1.) G.R. No.

L-44001 June 10, 1988

PAZ MERCADO, CAROLINA S. CHICO, LUCIANA CABRERA, JOAQUIN IGNACIO, ELMER FLORES,
AVELINA C. NUCOM, et al., petitioners,
vs.
HON. COURT OF APPEALS, HON. BENIGNO PUNO, LOLITA C. BULAONG, FLORENTINO AGULTO,
SEVERINO SALAYSAY, SUSANA BERNARDINO, et al., respondents.

NARVASA, J.:
The question presented by this appeal is whether or not the special civil action of certiorari may be
properly resorted to by a party aggrieved by a judgment of a Regional Trial Court (or Court of First
Instance)which became final because not appealed within the reglementary period to bring
about its reversal on the ground that the Court had applied the wrong provision of the Civil Code, and
had rendered summary judgment at the instance of the defendants without receiving evidence on
the issue of damages allegedly suffered by the plaintiffs, thereby denying them due process.
The private respondents, hereafter simply referred to as the Bulaong Group, had for many years been
individual lessees of stalls in the public market of Baliuag, Bulacan; from 1956 to 1972, to be more
precise. The market was destroyed by fire on February 17, 1956; the members of the Bulaong Group
constructed new stalls therein at their expense; and they thereafter paid rentals thereon to the
Municipality of Baliuag.
Sometime in 1972, the members of the group sub-leased their individual stalls to other persons,
hereafter simply referred to as the Mercado Group. After the Mercado Group had been in possession
of the market stlls for some months, as sub-lessees of the Bulaong Group, the municipal officials of
Baliuag cancelled the long standing leases of the Bulaong Group and declared the persons comprising
the Mercado Group as the rightful lessees of the stalls in question, in substitution of the former. The
municipal authorities justified the cancellation of the leases of the Bulaong Group by invoking the
provisions of Municipal Ordinance No. 14, dated December 14, 1964, which prohibited the subleasing of stalls by the lessees thereof, as well as a directive of the Office of the President (contained
in a letter of Executive Secretary R. Zamora dated May 29,1973) requiring enforcement of said
Ordinance No. 14. Recognition of the Mercado Group's rights over the stalls was subsequently
manifested in Municipal Ordinance No. 49, approved on July 5,1973.
The members of the Bulaong Group sued. They filed several individual complaints with the Court of
First Instance seeking recovery of their stalls from the Mercado Group as well as damages. 1 Their
theory was anchored on their claimed ownership of the stalls constructed by them at their own
expense, and their resulting right, as such owners, to sub-lease the stalls, and necessarily, to recover
them from any person withholding possession thereof from them. Answers were seasonably filed in

behalf of the defendants, including the Municipality of Baliuag, after which a pre-trial was held in the
course of which the parties stipulated upon practically all the facts.
The Mercado Group thereafter filed motions for summary judgment, asserting that in light of the
admissions made at the pre-trial and in the pleadings, no issue remained under genuine
controversion. The Bulaong Group filed an opposition which, while generally stating that there were
"other material allegations in the amended complaint(s)" upon which proof was needful, actually
identified only one issue of fact requiring "formal submission of evidence," i.e., the claim for actual
damages " ... the exact amount of which shall be proven at the trial." The Bulaong Group then filed a
"Motion to Accept Affidavits and Photographs as Annexes to the Opposition to the Motion for
Summary Judgment," which affidavits and photographs tended to establish the character and value of
the improvements they had introduced in the market stalls. As far as the records show, no objection
whatever was presented to this motion by the Mercado Group (movants for summary judgment), and
the affidavits and photographs were admitted by the Trial Court. Specifically, the Mercado Group
never asked, either in their motion for summary judgment or at any time after having received a copy
of the motion to accept affidavits and photographs, etc., that a hearing be scheduled for the
reception of evidence on the issue of the Bulaong Group's claimed actual damages.
On October 24,1975, respondent Judge rendered a summary judgment in all the cases. 3 It rejected
the claim of the Municipality of Baliuag that it had automatically acquired ownership of the new stalls
constructed after the old stalls had been razed by fire, declaring the members of the Bulaong Group
to be builders in good faith, entitled to retain possession of the stalls respectively put up by them
until and unless indemnified for the value thereof. The decision also declared that the Bulaong and
Mercado Groups had executed the sub-letting agreements with full awareness that they were
thereby violating Ordinance No. 14; they were thus in pari delicto, and hence had no cause of action
one against the other and no right to recover whatever had been given or demand performance of
anything undertaken. The judgment therefore decreed (1) the annulment of the leases between the
Municipality and the individuals comprising the Mercado Group (the defendants who had taken over
the original leases of the Bulaong Group); and (2) the payment to the individual members of the
Bulaong Group (the plaintiffs) of the stated, adjudicated value of the stalls, with interest IF
... the Municipality ... would insist in its right rescind or annul its contracts of leases with the said
plaintiffs over the lots on which the stalls in question are erected; for this purpose, since the private
defendants become immediate beneficiaries to a transfer of possession over the stalls in question,
the Municipality .. may require said private defendants .. to pay the plaintiffs the aforesaid amounts
in the event that said private defendants and the Minucipality .. the lots on which said stalls are
contracted; however, unless the plaintiffs shall have been fully paid of the value of their stalls in the
amounts mentioned above, they shall have the right to remain in their respective stalls and in case
the private defendants shall refuse to pay for the value of the stalls in this event, the ejectment of the
said private defendants from the stalls in question shall be ordered .....

Page 1 of 30

The Mercado Group and the Municipality filed on November 14, 1975, motions for reconsideration of
the summary judgment, notice of which had been served on them on November 3, 1975. These were
denied, and notice of the order of denial was received by them on December 18, 1975. On January 7,
1976, the Mercado Group filed a notice of appeal, an appeal bond and a motion for extension of time
to file their record on appeal. But by Order dated January 9, 1976, the Trial Court directed inter
alia the execution of the judgment, at the instance of the Bulaong Group and despite the opposition
of that Mercado Group, adjudging that its decision had become final because the appeal documents
had "not been seasonably filed." The writ was issued, and the Mercado Group's motion to quash the
same and to re-open the case was denied.
The Group went to the Court of Appeals, instituting in that court a special civil action of certiorari and
4
prohibition "to annul that portion of the summary judgment . . awarding damages to private
respondents (the Bulaong Group), and to restrain the respondent Judge and the Provincial Sheriff of
5
Bulacan from enforcing the same." That Court rendered judgment on May 14, 1976, holding that (1)
the summary judgment was properly rendered, respondent Judge (having) merely adhered to the
procedure set forth by the . . . Rule (34);" and if "he committed error in the appreciation of the
probative values of the affidavits and counter-affidavits submitted by the parties, such error is merely
one of judgment, and not of jurisdiction;" (2) the Mercado Group had not been denied due process
"for failure of respondent Judge to conduct a formal trial . . (to receive) evidence on the question of
damages," since the parties were afforded the right, in connection with the motion for summary
judgment, to speak and explain their side of the case by means of affidavits and counter-affidavits;
and (3) since the Mercado Group had attempted to perfect an appeal from the summary judgment
which was however futile because their appeal papers "were filed beyond the reglementary period,"
the judgment had become final and certiorari or prohibition could not be availed of as a substitute for
the group's lost appeal. Once again, the Mercado Group moved for reconsideration of an adverse
judgment, and once again were rebuffed.
The members of the Mercado Group are now before this Court on an appeal by certiorari, this time
timely taken, assailing the above rulings of the Court of Appeals. Their appeal must fail for lack of
merit. No error can be ascribed to the judgment of the Court of Appeals which is hereby
affirmed in toto.
Upon the factual findings of the Court of Appeals, by which this court is bound, and taking account of
well established precedent from which there is no perceivable reason in the premises to depart,
there is no question that the petitioners (the Mercado Group) had failed to perfect an appeal from
the summary judgement within the reglementary period fixed by the Rules of Court. According to the
Appellate CourtThe summary judgment rendered by respondent Judge, being a final adjudication
on the merits of the said cases, could have been appealed by the petitioners. In
point of fact, petitioners did attempt to perfect an appeal from said judgment, but

the attempt proved futile because their notice of appeal, appeal bond and motion
for extension of time file record on appeal were filed beyond the reglementary
period. The record discloses that they received copy of the summary judgment on
November 3, 1975; that on November 14, 1975, or after the lapse of eleven (11)
days from receipt of said decision, they filed their motion for reconsideration of
said decision; that on December 18, 1975, they received copy of the order denying
their motion for reconsideration; and that they did not file their notice of appeal,
appeal bond and motion for extension of time until January 7, 1976, or twenty (20)
days after receipt of the order denying their motion for reconsideration. The notice
of appeal, appeal bond and motion for extension were, therefore, presented one
(1) day after the expiration of the 30-day period to perfect an appeal. Thus,
respondent Judge correctly disallowed the appeal.
The Appellate Court's computation of the period is correct, and is in accord with Section 3, Rule 41 of
the Rules of Court providing that from the 30-day reglementary period of appeal shall be deducted
the "time during which a motion to set aside the judgment or order or for a new trial has been
pending." 6
Significantly, the petitioners have made no serious effort to explain and excuse the tardiness of their
appeal. What they have done and continue to do is to insist that the special civil action of certiorari is
in truth the proper remedy because the judgment is void. The judgment is void, they say, because
they were denied due process, as "respondent Judge granted exorbitant damages, without reliable
proof, and without giving petitioners the chance to prove their claim that private respondents are not
entitled to damages, and conceding that they are, the damages are much lower than that awarded by
the respondent Judge." 7 According to them, since the matter of damages was clearly a controverted
fact, the Court had absolutely no jurisdiction to determine it on mere affidavits.
There can be no debate about the proposition that under the law, the Trial Court validly acquired
jurisdiction not only over the persons of the parties but also over the subject matter of the actions at
bar. The parties composing the Mercado Group cannot dispute this; they recognized the Court's
competence when they filed their answers to the complaints without questioning the
Court's jurisdiction of the subject-matter; indeed neither at that time nor at any other time thereafter
did any one of them ever raise the question.
Now, jurisdiction, once acquired, is not lost by any error in the exercise thereof that might
subsequently be committed by the court. Where there is jurisdiction over the subject matter, the
decision of all other questions arising in the case is but an exercise of that jurisdiction . 8 And when a
court exercises its jurisdiction, an error committed while engaged in that exercise does not deprive it
of the jurisdiction being exercise when the error is committed. If it did, every error committed by a
court would deprive it of jurisdiction and every erroneous judgment would be a void judgment. This,
of course, can not be allowed. The administration of justice would not survive such a rule.

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9 Moreover, any error that the Court may commit in the exercise of its jurisdiction, being merely an
error of judgment, is reviewable only by appeal, not by the special civil action of certiorari or
prohibition. 10
The petitioners do not dispute the propriety of the rendition of a summary judgment by the Court a
quo, a remedy that they themselves had in fact asked for. What they challenge is the inclusion in that
judgment of an award of damages on the basis merely of affidavits, without actual reception of
evidence thereon at a hearing set for the purpose.
The challenge is not however justified by the peculiar circumstances of the case at bar. The
petitioners, to repeat, were the parties who, as defendants, had moved for summary judgment . They
knew or were supposed to know that, as stated by the Rules, their motion would be granted if "the
pleadings, depositions, and admissions on file, together with the affidavits show that, except as to the
amount of damages, there is no genuine issue as to any material fact and that ... (they are) entitled to
a judgment as a matter of law." 11 They knew that the private respondents, as plaintiffs, had in fact
opposed their motion and had pointed out precisely the need for a hearing on the controverted
matter of damages. That they did not join in the move to have a hearing on the issue of damages is
an indication that they considered it unnecessary, When the respondents (plaintiffs)apparently in
view of the Court's and the defendants' indifference to the notion of having a hearing on the matter
of damages, implicitly indicating the belief of the superfluity of a hearingpresented affidavits and
depositions to prove the value of the improvements, for which they were seeking reimbursement,
the petitioners (defendants) did not ask that the matter be ventilated at a hearing, or submit counteraffidavits, as was their right. They made no response whatever. They were evidently quite confident
of obtaining a favorable judgment, and that such an eventuality would preclude the claimed
reimbursement or recovery of damages. As it turned out, they were wrong in their prognostication.
In any event, even assuming error on the Court's part in relying on the unopposed affidavits and
photographs as basis for an award of damages, it was, as the Appellate Court has opined, not an error
of jurisdiction under the circumstances, but one in the exercise of jurisdiction, to correct which the
prescribed remedy is appeal. This is not to say that where a Court determines the propriety of a
summary judgment which it may do on the basis of the pleadings, depositions, admissions and
affidavits submitted by the partiesand discovers that there are genuine issues of fact, these
genuine issues may nonetheless be adjudicated on the basis of depositions, admissions or affidavits
and not of evidence adduced at a formal hearing or trial. This is not the rule. 12 The rule is that it is
only the ascertainment of the character of the issues raised in the pleadingsas genuine, or sham or
fictitiouswhich can be done by depositions, admissions, or affidavits; the resolution of such issues
as are found to be genuine should be made upon proof proferred at a formal hearing. The peculiar
circumstances of the case at bar, already pointed out, operate to exclude it from the scope of the
rule. It is an exception that should however be taken, as affirming and not eroding the rule.

