G.R. No.

133879 November 21, 2001

EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,

vs.
MAYFAIR THEATER, INC., respondent.

General propositions do not decide specific cases. Rather, laws are interpreted in the
context of the peculiar factual situation of each proceeding. Each case has its own
flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom
principles.

While we agree with the general proposition that a contract of sale is valid until
rescinded, it is equally true that ownership of the thing sold is not acquired by mere
agreement, but by tradition or delivery. The peculiar facts of the present
controversy as found by this Court in an earlier relevant Decision show that delivery
was not actually effected; in fact, it was prevented by a legally effective impediment.
Not having been the owner, petitioner cannot be entitled to the civil fruits of
ownership like rentals of the thing sold. Furthermore, petitioner's bad faith, as again
demonstrated by the specific factual milieu of said Decision, bars the grant of such
benefits. Otherwise, bad faith would be rewarded instead of punished.

The Case

Filed before this Court is a Petition for Review1 under Rule 45 of the Rules of Court,
challenging the March 11, 1998 Order2 of the Regional Trial Court of Manila (RTC),
Branch 8, in Civil Case No. 97-85141. The dispositive portion of the assailed Order
reads as follows:

"WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby

GRANTED, and the complaint filed by plaintiff Equatorial is hereby DISMISSED."3

Also questioned is the May 29, 1998 RTC Order4 denying petitioner's Motion for
Reconsideration.

The Facts

The main factual antecedents of the present Petition are matters of record, because
it arose out of an earlier case decided by this Court on November 21, 1996, entitled
Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.5 (henceforth referred to
as the "mother case"), docketed as G.R No. 106063.

Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land, together with
two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue,
Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of
Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc.
("Mayfair") for a period of 20 years. The lease covered a portion of the second floor
and mezzanine of a two-storey building with about 1,610 square meters of floor
area, which respondent used as a movie house known as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease
with Carmelo for the lease of another portion of the latter's property namely, a
part of the second floor of the two-storey building, with a floor area of about 1,064
square meters; and two store spaces on the ground floor and the mezzanine, with a
combined floor area of about 300 square meters. In that space, Mayfair put up
another movie house known as Miramar Theater. The Contract of Lease was
likewise for a period of 20 years.

Both leases contained a provision granting Mayfair a right of first refusal to

purchase the subject properties. However, on July 30, 1978 within the 20-year-
lease term the subject properties were sold by Carmelo to Equatorial Realty
Development, Inc. ("Equatorial") for the total sum of P11,300,000, without their first
being offered to Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a

Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the
annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b)
specific performance, and (c) damages. After trial on the merits, the lower court
rendered a Decision in favor of Carmelo and Equatorial. This case, entitled "Mayfair"
Theater, Inc. v. Carmelo and Bauermann, Inc., et al.," was docketed as Civil Case No.
118019.

On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely
reversed and set aside the judgment of the lower court.

The controversy reached this Court via G.R No. 106063. In this mother case, it
denied the Petition for Review in this wise:

"WHEREFORE, the petition for review of the decision of the Court of Appeals, dated
June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute
Sale between petitioners Equatorial Realty Development, Inc. and Carmelo &
Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is ordered to
return to petitioner Equatorial Realty Development the purchase price. The latter is
directed to execute the deeds and documents necessary to return ownership to
Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to
allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00."6

The foregoing Decision of this Court became final and executory on March 17, 1997.
On April 25, 1997, Mayfair filed a Motion for Execution, which the trial court
granted.
However, Carmelo could no longer be located. Thus, following the order of execution
of the trial court, Mayfair deposited with the clerk of court a quo its payment to
Carmelo in the sum of P11,300,000 less; P847,000 as withholding tax. The lower
court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor
of Mayfair. On the basis of these documents, the Registry of Deeds of Manila
canceled Equatorial's titles and issued new Certificates of Title7 in the name of
Mayfair.

Ruling on Equatorial's Petition for Certiorari and Petition contesting the foregoing
manner of execution, the CA in its Resolution of November 20, 1998, explained that
Mayfair had no right to deduct the P847,000 as withholding tax. Since Carmelo could
no longer be located, the appellate court ordered Mayfair to deposit the said sum
with the Office of the Clerk of Court, Manila, to complete the full amount of
P11,300,000 to be turned over to Equatorial.

Equatorial questioned the legality of the above CA ruling before this Court in G.R No.
136221 entitled "Equatorial Realty Development, Inc. v. Mayfair Theater, Inc." In a
Decision promulgated on May 12, 2000,8 this Court directed the trial court to follow
strictly the Decision in GR. No. 106063, the mother case. It explained its ruling in
these words:

"We agree that Carmelo and Bauermann is obliged to return the entire amount of
eleven million three hundred thousand pesos (P11,300,000.00) to Equatorial. On
the other hand, Mayfair may not deduct from the purchase price the amount of eight
hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to
withhold taxes due, if any, is imposed on the seller Carmelo and Bauermann, Inc."9

Meanwhile, on September 18, 1997 barely five months after Mayfair had
submitted its Motion for Execution before the RTC of Manila, Branch 7 Equatorial
filed with the Regional Trial Court of Manila, Branch 8, an action for the collection of
a sum of money against Mayfair, claiming payment of rentals or reasonable
compensation for the defendant's use of the subject premises after its lease
contracts had expired. This action was the progenitor of the present case.

In its Complaint, Equatorial alleged among other things that the Lease Contract
covering the premises occupied by Maxim Theater expired on May 31, 1987, while
the Lease Contract covering the premises occupied by Miramar Theater lapsed on
March 31, 1989.10 Representing itself as the owner of the subject premises by
reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from
Mayfair's occupation thereof.

Ruling of the RTC Manila, Branch 8

As earlier stated, the trial court dismissed the Complaint via the herein assailed
Order and denied the Motion for Reconsideration filed by Equatorial.11
The lower court debunked the claim of petitioner for unpaid back rentals, holding
that the rescission of the Deed of Absolute Sale in the mother case did not confer on
Equatorial any vested or residual proprietary rights, even in expectancy.

In granting the Motion to Dismiss, the court a quo held that the critical issue was
whether Equatorial was the owner of the subject property and could thus enjoy the
fruits or rentals therefrom. It declared the rescinded Deed of Absolute Sale as avoid
at its inception as though it did not happen."

The trial court ratiocinated as follows:

"The meaning of rescind in the aforequoted decision is to set aside. In the case of
Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held
that, 'to rescind is to declare a contract void in its inception and to put an end as
though it never were. It is not merely to terminate it and release parties from
further obligations to each other but to abrogate it from the beginning and restore
parties to relative positions which they would have occupied had no contract ever
been made.'

"Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial
and Carmelo dated July 31, 1978 is void at its inception as though it did not happen.

"The argument of Equatorial that this complaint for back rentals as 'reasonable
compensation for use of the subject property after expiration of the lease contracts
presumes that the Deed of Absolute Sale dated July 30, 1978 from whence the
fountain of Equatorial's all rights flows is still valid and existing.

xxx xxx xxx

"The subject Deed of Absolute Sale having been rescinded by the Supreme Court,
Equatorial is not the owner and does not have any right to demand backrentals from
the subject property. . .12

The trial court added: "The Supreme Court in the Equatorial case, G.R No. 106063,
has categorically stated that the Deed of Absolute Sale dated July 31, 1978 has been
rescinded subjecting the present complaint to res judicata."13

Hence, the present recourse.14

Issues

Petitioner submits, for the consideration of this Court, the following issues:15

"A
The basis of the dismissal of the Complaint by the Regional Trial Court not only
disregards basic concepts and principles in the law on contracts and in civil law,
especially those on rescission and its corresponding legal effects, but also ignores
the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063
entitled 'Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs.
Mayfair Theater, Inc.'

"B.

The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of
petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over the premises
used and occupied by respondent, having been 'deemed rescinded' by the Supreme
Court in G.R. No. 106063, is 'void at its inception as though it did not happen.'

"C.

The Regional Trial Court likewise erred in holding that the aforesaid Deed of
Absolute Sale, dated July 31, 1978, having been 'deemed rescinded' by the Supreme
Court in G.R. No. 106063, petitioner 'is not the owner and does not have any right to
demand backrentals from the subject property,' and that the rescission of the Deed
of Absolute Sale by the Supreme Court does not confer to petitioner 'any vested
right nor any residual proprietary rights even in expectancy.'

"D.

The issue upon which the Regional Trial Court dismissed the civil case, as stated in
its Order of March 11, 1998, was not raised by respondent in its Motion to Dismiss.

"E.

The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-
85141 is not one of the grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the
1997 Rules of Civil Procedure."

Basically, the issues can be summarized into two: (1) the substantive issue of
whether Equatorial is entitled to back rentals; and (2) the procedural issue of
whether the court a quo's dismissal of Civil Case No. 97-85141 was based on one of
the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of
the Rules of Court.

This Court's Ruling

The Petition is not meritorious.

First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case at bar, as found
by this Court en banc in its Decision promulgated in 1996 in the mother case, no
right of ownership was transferred from Carmelo to Equatorial in view of a patent
failure to deliver the property to the buyer.

Rental a Civil
Fruit of Ownership

To better understand the peculiarity of the instant case, let us begin with some basic
parameters. Rent is a civil fruit16 that belongs to the owner of the property
producing it17 by right of accession.18 Consequently and ordinarily, the rentals that
fell due from the time of the perfection of the sale to petitioner until its rescission by
final judgment should belong to the owner of the property during that period.

By a contract of sale, "one of the contracting parties obligates himself to transfer

ownership of and to deliver a determinate thing and the other to pay therefor a
price certain in money or its equivalent."19

Ownership of the thing sold is a real right,20 which the buyer acquires only upon
delivery of the thing to him "in any of the ways specified in articles 1497 to 1501, or
in any other manner signifying an agreement that the possession is transferred from
the vendor to the vendee."21 This right is transferred, not merely by contract, but
also by tradition or delivery.22 Non nudis pactis sed traditione dominia rerum
transferantur. And there is said to be delivery if and when the thing sold "is placed
in the control and possession of the vendee."23 Thus, it has been held that while the
execution of a public instrument of sale is recognized by law as equivalent to the
delivery of the thing sold,24 such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to take actual
possession of the land sold.25

Delivery has been described as a composite act, a thing in which both parties must
join and the minds of both parties concur. It is an act by which one party parts with
the title to and the possession of the property, and the other acquires the right to
and the possession of the same. In its natural sense, delivery means something in
addition to the delivery of property or title; it means transfer of possession.26 In the
Law on Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate "the absolute giving up of the control and custody of the
property on the part of the vendor, and the assumption of the same by the
vendee."27

Possession Never
Acquired by Petitioner

Let us now apply the foregoing discussion to the present issue. From the peculiar
facts of this case, it is clear that petitioner never took actual control and possession
of the property sold, in view of respondent's timely objection to the sale and the
continued actual possession of the property. The objection took the form of a court
action impugning the sale which, as we know, was rescinded by a judgment
rendered by this Court in the mother case. It has been held that the execution of a
contract of sale as a form of constructive delivery is a legal fiction. It holds true only
when there is no impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee.28 When there is such impediment,
"fiction yields to reality the delivery has not been effected."29

Hence, respondent's opposition to the transfer of the property by way of sale to

Equatorial was a legally sufficient impediment that effectively prevented the passing
of the property into the latter's hands.

This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,30 in

which the Court held as follows:

"The question that now arises is: Is there any stipulation in the sale in question from
which we can infer that the vendor did not intend to deliver outright the possession
of the lands to the vendee? We find none. On the contrary, it can be clearly seen
therein that the vendor intended to place the vendee in actual possession of the
lands immediately as can be inferred from the stipulation that the vendee 'takes
actual possession thereof . . . with full rights to dispose, enjoy and make use thereof
in such manner and form as would be most advantageous to herself.' The possession
referred to in the contract evidently refers to actual possession and not merely
symbolical inferable from the mere execution of the document.

"Has the vendor complied with this express commitment? she did not. As provided
in Article 1462, the thing sold shall be deemed delivered when the vendee is placed
in the control and possession thereof, which situation does not here obtain because
from the execution of the sale up to the present the vendee was never able to take
possession of the lands due to the insistent refusal of Martin Deloso to surrender
them claiming ownership thereof. And although it is postulated in the same article
that the execution of a public document is equivalent to delivery, this legal fiction
only holds true when there is no impediment that may prevent the passing of the
property from the hands of the vendor into those of the vendee. x x x."31

The execution of a public instrument gives rise, therefore, only to a prima facie
presumption of delivery. Such presumption is destroyed when the instrument itself
expresses or implies that delivery was not intended; or when by other means it is
shown that such delivery was not effected, because a third person was actually in
possession of the thing. In the latter case, the sale cannot be considered
consummated.

However, the point may be raised that under Article 1164 of the Civil Code,
Equatorial as buyer acquired a right to the fruits of the thing sold from the time the
obligation to deliver the property to petitioner arose.32 That time arose upon the
perfection of the Contract of Sale on July 30, 1978, from which moment the laws
provide that the parties to a sale may reciprocally demand performance.33 Does
this mean that despite the judgment rescinding the sale, the right to the fruits34
belonged to, and remained enforceable by, Equatorial?

Article 1385 of the Civil Code answers this question in the negative, because
"[r]escission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; x x x" Not only the
land and building sold, but also the rental payments paid, if any, had to be returned
by the buyer.

Another point. The Decision in the mother case stated that "Equatorial x x x has
received rents" from Mayfair "during all the years that this controversy has been
litigated." The Separate Opinion of Justice Teodoro Padilla in the mother case also
said that Equatorial was "deriving rental income" from the disputed property. Even
herein ponente's Separate Concurring Opinion in the mother case recognized these
rentals. The question now is: Do all these statements concede actual delivery?

The answer is "No." The fact that Mayfair paid rentals to Equatorial during the
litigation should not be interpreted to mean either actual delivery or ipso facto
recognition of Equatorial's title.

The CA Records of the mother case 35 show that Equatorial as alleged buyer of
the disputed properties and as alleged successor-in-interest of Carmelo's rights as
lessor submitted two ejectment suits against Mayfair. Filed in the Metropolitan
Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9,
1987; and the second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually
won them both. However, to be able to maintain physical possession of the premises
while awaiting the outcome of the mother case, it had no choice but to pay the
rentals.

The rental payments made by Mayfair should not be construed as a recognition of

Equatorial as the new owner. They were made merely to avoid imminent eviction. It
is in this context that one should understand the aforequoted factual statements in
the ponencia in the mother case, as well as the Separate Opinion of Mr. Justice
Padilla and the Separate Concurring Opinion of the herein ponente.

At bottom, it may be conceded that, theoretically, a rescissible contract is valid until

rescinded. However, this general principle is not decisive to the issue of whether
Equatorial ever acquired the right to collect rentals. What is decisive is the civil law
rule that ownership is acquired, not by mere agreement, but by tradition or delivery.
Under the factual environment of this controversy as found by this Court in the
mother case, Equatorial was never put in actual and effective control or possession
of the property because of Mayfair's timely objection.
As pointed out by Justice Holmes, general propositions do not decide specific cases.
Rather, "laws are interpreted in the context of the peculiar factual situation of each
case. Each case has its own flesh and blood and cannot be decided on the basis of
isolated clinical classroom principles."36

In short, the sale to Equatorial may have been valid from inception, but it was
judicially rescinded before it could be consummated. Petitioner never acquired
ownership, not because the sale was void, as erroneously claimed by the trial court,
but because the sale was not consummated by a legally effective delivery of the
property sold.

Benefits Precluded by
Petitioner's Bad Faith

Furthermore, assuming for the sake of argument that there was valid delivery,
petitioner is not entitled to any benefits from the "rescinded" Deed of Absolute Sale
because of its bad faith. This being the law of the mother case decided in 1996, it
may no longer be changed because it has long become final and executory.
Petitioner's bad faith is set forth in the following pertinent portions of the mother
case:

"First and foremost is that the petitioners acted in bad faith to render Paragraph 8
'inutile.'

xxx xxx xxx

"Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the
property in question rescissible. We agree with respondent Appellate Court that the
records bear out the fact that Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.

xxx xxx xxx

"As also earlier emphasized, the contract of sale between Equatorial and Carmelo is
characterized by bad faith, since it was knowingly entered into in violation of the
rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court
of Appeals, Equatorial admitted that its lawyers had studied the contract of lease
prior to the sale. Equatorial's knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.

xxx xxx xxx

"On the part of Equatorial, it cannot be a buyer in good faith because it bought the
property with notice and full knowledge that Mayfair had a right to or interest in the
property superior to its own. Carmelo and Equatorial took unconscientious
advantage of Mayfair."37 (Italics supplied)

Thus, petitioner was and still is entitled solely to he return of the purchase price it
paid to Carmelo; no more, no less. This Court has firmly ruled in the mother case
that neither of them is entitled to any consideration of equity, as both "took
unconscientious advantage of Mayfair."38

In the mother case, this Court categorically denied the payment of interest, a fruit of
ownership. By the same token, rentals, another fruit of ownership, cannot be
granted without mocking this Court's en banc Decision, which has long become final.

Petitioner's claim of reasonable compensation for respondent's use and occupation

of the subject property from the time the lease expired cannot be countenanced. If it
suffered any loss, petitioner must bear it in silence, since it had wrought that loss
upon itself. Otherwise, bad faith would be rewarded instead of
punished.@lawphil.net

We uphold the trial court's disposition, not for the reason it gave, but for (a) the
patent failure to deliver the property and (b) petitioner's bad faith, as above
discussed.

Second Issue:itc-alf
Ground in Motion to Dismiss

Procedurally, petitioner claims that the trial court deviated from the accepted and
usual course of judicial proceedings when it dismissed Civil Case No. 97-85141 on a
ground not raised in respondent's Motion to Dismiss. Worse, it allegedly based its
dismissal on a ground not provided for in a motion to dismiss as enunciated in the
Rules of Court.@lawphil.net

We are not convinced A review of respondent's Motion to Dismiss Civil Case No. 97-
85141 shows that there were two grounds invoked, as follows:

"(A)

Plaintiff is guilty of forum-shopping.itc-alf

"(B)

Plaintiff's cause of action, if any, is barred by prior judgment."39

The court a quo ruled, inter alia, that the cause of action of petitioner plaintiff in the
case below) had been barred by a prior judgment of this Court in G.R No. 106063,
the mother case.
Although it erred in its interpretation of the said Decision when it argued that the
rescinded Deed of Absolute Sale was avoid," we hold, nonetheless, that petitioner's
cause of action is indeed barred by a prior judgment of this Court. As already
discussed, our Decision in G.R No. 106063 shows that petitioner is not entitled to
back rentals, because it never became the owner of the disputed properties due to a
failure of delivery. And even assuming arguendo that there was a valid delivery,
petitioner's bad faith negates its entitlement to the civil fruits of ownership, like
interest and rentals.

Under the doctrine of res judicata or bar by prior judgment, a matter that has been
adjudicated by a court of competent jurisdiction must be deemed to have been
finally and conclusively settled if it arises in any subsequent litigation between the
same parties and for the same cause.40 Thus, "[a] final judgment on the merits
rendered by a court of competent jurisdiction is conclusive as to the rights of the
parties and their privies and constitutes an absolute bar to subsequent actions
involving the same claim, demand, or cause of action."41 Res judicata is based on
the ground that the "party to be affected, or some other with whom he is in privity,
has litigated the same matter in a former action in a court of competent jurisdiction,
and should not be permitted to litigate it again.42

It frees the parties from undergoing all over again the rigors of unnecessary suits
and repetitive trials. At the same time, it prevents the clogging of court dockets.
Equally important, it stabilizes rights and promotes the rule of law.@lawphil.net

We find no need to repeat the foregoing disquisitions on the first issue to show
satisfaction of the elements of res judicata. Suffice it to say that, clearly, our ruling in
the mother case bars petitioner from claiming back rentals from respondent.
Although the court a quo erred when it declared "void from inception" the Deed of
Absolute Sale between Carmelo and petitioner, our foregoing discussion supports
the grant of the Motion to Dismiss on the ground that our prior judgment in G.R No.
106063 has already resolved the issue of back rentals.

On the basis of the evidence presented during the hearing of Mayfair's Motion to
Dismiss, the trial court found that the issue of ownership of the subject property has
been decided by this Court in favor of Mayfair. We quote the RTC:

"The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated
that the Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the
present complaint to res judicata."43 (Emphasis in the original)

Hence, the trial court decided the Motion to Dismiss on the basis of res judicata,
even if it erred in interpreting the meaning of "rescinded" as equivalent to "void" In
short, it ruled on the ground raised; namely, bar by prior judgment. By granting the
Motion, it disposed correctly, even if its legal reason for nullifying the sale was
wrong. The correct reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.itc-alf

SO ORDERED.

G.R. No. 94490 August 6, 1992

JOSE DE LUNA, petitioner,

vs.
THE COURT OF APPEALS, HON. SANTIAGO G. MALIWANAG, RTC EXECUTIVE
JUDGE, BRANCH 71, IBA, ZAMBALES; JUAN DIMAANO, JR. and GERINO DOBLE,
respondents.

Petition for review on certiorari by petitioner Jose de Luna from the decision of the
Court of Appeals in CA-G.R. SP No. 12922 1 which affirmed the reversal made by the
Regional Trial Court of Iba, Zambales, Branch LXXI, of the decision of the Municipal
Circuit Trial Court of Botolan, Zambales in a forcible entry case filed by petitioner
against several persons, including private respondents Juan Dimaano, Jr. and Gerino
Doble.

In his complaint filed on February 7, 1972 before the Municipal Trial Court,
petitioner alleged that he is the owner of an unregistered parcel of land with an area
of 30,856 square meters, located in Babon San Juan, Botolan, Zambales, since 1938;
that on December 18 and 19, 1971, defendants Octavio Daclison, Oscar Crispin, and
private respondents Juan Dimaano, Jr. and Gerino Doble entered the land and began
plowing it; and that said defendants fenced the land with barbed wire on January 15
and 16, 1972 and began planting sugar cane on February 5 and 6, 1972, despite his
objections. Petitioners prayed that the defendants be ordered to vacate the land and
pay him the amount of P45.00 monthly per hectare until possession thereof would
be transferred to him, with litigation expenses and costs.

In their answer, the defendants denied the material allegations of the complaint.
Declison, Crispin and Doble alleged as a special and affirmative defense that they
have not entered nor occupied the disputed property.

For his part, defendant Dimaano, Jr. raised as his special and affirmative defense
that petitioner was not the owner of the property, alleging instead that the owner
thereof was Agustin Dequia, Jr., Dimaano, Jr. contended that the property was
originally owned by Agustin Dequia, Sr., who had declared the property in his
name for taxation purposes in 1906. Upon the death of Agustin Dequia, Sr. in 1945,
he was succeeded by his son Agustin Dequia, Jr., who possessed the property from
1945 up to February 1972, when the same was leased to defendant Dimaano, Jr.,
Agustin Dequia, Sr. happens to be the uncle of petitioner, the former being the
elder brother of the latter's mother, Apolonia Dequia.
After trial on the merits, judgment was rendered in favor of petitioner, with the trial
court ordering the defendants or persons acting for and in their behalf to restore to
petitioner possession of the property. In addition, respondent Dimaano, Jr. was
ordered to pay petitioner the amounts of P12,312.00 representing actual damages
and P5,000.00 as costs of the suit.

The defendants appealed to the Regional Trial Court of Iba, Zambales, which
reversed the decision of the inferior court and dismissed the complaint. Petitioner
brought the case on a petition for review to the Court of Appeals, which affirmed the
judgment of the Regional Trial Court.

Aggrieved, petitioner, elevated the case to Us, alleging that the Court of Appeals and
the Regional Trial Court erred in determining the ownership of the disputed
property in an action for ejectment, and in concluding that Agustin Dequia, Jr. is the
owner of the property.

We find the petition impressed with merit.

Well-established is the rule in ejectment cases that the only issue to be resolved
therein is who is entitled to the physical or material possession of the premises, or
possession de facto, independent of any claim of ownership that either party may
set forth in their pleadings. 2 If petitioner can prove prior possession in himself, he
may recover such possession from even the owner himself . Whatever may be the
character of his prior possession, if he has in is favor priority of time, he has the
security that entitles him to stay on the property until he is lawfully ejected by a
person having a better right by either accion publiciana or accion reindivicatoria. 3

However, where the question of possession can not be resolved without deciding
the question of ownership, an inferior court has the power to resolve the question of
ownership but only insofar as to determine the issue of possession. 4

In the case at bar, the inferior court acted correctly in receiving evidence regarding
the ownership of the disputed property, inasmuch as respondent Dimaano, Jr.
claimed to possess the property by virtue of a lease agreement with the alleged
owner thereof, Agustin Dequia, Jr.

Be that as it may, the respondent Court erred in upholding the Regional Trial Court
regarding the conclusion that the subject property is owned by Agustin Dequia, Jr.
and therefore respondent Dimaano, Jr. is entitled to possess the same.

First of all, petitioner has shown that he had prior possession of the property. The
prior possession of petitioner was established by the testimony of his witnesses,
notably of his tenant Epigenio Dilag and Victor dela Cruz. While petitioner admitted
that he declared the property for taxation purposes only in 1957, he had possessed
the property beginning 1953 at the very latest, when he leased the same to Epigenio
Dilag, who in turn possessed the same until respondent Dimaano, Jr. entered upon
the property in 1972. The possession of the property by Dilag since 1953 redounds
to the benefit of petitioner, since possession may be exercised in one's own name or
in that of another. 5

Moreover, there is evidence to the effect that petitioner possessed the property even
earlier than 1953. Petitioner's witness, Victor dela Cruz, who lived about 400 meters
from the land in controversy, testified that he had witnessed the delivery of the of
property to the petitioner and his mother Apolonia Dequia by Agustin Dequia, Sr.
in 1938, when they and their brothers and sisters petitioned among themselves the
properties of their deceased parents. He further testified that he saw petitioner and
his mother cultivate the land from 1938 to 1941, and that he leased the land from
them from 1944 to 1952. 6

On the other hand, respondent Dimaano, Jr. had failed to prove that Agustin
Dequia, Jr. possessed the property prior to his possession, much less the ownership
of the latter over said property. While Agustin Dequia, Jr. testified that he is a co-
owner of the disputed property, there is nothing to support this self-serving claim;
neither does his testimony support the defense's theory that he had prior
possession of the property. The mere fact that Agustin Dequia, Sr. had declared the
subject for taxation purposes from 1908 up to 1945 did not constitute possession
thereof, 7 nor is it proof of ownership 8 in the absence of Dequia, Jr.'s actual
possession of said property.

Therefore, the Court of Appeals erred in ruling that Agustin Dequia, Jr. was the
owner of the disputed property since there is no evidence whatsoever to support
such a conclusion.

However, it goes without saying that this case does not bar petitioner and Agustin
Dequia, Jr. from resolving the issue of ownership over the disputed property in an
appropriate proceeding.

WHEREFORE, the decision appealed from hereby REVERSED and SET ASIDE. The
decision of the Municipal Trial Court of Botolan, Zambales is hereby REINSTATED
and AFFIRMED. Costs against private respondents.

SO ORDERED.

[G.R. No. 133140. August 10, 1999]

JOSE MA. T. GARCIA, petitioner, vs. COURT OF APPEALS, SPS. LUISITO & MA.
LUISA MAGPAYO AND PHILIPPINE BANK OF COMMUNICATIONS, respondents.

This is a petition for review under Rule 45 of the Rules of Court to set aside the
decision rendered by the Court of Appeals in CA-G.R. No. 44707 entitled "Jose Ma. T.
Garcia, Plaintiff-Appellee versus Spouses Luisito and Ma. Luisa Magpayo and Sheriff
of Makati, Defendants, Philippine Bank of Communications, Defendant-
Appellant".[1]

The facts are as succinctly summarized by the appellate court, viz:

"Atty. Pedro V. Garcia, in whose name TCT No. S-31269 covering a parcel of land
identified as Lot 17 situated at Bel Air II Village, Makati, was registered, sold with
the consent of his wife Remedios T. Garcia, the same to their daughter Ma. Luisa
Magpayo and her husband Luisito Magpayo (the Magpayos).

"On March 5, 1981, the Magpayos mortgaged the land to the Philippine Bank of
Communications (PBCom) to secure a loan, Five Hundred Sixty Four Thousand
(P564,000.00) Pesos according to them, One Million Two Hundred Thousand
(P1,200,000.00) Pesos according to PBCom.

"On March 9, 1981, Atty. Garcia's Title was cancelled and in its stead Transfer
Certificate of Title No. S-108412/545 was issued in the name of the Magpayos.

"The Deed of Real Estate Mortgage was registered at the Makati Register of Deeds
and annotated on the Magpayos title.

"The Magpayos failed to pay their loan upon its maturity, hence, the mortgage was
extrajudicially foreclosed and at the public auction sale, PBCom which was the
highest bidder bought the land.

"The redemption period of the foreclosed mortgage expired without the Magpayos
redeeming the same, hence, title over the land was consolidated in favor of PBCom
which cancelled the Magpayo's title and Transfer Certificate of Title No. 138233 was
issued in its name.

"On October 4, 1985, the Magpayos filed at the RTC of Makati a complaint seeking
the nullification of the extrajudicial foreclosure of mortgage, public auction sale, and
PBCom's title docketed as Civil Case No. 11891. This complaint was dismissed for
failure to prosecute.

"On October 15, 1985, PBCom filed at the Regional Trial Court (RTC) of Makati a
petition for the issuance of a writ of possession over the land, docketed as LRC Case
No. M-731, which Branch 148 thereof granted.

"Upon service of the writ of possession, Mrs. Magpayo's brother, Jose Ma. T. Garcia
(Garcia), who was in possession of the land, refused to honor it and filed a motion
for Intervention in the above-said PBCom petition, which motion was denied.

"Garcia thereupon filed against PBCom, the Magpayos, and the RTC Sheriff the
instant suit for recovery of realty and damages wherein he alleged, inter alia, that he
inherited the land as one of the heirs of his mother Remedios T. Garcia, and that
PBCom acquired no right thereover.

"In its answer, PBCom averred, inter alia, that Garcia's claim over the land is belied
by the fact that it is not among the properties owned by his mother listed in the
Inventory of Real Estate filed at the then CFI of Pasay City, Branch 27, in SP Proc. No.
2917-P, "In the Matter of the Intestate Estate of Remedios T. Garcia Petition for
Letters of Administration, Pedro V. Garcia Petitioner-Administrator".

"The Magpayos, on the other hand, asserted that title over the land was transferred
to them by Mrs. Magpayo's parents to enable them (Magpayos) to borrow from
PBCom.

"Garcia filed a Motion for Summary Judgment praying that judgment be rendered in
his favor to which PBCom counter-motioned that judgment should be rendered in
its favor.

"The court a quo denied the motion for summary judgment on the ground that
PBCom raised in its answer both factual and legal issues which could only be
ventilated in a full-blown trial.

"The court a quo, however, later issued a summary judgment."[2]

In its summary judgment, the lower court held that the mortgage executed by the
Magpayo spouses in favor of PBCom was void. It found that:

"x x x [A]t the time that the defendants Magpayo spouses executed the mortgage in
favor of the defendant PBCom on March 5, 1981, the said spouses were not yet the
owners of the property. This finding is evident from the other undisputed fact that a
new Torrens title was issued to the defendants Magpayo spouses only on March 9,
1981 x x x. The Magpayo spouses could not have acquired the said property merely
by the execution of the Deed of Sale because the property was in the possession of
the plaintiff. The vendor, Pedro V. Garcia, was not in possession and hence could not
deliver the property merely by the execution of the document (MANALILI V. CESAR,
39 PHIL. 134). The conclusion is therefore inescapable that the said mortgage is null
and void for lack of one of the essential elements of a mortgage as required by Art.
2085 of our Civil Code x x x."[3]

Thus, it invalidated the foreclosure sale and nullified TCT No. 138233 issued to
PBCom. Dissatisfied, PBCom appealed. In reversing the trial court, the Court of
Appeals held:

"(P)laintiff-appellee's assertion that ownership over the disputed property was not
transmitted to his sister and her husband-Magpayo spouses at the time of the
execution of the Deed of Sale as he was still in actual and adverse possession thereof
does not lie.
"For in his complaint, plaintiff-appellee alleged that he entered into possession of
the disputed property only upon the demise of his mother, from whom he alleges to
have inherited it but who was not the registered owner of the property, that is, on
October 31, 1980 (Certificate of Death, p. 17, Records), by which admission he is
bound. Since the execution of the deed of sale by Atty. Pedro V. Garcia in favor of the
Magpayos took place earlier or on August 1, 1980, then contrary to his claim,
plaintiff-appellee was not in possession of the property at the time of the execution
of said public instrument.

"Furthermore, it appearing that the vendor Atty. Garcia had control of the property
which was registered in his name and that the deed of sale was likewise registered,
then the sale was consummated and the Magpayos were free to exercise the
attributes of ownership including the right to mortgage the land.

"`When the land is registered in the vendor's name, and the public instrument of
sale is also registered, the sale may be considered consummated and the buyer may
exercise the actions of an owner (Tolentino, Commentaries and Jurisprudence on
the Civil Code of the Philippines, 1992 Ed., p. 55).'

"That the Magpayos' title, TCT No. S-108412, was issued four (4) days following the
execution of the deed of real estate mortgage is of no moment, for registration under
the Torrens system does not vest ownership but is intended merely to confirm and
register the title which one may already have on the land (Municipality of Victorias
v. Court of Appeals, 149 SCRA 32, 44-45 [1987])."

Petitioner Garcia moved for a reconsideration of the above decision which was
denied. He now comes before us raising the following errors committed by the Court
of Appeals:

The respondent Court of Appeals has departed from the accepted and usual course
of proceedings when it decided the appeal subject of this case based on issues which
were raised neither in the trial court nor in the appellant's brief.

II

The Court of Appeals decided the appeal in a manner not in accord with applicable
jurisprudence when it disregarded the admissions of the private respondents and,
despite ruling that Summary Judgment was proper, made its own findings of facts
which were contrary to the said admissions.

III
The Decision of the respondent Court of Appeals was not in accord with established
jurisprudence and even contradicts itself, as far as the issue of the propriety of the
Summary Judgment is concerned.

The petition has no merit.

Anent the first assignment of error, petitioner alleged that the Court of Appeals
resolved the issues of "ownership" and "possession" though they were not raised by
PBCom in its appellant's brief. The allegation is belied by page 17 of PBCom's
appellate brief, viz:

"Due to the wrong cited case, the trial court opined erroneously that `Magpayo
Spouses could not have acquired the property merely by the execution of the deed
of sale because the property was in the possession of the plaintiff' (Order, p. 10).

"Again, the trial court could not distinguish ownership from possession. Ownership
and possession are two entirely different legal concepts.

"Plaintiff-appellee's possession as found by the trial court, started only `at the time
of the filing of the complaint in this present case up to the present.' (page 2,
Summary Judgment).

"Assuming that to be true, plaintiff-appellee's possession which started only in 1986

could not ripen into ownership. He has no valid title thereto. His possession in fact
was that of an intruder, one done in bad faith (to defeat PBCom's Writ of
Possession). His possession is certainly not in the concept of an owner. This is so
because as early as 1981, title thereto was registered in the name of the Magpayo
Spouses which title was subsequently cancelled when the property was purchased
by PBCom in a public auction sale resulting in the issuance of title in favor of the
latter in 1985."

Anent the second assignment of error, petitioner contends that the following facts
were admitted by the parties in the trial court:

"1. The petitioner is a compulsory heir of the late spouses Atty. Pedro V. Garcia and
Remedios Tablan Garcia;

"2. The property subject of this dispute was previously the conjugal property of the
said spouses;

"3. The petitioner and his family have been and are continuously to the present in
actual physical possession of the property. At the time of the alleged sale to the
Magpayo spouses, petitioner was in possession of the property;

"4. When his mother Remedios Tablan (sic) Garcia died, sometime in October, 1980,
he became, by operation of law, a co-owner of the property;
"5. Atty. Pedro V. Garcia, at the time of the execution of the instrument in favor of the
Magpayo spouses was not in possession of the subject property."[4]

We reject the contention of petitioner for a perusal of the records shows that these
alleged admitted facts are his own paraphrased portions of the findings of fact listed
by the trial court in the summary judgment.[5] Indeed, petitioner did not cite any
page number of the records or refer to any documentary Exhibit to prove how and
who admitted the said facts.

Petitioner's third assignment of error that he alone as plaintiff in the trial court is
entitled to summary judgment merits scant attention. A summary judgment is one
granted by the court, upon motion by either party, for an expeditious settlement of
the case, there appearing from the pleadings, depositions, admissions, and affidavits
that no important questions or issues of fact are involved (except the determination
of the amount of damages) and that therefore the moving party is entitled to a
judgment as a matter of law.[6] Under Rule 34, either party may move for a
summary judgment - the claimant by virtue of Section 1 and the defending party by
virtue of Section 2, viz:

"Section 1. Summary judgment for claimant. - A party seeking to recover upon a

claim, counter-claim, or cross-claim or to obtain a declaratory relief may, at any time
after the pleading in answer thereto has been served, move with supporting
affidavits for a summary judgment in his favor upon all or any part thereof.

"Section 2. Summary judgment for defending party. - A party against whom a claim,
counterclaim, or cross-claim is asserted or a declaratory relief is sought may, at any
time, move with supporting affidavits for a summary judgment in his favor as to all
or any part thereof."

It is true that petitioner made the initial move for summary judgment. Nonetheless,
PBCom likewise moved for a summary judgment with supporting affidavit and
documentary exhibits, to wit:

"COUNTER-MOTION FOR SUMMARY JUDGMENT"

"PBCom Is Entitled To A Summary Judgment"

"The procedure for summary judgment may be availed of also by the defending
parties who may be the object of unfounded claims as clearly shown in Sections 1
and 2 of Rule 34."

x x x.
"WHEREFORE, it is respectfully prayed of this Honorable Court to render summary
judgment in PBCom's favor by DISMISSING plaintiff's Complaint as well as Sps.
Magpayo's Cross-Claim for being sham and frivolous."[7]

Needless to state, there was no error on the part of the appellate court in resorting
to summary judgment as prayed for by both parties.

We stress again that possession and ownership are distinct legal concepts.
Ownership exists when a thing pertaining to one person is completely subjected to
his will in a manner not prohibited by law and consistent with the rights of
others.[8] Ownership confers certain rights to the owner, one of which is the right to
dispose of the thing by way of sale.[9] Atty. Pedro Garcia and his wife Remedios
exercised their right to dispose of what they owned when they sold the subject
property to the Magpayo spouses. On the other hand, possession is defined as the
holding of a thing or the enjoyment of a right.[10] Literally, to possess means to
actually and physically occupy a thing with or without right. Possession may be had
in one of two ways: possession in the concept of an owner and possession of a
holder.[11] "A possessor in the concept of an owner may be the owner himself or
one who claims to be so."[12] On the other hand, "one who possesses as a mere
holder acknowledges in another a superior right which he believes to be ownership,
whether his belief be right or wrong."[13] The records show that petitioner
occupied the property not in the concept of an owner for his stay was merely
tolerated by his parents. We held in Caniza v. Court of Appeals[14] that an owner's
act of allowing another to occupy his house, rent-free does not create a permanent
and indefeasible right of possession in the latter's favor. Consequently, it is of no
moment that petitioner was in possession of the property at the time of the sale to
the Magpayo spouses. It was not a hindrance to a valid transfer of ownership. On the
other hand, petitioner's subsequent claim of ownership as successor to his mother's
share in the conjugal asset is belied by the fact that the property was not included in
the inventory of the estate submitted by his father to the intestate court. This
buttresses the ruling that indeed the property was no longer considered owned by
petitioner's parents. We also uphold the Court of Appeals in holding that the
mortgage to PBCom by the Magpayo spouses is valid notwithstanding that the
transfer certificate of title over the property was issued to them after the mortgage
contract was entered into. Registration does not confer ownership, it is merely
evidence of such ownership over a particular property.[15] The deed of sale
operates as a formal or symbolic delivery of the property sold and authorizes the
buyer to use the document as proof of ownership.[16] All said, the Magpayo spouses
were already the owners when they mortgaged the property to PBCom.[17]

IN VIEW WHEREOF, the decision of the Court of Appeals in CA-G.R. No. 44707 is
AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. No. 95815 March 10, 1999

SERVANDO MANGAHAS, petitioner,

vs.
THE HON. COURT OF APPEALS and SPOUSES SIMEON and LEONORA CAYME,
respondents.

This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court seeking to nullify the decision of the Court of Appeals 1 dated May 25, 1990 2
and the Court of Appeals' Resolution of October 12, 1990, 3 denying petitioner's
motion for reconsideration.

From the records on hand, the antecedent facts that matter can be culled as follows:

Since April 1955, 4 the spouses, Severo S. Rodil and Caridad S. Rodil, occupied and
possessed the subject property, 5 which is an agricultural land with an area of
15.0871 hectares. 6 On February 1,1971, they sold the said piece of land to the
spouses, Pablo Simeon and Leonora Cayme, for Seven Thousand (P7,000.00) Pesos,
as evidenced by the affidavit 7 executed by the former in favor of the latter in the
presence of the herein petitioner, Servando Mangahas 8 During the trial below, the
lower court gave credence to the evidence on record that it was the herein
petitioner himself who approached the buyer and offered to sell subject parcel of
land and he was also the one who received said consideration of P7,000,000.

On the same day, the private respondents filed with the Bureau of Lands a Free
Patent application for the same land in dispute, which application was approved on
August 27, 1975 by the Bureau of Lands under Free Patent No. 576411. 9 Pursuant
thereto the Register of Deeds in Mamburao, Occidental Mindoro issued the
corresponding Original Certificate of Title No. P-6924. 10

Records show that before the sale, the spouses Rodil had already applied for subject
tract of land with the Bureau of Lands which application was not acted upon even
until the aforesaid sale. It was also shown that petitioner, Servando Mangahas, had
been in possession thereof by virtue of the agreement between him and the spouses
Rodil, allowing him (petitioner) to occupy and cultivate the said parcel of land. 11
For allowing him to occupy and cultivate the same, petitioner Servando Mangahas
paid the amount of P7,000.00 to the Rodils, as mentioned in the "Kasulatan ng
Pagtanggap ng Salapi 12 Twelve (12) hectares of the property were then developed
into a fishpond, two (2) hectares planted to rice and one (1) hectare used as
"tumana" with a house erected thereon.

Petitioner was permitted by the private respondents to continue possessing and

working on the same land, even after the sale, upon the request of the private
respondents themselves because they were then busy in their palay business.
Private respondents did not get any share in the fruits or harvest of the land except
on one occasion, when the petitioner gave them one-half (1/2) "tiklis" (big basket)
of "tilapia". However, the private respondents had long before demanded from the
petitioner the return of the premises in question but the latter refused to vacate the
place. Private respondents tolerated petitioner's possession until February 5, 1985,
when they commenced the present action for recovery of ownership and the
possession of real property, docketed as Civil Case No. R-528 before Branch 45 of
the Regional Trial Court in San Jose, Occidental Mindoro.

Petitioner theorized that he entered into the possession of the land under
controversy, sometime in 1969, by virtue of a prior sale he inked with the spouses
Rodil on December 7, 1969, and since then, he has been in continuous occupation
and possession in concepto de dueo up to the present, enjoying the fruits thereof to
the exclusion of all others, his right thereto being evidenced by the "Kasulatan ng
Pagtangap ng Salapi" dated December 7, 1969. Petitioner denied having offered the
same land for sale to the private respondents or ever receiving the amount of
P7,000.00, the consideration of the alleged sale of February 1, 1971. 13 He further
averred that respondent Leonora Cayme misled the Bureau of Lands into granting
her a Free Patent for subject parcel of land on the basis of a "Deed of
Relinquishment of Rights", supposedly executed by Severe Rodil, and to which
document the signature of petitioner as a witness was procured through fraud,
deceit and misrepresentation. 14

In due time, the parties went to trial which culminated in the rendition by the court
a quo of its decision of November 14, 1986, in favor of the plaintiffs (now the private
respondents), disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered:

(a) Declaring the plaintiffs to be the absolute and registered owners of the land
in question covered by and described in OCT No. P-6924 (Free Patent NO. 576411)
of the Office of the Register of Deeds for the Province of Occidental Mindoro;

(b) Ordering defendant and all persons claiming under him to remove their
respective houses constructed thereon, and to deliver the possession of the land in
question together with all the improvements thereon unto the plaintiffs;

(c) Ordering the defendant to pay the plaintiffs the sum of

P5, 000. 00 as and for attorney's fees; and

(d) Ordering the defendant to pay the costs of suit.

SO ORDERED. 15

With the denial 16 of his Motion for Reconsideration and/or New Trial, petitioner
seasonably appealed to the Court of Appeals which came out with a judgment of
affirmance on May 25, 1990. 17
The issues posited by petitioner boil down to:

I WHETHER THE LOWER COURT ERRED IN NOT HOLDING THAT THE LAND
IN QUESTION IS NO LONGER PART OF THE PUBLIC DOMAIN FOR THE REASON
THAT DEFENDANT IS ALREADY, BY OPERATION OF LAW, THE OWNER THEREOF
BY VIRTUE OF A GOVERNMENT GRANT IN ACCORDANCE WITH THE LAW AND
EXISTING JURISPRUDENCE.

II. WHETHER THE LOWER COURT ERRED IN NOT FINDING PLAINTIFF

LEONORA CAYM E GUILTY OF FRAUD AND MISREPRESENTATION IN SECURING
FREE PATENT NO. 576411 FROM THE BUREAU OF LANDS.

The first issue is mainly predicated on the theory that the petitioner acquired
ownership of the disputed land by acquisitive prescription. Petitioner theorized that
with the length of possession of his predecessors-in-interest, the spouses Rodil,
tacked to his own possession, the total period of possession in his favor would
suffice to vest in him the ownership of the property under the law on prescription.
18 So also, citing the early case of Cario vs. Insular Government 19 up to and
including the more recent cases of The Director of Lands vs. Bengzon, et al. 20 and
The Director of Lands vs. Manila Electric Company, et al. 21, petitioner stressed that
by prescription, he became the owner of subject property ipso jure, which land
became a private property by operation of law, and had been withdrawn and
segregated from the alienable and disposable part of the public domain.
Consequently, the Bureau of Lands had no authority to issue the Free Patent in
question, which was then null and void; 22 petitioner argued.

The factual milieu obtaining with respect to the petition under scrutiny has
rendered petitioner's reliance on the applicability of the aforestated principles
misplaced. In disposing of the issue, the Court of Appeals opined:

. . . Even if we were to disregard the need for a proper application, Article 1138 of
the Civil Code provides,

In the computation of time necessary for prescription the following rules srules
shall be observed:

(1) The present possessor may complete the period necessary for prescription by
tacking his possession to that of his grantor or predecessor in interest . . .

The defendant-appellant's grantor or predecessor in interest (Severo Rodil)

possession of the property, subject matter of the litigation, on April 1955 (Exhibit
"F" for the plaintiff-appellees and exhibit "5" for the defendant). Since the complaint
in the case at bar was filed on February 25, 1985, 23 the requirement of at least
thirty years continuous possession has not been complied with even if We were to
tack Rodil's period of possession. . . . 24
As found by the lower court below, petitioner had admitted, 25 contrary to his
disclaimer, that the possession of the spouses Rodil, from whom he traces the origin
of his supposed title, commenced only in April 1955. Petitioner can not now feign
ignorance of such judicial admission which he has resolutely repudiated in his
present petition. 26 Acquisition of ownership under the law on prescription cannot
be pleaded in support of petitioner's submission that subject land has ipso jure
become his private property.

As regards the issue of fraud tainting the acquisition of the questioned Free Patent,
the Court discerns no basis for disturbing the finding by the lower court as affirmed
by the Court of Appeals. Findings of fact by the trial court are not to be disturbed on
appeal, except for cogent reasons, as when the findings of fact are not duly
supported by evidence. 27 On the other hand, findings by the Court of Appeals on
factual questions are conclusive and ought not to be disregarded. But the rule
admits of some exceptions as when such findings of fact are contrary to what the
trial court found. 28 Mere allegation of error without more will not prevail over the
findings by the trial court, especially when affirmed by the Court of Appeals, as in
the case under consideration.

Petitioner has not adduced before the lower court a preponderance of evidence of
fraud. It is well settled that a party who alleges a fact has the burden of proving it. 29
Thus, whoever alleges fraud or mistake affecting a transaction must substantiate his
allegation, since it is presumed that a person takes ordinary care of his concerns and
private transactions have been fair and
regular. 30 The requirement that fraud must be established by clear and convincing
evidence has been reiterated in Cuizon vs. Court of Appeals, 31 viz.:

We are not, however, inclined to toe the line of the trial court's finding that private
respondents are liable for fraud. Fraud is the deliberate or intentional evasion of the
normal fulfillment of an obligation. The mere failure of private respondents to
execute a deed of sale because they demanded first an accounting of the lots used as
collaterals by petitioner and the amount of loans secured could not be considered as
fraud. Fraud is never presumed. It must be alleged and proven. Fraus est odiosa et
non praesumeda . . . (Emphasis ours).

In the petition under scrutiny, the fraud theorized upon by petitioner is belied by
what the Court of Appeals found, to wit:

This court has found that the defendant-appellant is a person whose credibility is
much in doubt. On the other hand, We have found the plaintiff-appellee Leonora
Simeon Cayme to be straightforward and credible. She has convincingly shown to
this court, through her testimony and the supporting documentary evidence, that
she is in fact the rightful owner of the property in dispute . . . 32 (Emphasis
supplied.)
WHEREFORE, the petition is DENIED and the decision appealed from AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

G.R. No. 51457 June 27, 1994

LUCIA EMBRADO and ORESTE TORREGIANI, petitioners,

vs.
COURT OF APPEALS, PACIFICO CIMAFRANCA, MARCOS SALIMBAGAT, EDA
JIMENEZ and SANTIAGO JIMENEZ, respondents.

LUCIA EMBRADO and ORESTE TORREGIANI, spouses, filed this petition for review
on certiorari from the decision of respondent Court of Appeals 1 upholding the
validity of the Deed of Sale over Lot No. 564 executed by petitioner Lucia Embrado
in favor of private respondent Eda Jimenez.

Lot No. 564 is a 366-square meter lot situated in Dipolog City originally owned by
Juan, Pastor and Matias Carpitanos. On 2 July 1946, a Venta Definitiva, a notarized
document written entirely in Spanish, was executed by the Carpitanos whereby they
sold Lot No. 564 to "Srta. LUCIA C. EMBRADO . . . soltera, con residencia y direccion
postal Municipio de Dipolog, Provincia de Zamboanga." 2 The document provided
that even though the deed was prepared and signed on 2 July 1946, the effects of the
document would retroact to the 15th day of April 1941, the date the lot and its
improvements were actually sold to Lucia C. Embrado.

The sale was registered and Transfer Certificate of Title No. T-99 3 was issued on 13
February 1948 in the name of Lucia Embrado alone, who was by then already
married to petitioner Oreste Torregiani since 1943. However, by virtue of a court
order in Misc. Sp. Proc. No. 2330 of the then Court of First Instance of Zamboanga
del Norte, the word "single" appearing in TCT No. T-99 was canceled and replaced
on 19 October 1970 by the phrase "married to Oreste Torregiani." The Torregianis
then made their conjugal abode on the lot and in 1958 constructed a
residential/commercial building thereon. 4

As appearing from a document entitled Absolute Deed of Sale dated 1 May 1971 5,
Lucia Embrado Torregiani sold Lot No. 564, described as her "own paraphernal
property," to her adopted daughter, herein private respondent Eda Jimenez, for the
sum of P1,000.00. Transfer Certificate of Title No. T-99 was canceled to give way to
TCT No. T-17103 6 in the name of Eda Jimenez, married to Santiago Jimenez.

On 6 March 1972, Eda Jimenez sold sixty-five (65) square meters of Lot 564 to
Marcos Salimbagat for P6,500.00, and on 1 August 1972, conveyed 301 square
meters of the same lot to Pacifico Cimafranca 8 for P30,000. Both sales were duly
annotated on TCT No. T-17103.

On 25 September 1972, the Torregianis instituted in the Court of First Instance, now
Regional Trial Court, of Zamboanga del Norte an action for declaration of nullity of
contract, annulment of sales, reconveyance and damages 9 against the spouses
Santiago and Eda Jimenez, Marcos Salimbagat and Pacifico Cimafranca alleging that
the sale of Lot 564 by Lucia Embrado to Eda Jimenez was void not only for lack of
consideration but also because Oreste Torregiani did not consent to the sale, which
consent was necessary because Lot 564 was conjugal property. In addition, the
petitioners claim that Lucia was misled into signing the deed of sale marked as Exh.
"D" on the belief that Lot 564 was merely intended as security for a loan that the
Jimenez spouses were then negotiating with the First Insular Bank of Cebu. Since the
Jimenez spouses did not acquire valid title to the land, the subsequent sales in favor
of Salimbagat and Cimafranca were without legal effect.

The Torregianis were sustained by the CFI of Zamboanga del Norte 10 which held
that the sale of Lot 564 to Eda Jimenez and its subsequent transfers to Marcos
Salimbagat and Pacifico Cimafranca, who were declared buyers in bad faith, were
void and of no effect. More specifically, the judgment (a) declared Exhs. "D," "G" and
"H" as well as TCT No. 17103 null and void and of no force and effect; (b) ordered
defendants jointly and severally to pay plaintiffs the sum of P2,000.00 as actual
damages and P1,500.00 for attorneys fees; (c) ordered the Register of Deeds of
Dipolog City to cancel TCT No. 17103 in the name of Eda Jimenez and issue another
one in favor of plaintiff Lucia Embrado, married to Oreste Torregiani, and to cancel
all the annotations thereon emanating from the void transfers in favor of Marcos
Salimbagat and Pacifico Cimafranca; (d) ordered defendants Eda and Santiago
Jimenez to return to defendant Pacifico Cimafranca the sum of P30,000.00 paid by
him for the 301 square meters and the house in question, and to defendant Marcos
Salimbagat the P6,500.00 paid by him for the 65 square meters occupied by
Comendador Clinic with legal interest of six percent (6%) until fully paid; and, (e)
ordered defendant Cimafranca to pay plaintiffs all the rents he has been collecting
from the lessees of the first floor of the house with legal interest thereon from the
time he started collecting them until fully paid, with costs against defendants. 11

The foregoing judgment was reversed by the Court of Appeals which held that since
Lucia Embrado actually agreed with Juan, Pastor and Matias Carpitanos, the original
owners, to the purchase of Lot 564 on 15 April 1941 12 when she was not yet
married, then the lot was her paraphernal property since a sale is considered
perfected the moment the parties agree on the object and cause of the contract. In
addition, the respondent court declared Salimbagat and Cimafranca buyers in good
faith since the contrary was not proved. Consequently, the complaint in the trial
court was ordered dismissed by respondent Court of Appeals.

Three (3) issues are herein involved: (a) whether Lot 564 was paraphernal property
of Lucia Embrado or conjugal with her husband Oreste Torregiani; (b) whether the
sale in favor of Eda Jimenez was valid; and, (c) whether vendees Marcos Salimbagat
and Pacifico Cimafranca were buyers in good faith so that the sale to them was valid,
hence, would bar reconveyance.

We sustain petitioners. While we agree with respondent court that Lot 564 was
originally the paraphernal property of Lucia, we cannot adopt its conclusion that
because Lucia and the original owners agreed in 1941 for its purchase and sale,
ownership was already acquired by Lucia at that moment. Under Art. 1496 of the
Civil Code, "ownership of the thing sold is acquired by the vendee from the moment
it is delivered to him in any of the ways specified in articles 1497 to 1501, or in any
other manner signifying an agreement that the possession is transferred from the
vendor to the vendee," and under Art. 1498, "(w)hen the sale is made through a
public instrument, the execution thereof shall be equivalent to the delivery of the
thing which is the object of the contract, if from the deed the contrary does not
appear or cannot clearly be inferred."

In the case at bar, the Venta Definitiva over Lot 564 in favor of Lucia Embrado was
executed by the Carpitanoses on 2 July 1946 when her marriage to petitioner Oreste
Torregiani was already subsisting. Although ownership was acquired during the
marriage and hence presumed conjugal, the presumption of conjugality 13 was
successfully overcome by the terms of the Venta Definitiva which contains a positive
assertion of exclusive ownership, which was duly supported by the testimony of
Matias Carpitanos, one of the original sellers of the lot. 14

However, a decisive fact appears which prevents us from ultimately affirming the
validity of her sale of Lot 564 to private respondent Eda Jimenez. The trial court
found as a fact the construction in 1958 of a residential/commercial building 15 on
said lot a part of which was leased to third persons and another part serving as the
Torregianis conjugal dwelling.

Although no evidence was presented on the source of funds used in the construction
to determine whether the same was conjugal or paraphernal, other than the
testimony of Torregiani, 16 petitioners nevertheless enjoy in their favor the
presumption that the funds used were conjugal. 17

The second paragraph of Art. 158 of the Civil Code provides that "[b]uildings
constructed, at the expense of the partnership, during the marriage on land
belonging to one of the spouses, also pertain to the partnership, but the value of the
land shall be reimbursed to the spouse who owns the same." Under this article, the
land becomes conjugal upon the construction of the building without awaiting
reimbursement before or at the liquidation of the partnership upon the concurrence
of two conditions, to wit: (a) the construction of the building at the expense of the
partnership; and, (b) the ownership of the land by one of the spouses. 18 The
conditions have been fully met in the case at bench. Thus, even if Lot 564 was
originally the paraphernal property of Lucia as evident from the "Venta Definitiva",
the same became conjugal upon the construction of the residential/commercial
building in 1958.

Lucia claims that she was misled by her daughter and son-in-law into signing a deed
of absolute sale in their favor thinking that she would be helping them obtain a loan
from a bank if they could mortgage the property as security for their loan; that
although she signed the deed of sale, she did not consent to the sale nor did she
intend to convey or transfer her title to Eda Jimenez; and, that she never received
the alleged amount of P1,000.00 as consideration for the sale of the property.

While it is true that a notarized document is admissible in evidence without proof of

its due execution and is conclusive as to the truthfulness of its contents, this rule is
not absolute and may be rebutted by evidence to the contrary. 19 In this case, it was
clearly shown that Eda and Santiago Jimenez had no sufficient means of livelihood
and that they were totally dependent on their mother Lucia for the support of their
family. This fact strengthens the claim of Lucia that the price of the property was
fictitious and that Eda Jimenez could not have paid the price of the property as she
was financially incapable to do so. In fact, Eda Jimenez did not prove as to how she
obtained the money to pay for the property she supposedly bought from Lucia.
When the source of the purchase price is "intriguing" and is not convincingly shown
to have been given by the "buyer" to the "seller," the claim of the latter that she
signed the deed of sale without her consent may be upheld. 20

Even assuming in gratia argumenti that Lucia signed the document knowing that it
was a deed of sale of the property, the sale thereof by Lucia to Eda Jimenez without
her husbands conformity should be considered void ab initio being contrary to law.
21 Since "(t)he wife cannot bind the conjugal partnership without the husbands
consent, except in cases provided by law," 22 it follows that Lucia Embrado
Torregiani could not, by herself, validly dispose of Lot 564 without her husbands
consent. Consequently, Eda Jimenez likewise could not have acquired ownership
over the land. The issuance of a certificate of title in favor of Eda Jimenez did not
vest upon her ownership over the property. Neither did it validate the alleged
purchase thereof which is null and void. Registration does not vest title. It is merely
evidence of such title. Our land registration laws do not give the holder any better
title than what he actually has. 23 Being null and void, the sale to Eda Jimenez and
the transfer of the property she made to Salimbagat and Cimafranca produced no
legal effects whatsoever. Quod nullum est, nullum producit effectum. There being no
valid title to the land that Eda Jimenez acquired from Lucia, it follows that no title to
the same land could be conveyed by the former to Salimbagat and
Cimafranca. 24

It is worthy to note that Salimbagat and Cimafranca, as buyers of Eda Jimenez, have
not proved their status as purchasers in good faith and for value of the land which,
in the first place, Eda Jimenez had no right to sell. The burden of proving the status
of a purchaser in good faith and for value lies upon him who asserts that status. In
discharging the burden, it is not enough to invoke the ordinary presumption of good
faith, i.e., that everyone is presumed to act in good faith. The good faith that is here
essential is integral with the very status which must be proved. 25

We agree with the trial court when it found that Salimbagat and Cimafranca
purchased the disputed lot from Eda and Santiago Jimenez with knowledge of facts
and circumstances which should have put them upon such inquiry and investigation
as might be necessary to acquaint them with the defects in the title of their vendor.
A purchaser cannot close his eyes to facts which should put a reasonable man on his
guard and then claim that he acted in good faith under the belief that there was no
defect in the title of the vendor. His mere refusal to believe that such defect exists, or
his willful closing of his eyes to the possibility of the existence of a defect in the
vendors title will not make him an innocent purchaser for value if afterwards it
develops that the title is in fact defective, and it appears that he had such notice of
the defect as would have led to its discovery had he acted with the measure of
precaution which may reasonably be required of a prudent man in like situation. 26

Cimafranca is a close relative of Santiago Jimenez and at the same time godfather to
one of his children. As such, there can be no doubt that Cimafranca was aware of the
personal circumstances and financial standing of the Jimenez spouses, including
their financial ability to acquire any property. It would be impossible for Cimafranca
not to know that Santiago Jimenez was only twenty-two years old, a working
student earning six pesos per day 27 with a wife and three children to support. 28
With these facts, there is every reason for him to inquire further as to how Eda
Jimenez came up with the sum of P1,000.00 to buy the property. When there is a
clear showing that Eda Jimenez, being the transferee of a registered property, is not
gainfully employed or did not have an independent source of income or is financially
incapable of paying the price of the property she bought, this is sufficient to
engender doubt as to whether Eda validly bought the property from Lucia. 29

On the part of Salimbagat, he has been a resident of Dipolog for about thirty (30)
years. He has a daughter renting a portion of the building with her husband for
more than a year prior to the sale by Eda Jimenez to Salimbagat on 6 March 1972. 30
This means that the lease of the building by Salimbagats daughter already
commenced while Lucia Torregiani was still the registered owner and this was prior
to the alleged sale by Lucia Torregiani of the property to Eda Jimenez on 1 May
1971. There can be no doubt that Salimbagats daughter was aware of the factual
background of the property and the personal circumstances of the owners thereof
especially that they are all occupying the same building. During the time that
Salimbagat was already interested in buying the property, it would have been usual
and part of ordinary human nature for him to inquire about the property from his
daughter who was living very near the supposed owners. Considering that the
Torregiani and Jimenez families are not total strangers to Salimbagat, it is safe to
conclude that Salimbagat had some knowledge of the financial status of the
supposed vendors which should have put him on guard before buying the property.
Moreover, the records show that this would not have escaped the notice of
Salimbagat and Cimafranca that at the time of the sale to them petitioners were in
actual possession of the property with Salimbagats daughter renting a portion
thereof. For that matter, at the time of the sale to Salimbagat and Cimafranca,
petitioners had already been in continuous possession of the property for fourteen
(14) years, or since 1958. Santiago Jimenez admitted that after his marriage he and
his wife Eda lived and stayed with her parents, herein petitioners, and dependent on
them for support. 31

Before buying the property, Salimbagat and Cimafranca allegedly inquired from the
office of the Register of Deeds concerning the genuineness of the certificate of title of
Eda Jimenez, and from the Clerk of Court of the Court of First Instance of Dipolog
City as to whether the property was involved in any litigation. 32 However, they
failed to inquire from petitioners as to why they were the ones in actual possession
of the property.

The rule is settled that a buyer of real property which is in the possession of persons
other than the seller must be wary and should investigate the rights of those in
possession. Otherwise, without such inquiry, the buyer can hardly be regarded as a
buyer in good faith. 33 When a man proposes to buy or deal with realty, his first
duty is to read the public manuscript, i.e., to look and see who is there upon it, and
what are his rights. A want of caution and diligence which an honest man of
ordinary prudence is accustomed to exercise in making purchases is, in
contemplation of law, a want of good faith. The buyer who has failed to know or
discover that the land sold to him is in the adverse possession of another, is a buyer
in bad faith. 34

The fact that Lucia Embrado resides in the premises, coupled with the relatively
young age and meager financial standing of the Jimenez spouses, should have been
sufficient for Cimafranca to hesitate accepting Edas transfer certificate of title at its
face value. Cimafranca, after deliberately closing his eyes to such a vital information,
is now claiming good faith. For obvious reasons, we cannot accept his contention.
We thus declare him, together with Marcos Salimbagat, to be purchasers in bad faith
hence not entitled to protection under the Torrens system of registration.

Lot 564 is now registered in the name of Eda Jimenez "married to Santiago Jimenez"
under Transfer Certificate of Title No. T-17103 which was issued pursuant to the
"Absolute Deed of Sale" executed in her favor by petitioner Lucia Embrado. We have
already declared said deed of sale as null and void since its object, Lot 564, is
conjugal property which was sold by Lucia Embrado without her husbands
conformity. The present vendees, Marcos Salimbagat and Pacifico Cimafranca, who
bought the property from Eda Jimenez have failed to persuade us that they acquired
the property in good faith.

WHEREFORE, the decision of respondent Court of Appeals dated 26 April 1979 is

REVERSED and SET ASIDE and the Decision of the then Court of First Instance (now
Regional Trial Court) of Zamboanga del Norte dated 14 June 1976 is REINSTATED
and ADOPTED herein as the decision in this case. SO ORDERED.
G.R. No. 117642 April 24, 1998

EDITHA ALVIOLA and PORFERIO ALVIOLA, petitioners,

vs.
HONORABLE COURT OF APPEALS, FORENCIA BULING Vda de TINAGAN,
DEMOSTHENES TINAGAN, JESUS TINAGAN, ZENAIDA T., JOSEP and JOSEPHINE
TINAGAN, respondents.

In this petition for review on certiorari, petitioners assail the decision 1 of the Court
of Appeals dated April 8, 1994 which affirmed the decision of the lower court
ordering petitioners to peacefully vacate and surrender the possession of the
disputed properties to the private respondents.

