who builds on the adjacent lot is not charged

with „constructive notice‟ of thetechnical 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 is not the „judicial

authority‟ for a boundary dispute

situation between adjacent torrens titledlot owners, as the facts of the present

case do not fall within nor square withthe involved principle of a dissimilar

case.[11]

D.

Quite contrary to respondent Uy‟sreasoning, petitioner Tecnogas

continues to be a builder in good faith,even if it subsequently built/repaired

the walls/other permanent structuresthereon while the case a quo was

pending and even while respondent

sent the petitioner many letters/filedcases thereon.[12]

D. (E.)

The amicable settlement between the parties should be interpreted as a

contract and enforced only inaccordance with its explicit terms,



















and not over and beyond that agreedupon; because the courts do not have

the power to create acontract nor expand its scope.[13]

E. (F.)

As a general rule, although thelandowner 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 CivilCode; the first option is not absolute,

because an exception thereto, once itwould be impractical for the landowner

to choose to exercise the first

alternative, i.e. buy that portion of thehouse standing on his land, for the

whole building might be rendereduseless. The workable solution is for

him to select the second alternative,

namely, to sell to the builder that partof his land on which was constructed a

portion of the house.”[14]

Private respondent, on theother hand, argues that thepetition is “suffering from thefollowing flaws:[15]

1. It did not give the exactcitations of cases decided by

the Honorable SupremeCourt that allegedly

contradicts the ruling of theHon. Court of Appeals

based on the doctrine laiddown in Tuason vs.Lumanlan case citing also

Tuason vs. Macalindongcase (Supra).

2. Assuming that the doctrinein 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, thesame should prevail.”

Further, private respondent contends

that the following “unmistakably” point

to the bad faith of petitioner: (1) privaterespondent‟s purchase of the two lots,“was ahead of the purchase by

petitioner of the building and lot fromPariz Industries”; (2) the declaration of

the General Manager of Tecnogas that

the sale between petitioner and ParizIndustries “was not registered” because

of some problems with China BankingCorporation; and (3) the Deed of Sale

in favor of petitioner was registered inits name only in “the month of May

1973.”[16]

The Court’s Ruling

The petition should begranted.

Good Faith or Bad Faith

Respondent Court, citingthe cases of J. M. Tuason &Co., Inc. vs. Vda. deLumanlan[17] and J. M. Tuason &Co., Inc. vs.Macalindong,[18] ruled thatpetitioner “cannot beconsidered in good faith”because as a land owner, it is“presumed to know the metesand bounds of his ownproperty, specially if the sameare reflected in a properlyissued certificate of title. Onewho erroneously builds on theadjoining lot should be
























considered a builder in (b)ad(f)aith, there being presumptiveknowledge of the Torrens title,the area, and the extent of the

boundaries.”[19]

We disagree withrespondent Court. The twocases it relied upon do notsupport its mainpronouncement that aregistered owner of land haspresumptive knowledge of the

metes and bounds of its ownland, and is therefore in badfaith if he mistakenly builds onan adjoining land. Aside fromthe fact that those cases hadfactual moorings radicallydifferent from those obtaininghere, there is nothing in thosecases which would suggest,

however remotely, that badfaith is imputable to a registeredowner of land when a part of hisbuilding encroaches upon aneighbor’s land, simplybecause he is supposedlypresumed to know theboundaries of his land as

described in his certificate oftitle. No such doctrinalstatement could have beenmade in those cases because

such issue was not before theSupreme Court. Quite thecontrary, we have rejected sucha theory in Co Tao vs.Chico,[20] where we held thatunless one is versed in thescience of surveying, “no onecan determine the preciseextent or location of his

property by merely examininghis paper title.”

There is no question thatwhen petitioner purchased theland from Pariz Industries, thebuildings and other structureswere already in existence. Therecord is not clear as to who

actually built those structures,but it may well be assumed thatpetitioner’s predecessor -in-interest, Pariz Industries, didso. Article 527 of the CivilCode presumes good faith, andsince no proof exists to showthat the encroachment over a

narrow, needle-shaped portionof private respondent’s landwas done in bad faith by thebuilder of the encroaching

structures, the latter should bepresumed to have built them ingood faith.[21] It is presumed thatpossession continues to beenjoyed in the same characterin which it was acquired, untilthe contrary is proved.[22] Goodfaith consists in the belief of thebuilder that the land he is

building on is his, and hisignorance of any defect or flawin his title.[23] Hence, such goodfaith, by law, passed on toPariz’s successor, petitioner inthis case. Further, “(w)here onederives title to property fromanother, the act, declaration, oromission of the latter, while

holding the title, in relation tothe property, is evidenceagainst the former.”[24] Andpossession acquired in goodfaith does not lose thischaracter except in case andfrom the moment facts existwhich show that the possessor



























is not unaware that hepossesses the thing improperlyor wrongfully.[25] The good faithceases from the moment

defects in the title are madeknown to the possessor, byextraneous evidence or by suitfor recovery of the property bythe true owner .[26]