The petitioners' other theory is more tenable, but will not appreciably advance their cause. They
suggest that it was a mistake for the Trial Court to have accorded to the individuals of the Bulaong
Group the stalls and builders in good faith in accordance with Article 526 of the Civil Code. They are
correct. It was indeed error for the Court to have so ruled. The members of this group were
admittedly lessees of space in the public market; they therefore could not, and in truth never did
make the claim, that they were owners of any part of the land occupied by the market so that in
respect of any new structure put up by them thereon, they could be deemed builders in good faith.
To be deemed a builder in good faith, it is essential that a person assert title to the land on which he
13
builds; i.e., that he be a possessor in concept of owner, and that he be unaware "that there exists in
14
his title or mode of acquisition any flaw which invalidates it. It is such a builder in good faith who is
given the right to retain the thing, even as against the real owner, until he has been reimbursed in full
15
not only for the necessary expenses but also for useful expenses. On the other hand, unlike the
builder in good faith, a lessee who "makes in good faith useful improvements which are suitable to
the use for which the lease is intended, without altering the form or substance of the property
leased," can only claim payment of "one-half of the value of the improvements" or, "should the lessor
refuse to reimburse said amount, ... remove the improvements, even though the principal thing may
suffer damage thereby." 16
But this error does not go to the Trial Court's jurisdiction. It is an error in the exercise of jurisdiction,
which may be corrected by the ordinary recourse of appeal, not by the extraordinary remedy
of certiorari. It is an error that in the premises can no longer be set aright
The summary judgment rendered by respondent Judge on October 24, 1975 was not an interlocutory
disposition or order but a final judgment within the meaning of Section 2, Rule 41 of the Rules of
Court. By that summary judgment the Court finally disposed of the pending action, leaving nothing
more to be done by it with respect to the merits, thus putting an end to the litigation as its level . 17
The remedy available to the petitioners against such a final judgment, as repeatedly stated, was an
appeal in accordance with the aforementioned Rule 41 of the Rules of Court 18 But as observed in an
analogous case recently resolved by this Court. 19
. . instead of resorting to ordinary remedy of appeal, ... (the petitioners) availed of
the extraordinary remedy of a special civil action of certiorari in the ... (Court of Appeals), under Rule
65 of the Rules of Court. The choice was clearly wrong. The availability of the right of appeal
obviously precluded recourse to the special civil action of certiorari. This is axiomatic. It is a
proposition made plain by Section 1 of Rule 65 which lays down as a condition for the filing of a
certiorari petition that there be 'no appeal, nor any plain, speedy and adequate remedy in the
ordinary course of law.
In the case at bar, the petitioners lost their right to appeal by failing to avail of it seasonably. To
remedy that loss, they have resorted to the extraordinary remedy of certiorari, as a mode of

Page 3 of 30

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

2.) EDEN BALLATAN and SPS. BETTY MARTINEZ and CHONG CHY LING, petitioners, vs. COURT OF
APPEALS, GONZALO GO, WINSTON GO, LI CHING YAO, ARANETA INSTITUTE OF AGRICULTURE and
JOSE N. QUEDDING, respondents.
DECISION
PUNO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated March 25,
1996 in CA-G.R. CV No. 32472 entitled "Eden Ballatan, et. al., plaintiffs-appellees v. Gonzalo Go and
Winston Go, appellants and third-party plaintiffs-appellants v. Li Ching Yao, et.al., third-party
defendants."[1]
The instant case arose from a dispute over forty-two (42) square meters of residential land
belonging to petitioners. The parties herein are owners of adjacent lots located at Block No. 3,
Poinsettia Street, Araneta University Village, Malabon, Metro Manila. Lot No. 24, 414 square meters
in area, is registered in the name of petitioners Eden Ballatan and spouses Betty Martinez and Chong
[2]
Chy Ling. Lots Nos. 25 and 26, with an area of 415 and 313 square meters respectively, are
[3]
registered in the name of respondent Gonzalo Go, Sr. On Lot No. 25, respondent Winston Go, son
of Gonzalo Go, Sr., constructed his house. Adjacent to Lot No. 26 is Lot No. 27, 417 square meters in
[4]
area, and is registered in the name of respondent Li Ching Yao.
In 1985, petitioner Ballatan constructed her house on Lot No. 24. During the construction, she
noticed that the concrete fence and side pathway of the adjoining house of respondent Winston Go
encroached on the entire length of the eastern side of her property.[5] Her building contractor
informed her that the area of her lot was actually less than that described in the title. Forthwith,
Ballatan informed respondent Go of this discrepancy and his encroachment on her
property.Respondent Go, however, claimed that his house, including its fence and pathway, were
built within the parameters of his father's lot; and that this lot was surveyed by Engineer Jose
Quedding, the authorized surveyor of the Araneta Institute of Agriculture (AIA), the owner-developer
of the subdivision project.
Petitioner Ballatan called the attention of the AIA to the discrepancy of the land area in her title
and the actual land area received from them. The AIA authorized another survey of the land by
Engineer Jose N. Quedding.
In a report dated February 28, 1985, Engineer Quedding found that the lot area of petitioner
Ballatan was less by a few meters and that of respondent Li Ching Yao, which was three lots away,
increased by two (2) meters. Engineer Quedding declared that he made a verification survey of Lots
Nos. 25 and 26 of respondents Go in 1983 and allegedly found the boundaries to have been in their
proper position. He, however, could not explain the reduction in Ballatan's area since he was not
present at the time respondents Go constructed their boundary walls.[6]
On June 2, 1985, Engineer Quedding made a third relocation survey upon request of the
parties. He found that Lot No. 24 lost approximately 25 square meters on its eastern boundary, that
Lot No. 25, although found to have encroached on Lot No. 24, did not lose nor gain any area; that Lot
No. 26 lost some three (3) square meters which, however, were gained by Lot No. 27 on its western
boundary.[7] In short, Lots Nos. 25, 26 and 27 moved westward to the eastern boundary of Lot No. 24.
On the basis of this survey, on June 10, 1985, petitioner Ballatan made a written demand on
respondents Go to remove and dismantle their improvements on Lot No. 24. Respondents Go

Page 4 of 30

refused. The parties, including Li Ching Yao, however, met several times to reach an agreement on
the matter.
Failing to agree amicably, petitioner Ballatan brought the issue before the
barangay. Respondents Go did not appear. Thus, on April 1, 1986, petitioner Ballatan instituted
against respondents Go Civil Case No. 772-MN for recovery of possession before the Regional Trial
Court, Malabon, Branch 169. The Go's filed their "Answer with Third-Party Complaint" impleading as
third-party defendants respondents Li Ching Yao, the AIA and Engineer Quedding.
On August 23, 1990, the trial court decided in favor of petitioners. It ordered the Go's to vacate
the subject portion of Lot No. 24, demolish their improvements and pay petitioner Ballatan actual
damages, attorney's fees and the costs of the suit. It dismissed the third-party complaint against: (1)
AIA after finding that the lots sold to the parties were in accordance with the technical description
and verification plan covered by their respective titles; (2) Jose N. Quedding, there being no privity of
relation between him and respondents Go and his erroneous survey having been made at the
instance of AIA, not the parties; and (3) Li Ching Yao for failure to prove that he committed any wrong
in the subject encroachment.[8]The court made the following disposition:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
ordering the latter:
1. To demolish and remove all improvements existing and encroaching on plaintiff's lot;
2. To clear, vacate and deliver possession of the encroached area to the plaintiffs;

Respondents Go appealed. On March 25, 1996, the Court of Appeals modified the decision of
the trial court. It affirmed the dismissal of the third-party complaint against the AIA but reinstated the
complaint against Li Ching Yao and Jose Quedding. Instead of ordering respondents Go to demolish
their improvements on the subject land, the appellate court ordered them to pay petitioner Ballatan,
and respondent Li Ching Yao to pay respondents Go, a reasonable amount for that portion of the lot
which they encroached, the value to be fixed at the time of taking. It also ordered Jose Quedding to
pay respondents Go attorney's fees of P5,000.00 for his erroneous survey. The dispositive portion of
the decision reads:
"WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED insofar as the
dismissal of the third-party complaint against Araneta Institute of Agriculture is concerned but
modified in all other aspects as follows:
1) Defendants-appellants are hereby ordered to pay plaintiffs-appellees the reasonable value of the
forty-two (42) square meters of their lot at the time of its taking;
2) Third-party defendant Li Ching Yao is hereby ordered to pay defendants-appellants the reasonable
value of the thirty-seven (37) square meters of the latter's lot at the time of its taking; and
3) Third-party defendant Jose N. Quedding is hereby ordered to pay to defendants-appellants the
amount of P5,000.00. as attorney's fees.

3. To pay plaintiffs jointly and severally the following:

LET THE RECORD of the case be remanded to the Regional Trial Court of Malabon for further
proceedings and reception of evidence for the determination of the reasonable value of Lots Nos. 24
and 26.

a) P7,800.00 for the expenses paid to the surveyors;

SO ORDERED."[9]

b) P5,000.00 for plaintiffs' transportation;

Hence, this petition. Petitioners allege that:

4. To pay plaintiffs, jointly and severally, attorney's fees equivalent to 25% of the current market
value of the subject matter in litigation at the time of execution; and

"RESPONDENT COURT OF APPEALS ERRED ON QUESTIONS OF LAW AND GRAVELY ABUSED ITS
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN:

5. To pay the costs of suit.

1. IT APPLIED EQUITY OR EQUITABLE SOLUTIONS TO THE INSTANT CASE IN UTTER DISREGARD AND IN
VIOLATION OR GROSS IGNORANCE OF EXISTING LAWS AND JURISPRUDENCE VESTING BASIC
PROPERTY RIGHTS TO HEREIN PETITIONERS. RESPONDENT COURT HAS NO POWER TO APPLY/USE
EQUITY IN THE PRESENCE OF EXISTING LAWS TO THE CONTRARY.

The third-party complaint filed by third-party plaintiff Gonzalo Go and Winston Go against third-party
defendants Araneta Institute of Agriculture, Jose N. Quedding and Li Ching Yao is hereby DISMISSED,
without pronouncement as to costs.
SO ORDERED."

2. UNDER THE GUISE OF APPLYING EQUITY BUT IN EFFECT A VERY APPARENT PARTIALITY AND FAVOR
TO RESPONDENTS GO, IT ORDERED PAYMENT OF THE ENCROACHED AREA AT THE VALUE AT THE

Page 5 of 30

TIME OF ITS TAKING AND NOT THE VALUE AT THE TIME OF PAYMENT, THEREBY ENRICHING THE GO'S
BUT DEPRIVING PETITIONERS OF THE FRUITS OR INCREASE IN VALUE OF THEIR PROPERTY TO WHICH
THEY ARE ENTITLED UNDER THE LAW AS THE REGISTERED OWNERS WITH TORRENS TITLE IN THEIR
NAMES.

2. That after hearing, they be sentenced to indemnify the Third-Party Plaintiffs for whatever is
adjudged against the latter in favor of the Plaintiffs;

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

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

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

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

4. WHEN IT DENIED PETITIONERS THE RECOVERY OF THE NECESSARY EXPENSES IN PROTECTING THEIR
RIGHTS IN THIS CASE."[10]
Petitioners question the admission by respondent Court of Appeals of the third-party complaint
by respondents Go against the AIA, Jose Quedding and Li Ching Yao. Petitioners claim that the thirdparty complaint should not have been considered by the Court of Appeals for lack of jurisdiction due
to third-party plaintiffs' failure to pay the docket and filing fees before the trial court.
The third-party complaint in the instant case arose from the complaint of petitioners against
respondents Go. The complaint filed was for accion publiciana, i.e., the recovery of possession of real
property which is a real action. The rule in this jurisdiction is that when an action is filed in court, the
complaint must be accompanied by the payment of the requisite docket and filing fees.[11] In real
actions, the docket and filing fees are based on the value of the property and the amount of damages
claimed, if any.[12] If the complaint is filed but the fees are not paid at the time of filing, the court
acquires jurisdiction upon full payment of the fees within a reasonable time as the court may grant,
barring prescription.[13] Where the fees prescribed for the real action have been paid but the fees of
certain related damages are not, the court, although having jurisdiction over the real action, may not
have acquired jurisdiction over the accompanying claim for damages.[14]Accordingly, the court may
expunge those claims for damages, or allow, on motion, a reasonable time for amendment of the
complaint so as to allege the precise amount of damages and accept payment of the requisite legal
fees.[15] If there are unspecified claims, the determination of which may arise after the filing of the
complaint or similar pleading, the additional filing fee thereon shall constitute a lien on the judgment
award.[16] The same rule also applies to third-party claims and other similar pleadings.[17]
In the case at bar, the third-party complaint filed by respondents Go was incorporated in their
answer to the complaint. The third-party complaint sought the same remedy as the principal
complaint but added a prayer for attorney's fees and costs without specifying their amounts, thus:
"ON THE THIRD PARTY COMPLAINT
1. That summons be issued against Third-Party Defendants Araneta Institute of Agriculture, Jose N.
Quedding and Li Ching Yao;

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

Page 6 of 30

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

finished, after a relocation of the monuments of the two properties had been made by the U.S. Army
through the Bureau of Lands, according to their 'Stipulation of Facts,' dated August 17, 1951.

