FIRST DIVISION

[G.R. No. 149295. September 23, 2003]

PHILIPPINE NATIONAL BANK, petitioner, vs.
GENEROSO DE JESUS, represented
CHRISTIAN DE JESUS, respondent.

by

his

Attorney-in-Fact,

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 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 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.

G.R. No. L-33422 May 30, 1983

ROSENDO BALUCANAG, petitioner,
vs.
HON. JUDGE ALBERTO J. FRANCISCO and RICHARD
STOHNER, respondents.
ESCOLIN, J.:
This petition for review of the decision of the Court of First Instance of
Manila in Civil Case No. 67503 calls for a determination of the respective
rights of the lessor and the lessee over the improvements introduced by
the latter in the leased premises.
Cecilia dela Cruz Charvet was the owner of a 177.50 square meter lot
located in Zamora Street, Pandacan, Manila, covered by Transfer
Certificate of Title No. 25664. On August 31, 1952, Mrs. Charvet leased
said lot to respondent Richard Stohner for a period of five [5] years at the
monthly rental of 2140.00, payable in advance within the first ten [10]
days of each month. The lease contract 1 provided, among others, that:
IV. The lessee may erect such buildings upon and make such
improvements to the leased land as he shag see fit. All such
buildings and improvements shall remain the property of the
lessee and he may remove them at any nine, it being agreed,
however, that should he not remove the said buildings and
improvements within a period of two months after the
expiration of this Agreement, the Lessor may remove the said
buildings and improvements or cause them to be removed at
the expense of the Lessee.

During the existence of the lease, Stohner made fillings on the land and
constructed a house thereon, said improvements being allegedly valued at
P35,000.00.
On March 8, 1966, Mrs. Charvet sold the said lot to petitioner Rosendo
Balucanag. 2
For Stohner's failure to pay the rents, Balucanag, thru counsel, wrote
Stohner a letter demanding that he vacate the premises. 3 In reply
thereto, Stohner, also thru counsel, claimed that he was a builder in good
faith of the residential house erected in the land. He offered the following
proposals for a possible compromise, to wit:
[a] Mr. Stohner will purchase the said lot from your client with
the interest of 12% per annum on the value, or
[b] Your client Mr. Rosendo Balucanag will reimburse our
client in the total amount of P35,000.00 for the
improvements and construction he has made on the lot in
question.
As no agreement was reached, Balucanag instituted in the City Court of
Manila an ejectment suit against Stohner and, after due trial, the court
rendered a decision, the decretal portion of which reads as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is
hereby rendered, ordering the defendant to pay the plaintiff
the sum of P360.00 as back rentals from December, 1965 to
August 1966 at the rate of P40.00 a month and to vacate the
premises. The defendant is further ordered to pay the sum of
P100.00 as Attomey's fees which is considered reasonable
within the premises.
On appeal, the Court of First Instance of Manila, Branch IX, presided by
respondent Judge Alberto J. Francisco, after conducting a trial de novo,
rendered a decision, setting aside the judgment of the city court and
dismissing the petitioner's complaint. Respondent judge held that Stohner
was a builder in good faith because he had constructed the residential
house with the consent of the original lessor, Mrs. Charvet, and also

because the latter, after the expiration of the lease contract on August 31,
1957, had neither sought Stohner's ejectment from the premises, nor the
removal of his house therefrom. Invoking Articles 448 and 546 of the Civil
Code. 4respondent judge concluded that Stohner, being a builder in good
faith, cannot be ejected until he is reimbursed of the value of the
improvements.
Frustrated in his effort to have the decision reconsidered, Balucanag filed
the instant petition for review.
We find the petition impressed with merit. Paragraph IV of the lease
contract entered into by Stohner with Mrs. Charvet specifically provides
that "... such buildings and improvements shan remain the property of the
lessee and he may remove them at any time, it being agreed, however,
that should he not remove the said buildings and improvements within a
period of two months after the expiration of this Agreement, the Lessor
may remove the said buildings and improvements or cause them to be
removed at the expense of the Lessee." Respondent Stohner does not
assail the validity of this stipulation, Neither has he advanced any reason
why he should not be bound by it.
But even in the absence of said stipulation, respondent Stohner cannot be
considered a builder in good faith. Article 448 of the Civil Code, relied
upon by respondent judge, applies only to a case where one builds on land
in the belief that he is the owner thereof and it does not apply where one's
only interest in the land is that of a lessee under a rental contract. In the
case at bar, there is no dispute that the relation between Balucanag and
Stohner is that of lessor and lessee, the former being the successor in
interest of the original owner of the lot. As we ruled inLopez, Inc. vs. Phil.
and Eastern Trading Co., Inc., 5 "... the principle of possessor in good faith
refers only to a party who occupies or possess property in the belief that
he is the owner thereof and said good faith ends only when he discovers a
flaw in his title so as to reasonably advise or inform him that after all he
may not be the legal owner of said property. It cannot apply to a lessee
because as such lessee he knows that he is not the owner of he leased
premises. Neither can he deny the ownership or title of his lessor. ... A
lessee who introduces improvements in the leased premises, does so at
his own risk in the sense that he cannot recover their value from the
lessor, much less retain the premises until such reimbursement. ..."

The law applicable to the case at bar is Article 1678 of the Civil Code,
which We quote:
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 the 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. ...

right to continue in possession ceases and his possession becomes one of

detainer. Furthermore, Stohner's failure to pay the stipulated rentals
entities petitioner to recover possession of the premises.
WHEREFORE, the decision in Civil Case No. 67503 is hereby set aside, with
costs against respondent Stohner. The latter is ordered to vacate the
premises in question and to pay Rogelio Balucanag the rentals due from
March 1969 up to the time he surrenders the premises, at the rate of
P40.00 a month.
SO ORDERED.

This article gives the lessor the option to appropriate the useful
improvements by paying one-half of their value, 6And the lessee cannot
compel the lessor to appropriate the improvements and make
reimbursement, for the lessee's right under the law is to remove the
improvements even if the leased premises may suffer damage thereby.
But he shall not cause any more damage upon the property than is
necessary.
One last point. It appears that while the lease contract entered into by
Stohner and Mrs. Charvet had expired on August 31, 1957, he
nevertheless continued in possession of the premises with the
acquiescence of Mrs. Charvet and later, of Balucanag. An implied new
lease or tacita reconduccion was thus created between the parties, the
period of which is established by Article 1687 of the Civil Code thus:
Art. 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly: from week to
week, if the rent is weekly: and from day to day, if the rent is
to be paid daily. ...
Under the above article, the duration of the new lease must be deemed
from month to month, the agreed rental in the instant case being payable
on a monthly basis. The lessor may thus terminate the lease after each
month with due notice upon the lessee. After such notice, the lessee's

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

agreed with the trial court that the apartment building was not included in
the auction sale of the commercial lot. Thus:

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

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. 21A, 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)
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 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.
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 ofDe 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 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.

EN BANC
[G.R. No. L-175. April 30, 1946.]

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

DAMIAN IGNACIO, FRANCISCO IGNACIO and LUIS

IGNACIO, Petitioners, v. 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 Respondent.
SYLLABUS
1. PROPERTY; IMPROVEMENTS; RIGHT AND OBLIGATIONS OF OWNERS OF
LAND AND OF OWNER OF IMPROVEMENTS. 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 of the Civil Code. 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.
2. JUDGMENTS; ADDITIONS TO FINAL JUDGMENTS; SHERIFF NOT
AUTHORIZED TO SETTLE MATTERS INVOLVING EXERCISE OF JUDICIAL
DISCRETION; CASE AT BAR. The trial courts decision defining rightly the
rights of both parties under articles 361 and 453 of the Civil Code, 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 be the option be
exercised, and certainly no authority is vested in him to settle these
matters which involve exercise of judicial discretion. Thus the appealed
judgment 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.

MORAN, C.J. :
This is a petition for certiorari arising from a case in the Court of First
Instance of Pangasinan between the herein respondents Elias Hilario and
his wife Dionisia Dres as plaintiffs, and the herein petitioners Damian,
Francisco and Luis surnamed Ignacio, as defendants, concerning the
ownership of a parcel of land, partly rice-land and partly residential. After
the trial of the case, the lower court, presided over by Hon. Alfonso Felix,
rendered judgment holding plaintiffs as the legal owners of the whole
property but conceding to defendants the ownership of the houses and
granaries built by them on the residential portion with the rights of a
possessor in good faith, in accordance with article 361 of the Civil Code.
The dispositive part of the decision
hub of this controversy, follows:

"Wherefore, judgment is hereby rendered declaring:

"(1) That the plaintiffs are the owners of the whole property described in
transfer certificate of title No. 12872 (Exhibit A) issued in their name, and
entitled
to
the
possession
of
the
same;
"(2) That the defendants are entitled to hold the possession 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 defendants failure to purchase the residential lot in
question, said defendants shall remove their houses and granaries after
this decision becomes final and within the periods of sixty (60) days from
the date that the court is informed in writing of the attitude of the parties
in this respect.
"No pronouncement is made as to damages and costs.
"Once this decision becomes final, the plaintiffs and defendants may
appear again before this court for the purpose of determining their
respective rights under article 361 of the Civil Code, if they cannot come
to an extra-judicial settlement with regard to said rights."
Subsequently, in a motion filed in the same Court of First Instance but now
presided over by the herein respondent Judge Hon. Felipe Natividad, the
plaintiffs prayed for an order of execution alleging that since they chose
neither to pay defendants for the buildings nor to sell to them the
residential lot, said defendants should be ordered to remove the structure
at their own expense and to restore plaintiffs in the possession of said lot.
Defendants objected to this motion which, after hearing, was granted by
Judge Natividad. Hence, this petition by defendants praying for (a) a
restraint and annulment of the order of execution issued by Judge
Natividad; (b) an order to compel plaintiffs to pay them the sum of P2,000
for the buildings, or sell to them the residential lot for P45; or (c) a
rehearing of the case for a determination of the rights of the parties upon
failure of extra-judicial settlement.
The judgment rendered by Judge Felix is founded on articles 361 and 453
of the Civil Code which are as follows:

"ART. 361. The owner of land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the
work, sowing or planting, after the payment of the indemnity stated in
articles 453 and 454, or to oblige the one who built or planted to pay the
price of the land, and the one who sowed, the proper rent.
"ART. 453. Necessary expenses shall be refunded to every possessor; but
only the possessor in good faith may retain the thing until such expenses
are made good to him.
"Useful expenses shall be refunded to the possessor in good faith with the
same right of retention, the person who has defeated him in the
possession having the option of refunding the amount of the expenses or
paying the increase in value which the thing may have acquired in
consequence thereof."
The owner of the building erected in good faith on a land owned by
another, is entitled to retain the possession of the land until he is paid the
value of his building, under article 453. The owner of the land, upon the
other hand, has the option, under article 361, either to pay for the building
or to sell his land to the owner of the building. But he cannot, as
respondents here did, refuse both to pay for the building and to sell the
land and compel the owner of the building to remove it from the land
where it is erected. He is entitled to such remotion only when, after having
chosen to sell his land, the other party fails to pay for the same. But this is
not the case before us.

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 certainty no authority is vested in him to settle these matters which
involve exercise of judicial discretion. Thus the judgment rendered by
Judge Felix has never become final, it having left matters to be settled for
its completion in a subsequent proceeding, matters which remained
unsettled up to the time the petition is filed in the instant case.
For all the foregoing, the writ of execution issued by Judge Natividad is
hereby set aside and the lower court ordered to hold a hearing in the
principal case wherein it must determine the prices of the buildings and of
the residential lot where they are erected, as well as the period of time
within which the plaintiffs-respondents may exercise their option either to
pay for the buildings or to sell their land, and, in the last instance, the
period of time within which the defendants-petitioners may pay for the
land, all these periods to be counted from the date the judgment becomes
executory or unappealable. After such hearing, the court shall render a
final judgment according to the evidence presented by the parties.
The costs shall be paid by plaintiffs-respondents.

We hold, therefore, that the order of Judge Natividad compelling

defendants-petitioners to remove their buildings from the land belonging
to plaintiffs-respondents only because the latter chose neither to pay for
such buildings nor to sell the land, is null and void, for it amends
substantially the judgment sought to be executed and is, furthermore,
offensive to articles 361 and 453 of the Civil Code.
There is, however, in the decision of Judge Felix a question of procedure
which calls for 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

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. L-11084

On September 17, 1954, the trial court dismissed the complaint, without
pronouncement as to costs.
April 29, 1961

ALEJANDRO QUEMUEL and RUPERTA SOLIS, plaintiffs- appellants,

vs.
ANGEL S. OLAES and JULIANA PRUDENTE, defendants-appellees.
Baldomero S. Luque for plaintiffs-appellants.
Jose P. Santillan for defendants-appellees.

An appeal was taken by plaintiffs to the Court of Appeals (Case No. CAG.R. No. 14837-R) which, by the agreement of the parties certified the
case to this Court. The ex parte petition filed by the plaintiffs-appellants in
this Court on August 9, 1956, asking that a writ of prohibition and
injunction be issued to the Provincial Sheriff of Cavite and the defendantsappellees, enjoining them from demolishing the house of plaintiffsappellants until there is a final decision in said case No. 14837, by the
Supreme Court, was denied on August 14, 1956 by the latter court.

PAREDES, J.:
Angel S. Olaes and his wife, Juliana Prudente, defendants-appellees herein,
were plaintiffs in another case (No 5442 of the CFI of Cavite), wherein
Alejandro Quemuel and his wife Ruperta Solis, plaintiffs-appellants herein
were defendants. In that case No. 5442, the Olaes spouses registered
owners of lot 1095 of the San Francisco de Malabon Estate, located in
Rosario, Cavite, sought the recovery of the possession of the said lot and
rentals therefor, from the Quemuel spouses, who in their verified answer
admitted plaintiffs' ownership, but contended that their occupation was
gratuitous. On March 16, 1954, the trial court ordered Quemuel and his
wife to return the possession of lot 1095 to the Olaes spouses and to pay
the latter P20.00 a month from January, 1954, until they shall have
vacated the premises. Quemuel and his wife did not appeal from said
decision which became final on April 22, 1954. Thereafter, the Olaes
spouses sought the execution of the decision and to forestall ejectment,
the Quemuel spouses, filed on July 1, 1954, the present complaint,
docketed as Civil Case No. 5518, CFI of Cavite.
In the present complaint, the Quemuel spouses seek to reduce the
monthly rental of P20.00 fixed in Civil Case No. 5442, and to compel the
Olaes spouses to sell to them (Quemuels) the portion of the lot 1095
where their house is erected. Respondents, the Olaes spouses, filed a
motion to dismiss dated July 9, 1954, alleging lack of cause of action, res
adjudicata; prescription, and the cause of action, if any, is barred by
plaintiffs' failure to set it up as a counter-claim in civil case No. 5442.

The lone assignment alleges that the trial court erred in dismissing the
complaint without trial on the merits and in not granting the reliefs prayed
for by the plaintiffs-appellants. Appellants stated in their brief that if there
will be trial on the merits, they would be entitled to a decision in their
favor, because they will establish by competent evidence the allegations
in their complaint. And on the claim that they were builders in good faith,
they based the right to buy the lot on which their house is built, upon the
decision of Belen Uy Tayao v. Rosario Yuseco, et al., G.R. No. T,8139, Oct.
24, 1955. It should be recalled at the start, that the trial court ordered the
dismissal of the complaint, which must have been granted in all or any of
the grounds therein alleged, to wit:
I. the Complaint states no cause of action.
The first cause of action on the present complaint al alleges that in Civil
Case No. 5442, the trial court rendered the decision of March 16, 1954,
ordering the latter to vacate lot No. 1095 belonging to Olaes and his wife
and to pay them a monthly rental of P20.00 from January, 1954 until they
shall have vacated the premises; that plaintiff believe that the portion
they are occupying belonged to them; that they occupy only about onehalf of the lot; that considering the purchase price of the land, its assessed
value and the interest the price would have earned, the rental should not
be more than 7-% or P5.60 monthly. Plaintiffs prayed that the rental be
reduced to P5.60 a month.
Assuming the truth of the above allegations, the same do not constitute a
cause of action. A cause of action presupposes a right of the plaintiff and a

violation of such right by the defendant. According to the complaint itself,

the rental of P20.00 monthly and the order to vacate, were provided in a
prior judgment (Civil Case No. 5442), which is final and its validity is not
assailed. There being no law that fixes the rental of the same land at 7
of the allowed market value, the plaintiffs have no right thereto or aright
which could be violated. The defendants are not compelling the plaintiffs
to rent the property but wanted them to vacate the premises (Civil Case
No. 5442). If the rental determined by the trial court were excessive, the
plaintiffs are free to vacate the property. For plaintiffs to insist on
possessing the property and fixing the rentals themselves, would have no
legal sanction at all.
In the second cause of action of the present complaint, the plaintiffs
allege: That they actually occupy about 384 square meters or one-half of
lot 1095; of the said area they thought they own 256 square meters by
inheritance from Romualdo Solis, father of plaintiff, Ruperta Solis, who
became the owner thereof pursuant to a verbal extrajudicial partition
made in 1924; Agapita Solis who sold the entire lot 1095 to defendants, is
a sister of Romualdo Solis, and there was an error in the inclusion of the
256 square meters in the Torrens Title and the sale; they acquired from
Valentin Solis, brother of both Romualdo and Agapita, a part of the portion
occupied by plaintiff's house and warehouse; their house has been there
for almost 34 years and is worth P4,000; the defendants are rich, have a
house and a lot of their own, and will not suffer any material or
sentimental damage if they sell to the plaintiffs one-half of lot No. 1095;
plaintiff offered to pay P960 for the portion they are occupying or
P1,920.00 for the whole lot.
On the assumption that the allegations of the second cause of action are
true, what would be the rights of the parties? The plaintiffs claim that their
second cause of action is based on Article 448 in connection with Art. 546,
of the new Civil Code. A cursory reading of these provisions, however, will
show that they are not applicable to plaintiffs' case. Under Article 448, the
right to appropriate the works or improvements or "to oblige the one who
built or planted to pay the price of the land belongs to the owner of the
land. The only right given to the builder in good faith is the right to
reimbursement for the improvements; the builder, cannot compel the
owner of the land to sell such land to the former. This is assuming that the
plaintiffs are builders in good faith. But the plaintiffs are not builders in

good faith. From the pleadings and the documentary evidence submitted,
it is indisputable that the land in question originally belonged to the
government as part of the Friar Lands Estate and the title thereto was in
the name of the government, until it was purchased by Agapita Solis who
applied, thru the Bureau of Lands, to purchase the land by installments.
The corresponding Sale Certificate No. 531, effective July 1, 1909 Exhibit
2) was executed. In defendants' complaint (as plaintiffs in Civil Case No.
5442), they alleged that they are the owners of lot 109'a and that
defendants (plaintiffs herein), "have been occupying southeastern half
portion thereof, without any right thereto, except the tolerance of
plaintiffs" (defendants herein), which were admitted expressly and under
oath, in the answer of plaintiffs herein. It would, therefore, appear that
plaintiffs herein were not Unaware of the flaw in their title, if any, and that
their true relation with the herein defendants was that of tenant and
landlord, and that their rights are governed by Article 1573 in relation to
article 487 of the old Civil Code, which reads as follows:
Art. 1573. A lessee shall have with respect to useful a voluntary
improvements, the same right which are granted the
usufructuaries.
Art. 487. The usufructuary may make on the property in usufruct
any improvements, useful or recreative, which may deem proper,
provided he does not change its form or substance, but he shall
have no right to be indemnified thereof. He may, however, remove
such improvements, should it possible to do so without injury to the
property.
From the above provisions, it can clearly be inferred that plaintiffs can not
compel the defendants to pay for the improvements the former made on
the property or to sell the latter's land. Plaintiffs' only right, is to remove
improvements, if it is possible to do so, without damage to the land.
It should be noted that article 448 of the new Civil Code, (equivalent to
Art. 361 of the old Civil Code), relied upon by plaintiffs, is intended to
apply only to a case where one builds, or sows, or plants on land in which
believes himself to have a claim of title and not to land wherein one's
interest is that of tenant, under a rental co tract, which is the present case
(Alburo v. Villanueva, Phil. 277). The tenant cannot be said to be a builder

in good faith as he has no pretension to be owner (Rivera v. Trinidad, 48

Phil. 396; see also 3 Manresa 4th Ed. pp. 215-216).
The trial court, therefore, did not commit any error in dismissing the two
causes of action.