Culled from the record are the following antecedent facts of this case to wit:

On April 1, 1950, Victoria Sonjaconda Tinagan purchased from Mauro Tinagan two
(2) parcels of land situated at Barangay Bongbong, Valencia, Negros Oriental. 2 One
parcel of land contains an area of 5,704 square meters, more or less; 3 while the
other contains 10,860 square meters. 4 Thereafter, Victoria and her son Agustin
Tinagan, took possession of said parcels of land.

Sometime in 1960, petitioners occupied portions thereof whereat they built a copra
dryer and put up a store wherein they engaged in the business of buying and selling
copra.

On June 23, 1975, Victoria died. On October 26, 1975, Agustin died, survived by
herein private respondents, namely his wife, Florencia Buling Vda. de Tinagan and
their children Demosthenes, Jesus, Zenaida and Josephine, all surnamed Tinagan.

On December 24, 1976, petitioner Editha assisted by her husband filed a complaint
for partition and damages before the then Court of First Instance of Negros Oriental,
Branch 1, Dumaguete City, docketed as Civil Case No. 6634, claiming to be an
acknowledged natural child of deceased Agustin Tinagan and demanding the
delivery of her shares in the properties left by the deceased. 5

On October 4, 1979, the aforesaid case was dismissed by the trial court on the
ground that recognition of natural children may be brought only during the lifetime
of the presumed parent and petitioner Editha did not fall in any of the exceptions
enumerated in Article 285 of the Civil Code. 6

Petitioners assailed the order of dismissal by filing a petition for certiorari and
mandamus before this Court. 7 On August 9, 1982, this Court dismissed the petition
for lack of merit. 8 Petitioners filed a motion for reconsideration but the same was
denied on October 19, 1982. 9
On March 29, 1988, private respondents filed a complaint for recovery of possession
against Editha and her husband Porferio Alviola before the Regional Trial Court of
Negros Oriental, Branch 35, Dumaguete City, docketed as Civil Case No. 9148,
praying, among others, that they be declared absolute owners of the said parcels of
land, and that petitioners be ordered to vacate the same, to remove their copra
dryer and store, to pay actual damages (in the form of rentals), moral and punitive
damages, litigation expenses and attorney's fees. 10

In their answer, petitioners contend that they own the improvements in the
disputed properties which are still public land; that they are qualified to be
beneficiaries of the comprehensive agrarian reform program and that they are
rightful possessors by occupation of the said properties for more than twenty years.
11

After trial, the lower court rendered judgment in favor of the private respondents,
the dispositive portion of which reads:

WHEREFORE, premises considered, in Civil Case No. 9148, for Recovery of Property,
the court hereby renders judgment:

a) Declaring plaintiffs as the absolute owners of the land in question including

the portion claimed and occupied by defendants;

b) Ordering defendants Editha Alviola and her husband Porfirio Alviola to

peacefully vacate and to surrender the possession of the premises in question to
plaintiffs; Defendants may remove their store and dryer on the premises without
injury and prejudice to the plaintiffs;

c) Ordering defendants to pay the following amounts to the plaintiffs:

1. P150.00 monthly rentals from April 1988 up to the time the improvements in
the questioned portions are removed;

2. P5,000.00 for attorney's fees;

3. P3,000.00 for litigation expenses and to pay the costs.

SO ORDERED. 12

Petitioners appealed to the Court of Appeals. On April 8, 1994, the respondent court
rendered its decision, 13 affirming the judgment of the lower court. Petitioners filed
a motion for reconsideration 14 but the same was denied by the respondent court in
an order dated October 6, 1994. 15

Hence, this petition.

Petitioners aver that respondent court erred in declaring private respondents the
owners of the disputed properties. They contend that ownership of a public land
cannot be declared by the courts but by the Executive Department of the
Government, citing the case of Busante vs. Hon. Court of Appeals, Oct. 20, 1992, 214
SCRA 774; and that the respondent court erred in not considering that private
respondents' predecessor-in-interest, Victoria Sonjaco Tinagan, during her lifetime,
ceded her right to the disputed properties in favor of petitioners.

Moreover, petitioners maintain that the respondent court erred in holding that they
were in bad faith in possessing the disputed properties and in ruling that the
improvements thereon are transferable. They claim that the copra dryer and the
store are permanent structures, the walls thereof being made of hollow-blocks and
the floors made of cement.

Private respondents counter that the question of whether or not the disputed
properties are public land has been resolved by overwhelming evidence showing
ownership and possession by the Tinagans and their predecessors-in-interest prior
to 1949. They further aver that they merely tolerated petitioners' possession of the
disputed properties for a period which was less than that required for extraordinary
prescription.

The petition must fail.

Petitioners claim that the disputed properties are public lands. This is a factual
issue. The private respondents adduced overwhelming evidence to prove their
ownership and possession of the two (2) parcels of land on portions of which
petitioners built the copra dryer and a store. Private respondents' tax declarations
and receipts of payment of real estate taxes, as well as other related documents,
prove their ownership of the disputed properties. As stated previously in the
narration of facts, these two (2) parcels of land were originally owned by Mauro
Tinagan, who sold the same to Victoria S. Tinagan on April 1, 1950, as evidenced by
a Deed of Sale, 16 wherein the two (2) lots, Parcels 1 and 2, are described. 17 Anent
Parcel 1, tax declarations indicate that the property has always been declared in the
name of the Tinagans. The first, Tax Declaration No. 3335 18 is in the name of Mauro
Tinagan. It was thereafter cancelled by Tax Declaration No. 19534 effective 1968, 19
still in the name of Mauro. This declaration was cancelled by Tax Declaration No.
016740 now in the name of Agustin Tinagan, 20 effective 1974, followed by Tax
Declaration No. 08-421 in the name of Jesus Tinagan, effective 1980; 21 and finally
by Tax Declaration No. 08-816 in the name of Jesus Tinagan, effective 1985. 22

With regard to Parcel 2, private respondents presented Tax Declaration No. 20973
in the name of Mauro Tinagan, effective 1959, 23 Tax Declaration No. 016757,
effective 1974; 24 Tax Declaration No. 08-405-C in the name of Agustin Tinagan,
effective 1980 25 and Tax Declaration No. 08-794 in the name of Agustin Tinagan,
effective 1985. 26 Moreover, the realty taxes on the two lots have always been paid
by the private respondents. 27 There can be no doubt, therefore, that the two
parcels of land are owned by the private respondents.

The record further discloses that Victoria S. Tinagan and her son, Agustin Tinagan,
took possession of the said properties in 1950, introduced improvements thereon,
and for more than 40 years, have been in open, continuous, exclusive and notorious
occupation thereof in the concept of owners.

Petitioners' own evidence recognized the ownership of the land in favor of Victoria
Tinagan. In their tax declarations, 28 petitioners stated that the house and copra
dryer are located on the land of Victoria S. Tinagan/Agustin Tinagan. By
acknowledging that the disputed portions belong to Victoria/Agustin Tinagan in
their tax declarations, petitioners' claim as owners thereof must fail.

The assailed decision of the respondent court states that "Appellants do not dispute
that the two parcels of land subject matter of the present complaint for recovery of
possession belonged to Victoria S. Tinagan, the grandmother of herein plaintiffs-
appellees; that Agustin Tinagan inherited the parcels of land from his mother
Victoria; and that plaintiffs-appellees, in turn, inherited the same from Agustin." 29

Taking exception to the aforequoted finding, petitioners contend that while the 2
parcels of land are owned by private respondents, the portions wherein the copra
dryers and store stand were ceded to them by Victoria S. Tinagan in exchange for an
alleged indebtedness of Agustin Tinagan in the sum of P7,602.04. 30

This claim of the petitioners was brushed aside by the respondent court as merely
an afterthought, thus

Appellants' claim that they have acquired ownership over the floor areas of the
store and dryer "in consideration of the account of Agustin Tinagan in the sum of
P7,602.04" is not plausible. It is more of an "after-thought" defense which was not
alleged in their answer. Although the evidence presented by them in support of this
particular claim was not duly objected to by counsel for appellees at the proper time
and therefore deemed admissible in evidence, an examination of the oral and
documentary evidence submitted in support thereof, reveals the weakness of their
claim.

Appellant testified that the areas on which their store and dryer were located were
exchanged for the amount of P7,602.04 owed to them by Agustin in 1967 (TSN,
Hearing of April 14, 1989, p. 9); that he did not bother to execute a document
reflecting such agreement "because they were our parents and we had used the land
for quite sometime already they had also sold their copra to us for a long time." (id.)
Yet, as earlier discussed, the tax declarations in appellants' answer show that even
after 1967, they expressly declared that the parcels of land on which their store and
dryer were constructed, belonged to Victoria and Agustin (Exhs. 2-A, 2-B, 2-C, 3-A,
3-B). If appellants really believed that they were in possession of the said particular
areas in the concept of owners, they could have easily declared it in said tax
declarations. 31

Concededly, petitioners have been on the disputed portions since 1961. However,
their stay thereon was merely by tolerance on the part of the private respondents
and their predecessor-in-interest. The evidence shows that the petitioners were
permitted by Victoria Sanjoco Tinagan to build a copra dryer on the land when they
got married. Subsequently, petitioner Editha Alviola, claiming to be the illegitimate
daughter of Agustin Tinagan, filed a petition for partition demanding her share in
the estate of the deceased Agustin Tinagan on December 6, 1976. However, the
petition was dismissed since it was brought only after the death of Agustin Tinagan.
This Court dismissed the petition for certiorari and mandamus filed by petitioner
Editha Alviola on August 9, 1982. It was on March 29, 1988, when private
respondents filed this complaint for recovery of possession against petitioners.
Considering that the petitioners' occupation of the properties in dispute was merely
tolerated by private respondents, their posture that they have acquired the property
by "occupation" for 20 years does not have any factual or legal foundation.

As correctly ruled by the respondent court, there was bad faith on the part of the
petitioners when they constructed the copra dryer and store on the disputed
portions since they were fully aware that the parcels of land belonged to Victoria
Tinagan. And, there was likewise bad faith on the part of the private respondents,
having knowledge of the arrangement between petitioners and Victoria Tinagan
relative to the construction of the copra dryer and store. Thus, for purposes of
indemnity, Article 448 of the New Civil Code should be applied. 32 However, the
copra dryer and the store, as determined by the trial court and respondent court,
are transferable in nature. Thus, it would not fall within the coverage of Article 448.
As the noted civil law authority, Senator Arturo Tolentino, aptly explains: "To fall
within the provision of this Article, the construction must be of permanent
character, attached to the soil with an idea of perpetuity; but if it is of a transitory
character or is transferable, there is no accession, and the builder must remove the
construction. The proper remedy of the landowner is an action to eject the builder
from the land." 33

The private respondents' action for recovery of possession was the suitable solution
to eject petitioners from the premises.

WHEREFORE, this petition should be, as it is hereby, DISMISSED.

The assailed decision is hereby AFFIRMED.

SO ORDERED.
G.R. No. 111737 October 13, 1999

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,

vs.
THE HONORABLE COURT OF APPEALS AND SPOUSES TIMOTEO and SELFIDA S.
PIEDA, respondents.

Before us is a Petition for Review on Certiorari of the decision of the Court of

Appeals 1 in CA-G.R. CV No. 28549 entitled "SPOUSES TIMOTEO PIEDA, ET. AL. vs.
DEVELOPMENT BANK OF THE PHILIPPINES" which affirmed the decision of the
Regional Trial Court (RTC), Branch 16 2, Roxas City in Civil Case No. V-4590, for
cancellation of certificate of title and/or specific performance, accounting and
damages with a prayer for the issuance of a writ of preliminary
injunction.1wphi1.nt

The records show that respondent spouses Pieda (PIEDAS) are the registered
owners of a parcel of land (Lot 11-14-1-14) situated at barangay Astorga Dumarao,
Capiz containing an area of 238,406 square meters, more or less, and covered by
Homestead Patent No. 0844 and Original Certificate of Title No. P-1930. On March 7,
1972, the PIEDAS mortgaged the above described parcel of land to petitioner,
Development Bank of the Philippines (DBP) to secure their agricultural loan in the
amount of P20,000.00. The PIEDAS failed to comply with the terms and conditions
of the mortgage compelling DBP to extrajudicially foreclose on February 2, 1977. In
the foreclosure sale, DBP was the highest bidder and a Sheriff Certificate of Sale was
executed in its favor. In the corresponding Certificate of Sale, the sheriff indicated
that "This property is sold subject to the redemption within five (5) years from the
date of registration of this instrument and in the manner provided for by law
applicable to this case". The certificate of sale was registered in the Register of
Deeds of Capiz on April 25, 1977. On March 10, 1978, after the expiration of the one-
year redemption period provided for under Section 6, ACT 3135, DBP consolidated
its title over the foreclosed property by executing an Affidavit of Consolidation of
Ownership. Subsequently, a Final Deed of Sale was executed in DBP's favor, which
was registered together with the Affidavit of Consolidation of Ownership with the
Register of Deeds of Capiz on May 30, 1978. Consequently, Original Certificate of
Title No. P-1930 was cancelled and TCT No. T-15559 was issued in the name of DBP.
Thereafter, DBP took possession of the foreclosed property and appropriated the
produce thereof.

On July 5, 1978, the Ministry of Justice issued Opinion No. 92, Series of 1978 3 which
declared that lands covered by P.D. No. 27 4, like the herein subject property, may
not be the object of foreclosure proceedings after the promulgation of said decree
on Oct. 21, 1972.

On August 24, 1981, the PIEDAS offered to redeem the foreclosed property by
offering P10,000.00 as partial redemption payment. This amount was accepted by
DBP who issued O.R. No. 1665719 and through a letter, conditionally approved the
offer of redemption considering the P10,000.00 as down payment. 5 However, on
November 11, 1981, DBP sent the PIEDAS another letter informing them that
pursuant to P.D. 27, their offer to redeem and/or repurchase the subject property
could not be favorably considered for the reason that said property was tenanted. 6
On November 16, 1981, in deference to the above-mentioned opinion, DBP through
Ramon Buenaflor sent a letter to the Acting Register of Deeds of Capiz requesting
the latter to cancel TCT No. T-15559 and to restore Original Certificate of Title No. P-
1930 in the name of the PIEDAS. The Acting Register of Deeds, in reply to such
request, suggested that DBP file a petition in court pursuant to Section 108 of
Presidential Decree 1529 7. In compliance with said suggestion, DBP petitioned for
the cancellation of TCT No. T-15559 with then Court of First Instance of Capiz,
Branch II, docketed as Special Case No. 2653. The petition was favorably acted upon
on February 22, 1982. Thus, the foreclosure proceeding conducted on February 2,
1977 was declared null and void and the Register of Deeds of Capiz was ordered to
cancel TCT No. 15559; OCT No. 1930 was ordered revived.

Meanwhile, on December 21, 1981, the PIEDAS filed the instant complaint against
DBP for cancellation of certificate of title and/or specific performance, accounting
and damages with a prayer for the issuance of a writ of preliminary injunction
averring that DBP, in evident bad faith, caused the consolidation of its title to the
parcel of land in question in spite of the fact that the 5-year redemption period
expressly stated in the Sheriff's Certificate of Sale had not yet lapsed and that their
offer to redeem the foreclosed property was made well within said period of
redemption. 8

After trial, the RTC ruled in favor of the PIEDAS stating that DBP violated the
stipulation in the Sheriff's Certificate of Sale which provided that the redemption
period is five (5) years from the registration thereof in consonance with Section 119
9 of CA No. 141 10. DBP should therefore assume liability for the fruits that said
property produced from said land considering that it prematurely took possession
thereof. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against the

defendant Development Bank of the Philippines as follows:

1. Condemning the defendant DBP to pay the plaintiffs P201,138.28 less

whatever amount the plaintiffs still have to pay the said defendant DBP as balance of
their loan account reckoned up to the date of this decision; P20,000.00 as attorney's
fees; P5,000.00 as litigation expenses and costs.

SO ORDERED. 11

DBP appealed to the Court of Appeals, which affirmed the decision of the RTC. The
Court of Appeals stated that since DBP was in evident bad faith when it unlawfully
took possession of the property subject of the dispute and defied what was written
on the Sheriff's Certificate of Sale, the PIEDAS were entitled to recover the fruits
produced by the property or its equivalent valued at P72,000.00 per annum or a
total of P216,000.00 for the three-year period. Respondent court stated that said
amount was not rebutted by DBP and was fair considering the size of the land in
question. The court added that any discussion with respect to the redemption
period was of little significance since the foreclosure proceeding was declared null
and void in Special Civil Case No. 2653 12 on February 22, 1982. Thus, the right of
the PIEDAS to redeem the property has become moot and academic. Finally, the
award of attorney's fees amounting to P10,000.00 13 was justified considering that
the PIEDAS were compelled to protect their interests. 14

DBP's Motion for Reconsideration 15 was denied; hence this petition where it
assigns the following errors:

Ground No. 1 The Honorable Court Of Appeals Gravely Erred In Affirming The
Court A Quo's Decision Awarding Actual Damages In The Amount Of P216,000.00 In
Favor Of The Private Respondents Notwithstanding The Absence Of Evidence
Substantiating Said Award. Thus, The Honorable Court Of Appeals Had Decided This
Instant Case In A Way Not In Accord With Applicable Law And Jurisprudence.

2. Ground No. 2 The Honorable Court Of Appeals Gravely Erred In Affirming

The Court A Quo's Finding That DBP Was In Bad Faith When It Took Possession Of
The Property In Question Notwithstanding the Contrary Evidence Adduced By
Petitioner DBP. Thus, The Honorable Court Of Appeals Departed From The Accepted
And Usual Course f Judicial Proceedings.

3. Ground No. 3 The Honorable Court Of Appeals Gravely Erred In Affirming

The Court A Quo's Decision Awarding Attorney's Fees And Litigation Costs In Favor
Of The Private Respondents Notwithstanding Absence Of Evidence Proving The
Same. Clearly, The Lower Court Be Committed Misapprehension Of Facts That Can
Be Considered A Question Of Law. 16

DBP maintains that the valuation of the income derived from the property in dispute
allegedly amounting to P216,000.00 was not proven by the PIEDAS. DBP argues
that they granted the PIEDAS a loan of P20,000.00 in March 7, 1972 and up to the
time of the foreclosure of the property, the PIEDAS have paid only P2,000.00 on
their principal. The failure of the PIEDAS to pay this loan is attributable to the fact
that said property did not produce income amounting to P72,000.00 per annum.
According to DBP, in the absence of receipts or other evidence to support such a
claim, the Court of Appeals should not have granted said amount considering that
the PIEDAS had the burden of proving actual damages. Furthermore, Selfida
Pieda herself admitted that the property never produced income amounting to
P72,000.00 per annum. At any rate, the actual amount earned by the property in
terms of rentals turned over by the tenant-farmers or caretakers of the land were
duly receipted and were duly accounted for by the DBP.
DBP also alleges that the mere fact that DBP took possession and administration of
the property does not warrant a finding that DBP was in bad faith. First, records
show that the PIEDAS consented to and approved the takeover of DBP. Second,
Sec. 7 17 of Act No. 3135 18 allows the mortgagee-buyer to take possession of the
mortgaged property even during the redemption period. Third, DBP's act of
consolidating the title of the property in its name does not constitute bad faith as
there is no law which prohibits the purchaser at public auction from consolidating
title in its name after the expiration of the one (1) year redemption period reckoned
from the time the Certificate of Sale was registered; and neither is there any law or
jurisprudence which prohibits the PIEDAS from exercising their right of
redemption over said property within five (5) years even if title is consolidated in
the name of the purchaser. When DBP consolidated title over the property in its
name, the new TCT issued in its favor was subject to the lien i.e. the right of
redemption of the PIEDAS; if there was a failure to register this in the TCT, DBP
should not be faulted. Besides, even if the five (5) year period of redemption was not
indicated therein, Sec. 44 19 and 46 20 of Presidential Decree No. 1529 21 attaches
such lien by operation of law even in the absence of an annotation in the title.
Moreover, Sec. 119 of CA No. 141 also makes said right of redemption a statutory
lien, which subsists and binds the whole world despite the absence of registration.

DBP also could not have been in bad faith when it denied the PIEDAS' offer to
redeem the property since the denial was premised on Opinion No. 92 of the
Minister of Justice series of 1978 which stated that said land was covered under P.D.
27 and could not be the subject of foreclosure proceedings. For this reason, DBP
immediately filed a petition to nullify the foreclosure proceedings which was
favorably acted upon prior to the service of summons and the complaint in the
present case on DBP on June 30, 1982. If DBP was really in bad faith, it would not
have filed said petition for said petition was against its own interests.

Further, DBP asserts that PIEDAS appointed DBP as their attorney-in-fact or agent
in case of foreclosure of the property under Section 4 of the mortgage contract,
which provides:

4. . . . In case of foreclosure, the Mortgagor hereby consents to the appointment of

the mortgagee or any of its employees as receiver, without any bond, to take charge
of the mortgage property at once, and to hold possession of the case and the rents
and profits derived from the mortgaged property before the sale. . . . 22

DBP was therefore entitled to take possession of the property pursuant to the
mortgage contract.

Finally, considering that DBP lawfully had material possession of the property after
it consolidated its title, DBP was entitled to the fruits and income thereof pursuant
to Section 34, Rule 39 of the Rules of Court:
Sec. 34. Rents and Profits Pending Redemption. Statement thereof and credit
therefor on redemption. The purchaser, from the time of the sale until a
redemption, and a redemptioner, from the time of his redemption until another
redemption, is entitled to receive the rents of the property sold or the value of the
use or occupation thereof when such property is in the possession of a tenant. . . .

Taking all this into consideration, DBP cannot be faulted for taking over possession
of the property in question.

The core issue in this case is whether DBP was in bad faith when it took possession
of the disputed lot.

We rule in the negative and find DBP's contentions meritorious.

A possessor in good faith is one who is not aware that there exists in his title or
mode of acquisition any flaw, which invalidates it. 23 Good faith is always presumed,
and upon him who alleges bad faith on the part of a possessor rests the burden of
proof. 24 It was therefore incumbent on the PIEDAS to prove that DBP was aware
of the flaw in its title i.e. the nullity of the foreclosure. This, they failed to do.

Respondent PIEDAS argue that DBP's bad faith stems from the fact that DBP
consolidated title over the disputed property despite the statement in the Sheriff's
Certificate of Sale to the effect that said land was subject to a five year redemption
period. The period of redemption of extrajudicially foreclosed land is provided
under Section 6 of ACT No. 3135 to wit:

Sec. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which the property is
sold, may redeem the same at any time within the term of one year from and after
the date of sale; and such redemption shall be governed by the provisions of section
four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of
Civil Procedure, 25 in so far as these are not inconsistent with the provisions of this
Act.

If no redemption is made within one year, the purchaser is entitled as a matter of

right to consolidate 26 and to possess 27 the property. 28 Accordingly, DBP's act of
consolidating its title and taking possession of the subject property after the
expiration of the period of redemption was in accordance with law. Moreover, it was
in consonance with Section 4 of the mortgage contract between DBP and the
PIEDAS where they agreed to the appointment of DBP as receiver to take charge
and to hold possession of the mortgage property in case of foreclosure. DBP's acts
cannot therefore be tainted with bad faith.
The right of DBP to consolidate its title and take possession of the subject property
is not affected by the PIEDAS' right to repurchase said property within five years
from the date of conveyance granted by Section 119 of CA No. 141. In fact, without
the act of DBP consolidating title in its name, the PIEDAS would not be able to
assert their right to repurchase granted under the aforementioned section.
Respondent PIEDAS are of the erroneous belief that said section prohibits a
purchaser of homestead land in a foreclosure sale from consolidating his title over
said property after the one-year period to redeem said property has expired. Section
119 does not contain any prohibition to convey homestead land but grants the
homesteader, his widow or legal heirs a right to repurchase said land within a
period of five years in the event that he conveys said land. This is in consonance
with the policy of homestead laws to distribute disposable agricultural lands of the
State to land-destitute citizens for their home and cultivation. 29 The right to
repurchase under Section 119 aims to preserve and keep in the family of the
homesteader that portion of public land which the State had gratuitously given him.
30 Such right is based on the assumption that the person under obligation to
reconvey the property has the full title to the property because it was voluntarily
conveyed to him or that he consolidated his title thereto by reason of a
redemptioner's failure to exercise his right of redemption. 31 It is also settled that
"the five-year period of redemption fixed in Section 119 of the Public Land Law of
homestead sold at extrajudicial foreclosure begins to run from the day after the
expiration of the one-year period of repurchase allowed in an extrajudicial
foreclosure". 32 Thus DBP's consolidation of title did not derogate from or impair
the right of the PIEDAS to redeem the same under C.A. No. 141.

It may be argued that P.D. 27 was already in effect when DBP foreclosed the
property. However, the legal propriety of the foreclosure of the land was put into
question only after Opinion No. 92 series of 1978 of the Ministry of Justice declared
that said land was covered by P.D. 27 and could not be subject to foreclosure
proceedings. The Opinion of the Ministry of Justice was issued on July 5, 1978 or
almost two months after DBP consolidated its title to the property on March 10,
1978. By law and jurisprudence, a mistake upon a doubtful or difficult question of
law may properly be the basis of good faith. 33

In the case of Maneclang vs. Baun, 34 we held that when a contract of sale is void,
the possessor is entitled to keep the fruits during the period for which it held the
property in good faith. Good faith of the possessor ceases when an action to recover
possession of the property is filed against him and he is served summons therefore.
35 In the present case, DBP was served summons on June 30, 1982. 36 By that time,
it was no longer in possession of the disputed land as possession thereof was given
back to the PIEDAS after the foreclosure of DBP was declared null and void on
February 22, 1982. Therefore, any income collected by DBP after it consolidated its
title and took possession of the property on May 30, 1978 up to February 22, 1982
belongs to DBP as a possessor in good faith since its possession was never legally
interrupted.
Finally, we delete the award for attorney's fees. Although attorney's fees may be
awarded if the claimant is compelled to litigate with third persons or to incur
expenses to protect his interest by reason of an unjustified act or omission of the
party from whom it is sought 37, we hold that DBP's acts were clearly not
unjustified.

WHEREFORE, the instant petition is hereby GRANTED, and the appealed decision of
the Court of Appeals is REVERSED. The Development Bank of the Philippines is
absolved from any liability to Timoteo and Selfida Pieda in so far as it orders the
DBP to pay the PIEDAS P216,000.00 as annual produce value of the land;
P20,000.00 in attorney's fees, P5,000.00 in litigation expenses and the costs of the
suit. This decision is without prejudice to whatever liability the PIEDAS may still
have to the DBP with respect to their loan.

SO ORDERED.

G.R. No. 82680 August 15, 1994

NICANOR SOMODIO, petitioner,

vs.
COURT OF APPEALS, EBENECER PURISIMA, and FELOMINO AYCO, respondents.

This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court to reverse and set aside the Decision dated September 29, 1987 and the
Resolution dated February 2, 1988 of the Court of Appeals in CA-G.R. SP No. 11602.

On October 21, 1974, Jose Ortigas executed an instrument designated as a Transfer

of Rights, conveying to Wilfredo Mabugat the possession of a residential lot situated
at Rajah Muda, Bula, General Santos City and described in the said instrument as:

Lot No. (Unnumbered), bounded on the North by Temporary Road, on the South by
Customs Zone (Sarangani Bay), on the East by Public Land, and on the West by
Public Land.

Nicanor Somodio, herein petitioner, contributed one-half of the purchase price. On

October 22, 1974, Mabugat executed an Affidavit of Trust expressly recognizing the
right of petitioner over one-half undivided portion of the lot. Later, petitioner
discovered in the District Land Office that the lot was numbered "6328-X, Csd 2281-
D." Thereafter, petitioner and Mabugat partitioned the property into two portions,
with petitioner taking the western part. Immediately after the partition, petitioner
took possession of his portion and planted thereon ipil-ipil trees, coconut trees and
other fruit-bearing trees.
In 1976, petitioner began construction of a structure with a dimension of 22-by-18
feet on his lot. His employment, however, took him to Kidapawan, North Cotabato,
and he left the unfinished structure to the case of his uncle. He would visit the
property every three months or on weekened when he had time.

Sometime in October 1977, petitioner allowed respondent Felomino Ayco, to

transfer his hut to petitioner's lot. About six years later, petitioner demanded that
Ayco vacate the premises but such demand proved futile. Hence, on August 23,
1983, petitioner filed an action for unlawful detainer with damages against
respondent Ayco before the Municipal Trial Court, Branch I, General Santos,
docketed as Civil Case No. 2032-II.

Meanwhile, on June 26, 1983, respondent Ebenecer Purisima entered the land and
constructed a house thereon. Four days later, petitioner filed against respondent
Purisima a complaint for forcible entry before the same court docketed as Civil Case
No. 2013-I. Said case was later consolidated with Civil Case No. 2032-II.

In his answer, respondent Purisima averred that the lot was a portion of the land
subject of his application for miscellaneous sales patent with the Bureau of Lands.
Purisima described the lot in question as:

Lot No. 6328-Y, CSD-2281-D, Bula, General Santos, Cotabato. Bounded on the North
by 6328-X; on the South by Sarangani Bay; on the East by a Municipal Road; and on
the West by Lot No. 6328-W, containing an area of 1,095 square meters and covered
by Tax Declaration No. 9647 (Rollo, p. 36; Emphasis supplied).

Respondent Purisima contended that his father, a geodetic engineer, had surveyed
the parcel of land comprising of Lots Nos. 6427 and 6328 for the Small Farmers
Fishpond Association, Inc. in February 1958, and that his father's survey plan was
approved by the Director of Lands in 1960. Respondent Ayco, on the other hand, did
not present any evidence but merely anchored his right to possess the property on
the evidence of Purisima.

On April 30, 1986, the trial court rendered a decision finding that respondent
Purisima built his house "almost on the spot where Somodio's unfinished house"
stood "thru stealth and strategy," not knowing that the house was built on Lot No.
6328-X and not on Lot No. 6328-Y, the lot said respondent was claiming (Rollo, p.
43). The court went on to state that:

. . . . He (private respondent Purisima) was a frequent visitor in Rajah Muda and had
sometimes stayed with Mrs. Maturan in Judge Purisima's house on the adjoining
lots, and could not have remained unaware of the possession of Somodio. He must
have depended on the thought that it was his father who made the subdivision
survey and had fenced an area which he had claimed. He did not exactly verify that
the area fenced by his father had an area of only 1,095 square meters, which did not
include the are Lot No. 6328-X could eventually be standing on his property, for Lot
No. 6328-X is not claimed by him and has not been applied for even by his father.
His father has been abroad and has not taken steps to apply for Lot No. 6328-X. This
lot is not declared for taxation purposes in the name of any claimant-applicant.
Unless and until there would be an administrative proceedings and the title
ultimately issued in favor of an applicant, the possession of the actual claimant and
occupant has to be respected and maintained in the interest of public order . . .
(Rollo, pp. 43-44).

The Municipal Trial Court further held that petitioner was the actual possessor of
Lot No. 6328-X. The court did not believe respondent Ayco's claim that the
administratrix of the estate of respondent Purisima's father authorized him to build
a hut on Lot No. 6328-X in 1976. At any rate, the court said that respondent Ayco
was willing to vacate the premises provided he be given financial assistance to do so
(Rollo, pp. 43-44).

Nothing that the ocular inspection of the area showed that the houses of
respondents Purisima and Ayco were "inside Lot No. 6328-X" and not on Lot No.
6328-Y, the Municipal Trial Court held that the case became one which entailed
mere removal of the houses from the lot in question. Accordingly, the court ordered
private respondents to remove their respective houses, to deliver the land to
petitioner, and to pay attorney's fees and litigation expenses.

On appeal, the Regional Trial Court, Branch 22, General Santos City, affirmed in toto
the decision of the Municipal Trial Court. Respondent then elevated the cases on a
petition for review to the Court of Appeals, which, in its decision dated September
27, 1987, set aside the decisions of the two trial courts and ordered the dismissal of
the two complaints filed by petitioner.

The Court of Appeals held that herein petitioner had not "clearly and conclusively
established physical, prior possession over Lot No. 6328-X."

Petitioner's motion for the reconsideration of the decision of the Court of Appeals
having been denied, he filed the instant petition for review on certiorari.

We grant the petition.

II

The procedural issue raised by private respondents should first be resolved. The
issue is whether the instant petition is proper considering that petitioner "merely
touch(es) upon questions of fact which had been carefully considered" by the Court
of Appeals (Rollo, p. 92). As a general rule, the findings of fact of the Court of
Appeals are binding on this Court. This rule, however, is not without exceptions, one
of which is when the factual findings of the Court of Appeals and the trial court are
contrary to each other. In such a case, this Court may scrutinize the evidence on
record in order to arrive at the correct findings based on the record (Valenzuela v.
Court of Appeals, 191 SCRA 1 [1990]; Roman Catholic Bishop of Malolos, Inc. v.
Intermediate Appellate Court, 191 SCRA 411 [1990]).

Upon a review of the records, we are convinced that petitioner indeed enjoyed
priority of possession over Lot No. 6328-X, notwithstanding respondent Purisima's
claim to the contrary.

In ejectment cases, the only issue for resolution is who is entitled to the physical or
material possession of the property involved, independent of any claim of
ownership set forth by any of the party-litigants. Anyone of them who can prove
prior possession de facto may recover such possession even from the owner himself.
This rule holds true regardless of the character of a party's possession, provided,
that he has in his favor priority of time which entitles him to stay on the property
until he is lawfully ejected by a person having a better right by either accion
publiciana or accion reivindicatoria (De Luna v. Court of Appeals, 212 SCRA 276
[1992]).

Petitioner took possession of the property sometime in 1974 when he planted the
property to coconut trees, ipil- ipil trees and fruit trees. In 1976, he started the
construction of a building on the property. It is immaterial that the building was
unfinished and that he left for Kidapawan for employment reasons and visited the
property only intermittently. Possession in the eyes of the law does not mean that a
man has to have his feet on every square meter of ground before it can be said that
he is in possession (Ramos v. Director of Lands, 39 Phil. 175 [1918]). It is sufficient
that petitioner was able to subject the property to the action of his will.

Article 531 of the Civil Code of the Philippines provides:

Possession is acquired by the material occupation of a thing or the exercise of a

right, or by the fact that it is subject to the action of our will, or by the proper acts
and legal formalities established for acquiring such right.

Even if the Court of Appeals is correct in its finding that petitioner started
introducing improvements on the land only in 1981, he still enjoyed priority of
possession because respondent Purisima entered the premises only in 1983.

It should be emphasized that the Court of Appeals noted that none of the parties had
produced tax declarations or applications as public land claimants. As such, what
should have been scrutinized is who between the claimants had priority of
possession.

Moreover, neither is the fact that respondent Purisima's father surveyed the
property of help to his cause. As the Court of Appeals found, respondent Purisima's
father surveyed the land for the Small Farmers Fishpond Association, Inc., not for
himself. Although respondent Purisima now claims that Lot No. 6328-X was in
payment of his fee for the services of his father and that he caused the construction
of a perimeter wall in the area, these facts do not mean that respondent Purisima
himself had prior possession. He did not present any proof that his father had
authorized him to enter the land as his successor-in-interest. Neither did he present
proof that between 1958, when his father allegedly took possession of the land, and
1983, when said respondent himself entered the land, his father ever exercised
whatever right of possession he should have over the property. Under these
circumstances, priority in time should be the pivotal cog in resolving the issue of
possession.

The Court of Appeals opined that petitioner had not properly identified the lot he
had occupied. The matter of identification of the land, however, had been resolved
by respondent Purisima's admission in his pleadings, as well as by two ocular
inspections.

In his answer to the complaint, respondent Purisima claimed possession over Lot
No. 6328-Y, while petitioner identified the lot adjacent to it, Lot
NO. 6328-X, as the area where private respondents built their houses. That these
two lots are distinct from one another was resolved by the ocular inspection
conducted by a Senior Geodetic Engineer of the Office of the City Engineer, who
found that "south of lot 6328-H across a 10 meter wide road is lot 6328-Y and from
thence to the south is lot 6328-X." On June 13, 1985, the Municipal Trial Court judge
himself went to the premises in question and discovered that aside from the houses
of respondents Purisima and Ayco, five other houses had been built on Lot No.
6328-X.

Petitioner's prior possession over the property, however, is not synonymous with
his right of ownership over the same. As earlier stated, resolution of the issue of
possession is far from the resolution of the issue of ownership. Forcible entry is
merely a quieting process and never determines the actual title to an estate
(German Management & Services, Inc. v. Court of Appeals, 177 SCRA 495 [1989];
Manuel v. Court of Appeals, 199 SCRA 603 [1991].

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE and
that of the trial courts REINSTATED. Costs against private respondents.

SO ORDERED.
G.R. No. 147549 October 23, 2003

JESUS DELA ROSA and LUCILA DELA ROSA, petitioners,

vs.
SANTIAGO CARLOS and TEOFILA PACHECO, respondents.

The Case

This is a petition for review on certiorari1 seeking to set aside the Decision2 of the
Court of Appeals in CA-G.R. SP No. 54055 dated 20 July 2000 and the Resolution
dated 23 February 2001 denying the motion for reconsideration. The Court of
Appeals reversed the Decision3 of the Regional Trial Court, Branch 22, of Malolos,
Bulacan ("RTC") and dismissed the complaint of Jesus Dela Rosa and Lucila Dela
Rosa for forcible entry against Santiago Carlos and Teofila Pacheco.

The Antecedents

This case stemmed from a complaint4 for forcible entry filed by Jesus Dela Rosa and
Lucila Dela Rosa ("Spouses Dela Rosa") against Santiago Carlos ("Santiago") and
Teofila Pacheco ("Teofila") with the Municipal Trial Court5 of Paombong, Bulacan
("MTC").

In their complaint filed on 25 February 1998, the Spouses Dela Rosa alleged that
they are the owners of a house and lot ("Property") with an area of 352 square
meters located at No. 25 San Roque, Paombong, Bulacan. The Spouses Dela Rosa
claimed that Leonardo Carlos ("Leonardo") transferred to them the ownership of
the Property under the Absolute Deed of Sale ("Deed of Sale") executed on 1
September 1966. The Spouses Dela Rosa registered on 6 October 1966 the Deed of
Sale under Act No. 3344 with the Register of Deeds of Bulacan. The Spouses Dela
Rosa asserted that they renovated the house, furnished and occupied the same from
1966 to the present. Since the Spouses Dela Rosa work and their children study in
Manila, they reside in the Property only during weekends and holidays. However,
they padlock the house on the Property while they are away and instruct relatives
who live nearby to watch over the Property.

The Spouses Dela Rosa further asserted that they have been paying the taxes for the
land since 1966 to 1997, and for the house from 1966 to 1993. In addition, the
Spouses Dela Rosa had a perimeter fence built to separate the Property from the
municipal road and to protect it from trespassers.

The Spouses Dela Rosa also asserted that in October 1997, they discovered that,
through stealth and without their knowledge and consent, Santiago had built a
house of strong materials on a vacant lot of the Property. Santiago did not secure the
necessary building permit from the Municipal Engineers Office. Teofila had also
been transferring furniture to the house and sleeping there. On 20 November 1997,
the Spouses Dela Rosa, through their counsel, demanded that Santiago and Teofila
demolish the house, remove their furniture and vacate the premises within ten days
from receipt of the letter. However, Santiago and Teofila did not heed the Spouses
Dela Rosas demand.

In their answer, Santiago and Teofila alleged that they are the surviving heirs of the
Spouses Leonardo and Benita Carlos ("Spouses Carlos"). As heirs of the Spouses
Carlos, they, along with Lucila Dela Rosa, are co-owners of the Property. They
contended that the Spouses Dela Rosa obtained the Deed of Sale through fraud and
undue influence and that their mother did not consent to the sale of the Property
which they claimed as conjugal. They maintained that the Spouses Dela Rosa were
never in possession of the Property because the latter only went there to visit their
parents, and not as owners. Insisting that they have been occupying the Property
since birth, Santiago claimed that he constructed the house on the Property in the
concept of a co-owner.

After submission of the parties position papers, the MTC rendered a Decision dated
30 July 1998, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered declaring the Plaintiffs to be entitled to

physical possession of Lot 147-Part particularly described in Tax Declaration No.
97-0297-00342 (Exhibit F) situated at San Roque, Paombong, Bulacan and this
Court orders:

1. The Defendants, their heirs, assigns or any other persons claiming any right or
interest over the subject parcel of land under or in their names to vacate the same
and surrender peaceful possession thereof in favor of the Plaintiffs;

2. The Defendants to pay the Plaintiffs damages limited to the fair rental value for
the use and occupation of the premises in the amount of Two Thousand and Five
Hundred Pesos (P2,500.00) a month from the date of the discovery of the
construction of the improvement (October 1997) until they finally vacate and
restore full possession thereof to the Plaintiffs;

3. The award of Twenty Thousand Pesos (P20,000.00) in favor of the Plaintiffs as

and by way of attorneys fees and costs;

4. The Defendants counter-claim is hereby dismissed for lack of merit.

SO ORDERED.6

Aggrieved, Santiago and Teofila appealed7 to the RTC which rendered a Decision8
dated 31 May 1999 affirming in toto the decision of the MTC.

Dissatisfied with the decision of the RTC, Santiago and Teofila filed a petition for
review9 with the Court of Appeals. The Court of Appeals rendered a Decision dated
20 July 2000, the dispositive portion of which reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE and another
rendered DISMISSING respondents complaint for forcible entry against petitioners.

SO ORDERED.10

Hence, this petition for review.

The Ruling of the Trial Courts

The MTC, in ruling in favor of the Spouses Dela Rosa, held in part:

The evidence at hand disclose [sic] that the Plaintiffs took possession of the subject
premises upon the execution of the sale on September 1, 1966 and have been in
occupancy thereof since then up to the present. Under the law, possession is
transferred to the vendee by virtue of the notarized deed of conveyance. Under
Article 1498 of the Civil Code of the Philippines, "when the sale is made through a
public instrument, the execution thereof shall be equivalent to the delivery of the
object of the contract, if from the deed the contrary does not appear or cannot
clearly be inferred." (Ong Ching Po, et al. vs. Court of Appeals, 239 SCRA
341)1awphi1.nt

In the same vein, Article 531 of the statute is explicit, thus: "Possession is acquired
by the material possession of a thing or the exercise of a right, or by the fact that it is
subject to the action of our will or by the proper acts or legal formalities established
for acquiring such right." Aside from the legal formalities as mentioned, Plaintiffs
prior material occupation or possession is supported by photographs depicting their
residence (Exhibit Q) and their furnishings (Exhibits O and O-1) thereon. Possession
in the eyes of the law does not mean that a man has to have his feet on every square
meter of ground before it can be said that he is in possession. It is sufficient that
petitioner (in this case, the Plaintiffs) was able to subject the property to the action
of his will (Somodio vs. Court of Appeals, 235 SCRA 307).

x x x11

Finding that the MTCs factual findings are clear and supported by more than mere
preponderance of evidence,12 the RTC affirmed in toto the decision of the MTC.
Consequently, Santiago and Teofila filed a petition for review with the Court of
Appeals.

The Ruling of the Court of Appeals

The Court of Appeals held that the execution of the deed of sale did not transfer
physical possession of the Property despite Article 1498 of the Civil Code, which
contemplates of constructive, not physical possession. The appellate court also
found that there was an obstacle to the delivery of possession because the Spouses
Carlos, Santiago and Teofila were residing and continued to reside in the Property.

Noting that the Spouses Dela Rosas position paper did not attach the affidavits of
witnesses required under Section 10 of Rule 70, the appellate court ruled that the
Spouses Dela Rosa failed to prove prior possession of the Property. The appellate
court pointed out that instead of proving prior possession, the Spouses Dela Rosa
admitted the contrary. In their opposition to the motion to dismiss,13 the Spouses
Dela Rosa stated that they do not actually reside in the Property but in Manila and
visit the Property only during weekends and vacations. The Court of Appeals held
that this admission confirms Santiago and Teofilas claim that they have always been
in physical possession of the Property since birth.

The Court of Appeals also held that the Spouses Dela Rosa did not verify their
complaint in violation of Section 4 of Rule 70. Neither did they attach a certification
against forum shopping in violation of Section 5 of Rule 7. Moreover, the appellate
court ruled that the sale, without the consent of Benita Carlos, is void. Since the sale
is void, no title passed to the Spouses Dela Rosa.

Lastly, the Court of Appeals ruled that assuming the sale is valid, the sale would
apply only to Leonardos share in the Property. Benita retained her one-half share in
the Property that her children Santiago, Teofila, Lucila and Francisco acquired by
succession on her death. Thus, Lucila Dela Rosa may not dispossess her co-owners
Santiago and Teofila of the Property.

The Issues

The Spouses Dela Rosa assail the decision of the Court of Appeals on the following
grounds:

1. THE COURT OF APPEALS GRAVELY ERRED IN CONSIDERING AS ONE OF THE

GROUNDS FOR REVERSING THE DECISION OF THE REGIONAL TRIAL COURT AND
OF THE MUNICIPAL TRIAL COURT THE ERRONEOUS ASSUMPTION THAT THE
COMPLAINT APPENDED TO THE PETITION FOR REVIEW FILED BY RESPONDENTS
LACKED VERIFICATION AND CERTIFICATION OF NON-FORUM SHOPPING.

2. THE COURT OF APPEALS GRAVELY ERRED IN ALLOWING A COLLATERAL

ATTACK ON THE VALIDITY OF THE DEED OF ABSOLUTE SALE IN AN EJECTMENT
PROCEEDING AND RULING THAT THE SAME IS VOID FOR LACK OF MARITAL
CONSENT OF BENITA CARLOS.

3. THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT PETITIONERS

FAILED TO PROVE PRIOR PHYSICAL POSSESSION OVER THE PROPERTY DESPITE
THE OVERWHELMING EVIDENCE TO THE CONTRARY.
4. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THE RULES OF CO-
OWNERSHIP OVER THE PROPERTY.14

The Courts Ruling

We grant the petition.

Before resolving the main issue, we shall first dispose of the procedural issues in the
instant case.

There is no longer any issue on the lack of verification and certification against
forum shopping of the complaint for forcible entry. The Court of Appeals itself
stated in its assailed Resolution that it was a mere "omission"15 by Santiago and
Teofila in their petition for review. Santiago and Teofila failed to append to their
petition for review with the Court of Appeals the last page of the complaint
containing the verification and certification of non-forum shopping.16 For the
failure of Santiago and Teofila to attach to their petition the page of the complaint
containing the verification and certification of non-forum shopping, the appellate
court should have faulted Santiago and Teofila and not the Spouses Dela Rosa.

Another procedural question was the alleged non-submission of affidavits of

witnesses that the Spouses Dela Rosa should have attached to their position paper.
Section 10 of Rule 70 provides:

SEC. 10. Submission of affidavits and position papers. Within ten (10) days from
receipt of the order mentioned in the next preceding section, the parties shall
submit the affidavits of their witnesses and other evidence on the factual issues
defined in the order, together with their position papers setting forth the law and
the facts relied upon by them.

Section 10 should be read in relation to Section 14 of the same Rule, which states:

SEC. 14. Affidavits. The affidavits required to be submitted under this Rule shall
state only facts of direct personal knowledge of the affiants which are admissible in
evidence, and shall show their competence to testify to the matters stated therein.

xxx

The Spouses Dela Rosa jointly verified their position paper by stating that all the
allegations in the position paper are true and correct of their "own personal
knowledge."17 The verification itself is an affidavit.18 Section 4 of Rule 7 states that
a "pleading is verified by an affidavit." Thus, the verified position paper constitutes
the affidavit of witnesses required under Rule 70. Certainly, the Spouses Dela Rosa
qualify as witnesses to their own complaint. While there are no affidavits of other
witnesses that support the complaint, the Spouses Dela Rosa attached to their
position paper documentary evidence that bolster their claim of prior possession.
Santiago and Teofila never raised as an issue the alleged non-attachment to the
complaint of affidavits of witnesses, either in the MTC or in the RTC. In their petition
for review before the Court of Appeals, Santiago and Teofila did not also raise this
issue. The MTC and RTC apparently understood correctly that the verified complaint
of the Spouses Dela Rosa constitutes the affidavit of witnesses required under Rule
70. We rule that the Court of Appeals erred in holding that the Spouses Dela Rosa
failed to attach to their complaint the affidavits required in Sections 10 and 14 of
Rule 70.

In a forcible entry case, the principal issue for resolution is mere physical or
material possession (possession de facto) and not juridical possession (possession
de jure) nor ownership of the property involved.19 In the present case, both parties
claim prior possession of the Property. The Spouses Dela Rosa claim that they have
been in possession of the Property since 1966 upon the execution of the deed of sale
by Leonardo in their favor. On the other hand, Santiago and Teofila claim that they
have been continuously occupying the Property since birth and the Spouses Dela
Rosa were never in possession of the Property.1vvphi1.nt

While admitting that Santiago and Teofila used to reside in the Property since birth,
the Spouses Dela Rosa contend that Santiago and Teofila moved out when they
married in 1961 and 1959, respectively. According to the Spouses Dela Rosa,
Santiago and his family live in Manila (at 3500-F Magsaysay Blvd., Sta. Mesa,
Manila)20 while Teofila occupies the lot adjacent to the Property bearing, however,
the same address.21 Santiago and Teofila did not dispute these allegations by the
Spouses Dela Rosa.

On the other hand, Santiago and Teofila admit that the Spouses Dela Rosa visit the
Property. Visiting the Property on weekends and holidays is evidence of actual or
physical possession. Even if the Spouses Dela Rosa were already residing in Manila,
they could continue possessing the Property in Bulacan. The fact of their residence
in Manila, by itself, does not result in loss of possession of the Property in Bulacan.
The law does not require one in possession of a house to reside in the house to
maintain his possession.

In Somodio v. Court of Appeals,22 which the Spouses Dela Rosa cited, the petitioner
there began construction of a structure on his lot. His employment, however, took
him to Kidapawan, North Cotabato, and he left the unfinished structure to the care
of his uncle. He would visit the property every three months or on weekends when
he had time. The Court ruled that possession in the eyes of the law does not mean
that a man has to have his feet on every square meter of the ground before he is
deemed in possession.23 There is no cogent reason to deviate from this doctrine.

Santiago and Teofila likewise do not deny that the Spouses Dela Rosa renovated the
house, furnished the same and constructed a perimeter fence around the Property.
Santiago and Teofila contend that these acts did not include the right to possess
physically the Property.24 These acts of dominion are clear indications that the
Spouses Dela Rosa were in possession of the Property. Santiago and Teofila failed to
explain convincingly how the Spouses Dela Rosa were able to renovate, furnish the
house and construct a perimeter fence around the Property without physically
possessing the Property. It is quite improbable to perform these acts without the
Spouses Dela Rosa physically possessing the Property.

Santiago and Teofila likewise challenged the validity of the sale between their father
Leonardo and the Spouses Dela Rosa. The sale transpired on 1 September 1966,
before Leonardos death. The Spouses Dela Rosa registered on 6 October 1966 the
Deed of Sale under Act No. 3344 with the Registry of Deeds of Paombong, Bulacan. If
Santiago and Teofila truly believed that the Deed of Sale is void, they should have
filed an action to annul the same, but they did not. Santiago and Teofila questioned
the validity of the Deed of Sale only when the Spouses Dela Rosa filed the forcible
entry case.

However, Santiago and Teofila cannot properly challenge the validity of the Deed of
Sale in the ejectment case because ejectment cases proceed independently of any
claim of ownership.25 Santiago and Teofila claim that the Deed of Sale was executed
without the consent of Benita, Leonardos spouse. They also claim that the Deed of
Sale was executed through fraud and undue influence. However, these issues cannot
properly be addressed in the present action. These issues can only be resolved in a
separate action specifically for the annulment of the Deed of Sale. Resolution of
these issues, in turn, will determine whether the surviving heirs of the Spouses
Carlos are co-owners of the Property who are likewise entitled to its possession. Co-
ownership is only a necessary consequence of the heirs successional rights to the
Property, if any.

WHEREFORE, we GRANT the petition. The Decision dated 20 July 2000 and
Resolution dated 23 February 2001 of the Court of Appeals in CA-G.R. SP No. 54055
are SET ASIDE. The Decision dated 31 May 1999 of the Regional of Trial Court,
Branch 22, of Malolos, Bulacan in Civil Case No. 878-M-98, affirming the Decision
dated 30 July 1998 of the Municipal Trial Court of Paombong, Bulacan in Civil Case
No. 98-720, is REINSTATED. No pronouncement as to costs.

SO ORDERED.
G.R. No. 146364 June 3, 2004

COLITO T. PAJUYO, petitioner,

vs.
COURT OF APPEALS and EDDIE GUEVARRA, respondents.

The Case

Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 December
2000 Resolution of the Court of Appeals in CA-G.R. SP No. 43129. The Court of
Appeals set aside the 11 November 1996 decision3 of the Regional Trial Court of
Quezon City, Branch 81,4 affirming the 15 December 1995 decision5 of the
Metropolitan Trial Court of Quezon City, Branch 31.6

The Antecedents

In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro
Perez for the rights over a 250-square meter lot in Barrio Payatas, Quezon City.
Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his
family lived in the house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra")

executed a Kasunduan or agreement. Pajuyo, as owner of the house, allowed
Guevarra to live in the house for free provided Guevarra would maintain the
cleanliness and orderliness of the house. Guevarra promised that he would
voluntarily vacate the premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and
demanded that Guevarra vacate the house. Guevarra refused.

Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of
Quezon City, Branch 31 ("MTC").

In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession
over the lot where the house stands because the lot is within the 150 hectares set
aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that
from December 1985 to September 1994, Pajuyo did not show up or communicate
with him. Guevarra insisted that neither he nor Pajuyo has valid title to the lot.

On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The
dispositive portion of the MTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff

and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or
persons claiming any right under him;

B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as
reasonable compensation for the use of the premises starting from the last demand;

C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and

D) pay the cost of suit.

SO ORDERED.7

Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81
("RTC").

On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion
of the RTC decision reads:

WHEREFORE, premises considered, the Court finds no reversible error in the

decision appealed from, being in accord with the law and evidence presented, and
the same is hereby affirmed en toto.

SO ORDERED.8

Guevarra received the RTC decision on 29 November 1996. Guevarra had only until
14 December 1996 to file his appeal with the Court of Appeals. Instead of filing his
appeal with the Court of Appeals, Guevarra filed with the Supreme Court a "Motion
for Extension of Time to File Appeal by Certiorari Based on Rule 42" ("motion for
extension"). Guevarra theorized that his appeal raised pure questions of law. The
Receiving Clerk of the Supreme Court received the motion for extension on 13
December 1996 or one day before the right to appeal expired.

On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.

On 8 January 1997, the First Division of the Supreme Court issued a Resolution9
referring the motion for extension to the Court of Appeals which has concurrent
jurisdiction over the case. The case presented no special and important matter for
the Supreme Court to take cognizance of at the first instance.

On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a

Resolution10 granting the motion for extension conditioned on the timeliness of the
filing of the motion.

On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on

Guevaras petition for review. On 11 April 1997, Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC
decision. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil
Case No. Q-96-26943 is REVERSED and SET ASIDE; and it is hereby declared that
the ejectment case filed against defendant-appellant is without factual and legal
basis.

SO ORDERED.11

Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the
Court of Appeals should have dismissed outright Guevarras petition for review
because it was filed out of time. Moreover, it was Guevarras counsel and not
Guevarra who signed the certification against forum-shopping.

On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos

motion for reconsideration. The dispositive portion of the resolution reads:

WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED.
No costs.

SO ORDERED.12

The Ruling of the MTC

The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is
the house and not the lot. Pajuyo is the owner of the house, and he allowed Guevarra
to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on
Pajuyos demand made Guevarras continued possession of the house illegal.

The Ruling of the RTC

The RTC upheld the Kasunduan, which established the landlord and tenant
relationship between Pajuyo and Guevarra. The terms of the Kasunduan bound
Guevarra to return possession of the house on demand.

The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the
Revised National Government Center Housing Project Code of Policies and other
pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras
rights under these laws. The RTC declared that in an ejectment case, the only issue
for resolution is material or physical possession, not ownership.

The Ruling of the Court of Appeals

The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and
Guevarra illegally occupied the contested lot which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez
had no right or title over the lot because it is public land. The assignment of rights
between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did
not have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault.
The court will leave them where they are.

The Court of Appeals reversed the MTC and RTC rulings, which held that the
Kasunduan between Pajuyo and Guevarra created a legal tie akin to that of a
landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is
not a lease contract but a commodatum because the agreement is not for a price
certain.

Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the
appellate court held that Guevarra has a better right over the property under
Proclamation No. 137. President Corazon C. Aquino ("President Aquino") issued
Proclamation No. 137 on 7 September 1987. At that time, Guevarra was in physical
possession of the property. Under Article VI of the Code of Policies Beneficiary
Selection and Disposition of Homelots and Structures in the National Housing
Project ("the Code"), the actual occupant or caretaker of the lot shall have first
priority as beneficiary of the project. The Court of Appeals concluded that Guevarra
is first in the hierarchy of priority.

In denying Pajuyos motion for reconsideration, the appellate court debunked

Pajuyos claim that Guevarra filed his motion for extension beyond the period to
appeal.

The Court of Appeals pointed out that Guevarras motion for extension filed before
the Supreme Court was stamped "13 December 1996 at 4:09 PM" by the Supreme
Courts Receiving Clerk. The Court of Appeals concluded that the motion for
extension bore a date, contrary to Pajuyos claim that the motion for extension was
undated. Guevarra filed the motion for extension on time on 13 December 1996
since he filed the motion one day before the expiration of the reglementary period
on 14 December 1996. Thus, the motion for extension properly complied with the
condition imposed by the Court of Appeals in its 28 January 1997 Resolution. The
Court of Appeals explained that the thirty-day extension to file the petition for
review was deemed granted because of such compliance.

The Court of Appeals rejected Pajuyos argument that the appellate court should
have dismissed the petition for review because it was Guevarras counsel and not
Guevarra who signed the certification against forum-shopping. The Court of Appeals
pointed out that Pajuyo did not raise this issue in his Comment. The Court of
Appeals held that Pajuyo could not now seek the dismissal of the case after he had
extensively argued on the merits of the case. This technicality, the appellate court
opined, was clearly an afterthought.
The Issues

Pajuyo raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND

DISCRETION TANTAMOUNT TO LACK OF JURISDICTION:

1) in GRANTING, instead of denying, Private Respondents Motion for an Extension

of thirty days to file petition for review at the time when there was no more period
to extend as the decision of the Regional Trial Court had already become final and
executory.

2) in giving due course, instead of dismissing, private respondents Petition for

Review even though the certification against forum-shopping was signed only by
counsel instead of by petitioner himself.

3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a
commodatum, instead of a Contract of Lease as found by the Metropolitan Trial
Court and in holding that "the ejectment case filed against defendant-appellant is
without legal and factual basis".

4) in reversing and setting aside the Decision of the Regional Trial Court in Civil
Case No. Q-96-26943 and in holding that the parties are in pari delicto being both
squatters, therefore, illegal occupants of the contested parcel of land.

5) in deciding the unlawful detainer case based on the so-called Code of Policies of
the National Government Center Housing Project instead of deciding the same under
the Kasunduan voluntarily executed by the parties, the terms and conditions of
which are the laws between themselves.13

The Ruling of the Court

The procedural issues Pajuyo is raising are baseless. However, we find merit in the
substantive issues Pajuyo is submitting for resolution.

Procedural Issues

Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras
petition for review because the RTC decision had already become final and
executory when the appellate court acted on Guevarras motion for extension to file
the petition. Pajuyo points out that Guevarra had only one day before the expiry of
his period to appeal the RTC decision. Instead of filing the petition for review with
the Court of Appeals, Guevarra filed with this Court an undated motion for extension
of 30 days to file a petition for review. This Court merely referred the motion to the
Court of Appeals. Pajuyo believes that the filing of the motion for extension with this
Court did not toll the running of the period to perfect the appeal. Hence, when the
Court of Appeals received the motion, the period to appeal had already expired.

We are not persuaded.

Decisions of the regional trial courts in the exercise of their appellate jurisdiction
are appealable to the Court of Appeals by petition for review in cases involving
questions of fact or mixed questions of fact and law.14 Decisions of the regional trial
courts involving pure questions of law are appealable directly to this Court by
petition for review.15 These modes of appeal are now embodied in Section 2, Rule
41 of the 1997 Rules of Civil Procedure.

Guevarra believed that his appeal of the RTC decision involved only questions of
law. Guevarra thus filed his motion for extension to file petition for review before
this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition
for review with this Court. A perusal of Guevarras petition for review gives the
impression that the issues he raised were pure questions of law. There is a question
of law when the doubt or difference is on what the law is on a certain state of
facts.16 There is a question of fact when the doubt or difference is on the truth or
falsity of the facts alleged.17

In his petition for review before this Court, Guevarra no longer disputed the facts.
Guevarras petition for review raised these questions: (1) Do ejectment cases
pertain only to possession of a structure, and not the lot on which the structure
stands? (2) Does a suit by a squatter against a fellow squatter constitute a valid case
for ejectment? (3) Should a Presidential Proclamation governing the lot on which a
squatters structure stands be considered in an ejectment suit filed by the owner of
the structure?

These questions call for the evaluation of the rights of the parties under the law on
ejectment and the Presidential Proclamation. At first glance, the questions Guevarra
raised appeared purely legal. However, some factual questions still have to be
resolved because they have a bearing on the legal questions raised in the petition for
review. These factual matters refer to the metes and bounds of the disputed
property and the application of Guevarra as beneficiary of Proclamation No. 137.

The Court of Appeals has the power to grant an extension of time to file a petition
for review. In Lacsamana v. Second Special Cases Division of the Intermediate
Appellate Court,18 we declared that the Court of Appeals could grant extension of
time in appeals by petition for review. In Liboro v. Court of Appeals,19 we clarified
that the prohibition against granting an extension of time applies only in a case
where ordinary appeal is perfected by a mere notice of appeal. The prohibition does
not apply in a petition for review where the pleading needs verification. A petition
for review, unlike an ordinary appeal, requires preparation and research to present
a persuasive position.20 The drafting of the petition for review entails more time
and effort than filing a notice of appeal.21 Hence, the Court of Appeals may allow an
extension of time to file a petition for review.

In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22

we held that Liboros clarification of Lacsamana is consistent with the Revised
Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They all
allow an extension of time for filing petitions for review with the Court of Appeals.
The extension, however, should be limited to only fifteen days save in exceptionally
meritorious cases where the Court of Appeals may grant a longer period.

A judgment becomes "final and executory" by operation of law. Finality of judgment

becomes a fact on the lapse of the reglementary period to appeal if no appeal is
perfected.23 The RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.

The Court of Appeals did not commit grave abuse of discretion when it approved
Guevarras motion for extension. The Court of Appeals gave due course to the
motion for extension because it complied with the condition set by the appellate
court in its resolution dated 28 January 1997. The resolution stated that the Court of
Appeals would only give due course to the motion for extension if filed on time. The
motion for extension met this condition.

The material dates to consider in determining the timeliness of the filing of the
motion for extension are (1) the date of receipt of the judgment or final order or
resolution subject of the petition, and (2) the date of filing of the motion for
extension.24 It is the date of the filing of the motion or pleading, and not the date of
execution, that determines the timeliness of the filing of that motion or pleading.
Thus, even if the motion for extension bears no date, the date of filing stamped on it
is the reckoning point for determining the timeliness of its filing.

Guevarra had until 14 December 1996 to file an appeal from the RTC decision.
Guevarra filed his motion for extension before this Court on 13 December 1996, the
date stamped by this Courts Receiving Clerk on the motion for extension. Clearly,
Guevarra filed the motion for extension exactly one day before the lapse of the
reglementary period to appeal.

Assuming that the Court of Appeals should have dismissed Guevarras appeal on
technical grounds, Pajuyo did not ask the appellate court to deny the motion for
extension and dismiss the petition for review at the earliest opportunity. Instead,
Pajuyo vigorously discussed the merits of the case. It was only when the Court of
Appeals ruled in Guevarras favor that Pajuyo raised the procedural issues against
Guevarras petition for review.

A party who, after voluntarily submitting a dispute for resolution, receives an

adverse decision on the merits, is estopped from attacking the jurisdiction of the
court.25 Estoppel sets in not because the judgment of the court is a valid and
conclusive adjudication, but because the practice of attacking the courts jurisdiction
after voluntarily submitting to it is against public policy.26

In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras
failure to sign the certification against forum shopping. Instead, Pajuyo harped on
Guevarras counsel signing the verification, claiming that the counsels verification is
insufficient since it is based only on "mere information."

A partys failure to sign the certification against forum shopping is different from the
partys failure to sign personally the verification. The certificate of non-forum
shopping must be signed by the party, and not by counsel.27 The certification of
counsel renders the petition defective.28

On the other hand, the requirement on verification of a pleading is a formal and not
a jurisdictional requisite.29 It is intended simply to secure an assurance that what
are alleged in the pleading are true and correct and not the product of the
imagination or a matter of speculation, and that the pleading is filed in good faith.30
The party need not sign the verification. A partys representative, lawyer or any
person who personally knows the truth of the facts alleged in the pleading may sign
the verification.31

We agree with the Court of Appeals that the issue on the certificate against forum
shopping was merely an afterthought. Pajuyo did not call the Court of Appeals
attention to this defect at the early stage of the proceedings. Pajuyo raised this
procedural issue too late in the proceedings.

Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction
to Resolve the Issue of Possession

Settled is the rule that the defendants claim of ownership of the disputed property
will not divest the inferior court of its jurisdiction over the ejectment case.32 Even if
the pleadings raise the issue of ownership, the court may pass on such issue to
determine only the question of possession, especially if the ownership is
inseparably linked with the possession.33 The adjudication on the issue of
ownership is only provisional and will not bar an action between the same parties
involving title to the land.34 This doctrine is a necessary consequence of the nature
of the two summary actions of ejectment, forcible entry and unlawful detainer,
where the only issue for adjudication is the physical or material possession over the
real property.35

In this case, what Guevarra raised before the courts was that he and Pajuyo are not
the owners of the contested property and that they are mere squatters. Will the
defense that the parties to the ejectment case are not the owners of the disputed lot
allow the courts to renounce their jurisdiction over the case? The Court of Appeals
believed so and held that it would just leave the parties where they are since they
are in pari delicto.
We do not agree with the Court of Appeals.