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

On the basis of these facts, we held that:

Article 448 of the Civil Code provides:

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

"The Court, therefore, concludes that the plaintiffs are builders in good faith and the relative rights of
the defendant Mamerta Cabral as owner of the land and of the plaintiffs as owners of the building is
governed by Article 361 of the Civil Code (Co Tao v. Joaquin Chan Chico, 46 Off. Gaz.5514). Article 361
of the old Civil Code has been reproduced with an additional provision in Article 448 of the new Civil
Code, approved June 18, 1949."[31]
[32]

Similarly, in Grana and Torralba v. Court of Appeals,

we held that:

"Although without any legal and valid claim over the land in question, petitioners, however, were
found by the Court of Appeals to have constructed a portion of their house thereon in good
faith. Under Article 361 of the old Civil Code (Article 448 of the new), the owner of the land on which
anything has been built in good faith shall have the right to appropriate as his own the building, after
payment to the builder of necessary or useful expenses, and in the proper case, expenses for pure
luxury or mere pleasure, or to oblige the builder to pay the price of the land. Respondents, as owners
of the land, have therefore the choice of either appropriating the portion of petitioners' house
which is on their land upon payment of the proper indemnity to petitioners, or selling to
petitioners that part of their land on which stands the improvement. It may here be pointed out
that it would be impractical for respondents to choose to exercise the first alternative, i.e., buy that
portion of the house standing on their land, for in that event the whole building might be rendered
useless. The more workable solution, it would seem, is for respondents to sell to petitioners that
part of their land on which was constructed a portion of the latter's house. If petitioners are
unwilling or unable to buy, then they must vacate the land and must pay rentals until they do
so. Of course, respondents cannot oblige petitioners to buy the land if its value is considerably
more than that of the aforementioned portion of the house. If such be the case, then petitioners
must pay reasonable rent. The parties must come to an agreement as to the conditions of the
lease, and should they fail to do so, then the court shall fix the same."[33]
In light of these rulings, petitioners, as owners of Lot No. 24, may choose to purchase the
improvement made by respondents Go on their land, or sell to respondents Go the subject portion. If
buying the improvement is impractical as it may render the Go's house useless, then petitioners may
sell to respondents Go that portion of Lot No. 24 on which their improvement stands. If the Go's are
unwilling or unable to buy the lot, then they must vacate the land and, until they vacate, they must
pay rent to petitioners. Petitioners, however, cannot compel respondents Go to buy the land if its
value is considerably more than the portion of their house constructed thereon. If the value of the
land is much more than the Go's improvement, then respondents Go must pay reasonable rent. If
they do not agree on the terms of the lease, then they may go to court to fix the same.

Page 7 of 30

In the event that petitioners elect to sell to respondents Go the subject portion of their lot, the
price must be fixed at the prevailing market value at the time of payment. The Court of Appeals erred
in fixing the price at the time of taking, which is the time the improvements were built on the
land. The time of taking is determinative of just compensation in expropriation proceedings. The
instant case is not for expropriation. It is not a taking by the state of private property for a public
purpose upon payment of just compensation. This is a case of an owner who has been paying real
estate taxes on his land but has been deprived of the use of a portion of this land for years. It is but
[34]
fair and just to fix compensation at the time of payment.
Article 448 and the same conditions abovestated also apply to respondents Go as owners and
possessors of their land and respondent Li Ching Yao as builder of the improvement that encroached
on thirty-seven (37) square meters of respondents Go's land.
IN VIEW WHEREOF, the decision of respondent Court of Appeals is modified as follows:
(1) Petitioners are ordered to exercise within thirty (30) days from finality of this decision their
option to either buy the portion of respondents Go's improvement on their Lot No. 24, or sell to said
respondents the portion of their land on which the improvement stands. If petitioners elect to sell
the land or buy the improvement, the purchase price must be at the prevailing market price at the
time of payment. If buying the improvement will render respondents Go's house useless, then
petitioners should sell the encroached portion of their land to respondents Go. If petitioners choose
to sell the land but respondents Go are unwilling or unable to buy, then the latter must vacate the
subject portion and pay reasonable rent from the time petitioners made their choice up to the time
they actually vacate the premises. But if the value of the land is considerably more than the value of
the improvement, then respondents Go may elect to lease the land, in which case the parties shall
agree upon the terms of the lease. Should they fail to agree on said terms, the court of origin is
directed to fix the terms of the lease.
From the moment petitioners shall have exercised their option, respondents Go shall pay
reasonable monthly rent up to the time the parties agree on the terms of the lease or until the court
fixes such terms.
(2) Respondents Go are likewise directed to exercise their rights as owners of Lots Nos. 25 and
26, vis-a-vis respondent Li Ching Yao as builder of the improvement that encroached on thirty seven
(37) square meters of respondents Go's land in accordance with paragraph one abovementioned.
(3) The Decision of the Court of Appeals ordering Engineer Quedding, as third-party defendant,
to pay attorney's fees of P5,000.00 to respondents Go is affirmed. The additional filing fee on the
damages constitutes a lien on this award.
(4) The Decision of the Court of Appeals dismissing the third-party complaint against Araneta
Institute of Agriculture is affirmed.

Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

3.) G.R. No. L-57288 April 30, 1984

LEONILA SARMINETO, petitioner,
vs.
HON. ENRIQUE A. AGANA, District Judge, Court of First Instance of Rizal, Seventh Judicial District,
Branch XXVIII, Pasay City, and SPOUSES ERNESTO VALENTINO and REBECCA LORENZOVALENTINO,respondents.
MELENCIO-HERRERA, J
This Petition for certiorari questions a March 29, 1979 Decision rendered by the then Court of First
Instance of Pasay City. The Decision was one made on memoranda, pursuant to the provisions of RA
6031, and it modified, on October 17, 1977, a judgment of the then Municipal Court of Paranaque,
Rizal, in an Ejectment suit instituted by herein petitioner Leonila SARMIENTO against private
respondents, the spouses ERNESTO Valentino and Rebecca Lorenzo. For the facts, therefore, we have
to look to the evidence presented by the parties at the original level.
It appears that while ERNESTO was still courting his wife, the latter's mother had told him the couple
could build a RESIDENTIAL HOUSE on a lot of 145 sq. ms., being Lot D of a subdivision in Paranaque
(the LAND, for short). In 1967, ERNESTO did construct a RESIDENTIAL HOUSE on the LAND at a cost of
P8,000.00 to P10,000.00. It was probably assumed that the wife's mother was the owner of the LAND
and that, eventually, it would somehow be transferred to the spouses.
It subsequently turned out that the LAND had been titled in the name of Mr. & Mrs. Jose C. Santo, Jr.
who, on September 7 , 1974, sold the same to petitioner SARMIENTO. The following January 6, 1975,
SARMIENTO asked ERNESTO and wife to vacate and, on April 21, 1975, filed an Ejectment suit against
them. In the evidentiary hearings before the Municipal Court, SARMIENTO submitted the deed of sale
of the LAND in her favor, which showed the price to be P15,000.00. On the other hand, ERNESTO
testified that the then cost of the RESIDENTIAL HOUSE would be from P30,000.00 to P40,000.00. The
figures were not questioned by SARMIENTO.
The Municipal Court found that private respondents had built the RESIDENTIAL HOUSE in good faith,
and, disregarding the testimony of ERNESTO, that it had a value of P20,000.00. It then ordered
ERNESTO and wife to vacate the LAND after SARMIENTO has paid them the mentioned sum of
P20,000.00.

SO ORDERED.

Page 8 of 30

The Ejectment suit was elevated to the Court of First Instance of Pasay where, after the submission of
memoranda, said Court rendered a modifying Decision under Article 448 of the Civil Code.
SARMIENTO was required, within 60 days, to exercise the option to reimburse ERNESTO and wife the
sum of 40,000.00 as the value of the RESIDENTIAL HOUSE, or the option to allow them to purchase
the LAND for P25,000.00. SARMIENTO did not exercise any of the two options within the indicated
period, and ERNESTO was then allowed to deposit the sum of P25,000.00 with the Court as the
purchase price for the LAND. This is the hub of the controversy. SARMIENTO then instituted the
instant certiorari proceedings.
We agree that ERNESTO and wife were builders in good faith in view of the peculiar circumstances
under which they had constructed the RESIDENTIAL HOUSE. As far as they knew, the LAND was
owned by ERNESTO's mother-in-law who, having stated they could build on the property, could
reasonably be expected to later on give them the LAND.
In regards to builders in good faith, Article 448 of the Code provides:t.hqw
ART. 448. The owner of the land on which anything has been built, sown or planted
in good faith,
shall have the right
to appropriate as his own the works, sowing or planting, after payment of the
indemnity provided for in articles 546 and 548, or
to oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the
building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof.
(Paragraphing supplied)
The value of the LAND, purchased for P15,000.00 on September 7, 1974, could not have been very
much more than that amount during the following January when ERNESTO and wife were asked to
vacate. However, ERNESTO and wife have not questioned the P25,000.00 valuation determined by
the Court of First Instance.

In regards to the valuation of the RESIDENTIAL HOUSE, the only evidence presented was the
testimony of ERNESTO that its worth at the time of the trial should be from P30,000.00 to
P40,000.00. The Municipal Court chose to assess its value at P20,000.00, or below the minimum
testified by ERNESTO, while the Court of First Instance chose the maximum of P40,000.00. In the
latter case, it cannot be said that the Court of First Instance had abused its discretion.
The challenged decision of respondent Court, based on valuations of P25,000.00 for the LAND and
P40,000.00 for the RESIDENTIAL HOUSE, cannot be viewed as not supported by the evidence. The
provision for the exercise by petitioner SARMIENTO of either the option to indemnify private
respondents in the amount of P40,000.00, or the option to allow private respondents to purchase the
LAND at P25,000.00, in our opinion, was a correct decision.t.hqw
The owner of the building erected in good faith on a land owned by another, is
entitled to retain the possession of the land until he is paid the value of his building,
under article 453 (now Article 546). The owner, of the land. upon, the other hand,
has the option, under article 361 (now Article 448), either to pay for the building or
to sell his land to the owner of the building. But he cannot, as respondents here
did, refuse both to pay for the building and to sell the land and compel the owner of
the building to remove it from the land where it is erected. He is entitled to such
remotion only when, after having chosen to sell his land, the other party fails to pay
for the same. (Emphasis ours)
We hold, therefore, that the order of Judge Natividad compelling defendantspetitioners to remove their buildings from the land belonging to plaintiffsrespondents only because the latter chose neither to pay for such buildings nor to
sell the land, is null and void, for it amends substantially the judgment sought to be
executed and is, furthermore, offensive to articles 361 (now Article 448) and 453
(now Article 546) of the Civil Code. (Ignacio vs. Hilario, 76 Phil. 605, 608 [1946]).
WHEREFORE, the Petition for Certiorari is hereby ordered dismissed, without pronouncement as to
costs.
SO ORDERED.1wph1.t

4.) TECNOGAS PHILIPPINES MANUFACTURING CORPORATION, petitioner, vs. COURT OF APPEALS

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

Page 9 of 30

DECISION

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

PANGANIBAN, J.:
The parties in this case are owners of adjoining lots in Paraaque, Metro Manila. It was
discovered in a survey that a portion of a building of petitioner, which was presumably constructed
by its predecessor-in-interest, encroached on a portion of the lot owned by private respondent. What
are the rights and obligations of the parties? Is petitioner considered a builder in bad faith because,
as held by respondent Court, he is presumed to know the metes and bounds of his property as
described in his certificate of title? Does petitioner succeed into the good faith or bad faith of his
predecessor-in-interest which presumably constructed the building?
[1]

These are the questions raised in the petition for review of the Decision dated August 28,
1992, in CA-G.R. CV No. 28293 of respondent Court[2] where the disposition reads:[3]
WHEREFORE, premises considered, the Decision of the Regional Trial Court is hereby reversed and set
aside and another one entered 1. Dismissing the complaint for lack of cause of action;
2. Ordering Tecnogas to pay the sum of P2,000.00 per month as reasonable rental from October 4,
1979 until appellee vacates the land;
3. To remove the structures and surrounding walls on the encroached area;
4. Ordering appellee to pay the value of the land occupied by the two-storey building;
5. Ordering appellee to pay the sum of P20,000.00 for and as attorneys fees;
6. Costs against appellee.
Acting on the motions for reconsideration of both petitioner and private respondent,
respondent Court ordered the deletion of paragraph 4 of the dispositive portion in an Amended
Decision dated February 9, 1993, as follows:[4]
WHEREFORE, premises considered, our decision of August 28, 1992 is hereby modified deleting
paragraph 4 of the dispositive portion of our decision which reads:
4. Ordering appellee to pay the value of the land occupied by the two-storey building.

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

The motion for reconsideration of appellee is hereby DENIED for lack of merit.