Whether the cause of action is for recovery of ownership or for an alleged

right to purchase the property, or for reimbursement for some
improvements, the herein plaintiffs as defendants in Civil Case No. 5442,
should have set it up as a counterclaim in said case, because same was
necessarily connected with, or arose out of the transactions involved in
said case No. 5442(Sec. 6, Rule 10, Rules of Court).

II. The first cause of action, if any, is barred by prior judgment.

As plaintiffs in Civil Case No. 5442, the defendants al alleged in their
complaint that the reasonable rental value of the premises in question was
P20.00 a month (par. 5). In said case No. 5442, the matter of the rental
was in issue and the same was considered and decided by the trial court,
which ordered the defendants therein "to pay reasonable compensation of
P20.00 a month beginning with January, 1954, until they shall have left
the premises". In the instant case, the parties are the identical parties in
Civil Case No. 5442; the same lot 1095 is the subject matter of both cases;
the same issue, namely, the amount of the rental is involved. Even
assuming that appellants have a cause of action, the doctrine of res
judicata already operates against them.
III. The second cause of action, if any, is barred by the statute of
limitations.
As shown by the documentary evidence submitted with the defendant's
motion to dismiss, lot No. 1095 was purchased by Agapita Solis from the
Government on July 1, 1909. After full payment of the purchase price,
T.C.T. No. 10771 covering said lot was issued to said Agapita Solis on June
8, 1933,(Exhibits 1 and 2). Assuming that plaintiffs or their alleged
predecessor-in-interest, had a cause of action for claiming the ownership
of potion of said lot, such cause of action accrued at the latest, on June 8,
1933. The plaintiffs or their predecessors had ten (10) years from said
date, within which to file the corresponding action. They, however, filed
the instant complaint only on July 1, 1954, or more than 21 years, after
the accrual of the cause of action.
IV. The cause of action, if any, is barred by plaintiffs' failure to set it up as
a counterclaim in Civil Case No. 5442.

It is alleged that plaintiffs-appellants' complaint should not have been

dismissed without trial on the merits, because in the case of De Jesus, et
al. v. Belarmino, et al. G.R. No. L-6665, June 30, 1954; Off. Gaz. July 1954,
p. 3064, it was held that "where the complaint was dismissed not because
of any evidence presented by the parties, or merits, but merely on a
motion as a result of a trial on the to dismiss filed by the defendants, the
sufficiency of the motion should be tested on the strength of the allegation
of facts contained in the complaint and no other", which has been
interpreted to apply to cases where the motion to dismiss is based solely
on the ground of lack of cause of action. Considering the fact that (1) In
the case a bar, documentary evidence and the records of the Civil Case
No. 5442 were presented and considered by the trial court; and (2) in the
De Jesus case, the only ground for dismissal was the lack of cause of
action, while in the present case, aside from said ground, plaintiffs
allegation other grounds, the said ruling finds no application.
IN VIEW HEREOF, we hereby affirm the order appealed from, with costs
against the plaintiffs-appellants.

Republic of the Philippines

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

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

as Civil Case No 1, Said complaint was later amended to include DEPRA as

a party plain. plaintiff.

Without pronouncement as to costs.

SO ORDERED.

After trial, the Municipal Court found that DUMLAO was a builder in good
faith, and applying Article 448 of the Civil Code, rendered judgment on
September 29, 1973, the dispositive portion of which reads:
Ordering that a forced lease is created between the parties
with the plaintiffs, as lessors, and the defendants as lessees,
over the disputed portion with an area of thirty four (34)
square meters, the rent to be paid is five (P5.00) pesos a
month, payable by the lessee to the lessors within the first
five (5) days of the month the rent is due; and the lease shall
commence on the day that this decision shall have become
final.
From the foregoing judgment, neither party appeal so that, ff it were a
valid judgment, it would have ordinarily lapsed into finality, but even then,
DEPRA did not accept payment of rentals so that DUMLAO deposited such
rentals with the Municipal Court.
On July 15,1974, DEPRA filed a Complaint for Quieting of Title against
DUMLAO before the then Court of First Instance of Iloilo, Branch IV (Trial
Court), involving the very same 34 square meters, which was the bone of
contention in the Municipal Court. DUMLAO, in his Answer, admitted the
encroachment but alleged, in the main, that the present suit is barred
by res judicata by virtue of the Decision of the Municipal Court, which had
become final and executory.
After the case had been set for pre-trial, the parties submitted a Joint
Motion for Judgment based on the Stipulation of Facts attached thereto.
Premised thereon, the Trial Court on October 31, 1974, issued the assailed
Order, decreeing:
WHEREFORE, the Court finds and so holds that the thirty four
(34) square meters subject of this litigation is part and parcel
of Lot 685 of the Cadastral Survey of Dumangas of which the
plaintiff is owner as evidenced by Transfer Certificate of Title
No. 3087 and such plaintiff is entitled to possess the same.

Rebutting the argument of res judicata relied upon by DUMLAO, DEPRA

claims that the Decision of the Municipal Court was null and void ab
initio because its jurisdiction is limited to the sole issue of possession,
whereas decisions affecting lease, which is an encumbrance on real
property, may only be rendered by Courts of First Instance.
Addressing out selves to the issue of validity of the Decision of the
Municipal Court, we hold the same to be null and void. The judgment in a
detainer case is effective in respect of possession only (Sec. 7, Rule 70,
Rules of Court). 1 The Municipal Court over-stepped its bounds when it
imposed upon the parties a situation of "forced lease", which like "forced
co-ownership" is not favored in law. Furthermore, a lease is an interest in
real property, jurisdiction over which belongs to Courts of First Instance
(now Regional Trial Courts) (Sec. 44(b), Judiciary Act of 1948; 2 Sec. 19 (2)
Batas Pambansa Blg. 129). 3 Since the Municipal Court, acted without
jurisdiction, its Decision was null and void and cannot operate as res
judicata to the subject complaint for Queting of Title. Besides, even if the
Decision were valid, the rule on res judicata would not apply due to
difference in cause of action. In the Municipal Court, the cause of action
was the deprivation of possession, while in the action to quiet title, the
cause of action was based on ownership. Furthermore, Sec. 7, Rule 70 of
the Rules of Court explicitly provides that judgment in a detainer case
"shall not bar an action between the same parties respecting title to the
land. " 4
Conceded in the Stipulation of Facts between the parties is that DUMLAO
was a builder in good faith. Thus,
8. That the subject matter in the unlawful detainer case, Civil
Case No. 1, before the Municipal Court of Dumangas, Iloilo
involves the same subject matter in the present case, the
Thirty-four (34) square meters portion of land and built
thereon in good faith is a portion of defendant's kitchen and
has been in the possession of the defendant since 1952
continuously up to the present; ... (Emphasis ours)

Consistent with the principle that our Court system, like any other, must
be a dispute resolving mechanism, we accord legal effect to the
agreement of the parties, within the context of their mutual concession
and stipulation. They have, thereby, chosen a legal formula to resolve
their dispute to appeal ply to DUMLAO the rights of a "builder in good
faith" and to DEPRA those of a "landowner in good faith" as prescribed in
Article 448. Hence, we shall refrain from further examining whether the
factual situations of DUMLAO and DEPRA conform to the juridical positions
respectively defined by law, for a "builder in good faith" under Article 448,
a "possessor in good faith" under Article 526 and a "landowner in good
faith' under Article 448.
In regards to builders in good faith, Article 448 of the Civil Code provides:
ART. 448. The owner of the land on which anything has been built sown or
planted in good faith,
shall have the right
to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and
548, or
to oblige the one who built or planted to pay the price of the
land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court
shall fix the terms thereof (Paragraphing supplied)
Pursuant to the foregoing provision, DEPRA has the option either to pay for
the encroaching part of DUMLAO's kitchen, or to sell the encroached 34
square meters of his lot to DUMLAO. He cannot refuse to pay for the
encroaching part of the building, and to sell the encroached part of his

land, 5 as he had manifested before the Municipal Court. But that

manifestation is not binding because it was made in a void proceeding.
However, the good faith of DUMLAO is part of the Stipulation of Facts in
the Court of First Instance. It was thus error for the Trial Court to have
ruled that DEPRA is "entitled to possession," without more, of the disputed
portion implying thereby that he is entitled to have the kitchen removed.
He is entitled to such removal only when, after having chosen to sell his
encroached land, DUMLAO fails to pay for the same. 6 In this case,
DUMLAO had expressed his willingness to pay for the land, but DEPRA
refused to sell.
The owner of the building erected in good faith on a land
owned by another, is entitled to retain the possession of the
land until he is paid the value of his building, under article
453 (now Article 546). The owner of the land, upon the other
hand, has the option, under article 361 (now Article 448),
either to pay for the building or to sell his land to the owner
of the building. But he cannot as respondents here did refuse
both to pay for the building and to sell the land and compel
the owner of the building to remove it from the land where it
erected. He is entitled to such remotion only when, after
having chosen to sell his land. the other party fails to pay for
the same (italics ours).
We hold, therefore, that the order of Judge Natividad
compelling defendants-petitioners to remove their buildings
from the land belonging to plaintiffs-respondents only
because the latter chose neither to pay for such buildings nor
to sell the land, is null and void, for it amends substantially
the judgment sought to be executed and is. furthermore,
offensive to articles 361 (now Article 448) and 453 (now
Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil.
605, 608[1946]).
A word anent the philosophy behind Article 448 of the Civil rode.
The original provision was found in Article 361 of the Spanish Civil Code;
which provided:

ART. 361. The owner of land on which anything has been

built, sown or planted in good faith, shall have the right to
appropriate as his own the work, sowing or planting, after the
payment of the indemnity stated in Articles 453 and 454, or
to oblige the one who built or planted to pay the price of the
land, and the one who sowed, the proper rent.
As will be seen, the Article favors the owner of the land, by giving him one
of the two options mentioned in the Article. Some commentators have
questioned the preference in favor of the owner of the land, but Manresa's
opinion is that the Article is just and fair.
. . . es justa la facultad que el codigo da al dueno del suelo en
el articulo 361, en el caso de edificacion o plantacion?
Algunos comentaristas la conceptuan injusta, y como un
extraordinario privilegio en favor de la propiedad territorial.
Entienden que impone el Codigo una pena al poseedor de
buena fe y como advierte uno de los comentaristas aludidos
'no se ve claro el por que de tal pena . . . al obligar al que
obro de buena fe a quedarse con el edificio o plantacion,
previo el pago del terreno que ocupa, porque si bien es
verdad que cuando edifico o planto demostro con este hecho,
que queria para si el edificio o plantio tambien lo es que el
que edifico o planto de buena fe lo hizo en la erronea
inteligencia de creerse dueno del terreno Posible es que, de
saber lo contrario, y de tener noticia de que habia que
comprar y pagar el terreno, no se hubiera decidido a plantar
ni a edificar. La ley obligandole a hacerlo fuerza su voluntad,
y la fuerza por un hecho inocente de que no debe ser
responsable'. Asi podra suceder pero la realidad es que con
ese hecho voluntario, aunque sea inocente, se ha
enriquecido torticeramente con perjuicio de otro a quien es
justo indemnizarle,
En nuestra opinion, el Codigo ha resuelto el conflicto de la
manera mas justa y equitativa y respetando en lo possible el
principio que para la accesion se establece en el art. 358. 7

Our own Code Commission must have taken account of the objections to
Article 361 of the Spanish Civil Code. Hence, the Commission provided a
modification thereof, and Article 448 of our Code has been made to
provide:
ART. 448. The owner of the land on which anything has been
built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
Additional benefits were extended to the builder but the landowner
retained his options.
The fairness of the rules in Article 448 has also been explained as follows:
Where the builder, planter or sower has acted in good faith, a
conflict of rights arises between the owners, and it becomes
necessary to protect the owner of the improvements without
causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership,
the law has provided a just solution by giving the owner of
the land the option to acquire the improvements after
payment of the proper indemnity, or to oblige the builder or
planter to pay for the land and the sower to pay for the
proper rent. It is the owner of the land who is authorized to
exercise the option, because his right is older, and because,
by the principle of accession, he is entitled to the ownership
of the accessory thing. (3 Manresa 213; Bernardo vs.
Bataclan, 37 Off. Gaz. 1382; Co Tao vs. Chan Chico, G.R. No.
49167, April 30, 1949; Article applied: see Cabral, et al vs.

Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52

Off. Gaz. 2050). 8
WHEREFORE, the judgment of the trial Court is hereby set aside, and this
case is hereby ordered remanded to the Regional Trial Court of Iloilo for
further proceedings consistent with Articles 448 and 546 of the Civil Code,
as follows:
1. The trial Court shall determine
a) the present fair price of DEPRA's 34 square meter area of
land;
b) the amount of the expenses spent by DUMLAO for the
building of the kitchen;
c) the increase in value ("plus value") which the said area of
34 square meters may have acquired by reason thereof, and
d) whether the value of said area of land is considerably
more than that of the kitchen built thereon.
2. After said amounts shall have been determined by competent evidence,
the Regional, Trial Court shall render judgment, as follows:
a) The trial Court shall grant DEPRA a period of fifteen (15)
days within which to exercise his option under the law (Article
448, Civil Code), whether to appropriate the kitchen as his
own by paying to DUMLAO either the amount of tile expenses
spent by DUMLAO f or the building of the kitchen, or the
increase in value ("plus value") which the said area of 34
square meters may have acquired by reason thereof, or to
oblige DUMLAO to pay the price of said area. The amounts to
be respectively paid by DUMLAO and DEPRA, in accordance
with the option thus exercised by written notice of the other
party and to the Court, shall be paid by the obligor within
fifteen (15) days from such notice of the option by tendering
the amount to the Court in favor of the party entitled to
receive it;

b) The trial Court shall further order that if DEPRA exercises

the option to oblige DUMLAO to pay the price of the land but
the latter rejects such purchase because, as found by the
trial Court, the value of the land is considerably more than
that of the kitchen, DUMLAO shall give written notice of such
rejection to DEPRA and to the Court within fifteen (15) days
from notice of DEPRA's option to sell the land. In that event,
the parties shall be given a period of fifteen (15) days from
such notice of rejection within which to agree upon the terms
of the lease, and give the Court formal written notice of such
agreement and its provisos. If no agreement is reached by
the parties, the trial Court, within fifteen (15) days from and
after the termination of the said period fixed for negotiation,
shall then fix the terms of the lease, provided that the
monthly rental to be fixed by the Court shall not be less than
Ten Pesos (P10.00) per month, payable within the first five (5)
days of each calendar month. The period for the forced lease
shall not be more than two (2) years, counted from the
finality of the judgment, considering the long period of time
since 1952 that DUMLAO has occupied the subject area. The
rental thus fixed shall be increased by ten percent (10%) for
the second year of the forced lease. DUMLAO shall not make
any further constructions or improvements on the kitchen.
Upon expiration of the two-year period, or upon default by
DUMLAO in the payment of rentals for two (2) consecutive
months, DEPRA shall be entitled to terminate the forced
lease, to recover his land, and to have the kitchen removed
by DUMLAO or at the latter's expense. The rentals herein
provided shall be tendered by DUMLAO to the Court for
payment to DEPRA, and such tender shall constitute evidence
of whether or not compliance was made within the period
fixed by the Court.
c) In any event, DUMLAO shall pay DEPRA an amount
computed at Ten Pesos (P10.00) per month as reasonable
compensation for the occupancy of DEPRA's land for the
period counted from 1952, the year DUMLAO occupied the
subject area, up to the commencement date of the forced
lease referred to in the preceding paragraph;

d) The periods to be fixed by the trial Court in its Precision

shall be inextendible, and upon failure of the party obliged to
tender to the trial Court the amount due to the obligee, the
party entitled to such payment shall be entitled to an order of
execution for the enforcement of payment of the amount due
and for compliance with such other acts as may be required
by the prestation due the obligee.
No costs,
SO ORDERED.

This is a petition for review on certiorari which seeks the reversal of: a)
decision 1 of the Court of Appeals dated February 28, 1990 in CA-G.R. No.
1917 entitled "JOSE REYNANTE versus HON. VALENTIN CRUZ, Judge, RTC of
Malolos, Bulacan, and HEIRS OF LEONCIO AND DOLORES CARLOS, et al.",
affirming
the
decision 2 of
the
Regional
Trial
Court
of Malolos, Bulacan, Branch 8, Third Judicial Region which reversed the
decision 3 of the Municipal Trial Court of Meycauayan, Bulacan, Branch 1,
Third Judicial Region in Civil Case No. 1526 entitled "HEIRS OF LEONCIO
CARLOS & DOLORES A. CARLOS and HEIRS OF GORGONIO A. CARLOS &
CONCEPCION CARLOS versus JOSE REYNANTE: and b) the resolution
denying the motion for reconsideration.
The facts as culled from the records of the case are as follows:

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 95907 April 8, 1992

JOSE REYNANTE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HON. VALENTIN CRUZ,
as Presiding Judge, Regional Trial Court of Bulacan, Branch VIII,
and the HEIRS OF LEONCIO CARLOS and DOLORES A. CARLOS, and
HEIRS OF GORGONIO CARLOS and CONCEPCION
CARLOS, respondents.

PARAS, J.:

More than 50 years ago, petitioner Jose Reynante was taken as tenant by
the late Don Cosme Carlos, owner and father-in-law of herein private
respondents, over a fishpond located at Barrio Liputan, Meycauayan,
Bulacan with an area of 188.711 square meters, more or less and covered
by Transfer Certificate of Title No. 25618, Land Registry of Bulacan.
During the tenancy, petitioner Jose Reynante constructed a nipa hut where
he and his family lived and took care of the nipa palms (sasahan) he had
planted on lots 1 and 2 covering an area of 5,096 square meters and
6,011 square meters respectively. These lots are located between the
fishpond covered by TCT No. 25618 and the Liputan (formerly
Meycauayan) River. Petitioner harvested and sold said nipa palms without
interference and prohibition from anybody. Neither did the late Don Cosme
Carlos question his right to plant the nipa palms near the fishpond or to
harvest and appropriate them as his own.
After the death of Don Cosme Carlos, his heirs (private respondents'
predecessors-in-interest) entered into a written agreement denominated
as "SINUMPAANG SALAYSAY NG PAGSASAULI NG KARAPATAN" dated
November 29, 1984 with petitioner Jose Reynante whereby the latter for
and in consideration of the sum of P200,000.00 turned over the fishpond
he was tenanting to the heirs of Don Cosme Carlos and surrendered all his
rights therein as caretaker or "bantay-kasama at tagapamahala" (Rollo, p.
77).