Recall that theencroachment in the presentcase was caused by a very

slight deviation of the erectedwall (as fence) which wassupposed to run in a straightline from point 9 to point 1 ofpetitioner’s lot. It was an errorwhich, in the context of theattendant facts, was consistentwith good faith. Consequently,the builder, if sued by the

aggrieved landowner forrecovery of possession, couldhave invoked the provisions of

Art. 448 of the Civil Code,which reads:

”The owner of the land on whichanything has been built, sown or

planted in good faith, shall havethe right to appropriate as his own

the works, sowing or planting,after payment of the indemnity

provided for in articles 546 and548, or to oblige the one who builtor planted to pay the price of the

land, and the one who sowed, the proper rent. However, the builderor planter cannot be obliged to buy

the land if its value is considerablymore than that of the building ortrees. In such case, he shall pay

reasonable rent, if the owner of theland does not choose to appropriatethe building or trees after proper

indemnity. The parties shall agree

upon the terms of the lease and incase of disagreement, the court

shall fix the terms thereof.”

The obvious benefit to the

builder under this article is that,instead of being outrightlyejected from the land, he cancompel the landowner to makea choice between the twooptions: (1) to appropriate thebuilding by paying theindemnity required by law, or

(2) sell the land to thebuilder. The landowner cannotrefuse to exercise either optionand compel instead the owner

of the building to remove it fromthe land.[27]

The question, however, iswhether the same benefit canbe invoked by petitioner who,as earlier stated, is not thebuilder of the offendingstructures but possesses them

as buyer.We answer such question in

the affirmative.

In the first place, there is nosufficient showing thatpetitioner was aware of theencroachment at the time itacquired the property fromPariz Industries. We agree withthe trial court that variousfactors in evidence adequatelyshow petitioner’s lack ofawareness thereof. In anycase, contrary proof has notoverthrown the presumption ofgood faith under Article 527 of















the Civil Code, as alreadystated, taken together with thedisputable presumptions of thelaw on evidence. These

presumptions state, underSection 3 (a) of Rule 131 of theRules of Court, that the personis innocent of a crime or wrong;and under Section 3 (ff) of Rule131, that the law has beenobeyed. In fact, privaterespondent Eduardo Uy himselfwas unaware of such intrusion

into his property until after 1971when he hired a surveyor,following his purchase ofanother adjoining lot, to surveyall his newly acquiredlots. Upon being apprised ofthe encroachment, petitionerimmediately offered to buy thearea occupied by its building --

a species of conduct consistentwith good faith.

In the second place, upondelivery of the property by ParizIndustries, as seller, to thepetitioner, as buyer, the latteracquired ownership of the

property. Consequently and asearlier discussed, petitioner isdeemed to have stepped intothe shoes of the seller in regard

to all rights of ownership overthe immovable sold, includingthe right to compel the privaterespondent to exercise either ofthe two options provided under

Article 448 of the Civil Code.

Estoppel

Respondent Court ruled thatthe amicable settlemententered into between petitionerand private respondent estopsthe former from questioning theprivate respondent’s “right” overthe disputed property. It heldthat by undertaking to demolishthe fence under saidsettlement, petitionerrecognized private respondent’sright over the property, and“cannot later on compel” privaterespondent “to sell to it the land

since” private respondent “isunder no obligation to sell.”[28]

We do not agree. Petitionercannot be held in estoppel forentering into the amicablesettlement, the pertinentportions of which read:[29]

”That the parties hereto haveagreed that the rear portion of thefence that separates the property ofthe complainant and respondent

shall be demolished up to the backof the building housing themachineries which demolision

(sic) shall be undertaken by the

complainant at anytime.

That the fence which serve(s) as awall housing the electroplating

machineries shall not bedemolished in the mean time

which portion shall be subject tonegotiation by herein parties.”