Page 10 of 30

[6]

After trial on the merits, the Regional Trial Court of Pasay City, Branch 117, in Civil Case No.
PQ-7631-P, rendered a decision dated December 4, 1989 in favor of petitioner who was the plaintiff
[7]
therein. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant and ordering
the latter to sell to plaintiff that portion of land owned by him and occupied by portions of plaintiffs
buildings and wall at the price ofP2,000.00 per square meter and to pay the former:

Whether or not the respondent Court of Appeals erred in ordering the removal of the structures and
surrounding walls on the encroached area and in withdrawing its earlier ruling in its August 28, 1992
decision for the petitioner to pay for the value of the land occupied by the building, only because the
private respondent has manifested its choice to demolish it despite the absence of compulsory sale
where the builder fails to pay for the land, and which choice private respondent deliberately deleted
from its September 1, 1980 answer to the supple-mental complaint in the Regional Trial Court.
In its Memorandum, petitioner poses the following issues:

1. The sum of P44,000.00 to compensate for the losses in materials and properties incurred by
plaintiff through thievery as a result of the destruction of its wall;
2. The sum of P7,500.00 as and by way of attorneys fees; and
3. The costs of this suit.
Appeal was duly interposed with respondent Court, which as previously stated, reversed and set
aside the decision of the Regional Trial Court and rendered the assailed Decision and Amended
Decision. Hence, this recourse under Rule 45 of the Rules of Court.

The Issues

A
The time when to determine the good faith of the builder under Article 448 of the New Civil Code, is
reckoned during the period when it was actually being built; and in a case where no evidence was
presented nor introduced as to the good faith or bad faith of the builder at that time, as in this case,
[9]
he must be presumed to be a builder in good faith, since bad faith cannot be presumed.
B.
In a specific boundary overlap situation which involves a builder in good faith, as in this case, it is now
well settled that the lot owner, who builds on the adjacent lot is not charged with constructive notice
of the technical metes and bounds contained in their torrens titles to determine the exact and precise
extent of his boundary perimeter.[10]
C.

The petition raises the following issues:[8]

(A)
Whether or not the respondent Court of Appeals erred in holding the petitioner a builder in bad
faith because it is presumed to know the metes and bounds of his property.
(B)
Whether or not the respondent Court of Appeals erred when it used the amicable settlement
between the petitioner and the private respondent, where both parties agreed to the
demolition of the rear portion of the fence, as estoppel amounting to recognition by petitioner
of respondents right over his property including the portions of the land where the other
structures and the building stand, which were not included in the settlement.

The respondent courts citation of the twin cases of Tuason & Co. v. Lumanlan and Tuason & Co. v.
Macalindong is not the judicial authority for a boundary dispute situation between adjacent torrens
titled lot owners, as the facts of the present case do not fall within nor square with the involved
principle of a dissimilar case.[11]
D.
Quite contrary to respondent Uys reasoning, petitioner Tecnogas continues to be a builder in good
faith, even if it subsequently built/repaired the walls/other permanent structures thereon while the
case a quo was pending and even while respondent sent the petitioner many letters/filed cases
thereon.[12]
D. (E.)

(C)

Page 11 of 30

The amicable settlement between the parties should be interpreted as a contract and enforced only
in accordance with its explicit terms, and not over and beyond that agreed upon; because the courts
do not have the power to create a contract norexpand its scope.[13]
E. (F.)
As a general rule, although the landowner has the option to choose between: (1) buying the building
built in good faith, or (2) selling the portion of his land on which stands the building under Article 448
of the Civil Code; the first option is not absolute, because an exception thereto, once it would be
impractical for the landowner to choose to exercise the first alternative, i.e. buy that portion of the
house standing on his land, for the whole building might be rendered useless. The workable solution
is for him to select the second alternative, namely, to sell to the builder that part of his land on which
[14]
was constructed a portion of the house.
Private respondent, on the other hand, argues that the petition is suffering from the following
flaws:[15]
1. It did not give the exact citations of cases decided by the Honorable Supreme Court that
allegedly contradicts the ruling of the Hon. Court of Appeals based on the doctrine laid down
in Tuason vs. Lumanlan case citing also Tuason vs. Macalindong case (Supra).
2. Assuming that the doctrine in the alleged Co Tao vs. Chico case is contradictory to the
doctrine in Tuason vs. Lumanlan and Tuason vs. Macalindong, the two cases being more
current, the same should prevail.
Further, private respondent contends that the following unmistakably point to the bad faith of
petitioner: (1) private respondents purchase of the two lots, was ahead of the purchase by petitioner
of the building and lot from Pariz Industries; (2) the declaration of the General Manager of Tecnogas
that the sale between petitioner and Pariz Industries was not registered because of some problems
with China Banking Corporation; and (3) the Deed of Sale in favor of petitioner was registered in its
name only in the month of May 1973.[16]

The Courts Ruling

The petition should be granted.

[17]

Respondent Court, citing the cases of J. M. Tuason & Co., Inc. vs. Vda. de Lumanlan and J. M.
Tuason & Co., Inc. vs. Macalindong,[18] ruled that petitioner cannot be considered in good faith
because as a land owner, it is presumed to know the metes and bounds of his own property, specially
if the same are reflected in a properly issued certificate of title. One who erroneously builds on the
adjoining lot should be considered a builder in (b)ad (f)aith, there being presumptive knowledge of
the Torrens title, the area, and the extent of the boundaries.[19]
We disagree with respondent Court. The two cases it relied upon do not support its main
pronouncement that a registered owner of land has presumptive knowledge of the metes and
bounds of its own land, and is therefore in bad faith if he mistakenly builds on an adjoining
land. Aside from the fact that those cases had factual moorings radically different from those
obtaining here, there is nothing in those cases which would suggest, however remotely, that bad faith
is imputable to a registered owner of land when a part of his building encroaches upon a neighbors
land, simply because he is supposedly presumed to know the boundaries of his land as described in
his certificate of title. No such doctrinal statement could have been made in those cases because such
issue was not before the Supreme Court. Quite the contrary, we have rejected such a theory in Co
[20]
Tao vs. Chico, where we held that unless one is versed in the science of surveying, no one can
determine the precise extent or location of his property by merely examining his paper title.
There is no question that when petitioner purchased the land from Pariz Industries, the
buildings and other structures were already in existence. The record is not clear as to who actually
built those structures, but it may well be assumed that petitioners predecessor-in-interest, Pariz
Industries, did so. Article 527 of the Civil Code presumes good faith, and since no proof exists to show
that the encroachment over a narrow, needle-shaped portion of private respondents land was done
in bad faith by the builder of the encroaching structures, the latter should be presumed to have built
them in good faith.[21] It is presumed that possession continues to be enjoyed in the same character
in which it was acquired, until the contrary is proved.[22] Good faith consists in the belief of the
builder that the land he is building on is his, and his ignorance of any defect or flaw in his
title.[23] Hence, such good faith, by law, passed on to Parizs successor, petitioner in this case. Further,
(w)here one derives title to property from another, the act, declaration, or omission of the latter,
while holding the title, in relation to the property, is evidence against the former.[24] And possession
acquired in good faith does not lose this character except in case and from the moment facts exist
which show that the possessor is not unaware that he possesses the thing improperly or
wrongfully.[25] The good faith ceases from the moment defects in the title are made known to the
possessor, by extraneous evidence or by suit for recovery of the property by the true owner.[26]
Recall that the encroachment in the present case was caused by a very slight deviation of the
erected wall (as fence) which was supposed to run in a straight line from point 9 to point 1 of
petitioners lot. It was an error which, in the context of the attendant facts, was consistent with good
faith. Consequently, the builder, if sued by the aggrieved landowner for recovery of possession, could
have invoked the provisions of Art. 448 of the Civil Code, which reads:

Good Faith or Bad Faith

Page 12 of 30

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.

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

The obvious benefit to the builder under this article is that, instead of being outrightly ejected from
the land, he can compel the landowner to make a choice between the two options: (1) to appropriate
the building by paying the indemnity required by law, or (2) sell the land to the builder. The
landowner cannot refuse to exercise either option and compel instead the owner of the building to
[27]
remove it from the land.

That the parties hereto have agreed that the rear portion of the fence that separates the property of
the complainant and respondent shall be demolished up to the back of the building housing the
machineries which demolision (sic) shall be undertaken by the complainant at anytime.

The question, however, is whether the same benefit can be invoked by petitioner who, as earlier
stated, is not the builder of the offending structures but possesses them as buyer.
We answer such question in the affirmative.
In the first place, there is no sufficient showing that petitioner was aware of the encroachment
at the time it acquired the property from Pariz Industries. We agree with the trial court that various
factors in evidence adequately show petitioners lack of awareness thereof. In any case, contrary
proof has not overthrown the presumption of good faith under Article 527 of the Civil Code, as
already stated, taken together with the disputable presumptions of the law on evidence. These
presumptions state, under Section 3 (a) of Rule 131 of the Rules of Court, that the person is innocent
of a crime or wrong; and under Section 3 (ff) of Rule 131, that the law has been obeyed. In fact,
private respondent Eduardo Uy himself was unaware of such intrusion into his property until after
1971 when he hired a surveyor, following his purchase of another adjoining lot, to survey all his newly
acquired lots. Upon being apprised of the encroachment, petitioner immediately offered to buy the
area occupied by its building -- a species of conduct consistent with good faith.
In the second place, upon delivery of the property by Pariz Industries, as seller, to the petitioner,
as buyer, the latter acquired ownership of the property. Consequently and as earlier discussed,
petitioner is deemed to have stepped into the shoes of the seller in regard to all rights of ownership
over the immovable sold, including the right to compel the private respondent to exercise either of
the two options provided under Article 448 of the Civil Code.

Estoppel

We do not agree. Petitioner cannot be held in estoppel for entering into the amicable
settlement, the pertinent portions of which read:[29]

That the fence which serve(s) as a wall housing the electroplating machineries shall not be
demolished in the mean time which portion shall be subject to negotiation by herein parties.
From the foregoing, it is clear that petitioner agreed only to the demolition of a portion of the
wall separating the adjoining properties of the parties -- i.e. up to the back of the building housing the
machineries. But that portion of the fence which served as the wall housing the electroplating
machineries was not to be demolished. Rather, it was to be subject to negotiation by herein
parties. The settlement may have recognized the ownership of private respondent but such
admission cannot be equated with bad faith. Petitioner was only trying to avoid a litigation, one
reason for entering into an amicable settlement.
As was ruled in Osmea vs. Commission on Audit,[30]
A compromise is a bilateral act or transaction that is expressly acknowledged as a juridical agreement
by the Civil Code and is therein dealt with in some detail. `A compromise, declares Article 2208 of said
Code, `is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an
end to one already commenced.
xxx xxx xxx
The Civil Code not only defines and authorizes compromises, it in fact encourages them in civil
actions. Art. 2029 states that `The Court shall endeavor to persuade the litigants in a civil case to
agree upon some fair compromise. x x x.
In the context of the established facts, we hold that petitioner did not lose its rights under
Article 448 of the Civil Code on the basis merely of the fact that some years after acquiring the
property in good faith, it learned about -- and aptly recognized -- the right of private respondent to a
portion of the land occupied by its building. The supervening awareness of the encroachment by

Page 13 of 30

petitioner does not militate against its right to claim the status of a builder in good faith. In fact, a
judicious reading of said Article 448 will readily show that the landowners exercise of his option can
only take place after the builder shall have come to know of the intrusion -- in short, when both
parties shall have become aware of it. Only then will the occasion for exercising the option arise, for it
is only then that both parties will have been aware that a problem exists in regard to their property
rights.