Pursuant to the said written agreement, petitioner surrendered the

fishpond and the two huts located therein to private respondents. Private
respondents thereafter leased the said fishpond to one Carlos de la Cruz.
Petitioner continued to live in the nipa hut constructed by him on lots 1
and 2 and to take care of the nipa palms he had planted therein.
On February 17, 1988, private respondents formally demanded that the
petitioner vacate said portion since according to them petitioner had
already been indemnified for the surrender of his rights as a tenant.
Despite receipt thereof, petitioner refused and failed to relinquish
possession of lots 1 and 2.
Hence, on April 22, 1988, private respondents filed a complaint for forcible
entry with preliminary mandatory injunction against petitioner alleging
that the latter by means of strategy and stealth, took over the physical,
actual and material possession of lots 1 and 2 by residing in one of
the kubos or huts bordering the Liputan River and cutting off and/or
disposing of the sasa or nipa palms adjacent thereto.
On January 10, 1989, the trial court rendered its decision dismissing the
complaint and finding that petitioner had been in prior possession of lots 1
and 2.
Private respondents appealed to the Regional Trial Court and on August 8,
1989 it rendered its decision, the dispositive portion of which reads as
follows:
WHEREFORE, this Court renders judgment in favor of the
plaintiffs and against defendant and hereby reverses the
decision of the Court a quo. Accordingly, the defendant is
ordered to restore possession of that piece of land
particularly described and defined as Lots 1 & 2 of the land
survey conducted by Geodetic Engineer Restituto Buan on
March 2, 1983, together with the sasa or nipa palms planted
thereon. No pronouncement as to attorney's fees. Each party
shall bear their respective costs of the suit.
SO ORDERED. (Rollo, p. 55; Decision, p. 4).

From said decision, petitioner filed with the Court of Appeals a petition for
review (Rollo, p. 30; Annex "A"). On February 28, 1990, the Court of
Appeals rendered its decision, the dispositive portion of which reads as
follows:
WHEREFORE, the decision of the court a quo, being
consistent with law and jurisprudence, is hereby AFFIRMED in
toto. The instant petition seeking to issue a restraining order
is hereby denied.
SO ORDERED. (Rollo, p. 30; Decision, p. 3).
On November 5, 1990, the Court of Appeals denied the motion for
reconsideration filed by petitioner (Rollo, p. 35; Annex "B").
Hence, this petition.
In its resolution dated May 6, 1991, the Second Division of this court gave
due course to the petition and required both parties to file their respective
memoranda (Rollo, p. 93).
The main issues to be resolved in this case are: a) who between the
petitioner and private respondents has prior physical possession of lots 1
and 2; and b) whether or not the disputed lots belong to private
respondents as a result of accretion.
An action for forcible entry is merely a quieting process and actual title to
the property is never determined. A party who can prove prior possession
can recover such possession even against the owner himself. Whatever
may be the character of his prior possession, if he has in his favor priority
in time, he has the security that entitles him to remain on the property
until he is lawfully ejected by a person having a better right by accion
publiciana oraccion reivindicatoria (German Management & Services, Inc.
v. Court of Appeals, G.R. No. 76216, September 14, 1989, 177 SCRA 495,
498, 499). On the other hand, if a plaintiff cannot prove prior physical
possession, he has no right of action for forcible entry and detainer even if
he should be the owner of the property (Lizo v. Carandang, 73 Phil. 469
[1942]).

Hence, the Court of Appeals could not legally restore private respondents'
possession over lots 1 and 2 simply because petitioner has clearly proven
that he had prior possession over lots 1 and 2.
The evidence on record shows that petitioner was in possession of the
questioned lots for more than 50 years. It is undisputed that he was the
caretaker of the fishpond owned by the late Don Cosme Carlos for more
than 50 years and that he constructed a nipa hut adjacent to the fishpond
and planted nipa palms therein. This fact is bolstered by the
"SINUMPAANG SALAYSAY" executed by Epifanio Lucero (Records, p. 66),
Apolonio D. Morte (Records, p. 101) and Carling Dumalay (Records, p.
103), all of whom are disinterested parties with no motive to falsify that
can be attributed to them, except their desire to tell the truth.
Moreover, an ocular inspection was conducted by the trial court dated
December 2, 1988 which was attended by the parties and their respective
counsels and the court observed the following:
The Court viewed the location and the distance of the
constructed nipa hut and the subject "sasahan" which
appears exists (sic) long ago, planted and stands (sic)
adjacent to the fishpond and the dikes which serves (sic) as
passage way of water river of lot 1 and lot 2. During the
course of the hearing, both counsel observed muniment of
title embedded on the ground which is located at the inner
side of the "pilapil" separating the fishpond from the subject
"sasa" plant with a height of 20 to 25 feet from water level
and during the ocular inspection it was judicially observed
that the controversial premises is beyond the titled property
of the plaintiffs but situated along the Liputan, Meycauayan
River it being a part of the public domain. (Rollo, p. 51;
Decision, p. 12).
On the other hand, private respondents based their claim of possession
over lots 1 and 2 simply on the written agreement signed by petitioner
whereby the latter surrendered his rights over the fishpond.
Evidently, the trial court did not err when it ruled that:

An examination of the document signed by the defendant

(Exhibit "B"), shows that what was surrendered to the
plaintiffs was the fishpond and not the "sasahan" or the land
on which he constructed his hut where he now lives. That is a
completely different agreement in which a tenant would
return a farm or a fishpond to his landlord in return for the
amount that the landlord would pay to him as a disturbance
compensation. There is nothing that indicates that the tenant
was giving other matters not mentioned in a document like
Exhibit "B". Moreover, when the plaintiffs leased the fishpond
to Mr. Carlos de La Cruz there was no mention that the lease
included the hut constructed by the defendant and the nipa
palms planted by him (Exhibit "1"), a circumstance that gives
the impression that the nipa hut and the nipa palms were not
included in the lease to Mr. de la Cruz, which may not belong
to the plaintiffs. (Rollo, p. 49; Decision, p. 9).
With regard to the second issue, it must be noted that the disputed lots
involved in this case are not included in Transfer Certificate of Title No.
25618 as per verification made by the Forest Management Bureau,
Department of Environment and Natural Resources. That tract of land
situated at Barrio Liputan, Meycauayan, Bulacan containing an area of
1.1107 hectares as described in the plan prepared and surveyed by
Geodetic Engineer Restituto Buan for Jose Reynante falls within Alienable
and Disposable Land (for fishpond development) under Project No. 15 per
B.F.L.C. Map No. 3122 dated May 8, 1987 (Rollo, p. 31; Decision, p. 2).
The respondent Court of Appeals ruled that lots 1 and 2 were created by
alluvial formation and hence the property of private respondents pursuant
to Article 457 of the New Civil Code, to wit:
Art. 457. To the owners of lands adjoining the banks of rivers
belong the accretion which they gradually receive from the
effects of the current of the waters.
Accretion benefits a riparian owner when the following requisites are
present: (1) that the deposit be gradual and imperceptible; (2) that it
resulted from the effects of the current of the water; and (c) that the land
where accretion takes place is adjacent to the bank of a river (Republic v.

Court of Appeals, G.R. No. L-61647, October 12, 1984, 132 SCRA 514,
cited in Agustin v. Intermediate Appellate Court, G.R. Nos. 66075-76, July
5, 1990, 187 SCRA 218).
Granting without conceding that lots 1 and 2 were created by alluvial
formation and while it is true that accretions which the banks of rivers
may gradually receive from the effect of the current become the property
of the owner of the banks, such accretion to registered land does not
preclude acquisition of the additional area by another person through
prescription.

PREMISES CONSIDERED, the decision of the respondent Court of Appeals

dated February 28, 1990 is REVERSED and SET ASIDE and the decision of
the Municipal Trial Court of Meycauayan, Bulacan, Branch I, is hereby
REINSTATED.
SO ORDERED.

This Court ruled in the case of Ignacio Grande, et al. v. Hon. Court of
Appeals, et al., G.R. No. L-17652, June 30, 1962, 115 Phil. 521 that:
An accretion does not automatically become registered land
just because the lot which receives such accretion is covered
by a Torrens Title. Ownership of a piece of land is one thing;
registration under the Torrens system of that ownership is
another. Ownership over the accretion received by the land
adjoining a river is governed by the Civil Code.
Imprescriptibility of registered land is provided in the
registration law. Registration under the Land Registration and
Cadastral Act does not vest or give title to the land, but
merely confirms and, thereafter, protects the title already
possessed by the owner, making it imprescriptible by
occupation of third parties. But to obtain this protection, the
land must be placed under the operation of the registration
laws, wherein certain judicial procedures have beenprovided.
Assuming private respondents had acquired the alluvial deposit (the lot in
question), by accretion, still their failure to register said accretion for a
period of fifty (50) years subjected said accretion to acquisition through
prescription by third persons.
It is undisputed that petitioner has been in possession of the subject lots
for more than fifty (50) years and unless private respondents can show a
better title over the subject lots, petitioner's possession over the property
must be respected.

FIRST DIVISION
G.R. No. 170923
SULO SA NAYON, INC. AND/OR PHILIPPINE VILLAGE HOTEL, INC.
AND JOSE MARCEL PANLILIO, petitioners, v.
NAYONG PILIPINO FOUNDATION, respondent
DECISION
PUNO, C.J.:
On appeal are the Court of Appeals (CAs) October 4, 2005
Decision[1] in CA-G.R. SP No. 74631 and December 22, 2005 Resolution,
[2]
reversing the November 29, 2002 Decision [3] of the Regional Trial Court
(RTC) of Pasay City in Civil Case No. 02-0133. The RTC modified the
Decision[4] of the Metropolitan Trial Court (MeTC) of Pasay Citywhich ruled

against petitioners and ordered them to vacate the premises and pay their
arrears. The RTC declared petitioners as builders in good faith and upheld
their right to indemnity.
The facts are as follows:
Respondent Nayong Pilipino Foundation, a government-owned and
controlled corporation, is the owner of a parcel of land in Pasay City,
known as the Nayong Pilipino Complex. Petitioner Philippine Village Hotel,
Inc. (PVHI), formerly called Sulo sa Nayon, Inc., is a domestic corporation
duly organized and existing under Philippine laws.Petitioner Jose Marcel E.
Panlilio is its Senior Executive Vice President.
On June 1, 1975, respondent leased a portion of the Nayong Pilipino
Complex, consisting of 36,289 square meters, to petitioner Sulo sa Nayon,
Inc. for the construction and operation of a hotel building, to be known as
the Philippine Village Hotel. The lease was for an initial period of 21 years,
or until May 1996. It is renewable for a period of 25 years under the same
terms and conditions upon due notice in writing to respondent of the
intention to renew at least 6 months before its expiration. Thus, on March
7, 1995, petitioners sent respondent a letter notifying the latter of their
intention to renew the contract for another 25 years. On July 4, 1995, the
parties executed a Voluntary Addendum to the Lease Agreement. The
addendum was signed by petitioner Jose Marcel E. Panlilio in his official
capacity as Senior Executive Vice President of the PVHI and by Chairman
Alberto A. Lim of the Nayong Pilipino Foundation. They agreed to the
renewal of the contract for another 25 years, or until 2021. Under the new
agreement, petitioner PVHI was bound to pay the monthly rental on a per
square meter basis at the rate of P20.00 per square meter, which shall be
subject to an increase of 20% at the end of every 3-year period.At the
time of the renewal of the lease contract, the monthly rental amounted
to P725,780.00.
Beginning January 2001, petitioners defaulted in the payment of
their monthly rental. Respondent repeatedly demanded petitioners to pay

the arrears and vacate the premises. The last demand letter was sent on
March 26, 2001.
On September 5, 2001, respondent filed a complaint for unlawful
detainer before the MeTC of Pasay City. The complaint was docketed as
Civil Case No. 708-01.Respondent computed the arrears of petitioners in
the amount of twenty-six million one hundred eighty-three thousand two
hundred twenty-five pesos and fourteen centavos (P26,183,225.14), as of
July 31, 2001.
On February 26, 2002, the MeTC rendered its decision in favor of
respondent. It ruled, thus:
. . . . The court is convinced by the evidence that
indeed, defendants defaulted in the payment of their
rentals. It is basic that the lessee is obliged to pay the price
of the lease according to the terms stipulated (Art. 1657, Civil
Code). Upon the failure of the lessee to pay the stipulated
rentals, the lessor may eject (sic) and treat the lease as
rescinded and sue to eject the lessee (C. Vda[.] De Pamintuan
v. Tiglao, 53 Phil. 1). For non-payment of rentals, the lessor
may rescind the lease, recover the back rentals and recover
possession of the leased premises. . .
xxx
. . . . Improvements made by a lessee such as the
defendants herein on leased premises are not valid reasons
for their retention thereof. The Supreme Court has occasion
to address a similar issue in which it ruled that: The fact that
petitioners allegedly made repairs on the premises in
question is not a reason for them to retain the possession of
the premises. There is no provision of law which grants the
lessee a right of retention over the leased premises on that
ground. Article 448 of the Civil Code, in relation to Article
546, which provides for full reimbursement of useful
improvements and retention of the premises until
reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on a land in the belief that he is the

owner thereof. This right of retention does not apply to a

mere lessee, like the petitioners, otherwise, it would always
be in his power to improve his landlord out of the latters
property (Jose L. Chua and Co Sio Eng vs. Court of Appeals
and Ramon Ibarra, G.R. No. 109840, January 21, 1999).
Although the Contract of Lease stipulates that the
building and all the improvements in the leased premises
belong to the defendants herein, such will not defeat the
right of the plaintiff to its property as the defendants failed to
pay their rentals in violation of the terms of the contract. At
most, defendants can only invoke [their] right under Article
1678 of the New Civil Code which grants them the right to be
reimbursed one-half of the value of the building upon the
termination of the lease, or, in the alternative, to remove the
improvements if the lessor refuses to make reimbursement.

The dispositive portion of the decision reads as follows:

WHEREFORE, premises considered, judgment is hereby
rendered in favor of Nayong Pilipino Foundation, and against
the defendant Philippine Village Hotel, Inc[.], and all persons
claiming rights under it, ordering the latter to:
1.
VACATE the subject premises and
surrender possession thereof to plaintiff;
2.
PAY plaintiff its rental arrearages in the
sum of TWENTY SIX MILLION ONE HUNDRED
EIGHTY THREE THOUSAND TWO HUNDRED
TWENTY
FIVE
PESOS
AND
14/100
(P26,183,225.14) incurred as of July 31, 2001;
3.
PAY plaintiff the sum of SEVEN HUNDRED
TWENTY FIVE THOUSAND SEVEN HUNDRED
EIGHTY PESOS (P725,780.00) per month starting
from August 2001 and every month thereafter
by way of reasonable compensation for the use
and occupation of the premises;

4.

PAY plaintiff the sum of FIFTY THOUSAND

PESOS (P50,000.00) by way of attorneys fees[;
and]
5.
PAY the costs of suit.
The complaint against defendant Jose Marcel E. Panlilio
is hereby dismissed for lack of cause of action. The said
defendants counterclaim however is likewise dismissed as
the complaint does not appear to be frivolous or maliciously
instituted.
SO ORDERED.[5]
Petitioners appealed to the RTC which modified the ruling of the
MeTC. It held that:
. . . it is clear and undisputed that appellants-lessees
were expressly required to construct a first-class hotel with
complete facilities. The appellants were also unequivocally
declared in the Lease Agreement as the owner of the
improvements so constructed. They were even explicitly
allowed to use the improvements and building as security or
collateral on loans and credit accommodations that the
Lessee may secure for the purpose of financing the
construction of the building and other improvements (Section
2; pars. A to B, Lease Agreement). Moreover, a time frame
was setforth (sic) with respect to the duration of the lease
initially for 21 years and renewable for another 25 years in
order to enable the appellants-lessees to recoup their huge
money investments relative to the construction and
maintenance of the improvements.
xxx
Considering therefore, the elements of permanency of
the construction and substantial value of the improvements
as well as the undispute[d] ownership over the land
improvements, these, immensely engender the application of
Art. 448 of the Civil Code. The only remaining and most
crucial issue to be resolved is whether or not the appellants

as builders have acted in good faith in order for Art. 448 in

relation to Art. 546 of the Civil Code may apply with respect
to their rights over improvements.
xxx
. . . it is undeniable that the improvement of the hotel
building of appellants (sic) PVHI was constructed with the
written consent and knowledge of appellee. In fact, it was
precisely the primary purpose for which they entered into an
agreement. Thus, it could not be denied that appellants
were builders in good faith.
Accordingly, and pursuant to Article 448 in relation to
Art. 546 of the Civil Code, plaintiff-appellee has the sole
option or choice, either to appropriate the building, upon
payment of proper indemnity consonant to Art. 546 or
compel the appellants to purchase the land whereon the
building was erected. Until such time that plaintiff-appellee
has
elected
an
option
or
choice,
ithas no right of removal or demolition against
appellants
unless after having selected a compulsory sale, appellants
fail to pay for the land (Ignacio vs. Hilario; 76 Phil. 605). This,
however, is without prejudice from the parties agreeing to
adjust their rights in some other way as they may mutually
deem fit and proper.
The dispositive portion of the decision of the RTC reads as follows:
WHEREFORE, and in view of the foregoing, judgment is
hereby rendered modifying the decision of [the] MTC, Branch
45 of Pasay City rendered on February 26, 2002 as follows:
1.
Ordering plaintiff-appellee to submit within thirty
(30) days from receipt of a copy of this decision a
written manifestation of the option or choice it
selected, i.e., to appropriate the improvements
upon payment of proper indemnity or compulsory
sale of the land whereon the hotel building of PVHI

and related improvements or facilities were

erected;
2.
Directing the plaintiff-appellee to desist and/or
refrain from doing acts in the furtherance or
exercise of its rights and demolition against
appellants unless and after having selected the
option of compulsory sale and appellants failed to
pay [and] purchase the land within a reasonable
time or at such time as this court will direct;
3.
Ordering defendants-appellants to pay plaintiffappellee [their] arrears in rent incurred as of July
31, 2001 in the amount of P26,183,225.14;
4.
Ordering defendants-appellants to pay to
plaintiff-appellee the unpaid monthly rentals for the
use and occupation of the premises pending this
appeal from July to November 2002 only at
P725,780.00 per month;
5.
The fourth and fifth directives in the dispositive
portion of the trial courts decision including that the
last paragraph thereof JME Panlilios complaint is
hereby affirmed;
6.
The parties are directed to adjust their respective
rights in the interest of justice as they may deem fit
and proper if necessary.
SO ORDERED.[6]
Respondent appealed to the CA which held that the RTC erroneously
applied the rules on accession, as found in Articles 448 and 546 of the
Civil Code when it held that petitioners were builders in good faith and,
thus, have the right to indemnity. The CA held:
By and large, respondents are admittedly mere lessees
of the subject premises and as such, cannot validly claim that
they are builders in good faith in order to solicit the
application of Articles 448 and 546 of the Civil Code in their
favor. As it is, it is glaring error on the part of the RTC to apply
the aforesaid legal provisions on the supposition that the

improvements, which are of substantial value, had been

introduced on the leased premises with the permission of the
petitioner. To grant the respondents the right of retention and
reimbursement as builders in good faith merely because of
the valuable and substantial improvements that they
introduced to the leased premises plainly contravenes the
law and settled jurisprudential doctrines and would, as
stated, allow the lessee to easily improve the lessor out of its
property.
. . . . Introduction of valuable improvements on the
leased premises does not strip the petitioner of its right to
avail of recourses under the law and the lease contract itself
in case of breach thereof. Neither does it deprive the
petitioner of its right under Article 1678 to exercise its option
to acquire the improvements or to let the respondents
remove the same.
Petitioners Motion for Reconsideration was denied.
Hence, this appeal.[7]
Petitioners assign the following errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT
PETITIONERS WERE BUILDERS IN GOOD FAITH OVER THE
SUBSTANTIAL AND VALUABLE IMPROVEMENTS WHICH THEY
HAD INTRODUCED ON THE SUBJECT PROPERTY, THUS
COMPELLING THE APPLICATION OF ARTICLE 448 OF THE CIVIL
CODE IN RELATION TO ARTICLE 546 OF THE SAME CODE,
INSTEAD OF ARTICLE 1678 OF THE CIVIL CODE.
II
THE HONORABLE COURT OF APPEALS COMMITTED A
SERIOUS REVERSIBLE ERROR WHEN IT DISREGARDED THE
FACT THAT THE LEASE CONTRACT GOVERNS THE
RELATIONSHIP OF THE PARTIES AND CONSEQUENTLY THE
PARTIES MAY BE CONSIDERED TO HAVE IMPLIEDLY WAIVED