Ownership or the right to possess arising from ownership is not at issue in an action
for recovery of possession. The parties cannot present evidence to prove ownership
or right to legal possession except to prove the nature of the possession when
necessary to resolve the issue of physical possession.36 The same is true when the
defendant asserts the absence of title over the property. The absence of title over
the contested lot is not a ground for the courts to withhold relief from the parties in
an ejectment case.

The only question that the courts must resolve in ejectment proceedings is - who is
entitled to the physical possession of the premises, that is, to the possession de facto
and not to the possession de jure.37 It does not even matter if a partys title to the
property is questionable,38 or when both parties intruded into public land and their
applications to own the land have yet to be approved by the proper government
agency.39 Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or
terror.40 Neither is the unlawful withholding of property allowed. Courts will
always uphold respect for prior possession.

Thus, a party who can prove prior possession can recover such possession even
against the owner himself.41 Whatever may be the character of his possession, if he
has in his favor prior possession in time, he has the security that entitles him to
remain on the property until a person with a better right lawfully ejects him.42 To
repeat, the only issue that the court has to settle in an ejectment suit is the right to
physical possession.

In Pitargue v. Sorilla,43 the government owned the land in dispute. The government
did not authorize either the plaintiff or the defendant in the case of forcible entry
case to occupy the land. The plaintiff had prior possession and had already
introduced improvements on the public land. The plaintiff had a pending application
for the land with the Bureau of Lands when the defendant ousted him from
possession. The plaintiff filed the action of forcible entry against the defendant. The
government was not a party in the case of forcible entry.

The defendant questioned the jurisdiction of the courts to settle the issue of
possession because while the application of the plaintiff was still pending, title
remained with the government, and the Bureau of Public Lands had jurisdiction
over the case. We disagreed with the defendant. We ruled that courts have
jurisdiction to entertain ejectment suits even before the resolution of the
application. The plaintiff, by priority of his application and of his entry, acquired
prior physical possession over the public land applied for as against other private
claimants. That prior physical possession enjoys legal protection against other
private claimants because only a court can take away such physical possession in an
ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as
squatters, strictly speaking, their entry into the disputed land was illegal. Both the
plaintiff and defendant entered the public land without the owners permission.
Title to the land remained with the government because it had not awarded to
anyone ownership of the contested public land. Both the plaintiff and the defendant
were in effect squatting on government property. Yet, we upheld the courts
jurisdiction to resolve the issue of possession even if the plaintiff and the defendant
in the ejectment case did not have any title over the contested land.

Courts must not abdicate their jurisdiction to resolve the issue of physical
possession because of the public need to preserve the basic policy behind the
summary actions of forcible entry and unlawful detainer. The underlying philosophy
behind ejectment suits is to prevent breach of the peace and criminal disorder and
to compel the party out of possession to respect and resort to the law alone to
obtain what he claims is his.45 The party deprived of possession must not take the
law into his own hands.46 Ejectment proceedings are summary in nature so the
authorities can settle speedily actions to recover possession because of the
overriding need to quell social disturbances.47

We further explained in Pitargue the greater interest that is at stake in actions for
recovery of possession. We made the following pronouncements in Pitargue:

The question that is before this Court is: Are courts without jurisdiction to take
cognizance of possessory actions involving these public lands before final award is
made by the Lands Department, and before title is given any of the conflicting
claimants? It is one of utmost importance, as there are public lands everywhere and
there are thousands of settlers, especially in newly opened regions. It also involves a
matter of policy, as it requires the determination of the respective authorities and
functions of two coordinate branches of the Government in connection with public
land conflicts.

Our problem is made simple by the fact that under the Civil Code, either in the old,
which was in force in this country before the American occupation, or in the new,
we have a possessory action, the aim and purpose of which is the recovery of the
physical possession of real property, irrespective of the question as to who has the
title thereto. Under the Spanish Civil Code we had the accion interdictal, a summary
proceeding which could be brought within one year from dispossession (Roman
Catholic Bishop of Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1,
1901, upon the enactment of the Code of Civil Procedure (Act No. 190 of the
Philippine Commission) we implanted the common law action of forcible entry
(section 80 of Act No. 190), the object of which has been stated by this Court to be
"to prevent breaches of the peace and criminal disorder which would ensue from
the withdrawal of the remedy, and the reasonable hope such withdrawal would
create that some advantage must accrue to those persons who, believing themselves
entitled to the possession of property, resort to force to gain possession rather than
to some appropriate action in the court to assert their claims." (Supia and Batioco
vs. Quintero and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public
Land Act (Act No. 926) the action of forcible entry was already available in the
courts of the country. So the question to be resolved is, Did the Legislature intend,
when it vested the power and authority to alienate and dispose of the public lands in
the Lands Department, to exclude the courts from entertaining the possessory
action of forcible entry between rival claimants or occupants of any land before
award thereof to any of the parties? Did Congress intend that the lands applied for,
or all public lands for that matter, be removed from the jurisdiction of the judicial
Branch of the Government, so that any troubles arising therefrom, or any breaches
of the peace or disorders caused by rival claimants, could be inquired into only by
the Lands Department to the exclusion of the courts? The answer to this question
seems to us evident. The Lands Department does not have the means to police
public lands; neither does it have the means to prevent disorders arising therefrom,
or contain breaches of the peace among settlers; or to pass promptly upon conflicts
of possession. Then its power is clearly limited to disposition and alienation, and
while it may decide conflicts of possession in order to make proper award, the
settlement of conflicts of possession which is recognized in the court herein has
another ultimate purpose, i.e., the protection of actual possessors and occupants
with a view to the prevention of breaches of the peace. The power to dispose and
alienate could not have been intended to include the power to prevent or settle
disorders or breaches of the peace among rival settlers or claimants prior to the
final award. As to this, therefore, the corresponding branches of the Government
must continue to exercise power and jurisdiction within the limits of their
respective functions. The vesting of the Lands Department with authority to
administer, dispose, and alienate public lands, therefore, must not be understood as
depriving the other branches of the Government of the exercise of the respective
functions or powers thereon, such as the authority to stop disorders and quell
breaches of the peace by the police, the authority on the part of the courts to take
jurisdiction over possessory actions arising therefrom not involving, directly or
indirectly, alienation and disposition.

Our attention has been called to a principle enunciated in American courts to the
effect that courts have no jurisdiction to determine the rights of claimants to public
lands, and that until the disposition of the land has passed from the control of the
Federal Government, the courts will not interfere with the administration of matters
concerning the same. (50 C. J. 1093-1094.) We have no quarrel with this principle.
The determination of the respective rights of rival claimants to public lands is
different from the determination of who has the actual physical possession or
occupation with a view to protecting the same and preventing disorder and
breaches of the peace. A judgment of the court ordering restitution of the possession
of a parcel of land to the actual occupant, who has been deprived thereof by another
through the use of force or in any other illegal manner, can never be "prejudicial
interference" with the disposition or alienation of public lands. On the other hand, if
courts were deprived of jurisdiction of cases involving conflicts of possession, that
threat of judicial action against breaches of the peace committed on public lands
would be eliminated, and a state of lawlessness would probably be produced
between applicants, occupants or squatters, where force or might, not right or
justice, would rule.

It must be borne in mind that the action that would be used to solve conflicts of
possession between rivals or conflicting applicants or claimants would be no other
than that of forcible entry. This action, both in England and the United States and in
our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and
quiet possession may recover the possession of which he has been deprived by a
stronger hand, by violence or terror; its ultimate object being to prevent breach of
the peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil.
312, 314.) The basis of the remedy is mere possession as a fact, of physical
possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or
right to possession is never in issue in an action of forcible entry; as a matter of fact,
evidence thereof is expressly banned, except to prove the nature of the possession.
(Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no
stretch of the imagination can conclusion be arrived at that the use of the remedy in
the courts of justice would constitute an interference with the alienation,
disposition, and control of public lands. To limit ourselves to the case at bar can it be
pretended at all that its result would in any way interfere with the manner of the
alienation or disposition of the land contested? On the contrary, it would facilitate
adjudication, for the question of priority of possession having been decided in a final
manner by the courts, said question need no longer waste the time of the land
officers making the adjudication or award. (Emphasis ours)

The Principle of Pari Delicto is not Applicable to Ejectment Cases

The Court of Appeals erroneously applied the principle of pari delicto to this case.

Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto. We
explained the principle of pari delicto in these words:

The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio
and in pari delicto potior est conditio defedentis. The law will not aid either party
to an illegal agreement. It leaves the parties where it finds them.49

The application of the pari delicto principle is not absolute, as there are exceptions
to its application. One of these exceptions is where the application of the pari delicto
rule would violate well-established public policy.50

In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions
of forcible entry and unlawful detainer. We held that:

It must be stated that the purpose of an action of forcible entry and detainer is that,
regardless of the actual condition of the title to the property, the party in peaceable
quiet possession shall not be turned out by strong hand, violence or terror. In
affording this remedy of restitution the object of the statute is to prevent breaches
of the peace and criminal disorder which would ensue from the withdrawal of the
remedy, and the reasonable hope such withdrawal would create that some
advantage must accrue to those persons who, believing themselves entitled to the
possession of property, resort to force to gain possession rather than to some
appropriate action in the courts to assert their claims. This is the philosophy at the
foundation of all these actions of forcible entry and detainer which are designed to
compel the party out of possession to respect and resort to the law alone to obtain
what he claims is his.52

Clearly, the application of the principle of pari delicto to a case of ejectment between
squatters is fraught with danger. To shut out relief to squatters on the ground of
pari delicto would openly invite mayhem and lawlessness. A squatter would oust
another squatter from possession of the lot that the latter had illegally occupied,
emboldened by the knowledge that the courts would leave them where they are.
Nothing would then stand in the way of the ousted squatter from re-claiming his
prior possession at all cost.

Petty warfare over possession of properties is precisely what ejectment cases or

actions for recovery of possession seek to prevent.53 Even the owner who has title
over the disputed property cannot take the law into his own hands to regain
possession of his property. The owner must go to court.

Courts must resolve the issue of possession even if the parties to the ejectment suit
are squatters. The determination of priority and superiority of possession is a
serious and urgent matter that cannot be left to the squatters to decide. To do so
would make squatters receive better treatment under the law. The law restrains
property owners from taking the law into their own hands. However, the principle
of pari delicto as applied by the Court of Appeals would give squatters free rein to
dispossess fellow squatters or violently retake possession of properties usurped
from them. Courts should not leave squatters to their own devices in cases involving
recovery of possession.

Possession is the only Issue for Resolution in an Ejectment Case

The case for review before the Court of Appeals was a simple case of ejectment. The
Court of Appeals refused to rule on the issue of physical possession. Nevertheless,
the appellate court held that the pivotal issue in this case is who between Pajuyo
and Guevarra has the "priority right as beneficiary of the contested land under
Proclamation No. 137."54 According to the Court of Appeals, Guevarra enjoys
preferential right under Proclamation No. 137 because Article VI of the Code
declares that the actual occupant or caretaker is the one qualified to apply for
socialized housing.

The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a
relocation site under Proclamation No. 137. Proclamation No. 137 laid down the
metes and bounds of the land that it declared open for disposition to bona fide
residents.

The records do not show that the contested lot is within the land specified by
Proclamation No. 137. Guevarra had the burden to prove that the disputed lot is
within the coverage of Proclamation No. 137. He failed to do so.

Second. The Court of Appeals should not have given credence to Guevarras
unsubstantiated claim that he is the beneficiary of Proclamation No. 137. Guevarra
merely alleged that in the survey the project administrator conducted, he and not
Pajuyo appeared as the actual occupant of the lot.

There is no proof that Guevarra actually availed of the benefits of Proclamation No.
137. Pajuyo allowed Guevarra to occupy the disputed property in 1985. President
Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his
earliest demand for Guevarra to vacate the property in September 1994.

During the time that Guevarra temporarily held the property up to the time that
Proclamation No. 137 allegedly segregated the disputed lot, Guevarra never applied
as beneficiary of Proclamation No. 137. Even when Guevarra already knew that
Pajuyo was reclaiming possession of the property, Guevarra did not take any step to
comply with the requirements of Proclamation No. 137.

Third. Even assuming that the disputed lot is within the coverage of Proclamation
No. 137 and Guevarra has a pending application over the lot, courts should still
assume jurisdiction and resolve the issue of possession. However, the jurisdiction of
the courts would be limited to the issue of physical possession only.

In Pitargue,55 we ruled that courts have jurisdiction over possessory actions

involving public land to determine the issue of physical possession. The
determination of the respective rights of rival claimants to public land is, however,
distinct from the determination of who has the actual physical possession or who
has a better right of physical possession.56 The administrative disposition and
alienation of public lands should be threshed out in the proper government
agency.57

The Court of Appeals determination of Pajuyo and Guevarras rights under

Proclamation No. 137 was premature. Pajuyo and Guevarra were at most merely
potential beneficiaries of the law. Courts should not preempt the decision of the
administrative agency mandated by law to determine the qualifications of
applicants for the acquisition of public lands. Instead, courts should expeditiously
resolve the issue of physical possession in ejectment cases to prevent disorder and
breaches of peace.58
Pajuyo is Entitled to Physical Possession of the Disputed Property

Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the
house built on it. Guevarra expressly admitted the existence and due execution of
the Kasunduan. The Kasunduan reads:

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay
nagbibigay pahintulot kay G. Eddie Guevarra, na pansamantalang manirahan sa
nasabing bahay at lote ng "walang bayad." Kaugnay nito, kailangang panatilihin nila
ang kalinisan at kaayusan ng bahay at lote.

Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang
reklamo.

Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot
free of rent, but Guevarra was under obligation to maintain the premises in good
condition. Guevarra promised to vacate the premises on Pajuyos demand but
Guevarra broke his promise and refused to heed Pajuyos demand to vacate.

These facts make out a case for unlawful detainer. Unlawful detainer involves the
withholding by a person from another of the possession of real property to which
the latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied.59

Where the plaintiff allows the defendant to use his property by tolerance without
any contract, the defendant is necessarily bound by an implied promise that he will
vacate on demand, failing which, an action for unlawful detainer will lie.60 The
defendants refusal to comply with the demand makes his continued possession of
the property unlawful.61 The status of the defendant in such a case is similar to that
of a lessee or tenant whose term of lease has expired but whose occupancy
continues by tolerance of the owner.62

This principle should apply with greater force in cases where a contract embodies
the permission or tolerance to use the property. The Kasunduan expressly
articulated Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent
but only to maintain the house and lot in good condition. Guevarra expressly vowed
in the Kasunduan that he would vacate the property on demand. Guevarras refusal
to comply with Pajuyos demand to vacate made Guevarras continued possession of
the property unlawful.

We do not subscribe to the Court of Appeals theory that the Kasunduan is one of
commodatum.

In a contract of commodatum, one of the parties delivers to another something not

consumable so that the latter may use the same for a certain time and return it.63
An essential feature of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another is for a certain
period.64 Thus, the bailor cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment of the use for which the
commodatum is constituted.65 If the bailor should have urgent need of the thing, he
may demand its return for temporary use.66 If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in which case
the contractual relation is called a precarium.67 Under the Civil Code, precarium is a
kind of commodatum.68

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra

was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay
rent, it obligated him to maintain the property in good condition. The imposition of
this obligation makes the Kasunduan a contract different from a commodatum. The
effects of the Kasunduan are also different from that of a commodatum. Case law on
ejectment has treated relationship based on tolerance as one that is akin to a
landlord-tenant relationship where the withdrawal of permission would result in
the termination of the lease.69 The tenants withholding of the property would then
be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of
commodatum, Guevarra as bailee would still have the duty to turn over possession
of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing
received attaches to contracts for safekeeping, or contracts of commission,
administration and commodatum.70 These contracts certainly involve the
obligation to deliver or return the thing received.71

Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo
is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract
involving the land they illegally occupy. Guevarra insists that the contract is void.

Guevarra should know that there must be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan
after he had benefited from it. The Kasunduan binds Guevarra.

The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested property. The
Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos better
right of physical possession. Guevarra is clearly a possessor in bad faith. The
absence of a contract would not yield a different result, as there would still be an
implied promise to vacate.

Guevarra contends that there is "a pernicious evil that is sought to be avoided, and
that is allowing an absentee squatter who (sic) makes (sic) a profit out of his illegal
act."72 Guevarra bases his argument on the preferential right given to the actual
occupant or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.

Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed
in the property without paying any rent. There is also no proof that Pajuyo is a
professional squatter who rents out usurped properties to other squatters.
Moreover, it is for the proper government agency to decide who between Pajuyo
and Guevarra qualifies for socialized housing. The only issue that we are addressing
is physical possession.

Prior possession is not always a condition sine qua non in ejectment.73 This is one
of the distinctions between forcible entry and unlawful detainer.74 In forcible entry,
the plaintiff is deprived of physical possession of his land or building by means of
force, intimidation, threat, strategy or stealth. Thus, he must allege and prove prior
possession.75 But in unlawful detainer, the defendant unlawfully withholds
possession after the expiration or termination of his right to possess under any
contract, express or implied. In such a case, prior physical possession is not
required.76

Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan.

Guevarras transient right to possess the property ended as well. Moreover, it was
Pajuyo who was in actual possession of the property because Guevarra had to seek
Pajuyos permission to temporarily hold the property and Guevarra had to follow
the conditions set by Pajuyo in the Kasunduan. Control over the property still rested
with Pajuyo and this is evidence of actual possession.

Pajuyos absence did not affect his actual possession of the disputed property.
Possession in the eyes of the law does not mean that a man has to have his feet on
every square meter of the ground before he is deemed in possession.77 One may
acquire possession not only by physical occupation, but also by the fact that a thing
is subject to the action of ones will.78 Actual or physical occupation is not always
necessary.79

Ruling on Possession Does not Bind Title to the Land in Dispute

We are aware of our pronouncement in cases where we declared that "squatters

and intruders who clandestinely enter into titled government property cannot, by
such act, acquire any legal right to said property."80 We made this declaration
because the person who had title or who had the right to legal possession over the
disputed property was a party in the ejectment suit and that party instituted the
case against squatters or usurpers.

In this case, the owner of the land, which is the government, is not a party to the
ejectment case. This case is between squatters. Had the government participated in
this case, the courts could have evicted the contending squatters, Pajuyo and
Guevarra.
Since the party that has title or a better right over the property is not impleaded in
this case, we cannot evict on our own the parties. Such a ruling would discourage
squatters from seeking the aid of the courts in settling the issue of physical
possession. Stripping both the plaintiff and the defendant of possession just because
they are squatters would have the same dangerous implications as the application of
the principle of pari delicto. Squatters would then rather settle the issue of physical
possession among themselves than seek relief from the courts if the plaintiff and
defendant in the ejectment case would both stand to lose possession of the disputed
property. This would subvert the policy underlying actions for recovery of
possession.

Since Pajuyo has in his favor priority in time in holding the property, he is entitled to
remain on the property until a person who has title or a better right lawfully ejects
him. Guevarra is certainly not that person. The ruling in this case, however, does not
preclude Pajuyo and Guevarra from introducing evidence and presenting arguments
before the proper administrative agency to establish any right to which they may be
entitled under the law.81

In no way should our ruling in this case be interpreted to condone squatting. The
ruling on the issue of physical possession does not affect title to the property nor
constitute a binding and conclusive adjudication on the merits on the issue of
ownership.82 The owner can still go to court to recover lawfully the property from
the person who holds the property without legal title. Our ruling here does not
diminish the power of government agencies, including local governments, to
condemn, abate, remove or demolish illegal or unauthorized structures in
accordance with existing laws.

Attorneys Fees and Rentals

The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo.
Attorneys fees as part of damages are awarded only in the instances enumerated in
Article 2208 of the Civil Code.83 Thus, the award of attorneys fees is the exception
rather than the rule.84 Attorneys fees are not awarded every time a party prevails
in a suit because of the policy that no premium should be placed on the right to
litigate.85 We therefore delete the attorneys fees awarded to Pajuyo.

We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra.
Guevarra did not dispute this factual finding of the two courts. We find the amount
reasonable compensation to Pajuyo. The P300 monthly rental is counted from the
last demand to vacate, which was on 16 February 1995.

WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and
Resolution dated 14 December 2000 of the Court of Appeals in CA-G.R. SP No. 43129
are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of
Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated
15 December 1995 of the Metropolitan Trial Court of Quezon City, Branch 31 in Civil
Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees
is deleted. No costs.

SO ORDERED.

G.R. No. L-50264 October 21, 1991

IGNACIO WONG, petitioner,

vs.
HON. LUCAS D. CARPIO, as Presiding Judge, Court of First Instance of Davao del
Sur, Branch V and MANUEL MERCADO, respondents.

This is a petition for review on certiorari, certified to this Court by the Court of
Appeals as it involves purely question of law, seeking the annulment of the
September 29, 1978 decision of the then Court of First Instance ** of Davao del Sur,
Branch V, in Civil Case No. 1258 which reversed the February 20, 1978 decision of
the Municipal Court of Sta. Maria, *** Davao del Sur in an action for Forcible Entry
(Civil Case No. 13) ordering the dismissal of the complaint as well as the
counterclaim.

The undisputed facts of this case, as found by both the trial court and the then Court
of First Instance of Davao del Sur, are as follows:

On the basis of the admission of parties in their respective pleadings, the oral
testimonies of all witnesses for both plaintiff and defendants and the documentary
evidence offered and admitted this Court finds that plaintiff Manuel Mercado
acquired his rights to possess the land in litigation, particularly lot 3 (LRC) Pcs-295,
(situated at Colonga, Sta. Maria, Davao del Sur) and which is particularly described
and embraced in Transfer Certificate of title No. (T-4244) T-972 from William Giger
by virtue of a deed of sale with right to repurchase which was executed in 1972 for a
consideration of P3,500.00 (testimony of plaintiff, T.S.N., p. 3, hearing of January 7,
1977). Then, in 1973, William Giger again asked an additional amount of P2,500.00
from plaintiff and so he required William Giger to sign a new deed of Pacto de Retro
Sale (Exhibit "A") on November 5,1973 at Davao City before Notary Public Gregorio
C. Batiller (T.S.N., p. 5, hearing of January 7, 1977). In 1972, plaintiff began
harvesting only the coconut fruits and he paid the taxes on the land (Exhibits B to E)
for Mr. Giger. He went periodically to the land to make copra but he never placed
any person on the land in litigation to watch it. Neither did he reside on the land as
he is a businessman and storekeeper by occupation and resides at Lower Sta. Maria,
Davao del Sur while the land in litigation is at Colongan, Sta. Maria. Neither did he
put any sign or hut to show that he is in actual possession (p. 8, T.S.N., p. 7, hearing
of January 14, 1978). He knew defendants' laborers were in the land in suit as early
as August, 1976 and that they have a hut there but he did not do anything to stop
them. Instead plaintiff was happy that there were people and a hut on the land in
suit (p. 14, T.S.N., hearing of January 14, 1978).

Before July, 1976, defendant Ignacio Wong went to the land in litigation to find out if
there were other people residing there or claiming it besides the owner and he
found none. So, in July, 1976, defendant Ignacio Wong bought the parcel of land in
litigation from William Giger and his wife Cecilia Valenzuela (Exhibit 5). After the
execution of Exhibit 5, defendant Ignacio Wong asked for the delivery of the title to
him and so he has in his possession TCT No. (T-4244) T-974 (Exhibit 6) in the name
of William Giger. Mr. Wong declared the land in suit for taxation purposes in his
name (Exhibit 7). He tried to register the pacto de retro sale with the Register of
Deeds by paying the registration fee (Exhibit 8) but due to some technicalities, the
pacto de retro sale could not be registered. The defendant Wong placed laborers on
the land in suit, built a small farm house after making some clearings and fenced the
boundaries. He also placed signboards (T.S.N., pp. 14-15, hearing of September 15,
1977). On September 27, 1976, plaintiff Manuel Mercado again went to the land in
suit to make copras. That was the time the matter was brought to the attention of
the police of Sta. Maria, Davao del Sur and the incident entered in the police blotter
(Exhibit 11). Then on November 18, 1976, defendant Wong ordered the hooking of
the coconuts from the land in litigation and nobody disturbed him. But on
November 29, 1976, defendant received a copy of plaintiff's complaint for forcible
entry with summons to answer which is the case now before the Court. During the
pendency of this instant complaint for forcible entry, spouses William Giger and
Cecilia Valenzuela filed a case for reformation of instrument with the Court of First
Instance of Digos, Davao del Sur against plaintiff Mercado (Exhibit 4). The case
pertains to Exhibit "A" of plaintiff. (pp. 1-3, CA Decision, pp. 82-84, Rollo).

On the basis of the aforestated undisputed facts, the Municipal Court of Sta. Maria,
Davao del Sur in its February 20, 1978 Decision found that herein petitioner
(defendant Ignacio Wong) had prior, actual and continuous physical possession of
the disputed property and dismissed both the complaint and the counter-claim.

On appeal, the then Court of First Instance of Davao del Sur, in its September 29,
1978 Decision drew a completely different conclusion from the same set of facts and
ruled in favor of herein private respondent (plaintiff Manuel Mercado). The decretal
portion of the said decision, reads:

WHEREFORE, the Court finds the plaintiff to have taken possession of the property
earlier in point of time and defendant is an intruder and must, as he is hereby
ordered to return, the possession of the land in question for the plaintiff, paying a
monthly rental of P400.00 from August, 1976, till the property is returned with
costs against the defendant. Judgment is reversed.

Petitioner filed the instant petition with the Court of Appeals. But the Court of
Appeals, in its March 1, 1979 Resolution **** found that the only issue is a pure
question of law the correctness of the conclusion drawn from the undisputed
facts and certified the case to this Court.

In its April 4, 1979 Resolution, the Second Division of this Court docketed the case in
this Court and considered it submitted for decision.

Petitioner alleged two (2) errors committed by respondent judge, to wit:

A) THE CONCLUSION DRAWN BY RESPONDENT JUDGE THAT PETITIONER IS

AN INTRUDER IS WITHOUT FACTUAL AND LEGAL BASIS FOR PURPOSES OF A
FORCIBLE ENTRY.

B) THE CONCLUSION DRAWN BY RESPONDENT JUDGE THAT PETITIONER

MUST PAY A MONTHLY RENTAL OF P400.00 FROM AUGUST, 1976 TILL THE
PROPERTY IS RETURNED HAS NO LEGAL AND FACTUAL BASIS.

The petition is without merit.

Petitioner, in claiming that the private respondent has not established prior
possession, argues that private respondent's periodic visit to the lot to gather
coconuts may have been consented to and allowed or tolerated by the owner
thereof for the purposes of paying an obligation that may be due to the person
gathering said nuts and that a person who enters a property to gather coconut fruits
and convert the same to copras may only be a hired laborer who enters the
premises every harvest season to comply with the contract of labor with the true
owner of the property.

The argument is untenable.

It should be stressed that "possession is acquired by the material occupation of a

thing or the exercise of a right, or by the fact that it is subject to the action of our
will, or by the proper acts and legal formalities for acquiring such right." (Art. 531,
Civil Code; Rizal Cement Co., Inc. vs. Villareal, 135 SCRA 15 [1985]); and that the
execution of a sale thru a public instrument shall be equivalent to the delivery of the
thing, unless there is stipulation to the contrary . . . . If, however, notwithstanding
the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it herself, because such tenancy and
enjoyment are opposed by another, then delivery has not been effected. (Paras, Civil
Code of the Philippines, Vol. II, 1989 Ed., p. 400).

Applying the above pronouncements on the instant case, it is clear that possession
passed from vendor William Giger to private respondent Manuel Mercado by virtue
of the first sale a retro (Exhibit A), and accordingly, the later sale a retro (Exhibit 5)
in favor of petitioner failed to pass the possession of the property because there is
an impediment the possession exercised by private respondent. Possession as a
fact cannot be recognized at the same time in two different personalities except in
the cases of co-possession. Should a question arise regarding the fact of possession,
the present possessor shall be preferred; if there are two possessions, the one
longer in possession, if the dates of possession are the same, the one who presents a
title; and if these conditions are equal, the thing shall be placed in judicial deposit
pending determination of its possession or ownership through proper proceedings
(Art. 538, Civil Code).

As to petitioner's query that "Is the entry of petitioner to the property characterized
by force, intimidation, threat, strategy, or stealth in order to show that private
respondent has had possession so that the case is within the jurisdiction of the
inferior court?" (p. 15, Petition; p. 16, Rollo). The same is answered in the
affirmative.

The act of entering the property and excluding the lawful possessor therefrom
necessarily implies the exertion of force over the property, and this is all that is
necessary. Under the rule, entering upon the premises by strategy or stealth is
equally as obnoxious as entering by force. The foundation of the action is really the
forcible exclusion of the original possessor by a person who has entered without
right. The words "by force, intimidation, threat, strategy, or stealth" include every
situation or condition under which one person can wrongfully enter upon real
property and exclude another who has had prior possession therefrom. If a
trespasser enters upon land in open daylight, under the very eyes of person already
clothed with lawful possession, but without the consent of the latter, and there
plants himself and excludes such prior possessor from the property, the action of
forcible entry and detainer can unquestionably be maintained, even though no force
is used by the trespasser other than such as is necessarily implied from the mere
acts of planting himself on the ground and excluding the other party. (Tolentino,
Civil Code of the Philippines, Vol. II, 1983 Ed., pp. 243-244; Drilon vs. Gaurana, 149
SCRA 342 [1987]).

Anent the award of rentals in favor of private respondent, the same is in order.
Petitioner's argument that there is no legal or factual basis for the payment of
monthly rentals because bad faith on the part of petitioner was never proved
deserves no merit.

It should be noted that possession acquired in good faith does not lose this character
except in the case and from the moment facts exist which show that the possessor is
not unaware that he possesses the thing improperly or wrongfully. (Art. 528, Civil
Code).

Possession in good faith ceases from the moment defects in the title are made
known to the possessors, by extraneous evidence or by suit for recovery of the
property by the true owner. Whatever may be the cause or the fact from which it
can be deduced that the possessor has knowledge of the defects of his title or mode
of acquisition, it must be considered sufficient to show bad faith. (Tolentino, Civil
Code of the Philippines, Vol. II, p. 226). Such interruption takes place upon service of
summons (Manotok Realty vs. Judge Tecson, 164 SCRA 587 [1988] citing Mindanao
Academy, Inc. v. Yap (13 SCRA 190 [1965]). In the latter case, this Court held:

. . . Although the bad faith of one party neutralizes that of the other and hence as
between themselves their rights would be as if both of them had acted in good faith
at the time of the transaction, this legal fiction of Yap's good faith ceased when the
complaint against him was filed, and consequently the court's declaration of liability
for the rents thereafter is correct and proper. A possessor in good faith is entitled to
the fruits only so long as his possession is not legally interrupted, and such
interruption takes place upon service of judicial summons (Arts. 544 and 1123, Civil
Code).

A perusal of the records of the case shows that petitioner received private
respondent's complaint for forcible entry with summons on November 29, 1976
(Rollo, p. 46). His good faith therefore ceased on November 29,1976. Accordingly,
the computation of the payment of monthly rental should start from December,
1976, instead of August, 1976.

WHEREFORE, with the modification that the computation of the monthly rental
should start from December, 1976 instead of August, 1976, the September 29, 1978
decision of respondent judge is Affirmed in all other respects, with costs against
petitioner.

SO ORDERED.

G.R. No. 137944 April 6, 2000

FERNANDA MENDOZA CEQUEA and RUPERTA MENDOZA LIRIO, petitioners,
vs.
HONORATA MENDOZA BOLANTE, respondent.

Tax receipts and declarations are prima facie proofs of ownership or possession of
the property for which such taxes have been paid. Coupled with proof of actual
possession of the property, they may become the basis of a claim for ownership. By
acquisitive prescription, possession in the concept of owner public, adverse,
peaceful and uninterrupted may be converted to ownership. On the other hand,
mere possession and occupation of land cannot ripen into ownership.

The Case

Before us is a Petition for Review on Certiorari of the March 19, 1999 Decision 1 of
the Court of Appeals 2 (CA) in CA-GR CV No. 43423. The assailed Decision disposed
as follows: 3
WHEREFORE, for all the foregoing, the decision of the trial court appealed from is
REVERSED and SET ASIDE. In lieu thereof, judgment is hereby rendered declaring . .
. Honorata Mendoza Bolante the rightful owner and possessor of the parcel of land
which is the subject of this appeal.

The Facts

The Petition herein refers to a parcel of land situated in Barangay Bangad,

Binangonan, Province of Rizal, having an area of 1,728 square meters and covered
by Tax Declaration No. 26-0027. The undisputed antecedents of this case are
narrated by the Court of Appeals as follows: 4

The facts not disputed revealed that prior to 1954, the land was originally declared
for taxation purposes in the name of Sinforoso Mendoza, father of [respondent] and
married to Eduarda Apiado. Sinforoso died in 1930. [Petitioners] were the
daughters of Margarito Mendoza. On the basis of an affidavit, the tax declaration in
the name of Sinforoso Mendoza of the contested lot was cancelled and subsequently
declared in the name of Margarito Mendoza. Margarito and Sinforoso are brothers.
[Respondent] is the present occupant of the land. Earlier, on October 15, 1975,
[respondent] and Miguel Mendoza, another brother of [petitioners], during the
cadastral survey had a dispute on [the] ownership of the land.1wphi1.nt

During the pre-trial conference, parties stipulated the following facts:

1) The land subject of the case was formerly declared for taxation purposes in the
name of Sinforoso Mendoza prior to 1954 but is now declared in the name of
Margarito Mendoza.

2) The parties agree[d] as to the identity of the land subject of instant case.

3) [Petitioners] are the daughters of Margarito Mendoza while the [respondent] is

the only daughter of Sinforoso Mendoza.

4) Margarito Mendoza and Sinforoso Mendoza [were] brothers, now deceased.

5) During the cadastral survey of the property on October 15, 1979 there was
already a dispute between Honorata M. Bolante and Miguel Mendoza, brother of
[petitioners].

6) [Respondent was] occupying the property in question.

The only issue involved [was] who [was] the lawful owner and possessor of the land
subject of the case.

After trial, the court a quo rendered its judgment in favor of [petitioners], the
dispositive portion of which reads as follows:
Wherefore, in view of the foregoing considerations, judgment is hereby rendered for
the [petitioners] and against the [respondent]:

1. Declaring that the parcel of land situated in Bangad, Binangonan, Rizal covered by
tax declaration no. 26-0027 in the name of Margarito Mendoza belong to his heirs,
the [petitioners] herein;

2. Ordering [respondent] to vacate the property subject of the case and deliver
possession thereof to the heirs of Margarito Mendoza.

3. Ordering the [respondent] to indemnify the [petitioners] in the sum of

P10,000.00, as actual damages.

4. Ordering the [respondent] to pay the costs.

Ruling of the Court of Appeals

The Court of Appeals reversed the trial court because the genuineness and the due
execution of the affidavit allegedly signed by the respondent and her mother had not
been sufficiently established. The notary public or anyone else who had witnessed
the execution of the affidavit was not presented. No expert testimony or competent
witness ever attested to the genuineness of the questioned signatures.

The CA further ruled that the affidavit was insufficient to overcome the denial of
respondent and her mother. The former testified that the latter, never having
attended school, could neither read nor write. Respondent also said that she had
never been called "Leonor," which was how she was referred to in the affidavit.

Moreover, the appellate court held that the probative value of petitioners' tax
receipts and declarations paled in comparison with respondent's proof of
ownership of the disputed parcel. Actual, physical, exclusive and continuous
possession by respondent since 1985 indeed gave her a better title under Article
538 of the Civil Code.

Hence, this Petition. 5

Issues

Insisting that they are the rightful owners of the disputed land, the petitioners allege
that the CA committed these reversible errors: 6

1. . . . [I]n not considering the affidavit as an exception to the general rule that an
affidavit is classified as hearsay evidence, unless the affiant is placed on the witness
stand;
2. . . . [I]n holding that respondent has been in actual and physical possession,
coupled with . . . exclusive and continuous possession of the land since 1985, which
are evidence of the best kind of circumstance proving the claim of the title of
ownership and enjoys the presumption of preferred possessor.

The Court's Ruling

The Petition has no merit.

First Issue:

Admissibility of the Affidavit

Petitioners dispute the CA's ruling that the affidavit was not the best evidence of
their father's ownership of the disputed land, because the "affiant was not placed on
the witness stand." They contend that it was unnecessary to present a witness to
establish the authenticity of the affidavit because it was a declaration against
respondent's interest and was an ancient document. As a declaration against
interest, it was an exception to the hearsay rule. As a necessary and trustworthy
document, it was admissible in evidence. And because it was executed on March 24,
1953, it was a self-authenticating ancient document.

We quote below the pertinent portion of the appellate court's ruling: 7

While it is true that the affidavit was signed and subscribed before a notary public,
the general rule is that affidavits are classified as hearsay evidence, unless affiants
are placed on the witness stand (People's Bank and Trust Company vs. Leonidas,
207 SCRA 164). Affidavits are not considered the best evidence, if affiants are
available as witnesses (Vallarta vs. Court of Appeals, 163 SCRA 587). The due
execution of the affidavit was not sufficiently established. The notary public or
others who saw that the document was signed or at least [could] confirm its recitals
[were] not presented. There was no expert testimony or competent witness who
attested to the genuineness of the questioned signatures. Worse, [respondent]
denied the genuineness of her signature and that of her mother . . . [Respondent]
testified that her mother was an illiterate and as far as she knew her mother could
not write because she had not attended school (p. 7, ibid). Her testimony was
corroborated by Ma. Sales Bolante Basa, who said the [respondent's] mother was
illiterate.

The petitioners allegations are untenable. Before a private document offered as

authentic can be received in evidence, its due execution and authenticity must be
proved first. 8 And before a document is admitted as an exception to the hearsay
rule under the Dead Man's Statute, the offeror must show (a) that the declarant is
dead, insane or unable to testify; (b) that the declaration concerns a fact cognizable
by the declarant; (c) that at the time the declaration was made, he was aware that
the same was contrary to his interest; and (d) that circumstances render improbable
the existence of any motive to falsify. 9

In this case, one of the affiants happens to be the respondent, who is still alive and
who testified that the signature in the affidavit was not hers. A declaration against
interest is not admissible if the declarant is available to testify as a witness. 10 Such
declarant should be confronted with the statement against interest as a prior
inconsistent statement.

The affidavit cannot be considered an ancient document either. An ancient

document is one that is (1) more than 30 years old, (2) found in the proper custody,
and (3) unblemished by any alteration or by any circumstance of suspicion. 11 It
must on its face appear to be genuine. The petitioners herein failed, however, to
explain how the purported signature of Eduarda Apiado could have been affixed to
the subject affidavit if, according to the witness, she was an illiterate woman who
never had any formal schooling. This circumstance casts suspicion on its
authenticity.

Not all notarized documents are exempted from the rule on authentication. Thus, an
affidavit does not automatically become a public document just because it contains a
notarial jurat. Furthermore, the affidavit in question does not state how the
ownership of the subject land was transferred from Sinforoso Mendoza to Margarito
Mendoza. By itself, an affidavit is not a mode of acquiring ownership.

Second Issue:

Preference of Possession

The CA ruled that the respondent was the preferred possessor under Article 538 of
the Civil Code because she was in notorious, actual, exclusive and continuous
possession of the land since 1985. Petitioners dispute this ruling. They contend that
she came into possession through force and violence, contrary to Article 536 of the
Civil Code.

We concede that despite their dispossession in 1985, the petitioners did not lose
legal possession because possession cannot be acquired through force or violence.
12 To all intents and purposes, a possessor, even if physically ousted, is still deemed
the legal possessor.13 Indeed, anyone who can prove prior possession, regardless of
its character, may recover such possession. 14

However, possession by the petitioners does not prevail over that of the
respondent.1wphi1 Possession by the former before 1985 was not exclusive, as the
latter also acquired it before 1985. The records show that the petitioners' father and
brother, as well as the respondent and her mother were simultaneously in adverse
possession of the land.
Before 1985, the subject land was occupied and cultivated by the respondent's
father (Sinforoso), who was the brother of petitioners' father (Margarito), as
evidenced by Tax Declaration No. 26425. 15 When Sinforoso died in 1930,
Margarito took possession of the land and cultivated it with his son Miguel. At the
same time, respondent and her mother continued residing on the lot.

When respondent came of age in 1948, she paid realty taxes for the years 1932-
1948. 16 Margarito declared the lot for taxation in his name in 1953 17 and paid its
realty taxes beginning 1952. 18 When he died, Miguel continued cultivating the land.
As found by the CA, the respondent and her mother were living on the land, which
was being tilled by Miguel until 1985 when he was physically ousted by the
respondent. 19

Based on Article 538 of the Civil Code, the respondent is the preferred possessor
because, benefiting from her father's tax declaration of the subject lot since 1926,
she has been in possession thereof for a longer period. On the other hand,
petitioners' father acquired joint possession only in 1952.

Third Issue:

Possession of Better Right

Finally, the petitioners challenge the CA ruling that "actual and physical coupled
with the exclusive and continuous possession [by respondent] of the land since
1985" proved her ownership of the disputed land. The respondent argues that she
was legally presumed to possess the subject land with a just title since she
possessed it in the concept of owner. Under Article 541 of the Code, she could not be
obliged to show or prove such title.

The respondent's contention is untenable. The presumption in Article 541 of the

Civil Code is merely disputable; it prevails until the contrary is proven. 20 That is,
one who is disturbed in one's possession shall, under this provision, be restored
thereto by the means established by law. 21 Article 538 settles only the question of
possession, and possession is different from ownership. Ownership in this case
should be established in one of the ways provided by law.

To settle the issue of ownership, we need to determine who between the claimants
has proven acquisitive prescription. 22

Ownership of immovable property is acquired by ordinary prescription through

possession for ten years.23 Being the sole heir of her father, respondent showed
through his tax receipt that she had been in possession of the land for more than ten
years since 1932. When her father died in 1930, she continued to reside there with
her mother. When she got married, she and her husband engaged in kaingin inside
the disputed lot for their livelihood. 24
Respondent's possession was not disturbed until 1953 when the petitioners' father
claimed the land. But by then, her possession, which was in the concept of owner
public, peaceful, and uninterrupted 25 had already ripened into ownership.
Furthermore she herself, after her father's demise, declared and paid realty taxes for
the disputed land. Tax receipts and declarations of ownership for taxation, when
coupled with proof of actual possession of the property, can be the basis of a claim
for ownership through prescription. 26

In contrast, the petitioners, despite thirty-two years of farming the subject land, did
not acquire ownership. It is settled that ownership cannot be acquired by mere
occupation. 27 Unless coupled with the element of hostility toward the true owner,
28 occupation and use, however long, will not confer title by prescription or adverse
possession. Moreover, the petitioners cannot claim that their possession was public,
peaceful and uninterrupted. Although their father and brother arguably acquired
ownership through extraordinary prescription because of their adverse possession
for thirty-two years (1953-1985), 29 this supposed ownership cannot extend to the
entire disputed lot, but must be limited to the portion that they actually farmed.

We cannot sustain the petitioners' contention that their ownership of the disputed
land was established before the trial court through the series of tax declarations and
receipts issued in the name of Margarito Mendoza. Such documents prove that the
holder has a claim of title over the property. Aside from manifesting a sincere desire
to obtain title thereto, they announce the holder's adverse claim against the state
and other interested parties. 30

However, tax declarations and receipts are not conclusive evidence of ownership. 31
At most, they constitute mere prima facie proof of ownership or possession of the
property for which taxes have been paid. 32 In the absence of actual public and
adverse possession, the declaration of the land for tax purposes does not prove
ownership.33 In sum, the petitioners' claim of ownership of the whole parcel has no
legal basis.1wphi1.nt

WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution
AFFIRMED. Costs against petitioners.

SO ORDERED.
G.R. No. 131803 April 14, 1999

SOTERA PAULINO MARCELO, GABRIELA M. ANGELES, SIMEONA CUENCO,

EMILIA MARCELO and RUBEN MARCELO, petitioners,
vs.
HON. COURT OF APPEALS, FERNANDO CRUZ and SERVANDO FLORES,
respondents.

The reversal of the 28th November 1996 decision 1 of the Court of Appeals setting
aside that of the Regional Trial Court ("RTC"), Branch 19, of Malolos, Bulacan, is
sought in this petition for review on certiorari. Petitioners seek the reinstatement of
the RTC decision which has ordered respondents Fernando Cruz and Servando
Flores to return the ownership and possession of a portion of unregistered and
untitled land located in Sta. Lucia, Angat, Bulacan, to herein petitioners.

It would appear that on 06 October 1982, herein petitioners, heirs of the deceased
Jose Marcelo, filed with the Regional Trial Court of Malolos, Bulacan, an action for
the recovery of a portion of unregistered land in Sta. Lucia, Angat, Bulacan. The
complaint, later amended on 12 October 1983, averred that two parcels of land in
Sta. Lucia, declared for taxation purposes under Tax Declarations No. 2880 and No.
2882, owned by the late Jose Marcelo and his spouse, Sotera Paulino-Marcelo, had
been encroached, to the extent of 7,540 2 square meters thereof, by respondents
Fernando Cruz and Servando Flores.

In their answer, respondents Cruz and Flores denied the allegations of petitioners,
assailing at the same time the jurisdiction of the trial court to act on the complaint
which, it was claimed, had effectively asserted a cause of action for ejectment
(unlawful detainer).

The appellate court adopted the summary of evidence made by the trial court; thus:

Evidence adduced by the plaintiffs through the testimony of plaintiff Gabriela

Angeles showed that the parcel of land subject of litigation covering Lot 3098 and
embraced under Tax Declaration No. 2882 (Exh. A) was originally owned by spouses
Jose Marcelo and Sotera Paulino and they had been in continuous possession of said
property since 1939. Following the death of plaintiffs' father in 1965, they
discovered in 1967 that a portion of said property had been encroached by
defendant Fernando Cruz. Plaintiffs caused the relocation survey of said property
and per plan of Lot 3096 and Lot 3098 of the Angat Cadastre as surveyed for the
heirs of Jose Marcelo (Exh. B), 7540 square meters of Lot 3098 had been encroached
by defendant Fernando Cruz as indicated in the shaded portion of said plan (Exh. B-
1).

Defendant Fernando Cruz sold his property with an area of 13,856 square meters to
defendant Servando Flores pursuant to a deed of sale (Kasulatan ng Bilihan) dated
November 3, 1968 (Exh. C) which sale, includes the encroached portion (7,540
square meters of plaintiffs' property). Defendant Fernando Cruz heretofore
purchased the said property from Engracia de la Cruz and Vicente, Marta, and
Florentino all surnamed Sarmiento, pursuant to a "Kasulatan ng Partisyon sa Labas
ng Hukuman at Bilihang Patulayan" dated November 19, 1960 (Exh. D) covering an
area of 6,000 square meters. The Tax Declaration No. 4482 (Exh. E) covering the
property in the name of Jorge Sarmiento and Engracia Cruz covered an area of 6,800
3 square meters. As soon as the said property was sold to Fernando Cruz, the
adjoining property described and classified as "parang" with an area of 7,856 square
meters was declared by said Fernando Cruz in his name which circumstance,
increased his landholding to 13,856 square meters (Exh. F). The said property was
subsequently sold by defendant Fernando Cruz to defendant Servando Flores.

According to Gabriela, they attempted to cultivate the disputed portion sometime in

1968, but were barred from doing so by defendant Servando Flores who claimed
that the area was part of the land he bought from co-defendant Fernando Cruz.

On the other hand, both defendants testified to refute plaintiffs' evidence. They
invariably declared that the portion sought to be recovered by plaintiffs is part of
the land which defendant Fernando Cruz acquired in 1960 from the Heirs of Jorge
Sarmiento; that as stated in their document (Exh. 2), the land sold to defendant
Fernando Cruz contained 6,000 square meters of "palayero" or riceland and 7,856
square meters of "parang" or pasture land, that defendant Fernando Cruz caused the
entire parcel to be surveyed sometime in 1967 (Exhs. 3 & 4), which he then declared
for taxation purposes under Tax Declaration No. 8505 (Exh. F); that on November 3,
1968 defendant Fernando Cruz sold the whole lot to defendant Servando Flores
(Exh. I), who thereupon occupied and cultivated it. 4

Evaluating the evidence of the contending parties, the trial court found and
ratiocinated:

The crux of the matter at issue apparently revolves on the so-called pasture land
(parang) supposedly sold by the Sarmientos and Engracia dela Cruz to defendant
Fernando Cruz. The said "parang" was never included and/or embraced in the Tax
Declaration No. 4882 (Exh E) of the Sarmientos at the time of the said sale in favor
of defendant Fernando Cruz pursuant to an extrajudicial partition with sale dated
November 19, 1960 (Exh. D). This is evident as indicated by the fact that the same
was only declared by Fernando Cruz in his name in 1961 as evidence by the tax
declaration issued in his favor (Exh F). On the other hand, the said "parang" is a part
and parcel of plaintiffs' property to which they had been in possession thereof prior
to World War II and evidenced by Tax Declaration No. 2882 (Exh A). The plan of Lot
3096 and Lot 3098 of the Angat Cadastre (Exhs B and B-1) inevitably indicated that
what has been encroached by defendants refers to the "parang" of 7,540 square
meters which defendant Fernando Cruz declared the same in his name in 1961. This
explains the unnecessary increase of his property from 6,000 square meters which
he purchased from the Sarmientos pursuant to an extrajudicial partition with sale
and embraced under Tax Declaration No. 4882 (Exh. E), to 13,856 square meters. 5
The trial court thereupon ruled in favor of petitioners; the dispositive portion of its
decision concluded:

WHEREFORE, judgment is hereby rendered against the defendants ordering the

following:

a. To return the ownership and possession of 7,540 square meters to the

plaintiffs as indicated in the relocation survey plan; and

b. To pay attorney's fees in the amount of P5.000.00;

No actual and/or moral damages (sic) is awarded for lack of factual evidence.

The counterclaims is hereby dismissed for lack of factual and/or legal basis. 6

Respondent Cruz and Flores went to the Court of Appeals; in its now assailed
decision, the appellate court reversed the judgment of the court a quo. Petitioner
moved for a reconsideration; the motion, however, was denied.

In this latest recourse, petitioners assails the holding of the Court of Appeals that the
action initiated in 1982 by petitioners against respondent Flores would not prosper
on the theory that Flores already has acquired ownership of the disputed land by
ordinary acquisitive prescription. Petitioners argue that

1. The respondent court erred in not applying the doctrine laid down by this
Honorable Court in Tero vs. Tero, 131 SCRA 105 considering that the respondents
never acquired the 7,540 square meters lawfully, as the respondent court already
stated that was sold to respondent Cruz was the 6,800 square meters which he then
sold to respondent Flores, hence respondents can not account as to how they
acquire said lot, whereas the petitioner proved the 7,540 square meters formed part
of 19,231 square meters of their parents in their possession since 1939.

2. The respondent court erred in disregarding the findings of facts of the trial
court, and substitute its own perception of the facts contrary to the incontrovertible
evidence. 7

Petitioners assert that the property sold by the Sarmientos to respondent Cruz on
19 November 1950, under a "Kasulatan ng Partisyon sa Labas ng Hukuman at
Bilihang Patuluyan," covers only the "palayero" or riceland, which measures about
6,000 square meters, and that the "parang," containing 7,856 square meters, has not
been included.

The petition must be denied.

Contrary to the insistence of petitioners, the "Kasulatan ng Partisyon sa Labas ng
Hukuman at Bilihang Patuluyan," executed on 19 March 1960 by Engracia de la Cruz
(widow of Jorge Sarmiento) and her children Vicente Sarmiento. Maria Sarmiento
and Florentino Sarmiento, pertained not only to the "palayero" but also to the
"parang" as well; this agreement provided thus:

1. Na akong si Engracia de la Cruz at ang aking yumao ng asawang si Jorge

Sarmiento (nuong nabubuhay ito) ay nakapagpundar ng isang lupa na ang buong
description ay gaya ang sumusunod.

Isang parselang lupang PALAYERO na may kasamang PARANG (Cogonales) na

matatagpuan sa Barrio ng Santa Lucia, Angat, Bulacan, P.I.

Ang Palayero ay may sukat na 6,000 metros cuadrados, klasipikado 2-b, amillarado
P270.00 Tax No. 4482; at ang parang ay may sukat na 7,856 metros cuadrados.
Humahangga sa Norte, key Antonio de la Rosa; Este, kina Fabian Garcia at Juan
Geronimo; Sur, Kina Miguel Illescas, Ciriaco Reyes, y Juan de la Cruz; Oeste, Juan de
la Cruz hoy Jose Marcelo y Mariano de la Cruz hoy Felipe de Leon. Walang mejoras at
ang hangganan sa paligid ay makikilala sa pamamagitan ng mga matutuwid na
sikang o pilapil na buhay.

2. Ayon sa Tax No. 4482 ay lupang palayero lamang ang nakatala, subalit ito'y
mayroong kasamang parang na hindi lamang naipatala niyang nakaraang pasukan
ng lupa sa tanggapan ng Assessor Provincial, kaya't ngayon ay magalang naming
hinihiling na matala ang naturang
parang. 8 (Emphasis supplied).

Shortly after the execution of the deed of sale in his favor, respondent Cruz declared
both parcels. i.e., the palayero and the parang, for taxation purposes in 1960 in the
Office of the Provincial Assessor and forthwith a new tax declaration was issued in
his name for the entire 13,856 square-meter property. The trial court itself likewise
found that the sale by the Sarmientos to respondent Cruz covered both the riceland
and the pasture land, it said:

. . . It is worthy to note that the ownership of the adjoining property by defendant

Fernando Cruz originated from an extrajudicial partition with sale (Kasulatan ng
Partisyon sa Labas ng Hukuman at Bilihang Patuluyan dated November 19, 1960 . . . .
Under the said document, Engracia de la Cruz and her children Vicente, Marta, and
Florentino, all surnamed Sarmiento, sold to defendant Fernando Cruz a rice land
containing an area of 6,000 square meters and embraced under Tax Declaration No.
4482 and a pasture land (parang) containing an area of 7,856 square meters. . . . 9

In turn, respondent Cruz sold, on 03 November 1968, the 13,856 square meters of
land to respondent Flores under a "Kasulatan ng Bilihan." Respondent Flores
immediately took possession of the property to the exclusion of all others and
promptly paid the realty taxes thereon. From that time on, Flores had been in
possession of the entire area in the concept of an owner and holding it in that
capacity for almost fourteen (14) years before petitioners initiated their complaint
on 06 October 1982.

Acquisitive prescription is a mode of acquiring ownership by a possessor through

the requisite lapse of time. In order to ripen into ownership, possession must be in
the concept of an owner, public, peaceful and uninterrupted. 10 Thus, mere
possession with a juridical title, such as, to exemplify, by a usufructuary, a trustee, a
lessee, an agent or a pledgee, not being in the concept of an owner, cannot be ripen
into ownership by acquisitive prescription. 11 unless the juridical relation is first
expressly repudiated and such repudiation has been communicated to the other
party. 12 Acts of possessory character executed due to license or by mere tolerance
of the owner would likewise be inadequate. 13 Possession, to constitute the
foundation of a prescriptive right, must be en concepto de dueno, or, to use the
common law equivalent of the term, that possession should be adverse; if not, such
possessory acts, no matter how long, do not start the running of the period of
prescription. 14

Acquisitive prescription of dominion and other real rights may be ordinary or

extraordinary. Ordinary acquisitive prescription requires possession of things in
good faith and with just title for the time fixed by law; 15 without good faith and just
title, acquisitive prescription can only be extraordinary in character.

As regards. real or immovable property, Article 1134 of the Civil Code provides:

Art. 1134. Ownership and other real rights over the immovable property are
acquired by ordinary prescription through possession of ten years.

Ordinary acquisitive prescription demands, as aforesaid, that the possession be "in

good faith and with just title." 16 The good faith of the possessor consists in the
reasonable belief that the person from whom the thing is received has been the
owner thereof and could thereby transmit that ownership. 17 There is, upon the
other hand, just title when the adverse claimant comes into possession of the
property through any of the modes recognized by law for the acquisition of
ownership or other real rights, but that the grantor is neither the owner nor in a
position to transmit the right. 18 In Doliendo vs. Biarnesa, 19 the Supreme Court has
explained the law in Article 1130 of the Civil Code which states that the "title for
prescription must be true and valid." Thus:

We think that this contention is based on a misconception of the scope and effect of
the provisions of this article of the Code in its application to "ordinary prescription."
It is evident that by a "titulo verdadero y valido" in this connection we are not to
understand a "titulo que por si solo tiene fuerza de transferir el dominio sin
necesidad de la prescripcion" (a title which of itself is sufficient to transfer the
ownership without the necessity of the lapse of the prescription period); and we
accept the opinion of a learned Spanish law writer who holds that the "titulo
verdadero y valido" as used in this article of the code prescribes a "titulo colorado"
and not merely "putativo;" a "titulo colorado" being one "which a person has when
he buys a thing, in good faith, from one whom he believes to be the owner," and a
"titulo putativo" "being one which is supposed to have preceded the acquisition of a
thing, although in fact it did not, as might happen when one is in possession of a
thing in the belief that it had been beoueathed to him." (Viso Derecho Civil, Parte
Segunda, p. 541). 20

The records of the case amply supports the holding of the appellate court that the
requirements for ordinary prescription hereinabove described have indeed been
duly met; it explained:

In the instant case, appellant Servando Flores took possession of the controverted
portion in good faith and with just title. This is so because the said portion of 7,540
square meters was an integral part of that bigger tract of land which he bought from
Fernando Cruz under public document (Exh I). As explicitly mentioned in the
document of sale (Exh. I) executed in 1968, the disputed portion referred to as
"parang" was included in the sale to appellant Flores. Parenthetically, at the time of
the sale, the whole area consisting of the riceland and pasture land was already
covered by a tax declaration in the name of Fernando Cruz (Exh. F) and further
surveyed in his favor (Exhs. 3 & 4). Hence, appellant Flores' possession of the entire
parcel which includes the portion sought to be recovered by appellees was not only
in the concept of an owner but also public, peaceful and uninterrupted. While it is
true that the possession of the entire area by his predecessor-in-interest (Fernando
Cruz) may not have been peaceful as it was indeed characterized with violence
which resulted in the death of Jose Marcelo, this cannot be said of appellant Flores'
possession of the property, in respect of which no evidence to the contrary appears
on record. 21

The Court finds no cogent reasons to reverse the above findings of the appellate
court and thus gives its affirmance to the assailed decision.

WHEREFORE, the petition for review on certiorari is DENIED. No cost.1wphi1.nt

SO ORDERED.
G.R. No. 160421 October 4, 2004

SPOUSES PHILIP RECTO and ESTER C. RECTO, represented by their Attorney-

in-fact,
GENEROSO R. GENEROSO, petitioners,
vs.
REPUBLIC OF THE PHILIPPINES, respondent.

This is a petition for review on certiorari challenging the January 16, 2003 decision1
of the Court of Appeals in CA-G.R. CV No. 65407 which reversed the September 7,
1998 decision2 of the Regional Trial Court of Tanauan, Batangas, Branch 6 in Land
Registration Case No. T-320. Likewise assailed is the appellate courts October 17,
2003 resolution3 denying petitioners motion for reconsideration.

On February 19, 1997, petitioner spouses Philip Recto and Ester C. Recto, filed with
the Regional Trial Court of Tanauan, Batangas, Branch 6, an application for
registration of title over a 23,209 square meter lot,4 designated as Lot 806, Cad-424,
Sto. Tomas Cadastre, Plan Ap-04-010485, situated in Barangay San Rafael,
Municipality of Sto. Tomas, Province of Batangas, under Presidential Decree (P.D.)
No. 1529, otherwise known as the Property Registration Decree. They also prayed in
the alternative that their petition for registration be granted pursuant to
Commonwealth Act (C.A.) No. 141, or the Public Land Act.5

Petitioners alleged that on June 4, 1996, they purchased Lot 806 from sisters Rosita
Medrana Guevarra and Maria Medrana Torres for the amount of P6,943,534.40.6
The two, in turn, inherited the lot from their deceased parents, Vicente and Eufemia
Medrana. Maria, born on October 22, 1917, declared that since 1945, her father was
already the owner of Lot 806. She became aware of her fathers possession of the
subject lot in the concept of owner in 1930 when she was 13 years of age. The
possession of the subject lot by the Medrana family prior to 1945 was corroborated
by Rosita,7 who testified that in 1935 when she was 13 years of age, she first came
to know that her father was the owner of Lot 806. The sisters added that during the
lifetime of Vicente, he planted rice and corn on the lot with the help of their tenant.
After his demise, they continued to plant the same crops through hired farmers.8

Petitioners presented the following documentary evidences

(1) Blue Print Copy of the Plan9 and Technical Description10 of Lot 806, both
certified by Land Management Services (formerly the Bureau of Lands), of the
Department of Environment and Natural Resources (DENR);

(2) Tax Declarations11 of the lot for the years 1948, 1955, 1968, 1974, 1980, 1987,
1989 and 1994 (in the name of Vicente Medrana); 1996 (in the name of Rosita
Guevarra and Maria Torres); and 1998 (in the name of Philip and Ester Recto).
(3) Certification of Non-Delinquency for the year 1998 from the Municipal
Treasurer of Sto. Tomas, Batangas;12

(4) Report13 from the Community Environment and Natural Resources Office,
Department of Environment and Natural Resources (DENR) stating, among others,
that

(a) the entire area is within the alienable and disposable zone as classified under
Project No. 30 L.C. Map No. 582 and released and certified as such on December 31,
1925; (Emphasis, supplied)

(b) the lot is not within a reservation area nor within the forest zone;

(c) the lot is not within a previously issued patent, decree or title.

(d) there is no public land application filed for the same land by the applicant or any
other person;

(e) the land is covered by Tax Declaration No. 021-02166-A in the name of the
predecessor-in-interest and that there is no difference in area;

(f) the lot is agricultural in nature; and

(g) the lot does not encroach upon an established watershed, riverbed and river
bank protection.

(5) Report from the Land Management Bureau that the land involved is not covered
by any land patent or by land application pending issuance of patent.14

(6) Report from the Forest Management Service, DENR that the subject lot falls
within Alienable and Disposable lands, Project No. 30 of Sto. Tomas, Batangas, per
BFD LC Map No. 582 certified on December 31, 1925.15

(7) Report from the Land Management Sector, DENR that Plan Ap-04-010485, Lot
806, Cad-424, Sto. Tomas Cadastre, situated in the Barangay of San Rafael,
Municipality of Sto. Tomas, Province of Batangas, is not a portion of nor identical to
any previously approved isolated survey.16

There being no opposition to the petition from any private individual, an Order of
General Default was issued by the trial court.17

On September 7, 1998, the court a quo rendered a decision granting the petition for
registration. The dispositive portion thereof, reads:

WHEREFORE, and upon previous confirmation of the Order of General Default, this
Court hereby adjudicates and decrees Lot 806, Cad-424, Sto. Tomas Cadastre on
plan Ap-04-010485, situated in San Rafael, Sto. Tomas, Batangas, with an area of
23,209 square meters, in favor of and in the names of Spouses Philip Recto and Ester
C. Recto, Filipino citizens and residents of 1322 Palm Avenue, Dasmarias Village,
Makati City.

Once this Decision shall have become final let the corresponding decree of
registration be issued.

SO ORDERED.18

The Republic, represented by the Solicitor General appealed to the Court of Appeals
contending that petitioners failed to (1) offer in evidence the original tracing cloth
plan of the land; (2) prove possession of the lot for the period required by law; and
(3) overthrow the presumption that subject property forms part of the public
domain.19

On January 16, 2003, the Court of Appeals reversed the decision of the trial court on
the sole ground of failure to offer in evidence the original tracing cloth plan of the
land.20

Petitioners filed a motion for reconsideration praying that in view of their

compliance with all the substantive and procedural requirements for registration,
save for the submission of the tracing cloth plan, the case be remanded to the trial
court for the presentation of the said tracing cloth plan. The Solicitor General, on the
other hand, interposed no objection to petitioners motion for reconsideration.21

On October 17, 2003, the Court of Appeals denied petitioners motion for
reconsideration.22 Hence, the instant petition praying for the remand of the case
before the trial court.

In its Comment, the Solicitor General manifested that in the interest of justice, he
will not to oppose the petition.23

Section 14 (1) of Presidential Decree No. 1529 states:

SEC. 14. Who may apply. The following persons may file in the proper Court of
First Instance [now the Regional Trial Court] an application for registration of title
to land, whether personally or through their duly authorized representatives:

(1) Those who by themselves or through their predecessors-in-interest have been in

open, continuous, exclusive and notorious possession and occupation of alienable
and disposable lands of the public domain under a bona fide claim of ownership
since June 12, 1945, or earlier.

On the other hand, Section 48 (b) of Commonwealth Act No. 141, as amended by
Section 4 of Presidential Decree No. 1073, provides:
The provisions of Section 48(b) and Section 48(c), Chapter VIII, of the Public Land
Act are hereby amended in the sense that these provisions shall apply only to
alienable and disposable lands of the public domain which have been in open,
continuous, exclusive and notorious possession and occupation by the applicant
himself or thru his predecessor-in-interest, under a bona fide claim of acquisition of
ownership, since June 12, 1945.