Options of Private Respondent

What then is the applicable provision in this case which private respondent may invoke as his
[31]
remedy: Article 448 or Article 450 of the Civil Code?
In view of the good faith of both petitioner and private respondent, their rights and obligations
are to be governed by Art. 448. The essential fairness of this codal provision has been pointed out by
Mme. Justice Ameurfina Melencio-Herrera, citing Manresa and applicable precedents, in the case of
Depra vs. Dumlao,[32] to wit:
Where the builder, planter or sower has acted in good faith, a conflict of rights arises between the
owners, and it becomes necessary to protect the owner of the improvements without causing
injustice to the owner of the land. In view of the impracticality of creating a state of forced coownership, the law has provided a just solution by giving the owner of the land the option to acquire
the improvements after payment of the proper indemnity, or to oblige the builder or planter to pay
for the land and the sower to pay the proper rent. It is the owner of the land who is authorized to
exercise the option, because his right is older, and because, by the principle of accession, he is
entitled to the ownership of the accessory thing. (3 Manresa 213; Bernardo vs. Bataclan, 37 Off. Gaz.
1382; Co Tao vs. Chan Chico, G. R. No. 49167, April 30, 1949; Article applied; see Cabral, et al. vs.
Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050).
The private respondents insistence on the removal of the encroaching structures as the proper
remedy, which respondent Court sustained in its assailed Decisions, is thus legally flawed. This is not
one of the remedies bestowed upon him by law. It would be available only if and when he chooses to
compel the petitioner to buy the land at a reasonable price but the latter fails to pay such
price.[33] This has not taken place. Hence, his options are limited to: (1) appropriating the encroaching
portion of petitioners building after payment of proper indemnity, or (2) obliging the latter to buy the
lot occupied by the structure. He cannot exercise a remedy of his own liking.
Neither is petitioners prayer that private respondent be ordered to sell the land[34] the proper
remedy. While that was dubbed as the more workable solution in Grana and Torralba vs. The Court of
Appeals, et al.,[35] it was not the relief granted in that case as the landowners were directed to
exercise within 30 days from this decision their option to either buy the portion of the petitioners

house on their land or sell to said petitioners the portion of their land on which it
stands.[36] Moreover, in Grana and Torralba, the area involved was only 87 square meters while this
[37]
[38]
case involves 520 square meters . In line with the case of Depra vs. Dumlao, this case will have to
be remanded to the trial court for further proceedings to fully implement the mandate of Art. 448. It
is a rule of procedure for the Supreme Court to strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future litigation.[39]
Petitioner, however, must also pay the rent for the property occupied by its building as
prescribed by respondent Court from October 4, 1979, but only up to the date private respondent
serves notice of its option upon petitioner and the trial court; that is, if such option is for private
respondent to appropriate the encroaching structure. In such event, petitioner would have a right of
[40]
retention which negates the obligation to pay rent. The rent should however continue if the option
chosen is compulsory sale, but only up to the actual transfer of ownership.
The award of attorneys fees by respondent Court against petitioner is unwarranted since the
action appears to have been filed in good faith. Besides, there should be no penalty on the right to
litigate.[41]
WHEREFORE, premises considered, the petition is hereby GRANTED and the assailed Decision
and the Amended Decision are REVERSED and SET ASIDE. In accordance with the case of Depra vs.
Dumlao,[42] this case is REMANDED to the Regional Trial Court of Pasay City, Branch 117, for further
proceedings consistent with Articles 448 and 546 [43] of the Civil Code, as follows:
The trial court shall determine:
a) the present fair price of private respondents 520 square-meter area of land;
b) the increase in value (plus value) which the said area of 520 square meters may have
acquired by reason of the existence of the portion of the building on the area;
c) the fair market value of the encroaching portion of the building; and
d) whether the value of said area of land is considerably more than the fair market value of
the portion of the building thereon.
2. After said amounts shall have been determined by competent evidence, the regional trial court
shall render judgment as follows:
a) The private respondent shall be granted a period of fifteen (15) days within which to
exercise his option under the law (Article 448, Civil Code), whether to appropriate the
portion of the building as his own by paying to petitioner its fair market value, or to
oblige petitioner to pay the price of said area. The amounts to be respectively paid by

Page 14 of 30

petitioner and private respondent, in accordance with the option thus exercised by
written notice of the other party and to the court, shall be paid by the obligor within
fifteen (15) days from such notice of the option by tendering the amount to the trial
court in favor of the party entitled to receive it;

No costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

b) If private respondent exercises the option to oblige petitioner to pay the price of the
land but the latter rejects such purchase because, as found by the trial court, the value
of the land is considerably more than that of the portion of the building, petitioner
shall give written notice of such rejection to private respondent and to the trial court
within fifteen (15) days from notice of private respondents option to sell the land. In
that event, the parties shall be given a period of fifteen (15) days from such notice of
rejection within which to agree upon the terms of the lease, and give the trial court
formal written notice of the agreement and its provisos. If no agreement is reached by
the parties, the trial court, within fifteen (15) days from and after the termination of
the said period fixed for negotiation, shall then fix the terms of the lease provided that
the monthly rental to be fixed by the Court shall not be less than two thousand pesos
(P2,000.00) per month, payable within the first five (5) days of each calendar
month. The period for the forced lease shall not be more than two (2) years, counted
from the finality of the judgment, considering the long period of time since 1970 that
petitioner has occupied the subject area. The rental thus fixed shall be increased by ten
percent (10%) for the second year of the forced lease. Petitioner shall not make any
further constructions or improvements on the building. Upon expiration of the twoyear period, or upon default by petitioner in the payment of rentals for two (2)
consecutive months, private respondent shall be entitled to terminate the forced lease,
to recover his land, and to have the portion of the building removed by petitioner or at
latters expense. The rentals herein provided shall be tendered by petitioner to the trial
court for payment to private respondent, and such tender shall constitute evidence of
whether or not compliance was made within the period fixed by the said court.
c) In any event, petitioner shall pay private respondent an amount computed at two
thousand pesos (P2,000.00) per month as reasonable compensation for the occupancy
of private respondents land for the period counted from October 4, 1979, up to the
date private respondent serves notice of its option to appropriate the encroaching
structures, otherwise up to the actual transfer of ownership to petitioner or, in case a
forced lease has to be imposed, up to the commencement date of the forced lease
referred to in the preceding paragraph;
d) The periods to be fixed by the trial court in its decision shall be non-extendible, and
upon failure of the party obliged to tender to the trial court the amount due to the
obligee, the party entitled to such payment shall be entitled to an order of execution
for the enforcement of payment of the amount due and for compliance with such other
acts as may be required by the prestation due the obligee.

Page 15 of 30

5.) G.R. No. L-57348 May 16, 1985

FRANCISCO DEPRA, plaintiff-appellee,
vs.
AGUSTIN DUMLAO, defendant-appellant.
MELENCIO-HERRERA, J.:
This is an appeal from the Order of the former Court of First Instance of Iloilo to the then Court of
Appeals, which the latter certified to this instance as involving pure questions of law
Plaintiff-appellee, Francisco Depra, is the owner of a parcel of land registered under Transfer
Certificate of Title No. T3087, known as Lot No. 685, situated in the municipality of Dumangas, Iloilo,
with an area of approximately 8,870 square meters. Agustin Dumlao, defendant-appellant, owns an
adjoining lot, designated as Lot No. 683, with an approximate area of 231 sq. ms.
Sometime in 1972, when DUMLAO constructed his house on his lot, the kitchen thereof had
encroached on an area of thirty four (34) square meters of DEPRA's property, After the encroachment
was discovered in a relocation survey of DEPRA's lot made on November 2,1972, his mother, Beatriz
Depra after writing a demand letter asking DUMLAO to move back from his encroachment, filed an
action for Unlawful Detainer on February 6,1973 against DUMLAO in the Municipal Court of of
Dumangas, docketed as Civil Case No 1, Said complaint was later amended to include DEPRA as a
party plain. plaintiff.
After trial, the Municipal Court found that DUMLAO was a builder in good faith, and applying Article
448 of the Civil Code, rendered judgment on September 29, 1973, the dispositive portion of which
reads:
Ordering that a forced lease is created between the parties with the plaintiffs, as
lessors, and the defendants as lessees, over the disputed portion with an area of
thirty four (34) square meters, the rent to be paid is five (P5.00) pesos a month,
payable by the lessee to the lessors within the first five (5) days of the month the
rent is due; and the lease shall commence on the day that this decision shall have
become final.
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.

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.
Without pronouncement as to costs.
SO ORDERED.
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,

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

Page 16 of 30

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 defendantspetitioners to remove their buildings from the land belonging to plaintiffsrespondents 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

Page 17 of 30

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,

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.
8
Ibanez [S.C.] 52 Off. Gaz. 217; Marfori vs. Velasco, [C.A.] 52 Off. Gaz. 2050).
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

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
7
en el art. 358.
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

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,

Page 18 of 30

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.

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

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;

Thus, on 5 May 1995 PATRICIA filed a complaint[3] for unlawful detainer against the Jimenez
spouses alleging, among others, that the lessee Purisima Salazar subleased the premises to the
Jimenezes; that Purisima Salazar no longer occupied the premises; that this notwithstanding, the
Jimenez spouses continued to occupy the premises without any contract with PATRICIA, its owner,
hence, their stay was merely being tolerated by the latter; and, that despite demands made upon
them, they refused to vacate the premises thereby unlawfully and illegally withholding the property
to the damage and prejudice of PATRICIA.

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.

DECISION
BELLOSILLO, J.:
[1]

The Joint Decision of the Court of Appeals (dismissing the petition for review filed by spouses
Virgilio and Josie Jimenez in CA-G.R. SP No. 43185 and giving due course to the petition for review
filed by Patricia, Inc., in CA-G.R. SP No. 43179), in effect reversing the decision of the Regional Trial
Court and reinstating that of the Metropolitan Trial Court, is assailed in the instant petition.
Petitioners Virgilio and Josie Jimenez, spouses, are sublessees of a lot and
building located at 2853 Juan Luna Street, Tondo, Manila, owned by respondent Patricia Inc.
(PATRICIA for brevity), a domestic corporation duly organized and existing under Philippine laws. The
Jimenez spouses subleased the property in 1980 from a certain Purisima Salazar who had been
leasing the property from PATRICIA since 1970.
Sometime in 1995 Purisima Salazar abandoned the property thus incurring back rentals dating
back to January 1992. Hence, by reason of her non-payment of the monthly rentals, her contract of
lease with PATRICIA was terminated.
On 29 March 1995 PATRICIA sent a letter to the Jimenez spouses informing them of the
termination of the lease and demanding that they vacate the premises within fifteen (15) days from
notice since they had no existing lease contract with it.[2] But the spouses refused to leave.

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

Page 19 of 30

of the premises beginning April 1995 until they finally vacated the premises, and to pay PATRICIA the
sum of P5,000.00 as reasonable attorney's fees, plus costs of suit.[5]
[6]

The Jimenez spouses appealed the MeTC decision to the RTC. On 2 January 1997 the RTC
modified the decision in favor of the spouses holding that an implied new lease contract existed
between the Jimenez spouses and PATRICIA in view of the latter's acceptance of rentals from the
former. Thus the RTC extended the term of the lease between the parties for a period of one (1) year
from date of decision, and ordered PATRICIA to reimburse the Jimenez spouses the expenses incurred
in the construction of the house built on the property and/or for the Jimenez spouses to remove the
[7]
improvements thereon.

[9]

petitioners participated actively in the proceedings before the MeTC and invoked its jurisdiction
with
the
filing
of
their
answer,
in
seeking
affirmative
relief
from
it,
in subsequently filing a notice of appeal before the RTC, and later, a Petition for Review with the
Court of Appeals.Upon these premises, petitioners cannot now be allowed belatedly to adopt an
inconsistent posture by attacking the jurisdiction of the court to which they had submitted
themselves voluntarily. Laches now bars them from doing so.

On 27 January 1997 PATRICIA, without waiting for the resolution of its Motion for Clarificatory
Judgment as well as its supplement thereto, filed a Petition for Review of the RTC decision with the
Court of Appeals, docketed as CA-G.R. SP No. 43179.

Be that as it may, we find no error in the MeTC assuming jurisdiction over the subject matter. A
complaint for unlawful detainer is sufficient if it alleges that the withholding of possession or the
[10]
refusal to vacate is unlawful without necessarily employing the terminology of the law. As correctly
found by the appellate court, to which we agree, the allegations in the complaint sufficiently
established a cause of action for unlawful detainer. The complaint clearly stated how entry was
effected and how and when dispossession started - petitioners were able to enter the subject
premises as sublessees of Purisima Salazar who, despite the termination of her lease with
respondent, continued to occupy the subject premises without any contract with it; thus, their stay
was by tolerance of respondent.

On 13 February 1997 the Jimenez spouses filed their own Petition for Review, docketed as CAG.R. SP No. 43185. Subsequently, this petition was consolidated with PATRICIA's Petition for
Review since it involved the same parties, facts, and issues.

The fact that the complaint failed to state that respondent was in prior possession of the
property before it was unlawfully withheld by petitioner spouses is of no moment. Prior physical
possession is indispensable only in actions for forcible entry but not in unlawful detainer.[11]

The Court of Appeals in due course rendered a Joint Decision dismissing the Petition for
Review filed by the Jimenez spouses while giving due course to the petition of PATRICIA. The Court of
Appeals held that there was no implied renewal of the lease contract between the parties since, to
begin with, there was no lease contract between them; hence, the Jimenez spouses could not have
tendered payment of rentals to PATRICIA.Instead, it declared the status of the Jimenez spouses as
being analogous to that of a lessee or tenant whose lease has expired but whose occupancy has been
continued by mere tolerance of the owner, and hence, bound by an implied promise that he would
vacate the premises upon demand. Thus, the appellate court reversed and set aside the decision of
the RTC and reinstated the decision of the MeTC which, among others, ordered the Jimenez spouses
to vacate the premises.

Petitioner spouses, as mere sublessees of Purisima Salazar, derive their right from the sublessor
whose termination of contract with the lessor necessarily also ends the sublease contract. Thus,
when the contract of lease of Purisima Salazar with respondent was terminated the contract of
sublease of petitioners with the former also necessarily ended and petitioners cannot insist on
staying on the premises. Petitioners can invoke no right superior to that of their sublessor.[12]

On 20 January 1997 PATRICIA filed a Motion for Clarificatory Judgment and later added
a Supplement to the Motion for Clarificatory Judgment.