THE APPLICATION OF ARTICLE 1678 OF THE CIVIL CODE TO

THE INSTANT CASE.
III
ASSUMING ARGUENDO THAT THE PETITIONERS ARE
NOT BUILDERS IN GOOD FAITH, THE HONORABLE COURT OF
APPEALS COMMITTED A GRAVE REVERSIBLE ERROR WHEN IT
OVERLOOKED THE FACT THAT RESPONDENT ALSO ACTED IN
BAD FAITH WHEN IT DID NOT HONOR AND INSTEAD
BREACHED THE LEASE CONTRACT BETWEEN THE PARTIES,
THUS BOTH PARTIES ACTED AS IF THEY ARE IN GOOD FAITH.
IV
TO SANCTION THE APPLICATION OF ARTICLE 1678 OF
THE CIVIL CODE INSTEAD OF ARTICLE 448 OF THE CIVIL CODE
IN RELATION TO ARTICLE 546 OF THE SAME CODE WOULD
NOT ONLY WREAK HAVOC AND CAUSE SUBSTANTIAL INJURY
TO THE RIGHTS AND INTERESTS OF PETITIONER PHILIPPINE
VILLAGE HOTEL, INC. WHILE RESPONDENT NAYONG PILIPINO
FOUNDATION, IN COMPARISON THERETO, WOULD SUFFER
ONLY SLIGHT OR INCONSEQUENTIAL INJURY OR LOSS, BUT
ALSO WOULD CONSTITUTE UNJUST ENRICHMENT ON THE
PART OF RESPONDENT AT GREAT EXPENSE AND GRAVE
PREJUDICE OF PETITIONERS.
V
THE HONORABLE COURT OF APPEALS COMMITTED A
GRAVE REVERSIBLE ERROR IN NOT HOLDING THAT THE
COURTS A QUO DID NOT ACQUIRE JURISDICTION OVER THE
UNLAWFUL DETAINER CASE FOR NON-COMPLIANCE WITH
JURISDICTIONAL REQUIREMENTS DUE TO THE ABSENCE OF A
NOTICE TO VACATE UPON PETITIONERS.[8]
First, we settle the issue of jurisdiction. Petitioners argue that the
MeTC did not acquire jurisdiction to hear and decide the ejectment case
because they never received any demand from respondent to pay rentals
and vacate the premises, since such demand is a jurisdictional

requisite. We reiterate the ruling of the MeTC, RTC and CA. Contrary to the
claim of petitioners, documentary evidence proved that a demand letter
dated March 26, 2001 was sent by respondent through registered mail to
petitioners, requesting them to pay the rental arrears or else it will be
constrained to file the appropriate legal action and possess the leased
premises.
Further, petitioners argument that the demand letter is inadequate
because it contained no demand to vacate the leased premises does not
persuade. We have ruled that:
. . . . The word vacate is not a talismanic word that
must be employed in all notices. The alternatives in this case
are clear cut. The tenants must pay rentals which are fixed
and which became payable in the past, failing which they
must move out. There can be no other interpretation of the
notice given to them. Hence, when the petitioners demanded
that either he paysP18,000 in five days or a case of
ejectment would be filed against him, he was placed on
notice to move out if he does not pay. There was, in effect, a
notice or demand to vacate.[9]
In the case at bar, the language of the demand letter is plain and
simple: respondent demanded payment of the rental arrears amounting
to P26,183,225.14 within ten days from receipt by petitioners, or
respondent will be constrained to file an appropriate legal action against
petitioners to recover the said amount. The demand letter further stated
that respondent will possess the leased premises in case of petitioners
failure to pay the rental arrears within ten days. Thus, it is clear that the
demand letter is intended as a notice to petitioners to pay the rental
arrears, and a notice to vacate the premises in case of failure of
petitioners to perform their obligation to pay.
Second, we resolve the main issue of whether the rules on
accession, as found in Articles 448 and 546 of the Civil Code, apply to the
instant case.

Article 448 and Article 546 provide:

Art. 448. The owner of the land on which anything has
been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 and
548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the
owner of the land does not choose to appropriate the building
or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
Art. 546. Necessary expenses shall be refunded to
every possessor; but only the possessor in good faith may
retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the
possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying
the increase in value which the thing may have acquired by
reason thereof.
We uphold the ruling of the CA.
The late Senator Arturo M. Tolentino, a leading expert in Civil Law,
explains:
This article [Article 448] is manifestly intended to
apply only to a case where one builds, plants, or sows on
land in which he believes himself to have a claim of title,
[10]
and not to lands where the only interest of the builder,
planter or sower is that of a holder, such as a tenant. [11]

In the case at bar, petitioners have no adverse claim or title to the

land. In fact, as lessees, they recognize that the respondent is the owner
of the land. What petitioners insist is that because of the improvements,
which are of substantial value that they have introduced on the leased
premises with the permission of respondent they should be considered
builders in good faith who have the right to retain possession of the
property until reimbursement by respondent.
We affirm the ruling of the CA that introduction of valuable
improvements on the leased premises does not give the petitioners the
right of retention and reimbursement which rightfully belongs to a builder
in good faith. Otherwise, such a situation would allow the lessee to easily
improve the lessor out of its property. We reiterate the doctrine that a
lessee is neither a builder in good faith nor in bad faith [12] that would call
for the application of Articles 448 and 546 of the Civil Code. His rights are
governed by Article 1678 of the Civil Code, which reads:
Art. 1678. If the lessee makes, in good faith, useful
improvements which are suitable to the use for which the
lease is intended, without altering the form or substance of
the property leased, the lessor upon the termination of the
lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to
reimburse said amount, the lessee may remove the
improvements, even though the principal thing may suffer
damage thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary.
With regard to ornamental expenses, the lessee shall
not be entitled to any reimbursement, but he may remove
the ornamental objects, provided no damage is caused to the
principal thing, and the lessor does not choose to retain them
by paying their value at the time the lease is extinguished.

Under Article 1678, the lessor has the option of paying one-half of the
value of the improvements which the lessee made in good faith, which are
suitable for the use for which the lease is intended, and which have not
altered the form and substance of the land. On the other hand, the lessee
may remove the improvements should the lessor refuse to reimburse.
Petitioners argue that to apply Article 1678 to their case would
result to sheer injustice, as it would amount to giving away the hotel and
its other structures at virtually bargain prices. They allege that the value
of the hotel and its appurtenant facilities amounts to more than two billion
pesos, while the monetary claim of respondent against them only amounts
to a little more than twenty six-million pesos. Thus, they contend that it is
the lease contract that governs the relationship of the parties, and
consequently, the parties may be considered to have impliedly waived the
application of Article 1678.
We cannot sustain this line of argument by petitioners. Basic is the
doctrine that laws are deemed incorporated in each and every
contract. Existing laws always form part of any contract. Further, the lease
contract in the case at bar shows no special kind of agreement between
the parties as to how to proceed in cases of default or breach of the
contract. Petitioners maintain that the lease contract contains a default
provision which does not give respondent the right to appropriate the
improvements nor evict petitioners in cases of cancellation or termination
of the contract due to default or breach of its terms. They cite paragraph
10 of the lease contract, which provides that:
10. DEFAULT. - . . . Default shall automatically take
place upon the failure of the LESSEE to pay or perform its
obligation during the time fixed herein for such obligations
without necessity of demand, or, if no time is fixed, after 90
days from the receipt of notice or demand from the LESSOR. .
.
In case of cancellation or termination of this contract
due to the default or breach of its terms, the LESSEE will pay
all reasonable attorneys fees, costs and expenses of litigation
that may be incurred by the LESSOR in enforcing its rights

under this contract or any of its provisions, as well as all

unpaid rents, fees, charges, taxes, assessment and others
which the LESSOR may be entitled to.
Petitioners assert that respondent committed a breach of the lease
contract when it filed the ejectment suit against them. However, we find
nothing in the above quoted provision that prohibits respondent to
proceed the way it did in enforcing its rights as lessor. It can rightfully file
for ejectment to evict petitioners, as it did before the court a quo.
IN VIEW WHEREOF, petitioners appeal is DENIED. The October 4,
2005 Decision of the Court of Appeals in CA-G.R. SP No. 74631 and its
December 22, 2005 Resolution are AFFIRMED. Costs against petitioners.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-25462 February 21, 1980
MARIANO FLOREZA, petitioner,
vs.
MARIA D. de EVANGELISTA and SERGIO EVANGELISTA, respondents.
R.D. Hipolito & B. P. Fabir for petitioner.

E.G. Tanjuatco & Associates for respondents.

MELENCIO-HERRERA, J:
This is a Petition for Review on certiorari of the Decision of the Court of
Appeals (CA-G.R. No. 23516-R) promulgated on November 4, 1965,
entitled "Maria de Evangelista and Sergio Evangelists, (now the
respondents) vs. Mariano Floreza (petitioner herein)," reversing the
judgment of the Court of First Instance of Rizal rendered on July 17, 1957,
and instead ordering petitioner to vacate respondents' residential lot, to
remove his house at his own expenses and to pay rental from May 5,
1956.
Plaintiffs Maria de Evangelista and Sergio Evangelista, who are mother
and son, (the EVANGELISTAS, for short) are the owners of a residential lot
located at Sumilang St., Tanay, Rizal, with an area of 204.08 sq. ms.,
assessed at P410.00. In May 1945, the EVANGELISTAS borrowed from
FLOREZA the amount of P100.00. On or about November 1945, with the
consent of the EVANGELISTAS, FLOREZA occupied the above residential lot
and built thereon a house of light materials (barong- barong) without any
agreement as to payment for the use of said residential lot owing to the
fact that the EVANGELISTAS has then a standing loan of P100.00 in favor
of FLOREZA. 1
On the following dates, the EVANGELISTAS again borrowed the indicated
amounts: September 16, 1946 P100.00; 2 August 17, 1947
P200,00; 3 January 30, 1949 P200.00; 4 April 1, 1949 P140.00, 5 or a
total of P740.00 including the first loan. The last three items are evidenced
by private documents stating that the residential lot stands as security
therefor and that the amounts covered thereunder are payable within six
years from date, without mention of interest. The document executed on
September 16, 1946 stated specifically that the loan was without interest
"walang anumang patubo."
On January 10, 1949, FLOREZA demolished this house of light materials
and in its place constructed one of strong materials assessed in his name
at P1,410.00 under Tax Declaration No. 4448. FLOREZA paid no rental as
before. 6

On August 1, 1949, the EVANGELISTAS, for and in consideration of

P1,000.00 representing the total outstanding loan of P740.00 plus P260.00
in cash, sold their residential lot to FLOREZA, with a right to repurchase
within a period of 6 years from date, or up to August 1, 1955, as
evidenced by a notarial document, Exh. B, registered under Act 3344 on
December 6, 1949, as Inscription No. 2147. 7
On January 2, 1955, or seven months before the expiry of the repurchase
period, the EVANGELISTAS paid in full the repurchase price of P1,000.00.
On April 25, 1956, the EVANGELISTAS, through their counsel, wrote
FLOREZA a letter 8 asking him to vacate the premises as they wanted to
make use of their residential lot besides the fact that FLOREZA had
already been given by them more than one year within which to move his
house to another site. On May 4, 1956, the EVANGELISTAS made a formal
written demand to vacate, within five days from notice, explaining that
they had already fully paid the consideration for the repurchase of the
lot. 9 FLOREZA refused to vacate unless he was first reimbursed the value
of his house. Hence, the filing of this Complaint on May 18, 1956 by the
EVANGELISTAS.
The EVANGELISTAS prayed that: 1) they be declared the owners of the
house of strong materials built by FLOREZA on their residential lot, without
payment of indemnity; or, in the alternative to order FLOREZA to remove
said house; 2) that FLOREZA pay them the sum of P10.00 per month as
the reasonable value for the use and occupation of the same from January
2, 1955 (the date the repurchase price was paid) until FLOREZA removes
the house and delivers the lot to them; and 3) to declare the transaction
between them and FLOREZA as one of mortgage and not of pacto de
retro.
In his Answer, FLOREZA admitted the repurchase but controverted by
stating that he would execute a deed of repurchase and leave the
premises upon payment to him of the reasonable value of the house worth
P7,000.00.
In a Decision dated July 17, 1957, the Court of First Instance of Rizal
opined that the question of whether the transaction between the parties is
one of mortgage or pacto de retro is no longer material as the

indebtedness of P1,000.00 of the EVANGELISTAS to FLOREZA had already

been fully paid. And, applying Article 448 of the Civil Code, 10 it rendered a
decision dispositively decreeing:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court
hereby renders judgment granting the plaintiffs the right to
elect, as owners of the land, to purchase the house built, on
the said lot in question by the defendant for P2,500 or to sell
their said land to e defendant for P1,500. In the event that
the plaintiffs shall decide not to purchase the house in
question the defendant should be allowed to remain in
plaintiffs' premises by, paying a monthly rental of P10.00
which is the reasonable value for the use of the same per
month as alleged by plaintiffs in their complaint. The Court
also orders the defendant to pay a monthly rental of P10.00
for the use of the land in question from May 18, 1956, the
date of the commencement of this action. The counterclaim
of the defendant is hereby ordered dismissed. Without
pronouncement as to costs.
SO ORDERED.

11

both
instances
Floreza. 12

against

defendant-appellant

Mariano

Hence, this Petition for Review on certiorari by FLOREZA, seeking a

reversal of the aforestated judgment and ascribing the following errors:
1) That the Court of Appeals erred in holding that petitioner
Floreza was a builder in bad faith without likewise holding
that respondents as owners of the land in dispute, were
likewise in bad faith and therefore both parties should in
accordance with Art. 453 of the New Civil Code be considered
as having acted in good faith.
2) That the Court of Appeals erred in completely ignoring the
issue raised on appeal as to whether or not respondents as
owners of the questioned lot, were in bad faith in the sense
that they had knowledge of and acquiseced to the
construction of the house of petitioner on their lot.
3) That the Court of Appeals erred in not applying Art. 448 of
the New Civil Code in the adjudication of the rights of
petitioner and respondent.

Both parties appealed to the Court of Appeals.

On November 4, 1965, the Court of Appeals concluded that Article 448 of
the Civil Code, supra, was inapplicable; that FLOREZA was not entitled to
reimbursement for his house but that he could remove the same at his
expense; and accordingly rendered judgment thus:
WHEREFORE, judgment is hereby rendered: (1) adjudging the
defendant-appellant Mariano Floreza to vacate plaintiffs'
residential lot described in the complaint and to pay rental of
P10.00 a month from May 5, 1956, until he (defendant) shall
have vacated the premises; (2) ordering defendant to remove
his house from the land in question within 30 days from the
time this decision becomes final and executory; (3) ordering
the Register of Deeds of Rizal to cancel inscription No. 2147,
Page 210, Vol. 36, in the Registration Book under Act 3344
upon payment of his lawful fees; and (4) taxing the costs in

4) That the Court of Appeals erred in declaring that petitioner

is not entitled to reimbursement for the value of his house
and that he should instead remove the same at his expense.
5) That the Court of Appeals erred in adjudging petitioner to
vacate respondents' lot in question and to pay rentals
commencing from May 5, 1956, until he shall have vacated
the premises, notwithstanding that petitioner is entitled
under Arts. 448 and 546 of the New Civil Code, to retention
without payment of rental while the corresponding indemnity
of his house had not been paid.
6) That the Court of Appeals erred in taxing costs against
petitioner.

7) That the Court of Appeals erred in not awarding

petitioner's counterclaim.

same token, however, that Article 448 of the same Code is not applicable,
neither is Article 453 under the ambiance of this case.

During the pendency of this appeal, petitioner Maria D. de Evangelista

died and was ordered substituted by her son, petitioner Sergio, as her
legal representative, in a Resolution dated May 14, 1976.

Would petitioner, as vendee a retro, then be entitled to the rights granted

iii Article 1616 of the Civil Code (Art. 1518 of the old Code)? To quote:

On October 20, 1978. the EVANGELISTAS filed a Motion to Dismiss stating

that FLOREZA had since died and that his heirs had voluntarily vacated
the residential lot in question. The date FLOREZA passed away and the
date his heirs had voluntarily vacated the property has not been stated.
Required to comment, "petitioner (represented by his heirs)", through
counsel, confirmed his death and the removal of the house and
manifested that thereby the question of reimbursement had moot and
academic. He objected to the dismissal of the case, however, on the
ground that the issue of rentals still pends. On January 21, 1980,
complying with a Resolution of 'his Court, the EVANGELISTAS clarified that
the dismissal they were praying for was not of the entire case but only of
this Petition for Review on Certiorari.
We are not in agreement that the question of reimbursement of the value
of the improvement erected on the subject property has become moot.
Petitioner's right of retention of subject property until he is reimbursed for
the value of his house, as he had demanded, is inextricably linked with the
question of rentals. For if petitioner has the right to indemnity, he has the
right of retention and no rentals need be paid. Conversely, if no right of
retention exists, damages in the form of rentals for the continued use and
occupation of the property should be allowed.
We uphold the Court of Appeals in its conclusion that Article 448 of the
Civil Code is inapplicable to the factual milieu herein. Said codal provision
applies only when the builder, planter, or sower believes he had the right
so to build, plant or sow because he thinks he owns the land or believes
himself to have a claim of title. 13 In this case, petitioner makes no
pretensions of ownership whatsoever.
Petitioner concedes that he was a builder in bad faith but maintains that'
the EVANGELISTAS should also be held in bad faith, so that both of them
being in bad faith, Article 453 of the Civil Code 14 should apply. By the

Art. 1616. The vendor cannot avail himself of the right of

repurchase without returning to the vendee the price of the
sale, and in addition:
(1) The expenses of the contract, and any other legitimate
payments made by reason of the sale;
(2) The necessary and useful expenses made on the thing
sold.
The question again calls for a negative answer. It should be noted that
petitioner did not construct his house as a vendee a retro. The house had
already been constructed as far back as 1949 (1945 for the house of light
materials) even before the pacto de retro sale in 1949. Petitioner incurred
no useful expense, therefore, after that sale. The house was already there
at the tolerance of the EVANGELISTAS in consideration of the several loans
extended to them. Since petitioner cannot be classified as a builder in
good faith within the purview of Article 448 of the Civil Code, nor as a
vendee a retro, who made useful improvements during the lifetime of
the pacto de retro, petitioner has no right to reimbursement of the value
of the house which he had erected on the residential lot of the
EVANGELISTAS, much less to retention of the premises until he is
reimbursed.The rights of petitioner are more akin to those of a
usufructuary who, under Article 579 of the Civil (Art. 487 of the old Code),
may make on the property useful improvements but with no right to be
indemnified therefor. He may, however, remove such improvements
should it be possible to do so without damage to the property: For if the
improvements made by the usufructuary were subject to indemnity, we
would have a dangerous and unjust situation in which the usufructuary
could dispose of the owner's funds by compelling him to pay for
improvements which perhaps he would not have made. 15

We come now to the issue of rentals. It is clear that from the date that the
redemption price had been paid by the EVANGELISTAS on January 2, 1955,
petitioner's right to the use of the residential lot without charge had
ceased. Having retained the property although a redemption had been
made, he should be held liable for damages in the form of rentals for the
continued use of the subject residential lot 16 at the rate of P10.00 monthly
from January 3, 1955, and not merely from the date of demand on May 4,
1956, as held by the Court of Appeals, until the house was removed and
the property vacated by petitioner or his heirs.
WHEREFORE, the judgment appealed from is hereby affirmed, with the
modification that payment of rentals by the heir, of Mariano Floreza, who
are hereby ordered substituted for him, shall commence on January 3,
1955 until the date that the residential lot in question was vacated.
Costs against petitioner.