From the foregoing, it isclear that petitioner agreed onlyto the demolition of a portion ofthe wall separating the











adjoining properties of theparties -- i.e. “up to the back ofthe building housing themachineries.” But that portion

of the fence which served asthe wall housing theelectroplating machineries wasnot to be demolished. Rather, itwas to “be subject tonegotiation by hereinparties.” The settlement mayhave recognized the ownershipof private respondent but such

admission cannot be equatedwith bad faith. Petitioner wasonly trying to avoid a litigation,one reason for entering into anamicable settlement.

As was ruled in Osmeña vs.Commission on Audit,[30]

“A compromise is a bilateral act ortransaction that is expressly

acknowledged as a juridicalagreement by the Civil Code and istherein dealt with in some

detail. `A compromise,‟ declaresArticle 2208 of said Code, `is acontract 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 definesand authorizes compromises, it in

fact encourages them in civilactions. Art. 2029 states that `TheCourt shall endeavor to persuade

the litigants in a civil case to agreeupon some fair compromise.‟ x x

x.”

In the context of theestablished facts, we hold thatpetitioner did not lose its rightsunder Article 448 of the CivilCode on the basis merely of thefact that some years afteracquiring the property in good

faith, it learned about -- andaptly recognized -- the right ofprivate respondent to a portionof the land occupied by itsbuilding. The superveningawareness of theencroachment by petitionerdoes not militate against its

right to claim the status of abuilder in good faith. In fact, a

judicious reading of said Article448 will readily show that the

landowner’s exercise of hisoption can only take place afterthe builder shall have come toknow of the intrusion -- in short,when both parties shall havebecome aware of it. Only thenwill the occasion for exercisingthe option arise, for it is onlythen that both parties will have

been aware that a problemexists in regard to their propertyrights.

Options of PrivateRespondent

What then is the applicableprovision in this case whichprivate respondent may invokeas hisremedy: Article 448 or Article 450[31] of the Civil Code?

In view of the good faith ofboth petitioner and private










respondent, their rights andobligations are to be governedby Art. 448. The essentialfairness of this codal provision

has been pointed out by Mme.Justice Ameurfina Melencio-Herrera, citing Manresa andapplicable precedents, in thecase of Depra vs. Dumlao,[32] towit:

“Where the builder, planter orsower has acted in good faith, a

conflict of rights arises betweenthe owners, and it becomes

necessary to protect the owner of

the improvements without causinginjustice to the owner of the

land. In view of the impracticalityof creating a state of forced co-

ownership, the law has provided a just solution by giving the owner

of the land the option to acquirethe improvements after payment ofthe proper indemnity, or to obligethe builder or planter to pay for the

land and the sower to pay the proper rent. It is the owner of theland who is authorized to exercise

the option, because his right is

older, and because, by the principleof accession, he is entitled to the

ownership of the accessory thing.(3 Manresa 213; Bernardo vs.

Bataclan, 37 Off. Gaz. 1382; CoTao 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 theencroaching structures as theproper remedy, whichrespondent Court sustained inits assailed Decisions, is thuslegally flawed. This is not one ofthe remedies bestowed uponhim by law. It would beavailable only if and when he

chooses to compel thepetitioner to buy the land at areasonable price but the latterfails to pay such price.[33] Thishas not taken place. Hence,his options are limited to: (1)appropriating the encroachingportion of petitioner’s building

after payment of properindemnity, or (2) obliging thelatter to buy the lot occupied bythe structure. He cannot

exercise a remedy of his ownliking.

Neither is petitioner’s prayerthat private respondent beordered to sell the land [34] theproper remedy. While that wasdubbed as the “more workablesolution” in Grana and Torralbavs. The Court of Appeals, etal.,[35] it was not the reliefgranted in that case as thelandowners were directed toexercise “within 30 days fromthis decision their option toeither buy the portion of thepetitioners’ house on their landor sell to said petitioners the

portion of their land on which itstands.”[36] Moreover, in Granaand Torralba, the area involvedwas only 87 square meterswhile this case involves 520square meters[37]. In line withthe case of Depra vs.Dumlao,[38] this case will have to





























be remanded to the trial courtfor further proceedings to fullyimplement the mandate of Art.448. It is a rule of procedure for

the Supreme Court to strive tosettle the entire controversy in asingle proceeding leaving noroot or branch to bear theseeds of future litigation.[39]

Petitioner, however, mustalso pay the rent for theproperty occupied by itsbuilding as prescribed byrespondent Court from October4, 1979, but only up to the dateprivate respondent servesnotice of its option uponpetitioner and the trial court;that is, if such option is forprivate respondent toappropriate the encroaching

structure. In such event,petitioner would have a right ofretention which negates theobligation to pay rent.[40] The rentshould however continue if theoption chosen is compulsorysale, but only up to the actualtransfer of ownership.