Petitioners now assail the jurisdiction of the MeTC contending that the failure of the complaint
to allege the character of the sublease or entry of the Jimenez spouses into the property, whether
legal or illegal, automatically classified it into an accion publiciana or reinvindicatoria cognizable by
the RTC and not by the MeTC;[8] thus, the action should have been dismissed.
The rule is settled that a question of jurisdiction may be raised at any time, even on appeal,
provided that its application does not result in a mockery of the tenets of fair play. In the instant case,
the jurisdictional issue was raised by petitioners for the first time only in the instant Petition for
Review. However, it should be noted that they did so only after an adverse decision was rendered by
the Court of Appeals. Despite several opportunities in the RTC, which ruled in their favor, and in the
Court of Appeals, petitioners never advanced the question of jurisdiction of the MeTC. Additionally,

It is not correct to say that petitioners could not have occupied the property by tolerance of
respondent as their entry into the premises was inceptively illegal, the sublease being entered into
without the consent of the owner.[13] Petitioners argue that tolerance is only available in cases where
entry was lawful from the start and cannot be asserted where entry was illegal from the start. It
appears however that respondent did not expressly and equivocally prohibit the subleasing of the
property. Although the attached contracts of lease state that the lessee cannot sublease the
property, none of those contracts pertain to the contract of lease between Purisima Salazar and
respondent PATRICIA.[14] In any event, the fact that PATRICIA sent a letter to the Jimenez spouses
informing them of the termination of the lease of Purisima Salazar shows that they recognize and
acknowledge their stay in the premises as sublessees of Salazar. However, after the termination of
the contract of lease of Purisima Salazar with PATRICIA, any right of the Jimenez spouses to stay in
the premises, although previously recognized, then and there ended. After the termination of the
contract of lease of Salazar the continued stay of the Jimenez spouses thereat was merely by
tolerance of PATRICIA and it became unlawful after they ignored the lessor's demand to leave.
The status of petitioner spouses is akin to that of a lessee or a tenant whose term of lease has
expired but whose occupancy has continued by tolerance of the owner. A person who occupies the

Page 20 of 30

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

Art. 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for
which the lease is intended, without altering the form or substance of the property leased, the lessor
upon the termination of the lease shall pay the lessee one-half of the value of the improvements at
that time. Should the lessor refuse to reimburse said amount, the lessee may remove the
improvements, even though the principal thing may suffer damage thereby. He shall not, however,
cause any more impairment upon the property leased than is necessary xxx (New Civil Code).
Thus, applying the above rule, petitioners cannot recover full reimbursement of the value spent
1
for the construction of the house, but is limited only to one-half ( /2) of its value at the election of the
lessor. However, as PATRICIA has manifested its lack of intention to do so, the Jimenez spouses have
no recourse but to remove the house at their own expense.
WHEREFORE, the assailed Joint Decision of the Court of Appeals reversing and setting aside the
decision of the Regional Trial Court and reinstating the decision of the Metropolitan Trial Court
is AFFIRMED, with theMODIFICATION that petitioner spouses Virgilio and Josie Jimenez should also
remove the house they have constructed on the lot at their own expense. Thus, petitioner spouses
and all persons claiming title under them are ordered: (a) to vacate the premises described in the
complaint located at 2853 Juan Luna Street, Tondo, Manila; (b) to remove at their own expense
within sixty (60) days from finality of this Decision the house they have constructed thereon; (c) to
pay respondent Patricia, Inc., the sum of P3,000.00 a month as reasonable rental/compensation for
the use of the premises beginning April 1995 until they finally vacate the premises; and, (d) to pay
respondent Patricia, Inc., the sum of P5,000.00 as attorney's fees, plus costs of suit.
SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

Moreover, under the Rules on Summary Procedure, the decision of the RTC in civil cases
governed by this Rule, including forcible entry and unlawful detainer, is immediately executory
without prejudice to a further appeal that may be taken therefrom. The judgment of the RTC being
final and executory the filing of the Petition for Review was proper.
As to the house built by petitioners on the property, this Court has previously ruled that lessees,
much less, sublessees, are not possessors or builders in good faith[16] over rented land because they
know that their occupancy of the premises continues only during the life of the lease, or sublease as
the case may be; and, they cannot as a matter of right recover the value of their improvements from
the lessor, much less retain the premises until they are reimbursed.[17] Instead, their rights are
governed by Art. 1678 of the Civil Code which allows reimbursement of lessees up to one-half (1/2) of
the value of their improvements if the lessor so elects:

7.) G.R. No. L-32433

December 29, 1930
FRANCISCO DE GUZMAN, ET. AL., plaintiffs-appellants,
vs.
CRISANTO DE LA FUENTE, ET AL., defendants-appellants.

ROMUALDEZ, J.:

Page 21 of 30

The dispositive part of the lower court's judgment reads as follows:

Wherefore, the court hereby orders the defendants to vacate the premises set forth in the
complaint, restoring them to the plaintiffs herein. For lack of evidence, no judgment can be
rendered against the defendants Crisanto de la Fuente and Agapita Payumo to pay the
plaintiffs the sum of P697.50 claimed by the latter as damages, from October 1, 1926, to
January 15, 1928, nor against the aforementioned defendants and Taw Pe Chan to pay the
plaintiffs jointly and severally damages in the amount of P120 per month from January 15,
1928, until they vacate the premises. The counterclaim and the cross-complaint filed by the
defendants are hereby dismissed as against the plaintiffs. Without costs.
Both plaintiffs and defendants appealed from this judgment, and the former made the following
assignments of error:
1. In not ordering and compelling the defendants to pay damages for their illegal occupation
of the land now in question to the plaintiffs.
2. In denying our motion for new trial.
The following assignments of error were made by the defendants:
1. In ordering the defendant to vacate the premises.
2. In absolving plaintiff Francisco de Guzman from the counterclaim and the cross-complaint.
3. In not holding the defendants to be the owners of the land in question.
4. In not sentencing plaintiff Francisco de Guzman to .convey the land in question to the
defendants, plaintiffs in the cross-complaint.
5. In not cancelling the original certificate of title No. 1921 (Exhibit A) with respect to the
land in question, and in not ordering the issuance of another certificate of title in the name
of the defendants.
6. In not sentencing the plaintiff to indemnify the defendants for the value of said land, that
is, P4 a square meter.
7. in holding that the defendants' possession in good faith became a possession in bad faith
upon receipt of the letter of notification (Exhibit C) from the plaintiff's lawyer, Mr. Mariano
Santa Romana.

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

defendants, plaintiffs in the cross-complaint, for the improvements made by the latter in
good faith, worth P15,000.
Plaintiff Francisco de Guzman and defendant De la Fuente, being close friends and compadres, the
former having been the recipient of considerable attention and favors from the latter, agreed verbally
that the said defendant should occupy, in addition to a house he intended to build, the land here in
question, belonging to the plaintiffs.
In 1912 said defendant De la Fuente built his house upon said land, which house was repaired in
1928. The court below has appraised the house, after the repairs, at P7,504, which finding is
supported by the record.
The plaintiffs contend in this instance that said defendant occupies their land by mere tolerance,
having been required to pay rent at the rate of P45 a month from October 1,.1926, to December 31,
1927, and at P120 a month from January 1, 1928, when the house was repaired, and from which date
the house, besides being occupied by said defendant, yielded him a monthly rented of P40. But the
defendant claims that the land belongs to him.
The evidence does not support this claim of the defendant De La Fuente. The record shows that the
owners of the land were Francisco de Guzman and his deceased wife, and it now belongs to said
Francisco de Guzman and his children, the plaintiffs herein.
Defendant De la Fuente's possession of the land commenced and continues in good faith, inasmuch
as, on the one hand, the extra-judicial notice given by the defendant about November, 1927 did not
by itself destroy said good faith, and will continue to exist as long as there is no final judgment to the
contrary, which to date has not been redered; and, on the other hand, the necessity for the repairs of
the house has been sufficiently proved.lawphi1>net
We find not merits in the assignments of error made by either party, incompatible with the
conclusions just stated.
This is therefore a case where on party is the owner of the land, and the other is the owner, in good
faith, of the building thereon, provided for in article 361 of the Civil Code; and the present value of
the house, as stated, is P7,504.
The evidence does not justify the award of damages claimed by either the defendants or the
plaintiffs.

Page 22 of 30

Wherefore, the judgment appealed from is modified, and it is held that the land in question belongs
not to the defendant De la Fuente, but to the plaintiffs, who are entitled to acquire said defendant's
house built thereon, by paying its owner the sum of P7,504, or to compel him to pay them the price
of the land agreed upon by the interested parties; and in default thereof, the price as fixed by the
competent court; and should the plaintiff choose to acquire the house, the defendant shall have be
the right to retain the same until the above-mentioned amount is satisfied.
The remainder of the judgment appealed from is hereby affirmed in so far as it is not incompatible
with this decision. Without express pronouncement of costs. So ordered.
Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

8.) G.R. No. 3003

LORENZA ALBURO, plaintiff-appellee,
vs.
CATALINA VILLANUEVA, defendant-appellant.
CARSON, J.:
In this case no motion for a new trial was filed on the ground that the findings of fact of the trial
judge were manifestly contrary to the weight of the evidence, and the facts found must be accepted
as set out in the opinion of the lower court.
It appears that the plaintiff is the owner, by inheritance from her grandfather, of a certain lot of land
in the city of Manila, which, by written contract, was rented on the 23d of January, 1892, to one
Antonio Susano Goenco, for a term of six years, with the privilege of renewal for a second term of six
years; that the defendant, who is the wife of the said Goenco, came into possession by virtue of this
rental contract; that the defendant had her husband expended a considerable sum of money filling in
and leveling the lot and that they built a house of hard materials thereon; and that the rental
contract, while it expressly permitted the tenant to build upon the lot, is silent as to the disposition of
the house at the expiration of the rental term and makes no express provision as to improvements to
be made upon the land by way of leveling or otherwise.
The defendant having refused to surrender the lot in question of the expiration of the rental term,
this action was brought to recover possession thereof and judgment was rendered for the plaintiff,
reserving to the defendant the right to remove the house from the lot.
Counsel for the defendant contends that she is entitled to a renewal of the rental contract for a third
term of six years; or if this be denied, to be reimbursed for expenditures in filling in and leveling the

lot, and to have the benefits of the provisions of article 361 of the Civil Code, wherein it is provided
that
The owner of the land on which building, sowing, or planting is done in good faith shall have
a right to appropriate as his own work, sowing, or planting, having previously paid the
indemnity mentioned in articles four hundred and fifty-three and four hundred and fiftyfour, or to oblige the person who has built or planted to pay him the value of the land.
It is said that this rental contract should be construed in accordance with the provisions of articles
1281, 1282, 1288, and 1289 of the Civil Code so as to give the defendant the right to renew the
contract for a third term of six years, and so on indefinitely so long as she faithfully paid the rent, but
we are of the opinion that there is no room for interpretation in accordance with the provisions of
these articles since the contract expressly provides for a term of a definite number of years, with a
privilege of renewal for a second term of definite number of years. This is a very usual form of rental
contract and its terms are so clear and explicit that they do not justify an attempt to read into it any
alleged intention of the parties other than that which appears upon its face.
In support of her claim for reimbursement for expenses in filling in and leveling the lot, defendant
relies on the provisions of paragraph 2 of article 1554 of the Civil Code, wherein it is provided that the
landlord is obliged "during the lease to make all necessary repairs in order to preserve the thing
rented in condition to serve for the purpose to which it was destined." But, as Manresa points out,
this article is strictly limited in its effect to repairs necessary to preserve the thing rented in a
condition suitable to the use agreed upon ( para el uso pactado). A repair implies the putting of
something back into the condition in which it was originally and not an improvement in the condition
thereof by adding something new thereto, unless the new thing be in substitution of something
formerly in existence and is added to preserve the original status of the subject-matter of the repairs;
the filling in of a vacant lot can not be regarded as a repair as the word is used in this article; and even
though it could be so considered, the remedy of the tenant under the provisions of article 1556,
when the landlord fails to make necessary repairs, is by demand for the annulment of the contract
and indemnity by way of damages or without demanding annulment of the contract by demand for
damages for negligence on the part of the landlord; and the tenant is not authorized to make such
repairs at the expense of the landlord, except when it is a matter of the most urgent necessity
(reparacion urgentisima) "where the slightest delay would involve grave damages," when the tenant
may take the absolutely necessary means to avoid the loss, at the cost of the owner, doing only that
which is required by the force of circumstances and no more, but this on the ground that "he had
acted by virtue of the social duty of mutual aid and assistance." (Manresa, vol. 10, p. 473.)
It has been suggested that the claim of the defendant for compensation for the filling in and leveling
of the lot may be based upon article 453 of the Civil Code which provides that "necessary
expenditures will be repaid to all persons in possession (los gastos necesarios se abonan a todo
poseedor)." It may be doubted, however, whether the "possessor" referred to in this provision can be

Page 23 of 30

said to include one who stands in relation of tenant to his landlord, for the above-cited article 1554 of
the Civil Code, and the chapter wherein it occurs, seem to provide for such cases; and in any event we
do not think that the filling in and improvement of a lot can be brought under the head of necessary
expenses (gastos necesarios) as used in this connection. Manresa in his commentaries upon this
article says that gastos necesarios are no others than those made for the preservation of the thing
upon which they have been expended.
The contention that the defendant is entitled to the benefits of the provisions of article 361 of the
Civil Code can not be maintained because the right to indemnification secured in that article is
manifestly intended to apply only to a case where one builds or sows or plants an land in which he
believes himself to have a claim of title and not to lands wherein one's only interest is that of tenant
under a rental contract; otherwise it would always be in the power of the tenant to improve his
landlord out of his property. The right of a tenant in regard to improvements (mejoras) is expressly
provided for in article 1573 read in connection with article 487, wherein it is provided that the tenant
may make such improvements, either useful or convenient, as he considers advantageous, provided
he does not alter the form and substance of the thing rented, but that he will have no right for
indemnification therefor, though he can take away such improvements if it is possible to do so
without injury or damage to the thing rented.
The trial court authorized the removal of the house, apparently relying on the provisions of this
article, but since no objection was made by the plaintiff in the court below, we are not authorized to
review his action in this connection.
The judgment appealed from is affirmed, with the costs of this instance against the appellant. After
the expiration of twenty days let judgment be entered in accordance herewith and ten days
thereafter let the record in this case be remanded to the court of its origin for execution.
Arellano, C.J. Torres, Willard and Tracey, JJ., concur.
9.) G.R. No. L-23497
April 26, 1968
J.M. TUASON and CO., INC., petitioner,
vs.
ESTRELLA VDA. DE LUMANLAN and the COURT OF APPEALS (FIFTH DIVISION), respondents.
REYES, J.B.L., Actg. C.J.:
J. M. Tuason & Co., Inc. petitioned for a review by certiorari of the decision issued by the Court of
Appeals (Fifth Division) in its case CA-G.R. No. 27259-R, reversing the judgment rendered by the Court
of First Instance of Rizal (Civil Case No. Q-4243) that ordered defendant (now respondent) Estrella
Vda. de Lumanlan to vacate the lot occupied by her in Sta. Mesa Heights Subdivision, barrio Tatalon,
Quezon City, and to remove therefrom the house and other structures constructed thereon, paying
P240.00 a month until restoration of the premises to plaintiff.