PERSHING TAN QUETO, petitioner,

vs.
COURT OF APPEALS, JUAN POMBUENA and RESTITUTA TACALINAR
GUANGCO DE POMBUENA, respondents.
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 rely on said OCT;

SO ORDERED.
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 wife Restituta
Tacalinar (daughter) in the future hereditary estate of her
parents;
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-35648 February 27, 1987

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;
5. The Decision erred in disregarding the fact that petitioner
constructed his concrete building on Lot No. 304-B in good

faith relying OCT No. 0-1160, after the dismissal of the

ejectment case and onlyafter 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 afinding 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)

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;

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. 304B), 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

(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)?

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 oneroustitle (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 in bad faith. He is a builderpossessor 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.

Republic of the Philippines

Supreme Court
Manila
FIRST DIVISION
G.R. No. 140528
MARIA TORBELA, represented by her heirs, namely: EULOGIO
TOSINO, husband and children: CLARO, MAXIMINO, CORNELIO,

OLIVIA and CALIXTA, all surnamed TOSINO, APOLONIA TOSINO

VDA. DE RAMIREZ and JULITA TOSINO DEAN; PEDRO TORBELA,
represented by his heirs, namely: JOSE and DIONISIO, both
surnamed TORBELA; EUFROSINA TORBELA ROSARIO, represented
by her heirs, namely: ESTEBAN T. ROSARIO, MANUEL T. ROSARIO,
ROMULO T. ROSARIO and ANDREA ROSARIO-HADUCA; LEONILA
TORBELA TAMIN; FERNANDO TORBELA, represented by his heirs,
namely: SERGIO T. TORBELA, EUTROPIA T. VELASCO, PILAR T.
ZULUETA, CANDIDO T. TORBELA, FLORENTINA T. TORBELA and
PANTALEON T. TORBELA; DOLORES TORBELA TABLADA; LEONORA
TORBELA AGUSTIN, represented by her heirs, namely: PATRICIO,
SEGUNDO, CONSUELO and FELIX, all surnamed AGUSTIN; and
SEVERINA TORBELA ILDEFONSO,

Decision[1] dated June 29, 1999 and Resolution[2] dated October

1999 of the Court of Appeals in CA-G.R. CV No. 39770.

Petitioners,

The controversy began with a parcel of land, with an area of 374 square
meters, located in Urdaneta City, Pangasinan (Lot No. 356-A). It was
originally part of a larger parcel of land, known as Lot No. 356 of the
Cadastral Survey of Urdaneta, measuring 749 square meters, and covered
by Original Certificate of Title (OCT) No. 16676, [8] in the name of Valeriano
Semilla (Valeriano), married to Potenciana Acosta. Under unexplained
circumstances, Valeriano gave Lot No. 356-A to his sister Marta Semilla,
married to Eugenio Torbela (spouses Torbela). Upon the deaths of the
spouses Torbela, Lot No. 356-A was adjudicated in equal shares among
their children, the Torbela siblings, by virtue of a Deed of Extrajudicial
Partition[9] dated December 3, 1962.

- versus SPOUSES ANDRES T. ROSARIO and LENA DUQUE-ROSARIO and

BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
Respondents.
LENA DUQUE-ROSARIO,
Petitioner,
- versus BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
Respondent.

DECISION
LEONARDO-DE CASTRO, J.:
Presently before the Court are two consolidated Petitions for Review
on Certiorari under Rule 45 of the Rules of Court, both assailing the

22,

The petitioners in G.R. No. 140528 are siblings Maria Torbela, [3] Pedro
Torbela,[4] Eufrosina Torbela Rosario,[5] Leonila Torbela Tamin, Fernando
Torbela,[6] Dolores Torbela Tablada, Leonora Torbela Agustin, [7] and
Severina Torbela Ildefonso (Torbela siblings).
The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario),
who was married to, but now legally separated from, Dr. Andres T. Rosario
(Dr. Rosario). Dr. Rosario is the son of Eufrosina Torbela Rosario and the
nephew of the other Torbela siblings.

On December 12, 1964, the Torbela siblings executed a Deed of Absolute

Quitclaim[10] over Lot No. 356-A in favor of Dr. Rosario. According to the
said Deed, the Torbela siblings for and in consideration of the sum of NINE
PESOS (P9.00) x x x transfer[red] and convey[ed] x x x unto the said
Andres T. Rosario, that undivided portion of THREE HUNDRED SEVENTYFOUR square meters of that parcel of land embraced in Original Certificate
of Title No. 16676 of the land records of Pangasinan x x x. [11] Four days
later, on December 16, 1964, OCT No. 16676 in Valerianos name was
partially cancelled as to Lot No. 356-A and TCT No. 52751 [12] was issued in
Dr. Rosarios name covering the said property.

Another Deed of Absolute Quitclaim [13] was subsequently executed on

December 28, 1964, this time by Dr. Rosario, acknowledging that he only
borrowed Lot No. 356-A from the Torbela siblings and was already
returning the same to the latter for P1.00. The Deed stated:
That for and in consideration of the sum of one peso
(P1.00), Philippine Currency and the fact that I only
borrowed the above described parcel of land from
MARIA TORBELA, married to Eulogio Tosino, EUFROSINA
TORBELA, married to Pedro Rosario, PEDRO TORBELA,
married to Petra Pagador, LEONILA TORBELA, married to
Fortunato Tamen, FERNANDO TORBELA, married to Victoriana
Tablada, DOLORES TORBELA, widow, LEONORA TORBELA,
married to Matias Agustin and SEVERINA TORBELA, married
to Jorge Ildefonso, x x x by these presents do hereby cede,
transfer and convey by way of this ABSOLUTE QUITCLAIM
unto the said Maria, Eufrosina, Pedro, Leonila, Fernando,
Dolores, Leonora and Severina, all surnamed Torbela the
parcel of land described above. [14] (Emphasis ours.)

The aforequoted Deed was notarized, but was not immediately annotated
on TCT No. 52751.
Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from
the Development Bank of the Philippines (DBP) on February 21, 1965 in
the sum of P70,200.00, secured by a mortgage constituted on Lot No. 356A. The mortgage was annotated on TCT No. 52751 on September 21,
1965 as Entry No. 243537.[15] Dr. Rosario used the proceeds of the loan
for the construction of improvements on Lot No. 356-A.
On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of
Adverse Claim,[16] on behalf of the Torbela siblings. Cornelio deposed in
said Affidavit:

3. That ANDRES T. ROSARIO later quitclaimed his rights

in favor of the former owners by virtue of a Deed of Absolute
Quitclaim which he executed before Notary Public Banaga,
and entered in his Notarial Registry as Dec. No. 43; Page No.
9; Book No. I; Series of 1964;
4. That it is the desire of the parties, my aforestated
kins, to register ownership over the above-described property
or to perfect their title over the same but their Deed could
not be registered because the registered owner now, ANDRES
T. ROSARIO mortgaged the property with the DEVELOPMENT
BANK OF THE PHILIPPINES, on September 21, 1965, and for
which reason, the Title is still impounded and held by the said
bank;
5. That pending payment of the obligation with the
DEVELOPMENT BANK OF THE PHILIPPINES or redemption of
the Title from said bank, I, CORNELIO T. TOSINO, in behalf of
my mother MARIA TORBELA-TOSINO, and my Aunts
EUFROSINA TORBELA, LEONILA TORBELA-TAMEN, DOLORES
TORBELA, LEONORA TORBELA-AGUSTIN, SEVERINA TORBELAILDEFONSO, and my Uncles PEDRO TORBELA and FERNANDO,
also surnamed TORBELA, I request the Register of Deeds of
Pangasinan to annotate their adverse claim at the back of
Transfer Certificate of Title No. 52751, based on the annexed
document, Deed of Absolute Quitclaim by ANDRES T.
ROSARIO, dated December 28, 1964, marked as Annex A and
made a part of this Affidavit, and it is also requested that the
DEVELOPMENT BANK OF THE PHILIPPINES be informed
accordingly.[17]

The very next day, on May 17, 1967, the Torbela siblings had
Cornelios Affidavit of Adverse Claim dated May 16, 1967 and Dr. Rosarios
Deed of Absolute Quitclaim dated December 28, 1964 annotated on TCT
No. 52751 as Entry Nos. 274471[18] and 274472,[19] respectively.

The construction of a four-storey building on Lot No. 356-A was eventually

completed. The building was initially used as a hospital, but was later
converted to a commercial building. Part of the building was leased to
PT&T; and the rest to Mrs. Andrea Rosario-Haduca, Dr. Rosarios sister, who
operated the Rose Inn Hotel and Restaurant.
Dr. Rosario was able to fully pay his loan from DBP. Under Entry No.
520197 on TCT No. 52751[20] dated March 6, 1981, the mortgage
appearing under Entry No. 243537 was cancelled per the Cancellation and
Discharge of Mortgage executed by DBP in favor of Dr. Rosario and ratified
before a notary public on July 11, 1980.
In the meantime, Dr. Rosario acquired another loan from the
Philippine National Bank (PNB) sometime in 1979-1981. Records do not
reveal though the original amount of the loan from PNB, but the loan
agreement was amended on March 5, 1981 and the loan amount was
increased to P450,000.00. The loan was secured by mortgages constituted
on the following properties: (1) Lot No. 356-A, covered by TCT No. 52751
in Dr. Rosarios name; (2) Lot No. 4489, with an area of 1,862 square
meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832;
and (3) Lot No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters,
located in Nancayasan, Urdaneta, Pangasinan, covered by TCT No.
104189.[21] The amended loan agreement and mortgage on Lot No. 356-A
was annotated on TCT No. 52751 on March 6, 1981 as Entry No. 520099.
[22]

Five days later, on March 11, 1981, another annotation, Entry No.
520469,[23] was made on TCT No. 52751, canceling the adverse claim on
Lot No. 356-A under Entry Nos. 274471-274472, on the basis of the
Cancellation and Discharge of Mortgage executed by Dr. Rosario on March
5, 1981. Entry No. 520469 consisted of both stamped and handwritten
portions, and exactly reads:
Entry No. 520469. Cancellation of Adverse Claim executed
by Andres
Rosario in
favor
of same. The

incumbrance/mortgage appearing under Entry No. 27447172 is now cancelled as per Cancellation and Discharge of
Mortgage
Ratified
before
Notary
Public Mauro
G.
Meris on March 5, 1981: Doc. No. 215; Page No. 44; Book
No. 1; Series Of 1981.
Lingayen, Pangasinan, 3-11, 19981

[Signed: Pedro dela Cruz]

Register of Deeds [24]

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario

(spouses Rosario), acquired a third loan in the amount of P1,200,000.00
from Banco Filipino Savings and Mortgage Bank (Banco Filipino). To secure
said loan, the spouses Rosario again constituted mortgages on Lot No.
356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. The mortgage on Lot No.
356-A
was
annotated
on
TCT
No.
52751
as Entry
No.
533283[25] on December 18, 1981. Since the construction of a two-storey
commercial building on Lot No. 5-F-8-C-2-B-2-A was still incomplete, the
loan value thereof as collateral was deducted from the approved loan
amount. Thus, the spouses Rosario could only avail of the maximum loan
amount of P830,064.00 from Banco Filipino.
Because Banco Filipino paid the balance of Dr. Rosarios loan from
PNB, the mortgage on Lot No. 356-A in favor of PNB was cancelled
per Entry No. 533478[26] on TCT No. 52751 dated December 23, 1981.
On February 13, 1986, the Torbela siblings filed before the Regional Trial
Court (RTC) of Urdaneta, Pangasinan, a Complaint for recovery of
ownership and possession of Lot No. 356-A, plus damages, against the
spouses Rosario, which was docketed as Civil Case No. U-4359. On the
same day, Entry Nos. 593493 and 593494 were made on TCT No. 52751
that read as follows:

Entry No. 593494 Complaint Civil Case No. U-4359 (For:

Recovery of Ownership and Possession and Damages. (Sup.
Paper).
Entry No. 593493 Notice of Lis Pendens The parcel of land
described in this title is subject to Lis Pendens executed by
Liliosa B. Rosario, CLAO, Trial Attorney dated February 13,
1986. Filed to TCT No. 52751
February 13, 1986-1986 February 13 3:30 p.m.
(SGD.) PACIFICO M. BRAGANZA
Register of Deeds[27]

The spouses Rosario afterwards failed to pay their loan from Banco
Filipino. As of April 2, 1987, the spouses Rosarios outstanding principal
obligation
and
penalty
charges
amounted
to P743,296.82
[28]
and P151,524.00, respectively.
Banco Filipino extrajudicially foreclosed the mortgages on Lot No.
356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. During the public auction
on April 2, 1987, Banco Filipino was the lone bidder for the three
foreclosed properties for the price of P1,372,387.04. The Certificate of
Sale[29] dated April 2, 1987, in favor of Banco Filipino, was annotated on
TCT No. 52751 on April 14, 1987 as Entry No. 610623.[30]
On December 9, 1987, the Torbela siblings filed before the RTC their
Amended Complaint,[31] impleading Banco Filipino as additional defendant
in Civil Case No. U-4359 and praying that the spouses Rosario be ordered
to redeem Lot No. 356-A from Banco Filipino.
The spouses Rosario instituted before the RTC on March 4, 1988 a
case for annulment of extrajudicial foreclosure and damages, with prayer
for a writ of preliminary injunction and temporary restraining order,
against Banco Filipino, the Provincial Ex Officio Sheriff and his Deputy, and
the Register of Deeds of Pangasinan. The case was docketed as Civil

Case No. U-4667. Another notice of lis pendens was annotated on TCT
No. 52751 on March 10, 1988 as Entry No. 627059, viz:
Entry No. 627059 Lis Pendens Dr. Andres T. Rosario
and Lena Duque Rosario, Plaintiff versus Banco Filipino, et. al.
Civil Case No. U-4667 or Annulment of ExtraJudicial
Foreclosure of Real Estate Mortgage The parcel of land
described in this title is subject to Notice of Lis Pendens
subscribed and sworn to before Notary Public Mauro G. Meris,
as Doc. No. 21; Page No. 5; Book 111; S-1988. March 7, 19881988 March 10, 1:00 p.m.

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds[32]

The Torbela siblings intervened in Civil Case No. U-4667. Eventually,

on October 17, 1990, the RTC issued an Order [33] dismissing without
prejudice Civil Case No. U-4667 due to the spouses Rosarios failure to
prosecute.
Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from
Banco Filipino, but their efforts were unsuccessful. Upon the expiration of
the one-year redemption period in April 1988, the Certificate of Final
Sale[34] and Affidavit of Consolidation[35] covering all three foreclosed
properties were executed on May 24, 1988 and May 25, 1988,
respectively.
On June 7, 1988, new certificates of title were issued in the name of
Banco Filipino, particularly, TCT No. 165812 for Lot No. 5-F-8-C-2-B-2-A and
TCT No. 165813 for Lot No. 356-A .[36]
The Torbela siblings thereafter filed before the RTC on August 29,
1988 a Complaint[37] for annulment of the Certificate of Final Sale dated
May 24, 1988, judicial cancelation of TCT No. 165813, and damages,

against Banco Filipino, the Ex Officio Provincial Sheriff, and the Register of
Deeds of Pangasinan, which was docketed as Civil Case No. U-4733.
On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta
City a Petition for the issuance of a writ of possession. In said Petition,
docketed as Pet. Case No. U-822, Banco Filipino prayed that a writ of
possession be issued in its favor over Lot No. 5-F-8-C-2-B-2-A and Lot No.
356-A, plus the improvements thereon, and the spouses Rosario and other
persons presently in possession of said properties be directed to abide by
said writ.
The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet.
Case No. U-822. The Decision[38] on these three cases was promulgated
on January 15, 1992, the dispositive portion of which reads:

hereby ordered to issue a writ of possession in favor of Banco

Filipino;

5.
[The Torbela siblings] are hereby ordered
to render accounting to Banco Filipino the rental they
received from tenants of Rose Inn Building from May 14,
1988;

6.
[The Torbela siblings] are hereby ordered
to pay Banco Filipino the sum of P20,000.00 as attorneys
fees;

WHEREFORE, judgment is rendered:

1.
Declaring the real estate mortgage over
Lot 356-A covered by TCT 52751 executed by Spouses Andres
Rosario in favor of Banco Filipino, legal and valid;
2.
Declaring the sheriffs sale dated April 2,
1987 over Lot 356-A covered by TCT 52751 and subsequent
final Deed of Sale dated May 14, 1988 over Lot 356-A
covered by TCT No. 52751 legal and valid;

3.
Declaring Banco Filipino the owner
of Lot 356-A covered by TCT No. 52751 (now TCT 165813);

4.
Banco Filipino is entitled to a Writ of
Possession over Lot 356-A together with the improvements
thereon (Rose Inn Building). The Branch Clerk of Court is

7.
Banco Filipino is hereby ordered to give
[the Torbela siblings] the right of first refusal over Lot 356A. The Register of Deeds is hereby ordered to annotate the
right of [the Torbela siblings] at the back of TCT No. 165813
after payment of the required fees;

8.
Dr. Rosario and Lena Rosario are hereby
ordered to reimburse [the Torbela siblings] the market value
of Lot 356-A as of December, 1964 minus payments made by
the former;

9.
Dismissing the complaint of [the Torbela
siblings] against Banco Filipino, Pedro Habon and Rufino
Moreno in Civil Case No. U-4733; and against Banco Filipino in
Civil Case No. U-4359.[39]

The Torbela siblings come before this Court via the Petition for
Review in G.R. No. 140528, with the following assignment of errors:
The RTC released an Amended Decision [40] dated January 29, 1992,
adding the following paragraph to the dispositive:
Banco Filipino is entitled to a Writ of Possession over
Lot-5-F-8-C-2-[B]-2-A of the subdivision plan (LRC) Psd122471, covered by Transfer Certificate of Title 104189 of the
Registry of Deeds of Pangasinan[.][41]

The Torbela siblings and Dr. Rosario appealed the foregoing RTC
judgment before the Court of Appeals. Their appeal was docketed as CAG.R. CV No. 39770.
In its Decision[42] dated June 29, 1999, the Court of Appeals decreed:
WHEREFORE, foregoing considered, the appealed
decision is hereby AFFIRMED with modification. Items No. 6
and 7 of the appealed decision are DELETED. Item No. 8 is
modified requiring [Dr. Rosario] to pay [the Torbela siblings]
actual damages, in the amount of P1,200,000.00 with 6% per
annum interest from finality of this decision until fully
paid. [Dr. Rosario] is further ORDERED to pay [the Torbela
siblings]
the
amount
of P300,000.00
as
moral
damages; P200,000.00
as
exemplary
damages
and P100,000.00 as attorneys fees.
Costs against [Dr. Rosario].