Thus, before one can register his title over a parcel of land, the applicant must show
that (a) he, by himself or through his predecessors-in-interest, has been in open,
continuous, exclusive and notorious possession and occupation of the subject land
under a bona fide claim of ownership since June 12, 1945 or earlier; and (b) the land
subject of the application is alienable and disposable land of the public domain.24

In the instant case, Rosita and Maria the predecessors-in-interest of petitioners,

categorically testified that they, and prior to them their father, had been cultivating
and possessing Lot 806 in the concept of owners. Maria, having been born on
October 22, 1917, and Rosita on October 29, 1922, were 13 years of age when they
became aware of their familys possession of Lot 806 in 1930 and 1935,
respectively. At 13, they were undoubtedly capable and competent to perceive their
fathers possession of Lot 806 in the concept of owner. Moreover, the trial court
found their testimonies to be worthy of belief and credence. Considering that the
judge below is in a better position to pass judgment on the issue, having personally
heard the witnesses testify and observed their deportment and manner of testifying,
her findings deserve the highest respect.25

The fact that the earliest Tax Declaration of the subject lot was for the year 1948 will
not militate against petitioners. Note that said 1948 Tax Declaration cancels a
previous Tax Declaration (No. 26472),26 thus substantiating petitioners possession
of Lot 806 through their predecessor-in-interest even prior to said date. At any rate,
in Republic v. Court of Appeals,27 it was held that the belated declaration of the lot
for tax purposes does not necessarily mean that possession by the previous owners
thereof did not commence in 1945 or earlier. As long as the testimony supporting
possession for the required period is credible, the court will grant the petition for
registration. Pertinent portion of the decision, reads

Petitioner questions the credibility of claimant Divinaflor who testified on the

possession of Marcial Listana for the period required by law. The issue of credibility
is unavailing considering that the judge below is in a better position to pass
judgment on the issue having personally heard the witnesses testify and observed
their deportment and manner of testifying. Being in a better position to observe the
witnesses, the trial courts appreciation of the witness testimony, truthfulness,
honesty, and candor, deserves the highest respect.

xxx xxx xxx

 [A] person is competent to be a witness if (a) he is capable of perceiving at the
time of the occurrence of the fact and (b) he can make his perception known. True,
in 1939, Divinaflor was not born yet, but in 1945, he was four years old, residing in
Maramba, Oas, Albay, where the subject lot is located. As his testimony goes, he and
Marcial Listana were barrio mates, and that he usually passes by the subject land.
The fact that Divinaflor was only a child at the required inception of possession does
not render him incompetent to testify on the matter. It is well-established that any
child regardless of age, can be a competent witness if he can perceive, and
perceiving can make known his perception to others and that he is capable of
relating truthfully facts for which he is examined. The requirements of a childs
competence as a witness are: (a) capacity of observation; (b) capacity of
recollection; and (c) capacity of communication. There is no showing that as a child,
claimant did not possess the foregoing qualifications. It is not necessary that a
witness knowledge of the fact to which he testifies was obtained in adulthood. He
may have first acquired knowledge of the fact during childhood, that is, at the age of
four, which knowledge was reinforced through the years, up until he testified in
court in 1990. There is reason to reject petitioners claim that Divinaflor is
incompetent to testify regarding Listanas possession since it appears undisputed
that Divinaflor grew up in Maramba, Oas, Albay, and had occasion to see Listana
possessing the land.

Finally, we agree with the Court of Appeals that the belated declaration of the
property for tax purposes does not necessarily lead to the conclusion that the
predecessors were not in possession of the land as required by law since 1945.
Petitioner capitalizes on the fact that the earliest tax declaration presented took
effect only in 1980 while the certificate of tax payment is dated 1990. While this
Court has held in a long line of cases that tax declarations or tax receipts are good
indicia of possession in the concept of owner, it does not necessarily follow that
belated declaration of the same for tax purposes negates the fact of possession,
especially in the instant case where there are no other persons claiming any interest
in Lot 10739.

So also, there is no doubt that Lot 806 is an alienable land of the public domain
having been released and certified as such on December 31, 1925. As further
certified by the Community Environment and Natural Resources Office of the DENR,
the entire area of Lot 806 is an agricultural land; within an alienable and disposable
zone; not within a reservation area nor within a forest zone; and does not encroach
upon an established watershed, riverbed, and riverbank protection.28 Petitioners
were thus able to successfully meet the requisite for original registration of title, to
wit: open, continuous, exclusive and notorious possession and occupation of an
alienable and disposable land under a bona fide claim of ownership since June 12,
1945 or earlier.

Nevertheless, the Court of Appeals reversed the decision of the trial court granting
the petition for registration on the ground of petitioners failure to submit in
evidence the original tracing cloth plan of Lot 806. Indeed, the submission of the
tracing cloth is a mandatory requirement for registration.29 However, it was held
that while the best evidence to identify a piece of land for registration purposes is
the original tracing cloth plan from the Bureau of Lands, blue print copies and other
evidence could also provide sufficient identification.30 In Republic v. Court of
Appeals,31 the Court ruled that the blueprint copy of the cloth plan together with
the lots technical description duly certified as to their correctness by the Bureau of
Lands (Now the Land Management Bureau of the DENR)32 are sufficient to identify
the land applied for registration, thus

On the first challenge, the petitioner invokes the case of Director of Lands v. Reyes,
where it was held that "the original tracing cloth plan of the land applied for which
must be approved by the Director of Lands" was "a statutory requirement of
mandatory character" for the identification of the land sought to be registered. As
what was submitted in the case at bar to identify the subject property was not the
tracing cloth plan but only the blueprint copy of the survey plan, the respondent
court should have rejected the same as insufficient.

We disagree with this contention. The Court of Appeals was correct when it
observed that in that case the applicant in effect "had not submitted anything at all
to identify the subject property" because the blueprint presented lacked the
approval of the Director of Lands. By contrast

In the present case, there was considerable compliance with the requirement of the
law as the subject property was sufficiently identified with the presentation of
blueprint copy of Plan AS-06-000002 (San Pedro v. Director of Lands, CA-G.R. No.
65332-R, May 28, 1981). It should be noted in this connection that the Bureau of
Lands has certified to the correctness of the blueprint copy of the plan including the
technical description that go with it. Hence, we cannot ignore the fact, absent in the
Reyes case, that applicant has provided ample evidence to establish the identity of
the subject property. (Emphasis supplied)

Such a view was affirmed by the Court in Republic of the Philippines v. Intermediate
Appellate Court, where we held that while the best evidence to identify a piece of
land for registration purposes was the original tracing cloth plan from the Bureau of
Lands, blueprint copies and other evidence could also provide sufficient
identification. This rule was bolstered only recently in the case of Director of Lands
v. Court of Appeals, where the Court declared through Chief Justice Marcelo B.
Fernan:

We affirm. No reversible error was committed by the appellate court in ruling that
Exhibit "O," the true certified copy of the white paper plan, was sufficient for the
purpose of identifying the land in question. Exhibit "O" was found by the appellate
court to reflect the land as surveyed by a geodetic engineer. It bore the approval of
the Land Registration Commission, and was re-verified and approved by the Bureau
of Lands on April 25, 1974 pursuant to the provisions of P.D. No. 239 withdrawing
from the Land Registration Commission the authority to approve original survey
plans. It contained the following material data: the barrio (poblacion), municipality
(Amadeo) and province (Cavite) where the subject land is located, its area of 379
square meters, the land as plotted, its technical descriptions and its natural
boundaries. Exhibit "O" was further supported by the Technical Descriptions signed
by a geodetic surveyor and attested by the Land Registration Commission. In fine,
Exhibit "O" contained all the details and information necessary for a proper and
definite identification of the land sought to be registered, thereby serving the
purpose for which the original tracing cloth plan is required. The fact therefore that
the original survey plan was recorded on white paper instead of a tracing cloth
should not detract from the probative value thereof. x x x.

In the case at bar, Lot 806 was sufficiently identified by the blue print copy of the
plan (Exhibit "R")33 and the technical description (Exhibit "S")34 thereof both
approved by Land Management Services, DENR. Also, per report of the Land
Management Sector, Plan Ap-04-010485, Lot 806, Cad-424, Sto. Tomas Cadastre,
situated in the Barangay of San Rafael, Municipality of Sto. Tomas, Province of
Batangas, is not a portion of, nor identical to any previously approved isolated
survey.35 Petitioners also submitted before the Court of Appeals a certified true
copy36 of the original tracing cloth plan as well as a certification37 from the Land
Registration Authority attesting to the fact that the original plan of Plan-Ap-04-
010485 in Diazo Polyester film is on file with their office. Under the circumstances,
therefore, the Court of Appeals erred in reversing the decision of the trial court
solely on the ground that petitioners failed to present the original tracing cloth plan.

Having met all the requirements for registration of title including the presentation
of sufficient evidence to identify the land sought to be registered, there is no more
need to remand the case before the trial court for the presentation of the tracing
cloth plan.

WHEREFORE, the January 16, 2003 decision and October 17, 2003 resolution of the
Court of Appeals in CA-G.R. CV No. 65407 are reversed and set aside. the September
7, 1998 decision of the Regional Trial Court of Tanauan, Batangas, Branch 6 in Land
Registration Case No. T-320, ordering the issuance of a decree of registration over
Lot 806, Cad-424, Sto. Tomas Cadastre, Plan Ap-04-010485 in the name of
petitioners is REINSTATED.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 149117 December 16, 2004

HEIRS OF CERILA GAMOS and RICARDO GALAG, Namely, FELICITAS G.

GARCERA, ENCARNACION G. FORTE, NARCISA G. GALAN; and DOMINGO,
EDILBERTO, ROBERTO, HELEN, VIRGILIO, RICARDO, CONSTANTINO and
VIOLETA, All Surnamed GALAG, Represented by VIOLETA GALAG as Their
Attorney-in-Fact; AMBROCIO GUATAO, MIGUEL FUNGO and The DIRECTOR,
BUREAU OF LANDS, petitioners,
vs.
HEIRS OF JULIANO FRANDO, Namely, PACIENCIA GALLANOSA FUELLAS; and
RODOLFO, NERI, JUAN and ANTONIO, All Surnamed GIMPES, respondents.

A sales patent applicant who has complied with all the legal requirements is entitled
to a grant of the disposable land of the public domain applied for. The execution and
formal delivery of the patent becomes merely ministerial. Under these
circumstances, the property applied for is, for all purposes, considered segregated
from the public domain. Hence, the subsequent issuance to a third person of a free
patent covering the same property is null and void. The government can no longer
convey the ownership of a parcel of land it no longer owns.

The Case

Before the Court is a Petition for Review1 under Rule 45, seeking to nullify the
August 23, 2000 Decision2 and the July 12, 2001 Resolution3 of the Court of Appeals
(CA) in GR CV No. 61230. The decretal portion of the assailed Decision reads:

"WHEREFORE, upon the premises, the appealed decision is AFFIRMED in toto."4

The challenged Resolution denied petitioners Motion for Reconsideration.

The Facts

The subject of the present controversy is a parcel of agricultural land located in Sta.
Magdalena, Sorsogon, particularly described as follows:

"Location: Poblacion, Sta. Magdalena, Sorsogon

"Area: 2.4969 hectares

"Boundaries: N-R. Frando & P. Frilles

E-I. Gallanosa & P. Frilles

S-I. Gallanosa & P. Frilles

W. Marcela de Galag"5
Juliana Frando, respondents predecessor-in-interest, was in possession of the
above-described property. Since 1925, she had planted several trees and other
plants thereon, including coconuts, pili, bananas and cacao.6 Sometime in 1946, the
property was traversed by a national road that effectively divided it into two
portions, denominated as Lot Nos. 7 and 1855, respectively.7 The latter, Lot No.
1855, is the subject of the present controversy.

Evident from certified copies of existing records of the Bureau of Lands introduced
in evidence is the fact that on February 14, 1952, Frando filed Insular Government
Property Sales (IGPS) Application No. 162 for the parcel in question. Pursuant
thereto, a representative of the Bureau of Lands inspected the area and found it to
be inside an agricultural zone, free from private claims and conflicts.

After the secretary of agriculture appraised the property at P240, a notice calling for
bids was published. At the auction sale conducted on April 22, 1955, the only bidder
was Frando. On even date she deposited P24, which represented 10 percent of the
appraised value, as evidenced by Official Receipt (OR) No. 9654851 dated April 22,
1955.

Full payment of the purchase price was effected approximately a year later, on April
6, 1956, when Frando paid the balance of P216 as evidenced by OR No. A-2675530.
On the same day, an Order/Award was made in her favor by Director of Lands Zoilo
Castrillo.8 Apparent from a survey plan executed pursuant to an Order of the
Bureau was the fact that the property awarded to her covered both Lots 7 and 1855
with an aggregate area of 4.000 hectares.

One of her two children, Salvacion Gallanosa who was married to Abdon Gimpes,
continued possession of the property. Sometime in 1940, the couple constructed
their house on the southwestern portion thereof.

The other child of Frando, Paciencia Gallanosa-Fuellas, chose to settle in Manila. The
Gimpes spouses helped her in the administration of the land. Their children --
particularly Respondents Rodolfo, Neri, Juan and Antonio -- were born on the
property, where they also grew up. After their parents death, they continued
possession of the land; and harvested and received the fruits of the improvements
for themselves and on behalf of their grandmother, Juliana Frando, even after her
death in 1971.9

Purportedly unknown to private respondents, a cadastral survey of the Municipality

of Sta. Magdalena, Sorsogon, was conducted in 1958. According to the Bureau of
Lands, during the said survey, Lot No. 1855 became the subject of Case No. P1s-611-
D, Sta. Magdalena Public Land Subdivision; as a result, Free Patent No. 45950110
dated July 24, 1969 was awarded to Defendant Cerila Gamos on October 27, 1969.
Allegedly, the free patent became the basis for the issuance of OCT No. P-10548 in
her name. Private respondents claimed to be unaware of these developments, as
neither she nor her heirs had taken possession of the disputed portion until 1981. In
that year, Ambrocio Guatno and the other petitioners, who had joined him later,
entered the property, gathered its produce and built their houses thereon.

On August 3, 1988, the heirs of Juliana Frando filed with the Regional Trial Court
(RTC) a Complaint against Cerila Gamos and the director of the Bureau of Lands. The
complainants challenged the validity of Free Patent No. 459501 and OCT No. P-
10548. As the plaintiffs therein, they alleged that the Bureau of Lands had no
authority to award the patent covering an area it had earlier awarded to Frando.
They further alleged that fraud had attended the issuance of the subject OCT when
Miguel Fungo, an employee of the Office of the Provincial Assessor of Sorsogon,
purportedly forged the signature of Cerila Gamos in all the documents. Those
documents were used in the transfer of the Tax Declaration to her name, as well as
in the application for the issuance of Free Patent No. 459501 and OCT No. P-10548.

In their Answer, Cerila Gamos and her co-defendants alleged that they had been in
actual and open possession of the land as early as 1952; and that the Bureau of
Lands October 27, 1969 issuance in their favor of a free patent title, which
subsequently became the basis of OCT No. P-10548, was valid and lawful. They
pointed out that respondents suit to contest a title nineteen years after its issuance
was already barred by prescription.

In its Answer, the Bureau of Lands, represented by the Office of the Solicitor General
(OSG), admitted that Juliana Frando had filed an IGPS application for a parcel of land
with an area of 2.4969 hectares located at Poblacion, Sta. Magdalena, Sorsogon,
Sorsogon. Admittedly, she won the public bidding and deposited the amount of P24
under OR No. 9654851 dated April 22, 1955, but allegedly failed to pay the balance
price of P216. Thus, concluded the Bureau, while the land had previously been
awarded to her, the Complaint was rendered dismissible for lack of merit, as a
consequence of her failure to pay the balance price to assert her right to perfect her
title thereto, and to controvert the subsequent cadastral survey covering a portion
thereof. In its Answer, however, the Bureau made no mention of OCT No. P-10548.

On July 7, 1998, the Sorsogon RTC rendered the following judgment in favor of
respondents (the plaintiffs therein):

"WHEREFORE, the court renders judgment:

a. Finding the defendant Cerila Gamos of having fraudulently secured a free patent
title to that portion of the property in question described in paragraph 3 of the
complaint and indicated in Exhibit "X-1" as that portion shaded by red lines;

b. Ordering the defendant Cerila Gamos or her successors-in-interest to execute a

deed of reconveyance of that portion of Lot No. 1855 under Original Certificate of
Title No. 10548 as delineated and described in Exhibit "X-1", shaded by red lines;
c. Ordering the defendants to surrender the possession of the same to the plaintiffs
and to remove whatever improvements said defendants had introduced on said
property;

d. Ordering the defendants to pay the plaintiffs the amount of P15,000.00 x x x as

damages representing attorneys fees and necessary litigation expenses, jointly and
severally and;

e. To pay the costs."

Aggrieved, petitioners appealed to the Court of Appeals.

Ruling of the Court of Appeals

Affirming the RTC, the appellate court noted that the trial courts Decision was fully
supported by the evidence on record. The CA dismissed petitioners submission
that, on the basis of the Report of the Bureau of Lands, the claim of Juliana Frando
had yet to be perfected, because she had paid only 10 percent of the total value of
the land covered by her application. The appellate court pointed out that the
foregoing argument was belied by the Bureaus Order/Award to her in 1956.

Further, the CA upheld the lower courts award of attorneys fees, because the
appellees had been compelled "to litigate or incur expenses to protect their interest
by reason of the unjustified act of the [appellants]." 11

Hence, this Petition.12

Issues

In their Memorandum, petitioners raise the following issues for our consideration:

"Whether or not the order award given to Juliana Frando has been perfected

II

"Whether or not Cerila Gamos free patent was secured through fraud

III

"Whether or not action of the heirs of Juliana Frando has already been barred by
laches/prescription"13

The Courts Ruling

The Petition has no merit. However, the challenged judgment should be partly
modified.

First Issue:

Perfection of Sales Patent

The Philippine Constitution provides that "all lands of the public domain x x x are
owned by the State."14 They "are classified into agricultural, forest or timber,
mineral lands and national parks. x x x. Alienable lands of the public domain shall be
limited to agricultural lands."15

The origin of the foregoing provisions can be traced to the Roman law concept of
dominium, the power of the State to own or acquire property. Under this concept,
which became the basis for the regalian theory predominant during the Spanish
times, all lands belonged to the Spanish Crown.16 In our present republican form of
government, the concept remains, albeit stripped of its colonial overtones. Now,
ownership of all lands of the public domain is vested in the State.17

As in ordinary ownership, dominium embraces the capacity to alienate the property

owned. The constitutional limitation on the States power to alienate agricultural
lands of the public domain is intended to prevent monopoly and foreign control of
our natural resources, as well as to enable the government to control the
exploitation, development and utilization thereof for the benefit of all.

Private persons gain title to agricultural lands of the public domain by virtue of a
public grant,18 adverse possession (or prescription), accretion and -- in certain
cases -- reclamation. One who seeks to register ones title has the burden of proving
that it has been acquired through any of the foregoing modes, by virtue of which the
land has effectively been segregated from the public domain.

A perusal of the Complaint filed by private respondents before the trial court shows
that their asserted claim over the disputed portion ostensibly rested on the
Order/Award issued to their predecessor-in-interest, Juliana Frando, in 1956. The
issue is now narrowed down to whether this piece of evidence sufficiently vested
private respondents with an uncontroverted and indefeasible title over the disputed
property.

Acquisition of Public Land

Through a Sales Patent

Disposal of public agricultural land through a sales patent, as in the instant case, is
governed by Commonwealth Act No. 141, the Public Land Act. Under this law, a sales
patent may be granted to a Filipino citizen who may or may not be of lawful age,
provided that one who is below the age of majority is the head of a family. The law
provides that after winning the bid and paying the purchase price, the applicant
must comply with the necessary requirements -- specifically the cultivation,
occupation and introduction of improvements over at least one fifth of the land
applied for.

After the applicant meets the legal requirements, the director of lands then orders
the survey of the land and the issuance of the sales patent in the applicants favor.
Section 107 of Commonwealth Act 141 further requires the registration of the
patent under the Land Registration Act by furnishing the registrar of deeds a
certified copy thereof, after which the corresponding certificate of title would
accordingly be issued to the patentee.

In the present case, the Bureau of Lands did not issue the patent to Frando, because
she had allegedly failed to pay the P216 balance of the sale price. The Bureaus
assertion is, however, soundly disproved by evidence. Clearly appearing on the
Order/Award19 issued to Frando in 1956 is the following proviso:

"That at the auction sale of the land held on April 22, 1955, the only bid received
was that of the applicant who offered P240.00 for the whole tract and deposited the
amount of P24.00 under O.R. No. 9654851 dated April 22, 1955 which is equivalent
to 10% of the bid. Subsequently, the applicant again paid the amount of P216.00
under O.R. No. A-2675530 dated April 6, 1956 to complete the full purchase price of
the land." (Emphasis supplied)

Given the full payment of the purchase price as well as the compliance with all the
requirements for the grant of a sales patent, the Bureau had no reason to deny the
issuance of such patent to Frando. Her compliance with all the requirements
effectively vested in her and her successors-in-interest an equitable title to the
property applied for. Applicable to the instant case is our time-honored
pronouncement in Balboa v. Farrales, which we quote:

"A party who has complied with all the terms and conditions which entitle him to a
patent for a particular tract of public land, acquires a vested interest therein, and is
to be regarded as the equitable owner thereof.

"Where the right to a patent has once become vested in a purchaser of public lands,
it is equivalent, so far as the Government is concerned, to a patent actually issued.
The execution and delivery of the patent after the right to it has become complete
are the mere ministerial acts of the officers charged with that duty. x x x. Even
without a patent, a perfected homestead is a property right in the fullest sense,
unaffected by the fact that the paramount title to the land is still in the Government.
Such land may be conveyed or inherited."20 (Emphasis supplied)

Thus, when the cadastral survey was subsequently conducted in Sta. Magdalena in
1958, the disputed property -- already held in private ownership -- was no longer
part of the public domain. The director of lands had no more authority to grant to a
third person a patent covering the same tract that had already passed to private
ownership.21 Thus, the issuance of the free patent to Cerila Gamos, insofar as it
encroached the portion already granted to Frando, had no legal basis at all.

Open, Continuous, Exclusive and

Notorious Possession and Occupation
of Alienable and Disposable Lands

The denial of the sales patent notwithstanding, Juliana Frando is deemed to have
acquired equitable title to the property, because private respondents adequately
proved during trial her open, continuous, exclusive and notorious possession and
occupation of alienable and disposable land of the public domain.

Introduced in evidence was a Declaration of Real Property covering the same tract
of land. The Declaration had been issued to Basilio Frando, father of Juliana Frando,
sometime in 1906.22 Witness accounts23 of long time residents of the adjoining
properties confirmed her possession for a period not later than 1925; and her
introduction thereon of various trees and other plants, including bananas, cacao, pili
and coconuts.

They also attested to the continued possession of the property by Frandos

daughter, Salvacion Gimpes; and subsequently by her children, herein private
respondents. Aside from showing the Order/Award, the children bolstered their
claim by introducing in evidence several Tax Declarations, sketch plans, survey
returns and the reports of the court-appointed commissioner.

While asserting possession of the property as early as 1952, petitioners have not
presented any document or witness to prove their bare claim. Moreover, Ambrosio
Guatno -- one of herein petitioners -- testified that he had entered the property upon
the permission of Ricardo Galag, an heir of Gamos; later, he admitted that its true
owner was Juliana Frando.24

In line with Susi v. Razon,25 possession of a parcel of agricultural land of the public
domain for the prescribed period of 30 years ipso jure converts the lot into private
property.26 In that case, the application of Valentin Susi for a free patent was denied
by the Bureau of Lands, despite the fact that he had been in possession of the
property for a far longer period than the grantee. Still true to this day is this Courts
ruling on the matter, which we quote:

"It clearly appears from the evidence that Valentin Susi has been in possession of
the land in question openly, continuously, adversely and publicly, personally and
through his predecessors, since the year 1880, that is, for about forty-five years. x x
x. When on August 15, 1914, Angela Razon applied for the purchase of the land,
Valentin Susi had already been in possession thereof personally and through his
predecessors for thirty four years. x x x In favor of Valentin Susi, there is, moreover,
the presumption juris et de jure x x x that all the necessary requirements for a grant
by the Government were complied with, for he has been in actual and physical
possession personally and through his predecessors, of an agricultural land of the
public domain openly, continuously, exclusively and publicly since July 26, 1894,
with a right to a certificate of title to said land under the provisions of Chapter VIII
of said Act. So that when Angela Razon applied for a grant in her favor, Valentin Susi
had already acquired, by operation of law, not only a right to a grant, but a grant of
the government, for it is not necessary that a certificate of title should be issued in
order that a grant may be sanctioned by the courts, an application therefore is
sufficient, under the provision of Section 47 of Act No. 2874. If by a legal fiction,
Valentin Susi had acquired the land in question by a grant of the State, it had already
ceased to be of the public domain and had become the private property, at least by
presumption of Valentin Susi, beyond the control of the Director of Lands.
Consequently, in selling the land in question to Angela Razon, the Director of Lands
disposed of a land over which he no longer had title or control, and the sale thus
made was void and of no effect and Angela Razon did not thereby acquire any right."
(Emphasis supplied)

Clearly, the mere application for a patent, coupled with the fact of exclusive, open,
continuous and notorious possession for the required period is sufficient to vest in
the applicant the grant applied for. In sum, the application by Juliana Frando for a
sales patent, coupled with her open, exclusive, uninterrupted and notorious
possession of the land applied for is, for all purposes, equivalent to a patent already
perfected and granted.

The subsequent entry of petitioners and their occupation of the property in question
was in bad faith,27 given the prior possession thereof by private respondents. Thus,
when the former were ordered by the RTC to remove whatever improvements they
might have introduced thereon, the court committed no error.28

Evidentiary Matters and the

Attempt to Deceive this Court

The Complaint before the Sorsogon RTC prayed mainly for the cancellation of OCT
No. P-10548, which had allegedly been issued to Cerila Gamos by the Register of
Deeds of Sorsogon on October 27, 1969. An examination of the records shows that
no copy of the said OCT was ever presented in evidence at any stage of the
proceedings. The complainants (herein respondents) failed to present the document
that was central to their action. That omission was in no way alleviated by the
ominous failure of the defendants themselves (herein petitioners) to present the
very evidence upon which they had based their claim of superior title. In fact, the
latter never presented any documentary evidence at all and merely adopted that of
the former.

Inasmuch as neither party had presented the subject OCT in evidence and, hence,
the Sorsogon RTC never had the opportunity to examine it, there was no basis for
trial courts Decision (as affirmed by the appellate court) -- more particularly, the
part ordering petitioners to "execute a deed of reconveyance of that portion of Lot
No. 1855 under Original Certificate of Title No. 10548."

As worded, the RTCs ruling may lead to mischievous consequences. For all we
know, OCT No. 10548 may be in the name of a third person who is not a party to the
present proceedings, or it may cover a property different from that in dispute. On
these grounds, the foregoing portion of the trial courts Decision should be modified.
The metes and bounds of the property in dispute -- the title to and possession of
which is confirmed to belong properly to private respondents -- should in no way be
defined by any reference to OCT No. 10548. Rather, such definition should be based
on the documentary evidence at hand; more particularly, the technical description
in the survey plan made -- pursuant to Frandos application for a sales patent -- as
confirmed by the survey later conducted by the court-appointed commissioner.

By subsequently attaching Free Patent No. 459501 (which was in the name of
Gamos) as Annex "J" to their Petition, petitioners are resorting to a belated remedy
to a fatal omission. They should have offered the document before the trial court,
not -- as they have done -- in the last stretch of the proceedings, when such
document can no longer be considered. Time and time again, we have pronounced
that this Court is not a trier of facts.

Assuming arguendo that the patent is still admissible, it is nonetheless bereft of any
evidentiary value. While it refers to Lot No. 1855, it is -- unlike the Order/Award
issued to Frando -- accompanied neither by a survey sketch duly approved by the
Bureau of Lands, nor by a technical description that would enable us to determine
whether the patent refers to the property in dispute. We also note that the said
document was admittedly issued to Gamos on October 27, 1969, a mere seventeen
years after she had allegedly entered into possession of the property -- in 1952,
according to herein petitioners. Clearly then, Free Patent No. 459501 was issued
despite the applicants possession of the property for a period shorter than the 30
years required by law.29

Further compounding the procedural lapse committed by petitioners is their

apparent attempt to mislead this Court. Likewise attached to the Petition is a copy of
an alleged Deed of Sale executed between one Felipa Bongais and Cerila Gamos, as
well as several copies of Tax Declarations apparently showing that the Deed covers
the contested property.

A perusal of the said documents shows that they involve a rice land situated in
Adgao, Poblacion, Sta. Magdalena, with an area of 11,300 square meters; not the
property subject of the present controversy, which covers 2.4969 to 4.0000
hectares. By introducing the alleged Deed of Sale, petitioners obviously want to
bolster their claim of ownership by impressing upon this Court that they have
purchased the property from Bongais. They are, however, thereby contradicting
their prior assertion of title on the basis of a free patent. These contradictory
assertions not only cast serious doubt on the veracity of their claim; they also
constitute an apparent attempt to mislead the Court.

Second Issue:

Fraud

Petitioners argue that the trial court erred in holding that the free patent issued to
Cerila Gamos had fraudulently been secured. Both parties failed, though, to present
a copy of Free Patent No. 459501. This lapse resulted in the trial courts failure to
examine the document and to appreciate the circumstances under which it had
allegedly been issued. Thus, any determination of whether fraud indeed attended its
issuance is not possible now.

Third Issue:

Prescription and Laches

In their last assignment of error, petitioners argue that private respondents action
to annul the free patent issued to Cerila Gamos has already prescribed and is barred
by laches. We do not agree.

As testified to by the Gilda Bongais -- one of Juliana Frandos heirs -- when

petitioners first invaded the property in 1979 by constructing a house thereon, her
aunt (Paciencia Gallenosa) filed an action contesting such intrusion. The action was
later dropped due to the financial burdens of the litigation, definitely not because of
any concession of rights by private respondents. Thus, the legal inaction on their
part was due, not to their lack of vigilance, but merely to their lack of resources to
defend their property.

On the witness stand, Guatno himself recognized Juliana Frando and her heirs as the
true owners of the property, even as he admitted that it was Galag -- one of herein
petitioners -- who had given him permission to erect a house on the land in 1980.
Petitioners possession of the disputed property, based as it was on mere tolerance,
could neither ripen into ownership nor operate to bar any action by private
respondents to recover absolute possession thereof.30

WHEREFORE, the Petition is DENIED. However, paragraph (b) of the RTC decision is
MODIFIED to read as follows:

b. Ordering the successors-in-interest of Cerila Gamos to execute a deed of

reconveyance of that portion of Lot No. 1855 with an area of 1,626 square meters as
delineated and described in Exhibit "X-1", shaded by red lines.

Counsels for petitioners -- Attys. Arceli A. Rubin, Amelia C. Garchitorena, Marvin R.

Osias and Beatriz Teves de Guzman -- are hereby ordered to SHOW CAUSE, within
ten days from receipt hereof, why they should not be subjected to administrative
sanction for their attempt to deceive this Court through the introduction of
misleading evidence.

Costs against petitioners.

SO ORDERED.

G.R. No. 171068 September 5, 2007

HEIRS OF MARCELINA ARZADON-CRISOLOGO, represented by Leticia C. del

Rosario, MAURICIA ARZADON and BERNARDO ARZADON, petitioners,
vs.
AGRIFINA RAON, substituted by SUZIMA RAON-DUTERTE and OTHELO
RAON, respondents.

This is a Petition for Certiorari under Rule 45 of the Rules of Court of the Decision1
and Resolution2 of the Court of Appeals in CA-G.R. SP No. 72552, dated 10
November 2005 and 12 January 2006, respectively, which affirmed in toto the
Decision3 dated 8 August 2002 of the Regional Trial Court (RTC) of Batac, Ilocos
Norte, Branch 18, in Civil Case No. 3875-18. The RTC reversed the 11 December
2001 Decision4 of the Municipal Circuit Trial Court (MCTC) of Badoc-Pinili, Badoc,
Ilocos Norte, in Civil Case No. 141-B.

Records show that on 18 October 1995, Agrifina Raon5 filed a Complaint6 against
spouses Conrado and Mila Montemayor (spouses Montemayor) with the MCTC of
Badoc, Ilocos Norte, claiming ownership over an unregistered residential lot
(subject property) situated at Brgy. No. 2 Badoc, Ilocos Norte, covered by Tax
Declaration No. 420809, more particularly described as follows:

"RESIDENTIAL with an area of 472 sq. ms. (sic) Bounded on the North by Ladera St.;
on the East by Dionisio Ladera; on the South by Buenaventura Arzadon; and on the
West by Rafael Ladera; Assessed at P1700.00 under Tax Dec. No. 420809."7

According to Agrifina Raon, her family had enjoyed continuous, peaceful and
uninterrupted possession and ownership over the subject property since 1962, and
had religiously paid the taxes thereon. They had built a house on the subject
property where she and her family had resided. Unfortunately, in 1986, when her
family was already residing in Metro Manila, fire razed and destroyed the said
house. Nonetheless, they continued to visit the subject property, as well as pay the
real estate taxes thereon. However, in August of 1986, her daughter, Zosie Raon,
discovered that the subject property was already in the name of the spouses
Montemayor under Tax Declaration No. 0010563 which was purportedly issued in
their favor by virtue of an Affidavit of Ownership and Possession which the spouses
Montemayor executed themselves. The Affidavit was alleged to have created a cloud
of doubt over Raons title and ownership over the subject property.

Hence, Agrifina Raon sought a Writ of Preliminary Injunction8 against the spouses
Montemayor commanding them to cease and desist from further exercising any
right of ownership or possession over the subject property. She further prayed that
she be finally declared the true and lawful owner of the subject property.

The spouses Montemayor, for their part, alleged that they acquired the subject lot by
purchase from Leticia del Rosario and Bernardo Arzadon who are the heirs of its
previous owners for a consideration of P100,000.00.9

On 22 July 1996, the Heirs of Marcelina Arzadon-Crisologo, (represented by Leticia

A. Crisologo del Rosario), Mauricia Arzadon, and Bernardo Arzadon (petitioners)
filed an Answer in Intervention10 claiming, inter alia, that they are the rightful
owners of the subject property, having acquired the same from their predecessors-
in-interest. They averred that there existed no liens or encumbrances on the subject
property in favor of Agrifina Raon; and that no person, other than they and the
spouses Montemayor, has an interest in the property as owner or otherwise.

Per petitioners allegations, their predecessors-in-interest, spouses Timoteo and

Modesta Alcantara (spouses Alcantara) bought the subject property from its owner,
Rafael Ladera, on 2 May 1936. The spouses Alcantara then built a house of strong
materials on the subject property which served as their conjugal home. Residing
with them was Timoteo Alcantaras sister, Augustina Alcantara-Arzadon. As the
spouses Alcantara died without issue, their properties were left to Timoteo
Alcantaras nearest of kin, Augustina Alcantara-Arzadon and Tiburcio Alcantara,
sister and brother, respectively, of Timoteo Alcantara. Tiburcio Alcantara also died
without any known heir; thus, leaving the subject property in Augustina Alcantara-
Arzadons sole favor. Augustina Alcantara-Arzadon is the mother of petitioners
Marcelina Arzadon-Crisologo (now deceased and whose heirs are represented by
Leticia del Rosario) and Mauricia Arzadon. Bernardo Arzadon is the son of Mauricia
Arzadon.

Petitioners asseverated further that Bernardo Arzadon had lived in the house
constructed on the subject property until 1985 when it was gutted by fire. To
further support their claims, petitioners averred that they had religiously paid the
real estate taxes on the subject property. Finally, by way of a counterclaim,
petitioners sought compensation for the damages which they allegedly suffered by
reason of the baseless filing of the instant suit.

On 22 October 1999, the MCTC issued an Order11 dropping the name of the spouses
Montemayor from the caption of the case on the ground that sometime in 1996,
Leticia del Rosario and Bernardo Arzadon had repurchased the subject property
from the spouses Montemayor for the consideration of P100,000.00. As a result, the
spouses Montemayor had no more interest or claim whatsoever on the property in
litigation.

On 11 December 2001, the MCTC rendered a Decision in favor of the petitioners.

The decretal portion thereof reads, thus:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

1. Declaring the [petitioners] to be the true and lawful owners of one-half (1/2)
portion of the undivided whole of the lot-in-suit by mode of succession pursuant to
[A]rticle 1001 of the [C]ivil [C]ode of the Philippines;

2. Declaring the [petitioners] to have the better right over the other half of the
undivided whole of the lot-in-suit by mode of prescription pursuant to [A]rticle
1137 of the Civil Code of the Philippines;

3. Dismissing the counter-claim of the [petitioners] against the [respondents];

4. Ordering [petitioners] to pay the cost of the suit.12

First, the MCTC ruled that while the adverse claims of Agrifina Raon on the subject
lot against the spouses Alcantara may have started in 1962, this adverse possession
was interrupted in the year 1977 due to the filing of an adverse claim by petitioner
Marcelina Arzadon-Crisologo with the Office of the Assessor. In 1977, the tax
declaration in the name of Valentin Raon, Agrifina Raons husband, was cancelled
and a new tax declaration was issued in Marcelina Arzadon-Crisologos name. The
MCTC said that the period of possession of the spouses Raon in the concept of an
owner from 1962 to 1977 did not ripen into ownership because their occupation
was in bad faith. The Civil Code requires, for acquisitive prescription of real
property, 30 years of uninterrupted possession if the same is wanting in good faith
and without a just title.

Second, the MCTC held that by virtue of succession, petitioners are entitled to one-
half of the subject property. This is because according to Article 100113 of the Civil
Code, should brothers and sisters or their children survive with the widow or the
widower (who are without issue), the latter shall be entitled to one-half of the
inheritance and the brothers and sisters or their children to the other half. The
spouses Alcantara died without issue. As between Timoteo Alcantara and Modesta
Alcantara, the former predeceased the latter. Timoteo Alcantara was survived by (1)
his brother Tiburcio Alcantara, who also died without any known heir; and (2) his
sister Augustina Alcantara. Thus, following the death of the spouses Alcantara, only
the children of Augustina Alcantara, namely Marcelina Arzadon-Crisologo and
Mauricia Arzadon, stand to inherit Timoteo Alcantaras share in the subject
property.
Moreover, the MCTC declared that for the part of Modesta Alcantara, there was no
legal heir who claimed the other half of the property which she14 inherited from
her husband, Timoteo Alcantara who predeceased her. On this portion, the MCTC
held that petitioners exercised rights of ownership and dominion over the same by
periodically visiting the lot and cleaning it.15 It also held that from 31 August 1977,
when petitioners predecessor-in-interest Marcelina Arzadon-Crisologo filed an
adverse claim for herself and for her brothers and sisters which led to the issuance
of Tax Declaration No. 44120 in her name, to 11 December 2001,16 there is a total
of 33 years, three months and 10 days which is sufficient to claim ownership over
the subject property by adverse possession under Article 113717 of the Civil Code.

On appeal, the RTC reversed and set aside the Decision of the MCTC.

The RTC declared that the respondent Raons who are heirs of the original plaintiff
had acquired the subject property by virtue of acquisitive prescription, and
therefore adjudged respondents to be the absolute owners thereof; thus, in the 8
August 2002 Decision of the RTC, it held:

WHEREFORE, in view of the foregoing, the Decision of the trial [c]ourt is hereby
REVERSED and SET ASIDE, and judgment is hereby rendered:

1) Declaring the [respondents] as the absolute owners of the parcel of land in suit,
having acquired the same through extraordinary acquisitive prescription.

No costs.18

In its findings, the RTC declared that a more circumspect scrutiny of the evidence
showed that for a long time from the death of the spouses Alcantara, no one
adjudicated the subject property unto themselves. Although petitioners and their
predecessors-in-interest claimed to have successional rights over the subject
property, they did not take action to have the same adjudicated to themselves or, at
least, to have the same declared for taxation purposes. The RTC ruled that
petitioners had slept on their rights. On the part of the respondent Raons, in 1962,
Valentin Raon, respondents father, declared the subject property in his name for
taxation purposes and paid the corresponding taxes thereon. In the years that
followed, his wife, Agrifina Raon, declared the same in her name for taxation
purposes, as well as paid the real estate taxes on the subject property. In 1977, the
latter even mortgaged the subject property with the Philippine National Bank. It was
only in 1977 when petitioners predecessor-in-interest Marcelina Arzadon-
Crisologo executed an Adverse Claim and Notice of Ownership and declared the
subject property in her name and paid its taxes.

The RTC elucidated in this wise, to wit:

It bears to note that since the death of Timoteo Alcantara until the year 1977,
[petitioners], as well as their predecessors-in-interests (sic) had not taken any
concrete step in exercising their supposed successional rights over the parcel of
land in suit, or at least, the Intervenors should have always [stayed] on their guard
or especially vigilant against anyone who would secure a claim to the said parcel of
land, more so that Valentin Raon and plaintiff Agrifina Raon were then living with
them. It is very unfortunate that it was only in 1977 that the Intervenors made
known to others of their supposed successional rights over the parcel of land in suit.
Relief is denied to a claimant whose right has become stale for a long time,
considering that some other persons like [respondents] had wayback (sic) taken the
necessary action in claiming the parcel of land in suit. It is the vigilant and not the
sleepy that is being assisted by the laws. (Ledita Burce Jacob v. Court of Appeals, et
al., G.R. No. 92159, July 1, 1993).

It stands to reason, therefore, to hold that because of the claim of the [respondents]
to have acquired the parcel of land in suit by acquisitive prescription, the
Intervenors who belatedly claimed to be the legal and compulsory heirs of the late
Timoteo Alcantara, as ruled by the trial court, had regrettably forfeited their such
(sic) successional rights, simply due to their inaction for a long period of time.
Hence, contrary to the findings of the trial court, the [petitioners] are not entitled to
the one-half (1/2) portion of the parcel of land in suit.19

Likewise, the RTC reasoned that the Notice of Adverse Claim executed by
petitioners predecessor-in-interest Marcelina Arzadon-Crisologo against the
Raons in 1977 implied that respondents have been in possession of the subject
property. On this matter, the RTC said, viz:

Evidently, the trial court considered by implication that the execution by Marcelina
Arzadon Crisologo of said Adverse Claim and Notice of Ownership in 1977 to have
interrupted the running of the prescriptive period on the possession by the
[respondents] of the parcel of land in suit. It bears to stress on (sic) this point, that
the Adverse Claim and Notice of Ownership executed by Marcelina Arzadon
Crisologo is nothing but a notice of a claim adverse to the [respondents]. By its
nature, its implication is that the [respondents] have been in possession of the
parcel of land in suit in some concept. But definitely, said Adverse Claim does not,
upon its execution, operate to toll or interrupt the running of the prescriptive period
because there is a necessity to determine the validity of the same. And this could
only be done by the filing of the necessary action in court such [as] contemplated in
the provisions of Article 1123 of the Civil Code. It is only on (sic) such instance that
the prescriptive period should be deemed interrupted. And undisputedly, nothing
had been done by the Intervenors after the execution of said Adverse Claim by
Marcelina Crisologo, except of course as they claimed, and as held by the trial court,
they started to possess the parcel of land in suit. Regretably (sic), however, such
possession by the Intervenors of the parcel of land in suit does not benefit them for
purposes of prescription.20

The RTC also declared that the Raons have been in possession of the parcel of land
in the concept of an owner since 1962. Even as they had gone to live in Manila
following the burning of the house on the subject property, they continued to
exercise acts of dominion over the same by visiting and looking after the property.
The RTC also considered in favor of the respondents, the admission of petitioner
Bernardo Arzadon and the petitioners witnesses that Valentin Raon and Agrifina
Raon had been staying in the house on the subject lot since 1947, which shows that
they had been in possession of the subject property for a period of more than 50
years.

On review before the Court of Appeals, the Decision of the RTC was affirmed in toto.

The Court of Appeals held that when Valentin Raon executed the affidavit declaring
himself to be the true and lawful owner of the subject property in 1962, the same
was a repudiation of petitioners legal title over it. The repudiation, coupled with the
payment of realty taxes, was made with the knowledge of petitioners, who failed to
act against it. Thus, from 1962 up to the filing of the action in 1995, respondents
continued to adversely occupy the property. In the assailed 10 November 2005
Decision of the Court of Appeals, it ruled:

Moreover, respondents payment of realty taxes made with the knowledge and
consent of petitioners and went unchallenged for a number of years, indubitably
show their positive claim as owners of the property. While it is true that by
themselves tax receipts and declarations of ownership for taxation purposes are not
incontrovertible evidence of ownership, they become strong evidence of ownership
acquired by prescription when accompanied by proof of actual possession of the
property. It is only where payment of taxes is accompanied by actual possession of
the land covered by the tax declaration that such circumstance may be material in
supporting a claim of ownership.

Needless to state, from 1962 onwards, prescription begun to run against petitioners
and was not in any way interrupted from their mere execution of the Notice of
Adverse Claim since the notice of adverse claim cannot take the place of judicial
summons which produces the civil interruption provided for under the law. And
even if We are to eliminate the question of good faith in determining the
prescriptive period, evidence are (sic) still abundant to substantiate respondents
thirty years of possession in the concept of owner commencing from 1962 until
1995 when the complaint below was filed.21

Petitioners filed a Motion for Reconsideration thereon which was denied by the
Court of Appeals in the following manner, to wit:

After a careful study of the grounds relied upon by petitioners We find no new
matters raised to justify a modification much less, a reversal of the Decision sought
to be reconsidered. To reiterate, even assuming ex gratia argumenti that petitioner
merely tolerated the Raons (sic) occupancy of the subject property, it must be
stressed that the execution in 1962 of Valentin Raons Affidavit, the corresponding
payment of realty taxes and other acts of dominion which went unchallenged by the
petitioners, had effectively severed their alleged juridical relation. Suffice it to state
that these acts, taken as a whole, vest upon the Raons the right to claim ownership
over the subject property irrespective of whether the nature of their occupation was
rooted from the mere tolerance of the Arzadons or from a bona fide sale between
Agrifina Raon and Rafael Ladera.22

Hence, the instant Petition.

The primordial issue in the case at bar is whether the Court of Appeals erred in
declaring that respondents had acquired ownership over the subject property
through uninterrupted and adverse possession thereof for thirty years, without
need of title or of good faith. Petitioners dispute the findings of the Court of Appeals
and the RTC in declaring that acquisitive prescription has set in against them and in
favor of the respondents. They claim that the evidence does not support
respondents contention that they have been in public, notorious, and uninterrupted
possession over the subject property in the concept of an owner since 1962 as
alleged in their Complaint. Instead, petitioners rely on the finding of the MCTC that
respondents were not able to prove their adverse claim for an uninterrupted period
of thirty years.

At this juncture, we take an opportune look at the applicable rules on the acquisition
of ownership through prescription.

Prescription is another mode of acquiring ownership and other real rights over
immovable property.23 It is concerned with lapse of time in the manner and under
conditions laid down by law, namely, that the possession should be in the concept of
an owner, public, peaceful, uninterrupted and adverse.24 Possession is open when it
is patent, visible, apparent, notorious and not clandestine.25 It is continuous when
uninterrupted, unbroken and not intermittent or occasional;26 exclusive when the
adverse possessor can show exclusive dominion over the land and an appropriation
of it to his own use and benefit;27 and notorious when it is so conspicuous that it is
generally known and talked of by the public or the people in the neighborhood.28
The party who asserts ownership by adverse possession must prove the presence of
the essential elements of acquisitive prescription.

Article 1117 of the Civil Code is instructive:

Art. 1117. Acquisitive prescription of dominion and other real rights may be
ordinary or extraordinary.

Articles 1134 and 1137 of the Civil Code fix the periods of possession,29 which
provide:

Art. 1134. Ownership and other real rights over immovable property are acquired
by ordinary prescription through possession of ten years.
Art. 1137. Ownership and other real rights over immovables also prescribe through
uninterrupted adverse possession thereof for thirty years, without need of title or of
good faith.

From the foregoing, it can be gleaned that acquisitive prescription of real rights may
be ordinary or extraordinary.30 Ordinary acquisitive prescription requires
possession of things in good faith and with just title for the time fixed by law;
without good faith and just title, acquisitive prescription can only be extraordinary
in character.31 Regarding real or immovable property, ordinary acquisitive
prescription requires a period of possession of ten years, while extraordinary
acquisitive prescription requires an uninterrupted adverse possession of thirty
years.32

Were respondents able to sufficiently satisfy the legal requirements to prove

prescription?

To recapitulate, respondents traced their claim of ownership from the year 1962
until the filing of their Complaint for Ownership before the MCTC on 18 October
1995. To support their possession, they rely on an Affidavit executed on 19 October
1962 by Valentin Raon claiming ownership over the subject property by virtue of
an alleged sale. The MCTC, the RTC and the Court of Appeals were unanimous in
declaring that the execution by Valentin Raon of the Affidavit in 1962 was an
express repudiation of petitioners claim over the property. By virtue of such
Affidavit, respondents were able to cancel Tax Declaration No. 02853 in the name of
petitioners predecessor-in-interest Timoteo Alcantara who was shown to have paid
taxes on the subject property in 1950. Hence, in 1962, Tax Declaration No. 033062
was issued in the name of Valentin Raon. The same was subsequently cancelled by
Tax Declaration No. 033106, which was in the name of his wife, Agrifina Raon. The
same was likewise cancelled in 1967 by Tax Declaration No. 420809, similarly
under the name of Agrifina Raon. In 1977, however, petitioners predecessor-in-
interest Marcelina Arzadon-Crisologo filed an Adverse Claim and a Notice of
Ownership claiming that the subject property which is not yet registered in the
Office of the Register of Deeds of Laoag City is declared under Tax Declaration No.
420809 in the name of Valentin Raon for taxation purposes only; but that they
have been in possession of the said land publicly, peacefully and continuously
without any intervention or interruption for more than 15 years.

However, a question must be asked: did the Notice of Adverse Claim filed by
petitioners constitute an effective interruption since 1962 of respondents
possession of the subject property?

The answer is in the negative.

Article 112333 of the Civil Code is categorical. Civil interruption is produced by

judicial summons to the possessor. Moreover, even with the presence of judicial
summons, Article 112434 sets limitations as to when such summons shall not be
deemed to have been issued and shall not give rise to interruption, to wit: 1) if it
should be void for lack of legal solemnities; 2) if the plaintiff should desist from the
complaint or should allow the proceedings to lapse; or 3) if the possessor should be
absolved from the complaint.

Both Article 1123 and Article 1124 of the Civil Code underscore the judicial
character of civil interruption. For civil interruption to take place, the possessor
must have received judicial summons. None appears in the case at bar. The Notice of
Adverse Claim which was filed by petitioners in 1977 is nothing more than a notice
of claim which did not effectively interrupt respondents possession. Such a notice
could not have produced civil interruption. We agree in the conclusion of the RTC,
which was affirmed by the Court of Appeals, that the execution of the Notice of
Adverse Claim in 1977 did not toll or interrupt the running of the prescriptive
period because there remains, as yet, a necessity for a judicial determination of its
judicial validity. What existed was merely a notice. There was no compliance with
Article 1123 of the Civil Code. What is striking is that no action was, in fact, filed by
petitioners against respondents. As a consequence, no judicial summons was
received by respondents. As aptly held by the Court of Appeals in its affirmance of
the RTCs ruling, the Notice of Adverse Claim cannot take the place of judicial
summons which produces the civil interruption provided for under the law.35 In the
instant case, petitioners were not able to interrupt respondents adverse possession
since 1962. The period of acquisitive prescription from 1962 continued to run in
respondents favor despite the Notice of Adverse Claim.

From another angle, we find that, quite clearly, questions of fact exist before us.
There is a question of fact when the doubt or difference arises as to the truth or
falsehood of facts or when the query invites calibration of the whole evidence
considering mainly the credibility of the witnesses, the existence and relevancy of
specific surrounding circumstances as well as their relation to each other and to the
whole, and the probability of the situation.36

Thus, we find proper the application of the doctrine that findings of facts of the
Court of Appeals upholding those of the trial court are binding upon this Court.37
Even though the rule is subject to exceptions,38 we do not find them applicable in
the instant case.

As found by the RTC and affirmed by the Court of Appeals, nothing was done by
petitioners to claim possession over the subject property from the time their
predecessors-in-interest had lost possession of the property due to their deaths.
Plainly, petitioners slept on their rights. Vigilantibus sed non dormientibus jura
subveniunt. The law comes to the succor only to aid the vigilant, not those who
slumber on their rights. It was only in 1977 when they attempted to call the
attention of respondents, which as earlier discussed, did not even operate as an
interruption on the latters possession. The RTC and the Court of Appeals held that
from 1962 to the time they filed their Complaint before the MCTC and until the
present time, respondents occupied without interruption the subject property in the
concept of an owner, thereby acquiring ownership via extraordinary acquisitive
prescription. To reiterate, the RTCs factual findings based on the evidence on
record were manifestly in favor of respondents, to wit:

Thus, by preponderance of evidence, it has been established preponderantly that

the [respondents] have been in possession of the parcel of land in suit continuously,
peacefully, publicly, notoriously, uninterrupted and in the concept of an owner since
1962 to the present. The fact that the [respondents] have gone to live in Manila right
after the house built in the parcel of land in suit was burned in 1988, they, however,
then and thereafter intermittently come to Badoc, Ilocos Norte purposely to look
after and to visit the parcel of land in suit. Actual possession of land consists in the
manifestation of acts of dominion over it of such a nature as a party would naturally
exercise over his own property. One needs (sic) not to (sic) stay on it. The acts
exercised by the [respondents] over the parcel of land in suit are consistent with
ownership. Possession in the eyes of the law does not mean that a man has to have
his feet on every square meter of the ground before it can be said that he is in
possession [thereof]. (Ramos v. Director of Lands, 39 Phil. 175, cited in the case of
Somodio v. Court of Appeals, et al., 235 SCRA 307). It is sufficient that the
[respondents] were able to subject the parcel of land to the action of their will.

Furthermore, the Court finds it (sic) significant the testimonies of [petitioner]

Bernardo Arzadon and his witnesses Leonila Arzadon and Elpidio Evangelista who
categorically testified to the effect that Valentin Raon and [respondent] Agrifina
Raon had been staying in the house standing on the parcel of land in suit since
1947. Basically, the defendants are bound by their admissions and also bound by the
testimonies of the witnesses they presented. And going along with their respective
testimonies, from 1947 to 1977 or for [a] period of thirty (30) years the
[respondents] have been in possession of the parcel of land in suit enough to invoke
extraordinary acquisitive prescription, pursuant to the provisions of Article 113439
(sic) of the New (sic) Civil Code. However, as earlier stated, the [respondents],
contrary to the claim of the [petitioners] and findings of the trial court, have been in
possession of the parcel of land in suit continuously and uninterrupted from 1962 to
the present but because of the admissions of the [petitioners], the [respondents]
have been in possession of the same from 1947 to the present or for more than fifty
(50) years now.40

The open, continuous, exclusive and notorious possession by respondents of the

subject property for a period of more than 30 years in repudiation of petitioners
ownership had been established. During such length of time, respondents had
exercised acts of dominion over the subject property, and paid taxes in their name.
Jurisprudence is clear that although tax declarations or realty tax payments of
property are not conclusive evidence of ownership, nevertheless, they are good
indicia of possession in the concept of owner for no one in his right mind would be
paying taxes for a property that is not in his actual or at least constructive
possession.41 They constitute at least proof that the holder has a claim of title over
the property.42 As is well known, the payment of taxes coupled with actual
possession of the land covered by the tax declaration strongly supports a claim of
ownership.43 The Court of Appeals did not err in affirming the factual findings of
the RTC that respondents had validly established their claim of ownership over the
subject property through acquisitive prescription.

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals dated 10
November 2005 and the Resolution dated 12 January 2006 in CA-G.R. SP No. 72552
are AFFIRMED. No costs.

SO ORDERED.

G.R. No. 111141 March 6, 1998

MARIO Z. TITONG, petitioner,

vs.
THE HONORABLE COURT OF APPEALS (4th Division), VICTORICO LAURIO and
ANGELES LAURIO, respondents.

Like a priceless treasure coveted by many, but capable of ownership by only one,
this 20,592 square-meter parcel of land located at Barrio Titong, Masbate, Masbate
is claimed by two contestants in this petition for review on certiorari. Unfortunately,
legal title over the property can be vested in only one of them.

The case originated from an action for quieting of title filed by petitioner Mario
Titong. The Regional Trial Court of Masbate, Masbate, Branch 44 1 ruled in of
private respondents, Victorico Laurio and Angeles Laurio, adjudging them the true
and lawful owners of the disputed land. Affirmed on appeal to the Court, of Appeals,
petitioner comes to us for a favorable reversal.

Petitioner alleges that he is the owner of an unregistered parcel of land with an area
of 3.2800 hectares, more or less, surveyed as Lot No. 3918, and declared for taxation
purposes in his name. He claims that on three separate occasions in September
1983, private respondents, with their hired laborers, forcibly entered a portion of
the land containing an area of approximately two (2) hectares; and began plowing
the same under pretext of ownership. Private respondents denied this allegation,
and averred that the disputed property formed part of the 5.5-hectare agricultural
land which they had purchased from their predecessor-in-interest, 2 Pablo Espinosa
on August 10, 1981.

In his testimony, petitioner identified Espinosa as his adjoining owner 3, asserting

that no controversy had sprouted between them for twenty years until the latter
sold Lot No. 3479 to private respondent Victorico Laurio. 4 This was corroborated
by Ignacio Villamor, who had worked on the land even before its sale to Espinosa in
1962. The boundary between the land sold to Espinosa and what of petitioner's
property was the old Bugsayon river. When petitioner employed Bienvenido Lerit as
his tenant in 1962, he instructed Lerit to change the course of the old river and
direct the flow of water to the lowland at the southern of petitioner' s property, thus
converting the old river into a riceland. 5

For his part, private respondent anchors his defense on the following facts: He
denied petitioner's claim of ownership, recounting that the area and boundaries of
the disputed land remained unaltered during the series of conveyances prior to its
coming into his hands. According to him, petitioner first declared the land for
taxation purposes under Tax Declaration No. 2916, 6 which showed that the land
had an area of 5.5 hectares and was bounded on the North by the Bugsayon River;
on the East by property under the ownership of Lucio Lerit; on the South by
property owner by Potenciano Zaragoza; and on the West by property owned by
Agapito de la Cruz. 7 Private Respondent then alleges that, on December 21, 1960,
petitioner sold this property to Concepcion Verano vda. de Cabug, after which Tax
Declaration No. 5339 8 was issued in her favor. In compliance with their mutual
agreement to repurchase the same, petitioner reacquired the property by way of
sale 9 on August 24, 1962 and then declared it for taxation purposes in his name
under Tax Declaration No. 5720. 10 However, the property remained in petitioner's
hands for only four (4) days because, on August 28, 1962, he sold it to Espinosa 11
who then declared it in his name under Tax Declaration No. 12311. 12
Consequently, the property became a part of the estate of Pablo Espinosa's wife, the
late Segundina Liao Espinosa. On August 10, 1981, her heirs executed an instrument
denominated as "Extrajudicial Settlement of Estate with Simultaneous Sale"
whereby the 5.5-hectare property under Tax Declaration No. 12311 was sold to
private respondent 13 in consideration of the amount of P5,000.00. Thereafter, Tax
Declaration No. 12738 was issued in the name of private respondent. In all these
conveyances, the area and boundaries of the property remained exactly the same as
those appearing in Tax Declaration No. 2916 under petitioner's name.

It was proved at the proceedings in the court a quo that two (2) surveys were made
of the disputed property. The first survey 14 was made for petitioner, while the
second was the relocation survey ordered by the lower court. As anticipated, certain
discrepancies between the two surveys surfaced. Thus, contrary to petitioner's
allegation in his complaint that he is the owner of only 3.2800 hectares, he was
actually claiming 5.9789 hectares, the total areas of Lot Nos. 3918, 3918-A and
3606. On the other hand, Lot No. 3479 pertaining to Espinosa, was left with only an
area of 4.1841 hectares instead of the 5.5 hectares sold by petitioner to him.
Apprised of the discrepancy, private respondent filed a protest 15 before the Bureau
of Lands against the first survey, likewise filing a case for alteration of boundaries
before the municipal trial court, the proceedings of which, however, were
suspended of the instant case. 16

Private respondent testified that petitioner is one of the four heirs of his mother,
Leonida Zaragoza. In the Extrajudicial Settlement with Sale of Estate of the deceased
Leonida Zaragoza, 17 the heirs adjudicated unto themselves the 3.6-hectare
property of the deceased. The property involved is described in the instrument as
having been declared under Tax Declaration No. 3301 18 and as bounded on the
North by Victor Verano, on the East by Benigno Titong, on the South by the
Bugsayon River and on the West by Benigno Titong. On September 9, 1969, Tax
Declaration No. 8723 was issued to petitioner for his corresponding share in the
estate.

However, instead of reflecting only .9000 hectare as his rightful share in the
extrajudicial settlement 19 petitioner's share was bloated to 2.4 hectares. It
therefore appeared to private respondent that petitioner encroached upon his
(Laurio's) property and declared it a part of his inheritance. 20 The boundaries
were likewise altered so that it was bounded on the North by Victor Verano, on the
East by Benigno Titong, on the South by property owner Espinosa, and on the West
by property owner Adolfo Titong. 21 Private respondent accordingly denied that
petitioner had diverted the course of the Bugsayon River after he had repurchased
the land from Concepcion Verano vda. de Cabug 22 because the land was
immediately sold to Espinosa shortly thereafter. 23

The lower court rendered a decision in favor of private respondents, declaring him
as the true and absolute owner of the litigated property and ordering petitioner to
respect private respondents' title and ownership over the property and to pay
attorney's fees, litigation expenses, costs and moral damages.

Petitioner appealed to the Court of Appeals, which affirmed the decision. On motion
for reconsideration, the same was denied for lack of merit. Hence, this petition for
review on certiorari.

At the outset, we hold that the instant petition must be denied for the reason that
the lower court should have outrightly dismissed the complaint for quieting of title.
The remedy of quieting of title may be availed of under the circumstances
enumerated in the Civil Code:

Art. 476. Whenever there is a cloud on title to real property or any interest
therein, by reason of any instrument, record, claim, encumbrance or proceeding
which is apparently valid or effective but is in truth and in fact invalid, ineffective,
voidable, or unenforceable, and may be prejudicial to said title, an action may be
brought to remove such cloud or to quiet the title.

An action may also be brought to prevent a cloud from being cast upon title to real
property or any interest therein.

Under this provision, a claimant must show that there is an instrument, record,
claim, encumbrance or proceeding which constitutes or casts a cloud, doubt,
question or shadow upon the owner's title to or interest in real property. 24 The
ground or reason for filing a complaint for quieting of title must therefore be "an
instrument, record, claim, encumbrance or proceeding." Under the maxim expresio
mius est exclusio alterius, these grounds are exclusive so that other reasons outside
of the purview of these reasons may not be considered valid for the same action. 25

Had the lower court thoroughly considered the complaint filed, it would have had no
other course of action under the law but to dismiss it. The complaint failed to allege
that an "instrument, record, claim, encumbrance or proceeding" beclouded the
plaintiff's title over the property involved. Petitioner merely alleged that the
defendants (respondents herein), together with their hired laborers and without
legal justification, forcibly entered the southern portion of the land of the plaintiff
and plowed the same.

He then proceeded to claim damages and attorney's fees. He prayed that, aside from
issuing a writ or preliminary injunction enjoining private respondents and their
hired laborers from intruding into the land, the court should declare him "the true
and absolute owner" thereof. Hence, through his allegations, what petitioner
imagined as clouds cast on his title to the property were private respondents'
alleged acts of physical intrusion into his purported property. Clearly, the acts
alleged may be considered grounds for an action for forcible entry but definitely not
one for quieting of title.

When the issues were joined by the filing of the answer to the complaint, it would
have become apparent to the court that the case was a boundary dispute. The
answer alleged, among other matters, that petitioner, "in bad faith, surreptitiously,
maliciously and fraudulently had the land in question included in the survey of his
land which extends to the south only as far as the Bugsayon River which is the
visible and natural and common boundary between the properties." 26 Moreover,
during the hearing of the case, petitioner proved that it was actually a boundary
dispute by evidence showing what he considered as the boundary of his property
which private respondents perceived as actually encroaching on their property. In
this regard, the following pronouncements of the Court are apropos:

. . . (T)he trial court (and likewise the respondent Court) cannot, in an action for
quieting of title, order the determination of the boundaries of the claimed property,
as that would be tantamount to awarding to one or some of the parties the disputed
property in an action where the sole issue is limited to whether the instrument,
record, claim, encumbrance or proceeding involved constitutes a cloud upon the
petitioners' interest or title in and to said property. Such determination of
boundaries is appropriate in adversarial proceedings where possession or
ownership may properly be considered and where evidence aliunde, other than the
"instrument, record, claim, encumbrance or proceeding" itself, may be introduced.
An action for forcible entry, whenever warranted by the period prescribed in Rule
70, or for recovery of possession de facto, also within the prescribed period, may be
availed of by the petitioners, in which proceeding the boundary dispute may be fully
threshed out. 27
Nonetheless, even if the complaint below were to be considered as a valid one for
quieting of title, still, the instant petition for review on certiorari must fail.

As a general rule, findings of fact of the Court of Appeals are binding and conclusive
upon this Court. Such factual findings shall not be disturbed normally unless the
same are palpably unsupported by the evidence on record or the judgment itself is
based on a misapprehension of facts. 28 Upon an examination of the records, the
Court finds no evident reason to depart from the general rule.

The courts below correctly held that when petitioner "sold, ceded, transferred and
conveyed" the 5.5-hectare land in favor of Pablo Espinosa, his rights of ownership
and possession pertaining thereto ceased and these were transferred to the latter.
In the same manner, Espinosa's rights of ownership over the land ceased and were
transferred to private respondent upon its sale to the latter. This finds justification
in the Civil Code, as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional.

In other words, a sale is a contract transferring dominion and other real rights in the
thing sold. 29 In the case at bar, petitioner's claim of ownership must of necessary
fail because he has long abdicated his rights over the land when he sold it to private
respondent's predecessor-in-interest.

Petitioner's claim that he acquired ownership over the disputed land through
possession for more than twenty (20) years is likewise unmeritorious. While Art.
1134 of the Civil Code provides that "(o)wnership and other real rights over
immovable property are acquired by ordinary prescription through possession of
ten years," this provision of law must be read in conjunction with Art. 1117 of the
same Code. This article states that ". . . (o)rdinary acquisitive prescription of things
requires possession in good faith and with just title for the time fixed by law."
Hence, a prescriptive title to real estate is not acquired by mere possession thereof
under claim of ownership for a period of tea years unless such possession was
acquired con justo tilulo y buena fe (with color of title and good faith). 30 The good
faith of the possessor consists in the reasonable belief that the person from whom
he received the thing was the owner thereof, and could transmit his ownership. 31
For purposes of prescription, there is just title when the adverse claimant came into
possession of the property through one of the modes recognized by law for the
acquisition of ownership or other real rights but the grantor was not the owner or
could not transmit any right. 32

Petitioners have not satisfactorily met the requirements of good faith and just title.
As aptly observed by the trial court, the plaintiff's admitted acts of converting
boundary line (Bugsayon River) into a ricefield and thereafter claiming ownership
thereof were acts constituting deprivation of the rights of others and therefore
"tantamount to bad faith." 33 To allow petitioner to benefit from his own wrong
would run counter to the maxim ex dolo malo non oritur actio (no man can allowed
to found a claim upon his own wrongdoing). Extraordinary acquisitive prescription
cannot similarly vest ownership over the property upon petitioner. Art. 1137 of the
Civil Code states that "(o)wnership and other real rights over immovables prescribe
through uninterrupted adverse possession thereof for thirty years, without need of
title or of good faith." Petitioner's alleged possession in 1962 up to September 1983
when private respondents entered the property in question spanned twenty-one
(21) years. This period of time is short of the thirty-year requirement mandated by
Art. 1137.