The facts are stated in the decision of the Court of Appeals (accepted by both parties) in this
wise:1wph1.t
. . . That in the complaint filed in this case by plaintiff, J. M. Tuason & Co., Inc., hereinafter
called Tuason, on 30 April, 1969, the basis is that it being the registered owner of the
property known as Santa Mesa Heights Subdivision, situated at Barrio North Tatalon, Quezon
City, herein defendant sometime in April, 1949 unlawfully entered into possession of 800
square meters, and therein constructed his house so that plaintiff prayed for ejectment and
damages for the occupancy; and defendant in her answer set forthaffirmative defense that
on 12 March, 1949, she had bought the property she was occupying from one Pedro Deudor,
and that in a compromise agreement between Pedro and Tuason on 16 March 1953,
approved by the Court of First Instance of Quezon City, she was one of the buyers therein
recognized, so that she asked that her rights be recognized and the complaint dismissed; but
on the basis of the evidence presented by both parties in the trial, Lower Court sustained
plaintiff, holding that Tuason being the registered owner, and the question being purely one
of possession, therefore, defendant's said evidence was "completely immaterial". . . . (Page 2
of Decision, Annex "A" of Petition.)
Upon the facts thus stated, the Fifth Division of the Court of Appeals held that, pursuant to this
Supreme Court's ruling in Evangelista vs. Deudor, L-12826, September 10, 1959, the Compromise
Agreement (Exh. 2) between the petitioner Tuason & Co. and the Deudors constituted a valid defense
against the possessory action filed by Tuason & Co.; that under paragraph 7 of said Compromise
Agreement, petitioner bound and committed itself to sell to respondent Lumanlan the lot occupied
by her at a reasonable price; that said respondent had a right to compel petitioner to accept payment
for the lot in question; and that the compromise agreement legalized the possession of respondent.
These pronouncements are assailed by the petitioner in this appeal as legally incorrect and contrary
to the decisions of this Court.
The terms of the compromise agreement between the heirs of Telesforo Deudor and J. M. Tuason &
Co. have been taken cognizance of in many decisions of this Court (Evangelista vs. Deudor, jam. cit;
Deudor vs. J. M. Tuason & Co., L-18768, May 30, 1961, and L-20105, Oct. 31, 1963; J. M. Tuason vs.
Jaramillo, et al., L-18932-34, Sept. 30, 1963; J. M. Tuason vs. Macalindong, L-15398, Dec. 29, 1962 and
others). The Deudors had therein recognized the registered title of Tuason & Co. over the lands
claimed by them, and received payment of certain sums of money; but as the Deudors had, prior to
the compromise, sold their possessory rights to various persons, paragraph seventh of the
compromise agreement (case Q-135 of the court of origin) provided:
That the sales of the possessory rights claimed by the DEUDORS, are described in the lists
submitted by them to the OWNERS which are attached hereto marked Annexes "B" and "C"
and made part hereof. Whatever amounts may have been collected by the DEUDORS on

Page 24 of 30

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

herein defendant." In other words, the respondent Lumanlan in her answer repudiated and assailed
the compromise between the Deudors and J. M. Tuason & Co. How then can she now claim to take
advantage and derive rights from that compromise?
Without the compromise agreement, Lumanlan must justify her possession on the basis of a
pretended superiority of the Deudors' old Spanish informacion posesoria over Tuason's Certificate of
Title No. 1267, traceable back to the original Certificate of Title No. 735 of Rizal, issued under the
Registration Act No. 496. But, as ruled by this Court in previous cases, Lumanlan is by now barred
from assailing the decree of registration in favor of Tuason & Co., Inc.'s predecessors twenty years
after its issuance (Tiburcio vs. PHHC, L-13429, Oct. 31, 1959; Tuason & Co. vs. Bolaos, 95 Phil. 107;
Tuason & Co. vs. Santiago, 99 Phil. 622-623; Tuason & Co. vs. Macalindong, supra; Tuason & Co. vs.
Jaramillo, L-16827, Jan. 31, 1963).
It is thus apparent that no legal basis exists for the pronouncement in the appealed decision that
Tuason & Co. had committed itself to sell to Lumanlan the lot occupied by her at a reasonable price,
or that the compromise agreement legalized the possession of the respondent, since the latter does
not rely on the compromise but, on the contrary, she assails it.
The Court of Appeals ruled that the price to be paid by Lumanlan to Tuason & Co., Inc., is governed by
Article 1474 of the new Civil Code of the Philippines, which provides that:
Where the price cannot be determined in accordance with the preceding articles, or in any
other manner, the contract is inefficacious. However, if the thing or any part thereof has
been delivered to and appropriated by the buyer, he must pay a reasonable price therefor.
What is a reasonable price is a question of fact dependent on the circumstances of each
particular case.
Since there has been no contract between petitioner Tuason & Co. and respondent Lumanlan for the
sale of the lot occupied by the latter, and by paragraph 7 of the Compromise Agreement (assuming
that respondent-appellee still has the right to invoke the same, and seek refuge thereunder), Tuason
& Co. did not consider itself bound by the sales made by the Deudors, but demanded that the Deudor
buyers should sign new contracts with it at current prices specified for the sales of lots in "Sta. Mesa
Heights Subdivision" (ante) the aforequoted Article 1474 can have no bearing on the case, Lumanlan
not being a buyer from Tuason & Co.
As to Lumanlan's allegation in her counterclaim that she should be deemed a builder in good faith, a
similar contention has been rejected in Tuason & Co. vs. Macalindong, L-15398, December 29, 1962,
where we ruled that there being a presumptive knowledge of the Torrens titles issued to Tuason &
Co. and its predecessors-in-interest since 1914, the buyer from the Deudors (or from their
transferees) can not, in good conscience, say now that she believed her vendor had rights of
ownership over the lot purchased. The reason given by the Court is that

Page 25 of 30

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

10.) PLEASANTVILLE DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, WILSON

KEE,C.T. TORRES ENTERPRISES, INC. and ELDRED JARDINICO,respondents.
DECISION
PANGANIBAN, J.:
Is a lot buyer who constructs improvements on the wrong property erroneously delivered by the
owners agent, a builder in good faith? This is the main issue resolved in this petition for review on
certiorari to reverse the Decision[1] of the Court of Appeals[2] in CA-G.R. SP No. 11040, promulgated
on August 20, 1987.

By resolution dated November 13, 1995, the First Division of this Court resolved to transfer this
case (along with several others) to the Third Division. After due deliberation and consultation, the
Court assigned the writing of this Decision to the undersigned ponente.

The Facts
The facts, as found by respondent Court, are as follows:
Edith Robillo purchased from petitioner a parcel of land designated as Lot 9, Phase II and located
at Taculing Road, Pleasantville Subdivision, Bacolod City. In 1975, respondent Eldred Jardinico bought
the rights to the lot from Robillo. At that time, Lot 9 was vacant.
Upon completing all payments, Jardinico secured from the Register of Deeds of Bacolod City
on December 19, 1978 Transfer Certificate of Title No. 106367 in his name. It was then that he
discovered that improvements had been introduced on Lot 9 by respondent Wilson Kee, who had
taken possession thereof.
It appears that on March 26, 1974, Kee bought on installment Lot 8 of the same subdivision
from C.T. Torres Enterprises, Inc. (CTTEI), the exclusive real estate agent of petitioner. Under the
Contract to Sell on Installment, Kee could possess the lot even before the completion of all
installment payments. On January 20, 1975, Kee paid CTTEI the relocation fee of P50.00 and another
P50.00 on January 27, 1975, for the preparation of the lot plan. These amounts were paid prior to
Kees taking actual possession of Lot 8. After the preparation of the lot plan and a copy thereof given
to Kee, CTTEI through its employee, Zenaida Octaviano, accompanied Kees wife, Donabelle Kee, to
inspect Lot 8. Unfortunately, the parcel of land pointed by Octaviano was Lot 9. Thereafter, Kee
proceeded to construct his residence, a store, an auto repair shop and other improvements on the
lot.
After discovering that Lot 9 was occupied by Kee, Jardinico confronted him. The parties tried to
reach an amicable settlement, but failed.
On January 30, 1981, Jardinicos lawyer wrote Kee, demanding that the latter remove all
improvements and vacate Lot 9. When Kee refused to vacate Lot 9, Jardinico filed with the Municipal
Trial Court in Cities, Branch 3, Bacolod City (MTCC), a complaint for ejectment with damages against
Kee.
Kee, in turn, filed a third-party complaint against petitioner and CTTEI.
The MTCC held that the erroneous delivery of Lot 9 to Kee was attributable to CTTEI. It further
ruled that petitioner and CTTEI could not successfully invoke as a defense the failure of Kee to give
notice of his intention to begin construction required under paragraph 22 of the Contract to Sell on
Installment and his having built a sari-sari store without. the prior approval of petitioner required

Page 26 of 30

under paragraph 26 of said contract, saying that the purpose of these requirements was merely to
regulate the type of improvements to be constructed on the lot[3].
However, the MTCC found that petitioner had already rescinded its contract with Kee over Lot 8
for the latters failure to pay the installments due, and that Kee had not contested the rescission. The
rescission was effected in 1979, before the complaint was instituted. The MTCC concluded that Kee
no longer had any right over the lot subject of the contract between him and
petitioner. Consequently, Kee must pay reasonable rentals for the use of Lot 9, and, furthermore, he
cannot claim reimbursement for the improvements he introduced on said lot.
The MTCC thus disposed:
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered as follows:

The third-party complaint against Third-Party Defendants Pleasantville Development Corporation and
C.T. Torres Enterprises, Inc. is dismissed. The order against Third-Party Defendants to pay attorneys
fees to plaintiff and costs of litigation is reversed.[6]
Following the denial of his motion for reconsideration on October 20, 1986, Kee appealed
directly to the Supreme Court, which referred the matter to the Court of Appeals.
The appellate court ruled that Kee was a builder in good faith, as he was unaware of the mix-up
when he began construction of the improvements on Lot 8. It further ruled that the erroneous
delivery was due to the negligence of CTTEI, and that such wrong delivery was likewise imputable to
its principal, petitioner herein. The appellate court also ruled that the award of rentals was without
basis.
Thus, the Court of Appeals disposed:

1. Defendant Wilson Kee is ordered to vacate tithe premises of Lot 9, covered by TCT No. 106367 and
to remove all structures and improvements he introduced thereon;
2. Defendant Wilson Kee is ordered to pay to the plaintiff rentals at the rate of P 15.00 a day
computed from the time this suit was filed on March 12, 1981 until he actually vacates the
premises. This amount shall bear interests (sic) at the rate of 12 per cent (sic) per annum.
3. Third-Party Defendant CT. Torres Enterprises, Inc. and Pleasantville Subdivision are ordered to pay
the plaintiff jointly and severally the sum of P3,000.00 as attorneys fees and P700.00 as cost and
litigation expenses.[4]
On appeal, the Regional Trial Court, Branch 48, Bacolod City (RTC) ruled that petitioner and
CTTEI were not at fault or were not negligent, there being no preponderant evidence to show that
they directly participated in the delivery of Lot 9 to Kee.[5] It found Kee a builder in bad faith. It further
ruled that even assuming arguendo that Kee was acting in good faith, he was, nonetheless, guilty of
unlawfully usurping the possessory right of Jardinico over Lot 9 from the time he was served with
notice to vacate said lot, and thus was liable for rental.
The RTC thus disposed:
WHEREFORE, the decision appealed from is affirmed with respect to the order against the defendant
to vacate the premises of Lot No. 9 covered by Transfer Certificate of Title No. T-106367 of the land
records of Bacolod City; the removal of all structures and improvements introduced thereon at his
expense and the payment to plaintiff (sic) the sum of Fifteen (P 15.00) Pesos a day as reasonable
rental to be computed from January 30, 1981, the date of the demand, and not from the date of the
filing of the complaint, until he had vacated (sic) the premises, with interest thereon at 12% per
annum. This Court further renders judgment against the defendant to pay the plaintiff the sum of
Three Thousand (P3,000.00) Pesos as attorneys fees, plus costs of litigation.