[43]

The Court of Appeals, in a Resolution [44] dated October 22, 1999,

denied the separate Motions for Reconsideration of the Torbela siblings
and Dr. Rosario.

First Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN NOT FINDING THAT THE REGISTRATION OF THE
DEED OF ABSOLUTE QUITCLAIM EXECUTED BY [DR.
ANDRES T. ROSARIO] IN FAVOR OF THE [TORBELA
SIBLINGS] DATED DECEMBER 28, 1964 AND THE
REGISTRATION OF THE NOTICE OF ADVERSE CLAIM
EXECUTED BY THE [TORBELA SIBLINGS], SERVE AS THE
OPERATIVE ACT TO CONVEY OR AFFECT THE LAND AND
IMPROVEMENTS THEREOF IN SO FAR AS THIRD
PERSONS ARE CONCERNED.
Second Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN FINDING THAT THE SUBJECT PROPERTY COVERED BY
T.C.T. NO. 52751 IS CLEAN AND FREE, DESPITE OF THE
ANNOTATION OF ENCUMBRANCES OF THE NOTICE OF
ADVERSE CLAIM AND THE DEED OF ABSOLUTE
QUITCLAIM APPEARING AT THE BACK THEREOF AS
ENTRY NOS. 274471 AND 274472, RESPECTIVELY.
Third Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN FINDING THAT THE NOTICE OF ADVERSE CLAIM OF
THE [TORBELA SIBLINGS] UNDER ENTRY NO. 274471
WAS VALIDLY CANCELLED BY THE REGISTER OF DEEDS,
IN THE ABSENCE OF A PETITION DULY FILED IN COURT
FOR ITS CANCELLATION.
Fourth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED

IN FINDING THAT RESPONDENT BANCO FILIPINO
SAVINGS AND MORTGAGE BANK IS A MORTGAGEE IN
GOOD FAITH.

1999 (Annex B, Petition) be REVERSED and SET ASIDE, and/or

further MODIFIED in favor of the [Torbela siblings], and
another DECISION issue ordering, among other reliefs, the
respondent Banco Filipino to reconvey back Lot No. 356-A,
covered by T.C.T. No. 52751, in favor of the [Torbela siblings]
who are the actual owners of the same.

Fifth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN NOT FINDING THAT THE FILING OF A CIVIL CASE NO.
U-4359 ON DECEMBER 9, 1987, IMPLEADING
RESPONDENT BANCO FILIPINO AS ADDITIONAL PARTY
DEFENDANT, TOLL OR SUSPEND THE RUNNING OF THE
ONE YEAR PERIOD OF REDEMPTION.
Sixth Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN NOT FINDING THAT THE OWNERSHIP OVER THE
SUBJECT
PROPERTY
WAS
PREMATURELY
CONSOLIDATED IN FAVOR OF RESPONDENT BANCO
FILIPINO SAVINGS AND MORTGAGE BANK.
Seventh Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN FINDING THAT THE SUBJECT PROPERTY IS AT LEAST
WORTH P1,200,000.00.[45]

The Torbela siblings ask of this Court:

WHEREFORE, in
the
light of
the
foregoing
considerations, the [Torbela siblings] most respectfully pray
that the questioned DECISION promulgated on June 29, 1999
(Annex A, Petition) and the RESOLUTION dated October 22,

The [Torbela siblings] likewise pray for such other

reliefs and further remedies as may be deemed just and
equitable under the premises. [46]

Duque-Rosario, now legally separated from Dr. Rosario, avers in her

Petition for Review in G.R. No. 140553 that Lot No. 4489 and Lot No. 5-F-8C-2-B-2-A were registered in her name, and she was unlawfully deprived of
ownership of said properties because of the following errors of the Court of
Appeals:

A
THE HON. COURT OF APPEALS PATENTLY ERRED IN
FINDING THAT THE PERIOD TO REDEEM THE PROPERTY
NOT COMMENCED, HENCE, THE CERTIFICATE OF SALE,
CONSOLIDATION OF OWNERSHIP BY [BANCO FILIPINO],
NULL AND VOID.

NOT
HAS
THE
ARE

B
THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO
RULE THAT THE FILING OF THE COMPLAINT BEFORE THE
COURT A QUO BY THE [TORBELA SIBLINGS] HAD ALREADY
BEEN PRESCRIBED.[47]

Duque-Rosario prays that the appealed decision of the Court of

Appeals be reversed and set aside, and that Lot No. 4489 and Lot No. 5-F-

8-C-2-B-2-A be freed from all obligations and encumbrances and returned

to her.
Review of findings of fact by
the RTC and the Court of
Appeals warranted.
A disquisition of the issues raised and/or errors assigned in the
Petitions at bar unavoidably requires a re-evaluation of the facts and
evidence presented by the parties in the court a quo.
In Republic v. Heirs of Julia Ramos,[48] the Court summed up the
rules governing the power of review of the Court:
Ordinarily, this Court will not review, much less reverse, the
factual findings of the Court of Appeals, especially where such
findings coincide with those of the trial court. The findings of
facts of the Court of Appeals are, as a general rule, conclusive and
binding upon this Court, since this Court is not a trier of facts and
does not routinely undertake the re-examination of the evidence
presented by the contending parties during the trial of the case.
The above rule, however, is subject to a number of
exceptions, such as (1) when the inference made is manifestly
mistaken, absurd or impossible; (2) when there is grave abuse of
discretion; (3) when the finding is grounded entirely on
speculations, surmises, or conjectures; (4) when the judgment of
the Court of Appeals is based on misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both parties;
(7) when the findings of the Court of Appeals are contrary to those
of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties and which, if properly

considered, would justify a different conclusion; and (10) when the

findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on
record.[49]

As the succeeding discussion will bear out, the first, fourth, and ninth
exceptions are extant in these case.
Barangay conciliation was not
a
pre-requisite
to
the
institution of Civil Case No. U4359.

Dr. Rosario contends that Civil Case No. U-4359, the Complaint of the
Torbela siblings for recovery of ownership and possession of Lot No. 356-A,
plus damages, should have been dismissed by the RTC because of the
failure of the Torbela siblings to comply with the prior requirement of
submitting the dispute to barangay conciliation.
The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986,
when Presidential Decree No. 1508, Establishing a System of Amicably
Settling Disputes at the Barangay Level, was still in effect. [50] Pertinent
provisions of said issuance read:
Section
2. Subject
matters
for
amicable
settlement. The Lupon of each barangay shall have authority
to bring together the parties actually residing in the
same city or municipalityfor amicable settlement of all
disputes except:
1. Where one party is the government, or any
subdivision or instrumentality thereof;
2. Where one party is a public officer or employee, and
the dispute relates to the performance of his
official functions;

3. Offenses punishable by imprisonment exceeding 30

days, or a fine exceeding P200.00;
4. Offenses where there is no private offended party;
5. Such other classes of disputes which the Prime
Minister may in the interest of justice determine
upon recommendation of the Minister of Justice
and the Minister of Local Government.
Section 3. Venue. Disputes between or among
persons actually residing in the same barangay shall be
brought for amicable settlement before the Lupon of said
barangay. Those involving actual residents of different
barangays within the same city or municipality shall be
brought in the barangay where the respondent or any of the
respondents actually resides, at the election of the
complainant. However, all disputes which involved real
property or any interest therein shall be brought in
the barangay where the real property or any part
thereof is situated.
The Lupon shall have no authority over disputes:
1. involving parties
who
actually
reside
in
barangays
of
different
cities
or
municipalities,
except
where
such
barangays adjoin each other; and
2. involving real property located in different
municipalities.
xxxx
Section 6. Conciliation, pre-condition to filing of
complaint. No complaint, petition, action or proceeding
involving any matter within the authority of the Lupon as
provided in Section 2 hereof shall be filed or instituted in
court or any other government office for adjudication unless
there has been a confrontation of the parties before the
Lupon Chairman or the Pangkat and no conciliation or
settlement has been reached as certified by the Lupon
Secretary or the Pangkat Secretary, attested by the Lupon or

Pangkat Chairman, or unless the settlement has been

repudiated. x x x. (Emphases supplied.)

The Court gave the following elucidation on the jurisdiction of the

Lupong Tagapayapa in Tavora v. Hon. Veloso[51]:
The foregoing provisions are quite clear. Section 2
specifies the conditions under which the Lupon of a barangay
shall have authority to bring together the disputants for
amicable settlement of their dispute: The parties must be
actually residing in the same city or municipality. At the same
time, Section 3 while reiterating that the disputants must be
actually residing in the same barangay or in different
barangays
within the
same city
or
municipality
unequivocably declares that the Lupon shall have no
authority over disputes involving parties who actually reside
in barangays of different cities or municipalities, except
where such barangays adjoin each other.
Thus, by
express
statutory
inclusion
and
exclusion, the Lupon shall have no jurisdiction over
disputes where the parties are not actual residents of
the same city or municipality, except where the
barangays in which they actually reside adjoin each
other.
It is true that immediately after specifying the
barangay whose Lupon shall take cognizance of a given
dispute, Sec. 3 of PD 1508 adds:
"However, all disputes which involve real
property or any interest therein shall be brought
in the barangay where the real property or any
part thereof is situated."

Actually, however, this added sentence is just an

ordinary proviso and should operate as such.
The operation of a proviso, as a rule, should be limited
to its normal function, which is to restrict or vary the
operation of the principal clause, rather than expand its
scope, in the absence of a clear indication to the contrary.
The natural and appropriate office of a
proviso is . . . to except something from the
enacting clause; to limit, restrict, or qualify the
statute in whole or in part; or to exclude from
the scope of the statute that which otherwise
would be within its terms. (73 Am Jur 2d 467.)
Therefore, the quoted proviso should simply be
deemed to restrict or vary the rule on venue prescribed in
the principal clauses of the first paragraph of Section 3,
thus: Although venue is generally determined by the
residence of the parties, disputes involving real
property shall be brought in the barangay where the
real property or any part thereof is situated,
notwithstanding that the parties reside elsewhere
within
the
same
city/municipality.[52] (Emphases
supplied.)

The original parties in Civil Case No. U-4359 (the Torbela siblings and the
spouses Rosario) do not reside in the same barangay, or in different
barangays within the same city or municipality, or in different barangays
of different cities or municipalities but are adjoining each other. Some of
them reside outside Pangasinan and even outside of the country
altogether. The Torbela siblings reside separately in Barangay Macalong,
Urdaneta, Pangasinan; Barangay Consolacion, Urdaneta, Pangasinan;
Pangil, Laguna; Chicago, United States of America; and Canada. The
spouses Rosario are residents of Calle Garcia, Poblacion, Urdaneta,

Pangasinan. Resultantly, the Lupon had no jurisdiction over the dispute

and barangay conciliation was not a pre-condition for the filing of Civil
Case No. U-4359.
The Court now looks into the merits of Civil Case No. U-4359.
There was an express trust
between the Torbela siblings
and Dr. Rosario.

There is no dispute that the Torbela sibling inherited the title to Lot
No. 356-A from their parents, the Torbela spouses, who, in turn, acquired
the same from the first registered owner of Lot No. 356-A, Valeriano.
Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim
on December 12, 1964 in which they transferred and conveyed Lot No.
356-A to Dr. Rosario for the consideration of P9.00. However, the Torbela
siblings explained that they only executed the Deed as an accommodation
so that Dr. Rosario could have Lot No. 356-A registered in his name and
use said property to secure a loan from DBP, the proceeds of which would
be used for building a hospital on Lot No. 356-A a claim supported by
testimonial and documentary evidence, and borne out by the sequence of
events immediately following the execution by the Torbela siblings of said
Deed. On December 16, 1964, TCT No. 52751, covering Lot No. 356-A,
was already issued in Dr. Rosarios name. On December 28, 1964, Dr.
Rosario executed his own Deed of Absolute Quitclaim, in which he
expressly acknowledged that he only borrowed Lot No. 356-A and was
transferring and conveying the same back to the Torbela siblings for the
consideration of P1.00. OnFebruary 21, 1965, Dr. Rosarios loan in the
amount of P70,200.00, secured by a mortgage on Lot No. 356-A, was
approved by DBP. Soon thereafter, construction of a hospital building
started on Lot No. 356-A.
Among the notable evidence presented by the Torbela siblings is
the testimony of Atty. Lorenza Alcantara (Atty. Alcantara), who had no

apparent personal interest in the present case. Atty. Alcantara, when she
was still a boarder at the house of Eufrosina Torbela Rosario (Dr. Rosarios
mother), was consulted by the Torbela siblings as regards the extrajudicial
partition of Lot No. 356-A. She also witnessed the execution of the two
Deeds of Absolute Quitclaim by the Torbela siblings and Dr. Rosario.

Registration does not vest title; it is merely the evidence of such

title. Land registration laws do not give the holder any better title than
what he actually has.[55]Consequently, Dr. Rosario must still prove herein
his acquisition of title to Lot No. 356-A, apart from his submission of TCT
No. 52751 in his name.

In contrast, Dr. Rosario presented TCT No. 52751, issued in his

name, to prove his purported title to Lot No. 356-A. In Lee Tek Sheng v.
Court of Appeals,[53] the Court made a clear distinction between title and
the certificate of title:

Dr. Rosario testified that he obtained Lot No. 356-A after paying the
Torbela siblings P25,000.00, pursuant to a verbal agreement with the
latter. The Court though observes that Dr. Rosarios testimony on the
execution and existence of the verbal agreement with the Torbela siblings
lacks significant details (such as the names of the parties present, dates,
places, etc.) and is not corroborated by independent evidence.

The certificate referred to is that document issued by the

Register of Deeds known as the Transfer Certificate of Title
(TCT). By title, the law refers to ownership which is
represented by that document. Petitioner apparently
confuses certificate with title. Placing a parcel of land under
the mantle of the Torrens system does not mean that
ownership thereof can no longer be disputed. Ownership is
different from a certificate of title. The TCT is only the best
proof of ownership of a piece of land. Besides, the certificate
cannot always be considered as conclusive evidence of
ownership. Mere issuance of the certificate of title in
the name of any person does not foreclose the
possibility that the real property may be under coownership with persons not named in the certificate
or that the registrant may only be a trustee or that
other parties may have acquired interest subsequent
to the issuance of the certificate of title. To repeat,
registration is not the equivalent of title, but is only the best
evidence thereof. Title as a concept of ownership should
not be confused with the certificate of title as
evidence of such ownership although both are
interchangeably used. x x x.[54] (Emphases supplied.)

In addition, Dr. Rosario acknowledged the execution of the two

Deeds of Absolute Quitclaim dated December 12, 1964 and December 28,
1964, even affirming his own signature on the latter Deed. The Parol
Evidence Rule provides that when the terms of the agreement have been
reduced into writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written
agreement.[56] Dr. Rosario may not modify, explain, or add to the terms in
the two written Deeds of Absolute Quitclaim since he did not put in issue
in his pleadings (1) an intrinsic ambiguity, mistake, or imperfection in the
Deeds; (2) failure of the Deeds to express the true intent and the
agreement of the parties thereto; (3) the validity of the Deeds; or (4) the
existence of other terms agreed to by the Torbela siblings and Dr. Rosario
after the execution of the Deeds. [57]
Even if the Court considers Dr. Rosarios testimony on his alleged
verbal agreement with the Torbela siblings, the Court finds the same
unsatisfactory. Dr. Rosario averred that the two Deeds were executed only
because he was planning to secure loan from the Development Bank of
the Philippines and Philippine National Bank and the bank needed
absolute quitclaim[.][58] While Dr. Rosarios explanation makes sense for the
first Deed of Absolute Quitclaim dated December 12, 1964 executed by
the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario
for P9.00.00), the same could not be said for the second Deed of Absolute

Quitclaim dated December 28, 1964 executed by Dr. Rosario.In fact, Dr.
Rosarios Deed of Absolute Quitclaim (in which he admitted that he only
borrowed Lot No. 356-A and was transferring the same to the Torbela
siblings for P1.00.00) would actually work against the approval of Dr.
Rosarios loan by the banks. Since Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 is a declaration against his self-interest, it must
be taken as favoring the truthfulness of the contents of said Deed. [59]
It can also be said that Dr. Rosario is estopped from claiming or
asserting ownership over Lot No. 356-A based on his Deed of Absolute
Quitclaim dated December 28, 1964. Dr. Rosario's admission in the said
Deed that he merely borrowed Lot No. 356-A is deemed conclusive upon
him. Under Article 1431 of the Civil Code, [t]hrough estoppel an admission
or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.
[60]
That admission cannot now be denied by Dr. Rosario as against the
Torbela siblings, the latter having relied upon his representation.
Considering the foregoing, the Court agrees with the RTC and the
Court of Appeals that Dr. Rosario only holds Lot No. 356-A in trust for the
Torbela siblings.
Trust is the right to the beneficial enjoyment of property, the legal
title to which is vested in another. It is a fiduciary relationship that obliges
the trustee to deal with the property for the benefit of the
beneficiary. Trust relations between parties may either be express or
implied. An express trust is created by the intention of the trustor or of the
parties, while an implied trust comes into being by operation of law. [61]
Express trusts are created by direct and positive acts of the parties,
by some writing or deed, or will, or by words either expressly or impliedly
evincing an intention to create a trust. Under Article 1444 of the Civil
Code, [n]o particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended. [62] It is possible to
create a trust without using the word trust or trustee. Conversely, the
mere fact that these words are used does not necessarily indicate an

intention to create a trust.The question in each case is whether the trustor

manifested an intention to create the kind of relationship which to lawyers
is known as trust. It is immaterial whether or not he knows that the
relationship which he intends to create is called a trust, and whether or
not he knows the precise characteristics of the relationship which is called
a trust.[63]
In Tamayo v. Callejo,[64] the Court recognized that a trust may have
a constructive or implied nature in the beginning, but the registered
owners subsequent express acknowledgement in a public document of a
previous sale of the property to another party, had the effect of imparting
to the aforementioned trust the nature of an express trust.The same
situation exists in this case. When Dr. Rosario was able to register Lot No.
356-A in his name under TCT No. 52751 on December 16, 1964, an
implied trust was initially established between him and the Torbela siblings
under Article 1451 of the Civil Code, which provides:
ART. 1451. When land passes by succession to any
person and he causes the legal title to be put in the name of
another, a trust is established by implication of law for the
benefit of the true owner.