Petitioner basically anchors his claim over the property on the survey plan prepared
upon his request, 34 the tax declaration in his name, 35 the commissioner's report
on the relocation survey, 36 and the survey plan. 37 Respondent court correctly
held that these documents do not conclusively demonstrate petitioner's title over
Lot Nos. 3918-A and 3606.

A survey is the act by which the quantity of a parcel of land is ascertained and so a
paper containing a statement of courses, distances, and quantity of
land. 38 A survey under a proprietary title is not a conveyance. It is an instrument
sui generis in the nature of a partition; a customary mode in which a proprietor has
set off to himself in severalty a part of the common estate. 39 Therefore, a survey,
not being a conveyance, is not a mode of acquiring ownership. A fortiori, petitioner
cannot found his claim on the survey plan reflecting a subdivision of land because it
is not conclusive as to ownership as it may refer only to a delineation of possession.
40

Furthermore, the plan was not verified and approved by the Bureau of Lands in
accordance with Sec. 28, paragraph 5 of Act No. 2259, the Cadastral Act, as amended
by Sec. 1862 of Act No. 2711. Said law ordains that private surveyors send their
original field notes, computations, reports, surveys, maps and plots regarding a
piece of property to the Bureau of Lands for verification and approval. 41 A survey
plan not verified and approved by said Bureau is nothing more than a private
writing, the due execution and authenticity of which must be proven in accordance
with Sec. 20 of Rule 132 of the Rules of Court. The circumstance that the plan was
admitted in evidence without any objection as to its due execution and authenticity
does not signify that the courts shall give probative value therefor. To admit
evidence and not to believe it subsequently are not contradictory to each other. This
Court cannot alter the conclusions of
the Court of Appeals on the credibility accorded to evidence presented by the
parties. 42

Similarly, petitioner's tax declaration issued under his name is not even persuasive
evidence of his claimed ownership over the land in dispute. A tax declaration, by
itself, is not considered conclusive evidence of ownership. 43 It is merely an
indicium of a claim of ownership. 44 Because it does not by itself give title, it is of
little value in proving one's ownership. 45 Moreover, the incompatibility in
petitioner's tax declaration and the commissioner's report as regards the area of his
claimed property is much too glaring to be ignored. Tax Declaration No. 8717 states
that petitioner's property has an area of 3.2800 hectares while the totality of his
claim according to the commissioned geodetic engineer's survey amounts to 4.1385
hectares. There is therefore a notable discrepancy of 8,585 square meters. On the
other hand, private respondent's claimed property, as borne out by Tax Declaration
No. 12738, totals 5.5 hectares, a more proximate equivalent of the 5.2433-hectare
property as shown by the commissioner's report.

There is also nothing in the commissioner's report that substantiates petitioner's

claim that the disputed land was inside his property. Petitioner capitalizes on the
lower court's statement in its decision 46 that "as reflected in the commissioner's
report dated May 23, 1984 (Exhibit 3-3-A), the area claimed is inside lot 3918 of the
defendants (Exhibit 2)" 47 or the private respondents. A careful reading of the
decision would show that this statement is found in the summary of defendants'
(herein private respondents) evidence. Reference to Lot No. 3918 may, therefore, be
attributed to mere oversight as the lower court even continues to state the
defendants' assertion that the 2-hectare land is part of their 5.5-hectare property.
Hence, it is not amiss to conclude that either petitioner misapprehended the lower
court's decision or he is trying to contumaciously mislead or worse, deceive this
Court.

With respect to the awards of moral damages of P10,000.00 and attorney's fees of
P2,000.00, the Court finds no cogent reason to delete the same. Jurisprudence is
replete with rulings to the effect that where fraud and bad faith have been
established, the award of moral damages is in order. 48 This pronouncement finds
support in Art. 2219 (10) of the Civil Code allowing the recovery of moral damages
for acts enumerated in Art. 21 of the same Code. This article states that "(a)ny
person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage."
The moral damages are hereby increased to P30,000.00. We agree with the
respondent court in holding that the award of attorney's fees is justified because
petitioner filed a clearly unfounded civil action. 49

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the
questioned Decision of the Court of Appeals AFFIRMED. This Decision is
immediately executory. Costs against petitioner.

SO ORDERED.
G.R. No. 134329 January 19, 2000

VERONA PADA-KILARIO and RICARDO KILARIO, petitioners,

vs.
COURT OF APPEALS and SILVERIO PADA, respondents.

The victory1 of petitioner spouses Ricardo and Verona Kilario in the Municipal
Circuit Trial Court2 in an ejectment suit3 filed against them by private respondent
Silverio Pada, was foiled by its reversal4 by the Regional Trial Court5 on appeal.
They elevated their cause6 to respondent Court of Appeals7 which, however,
promulgated a Decision8 on May 20, 1998, affirming the Decision of the Regional
Trial Court.

The following facts are undisputed:

One Jacinto Pada had six (6) children, namely, Marciano, Ananias, Amador, Higino,
Valentina and Ruperta. He died intestate. His estate included a parcel of land of
residential and coconut land located at Poblacion, Matalom, Leyte, denominated as
Cadastral Lot No. 5581 with an area of 1,301.92 square meters. It is the northern
portion of Cadastral Lot No. 5581 which is the subject of the instant controversy.

During the lifetime of Jacinto Pada, his half-brother, Feliciano Pada, obtained
permission from him to build a house on the northern portion of Cadastral Lot No.
5581. When Feliciano died, his son, Pastor, continued living in the house together
with his eight children. Petitioner Verona Pada-Kilario, one of Pastor's children, has
been living in that house since 1960.

Sometime in May, 1951, the heirs of Jacinto Pada entered into an extra-judicial
partition of his estate. For this purpose, they executed a private document which
they, however, never registered in the Office of the Registrar of Deeds of Leyte.

At the execution of the extra-judicial partition, Ananias was himself present while
his other brothers were represented by their children. Their sisters, Valentina and
Ruperta, both died without any issue. Marciano was represented by his daughter,
Maria; Amador was represented by his daughter, Concordia; and Higina was
represented by his son, Silverio who is the private respondent in this case. It was to
both Ananias and Marciano, represented by his daughter, Maria, that Cadastral Lot
No. 5581 was allocated during the said partition. When Ananias died, his daughter,
Juanita, succeeded to his right as co-owner of said property.

On June 14, 1978, Juanita Pada sold to Engr. Ernesto Paderes, the right of his father,
Ananias, as co-owner of Cadastral Lot No. 5881.

On November 17, 1993, it was the turn of Maria Pada to sell the co-ownership right
of his father, Marciano. Private respondent, who is the first cousin of Maria, was the
buyer.
Thereafter, private respondent demanded that petitioner spouses vacate the
northern portion of Cadastral Lot No. 5581 so his family can utilize the said area.
They went through a series of meetings with the barangay officials concerned for
the purpose of amicable settlement, but all earnest efforts toward that end, failed.

On June 26, 1995, private respondent filed in the Municipal Circuit Trial Court of
Matalom, Leyte, a complaint for ejectment with prayer for damages against
petitioner spouses.

On July 24, 1995, the heirs of Amador Pada, namely, Esperanza Pada-Pavo,
Concordia Pada-Bartolome, and Angelito Pada, executed a Deed of Donation9
transferring to petitioner Verona Pada-Kilario, their respective shares as co-owners
of Cadastral Lot No. 5581.

On February 12, 1996, petitioner spouses filed their Answer averring that the
northern portion of Cadastral Lot No. 5581 had already been donated to them by the
heirs of Amador Pada. They contended that the extra-judicial partition of the estate
of Jacinto Pada executed in 1951 was invalid and ineffectual since no special power
of attorney was executed by either Marciano, Amador or Higino in favor of their
respective children who represented them in the extra-judicial partition. Moreover,
it was effectuated only through a private document that was never registered in the
office of the Registrar of Deeds of Leyte.

The Municipal Circuit Trial Court rendered judgment in favor of petitioner spouses.
It made the following findings:

After a careful study of the evidence submitted by both parties, the court finds that
the evidence adduced by plaintiff failed to establish his ownership over . . . Cadastral
Lot No. 5581 . . . while defendants has [sic] successfully proved by preponderance of
evidence that said property is still under a community of ownership among the
heirs of the late Jacinto Pada who died intestate. If there was some truth that
Marciano Pada and Ananias Pada has [sic] been adjudicated jointly of [sic] the
above-described residential property . . . as their share of the inheritance on the
basis of the alleged extra judicial settlement, how come that since 1951, the date of
partition, the share of the late Marciano Pada was not transferred in the name of his
heirs, one of them Maria Pada-Pavo and still remain [sic] in the name of Jacinto Pada
up to the present while the part pertaining to the share of Ananias Pada was easily
transferred in the name of his heirs . . ..

The alleged extra judicial settlement was made in private writing and the
genuineness and due execution of said document was assailed as doubtful and it
appears that most of the heirs were not participants and signatories of said
settlement, and there was lack of special power of attorney to [sic] those who
claimed to have represented their co-heirs in the participation [sic] and signing of
the said extra judicial statement.
Defendants were already occupying the northern portion of the above-described
property long before the sale of said property on November 17, 1993 was executed
between Maria Pada-Pavo, as vendor and the plaintiff, as vendee. They are in
possession of said portion of the above-described property since the year 1960 with
the consent of some of the heirs of Jacinto Pada and up to the [sic] present some of
the heirs of Jacinto Pada has [sic] donated . . . their share of [sic] the above-described
property to them, virtually converting defendants' standing as co-owners of the land
under controversy. Thus, defendants as co-owners became the undivided owners of
the whole estate . . . . As co-owners of . . . Cadastral Lot No. 5581 . . . their possession
in the northern portion is being [sic] lawful.10

From the foregoing decision, private respondent appealed to the Regional Trial
Court. On November 6, 1997, it rendered a judgment of reversal. It held:

. . . [T]he said conveyances executed by Juanita Pada and Maria Pada Pavo were
never questioned or assailed by their co-heirs for more than 40 years, thereby
lending credence on [sic] the fact that the two vendors were indeed legal and lawful
owners of properties ceded or sold. . . . At any rate, granting that the co-heirs of
Juanita Pada and Maria Pada Pavo have some interests on the very lot assigned to
Marciano and Ananias, nevertheless, said interests had long been sadly lost by
prescription, if not laches or estoppel.

It is true that an action for partition does not prescribe, as a general rule, but this
doctrine of imprescriptibility cannot be invoked when one of the heirs possessed
the property as an owner and for a period sufficient to acquire it by prescription
because from the moment one of the co-heirs claim [sic] that he is the absolute
owner and denies the rest their share of the community property, the question then
involved is no longer one for partition but of ownership. . . . Since [sic] 1951 up to
1993 covers a period of 42 long years. Clearly, whatever right some of the co-heirs
may have, was long extinguished by laches, estoppel or prescription.

xxx xxx xxx

. . . [T]he deed of donation executed by the Heirs of Amador Pada, a brother of

Marciano Pada, took place only during the inception of the case or after the lapse of
more than 40 years reckoned from the time the extrajudicial partition was made in
1951. Therefore, said donation is illegal and invalid [sic] the donors, among others,
were absolutely bereft of any right in donating the very property in question.11

The dispositive portion of the decision of the Regional Trial Court reads as follows:

WHEREFORE, a judgment is hereby rendered, reversing the judgment earlier

promulgated by the Municipal Circuit Trial Court of Matalom, Leyte, [sic]
consequently, defendants-appellees are hereby ordered:
1. To vacate the premises in issue and return peaceful possession to the appellant,
being the lawful possessor in concept of owner;

2. To remove their house at their expense unless appellant exercises the option of
acquiring the same, in which case the pertinent provisions of the New Civil Code has
to be applied;

3. Ordering the defendants-appellees to pay monthly rental for their occupancy and
use of the portion of the land in question in the sum of P100.00 commencing on June
26, 1995 when the case was filed and until the termination of the present case;

4. Ordering the defendants to pay to the appellant the sum of P5,000.00 as moral
damages and the further sum of P5,000.00 as attorney's fees;

5. Taxing defendants to pay the costs of suit.12

Petitioners filed in the Court of Appeals a petition for review of the foregoing
decision of the Regional Trial Court.

On May 20, 1998, respondent Court of Appeals rendered judgment dismissing said
petition. It explained:

Well-settled is the rule that in an ejectment suit, the only issue is possession de facto
or physical or material possession and not de jure. Hence, even if the question of
ownership is raised in the pleadings, the court may pass upon such issue but only to
determine the question of possession, specially if the former is inseparably linked
with the latter. It cannot dispose with finality the issue of ownership, such issue
being inutile in an ejectment suit except to throw light on the question of possession
....

Private respondent Silverio Pada anchors his claim to the portion of the land
possessed by petitioners on the Deed of Sale executed in his favor by vendor Maria
Pada-Pavo, a daughter of Marciano, son of Jacinto Pada who was the registered
owner of the subject lot. The right of vendee Maria Pada to sell the property was
derived from the extra-judicial partition executed in May 1951 among the heirs of
Jacinto Pada, which was written in a Bisayan dialect signed by the heirs, wherein the
subject land was adjudicated to Marciano, Maria Pavo's father, and Ananias Pada.
Although the authenticity and genuineness of the extra-judicial partition is now
being questioned by the heirs of Amador Pada, no action was ever previously filed in
court to question the validity of such partition.1wphi1.nt

Notably, petitioners in their petition admitted among the antecedent facts that
Maria Pavo is one of the co-owners of the property originally owned by Jacinto Pada
. . . and that the disputed lot was adjudicated to Marciano (father of Maria Pavo) and
Ananias, and upon the death of Marciano and Ananias, their heirs took possession of
said lot, i.e. Maria Pavo the vendor for Marciano's share and Juanita for Ananias'
share . . . . Moreover, petitioners do not dispute the findings of the respondent court
that during the cadastral survey of Matalom, Leyte, the share of Maria Pada Pavo
was denominated as Lot No. 5581, while the share of Juanita Pada was denominated
as Lot No. 6047, and that both Maria Pada Pavo and Juanita were in possession of
their respective hereditary shares. Further, petitioners in their Answer admitted
that they have been occupying a portion of Lot No. 5581, now in dispute without
paying any rental owing to the liberality of the plaintiff . . . . Petitioners cannot now
impugn the aforestated extrajudicial partition executed by the heirs in 1951. As
owner and possessor of the disputed property, Maria Pada, and her vendee, private
respondent, is entitled to possession. A voluntary division of the estate of the
deceased by the heirs among themselves is conclusive and confers upon said heirs
exclusive ownership of the respective portions assigned to them . . ..

The equally belated donation of a portion of the property in dispute made by the
heirs of Amador Pada, namely, Concordia, Esperanza and Angelito, in favor of
petitioner Verona Pada is a futile attempt to confer upon the latter the status of co-
owner, since the donors had no interest nor right to transfer. . . . This gesture
appears to be a mere afterthought to help petitioners to prolong their stay in the
premises. Furthermore, the respondent court correctly pointed out that the
equitable principle of laches and estoppel come into play due to the donors' failure
to assert their claims and alleged ownership for more than forty (40) years . . . .
Accordingly, private respondent was subrogated to the rights of the vendor over Lot
No. 5581 which include [sic] the portion occupied by petitioners.13

Petitioner spouses filed a Motion for Reconsideration of the foregoing decision.

On June 16, 1998, respondent Court of Appeals issued a Resolution denying said
motion.

Hence this petition raising the following issues:

I.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONERS,

AS CO-OWNERS, CANNOT BE EJECTED FROM THE PREMISES CONSIDERING THAT
THE HEIRS OF JACINTO PADA DONATED TO THEM THEIR UNDIVIDED INTEREST
IN THE PROPERTY IN DISPUTE.

II.

WHETHER THE COURT OF APPEALS ERRED IN NOT RULING THAT WHAT MARIA
PADA SOLD WAS HER UNDIVIDED SHARE IN THE PROPERTY IN DISPUTE.

III.

WHETHER OR NOT THE PETITIONERS ARE BUILDERS IN GOOD FAITH.14

There is no merit to the instant petition.

First. We hold that the extrajudicial partition of the estate of Jacinto Pada among his
heirs made in 1951 is valid, albeit executed in an unregistered private document. No
law requires partition among heirs to be in writing and be registered in order to be
valid.15 The requirement in Sec. 1, Rule 74 of the Revised Rules of Court that a
partition be put in a public document and registered, has for its purpose the
protection of creditors and the heirs themselves against tardy claims.16 The object
of registration is to serve as constructive notice to others. It follows then that the
intrinsic validity of partition not executed with the prescribed formalities is not
undermined when no creditors are involved.17 Without creditors to take into
consideration, it is competent for the heirs of an estate to enter into an agreement
for distribution thereof in a manner and upon a plan different from those provided
by the rules from which, in the first place, nothing can be inferred that a writing or
other formality is essential for the partition to be valid.18 The partition of inherited
property need not be embodied in a public document so as to be effective as regards
the heirs that participated therein.19 The requirement of Article 1358 of the Civil
Code that acts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property, must appear in a public
instrument, is only for convenience, non-compliance with which does not affect the
validity or enforceability of the acts of the parties as among themselves.20 And
neither does the Statute of Frauds under Article 1403 of the New Civil Code apply
because partition among heirs is not legally deemed a conveyance of real property,
considering that it involves not a transfer of property from one to the other but
rather, a confirmation or ratification of title or right of property that an heir is
renouncing in favor of another heir who accepts and receives the inheritance.21 The
1951 extrajudicial partition of Jacinto Pada's estate being legal and effective as
among his heirs, Juanita and Maria Pada validly transferred their ownership rights
over Cadastral Lot No. 5581 to Engr. Paderes and private respondent,
respectively.22

Second. The extrajudicial partition which the heirs of Jacinto Pada executed
voluntarily and spontaneously in 1951 has produced a legal status.23 When they
discussed and agreed on the division of the estate Jacinto Pada, it is presumed that
they did so in furtherance of their mutual interests. As such, their division is
conclusive, unless and until it is shown that there were debts existing against the
estate which had not been paid.24 No showing, however, has been made of any
unpaid charges against the estate of Jacinto Pada. Thus, there is no reason why the
heirs should not be bound by their voluntary acts.

The belated act of Concordia, Esperanza and Angelito, who are the heirs of Amador
Pada, of donating the subject property to petitioners after forty four (44) years of
never having disputed the validity of the 1951 extrajudicial partition that allocated
the subject property to Marciano and Ananias, produced no legal effect. In the said
partition, what was allocated to Amador Pada was not the subject property which
was a parcel of residential land in Sto. Nino, Matalom, Leyte, but rather, one-half of a
parcel of coconut land in the interior of Sto. Nino St., Sabang, Matalom, Leyte and
one-half of a parcel of rice land in Itum, Sta. Fe, Matalom, Leyte. The donation made
by his heirs to petitioners of the subject property, thus, is void for they were not the
owners thereof. At any rate it is too late in the day for the heirs of Amador Pada to
repudiate the legal effects of the 1951 extrajudicial partition as prescription and
laches have equally set in.

Third. Petitioners are estopped from impugning the extrajudicial partition executed
by the heirs of Jacinto Pada after explicitly admitting in their Answer that they had
been occupying the subject property since 1960 without ever paying any rental as
they only relied on the liberality and tolerance of the Pada family.25 Their
admissions are evidence of a high order and bind them insofar as the character of
their possession of the subject property is concerned.

Considering that petitioners were in possession of the subject property by sheer

tolerance of its owners, they knew that their occupation of the premises may be
terminated any time. Persons who occupy the land of another at the latter's
tolerance or permission, without any contract between them, is necessarily bound
by an implied promise that they will vacate the same upon demand, failing in which
a summary action for ejectment is the proper remedy against them.26 Thus, they
cannot be considered possessors nor builders in good faith. It is well-settled that
both Article 44827 and Article 54628 of the New Civil Code which allow full
reimbursement of useful improvements and retention of the premises until
reimbursement is made, apply only to a possessor in good faith, i.e., one who builds
on land with the belief that he is the owner thereof.29 Verily, persons whose
occupation of a realty is by sheer tolerance of its owners are not possessors in good
faith. Neither did the promise of Concordia, Esperanza and Angelito Pada that they
were going to donate the premises to petitioners convert them into builders in good
faith for at the time the improvements were built on the premises, such promise was
not yet fulfilled, i.e., it was a mere expectancy of ownership that may or may not be
realized.30 More importantly, even as that promise was fulfilled, the donation is
void for Concordia, Esperanza and Angelito Pada were not the owners of Cadastral
Lot No. 5581. As such, petitioners cannot be said to be entitled to the value of the
improvements that they built on the said lot.

WHEREFORE, the petition for review is HEREBY DENIED.

Costs against petitioners.

SO ORDERED.
G.R. No. 109840 January 21, 1999

JOSE L. CHUA and CO SIO ENG, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and RAMON IBARRA, respondents.

This is a petition for review on certiorari of the decision, 1 dated October 8, 1992 of
the Court of Appeals affirming the decision of the Regional Trial Court, Branch 59 of
Makati, Metro Manila, ordering the ejectment of petitioners from the premises
owned by private respondent.

Petitioners were lessees of a commercial unit at No. 3086 Redemptorist Street in

Baclaran, Paraque, Metro Manila. The lease was for a period of five (5) years, from
January 1, 1985 to December 31, 1989. The contract expressly provided for the
renewal of the lease at the option of the lessees "in accordance with the terms of
agreement and conditions set by the lessor." Prior to the expiration of the lease, the
parties discussed the possibility of renewing it. They exchanged proposal and
counterproposal, but they failed to reach agreement. The dispute was referred to
the barangay captain for conciliation but still no settlement was reached by the
parties.

On July 24, 1990, private respondent filed a complaint for unlawful detainer against
petitioner's in the Metropolitan Trial Court of Paraaque, Metro Manila, which on
February 4, 1992 rendered a decision, the dispositive portion of which reads: 2

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

1. The defendants (herein petitioners) are hereby given a period of two (2)
years extension of occupancy of the subject premises starting the date of the filling
of the instant complaint;

2. The defendants are hereby ordered to pay the plaintiff (herein private
respondent) the sum of P188,806.00 representing back rentals as of the year 1991
and a monthly rental of P10,000.00 thereafter until the expiration of the aforesaid
extension of their occupancy or until the subject premises is actually vacated.

3. Defendants are hereby ordered to pay the plaintiff the amount of P15,000.00
as attorney's fees; and

4. Defendants are hereby ordered to pay the cost of suit.

SO ORDERED.

On appeal by both parties, the Regional Trial Court, Branch 59 of Makati ruled that
the lease was for a fixed period of five (5) years and that, upon its expiration on
January 1, 1990, petitioners' continued stay in the premises became illegal. As
provided in Art. 1687 of the Civil Code, the power of the courts to fix the period of
lease is limited only to cases where the period has not been fixed by the parties
themselves. The dispositive portion of the decision 3 states:

Premises considered, judgment is hereby rendered modifying the appealed decision,

as follows:

1. Ordering the defendants (herein petitioners) and all persons claiming and/or
acting for and in their behalf to vacate the premises known as door No. 3086
Redemptorist, corner G.C. Cruz Streets, Baclaran, Paraaque, Metro Manila and turn
over possession thereof to the plaintiff (herein private respondent);

2. Ordering the defendants to pay the plaintiff the following:

a) the amount of P42,306.00 representing accrued or back rentals from January

1, 1987 to December 31, 1989;

b) a monthly rental of P7,320.50 for the use or occupancy of the premises

starting January 1, 1990 until July 24, 1990 and at Ten Thousand (P10,000.00)
Pesos from July 24, 1990 until the defendants shall have vacated the same;

c) the amount of P10,000.00 representing reasonable attorney's fees:

3. Dismissing defendants' counterclaim for lack of merit; and

4. With costs against the defendants.

Petitioners appealed to the Court of Appeals which affirmed the decision. In its
decision, dated October 8, 1992, the Court of Appeals ordered:

WHEREFORE, except for the modification that the monthly rental that petitioners
should pay private respondent from July 24, 1990 until the latter finally vacate the
premises in question is reduced to P7,320.00, the decision of the respondent court
in this case is AFFIRMED in all other respects, with costs against petitioners Jose L.
Chua and Ko Sio Eng.

Petitioners' motion for reconsideration was likewise denied. Hence, this petition for
review for certiorari. Petitioners assign several errors as having been allegedly
committed by the Court of Appeals.

First. Petitioners allege that the Court of Appeals erred in affirming the lower court's
finding that they owe private respondent the amount of P42,306.00 as unpaid
rentals from January 1, 1987 to December 31, 1989 because neither the letter of
demand nor the complaint for unlawful detainer alleged a claim for unpaid rentals.
As the Court of Appeals pointed out, however, the issue of arrearages was raised at
the pre-trial by private respondent and evidence on this question was presented
without objection from petitioners: 5

First of all, while it is true that there was no express demand in private respondent's
complaint for unlawful detainer against petitioners for the latters payment of rental
arrearages, private respondent in a pleading dated December 17, 1990 filed with the
MTC (by way of comment to petitioners' motion to admit amended answer) stated:

That moreover the unpaid rentals from January 1987 to December 31, 1989
amounts to FORTY TWO THOUSAND THREE HUNDRED SIX PESOS (P42,306,00),
exclusive of rentals from January 1 to December 31, 1990 which would be one
hundred eighty thousand pesos (P180,000.00) or a total of TWO HUNDRED
TWENTY TWO THOUSAND THREE HUNDRED SIX PESOS (222,306,00)

(p. 75 Orig. Rec).

Then, at the pre-trial of December 17, 1990, among the issues proposed by counsel
for plaintiff (now private respondent) was whether:

3. defendants are in arrears for the rentals from Dec. 31, 1987 to January 1989,
in accordance with the contract:

(p. 8, tsn Dec. 17, 1990:

p. 87, id.)

Counsel for defendants (herein petitioners) did not object to the statement of issues
made by plaintiffs counsel and instead simply stated as their own main issue
whether plaintiff had a valid cause of action for ejectment against them as he is not
the sole owner of the leased premises, and then averred that "based on this premise,
the other issues raised by plaintiff could be dependent on the resolution of the
stated issues" (id., p. 88. Orig. Rec.). Later, at the hearing of February 12, 1990.
plaintiff Ramon Ibarra testified that although his lease contract (Exh. "A") with
petitioners stipulated an annual ten percent (10%) additional rental starting in
1986 (i.e., the monthly rental in 1986 was P5,500, in 1987, it was P6,050; in 1988, it
was P6,655.00; and in 1989, it was P7,320.50), petitioners continued to pay only the
original monthly rental of P5,000 stipulated in their contract (Exh. "A"), so that
petitioners had incurred total rental arrearages at the end of 1989 of P42,306.00
(pp. 6-8,. tsn, op cit.: pp. 113-115. Orig. Rec.). . . .

Obviously, then, petitioners' rental arrearages from 1986 to 1989 as an issue raised
at the pre-trial and on which issue private respondent presented evidence without
any objection from petitioners. And considering that the petitioners incurred said
rental arrearages because they did not pay private respondent the automatic 10%
increase in their monthly rental every year for the years 1986 to 1989 as agreed
upon and stipulated in their lease contract (Exh. "A".) which contract is the law
between the parties, justice and good faith demand that petitioners should pay said
rental arrearages. As correctly ruled by the respondent court, "to absolve the
defendants from paying rentals in arrears while they continue occupying and
enjoying the premises would be allowing the defendants to enrich themselves at the
expense of the plaintiff. (p, 55, Rollo).

Indeed, any objection to the admissibility of evidence should be made at the time
such evidence is offered or as soon thereafter as the objection to its admissibility
becomes apparent, 6 otherwise the objection will be considered waived and such
evidence will form part of the records of the case as competent and admissible
evidence. 7 Rule 10, 5 8 of the Rules of Civil Procedure allows the amendment of
the pleadings in order to make them conform to the evidence in the record.

Second. Petitioners claim that they are entitled to an estension of time to occupy the
premises in question. This, too, is without merit. After the lease terminated on
January 1, 1990 and without the parties thereafter reaching any agreement for its
renewal, petitioners became deforciants subject to ejectment from the premises. 9

Neither did the Court of Appeals err in ruling that petitioners are not entitled to a
reasonable extension of time to occupy the premises on account of the fact that the
lease contract between the parties has already expired. As there was no longer any
lease to speak of which could be extended, the Metropolitan Trial Court was in effect
making a contract for the parties which it obviously did not have the power to do. 10
The potestative authority of the courts to fix a longer term for a lease under Art.
1687 of the Civil Code 11 applies only to cases where there is no period fixed by the
parties. To the contrary, in this case, the contract of lease provided for a fixed period
of five (5) years from January 1, 1985 to December 31, 1989. As the Court held in
Bacolod-Murcia Milling Co., Inc. v. Banco Nacional Filipino: 12

It is not the province of the court to alter a contract by construction or to make a

new contract for the parties; its duty is confined to the interpretation of the one
which they have made for themselves, without regard to its wisdom or folly, as the
court cannot supply material stipulations or read into contract words which it does
not contain.

Indeed, Art. 1675 of the Civil Code excludes cases falling under Art. 1673 (which
provides among others, that the lessor may judicially eject the lessee when the
period agreed upon or that which is fixed has expired) from the cases wherein,
pursuant to Art. 1687, courts may fix a longer period of lease. For these reasons, we
hold that the Court of Appeals did not err in ruling that petitioners were not entitled
to an extension of the lease upon its expiration.

Third. The appellate court found petitioners guilty of bad faith in refusing to leave
the premises. But petitioners contend that they acted in good faith under the belief
that they were entitled to an extension of the lease because they had made repairs
and improvements on the premises.
This contention is devoid of merit. The fact that petitioners allegedly made repairs
on the premises in question is not a reason for them to retain the possession of the
premises. There is no provision of law which grants the lessee a right of retention
over the leased premises on that ground. Art. 448 of the Civil Code, in relation to Art.
546, which provides for full reimbursement of useful improvements and retention
of the premises until reimbursement is made, applies only to a possessor in good
faith, i.e., one who builds on a land in the belief that he is the owner thereof. In a
number of cases, the Court has held that this right does not apply to a mere lessee,
like the petitioners, otherwise, it would always be in his power to "improve" his
landlord out of the latter's property. 13 Art. 1678 merely grants to such a lessee
making in good faith useful improvements the right to be reimbursed one-half of the
value of the improvements upon the termination of the lease, or, in the alternative,
to remove the improvements if the lessor refuses to make reimbursement.

Petitioners were thus correctly ordered to pay attorney's fees considering that
private respondent had to go to court to protect his interest. 14 The award of
P10,000.00 is reasonable in view of the time it has taken this rather simple case for
ejectment to be decided.

Fourth. Petitioners contend that the Court of Appeals erred in affirming the denial of
their counterclaim for damages for their failure to enjoy the peaceful possession of
the premises because private respondent allowed vendors to ply their trade at the
front portion of the leased premises. Petitioners claim that, as a result, they suffered
business losses and moral injuries. As both the Metropolitan Trial Court and
Regional Trial Court held, however, there is no evidence to support this claim. As the
Court of Appeals said, petitioners never complained before about the sidewalk
vendors occupying a portion of the leased property. It was only after negotiations
for renewal of the lease had failed and private respondent had filed a complaint for
unlawful detainer against them did they complain about the vendors.

WHEREFORE, the decision of the Court of Appeals, dated October 8, 1992, is

AFFIRMED.1wphi1.nt

Costs against petitioners.

SO ORDERED.
G.R. No. 172384 September 12, 2007

ERMINDA F. FLORENTINO, Petitioner,

vs.
SUPERVALUE, INC., Respondent.

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised
Rules of Court, filed by petitioner Erminda F. Florentino, seeking to reverse and set
aside the Decision,1 dated 10 October 2003 and the Resolution,2 dated 19 April
2006 of the Court of Appeals in CA-G.R. CV No. 73853. The appellate court, in its
assailed Decision and Resolution, modified the Decision dated 30 April 2001 of the
Regional Trial Court (RTC) of Makati, Branch 57, in Civil Case No. 00-1015, finding
the respondent Supervalue, Inc., liable for the sum of P192,000.00, representing the
security deposits made by the petitioner upon the commencement of their Contract
of Lease. The dispositive portion of the assailed appellate courts Decision thus
reads:

WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The April 30,
2001 Decision of the Regional Trial Court of Makati, Branch 57 is therefore
MODIFIED to wit: (a) the portion ordering the [herein respondent] to pay the
amount of P192,000.00 representing the security deposits and P50,000.00 as
attorneys fees in favor of the [herein petitioner] as well as giving [respondent] the
option to reimburse [petitioner] of the value of the improvements introduced by
the [petitioner] on the leased [premises] should [respondent] choose to appropriate
itself or require the [petitioner] to remove the improvements, is hereby REVERSED
and SET ASIDE; and (b) the portion ordering the return to [petitioner] the
properties seized by [respondent] after the former settled her obligation with the
latter is however MAINTAINED.3

The factual and procedural antecedents of the instant petition are as follows:

Petitioner is doing business under the business name "Empanada Royale," a sole
proprietorship engaged in the retail of empanada with outlets in different malls and
business establishments within Metro Manila.4

Respondent, on the other hand, is a domestic corporation engaged in the business of

leasing stalls and commercial store spaces located inside SM Malls found all
throughout the country.5

On 8 March 1999, petitioner and respondent executed three Contracts of Lease

containing similar terms and conditions over the cart-type stalls at SM North Edsa
and SM Southmall and a store space at SM Megamall. The term of each contract is for
a period of four months and may be renewed upon agreement of the parties.6

Upon the expiration of the original Contracts of Lease, the parties agreed to renew
the same by extending their terms until 31 March 2000.7
Before the expiration of said Contracts of Lease, or on 4 February 2000, petitioner
received two letters from the respondent, both dated 14 January 2000, transmitted
through facsimile transmissions.8

In the first letter, petitioner was charged with violating Section 8 of the Contracts of
Lease by not opening on 16 December 1999 and 26 December 1999.9

Respondent also charged petitioner with selling a new variety of empanada called
"mini-embutido" and of increasing the price of her merchandise from P20.00 to
P22.00, without the prior approval of the respondent.10

Respondent observed that petitioner was frequently closing earlier than the usual
mall hours, either because of non-delivery or delay in the delivery of stocks to her
outlets, again in violation of the terms of the contract. A stern warning was thus
given to petitioner to refrain from committing similar infractions in the future in
order to avoid the termination of the lease contract.11

In the second letter, respondent informed the petitioner that it will no longer renew
the Contracts of Lease for the three outlets, upon their expiration on 31 March
2000.12

In a letter-reply dated 11 February 2000, petitioner explained that the "mini-

embutido" is not a new variety of empanada but had similar fillings, taste and
ingredients as those of pork empanada; only, its size was reduced in order to make
it more affordable to the buyers.13

Such explanation notwithstanding, respondent still refused to renew its Contracts of

Lease with the petitioner. To the contrary, respondent took possession of the store
space in SM Megamall and confiscated the equipment and personal belongings of
the petitioner found therein after the expiration of the lease contract.14

In a letter dated 8 May 2000, petitioner demanded that the respondent release the
equipment and personal belongings it seized from the SM Megamall store space and
return the security deposits, in the sum of P192,000.00, turned over by the
petitioner upon signing of the Contracts of Lease. On 15 June 2000, petitioner sent
respondent another letter reiterating her previous demands, but the latter failed or
refused to comply therewith. 15

On 17 August 2000, an action for Specific Performance, Sum of Money and Damages
was filed by the petitioner against the respondent before the RTC of Makati, Branch
57.16

In her Complaint docketed as Civil Case No. 00-1015, petitioner alleged that the
respondent made verbal representations that the Contracts of Lease will be
renewed from time to time and, through the said representations, the petitioner was
induced to introduce improvements upon the store space at SM Megamall in the
sum of P200,000.00, only to find out a year later that the respondent will no longer
renew her lease contracts for all three outlets.17

In addition, petitioner alleged that the respondent, without justifiable cause and
without previous demand, refused to return the security deposits in the amount of
P192,000.00.18

Further, petitioner claimed that the respondent seized her equipment and personal
belongings found inside the store space in SM Megamall after the lease contract for
the said outlet expired and despite repeated written demands from the petitioner,
respondent continuously refused to return the seized items.19

Petitioner thus prayed for the award of actual damages in the sum of P472,000.00,
representing the sum of security deposits, cost of improvements and the value of the
personal properties seized. Petitioner also asked for the award of P300,000.00 as
moral damages; P50,000.00 as exemplary damages; and P80,000.00 as attorneys
fees and expenses of litigation.20

For its part, respondent countered that petitioner committed several violations of
the terms of their Contracts of Lease by not opening from 16 December 1999 to 26
December 1999, and by introducing a new variety of empanada without the prior
consent of the respondent, as mandated by the provision of Section 2 of the Contract
of Lease. Respondent also alleged that petitioner infringed the lease contract by
frequently closing earlier than the agreed closing hours. Respondent finally averred
that petitioner is liable for the amount P106,474.09, representing the penalty for
selling a new variety of empanada, electricity and water bills, and rental adjustment,
among other charges incidental to the lease agreements. Respondent claimed that
the seizure of petitioners personal belongings and equipment was in the exercise of
its retaining lien, considering that the petitioner failed to settle the said obligations
up to the time the complaint was filed.21

Considering that petitioner already committed several breaches of contract, the

respondent thus opted not to renew its Contracts of Lease with her anymore. The
security deposits were made in order to ensure faithful compliance with the terms
of their lease agreements; and since petitioner committed several infractions
thereof, respondent was justified in forfeiting the security deposits in the latters
favor.

On 30 April 2001, the RTC rendered a Judgment22 in favor of the petitioner and
found that the physical takeover by the respondent of the leased premises and the
seizure of petitioners equipment and personal belongings without prior notice
were illegal. The decretal part of the RTC Judgment reads:

WHEREFORE, premises duly considered, judgment is hereby rendered ordering the

[herein respondent] to pay [herein petitioner] the amount of P192,000.00
representing the security deposits made by the [petitioner] and P50,000.00 as and
for attorneys fees.

The [respondent] is likewise ordered to return to the [petitioner] the various

properties seized by the former after settling her account with the [respondent].

Lastly, the [respondent] may choose either to reimburse the [petitioner] one half
(1/2) of the value of the improvements introduced by the plaintiff at SM Megamall
should [respondent] choose to appropriate the improvements to itself or require the
[petitioner] to remove the improvements, even though the principal thing may
suffer damage thereby. [Petitioner] shall not, however, cause anymore impairment
upon the said leased premises than is necessary.

The other damages claimed by the plaintiff are denied for lack of merit.

Aggrieved, the respondent appealed the adverse RTC Judgment to the Court of
Appeals.

In a Decision23 dated 10 October 2003, the Court of Appeals modified the RTC
Judgment and found that the respondent was justified in forfeiting the security
deposits and was not liable to reimburse the petitioner for the value of the
improvements introduced in the leased premises and to pay for attorneys fees. In
modifying the findings of the lower court, the appellate court declared that in view
of the breaches of contract committed by the petitioner, the respondent is justified
in forfeiting the security deposits. Moreover, since the petitioner did not obtain the
consent of the respondent before she introduced improvements on the SM
Megamall store space, the respondent has therefore no obligation to reimburse the
petitioner for the amount expended in connection with the said improvements.24
The Court of Appeals, however, maintained the order of the trial court for
respondent to return to petitioner her properties after she has settled her
obligations to the respondent. The appellate court denied petitioners Motion for
Reconsideration in a Resolution25 dated 19 April 2006.

Hence, this instant Petition for Review on Certiorari26 filed by the petitioner
assailing the Court of Appeals Decision. For the resolution of this Court are the
following issues:

I. Whether or not the respondent is liable to return the security deposits to the
petitions.

II. Whether or not the respondent is liable to reimburse the petitioner for the sum of
the improvements she introduced in the leased premises.

III. Whether or not the respondent is liable for attorneys fees.27

The appellate court, in finding that the respondent is authorized to forfeit the
security deposits, relied on the provisions of Sections 5 and 18 of the Contract of
Lease, to wit:

Section 5. DEPOSIT. The LESSEE shall make a cash deposit in the sum of SIXTY
THOUSAND PESOS (P60,000.00) equivalent to three (3) months rent as security for
the full and faithful performance to each and every term, provision, covenant and
condition of this lease and not as a pre-payment of rent. If at any time during the
term of this lease the rent is increased[,] the LESSEE on demand shall make an
additional deposit equal to the increase in rent. The LESSOR shall not be required to
keep the deposit separate from its general funds and the deposit shall not be
entitled to interest. The deposit shall remain intact during the entire term and shall
not be applied as payment for any monetary obligations of the LESSEE under this
contract. If the LESSEE shall faithfully perform every provision of this lease[,] the
deposit shall be refunded to the LESSEE upon the expiration of this Lease and upon
satisfaction of all monetary obligation to the LESSOR.

xxxx

Section 18. TERMINATION. Any breach, non-performance or non-observance of the

terms and conditions herein provided shall constitute default which shall be
sufficient ground to terminate this lease, its extension or renewal. In which event,
the LESSOR shall demand that LESSEE immediately vacate the premises, and
LESSOR shall forfeit in its favor the deposit tendered without prejudice to any such
other appropriate action as may be legally authorized.28

Since it was already established by the trial court that the petitioner was guilty of
committing several breaches of contract, the Court of Appeals decreed that she
cannot therefore rightfully demand the return of the security deposits for the same
are deemed forfeited by reason of evident contractual violations.

It is undisputed that the above-quoted provision found in all Contracts of Lease is in

the nature of a penal clause to ensure petitioners faithful compliance with the terms
and conditions of the said contracts.

A penal clause is an accessory undertaking to assume greater liability in case of

breach. It is attached to an obligation in order to insure performance and has a
double function: (1) to provide for liquidated damages, and (2) to strengthen the
coercive force of the obligation by the threat of greater responsibility in the event of
breach.29 The obligor would then be bound to pay the stipulated indemnity without
the necessity of proof of the existence and the measure of damages caused by the
breach.30 Article 1226 of the Civil Code states:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of noncompliance, if
there is no stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.

The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.

As a general rule, courts are not at liberty to ignore the freedoms of the parties to
agree on such terms and conditions as they see fit as long as they are not contrary to
law, morals, good customs, public order or public policy. Nevertheless, courts may
equitably reduce a stipulated penalty in the contracts in two instances: (1) if the
principal obligation has been partly or irregularly complied with; and (2) even if
there has been no compliance if the penalty is iniquitous or unconscionable in
accordance with Article 1229 of the Civil Code which clearly provides:

Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.31

In ascertaining whether the penalty is unconscionable or not, this court set out the
following standard in Ligutan v. Court of Appeals,32 to wit:

The question of whether a penalty is reasonable or iniquitous can be partly

subjective and partly objective. Its resolution would depend on such factor as, but
not necessarily confined to, the type, extent and purpose of the penalty, the nature
of the obligation, the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties, and the like, the application of
which, by and large, is addressed to the sound discretion of the court. xxx.

In the instant case, the forfeiture of the entire amount of the security deposits in the
sum of P192,000.00 was excessive and unconscionable considering that the gravity
of the breaches committed by the petitioner is not of such degree that the
respondent was unduly prejudiced thereby. It is but equitable therefore to reduce
the penalty of the petitioner to 50% of the total amount of security deposits.

It is in the exercise of its sound discretion that this court tempered the penalty for
the breaches committed by the petitioner to 50% of the amount of the security
deposits. The forfeiture of the entire sum of P192,000.00 is clearly a usurious and
iniquitous penalty for the transgressions committed by the petitioner. The
respondent is therefore under the obligation to return the 50% of P192,000.00 to
the petitioner.

Turning now to the liability of the respondent to reimburse the petitioner for one-
half of the expenses incurred for the improvements on the leased store space at SM
Megamall, the following provision in the Contracts of Lease will enlighten us in
resolving this issue:
Section 11. ALTERATIONS, ADDITIONS, IMPROVEMENTS, ETC. The LESSEE shall not
make any alterations, additions, or improvements without the prior written consent
of LESSOR; and all alterations, additions or improvements made on the leased
premises, except movable or fixtures put in at LESSEEs expense and which are
removable, without defacing the buildings or damaging its floorings, shall become
LESSORs property without compensation/reimbursement but the LESSOR reserves
the right to require the removal of the said alterations, additions or improvements
upon expiration of the lease.

The foregoing provision in the Contract of Lease mandates that before the petitioner
can introduce any improvement on the leased premises, she should first obtain
respondents consent. In the case at bar, it was not shown that petitioner previously
secured the consent of the respondent before she made the improvements on the
leased space in SM Megamall. It was not even alleged by the petitioner that she
obtained such consent or she at least attempted to secure the same. On the other
hand, the petitioner asserted that respondent allegedly misrepresented to her that it
would renew the terms of the contracts from time to time after their expirations,
and that the petitioner was so induced thereby that she expended the sum of
P200,000.00 for the improvement of the store space leased.

This argument was squarely addressed by this court in Fernandez v. Court of

Appeals,33 thus:

The Court ruled that the stipulation of the parties in their lease contract "to be
renewable" at the option of both parties stresses that the faculty to renew was given
not to the lessee alone nor to the lessor by himself but to the two simultaneously;
hence, both must agree to renew if a new contract is to come about.

Petitioners contention that respondents had verbally agreed to extend the lease
indefinitely is inadmissible to qualify the terms of the written contract under the
parole evidence rule, and unenforceable under the statute of frauds.34

Moreover, it is consonant with human experience that lessees, before occupying the
leased premises, especially store spaces located inside malls and big commercial
establishments, would renovate the place and introduce improvements thereon
according to the needs and nature of their business and in harmony with their
trademark designs as part of their marketing ploy to attract customers. Certainly, no
inducement or misrepresentation from the lessor is necessary for this purpose, for it
is not only a matter of necessity that a lessee should re-design its place of business
but a business strategy as well.

In ruling that the respondent is liable to reimburse petitioner one half of the amount
of improvements made on the leased store space should it choose to appropriate the
same, the RTC relied on the provision of Article 1678 of the Civil Code which
provides:
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.

While it is true that under the above-quoted provision of the Civil Code, the lessor is
under the obligation to pay the lessee one-half of the value of the improvements
made should the lessor choose to appropriate the improvements, Article 1678
however should be read together with Article 448 and Article 546 of the same
statute, which 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.

xxxx

Art. 546. Necessary expenses shall be refunded to every possessor; but only
possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same
right of retention, the person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying the increase in value
which the thing may have acquired by reason thereof.

Thus, to be entitled to reimbursement for improvements introduced on the

property, the petitioner must be considered a builder in good faith. Further, Articles
448 and 546 of the Civil Code, which allow full reimbursement of useful
improvements and retention of the premises until reimbursement is made, apply
only to a possessor in good faith, i.e., one who builds on land with the belief that he
is the owner thereof. A builder in good faith is one who is unaware of any flaw in his
title to the land at the time he builds on it.35 In this case, the petitioner cannot claim
that she was not aware of any flaw in her title or was under the belief that she is the
owner of the subject premises for it is a settled fact that she is merely a lessee
thereof.1wphi1
In Geminiano v. Court of Appeals,36 this Court was emphatic in declaring that
lessees are not possessors or builders in good faith, thus:

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

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

Since petitioners interest in the store space is merely that of the lessee under the
lease contract, she cannot therefore be considered a builder in good faith.
Consequently, respondent may appropriate the improvements introduced on the
leased premises without any obligation to reimburse the petitioner for the sum
expended.

Anent the claim for attorneys fees, we resolve to likewise deny the award of the
same. Attorneys fees may be awarded when a party is compelled to litigate or to
incur expenses to protect its interest by reason of unjustified act of the other.37

In the instant petition, it was not shown that the respondent unjustifiably refused to
grant the demands of the petitioner so as to compel the latter to initiate legal action
to enforce her right. As we have found herein, there is basis for respondents refusal
to return to petitioner the security deposits and to reimburse the costs of the
improvements in the leased premises. The award of attorneys fees is therefore not
proper in the instant case.

WHEREFORE, premises considered, the instant Petition is PARTLY GRANTED. The

Court of Appeals Decision dated 10 October 2003 in CA-G.R. CV No. 73853 is hereby
AFFIRMED with the MODIFICATION that the respondent may forfeit only 50% of the
total amount of the security deposits in the sum of P192,000.00, and must return the
remaining 50% to the petitioner. No costs.

SO ORDERED.
G.R. No. 159578 February 18, 2009

ROGELIA DACLAG and ADELINO DACLAG (deceased), substituted by RODEL M.

DACLAG, and ADRIAN M. DACLAG, Petitioners,
vs.
ELINO MACAHILIG, ADELA MACAHILIG, CONRADO MACAHILIG, LORENZA
HABER and BENITA DEL ROSARIO, Respondents.

Before us is petitioners' Motion for Reconsideration of our Decision dated July 28,
2008 where we affirmed the Decision dated October 17, 2001 and the Resolution
dated August 7, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 48498.

Records show that while the land was registered in the name of petitioner Rogelia in
1984, respondents complaint for reconveyance was filed in 1991, which was within
the 10-year prescriptive period.

We ruled that since petitioners bought the property when it was still an
unregistered land, the defense of having purchased the property in good faith is
unavailing. We affirmed the Regional Trial Court (RTC) in finding that petitioners
should pay respondents their corresponding share in the produce of the subject
land from the time they were deprived thereof until the possession is restored to
them.

In their Motion for Reconsideration, petitioners contend that the 10-year period for
reconveyance is applicable if the action is based on an implied or a constructive
trust; that since respondents' action for reconveyance was based on fraud, the
action must be filed within four years from the discovery of the fraud, citing Gerona
v. De Guzman,1 which was reiterated in Balbin v. Medalla.2

We do not agree.

In Caro v. Court of Appeals,3 we have explicitly held that "the prescriptive period for
the reconveyance of fraudulently registered real property is 10 years reckoned from
the date of the issuance of the certificate of title x x x."4

However, notwithstanding petitioners' unmeritorious argument, the Court deems it

necessary to make certain clarifications. We have earlier ruled that respondents'
action for reconveyance had not prescribed, since it was filed within the 10-year
prescriptive period.

However, a review of the factual antecedents of the case shows that respondents'
action for reconveyance was not even subject to prescription.

The deed of sale executed by Maxima in favor of petitioners was null and void, since
Maxima was not the owner of the land she sold to petitioners, and the one-half
northern portion of such land was owned by respondents. Being an absolute nullity,
the deed is subject to attack anytime, in accordance with Article 1410 of the Civil
Code that an action to declare the inexistence of a void contract does not prescribe.
Likewise, we have consistently ruled that when there is a showing of such illegality,
the property registered is deemed to be simply held in trust for the real owner by
the person in whose name it is registered, and the former then has the right to sue
for the reconveyance of the property.5 An action for reconveyance based on a void
contract is imprescriptible.6 As long as the land wrongfully registered under the
Torrens system is still in the name of the person who caused such registration, an
action in personam will lie to compel him to reconvey the property to the real
owner.7 In this case, title to the property is in the name of petitioner Rogelia; thus,
the trial court correctly ordered the reconveyance of the subject land to
respondents.

Petitioners next contend that they are possessors in good faith, thus, the award of
damages should not have been imposed. They further contend that under Article
544, a possessor in good faith is entitled to the fruits received before the possession
is legally interrupted; thus, if indeed petitioners are jointly and severally liable to
respondents for the produce of the subject land, the liability should be reckoned
only for 1991 and not 1984.

We find partial merit in this argument.

Article 528 of the Civil Code provides that possession acquired in good faith does
not lose this character, except in a case and from the moment facts exist which show
that the possessor is not unaware that he possesses the thing improperly or
wrongfully. Possession in good faith ceases from the moment defects in the title are
made known to the possessors, by extraneous evidence or by suit for recovery of the

property by the true owner. Whatever may be the cause or the fact from which it
can be deduced that the possessor has knowledge of the defects of his title or mode
of acquisition, it must be considered sufficient to show bad faith.8 Such interruption
takes place upon service of summons.9lawphil.net

Article 544 of the same Code provides that a possessor in good faith is entitled to the
fruits only so long as his possession is not legally interrupted. Records show that
petitioners received a summons together with respondents' complaint on August 5,
1991;10 thus, petitioners' good faith ceased on the day they received the summons.
Consequently, petitioners should pay respondents 10 cavans of palay per annum
beginning August 5, 1991 instead of 1984.

Finally, petitioner would like this Court to look into the finding of the RTC that
"since Maxima died in October 1993, whatever charges and claims petitioners may
recover from her expired with her"; and that the proper person to be held liable for
damages to be awarded to respondents should be Maxima Divison or her estate,
since she misrepresented herself to be the true owner of the subject land.
We are not persuaded.

Notably, petitioners never raised this issue in their appellants' brief or in their
motion for reconsideration filed before the CA. In fact, they never raised this matter
before us when they filed their petition for review. Thus, petitioners cannot raise
the same in this motion for reconsideration without offending the basic rules of fair
play, justice and due process, specially since Maxima was not substituted at all by
her heirs after the promulgation of the RTC Decision.

WHEREFORE, petitioners Motion for Reconsideration is PARTLY GRANTED. The

Decision of the Court of Appeals dated July 28, 2008 is MODIFIED only with respect
to prescription as discussed in the text of herein Resolution, and the dispositive
portion of the Decision is MODIFIED to the effect that petitioners are ordered to pay
respondents 10 cavans of palay per annum beginning August 5, 1991 instead of
1984.

SO ORDERED.

G.R. No. 152319 October 28, 2009

HEIRS OF THE LATE JOAQUIN LIMENSE, namely: CONCESA LIMENSE, Surviving

Spouse; and DANILO and JOSELITO, both surnamed Limense, children,
Petitioners,
vs.
RITA VDA. DE RAMOS, RESTITUTO RAMOS, VIRGILIO DIAZ, IRENEO RAMOS,
BENJAMIN RAMOS, WALDYTRUDES RAMOS-BASILIO, TRINIDAD RAMOS-
BRAVO, PAZ RAMOS-PASCUA, FELICISIMA RAMOS-REYES, and JACINTA RAMOS,
Respondents.

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
to annul and set aside the Decision1 of the Court of Appeals dated December 20,
2001 in CA-G.R. CV No. 33589 affirming in toto the Decision2 of the Regional Trial
Court of Manila, Branch 15, dated September 21, 1990 in Civil Case No. 83-16128.

The antecedent facts are as follows:

Dalmacio Lozada was the registered owner of a parcel of land identified as Lot No.
12, Block No. 1074 of the cadastral survey of the City of Manila covered by Original
Certificate of Title (OCT) No. 7036 issued at the City of Manila on June 14, 1927,3
containing an area of 873.80 square meters, more or less, located in Beata Street,
Pandacan, Manila.

Dalmacio Lozada subdivided his property into five (5) lots, namely: Lot Nos. 12-A,
12-B, 12-C, 12-D and 12-E. Through a Deed of Donation dated March 9, 1932,4 he
donated the subdivided lots to his daughters, namely: Isabel, Salud, Catalina, and
Felicidad, all surnamed Lozada. The Deed of Donation was registered with the office
of the Register of Deeds of Manila on March 15, 1932.

Under the said Deed of Donation, the lots were adjudicated to Dalmacio's daughters
in the following manner:

a. Lot No. 12-A in favor of Isabel Lozada, married to Isaac Limense;

b. Lot No. 12-B in favor of Catalina Lozada, married to Sotero Natividad;

c. Lot No. 12-C in favor of Catalina Lozada, married to Sotero Natividad; Isabel
Lozada, married to Isaac Limense; and Salud Lozada, married to Francisco Ramos, in
equal parts;

d. Lot No. 12-D in favor of Salud Lozada, married to Francisco Ramos; and

e. Lot No. 12-E in favor of Isabel Lozada, married to Isaac Limense, and Felicidad
Lozada, married to Galicano Centeno.

By virtue of the Deed of Donation executed by Dalmacio Lozada, OCT No. 7036,
which was registered in his name, was cancelled and, in lieu thereof, Transfer
Certificates of Title (TCTs) bearing Nos. 40041, 40042, 40043, 40044, and 40045
were issued in favor of the donees, except TCT No. 40044, which remained in his
name. These new TCTs were annotated at the back of OCT No. 7036.5

TCT No. 40043, which covered Lot No. 12-C, was issued in the name of its co-owners
Catalina Lozada, married to Sotero Natividad; Isabel Lozada, married to Isaac
Limense; and Salud Lozada, married to Francisco Ramos. It covered an area of 68.60
square meters, more or less, was bounded on the northeast by Lot No. 12-A, on the
southwest by Calle Beata, and on the northwest by Lot No. 12-D of the subdivision
plan. In 1932, respondents' predecessor-in-interest constructed their residential
building on Lot No. 12-D, adjacent to Lot No. 12-C.

On May 16, 1969, TCT No. 968866 was issued in the name of Joaquin Limense
covering the very same area of Lot No. 12-C.

On October 1, 1981, Joaquin Limense secured a building permit for the construction
of a hollow block fence on the boundary line between his aforesaid property and the
adjacent parcel of land located at 2759 Beata Street, Pandacan, Manila, designated
as Lot No. 12-D, which was being occupied by respondents. The fence, however,
could not be constructed because a substantial portion of respondents' residential
building in Lot No. 12-D encroached upon portions of Joaquin Limense's property in
Lot No. 12-C.
Joaquin Limense demanded the removal of the encroached area; however,
respondent ignored both oral and written demands. The parties failed to amicably
settle the differences between them despite referral to the barangay. Thus, on March
9, 1983, Joaquin Limense, duly represented by his Attorney-in-Fact, Teofista L.
Reyes, instituted a Complaint7 against respondents before the Regional Trial Court
(RTC) of Manila, Branch 15, for removal of obstruction and damages.

Joaquin Limense prayed that the RTC issue an order directing respondents, jointly
and severally, to remove the portion which illegally encroached upon his property
on Lot No. 12-C and, likewise, prayed for the payment of damages, attorneys fees
and costs of suit.

Respondents, on the other hand, averred in their Answer8 that they were the
surviving heirs of Francisco Ramos,9 who, during his lifetime, was married to Salud
Lozada, one of the daughters of Dalmacio Lozada, the original owner of Lot No. 12.
After subdividing the said lot, Dalmacio Lozada donated Lot No. 12-C in favor of his
daughters Catalina, married to Sotero Natividad; Isabel, married to Isaac Limense;
and Salud, married to Francisco Ramos. Being the surviving heirs of Francisco
Ramos, respondents later became co-owners of Lot No. 12-C. Lot No. 12-C has
served as right of way or common alley of all the heirs of Dalmacio Lozada since
1932 up to the present. As a common alley, it could not be closed or fenced by
Joaquin Limense without causing damage and prejudice to respondents.

After trial on the merits, the RTC rendered a Decision10 dated September 21, 1990
dismissing the complaint of Joaquin Limense. It ruled that an apparent easement of
right of way existed in favor of respondents. Pertinent portions of the decision read
as follows:

The Court finds that an apparent easement of right of way exists in favor of the
defendants under Article 624 of the Civil Code. It cannot be denied that there is an
alley which shows its existence. It is admitted that this alley was established by the
original owner of Lot 12 and that in dividing his property, the alley established by
him continued to be used actively and passively as such. Even when the division of
the property occurred, the non-existence of the easement was not expressed in the
corresponding titles nor were the apparent sign of the alley made to disappear
before the issuance of said titles.

The Court also finds that when plaintiff acquired the lot (12-C) which forms the
alley, he knew that said lot could serve no other purpose than as an alley. That is
why even after he acquired it in 1969, the lot continued to be used by defendants
and occupants of the other adjoining lots as an alley. The existence of the easement
of right of way was therefore known to plaintiff who must respect the same in spite
of the fact that his transfer certificate of title does not mention the lot of defendants
as among those listed therein as entitled to such right of way. It is an established
principle that actual notice or knowledge is as binding as registration.11
Aggrieved by said decision, Joaquin Limense filed a notice of appeal. The records of
the case were transmitted to the Court of Appeals (CA). During the pendency of the
appeal with the CA, Joaquin Limense died in 1999.12

The CA, Seventh Division, in CA-G.R. CV No. 33589, in its Decision13 dated
December 20, 2001 dismissed the appeal and affirmed in toto the decision of the
RTC.

Frustrated by this turn of events, petitioners, as surviving heirs of Joaquin Limense,

elevated the case to this Court via a Petition for Review on Certiorari14 raising the
following issues:

1. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN HOLDING, LIKE THE
TRIAL COURT DID, THAT RESPONDENTS' LOT 12-D HAS AN EASEMENT OF RIGHT
OF WAY OVER JOAQUIN LIMENSE'S LOT 12-C?

2. DID THE HONORABLE COURT OF APPEALS COMMIT A GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF JURISDICTION, IN FAILING TO HOLD, LIKE
THE TRIAL COURT DID, THAT THE PROTRUDING PORTIONS OF RESPONDENTS'
HOUSE ON LOT 12-D EXTENDING INTO JOAQUIN LIMENSE'S LOT 12-C
CONSTITUTE A NUISANCE AND, AS SUCH, SHOULD BE REMOVED?

Petitioners aver that the CA erred in ruling that since Lot No. 12-C was covered by
two TCT's, i.e., TCT Nos. 40043 and 96886, and there was no evidence on record to
show how Joaquin Limense was able to secure another title over an already titled
property, then one of these titles must be of dubious origin. According to the CA,
TCT No. 96886, issued in the name of Joaquin Limense, was spurious because the
Lozada sisters never disposed of the said property covered by TCT No. 40043. The
CA further ruled that a co-ownership existed over Lot No. 12-C between petitioners
and respondents. Petitioners countered that TCT No. 96886, being the only and best
legitimate proof of ownership over Lot No. 12-C, must prevail over TCT No. 40043.

Respondents allege that it was possible that TCT No. 96886, in the name of Joaquin
Limense, was obtained thru fraud, misrepresentation or falsification of documents
because the donees of said property could not possibly execute any valid transfer of
title to Joaquin Limense, as they were already dead prior to the issuance of TCT No.
96886 in 1969. Respondents further allege that petitioners failed to produce proof
substantiating the issuance of TCT No. 96886 in the name of Joaquin Limense.

Apparently, respondents are questioning the legality of TCT No. 96886, an issue that
this Court cannot pass upon in the present case. It is a rule that the validity of a
torrens title cannot be assailed collaterally.15 Section 48 of Presidential Decree (PD)
No. 1529 provides that:
[a] certificate of title shall not be subject to collateral attack. It cannot be altered,
modified, or cancelled except in a direct proceeding in accordance with law.

In the case at bar, the action filed before the RTC against respondents was an action
for removal of obstruction and damages. Respondents raised the defense that
Joaquin Limense's title could have been obtained through fraud and
misrepresentation in the trial proceedings before the RTC. Such defense is in the
nature of a collateral attack, which is not allowed by law.

Further, it has been held that a certificate of title, once registered, should not
thereafter be impugned, altered, changed, modified, enlarged or diminished, except
in a direct proceeding permitted by law. Otherwise, the reliance on registered titles
would be lost. The title became indefeasible and incontrovertible after the lapse of
one year from the time of its registration and issuance. Section 32 of PD 1529
provides that "upon the expiration of said period of one year, the decree of
registration and the certificate of title shall become incontrovertible. Any person
aggrieved by such decree of registration in any case may pursue his remedy by
action for damages against the applicant or other persons responsible for the
fraud."16 It has, therefore, become an ancient rule that the issue on the validity of
title, i.e., whether or not it was fraudulently issued, can only be raised in an action
expressly instituted for that purpose.17 In the present case, TCT No. 96886 was
registered in 1969 and respondents never instituted any direct proceeding or action
to assail Joaquin Limense's title.

Additionally, an examination of TCT No. 40043 would readily show that there is an
annotation that it has been "CANCELLED."18 A reading of TCT No. 96886 would also
reveal that said title is a transfer from TCT No. 4886619 and not TCT 40043. Thus, it
is possible that there was a series of transfers effected from TCT No. 40043 prior to
the issuance of TCT No. 96886. Hence, respondents' position that the issuance of
TCT No. 96886 in the name of Joaquin Limense is impossible, because the registered
owners of TCT No. 40043 were already dead prior to 1969 and could not have
transferred the property to Joaquin Limense, cannot be taken as proof that TCT No.
96886 was obtained through fraud, misrepresentation or falsification of documents.

Findings of fact of the CA, although generally deemed conclusive, may admit review
by this Court if the CA failed to notice certain relevant facts that, if properly
considered, would justify a different conclusion, and if the judgment of the CA is
premised on a misapprehension of facts.20 As with the present case, the CA's
observation that TCT No. 96886 is of dubious origin, as TCT No. 40043 does not
appear to have been disposed of by Catalina, Isabel and Salud Lozada, is improper
and constitutes an indirect attack on TCT No. 96886. As we see it, TCT No. 96886, at
present, is the best proof of Joaquin Limenses ownership over Lot No. 12-C. Thus,
the CA erred in ruling that respondents and petitioners co-owned Lot No. 12-C, as
said lot is now registered exclusively in the name of Joaquin Limense.
Due to the foregoing, Joaquin Limense, as the registered owner of Lot 12-C, and his
successors-in-interest, may enclose or fence his land or tenements by means of
walls, ditches, live or dead hedges, or by any other means without detriment to
servitudes constituted thereon.21

However, although the owner of the property has the right to enclose or fence his
property, he must respect servitudes constituted thereon. The question now is
whether respondents are entitled to an easement of right of way.

Petitioners contend that respondents are not entitled to an easement of right of way
over Lot No. 12-C, because their Lot No. 12-D is not duly annotated at the back of
TCT No. 96886 which would entitle them to enjoy the easement, unlike Lot Nos. 12-
A-1, 12-A-2, 12-A-3, 12-A-4, 12-A-5, and 12-A-6. Respondents, on the other hand,
allege that they are entitled to an easement of right of way over Lot No. 12-C, which
has been continuously used as an alley by the heirs of Dalmacio Lozada, the
residents in the area and the public in general from 1932 up to the present. Since
petitioners are fully aware of the long existence of the said alley or easement of right
of way, they are bound to respect the same.