WHEREFORE, the petition is GRANTED, the appealed decision is REVERSED, and judgment is rendered
as follows:
1. Wilson Kee is declared a builder in good faith with respect to the improvements he
introduced on Lot 9, and is entitled to the rights granted him under Articles 448, 546
and 548 of the New Civil Code.
2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development
Corporation are solidarily liable under the following circumstances:
a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove
these structures, the third-party defendants shall answer for all demolition expenses
and the value of the improvements thus destroyed or rendered useless;
b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the
amount representing the value of Lot 9 that Kee should pay to Jardinico.
3. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development
Corporation are ordered to pay in solidum the amount of P3,000.00 to Jardinico as
attorneys fees, as well as litigation expenses.
4. The award of rentals to Jardinico is dispensed with.
Furthermore, the case is REMANDED to the court of origin for the determination of the actual value
of the improvements and the property (Lot 9), as well as for further proceedings in conformity with
[7]
Article 448 of the New Civil Code.

Page 27 of 30

Petitioner then filed the instant petition against Kee, Jardinico and CTTEI.

The First Issue: Good Faith

The Issues

Petitioner contends that the Court of Appeals erred in reversing the RTCs ruling that Kee was a
builder in bad faith.

The petition submitted the following grounds to justify a review of the respondent Courts
Decision, as follows:

Petitioner fails to persuade this Court to abandon the findings and conclusions of the Court of
Appeals that Kee was a builder in good faith. We agree with the following observation of the Court of
Appeals:

1. The Court of Appeals has decided the case in a way probably not in accord with law or the the (sic)
applicable decisions of the Supreme Court on third-party complaints, by ordering third-party
defendants to pay the demolition expenses and/or price of the land;
2. The Court of Appeals has so far departed from the accepted course of judicial proceedings, by
granting to private respondent-Kee the rights of a builder in good faith in excess of what the law
provides, thus enriching private respondent Kee at the expense of the petitioner;
3. In the light of the subsequent events or circumstances which changed the rights of the parties, it
becomes imperative to set aside or at least modify the judgment of the Court of Appeals to
harmonize with justice and the facts;

The roots of the controversy can be traced directly to the errors committed by CTTEI, when it pointed
the wrong property to Wilson Kee and his wife. It is highly improbable that a purchaser of a lot would
knowingly and willingly build his residence on a lot owned by another, deliberately exposing himself
and his family to the risk of being ejected from the land and losing all improvements thereon, not to
mention the social humiliation that would follow.
Under the circumstances, Kee had acted in the manner of a prudent man in ascertaining the identity
of his property. Lot 8 is covered by Transfer Certificate of Title No. T-69561, while Lot 9 is identified in
Transfer Certificate of Title No. T-106367. Hence, under the Torrens system of land registration, Kee is
presumed to have knowledge of the metes and bounds of the property with which he is dealing. x x x
xxx xxx xxx

4. Private respondent-Kee in accordance with the findings of facts of the lower court is clearly a
builder in bad faith, having violated several provisions of the contract to sell on installments;
5. The decision of the Court of Appeals, holding the principal, Pleasantville Development Corporation
(liable) for the acts made by the agent in excess of its authority is clearly in violation of the provision
of the law;
6. The award of attorneys fees is clearly without basis and is equivalent to putting a premium in (sic)
court litigation.
From these grounds, the issues could be re-stated as follows:
(1) Was Kee a builder in good faith?
(2) What is the liability, if any, of petitioner and its agent, C.T. Torres Enterprises, Inc.? and
(3) Is the award of attorneys fees proper?

But as Kee is a layman not versed in the technical description of his property, he had to find a way to
ascertain that what was described in TCT No. 69561 matched Lot 8. Thus, he went to the subdivision
developers agent and applied and paid for the relocation of the lot, as well as for the production of a
lot plan by CTTEIs geodetic engineer. Upon Kees receipt of the map, his wife went to the subdivision
site accompanied by CTTEIs employee, Octaviano, who authoritatively declared that the land she was
pointing to was indeed Lot 8. Having full faith and confidence in the reputation of CTTEI, and because
of the companys positive identification of the property, Kee saw no reason to suspect that there had
been a misdelivery. The steps Kee had taken to protect his interests were reasonable. There was no
need for him to have acted ex-abundantia cautela, such as being present during the geodetic
engineers relocation survey or hiring an independent geodetic engineer to countercheck for errors,
for the final delivery of subdivision lots to their owners is part of the regular course of everyday
business of CTTEI. Because of CTTEIs blunder, what Kee had hoped to forestall did in fact transpire.
Kees efforts all went to naught.[8]
Good faith consists in the belief of the builder that the land he is building on is his and his
ignorance of any defect or flaw in his title.[9] And as good faith is presumed, petitioner has the burden
of proving bad faith on the part of Kee.[10]

Page 28 of 30

At the time he built improvements on Lot 8, Kee believed that said lot was what he bought from
petitioner. He was not aware that the lot delivered to him was not Lot 8. Thus, Kees good faith.
Petitioner failed to prove otherwise.
To demonstrate Kees bad faith, petitioner points to Kees violation of paragraphs 22 and 26 of
the Contract of Sale on Installment.
We disagree. Such violations have no bearing whatsoever on whether Kee was a builder in good
faith, that is, on his state of mind at the time he built the improvements on Lot 9. These alleged
violations may give rise to petitioners cause of action against Kee under the said contract (contractual
breach), but may not be bases to negate the presumption that Kee was a builder in good faith.
Petitioner also points out that, as found by the trial court, the Contract of Sale on Installment
covering Lot 8 between it and Kee was rescinded long before the present action was instituted. This
has no relevance on the liability of petitioner, as such fact does not negate the negligence of its agent
in pointing out the wrong lot to Kee. Such circumstance is relevant only as it gives Jardinico a cause of
action for unlawful detainer against Kee.
Petitioner next contends that Kee cannot claim that another lot was erroneously pointed out to
him because the latter agreed to the following provision in the Contract of Sale on Installment, to wit:
13. The Vendee hereby declares that prior to the execution of his contract he/she has personally
examined or inspected the property made subject-matter hereof, as to its location, contours, as well
as the natural condition of the lots and from the date hereof whatever consequential change therein
made due to erosion, the said Vendee shall bear the expenses of the necessary fillings, when the
same is so desired by him/her.[11]
The subject matter of this provision of the contract is the change of the location, contour and
condition of the lot due to erosion. It merely provides that the vendee, having examined the property
prior to the execution of the contract, agrees to shoulder the expenses resulting from such change.
We do not agree with the interpretation of petitioner that Kee contracted away his right to
recover damages resulting from petitioners negligence. Such waiver would be contrary to public
policy and cannot be allowed. Rights may be waived, unless the waiver is contrary to law, public
order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized
by law.[12]

The Second Issue: Petitioners Liability

Kee filed a third-party complaint against petitioner and CTTEI, which was dismissed by the RTC
after ruling that there was no evidence from which fault or negligence on the part of petitioner and

CTTEI can be inferred.The Court of Appeals disagreed and found CTTEI negligent for the erroneous
delivery of the lot by Octaviano, its employee.
Petitioner does not dispute the fact that CTTEI was its agent. But it contends that the erroneous
delivery of Lot 9 to Kee was an act which was clearly outside the scope of its authority, and
consequently, CTTEI alone should be liable. It asserts that while [CTTEI] was authorized to sell the lot
[13]
belonging to the herein petitioner, it was never authorized to deliver the wrong lot to Kee.
Petitioners contention is without merit.
The rule is that the principal is responsible for the acts of the agent, done within the scope of his
authority, and should bear the damage caused to third persons.[14] On the other hand, the agent who
[15]
exceeds his authority is personally liable for the damage.
CTTEI was acting within its authority as the sole real estate representative of petitioner when it
made the delivery to Kee. In acting within its scope of authority, it was, however, negligent. It is this
negligence that is the basis of petitioners liability, as principal of CTTEI, per Articles 1909 and 1910 of
the Civil Code.
Pending resolution of the case before the Court of Appeals, Jardinico and Kee on July 24,
1987 entered into a deed of sale, wherein the former sold Lot 9 to Kee. Jardinico and Kee did not
inform the Court of Appeals of such deal.
The deed of sale contained the following provision:
1. That Civil Case No. 3815 entitled Jardinico vs. Kee which is now pending appeal with the Court of
Appeals, regardless of the outcome of the decision shall be mutually disregarded and shall not be
pursued by the parties herein and shall be considered dismissed and without effect whatsoever;[16]
Kee asserts though that the terms and conditions in said deed of sale are strictly for the parties
thereto and that (t)here is no waiver made by either of the parties in said deed of whatever favorable
judgment or award the honorable respondent Court of Appeals may make in their favor against
herein petitioner Pleasantville Development Corporation and/or private respondent C.T. Torres
Enterprises, Inc.[17]
Obviously, the deed of sale can have no effect on the liability of petitioner. As we have earlier
stated, petitioners liability is grounded on the negligence of its agent. On the other hand, what the
deed of sale regulates are the reciprocal rights of Kee and Jardinico; it stressed that they had reached
an agreement independent of the outcome of the case.
Petitioner further assails the following holding of the Court of Appeals:
2. Third-party defendants C.T. Torres Enterprises, Inc. and Pleasantville Development Corporation are
solidarily liable under the following circumstances:

Page 29 of 30

a. If Eldred Jardinico decides to appropriate the improvements and, thereafter, remove

these structures, the third-party defendants shall answer for all demolition expenses
and the value of the improvements thus destroyed or rendered useless;
b. If Jardinico prefers that Kee buy the land, the third-party defendants shall answer for the
[18]
amount representing the value of Lot 9 that Kee should pay to Jardinico.
Petitioner contends that if the above holding would be carried out, Kee would be unjustly
enriched at its expense. In other words, Kee would be -able to own the lot, as buyer, without having
to pay anything on it, because the aforequoted portion of respondent Courts Decision would require
petitioner and CTTEI jointly and solidarily to answer or reimburse Kee there for.
We agree with petitioner.
Petitioners liability lies in the negligence of its agent CTTEI. For such negligence, the petitioner
should be held liable for damages. Now, the extent and/or amount of damages to be awarded is a
factual issue which should be determined after evidence is adduced. However, there is no showing
that such evidence was actually presented in the trial court; hence no damages could now be
awarded.
The rights of Kee and Jardinico vis-a-vis each other, as builder in good faith and owner in good
faith, respectively, are regulated by law (i.e., Arts. 448, 546 and 548 of the Civil Code). It was error for
the Court of Appeals to make a slight modification in the application of such law, on the ground of
equity. At any rate, as it stands now, Kee and Jardinico have amicably settled through their deed of
sale their rights and obligations with regards to Lot 9. Thus, we delete items 2 (a) and (b) of the
dispositive portion of the Court of Appeals Decision [as reproduced above] holding petitioner and
CTTEI solidarily liable.

In sum, we rule that Kee is a builder in good faith. The disposition of the Court of Appeals that
Kee is entitled to the rights granted him under Articles 448, 546 and 548 of the New Civil Code is
deleted, in view of the deed of sale entered into by Kee and Jardinico, which deed now governs the
rights of Jardinico and Kee as to each other. There is also no further need, as ruled by the appellate
Court, to remand the case to the court of origin for determination of the actual value of the
improvements and the property (Lot 9), as well as for further proceedings in conformity with Article
448 of the New Civil Code.
WHEREFORE, the petition is partially GRANTED. The Decision of the Court of Appeals is hereby
MODIFIED as follows:
(1) Wilson Kee is declared a builder in good faith;
(2) Petitioner Pleasantville Development Corporation and respondent C.T. Tones
Enterprises, Inc. are declared solidarily liable for damages due to negligence;
however, since the amount and/or extent of such damages was not proven during
the trial, the same cannot now be quantified and awarded;
(3) Petitioner Pleasantville Develpment Corporation and respondent C.T. Torres
Enterprises, Inc. are ordered to pay in solidum the amount of P3,000.00 to Jardinico
as attorneys fees, as well as litigation expenses; and
(4) The award of rentals to Jardinico is dispensed with.
SO ORDERED.

The Third Issue: Attorneys Fees

The MTCC awarded Jardinico attorneys fees and costs in the amount of P3,000.00 and P700.00,
respectively, as prayed for in his complaint. The RTC deleted the award, consistent with its ruling that
petitioner was without fault or negligence. The Court of Appeals, however, reinstated the award of
attorneys fees after ruling that petitioner was liable for its agents negligence.
The award of attorneys fees lies within the discretion of the court and depends upon the
circumstances of each case.[19] We shall not interfere with the discretion of the Court of
Appeals. Jardinico was compelled to litigate for the protection of his interests and for the recovery of
damages sustained as a result of the negligence of petitioners agent.[20]

Page 30 of 30