Dr. Rosarios execution of the Deed of Absolute Quitclaim

on December 28, 1964, containing his express admission that he only
borrowed Lot No. 356-A from the Torbela siblings, eventually transformed
the nature of the trust to an express one. The express trust continued
despite Dr. Rosario stating in his Deed of Absolute Quitclaim that he was
already returning Lot No. 356-A to the Torbela siblings as Lot No. 356-A
remained registered in Dr. Rosarios name under TCT No. 52751 and Dr.
Rosario kept possession of said property, together with the improvements
thereon.

The
right of the
Torbela
siblings to recover Lot No. 356A has not yet prescribed.
The Court extensively discussed the prescriptive period for express
trusts in the Heirs of Maximo Labanon v. Heirs of Constancio Labanon,
[65]
to wit:
On the issue of prescription, we had the opportunity to
rule in Bueno v. Reyes that unrepudiated written express
trusts are imprescriptible:
While there are some decisions which
hold that an action upon a trust is
imprescriptible, without distinguishing between
express and implied trusts, the better rule, as
laid down by this Court in other decisions, is that
prescription does supervene where the trust is
merely an implied one. The reason has been
expressed by Justice J.B.L. Reyes in J.M. Tuason
and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as
follows:
Under Section 40 of the old
Code of Civil Procedure, all actions
for recovery of real property
prescribed in 10 years, excepting
only actions based on continuing or
subsisting
trusts
that
were
considered by section 38 as
imprescriptible. As held in the case
of Diaz v. Gorricho, L-11229, March
29, 1958, however, the continuing
or subsisting trusts contemplated
in section 38 of the Code of Civil
Procedure referred only to express
unrepudiated trusts, and did not

include constructive trusts (that are

imposed by law) where no fiduciary
relation exists and the trustee does
not recognize the trust at all.
This principle was amplified in Escay v. Court of
Appeals this way: Express trusts prescribe 10 years from the
repudiation of the trust (Manuel Diaz, et al. vs. Carmen
Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil
Procedure).
In the more recent case of Secuya v. De Selma, we
again ruled that the prescriptive period for the enforcement
of an express trust of ten (10) years starts upon the
repudiation of the trust by the trustee.[66]

To apply the 10-year prescriptive period, which would bar a

beneficiarys action to recover in an express trust, the repudiation of the
trust must be proven by clear and convincing evidence and made known
to the beneficiary.[67] The express trust disables the trustee from acquiring
for his own benefit the property committed to his management or custody,
at least while he does not openly repudiate the trust, and makes such
repudiation known to the beneficiary or cestui que trust. For this reason,
the old Code of Civil Procedure (Act 190) declared that the rules on
adverse possession do not apply to continuing and subsisting (i.e.,
unrepudiated) trusts. In an express trust, the delay of the beneficiary is
directly attributable to the trustee who undertakes to hold the property for
the former, or who is linked to the beneficiary by confidential or fiduciary
relations. The trustee's possession is, therefore, not adverse to the
beneficiary, until and unless the latter is made aware that the trust has
been repudiated.[68]
Dr. Rosario argues that he is deemed to have repudiated the trust on
December 16, 1964, when he registered Lot No. 356-A in his name under
TCT No. 52751, so when on February 13, 1986, the Torbela siblings

instituted before the RTC Civil Case No. U-4359, for the recovery of
ownership and possession of Lot No. 356-A from the spouses Rosario, over
21 years had passed. Civil Case No. U-4359 was already barred by
prescription, as well as laches.
The Court already rejected a similar argument in Ringor v. Ringor[69] for the
following reasons:
A trustee who obtains a Torrens title over a property
held in trust for him by another cannot repudiate the
trust by relying on the registration. A Torrens Certificate
of Title in Joses name did not vest ownership of the land upon
him. The Torrens system does not create or vest title. It only
confirms and records title already existing and vested. It does
not
protect
a
usurper
from
the
true
owner. The Torrens system was not intended to foment
betrayal in the performance of a trust. It does not permit one
to enrich himself at the expense of another. Where one does
not have a rightful claim to the property, the Torrens system
of registration can confirm or record nothing. Petitioners
cannot rely on the registration of the lands in Joses name nor
in the name of the Heirs of Jose M. Ringor, Inc., for the wrong
result they seek. For Jose could not repudiate a trust by
relying on a Torrens title he held in trust for his co-heirs. The
beneficiaries
are
entitled
to
enforce
the
trust,
notwithstanding the irrevocability of the Torrens title. The
intended trust must be sustained.[70] (Emphasis supplied.)

In the more recent case of Heirs of Tranquilino Labiste v. Heirs of Jose

Labiste,[71] the Court refused to apply prescription and laches and
reiterated that:
[P]rescription and laches will run only from the time the
express trust is repudiated. The Court has held that for
acquisitive prescription to bar the action of the beneficiary

against the trustee in an express trust for the recovery of the

property held in trust it must be shown that: (a) the trustee
has performed unequivocal acts of repudiation amounting to
an ouster of the cestui que trust; (b) such positive acts of
repudiation have been made known to the cestui que trust,
and
(c)
the
evidence
thereon
is
clear
and
conclusive. Respondents cannot rely on the fact that
the Torrenstitle was issued in the name of Epifanio
and the other heirs of Jose. It has been held that a
trustee who obtains a Torrens title over property held
in trust by him for another cannot repudiate the trust
by relying on the registration. The rule requires a clear
repudiation of the trust duly communicated to the
beneficiary. The only act that can be construed as repudiation
was when respondents filed the petition for reconstitution in
October 1993. And since petitioners filed their complaint in
January 1995, their cause of action has not yet prescribed,
laches cannot be attributed to them. [72] (Emphasis supplied.)

It is clear that under the foregoing jurisprudence, the registration of

Lot No. 356-A by Dr. Rosario in his name under TCT No. 52751 on
December 16, 1964 is not the repudiation that would have caused the 10year prescriptive period for the enforcement of an express trust to run.
The Court of Appeals held that Dr. Rosario repudiated the express
trust when he acquired another loan from PNB and constituted a second
mortgage on Lot No. 356-A sometime in 1979, which, unlike the first
mortgage to DBP in 1965, was without the knowledge and/or consent of
the Torbela siblings.
The Court only concurs in part with the Court of Appeals on this
matter.
For repudiation of an express trust to be effective, the unequivocal
act of repudiation had to be made known to the Torbela siblings as

the cestuis que trust and must be proven by clear and conclusive
evidence. A scrutiny of TCT No. 52751 reveals the following inscription:
Entry No. 520099
Amendment of the mortgage in favor of PNB inscribed under
Entry No. 490658 in the sense that the consideration thereof
has been increased to PHILIPPINE PESOS Four Hundred Fifty
Thousand Pesos only (P450,000.00) and to secure any and all
negotiations with PNB, whether contracted before, during or
after the date of this instrument, acknowledged before
Notary Public of Pangasinan Alejo M. Dato as Doc. No. 198,
Page No. 41, Book No. 11, Series of 1985.
Date of Instrument March 5, 1981
Date of Inscription March 6, 1981[73]

Although according to Entry No. 520099, the original loan and

mortgage agreement of Lot No. 356-A between Dr. Rosario and PNB was
previously inscribed as Entry No. 490658, Entry No. 490658 does not
actually appear on TCT No. 52751 and, thus, it cannot be used as the
reckoning date for the start of the prescriptive period.
The Torbela siblings can only be charged with knowledge of the
mortgage of Lot No. 356-A to PNB on March 6, 1981 when the amended
loan and mortgage agreement was registered on TCT No. 52751 as Entry
No. 520099. Entry No. 520099 is constructive notice to the whole
world[74] that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as
security for a loan, the amount of which was increased
to P450,000.00. Hence, Dr. Rosario is deemed to have effectively
repudiated the express trust between him and the Torbela siblings on
March 6, 1981, on which day, the prescriptive period for the enforcement
of the express trust by the Torbela siblings began to run.

From March 6, 1981, when the amended loan and mortgage

agreement was registered on TCT No. 52751, to February 13, 1986,
when the Torbela siblings instituted before the RTC Civil Case No. U-4359
against the spouses Rosario, only about five years had passed. The
Torbela siblings were able to institute Civil Case No. U-4359 well before the
lapse of the 10-year prescriptive period for the enforcement of their
express trust with Dr. Rosario.
Civil Case No. U-4359 is likewise not barred by laches. Laches
means the failure or neglect, for an unreasonable and unexplained length
of time, to do that which by exercising due diligence could or should have
been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it. As the Court
explained in the preceding paragraphs, the Torbela siblings instituted Civil
Case No. U-4359 five years after Dr. Rosarios repudiation of the express
trust, still within the 10-year prescriptive period for enforcement of such
trusts. This does not constitute an unreasonable delay in asserting one's
right. A delay within the prescriptive period is sanctioned by law and is not
considered to be a delay that would bar relief. Laches apply only in the
absence of a statutory prescriptive period. [75]
Banco
Filipino
is
not
a
mortgagee and buyer in good
faith.
Having determined that the Torbela siblings are the true owners and
Dr. Rosario merely the trustee of Lot No. 356-A, the Court is next faced
with the issue of whether or not the Torbela siblings may still recover Lot
No. 356-A considering that Dr. Rosario had already mortgaged Lot No. 356A to Banco Filipino, and upon Dr. Rosarios default on his loan obligations,
Banco Filipino foreclosed the mortgage, acquired Lot No. 356-A as the
highest bidder at the foreclosure sale, and consolidated title in its name
under TCT No. 165813. The resolution of this issue depends on the answer
to the question of whether or not Banco Filipino was a mortgagee in good
faith.

Under Article 2085 of the Civil Code, one of the essential requisites
of the contract of mortgage is that the mortgagor should be the absolute
owner of the property to be mortgaged; otherwise, the mortgage is
considered null and void. However, an exception to this rule is the doctrine
of mortgagee in good faith. Under this doctrine, even if the mortgagor is
not the owner of the mortgaged property, the mortgage contract and any
foreclosure sale arising therefrom are given effect by reason of public
policy. This principle is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the face of
the title. This is the same rule that underlies the principle of innocent
purchasers for value. The prevailing jurisprudence is that a mortgagee has
a right to rely in good faith on the certificate of title of the mortgagor to
the property given as security and in the absence of any sign that might
arouse
suspicion,
has
no
obligation
to
undertake
further
investigation. Hence, even if the mortgagor is not the rightful owner of, or
does not have a valid title to, the mortgaged property, the mortgagee in
good faith is, nonetheless, entitled to protection. [76]
On one hand, the Torbela siblings aver that Banco Filipino is not a
mortgagee in good faith because as early as May 17, 1967, they had
already annotated Cornelios Adverse Claim dated May 16, 1967 and Dr.
Rosarios Deed of Absolute Quitclaim dated December 28, 1964 on TCT No.
52751 as Entry Nos. 274471-274472, respectively.
On the other hand, Banco Filipino asseverates that it is a mortgagee
in good faith because per Section 70 of Presidential Decree No. 1529,
otherwise known as the Property Registration Decree, the notice of
adverse claim, registered on May 17, 1967 by the Torbela siblings under
Entry Nos. 274471-274472 on TCT No. 52751, already lapsed after 30 days
or on June 16, 1967. Additionally, there was an express cancellation of
Entry Nos. 274471-274472 by Entry No. 520469 dated March 11, 1981. So
when Banco Filipino approved Dr. Rosarios loan for P1,200,000.00 and
constituted a mortgage on Lot No. 356-A (together with two other
properties) on December 8, 1981, the only other encumbrance on TCT No.

52751 was Entry No. 520099 dated March 6, 1981, i.e., the amended loan
and mortgage agreement between Dr. Rosario and PNB (which was
eventually cancelled after it was paid off with part of the proceeds from
Dr. Rosarios loan from Banco Filipino). Hence, Banco Filipino was not aware
that the Torbela siblings adverse claim on Lot No. 356-A still subsisted.
The Court finds that Banco Filipino is not a mortgagee in good
faith. Entry Nos. 274471-274472 were not validly cancelled, and the
improper cancellation should have been apparent to Banco Filipino and
aroused suspicion in said bank of some defect in Dr. Rosarios title.
The purpose of annotating the adverse claim on the title of the
disputed land is to apprise third persons that there is a controversy over
the ownership of the land and to preserve and protect the right of the
adverse claimant during the pendency of the controversy. It is a notice to
third persons that any transaction regarding the disputed land is subject
to the outcome of the dispute.[77]
Adverse claims were previously governed by Section 110 of Act No.
496, otherwise known as the Land Registration Act, quoted in full below:
ADVERSE CLAIM
SEC. 110. Whoever claims any part or interest in registered
land adverse to the registered owner, arising subsequent to
the date of the original registration, may, if no other provision
is made in this Act for registering the same, make a
statement in writing setting forth fully his alleged right or
interest, and how or under whom acquired, and a reference
to the volume and page of the certificate of title of the
registered owner, and a description of the land in which the
right or interest is claimed.
The statement shall be signed and sworn to, and shall state
the adverse claimants residence, and designate a place at
which all notices may be served upon him. This statement

shall be entitled to registration as an adverse claim, and the

court, upon a petition of any party in interest, shall grant a
speedy hearing upon the question of the validity of such
adverse claim and shall enter such decree therein as justice
and equity may require. If the claim is adjudged to be invalid,
the registration shall be cancelled. If in any case the court
after notice and hearing shall find that a claim thus
registered was frivolous or vexatious, it may tax the adverse
claimant double or treble costs in its discretion.

Construing the aforequoted provision, the Court stressed in Ty Sin

Tei v. Lee Dy Piao[78] that [t]he validity or efficaciousness of the [adverse]
claim x x x may only be determined by the Court upon petition by an
interested party, in which event, the Court shall order the immediate
hearing thereof and make the proper adjudication as justice and equity
may warrant. And it is ONLY when such claim is found unmeritorious that
the registration thereof may be cancelled. The Court likewise pointed out
in the same case that while a notice of lis pendens may be cancelled in a
number of ways, the same is not true in a registered adverse claim, for it
may be cancelled only in one instance, i.e., after the claim is adjudged
invalid or unmeritorious by the Court x x x; and if any of the registrations
should be considered unnecessary or superfluous, it would be the notice
of lis pendens and not the annotation of the adverse claim which is more
permanent and cannot be cancelled without adequate hearing and proper
disposition of the claim.
With the enactment of the Property Registration Decree on June 11,
1978, Section 70 thereof now applies to adverse claims:
SEC. 70. Adverse claim. Whoever claims any part or
interest in registered land adverse to the registered owner,
arising subsequent to the date of the original registrations,
may, if no other provision is made in this Decree for
registering the same, make a statement in writing setting
forth fully his alleged right, or interest, and how or under

whom acquired, a reference to the number of the certificate

of title of the registered owner, the name of the registered
owner, and a description of the land in which the right or
interest is claimed.
The statement shall be signed and sworn to, and shall
state the adverse claimants residence, and a place at which
all notices may be served upon him. This statement shall be
entitled to registration as an adverse claim on the certificate
of title. The adverse claim shall be effective for a period
of thirty days from the date of registration. After the
lapse of said period, the annotation of adverse claim
may be cancelled upon filing of a verified petition
therefor by the party in interest: Provided, however, that
after cancellation, no second adverse claim based on the
same ground shall be registered by the same claimant.
Before the lapse of thirty days aforesaid, any
party in interest may file a petition in the Court of
First Instance where the land is situated for the
cancellation of the adverse claim, and the court shall
grant a speedy hearing upon the question of the
validity of such adverse claim, and shall render
judgment as may be just and equitable. If the adverse
claim is adjudged to be invalid, the registration thereof shall
be ordered cancelled. If, in any case, the court, after notice
and hearing, shall find that the adverse claim thus registered
was frivolous, it may fine the claimant in an amount not less
than one thousand pesos nor more than five thousand pesos,
in its discretion. Before the lapse of thirty days, the claimant
may withdraw his adverse claim by filing with the Register of
Deeds a sworn petition to that effect. (Emphases supplied.)

In Sajonas v. Court of Appeals,[79]the Court squarely interpreted

Section 70 of the Property Registration Decree, particularly, the new 30-

day period not previously found in Section 110 of the Land Registration
Act, thus:
In construing the law aforesaid, care should be taken
that every part thereof be given effect and a construction
that could render a provision inoperative should be avoided,
and inconsistent provisions should be reconciled whenever
possible as parts of a harmonious whole. For taken in
solitude, a word or phrase might easily convey a meaning
quite different from the one actually intended and evident
when a word or phrase is considered with those with which it
is associated. In ascertaining the period of effectivity of an
inscription of adverse claim, we must read the law in its
entirety. Sentence three, paragraph two of Section 70 of P.D.
1529 provides:
The adverse claim shall be effective for a
period of thirty days from the date of
registration.
At first blush, the provision in question would seem to
restrict the effectivity of the adverse claim to thirty days. But
the above provision cannot and should not be treated
separately, but should be read in relation to the sentence
following, which reads:
After the lapse of said period, the
annotation of adverse claim may be cancelled
upon filing of a verified petition therefor by the
party in interest.
If the rationale of the law was for the adverse claim
to ipso facto lose force and effect after the lapse of thirty
days, then it would not have been necessary to include the
foregoing caveat to clarify and complete the rule. For then,
no adverse claim need be cancelled. If it has been

automatically terminated by mere lapse of time, the law

would not have required the party in interest to do a useless
act.
A statute's clauses and phrases must not be taken
separately, but in its relation to the statute's totality. Each
statute must, in fact, be construed as to harmonize it with
the pre-existing body of laws. Unless clearly repugnant,
provisions of statutes must be reconciled. The printed pages
of the published Act, its history, origin, and its purposes may
be examined by the courts in their construction. x x x.
xxxx
Construing the provision as a whole would reconcile
the apparent inconsistency between the portions of the law
such that the provision on cancellation of adverse claim by
verified petition would serve to qualify the provision on the
effectivity period. The law, taken together, simply means
that the cancellation of the adverse claim is still
necessary to render it ineffective, otherwise, the
inscription will remain annotated and shall continue as
a lien upon the property. For if the adverse claim has
already ceased to be effective upon the lapse of said
period, its cancellation is no longer necessary and the
process of cancellation would be a useless ceremony.
It should be noted that the law employs the phrase
"may be cancelled," which obviously indicates, as inherent in
its decision making power, that the court may or may not
order the cancellation of an adverse claim, notwithstanding
such provision limiting the effectivity of an adverse claim for
thirty days from the date of registration. The court cannot be
bound by such period as it would be inconsistent with the
very authority vested in it. A fortiori, the limitation on the
period of effectivity is immaterial in determining the validity

or invalidity of an adverse claim which is the principal issue

to be decided in the court hearing. It will therefore depend
upon the evidence at a proper hearing for the court to
determine whether it will order the cancellation of the
adverse claim or not.
To interpret the effectivity period of the adverse claim
as absolute and without qualification limited to thirty days
defeats the very purpose for which the statute provides for
the remedy of an inscription of adverse claim, as the
annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property
where the registration of such interest or right is not
otherwise provided for by the Land Registration Act or Act
496 (now P.D. 1529 or the Property Registration Decree), and
serves as a warning to third parties dealing with said
property that someone is claiming an interest or the same or
a better right than the registered owner thereof.
The reason why the law provides for a hearing
where the validity of the adverse claim is to be
threshed out is to afford the adverse claimant an
opportunity to be heard, providing a venue where the
propriety of his claimed interest can be established or
revoked, all for the purpose of determining at last the
existence of any encumbrance on the title arising from
such adverse claim. This is in line with the provision
immediately following:
Provided,
however,
that
after
cancellation, no second adverse claim shall be
registered by the same claimant.
Should the adverse claimant fail to sustain his interest
in the property, the adverse claimant will be precluded from

registering a second adverse claim based on the same

ground.
It was held that validity or efficaciousness of the claim
may only be determined by the Court upon petition by an
interested party, in which event, the Court shall order the
immediate hearing thereof and make the proper adjudication
as justice and equity may warrant. And it is only when such
claim is found unmeritorious that the registration of the
adverse claim may be cancelled, thereby protecting the
interest of the adverse claimant and giving notice and
warning to third parties.[80] (Emphases supplied.)