As defined, an easement is a real right on another's property, corporeal and

immovable, whereby the owner of the latter must refrain from doing or allowing
somebody else to do or something to be done on his property, for the benefit of
another person or tenement.22

Easements may be continuous or discontinuous, apparent or non-apparent.

Continuous easements are those the use of which is or may be incessant, without the
intervention of any act of man. Discontinuous easements are those which are used
at intervals and depend upon the acts of man. Apparent easements are those which
are made known and are continually kept in view by external signs that reveal the
use and enjoyment of the same. Non-apparent easements are those which show no
external indication of their existence.23

In the present case, the easement of right of way is discontinuous and apparent. It is
discontinuous, as the use depends upon the acts of respondents and other persons
passing through the property. Being an alley that shows a permanent path going to
and from Beata Street, the same is apparent.

Being a discontinuous and apparent easement, the same can be acquired only by
virtue of a title.24

In the case at bar, TCT No. 96886, issued in the name of Joaquin Limense, does not
contain any annotation that Lot No. 12-D was given an easement of right of way over
Lot No. 12-C. However, Joaquin Limense and his successors-in-interests are fully
aware that Lot No. 12-C has been continuously used and utilized as an alley by
respondents and residents in the area for a long period of time.
Joaquin Limense's Attorney-in-Fact, Teofista L. Reyes, testified that respondents and
several other residents in the area have been using the alley to reach Beata Street
since 1932. Thus:

Atty. Manuel B. Tomacruz:

Q: Mrs. Witness, by virtue of that Deed of Donation you claim that titles were issued
to the children of Dalmacio Lozada namely Salud Lozada, Catalina Lozada and Isabel
Lozada, is that right?

A: Yes, sir.

Q: And after the said property was adjudicated to his said children the latter
constructed their houses on their lots.

A: Yes, sir.

Q: As a matter of fact, the herein defendants have constructed their houses on the
premises alloted to them since the year 1932?

A: Yes, sir, they were able to construct their house fronting Beata Street.

Q: And that house they have constructed on their lot in 1932 is still existing today?

A: Yes, sir and they still used the alley in question and they are supposed to use
Beata Street but they are not using Beata Street.

Q: They are using the alley?

A: Yes, sir, they are using the alley and they do not pass through Beata Street.

Q: And they have been using the alley since 1932 up to the present?

A: Yes, sir they have been using the alley since that time. That was their mistake and
they should be using Beata Street because they are fronting Beata Strret.

Q: As a matter of fact, it is not only herein defendants who have been using that alley
since 1932 up to the present?

A: Yes, sir they are using the alley up to now.

Q: As a matter of fact, in this picture marked as Exh. "C-1" the alley is very apparent.
This is the alley?

A: Yes, sir.
Q: And there are houses on either side of this alley?

A: Yes, sir.

Q: As a matter of fact, all the residents on either side of the alley are passing through
this alley?

A: Yes, sir, because the others have permit to use this alley and they are now
allowed to use the alley but the Ramos's family are now [not] allowed to use this
alley.25

In Mendoza v. Rosel,26 this Court held that:

Petitioners claim that inasmuch as their transfer certificates of title do not mention
any lien or encumbrance on their lots, they are purchasers in good faith and for
value, and as such have a right to demand from respondents some payment for the
use of the alley. However, the Court of Appeals found, as a fact, that when
respondents acquired the two lots which form the alley, they knew that said lots
could serve no other purpose than as an alley. The existence of the easement of right
of way was therefore known to petitioners who must respect the same, in spite of
the fact that their transfer certificates of title do not mention any burden or
easement. It is an established principle that actual notice or knowledge is as binding
as registration.

Every buyer of a registered land who takes a certificate of title for value and in good
faith shall hold the same free of all encumbrances except those noted on said
certificate. It has been held, however, that "where the party has knowledge of a prior
existing interest that was unregistered at the time he acquired a right to the same
land, his knowledge of that prior unregistered interest has the effect of registration
as to him."27

In the case at bar, Lot No. 12-C has been used as an alley ever since it was donated
by Dalmacio Lozada to his heirs. It is undisputed that prior to and after the
registration of TCT No. 96886, Lot No. 12-C has served as a right of way in favor of
respondents and the public in general. We quote from the RTC's decision:

x x x It cannot be denied that there is an alley which shows its existence. It is

admitted that this alley was established by the original owner of Lot 12 and that in
dividing his property the alley established by him continued to be used actively and
passively as such. Even when the division of the property occurred, the non-
existence of the easement was not expressed in the corresponding titles nor were
the apparent sign of the alley made to disappear before the issuance of said titles.

The Court also finds that when plaintiff acquired the lot (12-C) which forms the
alley, he knew that said lot could serve no other purpose than as an alley. That is
why even after he acquired it in 1969 the lot continued to be used by defendants
and occupants of the other adjoining lots as an alley. x x x28

Thus, petitioners are bound by the easement of right of way over Lot No. 12-C, even
though no registration of the servitude has been made on TCT No. 96886.

However, respondents right to have access to the property of petitioners does not
include the right to continually encroach upon the latters property. It is not
disputed that portions of respondents' house on Lot No. 12-D encroach upon Lot No.
12-C. Geodetic Engineer Jose Agres, Jr. testified on the encroachment of
respondents' house on Lot No. 12-C, which he surveyed.29 In order to settle the
rights of the parties relative to the encroachment, We should determine whether
respondents were builders in good faith.

Good faith is an intangible and abstract quality with no technical meaning or

statutory definition; and it encompasses, among other things, an honest belief, the
absence of malice and the absence of a design to defraud or to seek an
unconscionable advantage. An individuals personal good faith is a concept of his
own mind and, therefore, may not conclusively be determined by his protestations
alone. It implies honesty of intention, and freedom from knowledge of
circumstances which ought to put the holder upon inquiry. The essence of good faith
lies in an honest belief in the validity of ones right, ignorance of a superior claim,
and absence of intention to overreach another. Applied to possession, one is
considered in good faith if he is not aware that there exists in his title or mode of
acquisition any flaw which invalidates it.30

Good faith is always presumed, and upon him who alleges bad faith on the part of
the possessor rests the burden of proof.31 It is a matter of record that respondents'
predecessor-in-interest constructed their residential building on Lot No. 12-D,
adjacent to Lot No. 12-C, in 1932.32 Respondents' predecessor-in-interest owned
the 1/3 portion of Lot No. 12-C at the time the property was donated to them by
Dalmacio Lozada in 1932. The Deed of Donation executed by the late Dalmacio
Lozada, dated March 9, 1932, specifically provides that:

I hereby grant, cede and donate in favor of Catalina Lozada married to Sotero
Natividad, Isabel Lozada married to Isaac Simense and Salud Lozada married to
Francisco Ramos, all Filipinos, of legal age, the parcel of land known as Lot No. 12-C,
in equal parts.33

The portions of Lot No. 12-D, particularly the overhang, covering 1 meter in width
and 17 meters in length; the stairs; and the concrete structures are all within the
1/3 share alloted to them by their donor Dalmacio Lozada and, hence, there was
absence of a showing that respondents acted in bad faith when they built portions of
their house on Lot No. 12-C.
Using the above parameters, we are convinced that respondents' predecessors-in-
interest acted in good faith when they built portions of their house on Lot 12-C.
Respondents being builders in good faith, we shall now discuss the respective rights
of the parties relative to the portions encroaching upon respondents' house.

Articles 448 and 546 of the New Civil Code provide:

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

Art. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same
right of retention, the person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying the increase in value
which the thing may have acquired by reason thereof.

In Spouses Del Campo v. Abesia,34 this provision was applied to one whose house,
despite having been built at the time he was still co-owner, overlapped with the land
of another. In that case, this Court ruled:

The court a quo correctly held that Article 448 of the Civil Code cannot apply where
a co-owner builds, plants or sows on the land owned in common for then he did not
build, plant or sow upon the land that exclusively belongs to another but of which he
is a co-owner. The co-owner is not a third person under the circumstances, and the
situation is governed by the rules of co-ownership.

However, when, as in this case, the ownership is terminated by the partition and it
appears that the house of defendants overlaps or occupies a portion of 5 square
meters of the land pertaining to plaintiffs which the defendants obviously built in
good faith, then the provisions of Article 448 of the new Civil Code should apply. x x
x35

In other words, when the co-ownership is terminated by a partition, and it appears

that the house of an erstwhile co-owner has encroached upon a portion pertaining
to another co-owner, but the encroachment was in good faith, then the provisions of
Article 448 should apply to determine the respective rights of the parties. In this
case, the co-ownership was terminated due to the transfer of the title of the whole
property in favor of Joaquin Limense.

Under the foregoing provision, petitioners have the right to appropriate said portion
of the house of respondents upon payment of indemnity to respondents, as provided
for in Article 546 of the Civil Code. Otherwise, petitioners may oblige respondents to
pay the price of the land occupied by their house. However, if the price asked for is
considerably much more than the value of the portion of the house of respondents
built thereon, then the latter cannot be obliged to buy the land. Respondents shall
then pay the reasonable rent to petitioners upon such terms and conditions that
they may agree. In case of disagreement, the trial court shall fix the terms thereof. Of
course, respondents may demolish or remove the said portion of their house, at
their own expense, if they so decide.36

The choice belongs to the owner of the land, a rule that accords with the principle of
accession that the accessory follows the principal and not the other way around.37
Even as the option lies with the landowner, the grant to him, nevertheless, is
preclusive. He must choose one. He cannot, for instance, compel the owner of the
building to instead remove it from the land.38

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 two options: (1) to appropriate the building by paying the indemnity
required by law, or (2) to sell the land to the builder.39

The raison detre for this provision has been enunciated, thus:

Where the builder, planter or sower has acted in good faith, a conflict of rights arises
between the owners, and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land. In view of the
impracticability of creating a state of forced co-ownership, the law has provided a
just solution by giving the owner of the land the option to acquire the improvements
after payment of the proper indemnity, or to oblige the builder or planter to pay for
the land and the sower the proper rent. He cannot refuse to exercise either option. 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.40]

In accordance with Depra v. Dumlao,41 this case must be remanded to the trial
court to determine matters necessary for the proper application of Article 448 in
relation to Article 546. Such matters include the option that petitioners would take
and the amount of indemnity that they would pay, should they decide to appropriate
the improvements on the lots.

Anent the second issue, although it may seem that the portions encroaching upon
respondents' house can be considered a nuisance, because it hinders petitioners'
use of their property, it cannot simply be removed at respondents' expense, as
prayed for by petitioner. This is because respondents built the subject
encroachment in good faith, and the law affords them certain rights as discussed
above.

WHEREFORE, the petition is DENIED, the Decision of the Court of Appeals dated
December 20, 2001 in CA-G.R. CV No. 33589 is AFFIRMED with the following
MODIFICATIONS:

1. No co-ownership exists over Lot No. 12-C, covered by TCT No. 96886, between
petitioners and respondents.

2. The case is REMANDED to the Regional Trial Court, Branch 15, Manila, for further
proceedings without further delay to determine the facts essential to the proper
application of Articles 448 and 546 of the Civil Code.

SO ORDERED.

G.R. No. 150666 August 3, 2010

LUCIANO BRIONES and NELLY BRIONES, Petitioners,

vs.
JOSE MACABAGDAL, FE D. MACABAGDAL and VERGON REALTY INVESTMENTS
CORPORATION, Respondents.

On appeal under Rule 45 of the 1997 Rules of Civil Procedure, as amended, is the
Decision1 dated December 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No.
48109 which affirmed the September 29, 1993 Decision2 of the Regional Trial Court
(RTC) of Makati City, Branch 135, ordering petitioners Luciano and Nelly Briones to
remove the improvements they have made on the disputed property or to pay
respondent-spouses Jose and Fe Macabagdal the prevailing price of the land as
compensation.

The undisputed factual antecedents of the case are as follows:

Respondent-spouses purchased from Vergon Realty Investments Corporation

(Vergon) Lot No. 2-R, a 325-square-meter land located in Vergonville Subdivision
No. 10 at Las Pias City, Metro Manila and covered by Transfer Certificate of Title
No. 62181 of the Registry of Deeds of Pasay City. On the other hand, petitioners are
the owners of Lot No. 2-S, which is adjacent to Lot No. 2-R.

Sometime in 1984, after obtaining the necessary building permit and the approval of
Vergon, petitioners constructed a house on Lot No. 2-R which they thought was Lot
No. 2-S. After being informed of the mix up by Vergons manager, respondent-
spouses immediately demanded petitioners to demolish the house and vacate the
property. Petitioners, however, refused to heed their demand. Thus, respondent-
spouses filed an action to recover ownership and possession of the said parcel of
land with the RTC of Makati City.3

Petitioners insisted that the lot on which they constructed their house was the lot
which was consistently pointed to them as theirs by Vergons agents over the seven
(7)-year period they were paying for the lot. They interposed the defense of being
buyers in good faith and impleaded Vergon as third-party defendant claiming that
because of the warranty against eviction, they were entitled to indemnity from
Vergon in case the suit is decided against them.4

The RTC ruled in favor of respondent-spouses and found that petitioners house was
undoubtedly built on Lot No. 2-R. The dispositive portion of the trial courts decision
reads as follows:

PREMISES CONSIDERED, let judgment be rendered declaring, to wit:

1. That plaintiffs are the owners of Lot No. 2-R of subdivision plan (LRC) Psd-
147392 at Vergonville Subdivision, No. 10, Las Pias, Metro Manila covered by TCT
No. 62181 of the Registry of Deeds of Pasay City on which defendants have
constructed their house;

2. Defendants, jointly and severally, are ordered to demolish their house and vacate
the premises and return the possession of the portion of Lot No. 2-R as above-
described to plaintiffs within thirty (30) days from receipt of this decision, or in the
alternative, plaintiffs should be compensated by defendants, jointly and severally, by
the payment of the prevailing price of the lot involved as Lot No. 2-R with an area of
325 square meters which should not be less than P1,500.00 per square meter, in
consideration of the fact that prices of real estate properties in the area concerned
have increased rapidly;

3. Defendants, jointly and severally, pay to plaintiffs for moral damages with
plaintiffs plans and dreams of building their own house on their own lot being
severely shattered and frustrated due to defendants incursion as interlopers of Lot
No. 2-R in the sum of P50,000.00;

4. Defendants, jointly and severally, to pay plaintiffs in the amount of P30,000.00 as

attorneys fees; and,

5. to pay the costs of the proceedings.

Defendants counterclaim against plaintiffs is dismissed for lack of merit and with
no cause of action.
Defendants third-party complaint against third-party defendant Vergonville Realty
and Investments Corporation is likewise ordered dismissed for lack of cause of
action and evidently without merit.

On the other hand, defendants, jointly and severally, are liable for the litigation
expenses incurred by Vergonville Realty by way of counterclaim, which is also
proven by the latter with a mere preponderance of evidence, and are hereby
ordered to pay the sum of P20,000.00 as compensatory damage; and attorneys fees
in the sum of P10,000.00

SO ORDERED.5

On appeal, the CA affirmed the RTCs finding that the lot upon which petitioners
built their house was not the one (1) which Vergon sold to them. Based on the
documentary evidence, such as the titles of the two (2) lots, the contracts to sell, and
the survey report made by the geodetic engineer, petitioners house was built on the
lot of the respondent-spouses.6 There was no basis to presume that the error was
Vergons fault. Also the warranty against eviction under Article 1548 of the Civil
Code was not applicable as there was no deprivation of property: the lot on which
petitioners built their house was not the lot sold to them by Vergon, which remained
vacant and ready for occupation.7 The CA further ruled that petitioners cannot use
the defense of allegedly being a purchaser in good faith for wrongful occupation of
land.8

Aggrieved, petitioners filed a motion for reconsideration, but it was denied by the
appellate court.9 Hence, this petition for review on certiorari.

Petitioners raise the following assignment of errors:

I.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE CONTRARY TO

LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT IN AFFIRMING THE
DECISION OF THE TRIAL COURT ORDERING PETITIONERS TO DEMOLISH THEIR
ONLY HOUSE AND VACATE THE LOT AND TO PAY MORAL AND COMPENSATORY
DAMAGES AS WELL AS ATTORNEYS FEE IN THE TOTAL AMOUNT OF PS[P]
110,000; AND

II.

THE COURT OF APPEALS SANCTIONED THE DEPARTURE OF THE LOWER COURT

FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO
CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION.10

In the main, it is petitioners position that they must not bear the damage alone.
Petitioners insist that they relied with full faith and confidence in the reputation of
Vergons agents when they pointed the wrong property to them. Even the President
of Vergon, Felix Gonzales, consented to the construction of the house when he
signed the building permit.11 Also, petitioners are builders in good faith.12

The petition is partly meritorious.

At the outset, we note that petitioners raise factual issues, which are beyond the
scope of a petition for review on certiorari under Rule 45 of the Rules. Well settled is
the rule that the jurisdiction of this Court in cases brought to it from the CA via a
petition for review on certiorari under Rule 45 is limited to the review of errors of
law. The Court is not bound to weigh all over again the evidence adduced by the
parties, particularly where the findings of both the trial court and the appellate
court coincide. The resolution of factual issues is a function of the trial court whose
findings on these matters are, as a general rule, binding on this Court, more so
where these have been affirmed by the CA.13 We note that the CA and RTC did not
overlook or fail to appreciate any material circumstance which, when properly
considered, would have altered the result of the case. Indeed, it is beyond cavil that
petitioners mistakenly constructed their house on Lot No. 2-R which they thought
was Lot No. 2-S.

However, the conclusiveness of the factual findings notwithstanding, we find that

the trial court nonetheless erred in outrightly ordering petitioners to vacate the
subject property or to pay respondent spouses the prevailing price of the land as
compensation. Article 52714 of the Civil Code presumes good faith, and since no
proof exists to show that the mistake was done by petitioners in bad faith, the latter
should be presumed to have built the house in good faith.

When a person builds in good faith on the land of another, Article 448 of the Civil
Code governs. Said article 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.
(Emphasis ours.)

The above-cited article covers cases in which the builders, sowers or planters
believe themselves to be owners of the land or, at least, to have a claim of title
thereto.15 The builder in good faith can compel the landowner to make a choice
between appropriating the building by paying the proper indemnity or obliging the
builder to pay the price of the land. The choice belongs to the owner of the land, a
rule that accords with the principle of accession, i.e., that the accessory follows the
principal and not the other way around. However, even as the option lies with the
landowner, the grant to him, nevertheless, is preclusive. He must choose one.16 He
cannot, for instance, compel the owner of the building to remove the building from
the land without first exercising either option. It is only if the owner chooses to sell
his land, and the builder or planter fails to purchase it where its value is not more
than the value of the improvements, that the owner may remove the improvements
from the land. The owner is entitled to such remotion only when, after having
chosen to sell his land, the other party fails to pay for the same.17

Moreover, petitioners have the right to be indemnified for the necessary and useful
expenses they may have made on the subject property. Articles 546 and 548 of the
Civil Code provide,

ART. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same
right of retention, the person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying the increase in value
which the thing may have acquired by reason thereof.

ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the
possessor in good faith; but he may remove the ornaments with which he has
embellished the principal thing if it suffers no injury thereby, and if his successor in
the possession does not prefer to refund the amount expended.

Consequently, the respondent-spouses have the option to appropriate the house on

the subject land after payment to petitioners of the appropriate indemnity or to
oblige petitioners to pay the price of the land, unless its value is considerably more
than the value of the structures, in which case petitioners shall pay reasonable rent.

In accordance with Depra v. Dumlao,18 this case must be remanded to the RTC
which shall conduct the appropriate proceedings to assess the respective values of
the improvement and of the land, as well as the amounts of reasonable rentals and
indemnity, fix the terms of the lease if the parties so agree, and to determine other
matters necessary for the proper application of Article 448, in relation to Articles
546 and 548, of the Civil Code.

As to the liability of Vergon, petitioners failed to present sufficient evidence to show

negligence on Vergons part. Petitioners claim is obviously one (1) for tort,
governed by Article 2176 of the Civil Code, which provides:

ART. 2176. Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no preexisting contractual relation between the parties, is called a quasi-
delict and is governed by the provisions of this Chapter. (Emphasis ours.)

Under this provision, it is the plaintiff who has to prove by a preponderance of

evidence: (1) the damages suffered by the plaintiff; (2) the fault or negligence of the
defendant or some other person for whose act he must respond; and (3) the
connection of cause and effect between the fault or negligence and the damages
incurred.19 This the petitioners failed to do. The President of Vergon signed the
building permit as a precondition for its approval by the local government, but it did
not guarantee that petitioners were constructing the structure within the metes and
bounds of petitioners lot. The signature of the President of Vergon on the building
permit merely proved that petitioners were authorized to make constructions
within the subdivision project of Vergon. And while petitioners acted in good faith in
building their house on Lot No. 2-R, petitioners did not show by what authority the
agents or employees of Vergon were acting when they pointed to the lot where the
construction was made nor was petitioners claim on this matter corroborated by
sufficient evidence.

One (1) last note on the award of damages. Considering that petitioners acted in
good faith in building their house on the subject property of the respondent-
spouses, there is no basis for the award of moral damages to respondent-spouses.
Likewise, the Court deletes the award to Vergon of compensatory damages and
attorneys fees for the litigation expenses Vergon had incurred as such amounts
were not specifically prayed for in its Answer to petitioners third-party complaint.
Under Article 220820 of the Civil Code, attorneys fees and expenses of litigation are
recoverable only in the concept of actual damages, not as moral damages nor
judicial costs. Hence, such must be specifically prayed foras was not done in this
caseand may not be deemed incorporated within a general prayer for "such other
relief and remedy as this court may deem just and equitable."21 It must also be
noted that aside from the following, the body of the trial courts decision was devoid
of any statement regarding attorneys fees. In Scott Consultants & Resource
Development Corporation, Inc. v. Court of Appeals,22 we reiterated that attorneys
fees are not to be awarded every time a party wins a suit. The power of the court to
award attorneys fees under Article 2208 of the Civil Code demands factual, legal,
and equitable justification; its basis cannot be left to speculation or conjecture.
Where granted, the court must explicitly state in the body of the decision, and not
only in the dispositive portion thereof, the legal reason for the award of attorneys
fees.1avvphi1

WHEREFORE, the Decision dated December 11, 2000 of the Court of Appeals in CA-
G.R. CV No. 48109 is AFFIRMED WITH MODIFICATION. The award of moral
damages in favor of respondent-spouses Jose and Fe Macabagdal and the award of
compensatory damages and attorneys fees to respondent Vergon Realty
Investments Corporation are DELETED. The case is REMANDED to the Regional
Trial Court of Makati City, Branch 135, for further proceedings consistent with the
proper application of Articles 448, 546 and 548 of the Civil Code, as follows:
1. The trial court shall determine:

a. the present fair price of the respondent-spouses lot;

b. the amount of the expenses spent by petitioners for the building of their house;

c. the increase in value ("plus value") which the said lot may have acquired by
reason thereof; and

d. whether the value of said land is considerably more than that of the house 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 the respondent-spouses a period of fifteen (15) days
within which to exercise their option under Article 448 of the Civil Code, whether to
appropriate the house as their own by paying to petitioners either the amount of the
expenses spent by petitioners for the building of the house, or the increase in value
("plus value") which the said lot may have acquired by reason thereof, or to oblige
petitioners to pay the price of said land. The amounts to be respectively paid by the
respondent-spouses and petitioners, 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 the respondent-spouses exercises the
option to oblige petitioners 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 house, petitioners shall give written notice of such rejection to
the respondent-spouses and to the Court within fifteen (15) days from notice of the
respondent-spouses 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, 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 petitioners have occupied the subject area. The rental thus fixed shall be
increased by ten percent (10%) for the second year of the forced lease. Petitioners
shall not make any further constructions or improvements on the house. Upon
expiration of the two (2)-year period, or upon default by petitioners in the payment
of rentals for two (2) consecutive months, the respondent-spouses shall be entitled
to terminate the forced lease, to recover their land, and to have the house removed
by petitioners or at the latters expense. The rentals herein provided shall be
tendered by petitioners to the Court for payment to the respondent-spouses, and
such tender shall constitute evidence of whether or not compliance was made
within the period fixed by the Court.

c. In any event, petitioners shall pay the respondent-spouses reasonable

compensation for the occupancy of the respondent-spouses land for the period
counted from the year petitioners occupied the subject area, up to the
commencement date of the forced lease referred to in the preceding paragraph;

d. The periods to be fixed by the trial court in its Decision 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.

G.R. No. 140528 December 7, 2011

MARIA TORBELA, represented by her heirs, namely: EULOGIO TOSINO,

husband and children: CLARO, MAXIMINO, CORNELIO, OLIVIA and CALIXTA, all
surnamed TOSINO, APOLONIA TOSINO VDA. DE RAMIREZ and JULITA TOSINO
DEAN; PEDRO TORBELA, represented by his heirs, namely: JOSE and DIONISIO,
both surnamed TORBELA; EUFROSINA TORBELA ROSARIO, represented by her
heirs, namely: ESTEBAN T. ROSARIO, MANUEL T. ROSARIO, ROMULO T.
ROSARIO and ANDREA ROSARIO-HADUCA; LEONILA TORBELA TAMIN;
FERNANDO TORBELA, represented by his heirs, namely: SERGIO T. TORBELA,
EUTROPIA T. VELASCO, PILAR T. ZULUETA, CANDIDO T. TORBELA,
FLORENTINA T. TORBELA and PANTALEON T. TORBELA; DOLORES TORBELA
TABLADA; LEONORA TORBELA AGUSTIN, represented by her heirs, namely:
PATRICIO, SEGUNDO, CONSUELO and FELIX, all surnamed AGUSTIN; and
SEVERINA TORBELA ILDEFONSO, Petitioners,
vs.
SPOUSES ANDRES T. ROSARIO and LENA DUQUE-ROSARIO and BANCO
FILIPINO SAVINGS AND MORTGAGE BANK, Respondents.

Presently before the Court are two consolidated Petitions for Review on Certiorari
under Rule 45 of the Rules of Court, both assailing the Decision1 dated June 29,
1999 and Resolution2 dated October 22, 1999 of the Court of Appeals in CA-G.R. CV
No. 39770.
The petitioners in G.R. No. 140528 are siblings Maria Torbela,3 Pedro Torbela,4
Eufrosina Torbela Rosario,5 Leonila Torbela Tamin, Fernando Torbela,6 Dolores
Torbela Tablada, Leonora Torbela Agustin,7 and Severina Torbela Ildefonso
(Torbela siblings).

The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was
married to, but now legally separated from, Dr. Andres T. Rosario (Dr. Rosario). Dr.
Rosario is the son of Eufrosina Torbela Rosario and the nephew of the other Torbela
siblings.

The controversy began with a parcel of land, with an area of 374 square meters,
located in Urdaneta City, Pangasinan (Lot No. 356-A). It was originally part of a
larger parcel of land, known as Lot No. 356 of the Cadastral Survey of Urdaneta,
measuring 749 square meters, and covered by Original Certificate of Title (OCT) No.
16676,8 in the name of Valeriano Semilla (Valeriano), married to Potenciana Acosta.
Under unexplained circumstances, Valeriano gave Lot No. 356-A to his sister Marta
Semilla, married to Eugenio Torbela (spouses Torbela). Upon the deaths of the
spouses Torbela, Lot No. 356-A was adjudicated in equal shares among their
children, the Torbela siblings, by virtue of a Deed of Extrajudicial Partition9 dated
December 3, 1962.

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

Quitclaim10 over Lot No. 356-A in favor of Dr. Rosario. According to the said Deed,
the Torbela siblings "for and in consideration of the sum of NINE PESOS (P9.00) x x
x transfer[red] and convey[ed] x x x unto the said Andres T. Rosario, that undivided
portion of THREE HUNDRED SEVENTY-FOUR square meters of that parcel of land
embraced in Original Certificate of Title No. 16676 of the land records of Pangasinan
x x x."11 Four days later, on December 16, 1964, OCT No. 16676 in Valerianos name
was partially cancelled as to Lot No. 356-A and TCT No. 5275112 was issued in Dr.
Rosarios name covering the said property.

Another Deed of Absolute Quitclaim13 was subsequently executed on December 28,

1964, this time by Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A
from the Torbela siblings and was already returning the same to the latter for P1.00.
The Deed stated:

That for and in consideration of the sum of one peso (P1.00), Philippine Currency
and the fact that I only borrowed the above described parcel of land from MARIA
TORBELA, married to Eulogio Tosino, EUFROSINA TORBELA, married to Pedro
Rosario, PEDRO TORBELA, married to Petra Pagador, LEONILA TORBELA, married
to Fortunato Tamen, FERNANDO TORBELA, married to Victoriana Tablada,
DOLORES TORBELA, widow, LEONORA TORBELA, married to Matias Agustin and
SEVERINA TORBELA, married to Jorge Ildefonso, x x x by these presents do hereby
cede, transfer and convey by way of this ABSOLUTE QUITCLAIM unto the said Maria,
Eufrosina, Pedro, Leonila, Fernando, Dolores, Leonora and Severina, all surnamed
Torbela the parcel of land described above.14 (Emphasis ours.)
The aforequoted Deed was notarized, but was not immediately annotated on TCT
No. 52751.

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the
Development Bank of the Philippines (DBP) on February 21, 1965 in the sum of
P70,200.00, secured by a mortgage constituted on Lot No. 356-A. The mortgage was
annotated on TCT No. 52751 on September 21, 1965 as Entry No. 243537.15 Dr.
Rosario used the proceeds of the loan for the construction of improvements on Lot
No. 356-A.

On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of Adverse

Claim,16 on behalf of the Torbela siblings. Cornelio deposed in said Affidavit:

3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the former
owners by virtue of a Deed of Absolute Quitclaim which he executed before Notary
Public Banaga, and entered in his Notarial Registry as Dec. No. 43; Page No. 9; Book
No. I; Series of 1964;

4. That it is the desire of the parties, my aforestated kins, to register ownership over
the above-described property or to perfect their title over the same but their Deed
could not be registered because the registered owner now, ANDRES T. ROSARIO
mortgaged the property with the DEVELOPMENT BANK OF THE PHILIPPINES, on
September 21, 1965, and for which reason, the Title is still impounded and held by
the said bank;

5. That pending payment of the obligation with the DEVELOPMENT BANK OF THE
PHILIPPINES or redemption of the Title from said bank, I, CORNELIO T. TOSINO, in
behalf of my mother MARIA TORBELA-TOSINO, and my Aunts EUFROSINA
TORBELA, LEONILA TORBELA-TAMEN, DOLORES TORBELA, LEONORA TORBELA-
AGUSTIN, SEVERINA TORBELA-ILDEFONSO, and my Uncles PEDRO TORBELA and
FERNANDO, also surnamed TORBELA, I request the Register of Deeds of Pangasinan
to annotate their adverse claim at the back of Transfer Certificate of Title No. 52751,
based on the annexed document, Deed of Absolute Quitclaim by ANDRES T.
ROSARIO, dated December 28, 1964, marked as Annex "A" and made a part of this
Affidavit, and it is also requested that the DEVELOPMENT BANK OF THE
PHILIPPINES be informed accordingly.17

The very next day, on May 17, 1967, the Torbela siblings had Cornelios Affidavit of
Adverse Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 annotated on TCT No. 52751 as Entry Nos. 27447118 and
274472,19 respectively.

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

completed. The building was initially used as a hospital, but was later converted to a
commercial building. Part of the building was leased to PT&T; and the rest to Mrs.
Andrea Rosario-Haduca, Dr. Rosarios sister, who operated the Rose Inn Hotel and
Restaurant.

Dr. Rosario was able to fully pay his loan from DBP. Under Entry No. 520197 on TCT
No. 5275120 dated March 6, 1981, the mortgage appearing under Entry No. 243537
was cancelled per the Cancellation and Discharge of Mortgage executed by DBP in
favor of Dr. Rosario and ratified before a notary public on July 11, 1980.

In the meantime, Dr. Rosario acquired another loan from the Philippine National
Bank (PNB) sometime in 1979-1981. Records do not reveal though the original
amount of the loan from PNB, but the loan agreement was amended on March 5,
1981 and the loan amount was increased to P450,000.00. The loan was secured by
mortgages constituted on the following properties: (1) Lot No. 356-A, covered by
TCT No. 52751 in Dr. Rosarios name; (2) Lot No. 4489, with an area of 1,862 square
meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832; and (3) Lot
No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters, located in Nancayasan,
Urdaneta, Pangasinan, covered by TCT No. 104189.21 The amended loan agreement
and mortgage on Lot No. 356-A was annotated on TCT No. 52751 on March 6, 1981
as Entry No. 520099.22

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

Entry No. 520469. Cancellation of Adverse Claim executed by Andres Rosario in

favor of same. The incumbrance/mortgage appearing under Entry No. 274471-72 is
now cancelled as per Cancellation and Discharge of Mortgage Ratified before Notary
Public Mauro G. Meris on March 5, 1981: Doc. No. 215; Page No. 44; Book No. 1;
Series Of 1981.

Lingayen, Pangasinan, 3-11, 19981

[Signed: Pedro dela Cruz]

Register of Deeds 24

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario),
acquired a third loan in the amount of P1,200,000.00 from Banco Filipino Savings
and Mortgage Bank (Banco Filipino). To secure said loan, the spouses Rosario again
constituted mortgages on Lot No. 356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A.
The mortgage on Lot No. 356-A was annotated on TCT No. 52751 as Entry No.
53328325 on December 18, 1981. Since the construction of a two-storey
commercial building on Lot No. 5-F-8-C-2-B-2-A was still incomplete, the loan value
thereof as collateral was deducted from the approved loan amount. Thus, the
spouses Rosario could only avail of the maximum loan amount of P830,064.00 from
Banco Filipino.

Because Banco Filipino paid the balance of Dr. Rosarios loan from PNB, the
mortgage on Lot No. 356-A in favor of PNB was cancelled per Entry No. 53347826
on TCT No. 52751 dated December 23, 1981.

On February 13, 1986, the Torbela siblings filed before the Regional Trial Court
(RTC) of Urdaneta, Pangasinan, a Complaint for recovery of ownership and
possession of Lot No. 356-A, plus damages, against the spouses Rosario, which was
docketed as Civil Case No. U-4359. On the same day, Entry Nos. 593493 and 593494
were made on TCT No. 52751 that read as follows:

Entry No. 593494 Complaint Civil Case No. U-4359 (For: Recovery of Ownership
and Possession and Damages. (Sup. Paper).

Entry No. 593493 Notice of Lis Pendens The parcel of land described in this title
is subject to Lis Pendens executed by Liliosa B. Rosario, CLAO, Trial Attorney dated
February 13, 1986. Filed to TCT No. 52751

February 13, 1986-1986 February 13 3:30 p.m.

(SGD.) PACIFICO M. BRAGANZA

Register of Deeds27

The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of
April 2, 1987, the spouses Rosarios outstanding principal obligation and penalty
charges amounted to P743,296.82 and P151,524.00, respectively.28

Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No.
4489, and Lot No. 5-F-8-C-2-B-2-A. During the public auction on April 2, 1987, Banco
Filipino was the lone bidder for the three foreclosed properties for the price of
P1,372,387.04. The Certificate of Sale29 dated April 2, 1987, in favor of Banco
Filipino, was annotated on TCT No. 52751 on April 14, 1987 as Entry No. 610623.30

On December 9, 1987, the Torbela siblings filed before the RTC their Amended
Complaint,31 impleading Banco Filipino as additional defendant in Civil Case No. U-
4359 and praying that the spouses Rosario be ordered to redeem Lot No. 356-A
from Banco Filipino.

The spouses Rosario instituted before the RTC on March 4, 1988 a case for
annulment of extrajudicial foreclosure and damages, with prayer for a writ of
preliminary injunction and temporary restraining order, against Banco Filipino, the
Provincial Ex Officio Sheriff and his Deputy, and the Register of Deeds of Pangasinan.
The case was docketed as Civil Case No. U-4667. Another notice of lis pendens was
annotated on TCT No. 52751 on March 10, 1988 as Entry No. 627059, viz:
Entry No. 627059 Lis Pendens Dr. Andres T. Rosario and Lena Duque Rosario,
Plaintiff versus Banco Filipino, et. al. Civil Case No. U-4667 or Annulment of
ExtraJudicial Foreclosure of Real Estate Mortgage The parcel of land described in
this title is subject to Notice of Lis Pendens subscribed and sworn to before Notary
Public Mauro G. Meris, as Doc. No. 21; Page No. 5; Book 111; S-1988. March 7, 1988-
1988 March 10, 1:00 p.m.

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds32

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17,
1990, the RTC issued an Order33 dismissing without prejudice Civil Case No. U-
4667 due to the spouses Rosarios failure to prosecute.

Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino,
but their efforts were unsuccessful. Upon the expiration of the one-year redemption
period in April 1988, the Certificate of Final Sale34 and Affidavit of Consolidation35
covering all three foreclosed properties were executed on May 24, 1988 and May 25,
1988, respectively.

On June 7, 1988, new certificates of title were issued in the name of Banco Filipino,
particularly, TCT No. 165812 for Lot No. 5-F-8-C-2-B-2-A and TCT No. 165813 for
Lot No. 356-A .36

The Torbela siblings thereafter filed before the RTC on August 29, 1988 a
Complaint37 for annulment of the Certificate of Final Sale dated May 24, 1988,
judicial cancelation of TCT No. 165813, and damages, against Banco Filipino, the Ex
Officio Provincial Sheriff, and the Register of Deeds of Pangasinan, which was
docketed as Civil Case No. U-4733.

On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta City a Petition for
the issuance of a writ of possession. In said Petition, docketed as Pet. Case No. U-
822, Banco Filipino prayed that a writ of possession be issued in its favor over Lot
No. 5-F-8-C-2-B-2-A and Lot No. 356-A, plus the improvements thereon, and the
spouses Rosario and other persons presently in possession of said properties be
directed to abide by said writ.

The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822.
The Decision38 on these three cases was promulgated on January 15, 1992, the
dispositive portion of which reads:

WHEREFORE, judgment is rendered:

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

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

4. Banco Filipino is entitled to a Writ of Possession over Lot 356-A together with the
improvements thereon (Rose Inn Building). The Branch Clerk of Court is hereby
ordered to issue a writ of possession in favor of Banco Filipino;

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

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

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

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

9. Dismissing the complaint of [the Torbela siblings] against Banco Filipino, Pedro
Habon and Rufino Moreno in Civil Case No. U-4733; and against Banco Filipino in
Civil Case No. U-4359.39

The RTC released an Amended Decision40 dated January 29, 1992, adding the
following paragraph to the dispositive:

Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-2-A of the

subdivision plan (LRC) Psd-122471, covered by Transfer Certificate of Title 104189
of the Registry of Deeds of Pangasinan[.]41

The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before
the Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.

In its Decision42 dated June 29, 1999, the Court of Appeals decreed:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED

with modification. Items No. 6 and 7 of the appealed decision are DELETED. Item
No. 8 is modified requiring [Dr. Rosario] to pay [the Torbela siblings] actual
damages, in the amount of P1,200,000.00 with 6% per annum interest from finality
of this decision until fully paid. [Dr. Rosario] is further ORDERED to pay [the Torbela
siblings] the amount of P300,000.00 as moral damages; P200,000.00 as exemplary
damages and P100,000.00 as attorneys fees.

Costs against [Dr. Rosario].43

The Court of Appeals, in a Resolution44 dated October 22, 1999, denied the separate
Motions for Reconsideration of the Torbela siblings and Dr. Rosario.

The Torbela siblings come before this Court via the Petition for Review in G.R. No.
140528, with the following assignment of errors:

First Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT

THE REGISTRATION OF THE DEED OF ABSOLUTE QUITCLAIM EXECUTED BY [DR.
ANDRES T. ROSARIO] IN FAVOR OF THE [TORBELA SIBLINGS] DATED DECEMBER
28, 1964 AND THE REGISTRATION OF THE NOTICE OF ADVERSE CLAIM EXECUTED
BY THE [TORBELA SIBLINGS], SERVE AS THE OPERATIVE ACT TO CONVEY OR
AFFECT THE LAND AND IMPROVEMENTS THEREOF IN SO FAR AS THIRD PERSONS
ARE CONCERNED.

Second Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

SUBJECT PROPERTY COVERED BY T.C.T. NO. 52751 IS CLEAN AND FREE, DESPITE
OF THE ANNOTATION OF ENCUMBRANCES OF THE NOTICE OF ADVERSE CLAIM
AND THE DEED OF ABSOLUTE QUITCLAIM APPEARING AT THE BACK THEREOF AS
ENTRY NOS. 274471 AND 274472, RESPECTIVELY.

Third Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

NOTICE OF ADVERSE CLAIM OF THE [TORBELA SIBLINGS] UNDER ENTRY NO.
274471 WAS VALIDLY CANCELLED BY THE REGISTER OF DEEDS, IN THE ABSENCE
OF A PETITION DULY FILED IN COURT FOR ITS CANCELLATION.

Fourth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

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

Fifth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT
THE FILING OF A CIVIL CASE NO. U-4359 ON DECEMBER 9, 1987, IMPLEADING
RESPONDENT BANCO FILIPINO AS ADDITIONAL PARTY DEFENDANT, TOLL OR
SUSPEND THE RUNNING OF THE ONE YEAR PERIOD OF REDEMPTION.

Sixth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT

THE OWNERSHIP OVER THE SUBJECT PROPERTY WAS PREMATURELY
CONSOLIDATED IN FAVOR OF RESPONDENT BANCO FILIPINO SAVINGS AND
MORTGAGE BANK.

Seventh Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

SUBJECT PROPERTY IS AT LEAST WORTH P1,200,000.00.45

The Torbela siblings ask of this Court:

WHEREFORE, in the light of the foregoing considerations, the [Torbela siblings]

most respectfully pray that the questioned DECISION promulgated on June 29, 1999
(Annex "A", Petition) and the RESOLUTION dated October 22, 1999 (Annex "B",
Petition) be REVERSED and SET ASIDE, and/or further MODIFIED in favor of the
[Torbela siblings], and another DECISION issue ordering, among other reliefs, the
respondent Banco Filipino to reconvey back Lot No. 356-A, covered by T.C.T. No.
52751, in favor of the [Torbela siblings] who are the actual owners of the same.

The [Torbela siblings] likewise pray for such other reliefs and further remedies as
may be deemed just and equitable under the premises.46

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

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

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

Duque-Rosario prays that the appealed decision of the Court of Appeals be reversed
and set aside, and that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A be freed from all
obligations and encumbrances and returned to her.

Review of findings of fact by the RTC and the Court of Appeals warranted.

A disquisition of the issues raised and/or errors assigned in the Petitions at bar
unavoidably requires a re-evaluation of the facts and evidence presented by the
parties in the court a quo.

In Republic v. Heirs of Julia Ramos,48 the Court summed up the rules governing the
power of review of the Court:

Ordinarily, this Court will not review, much less reverse, the factual findings of the
Court of Appeals, especially where such findings coincide with those of the trial
court.http://sc.judiciary.gov.ph/jurisprudence/2010/february2010/169481.htm -
_ftn The findings of facts of the Court of Appeals are, as a general rule, conclusive
and binding upon this Court, since this Court is not a trier of facts and does not
routinely undertake the re-examination of the evidence presented by the
contending parties during the trial of the case.

The above rule, however, is subject to a number of exceptions, such as (1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when there is
grave abuse of discretion; (3) when the finding is grounded entirely on speculations,
surmises, or conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both parties; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of Appeals are premised
on the absence of evidence and are contradicted by the evidence on record.49

As the succeeding discussion will bear out, the first, fourth, and ninth exceptions are
extant in these case.

Barangay conciliation was not a pre-requisite to the institution of Civil Case No. U-
4359.
Dr. Rosario contends that Civil Case No. U-4359, the Complaint of the Torbela
siblings for recovery of ownership and possession of Lot No. 356-A, plus damages,
should have been dismissed by the RTC because of the failure of the Torbela siblings
to comply with the prior requirement of submitting the dispute to barangay
conciliation.

The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986, when
Presidential Decree No. 1508, Establishing a System of Amicably Settling Disputes at
the Barangay Level, was still in effect.50 Pertinent provisions of said issuance read:

Section 2. Subject matters for amicable settlement. The Lupon of each barangay
shall have authority to bring together the parties actually residing in the same city
or municipality for amicable settlement of all disputes except:

1. Where one party is the government, or any subdivision or instrumentality

thereof;

2. Where one party is a public officer or employee, and the dispute relates to the
performance of his official functions;

3. Offenses punishable by imprisonment exceeding 30 days, or a fine exceeding

P200.00;

4. Offenses where there is no private offended party;

5. Such other classes of disputes which the Prime Minister may in the interest of
justice determine upon recommendation of the Minister of Justice and the Minister
of Local Government.

Section 3. Venue. Disputes between or among persons actually residing in the same
barangay shall be brought for amicable settlement before the Lupon of said
barangay. Those involving actual residents of different barangays within the same
city or municipality shall be brought in the barangay where the respondent or any of
the respondents actually resides, at the election of the complainant. However, all
disputes which involved real property or any interest therein shall be brought in the
barangay where the real property or any part thereof is situated.

The Lupon shall have no authority over disputes:

1. involving parties who actually reside in barangays of different cities or

municipalities, except where such barangays adjoin each other; and

2. involving real property located in different municipalities.

xxxx
Section 6. Conciliation, pre-condition to filing of complaint. No complaint, petition,
action or proceeding involving any matter within the authority of the Lupon as
provided in Section 2 hereof shall be filed or instituted in court or any other
government office for adjudication unless there has been a confrontation of the
parties before the Lupon Chairman or the Pangkat and no conciliation or settlement
has been reached as certified by the Lupon Secretary or the Pangkat Secretary,
attested by the Lupon or Pangkat Chairman, or unless the settlement has been
repudiated. x x x. (Emphases supplied.)

The Court gave the following elucidation on the jurisdiction of the Lupong
Tagapayapa in Tavora v. Hon. Veloso51 :

The foregoing provisions are quite clear. Section 2 specifies the conditions under
which the Lupon of a barangay "shall have authority" to bring together the
disputants for amicable settlement of their dispute: The parties must be "actually
residing in the same city or municipality." At the same time, Section 3 while
reiterating that the disputants must be "actually residing in the same barangay" or
in "different barangays" within the same city or municipality unequivocably
declares that the Lupon shall have "no authority" over disputes "involving parties
who actually reside in barangays of different cities or municipalities," except where
such barangays adjoin each other.

Thus, by express statutory inclusion and exclusion, the Lupon shall have no
jurisdiction over disputes where the parties are not actual residents of the same city
or municipality, except where the barangays in which they actually reside adjoin
each other.

It is true that immediately after specifying the barangay whose Lupon shall take
cognizance of a given dispute, Sec. 3 of PD 1508 adds:

"However, all disputes which involve real property or any interest therein shall be
brought in the barangay where the real property or any part thereof is situated."

Actually, however, this added sentence is just an ordinary proviso and should
operate as such.

The operation of a proviso, as a rule, should be limited to its normal function, which
is to restrict or vary the operation of the principal clause, rather than expand its
scope, in the absence of a clear indication to the contrary.

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

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

The Court now looks into the merits of Civil Case No. U-4359.

There was an express trust between the Torbela siblings and Dr. Rosario.

There is no dispute that the Torbela sibling inherited the title to Lot No. 356-A from
their parents, the Torbela spouses, who, in turn, acquired the same from the first
registered owner of Lot No. 356-A, Valeriano.

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12,
1964 in which they transferred and conveyed Lot No. 356-A to Dr. Rosario for the
consideration of P9.00. However, the Torbela siblings explained that they only
executed the Deed as an accommodation so that Dr. Rosario could have Lot No. 356-
A registered in his name and use said property to secure a loan from DBP, the
proceeds of which would be used for building a hospital on Lot No. 356-A a claim
supported by testimonial and documentary evidence, and borne out by the
sequence of events immediately following the execution by the Torbela siblings of
said Deed. On December 16, 1964, TCT No. 52751, covering Lot No. 356-A, was
already issued in Dr. Rosarios name. On December 28, 1964, Dr. Rosario executed
his own Deed of Absolute Quitclaim, in which he expressly acknowledged that he
"only borrowed" Lot No. 356-A and was transferring and conveying the same back
to the Torbela siblings for the consideration of P1.00. On February 21, 1965, Dr.
Rosarios loan in the amount of P70,200.00, secured by a mortgage on Lot No. 356-A,
was approved by DBP. Soon thereafter, construction of a hospital building started
on Lot No. 356-A.

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

In contrast, Dr. Rosario presented TCT No. 52751, issued in his name, to prove his
purported title to Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals,53 the Court
made a clear distinction between title and the certificate of title:

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

Registration does not vest title; it is merely the evidence of such title. Land
registration laws do not give the holder any better title than what he actually has.55
Consequently, Dr. Rosario must still prove herein his acquisition of title to Lot No.
356-A, apart from his submission of TCT No. 52751 in his name.

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

In addition, Dr. Rosario acknowledged the execution of the two Deeds of Absolute
Quitclaim dated December 12, 1964 and December 28, 1964, even affirming his own
signature on the latter Deed. The Parol Evidence Rule provides that when the terms
of the agreement have been reduced into writing, it is considered as containing all
the terms agreed upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written
agreement.56 Dr. Rosario may not modify, explain, or add to the terms in the two
written Deeds of Absolute Quitclaim since he did not put in issue in his pleadings (1)
an intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of the
Deeds to express the true intent and the agreement of the parties thereto; (3) the
validity of the Deeds; or (4) the existence of other terms agreed to by the Torbela
siblings and Dr. Rosario after the execution of the Deeds.57

Even if the Court considers Dr. Rosarios testimony on his alleged verbal agreement
with the Torbela siblings, the Court finds the same unsatisfactory. Dr. Rosario
averred that the two Deeds were executed only because he was "planning to secure
loan from the Development Bank of the Philippines and Philippine National Bank
and the bank needed absolute quitclaim[.]"58 While Dr. Rosarios explanation
makes sense for the first Deed of Absolute Quitclaim dated December 12, 1964
executed by the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario for
P9.00.00), the same could not be said for the second Deed of Absolute Quitclaim
dated December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosarios Deed of
Absolute Quitclaim (in which he admitted that he only borrowed Lot No. 356-A and
was transferring the same to the Torbela siblings for P1.00.00) would actually work
against the approval of Dr. Rosarios loan by the banks. Since Dr. Rosarios Deed of
Absolute Quitclaim dated December 28, 1964 is a declaration against his self-
interest, it must be taken as favoring the truthfulness of the contents of said Deed.59

It can also be said that Dr. Rosario is estopped from claiming or asserting ownership
over Lot No. 356-A based on his Deed of Absolute Quitclaim dated December 28,
1964. Dr. Rosario's admission in the said Deed that he merely borrowed Lot No.
356-A is deemed conclusive upon him. Under Article 1431 of the Civil Code,
"[t]hrough estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying
thereon."60 That admission cannot now be denied by Dr. Rosario as against the
Torbela siblings, the latter having relied upon his representation.

Considering the foregoing, the Court agrees with the RTC and the Court of Appeals
that Dr. Rosario only holds Lot No. 356-A in trust for the Torbela siblings.

Trust is the right to the beneficial enjoyment of property, the legal title to which is
vested in another. It is a fiduciary relationship that obliges the trustee to deal with
the property for the benefit of the beneficiary. Trust relations between parties may
either be express or implied. An express trust is created by the intention of the
trustor or of the parties, while an implied trust comes into being by operation of
law.61

Express trusts are created by direct and positive acts of the parties, by some writing
or deed, or will, or by words either expressly or impliedly evincing an intention to
create a trust. Under Article 1444 of the Civil Code, "[n]o particular words are
required for the creation of an express trust, it being sufficient that a trust is clearly
intended."62 It is possible to create a trust without using the word "trust" or
"trustee." Conversely, the mere fact that these words are used does not necessarily
indicate an intention to create a trust. The question in each case is whether the
trustor manifested an intention to create the kind of relationship which to lawyers is
known as trust. It is immaterial whether or not he knows that the relationship
which he intends to create is called a trust, and whether or not he knows the precise
characteristics of the relationship which is called a trust.63

In Tamayo v. Callejo,64 the Court recognized that a trust may have a constructive or
implied nature in the beginning, but the registered owners subsequent express
acknowledgement in a public document of a previous sale of the property to another
party, had the effect of imparting to the aforementioned trust the nature of an
express trust. The same situation exists in this case. When Dr. Rosario was able to
register Lot No. 356-A in his name under TCT No. 52751 on December 16, 1964, an
implied trust was initially established between him and the Torbela siblings under
Article 1451 of the Civil Code, which provides:

ART. 1451. When land passes by succession to any person and he causes the legal
title to be put in the name of another, a trust is established by implication of law for
the benefit of the true owner.

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

The right of the Torbela siblings to recover Lot No. 356-A has not yet prescribed.

The Court extensively discussed the prescriptive period for express trusts in the
Heirs of Maximo Labanon v. Heirs of Constancio Labanon,65 to wit:

On the issue of prescription, we had the opportunity to rule in Bueno v. Reyes that
unrepudiated written express trusts are imprescriptible:

"While there are some decisions which hold that an action upon a trust is
imprescriptible, without distinguishing between express and implied trusts, the
better rule, as laid down by this Court in other decisions, is that prescription does
supervene where the trust is merely an implied one. The reason has been expressed
by Justice J.B.L. Reyes in J.M. Tuason and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as
follows:

Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real
property prescribed in 10 years, excepting only actions based on continuing or
subsisting trusts that were considered by section 38 as imprescriptible. As held in
the case of Diaz v. Gorricho, L-11229, March 29, 1958, however, the continuing or
subsisting trusts contemplated in section 38 of the Code of Civil Procedure referred
only to express unrepudiated trusts, and did not include constructive trusts (that
are imposed by law) where no fiduciary relation exists and the trustee does not
recognize the trust at all."

This principle was amplified in Escay v. Court of Appeals this way: "Express trusts
prescribe 10 years from the repudiation of the trust (Manuel Diaz, et al. vs. Carmen
Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil Procedure)."

In the more recent case of Secuya v. De Selma, we again ruled that the prescriptive
period for the enforcement of an express trust of ten (10) years starts upon the
repudiation of the trust by the trustee.66

To apply the 10-year prescriptive period, which would bar a beneficiarys action to
recover in an express trust, the repudiation of the trust must be proven by clear and
convincing evidence and made known to the beneficiary.67 The express trust
disables the trustee from acquiring for his own benefit the property committed to
his management or custody, at least while he does not openly repudiate the trust,
and makes such repudiation known to the beneficiary or cestui que trust. For this
reason, the old Code of Civil Procedure (Act 190) declared that the rules on adverse
possession do not apply to "continuing and subsisting" (i.e., unrepudiated) trusts. In
an express trust, the delay of the beneficiary is directly attributable to the trustee
who undertakes to hold the property for the former, or who is linked to the
beneficiary by confidential or fiduciary relations. The trustee's possession is,
therefore, not adverse to the beneficiary, until and unless the latter is made aware
that the trust has been repudiated.68

Dr. Rosario argues that he is deemed to have repudiated the trust on December 16,
1964, when he registered Lot No. 356-A in his name under TCT No. 52751, so when
on February 13, 1986, the Torbela siblings instituted before the RTC Civil Case No.
U-4359, for the recovery of ownership and possession of Lot No. 356-A from the
spouses Rosario, over 21 years had passed. Civil Case No. U-4359 was already
barred by prescription, as well as laches.

The Court already rejected a similar argument in Ringor v. Ringor69 for the
following reasons:

A trustee who obtains a Torrens title over a property held in trust for him by
another cannot repudiate the trust by relying on the registration. A Torrens
Certificate of Title in Joses name did not vest ownership of the land upon him. The
Torrens system does not create or vest title. It only confirms and records title
already existing and vested. It does not protect a usurper from the true owner. The
Torrens system was not intended to foment betrayal in the performance of a trust. It
does not permit one to enrich himself at the expense of another. Where one does not
have a rightful claim to the property, the Torrens system of registration can confirm
or record nothing. Petitioners cannot rely on the registration of the lands in Joses
name nor in the name of the Heirs of Jose M. Ringor, Inc., for the wrong result they
seek. For Jose could not repudiate a trust by relying on a Torrens title he held in
trust for his co-heirs. The beneficiaries are entitled to enforce the trust,
notwithstanding the irrevocability of the Torrens title. The intended trust must be
sustained.70 (Emphasis supplied.)

In the more recent case of Heirs of Tranquilino Labiste v. Heirs of Jose Labiste,71 the
Court refused to apply prescription and laches and reiterated that:

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

It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A
by Dr. Rosario in his name under TCT No. 52751 on December 16, 1964 is not the
repudiation that would have caused the 10-year prescriptive period for the
enforcement of an express trust to run.

The Court of Appeals held that Dr. Rosario repudiated the express trust when he
acquired another loan from PNB and constituted a second mortgage on Lot No. 356-
A sometime in 1979, which, unlike the first mortgage to DBP in 1965, was without
the knowledge and/or consent of the Torbela siblings.

The Court only concurs in part with the Court of Appeals on this matter.

For repudiation of an express trust to be effective, the unequivocal act of

repudiation had to be made known to the Torbela siblings as the cestuis que trust
and must be proven by clear and conclusive evidence. A scrutiny of TCT No. 52751
reveals the following inscription:

Entry No. 520099

Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in
the sense that the consideration thereof has been increased to PHILIPPINE PESOS
Four Hundred Fifty Thousand Pesos only (P450,000.00) and to secure any and all
negotiations with PNB, whether contracted before, during or after the date of this
instrument, acknowledged before Notary Public of Pangasinan Alejo M. Dato as Doc.
No. 198, Page No. 41, Book No. 11, Series of 1985.

Date of Instrument March 5, 1981

Date of Inscription March 6, 198173

Although according to Entry No. 520099, the original loan and mortgage agreement
of Lot No. 356-A between Dr. Rosario and PNB was previously inscribed as Entry
No. 490658, Entry No. 490658 does not actually appear on TCT No. 52751 and, thus,
it cannot be used as the reckoning date for the start of the prescriptive period.

The Torbela siblings can only be charged with knowledge of the mortgage of Lot No.
356-A to PNB on March 6, 1981 when the amended loan and mortgage agreement
was registered on TCT No. 52751 as Entry No. 520099. Entry No. 520099 is
constructive notice to the whole world74 that Lot No. 356-A was mortgaged by Dr.
Rosario to PNB as security for a loan, the amount of which was increased to
P450,000.00. Hence, Dr. Rosario is deemed to have effectively repudiated the
express trust between him and the Torbela siblings on March 6, 1981, on which day,
the prescriptive period for the enforcement of the express trust by the Torbela
siblings began to run.

From March 6, 1981, when the amended loan and mortgage agreement was
registered on TCT No. 52751, to February 13, 1986, when the Torbela siblings
instituted before the RTC Civil Case No. U-4359 against the spouses Rosario, only
about five years had passed. The Torbela siblings were able to institute Civil Case
No. U-4359 well before the lapse of the 10-year prescriptive period for the
enforcement of their express trust with Dr. Rosario.

Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or
neglect, for an unreasonable and unexplained length of time, to do that which by
exercising due diligence could or should have been done earlier. It is negligence or
omission to assert a right within a reasonable time, warranting a presumption that
the party entitled to assert it either has abandoned it or declined to assert it. As the
Court explained in the preceding paragraphs, the Torbela siblings instituted Civil
Case No. U-4359 five years after Dr. Rosarios repudiation of the express trust, still
within the 10-year prescriptive period for enforcement of such trusts. This does not
constitute an unreasonable delay in asserting one's right. A delay within the
prescriptive period is sanctioned by law and is not considered to be a delay that
would bar relief. Laches apply only in the absence of a statutory prescriptive
period.75

Banco Filipino is not a mortgagee and buyer in good faith.

Having determined that the Torbela siblings are the true owners and Dr. Rosario
merely the trustee of Lot No. 356-A, the Court is next faced with the issue of whether
or not the Torbela siblings may still recover Lot No. 356-A considering that Dr.
Rosario had already mortgaged Lot No. 356-A to Banco Filipino, and upon Dr.
Rosarios default on his loan obligations, Banco Filipino foreclosed the mortgage,
acquired Lot No. 356-A as the highest bidder at the foreclosure sale, and
consolidated title in its name under TCT No. 165813. The resolution of this issue
depends on the answer to the question of whether or not Banco Filipino was a
mortgagee in good faith.

Under Article 2085 of the Civil Code, one of the essential requisites of the contract of
mortgage is that the mortgagor should be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is considered null and void. However, an
exception to this rule is the doctrine of "mortgagee in good faith." Under this
doctrine, even if the mortgagor is not the owner of the mortgaged property, the
mortgage contract and any foreclosure sale arising therefrom are given effect by
reason of public policy. This principle is based on the rule that all persons dealing
with property covered by a Torrens Certificate of Title, as buyers or mortgagees, are
not required to go beyond what appears on the face of the title. This is the same rule
that underlies the principle of "innocent purchasers for value." The prevailing
jurisprudence is that a mortgagee has a right to rely in good faith on the certificate
of title of the mortgagor to the property given as security and in the absence of any
sign that might arouse suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful owner of, or does not
have a valid title to, the mortgaged property, the mortgagee in good faith is,
nonetheless, entitled to protection.76

On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in
good faith because as early as May 17, 1967, they had already annotated Cornelios
Adverse Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 on TCT No. 52751 as Entry Nos. 274471-274472,
respectively.

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith
because per Section 70 of Presidential Decree No. 1529, otherwise known as the
Property Registration Decree, the notice of adverse claim, registered on May 17,
1967 by the Torbela siblings under Entry Nos. 274471-274472 on TCT No. 52751,
already lapsed after 30 days or on June 16, 1967. Additionally, there was an express
cancellation of Entry Nos. 274471-274472 by Entry No. 520469 dated March 11,
1981. So when Banco Filipino approved Dr. Rosarios loan for P1,200,000.00 and
constituted a mortgage on Lot No. 356-A (together with two other properties) on
December 8, 1981, the only other encumbrance on TCT No. 52751 was Entry No.
520099 dated March 6, 1981, i.e., the amended loan and mortgage agreement
between Dr. Rosario and PNB (which was eventually cancelled after it was paid off
with part of the proceeds from Dr. Rosarios loan from Banco Filipino). Hence, Banco
Filipino was not aware that the Torbela siblings adverse claim on Lot No. 356-A still
subsisted.
The Court finds that Banco Filipino is not a mortgagee in good faith. Entry Nos.
274471-274472 were not validly cancelled, and the improper cancellation should
have been apparent to Banco Filipino and aroused suspicion in said bank of some
defect in Dr. Rosarios title.

The purpose of annotating the adverse claim on the title of the disputed land is to
apprise third persons that there is a controversy over the ownership of the land and
to preserve and protect the right of the adverse claimant during the pendency of the
controversy. It is a notice to third persons that any transaction regarding the
disputed land is subject to the outcome of the dispute.77

Adverse claims were previously governed by Section 110 of Act No. 496, otherwise
known as the Land Registration Act, quoted in full below:

ADVERSE CLAIM

SEC. 110. Whoever claims any part or interest in registered land adverse to the
registered owner, arising subsequent to the date of the original registration, may, if
no other provision is made in this Act for registering the same, make a statement in
writing setting forth fully his alleged right or interest, and how or under whom
acquired, and a reference to the volume and page of the certificate of title of the
registered owner, and a description of the land in which the right or interest is
claimed.

The statement shall be signed and sworn to, and shall state the adverse claimants
residence, and designate a place at which all notices may be served upon him. This
statement shall be entitled to registration as an adverse claim, and the court, upon a
petition of any party in interest, shall grant a speedy hearing upon the question of
the validity of such adverse claim and shall enter such decree therein as justice and
equity may require. If the claim is adjudged to be invalid, the registration shall be
cancelled. If in any case the court after notice and hearing shall find that a claim thus
registered was frivolous or vexatious, it may tax the adverse claimant double or
treble costs in its discretion.

Construing the aforequoted provision, the Court stressed in Ty Sin Tei v. Lee Dy
Piao78 that "[t]he validity or efficaciousness of the [adverse] claim x x x may only be
determined by the Court upon petition by an interested party, in which event, the
Court shall order the immediate hearing thereof and make the proper adjudication
as justice and equity may warrant. And it is ONLY when such claim is found
unmeritorious that the registration thereof may be cancelled." The Court likewise
pointed out in the same case that while a notice of lis pendens may be cancelled in a
number of ways, "the same is not true in a registered adverse claim, for it may be
cancelled only in one instance, i.e., after the claim is adjudged invalid or
unmeritorious by the Court x x x;" and "if any of the registrations should be
considered unnecessary or superfluous, it would be the notice of lis pendens and not
the annotation of the adverse claim which is more permanent and cannot be
cancelled without adequate hearing and proper disposition of the claim."

With the enactment of the Property Registration Decree on June 11, 1978, Section
70 thereof now applies to adverse claims:

SEC. 70. Adverse claim. Whoever claims any part or interest in registered land
adverse to the registered owner, arising subsequent to the date of the original
registrations, may, if no other provision is made in this Decree for registering the
same, make a statement in writing setting forth fully his alleged right, or interest,
and how or under whom acquired, a reference to the number of the certificate of
title of the registered owner, the name of the registered owner, and a description of
the land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimants
residence, and a place at which all notices may be served upon him. This statement
shall be entitled to registration as an adverse claim on the certificate of title. The
adverse claim shall be effective for a period of thirty days from the date of
registration. After the lapse of said period, the annotation of adverse claim may be
cancelled upon filing of a verified petition therefor by the party in interest:
Provided, however, that after cancellation, no second adverse claim based on the
same ground shall be registered by the same claimant.

Before the lapse of thirty days aforesaid, any party in interest may file a petition in
the Court of First Instance where the land is situated for the cancellation of the
adverse claim, and the court shall grant a speedy hearing upon the question of the
validity of such adverse claim, and shall render judgment as may be just and
equitable. If the adverse claim is adjudged to be invalid, the registration thereof
shall be ordered cancelled. If, in any case, the court, after notice and hearing, shall
find that the adverse claim thus registered was frivolous, it may fine the claimant in
an amount not less than one thousand pesos nor more than five thousand pesos, in
its discretion. Before the lapse of thirty days, the claimant may withdraw his
adverse claim by filing with the Register of Deeds a sworn petition to that effect.
(Emphases supplied.)