The award of attorney’s feesby respondent Court againstpetitioner is unwarranted sincethe action appears to have

been filed in goodfaith. Besides, there should beno penalty on the right tolitigate.[41]

WHEREFORE, premisesconsidered, the petition ishereby GRANTED and theassailed Decision and the

Amended Decision areREVERSED and SET

ASIDE. In accordance with thecase of Depra vs.Dumlao,[42] this case isREMANDED to the RegionalTrial Court of Pasay City,Branch 117, for furtherproceedings consistent with

Articles 448 and 546

[43]

of theCivil 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 520square meters may

have acquired byreason of theexistence of the

portion of the building on the area;

c) the fair market value ofthe encroaching portion of the

building; and

d) whether the value ofsaid area of land is

considerably more

than the fair marketvalue of the portionof the building

thereon.

2. After said amounts shall have been determined by competent

evidence, the regional trial courtshall render judgment as follows:

a) The private respondentshall be granted a period offifteen (15) days withinwhich to exercise his























option under the law(Article 448, CivilCode), whether toappropriate the portion ofthe building as his own by

paying to petitioner its fairmarket value, or to obligepetitioner to pay the priceof said area. The amountsto be respectively paid bypetitioner and privaterespondent, in accordancewith the option thusexercised by written noticeof the other party and tothe court, shall be paid by

the obligor within fifteen(15) days from such noticeof the option by tenderingthe amount to the trial courtin favor of the party entitledto receive it;

b) If private respondentexercises the option tooblige petitioner to pay theprice of the land but the

latter rejects suchpurchase because, asfound by the trial court, thevalue of the land isconsiderably more thanthat of the portion of thebuilding, petitioner shallgive written notice of suchrejection to privaterespondent and to the trial

court within fifteen (15)days from notice of privaterespondent’s option to sellthe land. In that event, theparties shall be given a

period of fifteen (15) daysfrom such notice ofrejection within which toagree upon the terms ofthe lease, and give the trialcourt formal written noticeof the agreement andits provisos. If noagreement is reached bythe parties, the trial court,within fifteen (15) days

from and after thetermination of the saidperiod fixed for negotiation,shall then fix the terms ofthe lease provided that themonthly rental to be fixedby the Court shall not beless than two thousandpesos (P2,000.00) permonth, payable within thefirst five (5) days of each

calendar month. Theperiod for the forced leaseshall not be more than two(2) years, counted from thefinality of the judgment,considering the long periodof time since 1970 thatpetitioner has occupied thesubject area. The rental

thus fixed shall beincreased by ten percent(10%) for the second yearof the forcedlease. Petitioner shall not

make any furtherconstructions orimprovements on thebuilding. Upon expirationof the two-year period, orupon default by petitionerin the payment of rentalsfor two (2) consecutivemonths, private respondentshall be entitled toterminate the forced lease,

to recover his land, and tohave the portion of thebuilding removed bypetitioner or at latter’sexpense. The rentalsherein provided shall betendered by petitioner tothe trial court for paymentto private respondent, andsuch tender shall constituteevidence of whether or not

compliance was madewithin the period fixed bythe said court.

c) In any event, petitionershall pay privaterespondent an amountcomputed at two thousandpesos (P2,000.00) permonth as reasonable



compensation for theoccupancy of privaterespondent’s land for theperiod counted fromOctober 4, 1979, up to the

date private respondentserves notice of its optionto appropriate theencroaching structures,otherwise up to the actualtransfer of ownership topetitioner or, in case aforced lease has to beimposed, up to thecommencement date of theforced lease referred to in

the preceding paragraph;

d) The periods to be fixed bythe trial court in its decisionshall be non-extendible,and upon failure of theparty obliged to tender tothe trial court the amountdue to the obligee, theparty entitled to suchpayment shall be entitled toan order of execution forthe enforcement ofpayment of the amount dueand for compliance withsuch other acts as may berequired by the prestationdue the obligee.

No costs.

SO ORDERED.

Documents

Property Week 3