Whether under Section 110 of the Land Registration Act or Section

70 of the Property Registration Decree, notice of adverse claim can only
be cancelled after a party in interest files a petition for cancellation before
the RTC wherein the property is located, and the RTC conducts a hearing
and determines the said claim to be invalid or unmeritorious.
No petition for cancellation has been filed and no hearing has been
conducted herein to determine the validity or merit of the adverse claim of
the Torbela siblings. Entry No. 520469 cancelled the adverse claim of the
Torbela siblings, annotated as Entry Nos. 274471-774472, upon the
presentation by Dr. Rosario of a mere Cancellation and Discharge of
Mortgage.
Regardless of whether or not the Register of Deeds should have
inscribed Entry No. 520469 on TCT No. 52751, Banco Filipino could not
invoke said inscription in support of its claim of good faith. There were
several things amiss in Entry No. 520469 which should have already
aroused suspicions in Banco Filipino, and compelled the bank to look
beyond TCT No. 52751 and inquire into Dr. Rosarios title. First, Entry No.
520469 does not mention any court order as basis for the cancellation of
the adverse claim. Second, the adverse claim was not a mortgage which
could be cancelled with Dr. Rosarios Cancellation and Discharge of

Mortgage. And third, the adverse claim was against Dr. Rosario, yet it was
cancelled based on a document also executed by Dr. Rosario.
It is a well-settled rule that a purchaser or mortgagee cannot close
his eyes to facts which should put a reasonable man upon his guard, and
then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor or mortgagor. His mere refusal to believe
that such defect exists, or his willful closing of his eyes to the possibility of
the existence of a defect in the vendor's or mortgagor's title, will not make
him an innocent purchaser or mortgagee for value, if it afterwards
develops that the title was in fact defective, and it appears that he had
such notice of the defects as would have led to its discovery had he acted
with the measure of precaution which may be required of a prudent man
in a like situation.[81]
While the defective cancellation of Entry Nos. 274471-274472 by
Entry No. 520469 might not be evident to a private individual, the same
should have been apparent to Banco Filipino. Banco Filipino is not an
ordinary mortgagee, but is a mortgagee-bank, whose business is
impressed with public interest. In fact, in one case, [82] the Court explicitly
declared that the rule that persons dealing with registered lands can rely
solely on the certificate of title does not apply to banks. In another case,
[83]
the Court adjudged that unlike private individuals, a bank is expected
to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise
due diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its
operations.
Banco Filipino cannot be deemed a mortgagee in good faith, much
less a purchaser in good faith at the foreclosure sale of Lot No. 356A. Hence, the right of the Torbela siblings over Lot No. 356-A is superior
over that of Banco Filipino; and as the true owners of Lot No. 356-A, the
Torbela siblings are entitled to a reconveyance of said property even from
Banco Filipino.

Nonetheless, the failure of Banco Filipino to comply with the due

diligence requirement was not the result of a dishonest purpose, some
moral obliquity, or breach of a known duty for some interest or ill will that
partakes of fraud that would justify damages. [84]
Given the reconveyance of Lot No. 356-A to the Torbela siblings,
there is no more need to address issues concerning redemption,
annulment of the foreclosure sale and certificate of sale (subject matter of
Civil Case No. U-4733), or issuance of a writ of possession in favor of
Banco Filipino (subject matter of Pet. Case No. U-822) insofar as Lot No.
356-A is concerned. Such would only be superfluous. Banco Filipino,
however, is not left without any recourse should the foreclosure and sale
of the two other mortgaged properties be insufficient to cover Dr. Rosarios
loan, for the bank may still bring a proper suit against Dr. Rosario to
collect the unpaid balance.
The rules on accession shall
govern
the
improvements
on Lot No. 356-A and the rents
thereof.

The accessory follows the principal. The right of accession is recognized

under Article 440 of the Civil Code which states that [t]he ownership of
property gives the right by accession to everything which is produced
thereby, or which is incorporated or attached thereto, either naturally or
artificially.
There is no question that Dr. Rosario is the builder of the
improvements on Lot No. 356-A. The Torbela siblings themselves alleged
that they allowed Dr. Rosario to register Lot No. 356-A in his name so he
could obtain a loan from DBP, using said parcel of land as security; and
with the proceeds of the loan, Dr. Rosario had a building constructed on
Lot No. 356-A, initially used as a hospital, and then later for other
commercial purposes. Dr. Rosario supervised the construction of the

building, which began in 1965; fully liquidated the loan from DBP; and
maintained and administered the building, as well as collected the rental
income therefrom, until the Torbela siblings instituted Civil Case No. U4359 before the RTC on February 13, 1986.
When it comes to the improvements on Lot No. 356-A, both the
Torbela siblings (as landowners) and Dr. Rosario (as builder) are deemed in
bad faith. The Torbela siblings were aware of the construction of a building
by Dr. Rosario on Lot No. 356-A, while Dr. Rosario proceeded with the said
construction despite his knowledge that Lot No. 356-A belonged to the
Torbela siblings. This is the case contemplated under Article 453 of the
Civil Code, which reads:
ART. 453. If there was bad faith, not only on the part of
the person who built, planted or sowed on the land of
another, but also on the part of the owner of such land, the
rights of one and the other shall be the same as
though both had acted in good faith.
It is understood that there is bad faith on the part of
the landowner whenever the act was done with his
knowledge and without opposition on his part. (Emphasis
supplied.)

When both the landowner and the builder are in good faith, the following
rules govern:
ART. 448. The owner of the land on which anything has
been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the price
of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to
buy the land if its value is considerably more than that of the

building or trees. In such case, he shall pay reasonable rent,

if the owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall
agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.
ART. 546. Necessary expenses shall be refunded to
every possessor; but only the possessor in good faith may
retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the
possessor in good faith with the same right of retention, the
person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying
the increase in value which the thing may have acquired by
reason thereof.
ART. 548. Expenses for pure luxury or mere pleasure
shall not be refunded to the possessor in good faith; but he
may remove the ornaments with which he has embellished
the principal thing if it suffers no injury thereby, and if his
successor in the possession does not prefer to refund the
amount expended.

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

improvements or repairs made thereon, belong to the owner of the
land. Where, however, the planter, builder, or sower has acted in good
faith, a conflict of rights arises between the owners and it becomes
necessary to protect the owner of the improvements without causing
injustice to the owner of the land. In view of the impracticability of
creating what Manresa calls a state of "forced co-ownership," the law has
provided a just and equitable solution by giving the owner of the land the
option to acquire the improvements after payment of the proper
indemnity or to oblige the builder or planter to pay for the land and the
sower to pay the proper rent. It is the owner of the land who is allowed to

exercise the option because his right is older and because, by the principle
of accession, he is entitled to the ownership of the accessory thing. [85]
The landowner has to make a choice between appropriating the building
by paying the proper indemnity or obliging the builder to pay the price of
the land. But even as the option lies with the landowner, the grant to him,
nevertheless, is preclusive. He must choose one. He cannot, for instance,
compel the owner of the building to remove the building from the land
without first exercising either option. It is only if the owner chooses to sell
his land, and the builder or planter fails to purchase it where its value is
not more than the value of the improvements, that the owner may remove
the improvements from the land. The owner is entitled to such remotion
only when, after having chosen to sell his land, the other party fails to pay
for the same.[86]
This case then must be remanded to the RTC for the determination
of matters necessary for the proper application of Article 448, in relation
to Article 546, of the Civil Code. Such matters include the option that the
Torbela siblings will choose; the amount of indemnity that they will pay if
they decide to appropriate the improvements on Lot No. 356-A; the value
of Lot No. 356-A if they prefer to sell it to Dr. Rosario; or the reasonable
rent if they opt to sell Lot No. 356-A to Dr. Rosario but the value of the
land is considerably more than the improvements. The determination
made by the Court of Appeals in its Decision dated June 29, 1999 that the
current value of Lot No. 356-A isP1,200,000.00 is not supported by any
evidence on record.
Should the Torbela siblings choose to appropriate the improvements on
Lot No. 356-A, the following ruling of the Court in Pecson v. Court of
Appeals[87] is relevant in the determination of the amount of indemnity
under Article 546 of the Civil Code:
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., 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,
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, 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 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.[88] (Emphases supplied.)

Still following the rules of accession, civil fruits, such as rents, belong to
the owner of the building. [89] Thus, Dr. Rosario has a right to the rents of
the improvements on Lot No. 356-A and is under no obligation to render
an accounting of the same to anyone. In fact, it is the Torbela siblings who
are required to account for the rents they had collected from the lessees
of the commercial building and turn over any balance to Dr. Rosario. Dr.
Rosarios right to the rents of the improvements on Lot No. 356-A shall
continue until the Torbela siblings have chosen their option under Article
448 of the Civil Code. And in case the Torbela siblings decide to
appropriate the improvements, Dr. Rosario shall have the right to retain
said improvements, as well as the rents thereof, until the indemnity for
the same has been paid.[90]
Dr.
Rosario
is
liable
for
damages
to
the
Torbela
siblings.

The Court of Appeals ordered Dr. Rosario to pay the Torbela

siblings P300,000.00 as moral damages; P200,000.00 as exemplary
damages; and P100,000.00 as attorneys fees.
Indeed, Dr. Rosarios deceit and bad faith is evident when, being fully
aware that he only held Lot No. 356-A in trust for the Torbela siblings, he
mortgaged said property to PNB and Banco Filipino absent the consent of
the Torbela siblings, and caused the irregular cancellation of the Torbela
siblings adverse claim on TCT No. 52751. Irrefragably, Dr. Rosarios
betrayal had caused the Torbela siblings (which included Dr. Rosarios own
mother, Eufrosina Torbela Rosario) mental anguish, serious anxiety, and
wounded feelings.Resultantly, the award of moral damages is justified, but
the amount thereof is reduced to P200,000.00.

In addition to the moral damages, exemplary damages may also be

imposed given that Dr. Rosarios wrongful acts were accompanied by bad
faith. However, judicial discretion granted to the courts in the assessment
of damages must always be exercised with balanced restraint and
measured objectivity. The circumstances of the case call for a reduction of
the award of exemplary damages to P100,000.00.
As regards attorney's fees, they may be awarded when the
defendant's act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest. Because of Dr.
Rosarios acts, the Torbela siblings were constrained to institute several
cases against Dr. Rosario and his spouse, Duque-Rosario, as well as Banco
Filipino, which had lasted for more than 25 years. Consequently, the
Torbela siblings are entitled to an award of attorney's fees and the amount
of P100,000.00 may beconsidered rational, fair, and reasonable.
Banco Filipino is entitled to a
writ of possession for Lot No.
5-F-8-C-2-B-2-A.

The Court emphasizes that Pet. Case No. U-822, instituted by Banco
Filipino for the issuance of a writ of possession before the RTC of Urdaneta,
included only Lot No. 5-F-8-C-2-B-2-A and Lot No. 356-A (Lot No. 4489, the
third property mortgaged to secure Dr. Rosarios loan from Banco Filipino,
is located in Dagupan City, Pangasinan, and the petition for issuance of a
writ of possession for the same should be separately filed with the RTC of
Dagupan City). Since the Court has already granted herein the
reconveyance of Lot No. 356-A from Banco Filipino to the Torbela siblings,
the writ of possession now pertains only to Lot No. 5-F-8-C-2-B-2-A.

To recall, the Court of Appeals affirmed the issuance by the RTC of a

writ of possession in favor of Banco Filipino. Dr. Rosario no longer
appealed from said judgment of the appellate court. Already legally

separated from Dr. Rosario, Duque-Rosario alone challenges the writ of

possession before this Court through her Petition in G.R. No. 140553.

Duque-Rosario alleges in her Petition that Lot No. 5-F-8-C-2-B-2-A

had been registered in her name under TCT No. 104189. Yet, without a
copy of TCT No. 104189 on record, the Court cannot give much credence
to Duque-Rosarios claim of sole ownership of Lot No. 5-F-8-C-2-B-2-A. Also,
the question of whether Lot No. 5-F-8-C-2-B-2-A was the paraphernal
property of Duque-Rosario or the conjugal property of the spouses Rosario
would not alter the outcome of Duque-Rosarios Petition.

The following facts are undisputed: Banco Filipino extrajudicially

foreclosed the mortgage constituted on Lot No. 5-F-8-C-2-B-2-A and the
two other properties after Dr. Rosario defaulted on the payment of his
loan; Banco Filipino was the highest bidder for all three properties at the
foreclosure sale on April 2, 1987; the Certificate of Sale dated April 2,
1987 was registered in April 1987; and based on the Certificate of Final
Sale dated May 24, 1988 and Affidavit of Consolidation dated May 25,
1988, the Register of Deeds cancelled TCT No. 104189 and issued TCT No.
165812 in the name of Banco Filipino for Lot No. 5-F-8-C-2-B-2-A on June 7,
1988.
The Court has consistently ruled that the one-year redemption period
should be counted not from the date of foreclosure sale, but from the time
the certificate of sale is registered with the Registry of Deeds. [91] No copy
of TCT No. 104189 can be found in the records of this case, but the fact of
annotation of the Certificate of Sale thereon was admitted by the parties,
only differing on the date it was made: April 14, 1987 according to Banco
Filipino and April 15, 1987 as maintained by Duque-Rosario. Even if the
Court concedes that the Certificate of Sale was annotated on TCT No.
104189 on the later date, April 15, 1987, the one-year redemption
period already expired on April 14, 1988.[92] The Certificate of Final Sale
and Affidavit of Consolidation were executed more than a month

thereafter, on May 24, 1988 and May 25, 1988, respectively, and were
clearly not premature.
It is true that the rule on redemption is liberally construed in favor
of the original owner of the property. The policy of the law is to aid rather
than to defeat him in the exercise of his right of redemption. [93] However,
the liberal interpretation of the rule on redemption is inapplicable herein
as neither Duque-Rosario nor Dr. Rosario had made any attempt to
redeem Lot No. 5-F-8-C-2-B-2-A. Duque-Rosario could only rely on the
efforts of the
Torbela siblings at redemption, which were
unsuccessful. While the Torbela siblings made several offers to redeem Lot
No. 356-A, as well as the two other properties mortgaged by Dr. Rosario,
they did not make any valid tender of the redemption price to effect a
valid redemption. The general rule in redemption is that it is not sufficient
that a person offering to redeem manifests his desire to do so. The
statement of intention must be accompanied by an actual and
simultaneous tender of payment. The redemption price should either be
fully offered in legal tender or else validly consigned in court. Only by such
means can the auction winner be assured that the offer to redeem is being
made in good faith.[94] In case of disagreement over the redemption price,
the redemptioner may preserve his right of redemption through judicial
action, which in every case, must be filed within the one-year period of
redemption. The filing of the court action to enforce redemption, being
equivalent to a formal offer to redeem, would have the effect of preserving
his redemptive rights and freezing the expiration of the one-year period.
[95]
But no such action was instituted by the Torbela siblings or either of the
spouses Rosario.
Duque-Rosario also cannot bar the issuance of the writ of
possession over Lot No. 5-F-8-C-2-B-2-A in favor of Banco Filipino by
invoking the pendency of Civil Case No. U-4359, the Torbela siblings action
for recovery of ownership and possession and damages, which supposedly
tolled the period for redemption of the foreclosed properties.Without
belaboring the issue of Civil Case No. U-4359 suspending the redemption
period, the Court simply points out to Duque-Rosario that Civil Case No. U4359 involved Lot No. 356-A only, and the legal consequences of the

institution, pendency, and resolution of Civil Case No. U-4359 apply to Lot
No. 356-A alone.

(1) Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela
siblings;

Equally unpersuasive is Duque-Rosarios argument that the writ of

possession over Lot No. 5-F-8-C-2-B-2-A should not be issued given the
defects in the conduct of the foreclosure sale (i.e., lack of personal notice
to Duque-Rosario) and consolidation of title (i.e., failure to provide DuqueRosario with copies of the Certificate of Final Sale).

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT

No. 165813 in the name of Banco Filipino and to issue a new certificate of
title in the name of the Torbela siblings for Lot No. 356-A;

The right of the purchaser to the possession of the foreclosed

property becomes absolute upon the expiration of the redemption
period. The basis of this right to possession is the purchaser's ownership
of the property. After the consolidation of title in the buyer's name for
failure of the mortgagor to redeem, the writ of possession becomes a
matter of right and its issuance to a purchaser in an extrajudicial
foreclosure is merely a ministerial function.[96]
The judge with whom an application for a writ of possession is filed
need not look into the validity of the mortgage or the manner of its
foreclosure. Any question regarding the validity of the mortgage or its
foreclosure cannot be a legal ground for the refusal to issue a writ of
possession. Regardless of whether or not there is a pending suit for the
annulment of the mortgage or the foreclosure itself, the purchaser is
entitled to a writ of possession, without prejudice, of course, to the
eventual outcome of the pending annulment case. The issuance of a writ
of possession in favor of the purchaser in a foreclosure sale is a ministerial
act and does not entail the exercise of discretion. [97]
WHEREFORE, in view of the foregoing, the Petition of the Torbela siblings
in G.R. No. 140528 is GRANTED, while the Petition of Lena Duque-Rosario
in G.R. No. 140553 is DENIED for lack of merit. The Decision dated June
29, 1999 of the Court of Appeals in CA-G.R. CV No. 39770, which affirmed
with modification the Amended Decision dated January 29, 1992 of the
RTC in Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822,
is AFFIRMED WITH MODIFICATIONS, to now read as follows:

(3) The case is REMANDED to the RTC for further proceedings to

determine the facts essential to the proper application of Articles 448 and
546 of the Civil Code, particularly: (a) the present fair market value of Lot
No. 356-A; (b) the present fair market value of the improvements thereon;
(c) the option of the Torbela siblings to appropriate the improvements on
Lot No. 356-A or require Dr. Rosario to purchase Lot No. 356-A; and (d) in
the event that the Torbela siblings choose to require Dr. Rosario to
purchase Lot No. 356-A but the value thereof is considerably more than
the improvements, then the reasonable rent of Lot No. 356-A to be paid by
Dr. Rosario to the Torbela siblings;
(4) The Torbela siblings are DIRECTED to submit an accounting of
the rents of the improvements on Lot No. 356-A which they had received
and to turn over any balance thereof to Dr. Rosario;
(5) Dr. Rosario is ORDERED to pay the Torbela siblings P200,000.00
as moral damages, P100,000.00 as exemplary damages, and P100,000.00
as attorneys fees; and
(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C2-B-2-A, covered by TCT No. 165812. The RTC Branch Clerk of Court
is ORDERED to issue a writ of possession for the said property in favor of
Banco Filipino.
SO ORDERED.