In Sajonas v. Court of Appeals,79 the Court squarely interpreted Section 70 of the

Property Registration Decree, particularly, the new 30-day period not previously
found in Section 110 of the Land Registration Act, thus:

In construing the law aforesaid, care should be taken that every part thereof be
given effect and a construction that could render a provision inoperative should be
avoided, and inconsistent provisions should be reconciled whenever possible as
parts of a harmonious whole. For taken in solitude, a word or phrase might easily
convey a meaning quite different from the one actually intended and evident when a
word or phrase is considered with those with which it is associated. In ascertaining
the period of effectivity of an inscription of adverse claim, we must read the law in
its entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides:

"The adverse claim shall be effective for a period of thirty days from the date of
registration."

At first blush, the provision in question would seem to restrict the effectivity of the
adverse claim to thirty days. But the above provision cannot and should not be
treated separately, but should be read in relation to the sentence following, which
reads:

"After the lapse of said period, the annotation of adverse claim may be cancelled
upon filing of a verified petition therefor by the party in interest."

If the rationale of the law was for the adverse claim to ipso facto lose force and effect
after the lapse of thirty days, then it would not have been necessary to include the
foregoing caveat to clarify and complete the rule. For then, no adverse claim need be
cancelled. If it has been automatically terminated by mere lapse of time, the law
would not have required the party in interest to do a useless act.

A statute's clauses and phrases must not be taken separately, but in its relation to
the statute's totality. Each statute must, in fact, be construed as to harmonize it with
the pre-existing body of laws. Unless clearly repugnant, provisions of statutes must
be reconciled. The printed pages of the published Act, its history, origin, and its
purposes may be examined by the courts in their construction. x x x.

xxxx

Construing the provision as a whole would reconcile the apparent inconsistency

between the portions of the law such that the provision on cancellation of adverse
claim by verified petition would serve to qualify the provision on the effectivity
period. The law, taken together, simply means that the cancellation of the adverse
claim is still necessary to render it ineffective, otherwise, the inscription will remain
annotated and shall continue as a lien upon the property. For if the adverse claim
has already ceased to be effective upon the lapse of said period, its cancellation is no
longer necessary and the process of cancellation would be a useless ceremony.

It should be noted that the law employs the phrase "may be cancelled," which
obviously indicates, as inherent in its decision making power, that the court may or
may not order the cancellation of an adverse claim, notwithstanding such provision
limiting the effectivity of an adverse claim for thirty days from the date of
registration. The court cannot be bound by such period as it would be inconsistent
with the very authority vested in it. A fortiori, the limitation on the period of
effectivity is immaterial in determining the validity or invalidity of an adverse claim
which is the principal issue to be decided in the court hearing. It will therefore
depend upon the evidence at a proper hearing for the court to determine whether it
will order the cancellation of the adverse claim or not.

To interpret the effectivity period of the adverse claim as absolute and without
qualification limited to thirty days defeats the very purpose for which the statute
provides for the remedy of an inscription of adverse claim, as the annotation of an
adverse claim is a measure designed to protect the interest of a person over a piece
of real property where the registration of such interest or right is not otherwise
provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property
Registration Decree), and serves as a warning to third parties dealing with said
property that someone is claiming an interest or the same or a better right than the
registered owner thereof.

The reason why the law provides for a hearing where the validity of the adverse
claim is to be threshed out is to afford the adverse claimant an opportunity to be
heard, providing a venue where the propriety of his claimed interest can be
established or revoked, all for the purpose of determining at last the existence of
any encumbrance on the title arising from such adverse claim. This is in line with
the provision immediately following:

"Provided, however, that after cancellation, no second adverse claim shall be

registered by the same claimant."

Should the adverse claimant fail to sustain his interest in the property, the adverse
claimant will be precluded from registering a second adverse claim based on the
same ground.

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

Whether under Section 110 of the Land Registration Act or Section 70 of the
Property Registration Decree, notice of adverse claim can only be cancelled after a
party in interest files a petition for cancellation before the RTC wherein the
property is located, and the RTC conducts a hearing and determines the said claim
to be invalid or unmeritorious.

No petition for cancellation has been filed and no hearing has been conducted
herein to determine the validity or merit of the adverse claim of the Torbela siblings.
Entry No. 520469 cancelled the adverse claim of the Torbela siblings, annotated as
Entry Nos. 274471-774472, upon the presentation by Dr. Rosario of a mere
Cancellation and Discharge of Mortgage.
Regardless of whether or not the Register of Deeds should have inscribed Entry No.
520469 on TCT No. 52751, Banco Filipino could not invoke said inscription in
support of its claim of good faith. There were several things amiss in Entry No.
520469 which should have already aroused suspicions in Banco Filipino, and
compelled the bank to look beyond TCT No. 52751 and inquire into Dr. Rosarios
title. First, Entry No. 520469 does not mention any court order as basis for the
cancellation of the adverse claim. Second, the adverse claim was not a mortgage
which could be cancelled with Dr. Rosarios Cancellation and Discharge of Mortgage.
And third, the adverse claim was against Dr. Rosario, yet it was cancelled based on a
document also executed by Dr. Rosario.

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts
which should put a reasonable man upon his guard, and then claim that he acted in
good faith under the belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to believe that such defect exists, or his willful closing
of his eyes to the possibility of the existence of a defect in the vendor's or
mortgagor's title, will not make him an innocent purchaser or mortgagee for value, if
it afterwards develops that the title was in fact defective, and it appears that he had
such notice of the defects as would have led to its discovery had he acted with the
measure of precaution which may be required of a prudent man in a like
situation.81

While the defective cancellation of Entry Nos. 274471-274472 by Entry No. 520469
might not be evident to a private individual, the same should have been apparent to
Banco Filipino. Banco Filipino is not an ordinary mortgagee, but is a mortgagee-
bank, whose business is impressed with public interest. In fact, in one case, 82 the
Court explicitly declared that the rule that persons dealing with registered lands can
rely solely on the certificate of title does not apply to banks. In another case,83 the
Court adjudged that unlike private individuals, a bank is expected to exercise
greater care and prudence in its dealings, including those involving registered lands.
A banking institution is expected to exercise due diligence before entering into a
mortgage contract. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its
operations.

Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser
in good faith at the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela
siblings over Lot No. 356-A is superior over that of Banco Filipino; and as the true
owners of Lot No. 356-A, the Torbela siblings are entitled to a reconveyance of said
property even from Banco Filipino.

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

The rules on accession shall govern the improvements on Lot No. 356-A and the
rents thereof.

The accessory follows the principal. The right of accession is recognized under
Article 440 of the Civil Code which states that "[t]he ownership of property gives the
right by accession to everything which is produced thereby, or which is
incorporated or attached thereto, either naturally or artificially."

There is no question that Dr. Rosario is the builder of the improvements on Lot No.
356-A. The Torbela siblings themselves alleged that they allowed Dr. Rosario to
register Lot No. 356-A in his name so he could obtain a loan from DBP, using said
parcel of land as security; and with the proceeds of the loan, Dr. Rosario had a
building constructed on Lot No. 356-A, initially used as a hospital, and then later for
other commercial purposes. Dr. Rosario supervised the construction of the building,
which began in 1965; fully liquidated the loan from DBP; and maintained and
administered the building, as well as collected the rental income therefrom, until the
Torbela siblings instituted Civil Case No. U-4359 before the RTC on February 13,
1986.

When it comes to the improvements on Lot No. 356-A, both the Torbela siblings (as
landowners) and Dr. Rosario (as builder) are deemed in bad faith. The Torbela
siblings were aware of the construction of a building by Dr. Rosario on Lot No. 356-
A, while Dr. Rosario proceeded with the said construction despite his knowledge
that Lot No. 356-A belonged to the Torbela siblings. This is the case contemplated
under Article 453 of the Civil Code, which reads:

ART. 453. If there was bad faith, not only on the part of the person who built,
planted or sowed on the land of another, but also on the part of the owner of such
land, the rights of one and the other shall be the same as though both had acted in
good faith.

It is understood that there is bad faith on the part of the landowner whenever the
act was done with his knowledge and without opposition on his part. (Emphasis
supplied.)
When both the landowner and the builder are in good faith, the following rules
govern:

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

ART. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same
right of retention, the person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying the increase in value
which the thing may have acquired by reason thereof.

ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the
possessor in good faith; but he may remove the ornaments with which he has
embellished the principal thing if it suffers no injury thereby, and if his successor in
the possession does not prefer to refund the amount expended.

Whatever is built, planted, or sown on the land of another, and the improvements or
repairs made thereon, belong to the owner of the land. Where, however, the planter,
builder, or sower has acted in good faith, a conflict of rights arises between the
owners and it becomes necessary to protect the owner of the improvements without
causing injustice to the owner of the land. In view of the impracticability of creating
what Manresa calls a state of "forced co-ownership," the law has provided a just and
equitable solution by giving the owner of the land the option to acquire the
improvements after payment of the proper indemnity or to oblige the builder or
planter to pay for the land and the sower to pay the proper rent. It is the owner of
the land who is allowed to exercise the option because his right is older and
because, by the principle of accession, he is entitled to the ownership of the
accessory thing.85

The landowner has to make a choice between appropriating the building by paying
the proper indemnity or obliging the builder to pay the price of the land. But even as
the option lies with the landowner, the grant to him, nevertheless, is preclusive. He
must choose one. He cannot, for instance, compel the owner of the building to
remove the building from the land without first exercising either option. It is only if
the owner chooses to sell his land, and the builder or planter fails to purchase it
where its value is not more than the value of the improvements, that the owner may
remove the improvements from the land. The owner is entitled to such remotion
only when, after having chosen to sell his land, the other party fails to pay for the
same.86

This case then must be remanded to the RTC for the determination of matters
necessary for the proper application of Article 448, in relation to Article 546, of the
Civil Code. Such matters include the option that the Torbela siblings will choose; the
amount of indemnity that they will pay if they decide to appropriate the
improvements on Lot No. 356-A; the value of Lot No. 356-A if they prefer to sell it to
Dr. Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to Dr. Rosario but
the value of the land is considerably more than the improvements. The
determination made by the Court of Appeals in its Decision dated June 29, 1999 that
the current value of Lot No. 356-A is P1,200,000.00 is not supported by any
evidence on record.

Should the Torbela siblings choose to appropriate the improvements on Lot No.
356-A, the following ruling of the Court in Pecson v. Court of Appeals87 is relevant
in the determination of the amount of indemnity under Article 546 of the Civil Code:

Article 546 does not specifically state how the value of the useful improvements
should be determined. The respondent court and the private respondents espouse
the belief that the cost of construction of the apartment building in 1965, and not its
current market value, is sufficient reimbursement for necessary and useful
improvements made by the petitioner. This position is, however, not in consonance
with previous rulings of this Court in similar cases. In Javier vs. Concepcion, Jr., this
Court pegged the value of the useful improvements consisting of various fruits,
bamboos, a house and camarin made of strong material based on the market value
of the said improvements. In Sarmiento vs. Agana, despite the finding that the useful
improvement, a residential house, was built in 1967 at a cost of between eight
thousand pesos (P8,000.00) to ten thousand pesos (P10,000.00), the landowner was
ordered to reimburse the builder in the amount of forty thousand pesos
(P40,000.00), the value of the house at the time of the trial. In the same way, the
landowner was required to pay the "present value" of the house, a useful
improvement, in the case of De Guzman vs. De la Fuente, cited by the petitioner.

The objective of Article 546 of the Civil Code is to administer justice between the
parties involved. In this regard, this Court had long ago stated in Rivera vs. Roman
Catholic Archbishop of Manila that the said provision was formulated in trying to
adjust the rights of the owner and possessor in good faith of a piece of land, to
administer complete justice to both of them in such a way as neither one nor the
other may enrich himself of that which does not belong to him. Guided by this
precept, it is therefore the current market value of the improvements which should
be made the basis of reimbursement. A contrary ruling would unjustly enrich the
private respondents who would otherwise be allowed to acquire a highly valued
income-yielding four-unit apartment building for a measly amount. Consequently,
the parties should therefore be allowed to adduce evidence on the present market
value of the apartment building upon which the trial court should base its finding as
to the amount of reimbursement to be paid by the landowner.88 (Emphases
supplied.)

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

Dr. Rosario is liable for damages to the Torbela siblings.

The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings P300,000.00 as
moral damages; P200,000.00 as exemplary damages; and P100,000.00 as attorneys
fees.

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

In addition to the moral damages, exemplary damages may also be imposed given
that Dr. Rosarios wrongful acts were accompanied by bad faith. However, judicial
discretion granted to the courts in the assessment of damages must always be
exercised with balanced restraint and measured objectivity. The circumstances of
the case call for a reduction of the award of exemplary damages to P100,000.00.

As regards attorney's fees, they may be awarded when the defendant's act or
omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest. Because of Dr. Rosarios acts, the Torbela siblings
were constrained to institute several cases against Dr. Rosario and his spouse,
Duque-Rosario, as well as Banco Filipino, which had lasted for more than 25 years.
Consequently, the Torbela siblings are entitled to an award of attorney's fees and
the amount of P100,000.00 may be considered rational, fair, and reasonable.

Banco Filipino is entitled to a writ of possession for Lot No. 5-F-8-C-2-B-2-A.

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

To recall, the Court of Appeals affirmed the issuance by the RTC of a writ of
possession in favor of Banco Filipino. Dr. Rosario no longer appealed from said
judgment of the appellate court. Already legally separated from Dr. Rosario, Duque-
Rosario alone challenges the writ of possession before this Court through her
Petition in G.R. No. 140553.

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

The following facts are undisputed: Banco Filipino extrajudicially foreclosed the
mortgage constituted on Lot No. 5-F-8-C-2-B-2-A and the two other properties after
Dr. Rosario defaulted on the payment of his loan; Banco Filipino was the highest
bidder for all three properties at the foreclosure sale on April 2, 1987; the Certificate
of Sale dated April 2, 1987 was registered in April 1987; and based on the Certificate
of Final Sale dated May 24, 1988 and Affidavit of Consolidation dated May 25, 1988,
the Register of Deeds cancelled TCT No. 104189 and issued TCT No. 165812 in the
name of Banco Filipino for Lot No. 5-F-8-C-2-B-2-A on June 7, 1988.

The Court has consistently ruled that the one-year redemption period should be
counted not from the date of foreclosure sale, but from the time the certificate of
sale is registered with the Registry of Deeds.91 No copy of TCT No. 104189 can be
found in the records of this case, but the fact of annotation of the Certificate of Sale
thereon was admitted by the parties, only differing on the date it was made: April
14, 1987 according to Banco Filipino and April 15, 1987 as maintained by Duque-
Rosario. Even if the Court concedes that the Certificate of Sale was annotated on TCT
No. 104189 on the later date, April 15, 1987, the one-year redemption period
already expired on April 14, 1988.92 The Certificate of Final Sale and Affidavit of
Consolidation were executed more than a month thereafter, on May 24, 1988 and
May 25, 1988, respectively, and were clearly not premature.
It is true that the rule on redemption is liberally construed in favor of the original
owner of the property. The policy of the law is to aid rather than to defeat him in the
exercise of his right of redemption.93 However, the liberal interpretation of the rule
on redemption is inapplicable herein as neither Duque-Rosario nor Dr. Rosario had
made any attempt to redeem Lot No. 5-F-8-C-2-B-2-A. Duque-Rosario could only
rely on the efforts of the Torbela siblings at redemption, which were unsuccessful.
While the Torbela siblings made several offers to redeem Lot No. 356-A, as well as
the two other properties mortgaged by Dr. Rosario, they did not make any valid
tender of the redemption price to effect a valid redemption. The general rule in
redemption is that it is not sufficient that a person offering to redeem manifests his
desire to do so. The statement of intention must be accompanied by an actual and
simultaneous tender of payment. The redemption price should either be fully
offered in legal tender or else validly consigned in court. Only by such means can the
auction winner be assured that the offer to redeem is being made in good faith.94 In
case of disagreement over the redemption price, the redemptioner may preserve his
right of redemption through judicial action, which in every case, must be filed within
the one-year period of redemption. The filing of the court action to enforce
redemption, being equivalent to a formal offer to redeem, would have the effect of
preserving his redemptive rights and "freezing" the expiration of the one-year
period.95 But no such action was instituted by the Torbela siblings or either of the
spouses Rosario.

Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-
F-8-C-2-B-2-A in favor of Banco Filipino by invoking the pendency of Civil Case No.
U-4359, the Torbela siblings action for recovery of ownership and possession and
damages, which supposedly tolled the period for redemption of the foreclosed
properties. Without belaboring the issue of Civil Case No. U-4359 suspending the
redemption period, the Court simply points out to Duque-Rosario that Civil Case No.
U-4359 involved Lot No. 356-A only, and the legal consequences of the institution,
pendency, and resolution of Civil Case No. U-4359 apply to Lot No. 356-A alone.

Equally unpersuasive is Duque-Rosarios argument that the writ of possession over

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

The right of the purchaser to the possession of the foreclosed property becomes
absolute upon the expiration of the redemption period. The basis of this right to
possession is the purchaser's ownership of the property. After the consolidation of
title in the buyer's name for failure of the mortgagor to redeem, the writ of
possession becomes a matter of right and its issuance to a purchaser in an
extrajudicial foreclosure is merely a ministerial function.961avvphi1

The judge with whom an application for a writ of possession is filed need not look
into the validity of the mortgage or the manner of its foreclosure. Any question
regarding the validity of the mortgage or its foreclosure cannot be a legal ground for
the refusal to issue a writ of possession. Regardless of whether or not there is a
pending suit for the annulment of the mortgage or the foreclosure itself, the
purchaser is entitled to a writ of possession, without prejudice, of course, to the
eventual outcome of the pending annulment case. The issuance of a writ of
possession in favor of the purchaser in a foreclosure sale is a ministerial act and
does not entail the exercise of discretion.97

WHEREFORE, in view of the foregoing, the Petition of the Torbela siblings in G.R. No.
140528 is GRANTED, while the Petition of Lena Duque-Rosario in G.R. No. 140553 is
DENIED for lack of merit. The Decision dated June 29, 1999 of the Court of Appeals
in CA-G.R. CV No. 39770, which affirmed with modification the Amended Decision
dated January 29, 1992 of the RTC in Civil Case Nos. U-4359 and U-4733 and Pet.
Case No. U-822, is AFFIRMED WITH MODIFICATIONS, to now read as follows:

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

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in
the name of Banco Filipino and to issue a new certificate of title in the name of the
Torbela siblings for Lot No. 356-A;

(3) The case is REMANDED to the RTC for further proceedings to determine the
facts essential to the proper application of Articles 448 and 546 of the Civil Code,
particularly: (a) the present fair market value of Lot No. 356-A; (b) the present fair
market value of the improvements thereon; (c) the option of the Torbela siblings to
appropriate the improvements on Lot No. 356-A or require Dr. Rosario to purchase
Lot No. 356-A; and (d) in the event that the Torbela siblings choose to require Dr.
Rosario to purchase Lot No. 356-A but the value thereof is considerably more than
the improvements, then the reasonable rent of Lot No. 356-A to be paid by Dr.
Rosario to the Torbela siblings;

(4) The Torbela siblings are DIRECTED to submit an accounting of the rents of the
improvements on Lot No. 356-A which they had received and to turn over any
balance thereof to Dr. Rosario;

(5) Dr. Rosario is ORDERED to pay the Torbela siblings P200,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees;
and

(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A,

covered by TCT No. 165812. The RTC Branch Clerk of Court is ORDERED to issue a
writ of possession for the said property in favor of Banco Filipino.

SO ORDERED.
G.R. No. L-3326 September 7, 1907

THE UNITED STATES, plaintiff-appellee,

vs.
LAURENTE REY, defendant-appellant.

This defendant was charged with the crime of robbery in the Court of First Instance
of the subprovince of Masbate in the words and figures following:

The undersigned Laurente Rey, as principal, of the crime of robbery, committed as

follows:

That on or about the 26th of September, 1905, in the municipality of San Jacinto,
subprovince of Masbate, Philippine Islands, the accused Laurente Rey, in company
with Hipolito Roblora, Lucio Estay, Jose Sudueo, Demetrio Sudueno, Melecio
Hernandez, and Luis Almosara, willfully, intentionally, maliciously, with intent of
profiting thereby, against the will of its owner and employing force with regard to
the property, took possession of the sum of fifteen thousand pesos, in silver
currency and paper certificates, and all the legal tender of the Philippine Islands;
that said amount is the property of Urrutia & Co. and of Muoz & Co., both
commercial firms doing business in the city of Manila; that the above mentioned
amount was placed by those firms on board the steamship Cantabria, which was
totally wrecked and lost off the land of Mababuy, within the municipality of San
Jacinto, subprovince of Masbate, Philippine Islands; that said amount was packed in
several boxes; that those boxes were reenforced with iron straps and nails, which
were broken by the accused in order to take possession of the said sum of money;
that the accused, once having taken possession of the money, delivered to Petrona
Justiniano, who had knowledge of the perpetration of the crime, the paper
certificates, which were dried out by her with a smoothing iron and were kept by
her with the intent of appropriating the same. All contrary to the statute.

Masbate, March 14, 1906.

After hearing the evidence adduced during the trial of the said cause, the lower
court found that the defendant guilty of the crime charged in the complaint and
sentenced him to be imprisoned for a period of four years, and to restore to the
Union Insurance Company of Canton, Limited, the sum of 10,000 pesos and to pay
the costs of the prosecution. From this sentence the defendant appealed and made
the following assignment of errors:

(1) The court erred in finding that the crime of robbery had been committed.

(2) The sentence of the court is contrary to the evidence and the law.

By these assignments of error the defendant presents two questions, one of law and
one of fact.
An examination of the record brought to this court shows that some facts were
admitted and some were denied by the respective parties. The facts admitted were
substantially as follows:

That on or about the 19th day of September, 1905, the steamer Cantabria sailed
from the port of Manila, destined for the pueblo of Tabaco, in the Province of Albay,
and after remaining in quarantine at the quarantine station of Mariveles, continued
the journey from said quarantine station on the 24th day of September, and on or
about the 26th day of said month said ship was totally wrecked off the small Island
of Mababuy and all its officers, passengers, and cargo were totally lost.

It is proved that said ship had on board at the time of sailing from the city of Manila,
as a part of her cargo, three boxes containing money, amounting to at least 25,000
pesos. There is some confusion in the evidence concerning the exact amount of
money. This money was shipped by the firms of Urrutia & Co. and Muoz & Co.

It is proved that one Jesus A. de Sendagorta, in the month of January, 1906,

recovered from the wreck of said ship the sum of 10,000 pesos.

It is approved that of the 25,000 pesos shipped on the said Cantabria, 20,000 of said
amount belonged to Urrutia & Co. and 5,000 belonged to Muoz & Co.

It is admitted that on the 16th day of October, Mr. Edward E. Hill, as agent for Union
Insurance Company of Canton, Limited, paid to Urrutia & Co. the sum of 35,000
pesos for losses which the said company incurred by reason of the wreck of said
steamer, and that 20,000 of said amount was for the purpose of covering the 20,000
pesos shipped by the said Urrutia & Co. on said steamer on the 19th day of
September.

The facts charged by the fiscal and denied by the defendant are substantially as
follows:

That the defendant, with several others, on the 28th day of September, 1905, after
having discovered the existence and location of the wrecked steamer, took from the
said wrecked steamer the sum of 15,000 pesos a part of which was distributed
among his companions the largest portion of which was retained by the said
defendant.

The lower court made the following finding of facts from the evidence adduced
during the trial of the cause:

That on the 19th of September, 1905, silver and paper money amounting to 25,000
pesos belonging to the firms of Urrutia & Co. and Muoz & Co., of Manila, was placed
on the steamer Cantabria at Manila by said firms for shipment; that 5,000 pesos of
the said money belonged to Muoz & Co. and 20,000 pesos to Urrutia & Co; that on
the 26th day of September the Cantabria was totally wrecked off the Island of
Mababuy, every person on her being drowned, the bills of lading of said money
being lost, and the money sunk with the ship; that on the 28th day of September, the
defendant, Laurente Rey, with the assistance of several men who were in his
employ, proceeded to said wrecked steamer and willfully, unlawfully, and with the
intention of appropriating it to his own use took therefrom two boxes, one
containing 10,000 pesos and the other 5,000 pesos; that 10,000 pesos of the said
money was the property of Urrutia & Co. and 5,000 pesos was the property of
Muoz & Co.

Admitting the foregoing disputed facts to be true for the purpose of discussing the
first assignment of error made by the appellant, the question arises whether or not
the defendant, under these facts, is guilty of he crime of robbery, under the
provisions of Penal Code.

The theory of the defendant and appellant is that the said property which was sunk
with the wrecked steamer, the said Cantabria, was abandoned properly and
therefore, granting that he had taken possession of said property and appropriated
it to his own use, he was not guilty of the crime of robbery. The defendant and
appellant, in his brief, admits the following fact:

That it was more than six weeks after the cyclone (in which the Cantabria was sunk)
before any definite knowledge was received in regard to the fate of the Cantabria,
thus admitting that the owner of the money alleged to has been robbed and no
definite knowledge of its lost for six weeks or more after the destruction of said
ship.

Article 460 of the Civil Code provides how the possessor of property may lose his
possession of the same:

(1) By abandonment of the thing.

(2) By the transfer to another for a good and valuable consideration.

(3) By the destruction of total loss of the thing or by the thing becoming
unmarketable.

(4) By the possession of another, even against the will of the former possessor, if
the new possessor has lasted more than one year.

The evidence shows, if it can be believed, that the defendant and his companions
entered the wrecked ship and removed therefrom the said money and appropriated
the same to hiss own use in about twenty-four hours after the time of sinking of the
said ship. Can one be charged with the abandonment of his property without even
knowing that the same has passed out of his possession or has been lost? We are of
the opinion, and so hold, that this question must be answered in the negative.
Manresa, in his Commentaries upon the provisions of the Civil Code, says (vol. 4, p.
291):

He who has a right may renounce it. This act by which thing is voluntary renounced
constitutes an abandonment. There is no real intention to abandon a property when,
as in the case of a shipwreck or a fire, things are thrown into the sea upon the
highway.

Certainly the owner of the property ca not be held to have abandoned the same until
at least he has some knowledge of the loss of its possession or of the loss of the
thing.

Property can not be considered abandoned under the law and the possession left
vacant for the finder until the spes recuperandi is gone and the animus revertendi is
finally given up. (The Ann L. Lockwood, 37 Fed. Rep., 233.)

The theory of abandonment on the part of the owners of the money stolen is fully
refuted by the fact that some weeks after the wreck of the said ship they sent men to
the place of the wreck for the purpose of recovering the property which belonged to
them, which was on board the ship at the time of her sinking. The mere fact that
cargo is sunk with a ship wrecked at sea by no means deprives the owner of said
cargo of his property therein. The owner certainly still had the right to reclaim such
property and to recover the same if possible. If it should be recovered by others, the
real owner would be entitled to recover its value less the necessary expense of
recovering the same and carrying it shore by the most approved appliances for that
purpose by others. (Murphy vs. Dunham, 38 Fed. Rep., 503.)

If the defendant and his companions had recovered the cargo from the sunken ship
for the benefit of the owners of the same, he might have been entitled to
compensation of his labor, but when he entered the sunken ship and took
therefrom, by force, the property of another before actual abandonment by the
owner and appropriated the same to his own use, he was, under the provisions of
the Penal Code in force in the Philippine Islands, guilty of the crime of robbery.

Upon the question whether or not the defendant and his companions did actually
commit the acts charged in the said complaint, we are of the opinion, and so hold,
that the evidence adduced during the trial in the lower court fully shows that the
defendant did commit such acts in the manner and form as charged in said
complaint. Therefore we do hereby affirm the sentence of the lower court and do
hereby sentence the defendant to imprisonment for a period of four years of
presidio correccional, under the provisions of paragraph 5 article 512 of the Penal
Code, to return it Urrutia & Co. and Muoz & Co., or the Union Insurance Company of
Canton , Limited, the sum of 15,000 pesos, in case of insolvency to suffer subsidiary
imprisonment in accordance of paragraph 1 of article 50 of the Penal Code, and to
pay the costs. So ordered.
G.R. No. L-16084 November 30, 1962

JOHN O. YU, plaintiff-appellee,

vs.
MAXIMO DE LARA, JUAN PANLILIO, LUCIA RIVERO, FLORENTINO ROQUE and
DOMINGO SAMSON, defendants-appellants.

This is an ejectment case, decided first by the Justice of the Peace Court of Caloocan
and, on appeal, Court of First Instance of Rizal, Pasig branch, ordered the defendants
"to vacate the premises in petition, to pay the monthly rental of P115.00 to begin
from the time this action was filed up to the time they the premises, and to pay the
costs."

The pertinent facts are the subject of stipulation below, Lot No. 14, block No. 51-C of
the Grace Park subdivision with an area of 682.5 meters, is the disputed property. It
was originally registered in 1916 (O.C.T. No. 868 of the Registry of Deeds of Rizal),
subsequently acquired by the Philippine Realty Corporation (T.C.T. No. 22104) and
sold by it on 28 November 1956 to plaintiff-appellant John O. Yu, a Filipino citizen,
who obtained T.C.T 11267 in his name. In 1945 several persons settled on the
property and constructed houses thereon without mission from, or contract with,
the Philippine Corporation, then the registered owner. On various dates thereafter,
between 1947 and 1952, appellants here brought the houses of those settlers and
continued in occupancy thereof without paying any rents to the owner of the land.
In February 1957 plaintiff-appellee advised them in writing to vacate within 30
days, and in view of their refusal filed a complaint of unlawful detainer within the
statutory period of one year.

The first point raised by appellants is that the Philippine Realty Corporation had lost
possession of the property by abandonment, under Article 555, paragraph 1, of the
Civil Code, in failing to take the action against them and showing them lack of
interest in said property since they started their occupancy. The circumstances
adverted to are insufficient to constitute abandonment, which requires not only
physical relinquishment of the thing but also a clear intention not to reclaim or
reassume ownership or enjoyment thereof. Indeed, abandonment which according
to Manresa (Vol. 4, 5th ed., p. 277) convert the thing into res nullius, ownership of
which may be acquired by occupation, can hardly apply to land, as to which said
mode of acquisition is not available (Art. 714, Civil Code), let alone to registered
land, to which "no title . . . in derogation to that of the registered owner shall be
acquired by occupation, can hardly apply to land, as to which said mode of
acquisition is not available (Art. 714, Civil Code), let alone to registered land, to
which "no title . . . in derogation to that of the registered owner shall be acquired by
prescription or adverse possession." (Sec. 46, Act No. 496). No possessory rights
whatsoever can be recognized in favor of appellants, because they are in fact
nothing but squatters, who settled on the land without any agreement with the
owner paying neither rents to him, nor land taxes to the government, and who
impliedly recognized their squatters' status by purchasing only the houses built by
the original settlers. Their occupancy of the land was at the owner's sufference, and
their acts were merely tolerated which could not affect the owner's possession
(Arts. 537 and 1119, Civil Code).

Appellants next contend that since there is no showing that there was any promise
on their part, express or implied, to return the land to appellee, or that they failed to
do so after their right to retain it had expired, they cannot be considered as
unlawfully withholding possession within the meaning of Section 1 of Rule 72. The
implication of the argument is that this action of unlawful detainer was improperly
brought against them in the Justice of the Peace Court of Caloocan. A person who
occupies the land of another at the latter's tolerance or permission, without any
contract between them, is necessarily bound by an implied promise that he will
vacate upon demand, failing which a summary fiction for ejectment is the property
remedy against him. In any event, whatever might be said on this point in so far as it
relates to the original jurisdiction of the Justice of the Peace Court and hence to
the appellate jurisdiction Court of First Instance it does not appear that the
question was raised in the former court at all. Consequently the latter court could
take cognizance of the case as one for recovery by the owner of the right of
possession in the exercise of its original jurisdiction, pursuant to section 11 of Rule
40.

The third and last contention of appellants is that the Court of First Instance lacked
jurisdiction to this case because there were prejudicial question pending before us
on appeal in cases G.R. Nos. L-12614 and L-12615 concerning the same property.
The issue in those two cases was the propriety of the registration of appellants'
adverse claim to the said land, which was resolved against them by the Land
Registration Commissioner. In the first place the issue was not prejudicial in nature:
it could not affect appellee's right to the possess his land, which has nothing to do
with the registration or non-registrability of appellants' alleged adverse and
secondly, the said cases have already been decided by us on January 29, 1960, by
upholding the action by the Land Registration Commissioner.

The judgment appealed from is affirmed, with costs against appellants.

G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner,

vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ,
respondents.

The principal issue in this case is whether or not a decision of the Court of Appeals
promulgated a long time ago can properly be considered res judicata by respondent
Court of Appeals in the present two cases between petitioner and two private
respondents.

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of
the Ninth Division of Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case
No. 3607 (419)] and CA-G.R. No. 05149 [Civil Case No. 3655 (429)], both for
Recovery of Possession, which affirmed the Decision of the Honorable Nicodemo T.
Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case No.
3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar

Apostolic of the Mountain Province to return and surrender Lot 2 of Plan Psu-
194357 to the plaintiffs. Heirs of Juan Valdez, and Lot 3 of the same Plan to the other
set of plaintiffs, the Heirs of Egmidio Octaviano (Leonardo Valdez, et al.). For lack or
insufficiency of evidence, the plaintiffs' claim or damages is hereby denied. Said
defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the
trial court's conclusions that the Decision of the Court of Appeals, dated May 4,1977
in CA-G.R. No. 38830-R, in the two cases affirmed by the Supreme Court, touched on
the ownership of lots 2 and 3 in question; that the two lots were possessed by the
predecessors-in-interest of private respondents under claim of ownership in good
faith from 1906 to 1951; that petitioner had been in possession of the same lots as
bailee in commodatum up to 1951, when petitioner repudiated the trust and when it
applied for registration in 1962; that petitioner had just been in possession as
owner for eleven years, hence there is no possibility of acquisitive prescription
which requires 10 years possession with just title and 30 years of possession
without; that the principle of res judicata on these findings by the Court of Appeals
will bar a reopening of these questions of facts; and that those facts may no longer
be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision

in the two aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows

... The documents and records presented reveal that the whole controversy started
when the defendant Catholic Vicar Apostolic of the Mountain Province (VICAR for
brevity) filed with the Court of First Instance of Baguio Benguet on September 5,
1962 an application for registration of title over Lots 1, 2, 3, and 4 in Psu-194357,
situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said Lots
being the sites of the Catholic Church building, convents, high school building,
school gymnasium, school dormitories, social hall, stonewalls, etc. On March 22,
1963 the Heirs of Juan Valdez and the Heirs of Egmidio Octaviano filed their
Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting ownership and title
thereto. After trial on the merits, the land registration court promulgated its
Decision, dated November 17, 1965, confirming the registrable title of VICAR to Lots
1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs
of Egmidio Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the
decision of the land registration court to the then Court of Appeals, docketed as CA-
G.R. No. 38830-R. The Court of Appeals rendered its decision, dated May 9, 1977,
reversing the decision of the land registration court and dismissing the VICAR's
application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the
land registration case (and two sets of plaintiffs in the two cases now at bar), the
first lot being presently occupied by the convent and the second by the women's
dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying
the Court of Appeals to order the registration of Lot 3 in the names of the Heirs of
Egmidio Octaviano, and on May 17, 1977, the Heirs of Juan Valdez and Pacita Valdez
filed their motion for reconsideration praying that both Lots 2 and 3 be ordered
registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August
12,1977, the Court of Appeals denied the motion for reconsideration filed by the
Heirs of Juan Valdez on the ground that there was "no sufficient merit to justify
reconsideration one way or the other ...," and likewise denied that of the Heirs of
Egmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing his (its) application for
registration of Lots 2 and 3, docketed as G.R. No. L-46832, entitled 'Catholic Vicar
Apostolic of the Mountain Province vs. Court of Appeals and Heirs of Egmidio
Octaviano.'

From the denial by the Court of Appeals of their motion for reconsideration the
Heirs of Juan Valdez and Pacita Valdez, on September 8, 1977, filed with the
Supreme Court a petition for review, docketed as G.R. No. L-46872, entitled, Heirs of
Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of Egmidio
Octaviano and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution both
petitions (of VICAR on the one hand and the Heirs of Juan Valdez and Pacita Valdez
on the other) for lack of merit. Upon the finality of both Supreme Court resolutions
in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano filed with the then
Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment
praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court,
presided over by Hon. Salvador J. Valdez, on December 7, 1978, denied the motion
on the ground that the Court of Appeals decision in CA-G.R. No. 38870 did not grant
the Heirs of Octaviano any affirmative relief.
On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a
petitioner for certiorari and mandamus, docketed as CA-G.R. No. 08890-R, entitled
Heirs of Egmidio Octaviano vs. Hon. Salvador J. Valdez, Jr. and Vicar. In its decision
dated May 16, 1979, the Court of Appeals dismissed the petition.

It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano
filed Civil Case No. 3607 (419) on July 24, 1979, for recovery of possession of Lot 3;
and the Heirs of Juan Valdez filed Civil Case No. 3655 (429) on September 24, 1979,
likewise for recovery of possession of Lot 2 (Decision, pp. 199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano
presented one (1) witness, Fructuoso Valdez, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano
(Exh. C ); his written demand (Exh. BB-4 ) to defendant Vicar for the return of the
land to them; and the reasonable rentals for the use of the land at P10,000.00 per
month. On the other hand, defendant Vicar presented the Register of Deeds for the
Province of Benguet, Atty. Nicanor Sison, who testified that the land in question is
not covered by any title in the name of Egmidio Octaviano or any of the plaintiffs
(Exh. 8). The defendant dispensed with the testimony of Mons.William Brasseur
when the plaintiffs admitted that the witness if called to the witness stand, would
testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75)
years continuously and peacefully and has constructed permanent structures
thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in
dispute, submitted the case on the sole issue of whether or not the decisions of the
Court of Appeals and the Supreme Court touching on the ownership of Lot 2, which
in effect declared the plaintiffs the owners of the land constitute res judicata.

In these two cases , the plaintiffs arque that the defendant Vicar is barred from
setting up the defense of ownership and/or long and continuous possession of the
two lots in question since this is barred by prior judgment of the Court of Appeals in
CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs contend that the
question of possession and ownership have already been determined by the Court
of Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme
Court (Exh. 1, Minute Resolution of the Supreme Court). On his part, defendant Vicar
maintains that the principle of res judicata would not prevent them from litigating
the issues of long possession and ownership because the dispositive portion of the
prior judgment in CA-G.R. No. 038830-R merely dismissed their application for
registration and titling of lots 2 and 3. Defendant Vicar contends that only the
dispositive portion of the decision, and not its body, is the controlling
pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to

petitioner are as follows:
1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3
WERE ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE
PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND

3 FROM VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE
FORMER OWNERS WERE VALDEZ AND OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE

RESPONDENTS WHO WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM
1906, AND NOT PETITIONER;

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT

APPLICATIONS AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY
HAD FREE PATENT APPLICATIONS SINCE 1906;

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN

1951 AND JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION
TO ART. 1129 OF THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF
10 YEARS;

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA

G.R. NO. 038830 WAS AFFIRMED BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED

ON OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF
OWNERSHIP IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS

2 AND 3 MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS
LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN

GOOD FAITH WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS
BARRED BY THE FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R.
NO. 038830. 3

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos.

05148 and 05149, when it clearly held that it was in agreement with the findings of
the trial court that the Decision of the Court of Appeals dated May 4,1977 in CA-G.R.
No. 38830-R, on the question of ownership of Lots 2 and 3, declared that the said
Court of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private
respondents as owners of the land, neither was it declared that they were not
owners of the land, but it held that the predecessors of private respondents were
possessors of Lots 2 and 3, with claim of ownership in good faith from 1906 to 1951.
Petitioner was in possession as borrower in commodatum up to 1951, when it
repudiated the trust by declaring the properties in its name for taxation purposes.
When petitioner applied for registration of Lots 2 and 3 in 1962, it had been in
possession in concept of owner only for eleven years. Ordinary acquisitive
prescription requires possession for ten years, but always with just title.
Extraordinary acquisitive prescription requires 30 years. 4

On the above findings of facts supported by evidence and evaluated by the Court of
Appeals in CA-G.R. No. 38830-R, affirmed by this Court, We see no error in
respondent appellate court's ruling that said findings are res judicata between the
parties. They can no longer be altered by presentation of evidence because those
issues were resolved with finality a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations by continuous
determination of issues without end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5
in CA-G.R. No. 38830-R, shows that it reversed the trial court's Decision 6 finding
petitioner to be entitled to register the lands in question under its ownership, on its
evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive prescription because of
the absence of just title. The appellate court did not believe the findings of the trial
court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired
also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases
were never mentioned in the application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and
Octaviano. Both Valdez and Octaviano had Free Patent Application for those lots
since 1906. The predecessors of private respondents, not petitioner Vicar, were in
possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in
question, but not Lots 2 and 3, because the buildings standing thereon were only
constructed after liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for
taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the
Bishop but said Bishop was appointed only in 1947, the church was constructed
only in 1951 and the new convent only 2 years before the trial in 1963.
When petitioner Vicar was notified of the oppositor's claims, the parish priest
offered to buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request
of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was
borrowed by petitioner Vicar after the church and the convent were destroyed.
They never asked for the return of the house, but when they allowed its free use,
they became bailors in commodatum and the petitioner the bailee. The bailees'
failure to return the subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee held in trust the
property subject matter of commodatum. The adverse claim of petitioner came only
in 1951 when it declared the lots for taxation purposes. The action of petitioner
Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title.

The Court of Appeals found that the predecessors-in-interest and private

respondents were possessors under claim of ownership in good faith from 1906;
that petitioner Vicar was only a bailee in commodatum; and that the adverse claim
and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-
G.R. No. 38830-R. Its findings of fact have become incontestible. This Court declined
to review said decision, thereby in effect, affirming it. It has become final and
executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave
abuse of discretion, when it held that the Decision of the Court of Appeals in CA-G.R.
No. 38830-R is governing, under the principle of res judicata, hence the rule, in the
present cases CA-G.R. No. 05148 and CA-G.R. No. 05149. The facts as supported by
evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack
of merit, the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by
respondent Court of Appeals is AFFIRMED, with costs against petitioner.

SO ORDERED.

G.R. No. L-3546 September 13, 1907

PIA DEL ROSARIO, plaintiff-appellant,

vs.
JUAN LUCENA, ET AL., defendants-appellees.
A complaint having been filed against Juan Lucena as his wife, Praxedes Flores, and
also against Teresa Verches the last named alone appeared at the trial and answered
the complaint.

Among the facts alleged in the complaint, the following are of importance in this
appeal:

I. That the plaintiff is the lower of the jewels, which are subsequently specified
together with their respective valuation.

II. That the said jewels are now detained by the defendant Teresa Verches, to
whom they were pawned by the other defendants, the married coupled, without the
knowledge or consent of the plaintiff, for which act the defendant Praxedes was
convicted of estafa by this same court and sentenced to five months of presidio
correccional, both she and her husband being bound to return the jewels otherwise
to pay for them.

The principal object of the complaint was to obtain from the court a declaration that
the jewels were the property of the plaintiff and that, in view thereof, they should be
returned to her and the defendants sentenced to pay the costs and expresses of the
action.

The court rendered judgment in favor of the plaintiff, Pia del Rosario, and against
the defendant Teresa Verches, for the possession of the jewels described in the
complaint provided, however, that 500 pesos, Philippine currency plaintiff to the
defendant Teresa Verches, or in case the jewel could not be returned the married
couple, Juan Lucena and Praxedes Flores, jointly and severally, and against Teresa
Verches for the sum of P1,555, less P500, and the costs in the action.

The plaintiff appealed from this decision, and in her brief she sets forth the alleged
errors contained in the judgment appealed from. The conclusion is:

1. That the defendant in answer to the complaint alleged

III. That the said jewels we pledge by the other defendant, Praxedes Flores, in
the name of the plaintiff, Da. Pia del Rosario, which act was subsequently ratified by
the plaintiff. (B. of E., 4.)

2. That it is an undisputed fact that the jewels were delivered by Pia del Rosario
to Praxedes Flores for sale on commission for the term of two months, after which, if
not sold, that should be returned to the owner; and,

3. That by reason of having pledged them for the purpose of gain to the amount
of 500 pesos. Praxedes Flores was convicted of estafa in, criminal proceedings
instituted against her.
From the answer of the defendant it appears that she accepted the contract of
pledge, and that she received the jewels in the name of Pia del Rosario, without the
least proof appearing in the record of the case that Praxedes Flores had any
authority from Pia del Rosario to pledge them; rather, on the contrary, it is
acknowledged in the judgment appealed from that the transaction carried out by
Praxedes Flores was made without the knowledge or consent of Pia del Rosario.

If Teresa Verches accepted the jewels as a pledge constitution by Praxedes Flores in

the name of Pia del Rosario without ascertaining whether the latter had given the
former any order or authority for the pledging given of her jewels, Teresa Verches
must stand the risk if when relying from her acceptance of the pledge, even if when
relying upon her judgment she was improperly or falsely informed; and it would not
just nor logical that the consequences of her reception, due to her own mistake, or to
deceit employed by a stranger, should fall on the owner of the jewels who, without
having taken any part in the transaction, became the victim of a crime. The conflict
between the right of the owner of movable property who has either lost it or been
illegally therefore and that of the creditor who has loaned money thereon and holds
it in pledge can not be decided against the owner, to whom the Civil Code grants ba
right of action to recover the property from whoever may be in possession. (Art.
464.)

The exceptions to article 464 are herein contained, namely: (1) If the possessors of
personal property, lost or stolen, has acquired it at a public sale; (2) in favor of
Montes de Piedad established under authorization of the Government; and (3) with
regard to things acquired on exchange, or at this fairs or markets or from a
merchant lawfully engage in similar business. the defendant was not with any of the
exception under which she could refuse to make restitution of the property without
reimbursement of the amount advanced upon the pledge.

Therefore the decision which provides for such reimbursement before the return of
the jewels is not based on any law whatever. On the contrary, it is in violation of
article 464 of the Civil Code.

It is true that a subsequent ratification by the owner, of the illegal act performed by
an agent without, his consent, is equivalent to an order, and confirms the otherwise
unlawful act of the agent; but such subsequent ratification must appear in like
manner as the order itself. No such ratification of the illegal act committed by
Paraxedes Flores can arise out of the fact that a son of the plaintiff called at the
house of the defendant in order to inquire if the that he intended to redeem them.
Nor is a real intent to redeem stolen property a subsequent ratification of an illegal
act whereby the owner was deprived of the same.

We therefore hold that it is improper to compel the plaintiff to reimburse the

defendant in the sum of 3500 pesos, Philippine Currency, which Praxedes Flores
obtained through the commission of an unlawful act, but that it is proper and in
accordance with the law to compel the defendant to returned to the plaintiff,
absolutely and unconditionally, the jewels in question.

Wherefore the judgment appealed from is hereby reversed without special as to

costs, and the jewels shall be forthwith returned to the plaintiff. So ordered.

G.R. No. L-3890 January 2, 1908

JOSEFA VARELA, plaintiff-appellee,

vs.
JOSEPHINE FINNICK, defendant-appellant.

Some time during the months of November and December, 1905, Nicolasa Pascual
received from Josefa Varela several jewels, whereof the quantity and description are
stated in the judgment appealed from; some of the jewels were owned by Varela and
other belonged to strangers; all, however, came from Varela and were delivered to
Pascual to be sold on commission, with the express obligation on the part of the
latter to pay to the former the proceeds of the sale of said jewels, or to return them if
unsold.

Nicolasa Pascual, however, far from complying with her duty, pawned the said
jewels at various dates during said months, as appears from the pawn tickets issued
by the owner of H.J. Finnick's pawnshop, where the jewels had been pledged; that
jewels were thus misappropriated, and the amount of the loan granted thereon
embezzled, to the prejudice of Josefa Varela.

Upon the filing of the complaint, proceedings were instituted, under cause No. 2429,
against Nicolas Pascual for the crime of estafa, and the accused, being found guilty
under articles 534 and 535, paragraph 5, of the Penal Code, was sentenced to the
penalty of one year and eleven months of prision correccional, to make restitution of
the jewels misappropriated or to pay the value thereof, and, in case of insolvency, to
suffer the corresponding subsidiary imprisonment; said judgment became final and
the accused is now undergoing the penalty imposed upon her.

On the 22nd of September, 1906, the representative of Josefa Varela claimed, in

writing, the return of the jewels above referred to, which were the subject matter of
said prosecution, and separate proceedings having been instituted, the manager of
the property of the late Finnick was made a party thereto. On the 17th of October, in
answer to the complaint of Josefa Varela, the manager denied all that had been
alleged by the latter, and, although admitting that the jewels had been pledged at the
pawnshop of the late Finnick, further denied that they were the subject of estafa or
any other crime committed by Nicolasa Pascual; she further stated that Finnick was
provided with a license to engage in the loan business under the laws in force, and
that he accepted the said jewels in good faith because Nicolasa Pascual was fully and
duly authorized to pledge the same; therefore, the defendant was entitled to their
possession, and she finally asked that the request of Josefa Varela be dismissed with
costs.

Neither in the said cause nor in the present proceedings does it appear as proven
that Josefa Varela authorized Nicolasa Pascual to pledge the jewels or to dispose of
the pawn tickets issued by the pawnshop, and the mere affirmation of Nicolasa
Pascual is insufficient when the same is contradicted and denied by Josefa Varela. If
said affirmation had been substantiated, the crime of estafa could not have been
proven, and the accused would not have been convicted in said cause.

Article 17 of the Penal Code provides that

Every person criminally liable for a crime or misdemeanor is also civilly liable.

In accordance with this provision the supreme court [of Spain] in its decision of the
3d of January, 1877, has established the following doctrine:

In order that civil liability may be decreed in a prosecution it is necessary that it

arise from or be the consequence of criminal liability; therefore, if the accused was
acquitted of a crime, any court sentencing him by reason of the same to pay certain
indemnity does so in violation of this article.

Nicolasa Pascual was convicted of estafa of the jewels in question, and as the
sentence became final, so much so that she is now undergoing her term of
imprisonment, the balance of the judgment must be complied with that is, the
restitution of the jewels misappropriated, because they are at hand and have not
disappeared. This restitution must be made even if the jewels are in the possession
of a third party, such as a pawnshop, and notwithstanding the fact that they were
lawfully acquired by it, its right to institute proceedings against whoever may be
liable therefor being reserved as provided by article 120 of the Penal Code.

The exception contained in paragraph 3 of said article is not applicable to the

present case because a pawnshop does not enjoy the privilege established by article
464 of the Civil Code. The owner of the loan office of Finnick Brothers,
notwithstanding the fact that he acted in good faith, did not acquire the jewels at a
public sale; it is not a question of public property, securities, or other such effects,
the transfer, sale, or disposal of which is subject to the provisions of the Code of
Commerce. Neither does a pawnshop enjoy the privilege granted to a Monte de
Piedad; therefore, Josefa Varela, who lost said jewels and was deprived of the same
in consequence of a crime, is entitled to the recovery thereof from the pawnshop of
Finnick Brothers, where they were pledged; the latter can not lawfully refuse to
comply with the provisions of article 120 of the Penal Code, as it is a question of
jewels which have been misappropriated by the commission of the crime of estafa,
and the execution of the sentence which orders the restitution of the jewels can not
be avoided because of the good faith with which the owner of the pawnshop
acquired them, inasmuch as they were delivered to the accused, who was not the
owner nor authorized to dispose of the same.

Article 1857 of the Civil Code provides that

The following are essential requisites of the contracts of pledge and of mortgage:

1. ...

2. That the thing pledged or mortgaged be owned by the person who pledges or
mortgages it.

Nicolasa Pascual was not the owner of the jewels pledged at the pawnshop of
Finnick.

Article 1859 of said code provides that

A creditor can not appropriate to himself the things given in pledge or under
mortgage, nor dispose of them.

While actual possession of personal property is equivalent to a title thereto, so long

as no proof is offered that the same was acquired in bad faith, yet from the time that
the latter condition is proven, such as the loss of the thing, or that the owner was
unlawfully deprived of it, the latter is entitled to the recovery thereof within the
limits fixed by law, because the holder lacks the good faith indispensable to the
protection of his possession.

Article 1955 of said code prescribes:

The ownership of personal property prescribes by uninterrupted possession in

good faith for a period of three years.

That ownership of personal property also prescribed by uninterrupted for six years,
without the necessity of any other condition.

The provisions of article 464 of this code shall be observed with regard to the rights
of the owner to recover the personal property lost or of which he may have been
illegally deprived, and also with regard to those acquired at an auction, on
exchanges, at fairs or markets, or from a merchant legally established or customarily
engaged in the traffic of similar objects.

In the present case not only has the ownership and the origin of the jewels
misappropriated been unquestionably proven but also that the accused, acting
fraudulently and in bad faith, disposed of them and pledged them contrary to
agreement, with no right of ownership, and to the prejudice of the injured party,
who was thereby illegally deprived of said jewels; therefore, in accordance with the
provisions of article 464, the owner has an absolute right to recover the jewels from
the possession of whosoever holds them, in accordance with the judgment entered
in the aforesaid cause for estafa, wherein, the accused having been found guilty, the
right of Josefa Varela to recover the jewels in question is expressly acknowledged.

Therefore, in view of the foregoing, and accepting the conclusions stated in the
judgment appealed from, it is our opinion that the same should be affirmed, and it is
so ordered.

G.R. No. L-5741 March 13, 1911

ESTANISLAUA ARENAS, ET AL., plaintiffs-appellees,

vs.
FAUSTO O. RAYMUNDO, defendant-appellant.

This is an appeal field by the defendant from a judgment of conviction rendered by

the Hon. Judge Araullo.

On the date of August 31, 1908, the attorneys for the plaintiffs, Estanislaua Arenas
and Julian La O, brought suit against Fausto O. Raymundo, alleging, as a cause of
action, that Estanislaua Arenas was the owner and proprietor of the jewelry
described below with the respective value thereof:

Two gold tamborin rosaries, without bow or reliquary at P40 each

P80

One lady's comb for fastening the hair, made of gold and silver, adorned with pearls
of ordinary size and many small pearls, one of which is missing

80

One gold ring set with a diamond of ordinary size

1,000

One gold bracelet with five small diamonds and eight brillantitos de almendras

700

One pair of gold picaporte earrings with two diamonds of ordinary size and two
small ones

1,100
The plaintiffs alleged that the said jewelry, during the last part of April or the
beginning of May, 1908, was delivered to Elena de Vega to sell on commission, and
that the latter, in turn, delivered it to Conception Perello, likewise to sell on
commission, but that Perello, instead of fulfilling her trust, pledged the jewelry in
the defendant's pawnshop, situated at No. 33 Calle de Ilaya, Tondo, and
appropriated to her own use the money thereby obtained; that on July 30, 1908,
Conception Perello was prosecuted for estafa, convicted, and the judgment became
final; that the said jewelry was then under the control and in the possession of the
defendant, as a result of the pledge by Perello, and that the former refused to deliver
it to the plaintiffs, the owners thereof, wherefore counsel for the plaintiffs asked that
judgment be rendered sentencing the defendant to make restitution of the said
jewelry and to pay the costs.

In the affidavit presented by the attorney for the plaintiffs dated September 2, 1908,
after a statement and description of the jewelry mentioned, it is set forth that the
defendant was retaining it for the reason given in the complaint, and that it was not
sequestrated for the purpose of satisfying any tax or fine or by reason of any
attachment issued in compliance with any judgment rendered against the plaintiffs'
property.

In discharge of the writ of seizure issued for the said jewelry on the 2nd of
September, 1908, aforementioned, the sheriff of this city made the return that he
had, on the same date, delivered one copy of the bond and another of the said writ to
the defendant personally and, on the petition and designation of the attorney for the
plaintiffs, proceeded to seize the jewelry described in the writ, taking it out of the
defendant's control, and held it in his possession during the five days prescribed by
law.

On the 15th of the same month and year, five days having elapsed without the
defendant's having given bond before the court, the sheriff made delivery of all the
jewelry described in the said order to the attorney for the plaintiff to the latter's
entire satisfaction, who with the sheriff signed the return of the writ.

After the demurrer to the complaint had been overruled the defendant answered,
setting forth that he denied each and all of the allegations thereof which were not
specifically admitted, explained, or qualified, and as a special defense alleged that
the jewelry, the subject matter of the complaint was pledged on his pawnshop by
Conception Perello, the widow of Pazos, as security for a loan of P1,524, with the
knowledge, consent, and mediation of Gabriel La O, a son of the plaintiffs, as their
agent, and that, in consequence thereof, the said plaintiffs were estopped from
disavowing the action of the said Perello; the defendant therefore prayed that the
complaint be dismissed and that the jewelry seized at the instance of the plaintiffs,
or the amount of the loan made thereon, together with the interest due, be returned
to the defendant, with the costs of the suit against the plaintiffs.
The case came up for hearing on March 17, 1909, and after the presentation of oral
testimony by both parties, the count, on June 23 of the same year, rendered
judgment sentencing the defendant to restore to the plaintiff spouses the jewelry
described in the complaint, the right being reserved to the defendant to institute his
action against the proper party. The counsel for the defendant excepted to this
judgment, asked that the same be set aside, and a new trial granted. This motion was
denied, exceptions was taken by the appellant, and the proper bill of exceptions was
duly approved certified to, and forwarded to the clerk of this court.

This is an action for the replevin of certain jewelry delivered by its owner for sale on
commission, and pledged without his knowledge by Concepcion Perello in the
pawnshop of the defendant, Fausto O. Raymundo, who refuses to deliver the said
jewelry unless first redeemed.

The said Concepcion Perello, who appropriated to herself the money derived from
the pledging of the jewels before mentioned, together with others, to the prejudice
of their owner Estanislaua Arenas, was prosecuted in the Court of First Instance of
this City in cause No. 3955 and sentenced on July 30, 1908, to the penalty of one
year eight months and twenty-one days of prision correccional, to restore to the
offended party the jewelry specified in the complaint, or to pay the value thereof,
amounting to P8,660, or, in case of insolvency, to suffer the corresponding
subsidiary imprisonment, and to pay the costs. This judgment is attested by the
certified copy attached under letter D to folio 26 of the record of the proceedings in
the case of the same plaintiff against Antonio Matute the pledgee of the other
jewelry also appropriated by the said Concepcion Perello which record forms a
part of the evidence in this cause.

Perello having pledged the jewelry in question to the defendant Raymundo, and not
having redeemed it by paying him the amount received, it follows that the convicted
woman, now serving the sentence imposed upon her, could not restore the jewelry
as ordered in that judgment, which has become final by the defendant's
acquiescence.

Article 120 of the Penal Code prescribes:

The restitution of the thing itself must be made, if be in the possession of a third
person, who had acquired it in a legal manner, reserving, however, his action against
the proper person.

Restitution shall be made, even though the thing may be in the possession of a third
person, who had acquired it in a legal manner, reserving, however, his action against
the proper person.

This provision is not applicable to a case in which the third person has acquired the
thing in the manner and with the requisites established by law to make it
unrecoverable.
The provisions contained in the first two paragraphs of the preinserted article are
based on the uncontrovertible principle of justice that the party injured through a
crime has, as against all others, a preferential right to be indemnified, or to have
restored to him the thing of which he was unduly deprived by criminal means.

In view of the harmonious relation between the different codes in force in these
Islands, it is natural and logical that the aforementioned provision of the Penal Code,
based on the rule established in article 17 of the same, to wit, that every person
criminally liable for a crime or misdemeanor is also civilly liable, should be in
agreement and accordance with the provisions of article 464 of the Civil Code which
prescribes:

The possession of personal property, acquired in good faith, is equivalent to a title

thereto. However, the person who has lost personal property or has been illegally
deprived thereof may recover it from whoever possesses it.

If the possessor of personal property, lost or stolen, has acquired it in good faith at a
public sale, the owner can not recover it without reimbursing the price paid
therefor.

Neither can the owner of things pledged in pawnshops, established with the
authorization of the Government, recover them, whosoever may be the person who
pledged them, without previously refunding to the institution the amount of the
pledge and the interest due.

With regard to things acquired on exchange, or at fairs or markets or from a

merchant legally established and usually employed in similar dealings, the
provisions of the Code of Commerce shall be observed.

On January 2, 1908, this court had occasion to decide, among other cases, two which
were entirely analogous to the present one. They were No. 3889, Varela vs. Matute,
and No. 3890, Varela vs. Finnick (9 Phil., 479, 482).

In the decisions in both cases it appears that Nicolasa Pascual received various
jewels from Josefa Varela to sell on commission and that, instead of fulfilling the
trust or returning the jewels to their owner, she pledged some of them in the
pawnshop of Antonio Matute and others in that of H.J. Finnick and appropriated to
herself the amounts that she received, to the detriment of the owner of the jewelry.

Tried estafa in cause No. 2429, the said Pascual was convicted and sentenced to the
penalty of one year and eleven months of prision correccional, to restore to Varela,
the jewelry appropriated, or to pay the value thereof, and, in case of insolvency, to
subsidiary imprisonment; this judgment became final, whereupon the defendant
began to serve her sentence. The case just cited is identical to that of Concepcion
Perello.
Josefa Varela, in separate incidental proceedings, demanded the restitution or
delivery of possession of the said jewelry; the pledgees, the pawnbrokers, refused to
comply with her demand, alleging, among other reasons, that they were entitled to
possession. The two cases were duly tried, and the Court of First Instance
pronounced judgment, supporting the plaintiff's claims in each. Both cases were
appealed by the defendants, Matute and Finnick, and this court affirmed the
judgments on the same grounds, with costs, and the decisions on appeal established
the following legal doctrines:

1. Crimes against property; criminal and civil liability. Where, in a

proceeding instituted by reason of a crime committed against property, the criminal
liability of the accused has been declared, it follows that he shall also be held civilly
liable therefor, because every person who is criminally responsible on account of a
crime or misdemeanor is also civilly liable.

2. Id.; Recovery of property unlawfully in possession. Whoever may have

been deprived this property in consequence of a crime is entitled to the recovery
thereof, even if such property is in the possession of a third party who acquired it by
legal means other than those expressly stated in article 464 of the Civil Code.

3. Personal property; title by possession. In order that the possession of

personal property may be considered as a title thereto it is indispensable that the
same shall have been acquired in good faith.

4. Id.; Ownership; prescription. The ownership of personal property

prescribes in the manner and within the time fixed by articles 1955 and 1962, in
connection with article 464, of the Civil Code.

In the cause prosecuted against Perello, as also in the present suit, it was not proven
that Estanislaua Arenas authorized the former to pawn the jewelry given to her by
Arenas to sell on commission. Because of the mere fact of Perello's having been
convicted and sentenced for estafa, and for the very reason that she is now serving
her sentence must be complied with, that is, the jewelry misappropriated must be
restored to its owner, inasmuch as it exists and has not disappeared this restitution
must be made, although the jewelry is found in the pawnshop of Fausto O.
Raymundo and the latter had acquired it by legal means. Raymundo however
retains his right to collect the amounts delivered upon the pledge, by bringing action
against the proper party. This finding is in accord with the provisions of the above
article 120 of the Penal Code and first paragraph of article 464 of the Civil Code.

The aforementioned decision, No. 3890, Varela vs. Finnick, recites among other
considerations, the following:

The exception contained in paragraph 3 of said article is not applicable to the

present case because a pawnshop does not enjoy the privilege established by article
464 of the Civil Code. The owner of the loan office of Finnick Brothers,
notwithstanding the fact that he acted in good faith, did not acquire the jewels at a
public sale; it is not a question of public property, securities, or other such effects,
the transfer, sale, or disposal of which is subject to the provisions of the Code of
Commerce. Neither does a pawnshop enjoy the privilege granted to a monte de
piedad; therefore, Josefa Varela, who lost said jewels and was deprived of the same
in consequence of a crime, is entitled to the recovery thereof from the pawnshop of
Finnick Brothers, where they were pledged; the latter can not lawfully refuse to
comply with the provisions of article 120 of the Penal Code, as it is a question of
jewels which has been misappropriated by the commission of the crime of estafa,
and the execution of the sentence which orders the restitution of the jewels can not
be avoided because of the good faith with which the owner of the pawnshop
acquired them, inasmuch as they were delivered to the accused, who was not the
owner nor authorized to dispose of the same.

Even supposing that the defendant Raymundo had acted in good faith in accepting
the pledge of the jewelry in litigation, even then he would not be entitled to retain it
until the owner thereof reimburse him for the amount loaned to the embezzler,
since the said owner of the jewelry, the plaintiff, did not make any contract with the
pledgee, that would obligate him to pay the amount loaned to Perello, and the trial
record does not disclose any evidence, even circumstantial, that the plaintiff Arenas
consented to or had knowledge of the pledging of her jewelry in the pawnshop of
the defendant.

For this reason, and because Conception Perello was not the legitimate owner of the
jewelry which she pledged to the defendant Raymundo, for a certain sum that she
received from the latter as a loan, the contract of pledge entered the jewelry so
pawned can not serve as security for the payment of the sum loaned, nor can the
latter be collected out of the value of the said jewelry.

Article 1857 of the Civil Code prescribes as one of the essential requisites of the
contracts of pledge and of mortgage, that the thing pledged or mortgaged must
belong to the person who pledges or mortgages it. This essential requisite for the
contract of pledge between Perello and the defendant being absent as the former
was not the owner of the jewelry given in pledge, the contract is as devoid of value
and force as if it had not been made, and as it was executed with marked violation of
an express provision of the law, it can not confer upon the defendant any rights in
the pledged jewelry, nor impose any obligation toward him on the part of the owner
thereof, since the latter was deprived of her possession by means of the illegal
pledging of the said jewelry, a criminal act.

Between the supposed good faith of the defendant Raymundo and the undisputed
good faith of the plaintiff Arenas, the owner of the jewelry, neither law nor justice
permit that the latter, after being the victim of the embezzlement, should have to
choose one of the two extremes of a dilemma, both of which, without legal ground or
reason, are injurious and prejudicial to her interest and rights, that is, she must
either lose her jewelry or pay a large sum received by the embezzler as a loan from
the defendant, when the plaintiff Arenas is not related to the latter by any legal or
contractual bond out of which legal obligations arise.

It is true that the plaintiffs' son, attorney Gabriel La O, intervened and gave his
consent when the Concepcion Perello pawned the jewelry in litigation with Fausto
Raymundo for P1,524? In view of the evidence offered by the trial record, the
answer is, of course, in the negative.

The parents of the attorney Gabriel La O being surprised by the disagreeable news
of the disappearance of various jewels, amounting in value to more than P8,600,
delivered to Elena Vega for sale on commission and misappropriated by Conception
Perello, who received them from Vega for the same purpose, it is natural that the
said attorney, acting in representation of his parents and as an interested party,
should have proceeded to ascertain the whereabouts of the embezzled jewelry an to
enter into negotiations with the pawnshop of Fausto O. Raymundo, in whose
possession he had finally learned were to be found a part of the embezzled jewels,
as he had been informed by the said Perello herself; and although, at first, at the
commencement of his investigations, he met with opposition on the part of the
pledgee Raymundo, who objected to showing him the jewels that he desired to see
in order to ascertain whether they were those embezzled and belonging to his
mother, the plaintiff Arenas, thanks to the intervention of attorney Chicote and to
the fact that they succeeded in obtaining from the embezzler, among other papers,
the pawn ticket issued by Raymundo's pawnshop, Exhibit E, of the date of May 4,
1908, folio 19 of the record in the case against Matute, Gabriel La O succeeded in
getting the defendant to show him the jewelry described in the said ticket together
with other jewels that did not belong to La O's mother, that had been given the
defendant by Ambrosia Capistrano, Perello's agent, in pledge or security for a loan of
P170.

Gabriel La O, continuing the search for other missing jewelry belonging to his
mother, found that Fausto O. Raymundo was in possession of it and had received it
from the same embezzler as security for a debt, although the defendant Raymundo
would not exhibit it until he issued the pawn tickets corresponding to such jewels;
therefore, at Raymundo's request, Perello, by means of the document Exhibit C,
signed by herself and bearing date of June 10, 1908, folio 28 of the record,
authorized her son Ramon to get from the defendant, in her name, the pawn tickets
of the said other jewelry, for which such tickets had not yet been issued; Raymundo
then wrote out the tickets Exhibits L, LL, and M, all dated June 22, 1908, and
found on folios 20, 21 and 22 of the record of the aforesaid proceedings against
Matute in the presence of the attorney Gabriel La O, who kept the said three
pawn tickets, after he had made sure that the jewels described therein and which
Raymundo, taking them out of his cabinet, exhibited to him at the time, were among
those embezzled from his mother.
So that, when the three aforementioned pawn tickets, Exhibits L, LL, and M, from the
pawnshop of the defendant were made out, the latter already, and for some time
previous, had in his possession as a pledge the jewelry described in them, and the
plaintiffs' son naturally desiring to recover his parent's jewelry, was satisfied for the
time being with keeping the three pawn tickets certifying that such jewelry was
pawned to the defendant.

Moreover, the record discloses no proof that the attorney Gabriel La O consented to
or took any part in the delivery of the jewelry in question to the defendant as a
pledge, and both the said defendant, Raymundo, and the embezzler Perello, averred
in their respective testimony that the said attorney La O had no knowledge of and
took no part in the pledging of the jewelry, and Perello further stated that she had
received all the money loaned to her by the defendant Raymundo. (Folios 13 to 14,
and 76 to 80 of the record in the case against Matute.)

The business of pawnshops, in exchange for the high and onerous interest which
constitutes its enormous profits, is always exposed to the contingency of receiving
in pledge or security for the loans, jewels and other articles that have been robbed,
stolen, or embezzled from their legitimate owners; and as the owner of the
pawnshop accepts the same and asks for money on it, without assuring himself
whether such bearer is or is not the owner thereof, he can not, by such procedure,
expect from the law better and more preferential protection than the owner of the
jewels or other articles, who was deprived thereof by means of a crime and is
entitled to be excused by the courts.

Antonio Matute, the owner of another pawnshop, being convinced that he was
wrong, refrained from appealing from the judgment wherein he was sentenced to
return, without redemption, to the plaintiffs, another jewel of great value which had
been pledged to him by the same Perello. He undoubtedly had in mind some of the
previous decisions of this court, one of which was against himself.

For the foregoing reasons, whereby the errors attributed to the judgment of the
Court of First Instance have been discussed and decided upon, and the said
judgment being in harmony with the law, the evidence and the merits of the case, it
is proper, in our opinion, to affirm the same, as we hereby do, with the costs against
the appellant. So ordered.
G.R. No. L-18536 March 31, 1965

JOSE B. AZNAR, plaintiff-appellant,

vs.
RAFAEL YAPDIANGCO, defendant-appellee;
TEODORO SANTOS, intervenor-appellee.

This is an appeal, on purely legal questions, from a decision of the Court of First
Instance of Quezon City, Branch IV, declaring the intervenor-appellee, Teodoro
Santos, entitled to the possession of the car in dispute.

The records before this Court disclose that sometime in May, 1959, Teodoro Santos
advertised in two metropolitan papers the sale of his FORD FAIRLANE 500. In the
afternoon of May 28, 1959, a certain L. De Dios, claiming to be a nephew of Vicente
Marella, went to the Santos residence to answer the ad. However, Teodoro Santos
was out during this call and only the latter's son, Irineo Santos, received and talked
with De Dios. The latter told the young Santos that he had come in behalf of his
uncle, Vicente Marella, who was interested to buy the advertised car.

On being informed of the above, Teodoro Santos instructed his son to see the said
Vicente Marella the following day at his given address: 1642 Crisostomo Street,
Sampaloc, Manila. And so, in the morning of May 29, 1959, Irineo Santos went to the
above address. At this meeting, Marella agreed to buy the car for P14,700.00 on the
understanding that the price would be paid only after the car had been registered in
his name.

Irineo Santos then fetched his father who, together with L. De Dios, went to the
office of a certain Atty. Jose Padolina where the deed of the sale for the car was
executed in Marella's favor. The parties to the contract thereafter proceeded to the
Motor Vehicles Office in Quezon City where the registration of the car in Marella's
name was effected. Up to this stage of the transaction, the purchased price had not
been paid.

From the Motor Vehicles Office, Teodoro Santos returned to his house. He gave the
registration papers and a copy of the deed of sale to his son, Irineo, and instructed
him not to part with them until Marella shall have given the full payment for the car.
Irineo Santos and L. De Dios then proceeded to 1642 Crisostomo Street, Sampaloc,
Manila where the former demanded the payment from Vicente Marella. Marella said
that the amount he had on hand then was short by some P2,000.00 and begged off to
be allowed to secure the shortage from a sister supposedly living somewhere on
Azcarraga Street, also in Manila. Thereafter, he ordered L. De Dios to go to the said
sister and suggested that Irineo Santos go with him. At the same time, he requested
the registration papers and the deed of sale from Irineo Santos on the pretext that
he would like to show them to his lawyer. Trusting the good faith of Marella, Irineo
handed over the same to the latter and thereupon, in the company of L. De Dios and
another unidentified person, proceeded to the alleged house of Marella's sister.
At a place on Azcarraga, Irineo Santos and L. De Dios alighted from the car and
entered a house while their unidentified companion remained in the car. Once
inside, L. De Dios asked Irineo Santos to wait at the sala while he went inside a
room. That was the last that Irineo saw of him. For, after a considerable length of
time waiting in vain for De Dios to return, Irineo went down to discover that neither
the car nor their unidentified companion was there anymore. Going back to the
house, he inquired from a woman he saw for L. De Dios and he was told that no such
name lived or was even known therein. Whereupon, Irineo Santos rushed to 1642
Crisostomo to see Marella. He found the house closed and Marella gone. Finally, he
reported the matter to his father who promptly advised the police authorities.

That very same day, or on the afternoon of May 29, 1959 Vicente Marella was able to
sell the car in question to the plaintiff-appellant herein, Jose B. Aznar, for
P15,000.00. Insofar as the above incidents are concerned, we are bound by the
factual finding of the trial court that Jose B. Aznar acquired the said car from Vicente
Marella in good faith, for a valuable consideration and without notice of the defect
appertaining to the vendor's title.

While the car in question was thus in the possession of Jose B. Aznar and while he
was attending to its registration in his name, agents of the Philippine Constabulary
seized and confiscated the same in consequence of the report to them by Teodoro
Santos that the said car was unlawfully taken from him.

In due time, Jose B. Aznar filed a complaint for replevin against Captain Rafael
Yapdiangco, the head of the Philippine Constabulary unit which seized the car in
question Claiming ownership of the vehicle, he prayed for its delivery to him. In the
course of the litigation, however, Teodoro Santos moved and was allowed to
intervene by the lower court.

At the end of the trial, the lower court rendered a decision awarding the disputed
motor vehicle to the intervenor-appellee, Teodoro Santos. In brief, it ruled that
Teodoro Santos had been unlawfully deprived of his personal property by Vicente
Marella, from whom the plaintiff-appellant traced his right. Consequently, although
the plaintiff-appellant acquired the car in good faith and for a valuable consideration
from Vicente Marella, the said decision concluded, still the intervenor-appellee was
entitled to its recovery on the mandate of Article 559 of the New Civil Code which
provides:

ART. 559. The possession of movable property acquired in good faith is equivalent
to title. Nevertheless, one who lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.
From this decision, Jose B. Aznar appeals.

The issue at bar is one and simple, to wit: Between Teodoro Santos and the plaintiff-
appellant, Jose B. Aznar, who has a better right to the possession of the disputed
automobile?

We find for the intervenor-appellee, Teodoro Santos.

The plaintiff-appellant accepts that the car in question originally belonged to and
was owned by the intervenor-appellee, Teodoro Santos, and that the latter was
unlawfully deprived of the same by Vicente Marella. However, the appellant
contends that upon the facts of this case, the applicable provision of the Civil Code is
Article 1506 and not Article 559 as was held by the decision under review. Article
1506 provides:

ART. 1506. Where the seller of goods has a voidable title thereto, but his, title has
not been voided at the time of the sale, the buyer acquires a good title to the goods,
provided he buys them in good faith, for value, and without notice of the seller's
defect of title.

The contention is clearly unmeritorious. Under the aforequoted provision, it is

essential that the seller should have a voidable title at least. It is very clearly
inapplicable where, as in this case, the seller had no title at all.

Vicente Marella did not have any title to the property under litigation because the
same was never delivered to him. He sought ownership or acquisition of it by virtue
of the contract. Vicente Marella could have acquired ownership or title to the subject
matter thereof only by the delivery or tradition of the car to him.

Under Article 712 of the Civil Code, "ownership and other real rights over property
are acquired and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts, by tradition." As interpreted by
this Court in a host of cases, by this provision, ownership is not transferred by
contract merely but by tradition or delivery. Contracts only constitute titles or rights
to the transfer or acquisition of ownership, while delivery or tradition is the mode of
accomplishing the same (Gonzales v. Rojas, 16 Phil. 51; Ocejo, Perez and Co. v.
International Bank, 37 Phil. 631, Fidelity and Deposit Co. v. Wilson, 8 Phil. 51;
Kuenzle & Streiff v. Wacke & Chandler, 14 Phil. 610; Easton v. Diaz Co., 32 Phil. 180).

For the legal acquisition and transfer of ownership and other property rights, the
thing transferred must be delivered, inasmuch as, according to settled
jurisprudence, the tradition of the thing is a necessary and indispensable requisite
in the acquisition of said ownership by virtue of contract. (Walter Laston v. E. Diaz &
Co. & the Provincial Sheriff of Albay, supra.)
So long as property is not delivered, the ownership over it is not transferred by
contract merely but by delivery. Contracts only constitute titles or rights to the
transfer or acquisition of ownership, while delivery or tradition is the method of
accomplishing the same, the title and the method of acquiring it being different in
our law. (Gonzales v. Roxas, 16 Phil. 51)

In the case on hand, the car in question was never delivered to the vendee by the
vendor as to complete or consummate the transfer of ownership by virtue of the
contract. It should be recalled that while there was indeed a contract of sale
between Vicente Marella and Teodoro Santos, the former, as vendee, took
possession of the subject matter thereof by stealing the same while it was in the
custody of the latter's son.

There is no adequate evidence on record as to whether Irineo Santos voluntarily

delivered the key to the car to the unidentified person who went with him and L. De
Dios to the place on Azcarraga where a sister of Marella allegedly lived. But even if
Irineo Santos did, it was not the delivery contemplated by Article 712 of the Civil
Code. For then, it would be indisputable that he turned it over to the unidentified
companion only so that he may drive Irineo Santos and De Dios to the said place on
Azcarraga and not to vest the title to the said vehicle to him as agent of Vicente
Marella. Article 712 above contemplates that the act be coupled with the intent of
delivering the thing. (10 Manresa 132)

The lower court was correct in applying Article 559 of the Civil Code to the case at
bar, for under it, the rule is to the effect that if the owner has lost a thing, or if he has
been unlawfully deprived of it, he has a right to recover it, not only from the finder,
thief or robber, but also from third persons who may have acquired it in good faith
from such finder, thief or robber. The said article establishes two exceptions to the
general rule of irrevindicability, to wit, when the owner (1) has lost the thing, or (2)
has been unlawfully deprived thereof. In these cases, the possessor cannot retain
the thing as against the owner, who may recover it without paying any indemnity,
except when the possessor acquired it in a public sale. (Del Rosario v. Lucena, 8 Phil.
535; Varela v. Finnick, 9 Phil. 482; Varela v. Matute, 9 Phil. 479; Arenas v.
Raymundo, 19 Phil. 46. Tolentino, id., Vol. II, p. 261.)

In the case of Cruz v. Pahati, et al., 52 O.G. 3053 this Court has already ruled
that

Under Article 559 of the new Civil Code, a person illegally deprived of any movable
may recover it from the person in possession of the same and the only defense the
latter may have is if he has acquired it in good faith at a public sale, in which case,
the owner cannot obtain its return without reimbursing the price paid therefor. In
the present case, plaintiff has been illegally deprived of his car through the
ingenious scheme of defendant B to enable the latter to dispose of it as if he were
the owner thereof. Plaintiff, therefore, can still recover possession of the car even if
it is in the possession of a third party who had acquired it in good faith from
defendant B. The maxim that "no man can transfer to another a better title than he
had himself" obtains in the civil as well as in the common law. (U.S. v. Sotelo, 28 Phil.
147)

Finally, the plaintiff-appellant here contends that inasmuch as it was the intervenor-
appellee who had caused the fraud to be perpetrated by his misplaced confidence on
Vicente Marella, he, the intervenor-appellee, should be made to suffer the
consequences arising therefrom, following the equitable principle to that effect.
Suffice it to say in this regard that the right of the owner to recover personal
property acquired in good faith by another, is based on his being dispossessed
without his consent. The common law principle that where one of two innocent
persons must suffer by a fraud perpetrated by another, the law imposes the loss
upon the party who, by his misplaced confidence, has enabled the fraud to be
committed, cannot be applied in a case which is covered by an express provision of
the new Civil Code, specifically Article 559. Between a common law principle and a
statutory provision, the latter must prevail in this jurisdiction. (Cruz v. Pahati,
supra)

UPON ALL THE FOREGOING, the instant appeal is hereby dismissed and the decision
of the lower court affirmed in full. Costs against the appellant.

G.R. No. 80298 April 26, 1990

EDCA PUBLISHING & DISTRIBUTING CORP., petitioner,

vs.
THE SPOUSES LEONOR and GERARDO SANTOS, doing business under the name
and style of "SANTOS BOOKSTORE," and THE COURT OF APPEALS,
respondents.

The case before us calls for the interpretation of Article 559 of the Civil Code and
raises the particular question of when a person may be deemed to have been
"unlawfully deprived" of movable property in the hands of another. The article runs
in full as follows:

Art. 559. The possession of movable property acquired in good faith is equivalent to
a title. Nevertheless, one who has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully
deprived has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.

The movable property in this case consists of books, which were bought from the
petitioner by an impostor who sold it to the private respondents. Ownership of the
books was recognized in the private respondents by the Municipal Trial Court, 1
which was sustained by the Regional Trial Court, 2 which was in turn sustained by
the Court of Appeals. 3 The petitioner asks us to declare that all these courts have
erred and should be reversed.

This case arose when on October 5, 1981, a person identifying himself as Professor
Jose Cruz placed an order by telephone with the petitioner company for 406 books,
payable on delivery. 4 EDCA prepared the corresponding invoice and delivered the
books as ordered, for which Cruz issued a personal check covering the purchase
price of P8,995.65. 5 On October 7, 1981, Cruz sold 120 of the books to private
respondent Leonor Santos who, after verifying the seller's ownership from the
invoice he showed her, paid him P1,700.00. 6

Meanwhile, EDCA having become suspicious over a second order placed by Cruz
even before clearing of his first check, made inquiries with the De la Salle College
where he had claimed to be a dean and was informed that there was no such person
in its employ. Further verification revealed that Cruz had no more account or
deposit with the Philippine Amanah Bank, against which he had drawn the payment
check. 7 EDCA then went to the police, which set a trap and arrested Cruz on
October 7, 1981. Investigation disclosed his real name as Tomas de la Pea and his
sale of 120 of the books he had ordered from EDCA to the private respondents. 8

On the night of the same date, EDCA sought the assistance of the police in Precinct 5
at the UN Avenue, which forced their way into the store of the private respondents
and threatened Leonor Santos with prosecution for buying stolen property. They
seized the 120 books without warrant, loading them in a van belonging to EDCA, and
thereafter turned them over to the petitioner. 9

Protesting this high-handed action, the private respondents sued for recovery of the
books after demand for their return was rejected by EDCA. A writ of preliminary
attachment was issued and the petitioner, after initial refusal, finally surrendered
the books to the private respondents. 10 As previously stated, the petitioner was
successively rebuffed in the three courts below and now hopes to secure relief from
us.

To begin with, the Court expresses its disapproval of the arbitrary action of the
petitioner in taking the law into its own hands and forcibly recovering the disputed
books from the private respondents. The circumstance that it did so with the
assistance of the police, which should have been the first to uphold legal and
peaceful processes, has compounded the wrong even more deplorably. Questions
like the one at bar are decided not by policemen but by judges and with the use not
of brute force but of lawful writs.

Now to the merits

It is the contention of the petitioner that the private respondents have not
established their ownership of the disputed books because they have not even
produced a receipt to prove they had bought the stock. This is unacceptable.
Precisely, the first sentence of Article 559 provides that "the possession of movable
property acquired in good faith is equivalent to a title," thus dispensing with further
proof.

The argument that the private respondents did not acquire the books in good faith
has been dismissed by the lower courts, and we agree. Leonor Santos first
ascertained the ownership of the books from the EDCA invoice showing that they
had been sold to Cruz, who said he was selling them for a discount because he was
in financial need. Private respondents are in the business of buying and selling
books and often deal with hard-up sellers who urgently have to part with their
books at reduced prices. To Leonor Santos, Cruz must have been only one of the
many such sellers she was accustomed to dealing with. It is hardly bad faith for any
one in the business of buying and selling books to buy them at a discount and resell
them for a profit.

But the real issue here is whether the petitioner has been unlawfully deprived of the
books because the check issued by the impostor in payment therefor was
dishonored.

In its extended memorandum, EDCA cites numerous cases holding that the owner
who has been unlawfully deprived of personal property is entitled to its recovery
except only where the property was purchased at a public sale, in which event its
return is subject to reimbursement of the purchase price. The petitioner is begging
the question. It is putting the cart before the horse. Unlike in the cases invoked, it
has yet to be established in the case at bar that EDCA has been unlawfully deprived
of the books.

The petitioner argues that it was, because the impostor acquired no title to the
books that he could have validly transferred to the private respondents. Its reason is
that as the payment check bounced for lack of funds, there was a failure of
consideration that nullified the contract of sale between it and Cruz.

The contract of sale is consensual and is perfected once agreement is reached

between the parties on the subject matter and the consideration. According to the
Civil Code:

Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.

xxx xxx xxx

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof.

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price.

It is clear from the above provisions, particularly the last one quoted, that
ownership in the thing sold shall not pass to the buyer until full payment of the
purchase only if there is a stipulation to that effect. Otherwise, the rule is that such
ownership shall pass from the vendor to the vendee upon the actual or constructive
delivery of the thing sold even if the purchase price has not yet been paid.

Non-payment only creates a right to demand payment or to rescind the contract, or

to criminal prosecution in the case of bouncing checks. But absent the stipulation
above noted, delivery of the thing sold will effectively transfer ownership to the
buyer who can in turn transfer it to another.

In Asiatic Commercial Corporation v. Ang,11 the plaintiff sold some cosmetics to

Francisco Ang, who in turn sold them to Tan Sit Bin. Asiatic not having been paid by
Ang, it sued for the recovery of the articles from Tan, who claimed he had validly
bought them from Ang, paying for the same in cash. Finding that there was no
conspiracy between Tan and Ang to deceive Asiatic the Court of Appeals declared:

Yet the defendant invoked Article 464 12 of the Civil Code providing, among other
things that "one who has been unlawfully deprived of personal property may
recover it from any person possessing it." We do not believe that the plaintiff has
been unlawfully deprived of the cartons of Gloco Tonic within the scope of this legal
provision. It has voluntarily parted with them pursuant to a contract of purchase
and sale. The circumstance that the price was not subsequently paid did not render
illegal a transaction which was valid and legal at the beginning.

In Tagatac v. Jimenez,13 the plaintiff sold her car to Feist, who sold it to Sanchez,
who sold it to Jimenez. When the payment check issued to Tagatac by Feist was
dishonored, the plaintiff sued to recover the vehicle from Jimenez on the ground
that she had been unlawfully deprived of it by reason of Feist's deception. In ruling
for Jimenez, the Court of Appeals held:

The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been

unlawfully deprived of her car. At first blush, it would seem that she was unlawfully
deprived thereof, considering that she was induced to part with it by reason of the
chicanery practiced on her by Warner L. Feist. Certainly, swindling, like robbery, is
an illegal method of deprivation of property. In a manner of speaking, plaintiff-
appellant was "illegally deprived" of her car, for the way by which Warner L. Feist
induced her to part with it is illegal and is punished by law. But does this "unlawful
deprivation" come within the scope of Article 559 of the New Civil Code?
xxx xxx xxx

. . . The fraud and deceit practiced by Warner L. Feist earmarks this sale as a
voidable contract (Article 1390 N.C.C.). Being a voidable contract, it is susceptible of
either ratification or annulment. If the contract is ratified, the action to annul it is
extinguished (Article 1392, N.C.C.) and the contract is cleansed from all its defects
(Article 1396, N.C.C.); if the contract is annulled, the contracting parties are restored
to their respective situations before the contract and mutual restitution follows as a
consequence (Article 1398, N.C.C.).

However, as long as no action is taken by the party entitled, either that of annulment
or of ratification, the contract of sale remains valid and binding. When plaintiff-
appellant Trinidad C. Tagatac delivered the car to Feist by virtue of said voidable
contract of sale, the title to the car passed to Feist. Of course, the title that Feist
acquired was defective and voidable. Nevertheless, at the time he sold the car to
Felix Sanchez, his title thereto had not been avoided and he therefore conferred a
good title on the latter, provided he bought the car in good faith, for value and
without notice of the defect in Feist's title (Article 1506, N.C.C.). There being no
proof on record that Felix Sanchez acted in bad faith, it is safe to assume that he
acted in good faith.

The above rulings are sound doctrine and reflect our own interpretation of Article
559 as applied to the case before us.

Actual delivery of the books having been made, Cruz acquired ownership over the
books which he could then validly transfer to the private respondents. The fact that
he had not yet paid for them to EDCA was a matter between him and EDCA and did
not impair the title acquired by the private respondents to the books.

One may well imagine the adverse consequences if the phrase "unlawfully deprived"
were to be interpreted in the manner suggested by the petitioner. A person relying
on the seller's title who buys a movable property from him would have to surrender
it to another person claiming to be the original owner who had not yet been paid the
purchase price therefor. The buyer in the second sale would be left holding the bag,
so to speak, and would be compelled to return the thing bought by him in good faith
without even the right to reimbursement of the amount he had paid for it.

It bears repeating that in the case before us, Leonor Santos took care to ascertain
first that the books belonged to Cruz before she agreed to purchase them. The EDCA
invoice Cruz showed her assured her that the books had been paid for on delivery.
By contrast, EDCA was less than cautious in fact, too trusting in dealing with the
impostor. Although it had never transacted with him before, it readily delivered the
books he had ordered (by telephone) and as readily accepted his personal check in
payment. It did not verify his identity although it was easy enough to do this. It did
not wait to clear the check of this unknown drawer. Worse, it indicated in the sales
invoice issued to him, by the printed terms thereon, that the books had been paid for
on delivery, thereby vesting ownership in the buyer.

Surely, the private respondent did not have to go beyond that invoice to satisfy
herself that the books being offered for sale by Cruz belonged to him; yet she did.
Although the title of Cruz was presumed under Article 559 by his mere possession
of the books, these being movable property, Leonor Santos nevertheless demanded
more proof before deciding to buy them.

It would certainly be unfair now to make the private respondents bear the prejudice
sustained by EDCA as a result of its own negligence.1wphi1 We cannot see the
justice in transferring EDCA's loss to the Santoses who had acted in good faith, and
with proper care, when they bought the books from Cruz.

While we sympathize with the petitioner for its plight, it is clear that its remedy is
not against the private respondents but against Tomas de la Pea, who has
apparently caused all this trouble. The private respondents have themselves been
unduly inconvenienced, and for merely transacting a customary deal not really
unusual in their kind of business. It is they and not EDCA who have a right to
complain.

WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED,

with costs against the petitioner.

[G.R. No. 86051. September 1, 1992.]

JAIME LEDESMA, Petitioner, v. THE HONORABLE COURT OF APPEALS and

CITIWIDE MOTORS, INC., Respondents.

SYLLABUS

1. CIVIL LAW; POSSESSION; REQUISITES TO MAKE POSSESSION OF MOVABLE

PROPERTY EQUIVALENT TO TITLE. It is quite clear that a party who (a) has lost
any movable or (b) has been unlawfully deprived thereof can recover the same from
the present possessor even if the latter acquired it in good faith and has, therefore,
title thereto for under the first sentence of Article 559, such manner of acquisition is
equivalent to a title. There are three (3) requisites to make possession of movable
property equivalent to title, namely: (a) the possession should be in good faith; (b)
the owner voluntarily parted with the possession of the thing; and (c) the
possession is in the concept of owner. (TOLENTINO, A.M., Civil Code of the
Philippines, Vol. II, 1983 ed., 275-276, citing 2-II Colin and Capitant 942; De Buen:
Ibid., 1009, 2 Salvat 165; 4 Manresa 339). Undoubtedly, one who has lost a movable
or who has been unlawfully deprived of it cannot be said to have voluntarily parted
with the possession thereof. This is the justification for the exceptions found under
the second sentence of Article 559 of the Civil Code.

2. CIVIL LAW; SPECIAL CONTRACTS; CONTRACT OF SALE; ABSENCE OF

CONSIDERATION; EFFECT THEREOF. There was a perfected unconditional
contract of sale between private respondent and the original vendee. The former
voluntarily caused the transfer of the certificate of registration of the vehicle in the
name of the first vendee even if the said vendee was represented by someone
who used a fictitious name and likewise voluntarily delivered the cars and the
certificate of registration to the vendees alleged representative Title thereto was
forthwith transferred to the vendee. The subsequent dishonor of the check because
of the alteration merely amounted to a failure of consideration which does not
render the contract of sale void, but merely allows the prejudiced party to sue for
specific performance or rescission of the contract, and to prosecute the impostor for
estafa under Article 315 of the Revised Penal Code.

PHILIPPINE SUPREME COURT DECISIONS

THIRD DIVISION

[G.R. No. 86051. September 1, 1992.]

JAIME LEDESMA, Petitioner, v. THE HONORABLE COURT OF APPEALS and

CITIWIDE MOTORS, INC., Respondents.

Ledesma, Saludo & Associates for Petitioner.

Magtanggol C. Gunigundo for Private Respondent.

SYLLABUS

1. CIVIL LAW; POSSESSION; REQUISITES TO MAKE POSSESSION OF MOVABLE

PROPERTY EQUIVALENT TO TITLE. It is quite clear that a party who (a) has lost
any movable or (b) has been unlawfully deprived thereof can recover the same from
the present possessor even if the latter acquired it in good faith and has, therefore,
title thereto for under the first sentence of Article 559, such manner of acquisition is
equivalent to a title. There are three (3) requisites to make possession of movable
property equivalent to title, namely: (a) the possession should be in good faith; (b)
the owner voluntarily parted with the possession of the thing; and (c) the
possession is in the concept of owner. (TOLENTINO, A.M., Civil Code of the
Philippines, Vol. II, 1983 ed., 275-276, citing 2-II Colin and Capitant 942; De Buen:
Ibid., 1009, 2 Salvat 165; 4 Manresa 339). Undoubtedly, one who has lost a movable
or who has been unlawfully deprived of it cannot be said to have voluntarily parted
with the possession thereof. This is the justification for the exceptions found under
the second sentence of Article 559 of the Civil Code.

2. CIVIL LAW; SPECIAL CONTRACTS; CONTRACT OF SALE; ABSENCE OF

CONSIDERATION; EFFECT THEREOF. There was a perfected unconditional
contract of sale between private respondent and the original vendee. The former
voluntarily caused the transfer of the certificate of registration of the vehicle in the
name of the first vendee even if the said vendee was represented by someone
who used a fictitious name and likewise voluntarily delivered the cars and the
certificate of registration to the vendees alleged representative Title thereto was
forthwith transferred to the vendee. The subsequent dishonor of the check because
of the alteration merely amounted to a failure of consideration which does not
render the contract of sale void, but merely allows the prejudiced party to sue for
specific performance or rescission of the contract, and to prosecute the impostor for
estafa under Article 315 of the Revised Penal Code.

DECISION

DAVIDE, JR., J.:

Petitioner impugns the Decision of 22 September 1988 of respondent Court of

Appeals 1 in C.A.-G.R. CV No. 05955 2 reversing the decision of then Branch XVIII-B
(Quezon City) of the then Court of First Instance (now Regional Trial Court) of Rizal
in a replevin case, Civil Case No. Q-24200, the dispositive portion of which
reads:chanroblesvirtualawlibrary

"Accordingly, the Court orders the plaintiff to return the repossessed Isuzu Gemini,
1977 Model vehicle, subject of this case to the defendant Ledesma. The incidental
claim (sic) for damages professed by the plaintiff are dismissed for lack of merit. On
defendants counterclaim, Court (sic) makes no pronouncement as to any form of
damages, particularly, moral, exemplary and nominal in view of the fact that
Citiwide has a perfect right to litigate its claim, albeit by this pronouncement, it did
not succeed." 3

which was supplemented by a Final Order dated 26 June 1980, the dispositive
portion of which reads:jgc:chanrobles.com.ph

"IN VIEW OF THE FOREGOING, the Court grants defendant Ledesma the sum of
P35,000.00 by way of actual damages recoverable upon plaintiffs replevin bond.
Plaintiff and its surety, the Rizal Surety and Insurance Co., are hereby ordered
jointly and severally to pay defendant Jaime Ledesma the sum of P10,000.00 as
damages for the wrongful issue of the writ of seizure, in line with Rule 57, Sec. 20,
incorporated in Rule 60, Sec. 10.
In conformity with the rules adverted to, this final order shall form part of the
judgment of this Court on September 5, 1979.

The motion for reconsideration of the judgment filed by the plaintiff is hereby
DENIED for lack of merit. No costs at this instance." 4

The decision of the trial court is anchored on its findings that (a) the proof on record
is not persuasive enough to show that defendant, petitioner herein, knew that the
vehicle in question was the object of a fraud and a swindle 5 and (b) that plaintiff,
private respondent herein, did not rebut or contradict Ledesmas evidence that
valuable consideration was paid for it.

The antecedent facts as summarized by the respondent Court of Appeals are as

follows:jgc:chanrobles.com.ph

"On September 27, 1977, a person representing himself to be Jojo Consunji,

purchased purportedly for his father, a certain Rustico T. Consunji, two (2) brand
new motor vehicles from plaintiff-appellant Citiwide Motors, Inc., more particularly
described as follows:chanrobles lawlibrary : rednad

a) One (1) 1977 Isuzu Gemini, 2-door Model PF 50ZIK, with Engine No. 751214
valued at P42,200.00; and

b) One (1) 1977 Holden Premier Model 8V41X with Engine No. 198-1251493,
valued at P58,800.00.

Said purchases are evidenced by Invoices Nos. 3054 and 3055, respectively. (See
Annexes A and B).

On September 28, 1977, plaintiff-appellant delivered the two-above described

motor vehicles to the person who represented himself as Jojo Consunji, allegedly the
son of the purported buyers Rustico T. Consunji, and said person in turn issued to
plaintiff-appellant Managers Check No. 066-110-0638 of the Philippine Commercial
and Industrial Bank dated September 28, 1977 for the amount of P101,000.00 as full
payment of the value of the two (2) motor vehicles.

However, when plaintiff-appellant deposited the said check, it was dishonored by

the bank on the ground that it was tampered with, the correct amount of P101.00
having been raised to P101,000.00 per the banks notice of dishonor (Annexes F and
G).

On September 30, 1977, plaintiff-appellant reported to the Philippine Constabulary

the criminal act perpetrated by the person who misrepresented himself as Jojo
Consunji and in the course of the investigation, plaintiff-appellant learned that the
real identity of the wrongdoer/impostor is Armando Suarez who has a long line of
criminal cases against him for estafa using this similar modus operandi.

On October 17, 1977, plaintiff-appellant was able to recover the Holden Premier
vehicle which was found abandoned somewhere in Quezon City.

On the other hand, plaintiff-appellant learned that the 1977 Isuzu Gemini was
transferred by Armando Suarez to third persona and was in the possession of one
Jaime Ledesma at the time plaintiff-appellant instituted this action for replevin on
November 16, 1977.

In his defense, Jaime Ledesma claims that he purchases (sic) and paid for the subject
vehicle in good faith from its registered owner, one Pedro Neyra, as evidenced by
the Land Transportation Commission Registration Certificate No.
RCO1427249.chanrobles.com.ph : virtual law library

After posting the necessary bond in the amount double the value of the subject
motor vehicle, plaintiff-appellant was able to recover possession of the 1977 Isuzu
Gemini as evidenced by the Sheriffs Return dated January 23, 1978." 6

After trial on the merits, the lower court rendered the decision and subsequently
issued the Final Order both earlier adverted to, which plaintiff (private respondent
herein) appealed to the respondent Court of Appeals; it submitted the following
assignment of errors:jgc:chanrobles.com.ph

"The trial court erred.

IN HOLDING THAT THE DEFENDANT IS ENTITLED TO THE POSSESSION OF THE

CAR;

II

IN HOLDING THAT THE DEFENDANT IS AN INNOCENT PURCHASER IN GOOD

FAITH AND FOR VALUE;

III

IN RULING THAT THE PLAINTIFF SHOULD RETURN THE CAR TO DEFENDANT,

DISMISSING ITS CLAIM FOR DAMAGES, AND GRANTING DEFENDANT P35,000.00
DAMAGES RECOVERABLE AGAINST THE REPLEVIN BOND AND P101,000.00
DAMAGES FOR ALLEGED WRONGFUL SEIZURE;
IV

IN RENDERING THE DECISION DATED SEPTEMBER 3, 1979 AND THE FINAL

ORDER DATED JUNE 26, 1980." 7

In support of its first and second assigned errors, private respondent cites Article
559 of the Civil Code which provides:jgc:chanrobles.com.ph

"ARTICLE 559. The possession of movable property acquired in good faith is

equivalent to a title. Nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the person in possession of the
same.

If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor."cralaw virtua1aw library

Without in any way reversing the findings of the trial court that herein petitioner
was a buyer in good faith and for valuable consideration, the respondent Court ruled
that:chanroblesvirtualawlibrary

"Under Article 559, Civil Code, the rule is to the effect that if the owner has lost a
thing, or if he has been unlawfully deprived of it, he has a right to recover it not only
from the finder, thief or robber, but also from third persons who may have acquired
it in good faith from such finder, thief or robber. The said article establishes two (2)
exceptions to the general rule of irrevendicability (sic), to wit: when the owner (1)
has lost the thing, or (2) has been unlawfully deprived thereof. In these cases, the
possessor cannot retain the thing as against the owner who may recover it without
paying any indemnity, except when the possessor acquired it in a public sale.
(Aznar v. Yapdiangco, 13 SCRA 486).

Put differently, where the owner has lost the thing or has been unlawfully deprived
thereof, the good faith of the possessor is not a bar to recovery of the movable
unless the possessor acquired it in a public sale of which there is no pretense in this
case. Contrary to the court a assumption, the issue is not primarily the good faith of
Ledesma for even if this were true, this may not be invoked as a valid defense, if it be
shown that Citiwide was unlawfully deprived of the vehicle.

In the case of Dizon v. Suntay, 47 SCRA 160, the Supreme Court had occasion to
define the phrase unlawfully deprived, to wit:chanrob1es virtual 1aw library

. . . it extends to all cases where there has been no valid transmission of ownership
including depositary or lessee who has sold the same. It is believed that the owner
in such a case is undoubtedly unlawfully deprived of his property and may recover
the same from a possessor in good faith.

x x x

In the case at bar, the person who misrepresented himself to be the son of the
purported buyer, Rustico T. Consunji, paid for the two (2) vehicles using a check
whose amount has been altered from P101.00 to P101,000.00. There is here a case
of estafa. Plaintiff was unlawfully deprived of the vehicle by false pretenses executed
simultaneously with the commission of fraud (Art. 315 2(a) R.P.C.). Clearly, Citiwide
would not have parted with the two (2) vehicles were it not for the false
representation that the check issued in payment thereupon (sic) is in the amount of
P101,000.00, the actual value of the two (2) vehicles." 8

In short, said buyer never acquired title to the property; hence, the Court rejected
the claim of herein petitioner that at least, Armando Suarez had a voidable title to
the property.

His motion for reconsideration having been denied in the resolution of the
respondent Court of 12 December 1988, 9 petitioner filed this petition alleging
therein that:chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

"A

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING ARTICLE 559 OF THE

NEW CIVIL CODE TO THE INSTANT CASE DESPITE THE FACT THAT PRIVATE
RESPONDENT CITIWIDE MOTORS, INC. WAS NOT UNLAWFULLY DEPRIVED OF
THE SUBJECT CAR, AS IN FACT CITIWIDE VOLUNTARILY PARTED WITH THE TITLE
AND POSSESSION OR (sic) THE SAME IN FAVOR OF ITS IMMEDIATE TRANSFEREE.

THE FACTUAL MILIEU OF THE INSTANT CASE FALLS WITHIN THE OPERATIVE
EFFECTS OF ARTICLES 1505 AND 1506 OF THE NEW CIVIL CODE CONSIDERING
THAT THE IMMEDIATE TRANSFEREE OF THE PRIVATE RESPONDENT CITIWIDE
MOTORS, INC., ACQUIRED A VOIDABLE TITLE OVER THE CAR IN QUESTION WHICH
TITLE WAS NOT DECLARED VOID BY A COMPETENT COURT PRIOR TO THE
ACQUISITION BY THE PETITIONER OF THE SUBJECT CAR AND ALSO BECAUSE
PRIVATE RESPONDENT, BY ITS OWN CONDUCT, IS NOW PRECLUDED FROM
ASSAILING THE TITLE AND POSSESSION BY THE PETITIONER OF THE SAID CAR."
10

There is merit in the petition. The assailed decision must be reversed.

The petitioner successfully proved that he acquired the car in question from his
vendor in good faith and for valuable consideration. According to the trial court, the
private respondents evidence was not persuasive enough to establish that
petitioner had knowledge that the car was the object of a fraud and a swindle and
that it did not rebut or contradict petitioners evidence of acquisition for valuable
consideration. The respondent Court concedes to such findings but postulates that
the issue here is not whether petitioner acquired the vehicle in that concept but
rather, whether private respondent was unlawfully deprived of it so as to make
Article 559 of the Civil Code apply.

It is quite clear that a party who (a) has lost any movable or (b) has been unlawfully
deprived thereof can recover the same from the present possessor even if the latter
acquired it in good faith and has, therefore, title thereto for under the first sentence
of Article 559, such manner of acquisition is equivalent to a title. There are three (3)
requisites to make possession of movable property equivalent to title, namely: (a)
the possession should be in good faith; (b) the owner voluntarily parted with the
possession of the thing; and (c) the possession is in the concept of owner. 11

Undoubtedly, one who has lost a movable or who has been unlawfully deprived of it
cannot be said to have voluntarily parted with the possession thereof. This is the
justification for the exceptions found under the second sentence of Article 559 of the
Civil Code.

The basic issue then in this case is whether private respondent was unlawfully
deprived of the cars when it sold the same to Rustico Consunji, through a person
who claimed to be Jojo Consunji, allegedly the latters son, but who nevertheless
turned out to be Armando Suarez, on the faith of a Managers Check with a face
value of P101,000.00, dishonored for being altered, the correct amount being only
P101.00.chanrobles virtual lawlibrary

Under this factual milieu, the respondent Court was of the opinion, and thus held,
that private respondent was unlawfully deprived of the car by false pretenses.

We disagree. There was a perfected unconditional contract of sale between private

respondent and the original vendee. The former voluntarily caused the transfer of
the certificate of registration of the vehicle in the name of the first vendee even if
the said vendee was represented by someone who used a fictitious name and
likewise voluntarily delivered the cars and the certificate of registration to the
vendees alleged representative Title thereto was forthwith transferred to the
vendee. The subsequent dishonor of the check because of the alteration merely
amounted to a failure of consideration which does not render the contract of sale
void, but merely allows the prejudiced party to sue for specific performance or
rescission of the contract, and to prosecute the impostor for estafa under Article 315
of the Revised Penal Code. This is the rule enunciated in EDCA Publishing and
Distributing Corp. v. Santos, 12 the facts of which do not materially and substantially
differ from those obtaining in the instant case. In said case, a person identifying
himself as Professor Jose Cruz, dean of the De la Salle College, placed an order by
telephone with petitioner for 406 books, payable upon delivery. Petitioner agreed,
prepared the corresponding invoice and delivered the books as ordered, for which
Cruz issued a personal check covering the purchase price. Two (2) days later, Cruz
sold 120 books to private respondent Leonor Santos who, after verifying the sellers
ownership from the invoice the former had shown her, paid the purchase price of
P1,700.00. Petitioner became suspicious over a second order placed by Cruz even
before his first check had cleared, hence, it made inquiries with the De la Salle
College. The latter informed the petitioner that Cruz was not in its employ. Further
verification revealed that Cruz had no more account or deposit with the bank
against which he drew the check. Petitioner sought the assistance of the police
which then set a trap and arrested Cruz. Investigation disclosed his real name,
Tomas de la Pea, and his sale of 120 of the books to Leonor Santos. On the night of
the arrest; the policemen whose assistance the petitioner sought, forced their way
into the store of Leonor and her husband, threatened her with prosecution for the
buying of stolen property, seized the 120 books without a warrant and thereafter
turned said books over to the petitioner. The Santoses then sued for recovery of the
books in the Municipal Trial Court which decided in their favor; this decision was
subsequently affirmed by the Regional Trial Court and sustained by the Court of
Appeals. Hence, the petitioner came to this Court by way of a petition for review
wherein it insists that it was unlawfully deprived of the books because as the check
bounced for lack of funds, there was failure of consideration that nullified the
contract of sale between it and the impostor who then acquired no title over the
books. We rejected said claim in this wise:jgc:chanrobles.com.ph

"The contract of sale is consensual and is perfected once agreement is reached

between the parties on the subject matter and the consideration. According to the
Civil Code:chanrob1es virtual 1aw library

ART. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to
the provisions of the law governing the form of contracts.chanrobles.com : virtual
law library

x x x

ART. 1477. The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof.

ART. 1478. The parties may stipulate that ownership in the thing shall not pass to
the purchaser until he has fully paid the price.
It is clear from the above provisions, particularly the last one quoted, that
ownership in the thing sold shall not pass to the buyer until full payment of the
purchase price only if there is a stipulation to that effect. Otherwise, the rule is that
such ownership shall pass from the vendor to the vendee upon the actual or
constructive delivery of the thing sold even if the purchase price has not yet been
paid.

Non-payment only creates a right to demand payment or to rescind the contract, or

to criminal prosecution in the case of bouncing checks. But absent the stipulation
above noted, delivery of the thing sold will effectively transfer ownership to the
buyer who can in turn transfer it to another." 13

In the early case of Chua Hai v. Hon. Kapunan, 14 one Roberto Soto purchased from
the Youngstown Hardware, owned by private respondent, corrugated galvanized
iron sheets and round iron bars for P6,137.70, in payment thereof, he issued a check
drawn against the Security Bank and Trust Co. without informing Ong Shu that he
(Soto) had no sufficient funds in said bank to answer for the same. In the meantime,
however, Soto sold the sheets to, among others, petitioner Chua Hai. In the criminal
case filed against Soto, upon motion of the offended party, the respondent Judge
ordered petitioner to return the sheets which were purchased from Soto.
Petitioners motion for reconsideration having been denied, he came to this Court
alleging grave abuse of discretion and excess of jurisdiction. In answer to the
petition, it is claimed that inter alia, even if the property was acquired in good faith,
the owner who has been unlawfully deprived thereof may recover it from the
person in possession of the same unless the property was acquired in good faith at a
public sale. 15 Resolving this specific issue, this Court ruled that Ong Shu was not
illegally deprived of the possession of the property:jgc:chanrobles.com.ph

". . . It is not denied that Ong Shu delivered the sheets to Soto upon a perfected
contract of sale, and such delivery transferred title or ownership to the purchaser.
Says Art. 1496:chanrob1es virtual 1aw library

Art. 1496. The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in articles 1497 to 1501,
or in any other manner signifying an agreement that the possession is transferred
from the vendor to the vendee. (C.C.)

The failure of the buyer to make good the price does not, in law, cause the
ownership to revest in the seller until and unless the bilateral contract of sale is first
rescinded or resolved pursuant to Article 1191 of the new Civil Code.chanrobles
lawlibrary : rednad

And, assuming that the consent of Ong Shu to the sale in favor of Soto was obtained
by the latter through fraud or deceit, the contract was not thereby rendered void ab
initio, but only voidable by reason of the fraud, and Article 1390 expressly provides
that:chanrob1es virtual 1aw library
ART. 1390. The following contracts are voidable or annullable, even though there
may have been no damage to the contracting parties:chanrob1es virtual 1aw library

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification.

Agreeably to this provision, Article 1506 prescribes:chanrob1es virtual 1aw library

ARTICLE 1506. Where the seller of goods has a voidable title thereto, but his
title has not been avoided at the time of the sale, the buyer acquires a good title to
the goods, provided he buys them in good faith, for value, and without notice of the
sellers defect of title. (C.C.)

Hence, until the contract of Ong Shu with Soto is set aside by a competent court
(assuming that the fraud is established to its satisfaction), the validity of appellants
claim to the property in question can not be disputed, and his right to the possession
thereof should be respected." 16

It was therefore erroneous for the respondent Court to declare that the private
respondent was illegally deprived of the car simply because the check in payment
therefor was subsequently dishonored; said Court also erred when it divested the
petitioner, a buyer in good faith who paid valuable consideration therefor, of his
possession thereof.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

WHEREFORE, the challenged decision of the respondent Court of Appeals of 22

September 1988 and its Resolution of 12 December 1988 in C.A.-G.R. CV No. 05955
are hereby SET ASIDE and the Decision of the trial court of 3 September 1979 and
its Final Order of 26 June 1980 in Civil Case No. Q-24200 are hereby REINSTATED,
with costs against private respondent Citiwide Motors, Inc.

SO ORDERED.
G.R. No. 123498 November 23, 2007

BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.

Banks are exhorted to treat the accounts of their depositors with meticulous care
and utmost fidelity. We reiterate this exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of
Appeals (CA) Decision1 in CA-G.R. CV No. 43424 which affirmed with modification
the judgment2 of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil
Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI
Family Bank (BPI-FB) allegedly by respondent Amado Franco (Franco) in
conspiracy with other individuals,3 some of whom opened and maintained separate
accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of
transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a

savings and current account with BPI-FB. Soon thereafter, or on August 25, 1989,
First Metro Investment Corporation (FMIC) also opened a time deposit account with
the same branch of BPI-FB with a deposit of P100,000,000.00, to mature one year
thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a

current,4 savings,5 and time deposit,6 with BPI-FB. The current and savings
accounts were respectively funded with an initial deposit of P500,000.00 each,
while the time deposit account had P1,000,000.00 with a maturity date of August
31, 1990. The total amount of P2,000,000.00 used to open these accounts is
traceable to a check issued by Tevesteco allegedly in consideration of Francos
introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate
Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB SFDMs
Branch Manager. In turn, the funding for the P2,000,000.00 check was part of the
P80,000,000.00 debited by BPI-FB from FMICs time deposit account and credited to
Tevestecos current account pursuant to an Authority to Debit purportedly signed
by FMICs officers.

It appears, however, that the signatures of FMICs officers on the Authority to Debit
were forged.8 On September 4, 1989, Antonio Ong,9 upon being shown the
Authority to Debit, personally declared his signature therein to be a forgery.
Unfortunately, Tevesteco had already effected several withdrawals from its current
account (to which had been credited the P80,000,000.00 covered by the forged
Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid
to Franco.
On September 8, 1989, impelled by the need to protect its interests in light of FMICs
forgery claim, BPI-FB, thru its Senior Vice-President, Severino Coronacion,
instructed Jesus Arangorin10 to debit Francos savings and current accounts for the
amounts remaining therein.11 However, Francos time deposit account could not be
debited due to the capacity limitations of BPI-FBs computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account
were dishonored upon presentment for payment, and stamped with a notation
"account under garnishment." Apparently, Francos current account was garnished
by virtue of an Order of Attachment issued by the Regional Trial Court of Makati
(Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-
FB against Franco et al.,14 to recover the P37,455,410.54 representing Tevestecos
total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment
at BPI-FB prior to Francos receipt of notice that his accounts were under
garnishment.15 In fact, at the time the Notice of Garnishment dated September 27,
1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case
where the writ of attachment was issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended
Complaint in Civil Case No. 89-4996, that Franco was impleaded in the Makati
case.16 Immediately, upon receipt of such copy, Franco filed a Motion to Discharge
Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the
Order of Attachment was served on BPI-FB on even date, with Franco demanding
the release to him of the funds in his savings and current accounts. Jesus Arangorin,
BPI-FBs new manager, could not forthwith comply with the demand as the funds, as
previously stated, had already been debited because of FMICs forgery claim. As
such, BPI-FBs computer at the SFDM Branch indicated that the current account
record was "not on file."

With respect to Francos savings account, it appears that Franco agreed to an

arrangement, as a favor to Sebastian, whereby P400,000.00 from his savings
account was temporarily transferred to Domingo Quiaoits savings account, subject
to its immediate return upon issuance of a certificate of deposit which Quiaoit
needed in connection with his visa application at the Taiwan Embassy. As part of the
arrangement, Sebastian retained custody of Quiaoits savings account passbook to
ensure that no withdrawal would be effected therefrom, and to preserve Francos
deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted
the amount of P63,189.00 from the remaining balance of the time deposit account
representing advance interest paid to him.
These transactions spawned a number of cases, some of which we had already
resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of
P80,000,000.00 debited from its account.17 The case eventually reached this Court,
and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,18 we
upheld the finding of the courts below that BPI-FB failed to exercise the degree of
diligence required by the nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the
debited amount in its time deposit. It was ordered to pay P65,332,321.99 plus
interest at 17% per annum from August 29, 1989 until fully restored. In turn, the
17% shall itself earn interest at 12% from October 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica

(Buenaventura, et al.),19 recipients of a P500,000.00 check proceeding from the
P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura
et al., as in the case of Franco, were also prevented from effecting withdrawals20
from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City
Branch. Likewise, when the case was elevated to this Court docketed as BPI Family
Bank v. Buenaventura,21 we ruled that BPI-FB had no right to freeze Buenaventura,
et al.s accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to
be the perpetrators of the multi-million peso scam.22 In the criminal case, Franco,
along with the other accused, except for Manuel Bienvenida who was still at large,
were acquitted of the crime of Estafa as defined and penalized under Article 351,
par. 2(a) of the Revised Penal Code.23 However, the civil case24 remains under
litigation and the respective rights and liabilities of the parties have yet to be
adjudicated.

Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his

accounts and release his deposits therein, the latter filed on June 4, 1990 with the
Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs:
(1) the interest on the remaining balance25 of his current account which was
eventually released to him on October 31, 1991; (2) the balance26 on his savings
account, plus interest thereon; (3) the advance interest27 paid to him which had
been deducted when he pre-terminated his time deposit account; and (4) the
payment of actual, moral and exemplary damages, as well as attorneys fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the
accounts of Franco and refusing to release his deposits, claiming that it had a better
right to the amounts which consisted of part of the money allegedly fraudulently
withdrawn from it by Tevesteco and ending up in Francos accounts. BPI-FB
asseverated that the claimed consideration of P2,000,000.00 for the introduction
facilitated by Franco between George Daantos and Eladio Teves, on the one hand,
and Jaime Sebastian, on the other, spoke volumes of Francos participation in the
fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of
which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of

[Franco] and against [BPI-FB], ordering the latter to pay to the former the following
sums:

1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00

from May 18, 1990 to October 31, 1991;

2. P498,973.23 representing the balance on [Francos] savings account as of May 18,

1990, together with the interest thereon in accordance with the banks guidelines on
the payment therefor;

3. P30,000.00 by way of attorneys fees; and

4. P10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

SO ORDERED.28

Unsatisfied with the decision, both parties filed their respective appeals before the
CA. Franco confined his appeal to the Manila RTCs denial of his claim for moral and
exemplary damages, and the diminutive award of attorneys fees. In affirming with
modification the lower courts decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED

with modification ordering [BPI-FB] to pay [Franco] P63,189.00 representing the
interest deducted from the time deposit of plaintiff-appellant. P200,000.00 as moral
damages and P100,000.00 as exemplary damages, deleting the award of nominal
damages (in view of the award of moral and exemplary damages) and increasing the
award of attorneys fees from P30,000.00 to P75,000.00.

Cost against [BPI-FB].

SO ORDERED.29

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a
better right to the deposits in the subject accounts which are part of the proceeds of
a forged Authority to Debit; (2) Franco is entitled to interest on his current account;
(3) Franco can recover the P400,000.00 deposit in Quiaoits savings account; (4) the
dishonor of Francos checks was not legally in order; (5) BPI-FB is liable for interest
on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs
counter-claim has no factual and legal anchor.

The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot
unilaterally freeze Francos accounts and preclude him from withdrawing his
deposits. However, contrary to the appellate courts ruling, we hold that Franco is
not entitled to unearned interest on the time deposit as well as to moral and
exemplary damages.

First. On the issue of who has a better right to the deposits in Francos accounts, BPI-
FB urges us that the legal consequence of FMICs forgery claim is that the money
transferred by BPI-FB to Tevesteco is its own, and considering that it was able to
recover possession of the same when the money was redeposited by Franco, it had
the right to set up its ownership thereon and freeze Francos accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property
who regains possession after it is stolen, and to illustrate this point, BPI-FB gives the
following example: where Xs television set is stolen by Y who thereafter sells it to Z,
and where Z unwittingly entrusts possession of the TV set to X, the latter would
have the right to keep possession of the property and preclude Z from recovering
possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code,
which provides:

Article 559. The possession of movable property acquired in good faith is equivalent
to a title. Nevertheless, one who has lost any movable or has been unlawfully
deprived thereof, may recover it from the person in possession of the same.

If the possessor of a movable lost or of which the owner has been unlawfully
deprived, has acquired it in good faith at a public sale, the owner cannot obtain its
return without reimbursing the price paid therefor.

BPI-FBs argument is unsound. To begin with, the movable property mentioned in

Article 559 of the Civil Code pertains to a specific or determinate thing.30 A
determinate or specific thing is one that is individualized and can be identified or
distinguished from others of the same kind.31

In this case, the deposit in Francos accounts consists of money which, albeit
characterized as a movable, is generic and fungible.32 The quality of being fungible
depends upon the possibility of the property, because of its nature or the will of the
parties, being substituted by others of the same kind, not having a distinct
individuality.33
Significantly, while Article 559 permits an owner who has lost or has been
unlawfully deprived of a movable to recover the exact same thing from the current
possessor, BPI-FB simply claims ownership of the equivalent amount of money, i.e.,
the value thereof, which it had mistakenly debited from FMICs account and credited
to Tevestecos, and subsequently traced to Francos account. In fact, this is what BPI-
FB did in filing the Makati Case against Franco, et al. It staked its claim on the money
itself which passed from one account to another, commencing with the forged
Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership,34 and

this characteristic is all the more manifest in the instant case which involves money
in a banking transaction gone awry. Its primary function is to pass from hand to
hand as a medium of exchange, without other evidence of its title.35 Money, which
had passed through various transactions in the general course of banking business,
even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal

property, BPI-FBs illustrative example, ostensibly based on Article 559, is
inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco,
but not as a legal consequence of its unauthorized transfer of FMICs deposits to
Tevestecos account. BPI-FB conveniently forgets that the deposit of money in banks
is governed by the Civil Code provisions on simple loan or mutuum.36 As there is a
debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Francos deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand.37 Although BPI-
FB owns the deposits in Francos accounts, it cannot prevent him from demanding
payment of BPI-FBs obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus, when Franco issued
checks drawn against his current account, he had every right as creditor to expect
that those checks would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of
Franco based on its mere suspicion that the funds therein were proceeds of the
multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or any
bank for that matter, the right to take whatever action it pleases on deposits which
it supposes are derived from shady transactions, would open the floodgates of
public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38

continues to resonate, thus:

The banking system is an indispensable institution in the modern world and plays a
vital role in the economic life of every civilized nation. Whether as mere passive
entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the
people, who have come to regard them with respect and even gratitude and, most of
all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his
lifes savings to the bank of his choice, knowing that they will be safe in its custody
and will even earn some interest for him. The ordinary person, with equal faith,
usually maintains a modest checking account for security and convenience in the
settling of his monthly bills and the payment of ordinary expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred pesos or of millions.
The bank must record every single transaction accurately, down to the last centavo,
and as promptly as possible. This has to be done if the account is to reflect at any
given time the amount of money the depositor can dispose of as he sees fit,
confident that the bank will deliver it as and to whomever directs. A blunder on the
part of the bank, such as the dishonor of the check without good reason, can cause
the depositor not a little embarrassment if not also financial loss and perhaps even
civil and criminal litigation.

The point is that as a business affected with public interest and because of the
nature of its functions, the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship. x x x.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to

know the signatures of its customers. Having failed to detect the forgery in the
Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco
transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of
checks issued by Tevesteco, or prevent withdrawals from their respective accounts
without the appropriate court writ or a favorable final judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity
of the signature in the Authority to Debit, effected the transfer of P80,000,000.00
from FMICs to Tevestecos account, when FMICs account was a time deposit and it
had already paid advance interest to FMIC. Considering that there is as yet no
indubitable evidence establishing Francos participation in the forgery, he remains
an innocent party. As between him and BPI-FB, the latter, which made possible the
present predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Francos current account, BPI-FB
argues that its non-compliance with the Makati RTCs Order Lifting the Order of
Attachment and the legal consequences thereof, is a matter that ought to be taken
up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court
in this respect. The Manila RTCs order to pay interests on Francos current account
arose from BPI-FBs unjustified refusal to comply with its obligation to pay Franco
pursuant to their contract of mutuum. In other words, from the time BPI-FB refused
Francos demand for the release of the deposits in his current account, specifically,
from May 17, 1990, interest at the rate of 12% began to accrue thereon.39

Undeniably, the Makati RTC is vested with the authority to determine the legal
consequences of BPI-FBs non-compliance with the Order Lifting the Order of
Attachment. However, such authority does not preclude the Manila RTC from ruling
on BPI-FBs liability to Franco for payment of interest based on its continued and
unjustified refusal to perform a contractual obligation upon demand. After all, this
was the core issue raised by Franco in his complaint before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoits account, we find no

reason to depart from the factual findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account
are actually owned by Franco who simply accommodated Jaime Sebastians request
to temporarily transfer P400,000.00 from Francos savings account to Quiaoits
account.40 His testimony cannot be characterized as hearsay as the records reveal
that he had personal knowledge of the arrangement made between Franco,
Sebastian and himself.41

BPI-FB makes capital of Francos belated allegation relative to this particular

arrangement. It insists that the transaction with Quiaoit was not specifically alleged
in Francos complaint before the Manila RTC. However, it appears that BPI-FB had
impliedly consented to the trial of this issue given its extensive cross-examination of
Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence. When

issues not raised by the pleadings are tried with the express or implied consent of
the parties, they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not affect the
result of the trial of these issues. If evidence is objected to at the trial on the ground
that it is now within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the amendment to be made. (Emphasis
supplied)

In all, BPI-FBs argument that this case is not the right forum for Franco to recover
the P400,000.00 begs the issue. To reiterate, Quiaoit, testifying during the trial,
unequivocally disclaimed ownership of the funds in his account, and pointed to
Franco as the actual owner thereof. Clearly, Francos action for the recovery of his
deposits appropriately covers the deposits in Quiaoits account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the
dishonor of Francos checks respectively dated September 11 and 18, 1989 was
legally in order in view of the Makati RTCs supplemental writ of attachment issued
on September 14, 1989. It posits that as the party that applied for the writ of
attachment before the Makati RTC, it need not be served with the Notice of
Garnishment before it could place Francos accounts under garnishment.

The argument is specious. In this argument, we perceive BPI-FBs clever but

transparent ploy to circumvent Section 4,42 Rule 13 of the Rules of Court. It should
be noted that the strict requirement on service of court papers upon the parties
affected is designed to comply with the elementary requisites of due process. Franco
was entitled, as a matter of right, to notice, if the requirements of due process are to
be observed. Yet, he received a copy of the Notice of Garnishment only on
September 27, 1989, several days after the two checks he issued were dishonored
by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to
freeze Francos accounts without even awaiting service of the Makati RTCs Notice of
Garnishment on Franco.

Additionally, it should be remembered that the enforcement of a writ of attachment

cannot be made without including in the main suit the owner of the property
attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically
provides that "no levy or attachment pursuant to the writ issued x x x shall be
enforced unless it is preceded, or contemporaneously accompanied, by service of
summons, together with a copy of the complaint, the application for attachment, on
the defendant within the Philippines."

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC
had yet to acquire jurisdiction over the person of Franco when BPI-FB garnished his
accounts.43 Effectively, therefore, the Makati RTC had no authority yet to bind the
deposits of Franco through the writ of attachment, and consequently, there was no
legal basis for BPI-FB to dishonor the checks issued by Franco.

Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the
advance interest it deducted from Francos time deposit account, and for moral as
well as exemplary damages, we find it proper to reinstate the ruling of the trial
court, and allow only the recovery of nominal damages in the amount of P10,000.00.
However, we retain the CAs award of P75,000.00 as attorneys fees.

In granting Francos prayer for interest on his time deposit account and for moral
and exemplary damages, the CA attributed bad faith to BPI-FB because it (1)
completely disregarded its obligation to Franco; (2) misleadingly claimed that
Francos deposits were under garnishment; (3) misrepresented that Francos
current account was not on file; and (4) refused to return the P400,000.00 despite
the fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor
who acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have foreseen or
could have reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the non-performance of the
obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection
and not out of malevolence or ill will. BPI-FB was not in the corrupt state of mind
contemplated in Article 2201 and should not be held liable for all damages now
being imputed to it for its breach of obligation. For the same reason, it is not liable
for the unearned interest on the time deposit.

Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong; it
partakes of the nature of fraud.44 We have held that it is a breach of a known duty
through some motive of interest or ill will.45 In the instant case, we cannot attribute
to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there
was no denial whatsoever by BPI-FB of the existence of the accounts. The computer-
generated document which indicated that the current account was "not on file"
resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the
account, or the garnishment, or even the outright refusal to honor any transaction
thereon was resorted to solely for the purpose of holding on to the funds as a
security for its intended court action,46 and with no other goal but to ensure the
integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith,47 moral
damages cannot be awarded; and that the adverse result of an action does not per se
make the action wrongful, or the party liable for it. One may err, but error alone is
not a ground for granting such damages.48

An award of moral damages contemplates the existence of the following requisites:

(1) there must be an injury clearly sustained by the claimant, whether physical,
mental or psychological; (2) there must be a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant is the proximate
cause of the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil Code.49
Franco could not point to, or identify any particular circumstance in Article 2219 of
the Civil Code,50 upon which to base his claim for moral damages.1wphi1

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages
under Article 2220 of the Civil Code for breach of contract.51

We also deny the claim for exemplary damages. Franco should show that he is
entitled to moral, temperate, or compensatory damages before the court may even
consider the question of whether exemplary damages should be awarded to him.52
As there is no basis for the award of moral damages, neither can exemplary damages
be granted.

While it is a sound policy not to set a premium on the right to litigate,53 we,
however, find that Franco is entitled to reasonable attorneys fees for having been
compelled to go to court in order to assert his right. Thus, we affirm the CAs grant of
P75,000.00 as attorneys fees.

Attorneys fees may be awarded when a party is compelled to litigate or incur

expenses to protect his interest,54 or when the court deems it just and equitable.55
In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the
Makati RTCs Order Lifting the Order of Attachment and Quiaoits unwavering
assertion that the P400,000.00 was part of Francos savings account. This refusal
constrained Franco to incur expenses and litigate for almost two (2) decades in
order to protect his interests and recover his deposits. Therefore, this Court deems
it just and equitable to grant Franco P75,000.00 as attorneys fees. The award is
reasonable in view of the complexity of the issues and the time it has taken for this
case to be resolved.56

Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs
ruling, as affirmed by the CA, that BPI-FB is not entitled to recover P3,800,000.00 as
actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as
already pointed out, of its own making. Accordingly, the denial of its counter-claim
is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision

dated November 29, 1995 is AFFIRMED with the MODIFICATION that the award of
unearned interest on the time deposit and of moral and exemplary damages is
DELETED.

No pronouncement as to costs.

SO ORDERED.